Lithuania Plans to Win Back Chevron with Amended Shale Gas Legislation
Ahead of the US visit next month, Lithuanian Prime Minister Algirdas Butkevicius has informed that he is going to meet with Chevron representatives overseas and introduce them to the country’s amended 'investor-friendly' shale gas regulations aiming to attract potential investors and, possibly lure Chevron back.
Chevron pulled out from the bid and shut down its office last Autumn due inconsistent shale gas legislation.
Lithuanian PM wants to meet Chevron representatives during his October visit
“Yes, indeed, in the United States, I’m willing to introduce the new shale gas legislation package and assure that a new wave of emotions over the issue isn’t likely to rise in the Lithuanian Parliament. I count that wisdom will prevail throughout the process and the new laws will be passed, especially that the political take on the issues is changing and the municipalities, with the package passed, will be getting more interested in working closer with the local communities. That kind of a conversation I’m going to have (with Chevron),” the Lithuanian Government head told.
The government approved in mid-September new tax regulations for shale gas mining in the country which, if endorsed by the Lithuanian parliament, will see a new tender for a shale gas exploration licenses announced.
Under the Environment Ministry's draft law on Tax on Petroleum and Natural Gas Resources, shale gas production is to be exempt from any taxes for the first three years from the outset of drilling, but not longer than the start in 2020. The activity will be subject to a 15% tax rate thereafter.
But with the draft awaiting MPs’ say, the first roadblock has already popped up on the way as the Lithuania’s Competition Council has called to put off adopting the amendments until the Economy Ministry’s concerns are addressed.
“This issue was not coordinated with us beforehand. My proposal is allowing us more time to answer this question. Otherwise, there is a risk that it might be regarded by the European Commission (EC) as state aid,” Sarunas Keserauskas, chairman of the competition body said.
The Environment Ministry was to send a respective inquiry to the EC seeking clarifications.
Chevron: “Lithuania is a past stage”
According to the draft, as much as 90% of the shale tax earnings are to go into the central government’s coffers and the remaining 10% would add the budgets of local municipalities of locations where shale gas is extracted.
The Lithuanian PM however hinted that in the future the local governments could get up to 30% of the tax revenues.
If the amendments are passed by Seimas (Lithuanian Parliament), the new shale legislation will come into force on January 1, 2015.
Then the Environment Ministry is expected to announce a new shale gas exploration and production tender shortly afterwards.
Chevron waved its shale gas exploration and production license in the country last October, citing numerous changes in the fiscal, legislative and regulatory climate.
In a stark contrast to the PM’s hopes, Chevron’s exterior communications representative in Europe, Sally Jones, hastened to tell a Lithuanian daily that the US energy giant is not intending to make a comeback to Lithuania which it sees “a past stage.”
“Chevron has closed its office in Lithuania as the opportunities here cannot any longer compete with the other opportunities in our global portfolio,” she told.
Lithuania’s new shale legislation “clearer” than Poland’s
The new shale gas legislation adoption is expected in the Autumn parliamentary session, Olga Vazneviciene, the Environment Ministry spokeswoman, told Natural Gas Europe.
Asked to compare the draft with Poland’s similar shale gas legislation, which is seen as liberal and encouraging investment, the Ministry’s rep insisted that some of Lithuania’s shale law provisions “are clearer than Poland’s,’” but the environmental requirements remain tougher in Lithuania.
“For example, the Lithuanian draft obligates having environment impact assessment to be carried out for every drill deeper than 300 meters. Meanwhile, in Poland, that is required only for boreholes 5000 meters underneath, and deeper. Lithuania also seeks implementing hydrocarbons exploration and mining through tenders, while Poland did it through concessions,” she said.
Other key factors in the shale pursuit are also more favorable in the new Lithuanian shale legislation, according to Vazneviciene.
Profit tax in Lithuania stands at 15%, meanwhile in Poland it is 19%, she pointed out.
Other taxes also differ. In Poland, for example, commercial land tax is set at 0.22 euro per 1 sq. m., the tax on real estate property used for commercial purposes is 5.51 euro per 1 sq. km., meanwhile in Lithuania, land tax, depending on the purpose of use, ranges from 0.1 to 1.5% and state land lease tax for fossil fuels-mining given land stands at 1.8%.
When it comes to oil and shale resources production tax, it in Poland it is 1.49 euro for 1000 cubic meters of methane-rich gas, 1.24 euro for the same amount of other gas and 8.81 euro per ton for oil.
“In comparison, in Lithuania oil and gas resources are taxed with the basic tax tariff, varying from 2 to 20% for inland mines and from 2 to 16% for off-shore deposits. If the draft proposals go through in the parliament, then the tariff rate would depend on the amount of annual oil and gas production and the size of the mine and will be calculated taking into account the sale price in the extraction site,” Vazneviciene said.
Poland, she said, has drawn up a draft bill on hydrocarbons extraction, which would link the mining company’s revenues and expenses. If the rate exceeds the margin of 1.5, then tariff extending from 12.5 to 24.99% will be applied; and in case the rate goes over 2, the applicable tax will be 25% and the tax rate would be proportionate to the company’s profitability.
According to the Lithuanian official, the Poles are to hike the present tax for methane-rich gas from the current 1.49 euro to 5.73 euro (per 1000 cubic meters) and from 1.24 euro to 4.78 euro, also per the same unit, for other gas and up to 11.93 euro per 1 ton for oil.
“The Ministry is ready for launching a repeated shale gas production tender. Once it is passed-we hope this will happen yet in the autumn legislative session- we’ll announce the competition shortly after,” the spokeswoman told.
A Delay doesn’t make sense
But the former Lithuanian Environment minister, now a member of the European Parliament, Valentinas Mazuronis, known for the staunch support of the shale bid and Chevron, told Natural Gas Europe that to “from what he sees” no substantial changes have been laid out in the draft bill.
“The Government has agreed on the hydrocarbons tax and shale gas production tax exemption. All this is fine, but, nevertheless, I see increasingly more signs that a new shale gas exploration and extraction tender will be postponed until next year. I really don’t think the delay makes sense, as the competition itself will take some time and once it is over quite some time will be needed to get the works started,” Mazuronis told.
He called Chevron “a big, reliable and experienced company,” which being on the list of a tender’s participants would make the others exert themselves.
The European Lithuanian legislators had criticized Lithuania in the past for being too suspicious of major foreign investments.
“I hope that more than a single company will be bidding in a new tender,” Mazuronis said.
Germany’s decision to shelve shale gas drilling for next seven years will have major ramifications, he said.
“No doubt, it will affect the shale trends, since Germany is a state that many other size up themselves against. I really cannot explain such a decision, but, at the end, I don’t think that everything unfold baldly. Look, Poland, Romania, Great Britain have moved their shale gas exploration projects forwards and it (the German decision) does not halt them,” the MEP said.
As all the countries have different possibilities (in taking on the bid), Lithuania, unable to measure up against Germany and its possibilities, cannot however “disregard the potentially very useful and profitable economic activity (shale gas mining), he insisted.
“If we want some day match Germany, we cannot make any delay and take advantage of the possibilities,” Mazuronis told.