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Putin Calls For End To ‘Generous’ Oil Industry Tax Breaks

Sechin Putin

The Russian government’s generous tax break to its largest oil company, Rosneft, for work on its largest oilfield, the Priobskoye, is being called into question by President Vladimir Putin, according to a document published on the Kremlin website seen by Reuters.

Putin also ordered a moratorium on any new state support for developing domestic oilfields, country wide. The moratorium will remain in effect until the end of the calendar year. Rosneft had put its hand out just a couple of weeks ago for another tax break as well—this time for a large-scale Arctic venture—of $41 billion. President Putin had previously offered tax incentives to Rosneft for developing the costly Arctic area. It is unclear how the moratorium will affect the call for additional money for Arctic drilling.

The government extended the tax break for to Rosneft in May for the purposes of developing Rosneft’s largest oilfield, Priobskoye, months after Rosneft had asked in February for the break to offset the extra expense of pumping oil from an aging field that is experiencing depletion. The Finance Ministry opposed the idea, but the break was granted despite the pushback.

The tax breaks are expected to set the government back more than $7 billion over the next ten years.

President Putin has asked the energy and finance ministries to reveal their economic justification for granting Rosneft its wishes.

Russia’s Priobskoye oilfield suffered a major setback in January after a fire ripped through the field, cutting into Rosneft’s oil production by almost a percent and taking 1,200 wells offline, just as Russia was expected to comply with a lower oil output level as it reached a deal with OPEC to rebalance the oversupplied market.

By Julianne Geiger for Oilprice.com

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  • Binkley North on July 23 2019 said:
    As an oil and gas investor, energy should not be subsidized except to promote a new technology. It's the simplest way to encourage efficiency without messing about with political "fixes" like carbon trading scams or long term debt on the backs of taxpayers. Any subsidy should at the very least go through the same process any investor would use: when does it start paying back and is the net positive? A five year tax deferral had better replace the lost revenue over the following years in jobs, royalties and the like.

    Governments have been content to end up with billions in debt a decade or two later because they are retired (and appointed to the board of directors) by then. That is not in fact Keynesian economics it is a crime to leave debt to your grandkids if it doesn't also leave them the means to pay off the debt. That's not a figure of expression, let the accountants and economists show how it pays off twenty years hence and what is the return: I'm a taxpayer as well as an investor.

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