Russia's Oil Majors Face Higher Tax Burden Amid Economic Shifts

As Moscow tightens its grip on Russia's oil majors, executives are bracing for a heavier tax burden, with some estimating an additional $3 billion in tax revenues for the government. The change is part of Moscow's efforts to redistribute wealth and strengthen its economy, with President Vladimir Putin seeking to increase the state's share of oil profits to 80% from 50%. The proposed tax hike, however, could stunt production growth, which soared by 11% last year and is expected to rise by 9% this year to reach 9 million barrels per day.

Key Takeaways:

• Russia's oil majors, including Lukoil, Yukos, Surgutneftegas, Sibneft and Trade, paid $18.4 billion in regional and federal taxes in 2003, more than double the $8.2 billion paid in 2000.
• Since 2000, the aggregate taxes paid have been $48 billion, against net income of $41 billion, or a 54:46 split.
• The unified production tax, introduced in 2002, will likely be replaced by a differentiated tax on crude production depending on each oilfield, with proposals to adjust export duties when oil prices exceed $25 per barrel.
• Putin's election campaign has highlighted the need for higher tax revenues from the oil sector, with a tax on "windfall" oil profits expected to play a key role in supporting the less developed sectors of Russia's economy.
• Oil companies are likely to face significant changes to their tax regimes, with TNK-BP already considering restructuring its corporate structure to pay more tax and head off criticism from the tax authorities.
• Robert Dudley, TNK-BP president and chief operating officer, has emphasized the need for caution in designing the tax system, given the relatively mature asset base in the country.

Sources:

• Nefte Compass (NC) - Feb.12, p5
• Nefte Compass (NC) - Dec.31, p5
• Renaissance Capital (no date specified in original text)
• Nelli Sharushkina and Mike Teagarden (no date specified in original text)