Cy­clists face an up­hill, dan­ger­ous ride in Kyiv

Kyiv Post - - Business Focus - BY JACK EVANS EVANSJWM@GMAIL.COM

Although re­new­able en­ergy is fash­ion­able now in Ukraine, Kyiv res­i­dents will still rely on the in­ter­nal com­bus­tion en­gine to get round for the fore­see­able fu­ture.

Bi­cy­clists who have nav­i­gated the dangers of Kyiv’s streets can tes­tify to the haz­ardous re­al­i­ties of en­coun­ter­ing mo­torists who don’t want bi­cy­clists on the roads and pedes­tri­ans who don’t want them on the side­walks.

Govern­ments are sim­ply not do­ing enough to en­cour­age cy­cling — a clean al­ter­na­tive to the thou­sands of cars pol­lut­ing Kyiv’s air and clog­ging its roads. Af­ter Vi­tali Kl­itschko was elected Kyiv mayor in 2014, he made im­prov­ing cy­cling in­fra­struc­ture one of his pri­or­i­ties. But, so far in 2017, seven cy­clists have been killed in road in­ci­dents, com­pared to 14 deaths from 2014–2016.

Kl­itschko’s un­ful­filled prom­ise, con­se­quently, elic­its scorn amongst cy­clists.

Keep­ing dis­tance

Nikita Sko­renko, a pro­fes­sional road cy­clist with Ukraine-based Kolss Cy­cling Team, says the prob­lems that cy­clists face stem from “road rage” and the lack of a “cy­cling cul­ture in Ukraine.”

“Driv­ers don’t un­der­stand cy­clists; they don’t keep their dis­tance. They should leave a me­ter and a half, but barely leave any at all. As a pro­fes­sional cy­clist, I can han­dle my bike, which means it’s safer for me. Less so for am­a­teurs and nor­mal cy­clists. So many of them de­cide not to ride,” he told the Kyiv Post.

The at­ti­tude of driv­ers aside, another prob­lem is the den­sity of traf­fic.

A trans­port model made for Kyiv in 2015 was based on 213 cars per 1,000 cit­i­zens; far less than Lon­don (345) and Moscow (297), but slightly more than New York (209). There are 1.2 mil­lion cars of­fi­cially reg­is­tered, but A+S, the com­pany which pro­duced the model, think there are in fact 639,000, of which 566,000 are reg­u­larly used.

Dmitry Bes­palov, the direc­tor of A+S, be­lieves there could now be 220 cars per 1,000 res­i­dents.

Air pol­lu­tion is a con­se­quence. The Cen­tral Geo­phys­i­cal Ob­ser­va­tory recorded poor qual­ity air over the sum­mer in Kyiv and says that pol­lu­tion has in­creased over the last year.

A lot of the car us­age is, ar­guably, not nec­es­sary.

Ac­cord­ing to data from the Kyiv Cy­clists As­so­ci­a­tion, 42 per­cent of car jour­neys are less 5 kilo­me­ters, a dis­tance eas­ily cov­ered by bike. More­over, driv­ers could put their cars to bet­ter use. A+S worked out that each car in Kyiv car­ries on av­er­age 1.51 peo­ple.

Slow im­prove­ment

And yet, things are get­ting bet­ter.

Nikita Vog­nick, an ad­min­is­tra­tor at the newly re­opened Kyiv velo­drome and an in­flu­en­tial fig­ure in its re­gen­er­a­tion, told the Kyiv Post that four out of 12 of his col­leagues cy­cle to work. It’s not that sur­pris­ing for cy­cling afi­ciona­dos, but he thinks en­thu­si­asm is spread­ing.

He says that “since 2012 roads there are fewer pot­holes … driv­ers, not the ma­jor­ity, but some are notic­ing cy­clists. A small mi­nor­ity still think cy­clists should be on the side­walk. But be­cause of cam­paigns, fewer peo­ple are driv­ing like ar­se­holes. More peo­ple are cy­cling, or know peo­ple who cy­cle, so (as driv­ers) they’re more un­der­stand­ing.”

The Kyiv Cy­clists As­so­ci­a­tion agrees. Their sur­veys of cy­clists in 2016 found that par­tic­i­pa­tion had in­creased 10 per­cent. The same was true in 2015 and they ex­pect a sim­i­lar in­crease this year.

