anrm pret - fppg

ANRM approves a reference price that does not reflect the realities of the Romanian market

PRESS RELEASE – 13.02.2018 

The Oil and Gas Employers’ Federation (FPPG) disapproves ANRM’s decision to set the reference price for natural gas, which is calculated according to the trading prices of the CEGH hub in Vienna, according to a study made by the Petroleum Gas University of Ploieşti, price which does not reflect the realities of the Romanian market. 

Given that Romania does not export natural gas and no molecule reaches the hub from Baumgarten, the determination of the reference price based on the CEGH index incorrectly reflects the value of the natural gas extracted in Romania, so this consequently contravenes to the Oil Law no. 238/2004, which stipulates in art. 49 para. (2) that ‘the oil royalty is fixed as a percentage from the value of the gross output extracted’. 

The economic theory and the professional standards applicable in Romania and on international level require the market value to be determined on the basis of the sale-purchase transactions related to the respective assets. Thus, the value of natural gas in Romania is that obtained through the transactions made by the producers, not an artificially established price. 

Romania is  becoming an isolated case worldwide, a place where the reference gas price is calculated on the basis of transactions made in another country where there are no deliveries of natural gas extracted from Romania. Even in European countries, where there are major natural gas trading hubs (eg. the United Kingdom, the Netherlands), no hub price indices are used for the calculation of specific royalties / taxes.  Usually, it is taken into account the actual prices realized by the producers of natural gases. The same is true in non-hub producing countries (eg. Norway, Denmark). Alternatively, in other European countries (eg. Germany, Austria), a reference price is calculated based on the actual transactions made in the respective countries. In addition, the use of the Next Day Market price (PZU) as a benchmark is not relevant to long-term contracts subject to other terms and other price formation mechanism. 

The current formula uses the CEGH index without deducting transport costs. Even if in the future there will be supplies of natural gas extracted from Romania at the Baumgarten hub, the value of the natural gas exploitation of the producers will be the CEGH price minus the cost of transportation from Romania to Austria. 

All this means that producers pay royalties at an incorrect value, a formula that is inconsistent with international practice and even regulations previously issued by ANMR for determining the reference price for crude oil that took into account transport costs (eg. Order 98/1998 ). 

The Romanian producers will thus pay royalties correlated with an unrealized price, with an administrative price unrelated to the realities of the value of gas traded on the local market. 

FPPG firmly rejects ANRM’s claims regarding the absence of data from the holders. All data requested by ANRM were provided and, in addition, the producers provide ANRE with monthly reports on gas transactions made. These reports could provide credible information for determining the value of natural gas in Romania as a weighted average. Prices made on the basis of purchase contracts are also those admitted by the tax authority for determining taxes and fees. 

FPPG specifies that the producers have so far paid the royalty to the maximum of the price and the reference price, so the State collects the right contribution in relation to the value of the exploited resources in accordance with the applicable legal provisions. Oil and gas industry producers are among the largest contributors to the state budget, with a significant positive impact on the economy through investments made and the number of direct and indirect jobs created and maintained over time. 

All these points of view were expressed by the entire industry in the public consultation organized by ANRM on 7 February 2018, without the Agency having strong counter-arguments to fundamental economic principles. 

The Oil and Gas Employers’ Federation  continues to be available for real dialogue with ANRM, with other authorities involved and with specialists in this field to analyze and modify this new  methodology used for determining the reference price so that royalties are calculated correctly based on the value of the natural gas producers. 

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