Issue 71
14 January – 21 January 2023

Corporate governance of SOEs

Conditionalities of the EU’s € 18 billion MFA package include Naftogaz and GTSOU. European Pravda revealed the conditionalities that the European Union (EU) put forward for Ukraine in order to receive the EU’s macro-finance package (MFA) in 2023.

The memorandum of understanding (MoU) to provide € 18 billion to maintain economic stability was signed on 16 January 2023. On 17 January 2023, Ukraine received the first tranche of € 3 billion. However, the EU stated that the next tranches would be disbursed only if reforms were carried out. The war is no longer a sufficient reason to slow down changes in Ukraine, according to the publication.

The details of the MoU have yet to be made public. However, the media reported that the MoU includes 20 reform conditionalities with specified deadlines, divided into four blocks: Rule of Law, Energy, Structural Reforms and Good Governance, and Macro-Financial Stability.

Regarding SOEs, the MoU reportedly imposes the following obligations on Ukraine:

  • select Naftogaz’s supervisory board by March 2023; and
  • launch the corporate restructuring of the Gas Transmission System Operator of Ukraine (GTSOU) in line with the agreed target model by June 2023.

In SOE Weekly (Issue 70), we reported that according to the media, the shortlist of candidates for independent members of Naftogaz’s supervisory board included 20 names. (There are four positions of independent board members to be filled.)

The shortlist includes six former board members of Naftogaz: three members of the most recent supervisory board (Clare Spottiswoode, Ludo Van der Heyden, and Bruno Lescoeur) and three members of the previous board (Paul Warwick, Charles Proctor, and Marcus Richards). In addition to independent members, the supervisory board must include three state representatives. According to the memorandum with the International Monetary Fund, Naftogaz’s supervisory board must be appointed by the end of January 2023.

In SOE Weekly (Issue 67), we reported that according to Naftogaz’s CEO Oleksiy Chernyshov, the company’s supervisory board may be appointed by the end of January.

[A competitive selection for Naftogaz’s supervisory board was announced in October 2021, after the remaining members of the previous board were dismissed. The plan was to complete the selection and appoint a new board by the end of November 2021. Thus, Naftogaz has been operating without a supervisory board for more than a year.

The shortlist from the 2021 selection was also leaked to the media in February 2022. The list consisted of 14 candidates, including members of Naftogaz’s 2016 board (Paul Warwick, Charles Proctor, and Marcus Richards), but it did not include the members of the 2017 board (Clare Spottiswoode, Ludo Van der Heyden, and Bruno Lescoeur).

On 4 November 2022, the Cabinet of Ministers decided to launch a new competitive selection. It is unclear why the Cabinet did not use the candidates shortlisted from the 2021 selection. – SOE Weekly.]

For an earlier extended overview of the Naftogaz case and its analysis from a corporate governance perspective, see SOE Weekly’s Issues 25, 26, 27, 28, 29, 30, 32, 33, 34, 35, 36, 37, 41, 42, 43, 44, 45, and 48.

On the GTSOU, we reported in Issue 69 that as of now, there are three versions of Draft Law No. 8068 to amend the corporate governance of this company.

In SOE Weekly (Issue 67), we reported that on 4 October, the Energy Community Secretariat wrote a letter to Prime Minister Denys Shmyhal and Minister of Energy Herman Galushchenko, urging the government to immediately implement GTSOU’s corporate governance action plan:

  • transfer the ownership of GTSOU from MGU to the Ministry of Energy;
  • adopt a new charter for GTSOU, envisaging an independent supervisory board at GTSOU;
  • run a competitive selection of supervisory board members for GTSOU; and
  • have an executive board elected and appointed by GTSOU’s new supervisory board after the latter is established.

Note that the conditionality in the EU’s MFA package regarding GTSOU is formulated in a much weaker manner, only requiring the government to “launch the corporate restructuring” of the company. This leaves a lot of room for interpretation of what exactly the government needs to do to meet that the condition.

