Head of the State Geology and Subsoil Service – about the current situation in the mining industry of Ukraine
The Ukrainian mining industry suffered significantly as a result of hostilities caused by the military aggression of the Russian Federation against Ukraine. Despite the reduction of economic activity in the industry, the state is trying to improve the industry, promote an increase in the production of minerals important in the energy crisis, simplify the access of subsoil users to geological information, and deregulate the entire industry. The head of the State Geology and Subsoil Service of Ukraine (Derzhgeonadr), Roman Opimakh, told about it this in an interview for GMK Center.
What are the current challenges faced by companies in the mining industry?
– In the materials of The Washington Post, the value of mineral deposits located in the occupied territory estimated in $12.4 trillion (analysis by the Canadian company SecDev). According to preliminary calculations, the losses in terms of lost profit caused to the Ukrainian subsoil by the military actions and aggression of the Russian Federation against Ukraine, in the Donetsk and Luhansk regions and the Autonomous Republic of Crimea amount to UAH 7.76 billion. From 2014 to today, Ukraine has lost access to the development of a large number of its deposits of various minerals, as well as about 500 issued special permits for their search and development (20% of the current ones).
There is no official information on changes in mineral extraction caused by hostilities in 2022, as the annual reporting period according to the approved reporting forms 5-GR, 6-GR, 7-GR begins in January-February 2022. At the same time, the State Geological Survey received letters from 110 subsoil users regarding the occurrence of force majeure circumstances.
According to Ukrmetalurgprom, the current production of steel plants is 15% of the pre-war level, and mining and beneficiation plants – about 20%. Most of the mining plants of Ukraine have completely suspended production – Ingulets, Southern, Northern Minings and ArcelorMittal. And Poltava and Central Minings reduced the workload by 50-70%. The main reasons: limited logistics due to the blocking or destruction of port facilities (70% of the produced products were traditionally exported by sea), technical difficulties with crossing the state border with EU countries, a sharp drop in prices for iron and steel products (a decrease of 34% for iron ore concentrate and 27% – for hot-rolled coil).
According to the All-Ukrainian Union of building materials producers, the volume of production and sales of building materials (cement, crushed stone, glass, brick, dry non-gypsum mixtures, foams, varnishes/paints and ceramic tiles) has decreased – the reduction is from 15% to 50%. The main reasons: the loss of production in the east and south of the country, as well as a reduction in economic activity, almost a complete stoppage of the commercial construction segment of the market.
What licenses does the State Geological Survey currently sell? Is there a license withdrawal process?
– From the beginning of hostilities until November, the State Geodesy issued 61 special permits for geological study of the subsoil with research and industrial development, as well as extraction of sand and loam, underground drinking water, mineral and technical water, sand-gravel mixture, copper ores, kaolins, pegmats, peat, gypsum, granite, lime, amber, as well as oil and gas.
The State Geology and Subsoil Service of Ukraine can cancel a special permit only by a court decision (except when the user refuses to use the subsoil or the purpose of granting the permit has been achieved). During this period, the State Geodesy appealed to the court with an administrative lawsuit regarding the annulment of 17 special permits for the use of subsoil due to violations of legislation. Consideration of the case in court requires a certain amount of time, so decisions on the cancellation of permit documents have not yet been made. During this period, special permits are suspended, i.e. no geological exploration or industrial development of minerals is carried out within the subsoil areas.
Are investments in existing mining projects frozen?
– According to forecasts, in particular by the Association of Gas Mining of Ukraine, the drop in natural gas production in 2022 may reach 8-10%. The lion’s share of natural gas production falls on several regions of Ukraine – mainly Kharkiv and Poltava, as well as Sumy, Chernihiv, Dnipropetrovsk and Luhansk.
11 out of 13 current hydrocarbon contracts within the framework of production sharing agreements (PSAs) have been suspended due to force majeure. As part of the implementation of projects for the exploration and development of oil and gas-bearing subsoils of the Black Sea shelf, the work of Naftogaz of Ukraine under special permits granted in 2021 was stopped in connection with military operations.
What is the current situation with lithium deposits?
– The state mineral balance of Ukraine includes three deposits – the Shevchenkiv deposit of spondumen ores, the Polokhiv deposit of petalite ores and the Dobra site of spodumene-petalite ores. A special permit has been granted for the Polokhiv deposit, and foreign laboratory tests are currently being conducted on the percentage of product extraction from the concentrate.
At the end of 2021, the Dobra site was nominated by a foreign investor for a tender for concluding a production sharing agreement. The responsible body for the organization of the competition has been determined – the Ministry of Economy. At the same time, as of October 19, 2022, the District Administrative Court of the city of Kyiv canceled the order of the State Geodesy dated November 8, 2021, №846 «On the refusal to grant a special permit for the use of subsoil» and is required to submit a report on the execution of the court decision regarding the consideration of the application for obtaining a special permit in order to extract lithium ores from the Dobra site. Court decisions may harm putting this site up for open tender.
In Ukraine, there are obstacles to attract investment in the development of lithium deposits.
Capital intensity and duration. More than $150 million will be needed for the implementation of the lithium ore extraction and beneficiation (processing) project and, taking into account the time required for the construction of the mine, at least 7 years. In such volumes, long-term debt capital is unavailable in Ukraine, and there are no investors with their own funds. There is also a lack of foreign capital that is ready to enter this business in Ukraine.
