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. Last Updated: 07/27/2016

Trutnev Urges Pump-or-Pay Oil Tax

The country's oil companies will have to pay mineral extraction tax on the volume of oil in their oil fields, regardless of how much they actually produce, under a plan unveiled Friday to punish under-producers.

Natural Resources Minister Yury Trutnev wants to encourage oil firms to eke out as much as they can from each well by penalizing those who fail to produce the volumes laid out in their license terms, his ministry said in a statement.

"This way, companies will pay for non-achievement of the oil extraction figure set out in the project documents as if they had achieved it," the statement said. "This principle will be much more effective than simple increases in fines, which hardly make up for the oil reserves that are irrevocably lost."

Oil firms' performance, or the ratio of reserves produced, now stands at 30 percent to 35 percent, which meant 65 percent to 70 percent of potential oil production was lost, Trutnev said.

The ministry intends to design a mechanism for levying the tax and to propose amendments to the law on subsoil use by the end of May.