Coalition agreement is a chance to create background for the development of oil and gas industry of Ukraine

LLC "Newfolk"
Press release
Kyiv, November 13, 2014
A round table concerning "Whether Ukraine will spend 2015 with its own gas. The Coalition agreement and the problem of taxation in oil and gas industry” was held on Wednesday 12 November at the press center of "Ukrainsky Noviny" information agency. The organizer of the round table was oil and gas consulting company "Newfolk". The event was attended by representatives of mining companies, such as “Neftegazdobycha”, “Karpatygaz” and “Poltava Petroleum Company".
Two largest political parties, such as "Narodniy Front" and "Block of Petro Poroshenko", the winners of recent parliamentary elections, presented their projects of Coalition agreements that outline a vision of development of oil and gas complex of Ukraine. First gas production is being discussed. As to Andrey Zakrevskiy, director of "Newfolk" consulting company, the document shows that two political forces have fundamentally opposing visions of the future of oil and gas industry.
"Draft Coalition agreement drew up by the "Block of Petro Poroshenko" implies all that is necessary for stable development of oil and gas production. It provides a solution for all major problems investors face in Ukraine: high taxes, non-transperent licensing, access to the transmission system for producers and consumers of gas. Moreover, the draft document is fully consistent with the EU Third Energy Package", - said Andrey Zakrevskiy.
At the same time, a draft Coalition agreement submitted by the "Narodniy Front", continues a discriminatory policy of the state in respect of private production. In particular, the law establishes unbearable tax payments for business and deters foreign investors threatening to discipline companies that refuse to produce gas at a loss.
The key issue for determination of tax burden in mining industry is the cost of production. Ukrainian state organs determine those costs in a very specific manner. According to estimates of "Ukrgasdobycha" based on financial performance of state companies today cost of production reaches the level of 230-240 UAH. But this figure does not include investment component of the project, cost of license, exploration, abandoned wells, and so on. "According to our estimates, average cost of gas production by private companies in Ukraine is no less than $ 200," - said Viktor Khrulenko from the "Poltava Petroleum Company".
Analysts and market participants do not see the matching points in two projects of draft Coalition agreement submitted by main political forces of new parliament. Therefore, the future of industry today is totally dependent on which of them gains control of the oil and gas industry.
LLC "Newfolk" is a consulting company that provides marketing, information and consultancy services for gas and oil service companies as well as gas and oil producing enterprises. Website: www.newfolk.com.ua