| The Russian government has proposed restrictions
on tax-rate and
regulatory guarantees used to attract foreign investment to its
oil
industry.
The proposal, a product of a meeting yesterday between Prime Minister
Mikhail M. Kasyanov and domestic oil executives, called for the
government
to offer guarantees of future tax rates and regulatory treatment
only to the
largest and most capital-intensive development projects. Many foreign
companies have said that they cannot invest in Russia without such
guarantees, but BP went ahead without them when it made a $6.75
billion
investment last week, by far the biggest to date.
Guarantees "should be the way for production at fields
that are very
risky, far away, with poor infrastructure," said one government
official
involved in the talks. But for easier-to-reach oil fields, the
official
said, "why give more breaks to something that is already
very lucrative?"
Today's proposal, still preliminary, appeared to reflect a shift
in
attitude in Russia toward the idea that the domestic oil industry
is capable
of developing its own reserves and that foreign investment should
take the
form of equity stakes in Russian oil companies, like BP's deal,
or else
joint ventures with Russian companies.
The domestic oil industry, led by Yukos Oil, has been complaining
about the tax guarantees, known as production-sharing agreements.
With the
vast improvement in Russia's legal and tax systems in recent years,
the
Russian oil companies contend, the agreements are no longer needed
and give
unfair advantages to foreign rivals.
Foreign companies, for their part, contend that Russia is still
too
mercurial a place for them to make multiyear, multibillion-dollar
bets
without any safeguards. According to an oil company representative
who has
seen Mr. Kasyanov's proposal, which is still being polished by
his deputies,
the proposal calls for auctioning the rights to 23 oil and gas
fields for
which guarantees have previously been promised; only the fields
that drew no
bidders without guarantees would be made eligible for them.
Foreign oil companies reacted cautiously. Several agreed that
special
tax treatment should be used only for fields that are particularly
expensive
to develop, like those in Russia's Arctic North. But they said
that using
auctions, which in Russia have been notoriously opaque and prone
to
influence by powerful local interests, raised red flags.
"The ground has shifted against the production-sharing
agreements,"
said Vladimir Konovalov, executive director of the Moscow-based
Petroleum
Advisory Forum. "We'll see in the next couple of weeks how
that will be
implemented through legislation." One foreign oil company
representative was
upbeat about the proposal, saying it would serve to "break
the deadlock"
that has paralyzed the system for years.
"We've been saying there are certain fields we can't do
without the
regime," the representative said, referring to the system
of tax and
regulatory guarantees. "The government is saying, `Let's
put that to the
test.' It's a market-based test." Only three oil development
projects are
now working under production sharing agreements: Two consortium-run
projects
in the waters off Sakhalin Island in the Far East, one led by
Royal
Dutch/Shell and the other by Exxon Mobil, and one Siberian field
developed
by TotalFinaElf.
Legislators who have worked on the rules governing the tax guarantees
said today that it was too early to tell if the proposal would
survive the
long process of full cabinet discussion, Kremlin vetting and a
parliamentary
vote. "The production-sharing agreements have lived through
so many
difficult days and last minutes," said Alexei Melnikov, a
deputy in Russia's
lower house. "It's still far from clear what the government
wants."
See also:
Production
Sharing Agreements
|
