Russian Natural Resources Ministry Prefers Cash
// Officials are ready to impose new fines on oil companies
The Russian Natural Resources Ministry will not be withdrawing licenses from oil companies on a large scale. Instead, officials suggest using fines to keep companies from violating environmental laws. Oil companies and experts hope that the system will be transparent and comprehensible. Otherwise, it will become breeding ground for corruption, they say.
Sergey Fyodorov, head of the Natural Resources Ministry’s department, said at the subsoil use council in Nefteyugansk on Tuesday: “We believe that licenses should be withdrawn only in cases of the most flagrant violations. Instead of this, we suggest employing economic measures to influence subsoil users, chiefly, fines for violating obligations on exploration work, stipulated by the licenses.” Natural Resources Minister Yury Trutnev backed up this view, adding that fines for violating environmental legislation should be so high that they “could amount to the withdrawal of the license.” “Fines are now not imposed for grave violations of terms of licenses agreements at all, even if a company drilled or extracted less oil than it was supposed to. The largest fine for environmental violations is currently 40,000 rubles,” the Natural Resources Ministry told Kommersant.
A possibility for fining is mentioned in the new bill On the Subsoil, Fyodorov told Kommersant. However, the blueprint was called back from the State Duma and has been kept at the government since then. The time when the cabinet sends it back to the Duma is still unknown. If the bill is not adopted soon, current laws will be amended to include new fines, the Natural Resources Ministry promises. “We can calculate how much a company could have spent drilling works for wells that it did not drill and extract the sum into the budget. Or, we can calculate the amount of taxes it did not pay because it extracted less oil than it was planned,” Fyodorov said, noting that specialists at the Economic Development and Finance Ministries will calculate the amount of taxes. Before new rules are introduced, the Natural Resources Ministry will be working with current laws.
Earlier reports said that the ministry was unhappy about a few companies carrying out license agreements. Rosneft, YUKOS, LUKOIL, Gazprom neft, TNK-BP and Russneft, and the companies may lose a number of their fields, it was reported. Yet, not a single license on any major deposit has been withdrawn. “A subsoil user must work according to the rules or alter the project after proving to us that drilling in this or that place is not reasonable,” Fyodorov explained. Only 25 wells have been actually drilled out of the planned 113 which companies were to drill in Eastern Siberia, the Natural Resources Ministry reports. One well costs as much as $2.5 million, Denis Borisov from the Solid investment company estimates. Therefore, fines on derailing works in one region may reach $180-$240 million.
Industry experts call monetary sanctions an adequate way to monitor observance of license legislation. “Naturally, we need to fight with violations,” Denis Borisov says. “Leaving licenses to companies and fining them instead is a good idea because it is better to cut off a hand than the head,” Dmitry Tsaregorodtsev, an analyst at FIM Securities, says. Experts remind that if licenses for deposits start to be withdrawn, investments into exploration works will shrink, and the country may soon face a decline in oil production as a growth in oil reserves in Russia is merely 60 percent of the annual extraction. Dmitry Tsaregorodstky believes, however, that fines should not be calculated out of the amount of money which is supposed to be spent on exploration works. “The cost of the works ranges greatly across the country, so it is hard to give the right rate for the whole Russia,” the analyst says. “On the other hand, we can take taxes that can be collected from non-used resources as a benchmark.”
Oil companies have not given any official comments on the initiatives of the Natural Resources Ministry. An employee of a major oil company told Kommersant: “Certainly, every country has a strict system of fines for violating license agreements but their systems of separation authority and business is more efficient than the Russian one.” Another oil company reported that a system of amending license agreements should be streamlined as well, becoming an alternative for economic sanctions.
Denis Rebrov and Anna Motorina
All the Article in Russian as of Oct. 25, 2006
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