Belgian investment banker Peter Vanhecke was supposed to clean up majority state-owned oil and gas company Ukrnafta when he was appointed CEO in 2011. He recruited a team, some from his former Renaissance Capital employer, to prepare the nation's largest oil producer and second-largest gas extraction company for an initial public offering on a foreign stock exchange.
In turn, the IPO would’ve put an end to the long-running corporate dispute between the state – holding 50 percent plus one share through Naftogaz – and a group of minority shareholders led by billionaire Igor Kolomoisky and his partner Gennadiy Bogolyubov who control company management.
Instead, it appears that Vanhecke got enmeshed in the row, after lawmaker Serhiy Leshchenko made public parts of a labor contract the Belgian had with companies belonging to the minority shareholders. Those shareholders paid him at least $3 million in compensation a year and possibly more in bonuses.
Leshchenko accused Vanhecke, who served as CEO until July, of managing the company in Kolomoisky’s interests. The lawmaker also highlighted a supplemental clause in the contract that says, in Vanhecke’s absence, his powers get transferred to one of two deputies who allegedly represent minority shareholder interests: executive Volodymyr Pustovarov or commercial director Oleksiy Kush.
Vanhecke, a lawyer, wouldn’t say whether he received the sums in the contract and rejected the allegation that he was serving only the interests of minority shareholders.
“How is this a kickback if this is a labor contract, what other salary did I get…the only thing I received from Ukrnafta for a period of time was Hr 10,000 ($1,250 per month), but I don’t think they would expect me to work for that amount,” he told the Kyiv Post by phone. “This wasn’t a charity case.”
Describing the arrangement as a standard employee contract, Vanhecke said that in 2011 when he was hired, “all the shareholders were completely aware of the situation, but I can’t say about the current situation,” referring to the current management of Naftogaz.
Naftogaz, the parent company of Ukrnafta, declined to comment on Vanhecke’s arrangement and didn’t address whether he received a separate salary from the company.
As Ukrnafta CEO for 4.5 years, Vanhecke saw two prime ministers, four energy ministers and two Naftogaz CEOs come and go.
However, the Belgian lawyer insisted that he “worked in the interests of the entire company, of all shareholders…three places in the contract specifically state that we have to work in the interests of the company.”
He added that paying the “market rate” of his salary was the “best protection against corruption. We never took any dime. Because I’m European, I got a market price for my salary.”
In 2011, Vanhecke inherited a murky company suspected of tax evasion and a corporate dispute that started five years earlier involving gas pricing, the payment of dividends and control over management.
Employing nearly 30,000 people, Ukrnafta accounts for about 68 percent of the nation’s yearly oil and condensate share of production, and 11 percent of the natural gas market, according to the company’s website. It operates more than 550 wholly-owned gas stations with a presence in most regions of the country.
Gas prices
Starting in 2006, regulators forced state-owned gas producers, including Ukrnafta, to sell gas to Naftogaz at below-market prices that it then re-sold to households.
Ukrnafta balked and stopped selling gas to Naftogaz and started selling to industrial consumers who paid more. It continued storing some of its gas with Naftogaz’s storage centers. According to Dragon Capital energy analyst Dennis Sakva, Ukrnafta reportedly pumped 11 billion cubic meters of gas into storage units without contracts to sell any of this volume.
Ukrnafta also sold about 1 billion cubic meters of gas in 2012-2013 to nitrogen fertilizer producer Dniproazot, which Kolomoisky owns, but which Ukrnafta leases and whose terms were never disclosed.
Meanwhile, Ukrnafta last year successfully sued Naftogaz in the Supreme Economic Court to sell 2 billion of the 10 billion cubic meters of gas it has in storage.
Ukrnafta also stopped paying royalty taxes when the government raised them in August 2014, running up an estimated Hr 10 billion debt, according to Dragon Capital.
Management control
Kolomoisky since 2003 has controlled Ukrnafta’s management partly because he managed to block the holding of shareholders’ and supervisory board meetings.
While Leonid Kuchma was still president in 2004, Kolomoisky told a special parliamentary committee in March that he had to pay a combined $5 million monthly to him and his billionaire son-in-law Victor Pinchuk for control over company management.
Pinchuk, who is suing Kolomoisky and Bogolyubov for control of a Ukrainian ore-mining company in London’s High Court, rejected the claims as “another vile insinuation of Mr. Kolomoisky.”
In an e-mailed response to the Kyiv Post through his press service, Pinchuk said: “It is a part of an ongoing improper campaign to put pressure on Mr. Pinchuk to call off his lawsuit against Mr. Kolomoisky and Mr. Bogolyubov in London. As previous attempts, it will not work.”
Kuchma’s spokeswoman, Dariia Olifer, didn’t respond to a Kyiv Post request for comment.
Until January, law stipulated that a quorum of 60 percent of voting shares was needed to hold shareholder meetings where the state has 50 percent plus one share voting rights. Parliament reduced the quorum to 50 percent plus one share.
Prime Minister Arseniy Yatsenyuk this month said that British citizen Mark Rollins, a former vice president of British oil and gas company BG Group, will take over Ukrnafta. His contract terms haven’t been made public.
Dividends
Based on two shareholder meetings held since the quorum change took effect, Ukrnafta owes the state Hr 2.4 billion in dividends, Naftogaz told the Kyiv Post in an e-mailed response.
In response, Ukrnafta said it paid the dividends, but not in cash. Instead, the oil producer wrote off the value of gas it says Naftogaz owes it.
Ukrnafta additionally hasn’t paid dividends to minority shareholders as well.
Stockholm arbitration
On July 16, the Cyprus-registered companies affiliated to Kolomoisky and Bogolyubov – Littop Enterprises, Bridgemont Ventures and Bordo Management, three of the five companies that had signed Vanhecke’s payroll contract, – filed a lawsuit against Naftogaz at the Arbitration Institute of the Stockholm Chamber of Commerce.
They jointly own 40 percent of Ukrnafta, while the litigation seeks compensation for losses incurred as a result of the government allegedly limiting the company’s ability to sell gas in 2006-2014, according to an emailed note from Dragon Capital.
The lawsuit is for a reported $5 billion, the same amount Ukrnafta demanded in January from Naftogaz in a letter, citing the identical losses they had allegedly incurred.
Oil and Ukrtatnafta
The oil that Ukrnafta produces goes to the nation’s largest oil refinery in Kremenchuk operated by Ukrtatnafta. Naftogaz owns 43 percent of the refinery, while Kolomoisky, Bogolyubov, and Kharkiv’s richest businessman Oleksandr Yaroslavsky own the rest.
Ukrtatnafta processes the oil to produce diesel and gas fuel, the latter of which it sells back to Ukrnafta to fill its network of gas stations.
Kyiv Post editor Mark Rachkevych can be reached at [email protected]
