I Conference of the Ukrainian Association of Geologists

The UAG on May 25, 2000, held the first Conference of Geologists of Ukraine in Kyiv and discussed the urgent issues of reforming the geological industry in a market economy.

The decisions of the Conference, especially the approval of the concept of reorganization of the geological industry ‘Geology and Exploration Survey in 2000–2005’ supported by the Cabinet of Ministers of Ukraine became a powerful impulse for the further development of Ukrainian geology.

 

MINISTRY OF ECOLOGY AND NATURAL RESOURCES OF UKRAINE

THE DEPARTMENT OF GEOLOGY AND MINERAL DEPOSITS

THE CONCEPT OF THE INDUSTRY REORGANIZATION ‘GEOLOGY AND EXPLORATION SURVEY’

Introduction

The Geology and Exploration Survey and the Ministry of Ecology and Natural Resources for 2000–2005, as in previous years, provide solutions for the intensive development of the mineral resource base of Ukraine as it is strategically important for the country and was established by the Cabinet of Ministers of Ukraine – 'Reforms for Welfare’ – and the programs and development concept for the mineral resource base of Ukraine.

The implementation of these programs will provide an increase in hydrocarbon production, make it possible to explore large deposits of gold, native copper, diamonds, rare and rare earth metals, as well as deposits of nickel, chromium, molybdenum, creating unconventional high-efficiency for use in the agricultural sector of mineral raw materials—phosphorites, glauconite, saponite, etc.

According to scientists, the export capacity of the mineral complex can be increased by one and a half to two times, reducing the time of import of raw mineral materials by 60–70% (without hydrocarbons). This will have a positive impact on foreign trade.

The calculations show that these programs’ implementation will require 6–8 billion USD. Budgetary funding for this is not enough, especially as the industry since 1990 has been characterized by a gradual deepening of the crisis in all areas of geological enterprises. The amount of funding for exploration survey has significantly decreased.

The physical and moral ageing of fixed assets without being updated for the last 10 years has become a critical issue.

There was a significant imbalance between the volume of geological prospecting, existing production capacity and the number of employees which led to unjustified costs for the maintenance of production bases, social infrastructure, and labor.

The geological prospecting scope in the industry has decreased to a level at which it is extremely problematic to ensure the minimum required rate of reproduction of the mineral resource base of the country.

In 1995–2000, efforts were taken to create favorable conditions for the application of market methods of managing in the region; management ways and forms of geological prospecting production were significantly changed.

However, in order to ensure higher rates of transition of geological enterprises to market methods of management and to achieve more significant results, more intensive further work on their reorganization is necessary.

  1. The main prerequisites for the reorganization of geological enterprises and the industry as a whole
    1. Inflammation background

      ‘Geology and Exploration Survey’ comprises the entire range of geological activities of the country from scientific and regional research to detailed exploration of mineral deposits and their preparation for operation. The State administration created the geological exploration prospecting process and powerful geological enterprises to conduct geological research in the industry.

      Prepared mineral deposits for operation were transferred to state mining enterprises, which created the prerequisites for the financing of exploration prospecting production from the budget.

      During 1991–1999, the economic and social conditions in Ukraine were determined by the deepening of the crisis, followed by deformation of the structural proportions of the economy, so the financing of exploration prospecting at the expense of the state budget became impossible. The industry did not have the opportunity to increase the mineral resource base at the necessary pace.

      The period of economic reform in the country significantly changed the forms of exploration prospecting management, organizational and production structures of enterprises. However, this process in the industry has not yet been finished, and it is now in a critical condition. The constant reduction of budgetary appropriations significantly reduced the work scope on geological study and exploration survey. In 1999, the enterprises of the Geological Committee drilled only 7.4 th.m. of exploratory wells for oil and gas and 74 th.m. for coal, ore and non-metallic minerals; however, in 1990, these figures were respectively 345,2 th.m. and 1537 th.m.—a decrease respectively by 47 and 21 times.

      Ten years ago, in Ukraine, the annual fund of oil and gas perspective objects was supplemented with 30–35 structures. Until 1999, the number had decreased to 11. In the early 90s, the exploration rate reached 50%. Now, it has decreased to 14%. At the same time, since 1994, oil and gas production in the country began to exceed the growth of its reserves.

