Rada propose to tie gas production royalty to selling price

Head of the parliamentary committee on finance, tax and customs policy Danylo Hetmantsev has registered a bill that proposes to amend the Tax Code by tying the natural gas production royalty to its selling price.

"The rapid increase in the selling price of natural gas does not affect the cost of production. This creates an extra margin that mining companies did not count on," he said in the explanatory note to bill No. 7038 dated February 9, 2022.

The royalty differentiation mechanism assumes that the higher the selling price of natural gas, the higher the royalty interest rate.

In particular, when extracting natural gas from old wells for deposits at a depth of up to 5 km with the selling price of up to $200 per 1,000 cubic meters, the royalty is proposed to be set at 29%, with a price of more than $200 to $400 per 1,000 cubic meters – 39%, at a price of over $400 to $600 per 1,000 cubic meters – 49%, at a price of over $600 to $800 per 1,000 – 59%, at a price of over $ 800 per 1,000 cubic meters – 69%.

When extracting natural gas from old wells for deposits at a depth of more than 5 km with the selling price of up to $200 per 1,000 cubic meters the royalty is proposed to be set at 14%, with a price of more than $200 to $400 per 1,000 cubic meters – 24%, at a price of over $400 to $600 per 1,000 cubic meters – 34%, at a price of over $600 to $800 per 1,000 cubic meters – 44%, at a price of over $ 800 per 1,000 cubic meters – 54%.

Currently, the royalty for gas production from old wells for deposits at a depth of up to 5 km is 29%, at a depth of more than 5 km – 14%.

In addition, when producing natural gas from new wells for deposits at a depth of up to 5 km with the selling price of up to $200 per 1,000 cubic meters the royalty is proposed to be set at 12%, with a price of over $200 to $400 per 1,000 cubic meters – 22%, at a price of more than $400 to $600 per 1,000 cubic meters – 32%, at a price of more than $600 to $800 per 1,000 cubic meters – 42%, at a price of over $800 per 1,000 cubic meters – 52%,

When extracting natural gas from new wells for deposits at a depth of more than 5 km with the selling price of up to $200 per 1,000 cubic meters the royalty is proposed to be set at 6%, with a price of over $200 to $400 per 1,000 cubic meters – 16%, at a price of more than $400 to $600 per 1,000 cubic meters – 26%, at a price of more than $600 to $800 per 1,000 cubic meters – 36%, at a price of over $ 800 per 1,000 cubic meters – 46%.

Currently, the royalty for gas production from new wells for deposits at a depth of up to 5 km is 12%, at a depth of more than 5 km – 6%.

Hetmantsev also proposed to change the formula for the actual selling price of natural gas, taking into account, when calculating it, not only the average customs value of imported gas, but also the arithmetic mean between the Bid and Ask prices in the Complete European Gas prices of the Argus European Natural Gas report, as well as the average selling price (excluding VAT) based on the results of electronic exchange trading on Ukrainian commodity exchanges, the list of which is determined by the Cabinet of Ministers.

Source: www.en.interfax.com.ua