Page 4 - FSUOGM Week 38

FSUOGM COMMENTARY FSUOGM

Russian Finance Ministry proposes

series of oil tax reforms

The finance ministry wants to streamline Russia's overly complex oil tax regime

RUSSIA RUSSIA’S Finance Ministry has submitted sev- to Surgutneftegaz and Rosneft.
eral proposals to the State Duma that would rad- However, projects affected by the reforms can
WHAT: ically overhaul the country’s oil taxation system, be moved to the improved EPT regime.
Russia's finance ministry largely at a cost to producers. Lawmakers have “The Finance Ministry’s quick move to intro-
has proposed a sweeping voted to approve the ministry's bill in the first of duce prepared bills to the Duma appears to have
overhaul of oil taxation. three readings at the Duma, Russia's lower house caught most companies flat-footed,” BCS GM
of parliament. said. “The exception is Rosneft, which, unsur-
WHY: As expected, the ministry has proposed prisingly, appears to be managing the process
The changes are expected changes to the excess profits tax (EPT) regime better than its peers.”
to increase the tax introduced last year, which it previously said had While most of the ministry’s proposals sought
burden for the industry, caused a loss of over $3bn to the budget. It has to increase taxation, it also called for breaks at
but there will be winners also called for the removal of tax breaks at spe- Rosneft’s giant Priobskoye and Vankor oilfields.
and losers. cific projects, moving some of those fields to the Priobskoye, a mature field in the Khanty-Man-
EPT regime instead. siysk region, will get RUB3.8bn per month, or
WHAT NEXT: The bill, which also covers tax on other sec- around $600mn per year in tax deductions, with
The bill needs to be read tors, is expected to bring in some RUB340bn a lifetime limit of RUB460bn. The ministry also
by the Duma two more ($4.5bn) a year. The oil industry will face a hike suggests lowering the trigger oil price for breaks
times before becoming in taxation of RUB260bn in 2021 alone, accord- at Vankor from $42.5 to $25 per barrel. Vankor
law. ing to Renaissance Capital. will play a key role in Rosneft’s Vostok Oil project
“More important than the financial impact is in the Arctic.
the potential loss of credibility in the sanctity of According to VTB Capital (VTBC), Gaz-
Russian fiscal rules,” the investment bank said. prom Neft is set to be worst affected by the
Analysts at BCS Global Markets (BCS GM) changes, followed by Lukoil and Tatneft. There
said the changes “appear to go beyond a reve- will be an impact at Gazprom Neft’s Novopor-
nue-raising exercise to a significant streamlining tovskoye oil project in the Arctic, and the com-
of Russia’s excessively complex oil tax regime.” pany could lose 21% of its EBITDA in 2021 if the
“Nothing is set in stone yet. We still expect proposals are adopted. Tatneft might lose 20% of
heated negotiations to occur as oil industry its core earnings that year because of the cancel-
lobbyists descend upon the Duma,” BCS GM lation of tax breaks at highly-viscous oil projects.
said. “However, negotiations or no, oil taxes are Lukoil’s earnings could dip 8%, mainly for the
almost certainly going up to some extend on same reason.
every major company.” Gas producers will be unaffected by the
The bills seek to remove targeted tax breaks reforms.
at high-viscosity and highly-depleted oilfields. VTBC notes that fields with a relatively low
They also call for various changes to the EPT depletion rate and currently with insignificant
regime, including limiting the carryover of his- tax breaks will be able to apply for the highest
toric losses and a setting a new upper limit on relief under the EPT regime, under the ministry’s
costs that can be deducted from the tax base. proposals.
Lukoil’s Korchagin field in the Caspian Sea will “Thus there are set to be losers and winners
also lose its export duty exemption, as will a from this particular part of the reform,” the bank
number of Eastern Siberian deposits belonging said. ™

P4 www. NEWSBASE .com Week 38 23•September•2020