NEW SHALE HOPES
Wieslawa Lewandowska talks with dr. Piotr Naimski about legal regulations of extracting gas from shale, repairing mistakes and complicated tax provisions
WIESLAWA LEWANDOWSKA: – A few years ago we experienced great euphoria in Poland in relation to an alleged existence of big resources of gas in Polish shale rocks. There were brave plans, searching concessions were distributed, and after that there fell dead silence and skepticism. Now the government is reanimating the issue, gas from shale is again becoming our hope.
DR. PIOTR NAIMSKI: – Polish shale has really its history. When in 2007 in the United States gas extractions was started on the industrial scale, companies searching for hydrocarbons were also interested in Poland and also this year in our country the first searching-exploratory concessions of a few small companies were issued. After elections won by the Civic Platform party there was an unusual acceleration, over 100 concessions were distributed – according to the law obliging at that time, but without any idea or plan, in an ‘odd’ way.
– What do you mean?
– When after another election in 2011 the Internal Safety Agency entered the department of Environment Ministry granting concessions, saw a landscape as if after the war: concessions had been carelessly and chaotically distributed, often without a proper defining duties of a concessionaire. The new main geologist of the country had to block distributing other concessions and in fact only then was it said that new legal regulations would be prepared, which would properly secure interests of the state. Unfortunately, only after distributing the concessions our Environment Ministry came to the conclusion that here a new act is needed. When deposits of hydrocarbons at the coasts of Israel were discovered, the distribution of all concessions was blocked, till the time of preparing suitable law, which lasted for a few years. In Poland we did it the other way round.
– In Poland this new law which is still being born in big pains will have to repair the already made mistakes. Is it possible?
– It is very difficult. Preparing new reports, their authors – both from the Law and Justice party in the Seym, and the first authors in the Environment Ministry – had to struggle with, among the others, a problem of acquired rights, that is, rights which may be conferred to those who had already received concessions. It turned out that a big part of these concessions obliged only in a limited way to do work connected with, for example, exploring deposits, transferring samples, geological data, etc. It also turned out that much concession was taken by companies which did not have any specified intentions but only expected that a price of shares of their companies would increase when it turned out that somebody had got to gas….
– Whereas gas was not flowing as it had been expected…
– First of all because the estimated evaluation of Polish resources was not based on contemporary geological data, but only resulted from conclusions on the basis of American experiments and the size of deposits of shale rocks in Poland, in which, as one can assume, there are also deposits of gas. Polish geologists are very careful in this issue. However, according to the estimated data, if this gas flows one day, we can surely speak about big wealth.
– Especially about help for energetic safety of the country?
– Yes. Therefore we must be glad that the government finally decided to do something in this issue. Since 2012 in the Environment Ministry the act project had been prepared which later got stuck in interdepartmental consultations, and Donald Tusk could not coordinate these works…
– And, finally, concessionaries started being angry?
– Some companies started searching despite the lack of legal clarity. Effects of drilling turned out promising but the practice showed that geological conditions in Poland are much more difficult than in America; they require additional adaptation and maybe new technical solutions. Big corporations which were engaged in the beginning, decided that in this situation it would be better to wait till the situation did not become more clear.
– And some of them simple evacuated themselves from Poland.
– Three big companies have withdrawn. Making this decision, each of them had its own reasons, probably not related to the situation in Poland. Those who remained are still waiting patiently for proper law. Knowing their own sector well, they knew that every normal country must carry out a proper correction of legal provisions, adjusting them to a new situation. It also concerns Poland.
– But they are probably afraid of the new Polish regulations.
– I do not think so. International companies are experienced in various legislative surroundings to which they can always easily adjust themselves – either in Africa, Asia, South America or in Europe. Certainly, those who started the ‘shale boom’ in Poland are expecting promotion today, mainly the financial one. It concerns tax solutions.
– The government probably suggests quite complicated but quite burdening tax system for entrepreneurs.
– Not so complicated or burdening as predicting a few taxes constituting all fees which arouses concern. Simulations which is used by the Finance Ministry today say that all fees in total will not exceed 40-43 per cent. If it really happened so, these would be very convenient conditions for entrepreneurs because, for example, on the Norwegian continental shelf similar fees are over 60 per cent. However, the problem is not in the final form of the acts – the most important is the fact that they finally were! Unfortunately, as much the regulative act is on the finish of the Seym works, as the tax act sent to the Seym is delayed. Whereas in press there appear comments about exaggerated fiscal burdens.
– I think that hysteria in this matter is not right. It is rather the last phase of lobbing of interested companies. However, I think that the best solution is what we included in the rejected project of the Law and Justice party in the first reading, that is not taxed approach to the issue of gaining income by the State Treasury through applying civil-legal contracts.
– Why is it better than clear taxes?
– It would be more elastic and safer way for both parties to define and enforce conditions for a particular concession, a solution friendly for investors and beneficial for the state. However tax is always a donation imposed by an act, and a legislator can change rules of taxing at any time. However I think that also through the tax system it is possible to gain a positive purpose. It is only necessary to have a rational attitude towards the issue of tax threshold, tax reliefs, etc.
