The National Energy and Utilities Regulatory Commission (NERC) will obligate all the gas producers in Ukraine to pay the tariff for entry to the GTS of 296.8 UAH (without VAT) per 1000 m3 starting from April 1, 2017.
The Association of Gas Producers of Ukraine (AGPU) traditionally supports harmonization of Ukraine's legislation in terms of the functioning of the natural gas market as per European standards. In particular, we realize the urgent need to transfer to TSO's services pricing on the entry/exit tariff basis.
However, as the analysis of the available European countries shows, the Ukrainian entry tariff is the highest in Europe and exceeds the average European tariff by more than threefold. We note that implementation of such tariff by the Regulator will result in additional fiscal burden for the natural gas upstream of $218 million annually, which is equivalent to additional 5.5% royalty on natural gas produced (at an average price of $200/1000 m3).
In our opinion, such actions contradict the declared Government's plans of stimulating domestic production and imports replacement, as stated in the Government's Concept for Development of Gas Production Industry by 2020.
It is important to highlight that it is the domestic natural gas production industry, which creates workplaces in the whole supply chain of the industry in Ukraine. The industry also pays general and special (royalty) taxes to the State budget, and soon a portion will be directed to the local budgets. Additionally, gas producers in Ukraine bear additional costs related to construction of commercial metering and compressor stations at their production sites. Evidently, gas producers use their own assets to pump the natural gas into the GTS, while natural gas importers use exclusively the assets constructed and maintained by Ukrtransgaz.
AGPU is arguing for an open dialog between the state and business. We are concerned that no consultations with the industry were not taken when making the decisions, which directly impact the investment attractiveness of the industry. We stress out that such actions will worsen the attractiveness of natural gas upstream for the investor.