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The government's tax policy is a key constraint on the development of Russia's oil sector
The government's tax policy is a key constraint on the development of Russia's oil sector, the president of Russia's leading independent crude producer told a Russian newspaper, Vedomosti. "Current tax policy is as follows," LUKoil President Vagit Alekperov said. "Excessive profits are withdrawn [from oil companies] on the one side, but on the other side, no investment funds, vital to capital-intensive projects for the development of new [oil-rich] regions, have been created so far." Russian companies have accumulated enough technical and human resources to implement development programs on their own, without attracting investment from the West, he said. "But a withdrawal of funds is a major investment-constraining factor, though the government has a clear right to this money," he said. In relation to the case of Russia's embattled oil major Yukos, declared bankrupt August 1 after three years of litigation with tax authorities over the company's tax arrears, Alekperov said the government had legal grounds to act as it did, contrary to a widespread opinion that it was a politically motivated show trial, orchestrated by the Kremlin to punish Yukos boss Mikhail Khodorkovsky for his political ambitions. "Yukos failed to settle its infringements with controlling bodies," he said. "We [LUKoil] also had tax-related problems, but declared our readiness for a dialog and paid all tax arrears to the federal budget." Alekperov said that LUKoil would consider buying some Yukos assets if they are sold in an open bidding. "We are interested primarily in retail networks in some [of Russia's] regions," he said. While commenting on a trend for government takeovers in the energy sector via state-run majors, Alekperov said LUKoil would unlikely be absorbed by Gazprom or Rosneft. "At the moment, neither me, nor any of LUKoil major shareholders have plans to sell our stakes." Alekperov said LUKoil and France's Total, which operates Kharyaga oil deposit in the Nenets region in Russia's extreme north, would complete a feasibility study on the project in September. "We and Total are making a joint feasibility study and believe it will be complete it in September," he said. "Actually, we have to make an assessment of its cost efficiency and decide whether our involvement in the project is reasonable." The Kharyaga production-sharing agreement was signed in 1995. Total owns a 50% stake in the project along with Norway's Hydro (40%) and Russia's Nenets Oil Company (10%). An additional agreement of 2002 stipulated that LUKoil would acquire a 20% stake in the project. However, the agreement has not yet come into effect. Alekperov said he was going to visit Iraq early next year to discuss the situation around a project to develop West Kurna-2, one of the country's largest oilfields with reserves of about six billion barrels of oil. LUKoil received a 68.5% stake in the project under a 23-year agreement in 1997 with the former Iraqi leadership. After the fall of Saddam Hussein in April 2003, the new Iraqi leadership announced a review of all oil agreements with foreign companies. Although the Iraqi administration recognizes that Lukoil has invested significant resources in the project, no concrete decision have been made. "I hope we will be able to step up the negotiating process on the West Kurna," Alekperov said. LUKoil is one of the world's leading vertically integrated oil and gas companies, engaged in oil and gas exploration and extraction, and production of petroleum products. It shares 18% both of Russia's oil production and oil refining markets. With proven reserves of 20 billion barrels, LUKoil is also the second-largest independent oil company worldwide on reserves, accounting for 1.3% of global oil reserves and 2.1% of world oil production.
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