– Does the delay of the tax act prove that there are some troubles with rationalizing this issue?
– It look so. We have a discussion again about the amount of taxes, their kinds and the invalidity. We see that around this act there is strong lobbing, there are various pressures, which result in some ambiguities and uncertainty.
– Despite essential differences among the projects of legal regulations presented by the government and earlier suggestions of the Law and Justice party, now the Law and Justice party is trying not to disturb and isn’t it aiming at rejecting them?
– On the contrary. We think that introducing new provisions is necessary as soon as possible, although they would not be completely perfect. Certainly we do not resign from attempts of improvement during the procedure of the Seym. For example, we are trying to persuade the government to reverse the bad decision about removing the statement from the act about establishing a company being the main operator on mineral deposits in Poland. This company was planned in the project of the Law and Justice party under the name of ‘Staszic S.A.’ and also in the original governmental project under the name as the National Operator of Energy Deposits. It was supposed to be a tool of the concession organ for management of deposits which still remain as the property of the state, even if concession is granted for long years.
– So, does the country lose somehow control on its own property in the regulation suggested by the government?
– Indeed, yes. It is strange especially that many countries experienced in this sphere – Norway, Denmark, Holland – such state operators do exist. Whereas in Poland a fight started among ministers in this matter which caused a situation that for over a year this act could not get to the Seym. So, finally the ‘bone of disagreement’ was thrown away. The paradox is that now it is the Law and Justice party which is striving for returning the form of the governmental project of October 2013 to this act.
– Why, in your opinion, did the government decide to remove this writing?
– Much points to the fact that it was done under the pressure of the Polish Petroleum and Gas Mining and some ministers from the office of Donald Tusk. At present the government, especially the new management of the Environment Ministry says that it was a demand of investors. So, I ask why is the Polish state administration succumb to unjustified demands of investors?!
– Why does it succumb?
– I am not sure if it is really all about demands of all investors…. Maybe these are governmental clerks who are trying to meet expectations of some investors? It is known that serious companies would adjust themselves to the requirements of the national operator guarding the interests of the country – they are simply used to it in other countries.
– What particular benefits for the country would be given by the existence of such a superior company – the national operator? The government assures that all controlling functions will fulfill the already existing improved services.
– Thanks to this tool which would be, for example, the National Operator of Energy Deposits, the concession organ would have a possibility to react in advance to all abnormalities because it could observe in a realistic time, from inside and on a constant basis, what an investor is doing on deposits. All other kinds of controls provide only checking the ex post situation. Luckily, to the request of the Law and Justice party an amendment improving this state of things was accepted – as it gives the concession organ the right to control qualifications of concessionaries at any moment. If we consider the National Operator of Energy Deposits, unfortunately, the environment minister does not allow for any concessions. Nor in many detailed issues. It is a pity that the main geologist in Poland he resigns from necessary tools. Moreover, there are cuts in money designed for financing tasks of the environment minister in the sphere of the control over fulfilling concession duties by companies. There is no logics here.
– Despite the fact, is the act worth supporting? Is it because it is better and as it is than any other?
– After the project of the Law and Justice party was rejected in the first reading, we decided that it was necessary to work on the governmental project, although only a few of our amendments are accepted. What is the most important is the fact that it will make it easy to extract gas from shale, which is the national interest today. Starting this sector – even in a pessimistic minimal scale – can be a flywheel for the Polish economy and addiction from the import from Russia. However, we should not expect any Eldorado in the nearest years!
– Polish shale gas can still face up many obstacles, not only the legal, geological or technological ones. Its extraction may turn out to be unprofitable, when Europe is flooded by cheap gas from America?
– Indeed, to a much extent we are already subject to the global market game, which we painfully feel in relation to the Polish coal. It is not impossible that we will have much competitiveness in Europe in the form of liquefied gas coming from American or other shale deposits. Today European countries are striving for gas from America, but in this most liberal American economy in the world, the consent of the state administration is necessary (of special concessions) so that a company could export its own gas. And these concessions are reluctantly granted, because too high export of cheap energy raw materials does not lie in the interest of the state economy. So, it is not certain whether this American gas will ever flood Europe…
– Polish plans of extraction of shale gas have been various methods in the recent time – mainly through ecological regulations – counteracted by EU. The prime minister Tusk assures optimistically that it was possible to liquidate this European resistance.
– It would be good if the prime minister said what he bases his optimism on. I think that it is only the beginning of the European dispute about starting the exploitation of hydrocarbons from non-conventional deposits. Although the power of arguments for extraction of gas from shale increased due to the Ukrainian-Russian crisis and the energy blackmail towards Europe, those who invested into renewable sources of energy in Europe, will still defend themselves. Our euro-deputies must really monitor this European policy, the so-called climatic one, so unbeneficial for Poland.
– Whereas president Barack Obama expressed his recognition in Poland for the European fight for the climate. It blew with the cold to our direction…
– Barrack Obama talked with Donald Tusk about the climate policy, and two days earlier in the USA a project of the change of the American climate policy had been changed according to the recipe of the European Commission. So, the global agreement in this issue is closer, which may, unfortunately be dangerous for us.