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Real figures for Vâlcov and Teodorovici: how much does it actually cost to extract gas in Romania and how inappropriate is the gain

imagineWhen they justified the measure to cap gas prices, Darius Vâlcov, adviser to the PM and the one considered the artisan of the last Ordinance that imposes new taxes and caps utility prices, and Finance Minister Eugen Teodorovici said the measure was generated by the too high price at which gas was sold in relation to how much its extraction cost. A selling price three times higher than costs was mentioned.

Either they did not know or they mentioned these percentages intentionally, Vâlcov and Teodorovici only said the part that suited them. They forgot to mention what are the taxes charged by the state, which are equal to the extraction cost. Here's the statement made on 21 December, when the Ordinance was announced, made by Finance Minister Eugen Teodorovici: "Unfair behavior to what economy means in Romania, where these companies have found projects, are developing projects, but which through various methods, such as the gas sector, apply prices, or there are very large differences between what the production price means and the price paid by the end-consumer. Thus, we propose a limitation to RON 68/MWh for a period of three years, until 28 February 2022”.

Supporting the same arguments, he pointed out that the need to adopt such a measure resulted from the "incorrect" behavior applied by producers that sell gas at a price three times higher compared to the production price. The information regarding the price three times higher than the cost is not new. In 2018, in July, the Ministry of Finance had proposed a cap on gas prices, this time to RON 55/MWh, but after several days of public debate on the website of the Ministry of Finance the draft was withdrawn. At the time, Darius Vâlcov made public statements to justify the measure. "Two large companies, I will not name them, have over 95% of Romanian production and then they can afford that a production price of RON 27 reaches for sales RON 81, i.e. a profit of 300%", Vâlcov said at the time, with direct reference to Romgaz and Petrom, the two large companies extracting gas in Romania.

How true and how false is Vâlcov’s statement, later taken over by Teodorovici

The value of RON 27/MWh, verified by us at the time, is true. According to the report for the first three months of Petrom, published on the Bucharest Stock Exchange, the production cost of the company is USD 11.9/boe; Romgaz does not publish it. Petrom does not present the cost broken down for oil and gas, as extraction is naturally combined for both resources: the oil well also extracts in many cases associated gas. 1 MWh is the equivalent of 0.59 boe. So the extraction cost is USD 7/MWh, i.e. RON 28, in a rough calculation. What Vâlcov and Teodorovici fail to mention is that this production cost means only company's operating expenses (OPEX) and includes expenses with materials, payment of utilities, salaries, maintenance services. It does not include royalties, the windfall tax, depreciation, investments, exploration expenses and the corporate tax.

Overlooking these costs, either out of lack of knowledge or intentionally (the association of petroleum companies in Romania accused how energy companies were vilified), was used as justification to cap gas prices to RON 68/MWh, the public opinion being convinced of the fairness of the measure precisely by mentioning the profit of 300%. In fact, thee gain is much lower; here's the rest of the reality. In November, the average selling price for gas in Romania, so money collected by Petrom and Romgaz, was RON 90/MWh. At this price, the two companies pay first the royalty of around RON 10 (8% on average, because it is calculated as a 3-13% rate, depending on the field, but applied not at the realized price, but at the spot price on the Vienna gas exchange, Central European Gas Hub, where the price was RON 120. But Petrom and Romgaz also pay the windfall tax related to gains from gas market liberalization. At the price of RON 90, this tax is around RON 18 for each MWh. Thus, only by applying these two taxes, the cost doubles.

And from the price of RON 90, the market price, the extraction cost plus these two taxes is RON 55-56, so about 61% of the price, another reality against that of the 300% profit achieved by Romgaz and Petrom mentioned by Vâlcov and Teodorovici. Thus, companies remain with RON 35/MWh, after these taxes, from which they pay both capital expenditure (Petrom announced investments of RON 3.7bn this year, three quarters in the exploration and production sector, RON 2.12bn already invested in the first six months), as well as the corporate tax, of 16%. National gas production is about 10 billion cubic meters per year and consumption - 11bcm, the difference being imported from Russia.

 

Source: economica.net

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