House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Resources and Energy, Senator the Hon Warwick Parer)

GENERAL OUTLINE

1. The Petroleum Excise (Prices) Act 1987 provides the Minister for Resources and Energy with the obligation to determine the volume weighted average of realised (VOLWARE) prices for crude oil produced and sold from each of the excisable oil producing regions. These prices are used as the basis for crude oil excise. This amendment provides for the simplification of the administration of the price determinations.

2. The Act currently requires the determination of three prices for each excisable oil producing region, each month: a reference price for the month ahead; an interim VOLWARE price for the month immediately previous; and a final VOLWARE price within 6 months when all transaction information is finalised. Each oil producing region, onshore or in the North West Shelf project area, which has cumulative production of 30 million barrels becomes excisable. The rate of excise applied depends on the annual production level, for example, annual production below 500 megalitres (3,146,000 barrels) per year attracts a zero rate of excise for 'new' oil. Excise is collected three times each month and a 'credit terms compensation' factor is applied in the VOLWARE price calculation to compensate the producers for the payment of excise before commercial payment is received.

3. This amendment Bill, is presented as a package with the Excise Tariff Amendment Bill (No. 2) 1997, which deals with the collection of excise. Together they will provide for changes in the excise collection schedule and simplify the administrative arrangements for processing of transaction data from the crude oil producers by:

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changing the excise collection schedule from thrice monthly to monthly through amendments to the Excise Tariff Act 1921; and

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removing the need to determine a reference price for the month ahead;

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removing the requirement to determine VOLWARE prices for oil producing regions which have exceeded the excise free threshold but do not produce oil at a rate which attracts an excise liability.

4. The changes to the excise calculation and collection regime will lead to administrative savings for both government and industry and have been developed after consultation with the Australian Petroleum Producers and Explorers Association (APPEA).

FINANCIAL IMPACT STATEMENT

5. The changes to excise collection will be revenue neutral as the interest foregone by the Commonwealth in moving from thrice monthly to a monthly regime will be offset by amending the Petroleum Excise (Prices) regulations, in response to the passage of the Amendment Bill, to change the formula by which 'credit terms compensation' is calculated, leading to no compensation if the proceeds of sale are received within 30 days, i.e. before excise is due to be paid. During transition there will be a once-off disruption in the excise collection flow.