Privatization
Second attempt to privatize former prison. According to the State Property Fund (SPF), the Irpin Correctional Centre No. 132 in the Kyiv region was re-auctioned at half the initial starting price. This is the first asset put up for transparent bidding as part of the privatization of prisons. It is located in the Kotsyubynske village in Kyiv Oblast.
The auction should take place on April 16. The starting price of the former prison is Hr 110.1 million. The first auction, which started at Hr 220.2 million, had no bids. According to the SPF, the state continues to spend about Hr 10 million per year on maintaining the prison. The prison occupies 8.3 hectares of land, and the total area of its buildings is over 28,000 square meters. In total, the SPF plans to put the assets of 35 non-functioning correctional facilities up for transparent online auctions.
Corporate governance in SOEs
- Court did not lift the ban on the appointment of PrivatBank’s CEO. The Kyiv Commercial Court on April 6 refused to satisfy PrivatBank’s request to lift the injunction against electing and appointing the bank’s CEO.
PrivatBank argued that the court’s suspension decision is tantamount to satisfying the trade union’s claim to ban the CEO selection (which is not allowed by the Commercial Code of Ukraine), and it negatively affects the bank’s business management and operations. The court said its original ruling only affected the final stage of the CEO selection [the election/appointment of the selected candidate – SOE Weekly], even though the plaintiff asked the court to stop the CEO selection altogether.
Until the dispute over the legality of the competitive selection as a whole is resolved, the court has issued an injunction against electing a new CEO. It reasoned that if the selection is allowed to proceed and is then found illegal, it may lead to new lawsuits.
In SOE Weekly (Issue 19), we reported that due to the recusal of judges, the Northern Court of Appeal has not yet scheduled PrivatBank’s appeal hearing. The judges recused themselves because their specialization is wrong for the case.
We also reported in SOE Weekly (Issue 16) that the court first blocked the competition on Feb. 24 in response to a lawsuit by PrivatBank’s trade union, which the media relate to the bank’s former owners.
- NSSMC initiated the replacement of the National Depository’s supervisory board. The National Securities and Stock Market Commission (NSSMC) is replacing the National Depository’s (NDU’s) supervisory board, according to the board’s chairman, Oleksandr Danyliuk.
The NSSMC is one of the NDU’s shareholders. Dismissing the NDU’s supervisory board was the first and only decision of the current team in charge of the NSSMC.
Danyliuk said it is strange to dismiss a supervisory board that was appointed just six months ago. He was surprised that NSSMC members, who were in office for no more than three hours after they got appointed, supported the measure without any discussion.
He believes that top officials in government want to appoint their own loyalists to important posts. He believes that the board was dismissed because it took a stand against this practice.
Danyliuk expects that the NSSMC will dismiss the NDU’s supervisory board at the next general shareholder meeting and appoint loyal people who will elect the next chair of the NDU’s management board.
[NDU’s general shareholder meeting is scheduled for April 26, 2021. The first two items on the agenda are (1) early termination of the powers of NDU’s supervisory board members, and (2) election of NDU’s (new) supervisory board members. – SOE Weekly.]
- Zhmak accuses Ukrzaliznytsia’s supervisory board of corruption and sues it for his dismissal. Ukrzaliznytsia’s ex-CEO Volodymyr Zhmak filed a lawsuit to overturn his dismissal, saying that the supervisory board is trying to bring back corrupt schemes.
Zhmak wrote that the board’s decision to dismiss him was unjustified and violated both company procedures and the law. He vowed to defend justice and his business reputation in court. Zhmak is convinced that his activity to destroy corruption in Ukrzaliznytsia was the reason for his dismissal. He said that company officials are hastily trying to bring back their old schemes. As evidence, Zhmak cited a letter from the head of the company’s security office to all branches, telling them it is no longer necessary to coordinate the tender documentation with the office.
The ex-CEO hypothesized that Ukrzaliznytsia’s supervisory board could trigger a return to non-transparent tenders, which would open the way for various dubious beneficiaries. In SOE Weekly (Issue 22), we reported that Zhmak sued Ukrzaliznytsia and the Cabinet of Ministers of Ukraine (CMU), demanding to undo his dismissal and declare illegal the government’s order to appoint management board member Ivan Yuryk as acting CEO.
