OREANDA-NEWS. October 28, 2009. Energy Minister Sergey Shmatko said that the export duty exemption for greenfield projects in Eastern Siberia should last for a “minimum 5-7 years.” The Minister added that it typically takes 5-7 years to prepare an oil field in Eastern Siberia for development and thus a similar export duty-free period would be needed for investors to be compensated for upfront investments in infrastructure, reported the press-centre of OTKRITIE Financial Corporation.

At this stage, the government has not specified the duration of the pending export duty exemption for Eastern Siberian oil fields. Instead, it plans to prolong the duty exemption on a monthly basis, for as long as it deems necessary.

View: We estimate that the majority of projects in Eastern Siberia would generate returns in excess of 15%, assuming a 5-year export duty exemption and current oil prices. That said, we believe there is no uniform opinion within the government on the potential duration of the export duty exemption. According to Minister Shmatko, in choosing the specific terms of the duty exemption, the government would need to “balance the interests of the state and oil companies.”

In other words, the duration will most likely depend on the combination of parameters, including the price of oil. At this point, it would be reasonable to assume a shorter period (~3 years) for the average duration and we do not expect Smatko’s remarks to impact the stocks of those companies affected (Rosneft, TNK-BP, and Surgut).