Government proposes to more than double the gas royalty for industrials

In its draft amendments to the 2008 state budget, the Cabinet of Ministers made a provision to increase the royalty payment for gas supplied to industrials or pumped into underground storage facilities, by 2.5 times (see table below). In other news, Interfax reported that the Ministry of Economy has set the monthly adjustment coefficient for the oil and gas condensate royalty based on the formula approved in June. The coefficient that will be applied to oil and gas produced in June was set at 1.2860 (vs. 1.8693 for May). According to the Ministry, the calculation of the coefficient was done using the average market price for Urals oil in June at USD 128.6 per barrel.

Proposed changes to gas royalty rates
                 Previous              New                       
         UAH/Mcm  USD/Mcm  USD/Mcf  UAH/Mcm  USD/Mcm  USD/Mcf  Chg, %
Horizons
<5,000m    200.0     41.2      1.2    500.0    103.1      2.9     150
Horizons
>5,000m    100.0     20.6      0.6    250.0     51.5      1.5     150

Mcm – thousand cubic meters
Mcf – thousand cubic feet (=0.028Mcm)