Editor’s Note: This is Ukrainian State-Owned Enterprises Weekly, Issue 50, covering events between Oct. 30 to Nov. 5, 2021.
Corporate governance in SOEs
Janez Kopacz on the liquidation of MGU
According to Janez Kopacz, director of the Secretariat of the European Energy Community, Mahistralni Gazoprovody Ukrayiny – Main Pipelines of Ukraine (MGU) has fulfilled its function as the owner of the Gas Transmission System Operator of Ukraine (GTSOU) and can be liquidated. Kopacz expressed this opinion during the Ukrainian Gas Investment Congress held in Kyiv on Oct. 20-21.
In turn, the media cited a source in the Ministry of Energy saying that GTSOU will come under the control of the ministry, which currently holds 100% of MGU. The source told the media that there was no need to adopt a law for that purpose, since MGU’s main task was to sign a share purchase agreement [with Ukrtransgaz, a Naftogaz’s subsidiary, selling GTSOU – SOE Weekly] so that GTSOU could be unbundled from Naftogaz.
[Note that GTSOU is registered as a limited liability company, not a joint-stock company. GTSOU does not have an independent supervisory board, and no such board is required by the Law on Limited Liability Companies. In order to correspond to best corporate governance practice, GTSOU should be converted from a limited liability company into a joint-stock company, and a supervisory board with a majority of independent members should be established at GTSOU. – SOE Weekly.]
SOE updates
Energy sector
Naftogaz will use the Hr 27 billion compensation for the sale of GTSOU to purchase gas
According to Ekonomichna Pravda (EP), Naftogaz will use Hr 27 billion in compensation received from the Gas Transmission System Operator of Ukraine (GTSOU) to buy gas for the winter season.
This is part of the payment [to Ukrtransgaz, a Naftogaz’s subsidiary – SOE Weekly] for the sale of GTSOU. In order to unbundle GTSOU from Naftogaz, Ukrtransgaz sold GTSOU to Mahistralni Gazoprovody Ukrayiny – Main Pipelines of Ukraine (MGU). Ukrtransgaz received the money in early October 2021.
Naftogaz will pay the funds received from GTSOU to the state budget in the form of dividends and rent payments. After that, these funds will be transferred to teplokomunenergos [regional heating companies – SOE Weekly] so that they repay their debts to Naftogaz.
[Note that such payment to regional heating companies, usually owned by local authorities, is de facto state aid covering their losses from low tariffs on heating services. If the state or local authorities believe that regional heating companies should be bound by a public service obligation (PSO) to provide discount heating, the cost of such a PSO should be accounted for separately and compensated upfront. In reality, the problem seems to have been neglected up until a substantial debt to Naftogaz was accumulated. – SOE Weekly.]
According to EP, as a result of this chain of transactions, most of this money will return to Naftogaz’s accounts, which the company plans to use to purchase gas for the heating season.
In SOE Weekly (Issue 46), we reported that according to EP, Naftogaz will receive UAH 51 billion in compensation for giving up control over the gas transmission system in 2019 as a result of unbundling. UAH 48 billion will be paid by GTSOU. The Cabinet of Ministers approved this resolution earlier.
EBRD invests $75 million in Ukrenergo’s Eurobonds to repay green debts
The European Bank for Reconstruction and Development (EBRD) bought $75 million of the $825 million in bonds that Ukrenergo issued to pay off the massive outstanding debt to renewable energy companies in Ukraine.
According to the EBRD’s statement, it is the first sustainability-linked bond issued by a Ukrainian company, and the EBRD’s participation as the anchor investor provided comfort to other institutional investors, further widening the market participation. The proceeds will cover all payment arrears owed to renewable energy producers.
Infrastructure
Fees for UkSATSE’s air navigation services will now be collected via Eurocontrol
According to Ukrainian State Air Traffic Services Enterprise (UkSATSE), Ukraine joined the Joint Eurocontrol Route Meeting System, which allowed Ukraine to implement a European system of cooperation in the field of air navigation.
Since Nov. 1, payment for air navigation services for Ukrainian and foreign airlines in the Ukrainian airspace will be carried out via the Central Route Charges Office (CRCO) of Eurocontrol.
Andriy Yarmak, UkSATSE’s acting CEO, said that technical integration will allow UkSATSE to have its fees effectively and fully paid by airlines.
