Oil shale tax system set for overhaul in light of falling prices

A shale oil dig for the Viru Keemia Grupp (VKG). (Postimees/Scanpix)
1/9/2015 3:16 PM
Category: Economy

The government is planning to backtrack on a recently approves tax hike on mining natural resources, including oil shale rock, the foundation of the nation's energy industry as falling oil prices have hit the industry hard.

The government recently approved a plan to increase tax on mining by 3 to 6 percent annually from 2016-2025, but now said it is fast-tracking a mining tax system based on world petroleum prices after Viru Keemia Grupp (VKG), the largest privately-owned oil shale industry company, announced layoffs.

“We agreed on Monday to speed up working out a method of tax on resources based on the world price of the end product of oil shale rock.” Economic Minister Urve Palo said, adding that the new tax system should be implemented as soon as possible.

In mid-November, Reform Party MP Aivar Sõerd said tax should not be pegged to world market petroleum prices as the national budget, which draws more than 100 million euros in taxes from the industry, would become too unstable.

VKG recently said it will lay off more than 200 people, citing the low price of petroleum, high oil shale rock prices and the unfair allocation of mining rights. The company currently buys much of its oil shale rock from state-owned competitor Eesti Energia.

Environment Minister Mati Raidma said there is currently no cause to increase mining quotas as VKG leaves a lot of byproducts from oil shale rock processing unused. Palo said the price of the resource sold to VKG by Eesti Energia is up to the two companies.

The price of petroleum has halved since summer to around 50 US dollar per barrel. VKG said the price needs to be around 85-90 US dollars to make its shale oil production profitable.

L. Velsker, J.M. Laats

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