Ukraine considers reducing gas production tax rate to 35%

Обзоры по компаниям и отраслям 09.06.2015 Ukraine’s Energy Ministry is initiating a reduction in the natural gas production tax to 35% from the current level of 55%, minister Andriy Demchyshyn told journalists at a June 8 press conference. The rate of “55% is too high for the wells above [we read: shallower than] 5,000m, and we recommend reducing it to 35%”, he said, as reported by the UNIAN news agency. Recall, the tax rate for gas producers increased from 25% (and 14% for wells deeper than 5 km) in March 2014 to 28% (15%) as of April 2014, and further to 55% (28%) as of August 2014. Since January 2015, the 55% (28%) rates were introduced for an indefinite time, without any exemptions that were offered in August. Interestingly, the radical, more-than-twofold increase in the gas production tax, as well as the tax for iron ore extraction, did not change state collections much in 2015: in 1Q15, total budget revenue from mineral extraction taxes increased just 3.8% yoy. Among the publicly listed gas producers, those operating shallow wells are Serinus Energy (SEN PW) and JKX Oil & Gas (JKX LN). Alexander Paraschiy: A possible decrease in the tax rate to 35% for gas producers seems not to be as significant as their owners had been expecting, so we expect further negotiations with investors on deeper discounts in tax rates. What’s also disturbing is that no clear message was sent to gas producers of wells deeper than 5,000m. There could be some political motive in the government's possible refusal to revise taxes for deeper wells, given that the two most prominent deep gas producers are companies related to opposition oligarchs, namely Rinat Akhmetov (via DTEK) and his business partner Vadim Novinsky (via Regal Petroleum).