15 Feb 2023 16:59

Russian Duma passes bill to amend certain oil sector taxation parameters at first reading

MOSCOW. Feb 15 (Interfax) - The Russian State Duma on Tuesday passed the government's bill on the use of discounts against the price of Brent crude when calculating mineral extraction tax (MET), excess profit tax (EPT) and the reverse oil excise, as well as a bill on a tax credit for Gazprom Neft at their first reading.

The document, No. 294475-8, was submitted to the lower house of Russia's parliament at the end of last week.

The bill limits the Brent discount to Urals for calculating MET, EPT and reverse oil excise. For the calculation, the proposal is to use Urals crude prices in the actual amount, which should not be lower than the price of Brent minus $34 per barrel for April, Brent minus $31 per barrel for May, Brent minus $28 for June and Brent minus $25 for July .

"Such a transitional period for applying discounts to the price of Brent will allow oil companies to adapt to the application of a new procedure for calculating taxes based on Urals prices," the Finance Ministry told reporters earlier.

Another proposal would increase the price differential used to calculate the gasoline damper from $20 to $25 per barrel, and introduce a price differential when calculating diesel fuel damper, setting a limit of $10 per barrel from April 1 to December 31, 2023.

The bill should stabilize the revenues of regional budgets, Deputy Finance Minister Alexei Sazanov during the Duma session. "Our expectations are that the reduction of the discount that will occur will not ensure a decrease in the income of regions, but rather their stabilization at the level that was previously planned," he said.

"The purpose of this bill is, first of all, to ensure that the discount on Russian oil does not exceed $25 per barrel; a certain discount indicator is set through tax mechanisms, below which it should be unprofitable to sell Russian oil," he said.

Commenting on a potential drop in oil production in Russia as a result of the innovations, Sazanov said: "In terms of production cuts as announced by [Deputy Prime Minister Alexander] Novak, by 500,000 barrels per day [from March], there will be a reduction in any case, and these indicators have already been set down when drafting this bill."

The bill on the Gazprom Neft tax credit states that the company will receive a MET deduction of 1.1 billion rubles per month from April 1, 2023 to March 31, 2029 or 79.2 billion rubles for the whole period, to be repaid between April 1, 2029 and March 31, 2035.

The purpose of this tax credit is to finance the construction of infrastructure for the transportation of liquid hydrocarbons produced on the Yamal Peninsula - the Bovanenkovskoye and Kharasaveyskoye gas and oil condensate fields, a source told Interfax earlier.

The tax credit will be repaid in an amount equal to the received tax deduction indexed by 9%.

The bill sets restrictions on the application of the tax deduction, and it will not be granted at oil prices below or equal to the cut-off price, proposed at $45.04 per barrel in 2023 with subsequent annual indexation of 2% from 2024. No deduction will be given if the price of oil in the tax period is above the cut-off price plus $27.55.

The State Duma plans to debate the bill at its second reading on February 16.