Russia to Cut Petroleum Export Tariff and Excise Tax in Imminent Decrees

Strategic Insights -

Russian officials have informed their U.S. counterparts that two forthcoming decrees will significantly reduce the country's petroleum export tariff and excise tax, a move that could lower the tax burden for foreign companies exporting Russian oil and natural gas. According to Deputy Energy Secretary William H. White, most U.S. companies in Russian joint ventures will be eligible for the cuts, which could potentially reduce the tax burden by 50%. The decrees, expected to be signed by President Boris Yeltsin or Prime Minister Viktor Chernomyrdin, are aimed at making Russia's oil and gas fields more attractive to foreign investors.

Key Takeaways:

  • The two decrees will reduce the petroleum export tariff from $5/bbl to potentially zero for all enterprises registered before 1994, with the reduction applicable for three years.
  • The 23% excise tax will be eliminated for eligible companies, with the extent of the cut determined by a company's level of capital investment.
  • Conoco Inc. has been singled out as an example of a company that will qualify for full benefit of both cuts, thanks to its $300 million investment in the Polar Lights project.
  • The criteria for determining the extent of export tariff cuts will be specified in the decree and used by an interministerial group to make recommendations to the government.
  • The decrees are expected to be signed by either President Boris Yeltsin or Prime Minister Viktor Chernomyrdin, and will be implemented in conjunction with a transparent and nondiscriminatory permitting system for exports.
  • Russian production associations, which supposedly are covered by the export tariff and excise tax, will actually escape it, according to Deputy Energy Secretary William H. White.
  • The Russian officials have assured their U.S. counterparts that most U.S. companies in Russian joint ventures will be eligible for the cuts.
  • Any remaining tax burden on foreign companies exporting Russian oil and natural gas may only include income and payroll taxes after the decrees are implemented.

Statistics:

  • Typical tax burden on foreign companies exporting Russian oil and natural gas: $10/bbl.
  • Projected tax burden on foreign companies exporting Russian oil and natural gas if the decrees materialize: $5/bbl.
  • Conoco Inc.'s investment in the Polar Lights project: $300 million.
  • Maximum reduction in tax burden for foreign companies exporting Russian oil and natural gas: 50%.

Sources:

  • "Russian energy officials give U.S. a promise." (No specific date mentioned)
  • Deputy Energy Secretary William H. White