UPDATE 1-Putin floats modest tax breaks for oil sector

KIRISHI, Russia, Feb 12 - Russian Prime Minister Vladimir Putin said new oil fields could win tax breaks in a speech on Thursday that fell short of the sweeping tax changes sought by the country's oil producers.

Fiscal hawks in the Russian government are at odds with the oil industry over a new round of tax break proposals as the world's second-largest exporter balances the need for investment to safeguard future oil export revenues against the demands of the budget.

"It is possible to work in the current environment," Putin told oil company executives and government ministers in the northern Russian refining town of Kirishi.

"Changes in tax legislation on oil production should be well calculated ... and take into account the interests of the budget and social development," he said.

Sacrificing oil output for another year, after last year's first annual production fall in a decade, could be a painful but unavoidable move for Russia as it heads into recession.

Russia produced 488 million tonnes of oil in 2008.

Energy Minister Sergei Shmatko offered a wide-ranging production forecast for 2013, which he said would depend on whether a raft of new tax breaks were introduced: 450 million tonnes at the bottom end and 511 million tonnes at the top.

Finance Minister Alexei Kudrin, the government's main fiscal hawk, clashed with Shmatko on several topics, saying the oil industry has already obtained tax incentives last year and should not complain after enjoying record prices in 2008.

Putin said last year's tax breaks had cut the burden on the sector by 500 billion roubles ($13.95 billion).

TAX PROPOSALS

Shmatko proposed a package of tax incentives, including measures to encourage the development of new fields by switching to a profit-based tax from the current system of export duties and a mineral extraction tax.

Shmatko's proposals also included the removal of export duties on future oil shipments to Asia, lowering taxes on the import of equipment for refinery upgrades and levelling out export duties on light and heavy refined products -- another measure to encourage refinery modernisation.

The energy minister said investment in the Russian oil sector could this year suffer a shortfall of 200 billion roubles.

"The devaluation of the rouble has had a positive but not a decisive impact on the oil industry,"he said.

Putin said the idea of tax incentives for new fields should be discussed but showed little enthusiasm for the idea of raising duties on fuel oil and lowering them for diesel, saying it could lead to a domestic fuel oil glut.