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Interview with Adviser to the President of the Russian Federation Anton Alekseyevich Ustinov

Anton Alekseyevich Ustinov, Adviser to the President of the Russian Federation Candidate of Legal Sciences

In this interview we discussed various issues of the legal regulation of the gas industry, tendencies of the development of the relations regulated by the legislation in gas industry, problem issues discussed at the sittings of the Commission for the Strategy Development of Fuel and Energy Sector and Environmental Security.

Anton Alekseyevich, on 23 October 2012 a session of the Commission on the development of the fuel and energy complex and environmental security under the President of the Russian Federation was held. The agenda of the session included issues of the further development of the gas industry. One of the points discussed was related to the envisioned adjustment of the General Plan of Gas Industry Development until 2030 and of the Eastern Gas Program. Naturally, these matters require a detailed examination. What is the current situation in the area? What are the trends in the evolution of the General Plan of Gas Industry Development? What are the tasks of the Eastern Gas Program? Are the required program documents already available, and what is their legal content?

 

- At the moment, the gas branch is a steadily and dynamically developing segment of the fuel and energy industry with high potential for continued growth. Besides, the gas branch has historically been one of the key factors in the energy security of our country.

It is true that, in pursuance of the Commission decision. respective federal executive bodies (headed by the Ministry of Energy) with participation of OAO Gazprom and independent gas producers are currently monitoring implementation of and preparing amendments to the General Plan of Gas Industry Development for the period until 2030 and the Eastern Gas Program.

The main objective of amending the General Plan is to determine economically justified directions of strategic development of the gas industry in order to secure the stable supply of gas to the Russian consumers and fulfill our obligations under intergovernmental agreements and to our foreign consumers.

The main objective of the Eastern Gas Program, which is currently considered to be an integral part of the General Plan, is establishing an effective gas industry in the Eastern Siberia and Far East regions and creation of conditions for their dynamic social and economic growth, as well as significant improvement of the quality of life in those regions.

Monitoring of implementation of the specified program documents for the period of 2012-2013 conducted by executive bodies enables us to judge whether the target indicators set in the Plan correspond to the gas industry current trends, whether the projects envisioned in the Plan are being implemented, and at which stage of implementation they ate at the moment.

The monitoring results have revealed that some parameters of the General Plan and Eastern Gas Program require more specification and further improvements. Among them, there are terms of implementation of certain projects and a wide range of other parameters.

Apart from updating the target indicators, the General Plan will be amended for creating more flexible scenarios, working out a long-term strategy of gas pricing and rate making, optimizing the export policy, and reflecting consequences of the decision on the CNG export liberalization in the General Plan.

The gas industry development prospects were discussed at the Commission sessions in October 2012 and in February 2013. During the meetings, a number of cooperation trends in the global gas market were singled out we need to take into account.

These are, first of all, development of new gas extraction and processing technologies, formation of the all-European gas market and diversification of its supply sources, and dynamics of energy consumption in various countries.

Timely responses to the changing gas market trends, search for and implementation of new mutually acceptable forms of cooperation with our European partners having regard to the current reforms of the energy industry in Europe, full-scale entry of the Russian gas into the Asian-Pacific market are indispensable pre-conditions to maintain Russia’s leading position in the international energy market.

Upon conclusion of working out motions on the General Plan and Eastern Gas Program updating, they will be considered at the Commission session.

 

Anton Alekseyevich, in 2013 the Commission took a decision to liberalize the CNG export having a major impact on the formation and implementation of the gas export policy. Could you dwell on this issue in more detail?

 

- It is true that on 13 February 2013 the Commission together with competent executive bodies and representatives of the largest oil and gas companies actively discussed the gas export policy. This discussion led to a decision to work out a mechanism of gradual removal of the legal CNG export limitations.

This, in its turn, resulted in the recent introduction of key amendments into the Russian legislation which will have a major impact on foreign economic relations in the gas branch in the near future. I mean formation and adoption of Law No. 318-ФЗ of 30 November 2013.

The above-mentioned federal law introduced changes and additions into Federal Law No.117-ФЗ “On the Export of Gas” of 18 July 2006. These changes and additions broadened the circle of potential CNG exporters and laid the legal basis for gradual liberalization of the CNG export. Thus, the exclusive export right is now extended to:

  • users of the subsurface areas of federal importance, where the license to exploit the subsurface as of 1 January 2013 provides for construction of an CNG plant or direction of the extracted natural gas to an CNG plant for liquefaction;
  • legal persons directly or indirectly controlled by the Russian Federation by more than 50%, using subsurface areas of the inland territorial waters, continental shelf of the Russian Federation, the Black and Azov Sea, and producing CNG from the gas produced from the above-mentioned subsurface areas or under production sharing agreements.

