Ukraine, which actively declares its openness to foreign investment, especially in strategic sectors such as energy, faces unique challenges and opportunities. The importance of these investments for accelerating the recovery of the country's economy and infrastructure is difficult to overestimate. However, despite official statements, international business is increasingly faced with discrepancies between declared policy and real practice, which creates significant risks for the investment climate.

Ukrainian Energy found out how.

In November 2024, the State Geology and Subsoil Service of Ukraine suspended the validity of three special permits for hydrocarbon production owned by Ukrainian assets of Enwell Energy, in particular, the Representative Office of Regal Petroleum Corporation Limited and Prom-Energo Product LLC. This decision was made due to the sanctions of the National Security and Defense Council against the current beneficiaries of the companies - citizens of the European Union, Cypriot trusts.

Enwell Energy plc is a public British company listed on the London Stock Exchange AIM. In Ukraine, it operates through the Representative Office of Regal Petroleum Corporation Limited and Arkona Gas-Energy LLC in Poltava region, as well as Prom-Energo Product LLC in Kharkiv region, which hold special permits for hydrocarbon production. All companies are part of the Smart Energy group.

Before the full-scale invasion, Smart Energy was among the top 5 largest private gas producers in Ukraine, producing over 1 million cubic meters of gas per day. In 2025, due to the suspension of licenses, the group’s average daily production fell to 65 thousand cubic meters. This case is a vivid example of how administrative decisions, even if justified by security issues, can have significant negative consequences for the investment climate and the country’s economy if they are not accompanied by transparent procedures and legal protection for investors.

Experienced businessmen such as Chuck Valeschini, independent chairman of the board of directors of the British Enwell Energy, and Bill Wells, president of one of the company's American shareholders, Pope Asset Management, speak openly about the threats to the investment environment in Ukraine. Their experience highlights the consequences of unpredictable decisions of regulatory authorities and underlines why, despite all the difficulties, they do not lose faith in the huge potential of Ukrainian gas production.

Assessing the current investment climate in the energy sector of Ukraine, Mr. Valeschini notes: "Despite the significant long-term potential of the energy sector of Ukraine, in particular in terms of natural gas production and reducing dependence on imports, the current investment climate is characterized by instability and inconsistency. Legal stability, transparency and respect for the rule of law are critically important for international investors. Unfortunately, recent events, including sudden decisions by regulators and the imposition of sanctions without due legal procedure in the case of Enwell Energy, have seriously undermined confidence in the reliability of the environment."

The suspension of Enwell Energy, a London-listed company with US shareholders, sends a very worrying signal to global investors. “Even companies with a decade-long history of responsible operations, public shareholders and transparent governance structures can be victims of politically motivated actions without any protections,” says Chuck Valeskini. This undermines confidence not only in Ukraine as an investment destination, but also in the prospects for its economic recovery and integration with Western financial systems.

“We are not just an investor,” continues Mr. Valeskini. “We are a shareholder of a company listed on the London Stock Exchange. On the first day after the announcement of the suspension of licenses, the value of the shares fell by half. Such a market reaction is expected, and it affects not only our business, but also the sentiment of other investors.”

Wells, for his part, notes a growing discrepancy between the official rhetoric of Ukrainian officials about attracting foreign capital and the reality for existing investors: "Despite the fact that the Ukrainian authorities actively promote the idea of ​​investing in the country, the treatment of existing investors, especially in strategic sectors, is often opaque. Such distortions are due to weak institutional control, politicization of decisions and an insufficient level of legal protection."

Legal and regulatory threats to foreign investors in Ukraine, in addition to military challenges, have increased significantly. "Foreign investors are faced with unpredictable administrative actions: cancellation of licenses, seizures of assets, sanctions without transparent grounds. This signals a deterioration in the rule of law and creates serious barriers for both existing and potential investors," Bill Wells notes.

The state's position

It was officially explained that the company "Prom-Energo Product" from the Smart Energy group stopped gas production due to the NSDC sanctions against its beneficiaries.

According to the Smart Energy press service, "due to imperfect state regulation mechanisms in the front-line Kharkiv region, the work of the gas production enterprise Prom-Energo Product LLC was stopped, which previously produced an average of 30,000 cubic meters of gas and 1 ton of condensate per day." This event was the second such case for the group: earlier, in January 2025, the representative office of Regal Petroleum Corporation Limited in the Poltava region stopped its activities.

The combined potential of these two companies was significant. According to Smart Energy estimates, they could produce up to 85.5 million cubic meters of gas by the end of this year. These are not just numbers - these are volumes that should significantly support the country's energy balance, especially in conditions of military operations and constant threats to imports.

For Prom-Energo Product, which holds a special permit to extract hydrocarbons from the strategically important Vasyshchiv field, this is the second shutdown in the past two years. The first suspension of operations led to a significant loss of productivity - the company lost about 50% of its production capacity.

