Editor’s Note: This is the 47th issue of Ukrainian State-Owned Enterprises Weekly, covering events from Oct. 9-13, 2021.
Corporate governance in SOEs
Metzger placed under night-time house arrest and dismissed by Ukreximbank’s supervisory board.
After CEO Yevhen Metzger had journalists attacked in his Ukreximbank office on Oct. 4, the supervisory board suspended.
On 11 October, the media reported that the court placed Metzger, along with Director of the Information Policy Department Volodymyr Pikalov, under night-time house arrest for two months. On the same day, during an extraordinary meeting of Ukreximbank supervisory board’s nomination committee, the board received Metzger’s resignation letter.
Based on the input of the ethics commission and Ukreximbank’s internal investigation, the nomination committee, accordingly, issued an immediate recommendation to the supervisory board to dismiss Metzger, which the board did. It emphasized that Metzger would get no severance pay.
The nomination committee [apparently, the supervisory board – SOE Weekly] appointed Serhiy Yermakov the bank’s acting CEO starting Oct. 12 until a new CEO is appointed. The replacement is to be selected and appointed no later than April 12, 2022.
US Congressional Ukraine Caucus on competitive selection for Naftogaz’s supervisory board.
The Congressional Ukraine Caucus – the bipartisan Ukrainian support group in the U.S. Congress – published a statement on corporate governance at Naftogaz. The group said that it was closely monitoring the competitive selection to fill the independent supervisory board positions at Naftogaz consistent with standards set by the international community.
Thе statement said that robust corporate governance and transparency are key to ensuring Ukraine’s energy security and independence. It also urged the country’s leadership to continue to demonstrate its commitment to the necessary reforms.
In SOE Weekly (Issue 42), we reported that on Sept. 7, Prime Minister Denys Shmyhal instructed Oleksiy Lyubchenko (First Deputy Prime Minister and Minister of the Economy) to announce a competitive selection of four independent members of Naftogaz’s supervisory board within one week [by Sept.14 – SOE Weekly].
As of 1Oct.13, no information on the announcement of a competitive selection for Naftogaz was available.
Inter-ministerial working group to investigate SFGC debts to China.
The Cabinet of Ministers set up an inter-ministerial working group to look into the State Food and Grain Corporation’s (SFGC) debts and grain supply obligations to Chinese state-owned companies.
SFGC received a $1.5 billion loan in 2012 to be repaid by 2027. It was issued under Ukrainian state guarantees in order to establish a systematic supply of grain to China.
The corporation owes money to the Chinese Export-Import Bank and the China National Machinery and General Contracts Corporation.
The working group will be chaired by First Deputy Prime Minister Oleksiy Lyubchenko. It will also include representatives of the Ministries of the Economy, Finance, Foreign Affairs, and Agrarian Policy. In addition, representatives of the Chinese side, the National Bank of Ukraine, the CEO of SFGC, and members of parliament are allowed to join the group.
SFGC said on its Facebook page that the first meeting of the inter-ministerial working group took place on Oct. 12. It developed an action plan to overcome financial problems, including consultations and drafting of amendments to agreements between SFGC and the Export-Import Bank of China.
In SOE Weekly (Issue 30), we reported that SFGC was among the biggest loss-makers among all Ukrainian SOEs, with its 2020 loss totaling as much as Hr 5.9 billion.
In SOE Weekly (Issue 39), we reported that National Police investigators had established that the management of SFGC had squandered the corporation’s property by selling grain to offshore companies at reduced prices, without prepayment.
On 13 August, the National Police detained Andriy Vlasenko, former acting CEO of SFGC, at Ihor Sikorsky Kyiv International Airport when he was trying to flee Ukraine. His accomplice was detained along with him.
In SOE Weekly (Issue 42), we reported that Vlasenko, who is suspected of embezzling Hr 71 million and placed under house arrest, was “relieved of his duties as acting CEO” by order of the Ministry of Economy dated Sept.15 September, SFGC said on its Facebook page, and Vasyl Kovalenko, was appointed new acting CEO.
As we reported in SOE Weekly (Issue 44), since the start of the year, SFGC’s elevators have only been working at 10% of their total capacity, and the corporation has not sent a single grain shipment to the China National Machinery Import and Export Corporation. This is a record low since the start of their business relationship.
Centrenergo changes its CEO
Centrenergo’s supervisory board dismissed the acting CEO Yuriy Vlasenko, and assigned these duties to Vitaliy Dovgal, a member of Centerenergo’s management since February 2021.
SOE updates
Banks
Oschadbank’s development strategy for 2021-2024 approved.
The Cabinet of Ministers has approved Oschadbank’s development strategy for 2021-2024. It aims to achieve a projected net profit of about Hr 4.2 billion, about 15% return on capital, and costs to income ratio of less than 65%. [The Ministry of Finance’s press release did not state whether Hr 4.2 billion was the projected net profit per annum, or for the entire period. – SOE Weekly.]
