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AFX News Limited: Russia Loses Millions in Deals with Western Oil Majors

Russia is losing hundreds of millions of dollars in potential revenues under deals signed with Western oil majors in the 1990s, a senior official said in an interview.

Taxes from the Royal Dutch Shell-led Sakhalin-2 project in Russia’s far east “could amount to 300-400 mln usd” per year, Sergei Fyodorov of Russia’s ministry of natural resources told the official daily Rossiiskaya Gazeta.

Instead, Fyodorov said, “we receive around 20 mln usd in royalties” under a production sharing agreement (PSA) that spares the Shell-led consortium from paying the government a share of revenues until the project turns a profit.

Russian authorities have increased pressure on foreign oil majors in recent months with moves seen as part of a government drive to assert control over the country’s vast energy reserves.

Fyodorov went on to question Russia’s two other existing PSAs with consortiums led by US major ExxonMobil and France’s Total, part of a wider government campaign of criticism against the deals.

“The costs are much higher than they could be” on the Total project to develop the Kharyaga oil field in the far north of Russia, said Fyodorov, meaning that the state will receive less revenue.

Under most PSAs, companies to take on initial investments in return for favourable tax conditions and an agreement to share a designated portion of revenues once they have recouped their investment.

Fyodorov added that Exxon, which is developing the Sakhalin-1 fields, is extracting less oil than promised and “that unextracted oil is revenue not received by Russia”. 

21 Sept 2006

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