Upper banner energy

Oil — for Companies, Problems — for Communities

11 July 2017142

Insignificant incomes from land fees, dirty water in wells, poor roads, and lost development potential. Something that could be a benefit frequently becomes a "curse" for Subcarpathian villages. Dozens of oil and gas wells located in the territory of towns and villages create numerous problems for the communities. Absence of strong specialists in village councils, lacking legal regulation in the l

In Ivano-Frankivsk region, there are 31 deposits and 156 subsoil users working in the field of small and medium deposits. As of 1 January 2015 in Ivano-Frankivsk region, the rental fee for hydrocarbon production totaled 1.8 billion hryvnias a year. In 2016, oil and gas producers paid 1.061 billion hryvnias. These data were published after the analysis of the first and the second reports of the Extractive Industries Transparency Initiative (EITI) broken by regions of Ukraine.

According to member of the conferences "Extractive Industry Transparency" and the ЕІТІ in Ukraine, Chair of the Management Board of Anti-Corruption Platform NGO, Khrystyna Zelinska, the largest deposits in Ivano-Frankivsk region are Dolynske oil field (PJSC Ukrnafta), Bytkiv-Babchenske oil and gas condensate field (LLC Ukrkarpatoil LTD), Yablunivske gas field (PJSC Ukrgazvydobuvannia). In total, these deposits brought to the budget more than 396 million hryvnias as taxes in 2015.

The taxes paid by oil and gas producers to the budget, and the payments received by towns and villages in the territory of which the fields are located are disproportionate. According to the Chair of the Environmental Commission of Ivano-Frankivsk Regional Council, Olha Halabala, in 2015 oil producers in the Subcarpathian region paid 45.8 million hryvnias to local budgets. Out of all the tax payments, approximately 23 million hryvnias are land fees.

The problem of land fees is that a large share of lands is provided for use and not rented. According to the new Land Code, starting 1 January 2002 neither citizens nor legal entities have the right to receive a land plot for permanent use – it should only be owned or rented. By the end of 2008, holders of state acts for the right of permanent use of land plots had to re-register their document as ownership or leasehold. However, the Constitutional Court of Ukraine recognized these provisions of the Land Code as unconstitutional.

The land tax paid by the land plot users is much lower than the rental fee for the land. For instance, the town of Dolyna, which rents out 317 hectares of land for wells, receives more than 14 million hryvnias as land fees per year. At the same time, the village of Tiapche, which provides for use a seven times smaller area receives a 6,573 times lower payment. Let us look at the problems of extractive industry in the Subcarpathian region using several villages as an example.

Spas: A Bird in Hand

A small village called Spas is located in Rozhniativskyi district of Ivano-Frankivsk region.

The Spas village council includes the villages of Spas, Pohorilets, and Pidsukhy with a total population of 1,870 residents. The lands of these villages are part of Spaske oilfield, where PJSC Ukrnafta carries out its extraction activities. The company received a special permit for industrial extraction in the field in 1998 for a period of 20 years.

Note. Spaske oilfield belongs to Boryslavsko-Pokutske oil and gas field of the Precarpathian oil and gas area of the Western oil and gas region of Ukraine. It is located in Rozhniativskyi district of Ivano-Frankivsk region 10 km away from Rozhniativ. Developed since 1960

In the territory of the Spas village council, there are more than 60 wells located inside and outside the populated area in the territory of approximately 30 hectares.

Out of them, 29.5 hectares are used by PJSC Ukrnafta, and another 0.3 hectares are rented. Last year, the company paid almost 74,000 hryvnias for the use of land and slightly more than 3,000 hryvnias as rental fee.

In July 2016, the Kalush Town Prosecution Office submitted a claim to the Economic Court of Ivano-Frankivsk region in the interests of the Spas village council. The claim of the prosecution office was against PJSC Ukrnafta as represented by the oil and gas producing department, Dolynanaftogaz, concerning amendments to the land plot lease agreement. According to these amendments, payment for land should be significantly increased.

At the end of 2011, the Spas village council signed a lease agreement for 0.3 hectares of land with a structural unit of PJSC Ukrnafta — the oil and gas producing department, Dolynanaftogaz. The rental fee per year, according to the agreement, totaled 2,761.20 hryvnias.

In January 2014, the Spas village council approved the technical documents on normative monetary assessment of land belonging to the villages of Spas, Pohorilets, and Pidsukhy. The decision came in force in January 2015 and, according to the rules of procedure of the Spas village council, it was forwarded to the enterprises and posted on the notice board.