      In the 70s, Ukraine annually produced more than 14 million tons of oil and condensate and almost 70 billion m3 of gas. In the early 90s, these figures were respectively 4.9 million tons and 24.4 billion m3 of gas. Now, annually, it produces only 3.8 million tons of oil with condensate and about 17 billion m3 of gas. In the absence of proper reserves reinforcement and discovery of new fields, there will be a significant decrease in oil and gas production in the future.

      A significant reduction in the volume of exploration prospecting works, chronic non-payment of wages and its low level and difficult working conditions have led to a significant outflow of specialists which has negatively affected the professional level of the industry. The wages of the employees in the geological enterprise is 160–180 UAH. The profession of a geologist has become non-prestigious; reinforcement of young energetic specialists under such conditions is difficult.

      There is a systemic crisis of geological production in the country. As a result, there is a decrease in the effectiveness and efficiency of geological research, the competitiveness of geological enterprises, the crucial condition of the material and technical base and a significant moral and physical deterioration of fixed assets.

      The preservation of state ownership and the existing management system at all stages of exploration prospecting production proved that the state is unable to finance exploration, thereby contributing to the insufficiently effective management of exploration prospecting production.

      The regulatory authorities confirmed that the current mechanism of the allocation of budgetary appropriations does not always provide a clear definition of how they are used and the transparency of the funds’ flow.

      The process of granting the right to extract minerals from deposits explored and prepared for exploitation at the expense of the state is not always transparent. In some cases, mining licenses were provided on a non-competitive basis and without appropriate information support. Subsequently, the licensing procedure order remains bureaucratic and non-transparent.

    2. Prerequisites created in the course of the industry reorganization in 1995-2000.

      As of January 1st, 1995, 41 enterprises, institutions and organizations were subordinated to the State Geological Committee.

      During 1995–1997, the majority of supplementary and servicing enterprises were transformed into open joint stock companies, communities or limited liability companies. At the end of 1997, 14 such enterprises have withdrawn from the management sphere of the State Geological Committee. Their privatization has not led to any negative consequences in the industry. This is quite obvious, since most of them worked for the needs of the geological industry of the Association. For Ukraine, their capacity was rather large, and given the fact that geological enterprises in recent years were financed only at the level of 24–30% of the needs, they could not provide the industry plants with the full works scope.

      In 1997, only 10% of the total work scope of the plants was provided by the industry’s geological enterprises.

      Now, privatized enterprises independently provide solutions on industrial and social issues, and the central executive body significantly reduced their funding from the state budget. If the financing of geological enterprises improves, they will be able to increase the volume of orders in factories and design engineering bureaus.

      During the specified period, two state geological enterprises were liquidated—state geological enterprise Nadra, and state geological enterprise Econorma.

      Till 1997, the state geological enterprises carried out only preparatory work for reorganization and restructuring. The concept of restructuring and preparation for the privatization of the geological enterprises was the basis of the Order of the Cabinet of Ministers of Ukraine dated 07/06/1997 No.1242 ‘On the Reorganization of the Industry Geology and Exploration Survey’ at the end of 1996 was developed, and in April 1997 was approved by the Board of the State Geological Committee. This resolution provided the State Geological Committee with state support in carrying out measures to reorganize the industry and eliminating a number of organizational issues.

      For the realization of the specified Order in 1998, in the first quarter of 2000, geological enterprises were reorganized by consolidating parts of the enterprises and also by distributing the enterprises aimed specifically at geological and production.

      The five state geological enterprises were allocated subdivisions to carry out regional geological studies and five State Regional Geological Enterprises were established as a result. Three state geological enterprises allocated from regional geological enterprise were transformed into public joint stock companies (PJSC Donbassgeologiya, PJSC Luhansk geologiya, PJSC Pivnichukrgeologia), and the other two (SE Chernigivnaftogazgeologiya and SE Poltavneftegasgeologiya) are in the stage of pre-privatization preparation. In the course of restructuring the state geological enterprises on the basis of structural divisions, four independent companies (SE Gorlivrozvidka, SE Geotechservice, SE Agrogeophysica, SE Zhytomyrburrozvidka) were formed, one of which has already been privatized (SE Geotechservice), and three others were included in the planning schedule of privatization in 2000. After consolidating and eliminating structural units, SE Prichernomorgeologiya was converted into a state regional geological enterprise.

