Romania rolls out windfall profit tax for fossil fuel sector

The Government of Romania introduced a 60% tax on excess profits for companies active in the areas of oil, gas and coal. The threshold is at 20% above net earnings above the average for the period from 2018 to 2021. In Albania, windfall profits of electricity producers will be hit with a 50% tax.

Romania expects to collect at least EUR 789 million in a special fund from a new windfall profit tax that it imposed on gas, coal and oil companies including refineries. They will pay 60% of the part of net income that is more than 20% above the average profit achieved between 2018 and 2021, Secretary of State in the Ministry of Finance Mihai Diaconu said.

The levy was introduced with an emergency decree. The official added that the new rule is compliant with the European Union’s regulations on the energy crisis mitigation measures. The affected companies had substantially strong performances in the past years and now it’s their turn to contribute to supporting consumers, Diaconu pointed out.

Main purpose is to encourage investments

“At least 70% will be allocated to financing strategic investments, as well as investments in energy efficiency and energy from renewable sources. The payment deadlines will be June 25, 2023, for the profit of the year that has not yet been completed – 2022, and June 25, 2024, for the profit that will be made in 2023,” he explained. Diaconu added that the criteria and mechanism for the excess profit tax are yet to be established, upon a proposal from the Ministry of Energy.

The main purpose of the measure is to encourage investments, the government said. The parliament can vote to annul the measure. Romania has been subsidizing power and gas bills for more than a year.

Albania also imposing solidarity contribution

In other news from the region that Balkan Green Energy News tracks, the Albanian parliament voted to introduce a windfall profit tax for electricity producers. The country effectively has only hydropower plants as there are no wind farms or facilities running on coal and gas while the share of solar power is still minuscule.

Deputy Prime Minister and Minister of Infrastructure and Energy Belinda Balluku said the government has already spent EUR 370 million on measures to mitigate the impact of the energy crisis on households and small and medium-sized firms.

The government plans to use the proceeds from the windfall electricity sales tax to continue supporting consumers

The operational costs for electricity producers have remained the same so they are benefiting from high prices, in her view. The new law is “a temporary and mandatory solidarity contribution” to the efforts to protect consumers, Balluku stressed.

Private companies will pay 50% of the income that they earned from selling electricity at more than EUR 75.3 per MWh as long as the average price on the Hungarian HUPX exchange is above EUR 180 per MWh. The excess profit tax is scheduled to expire at the end of 2024.

The government expects to collect EUR 73.6 million in 2023. Of note, it has just approved EUR 35.4 million in liquidity aid for state-owned power producer KESH.