Russia Grants Trillion-Ruble Tax Cut for Arctic Oil and Gas Production
Under pressure from industry and foreign investors, and following negotiations between state departments and energy executives, the government has agreed to slash a string of taxes on exploration and extraction in the region.
KPMG
previously estimated the tax breaks for Rosneft’s Vostok Oil project alone
could be worth 2.6 trillion rubles ($41 billion) over the next 30 years. The
government has not said how much the scheme will cost.
A
consortium of foreign investors, reportedly from India and China, also warned
they would only invest into Vostok Oil, which plans to launch production
facilities at a number of gas and oil fields in northern Siberia, if the
government gave in to demands from Rosneft CEO Igor Sechin for a preferential
tax system.
Under
the new rules — which now need to be passed by the state Duma — the mineral
extraction tax (MET) for new oil and gas projects in the Arctic will either be
cancelled entirely or reduced to 5% of its usual rate until annual production
at each field hits 1% of the estimated oil or gas reserves.
Local taxes on land and property will also be cancelled, and the government is still considering granting a 50% tax break on investments into infrastructure around new production sites. Russian companies launching new extraction projects would also be exempt from caps on the number of foreign workers they can employ and will enjoy a fast-track non-competitive procurement process to get the work started.