Oil royalties and the rule of law (or how the romanian state experiences a drop in self esteem)

A good deal of the political and media environment in Romania continues to promote or to dwell in confusion when it comes to the Romanian state’s gain from petroleum activities, popularly known as „the regime of oil royalties”.

So far nobody has managed to identify a logical, legal and economic reasoning, a true “substantiation note” of the public interest based on which the initiatives to revise the tax system applicable to oil companies are promoted.

The most rumored idea is that “the current royalties expired on December 31st, 2014 therefore a new royalties system must be enacted” and naturally, the quotas of these royalties must be higher. It remains to be seen what the applicable legislation will provide in Romania (“as rule of law”).

The rational and legal solution would be for Romania to engage in transparent, well argued and direct discussions with petroleum companies in order to find solutions to the benefit of both parties (and not by the so-called “public debate” over a draft law which, as we all know, has become a superficial and purely formal exercise). In other words, although Romanian petroleum concessions include freeze stabilization clauses, the Romanian government must prove common sense and vision and pursue the mechanism specific to certain “economic stabilization” clauses. Also, the Romanian government must reflect upon its long term administrative and political capacity, considering that it is very likely to end up implementing various legal regimes according to the legislation based on which the petroleum concessions were concluded. Establishing new taxes and royalties at this time to amend them in a few years depending on the political and electoral struggles or on the lack of capacity at administrative level will destroy the credibility of the investment environment in Romania.

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