Editor’s Note: This is the 34th issue of the State-Owned Enterprises Weekly column by Andriy Boytsun, a corporate governance specialist based in Kyiv. The column covers events from June 26 to July 2, 2021.
Corporate governance in SOEs
Another statement by some members of Naftogaz’s supervisory board
Ekonomichna Pravda reported on a statement by independent members of Naftogaz’s supervisory board following a board meeting on 24-25 June. The statement was received by EP [but is not publicly available – SOE Weekly].
According to the statement, the board has reportedly put off considering the issue of suspending CEO Yuriy Vitrenko to one of its next meetings. The supervisory board has also asked the management board to properly apply all the company’s policies and procedures, especially when hiring and firing people, and review the internal compliance documents to establish if they are acceptable and address any gaps that may exist.
The board’s statement also said that Vitrenko assured that the revision of the strategy and organizational structure will be completed by July 1.
EP said that Naftogaz’s press service had not received any information about the supervisory board’s decisions. The company said that “the supervisory board is a collegiate body, and the official position must be supported by all members of the supervisory board without exception [that is, it must reflect the position of the body as a whole rather than views of individual board members – SOE Weekly] and communicated in an appropriate manner.”
[Recently, individual supervisory board members and board chair Clare Spottiswoode have made public statements that were communicated in a manner that may have been perceived as the board’s official position. However, there has been no public information that all or most supervisory board members supported these statements. Moreover, it remains unclear how this and other statements go public without the Naftogaz press service’s knowledge. If these statements do not reflect the supervisory board’s position, this may suggest that people having access to supervisory board materials leak confidential information. – SOE Weekly.]
As we reported in SOE Weekly (Issue 32), Spottiswoode said that the company’s supervisory board would initiate Vitrenko’s suspension from the office due to the National Agency on Corruption Prevention’s (NACP) order. Vitrenko said that the supervisory board did not discuss the NACP’s order with him.
It was unclear whether Spottiswoode’s statement was the board’s or her own. There has been no evidence that other supervisory board members subscribed to or opposed this statement.
In addition, Spottiswoode’s statement conflicted the official position of the company, as cited on the Naftogaz website. According to Naftogaz’s Code of Ethics, the company’s officers “shall avoid making any statements and expressing their opinions that could be interpreted as the official position of the Company and affect its reputation.” The Code of Ethics is overseen by Naftogaz’s supervisory board.
Earlier, in SOE Weekly (Issue 26), we reported that independent members of Naftogaz’s supervisory board wrote, in a letter to the prime minister, that the government’s decision to fire ex-CEO Andriy Kobolyev violated corporate governance standards and that they disagreed with the low assessment of management’s performance.
The letter did not make it clear if this position was supported by the other three supervisory board members representing the state and, if not, why. There has been no evidence that these statements were supported by the supervisory board since.
Another NACP order, now demanding that Naftogaz supervisory board chair should dismiss Vitrenko
On July 1, the National Anti-Corruption Agency (NACP) ordered Clare Spottiswoode, the supervisory board chair of Naftogaz, to terminate Vitrenko’s contract as illegal.
According to the NACP, they issued their new order after they saw the motivation provided by the Cabinet of Ministers of Ukraine [in fact, the Prime Minister – SOE Weekly] to the Kyiv District Administrative Court [in response to the NACP’s earlier order asking the Prime Minister to terminate Vitrenko’s contract – SOE Weekly].
The NACP explained that, in that motivation, the Cabinet of Ministers [Prime Minister – SOE Weekly] said that a decision of the company’s supervisory board is required to terminate the contract.
In SOE Weekly (Issue 32), we reported that, on 14 June, the NACP deemed Vitrenko’s appointment to be illegal and ordered the Cabinet of Ministers to cancel it.
On June 17, the Kyiv District Administrative Court’s press service said that Prime Minister Denys Shmyhal sued the NACP, asking the court to cancel the NACP’s order regarding the appointment of Vitrenko as Naftogaz’s CEO.
On June 18, the court suspended the order until it considers the merits of the case.
[The new NACP order, directed to Spottiswoode as the board chair of Naftogaz, is identical to the NACP’s earlier order directed to Denys Shmyhal as the prime minister. This may indicate that the NACP agreed with the illegality of its earlier order (sent to the prime minister).
Otherwise, it is unclear why the NACP decided to issue a second order without waiting for the court to decide on its first order. It is also unclear how the NACP’s first order would be implemented if the court recognized it as legal.
In addition, it is unclear how Naftogaz’s board chair is supposed to implement the second order (asking her to terminate the CEO contract and dismiss Vitrenko), as she has no authority to make such a decision single-handedly. – SOE Weekly.]