However, the Commercial Court of Kyiv rejected Zhmak’s claim. The court refused to prohibit the Cabinet from appointing a new CEO or acting CEO of Ukrzaliznytsia, as well as selecting candidates for the CEO position.
In SOE Weekly (Issue 19), we reported that Ukrzaliznytsia’s supervisory board proposed to dismiss Zhmak by unanimous vote, after which the Cabinet followed through and dismissed him. His duties were temporarily assigned to Yuryk.
SOE updates
Banks
- PrivatBank may be privatized soon. The Governor of the National Bank of Ukraine (NBU) Kyrylo Shevchenko said in an interview that PrivatBank may be privatized soon.
Shevchenko reminded that the International Financial Corporation (IFC) and the state-owned Ukrgasbank signed an agreement in January to provide the bank with a five-year convertible loan worth €30 million. [See SOE Weekly (Issue 08) for detail.]
Shevchenko also said that negotiations with the European Bank for Reconstruction and Development (EBRD) are under way on the acquisition of Oschadbank’s equity by the EBRD.
Shevchenko hopes that, in five years from now, the state’s share in the banking system will fall from 55% to 25%, which will help it to become more independent.
According to Shevchenko, PrivatBank will be put up for sale soon. He added that the privatization of PrivatBank, Ukraine’s largest and most profitable bank, is sure to interest the most prestigious international investors, including the United States and the European Union.
Energy sector
- Naftogaz may have suffered big losses. Ekonomichna Pravda reported on April 9 that it obtained a document with Naftogaz’s financial reporting, which reports a loss of Hr 36.93 billion in 2020. Gross loss was Hr 0.8 billion, and financial profit from operating activities was Hr 6 billion.
Naftogaz’s CEO Andriy Kobolyev said on his Facebook page that the company has no right to comment on its financial performance until the financial statements are officially published. He also said that the information published by Ekonomichna Pravda was incorrect, and Naftogaz would soon publish documents with all comments and explanations.
- Ukrenergo reported a net loss of Hr 27.5 billion. According to the 2020 results, Ukrenergo received a net loss of Hr 27.5 billion. In contrast, Ukrenergo received a net profit of Hr 1.86 billion in 2019 and Hr 2.6 billion in 2018.
Ukrenergo blamed low tariffs established by the National Energy and Utilities Regulatory Commission (NEURC). According to the company, in the fourth quarter alone, the tariffs caused it to lose Hr 1.2 billion in revenue from dispatching services, Hr 1.4 billion in revenues for electricity on the balancing market, and Hr 11.1 billion for public service obligations.
- Unauthorized gas offtakes by gas distribution network operators worth Hr 10 billion. According to the Gas Transmission System Operator of Ukraine (GTSOU), in the first quarter of 2021, regional and city gas suppliers, in an unauthorized manner, took off almost 1.1 billion cubic meters of gas (worth Hr 10 billion) from the main gas pipeline system. This is a threefold increase compared to the total amount of authorized gas withdrawals in 2020.
Of this total, Hr 3.5 billion is overdue debt, and Hr 6.5 billion is accruals payable.
- Energoatom expects Hr 1 billion in net profit in January-March 2021. According to the acting CEO of Energoatom, Petro Kotin, the company expects to receive Hr 2.4 billion of gross profit, and Hr 1 billion in net profit, for January-March 2021.
According to Kotin, the company will pay about paid Hr 1.3 billion to the state in dividends and income tax for that period.
He attributed the performance to the stabilization of cash inflows to the company (payment for electricity sold on Dec. 21, 2020) and partial repayment of Guaranteed Buyer’s Hr 3 billion debt for previously released electricity at the expense of Ukrenergo’s credit funds.
As we wrote in SOE Weekly (Issue 18), Energoatom reported net losses of Hr 4.8 billion in 2020.
According to its 2020 financial statements, Energoatom received Hr 45.65 billion in net revenue and Hr 6.84 billion in gross profit. Energoatom’s EBITDA was Hr 13.3 billion in 2020.
