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Poland: Draft of New Hydrocarbons Bill Finally Released

Draft of new hydrocarbon regulations in Poland has reached the phase of public consultation. After over a year of preparation, the long awaited document was finally published by the Ministry of Environment

The Ministry informed that the idea of creating a new, separate hydrocarbons bill was abandoned. Finally the proposed legal framework consists of the changed Geology and Mining Law and numerous amendments to eight other bills.

Under the proposed law, some environmental requirements will be loosened.

Details of the taxation system are still to be announced. According to the Ministry of Environment, a separate bill will be prepared by the Ministry of Finance.

At the same time the Ministry of Environment reasserted that “maximum total burden of taxes and fees will amount to no more than 40 percent of the gross profits from the production of oil and gas.”

Just after deadline

Poland's Environment Minister Marcin Korolec indicated in January that wording of new regulation will be completed “in the first half of the first quarter.” 

The Ministry claims that new legal framework will pave the way for rapid development of exploration and mining, particularly of shale gas, help increase the gas production and the number of jobs in the sector, while also protecting the environment and guaranteeing benefits for the nation.

“We will get a tool for selecting the most financially favorable and environmentally safe offers of cooperation, coming from the most experienced investors in the oil industry,” commented Minister Korolec.

Licensing

The Head Geologist and junior minister Piotr Wozniak announced that all new concessions will be issued by tenders and number of concession types will be reduced from three to one.

Existing exploratory concession holders will retain the priority in obtaining access to production licenses for the period of two years after the date of geological documentation approval.

The statement also indicated that companies will be able to create partnerships to share rights and obligations.

NOKE

The state will become a minority shareholder, with the maximum cost share of 5 percent.  State interests will be represented by NOKE (Narodowy Operator Kopalin Energetycznych), the company created by state-owned bank BGK and the National Fund for Environmental Protection and Water Management, NFOSiGW.

New regulations also call for creation of the Generations Fund that from 2019 will be investing profits from oil and gas production supporting R&D, science, education, but also pension and health systems.

Environment

New rules will simplify certain procedures, clarify requirements and generally diminish regulatory burden.

In the exploratory phase, wells with depths of up to 5kms will be drilled without full procedures of environmental assessment.

Environmental impact assessment reports will be faster and cheaper to obtain. Reports will be required only for a drilling site, covering 2 sq kms, while under existing regulations, reports must include the whole acreage of concessions.

Under the proposed regime, the obligation to obtain separate environmental impact permissions for deepening exploration wells or for changing drilling schedules, is also eliminated.

Monitoring and control systems over concession holders will also be modernized, according to the Ministry.

A new condition for environmental groups wishing to take part in environmental assessment process has also been proposed. Under the amendment, only an organization established at least 12 months prior to the date when procedure starts, will be allowed to participate.

Communities

According to the statement, an increased share of profits for regions and districts will be guaranteed and revenues for local communities will grow fourfold. 

Companies will have to establish websites and publish “full information concerning their activities” on the Internet.

Taxes

The judgment of Solomon on the issue of tax regulations can be satisfying for both government and companies, as it declares the overall burden will not exceed 40 percent of gross profit and leaves more time for negotiations.

At the same time, the move leaves the industry with some level of uncertainty over a system of taxation in Poland.

In an interview with Reuters last month, Minister Korolec pledged that the final taxation scheme would be close to what had been approved in October 2012.

The government’s assumptions included a 5 percent tax on gas extraction, 10 percent tax on crude oil extraction, 25 percent tax on income after expenses and an exploration tax of 20-24 PLN per 1000 cubic meters, in addition to 19 percent CIT and property taxes.

The government schedule for 2013 envisaged that the Ministries of Environment and Finance will draft wording of new hydrocarbons law jointly in the first quarter of this year.

Comments and opinions on the proposal are invited until 18 March 2013. The complete set of drafted regulations can be found here:

http://www.mos.gov.pl/g2/big/2013_02/de57b2bec67742eff6c8140b9e931c57.pdf

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