At the end of April, all the Supervisory Board members of Ukraine’s largest oil and gas company Naftogaz filed their resignation notices effective on 14 May 2021.
The mass resignation followed the decision of the Cabinet of Ministers of Ukraine to dismiss Andriy Kobolyev, Naftogaz’s CEO since 2014, a decision defined by Naftogaz as “a legal manipulation.”
“The dismissal of the Supervisory Board for two days in order to make a decision on the dismissal of the Chief Executive Officer is a violation of the basic principles of corporate governance of state-owned enterprises,” read the press statement.
The Cabinet of Ministers cited the unsatisfactory work of the Supervisory Board and the Management Board of Naftogaz in 2020 as the main reason for the dismissal. During the Cabinet’s meeting, the report on the activities of the state company Naftogaz was considered: the net consolidated loss amounted to 19 billion hryvnia (approximately 566.2 million euro) while, at the same time, the company’s financial plan approved by the Cabinet provided for a profit of 11.5 billion hryvnia (approximately 342.6 million euro).
After the meeting, Yurii Vitrenko was elected and appointed as Chairman of the Board of Naftogaz from April 29, tasked with systematically increasing Ukrainian gas production, as well as assisting in the formation of a full and fair gas market in Ukraine.
According to Naftogaz, despite the crisis and the increase in counterparts’ debts due to loopholes created by state regulation, the company provided 141 billion hryvnia (approximately 4.2 billion euro) of revenues to the state budget in 2020, which accounts for 13 per cent of the state revenues last year. In addition, the management has ensured liquidity in the company’s accounts in the amount of 57 billion hryvnia (approximately 1.6 billion euro) at the moment.
“Thus, Naftogaz is the only state-owned company that still has a strong liquidity reserve,” stated the company. “Uncontrolled access to these funds and their misuse threaten Ukraine’s preparations for next winter.”
Filing their resignation, the Supervisory Board members said that such actions of the Cabinet of Ministers are a signal to all state-owned enterprises: working in the interests of the budget and the people of Ukraine and not in the interests of individual political forces, will be punished.
“In addition, it is a clear signal to investors in Ukrainian issuer securities: the working conditions of state-owned enterprises in Ukraine are unpredictable and may change depending on political expediency,” they said.
Naftogaz annual report highlights an active partnership with the government
The report on the activities of Naftogaz actually highlighted the fruitful cooperation with the Government which gave the company new promising licenses for the Yuzivska area and the Black Sea offshore.
“We strive to produce more gas to ensure Ukraine’s energy independence,” said Naftogaz supervisory board chair Clare Spottiswoode. “But we will only develop gas which gives us and the country a good return on our investment.”
Also, former CEO Andriy Kobolyev was hopeful that further cooperation with the government and the regulator would be just as constructive as in 2020, a year that brought different opportunities for the company. In August, the retail gas market for households was launched, enabling Ukrainians to change their gas supplier. Then, the Group got access to new promising areas – Yuzivska, Balakliiska, Ivanivska, Berestianska, Buzivska and the Black Sea shelf, expecting that the development of new sites will quintuple the company’s resource potential up to 600 billion cubic metres (bcm).
Global banking institutions hope for Ukraine to recover and realise its potential
The European Union, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the World Bank and the International Finance Corporation (IFC) have all expressed their concerns about recent events at Naftogaz.
“We call upon the leadership of Ukraine to ensure that crucial management decisions at state-owned enterprises are taken in full accordance with the basic tenets of recognised corporate governance standards,” read a joint statement.
They noticed that Ukraine has made significant progress in recent years on advancing the corporate governance reform of state-owned companies towards transparency, accountability and independence. Therefore, for them, it is imperative to build on this progress to bolster the investment climate and attract much needed private-sector investment in Ukraine.
Now, as reported by Reuters, the issue will be on the agenda when US Secretary of State Antony Blinken will meet President Volodymyr Zelenskiy and other officials during a visit to Ukraine later this week.
Photo: Naftogaz