None­the­less, Vog­nick was crit­i­cal of cen­tral and lo­cal gov­ern­ment’s lack of in­vest­ment into pro­tect­ing cy­clists.

“There’s zero state spon­sor­ship for road cy­cling safety,” he said. Ef­forts to raise aware­ness of the risks fac­ing cy­clists are made by grass­roots or­ga­ni­za­tions, such as the “Roads for All” cam­paign, or the “Stop Killing Us” protest last week in front of Kyiv City Hall. Cy­clists placed a white bike in front of the build­ing in mem­ory of the seven rid­ers killed in the cap­i­tal this year. Pro­test­ers called for more cy­cle paths and lanes and lower speed lim­its for cars.

Pro­fes­sional rider Nikita Sko­renko thinks that the coun­try needs to em­brace cy­cling as a sport and spec­ta­cle be­fore the bi­cy­cle be­comes a pop­u­lar means of trans­port. This is the case in Bel­gium, with a pop­u­lar pro­fes­sional cy­cling team. Bikes now dom­i­nate the streets and there is a thriv­ing am­a­teur rac­ing scene. A blend of pri­vate and pub­lic sec­tor money is turn­ing the United King­dom into a cy­cling coun­try.

Un­for­tu­nately Ukrainian sports bod­ies and pri­vate com­pa­nies are ap­a­thetic.

Sko­renko’s team is un­likely to race at the pro­fes­sional level next year af­ter their main spon­sor pulled out. The Ukrainian gov­ern­ment has not stepped in with fund­ing. Asked about the fu­ture of the sport in Ukraine, Sko­renko replied: “It’s the end. There’s no sup­port.”

“The cy­cling fed­er­a­tion doesn’t help us de­velop,” he said. Help comes from team bike man­u­fac­turer Col­nago. “But all the spon­sors are for­eign. Do­mes­tic com­pa­nies aren’t in­ter­ested.”

Spend­ing wasted

Some of the gov­ern­ment spend­ing to pro­mote cy­cling among chil­dren and bike paths ap­pears to be frit­tered away by cor­rup­tion or misuse.

The sit­u­a­tion on the Dnipro River’s Trukhaniv Is­land is far­ci­cal. Cars en­croach onto the sup­pos­edly pedes­trian zone with tragic con­se­quences. In 2016, a pedes­trian was killed when struck by a car and a girl sus­tained se­ri­ous in­juries af­ter a car knocked her off her bike.

Res­i­dents and some busi­nesses are al­lowed to use cars on the is­land. But it ap­pears that driv­ers with­out ac­cess per­mits bribe guards man­ning the bar­ri­ers.

Nikita Vog­nick from the Kyiv Velo­drome thinks that much of the land own­er­ship on the is­land is il­le­gal in the first place. “Cor­rupt guys grabbed the land,” he reck­ons. He re­grets that “we’ve lost this place where even chil­dren could ride.” Frus­tra­tion is bub­bling over. Some ac­tivists have bar­ri­caded the en­trance to block cars. In June, cy­clists, run­ners and walk­ers par­tic­i­pated in a protest to “make Trukhaniv safe.” One of their de­mands was for speed cam­eras to be put in place to en­force the 20 kilo­me­ter per hour limit for cars. Thus far, their pleas have fallen on deaf ears.

The Kyiv City Ad­min­is­tra­tion did not re­spond to re­quests for com­ment. En­ergy in­de­pen­dence re­mains a pri­or­ity for Ukraine. The re­cently pub­lished En­ergy Strat­egy of Ukraine to 2035 re­it­er­ates our gov­ern­ment’s aim of elim­i­nat­ing gas im­ports by, amongst other things, in­creas­ing do­mes­tic pro­duc­tion to meet the needs of Ukrainian con­sumers. Gas ex­ports to Europe will be the next log­i­cal step. Act­ing CEO of JKX Oil&Gas and Gen­eral Direc­tor of Poltava Petroleum Com­pany (PPC) – our Ukrainian sub­sidiary – I fully sup­port these im­por­tant goals, and be­lieve that a lot can be achieved. But I am also well aware of the day-to- day re­al­i­ties in our sec­tor.

