Naftogaz Loses Licences after 'Opaque' Court Action
The state-owned producer Naftogaz Ukrainy says the decision of a Ukrainian court to deprive it of licences to develop three gas and gas condensate reservoirs means the state will fail in its plan to produce 20bn m³/yr by 2020. It will also lead to serious losses for the state budget and the local budget of the Poltavga region for the coming years, said Naftogaz November 28.
Ukraine imports gas to meet its demand so the government is keen to produce as much gas as possible. However there are also other considerations affecting energy production in Ukraine that go against official objectives.
During the lifetime of the special licences Naftogaz planned to produce 69.6bn m³ of gas and 10.7mn metric tons of gas condensate. Accordingly the rental payments to the state budget would have exceeded hryvnia 148bn ($5.5bn) and more than hryvnia 7.4bn would have gone to the local budget of the Poltava region, it said.
On the other side, Naftogaz spent about hryvnia 800mn over five years preparing the ground for production. Plans for this year included another hryvnia 1.1bn. So the court’s decision means the company will lose this, Naftogaz said, warning of the dangers of a return to the opaque practices of the past, when parcels of land were distributed between private and state entities. Based on what we know, it said, private companies have already made claims for the land taken from Naftogaz.
Cancelling Naftogaz’ licences to use the subsoil was the initiative of the state geological and subsoil service, acting under legal pressure of the Poltava district council, supported by a member of parliament, Sergei Kaplin.
The agency cancelled the licences without following the legal requirements and in gross violation of the established procedure, Naftogaz said. The court petition, signed by the previous executive chairman of the agency Nikolai Boyarkin, was handed over the day before his dismissal, and it is unknown which individual paid the court fee.
Naftogaz had received the licences in 2011 and 2012 and in 2012-13 it carried out exploratory work that led to three producing wells in three reservoirs: two gas and one oil.
It could not carry out work in 2013-16 because of the late approval of the company’s financial plans. State businesses cannot invest money if their annual investment plans are not approved in the right way. The government approved Naftogaz’ finance plans for each of the years from 2014-2016 only in late November or December of the preceding year.
Naftogaz last year agreed with upstream subsidiary Ukrgazvydobuvannya to develop the licences, which would allow work to start regardless of when Naftogaz’ own plan was approved, and it was after this that the actions started that led to the licences being withdrawn, it said.