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    Romania Seeks Early Start to Revised Royaly Agreement

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Summary

Romanian PM Victor Ponta met with OMV's Gerhard Roiss at the R20 Conference in Vienna where an increase in royalties was discussed. An increase in royalites might be one possible solution to balance Romania's budget for 2013.

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Natural Gas & LNG News, News By Country, , Romania

Romania Seeks Early Start to Revised Royaly Agreement

A possible solution to balance Romania's state budget for 2013 would be to increase, before 2014, royalties from oil and gas companies.

Last week in Vienna Prime Minister Victor Ponta met with OMV chairman, Gerhard Roiss, and discussed the increase of royalties that OMV Petrom will pay in 2015. As a reminder, according to the privatization agreement of Petrom signed at the end of 2004, the level of the royalties due to the Romanian state remain unchanged until the end of 2014.

The intent of the Government in Bucharest is to align all royalties received by the Romanian state from companies exploiting Romanian resources with the European average, beginning this year. Main negotiations to advance the term when royalties are to be increased will have to be conducted by officials in Bucharest with OMV, which owns the most important grant. The increase of royalties received by the Romanian state from the companies that exploit resources is a priority for the consolidation of the state budget.

“Every time I come to Vienna I try to discuss with those that are in charge of the main investors in Romania. (…) Yes, our intention is not only to increase the royalties, which is possible from 2014, but to find a solution that this increase to be applied sooner than mentioned in the privatization agreement, but this topic must be negotiated,” said Victor Ponta in a statement made after the Conference regarding renewing energy, sent by Agerpres.

Hydrocarbon producers currently pay royalties between 3.5 and 13.5 percent of production, depending on the nature of the hydrocarbon deposits. These royalty levels were established in 2004 and are valid until December 2014, inclusive, being established by the privatization agreement for Petrom with the Austrian group OMV.

On January 16th, Prime Minister Victor Ponta stated that there will be approved a law regarding the updating of royalties for all fields, including oil and natural gas, to the European average levels.

“Obviously we will increase the royalties; however we cannot increase them only for Petrom. So, the idea is to increase  royalties for all areas related to natural resources to a level at which the Romanian state will prosper and where investments will be kept. Because, if we increase them too much we might remain without investments. But this year there will be a law passed regarding the updating of royalties in all fields, including oil and natural gas, to the European average levels,” stated Victor Ponta, mentioning that the royalties can be modified in 2014.

The delegated Minister for Energy, Constantin Nita, recently stated that it is necessary that royalties for oil and gas production be increased to European Union levels, “up to 20 – 30 percent, at least.”

At the end of last year, OMV Petrom general manager Mariana Gheorghe stated that OMV Petrom has been discussing the topic of oil and gas royalties with the Government for several months, but for the moment only the “principles” have been analyzed regarding the effect of the new taxation levels on the company and on the economy.

In May 2012, Daniel Chitoiu, then Economy Minister, said that the level of the royalties paid by the company that have grants over oil and natural gas exploitation and exploration perimeters “will not be modified until 2015.”

“We must see, from the point of view of budget incomes, which is the solution beginning with 2014 and how can we, on the one hand, encourage the investments in the energy market, not only from OMV but from all the other companies and, on the other hand, to have budget incomes to sustain the economic, social and investment programs”, said Ponta in Wien.

The state budget receives mining, oil and natural gas royalties every year amounting to around USD 350 million.

The main companies operating in the oil and gas field in Romania are OMV Petrom, Rompetrol (owned by KazMunaiGaz from Kazakhstan), Lukoil (Russia), MOL (Hungary), Eni (Italy) and Romgaz MediaƟ. The gas production is covered in almost equal parts by Romgaz and OMV Petrom. OMV Petrom is the only company that extracts oil, having this right by the privatization agreement to the Austrian group OMV in 2004.

Silviu Molnar