The Finance Ministry published several draft ordinances impacting the energy sector. One of the drafts relates to the windfall tax on the profits obtained from the gas price deregulation by the gas producers. The tax is proposed at 60% of the additional revenues from gas price deregulation after the deduction of royalties and investments in upstream. Deductible investments cannot exceed 30% of the additional income from gas price deregulation and include investments in the development and expansion of existing fields and the exploration and development of new production areas. The proposed tax does not apply to the additional income generated by new capacities developed after the date when the ordinance would come into force. The additional revenues are determined using the price set by the government for the sale of gas to households and respectively industrial consumers minus the 2012 price of 495 RON/cm, adjusted annually with inflation. The tax would be deductible for income tax purposes. It would apply by the end of 2014 and should come into force February 1, 2013. After 2014 we expect a new level of royalties would come into force and replace this temporary tax.

Another ordinance, that would come into force on the same day and apply also by the end of 2014 proposes a 0.5% tax on the revenues from extraction and exploitation of natural resources, including oil but excluding natural gas. The 0.5% special tax would be deductible for income tax purposes.

These ordinances are open for public discussion for ten days starting today so we do not exclude some changes to the proposals. The prime minister would present these measures in front of the government tomorrow.

We were expecting the windfall tax from gas price deregulation to come close to 100%, so we see the news as positive for Petrom and Romgaz and implicitly Fondul Proprietatea. The tax on oil revenues is unexpected and we see it as equivalent to rising royalties on oil with 0.5% (royalties stood at 6.3% of oil&gas revenues in 2011) but its negative impact is not large enough to offset the positive from a smaller than expected windfall tax. We will revise our target price of RON 0.43 for OMV Petrom and place our hold recommendation under review.

Source: bne