      The concept of 1996 assumed that in the case of privatization of industry enterprises, 25% or 50% of shares should remain in state ownership to ensure greater influence of the State Geological Committee on their stable operation and prevent reorientation. However, given that the provision of such impact could be carried out by allocating budgetary funds for the implementation of some types of geological exploration, as well as that funding from the budget has decreased dramatically and allocating certain funds for additional work has become impossible and unreasonable, they came to an agreement to not complicate the work course on the enterprises’ privatization and not to leave the state-owned part of the enterprises shares. Therefore, there is no state share in the statutory funds of those four newly created PJSCs.

      The PJSC assistance in the post-privatization period was carried out only by regional geological enterprises through their involvement in the implementation of geological exploration survey works on a contractual basis.

      In total, six state regional geological enterprises and four open joint-stock companies were established during that period; four enterprises were proposed for privatization and two for pre-privatization preparation.

      Besides, functions of regional works on geological researches were performed by three geological enterprises which, by the Order of the Cabinet of Ministers dated 06/30/1998 No. 987, were transformed to the state enterprises.

      In order to improve the efficiency and effectiveness of scientific forecasts and geological research, the impact of research work on the identification of strategically important mineral deposits for the economy and security of the state, improvement and development of mineral resources, concentration of the scientific potential of the industry and tools and the focus of geological research on the most promising and priority areas of work during the fourth quarter of 1999 and the first quarter of 2000, the reorganization of research organizations was carried out by joining the Ukrainian State Geological Exploration Institute with two other research institutes (UKRSGRI and DND ITB). As on May 31st, 2000, there was one research institute in the region that was operating—the Ukrainian State Geological Research Institute in Kyiv. The State Design Institute Ukrdiprogeolbud was included in the planning schedule of privatization in 2000 and will be under the privatization process from October 1st, 2010.

      After the reorganization of 27 enterprises, institutions and organizations, as of March 31st, 2000, 12 were not subject to privatization under the Law of Ukraine dated 07/07/99 No. 847-XIY and remained in the field of management of the Geological Committee. Proposals to include four more enterprises in the list of those that are not subject to privatization was submitted for approval. Two enterprises were not subject to privatization because their activities were aimed at geological exploration in accordance with the Law of Ukraine ‘On the State Geological Service of Ukraine’. Seven enterprises are in the stage of privatization and pre-privatization preparation, and the ownership change of two more enterprises was performed in 2000–2001.

      As of January 1st, 2000, the number of enterprises in the industry decreased (compared to 1995) by 14%, and the number of employees by 45.4%.

      The concept of 1996 assumed organizational registration of the State Geological Service and for that aim, it was necessary to create a legislative basis of its formation and functioning. At the end of the 90s, a draft Law of Ukraine ‘On the State Geological Service of Ukraine’ 11/04/1999 No. 216-XIY was adopted and published.

      As the reorganization of geological enterprises was not completed, it was impossible to form the final staff composition of the Geological Service of Ukraine as of January 1st, 2000, although most of the enterprises that should be included in this service were already selected. In 2000, the reorganization of geological enterprises was completed, and the full composition of the State Geological Service of Ukraine was formed.

      In 1999, along with the reorganization of geological enterprises, the central executive authority was reorganized in two stages from geological study and subsoil use. Initially, by the Decree of the President of Ukraine dated 03/13/1999 No. 250/99 ‘On Optimization in the System of Central Executive Bodies’, the State Committee of Ukraine on Geology and Subsoil Use (Derzhkomgeologiya of Ukraine) was transformed into the Committee of Ukraine on Geology and Subsoil Use (Geological Committee of Ukraine), which was given the status of ‘other central executive body’ and whose activities were coordinated by the Cabinet of Ministers of Ukraine through the Ministry of Environmental Protection and Nuclear Safety of Ukraine.

      In December of the same year, according to the Decree of the President of Ukraine dated 12/15/1999 No. 1573/99 ‘On Changes in the Structure of the Central Executive Bodies’, the Geological Committee of Ukraine became part of the Ministry as the Department of Geology and Subsoil Use. A number of functions on economic (planning, financing, accounting), personnel and administrative services are concentrated in the specialized departments of the Ministry.

      The reorganization of the State Committee of Geology and Geological Committee of Ukraine and lowering their status led to certain difficulties in solving organizational issues, especially leading to problems in financing these enterprises. This also resulted in a slowdown in the pace of reorganization of geological enterprises and the industry as a whole since the leadership of the Ministry takes some time to determine its attitude to the areas of reorganization and to make a decision on them.

