NIK on shale gas search

NIK identified a range of irregularities in the audited area. The most important of them included:

• Works related to the making and amending of law on the search and extraction of hydrocarbons (including shale gas) and legislation concerning taxation of the audited activity were delayed considerably (they were started in 2011). The process of drafting law changes stopped at the stage of inter-ministerial agreements and social consultations. If they prolong even more, entrepreneurs may reduce the scale of geological works and investment outlays for such activity, and also show less interest in the search for shale gas reserves in Poland.  
• No government representative for hydrocarbons extraction development was appointed. That person was supposed among others to develop economic, legal and strategic concepts as well as initiate, coordinate and monitor actions related to the search, identification and extraction of shale gas.
• Despite declarations, the Ministry of Environment did not treat the issue of shale gas search as a priority. For instance, in 2007-2012 there were only three persons responsible for the issue of licences for shale gas search. The Minister of Environment issued administrative decisions related to the licences for shale gas search and (or) identification with significant delays (132 days on average where the law required 30 days). Applicants were treated unequally. Some applications were reviewed despite being incomplete or unreliable. Such practices could point to high corruption risk.
• The way of granting licences has blocked access for other entrepreneurs interested in shale gas search at least for several years. According to the solution adopted by the Minister of Environment, each entrepreneur may be granted the licence in line with the requested scope, up to 10 thousand km² area. It could be more profitable to grant the licence to more companies for a smaller surface.
• No credible estimation of the size of shale gas reserves in Poland has been made so far. In order to do so, about 200 boreholes have to be made. With the present boring speed, it will take about 12 years.
• The process of collecting and handling geological samples taken from boreholes was not properly defined by the Minister of Environment. The licences did not specify that the samples have to be transferred to the national geological resources. Also, they did not define the conditions, technologies, place and manner of collecting and dividing samples. The geological samples were transported abroad without the knowledge or consent of the licensor. NIK’s verification of samples from 13 boreholes showed that the samples were damaged because of the way of collecting them. They did not meet requirements related to their quality or capacity defined in the licence, and only some of them could be used for further tests.
• The mining authorities did not properly supervise entrepreneurs in terms of compliance with the environment protection law. Not all search boreholes were covered by the audit. The authorities did not consider all environmental aspects in all audits. Besides, the Minister of Environment did not audit entrepreneurs, especially in terms of whether their activity complied with the granted licence.
• Supervision exercised by the Minister of Environment (ME), Polish Geological Institute (PGI) and State Mining Authority (SMA) over subordinate units with regard to the search and (or) identification of shale gas reserves was insufficient. ME employees did not perform any audits in that area. In PGI no organisational unit was even designated to conduct the audits. Out of 34 audits made by SMA only one concerned the shale gas issue.
• Not all entrepreneurs properly performed their tasks and duties arising from their licences for shale gas search and (or) identification. They either did not carry out geological works at all or had long delays in that matter. They paid licence fees to the National Fund of Environmental Protection and Water Management or relevant municipalities on untimely basis or in incorrect amounts. The Minister of Environment was not always informed as required that geological works had been started or completed.