Putin: Russian Continental Shelf is Our Strategic Reserve for the 21st Century

Prime Minister Vladimir Putin yesterday held a meeting on promoting the development of the Russian continental shelf. Below, you can read the transcript of Vladimir Putin’s opening address:

Good afternoon,

Today, we will discuss issues that are vital not only for the power industry but also for the economy as a whole, and it is clear why. I will be more specific about certain things. We must create qualitatively new working conditions on the Russian continental shelf that will make our shelf projects globally competitive for attracting both foreign investment and foreign technology, which is extremely important.

According to the estimates of domestic and international experts, Russia has about a quarter of potential hydrocarbon reserves, more than 70% of which are on the shelf. Shelf deposits, primarily in the Arctic, without any exaggeration, are our strategic reserve for the 21st century. We must utilise it very responsibly and efficiently, complying with the highest standards of environmental protection. Our long-term goal is to ensure that Russia is a leader on the global energy markets, to guarantee the growing domestic economic demand for hydrocarbons and to consolidate our positions on the world markets.

“A comprehensive effect on the entire industry and economy of Russia.”

We are carrying out projects in the area of Sakhalin and have launched geological prospecting in the basins of the Black, Kara and Barents Seas. We have installed a unique platform at the Prirazlomnoye oil field in the Pechora Sea. We have also launched the Arctic Centre, which should ensure research support for our projects. One of our main priorities is the transfer of advanced expertise and development of our own technology – we must make sure Russia is in the lead in exploring the Arctic and its shelf.

In effect, we are not simply starting to develop the shelf. We are embarking on the formation of a new, high-tech industry in this country of a world class and scale. In turn, this industry is bound to create demand for production in shipbuilding, metallurgy, mechanical engineering, the most advanced R&D projects and the services of construction companies. This direction should produce a comprehensive effect on the entire industry and economy of Russia. In perspective, it should create hundreds of thousands of new high-tech and well-paying jobs. It is quite possible that this industry will create 200,000, 300,000 and probably even 400,000 jobs. I’m referring, of course, not only to production in itself but also to related industries that will produce mining equipment.

“We must create the best investment climate for the new industry”

Obviously, shelf projects are complicated and expensive. We will have to tackle a whole series of technological, infrastructure and environmental problems and will require huge investment. To attract this investment, we must not only create the most comfortable, predictable and appealing conditions, but we must also make them more profitable than those offered by our rivals. To sum up, we must create the best investment climate for the new industry. There are several proposals in this context. First, we must draft a special, incentive-based taxation system for the planned shelf projects. We have therefore decided to fully cancel export duties for the new shelf projects; for the most complicated Arctic projects, the tax on the mining of mineral resources should not exceed 5% of the price of the sold produce.

It is also proposed that the property tax and VAT on unique foreign equipment that is not yet produced in Russia should be also lifted on all new projects, regardless of their complexity. It would be wise to maintain these conditions for a long period of time – they should not be changed for 15 years from the start of commercial production.

In this way we will give our investors an opportunity to plan their work for a long time to come. There will not be any force majeure, nor will they face any risks that the rules of the game will be revised.

“We hope that major global corporations will be our partners in implementing shelf project”

Third, we hope that major global corporations will be our partners in implementing shelf projects. I’d like to say that I have already asked government members to think of ways of making invitations to these projects more effective, and making use of the opportunities of strictly Russian companies. Of course, our domestic companies will have to work on certain terms – they will have to attract the necessary funds and technology rather than simply trading their right to take part in these projects.

“Zero dumping of all industrial waste into sea water”

We will set the most rigid requirements for the participants of these projects. They will have to comply with technological and environmental standards, implement agreed-upon projects on the development of deposits, pay taxes and localise the production of equipment and services on our territory. I’d like to draw the attention of all departments involved – they must establish comprehensive operational monitoring and control on these issues. And, of course, our basic demand to the companies working in nature-sensitive regions is for the use of environmentally clean technology that will minimise the burden on the environment, up to zero dumping of all industrial waste into sea waters.

Fourth, I’d like to repeat that all shelf projects must be carried out on the terms of localisation. In other words, contracts and orders for the production of equipment, rendering of services, and construction and geological prospecting should be primarily located in Russia and work for its economy. Domestic companies must fulfill these orders. We believe that a sensible level of localisation should be no less than 70% or even 75%. In our estimate, implementation of shelf projects on the new terms will allow us to attract about $500 billion of direct investment over the course of 30 years – that is, into the direct production of oil and gas – and another sum of up to $300 billion (this is a tentative estimate, but nevertheless) will be channeled into adjacent industries, including deep conversion of raw materials. I’ll say again that this is a long-term process, with a horizon of about 30 years. This serious investment that I have just mentioned should help us modernise our fuel-and-energy complex and the economy in general, and encourage the development of our regions, including Siberia, the Far East and the Russian North.

[mappress]
Government.ru, April 13, 2012