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New Tax Threatens To Destroy Gas Production In Ukraine

Tyler Durden's picture




 

Submitted by James Stafford via OilPrice.com,

Independent gas producers in Ukraine are joining forces to pressure the government in Kiev to re-think its new gas tax before everyone makes a run for the border in search of new assets in a more stable environment.

Private producers have compiled a draft letter to Ukrainian Prime Minister Arseniy Yatsenyuk, criticizing the government’s doubling of taxes for gas producers, which was justified through the use of “wrong and misleading” data about private companies.

They also warn that their time in Ukraine will be over if the tax is extended beyond the end of this year - and there will be no further foreign investment in the country’s beleaguered gas sector.

In an open letter to Yatsenyuk--an advance copy of which was obtained by Oilprice.com on August 10--independent gas producers in Ukraine pointed out that the cost of gas production by private companies in Ukraine exceeds the capital costs of public companies, which enjoy the advantage of development well researched and more easily profitable areas. “Therefore, any estimates by the Ministry of Finance as to the cost of gas on the basis of the financial performance of public companies cannot be used to determine the profitability of private company projects, which may be 10 times higher,” the letter said.

What the Ukrainian Ministry of Finance seems to view as the extraordinary windfall of profits enjoyed by private companies is unrealistic at best, said the letter, which was signed by private producers Cub Energy, Geo Alliance, Burisma, Kub Gas, and Regal Petroleum.

Oilprice.com has learned that the group is being advised in its latest lobbying effort by Robert Bensh, managing partner in Pelicourt LLC, the majority shareholder of Ukraine’s third-largest producer, Cub Energy. Bensh is working with the group as well as advising the U.S. and Canadian governments on the potential harm the bill would cause both to investment in the upstream sector of Ukraine as well as to the long-term security of Ukraine.

The private producers note that the 55 percent tax rate increase could “lead to the collapse” of large- and medium-scale gas projects in Ukraine, and “in general, significantly reduce the attractiveness of the Ukrainian oil and gas industry to foreign investors.”

They propose to provide the government with real data on the country’s independent producers and their investment and profitability. They are also proposing to create a working group with the ministry of finance and interested stakeholders to “explain in detail the repercussions of the 55 percent tax rate” for Ukraine’s budget, as well as for state-run Naftogaz and its subsidiaries and private producers.

For now, the new tax is planned to run through the end of this year—ostensibly to feed the war machine in eastern Ukraine. However, there is already talk of extending the new tax as of  January 1, 2015, which will be the final blow to private producers firstly, and Ukraine’s energy independence, secondly.

 

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Thu, 08/14/2014 - 22:12 | 5095554 toady
toady's picture

What about our homeboy Mr. Biden?

Back on unemployment I guess...

Thu, 08/14/2014 - 22:16 | 5095573 Slave
Slave's picture

Well, now we can be certain that Ukraine has no leverage.

Thu, 08/14/2014 - 23:19 | 5095834 Boris Alatovkrap
Boris Alatovkrap's picture

Ukraine has beautiful woman, strong vodka, much gas, and best darndest cabbage roll!

Thu, 08/14/2014 - 23:33 | 5095876 Rootin' for Putin
Rootin' for Putin's picture

Funny, i live in an area that is mostly Ukrainian in origin and there isnt one cute female in 50 miles.

Fri, 08/15/2014 - 01:51 | 5096183 Boris Alatovkrap
Boris Alatovkrap's picture

Simple, you are scare off all cute female. Maybe you are possess of bad pheromone or precipitate sharp odor?

Fri, 08/15/2014 - 04:43 | 5096376 Latina Lover
Latina Lover's picture

The Kiev Kriminals are so depraved that they will steal everything before they fly out on their private jets, just ahead of the pitchforks.

Fri, 08/15/2014 - 05:48 | 5096420 Motorhead
Motorhead's picture

Shit, man, the cute (and young) ones probably bailed a long time ago to go to a "less-corrupt" country.