The company is actively appealing to state authorities to renew licenses, proposing to limit sanctions against beneficiaries only to the part related to direct subsoil use. This issue is extremely sensitive, since the balance between national security and maintaining investment attractiveness is key to Ukraine's further recovery.

Smart Energy was previously among the five largest private gas producers in Ukraine, playing a significant role in ensuring the country's energy independence. Before the start of full-scale Russian aggression against Ukraine, its companies – Ukrgazvydobutok (probably not the state-owned Ukrgazvydobuvannia, but one of the group’s companies), Regal Petroleum Corporation Limited, Arkona Gaz-Energy and Prom-Energo Product – were producing over 1 million cubic meters of gas per day.

However, the history of sanctions pressure on the company began earlier. In 2023, Smart Energy’s licenses were suspended for a year (until June 2024) due to sanctions imposed against businessman Vadym Novinsky. This was the first serious blow to its production capacity.

The situation changed somewhat in 2024, when the holding company Smart Holding (Cyprus) LTD obtained a court decision recognizing the state’s change of the holding’s beneficiaries to five Cypriot citizens, with whom Novinsky concluded agreements on the transfer of the business to a trust in November 2022. It would seem that this could resolve the issue with licenses.

However, in October 2024, the National Security and Defense Council (NSDC) imposed ten-year sanctions against these new Cypriot citizens. In this regard, the State Geology and Subsoil Service of Ukraine, fulfilling the requirements of the Law of Ukraine “On Oil and Gas”, decided to once again suspend gas licenses.

This chain of events vividly illustrates the complexity and multifaceted challenges facing international investors in Ukraine. Even when companies try to adapt to legislative changes and ensure transparency of ownership, new administrative decisions can negate all efforts. This creates an atmosphere of uncertainty and undermines confidence in the investment climate, which is particularly critical for a country seeking to attract capital for recovery and development.

The consequences of precedents: lost investments and undermined trust

The situation with Enwell Energy sets a disturbing precedent. Chuck Valeskini warns: “If a public company that fully complies with the law and has a long history of operating in the country can lose its licenses without legal protection, then no investor can feel safe.” This level of risk exceeds even geopolitical or commercial challenges and could scare away the capital that is critically needed to rebuild Ukraine’s economy and energy sector.

Enwell Energy had invested more than $450 million in Ukraine before the licenses were suspended. “In the five years before the full-scale invasion, we were able to increase production several times. And we were ready to continue to do so,” Valeskini emphasizes. Long-term development programs included more than $360 million in drilling new wells, developing field infrastructure, overhauling and increasing gas production. However, the suspension of licenses put all these plans on hold.

To become a reliable partner for Europe in the field of energy security, Ukraine must restore investor confidence through deep institutional reforms. “It is necessary to ensure the independence of the judiciary, depoliticize regulatory bodies, guarantee compliance with contracts and create transparent dispute resolution mechanisms,” says Chuck Valeskini. Investors need to be confident that their rights are protected and that political interference does not influence business decisions.

The forced shutdown of Enwell Energy’s assets had a direct and negative impact on both the company and the Ukrainian economy. The shutdown resulted in the cessation of gas production, which was essential to the country’s energy independence. It also resulted in a reduction in budget revenues and threatened job losses. “Moreover, it negatively affected Ukraine’s image among other potential international partners considering energy projects in the country – and this at a time when economic sustainability is of critical importance,” Mr. Valeskini emphasizes.

As an example of one of the "frozen" assets, well No. 119, Mr. Valeskini cites impressive figures: "Due to its suspension, Ukraine could irretrievably lose 390 million cubic meters of gas reserves - this is two percent of annual consumption, which was about 20 billion cubic meters last year. It seems not so much, but can the country afford to give up its own resources? Especially when in just four months of this year Ukraine was forced to import more than a billion cubic meters - at European prices. In addition, these are lost taxes - at current prices, this is almost UAH 3 billion in budget revenues."

The possibilities for protecting the rights of foreign investors in Ukraine currently appear limited and ineffective. Bill Wells believes that in order to improve the protection of investors' rights, it is necessary to "strengthen bilateral investment agreements, ensure access to international arbitration and involve international institutions in monitoring investment protection." In addition, Ukraine needs to continue to reform its courts, ensure transparency in the actions of regulators, and create an institution that could interact directly with the Office of the President.

The main message that international investors want to convey to the Ukrainian authorities and the international community is simple: "Adhering to the rule of law and respecting existing investors is not just a legal obligation, it is the foundation of Ukraine's future economic recovery and prosperity," emphasizes Chuck Valeskini. "

Mineral resources extraction in Ukraine: the importance and challenges of obtaining licenses

Mineral resources extraction, in particular natural gas, is a strategically important industry for Ukraine. It not only ensures the country's energy independence, reducing dependence on imports, but also contributes to filling the state budget, creating jobs and developing related industries.

