Energy Minister Sergei Shmatko said Monday that oil companies in remote regions might need exemptions from export duty for more than five years in order to make producing from the areas profitable.
Crude producers in eastern Siberia will need a break from the duty for a “minimum of five to seven years,” Shmatko said.
The government has proposed granting an exemption for an unspecified period for 13 deposits in eastern and northern Siberia, including developments run by Rosneft and TNK-BP. The country has pledged breaks to encourage development of largely untapped eastern Siberian fields as it opens up new pipelines to Asia.
Prime Minister Vladimir Putin signed an order in July to exempt the 13 fields. The order applies to such fields as Rosneft’s Vankor, which started output this year and is expected to pump 220,000 barrels per day by the end of 2009.
“Seven years at current oil prices might not cut it if we have low oil prices,” said Shirvani Abdullayev, an analyst at Alfa Bank. “The real issue is that the government shouldn’t be managing returns for oil companies.”
Abdullayev said the tax structure, especially confusion on the length of the exemption, may hurt investments. “This creates an additional level of uncertainty in terms of government action and makes it difficult for oil companies to make proper economic and investment decisions,” he said