Tuesday, 26 June 2012
Question 111: To ask the Minister for Communications; Energy and Natural Resources if he has considered increasing the overall tax revenues from petroleum exploration and production of petroleum to a minimum of 40% in the case of future licences as recommended by the Oireachtas Committee on Energy; and if he will make a statement on the matter. [30707/12]
Question 120: To ask the Minister for Communications; Energy and Natural Resources his views on implementing the recommendations from the recent Joint Oireachtas Committee with regards to increasing the tax take from oil and gas finds; and if he will make a statement on the matter. [30694/12]
Question 121: To ask the Minister for Communications; Energy and Natural Resources his views on implementing the recommendations from the recent Joint Oireachtas Committee with regards to increasing the tax take from oil and gas finds; and if he will make a statement on the matter. [30691/12]
I propose to take Questions Nos. 111, 120 and 121 together.
I welcome the recent publication by the Joint Committee on Communications, Natural Resources and Agriculture of its report on offshore oil and gas exploration. I am aware the committee has invested a considerable amount of time in gathering information and discussing relevant issues. I am sure the report will contribute to the debate on how best to maximise the benefits to Ireland from the exploration and production of our indigenous oil and gas resources. The report is a detailed document. It runs to almost 130 pages and makes 11 recommendations. From my initial consideration of the report, I can see merit in a number of its recommendations. I look forward to discussing it in more detail in the Oireachtas in the weeks and months ahead.
In the period since the report was published, the recommendation that has attracted the greatest level of interest is that proposing that the existing tax rate applying to petroleum production should be almost doubled. The report recognises there is a balance to be struck between maximising revenue to the State and incentivising companies to invest in exploration for oil and gas in the Irish offshore. It goes on to recommend that the rate of tax applying to petroleum production in Ireland should be increased to between 40% and 80%, depending on the profitability of the field. It seems that factors such as high oil prices and advances in exploration technology were key considerations influencing this recommendation. Economic logic would suggest that such factors should encourage increased investment in exploration expenditure. However, high oil prices will not make Ireland any more or less attractive as a location for investment, compared to other countries with oil and gas potential. The principal factor driving investment decisions is prospectivity. The perceived likelihood of making a new discovery is the most important factor influencing investment decisions. Other important factors include fiscal terms, access to markets and ability to bring a discovery to production.
While I look forward to debating all of the recommendations in the report in more detail, I remain to be convinced that doubling the tax rate would be in Ireland's interest. I note that the report considered two other countries - Norway, which is a very successful petroleum producer, and Portugal, which has a modest production history more comparable to that of Ireland. The report proposes that Ireland should move from a tax level that is broadly comparable to that of Portugal to a level more comparable to Norway, which has been one of the largest exporters of natural gas in the world. As I have said previously in this House, Ireland needs an increase in the level of exploration investment - in particular, more drilling - if it is to establish the true petroleum potential of the Irish offshore. The approach we adopt to petroleum taxation policy will have an impact on the industry's investment decisions. I look forward to discussing the joint committee's report in more detail in the Seanad tomorrow.
I welcome the publication of this report, which was commissioned to respond to the belief that there is widespread concern about the current taxation and licensing arrangements for gas and oil. I certainly believe that when gas and oil are discovered and go into production, the people of this country get next to nothing from it, in effect. In that context, the production of this report by an Oireachtas committee is a welcome development. Although I would go a little beyond what is recommended in the report in a number of areas, frankly, the implementation of the recommendations made by the all-party committee would be a major step in the right direction. The Minister should take them seriously. One of the reasonable points made in the report is that oil prices are likely to stay on their current upward trajectory, which means that oil companies' interest in exploration will increase over time. Ireland is a relatively politically stable place compared to many of the other locations where exploration might be considered and is therefore attractive from that point of view. Crucially, technological innovation in the area of locating and extracting gas and oil reserves has improved dramatically and consequently some of the obstacles that might previously have discouraged gas and oil companies are not problems to the same extent they used to be. In that context, Deputies from all parties have recommended we should increase the tax take significantly. I do not see why the Minister would resist this. It is probably not so many years since he would have been one of those shouting loudest for there being a significant benefit to the public from our gas and oil reserves. For that reason, he should implement these recommendations, as a minimum step towards ensuring the people of this country gain some benefit from our oil and gas reserves rather than giving them away to private companies.
I welcome the report and the work put into it by the all-party committee. The Deputy can be assured I will take it seriously. The Seanad has invited me to discuss the report tomorrow.
There are eleven major recommendations, the common sense of some of which I certainly recognise. I would like the opportunity to discuss this further and have already committed to agreeing to do so whenever the Whips can arrange a slot in the House for us to discuss the report adequately. I have not had an opportunity to go into the detail yet, however, even with my colleague, the Minister of State, Deputy O'Dowd. We need to sit down and go through the recommendations one by one, in some greater detail than opportunity has presented so far.
Deputy Boyd Barrett makes a fair point about my position on this issue. Regrettably, the hopes all of us had in the 1970s for significant offshore strikes have not been borne out; the performance has been very disappointing. One could take an optimistic view and say the results have been very disappointing because of the inadequacy of the exploration and drilling activity that has gone on, with only a few holes a year being drilled. I do not know why one would have a right to expect to strike gold at that rate of activity unless one was drilling off the shore of Norway. For that reason, this Government finds itself in the position that in order to increase the level of drilling off our shoreline we must be able to incentivise those who can do it. We cannot do it; we do not have the investment. The talk was of a State development company but in these circumstances, at €80 million on average per hole, we are not able to do that. Neither are we able to compete with Norway where 78% of the cost of drilling a hole is refunded if the hole is dry. Whatever happens to me when the digital switchover happens, I would be taken away to the funny farm if I were to agree to refund 78% of the dry holes drilled off our shoreline, given the performance since the 1970s.
