Minister Says Oil Tax Cut Won't Be Big

Energy Minister Sergei Shmatko on Friday said his staff would soon present new proposals on oil tax cuts to the government, although they would be much smaller than oil companies had hoped.

"I think we will submit proposals on additional tax cuts for oil companies, maybe as soon as in August but definitely before the end of the year," Shmatko told reporters in Dushanbe, Tajikistan.

"But [the proposals] are far from that figure," Shmatko added, referring to Thursday's statement by LUKoil president Vagit Alekperov, who said oil companies needed 400 billion rubles ($16.3 billion) in benefits in 2009.

The 400 billion ruble figure reflects industry-wide hopes for tax reductions in the next year, Alekperov said.

The government has approved tax breaks for new fields in eastern Siberia, Timan-Pechora and Yamal — regions rich in resources but lacking infrastructure — and is considering extending them to cover other areas. Starting next year, it will cut the mineral extraction tax for all producers. The amendment to the Tax Code raises the tax-free threshold on extraction to $15 per barrel from $9.

LUKoil vice president Leonid Fedun said Friday that further steps to ease the tax burden should include increasing the threshold to $25 from $15.

Fedun said the tax benefits that have already been cleared will allow LUKoil to save $24 billion to $27 billion in 2009-2017, including $2.6 billion to $2.9 billion in 2009 alone.