Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Duma Backs Oil Tax Breaks

The State Duma voted on Friday to approve the second of three readings of a law to give tax breaks to firms developing new oil deposits or trying to extract the last drops from old wells.

The law aims to increase exploration by setting a zero rate of mineral extraction tax on certain greenfield sites, giving oil companies an incentive to develop resources that have previously been too remote or complex to be economically viable.

New oil developments in the East Siberian regions of Sakha, Irkutsk and Krasnoyarsk will pay nothing on the first 25 million tons of oil (about 185 million barrels) during the first 10 or 15 years, depending on whether the license covers exploration as well as production.

Eastern Siberia's huge resources have remained largely untapped because of the distance to export markets in Europe and Asia, but Russia hopes to encourage license holders such as Rosneft, TNK-BP and Surgutneftegaz to start pumping oil from the region.

Russia hopes production will hit 15 million tons per year (300,000 barrels per day) by 2015, far less than its oil heartland of Western Siberia but more than current Russian exports to China, for example.

Fields that are more than 80 percent depleted will also pay a lower rate. The zero rate will also apply to deposits of highly viscous oil, which is harder to extract. The bill sets a base rate of mineral extraction tax at 419 rubles ($15.57) per ton from Jan. 1, 2007, to the end of 2016, although it will fluctuate monthly.

Analysts say high taxes have helped put the brakes on rising oil output in the last few years, with badly targeted taxes giving firms no incentive to bring new fields on stream.

As well as corporate taxes, oil firms have to pay pipeline fees, export duties and a windfall tax on high oil prices, meaning that the bulk of the sale price goes to tax.

Deputies voted 362-125 to pass the bill at its second reading. They will consider it at a third reading on Saturday. In order to become law, the bill still needs the third reading in the State Duma, plus approval from the Federation Council and President Vladimir Putin.