It’s been about a month since U.S.-headquartered Chevron and Royal Dutch Shell won a Ukrainian government tender for licenses to develop the vast Yuzivsky and Olessky fields for hydrocarbon reserves using shale and other unconventional exploration technologies. Even so, Ukrainian officials have not disclosed the selection criteria upon which the tender relies or how the two winners were selected.
All participants were expecting more transparency from the government for these projects, Ukraine’s first attempt to bring in the world’s leading energy companies into potentially multi-billion-dollar exploration projects that could prove to be a game changer for the nation’s major energy challenges.
On the one hand, the unsuccessful bidders (Italy’s Eni, America’s Exxon Mobil and Russian-British TNK-BP) need assurance that the government’s decision was fair and that the winners had really offered the best conditions for investment and the state’s share in the distribution of product.
On the other hand, the winning companies are eager to proceed with the next step and sign a product-sharing agreement. Until the agreement has been signed, there are no guarantees of any obligations being fulfilled. On both sides, there remains a risk of the obligations being reviewed.
The public also demands clarity. The Ukrainian people are still unaware of the foreign companies’ investment plans, or the environmental and other consequences that gas production may entail. Public opinion has been ignored from the very beginning, when the government abolished the requirement to conduct regional hearings on the use of shale and other exploration technologies that potentially pose risks to the environment. This is a time bomb for any prospective investor as well as a reputation hazard.
Today, with Ukraine’s reputation abroad already challenged, the country cannot afford another international scandal. One lesson was learned at a high price in 2006, when the government and the Vanco Prykerchenska company clashed in court following signing of a scandalous PSA. They both lost. Neither exploration nor production at of the vast Prykerchenska offshore fields has commenced.
Ukraine’s government must learn lessons from the past and ensure that a balance of interests is maintained in future PSAs by having a consistent energy policy and running transparent and fair tenders.
PSAs between the government and companies should include clear commitments from both parties. The government should publish information on its taxation policy, the investor’s social obligations, requirements on the use of local labor, and environmental protection measures – especially if these specific requirements are not defined by law. With all the information made public, it is easy to monitor compliance with the declared commitments.
Finally, Ukraine must act to prevent the slightest appearance of corruption. Full transparency will ensure the credibility of the government’s intentions towards both the investors and the public.
It is important not to make mistakes now. Our actions today will determine the development of the national energy sector for many years to come.
Ildar Gazizullin is a senior analyst at Kyiv’s International Centre for Policy Studies. He can be reached at [email protected].
