Russia revoked export tax breaks on oil from eastern Siberian fields developed by TNK-BP, the Russian venture half-owned by BP Plc, and OAO Surgutneftegas after prices for the fuel climbed.
TNK-BP’s Verkhnechonsk deposit and Surgut’s Talakan project will have to pay the regular rate starting from May 1, when the duty will rise to the highest level since the 2008 financial crisis, according to an order signed by Prime Minister Vladimir Putin April 25 and posted on the government website today. OAO Rosneft will also have to pay the full rate on oil from the Vankor field.
Russia moved the projects to the full tax rate after higher oil prices gave them faster returns than initially modeled, Alexander Sakovich, a Finance Ministry adviser, said by telephone today. The three fields enjoyed tax breaks until the internal rate of return reached 17 percent, he said.
The government is seeking to balance incentives for developing remote oil fields and plans to boost exports to Asia with a forecast budget gap this year. Putin approved a 7.1 percent increase in the export duty to $453.70 a metric ton ($61.90 a barrel) in May, while the discounted duty will reach $211.70, according to the order. The tax is based on oil prices.
Vankor, Talakan and Verkhnechonsk ship oil via the East Siberian Pacific Ocean pipeline network to China and the port of Kozmino.
The move may raise risks for new projects and be set back for Russia’s output goals, Alex Fak, an oil and gas analyst at Troika Dialog, said by telephone. Putin has urged oil producers to keep output at 505 million tons a year (10.1 million barrels a day) for at least a decade.
“Oil companies are unlikely to let this happen again,” Fak said. “They want a credible commitment that is enshrined in law.”
The export duties and discounts are up to the prime minister’s discretion, making it harder for oil producers to plan, Fak said. The government offered the discounted export duties and some exemptions from the mineral extraction tax to spur development of the costly and remote deposits.
Deputy Finance Minister Sergei Shatalov said in May last year that the Talakan deposit may retain tax discounts through the end of the 2012. TNK-BP’s Verkhnechonsk deposit, in which Rosneft also holds a minority share, was supposed to keep breaks until the end of 2011, he said.
Urals crude prices for northwest Europe averaged $102.39 a barrel in the first quarter of this year, 36 percent higher than in the same period of the previous year, according to data compiled by Bloomberg.