MOSCOW, October 8. /TASS/. The Russian Ministry of Energy has justified the need for new benefits for the oil industry that are currently under discussion in the government. These preferences will stimulate oil production, attract hundreds of billions of rubles of investment per year, and will also extend the maximum level of oil production in Russia for at least 5-7 years, Deputy Energy Minister Pavel Sorokin told TASS.
Earlier, Director of the Tax and Customs Policy Department at the Finance Ministry Alexey Sazanov criticized the proposals of the Ministry of Energy regarding additional benefits for the oil industry, since more than 51% of oil reserves already have preferences from the state. He suggested that preferences for the industry has become a strategic goal for the Ministry, and it could potentially have a negative impact on oil production in the country.
Sorokin did not agree with the opinion of his colleague from the Ministry of Finance. According to him, Russian oil companies will not benefit from tapping about a half of West Siberian reserves under the current oil system and the risks exists that these hydrocarbons will remain forever in soil.
"The greater portion of oil reserves is concentrated in West Siberia. This amounts to approximately 60% of Russian reserves. A half of these volumes is not developed and will not be developed most probably under the current fiscal system. These reserves will remain in soil. Furthermore, the production drop in the Khanty-Mansi Autonomous District is over 14% during ten years with a significant impairment of key development parameters. This is a clear indicator that the economy does not work without incentives," Sorokin said.
Sorokin added that the incentives offered by the Russian Ministry of Energy to stimulate oil production will lead to additional hundreds of billions of investment per year to the oil industry, and extend the marginal level of production in Russia for at least 5-7 years.
"If we adopt a complex of incentives, then in a few years we could get several hundred billion rubles of additional investment per year," he said. "We can maintain production volume for another 5-7 years at least, only by working in traditional production regions. However, the main thing is that it will allow attracting investments, reach the industry’s potential, making a significant contribution to accelerating GDP growth rates and securing orders for high technologies and import substitution. Without such measures, the opportunity will be lost," he added.
Oil production growth in recent years has occurred exactly on account of fields with preferences but benefits will not be enough to keep production when the greenfields potential will exhaust, the official said.
Measures suggested by the Energy Ministry will make possible to turn the oil industry into the largest investment driver in the country, which will speed up development of all other economic sectors, Sorokin added.
It was reported earlier that the Energy Ministry and the Natural Resources Ministry drafted a lift of six types of benefits for oil companies to incentivize oil production. These are the uplift mechanism, exploration incentivization, extension of additional income tax parameters, greenfields, incentivization of introducing tertiary methods of oil production and development of oil rims.