Finance Ministry proposes exempting Gazprom from increased tax on LNG exports

The Ministry of Finance has developed amendments to the legislation, according to which “Gazpromand its subsidiaries are exempt from the increased 34% income tax rate for liquefied natural gas (LNG) exporters. On February 3, 2023, Interfax reported this, citing a source familiar with the document.

The amendments, according to the agency, are prepared for the second reading of the bill “On Amendments to Part 2 of the Tax Code (TC)”, which the State Duma should consider as early as next week. The Ministry of Finance proposes to apply changes to the Tax Code “to legal relations that arose from January 1, 2023.”

Vedomosti sent a request to the Ministry of Finance andGazprom“.

In November 2022, a law was passed to increase the tax burden on the oil and gas sector. The income tax rate for LNG producers from January 1, 2023 increased from 20% to 34% for the period 2023-2025. At the same time, 17% of profits will be deducted to the federal budget, another 17% – to the regional ones. The measure applies to companies that have exported at least one batch of LNG before December 31, 2022, i.e. it does not apply to new projects.

Initially, the government proposed to increase the rate to 32% and planned to receive 200 billion rubles in 2023. additional income. This law also provides for additional deductions (surcharge) on the mineral extraction tax (MET) on gas for Gazprom, which will provide additional monthly revenues to the budget of 50 billion rubles. As a result, they will amount to 600 billion rubles. per year during 2023-2025 Also in the summer of 2022, a law was passed according to which “Gazprom» made additional payments on the MET for gas, in the period from September 1 to November 30, 2022, they amounted to a total of 1.25 trillion rubles.

The changes proposed by the Ministry of Finance in the Tax Code, the source of the agency explains, suggest clarifying the category of companies that are subject to an increased income tax rate. They want to include only companies that meet the criteria of paragraph 2 of part 1.1 of article 3 of the law “On Gas Export”. These are private companies and their subsidiaries, which, as of January 1, 2013, were issued a license to build an LNG plant on subsoil plots, and production at these sites began after January 1, 2013. This category includes the largest Russian producer and LNG exporter “Novatek“. Other companies that have the right to export LNG will not be subject to the increased income tax rate.

According to the Law “On Gas Export”, the owner of the unified gas supply system or its subsidiaries, in the authorized capital of which the share of the organization – the owner of the unified gas supply system, is 100%, also has the right to export LNG, that is, “Gazprom“. In addition, state-owned companies operating on the shelf have the right to export LNG by law.

Now in Russia there are only two operating large-tonnage LNG projects – “Sakhalin-2” (produced 11.5 million tons in 2022) and Yamal LNG (output forecast for 2022 is 21 million tons). Sakhalin-2 participants are Gazprom (50%), Shell (27.5%, plans to withdraw from the project), Japanese Mitsui (12.5%) and Mitsubishi (10%). The project is being implemented on the basis of a production sharing agreement (PSA). According to the current legislation, during the entire period of validity of production sharing agreements, income tax is levied at the rates in force on the date of signing of the agreements (for Sakhalin-2 it is 20%. – Vedomosti).

The shareholders of Yamal LNG are Novatek (50.1%), French Total (20%), Chinese CNPC (20%) and the Silk Road Fund (9.9%).

Novatek is also building a new large-capacity LNG plant, Arctic LNG-2, with a design capacity of 19.8 million tons per year. The first line should be launched in December 2023, the second line is expected to be launched in 2024, the third – in 2026.

In addition, according to Vygon Consulting, at the end of 2021, there were 17 small-scale LNG enterprises operating in Russia with a total capacity of 248,000 tons per year, as well as a medium-tonnage plant Cryogas Vysotsk (a joint venture of Novatek and Gazprombank) for 660,000 t per year. September 2022Gazprom» started LNG production at a plant near the Portovaya compressor station (CS) in the Leningrad Region with a capacity of 1.5 mmtpa.

According to Rosstat, Russian companies produced 44.85 bcm in 2022. m LNG.

Igor Yushkov, a leading analyst at the National Energy Security Fund, notes that the law on increasing the income tax rate for LNG exporters was initially adopted under the Yamal LNG project of Novatek in order to provide additional budget revenues “against the background of its growth in profits.” The analyst recalls that Yamal LNG is exempt from both export duties and MET, while increasing the MET for it and a number of other taxes is not allowed by the terms of the intergovernmental agreement between Russia and China due to the participation of Chinese companies in the project.

Analyst FG “Finam” Sergei Kaufman believes that the initiative of the Ministry of Finance is due to the fact that “Gazprom” and so “is subject to increased taxation.”

Sergey Grishunin, Managing Director of the NRA Rating Service, agrees that in 2023-2024. Gazprom’s obligations to pay the severance tax will already increase significantly. He also recalled that the company had already paid an additional 1.25 trillion rubles to the state. last year.

Kaufman draws attention to the fact that tax breaks will only affect Gazprom’s LNG production near the Portovaya CS, since the project “Sakhalin-2» operates under a PSA agreement, and it is not possible to revise taxes under it. Therefore, the impact on the company’s business and budget will be “extremely limited,” he adds, without specifying the numbers.