Russian Cabinet OKs OCS development

The Russian Cabinet approved plans to develop natural gas and oil fields on Russia’s continental shelf May 12, and Natural Resources Minister Yury Trutnev said that companies would be given financial incentives to encourage investment.

These would include freeing companies that conduct geological research from taxes as well as reducing import duties when importing equipment, the ITAR-Tass news agency reported.

The Cabinet meeting confirmed a report in the Kommersant business daily, which said the Natural Resources Ministry would propose resurrecting so-called production-sharing agreements to accelerate the development of offshore reserves. Such arrangements ensure stable tax rates over the lifetime of capital-intensive mineral extraction projects but they are sometimes perceived as inimical to Russia’s interests.

The country’s Audit Chamber earlier this year reported that Sakhalin-2, a project in Russia’s Pacific offshore being developed under a production-sharing agreement, would have paid Russia billions of dollars more if it were subject to normal taxation.

Also at the May 12 meeting, Trutnev proposed the creation of a state oil company that would oversee all research and development on the shelf.

When Trutnev was challenged by colleagues on anti-monopoly issues, liberal economist Economic Development and Trade Minister German Gref, who favors a reduced role for the state in the economy, said he would suggest other mechanisms for the state to oversee development of the shelf.

Under the Natural Resources Ministry’s plan, oil extraction from Russia’s shelf will increase from a planned 10 million tons per year to 95 million in 2020, while gas production for the same period would rise from 30 billion cubic meters to 320 billion cubic meters.

—The Associated Press