In an unusual move, the Government rushed a change to energy levy legislation through Parliament on Thursday night, after the release of the Budget.
The law, described as a clarification by Energy Minister Megan Woods and as a retrospective change by the Opposition, is expected to bring in $50 million in levies from fossil gas extractors. While it passed on Budget day, it had nothing to do with the Budget.
Mining companies, including those that extract fossil gas, pay royalties to the Government based on the revenue they earn. Those royalties are set at different levels, depending on when extraction licence or permit was granted. To even them out, the Energy Resources Levy Act 1976 applies an additional levy on top for gas production to ensure the Crown receives a “fair financial return” as originally envisaged.
Discoveries made prior to 1986 are exempt from paying the levies, but Woods said on Thursday evening that the industry has “asked for clarification” around this provision. At issue is areas where licences were granted prior to 1986 but discoveries within those areas are made after 1986. The Government’s view is that the levies apply to these new discoveries and the legislation will make that clear.
“This legislation is a simple piece of legislation. It is tidying up an anomaly that exists within the legislation as a result of industry asking for clarification,” Woods said.
It was introduced and passed through all stages of the House under urgency on Thursday.
A disclosure statement by the Ministry of Business, Innovation and Employment sheds a bit more light on the impact of the bill, but no hard numbers.
“No quantified estimates are available as costs and benefits cannot be accurately estimated for levies that may be claimed as exempt, but the amounts involved could be significant, involving millions of dollars in lost levies,” officials wrote. The concern is that without this clarification, companies might claim the levy exemption and have their position upheld in court, the statement said.
Later on Thursday night, Woods said the best estimate she could get was the Crown would lose out on $50 million in levies if the legislation wasn’t passed.
National and ACT voted against the bill, saying it retroactively affected gas field owners’ property rights. The Green Party, as well as independent MP Elizabeth Kerekere, backed Labour in supporting it.
Stuart Smith, National’s energy spokesperson, said in his first reading speech that it was “a bullshit ambush” and he hadn’t even had a chance to read the legislation.
“This is a very narrow bill which is attempting to change the rules retrospectively and disingenuously and it will put another shock through the oil and gas sector, who are not keen now to invest anyways,” he said.
Taranaki-King Country MP Barbara Kuriger made a similar argument.
“What an outrageous piece of legislation this is. How many people make a deal 37 years ago, and next thing the Government comes back and starts trying claw something back off them?” she said.
Julie Anne Genter, the Greens’ energy spokesperson, said the levies belong to New Zealanders.
“All New Zealanders have the right to benefit from this gas, and it’s fair enough to close the loophole that means that when new gas supplies are discovered in areas, or extracted and produced from areas where there was already a permit, we should have the ability to levy the same royalty rate that we do for modern permits. Of course, the Green Party will be supporting this. I think it absolutely is fair.”
The oil and gas lobby expressed concern over the legislation, while cautioning they hadn’t had a chance to fully digest it.
“Changes to the Energy Resources Levy Act will fundamentally effect field economics. Operators now face a new, unexpected, additional cost. This is on top of all of the other new additional costs the Government has placed on them, particularly around decommissioning,” John Carnegie, CEO of Energy Resources Aotearoa said.
“These changes to levy rates will hasten end of field life, as they create a further barrier to investment. With these amendments, the Government has heightened supply risks as operators may end up simply leaving reserves in the ground.”
