Auctions or product sharing agreements (PSA)?
Auctions or product sharing agreements (PSA)?
21.11.2019
Each new Government, coming to power in Ukraine, announces reforms and a "crusade" for investments in the gas industry.
However, the state's lack of a comprehensive strategic vision for the development of the industry has given rise to the practice of spot changes in industry-specific legislation and the spread of procedures that do not always correspond to the goals of ensuring one's own needs with domestic production and attracting investments into the national economy.
Against the background of the work done by the previous Government in recent years in the field of subsoil use, the reforms to the approach of granting special permits for the use of subsoil in Ukraine look unfinished.
Although we would like to remind you that in recent years the Cabinet of Ministers Resolution No. 615, which establishes the procedure for granting special permits for the use of subsoil, has been amended about 10 times. The task is to simplify access to obtain a permit for the subsoil as much as possible.
On this path, the introduction of pilot auctions for the sale of special permits for the use of subsoil through ProZorro.Sales in 2018 were an important and correct step of the Ukrainian Geological Survey.
At the end of the fifth round of auctions (October 2019), the total value of the sold 19 special permits amounted to UAH 358.2 million.
However, this experiment has ended and it must be introduced not as a pilot, but on a permanent basis. It is necessary to make changes to Resolution No. 615, regarding the establishment of the norm of issuing special permits exclusively through auctions. This decision will establish the most transparent method of subsoil disposal and exclude the possibility of obtaining a special permit without an auction (the so-called approbation), which is still established by clause 8 of the same resolution No. 615.
The industry and investors are waiting for decisions in this direction from the new Government.
In the same 2018, the Government of Volodymyr Groysman, in parallel with the auctions, approved the second mechanism for obtaining a special permit - the signing of PSA.
It is not known for sure how this decision was made, because there is no positive practice of working under the terms of PSA in Ukraine.
This mechanism is used in the countries of Africa and Asia, the whole civilized world has moved away from the application of these treaties. PSA carry a subjective factor, they are needed when there is no interest in the subsoil.
But, if they have already made a decision, they should carry out a powerful promotion of the use of PSA. for foreign investors. The state would have to fight for new players in the market. However, this was not done.
Today, as far as is known, the new composition of the Ministry of Energy and Ecology and Natural Resources of Ukraine does not have a sufficient number of specialists to process the signed 9 agreements with the winners of the tenders.
This was openly stated at a round table in the Verkhovna Rada on the subject of the implementation of agreements on the distribution. The same problem exists for the three future agreements on the distribution, which are expected to be held already in February 2020. But we hope that this experiment will become a positive experience for Ukraine.
Today, it is unrealistic to conclude the Agreements by December 1, as it was announced. As it became known, amendments to the agreements on the distribution Law on the following issues are currently being worked out:
cancellation of the provision (Article 11 of the Law) regarding environmental impact assessment (EIA);
cancellation of agreements on the distribution approval with local self-government bodies, due to the fact that the project examination will be carried out by the Interdepartmental Commission with the involvement of specialists from the Ministry of Finance, the Ministry of Justice, State Fiscal Service of Ukraine, State Labor, and local self-government bodies. Local communities approve the activities of the subsoil user at the stage of EIA and the stage of land allocation;
an increase in the minimum term for the preparation of tenders (minimum 3 months), for the shelf it is proposed (6 months);
additional criteria for determining the winners of the competition for determining the minimum share in profitable products.
The other day, these changes were discussed in an expert circle at SigmaBlayzer, the meeting was initiated by the American-Ukrainian Business Council (USUBC).
It should be noted that similar changes to the PSA Law should be carried out consistently and "not hastily" because the mechanism of the agreements on the distribution agreements should provide significant progress in expanding the resource base and provide prospects for sustainable gas production.
Proposals of this kind should be developed for about two years, so it would be much more interesting for foreign investors.