Energy reforms: three case studies

Patrick Crow
Washington, D.C.
[email protected] Continuing a global trend, three very different nations recently launched efforts to liberalize their energy policies.

Romania's new government revamped its tax system to encourage investment, particularly energy investments.

Prime Minister Victor Ciorbea's cabinet lowered the income tax for foreigners from 25% to 20%, the same as for Romanians.

Although the corporate tax rate will remain at 38%, companies now can deduct their losses from the past 5 years, up from 3 years.

The government cut taxes on oil and gas production to attract foreign investment, while raising taxes on fuels.

Foreign oil firms that won onshore exploration licenses last March have not been able to negotiate contracts, largely due to the application of Romanian excise tax law to foreign oil firms.

Deputy Finance Minister Valentin Lazea said, "The trend is to lower the tax burden on the extraction side and shift it to distribution."

He said Romania wants to compel its state-run refineries, which are burdened with overcapacity, to cut production costs and become competitive with product imports.

The crude oil production tax was set at 4 ecu/metric ton and gas at 7.5 ecu/1,000 cu m. Premium gasoline taxes were set at 85 ecu/metric ton, unleaded at 80 ecu, and diesel at 45 ecu.

Subsidy cuts

Indonesia has pledged to phase out its fuel subsidies over the next few years as part of budget reforms to help the country's economy recover from the collapse of the rupiah.

But the phase-out plan was vague and failed to inspire much confidence that product prices would rise to market-clearing levels.

Indonesia clearly needs substantial foreign investment in its downstream sector.

The state oil company, Pertamina, increasingly has had difficulty in trying to meet rising domestic oil demand, lacking the resources to invest in refineries, terminals, pipelines, and retail outlets.

The government has promised to begin opening the economy and permitting private firms to compete with state and private monopolies closely linked to President Suharto's family.

But, for now, it says it is not ready to open refining and retail markets to foreign investors.

Australian reforms

Australia's government has issued a minerals and petroleum resources policy statement designed to make those industries more efficient and competitive.

Resources Minister Warwick Parer said the paper will provide a clear and cohesive framework for all government decisions affecting energy and mineral resources.

Goals of the policy are to provide companies a stable framework for investments, guide government tax reforms, protect the environment and the interests of workers, and remove tariff and non-tariff barriers to international energy investments in Australia.

Industry groups applauded the government's action. They particularly liked a proposal that the government set safety and environmental rules with a goal-based approach that includes consultation with the companies being regulated.