      The reorganization changes in geological enterprises differed significantly in the degree of functions distribution of regional geological enterprises and industrially focused enterprises. In some regional geological enterprises, there are still functions that should be performed by production enterprises. It is largely concerned with the State Regional Geological Enterprise Pivnichgeologiya and lesser with PrichornomorGRGP and East State Regional Geological Enterprise. The most sustained principles of functions distribution can be observed in the State Regional Geological Enterprise Donetskgeology. In other words, there are certain reserves for further improvement and production optimization and organizational structure in the State Regional Geological Enterprise Pivnichgeologiya.

      In the first stage of the reorganization of the DGP is SE Poltavneftegasgeologiya, Poltava State Regional Geological Enterprise and Chernigiv State Regional Geological Enterprise. Poltava State Regional Geological Enterprise and Chernigiv State Regional Geological Enterprise did not own all functions, duties and rights previously which were taken up by the state regional geological enterprises. The SE Poltavneftegasgeologiya and SE Chernigivnaftogazgeologiya did not take proper equipment needed to create sufficient production capacity, which could provide the functions of regional geological enterprises in full scope.

      SE Poltavneftegasgeologiya and SE Chernigivnaftogazgeologiya did not execute sufficient restructuring and retained a number of functions which were to be performed by regional geological enterprises. These enterprises are now at the stage of pre-privatization preparation, as well as freed from the burden of unnecessary equipment for their production activities, production bases, etc.

      At the same time, the full distribution of functions, equipment, other production capacities among them and the state regional geological enterprises, i.e. Poltava State Regional Geological Enterprise and Chernigiv State Regional Geological Enterprise, should be ensured.

      During the reorganization of the industry, the status of ‘State-owned Enterprise” was granted to three geological enterprises—SE Pivdenukrgeologia, SE Kirovgeologia and SE Pivdenekogeocentr. Two of them (SE Pivdenukrgeologia and SE Kirovgeologia) underwent restructuring and reorganization only to the extent of each enterprise. But now, it is not enough. Many structural units of SE Pivdenukrgeologia were funded by the state budget in very small amounts and provided with the work through contracts with companies, geological and other industries. Due to the fact that they perform significant amounts of non-core work, there is an urgent need to create independent enterprises with their subsequent privatization and simultaneous deeper functions distribution of the regional geological enterprise and its concentration in the SE Pivdenukrgeologia.

      There is a need for the revision and redistribution of functions and volumes of works among SE Kirovgeologia’s departments. It is necessary to separate the divisions of the main production and those performing works of service type from its structure. On the service units basis, the independent enterprises are created, the part of which should be privatized based on the nature of the work performed and the degree of their impact on the activities of the main production units.

      On the basis of the main production units, one or several enterprises on prospecting and geological exploration performance on strategically important state raw materials according to the work profile of this SE can be created.

      Having performed mainly regional geological and ecologic-geological studies, the structural units of State Geological Enterprise Crymgeologiya were attached to the third State Enterprise (SE Pivdenekogeocentr). Now, the functions of the regional geological enterprise on the solid mineral deposits, water, oil and gas exploration are concentrated here. In addition, it includes recreation centres and boarding houses built at the expense of the geological industry intended mainly for recreation and rehabilitation of geological enterprises employees. Furthermore, the SE Pivdenekogeocentr reorganization will be limited to internal restructuring performance and the possible separation of the boarding houses and recreation centres.

      State Geological Enterprise Crymgeologiya conducted most of the activities in preparation for privatization. Units carrying out regional geological studies and boarding houses were transferred to SE Pivdenekogeocentr. The privatization works of the indicated enterprise began on July 1, 1999.

      The reorganization of the State Geophysical Enterprise Ukrheofizyka reduced the consolidation of geophysical companies and structural units performing geophysical explorations with geological enterprises between 1996 and 2000. No fundamental changes in the production and organizational structures of that enterprise were observed. Geophysical exploration on hydrocarbon raw materials and most studies on solid mineral deposits are now concentrated here.

