The Polish government has proposed new draft rules on the prospection, exploration and extraction of hydrocarbons as well as their taxation that aim to facilitate the development of shale gas operations in Poland.

The proposed amendments to the Geological and Mining Law would significantly streamline the procedures to grant concessions and also extend concession periods.  In particular, they would be subject to a single concession requirement the prospection, exploration, and extraction of hydrocarbons (currently, companies must obtain three separate concession for their prospecting, exploring, and extractive activities).  New concessions would typically be granted for periods between 10 and 30 years (currently, the various concessions are granted for periods between three and 50 years).

The proposed amendments would also facilitate the geophysical research of hydrocarbons by requiring that they be subject only to a notification rather than to a prior authorization requirement.  Other proposed amendments would also simplify the environmental assessment process and move the timing of the assessments from the beginning of the investment process to a stage just before the drilling commences.  The proposed amendments drop the Government’s earlier proposal to establish a state-run fund that would have held a stake in shale gas concessions and that shale gas companies criticized for being overly bureaucratic.

The proposal for a Law on Special Hydrocarbon Tax is intended to establish a preferential tax regime for fossil fuels, including shale gas.  The Polish Ministry of Finance estimates that the proposal would bring the overall tax burden imposed on companies engaged in the shale gas production and other hydrocarbon production activities in Poland to around 40%.

In particular, the Hydrocarbon Tax proposal would introduce: (i) a tax on the extraction of certain minerals, and (ii) a special hydrocarbon tax.  The tax on the extraction of certain minerals would cover oil and gas and vary according to their type: 3% on conventional gas, 1.5% on unconventional gas; 6% on conventional oil, and 3% on unconventional oil.

The proposed hydrocarbon tax would range between 0 and 25% depending on the ratio of: (i) revenue earned to (ii) expenditure incurred.  The tax would amount to 12.5% where the ratio of revenues to expenditure is between 1 and 2; and 25% where the ratio of revenues to expenditure is equal to or greater than 2.

Pursuant to the proposed rules, companies would be required to declare their profits, as well as their expenditure and revenue, via electronic declarations.  In addition, they would need to make monthly tax deposits to the Polish tax authorities.  Those measures may considerably increase the administrative burden imposed on the companies.

The proposed tax rules will enter into force on 1 January 2015 if they are endorsed by the Polish Parliament in 2014.  However, in order to stimulate short-term investments in shale gas operations, the new tax rates would not apply until 2020.