Fri, 08/15/2014 - 07:31 | 5096522 shovelhead
shovelhead's picture

Jumped the Shark.

Our troubles are headed in the other direction.

Thu, 08/14/2014 - 23:18 | 5095831 junction
junction's picture

Hunter Biden can always run for Senator in New York if POS Senator Schumer retires to spend the $30 million swag earned from getting the Glass-Steagal Act repealed in 1999. 

Fri, 08/15/2014 - 07:10 | 5096477 Gandulf
Gandulf's picture

Mrs. Kagan-Nudelman was certainly right about Yats. He's being very co-oerative:-

link:-US, EU now allowed to buy Ukraine’s gas pipelines — RT Business

 

Fri, 08/15/2014 - 07:50 | 5096547 shovelhead
shovelhead's picture

Haha,

At least when you buy an empty barrel you can always fill it later.

Craigslist Ukraine

For Sale:

Very Large empty barrel. No bottom or top.

Ask for Arse.

Thu, 08/14/2014 - 22:13 | 5095555 NoWayJose
NoWayJose's picture

But the EU will happily pay 30% more for Ukrainian gas instead of buying it from those nasty Russkies... Or maybe not...

Thu, 08/14/2014 - 22:30 | 5095636 Jack Burton
Jack Burton's picture

To produce gas, the Kiev Junta Army must destroy the rebels in the east. The big offensive to take Donetsk has stalled out, though junta forces have made small gains. The rebels are too small to do anything but defend and make counter attacks. But there is no sign that Kiev's New Revolutionary Army is winning the expected victory by Sept. 24th.

To frack East Ukraine, the Junta must clear the area so frackers can drill, and truck routes must be safe. That seems far off fo now. So the Kiev Junta is counting it's tax chickens before that have hatched. Biden and Company will end up with lots of tied up capital if the USA's proxy Army does not destroy Putin's pet rebels. One might ask, since the great Kiev Amry has been in battle for over three months, why are rebels just as strong as before in relative strength? How come Junta keeps taking serious losses? Can't frack till the war is won, so Junta fighters, GET BUSY. Biden and investors count on you to win!

Thu, 08/14/2014 - 22:31 | 5095648 Jack Burton
Jack Burton's picture

Kiev's dupes, fighting and getting killed so western frackers can get profits. Kiev, does it breed fools and idiots?

Fri, 08/15/2014 - 05:55 | 5096430 Lea
Lea's picture

That's why even with American help, the Kiev junta military is losing. No sane motive to fight = no spunk.

Thu, 08/14/2014 - 23:44 | 5095907 kchrisc
kchrisc's picture

The economy is not sinking fast enough to justify more DC US and Israeli "intervention" and Nuland cookies.

Cue the "Economic Hit men."

An American, not US subject.

Fri, 08/15/2014 - 01:09 | 5096127 SemperFudge
SemperFudge's picture

But how would Joe Biden's son benefit from this? Putting competitors out of action?

Fri, 08/15/2014 - 03:50 | 5096338 Urban Redneck
Urban Redneck's picture

Monopolists (and their oligarch shareholders) don't need competitors to profit.

Fri, 08/15/2014 - 04:22 | 5096356 sessinpo
sessinpo's picture

Semperfudge  But how ould Joe Biden's son benefit from this? Putting competitors out of action?

-----

Why does it matter. Hunter biden got the job. He gets the paycheck. That gas isn't going anywhere just because it isn't extracted now. By the way, did you know Burisma Holdings is based out of Cyprus?

Another odd thing is this company is less then a decade old and is private so no one really knows who own or controls it.

Fri, 08/15/2014 - 07:55 | 5096571 shovelhead
shovelhead's picture

We got the US VP's kid on the team.

Don't fuck with us or you'll get droned.

Fri, 08/15/2014 - 05:49 | 5096421 Motorhead
Motorhead's picture

You just can't make this shit up.

Do NOT follow this link or you will be banned from the site!