With regard to the amounts calculated by the Court of Auditors as being unpaid in the last years on account of oil royalties, it seems that we are witnessing a perfect example of a dialogue of the deaf. NAMR mentions payments made on the basis of an outdated benchmark of its own, and thus it seems to support a previous position from the Court of Auditors, while ROPEPCA has repeatedly stated that the reference in the calculation of the royalties payable by the producers was the price at which they were concluded sale transactions of their produced output, higher than the NAMR reference. We discussed these issues with Harald Kraft, ROPEPCA President, as well as other hot issues in the oil and gas industry.
Dear Mr. Harald Kraft, NAMR decided that royalties should be calculated with reference to the Austrian gas hub, choosing to ignore the position expressed by ROPEPCA members – the association that brings together most of the producers in the sector. What is the impact of this decision on the Romanian oil and gas sector? How do you intend to continue raise this issue in front of the state authorities?
Obviously, there will be a direct impact on the natural gas producers operating in Romania, and this impact comes, on one hand, from the fact that the price at the Baumgarten hub is higher than the price recorded on the Romanian market, and on the other hand, the impact comes from the exchange rate, which will also have a negative influence. As about the second question, on what we intend to do, I say that ROPEPCA is still and it will be available for consultations with the Romanian state so that we can reach a favorable solution for domestic producers, the Romanian state and end consumers. We believe that any regulatory decision that is found to have been based on wrong premises can be changed, corrected and improved for the benefit of all parties involved.
To justify the idea that royalties have to be calculated according to the Austrian hub, a senior official from NARM said that the Romanian gas market is immature. What is your appreciation of the relevance of the Romanian natural gas market? What do we have and what it is missing for us all to be satisfied with the centralized natural gas market in Romania?
It is risky to use tough words when it comes to a transparent and extremely important market like that of natural gas transactions. How can we call “immature” a market that traded a volume of 66.4 million MWh in 2017, transactions made at Romanian Exchange Commodities? This volume accounted for about 54% of Romania’s consumption in 2016! Decide for yourself if we talk about a mature or an immature market! There is another thing yet: the centralized market is not supposed to cover the entire market, because standardized products and contracts negotiated between the parties have to complement each other.
Regarding the Austrian hub, it should be noted that an external trading market does not make for the Romanian market. In addition, Romanian producers can not directly export and trade through the Baumgarten hub in Austria. The natural gas there is sold for several times, and the profit margins of each intermediary and the transport tariff are added to the initial price. CEGH Baumgarten is more of a platform for traders. That is why we ask: “why the Romanian producer has to pay the royalty with reference to a benchmark which includes the profit of the Austrian intermediaries on the one hand, and the transport tariff in Austria on the other? The correct approach is to pay royalties at the market price achieved by the producer in Romania.
The President of ANRE has repeatedly repeated this year that in 2018 he would act for the creation of a natural gas market, suggesting that Romania currently does not have a real market in this sector. How are things from your perspective?
The natural gas market in Romania, liberalized for sales made by producers no earlier than last April, has developed in a natural and dynamic way. At present, more than 50% of gas transactions take place on the Romanian Commodities Exchange. Indeed, there is room for improvement – the Romanian market must get more liquidity, Romania needs to open its doors, also for regional interconnection. There is still much work to be done, but I can say with conviction that the Romanian natural gas market is a functional market.
Can you confirm that all oil producers in Romania have paid royalties in the period 2008-2017, at the maximum between the reference price and the market price obtained from the natural gas trading in Romania?
Most relevant is that the Romanian state itself, through its authority called ANAF, can confirm that the oil producers in Romania have complied with the legislation when they paid their contributions to the public budget. The fees and taxes collected by ANAF are related to the actual price realized on the Romanian market. But it has to be understood that the so-called “reference price” is nothing but the minimum value on which the royalty applies, which means that below that you cannot go. In 2017, ANAF verified domestic producers on the royalty payment. From discussions with colleagues from other companies, I know all of them got confirmation from ANAF that they have calculated and paid the royalty in accordance with the legislation in force, i.e. they paid the royalty at the price they sold gas. Unfortunately, this issue is totally ignored in the public discussion, erroneously inducing the idea that the state would have been prejudiced by paying royalties at an incorrect level. We are very disappointed with this.
In a gesture of transparency that would put an end to the accusations and would debase the tension on this issue, do you think the association could make available to the public a report with all royalties paid, during these years, for the production made, broken down by companies?
Naturally, due to the competition on the market, the sales figures are information of each individual company and they cannot be disclosed even among us, the members of the association, except for those companies listed on the stock exchange, which have a degree of transparency imposed by the stock exchange. However, after the end of the first semester, we will make public the total of the fees paid by all our members in 2017, as we do every year. Starting from this figure, and the dynamics of previous years being known, and with reference to the volume of gas sales, the calculations will show that producers paid royalties at prices considerably higher than the reference price. And one key element is not to be forgotten: state revenues from the payment of the extra tax for natural gas exceeds the revenue from royalties and thus complements the need for budgetary revenues.