Thecost overrun is mainly due to poor handling of local residents’ protests.Locals complain of lack of dialoguewith the oil companies, littleinformation, and fear of getting a pipeline almostunder their houses.
The intense protests have delayed the project and made it more expensive.
Paradoxicallyenough, though, it is the Irish themselves who must foot the bill for the extra due the country’s legislation. Losses for companies are tax-deductible.
Ireland’s favourable tax policy means Statoil’s losses could actually be very small.Losses, capital costs, and explorationcosts can be written off against future income in their entirety, while the tax rate is only25 per cent.
Irelandhas longbeen known to have very favourable tax rules forcompanies. Both the IMF (International Monetary Fund) and organisation Tax Justice Network defines thecountry as a tax haven — a term often associated with palm-treed islandsin distant waters.
Standard corporation tax in Irelandis 12.5 per cent, which has successfully tempted Internetgiant Google to establishits European headquarters in thecountry. Apple has also receivedcriticism for using the Irish’ tax regime to evadetaxes. Apple top Tim Cookhad to answer to the US Congress regarding the practice last week.
Statoil’s multi-billionkroner loss falls to the Irish to pay in its entirety, while Norwegiantaxpayers remain unencumbered. It would have been different had the projectbeen in Norway.
Companies can write off about 78 per cent of their losses here. This rate maybe reduced if the government succeeds in getting its planned tax changesthrough.
In return, the Norwegian government receives 78 per cent of the hydrocarbonindustry’s profits.
“There’s no doubt the tax system is attractive for oil companies. It must bethis way, however, to draw companies here. Very few significant discoverieshave been made in this country and the outlook for revenues is uncertain. Inmany ways, Ireland is where Norway was before the Ekofisk discovery in the ‘60s,”says Fergus Cahill, head of the Irish Offshore Operators' Association.
The oilcompanies decided
Many among the Irishpopulation are sceptical to the favourable tax regime for oil companies. PadraighCambell is a former rig worker and has been a spokesperson union Siptu. He knowsIrish history oil well.
“What taxation authoritiesdrew up in the ‘80s was based on what the oil companies said. They dictated theterms; 25 per cent tax and 100 per cent depreciation. All expenses 25 yearsback in time can be written off, as well as gifts, sponsorships, everything!Politicians said that this would be good for Ireland, but now the situation isthat the supply business happens from Scotland, for example. So the oil-relatedcosts can then be written off in Ireland. We want the Norwegian model. We wantjobs for Irish ports, Irish companies, and Irish workers,” says Mr Campbell.
The controversial gas pipeline from the Corrib field comes ashore near the townof Rossport, northwest Ireland. Several residents in the town neither believe Irelandwill benefit from the Corrib field because depreciation rules are sofavourable, nor that the country will not get tax revenues.
“People in Norway will benefit from the project through Statoil. We’re notgoing to profit from it because of the Irish tax rules,” says farmer WillieCorduff.
Fergus Cahill in the Irish Offshore Operators' Association disagrees.
“I know this is a popular argument among some opponents of the hydrocarbon industryin Ireland. Calculations by the authorities show that tax revenues fromcommercial fields will be substantial - even in relation to the presentsystem,” Mr Cahill says.
Modified in 2007
The Irish government hasannounced a review of the tax system in the autumn. However, there is nothingto suggest that this will result in the country approaching the tax system asit presently is in Norway.
“I struggle to understand how anyone can expect we’ll have a Norwegian taxsystem without having Norway’s amounts of commercial discoveries,” newspaperThe Irish Times reported Ireland's Energy Minister Pat Rabbitte saying at ahearing earlier in May.
The system was also changed in 2007. Authorities then introduced a surplus taxof up to 15 per cent that could bring the total tax rate up to 40 per cent,depending on the project's profitability. The change was not retroactive, andhas no significance for the Corrib project Statoil is involved in.
Statoil’s annual reporton its 2011 operations in Ireland shows total national losses of EUR 1.3billion (almost NOK 10 billion), but that this can be written off againstfuture taxable income.
In 1997, Statoil also recorded an approximately EUR 159 million (NOK 1.2billion) loss in the Connemara area of Ireland,when it was determined that the field was not commercial. Irish rules aredesigned so that losses and expenses can be written off against taxes for 25years after they are incurred. This means that Statoil can also write off the Connemaraloss against tax on future profits from Coribb field.
The corresponding limit in Norway is ten years.
Head of Information Bård Glad Pedersen at Statoil does not wish to comment directlyon how the favourable tax terms have or have not influenced their decision tocontinue their operations in Ireland, but writes in an e-mail that:
“It is common that costs and losses can be offset against future income. Thetax system in Ireland does not differ significantly from taxation in the othercountries in this area. We make investment decisions on a commercial basis, andthe framework conditions are included as a factor in these reviews.”
Shell, operator ofCoribb field, has the following comment:
“All companies in Ireland can write off investment costs against profits, andthe partners in Coribb field are no exception. Oil and gas companies must,however, pay 25 per cent tax instead of 12.5 like other companies in thecountry. Ireland also receives tax revenue from the hundreds of people who areemployed in connection with the project,” Shell Ireland press officer FionaMcGuinness writes in an email.