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Khloponin Will Support Tax Breaks for Oil Drillers in Caspian

The government's new envoy to the restive Caucasus, Alexander Khloponin, said Friday that he would support oil companies such as LUKoil in seeking tax breaks for drilling in the Caspian Sea in a statement that gives the issue a political dimension.

"I believe the state must stimulate the economy in all respects, especially in the oil industry, creating conditions for more rigorous investment in this segment," he said in response to a question from The Moscow Times after a session of the Presidium. "As far as offshore development, I will support these efforts."

The Kremlin tasked Khloponin, a deputy prime minister and the presidential envoy to the North Caucasus Federal District, with achieving a degree of prosperity in the region and suppressing militant activity in the area's explosive republics of Chechnya, Dagestan and Ingushetia.

The North Caucasus includes the Russian section of the oil-rich Caspian Sea that would draw much investment from the country's oil producers if it weren't for the hefty tax burden, which all but wipes out the prospect of tapping new fields in challenging conditions. LUKoil chief Vagit Alekperov asked for tax incentives after the country's second-biggest crude producer launched Russia's first Caspian field last month.

Khloponin's comment indicated that the government would need to take into account the importance of defusing political unrest in the region when it weighed its tax options.

The presidential envoy said he would submit his proposals for the social and economic development of the region, including tax breaks, by the end of next month. If approved, the strategy will hopefully start working next year, he said.

In a sign of how far Moscow can go to change the situation of frequent attacks on local police and government officials, the Presidium on Friday gave Khloponin the authority to fire federal officials in the Caucasus if he considers them incompetent. The wider powers also enable him to issue immediate orders to officials. The measures are designed to cut the red tape in running the region because they remove the need to agree on such dismissals and orders with numerous federal agencies.

Khloponin said as many as 34 federal agencies now employ 24,000 people locally to run things in the region.

"In fact there's no coordination among these agencies," he said. "The goal is to set things right and establish control over what these federal officials are doing there."

The Presidium appointed the Regional Development Ministry in charge of coordinating federal policies in the region, Khloponin said.

Khloponin said construction and farming were among the most promising industries for the region. All in all, the republics under his supervision have proposed projects worth an "astronomical" 1.6 trillion rubles ($53 billion) through 2020, he said.

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