Pavel Kondukov addressed the round table discussion held by the Energy Committee of the Russian State Duma

Pavel Kondukov, Head of the Offshore Projects and PSA Group at Pepeliaev Group, took part in a round table discussion entitled 'Improving legislation to develop hydrocarbon resources on the Russian continental shelf'. The event was organised by the Energy Committee of the Russian State Duma and took place in Yuzhno-Sakhalinsk on 3 April.

Pavel Kondukov's speech was devoted to the "Main legislative changes required to effectively develop the Russian continental shelf". The deputy chairman of the Energy Committee Ivan Grachev as well as representatives of Gazflot, Gazprom and Gazpromneft marked Pavel's contribution out for being informative.

In his speech Pavel touched on the main challenges and the legislative initiatives needed to handle them. For the Russian oil and gas industry it is strategically important to develop offshore fields. The issue is even more pressing in view of the sanctions introduced by the EU and the US. Therefore, it is becoming increasingly important to establish the legislative base required to regulate the development of offshore fields.

Different field-specific departments acknowledge that the pace of exploration has slowed down. With sanctions introduced, the situation will only get worse. This may have an adverse effect on the volume of proven reserves and their development in the mid- and long-term perspective, with all the negative implications that may ensue. In this context, the right to obtain licences to develop fields on the continental shelf should also be granted to other Russian companies, such as subsidiaries of state-owned companies, joint ventures of Russian state-owned companies and foreign companies, as well as private companies that meet the requirement of five years' experience in offshore operations. The proposal will help to facilitate the funding of a project and reduce its cost. This will serve as an additional guarantee for foreign investors when a joint-venture is established.

Under current laws, production islands, installations and structures, regardless of their type, are to be designed and built in compliance with town-planning legislation. This is impossible from the standpoint of the legal requirements if in terms of their structure such facilities correspond to sea vessels rather than permanent construction facilities. A comprehensive approach should be adopted to adjusting the legislation in order to resolve the above issue.

Federal Law No. 268-FZ dated 30 September 2013 introduced significant tax and customs benefits for the development of offshore fields. Such benefits depend on the project's degree of complexity and are divided into four categories. The fields in the south and north of the Sea of Okhotsk (Sakhalin shelf) are assigned to categories two and three. Many experts note that the Sakhalin shelf has similar natural, climactic and geological conditions to those of the shelf of Kara Sea and Magadan. The costs on developing the above fields are also very much the same. Therefore fields located in the southern part of the Sea of Okhotsk need to be transferred from category two to category three from the standpoint of their complexity. This will increase the tax and customs benefits. In other words one and the same tax regime should be established for the above fields. This would ensure the required rate of return which is required to develop the fields in a cost-effective way.

Federal Law No. 268-FZ dated 30 September 2013 gave a tax exemption to the property used in a new offshore field. However such relief applies only to the property located either in the sea or both in the sea and onshore. In other words it does not apply to onshore infrastructure facilities or other property located only onshore. For this reason the benefit should also be extended to other property which is located onshore but is used for developing a new offshore field. This proposal would further reduce the tax burden, which is equally important in the current situation.

At present, there are many unresolved issues and gaps in the law. Such situation creates additional obstacles to developing offshore fields, particularly in the context of sanctions.

Pepeliaev Group is a leading Russian law firm offering the full range of legal services in all regions of Russia, most former Soviet countries and abroad. Over 160 lawyers in Moscow, St. Petersburg and Krasnoyarsk, as well as in Vladivostok and Yuzhno-Sakhalinsk (within the alliance with Russin & Vecchi), provide legal assistance to over 1,500 companies operating in various industries. 50% of these are international corporations implementing long-term investment projects in Russia.