      Major workloads accrued as a result of the work performed under contracts with companies of non-geological industry. The workload was related to the needs of the geological industry, ranging within the limits of 10–30%. This enterprise is included in the list of those being not subject to privatization and has the status of being strategically important for the country’s economy. Based on the nature of the work performed, its volumes and directions, the specified enterprise needs urgent reorganization.

      At that time, the Balakliya expedition on geophysical explorations of borewells was allocated from the State Geophysical Enterprise Ukrheofizyka and the State Geophysical Enterprise Balakliyapromheofizyka was established. Balakliyapromheofizyka’s 80–90% workloads were under contracts with gas and oil producing enterprises. It is separated from the main geophysical research enterprise, which determines the technical and technological policy of geophysical works and which can carry out some cooperation between its structural units and provide them with the necessary financial and technical assistance. Both of these enterprises are characterized by workload performance under contracts with producing enterprises, hence, the approaches to their further reorganization are identical.

      The internal reconfiguring was also performed by SE Zahidukrgeologiya and was considered as a preparatory process to its reorganization. The restructuring process was carried out by the consolidation of structural units and structural divisions of the enterprise, transition to performing non-core works, including production of oil, gas and other minerals, performing work under contracts with the oil-and-gas production enterprises, etc.

      This enterprise, like no other, has the need of first-priority reorganization caused not only by the problems of the industry but also by the existence of the agreement in principle on the units consolidation which execute oil and gas geological prospecting and exploration with NJSC Naftogaz of Ukraine. For this purpose, it is necessary for the structural units basis conducting geological exploration on raw hydrocarbon deposits to create an independent enterprise, to conduct corporatization and then to determine the consolidation order of the enterprise to the NJSC.

      This question also applies to the SE Chernigivnaftogazgeologiya, SE Poltavneftegasgeologiya and State Geological Enterprise Crymgeologiya.

      SE Geoservice conducted reorganization through the consolidation of separate units of geological enterprises. It executed different and sometimes incompatible functions, as follows: geological exploration, centralized provision of geological enterprises with equipment, appliance, pipes, centralized procurement of materials and equipment and a certain workload on enterprises maintenance. The specified functions are not related to any technological process or the general idea and show resemblance to an artificial combination of various working areas.

      The reorganization of the State Informational Geological Fund State – Geological Enterprise Geoinform – was carried out by allocation means from its structure of research units on geological exploration and its consolidation to the Ukrainian State Geological Research Institute. Further reorganization will be executed through internal reconfiguration.

      The reorganization of the State Commission of Ukraine on Mineral Resources and the State Commission for the examination of geological projects and estimates in 1995–2000 was not carried out due to the performance of specific functions being attributed to them only, which should be executed by the units allocated from the enterprises.

  2. Principles of the industry management reorganization ‘Geology and Exploration survey’

    The enterprises reorganization in 1995–2000 did not create preconditions for their further functioning in the conditions of administrative reform in the country, the purpose of which is the gradual creation of such a public administration system ensuring the rise of Ukraine as a highly developed constitutional state with a high standard of living, social stability and democracy, and allowing it to become a global influencer. A qualitatively improved system of executive power must positively influence the course and consequences of the other sweeping changes in our society – especially economic reform, particularly on the issues where great importance must be placed on the methods and forms of state regulation and control, i.e., to provide an organizing influence on those areas of public life that require some state intervention through the use of executive power. At the same time, the state administration takes place outside the executive branch, for example, at the level of state-owned enterprises, institutions and organizations. An important component of the state administration system is the economy public sector management of Ukraine, which includes geological enterprises and the industry as a whole. The improvement of the management system becomes the main task of the reorganization, which was planned to be carried out in the industry in 2000–2005.

    The essence of the reorganization is to remove the contradictions between the market requirements and the enterprise traditional actions. The economic system change requires a revision of the management basics and the management in each enterprise. All enterprises must undergo a systemic transformation to prove their ability to adapt to market conditions, establish professional management and define a new development strategy.

    The reorganization is to be carried out on the basis of such principles.

    • The full cycle division of exploration prospecting works into two sub-cycles.

      This results from the fact that geological enterprises today perform both regional study of the territories, and prospecting and exploration work. They not only forecast the prospects for the mineral resources availability but also determine the size of their reserves, conduct detailed deposits exploration and transfer them to mining enterprises, that is, perform a full cycle of geological exploration prospecting. The work organization in this industry fundamentally differs from the organization of Geological Services of the countries with a market economy, where the state, as a rule, conducts regional geological and geophysical study of territories and forecasting mineral resources availability. Prospecting and exploration are carried out by producing enterprises, that is, the full cycle of exploration prospecting is divided into two sub-cycles.

