Ukraine pegs calculation of gas royalty to domestic prices

MOSCOW. Sept 21 (Interfax) - Ukraine's parliament has passed a law to change the calculation of the royalty for subsurface resource use for natural gas production with 268 lawmakers voting in favour, Ukrainian media quoted the Verkhovna Rada as saying on its website.

From August 1, 2022 until the complete elimination of the ban on exports of Ukrainian gas, the country has decided to remove the arithmetic average of the customs value of imports and prices on the TTF gas hub in the Netherlands from the calculation of the royalty.

Instead, it will be calculated based on the highest of the following indicators: the weighted average of prices on Naftogaz Ukraine contracts for the purchase of natural gas of its own production on organized commodity markets; the weighted average price of natural gas sold in trading on organized commodity markets not taking into account Naftogaz and its subsidiaries; and the average arithmetic value of the average of the UA VTP Gas price for next month and this figure on pre-payment terms.

The proponents of the bill said that gas prices in Europe have reached record highs, while the ban on exports of Ukrainian gas and decrease in domestic consumption made gas production unprofitable in August, since the selling price in Ukraine is just a third of the European price.

As a result, most gas production has become loss-making, which is leading to a decrease in output and increasing Ukraine's dependence on gas imports, the document said. Therefore, the bill proposes to regulate and optimize how the tax base is calculated for natural gas produced in Ukraine from August 1, 2022 by changing the way the actual selling price is calculated, it said.

A law introducing a differentiated royalty for production of natural gas depending on three levels of selling prices - up to $150 per 1,000 cubic meters, $150 to $400 and over $400 - went into effect in April 2022.

The selling price of gas on which the royalty is charged is calculated as the arithmetic average of the customs value of imports and prices on the TTF gas hub. Previously the royalty was calculated only based on the customs value of imports.

Parliament also passed a law in May to require payment of the royalty for gas produced in the country only after its sale as of April 1.

Ukraine reduced gross natural gas production by 2% to 19.8 billion cubic meters in 2021, with Ukrgasvydobuvannya producing 13.7 bcm, Ukrnafta producing 1.1 bcm and private companies producing 5 bcm.