Iryna Suprun: Sustainable investments in subsoil should base on sustainable rules

Founder of the Geological Investment Group Iryna Suprun

The Geological Investment Group was the title sponsor of the VII International Scientific and Practical Conference of the State Commission of Ukraine on Mineral Resources (SCMR), “Subsoil Use in Ukraine. Investment Prospects”, which took place in Lviv in November-December 2021. One of the hottest topics that sparked a lively discussion among the conference participants was the new “rules of the game” in subsoil use. Some changes are still being discussed, while others are already awaiting the Government’s decision. What should subsoil users prepare for and how? And why does subsoil business need professional legal advisors as much as professional geologists? NADRA.info talks about this with the Founder and CEO of the Geological Investment Group, attorney Iryna Suprun.

NADRA.info: What are your impressions of the SCMR Conference?

Iryna Suprun: Yes, we helped the SCMR. We took on the organizational function because Lviv is our hometown and we understand where such an event can be organized in the best way, what additional services to engage, so that this conference could still take place in the difficult time of the COVID-19.

It was important not to break the long-established tradition and to hold it despite all the barriers. I think this year will be better: we expect speakers to whom subsoil users could ask questions directly and it will not be something like a monologue where we talk to ourselves.

A discussion panel is crucial, when the government, both central and regional, will express its position on subsoil use, so that the market can hear what to expect and in what direction the industry should develop.

Roman Opimakh, the Head of the State Service of Geology and Mineral Resources of Ukraine (the SSGSU), could have answered these questions. But we did not notice him among the speakers. 

So, the SCMR started in a week, and there was little time to coordinate schedules. And we understand that the SSGSU is not a fire truck. They need to coordinate such issues with the Cabinet of Ministers of Ukraine. I think that’s why no one from the SSGSU was present. Of course, firstly, subsoil users would like to hold such events with the participation of the authorities. But at the next conference, everything will work out.

“In fact, there are very few specialists – lawyers and attorneys who can understand geology and are well versed in the field of subsoil use”

Nevertheless, the conference attracted a large audience. Where did the participants come from, how many of them, who are they?

These are scientists, representatives of state and private companies in the geological, mining and oil production industries not only from Ukraine but also from abroad. For example, there were participants from Kazakhstan. Due to the pandemic and restrictions, most of them joined online.

How did Iryna Suprun’s career begin?

For me, it all started organically. I didn’t think I would connect my life with such a difficult business – consulting in the field of subsoil use. I’ll touch a little on the topic of gender, which is currently in trend: not many women work in this field, moreover, not many people like and understand it.

I confess that I don’t remember my first project. There were a lot of them at once. When I was practicing law, I had a private practice, and I was providing individual consultations to subsoil users. It all probably started with Soluky mineral water. The CEO of the company Valetudo LLC is a friend of mine. I always consulted him as a lawyer and then word-of-mouth started to spread. There were even offers from Kyiv to join the reform of the industry.

Iryna Suprun: “In the end, we came to the conclusion that the sphere needs to be systematized, because, in fact, there are very few specialists – lawyers, attorneys who can understand geology and are well versed in subsoil use.”

Geological Investment Company is an unconventional company because we do not practice classical law. We position ourselves as a consulting company, a geological advisor for business. Our geologists are in the lead, and our lawyers help them to implement their ideas, as everything is based on rules and regulations.

Does Iryna Suprun have a personal interest in subsoil in the form of a share in the project?

Our team is now actively involved in such projects. We have several ideas. I will not reveal all the cards, it will be known soon. We want to try to go through this thorny path as a team and invest in subsoil. I will only say that I have had such experience before.

Will it be Your funds or clients’?

These are the funds that our company has earned.

Will it be amber, oil and gas … or something else?

No, it’s simpler. It is a construction material. This is a decision we made with the team, and it is interesting for everyone – geologists and lawyers alike. It is interesting not just to be involved in assisting this business, but to go through all the stages of the project.

Are you planning to buy it at auction? 

Yes, we are. We nominated the site ourselves. But I will tell you the details later.

Do you estimate JORC and PRMS reserves for your clients?

