New Oil and Gas Sector Overtaxation Project
The new oil and gas sector overtaxation project endangers future investments for Romania’s energy security, warns the Oil and Gas Employers’ Federation (FPPG).
- The oil and gas sector is already overtaxed: the average rate of taxation of natural gas revenues is over 60% (80% tax on additional revenues obtained as a result of the deregulation of prices in the natural gas sector, tax on additional offshore revenues).
- The electricity production and trading sector in Romania is overtaxed: Contribution to the energy transition fund owed by electricity producers: 100% of revenues recorded over 450 lei/MWh; Contribution to the energy transition fund due for gas and electricity trading activities: 100% of revenues exceeding the acquisition cost plus 2% (profit margin).
- The effective tax rate of natural gas production in Romania is more than 3 times higher than the European average since 2018.
The Oil and Gas Employers’ Federation (FPPG) draws the attention of public opinion that the draft Emergency Ordinance on some measures to implement Council Regulation (EU) 2022/1854 of October 6, 2022 (relating to an emergency intervention to address the issue of prices high energy costs) is not likely to solve the energy crisis but, on the contrary, will generate numerous disadvantages among oil and gas operators by considerably reducing investment budgets. Through the draft Emergency Ordinance, Romania has the most hostile approach in the EU for the oil and gas industry in the context where it already has the highest level of additional taxes. Not taking into account the additional taxes already introduced is in contradiction with the principles of the European Regulation.
As a legitimate representative of the oil and gas industry, FPPG reiterates the need for a transparent and constructive dialogue between the Government of Romania and representatives of the energy sector. “We mention that this sector makes significant contributions to the national economy and the state budget. In the first half of 2022, the total impact of the oil and gas sector on the economy (i.e., including direct, indirect, and induced effects) represented about 8% of GDP.”
FPPG recognizes that protecting citizens during a difficult economic period is paramount. In this sense, means must be identified to protect vulnerable consumers, for a determined period, without impacting the investment capacity of the energy sector.
FPPG calls for real consultations with the government to identify the appropriate instruments to overcome the energy crisis and economic recovery.
Regarding the draft ordinance that calls for the establishment of a ‘solidarity contribution’, FPPG requests the Romanian Government to consider the following important aspects for the stability of the Romanian energy sector:
- According to the previous positions of the FPPG regarding the measures to implement the solidarity contribution, the additional taxes that already exist, both for the natural gas and electricity market, and for the extraction of crude oil (through other normative acts, e.g., OG 6/2013, OG 7/2013, Law 256/2018, GEO 27/2022) to be taken into account by this draft ordinance, by deducting them from the solidarity contribution.
- To limit the impact of discouraging local production and future investment in the sector, the chosen quota of 60% is much higher than in any other European Union country. Thus, a percentage of 33% (provided by the regulation) would be more appropriate. The level of the quota must not jeopardize the ability of producers to maintain and stimulate future investment in necessary production capacity.
- The agreed contribution should be recognized as a deductible expense when calculating the profit tax.
- In the context of this tax instrument, it is necessary to introduce a mechanism to encourage investments by setting up some reserves from the amount owed as a solidarity contribution at the level of taxpayers, through which to ensure new investments in the next 3-5 years.
Consequently, FPPG draws attention to the negative impact that the current form of the draft law will have on the future of the domestic oil and gas industry in Romania.
The Oil and Gas Employers’ Federation (FPPG) is a Romanian legal entity under private law, without patrimonial purpose, non-governmental, autonomous, independent from public authorities, without political character; is representative at the level of the ‘Energy, Oil and Gas and Energy Mining’ activity sector, representing over 98% of crude oil and natural gas producing companies. FPPG has constantly supported the principles of stability, predictability, and competitiveness of the legislative framework applicable to the energy field in Romania, as well as the responsibility of companies in the sector in terms of safety, health and security of operations and personnel. FPPG is a founding member of Concordia Employers’ Confederation, the only Romanian employers’ confederation affiliated to Business Europe and IOE (International Organization of Employers).