... at a meeting on the oil sector development
Prime Minister Vladimir Putin chaired a meeting on the development of the oil industry in the town of Kirishi, Leningrad Region, yesterday. The Prime Minister made no bones about the fact that the oil industry, "with all due respect", would not continue to enjoy the benefits it was counting on, certainly not by comparison with other industries. Our special correspondent ANDREI KOLESNIKOV thinks that can be regarded as a sensation: the participants in the meeting apparently expected something very different.
Arriving at the Kirishi oil refinery, Mr Putin first visited the control station that manages about half of the refinery. Before his arrival the staff at the control station converged on the journalists.
"Have you ever seen live crude oil?" senior operator of the AVT-6 unit, Sergei Smirnov, inquired. "It is black gold. You ought to understand where it all comes from and how it looks. We'll pour you some oil into this jar..."
Five minutes later the few journalists present were passing around a jar with a smelly black liquid, realising, I hope, that the liquid they were holding in their hands made the world tick. At least senior operator Sergei Smirnov was exuding confidence. After the jar with crude oil had been displayed somebody moved to take it out of the room, but then it was decided to keep it until Mr Putin arrived.
Mr Smirnov was determined to play his part to the end. A few days earlier Mr Putin chaffed Agriculture Minister Alexei Gordeyev for not having brought any milk to a meeting of the Government Presidium. Mr Smirnov apparently wanted to demonstrate that he had done his homework. He hid the jar with crude oil behind a potted plant.
Alas, his plan was not to come true. Mr Putin did not see the substance that provided one third of the national budget every year, and underpinned the prosperity and happiness of the country's citizens and the prosperity and happiness of its leaders.
Instead the Director-General of the oil refinery, Vadim Somov, took a long time telling the Prime Minister about the achievements and prospects of the enterprise until Mr Putin indicated with an eloquent gesture that it was time to go. At that point Mr Somov startled everyone by saying: "And now for the most important thing."
The remark suggested that up until then he was talking about trifles. The words sounded like a plea and Mr Putin stopped in his tracks. The screen which until then showed the achievements and prospects suddenly displayed "The List of Measures Required for the Development of the Oil Industry". It contained three items: "To exempt light oil products from export duties throughout the payback period; to fix the zero rate of import duties on equipment for deep oil processing that has no analogues in Russia, and a zero rate of VAT on equipment; to set differentiated rates of excise tax on petroleum products."
Mr Putin started going over the list point by point. "Well, item two has already been passed," commented Deputy Prime Minister Igor Sechin. " Items one and three are also important, though. There is a lot to discuss there."
The head of Surgutneftegaz, Vladimir Bogdanov, who had been silent all the while, suddenly became very animated and joined in the conversation. All these people seemed to understand that today some decisions had to be taken in favour of the industry that had suddenly become a problem and they were prepared to fight for these measures every inch of the way.
The fiscal load on the oil industry is uniformly heavy and the oilmen are bitter: When oil prices were high they were paying up to 80% of their profits in taxes, and now that the prices are three times lower the tax rate has remained and nobody seems to be in a hurry to help them.
Bitterness was in the air during the conference after the visit to the refinery. Mr Putin listed the measures the Government had already taken to make oilmen's life easier: "We have cut the export duty, and cut the mining tax as of January 1, 2009... The tax burden on the industry has been reduced by 500 billion roubles."
The Prime Minister seemed eager to anticipate the complaints that might be aired during the meeting: "Yes, oil companies have to work in more difficult conditions. But everyone has to work in more difficult conditions."
Mr Putin agreed with just one measure: To cut the export duties for the oilfields in Eastern Siberia where extraction and transportation is costlier than in other places. Mr Putin categorically refused even to discuss the possibility of postponing the introduction of new standards for engine fuel:
"With all due respect and attention to the oil industry I can say that we have other industries, including the automobile industry. So I don't think it makes sense to prolong the implementation of these plans by seven or ten years."
The Prime Minister gave the floor to Energy Minister Sergei Shmatko who went out of his way to promote the interests of his Ministry, albeit with limited success.
Right off, he made a complaint the Prime Minister tried to hold him back from making. He suggested that with the new oil prices, the Government should help the industry in the same way as it was helping it when the prices were high. "We are not going to apply the former measures now that the oil prices have changed," Mr Putin said, noticeably vexed. "Taxes will be cut."
Mr Shmatko, looking into his notes, mumbled something about taxing profit-making companies in proportion to their profits.
One should have seen the face of Finance Minister Alexei Kudrin at that moment. I saw it. He sighed heavily and looked up at the chandelier hanging from the high ceiling.
When Mr Shmatko mentioned the lifting of import duties on types of equipment that are not manufactured in Russia, the Prime Minister interrupted him: "You have already made that decision. Are there still duties that have not been lifted?"
Mr Shmatko was trying to chip in, but the Prime Minister interrupted him: "Did you write it down automatically? Or perhaps you are talking about lifting the VAT?"
He seemed to be prompting the Minister to give the right answer. But Mr Shmatko was not going along with that. He said a few more sentences whose meaning was extremely vague.
"Are you talking about speeding up the abolition of VAT?" Mr Putin asked him, trying to connect the Minister's words with reality. The Energy Minister neither confirmed nor denied the Prime Minister's words.
Mr Putin then turned to the head of Surgutneftegaz, Mr Bogdanov: "Can you tell me whether the duties have been cancelled or not?" "Yes, they have," said Mr Bogdanov, who had brought from Surgut several bagfuls of home-made pelmeni (dumplings), to which he had treated the journalists and participants in the conference with truly Siberian largesse. "But the point is that import equipment comes to us in accordance with the single code: We bring it, pay VAT, which goes to the Treasury and we can only get a refund after all the equipment down to the last screw has been delivered. And that takes several years."
"Do you follow what they are saying?" the Prime Minister asked Mr Kudrin. "Yes, of course," the Finance Minister replied. "It's absolutely clear." At last the message Mr Shmatko was trying to get across was clear.
"Changes must be made to the Customs Code, and that will settle it," Mr Bogdanov exclaimed. "Yes," Mr Kudrin nodded, "this is what is subject to revision." Even Mr Shmatko nodded.
"Let us take note of it and take a positive decision", Mr Putin sounded relieved.
The joy was premature, however. "Better still," Mr Bogdanov suddenly added, "let us introduce a zero VAT rate, like the Chinese have done."
That was too much. Mr Putin didn't like the comparison with the Chinese.
"The Chinese also bring heavy pressure on the oil industry," the Prime Minister said. If Mr Kudrin applies such pressure things will be even worse, take my word for it."
Mr Bogdanov seemed to do just that.