At the beginning of June, President Volodymyr Zelensky submitted a so-called de-oligarchization bill to the Verkhovna Rada, Ukraine’s parliament. Unfortunately, this document only imitates the struggle and doesn’t provide real instruments to deprive oligarchs of their influence.
At the same time, the government hand-feeds oligarchs through state-owned enterprises, known as SOEs. Despite the corporate governance reform carried out in 2015, SOEs remain a source of political corruption and macroeconomic risks. To prove this, it’s enough to take a glance at the financial results of Ukrainian SOEs.
In 2020, losses of 15 major SOEs totaled Hr 72.4 billion or $2.6 billion.
The first reason is oligarchs involved in the management of SOEs. A striking example is Centrenergo. In 2019, when the company was operated by management related to one of the well-known Ukrainian oligarchs, it lost nearly 2 billion UAH in one year.
The second reason is that companies owned by oligarchs don’t pay their bills to SOEs. This is exactly what is happening on the gas market, where regional gas companies owe billions to Naftogaz.
The third reason is that the government still has opportunities for political corruption and control over SOEs. For example, at the end of April, the Cabinet of Ministers set new provisions of special public service obligations, known as PSOs, for Ukrhydroenergo, according to which it should buy electricity from private companies affiliated with one of the Ukrainian monopolists. This government decision could cost Ukrhydroenergo more than Hr 2 billion.
Moreover, some steps of the Cabinet of Ministers could be regarded as an attempt to reverse SOE corporate governance reform. For example, dismissal of Naftogaz supervisory board and CEO, acknowledgment of the results of Ukrhydroenergo supervisory board as inadequate without real reasons, or approving unreasonable dividend standards for SOEs.
Unfortunately, this approach remains possible because of imperfect legislation. Even the new draft law submitted by Sluga Narodu MPs doesn’t solve them either.
That’s why MPs of Holos fraction in Verkhovna Rada submitted an alternative bill #5593-2 which considers the best Organization for Economic Cooperation and Development recommendations and corrects shortcomings of the coalition’s draft law. Among others, we suggest three crucial steps for the real independence of SOEs.
Firstly, the supervisory board is responsible for sacking and appointing senior managers. The Cabinet of Ministers remains responsible for the appointment of the supervisory board based on the competition results.
Secondly, the supervisory board adopts the company’s annual financial plan, including dividends, according to the business strategy and investment plan.
Thirdly, the Cabinet of Ministers has the right to dismiss the supervisory board only in case of failure to achieve KPIs.
These steps aim to help to finally detach SOEs from political bodies. The crucial aim of every company is to gain profit for its shareholders. The main shareholders of state-owned enterprises are Ukrainian people. Therefore, state-owned enterprises should work to enrich every citizen, not just the oligarchs.
SOEs corporate governance reform along with the improvements of antitrust legislation, elimination of tax preferences for monopolists, and judicial reform are the real tools to fight oligarchs. Therefore, Golos has submitted a relevant bill package to the Parliament. Those who want to fight the oligarchs are fighting them, and those who don’t want to do so prefer writing worthless laws and hiding behind the National Security and Defense Council’s back.
Yaroslav Zhelezniak is a member of the Ukrainian parliament and head of the 20-member Holos faction.
