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    Russia Eyes Tax Cuts for Foreign Gas Producers

Summary

Russia may cut the mineral extraction tax (MET) for joint projects between Gazprom and partners German Wintershall (a subsidiary of BASF) and Austrian OMV

by: William Powell

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Natural Gas & LNG News, Europe, Corporate, Political, Tax Legislation, News By Country, Russia

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Russia Eyes Tax Cuts for Foreign Gas Producers

Russia is considering cutting the mineral extraction tax (MET) for joint projects between state monopoly Gazprom and partners German Wintershall (a subsidiary of BASF) and Austrian OMV, Russian business daily Kommersant reported October 26.

Both BASF and OMV are key financiers of Gazprom's major Nord Stream 2 55bn m³/yr export pipeline project.

According to the report which cited anonymous sources, BASF CEO Kurt Bock raised the tax issue during a meeting with the Russian government-foreign investors' discussion group, the Foreign Investment Advisory Council (FIAC), on October 16.

The report says that prime minister Dmitry Medvedev instructed the finance, energy and economic development ministries to work through this issue this week.

Demanding the tax reduction on mineral extraction came as the government is preparing to adopt further taxes on Gazprom to fill the budget deficit. During a meeting in June, the government examined the possibility of taking an additional roubles 30bn ($520mn) revenue in 2017 by increasing MET on Gazprom. This was expected to be approved later this year.

Wintershall has two ongoing projects in Russia: the development of the first block of the Achimov deposits of the Urengoi field (Gazprom and Wintershall have half each in terms of financing) and the development of the Yuzhno-Russkoye field (which is 35% owned by Wintershall, 25% by Austrian OMV and the rest belongs to Gazprom).

Wintershall also has a 25% stake in the development of the fourth and fifth blocks of the Achimov deposits of the Urengoy field, expected to start in 2020-2021. OMV should receive an equal chunk after it finishes its asset swap deal with Gazprom, expected next year.

According to Gazprom’s annual report, it is Russia’s biggest taxpayer, last year contributing roubles 900.4bn, up by almost a tenth year-on-year. Key factors behind the growth of taxes in the reporting year include:

  • a 36.7% upward revision of the coal equivalent unit used in the formulae for calculating MET on natural gas and gas condensate; 
  • an 11.9% increase in the MET base rate on crude oil (up from roubles 766 to roubles 857/metric ton);
  • a 30% increase in the property tax rate applicable to trunk pipelines, power transmission lines, and facilities that comprise an integral technological part thereof (up from 1.0% to 1.3%);
  • and the introduction of a new type of excisable goods, “middle distillates” (to refer to what was previously known as “heating oil”) and a 20% to 26% increase, from 1 April 2016, of excise tax rates for motor gasoline, diesel fuel, straight-run gasoline, and middle distillates.

 

Dalga Khatinoglu, Ilham Shaban

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