**OIL AND GAS SERVICES IN UKRAINE**

** **

31JANUARY 2000

 

SOURCE: US EMBASSY KIEV

 

INTERNATIONAL COPYRIGHT

U.S. & FOREIGN COMMERCIAL SERVICE ANDU.S. DEPARTMENT OF      STATE2000 

ALL RIGHTS RESERVED OUTSIDE OF THE UNITEDSTATES

 

 

*Note:*1.Subject ISA concerns theproducts of the following Harmonized System codes: HS 2705, 2706,2707, 2709, 2710, and 2711.

 2. Facts andfigures are accurate as of January 1, 2000.

 

**A.  SUMMARY**

 

There are three petroliferous areas inUkraine. They are located in the west (the Carpathian region), inthe east (the Dnipro-Donetsk region), and in

 the south (the Black Sea and theCrimea region).  Ukraine’s carbon resources areestimated at 7-8 billion tons of fuel equivalent.  There are8,000 potentially profitable oil and gas fields in Ukraine. More than 300 oil and gas fields have been developed withsignificant outputs.  The number of operational extractionwells exceeds 4,400 units.

 

Oil and gas make up 63 percent of theprimary fuel consumption in Ukraine.  According to Naftogazof Ukraine national company, the country ranks sixth in the worldin natural gas consumption, and third in natural gas importsafter the USA and Germany.  According to Naftogaz ofUkraine, Ukraine spends nearly US$ 5 billion on imported naturalgas annually.  Crude oil and natural gas are importedprimarily from Russia, or through Russia from Turkmenistan(natural gas) and Kazakhstan (crude oil.)

Domestic extraction covers 21 to 24 percentof the demand for natural gas and 10 to 12 percent of the demandfor crude oil in Ukraine. Average annual oil and gas productionamounts to 18 billion cubic meters of natural gas and 4 milliontons of crude oil, figures that have remained unchanged since1997.  This is a sharp decrease from the 65 billion cubicmeters of gas and 14 million tons of oil produced in 1975. Primary fuel consumption decreased between 1991-1998.  In1991 gas consumption was 119 billion cubic meters; annual naturalgas consumption fell to 75 billion cubic meters in 1998. The primary reason for the decrease was not an increase in energyefficiency, but a decline in industrial consumption due tonumerous shutdowns of Ukrainian enterprises.

 

The Ukrainian oil and gas industry issub-divided into specialized firms: crude oil and natural gasproducers, natural gas and crude oil/petroleum transportcompanies, and refineries and retail traders.  The first twocategories are under state control and completelymonopolized.  Oil refineries have been actively undergoingprivatization in 1999.  Some of them, like Odessa orNaftokhimik Prykarpattia, are currently controlled by privateshareholders.  Only petroleum trading, both wholesale andretail, is a free self-regulating market.  There are over250 state and private companies working in the oil and gas marketof Ukraine. 

 

Naftogaz of Ukraine (Naftogaz), a nationalholding company, and its subsidiaries control oil and gastransportation through the pipelines.  Naftogaz controls thedomestic natural gas and crude oil extraction industry, and over60% of the gas trading market.  Naftogaz and its subsidiary,Ukrgazvydobuvannya, and subordinate companies Ukrnafta andChornomornaftogaz, produce 97% of domestic natural gas. Ukrnafta, a 50% state-owned company managed by Naftogaz, is thelargest oil producer in Ukraine (94% of domestic oilproduction.)  Naftogaz owns all oil and gas transportationand distribution systems, and most of the oil and gas storagefacilities in Ukraine.  It owns the main oil and gaspipelines and facilities, the main oil and gas storagefacilities, and means of transport.  According to currentUkrainian legislation, these facilities are not available forprivatization; however, in the future portions of Naftogaz areintended to be privatized.

 

Ukraine has approximately 35,000 kilometersof gas pipelines. Some 290 billion cubic meters of gas aretransported annually through Ukraine.  Naftogaz owns allUkrainian gas transportation system, and is reported to be thelargest gas transporter in the world.  Capacity for thesystem is 290 billion cubic meters; output capacity (to SouthRussia, Belarus, Moldova, Romania, Hungary, Slovakia, and Poland)is approximately 170 billion cubic meters annually. Naftogaz moves Russian gas through its pipelines to numerouscountries of Western, Central and Eastern Europe.  Naftogazalso operates underground gas storage tanks with a total capacityof 32 billion cubic meters. 

 

Ukraine has two main oil pipelines, Druzhbaand Prydniprovsky Main Pipelines, which transport about 68million tons of crude oil annually.  Six major Ukrainian oilrefineries (Ukrtatnafta/Kremenchuk, Galychyna/Drohobych,Lysychansk, Odessa, Kherson, and NaftokhimikPrykarpattia/Nadvirna) have the capacity to process about 53million tons of oil per year. Oil refineries experiencedshortages of crude oil in the last few years.  In 1998-1999they were operating at only about 20-24% of theircapacity. 

 

Unlike oil refineries, Ukrainian gasprocessing plants (GPPs) are not independent entities. They arepart of larger oil/gas producers (or their regionalbranches.)  GPPs are not significant in the motor fuelmarket due to a low output capacity.  Altogether UkrainianGPPs and privately owned small gas processing units produce onlyabout 1.2 million tons per year.  GPPs are involved in thepurification of light crude oil, processing of petroleum gas, andthe production of LPG and some motor fuel. 

 

The overall level of privatization in theoil and gas sector remains low.  Privatization was moreactive in the oil extraction, oil refining and the retail tradeindustry during 1999: 

a. 11% of the state-owned portion ofUkrnafta was sold through    the exchange inDecember of 1999. 

b. A 52% portion of the state-owned share inthe Odessa oil      refinery was sold inan investment tender the summerof       1999.

c. 44% of Ukrnaftoprodukt, a state holdingcompany, was sold     in an investment tenderof December 1999:

d. 26-50% of the state-owned shares in someoil refineries       weretransferred to private companies for managementduring    1999. 

 

Despite the level of state control, thereare a number of successfully operating companies with foreigninvestments in oil and gas extraction.  They are smallforeign companies working in joint ventures or under jointagreements with Ukrnafta or with the enterprises subordinate tothe Geology Committee of Ukraine. It is hoped that the recentlyadopted Law on Production Sharing Agreements would increaseinvestments in oil and gas extraction.

 

The following large foreign companies aresuccessfully working in oil refining and in the retail trade ofpetroleum products:

   Russian Lukoil (Odessa oilrefinery),

   BP-Amoco (gas filling stationsin Kiev),

   Russian Tatarstan Tatneft(Ukrtatnafta: Kremenchukoil        refinery, gasfilling stations in Poltava andKiev           regions),

   Kazakhoil (Khersonrefinery),

   Mobil and Shell (motor oils andlubricants.)

 

Ukraine is having a more difficult time thanits neighbors in attracting petroleum investments.  It hasnever been a large oil and gas producer, and is perceived to havesmall to medium sized fields, which are expensive to locate anddevelop.  Ukraine has not been attractive to majorinternational petroleum companies.  The country does warrantconsideration in the oil and gas market for small and mediumsized companies who develop smaller projects.

 

To implement market oriented oiland gas policies and attract foreign investments, during1998-1999 new legislation was enacted (the Law on Concessions andthe Law on Production Sharing Agreements).  Governmentadministrative institutions were reformed, licensing and taxpolicies were liberalized, and a series of oil and gas fielddevelopment projects were offered for implementation.

 

There are opportunities for investment inthe development of older oil/gas fields; in crude oil, naturalgas and coal bed methane exploration; in the manufacturing anddistribution of petroleum products; and in the exploration,processing and distribution chains.  Thecornerstone of successful oil enterprises – integrated up-and downstream operations - are not present in Ukraine. This would provide an opportunity for international oilcorporations to establish control over a share of the nationalmarket.  State Property Fund prices for shares in the oilrefining plants are untenable, as are prices for regional gasdistributors (regional "naftoproducts"). 

 

The best prospects are:

1. Fuels and lubricants

2. Pipeline construction equipment

3. Oil and gas drilling machinery andtechnologies

4. Equipment for atmospheric-vacuum oilrefining

5. Cracking units, distillation units

6. Industrial automation, control andmonitoring systems for     refineries, gasprocessing and petrochemical plants

7. Desulfurization and quality controlfacilities

8. Safety systems

9. Fuel storage and dispenser systems

10. Fuel level monitoring and accountingsystems.

 

 

**B. MARKET HIGHLIGHTS:**

** **

**Naftogaz ofUkraine state monopoly**

 

Since 1998 the oil and gas sector of Ukrainehas undergone restructuring.  The new company Naftogaz ofUkraine (Naftogaz) was created in early 1998 to control andmanage all government-owned shares of oil and gascompanies.  It is the largest company in the Ukrainian oiland gas sector.  Although Naftogaz was declared a statejoint-stock company, it is in fact a state holding firm. This company has secured state-owned shares in such giants of theoil and gas industry as Ukrgazprom (gas exploration), Ukrgaz(distribution of gas to end-users), Ukrnafta (crude oilexploration), and other companies.  Naftogaz was created toincrease the effectiveness of oil and gas management, and tocontrol the privatization of oil and gas industry.  Adeclared goal was also to concentrate financial resources tocarry out investment projects and to establish links betweencompany holdings.  According to Cabinet of Ministers Decree#1173, “On the Separation of Functions of Production,Transportation and Sale of Gas,” dated July 24, 1998,Ukrgaz and Ukrgazprom were liquidated, and three subsidiaries ofNaftogaz were created to separately handle the three subsectionsin the gas industry:

 

Ukrgazvydobuvannya - gas extraction andproduction,

Ukrtransgaz - gas transportation andstorage,

Trading House Gaz Ukrainy - gas trading.

 

Naftogaz is a vertically integrated companythat performs the following functions: oil and gas explorationand production (Ukrgazvydobuvannya, Ukrnafta, Chornomornaftogaz),gas transportation and storage (Ukrtransgaz), gas trading (TradeHouse Gaz of Ukraine), oil transportation (Druzhba PipelineCompany, Prydniprovsky Main Pipeline Company), oil refining(Azmol), and liquefied petroleum gas (LPG) transportation(Ukrspetstransgaz.) 

* *

* *

**Oil and gasexploration and production**

** **

Ukrgazvydobuvannya (a subsidiary ofNaftogaz) is a significant natural gas extraction and productioncompany.  It is responsible for the annual natural gasproduction of 74.4% of the Ukrainian total.  It includesfive regional branches (Ukrburgaz, Poltava-, Shebelinka-,Kharkiv- and L’viv-gazvydobuvannia).  WithinShebelinkagazvydobuvannia there is the Shebelinka gas processingplant, producing high-octane gasoline (A-95, A-98) and LPG;within Poltavagazvydobuvannia – the Yablunivsky GPP, mostlyproducing LPG.

 

Ukrnafta, an open joint-stock company(Naftogaz holds 50% plus one share), is the largest and the mostprofitable Ukrainian oil extraction company, with annual profitsin 1998 reported at UAH 64 million (about US$ 18.3million.)  In 1998 Ukrnafta produced an estimated 94% ofUkraine's crude oil and 18% of its natural gas.  The companyextracts oil in two areas: western, which covers three regions(Lviv, Ivano-Frankivsk, and Chernivtsi), and eastern, coveringfive regions (Sumy, Chernihiv, Poltava, Kharkiv, andDnipropetrovsk).  The exploitation stock of the companyincludes 100 hydrocarbon deposits, 2,180 oil wells and 237 gaswells.  It supplies crude oil to four of Ukraine's sixrefineries: Ukrtatnafta in Kremenchuk, Kherson oil refinery,Halychyna in Drohobych, and Naftokhimik Prykarpattia inNadvirna.  Ukrnafta includes six oil and gas extractionregional departments, six exploration and drilling departments,and three gas processing plants (Kachanivsky, Dolynsky andGnidyntsivsky) producing LPG and gasoline.  Ukrnaftaparticipates in the joint ventures Ukrkarpatoil (with CarpatskyPetroleum, U.S.); Ukrainian-Canadian joint ventures KashtanPetroleum Ltd. and Boryslavska Naftova Company; andUkrainian-Ireland JV Romgas.  Ukrnafta has joint activityagreements with other western companies.  Joint ventureagreements are in the oil and gas exploration and theconstruction of gas processing facilities.  According toUkrnafta, total foreign investments in existing joint venturesand under joint activity agreements as of January 1, 1999amounted to $12 million.  As of January 1, 2000, companyshares were distributed in the following manner: 50% plus oneshare state-owned (managed by Naftogaz), 10.96% owned byPrivatbank (Ukrainian private bank); about 8.6% employee owned,and about 30.44% owned by private investors.

 

Chornomornaftogaz joint stock Company(Naftogaz holds 100% of its shares) deals with oil and gasexploration and production in the Black and Azov Seashelves.  The company has its own gas pipeline over 1,000kilometers long, 38 gas distribution stations and two compressorstations.  In 1998, Chornomornaftogaz produced 800 millioncubic meters of gas (4.4% of the total produced in Ukraine) and80,000 tons of oil and petroleum gas (2.5% of total.) 

 

*** ***

**Transportation, distribution and storage of natural gas**

*** ***

Naftogaz of Ukraine, through its subsidiaryUkrtransgaz and subordinate companies Chornomornaftogaz andUkrnafta, owns and operates the gas transport system in Ukraine,which is still a state possession by current Ukrainianlegislation.  In 1998, Shell International Gas Ltd. (US -UK) evaluated the Ukrainian gas transport system.  Foreign companies have concession agreements with Naftogaz ofUkraine to manage parts of the gas transport system. However, detailed information has not been disclosed, as this isconsidered commercially sensitive.  After the Law onConcessions was enacted in the summer of 1999, the entireUkrainian gas transport system might be offered for managementunder a concession agreement to an experienced foreign pipelineoperator.  Shell, Enron (US-UK) and other foreign companieswere interested in managing the gas transport system.

