18:39 14.12.2021

How can a new industrial policy on lithium and other strategically important minerals become an important source of funding of priority social programs?

5 min read

On December 13, a discussion panel New industrial policy of Ukraine: prospects for the extraction and processing of lithium and other strategically important minerals was held

Kyiv, December 14, 2021. On December 13, a discussion panel New industrial policy of Ukraine: prospects for the extraction and processing of lithium and other strategically important minerals was held. Key industry experts discussed the ways how to unlock the potential of Ukrainian deposits of lithium and other strategically important minerals with an emphasis on creating a high-tech industry for their enrichment and processing in Ukraine, which can become an important source of funding for the Fund for Future Generations initiated by the President of Ukraine and other priority social programs.

The panelists included Volodymyr Vlasyuk, Director of the State Enterprise Ukrpromzovnishekspertyza, an advisor to the Committee of the Verkhovna Rada of Ukraine on Economic Development; Roman Storozhev, President of the Association of Subsoil Users of Ukraine, former Chairman of the State Geologic and Subsoil Survey of Ukraine; Oleksiy Falkovych, Director of Geological Service Company GSK LLC; Denys Stagi, a journalist from  EnergoBusiness, an analytical publication; Vadym Badaev, co-chairman of the energy committee at the US-Ukraine Business Council, Petro Bilyan, event moderator, editor-in-chief at the EnergoBusiness. The organizer of the event was the information and analytical center of the fuel and energy complex of Ukraine EnergoBusiness.

The participants noted that in light of the accelerated development of high technologies, the global market reorientation towards the "green economy", the demand is rapidly growing for lithium, titanium, and other rare, precious, radioactive metals, which were included in the List of 33 minerals with strategic importance for sustainable development of the economy and the state's defense capability by the recent decision of the National Council on Security and Defense (NCSD).

Lately, hundreds of licenses for strategically important ore minerals have been issued in Ukraine, but the cases of extraction and enrichment are rare. For example, Oleksiy Falkovych, director of Geological Service Company GSK LLC, named Velta, which is engaged in the extraction of titanium ore and its enrichment into concentrate, as the only successful project for the extraction and processing of ores in Ukraine in recent years.

Unfortunately, most of the licenses issued are dormant, which means they were acquired for subsequent resale to effective investors. As a result, having many promising deposits of lithium, copper, molybdenum and other minerals, they are not mined in Ukraine at all.

The speakers explained that due to the lack of up-to-date objective data on deposits, imperfect legislation, negative cases of non-fulfillment by the state of its obligations to investors, political instability in Ukraine, private investors are not ready to invest hundreds of millions of dollars in projects for the search, extraction and processing of ore minerals without obtaining additional guarantees from the state.

Vadym Badayev, Co-Chair of the Energy Committee at the US-Ukraine Business Council, praised the NCSD's initiative, which prioritizes the development of lithium and other strategically important mineral deposits on the basis of open investment tenders for the right to conclude production sharing agreements between the winner and the Government. At the same time, the investor will be responsible not only for the search and extraction, but what is especially important, for the enrichment and processing of such minerals in Ukraine.

Naturally, such additional requirements from the Ukrainian government will require investments not in tens, but in hundreds of millions of US dollars with payback periods of 9-10 years or more. In turn, the state will provide such investors with licenses for up to 50 years, guarantees against changes in legislation for the entire duration of the agreement and the possibility of resolving disputes with the state not in the District Administrative Court of Kyiv, but in international commercial arbitration.

The speakers discussed the possibility of the government receiving rent payments not from the cost of the extracted lithium or other ore, but from the cost of the product of its enrichment, for example, lithium concentrate, when implementing production sharing agreements. Such significantly increased rental payments, together with the state share of the extracted products, will greatly increase the receipts to the Fund for Future Generations initiated by President Zelensky, in which payments for the use of Ukrainian subsoil will accumulate on the accounts of the children of Ukrainians.

In addition to the NCSD's initiative to offer attractive mechanisms for investors  in the form of production sharing agreements for lithium and other projects ... “it is important that there is a signal from the very top that Ukraine has embarked on the path of new industrial development. If there were several powerful signals, backed by practical actions, investors would immediately hear them”, - said Volodymyr Vlasyuk, Director of the State Enterprise Ukrpromzovnishekspertyz, an advisor to the Committee of the Verkhovna Rada of Ukraine on Economic Development.

The panelists stressed that amid rising prices for rare metals, many new projects for the extraction of lithium and other ores are being launched in the world. Thus, further delays in holding tenders for the search, extraction and enrichment (processing) of lithium and other minerals in Ukraine may make these projects unattractive for investment in comparison with foreign competitors.

In this regard, Vadym Badaev called on the Cabinet of Ministers to timely fulfill the instructions of the NCSD to announce a tender for the extraction and processing of lithium ores at the Dobra site (Kirovograd region). It will serve as a pilot project and will show foreign investors the seriousness of the Ukrainian government’s plan to introduce new approaches to industrial policy, which will also allow integrating Ukrainian enterprises into the global supply chains of high value added products.

The participants spoke in favor of continuing the discussion on appropriate measures to implement the new industrial policy outlined in the NCSD decision, in particular, by holding hearings in the Verkhovna Rada Committee on Economic Policy.

 

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