Lukoil Vice Pres: Tax Burden To Increase 15% In 2005
11-16-04 07:14 AM EST
MOSCOW (Dow Jones)--Russian oil company OAO Lukoil Holdings (LKOH.RS) said Tuesday it didn't expect to receive any back-tax claims from the year 2002 and onward.
"In 2001 we publicly announced that we were no longer going to use any scheme to minimize tax payments," Lukoil Vice President Leonid Fedun told a briefing.
Several years ago, Lukoil settled a dispute with tax authorities over a scheme it used to minimize taxes using the rocket launch center of Baikonur in Kazakhstan.
In the wake of multibillion dollar tax claims being levied against OAO Yukos ( YUKO.RS), investors have grown increasingly wary of Russian oil companies' tax histories.
Additional seeds of fear were sown last week when the Interfax News Agency reported that tax authorities were conducting audits into several other Russian oil majors. Lukoil wasn't included in the list.
Lukoil expects its tax burden to increase 15% in 2005 due to Russia's introduction of higher taxes on oil output and exports, Fedun said. He didn't give any specific figures.
Higher taxes could make projects requiring billions of dollars in investment unfeasible, Fedun said.
"It's a problem for the future," he said. "Either we'll have to enter into alliances with foreign majors, or the government will have to lower taxes. I think the government will eventually see that it's pointless to put money aside for ever."
Russia has created a stabilization fund to collect oil companies' windfall profits from high oil prices. However, there has been much controversy over how to use the proceeds.
A high rate of taxation isn't the only problem that has beset Russian oil majors in recent years. Transport costs have steadily been rising, and Russia's dependence on Europe as an export market has created a glut for Russia's Urals blend. In recent months, the prices of Urals has risen, but it has been outpaced by the record-setting prices on other blends.
Various Russian officials have proposed new pipeline routes targeting the Far East as well as the U.S., but a final decision has yet to be made.
"If there is no political, legally binding decision made by the end of next year, we'll have to start thinking about expanding our Varandei terminal, first to 12 million (metric) tons a year and then to 25 million tons," Fedun said. These throughput estimates are equivalent to 240,000 barrels a day to 500,000 b/ d.
As part of its joint venture with U.S. major ConocoPhillips (COP), Lukoil plans to ship crude produced in Russia's Timan-Pechora region directly to the U.S. via the Barents Sea port of Varandei.
Separately, Fedun confirmed that Lukoil is in talks with OAO Russian Railways (RR.YY) on exporting crude oil to China. Before the onset of its tax woes, Yukos was Russia's primary exporter to China, but has cut some volumes due to financial difficulties. The biggest obstacle in getting oil to China now is high railway tariffs, he said.
"If the tariffs will be at an acceptable level, then 10 million-15 million tons a year," that currently supply Europe, "could be shifted to the east," he said.
Company Web site:
http://www.lukoil.com
-By Anna Raff, Dow Jones Newswires (+7 095) 974 8055;
anna.raff@dowjones.com
Dow Jones Newswires
11-16-04 0714ET
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