Romanian legislation does not provide a stable framework for the Upstream operations to be conducted in competitive conditions, considers the think-tank Energy Policy Group, as a conclusion of an analysis in which were also involved Pachiu and Associates law firm and PricewaterhouseCoopers (PwC). The study urges for a change in the Romanian legislation for oil and gas in order to eliminate the main obstacles that obstruct the normal flow of oil and gas operations in Romania – prospecting, exploration, development or exploitation:

• Lack of harmonization between various laws governing the petroleum activities (eg oil law, environmental regulations, building permits, specific authorization of such activities etc.);
• Ambiguous wording of some provisions of the Petroleum Law no. 238/2004;
• Obstacles for holders of concession on land access for petroleum operations;
• Difficult conditions for exercise of servitude rights imposed by law in favor of the holders of concession blocks;
• Cumbersome bureaucracy in the relevant regulatory authorities and their different approaches that can lead to different administrative decisions for similar cases;
• Limited powers for the regulatory agencies and the lack of resources and materials with which they are confronted.

The full document can be downloaded here (RO).

Such factors cause expensive interruptions and delays in the development stages of investment and generate high administrative and compliance costs. There ale also loses for the Romanian state because of the lack of an updated information on the mineral resources situation. Finally, there is a risk that investors flee from Romania to countries with lower degrees of political and regulatory risk.

Recent tax changes (eg. introduction of special construction tax) had a negative impact on industry, especially because of the element of unpredictability.

Energy Policy Group consideres that a strategic approach is required in order to offer a fiscal stimulus to investments in the sector, based on the different potential each different type of deposits possess. A tax regime mthat is stable, transparent, predictable and competitive on the long-term it is also required.

Recent tax changes have negative impact on the industry

As Romania has a high rate of depletion of oil and gas resources, it is imperative to remove barriers and legislative, fiscal and administrative inconsistencies that impends the oil and gas industry.

1. Cumbersome and inefficient bureaucratic procedures

The licensing and concession agreements is cumbersome and inefficient.

Negative impact:

• The necessary time for ratification of the licenses and concession agreements is very long, since the approval circuit includes numerous ministries and ends with a mandatory approval by the Government.
• The entire approval circuit restartes when changes occur in management of the responsible ministries, even if they do not directly relate to the type of operation in question.
• Companies suffer significant capital costs and they delay their investment stages for long periods of time. Romania is thus in the unlikely situation where a company holds two petroleum licenses that have not been ratified even after three years.

Solutions:

• Strengthen and clarify the responsibilities of NAMR; the administrative capacity of the institution has to be correlated with the volume and the complexity of the oil and gas industry;
• Simplify the “ratification process” of oil concessions and related amendments;
• Strengthen the role of the NAMR, as a regulatory body and partner for the oil companies;
• Coordinating all the actors in the Upstream industry (both onshore and offshore), in order to promote regulatory solutions and introducing best practices, according to international experience.

2. Difficulties in land access

The Petroleum Law establishes the conditions for servitute rights so that the holders of concession agreements to easily access the perimeters of exploration and exploitation operations and conduct the activities imposed on them. However, the holder of a petroleum agreement must agree with the land owner on the amount of rent due for the exercise of the servitute right and to conclude an agreement in this regard. If the parties do not agree on the amount of the rent, this it is to be set by the court.

There is an obvious lack of legislative harmonization of the Petroleum law with the construction and environment legislation. Local authorities interpret the law based on local “custom”. For example, there are situations where local authorities require planning certificate for seismic data acquisition, although not required by law.

Law no. 46/2008 on Forestry Code must be harmonized with the Petroleum Law, in the sense of recognizing in the forestry legislation the servitude rights provided in the Petroleum Law.

Negative impact:

• Disputes settle after considerable amount of time and until the final legal settlement, the servitutes rights can not be exercised.

Solutions:

• Legislative clarification;
• Simplification of land access procedures;
• Incentives for local communities through participation in the financial gains resulting from taxation of petroleum activities;
• Continuing and improving the information campaigns on the costs and benefits of activities oil and gas industry.

3. Unpredictable and non-transparent fiscal framework

The current system of taxs and royalties is based on the need to guarantee a certain amount of revenues for the state budget, and not on the principles of balanced and stimulating taxation for the industry, in the mutual benefit of the state and investors.

Negative impact:

• Policy decisions are unpredictable, so that the fiscal environment is inscrutable, very detrimental for an industry characterized by long-term investment cycles and significant investment budgets.

Solutions:

• Taxation should be simple, stable, predictable, manageable;
• Taking into account the local reality of the geological and economic development, with numerous and fragmented deposits and productivity per well at the lowest levels in Europe.
• Maximizing the return to the state when international prices of hydrocarbons are high and stimulate investments when prices are low;
• Encouraging investment in advanced technology for the fields in exploitation, for the offshore sector, and for the potential unconventional gas deposits.
• Relate to successful international models of oil royalty regimes.

4. Access to information

In practice, the geological information is treated as a state secret, though, by law, it is trade secret. A defective regulation does not distinguish between the two categories, contrary to international practice and the economic interest of the state.

Negative impact:

• The difficulty in taking investment decisions for exploration with no access to public, open and granted by the authorities information.

Solutions:

• Simpler and more transparent system of exchanging information on oil concessions.

About EPG (visit website)
The Energy Policy Group (EPG) is a Bucharest-based non-profit, independent think-tank specializing in energy policy, market analytics and energy strategy, grounded in February 2014. EPG’s regional focus is Eastern Europe and the Black Sea Basin, yet its analyses are informed by wider trends and processes at global and EU levels.
EPG promotes a technologically advanced, secure, environmentally friendly and socially acceptable energy system. Although pro-business, EPG’s views are self-standing and science-based. EPG relies on the best specialized data sources, as well as on its own research concerning energy security and strategy, technology, markets, geopolitics and political risk.