Also, as we wrote in SOE Weekly (Issue 32), Ukrayinska Pravda reported that NACP Chairman Oleksandr Novikov recently returned from the United States, where he met with the deputy assistant attorney general and deputy assistant secretary of state. According to Ukrayinska Pravda, from the first day of Vitrenko’s appointment, the US has taken a tough stance on Naftogaz and corporate governance reform in its communications with Ukraine.
This issue was also raised at a meeting between President Volodymyr Zelensky and US Secretary of State Antony Blinken. The media suggested that the NACP’s decisions could have been made under US pressure. Novikov denied this in his interview with Ukrayinska Pravda.
“We have not established any conflict of interest in Yuriy Vitrenko’s activities,” Novikov said. “However, unfortunately, the law forbids the person who made decisions regarding the company [Naftogaz] to manage it within a year after stepping down [as acting energy minister].”
Later, Naftogaz’s press service answered that the NACP’s order on Vitrenko’s appointment sent to the company’s supervisory board [in fact, to the board chair – SOE Weekly] is against the law and will be challenged in court. In addition, the NACP should have gone to the court, not to the supervisory board, the company’s statement said.
The current anti-corruption legislation does not envisage an NCAP order as a method of NACP response to violations.
In his turn, Vitrenko also stated that the NACP’s order contradicts the law and will be challenged in court. The Naftogaz CEO wondered: “Why has the NACP not yet gone to the court to ask for terminating [this] contract and is playing politics instead, and in whose interests is this being done? Why has the NACP not yet exercised its legal right to go to the court and is stamping out orders instead, deliberately deepening the conflict they had created themselves?”
Smelyansky to run Ukrposhta for another two years
Ukrposhta’s supervisory board extended the contract of the company’s CEO, Ihor Smilyanskyi, for another two years, until 30 June 2023. According to Ukrposhta, the extension was unanimously supported by all supervisory board members.
Smelyansky i added on his Facebook page that this term as Ukrposhta’s CEO would be his last. He also wrote that, as the company’s CEO, he set seven key goals that are to be accomplished over the next two years:
- To create and approve a development strategy for Ukrposhta for 2022–2026, in order to achieve a revenue of more than $ 1 billion;
- To ensure the availability of digital, postal, and banking services on 100% of the country’s territory, launching more than 2,000 mobile branches and ensuring full digitalisation of Ukrposhta;
- To launch a postal bank, which will be among the top five banks of Ukraine by the number of clients within five years;
- To build automated sorting centres and depots for mail processing, the first to be built in the past 40+ years;
- To liberalise and modernise postal legislation by bringing it in line with EU standards;
- To attract a “cool” international investor in Ukrposhta, with a stake of 25+ per cent in the company’s capital;
- To prepare a team that will continue the reforms after these two years.
(4) Parliament amends the banking law. The Verkhovna Rada adopted Draft Law No. 4367 in the second reading.
The law amends the legislation on corporate governance in banks and other issues related to the functioning of the banking system, which is an important condition under the IMF stand-by programme.
In SOE Weekly (Issue 28), we reported that the draft law amended Article 7 of the Law “On Banks and Banking” which regulates the corporate governance of state-owned banks:
- It introduces requirements for state-owned banks’ supervisory and management boards regarding their collective suitability and efficient management of and oversight over the bank’s activities.
- It makes it mandatory for the NBU to approve supervisory board candidates for state-owned banks before they can become board members.
- The supervisory board’s nomination and remuneration committee will decide on the candidates, based on a competitive selection that must be announced no less than three months before the powers of the CEO or management board member expire.
NBU massively loses key staff within 24 hours
On June 30, the entire management team of the Licensing Department of the National Bank of Ukraine (NBU) resigned due to the regulator’s deviation from its operational standards, the outgoing Department Director Oleksandr Bevz said on his Facebook page.
The statement says that it is impossible to keep working at the NBU when decision-making is centralized in the hands of a single person and collegiality is replaced by directive decision-making.
According to the department’s senior staff, the NBU moved away from transparent decision-making, non-interference in the oversight process, timely and impartial communication of the decisions made, and departments’ autonomy in formulating their professional judgment.
Bevz said that such behavior threatened to roll back the reforms in the banking sector and the regulation of the non-banking sector.
NBU commented that the department will continue to function normally.
[Note that it is the NBU’s Licensing Department that is responsible for the NBU’s key corporate governance oversight functions. These include approving owners and senior leadership, including supervisory and executive board members, in banks and other financial institutions. – SOE Weekly.]
Later that day, another department director, Vitaliy Vavryshchuk who leads the NBU’s Financial Stability Department, wrote on his Facebook page that he would leave the central bank as well and that he agreed with Bevz’s observations.
The next day, yet another senior NBU officer, Oleh Novakovskyi (Director of the NBU’s Credit Support Department), announced that he resigned as well because of “Soviet” practices being restored in a state institution that used to be modern, progressive, value-based, and efficient. Novakovskyi was responsible for bank refinancing, among other things.