We also reported in SOE Weekly (Issue 69) that MGU’s supervisory board announced the launch of a competitive selection for GTSOU’s CEO on 25 November 2022. No further information has been released publicly, including how many candidates applied or when the selection would be completed.

Former Naftogaz CEO Kobolyev charged with misappropriating over UAH 229 million. On 18 January 2023, the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialised Anti-Corruption Prosecutor’s Office (SAPO) notified Andriy Kobolyev, the former CEO of Naftogaz, of suspicion of misappropriating over UAH 229 million in 2018.

According to NABU, Kobolyev illegally awarded himself UAH 261 million, based on the supervisory board’s decision to give him a bonus for extraordinary achievements. This payment was part of bonuses granted to the company’s management team in May 2018 for Naftogaz’s historic victory against Russia’s Gazprom in Stockholm’s court of arbitration.

NABU stated that the bonuses significantly exceeded the legally established ceilings for such payments (UAH 37.5 million).

[NABU is probably referring to Cabinet of Ministers’ Resolution No. 859 which sets the remuneration rules for CEOs of SOEs. The resolution states that the CEO’s quarterly bonus cannot exceed three monthly base pays, and the annual bonuses cannot exceed 24 monthly base pays (meaning that quarterly and annual bonuses together cannot exceed 36 monthly base pays).

According to Naftogaz’s 2018 annual report, Kobolyev was paid UAH 286.5 million in total remuneration for 2018, including UAH 261 million as a bonus. The report does not state the size of Kobolyev’s base pay in 2018, but based on NABU’s reasoning, it must have been around UAH 1 million per month. – SOE Weekly.]

This news has caused a very heated discussion in the media and on social media.

[Please note that the SOE Weekly team is against limiting remuneration for SOEs’ top management in a such a basic manner. In our opinion, the constraints set by Resolution No. 859 are conducive to serious risks of corruption in SOEs. In addition, if this limitation is not lifted, SOEs will continue to be disadvantaged in competing with private companies for the most skilled management.

Paying part of the award to a management team should motivate the company’s management to win the arbitration case, generating an extraordinary profit to the owners – that is, the state in the case of the Naftogaz. In our opinion, Naftogaz’s victory against Russia’s Gazprom in Stockholm’s court of arbitration, which had been viewed as very unlikely in 2014 and which ultimately brought the state at least $ 4.6 billion, is an extraordinary achievement of the Naftogaz team, and their award for this is well deserved.

However, we also believe that SOEs’ officers should act in an appropriate manner and propose that the current rules, such as those in Resolution No. 859, should be changed rather than overlook them. – SOE Weekly.]

Kobolyev allegedly had the supervisory board approve his bonuses and the management team’s bonuses for achieving significant goals and implementing significant strategic projects, SAPO said. According to SAPO, this was an abuse of his position, as he deliberately concealed that the bonuses cannot be higher than 36 base pays per year. As a result, the supervisory board’s remuneration committee approved the bonus request, according to SAPO.

[It is unclear why NABU and SAPO posed no questions to supervisory board members who took the primary decision on paying this bonus, including members of the remuneration committee who should examine any decisions related to the remuneration of the CEO and provide a recommendation to the supervisory board regarding the approval of such decisions. Under Ukrainian law, supervisory board members of joint-stock companies (as well as CEOs and company officials) are responsible for losses caused by their actions or inaction.

In addition, since 2017, the supervisory board of Naftogaz had had its own legal advisor, an international law firm. Usually, the corporate secretary also performs a preliminary legal analysis of the materials for supervisory board meeting. The supervisory board had all the necessary tools to comprehensively review any of the CEO’s proposals and decline them if they contradicted the law.

It appears Naftogaz’s litigations that the company deemed that Cabinet Resolution No. 859 was not applicable to Naftogaz. However, this legal debate has been considered by a series of courts, ultimately ending up in a decision of an appellate court that the resolution (i.e., including the ceiling on CEO remuneration set in that resolution) did cover Naftogaz, finally confirmed by a decision of the Supreme Court.

