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Shell Ukraine head moves on after challenging tour of duty in Ukraine

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Shell Ukraine head moves on after challenging tour of duty in Ukraine

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Screen Shot 2016-03-15 at 10.34.57Apr. 02, 2016

After four years in Kyiv, Graham Tiley, Shell’s country chairman in Ukraine, is moving on to a new post in London.

Peter Kerekgyarto, Shell’s operations manager for Central and Eastern Europe, will assume the post of Ukraine country head as well as general manager of the retail business as of April 1.

Tiley was also the chairman of the board of the American Chamber of Commerce, and was replaced by Steven Fisher, CEO of Citibank Ukraine, on March 31.

Before the EuroMaidan Revolution in 2013, Ukraine was poised to become the world’s next exploration success story. Some of the world’s largest oil and gas companies, Shell, Chevron, Eni and ExxonMobil, entered the market, committing to invest millions of dollars into the industry.

But a mixture of war, royalty taxes and disappointing results from test wells led many of these companies, including ExxonMobil and Chevron, to leave Ukraine.

Shell is still staying, however.

Tiley, who will fly to London this week to start his new job as Shell’s portfolio and strategy manager for global exploration, said that the focus of Shell’s business in Ukraine will shift from upstream (extraction) to downstream (retail).

“We did originally hope to have a much bigger presence here,” Tiley told the Kyiv Post in an interview on March 22. He said that Shell was not considering further exploration projects at present — not so much because of the political and security situation in Ukraine, but because of the generally difficult investment climate in the industry.

But the war in the Donbas did push Shell to declare force majeure on its Yuzivska project, which was operating in Donetsk and Kharkiv oblasts.

‘Take us or leave us’

Shell’s second exploration project, a 50-50 joint-activity agreement with Ukrgazvidobuvannya (UGV) in Kharkiv Oblast, failed to discover commercial gas and was terminated in March, 2015.

Despite corruption allegations surrounding Ukrgazvydobuvannya, Tiley said that he had “no issues, no regrets, in working with them.”

“We make it very clear how we work – what we do and what we don’t do – people have to take us or leave us according to those values,” Tiley said.

Tiley admitted, however, that in the early days of the project with Ukrgazvydobuvannya, it had been “a little bit difficult.” But he also said he was hesitant about “over-dramatizing it. Since we renegotiated in 2011, I would say cooperation with Ukrgazvydobuvannya has been very good.”

Over the years, the state enterprise has been accused of serving the vested interests of lawmakers, and manipulating unjustified rent prices in their own interests.

The state enterprise’s CEO, Oleg Prokhorenko, who has been trying to reform the system, claims that the government stole Hr 2-3 billion from the company and that they are trying to go back to the “old comfortable times.”

‘Quite a lot of money’

Tiley wouldn’t comment on exactly how much Shell had spent on its exploration projects, apart from to say “quite a lot of money.”

There are opportunities in western Ukraine, and Shell took part in a tender for exploration rights in the Black Sea, said Tiley. He doesn’t rule out that Shell might enter into gas extraction projects in Ukraine in the future.

“The point is that we make decisions about projects,” said Tiley. “If there’s a competitive project that offers value to our shareholders, then we’re always going to consider it.”

Various experts and players in the market have said that Ukraine could actually be an exporter of gas if the appropriate conditions were met, recalling the Soviet 1970s when the country extracted 70 billion cubic meters of gas a year — more than 3.5 times the volume extracted today.

Government relations

For the last four years, the chamber has met regularly with the government, trying to improve the investment climate for the oil and gas industry, Tiley, the ex-chairman of the board said.

“The American Chamber of Commerce has a memorandum of understanding with the (Energy) Ministry under which we are able to share our views very directly,” Tiley said. “It’s very much open doors.”

The new gas market law was a step in the right direction, but as Tiley noted at Ukraine’s Energy Forum in February, secondary legislation reverses many positive aspects of the initial law.

But Shell has major issues with Ukraine’s Antimonopoly Committee, which claims the Anglo-Dutch company is a monopolist, even though it only holds a 4.5 percent share of the retail market, according to Tiley. Shell has 135 gas stations across the country.

Tiley believes this is down to the Soviet-style rules on which they are judged, where there is too much wiggle room for interpretation by a given bureaucrat.

“It’s effectively a lever from the authorities for them to try and extract money,” he said. “The way the monopoly is defined is very selective, and we believe paradoxical.”

According to Tiley, the Antimonopoly Committee wants Shell to reduce prices.

‘Double-edged sword’

Tiley says that Shell is being hit by a “double-edged sword.” The regulatory bodies seem to be targeting transparent business players, while illegal roadside gas stations continue to operate, he says.

According to Tiley, the illegal stations, which he refrained from naming, sell a blend of normal fuel mixed with other cheaper materials.

“It’s expensive to play by the rules,” Tiley said. “And, again, it hits you twice. It’s a cost to us as a business and then at the same time we can’t compete with those who are avoiding these costs.

Tiley said Shell is struggling to make its business profitable in Ukraine, and the issue with the Antimonopoly Committee was almost like “putting icing on the cake.”

All Shell wants is for the rules to be applied to everybody, Tiley said.

“There’s a kind of cost of doing business in Ukraine which is what I believe the government should be worried about. The cost of compliance is still quite high here because of the fairly significant amount of regulation,” Tiley said.

At the moment companies like Shell have to get their well designs signed off by Ukrainian institutes.

“With all respect, some of these (institutes) are not up to date, so it’s quite difficult (for a company) to innovate,” said Tiley.

Shell has invested Hr 38 million over the past three years in modernizing Ukraine’s geology centers says Tiley, who holds a PhD in geological sciences from the UK’s University of Birmingham.

And as he gets ready to leave for London, Tiley has some advice to those looking to invest in Ukraine.

“Stick to your principles. I’m very proud that we’ve shown it is entirely possible to operate here in line with international best practice,” Tiley said. “Don’t feel like you have to come to Ukraine and change your approach. Be yourselves.”

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