Boryspil Airport gets a new CEO
The Boryspil International Airport’s supervisory board declared Oleksiy Dubrevskyi to be the winner of the competitive CEO selection.
According to the Ministry of Infrastructure, Dubrevskyi has been working in the field of air infrastructure management for 15 years. In particular, he worked at Lufthansa AG, Donetsk International Airport, and Ras Al Khaimah International Airport (UAE). In the past two years, Dubrevskyi led Zaporizhia International Airport.
Until Dubrevskyi was appointed CEO, the Boryspil Airport had been led by Oleh Struk.
The government adds an EU representative on the SOE Nomination Committee
The Cabinet of Ministers’ added Matti Maasikas, head of the EU Delegation to Ukraine, to the SOE Nomination Committee as an independent non-governmental expert.
[The current composition of the SOE Nomination Committee began its work in 2018. It is composed of the Minister of the Economy, Minister of Finance, and (depending on the SOE) the minister representing the ownership entity or line minister, as well as four independent members. The committee’s independent members include Jason Pellmar (IFC’s Regional Manager for Belarus, Moldova and Ukraine), Matteo Patrone (EBRD’s Managing Director, Eastern Europe and the Caucasus), Gösta Ljungman (IMF’s Resident Representative in Ukraine), and Marcin Święcicki (Business Ombudsman). The committee is chaired by Jason Pellmar. The ministers have the right to vote, while the independent members have no voting rights on the committee. The independent members of the committee had suspended their work in late April after the Cabinet of Ministers changed management at Naftogaz. They had said then that they would be able to resume their work after the government offers clarity on the corporate governance action plan and clearly commits to respect corporate governance institutions. – SOE Weekly.]
In SOE Weekly (Issue 29), we reported that Prime Minister Denys Shmyhal instructed the Ministry of the Economy to resume the work of the SOE Nomination Committee.
In SOE Weekly (Issue 30), we reported that Prime Minister Denys Shmyhal met with the members of the SOE Nomination Committee to discuss the implementation of the corporate governance reform in Ukraine. The Cabinet expanded the Committee by adding a position for an “EU representative.”
SOE updates
Infrastructure
Ukrposhta pays Hr 82.5 million in dividends in 2020. Ukrposhta transferred UAH 82.5 million in dividends to the state budget in 2020.
According to Ukrposhta, the pay-out ratio was 50% of its net annual profit, UAH 165 million according to an international audit.
In 2019, Ukrposhta paid UAH 202.7 million in dividends. In 2008–2019, its dividends ranged from UAH 4.8 million (in 2008 and 2009) to UAH 12 million (in 2012).
In 2014, 2016, 2017, and 2018, the state budget received no dividends from the company.
Ukrzaliznytsia pays Hr 750 million in dividends to the state budget for 2019
Ukrzaliznytsia paid 30% of its 2019 profit (UAH 750 million) in dividends to the state budget. They pay-out had been postponed due to the regulations for annual general shareholders meetings, which were relaxed due to the coronavirus pandemic.
70% of the Ukrzaliznytsia’s 2019 net profit (over Hr 1.7 billion) was used to cover previous years’ losses.
As we reported in SOE Weekly (Issue 24), at the annual general shareholders meeting of Ukrzaliznytsia on 21 April 2021, the Cabinet of Ministers as the company’s shareholder considered the company’s performance in 2019.
[As we noted, this was not a typo. Ukrzaliznytsia’s annual report, the supervisory board’s report, the management’s report, and the distribution of profit were approved for 2019, not 2020. However, no information is available to indicate that the Cabinet has considered Ukrzaliznytsia’s annual report, the supervisory board’s report, the management’s report, and the distribution of profit for 2020. According to the Law of Ukraine “On Joint-Stock Companies”, approval of the annual report and distribution of profit are the issues that must be mandatorily considered at the annual general shareholders meeting. – SOE Weekly.]
In SOE Weekly (Issue 23), we reported that, according to the 2020 results, Ukrzaliznytsia made a net loss of Hr 11.9 billion. The government has not yet made any statements on the company’s 2020 performance
Public assets
ARMA and Ukrtransnafta sign a management contract for Samara-Western oil pipeline
Ukrtransnafta signed a five-year contract with the Asset Recovery and Management Agency (ARMA) for the management of the Ukrainian part of the Samara-Western oil pipeline.
According to the contract, Ukrtransnafta has the right and obligation to exploit the pipeline, the company said.
In SOE Weekly (Issue 24), we reported that according to the results of the tender, ARMA selected Ukrtransnafta as the manager of the Samara-Western oil pipeline. At that time, ARMA and Ukrtransnafta still had to sign a contract after the assets were valuated.
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. All rights reserved. Spaces – Maidan Plaza || 2 Maidan Nezalezhnosti, Kyiv 01012, Ukraine; email: [email protected] || Telephone: +380-44-247-7829