Much still needs to be done to fi­nally cre­ate an in­vest­ment en­vi­ron­ment that will bring the cap­i­tal and tech­nol­ogy we need to achieve our com­mon aim. The re­al­ity is that af­ter three years of gas sec­tor re­form, some mi­nor im­prove­ments aside, Ukraine’s gas pro­duc­tion sec­tor re­mains mired in an­ti­quated bu­reau­cratic pro­ce­dures, ac­cess to data is highly re­stricted, and fis­cal con­di­tions are not com­pet­i­tive in­ter­na­tion­ally.

A num­ber of im­por­tant pro­pos­als have been made to im­prove the reg­u­la­tory en­vi­ron­ment in Ukraine’s up­stream (oil and gas pro­duc­tion) by sup­port­ers of en­ergy re­form in our par­lia­ment, the As­so­ci­a­tion of Gas Pro­duc­ers of Ukraine (AGPU), the Amer­i­can Cham­ber of Com­merce, and other NGOs. But the gov­ern­ment now needs to be­gin im­ple­ment­ing those pro­pos­als, and the Rada needs to start pass­ing im­por­tant leg­is­la­tion that has been lan­guish­ing in com­mit­tees for too long.

I would like to share my own view on what Ukraine needs to de­velop a dy­namic, com­pet­i­tive and trans­par­ent gas pro­duc­tion in­dus­try, so as to trans­form lofty goals on pa­per into re­al­ity, for the ben­e­fit of Ukraine and those who in­vest in its fu­ture.

Like the rest of Ukraine’s econ­omy, our sec­tor is in des­per­ate need of in­vest­ment, dereg­u­la­tion, sta­bil­ity and trans­parency. As a law school grad­u­ate, I, more than most, ap­pre­ci­ate the im­por­tance of a strong le­gal sys­tem and its im­pact on the econ­omy.

To­day it takes around four years to re­ceive the 44 per­mits from 16 dif­fer­ent gov­ern­ment agen­cies that are needed to be­gin oil and gas pro­duc­tion. This is far too dif­fi­cult, par­tic­u­larly for new po­ten­tial in­vestors. Sev­eral im­por­tant draft laws to stream­line per­mit­ting and sim­plify land use rules are ready and await­ing ap­proval by par­lia­ment. There has been some progress in ad­just­ing rules on li­cense auc­tions, and mod­ern guide­lines for oil and gas field devel­op­ment have been in­tro­duced. How­ever, we need a new Sub­soil Code, which will sta­bi­lize reg­u­la­tion and put an end to the man­age­ment of the sec­tor by gov­ern­ment de­cree. Fi­nally, in­vestors need trans­parency of in­for­ma­tion. Ukraine has a wealth of ge­o­log­i­cal data af­ter over a hun­dred years of hy­dro­car­bon pro­duc­tion, but it needs to be sys­tem­atized, and open ac­cess to all le­gacy data (wells, seis­mic, etc.) must be guar­an­teed. We, to­gether with pri­vate oil and gas pro­duc­ers and the As­so­ci­a­tion of Gas Pro­duc­ers of Ukraine (AGPU), sup­port free ac­cess to data for all in­vestors.

Tax­a­tion in the oil and gas sec­tor re­mains a ma­jor deter­rent to in­vestors. Other coun­tries in Europe and the rest of the world that are ac­tively com­pet­ing for in­ter­na­tional cap­i­tal more of­ten than not of­fer more fa­vor­able tax terms than Ukraine. I am en­cour­aged by the re­cent an­nounce­ment of the Min­istry of Fi­nance that it will in­tro­duce a pro­posal for a re­duced roy­alty on new wells into the draft bud­get for 2018, and I hope that the Rada will fi­nally pass this pro­posal af­ter fail­ing to do so last year. But this is only the be­gin­ning. The cur­rent fis­cal sys­tem is far too com­plex, with eight dif­fer­ent roy­alty rates on hy­dro­car­bon pro­duc­tion. This needs to be sim­pli­fied, while Ukraine needs to move to­wards a sys­tem of profit-based tax­a­tion – the com­mon prac­tice in the West. Such a sys­tem would be far more suit­able to our ma­ture ge­ol­ogy, with many projects vastly dif­fer­ing in their risk pro­file and thus in need of more flex­i­ble tax­a­tion. How­ever, this would also mean Ukraine would need to mod­ern­ize its ac­count­ing and tax col­lec­tion sys­tems, and this is some­thing that has not yet been started.

