Romania: New Government Plans Increase in Royalty Payments

The new Romanian government will focus on increasing royalties paid by companies for the production of oil and gas by 20 to 30 percent.

The last days of 2012 bring bad news to oil and natural gas producters in Romania. The government intends to implement and increase royalties for already valid lease and exploitation of oil and natural gas agreements by 20 to 30 percent, according to Constantin Nita, the newly elected Minister for the Romanian energy sector.  Taking over the ministerial responsibilities from his predecessor Daniel Chitoiu, Nita expressed the view that “the royalties for oil and gas must be increased with the purpose of aligning these incomes to the Romanian state budget with the ones currently existing in the European Union.  

The Romanian government intends to present a bill to Parliament in 2013 that will contain all regulations, decisions and conditions in the energy field, including ones related to the extraction, processing and selling of oil and natural gas or shale gas.

This bill will contain a separate chapter dedicated to regulation regarding the amount of royalties that the Romanian state intends to receive yearly from the activities of exploitation and selling of natural gas.

The aim is for the bill to be passed in the second part of 2013, when negotiations between the Romanian state and the companies that operate in the Romanian energy market are scheduled to begin activities. The royalties established by the new law will be valid from 2015 – 2024.

The new government intends to include the modifications to the royalties system in negotiations with the IMF in reaching a new stand-by agreement.

Royalties currently paid are between 3.5 percent and 13.5 percent of production, depending on the type of hydrocarbon deposit. This was established by a privatization agreement between Petrom and OMV in 2004 and is valid until December 2014.

According to statements by Romanian officials, the government is planning additional measures that are to begin in January 2013 including a tax on incomes of companies operating in gas and electricity fields and by mid-2013, the establishment of a new regulation and taxation rate for companies operating in oil and natural gas fields.

In June 2012 the Romanian government established an inter-ministry commission under the direction of the Public Finance Ministry that, together with companies active in the energy fields, is preparing a set of taxes, royalties and regulations that will be in agreement with the economic and financial policy memorandum signed between the Government and the IMF.

The law set will have two parts, the first regarding the fiscal contribution that the executive will apply on the “extraordinary” incomes of the gas and electricity companies, incomes obtained due to the deregulation of energy and gas prices. By the collection of such supplementary taxes in a segregated account, the Romanian government intends to establish a special fund and the amounts collected will be directed to vulnerable consumers, especially to those groups of people who cannot face the increase in prices.

According to the memorandum agreed with the IMF, the funds obtained by the government by this tax “will help finance the protection measures for vulnerable consumers when the necessary adjustments of retail price will be made.”  Effectively, the government wants to protect the underprivileged by taxing the energy companies.

Experts feel that the current tendencies of the Romanian government to enforce a new taxation regime of the extraordinary incomes of operating companies as well as the increase of royalties for the current exploitation and lease agreements will have significant consequences on the price that both industrial and household users will pay. According to current Romanian media estimates, these measures will increase to 15 percent of the acquisition price of oil and natural gas products, however price increases will be done in stages, as the new taxes will become valid in 2013 or the new royalty costs will be applied beginning with 2015.

The second part of the law set will be composed of a new regime of taxation and regulations for the field of oil products extraction, production and distribution.