 

Ukrtransgaz, a Naftogaz' subsidiary company,is the major transporter of natural gas throughout Ukraine, andthe sole transporter of Russian gas through Ukraine to Europeanmarkets through the gas pipeline system.  Ukrtransgazoperates a high pressure gas pipelines with a total length of34,000 kilometers and an annual capacity of 170 billion cubicmeters of gas. Ukrtransgaz has:

1.     122 compressor stations with 786 gas pumping units;

2.     12 underground gas storage tanks with a combinedcapacity   of 30 billion cubic meters;

3.     1,329 gas distribution and 60 gas measuring stations;

4.     Low pressure gas distribution lines with a total length of215,000 kilometers and 22,000 gas distribution points. 

The company has six regional branches: inKharkiv, Lviv, Prykarpattia, Donbas, Cherkasy, and Kievregions.  Of the 786 gas pumping units currently inoperation at the Ukrtransgaz's compressor stations, 30% have beenin operation for 11-15 years, 20% for 16-20 years, and 5% forover 20 years.  The efficiency of the operating gas pumpingunits is below 28%; the 27 domestically produced units installedin the last five years do not exceed 36%.

 

Currently, there are 53 regional gasdistribution companies operating in Ukraine; the state (throughNaftogaz) retains controlling interest in 19 of them (source -Energobusiness.) 

 

## * *

## Natural gas:sources of supply. Trading of natural gas

 

Ukraine's total annual demand for naturalgas in 1996-99 was 86-74 billion cubic meters.  Domesticextraction accounts for about 21-24% of the total demand, andstands at about 18 billion cu m of gas per year.  For theyear 2000, total demand for natural gas is expected to be 73-74billion cu m.  To cover the difference, Ukraine will have toimport at least 55-56 billion cu m of gas.

 

*Supply and distribution of natural gas inUkraine in 1997-99, billion cu m:*

 
| *         Indices*                                                                                                                  | *1997*           | *1998*           | *1999*                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|------------------|------------------------|
| Supply for Ukraine, including:                                                                                                                                              | **89.1**         | **79.5**         | ***86.3 ***       |
|    Domestically extracted                                                                                                                                    | **18.1**         | **18.0**         | **18.2**               |
|    Imported into Ukraine,                                                                                                                                         | **62.4**         | **53.5**         | **67.5**               |
|          FromTurkmenistan                                                                                                           | *13.0*           | *   -* | *12.5*                 |
|          From IteraInternational           Energy                            | *   -* | *21.5*           | *    -* |
|          From Gasprom                                                                                                               | *49.4*           | *32.0*           | *55.0*                 |
|    Pumped from undergroundstorage     facilities                                                                                              | ** 8.6**    | ** 8.0**    | ** 0.6**          |
|                                                                                                                                                                        |             |             |                   |
| Distribution, including:                                                                                                                                                    | **89.1**         | **79.5**         | **86.3**               |
|     Pumped into undergroundstorage     facilities                                                                                        | ** 5.5**    | ** 3.9**    | ** 8.0**          |
|     Ukraine's totaldemand,            including:         | **81.3**         | **75.5**         | **73.6**               |
|           Industrialconsumers                                                                                                  | *45.3*           | *34.9*           | *33.2*                 |
|           Municipalservices                                                                                                    | *28.6*           | *33.0*           | *32.9*                 |
|           Technicalneeds                                                                              | *  7.4*     | *  7.6*     | *  7.5*           |
|     Exported                                                                                                                                                 | ** 2.3**    | ** 0.1**    | ** 4.7**          |

 

*(Source: Fuel + Power Magazine, December6-12, 1999)*

 

Diversification of the fuel supply has beenunder discussion in Ukraine since the country became independentin 1991, but little has changed.  Ukraine is 90% dependenton Russian and Kazakh oil, and 80% dependent on Russian andTurkmen gas supplies.  Both Kazakh oil and Turkmen gas aretransported through Russia, which reflects on the final price forUkraine. The price for natural gas for Ukraine was high also dueto necessity for Ukraine to engage barter trade in payment forgas.  In 1998-99, Ukraine was buying Russian gas at $80 per1,000 cu m, Turkmen gas at $72 per 1,000 cu m, while RussianGasprom was selling it at $30 to Belorus and at no more than $56to European countries.  Ukraine lacked political will, nordid expression of commercial interest motivate Ukrainianfinancial groups who control fuel distribution to let multiplesources of fuel supply into the market of Ukraine.  Lack ofinternal financing, due to low cash collections from finalconsumers was given as the reason why nothing was done. Another obstacle in solving the problem is that Ukraine owes hugedebts to Russia and Turkmenistan for gas supplied in the last fewyears.

 

The present Ukrainian natural gas supplyconsists of gas imported from Russia and Turkmenistan (RussianGasprom, Itera International Energy Company with US-Russianinvestment) and domestically extracted gas.  Gaspromsupplies roughly 30 billion cu m of gas per year to the TradingHouse Gas Ukrainy/Naftogas of Ukraine as Russian payment/toll fortransporting its gas through Ukraine.  About 19-25 billioncu. ms are supplied annually on a commercial basis to Naftogaz ofUkraine and to private Ukrainian companies.  Iteratransports Russian and Turkmen gas to the Ukrainian border; forits transportation services, Itera is paid in gas, some of whichthe company sells to Trading House Gas Ukrainy/Naftogas ofUkraine or to private companies (consumers or independent gastraders.)  Domestic producers of natural gas are eitherselling to consumers directly, or selling at gas auctions forcash.  The Trading House Gas Ukrainy also sells gas at thegas auctions.  According to the Cabinet of Minister'sresolution  #2184 "On the terms of natural gas supply to theeconomy and populace in 2000", the needs of the statebudget-financed organizations and the populace of Ukraine is tobe covered entirely by gas purchased directly from Trading HouseGas Ukrainy/Naftogas of Ukraine -- the gas that Naftogaz receivesin payment for transiting Russian gas through Ukraine.  Allother groups of consumers, including municipal heat supplycompanies and boilers for industrial enterprises, who supply heatto the above-mentioned consumers, should purchase gas either atgas auctions or from gas suppliers (domestic producers orindependent gas traders) under direct contracts.

 

*Gas auctions* were introduced toUkraine in 1998 to improve cash payments for gas.  In recentyears barter operations in the Ukrainian commodity markets werehigh - in 1998 they averaged 40%; in the fuel trade in 1999barter accounted for 37.2% of the sales (source - Ministry ofStatistics.)  The purpose of gas auctions was to decreasebarter trade by selling for cash, and to improve cash paymentsfor gas.  Domestically extracted gas or gas purchased fromabroad (except received as payment for the transit of Russiangas) is sold through gas auctions. The amount actually sold atauction for cash was usually much less than the total offered --about 2% in 1998, and 18% in 1999 of the total gas offered onauctions.  In 1999, the auction price (not including VAT andtransportation cost) for gas was $30-32 per 1,000 cu m. Industrial enterprises were able to buy gas from gas traders for$20-22 per 1,000 cu m; Naftogaz of Ukraine was selling gas toheat supply firms for about 230 UAH (about $42) per 1,000 cu m(source - Business Newspaper, #50, 12/13/99.)

 

*Independent gas traders* are dividedinto two categories: domestic producers, and wholesale gastraders who buy gas either at gas auctions, or under directcontracts with Itera or Naftogas of Ukraine for resale directlyto consumers.  In 1998 fifty gas traders were registered inUkraine (source - Ukrainian News Agency, Business Week'22, May31-June 6, 99.)  In 1999 there were over 200 gas tradersoperating in the Ukrainian gas market (source - Business Newpaper#50, 12/13/99.) 

 

Independent gas traders account for 73% ofthe total gas consumption (see the chart below.)  Gastraders sign agreements with gas transportation companies (withNaftogaz of Ukraine, including Ukrnafta and Chornomornaftogaz andwith Kievgaz) on using their gas transportation system.  Gastraders are to pay Naftogaz of Ukraine a security deposit in cashor in natural gas equivalent to 10% of its quarterlysupply. 

 

*Fuel consumption in 1998, byindustry/category:*

 
|                 |  

Consumed

Total |  Consumed by industries/consumercategories, % |
|----------------------|-------------------------|----------------------------------------------------|
| Industry             | Agriculture             | Construction                                       | Transport | Municipal services | Other, incl. populace and SBF entities * |
| Natural gas          | 71.1 billion cu m       | 53.9                                               | 0.7 | 0.3 | 6.4 | 11.6 | 27.1 |
| Oil and petrol.

Gas | 13.7 mln t              | 99.0                                               | 0 | 0.1 | 0 | 0 | 0.9 |
| Gasoline             | 3.2 mln t               | 14.7                                               | 27.8 | 5.1 | 11.1 | 2.6 | 38.7 |
| Diesel fuel          | 5.8 mln t               | 27.6                                               | 42.3 | 5.0 | 15.6 | 1.2 | 8.3 |
| Fuel oil             | 3.4 mln t               | 88.4                                               | 0.6 | 1.2 | 4.1 | 4.2 | 1.5 |
| LPG                  | 0.3 mln t               | 2.9                                                | 0.7 | 0.4 | 3.5 | 14.3 | 78.2 |

  

## * SBF - state budget-funded

*(Source - Ministry of Statistics)*

 

*** ***

**Crude oil:Sources of supply.  Transportation and storage of crudeoil**

 

Druzhba and Prydniprovsky pipelines are themajor transporters of crude oil coming from Russia andKazakhstan.  They currently transport 68 thousand tons ofcrude oil per year, operating at about 60% capacity. Druzhba Pipeline State joint-stock company (Naftogaz is 100%owner) operates the pipeline, which extends from Mozyr in WesternUkraine to the Slovak and Hungarian borders, and is over 1,500kilometers long.  The company is a transshipper for Russianoil to Central Europe, and transports crude oil to the Halychyna(in Drohobych) and Naftokhimik Prykarpattia (in Nadvirna) oilrefineries.  The company has 8 oil pumping stations and 16storage tanks, with a total storage capacity of 140,000 cubicmeters.  Prydniprovsky Main Pipeline state joint-stockcompany (Naftogaz owns 100% of the shares) operates the followingfacilities: 9 connected pipelines running through 11 regions ofthe south, central and eastern Ukraine, with a total length of2,400 kilometers and an annual capacity of 104.4 milliontons.  Their facilities include 18 oil-pumping stations, 36storage tanks of 580,000 cubic meters total capacity and 8 gasdistribution stations.  The company delivers crude oil tofour of the six Ukrainian refineries (in Kremenchuk, Odessa,Lysychansk and Kherson), and transships a significant part ofRussian crude through the Odessa seaport.

   

The situation with oil suppliesdiversification might be considered somewhat better than with gassupplies.  Construction of an Odessa-Brody pipeline andYuzhny oil terminal (near Odessa) that would enable Ukraine toreceive Caspian crude oil, bypassing Russia, is currentlyunderway.  Reportedly, as of December 28, 1999, the pipelinewas 72% complete, and the terminal was 20% complete. Pipelineconstruction is continuing, although construction of the terminalhas been suspended since February 1999 due to lack of statebudget financing.  The pipeline will connect Odessa terminaland Yuzhny (near Odessa) terminal capacities in southern Ukraine,with the Druzhba pipeline system in the northwest.  Four ofthe six Ukrainian refineries would be connected en-route to thepipeline.  As of today, Druzhba Pipeline State Company isthe general contractor and the major investor for bothprojects.  

 

Ukrainian oil supply currently comprises oilimported into Ukraine from Russia (Yukos, Lukoil, Tatneft), andKazakhstan (Kazakhoil), as well as some crude oil produceddomestically (Ukrnafta.)  There are two major groups ofcompanies working in oil supply: importers and traders. Importers purchase crude oil from producers (Yukos, Lukoil,Tatneft, Kazakhoil, and Ukrnafta) and transport it to localrefineries through Transneft’s Russian oil pipelinenetwork, and then through the Prydniprovsky or Druzhba pipelinesin Ukraine.  Major importers are Espro, Interlink, ACS SA,Victoria-A, Atlantic, Vimet, Landesco, Seagroup, Carbico, andShelton.  Traders purchase crude oil at the refinery gatefrom the importing companies. The major traders are Ukrtatnafta,Slavutych, Sodruzhestvo, Dobrobut, Olgroup/Ukreximnaftoproduct,and Alpha-Nafta.    

 

#### Crude oil and natural gastransportation through Ukrainian pipelines:

 
|                                                                                                        |              1996 |       

   1997 |             1998 |             1999 |
|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|---------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
| Natural gas: total, billion cu m                                                                            |   

    174                                               |  

   165                                |  

    169                                               |  

 No data                                                        |
|                -Incl. for export |  

 No data                                                              |  

   108                 |    

    114                                   |   

   124                                               |
| Crude oil: total, million t                                                                                 |     

     68                              |    

    67               |     

     68                        |  

 No data                                                        |

 

*(Source: Ministry of Statistics, BusinessNewspaper #50 of 12/13/99)*

 

The *Odessa oil terminal*, which has anannual capacity of 20 million tons of crude oil, accounts formost of the crude oil and petroleum products transshipped inUkraine.  Currently the Odessa oil terminal is operating atabout 20% of its capacity (source - Ukrainian News Agency,Business Week'20, 5/17-23, 99.)

