Editor’s Note: This is Ukrainian State-Owned Enterprises Weekly, Issue 29, covering May 21-28, 2021.
Corporate governance in SOEs
State-owned banks disclose their supervisory board members’ remunerations for 2020 for the first time. State-owned banks released reports revealing how much their supervisory board members were paid in 2020. This is the first time that banks published such a report, which the National Bank of Ukraine made obligatory for all banks at the end of 2020.
[According to the NBU’s regulations, all banks must report the remuneration of their supervisory boards. The regulations do not yet clearly require a breakdown by the individual board member, as would be the case under best corporate governance practices. Each of the four state-owned banks reported the total remuneration of their supervisory boards. – SOE Weekly.]
According to Ukrayinska Pravda, the total remuneration of board members in the four state-owned banks was Hr 124 million ($4.5 million) last year, including board pay of Hr 93 million ($3.4 million) and various compensations.
PrivatBank’s nine board members lead the pack, receiving Hr 43.7 million ($1.6 million or $177,000 each yearly) in compensation, which includes Hr 39.79 million ($1.4 million) in board pay and Hr 3.87 million ($200,000) for travel, rent, and hotel expenses.
[The report did not specify how much the bank spent on D&O liability insurance. – SOE Weekly.]
PrivatBank’s profit in 2020 amounted to Hr 24.3 billion ($879 million).
Oschadbank spent a little less, paying its supervisory board members Hr 31.9 million ($1.2 million) – Hr 25.4 million ($919,000) in board pay, Hr 673,000 ($24,300) in travel expenses, and Hr 5.83 million ($211,000) for D&O liability insurance.
The bank’s profit last year amounted to Hr 2.83 billion ($102.3 million).
Ukreximbank spent a total of Hr 41.1 million ($1.5 million) on its supervisory board members, including a total board pay of Hr 20.9 million ($759,000) in 2020. The board’s travel expenses cost Hr 876,430 ($31,696). D&O liability insurance in 2020-2021 cost as much as Hr 19.3 million ($698,000). From April to December, the board consisted of only seven members (out of nine required).
Ukreximbank is the only state-owned bank that suffered a loss in 2020, amounting to Hr 5.59 billion ($202 million)
[Notably, according to Ukreximbank’s report, the total board pay in 2020 was set approximately at Hr 36.6 million ($1.3 million), but the actual amount paid was about Hr 20.9 million ($759,000). This is likely to be a consequence of the pay cuts imposed by the government in 2020 (see below).
Part of the outstanding payment, Hr 7.9 million ($286,000) was used to support the bank’s employees and make charitable contributions to prevent the spread of COVID-19, while Hr 7.5 million ($271,000) have yet to be paid to the board members. – SOE Weekly.]
The total remuneration of Ukrgasbank’s supervisory board members in 2020 was Hr 7.34 million ($265,000. Ukrgasbank did not report how much it paid for additional expenses or D&O insurance. Ukrgasbank’s made a profit of Hr 543 million ($19.6 million) in 2020.
[Please note that Ukraine has three banks fully owned by the state (PrivatBank, Oschadbank, and Ukreximbank) and one bank 94% owned by the state, Ukrgasbank. The first three banks are “state banks” according to the banking law, while Ukrgasbank is treated as a privately owned bank. – SOE Weekly.]
According to the state-owned banks’ remuneration reports, the average monthly remuneration of a supervisory board member at PrivatBank was approximately Hr 368,000 ($13,309); at Oschadbank, Hr 264,000 ($9,547); and at Ukreximbank, Hr 252,000 ($9,114).
On April 29, 2020, as part of the COVID-19 measures, the government limited monthly pay for top managers and remuneration to members of supervisory boards of state-owned enterprises and banks to an amount equalling 10 minimum wages, or Hr 47,230 ($1,708 monthly) at the time. This pay cap was effective from April to September 2020.
In their 2020 article, SOE Weekly team members Andriy Boytsun and Oleksandr Lysenko said that this government decision would have no positive impact on the state budget, as the government had claimed.
It appears now that the money that was “saved” due to the pay cap was compensated to the supervisory board members in the immediate aftermath of lifting quarantine restrictions, as the article predicted.
For the full original text of article, see “How to save Hr 1,5 on each supervisory board and lose Hr 700 on each SOE”.
PrivatBank finally has a new CEO
The supervisory board of PrivatBank appointed Gerhard Bösch as the new CEO of the bank. Bösch will take office after his approval by the National Bank of Ukraine.
In SOE Weekly (Issue 25), we reported that his term as the first deputy CEO of Raiffeisen Bank Aval expired on April 30.
