In early March, Russian media reported that the Ministry of Finance has changed its stance on tax incentives for the Priobskoye field in western Siberia, being developed jointly by Rosneft and Gazprom Neft. Valued at 600bn rubles ($8.9bn) over the next decade, the ministry originally sought for the mineral extraction tax (MET) deductions to be disbursed in accordance with the budget baseline oil price. Receiving the full 60bn rubles per year would only be possible with oil prices above $65 per barrel, while scaled deductions would be disbursed at prices between the baseline and $65.
Faced with the government’s shift back in favor of oil and gas sector spending under Prime Minister Mikhail Mishustin, however, the Finance Ministry is now suggesting fixed deductions of 60bn rubles ($887mn) per year over the next decade. That fixed distribution would nevertheless only occur with oil prices above the budget baseline, which Rosneft still opposes.
At first glance, the Finance Ministry’s shift on the Priobskoye deductions, which had been the subject of a long battle with Rosneft CEO Igor Sechin, appears to be a move that says “if you can’t beat them, join them.” At the same time, however, Finance Minister Anton Siluanov is looking to establish a special division that could end up watching oil and gas companies more than they would like. In particular, it would help monitor their compliance with conditions to receive tax benefits. Those terms could include an obligation to invest profits in new and existing fields to increase production rather than “go to shareholders’ pockets.”
As such, the Finance Ministry continues to fight for influence as it adapts to the government’s shifting strategy on energy sector spending. This change has been particularly beneficial for Rosneft under Mishustin, who is emerging as a major ally for Sechin’s interests. In fact, also this week, Arctic investment legislation that would give the company long sought after tax breaks for its Vostok Oil project, as expected, passed its second reading in the state Duma.
The company has recently enjoyed other important wins. Deputy Prime Minister Yuriy Trutnev’s initiative to open Arctic offshore development to private companies, which would have broken Rosneft’s and Gazprom’s monopoly there, was knocked down by ministry opponents. On 5 March, Mishustin replaced First Deputy Prime Minister Andrei Belousov with Presidential Aide Maksim Oreshkin in his nominations for government representatives to Rosneft’s board of directors.
The move plays in Sechin’s favor, as he had long disliked Belousov’s insider status during his time as a board member. He was an advocate of increased access to offshore Arctic licenses and opposed Rosneft’s acquisition of Bashneft. Meanwhile, Oreshkin, who took over Belousov’s role as economic advisor to President Vladimir Putin, has been a careful supporter of Rosneft’s activities since his time as economic development minister; his predecessor Aleksei Ulyukayev was arrested in a plan orchestrated by Sechin. With Belousov out of the way and Oreshkin’s preference to avoid rocking the boat, Sechin has been granted further room to maneuver.