Approved by

State Duma Committee for Energy

May 14, 2008

Minutes # 8

 

 

Participants in the round table discussion considered top priorities of legal regulation of the oil and gas industry and decided:

Economic development solutions,  living standards, innovation projects support, international cooperation expansion depend on stable operation of the fuel and energy sector, and specifically oil and gas industry. 

The oil and gas industry environment is determined by a number of factors such as dynamics of known hydrocarbon reserves, scope and geography of exploration operations,  field development requirements,  tax incentives and sanctions, quality of market institutions and promotion of competition, condition of related industries, and oil production regulation practices. This environment is formed both by strategic industry documents and by existing legislation.

The experience of Russia and other countries indicates the need for active state participation in creation of conditions for sustainable development of the oil and gas industry and maximization of its social and economic performance.  Development of a detailed program of state regulation including long-term forecasts and immediate measures is  the essential condition.    

As the draft amendment of the RF Energy Strategy for a period through 2030 is being developed, the mechanisms of its implementation should include legislative support of the oil and gas industry’s top priorities, such as mineral replacement, efficient use of hydrocarbons (including associated gas utilization), stimulation of higher value added products manufacturing, innovation-based development of the industry,  creation of adequate tax burden and stimulation of investment in production modernization.   

The main focus areas that require legislative support are:

- more efficient exploration operations and use of public funds;

- legal regulation of efficient natural resources management including oil and gas exploration and production;

- development of a package of regulatory acts to ensure flexible (incentive-based) taxation in the following spheres: depleted resources management; development of hard-to-recover resources using new technologies; bringing back on stream of inactive wells, monitoring wells and suspended wells; utilization of enhanced oil recovery methods.

The current system of taxes and duties hinders development of oil processing and petrochemistry.  As it is now, it is good only for refineries using simple distillation.   There is no legal regulation of oil products tax calculation. Export duties for motor gasoline are not differentiated by quality. Export duties for all light oil products are almost twice as high as duties for dark products, heavy fuel oil. The highest taxes are imposed on antiknock gasoline whose production requires modernization and high capital expenditures.    

 

In view of the foregoing considerations, the round table participants recommend:

 

1. As amended, the RF Energy Strategy should include a section dedicated to improvement of the legal regulation of the fuel and energy sector.

 

2. For the purpose of stimulation of self-financed exploration, take the following measures:

- provide for extension of unexplored remote areas exploration time to 10 years;

- provide for issuing of exploration and production licenses without tenders or auctions to operators discovering the fields;

- give operators the right to carry out exploration operations outside the mining lease but within the license area, and provide for the possibility to change width and depth boundaries of the mining lease in case new deposits are discovered in the existing field or a new field is discovered that extends beyond the boundaries of the block.

 

3. With a view to ensuring efficient hydrocarbon production:

- consider cancellation of world oil price dynamics coefficient for calculation of mineral extraction tax on oil that is used by oil and gas producers for their operations, and that is intended for sale within the customs territory of the Russian Federation;

- make amendments to the RF Tax Code to clarify the term of “net” volume of produced mineral resources and to register losses for purposes of mineral extraction tax calculation and handling of inconsistency between the RF Tax Code and GOST  R 51858 - 2002;

- provide for tax incentives for companies using innovative methods and technologies of marginal hydrocarbon field development  (as per the list of innovative technologies approved by the Government of the Russian Federation);

- consider allocation of funds from the federal budget for evaluation of ultraviscous oil resources and pilot projects in these fields;

- cancel import duties for ultraviscous oil production equipment that is not manufactured in the Russian Federation.

 

4. With a view to increasing associated gas utilization:

- make amendments to the RF Tax Code with regard to mineral extraction tax rate for unutilized associated gas, and graded mineral extraction tax rate depending on the associated gas utilization method;

- provide for tax incentive measures for newly established associated gas processing companies for a period till  final commissioning or payback;

- speed up development of technical procedures regulating production, utilization, transportation and processing of associated gas;

- develop tariffs for gas transportation through main gas lines, and develop  regulatory documents setting uniform requirements for measuring of the volume and quality of produced, utilized and flared gas, including guidelines for calculation of hydrocarbon loss allowance  for oil and gas producing companies that are not members of OJSC “Gazprom” system;

- provide for guaranteed access to power grids for  small-scale power generation companies using associated gas;

- consider using a unified tax on imputed income for imposition of taxes on engine fuel retail sales through gas  and multifuel stations;

- settle issues of loss control during loading, unloading, storage and transportation of liquefied hydrocarbon gas  for taxation purposes.

 

5. In view of the approved technical regulations “On requirements for motor and aviation gasoline, diesel and marine fuel,  jet engine fuel and residual fuel oil”  (Decree by the RF Government from February 27, 2008,  # 118) and with a purpose of ensuring stable supply of oil products to domestic and international markets:

- consider extension of the deadline for termination of AI-92 production;

- consider extension of the deadline for the mandatory  switchover to Euro-4 Standard.