examine the move towards royalty schemes in russia · 2013. 9. 17. · dr. a. konoplianik,...

Examine the move towards royalty schemesin Russia

Dr.A.KonoplyanikDeputy Secretary General

The Energy Charter Secretariat

Conference on “How to Manage the Evolving Relationships Between NOCs and IOCs Through Effective Production Sharing Agreements”

29-30 January 2004, London

CONTENTS:

1. Licensing regime of the 90’s

2. Licensing tax regime reform of 2002

3. 10 years of PSA history: up and down

4. Oil taxation: what will go further?

1. Licensing regime of the 90’s

DURATION OF THE “GRANDFATHER’S CLAUSE” IN RUSSIAN I NVESTEMENT RELATED LEGISLATION

1. Fundamentals of the USSR legislation on Foreign Investments (June 1991)2. Law “On Foreign Investments in the RSFSR” (July 1991)3. Decision of the Government of RF №1375 (July 1992)4. Decree of the President of RF №1466 (September 1993)5. Decree of the President of RF №2285 (December 1993)6. Law “On Product Sharing Agreements”(December 1995)7. Law “On Investment Activities in RF, realised in a form of capital investments” (February 1999)8. Law “On Foreign Investments in RF” (July 1999)9. Draft Law “On Concessions” (2003+?)

www.encharter.orgDr. A. Konoplianik, Oil&Gas IQ Conference –29-30.01.2004, London - Figure 1

The whole project-life-cycle (20+5+)Y

ears

Payback period

1 2 3 4 5 6 7 8 9

Public law regulation

Civil law regulation

Oil export price

“Instability price”

$ m

ln.

$ / t

onne

Capital expenditures

Operating expenditures

Transportation costs

Taxes

Oil export price

Gross revenueNet present value (NPV), accumulated for project life-time,discounted at 15%, actual taxesNPV at 15%, under tax & tariffs of 1993

Source: AssoNeft

“INSTABILITY PRICE” OF THE RUSSIAN TAX LEGISLATION(for a group of non-integrated oil companies)


www.encharter.orgDr. A. Konoplianik, Oil&Gas IQ Conference – 29-30.01.2004, London - Figure 3

GROSS REVENUE AND FULL PRODUCTION COSTS OF RUSSIAN OIL INDUSTRY

1910

1384

1134

863

712689

782

807839 853

1109

1371

1491

1887

600

800

1000

1200

1400

1600

1800

2000

1997 I quarter, 1998 II quarter, 1998 III quarter, 1998 IV quarter, 1998 I quarter, 1999 II quarter, 1999

Rub

./t.o

il

Revenue Costs

Source: Основные концептуальные положения развития нефтегазового комплекса России. –М., Минтопэнерго, 2000 («Нефтегазовая Вертикаль», 2000, №1, спецвыпуск)

2. Licensing tax regime reform of 2002

EVOLUTION OF THE TAX REGIME FOR SUBSOIL USE LICENSI NG SYSTEM


MRPT (differentiated)

AFTER 2004:

2. Mineral Resources Production Tax (flat rate)(Tax Code, Chapter 26)

2. Royalty

3. “Geology”(*tax4. Excise tax

1. Profit tax(Tax Code, Chapter 25)

1. Profit tax

AFTER 2002:BEFORE 2002:

Tax on Incremental Revenues (R-factor)

Tax on Right of Subsoil Use (tax on

reserves)

+

+(* - Duty for reproduction of mineral resource base

Dr. A. Konoplianik, Oil&Gas IQ Conference –29-30.01.2004, London - Figure 5

THE SMALLER IS EXPORT QUOTE (EQ) - THE LOWER IS EQUA L BENEFITS PRICE (EBP)

EBP2

EBP1

EQ2

EQ1

EBP1 < EBP2

EQ1 < EQ2

www.encharter.org

COMPARATIVE ANALYSIS: MRPT VS. PAYMENTS REPLACED WI TH IT

ЭНИПиПФЭНИПиПФ

www.enippf.ru www.encharter.orgDr. A. Konoplianik, Oil&Gas IQ Conference –29-30.01.2004, London - Figure 6

