Moscow (Platts)--2Jun2008

Russia's Prime Minister Vladimir Putin is confident that oil output in
Russia will grow in the next several years due to recent decisions by the
government to reduce the tax burden on the sector.

"We have practically taken a decision to reduce the mineral extraction
tax. We expect a positive effect and are confident that in the next several
years oil production in Russia will be growing," Putin said in an interview
with French daily Le Monde during his trip to Paris late last week.

"We have also adopted a preferential regime for new fields, including for
offshore fields in the Arctic and in East Siberia, where there is no
infrastructure," he said, according to the text of the interview published on
the Russian government's website.

Putin said that there is a misunderstanding that Russian oil production
was stagnating due to strengthening control over the sector by the state.

"There is mainly private capital in the oil sector in Russia," he said.
All international companies, including those from Europe, work in Russia,
he said, adding that some foreign companies develop major fields.

"It is absolutely incorrect to say that our energy sector is closed [to
foreign capital]," he said.

"We did pay some attention to [supporting] companies, where the state
holds controlling stakes, say Gazprom or Rosneft," Putin said. "But all the
rest--and we have a dozen major companies--is the private sector," he added.

Putin reiterated that the problems in the energy sector arose from
excessive taxation in the industry, which had not allowed companies to invest
in exploration and replacement of mineral resource bases as well as use
low-flow wells.

The government expects the recent decisions on tax cuts to help improve
the situation in the sector, he said.

"I have no doubts that this sector will develop actively in the coming
years," Putin said.

Last week, the government approved a number of proposals to reduce oil
sector taxation in a bid to revive stagnant crude production, including the
introduction of tax holidays for offshore and remote onshore fields. The
decisions must still be approved by the Russian parliament.

The recent initiatives also include a cut in the mineral extraction tax
such that oil producers pay the tax starting from a price of $15/barrel, as
opposed to the current level of $9/b. This move is expected to reduce the
overall tax burden on the oil sector by some $4 billion/year.

The decision was also taken to change the tax-setting mechanism for oil
products, with higher-quality products to see lower excises, in a bid to
stimulate refining.

Russia's oil production has stagnated since last year. The first five
months of 2008, when oil output declined by around 1% from the same period
last year, raised concerns that Russia this year may see the first fall in
annual oil production since 1998.
--Nadia Rodova, nadia_rodova@platts.com