Oil firms wary of Russian tax cut pledge

The Russian government has pledged to cut taxes on oil production, which currently reach 90 cents in the dollar. But industry majors who've revealed record profits this week, remain sceptical.

Lukoil and Rosneft stocks rebounded after Energy Minister Victor Khristenko vowed to slash oil taxes by July. But experts fear the government could mutate the charges into a tax on oil output.

“The question of course is what happens now on the output side, how are profits going to be taxed,” supposed analyst Aleksandr Kotchubey from Renaissance Investment Management, Moscow.

Within hours of Khristenko’s pledge Lukoil unveiled a $US 9.5 billion net profit for 2007.

Its treasury chief was also dismissive of the government’s promises.

“The Russian government still uses Russian oil companies as a main cash cow increasing of export tariffs, increasing of subsoil taxes,” Aleksandr Matytsyn, the head of Lukoil treasury, insisted.

A hunt through the archives reveals Matytsyn may have reason to be cynical.

Khristenko first called for a cut in June 2005, almost 3 years ago. In the event the government introduced a new mineral extraction tax in 2007, raising further the strain on oil companies.

Some firms are still finding ways to grow. Lukoil’s biggest rival Rosneft showed its swallowing of Yukos assets was starting to bear fruit with a five-fold income rise to almost $US 3 billion.

Energy expert Artyom Konchin at Unicredit Aton says Lukoil may be the most profitable oil company now, but the state-owned giant is the better investment.

“It has one of the best portfolios in the world, not just in Russia, in terms of exploration that they can do – East Siberia, Sakhalin,” Konchin said.