My team and I have made UkrGasVydobuvannya into the model of reforms, a case of best management practices being swiftly implemented in a legacy Soviet-era organization where inefficiency is multiplied by corruption.
As an ex-McKinsey & Company consultant with almost eight years of experience of transforming private and public institutions and with a master’s degree in public policy from Harvard Kennedy School, I am leading the complete transformation of the state gas producer into a modern, efficient company. We are also cleaning up the corruption ingrained in the company’s people, processes and culture.
I have good and bad news about the reforms in Ukraine, based on my experience so far.
The good news:
Quick reforms are indeed feasible with significant impact. Under previous management, hUkrGasVydobuvannya had a notorious reputation as one of the most corrupt companies under state ownership.
Experts estimated “corruption rent” siphoned into private pockets at Hr 2-3 billion per year.
In six months we have managed to generate savings of Hr 1.6 billion through initiatives across purchasing, sales, technical and legal.
In purchasing — specifically where most stealing concentrated, we have quickly become the leader on ProZorro, the new e-tender system, and saved in total in excess of Hr 600 million.
The bad news:
The success and sustainability of our reforms and the reforms of the rest of state-owned enterprises are in danger because various state bodies, for the most part, fail us rather than support us.
The new reform management has come under vitriolic media attacks and pressure from corrupt politicians who lost the corruption rent and from state bodies in their service.
Through the reforms we have made, many enemies who want the new management out. These people want the return of old comfortable times where they stole Hr 2-3 billion from the company.
When friends are asking me how our reforms are going, I have one answer: “we are fighting.”
What is discouraging is that we are fighting not just corruption inside the company, but all those state bodies who are supposed to support us in our fight.
When we were starting the reforms, we were the “avant garde” that was parachuted in the midst of enemy positions – corruption inside the company.
We expected that our reforms will be eventually supported by the state apparatus and more of “our troops” will arrive to support our advances.
It now looks that the troops have indeed arrived, but they have turned their weapons against us and are protecting the entrenched corruption in the company. Instead of supporting us, they are trying to get rid of us.
This fighting is undermining and slowing considerably our reform efforts. These attacks are a troubling sign for future reform efforts across state owned enterprises in Ukraine for three reasons.
Attacks must stop
First, if not stopped, these attacks will make further reforms untenable. We can fight long and hard but not when we fight alone against members of parliament, the General Prosecutor’s Office, the Security Service of Ukraine, the State Financial Inspection, the State Geological service etc.
In the last few weeks, several members of parliament from Prime Minister Arseniy Yatsenyuk Narodny Front have organized “popular protest” against our reforms of purchasing.
These protests are on behalf of the corrupt Moston Properties used by previous management to try to defraud the company of millions of dollars by purchasing equipment at double the market price. These unscrupulous politicians want corruption at the company to continue and are paying Hr 200 per day to “protesters.”
At stake are millions of dollars in company procurement. This purchasing fight has continued for months and the thieves have enlisted the help of General Prosecutor’s Office, SBU, State Financial Inspection, bombarding them with demands to stop us.
Second, these attacks send a “no-go” signal to all potential professional candidates to engage in the wider reforms of Ukrainian state-owned enterprises.
Political interference
The nation’s leaders talk about the need to attract professional technocrat managers into leading state-owned enterprises.
The Ministry of Economic Development runs a wide search to recruit such candidates into the largest state-owned enterprises.
The reality is when one takes charge as I have done – you will have politicians trying to install their “supervisors” to control your purchasing.
The General Prosecutor’s Office will open criminal investigations against your team, and the State Financial Inspection will tell you that your reforms are violating the law, as they have done to us when we moved a significant share of our purchasing to e-tender system ProZorro.
Unfortunately, the state bodies will do everything to fail you, not support you.
Transparent tenders
Third, these attacks send an extremely negative signal to foreign investors and suppliers participating in our transparent and competitive tenders. We have spent energy and time convincing foreign and Ukrainian producers and honest suppliers to compete in our tenders.
Instead of having only two offshore intermediaries in a tender as was often the case under previous management, we are having seven, nine, sometimes more than 10 producers compete for our orders.
The result is that we reduce the purchasing price by at least 50 percent. We are coming under attacks for doing this. An example is the purchase of coil tubing equipment.
Instead of investigating the previous management’s schemes where they purchased through offshore shell company Moston Properties for $5.9 million, equipment worth $3.5 million, prosecutors opened a criminal case against our open and competitive tender.
Protecting corruption
Through a competitive tender we got from these producers the price of $3.5 million, but the prosecutor is trying to find wrongdoing in this open process. The state, in effect, tells the two companies not to bother with open purchasing because work must be done through corrupt intermediaries. Such attacks from the very bodies that are supposed to support us have to stop. We have been one of the open fires of reform, but unless the rest of the state apparatus undergoes reforms, the fire in UkrGasVydobuvannya’s reforms will very soon be smothered.
Today Ukrainian leaders talk about reforms and technocratic government. We make real reforms and so far get slammed by state bodies for doing that. This has to stop unless nation’s leaders want the reforms to be choked by ingrained corruption.
Oleg Prokhorenko is the CEO of UkrGasVydonuvannya.