 

**Oil refiningand gas processing**

* *

Ukraine’s refining sector isone of the largest in Europe.  Six Ukrainian refineries havetotal processing capacity of 53 million tons per year.  Itwas created to serve the most industrialised and populatedRepublic of the former Soviet Union, Ukraine, mainly withlow-quality fuel oil that was used for power generation. Light products were traditionally imported into Ukraine fromother countries of the former Soviet Union.  Quality ofproducts had never been the subject of Soviet management’sconcern.  It was really poor at all refineries exceptLysychansk, the largest and most modern plant at that time. Even now, none of Ukraine’s oil refineries manufacturesA-98. At the same time,slow modernization progress and large debts are not failures ofthe refineries themselves.  Governmental macroeconomicpolicies in 1992-1994 led to hyperinflation, which atecirculation capital.  Full state control over refineries atthat time prevented plants from waiting through inflation withstocks of fuel: refineries were forced to sell or rather"provide" oil products on credit by administrativedirectives.  When such credits were returned they usuallymade up 10-20% of initial product value in hard currencyequivalent.

Having lost their own money, refineries had toswitch to processing deals with private crude providers. Simultaneous decline of crude production in Russia and wideningexport opportunities in the Western markets limited the quantityof oil that was available for processing in Ukraine.  As aresult, processing fees collected by refiners proved insufficientfor modernization and even return of old debts.  For examplethe LINOS refinery still can not settle a $100 million Germanloan used for construction of polypropylene plant because theoutput of this plant is about 10,000 per annum instead of theplanned 100,000.

Moreover, external suppliers to refineries arediscouraged by the taxation regime, which treats direct productsimported from foreign manufacturers and processing deals withUkraine’s refineries similarly.  As a result, oilrefineries (except Ukrtatnafta/Kremenchuk and NaftokhimikPrykarpattia/Nadvirna) have no financing to purchase crudethemselves, while the volume of private supplies falls everyyear.  The only realistic solution for the rehabilitation ofUkrainian refining sector is rapid privatization.  Somesuccessful sales of state-owned shares were made in1999.

* *

Kremenchuk OilRefinery/Ukrtatnafta

 

 
|  

**Facilities/Process**         |  

Capacity, million tons per year     | ** **

Exploitation since |
|----------------------------------------|---------------------------------------------|--------------------------------|
|  

Totalcapacity                  |  

     18.6       |  

1966                   |
|  

Atmospheric vacuumtowers       |  

      9.3  |  

1966-76                |
|  

Catalyticreforming of gasoline |  

      1.9  |  

1967                   |
|  

Synthetic acidproduction       |  

      0.3  |  

1974                   |
|  

Catalyticcracking              |  

      1.48 |  

1970                   |
|  

Diesel andkerosene hydrofiner  |  

      4    |  

1971                   |
|  

Gas-fractionating              |  

      0.8  |  

1969                   |
|  

Oil bitumenproduction          |  

      0.3  |  

1967                   |
|  

Paraffinproduction             |  

      0.02 |  

1978                   |
|  

Lube oil plantscomplex         |  

      0.36 |  

1973                   |
|  

Sulfur production              |  

      0.06 |  

1977                   |

*** ***

*Ukrtatnafta* isa joint venture between Ukraine’s Kremenchuk refinery (43%)and several Russia’s entities including *Tatneft*producer, *Tatnefteprom* and others who own another 57% ofthe joint venture.  *Ukrtatnafta* refinery enjoyed cashand crude injections on part of Russian partner *Tatneft*that helped to pay off debts.  *Ukrtatnafta* purchasesitself about 80% of all crude it processes, while associatedcompanies (*Dobrobut*/*Sigma* and other) supply therest through processing deals. As the largest of Ukraine’srefineries (35% of national refining capacity), *Ukrtatnafta* accounted for about 45% of national crudethroughput in 1998, and its capacity usage is above average– about 33%. The technology of refinery is comparativelyprogressive – no leaded gasoline and mostly low-sulfurdiesel, despite a significant share of high-sulfur crude fromTatarstan.  Having reliable financial backing, *Ukrtatnafta* is expanding its wholesale presence by aggressive(sometimes, by dumping) marketing policy.  Low-octanegasoline (unleaded A-76) and diesel fuel are successfullycompeting against imported (mostly Russian) fuel in all segmentsof the solvent market, including retail trading.  *Ukrtatnafta* is developing its own retail network.  Ithas a number of modern gas filling stations in Kremenchuk,Poltava and Kiev. 

 

Producers and other crude owners do not play asignificant role in crude supply to *Ukrtatnafta*. Purchase policy is directed by the refinery’s managementand implemented through two dozen affiliated traders, which actas the importers of record.  Crude processing fees at *Ukrtatnafta* vary from 19-21% of the product.

 

*Lysychansk Oil Refinery (LINOS)*

 

 
|  

**Facilities/Process**        |  

Capacity, million tons per year     | ** **

Exploitation since |
|---------------------------------------|---------------------------------------------|--------------------------------|
|  

Totalcapacity                 |      16.0               |  

1976                   |
| Atmospheric vacuumtowers              |       7.5          | 1979-83                        |
| Catalyticreforming of gasoline        |       2.0          | 1980-86                        |
|  

Catalyticcracking             |  

      2.0  |  

1994                   |
|  

Diesel andkerosene hydrofiner |  

      4.0  |  

1981-87                |
|  

Ethyleneproduction            |  

      0.32 |  

1976                   |
|  

Polyethyleneproduction        |  

      0.1  |  

1994                   |
|  

Sulfurproduction              |  

      0.06 |  

1983-84                |
|  

Hydrogen production           |  

      0.02 |  

1994                   |

*** ***

*Linos* refinerywas Ukraine’s largest (23.5 million tons) till 1994 whenone of the three atmospheric vacuum towers badly damaged bycorrosion stopped, and refinery's production fell to 16 milliontons.

Just before the break up of the USSR, *Linos*received an ECU 70 million ($100 million) loan from *WestLB* for construction of the polyethylene plant.  When theplant construction was completed in 1995, the refinery’sproduction collapsed to 2.2 million tones -- insufficient foroperating a new plant at full capacity.  The loan forconstruction was to be repaid from the polypropylene exports butoutput became insufficient. Returning *West LB’s* loanhas become a permanent headache for the refinery.  Inaddition, the government’s decision to confiscate aquantity of product in 1992-1993 created refinery’s debtsto owners that are now estimated at another $60 million.  AJune 1998 court ruling declared *Linos* bankrupt and sincethen, supplies to the refinery have virtually stopped. Crude owners fear that the refinery can be "sealed" by courtofficials at any time and their crude and products may be left inthe arrested equipment.

At the same time, the government taking intoconsideration several unsuccessful privatization attempts, isconsidering retaining the refinery under state control -- atleast till the debts are paid off.  Although, it woulddefinitely benefit the refinery if a private entity buys it, andits massive (in Ukrainian terms) debts are eliminated.  Fuelproduced by the *Linos* refinery is considered quality,though sulfur remains high.  After renovation *Linos*could emerge as serious competitor to *Ukrtatnafta* in thelow-octane gasoline and gas oil markets.  Traditional crudesuppliers are *Runo*, *Rosukrnaftoproduct*, *Ukreximnaftoproduct* and *Lukoil*.  Unlike otherrefineries, *Linos* operates exclusively on thegive-and-take/tolling basis.  It was built to supplyagricultural regions of southern Ukraine and Russia, and couldremain a most cost-efficient option until the construction of anew refinery in southern Russia.  In this context is hasmarket potential after privatization. 

 

*Kherson Refinery*

 

 
|  

**Facilities/Process**         |  

Capacity, million tons per year | ** **

Exploitation since     |
|----------------------------------------|-----------------------------------------|------------------------------------|
|  

Totalcapacity                  |  

     8.6    |  

                      |
|  

Atmospheric vacuumtowers       |  

     6.9    |  

1951                       |
|  

Catalyticreforming of gasoline |  

     0.7    |  

1973                       |
|  

Cokeproduction                 |  

     0.6    |  

1947

(reconstruction1980) |
|  

Bitumen production             |  

     0.4    |  

1956-81                    |

 

The Kherson refinery is Ukraine’s leastdeveloped – it can only manufacture A-76 unleaded gasolineand gas oil.  Construction of a 2 million-ton hydro-treatingunit worth $70 million, is planned to improve the quality of thegas oil, but financing is lacking.  In 1997 the refineryachieved relatively good results – its production was oneof Ukraine’s highest – thanks to Kazakh crude. In 1998 Kazakh supplies were limited and production waslow.  *Sodruzhestvo* concern, partially owned by *Lukoil**,*** retains 12.4% of the refinery.  *Lukoil* traditionally had strong presence at the refinery,which was reinforced by the creation of the *Lukoil-Kherson*affiliate: in the second half of 1998 *LUKoil* emerged assole supplier to the Kherson refinery.  The Kherson refineryis located in the heart of the Ukraine agricultural south andconstitutes an ideal location for goods-for-food barter. Kherson has a direct pipeline link to the neighboring Mykolayivoil depot.  It is believed that this terminal may be usedfor exporting gas oil – Kherson refinery’s productionin 1998 – was a source for European refineries.  In1999 one of the major crude oil suppliers to the refinery wasKazakhoil.  50% plus one share of the state-owned stake inKherson refinery was transferred to Kazakhoil for management inOctober of 1999 (taken back 1/24/2000 by the Cabinet ofMinisters' resolution.)

 

*Odessa Oil Refinery*

 
|  

**Facilities/Process**         |  

Capacity, million tons per year    | ** **

Exploitation since           |
|----------------------------------------|--------------------------------------------|------------------------------------------|
|  

Totalcapacity                  |  

      3.8 |  

1949                             |
| Atmospheric vacuumtower                |  

      1.2 |  

1949-57

(reconstruction1964-78) |
|  

Catalyticreforming of gasoline |  

      0.4 |  

1977                             |
|  

Secondarytreatment of gasoline |  

      0.5 |  

1975                             |
|  

Diesel andkerosene hydrofiner  |  

      1.5 |  

1994                             |
|  

Bitumen production             |  

      0.2 |  

1985                             |

 

Odessa refinery was upgraded and retooled by theItalian engineering company *Ctip*.  After constructionof the hydro-treating unit in the same upgrade, output oflow-sulfur diesel dominated gas oil production.  Gasolineproduction was well developed (in Ukrainian terms) as well. In 1998 output was over 50% – a significantachievement.  The refinery’s location was ideal forthe export of fuel oil to the Mediterranean market, and crudesuppliers *Yukos* and Lukoil intensively used it -- overhalf of refinery’s production in 1998 was fuel oil. Therefinery is clearly dependent on *Yukos/Lukoil*supplies.  It charges $10-15 per ton processing fee. Refinery is 52% owned by Lukoil mutually with Syntez Oil, bothRussian companies.  It allows importing of crude, deliveredby sea and exporting to the Mediterranean markets. It’s future in the short term is connected to gas oil andfuel oil exports to the European markets – and clearlyunder the control of Russian Lukoil.  In the long run it maybe re-oriented to meet Ukraine’s domestic marketdemand.  Odessa refinery's shareholder Luk-Syntez Oil(Lukoil and Syntez Oil JV) has its own distribution network (gasfilling stations) in the Odessa region.

 

*Galychyna/Drohobych oil refinery*

 

 
|  

**Facilities/Process**         |  

Capacity, million tons per year     | ** **

Exploitation since                   |
|----------------------------------------|---------------------------------------------|--------------------------------------------------|
|  

Totalcapacity                  |  

      3.5  |  

                                    |
|  

Atmospheric vacuumtower        |  

      2.6  |  

1952-69

 

(reconstruction1972-79) |
|  

Catalyticreforming of gasoline |  

      0.3  |  

1969                                     |
|  

Thermalcracking                |  

      0.4  |  

1951                                     |
|  

Bitumenproduction              |  

      0.15 |  

1955-61                                  |
|  

Cokeproduction                 |  

      0.01 |  

                                    |
|  

Paraffin Production            |  

      0.04 |  

1955

(reconstruction 1965)              |

 

*Galychina/Drohobych* refinery is pursuing a $278 million modernizationproject financed by a loan from the Japanese Eximbank.  Theloan will be used for the purchase of technology and equipmentfrom *Nissho Iwai* and *JGK Corp.,* for modernizationof the *Galychyna* refinery and for reconstruction of thecatalytic reforming unit, enhancing refining to 75-80% andallowing production of A-95 gas.  The Galychyna refineryclaims after completion of the project (scheduled for 2002) itsprofits will increase four folds to $107 million per year.Experts note that calculations have been made for the full loadof 3.5 million tons the refinery can maximize, but output hasnever exceeded 35% of capacity since 1993.  The refinery hasits own distribution network in Ukraine. 16% of therefinery’s output is exported to neighbouring countriesincluding Moldova, Romania, Slovakia andHungary. In 1998Galychina processed crude oil mostly on tolling/give-and-takeconditions.  Give-and -take processing partners included *Slavutych*, *Rosukrnaftoproduct* and others.  Theprocessing fee was $17-18 per ton.

* *

*Naftokhimik Prykarpattia/Nadvirna oilrefinery*

 

 
|  

**Facilities/Process**           |  

Capacity, million tons per year     | ** **

Exploitation since |
|------------------------------------------|---------------------------------------------|--------------------------------|
|  

Totalcapacity                    |  

      2.5  |  

                  |
|  

Thermalcracking                  |  

      0.5  |  

1964

            |
|  

Raw materialpreparation facility |  

      0.81 |  

1994                   |
|  

Catalyticreforming of gasoline   |  

      0.6  |  

1974-94                |
|  

Paraffinproduction               |  

      0.2  |  

1978                   |
|  

Cokeproduction                   |  

      0.37 |  

1967                   |
|  

Synthetic acid production        |  

      0.02 |  

1968                   |

*** ***

*Naftokhimyk Prykarpattia's* crude suppliers include *Galnaftogaz*, whichextracts domestically.  A new 650,000 tons catalyticreforming complex was finished and put into operation in 1994.*Naftokhimyk* faces competition from Slovakia’s *Slovnaft,*Hungary’s *MOL* and *Mazheiku*dealer *Galnaftogaz*.  Its customers are regionalagriculture and power generating utilities.  *Naftokhimik* is Ukraine’s only refinery not connected toa crude oil pipeline, but it has petroleum pipelines running toneighboring depots.  44% ownership in the refinery iscurrently in private hands, including British company WattfordPetroleum that owns 16%; Wattford Petroleum  manages another30% that is owned by the State Investment Fund; 26% of thestate-owned share has recently been transferred for management tothe private Ukrainian company Alfa-Nafta.

