The voice of the entire
Upstream sector in Romania

Chaos in regulations. Taxation of petroleum companies, the "hot potato" passed between institutions

imagineAlthough we are one of the largest oil and gas producers, no state institution can specify what it the effective rate of taxation of this sector, taking into account royalties and the other taxes applied in the field. Moreover, even the figures regarding revenues obtained from royalties vary from one institution to another. The authorities have been talking for several years about a new royalty system for oil and gas producers, but the problem hasn't been solved yet. The subject is even more significant as operators in the Black Sea are waiting for completion of the taxation system, to make the decision to invest in the exploitation of hydrocarbon fields. Romania annually produces 10-11 billion cubic meters of natural gas and almost 30 million barrels of oil equivalent, ranking fourth in Europe in terms of production size. With the start of exploitation of fields in the Black Sea, annual gas production could reach around 20 billion cubic meters. An entire industry is built around these resources, which have created over 23,000 direct jobs. However, state institutions avoid dealing with the problem on the taxation of the field and do not provide, with specific data, an overview of the effective taxation in Romania applied to the sector, compared to other producing states. In Romania, besides royalties, the producing companies also pay supplementary charges, such as that of 60% on windfall gains from gas and of 0.5% applied to revenues resulting from the exploitation of crude oil.

The institutions fail to take responsibility

"Romania libera" wanted to find out from the responsible state institutions what is the current level of taxation (royalties, supplementary charges, corporate tax etc.) of hydrocarbon production in Romania, compared to other states. Also, a matter of interest was whether for the draft law on royalties, presented in October last year by the Ministry of Economy and still being worked upon, there was an impact study conducted on the related budget revenues. We sent these questions, together with others, to the Ministry of Finance, Ministry of Energy, Ministry of Economy and the National Agency for Mineral Resources (NAMR), i.e. the institutions involved in the working group for the new law on royalties, concentrated at the level of the Ministry of Economy. Incredibly, none of the institutions asked answered to these questions, passing the problem from one to the other, or simply ignoring it.

Ministry of Energy: "Another question!"

The Ministry of Energy had the shortest answer, not being concerned at all about this topic: "According to the attributions provided by GD no. 980/2015 on the organization and functioning of the Ministry of Economy, with further amendments and additions, the issue of petroleum royalties does not fall within out area of competences, being the object of the activity of the Ministry of Economy, institution to which we ask you to address." The Ministry of Economy said "the study that will show the total level of taxation (royalties, supplementary charges, corporate tax etc.) can be held only by the Ministry of Finance (MFP)". The institution added that "as of 19.03.2018, the draft Law on the regulation of the royalty system for concessions of mineral, petroleum and hydro-mineral resources was taken over by the Secretariat General of the Government". That after, according to sources in the field, during the discussions held in the working group at the Ministry of Economy, the institutions involved sent representatives without decisional powers, precisely for the fear of assuming a point of view. NAMR's answer was that according to the legal provisions in force, the institution does not have attributions on the determination of the amount of mining and petroleum royalties or on the tax system. The Ministry of Finance bypassed the answers to the two questions.

Royalties, calculated at the market price

However, NAMR mentioned that the average value of natural gas at which petroleum royalties were calculated and paid was RON 583/TCM in 2016 and RON 625/TCM in 2017. Thus, the institution officially contradicts Dorinel Unsarescu, adviser to NAMR President, who has recently stated publicly that "the reference price for the calculation of royalties hasn't been updated since 2008. This price is currently RON 495/TCM. In the meantime, the market has evolved, there have been deregulations in 2013 and 2017. In this period NAMR did not have the possibility to adjust the level of the reference price, so that revenues to the state budget could be at market level". Thus, NAMR's answer shows the producers were right to always claim that they have paid royalties at the selling value and not at the reference value.

NAMR and the Ministry of Finance contradict each other

NAMR contradicts with the Ministry of Finance when it comes to amounts collected from petroleum royalties. Overall, "the value of petroleum royalties owed and collected in 2016 was RON 1,014.11mln, and in 2017 - RON 1,278.43mln", NAMR told us. According to the answer received from the Ministry of Finance, "revenues collected to the state budget from petroleum royalties were in 2016 RON 1,067.8mln and in 2017 RON 1,096.4mln", the institution told us. Moreover, from the tax on windfall gains obtained as a result of price deregulation in the gas sector, the Ministry of Finance also collected from producers other RON 659mln in 2016 and RON 715.8mln in 2017. As it bring so much money, the Government did not want to give up this tax, which is detrimental to producers as compared to importers. Moreover, the tax was indefinitely extended and the Parliament last year decided to increase the tax rate to 80% for revenues from the sale of gas above the price of RON 85/MWh. Also, according to a NAMR decision from February 2018, the reference price used to determine royalties applicable to natural gas considers spot prices at Baumgarten hub, in Vienna, higher than those in the Romanian market. Considering that royalties are calculated based on the maximum value between the selling price realized and the reference price, actual taxation of gas will increase.

Romania has some of the highest taxes

While the state is unable to provide an overview of the real taxation of the sector, private firms do it. According to a study published yesterday by Deloitte, conducted at the order of petroleum companies, Romania has one of the highest effective taxation rate of oil and gas production in Europe, ranking second, after Austria (except for the Groningen field in the Netherlands, among the top ten in the world). Average rate of royalties and specific taxes in the upstream sector in Europe was reduced to 8.8% in 2016, compared to 9.8% in 2015, but in Romania it continued to grow to 17.4% in 2016 (compared to 16.9% in 2015), reported on the proceeds from the sale of production.

 

Source: romanialibera.ro

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