Oil, gas field fiscal terms under review

Minister for Energy Pat Rabbitte is initiating a formal review of the fiscal terms for oil and gas exploration but he has rejected demands from an Oireachtas committee for a Norwegian-style regime with very heavy taxation.

In the Dáil last night, Mr Rabbitte also said a €400 million tunnel in the Corrib gas project will result in a loss of €100 million to the State in taxes forgone.

Although he said the Corrib field promoters made mistakes at the outset, he said the project now incorporates all known safety procedures.

He was speaking about a report last year on offshore exploration from the Joint Committee on Communications, Natural Resources and Agriculture, whose membership has since changed.

Profitable fields
"What is proposed is a fundamental repositioning that would raise our tax to a similar level as that of the UK and, in the case of very profitable fields, would impose a higher tax here than would apply in Norway, " the Minister said.

"I struggle to understand how anyone could expect Ireland to have Norwegian-style tax rates without first having Norwegian levels of commercial discoveries."

He said the review of terms will conclude by the end of the year, to provide clarity for the next exploration licensing round. “It is my intention following the conclusion of this debate to seek further independent expert advice on the ‘fitness-for-purpose’ of Ireland’s fiscal terms,” he said.

“Such expert advice would focus on what level of fiscal gain is achievable for the State and its citizens and, equally important, on the mechanisms best-suited to produce such a gain.”

The current terms, which apply to all licences issued since 2007, provide for a profit-resource rent tax of up to 15 per cent on top of a 25 per cent corporate tax rate, meaning the State’s return would increase to a maximum of 40 per cent on the most profitable fields.

In the same debate, Fianna Fáil spokesman Éamon Ó Cuív said the Government should accept all the committee's recommendations. "In relation to taxation rates, I fully support a recommendation that, in the case of future licences, the overall tax take should be increased to a minimum of 40 per cent and for very large discoveries this tax would increase on a scale up to 80 per cent," he said.

'Eye off the ball'
Referring to the "earlier development" of the Corrib field, Mr Rabbitte said the promoters "took their eye off the ball and that there were genuine local community interests" which should have been addressed. "Uniquely, we are engaged in constructing a tunnel under Sruwaddacon Bay, at a cost of €400 million. That €400 million cost will be written down against the costs of developing the field, which means the exchequer must forgo €100 million in taxation."