Editor’s Note: This is the 48th issue of Ukrainian State-Owned Enterprises Weekly covering events from Oct. 14-23, 2021.
Corporate governance in SOEs
Competitive selection of independent members of Naftogaz’s supervisory board announced
On Oct. 23, the Ministry of the Economy announced a competitive selection for four positions of independent supervisory board members for Naftogaz.
The selection will follow the procedures set by the Cabinet of Ministers Resolutions Nos. 777 and 142, which govern the nomination and appointment of independent members to SOEs’ supervisory boards. That is, the selection will be carried out by the SOE Nomination Committee.
The announcement also contains qualification requirements for the candidates, including requirements regarding the necessary competencies and personal characteristics. Applications will be accepted until Dec. 6, 2021.
[From November 2017 to May 31, 2021, Naftogaz was exempt from the Cabinet of Ministers resolutions governing the nomination and appointment of supervisory board members at SOEs. As a result, the SOE Nomination Committee was not involved in the nomination of the members of Naftogaz’s previous supervisory board. Naftogaz’s previous supervisory board was selected and appointed via direct consultations between the government, foreign embassies, and international partners, rather than via a transparent competitive selection process prescribed by the OECD Guidelines on Corporate Governance of State-Owned Enterprises. – SOE Weekly. In SOE Weekly (Issue 42), we reported that Prime Minister Denys Shmyhal instructed Oleksiy Lyubchenko (First Deputy Prime Minister and Minister of the Economy) to announce a competitive selection of four independent members of Naftogaz’s supervisory board within one week [by 14 September 2021 – SOE Weekly.]
In order to announce such a competitive selection, the SOE Nomination Committee had to approve the candidate qualification requirements to be included in the announcement.
Ukrzaliznytsia left without a supervisory board
The Cabinet of Ministers approved the early termination of the powers of Adomas Audickas as a state representative on Ukrzaliznytsia’s supervisory board. Audickas was the only remaining member on this board.
[According to the Law of Ukraine “On Joint-Stock Companies”, the general shareholders meeting may exercise the powers of the supervisory board only when one is absent. According to an analysis of this law, a supervisory board only counts as absent if it is optional for a joint-stock company to have one. For Ukrzaliznytsia, having a supervisory board is mandatory, in accordance with the Law of Ukraine “On Management of State Property” and the Cabinet of Ministers’ Resolution No. 142. Even though it has no members right now, the board is not legally “absent.” Thus, the Cabinet of Ministers is likely to have no legal right to make decisions in lieu of the supervisory board. – SOE Weekly.]
In SOE Weekly (Issue 45), we reported that the SOE Nomination Committee announced a competitive selection of independent supervisory board members for Ukrzaliznytsia. Candidates can submit their applications until Oct. 29, 2021.
Also, in SOE Weekly (Issue 44), we reported that the Cabinet of Ministers did not extend the powers of Ukrzaliznytsia’s supervisory board chair Şevki Acuner and supervisory board members Sergii Leshchenko, Andreas Matje, and Oleh Zhuravlyov.
Then, in its release, the Ministry of Infrastructure said that Audickas was the only board member (state representative) whose powers and contract remained valid until June 2022.
In SOE Weekly (Issue 41), we reported that Ukrzaliznytsia hired a head-hunting agency to select candidates for the positions of the CEO, executive board members, and four independent supervisory board members.
Top 14 SOEs make Hr 13 billion ($494 million) in profits in the first half of 2021 (unaudited)
Based on financial statements of the 14 largest Ukrainian SOEs published by Marlin, these enterprises earned about UAH 13 billion by the mid-year.
Of the 14 enterprises, eight were profitable – collectively, they earned Hr 14.8 billion. These SOEs include:
- Ukrhydroenergo (Hr 6.2 billion);
- Gas Transmission System Operator of Ukraine (Hr 5.6 billion);
- Energoatom (Hr 1.1 billion);
- Ukrainian Sea Ports Authority (Hr 944 million);
- Ukroboronprom (Hr 518 million);
- Ukrenergo (Hr 307 million);
- Polygraph Combine Ukraina (Hr 82 million); and
- Agrarian Fund (Hr 8 million).
Another six companies were loss-making. They ended the first half of the year with a collective loss of Hr 1.9 billion. These SOEs include:
- Ukrzaliznytsia (loss of Hr 1.4 billion);
- UkSATSE (loss of Hr 260 million);
- State Food and Grain Corporation (loss of Hr 87 million);
- Automobile Roads of Ukraine (loss of Hr 73 million);
- Boryspil International Airport (loss of Hr 73 million);
- Ukrposhta (loss of Hr 9.7 million).
[Note that the above results are based on intermediate, unaudited financial reporting. The audited annual results will provide a more reliable picture, which may differ from that produced by the intermediate results. – SOE Weekly.]
The list does not include the financial result of Naftogaz, as the company did not publish or submit its financial statements to the Ministry of the Economy. Marlin also said that Naftogaz refused to provide its financial statements at their request.
As we wrote in SOE Weekly (Issue 42), when the independent members of Naftogaz’s supervisory board filed their two-week resignation notices on Sept. 7, according to Ekonomichna Pravda, they said that the financial statements of Naftogaz for the first half of 2021 were being prepared and should be ready by Sept. 20.
SOE updates
Banks
Fitch affirms PrivatBank’s ratings at ‘B’, outlook positive
The international rating agency Fitch Ratings affirmed PrivatBank’s Long-Term Issuer Default Ratings (IDRs) at ‘B’ with a Positive Outlook.
