Ukraine is facing existential challenges, and energy security is one of them. The country is dependent on Russia supplying most of its natural gas as well as uranium fuel for its nuclear reactors. Under these very difficult circumstances, a government with a holistic view of its strategic security and energy goals would logically develop a policy aimed at encouraging increased domestic oil and gas production. Unfortunately, Kyiv is doing the opposite.
Despite the massive Western support it is receiving, Kyiv is promulgating ill-conceived anti-market policies and hare-brained schemes that are set to make matters worse – much worse.
My recent trip to Kyiv to speak at the Adam Smith 6th annual energy conference on energy diversification conference left me disappointed and worried. In recent years, the Western majors, including Shell, BP, Chevron and VITOL, have made commitments to exploration and production in Ukraine. Many have left due to the war with Russia. The more risk-tolerant and the scrappiest among the smaller companies have remained, including JKX, Arawak, and Cub Energy.
Due to the need to fill the state coffers to pay back the forthcoming International Monetary Fund’s $17 billion loan, the Government of Ukraine is about to commit hydrocarbon hara-kiri. It has imposed exorbitant taxes on local oil and gas producers and is forcing them to sell their output to the government-owned monopoly. This is exactly the opposite of what one would expect from a reformist government densely populated with pro-market technocrats from the US, Lithuania and Georgia.
Kyiv’s new tax rates are mindboggling. First, there is a royalty, which taxes output sales, not just profits. Second, the rates are 70% for state-owned production companies; 55% on wells under 5,000 meters depth, and 35% on wells over 5,000 meters.
Complete story at - Ukraine's anti-market policies to make matters worse
Despite the massive Western support it is receiving, Kyiv is promulgating ill-conceived anti-market policies and hare-brained schemes that are set to make matters worse – much worse.
My recent trip to Kyiv to speak at the Adam Smith 6th annual energy conference on energy diversification conference left me disappointed and worried. In recent years, the Western majors, including Shell, BP, Chevron and VITOL, have made commitments to exploration and production in Ukraine. Many have left due to the war with Russia. The more risk-tolerant and the scrappiest among the smaller companies have remained, including JKX, Arawak, and Cub Energy.
Due to the need to fill the state coffers to pay back the forthcoming International Monetary Fund’s $17 billion loan, the Government of Ukraine is about to commit hydrocarbon hara-kiri. It has imposed exorbitant taxes on local oil and gas producers and is forcing them to sell their output to the government-owned monopoly. This is exactly the opposite of what one would expect from a reformist government densely populated with pro-market technocrats from the US, Lithuania and Georgia.
Kyiv’s new tax rates are mindboggling. First, there is a royalty, which taxes output sales, not just profits. Second, the rates are 70% for state-owned production companies; 55% on wells under 5,000 meters depth, and 35% on wells over 5,000 meters.
Complete story at - Ukraine's anti-market policies to make matters worse
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