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The European Business Association and the American Chamber of Commerce in Ukraine also expressed concern about the possible abolition of stimulating royalties.
The Association of Gas Producers of Ukraine (AGPU) has expresses serious concern about the change in the provisions on the application of royalties in the Tax Code of Ukraine, initiated with Bill No. 1210.
The Association has called on Ukrainian lawmakers and the relevant Committee not to support changes since this poses a threat to the development of the country's gas industry and will inevitably lead to a decline in gas well drilling and gas extraction. Moreover, this will affect the state's reputation among investors.
The bill provides for changes in the wording on the application of the stimulating royalties for the extraction of natural gas from new wells, which completely excludes incentives for drilling new wells, the use of development and production service contracts, as well as cooperation of investors with PJSC Ukrgasvydobuvannya as a tool to boost gas output.
The existing norm had been proposed by the Finance Ministry in 2017 based on a thorough analysis of data from subsoil users, the Energy and Coal Industry Ministry, and the State Fiscal Service. The government guaranteed that the norm would be effective for at least five years. Today, the Cabinet is seeking to abolish it after only 20 months.
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According to the AGPU, the introduction of stimulating royalties (at 6% and 12% depending on deposit depth) from January 1, 2018, significantly revived the domestic gas production market. In particular, over these 20 months, 185 new wells have been staked, in particular, 65 wells have been drilled by private companies, a third of which were super-deep (more than 5 km). This provided for an additional output of 1 billion cubic meters of gas. For comparison, in 2017, before the introduction of stimulating royalties, private producers drilled a total of 22 wells. In 2018, independent producers boosted natural gas output by 7% (against 0.1% in 2017). Positive dynamics are also expected to prevail in 2019.
The European Business Association and the American Chamber of Commerce in Ukraine also expressed concern about the possible abolition of stimulating royalties for the gas industry.