The domestic petroleum refining industry has suffered a deep crisis. Speaking of its degradation, we should first bring up the issue of decline in one of the most important sectors of the national economy.
15 years ago, progress was possible in the petroleum refining industry. Ukraine inherited as many as 6 oil refineries and 1 gas processing plant from the Soviet Union. The total capacity of those plants was more than 50 mln tons of hydrocarbons. Various gas and petroleum pipelines were crossing Ukraine. The construction of an oil pipeline “Odesa-Brody” was soon to be completed. There were big oil and mechanical engineering plants in Ukraine. Oil and gas research institutes were among the best research institutes of the kind in the entire Soviet Union. Graduates of Ukrainian universities were excellent oil and gas specialists, who also used the European experience in their work. However, there were those who maintained that Ukraine could not be called a major oil state due to its modest oil deposits. Nowadays, this cannot be a convincing argument anymore, for a number of developed countries have the developed oil refinery sector while lacking in energy resources, which they purchase in international markets. For example, Ukrainian refineries used oil purchased from Russia, which was transported through a direct pipeline and could produce fuel three times as much as needed.
The main reasons behind the current problems experienced by Ukrainian refineries are as follows.
— ineffective privatization, monopolization, flawed anti-monopoly legislation. Oil refineries were sold to those owners who could supply raw material for them. In the mid-90s – early 2000s those owners were the Russians. Unfortunately, national and energy security was not on the table at that time;
— maximum technical investment obligations for new owners. When state-owned oil refineries were handed into the hands of private owners, investment obligations were rather soft. In addition, investors were falling down on their obligations to provide modern equipment for oil refineries;
— the absence of major investment into Ukrainian oil refinery industry;
— the distortion of the market model of the domestic oil refinery industry. The government turned out incapable of eliminating monopoly in the oil refinery sector and diversify energy sources. Investors refused to invest into the domestic oil refinery sector to modernize it.
The aforementioned factors contributed to the shortage of motor fuel. According to official estimates, today Ukraine needs around 12 mln types of motor fuel. In order to produce at least 6 mln tons of motor fuel, a set of measures should be taken, which are contingent upon the political will of the government:
— resume real state control over joint-stock companies, in which state-run companies have a controlling interest (“Ukrnafta”, “Ukrtransnafta”);
— eliminate intermediaries in the process of purchase-sale of oil products, which are produced at the Shebelynsk gas processing plant.
There are two major steps our country needs to take in this respect. First, Ukraine should fill plants where the state has an ownership interest to their maximum capacity. Second, the state should establish oil reserve fund for those plants in which the state has an ownership interest for the period of at least 90 working days.
Author — Valeriy Nikolayenko, Deputy Head of the Public Council
at the Ministry of Energy and Coal Industry of Ukraine