We are a young company and have not yet had such requests. To do this, we need to study and undergo advanced training abroad. It is a part of our plans. Today, very few people in Ukraine do JORC.

The sphere of geology is a constant learning and improvement. It is not an industry where a specialist has learned something and that’s it, it is working only in this way and not otherwise. You need to keep an ear to the ground, track trends and innovations.

What minerals, in your opinion, are the most interesting for investment today?

These are hydrocarbons and amber. Although today there is a lot of talk about lithium and rare-earth minerals, the development of such reserves requires enormous investments, which are excessively high for Ukrainian subsoil users. That is why the high popularity of these minerals is most likely a hype, as no one fully understands the true prospects.

Also, many subsoil users are now interested in sapropel and lignite (brown coal) for agricultural purposes.

Iryna Suprun: “From the perspective of profitability, if everything is properly calculated and organized, the subsoil use sector in Ukraine is definitely a profitable business. Of course, if everything is purely from a legal point of view.”

In addition, the SSGSU has already done a lot: the Unified State Geological Portal of Ukraine has been opened (NADRA.info wrote about the portal here and here – Ed.), and the register of oil and gas wells has been updated. I know that Roman Opimakh is a big supporter of electronic auctions and their number is growing every year. In 2021, a total of 377 special permits for subsoil use were issued, which is actually a record number. The only request is to change the rules less frequently and more predictably.

“Businesses should already get acquainted with the amendments to the Resolution 615, as these will force many to drastically change their plans for 2022”

During your speech at the SCMR Conference (recording here), as well as in your column on mind.ua, you focused on the consequences of changes in subsoil use regulation, which are inevitable in the light of the National Security and Defense Council of Ukraine (NSDC) decision of July 16, 2021 “On Stimulating the Search, Extraction and Enrichment of Minerals of Strategic Importance for the Sustainable Development of the Economy and the State’s Defense Capability.” And although the draft amendments to Resolution 615 have not yet been approved, subsoil users should prepare. What is your forecast for when the Cabinet of Ministers may vote on the amendments to Resolution 615?

As a rule, the preparation, discussion and approval of such a document can take 3 to 4 months. It all depends on whether other ministries and agencies have comments on it.

However, businesses should already get acquainted with the amendments to Resolution 615, as these will force many to drastically change their plans for 2022.

In general, the communication of these changes at the state level has failed. There are no roundtables, online meetings or forums with experts. The stakeholders they affect have no opportunity to speak out. These changes are being adopted behind the scenes, and subsoil users are simply being forced to face the fact. The draft of the proposed changes appeared on the SSGSU website only at the beginning of this year.

Subsoil is an investment that lasts for years. You can’t change the rules in a month and block the path that other subsoil users have been following for years – you need planning and stability. In my opinion, it would be good to thoroughly consider all the changes in 2022, discuss them with all stakeholders, adopt and freeze them for the next five years. And this should be openly discussed and announced.

There are a lot of changes. What are the main challenges you see?

Firstly, additional approvals for geological research and extraction of strategic minerals: there will be three of them, including the Ministry of Economy and the Ministry of Strategic Industries of Ukraine. These approvals will be considered special conditions for the subsoil use, and businesses will have to comply with them. As of today, it is unclear what exactly these agencies will approve and how their decisions will affect the investment project.

Secondly, the prohibition to make changes to the work program. This is, in my opinion, the most critical for business. The subsoil user will be able to exercise the right to amend the work program only once during the entire term of the special permit, and then only on exceptional grounds: difficulties with the proper registration of the right to use the land plot, the need to prepare an EIA, the absence of commercial hydrocarbon inflow after drilling a well, the existence of force majeure circumstances confirmed by the CCI (Ukrainian Chamber of Commerce and Industry) if the permit was previously revoked or suspended. The work program becomes a mandatory condition from the state that the subsoil user must fulfill unconditionally:

The work program becomes a mandatory condition from the state that the subsoil user must fulfill unconditionally: the timeframe for approving the program, conducting research and industrial development of deposits or exploration will be clearly indicated for different types of minerals. If earlier these were general phrases in the Resolution 615 or the Subsoil Code, now they will be clearly stated, and it will be almost impossible to evade them.

