Page 10 - FSUOGM Week 50 2019

FSUOGM POLICY FSUOGM
Russia to tap wealth fund for tax breaks, ditches APG tax plan
RUSSIA
The APG tax plan has been abandoned after strong criticism from the industry.
RUSSIA’S finance ministry has suggested tap- ping the country’s National Wealth Fund for the funding needed to cover tax breaks at a major oil project in Western Siberia.
State producers Gazprom Neft and Rosneft are set to receive RUB60bn ($960mn) in tax relief at the Priobskoye oilfield – support they say is necessary to keep its output stable. But the plan is not yet in place for how the resulting budget deficit will be covered.
The finance ministry has now proposed to the government that funding be sourced from the NWF, Moscow-based business daily Kom- mersant reported on December 17, citing a high-ranking ministry official.
The NWF, which accumulates revenues from Russian oil exports, had a value of $124.5bn as of November 1. Russia uses it as a buffer against potential external shocks, as well as to pay out pensions and support strategic projects. But it has also been used at times to fund subsidies for the country’s oil and gas industry.
Earlier this year, for instance, it was used to pay back oil firms under a deal to keep domestic fuel prices in check.
The Priobskoye oilfield is one of Russia’s largest, first discovered and brought into oper- ation in the 1980s. Rosneft operates its northern section, while Gazprom Neft controls its south- ern portion. The pair between them produced 37.5mn tonnes (753,000 barrels per day (bpd)) of oil from the field last year.
Given Priobskoye’s age, recovery has become increasingly difficult and costly, the companies claim. The field’s oil reservoirs also have a high water content, driving up expenses further.
Earlier the finance ministry had intended to raise around half of the funds needed to cover the
tax breaks at Priobskoye by imposing a nation- wide tax on production of associated petro- leum gas (APG) (See FSU OGM Week 46), but this plan has now been dropped, according to Kommersant.
The proposal was widely condemned by pro- ducers as impractical and damaging to Russia’s oil industry.
One charge levied against the proposed tax was that it would inflate the cost of feedstock for Russian petrochemical producers. APG contains ethane and liquefied petroleum gas (LPG) – both popular raw materials for manufacturing olefin petrochemicals.
The government in November introduced subsidies for the domestic use of these materials, as part of efforts to spur development of Rus- sia’s small but fast expanding petrochemicals industry. A so-called reverse excise duty – tax paid back to consumers from the budget – will be applied of RUB9,000 per tonne of ethane and RUB4,500 per tonne of LPG, starting in 2022. The subsidy for LPG will gradually rise to RUB7,500 by 2026.
Only petrochemical projects that enter oper- ations in 2022 or later will be able to apply for these subsidies. Those built before this point can only secure support under investment agree- ments with the energy ministry worth more than RUB65bn, on a case-by-case basis.
Energy ministry documents seen by Rus- sia’s Vedomosti suggest that the petrochemical sector could bring in RUB580bn in extra tax between 2020 and 2030. Deducting the subsi- dies, the budget could still gain up to RUB330bn over the period, suggesting the government’s current support will pay off significantly in the long run. ™
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w w w . N E W S B A S E . c o m Week 50 18•December•2019