According to its development strategy, Oschadbank is expected to continue to function as a leading universal bank. The strategy includes the following components: business model: strengthening the bank’s position in retail lending and commission products, maintaining leading positions in business with corporate clients and micro, small and medium clients, with a decreased share of business with SOEs; operational model: developing a line of digital products, including industry-specific products; and financial stability: operational efficiency and sustainable profitability of the bank.
The Finance Ministry added that Oschadbank will reduce the share of non-performing assets to 10% [apparently, by 2024 – SOE Weekly].
The strategy also involves reducing operating costs and revising capital costs by optimizing the network and centralizing operations. [This wording typically implies cutting the number of a banks’ branches. – SOE Weekly.]
It is also envisaged that Oschadbank will join the Individual Deposit Guarantee Fund (IDGF), which will further ensure the entry of international financial institutions into Oschadbank’s capital.
As SOE Weekly (Issue 24) noted, on April 14, the Cabinet of Ministers supported a draft law that will connect Oschadbank to the IDGF. Oschadbank’s connection to the IDGF is the first step towards the European Bank for Reconstruction and Development’s (EBRD’s) entry into the bank’s capital.
Currently, deposits of Oschadbank’s depositors are guaranteed by the state in full, i.e., 100%, regardless of the amount. After joining the IGDF, the guaranteed amount for new depositors should be UAH 200,000, as it is for all other Ukrainian banks.
Later, the Verkhovna Rada registered an alternative draft law, which implies that the guaranteed amount for new depositors should be UAH 600,000 for all banks. It also proposes that Oschadbank should join the IDGF once this law becomes effective. The draft law was adopted in the first reading.
SOE Weekly (Issue 22) reported that the government had decreed that Oschadbank should ensure its connection to the IDGF as from Jan 1, 2021.
[There is no rationale for the state to own Oschadbank. This also contradicts the government-declared Basic principles of state ownership policy. Since the services that the bank provides are readily available from private providers in the competitive market, Oschadbank should be privatized or liquidated.Note that two members of the SOE Weekly team, Andriy Boytsun and Dmytro Yablonovskyi, published a policy paper titled “What Should the State Do with its Banks” in 2017. They concluded that the risks of state ownership of banks in Ukraine outweighed the benefits, suggesting that all state-owned banks should be privatized. The state can obtain the same services from private banks or international development finance institutions. – SOE Weekly.]
Energy sector
Naftogaz buys a large amount of electricity at auction.
According to Ekonomichna Pravda, Naftogaz’s subsidiary purchased 215,900 MWh of electricity from Centrenergo for Hr 377.8 million. The auction took place at the Ukrainian Energy Exchange on Oct. 4.
Naftogaz bought electricity at a weighted average price of Hr 1.75 per kWh. The delivery period is set for 1 January to 31 March 2022.
Ukrenergo will receive Hr 23 billion through bonds to repay green debts.
The Cabinet of Ministers provided Ukrenergo with a state guarantee for the issue of bonds of up to Hr 22.8 billion. This will be used to repay debts incurred by the Guaranteed Buyer for paying renewable energy tariffs.
Naftogaz will sell cheap gas to budget-funded and religious organizations.
Naftogaz offers medium-term contracts to state budget-funded and religious organizations with a fixed price for gas – UAH 13.7 per cubic meter (or UAH 16.8, including delivery cost and VAT). The contract is to be concluded for a period of 15 months, until the end of 2022.
According to Naftogaz’s CEO, Yuriy Vitrenko, budget-funded organizations can buy gas from any supplier. Vitrenko said that many suppliers offer a monthly gas price of UAH 30-45 per cubic meter or abandon their obligations under contracts with a lower price that were concluded earlier. Unlike these suppliers, Naftogaz is on the market with a fixed price offer for the next 15 months, at a level that is more than half as low as the current monthly price.
Naftogaz also proposes that heat producers switch over to three-year contracts: The amount of gas that they need to supply heat and hot water to budget-funded organizations can also be purchased at UAH 13.7 per cubic meter, excluding VAT and delivery cost.
[Note that Naftogaz’s special rates for households, heating companies, and budget-funded and religious organizations can be considered as a public service obligation (PSO). According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, PSO costs should be compensated from the relevant (state or local) budgets.Note also that for the above-mentioned group of clients, Naftogaz performs a function of hedging against price fluctuations, in fact correcting market deficiencies. In developed markets, such hedging products are normally available from various providers. – SOE Weekly.]
In SOE Weekly (Issue 39), we reported that Naftogaz was proposing that customers join the new “Comfort Season” tariff plan and pay for gas in equal monthly instalments. The price for gas in the new tariff plan was set at Hr 7.96 per cubic meter, excluding the cost of distribution (delivery). The total gas bill was determined by how much gas the household consumes during the heating season (from October to the end of April).
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
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