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India to press Russia again for tax breaks on OVL's Imperial, Sakhalin investments

Russia has rejected India's request for tax breaks on investments made by ONGC Videsh Ltd in Imperial Energy and Sakhalin- 1.

, ET Bureau|
Last Updated: Jun 16, 2011, 01.36 AM IST|Original: Jun 16, 2011, 01.34 AM IST
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NEW DELHI: Russia has rejected India's request for tax breaks on investments made by ONGC Videsh Ltd in Imperial Energy and Sakhalin- 1.

India, on the other hand, insists that the projects are unfeasible without tax breaks and would press for it at the St Petersburg summit beginning today.

India wants no mineral extraction tax and a 10-year tax holiday from export duty for Imperial Energy, which is a 100% subsidiary of ONGC Videsh (OVL). It has also sought lower profit tax on Sakhalin- 1 project for OVL, which holds a participating stake of 20% in it.

"The Russian finance ministry rejected both the proposals for tax relief in a recent communication," a government official told ET, adding that India would continue arguing for the waivers at the St Petersburg International Economic Forum. "We have strong arguments for the tax breaks and we are hopeful that the Russian government would understand our case," the official said.

The summit will be attended by Commerce and Industry Minister Anand Sharma. He is scheduled to meet Russia's deputy Prime Mnister Sergei Ivanov, minister of economic development Elvira Nabiullina and minister of industry and trade Viktor Khristenko during his visit. India argues that production cost for Imperial Energy is very high due to difficult climatic conditions and inadequate infrastructure.

"We will urge Russia to provide tax relief to Imperial Energy on par with other projects in East Siberia since the operating conditions are similar," the official said. Without the requisite tax exemptions, the project runs the risk of being unviable. OVL has paid profit tax at 35% for the Sakhalin-1 project in 2008, which was subsequently brought down to 20% in 2009. Delay by Russian government to confirm applicability of lower rates has significantly impacted cash flow of OVL and resulted in payment of excess taxes worth $129 million.

India will also express its interest to move ahead on Sakhalin-3, Trebs & Titov projects and Yamal Peninsula gas project. Sakhalin-3 project is estimated to have reserves of 1.4 trillion cubic meters. Licences for Kirinsky block of Sakhalin-3 Project were granted to Russian company Gazprom in 2009, which is not interested to have foreign partners at the moment as it says the area constrains strategic hydrocarbon resources.

It has, however, assured that it will invite OVL when it would be in need of foreign partners. OVL's bid for Trebs & Titov projects in Timan Pechora Region was rejected, but it still remains interested in participating in this project. India is interested in sourcing LNG from Russia.

OVL has been actively pursuing invitation of Russian Government for participation in Yamal Peninsula Gas Project. GAIL India and Petronet LNG have visited Russia in this regard.
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