Civic activists, Ministry of Energy: New legislation initiative on extracting companies reporting requires information disclosure and introduces a system of penalties


Kyiv, January 21, 2016. Civic activists presented a new legislation initiative on extracting companies reporting in order to avoid conflicts between the government and extracting companies, increase domestic production of gas, ensure transparency in this field and compliance with international standards. “We should publish details of payments made by that company in different directions, how they work, how much oil, gas and other mineral resources they extract,” said Olena Pavlenko, President of Analytical Center DiXi Group at the debate at Ukraine Crisis Media Center. According to her, this legislative initiative requires information disclosure not only in the oil and gas sphere, but also coal, ore and other mineral resources. It also introduces a system of penalties in compliance with European legislation.

Oleksiy Orlovskyi, Director of International Renaissance Foundation Program Initiative “Democratic Practice”, reminded that Ukraine had joined the Extractive Industries Transparency Initiative. It requires that business entities disclose information on tax payment, licenses, contracts, production and other key elements around resource extraction. Therefore, a “cross-check” initiative was launched to verify whether the state gets the amount the companies allegedly pay. The assessment is made by an independent regulator, usually a well-known audit company, which compares all the data and makes certain conclusions. Mr. Orlovskyi reminded that the first report of this kind was issued in Ukraine late last year. But it was hard to prepare it, because the companies were not ready to disclose all information. “The new draft law should ensure implementation of international accounting standards in the extractive industry, so that the companies could no longer conceal information from the society under the guise of certain interests, trade secrets, etc. We should bear in mind that mineral resources are the property of the people of Ukraine,” said Mr. Orlovskyi.

According to Andriy Oleniuk, partner of legal agency “Everlegal,” the draft law first delineated the concept of economic entities engaged in the extractive industry. Besides, it is pro-European in its essence. “The draft law we are dealing with is quite innovative,” he said. According to Roman Nitsovych, DiXi Group program manager, in 2013, the guidelines on transparency and accountability in the extractive industry were adopted in Europe. The Association Agreement, which Ukraine is obliged to perform includes one of these guidelines, he said. Over the past two years, all the EU countries adopted their own laws in this area. “This process is topical in the world. Instead of our usual catching up Ukraine could become part of this process,” emphasized Roman Nitsovych.

Olena Diachenko, director of Economics and Finance Department at Ministry of Energy and Coal Industry of Ukraine, informed that the document contains minimum requirements of international standards. “We complicate neither accounting nor financial turnover. We do not complicate operations. Enterprises companies and executive authorities have this information. This law will make it possible to disclose this information in easier way. An important aspect of this document is introduction of penalties, although it is a contentious issue,” noted Olena Diachenko. Experience shows that some companies do not agree to provide information.

The draft law seeks not only to obtain information, but also to create transparent conditions for further extraction. “Publishing reports enables us to see weaknesses and trends is in the extractive industry, to draw conclusions on improving and increasing the industry efficiency, and to direct it at increasing GDP of Ukraine,” explained Tetyana Dovzhok, Ministry of Energy and Coal Industry of Ukraine, deputy director of Oil & Gas Department.

Today the draft law on accountability of extracting companies shall be approved by several ministries. According to the briefing  participants, MPs shall approve the draft law by the end of May this year. Now the second report on transparency in the extractive industry is in the stage of preparation. It is exactly this law that will encourage all parties to provide timely and fully the appropriate information.