The lower chamber of the Russian Duma has approved amendments to the country’s Tax Code to impose a higher levy on Novatek-led Yamal LNG, state-run gas giant Gazprom and others.
The decision comes as Moscow looks to increase military spending to support the war in Ukraine but faces a potential reduction of budget revenues as a result of international sanctions.
Russia’s budget deficit is expected to widen to about 3 trillion roubles ($50 billion) in 2023, against an expected 1.3 trillion roubles this year.
At the same time, Russian oil producers face potential difficulties in selling their oil to international markets after 5 December, when the G7 group of countries and Australia will introduce a price cap on Russian shipments.
Yamal LNG in spotlight
The first tax amendment will raise the corporate rate for the Novatek-led Yamal LNG projects to 34%. The current rate is 20%.
The measure will generate about 200 billion roubles of additional budget revenues next year, according to the country’s finance ministry.
In October, Novatek executive board chairman Leonid Mikhelson said that Russia’s largest independent gas producer had been informed about the proposed corporate tax increase and discussed it with the finance ministry.
The higher tax rate does not contradict guarantees the Russian government issued earlier to Yamal LNG’s foreign shareholders China National Petroleum Corp and the Silk Road Fund, according to Mikhelson.
Mikhelson said Novatek’s Arctic LNG 2 project will be exempt from paying the increased rate. All the company’s liquefied natural gas projects are expected to continue to enjoy an exemption from paying an export tax on LNG.
Gazprom to carry largest burden
Another amendment targets Gazprom, with the government readying gradual increases in the tax for the company between 2023 and 2025.
According to the finance ministry, the change could bring an additional 628 billion roubles of revenues next year, with 700 billion roubles of additional budget income expected in 2024 and 750 billion roubles in 2025.
Gazprom’s gas production has been falling sharply in recent months, declining by almost 19% to 344 billion cubic metres between January and October against the same period of last year.
The decline is understood to relate to drastic reductions in gas shipments to its former core market of Europe.
The tax has to be paid on gas production at the wellhead, and rates are not dependent upon the price of gas on the domestic or international markets.
Lighter burden
A third amendment deals with raising more revenues from country’s oil producers between 2023 and 2025.
According to the amendment’s supporting documents, the change in calculating the oil tax could raise an additional 208 billion roubles annually in this period.
The oil tax is linked to the international price of Russia’s Urals oil export blend. In October, the tax was running at the average of 19,000 roubles per tonne ($43.20 per barrel) for oil producers in West Siberia.
Additionally, the amendment has lowered levels of expected compensation that may be paid from the budget to oil producers to renumerate them for keeping the agreed cap on domestic retail fuel prices between 2023 and 2025.
The government introduced the capping mechanism in 2018 to keep the retail fuel price in check and thus avoid public discontent.
The approved amendments will now go to the upper chamber of the parliament and will then have to be signed into law by President Vladimir Putin.
* The story was amended to reflect a statement from Novatek that its joint venture Vysotsk LNG does not have an export licence and thus will not be subject to the increased tax.
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