Russia scraps PSA system but some deals to survive
By Dmitry Zhdannikov
MOSCOW, May 14 (Reuters) - Russia's parliament on Wednesday backed a government plan to effectively scrap Production Sharing Agreements (PSA), in a move analysts said could deter investors from buying into the country's vast natural resources.
The State Duma lower house of the parliament approved legislation in the second and most important of the three readings required for approval, saying the normal tax regime was already stable enough for investors.
But the Duma decided to maintain some of the 28 potential PSA deals signed over the last decade between foreign investors and the world's second largest oil exporter.
Analysts said it was unclear how many deals, signed with oil majors such as BP, ConocoPhillips and ENI, had real chances of survival.
They said the possibility of legal changes could scare off foreign investors despite Russia's growing stability, and that the new legislation favoured Russia's own growing oil majors.
PSAs give investors a predictable tax regime for the life of a project in countries perceived as volatile.
The government and many domestic oil firms say the regular tax regime has become more predictable in recent years, enabling global majors to invest in Russia without tax exemptions.
They cite a recent decision by oil major BP to take a 50 percent stake in Russia's TNK oil firm for $6.75 billion as proof that Russia could be attractive without special taxes.
The new legislation says that oil, gas or other natural resource riches must be offered first at open tenders and only then, if no contenders are found, reoffered on PSA terms.
It also says that potential PSA deals, preliminarily signed with investors, can be reoffered at open tenders, but does not clearly define the process.
"The PSA potential in Russia has weakened after the BP deal. But the decision is negative for the investment climate because investors don't like laws and taxation being changed every year," said Kaha Kiknavelidze from Troika Dialog.
The legislation says some projects could survive, including those in offshore zones or those backed by state agreements.
This means only three oil PSA deals are guaranteed to survive because they were signed before Russia approved its first PSA legislation in 1996 -- two projects on the Pacific island of Sakhalin, led by Royal Dutch Shell and ExxonMobil, and a Total-led Arctic project.
Other potential PSA projects are just at the talks stage and have not produced oil or gas.
Survivors could also include a project by Russia's LUKOIL on the Caspian Sea, gas giant Gazprom's Shtokman field on the Barents Sea, in which Total and ConocoPhillips could participate.
Losers could include a joint oil project in Russia's Arctic between ConocoPhillips and LUKOIL, a gas project in Russia's south led by Italian energy group ENI, and Total-led eastern Siberian Vankor oil field.