Editor’s Note: This is Ukrainian SOE Weekly, Issue 41, covering the period from Aug. 28 – Sept. 2, 2021
Corporate governance in SOEs
National Security and Defense Council’s decision aiming to safeguard the energy sector
On Aug. 28, President Volodymyr Zelensky signed a presidential decree enacting the National Security and Defence Council’s decision “on measures to neutralize threats in the energy sector.”
The Cabinet of Ministers is instructed to:
- ensure Organization for Economic Cooperation and Development guidelines on corporate governance of state-owned enterprises are implemented at Naftogaz by Oct. 31, 2021. [In a comment to Ukrayinska Pravda, Oleksandr Lysenko, SOE Weekly team member, said that the OECD Guidelines cannot be implemented by a single decision of a government body. To do that, specific and transparent procedures in line with the OECD Guidelines need to be implemented, including a transparent and competitive selection of the supervisory board, CEO, and executive board, and other corporate governance elements. Lysenko also believes that the two-month deadline looks “very optimistic”. – SOE Weekly.]
- develop and submit a draft law on the transformation of Energoatom [implying, among other things, that it will become a corporatized entity – SOE Weekly] to parliament by Sept. 30, 2021; within two weeks, working together with the National Securities and Stock Market Commission (National Security and Stock Market Commission), the National Energy and Utilities Regulatory Commission (National Energy and Utilities Regulatory Commission), the State Property Fund of Ukraine (State Property Fund), the Antimonopoly Committee of Ukraine (Anti-Monopoly Committee of Ukraine), the Security Service of Ukraine (Security Service of Ukraine), and the staff of the NSDC:
- analyze the ownership structure of energy distributors and universal service providers and establish their actual ultimate beneficiary owners;
- develop an effective mechanism to ensure the possibility of introducing a temporary administration to business entities in the energy sector, in case energy supply is threatened or these entities violate their licensing requirements.
- work with the State Property Fund to exclude state-owned shares of electricity distributors from both large-scale and small-scale privatization by Aug. 31, 2021, as well as assign the Ministry of Energy as the ownership entity for such shares.
- [Large-scale assets up for privatization include the following regional electricity distribution system operators (all natural monopolies): Kharkivoblenergo, Zaporizhzhyaoblenergo, Khmelnytskoblenergo, Mykolayivoblenergo, and Ternopiloblenergo. The plan was to put them up for auction this year. Cherkasyoblenergo is slated for small-scale privatization. As of Aug. 30, the SPF’s website still says these objects are being prepared for privatization. Note also that most of the electricity distribution system operators are private, mostly owned by Ukrainian oligarchs. After the NSDC’s decision, those companies may be subject to the introduction of temporary administrations. – SOE Weekly.]
- ensure the transition from a commodity-based to a financial mechanism for public service obligations; [For example, the commodity-based mechanism may imply that obligations are imposed to sell electricity at a particular price to particular consumers. – SOE Weekly.
- ensure that the gondola cars are prioritized for coal product rail shipments, in accordance with the applications of coal enterprises (mines and central concentrators) by Oct. 31, 2021. The Antimonopoly Committee of Ukraine, with the involvement of law enforcement agencies, if necessary, is instructed to check Naftogaz abides by market competition laws when selling gas produced by its subsidiaries [effectively meaning gas produced Ukrgasvydobuvannia – SOE Weekly].
Arrested for embezzlement of Hr 71 million, SFGC’s CEO is still performing his duties
There is no publicly available information whether the State Food and Grain Corporation (SFGC) took any action to suspend Andriy Vlasenko as CEO after he was placed under house arrest and charged with embezzling Hr 71 million.
According to the company’s website, Vlasenko is still SFGC’s acting CEO. In better practices, in such cases, supervisory board should have considered suspending from his duties until the end of the investigation.
[SFGC should have established an independent supervisory board by law – and it is envisaged in its charter – but the company has never established a board. In the absence of the supervisory board, the suspension would have to be considered by the ownership entity – in this case, the Ministry of the Economy. – SOE Weekly.]
In SOE Weekly (Issue 39), we reported that the National Police established that management of SFGC had squandered the corporation’s property by selling grain to off-shore companies at reduced prices, without prepayment.
On Aug. 13, the National Police detained Vlasenko at Kyiv’s Zhulyany airport as he tried to flee Ukraine. His accomplice was detained along with him.
In SOE Weekly (Issue 40), we reported that Vlasenko was placed under house arrest and made to wear an electronic bracelet by Kyiv’s Pechersk District Court on Aug. 16.
According to the official investigation, Vlasenko hired Transservice 2008 for Hr 71 million to provide services due to the SFGC branches’ supposed inability to handle these services on their own. [No further information is available on what services were procured from Transservice 2008. – SOE Weekly.]
