Tax Overhaul Could Help Oil Producers

A proposed overhaul of the way oil companies are taxed, including more frequent calculations of export duties and a possible replacement of the mineral extraction tax, would help meet calls for assistance from producers.

But any changes would also have to take into account an increasingly difficult balancing act of supporting oil companies and making sure the federal budget is not curtailed by the incentives.

Prime Minister Vladimir Putin and other top government officials met with the heads of the country's largest oil companies Monday to discuss measures for the industry, including revising the export duty on a monthly basis and possibly replacing the mineral extraction tax with one on windfall profits.

The government has already provided tax breaks and other incentives worth an estimated 140 billion rubles ($5.1 billion) per year, which Putin mentioned in his opening remarks at the meeting, according to a transcript on the government's web site.

"We're proposing to cut in half -- to one month -- the calculation period for the export duty, so that its level would be maximally in line with the current price," Putin said. The plan, he said, was backed by the Economic Development Ministry, along with the Energy and Finance ministries.

LUKoil spokesman Dmitry Dolgov welcomed the proposal Tuesday, saying the move would benefit all oil producers.

Wildly fluctuating world oil prices made it necessary to refine the current system, Putin said. He also reiterated a call to develop measures that allowed Russia to take a more active role in influencing world oil prices.

Prices for crude have fallen by more than half from a high of close to $150 per barrel this summer.

Export duties are currently calculated every two months based on an average price for the previous period. The system was largely accepted when prices were rising, but the steep decline has made exports unprofitable, as the duties do not keep up with falling prices.

The government agreed in September to a first reduction of the duty ahead of schedule, slashing it to $287 per ton from $372. Pavel Sorokin, an oil and gas analyst at UniCredit Aton, said that the duty, if computed now, would be $190.

Putin also proposed increasing companies' ability to write off declining asset values, Prime-Tass reported. The step would offer little short-term help, but should boost investment, Sorokin said.

"The main thing it will stimulate is investment in new fields," he said. "They will be able to simply account for this equipment faster and take it out of their profits faster."

Energy Minister Sergei Shmatko said the mineral extraction tax might be reduced or lifted in the next year to 18 months, Interfax reported.

The tax -- which takes 20 cents from every dollar on oil sales over a fixed price, currently $9 per barrel -- could be replaced by a tax on windfall profits.

Dmitry Lukashov, a UBS oil and gas analyst, said a switch to a windfall tax would take four or five years.

"The administration of all of these taxes is unusually complicated," he said. "Our belief is that instead of tax cuts, Russian oil companies would rather get [ruble] devaluation."