Prime Minister Vladimir Putin conducted a meeting to discuss the conditions and problems associated with oil industry development
Vladimir Putin's introductory speech:
Good afternoon.
Mr Bogdanov (President of Surgutneftegaz) and Mr Somov (Kirishinefteorgsintez CEO) have just shown me their facility. It's a good site, with new cracking and hydrocracking equipment. They have also told me about the future development of the company.
Today we should discuss not only this company's plans but everything that is associated with oil processing and re-equipment of production.
We met in Severodvinsk a little more than six months ago. Three months before that we discussed the industry's problems and made a number of decisions that were implemented later - I am referring to accelerated depreciation. In effect, this is a problem for the entire economy but it concerns not least of all the oil and gas industry.
We made a decision to reduce the extraction tax and carried it out. A little later in Severodvinsk, we agreed to take action on customs duties as soon as possible, and resolved this question as well.
At that time, it was clear that the industry had started having problems, although the market situation was good. The trend towards declining production and a simultaneous drop in investment in the technical re-equipment and development of new deposits has taken shape since the beginning of 2008.
At the July meeting we determined a whole number of tasks (I've already mentioned some of them) the effective implementation of which is absolutely crucial for the steady development of this major segment of our economy.
We spoke about the need to develop new promising oil deposits, including those on the continental shelf, and introduce environmentally friendly modern technologies of oil production and processing that guarantee high economic efficiency.
The situation on the world energy market has considerably changed in the last few months. Oil prices have dropped more than three times. It would be no exaggeration to call this a dramatic change on the market. Needless to say, we had to focus on urgent measures to support our oil companies.
We have already reduced taxes on the fuel-and-energy complex (I have already mentioned some of them): reduced export duties, introduced more flexible procedures for its computation, and advanced final settlements - from two months to two weeks. I believe that in general, these measures have allowed the industry to react more promptly to price fluctuations.
Since January 1, 2009, the extraction tax has been reduced, and the companies have been given the right to more actively use the mechanism of accelerated depreciation.
All these measures have reduced taxes on the industry by about 500 billion roubles.
As a result, we have managed to secure the oil industry's rhythmic performance, keep oil production on the same scale, and guarantee the financial stability of oil companies.
It goes without saying that today our companies have to operate in much tougher conditions - all companies. At the same time, I'm convinced that this does not make the industry's strategic development less urgent. I'd like to repeat once again that without profound technical modernisation, development of new deposits, and investment activity we will find it difficult to compete on the world energy market. Judging by what I've seen here, we have opportunities for achieving this. Large-scale hydrocracking is carried out on a site of more than 100 hectares.
The top managers of the host companies are planning to commission this site at the end of this year, in the fourth quarter, and to complete the building of capacities for advanced oil processing by 2017. This work requires a double effort. In other words, we can work in modern conditions.
It goes without saying that the state has to make a response. Let's discuss today which forms of support are currently the most in-demand.
We understand well that the oil industry will not resolve these comprehensive tasks single-handed. It will continue to receive the required help. Let's also think about what should be done primarily in the long-term perspective.
At the same time, it is obvious that reduced taxes on oil production and other preferences should be thoroughly sized up and well balanced. They should also determine the industry's priorities with due account of the budget potentialities and the domestic economy in general.
We have the right to expect the funds left in the industry to be invested in prospecting, production, and processing - that is, into the production process - rather than spent on bonuses and other things that are far less important today.
I think that the Energy Ministry should consider all these points in granting state support to individual companies.
Now I'd like to say a few words about the steps that we think should be made. I will make a general statement - today we'll have an open discussion. In effect, we started it yesterday, and some of those present wanted to take the floor yesterday. Mr Kapustin (VNIPIneft CEO), I remember this, and will give you the floor. Now I'll tell you what we want to discuss and what decisions were made in the course of preliminary consultations, in which many of those present took part.
First, the operating tax system is based on deriving profits from the exploitation of old oil deposits, and does not encourage subsoil users to develop new ones.
We have already made decisions on the introduction of tax extraction tax holidays for the development of deposits in East Siberia, the Caspian Sea, the Arctic shelf, Yamal, and the Nenetsk Autonomous Area. This is the first step, and, as I said, we can discuss other measures as well.
