Poland is widely regarded one of the countries with the most substantial reserves of shale gas in EU. The Polish government believes that a new piece of legislation will facilitate the activities of the country’s shale gas industry and encourage entrepreneurs to invest in Poland.
On 11 March 2014, the Polish government adopted a draft Bill to amend the Geological and Mining Law (the "Amending Bill") and a draft Bill on Special Hydrocarbon Tax (the "Tax Bill"). The proposed legislation aims to both regulate and facilitate activity in the shale gas industry. The Bills will be forwarded to the parliament shortly.
Poland is widely regarded to be one of the countries with the most substantial reserves of shale gas in EU. However, the lack of appropriate legislation has been treated as a discouraging factor by potential investors. The country's government believes that this situation will change with adoption of the Amending Bill and the Tax Bill, as the current wording of the proposed legislation addresses the input provided by entrepreneurs during the public consultation process.
Amended concession regime
While about 60 drillings have been made in Poland so far, at least 200 are required to assess the scale of the country’s shale gas reserves. Industry participants regard the low number of drillings mainly a consequence of the unclear legislation that had covered the sector so far. Currently, the Minister of Environment grants separate concessions for (i) prospecting, (ii) exploring, and (iii) exploiting hydrocarbons. Under the Amending Bill, it will be possible to obtain one joint concession for all of the above-mentioned activities, while performing geophysical research will be subject only to notification. This new approach should reduce the administrative burden and encourage entrepreneurs to conduct prospecting in a much broader range.
As a rule, concessions will be granted for a period of 10 to 30 years (currently, concessions are granted for 3 to 50 years) in a tender procedure that is meant to be more transparent than the current one. Entrepreneurs interested in obtaining a concession will be entitled to initiate the tender procedure, contrary to the practice in some other countries, where only the public authority can do so. However, the government intends to introduce an initial selection process in order to review the candidates' qualifications.
Entrepreneurs interested in obtaining a concession jointly will be allowed to do so and to enter into a joint operating agreement. This form of cooperation, which is typical in other European countries, will be introduced in Poland for the first time.
The Amending Bill also addresses the permissibility of a transfer of the rights from a concession. Such transfer will be explicitly allowed under the Amending Bill, but will not occur automatically and will be subject to the consent of the other parties to a joint operating agreement and the Minister of the Environment. This procedure aims at ensuring that a new entity will properly perform the activities covered by a concession.
No national operator
Some of the European countries established state-owned entities to participate in the exploitation of hydrocarbons (e.g. Petoro A.S. in Norway, EBN B.V. in Netherlands, and DNSF in Denmark). The idea of establishing a similar company in Poland – namely, the National Operator of the Energy Fossils ("NOKE") -- was widely criticized by shale gas industry representatives and the government finally decided not to establish NOKE. The existing authorities will have certain additional rights allowing them to monitor the entities operating under the concessions.
Simplification of environmental procedures
Another simplification intended by the government refers to environmental issues. In certain circumstances, Polish law requires obtaining a decision on environmental conditions; doing so involves a rather costly and time-consuming procedure. Under the Amending Bill, the obligation to obtain a decision on environmental conditions will be moved from the beginning of the investment process to a stage just before the drilling commences, i.e. the stage of obtaining an investment decision or consent for a plan of work for a mining plant.
Special Hydrocarbon Tax
In order to regulate the tax issues pertaining to hydrocarbons, the Ministry of Finance also proposed a special Tax Bill. The exploitation of shale gas will be tax-free until the year 2020. As of the year 2020, the amount of tax on hydrocarbons will depend mostly on the profitability of the hydrocarbons deposit. The total amount of taxes on hydrocarbons should not exceed 40% of gross profit. This includes a 1.5% tax on each cubic meter of exploited gas, up to 25% of net profit generated by a given deposit, and the corporate income tax. Entrepreneurs tend to positively assess these fiscal proposals, although some of them point out that certain provisions of the Tax Bill still need to be clarified. In particular, there is no provision expressly stating that the total amount of taxes will not exceed 40%.
The proposed legislation reflects a number of suggestions made by the representatives of the shale gas industry. The representatives are cautious about expressing their optimism, but are also emphasizing that the Amending Bill and the Tax Bill should be treated as a step in the right direction. It is important to underline that both Bills will now be debated by the Polish parliament and may be still amended, although it is expected that there will not be any substantial changes to the proposed drafts. The Polish Prime Minister has expressly stated that introducing the legislation pertaining to shale gas is one of the most important objectives of his government.