Shale gas production in Lithuania shall be taxed at 1 percent in the first three years, instead of applying the previously proposed rate of zero tax, the government has ruled on Monday.
© Reuters/Scanpix

The final decision will be made by the Seimas (parliament).

“We have made a decision on the taxation of hydrocarbons. As you know, the rate is 15 percent. However, there were some disputes as regards the zero rate, which also raised doubts for the Competition Council. We therefore have amended the legislative provisions today,” Algirdas Butkevičius said.

Respective amendments to the Law on Tax on Petroleum and Natural Gas Resources, as drafted by the Environment Ministry, outlined both options of taxation. However, the ministry said that the introduction of the 1-percent rate would help avoid long-lasting approximation procedures with the European Commission.

Šarūnas Keserauskas, chairman of Lithuania’s competition authority, warned that the zero tax might run counter to EU legislation and might be treated by the European Commission as state aid. Therefore, the government applied to the Commission for clarifications and expects to get the Commission’s answer in a couple of months.

Tax rates currently applied to all onshore oil and gas resources range from 2 to 20 percent while taxes applied to offshore fields may reach up to 16 percent.

The US energy company Chevron in October 2013 withdrew its bid for a shale gas exploration license in Lithuania, citing changes in the fiscal, legislative and regulatory climate as the reason. The new tender is expected to be issued next spring.

Investors show little interest

Lithuania's planned new tender for shale hydrocarbon exploration rights has not attracted much interest until now and, therefore, favourable tax conditions may encourage investors to come to the country, Environment Minister Kęstutis Trečiokas said on Monday.

"There are no calls or inquiries for other information, so I dare say there is no much interest (in the planned tender)," Trečiokas told reporters after the Cabinet's meting.

The minister said that the new tender may be launched next spring, as the new taxes are yet to be approved by parliament.

"This may take some time. I think we will announce the tender sometime towards the spring. It would be difficult to do so before the start of the new year," he said.

When the first tender for exploration and production of unconventional hydrocarbons was launched last year, it was said that Lithuania could have between 100 billion and 200 billion cubic meters of shale gas.

However, Juozas Mockevičius, the then director of the Lithuanian Geological Survey, said in July 2013 that what could be found in the country was shale oil, not shale gas.

In Lithuania, hydrocarbons are usually found at a depth of about 2 kilometres, where pressure is not high enough for an organic substance to turn into gas, he said.

The Geological Survey said that around 42 million tons of shale oil could be extracted in the country.

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