It is necessary to elaborate a special model of taxation that will be used for new oil and gas deposits. It should be based on the taxation of the real results of economic performance. It should encourage rational use of subsoil and the application of the most modern technology. At the same time, it should be based on transparent and simple administration. Let me add that this administration should not only be transparent and simple, but also effective in upholding the state's interests.
In addition to that, considering that new deposits in East Siberia are being commissioned right now, it would be sensible to discuss temporary reduction of export duties on the local oil. As we know, transportation is expensive, and the infrastructure is not developed. We have just spoken about this, we know about this. In the morning we discussed this problem with the Government members. We consider it possible to support you.
Secondly, it is necessary to continue implementing investment projects on advancing oil refining, modernising and building new oil refineries, and improving the quality of oil products.
Allow me to remind you that we have suspended the introduction of new requirements to the quality of engine fuel by two years at the request of oil companies.
Some companies are suggesting again suspending a switch to environmentally friendly petrol by another seven to ten years. Despite all my respect for the oil industry, I'd like to say that apart from it we have other economic branches, including the auto industry. They are investing in the production of new plants with the account of the plans that we announced before. Yes, we understand that this is linked with re-equipment problems and investment in transportation, agriculture, the Armed Forces, and other industries, but we should start moving in this direction, proceeding from a whole number of considerations. I think that for this reason we should not drag out the implementation of these plans in the oil industry by another seven to ten years. I'd like to repeat once again that we should move more quickly in this direction.
This amounts to better environmental protection and the development of the car industry. Moreover, this will allow our producers to offer better and more expensive products on the world market. This will be a gain for the oil industry, among others.
I believe that despite all difficulties, oil companies should find the money for upgrading refineries and switching to the production of fuel of new standards. In some cases, the state could grant them certain support, for instance, guarantees on loans. I know that there may be other proposals. We are ready to discuss this subject today.
It goes without saying that it is necessary to remove the barriers to investment in oil refining in a timely manner, and to elaborate clear rules for registering oil refining capacities and their connection with pipelines.
Today, we discussed cancellation of customs duties on the imports of technical equipment. Needless to say, the Finance Ministry and the Ministry for Economic Development should think about this question as a top priority. In principle, many decisions have already been passed on this score.
At the same time, today companies have to pay and get reimbursed after some time, and this delay may be quite substantial - up to two to three years. This means that they have to spend some of their working capital instead of using it to upgrade production. I'd like to ask the Finance Ministry and the Ministry for Economic Development to think of what else they can do, considering all the problems linked with shortfall in profits. It is also necessary to think about what else can be done to allow our oil industry to undertake active re-equipment and modernisation.
Needless to say, the right to different benefits from the state should belong to modern, up-to-date companies rather than those obsolete plants turning out low-quality products. This goes without saying. We should support only those that are involved in modernisation.
Thirdly, the Government has made a tough decision - to make sure that by 2012 the share of the effective use of petroleum gas reaches 95% of the scale of production.
All regulatory acts required for the implementation of this task are being elaborated and, I hope, will be adopted in the near future.
And finally, I'd like to mention the development of trade in oil and its products on the stock exchange. We have discussed this problem more than once. We should draft measures to enable our exchanges to work on a full scale. First of all, I mean economic incentives for producers to trade on exchanges. We should be more active in resolving this problem. This morning we again discussed measures of support for those who want to trade on the stock exchange. Allow me to repeat once again that these measures should be primarily economic incentives that would allow participants in the market to derive benefits by working through the exchange and using its institutions.
In general, I suggest discussing today the mechanisms that would allow us to actively influence energy price fluctuations both at home and abroad, particularly the prospects for the accumulation of strategic reserves. We can discuss this subject as well. Our opinions on it are divided, and for this reason I won't dwell on this aspect of our discussion. We'll think about this subject again. However, in general I suggest discussing a whole range of issues today, and making decisions that will benefit the industry and that the state will be able to carry out in today's economic conditions.
Now I'll give the floor to Sergei Shmatko.
