Romanian Tax Hike Upsets Operators
Romania’s chamber of deputies voted into law on the evening of July 9 a rise in offshore royalties and taxes, plus restrictions on how much production may be exported. Romania is the third largest gas producer in the European Union, after the Netherlands and the UK.
The law imposes progressive taxes on operators for additional incomes from the sale of the Black Sea production, applied depending on the price of gas, and also provides that half of all production needs to be sold on the local market, according to online newsletter Romania-Insider.com which said the law passed with 175 votes in favour, 30 against and 30 abstentions.
“We are currently assessing the impact of the new offshore law on the viability of Neptun Deep project,” a spokesperson for OMV-Petrom told NGW.
The Austro-Romanian joint venture and US supermajor ExxonMobil are 50-50% partners in that planned Neptun Deep gas project; Exxon recently placed some preliminary contract work for Neptun.
Both the Romanian Black Sea Titleholders Association, as well as the more generic Romanian upstream industry association, Ropepca, are reported to have strongly opposed the law.
Although the law aims to impose a cap on what may be exported, its desired effect of bolstering domestic Romanian gas supplies – enabling imports from Russia to be scaled back – will not happen, if planned new developments are halted.
"The most recent changes to the offshore law, proposed just yesterday, came as a surprise as they introduce a progressive tax regime for production without much deliberation or an impact assessment. The result could be that majors such as ExxonMobil, or Black Sea Oil & Gas (the Carlyle-owned operator of the Midia deepwater gas project), may decide to quit their investments – including in the Neptun field. Exxon was due to take a final production decision by the end of 2018, which was one of the reasons for fast-tracking the offshore law," Martin Vladimirov, economics analyst at Bulgaria's Center for the Study of Democracy tells NGW. "Without completing the offshore investments, it is very unlikely that the cross-border BRUA pipeline, or any gas exports from Romania, would come online," he added.
As recently as April 2018 Ropepca published a study commissioned from Deloitte Romania which showed that – as at end-2016 – Romania’s effective upstream tax rate increased to 17.4% in 2016 (from 16.9% in 2015) mainly owing to higher gas production, which has a higher tax rate than oil.
Deloitte assessed this to be double the average 2016 ‘effective tax rate’ elsewhere in Europe: 8.8%. However, it also noted a slight decrease going into 2017 of the effective Romanian rate to 13.9%.
The consultacy also, citing EU data, said that Romania's upstream at more than 23,000 has the largest number of direct employees of any EU country - out of 77,000 such direct employees EU-wide.
Gas export difficulties
The European Commission's competition directorate has been investigating the country's gas transmission system operator Transgaz for over a year, examining whether it has been blocking gas exports through delays to infrastructure or through other means.
Transgaz is the sole operator of the natural gas transmission system in Romania and the EC's antitrust investigation will focus on indications that Transgaz has devised a strategy to restrict gas exports from Romania to other member states. This strategy may have been implemented in several ways including through the use of: - interconnector transmission fees; underinvestment or delays in the building of relevant infrastructure; and unfounded technical arguments as a pretext to prevent or justify delays in exports.
As the EU's third largest gas producer, Romania produced 10.3bn m3 in 2017, up 14.2% year on year, according to the latest BP Statistical Review of World Energy, making it the fourth biggest in non-FSU Europe if Norway is included. Romanian gas consumption was 11.9bn m3, according to BP, up 14.6% year on year - among the highest growth rates in the EU; net imports came chiefly from Russia.
State producer Romgaz accounts for roughly half of the country's gas production, while OMV-Petrom is the second largest producer.