EMGC ’15: Deloitte tax experts dissect regulatory laws for Cyprus gas | Hydrocarbon Processing

EMGC ’15: Deloitte tax experts dissect regulatory laws for Cyprus gas

03.18.2015  |  Adrienne Blume,  Hydrocarbon Processing, 

Cyprus is an interesting location from which to operate because it is part of the EU and is strategically located at the center of the developing Eastern Med energy industry.

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By ADRIENNE BLUME

Managing Editor

NICOSIA, Cyprus -- Day 2 of Gulf Publishing Company's third annual Eastern Mediterranean Gas Conference (EMGC) opened with a breakfast workshop sponsored by Deloitte. The workshop covered tax and regulatory considerations for the Cyprus gas market.

The workshop included perspectives from Deloitte partners George Pantelides, Head of Consulting Services and Oil and Gas Specialist; Pieris Markou, Head of Tax and Legal Services and Oil and Gas Tax Leader; Nicos Papakyriacou, Partner in charge of Nicosia Office and Oil and Gas Leader; and Christos Papamarkides, VAT Leader and Oil and Gas Specialist.

Tax considerations for Cyprus energy sector. Pantelides (pictured) discussed the tax and value-added tax (VAT) aspects of doing business in Cyprus. He asserted that Cyprus is an interesting location from which to operate because it is part of the EU and is strategically located at the center of the developing Eastern Med energy industry. The country's legal system is based on the UK's legal system, and it contains one of the best tax systems in the EU, according to Pantelides.

Cyprus is also friendly to international investors. A corporate income tax rate of 12.5% is in force, but this excludes dividend income, profits on disposal of securities, overseas branch profits and profits from the disposal of immovable property outside of Cyprus. A unilateral tax relief is also available, and no withholding taxes or controlled foreign company rules are in force. Interest deductibility is available without restrictions.

There is no specific tax regime for companies operating in the oil and gas industry; rather, taxes are based on general tax rules for companies. Income is taxed on an accrual basis. Also, special rulings are available for plant and machinery rates.

Additionally, the Cyprus government is seeking to make certain expenses deductible for energy firms, such as seismic survey costs, exploratory costs, drilling costs, dry hole/decommissioning costs, capitalization of general administration costs, capital allowance rates and signature bonuses.

Value-added tax rules. Cyprus' VAT is harmonized with EU VAT legislation. VAT is chargeable on any local supply of goods and services made by a taxable person in the course of business, the import of goods from the EU, and other actions.

A business is obliged to register for Cyprus VAT if the value of its taxable supplies for the last 12 months exceeds the registration threshold of €15,600, or if it is expected that taxable supplies in the next 30 days will exceed €15,600. Input VAT is incurred on local supplies of goods and services, on import of goods from EU countries and on the application of the reverse-charge provisions on services received from outside Cyprus.

Oil and gas export rates for VAT dictate that the supply of hydrocarbon products by an operator within Cyprus must be subject to VAT at the standard rate. Supplies of goods to be admitted into Cypriot waters that are to be incorporated into drilling or production platforms for maintenance repair, construction, alteration or fitting are subject to a zero-VAT tax. Also, goods and equipment to be transported directly to drilling platforms are not subject to customs tax.

Maximizing human capital. Next, Markou talked about human capital services in the Cyprus energy sector. As of January 2015, 16.1% of Cyprus' population was unemployed—a very high percentage, which the government is working to reduce.

Employment terms for reputable organizations in the oil and gas sector are favorable and go "over and above the legislative requirement," Markou said. Local employment laws tend to rule in favor of the employees. Cyprus also plans to offer specialized courses for blue-collar workers in the energy sector to increase employment in the industry.

Lastly, to increase energy-sector employment in Cyprus, the government is encouraging the transmission of knowledge and expertise to the local workforce with the help of specialized and highly skilled individuals who gained their oil and gas work experience overseas.

Source: http://www.hydrocarbonprocessing.com/Article/3437258/EMGC-15-Deloitte-tax-experts-dissect-regulatory-laws-for.html

EMGC ’15: Industry experts call for clarity on Eastern Med trade laws | Hydrocarbon Processing

EMGC ’15: Industry experts call for clarity on Eastern Med trade laws

03.17.2015  |  Adrienne Blume,  Hydrocarbon Processing, 

To achieve a sustainable and balanced regional gas market, consultant Gina Cohen recommends clearing up regulatory uncertainty and creating an investor-friendly climate.

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By ADRIENNE BLUME

Managing Editor

NICOSIA, Cyprus -- During the Day 1 lunch presentation at EMGC 2015, Bill R. Alashqar, Managing Director of US Independents for GE Oil & Gas, shared his perspective on the power of networks globally and in the US. The "age of gas" outlook is not a foregone conclusion, although many complex pieces still need to fall into place, Alashqar said. "There is a strong need for more flexible global networks."

