OREANDA-NEWS. March 12, 2010. East Siberia taxation on the agenda: According to RBC-Daily, the MinFin is set to consider East Siberia tax breaks. The newspaper speculates that MinFin might find a solution and present it to the government. On 12 March, MinEnergo is scheduled to lead another round of talks on the East Siberia tax holidays. As indicated earlier, the government might come to a consolidated position on East Siberian taxation in March, reported the press-centre of VTB Capital.

Outcome still uncertain, but some points to re-iterate:

- We believe the current mechanism of a monthly approval on zero export duties for East Siberia would most likely be left in place.

- We also tend to believe that given the existing views within the industry, the state would leave East Siberia tax holidays in place until a new profit-based taxation for the Russia’s oil industry is enacted. This means Rosneft could enjoy the current tax breaks for another 1-2 years.

- As a possible compromise between the government and the Ministry of Finance, we could see certain fields (Talakan and Verkhnechonsk) excluded from the list or zero duty being replace by a reduced rate. Both alternatives, however, would face serious opposition from the oil majors involved (Rosneft, TNK-BP and Surgutneftegaz).

Outcome for Rosneft is skewed to the upside: We stick to our view that Rosneft is more likely to retain the current tax breaks, considering its vast investment prospects in East Siberia, which is Russia’s major bet on expanding oil exports in the future. Given the unprecedentedly low valuations of Rosneft, we see the current tax dispute as an opportunity for the stock to re-rate and reiterate our Buy recommendation.