You're reading: Kovaliv’s ambitious plans for rebuilding nation’s economy

With one foot in the Economy Ministry and the other in the management of two of Ukraine’s biggest state-owned monopolies, First Deputy Economy Minister Yuliya Kovaliv is poised to take the top job if she wants.

In fact, former Economy Minister Aivaras Abromavicius and a current colleague, Deputy Economy Minister Nataliya Mykolska, both suggested that she take over the ministry when the previous government of Arseniy Yatsenyuk was still in office.

She didn’t get the job but has been kept as first deputy minister by Abromavicius’ successor, Stepan Kubiv.

“I think I can achieve the best results working here,” Kovaliv told the Kyiv Post during an interview on May 12 at the Cabinet of Ministers of Ukraine. “Besides, I’m not a politician, and the position of the minister is more of a political position. In terms of real results, it’s much easier to achieve results at the position of deputy minister, because you have no direct responsibility to be a politician.”

Kovaliv’s approach might be best summarized as rebellion against Soviet thinking.
“We have a lot of paternalism in people’s heads,” Kovaliv. “The state can’t be the mother and father to everyone. People have to try to understand that they really are the owners of their lives and the owners of their own success.”

Mixed background

The 33-year-old Kovaliv, an Ivano-Frankivsk native, graduated with honors from Kyiv-Mohyla University in 2005 with an economics degree. She also took a short course in leadership and public sector management at Harvard University’s Kennedy School of Government.

She then worked at Ernst and Young, now EY, and then as the financial director of Gazeks Ukraine, a gas company owned by Russian oligarch Viktor Vekselberg.

“It was 2008-2009, so there was no big politics,” Kovaliv said. “And this company was really one of the most transparent in the market.”

Later, in 2012, she worked on a McKinsey & Company project where she was in charge of drafting energy sector reforms for the government.

“We tried around 7-8 times to draft and approve the law on independent (electricity) regulators,” Kovaliv said. “Unfortunately, it’s still not been implemented, although the legislation has really been ready since 2012.”

New government

After the 2013-2014 EuroMaidan Revolution, Kovaliv was appointed in August 2014 to the National Commission on Energy Sector and Communal Services Regulation. Less than a year later, in June 2015, she was appointed as first deputy minster of the Economy Ministry.

She sees Kubiv, who is also a vice prime minister in the government, as the right man to replace Abromavicius.

“The very important thing… is that the new minister asked all of us to stay,” Kovaliv said. “All of the deputy ministers in our team are staying.”

The only new deputy minister that will be brought in is the one who will replace Ruslan Korzh, who was responsible for state property management and industrial policy at military state-owned enterprises.

So the priorities remain the same and Kubiv, as first vice prime minister, might have the clout “to help us to see success more quickly,” she said.

Privatize everything!

Kovaliv wants to privatize almost all of the nation’s 3,500 state-owned enterprises, half of which are idle. So far, only about 40 have been privatized. Kovaliv says the state should own only about 100 enterprises

Her priority now is to cut the list of companies that are banned from privatization, particularly in the agriculture and infrastructure sectors. The Economy Ministry is currently working on a detailed inventory of every state-owned enterprise.

Those state-owned enterprises that can’t be sold off will be liquidated.

“We are now discussing with the State Property Fund the establishment of a special unit that will be fully in charge of the liquidation of state-owned enterprises,” Kovaliv said. “Because if this task spread out among all of the ministries, it’ll be very hard for ministers or for the head of any government body to manage.”

Another priority for Kovaliv is to see the draft law on corporate governance approved in parliament. It was vetoed by President Petro Poroshenko. Kovaliv said the law would ensure transparency in corporate governance.

State-owned Naftogaz significantly cut its losses in the last year.

State-owned Naftogaz significantly cut its losses in the last year. (Volodymyr Petrov)

Cleaning up Naftogaz

Kovaliv is the only person who is a member of the board of directors of both of the nation’s two largest state-owned monopolies – Naftogaz and Ukzaliznytsia.

Naftogaz is “really the first case of good corporate governance reform, and at the biggest oil and gas company in the country,” she said. The board consists of three independent board members, plus one supervisory member appointed by the president – former Energy Minister Volodymyr Demchyshyn – and another appointed by the Cabinet – Kovaliv – who is also the chairperson of the board.

Naftogaz delays

Naftogaz has carried out a number of reforms since 2014, such as changing its administration to a more pro-Western technocratic one, cutting down on imports from Russia, raising domestic gas prices closer to European Union standards, and reducing its dependence on subsidies from the state budget – to the point where Naftogaz will not need state subsidies this year.

But the unbundling process, which would separate gas suppliers from distributors and operators and make it easier for independent companies to compete, has been delayed.

The European Commission has set June 1 as the deadline for unbundling, Vice President of the European Commission Maros Sefcovic said at an energy conference in Kyiv in March. “Failure to meet this deadline would send a very bad signal to investors in the gas and energy sector… namely that Ukraine is not ready for deep reforms, or sufficiently committed to them,” Sefkovic said.

But Kovaliv says that Ukraine will meet this deadline.

“We’re obliged to,” Kovaliv said. But “we’re not talking about a date for actual unbundling, we’re talking about the date when we have to adopt a model for unbundling.”
Smart subsidies

Kovaliv says Naftogaz will cut subsidies to consumers, but still give them to those who really need help. In 2014 subsidy payouts totaled Hr 110 billion ($4.4 billion) from both the state budget and the gas monopoly. In 2015 that figure fell to Hr 43 billion ($1.72 billion), with Hr 25 billion ($1 billion) coming from the state budget and the rest from Naftogaz. In 2016 there will be no help coming from the state budget, and Naftogaz will pay Hr 40 billion ($1.6 billion) in subsidies.

“We’re becoming more efficient in terms of what we subsidize, and what’s more important, to whom we give these subsidies,” Kovaliv said.

If Ukraine can hold gas prices at international levels, while investing into extraction and sustainable energy, Kovaliv says Ukraine could be nearly energy independent by 2020.
“That means we won’t be importing gas, it means that we’ll have energy security, and it means that gas won’t be a political issue,” Kovaliv added.

Sustainable energy

Kovaliv believes renewable energy could account for 11 percent of Ukraine’s energy sector in just four years, up from 1 percent now.

“Honestly speaking, our regulations on renewables are some of the most favorable of all European countries,” Kovaliv said.

“We’re a big agricultural country, and we’re just losing all of this agricultural waste, which could be used in biomass and biogas production,” Kovaliv said. “This really is a new market, a new opportunity, but still we need to give the signal to investors.”

But parliament is stalling while big investors complain that Ukraine lacks political stability. To some extent, Kovaliv said, they are right: “Every year, each month, there’s another debate on whether we’ll reduce the green tariffs, or increase them and change the regulations, and so on so forth.”