Global gas consumption is at 3,500 Bcm, which is 70% of the size of the oil market, Alashqar said. According to GE's global outlook, the gas market will grow to 4,800 Bcm by 2025.

"Natural gas could achieve a 28% share of global energy consumption. If we reach that, it will be slightly larger than combined share of coal and oil by 2035," the Director noted. Today's global gas supply comes 70% from conventional sources and approximately 14% from unconventional sources, although the proportion of unconventional sources is expected to increase to 20% by 2025, with shale output from the US and Canada.

Gas trade is dominated by pipeline transportation, with 89%, while LNG accounts for 10%, and the rest is delivered by truck. "Today, the leading country exporting natural gas is Qatar. By 2020, however, we think this will change, and Australia could take the lead," Alashqar said. Japan, meanwhile, remains the largest importer of gas.

"Why do we think gas consumption will increase by one third?" the Director asked. Projects in Angola, Nigeria, Australia and, eventually, Mozambique will contribute to the increased trade of gas on a global level.

"Infrastructure networks are expanding around the world, there's shale gas in the US and Canada, and alsotechnology and innovation all contributing to energy resilience," Alashqar asserted.

The Director concluded his talk with a call to the industry to work together to improve economics and supply security to attract investments in different countries. Market structures must be in place to entice new investors to come in and spend money. Tax credits are also helpful, as is public education and attracting more people to work in the industry.

"There is a need to step up and enforce the public outreach, as well as education and training," Alashqar concluded.

Reducing costs for late-life assets. After lunch, Session 3 kicked off with a presentation on upstream asset optimization from Dr. Johannes Wiik, Partner at Deloitte. Dr. Wiik shared lessons learned from mature offshore regions and late-life assets. He also discussed asset optimization post-production.

At present, there is heavy focus on reducing OPEX and CAPEX, and on working with operators to achieve cost improvements. For late-life assets, companies must focus on the physical asset first, and then build core functions around it.

The optimum business model for late-life assets is dependent on several layers. Sustainability and time sensitivity are key. If it is possible to lower the asset's cost base, then optimization and production can come later. In this way, OPEX can be sustainably reduced by 20%–50%.

Dr. Wiik named four areas for improvement: effectiveness, efficiency, contract and pricing models, and delivery models. "A key question to ask is: What is really benefiting your production, and what is the cost?" he noted.

People tend to work in silos, but by working across functions, engineers can better share and understand information to keep equipment running smoothly and sustainably.

On the CAPEX side, secondary targets can be examined if a well breaks down. Well CAPEX can be reduced by implementing drilling efficiency, rather than reevaluating the entire cost base, Dr. Wiik said.

Offshore safety and the Eastern Med. Next, Elfride Covarrubias Villegas, Business Development Manager for Italy and the Mediterranean for DNV GL Oil & Gas, discussed the potential impacts of the new EU offshore safety directive on the Eastern Med.

EU safety regulations for offshore oil platforms are needed because, as Villegas said, "Offshore accidents do not know boundaries." A serious accident on the level of the Deepwater Horizon oil spill would cause many problems for EU member states.

Stakeholder concerns and a slew of major well blowouts and gas leaks in the past decade have led to a loss of confidence in the industry, Villegas said. The EU offshore safety directive aims for the consistent implementation of best practices across all EU jurisdictions, the strengthening of EU response preparedness, and the increased independent verification of wells.  

Overcoming regulatory hurdles. Session 4 delved into regulatory and legal matters, starting with a presentation from Gina Cohen (pictured at left, with panel at right), a prominent gas consultant for the Eastern Med, on Israel's upstream and downstream regulations. To achieve a sustainable and balanced regional gas market, Cohen recommends clearing up regulatory uncertainty and creating an investor-friendly climate.

There will be further play between Israel, Cyprus and Egypt with the recent signing of the MOU between Cyprus and Egypt for cooperation in oil and gas. At present, Egypt is the only anchor partner for Israel and Cyprus, Cohen said. What is happening on the regulatory front will have a strong impact on regional gas trade going forward.

Regulatory stability is important, but the Israeli antitrust commission, electricity regulators, and other entities are pressuring the Israeli government to make changes before the market is further developed.

Egypt is moving away from production-sharing contract to concession contracts. It is also moving toward less price regulation and less interference on how countries can sell gas into the country, Cohen said. Although John Burley from BG Egypt believes there is room for both Cyprus and Israeli gas in Egypt, Cohen does not believe this to be the case. She acknowledged that Israel hopes to reach the Egyptian gas market first, as does Cyprus.