Fitch also affirmed the bank’s Viability Rating (VR) at the current level of “b” and National Rating at ‘AA(ukr)’ with a Stable Outlook.
According to Fitch, the Positive Outlook on PrivatBank’s IDRs mirrors that on the sovereign rating. The affirmation of PrivatBank’s National Rating reflects the bank’s unchanged creditworthiness relative to peers’ within Ukraine.
Ukreximbank to auction the right to claim loan repayment worth billions of hryvnias
Ukreximbank is selling its borrowers’ loans at a SETAM auction with a starting price of Hr 7.1 billion.
The loans were secured by a collateral in the form of Sky Towers, unfinished premium skyscrapers in Kyiv with an area of 223,000 square meters.
The auction is to take place on Nov. 3, 2021. The bank said that the starting price is the remainder of the debt owed to Ukreximbank on the above loans, including the principal loan amount, interest accrued, commissions, fines, and penalties.
Energy sector
Centrenergo is collecting money to buy coal
Centrenergo has built up Hr 1.5 billion in its accounts to buy coal. According to Yuriy Boyko, adviser to the prime minister, the funds come from three main sources:
- Redirected payment from the balancing market intended for Energoatom and Ukrhydroenergo (Centrenergo has already received Hr 440 million from this source, and another Hr 250 million will come in by the end of the month);
- Centrenergo’s sale of electricity to Naftogaz under direct contracts (Hr 390 million has already been paid); and
- Centrenergo’s own sales of electricity in the open market.
Boyko said that in future billing periods, funds allocated to Centrenergo would be directed back to Energoatom and Ukrhydroenergo. He also explained that both state-owned and private banks refused to provide loans to Centrenergo.
[It is unclear on which terms such re-assignment of payments, which de facto represents a loan from two SOEs to another SOE, occurred. The interest rate and other terms are also unknown. Note that according to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, transactions between SOEs should take place on market-consistent terms. – SOE Weekly.]
In SOE Weekly (Issue 47), we reported that Naftogaz’s subsidiary bought 215,900 MWh of electricity from Centrenergo for Hr 377.8 million.
We also reported in SOE Weekly (Issue 42) that the Ministry of Energy was initiating a reallocation of funds from the State Reserve to Centrenergo for the purchase of 1 million tons of coal.
In SOE Weekly (Issue 40), we reported that Centrenergo did not have the money to procure a sufficient supply of coal for the upcoming “heating season.” The Ministry of Energy asked the state-owned Oschadbank and Ukreximbank to lend the money.
As we wrote in SOE Weekly (Issue 37), Centrenergo reported a loss of UAH 591.2 million in the first half of 2021.
Centrenergo is slated for privatization.
Regional gas companies to repay Hr 11 billion ($418 million) debt to GTSOU via special accounts
According to Ekonomichna Pravda, the Cabinet of Ministers introduced special accounts for regional gas companies to repay a debt of Hr 10.9 billion to the Gas Transmission System Operator of Ukraine (GTSOU).
The procedure approved by the government provides for the opening of special accounts in authorized banks. Part of the funds paid by consumers for gas distribution will be automatically transferred to GTSOU as debt repayment.
In SOE Weekly (Issue 45), we reported that on the eve of the “heating season”, the debt of regional gas companies to GTSOU was Hr 8.8 billion. Most of this amount – Hr 6.2 billion – is the debt of Regional Gas Company Group’s companies related to the oligarch Dmytro Firtash.
Infrastructure
Ukrzaliznytsia intends to increase railway tariff for first-class cargo, which will hit oligarchic clients
Ex-member of Ukrzaliznytsia’s supervisory board, Sergii Leshchenko, said that the Ministry of the Economy approved a draft order of the Ministry of Infrastructure which will make oligarchs pay Hr 2.3 billion more for using the railroad.
Leshchenko said that the approval of the Ministry of Finance had been received earlier, and the only approval that was pending was that of the State Regulatory Service.
According to the draft order, Ukrzaliznytsia’s railway tariff for the transportation of first-class cargo will be increased by 9% from Jan. 1, 2022.
Leshchenko explained that first-class cargo includes iron ore, which is one of the key sources of Rinat Akhmetov’s revenues.
Defense
Ukroboronprom launches its transformation
Ukroboronprom’s CEO Yuriy Husyev told on his Facebook page about the steps taken to convert Ukroboronprom’s enterprises into joint-stock companies, per the recently adopted Law 1630-IX (previously known as Draft Law No. 3822).
In SOE Weekly (Issue 36), we reported that the Verkhovna Rada adopted Draft Law No. 3822 on reforming state-owned defense enterprises.
The law has improved compared to its version voted in the first reading, which we discussed in SOE Weekly (Issue 31). However, as we reported in Issue 36, the law may still be risky for the effective implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises.
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, Mariia Kramar, Dmytro Yablonovskyi, and Oleksandr Lysenko. The SOE Weekly is produced and financed by Andriy Boytsun. Communications support is provided and financed by CFC Big Ideas. The SOE Weekly is not financed or influenced by any external party. © 2020–2021 Andriy Boytsun, all rights reserved. Spaces – Maidan Plaza || Maidan Nezalezhnosti 2, Kyiv 01012, Ukraine Email: [email protected] || Telephone: +380 44 247-7829