For an official, this is good, because everything will be clearly defined. But the reality is different. In my opinion, with these changes, subsoil use will become even more regulated.

On the one hand, everything becomes clearer and more specific, but on the other hand, these changes will lead to new disputes with the state. Subsoil users will want to defend themselves and will have to prove, for example, the occurrence of force majeure. The state will face additional expenses, as any legal dispute means time and money. And the subsoil user will have no other tool for defense than to go to court.

Thirdly, the special permit could be extended not in 3-6 months, as it is now, but the extension procedure could be initiated in 2 years, which would protect the permit from expiration. This is actually a good initiative, because subsoil users often face the situation of how to calculate the period of permit extension: from the moment the SSGSU issues an order or from the moment the permit expires? As practice shows, permits are usually extended after the expiration date, and this causes a lot of problems, as the company is actually obliged to cease its business activities until it receives a new special permit form and undergoes a number of additional permitting procedures.

There is even an established court practice in this regard, as the government agency has had different approaches to resolving this difficult issue. And time, as you know, is one of the most valuable factors for business.

Fourthly, all exploration and extraction for local raw materials, such as sand, gypsum, limestone, and loam, will be conducted only by purchasing the right at an auction. Only those who have previously obtained the right to geological exploration, approved reserves and applied for an extraction permit within 3 years will be able to exercise their non-auction right.

“Business is becoming a hostage to the political decisions of the government”

Doesn’t it seem to you that the authors of the amendments have taken the path of least resistance? Instead of a new Subsoil Code or amendments to it, they will simply adopt a new version of the Resolution. It is both faster and cheaper. Isn’t it?

Yes, it is. For example, draft law №4187 would solve many problems and there would be no need to rewrite Resolution 615. Manipulations and tug-of-war could be neutralized to some extent.

It is abnormal for the market when such a strategic industry as subsoil use is regulated by a government resolution. On the other hand, there is an opinion that when the Resolution of the Cabinet of Ministers is in effect, it is possible to quickly resolve problems that arise in the industry through amendments to it.

For some people, this is good, but business becomes hostage to the political decisions of the government. And if we are talking about stability and expecting sustainable investments in the industry, these sustainable investments should be based on stable rules. And the government resolution means changing rules. From 2011 to 2021, it changed every year, and even several times a year, and it was a disaster! Every year, businesses were waiting for new rules. Did you not have time to adapt? That’s your problem. For example, over the past 3 years, changes have been made 8 times!

Iryna Suprun: “I propose to introduce a moratorium on changing the rules for issuing special permits. It would be right to discuss these rules with the market and not change them for 3-5 years.”

Instead, today, the communication of the Ministry of Environmental Protection and Natural Resources is simply terrible.

If we are talking not about changes that are expected to occur in subsoil use, but about the algorithm of actions of a subsoil user: how can he prepare for the next change in the rules of the game?

The main advice is to keep your ear to the ground.

In what way? What exactly should a subsoil user do to preserve its subsoil use license?

Try to fulfill the already declared obligations to the state as much as possible. And to calculate their future plans not only from the point of view of geology, but also from the point of view of legislation and changes to it. Because often, the decisions of geologists do not correspond with management decisions that can help implement the geologists’ positions.

For example? 

It is a case without names and surnames. There was such a thing as testing of reserves. And several companies conducted a geological study of a subsoil area at their own expense, having the appropriate permit and calculating mineral reserves through testing, but they were not issued special permits for the extraction of minerals as a result.

So we have a big gap here.

“A subsoil user needs a professional legal advisor and a competent geologist to work without problems.”

What would be the best solution to this situation?

Amend the regulations.

Today, in order to work safely, a subsoil user needs a professional legal advisor and a competent geologist more than ever. And not just a geologist who knows how the Earth is structured and what subsoil is available in Ukraine, but also a geologist who knows the rules of subsoil use and understands how they work in today’s realities. Then it will be the right symbiosis that will protect the subsoil user from both legal and geological traps.

Iryna Suprun ran for the Verkhovna Rada in 2014. How did it go? Did someone inspire you, or was it a personal decision?

In the wake of 2014, I just decided to try myself out. To see what it was like, how people reacted, and what politics was all about. It was the first election after the Maidan, and there was a demand for something new.

