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Summary“Russia Upstream Fiscal and Regulatory Report - Temporary Tax Changes Implemented to Raise Government Revenue and Steps Taken Towards Major Tax Changes In the Future”, presents the essential information relating to the terms which govern investment into Russia’s upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for Russia’s upstream oil and gas investment climate.Scope- Overview of current fiscal terms governing upstream oil and gas operations in Russia- Assessment of the current fiscal regime’s state take and attractiveness to investors- Charts illustrating the regime structure, and legal and institutional frameworks- Detail on legal framework and governing bodies administering the industry- Levels of upfront payments and taxation applicable to oil and gas production- Information on application of fiscal and regulatory terms to specific licenses- Outlook on future of fiscal and regulatory terms in RussiaReasons to buy- Understand the complex regulations and contractual requirements applicable to Russia’s upstream oil and gas sector- Evaluate factors determining profit levels in the industry- Identify potential regulatory issues facing investors in the country’s upstream sector- Utilize considered insight on future trends to inform decision-making
1 Table of Contents1. Table of Contents 11.1. List of Tables 31.2. List of Figures 42. Regime Overview 53. State Take Assessment 94. Key Fiscal Terms - Royalty and Tax 114.1. Royalties, Bonuses and Fees 114.1.1. Signature Bonus 114.1.2. Annual Rental Fee 114.2. Mineral Extraction Tax 114.2.1. Crude Oil 124.2.2. Condensate 144.2.3. Natural Gas 174.2.4. New Offshore Field Incentives 184.2.5. Mineral Extraction Tax Holidays 184.2.6. Special Deduction for Bashkortostan and Tatarstan 194.3. Export Duty 194.3.1. Crude Oil 194.3.2. Natural Gas and LNG 214.3.3. Liquefied Petroleum Gas 214.3.4. Export Duty Exemptions 224.4. Direct Taxation 234.4.1. Corporate Income Tax 234.4.2. Deductions and Depreciation 244.4.3. Withholding Tax 254.5. Indirect Taxation 254.5.1. Value Added Tax 254.5.2. Import Duties 254.5.3. Property Tax 264.5.4. Land Tax 264.5.5. Excessive Flaring Fee 265. Key Fiscal Terms - Production Sharing Agreement 275.1. Royalties, Bonuses and Fees 275.1.1. Royalty 275.1.2. Bonuses and Other Fees 285.2. Cost Recovery 295.3. Profit Sharing 295.4. Taxation 315.4.1. Corporate Income Tax 315.4.2. Deductions and Depreciation 315.4.3. Value Added Tax 315.4.4. Tax Exemptions 315.5. Fiscal Stability 316. Regulation and Licensing 326.1. Legal Framework 326.1.1. Governing Law 326.1.2. Contract Type 336.1.3. Title to Hydrocarbons 336.2. Institutional Framework 346.2.1. Licensing Authority 346.2.2. Regulatory Agency 346.2.3. National Oil Company 346.3. Licensing Process 356.3.1. Auction Notice 356.3.2. Application Requirements 356.3.3. Auction Process 356.4. License Terms 356.4.1. Duration and Relinquishments 356.4.2. Work Obligation 366.4.3. Environmental Regulation 366.4.4. Local Content 366.5. Restrictions on Foreign Investment 367. Outlook 378. Appendix 398.1. Contact Us 398.2. Disclaimer 391.1 List of TablesTable 1: Regime Overview 5Table 2: Russia, Annual Rental Fees (RUB/km2) 11Table 3: Russia, MET Base Rates - Crude Oil (RUB/tonne) 12Table 4: Russia, Complexity Coefficient Values 13Table 5: Russia, Oil MET - Periods in which KH = 0 for Specified Regions (Previously Regional Tax Holiday Periods) 14Table 6: Russia, MET Rates - Condensate (RUB/tonne), 2011-June 30, 2014 15Table 7: Russia, Notional Export Duty - Condensate (US$/tonne) 15Table 8: Russia, Export Profitability Coefficient Values 17Table 9: Russia, MET Rates - Non-Associated Gas, 2004-June 30, 2014 17Table 10: Russia, New Offshore Field Incentives 18Table 11: Russia, Export Duty - Crude Oil (US$/tonne) 20Table 12: Russia, Marginal Export Duty Rates - Crude oil (%) 20Table 13: Russia, Reduced Oil Export Duty (US$/tonne) 21Table 14: Russia, Export Duty - LPG (US$/tonne) 22Table 15: Russia, Export Duty Exemptions 22Table 16: Russia, Corporate Income Tax Rate (%) 23Table 17: Russia, Depreciable Asset Classes 24Table 18: Russia, Withholding Tax Rates (%) 25Table 19: Russia, Maximum Property Tax Rates (%) 26Table 20: Russia, Kharyaga Royalty Rates (%) 27Table 21: Russia, Sakhalin I Bonuses and Fees (US$) 28Table 22: Russia, Sakhalin II Bonuses and Fees (US$), 2015 28Table 23: Russia, Kharyaga Bonuses and Fees (US$) 29Table 24: Russia, Profit-Sharing - Sakhalin I (%) 29Table 25: Russia, Profit-Sharing, Sakhalin II (%) 30Table 26: Russia, Profit-Sharing - Kharyaga (%) 301.2 List of FiguresFigure 1: Regime Flow Chart - Royalty and Tax 7Figure 2: Regime Flow Chart - Production Sharing Agreement 8Figure 3: Russia, Indicative NPV10/boe, IRR and State Take Comparison, Internal 9Figure 4: Russia, Indicative NPV10/boe, IRR and State Take Comparison, Regional 10Figure 5: Russia, Legal Framework 32Figure 6: Russia, Institutional Framework 34