The oil price boom in 2008 sent the oil sector’s proceeds upswing substantially (Fig. 32, 33). That year, aggregate proceeds from export of oil and main kinds of oil products (petrol, diesel fuel and black fuel oil) accounted for USD 228.9 bln., which was a record-breaking amount ever posted over the whole post-reform period. (Tables 37, 38). It can be noted for reference that the minimum level of oil export proceeds (USD 14 bln.) was recorded in the conditions of the 1998 price downfall. The fall in oil prices in 2009 likewise resulted in a substantial contraction of export revenues, while the subsequent price rise in 2010 made export proceeds bounce upwards substantially. Between January and November 2010 the aggregate proceeds from export of oil and oil products hit USD 173.6 bln.
Table Export Proceeds from Oil and Oil Products in 2000–2010, as USD Bln.
2000 2001 2002 2003 2004 2005 2006 2007 2008 (11 мес.) Export gains from oil and 34.9 33.4 38.7 51.1 74.6 112.4 140.0 164.9 228.9 141.2 173.main oil products Source: calculated on the basis of the Federal State Statistics Service’s data.
RUSSIAN ECONOMY IN trends and outlooks Table Proceeds from Export of Oil and Oil Products in 2008–2010, as USD Bln.
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 QExport gains from oil 53.2 64.4 68.9 42.4 25.6 30.6 39.2 45.8 45.2 47.9 46.and main oil products Source: calculated on the basis of the Federal State Statistics Service’s data.
Affected by increasing world prices for oil and gas, the proportion of fuel-and-energy commodities in Russian’s exports in 2008 hit 68.6%, including crude – 34.4% (Table 39). In 2009, the share of these commodities in the nation’s export dropped slightly, but remained high nonetheless. In 2010, the proportion of fuel-and-energy commodities in Russia’s exports accounted for 67.5%, including crude – 34.0%.
Table Value and Specific Weight of Export of Fuel-and-Energy Commodities in 2005–2005 2008 2009 USD bln. %* USD bln. %* USD bln. %* USD bln. %* Fuel-and-energy commodities, total 154.7 64.1 321.1 68.6 201.1 66.7 267.7 67.Including:
oil 83.8 34.7 161.2 34.4 100.6 33.3 134.6 34.Natural gas 31.4 13.0 69.1 14.8 42.0 13.9 47.6 12.* As % of the total volume of Russian exports.
Source: the Federal State Statistics Service.
Oil Black fuel oil Source: calculated on the basis of the Federal State Statistics Service Fig. 32. Average Export Prices of Oil and Black Fuel Oil in 2000–2010, USD/ton Jul-Jul-Apr-Apr-Oct-Oct-Jan-Jun-Jan-Jun-Jan-Jun-Feb-Mar-Feb-Mar-Nov-Nov-Nov-Sep-Dec-Aug-Sep-Dec-Aug-May-May-Section 4.
The Real Sector of the Economy 110 55 0 Mln t. (left axis) USD mln (right axis) Source: calculated on the basis of the Federal State Statistics Service’s data.
Fig. 33. Export of Oil and Oil Products in Natural and Value Equivalent in 2000–2010, Mln. T/, USD Mln.
4.4.4. Price Dynamic for Energy Commodities on the Domestic Market Propelled by rising oil prices in 2008, the domestic prices of oil and oil products in Russia likewise were on the upsurge. In the summer of 2008, the prices for oil, petrol, diesel fuel and black oil fuel hit their absolute peaks over the post-reform period. In July 2008, the average domestic price of oil (producer price) in USD equivalent hit USD 410.2/ton, while the one of petrol – USD 810.3/ton. Between September and December 2008, and in the early 2009, the plummeting world oil prices and depreciating Ruble sent domestic prices of oil and oil products in USD equivalent nosedive. In 2009, the domestic price of oil and oil products in USD equivalent notably bounced upwards as a result of rising world oil prices and eventually overrun the 2008 figures. (Table 40, Fig. 34, 35). In 2010, the world prices of oil and light oil products continued climbing up and fueling a further increase in the domestic prices of oil and light oil products in USD equivalent.
