"Given that Unity, the Communists and Yabloko have a majority of the votes in the Duma, the draft could sail in the first reading as early as June," said Alexander Kursky, adviser to the Duma committee on industry.

However, foreign companies might find it disadvantageous to use the new scheme because it does not separate the profit tax from the total amount of payments, subjecting them to double taxation.

But foreign businesses will be able to continue working under the old scheme, Kursky said, because the new one is optional.

The draft was forwarded jointly by Communist Yury Maslyukov, the head of the committee on industry; Gennady Raikov, who is a member of the People’s Deputy fraction, which is considered to be close to the pro-government Unity party; and Yabloko member Alexei Mikhailov, a former head of the natural resources committee.

The new scheme would significantly simplify tax payments under PSAs, which encourage investment, mainly to companies developing oil, gas and gold resources by offering tax breaks.

"In theory, the amendment should simplify paperwork," Kursky said. "But perhaps, we are too naive."

Oil companies working under the terms of a PSA have to pay taxes under the following scheme.

First, they pay royalties worth 8 percent to 10 percent of revenues.

Second, extracted oil is split into compensatory oil, which goes to cover the costs of extraction and is not taxed, and the so-called profit part, which is split between the government and the oil companies. Oil companies must pay a profit tax on the revenues they derive from sales of the latter.

The new proposal will split the oil into two parts, one going to the government and the other to the oil companies.

Neither the royalties nor the profit tax will be deducted separately, so the authors of the proposal hope that the new scheme will significantly simplify tax procedures.

"But it will neither help to recover the value-added tax from the government nor simplify taxation for foreign companies," Kursky said.

Oil companies developing new fields are entitled to recover the value-added tax, but the government has usually failed to honor its part of the deal.

The federal government already owes $37 million in VAT arrears to companies developing the Sakhalin-2 project, Kursky said.

The law on PSAs was approved in 1995, but did not become operational until the beginning of 1999 when enabling legislation was passed, so some early PSA projects were backed by presidential decrees.

However, with oil prices tripling in 1999 to just below $30 per barrel, PSAs became less advantageous for oil companies.

"It is more profitable [for local firms] to use common taxation schemes now," said Ivan Mazalov, oil and gas analyst with Troika Dialog brokerage. "For foreigners, PSAs are a conventional way of doing business."

PSAs are attractive because they do not allow the government to change its taxation regime over the period in which the agreements are valid and they lock in profits in case of a downturn in the oil prices.

Foreign companies rely on PSAs to make an estimate of costs over the long term required to make investment decisions and long-term commitments.

The list of largest PSA projects includes Samotlor, developed by Tyumen Oil Co., Surgutneftegaz’s Fyodorovskoye, Kondpetroleum’s Krasnoleneninskoye, LUKoil’s Northern Territories, Yukos’ Priobskoi and Tatneft’s Romashkinskoye.

Among the foreign oil companies involved in PSAs are Totalfina, Conoco and Royal Dutch Shell.

Officials at local oil companies said it was too early to make assessments of the impact of the new law because most PSAs were still not operational.

"We do not operate any field under PSA yet," said Alexei Sukhodoyev, spokesman for Surgutneftegaz. "One has to see how the legislation would be implemented."

Surgutneftegaz has the right to develop two Western Siberian fields — Fyodorovskoye and Tyanskoye — under PSA.