I point Deputy Boyd Barrett to the fact that the tax take in the most similar country to Ireland, Portugal, is 27.5%, with 30% in Spain and 34% in France. That is the background. However, I welcome the report and look forward to the discussions we will have in the House about it.
According to the figures I have from the Numis Securities research department report, France had a take of just under 50%, not 35%. I do not know how to explain the divergence between my figures and those of the Minister. There is a very interesting graph of the tax takes of various countries that shows us at the absolute bottom, with by far the lowest amount of tax take for our citizens of any country in Europe. The table shows Ireland with its tiny 25% take; a percentage it does not even receive because private companies get capital write-offs. At the top are countries such as Iran and Venezuela which take about 90%, with most countries taking somewhere between 50% and 70%.
One might reasonably argue there has to be some incentivisation but, to use the Minister's phrase, we have gone to the funny farm end of the spectrum in that we are getting virtually nothing. The arrangements are such that we stand to get virtually nothing for the citizens of this country from the current regime. I do not see the point of that and clearly the all-party Oireachtas joint committee also recognises this. What is the point in having drilling and production if we get nothing from it? This report is an attempt to redress the balance in favour of ensuring the people of this country gain some benefit if there are significant oil finds. I welcome the Minister saying we must discuss this in more detail and it is urgent that we discuss it early. To take the experience of Corrib, we made a bags of it on every level, public consultation, environmental and in the terms given to the private oil companies. We made a bags of it and must ensure we get it right this time. That means shifting the balance towards the public interest and away from the interests of the big oil companies.
I was a member of the committee that drew up the report. The concept behind it was to look at where we are and at the difficulties we have had and to try to address them. We believed the best way of going about that was to look at where there were significant successes. Obviously, Norway was, and is, a great success. We made the effort to meet the Norwegian ambassador and a representative of the oil ministry of Norway whose contribution was invaluable in helping us to come up with the report we did.
As will probably emerge in the debate, we recommended a minimum take of 50%, on a scaled version up to 80%, judged on the size of the discoveries. Much has been said in debates throughout the years to the effect that the success rate in this country does not entice people here. However, part of what we discovered in our deliberations with the Norwegian ambassador and the oil ministry representative is that one of the biggest discoveries Norway made was last year and which came about by a return to what was described as a "dry hole" that had been drilled previously, capped and left. Those involved went back, drilled a further 20 metres and had the biggest slice they ever had. I know from my own experience off the west coast of Ireland there are a number of potential finds that have been capped and left. Perhaps at some stage people may return to them.
Another significant point-----
-----was communication and discussion with host communities and the benefits of having this. We can compare that to what happened in Glengad and Rossport and so forth. We gave a copy of the report to those people because they also contributed, coming all the way from Ballinaboy.
They read the report and were impressed by the fact that there is provision for consultation and for having a forum in place into which the industry, the political side, the host community and the trade union side can feed to ensure proactively that any benefits derived will come to the people and that where discoveries are made there will be a dividend for people in those areas and a return to the Exchequer.
The report from the joint committee deserves to be debated in the House. I appreciate the Deputies have not pressed me for a definitive response to particular recommendations and I think that is the correct way to proceed. We need to debate it first and this side of the House is very happy to engage in that debate and see where that leads us. I do not come to it with a closed mind. I note the record will show that at the end of his peroration Deputy Boyd Barrett qualified what he said by adding the words if there are significant oil finds in the future. That is the point. One must strike a balance between trying to make significant oil finds and scaring off anybody who is likely to drill for oil or gas. That is the balance we must get.
In response to a point made by Deputy Boyd Barrett, I advise my note, and it could be wrong, states that France applies a tax rate of 34.4% with no royalty payable. That is my advice and, generally speaking, I have found my advice on this area from the Department to be good and reliable. That is the big challenge that confronts us. It relates to Deputy Ferris's question and the Deputy was obviously right. Of course there ought to be a dividend to Ireland and to coastal communities, of that there is no doubt, but given that we do not have the resources to invest the enormous moneys we are talking about in terms of exploration and drilling, we have to attract in the companies that have that kind of investment. It is a delicate balance as between what will get them here and what will scare them away. The record so far has not been great. Deputy Boyd Barrett said we have lost X or Y. The position is we have lost very little because we have found very little so far.
My predecessor, the former Minister, Eamonn Ryan, changed the regime in the Finance Act 2008. He brought in a tax regime of 25% to 40% in 2008. That followed on from a review of independent consultants. I think it was Indecon which was commissioned in 2006 to do an independent review of the regime applying. The regime has changed enormously from the early 1970s. Going back to the old 1960 Act, nothing redounded to the State and that came from a culture at the time where everybody who went to school before 1960 was taught that there were no mineral resources of any kind in this country. Then we had some significant onshore lead-zinc finds and so on. As a result, what was proposed by the then Minister, Justin Keating, was implemented in the mid-1970s. That was rolled back in the 1980s because of the very poor uptake. There was a further easing of the situation in the 1990s. It did not produce results and then there were the changes introduced by the then Minister, Eamon Ryan, in 2008. Deputies Ferris and Boyd Barrett are saying that it is time to look at it again.
I repeat that I will be dealing with this subject in the Seanad tomorrow. I do not know whether it is possible for the Whips between now and the House rising to debate the report from the committee but, in any event, we are not likely to strike oil over August, so we will be here in September and I will be very happy-----
-----according to his own literature, that there could be tens of thousands of barrels of oil being pumped across Dalkey but I doubt if it will happen before we come back after the summer recess.