Bloomberg News

Novatek Expects Government to Reject ‘Shocking’ Gas Tax Plan

June 26, 2012

OAO Novatek said it expects the Russian government to reject “shocking” calls from the finance ministry to quadruple the mineral extraction tax on natural gas, which would undermine investment.

“I am sure such decisions won’t be made,” Novatek Chief Executive Officer and billionaire shareholder Leonid Mikhelson told reporters in St. Petersburg on June 22. “For independents, the increase will still be sharper than for OAO Gazprom, but not so much as the ministry announced in May.”

The Finance Ministry in May proposed to accelerate tax increases, boosting independent producers’ tax rate to bring it by 2015 near to the rate for OAO Gazprom, the country’s biggest gas producer and sole exporter, Deputy Finance Minister Sergei Shatalov said at the time. Novatek isn’t currently in talks with the government on gaining export rights, Mikhelson said.

Novatek, Russia’s second-largest gas producer, is seeking a tax formula that would take into account increases in regulated prices and transportation tariffs, inflation, and profitability of export and domestic markets, Mikhelson said.

Russia is gradually increasing domestic prices to make sales at home as profitable as exports.

Increases in the mineral extraction gas tax for independents should be synchronized with this move, he said. The rates for Gazprom and other producers should become equal after domestic supplies become as profitable as exports, he said.

The government plans to make decisions by the end of September on the tax rate for 2013 and prepare a formula before the end of the first quarter to become effective from Jan. 1, 2014, Mikhelson said.

Under the finance ministry’s original proposals, which Mikhelson said were “shocking,” Novatek would have had to revise its investment plans, he said.

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

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


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