Increasing Ukrainian gas production

A dozen TV cameras zoom in on a pen and an inch-thick contract.  Signatures are completed; contracts swapped; and more signatures added.  Eventually the process is complete and there are handshakes and a round of applause.

I am at the Ukrainian Ministry of Energy to witness the signing of an important Joint Activity Agreement between Shell and its Ukrainian partner UkrGasVydobuvannya worth, potentially, up to $800m.  The contract, which is designed to exploit shale gas in Ukraine, is one of the largest investment agreements signed in Ukraine in recent years.  It holds out the prospect of increasing Ukrainian gas production and Ukraine’s energy self-sufficiency.  It also signals the determination of the Ukrainian government to attract more inward investment.

I am delighted to see the agreement signed.  Shell, a major British/Dutch company, is serious about wanting to invest more in Ukraine, as demonstrated by the presence at the event of Peter Voser, the CEO of Royal Dutch Shell alongside Energy Minister Yuriy Boyko.  I noted in July several recent positive steps on Ukrainian energy policy.

The key to a long-term increase in inward investment in Ukraine remains creating an environment where investors have confidence that the rule of law applies; that business interests with close links to the authorities are not able to use the institutions of the state (including security, tax and regulatory organs and the courts themselves) to put pressure on competitors or secure assets; and that those state organs behave in a transparent and predictable way.  This will require a wholesale change to the way the rule of law operates in Ukraine at present.  If the Ukrainian Government can achieve this change in the business climate, Ukraine can expect many more major deals of the sort signed with Shell.  If not, there is a risk that such important new investments will remain the exception rather than the rule.