Back Matter

Appendix I.

International comparison of revenue from oil and gas and relative tax burden

(In percent of GDP, unless otherwise noted)

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Source: Fund staff estimates.Note: Bonus payments from international oil companies are not included. Tables 6 and 8 give figures for bonus payments in Kazakhstan and Azerbaijan. Figures on relative tax burdens are ratios.

Appendix II. Russia Energy sector: nonpayment and tax evasion in the energy sector

What are the causes and special features of nonpayment in the energy sector, particularly nonpayment for gas, electricity, and fuel oil? Data show that in 1996 about 20 to 30 percent of energy bills were paid in cash, 20 to 30 percent were registered as arrears, and the remaining 50 percent were settled through barter, promissory notes, and debt for equity exchanges.53 There are several reasons for this pattern:

  • Energy prices are frequently much higher to industry than short-run or long-run economic cost of supply, even with excess supply. This has exacerbated the energy debt problem for consumers. Thus, poor regulation of utility prices leads to high prices that contribute to high debts and nonpayment.

  • Energy companies accept noncash payment for energy supply because:

  • (a) The opportunity to sell incremental gas or electricity elsewhere, if not sold to current customers, is low. This is because of the massive surplus of gas and electricity in most parts of Russia, due to declining demand, and to export and transmission constraints.

  • (b) The high prices charged to industrial consumers allow the energy companies to discriminate between various customers.54 This includes allowing the buildup of arrears which are then settled with noncash transactions.

  • (c) Benefits of noncash payments are frequently high. Promissory notes and brokered multilateral barter are a means of concealing revenues and evading taxes. Such arrangements benefit the energy company and individuals involved in the transactions. Large energy companies, in particular, may be able to receive favorable terms for noncash payment as they have the ability to cut off or reduce supply to many customers. The marginal benefit earned from these noncash transactions need only cover marginal cost. The marginal cost of supplying energy is relatively low, near operating cost for an industry facing declining demand. In some cases, the energy company has been able to acquire equity in consuming enterprises very cheaply by swapping energy debts for equity.

  • (d) The government, in some cases, discourages cutoff of energy supply to various industries. The consuming industries act to avoid hard budget constraints, and in some cases can mobilize enough government support to prevent cutoff of supply.

Appendix III. Supply, Demand, Pricing, and Taxation of Gas in Russia

Gas production is dominated by Gasprom with production of 595 billion cubic meters (bcm) in 1995. This is much larger than gas consumption in western Europe, only 310 bcm of which 24 percent already comes from Russia (see Figure 1). The exports of gas from Turkmenistan have fallen from around 80 bcm in 1990 to less than 15 bcm in 1997. Gas exports from the region to western markets have increased somewhat but there are significant limitations on gas exports due to slow growth in western markets and concerns on security of supply which will limit the share of gas imported from Russia to around the current level (24 percent).

Figure 1.
Figure 1.

Gasprom Production and Sales by Volume and Western Europe Consumption and Imports

Citation: IMF Working Papers 1998, 034; 10.5089/9781451845235.001.A999

Source: Fund staff estimates.

Gasprom has one-fourth of the world’s gas reserves, assets (excluding gas reserves) of $119 billion. It has a monopoly on sales to the domestic Russian market and most of the gas sold in the non-Russian BRO and Central and Eastern Europe. It supplies one-fourth of the gas consumed in western Europe. Gasprom accounts for 6-8 percent of Russian GDP. It was privatized in 1994. At first 50 percent of its stock was voucher privatized, primarily to managers and employees, followed by Gasprom’s purchase of 10 percent of the companies’ stock from the government for book value, less than $20 million. Forty percent of the shares remain in the hands of the Russian government, but the majority of shares are managed by Gasprom on behalf of the government.55 Estimates of gross revenues are $31 billion in 1996, half from sales outside Russia,56 as shown below.

GASPROM Gross Sales in 1996

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Sources: Gasprom 1996 Consolidated Financial Statements; and O’Sullivan, 1997b.