In other words, if the supervisory board knew about the ceiling on CEO remuneration, it could have asked the Cabinet of Ministers to amend these rules so as to allow for a higher bonus for the CEO. If the board deemed that there was a legal uncertainly about this, it could have taken action to clarify this uncertainty before making a decision on paying the bonus.

It is also unclear if this case influences the chances of the supervisory board members who took this decision in 2018, and who are now applying for appointment to the new supervisory board of Naftogaz (Clare Spottiswoode, Ludo Van der Heyden, and Bruno Lescoeur). Board members are to be appointed by the Cabinet of Ministers as the general meeting of Naftogaz. See also SOE Weekly’s Issue 70 for a more detail discussion of the nomination process for the Naftogaz supervisory board. – SOE Weekly.]

Kobolyev commented on his Facebook page that he knew the charges were being prepared when he was abroad, so he immediately returned to Ukraine to avoid accusations of flight. Kobolyev wrote that he intends to prove that he was right.

As we reported in 2021, the Cabinet of Ministers dismissed the supervisory board of Naftogaz and CEO Andriy Kobolyev on 28 April 2021. See SOE Weekly’s Issue 25 for a detailed account from a corporate governance perspective.

As we reported in July 2021, according to the Kyiv Post, Naftogaz’s top management received another multimillion-dollar remuneration for the year 2020, including a second part of the Stockholm bonuses. See SOE Weekly’s Issue 35 for a detailed account from a corporate governance perspective.

Deputy head of president’s office claims that Ukrnafta was seized because it refused to help the Ukrainian army, the company’s former management denies strongly. According to Rostyslav Shurma, the deputy head of the president’s office, Ukrnafta was transferred to state ownership due to company’s refusal to supply oil products to the Ukrainian army.

Shurma added that the only reason for the seizure of several enterprises into state ownership under martial law was a threat to national security.

Ukrnafta’s former CEO Oleg Gez strongly denied these accusations, adding that Ukrnafta had no contracts, was not a fuel supplier to the Ministry of Defence of Ukraine, and the Ministry had not even contacted the company.

According to Gez, Ukrnafta’s main activity was oil production, which, by the decree, was sold at auctions for further processing at a single enterprise, Ukrtatnafta. Ukrnafta did not import fuel.

Gez added that since the beginning of the Russian invasion of Ukraine, Ukrnafta had been providing systematic assistance to Ministry of Defence such as the fuel that was at the filling stations and storage bases to Ukrainian military forces at numerous requests.

Gez claimed that by November 2022, Ukrnafta had shipped more than 3 million litres of petroleum products to the Ukrainian army without payment. According to him, the aid amounted to more than UAH 15 million per month, not including mobilisation assignments, such as providing transportation and other technical equipment for defence needs.

The former chair of Ukrnafta’s supervisory board Mykola Havrylenko was surprised by Shurma’s statement as well. Havrylenko сlaimed that he was not aware of any unfulfilled obligations to supply any volumes of oil products from Ukrnafta.

In SOE Weekly (Issue 68), we reported that that the shares of Ukrnafta, Ukrtatnafta, Motor Sich, AvtoKrAZ and Zaporizhzhiatransformator (ZTR) were seized “for the needs of the state” and transferred to the Ministry of Defence on Sunday, 6 November 2022.

The seizures were made under the Law on the Transfer, Forced Alienation, or Seizure of Property under Martial Law or State of Emergency, which obligates the state to eventually return the seized assets to the owners or give them fair compensation.

[Naftogaz owns 50% + 1 share of Ukrnafta. These shares were not seized. A group of companies informally known as the Privat group, associated with oligarchs Ihor Kolomoiskyi and Hennadiy Boholyubov, owned about 42% of the shares.

The remaining shares were held by some 11,000 dispersed shareholders, including company’s former or current employees, investment funds, and pension funds. All these shares were seized by the state along with those of the Privat group. – SOE Weekly.]

Ukrainian investment community criticised the seizures for unfair expropriation of minority shareholders and a lack of rationale for seizing Ukrnafta shares when the state already had a majority stake in that company (via Naftogaz). This decision was also criticised for the state’s poor management capacity and negative impact on Ukraine’s investment climate.

