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Russia without oil: the Budget will lose 40% of revenues

The petrodollar pipeline that feeds the past half-century Russia, allowing to exchange hydrocarbons on Western technology and consumer lifestyle, living out their last days.

As soon as the old Soviet fields are in decline, and new ones with cheap and easy extraction of the oil cannot be detected, the Russian authorities are preparing for the precipitous decline of oil revenues.

To avoid the fate predicted Russia Saudi Prince Mohammed bin Salman, and not to disappear from the world market of “black gold” is possible only through the extraction of difficult reserves. But the oil is significantly more expensive at cost and will not allow in the same amount to fill the Federal budget, warned in an interview with Reuters, energy Minister Alexander Novak.

Under the current taxation of the oil industry half of the reserves uneconomic. “If you do not change the tax system in Western Siberia and the Arctic, we have already a few years will not be able to maintain the current level of production,” – said Novak.

 

“We have the highest burden for the oil industry in the world, – he complained. – On average it is 68-70% of revenues. And if you take deposits in Western Siberia, which have no benefits there, the load is 85% of the revenue.”

This system would be viable with oil at $ 100 per barrel. But for these prices you need to forget, says Novak: in the medium term, the fair value of the barrel – not more than $ 50. So you’ll have to change the system to not tax the production volume and profitability, introduce incentives for exploration, the development of small fields and advanced technologies of oil production, allowing you to amortize and deduct these costs from the severance tax, said the head of Ministry.

This will give the opportunity to produce and sell abroad another 10 billion tons and save about $ 4 trillion of foreign exchange earnings that is essential to pay for imports and to maintain the illusion of technological development and consumer welfare.

The Ministry of Finance, although the public continues to oppose tax breaks, in fact, long recognized that in the next 5-7 years, the Federal budget will experience a shock failure from hydrocarbon rents.

 

In the long-term budget forecast up to 2036 provides for reduction of the real (ie adjusted for inflation) oil and gas revenues by 40%.

In relation to the size of the economy would collapse more than two-fold: if last year the budget was 8.8% of GDP, then in 18 years it will be only 3.3% of GDP.

Moreover, to catch the departing train oil market to cut oil and gas budget (5.5% of GDP) need until 2024, follows from the forecast.

“The growth of depletion of the developed reserves of natural resources, and the transfer of investments on preferential deposits in the structure of production will continue to grow the share of deposits with a lower effective tax rate (the tax breaks on mineral extraction and export duties, the added tax revenue),” says the Finance Ministry.

That’s why people should become the new oil for the budget. Non-oil and gas taxes, the Finance Ministry plans to increase by 60%, fees, VAT doubled, the total tax burden on non – oil sector from 26.9% to 28% of GDP.

 

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