Poland eyes shale gas boost as it reveals tax plans

By bne IntelliNews October 17, 2012

bne -

After months of prevarication, Warsaw has finally revealed its plans for taxing shale gas production, as well as laying out a regulatory framework. The announcement of a cap of 40% of the sector's gross profit offers investors some transparency at last, and could offer a boost to Poland's flagging drive to develop itself into a significant gas producer.

Poland plans to impose a royalty tax of 5% on gas extraction and 10% on oil, plus special hydrocarbons tax of 25% will be levied on the difference between revenues and costs, reports the Financial Times. An extraction fee, currently charged at PLN4.90-5.89 per 1,000 cubic metres of gas, will also be raised to PLN20-24, taking the total tax take, including Poland's standard 19% corporate tax, to 40% of gross profit. The system is planned to come into effect in 2015.

The government also plans to set up the National Energy Mines Operator, a new, state-owned company which will supervise the exploration industry, as well as taking part in consortiums, and will have pre-emptive rights on energy concessions on the secondary market. Future leases for exploration and extraction will be auctioned only to qualified bidders in future. The tax proceeds will go into a hydrocarbon generation fund, which will be used for long-term investment.

"We are launching this system to ensure that investors who are currently investing in Poland can feel assured what the state's strategy in this matter is," the head of the prime minister's office Tomasz Arabski said at a news conference, according to Reuters. "After all, we are talking about billions of zlotys in investments. This is why we need to conduct this debate with open doors. It is very important for us that investors feel safe and that these investments can be made in a transparent manner."

On top of a huge drop in estimates of Poland's recoverable reserves and disappointing test drilling results from some investors, the continued lack of a tax plan and regulatory framework has held back investment into the Polish shale gas drive. While US majors in particular were early arrivals - thanks to their excellent experiences extracting the unconventional gas at home - the flow of licences taken by foreign investors has dried up, or even gone into reverse, with Exxon Mobil quitting the country earlier this year.

That has seen Warsaw pushing state-controlled utilities and miners into the hydrocarbons business as it seeks to lessen its dependence on Russian gas imports. Originally, reserves estimates suggested Poland could become a major exporter - a forecast that promised to change the global gas business. However, early this year the estimate was cut by around 90% to 346bn-768bn cubic metres. Although that still offers the potential for Poland to become self-sufficient for gas for decades, the focus in the infant industry has become very much more domestic.

However, Polish officials remain bullish in talking over the opportunities, and clearly hope that the release of tax and regulatory details will help attract a new wave of investment. Prime Minister Donald Tusk said last week that Polish companies are expected to invest PLN5bn (€1.2bn) in shale gas exploration by 2016, while foreign investors could plough in PLN50bn.

"Compared to many other markets, this is a really attractive fiscal regime," Peter Csaszar at KBC Securities told the FT, suggesting it could increase interest in Polish shale. He notes that the UK has a petroleum revenue tax of 50% and Norway has a total tax on oil and gas profits of 78%.

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