Razvan Nicolescu, an expert at the Bucharestoffice of Deloitte, an international consulting agency, believes that the new legislative norm for progressive taxation of gas companies will allow the government to receive additional revenues to the state budget in the amount of almost 26 billion USD by 2040. At the same time, the GDP of Romania, due to the effect of this norm, is likely to increase by 40 billion USD.
On November 14th, 2018, the law “On offshore gas production in Romania”, adopted by the parliament of Romania in October, came into force. The new law regulates the activities of gas companies on the Romanian sea shelf, in particular, it provides for the implementation of a progressive tax rate on companies’ income from offshore gas production. So, the growth of company revenue, will lead to tax increase from 15 to 50%. In addition, the law foresees the obligation of gas companies to sell 50% of produced gas at the domestic gas market of the country and obliges companies to employ at least 25% of Romanian citizens in the company.
It should be noted that the first version of the law adopted by the parliament was vetoed by the President of Romania and sent for refinement. However, the Romanian parliament, headed by the ruling Social Democratic Party of Romania and its leader Liviu Dragnea, voted on the law without change in the parliament repeatedly. R. Nikolescu believes that the prospects for further development of gas production in Romania have become hostage to the confrontation between the main political forces in the country and this will be the key matter during the presidential elections in Romania in November 2019. Thus, L. Dragana systematically argues that gas production in Romania should contribute only to the development of the Romanian economy, and Romania should not transit its own gas for the energy needs of neighboring countries (meaning Hungary, Bulgaria, Austria and other countries of Central and Eastern Europe).
“The Romanian Black Sea Offshore Titleholders Association” (RBSTA), whose members are: “Black Sea Oil & Gas S.R.L.”, “ExxonMobil Exploration”, “Production Romania Limited”, “Gas Plus International B.V.”, “Lukoil Overseas Atash B.V.”, “OMV Petrom S.A.”, “Petro Ventures Resources S.R.L.” and “Romgaz S.A.”, has criticized the new law. These companies have already invested more than 2 billion USD in geological exploration of the Romanian offshore shelf. “RBSTA” believes that the decision made by the parliament makes the Romanian gas market not competitive for foreign direct investment.
Commenting on the new law, Francois-Regis Mouton, director of the “International Association of Oil and Gas Producers”, noted that most of the gas companies in Romania, in particular “ExxonMobi” and “OMV”, which have already explored about 43 billion cubic meters of gas in the “Domino” field, “Carlyle Group”, which explored about 9 billion cubic meters of gas and invested heavily in exploration and production of gas on the Romanian shelf, will continue to operate.
The expert stressed that, with the introduction of a new law, the fiscal regime for gas companies in Romania became the worst among all the countries of the Black Sea region. The law will play the most negative role in attracting new investors to the development of gas production in Romania. F. Mouton, noted that compared to the situation in Romania, the fiscal regime in Ukraine and Bulgaria is now more attractive to gas-extracting companies (picture).
Following the promulgation of the Law “On offshore gas production in Romania”, M. Bicon, the executive director of the “Black Sea Oil & Gas” company and Christina Verchere, the executive director of the Austrian company “OMW”, have already announced that their companies terminate all investments in Romania in order to assess further prospects for the development of their companies’ gas production in Romania. In addition, both top managers announced that by the end of this year no investment decisions that have been planned will be made.
Radu Dudău, the head of the “Energy Policy Group” analytical center in Bucharest believes that the Romanian Black Sea shelf, in view of hydrocarbon reserves, has the potential to turn into the “North Sea” for the EU gas market, and in view of capacity of explored gas, Romania has already ranked third in the EU following the Netherlands and the UK.
The geological exploration of the Romanian shelf continues. The results already obtained by “ExxonMobil”, “OMV”, “Lukoil” and other companies are impressive. At the same time, the parliament and the government of the country formed by the Social Democratic Party of Romania, led by L. Dragnea, are currently conducting a very risky policy of changing the conditions of cooperation with companies in the gas industry.
However, in case if the conditions created by the new government become unacceptable, international companies can easily leave Romania in favor of other markets. R. Dado noted that, while the development of hydrocarbons on the shelf has not started, the Romanian state company “Romgaz” and the Austrian “OMV” provide 95% of the total gas production in the continental part of the country.
Currently, Romania produces about 10.5 billion cubic meters of gas per year, mainly on the continental part of the country. The volume of gas consumption in the country in 2017 amounted to 11 billion cubic meters. And potential reserves of gas on the Black Sea shelf of the country, according to the figures of recent seismic data, can amount to 170 – 200 billion cubic meters of gas.
Thus, Romania due to a prudent policy in the field of gas production, liberalization of the gas market of the country, has every chance to become a regional European gas hub capable of substantially strengthening the energy security of the Community and reducing Eastern European countries dependence on gas from the Russian Federation in the medium term.
Consequently, based on the results of the sea shelf exploration by international gas companies, in the short term, the proven gas reserves in Romania can grow to 170 – 200 billion cubic meters. Start of gas production on the Romanian shelf is scheduled for 2019-2020.
In anticipation of growth in gas production (up to 20 billion cubic meters of gas per year), the government and parliament of Romania in October 2018 adopted the law “On offshore gas production in Romania”, which significantly increases the state’s share in the incomes of companies from production and sale of gas.
The deterioration of the investment climate in the Romanian gas industry, following the adoption of the new law, has already led to suspension of investment plans by “ExxonMobil”, “OMV” and other international companies licensed to develop hydrocarbon deposits in the Romanian offshore area. Consequently, the rate of assimilation of new deposits and development of gas production in the country may slow down.
The further escalation of the political struggle in the country on the eve of the presidential and parliamentary elections in Romania in 2019-2020 may lead to growing tensions between the government and international mining companies and can cause freezing of the assets and projects on the Romanian shelf by international gas-extracting companies.
Picture: omvpetrom.com.