(Source of information for this chapter -UPECO)

 

 

#### Status of Privatization ofUkrainian Refineries

* *

Share AllocationPlan and the Privatization Statusof            Ukrainian Oil Refineries (as of 01.01.99)

** **

** **
|  

     Oil RefineryName

 

              |  

Statutory   Fund (UAH)    |  

Share Face Value, UAH   |                   

   Share Allocation (planed/sold),% |  

Total Privatized, %                          |
|-------------------------------------------------------------------------------|---------------------------------------------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
|   State   Owner      ship        | Privileged stock (mostly owned byemployees) | For sale on auctions

for

cash | For sale on non-commercial tenders

for cash                                                                                                                | For sale on stock exchange                           |   |   |
|  

Lysychansknaftoorgsyntez (LINOS), inLysychansk  ********

  |  

9,887,421                           |  

0.01                    |  

**26** /

********

                                                                                                                           |  

10 /

10                                     |  

19 /

19 |  

**41.409** /

 ******** |  

3.6 /

3.6 |  

 

32.6 |   |
|  

Khersonnaftopererobka, in Kherson

                              |  

6,582,600                           |  

0.05                    |  

10 /

--                                                                                                                                            |  

24 /

24

                              |  

5 /

5 |  

56 /

**++** |  

5 /

5 |  

 

34 |   |
|  

Odessa Oil Refinery, in Odessa                                        |  

2,201,960                           |  

0.01                    |  

25 /

--                                                                                                                                            |  

8 /

8                                       |  

15 /

15 |  

51.9 /

**51.9 *** |  

0.1  /

0.1

  |  

 

**75 *** |   |
|  

Naftokhimik Prykarpattia, in Nadvirna                                 |  

3,280,252                           |  

0.25                    |  

30 /

**+++**                                                                                                                                       |  

11 /

11                                     |  

30 /

30 |  

26 /

**+++**

  |  

3 /

3 |  

 

44 |   |
|  

Halychyna Oil Refinery, in Drohobych                                  |  

8,706,750                           |  

0.01                    |  

35 /

*********                                                                                                                                     |  

10.5/

10.5                                  |  

23.5/

23.5 |  

30 /

**30 **** |  

1 /

-- |  

 

64 |   |
|  

Kremenchuk Oil Refinery, in Kremenchuk *******                   |  

18,274,821                          |  

0.10                    |  

43.05                                                                                                                                               |  

       -- |  

     -- |  

    

-- |  

    

--

  |  

56.95 |   |
|                                                                               |                                             |                                 |                                                                                                                                                             |                                                      |  |  |  |  |  |  |

 

 

*(The official exchange rate as of January1 was UAH 3.427 to USD 1)*

 

*         Sold to theRussian oil company, Lukoil on March 31, 1999 through aninvestment tender.  

**        Soldto Halychyna Economic Union, Ukrainian company consisting ofrefinery management and employees, through an investmenttender.

***       43.05 %in Kremenchuk Oil Refinery/Ukrtatnafta (upstream) is owned byState Property Fund; 28.78 % is owned by Tatarstan Committee onState Property Management; the rest 28.17 % is owned by privatecompanies both Russian and Ukrainian.

****     Non-commercialprivatization tenders for LINOS were held twice during 1998, bothfailed due to the company’s outstanding debts (about $200million to crude suppliers and loan repayments to WestdeutscheLandesbank), and huge investment requirements.  According tothe Cabinet of Ministers resolution dated June 11, the state willretain 51% share in LINOS for five years.  The stake of16.4% would be offered as a non-commercial tender along with theright to manage the state-owned share and acquire a significantportion in the future.

*****   Shelton JV(Canada-Ukraine) is managing a 25 % state-owned share inHalychyna Oil Refinery (it won the tender 10/99.)  Prior tothat, according to the Cabinet of Ministers resolution dated7/13/99, "Naftogas of Ukraine" managed the state-owned share.

++       50 % plus one share in Kherson Oil Refinery was transferred toKazakhoil (Alliance Group/Russia-Kazakhstan) for management(CabMin resolution #1050 of 10/7/99.)  The Cabinet ofMinisters cancelled this decision later in January 2000 (CabMinresolution #48 of 01/24/2000.)

+++     30 % state-owned(by State Investment Fund) share in Naftokhimik Prykarpattia ismanaged by Wattford Petroleum Ukraine Holding (Ukraine-UK);Wattford Petroleum owns 16 % share in the refinery, and currentlycontrols over 59% of the refinery's stock (through management of30 % state-owned share and through Wattford-Sentoza alliance withother private shareholders.)  26 % (still state-owned butplanned for privatization) in Naftokhimik Prykarpattia wastransferred for five-year management to Alpha-Nafta, Ukrainianoil operator company (CabMin resolution #1204 of 11/4/99.)

 

*Gas ProcessingPlants*

 

The five major Ukrainian gas-processingplants (GPP) can not really affect the Ukrainian gas market, dueto low processing capacity.  At the same time, GPPs areimportant players in their local markets. GPPs are specializing on crudepreparation/purification (extraction of water and salt, andstabilization) and processing of petroleum gas.  Theyproducemostly LPG, stable gasoline, gasoline-free gas;Shebelinsky GPP and the low-capacity gas processing units alsoproduce some fuel oil and diesel fuel.  GPPs are smaller interms of capacity and profits than oil refineries, and theirpolicies are more flexible and client-oriented. Initial processing fees for a new client couldamount to between $11 and $20 (similar to processing fees chargedby oil refineries) but long-term partners receive more favourableterms – discounted processing fees for partners may be aslow as $8-10 per ton. Suppliers of crude to oil refineries and GPPs are also different,and rarely shift from one processing facility to another. Only *Slavutych*, *Rosukrenergo* and *Ukrnaftoproduct* sometime divert their oil reserves forprocessing at GPPs.  At some point supplies to GPPs maybecome subject to competition between suppliers, due to savingsin transportation costs.  Three of the five operating GPPsin Ukraine are a part of *Ukrnafta* producer (Gnidyntsivsky,Kachanivsky and Dolynsky plants.)  Their operations areinseparable from the parent company – they enhanceprofitability of the company’s oil and gas trading. Okhtyrkanaftogaz (a subsidiary of Ukrnafta that is seekingindependence of the central authority) controls two of these GPPsin Gnidyntsi and Kachanivka.  Two other GPPs, Shebelinskyand Yablunivsky (both owned by Naftogaz of Ukraine), haverecently been constructed and have installed modern gasprocessing equipment, supplied by the U.S. companies, BasicSystems International Inc. and Chemdesign Inc.  Alsooperating in the Ukrainian market is Seleschensky petroleum gasstabilizing unit (belonging to Poltavagazvydobuvannia /Naftogaz), and low-capacity processing units owned by the privatecompanies (MTN closed joint-stock company, Grant-Oil Ltd.) and bypetrochemical plants (Snezhanskhimmash plant, Zaporozhkoksplant.)

 

There is a number of lubricant manufacturingplants, including ventures with foreign investments. Ukrainian company Azmol (Naftogaz holds 100% of shares) is one ofthe largest.  It produces more than 100 varieties oflubricants, and is exporting to Russia, Belarus, Germany, andPoland.

 

 

## Distribution/trading of petroleum products

 

In December of 1999 the Concern Naftoproductof Ukraine, the company with foreign investment (possiblyRussian, and including the Alliance Group) acquired a 44.19%share in the JSHC Ukrnaftoproduct, one of the largest petroleumproduct distributors, with a 25% market share.  5.8% of thecompany shares will be offered to employees on preferentialterms; a 50% plus one share of the company stock would remainwith the GOU (JSHC Ukrnaftoprodukt is expected to be included onthe list of "strategic companies" to remain state-controlled forthe next several years.)  Before 1991, Ukrnaftoprodukt wasthe exclusive supplier of petroleum products for Ukraine. By 1999 the company was no longer a monopoly on the Ukrainianpetroleum market.  It owned a substantial distributionnetwork for oil products and lubricants in the east, south andcenter of Ukraine: 612 gas filling stations (one-third of all inUkraine), 116 petroleum storage facilities (one-forth of thetotal in Ukraine.)  JSHC Ukrnaftoprodukt owned 26-51% sharesin 14 distribution companies (including 51% in seven of them) in11 regions of Ukraine.  Ukrnaftoproduct distributed in Kiev,Crimea, Vinnytsia, Kirovohrad, Luhansk, Mykolaiv, Kharkiv,Kherson, Khmelnytsk, Cherkassy, and Odessa regions, as well as inLysychansk and Svitlovodsk.  It had 51% in Eximnaftoproduktof Odessa who handled 80% of all petroleum products shippedthrough Ukraine.

####  

To overcome a fuel crisis in the summer of1999, favorable legislation was passed to attract petroleumproducts into the market; this also encouraged traders'activity.  By October of 1999 Russian Lukoil signed anagreement with Kiev City administration for construction of 10gas filling stations (GFS) in Kiev; it owns a GFS network inOdessa and in Crimea. Ukrtatnafta (Ukrainian - Russian/Tatarstaninvestments) is expanding its gas filling stations network; newGFS opened in Kiev in 1999.  BP-Amoco opened its first Kievgas filling stations in 1999.  Major petroleum traders areSlavutych, Sodruzhestvo, Shelton (Ukraine-Canada), Ukrtatnafta,Interagro, Ukrintertsukor, Ukrros, and Ukragrotekhservice. These companies are politically dependent, belonging topolitical-financial groups/clans (source - Transformation ofSociety Institute, EE 8/2/99.)

 

**LPG Productionand Trading**

 

A promising market is LPG production andtrading.  About 26 million, or 50% of the country'spopulation, utilize LPG.  The populace in rural areas, usesas fuel in the households about 65% of total LPG consumed;another 30% is used as motor fuel for vehicles; and a lowpercentage is used for industrial needs.  The ruralhouseholds consumption is forecast to drop in a few years, asrural areas are supplied by natural gas through the gas pipelinedistribution network.  The motor fuel group is the mostpromising due to the low cost and ecological promise of LPGcompared to gasoline or diesel fuel.  There are now 86 LPGfilling stations in Ukraine, and their number is forecast to growto 430 by 2010 (source - Energobusiness.)  Total demand forLPG in 1998-99 was about 260 thousand tons, of which 30% wasimported, from Russia and the Baltic countries.  SixUkrainian refineries, five gas processing plants, andSeleschensky petroleum gas stabilizing unit produce LPG. Major producers are Gnidyntsevsky gas processing plant,Ukrtatnafta/Kremenchuk oil refinery, and Yablunivsky gasprocessing plant.

 

Ukrspetstransgaz JSC (Naftogaz owns 100% ofshares) specializes in LPG railway transportation; the companyoperates over 2,000 railway tank cars.  To transport LPG byrailway, the companies sign contracts with Ukrzaliznytsia, thestate railway transport company.

 

**TariffPolicy**

 

The stateregulates tariffs for the transport of gas; wholesale and retailgas prices for the populace.  Gas prices for industrialconsumers are not regulated.  For the populace, budgetentities and municipal enterprises, the ceiling price for gas isestablished by the state.  Until the end of 1998 theMinistry of Economy was regulating gas wholesale ceiling pricesand transportation tariffs.  Current wholesale ceiling pricefor gas (set by the Ministry of Economy effective January 1,1999) is UAH 148 (approximately US$ 43.40) per 1,000 cubic metersfor the populace, and UAH 231 (approximately US$ 67.50) per 1,000cubic meters, including VAT, for state budget-financedorganizations and municipal enterprises.

 

A President’s Decree of April 21, 1998extended the functions of the National Electricity RegulatoryCommission (NERC), giving it some additional authority. NERC has the authority to participate in regulating paymentrelations on the wholesale markets of oil, gas and oil products,and to determine the rules by which these markets operate. It can participate in the formation of the pricing policy for oiland gas sale, and tariffs on transportation and storage.  Aresolution of the Cabinet of Ministers dated November 30, 1998authorized NERC to regulate prices and tariffs in the oil and gassector in agreement with the Ministry of Economy.  By thisresolution, effective January 1, 1999, prices and tariffsregulated by NERC are the following:

      a. Wholesaleprice ceilings for enterprises that selltheir      own domestically extractedgas;

      b. Wholesaleprice ceilings for gas sold to the populace;

      c. Municipaland domestic-service enterprises, and state  

     budget-financedorganizations;

  d. Tariffs for transportation ofnatural gas, crudeoil,         petroleumproducts, ammonia, and ethylene substances;

      e. Gasstorage tariffs;

      f. Retail gasprices for the populace. 

 

The current tariffs for transporting oilthrough the lines of the Prydniprovsky Pipeline system, fornon-resident companies operating in Ukraine vary from $ 0.7 to $4.90 per ton, depending on the line: for Ukrainian residentcompanies' oil transportation tariffs vary between UAH 2.9 - 20.5depending on the line (NERC resolution # 1044 of 8/12/99.) Tariffs for gas transportation depend on the gas transportcompany (Ukrtransgaz, Chornomornaftogaz, Ukrnafta, and Kyivgaz)and vary between UAH 9 - 42 (about $ 1.7 - $ 7.8) per 1,000 cu m(including VAT.)

