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Russian government approves tax cuts for oil firms from 2009

Russia’s government has approved a bill to cut taxes for oil companies from 2009, a deputy finance minister said on Monday.

“All the measures related to reducing the tax burden will enable businessmen to use free funds for development,” Sergei Shatalov said. According to Finance Ministry estimates, the tax cut will grant oil companies 165-175 billion rubles ($6.9-7.4 billion) a year. Tax holidays for on-shelf projects will be offered for 10 to 15 years, the deputy finance minister said. According to Shatalov, tax holidays will be granted for 10 years for companies engaged in prospecting and for 15 years for companies engaged in oil prospecting and production.

Meanwhile, tax holidays for the Timano-Pechora oil and gas province in northern Russia and the Yamal peninsula in the northeast Urals will be granted for a term of up to seven years, Shatalov said, adding that a decision on tax holidays will also take into account the volume of crude production at the deposits. Russia’s government has also approved a differentiated scale of excise duties on gasoline and diesel fuel from 2009 depending on the quality of petroleum products, Shatalov said. The excise duties will be differentiated depending on the category of gasoline and fuel and their compliance with European standards, instead of the current differentiation by the octane number, the deputy finance minister said.

A spokesman for Russia’s largest independent oil producer LUKoil said the new tax cuts would enable an increase in annual oil production of 45 million tons (330.75 million bbl), an additional 10% on top of current output. He said that 25 million tons of this figure would come from new regions of oil production, while highly-developed and low-debit deposits would be yielding an additional 10 million tons each. LUKoil currently operates all projects at the Timano-Pechora oil and gas province in northern Russia. (