The natural gas extraction rent may be further increased

16/ 02/ 2022

On February 17, the Verkhovna Rada plans to consider draft laws № 7038 and 7038-1 on the introduction of a differentiated rent for the extraction of natural gas. These draft laws are aimed at reviewing and raising rental rates for gas production. Besides, alternative Draft Law №7038-1 removes the tax benefit for new wells, reducing its effect till March 1, 2022. Since 2010, the tax on the use of natural resources for gas production has changed six times. In 2014 the rental rates were doubled from 28% to 55% and over the next 3 years gas production decreased by 50% and more than 2,500 people lost their jobs. Therefore, new higher rent rates will likely lead to another reduction in gas production and, consequently, a shortage of domestic gas, the consumption of which is only growing every year. Such a situation will require the Government to find new ways to import gas. Thus, the proposed increase in rates will increase the maximum cumulative share of taxes in the price to 75% for shallow wells and up to 64% for deep wells, which, according to gas companies, will lead to a complete cessation of investment in the industry and working capital deficit costs. As a result, Ukraine will have to re-import at least 3 billion m3 of gas over the next 3 years, which will cost almost UAH 100 billion at current prices and exceed any short-term fiscal benefits from raising rates. Thus, it is economically more profitable to stimulate the development of own gas production than to withdraw investment resources from the budget to purchase imported gas, strengthening the position of Russia. It is no secret that the lions share of imports from the EU is, in fact, a re-export of Russian gas. Therefore, the European Business Association does not support these draft laws and calls on the MPs not to vote for these initiatives! Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

On February 17, the Verkhovna Rada plans to consider draft laws № 7038 and 7038-1 on the introduction of a differentiated rent for the extraction of natural gas.

These draft laws are aimed at reviewing and raising rental rates for gas production. Besides, alternative Draft Law №7038-1 removes the tax benefit for new wells, reducing its effect till March 1, 2022.

Since 2010, the tax on the use of natural resources for gas production has changed six times. In 2014 the rental rates were doubled from 28% to 55% and over the next 3 years gas production decreased by 50% and more than 2,500 people lost their jobs.

Therefore, new higher rent rates will likely lead to another reduction in gas production and, consequently, a shortage of domestic gas, the consumption of which is only growing every year. Such a situation will require the Government to find new ways to import gas.

Thus, the proposed increase in rates will increase the maximum cumulative share of taxes in the price to 75% for shallow wells and up to 64% for deep wells, which, according to gas companies, will lead to a complete cessation of investment in the industry and working capital deficit costs.

As a result, Ukraine will have to re-import at least 3 billion m3 of gas over the next 3 years, which will cost almost UAH 100 billion at current prices and exceed any short-term fiscal benefits from raising rates. Thus, it is economically more profitable to stimulate the development of own gas production than to withdraw investment resources from the budget to purchase imported gas, strengthening the position of Russia. It is no secret that the lion’s share of imports from the EU is, in fact, a re-export of Russian gas.

Therefore, the European Business Association does not support these draft laws and calls on the MPs not to vote for these initiatives!

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.