But in the near fu­ture, a sim­ple 10-12 per­cent roy­alty rate, ap­pli­ca­ble over a broad tax base for all fields and wells, and guar­an­teed in law for five years would be an an­swer to a mar­ket des­per­ate for in­vest­ment.

Through­out my ca­reer I have been for­tu­nate to hold se­nior man­age­ment po­si­tions in both highly suc­cess­ful pri­vate and state-owned en­ergy com­pa­nies and have thought about the re­la­tion­ship be­tween the state and the pri­vate sec­tor in the oil and gas busi­ness a great deal. While the role of the state in our strate­gic in­dus­try will al­ways be im­por­tant, I be­lieve Ukraine needs to ex­pand the role of le­git­i­mate pri­vate busi­ness in the sec­tor. Although the role of pri­vate com­pa­nies has grown sig­nif­i­cantly over the past ten years, state com­pa­nies con­tinue to dom­i­nate with around 80 per­cent of pro­duc­tion and 90 per­cent of proved re­serves. Much progress has been made in re­form­ing our state gas pro­ducer, UGV, and we are al­ready see­ing pos­i­tive re­sults in terms of in­vest­ment and pro­duc­tion growth. But the pri­vate sec­tor will be the main driver for in­no­va­tion and in­vest­ment in the fu­ture. The ex­pe­ri­ence of the United States and the role of over fif­teen thou­sand small pri­vate com­pa­nies in the hy­dro­car­bon pro­duc­tion rev­o­lu­tion it has gone through over the past ten years is an ex­am­ple Ukraine must keep in mind.

How can Ukraine ex­pand the role of the pri­vate sec­tor? By of­fer­ing more op­por­tu­ni­ties to in­vestors. The gov­ern­ment needs to fo­cus on of­fer­ing new li­cens­ing rounds. Those li­censes where in­vestor com­mit­ments are not be­ing met – both state and pri­vate – need to be put up for auc­tion. Ukraine needs to over­come the neg­a­tive le­gacy of Joint Ac­tiv­ity Agree­ments (JAAs) and of­fer new, trans­par­ent mech­a­nisms for co­op­er­a­tion be­tween the pri­vate sec­tor and the state in­clud­ing ser­vices con­tracts and pro­duc­tion shar­ing agree­ments.

A place to start could be work on giv­ing in­vestors sys­tem­atic ac­cess to hun­dreds of state-owned wells out­side li­censes owned by state com­pa­nies. As Gen­eral Direc­tor of PPC, over the past year, find­ing ways to work on state-owned wells lo­cated within our li­cense bound­aries has been a top pri­or­ity. While we have achieved some suc­cess in sign­ing ser­vices con­tracts, the pe­cu­liar­i­ties of our leg­is­la­tion on the one hand, and pub­lic scru­tiny of se­nior man­age­ment at state-owned com­pa­nies on the other, make this a dif­fi­cult and lengthy process. Amend­ing the fa­mous Ar­ti­cle 7 of the Law on Pipe­line Trans­port to al­low leas­ing of such wells by UGV would be a good start. Longer-term we need a trans­par­ent mech­a­nism for the pur­chase of such wells by pri­vate li­cense op­er­a­tors. Af­ter all, the prac­tice of sep­a­rat­ing own­er­ship of wells from pro­duc­tion li­censes is al­most com­pletely unique to Ukraine and is sub­op­ti­mal for oil and gas field man­age­ment.

More broadly, pri­va­ti­za­tion of state as­sets in the oil and gas sec­tor through a trans­par­ent process via auc­tion to qual­i­fied in­vestors is some­thing that will be key to Ukraine’s long-term suc­cess. If Ukraine is to com­pete for for­eign cap­i­tal with coun­tries like Mex­ico and In­dia, which have made tan­gi­ble progress in of­fer­ing for­eign in­vestors a stake in their oil and gas sec­tor over the past few years, pri­va­ti­za­tion needs to stop be­ing a dirty word. This is one as­pect of re­form still com­pletely miss­ing from Ukraine’s En­ergy Strat­egy to 2035.

Par­tic­i­pants of Retro Cruise ride bi­cy­cles in Kyiv on April 29. (Kostyan­tyn Ch­er­nichkin)

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