Russia is a real energy superpower, with the world's largest natural gas reserves and second only to Saudi Arabia in oil production and the willingness to use its energy riches for political advantage.

But its awesome potential as an energy producer is frustrated by punitive taxation that discourages investment.

Now, it appears the Kremlin is reconsidering its taxation policy for crude oil, one that takes 90 cents for every dollar of profit when crude prices are above $30 (U.S.). And some analysts say the move would result in better stock market returns for laggard Russian oil companies.

In a note issued yesterday, UBS analyst Dmitry Loukoshov says the impact of the prohibitive tax regime is only starting to show, as Russian oil productions fails to respond to the sharp run-up in world prices.

Russia produced close to 9.9 million barrels per day last year, a mere 2-per-cent increase from the previous year. And many analysts have said production could flat-line in the coming years.

Russia is a real energy superpower, with the world's largest natural gas reserves and second only to Saudi Arabia in oil production and the willingness to use its energy riches for political advantage.

But its awesome potential as an energy producer is frustrated by punitive taxation that discourages investment.

Now, it appears the Kremlin is reconsidering its taxation policy for crude oil, one that takes 90 cents for every dollar of profit when crude prices are above $30 (U.S.). And some analysts say the move would result in better stock market returns for laggard Russian oil companies.

In a note issued yesterday, UBS analyst Dmitry Loukoshov says the impact of the prohibitive tax regime is only starting to show, as Russian oil productions fails to respond to the sharp run-up in world prices.

Russia produced close to 9.9 million barrels per day last year, a mere 2-per-cent increase from the previous year. And many analysts have said production could flat-line in the coming years.

But the government may move soon to ease the burden on the oil companies, now that Parliamentary elections are over.

 “We expect disillusioning operating results from Russian oil fields which would provide a clear and comprehensive argument for government action,” Mr. Loukashov wrote. He added that the Finance Ministry has already floated to a proposal to cut that Mineral Production Tax by some $4-billion (U.S.).

And he said the revamping of the tax regime should lead to a “repricing” of Russian oil companies in the market place, where they have lagged the valuations of their international peers.

The analyst likes companies such as OAO Lukoil, OAO Rosneft and the Russian-British firm, TNK-BP Holding. But he fails to mention political risk that threaten oil companies in Russia, particularly TNK-BP which is facing an tax-evasion probe, immigration problems for its foreign workers and pressure to sell out to state-owned OAO Gazprom.