MOSCOW, October 13. The Minister of economic development Alexei Ulyukayev believes that an increase tax burden on oil industry may cause irreparable damage to oil extraction in traditional regions of the Russian Federation, Minister of Finance Anton Siluanov supported the removal of the devaluation profits from the oil and gas industry in the interests of the budget. A discussion about this with representatives of the oil business turned around at the forum “Russia calling!”.
“I sometimes wonder at the logic of my friend Anton (Siluanov, Minister of Finance – approx. edition): we want the budget revenues this year (to increase) or next want one too? In the following years we will also have commitments and will need to fulfill them. So we have to calculate our tax exercises so as not to reduce the income.”, – said Ulyukayev, speaking at the forum.
The most debated proposal on the content of the budget for 2016 in recent months has been the idea of the Ministry of Finance to change the procedure for calculating the tax on mineral extraction (met) for oil. These innovations would allow to receive an additional 600 billion roubles in 2016. But the proposal has met with strong negative response both from oil companies and from other ministries – Ministry of economic development and the Ministry of energy.
As a result, the Finance Ministry came out with other adjustments of the tax regime. On the one hand, offered once to increase by 2016 the export duty on oil in comparison with the level that is now set for next year: instead of decreasing to 36% to maintain it at the level of 42%. But it will be reduced to 36% in September 2016, if in 8 months the budget will gain the planned 200 billion. On the other hand, the Ministry of Finance proposed to amend the procedure for calculating met on gas, which will bring another 100 billion roubles of additional revenues.
The budget with these changes in the tax regime was approved by the government of the Russian Federation, but it has yet discussion in Parliament: the draft law on the budget for 2016 will be submitted to the State Duma until October 25.
Exercises in the oil industry
“Exercises” on the adjustment of the mineral extraction tax and export duty kill production on traditional fields, said the speaker. “The oil and gas revenues (the budget) come from Western Siberia and the Volga region, where traditional stocks. Exercises on mineral extraction tax and export duty kills this traditional field, because the IRR is very low,” he said.
The preservation of export duties on oil can cause a decrease in production of 25-30 million tons annually for three years, said the head of “Rosneft” Igor Sechin, who participated in the same session of the forum.
“The situation is deteriorating investment programs after the decision in the budget process for the conservation in 2016 at the current level of export duties on oil. If this trend were to continue, within the next 3 years we will experience the risks of oil production decline by 25-30 million tons of oil annually, it also will produce the negative fiscal effect,” he said. Sechin also noted that the position of Rosneft is that the key changes in growth models should be associated with stable tax system and the investment process.
In turn, the speaker recalled that the Ministry of economic development has recently improved the Outlook for oil production in 2016 at 5 million tonnes to 533 million tonnes, but the prognosis would have been better if not for “freezing” export duties. “If export duty was kept in motion, which should be on the tax maneuver – from 42% to 36%, we have not less than 5 million tons going to get,” he said.
Disadvantaged in quotes
In turn Minister of Finance Anton Siluanov has asked opponents to remember that in recent years the state has provided benefits primarily in the oil industry.
“I’d like Alexey (Minister of economic development Alexei Ulyukayev – approx. ed) remember, who said that we should help the oil industry. I think there is disputable enough thesis. Igor Ivanovich (Sechin – head of Rosneft – approx. ed) , probably, too will disagree with me. We recently only the oil industry and helped. It turns out that the amount of public resources that we have, is concentrated there,” said Siluanov.
He once again urged not to “fall into the Dutch disease”. “In recent times we have provided benefits mainly to the oil business, the most wretched in quotes. The more we can help the oil industry, the less will remain for other sectors of the economy,” Siluanov said, noting that now need to be less concerned about the oil sector, which is in crisis and feels good.
He added that we need to talk about an investment, look at how much your investment per barrel of the extracted oil compared with other countries.
“We are fighting for the quantitative indicators, and the need for quality. To take the investments of our large state companies and natural monopolies – tenth of the cost, and who is looking for quality: how ruble invested by these companies gives an effect for economic growth. Here lie our reserves,” – said Siluanov.
However, after some time, Sechin said Minister of Finance, stating that the costs of Russian oil companies are the lowest in the world.
“Our costs are the lowest in the world, this I declare. Here is Alexander Valerievich Dyukov (the head of JSC “Gazprom Neft”) – he the cost of lifting crude oil around $4 per barrel, LUKOIL – $4.5 per barrel, “Rosneft” – $2.8 to the best record in the world. Of course, we are constantly engaged in cost reduction, but it is not the cause of exceptions to investment programs”, – he said.
The budget for the interests of business
This discussion continues in the public field between the Finance Ministry and “Rosneft” with the Sochi investment forum, when Siluanov said that the Russian companies are engaged in “blackmail” when discussing the issue of raising taxes – while the tax burden increase, we speak not about reduction of operating costs, wage freezes, lower prices for purchased raw materials, goods and services, and the telling of the tale of the collapse of investment programs. According to him, on the West oil companies that extract shale oil, the fall in oil prices is reducing its operating costs.
Another argument of the Ministry of Finance – limited resources to cover all their commitments, we should go on to optimize the costs and look for ways to cover the deficit, which would have the least pressure on the economy.
“If there was no devaluation of seizures (from the oil and gas industry) would have to increase the budget deficit. Resources the state has limited, (would) be removed from the enterprises, to withdraw from savings, raise interest rates on the market. We are undertaking the task of economic development – more funds left to private business, that is the main task of the budget. The smaller the deficit, the less we borrow, the more resources will remain,” – said Siluanov.
“Banks are willing to help the Ministry of Finance with borrowing, we are always there,” he intervened in the discussion, the head of VTB Andrey Kostin.