UPDATE 2-Putin floats modest tax breaks for oil sector

* Govt proposes cutting export tax for E. Siberian oilfields

* Putin: oil tax changes should take budget into account

* Kudrin: oil sector has already enjoyed tax breaks

KIRISHI, Russia, Feb 12 - Russian Prime Minister Vladimir Putin proposed tax breaks on Thursday for new oilfields, stopping short of the sweeping tax changes sought by the oil lobby as his government protects a fragile 2009 budget.

Putin proposed a temporary lowering of export taxes on new East Siberian deposits in order to stimulate investment, while fiscal hawks in the government argued oil firms had already benefited from the rouble's devaluation and previous tax breaks.

"It is possible to work in the current environment," Putin told government ministers and oil company executives in Kirishi, an oil refining centre in northwest Russia.

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

Russia, the world's No. 2 oil exporter, must balance its need for oil export revenues against the demands of the budget as the country heads into its first recession in a decade. Sacrificing oil output could be a painful, but necessary, step.

Putin last month ordered the 2009 budget should assume an oil price of $41 per barrel, less than half the $95 proposed earlier.

Oil companies such as Rosneft <ROSN.MM> and LUKOIL <LKOH.MM> have benefited from a sharp devaluation of the rouble as their costs are denominated in their home currency while export revenues are earned in dollars.

"The industry is not sick. It's healthy. It simply needs state support for a short period of time," LUKOIL Chief Executive Vagit Alekperov told reporters after the meeting.

Energy Minister Sergei Shmatko called for a package of tax incentives and offered varying forecasts for 2013 production depending on their implementation: 450 million tonnes at the bottom end and 511 million at the top, from 488 million in 2008.

Finance Minister Alexei Kudrin, the government's main fiscal hawk, clashed with Shmatko on several topics, saying the oil industry had 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).

"With growing uncertainty concerning the length and depth of the economic crisis in Russia, the government is under no pressure to make a decision on tax changes," UBS analysts said in a research note.

NEW FIELDS

Shmatko's proposals included 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.

The energy minister also proposed the removal of export duties on shipments to Asia, cutting taxes on the import of equipment for refinery upgrades and levelling out export duties on light and heavy products to encourage refinery modernisation.

"The devaluation of the rouble has had a positive but not a decisive impact on the oil industry,"Shmatko said, arguing investment could suffer a 200 billion-rouble shortfall in 2009.

Putin 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. But he said the idea of tax incentives for new fields should be discussed. "The existing tax system is based on getting profits from exploiting old deposits and does little to stimulate subsoil users from growing production in new regions," Putin said.

"It's imperative we work out a special taxation model that will apply to new oil and gas deposits. I suggest we look at the possibility of a temporary lowering of export duties on oil produced (in East Siberia)."

After the meeting, Shmatko told reporters export duties on oil produced at new East Siberian deposits could be scrapped as early as this year, possibly for a three-year period.

He added the government would also start discussing a fresh approach in principle to the taxation of all new oilfields.