Table Domestic Prices of Oil, Oil Products and Natural Gas in USD equivalent in 2000–2010 (Average Producer Prices, as USD/ton) 2000 2005 2006 2007 2008 December December December December July December Oil 54.9 167.2 168.4 288.2 410.2 114.Petrol 199.3 318.2 416.5 581.2 810.3 305.Diesel fuel 185.0 417.0 426.1 692.5 902.8 346.Black oil fuel 79.7 142.7 148.8 276.5 392.8 125.Gas, USD/ c.m. 3.1 11.5 14.4 17.6 23.8 18. Jul-Jul-Apr-Apr-Oct-Oct-Jan-Jun-Jan-Jun-Jan-Jun-Feb-Mar-Feb-Mar-Nov-Nov-Nov-Sep-Dec-Aug-Sep-Dec-Aug-May-May-RUSSIAN ECONOMY IN trends and outlooks Table 40 (continued) 2009 2009 2009 2009 January March June September December Oil 62.2 122.9 194.7 225.9 219.Petrol 244.3 318.8 481.5 593.2 457.Diesel fuel 306.2 343.1 382.1 388.2 394.Black oil fuel 107.2 145.9 210.8 265.8 250.Gas, USD/ c.m. 13.5 14.5 22.0 22.4 16.Table 40 (continued) 2010 2010 2010 2010 January March June September December Oil 196.5 216.3 196.7 211.2 248.Petrol 483.0 507.3 529.2 544.0 547.Diesel fuel 429.5 431.3 406.7 423.8 536.Black oil fuel 195.3 229.0 236.3 246.2 246.Gas, USD/ c.m. 17.7 18.7 18.7 23.5 20.Source: calculated on the basis of the Federal State Statistics Service’s data.
Meanwhile, domestic oil prices in Russia still are substantially lower than the world ones.
Behind the gap are such objective conditions as the existence of an export customs duty and additional transportation costs. Against such a backdrop government regulators kept keeping a watchful eye on domestic gas prices. It is envisaged to transit, within coming years, to a stage-by-stage increase of domestic gas prices to a level securing the same profitability rate from its sales in Russia as the one ensured by overseas sales. If the move is successful, the gap between domestic and world prices should narrow, with the domestic prices of gas still being lower than the world ones (given the export duty and transportation costs), nonetheless.
500 Oil Gas 0 Source: calculated on the basis of the Federal State Statistics Service’s data.
Fig. 34. Average Producer Prices of Oil and Gas in USD Equivalent in 2000–2010, USD/Ton, USD/Thos.c.m.
The Real Sector of the Economy Petrol Black fuel oil Source: calculated on the basis of the Federal State Statistics Service’s data.
Fig. 35. Average Producer Prices of Petrol and Black Fuel Oil in USD Equivalent in 2000–2010, USD/Ton 4.4.5. Tax Regulation of the Oil-and Gas Sector Since 2009 amendments were made to the Tax Code of RF. They are aimed at alleviation of the tax burden on the oil-and-gas sector, encouragement of a more intense development of deposits in operation and development of new oil fields in underdeveloped regions and at the continental shelf. Specifically, in the formula calculating the Rp ratio that reflects the world oil prices and is applied to the basic mineral tax rate on produced oil, the exempted price minimum was increased from USD 9/bbl. to 15/bbl. (Table 41), which resulted in a substantial decrease of the effective mineral tax rate on extracted oil. As well, the requirement to use the direct method of accounting the volume of oil output at a specific mining allotment was abolished to ensure the decreased ratio is applied to the mineral tax rate (Кb) employed at oil fields with a high reserves depletion rate. That allowed the benefit in question to cover all the worked-out deposits, which stimulates extension of their operational deadlines and gives boost to an additional oil production.
To give a fillip to development of new oil-and-gas provinces for new oil deposits located in Eastern Siberia, in Nenetsky Autonomous Okrug, in Yamal peninsula (Yamalo-Nenetsky Autonomous Okrug), at the continental shelf of the Russian Federation north of the Arctic Circle, as well as in the Sea of Azov and Caspian Sea, the Government has granted tax holidays in regard to the mineral tax. Specifically, corporations developing new oil deposits of the Eastern-Siberian oil-and-gas province within the borders of the Republic of Sakha (Yakutiya), Jul-Jul-Apr-Apr-Oct-Oct-Jan-Jun-Jan-Jun-Jan-Jun-Feb-Mar-Feb-Mar-Nov-Nov-Nov-Sep-Dec-Aug-Sep-Dec-Aug-May-May-RUSSIAN ECONOMY IN trends and outlooks Irkutsk oblast and Krasnoyarsk krai now can enjoy zero rate of the mineral tax until they hit the accumulated volume of oil production of 25 mln. tn. at a given mining allotment, provided they meet the 10-year reserves development deadline, or for 10 years for an E&P license and 15 years – for a complex E&P and production license effective since the date of its public registration. (Table 42).
Table The Mineral Tax Rate on Oil Extraction in 2005–2005 2006 2007 2008 2009 The basic mineral tax rate levied on oil extraction, Rb/ton 419 419 419 419 419 The ration characterizing the world oil prices dynamic (Rp) (P–9) х R/261 (P–15) х R/Reserves depletion ratio of a mining - allotment (Кb) 3,8 – 3,5 х N/V Note: P – the price level for Urals in USD/bbl equivalent averaged over the tax period; R - set by the CBR USD-to-Rb. exchange rate value averaged over the tax period; N – cumulative oil production at a mining allotment; V –initial recoverable reserves of categories А, В, С1 и С2 at a mining allotment.
