Ukraine loses 50 million cubic meters of gas per month due to court ruling

Ukraine is losing almost 50 million cubic meters of gas per month after the Sixth Administrative Appeal Court ruled to revoke the special permit for natural gas and condensate extraction at the Sakhalin field at the request of the State Service for Geology and Mineral Resources, the PrJSC MC Ukrnaftoburinnya reported.

The state-controlled company is obliged to pay its net profits to the state, so the shutdown causes losses for both the company and the state. The suspension of production also means that monthly rent payments are not being made.

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On average, the company reports a monthly loss of 47.3 million cubic meters of natural gas (over 1.5 million cubic meters per day) and 5229 tons of condensate (almost 200 tons per day). At market prices, the profit from the sale of the extracted hydrocarbons could have amounted to almost $13.5 million (UAH 0.5 billion) in one month.

“Losses to local and state budgets (excluding income tax, unified social tax, and military fees) amount to almost $11.5 million (UAH 410.5 million) per month, including more than $5 million (UAH 190 million) in rent, about $3.5 million (UAH 132.2 million) in VAT, and $2.4 million (UAH 88.2 million) in income tax,” the company said.

“From January to November 2023, the company paid more than $112 million (UAH 4.13 billion) in taxes, and from December 2023 to June 2024, it could have paid another $51 million (UAH 2.24 billion) – this is also not the final figure, excluding personal income tax, unified social tax and military duty.”

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“Due to an unlawful court decision, the state loses a valuable resource for energy independence and funds that should be used for the needs of the Ukrainian Armed Forces.”

The company provided a chronology of events leading up to this situation. On Feb. 5, 2010, pursuant to the ruling of the Kyiv District Administrative Court of Sept. 3, 2009 in case No. 2a-7778/09/2670, the State Service of Geology and Mineral Resources issued a special permit for subsoil use No. 5139 to PrJSC MC Ukrnaftoburinnya.

On May 10, 2019, Ukrnaftoburinnya applied to the State Service of Geology and Subsoil of Ukraine for a new special permit in connection with the expansion of the Sakhalin field development.

Special permit No. 5139 dated Feb. 5, 2010, which was the subject of the 2009 court decision, was revoked by Order of the State Service of Geology and Subsoil of Ukraine No. 221 dated Jul. 10, 2019 in accordance with paragraph 1 of Part One of Article 26 of the Subsoil Code of Ukraine.

On July 10, 2019, the Company received a new special permit No. 6349, which is a new transaction and cannot be considered as a reissue, amendment or extension of the previously issued permit.

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In the first instance, the State Service of Geology and Subsoil of Ukraine was denied by the Kyiv District Administrative Court on 9.08.2023. Derzhgeonadra filed an appeal, and the company presented arguments and objections based on the same legal position in the Appeal Court. However, it did not consider the arguments of PrJSC MC Ukrnaftoburinnya and granted the petition for annulment of the court’s decision. The Company believes that the decision is unfounded and not based on the requirements of the law.

On Dec. 1, 2023, PrJSC MC Ukrnaftoburinnya completely stopped the natural gas and gas condensate extraction at the Sakhalin oil and gas condensate field after the court decision revoked the special subsoil use permit No. 6349 dated July 10, 2019.

On Dec. 5, 2023, it was reported that the Asset Recovery and Management Agency (ARMA) would not initiate termination of the management agreement with PJSC Ukrnafta for the seized assets of PJSC Ukrnaftoburinnya due to the decision of the Sixth Administrative Court of Appeal of Ukraine.

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