Roman Opimakh: Investors are waiting for green lights

Change in working conditions in the industry

This year, the domestic gas-extracting industry has undergone dramatic changes. The first important step is the new fiscal regime. The introduction of incentive taxation for the drilling of new gas wells has greatly improved the investment attractiveness of the industry. According to international experts, Ukraine has the most attractive position among the mining countries on the Eurasian continent. The state guarantees that it will not change rental rates for new drills for at least 5 years. The factor that frightened investors and internal players in past years is minimized, it was unpredictability. Now the tax regime is stable and attractive.

Also, since the beginning of 2018, the decentralization of rent began to operate. It is about deducting 5% of rent for places in those regions where extraction takes place. Local communities get financial incentives to work with the industry, and we believe that this will facilitate the allocation and approval of new areas for companies by regional councils.

Another revolutionary change concerning the basic legislation is deregulation and a significant improvement of the permit regime. The law that passed in March this year brings Ukraine closer to the leading international standards of the licensing system in the field of gas production. Now the permit procedure has been reduced for at least 18 months, more than 15 permissions have been canceled, 6 stages of duplicate approvals are eliminated.

The situation with getting special permits for the use of subsoil

For the arrival of a foreign investor you need new sites, access to the subsoil. The situation in this area is currently alarming. In particular, the Poltava region has not granted permits for three years already. Against 76 refusals there are two approvals: disappointing statistics are not in favour of subsoil users.

We believe that decentralization of rent will encourage the regional councils to be more constructive. Oil and gas do not belong only to the Poltava people, it is a resource of national importance. If the situation does not change, we will address the central government, because the achievement of the strategic goal - Ukraine's energy independence - is impossible without the allocation of new areas for development. If there are barriers and obstacles that impede all important reforms, then they need to be addressed.

There is only one big barrier - holding open auctions and offering new sites. At a time when the struggle for attracting investments in gas production continues in the world, and every year the countries offer tens of thousands of square meters in bidding, in Ukraine there have not been any auctions for over a year and a half! Unfortunately, the fact that they do not take place is the sabotage of certain government agencies. And at the same time is the evidence of a double standards policy. Currently, legislation provides for the possibility of granting special permits outside the auction. Statistics are impressive: over the past 18 years, 92% of all areas have bypassed open, transparent bidding! We are categorically opposed to opaque and non-market mechanisms that make it possible.

We expect that the first international round of oil and gas auctions will be announced shortly. Companies operating on the market are ready to offer 50 sites with a total area of ​​more than 15 000 sq. km to be auctioned, to participate in a transparent and open auction on equal terms with foreign investors.

The industry has to report to the community

The Association supports the Extractive Industries Transparency Initiative, which operates in many countries. According to the standard, the industry reports not only to the state but also to the community about how much taxes have been paid, how many licenses are provided by the company where the extraction is made and how many jobs are created. Starting from 2015, all companies of the Association, which is the 8 largest gas companies in Ukraine, voluntarily report according to the international standards of transparency of EITI.

The investor cannot work blindly

We were the initiators of the disclosure of state geological information. Now there are 175 thousand reports, mostly from Soviet times, which are difficult to use. For the outside world, there is practically no such information. Investors are offered to enter blindly.

We understand the importance of disclosing geological information in an accessible, commercially attractive form. The investor should visit the site and review the information on the primary geological information - seismic, the number of drills on the site, data on the core, etc. Such information should be available both for vacant, unlicensed sites, and for existing licensed areas. This is normal. There is also secondary information, already interpreted, when experts in the 70-80’s of the XX century analyzed the original material and made conclusions. But foreigners do not trust these findings, they need to re-analyze.

Crazy funds are invested in the industry. One drill costs from 3 to 15 million dollars. Prior to drilling, it is necessary to perform a considerable amount of work and it happens to be useless, because on the new site of the three drills, two can be empty. This is a huge risk. Therefore, the investor needs guarantees to invest in this business.

A normative government act on the disclosure of geological information has been ready for more than six months. We took an active part in its development together with the Ministry of Ecology and Natural Resources and the State Regulatory Service. We expect that it will finally be submitted for consideration by the government, approved and made public, at least in the wording that will accommodate everyone on the market. I believe that a common position has been found and we have heard each other.

Positive shifts will affect numbers

Last year the oil and gas industry paid UAH 75 billion of taxes. This is 10% of all government revenues. If we extract not 20.5 billion cubic meters of gas, like last year, but 27-28 billion as planned, and increase production by 35%, Ukraine will experience a multiplier effect. Related industries will be involved: cement and pipe production, service, industry, etc.

This year we expect an increase in gas production by 7% (last year it was 2.4%). Positive process is started. It is an impossible situation when today the law is adopted, and tomorrow everything is working perfectly. Gas extraction involves contracting, tendering, site preparation and drilling. All this takes time. The industry has been waiting for changes for a long time and we already see the results of reforms. According to the results of the first quarter, the number of drilling of new gas wells in independent gas-extraction enterprises has almost doubled. It will also affect the growth of production volumes.

Today, we call on the Government and the President to come forward with a public initiative and invite international companies to Ukraine, while providing specific proposals for development sites.

International capital is ready to invest. But we must assure it that the rules of the game are transparent to everyone and will remain the same. Companies are interested in the arrival of new players, because it is international experience, new technologies that enable you to work better, to extract more and faster. The current pace is not satisfactory enough. Ukraine annually produces only 2% of proven reserves. In the world, this figure is at least 6%. Thanks to new technologies and innovative methods, company management achieves a multiple increase in efficiency. We are optimistic about the future.