LONDON, May 18 (Reuters) - Russia will significantly ease its tax take in oil in the next three years as the current tax regime, one of the world’s most stringent, makes development of many fields unattractive, a consultancy said on Wednesday.
Exclusive Analysis think tank said in a report it expected the world’s top oil producer to cut its government tax take in oil by over five percentage points from the 85 percent in the next three years.
“In Russia, changes to energy tax regime are likely to begin in late 2011 or early 2012,” said Teymur Huseynov, head of energy consulting at Exclusive Analysis.
“At the current rate of government take, extraction is not economically viable at 30 percent of existing oilfields and 90 percent of new fields, most of which are complex deposits in East Siberia and on the Arctic and Caspian shelves,” he said.
He said that by reforming the tax system in oil the government was not only trying to sustain production above 10 million barrels per day, the world’s largest, but also to cap domestic fuel prices to avoid public discontent.
“Any reform of the taxation regime must promote twin aims: sharply increasing investment in exploration and production at new deposits and subsidising domestic oil prices so as to decouple these from global price fluctuations. Under the current regime, these two aims are at odds with one another.
“The current taxation regime appears unsustainable. The opening of new hydrocarbon fields is crucial to Moscow’s design to exploit new export pipeline capacity to Europe and China.”
The government is discussing a so-called “60/66” proposal to reform export duties that would lower the marginal rate on crude oil to 60 percent from 65 percent now.
At the same time, export duties on refined products would be unified at 66 percent of the rate applying to crude. Heavy products, such as fuel oil, are now taxed at a lower rate than light products and the changes would be designed to stimulate investment in deepening Russia’s refining capacity.
The reform debate has been complicated, however, by shortages of transportation fuels resulting from price curbs demanded by Prime Minister Vladimir Putin back in February.
The government has hiked gasoline export duties to 90 percent of the fee applying to crude as an interim measure.
Officials have also realised that the proposed export duty regime doesn’t work when oil prices exceed $90 per barrel, as they do now, and have proposed a new “55/86” model that would cut the incentive to export product.
Under the proposal, which would hurt oil firms that are long refining capacity, the marginal rate of crude export duty would fall to 55 percent if oil tops $90, while products would be taxed 86 percent of the rate applying to crude.
“In short, ministry officials are keen to continue promoting export tariffs as the primary means for subsidising domestic oil prices... A withdrawal of subsidies from domestic oil prices is very unlikely as this would lead to an industrial collapse and mass protests,” said Huseynov.
He added that plans to rebalance oil and refined products export duties would however need to be cleared by neighbouring Belarus, which could lose several billions of dollars as a result of the reform.
Separately, the suggested replacement of the mineral extraction tax with a tax on surplus profits on new deposits could be challenging given uneven extraction conditions across the huge country, said Huseynov.
Exclusive Analysis also said it expected tax take in African producer Ghana to rise to over 55 percent from the current very low levels of 49 percent due to significant fiscal spending commitments, higher targets for the sovereign wealth fund and contract renegotiations ahead of 2012 presidential election. (Reporting by Dmitry Zhdannikov; additional reporting by Douglas Busvine; editing by James Jukwey)