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Tax break for Arctic drilling, including Shtokman

Russia's only operating oil-rig for Arctic offshore drilling, Prirazlomnoye, is strengthen to be used in ice-covered waters. Photo: Thomas Nilsen

President-elect Vladimir Putin outlines a highly favorable tax regime for offshore drilling in the Arctic in an attempt to attract foreign companies. “It should create hundreds of thousands of new high-tech and well-paying jobs,” Putin says.

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The proposals from the Russian government includes abolishing export duty on petroleum products extracted from new offshore fields on the Arctic shelf, including fields in the Barents- and Kara Seas.

Prime Minister and President-elect Vladimir Putin announced the government’s proposals at a Thursday meeting with the heads of Gazprom and Rosneft on promoting the development of the continental shelf.

“First, we must draft a special, incentive-based taxation system for the planned shelf projects. We have therefore decided to fully cancel export duties for the new shelf projects; for the most complicated Arctic projects, the tax on the mining of mineral resources should not exceed 5% of the price of the sold produce,” Putin said according to the transcripts posted on the Prime Minister’s portal.

Putin continued, “It is also proposed that the property tax and VAT on unique foreign equipment that is not yet produced in Russia should be also lifted on all new projects, regardless of their complexity. It would be wise to maintain these conditions for a long period of time – they should not be changed for 15 years from the start of commercial production.”

With the move, Russia hopes to attract foreign petroleum companies and domestic investors to plan their work in a long-term perspective, reducing the economical risks by developing Arctic offshore fields.

Vladimir Putin says he the move will have comprehensive effect on the entire petroleum industry and Russian economy. “In perspective, it should create hundreds of thousands of new high-tech and well-paying jobs. It is quite possible that this industry will create 200,000, 300,000 and probably even 400,000 jobs. I’m referring, of course, not only to production in itself but also to related industries that will produce mining equipment,” Putin said.

He underlined that the new tax breaks hopefully would attract major global corporations to be Russia’s partners in implementing shelf projects.

Commenting on Putin’s proposals, Valery Nesterov from Troika Dialog brokerage says to Reuters, ”The move should give a positive momentum for such projects as Shtokman.”

Both Gazprom partners in the Shtokman Development AG, Norwegian Statoil and French Total have earlier this winter said that a final investment decision for Shtokman can come with a favourable tax-regime. That incentive  now seems to be in place.