Low Economic Cost of Gas in Russia

Total economic cost of supply is estimated to be between $22 and $35/thousand cubic meters or them. These figures include operating cost. The production cost is estimated using the average incremental cost (AIC) which is the discounted future production cost (investment and operating) divided by the discounted incremental quantity of gas produced. The depletion premium is the allowance for the depletable nature of natural gas which represents the forgone opportunity of consuming the resource in the future. Evaluations of Gasprom investment requirements concludes that economic cost of gas production, plus depletion premium, is about $10/thcm. If additional investments in the transmissions system, to meet flat or declining demand, are $2 billion to $3 billion per year then this translates into total transmission costs equivalent to $12 to $16/thcm. This puts the total economic cost estimate between $22 and $35/thcm.57

Gas prices (industrial) since November 1995 have averaged about $57/thcm, up from $24 on January 1995, which coincided58 with the increase in the city gate excise (see Figure 2 on gas price and excise tax rate). This is about twice the estimated economic cost. Gas prices are set by the Federal Energy Commission but have been heavily influenced by Gasprom. For comparison, the netback from exports to the Far Abroad is about $70-$80/thcm and the netback from exports from the Near Abroad (CIS states), is $70-$80/thcm (but in effect lower due to payments difficulties). The gas excise tax is 30 percent, but compliance in 1995 was only 40 percent. Using the estimates of economic cost above some approximate calculations show the large potential economic surplus available in the gas sector, as shown below.

Figure 2.
Figure 2.

Gas Price and Excise Rate

Citation: IMF Working Papers 1998, 034; 10.5089/9781451845235.001.A999

Gasprom, 1996

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Source: Fund staff estimates.

Monopoly Structure

An analysis of demand, supply, pricing, and taxation in the gas sector implies that domestic gas prices in late 1995 were about twice the estimated economic cost. Figure 3 A indicates the potential for monopoly profits, based on where the marginal revenue curve crosses the marginal cost curve plus excise (assuming compliance of 40 percent with the excise tax on gas of 30 percent). In effect, the price charged by Gasprom on domestic sales was about 80 percent above economic cost. Figure 3B illustrates actual price in late 1995, including some subsidized prices for households and some overdue receivables. This pricing behavior and the vertically integrated structure indicates a significant degree of monopolistic behavior. The analysis here implies that the privatization process has transferred a “domestic franchise” (a monopoly for production and monopoly for transmission) to Gasprom and is generating about $3 billion to $6 billion per year, based on costs, prices, and demand curve estimates used in this Appendix.

Figure 3.
Figure 3.

Russia and BRO: Gas Supply, Demand, Pricing, and Taxation

Citation: IMF Working Papers 1998, 034; 10.5089/9781451845235.001.A999

Source: Fund staff estimates.

Gasprom Consolidated Financial Statements for 199659

Gasprom provided audited consolidated financial statements for 1996, in conformity with International Accounting Standards. Available data on payments and tax arrears support the notion that Gasprom is able to run tax arrears. The 1996 accounts payable were 1.1 percent of GDP and the reported taxes payable at end 1996 were Rub 54 trillion, equal to 1.7 percent of GDP or nearly $10 billion (see Table 14). This is much higher than the press reports of Rub 13 to Rub 16 trillion tax arrears at the end of 1996 which reportedly have been cleared by Gasprom at end of June 1997. The combined accounts payable and taxes payable were more than accounts receivable (excluding doubtful accounts) of 2 percent of GDP. Thus these receivables minus payables are negative 0.3 percent of GDP ($1.5 billion).

Table 14.

Gasprom 1996 IAS Accounts (Reported June 1997)

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Source: IAS Consolidated Gasprom Accounts, June 28, 1997; Price Waterhouse Auditors, reported by Bloomberg Financial Services and O’sullivan, 1997

Note: receivables settled via noncash means--barter and mutual clearance--are not included above.

IAS financial statements report 57 percent of accounts receivable settled during 1996 were settled via these noncash means.The noncash revenues appear to be included in gross sales figures of gas sold in Russia and possibly to Near Abroad.

A large portion of the unpaid bill was settled with noncash mechanisms (mutual settlement). It is reported that 57 percent of unpaid bills settled in 1996 was settled in this way. The reported sales of Gasprom (both cash and receipts from barter etc.) from the Russian market was Rub 71 trillion ($14 billion) somewhat less than one would expect if all customers paid cash based on market prices.

Appendix iv. Revenues from Government Shareholding and Windfall Tax Lessons of Experience from Other Countries

A. Taxation of Excess Profits or Windfall Gains

The energy sector in Russia was privatized in a highly nontraditional manner through the voucher privatization of large stakes in the oil, gas, and power companies. Energy sector assets valued at $160 billion were privatized, primarily with vouchers. The contribution to the budget was less than $1.5 billion.

