Production sharing agreements (PSAs) have become increasingly popular in Ukraine as a means of attracting foreign investment into the country`s energy sector. The government of Ukraine has been actively promoting PSAs as a tool to increase the country`s oil and gas production, which has been declining in recent years.
A PSA is a contract between a government and a private company, where the company is granted the exclusive right to explore, develop and produce natural resources within a specific area in exchange for a share of the production. Unlike traditional concession agreements, the government retains ownership of the natural resources and the company is only entitled to a share of the revenue generated from their exploitation.
PSAs are particularly attractive to foreign investors as they provide a level of protection against political and regulatory risks. Under a PSA, the government guarantees stability in the legal and fiscal regime for the duration of the contract, which is usually between 20 to 25 years.
In Ukraine, PSAs have been signed with a number of international companies, including Chevron, Shell, and ExxonMobil. These agreements cover exploration and production of both oil and gas reserves in various regions of the country. The companies are required to invest significant amounts of money in exploration and development activities, which can provide a boost to the local economy.
However, PSAs in Ukraine have not been without controversy. Some critics have argued that the terms of the agreements are too favorable to the foreign companies, resulting in a loss of revenue for the government. In addition, there are concerns about the environmental impact of oil and gas exploration and production, particularly in areas with sensitive ecosystems.
Despite these concerns, the Ukrainian government is continuing to promote PSAs as a means of attracting foreign investment into the country`s energy sector. With the right regulatory framework and safeguards in place, PSAs can be a win-win situation for both the government and foreign investors. The government can benefit from increased revenue from the exploitation of natural resources, while investors can generate a return on their investment and help to increase the country`s energy security.