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Russia to raise tax on petroleum

08th May 2012

Putin plans to overhaul gas taxes to maximise government spending

Newly inaugurated Putin will raise tax on gas products to boost government coffers

Russian President Vladimir Putin has begun revamping the country’s petroleum taxes to increase government revenue in his third term and maintain oil and gas flows that underpin his power atop the world’s largest energy exporter.

He proposed the first tax breaks for pumping unconventional reserves such as shale oil at a meeting with energy officials four days before being sworn in on Monday, Bloomberg reported.

While shale is booming in the US, such harder-to-extract unconventional reserves in Russia provide just 4 per cent of total production.

The incentives boost ventures planned with Western oil companies whose technology is needed by state-owned oil producer OAO Rosneft to help Russia’s USD 1.5 trillion economy grow. As these projects may take years to deliver their first crude, Putin proposed a separate tax change to bring in more immediate income -- raising taxes as much as fourfold on natural gas, hitting the thousands of wells that are already producing.

“The increased gas taxes and fiscal incentives for unconventional oilfields are all geared to one end -- to get the maximum out of the energy sector for the state coffers both in the short and long term,” Lilit Gevorgyan, a Russia analyst at IHS Global Insight in London, said by e-mail.

Last month, as premier, Putin granted a separate group of tax breaks to offshore energy projects that have since coaxedExxon Mobil Corp. , Eni SpA and Statoil ASA to form alliances with Rosneft, whose stock trades below its 2006 sale price.

While international oil companies may gain more access to Russia’s natural resources in Putin’s new administration, his return to the Kremlin pushed thousands of protesters onto the streets of Moscow a day before the inauguration, which opposition leader Sergei Udaltsov called “illegitimate.”

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