Bucharest, October 27, 2023:
The Federation of Oil and Gas Employers (FPPG) has noted with great concern the adoption of the Emergency Ordinance on some measures for the public and private property of the state and for the efficient administration of state property ("Draft GEO") which aims, among others, increasing oil royalty rates for future oil deals.
Failure to comply with technical legislative rules
The text was not consulted in the Economic and Social Council (ESC) and did not respect the basic principles of public consultation.
IThe effective taxation of oil and gas production in Romania is well above the EU average and makes the country's energy projects uncompetitive
In view of the current fiscal environment in the energy sector, characterized by significant additional taxation, and the continued need for investment to maintain hydrocarbon production and support the energy transition, the proposal to adjust oil royalty rates is of particular concern, discouraging conclusion of future oil agreements.
On this occasion, we would like to emphasize that the current taxation system specific to the Romanian oil and gas sector includes, in addition to the general taxes applicable to economic operators, other taxes, contributions, royalties and specific tax measures, taking Romania far out of the EU average taxation.
Emergency Ordinance has a significant negative effect on investments, future oil and gas production
In these circumstances, we consider it necessary excluding the provisions on the modification of the oil royalty rates from the draft Emergency Ordinance. These changes will have a significant impact on investments, discouraging them, generating negative consequences on national energy security, the Romanian economy and state budget revenues.
Thus, the proposed measures will significantly negatively affect investment, with a direct impact on future oil and gas production. Higher royalties will increase the marginal cost of extracting hydrocarbon resources, while discouraging the development of marginal reserves.
The measure does not take into account Romania's geological specificity and jeopardizes Romania's strategic projects
Also, this initiative seems to disregard Romania's geological specificity, with mature onshore deposits and already declining domestic production. It is important to emphasize the fact that our country has one of the lowest production per well in the European Union, with a high degree of fragmentation of deposits. Thus, the proposed changes in the oil royalty rates could reduce the attractiveness of the oil fields put up for auction for potential investors or even completely discourage them from participating in future auction rounds.
In conclusion, the FPPG emphasizes that the implementation of such an increase in oil royalty rates will significantly discourage companies from entering into new oil agreements (with a negative effect on future investments), which will have a negative impact on national energy security, the Romanian economy and state budget revenues.
The Oil and Gas Employers' Federation, as the representative of the oil and gas industry, i.e. more than 98% of Romania's producers, remains open to dialog.
Founded in 1991, the Oil and Gas Employers' Federation (FPPG) represents the framework for development, dialog and efficient management of resources in the Romanian energy sector. The FPPG is staffed by a consolidated team of professionals, who have gained recognition both domestically and internationally, demonstrating that the Federation is a pillar of the Romanian energy system.
For more information, please contact us at: office@fppg.ro