It is illustrative to mention the recent experience in the United Kingdom, as there are interesting contrasts and possible parallels with Russia. In 1997, the U.K. Government revealed plans to impose supplemental (windfall) profits taxes on privatized gas, power, and other utilities of at least £5 billion. It has become clear to the government (and the public) that excess profits are being made by the privatized natural monopolies and natural resource industries. The causes are a combination of underpricing of equity, surplus cash flow from a low debt-to-equity ratio, and regulation of prices in a way that allows for excess profits to be generated and retained in the company. This move to impose windfall taxes is occurring even though the British Government received $60 billion from sale of equity and about $16 billion in bonds from government equity converted into debt just prior to privatization.60 The plans to impose such a tax has spawned new research on new ways to efficiently tax rents from utilities and incentive-based regulation.61

A supplemental profits tax on privatized utilities has advantages and disadvantages. There may be justification and public support for such a tax. However, the tax regime in Russia is not yet finalized. Reform of the tax structure to efficiently capture excess rents, along the lines outlined in this paper, may accomplish revenue and efficiency objectives without resorting to a supplemental windfall tax. Future imposition of a supplemental tax, however, may make sense for fiscal and economic reasons.

B. Government Shareholding

Other BRO countries have not adopted the voucher privatization strategy for oil and gas assets which has been used in Russia. In Kazakhstan part of the oil assets have been sold, primarily through international tenders, and the other part retained in a state oil company. There are several joint ventures as well. Azerbaijan has not privatized the state entity, SOCAR, but joint ventures are common.

It is illustrative to examine the potential level of revenues shareholders and creditors would receive if these energy assets were located in western economic systems. The asset base would be large, US$300 billion.62 These assets would be expected to generate returns, typically 8 to 10 percent, in the range of US$20 to US$30 billion. Typically, about 25 to 40 percent of these returns would be channeled into investment,63 leaving the rest, US$15 to US$20 billion, to service the debt and pay dividends. For these utilities, there would normally be a ratio of long-term debt to equity plus debt of 40 to 60 percent. In other words the long-term debt of the power and gas utilities in the BRO would be in the range of US$100 to US$200 billion.

In the BRO, the utilities began the transition process with virtually no long-term debt and little short-term debt. Even today there is very little long-term debt. Dividends were not routinely paid and are still not paid in most cases. While the useful assets are likely to be much lower than mentioned above, even a small portion of potential return is significant in the present budgets of BRO countries. Estimates of revenues from government shareholding in energy are 1 to 2 percent of GDP in Ukraine (gas transit), Russia (gas, power, and oil transport), and Georgia (oil transport).

A portion of the government’s equity stake can, in many cases be converted into debt (i.e., corporate debt owned by the government). The present value of the government shareholding can be increased for two reasons. First, the interest and amortization payments may capture a larger share of rent within the company (as compared to dividend or normal corporate tax payments). Second, investors will use lower risk adjusted discount rates to value corporate debt than to value more risky equity.64

Specific dividend payments should be mandated on government-owned shares in 100 percent state-owned entities and joint stock companies. Government representation on the boards of partially privatized entities should be structured so as to encourage appropriate dividend payments.

APPENDIX V.Background data on taxation of oil and gas in russia

Table 15.

Russia: Selected Characteristics of Oil and Gas Sector Taxes, March 1997

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Source: Fund staff estimates.

Most companies elect cash accounting and these companies pay when cash is received. For those few companies electing accrual accounting, the tax is triggered when the sale accrues and not when cash is received. The State Tax Service states that the price used for assessing the tax is the actual wellhead price. Others argue that the price, based on domestic sales, is used.

The rate of tax is adjusted monthly in relation to the US$-ruble exchange rate. The average rate in April 1994 was Rub 10,890 and the default rate was Rub 14,750.

Revenue less operating costs, capital allowances, and indirect taxation including VAT. Domestic producer associations use. domestic prices for calculating revenues irrespective of the destination of their output.

Gazprom reported that it pays VAT on all production. VAT credit was not received on exports as specified in amendments to VAT regulation number 1.

Three percent tax was imposed in 1994 on top of the 20 percent VAT.

Table 16.

Russia: Oil and Gas Revenues

(In millions of US dollars)

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Source: Fund staff estimatesNote: Estimates of actual revenues shown in italics.

For excise the tax base for calculating the notional liability (from MOE data) is 530 bem in 1994,471 bem in 1995, and 478 bern in 1996. For other taxes MFE repotted taxes and fees in 1995 for land tax, property tax, environmental lax, special tax, revenue tax. and transport tax. For royalties, geology fund, and other taxes and fees in 1996, data from consolidated financial statements of GASPROM issued in June 1997. PriceWaterhouse auditors, reported by Bloomberg.

