Oil Taxes Won't Be Cut, Duma Deputy Says

Lawmakers are not planning to cut taxes for oil companies, a deputy speaker of the State Duma said, resisting calls by executives and investors.

"The attractive pricing environment and the dynamic development of the oil sector mean that there are no legislative initiatives on this issue, and none is foreseen soon," said Valery Yazev, a member of the Duma Energy Committee, in an e-mailed response to questions Thursday.

Rosneft and Gazprom Neft, Gazprom's oil unit, are among companies calling for tax breaks to help spur investment and revive growth. Russian oil output expanded 2.1 percent last year versus 11 percent in 2003, in part because rising export taxes discourage spending on new fields.

Investment banks Alfa Bank and UralSib have argued that the government will probably be forced to grant tax concessions to stimulate output.

The government revises export taxes on crude and oil products every two months based on average prices for Urals, the country's benchmark export blend. Raising tariffs when oil is more expensive erodes most of the benefit of higher prices.

Yazev echoed remarks by officials in the Finance Ministry and the Industry and Energy Ministry, who said there was no point in cutting taxes when oil prices are at all-time highs.

"Oil producers are not suffering," Alexander Sakovich, the deputy head of the Finance Ministry's customs department, said March 3 after announcing that the export tax on crude would climb to a record $340.10 per ton in April. "They're making money as we calculate the tax."

Rosneft chief executive Sergei Bogdanchikov called the current tax system "too harsh" in August. Export, extraction and other taxes must be cut or companies will not have any incentive to develop new fields, including in the Arctic, Gazprom Neft chief executive Alexander Dyukov said Feb. 4.

Alfa raised its rating on the country's oil producers to "overweight" from "underweight" and added state-run Rosneft to its list of 10 favorite stocks on Feb. 27, saying tax cuts were probable and would stimulate the industry.

"Oil stocks, underperformers for the last year, will likely play catch-up" after tax reductions, Ronald Smith, Alfa's head of research, wrote in a note to investors Thursday.