Limited access to technology. In Ukraine, there is a lack of practical knowledge in terms of the design and construction of underground mines for lithium extraction, modern technologies of lithium enrichment and processing, as well as relevant expertise in working with them.
The listed problems are widespread in the world, in particular, no new project for the commercial extraction of lithium ore has been implemented in Europe in the 21st century.
Removal of land. Getting access to land plots is also quite a difficult issue in many countries of the world. The right to use the subsoil does not grant the right to access the corresponding land plots. In Ukraine, more than 90% of the land area within the boundaries of subsoil use objects is already in private ownership. Thus, carrying out the works will require the conclusion of lease or easement agreements with the owners of land shares, which may block the investor’s work. After the opening of the land market, it will be possible to buy them and change their purpose.
Today, there is no longer a requirement to obtain a separate permit for the removal of the fertile layer. Also, data about such a layer on land plots with cadastral numbers is already indicated on the map of the State Geological Portal, which allows you to find out about the ownership of land plots. In addition, in order to exercise the preferential right to buy a land plot (in accordance with the requirements of Article 130-1 of the Land Code of Ukraine), starting from May 2021, extracts from the land cadastre will include information on special permits for the use of subsoil on the land plot, which gives the subsoil user a priority right redemption of such land in case of its sale (some types of minerals of national importance). Also, according to Art. 66 of the Land Code, holders of special permits for the use of subsoil of national significance are granted land plots by establishing easements for the period of validity of such permits. The current legislation also provides for the procedure of compulsory purchase of land plots for public needs in case of placing on them objects related to the extraction of minerals.
Secrecy of information on mineral reserves has a national specificity.
Information on the quality and quantity of stocks is an integral part of the economic analysis, design and estimate documentation of projects. This involves the transfer of complete field data to service companies specializing in reserve estimation. Due to the fact that this information is a state secret, designing a mine or developing an enrichment process, as well as conducting negotiations with potential investors, is almost impossible. At the end of the war, this archaism should be a thing of the past.
In view of the energy crisis in Europe, does the State Geodesy make additional efforts to extract energy resources?
– The State Geodesy has prepared a list of preserved and liquidated wells (about 250) of the subordinate enterprise PrJSC «Nadra of Ukraine». This list was provided by the Ministry of Energy, and also sent to subsurface users who have special permits for hydrocarbon extraction in the relevant territories and can resume natural gas extraction.
Also, the State Geodesy announced auctions for 8 oil and gas-bearing subsurface areas, online auctions are to be held on November 29, 2022. Another 15 new plots are ready to be put up for the next round of auctions, currently awaiting market nomination.
Projects in the western regions of Ukraine are developing, and it is pleasing that one of the PSAs concluded at the end of 2020 has already been producing products since April 2022. The search for a worthy investor for the restoration of the Oleska PSA project, mining on an area of more than 6,000 km, is ongoing.
Also, in order to prepare for the heating seasons, a list of peat deposits located on the territory of seven regions was selected and sent for further use in the work.
What are the next plans of the State Geodesy?
– The State Geodesy team, together with the Ministry of the Environment, is relentlessly moving towards the digitalization of its services, becoming a modern service according to the highest standards of today. Digitization is aimed at leveling the subjective factor, speeding up processes and simplifying users’ access to geological information.
For the third year in a row, electronic auctions for the sale of special permits have been successfully operating, the auctions have shown an example of transparency and convenience. From January 2023, minerals of local importance will also be sold exclusively in this way (sand, limestone, gaja, gypsum, sapropel, chalk, loam, sandy loam).
We created the State Geological Portal, which combines 15 information databases. On the interactive map in open access (temporarily limited, entry with an activated EDP) there is information on more than 3,000 special permits and almost 8,000 field contours, 18,000 seismic profiles, the register of 12,000 oil and gas wells has been updated. Added information about land plots and national parks throughout the territory of Ukraine, as well as about thousands of objects from the group of construction minerals, the development of which is necessary for the reconstruction of the country.
This enables potential investors to conduct their own searches, select properties and make decisions without leaving the office. The geological report scanning program continues (35% of the 180,000 storage units have already been digitized) and should receive a new powerful boost thanks to the support of EBRD programs.
We also developed the Electronic cabinet of the subsurface user – a product that has no analogues in Europe, according to the assessment of the Association of European Geological Services. Each applicant can communicate online with the state through his personal account, initiate new subsoil plots, changes to existing documents, as well as report using modern interactive tools.
All these steps should intensify the work of subsoil use industries, stimulate the market of large investments. Attracting new capital and modern technologies is one of our key priorities.
We are modernizing the rules of the game in the field of subsoil use by modernizing the regulation of the industry. We use progressive international practices, in which we were helped by European experts, working on updating the Subsoil Code.
Draft Law №4187, which is being prepared for the second reading, provides for significant deregulation in the field of subsoil use. In particular:
- cancellation of duplicate approvals and permits, as well as liberalization of the circulation of special permits – free alienation of rights to use subsoil;
- reduction of excessive powers of local communities (leaving them the right to effectively influence the subsoil user);
- support for “small-scale subsoil use” – out-of-auction special permits for the development of minerals of local importance for owners of land with an area of up to 25 hectares.
The expected result – a special permit for the use of subsoil can be issued in 50 days, with the start of mining in 5 months (not taking into account the time required for the preparation of the necessary project documents by the subsoil user).