Over the past two years, the market of oil and gas subsoil access has been blocked in Ukraine, and this means losing funds and reputation in eyes of investors. The reason is legislative inconsistencies and overlapping between subsoil access tools such as production sharing agreements (PSA) and auctions. BRDO experts have prepared a comprehensive research of the market situation having analyzed both approaches: https://regulation.gov.ua/dialogue/energetika/47-rinok-nafti
So, Production Sharing Agreements (PSA) is a traditional tool of public-private partnership, however, we still have a negative experience with it. During 2007-2013, PSAs were concluded for 8 subsoil plots, but none of them was used for hydrocarbon extractions.
Auctions are a more effective mechanism for allocation of subsoil use rights. But the problem is that they are not fully implemented by the state: in 2013-2017, 84% of special permits were provided without auctions, and there were no auctions at all in 2017. Only in October 2018, the State Service of Geology and Subsoil auctioned two gas subsoil plots.
According to market participants’ statements, there were delays in holding auction, in particular, because of the preparation of subsoil plots, in which the market was interested the most, for PSA tenders. That is, legislative inconsistencies led to blocking the market development for almost 2 years.
How to prevent such situations in the future? Based on the market analysis, our experts propose to change the procedure for selection of plots, which may be allocated through PSAs by establishing clear criteria:
Plots with special permits, which have not been sold auctions for 3 or more times are allowed to be covered by PSAs;
Plots in the remotest areas (continental shelf development, exclusive (marine) economic zone development, development of plots in the United Forces Operation zone) are allowed to be covered by PSAs;
Plots with complicated extraction conditions (shale deposits and depleted deposits development) are allowed to be covered by PSAs.
All other plots should be sold at transparent auctions. Ukraine should be attractive to investors, the procedure should be open and the budget should be filled with money!
Soon, we will present all the conclusions and proposals that follow from our research in more detail. Follow the news.