A bill (no.895550-7 "On state support of business activities in the Arctic zone of the Russian Federation") was passed on its first reading in the State Duma. The bill is aimed at facilitating hydrocarbon production on the Arctic shelf, liquefied natural gas (LNG) production, and development of new oil-and-gas provinces.
Investors financing such projects will receive significant tax preferences. According to Alexey Sazanov, Deputy of Ministry of Finance, the objective of the bill is to form a resource base ensuring increase in freight traffic along the Northern sea route in the amount of at least 50 million tons by 2030 and with the potential to grow up to 100 million tons by 2050.
For offshore production, amendments to the Tax code are proposed that provide incentives for development of new offshore fields in the northern part of the Sea of Okhotsk, the southern part of the Barents sea, the Pechersk, Japanese and White seas. Mineral extraction tax (MET) rate for them will be 5% for oil, and 1% for gas during first 15 years from the beginning of commerical production.
Preferences are provided for the following onshore fields: subsurface sites wholly or partially located to the north of 70 degrees north latitude within the boundaries of Krasnoyarsk Krai, the Republic of Sakha (Yakutia), and Chukotka Autonomous Okrug.
Special tax regime is aimed at developing a new oil and gas province in the Arctic (Taimyr) with a total resource potential of about 5 billion tons of oil.
According to Daria Kozlova, Director of consulting in the field of state regulation of FEC VYGON Consulting, the measures taken may only affect individual projects. For example, based on the results of stock survey in effective tax system performed in 2019 on behalf of the Government, profit-making capacity of newly-opened fileds of PJSC "Gazprom Neft", "Neptun", and "Triton" with total extractable reserves 0f 115 mln. tonnes, is less than the lowest acceptable one for investors 15-6,3%, even at prices of 70$ per barrel. However, according to the expert, the new tax regime will allow projects to pay off the investments.
Currently, the Ministry of Finance is establishing the Excess-Profits Tax methodology and efficiency evaluation to consider economics of each particular project.
For fields that are resource bases of LNG and gas chemistry plants located beyond the Arctic circle, in the Arkhangelsk region, the Komi Republic, Yamal-Nenets Autonomous district, Yakutia, and Chukotka Autonomous district, the bill proposes a zero MET rate for 12 years from the date of delivery of the first batch of products. It will be applied either until the accumulated volume of gas production reaches 250 billion cubic meters, or within 12 years from the first date of sale. The preference will cover only new production facilities put into operation after January 1, 2022. In fact, this repeats the preferences received by Yamal LNG project, with the exception that it still had a more significant package of regional preferences.
Among LNG production facilities with scheduled launch, three NOVATEK projects – Arctic LNG-2, Arctic LNG-1, and Obsky LNG-fall within the scope of these benefits. If the law comes into force, it is possible to assume revival of such projects as Pechora LNG and Shtokman LNG.
Source:
https://rg.ru/2020/02/24/zakonoproekt-o-nalogovyh-lgotah-v-arktike-priniat-v-pervom-chtenii.html
