Romania’s Chamber of Deputies has endorsed the bill that regulates the fiscal regime for the offshore gas operations in the country’s Black Sea perimeters under accelerated procedures on July 9, hotnews.ro reported. 

The bill disappointed investors, who expected a milder taxation regime. But while the taxation regime is tough compared to the softer terms reportedly negotiated between the authorities and foreign oil companies, and compared to the draft circulated previously, it not necessarily severe in absolute terms. In terms of public finances, the move is a visible improvement. 

The bill was approved with 175 votes against 30, while 30 deputies abstained from voting. The opposition parties complained about the lack of transparency in debating the bill, which was revealed last week, only to be dramatically amended by the expert committees only a couple of hours before the final vote.

The draft that was officially unveiled last week by the ruling coalition prompted criticism from the opposition and civic activists, who claimed excessive benefits had been allowed to the oil companies. Under another key provision of the law as endorsed on July 9, the natural gas producers are required to trade transparently, on the local wholesale markets, at least 50% of the natural gas extracted from their offshore perimeters.

The bill levies special net revenue tax rates of 30%-50% (in addition to the regular corporate profit taxation) depending on the price charged for the natural gas and limited deductibility of the investments in the upstream operations for the calculation of the net revenues subject to the special tax.

While this prompted concern among investors, the net revenue taxation provisions are a softer version of the same taxes levied on onshore operations where the tax rate is flat at 60%. But the oil companies expected no such taxation at all. And indeed, the special tax on supplementary revenues was waived under the previous version of the bill unveiled last week, which prompted civic activists’ protests.

The major oil companies that have explored perimeters in Romania’s offshore perimeters said, after reading the final form of the bill, that making a final investment decision to go further with the production stage became more difficult.

"Following the change in the tax regime, it will become more difficult for each investor to take an investment decision," said Richard Tusker, head of ExxonMobil in Romania.

"After what we have seen today, it is tougher for us to take an investment decision in favour of Romania," Christina Verchere, CEO of OMV Petrom confirmed. OMV Petrom and ExxonMobil operate the largest perimeter in Romania’s Black Sea, evaluated at 48-84bn cubic metres (cm) of natural gas, which they expect to generate 6bn cm of natural gas per year.  

"I can firmly state, conferring the text that we have seen, that we are in a much more difficult position than we were two years ago [when we started assessing the conditions for further investments],” said Mark Beacom, the general manager of Black Sea Oil & Gas, controlled by the US fund Carlyle.