Today at the II Ukrainian Gas Investment Forum '17 Ukraine's gas market participants and foreign investors have discussed the making of the industry attractive for investments.
Vice-prime-minister of Ukraine, Volodymyr Kistion, has opened the forum.
Key points made by Volodymyr Kistion:
• The Government understands that the industry should grow about 8% annually to show the overall growth of 35% over the course of four years. This indicates that the changes in the industry should be implemented more actively to attract investors and advanced technologies;
• Measures provided in the Action Plan, which supplemented the Concept, may be divided in two blocks: tax and regulatory. Almost all the planned changes require amending the laws;
• Today the Government supports the initiative of fiscally stimulating the new investments in the industry to increase drilling and secure the current budget revenues;
• The Government will support by all means the voting of the bill #5459 to establish a 12% royalty rate on new wells, with some amendments to the current version;
• Passing the bill #3096, which will be elaborated further, is very important for the deregulation of the industry;
• The Government will facilitate by all means the achieving of the key indicators of the Concept for Development of Ukraine's Gas Production Industry by 2020, creating an attractive investment climate, introducing international expertise to elaboration and updating of the industry related legislation;
Key points made by Deputy Head of the Energy Committee of the Parliament, Olga Bielkova:
• Currently, a real tool to increase natural gas production and stimulate the companies to reinvest in drilling new wells has been established, it is the 12% royalty. It is a temporary measure for the market, which will stimulate attraction of new investments and will allow to proceed towards the global trend – profit based taxation, which is based on a progressive reform of the fiscal system for the oil and gas industry after 2020;
• To make the decision, the corresponding bill #5459 has been elaborated, and I will make sure the Parliament hearing regarding this bill will happen as soon as possible. To accomplish this, a series of meetings with the MPs will be organized to explain the importance of the bill from multiple angles, since the whole industry is expecting that it will be passed. I call for all the industry's experts, Ukrainian media to support this initiative publicly.
Key points made by executive director of the Association of Gas Producers of Ukraine, Roman Opimakh:
• On one hand, the Government is supporting the industry. On the other hand, the illogical decisions are made, and the industry's expertise is not involved in the process. In particular, I am talking about the introduction of a new transportation fee, which is set by NERC to enter in force starting April 1, and will create an additional fiscal burden for the industry of $250 million per year;
• As the analysis of the European practice shows, Ukrainian GTS entry tariff is the highest in Europe and exceeds by four times the average European level. Hosting open consultations on the matter is also important for the industry. Such consultations were not organized;
• Another issue that should be resolved is the differentiation of royalty rates for oil and condensate. Such practice does not exist in the world.
Key points made by the CEO of DTEK Oil & Gas, Igor Shchurov:
• The industry has survived the storm, which was caused by the premature increase of royalty in 2014. The royalty rates were restored to previous levels, but the situation has not gotten easier since the price conjuncture has worsened drastically since then. In 2016 we have stumbled upon the security stock and financial guarantees. We have spent a lot of time to prove their unpracticality.
The Government has finally agreed and removed the barrier. A few month in, it has created a new one, even more dangerous.
I am talking about the payment for booking capacities in the GTS for gas producers, which is planned from April 1. It is not a joke, but rather a serious shock for the industry. For our company only this means 2 wells less per year, which could have been drilled. We do not know how to pay this tariff. We were not involved in the discussion.
Key points made by the CEO of JKX Oil & Gas, Tom Reed:
• Shale revolution in the US has been made by the small and medium companies. From 2008, the large producers have fell by half a million barrels per day, while the small and medium companies have grown by over 5.5 million barrels per day. I have big respect for Ukraine's Govenment's and Naftogaz's reforms in gas industry, they have made a risky and bold move by levelling out the domestic price with the import parity, but we are still far away from the finish line. The favorable working conditions for such small companies as Poltava Petroleum Company should be created to facilitate production on hard to recover fields in Ukraine.