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Existing PSA agreements will remain in force - vice premier

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A Russian deputy prime minister said Tuesday that existing production-sharing agreements should not be reviewed.
MOSCOW, October 24 (RIA Novosti) - A Russian deputy prime minister said Tuesday that existing production-sharing agreements should not be reviewed.

Russia's authorities have been stepping up pressure on oil producers in recent months, which some experts feared was the Kremlin's attempt to review production-sharing agreements and revoke licenses to increase state control over the energy sector.

"I do not think accords concluded on the basis of production-sharing agreements should be revised," Alexander Zhukov said. "They will be implemented."

In September, the Natural Resources Ministry withdrew a key environmental permit for the huge Sakhalin II oil and gas project, led by oil major Royal Dutch Shell in Russia's Far East, which is being implemented under a production-sharing agreement dating back to 1994.

Zhukov said it was necessary to complete a probe into the high costs of the project. "Production-sharing begins once costs have been recovered. But permanently increasing expenses impose onerous terms," he said.

Devised in the 1990s when oil prices were much lower, PSAs offered investors major tax benefits, which provided a kind of risk bonus for investing in Russia. Under PSAs, Russia will also start receiving its share of profits only after investors have recovered their costs.

In late September, the ministry also announced planned probes into another production-sharing agreement, the Kharyaga deposit in northern Russia, implemented by French oil major Total, and the Kovykta gas project in East Siberia, developed by Anglo-Russian joint venture TNK-BP.

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