Regulators need to address how much gas should go to the local market and how much gas should be exported. It is not legitimate for regulators to interfere with gas contracts or splitting up companies, as this will reduce market growth over the long term, Cohen asserted.

Constant changes in Israeli energy regulations and the structure of the energy industry have interfered with the ability to carry out business deals. Government administrations and organizations have initiated export controls, higher taxes, monopoly breakups and price controls, all of which have complicated the regulatory scenario, Cohen noted.

Under this complicated and muddled regulatory scenario, the only other company aside from Noble Energy that will come into Israel to develop gas will be one with a political agenda, rather than a business agenda, Cohen opined.

"Noble Energy, quite smartly, is saying that they are freezing investments in Israel until all of these issues are resolved," Cohen stated. To keep Israel in the gas game, issues that must be addressed in the near future include export taxes, export permits and price controls.

Call for regulatory cooperation. Closing out Day 1 of EMGC 2015, a panel discussion examined regulatory and legal issues for the entire Eastern Med. The panelists included moderator Cleopatra Kitti, Founder of KappaPhi; Antonis Paschalides, Senior Partner and the Head of the Energy Law Department at Antonis Paschalides & Co. LLC; Dr. Christodoulos Pelaghias, Managing Partner at Pelaghias LLC; and Etai Rappel, Director of Infrastructure Finance Ratings for Standard & Poor's Maalot.

Paschalides spoke about the implications on regional cooperation caused by national regulatory and legal issues. The failure to address these concerns will lead to the failure of the industry, he said. A balance is needed between public and private industry.

"It is not a crime for companies to make good profits, but it is also not a crime for countries to profit from their resources," Paschalides said. If companies and governments fail to reach agreement, then regional cooperation will fall apart, and Noble and Delek will need to sell off some assets to avoid being categorized as monopolies, he noted.

Pelaghias then spoke about the possibility of creating a regional cooperation council, which he dubbed the Eastern Mediterranean Energy Cooperation Council (EMECC). The EMECC could promote government-to-government dialogue and cooperation in energy matters; ensure the existence of a competitive and functioning petroleum industry; ensure that quality, health, safety, security and environmental laws are upheld in a socially responsible manner; and promote sustainable growth, security and prosperity in the region.

The proposed EMECC could also help answer questions about the security of energy supply, regional security concerns, the development and integration of regional energy infrastructure, energy efficiency and savings and other pressing concerns.

Closing out the panel discussion, Rappel talked about regulatory and legal frameworks from a country-risk assessment methodology. Of utmost importance are transparency, predictability, clarity (of policy and the way it is expressed) and consistency. 

Infrastructure construction and operation is a long-term endeavor, so sudden changes can lead to increased uncertainty and a change in investment appetites.

"It's important that if government administrations or individual regulators change, there will be a defined and long-term policy that goes forward" to negotiate and resolve disputes with a win-win view, Rappel said.

Source: http://www.hydrocarbonprocessing.com/Article/3436919/Search/EMGC-15-Industry-experts-call-for-clarity-on-Eastern-Med.html?Keywords=emgc

Confidence in Hydrocarbon Discoveries From Deloitte (Cyprus)'s Oil & Gas Industry Leader | Gold News

Confidence in Hydrocarbon Discoveries From Deloitte (Cyprus)'s Oil & Gas Industry Leader

Nicos Papakyriacou is confident that the local optimism surrounding Cyprus' hydrocarbon discoveries is justified.

December 03, 2013

Above: Nicos Papakyriacou
Partner in charge of Nicosia office,
Oil and Gas Industry Leader,
Deloitte Cyprus

How significant are the hydrocarbon discoveries for the future of Cyprus?

The recent discovery of hydrocarbons within the island’s Exclusive Economic Zone has attracted a lot of attention internationally and has created a lot of optimism locally about the future.

According to a study by Shell, global energy demand could increase by as much as 80% by 2050.

Therefore, the potential impact of the hydrocarbon discoveries on the future of Cyprus is extremely significant, both on the socio-economic front as well as geopolitically, depending of course on the actual quantity of gas and oil reserves that are confirmed.

Can you expand further on the socio-economic and geopolitical dimensions of such discoveries?

Regarding the socio-economic dimension, in addition to the obvious stream of revenues from the future export of our gas reserves, the emergence of this new industry and the possible direct foreign investment in significant infrastructure projects, such as the LNG Terminal and the pipeline facilities, will create the need for a great number of other support services. These will lead to the creation of thousands of jobs, helping the ailing property market and exerting a favourable domino effect on many sectors of the economy such as financial, professional services and many others. Furthermore, it will reduce the over-reliance of the economy on financial services and tourism and diversify the risk of the economy in the eyes of foreign investors, the rating institutions and the markets in general.

