ROPEPCA’S POSITION REGARDING THE SUPPLEMENTARY
TAXATION OF ADDITIONAL INCOME OBTAINED FROM PRICE
LIBERALIZATION ON THE NATURAL GAS MARKET
16 Dec 2014
The Romanian Petroleum Exploration and Production Companies Association
(ROPEPCA) has taken note of the recent amendments to the draft law to approve the
Government Ordinance no. 7/2013 regarding the supplementary taxation of additional
income from price liberalization on the natural gas market („OG nr.7/2013”) introduced
in the Committee for Industry and Services, Chamber of Deputies. In our position of
constant supporter of a stable and predictable legal and regulatory framework applicable
to the oil & gas sector in Romania, we would like to flag that the voted amendments, once
adopted by the Chamber of Deputies Assembly, are very likely to generate worrisome
consequences on the natural gas sector in Romania.
The measures to exclude deduction of royalties and upstream investment from the
computation basis of the tax on additional income from the price deregulation on the
natural gas market, and to extend its application until 2021 come in contradiction with the
discussion regarding the introduction of a new fiscal framework applicable to the oil & gas
industry starting 2015 and misguides the idea of a potential double taxation for the
upstream natural gas sector.
Therefore, ROPEPCA would like to highlight the lack of transparency in the process of
substantially amending the draft law for approving OG no. 7/2013 in the Committee for
Industry and Services so as to modify the fiscal framework for the natural gas sector
without prior impact assessment and without public consultation. Also, the recent
amendments do not take into consideration the strategic importance of the natural gas
sector in Romania and its contribution to the energy security in a context of regional
instability.
Moreover, the above mentioned amendments to the formula applicable to the taxation of
additional income from natural gas price deregulation are in conflict with the Government
Emergency Ordinance for amending and supplementing Law no. 571/2003 on the Fiscal
Code and amending normative acts, adopted by the Government on 10 December 2014
which also includes the extension of applicability, in the current form, until 31 December
2015. The measure to extend by one year the applicability of OG no. 7/2013 is intended
to be a transitory measure by the time the Government would have designed a new fiscal
framework applicable to the oil & gas industry starting 2016.
In this regard, ROPEPCA has already publicly expressed its position regarding a
comprehensive fiscal framework adapted to the specifics of the industry, types of fields
and production level, types of operations and investment made. It is worth noting that the
investment appetite in the oil & gas industry, characterized by capital insensitivity and
long investment cycles, is directly proportional to how attractive the local legal and
regulatory landscape is.
Romanian Petroleum Exploration & Production Companies Association (ROPEPCA)
13 Tudor Stefan Street, 2nd floor, Sector 1, Bucharest, 011655, Romania
Tel: + 40.21.230.08.81; Fax: + 40.21.230.08.82; Email: [email protected];
Web: www.ropepca.ro
1
Therefore, any substantial and unpredictable change to the object, term and applicability
of a fiscal instrument, such as the change brought it by the amendments voted in the
Committee for Industry and Services will have a negative impact on the economic viability
of current operation and on future investment as this is planned well in advance. Such
risks endanger the attractiveness of the Romanian upstream oil & gas sector and the
medium to long term hydrocarbons supply from domestic resources.
From our position of operators in the Romanian oil & gas industry, we would like to bring
to your attention the following issues in relation to the process amending OG no. 7/2013
in the Committee for Industry and Services:
-
The amendment to the computation base for the tax mentioned above has been
done without prior consultations or discussions with the titleholders and, as it is
conflicting with another decision of the Government, it infringes on one of the main
principles of the fiscal framework, namely stability principle (Fiscal Code, art. 3,
letter d);
-
The extension of the applicability until 2021 is not justified by the current context
when the Government is proposing a new fiscal framework applicable to the oil &
gas industry starting 1 January 2016. Preserving the applicability of the two in the
same time could lead to double taxation;
-
Deductions for investment on special taxes applicable to the upstream sector aims
at incentivizing investment with a positive impact on the domestic economy, as
proven by the experiences of other European countries (The Netherlands, United
Kingdom, etc.). Taking into account the taxation mechanism both on profit and on
additional income from liberalization, deduction for investment when computing the
base is not, according to the provisions of the Fiscal Code, a double deduction;
-
Maintaining the deduction for royalties is necessary to avoid double taxation as
this tax is applicable to the additional income from selling the natural gas for whom
royalties are also paid;
-
Considering the nature of geological landscape, technical challenges, and the level
of capital required for long term investment in the upstream sector, any
ungrounded potential change to the legal and regulatory framework could have a
strong negative impact on future investment.
Romanian Petroleum Exploration & Production Companies Association (ROPEPCA)
13 Tudor Stefan Street, 2nd floor, Sector 1, Bucharest, 011655, Romania
Tel: + 40.21.230.08.81; Fax: + 40.21.230.08.82; Email: [email protected];
Web: www.ropepca.ro
2
We take this opportunity to express our openness to future discuss the subject of this
letter as well as any other issues related to the legal and regulatory framework applicable
to the oil & gas upstream sector.
Romanian Petroleum Exploration & Production Companies Association (ROPEPCA)
13 Tudor Stefan Street, 2nd floor, Sector 1, Bucharest, 011655, Romania
Tel: + 40.21.230.08.81; Fax: + 40.21.230.08.82; Email: [email protected];
Web: www.ropepca.ro
3