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12 Jul, 2008 06:38

Small oil & gas businesses to get tax breaks

An improved taxation system and more assistance for independent oil producers are the measures the government is ready to implement to support the oil and gas industry. The plans were announced as Prime Minister Vladimir Putin visited Severodvinsk in Russ

Russia remains heavily reliant on its energy sector where production may already be falling. While the country has some of the worlds largest oil reserves, extracting them, and turning them into finished products relies on an infrastructure of pipelines and refineries largely unmodernised since the Soviet era.

The government has proposed tax breaks in order to stimulate investment, along with special tax rates for companies working in difficult offshore fields and cutting back on bureaucracy. According to estimates, these measures will enable the industry to save up to $US 6 billion for development.

Perhaps the most significant measure under consideration is to encourage independent producers.

Elena Korzun from AssoNeft, a small oil company, believes independent producers are adversely affected by the current tax system. “We are glad that the state has finally listened to us – to independent producers,” she said. “The tax burden for us is enormous. The thing is that independent smaller oil companies develop smaller deposits which are hard to extract. This causes us very high expenses”.

Currently, independent producers occupy only 5 per cent of the market, whilst almost 90 per cent of all extracted oil is distributed by nine major players.

The government is considering building an independent oil refinery that will give small producers access to the refining capacity that they lack. This week, Deputy Prime Minister Igor Sechin said up to $US 8 billion could be spent on the new refinery to make products for the internal market. But no location has been decided, and that’s likely to be crucial in deciding who benefits.