Private investors not allowed.
Yesterday Vladimir Putin attended a meeting on promoting the development of the continental shelf, where he talked about the future of the industry. State organisations now have an opportunity to receive unprecedented tax incentives to develop offshore projects. Oil companies will be allowed to export gas or sell it to Gazprom at export prices. The prospects for private companies who wish to participate in developing the continental shelf are still unclear. The Prime Minister promised to think it over, but the Ministry of Energy is not giving this matter a very high priority.
At the request of Deputy Prime Minister Igor Sechin, Vladimir Putin yesterday held a meeting on promoting the development of the continental shelf. The Prime Minister talked about government support measures for companies participating in offshore projects. The measures were submitted for approval by Igor Sechin (Kommersant has a copy of Sechin's letter). They include grouping offshore projects according to the complexity of the technology required for their implementation, introducing flexible taxation on the mining of mineral resources and abolishing export duties. The Ministry of Energy has been developing these measures together with the specialised institutions for the past few months.
The Prime Minister liked the proposals. He took the decision to abolish export duties for new shelf projects, which are "complicated, expensive and require huge investment."
"To attract this investment, we must not only create the most comfortable, predictable and appealing conditions, but we must also make them more profitable than those offered by our rivals," said Putin.
For the most complicated Arctic projects, the tax on the mining of mineral resources should not exceed 5% of the price of the products sold. It has been suggested that foreign equipment imported for the development of the shelf be exempted from VAT.
Putin said these tax incentives should be remain in place for 15 years.
"In this way we will give our investors an opportunity to plan their work for a long time to come. There will not be any force majeure, nor will they face any risks that the rules of the game will be revised," said Putin. "We hope that major global corporations will be our partners in implementing shelf projects."
However, Putin stressed that preference should be given to domestic equipment in the implementation of these projects.
"Contracts and orders for the production of equipment, rendering of services, and construction and geological prospecting should be primarily located in Russia. Domestic companies must fulfil these orders," the Prime Minister said.
Putin estimated the investment for the shelf development at $500 billion over the course of 30 years. Another sum of $300 billion will be channelled into "adjacent industries, including processing of raw materials."
The government has resorted to even more radical measures — going against the interests of Gazprom. According to the Head of the Ministry of Energy Sergei Shmatko they "will try to make it possible for the companies to sell the extracted gas. The projects implemented on the shelf should be feasible and economically viable."
"We believe that exporting oil and gas extracted as part of these projects should be profitable. There’s no way it can't be," said Shmatko. This can only mean that the Government is seriously considering the possibility of taking away Gazprom’s export monopoly, or that they are suggesting the monopoly should buy gas from other companies working on the shelf at export prices. All independent gas companies, including state-owned Rosneft (which is to become the main developer of the shelf along with Gazprom), are currently selling the gas to the monopoly at very low prices. "The current restrictions can bring in money," said Shmatko. According to Kommersant's source in Rosneft, "this decision will increase the company's capitalisation and will help towards the development of its gas business."
Private investors, however, will still not be able to participate in the development of the shelf, despite previous hints from Government officials about a possible change in the situation. In April the Government was supposed to consider the shelf development programme until 2030, which was prepared by the Ministry of Natural Resources and Environment. The programme called for the expansion of the list of companies allowed to work on the shelf. The Ministry was going to allow private oil companies to conduct geological exploration and guarantee their involvement in the project if they located any deposits. Lukoil received the projects in the Caspian Sea before the amendments securing the shelf for the state companies Rosneft, Gazprom Group and Zarubezhneft were approved and was especially insistent on this programme.
An appeal to "consider expanding the list of companies developing the shelf by including Russian companies deprived of this possibility" was sent to Putin at the beginning of April. In their letter, Lukoil President Vagit Alekperov, Surgutneftegaz General Director Vladimir Bogdanov, Bashneft President Alexander Korsik and TNK-BP Managing Director German Khan asked for the suggestion submitted by the Ministry of Natural Resources and Environment to be supported.
"Limiting the number of participants demotivates the majority of Russian companies from performing active geological exploration, which in turn may prevent the state programme from achieving its desired results and socioeconomic efficiency targets being met," the letter goes on.
In early March, Vladimir Putin admitted that the decision to allow only state companies to work on the shelf "is even now slowing down progress on the shelf development." He said it was necessary to think "what else can be done in this respect." Yesterday Putin mentioned the same thing but without giving any further comment. "I have already asked members of the Government to think of ways of inviting Russian companies to join these projects and using their resources. Of course, our domestic companies will have to work on certain terms – they will have to attract the necessary funds and technology rather than simply trading their right to take part in these projects," the Prime Minister said. According to Kommersant's source in the Ministry of Natural Resources and Environment, "the most important thing now is to determine the rules for those players that are already engaged in the work." "Maybe in a year we can discuss the possibility of private companies taking part in the projects, but for now that is not our main priority."
Up to now, Government policy on the development of the shelf has been based on issuing licences to Rosneft and Gazprom, but it is obvious that these companies do not have sufficient financial and technological resources to implement the Government’s plans, believes Valery Nesterov, an analyst with Troika Dialog. By 2030 the shelf should be producing 40-80 million tonnes of oil and over 190 billion cubic metres of gas. At present the share contributed by offshore projects to the total volume of oil extraction amounts to 6.2% and for gas that figure is 3.2%, while in the rest of the world it is about a third, said Nesterov. The measures taken will allow companies to become more actively involved in developing offshore projects and will facilitate the investment decisions on Shtokman or Rosneft and ExxonMobil's joint venture (for developing three East Prinovozemelskiy blocks in the Kara Sea), thinks Valery Nesterov. State-owned companies will not be able to handle the development of the shelf all on their own.
Kirill Melnikov
