Olga Belkova: A Long Haul to Reforms in Oil and Gas Sector

"... dreams and ideas is a great stuff, but one has to be ready for a very long journey with unexpected obstacles, misunderstandings, "now's not the time", "it is the lobbyism of the oligarchs", "no votes", "and the like... but if we are confident while going all the way, the result will be not long in coming: just not so fast."

Olga Belkova


Belkova Olga Valentinovna, Petro Poroshenko Bloc.

Deputy powers - since 2012.


A Long Haul to Reforms

            A few years ago, in 2014, the gas industry was shocked at higher royalty rate. The growth reached 55% and 28% for gas wells of different depths. According to a number of studies, the rates for production were the highest in Europe. The purpose of the increase was the replenishment of the state budget. Even though in December 2015 the Verkhovna Rada supported the amendments proposed by the Cabinet of Ministers - in fact, getting round to the previous values of the rates, 29 and 14% - such fluctuations threw the oil service market far back.

            However, already at that time some deputies who dealt with energy issues had a clear understanding of the uselessness of such increase and their own view on further development of the industry.

            On her Facebook page, Olga Belkova remembers:

"In December 2014, I, still being not well known in my faction, barely forced myself to ask the President and the Prime Minister about the meaning of raising the royalty for gas production... I said it was wrong. But I was told that I do not understand ... but six months later the competitions started about who and how will reduce the royalty faster ... it is as we used to do - to create a problem, then to solve it ....

Today, more than ever, I think that I am right again, and soon a cohort of those who will offer new unique for Ukraine solutions regarding incentive gas royalty rates will appear in the parliament... "

            That is exactly what happened. The bill No. 5459 proposed at the end of 2016 on amendments to the Tax Code of Ukraine with a view to introducing the incentive royalty rate for natural gas production from new wells has been out of support for almost a year during the discussions even despite all the support from the oil and gas industry members.

            Already in December 2017, however, the Verkhovna Rada adopted another bill No.6776-д that was registered about a month ago, which provides for the introduction of the incentive royalty rates for new gas wells. The bill stipulates the rates at 12% and 6% depending on the occurrence depth of oil and gas. This initiative, according to the oil and gas community, will involve new investments in the industry and thus encourage higher production volumes. Those states that applied the same approach to taxation achieved precisely this result.

            “Personally for me, today's decisions are an example of that we have to go all the way to the very end! Unfortunately, not all of the colleagues immediately accepted our proposals prepared 1.5 years ago,” Olga Belkova noted in her comment on the Facebook page after the report on the adoption of the bill.

            In general, December is traditionally the most effective in the voting of bills on amendments in the extractive industry. The victory of last December was the adoption of the bill No. 3038 proposed by Olga Belkova and her colleagues on amendments to the Budget Code of Ukraine (regarding the improving of the system for the receipt and use of funds from subsoil use royalty payments for oil, natural gas and gas condensate production).

            It took more than a year to hold dozens of meetings and discussions with communities and local authorities to prove the profitability of supporting producers by local communities.

            According to the amendments, 95% of the subsoil use royalty for oil, natural gas and gas condensate production will be sent to the state budget, 5% - distributed by local communities. Of them, 2% will be sent to the district budgets (if joint territorial communities - 3%), 2% - to the regional budgets, 1% - to the cities of district subordinance, rural and settlement budgets.

            Now active discussions regarding applying the adopted norms are still ongoing.

 The norm will come into force on January 1, 2018. Local regions will receive 1.5 billion UAH of only gas funds.

            It also took almost a year to adopt the bill No. 3617 on amending the Law of Ukraine "On the Natural Gas Market" (regarding the reserve stock of natural gas). The amendments were made in September 2016. According to them, suppliers shall create the reserve stock of natural gas in the amount of ten percent of the expected monthly supplies to be made next month.

            This year, one of the most anticipated initiatives were the amendments proposed by Olga Belkova to some legislative acts of Ukraine in the bill No. 3096-д regarding the simplifying of certain aspects of the oil and gas industry.         Deputies’ support of these amendments in the first reading brings hope that subsoil users’ life will be easier when obtaining permits.

            The bill, in particular, stipulates that "while moving from pilot to commercial development, enterprises, institutions and organizations that engaged in exploration are allowed to use the land plot based on the exploration contract with the owner of the land or as agreed with the land user for the period of drawing up documents certifying the right to use it."

            The concept and types of land servitude were also established. So, according to the extended norms, the owners or users of land plots or other persons concerned may require the establishment of land servitudes while constructing and placing oil and gas production facilities, as well as pipeline transport facilities.

            The bill settles the recovery of damages to land owners and land users for the use of agricultural land for the needs of the oil and gas industry.

            It is also anticipated that the owners of oil and gas bearing subsoil that received special permits for such subsoil use do not need to receive a duplicative permit - a mining claim.

            According to numerous statements by representatives of producing companies, the term for obtaining documents is often the same as the time for drilling a well.

            Certain innovations in the legislative initiative also refer to the disposal of geological information: "Geological information obtained and handled at the expense of the subsoil user is fully owned by him. The owner of such geological information has the right to run it, including, sell and transfer it to be used by residents and non-residents of Ukraine without approval by the state authorities or local self-government."

            The bill proposes not to refer oil and gas wells and their facilities located outside the populated areas to urban construction facilities. The lack of such a specification earlier required assigning addresses to wells as urban construction facilities, which delayed the time of their commissioning.

            Many of Olga Belkova's initiatives are aimed at supporting the introduction of transparency in the extractive industries.

            In particular, next in turn is the consideration of the bill on ensuring the transparency in the extractive industries No. 6229 dated March 23, 2017, which stipulates the liability for violating the law requirements on disclosure of information on the activities of producing companies and is aimed at combating corruption in the field and increasing transparency in the extractive industries.

                The bill No. 5370 dated 07.11.2016 concerning the stabilization of the activities of the Public Joint-Stock Company Chernomorneftegaz bides its time due to the temporary occupation of the territory of Ukraine. The purpose of the bill is to create the opportunity to extend the period of validity of special permits for subsoil use granted to sites located in the temporary occupied territory and to prevent the bankruptcy of this company of strategically importance.

            As we see, systematically and consistently, however not so fast, the legislators go the path of implementing the reforms required for the development of budget-forming branches of Ukraine.

            “At the moment, everyone is just talking about the potential of increasing production or relies on a miracle. But miracles cannot form the basis of the strategy, and the state should more systematically and methodically approach involving investments in this technologically complex and capital-intensive industry. Without completing this plan, we will further be affected by imports, whereas our own gas will be under the ground.”