Profit tax was reduced due to operation of stabilization fund in 1994. 1995 and first quarter 1996, profit tax figures for 1995 from Ministry of Finance, profit tax figures for 1996 are from IAS consolidated financial statements. These are higher than profit figures reported by government.

Oil transport fee estimated at average $5/ton for about 100 million tons during last half of 1996.

Estimate in 1995 averages S2.5/ton for JV production and average of $0,70/ton for other producer (from MC Security estimates).

Estimales from social fees reported in financial statements (MC Securities report 1997).

Estimated average $ 1/ton for environmental, water fees, land tax, etc.

Federal excise of 25 percent in 1996, 22 percent average in 1995, 5.8 percent average in 1994.

Accrues to Federal road fund, 25 percent on transport fuels (gasoline, diesel, oils, LPG).

Net revenue diverted to nonbudget uses (Kremlin rehabilitation, etc.) estimated with “price gap” times share of exports for stale needs.

IMF estimate of GDP, note Goskomstat GDP estimate for 1995 was 1.630 and for 1996 was 2.256.

Fund staff estimates of federal plus local government revenues, excluding extrabudgetary funds.

Table 17.

Russia: Oil and Gas Sector Revenues

(As percent of GDP)

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Source: Fund staff estimates.Note: Estimates of actual revenues shown in italics.

For excise the tax base for calculating the notional liability (from MOE data) is 530 bcm in 1994, 471 bcm in 1995, and 478 ban in 1996. For other taxes MFE reported taxes and fees in 1995 for land tax, property tax, environmental tax, special tax, revenue tax, and transport tax. For royalties, geology fund, and other taxes and fees in 1996, data from consolidated financial statements of GASPROM issued in June 1997, PriceWaterhouse auditors, reported by Bloomberg.

Profit tax was reduced due to operation of stabilization fund in 1994, 1995 and first quarter 1996, profit tax figures for 1995 from Ministry of Finance, profit tax figures for 1996 are from IAS consolidated financial statements. These are higher than profit figures reported by government.

Oil transport fee estimated at average $5/ton for about 100 million tons during last half of 1996.

Estimate in 1995 averages $2.5/ton for JV production and average of $0.70/ton for other producer (from MC Security estimates).

Estimates from social fees reported in financial statements (MC Securities report 1997).

Estimated average $1/ton for environmental, water fees, land tax, etc.

Federal excise of 25 percent in 1996, 22 percent average in 1995, 5.8 percent average in 1994.

Accrues to Federal road fund, 25 percent on transport fuels (gasoline, diesel, oils, LPG).

Net revenue diverted to nonbudget uses (Kremlin rehabilitation, etc.) estimated with “price gap” times share of exports for state needs

IMF estimate of GDP, note Goskomstat GDP estimate for 1995 was 1,630 and for 1996 was 2,256.

Table 18.

Russia: Oil Price Path

(In US$/ton)

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Sources:

Average wholesale petroleum price reported by Goskonstat.

Ministry of Finance (highest statutory rate i.e. before exemptions and allowances).

Average cost of transportation from wellhead to Novorossisk plus port charges (estimated to remain fixed at $3.5 per ton). Includes pipeline fee in 1996.

Ministry of Finance, Foreign Currency Operations Division.

Export price minus export duty, transport charge, excise and wellhead price.

Petroleum Market Intelligence (weekly), New York. Monthly average spot crude price of Urals-33 per barrel delivered from Novorossisk to Rotterdam less estimated $8/ton fixed shipping cost.

Weighted average MICEX monthly rate calculated by CBR.

Wellhead plus excise plus transportation plus export duty as a percent of export fob price.

Projected price constant in real ruble terms.

Appendix VI. Background data on taxation of oil and gas in kazakhstan, azerbaijan, and turkmenistan

Table 19.

Kazakhstan: Revenues from the Oil and Gas Sector, 1995-96

(In millions of Tenge)

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Sources: Ministry of Oil and Gas; Ministry of Finance; and Fund staff estimates.
Table 20.

Kazakhstan: Revenues from the Oil and Gas Sector, 1995-96

(In percent of GDP)

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Sources: Ministry of Oil and Gas; Ministry of Finance; and Fund staff estimates.
Table 21.

