JKX gets interim court ruling against high gas production tax in Ukraine

JKX Oil & Gas (JKX LN) reported on July 23 that an international arbitration tribunal issued an interim award the same day requiring the Ukrainian government to limit its natural gas production tax for the company to 28%. Such a production tax rate was valid in Ukraine before August 2014 (when it was hiked to 55%). The court’s interim award is binding for Ukraine, JKX stated, and it will remain valid until the court reaches its final ruling, after an arbitration hearing that will start in one year. The company also noted that an emergency arbitrator issued a similar order on Jan. 14, to which Ukraine did not comply.

Alexander Paraschiy: The court ruling changes nothing for JKX in Ukraine, we believe. We expect the Ukrainian government won’t comply with the court’s interim order in a similar way it ignored the emergency order. We believe JKX won’t be paying lower taxes, lest it risks losing its production licenses in Ukraine, its core region of operation. Theoretically, the company could get some compensation for overpaid taxes in the long term, following a corresponding decision by an international court. Meanwhile, the Ukrainian government has already drafted new legislation that will reduce the gas production tax rate to 29% from 55%, possibly starting in 4Q15.