OIL SECTOR FUTURE DISCUSSED AT MOSCOW FINANCIAL FORUM

The Oil Fiscal Policy Impact on Social and Economic Development of Russia business session was held in Manezh on September 13. The participants discussed the latest taxation reforms and measures aimed to enhance hydrocarbon production. 

These measures included the introduction of Excess Profits Tax (EPT) and reverse excise tax on oil stock for selling high-quality oil products in the domestic market. 

As Director of the Tax and Customs Policy Department of Ministry of Finance of the RF Alexey Sazanov reported, “We expect investments in oil refining to grow and total to RUR 1.3 trillion in 2020-2024, which is more than RUR 200 bln annually. Construction of deeper conversion facilities means 40 mln tons, and we expect the yield of light products to increase from 78% to 2025. When this improvement is made, the marginal product will amount to about RUR 400 bln annually”.

According to Deputy Minister of Energy of the RF Pavel Sorokin, “We perfectly realize that we may face a kind of stagnation in 20-25 years, perhaps, even reduction of oil demand, so our task is to maximize the cost of the stock we have underground, to enhance and deepen this monetization as best as we can and place us at the lowest possible point on the supply curve throughout the entire production chain (production, refining, petroleum chemistry, transportation), so that when his kind of competition starts, high-class producers would be under risk, conventionally speaking”.

As to oil business players, it is Lukoil who was one of the first to test the system of taxation on excess profits from hydrocarbon production. First Vice President of LUKOIL PJSC articulated the first results: “We have 29 sites working in EPT pilot mode. In the first half-year, they yielded 2.4 mln tons of oil, with 8 sites from the third group, i.e. our mature oil fields in West Siberia, accounting for more than half of production. With a new taxation system in place, production has grown by 8%, production drilling by more than 20%. Due to a switch to EPT, we are planning to increase investment just in these sites by RUR 60 bln”.

Participants of the session also stressed the fact that Russian oil-refining industry is suffering losses because all oil fields in the territory of the country are gradually depleting, thus annually reducing oil production output despite the use of innovative methods by major players.
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