Bösch was the head of the World Treasury and Markets Department at Raiffeisen from 2004 to 2006. Since March 2006, he has been Deputy CEO, and since November 2010, the first deputy CEO of Raiffeisen Bank Aval.
The appointment of PrivatBank’s new CEO was blocked for more than three months
We reported in SOE Weekly (Issue 16), that a court blocked the competitive selection for PrivatBank’s CEO on Feb. 24, 2021 due to a lawsuit by PrivatBank’s trade union, which the media alleged of being under the influence of the bank’s former owners.
The government extends the exemption for Naftogaz supervisory board members and keeps their annual pay at Hr 6.3 million ($228,000). On May 19, the Cabinet of Ministers adopted an order on several issues related to Naftogaz’s supervisory board:
- The Cabinet re-appointed five current members of the company’s supervisory board until the competitive selection of a new independent supervisory board is completed, but no longer than one year.
- Dismissed one member of the supervisory board (state representative), Robert Bensh.
- Announced the competitive selection for four independent supervisory board members.
On the same day, the Cabinet:
- Extended, until May 3, the exemption of Naftogaz from the coverage of the Cabinet’s Resolution No. 142, which governs the process of selecting and appointing independent supervisory board members of SOEs.
[This extension was necessary to reappoint the current members of the company’s supervisory board without a competitive selection. – SOE Weekly.]
- Established the base level of annual remuneration for a supervisory board member of Naftogaz at Hr 6.3 million ($228,000).
[By comparison, according to the current legislation, the maximum annual remuneration of supervisory board members of SOEs appointed after March 3, 2020, cannot not exceed Hr 2.5 millio ($90,413) . – SOE Weekly.]
Prime minister asks to re-launch the SOE Nomination Committee.
Prime Minister Denys Shmyhal instructed the Ministry of the Economy to resume the work of the SOE Nomination Committee.
[The current composition of the SOE Nomination Committee began its work in 2018. It is composed of the economy and finance ministers and, depending on the SOE, the minister representing the ownership entity or line minister, as well as four independent members.
The committee’s independent members include Jason Pellmar (International Finance Corporation’s regional manager for Belarus, Moldova and Ukraine), Matteo Patrone (European Bank for Reconstruction and Development’s managing director for Eastern Europe and the Caucasus), Gösta Ljungman (International Monetary Fund’s resident representative in Ukraine), and Marcin Święcicki (business ombudsman).
The committee is chaired by Pellmar. The ministers have the right to vote, while the independent members have no voting rights on the committee.
The independent members of the committee had suspended their work in late April after the Cabinet of Ministers changed management at Naftogaz. They had said then that they would be able to resume their work after the government offers clarity on the corporate governance action plan and clearly commits to respect corporate governance institutions. – SOE Weekly.]
In his Telegram channel, Shmyhal stressed that the implementation of the corporate [governance] reform was one of the main tasks of the Ministry of the Economy. He asked Oleksiy Lyubchenko, the newly appointed first deputy prime minister/minister of the economy, to ensure that the work of the SOE Nomination Committee should be resumed.
New members of Oschadbank’s supervisory board approved by the NBU
The National Bank of Ukraine approved the appointment of Roza Tapanova and Oleksandr Rodnyansky as members of the Oschadbank’s supervisory board under government and presidential quotas.
As we reported in SOE Weekly (Issue 22), on April 1, 2021, the Cabinet of Ministers dismissed Taras Kyrychenko as a state representative on Oschadbank’s supervisory board. The next day after Kyrychenko’s dismissal, the Cabinet appointed Roza Tapanova instead. Tapanova is the acting head of the national memorial Babyn Yar. Tapanova also worked at the advocacy union (law firm) Mizhnarodna Pravnycha Kompaniia, which had been founded and co-owned until 2019 by the head of the President’s Office, Andriy Yermak.
[We are unaware of Tapanova’s relevant experience for serving on the supervisory board of Oschadbank’s. – SOE Weekly. ]
Oleksandr Rodnyanskyi was the chief economic adviser to former Prime Minister Oleksiy Honcharuk. He holds a Ph.D. from Princeton University and works as a university lecturer at Cambridge University.
As we reported in SOE Weekly (Issue 19), Rodnyanskyi was appointed as a new member (state representative, nominated by president) on Oschadbank’s supervisory board on March 17. Rodnyansky replaced Aivaras Abromavičius in this position.
Changes in Ukroboronprom’s supervisory board
In May, President Volodymyr Zelensky appointed Tymofiy Mylovanov, adviser to the head of the President’s Office, Oleksandr Nosov, the former member of Sich bank’s supervisory board, and Rostyslav Shurma, CEO of Helios JSC, as Ukroboronprom’s supervisory board members.
