Mark Rollins, the new CEO of Ukrnafta, Ukraine's largest oil producer, has inherited a company with an unpleasant history of corruption and tension among its shareholders.
Starting the job on Sept. 28, he was immediately confronted with the issue of settling unpaid dividends and taxes that had accumulated for years. Rollins also inherited a long-running dispute related to Ukrnafta’s gas supplies to state-run Naftogaz, its majority owner.
By the end of October Ukrnafta had cleared nearly Hr 1.5 billion in unpaid taxes. It also paid off all of its dividends for 2014 – a total of Hr 632.3 million. But the majority state-owned company still needs to pay dividends for 2011-2013, which amount to Hr 1.8 billion.
“This is actually priority number one for me – to settle the tax liabilities that we have. If we don’t do that I think it’ll create a big barrier for us to move the company forward,” Rollins told the Kyiv Post on Nov. 3. “We’ve committed to paying those before the end of the year. Then we’ll be clear of all past dividends.”
At the moment Ukrnafta isn’t generating a lot of profit because of high royalty taxes, low oil prices, inefficiency and the downturn in the global oil and gas industry. But it’s making enough to pay salaries and its suppliers, and pay current taxes, Rollins said.
Rollins is still looking for money to pay taxes for previous years, such as the unpaid Hr 10 billion in royalty taxes, which Ukrnafta stopped paying after the government raised them in August 2014 and prolonged in December.
“One of the solutions to that challenge is to get back some of the money I believe that we’re actually owed by state entities. We’ve supplied 10 billion cubic meters of gas… for which we’ve not been paid anything at the moment,” Rollins said.
“So actually the government agencies have a bigger (debt) to us than we have to the government,” Rollins said, echoing the words of oligarch Ihor Kolomoisky.
Kolomoisky’s so-called Privat Group holds a 42 percent stake in Ukrnafta, while Naftogaz owns 50 percent plus one share. In March, Naftogaz said that it owes Ukrnafta Hr 3.8 billion, while Kolomoisky estimated the amount at Hr 100 billion, according to Channel 1+1, which the tycoon owns.
Rollins said he would send out proposals to resolve the dispute to a number of politicians, including Finance Minister Natalie Jaresko and head of the State Fiscal Service Roman Nasirov.
“We’re owed money, we owe money, let’s find a way to make that work. And I think it’s a lot of money that we are owed,” Rollins said. “We have a legitimate claim for that… So in that perspective Ukrnafta also has as an asset out there – this debt from the gas.”
As for suspicions over his connections to Kolomoisky, Rollins said that he hadn’t known the oligarch prior to becoming Ukrnafta’s new CEO.
“I don’t have any connection with Kolomoisky, any more than I have a connection with (Naftogaz CEO Andriy) Kobolev or (Prime Minister Arseniy) Yatsenyuk,” Rollins said. “I’ve met them all, and of course the first time I met Kolomoisky was actually at a shareholder meeting when I was voted in as chairman. Since then I’ve spoken to him a few times.”
Questions over relations with stakeholders aside, the biggest challenge for Rollins is finding enough capital for the company.
One option is to have the existing shareholders inject more, but Rollins believes that’s “a little bit unlikely” as the government doesn’t have a lot of cash to invest in the sector.
Rollins, though, is asking all shareholders to reinvest their dividends because Ukrnafta has not in recent years had money pumped into it.
If not, Rollins thinks Ukrnafta might not be able to survive.
“I need money to reinvest, it’s absolutely essential. The company will die otherwise,” he said.
Rollins didn’t say if he plans to reduce Ukrnafta’s staff of 27,000, but said he would carefully consider the option.
He is also under the microscope because of scandals surrounding his predecessor, Peter Vanhenke, who headed Ukrnafta in 2011-2014. The Belgian national was accused by lawmaker Serhiy Leshchenko of serving the private interests of Kolomoisky. Vanhenke denied the accusations in a phone interview with the Kyiv Post.
Rollins said his employment agreement includes an annual “market-based” salary of $500,000 with additional benefits such as healthcare insurance and performance-based bonuses if he achieves goals set by the supervisory board.
None of the shareholders are paying him separately to look after their interests, Rollins said. “I have a contract with Ukrnafta,” he said.
His plan is to start paying his management team market-based salaries, and then extend the improved wages to lower-level employees. Rollins is using the services of Odgers Berndtson, a recruitment agency based in London, to form his eight-person management team, which will mostly consist of Ukrainians.
Rollins is still compiling a management strategy for the company and says he won’t disclose the details of his plan until the first quarter of 2016. However, he did say that privatization would be a long-term goal.
His fundamental goal, he said, is making Ukrnafta more transparent.
“I think what’s good for Ukrnafta is generally good for Ukraine,” Rollins said. “Ukrnafta can bring a lot of things to the table” for Ukraine, such as employment, contributions to the state budget and energy security.
He emphasized acting nimbly when managing a company like Ukrnafta, which needs a lot of reform and where “there’s a lot of conflicting forces,” Rollins said. “It’s impossible to be successful in a situation like I’m in by being very incremental and slow, because it gives people time to block what you’re trying to do.
“Getting a little ahead of the system will give you more of an advantage.”
Mark Rollins
Age: 51
Nationality: United Kingdom
Job: CEO of Ukrnafta
How to succeed in Ukraine: “There can be a lot of noise, there can be a lot of different opinions, different agendas, people applying different ideas to your business… You have to be true to yourself, you have to know what you believe in, so you have to take a strong leadership position… and then you have to follow through and execute.”
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].
