Corrib will pay little or no tax: who is to blame?

If an oil company takes longer than expected to complete an oil or gas extraction project and, as a result of those delays, ends up paying no revenue to the state from whose territory for oil or gas extracted, most people would conclude that there is something wrong with how that state manages its natural resources. However, some people prefer to direct all of the blame on protesters for the absence of revenue.

In 2010, former head of the Corrib Gas project Brian O’Cathain predicted that the Corrib Gas project would not pay any tax, because of the delays caused by campaigners and the resulting increase in costs. Recently, a letter to The Irish Times again blamed anti-Shell campaigners in Mayo for depriving the Irish exchequer of tax revenue. The author of the letter was Tony Allwright, who worked for Shell for 30 years, including seven years in Nigeria.

First, a little background. Those resisting Shell’s experimental inland refinery in north Mayo have succeeded in delaying the project for almost a decade, using a combination of civil disobedience, court actions and planning appeals. The company has been forced to re-route its high-pressure raw gas pipeline, after the Irish planning appeals board, An Bord Pleanála, ruled in 2009 that it posed a threat to the safety of local residents.

In order to save money, Shell and successive Irish governments have been trying, since 2000, to force through an experimental, cost-saving method of bringing gas ashore, against the wishes of the receiving community (in 2007 a petition opposing the inland refinery was signed by 850 of the 1,200 adults in the affected parish of Kilcommon). Opposition to the project has resulted in major delays and a dramatic increase in costs.

In his letter to The Irish Times (February 6th, 2013), Allwright wrote:

Because Corrib’s 25 per cent corporation tax will be payable only after the project has recovered its (fourfold increased) cost, a process which can begin only when the gas starts to flow (eight years late), the tax take will have been destroyed to the tune of at least 75 per cent on a net present value basis, compared to the original plan.

I wrote a letter to The Irish Times in response, which was published on February 11th, 2013. Here is my letter in full:

Sir, – Tony Allwright (February 6th) blames protesters for denying the exchequer tax revenue from the Corrib Gas project. This blame is misdirected. The project has been delayed because Shell, encouraged by successive governments, believed it could save money by imposing an experimental inland refinery on an isolated rural community.

If you force a dangerous project on people, you can’t blame them for the delays that result from their opposition to it. When An Bord Pleanála examined the evidence in 2009, it agreed that the pipeline carrying raw gas to this refinery posed an “unacceptable” safety risk to local residents.

The long delays and huge cost over-runs could have been avoided, had the company not tried to make smaller savings by cutting corners at the start.

Using Mr Allwright’s logic, we could blame the Carnsore anti-nuclear protests of the 1970s for depriving Ireland of cheap electricity and tax revenue. And think of the jobs local people might still be enjoying at the nuclear power plant! – Yours, etc,

WILLIAM HEDERMAN

There are several reasons why the gas from an Irish gas field might end up earning little or no revenue for Ireland, including:
• Ireland’s licensing terms for oil and gas transfer full ownership and control of those resources to private companies.
• Ireland uses only one means of extracting revenue from its oil and gas, namely corporation tax. Most gas/oil-producing countries use a combination of means of extracting revenue, including royalties, tax and a state share in production.
• Before declaring the profits on which Ireland’s very low tax rate (25%) is levied, companies can avail of extremely generous tax write-offs. For example, they can write off the costs of all exploration anywhere in Irish waters in the previous 25 years.