Asters, Kyiv, Ukraine, Friday, January 20, 2012

On 13 January 2012 the Law of Ukraine "On Amending the Tax Code of Ukraine Regarding Review of Certain Tax and Duties Rates"(the "Amendments") became effective. The Amendments change the procedure for calculation of adjustment index used for royalties' calculation.

According to the effective law, the royalties for crude oil and gas condensate extracted in Ukraine depends on royalties' rate, which varies depending on the depth of extraction, and on adjustment index, which is directly affected by world market crude oil prices.

The royalty payers on a monthly basis shall calculate its amount depending on adjustment index calculated by dividing the average price for Urals oil at London exchange for the end of current accounting period to the benchmark oil price. Before the Amendments the benchmark price for Urals oil had been defined at the level of UAH 560 (app. USD 70) per barrel. By the Amendments the benchmark price for Urals oil in 2012 was raised to USD 100 per barrel (app. UAH 800). As result of these changes the adjustment index has decreased. Consequently, this led to decrease of royalty payments, which, overall, is a positive move for production companies in Ukraine.