The royalties for the oil sector will not be changed for next year, but maintained with the same taxes, as a new formula will be thought later, according to Minister Delegate for Budget, Darius Vâlcov, quoted by Mediafax. “The current royalties system will be extended for next year”, he said.
Prime Minister Ponta justified its decision because a change would be imposed too suddenly, “overnight”, and the fiscal predictability for businesses in the area would be jeopardized.
“I believe that Romania should have a modern, European royalty system, but how are we supposed to adopt one through and executive emergency ordinance today and apply it from 1st of January? What the big energy company that invests billion will say” Yes, you have discussed it today, on December 3, have adopted it on December 7 and on January 1st you make me do all my business plan on some rules you imposed overnight”, said Prime Minister Victor Ponta.
From adjusting royalties upwards, to lowering royalties for offshore E&P
The fees should be reduced for off-shore exploration and exploitation, because no one will invest billions of dollars without conditions for rate of return. There is also need for a consensus with the opposition to assure that the future royalty system will not be changed subsequently, believes Prime Minister Victor Ponta, according to Mediafax.
“We need a justification of why to double, triple, reduce them. The World Bank study discussed with the IMF and the Coalition for Romania’s Development Coalition wants to create a solid framework for where and where not to increase the royalties. For example, for offshore exploration and exploitation we must subtract them, if you ask me, because otherwise nobody will invest billions of dollars if you do not have facilities to recover these money in the next 5-10-15 years”, said Victor Ponta.
The royalties are too much seen as “magical solution that will bring rivers of money in the budget”, said the Premier. “It must be established how to stimulate investment: through the tax system, through royalties to stimulate investment especially in energy and natural resources or we want to use only the current ones, which, inevitably, naturally, are to be depleted”, Ponta added.
Traian Băsescu: royalties cannot be changed
President Traian Băsescu said that royalties cannot be changed; they are calculated by the size of the deposit and based on an extremely complicated methodology, but explained that the Ministry of Finance could have altered two other expiring tax from 1st of January 2015.
“The Prime Minister Victor Ponta is concerned about fiscal stability; do not disturb the climate by changing the royalties. I want to warn him that royalties cannot be changed and must thoroughly understand how these mechanisms work. The royalties are fixed by the law of oil and gas and have some calculation criteria, but start, in principle, from the size of the deposit and have values that range between 3% and 13.5%, I repeat, based on the size of the oil or gas extracted; at the base is an extremely complicated methodology. To change royalties, you must speak with all the 44 concessionaires who are on Romanian territory and must obtain the agreement of all”, said Traian Băsescu.
In this context, the President said that the 200 million dollars debt owned by Rompetrol to Romania, reduced from 680 million dollars, was not paid, nor was founded the energy investment fund of one billion euros, in which KazMunayGas, the shareholder majority of KMG International (formerly The Rompetrol Group) should hold 80% of the venture.
Ministry of Finance has not intervened on two other taxes
Romania’s President explained that the Ministry of Finance could change, however, two other taxes which will expire on 1st of January, 2015.
“There are two taxes, one is the surcharge for gas generated by liberalization of gas prices for industry, and the second is the fee for mineral resources. Normally, these two taxes must disappear from 1st of January 2015. The government explained today (Thursday – e.n.) how will maintain the royalties. These are not kept by the Government, these are in the law, the Government cannot alter them without the consent of companies from all 44 blocks concessions.
But it can change other two taxes: tax surcharge for gas and the tax for mineral resources. These, theoretically, should disappear on 1 January. Government can maintain their name, to increase them, because taxes are the Government’s problem, apply to everyone without the need to negotiate or could cancel them and to institute a new tax that encompass them both and to add some to increase state revenues”, Traian Băsescu explained, according to Mediafax.
“To clarify and who should do the job – Ministry of Finance. It is the job of the Ministry of Finance, because this Ministry manages the Tax Code, and these charges are in the Tax Code, no in the concession agreements. So taxes are a state’s option, are not negotiated with anyone, unlike royalties, which requires discussion with all concessionaire”, Traian Băsescu said, stressing that the EU does not allow different fees for companies.
“Everyone knew that from 1 January 2015 it will be introduced another tax, simultaneously removing the two mentioned earlier. The Prime Minister said today “to give stability.” No! This is what creates instability, for the whole market expected to know what the tax will be in the next ten years, from 1 January 2015. Now, it is postponed by one year, and their business plans cannot be made. They will stay another year waiting to see the level of these taxes added to royalties and against which companies cannot work, because the tax expresses the will of the state”, continued the President in office.
Ministry of Finance should “take hold of the Tax Code and see what you do with it in due time. We have seen statements like: <
The chronology of intention to increase royalties
The idea of revising fees until 1st of January, 2015 was mentioned as early as January 2013, but it was contained in the privatization contract of Petrom to OMV in 2004. In other words, from ten years ii is known the date up until which the current royalties system is available. Energy Minister Delegate at the time, Constantin Niţă, now Minister of Economy, said that the fees will go up, “somewhere in the 20-30% range, at least.”
In turn, chairman of the National Agency for Mineral Resources (NAMR) announced that the fees charged by state for oil and gas production will not increase dramatically in the new legislation, but will be differentiated according to the type of play from which hydrocarbons are extracted.
In the summer of that year, Ponta announced that the Government plans to establish a special fund in which to collect fees received by the state for the exploitation of new energy sources and to be use it for political objectives, such as highway construction or computerization.
Later, the prime minister continued to announce that the Government discusses with oil companies about a new system of fees similar to “the European average, but one that does not discourage investment by charging excessive fees”, ensuring that the project will be launched publicly in early 2015.
He stated, this summer, that the Government is working with World Bank experts on a system of tiered royalties for land and off-shore exploitation and explained that the new law will be applicable to any new concession contracts. The state budget annually receives mining and petroleum royalties around one billion lei