Energoatom gave four reasons for its losses:
(i) exchange rate differences in servicing foreign currency loans;
(ii) forced reduction of Energoatom’s marketable output from 80.6 billion kWh to 73.7 billion kWh due to the Forecast Balance approved by the Ministry of Energy last April;
(iii) direct losses due to the mismatch between the cost of electricity produced by nuclear power plants and the price at which Energoatom supplied it to households within the framework of its public service obligations (PSOs);
(iv) huge debt to Energoatom (Hr 22.6 billion), including Hr 11.6 billion from the now-defunct state enterprise Energorynok, Hr 6.5 billion from Guaranteed Buyer, and Hr 4.5 billion from Ukrenergo.
- The Cabinet of Ministers approves an auditor for Naftogaz Group. On April 14, following a ProZorro auction, the Cabinet of Ministers approved PricewaterhouseCoopers (PwC) as an independent auditor to go over Naftogaz’s reporting for 2021-2022.
The cost of services under the contract is estimated at Hr 54.15 million. This covers consolidated financial statements, including the financial statements of Naftogaz and about 30 companies of Naftogaz Group, such as Ukrgazvydobuvannya, Ukrtransnafta, Ukrtransgaz, Ukrnafta.
[In the past years, the financial statements of Naftogaz Group were audited by Deloitte. – SOE Weekly.]
- Draft law “On the certification of the transmission system” adopted. The Verkhovna Rada approved in the second reading draft law No. 3364-1d “On the certification of the transmission system”.
The draft law:
- introduces rules that ensure certification of the transmission system operator Ukrenergo according to European rules (the certification is a necessary condition to integrate Ukraine’s energy system with Europe’s);
- simplifies electricity export-import procedures with Ukraine and EU countries (co-ordinated auctions for access to interstate interconnectors);
- introduces restrictions and bans on the import of electricity from the Russian Federation and Belarus (due to the end of the heating season and the growth of coal stocks in thermal power plant’s warehouses); and
- obliges municipally-owned electricity generating companies to sell electricity exclusively through competitive auctions.
Infrastructure
- Ukrzaliznytsia reports a 12 billion loss in 2020. According to the 2020 results, Ukrzaliznytsia made a net loss of Hr 11.9 billion. The company said that its financial result was affected by the decrease in revenues from freight and passenger transportation by 10.3% and 58.3%, respectively, compared to 2019. In addition, significant fluctuations in exchange rate differences led to a net loss of Hr 5.5 billion against a net profit of Hr 4.3 billion in 2019.
- Ukrzaliznytsia considers raising funding from state-owned banks and government support mechanisms. Ukrzaliznytsia considers issuing Eurobonds in 2021 and is looking for better borrowing options in order to refinance its liabilities.
According to Ukrzaliznytsia’s consolidated financial statements, management is considering raising funding from state-owned banks and government support mechanisms if it fails to raise funds in international capital markets in a timely manner.
Defense
Agriculture
- SFGCU loses Hr 5.8 billion in 2020. The State Food and Grain Corporation of Ukraine (SFGCU) made a remarkably large net loss of UAH 5.8 billion in 2020.
In earlier years, SFGU also lost large amounts of money, albeit much less than in 2020. Its net loss was Hr 1.49 billion in 2018 and Hr 1.54 billion in 2019.
In 2020, SFGCU’s net revenue was Hr 7.1 billion, which is – notably – half of that in 2019. The total amount of the company’s debt to various partners amounted to Hr 29.7 billion. In response to the media’s request, the SFGCU said vaguely that the poor performance was due to decreased sales.
As we wrote in SOE Weekly (Issue 03), the Cabinet of Ministers appointed Andriy Vlasenko as the acting CEO of SFGCU. In late October, Vlasenko had been dismissed as CEO of state-owned Ukrliktrava by the Ministry of the Economy due to mismanagement and poor financial results. According to Slidstvo.Info, under Vlasenko’s leadership, the company’s debt reached more than UAH 12 million and all Ukrliktrava accounts were blocked.
However, as Slovo i Dilo reported, the Ministry of the Economy later deleted its October release about this dismissal. Member of parliament Yaroslav Zheleznyak (Holos) said that he believed that Vlasenko’s appointment was part of the government’s bargain with the Yulia Tymoshenko Bloc to get enough votes for adopting the state budget.