      This division also makes sense from an economic point of view, since regional studies of territories are financed by public funds, and exploration by private equity.

    • Creation of the State Geological Service of Ukraine as a business and effective system of the geological sector management, control over the processes of subsoil use and the formation of national policy in providing its own energy and mineral resources.

      The State Geological Service consists of enterprises whose activities provide the execution of strategic importance for the country’s economic security as well as enterprises units that, by the nature of their activities, possess geological information that according to the current legislation of Ukraine is the property of the country.

      The State Geological Service of Ukraine includes a specially authorized central body on geological study and subsoil use (Ministry of Ecology and Natural Resources, state enterprises, institutions and organizations conducting geological study of the subsoil), ensuring the implementation of state policy in subsoil use, carrying out systematic regional geological research, prospecting and exploration of strategically important minerals, accumulation and storage of geological information, establishing conditions for mineral raw deposits for the calculation of mineral reserves, performing the scientific researches in the sphere of geological study and use of mineral resources and coordinating and implementing geological control over geological activity.

      The Department of Geology and Subsoil as a structural unit of the Ministry of Ecology and Mineral Resources coordinates the activities of enterprises working in the field of geological production.

    • The functioning of structures on the market basis by transforming the state geological enterprises of production nature into open joint-stock companies.

      Transforming state-owned enterprises through their corporatization is the simplest, least painful and most acceptable method for centralized regulation by the Ministry of Ecology and Natural Resources. A constant increase of the privatization preparation stage in the workload under contracts with enterprises of geological and other industries as well as determination of their real volumes, directions that the company will be able to engage in after corporatization contribute to the achievement of the proper level of its work profitability.

      It should be taken into account that the shares of only those enterprises being of strategic importance for the economy and security of the country can remain in state ownership.

      Enterprises providing exploration services to state geological enterprise should be incorporated, switched over to self-financing and receive budget funds only for certain specific orders of the State Geological Service. Thus, privatized enterprises are transformed from budgetary ones to taxpayers, who will simultaneously work to replenish the state budget and independently solve all production issues.

    • The demerger from the state enterprises being subject to privatization of separate structural units, granting them the status of a legal entity and carrying out their further corporatization.

      This will allow structuring the enterprises for areas of their activities, to provide them with greater autonomy to search for the types and amounts of work, more flexibly and effectively to carry out the corporatization process.

    • Increasing the concentration of regional geological works contributing to the efficiency and effectiveness growth of their implementation.
    • Prioritizing the conclusion of agreements (contracts) by regional geological enterprises for geological exploration in the first two to three years after reorganization. The implementation of this principle will support the newly established enterprises and will contribute to their effective functioning in the post-privatization period.
    • The growth ensured in the regional geological and geophysical studies share in the total workload to be performed by state regional geological enterprises. This will help to focus the attention of regional geological enterprises on the implementation of geological research and more efficient exploration of mineral deposits.

      The consistent implementation of this principle will assist to concentrate only those state geological and geophysical enterprises, in the scope of which regional geological and geophysical studies predominate in the management sphere of the Ministry of Ecology and Natural Resources. This will also create conditions for the targeted use of public funds provided for geological exploration.

    • The scientific and technical re-equipment of geological production provision, which is one of the main conditions for the recovery being developed in recent years, and its normal functioning in the future.

      The above approaches to reform are based on the experience of geological enterprises reorganization in 1995–2000 and the principles of the geological industry functioning developed with world practice.

  3. Directions and arrangements for the geological activities reorganization in the period 2000–2005.

    Based on the principles of geological enterprises and the industry reorganization set out above, as well as the experience and status of the reform in the industry, it is planned to carry out such activities.

    1. In accordance with the provisions of the Law of Ukraine ‘On the State Geological Service of Ukraine’ and taking into account the reorganization progress, it is proposed to include geological enterprises and organizations in this service according to the list.
    2. In 2000, the functions, rights and obligations of the Department of Geology and Subsoil Use in relation to coordinate the work of geological enterprises, its place and role in determining the directions of exploration, the order and amount of financing of geological enterprises, the appointment and dismissal of the top decision-makers of geological enterprises, organizations and institutions, the directions of reorganization of enterprises were finally determined. Thus, the prerequisites for the reform intensification of the industry and geological enterprises were also determined.

