In January-March 2018, PJSC Ukrnafta paid over UAH 3.3 bln in taxes, including UAH 300 mln of the overdue tax debt. The company is repaying the outstanding tax debt along with all current taxes. Ukrnafta’s financial plan for 2018 envisages repayment of UAH 1.2 bln of the overdue tax debt, which stood at UAH 11.85 bln as of the end of 2017.
At the same time, Ukrnafta offered to the Cabinet of Ministers and Ministry of Finance of Ukraine to reschedule the payment of the overdue tax debt for a period of four years and freezing fines and penalties. During this time, the company is prepared to repay the tax debt in installments using solely its own cash flow from operations, as well as to pay all current tax liabilities. The restructuring of the overdue tax debt will lift the legal restrictions on investments and enable the company to invest approximately UAH 29 bln over the next five years. Under this favorable scenario, the state will receive from Ukrnafta circa UAH 80 bln in taxes within the next five years, of which UAH 28 bln will come as additional tax revenue from increased investments and production volumes.
Ukrnafta emphasizes that the risks to repayment of the overdue tax debt may come from attempts by the regulator to block its production licenses. Another risk factor is the instability of the state-run oil auctions where the company is required to sell its oil and condensate at the state-regulated prices. Last year, the majority of the state-run oil auctions failed which had a negative impact on the stability of the company’s cash flow.
Note to editor
Ukrnafta recorded UAH 11.85 bln of outstanding tax debt as of the end of 2017. This includes the debt owed by the company and its structural units, as well as the debt from the joint activities. Ukrnafta’s approach to recording and reporting tax debt is consistent with the Ukrainian law and is supported by the independent external auditor. The bulk of the debt accumulated in 2014-2015 before the management change.
Ukrnafta suggested two options to repay the debt. The company offered to hand over to the State Fiscal Service of Ukraine as tax lien 2 bln m3 of gas whose market value is about UAH 15 bln. The other option is to reschedule the tax debt over a number of years to be repaid in installments from the company’s own resources. The discussions with the government over the restructuring of Ukrnafta’s overdue tax debt have been ongoing since 2016. In January 2018, the company presented a new set of proposals to restructure and repay it to Vice Prime Minister Volodymyr Kistion.
Meanwhile, the debt issue is frequently used by the authorities as a pretext to block Ukrnafta’s operations. Last year, the State Geological Service failed to extend company’s nine licenses on time, citing the tax debt as the reason. This practice was recognized unlawful by various courts. In early March 2018, the Ministry of Ecology and Natural Resources drafted a bill that enables the regulator to revoke hydrocarbons production licenses from the companies with the tax debt. This initiative along with the lack of the agreed solution on Ukrnafta’s overdue tax debt poses a threat to halt operations of the company, which is among the 5 biggest taxpayers, the biggest oil producer and a large employer in Ukraine.
For more information please contact press office: +38 044 239 14 93
