Strategic reserve

Monday, 12 Mar 2018

By 2023, Ukraine should create a minimum reserve of oil and oil products. The expert of the oil products market tell about the prerequisites, prospects and problems of the strategic fuel resources planning issue. Dmitry Kulik President of the Oil and Gas Association of Ukraine.

In many European countries, 90 days of oil and oil products reserves have already been formed — this is a mandatory condition dictated by the rules of the International Energy Agency and Directive 2009/119 / EC. Virtually all the countries of the European Union in one form or another store strategic reserves of oil, gasoline and diesel, and Poland, Portugal, Bulgaria, Spain, Italy and Greece also form stocks of liquefied gas. Volumes of necessary reserves are created based on 90 days of average daily fuel consumption by transport, household, industrial and other sectors.

By 2023 Ukraine should also have a minimum reserve of oil and oil products.

What for?

The EU directive says that oil reserve is necessary in case of emergencies in the oil market. In the event of any breaks in market offers, imbalances between supply and demand, emergency situations, in order to avoid fuel collapse, one must have a stabilization stock: either on day 61 of average daily consumption or for 90 days of average daily net import.

When?

By signing documents on the association with the EU in 2014, Ukraine has undertaken responsibility to create a minimum reserves of oil and oil products. By this, it is bound by the agreement on the founding of the Energy Community, which is part of the EU’s policy on export legislation, and Directive 2009/119 / EC. In accordance with these documents, all EU countries, Ukraine included, should form the oil reserve until 2023.

However, you should not be reassured by such seemingly long term. The approximate cost of infrastructure preparation is approximately 200 million UAH per year, 500 million UAH per year is spent on the formation of the strategic reserve, and 300 million more are due to storage and renewal of the reserve. Our neighbors, Hungary and Romania, spent 4 and 5 years building their fuel reserves.

Ukraine has been trying for 15 years to form its minimum reserves of petroleum products, in this regard, already issued 3 Decree of the President of Ukraine, and none of this has been implemented so far.

What will oil reserves consist of?

To date, the situation in the market of oil refining in Ukraine is such that it will not be possible to quickly and efficiently process oil into the final product without excessive costs. In Ukraine there is only one oil refinery — the Kremenchug refinery. It is unreasonable risk to create oil reserves, considering that it can be recycled at the refinery alone. Therefore, the reserves in the most part will consist of oil products: diesel fuel, gasoline, jet fuel.

What has already been done?

On June 21, 2017, the Cabinet of Ministers of Ukraine again raised the issue of creating a stabilization reserve, in accordance with which the draft resolution “On Approval of the Model for the Formation of Minimum Reserves of Oil and Oil Products in Ukraine” was developed. And in the autumn of 2017, the Ukrainian model for the formation of minimum reserves was even approved by experts of the Energy Community in Ukraine. However, after a detailed analysis of the draft act, it can be argued that this project has a declarative nature and can not serve as a basis for further development of legislative acts on the creation and functioning of the state system of minimum oil and oil products reserves.

What’s wrong?

First, the basis for creating such stocks is to determine the sources of their funding. The draft Act states: “Expenses for the accumulation of oil and oil products are covered by charging fees from market participants (producers, importers, etc.) for volumes sold on the domestic market.” The total cost of creating inventories within five years, according to the explanatory note, is expected to be 1 billion 414 720 000. Dollar. USA. If producers and importers are supposed to ensure the formation and maintenance of 30% of the total volume of reserves, then their share of expenditures in this period will be $ 425 million, which at the current rate of about 12 100 000 000 UAH. With such costs for the creation of oil reserves, some of the market participants will cease to operate, and the competitive situation in the market will worsen, as the legal business will bear these costs, and the “black” business will not.

Secondly, the definition of sources of costs for the oil reserve in the draft act is meaningless! What means “charging fees from market participants for volumes sold on the domestic market”? Should this be interpreted as an additional tax? Which, by the way, is prohibited by the current legislation. In the current legislative field of the state, there is no other way to finance the reserve, such as the allocation of a share of the excise tax for this need.

Thirdly, the authors of the draft act are surprised that the document (in their opinion) is not a regulatory act and does not require public discussion. If such an act is approved, its impact on tens of millions of consumers of petroleum products and on companies that sell petroleum products to these consumers will be very large due to a significant increase in the cost of products sold.

What should be done?

In the draft of the oil reserve model, it is necessary to clearly identify the source of funding for the creation and operation of stocks, namely, a fixed share of the excise tax from the total volume of oil products is sold on the domestic market of the country, which will be sent to the reserve. Such a source of funding should be defined in the draft act, and not in the justification of the need to adopt the act presented in the explanatory note to it (in the case of adoption of the draft resolution, the explanatory note to it is not a normative legal act).

Procurement of oil and petroleum products for stocks should be made on a formula basis, linked to quotations of world agencies with possible use of financing through long-term loans from international financial organizations on a pro rata basis (state and market participants), the cost of their storage, updating and implementation is formed on market conditions.

The draft resolution “On the approval of the model for the formation of minimum reserves of oil and oil products in Ukraine” must be submitted to the State Regulatory Service for consideration.

If the excise tax is chosen as a source of financing, the participants of the Oil and Gas Association of Ukraine, being representatives of a responsible and civilized business, are ready to support the creation of a minimum reserve of oil and petroleum products, including providing their infrastructure on market conditions and undertaking some of the tasks.

Dmitry Kulik noted: “In the draft model of minimum reserves of oil and oil products, it is necessary to clearly identify the source of funding for the creation and operation of reserves, namely, a fixed share of the excise tax from the total volume of oil products is sold on the domestic market of the country, which will be sent to the oil reserves. Such a source of funding should be defined in the draft act, and not in the justification of the need to adopt the act presented in the explanatory note to it (in the case of adoption of the draft resolution, the explanatory note to it is not a normative legal act).

Procurement of oil and petroleum products for stocks should be made on a formula basis, linked to quotations of world agencies with possible use of financing through long-term loans from international financial organizations on a pro rata basis (state and market participants), the cost of their storage, updating and implementation is formed on market conditions.”

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