MRPT

MRPT

(2007 - …)(2007)


PROFIT TAX: NOMINAL AND EFFECTIVE TAX RATES BEFORE AND AFTER 1 JANUARY 2002

*)

7,5

*) if “investment agreements” were signed by oil companies with regional authorities prior to 2001 (Mordovia, Chukotka, Kalmykia – internal domestic offshores)


EFFECTIVE PROFIT TAX RATE OF RUSSIAN OIL MAJORS

CUSTOMS DUTY – CHRONOLOGICAL DYNAMICS PRIOR TO 2002


3. 10 years of PSA history: up and down

GOVERNMENT TAKE MECHANISMS UNDER THE LICENSING “TAX PLUS ROYALTY”AND “PRODUCTION SHARING” SYSTEMS

Minus

Equal

Minus

MinusMinus

Equal

Equal

Royalty

Revenue Revenue

Royalty

Equal

Taxes

Expenses

Taxable profit

Taxes

Net profit Subject of

negotiations

Net profit

Sta

te r

ecei

pts

Taxes(tax-oil)

State’s share

Investor’s share

“Tax + royalty” “Production sharing”

Taxable profit(profit-oil)

Costs Costs(cost-oil)

Neg

otia

ting

posi

tions


PSA PSALicensing system (T+R)

PSA /T+R PREFERENTIAL APPLICATION ZONES

1

2

3

4

Unit reserves volume of fields, mln. t /fieldNumber of fields, unitsUnit reserves volume of projects, mln.t /projectNumber of projects, units

12

34

Number of fields,

units

Unit reserves volume

mln.t/ field


CHANGING RANGE OF PSA / T+R ZONES WITH OIL PRICE FL UCTUATIONS

PSA zone (2) Licensing regime zone (2)

1

2

3

4

Licensing regime zone (1)

PSA zone (2)

Price (1)

Price (2)

PSA zone (1)

PSA zone (1)

Price, USD/t

5

- See previous Fig.

- Overall risk of financing oil and gas projects dependent on resource range zone

1 2 3 4

5

Number of fields,

units

Unit reserves volume

mln.t/ field

Ris

ks


FLAT-RATE TAX SYSTEM, PSA AND TRANSFER FROM MRPT TO PSA


4. Oil taxation: what will go further?

FINANCIAL FLOWS DURING OIL-FIELD INVESTMENT CYCLE


www.enippf.ru www.encharter.orgDr. A. Konoplianik, Oil&Gas IQ Conference –29-30.01.2004, London - Figure 14

INVESTMENT-RELATED STIMULI IN UPSTREAM OIL TAXATION IN RUSSIA: RECENT TRENDS


www.enippf.ru

In post-2002 Russian tax legislationIn pre-2002 Russian tax legislation

NoReserves depletion allowance, dependent on system of factors, up to zero rate of special oil taxes

Fading

NoBasically no. Few regions (i.e. Tatarstan) has been using it for marginal wells/fields via mechanism of diminishing a regional portion of the profit tax

Reserves depletion allowance, dependent on system of factors

Late

Basically no, except one factor (reflecting changes in world oil prices, i.e. Brent spot dated) which does not consider stages of field development, different oil qualities, domestic price changes, real export quotas, etc.

Partly existed in indirect form through negotiable character of establishing royalty value in licensing agreement

Sliding scale (project-to-project differentiation) of taxation linked to the factors of mineral rent formation

Mature

NoPartly existed (investment-related concession on profit tax up to 50% of the tax-base of the latter)

Diminishing of tax burden, especially of revenue-based taxes, shift of tax burden from early to mature stage: tax holidays, tax credits & tax-related uplift at oil field investment stages

Early

Presence of pro-investment stimuli in taxation of oil producers:Pro-iinvestment stimuli in oil producers’ taxation under the concept of its efficient (non-fiscal) formation

Stages of oil field development


POSSIBLE COMPOSITION OF INVESTMENT REGIMES IN RUSSI AN SUBSOIL USE

www.encharter.org

There is no must to have only one legal regime for subsoil use in Russia, especially taking into consideration huge geographical dimensions and geological complexities in different areas of the country. Russia is among a dozen of oil-producing countries worldwide that has more than one legal regime for subsoil.