Azerbaijan: Revenues from the Oil and Gas Sector, 1994-96

(In billions of manats)

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Sources: Ministry of Oil and Gas; Ministry of Finance; and Fund staff estimates.

Estimates, sectoral VAT data not available.

Table 22.

Azerbaijan: Revenues from the Oil and Gas Sector, 1994-96

(In percent of GDP)

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Sources: Ministry of Oil and Gas; Ministry of Finance; and Fund staff estimates.

Estimates, sectoral VAT data not available.

Table 23.

Turkmenistan: Gas and Oil Sector Revenues

(In billions of manats)

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Source: Fund staff estimates.Note: Estimated figures for reserve fund in italics.

Appendix VII. Background data on consumption of oil products in the bro

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Sources: PlanEcon, 1995b (data on apparent consumption); and Fund staff estimates on GDP.Note: The calculations in Table 11 in Chapter V use this data to estimate the potential revenue using 80 percent of 1994 apparent gasoline consumption, and 60 percent of 1994 diesel consumption, and price elasticities of-0.2 for gasoline and -0.35 for diesel. The 1994 figures were adjusted in this way to give conservative estimates of consumption, given stagnant demand and a portion of nontransport consumption which is not likely to be taxed.

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1

The author would like to thank Emil Sunley, Liam Ebrill, Victoria Summers, John Odling-Smee, Oleh Havrylyshyn, Michael Buchanan, Chris Lane, Nigel Chalk, Alex Mourmouras, Brian Aitken, and Christoph Rosenberg for useful comments and suggestions.

1

Petroleum assets with market value over $60 billion (in 1997) were privatized for a budgetary contribution of only $1.5 billion.

4

This is expected to be sharply lower in 1997 due to disruption of gas exports via Russia.

5

In 1996, Kazakhstan produced 23 million tons of oil and Azerbaijan about 9 million tons. Given the large reserves of recently discovered oil in these countries, production has the potential to reach 45 million tons (900,000 barrels per day (bpd)) in Kazakhstan and million tons (700,000 bpd) in Azerbaijan in the next 10 or 15 years, once oil export constraints from the Caspian Sea fields are removed. (Note that 1 million tons per year equals about 20,000 barrels per day.)

8

Based on 1996 consolidated financial statements from Gasprom. If Gasprom is valued based on the sales value of shares sold in western markets, the market value is $40-$45 billion.

11

O’Sullivan, 1997, and IMF and World Bank staff estimates.

6

Notional liability is defined as the legal tax obligation using the statutory regime and estimates of the relevant tax bases. It is equal to actual revenue, plus known exemptions for specific taxpayers, arrears, and estimated noncompliance (calculated as the residual).

7

Most of the production of oil by a foreign company in Kazakhstan comes from the large Tengiz field, that is beginning to produce oil under a joint venture. It presently is at the stage of recovering production costs and not yet providing large amounts of budgetary revenue.

8

Based on actual revenues. Notional revenue may be higher in these other countries, but available information from IMF staff indicates that the difference between notional and actual is significantly lower than in the BRO.

10

This assumes additional transport cost of $8/ton to export markets outside the BRO and assumes one-fourth of the oil is sold at 40 percent below its export opportunity value due to constraints on transport and inefficient refining (PlanEcon, 1997a and 1997b).

12

Ekelund and Tollison on 17th Century England: “The question is why the sovereign did not use taxes rather than monopolies for revenue. …Tax collection was a relatively inefficient means to raise revenue for the mercantile central state because costs of monitoring and controlling tax evasion were high. Barter and nonmarket production were undoubtedly widespread in the economy at the time. This made tax collection an unattractive revenue alternative for the mercantile authorities. Granting monopoly rights as a means to raise revenue did not suffer from the same deficiencies as taxation.”

14

Posner, 1971. “Students of regulated industries assume that regulation is designed either to approximate the results of competition [protect the public against the adverse effects of monopoly] or to protect the regulated firms from competition. Neither view explains the important phenomena of regulated industries deliberate and continued provision of some unremunerated services [internal subsidies], sometimes indefinitely, out of the profits of other services. To understand this third phenomena, call it taxation by regulation, we must modify our views and admit that one of the functions of regulation is to perform distributive and allocative chores usually associated with taxation and expenditure by the financial branch of government. There are no a priori grounds for assuming that such programs imposed by regulatory agencies produce worse allocations than taxes.”

16

Ibid.

