Moscow denies more Arctic tax relief

24 August 2016, Week 33 Issue 895

The Russian Finance Ministry has rejected another attempt by Russian energy firms to elicit tax breaks on development work on the country’s Arctic shelf.

Russian oil companies Rosneft and Gazprom Neft must continue to pay tax on marine fuel used by offshore support vessels at schemes in the Russian Arctic, Alexey Sazanov of the Ministry’s Tax and Customs Policy unit told Kommersant on August 19. The proposal to avoid the export duty was originally tabled by Rosneft and was supported by the Russian Energy Ministry as a way of reducing high development costs at offshore projects.

Gazprom Neft’s Prirazlomnaya platform in the Pechora Sea is Russia’s only offshore Arctic scheme to date. In 2014, the company paid 19.6 million rubles (US$290,000) in export duty on 1,800 tonnes of fuel used by vessels supporting operations at the site. As development of the Russian Arctic shelf gathers pace, avoiding this cost could save the energy companies around 1 billion rubles (US$14.7 million) per year, Kommersant claimed.

Bunker fuel supplied by tanker to offshore support vessels operating on the Russian shelf is subject to US$36 per tonne in export tax. Russian oil firms have asked for parity with bunker fuel supplied at the country’s ports, which is not eligible for export duty, as marine fuel sold onshore is considered “ship supplies.”

The Ministry of Finance said it recognised the issue but would stand firm.

“On the one hand, we need to toughen tax regulations on ship supplies but, on the other, create tax loopholes [for the development of offshore Arctic resources],” said Sazanov, adding: “State policy should be consistent.”

Gazprom and Rosneft are the only energy companies allowed to develop offshore deposits in the Russian Arctic. The pair has been pushing for various tax breaks to make costly Arctic projects more viable as low oil prices and sanctions bite.

In July, the two firms proposed that taxes be levied on all projects collectively rather than on the income generated by each scheme. The new rule would significantly ease the tax burden during the initial production stages, speeding up project development in the Arctic. The Ministry of Finance again rejected the proposal, arguing that it would mean hardly any tax would be collected from such projects for several years. Ministry officials highlight that such plays on Russia’s Arctic shelf are already subject to a preferential export tax regime, reducing duty to zero.

Joseph Murphy

Edited by

Joseph Murphy

Editor

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