Obtaining a special permit for the use of subsoil in Ukraine is a complex and multi-stage process regulated by the Subsoil Code of Ukraine, the Law of Ukraine "On Oil and Gas" and other regulatory legal acts. This process involves the following key stages: geological study and resource assessment (a potential investor must conduct or have access to geological information confirming the presence of minerals in a certain subsoil area. This may be data from exploratory drilling, seismic surveys and other geological works), development of a work program - the applicant company must develop a detailed work program that includes justification of production volumes, technologies, environmental measures, and economic feasibility of the project. This is followed by the stage of obtaining permits and approvals. This stage includes obtaining numerous permits from various state bodies, such as the State Service of Geology and Subsoil of Ukraine (SGSMU), the Ministry of Environmental Protection and Natural Resources, local authorities, etc. These include approvals on land management, environmental safety, compliance with urban planning standards, and others. The next step will be to hold an auction or a special permit without an auction. Most special permits for the use of subsoil are issued based on the results of open electronic bidding (auctions). This ensures transparency and competitiveness of the process. Auction participants submit their bids, and the winner becomes the one who offers the highest price for the permit. In some cases stipulated by law (for example, for areas of strategic importance to the state, or in the case of expanding the boundaries of existing deposits), a special permit may be issued without an auction. This path is much less common and requires a reasoned decision of the Cabinet of Ministers of Ukraine.

Only after these procedures is an agreement on the use of subsoil concluded. After winning the auction or making a decision to issue a permit without an auction, an agreement on the terms of use of subsoil is concluded between the State Service of Geology and Subsoil and the company. This agreement determines the rights and obligations of the parties, the volumes and terms of production, the amount of rent and other important conditions.

However, it also provides for the fulfillment of environmental and social obligations - the subsoil user company is obliged to comply with all environmental standards, conduct land reclamation, and also fulfill social obligations to local communities.

In practice, this process often faces bureaucratic obstacles, corruption risks and opacity, which complicates attracting foreign investment and creates barriers to the development of the industry. Despite legislative changes aimed at simplifying procedures, significant challenges remain.

Ukraine has been actively working to increase its own gas production in recent years, striving to achieve full energy independence.

Before the full-scale Russian invasion in 2022, Ukraine produced about 19-20 billion cubic meters of natural gas per year. The largest gas producer is the state-owned company JSC Ukrgazvydobuvannya, which is part of NJSC Naftogaz of Ukraine. It accounts for more than 70% of all gas production in the country.

Successful examples of obtaining licenses by private companies are usually associated with participation in open auctions. For example, DTEK Naftogaz actively participates in bidding for new sites and successfully obtains permits, investing significant funds in the development of fields. This approach ensures transparency and legitimacy of the process, allowing companies to plan long-term investments.

At the same time, the case of Enwell Energy is a vivid negative example, when even after successfully obtaining licenses and many years of work, their operation was stopped due to sanctions without due legal procedure. This highlights the risks associated with inconsistency of regulatory policy and the possibility of politically motivated decisions. Such situations undermine investor confidence and complicate attracting capital to the country.

Strategic importance

Gas production is critically important for Ukraine for several reasons. One of the main ones is energy security. Domestic gas production is the basis for reducing dependence on imports and ensuring the stability of energy supply, especially in the context of Russian aggression and global instability in energy prices. The more gas is produced domestically, the less Ukraine depends on external suppliers, who can use energy resources as a tool for political pressure.

Gas production brings significant revenues to the state budget in the form of rents, taxes and other fees. These funds can be used to finance social programs, restore infrastructure and support the economy. Stopping production, as in the case of Enwell Energy, leads to direct losses for the budget.

In addition, the gas industry creates thousands of jobs - from highly qualified engineers and geologists to workers at production sites. This contributes to the development of regions and ensuring employment of the population. And the involvement of international companies and investments contributes to the introduction of advanced technologies and innovative solutions in the gas production industry, which increases the efficiency of production and reduces environmental impact.

Despite the significant challenges facing foreign investors in Ukraine, there remains unshakable faith in the country's potential. This is due not only to the wealth of natural resources and existing infrastructure, but also, undoubtedly, to the resilience and aspiration of the Ukrainian people for development. International partners have invested in Ukraine not only capital, but also trust and expertise, counting on a good-faith partnership and mutually beneficial cooperation.

The key message to the Ukrainian authorities and the world community is simple, but extremely important: adherence to the rule of law and respect for existing investors is not just a legal obligation. It is a fundamental basis for Ukraine’s future economic recovery and prosperity. The whole world is closely watching how Ukraine treats its partners today, because this will determine the level of international support tomorrow.

Despite all the difficulties, Ukraine has every reason for optimism. The people are demonstrating an unprecedented struggle for their freedom, and it is thanks to this determination that Ukraine has a real chance to become a truly free, transparent and prosperous state. This fight for freedom is also a fight for the right to stable economic development, which is impossible without trust and strong cooperation with international investors.

Olena Marchenko, specially for Ukrainian Energy