The Prirazlomnoye is Russia's only offshore oil producing field in the Arctic. Photo: Gazprom Neft

Oil industry calls for new tax breaks on Russian shelf

But the Finance Ministry says ‘Nyet’.
July 27, 2016

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As oil prices remain low and the industry is squeezed by sanctions and economic downturn, Russia’s two leading petroleum companies Rosneft and Gazprom push on government for tax exemptions on the shelf. 

The companies propose that they are taxed not based on the financial results of each and every offshore project separately, but instead that the tax covers all the projects collectively. The proposed system would significantly reduce the companies’ tax burden in their initial shelf development phase, as long as investments are massive and revenues modest. This is what is needed for a speed-up of project development, the companies argue. And in the end, the taxes collected by government will be the same, they say, newspaper Kommersant reports.

Reportedly, deputy premiers Arkady Dvorkovich and Aleksandr Khloponin both support the proposal. However, the Finance Ministry remains against. 

The proposed system would imply that hardly any tax is collected from the shelf for a number of years, the ministry argues. After all, the two state companies both have a great number planned offshore projects, which will need major investments and cast off revenue only when they are up running sometime in the future.

The ministry also argues that the shelf from before is included in a beneficial system both with regard to export tax and production tax, Kommersant writes. 

Today, there is only one Russian offshore Arctic field in production, the Prirazlomnoye. It is operated by Gazprom Neft.

Both Gazprom and Rosneft have over the last few years acquired a major number of offshore license. Rosneft alone has forty, among them five in the Barents Sea, four in the Kara Sea, eight in the Pechora Sea and another eight in the Laptev and East Siberian Seas.

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