Russian authorities have proposed increasing the tax take on the country’s liquefied natural gas projects as the government faces reduced revenues from Gazprom’s pipeline gas exports to Europe.
According to the Moscow business daily Kommersant, Russia’s Finance Ministry has proposed increasing the corporate income tax on three export-oriented LNG developments — the Novatek-led Yamal LNG and Vysotsk LNG projects, and the Gazprom-led Sakhalin 2 scheme.
The proposal calls for a 32% tax rate for the three projects between 2023 and 2025.
The increase has been labelled a “temporary measure”, as both Yamal LNG and Sakhalin 2 are understood to have tax stability clauses agreed or granted by the Russian government because they are such capital intensive developments.
Yamal LNG reported an effective corporate tax rate of 10% for the past year, with the project's operator paying 42.9 billion rubles ($715 million) for the most recent share of corporate income tax in 2021, according to its annual financial report.
The project, which began exporting LNG to global markets at the end of 2017, has received significant concessions, including an export tax exemption, to help Novatek and its foreign partners recoup their multibillion-dollar investments in the scheme and foster further LNG investments in the country.
A Novatek spokesperson said the company has no immediate comment on the Kommersant report that claimed proposed tax change related to Yamal LNG, should also apply to other Russian LNG projects.
Sakhalin 2’s revenues are currently taxed at a rate of 20%, which was fixed in 1994 by a production sharing agreement between the Russian government and the project’s foreign investors, according to Kommersant.
This PSA remains in force, despite a Russian court having ordered the Sakhalin 2 operator Sakhalin Energy to be disbanded and replaced by a new corporate entity, Sakhalinskaya Energia, according to a partner in Moscow based energy consultancy RusEnergy Mikhail Krutikhin
The two-train Sakhalin 2 LNG facility in the south of Sakhalin Island in Russia’s far east has a nameplate capacity of 9.6 million tonnes per annum of LNG, while the four-train Yamal LNG scheme has a capacity of about 17.5 million tpa and Vysotsk LNG project on Russia’s Baltic Sea coast has a capacity of about 700,000 tpa.
Pipeline gas exports
Russian Finance Minister Anton Siluanov was last week quoted as saying that the ministry was also proposing to increase the pipeline gas export tax.
The tax is currently set at 30% of the gas export price and may be increased to 50% from 1 January 2023, according to reports in Moscow.
Since the beginning of this year, Russia’s gas pipeline export monopoly Gazprom has been reducing deliveries to Europe, arguing that the long-term contractors called for the nominated volumes to be reduced.
Earlier in September, Gazprom reported that its gas exports declined by 53.7 billion cubic metres to 84.8 Bcm between 1 January and 15 September this year, compared with exports of 138.5 Bcm in the same period of 2021.
The decline is expected to contunue gathering pace as Europe steps up its drive to replace Russian gas supplies following Russia’s invasion of Ukraine in February — further reducing Gazprom’s pipeline gas export tax payments.
The European Union is also debating whether to introduce price caps on Russian hydrocarbon imports.
Siluanov was quoted by Kommersant as saying that the adjusted taxes would mean that Gazprom, Novatek and the country’s oil producers may generate up to an estimated 3 trillion rubles ($50 billion) in budget revenues between 2023 and 2025.
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