Russia offers tax lure to Western oil firms

RUSSIA will exempt Western companies from its punitive oil export tax if they can prove they are willing to invest for the long term. Sergei Roginko, a member of President Boris Yeltsin's advisory board, said yesterday that the tax, equivalent to dollars 5 on a barrel, was aimed at speculative dealers who were enjoying massive profit margins. 'They were bleeding us dry,' he said.

Until recently, get-rich-quick dealers were buying oil at low domestic prices and selling it on the world market. Mr Roginko said there was evidence of bribery of officials, albeit at lower levels, as dealers tried to gain export licences.

'You just have to know where to go and what to give,' he said. 'A video recorder for a lesser clerk can have the same effect as a Mercedes for someone higher.'

He added: 'These speculative dealers have been able to get very smart profit margins - in some cases about 10,000 per cent.' Three months ago, just before the export tax was introduced, petrol sold for two roubles a litre in Russia compared with dollars 1 in the West, while the exchange rate was 200 roubles to the dollar.

Mr Roginko, in London to promote the oil trade, estimated that over the past year at least 5 million tonnes of fuel had been exported through 'cheap rouble' deals.

But the tax has also deterred serious foreign investors, causing the Russian government to backtrack by offering exemptions. The situation is serious as oil production is already down 20 per cent in the first six months of the year compared with the same period a year ago.

The authorities are now desperate to attract between dollars 5bn and dollars 10bn that they say is necessary to bring oilfields in the Russian Federation up to date. Billions more could be needed to update the ageing pipelines to get gas and oil to export markets.

The Russian government is keen to get oil firms to bring in Western technology to extract from existing fields. Russian technology can extract typically 40 per cent. Western technology, kept from Russia for years through export control regulations, can extract about 75 per cent.

Now that export restrictions had been eased the Russians could not afford to buy the necessary equipment and know-how, Mr Roginko said.

He urged companies to look again at the opportunities in regional oilfields and the now-favourable conditions for trading. One oil giant, Conoco, is already taking advantage of the tax exemption move.