Energy Firms Rethink Ukraine Investment On Tax Change
An energy company operating in Ukraine has suspended its capital investment program, attributing the decision to sales restrictions and a “punitive” tax regime for gas production.
JKX Oil & Gas, which is based in the UK, announced that its Skytop drilling rig on the Ignatovskoye field in east Ukraine will be stacked until the investment environment improves. The company also said that operational and ancillary costs will be reduced.
Ukraine hiked subsoil taxes to 55 percent in mid-2014 as an emergency budget measure. This was nearly double the previous rate and was expected to remain in place only until the end of the year. However, legislators voted at the end of December to retain the higher percentage in the Tax Code for 2015.
JKX Oil & Gas’s decision may be followed by another British company, Regal Petroleum. Regal said that it is currently reviewing its future capital investment commitments in Ukraine.
The two companies have also seen revenue fall due to a Government Decree mandating that between December 2014 and the end of February 2015 certain industrial customers must purchase supplies from Ukraine’s state-owned gas supplier, Naftogaz, to support its financial standing. The “Naftogaz Deficit” amounts to UAH103bn (USD6.7bn), and is equal to nine percent of Ukraine’s gross domestic product (GDP).
JKX said that the remaining market available to private gas producers is contracting and that there is intense competition for an increasingly limited number of creditworthy industrial customers.
Ukraine anticipates a 26 percent increase in revenues over the year. Tax changes introduced at the start of 2015 include a reduction in the social security tax, new import duties, tax increases on luxury goods, and new taxes on large properties.
Source: Tax News – Energy Firms Rethink Ukraine Investment On Tax Change