After the seizure, the state replaced the supervisory boards and executive management at most of these companies. Former CEO of WOG gas stations chain Serhiy Koretskyi became the CEO of both Ukrnafta and Ukrtatnafta on 8 and 10 November, respectively.

On 7 November, the Ministry of Defence as Ukrnafta’s new shareholder appointed a new supervisory board of the company.

SOE updates

Energy sector

Energoatom estimates losses of up to UAH 40 billion at the Zaporizhzhia NPP during Russian occupation. According to Energoatom’s CEO Petro Kotin, due to continuous Russian occupation, losses of Zaporizhzhia Nuclear Power Plant (NPP) in the last two months increased by almost 1.5 times – from UAH 28 billion in November to UAH 40 billion today.

Kotin added that all losses from shelling and blackouts are also being recoded at all the company’s other plants [Pivdennoukrayinsk NPP, Rivne NPP, Khmelnytskyi NPP, and the non-operating Chernobyl NPPSOE Weekly] so that Energoatom can then request compensation from the Russian Federation later.

Also, Kotin said that the Russian occupiers are no longer attempting to connect the Zaporizhzhia NPP to their power grid. [Earlier, occupiers made several attempts to do that. – SOE Weekly.]

Later, Energoatom reported that it would take at least two months to restore Zaporizhzhia NPP’s operations after it is liberated from Russian occupation. That time will be required to dispose of Russians mines and explosives, as well as check the equipment.

Naftogaz reaches agreements for financing and reserving additional gas volumes for the heating season. On 18 January, Naftogaz’s CEO Oleksiy Chernyshov wrote on his Facebook page that during the World Economic Forum in Davos, Naftogaz reached several agreements needed for financing and reserving additional volumes of gas for the 2022-2023 heating season.

These include agreements with:

  • the European Bank for Reconstruction and Development (EBRD) – on financing mechanisms for the purchase of additional gas volumes required for Ukraine;
  • the EBRD, Norway, the USA, Germany, France, Canada, and Great Britain – on financing the purchase of gas;
  • leading oil and gas companies – on reserving the necessary volumes.

[No further details have been released yet. – SOE Weekly.]

Chernyshov also assured that there would be enough gas to get through the current heating season.

Earlier, on 23 December 2022, Chernyshov said that Naftogaz had attracted almost half a billion cubic meters of gas during that week to get through the winter period with the help of partners. According to him, about 350 million cubic meters will come from the Norwegian energy company Equinor, and another 100 million cubic meters of gas will be purchased with EBRD funds from authorised sellers.

As we reported in SOE Weekly (Issue 67), Chernyshov told Forbes Ukraine:

  • “The 14.5 billion cubic meters of gas available in storage at the beginning of the heating season would be enough to get through this year’s winter, but the aggressor began to attack electricity facilities [thereby increasing gas consumption – SOE Weekly].”
  • We already have the support of the EBRD ($ 300 million), the Canadian government ($ 350 million), and Norway ($ 200 million). These funds will enable us to purchase about 500 million cubic meters of gas. In addition to this, by the end of the heating period, we need almost another 2 billion cubic meters.”

Naftogaz takes over Firtash’s gas distribution companies and appoints new management. According to observers, Naftogaz changed the management of regional gas distribution companies Kharkivgas and Dniprogas on 16 January 2023. Both companies are part of fugitive oligarch Dmytro Firtash’s Regional Gas Company (RGC) Group.

Naftogaz appointed:

  • Bohdan Popyuk as CEO of Dniprogas. In 2004-2013, he worked at Zhytomyrgas, Mykolayivgas, Zaporizhgas, and headed Ivano-Frankivskgas. A few of these companies belonged to the Russian oligarch Viktor Vekselberg at that time.
  • Anatoliy Bystray as CEO at Kharkivgas. From 2009 to 2012, he headed Kryvorizhgas, which, at that time, also belonged to Vekselberg, and later became part of the RGC Group.

