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The St. Petersburg Times: Trutnev Floats Oil Proposal

By Tanya Mosolova
Issue #1290 (56) Thursday, July 19, 2007 

MOSCOW — The government has revived the idea of tax breaks for offshore oil and gas deposits, and will discuss it with global oil majors Tuesday following a landmark deal with France’s Total over the huge Shtokman gas field.

The Natural Resources Ministry said Monday that its chief, Yury Trutnev, would meet executives from ExxonMobil, Royal Dutch Shell, BP, Total and Chevron among other firms Tuesday.

“Among the issues to be discussed … will be possible ways for further tax differentiation aimed at increasing inflow of foreign investment into the [resources] sector,” the ministry said.

The government has long mulled tax breaks for eastern Siberia, Timan Pechora and its offshore seas but last year decided to limit the number of regions to one — eastern Siberia, which is heavily dominated by state-controlled majors Gazprom and Rosneft.

Analysts have said tax breaks for Timan Pechora dropped off the list as it was heavily dominated by LUKoil, and the Kremlin had little incentive in giving privileges to the private firm.

“At that time, Russia also had a very vague idea as to how it wants to tap its offshore fields. The situation is very much different now after the Shtokman deal,” said Valery Nesterov from Troika Dialog.

Gazprom agreed last week to bring Total into the Shtokman gas field. Total would become a development partner with a 25 percent stake in a firm that will own $15 billion worth of first-phase infrastructure.

Total said it would be able to book reserves from Shtokman, although Gazprom will remain the field’s license holder as well as the sole owner of gas produced.

Foreign majors have suffered a number of setbacks in the past years in Russia, with Shell being forced to cede control to Gazprom in its $22 billion Sakhalin-2 project after months of pressure from state authorities.

Last month, TNK-BP sold control to Gazprom in its Kovykta gas field. The sale has further soured the outlook for foreign deals in Russia, a mood which was quickly reversed by the Shtokman deal.

Analysts say it could become a new constructive, rather than repressive, way of cooperation offered by the Kremlin.

“The Shtokman deal gave a much clearer idea of what foreign firms could expect from Russia — there will be no production sharing or access to licenses. The best foreigners can expect is to become development partners,” Nesterov said.

Natural Resources Ministry spokesman Nikolai Gudkov said the ministry was primarily focused on encouraging Russian companies to develop new untapped regions, although foreign investments were also important.

“If new tax breaks are approved, it will be up to Gazprom to decide how to make them work for foreign partners, such as Total,” Gudkov said.

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