Kinstellar Energy Digest: Ukraine. July 2018 In Review

OIL AND GAS: Ukraine supports new roadmap for the sale of hydrocarbon licences by auction

On 26 July 2018, Ukraine's Cabinet of Ministers approved a roadmap to hold international auctions for the sale of special permits (licences) for hydrocarbon exploration and production.

Preparation for the first international auction will start in September 2018, with the auction expected to be held in early 2019.

Although as of 31 July 2018 the respective government decision was not yet published, according to Ukraine's State Service on Geology and Mineral Resources ("Derzhgeonadra"), the key features of the new auction model include holding auctions using an electronic format that would allow long-distance participation in the bidding process and shorter terms for the whole procedure. The payment for a documentation set will be kept at the current level of 3.12% of the starting permit price, but shall not exceed UAH 72,555 (approximately EUR 2,300). The guarantee payment is set as 20% of the starting permit price.

According to the Derzhgeonadra, licences will be sold for fields totalling 150 billion cubic metres of natural gas. The estimated starting price for a permit is UAH 3 billion (approximately EUR 95 million). The value of geological information is approximately UAH 40 million (approximately EUR 1.2 million).

If proven successful, the pilot e-auction project may be implemented as a default option for the sale of rights to oil and gas fields. Ukraine still has one of the largest deposits of natural gas in Europe - the most recent edition of the BP Statistical Review of World Energy cites Ukraine's total proven reserves of natural gas at 1.1 trillion cubic metres (as at end-2017). Upcoming changes to Ukraine's regulatory framework are expected to attract international oil and gas investors.

NETWORK TARIFFS: Updated draft methodology for network tariffs

On 20 July 2018, Ukraine's National Commission for the Regulation of the Energy and Public Utilities Sectors ("Regulator") published draft regulations to amend the regulatory asset base (RAB) methodology for electricity distribution network tariff setting ("Draft Regulations").

The Draft Regulations are aimed at adjusting the methodology of applying the RAB tariff to recent changes in legislation and establishing a detailed procedure for calculating the tariff. In addition to detailing the organisational aspects of setting the tariff, the Draft Regulations specify the procedure for calculating...