Editor’s Note: This is the 39th issue of Ukrainian SOE Weekly, covering the period from Aug. 7-13.
Corporate governance in SOEs
Ukrzaliznytsia’s acting CEO resigns, Kamyshin to lead the company as new acting CEO
The acting CEO of Ukrzaliznytsia Ivan Yuryk filed his resignation. The Cabinet of Ministers appointed Oleksandr Kamyshin as Ukrzaliznytsia’s new acting CEO. According to Ukrzaliznytsia, the company’s supervisory board “took note” of the National Security and Defense Council’s recommendation.
[In SOE Weekly (Issue 38), we reported that the NSDC instructed the Cabinet of Ministers to give the duties of Ukrzaliznytsia’s CEO to Infrastructure Minister Oleksandr Kubrakov.
We also reported that such NSDC decision was at odds with the Organization for Economic Cooperation and Development guidelines on corporate governance of SOEs because making a policymaker and regulator the CEO creates a major conflict of interest. The appointment would also be against the anti-corruption law. Kubrakov did not end up being appointed as CEO. – SOE Weekly.]
Ukrzaliznytsia’s supervisory board held an extraordinary meeting on Aug. 7-8 and accepted Yuryk’s resignation. He will continue to serve as a member of Ukrzaliznytsia’s management board responsible for finance.
The supervisory board considered the recommendation of its Nomination and Remuneration Committee in recommending Kamyshin’s approval as the new acting CEO and proposed that the Cabinet should appoint Kamyshin. The Cabinet appointed him shortly after until Dec. 31, 2021, or until a permanent CEO is chosen (whichever is earlier).
Kamyshin was an investment manager at Rinat Akhmetov’s SCM holding from 2012 to 2019. At the same time, he was a member of the supervisory board of Portinvest, a company that manages investment projects in the port industry and provides services in the transport sector.
He became a managing partner at Fortior Capital asset management company in January 2020.
Before that, he worked at KPMG as an auditor (2006-2008), at Tomáš Fiala’s Dragon Capital (2008-2012), and as the CEO of KMZ Industries, a company that provides solutions for grain storage complexes. He has also been the publisher of Latifundist Media since July 2011.
Ukrzaliznytsia also stated that it will select an executive search company this week to help it find the next [permanent – SOE Weekly] CEO.
SOE updates
Banks
State-owned PrivatBank leads the list of the most profitable banks in the first half of 2021
According to the National Bank of Ukraine, PrivatBank was the most profitable bank in the first half of the year, with a net profit of Hr 11.6 billion.
In total, Ukrainian banks made a net profit of Hr 30.08 billion as of July 1. Of these, state-owned banks earned Hr 13.97 billion – including Ukreximbank making a profit of Hr 1.12 billion, Ukrgasbank, Hr 726 million, and Oschadbank, Hr 512 million.
PrivatBank’s 2024 strategy approved
On Aug. 11, the Cabinet of Ministers approved PrivatBank’s updated strategy. The Ministry of Finance reports that the plan is for PrivatBank to stay the leader in the retail market segment with a strong position in small and medium-sized businesses.
[Based on this information, the updated strategy appears to set the same strategic goals as before. – SOE Weekly.]
As previously, the strategy also involves working with the portfolio of non-performing loans (NPLs) and ensuring sustainable profitability. By 2024, PrivatBank plans to increase net profit to over Hr 30 billion, with a return on capital of over 40%.
According to Ekonomichna Pravda, the bank proposes three privatization options: private placement of the entire share capital of the bank; separation of “bad assets” and private placement of the “good bank”; or separation of “bad assets” and IPO of the “good bank.”
Energy sector
Ukrgazvydobuvannia gas production decreases by 5.2% in January-July
Ukrgazvydobuvannia reduced its natural gas production by 5.2% in the first seven months of the year, January-July 2021 compared to January-July 2020. The decrease in July 2021 against July 2020 was 4.8%.
In January-July 2021, the company cut gas production to 7.9 billion cubic meters. Its deviation from the production plan is -1.6% or 0.125 billion cubic meters. The volume of gas supplied to consumers decreased by 5.1% to 7.5 billion cubic meters in the first seven months, which is 0.7% or 0.051 billion cubic meters less than planned.
In July, Ukrgazvydobuvannia reduced production to 1.144 billion cubic meters of natural gas, or by 4.8%. Ukrgazvydobuvannia said that, in order to stabilise the production indicators, it put 25 new wells into operation and repaired old ones. Also, 321 coiled tubing operations, 71 fracturing operations, and 9 lateral shaft drilling operations were performed.
Naftogaz presents a new tariff plan for households
Naftogaz offered customers to join the new “comfort season” tariff plan and pay for gas in equal monthly installments.
The price for gas in the new tariff plan is set at Hr 7.96 per cubic meter, without the cost of distribution (delivery). This price is fixed for the entire heating season.
The total gas bill is determined by how much gas the household consumes during the heating season (from October to the end of April). Over seven months, the customer pays for the reserved gas in seven equal installments.
Fitch improves Naftogaz credit rating outlook
Fitch Ratings revised Naftogaz’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at “B.”
According to Fitch, the outlook “revision [for Naftogaz – SOE Weekly] follows the revision of the Outlook on Ukraine’s sovereign rating (B/Positive) and the application of Fitch’s Government-Related Entities (GRE) Rating Criteria. Fitch equalizes Naftogaz’s ratings with those of sovereign, reflecting the company’s strong links with the sovereign and [Fitch’s] assessment of the company’s Standalone Credit Profile (SCP) at ‘b-‘.
The ‘b-‘ [Standalone Credit Profile of Naftogaz] reflects volatility in operations after the unbundling, uncertainty about domestic price regulation and collectability of receivables with a weaker domestic economy and [foreign exchange] exposure.”