Regarding the geopolitical situation, the discovery of hydrocarbons in Cypriot waters, as well as in the Southern Mediterranean region in general, has added a new dimension to the geopolitics of the region. On the one hand it has created a new dynamic that could be used as a catalyst to promote a solution to the Cyprus problem but, on the other hand, it could create significant complications. Therefore, the historic challenge facing our political leaders is to formulate a common oil & gas strategy that will take into account the interrelated socio-economic and geopolitical factors, which should be the vision of all future governments, irrespective of their political positioning.

Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn't this an area that is perfect for Cyprus to step into?

The EU would certainly welcome the opportunity to diversify its sources of gas imports and reduce its over-reliance on Russian imports and Cyprus could benefit strategically if it is in a position to facilitate such diversification.

However, the issue is not so simple because it will depend on the quantity of gas reserves discovered in Cyprus and the neighbouring countries, the method of exporting to Europe (pipeline or LNG), the prevailing prices of gas in Europe and the Far East and, of course, the geopolitical balances and alliances of the regional players at the time.

The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers?

It is expected to help consumers and the Cyprus economy in many ways. For example, the price of electricity for households should be significantly reduced. At the same time, all businesses will also benefit from lower energy costs that will help them become more competitive in the pricing of their products and services for both local consumption and export.

Also, let’s not forget that about two thirds (66%) of the purchase cost of the gas by the power stations will be returned as income to the government instead of being paid to overseas oil suppliers.

Furthermore since gas is a cleaner fuel than oil and coal, it will have lower greenhouse emissions, for the benefit of the community in general.

There are currently no specific tax and VAT laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax and VAT laws applicable or will new legislation be necessary?

This is correct but the general income tax laws in force are applicable and therefore companies resident in Cyprus are subject to 12.5% corporate income tax on their taxable profits. However, special provisions are included in the model PSC (Production Sharing Contract) which state that the applicable corporate tax will be deemed to be included in the Republic’s share of profit oil & gas and the portion of available oil & gas which the contractor is entitled to will be net of corporate tax. No changes to the existing legislation are expected, but clarifying circulars guiding the companies operating in this industry are expected to be issued at some stage.

Regarding VAT, given the absence of oil & gas industry-specific VAT legislation, Cyprus has generally adopted the main provisions of the EU’s VAT regulations and the system is largely harmonised with that of the EU. Deloitte has worked closely with the authorities in formulating local VAT policies for the newly formed oil & gas industry in Cyprus, following best EU practices, has requested the issue of specific circulars and has obtained rulings on behalf of its clients.

Deloitte has navigated the local tax and VAT laws as they apply to companies and consortia in the oil and gas industry and has supported Cyprus’s first PSC holder in understanding the practicalities of the tax and VAT clauses in the PSC and is advising other PSC holders on their obligations.

Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services does Deloitte provide?

In Cyprus, we were involved in the oil and gas industry from the very beginning, serving the first ever exploration company in all facets of its operations with the provision of CRS certification, statutory audit, tax advisory, VAT advisory, human capital services and other advisory work.

As a result of this unique experience and intensive internal training in the oil & gas industry, we have built a very knowledgeable team of professionals, from all service lines, specialising in the oil & gas industry. It is no coincidence that in the last two years we have been providing the major industry players, including all the operators on the island, with most of these services.

How great a role does Deloitte play in the provision of services to the global oil & gas industry?

At Deloitte, we always think ahead to assist our clients in meeting the challenges of our times. We help them by providing a range of services to companies in all segments of the oil and gas industry including 63% of the world’s top 60 oil & gas companies, 43% of national oil companies, and many independents and oilfield services and energy trading businesses. Our Oil & Gas practice, which comprises 2,500 specialists across all sectors of the industry, has an expert presence on every continent and in each major oil and gas centre around the globe.

In addition to the standard tax, audit, consulting and financial advisory services, our range of services spans the entire spectrum of corporate functions as well as analytical price forecasting, economic modelling, geological analysis and reservoir audits, wellhead planning and operations, and deep sea platform and equipment decommissioning, to name a few. Our internal resources ensure that our teams have access to up-to-the-minute market intelligence, can respond promptly to industry developments and are able to provide value added advice to our clients.



With more than 500 professionals in its Nicosia, Limassol and Larnaca offices, Deloitte is one of the largest professional services organisations in Cyprus and part of the Deloitte global network, employing more than 200,000 people in over 150 countries. It provides a full range of audit, tax, consulting, financial advisory and wealth advisory services to a diverse client portfolio and an integrated services offering addressed primarily to the international business community.


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