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Kyiv Energy Legislation News - April 2014
Dentons, Kyiv, Ukraine,
Tuesday, May 20, 2014
Published by U.S.-Ukraine Business Council,
Wash, D.C., Wednesday, May 22, 2014
OIL AND GAS
The Cabinet of Ministers of Ukraine adopted Resolution No. 979 “On Approval of the Procedure and Rules for Mandatory Insurance of Property Risks in the Industrial Development of Oil and Gas Deposits in Cases Prescribed by the Law of Ukraine ‘On Oil and Gas’,” dated November 13, 2013 which entered into force on February 5, 2014 (“Resolution No. 979”).
Resolution No. 979 stipulates that:
1. Mandatory insurance of property risks in the industrial development of oil and gas deposits in cases prescribed by the Law of Ukraine “On Oil and Gas” (“mandatory insurance”) shall be carried out to ensure compensation for damage caused by the insurer to the environment as a result of an incident or operating failures, as well as damage to state-owned property provided for use during the period of industrial development of oil and gas deposits.
2. A mandatory insurance agreement should be concluded in writing for a period of at least one year in accordance with a Model Mandatory Insurance Agreement, which does not exist yet.
3. Resolution No. 979 approves the methodology of calculation of insurance rates under agreements for mandatory insurance in the industrial development of oil and gas deposits in cases prescribed by the Law of Ukraine “On Oil and Gas” and the Model Mandatory Insurance Agreement (as mentioned above).
4. The sum insured under one mandatory insurance agreement should be equal:
- if the insurer’s annual capacity is more than 100 million cubic meters of gas or 15 thousand tons of oil and gas-condensate, - 10,000,000 untaxed minimums of individual income (currently set at 17 UAH for one untaxed minimum);
- if the insurer’s annual capacity is from 20 million cubic meters of gas or three thousand tons of oil and gas-condensate to 100 million cubic meters of gas or 15 thousand tons of oil and gas-condensate, - 6,000,000 untaxed minimums of individual income;
- if the insurer’s annual capacity is less than 20 cubic meters of gas or three thousand tons of oil and gas-condensate, - 4,000,000 of untaxed minimums of individual income;
- in case of extraction of natural gas resources for public needs in accordance with Article 10 of the Law of Ukraine “On the Principles of Natural Gas Market Functioning” the sum insured under one mandatory insurance agreement should equal 5,000,000 of untaxed minimums of individual income.
In addition, the Cabinet of Ministers of Ukraine adopted Resolution No. 980 “On Approval of the Procedure and Rules for Mandatory Insurance of Property Risks of the Subsoil User in Research & Industrial and Industrial Extraction and Use of Gas (Methane) of Coal Deposits” dated November 13, 2013 (“Resolution No. 980”).
In particular, Resolution No. 980 prescribes that:
1. The sum insured under one mandatory insurance agreement should equal10 million untaxed minimums of individual income. The sum insured under one mandatory insurance agreement for enterprises with a more than 50 percent State-owned stake in their equity capital should equal 5 million untaxed minimums of individual income.
2. A mandatory insurance agreement should be concluded in writing for the period of one year in accordance with the Model Mandatory Insurance Agreement as indicated in amendment 2 to resolution No.980.
3. Moreover, Resolution No. 980 approves the methodology of calculations of insurance rates under agreements for mandatory insurance of property risks of the subsoil user in the research and industrial and industrial extraction and use of gas (methane) of coal deposits.
It should be pointed out that in international practice the said risks generally are covered with package insurance. However, Ukrainian legislators have provided for separate insurance of property risks of the subsoil user which is effective on the territory of Ukraine.
As far as we know, market players tend not to fully comply with the resolutions mentioned above for the following reasons:
a. high insurance costs;
b. lack of penalties for failure to comply with the legislation mentioned above.
PAYMENT FOR GAS
The National Commission for Energy State Regulation (NERC) adopted Resolution No. 577, dated April 30, 2014 “On Establishment of Upper Limit on Natural Gas Prices for Industrial Consumers and Other Economic Entities,” which provides for the establishment of an upper (maximum) price limit on natural gas to be sold to industrial consumers and other economic entities, - UAH 4,724.00 for 1000 м3 (excluding VAT, and excluding surcharge to the existing natural gas tariff for consumers of all forms of ownership levied at the rate of two percent, transportation fee, distribution and supply of natural gas as per regulated tariff).
ELECTRIC POWER INDUSTRY
NERC issued a number of important information letters, in particular:
- “Concerning non-standard connection of electricity generating plants to electric networks,” letter No. 1276/26/47-14 dated 28.02.2014;
- “Concerning the procedure for transfer of power grids under abeyance to power transmission organizations,” letter No. 1218/26/47-14 dated 26.02.2014;
- “Concerning the procedure for connection of electricity generating plants to power grids,” letter No. 277/26/47-14 dated 16.01.2014;
- “Concerning the conclusion of an electric power supply agreement,” letter No. 276/26/47-14 dated 16.01.2014.
LAND LEGISLATION
Order No. 94 of the State Agency for Land Resources of Ukraine dated 27.03.2014 “On Amendments to Some of the Orders of the State Agency for Land Resources of Ukraine,” revoked:
1. Methodological recommendations on the exercise of powers by main branches of the State Agency for Land Resources of Ukraine in regions, the cities of Kyiv and Sebastopol with respect to transfer of state owned agricultural land plots for possession or use (on noncompetitive terms) for all purposes; and
2. Methodological recommendations on the procedure for the exercise of powers by main branches of the State Agency for Land Resources of Ukraine in regions, the cities of Kyiv and Sebastopol with respect to renewing agreements for lease of state owned agricultural land and/or introducing amendments thereto in the new wording.
DEREGULATION
The Verkhovna Rada of Ukraine adopted Law of Ukraine No. 1193-VII “On Introduction of Changes to Some the Acts of Legislation of Ukraine on Reducing the Number of Authorization Documents,” dated April 9, 2014, which entered into force on April 26, 2014, and which abolishes a number of authorization documents. The list of the documents and a detailed analysis of the mentioned law will be provided in a separate newsletter.
