The law of Ukraine “On ensuring transparency in extractive industries” was recently adopted in Ukraine. It brings our country closer to the fulfillment of the EU Association Agreement’s conditions as well as Initiatives aimed at ensuring transparency in the extractive industries (EITI) – a standard observed by 51 countries in the world facilitating the disclosure of information on oil, gas and other mineral resources extraction.  


Why is it important to ensure transparency in these industries?


  1. The majority of mineral resources are not renewable – by extracting them we strip the next generations from this opportunity. We have to know where these resources are spent and whether we can expect that they will be sufficient for transferring to renewable sources of energy as well as the organization of waste recycling. It’s very important for the sustainable development of Ukraine.   

  2. The extraction of mineral recourses is very often related to the degradation of the environment since it contributes to the accumulation of waste, as well as air and water pollution. Local communities should know that revenues from the extraction of mineral resources situated close to their dwellings are used for the mitigation of negative environmental impact, improvement of healthcare and building of infrastructure.

  3. Extractive industries play a substantial role in the Ukrainian economy and represent 15% of the general production output. The state of the extractive industry significantly influences processing industries, as well as electricity and heating generation.


Effective usage of available mineral resources is very important. Investments can contribute to the efficiency of enterprises, while its attraction depends on the provision of clear and qualitative data about the industry. According to the new law, investors, communities and the state can receive information about the extractive industries from three sources – reports on payments to the state, reports on received payments, and EITI report.


Both companies and authorities will disclose the information

Almost all companies dealing with mineral deposits of the nationwide significance will provide information on their activities – exploration and mining companies, retailers of mined raw materials, pipeline companies, state-owned and communal enterprises as well as authorities receiving payments from extractive industry companies, Ministry of Energy and Coal Industry of Ukraine, as well as Public Service of Geology and Subsoil of Ukraine.


Investors should receive information about the state of enterprises and taxation burden

Report on payments to the State provides investors with an opportunity to understand directions of company’s operations as well as how much it pays to and receives from the state; receive information about the tax burden, the number of employees and final beneficiary. It will facilitate the comparison of companies within the industry, crosscheck their differences, assess their profitability and identify the potential for the improvement of the efficiency. In addition, companies will submit an audit report.  


Communities and the state will be able to understand whether it’s relevant to cooperate with extractive companies

The report on receipt payments is the second obligatory document which will improve the transparency of the sector. Authorities, communal and state-owned enterprises will be obliged to disclose the amounts of payments received from the enterprises of the extractive industry, as well as report on the scope of financing provided to such enterprises. Local communities will be very interested to know how much money the local budget got from greenlighting the pollution of air they are inhaling and how much was spent on healthcare and on luxurious SUVs for local officials.  


The assessment of the efficiency of mineral resources use, as well as the comparison with other countries, will become possible through the analysis of the EITI report

According to the law, as well as requirements established by Initiatives aimed at ensuring transparency in the extractive industries, Ukraine has to create an independent administrative body which will be able to consolidate and process information provided by commercial entities operating in extractive industries and issue EITI report. With the help of this report one can receive information on the current state of the extractive industry, look at the dynamics, – within some time, 10-year reports will become available, – and to compare the efficiency of mineral resource use in Ukraine and in other countries which joined EITI.

Ukrainian citizens must know how national natural resources are used. Our first common goal is to use available mineral resources more effectively. In order to achieve this, it’s necessary to ensure the transparency of the market and decision-making process, as well as the protection of investments. The new law promotes the transparency of the sector and Association of Ukraine with the EU. The next goal is to improve the current state of the environment, society, and economy. You can’t neglect nature for the sake of poor economic performance. At the same time, the reduction of job places and underpayment of taxes aren’t a solution. The final goal is the creation of the long-term strategy of the mineral resources use, as well as putting Ukraine on track of sustainable development.    

 

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This guide was prepared by the content-marketing agency Top Lead with the support of the American Chamber of Commerce in Ukraine and partners – legal firm Aequo, audit firm Baker Tilly, and energy holding DTEK

 

Key media partner – BusinessViews. Media partners – “A-95 Consulting Group”, media agency “Interfax Ukraine”, as well as media and analytics platform “Energoreforma”.