• Corporate governance in SOEs

• SOE updates

  • Banks

  • Energy sector

  • Infrastructure

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

• Procurement Notices – powered by ProZorro

Corporate governance of SOEs

HACC finds SAPO’s motion to detain former Naftogaz’s CEO Kobolyev unfounded. The judge of the High Anti-Corruption Court (HACC) ruled that the motion of the Specialised Anti-Corruption Prosecutor’s Office (SAPO) to detain former Naftogaz’s CEO Andriy Kobolyev was unfounded.

The judge decided that the prosecution was not able to support the claim that Kobolyev misused his office and deceived Naftogaz’s supervisory board in order to award himself a bonus that was beyond the limitations set by government regulations. In addition, the court saw no risk in Kobolyev attempting to flee Ukraine or obstruct the investigation.

[The motion was based on SAPO’s suspicion that Kobolyev illegally awarded himself a multi-million bonus in 2018.

Note that this HACC ruling concerns the National Anti-Corruption Bureau of Ukraine (NABU) detectives’ request to detain Kobolyev. It does not concern the merits of the case, i.e., the legality of the decision to award bonuses.

Nonetheless, the lengthy text of HACC’s ruling contains a vast amount of previously unknown corporate governance information which merits detailed analysis. SOE Weekly will comment on the information in the court ruling in the next issue of the digest. – SOE Weekly.]

On 31 January, SAPO challenged HACC’s decision. The consideration of the prosecutor’s appeal is scheduled for 8 February.

In SOE Weekly (Issue 71), we reported that on 18 January 2023, NABU and SAPO notified Kobolyev that he was suspected 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 Naftogaz’s management team in May 2018 for the company’s historic victory against Russia’s Gazprom in Stockholm’s court of arbitration.

[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 board’s 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. – SOE Weekly.]

For a more detailed overview of this case, see SOE Weekly’s Issue 71.

In SOE Weekly (Issue 72), we reported that, on 23 January 2023, HACC refused to grant NABU detective’s request to detain former Naftogaz’s CEO Andriy Kobolyev.

Government approves five independent members of Ukrgasbank’s supervisory board. On 27 January 2023, the Cabinet of Ministers approved the candidacies of five independent members of Ukrgasbank’s supervisory board, based on the results of a competitive selection.

According to the Ministry of Finance, the competitive selection was supported by the executive search company Talent Advisors LLC [operating under the international brand Odgers Berndtson – SOE Weekly].

The new independent members of Ukrgasbank’s supervisory board are:

• Per Anders Fasth (Sweden) – former acting CEO of Hoist Finance;
• Sanela Pasic (Bosnia and Herzegovina) – supervisory board member of Addiko Bank Bosnia and Herzegovina;
• Dariusz Gafka (Poland) – chairman of the supervisory board of Santander Consumer Bank, a Polish subsidiary of Spain-based Banco Santander; and
• Taras Yeleiko (Ukraine) – former Deputy Head of the State Property Fund.

[Only Yuriy Blashchuk, who has been a member of Ukrgasbank’s supervisory board since 2018, retained his position. All the other independent members – Slawomir Konias, Shrenik Davda, Oksana Volchko, and former board chair Teimour Bagirov – are leaving the board.

If these board members applied for re-appointment, then it appears that the government was willing to replace them. It is not clear why the government decided to replace almost the entire supervisory board of Ukrgasbank, and how this replacement ensures the bank’s business continuity. The government has not voiced any criticism of the board’s performance earlier.

In SOE Weekly (Issue 70), we reported that according to the National Bank of Ukraine (NBU), Ukrgasbank lost UAH 3.75 billion in January-November 2022. However, the bank made a profit of UAH 3.8 billion in 2021, UAH 0.4 billion in 2020, and UAH 1.3 billion in 2019, according to the Ministry of Finance.

In SOE Weekly (Issue 59), we reported that on 25 January 2021, Ukrgasbank clinched a convertible loan agreement with the International Finance Corporation (IFC). Then Deputy Finance Minister Yuriy Draganchuk said that the IFC would provide Ukrgasbank with a five-year loan of 30 million euros, which it could convert into an up to 20% stake in the bank’s equity.

Ukrgasbank’s supervisory board also includes two state representatives:

• Yana Bugrimova – former chief of the Reform Office of the Ministry of Finance; and
• Maryna Lazebna – former Minister of Social Policy of Ukraine.