      In order to ensure more efficient operation of geological enterprises, it is proposed to provide the Department, along with the provisions of the draft on it, the following rights and powers:

      • To determine the direction of geological and geophysical research and the volume of exploration prospecting;
      • To define the amount of financing for geological enterprises, organizations and institutions from the state budget;
      • To identify the direction of enterprises reorganization and manage property owned by the state;
      • To carry out the selection of candidates for positions of top decision-makers of the geological enterprises, the organizations and institutions for which appointment and dismissal is carried out only by the Head of Department;
      • To coordinate the production and economic activities of geological enterprises, organizations and institutions. The solution of all issues related to production and economic activities is in agreement with the Head of the Department.
    3. Taking into account the importance of issues solved by the National Joint Stock Holding Company Ukrgeolremmash, the following measures are proposed to be implemented to promote the proper functioning of this company.
    4. Some state regional geological enterprises took over the performance of the functions of purely industrial enterprises, to conduct an inventory of the functions performed by State regional geological enterprises, to determine among them the ones not peculiar to such an enterprise, to establish structural units performed by them, to demerger them from the regional enterprise and to create on their basis an independent enterprise and to prepare these enterprises for privatization. They were then proposed for inclusion in the privatization planning scheme for 2001.
    5. Taking into account that Poltava State Regional Geological Enterprise and Chernigiv State Regional Geological Enterprise had not fully assumed functions, duties and rights of the state regional geological enterprises and had not accepted appropriate equipment and production bases to ensure compliance with the functions of regional enterprises in full. Accordingly, SE Poltavneftegasgeologiya and SE Chernigivnaftogazgeologiya retained the specified functions and equipment; the redistribution of functions and equipment were predicted to be completed in June–July 2000 and to carry out the acceptance and transfer of the required property in June–July of present year.
    6. According to the Decree of the Cabinet of Ministers of Ukraine dated 04/29/1999 No. 349-R, SE Chernigivnaftogazgeologiya and SE Poltavneftegasgeologiya were required to perform the pre-privatization preparation of enterprises till July 1, 2000. Heads of enterprises and department units were to take control of the implementation of this decree.
    7. The business units of the geological enterprises carry out non-core types of work, the volume of which reaches 80–95% of the total workload performed by these units. This goes to prove the inexpediency of their maintenance in the composition of the state geological enterprises and the availability of conditions for their possible privatization. In this regard, the following is assumed:
      • To withdraw from the structure of SE Pivdenukrgeologia’s five structural units and to create independent enterprises and to prepare them for privatization in the first half of 2001 with their further transformation into open joint stock companies; and
      • On the basis of the structural units of SE Kirovgeologia performing works of service nature, to create the independent enterprises, part of which is to be prepared for privatization from the performed works nature and the degree of their influence on results of units work of the main production.

      The reorganization of SEs Pivdenukrgeolo, Kirovgeologia and Kirovgeologiya is preceded by coordinating with the Cabinet of Ministers of Ukraine on the issues related to work performance in accordance with current legislation.

    8. Currently, most of the work on geophysical research is concentrated in State Geophysical Enterprise Ukrheofizyka. The exception is provided by the works performed by State Geophysical Enterprise Balakliyapromheofizyka and structural units on geophysical research of the Regional Geological Enterprise Pivnichgeologiya.

      The share of the work performed by State Geophysical Enterprise Ukrheofizyka for the needs of Geology and Exploration Survey is 20–30% of the total workload. This factor is a prerequisite for the workload distribution in accordance with the sources of funding and securing them for the newly created enterprises of various forms of ownership. To implement this, it is necessary to determine the optimized technologies and modern types of equipment that should be used in the geological industry for geophysical research. This requires the appropriate number of structural units from State Geophysical Enterprise Ukrheofizyka, which will conduct geophysical research in the geological industry and their rational territorial location, taking into account the availability of production facilities and human resources of the specified region. On the basis of these divisions, the state regional geophysical enterprises on regional geophysical researches on oil, gas and solid mineral deposits will be established.

      On the basis of other structural units, it was planned to create independent enterprises for geophysical research, which will be corporatized and privatized.

