Optimisation of the Code "On Taxes and Other Obligatory Payments to the Budget" of the Republic of Kazakhstan expected to promote reinvestment in OPOs

A number of OPOs contacted the PetroMining Association with a proposition to initiate amendments to paragraph 5 of Article 739 of the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget”.

The amendments will regulate (for tax purposes) the attribution of technologically inevitable combustion of associated and natural gas to own production needs.

The example that most OPOs face was given by the President of the PetroMining Association Sayat Boranbekov:
“An OPO, one of the members of the PetroMining Association, has discovered several fields. For gas burned, they pay a mineral extraction tax based on the cost of gas in the Netherlands because that’s what the law says. For the fourth quarter of 2023, they paid about 240 million tenge. The annual payment amounted to one billion tenge. This OPO’s gas is not used, it is burned. But they are obliged to pay for it at world prices. The mineral extraction tax is money down the drain. This issue has not been resolved in any way. Every OPO has these expenses. If these billions of tenge were used for drilling additional wells, for testing, for other purposes, OPOs could develop geological exploration, without which it is not possible to replenish reserves and increase oil production.”
It is noteworthy that the world price of raw gas is determined as the product of the arithmetic average of daily price quotations in foreign currency for the tax period, taking into account the conversion of international units of measurement to cubic meter under the approved coefficient, and the arithmetic average of the market exchange rate for the corresponding tax period using the formula below. Price Quote means the quoted price of Zeebrugge Day-Ahead natural gas in a foreign currency for the tax period based on information published in The Mcgraw-Hill Companies Inc.'s Platts European Gas Daily source.
At the same time, 100% of the oil from exploration is sold in the domestic market.

For example, last year the price of gas fluctuated in different countries and regions from $200 in China to a peak of $3,000 in Europe. However, oil-producing companies paid the mineral extraction tax according to the European indicator, namely the export price of the Netherlands.

The importance of solving this problem was also emphasized by the executive director of the PetroMining Association, Yaromir Rabai:
“In such conditions, the mineral extraction tax for the technologically inevitable flaring of gas is calculated at world prices, and at the end of 12 months for, for example, CNPC-Aktobemunaigas JSC, the mineral extraction tax amounted to about 4.0 billion tenge (with a volume of flared gas of 75,461 thousand cubic meters).

Yet OPOs sell oil and natural gas below the cost of its preparation at prices determined by the Law of the Republic of Kazakhstan “On Gas and Gas Supply”.

Due to uncontrolled changes in the system of world gas prices, there is an objective violation of the principles of taxation of the company in terms of the mineral extraction tax.”
Optimization of the situation is possible after establishing mineral extraction tax rates for raw gas flared during the trial operation period at the level of rates for gas supplied to the domestic market, or the same as for gas used for own needs.