RGC accused Naftogaz of an “attempted raid”. In turn, Naftogaz referred to the Cabinet of Ministers’ Decision No. 429-r dated 28 May 2022, which transferred the corporate rights of about 20 regional gas distribution companies to Chornomornaftogas, a member of Naftogaz Group.

Earlier in May 2022, Kyiv’s Pechersk Court seized the shares of Firtash’s regional gas companies because they evaded payment for the use of gas networks. (After which, the Cabinet transferred these rights to Chornomornaftogas.)

RGC then filed lawsuits to overturn the Pechersk Court’s decision. This delayed the process of changing management significantly. In September, Naftogaz created Gas Distribution Networks of Ukraine LLC as company’s subsidiary to consolidate regional gas distribution companies.


Seaport privatised for the first time in Ukraine. On 17 January 2023, the State Property Fund (SPF) sold Ust-Dunaisk trade seaport for UAH 201 million, a more than threefold increase from the starting price (UAH 60 million). This was the first sale of a seaport in the history of independent Ukraine.

According to Prozzoro.Sale, the winner is Elixir Ukraine LLC, an official representative of Serbian Elixir Zorka trading in complex mineral fertilisers in Ukraine.

Ekonomichna Pravda (EP) reported that the seaport staff (the “working collective”) filed a statement with the National Anti-Corruption Bureau of Ukraine (NABU) accusing the SPF’s officials of failing to re-register property rights before the privatisation or take into account the repair of the pier in Vylkove town (Odesa oblast) in the price. The latter could increase the starting price of the port, the staff said. They also claimed that some assets specified as part of the deal were missing, damaged or destroyed, which may have also affected the starting price. The staff estimated that the state lost UAH 2 million as a result.

[Privatisation auctions are often followed by lawsuits from various interest groups, which may use trade unions or company staff for that purpose, to block or reverse the deal and preserve the status quo. – SOE Weekly.]

EP has also seen a letter on behalf of the seaport staff sent to Prime Minister Denys Shmyhal, speaker of the Verkhovna Rada Ruslan Stefanchuk and head of the SPF Rustem Umerov, urging them to undo the privatisation auction and postpone it until the end of martial law.

The SPF and the Ministry of Infrastructure insist that that the seaport needs large-scale investments which can only be made by a private business.

According to EP’s source in the SPF, there are currently several influence groups within the seaport, some of which may be funded by the Russian Federation.

In SOE Weekly (Issue 67), we reported that the SPF launched the privatisation auction for Ust-Dunaisk trade seaport on 17 January 2023 with a starting price of UAH 60 million.

The port consists of three assets: the seaport itself in Vylkove town, the seaport offices, and a ship service base on Shabash Island.

Confiscation of the aggressor state’s assets, nationalisation, and asset seizure

The DGF transfers shares of Russian state-owned banks to the state. The Individual Deposit Guarantee Fund (DGF) transferred the shares of Russian state banks’ subsidiaries in Ukraine to the state, represented by the National Investment Fund of Ukraine, a state unitary enterprise. These include:

  • 99.77% of the capital of Prominvestbank (i.e., all shares previously owned by VEB.RF); and
  • 100% of the authorised capital of International Reserve Bank (previously owned by Sberbank).

In SOE Weekly (Issue 67), we reported that the Individual Deposit Guarantee Fund (DGF) said that it ensured the transfer of UAH 17 billion from the liquidated accounts of Russian banks to a special fund of the state budget. According to the DGF, the following funds were transferred: UAH 3.2 billion; USD 372.3 million; as well as smaller amounts in other currencies.

The corporate rights and financial assets were confiscated per decision of the National Security and Defence Council dated 11 May 2022.

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, Dmytro Yablonovskyi, Oleksandr Lysenko, Oleksii Pavlysh, and Mariia Kramar.

This publication was produced with the financial support of the European Union within the project “Supporting Ukraine in rebuilding and recovery” implemented by the KSE Institute (Contract NI/2022/424-502 dated 14 November 2022). The contents of this publication are the sole responsibility of the editorial team of the Ukrainian SOE Weekly and do not necessarily reflect the views of the European Union.

© 2020–2022 Andriy Boytsun, all rights reserved.


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