Contract with Shell: the extractive companies will get almost all shale gas

Why the production of shale gas in Ukraine is the delivery of national interests? Why the contract on its production was signed? To what it will lead? The deputy of the Kharkov regional council, Batkivshchyna fraction Ivan Grigoryevich Varchenko answers the question of the Internet portal «The world and we».

— In the contract with the Shell company on production of shale gas many experts note rough violations of the law of Ukraine and the extremely unprofitable conditions for the Ukrainian party. How this contract provides the use of the ground areas in the territory of Ukraine by the Shell company?

In connection with the contract signed with the Shell company, there was a number of questions of what compensations would be for the use of the ground areas, what compensations would be if the site is polluted and unsuitable for further use. And it is also the legal moments connected with conducting gas production and property of the ground areas.

I will remind that «Yuzovsky» site in the Kharkov area occupies the territory of Izyumsk, Balakleevsk and Barvenkovsk areas. In the territory of these areas there is an earth of different forms of ownership. It is the private property in the form of personal plots and allotments, state ownership and other forms of ownership of the earth.

It is obvious that it is necessary to resolve an issue separately in each separate case. But, unfortunately, the formula is now chosen which allows to tell that this question is provided, but not to tell how. In the contract it is simply specified that all these issues have to be resolved «within the current legislation». But the Ukrainian legislation provides too many options of behavior in this case.

The contract provides that the state will meet half-way in everything to investors — the Shell and «Nadra Yuzovskaya» companies. It concerns also ensuring the use of the ground areas for gas production even if they are out of the coordinated territory. This territory is defined to the second of width and longitude in the contract. And the state already assumed the obligation to provide access to any areas chosen by the investor out of the coordinated territory. Actually, the state promised that if it is necessary to put a tower on area of the citizen, it will make so that this citizen will give the area.

Thus, there is a legal uncertainty as it will be carried out. The order of this activity isn’t stated in the contract and isn’t defined by the current legislation. But as a rule, it is defined by various practice, when who has more than money is right or those who «drinks tea with significant people».

It is clear that it is impossible to agree with it and, it is obvious that this question demands the decision. I hope that the Shell Company and the Ukrainian party on behalf of the power will cease to take a position that «aboriginals» live there who can be «broken». Obviously, the position is possible only that there are citizens, the people with whom it is necessary to communicate, convince not only by arguments of intimidation and ignoring of interests of people, but to convince arguments of responsibility, legality and to guarantee that their rights will be observed.

— What share from extracted gas and profits on its production according to this contract will be got by Ukraine?

I was the only deputy who was in time within two hours while the contract appeared in the Internet, to keep this document to work with it. Then I published it because I consider this information socially significant. As the economist I had opportunity to analyze the figures specified in it. I had the doubts of figure which were spoken from high tribunes, including about 50 billion dollars of investments. I can’t trust modern Ukrainian officials because of that simple fact that they constantly deceive. It became clear that the terms during which these investments will arrive — about 50 years are thus suppressed. During the same time 100 million dollars of the investments promised to Kharkov area will arrive also.

It appeared that according to the contract Ukraine will receive from 31 to 40% of the extracted, so-called, profitable hydrocarbons. What does it mean? 60% from 100% of the extracted gas are defined as compensation hydrocarbons. That is, this share is given to the extracting company, as compensation for process of production. All overhead expenses and return of investment means, and receiving profit join also there. Therefore there is no matter about participation of the state in this share. And in other 40% of the extracted gas which remain, the share of the state can make from 31 to 40%. And it will be 60% only in very good option.

But realities are that even the most advanced American and European technologies didn’t reach that level of profitability at which Ukraine could apply on these 60%. Therefore if to take the most realistic option in 31%, in figures it will look as follows. For example, from 10 billion cubic meters of gas, 6 billion at once are given to the extractive Shell and «Nadra Yuzovskaya» companies. The remained 4 billion are sharing. From them the state will have only 31% and the remained shares on 34, 5% will be divided between the same companies already, as a share in profitable hydrocarbons. Obviously, the state of Ukraine looks in this situation, to put it mildly, deprived.

I asked a question what is the world practice in contracts of this sort. Unfortunately, the most part of such information is hidden, but at the same time known data say that the state under normal conditions can apply for 70−80% of that is got.