 

Current oil transit tariff for transitingRussian oil through Druzhba Pipeline system is $5.2 per ton forthe length of the route.  Through theVelikotsk-Kremenchuk-Odessa section of the Prydniprovsky Pipeline(to Odessa seaport) - $ 4.9 per ton.  Through theVelikotsk-Lysychansk-Luhansk section (to Novorossiysk seaport) -$2.35 per ton.

 

Gas storage license holders set their owntariffs for gas storage and pumping, within the rules set byNERC.  Tariffs are to be approved by the NERC; licenseholder may apply to NERC to revise the tariff, but it has to givegrounds for such a revision.

 

**C.  BEST PROSPECTS**

 

## Direct ExportOpportunities

 

In the pre-break-up of the USSR times,Ukraine had an abundance of subsidized oil and gas fromRussia.  Today, Ukraine’s petroleum industry isunderdeveloped, and it's equipment is outdated.  There isalmost no domestic manufacturing of oil and gas fieldmachinery.  Technology and equipment is years behind that ofthe United States.  Ukraine does not have pumping equipmentcapable of producing below 6,000 feet, even though many of thefields are at depths of 10,000 to 15,000 feet.  Stimulationtechnologies such as hydraulic fracturing and acid stimulationare not available.  Three-D seismic has not been usedon-shore, and drilling equipment is antiquated and limited to15,000 feet.  It takes three to five years to drill a wellto 15,000 feet, and there is no domestic manufacturing ofequipment for drilling deeper than this.  Major reserves,developed and underdeveloped, are below 15,000 feet andimpossible to exploit without outside financing and modernequipment.  Drilling machinery has been imported mostly fromRussia and Romania. 

 

Ukraine has the second largest refinerycapacity in the Newly Independent States (NIS), with a potentialof about 60 million tons per year at six refineries. However, utilization is very low.  About 60% of petroleumproducts consumed in Ukraine are imported.  Most of therefineries date from before World War II, and areunsophisticated, with little modern technology to process crudeoil into valuable light products such as gasoline, diesel fuel,aviation fuel, kerosene, and liquefied petroleum gas. Refined products yield (the ratio of light products to the totalrefined) in Ukrainian refineries constitutes only 57% on average,versus a desired 75%.

 

The Ukrainian government has made thedevelopment of the oil and gas sectors a top priorities. There are several planned projects that may offer potential saleof U.S. equipment and services: 

1. Ukrainian refineries modernization;

2. Exploration of the Azov-Black Seashelves;

3. Construction of the $150 million Yuzhnyoil terminal (near    Odessa);

4. Yuzhny-Brody pipeline (a transit routefor Caspian oil        throughUkraine to reach Eastern and Central Europe);

5. Rehabilitation of the 35,000 kilometersgas pipeline that     delivers nearly 35% ofWestern Europe's natural gas.

 

The best prospects for U.S. companiesinclude:

a. Crude oil and natural gas;

b. Petroleum products, particularlygasoline, diesel fuel,       motoroils and lubricants;

c. Pipeline construction equipment;compressors and pumps for    pipelineapplications; gas transmission systems;gas         pipeline leaks control systems;

d. Gas pipe fittings and applications;welding machines,        cranes, pipe-cleaning equipment, and linetending            machines;

e. Advanced and highly efficient oil and gasexploration and     drilling equipment andtechnologies (pontoons supported on    columns,hoisting cranes, drilling rigs, bits,electric       motors, winchrollers, rotary tables, sheds,hoisting         blocks,monkey boards, crown blocks, gin holes,shackles,     cutting, roller and diamondbits, casingsleeves,            chemicals, stimulation technologies, modern 3-Dseismic,      particularly for offshoreprojects whereUkrainian           technology is very limited);

f. Equipment for atmospheric-vacuum oilrefining; hydro-        cracking and catalytic cracking units, distillationunits;    industrial automation, control andmonitoring systems for     refineries, gasprocessing and petrochemical plants;de-      sulfurization and qualitycontrol facilities;

g. Safety systems;

h. Fuel dispensers, fuel storage tanks, fuellevel monitoring    and accounting systems.

 

Market Size Data for OGM (in $ Millions)

 

                                                                    **1997              1998              1999**

# A.  Total Market Size               110.0           111.0           112.0

B.  Total LocalProduction      N/A                N/A                N/A    

C.  TotalExports                           N/A                N/A                N/A

D.  TotalImports                            47.0    44.0    46.0

E.  Imports from the U.S.    8.0      11.0   10.0

 

(The above statistics are unofficialestimates.)

 

**InvestmentOpportunities**

 

There are numerous areas forinvestment in the oil and gas sector.  Estimates indicatethat Ukraine has 5 percent of the world’s mineralwealth.  A study by the Geology Committee of Ukraineindicates that 94 kinds of mineral resources are available. The state budget lacks funding for the exploitation of thesedeposits.  GOU is hoping that the recently adopted PSA lawwill attract strategic investors for the extraction of mineralresources in Ukraine. 

 

Oil and gas extraction has thepotential for expansion using up-to-date Western technologies(deep drilling, 3-D seismic, well-logging, reservoircharacterization, directional drilling, etc.) to locate new trapsor untapped zones, or to rejuvenate older fields.  Alreadydiscovered, highly pressurized gas fields are beyond thecapability of Ukrainians to develop.  Naftogaz of Ukrainehas come up with investment projects to recover old fields(Gutzulin gas field, Pylypiv and Dobleslav fields), anddeveloping new oil and gas fields (Odessa shelf, Lokachiv gasfield, Glino-Rozbyshiv and Kokaniv oil fields).  Investmentsneeded for these projects are estimated at $ 250 million. The Azov-Black Sea shelf represents an interesting investmentpossibility in capacity expansion and hydrocarbonextraction.  There is a state program on the Black Sea shelfdevelopment, which has been declared a priority by the Presidentof Ukraine.  It is anticipated the oil and gas deposits onthe Black Sea shelf would take precedence on the list of PSAdeposits.  The Geology Committee of Ukraine conducted theinternational tender in 1996 for oil and gas extraction on theshelf.   The geological survey was conducted by WesternGeophysical (U.S.) and sponsored by the Geology Committee. Shell International Petroleum (Netherlands) and PectenInternational (U.S.) won the first tender in July 1996 toprospect for and extract oil in the Black Sea shelf, but thejoint activity agreement was not signed because the PSA law wasnot yet adopted at the time.  Some American companies wereinterested in participating in the second round uponimplementation of the PSA Law.  Western companies have expressed their interest in the exploitation of gas deposits inDnipro-Donetsk area.  Gas deposits in the area are estimatedat 500 billion cubic meters, and unexplored gas resources areestimated at another 600 billion cubic meters.

 

Naftogaz of Ukraine has investment projectsin oil and gas transportation, including reconstruction ofcompressor stations in Dolyna and Lubny, and construction of theKherson-Crimea and Dolyna-Uzhhorod gas pipelines.  Total $300 million in investments is required for these projects.

 

The Ukrainian government has alsoincluded the rehabilitation of the natural gas transit network,and developed a program of support and promotional measures toimplement this project.  Total project cost is estimated atabout $500 million.  The project will include the upgradeand construction of new compressor stations and pipelinebranches, to improve network reliability and provide for theexpanding of four major export routes.

 

Investments relating to themodernization of existing refineries are expected to becommercially viable.  According to the GOU program on thesuspension of leaded gasoline use in Ukraine by 2005, allexisting refineries need to be modernized in order to produceunleaded gas.  Today, 10% of domestically produced gasolineis leaded.  And, demand for high-octane gasoline far exceedsdomestic production.  Of the six refineries, all exceptKremenchuk refinery, have been partially privatized.  Ifdomestic and foreign trade in crude oil and petroleum productsare completely liberalized and prices decontrolled, refineriesshould be able to attract both commercial loans and equityinvestors to finance the required projects.  The cost ofmodernizing the six major refineries (Lysychansk, Kremenchuk,Odessa, Kherson, Naftokhimik Prykarpattia/Nadvirna andHalychyna/Drohobych) is estimated at over $4 billion.

 

The GOU has reaffirmed the"strategic importance" of the completion of the Odessa-Brody oilpipeline and its related Yuzhny oil terminal (near Odessa) toincrease internal oil supplies and decrease Ukraine's dependenceon Russia (90% of Ukrainian oil demand was supplied from Russiaor through Russian territory in recent years.)  The pipelinestarts near Odessa at the Black Sea port of Yuzhny and goes tothe Brody pumping station located on the Druzhba Oil Pipeline'ssouthwestern branch near Lviv.  The oil terminal andpipeline project would enable Caspian oil to be delivereddirectly to Ukrainian refineries and allow Ukraine to exportcrude oil to Central and Eastern Europe.  The currentestimated cost of the pipeline and terminal construction projectis roughly $500 million.  The initial phase of the pipelineconstruction (with annual capacity of 14.5 million tons) isaround $250 million, and the Yuzhny oil terminal (with 9 milliontons of annual capacity) construction is estimated at $150million.  Another $100 million would be required to completethe second stage of the pipeline and to purchase technical crudeoil to fill the pipeline. The extension of the Pivdenny-Brody oilpipeline to the Polish city of Plock would connect the system tothe western branch of the Druzhba oil pipeline and allow deliveryof Black Sea oil to new markets in Poland, Germany, and theBaltic Sea (through the port of Gdansk in Poland).  According to the feasibility study conducted by U.S. company GulfInterstate Engineering in 1998-99, upon completion of all phases,the Odessa (Yuzhny) – Brody – Plock pipeline, inconjunction with the Bratislava – Schwechat extension andthe Druzhba upgrades, would be capable of delivering high qualityCaspian crude oil to Eastern and central Europe asdesigned.  The Ministry of Energy and Fuel of Ukraine iscoordinating the projects; Druzhba Pipeline State Company is thegeneral contractor and the major investor of both projects, as oftoday.  It is anticipated that the first phase of theproject will by completed by mid 2001; outside private/foreigninvestments are needed to complete the second phase.

 

**D. COMPETITIVE ANALYSIS**

 

Although the oil and gas exploration marketremains highly monopolized and state-controlled, a number ofprivate, including foreign, companies (mostly small and mediumsize) work in this market.  Today, they are exploitinghydrocarbon resources in joint venture or under agreements onjoint cooperation with State Property Fund of Ukraine, or one ofstate-controlled companies, such as:

a. Naftogaz of Ukraine;

b. Ukrnafta (50% state-owned);

c. Vnipitransgaz (state institute of gastransport,             design and research),

d. State-owned oil/gas exploration companiessubordinate         tothe Geology Committee (Crimeanaftogazgeologiaon          the south, Poltavanaftogazgeologia on the east,and          Zakhidukrgeologia on the west of Ukraine.) 

 

Total market share of the foreign companiesoperating in Ukrainian oil/gas exploration is about 4%. Major foreign investors in crude oil and natural gas productionare:

 
|            Company   | Market Share, %                  |              Activity |
|-----------------------------------------------------------------------------|----------------------------------|----------------------------------------------------------------------------------------|
| JV Poltava Petroleum Company,

JV Crimea Petroleum Company (both of JKX,UK) |  

  2.9 

  | Oil/gas extraction in Crimea and Poltavaregions                                        |
| JV Eurogas (Eurogas, USA; RWE-DEA,Germany)                                  |   

  N/A         | Coal bed methane extraction in Lviv-Volynand Donetsk regions                           |
| USENCO (USA)                                                                |  

  N/A               | Oil and gas extraction in Lviv andIvano-Frankivsk regions                              |
| JV UkrCarpatOil (Pease Oil &Gas/Carpatsky Petroleum Corp., USA)         |  

  0.1               | Oil/gas extraction in Ivano-Frankivsk andPoltava regions                               |
| JV Crimea-Texas Oil (HiTech, USA)                                           |  

  0.5               | Oil extraction in Crimea                                                               |
| JV Kashtan Petroleum (Canargo, Canada)                                      |  

  0.2               | Oil/gas extraction in Lviv and Chernihivregions                                        |
| JV Delta (Momentum Enterprise, Canada)                                      |  

  0.02              | Oil/gas extraction in Ivano-Frankivskregion                                            |
| JV Plast (Maru Consulting, Greece;Exploinvest Ltd., Cyprus)                 |  

  0.1               | Oil/gas extraction in Poltava region                                                   |

 

*(Sources - Ukrainian PetroleumConsultants, Energobusiness)*

 

These companies sell natural gas, eitheron gas auctions (UkrCarpatOil, Plast, and Delta) or directly toconsumers (mostly to private companies.)

 

Some foreign companies have concessionagreements with Naftogaz of Ukraine for managing parts of the gastransport system; detailed information is not disclosed as acommercial secret.  Itera International Energy Company (US,Russia) delivers Russian and Turkmen gas to the Ukrainian borderand sells it in Ukraine through dealers.

 

Of the total petroleum products importedinto Ukraine (gasoline, diesel fuel, motor oils and lubricants),so-called "privileged" companies with foreign investments thatwere registered before March 1996, supply about 90%.  Underthe Law on Foreign Investments dated March 13, 1992, a companywith $50,000 in registered foreign investment was guaranteed taxbreaks and was ensured it would not change for 10 years.  OnMarch 19, 1996 the Parliament adopted a new law on the foreigninvestments, which voided previous investment laws and put an endto the previous automatic five-year tax exemption -tax privilegeswere cancelled for the companies registered later. The companieswith foreign investments that were registered in Ukraine beforeMarch 19, 1996 enjoy five-year tax holidays till March 13,2002.  But they do pay excise duty on domestically soldpetroleum products.  In November 1999, the Law on ExciseDuty was changed to force "privileged" companies to pay exciseduty indirectly, charging it from the consumer. Now "privileged"companies with foreign investments form a special category of taxagents: they should include excise duty in the product price,collect it from consumers who purchase the product, and transferit to the state budget.

