Editor’s Note: This is the 45th edition of Ukrainian State-Owned Enterprises Weekly, covering events from Sept. 25-Oct. 1, 2021.
Corporate governance in SOEs
Naftogaz left without a supervisory board and has a new executive board
According to Ekonomichna Pravda (EP), the Cabinet of Ministers dismissed the remaining members of Naftogaz’s supervisory board, after which the government appointed four new executive board members.
First, the Cabinet dismissed the three state representatives on the supervisory board – Yuliya Kovaliv, Yuliya Svyrydenko, and Nataliya Boyko – leaving the supervisory board completely empty, EP’s source at Naftogaz said.
Then the Cabinet took over the supervisory board’s function. The government then dismissed two members of the executive board, Serhiy Pereloma and Yaroslav Teklyuk, the Ministry of the Economy said in its Sept. 27 statement seen by EP.
[Note that this does not necessarily mean that Pereloma and Teklyuk were fired from Naftogaz or their other positions within the Naftogaz Group. Pereloma also serves as the acting CEO of Ukrtransgaz, and Teklyuk is the Director for Legal Affairs of Naftogaz. – SOE Weekly.]
On Sept. 28, the Cabinet of Ministers also appointed new members of Naftogaz’s executive board: Mavriky Kalugin (adviser to Naftogaz’s CEO on upstream), Vladyslav Volovyk (adviser to Naftogaz’s CEO), Olena Boichenko (Naftogaz’s director for human resources and social policy), and Roman Chumak (head of Naftogaz’s treasury).
- Mavriky Kalugin is a US-born expat who has 25 years of experience in the oil and gas industry worldwide. Before joining Naftogaz, Kalugin led the upstream of Ukrnafta, where he served on the executive board. Previously, he held senior positions at Petrofac, Cairn India, BP, TNK-BP, Occidental Petroleum, ConocoPhillips, and ARCO. Kalugin was educated at the University of Idaho.
- Olena Boichenko has 16 years of experience in human resources. Before joining Naftogaz, she worked as Human Capital Advisory Services Director at Deloitte Ukraine and consulted international and Ukrainian companies in various industries. Previously, Boichenko worked as director at Ernst & Young’s People Advisory Services.
- Roman Chumak has worked for Naftogaz for more than 19 years. He has been in charge of establishing relations between Naftogaz Group companies and banks and financial institutions, raising funds in the domestic and international financial markets, short-term planning and balancing of the group’s liquidity, securities transactions, and other treasury operations of the group.
- Vladyslav Volovyk, prior to joining Naftogaz’s executive board, led the Centre for Metrology and Gas Distribution Systems, a Naftogaz branch, and worked as deputy director of gas of Ukraine, also a Naftogaz subsidiary. Previously, he practiced law in the fields of civil, corporate, commercial and tax law since 2001.
Note that these appointments are temporary: According to the Cabinet’s ordnance, the executive board members will keep these roles until a new supervisory board can decide what to do with the executive board, but no longer than Dec. 28, 2021.
Also on Sept. 28, the Cabinet allowed the CEO of Naftogaz to appoint and dismiss the company’s employees without asking approval of the supervisory board.
In SOE Weekly (Issue 44), we reported that according to EP’s sources, three independent members of Naftogaz’s supervisory board (Bruno Lescoeur, Ludo Van der Heyden, and Claire Spottiswoode) and two executive board members (Otto Waterlander and Peter van Driel) were leaving their positions.
Also, in Issue 44, we reported that SOE Weekly team member Oleksandr Lysenko explained why – until new independent supervisory board members at Naftogaz are appointed, the board’s work might be paralyzed and the company’s transactions delayed.
Ukrzaliznytsia looks for independent supervisory board members
The SOE Nomination Committee announced a competitive selection of independent supervisory board members for Ukrzaliznytsia this week.
Candidates can submit their applications until 29 October 2021. Detailed requirements and responsibilities are available in Ukrainian on the website of the Ministry of the Economy. [No English-language version of the announcement is available yet. – SOE Weekly.]
In SOE Weekly (Issue 44), we reported that the Cabinet of Ministers did not extend the powers of Ukrzaliznytsia’s supervisory board chair Şevki Acuner and supervisory board members Serhiy Leshchenko, Andreas Matje, and Oleh Zhuravlyov.
