Russia’s state oil giant, Rosneft, reported a substantial increase in profit and lower debt levels following a rise in output in its newly established Siberian oil fields, higher oil prices and zero export duties.

The tax breaks were introduced to encourage output growth in new oil provinces.

Net profit rose from US$1.6 billion (*S$2.18 billion) to US$2.6 billion from the first half of 2009 to the same period this year.

Revenue increased from US$10.9 billion to US$15.4 billion, and oil production expanded by 9 per cent.

Rosneft’s revenues were boosted by tax breaks. According to Swiss Investment bank, UBS, Rosneft’s tax savings from the Vankor field in the Arctic totalled US$900 million in Q2.

While Russia’s oil companies benefitted from zero export duties on crude oil and newly tapped East Siberian deposits, tax breaks were withdrawn in early July and export duties on East Siberian oil were reintroduced. 

Rosneft’s Vice President Peter O’Brien said that despite the reintroduction of export duty on crude , Rosneft would continue to meet its target to expand output by 4.5 to 5 per cent this year. With production expanding and higher taxes to pay, O’Brien estimates a fall in profits for the second half of the year.

Oil companies believe that long term sustained growth depends on changing the current energy tax. They want the Russian government to switch to a profit-based tax system.

The Russian Energy Ministry had announced intentions to implement tax system changes by 2012-2013.   

*Exchange rate correct as at 27 July 2010