The head of Malaysia's state-owned energy company says the provincial government must introduce a competitive tax regime this fall for liquefied natural gas or risk having the firm halt its plans for an LNG export terminal in British Columbia.
The tax rate needs to be reasonable and the province must provide tax certainty by the end of November, said Shamsul Azhar Abbas, the chief executive officer of Petronas.
"What is required is clarity. Moving the goal posts while the project is being built cannot be tolerated," Mr. Shamsul cautioned in an interview Wednesday at an international LNG conference in Vancouver.
Petronas leads the Pacific NorthWest LNG joint venture planned for Lelu Island, located near Prince Rupert in northwestern British Columbia. Its partners include firms from China, India, Japan and Brunei.
Mr. Shamsul said it is crucial that the tax regime be completed in a manner that will allow Pacific NorthWest LNG to be profitable. Having tax details hammered out by the end of November is important because any timing delays will threaten the viability of the entire project, he said.
Pacific NorthWest will make a final investment decision by the end of 2014 on whether to forge ahead. The project's partners have agreed to help build a B.C. export terminal and also buy LNG supplies, but contracts stipulate that tankers need to start shipping the commodity by early 2019, Mr. Shamsul said.
The B.C. government said in its February's budget that LNG export plants on the West Coast will be subject to an initial tax rate of 1.5 per cent on net income. The rate will rise to as high as 7 per cent once the plants recover the capital costs of building what are expected to be multibillion-dollar terminals that will super-cool natural gas into LNG for shipment to Asia.
But working on the fine print to implement the LNG tax regime is taking longer than expected, and officials at some LNG projects have expressed concerns that the upper range near 7 per cent is too heavy a tax burden to bear.
Mr. Shamsul said he appreciated that B.C. Premier Christy Clark and Natural Gas Development Minister Rich Coleman recently visited the Petronas LNG site located in Bintulu in Malaysia.
"The good part over here is we have been in communication, with Premier Christy Clark and Minister Coleman. They have been very, very supportive, and that is the good part," Mr. Shamsul said.
Ms. Clark said during a news conference that the B.C. government is well aware of the pressure that it faces to strike the right balance in tax collection from LNG proponents and obtaining the best deal for taxpayers.
"We've always said we're going to make it competitive from a tax perspective," she said Wednesday after delivering a speech to nearly 1,400 delegates at the LNG conference.
A recent report by Moody's Investor Service noted that Pacific NorthWest LNG will be relying on getting supplies of natural gas from the Montney basin in northeastern British Columbia.
"Since very little construction has taken place so far and startups often face delays, we expect the Kitimat and Prince Rupert projects to come online only after 2020," Moody's said in its study.
Petronas and the B.C. government agreed earlier this month to effectively set Nov. 30 as the deadline for the province to table legislation for its two-tiered tax regime on proposed LNG export facilities.
Mr. Shamsul said governments in general need to spur investment with proper fiscal incentives. "Only then can the project prosper for the mutual benefit of both parties. Remember, even a 40-per-cent tax of a non-project is still zero," he said during his speech at the Vancouver Convention Centre.
"B.C. already has the main ingredients to create a viable LNG industry with abundant natural gas reserves that are sufficient to support a sustainable and long-term investment. However, this is only one part of the equation," Mr. Shamsul said.