In its release, the Ministry of Infrastructure said that Adomas Audickas was the only supervisory board member (state representative) whose powers and contract remained valid until June 2022.
In SOE Weekly (Issue 41), we reported that Ukrzaliznytsia hired a head-hunting agency to select candidates for the positions of the CEO, executive board members, and four independent supervisory board members.
New independent member on Oschadbank’s supervisory board
The Cabinet of Ministers appointed Anton Pyatyhin as an independent member of Oschadbank’s supervisory board on Sept. 22.
Pyatyhin has also been a supervisory board member of the Export Credit Agency (ECA) since June this year.
Pyatyhin has worked at McKinsey Ukraine since 2012. According to McKinsey’s website, he leads McKinsey’s work in the banking sector in Ukraine and co-leads the company’s work in digital and advanced analytics in Central Europe.
[Note that in November 2017, Oschadbank hired McKinsey Ukraine to provide management and consulting services to the bank. Oschadbank paid the company Hr 14.8 million ($553,000) for the services rendered. We are not aware if McKinsey had any business relations with Oschadbank or the Ministry of Finance in its capacity as Oschadbank’s ownership entity after November 2017. SOE Weekly.]
SOE updates
Energy sector
The debt of regional gas companies to the GTSOU reaches Hr 9 billion ($337 million), most of the debt related to Firtash
On the eve of the “heating season,” the debt of regional gas companies to the Gas Transmission System Operator of Ukraine (GTSOU) was Hr 8.8 billion. Most of this amount – Hr 6.2 billion ($232 million) – is the debt of RGK Group’s companies related to the oligarch Dmytro Firtash. GTSOU said that the growing debts of regional gas companies jeopardized the continuity of gas transportation to consumers. GTSOU added that over the past two years about 50 lawsuits have been filed to collect regional gas companies’ debts totaling more than Hr 9 billion.
Naftogaz’s main directions for 2021 approved
According to Naftogaz, the Cabinet of Ministers [as the company’s general meeting of shareholder – SOE Weekly] approved the company’s main directions of activity for 2021, which Naftogaz welcomed.
Naftogaz noted that per best international practice, the state ownership policy primarily establishes the rationale for the state to own an SOE and explains this rationale to the public. In turn, the main directions should be specific directives for management, the execution of which should be monitored by the supervisory board.
Energoatom sells a large amount of electricity to Ukrzaliznytsia supplier at half the market price
According to Ekonomichna Pravda (EP), Energoatom held a special auction for the sale of electricity, which was won by Ukrzaliznytsia’s supplier, Energozbuttrans.
According to an EP source, Energozbuttrans bought 450 MW at a price of Hr 1,105 per MWh, which is almost half the market price.
Later, Ukrzaliznytsia confirmed to the EP that it purchased electricity at half the market price. The total value of the purchased volume is Hr 6.6 billion ($247 million).
According to Minister of Infrastructure Oleksandr Kubrakov, the purchase was made possible by a government resolution that allowed Energoatom and other power generating SOEs to sell electricity to Ukrzaliznytsia for up to three years under a special simplified procedure.
[We are not aware of the name, number, date, or other details of the government resolution. – SOE Weekly.]
Kubrakov said that the Cabinet set price limits for electricity during auctions last week. He added that due to these decisions, Ukrzaliznytsia will save at least Hr 4 billion on electricity.
[Note that this appears to be a discriminatory operation. Such actions favoring certain SOEs, such as Ukrzaliznytsia in this instance (or disfavoring others, such as Energoatom in this instance), violate the level playing field principle of the OECD Guidelines on Corporate Governance of SOEs.
Note also that the Cabinet of Ministers is the owner of both Energoatom and Ukrzaliznytsia. At the same time, it appears that the Cabinet performs a regulatory function in this instance, in its capacity as a government body, by setting special auction conditions for Ukrzaliznytsia. In effect, the Cabinet redistributed profits among the two SOEs. According to the OECD Guidelines, the ownership and regulatory functions of the state should be separated. – SOE Weekly.]
State-owned space companies to be transformed into joint-stock companies soon
On Sept. 22, the Cabinet of Ministers supported the proposal of the State Space Agency of Ukraine to reorganize state-owned enterprises in the space industry by transforming them into joint-stock companies, 100% of whose shares belong to the state.
