icon bookmark-bicon bookmarkicon cameraicon checkicon chevron downicon chevron lefticon chevron righticon chevron upicon closeicon v-compressicon downloadicon editicon v-expandicon fbicon fileicon filtericon flag ruicon full chevron downicon full chevron lefticon full chevron righticon full chevron upicon gpicon insicon mailicon moveicon-musicicon mutedicon nomutedicon okicon v-pauseicon v-playicon searchicon shareicon sign inicon sign upicon stepbackicon stepforicon swipe downicon tagicon tagsicon tgicon trashicon twicon vkicon yticon wticon fm
10 Jul, 2007 03:34

Oil taxes work both ways in Russia

Oil prices are delivering record revenues into the Russian coffers but it's not all good news for the country's oil companies.

Oil prices are up above $75 a barrel, after a brief but steady decline in the first part of the year.

The trend is set to further boost Russia's economy, which has enjoyed rapid growth on the back of windfall oil tax revenues.

High oil taxes mean more money flowing into government coffers and less into company pockets.

It also affects how much money the companies have available to invest.

But oil firms do see some improvements in the tax climate. In 2002, the government switched from a tax on profits to one based on crude prices.

Lukoil, the largest oil tax payer in Russia, says this was a positive change. 

“It's easy to calculate in the future periods what tax burden we are going to see under different prices. It is easy to calculate long-time investment process. It is easy for us to deal with capital lenders, it is easy to calculate risks,”  Gennady Krasovsky, Lukoil investment analyst, says.

The government reaps a huge oil levy, but at the risk of earning nothing if oil prices fall.

At around $US 75 per barrel, companies pay 92 cents of each dollar they make to the government.

But if oil prices fall below $US 15 per barrel, companies pay nothing at all.

Analysts say taxes are high by international standards and, worse, they leave companies with little cash to invest or replace depleted fields. Under this all-or-nothing tax regime, analysts say the government risks killing the goose that lays the golden egg.

Experts also warn the rate of oil production growth has slowed down from a sprint to a crawl. Last year, growth fell from double digits to just 2 %.