NDPI Differentiation; ESPO

Excerpts from Russian Petroleum Investor

NDPI Differentiation: The First Results of Tax Reform
By Denis Borisov,Analyst of Investment & Financial Company Solid
In January 2007, a process began of differentiating the mineral extraction tax (NDPI). This has consisted of an introduction of a zero or lowered NDPI rate for taxpayers working on deposits in Eastern Siberia, as well as for exhausted and super viscous (bituminous) oil deposits. Starting in 2009, amendments to the Tax Code will provide a further decrease in the NDPI. The tax-free cut off price for the tax calculation will increase from $9 to $15 for barrel. In addition, there will be an opportunity of applying lower NDPI rates without the obligatory requirement of putting equipment for preferential deposits in commercial accounting units. For the tax payers working on remote deposits – new deposits on the continental shelf or above the Arctic Circle – tax vacations will result. Experts also believe that additional NDPI differentiation may result from the geological deterioration of developed deposits and the high sector rates of inflation.

First Segment of ESPO Commissioned
By Michael Barkov, Vice President of Transneft
On October 4, Transneft commissioned the first reverse segment on the main East Siberia-Pacific Ocean (ESPO) oil pipeline. The line extends 1,105 kilometers from the Talakan deposit in the Republic of Sakha (Yakutia) to the city of Taishet in the Irkutsk region. A year before the commissioning of the first ESPO stage, Transneft has created the necessary infrastructure to provide for the acceptance of oil from Eastern Siberia and Sakha (Yakutia) to the Russian pipeline system. Until that time, oil will move west, that is, in reverse direction. Transneft has already received applications from oil companies exceeding the 30 million ton capacity of the ESPO first stage.

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Russia Nearing Creation of a Gas OPEC, Kalmykia Remains Optimistic on Hydrocarbon Potential

Excerpts from Russian Petroleum Investor

Russia Nearing Creation of a Gas OPEC
by Inna Gaiduk
On October 21, Russia, Iran and Qatar declared creation of a “big gas troika” and indicated that the Gas Exporting Countries Forum (GECF) will soon become a permanently operating organization. The charter is subject to approval by the members in a December 23 Moscow meeting. In the interim, Gazprom has become more active in two directions. First, it is strengthening its presence and assets in those countries likely to become part of the future gas cartel. Second, it is beginning to form a pool of potential buyers and, simultaneously, strategic partners in the countries of the Asian-Pacific region. Both approaches are to offset the possibility of Europe taking a pro-American position and attempting to reduce the Russian presence in the European market.

Kalmykia Remains Optimistic on Hydrocarbon Potential
By Elena Kirillova
In 2007, the president of Kalmykia Kirsan Ilyumzhinov promised to transform the republic into “a second Kuwait” with annual crude oil production increasing to 5 million tons by 2020 (currently, it is almost 200,000 tons a year). However, few geologists share that conviction. Only foreign majors can handle the complex development and investment requirements. Nonetheless, Kalmykian authorities continue to express the opinion that discoveries of large deposits are not far off. Despite an abundance of investors searching for oil in the republic, nothing significant has yet emerged.

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Global Crisis Reaches Russian Oil and Gas Companies

Excerpt from Russian Petroleum Investor by By Svetlana Milyaeva

The global financial crisis has finally hit the real sector of the Russian economy, including hydrocarbons. The largest Russian banks have raised annual interest rates on ruble credits for oil and gas corporations. Second echelon banks have increased interest on loans to 18 percent and rates continue to grow. As a result, almost all participants in the oil and gas sector have already reduced programs of short-term loans, and many of them plan to revise 2009 investment programs.

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