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Mihai Tudose about royalties: A new law to enter into force on January 1, 2018; royalty level will “depend on companies’ behaviour” in terms of prices pushed by the new excise duty

de Vladimir Ionescu 28.8.2017

Prime Minister Mihai Tudose has announced the date of January 1, 2018, as a “certain” term for the entry into force of a long-delayed new law on royalties, according to statements made on Sunday evening at Antena3.

“We are still working on the Law on royalties (…) We will definitely have to adjust the royalties (…) by 1 January 2018,” said Mihai Tudose.

In this context, the Prime Minister once again assured that the possible increase of the excise duties will not generate a rise in the fuel prices.

In his statements, the head of the Government was reserved about the dimension of the possible increase in royalties: “Let us see how they behave (the companies – editor’s note) (…). It depends on their behaviour“.

At the end of July, the Minister of Economy promised to submit to the public consultation the draft Law on royalties by September 1, 2017, as well as the Mining Act and the Mineral Waters Act. On Thursday, August 17, only the draft Hydromineral Resource Act was published, according to which the annual operating tax will reach 100 euro/ha, without indicating the level of the fee.

Producers that bottle water based on licenses from SNAM (National Company of Mineral Waters) pay now a fee of 9.3 lei for every one thousand litters of water taken from the leased springs.

A long-delayed law

The completion of the draft Law on royalties has been postponed several times since 2014 when the old law had to be replaced. In January this year, former Finance Minister Viorel Stefan aimed to finalize the Law on royalties in the first quarter of 2017.

The royalty system for oil and gas has been in place, unchanged, since 2004 when it was set for the privatization of Petrom. The system had been prolonged twice, in 2014 by the Ponta government, and afterwards, de facto, by the Ciolos government, which did not get the chance to promote the amending law anymore.

Rising royalties has been a subject of controversy between the government officials and companies exploring and exploiting the country’s mineral resources. The most prominent producer is OMV Petrom, which extracts almost all the country’s oil production and almost half of its natural gas.

OMV Petrom hinted, at some point, that it could slow down investments in the Black Sea perimeters where it discovered significant natural gas deposits if the royalties were not set at a convenient level. The company has indeed reduced investment and invoked the low oil price.

Alexandru Petrescu, a former Economy Minister in the Grindeanu government, advocated in February for establishing the royalty system “at the right level from a regional perspective, on different types of resources.”

Viorel Stefan supported the introduction of a “20% additional tax on the profit obtained from the exploitation of the natural resources that are not processed in Romania”.

Currently, royalties range between 3.5% and 13.5% of the production value, depending on the size of the deposit.

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