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EBA opposes increase in subsoil rental for hydrocarbon extraction

20/ 11/ 2018
  From January 1, 2019, it is proposed to increase the rental rate for subsoil use to extract oil by 2%. For example, for the extraction of deposits, which fully or partially lie at a depth of more than 5000 meters – this will mean an increase from 29 to 31%. Rates on deposits which lie at a depth of more than 5000 meters fully will rise from 14 to 16%. This is stipulated by the draft Law No. 9260 On Amendments to the Tax Code of Ukraine and some other legislative acts of Ukraine on improving the administration and revision of rates of individual taxes and fees. Ukraine is largely dependent on imports of oil, gas condensate and petroleum products. According to the State Fiscal Service, in 2017 one million tons of oil and gas condensate were imported, which is 96.4% more than in 2016. In addition, 7.8 million tons of petroleum products were brought to Ukraine, which is 5.6% more than in 2016. Therefore, it is necessary to create the proper conditions for the development of oil and gas condensate production in Ukraine. However, Ukrainian oil and condensate deposits are in the late stages of development. This means it is possible to stabilize production, but with considerable operational expenses, attracting new investments and introducing modern extraction technologies. Igor Gotsyk. The Fuel & Energy Committee Coordinator. Revision of rent rates at the end of the year can destabilize the current work of business entities and hold back the entry of new investors. We also shouldn’t forget that an increase in the tax burden may result in rising prices for corresponding goods and services. In many countries more flexible tax rates are implemented because of exhaustion of open fields, high capital intensity of investment projects, and substantial technical and environmental risks that investors face. Such an increase in rent will further burden businesses by hundreds of millions of hryvnias in taxes. And this is almost at the end of the year, when the budgets of companies are already planned. Clearly, this situation will not create quality and stable conditions for doing business transparently. Today, it is important to increase national condensate production, boost the attractiveness of the Ukrainian oil and gas industry, reduce the import of petroleum products, maximize existing capacities and create new ones. Increasing rent rates would be chaotic and inconsistent in terms of strategic planning. The business community calls to pay attention to these facts during the preparation of the bill for the second reading and hopes the text about increasing rates for the use of subsoil for oil and gas condensate in 2019 will be excluded.

From January 1, 2019, it is proposed to increase the rental rate for subsoil use to extract oil by 2%. For example, for the extraction of deposits, which fully or partially lie at a depth of more than 5000 meters – this will mean an increase from 29 to 31%. Rates on deposits which lie at a depth of more than 5000 meters fully will rise from 14 to 16%. This is stipulated by the draft Law No. 9260 “On Amendments to the Tax Code of Ukraine and some other legislative acts of Ukraine on improving the administration and revision of rates of individual taxes and fees.”

Ukraine is largely dependent on imports of oil, gas condensate and petroleum products. According to the State Fiscal Service, in 2017 one million tons of oil and gas condensate were imported, which is 96.4% more than in 2016. In addition, 7.8 million tons of petroleum products were brought to Ukraine, which is 5.6% more than in 2016. Therefore, it is necessary to create the proper conditions for the development of oil and gas condensate production in Ukraine. However, Ukrainian oil and condensate deposits are in the late stages of development. This means it is possible to stabilize production, but with considerable operational expenses, attracting new investments and introducing modern extraction technologies.

Igor Gotsyk The Fuel & Energy Committee Coordinator
Revision of rent rates at the end of the year can destabilize the current work of business entities and hold back the entry of new investors. We also shouldn’t forget that an increase in the tax burden may result in rising prices for corresponding goods and services.

In many countries more flexible tax rates are implemented because of exhaustion of open fields, high capital intensity of investment projects, and substantial technical and environmental risks that investors face.

Such an increase in rent will further burden businesses by hundreds of millions of hryvnias in taxes. And this is almost at the end of the year, when the budgets of companies are already planned. Clearly, this situation will not create quality and stable conditions for doing business transparently.

Today, it is important to increase national condensate production, boost the attractiveness of the Ukrainian oil and gas industry, reduce the import of petroleum products, maximize existing capacities and create new ones. Increasing rent rates would be chaotic and inconsistent in terms of strategic planning.

The business community calls to pay attention to these facts during the preparation of the bill for the second reading and hopes the text about increasing rates for the use of subsoil for oil and gas condensate in 2019 will be excluded.

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