* Ministry calls for new tax to bolster budget
* Oil industry says it needs support not more taxes
* Oil taxes already contribute 46 percent of revenues
By Margarita Papchenkova and Denis Pinchuk
MOSCOW, Jan 29 Russian oil firms would have to
pay more tax on some of their fields under reforms being
prepared by the finance ministry, which is seeking to get more
revenue into the budget, according to three officials and a
draft of the plans seen by Reuters.
The proposal will be a test of whether the ministry, which
has been lobbying for austerity in the face of an economic
slump, can stand its ground against the powerful energy lobby,
which argues it needs support not higher taxes.
According to the officials, who belong to two different
ministries and spoke to Reuters on condition of anonymity, a
consequence of the tax reform would be the de facto cancellation
the tax breaks on some fields.
That could affect all greenfield, or newly developed,
oilfields that currently enjoy various tax breaks, the sources
from the finance ministry and the energy ministry said.
According to Vygon Consulting, a total of 198 fields,
including brownfields, or long-operating oil fields, currently
benefit from various tax breaks.
Among the greenfields with tax breaks are those operated by
oil majors such as Surgutneftegaz and Gazpromneft
The cancellation of the tax breaks on fields is part of a
broader reform of the way energy companies are taxed. The main
measure will be a profit-based tax in addition to those used
now: mineral extraction tax (MET) and oil export duty.
Oil MET and export duty on oil and oil products contributed
6.6 trillion roubles ($87 billion) to the budget in 2014, or 46
percent of total revenues.
The sources could not say how much tax would be raised by
the new proposal as discussions are ongoing.
Sergey Yezhov, Chief Economist at Vygon Consulting, said
that under the proposed system, greenfields in their early
stages would benefit: they will pay no tax compared to 10
percent of the oil price now under the tax break regime.
According to Yezhov, fields with no tax breaks are paying
around 42 percent of the oil price in the form of export duty
But under the new system, a 40 percent tax will apply to all
fields once they become profitable, whether or not they
previously enjoyed tax breaks, plus a profit-based tax of 70
percent of positive cash-flow.
Russian President Vladimir Putin, whose allies hold leading
posts in the energy sector, had previously promised not to
increase taxes on all economic sectors before 2018.
In a sign of the pressure on the Russian budget caused by
the falling oil price, compounded by Western sanctions, Putin's
government had to change tack last year.
It de facto increased tax on energy companies by delaying a
promised cut in export duty, which brought the budget around 200
The finance ministry, custodian of the battered Russian
budget, argues there is a strong case for getting the energy
companies to pay more still.
"Amid severe problems in the economy, Russian oil companies
could be seen as fat cats" and there is no need to keep giving
them tax relief on fields, said one official, who is not
associated with the ministry of finance.
Oil companies have revenues in dollars and pay most of their
costs in roubles, so they have benefited from the falling
currency, as well as from progressive taxes which fall as a
share of revenue as oil prices drop.
FAT CATS THINNER
The energy companies are resisting further tax increases,
arguing that more tax means less money for investment in new
production. They say that would handicap Russia as it fights to
keep production high to defend its market share.
"In future we may lose market share", said a manager at a
big oil company, warning against increasing taxes on the sector.
The oil companies support the idea of a new tax in
principal, but want a reduction in the overall tax burden under
the proposed new system, two officials said.
The Energy Ministry is proposing that the new tax be
implemented in stages, with a first stage in which tax breaks
are not affected, an official in the ministry said.
The oil industry argues that there is little room for
further tax increases. An official close to the energy ministry
said the cash-flow of many oil companies may be negative this
year because of foreign debt repayments and lower income from
"The fat cats are becoming thinner," the official said.
Ultimately, Putin must decide whom to support: a ministry of
finance insisting on budget austerity, or oil tycoons led by his
closest ally, Rosneft head Igor Sechin.
($1 = 75.8300 roubles)
(Editing by Katya Golubkova, Christian Lowe and Giles Elgood)