The competitive selection for the positions of independent members of Ukrgasbank’s supervisory board was announced in October 2022. On 30 December 2022, it was extended till 13 January 2023.

The competitive selection of supervisory board members for the other three Ukrainian state-owned banks – PrivatBank, Oschadbank, and Ukreximbank – started simultaneously on 11 October 2022, with the application deadline on 11 November 2022.

In SOE Weekly (Issue 69), we reported that, on 27 December 2022, the Cabinet of Ministers dismissed almost all independent members of PrivatBank’s supervisory board and appointed new ones after a competitive selection.

There have not yet been any public updates on the selections for Oschadbank or Ukreximbank. – SOE Weekly.]

SOE updates

Banks

Oschadbank earns UAH 690 million in net profit in 2022. On 30 January 2023, Oschadbank reported its financial results for 2022. According to preliminary data, which can be updated based on the results of annual adjustments and external audit, Oschadbank’s net profit for 2022 was UAH 690 million.

Compared to 2021:

• operating income increased by UAH 1.6 billion to UAH 21.7 billion;
• interest income increased by UAH 1.1 billion to UAH 22.4 billion;
• net non-interest income increased by UAH 0.8 billion to UAH 7.6 billion;
• interest expenses decreased by UAH 0.4 billion to UAH 7.5 billion; and
• the financial result further decreased by UAH 4.8 billion at year-end due to revaluation of financial instruments and foreign exchange positions (given the presence of indexed securities in the bank’s portfolio).

Oschadbank also added UAH 12.1 billion in reserves (further decreasing the financial result), which is four times more than in 2021, to account for possible losses due to the deterioration in loan portfolio quality caused by the Russian invasion.

In 2022, the bank joined the Deposit Guarantee Fund (DGF), paying UAH 777 million in contributions, which correspondingly reduced its annual profit compared to the previous year.

In SOE Weekly (Issue 70), we reported that, according to the National Bank of Ukraine (NBU), the net profits of the four state-owned banks in January-November 2022 were UAH 12.92 billion. Oschadbank made UAH 1.56 billion in profits.

In SOE Weekly (Issue 64), we reported that Oschadbank made a profit of UAH 1.1 billion in 2021 and UAH 2.8 billion in 2020. We also reported that the four state-owned banks earned over UAH 42.7 billion in 2021. This made up 55% of the total earnings of all Ukrainian banks that year (UAH 77.5 billion). In 2020, the state-owned banks made UAH 22.8 billion.

PrivatBank earns UAH 30.25 billion in net profit in 2022. On 2 February 2023, PrivatBank reported its financial results for 2022. According to preliminary data, before the external auditor confirms the bank’s annual financial statements, PrivatBank ended 2022 with a net profit of UAH 30.25 billion.

During 2022, PrivatBank issued UAH 23.8 billion in loans to small and medium-sized businesses, which led to a 58% increase in the loan portfolio of legal entities after deducting provisions.

PrivatBank made provisions of more than UAH 14.5 billion to cover increased credit risks in the context of the war. During 2022, provisions were also made for expected losses as a result of hostilities: for the loss of cash and other assets due to the destruction of premises and ATMs.

The bank also reported that in 2022, it attracted another 150 thousands of active private clients (with 19.1 million active private and corporate clients in total) and 1.3 million Privat24 clients (with 13.1 million active clients in total).

In SOE Weekly (Issue 70), we reported that according to the National Bank of Ukraine (NBU), the net profits of the four state-owned banks in January-November 2022 were UAH 12.92 billion. PrivatBank led the pack, earning UAH 22.8 billion.

In SOE Weekly (Issue 64), we reported that PrivatBank made a profit of UAH 35.1 billion in 2021 and UAH 24.3 billion in 2020.

Energy sector

Naftogaz raises €189 million from Norway in additional grant aid to go through the heating season. The Norwegian government will finance the purchase of imported gas for Ukraine worth almost €189 million.

On 1 February 2023, Naftogaz’s CEO Oleksiy Chernyshov and the European Bank for Reconstruction and Development’s (EBRD) Managing Director for Eastern Europe and the Caucasus Matteo Patrone signed the respective agreement, by which this financing will be provided as a grant via the EBRD. The grant implies no repayment, interest, or fees from Naftogaz or the government of Ukraine.

According to Chernyshov, the grant makes it possible to procure volumes of gas that fully cover all of Ukraine’s needs for natural gas until the end of this heating season.

