NOVATEK Offers Benefits to Chinese Investors Yamal LNG

According to Kommersant, the head of NOVATEK, Leonid Mikhelson, asked the government to cancel the tax on dividends for Chinese investors in the Yamal LNG project – CNPC and SRF. In return, foreign investors are ready to reinvest these funds in new gas liquefaction projects in the Arctic. Now CNPC and SRF pay a tax at a rate of about 10%, its zeroing can free up about 10 billion rubles for new LNG projects, according to analysts. in year.

NOVATEK asked the government to abolish the tax on dividends for foreign investors willing to reinvest these funds in LNG projects, Kommersant sources familiar with the appeal say. The head of NOVATEK, Leonid Mikhelson, is asking for the appropriate powers to be given to the government commission to control foreign investment.

In fact, now these proposals concern only the Chinese participants in the Yamal LNG project – CNPC (20%) and the Silk Road Fund (SRF, 9.9%). French Total, which owns 20% in Yamal LNG, said it would no longer invest in Russian projects because of Russia’s military actions in Ukraine. In the future, after the launch of the Arctic LNG-2 project (the first line is scheduled to be commissioned at the end of 2023), in theory, Chinese CNPC and CNOOC (10% each), as well as a consortium of Japanese Mitsui, Mitsubishi and JOGMEC (also 10%) will be able to use the option .

In NOVATEK, the government apparatus and the Ministry of Finance, Kommersant did not respond.

According to Russian law, non-residents of the Russian Federation pay tax on dividends at a rate of 15%, unless otherwise provided by the double taxation agreement with the investor’s country of origin. In the case of Yamal LNG, foreign companies paid less, since under the double taxation agreement between the Russian Federation and France, it was enough for Total to invest more than 500,000 francs in the project to receive a 5% rate. The agreement between Russia and China allows you to get a rate of 10%.

The Chinese shareholders of the project have repeatedly asked to reduce the tax on dividends received from the project, at least to the level of Total. The Russian side was ready to agree to this on the condition that Russian investors in China receive similar preferences. So far no agreement has been reached.

According to Mr. Mikhelson, at the moment, the provision of credit funds to the Arctic LNG-2 project by foreign creditors has been suspended, for more than a year the project has been financed exclusively at the expense of NOVATEK and foreign shareholders. “NOVATEK’s foreign partners who receive dividends from the Yamal LNG project are ready to use them to finance the implementation of Russian projects in the event that the withholding tax on such dividends is abolished,” he said in a letter to the government.

It is not specified which projects are in question. NOVATEK has two more projects under development – Obsky LNG on Russian equipment with a capacity of 7 million tons, an investment decision on the project may be made in the near future, as well as Murmansk LNG for 20.4 million tons. In addition, NOVATEK has a project in Murmansk and Kamchatka “Arctic Transshipment”, where Chinese investors have not yet entered.

According to independent expert Alexander Sobko, China’s interest in new investments in Russian liquefaction plants will depend on the demand for LNG in China itself, which is now difficult to predict. Over the past two years, Chinese companies have entered into long-term contracts for the annual supply of about 50 million tons of LNG – a significant amount comparable to current consumption, although most of these contracts will become effective only in a few years, he adds. “On the other hand, in these contracts, a very significant share, about half, is the future LNG from the United States. Further increasing the share of American LNG for China would look very risky, which speaks in favor of increasing imports in other directions, not least from Russia,” Mr. Sobko believes.

In 2022, Yamal LNG accrued dividends for 740.8 billion rubles, paid 363.8 billion rubles, net profit amounted to 840.2 billion rubles. In 2023-2024, we may see Yamal LNG’s net profit decline to RUB 350-450 billion, as LNG prices were extremely high in 2022, according to Sergei Kondratyev of the Energy and Finance Institute. According to him, in this case, the dividends of the project could amount to about 350 billion rubles, and the share of Chinese shareholders in payments – 100-110 billion rubles. Accordingly, with zero tax on dividends, Chinese companies would receive 10-11 billion rubles. per year for additional investments in the Russian Federation. “This proposal is, of course, unusual, but it can help attract investment in the Russian gas industry,” the analyst notes.

Tatyana Dyatel, Dmitry Kozlov