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ROPEPCA members expect a decrease in tax paid to the state budget and increased jobs insecurity

BLACK SEA
OIL & GAS

ROPEPCA members expect a decrease in tax paid to the state budget and increased jobs insecurity

The Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) comes back to the public attention on the negative consequences that provisions of Government Emergency Ordinance will have on the entire economy and the natural gas production sector in Romania.

ROPEPCA believes that the new regulations will lead to a double loss for both the petroleum sector and the state budget.

The association expects a decrease in tax paid to the state budget ranging between 30% and 60%, depending on each company’s business model. Assuming a price of 90 lei/MWh (BRM average for transactions with delivery in November 2018) and total gas production in Romania (not only ROPEPCA members), the state budget direct losses will amount to at least 2 billion lei per year (coming from the tax on supplementary incomes resulted from the liberalization of the gas market, royalties and profit tax), without taking into account dividends from state participations in gas producing companies as well as VAT for final household consumers and not including additional losses due to reduction of investments, revisions of staff policies, decrease in gas production and corresponding indirect and induced negative economic impact. ROPEPCA members alone have contributed with more than RON 22 billion to the state budget in the last four years.

The regulated price risks to cut up to 50% of the available funds for investment in gas projects. Companies that depend on external financing for carrying out production and exploration projects have already lost their current financing and are in danger of closing down in case no new investors in their business is found. In general, future investments are significantly impacted by the measures imposed, with projects having only marginal profitability or even worse. As a consequence of OUG 114/2018, the association estimates a reduction of up to 50% in the near term in exploration and development projects. It is worth mentioning that ROPEPCA members have invested more than RON 16.5 billion in Romania in the last 4 years.

All gas producing fields operated by ROPEPCA members will be evaluated, in view of deciding about shutting in wells and abandoning gas fields. The field life of some marginal fields is heavily impacted and will force companies to abandon them earlier than planned. Apart from that, companies conducting exploration activities have already deferred or cancelled up to 50% of the wells planned to be drilled in the near future and this percentage will surely increase in the mid to long term due to the provisions of OUG 114/2018. It must be stressed out that any cubic meter of gas not produced any more in Romania, as some fields become uneconomical in such conditions, will need to be imported at a price considerably higher from external sources.

Read full article to (Energy Industry Review)

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