Managing Director
VYGON Consulting Managing Director Grigory Vygon made a speech at a round table devoted to the issues of increasing investment attractiveness of Russian oil industry. The discussion took place in the framework of the I International Forum "Russian Energy Week", which takes place in Moscow on October 3-7, 2017.
The event was also attended by First Deputy Minister of Energy of the RF Alexey Teksler, Director of the Tax and Customs Policy Department of the Ministry of Finance of the RF Alexey Sazanov, Governor of the Khanty-Mansi Autonomous Area Natalya Komarova, General Director of JSC Zarubezhneft Sergey Kudryashov, Board Member of Alfa-Bank Maxim Pershin and President of the Institute for Energy and Finance Vladimir Feigin. Discussion was held by Pavel Sorokin, the Head of Directorate of the Analytical Center of the Fuel and Energy Complex of the Russian Energy Agency of the Ministry of Energy of the RF.
In the discussion of aspects of investment attractiveness of domestic oil production, the panelists focused on its most important element – the tax system and the excess profit tax experiment, which is designed to involve new oil reserves in production and create an impulse for Russian oil industry development.
Tax policy should take into account the role of oil production as a Russian economy growth driver – one of the key conclusions reached by the experts. "With all the restrictions, including those related to the agreement with OPEC, last year and this year we will produce more than 547 million tons of oil. <…> About 180 million tons of this amount is concessional," Alexey Teksler stated. "The budget took the main blow from the changes in the economic situation and, thus, the tax system was sufficiently adapted to support the oil industry, which is crucial to the country's economy," Mr. Teksler added.
Commenting on the topic of taxation system optimization, Alexey Sazanov announced the premature transition of the entire oil industry to excess profit tax in the medium term. "The excess profit tax creates fairly appropriate outlines of this system. But the state cannot completely abandon turnover taxes since they account for more than 30% of federal budget revenues. Therefore, in any case, we need to maintain some proportion of turnover taxes and taxation on financial results," Mr. Sazanov added.
In turn, Alexey Teksler stated that the excess profit tax allowed to increase the oil extraction factor from the current 30% to 35% and argued in favor of the widespread extension of excess profit tax mechanism. "The mere fact of extension of excess profit tax to entire Western Siberia will involve at least 5 billion tons of reserves. Naturally, we are talking about the future perspective," Mr. Teksler commented.
Separately, the panelists discussed the issue of absence of tax incentives for the development of HTR reserves. Grigory Vygon stressed that the set of applicable benefits is not effective enough in this segment and the state should consider stimulating domestic technologies for HTR reserves extraction. "Absolutely different approaches should be applied here. Mechanisms have already been found as well, and they are not about the tax system, but rather about the corresponding testing sites," the Head of VYGON Consulting believes. "We need to look for systematic solutions and, first and foremost, for those targeted at stimulating production in Western Siberia since all of our tax reforms so far have been aimed at highly depleted fields," Mr. Teksler agreed.
At the same time, according to the Head of VYGON Consulting, Russia needs to stimulate not only oil production, but also onshore exploration. "Almost everything related to incentives is about production, while there is no target mechanism for stimulating exploration with the exception of offshore. This issue should be addressed and extrapolated to onshore, various coefficients should be examined, this can be done within the framework of excess profit tax," Mr. Vygon stated. According to the expert, the introduction of excess profit tax will also help to stimulate exploration.