Source: the Tax Code of RF, Federal Act of 22.07.2008 № 158-FZ, Federal Act of of 27.07.2006 № 151-FZ, Federal Act of 07.05.2004 № 33-FZ.
To additionally encourage development of oil deposits in Eastern-Siberian oil-and-gas province since 1 December 2009 the RF Government set zero oil export duty rate effective through 1 July 2010. The Government subsequently transited to apply lowered export duty rates to the East Siberian oil and since December 2010 extended the effect of the leverage to cover deposits located in Caspian Sea.
Table Regions of Application and tax Holidays Parameters of the Mineral Tax on Oil Extraction Accumulated volume Date as of which the of oil production at a E&P license validity E&P license validity Region benefit became mining allotment, period, years period, years effective mln. tn.
1. Republic of Sakha (Yakutia), 25 10 15 01.01.Irkutsk oblast, Krasnoyarsk krai 2. Continental shelf north of the 35 10 15 01.01.Arctic Circle 3. Nenetsky AO, Yamal penin- 15 7 12 01.01.sula 4. Sea of Azov Caspian Sea 10 7 12 01.01.Source: the Tax Code of RF.
In 2010, the RF Government produced a string of new proposals (amendments to Part 2 of the Tax Code of RF) on modifications in taxation of the oil-and-gas sector consequently adopted by the Federal Assembly of RF and promulgated since 2011. The amendments provide for some increase in the mineral tax rate in regard to oil and a substantial increase of the mineral tax rate on natural gas. The basic mineral tax rate on oil will be subject to indexation with account of the projected inflation rate in 2012–2013, that is, they will be raised up to Rb.446 /ton in 2012 and further up to Rb. 470/ ton in 2013. The mineral tax rate on gas will be raised way more substantially. It has remained unchanged since 2006, while since then wholesale gas prices have risen 2.12 time. As a consequence, the mineral tax rate on gas slid considerably both in real and nominal terms (as percentage of its price).
The Real Sector of the Economy At this juncture we believe a logical move would be to have the mineral tax rate on gas production indexed according with the price rise for gas in the domestic market. The Government, however, tried a more conservative approach: since 1 January 2011 the rate of the tax in question is to be indexed 1.61 times, which de facto quadrates with the inflation accumulated over 2007–2010. The gas mineral tax rate is to be further increased in 2012–2013 to catch up with the projected inflation rate. As a result, since 1 January 2013 the mineral tax rate on gas production will make up Rb. 265 /Thos. c.m. (Table. 43).
Table Mineral Tax Rates on Oil and Natural Gas Production in 2010–2010 2011 2012 Mineral tax rate on oil, Rb/ton 419 419 446 Mineral tax rate on gas, Rb/Thos. c.m. 147 237 251 Source: the Tax Code of RF In order to encourage development of small oil deposits, in 2010 the Government prepared amendments to Art. 342 Part Two of the Tax Code of RF on introducing to the mineral tax rate of oil production a special decreasing coefficient that characterizes the amount of field reserves at a given mining allotment, aka Cr. It is suggested to calculate this coefficient by a special formula and apply to mining allotments with initial recoverable oil resources up to mln. tn. and a field depletion rate up to 0.05.
The procedure of calculation of the mineral tax on oil extraction currently does not provide for any correlation between taxation differentiation with the volume of oil reserves at a given mining allotment. As a result, development of small oil deposits with the volume of recoverable resources under 5 mln. tn., as a rule, proves inappropriate from the economic perspective, as specific capital and operational costs remain high. That said, the government list of mining resources comprises some 1,000 oil deposits, which can be classified into the group of small ones, with recoverable resources under 5 mln. tn. and the depletion rate under 5%, whose aggregate reserves account of 1 bln. tn. of oil.
Once applied, Cr should create conditions for development of new small oil fields, which would not be developed otherwise. That should allow extraction of additional oil reserves concentrated therein. The RF Government’s calculations show that the use of Cr should result in a 10.2 mln. tn. of extra oil production at such fields in the first year of application of the benefit and 214 mln. tn over the first 10 years.
In the frame of implementation of the policy on encouragement of new regions of oil production, the RF Government coined proposals on employing already effective in a number of regions tax break regime in regard to the mineral tax to new oil fields located in YamaloNenetsky Autonomous Okrug, north of the 65° of northern longitude. It is proposed to apply to mining allotments in that region (except for those located in Yamal peninsula) zero rate of the mineral tax until they hit the accumulated volume of oil production of 25 mln. tn. at a given mining allotment, provided they meet the 10-year reserves development deadline, or for 10 years for an E&P license and 15 years – for a complex E&P and production license effective since the date of its public registration.
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