Saving private “extraction”: will Ukraine be able to put new heart into the extractive industry?
What “weak” points still remain in the extractive sector’s market, what has been done and what is planned to be done by the key public authorities to remove those problems — that was discussed by the participants of the round table “Benchmarks for investors. Action plan for the efficient management of extractive industries” which was held on 6 October.
The event was held by Dixi Group think tank with the assistance of the Natural Resource Governance Institute (NRGI).
The round table is the continuation of the event that took place on 12 July, where they presented the Resource Governance Index — RGI 2017, and the outcomes of application thereof, which makes it possible to identify the necessary changes in the Ukrainian legislation with the view to the further reform of extractive industries. During that event, the key “weak” points in the extractive industries were identified. Based on that, Dixi Group’s analysts prepared the Roadmap for Resource Governance Policy which was presented at the round table “Benchmarks for investors. Action plan for the efficient management of extractive industries”.
“In July, Ukraine received a rather poor rating under the Resource Governance Index (RGI) [Ukraine’s “average” rating under that Index was 49 of 100 — editor’s note]. It reflected objectively those problems that existed in the extractive industries. Based on that, we have developed a “roadmap” for the reform in the sector, specifying a number of particular measures to be taken during the next 2 to 3 years, with clear deadlines and responsible authorities. Better governance of extractive industries is a comprehensive objective which requires a common vision. We hope that our recommendations will be taken on board with the view to getting a better rating from the expert and investor communities in two years”, said Roman Nitsovych, DiXi Group Program Manager.
Those steps are necessary to settle a number of problems which prevent investment in the extractive industries at the moment. The Executive Director at the Association of Gas Producers of Ukraine Roman Opimakh lays special emphasis on the following problems from among those mentioned above, “According to our estimates, the governmental plan on the development of gas extraction has, unfortunately, been implemented 20% with a half year’s delay. It is mainly explained by the resistance on the part of those who adhere to double standards, who are all against transparency because uncertainty leaves them a margin for abuse. The bright example of such “public” policy is low profile authorisation of use of the subsoil outside the auctions, maintaining most restricted access to geological information, and subjective accrual of duties accompanied with the threats to the subsoil users that the special permits would not be extended”.
In her turn, Olha Bielkova, Deputy Head of the Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, noted that it were the government who were to be the driving force behind the changes in the extractive industries, and well-coordinated policies and consistent measures aimed at removal of “weak” points gave assurance of the successful operation of the extractive industries. “I believe that responsibility for the slow-down of the implementation of the plans for growth in oil and gas production in particular, and for the implementation of the Concept of Development of the Gas Extraction Industry lies with the Cabinet of Ministers of Ukraine. It is the government who are to be the driving force behind the changes because the main task of introduction of particular reforms, and particularly, in making industry-specific legislative initiatives, is imposed on them, meanwhile the parliament is to form a general vector of the reform, and express, by its vote, its support or lack of support of governmental initiatives. Despite the fact that almost a year has passed since the Concept’s approval, we still fail to see any meaningful achievements and sufficient unity when its implementation is concerned. A draft law No. 3096-д on the simplification of certain aspects in the oil and gas industries is a bright example of lack of such coordinated policy. Adoption of that draft law is one of the priority measures aimed at the implementation of the Concept. The draft law is pending in the Parliament, and the Verkhovna Rada has received a number of conclusions on that draft law from central executive authorities. I have to emphasise that while the line ministries expressed their support to the draft law, some other authorities concluded that its adoption was unfeasible. I am sure that only consistent, reasonable and active actions of the government with the view to reforming the extractive sector will make it possible to reach the announced rates of extraction in the future”.
Oleh Prokhorenko, Ukrgazvydobuvannia’s Director, agreed with Olha Bielkova and further emphasised that the public authorities are not interested in increasing extraction. “This year, the Company has already reached its highest daily production rate for the last 5 years, with 11 billion cubic metres of gas extracted during the last 9 months. But in order to reach energy independence, Ukraine has to resolve a number of problems, and particularly where licensing is concerned. One of the problems is delays in issuing special permits, payment for extension of licence, land issues... There is almost zero responsibility and zero interest on the part of the public authorities — nobody ever wants to take on the responsibility. Everything about public authorities is just a total mess! Moreover, Ukraine itself “punishes” the investors: each 5 years the authorities require re-licensing. If we move the way we do now, nothing is going to change. If we don’t do revolutionary things, there will be no revolutionary leaps in extraction”, Oleh Prokhorenko summed up.
In that context, Oleh Kyryliuk, acting head of the State Service for Geology and Mineral Resources of Ukraine, noted, “If we talk about 20/20 Program, then we are not going to implement it only by means of reissuing special permits, it only can be achieved through new field discovery”.
At the same time, one of the main pieces of news announced during the event by Oleksandr Lisnichenko, the Director of the MECI’s Department for Oil and Gas Complex, was information about the application letter signed by Energy Minister Ihor Nasalyk addressed to Prime Minister Volodymyr Groysman with the request to support the initiative of the oil and gas industries concerning the introduction of the incentivising 12% rent applicable to the new wells from 2018 on, and bringing the rate of the rent applicable to gas condensate in line with the oil rates.
At the end of the event, the experts concluded that despite all problems, Ukraine is still able to meet the major part of the objectives set, within 1—1.5 year, and this will make it possible to overcome “weak” points hindering the development of extractive industries.
ROADMAP FOR RESOURCE GOVERNANCE POLICY REFORM
Resource Governance Index (RGI) 2017 measures and assesses quality of governance in the oil, gas and mining sectors. That Index combines assessment of the quality of the governance in the chain of value creation within the resource sector and establishing whether the environment (legislative framework, data accessibility etc.) is friendly.
