Gas production on the Yamal Peninsula will be exempt from mineral tax for 12 years.
The government has quickly made good on its promise given at the October 11 meeting to grant privileges to liquefied natural gas projects. Prime Minister Vladimir Putin signed a draft plan for LNG development at Yamal that stipulates a 12-year tax exemption for Novatek’s South Tambeiskoye LNG project. The respective agencies are to submit, before yearend, a draft resolution which also cancels export duties for all the LNG and gas condensate produced in Yamal.
The South Tambeiskoye project on the Yamal Peninsula, implemented by independent gas producer Novatek, is entitled to a 12-year mineral tax exemption under a comprehensive LNG development plan in Yamal which the prime minister approved at the October 11 meeting in Novy Urengoy. Novatek’s project includes a liquefaction plant and may be granted the exemption for the entire volume of LNG and gas condensate extracted.
The prime minister also instructed the Ministries of Finance, Economic Development and Energy to draft, before December 31, a government policy aimed at stimulating oil and gas condensate development in Yamal. The incentives should include a zero percent mineral tax rate for the natural gas produced in Yamal and used for liquefaction. The exemption will be valid for no more than 12 years from the start of production or until accumulated production reaches 250 billion cubic metres of gas.
The tax exemption may also apply to associated condensate produced along with the gas intended for further liquefaction; the exemption will be in effect for 12 years or until accumulated production reaches 20mln metric tons. At the same time, the Ministries of Economic Development, Energy and Finance, as well as the Federal Customs Service and other agencies concerned are to draft, before December 31, a resolution cancelling export duties on LNG and gas condensate produced in Yamal.
Local authorities may also grant benefits to Novatek’s Yamal projects. The government has recommended that the project be given regional and local tax breaks as well as a cut in federal-level taxes which go into regional budget.
Prime Minister Vladimir Putin instructed the government commission on fuel and energy to support the LNG project by expanding its resources, also through granting Novatek some of the undistributed mineral licences in Yamal.
Mr Putin and his deputy Igor Sechin, who is responsible for the fuel and energy sector, announced in Novy Urengoy that gas companies will be granted tax breaks for high-tech projects in Yamal.
The government met there to finalise the general strategy for the country’s gas industry until 2030. Sechin said the Energy Ministry will soon submit the finished policy to the government and that the document is likely to be approved soon, as it has caused no serious disagreements between ministries.
However, Gazprom’s Bovanenkovo project, the largest in Yamal, was not considered high-tech, as the gas produced will be transported by pipeline. This means Gazprom will face a 61% increase in its mineral tax (from 147 to 237 roubles per 1,000 cu m of gas) in 2011.
Svetlana Grizan from VTB Capital said the tax breaks for Novatek did not come as a surprise. Without it, it would be impossible to develop South Tambeiskoye, considering the severe climate in Yamal and the lack of necessary infrastructure. A South Tambeiskoye feasibility study, which Novatek agreed to disclose by the end of March 2011, will provide a clear estimate of how much the company will save with the new tax arrangement, the analyst added.
Konstantin Yuminov from RMG, an investment company, said the government could have granted a longer tax exemption, because investment in infrastructure does not yield a fast turnaround. He believes the privileged taxation will enable Novatek to complete the first phase of the project without foreign investment, but the company may need a strategic investor further down the line.
By Olga Mordyushenko
