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Viktor Zubkov: Took Note of Taxation of the Gas Industry in Russia

Source: www.gulfoilandgas.com 7/11/2014, Location: Asia

The Gazprom Board of Directors took note of the information about the taxation of the gas industry.

It was pointed out that Gazprom was a major taxpayer in Russia. For many years the Company has secured steady tax revenues to federal and local budgets. Since 2009 the amount of such allocation has grown by almost 64 per cent and exceeded RUB 1.82 trillion in 2013.

In recent years the tax burden on the gas industry has considerably increased. Thus, since 2010 the severance tax rate for Gazprom has grown almost five times – up to RUB 700 per 1,000 thousand cubic meters of gas in the first half of 2014 (3.2 times increase to RUB 471 per 1,000 thousand cubic meters for independent producers). Starting from the second half of 2014, the severance tax rate for gas and condensate has been calculated according to a special formula with respect to average gas and oil prices in the domestic and international markets as well as the degree of complexity of gas production. According to Gazprom's estimates, in the second half of 2014 the Company's severance tax rate for gas will come up to RUB 686 per 1,000 cubic meters, and by the 2014 year-end it will total RUB 693.

In addition, since 2013 there has been a gradual repeal of corporate property tax benefits for gas trunklines, power transmission lines as well as constructions forming an essential part of the said facilities: last year the tax rate equaled 0.4 per cent, in 2014 – 0.7 per cent, in the coming years an increase of 0.3 per cent a year is anticipated. In 2018 the corporate property tax will total 1.9 per cent already.

Moreover, regulated prices in Gazprom's priority domestic market are growing slower than the level of tax burden. Following the Russian Federation Government Resolution, in 2014 the wholesale prices for industrial consumers are kept at the level of the second half of 2013.

Under these conditions Gazprom sustainably fulfills the government objective for maintaining Russia's energy security. Every year the Company invests considerable funds into upgrading the existing fields and developing the new ones, gradually expands the Unified Gas Supply System. In order to secure uninterrupted gas supply to Russian consumers in decades to come, Gazprom taps new remote regions of Russia by initiating unparalleled projects in Yamal, Eastern Russia and the Arctic shelf. This work requires the necessary infrastructure from scratch, using cutting-edge engineering solutions, including the unrivaled ones, as well as innovative technologies for operating under harsh natural and climatic conditions.

In its operational activities Gazprom provides hundreds of different companies with commercial orders, therefore inducing the creation of new jobs countrywide. Thus, the efficiency of the Company's investment projects influences both the state of the gas industry and related economic sectors as well.

A major factor required for the sustainable development of the Russian gas industry is a well-balanced tax regime, which largely predetermines the stability of investments into large-scale capital-intensive gas projects. Therefore, the Company actively interacts with federal and regional authorities in the matter of state support to the gas industry.

“There is no significant imbalance in taxation of Russia's oil and gas industries. However, the increase in the tax burden on the gas industry will have a negative effect on the economy and investment attractiveness of large-scale projects run by Gazprom,” said Viktor Zubkov at the Board of Directors meeting.

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