When talking about Ukraine’s economy, one frequently hears the same thing: “Ukraine has great potential, but…” And although the industries are different, the “buts” are always the same: oligarchs, corruption, underinvestment, bureaucracy, poor legislation.
Technologies: an army of programmers and smart mathematicians, but poor laws make tech startups move abroad. Agriculture: fertile soil, but obsolete machinery and a ban on farmland sales stall the industry. Energy: an abundance of natural resources, but corrupt tender processes and underinvestment leave Ukraine with not enough gas.
The energy industry is particularly important because it’s not only about developing the country’s economy — it’s about national security. Without Russia, Ukraine couldn’t sustain itself even in such a critical sphere after the Kremlin’s invasion in 2014. Russia could threaten Ukraine, dictate the price or even turn the gas off while continue killing people in eastern Ukraine.
Meanwhile, Ukraine has enough natural resources to produce as many as 350 billion cubic meters of gas on its own but needs only 26 bcm annually. The rest could be sold. However, this huge potential is just… potential: The country extracts only 20 bcm, having to import 6 bcm more in 2019 to satisfy its domestic demand.
Ukraine’s energy sector should be a mighty contributor to GDP. But production is dismal, energy is used inefficiently and oligarchs Dmytro Firtash and Igor Kolomoisky, with monopoly control over key parts of the energy infrastructure, owe Ukrainians billions of dollars — money that could be used for investment.
How have we ended up here?
It was easier, cheaper and politically convenient for the likes of ousted President Viktor Yanukovich to import gas from Russia, rather than invest local money and time into developing domestic production. As a result, the industry players led by the state have been exhausting the same resources for years and investing very little in extraction.
Ukrainian politicians have blamed economic challenges for the dysfunction. Now they also blame Russia’s war. But this is no excuse anymore. The oil and gas industry should be transformed into one of the country’s core economic engines.
And anyway, it’s neither the war nor the economic crisis that have kept Ukrainian gas and oil untapped: It has always been mismanagement. Ukraine must finally face it and introduce reforms. International expert Edward Chow’s page 6 column is a good start. If the country finally has a sound policy about how to change the sector, investors will come and the industry will certainly change.
Yes, it’s important to develop the tech industry and farm the fertile land, but it is perhaps much more important to be independent.
