Polish government finally approves "fast track" shale gas bill

By bne IntelliNews March 12, 2014

bne -

Struggling to get the hunt for shale gas back up and running, the Polish government announced on March 11 that it has approved draft legislation designed to encourage investment. While the prime minister claims the action has only been accelerated by the crisis in Ukraine, the "fast track" programme is already late.

Announcing that the bill will relieve investors from the country's special taxes on shale gas in a bid to speed up exploration work, PM Donald Tusk said that the dangers of European reliance on Russian gas has put it on fast track, and that it could take effect this year, reports AP. "The idea behind the draft law is to make possible intensive exploration and extraction of shale gas," he said.

Under the new regime, taxes on exploration will not begin until 2020. Tusk also promised that the regulations will simplify and accelerate licence procedures.

"Today gas security is a fundamental prerequisite of sovereignty of every European country, including Poland," the PM continued, according to the Wall Street Journal, insisting Warsaw will do all it can to be free from "gas blackmail". Poland imports around 60% of its annual gas demand from Gazprom.

A day earlier, Tusk had criticized Germany for its heavy dependence on Russian supplies, and insisted that the issue impinges on EU sovereignty. It's an issue that's widely seen as being behind the EU's sluggish progress towards imposing economic sanctions against Moscow for its occupation of Crimea.

Fast track?

However, in early February - ahead of the drama in Ukraine - Tusk had claimed his government would approve new investor-friendly shale gas regulations within a fortnight. While the delay may be slight, it reflects the confusion in Warsaw over the country's energy strategy. Investors have been demanding clarity - especially concerning shale gas regulations and taxation - for some time.

Tusk offered another hostage to fortune on March 11, when he insisted the draft bill will be sent to parliament within a fortnight, and said he hopes for "speedy proceedings," especially given the Russian-Ukrainian tensions next door.

On the back of estimates of massive deposits of unconventional gas, Warsaw originally launched dreams of becoming a major gas producer in 2010. Foreign investors snapped up licences, but the enthusiasm soon waned as reserve estimates were slashed and test drilling results disappointed. Not disguising Warsaw's ire towards foreign investors, Tusk turned to pushing state-controlled companies into the fray, but huge demands for investment in new power capacity have made that a struggle.

That has seen another about-face as Poland has this year launched a new charm offensive to persuade those foreign investors still on the ground to stay and raise their efforts, and others to take another look. The first step in the new push was an announcement from London-listed San Leon in late January that it's close to producing "the first commercial shale gas flows in Europe".

Recently appointed Environment Minister Maciej Grabowski has been drafted in to spearhead the renewed push for foreign experience with drilling for shale gas and cash. "This year, I think at least 30 wells for shale gas will be made," Grabowski said in February. "To date there were 55. This year will be a turning point for shale gas".

The "six-year tax break" in particular is supposed to be "a huge incentive" to drill faster, Tusk said. Poland will charge two special taxes on oil and gas production, - one fixed on the value of production, one that takes production costs into account - which will add up to a rate of no more than 40% of revenue. That regime will now be delayed until 2020.

However, as Tamas Pletser at Erste Bank pointed out in February, Warsaw can offer whatever regulatory and tax temptations it likes, but can't overcome the fact that test drilling suggests many Polish shale gas deposits are commercially unviable. "The new law was missing for a long time, but what we really miss is the good results of the fracturing," the analyst points out.

"It seems to us that Poland cannot meet earlier expectations, even though new technologies may result in a breakthrough a few years from now," he adds. "We believe that the companies cannot change 'Mother Nature', but they can lobby for a better law and lower taxation."

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