In SOE Weekly (Issue 42), we reported that the National Security and Defenсe Council (NSDC) instructed the government to resolve the issue with Ukraine International Airlines’ outstanding debts to the Boryspil International Airport and UkSATSE.
Defense
Top 15 corruption risks at SOEs
The National Agency for the Prevention of Corruption (NAPC), Ukroboronprom, and StateWatch presented an analysis of the top 15 corruption risks in the management of SOEs, using Ukroboronprom as an example, and proposed ways to overcome these risks.
The analysis covers a range of corporate governance issues at Ukroboronprom enterprises, the inventory of SOEs’ real estate and land resources, as well as the use of on-line auctions to lease SOEs’ property.
Privatization
The AMCU will check whether collusion was involved with the Bilshovyk privatization auction
The Antimonopoly Committee of Ukraine (AMCU) began an enquiry into the recent privatization auction of the First Kyiv Machine-Building Plant (commonly known as Bilshovyk).
The committee said that it will check facts reported by the media regarding the possible anti-competitive behavior of the auction participants.
[The quality and outcome of the AMCU’s inquiry may impact the competition at future privatization auctions, as it may decrease/increase incentives for collusion in such auctions. If the AMCU should establish that a collusion took place, it must clearly communicate how this conclusion was reached and take appropriate actions to prevent collusions in future. If the AMCU establishes that no collusion took place, it should also clearly communicate how this conclusion was reached. – SOE Weekly.]
In SOE Weekly (Issue 49), we reported that on Oct. 27, the State Property Fund (SPF) sold the Bilshovyk plant at a privatisation auction for Hr 1.429 billion. The SPF said that 15 potential buyers were interested in the asset. However, only three companies took part in the auction, and only two of them made bids. Various media have suggested that the formal auction participants may have colluded in the bidding (see articles by Kyiv Post, NV Business, and Ekonomichna Pravda).
The SPF sells another distillery
The State Property Fund (SPF) sold Kosarske MPD for Hr 162 million at a privatization auction. The starting price tripled, from initial Hr 49.4 million to slightly over Hr 162 million. Eight companies competed for the asset. The winner was Agrofirma named after Gorky LLC, which is a part of Ristone Holdings.
The winner of the auction must now sign a protocol on the results of the auction, enter into a sale and purchase agreement, and transfer the payment to complete the procedure.
In case the winner refuses, the asset will go to the National Vodka Company LLC, who made the second-highest bid – exactly Hr 162 million.
Others
Lyubchenko beheads the Export Credit Agency before resignation
Before the Minister of the Economy, Oleksiy Lyubchenko, resigned on 3 November, he terminated the powers of the Export Credit Agency’s (ECA) five supervisory board members and its CEO Ruslan Gashev.
According to the Ministry of the Economy, this decision was caused by the company’s extremely unsatisfactory performance and lack of response from its supervisory board members.
According to the ministry’s statement, Gashev took no measures to stimulate Ukrainian exports.
It is noted that in the first nine months of 2021, the ECA signed only four insurance contracts and received only Hr 116,000 in income. Instead, the company’s expenses during this time reached Hr 19.5 million.
The ministry also referred to the violation of the OECD Guidelines during Gashev’s appointment as CEO. Specifically, the competitive selection for the appointment of the company’s supervisory board members ended on Jan. 31, 2021 [suggesting that this supervisory board could have selected and appointed the CEO of the ECA – SOE Weekly].
However, the Ministry of the Economy appointed Gashev directly by its ministerial order on 4 March 2021. [At that time, Ihor Petrashko was the Minister of the Economy. – SOE Weekly.]
The Ministry is now preparing the announcement of a competitive selection of ECA’s supervisory board candidates.
[According to the law, in case of the ECA, the power to appoint and dismiss executive board members (including the CEO) rests exclusively with the supervisory board. Thus, the Ministry of the Economy is likely to have no legal right to make this decision in lieu of the supervisory board. – SOE Weekly.]
Events
OECD Workshop for Ukrainian SOE procurement officials
The Organization for Economic Cooperation and Development (OECD) invites SOE procurement officials to participate in the two-day training on the prevention and detection of bidder collusion in public tenders organised on 8-9 November 2021. The workshops will take place via Zoom.
In the context of the OECD project Supporting the Energy Sector Reform in Ukraine, with the financial support of the Government of Norway, the OECD assessed the procurement practices of Ukrenergo, the Ukrainian state-owned national grid operator, against the OECD Recommendation on Fighting Bid Rigging in Public Procurement.
The registration is available here.
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
