Lukoil has issued a warning over the potential long-term negative impact of recently approved changes to Russia's legislation that will erode tax concessions and cancel come tax exemptions.


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Speaking to state television channel Rossiya 1, Lukoil president, Vagit Alekperov, said that the oil producer has already been hit badly by oil price decline due to the demand destruction caused by the Covid-19 oandemic.

Lukoil has put on hold upstream projects worth some $1.5 billion in response to the global economic turmoil.

In October, the government passed amendments to tax laws, increasing payments from Lukoil and other major oil producers under the so-called netback tax regime from 1 January 2021.

The regime was introduce on a trial basis for about 40 oilfields in West Siberia that required higher investments from Russian oil producers to keep them moving forward.

'Ready to lend a shoulder'

“We hope that next year will become the year of dialogue", Alekperov said, between Russian oil producers and the government on restoring possible incentives for the oil sector.

He added that he supports the short-term increase of the state’s tax take on the sector, as it will allow the government to secure higher revenues to the budget and bankroll important social obligations.

“We are ready to lend a shoulder today,” he said.

But “if there is no dialogue next year, then even in 2023, Lukoil will be unable to restore its operating performance” metrics to levels that the company achieved in 2019, Alekperov warned.

Authorities so far have shown no readiness to move back to a higher tax take, with Finance Minister Anton Siluanov telling Rossiya 1 that approved amendments had “restored justice”.

Last year, Siluanov said oil producers, including Lukoil, claimed tax savings worth 100 billion roubles ($1.3 billion) under the netback tax mechanism, although the Finance Ministry forecasted such savings not to exceed 40 billion roubles.

Speaking at the end of the last week, Russian Energy Minister Alexander Novak said that the ministry expects the country’s total oil production to fall by 10% this year against 2019, or to about 507 million tonnes (10.2 million barrels per day).

According to Lukoil, the company has already seen improvements in operating environment outside Russia, with its gas production in Uzbekistan rising to 70% of the total nameplate capacity of its two gas projects, Kandym and Gissar.

In August, Lukoil said that gas production at Kandym ran at 20% of the capacity, and was fully halted at the Gissar project, as China had almost halted gas imports from Uzbekistan.