Business proposes to revise the sanctions policy in the field of subsoil use

17/ 04/ 2024

The European Business Association is sincerely grateful to the Government and other public authorities for implementing the subsoil use reform by adopting important changes, as well as for the opportunity to provide suggestions and comments to improve the practice of applying amendments to legislative acts, and for discussing problematic aspects of applying the provisions of Law No. 2805-IX. At the same time, the business draws attention to some difficulties in the provisions of this Law, in particular, those related to the state sanctions policy. Thus, according to part seven of Article 13 of the Subsoil Code of Ukraine, in case of application of special economic and other restrictive measures (sanctions) to the ultimate beneficial owner of a legal entity that is a subsoil user, the central executive body implementing the state policy in the field of geological exploration and rational use of subsoil shall accordingly cancel or suspend the special permit for the use of subsoil of such user 30 days after the date of application of such sanctions. According to business representatives, the suspension of special permits for subsoil use (in the absence of sanctions directly against subsoil users) actually results in the suspended special permit being withdrawn from the economic life of the state for the entire period of suspension (it cannot be sold at auction, and a new subsoil user cannot be attracted). In addition, the accrual and payment of rent for subsoil use ceases, other tax revenues to the state and local budgets decrease, production of scarce energy resources and construction materials decreases, and rational use of subsoil, including reserves prepared for extraction, becomes impossible. Moreover, there is a loss of mineral reserves due to geological processes (especially in oil and gas fields), environmental risks, threats to the protection and preservation of subsoil, job losses due to the suspension of economic activity, etc. So, in fact, Ukraine is more negatively affected than the beneficiary itself. Of course, business understands and fully supports the idea that the purpose of sanctions is to prevent the use of subsoil to the detriment of the states interests. However, the EBA member companies believe that this goal can be achieved without suspending special permits, using other restrictions, including sanctions. The community addressed the Ministry of Economy and other government representatives involved in the development or implementation of the sanctions policy with relevant proposals. Recently, the EBA received a response from the Ministry of Economy, where the Ministry supports the need to resolve the issue of renewal of special permits for subsoil use by legal entities whose ultimate beneficial owners have been sanctioned in the form of revocation or suspension of special permits for subsoil use, in particular, by amending the legislation. So, we are grateful that the voice of business has been heard and hope that this issue will be resolved quickly enough by introducing appropriate changes.

At the same time, the business draws attention to some difficulties in the provisions of this Law, in particular, those related to the state sanctions policy.

Thus, according to part seven of Article 13 of the Subsoil Code of Ukraine, in case of application of special economic and other restrictive measures (sanctions) to the ultimate beneficial owner of a legal entity that is a subsoil user, the central executive body implementing the state policy in the field of geological exploration and rational use of subsoil shall accordingly cancel or suspend the special permit for the use of subsoil of such user 30 days after the date of application of such sanctions.

According to business representatives, the suspension of special permits for subsoil use (in the absence of sanctions directly against subsoil users) actually results in the suspended special permit being withdrawn from the economic life of the state for the entire period of suspension (it cannot be sold at auction, and a new subsoil user cannot be attracted). In addition, the accrual and payment of rent for subsoil use ceases, other tax revenues to the state and local budgets decrease, production of scarce energy resources and construction materials decreases, and rational use of subsoil, including reserves prepared for extraction, becomes impossible. Moreover, there is a loss of mineral reserves due to geological processes (especially in oil and gas fields), environmental risks, threats to the protection and preservation of subsoil, job losses due to the suspension of economic activity, etc. So, in fact, Ukraine is more negatively affected than the beneficiary itself.

Of course, business understands and fully supports the idea that the purpose of sanctions is to prevent the use of subsoil to the detriment of the state’s interests. However, the EBA member companies believe that this goal can be achieved without suspending special permits, using other restrictions, including sanctions.

The community addressed the Ministry of Economy and other government representatives involved in the development or implementation of the sanctions policy with relevant proposals.

Recently, the EBA received a response from the Ministry of Economy, where the Ministry supports the need to resolve the issue of renewal of special permits for subsoil use by legal entities whose ultimate beneficial owners have been sanctioned in the form of revocation or suspension of special permits for subsoil use, in particular, by amending the legislation.

So, we are grateful that the voice of business has been heard and hope that this issue will be resolved quickly enough by introducing appropriate changes.