Serbia exclusive: Increase of mining rent may endanger Gazprom relations with gov, benefits and damage the analysis

Published on 9. December 2013., News Serbia Energy

By eventual adoption of a decision to increase the mining rent to GazpromNeft which owns the oil company NIS, the state would lose much, while the gain would be completely negligible. Therefore, such a decision can not be adopted because it is directly counter to the economic interests of the country, local experts in Serbia believe.

If we know that the government decided on 23 May that the mining rent for NIS remains three percent by 2023, the public is completely confused with claims of some ministers that in this regard they were not consulted, and that they did not participate in making that decision.

If the mining rent for NIS increased to seven percent last year, 6.3 billion dinars would be paid to the budget more than it is now the case, or a total of 11 billion in 2012 and the first nine months of 2013, but the investment of the company and the total tax payments during this period were much lower. The investment of NIS in this period amounted to almost 94 billion dinars.

2009, when a strategic Russian partner Gazprom Neft came to NIS, probably the petroleum resources on the territory of Serbia were exhausted and that domestic oil production does not have perspective.

“Although the increase in reserves nobody expected, investment of NIS in the resuscitation of domestic oil deposits has led to increased production at existing sites and the growth of resource base, with the use of new technologies and the development of complex reservoirs. It is indisputable that domestic production of crude oil reduces its import, ie, foreign exchange expenditure of NIS, and therefore Serbia. While increasing of production of crude oil and gas in Serbia, NIS provides the country’s energy independence, and with the expansion in the region it provides a resource base essential for a successful business, because the increasing competition from other oil companies is evident. We should not forget that NIS spread the oil business in the region, not only through research and future exploitation of crude oil and natural gas in the region, but also by purchasing of existing and opening new gas stations in neighboring countries, some of which are members of the European Union. This investment move would hardly be so great if the majority owner of NIS, the Russian Gazprom Neft wouldn’t feel that it was supported as an investor in Serbia. A policy of tax and mineral taxes certainly belong to the domain of duties that affect the financial security of every investor.

Local experts notes that if the collection of mining rents was regulated otherwise, by interstate oil – gas agreement between Russia and Serbia in 2008, and if the Government of Serbia adopted a conclusion, according to her information, unanimously, that the mining rent for NIS would remain three percent by 2023.

“This certainly supported the makers of the future business ambitions of NIS, not only in the country but in the region. I would emphasize also that Serbia is not an exception in the reasonable policy regarding the collection of mining rent for the oil company. In the name of mining rent, the last and during the first nine months of this year, NIS paid 4.7 billion in the state budget. And in the same period, NIS also paid 182 billion dinars in the state budget, through a variety of taxes. If we compare this income, for example, with RTB Bor, who does not pay rent ore, but also consumes the Serbian natural resources, and at the same time owes to EPS for electricity and subsists with the help of the state budget, then I vote for it to have more companies such as NIS”.

However there are experts which claims that problem related to the mining rent essentially has deep political roots.

“Different information of some ministers concerning the amount of mining rent is just a consequence of the subject of political struggle. Most tragic is that during the conduct of the battle it is not really seen what is the essential economic interest of Serbia. It needs to be clearly analyzed in the intergovernmental agreement between Russia and Serbia which provides also the amount of mining rent, whether it is dominated by plus or minus when comes  to our side. Real analysis shows that pluses are dominant. This effectively means that Serbia would more lose than win in the event of raising the mining rent to NIS. Number one, it is the international agreement that is very difficult to change, not to mention how much it would be bad at the moment of the start of construction of the South Stream pipeline in Serbia from whom we expect great benefits for our economy. Also the money that would be earned by increasing the Serbian mining rent would be completely insignificant compared to the benefits that are provided by the Russians. One of these very important benefits is that you do not have to pay penalties for pre-agreed and undrawn amounts of gas. It is the hundreds of millions of euros annually, and this amount is much greater than what we would get to increase the mining rent. Also, in the case of increasing mining rent, the budget of Serbia would suffer because it would be much smaller than it is currently the case, and the level of investment in the NIS would reduce, in which our country is a minority owner”.

It is extremely important to ensure to the big investors in Serbia to operate in a stable legal, economic and political framework. It is therefore important that the strategic documents such as the energy agreement of Serbia are respected regardless of the political staff that is in power, because it is the document that governs relations between the two countries in the energy sector in the period of time that is much longer than the life of a government in Serbia.

Source; Serbia Energy