Duma passes law to extend MET concessions to oil fields in Caspian where production began before 2016

MOSCOW. May 18 (Interfax) - The Russian State Duma has passed a law to extend preferential mineral extraction tax (MET) rate to deposits fully located in the Russian sector of the Caspian Sea where commercial production of hydrocarbons began in the period before January 1, 2016.

The government introduced the bill, No.74544-8, to the lower house of parliament in February.

The rate should extend to offshore fields in the Caspian Sea, which previously used a special formula for calculating the rate of export customs duty on crude oil, but under the procedure for licensing of subsoil areas of the field are not subject to the perimeter of the excess profits tax (EPT).

The reduced export duty on oil from new fields with special physical and technical characteristics, which were included in the second group of the EPT, was cancelled as of January 1, 2021. The exemption had been applied since 2013. In particular, this applied to the Korchagin field in the Caspian Sea, which Lukoil put into operation in 2010.

The company then warned the authorities about a possible reduction in investment or even the mothballing of the field due to the unplanned cancellation of the export tax incentive. As compensation, it would have been possible to transfer it to EPT, but offshore fields cannot be transferred to this regime.

According to current legislation, production at new offshore carbon deposits is subject to MET, where the tax base is the value of extracted minerals. The rates are divided into six groups - from 1% to 30% depending on the level of complexity of development of the subsoil area. New offshore fields include fields where the date of commercial production began from January 1, 2016.

The law proposes that fields where production began before January 1, 2016 be classified as new offshore fields, with the application of MET benefits. Another condition is that the field must be located in the Russian sector of the Caspian Sea and specified in Note 8 to the EEC customs nomenclature. There are currently 29 fields included in this note, including the Korchagin field.

It is envisaged that MET concessions will be applied beginning on January 1, 2022 through and including December 31, 2031.