Thus, while OAO Gazprom retains the exclusive right for the export of natural gas in the gaseous form, the right to export CNG has now been also granted to the largest public oil and gas companies as well as independent gas producers. The above amendments will be a good incentive for stimulation of production at the extremely capital-intensive offshore fields and the largest natural gas deposits on the Yamal peninsula.

Moreover, in order to provide conditions for introducing the state regulation in the natural gas export area, the federal law in question provides for that this type of export activity requires licensing, and the Ministry of Energy shall have a control mechanism over the export of natural gas. The control procedure will be developed by the Government of the Russian Federation.

 

Anton Alekseyevich, the President of the Russian Federation has many times voiced his opinion on necessity to eliminate the administrative barriers existing in the legal regulation of the various spheres of entrepreneurial activity. What is the situation like in the subsoil use area? Did the Commission pass any decisions aimed at removal of the administrative barriers for the subsoil use?

 

- In February 2013 the Commission discussed the current state of affairs in the area of subsoil use. Special attention was given to the acting legal regulation in this sphere in order to increase the efficiency of state regulation of the geological subsurface exploration and extraction of mineral resources, including gas. The Commission heard the report and discussed respective proposals of the largest oil and gas companies.

The discussion of these issues resulted in the principled decisions on the necessity of working out new approaches to the regulation of this sphere.

Based on the adopted decisions, the federal bodies are currently working out a number of draft laws aimed at creating a unified Russian fund of geological information and reduction of administrative formalities needed for projecting the exploitation of mineral deposits by introducing a comprehensive state geological examination.

During the session held on 26 August of the last year, the Commission again underscored the need to cut the number of administrative procedures and permits being a basis for launching the development of a subsurface area. The respective state bodies were instructed to work out the issue of optimizing the permission documentation required for starting the works after the right to develop a subsurface area is received. The issue requires comprehensive treatment of various legislation branches, which is why the work is not completed yet and requires an additional amount of time.

 

Anton Alekseyevich, skeptical analysts often say that the proven reserves of oil and gas in Russia are being depleted. In this context, exploration and development of resources of the continental shelf, which, according to the earliest preliminary assessment, contains huge amounts of oil and gas, become particularly topical. Has the Commission discussed the issues related to the offshore field development?

 

- The efforts to create conditions for stimulating development of the continental shelf of the Russian Federation under the immediate supervision of V.V. Putin had been launched long before the Commission was founded. Thus, in order to increase the resource base for the Russian oil and gas industry and improve the attractiveness of developing the offshore fossil fuel deposits for investors, on 12 April 2012 the Government of the Russian Federation issued Decree No. 443-р, which provides for implementation of several stimulating measures for the continental shelf development.

A number of issues of granting tax benefits and customs privileges required drafting and adoption of the respective normative acts. However, the adopted measures lagged behind the needs of the oil and gas industry.

In order to improve and coordinate the respective federal bodies activity on this issue, the Commission at its session on 13 February of the last year adopted a decision on the need to promptly pass the normative legal acts aimed at implementation of the propositions of the above-mentioned Decree.

As a result, Federal Laws No. 213-ФЗ of 23 July 2013 and No. 268-ФЗ of 30 September 2013 were drafted and passed. The laws introduced amendments and additions into the Tax Code of the Russian Federation and the Law “On the Customs Tariff”, which lead to the formation of the legal basis for taking incentive measures for development of the offshore oil and gas resources.

In particular, the Tax Code of the Russian Federation was amended as to provide preferential conditions for calculating the Mineral Extraction Tax (NDPI) based on the project complexity degree. Moreover, in order to fix the guarantees for receiving and enjoying the above tax benefits, there is a clause about the tax rate fixation for the period of 5 to 15 years.

Taking into account high value of the property and equipment used for exploration of the subsea hydrocarbon reservoirs, the law envisages such preferences as exemption from the property tax in the course of development, as well as zeroing the export customs duty for the hydrocarbons extracted in the course of a shelf project implementation.

Because of the high capital intensity of shelf projects at the initial stage of development, amendments granting the right to carry forward the tax losses without setting the time limit, and giving an opportunity to apply accelerated depreciation and depreciation benefit to the capital assets used for the development of the said deposits were introduced into the legislation.

 

Anton Alekseyevich, many thanks for your answers!

-          Thank you and good luck!

 

The interview was held by

Head of Department of the Energy Law

of Moscow State Law University

 named after O.E. Kutafin (MSLA)

Doctor of Law V.V. Romanova