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Ministry of Finance will combine royalties with a tax on profits from Upstream

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The future system of royalties in the field of hydrocarbons, which should enter into force by the end of this year, will differentiate between on-shore and off-shore exploitation, and will be combined with taxation of profits from the Upstream activity, said Dan Manolescu, State Secretary in the Ministry of Finance.

Toll quotas for royalty and profit from Upstream have not yet been set, but the state budget will not collect less money than before and there will be deductions of investments, specified the official. The criteria, formulas and deduction ceiling are to be determined.

For example, John Knapp, ExxonMobil representative in Romania, pointed out that investors in hydrocarbons will contribute to building the necessary infrastructure for marketing of newly discovered resources, and such activities, that become profitable within a period of about 10 years, need a clear and attractive operating framework.

As the parliamentary recess approaches, although the bill will be ready within two months, it will be sent to parliament for debate in September.

National Agency for Mineral Resources (NAMR) has prepared the 11th round of bidding for exploration licenses and offering oil production in proportion of 80%, but will run it only after the new toll system will be approved; thus, developers and operators will be subject to the new rules, says Gheorghe Duţu, President of the Agency.

The last round organized by NAMR took place in 2010, but the winners had big problems in initiate their operations because of local resistance, declining commercial attractiveness amid falling barrel price, the imposition of new taxes (as surcharge on profits during gas market liberalization and tax on special constructions), and uncertainty of toll system at extraction.

Companies that produce oil and natural gas currently pay royalties between 3.5% and 13.5% of production, depending on the type of hydrocarbon deposits, but deposit average amounts to 7%. These rates are valid until 31 December 2015.

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