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Ukrainian expert says IMF policies destroying state gas production in Ukraine

July 24, 2015, 20:14 UTC+3 KIEV
Ukraine’s Finance Ministry earlier prepared a draft law that is intended to almost halve the gas rent for private investors from October 1, 2015
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KIEV, July 24. /TASS/. Ukraine may lose its own state-run gas extraction business, if it cuts considerably the natural resources rent for private gas-producing companies on the insistence of the International Monetary Fund (IMF), a Ukrainian expert said on Friday.

Yuri Korolchuk, head of the Supervisory Board at the Institute of Energy Strategies, made this statement in an article published in MigNews on Friday.

Ukraine’s Finance Ministry earlier prepared a draft law that is intended to almost halve the gas rent for private investors from October 1, 2015 to 29-14%, depending on the depth of gas extraction.

Besides, "new investment projects, which will be launched after January 1, 2016, will enjoy rent rates of 20% and 10%," Ukrainian Deputy Finance Minister Yelena Makeyeva said earlier.

Ukraine’s Finance Ministry has proposed cutting the gas rent rates "to increase state budget revenues and simultaneously ensure the country’s energy security."

According to the Finance Ministry’s plan, this will be achieved by attracting new gas producing companies, which will be motived by the reduced rates of the natural resources rent.

However, this practice will discourage gas companies from exploring new deposits as they will drill gas wells using the existing geological data, the expert said.

Largely speaking, investors will further use the "safety margin" accumulated before the 1990s, the expert said.

An increase in gas production by 1 billion cubic meters requires "stable investment in the amount of about $0.8-1 billion," the expert said. "That is, a growth of production by 5 billion cubic meters is equivalent to $5 billion. It is hard to believe that someone would take the risk of investing such amounts of money in Ukraine in the current situation," the expert said.

It was the IMF that proposed and supported the project of cutting the gas rent for new investment projects, Korolchuk said.

Considering the US "key influence" on the IMF, it is not surprising that "American companies will just ‘purely by chance’ turn out to be the final beneficiaries," the expert wrote in his article.

"This scheme can be explained by the plans of a small group of US mid-size companies to enter the Ukrainian gas producing market. However, this penetration does not necessarily imply the exploration and development of new sites but involves the purchase of ready-made projects," Korolchuk said.

At the same time, the Finance Ministry’s proposal implies keeping the natural gas rent for state-owned Ukrgazdobycha, Ukraine’s largest gas producer, at the level of 70%, which will cause the company’s decline amid privileges for private firms, the expert said.

"Neither the US nor the IMF considers and offers financial or technical assistance to Ukrgazdobycha. Moreover, the situation in the company, which ensures 100% gas delivery to the population, is deteriorating with every passing year," Korolchuk said.

Under this scenario, the state will be forced already in 5-10 years to purchase gas for households from private companies, the expert said.

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