 

International companies invest in theUkrainian refining industry, domestic manufacturing and sale ofpetroleum products.   

 

International competitors represented onUkrainian petroleum product market are:

 
|          Company |        Activity                                                                                                        |
|----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| Lukoil, Syntez Oil (Russia-UK)                           | Crude oil supply, refining (own 52% ofOdessa oil refinery), storage and  re-export; petroleumproducts manufacturing, storage, distribution and sales |
| Watford Petroleum                                        | Crude oil supply, refining (own 16% andcontrol through partners total 59% of Galychyna/Drohobych oilrefinery)                                             |
| Tebodin (Netherlands)                                    | Pipeline and storage facilities constructionand upgrade                                                                                                   |
| BP-Amoco, US-UK                                          | Retail sales of gasoline and diesel fuel(own gas filling stations in Kiev)                                                                                |
| Chemdesign, Inc./

Oil & Gas Services LLC (US)       | Gas processing equipment supply;

Exporting LPG to Eastern Europe                                                                                    |
| Mobil Oil (US)                                           | Sales of motor oils and lubricants                                                                                                                        |
| Omni Sphere Trade/Omnilub (US)                           | Local manufacturing, distribution and salesof motor oils and lubricants                                                                                   |
| Chemlube International Inc./Petra Ltd.(US)               | Local manufacturing and sales of motor oilsand lubricants                                                                                                 |
| Shell International Gas (US-UK)                          | Sales of motor oils and lubricants                                                                                                                        |

 

 

Many international companies sell theirproducts in Ukrainian market through their localdistributors:

ú motor and industrial oils and lubricants --Chevron (US),

ESSO (US), Addinol (Germany);

ú fuel pumps -- Marley Pump (US), Fe Petro(Italy);

ú fuel distribution units -- Tokheim (US), AdastSystems (Czech Republic), Zaklad Yautomatyki Przemyslowey(Poland);

ú equipment for gas filling stations -- DresserWayne AB (Sweden);

ú gas pipeline equipment and controls -- KanexKrohne Anlagen Export Gmbh (Germany), Officina MeccanikaTartarini S.P.A (Italy), Metran Industrial Group (Russia);etc.

 

**E. MARKET ACCESS**

 

According to the Law on Concessions adoptedJuly 1999, *transporting and distribution of natural gas*are among activities that may be done under a concessionagreement in Ukraine.  Under this Law, existing facilitiesmay be offered in concession to private companies, includingforeign investors; private companies may also construct newfacilities for the transporting and distribution of natural gasunder concession agreements.  The GOU provides stateguarantees for private investments made under concessionagreements. The list of state-owned facilities that may beoffered for concession tenders is approved by the Cabinet ofMinisters (CabMin); corresponding state authorities (fortransporting gas - Ministry of Energy and Fuel, Naftogaz ofUkraine) may suggest to CabMin to include certain facilities inthe list.  List of municipal facilities that might beoffered for concession tenders is approved exclusively by plenarysessions of local municipal authorities/councils. Concession agreements are signed with the winners of concessiontenders for activities or facilities offered in concession, uponpayment of concession fee by a concessionaire.  CabMinapproves winners of concession tenders for state-ownedfacilities; local municipal authorities/councils approve winnersof concession tenders for municipal facilities.  CabMinapproves concession fees for various types of activity.  Thetender is conducted by the entity - owner of a concessionfacility (concession offering entity.)  Concessionagreements may be signed for a period not less than 10 years butnot to exceed 50 years.  If under concession agreement aconcessionaire will perform an activity subject to licensing(incl.  transporting and distribution of natural gas), heshould obtain appropriate license.  Concession offeringentity is obliged to respect and not disclose concessionaire'scommercial secret; it should not interfere into commercialactivities of the concessionaire.  Concessionaire has to uselocally developed technologies, materials and equipment, ifconcession agreement does not specify otherwise.  Uponcompletion of concession agreement, concessionaire should returnconcession facility back in appropriate technicalcondition.  Concessionaire retains ownership for product andprofit received under concession agreement.  Concessionoffering entity carries the risk of accidental crash or damage ofconcession facility, if concession agreement does not specifyotherwise.  Import duty, VAT and excise duty for goodsimported into Ukraine for  activities under concessionagreements are paid as required by Ukrainian legislation.

  

The Law on Production Sharing Agreements(PSA) regulates investments into *exploration and extraction ofoil and gas*.  This Law was implemented in September1999; the enabling legislation -- the legislation containing PSAenabling amendments (up to twenty laws, including tax laws),necessary to make these laws consistent with the PSA law -- isbeing updated/implemented respectively.  Under the PSA Law,a production sharing agreement regulates the relationship betweenparties on mineral resource exploration and extraction.  Thelaw prescribes the sharing of extracted product, itstransportation, processing, storage, utilization, andselling.  The state parties to a PSA are the Cabinet ofMinisters (CabMin) and relevant local authorities of the regionwhere the PSA is being performed.  The investor could be oneor more Ukrainian or foreign citizens, or legal entities orcorporations carrying mutual responsibility for the assignedPSA.  The investor is commissioned by the State of Ukraineto perform all work at his own expense and risk, and is to becompensated with the product after it has been extracted andshared.  According to the PSA Law, the investor may paycertain taxes in “sharing production” rather than incash payment, and is exempt from paying certain mandatory localand state taxes.  The investor pays VAT (on the product soldin Ukraine); excise duty; corporate profit tax; exploration duty(if the geological survey was paid from the state budget); socialand pension fund deductions for the employees hired to work inUkraine under a PSA; license fees for mineral wealth utilizationas assigned in a PSA.  The investor is exempt from payingprofit repatriation tax for the profit received under aPSA.  The investor and subcontractors involved in PSAactivities do not pay VAT and custom duties (except custom fees)on goods and equipment shipped into Ukraine and used forimplementing a PSA, and shipped out after a PSA is complete; thisequipment is not subject to export/import licensing and quotalimitation.  The product obtained by an investor under a PSAis subject to VAT payment when sold locally, and is not subjectto any tax and custom duty payment (except custom fee) whenexported from Ukraine.  The law is believed to correspond tointernational standards for PSA’s.  Other majorprovisions of the PSA Law are the following: 

 

ú The CabMin approves the list of mineral depositsallowed for exploitation in accordance with a PSA, and theirsize.  The investor can apply to the CabMin or to the StateInteragency Commission (SIC) to add any new mineral deposits tothe list. PSA is signed on a tender basis; the SIC works out thetender documents and announces the tender for deposits that mightbe developed under a PSA*.*  The time frame forsubmitting bids should be no less than three months.  TheSIC then evaluates the submitted bids, and sends itsrecommendations to the CabMin, who selects thewinner;  

 

ú A part of the extracted product that is intendedto compensate the investor’s expenses ("compensationproduct") should not exceed 70 % of the total extracted duringthe calculation period (usually one quarter), until theinvestor’s expenses are reimbursed in full;

 

ú The ownership rights for property that wasacquired or produced by an investor to conduct the work under thePSA, can be transferred to the state of Ukraine only after payingits cost to the investor in full, in product;

 

ú The Ukraine State retains ownership of theproduct before it is distributed among the PSA parties.  Atthe time of production sharing, the ownership rights forcompensation portion of the product and the profit portion of theproduct (determined according to a PSA) are vested in theinvestor; 

 

ú During the time that a PSA is in effect, andwithin the actions determined by a PSA, the investor may paycertain taxes in “shares of production”, rather thanmaking cash payments.  The investor is exempt from payingprofit repatriation tax for the profit received under a PSA;

 

ú The CabMin can terminate, suspend, or restrictthe investor’s right to utilize mineral resources under aPSA “in case of a direct hazard to human life and health orto the environment”.  These rights are to be restoredas soon as the investor removes the factors that caused therights restriction;

** **

ú It is prohibited to unilaterallywithdraw funds from the investor’s bank accounts that wereopened in Ukraine to service the activities under aPSA.

 

The relevant ministries and committeesadvise to the CabMin on the list of deposits that can be used forPSA's.  The GOU is supposed to clearly delineate theinvestment tendering procedures.  It is anticipated thatadoption of the PSA law would attract investors and boost jointactivities in oil and gas exploration and extraction inUkraine.

 

Before PSA Law was adopted, there were twoways for foreign companies to obtain the right to exploithydrocarbon resources in Ukraine: to form a joint venture (JV)with a Ukrainian company which had an exploration/extractionlicense (in this case the Ukrainian license holder should havere-licensed to the JV); or to enter in an agreement with aUkrainian company-license holder to jointly exploit the resources(agreement on joint activities.)  The joint venture optionwas the most common.  Ukrainian legislation protectedforeign investors in that if the Ukrainian Company decided tostop working with its foreign partner in a JV, it could not holdthe JV’s license.  In case of agreement on jointactivities between Ukrainian and foreign company, all theequipment purchased for the project was going toward the jointactivities, unless it was leased equipment; the parties to theagreement paid taxes separately. Production taxes were paid ofthe joint activity balance; profit taxes were paid separately bythe parties.  The license was either Ukrainiancompany’s, or it was re-registered to be made conditionalupon the parties’ working together.  There were noexisting laws/legislative documents that supported joint licensesor licenses that were conditional upon the two parties’working together.  For each joint license application aseparate instruction regulating the concept of joint orconditional licenses would have to be initiated by the GeologyCommittee, approved by the License Chamber, and registered by theMinistry of Justice.  (Source of the last paragraphinformation - PriceWaterhouse Coopers.)

 

**Licensing**

 

Licensing of products, technology, technicaldata, and services is being widely introduced in Ukraine. License for sub-surface mineral rights is required for usingcertain piece of land and its sub-surface area for whateverpurposes (mineral resources exploration and extraction,construction of underground facilities etc.)  Besides, theactivities on exploration and extraction of mineral resources,rehabilitation and exploitation of oil/gas pipeline utilities,storage of natural gas above certain volumes, natural gas supply,crude oil and petroleum product transportation by main pipelines,and transportation of natural and petroleum gas through thepipelines are subject to licensing in Ukraine. 

 

Basic laws that regulate the sub-surfacemineral rights, and activities on exploration/extraction ofmineral resources are the Law on Natural Deposits (#133-94,adopted 7/27/94), and the Mining Law (adopted June 1999). According to the laws, the documents that justify the companies'right to extract mineral resources or to construct undergroundoil/gas storage facilities are: 

ú*License for sub-surface mineral rights*(issued by Geology Committee in agreement with the Ministry ofEcology and Natural Deposits; separate licenses are granted foreach type of using certain piece of land and its sub-surface --for geological exploration; for extraction of mineral deposits;for construction and exploitation of underground facilitiesincluding for oil/gas storage; for PSA implementation (see CabMinresolution #709-95);

ú*License for performing activities* onmineral deposit exploration/extraction (issued by the GeologyCommittee) or for construction of underground oil/gas storagefacilities (issued by National Energy Regulatory Commission);

ú*Mining allotment*;

ú*Work plan* approved and agreed to as setforth by the law; 

ú*Geological-markshader documents*, passportsand plans.

 

According to the Law on NaturalDeposits, the company is granted the license for sub-surfacemineral rights after it presents preliminary rental agreementwith local council/municipal authority for a piece of land thatwould be in use.  To obtain the license for sub-surfacemineral rights for certain purposes (oil/gasexploration/extraction, construction and exploitation of oil/gasunderground storage facilities, etc.) the company should apply tothe Geology Committee that issues licenses in agreement with theMinistry of Ecology and Natural Deposits.  Local Departmentof labor safety (currently subordinate to the Ministry of Laborand Social Policy) is granting mining allotments (gorny vidvod)for development of oil/gas deposits "of state significance", forconstruction of underground oil/gas storage facilities, and otherpurposes not related to extraction of mineral resources. Mining allotments for development of other mineral deposits ("oflocal significance") are issued by local councils/municipalauthorities, and should be registered in the state miningsupervision authority (local department of labor safety,subordinate to the Ministry of Labor and Social Policy.) The Cabinet of Ministers determines the terms of issuing licensesand mining allotments.  According to the CabMin resolution"On granting special permission (licenses) for using bowels ofearth for exploration and extraction of strategically importantmineral resources" (#742-97 dated 7/15/97), mineral deposits thathave minimum 15 million tons of oil reserve or 15 billion cu m ofgas are considered strategically important for Ukrainian economy("of state significance".)

 

According to the CabMin resolution "Onapproval of terms of issuing special permissions (licenses) forsub-surface mineral rights" (#709-95, dated 8/31/95), suchlicenses are issued for the period not to exceed five years forgeological survey activities, 20 years - for other activities; incase if special geological territory/object is created, licenseperiod is unlimited.  License application is submitted alongwith other necessary papers (list of papers is set by the GeologyCommittee) to the Head of the Committee.  Licenses areissued by the Geology Committee (currently is subordinate to theMinistry of Ecology and Natural Deposits) within 30 days aftersubmission of all necessary papers and paying the license fee bythe applicant. License holder has to start activities within twoyears of the license issuingdate.     

 

According to the CabMin resolution "Onapproval of terms of issuing mining allotments" (#59-95 dated1/27/95), to obtain mining allotment the company should presentthe license for sub-surface mineral rights; the workplan formineral deposit development (rozrobka rodovyscha) or forconstruction of underground storage facility must be presented tocomplete this lengthy procedure.  The work plans aredesigned by special design or extraction enterprises that areinvolved in markshader activity (marksheiderska sprava.)

