| The attitude of the government to Production Sharing
Agreements (PSA) tends to change and recently became negative. Consequently
we cannot state with conviction that the review of the amendments
to the PSA Chapter of the Tax Code in the second reading which was
postponed several times [by the State Duma] and is now scheduled
at the first meeting after the May holidays, will take place and
yield results. This view was expressed by deputy of the State Duma,
member of the YABLOKO faction Alexei
Melnikov in an interview to our correspondent Galina Bazina.
The new chapter of the Tax Code on PSA will obviously lead to
a deterioration in the conditions for the investor. Now production
sharing will replace only payment of customs duties; whereas it
had previously replaced a range of taxes. However, it would be
wrong to say that the total tax burden on the investor will grow.
Let me explain why.
The crux of PSA is the application of the rent principle in taxation.
The [oil and gas] fields differ in terms of productivity: therefore
the tax burden may rise and fall in different places, compared
to the current system. Calculation of the change in the average
tax burden may be compared to measuring the average temperature
of patients in a hospital.
Why does the PSA regime attract investors? They are not attracted
by low taxes. They are attracted by stability. Payments are fixed
for the entire duration of the project’s implementation
- for approximately 25 - 30 years. This provides investors with
an opportunity to assess a project’s viability, calculate
profits and work calmly. In Russia for the current PSA projects
the profit tax was reduced to 24%, but remained in some places
at 32-35% (Ed., BPI: 35% for Sakhlin-1 and Kharyaga and 32% for
Sakhalin-2), and investors do not object. They are interested
in the total fiscal package: they calculated the amount, agreed
with the state and signed an agreement. Therefore, it would be
incorrect to speculate about the need to increase fiscal burden
for investors.
It is obvious that now the current projects - Sakhalin-1 and
Sakhalin-2 are paying less, as they are in the stage of active
investments. This year the two projects invest USD 3 billion.
By way of comparison, investments into the entire oil industry
of the country amounted to USD 8 billion, including USD 3 billion
for the PSA projects.
The tax burden on the investor in these projects is currently
less. However, if we consider the annual oil production schedule,
according to the production schedule for the duration of the project,
confirmed by the Central Development Commission, it now transpires
that they are paying even more taxes. In general USD 59 of taxes
are paid per ton of oil in the sector on average. In the Kharyaga
project this figure amounts to USD 89.
It is also unclear what can we term the government's course regarding
PSA. Three months ago Viktor Khristenko (Ed. Deputy Chairman of
the Government of the Russian Federation) wrote letters to the
State Duma, requesting that they urgently adopt the chapter of
the Tax Code on the PSA in its previous version. Everything changed
whenone well-known oil company began attacking PSA. This means
that we don't have a government as such. It is serving a private
company which publishes for money articles where it states that
Russia does not need PSA.
It is very difficult to make forecasts on the threshold of the
adoption of the chapter on May 14. I would not make a rush statement
that the opponents of production-sharing have won, as the situation
is always changing. Any further postponement of the review of
the chapter (Ed. BPI: earlier its review had been scheduled for
April) at the request of the government’s representative
in the State Duma represents a manifestation of the struggle over
PSA projects and a broader list [of projects]. As the changes
concern not only the tax regime, but also the introduction of
a new procedure for forming the list of projects developed in
accordance with the PSA regime. You can work on a license. If
you want to work in the PSA regime - then you should return the
license to the state and submit the project for auction.
See also:
Production
Sharing Agreements
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