Reform Index 231: State Register of Sanctions and Production Sharing Agreement for Natural Gas

Reform Index 231: State Register of Sanctions and Production Sharing Agreement for Natural Gas

Photo: unsplash.com / Myko Makhlai
2 May 2024
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Featured in the 231st issue of the Reform Index are five regulations. Experts gave top marks to the establishment of the State Register of Sanctions and the regulations governing the sale of natural gas obtained by the state through production-sharing agreements. From January 29 to February 11, the Index stood at +0.8 points, mirroring the +0.8-point score recorded in the previous issue.

Graph 1. Dynamics of the Reform Index

Graph 2. Values of the Reform Index and its Components in the Current Assessment Round

The procedure for the use of extracted natural gas remaining in state ownership under a production-sharing agreement (PSA), +2.3 points

In February, the Cabinet of Ministers approved the Procedure for using or disposing of a portion of the produced output, particularly natural gas, remaining in state ownership under a production-sharing agreement.

The Production Sharing Agreement is a contract between the state of Ukraine and investors (individuals or legal entities from Ukraine or abroad), in which Ukraine delegates to the investor the search, exploration, and extraction of minerals at the investor’s expense, in exchange for which the investor receives a portion of the extracted minerals. These agreements are regulated by Ukrainian legislation enacted as early as 1999 (with amendments as of 2022).

The new Procedure, adopted to replace the repealed resolution, elaborates on the rules for using a portion of the produced output remaining in state ownership. The rescinded resolution provided rather general guidelines, stating that the authorized body should sell such production through exchanges and auctions at a price exceeding the price at which the minerals were obtained by the state during their distribution under the agreement.

The new procedure specifically pertains to hydrocarbons and provides a much more detailed description of the interaction between investors and the state representative, the Ukrainian Geological Survey, and the company Gas Ukraine (a subsidiary of Naftogaz Ukraine). It is determined that investors will transfer the state share of gas to Gas Ukraine, and the company will sell it on the open commodity exchange. The proceeds from the sale will be transferred to the state and local budgets (based on the extraction location). 

Information about the Reforms Index project, the list of Index experts and the database of the regulations assessed are available here.

The establishment of the State Register of Sanctions, +2 points

The President issued a decree approving the decision of the National Security and Defense Council to establish the State Register of Sanctions. This register contains crucial information about sanctioned individuals and companies: full names or titles, places of registration, reasons for imposition, the nature of sanctions, and their duration. Entry into the register occurs after the President approves the NSDC decision to impose sanctions or after a court ruling to that effect.

The register is accessible to users and maintained simultaneously in Ukrainian and English. This makes it convenient for tracking legal and natural persons acting against Ukraine’s national interests and sovereignty. 

Recall that in the spring, the National Agency on Corruption Prevention (NACP) ceased maintaining the registry of “international sponsors of war” (companies collaborating with Russia). The reasons cited were complaints from partner countries and the absence of a regulatory framework for the existence of such a list. Currently, the list’s page automatically redirects users to the State Register of Sanctions.

Chart 3. Value of Reform Index components and number of events

Reform Index from VoxUkraine aims to provide a comprehensive assessment of reform efforts by Ukraine’s authorities. The Index is based on expert assessments of changes in the regulatory environment in six areas: Governance, Public Finance, Monetary system, Business Environment, Energy, Human Capital. Information about the Reforms Index project, the list of Index experts and the database of the regulations assessed are available here.

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