 

Since 1998 the National Energy RegulatoryCommission (NERC), an "independent" state authority, isresponsible for issuing licenses for the activities onrehabilitation and exploitation of oil/gas pipeline utilities,storage of natural gas above certain volumes, natural gas supply,crude oil and petroleum product transportation by main pipelines,and transportation of natural and petroleum gas through thepipelines.  All entities that own or lease over five millioncubic meters of natural gas storage reservoirs are subject tolicensing.  According to the CabMin resolution "On terms ofissuing licenses by the National Energy Regulatory Commission forperforming certain activities" (#753-99, dated 4/29/99), licenseapplication should be submitted to NERC along with accompanyingdocuments as set forth in the resolution.  License is issuedwithin 30 days upon submitting the application to the Chairman ofNERC and paying the license fee, for the period set by NERC butnot less than for three years.

 

There is no specific import/export licenserequired for importing or exporting crude oil, natural gas andpetroleum products.  Import/export license is required forimporting or exporting lubricating preparations HS 3403 (antirustetc. preparations based on lubricants) that containozone-damaging substances.  The Ministry of Economy maygrant the export/import license for this category of goods uponagreement with the Ministry of Ecology and NaturalDeposits.  Each year the Cabinet of Ministers approves (andmay change) the list of products which export/import is subjectto licensing.

 

*License Fees:*

 

According to the CabMinresolution "On approving the terms of issuing special permissions(licenses) for sub-surface mineral rights" (#709-95 dated8/31/95), fees for this license vary from 20 to 100 non-taxableminimums ($64-320) for Ukrainian legal entities depending on thepurpose of using the piece of land and its sub-surface, and 50%of this amount for Ukrainian private entrepreneurs (non-taxableminimum is currently UAH 17, or $3.2.)  For foreign legalentities or private entrepreneurs the license fees are twice asmuch as for Ukrainian ones.

     

According to the CabMinresolution "On rates and terms of issuing and re-issuing licensesfor performing certain activities" (#6-99 dated 1/4/99), activitylicense fees for Ukrainian legal entities or privateentrepreneurs vary depending on the activity, and constitute: forlegal entities 12-80 non-taxable minimums ($38-256), forentrepreneurs 2-40 ($6-128) non-taxable minimums.

 

## Taxes andDuties

 

The number of taxes in Ukraine decreasedduring the GOU's tax reform conducted in 1997, and this trend wascontinuing through 1999.  During summer of 1998, PresidentKuchma issued several tax reform decrees.  The reformmeasures included the introduction of a single uniform tax forsmall businesses, and reduction of the payroll tax to 37.5%beginning January 1, 1999.  The most significant taxes are:a 20% value-added tax (VAT); a 30% corporate profit tax; and apersonal income tax based on an employee's income (ranging from20-40% for most employees of foreign companies operating inUkraine); and payroll taxes paid by the employers to the SocialInsurance Fund, Pension Fund, and Employment Fund (totalcontributions to these funds amount to 37.5% of wages, borne bythe employer).

 

The dauntingmenu of a VAT, import duties (ranging from 0 to 20% depending onthe product), and excise duties (up to 300%) presents a majorobstacle to trade with Ukraine. The VAT is levied at 20%, basedon the customs value on the invoice, and is generally payable atthe time of customs clearance by the importer.  A promissorynote can also be applied.  *VAT is not levied on theimported crude oil, natural gas, oil additives containing oil orpetroleum products made of bituminous minerals, and on filter orcleaning equipment for gases/liquids (HS 27.09.00900,27.11.21000, 38.11.21000, 84.21,21900.)* 

 

These threeproduct categories are included in the list of critical importgoods exempted from VAT payment, which is approved by the Cabinetof Ministers of Ukraine.  All other petroleum products aresubject to VAT.  As the list of goods exempted from VATchanges frequently, businesses should contact CS Kiev for themost up-to-date list.

 

Excise duties are applied to a number ofluxury goods, including automobiles and petroleum products,tires, jewelry, alcohol, and tobacco, that are imported intoUkraine or produced locally.  According to the Law on ExciseDuty, *goods that are exported from Ukraine are not subject toexcise duty.* According to the Law on Excise and Import DutyRates for Specific Categories of Goods, excise duty is levied onthe following petroleum products sold domestically (eitherimported or domestically produced: special benzene, kerosene,motor fuels codes HS 2710 00 210, 2710 00 250, 2710 00 310, 271000 370, 2710 00 390, 2710 00 510, 2710 00 550, 2710 00 590, 271000 330, 2710 00 350, 2710 00 610, 2710 00 650, 2710 00 690. These duties are declared in ECU (European Currency Unit) perunit and paid in local currency at the exchange rate effective onthe date of payment.  Excise duties for above-listedpetroleum products are calculated based on their weight, and varyfrom ECU 10 to 40 per kilogram.  *Crude oil and naturalgas are not subject to excise duty payment.*

 

Import duties differ and largely depend uponwhether a similar item to that being imported is produced inUkraine; if so, the rate may be higher.  GOU policy toprotect domestic manufacturers will probably result in graduallyincreasing import duties for items produced in Ukraine. Import duty rates (for goods imported into Ukraine), as well asexport duty rates (for goods exported out of the country) aredefined in the Common Customs Tariff Code of Ukraine inaccordance with the Law on Common Customs Tariff Code, andinternational agreements.  There are three types of duties:preferential, privileged and regular import duties. Preferential import duties are set for goods imported fromcountries that are members of the custom unions with Ukraine, orcompile special custom zones with Ukraine.  Preferentialimport duties are usually the lowest.  Privileged importduties are set for goods that are imported from the "mostfavorable category" countries or economic unions that meansexporters from these countries or unions enjoy certain customduty privileges.  For the rest of goods regular importduties apply.  Depending on the product category, importduties are expressed as a percentage of the declared customsvalue of imported products, or are calculated by volume (enginevolume, in the case of automobiles), units, or weight of productsimported into Ukraine.  These duties are declared in ECU perunit and paid in local currency at the exchange rate effective onthe date of payment.  According to the Common Customs TariffCode, *natural gas is not subject to import duty;* crudeoil, petroleum gas, coal gas, and petroleum products (HS 2705 00000, 2706 00 000, 2707, 2709 00 000, 2710 00, 2711) are subjectto import duty.  Import duty is currently 2% (privileged) or5% (regular) for the above-mentioned categories of goods, exceptfor those specified in the Law on Excise and Import Duty Ratesfor Specific Categories of Goods. According to this law, importduties of ECU 1.5-40 are levied on the following petroleumproducts: special benzene, kerosene, and motor fuels (codes HS2710 00 210, 2710 00 250, 2710 00 310, 2710 00 370, 2710 00 390,2710 00 510, 2710 00 550, 2710 00 590, 2710 00 330, 2710 00 350,2710 00 610, 2710 00 650, 2710 00 690.)  For these petroleumproducts import duties are calculated based on their weight.

 

Customs fees are charged for processingany goods of declared customs value over US$ 100 throughUkrainian customs.  The Cabinet of Ministers approves (andmay change) the rates of customs fees.  According to theCabinet of Ministers' resolution #65 dated 1/27/97 "On the Ratesof Customs Fees", for goods of customs value US$ 100-1,000,customs fees are fixed rates equivalent to US$ 5-30 per eachcustoms declaration.  For imported into Ukraine goods ofcustoms value over US$ 1,000, customs fee is 0.2 % of theircustoms value.  But, according to the Cabinet of Ministers'resolution #1836-99 dated 10/4/99 "On Some Issues on CustomsClearance of Natural Gas", customs fee in the amount of 2 % ofcustoms value is imposed on natural gas imported intoUkraine.  

 

Additional customs fee of 0.01 ECU per onekilogram is levied on imported into Ukraine petroleum productsthat are subject to excise duty.  This additional customsfee is not imposed on domestically manufactured petroleumproducts that are made of crude oil supplied on give-and-taketerms, if these products are sold in Ukraine.

 

It has been quite profitable to extract oiland gas in Ukraine.  According to Naftogaz of Ukraine, in1998 its exploration companies’ expenses (excluding tax)amounted to US$ 10 per 1,000 cubic meters of gas extracteddomestically.  But taxes were adding a lot to gas sellingprice.  As Naftogaz stated, in 1997, out of the US$ 66 pricefor 1,000 cubic meters of gas for municipal and statebudget-financed organizations US$ 56 (or 85%) was tax. According to the Ukrainian Petroleum Academy, direct tax paymentsnow constitute at least 61% in the structure of Ukrainian gasprice.

 

During 1998-99 the GOU made some efforts tolower the tax rates, and the overall number of taxesdecreased.  The investment attractiveness of oil/gasexploration increases as the tax rates are lowered further.

 

Besides general taxes that all businesses inUkraine usually pay, oil and gas exploration companies also payduty for using natural deposits, rent duties for domesticallyextracted oil and gas, geological survey duty (if survey was donefor state budget expense), environment damage duty.  Topromote private investments into developing "hard-to-explore"deposits (with deep oil/gas layers), the GOU offers certain taxprivileges to the exploration companies.  Such as, theexploration companies do not pay the rent duty for oil/gasextracted on these deposits in excess of base volume (zero basevolume apply for "hard-to-explore" deposits), and for 10 years donot pay the geological survey duty.  The Cabinet ofMinisters approves and adds to the list of "hard-to-explore"deposits in consultation with the Geology Committee.  As oftoday, the list comprises some 18 local deposits.

 

Both Ukrainian and foreign entities paytheir taxes on a quarterly basis.  It is important to obtainthe services of experienced international accountants fortax-reporting purposes, as many local accountants have not yetmade the switch to the international accounting standardsrequired for new tax reporting.

 

A new tax code, with significant changes tothe tax regime, is expected to be introduced in the year2000.  The complete text of the current draft tax code inUkrainian can be viewed at the following web site:http://www.tax.com.ua.

 

##### Country's Methods of Procurement

 

Under current Ukrainian legislation, allgovernment procurements above US$ 100,000 are conducted throughone of the following tender procedures: open tenders; opentenders with preliminary qualification required; competitivenegotiations.  Procurements from UAH 70,000 (about US$17,000) to US$ 100,000 are offered through the followingcompetition procedures: competitive negotiations or limitedcompetition, where invitations for bids are sent to at leastthree potential suppliers.  Procurements under UAH 70,000are done on a limited competition basis through invitations forbids.  Open international tenders must be conducted when theprocurement is financed by an entity that is not a resident ofUkraine.

 

##### Means of Financing Procurement

 

Financing is subject to contractnegotiations.  Among the forms of financing are companyinternally generated funds; domestic borrowing; foreignborrowing; domestic equity investments; domestic grants from thebudget; grants from foreign aid agencies.  Among foreigndonors financing energy projects in Ukraine are the World Bank,the European Bank for Reconstruction and Development, the U.S.Agency for International Development (USAID) and the U.S. TradeDevelopment Agency. 

 

The World Bank and EBRD loanslinked to the reform of the energy sector and to nuclear safetytotal about US$ 1.4 billion and ECU 1 billion, respectively. TheEuropean Union’s aid package, totaling about ECU 60million, has concentrated on the reorganization of the energysector; efficiency improvements of the production process in theoil, gas and coal sectors; and also in energy savings. Since 1996, Ukraine has become the third largest recipient of USaid (after Israel and Egypt).  USAID’s currentenergy-related programs in Ukraine include the projects onChernobyl closure, coal sector restructuring, clean coaltechnologies, coal bed methane, energy efficiency, electric powersector restructuring and privatization.

 

 

### F. Major Annual TradeEvents/Fairs

 

1.**Oil & Gastec, October-November,Kiev, Ukraine.**  International trade fair featuringequipment for oil and gas industry: oil and gas transportationand distribution systems, fuel dispenser systems, controls andaccessories etc.

Organizer: ACCO International; Tel: (380-44) 446-3802/04,458-4621/22; fax: (380-44) 446-3808, 458-4623.

 

2. **Oil, Gas& Oil Refining Industry/Energy Saving Equipment andTechnologies, April-May, Kiev, Ukraine.**  Internationaltrade fairs featuring: exploration and drilling equipment;technologies and equipment for storage, transportation, refiningand distribution; petrochemical industry equipment; corrosionprotection; chemicals; diagnostic systems; energy savingtechnologies and equipment for extraction, processing,production, and use of fuel resources; metering and controlequipment.

Organizer: Ukrenergozberezhennia JSC;Tel/fax: (380-44) 458-0418, 458-1873; e-mail: [email protected]; contact: Serhiy Denysiuk,Director.

 

3. **Primus: GasFilling Station, September-October, Kiev, and Ukraine.** International trade fair featuring: gas filling stationequipment, construction and design; motor cosmetics; generators;car washing systems; fuels and lubricants; lighting systems;security systems; automated payment and cash registering systems;special clothes.

Organizer: Primus Ukraine; Tel: (380-44)241-7944, 564-9861; fax: (380-44) 241-7955, 564-9663; e-mail:[email protected].