In July, August, December 2015 and in January and May 2016, the Spas village council sent letters to Dolynanaftogaz asking it to sign an additional agreement to the land rental contract of 2011. According to the new normative monetary assessment of land, the rental fee was increased from 2,761 to 15,915 hryvnias per year. However, the company ignored all the letters.

The Kalush Town Prosecution Office submitted a claim to the court in the interests of the Spas village council. The village council itself did not submit any claims against Dolynanaftogaz concerning payment of the debt.  

"Unfortunately, specialists of the village council are much weaker than Ukrnafta's lawyers. So, a bird in the hand is worth two in the bush", says Chair of the Spas village council Mykola Medvid

In the court, the parties resolved the issue amicably: the oil and gas producing department Dolynanaftogaz and the Spas village council signed an amicable agreement and an additional agreement to the land rental contract.

The decision of the Spas village council on approving the normative monetary assessment of lands was officially made public on 13 May 2016 in a printed media outlet, and according to the Tax Code, decisions of councils concerning the normative monetary assessment should be officially made public by a local self-government body before 15 July of the year preceding the budget period in which the monetary assessment will be used — according to the official notice of the oil and gas producing department sent to the Spas village council.

Therefore, although the new monetary assessment of land in the territory of the Spas village council became effective at the beginning of 2015, the oil and gas producing company continued to "save" on taxes for two more years.

More than two dozen residents of the Spas village council work for the oil producing company, yet because of the legislative amendments, the village council does not receive the individual income tax that at present is paid at the place of registration of the company. The village furthermore does not have a signed agreement on the company's participation in social and economic development of towns and villages. Until today, Spas is only party gasified.

Mykola Medvid says, 

"Funds for developing the infrastructure were available as far back as in 2012, but the funds were coming through the regional state administration, whose leadership stated that they knew better where to spend the money. Therefore, the funds went to Yaremche and Kolomyia, whereas our villages did not receive a kopeck."

At a legislative level, there is no mechanism that would force oil producing companies to participate in social and economic development of towns and villages. The only exception is construction of new sites, which - according to the law On Regulating Town Planning Activities - requires share participation in development of a town. However, the wells are mining sites, and not construction objects.

The village mayor says, 

 "Furthermore, the village has salty water in wells and poor roads damaged by heavy vehicles"

The village mayor continues, 

"We cannot construct, and neither can we develop the General Plan because, due to the protected areas, large areas of land are excluded from construction", Mykola Medvid complains. "Besides, there are permanent problems with water: after repair of wells, the water within a radius of half a kilometer becomes yellow and unsuitable for use. Water from wells is supplied both to private households and to the school canteen. We asked PJSC Ukrnafta to help us build a centralized water pipe, but we did not receive any answer." 

Meanwhile, the sanitary epidemiological station did not find any oil products in the water of Spas village.

Specialists of State Enterprise Ivano-Frankivsk Regional Laboratory Center of the State Sanitary and Epidemiological Service of Ukraine did not find any oil products either.

According to the village mayor, oil networks are old, they break, and arable lands get damaged:

"Once, a potato harvest was lost here due to the damaged networks," say female employees of the village council. "The smell of the potatoes was so bad that it was impossible to eat them."

Yet, the officials who are supposed to protect the interests of village residents are not in a hurry to defend even their own rights. The village council admits that the cases when the company paid a compensation for the inflicted environmental damage can be counted on one hand. The claim work has not been organized at the level of the village council.  

Bytkiv: Like Sitting on a Powder Keg

Over the last two years, residents of Bytkiv village have had a fear of being blown up at any moment.

One of Ukraine's oldest but still very powerful deposits of the Western oilfield – Bytkiv-Babchenske oil and gas condensate deposit – is located in the territory of these villages.

In 2015, the State Service for Geology and Mineral Resources of Ukraine did not prolong the special permit for Ukrkarpatoil LTD. The company's founder, according to the Unified State Register, is PJSC Ukrnafta, which owns a 100% share in its registered capital.  

