On May 14, 2007, at a meeting on construction of the 2nd Baltic Pipeline System in Ust-Luga, Russian prime-minister Vladimir Putin made a number of important announcements on oil industry tax regulation.
- MET rate reduction. The respective draft law has already been prepared and is to be put before the State Duma in the near future.
- Necessity to establish 7-year "tax holidays" for companies involved in the exploration and development of new oilfields. This privilege should be valid for the Far Eastern territories, the Timan-Pechora basin, Yamal peninsula and the continental shelf.
- Possible introduction of new system of tariffs for oil products depending on their quality. The higher the quality of oil products, the higher the tariffs.
While MET rate reduction would be beneficial for all Russian oil companies, the two other suggestions are to affect them in various extents.
The special tax treatment, or tax holidays, is currently used by companies than develop oilfields in Eastern Siberia, Rosneft being the largest beneficiary in absolute monetary terms. In the territories named by the prime-minister, the largest number of new oilfields are being developed by Lukoil, Surgutneftegaz and Gazprom Neft. The state-controlled Gazprom Neft and Rosneft are to become the largest beneficiaries in the long-term due to an expected grant of rights for exploration and development of oilfields in Yamal peninsula and on the continental shelf.
Changes in oil product duty rates, depending on their quality, should allow the companies with larger volumes of oil refining, as compared to production volumes, to receive the largest profit. As for today and the near future, these companies are Lukoil, Gazprom Neft, and Rosneft.
Vladimir Putin's statement produced a positive impact on oil company stock valuations. Reduction of tax burdens is likely to boost oil companies' operating cash flow, which would allow them to make necessary investments, overcome oil production downward trends and increase refining depth.
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