In SOE Weekly (Issue 72), we reported that on 23 January 2023, the Cabinet of Ministers allowed Naftogaz to attract the above grant.

In SOE Weekly (Issue 71), we reported 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 EBRD – on financing mechanisms for the purchase of additional gas volumes for Ukraine;
• the EBRD, Norway, the USA, Germany, France, Canada, and Great Britain – on financing the purchase of gas; and
• leading oil and gas companies – on reserving the necessary volumes.

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

Ukrtransgaz starts certification according to European rules. On 27 January 2023, Ukrtransgaz stated that it was ready to be certified as a gas storage operator under European rules and submitted a certification request to the National Energy and Utilities Regulatory Commission (NEURC).

The company expects a preliminary decision of the NEURC and its notification to the Energy Community Secretariat.

In SOE Weekly (Issue 66), we reported that the Verkhovna Rada passed Draft Law No. 8158 on 13 December 2022, which laid the groundwork for Ukrtransgaz’s certification as a gas storage operator compliant with EU regulations. The certification procedure came into effect on 25 January 2023.

On 13 December 2022, the same day that the law was adopted by the Verkhovna Rada, the NEURC approved a draft resolution that defines the certification procedure itself.

The certification is necessary to allow the EU countries’ strategic gas reserves to be stored in Ukrainian underground gas storage facilities, Ukrtransgaz explained.

Infrastructure

Ukrzaliznytsia completes formalities for rescheduling its $895 million Eurobonds. On 27 January 2023, Ukrzaliznytsia completed the final formalities for rescheduling the maturity of its $895 million Eurobonds.

As we reported in SOE Weekly (Issue 67), Ukrzaliznytsia successfully completed the restructuring of payments for two Eurobond issues totalling $895 million. Interest and principal payments on Ukrzaliznytsia bonds were deferred for two years.

Repayments of Eurobonds issued in 2019 ($ 594.9 million) were deferred from 2024 to 2026; payments for the 2021 issue ($ 300 million) were deferred from 2026 to 2028. Coupon payments due in 2023-2024 were deferred until January 2025 with possible capitalisation.

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

The Prosecutor General’s Office announces seizure of UAH 32 million from sanctioned Russian oligarch Oleg Deripaska. On 30 January 2023, the Prosecutor General’s Office (PGO) announced the seizure of UAH 32 million of the largest producer of metallurgical alumina and aluminium hydroxide in Ukraine. This producer is the Mykolaiv Alumina Plant LLC, which belongs to the sanctioned Russian oligarch Oleg Deripaska.

According to the PGO, these funds were in the account of the State Customs Service. In general, at the PGO’s request, Deripaskaʼs assets worth more than UAH 1 billion were seized.

Previously, the courts had seized 12 land plots, a seaport complex, apartments, administrative buildings, production workshops, 46 vehicles, and 240 units of special equipment, PGO reported.

In SOE Weekly (Issue 70), we reported that the Ministry of Justice filed a lawsuit with the High Anti-Corruption Court (HACC), seeking to seize assets belonging to Deripaska.

According to the Ministry, Deripaska’s Rusal group, one of the world’s largest aluminium producers, supplies aluminium products to Russia’s defence industry, which uses them to produce weapons and ammunition.

Some of these aluminium products are made of raw materials of Ukrainian origin, produced by Mykolaiv Alumina Plant LLC.

Deripaska owns significant assets in Ukraine through a group of related companies, namely: Mykolaiv Alumina Plant LLC, Hlukhiv Quartzite Quarry LLC, Khust Quarry PJSC, Zhezheliv Quarry PJSC, Guardon Ukrainy LLC, Aluminium Company of Ukraine LLC, Metallurg Service Centre LLC, CHAS IT LLC, Okhrana NGZ LLC, Mykolaiv Accounting Centre LLC, Mykolaiv Charitable Foundation Centre for Social Programmes, Zaporizhzhia Lumintorh LLC, and Zaporizhzhia Industrial Aluminium Combine. These assets include non-residential real estate and equipment.

Procurement Notices – powered by ProZorro

Together with ProZorro, we selected procurement notices announced by top 15 Ukrainian SOEs and four state-owned banks from 26 January to 1 February with an expected value of more than UAH 1,000,000. State Food and Grain Corporation, Automobile Roads of Ukraine, and PrivatBank are not subject to the requirement to use ProZorro by law and have not used it in the past two years.