DiXi Group developed and submitted to the Ministry of Energy a draft law on transparency in extractive industries

The DiXi Group think tank has drafted amendments to the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding Transparency in Extractive Industries” and submitted them to the Ministry of Energy of Ukraine for further consideration.

The analytical center team, together with invited experts, developed a draft law aimed at implementing the EITI Standard requirements into national legislation, the updated version of which was approved in 2023. After discussing the draft with stakeholders, the document was submitted to the Ministry of Energy of Ukraine for further consideration.

It should be noted that last year Ukraine received a number of awards from the Initiative, in particular for protecting democratic values and democracy in the world, as well as for continuing to implement the EITI standard despite the war.

“Since becoming a member of the EITI, Ukraine has made significant progress in implementing the Initiative’s standards and principles, and before the full-scale invasion, it was considered one of the leaders in implementing the Standard. Of course, the war has forced the closure of much information, but even so, cooperation between the public, the government, and companies on the implementation of the Standard continues,” emphasized Olena Pavlenko.

Following the update of the EITI Standard in 2023, a list of new requirements now applies to participating countries and companies operating in extractive industries, including:

• for the first time, a requirement to disclose information related to the energy transition process, which should create a tool for public dialogue on expected changes in the energy sector;
• new requirements for providing information on taxes and/or carbon pricing mechanisms, greenhouse gas emissions, production costs, and mineral reserves;
• Disclosure by extractive companies not only of contracts involving companies in social projects or programs, but also of extractive companies’ participation in environmental and infrastructure projects.
• new and enhanced disclosure requirements in key areas such as gender aspects, social and environmental monitoring and impact, and public consultation;
• ensuring transparency in the issuance of special permits and/or the conclusion of contracts for the extraction of minerals, in particular by disclosing all cases of issuance of special permits for subsoil use without competitive procedures, with a mandatory description of the criteria applied when issuing such special permits.

For more details on the updated requirements, please follow the link.

The need for a new draft law was prompted by a number of issues that needed to be resolved after the Standard was updated. In particular, the new document proposes amendments to the Law of Ukraine “On Ensuring Transparency in Extractive Industries,” the Law of Ukraine “On Environmental Impact Assessment,” and the Law of Ukraine “On Environmental Audit” in order to bring them into line with the requirements of the 2023 EITI Standard:

1) supplement the scope of information that companies operating in the extractive industries provide to the Ministry of Energy once a year (by September 1) in a report on payments to the state, with the aim of further disclosing information to the public about:

• greenhouse gas emissions;
• participation in environmental or infrastructure projects or programs;
• projected production volumes;
• more detailed information about employees, namely, the number of local and foreign employees, employees of each gender, and the ratio of their average salaries;
• the availability of an environmental impact assessment and post-project monitoring for each project activity (activities carried out in accordance with a special permit for subsoil use);
• the existence of an environmental and social risk management system (to be submitted if such a management system exists);
• the existence of an anti-corruption program in the business entity (to be submitted if such a program exists);
• the ownership structure of such a business entity (previously, this requirement applied only to enterprises in the public sector of the economy).

2) supplement the scope of information provided by state authorities to the Ministry of Energy once a year (by May 1) for the purpose of further disclosure of such information to the public:

• The State Service of Geology and Subsoil of Ukraine provides information on confirmed reserves of minerals of national importance; the application of procedures for issuing special permits for subsoil use without holding an auction (electronic bidding) or a competition (if such a procedure was applied during the reporting period) with a description of the criteria used to determine the entity to which a special permit was granted without an auction (electronic bidding) or competition, the procedure for granting and the results of applying such a procedure;
• State Customs Service of Ukraine – provides information on the export of minerals of national importance in the volume and form approved by the Cabinet of Ministers of Ukraine;
• Ministry of Finance of Ukraine – provides information on the projected volume of revenues to the state and local budgets from mining companies;
• Ministry of Environmental Protection and Natural Resources of Ukraine – provides information on the methodology for calculating tax rates and/or the mechanism for pricing carbon emissions applied in the reporting period;
• 3) in order to ensure public access to the results of post-project monitoring and environmental auditing, proposes to amend the Law of Ukraine “On Environmental Impact Assessment” and the Law of Ukraine “On Environmental Auditing”, which require the publication of post-project results.

3) In order to ensure public access to the results of post-project monitoring and environmental auditing, it proposes amendments to the Law of Ukraine “On Environmental Impact Assessment” and the Law of Ukraine “On Environmental Auditing,” which require the publication of the results of post-project monitoring and environmental auditing and determine the procedure for such publication.

In order to regulate certain issues identified during the practical implementation of Law No. 2545-VIII, the draft law also proposes:

– improve the terminology of the previous main law (define a new term “state-controlled business entities operating in the extractive industries,” improve the term “payment recipient”);

– clarify the composition of information provided by payment recipients in the report on payments received;

– improve the procedure for preparing reports on payments to the state by participants in joint activity agreements and production sharing agreements and require disclosure of information on state revenues from the sale of state-owned products within the framework of production sharing agreements;

– expand the scope of information disclosed regarding the role of the state in the extractive industry, in particular, information regarding the state’s participation in extractive enterprises with indirect state ownership, including the conditions for owning a significant share in the authorized capital of such an entity, shall be disclosed; financial relations of extractive enterprises with indirect state ownership with the state, other state-controlled extractive enterprises, full disclosure of information on significant payments in favor of such extractive enterprises.

Ukraine joined the international Extractive Industries Transparency Initiative (EITI) in 2013. The EITI is a voluntary association of states created to establish principles and requirements for ensuring transparency in the extraction of oil, gas, and other minerals. Each country is represented in the EITI by government officials, companies operating in the extractive industries, and non-governmental organizations representing civil society.

The EITI’s objectives include ensuring accessible and detailed information about the funds and other benefits received by the state from the extractive industry and their use; activities aimed at improving the efficiency of public financial resource management in the industry; and demonstrating to companies the benefits of transparency in the use of natural resources in Ukraine, which should lead to an improved environment for domestic and foreign investment.