Bloomberg News

Russia Demands Details Before Weighing Shtokman Gas Tax Breaks

January 29, 2012

Jan. 27 (Bloomberg) -- Russia’s Finance Ministry hasn’t started discussing tax breaks for the OAO Gazprom-led Shtokman venture two months before an investment deadline because the operator hasn’t submitted profitability estimates.

“The tax breaks can only be considered within the project’s economics,” Deputy Finance Minister Sergei Shatalov said in a phone interview, reiterating comments he made in July. “The economics of the project haven’t been demonstrated by anyone.”

Gazprom and partners Total SA of France and Norway’s Statoil ASA delayed making the final investment decision on the technically challenging and expensive Arctic project from December until the end of March. The venture wants exemptions from extraction and export taxes, and French Prime Minister Francois Fillon in November urged his Russian counterpart Vladimir Putin to consider the proposal.

Pierre Nerguararian, head of Total E&P Russie, said in September that the tax breaks are critical for the partners to make a positive investment decision. The project in the Barents Sea, which plans to supply gas by pipeline and tanker, has been repeatedly delayed. Gazprom didn’t disclose the project’s costs.

While there are “no doubts” that the project will be granted exemptions from the mineral extraction tax because the conditions for field development are “complex,” other benefits aren’t certain, Shatalov said in the interview yesterday. “It isn’t clear where this gas will go, whether they will build a pipeline, which markets they will supply. ‘‘What, how, no one knows that.’’

Shale Gas Glut

Gazprom, Total and Statoil aim to start first gas production at Shtokman in 2016 and produce liquefied natural gas a year later. Shtokman initially targeted U.S. consumers, where surging shale gas output has since removed the need for imports, forcing the partners to review the project.

Sergei Kupriyanov, a Gazprom spokesman, didn’t reply to a phone call and a text message seeking comments. Sergei Vykhukholev, a spokesman for Zug, Switzerland-based Shtokman Development AG, said he wasn’t immediately able to comment.

The finance ministry may discuss the tax breaks and make a decision ‘‘if they bring all their calculations tomorrow,” Shatalov said. “If they don’t submit anything by summer then we won’t discuss by summer.”

--With assistance from Denis Maternovsky and Yekaterina Shatalova in Moscow. Editors: Alex Devine, Torrey Clark

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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