Further Tax Cuts Urged By Ministry

The Energy Ministry suggested on Friday a further cut in the mineral resource tax, saying the reduction already approved by the government was not sufficient to mitigate falling oil output.

Deputy Energy Minister Stanislav Svetlitsky said his ministry was preparing proposals for the government to raise the tax-free threshold on extraction to $25 from the already approved $15.

"We believe and will suggest it to the government that we should switch to $25," Svetlitsky said.

Already this year, the government has approved amendments to the Tax Code raising the threshold on extraction to $15 per barrel from the current $9. It also approved tax breaks for new fields in hard-to-access regions of eastern Siberia, Timan Pechora and Yamal. The amendments are due to come into force next year.

Svetlitsky said the approved benefits were not enough to stimulate oil companies to invest more in new fields to compensate for falling oil output from mature deposits.

Oil companies, estimated to save more than $5 billion from the approved amendments in 2009, have welcomed the reform but said it should go further.

The country's oil production has been falling since the beginning of the year after last year's 2.3 percent growth.

Svetlitsky said his ministry still expected oil output to rise by 1 percent to 497 million 500 million tons in 2008. In the first eight months of 2008 output fell 0.5 percent.