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18 Jul, 2007 07:28

Russia offers tax breaks to boost oil, gas development

Russia's government ia aiming to boost foreign investment and expertise even further, by offering tax breaks for the development of remote and depleted gas and oil fields.

But first, Russian government officials have met international oil majors to discuss possible tax breaks for the development of oil and gas deposits.

The talks come just days after Total gained entry into the Shtockman gas field development, in part reversing some of the negative press coverage of foreign investment in Russia's energy sector.

Oil and gas field development requires billions of dollars.  And Russian companies have long complained that high taxes leave them little cash to reinvest.

But with the need to increase output, the government is ready to offer tax breaks for depleted and remote deposits. The new tax legislation will come into force from January next year.

“We talk about new energy deposits located in the regions mentioned in the Russian legislation. There is no need to name the exact deposits because they all are subject to general criteria,” stated Yury Trutnev, the Minister of natural resources

In 2006 the government awarded tax breaks to Eastern Siberia, heavily dominated by Gazprom and Rosneft. Meanwhile, a similar proposal for the Timan Pechora oil basin was knocked back. Critics say this is because the region is dominated by Lukoil – a private oil firm.

But in addition to being an incentive for Russian companies, the new tax breaks are meant to attract foreign investment and technological expertise.

“There is a huge range of different projects that Russia has undertaken in natural resources sector. On the one hand the current system is adequate. In the forehand of that scale there are much more complicated, much more complex, deep water, Arctic projects they are going to have to consider some mechanism, which we have suggested some today, to make those projects more economically buyable. I do not know exactly what they are going to do,” shared his hopes the President of Exxon Mobil Russia Ben Haynes.

The discussion of tax breaks comes in the wake of Gazprom's deal with Total to take a 25% stake in stage one of the Shtokman development.

Experts say this will send a clear and encouraging signal to foreign companies looking to invest in Russia's energy sector.  While domestic companies will retain majority control, international firms can still participate as partners. And, as Yury Trutnev put it, those companies taking into account Russia's national interest will be winners.