Polish Audit Agency to Review Shale Gas Licensing

The process of granting shale gas concessions in Poland will be audited by Poland’s Supreme Audit Chamber (Najwyzsza Izba Kontroli or NIK). 

The official announcement concerning the NIK`s plan of audit activities for 2012 mentions “the strategic importance” of shale gas and “controversies with respect to issuing process.”  The body, which examines for irregularities in the conduct of state activities, will be undertaking the examination of the process for the first time.

An NIK spokesman confirmed that the agency would be concentrating on examining the licensing process.  Pawel Biedziak said that the audit would also evaluate “regulations concerning payments to state and local authorities.”

Biedziak added that it was too soon to comment about the exact objectives and directions of examination.  “First, a detailed plan must be prepared”

He explained that a number of experts will be requested by NIK the to assist in defining what exactly should be audited. Experts will include scientists working for the AGH University in Krakow and also professionals working for the industry.

Controversies

Over the last five years Poland’s Ministry of Environment has issued over 100 concessions for shale gas exploration.

According to critics, the concessions have been issued too hurriedly and too generously and that the national interest has not been properly served.  Particular focus has fallen on the Ministry for granting licenses without a competitive bidding process.

Experts have warned that the state has no means to maintain effective control over ownership of exploratory licenses, which are often held by small, offshore registered companies, where underlying ownership can be easily transferred.

According to the Polish press, Russia's Gazprom, which currently enjoys a quasi-monopolistic position in European gas supply, has already gained a control over 20% of shale gas licenses issues in Poland.

Critics reason that that the government shouldn`t have issued licenses to the offshore companies. They point to the process that has evoloved: some of these small companies dealing with multinational large oil and gas corporations, unloading risk and costs while retaining part of equity, as cashing on Poland's national riches, without hardly an investment.

The Polish government has also come under criticism for not communicating the licensing process to the public in a timely manner.

Others have criticized the present  low level of gas royalties as current tax regime is still tailored for a state-owned monopoly model. Last year government agreed that the royalty legislation required updating and a draft bill is to be presented in Q2 2012.

Reporting to the Parliament

NIK is the highest independent audit authority in Poland. It regularly performs audits related to execution of the state budget and public finance spending. The agency also audits management of public property by state and local governments.

Audits reports are presented to the government and to Parliament. NIK does not possess any executive powers and does not issue any legally binding verdicts.

The agency has also announced plans to perform an examination of the development of Poland’s gas transmission network.