What was the key experience you gained from that campaign?

That you need to communicate with people. You shouldn’t be afraid to go to people, no matter how old you are: 18, 29 or 37. And don’t fear a conflict. But you have to find the right words to make yourself heard, and you have to listen to hear others also.

Today you are a member of the Lviv Regional Council. In your experience, how frequent are conflicts between subsoil users and communities in the region? Do you personally have any conflicts of interest in the context of your professional activities in subsoil? 

Regarding the first point, I would like to remind you that regional councils are currently deprived of powers in the field of subsoil use. Subsoil allocation is approved by regional, local, village and city councils. As a rule, conflicts arise around the right of access to local raw materials: sand (95% of cases), limestone, gypsum, and loam.

As for the second, neither I nor the team has a conflict of interest, because we have no projects in the Lviv region where we would be investors or subsoil users. But we have clients who operate in the Lviv region. And it is not always easy for them. Because conflicts with communities are often far-fetched. Those are conflicts that benefit someone, sometimes just other market participants. That is why such a license, the use of subsoil, often costs a lot of effort.

“You need to understand the mood, work with opinion leaders in the communities where you plan to work. Both deputies and activists have become more experienced and more enthusiastic than 10 years ago.”

Can you give us a formula for resolving conflicts with local communities?

You should do good preparatory work with the community. It’s like with elections, you need to study the mood, work with opinion leaders in the communities where you plan to operate.

If there are misunderstandings, find reasons. The principle of “let’s start, and then we’ll come to an agreement” does not work. Stakeholders are well aware of Resolution 615 and the 45-day time limit for discussions on granting a special permit. Both deputies and activists have become more experienced and persistent than they were 10 years ago.

As a deputy of the Lviv Regional Council, how can you assess the experience of the neighboring Volyn region, where your colleagues created the communal enterprise Volinpryrodresurs of the Volyn Regional Council, which has become a powerful subsoil user (holds special permits for amber, peat, and copper ores)? (Read more about Volinprirodresurs here – Ed.)

To be successful, there must be a monolithic understanding between all participants in this model. I am not inclined to comment, because I am not so deeply familiar with the work of this communal enterprise. But any business activity is conducted for profit. If the community managed to create such a communal enterprise through its representatives, it should also control the profitability and income, in addition to the jobs created. From what I know, this is a successful project for the community.

“We came up with the idea to create a platform that would allow interesting objects to be auctioned regardless of business.”

Together with the Former head of the SSGSU Dmytro Kashchuk and the Head of the SCMR Georgiy Rudko, you co-founded  the NGO “Science. Exploration. Production”. Tell us about it.

We had the idea to create a platform that would drive qualitative changes in the industry and liberalize legislation. A platform that would be able to auction interesting objects regardless of business. Perhaps, as an auxiliary tool for subsoil users and this is at a time when auctions were not as transparent as they are today, when there is the Investment Atlas and its promotion.

We nominated about 40 plots for auctions on behalf of the NGO: rare earths, oil and gas, and others.

Today, the NGO is not as active, but we have an idea to revive it.

At what stage of subsoil use: from nominating a site for auction to submitting production reports, do subsoil users face the most problems, the biggest risks of losing a special permit or facing other sanctions?

Any of them!

Even if the subsoil user receives the form late and physically fails to pick up the special permit on time, it may be revoked. The subsoil user may also lose the special permit if he fails to submit the agreement and work program on time.

Theoretically, the electronic subsoil user account, actively promoted by Roman Opimakh, should help to eliminate these risks.

Yes, it should. Because the state is a bureaucratic machine. And today, at every stage, any word or spelling mistake is perceived as a flaw. An incorrectly indicated EDRPOU, letter or comma can indeed be the basis for returning documents. And so subsoil users can be chased endlessly.

The SSGSU is now actively working in this direction, creating the appropriate conditions.

But if we go back to the stages you asked about, the most important stage, in my opinion, is the nomination: to really get what you want. It’s like the story with the Turkish people who bought a special permit for gold ores, but there were none (NADRA.info mentioned this here – Ed.).

VOLODYMYR BOYKO