Train deal threatens to derail major oil investments – The Post

Train deal threatens to derail major oil investments

Bayerngas threatens to withdraw its planned investment after the government finalised a deal that will see higher taxes on oil companies pay for improving rail infrastructure

September 18th, 2013 3:27 pm| by admin

A deal to increase taxes on some North Sea oil companies to raise 28.5 billion kroner for investment in the nation's rail infrastructure has been finalised.

The government struck a deal with Dansk Folkeparti and Enhedslisten to harmonise the taxation of North Sea oil companies so that all companies will be subject to the same rules.

“I am very satisfied that we made this deal, which secures a more fair and sensible taxation of the exploitation of our common resources in the North Sea,” the tax minister, Holger K Nielsen (Socialistisk Folkeparti), stated in a press release. “The deal creates a future security for businesses while also ensuring that the state earns a larger and more reasonable share of the North Sea assets.”

Oil paying for trains
The new rules will raise 28.5 billion kroner that will be spent on upgrading rail infrastructure nationwide. The goal is to reduce travel time between Denmark’s major cities and to electrify more of the rail network so that the state-owned railway operator DSB can switch from diesel to less-polluting electric trains.

READ MORE: Government presents new rail strategy

While the deal may be good news for Danish commuters, some oil operators are unhappy about the tax changes, which were made before the government releases new North Sea oil and gas fields for tender.

Bayerngas pulling out
The three oil companies that comprise the Dansk Undergrunds Consortium (DUC) – Maersk, Shell and Chevron – are already covered by North Sea taxation rules that were agreed upon in 2004.

But several other companies, including the German firm Bayerngas, are not. Now that the German energy company will be taxed higher, it has indicated it will withdraw its planned investments.

“The government has undermined the basis of the investment,” Bayerngas's managing director, Arne Westeng, told DR Nyheder, referring to the planned co-operation with DONG Energy to develop new oil and gas fields in the North Sea.

“We will instead move our activities to Norway and the United Kingdom.”

Less incentive to invest
According to DR Nyheder, the new rules dramatically cut the amount of their investments that oil companies can deduct from their taxes.

These rules have little impact on the DUC companies with established oil fields, whereas companies developing new fields will have to spend far more than under the old rules.

When the government took power in 2011, it established a commission to see if it could alter the 2004 tax agreement with the DUC.

Government wants greater share
While there was political support for increasing taxation, the government could not find a way around a compensation clause in the agreement that would neutralise any extra income the government would earn if it raised the taxation.

READ MORE: Maersk's oil deal to remain untouched until 2043

Instead, they have now successfully managed to increase the tax rules on the remaining oil companies which Nielsen called "quite reasonable".

"We have decided that Bayerngas from here on out should not have special rules but should instead work under precisely the same conditions as all other companies," Nielsen said in a press release. "I am sure that there will still be companies that will invest in the North Sea."