    9. State Geophysical Enterprise Balakliyapromheofizyka is subject to privatization. Proposals on this issue was submitted to the SPFU (State Property Fund of Ukraine) for consideration and approval in the third quarter of 2000 to determine the terms of privatization of this enterprise.
    10. SE Zahidukrgeologiya is one of the enterprises that has not been reorganized in previous years. Therefore, it was expected to perform its reorganization in June 2000 by dividing itself into two companies – West State Regional Geological Enterprise and the State Production Enterprise Karpatnaftogazgeologiya. The latter will be transformed into an open joint stock company and privatized.

      The reorganization will be carried out in two stages. The demerger of State Regional Geological Enterprise and the State Production Enterprise is the first stage. At the second stage, structural units performing well in boring wells and other exploration survey works will be demerged from the State Regional Geological Enterprise, and an independent enterprise will be established, subject to further privatization.

    11. The artificial combination in the SE Geoservice structure of the units being not connected by the shared sense of purpose cannot be a basis for long-term functioning of this enterprise. It is supposed to demerge from its structure of three structural units in the main directions of their activity and create independent enterprises with the subsequent privatization or accession of two units of the enterprises from the structure of which they were demerged in due time. In preparation for the privatization of SE Geoservice, it should be removed from the list of state properties not subject to privatization.
    12. As of 05/01/2000, there were two scientific research institutes in the industry: Ukrainian State Geological Research Institute (UKRSGRI) and the State Design Institute Ukrdiprogeolbud. The latter began privatization from 10/01/2000. The Ukrainian State Geological Research Institute reorganization will be reduced from its structure of the Crimean Department and created as an independent research institute on the search for gold, diamonds and other types of solid mineral deposits, and also to review the department’s status, consolidation of divisions, concentration of scientific researches according to their directions in specialized laboratories and departments.

      In addition, it is intended to include the State Commission for the examination of geological projects and estimates into the UKRSGRI in 2000.

    13. With the purpose of timely privatization of DC Gorlivrozvidka, DC Agrogeophysica, LLC Zhytomyrburrozvidka, State Geological Enterprise Crymgeologiya and the Institute Ukrdiprogeolbud should be provided with methodological and practical assistance for its preparation of privatization and its implementation.
    14. In order to combine the efforts of regional- and state-owned geological enterprises to improve the effectiveness of their production, economic, financial and social activities, as well as to ensure the coordination of these activities, the development and practical implementation of joint projects and programs on geological research, protection of rights and common interests in various organizations and institutions, the development of relations with domestic and foreign investors from 2000 till the first half of 2001, the state concern for geological research Ukrgeologiya (or other enterprises unions) is to be established.
    15. In order to improve the efficiency of exploration survey for oil and gas, the Ministry of Ecology and Natural Resources together with Naftogaz of Ukraine are working on the possibility of transferring production geological enterprises belonging to the management of the Ministry of Ecology and Natural Resources to Naftogaz of Ukraine and are working on bore wells and other geological studies on the order of State Regional Geological Enterprise. The implementation of this measure will provide the geological enterprises with stable workload and the necessary jobs. However, there is a threat that gas and oil producing enterprises will cease to carry out payments for previously performed geological exploration surveys (at the rates of reductions) after the implementation of this measure, leading to a catastrophic decrease in the amount of funds received by the state budget for exploration. And this, in turn, may lead to a decrease in the amount of funding for exploration prospecting.

      This question study was to be conducted during June–July 2000, after which a decision was to be made about the appropriateness of joining these geological enterprises of the NJSC Naftogaz of Ukraine. If an agreed solution that will satisfy both the Ministry and Naftogaz of Ukraine is not found, the mentioned geological enterprises were to be offered for corporatization and privatization in 2000–2001.

      The feasibility and necessity of reorganization of geological enterprises and the industry as a whole is confirmed and justified by the course of its implementation in 1995–2000. The implementation of the provisions of the concept will significantly improve the efficiency of exploration prospecting works, increase the volume of privatization and reduce the need for funds from the state budget to maintain geological enterprises and exploration survey.

      Further reform depends on the economic capacity of the state, and this factor is able to make significant adjustments to the pace of reform measures despite the fact that the amount of funding for exploration is the main factor contributing to or not contributing to the process of effective reorganization of the industry.

The concept was adopted at the Conference of the Ukrainian Association of Geologists, May 25, 2000, at Kyiv.