Abstract
This article analyzes reform and amendment of petroleum tax policy in Russia to investigate instability of tax regime which is one of the main concerns for decision making in asset acquisition. Historical and recent amendments of upstream fiscal terms in Russia are reviewed and studied in an attempt to understand the trends of reform. Tax burden of four different cases is modeled with the change of tax policy to analyze the effect of tax incentives. The recent “tax maneuver” of transferring export duty to Mineral Extraction Tax (MET) is studied in detail to analyze effects to upstream, refinery, and customers. Net present values of three field cases under previous tax regime and new Added Income Tax (AIT) regime are comparatively studied with cashflow modeling. The article concludes that recent “tax maneuver” has indirect influence on upstream sector but may lead to upward pressure on retail. New AIT regime introduces a universal taxation system and requires less government intervention, which may reduce aboveground risk of unstable fiscal regime and boost international investment in Russia. Also, key suggestions are summarized for international investors who are interested in oil and gas asset in Russia.
Highlights
Russia produced 11 201 thousand barrels per day of crude oil and condensate and 64.8 Bcf per day of gas in 2018
Oil and gas industry in Russia faces internal and external challenges such as sanction imposed by the US and EU [2, 3]
For upstream oil and gas in Russia, most of the tax burden comes from gross taxes like Mineral extraction tax and export duty
Summary
Russia produced 11 201 thousand barrels per day of crude oil and condensate and 64.8 Bcf per day of gas in 2018. It is one of the top oil producers in the world, alongside Saudi Arabia and the US. Oil and gas industry in Russia faces internal and external challenges such as sanction imposed by the US and EU [2, 3]. Some papers studied the tax regime of oil and gas industry in Russia. Alexeev and Conrad analyzed government took under the tax policy of Russia in 2008 and compared with tax regime in other countries such as Australia and Canada [4]. The Russian government reforms the tax regime again, gradually moves export duty to MET and introduces Added Income Tax (AIT). The objective of this article is trying to understand the challenges to international investors in perspective of unstable fiscal regime. Challenges and advantages of recent reform and tax code adjustment are studied
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