PSAsLicenses with

allowances

ConcessionsLicenses

CivilAdministrative

Legal system

Tax

trea

tmen

t

Spe

cial

(in

cl.

indi

vidu

aliz

ed)

Gen

eral

(com

mon

)


www.enippf.ru Dr. A. Konoplianik, Oil&Gas IQ Conference –29-30.01.2004, London - Figure 16

EVOLUTION OF STATE ECONOMIC POLICY IN MODERN RUSSIA

Putin:- improving power vertical- equidistant of oligarchs

Yeltsin:- take as much sovereignty as you may handle out- future oligarchsallowed to privatize best state property in exchange for political & economic support

100%

100%Strengthening regionsStrengthening center

Str

engt

heni

ngst

ate

Str

engt

heni

ng

busi

ness

0


2-3

3

3-43-5

55-10 ?8

10 (max.)17 (8 – no damage)

20-253040

52-56up to 80

G.Gref (Ministry of Economic Development and Trade)V.Milov (Institute of Energy Policy)E.Yasin (High Economics School)

V.Putin (Russia’s President)

E.Gaidar (Institute of Economies in Transition)M.Zadornov (State Duma)

I.Nikolaev (Financial & Business Consultants)V.Orlov (Council of Federation)S.Stepashin (Audit Chamber)

A.Zhukov (State Duma)S.Glaziev (“Rodina”)

V.Klepach (Development Center)E.Gourvich (Economic Expert Group)Communist Party of Russian Federation

Acad. D.Lvov (all natural resources)Maximum assessments

INCREMENTAL RUSSIAN “OIL RENT” ASSESMENTS, USD bln. / year

Note: (1) E.Gaidar: +3-4 bln USD – no harm for investments and production growth+5-6 bln USD – no production growth+30 bln USD - oil industry collapse

(2) 3 bln. USD = dividends of Russian oil majors in 2002Source: compiled on different Russian media sources

1,5-2


OIL PRODUCED FROM THE HIGHLY DEPLETED FIELDS AS % O F TOTAL PRODUCTION OF THE COMPANY, % *


* Calculated on the Ministry of energy of RF data on oil production in 2001

91,96,21,9TNK

89,782,3Surgutneftegaz

90,745,3Sidanko

74,3178,7YUKOS

86,5213,3Sibneft

69,712,118,2LUKOIL

75,2618,8Rosneft

58,616,425Slavneft

36,99,753,4Bashneft

19,913,766,4Tatneft

less than 70%70-80%80% and more

Fields depleted at:Company

Oil produced from the highly depleted fields as % of total production of the company, % *

Source: Oil & Capital, 2003, № 9

1

2

3

Current MRPT with flat rate

MEDT proposal: MRPT differentiation with cumulative tax increase

Oil companies proposal: MRPT differentiation with zero cumulative balance

1MRPT

Increased field productivity

Tax

, Rb

/ton

neMinistry of Energy, MEDT, oil

companies proposals:Differential MRPT concept

(no new tax)

NEW RUSSIAN OIL TAXATION PROPOSALS: A FIGHT FOR “OI L RENT”

Increased field productivity

Tax

, Rb

/ton

ne

Σ ∆ = + 2-4 bln.$

Σ ∆ = up to + 80 bln.$

MRPT

Ministry of Finance proposals: Flat MRPT + New “Tax on

Incremental Revenues”

1

min.

max.

2

Σ ∆ = +(1,5-3) bln.$

Σ ∆ = 0

3


A.KONOPLYANIK’S MOST RECENT BOOKS ON THE TOPICS OF TODAY’S PRESENTATION


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MRPT


examine the move towards royalty schemes in russia · 2013. 9. 17. · dr. a. konoplianik,...

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