FEC PRIORITY WILL BECOME IMPROVING THE PROCESSING OF PETROLEUM PRODUCTS

Deputy Minister of Economy Development and Trade of the Russian Federation, Mr. Andrey Sharonov.

Caspian Energy: Mr. Sharonov, RF's present strategy in the Caspian, what do you think should RF set out the relations with the Caspian countries in particular with Azerbaijan, Kazakhstan, Turkmenistan and Iran in the sphere of the Caspian resources' development and providing with oil and gas export to world market?

Deputy Minister of Economy Development and Trade of the Russian Federation Andrey Sharonov: Russia Federation has an agreement about cooperation in the field of FEC with Azerbaijan, Kazakhstan and Turkmenistan where is touched the issues regarding development of the Caspian resources and providing with oil & gas export.

There is planned the development of CIS Caspian countries' oil transit routes for providing with oil export from the Caspian resources due to increasing of capacity of Atyrau-Samara oil pipeline up to 25-30 mln. tons for a year and oil pumping offshore terminals in Novorossiysk and Tuaps up to 59 mln. tons of oil for a year, also the achievement of designed power of the CPC oil pipeline up to 67 mln. tons for a year.

Baku-Novorossiysk oil pipeline with designed power up to 15 mln. tons can serve for oil supplying for export from Azerbaijan, Kazakhstan and Turkmenistan. However, last years because of resources lack it is used no more than 30-40%.

There was signed contract between the Presidents of Turkmenistan and Russia in April 2003 about cooperation in gas field. According to it, there is planned the supplying of Turkmenistan gas to Russia from 5-6 bcm in 2004 up to 70-80 bcm in 2009-2028, including the building and reconstruction of main gas pipelines for providing with Central Asia gas to Europe.

Presently, Russia considers the Kazakhstan's proposal about attraction of the Russian oil resources totally 10 mln. tons for Atasu-Alashankou oil pipeline to China.

Russia lays the emphasize into development of crude hydrocarbon export while Europe has needs in products of average depth oil refining, will there be taken measures in increasing of ready products export?

I guess it is important to say that oil export in 2004 increased to 1,8 times instead of 2000 and petroleum products from 63 mln. up to 83 mln. tons or to 1,3 times. As we see the increasing of mineral oils export is not little. But we should note that at present there is fulfilled the export of petroleum products mainly of poor quality and "intermediate products" (virgin fuel oil, several marks of diesel and bunker fuel).

For satisfying of perspective domestic demand for petroleum products and their export is planned the development of oil refining field on the base of deeper using of oil stock. Priority will become improving the processing of petroleum products.

In Russian energy strategy is planned the construction of Sizran-Saratov-Volgograd-Novorossiysk and Kstovo-Yaroslavl-Kirishi-Primorsk oil pipelines for optimizing of export supplying of petroleum products. There was accepted the decision regarding the latter by the Government of the Russian Federation.

What are the Russian oilmen perspectives in the market of Asian-Pacific ocean region where dominates the Near East producers?

The Russian oilmen perspectives in the market of Asian-Pacific Ocean region are not bad. Oil demand in APR for last times regularly growth and according to experts it will increase to 1,5 times (up to 1530 mln. tons) by 2010 and up to 2250 mln. tons by 2030. Thus everybody will be satisfied. We have the preference ahead of Near East oil producers which is the shorter distance of oil supplying. We have already supplied to China approximately 6 mln. tons of oil by railway in 2004 and we are going to reach it up to 15 mln. tons in 2006. As you aware in December 2004 the Government of the Russian Federation adopted the decision about the construction of East Siberia-Pacific Ocean oil pipeline for oil supplying to APR.

Are you satisfying with present macro-economy figures of development. What do you think, on what fields special emphasize should be made?

Generally the present macro-economy condition of Russia is satisfactory. The growth of GDP in 2003-2004 exceeds 7%. In 2005, we expect the growth at level 6,5%. Population's real profit growth is stable. Significantly became strong the State finance: since 2000 the federal budget stably proficite, last year the proficite made 4,4% of GDP. The volume of gold currency reserves is the largest among non Asian countries and their volume significantly exceeds the volume of foreign debt that makes Russia as a State of clear net creditor.

Accumulated volume of Stabilization fund will permit not only to pay the debts that significantly got from the former Soviet Union but also to begin their timely covering.

From our pint of view the growth of investment into main capital is not enough. And major the standing of inflation at 10%.

How are you going to surmount the inflation and what the reason of inflation that can be observed in other CIS countries too?

I agree with you we can talk about done a lot but more important to think about what we should do. Initially let's consider the issue from the general point of view.

For solving of presence system problems - reduction of dependence from the world conjuncture, acceleration of economy growth and problems regarding the poverty of significant part of population is necessary to complete the formation of competitive economy model, step aside from its export-raw material direction.

Such kind of possibility is based only at intensive structural progress in processing and connected both with timely development of high technology and information composing economy and with upgrading of traditional sector where will be fixed the main part of employment and revenues in the long-term perspective.

