REGULATORY ALERTS

Norway Sticks to Gas Pipeline Tariff Cut

Officials in Norway have indicated that they will go ahead with a controversial plan to cut tariffs on gas pipelines by up to 90% despite investor alarm over revenue losses for operators. The final decision will be made by the end of the month, and the tariff reduction is intended to make gas discoveries more profitable and to boost exploration and recovery rates. This is bad news for pipeline operators and investors such as Canadian pension funds, UBS AG and Abu Dhabi's sovereign fund. But while the move is intended to make discovery and production more profitable in places like the Barents Sea, Norway's plans to change its petroleum taxes has already led to Statoil recommending a delay in one of its major projects here as viability is now more uncertain. The new tax plans were presented in early May and would lower the amount of development subsidies paid to oil and gas companies in order to offset tax cuts planned for non-oil companies. If passed, oil companies will have to start paying 12% of their project developments costs beginning in 2014-up from 9%.  There is now a risk of other projects in the Barents Sea, Norwegian Sea and North Sea being shelved.

Ecuador Discourages Foreign Mining Investment

Kinross Gold Corp is withdrawing from its Fruta del Norte gold mining project after failing to reach an agreement with the government over a 70% tax on extraordinary revenues. While the government is working to draft new mining laws, the interim has seen investor confidence shrink to new lows, and the project withdrawal of Kinross will further decimate this confidence as the government continues to dither, erroneously hedging its bets that its profit tax hikes would be reluctantly accepted.

Indonesia to Raise Coal Mining Royalties

The government of Indonesia is planning to raise its royalty rates on coal mining by 10-13% in a move that will specifically destroy the margins of smaller producers in the country. We could also see a concomitant decline in coal production or even temporary halts in production for smaller producers. 

Offshore Companies Prepare for Greater Tax Scrutiny

Since the publication of the results of an independent investigation two months ago outing 39 Malta-based companies complicit in a global network of offshore secret stashes of money, a number of mostly European governments have vowed to investigative offshore activity further. The "offshore leaks" data was collected and made public by the Washington-based International Consortium of Investigative Journalists (ICIJ). The investigation has garnered a fair amount of attention and could result in a new crackdown on tax evasion. According to the investigation, "government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts … Many of the world's top's banks - including UBS, Clariden and Deutsche Bank - have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways."