The Ministry of Capital Investments (MCI) has the right to audit the accounts of concessionaires Eni and Novatek, which began oil and gas exploration at the end of March. That is, they have the right to check everything that the concessionaires Eni and Novatek, with whom the former government signed a contract in 2016, have done so far. This is shown by the concession agreement between the Government and the Italian-Russian consortium Eni and Novatek. However, the Ministry of Capital Investments, headed by Mladen Bojanić, does not currently intend to audit everything that has been done on this project so far before it is determined whether there are reserves, i.e. before production starts. They state that in case it is determined that there are no hydrocarbon reserves in the underworld, the state has no obligation to participate in costs, and that everything is covered by the concessionaires.
The contract states that MCI, i.e. the competent Government body, may audit the accounts for any calendar year within ten years from the end of that calendar year. For audit purposes, the Government may examine and verify within a reasonable time all charges and approvals in connection with upstream activities, such as books, records, material records and any other documentation necessary to verify charges and approvals.
– After the announcement is made within a reasonable time, auditors have the right to visit and conduct an inspection in connection with such audit – of all locations, facilities, warehouses and offices of concessionaires that are related to upstream activities. All audits are performed in accordance with the relevant tax laws of Montenegro – it is written in the part of the contract between the Government and the consortium Eni and Novatek, which was submitted to daily “Dan” by MANS.
The concession agreement was signed at the end of 2016, while on March 25 this year, exploratory drilling began near Ulcinj, 28 kilometres from the coast. According to MANS, two months after the start of the exploratory drilling and numerous suspicions regarding the contract with Eni and Novatek, the competent Ministry of Capital Investments does not show the slightest readiness to use the powers given to it by the contract and conduct an audit of what is done so far.
– By doing that, Minister Mladen Bojanić promotes this agreement as perhaps the only good and transparent deal concluded by the previous DPS government, and for now, it is quite certain that the Ministry of Capital Investments has no political will to deviate from the practice that has existed so far. It is incomprehensible that Minister Bojanić supports the agreement unconditionally, without previously having any information, or communicating it to the public, on the basis of which he could defend such firm position.
In order not to enter into speculations about the motives of Minister Bojanić to act as a paid oil lobbyist on behalf of his ministry, MANS continues to advocate for a full audit of this contract, with the help of relevant experts and maximum transparency of the entire procedure – MANS stated.
We asked the Ministry of Capital Investments why they did not request an audit of everything that the concessionaires have done since 2016, and whether they might ask for an audit of everything that has been done so far in the next period.
– The issue of the concessionaire’s business is regulated by the Law on Taxation of Hydrocarbons, which was adopted by the Parliament in 2014. The said law regulates all issues related to the financial operations of the concessionaires, including what can be accepted as an expense for the purposes of calculating the tax on hydrocarbons, costs of business financing, which costs are not accepted as expenses, transfer of losses, etc. According to the Law, concessionaires are obliged to submit the first tax return within 30 days from the day of the beginning of production, which also includes reported costs, after which the competent tax authorities shall control all reported costs, including sources of financing, income and determine the amount of tax. Therefore, in the mentioned procedure, and in accordance with the Law and the concession agreement, the state can perform control and inspection, i.e. audit of each individual cost, record and accounts of concessionaires, in order to determine the exact factual situation – the Ministry stated.
They further stated that if the presence of commercial hydrocarbon reserves is established, and the concessionaires start the production phase, the Law on Exploration and Production of Hydrocarbons defines that the production royalty fee is first deducted from the produced quantity which, depending on the production volume, ranges between 5 and 12%.
– Capital and operating expenditures (CAPEX) are then deducted. The law stipulates that CAPEX shall be depreciated over five years in order to enable the state to generate revenue from the first year of potential production. After calculated costs, 54 % tax on hydrocarbons is deducted from the net profit. Taxation of upstream activities is not self-taxation, but taxation according to the decision, where every expense that was made during the implementation of the project is checked – MCI stated.
They pointed out that the concessionaires are currently in the research phase, and that there are no established commercial reserves of hydrocarbons.
– If no commercial reserves of hydrocarbons are found, then the entire cost of research will be borne on the concessionaire, without any obligation of the state to participate in the costs – MCI concluded.
D.M.
70 million taken from the related companies
MANS previously pointed out that companies Eni Montenegro and Novatek Montenegro were established only for the purpose of oil and gas exploration in Montenegro, and that they took loans from related companies worth 70 million euros. They also stated that until these loans with interest are paid, the state will not have any income based on the profit tax of oil companies.
MANS asked MCI if it was true that we would not get a single euro until the concessionaires returned 70 million,
– In the part that refers to the sources of financing, the law stipulates that interest and related costs to related parties, which are recognized as expenses, cannot exceed the amount of those costs on the free market – MCI stated.