Infrastructure
Ukrzaliznytsia’s freight tariff increase approved
According to Ukrzaliznytsia’s supervisory board member Serhiy Leshchenko, the State Regulatory Service agreed to increase Ukrzaliznytsia’s freight tariffs in two stages, which will bring the company Hr 10 billion in 2021.
The Ministry of Finance and Ministry of the Economy have already agreed on the changes. All that remains is to register the order with the Ministry of Justice.
Leshchenko noted that the biggest increase will affect oligarch Rinat Akhmetov, who will have to pay an extra Hr 3.2 billion for Metinvest’s transportation and Hr 1 billion for DTEK’s transportation. The tariff for the transportation of iron ore will increase from Sept. 1, 2021, by 8%, and Jan. 1, 2022, by 20.4%.
Prices will also go up for shipment of agricultural products by 8% on Sept. 1er 2021, and by 6% on 1 January 2022. The tariff for empty mileage is also increasing.
According to Leshchenko, Ukrzaliznytsia’s supervisory board initiated a change in tariffs a year ago. However, the decision was blocked by the State Regulatory Service.
Former head of an Ukrzaliznytsia branch may have caused half a billion hryvnias in damage to the environment
The media reported that the former head of Ukrzaliznytsia’s Centre for Industrial Management was indicted for doing Hr 495 million worth of environmental damage.
According to the Prosecutor General’s Office, the ex-head was negligent by not ensuring special permits for blasting works and allowing illegal explosions at the Penizevytsky granite quarry.
As a result, from May 2017 to October 2018, five explosions were illegally carried out in Zhytomyr Oblast and almost 219,000 cubic meters of gabbro-anorthosite, granite, and gabbro-norite was extracted.
AMCU fines three companies, including a subsidiary of Automobile Roads of Ukraine, Hr 45 million for colluding in road repair bidding
The Anti-Monopoly Committee (AMCU) established that three companies were involved in distorting competition in procurement tenders for road maintenance and repair in Vinnytsia oblast, and fined them a total of Hr 45.86 million.
These companies are Vinnytsia Oblavtodor (a subsidiary of the state-owned Automobile Roads of Ukraine) and two private companies, the Ukrainian-Austrian Intervias Ukraine LLC, and Shlyakhbud LLC. According to the AMCU, the tenders took place in 2019.
The services were procured by the Vinnytsia branch of the State Agency of Automobile Roads of Ukraine (Ukravtodor).
[Automobile Roads of Ukraine is a joint-stock company fully owned by the state via the State Agency of Automobile Roads of Ukraine (Ukravtodor).
There is no rationale for the state to own an SOE like Automobile Roads of Ukraine. 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, Automobile Roads of Ukraine should be privatised or liquidated.
There is also a conflict of interest in Ukravtodor being the owner of Automobile Roads of Ukraine, the regulator, and the main customer for road construction and repairs in Ukraine at the same time. – SOE Weekly.]
The expected purchase price was Hr 50 million, and Intervias Ukraine LLC won the contract. According to AMCU’s investigation, the three entities had pre-agreed on the terms of participation in the tender, so competition between them was eliminated.
According to the procurement legislation, business entities recognized by the AMCU as violators are deprived of the right to participate in tenders for three years.
Fitch upgrades Ukrzaliznytsia’s credit rating outlook
Fitch Ratings reaffirmed Ukrzaliznytsia’s credit rating at “B” and improved its rating outlook from “stable” to “positive”. The outlook revision follows the revision of the outlook on Ukraine’s sovereign rating from “stable” to “positive.”
Others
SFGC management suspected of causing losses of hundreds of millions, CEO detained when fleeing the country
National Police investigators established that management of the State Food and Grain Corporation (SFGC) had squandered the corporation’s property by selling grain to offshore companies at reduced prices, without prepayment.
The investigation found that management used loans obtained under state guarantees to buy grain through fictitious enterprises and exported it significantly below-market prices.
During January-May 2021, SFGC concluded grain export contracts with foreign companies totaling more than $231 million. As of the end of July 2021, these companies owed more than $57 million to the SFGC.
The police further established that SFGC management also colluded with insurers and overpaid for insurance. SFGC signed a Hr 2.59 billion insurance agreement with three firms, paying them a fee of Hr 99.042 million. The insurance tariff under this agreement was 3.87% of the value of the corporation’s property, which is 3-5 times as high as the market rate.
On Aug. 13, the National Police detained SFGC’s CEO [Andriy Vlasenko – SOE Weekly] at Kyiv’s Zhulyany Airport when he was trying to flee Ukraine. His accomplice was detained along with him.
In SOE Weekly (Issue 30), we reported that SFGC was among the biggest loss-makers among all Ukrainian SOEs, with its 2020 loss totalling as much as Hr 5.9 billion.
Privatization
SPF approved a pool of advisers to prepare large assets for privatization
The tender committee, which included representatives of the State Property Fund (SPF), Ministry of the Economy, and Ministry of Finance, approved a pool of advisers to prepare large-scale assets for privatization.
The pool includes Rothschild & Co Polska sp. z.o.o., Lazard Freres SAS, Ernst & Young LLC, PricewaterhouseCoopers LLC, CMS Cameron McKenna LLC, BDO Corporate Finance LLC, Deloitte & Touche LLC, KPMG-Ukraine LLC, Kinstellar Ukraine LLC, and Concord Consulting LLC.
The selection of advisers was based on a new, two-stage procedure, approved by Cabinet of Ministers’ Resolution No. 134 dated 24 February 2021. In the first stage of selection, a pool of potential advisers is selected based on qualification criteria. In the second stage, the advisers are assigned to help with preparing specific assets for privatization.
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.
