Rada pushes gas production tax up to 70 percent
March 02, 2015
Hard times coming for Ukraine's domestic gas extraction. Verkhovna Rada, country's parliament, raised the production tax for the gas companies up to 70 percent during the March 2 session, while previously the rate was 20 percent. This covers all the gas extraction up to 5 kilometers from the surface. Decision affects private companies, a source of 3.3 billion cubic meters of blue fuel last year, the most.
Overall, Ukraine consumed as much as 42 billion cubic meters of gas in 2014, a direct result of the nation's low energy efficiency. Naftogaz, a state-owned giant, extracted 17.2 billion cubic meters. The rest - 21.5 billion - came from abroad with Russia supplying some 14 billion. Naftogaz is known for having tax debts, while it is also being constantly bailed out with government bonds and National Bank reserves. Company's deficit is a subject to a severe criticism of the International Monetary Fund, Ukraine's key foreign lender. The deficit is a derivative of low gas prices on the domestic market.
Yuriy Vitrenko, Naftogaz's head of business development, told the Kyiv Post during the March 1 interview that the energy giant plans to privatize Ukrgazvydobuvannya, its gas extraction unit. However, analysts doubt anybody would want to invest in such an asset under current tax rate. "The 70 percent tax is an absurd," says economic analyst Evgen Dubogryz. "Just think for a minute, what kind of investor would want to buy Ukrgazvydobuvannya - a company, whose production is taxed at such a high rate?"
Dragon Capital's energy analyst Denys Sakva agrees that the move doesn't look effective. "With one hand, they're raising the gas prices for Ukrgazvydobuvannya, but with the other - they're taking away a major part of this increase through the tax," he says. Meanwhile, Yuriy Korolchuk, an expert on energy, says the tax hike is quite a logical step, given the necessity to cover the cost of the Donbas war. Moreover, the Cabinet on Feb. 28 increased the social spending by half, up to $1.3 billion this year, as inflation reaches 30 percent. The government obviously needs more money to serve its liabilities.
"I understand Energy Minister Volodymyr Demchyshyn, I understand the members of parliament," Korolchuk told the Kyiv Post. "Private gas companies should be able to handle it, they're enjoying a very good net profit margin."
March 02, 2015
Kyiv Post