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. Last Updated: 07/27/2016

White Nights Partner Decries Unwieldy Taxes

The Western partner in one of Russia's most prominent oil projects, White Nights, said Tuesday that Moscow's current tax system was a hydra-headed beast that was bringing the joint venture to its knees.


Gary Rinaldi, vice president and chief financial officer of Philbro Energy Production Inc., also told a conference that high and numerous taxes were the single greatest impediment to Western investment in Russia's energy sector.


"The way in which such currently operating ventures as White Nights have been treated has not given the majors a warm and fuzzy feeling about their prospective investments and has tempered their enthusiasm to initiate major projects," he said.


White Nights is Phibro's 50-50 venture with Sidanko subsidiary Varyoganneftegaz in Siberia's Arctic region.


Rinaldi criticized Moscow's handling of its deal with the International Monetary Fund in March to scrap oil and gas export tariffs in exchange for a three-year, $10 billion loan.


Moscow, seeking alternative revenue sources, has in effect replaced the tariffs with new extraction and pipeline duties which joint ventures must pay, as well as thrown into doubt the ventures' priority access to crowded export pipelines.


"White Nights cannot absorb further deterioration in its cash flow, whether from increased transportation tariffs and excise taxes resulting from the conditions of the IMF loan, or increases in other gross revenue-based taxes or operating costs," Rinaldi said.


White Nights paid mostly profit-based taxes when it began operating in 1990, but now pays 25 taxes not related to profits.


What benefits it did enjoy -- export and excise taxes on joint ventures were scrapped in 1994 -- were partly offset when Russia clawed back about 66 percent of the lost revenue by levying other new taxes, Rinaldi said.


"I have tried to give you a flavor of what it takes to operate an oil and gas joint venture in Russia," he said. "I can assure you it is not for the faint of heart."


?Russian state oil company Rosneft is to limit foreign participation in its shareholding to 15 percent of its capital, the company's vice president, Anatoly Baranovsky, told bankers at a conference in London on Tuesday.


"The decree on privatization has not been signed yet, once that goes ahead some shares might be sold for cash," Baranovsky said.


The Russian government has the right to hold on to 31 percent of the company's shares for up to three years, he added.