Last week, a probable sale of a stake of Devon to a Russian businessman Pavel Fuks and non-renewal of two special permits for subsoil use of Evraz Sukha Balka were revealed. These companies are among those who ignored the submission of information under the Extractive Industries Transparency Initiative (EITI), including information involving the disclosure of final beneficial owners.
In addition, last week, the Parliament reportedly voted down the first reading of draft law No. 4840 “On Enhancing Transparency in Extractive Industries.” The adoption of this law would oblige such companies as Devon or Evraz Sukha Balka to disclose their activities and payments to the government authorities and local self-government authorities. Was the voting down an ordinary failure or a deliberate step by certain forces to preserve “blind spots” in extractive industries?
Ukraine, in the course of its integration into the EU, is one of the leaders in introducing EITI (Extractive Industries Transparency Initiative) standards, which have long become a global trend for the majority of extracting companies. Actually, this initiative could help domestic extracting companies to attract foreign capital in conditions of very low public investments. The arrival of foreign investors is impossible without clear and transparent procedures in the production and further sale of energy resources, and the Initiative helps to implement such procedures in Ukraine.
Many leading companies of Ukraine support the disclosure of information and have facilitated the release of the second report in accordance with the EITI Standard, detailing the situation not only in the oil and gas industry, but also in the production of coal, iron, manganese and titanium ores. The publication of the two reports showed that the companies carrying out active extraction and paying taxes, fees, and even communicating with communities, have nothing to hide; and, on the contrary, it is important for them to show how much they invest in the budgets of different levels, and why their work is important for the economy. And those companies that do not carry out extraction (while having licenses) or hide their payments, pretend that Extractive Industries Transparency Initiative Report does not concern them.
The UAEITI Report for 2014 – 2015, which was presented on February 21 this year, also identified a lot of companies that ignored the above Initiative and failed to submit the necessary information or submitted incomplete information. The document has once again confirmed a long-pending need for recognizing the EITI Standard and requirements of the EU Directives on the reporting of subsoil users at the legislative level.
Moreover, upon the introduction of Law No. 1793-VIII in 2018, which provides for the distribution of 5% of rent for oil, gas and gas condensate production, there will be the need to keep track of companies’ payments to local budgets and the use of those funds.
For this purpose, through the joint efforts of the experts, the government and the public, a draft law “On Disclosure of Information in Extractive Industries” has been developed aiming to oblige large extracting companies to publish data that are extremely important for the public: information about payments per every mineral deposit, about ultimate owners and even texts of the agreements. After a series of discussions with government officials and business representatives, the document was submitted to the Verkhovna Rada of Ukraine and obtained positive opinions of the dedicated committees.
However, the failure of voting the draft law in the Verkhovna Rada of Ukraine on February 21, when the second UAEITI Report was presented, has become an unforeseen concourse of circumstances. 10 minutes before the end of the working day, Andrii Parubii, the Speaker of the Parliament, suggested considering the draft law under the simplified procedure. The decision was approved by 195 votes.
In the course of consideration, Member of Parliament Olha Belkova stressed the need for adopting the law because it will help to disclose a lot of secret information in the field. Despite the fact that the second UAEITI Report was published and covered 2014 – 2015, many companies did not submit information on the taxes paid because there was no legal obligation to do that. Oleksandr Dombrovskyi, Acting Chairperson of the Committee of the Verkhovna Rada of Ukraine on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, stressed that the draft law would help to fight corruption in the country. He pointed out that the draft law was supported as a whole, in addition to the dedicated committees, by the committees for information, budget, and preventing corruption.
Unfortunately, the first attempt to support the draft law failed: only 217 MPs voted “for”. The Chairperson of the Verkhovna Rada of Ukraine gave MPs the second chance to support the draft law and submitted for consideration the proposal to return to the voting. This time the decision was supported by 228 member of the Parliament. The situation was tense in the chamber; however, a hope still remained that the law would be voted for. Nevertheless, the MPs failed to support the draft law for the second time, and then failed to vote on the reconsideration for the third time.
If we take a closer look at the voting, the first return to the voting was additionally supported by 4 Members of Parliament from the Petro Poroshenko Bloc faction, 3 from “Samopomich” Union, 3 from Volia Narodu group, and one non-affiliated MP. However, after less than a minute, some of them decided against voting.
At the last attempt, the draft law fell three votes short of being passed in the first reading. The subsequent votes on the return to its consideration also failed to reach the minimum votes: button “for” was pressed by 225, 225 and 223 MPs respectively. Closing the meeting of the Verkhovna Rada of Ukraine, Andrii Parubii, the Speaker of the Parliament, aptly stressed that most of the MPs only acted as protesters and required the disclosure of information, while failed to gather and take their seats.
However, it was not just the absence of some MPs, but also manipulations of others. Having further analyzed the voting, you can see that those who unexpectedly decided against voting included MPs from the factions Petro Poroshenko Bloc (Borys Kozyr, Petro Yurchyshyn) and People’s Front (Andrii Ivanchuk, Hennadii Kryvosheia, Vitalii Stashuk). They voted for reconsideration but not for the draft law.
Until such important decisions for the industry are subject to political games, the energy sector will continue to suffer from distrust on the part of the communities and investors. Currently, the MPs who are authors of the draft law have promised to re-submit it to the Verkhovna Rada of Ukraine. It is to be hoped that next time the “concourse of circumstances” will not become an obstacle on the way towards transparency in extractive industries, attracting foreign investment and approximation of the natural resource management system to the European standards.
Taras Tkachuk, Maria Melnyk, DiXi Group
Ukrainian version of the article was published here