PGNiG blasts Polish tax plans for oil and gas sector

By bne IntelliNews December 10, 2012

bne -

Polish gas monopoly PGNiG continues to warn that Warsaw's plans to raise taxes on upstream production in the country threatens to disrupt the government's drive to boost domestic production and increase energy security.

An unnamed director from the state-controlled company - which has been charged by Warsaw with leading the push to develop Poland's sizable shale gas reserves to replace expensive Russian imports - told Dziennik Gazeta Prawna in comments published on December 7 that PGNiG will be forced to shut down some of its conventional gasfields should the planned tax regime remain in its current form, as they will become loss making.

Poland finally unveiled its plans for taxation of the oil and gas production sector in October, around 18 months after the first investors began test drilling for shale gas in the country. The finance ministry was clearly forced to scramble to put something in place however, and details still need ironing out on the announced headline figures which include a 5% royalty on gas extraction, 10% on oil, and 25% tax on operating profits.

Analysts welcomed the announcement at the time, saying that the total tax take, including Poland's 19% corporate tax, of 40% of gross profit is attractive, relative to other European states. Deputy Environment Minister Piotr Wozniak pledged in November that should any investor find itself paying more than 40%, the government will recalibrate their tax.

However, PGNiG has objected strongly to the plan, claiming it threatens to disrupt the drive for greater energy independence. The company is also fighting the government over plans to liberalize the Polish gas market via the establishment of an exchange, and has been at loggerheads with the regulator for months over its refusal to raise tariffs significantly.

However, alongside its evident discomfort with the fundamental changes on the market, PGNiG is also clearly taking its leading role in the energy drive seriously. CEO Grazyna Piotrowska-Oliwa said last week that the company will use "every single zloty" in its investment drive.

That leaves it heavily exposed to any policy changes in Warsaw, leading Standard & Poor's to move its outlook to negative, and Moody's Investors Service to downgrade it a notch in November. The latter referred to changes in PGNiGs risk profile, "resulting from higher spending on upstream operations an unregulated segment which may be additionally subject to planned taxation of oil and gas in Poland."

While PGNiG said in late November that it plans to drill at least 10 new shale gas wells in 2013, the company is clearly pushing for breaks on its conventional fields from a government still scrabbling for every penny to helped fix the country's finances. While Warsaw hopes the new tax regime will help with that, as well as offering investors in shale gas the clarity they need to go forwards, PGNiG is doing all it can to point out that the levy will also apply to older deposits, which according to Dow Jones, it says are commonly dipping close to break even levels already.

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