18

Ibid. Quote “…tax exemptions are more common and can be quite sizable. Anecdotal evidence suggests they are often aimed at powerful firms which can lobby effectively for such exemptions. The best-known case is Gasprom, the Russian gas monopoly. It is extremely influential, financially very healthy, and benefits from very large tax exemptions.”

24

A reference price is a price determined by a transparent formula based on market prices for oil and gas in relevant markets, taking into account quality differences and transportation costs.

25

The calculation of the ROR can be done either before debt financing or after debt financing, but if it is done after debt financing, the borrowing is usually treated as a positive cash flow and the interest expense and debt repayment treated as a negative cash flow. A top rate of 40 or even 50 percent would capture excess profits from very profitable projects. The tax base for the excess profit tax can be either before-tax or after-tax income (with adjustments costs). The threshold rate of return should be higher when before-tax income is used as the tax base. Some countries do not use ROR directly but calculate an R-factor (expressed as cumulative revenues divided by cumulative costs, both adjusted for inflation) to determine the rate of the excess profits tax.

26

If interest expense is treated as a recoverable cost and unrecovered costs are uplifted by an interest factor, this would be double counting.

27

In some cases the income tax is computed separately, under its own accounting rules, and then credited against the government’s share. If the income tax is going to be embedded in the government’s share of shared oil, then the government’s share needs to be greater as there will be no separate income tax payment. Whether an income tax embedded in the government’s share will be a creditable income tax for purposes of the foreign tax credit in the home country is a legal issue which hinges on just how this section of the production-sharing contract is drafted.

28

Oil production from this field is expected to increase from 2.7 million tons in 1995 to 10 to 15 million tons by 2000-03. Total fiscal revenues from the oil sector by early in the next century are projected to be three to four times the level in 1995, primarily due to increased production anticipated from the Tengiz field (according to data from the Kazakh Ministry of Finance).

30

The share of downstream taxes is projected to rise to 0.5 percent of GDP, reflecting plans to raise the excise tax on gasoline from 20 to 30 percent.

31

According to the World Bank, 1997b, there is a weak correlation between excise tax and geologic cost which not only reflects the insensitivity of the excise tax mechanism but its vulnerability to special interest lobbying by the producing enterprises.

32

Centralized or state exports were purchases of oil by the government at domestic prices and then resold at higher world prices with the difference accruing to the government.

35

Reimbursable expenses include taxes and fees paid to extrabudgetary funds, acquisition costs, interest, income tax, and excess profits tax in the previous period. Reimbursable expenses exclude current income tax, bonuses, and depreciation. The rate of the excess profits tax is a sliding scale from 10 to 90 percent depending on value of an “R” factor (which equals a/b, a = accumulated revenues less profit tax and additional profits taxes paid, b=accumulated reimbursable expenses).

37

Under a “carried interest,” funds are deemed to be loaned to the government by the project investors. Interest is charged on the government’s carried interest at a prescribed rate and the loan is repayable out of the government’s share of profits from the project. The government’s equity interest only crystallizes when the “loan” is paid off.

38

For example, the Russian-American business council reports that there were four such taxes and fees in Russia in 1991, but that this has risen to 23 in 1996.

39

One region, Tyumen, in Russia produces two-thirds of all of Russia’s oil output.

40

Gelb and associates, 1988, points out lessons from the experiences of other countries. For example, some key lessons are, “the most important recommendation to emerge from this study is that spending levels should have been adjusted to sharp rises in oil income far more cautiously than they actually were” and “the main problem is to render long-run saving abroad more politically acceptable.”

42

Ibid.

44

Ibid.

45

Ibid.

50

It could be a higher royalty payment, under a revised tax code, or an excise which is “differentiated,” utilizing the existing excise tax law with differentiation based on geologic characteristics.

57

World Bank, 1995. Economic cost of gas is $30 to $35/thcm delivered to Moscow and, coincidentally, about the Russian average cost for Russia.

58

Stiglitz, 1988 (pp. 424-25).

59

O’Sullivan, 1996, 1997a, and 1997b, and Financial Statements released by Gasprom in 1997 and reported by Bloomberg and other sources.

60

It is interesting to note that if Russia had followed the traditional preparation for privatization, by converting 20 to 30 percent of equity of energy companies into debt, the revenues would be equal to a flow of about 1 percent of GDP and a stock of debt worth nearly 10 percent of GDP (part of which could be sold if needed for early revenue).

63

Ibid.

Evaluation of Taxes and Revenues From the Energy Sector in the Baltics, Russia, and Other Former Soviet Union Countries
Author: Mr. Dale F Gray