On 27 July 1995, the joint Ukrainian-American enterprise UkrKarpatoil LTD received a license for the operation of the Bytkiv-Babchenske deposit for a period of 20 years. In January 2015, the enterprise submitted to the State Service for Geology and Mineral Resources a request to prolong the permit for the following 20 years. However, in April, the State Service for Geology and Mineral Resources returned their request because of the absence of a complete package of documents. In September, the request was returned because of the tax debt on the rental payment for the use of natural resources. The debt, according to the Nadvirnianska and Bohorodchanska Regional State Tax Inspectorates of the State Fiscal Service in Ivano-Frankivsk region, in total exceeded 17 million hryvnias.

UkrKarpatoil LTD appealed to the court.

According to the conclusion of the High Administrative Court of Ukraine, the permit validity can be suspended if there is a debt on the payment for the subsoil use. However, this is a ground for suspending the permit but not for returning the request for prolonging the period of its validity.

Note. Pursuant to the law, the subsoil user’s permit validity extension may be refused in the event of a violation of the terms of subsoil use provided for in the permit or the respective agreement; violation of requirements of the law; decision making on restricting the subsoil use in accordance with the legislation.

However, none of these conditions were established by the court. Therefore, it ruled that the grounds for refusing to prolong the validity of the permit for UkrKarpatoil LTD were absent. The actions of the State Service for Geology and Mineral Resources were recognized as illegal, and the Service was obliged to prolong the permit validity for the period of 20 years.

On the other hand, the Kyiv District Administrative Court and the Kyiv Administrative Court of Appeal ordered that the joint Ukrainian-American enterprise UkrKarpatoil LTD should return over 17 million hryvnias of the tax debt.

After the State Service for Geology and Mineral Resources refused to prolong the validity of the special permit for UkrKarpatoil LTD, the Subcarpathian mass media were used to launch an information campaign claiming that such actions of a state authority would result not only in economic losses for the company and the state, but also create a threat for the village residents. More specifically, it was said that after the operation of the field had been ceased, the gas pollution of the adjoining territories reached a dangerous level.

A request to the Cabinet of Ministers and the State Fiscal Service was also sent by MP Yurii Derevianko, who specified the negative outcomes of termination of extractive activities in the field, emphasized the threat for people and asked to restructure the debt of UkrKarpatoil LTD.

This was not the only appeal submitted by the MP: Yurii Derevianko requested that works should be resumed in two fields maintained by oil and gas producing department Nadvirnanaftogaz of PJSC Ukrnafta. Nadvirnanaftogaz and UkrKarpatoil LTD have a common denominator — they are part of the structure of PJSC Ukrnafta, where Ukrainian oligarch Ihor Kolomoisky still preserves his influence.

In 2017, UkrKarpatoil LTD resumed its extractive activities in the Bytkiv-Babchynske oil field.

Village mayor of Bytkiv Vasyl Vintoniv says, 

"We gave approval to Ukrkarpatoil LTD for continuing mining activities to develop the Bytkiv-Babchynske oil and gas condensate field. In our decision, we obliged them to sign an agreement with us on participation in social and economic development of the village. So far, they have not answered."

For the village council decision, a list of objects was prepared that submitted applications for potential financing. It is said that the oil and gas producers support the village with equipment or materials. However, answering the requests for assistance with repairing the road that they also use, they refer to the absence of funds.

There are more than 160 wells in the territory of Bytkiv. However, such high presence of the gas producing sector has a negative impact on the vital activities of the village. For instance, Bytkiv does not have a General Plan, the key town planning document which it has not been able to prepare since 1971. Because the protected area of each well is from 150 to 300 meters.

The village mayor complains, 

"65% of the village is in the protected zone. We cannot even prepare any documents for the village council, because it is located in the protected area of a well. People have problems with connecting to the electricity and gas supply systems; we cannot issue plans for construction, decisions on private agricultural farms or privatization of land. Meanwhile, in order to decrease the protected areas, the state construction norms have to be changed. We appealed to the regional council, to Ukrnafta, the Ministry of Regional Development, but everywhere we received a formalistic response that this is not within their scope of responsibilities."

Yasenovets: Land Without Documents

The Yasenovets village council unites the villages of Yasenovets and Ivanivka. The villages are located in the territory of Rozhniativskyi district. The population is 1,290 people. The Strutynske gas and oil field, which is developed by PJSC Ukrnafta, is located on the lands of the village.

Note. The Strutynske gas and oil field belongs to Boryslavsko-Pokutske oil and gas field of the Precarpathian oil and gas area of the Western oil and gas region of Ukraine. It is located in Rozhniativskyi district of Ivano-Frankivsk region 7 kilometers away from the town of Rozhniativ. The first industrial oil inflow was obtained in 1959.

