ROSNEFT PRESIDENT PROPOSES TO INCORPORATE PSA AMENDMENTS TO THE TAX CODE IN A SEPARATE BILL
Mr. Sergey Bogdanchikov, President of Rosneft Oil Company, is of the opinion that government amendments to the Tax Code, which relate to product sharing agreements (PSA), should be incorporated in a separate bill.
Mr. Bogdanchikov made such proposal in his letter to Mr. Gennadiy Seleznev, Chairman of the Russian Federation State Duma.
As was reported, early in April, the Russian Government submitted to the State Duma its amendments to the federal bill On Amendments and Supplements to Part II of the Tax Code of the Russian Federation, which was approved of on June 27, 2002, during the first reading. The Cabinet also proposes to amend some other earlier adopted PSA laws.
In the opinion of Sergey Bogdanchikov, these amendments alter the concept of the bill as adopted in the first reading, since they not only touch upon taxation issues but also establish a new procedure for classifying subsurface sections and fields as PSA-covered facilities. Moreover, proposed amendments had neither been discussed at the State Duma and nor had they been approved of in accordance with the existing procedure, according to the address.
The letter of the Head of this oil company also says that Rosneft deems it unacceptable, when PSA are implemented, to link the oil price to the world price of Urals brand, as it is proposed in government amendments. PSA investors, just as other users of mineral resources, have equal access to oil transportation systems and export 25%-30% of produced oil. Meanwhile, domestic oil price fluctuates at 25%-30% îf the world price and is no higher than 1,580 rubles per ton now; therefore, financial results of an investor's business must be calculated on the basis of real prices in the home and global market, Sergey Bogdanchikov believes.
Furthermore, Rosneft President deems the requirement for PSA investors to make available to tax authorities the results of a tender for subsoil use other than under product sharing conditions as well as the decision to recognize a tender as frustrated to be excessive. “The requirement to make available a decision based on the results of the tender for entering into PSA, in which the investor is called a winner, would be more justified.”
As is noted in the address, the proposed increase in the rate of oil and gas condensate production tax, which is levied when the planned production level is achieved, contradicts the PSA Law and Cap. 26 of the Tax Code. Under the PSA Law, the investor compensates the government expenses related to prospecting and to making the field suitable for use, whereas Cap. 26 of the Code envisages the output tax rate with 0.7 ratio in this case or when similar work is performed using own funds. Pushing the rate up to 100% triggers discrimination against investors vs conventional users of mineral resources, the letter says.
According to the proposal made by Sergey Bogdanchikov, a separate bill should also incorporate amendments that provide for excluding tenders from the PSA practice, for canceling the tender-free procedure for granting subsoil sections in use under PSA conditions, for fixing the maximum product share for the investor (68%) and ruling out the opportunity of transition from one method of sharing to another.
The Cabinet also proposes that the law should provide for PSA conclusion only after the tender for subsoil use other than under product sharing conditions. In the opinion of Rosneft President, all these government proposals should be submitted to the State Duma for consideration.
INTERFAX-ANI, April 15, 2003
Mr. Sergey Bogdanchikov, President of Rosneft Oil Company, is of the opinion that government amendments to the Tax Code, which relate to product sharing agreements (PSA), should be incorporated in a separate bill.
Mr. Bogdanchikov made such proposal in his letter to Mr. Gennadiy Seleznev, Chairman of the Russian Federation State Duma.
As was reported, early in April, the Russian Government submitted to the State Duma its amendments to the federal bill On Amendments and Supplements to Part II of the Tax Code of the Russian Federation, which was approved of on June 27, 2002, during the first reading. The Cabinet also proposes to amend some other earlier adopted PSA laws.
In the opinion of Sergey Bogdanchikov, these amendments alter the concept of the bill as adopted in the first reading, since they not only touch upon taxation issues but also establish a new procedure for classifying subsurface sections and fields as PSA-covered facilities. Moreover, proposed amendments had neither been discussed at the State Duma and nor had they been approved of in accordance with the existing procedure, according to the address.
The letter of the Head of this oil company also says that Rosneft deems it unacceptable, when PSA are implemented, to link the oil price to the world price of Urals brand, as it is proposed in government amendments. PSA investors, just as other users of mineral resources, have equal access to oil transportation systems and export 25%-30% of produced oil. Meanwhile, domestic oil price fluctuates at 25%-30% îf the world price and is no higher than 1,580 rubles per ton now; therefore, financial results of an investor's business must be calculated on the basis of real prices in the home and global market, Sergey Bogdanchikov believes.
Furthermore, Rosneft President deems the requirement for PSA investors to make available to tax authorities the results of a tender for subsoil use other than under product sharing conditions as well as the decision to recognize a tender as frustrated to be excessive. “The requirement to make available a decision based on the results of the tender for entering into PSA, in which the investor is called a winner, would be more justified.”
As is noted in the address, the proposed increase in the rate of oil and gas condensate production tax, which is levied when the planned production level is achieved, contradicts the PSA Law and Cap. 26 of the Tax Code. Under the PSA Law, the investor compensates the government expenses related to prospecting and to making the field suitable for use, whereas Cap. 26 of the Code envisages the output tax rate with 0.7 ratio in this case or when similar work is performed using own funds. Pushing the rate up to 100% triggers discrimination against investors vs conventional users of mineral resources, the letter says.
According to the proposal made by Sergey Bogdanchikov, a separate bill should also incorporate amendments that provide for excluding tenders from the PSA practice, for canceling the tender-free procedure for granting subsoil sections in use under PSA conditions, for fixing the maximum product share for the investor (68%) and ruling out the opportunity of transition from one method of sharing to another.
The Cabinet also proposes that the law should provide for PSA conclusion only after the tender for subsoil use other than under product sharing conditions. In the opinion of Rosneft President, all these government proposals should be submitted to the State Duma for consideration.
INTERFAX-ANI, April 15, 2003
