Government’s revenue from the upstream oil and gas
The State mainly derives its revenue in the oil and gas sector through share of oil, bonuses, royalty tax, profit tax and revenue from direct investments in the sector. The figure below show allocation of total revenue share generated by oil operations between the Albanian Government, Albpetrol, AKBN and the oil contractor. The Albanian State’s interests in the PSAs are administered by Albpetrol and AKBN, which derive from PSAs: bonuses, their share of oil and other revenue arising from contract breach and termination such as penalties and executed guarantees.
Figure – Allocation of revenue form the oil and gas sector
Due to current organization of the oil sector main revenue stream allocated to the State budget are royalty, profit tax and revenue generated from its direct investment in Albpetrol.
Royalty is exclusively applied to the taxable value (or fiscal value) of revenues from extractive activity in accordance with Law No. 9975 “On national taxes”, dated 28 July 2008, amended. This stream represents the main revenue stream earned form the upstream sector. Royalty on exports is collected by the Albanian Customs Administrate and royalty on domestic sales is collected by the General Tax Directorate. Under this law, royalty tax on petroleum extraction is applied at 10%.
Taxation on petroleum, regulated by President’s Decree no. 782 “On fiscal system in petroleum sector” dated 22 December 1994 (“Law on petroleum taxation”) is levied at 50% flat tax on taxable profit. Under this law, taxable profit is equal to accumulated revenue less accumulated capital and operating expenses as specified in the terms of the Petroleum Agreement. Accordingly, profit tax is applied when cumulative revenue exceeds capital and operating expenses accumulated since the start of operations.
MEI announced that starting from December 20151. the PSA model will be amended to allow for oil companies to pay profit tax since the start of production phase. Accordingly 10% or revenue will be classified as net profit and taxed at 50%.
Government interest in the extractive sector
The Government is entitled to dividends from annual financial results and revenue from potential privatization of Albpetrol. Albpetrol is also subject to taxes applicable to oil commercial entities such as profit tax, royalty, VAT etc.
Apart from the distribution of dividend, there are no other transfer policies between the State and Albpetrol.
Chart- Allocation of revenue from oil sector
Table – Revenue from direct payment streams applied to the oil and gas sector
Revenue from direct payment streams applied to the sector
Revenue generated from direct payment streams such as bonuses, share of oil, royalties, profit taxes and dividends in 2013 and 2014 amounted respectively at Lek 15 billion and Lek 14.9 billion.
Such payments comprised 27% of production of crude oil in 2013 and 26% in 2014. The National budget collected about 67% of direct revenue in 2013 and 2014.Revenue contributed in the national budget by royalty, profit tax and dividend from Albpetrol comprised 3% of total revenue in the National Budget in 2013 and 2.7% in 2014. The reminder was collected by Albpetrol, and a small share of 0.5% or less allocated to AKBN. Share of revenue is determined by the relative shares of principal revenue streams royalty and share of oil in 2013 and 2014.
Despite the increase in domestic oil production, revenue from share of oil and royalty dropped respectively by 14% and 6% in 2014 compared to 2013. Such decrease is mainly attributed to the drop in the oil price in the international markets, used in the determination of revenue from share of oil production and royalty as principal revenue streams.
Royalty represents the principal revenue stream generated from the oil sector with a share of 55% of direct revenue in 2013 and 52% of direct revenue in 2014. Royalty is recorded in the National budget based on Law on National taxes. The State shall make subnational transfers of royalty form the National budget to the budgets of oil and mining producing LGUs.
Share of oil production is the second largest revenue stream comprising about 33% of direct revenue in 2013 and 29% of direct revenue in 2014. Share of oil production was entirely collected by Albpetrol. PSAs administered by AKBN have not entered the production phase until the end of 2014. Share of oil production was mainly derived from the reserves developed by Albpetrol, whereas PEP accounted respectively 89% of share of oil allocated to Albpetrol in 2013 and 87% in 2014.
Profit tax was entirely collected from Albpetrol’s operations in 2013 and 2014. Share of revenue derived from profit tax is expected to increase in the forthcoming years, as private company’s operations start generate taxable profits.
Tax on capital gains as another possible forms of taxation
Many small and medium oil companies hold share in exploration, development and production operations in Albania. These companies generated significant part of their value in the Albanian operations, such that a transfer of shares or rights generates capital gains. Majority of these transactions happen outside Albania, however, MEI captures all transactions happening to licensees in oil and gas sector as part of its review of the transfer and approval of the new contractor.
Currently, these transfers are not subject to taxation in Albania, as tax law and regulations do not foresee taxes applicable to transactions happening outside Albania on assets and value generated in the country.
1. Link: http://top-channel.tv/lajme/artikull.php?id=315023&ref=ngj.
Information confirmed by the Director of Hydrocarbon policies directorate part of the Ministry of Energy and Industry, Mr. Dritan Spahiu.