** **

**G. List of Contacts**

 

A)           American Embassy

 

U.S. CommercialService

David Hunter,Senior Commercial Officer

Victoria Sergeeva,Commercial Specialist

7 Kudriavsky Uzviz,2nd floor, Kiev 254053, Ukraine

Tel: (380-44)417-2669, 417-1413; fax: (380-44) 417-1419

 

EconomicSection

Roxanne Cabral,Economic Officer - oil & gas issues

Tel: (380-44)246-9750; fax: (380-44) 244-7350

 

B)       Host Government:

 

Serhiy Tulub,Minister

Ministry of Energyand Fuel of Ukraine

30 KhreschatykStreet, Kiev 252601, Ukraine

Tel: (380-44)222-4364, 224-9388; fax: (380-44) 224-4021

 

Victor Merkushov,Chairman

State Committee forEnergy Conservation

1 Ivana HontyStreet, Kiev 254112, Ukraine

Tel/fax: (380-44)455-5710

 

Olexander Svetelyk,Chairman

NationalElectricity Regulatory Commission

27 KominternaStreet, Kiev 252032, Ukraine

Tel: (380-44)226-3006, 221-4370; fax: (380-44) 220-9479

 

Serhiy Hoshovsky,Chairman

Committee onGeology and Utilization of Mineral Resources

Ministry of Ecologyand Natural Deposits

34 VolodymyrskaStreet, Kiev 252601 MSP, Ukraine

Tel: (380-44)226-2007; Tel/fax: (380-44) 228-3243;

Fax: (380-44)228-6221

 

Mykhailo Kovalko,Chairman

Committee on Fueland Energy Complex of the Parliament of   Ukraine

6-8 BankivskaStreet, Kiev 252009, Ukraine

Tel: (380-44)291-7633

 

C)             Industry Contacts:

** **

*Oil and gasproduction, storage and transportation*

 

Igor Didenko, FirstDeputy Chairman on foreign relations

Naftogaz ofUkraine

6 KhmelnytskohoStreet, Kyiv 252001, Ukraine

Tel: (380-44)235-9219; fax: (380-44) 235-9220

(oil and gasexploration, extraction, processing, storage, transportation,transit to Europe and selling in Ukraine)

 

Volodymyr Ivanov,Deputy Chairman on foreign relations

Ukrnafta JSC

3/5 NesterivskyProvulok, Kyiv 252053, Ukraine Tel: (380-44) 226-3422,212-4462/5456

Fax: (380-44)212-5922

(crude oilexploration and extraction, gas processing)

 

           Mykola Ilnytsky, Director General

           Chornomornaftogaz JSC

           52 Prospekt Kirova, Sympheropol 333000, Crimea, Ukraine

           Tel: (380-652) 25-8292; fax: (380-652) 25-7100/51-1151

           (oil and gas exploration/extraction in Back and Azov Sea)

 

           Volodymyr Fylypchuk, Chairman

EximnaftoproductJSC

           15 Nalyvna Street, Odessa 270003, Ukraine

           Tel: (380-482) 232-902/006, 219-409;

Tel/fax: (380-482)232-182

(petroleumexport/import transshipment)

 

           Liubomyr Buniak, Director General

           Druzhba Oil Pipeline

           12 Lipinskoho Street, Lviv 290058, Ukraine

Tel: (380-322)59-1240, 72-5506; fax: (380-322) 59-1146   

(crude oiltransportation via pipelines)

 

StanislavVasylenko

Prydniprovsky OilPipeline

32/5 Pobedy Street,Kremenchuk 315305, Poltava Region, Ukraine

Tel: (380-44)235-8128; fax (380-44) 235-8183

(crude oiltransportation via pipelines)

 

           *Oil and gas engineering firms*

 

OlexanderTodiychuk, Chairman

Institute of OilTransportation

60 SichovykhStriltsiv Street, Kyiv 254050, Ukraine

Tel: (380-44)211-3252

Fax: (380-44)211-3020

E-mail:[email protected]

www.iot.kiev.ua

(design andconsulting firm in the area of oil and petroleum productstransportation, storage and distribution)

 

Vitaliy Pohorily,First Deputy Chairman

Vnipitransgaz,JSC

20 EsplanadnaStreet, Kyiv 252023, Ukraine

Tel: (380-44)227-5100, 220-9321

Fax: (380-44)220-0140/5126

E-email:[email protected]

(design andconstruction projects for gas transportation systems and storagefacilities; for gas processing)

 

Veniamin Melnychuk,Chairman

Ukrainian PetroleumInstitute

7 Kudriavsky Uzviz,Kyiv 254053, Ukraine

Tel: (380-44)417-1293, 444-0504; fax: (380-44) 212-5393

(design/consultingin oil and gas exploration/extraction)

 

*Oilrefineries*

 

Roman Matolych,Chairman

Galychyna

82 BoryslavskaStreet, Drohobych 293720, Lviv Region, Ukraine

Tel: (380-3422)3-1225; fax: (380-3422) 3-7138

 

Stepan Solonin,Chairman

Kherson oilrefinery

52 NeftianikovStreet, Kherson 325009, Ukraine

Tel: (380-552)29-5120; fax: (380-552) 29-5109

 

Yuri Boiko,Chairman

LINOS (Lysychanskoil refinery)

Lysychansk-17,Luhansk Region 349917, Ukraine

Tel: (380-6451)2-1507, 2-0467; fax: (380-6451) 50-1350

 

Ihor L.Alexandrovych, Chairman

NaftokhimikPrykarpattia

5 Maidanska Street,Nadvirna 285700, Ivano-Frankivsk Region, Ukraine

Tel/fax: (380-3475)2-5060

 

Valeriy Melnyk,Chairman

Odessa oilrefinery

1 Shkodova Gora,Odessa 270041, Ukraine

Tel: (380-482)32-8604; fax: (380-482) 33-7066

 

Volodymyr Matytsyn,Chairman

Ukrtatnafta

3 SvishtovskaStreet, Kremenchuk 315309, Poltava Region, Ukraine

Tel: (380-5366)2-8410/14; fax: (380-5366) 2-8090, 2-8230

E-mail:[email protected]

 

*Manufacturers/distributors of OGM*

 

Agat-1,scientific and production enterprise

271 AkademikaPavlova Street, Kharkiv 310054, Ukraine

Tel: (380-572)26-7594

Tel/fax:(380-572) 26-4169

(suppliers ofmeasuring and testing equipment)

 

Arma Service,Ltd.

25 Ivana FrankaStreet, Krolevets 41300, Sumy Region, Ukraine

Tel: (380-5453)97-991

Fax: (380-5453)97-451

(ball taps forgas supply systems of up to 8 Mpa)

 

Dniprogaz,OJSC

5 VolodarskohoStreet, Dnipropetrovsk 320029, Ukraine

Tel: (380-562)45-5002

Fax: (380-562)45-2328

(cuttingequipment for gas pipelines with pressures of up to 0,6 Mpa)

 

Dnipropetrovskgaz, JSC

12 ShevchenkoStreet, Dnipropetrovsk 320028, Ukraine

Tel: (380-562)47-1701

Fax: (380-562)47-7492

(gas pipelinediagnostic appliances)

 

Dniproshyna,JSC

24 KrotovaStreet, Dnipropetrovsk, Ukraine

Tel: (380-562)96-7033

Fax: (380-562)96-1513

(scrapers andspherical equipment for pipeline cleaning, ball dividers for oilmetering, pipeline cavity covering equipment)

 

Elplast-Lviv,Ltd.

4 ZavodskaStreet, Gorodok 292530, Lviv region, Ukraine

Tel: (380-3231)92-189

Tel/fax:(380-3231) 91-213

(manufacturer ofpolyethylene pipes and equipment for pipeline maintenance)

 

Gazpromkomplekt

4 MalopidvalnaStreet, Kyiv 252001, Ukraine

Tel: (380-44)229-3519, 488-0569

Fax: (380-44)484-6845, 228-0396

(manufacturer andrepair of equipment for municipal gas supply systems)

 

Himavtomatika,JSC

18 KibalchychaStreet, Kharkiv 310071, Ukraine Tel: (380-572) 76-2180

Fax: (380-572)76-2295

(gas alarmsystems, gas leak detectors, cathode protection stations 0.06-0.6kW)

 

Holovpobutgaz,general department

Ukrtransgazsubsidiary

Naftogaz ofUkraine

3-a Gonty Street,Kyiv 254112, Ukraine

Tel: (380-44)456-6374

Fax: (380-44)456-1834

(gas drillingdistribution network, building gas supply systems and equipment,various services for natural and liquefied gas consumers)

 

KyivpryladPlant

2 GarmatnaStreet, Kyiv 252180, Ukraine

Tel: (380-44)441-0737

Fax: (380-44)446-5236

(manufacturer ofcombined regulators of gas pressure and gas regulator units)

 

Kyiv PlantGeophizprylad, OJSC

28 Dubrovytskast., Kyiv 254114, Ukraine

Tel: (380-44)430-4666/92

Fax: (380-44)430-6666/1331

(manufacturer ofequipment and spare parts for geophysical survey units)

 

Mashproekt,scientific-production company

42-a ZhovtnevyProspekt, Mykolayv 54018, Ukraine Tel: (380-512) 22-1348

Fax: (380-512)55-6868, 22-0243

E-mail:[email protected]

(designer andmanufacturer of gas turbine engines 2.5-110 mw capacity, gaspumping units (2.5-25 mw), gas turbine generators (2.5-325 mw)and units for ships of all types)

 

Naftoprommash,JSC

1Chervonoarmiyska Street, Okhtyrka 245520, Sumy Region,Ukraine

Tel: (380-5446)97-894, 2-2193

Fax: (380-5446)2-3559

(drillingequipment, oil and gas field machinery)

 

Paton ElectricWelding Institute,

Scientific-engineering center

5 BohdanaKhmelnytskoho Steet, Glevakha 255133, Vasylkiv District, KyivRegion, Ukraine Tel/fax: (380-44) 98-35393

(cuttingequipment for gas pipelines)

 

Ozgaz, CJSC

132 SumskaStreet, Kharkiv 310023, Ukraine Tel: (380-572) 40-2217

Fax: (380-572)43-9178

(liquefied gasfilling stations for vehicles)

 

Pivden,Ukrgazifikatsia

3 PedagogichnyProvulok, Odessa, Ukraine Tel/fax: (380-482) 68-4005

(polyethylenepipes for gas supply, 20-225 mm diameter)

 

Teharm

31-a Zamarstynivska Street, Lviv,UkraineTel/fax: (380-322) 52-4458(designer andmanufacturer of non-gland industrial fittings with disc ceramicand hard alloy gates for the oil and gas industry) 

Ukrspetstekhnika,state scientific-production enterprise

2 TrutenkaStreet, Kyiv 03022, Ukraine Tel: (380-44) 263-0013

Fax: (380-44)263-2094

(ultrasounddomestic gas meters)

 

Vazhmashimpex,Ukrainian national foreign economic corporation

65 ProspektPeremohy, Kyiv 252062, Ukraine

Tel: (380-44)443-1202, 442-9234

Fax: (380-44)442-7058

(machinerysupplier, and turn-key project start-up in metallurgy machinery,oil & gas machinery, mining engineering and machinery, powerindustry equipment, transport machine-building, civil engineeringand road machinery, chemical machinery)

 

Vinnytsiagaz,OJSC

24 SchorsaStreet, Vinnytsia 286012, Ukraine

Tel: (380-4322)78-092

Fax: (380-4322)78-598

(automatedappliances for the filling of tanks with liquefied gas; cathodeprotection stations for electro-chemical protection ofunderground metal constructions)

 

           *Oil and gas consulting firms*

 

OlexiyCherniavsky, Director

Energobusiness

15 Bozhenko St.,Build. 7, Office 309, Kyiv, Ukraine

Tel/fax: (380-44)261-5406, 227-8952, 220-9036

E-mail:[email protected]

(daily andby-weekly news bulletins on the energy market of Ukraine;consulting in power sector, oil and gas)

 

Svitlana Myzina,Director

Nafta & Gas(oil & gas)

8/4 ZheliabovaSt., Office 805, Kyiv 252057, Ukraine

Tel: (380-44)441-0924/27

Fax: (380-44)241-9757

(monthly magazinein the oil & gas industry; consulting)

 

Serhiy Sapegin,President

Psychea

110 ZhilianskaSt., Office 23, Kyiv 252032, Ukraine

Tel: (380-44)224-4590

Fax: (380-44)244-4597

(petroleum marketresearch and consulting; specialized weekly magazine“Naftoprodukty” (petroleum products))

 

           Serhiy Denysiuk, Director

           Ukrenergozberezhennia, JSC

1 Gonty Street,Office 58, Mail Box # 33, Kyiv 252112, Ukraine Tel: (380-44)458-0418

Fax: (380-44)458-1873

E-mail:[email protected]

(trade shows,seminars, conferences on fuel and power; consulting)

 

           Kostiantyn Borodin, Director

UPECO (UkrainianPetroleum Consultants)

68 BohdanaKhmelnytskoho Street, Office 77, Kyiv 252030, Ukraine

Tel: (380-44)224-2347; tel/fax: (380-44) 224-8931

(petroleum marketresearch and consulting; weekly magazine "Nefterynok" (petroleummarket))

 

 

                ISA Customer Satisfaction Survey

 

                     U.S. Department Of Commerce

                  * International Trade Administration*

                         The Commercial Service

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The U.S. Department of Commerce wouldappreciate input from U.S.

Businesses that have used this ISA report inconducting export

Market research.  Please take a fewmoments to complete the

Attached survey and fax it to 202/482-0973,mail it to QAS,

Rm. 2002, U.S. Department of Commerce,Washington, D.C. 20230, or

Email: Internet[[email protected]].

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                      * * * About Our Service * * *

 

1. Country covered by report:_______________________________  

Commerce domestic office that assisted you(if applicable):    

________________________________________________________

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   __Direct mail

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   1-Very satisfied  2-Satisfied  

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   4-Dissatisfied  5-Very dissatisfied 

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   __Other (specify):_______________________________

 

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________________________________________________________

 

                   * * * About Your Firm * * *

              

1. Number of employees: __1-99   __100-249   __250-499

                        __500-999   __1,000+

2. Location (abbreviation of your stateonly):______

 

3. Business activity (check one):

   __Manufacturing

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   __Agent, broker, manufacturer'srepresentative

   __Export management or tradingcompany

   __Other(specify):_______________________________

 

4. Export shipments over the past 12months:

   __0-1  __2-12   __13-50   __51-99  __100+

 

 

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Company name:_______________________________________________  

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FORM ITA 4130P-I (rev.5/95)                        

OMB. No. 0625-0217