On the same day, Volodymyr Horbulin’s powers as supervisory board member were terminated. Mylovanov said on his Facebook page that Horbulin decided to step down and filed his resignation letter due to health reasons.
Boytsun speaks with the Kyiv Post on SOE corporate governance
Andriy Boytsun, a member of the SOE Weekly team, was interviewed by the Kyiv Post. Boytsun said that there are three reasons why Ukraine keeps so many state businesses:
- politicians enjoy regulatory and patronage power by having state businesses account for so much of Ukraine’s economy;
- oligarchs have become adept at manipulating state-owned enterprises for personal profit while sticking taxpayers with losses; and
- a Soviet hangover of bureaucracy and centralized planning triggers fierce resistance to any change from workers, communities, and politicians.
According to Boytsun, there are three situations in which the state should own a company. They involve businesses that:
- perform a national security function that cannot be regulated properly if the firms are in private hands;
- are monopolies and cannot be effectively regulated if the enterprises are privately owned; and
- serve critical public needs that the private market is not performing (such as Ukrposhta delivering pensions to rural residents).
These are found in the Principles of State Ownership, which is not a bad document but legally very weak, unenforceable, and not public. When the three criteria are applied, it is clear that most state businesses – in whole or in parts – will have to go private.
SOE updates
Energy sector
Ministry of Energy’s enterprises lose Hr 1.6 billion ($57.8 million) in the first quarter
According to Marlin, 38 state-owned enterprises (SOEs) overseen by the Ministry of Energy made a total net loss of Hr 1.6 billion in the first quarter of 2021. A total of 30 companies were loss-making, ending the first quarter with a total loss of Hr 1.614 billion. Seven companies made a modest profit of Hr 1.9 million, and one company broke even.
The largest losses were posted by SkhidGZK (Eastern Mining and Processing Plant, Hr 341.1 million), as well as coal-mining companies Pervomaiskvuhillya (Hr 232.8 million), Lvivvuhillya (Hr 209.4 million), Lysychanskvuhillya (Hr 151.6 million), and Toretskvuhillya (Hr 147.4 million).
In SOE Weekly (Issue 20), we reported that 46 SOEs overseen by the Ministry of Energy posted a total net loss of Hr 4.2 billion in 2020. The biggest loss-makers in 2020 were: Energoatom (Hr 4.8 billion, or 57.5% of the total loss); coal-mining companies (Hr 2.9 billion, or 34% of the total loss); and SkhidGZK (Hr 550.2 million, or 6.5% of the total loss).
Ukrainian TPPs are the biggest polluters in Europe
Ukrainian thermal generation is responsible for the most air emissions in Europe and ranks 1-2 in emissions of major hazardous substances. Emission volumes do not meet European standards.
According to the study by the international think tank EMBER, Ukraine is responsible for as much as 72% of all ash particulate matter emissions, 27% of sulphur dioxide, and 16% of nitrogen oxide emissions in Europe.
Eight of the coal-fired thermal power plants (TPPs) with the highest emissions of ash particulate matter in Europe are located in Ukraine. They include Kurakhivska, Burshtynska, Trypilska, Luhanska, Zmiyivska, Vuhlehirska, Slovyanska, and Ladyzhynska TPPs.
According to the media, of the 20 dirtiest TPPs, nine belong to DTEK (owned by Rinat Akhmetov), three belong to the state-owned Centerenergo (Trypilska, Vuhlehirska, and Zmiyivska), one to Maksym Yefimov, a member of parliament. The dirtiest TPP of all belongs to Anatoliy Shkriblyak, an ex-member of parliament.
Privatization
Ukrspyrt distillery privatized from a third attempt
Vyshnyakivske MPD, an alcohol distillery located in Poltava Oblast, was sold at a privatization auction. It is the State Property Fund’s (SPF) third attempt to sell the asset.
The starting price of Hr 21.2 million ($767,000) quadrupled to Hr 83.6 million ($3 million) during the bidding. The SPF said that there were three participants, and TOV Vidensky Mlyn, registered in Kremenchuk, won the auction.
To complete the privatization process, the winner must sign off on the results of the auction, conclude a sale and purchase agreement, and settle the payment. The SPF noted that – if the winner rejects the lot – it will lose its Hr 2 million ($72,000) security deposit.
As we reported in SOE Weekly (Issues 09 and 17), the two previous attempts to sell Vyshniakivske MPD were unsuccessful. In each case, the winner ultimately refused to pay the auction price.
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.