In our case Ukraine will have 1,2 billion cubic meters from 10 billion cubic meters. Of course, it isn’t enough to speak about power independence. That is, the main thesis by which the president and the government are guided when signing this contract on ensuring such independence, actually isn’t carried out.

It would be very desirable that Ukraine was provided with own gas, but let’s not to deceive the people. According to the signed contract even under the best, improbable conditions of 60% from profitable hydrocarbons from 20 billion cubic meters planned to production, Ukraine will have only 4,8 billion cubic meters, and under the worst conditions — 2,4 billion cubic meters. At today’s consumption level in the state about 50 billion cubic meters a year, it is obvious that it won’t influence significantly the balance of the gas market.

Some experts say that I am not right as all that gas which will get the companies, they will sell in Ukraine. It is claimed that it isn’t favorable to transport it as it is «heavy» and isn’t favorable to transportation on long distances. But I ask a question, for what reason the extractive company has to sell it at prime cost, instead of the market price about 500 dollars which now exists? Thus, the essential difference isn’t present here.

There is talk about creation of the new gas market. But it is a question to the power and economic calculations. And calculations aren’t conducted — data aren’t provided neither to experts, nor citizens. It is clear, that not each of 45 million Ukrainians will be far interested in details of this contract. But it is the extremely important that this information was known by people who ask questions and for whom it is necessary in professional activity.

Now there is no this information, but there is a question, whether Ukraine will be with gas? I consider that no at a today’s design. The extractive companies will be with gas and money, instead of Ukraine. That is we will buy gas either from Russia or from these extractive companies at the same price.

— Tell about a situation in more detail which developed with coordination of this contract by Kharkov Regional Council.

If the serious international treaty which will bring the big investments, new workplaces, infrastructure development is planned, everything has to be thought over thoroughly. Here it is impossible to do all by «gallop», playing the marked cards under a table. But everything occurred exactly in that way. Deputies of Donetsk and Kharkov regional councils got to know about the adoption of this contract directly at session —on January 16 in Donetsk and on January 17 in Kharkov. As though such «not important» question as Shell company activity for territories of the Kharkov and Donetsk region was planned to consideration at session.

Thus, the deputies were presented with a fait accompli that they have to vote for the document which they didn’t hold in hands and didn’t see. This fact is the basis for my protest in the Kharkov regional administrative court where the case on cancellation of the decision of the Kharkov regional council of January 17 is now considered by which this contract as this decision was made with essential violations of the law was coordinated. Including the 13th article of the Constitution which claims that the subsoil are a sole property of the people of Ukraine. Deputies of regional council had no opportunity to protect a constitutional law of each citizen of Ukraine on using the subsoil. Therefore I hope that on September 16 this decision of the Kharkov regional council will be cancelled at court session.

— How many wells on investigation of shale gas are already drilled in the Kharkov area?

Two wells for investigation are drilled — Belyavskaya-400 in Pervomaysk area and Novo-Mechebilovskaya-100 in the Bliznyukovsk area. But besides the growth of prospecting activity, which is observed on production of traditional gas causes vigilance. Now they began to drill and reconnoiter much, claiming that traditional gas is reconnoitered.

But at the same time I adhere to a position that if this activity will be made transparent, it will be more favorable both to the state and investors. I consider that it is impossible to force out the potential investor from the Ukrainian market only because here local «guys» decided something «to stir up». Ukraine has to be with own gas. But thus ecologically safe technologies have to be used and there has to be an absolute guarantee of compensations in case of any unforeseen circumstances.

— In your opinion, to whom this contract with such unprofitable conditions for the country is favorable in Ukraine?

It is possible to give a definite answer that complete control over a situation belongs to the President of Ukraine and the Cabinet appointed by him — those ministers who are connected with a so-called Family of the President. The existence of the private company «SPK-Geoservis» among signers of the contract which owns 10% of Nadra Yuzovskaya Company tells about it. It is the private company which for some reason has opportunity to supervise 10% of state ownership.

Therefore I have an unambiguous answer on this question. If there are any Ukrainian oligarchs or business which shows interest to this project, is unambiguous that this business is under control of the main Ukrainian Family, under control of the President and the Cabinet. I think, here you shouldn’t look for any additional, difficult courses. The question is as far as they plan to use these opportunities, as 2015 year is very soon…