Being under a higher tax burden oil suppliers will abandon too ambitious projects

28 september 2015 | Rossiyskaya Gazeta

The Ministry of Finance is looking for money in order not to exhaust the Reserve Fund to the bottom until the end of next year, and proposes to increase the tax on oil production. However it did not meet understanding from other agencies and oil suppliers

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

The Head of the Analytical Center’s Department for Strategic Studies in Energy Alexander Kurdin reported on the pros and cons of raising the severance tax to ‘Rossiyskaya Gazeta’. "The downside is that the anti-crisis moratorium on tax increases is violated, while the stability of the tax regime is a key factor for assuring investments in the oil and gas business,"  said the expert.

Companies' calculation show that the current level of the tax burden is the maximum allowable for the development of new hard-to-reach deposits, according to Mr. Kurdin. The positive side, in his opinion, is that because of the higher tax burden oil companies give up too ambitious projects. The expert does not believe that the tax increase will play a critical role, but a certain slowdown in the development of deposits, of course, will take place.

"As for the super-profits of oil suppliers against the backdrop of a weak ruble, then at the same time they faced the sanctions, so the devaluation only damped out the problems. The fact is, oil companies had not suffered huge losses that might have emerged,"said Mr. Kurdin.