Private gas producers plan to increase gas production in Ukraine by 1 billion cubic meters within two years if the Ukrainian parliament cuts royalties, Energy and Coal Industry Minister of Ukraine Volodymyr Demchyshyn has said.

"Two weeks ago I met with key market players that produce around 3 billion cubic meters of gas a year, and they declared their readiness to increase production by 1 billion cubic meters over two years," he said on the Channel 5 TV late on Sunday.

He said that after the parliament cuts royalties the state should show that the new conditions will be in effect for a long period of time.

Demchyshyn also said that he supports VAT refunding for imported equipment intended for use in drilling and developing wells.

"This is a very important issue, as if VAT is not returned, the cost of equipment is increased by 20% at the first stage when it is the most risky one," the minister added.

As reported, the Cabinet of Ministers of Ukraine registered in the parliament a draft law on cutting gas production royalties collected from private companies from October 1, 2015.

Draft law No. 2352a on amending the Tax Code of Ukraine regarding the taxation of economic entities that produce natural gas was registered on July 14, 2015.

Finance Minister Natalie Jaresko said that he draft law foresees the reduction of the royalty from 55% to 29% for up to five kilometers of depth, and from 29% to 14% for over five kilometers of depth.

The document also foresees the encouragement of drilling of new wells via the introduction of the three-tier taxation system for new wells from January 1, 2016.

Royalties for new wells will be 20% and 10% depending on the depth of extraction, profit tax will remain at 18%, and profit surtaxes – 30% of profit.