Energy Ministry Proposing to Raise Nontaxable Oil Threshold to $25/ Barrel From 2010

MOSCOW. Sept 5 (Interfax) – The Russian Energy Ministry is drafting proposals on raising the nontaxable cut-off price for oil to $25 from $15 a barrel from 2010, Deputy Energy Minister Stanislav Svetlitsky told reporters.

Svetlitsky said the ministry did not think the Finance Ministry’s approved initiative to raise the non-taxable NRET threshold to $15 from $9 a barrel went far enough.

“The Finance Ministry estimates that the tax burden on the oil industry is 60% of revenue, but we think it is 76%-79%. In general, I think this burden needs to be reduced to 50% from 76%-79%, and the funds made available used to modernize our plants,” he said.

Raising the nontaxable threshold to $25 from $15 a barrel could save the oil companies 400 billion rubles a year for oil companies, according to estimates by the Energy Ministry and the oil companies themselves. Raising this to $15 from $9 would only save them around 100 billion rubles a year, Svetlitsky said.

He said the oil companies would not keep this windfall, but they would pay it back into the budget in the form of profit tax and a 20%-hike in tariffs to use Transneft’s (RTS: TRNF) pipeline system in 2009.

“But the oil companies need this cushion to enable them to develop new projects,” he said.

The Energy Ministry will submit its proposals to the government by the end of this year, he said.

The ministry also intends to discuss changes to the way the NRET is calculated with the Finance Ministry.

Amendments to the Tax Code, raising the nontaxable threshold on oil to $15 from $9, were passed in the summer, but some oil companies said that is not enough.

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