The most recent and comprehensive comparative benchmarking study on the specific taxation of offshore gas production in Europe, by PwC Romania for the Federation of Oil and Gas Employers (FPPG), will be launched as part of a series of events and information actions on the technical aspects of the regulation of offshore natural gas production in Romania.
In recent years, the study reveals, operators' revenues from natural gas (and oil) production have been falling steadily. This trend is the result of strong pressure from falling hydrocarbon prices, as well as declining production from producing fields. But the development of offshore production would make a significant contribution to meeting future gas demand, according to the study. The costs and risks associated with such projects, particularly deep offshore projects, are high and investments are long-term. That is why, the study finds, very few companies globally have the know-how, technology and financial resources for such projects.
"The benchmarking results show significant differences in the effective tax rates on (offshore) natural gas production. Both in 2020 and 2019, Romania has the highest effective tax rate of 23%, a level more than 4 times higher than the average of the European countries considered in the study", says the coordinator of the study, Andreea Mitiriță, Tax Services Partner PwC Romania.
The study concludes that the predictability and stability of the legislative and regulatory framework is a major prerequisite for investment decisions that require high upfront costs, high risks and long payback, such as those in offshore gas production. The tax regime must also be stable and competitive in order to retain and attract investors. In this respect, in order to restore the balance and competitiveness of the tax regime applicable to Black Sea gas projects, it is necessary to amend the Offshore Law.
"Dialogue between public policy makers and industry representatives is essential in order to develop an optimal framework for investment in offshore gas production, which will benefit the state, citizens and investors alike", says Cătălin Niță, Executive Director of FPPG.
The FPPG once again draws attention to the fact that the opportunity of the moment regarding the development of natural gas reserves in the Black Sea must be exploited now in the context in which natural gas has the chance to be the transition fuel. Otherwise, there is a risk that Romania's development potential from the perspective of holding this competitive advantage will be lost.
The study benchmarked the effective tax rates specific to offshore gas production in the considered relevant European countries available on May 31, 2021 in order to identify an up-to-date picture of the tax "burden".
The effective tax rate for each State was calculated by dividing the amount of royalties and specific taxes paid by the main industry players by the revenues derived from the production and sale of natural gas.
