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FSUOGM COMMENTARY FSUOGM

Russia wraps up oil tax overhaul

The Finance Ministry's proposals cleared all three readings by Russian
lawmakers largely unchanged

RUSSIA RUSSIA approved an overhaul of oil taxation last Lawmakers at the State Duma approved the
week, in a bid to replenish budget funds that have bill in its first reading on September 22, but the
WHAT: been drained by lower oil prices and an increase increased tax burden was seen as falling dispro-
The State Duma has in spending to support the economy amid the portionately on producers Gazprom Neft and
approved on a third coronavirus (COVID-19) crisis. Tatneft. As such, the bill approved on the third
reading a bill reforming The changes, proposed by the Finance Min- and final reading on September 30 eased the
oil taxation. istry (MinFin), not only aim to bring in an extra extra taxes on these two companies. Lawmak-
RUB340bn ($4.3bn) annually in revenue; they ers also backed additional tax breaks for certain
WHY: also seek to streamline Russia’s overly compli- oilfields in Western Siberia owned by Russia’s
The government is cated oil taxation system. As with any significant biggest producer, state-owned Rosneft.
seeking to replenish its reform in taxation, there are winners and losers
coffers, but the reforms among Russia's producers. Rosneft comes out on top
also seek to streamline Russia’s oil taxation system has grown ever Rosneft stands out as the clear winner from the
Russia's overly complex more complex over the years, with around 60% reforms. While it too will have to fork out more
oil tax regime. of the country's oil production subject to various in tax at some mature fields, it will also gain new
different forms of tax exemption. The MinFin tax breaks at its giant Priobskoye and Vankor
WHAT NEXT: wants to create a more level playing field, where oilfields.
Rosneft will be least tax breaks are dealt out under a single system. Priobskoye is a Soviet-era field in Russia’s oil
impacted by the changes, Under a new bill that has been cleared by heartland of Khanty-Mansiysk. It was brought
while Gazprom Neft, the State Duma, mineral extraction tax (MET) on stream in 1982 and started production six
Tatneft and Lukoil will be breaks for mature oilfields that produce highly years later. Output peaked at 33.8mn tonnes
hit harder. viscous crude will be done away with. Export (679,000 barrels per day) in 2009 and has been
duty exemptions at certain Caspian, Eastern declining ever since, dropping to 480,000 bpd
Siberian and Arctic fields will also be removed. last year. Even so, it still accounts for roughly 5%
To make up for the loss of this support, of Russia’s national oil output.
affected fields are to be brought under an excess Rosneft says it has been ramping up drilling
profit tax (EPT) regime. The EPT regime was work at the site and using other techniques to
launched last year but will be reformed, as the stem Priobskoye’s decline. But its efforts have
MinFin claims its introduction has led to billions been undermined by the field’s maturity, com-
of dollars in lost tax receipts. Tweaks to the sys- plex structure and high level of water cut, the
tem will include a limit on the carryover of his- company says. Priobskoye will now get an extra
toric project losses and a lower cap on costs that RUB3.8bn per month, or around $600mn per
can be deducted from fields’ tax bases. year in tax deductions, with a lifetime limit of

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