Recently, the State Bureau of Investigation (DBR) reported on exposing a corruption scheme in SFGСU, namely extorting money for appointments. The pre-trial investigation documented the head of one of the corporation’s departments demanding a benefit of $35,000.
[Notably, there is no rationale for the state to own such an SOE as SFGCU. This also contradicts the government-declared Basic principles of state ownership policy. Since the services that the company provides are readily available from private providers in the competitive market, SFGСU should be privatized. – SOE Weekly.]
Other sectors
- The Verkhovna Rada supports draft law on State Mortgage Institution’s merger with UFHC. On April 13, the Verkhovna Rada supported draft law No. 5308, which would merge the State Mortgage Institution (SMI) into the Ukrainian Financial Housing Company (UFHC) and issue another Hr 20 billion of government bonds to recapitalize UFHC.
In an explanatory note, the proponents of the draft law said that SMI suffered as a result of the banking crisis of 2014-2015, and mortgage refinancing and financial lending operations have been virtually suspended since 2015.
[UFHC will use the money from the sale of the government bonds, which currently yield more than 10% per annum, to provide loans at a 7% rate. With such a spread between the cost of funding and return on loans, it is very unclear how the company can profit. – SOE Weekly.]
In SOE Weekly (Issue 10), we reported that UFHC was established in late December in order to provide affordable mortgages. The company’s authorized capital was as little as Hr 10 million.
- New suspect in Ukravtodor On April 12 2021, the National Anti-Corruption Bureau (NABU) and the Specialised Anti-Corruption Prosecutor’s Office (SAP) charged the beneficiary of a group of road management companies with bribing the former acting CEO of Ukraine’s road agency, Ukravtodor.
According to the media, NABU and SAP’s suspicion concerned Oleksandr Tislenko, the owner of a large construction contractor Altcom, and Slawomir Nowak, the ex-CEO of Ukravtodor, respectively.
According to the investigation, the suspect [Oleksandr Tislenko], personally and via his middlemen, systematically provided illegal benefits to the management of Ukravtodor to buy “loyalty” to his companies. As established by NABU and SAP, a total of $575,000 and €70,000 was paid during 2017-2019.
In exchange, the former CEO of Ukravtodor [Slawomir Nowak] ensured that these companies kept being selected to build parts of the M-05 Kyiv-Odesa road, which was financed with an EBRD loan under the Pan-European Corridors project. In addition, the CEO of Ukravtodor “overlooked” the companies’ violation of the work progress schedule, which allowed them to avoid more than €9 million in fines.
NABU has investigated the case since September 2019, joined by Poland’s Central Anti-Corruption Bureau and Warsaw District Prosecutor’s Office in November 2019. [Nowak has Polish citizenship. – SOE Weekly.]
In the summer of 2020, the operation exposed a criminal group led by the ex-CEO of Ukravtodor. In January 2021, materials of the criminal proceedings against Nowak were sent to Poland to complete the pre-trial investigation.
In November 2020, the Prosecutor General of Ukraine signed an agreement with the Prosecutor General of Poland to continue the work of the joint investigation team established by the countries’ anti-corruption agencies. This enabled the NABU detectives and their Polish colleagues to obtain some new evidence in the case.
Public assets
Procurement Notices – powered by ProZorro
Together with ProZorro, we selected procurement notices announced by the top 15 Ukrainian SOEs and four state-owned banks from April 8-13 with an expected value of more than Hr 1,000,000. State Food and Grain Corporation, Automobile Roads of Ukraine, and PrivatBank are not subject to the requirement to use ProZorro by law and have not used it in the past two years.
Ukrainian SOE Weekly is an independent weekly digest based on a compilation of the most important news related to state-owned enterprises (SOEs) and state-owned banks in Ukraine.
Editorial team: Andriy Boytsun, Mariia Kramar, Dmytro Yablonovskyi, and Oleksandr Lysenko. The SOE Weekly is produced and financed by Andriy Boytsun. Communications support is provided and financed by CFC Big Ideas. The SOE Weekly is not financed or influenced by any external party. © 2020–2021 Andriy Boytsun, all rights reserved. Spaces – Maidan Plaza || Maidan Nezalezhnosti 2, Kyiv 01012, Ukraine Email: [email protected] || Telephone: +380 44 247-7829
