The Chamber of Deputies adopted on Wednesday, by a large majority (248 votes in favor and 34 against), amendments and additions to the Law on Offshore Oil Operations. The legislative changes were expected by investors for the assessments necessary for an investment decision in the Black Sea gas fields. The new law is an important step towards unblocking offshore natural gas projects, which are of strategic importance for Romania's energy security, especially in the new geopolitical context generated by Russia's invasion of Ukraine and the EU's plan of measures to eliminate dependence on Russian imports of fossil fuels.
This law amended several provisions introduced in 2018, considered unfavorable by companies interested in investing in the development of gas fields in the Black Sea. In practice, the unfavorable legislative framework contributed to blocking these major investment projects.
Following a substantial public debate, the draft amendment to the Offshore Law was adopted by the Senate on May 11, as the first legislative chamber to be seized. The bill then received a favorable report in the specialized committees of the Chamber of Deputies, which is the decision-making body. Yesterday, the amendments to the Offshore Law were backed in the Chamber of Deputies by a broad parliamentary consensus.
Romania can become a regional energy security provider
The amendment and completion of the Offshore Law aims to launch "strategic projects for the development and exploitation of natural gas in the Black Sea to increase energy security, reduce dependence on imported natural gas and ensure the transition to clean energy sources", reads the Explanatory Memorandum of actulthe normative, published on the website of the Chamber of Deputies.
"Romania's onshore natural gas production areas have been intensively exploited over the last century and production is currently in continuous decline. Falling domestic gas production offset by importswhich led to lower state budget revenues, higher current account deficit, job losses and higher costs for the population and industry", the document reads.
According to the initiators of the legislation, "over the last 15 years, operators in the sector have invested more than USD 3.5 billion in offshore gas exploration, development and production projects. These projects, aimed at developing new resources, are initiated by experienced investors who have taken considerable risks when they made the decision to invest in Black Sea exploration projects on the basis of maintaining a stable legislative climate for as long as provided for in the petroleum agreements".
"We voted in the Chamber of Deputies, with a large majority, the Offshore Law. As I have said since taking office as Energy Minister, I want a large majority, a bigger majority than the ruling coalition, and today we had a big vote in the Chamber of Deputies, a broad vote for the Offshore Law. It is perhaps the most important step we are taking towards energy independence. Basically we can say that once the investments in the Black Sea start, Romania will become energy independent, we will produce more natural gas than we consumeand the surplus can be delivered abroad and Romania can become a regional energy security provider", said Energy Minister Virgil Popescu, after the vote in the Chamber of Deputies.
According to him, the law brings stability and predictability, a friendly tax regime - conditions that companies need in order to make the investment decision. He explained the benefits of these investments:
"Romania gains from royalties - which is somewhere in the region of 131TPTP4T - from the additional income tax, Romania earns corporate income tax, of the number of jobs that will be created. State budget gains from the tax on the workforce and I think the most important thing - Romania becomes energy independent and no more gas supply problems".
Prime Minister Nicolae Ciucă also emphasized the importance of the adoption of the offshore law by the Parliament:
"We will thus create predictability and the possibility for investments, both offshore and onshore, to start. The first project will start next month. It concerns the investments that Black Sea Oil & Gas has made in the Black Sea and, after yesterday's meeting, we are certain that by the end of June we will have the first molecule of gas extracted from the Black Sea entering the system. Of course, the others follow, which relate to investments, to a period of work at the level of the two companies OMV Petrom and Romgaz. There are already discussions and projects secured, so that, no later than end 2026, beginning 2027to have the necessary gas resource both to ensure the necessary independence for the Romanian economy, for public consumption, and to be able to develop branches in the petrochemical industry and, why not, to export gas"explained the Prime Minister, quoted by Agerpres.
In turn, President of the Chamber of Deputies, Marcel Ciolacu, he said after adoption of the draft Offshore Law:
"Romania has now entered the straight line towards energy independence. This is the most important thing". He added that the Romanian state, through direct and indirect taxes, "will collect 60% of the value of gas from the Black Sea". (Source, HERE)
FPPG: The main beneficiaries are the Romanian state and consumers
The main beneficiaries of the Offshore Law are the Romanian state, through the way taxation is calculated, and consumers, who will have additional quantities of gas at their disposal, said Cătălin Niță, Executive Director of the Federation of Oil and Gas Employers (FPPG), during a debate on energy issues.
He emphasized the difficult context in which this law is adopted, with a border warand said investors assume the associated risks.
"The law is good, it is an improved version. The principles that were supposed to underpin it - stability, predictability - are there, but there is always room for improvement. We made amendments, some were taken into account, others were not. Today was a very important stage, but it is a stage in the legislative process. Things can still happen, the Constitutional Court challenge, going back to the Parliament, so we look forward to the law being promulgated and published in the Official Gazette, for investors to do the math to see if they are moving towards the investment decision"said FPPG Executive Director, quoted by Agerpres.
Provisions of the new Offshore Law
Here are the main new features of the new law:
- Petroleum agreement holders for offshore and/or onshore deep offshore and/or onshore deepwater oil fields the royalty regime and the specific tax regime applicable to exploration, development, exploitation and abandonment activities existing on January 1, 2023 shall apply to them throughout the period of their execution.
- The additional income tax on sales prices at which investors do not make a profit (between RON 45.71/MWh and RON 85/MWh) has been eliminated, while the tax grid has been maintained for prices above RON 85/MWh.
- The maximum level for deducting upstream investments for determining the additional tax increases from 30% to 40%.
- Elimination of the use of the reference price in determining the tax base for tax on additional income (source, HERE).
Romanian demand for Black Sea gas exploitation
Wednesday's decision in Parliament reflects, in practice, the will of Romanians as expressed in a nationwide poll conducted by INSCOP in 2020, which showed that almost eight out of ten Romanians agree with the exploitation of natural gas reserves on the Romanian Black Sea coast. At the same time, almost nine out of ten thought that unblocking Black Sea gas projects to help boost the Romanian economy affected by the coronavirus outbreak is important and very important. At the same time, almost eight out of ten Romanians agreed that it is important or even very important that our country stops importing gas natural gas from Russia (source, HERE).
