No. 2, 2009
PROMOTING SUSTAINABLE SUBSOIL MANAGEMENT
Oil of Russia magazine talks to Natalia Komarova, Chairman of the RF State Duma Committee for Natural Resources, Environmental Management and Ecology
Today, the fuel and energy sector is a key producer in the Russian economy, and its sustainable development under the conditions of the global financial crisis is unthinkable without a clear and transparent legislative framework. The State Duma is focused on further improving Russian Federation legislation so as to raise subsoil management efficiency and reduce the energy intensity of Russian economy.
Q: What are, in your opinion, the main priorities in the development of the legislative framework of the oil and gas industry?
A: First, it is necessary to decrease the industry's dependence on the import of technologies, components and equipment, create preferences for national producers and promote domestic competition as an incentive to quality growth and cost reduction of the goods and services produced by Russian companies. This is a strategic objective, and its achievement is impossible without mobilization of scientific, technical and financial resources. Several resolutions have already been adopted to develop the government contract system. Based on the results of an enlarged meeting, the State Duma Committee for Natural Resources, Environmental Management and Ecology proposed the RF Government to consider the expediency of amending the Law on the Subsoil for setting one of the main criteria to select the winner of the tender for the right to use a subsoil area or to acquire Russian-made process equipment, technologies and materials in the volume of at least 70% of the total purchase cost for the purpose of geological survey and mineral resources production.
The second priority is further development of legislation in the field of improving subsoil management efficiency, reproducing mineral resources, providing for full and complete use of explored reserves in the course of their development, and processing within the country all the minerals produced. This is inseparably linked with the problems of shaping a modern innovative economy and promoting high-tech sectors of the economy. We should start with solving the main problems - making Russia's economy less resource- and energy-intensive.
Q: What legislative initiatives aimed at supporting Russia's oil and gas industry in the period of crisis are discussed today by the State Duma and the governmental commission for fuel and energy sector development?
A: A major challenge for oil companies today is a shortage of credits, which may put on freeze investment projects linked with facilities upgrading, productivity enhancement, and new fields development. The 2008 results show that oil production declined for the first time ever in the last ten years, while the falling prices somehow or other provoke resource-squandering practices; under the circumstances, there arises a real threat of an energy deficit, which is likely to make post-crisis development much more difficult.
Hence the urgent need to prevent a scale back of projects by broadening access to credits and reducing the tax and tariff burden. Already in the near future we intend to work out the mechanisms for refinancing the credits and loans raised by oil industry companies.
In order to enhance the investment opportunities in the industry, the RF Government is elaborating a draft regulation providing for the transfer of oil production wells from the fifth amortization group to the third.
Moreover, it is important to support both producing and processing companies. I believe that establishing a procedure for calculating export tariff rates in respect of petroleum products at the legislative level, rather than by way of government resolutions, is vital for promoting the flow of investment in the refining sector. Coupled with higher duties on black petroleum products and lower duties on light petroleum products, this will give a fresh impetus to carrying out deeper crude conversion within the country, reducing fuel oil exports and building up refining capacities.
According to oilmen, today, over 60% of the ruble devaluation rate is accounted for fiscal withdrawals and higher operating costs. Given current oil prices, the existing tax system makes it unprofitable to develop nearly all new fields and over a third of the operating ones. In the near future, the RF Government will come up with a concept of new oilfield taxation model based on taxation of the actual performance of companies to provide for profitability of developing promising fields with account for their size and operation complexity. The new model should contain mechanisms that will encourage sustainable subsoil management and provide for higher oil and associated gas recovery factors. Development and adoption of a Federal Law on Oil Production will also be a welcome news for the industry. The law will regulate, in particular, matters of developing hard to recover remaining reserves of traditional and nontraditional types of hydrocarbon stock, application of enhanced oil recovery methods, and sustainable and integrated use of hydrocarbons in the course of their production and processing. It is intended to prepare the draft law concept as early as the first half of 2009.
In my opinion, one of the timely measures capable of actually helping the industry will be amending the Law on Subsoil so as to provide for deferring the field commissioning deadlines depending on the world oil prices fluctuations.
Q: In November 2008, the RF State Duma approved a draft law on Energy Saving and Energy Efficiency in the first reading. What are the main objectives of the draft law?
A: Raising energy efficiency and saving more energy with the use of tax, tariff and budget incentive mechanisms are the most important directions of shaping a modern innovative economy the foundations for which have been laid in the past few years. Presently, in the conditions of the world financial crisis, the topicality of these objectives has grown multifold. Today, these are not just matters of energy and environmental security but also of the survival of our companies in the post-crisis world where competition will grow even stronger, and lower costs and higher product quality become the key advantages in the battle for customers. The crisis is a kind of "natural selection" which will be survived by the fittests, those who will be able to create more opportunities for raising efficiency, upgrading production facilities, and making better use of available resources.
The official statistics vividly demonstrate the damage our economy incurs from energy wastage. Over 35% of the energy resources are lost due to the use of outdated technologies and worn-out equipment. According to expert estimates, introduction of Russian and international best practices, and energy-saving technologies is sure to decrease energy resources consumption by 40% on the average or by 350 million tons of oil equivalent. Of these, some 130 million tons can be saved by reducing non-production energy losses in buildings, 80 million tons in the industry, and about as much in the course of the generation, transmission and distribution of thermal energy, and nearly 60 million tons in the course of electricity production. The figures are very impressive and comparable with the annual energy consumption in the developed European states.
The second aspect of no less importance is the reduction of environmental impact. The strategic objectives of structural modernization and economic innovation make environmentally responsible use of energy a dictate of law. Such an approach will considerably decrease the negative environmental impact as nowadays precisely the production, transportation and use of energy resources account for above 50% of air, water and land pollution.
Q: How will the government support the really viable projects aimed at effective energy consumption?
A: Legal entities and private individuals developing and deploying energy saving technologies will receive government support in the form of budgetary subsidies, including subsidies under interest rate commercial credits raised to ensure higher energy efficiency and broader use of renewable energy sources.
The deputies are also studying the opportunity of providing tax and nontax breaks to businesses (tax holidays and credits).We also focus on improving tariff policies. For example, investment costs of deploying energy-saving equipment and technologies should be taken into account in tariff-setting practices. Of certain interest is the mechanism for allocating energy consumption limits and quotas at special prices to the companies which introduce and apply the energy-saving technologies.
Q: How will you monitor enforcement of this law?
A: First and foremost we should build an effective system of government management in the field of energy saving at all levels of power. Therefore, we propose a number of instruments such as energy audits, a unified system of energy efficiency rationing for devices and materials, a uniform reporting system differentiated by consumer. This data will be recorded in the state register of energy saving. To verify the data correctness and authenticity, an authorized agency will have the right to carry out the relevant audits in accordance with the procedure approved by the government.
It is planned to create an all-embracing system to monitor compliance with all regulations in the field of energy efficiency, and establish liability for offenses in the field of energy consumption. Moreover, the members of the work group suggested engaging the mechanism of self-regulation. In particular, they proposed formalizing the provision whereby compulsory energy audits may be carried out not only by the entities accredited by the authorized federal executive agency but also by the self-regulating organizations that are being set up in the field of energy efficiency enhancement.
Thus, the body of norms contained in the pending draft law and in the effective law in the sphere of self-regulation will establish a transparent procedure for monitoring exercised by both the government and the relevant self-regulating organization. This approach is sure to raise a fairly strong barrier to corruption and law violation.
