Russian Export Duty Reduced To Zero On Oil From East Siberia

by Tatiana Smolenska, Tax-News.com, Moscow

22 July 2009

The Russian government has announced a zero export duty for 13 large oilfields in Eastern Siberia for a period of nine months to encourage development of the remote oil province. The tax incentive is due to take effect in two months' time.

The long-awaited zero rate will apply to crude oil from the following fields: Vankor, Yurubcheno-Tokhomskoye, Talakan, including the East Block, Alinskoye, Srednebotuobinskoye, Dulisminskoye, Verkhnechonskoye, Kuyumbinskoye, North Talakan, East Alinskoye, Verkhnepeleduyskoye, Pilyudinskoye, and Stanakhskoye. The crude oil must have a density of between 694.7 kg/cubic meter and 872.4 kg/cu m at 20 degree Celsius and sulfur content of between 0.1% and 1%.

East Siberia's new generation of fields are seen as a reservoir of oil supplies for China. In April Russia concluded a long term deal with China to ship 300 million tonnes of oil over 20 years by pipeline after completion in 2012.

These measures are a stop-gap pending a new oil tax regime, based on net rather than gross results, with incentives for innovation. According to prime minister Vladimir Putin, speaking at a conference last February which focussed on the problems facing Russia’s oil sector, the current tax system provides little incentive to oil producers to develop production in new regions. Accordingly, about 36% of existing fields and 94% of new fields are said to be unprofitable. Russia has already introduced mineral extraction tax breaks for new fields in East Siberia, in the Caspian Sea, and in the Arctic. Last February Putin said that the tax burden on the oil industry had already reduced by RUB500bn (USD14.5bn).

Every month the government sets oil and oil products duties, which are based on a monitoring of international prices for Russia's mainstay Urals crude blend. Russia will raise its oil export duty elsewhere by 4.4% to USD222 a tonne from August 1.

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