On 40 hectares of land belonging to the village council, there are more than 45 wells.

"Heavy vehicles are used to maintain the wells", says village mayor Ihor Pasichnyk.

Roads were blocked in the village so that the "heavyweights" do not completely destroy the road surface that is already covered with holes. The company has not signed an agreement with the village council on participation in the social and economic development of the village. However, it pays compensation for the damage inflicted on the farmland.

The only payment that comes to the village budget is payment for the land, which the village had to "fight" for.

Ihor Pasichnyk says, 

"I "fought" them for four years to regulate our land relations. Then in 2015, legislation allowed an increase in the land tax rates.  Furthermore, last year, a new normative monetary assessment of the land was prepared. Whereas last year we received 120,000 hryvnias in the budget, this year we expect 2.5 million hryvnias."

Although the village budget revenues have increased, the land relations still remain unregulated.

Out of nearly 40 hectares, the oil producing company rents 1.25 hectares. The rest is provided for permanent use. PJSC Ukrnafta uses the land plots on the basis of the state acts granting the right of permanent use. However, the village council says these documents are not legitimate.

In 1998, the Yasenovets village council approved the land inventory materials of the oil and gas producing department Dolynanaftogaz, which is a subsidiary structure of Ukrnafta.

In 2003, having examined the respective request of Dolynanaftogaz, the village council gave its consent for preparing the documents granting the right to rent the land plot with the area of 44.2 hectares under the company's sites located in the territory of the village council.

In 2005, the Rozhniativ district state administration gave its consent to Dolynanaftogaz for preparing the documents confirming the right to use the land plots for the purpose of their lease.

"However, the company has not signed the rental agreement explaining it by the fact they have state acts granting them the right to use the land plots," Ihor Pasichnyk says.

Since 1 January 2002, pursuant to the new Land Code, neither individuals nor legal entities may receive a land plot for permanent use. It can only be rented or owned. By the end of 2008, holders of state acts for the right of permanent use of land plots had to re-register their documents as ownership or leasehold. However, the Constitutional Court recognized these provisions of the Land Code as unconstitutional.

Ihor Pasichnyk says, 

"We appealed to the prosecution office saying these acts are invalid because they are not registered anywhere — no series, no number, no council decision. In fact, the company at present uses the land plots without any title documents. We tried to prove that these acts are not legal documents, and we wanted to force PJSC Ukrnafta to sign rental agreements, but to no avail."

As of today, the investigation unit of the Rozhniativ police station carries out a pretrial investigation, under a criminal proceeding, into unauthorized occupation of the land plots by Dolynanaftogaz of PJSC Ukrnafta for carrying out its economic activities in the territory of the Yasenovets village council.

Starting next year, 5% of rental fees will stay in the village. Out of this among, 2% will go to the regional budget, 2% — to the district budget, and 1% will be received by communities in whose territories deposits are developed. Budgets of united territorial communities will be able to claim 3%. So, for the first time in the recent years, the communities will be able to see the benefits from extractive activities in their territories.

Yet, the lack of funds at a local level is not the only problem of villages. In order to establish relations with the extractive industry companies, it is not enough to forward financial resources to the communities. Of course, money means development of local infrastructure; this is, after all, a kind of compensation for the environmentally dangerous neighborhood. Still, the communities should have a clear confidence guaranteed by law that in case of emergency they will receive social protection. So far, the lack of transparency in the extractive industry and the loopholes in the law that offer extracting companies a ground for abuse did not facilitate the establishment of partnership relations between communities and extracting companies.

Bad water, destroyed roads accompanied by lack of money in the budgets make the village residents scowl at oil producing companies. On the one hand, this complicates the procedure used by the companies to receive permits from village councils, and on the other – it gives tools to political parties and interested organizations for manipulating public opinions. The less there is information about the extractive sector and the fewer expert comments, the more myths and fears are born in the communities.  

On the other hand, only a few communities are able to defend themselves. Years of impecuniousness, during which village authorities got used to being grateful for "charity" assistance from extracting companies instead of demanding payments and compensations provided for by law; the lack of strong specialists in village councils and, finally, unwillingness to spend years in courts often turn local communities into passive observers who only send letters to oil producing companies and wait for the initiative from law enforcement bodies.

Oksana PILIANSKA, journalist 


Comment
Energy banner