And the main role of State - in development of operation rules in the market and its settlement, creation of conditions for development. Therefore the main directions of Government's work is active fulfillment of reforms as in macro-economy so in macro-economy level.

The reforms that are fulfilled by us are not confined only with innovations. They suspect the facilitation of access to the market, reducing of trans-sanctions expenses, safety of competitive in the market including local and regional, facilitation of creation and registration of new businesses, encouragement of innovations and growth of qualified man power proposals.

The contribution to problem's solving regarding the increasing of growth rate and economy diversification will be resulted the of multiplying of State investment and we forecast the growth of their share in GDP from 3% in 2005 up to 3,7% in 2008. First of all the state investments will be directed to infrastructure and high technological projects that will be able to provide with significant long-term effect system, will contribute to solving of tasks regarding diversification and technology economy competitive.

At the same time the State investments is not going to get off the private investments but for reduction of private business hazards and development of private State fellowship. We should state that presently, we have only two fields which development is high: communication and telecommunication. The fields with high-added cost giving the fast payment for invested facilities. State investments should assistance for creation to business with the growth of new places of goods processing and services.

Which measures does Russia take for attraction of investments?

The significant for creation of profitability investment climate is existent in Russia tax system. Mainly the goals set at the beginning of 2000 of tax reforms are realized.

Positive results of tax reformation are under mentioned:

- There was abolished the economically unjustified and rendered more negative influence to cultural activity "circulating" taxes and tax from sales that provided with simplification of tax system;

- There was launched the unique rate at 13% on tax to revenues of natural persons and unique social tax with regressive scale of taxation;

- There was launched new way of tax computation for organizations' profits that meet to international taxation systems;

- Reformed the taxation system regarding the production of minerals with significant simplification of taxation;

- There was simplified and lightened the regime of small business and agricultural goods producers' taxation.

Tax reform became necessary condition for providing with economy growth in Russia and liquidation of shadow economy. In result of fulfillment in Russia of tax policy by abolition of ineffectiveness taxes and tax privileges, reduction of tax rates (tax to profit up to 24%, VAT up to 18%, UTR up to 26%) the level of tax loading correspond to figures of major economically developed countries. The reduction of tax loading permits to increase the profits of organizations and population, also promote to activation of investment process. The contribution of tax reducing to economy growth is estimated at 0,3-0,5 percent point of GDP growth for a year.

So, there operates in Russia the one of more profitable tax regimes of Europe and not high level of tax loading to Russian economy is to be considered as one of stimulus of investment activity.

In the field of tax policy the Government continues the reduction of tax loading and construction of stable tax system due to improvement of tax administration mechanisms. It is necessary to reduce the pressure to business on behalf of tax organs, do not create extra problems for entrepreneurs but at the same time to keep the balance of interests of State and taxpayers.

You said that Government was continuing the operation by reducing of tax loading and building of stable tax systems. What steps are possible to expect in future?

Within the frame of presence of tax regime improvement the major are:

- Improving of VAT administration as changing way of using of tax deduction on VAT under fulfillment of capital construction of processing units and supplies for export, exclusion from tax base on VAT advance payments; creation of unique information area within the frame of taxes and custom organs interrelation. After taking of measures for improvement of VAT administration is expected for the avoidance of abuses, setting of unique rate on VAT (on the base of legislation the main rate - 18%, privilege - 10%) under it the consideration of its reduction possibility.

- Improving of tax administration as simplification of tax checking due to clear determination of document list for fulfillment of tax checking, confining of entrance checking terms including repeated; basis limitation for repeat tax checking;

- Improving of organizations' profits taxation as the possibility of writing off the charges to R and D work during one year; removal of imitation for transmission of losses to future; acceleration writing off of the depreciation for again introducing of main facilities by unique writing off at 10% from their cost in the first year of exploitation;

- Differentiation tax for mineral production (DTMP) in dependence of objective geology, economy and geography factors of fields' development. At present there is fulfilled the work within the frame of created inter-departmental working group including the defining of objective, pure and easy administrated criterions by majority presence of (oil) hydrocarbon fields. The possibility and terms the introducing of differentiated rates of DTMP will be considered after summarizing of done work;

- The creation of economy zones in the Russian Federation after acceptance of the Bill elaborated by the Ministry of economy Development of Russia "About special economy zones in the Russian Federation" that on March of 2005 adopted at session of Government of the Russian Federation.

According to conception of the Bill in the territory of country is planned the creation of special economy zones (SEZ) two types: industrial-processing and technique-promotional.

SEZ industrial-processing type are created with the aim of objects' placing of the processing type and technique-promotional - in the aims of creation and commercialization of scientific-technique elaboration by introduction into processing of new technologies based at progressive achievements of science and technique.

There is also considered the tax and custom preferences, the features of administrative regime, land-using regime regarding the residents of SEZ that will contribute to growth of regions' profitability for investments.

Thanks for your interview.