Infrastructure
Ukrzaliznytsia fails to meet miners’ requests for coal transportation
According to the Ministry of Energy, Ukrzaliznytsia has not fulfilled the requests of coal mining enterprises and coal-enrichment factories to provide gondola cars to transport coal, which is crucial to prepare for the heating season.
UkSATSE suffers Hr 260 million in losses in the first half of 2021
The Ukrainian State Air Traffic Services (UkSATSE) lost Hr 260.5 million ($9.7 million) in the first half of 2021, according to its financial report published by Marlin. In the same period in 2020, UkSATSE’s net financial loss was Hr 881.8 million ($33 million).
[Note that these results are based on intermediate, unaudited financial reporting. The audited annual results will provide a more reliable picture, which may differ from that produced by the intermediate results. – SOE Weekly.]
UkSATSE’s explanatory note, attached to its second-quarter report on the implementation of the company’s financial plan, talks about the negative impact of the Covid-19 pandemic on the number of flights.
UkSATSE has not had a CEO for years. Since October 2019, UkSATSE has been managed by acting CEO Andriy Yarmak.
In SOE Weekly (Issue 40), we reported that the National Security and Defence Council (NSDC) instructed the government to resolve the issue with Ukraine International Airlines’ (UIA’s) debts to UkSATSE and the Boryspil International Airport.
Also, in SOE Weekly (Issue 36), we reported that in the first quarter of 2021, UkSATSE made a net loss of Hr 205.8 million (unaudited).
As we wrote in SOE Weekly (Issue 30), UkSATSE was among loss-making SOEs in 2020. Its loss amounted to Hr 1.5 billion.
Defense
Ukrainian shipbuilding strategy developed by Ukroboronprom and Ukrsudprom
Ukroboronprom presented the strategy of the shipbuilding industry of Ukraine until 2030. The strategy was developed by Ukroboronprom together with the Association of Shipbuilders of Ukraine, Ukrsudprom.
Ukroboronprom’s Project and Development Manager Viktor Plakhuta said that as of today, there are 18 ships in the Ukrainian Navy. According to the decision of the National Security and Defence Council (NSDC) on the development of the Navy until 2031, Ukraine plans to construct patrol and artillery boats, missile boats, corvettes, and a frigate.
The civilian fleet also needs new vessels. In total, 240 new ships need to be built for domestic needs. Ukroboronprom believes that the shipbuilding industry can be supported by:
- channeling part of the net profit of the Ukrainian Sea Port Authority (USPA) into an investment program for the purchase of ships;
- attracting the Export Credit Agency (ECA) to protect Ukrainian exporters;
- equalizing the prices for rail and water freight; and
- introducing a progressive incentive tax on the operation of vessels over 30 years of age.
[It is unclear why Ukroboronprom spent resources on developing the strategy for civil shipbuilding, as it should be focused on satisfying the military needs of the state. Consequently, it is unclear how it can take part in its implementation and how it would correspond to its ownership policy. – SOE Weekly.]
Other sectors
Prozorro.Sales starts auctions for the lease and sale of municipally and state-owned lands
Prozorro.Sales launches auctions for the lease of state-owned and municipal agricultural land, as well as the sale and lease of non-agricultural land.
The list of available lad plots is available on the website of Prozorro.Sales. Private landowners can also put their land up for sale or rent if they wish to.
[The transparent sale of land via Prozorro.Sales is a welcome initiative. However, the state and municipalities may also resort to free distribution of state-owned and municipal lands, which has explained most of the corruption in this domain. The parliament must prohibit possibilities for the free distribution of land, so that it can only be leased or sold via competitive auctions. – SOE Weekly.]
Privatization
The Ministry of Justice transferred three former prisons for sale by the SPF
The Ministry of Justice transferred three former correctional facilities to the State Property Fund (SPF) for privatisation. These include:
- Kovel Colony, with a plot of 4.86 hectares. Its starting price is Hr 41.6 million;
- Ivano-Frankivsk Penitentiary No. 12, with a plot of more than 67 hectares. The starting price is Hr 7.9 million; and
- Mykolayiv Correctional Centre No. 50, with a plot of 15.5 hectares. The starting price is Hr 17.1 million.
[Note that 70% of the proceeds from prison sales go to the Ministry of Justice, while 30% of the proceeds goes to the state budget. – SOE Weekly.]
Ukrainian SOE WeeklyTM 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