Elektrovazhmash to merge with Turboatom
The Cabinet of Ministers agreed with the proposal of the State Property Fund (SPF) to merge of Electrovazhmash with Turboatom and instructed the SPF to ensure the merger. Electrovazhmash and Turboatom are slated for privatization.
The merger will take place after Elektrovazhmash is corporatized. Elektrovazhmash announced on its Fabebook page that its corporatization was completed on Aug. 27.
PrivatBank introduces a new position on its management board
On Aug. 26, PrivatBank’s supervisory board approved the new structure and composition of the bank’s management board. According to PrivatBank, since Sept. 1, the management board will have the position of deputy CEO for Reorganisation and Distressed Assets. Ihor Lebedynets, who previously held the position of the management board member on network issues and problem debts, was appointed to the new position to co-ordinate the implementation of the bank’s division into a “good bank” and “bad bank.”
SOE updates
Banks
Ukravtodor receives a $376 million loan, with up 91% coming from three state-owned banks
Ukravtodor will receive a $376 million consortium loan for five years to finance the Big Construction infrastructure project. According to Ukreximbank CEO Yevhen Metzger, the dollar-denominated loan rate is 4.9% per annum.
As a loan coordinator, Ukreximbank provided 45% of the amount of financing equivalent to $ 165 million; Oschadbank, up to $150 million; Ukrgasbank, up to $50 million; Credit Dnipro Bank, $ 13 million; FUIB (PUMB), up to $ 10 million; and TAScombank, $14 million.
Ukravtodor received the same conditions from all partner banks and will continue to interact exclusively with the co-ordinating bank.
Ukreximbank’s press service said that the agreement was signed with several banks because no Ukrainian bank can provide that much on its own, as the amount exceeds the ratios [volume of debt per one borrower – SOE Weekly] set by the regulator.
Energy sector
Energoatom and Westinghouse agreed to build reactor units for Khmelnitsky Nuclear Plant for up to $30 billion. According to President Volodymyr Zelensky, Energoatom and the American electrical company Westinghouse Electric signed a memorandum on the joint construction of a new power unit at Khmelnitsky NPP as a pilot project, followed by four more units using Westinghouse’s technology. The total cost of the project is up to $30 billion.
Westinghouse Electric has been around since 1886 and controls up to 50% of the world’s commercial power units and 31% of the nuclear fuel supply market.
Infrastructure
Automobile Roads of Ukraine takes Hr 73.5 million losses for six months
According to Marlin, Ukravtodor’s company Automobile Roads of Ukraine reported losses of Hr 73.5 million in the first half of 2021. As of June, Automobile Roads of Ukraine are Hr 3.5 billion in debt. During the same period last year, this amount was Hr 2.9 billion.
As we wrote in SOE Weekly (Issue 30), Automobile Roads of Ukraine reported a loss of H r100 million for 2020.
[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 privatized or liquidated. There is also a conflict of interest in Ukravtodor being the owner of Automobile Roads of Ukraine. It is both the regulator and the main customer for road construction and repairs in Ukraine at the same time. – SOE Weekly.]
Ukrzaliznytsia hires headhunters to look for new management and supervisory board
Ukrzaliznytsia signed two agreements with the head-hunting agency Executive Search Ukraine (operating as part of the Amrop executive search network).
According to ProZorro, by the end of this year, the agency will select candidates for the positions of Ukrzaliznytsia’s CEO and management board members for Hr 1.98 million. The agency will also select candidates for four independent supervisory board positions for Hr 1.91 million.
The Cabinet of Ministers decided to announce a competitive selection of two independent supervisory board members in April and another two, in June 2021.
Privatization
SPF postpones the UMCC’s privatization auction
The State Property Fund (SPF) canceled the privatization auction for the United Mining and Chemical Company (UMCC), which was to take place on Aug. 31, since only one bidder qualified after the received applications were checked.
The SPF explained that it received three applications for the auction, two of which lacked needed documents and were denied. By law, an auction with a single bidder cannot take place.
According to SPF’s Deputy Head, Taras Yeleyko, the rund has been waiting for applications from other major market players who had so far studied the data on UMCC. By law, willing parties have two months to complete all audits and make an investment decision. According to the SPF’s privatization advisor, that is not long enough.
Later, according to the media, at its meeting on Aug. 30, the SPF Auction Commission set Oct. 29 as the new date of UMCC’s privatization auction.
The media published the list of participants allegedly interested in UMCC assets. Some of them said that the asset was not well prepared for privatization, and they did consider the auction’s conditions fair. Others claimed that the starting price was inadequate. It was reportedly impossible to estimate the company’s mineral deposits.
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
