Privatization
- The state budget receives half a billion hryvnias from the privatization of distilleries. According to the State Property Fund, the state budget received Hr 963.3 million from privatization in the first quarter of 2021, including Hr 498.7 million from the privatization of alcohol distilleries.
Corporate governance in SOEs
- The government dismissed Taras Kyrychenko from Oschadbank’s supervisory board and replaced him with Rosa Tapanova.
The Cabinet of Ministers of Ukraine (CMU) removed Kyrychenko by CMU order № 268-r, on April 1, 2021. The CMU had appointed Kyrychenko to the board as a state representative on Dec. 4 2019. He had previously served as CEO of Pravex Bank from 2013 to 2019. After Kyrychenko’s dismissal, by its order № 269-r, dated 2 April, the CMU appointed Rosa Tapanova as a state representative to Oschadbank’s supervisory board instead.
Tapanova is the head of the national historical and memorial preserve Babyn Yar. Tapanova also worked at the advocacy union (law firm) Mizhnarodna Pravnycha Kompaniia, which had been founded and co-owned until 2019 by Andriy Yermak, head of the President’s Office.
[According to Article 7 of the Law on Banks and Banking, the supervisory board of a state-owned bank (SOB) should consist of nine members, including six independent members and three state representatives. The three state representatives are appointed by the president, the CMU, and Verkhovna Rada, respectively. All supervisory board members should comply with professional and reputation requirements. We are unaware of Tapanova’s relevant experience for serving on the supervisory board of Oschadbank. All supervisory board members should be approved by the National Bank of Ukraine after their election. There is no news on NBU’s approval of Tapanova’s candidacy yet.]- Zhmak challenges his dismissal. Former CEO of Ukrzaliznytsia Volodymyr Zhmak challenged the government’s decision on his dismissal in court.
Zhmak filed a lawsuit against Ukrzaliznytsia and the Cabinet of Ministers of Ukraine demanding to cancel the decision on his dismissal and declare illegal the government’s order to appoint Ivan Yuryk as acting CEO.
However, the Commercial Court of Kyiv denied Zhmak’s claim. In particular, the court refused to prohibit the CMU from deciding on the election/appointment of a new CEO or acting CEO of Ukrzaliznytsia, as well as the selection of candidates for the CEO position.
In SOE Weekly (Issue 19), we reported that Ukrzaliznytsia’s supervisory board proposed to dismiss Zhmak by unanimous vote, after which the CMU dismissed Zhmak at its meeting. His duties are temporarily assigned to management board member Ivan Yuryk.
SOE updates
Banks
- Oschadbank’s strategy rejected by the government. According to an excerpt from minutes No. 44 of the Cabinet meeting on April 2, the government refused to approve Oschadbank’s development strategy.
The Ministry of Finance was instructed to inform Oschadbank’s supervisory board about reservations and proposals from the Ministry for Reintegration and Ministry of the Economy. Oschadbank must finalize the strategy within a week and re-submit the draft to the Cabinet of Ministers of Ukraine (CMU) for its approval.
According to the media, the Ministry of Finance and Oschadbank’s supervisory board have been working on the strategy for the past three months.
We reported in SOE Weekly (Issue 03) that, on Nov. 11, 2020, the Cabinet of Ministers approved the Main Directions of Activity for Oschadbank for 2020–2024. According to the Main Directions, Oschadbank must continue to strengthen its position in retail lending and commission products, as well as maintain its position in corporate business and micro, small and medium businesses, while decreasing the SOE lending portfolio.
According to the media, the government decreed that Oschadbank should ensure its accession to the Individuals’ Deposit Guarantee Fund as from 1 January 2021. This has not happened yet.
[It is remarkable that Oschadbank’s strategy approval process involved the Ministry for Reintegration and Ministry of the Economy. It is unclear why these ministries were involved at all and why their comments led to the rejection of the bank’s strategy by the CMU.According to Article 7 of the Law on Banks and Banking, the CMU is the highest governing body of a state-owned bank (SOB). The decisions of the highest governing body are formalized by acts of the CMU, drafts of which are prepared and submitted to the CMU by the central executive body that ensures the development of the state’s financial policy (i.e., the Ministry of Finance). These draft acts are not subject to coordination with other interested bodies.
Thus, if Oschadbank’s draft strategy was rejected because it was not approved by other ministries, this might be a violation of the law.
Other bodies are not to be involved in such coordination in order to make sure that conflicts of interest are avoided and the risk of political interference minimized.
It is unclear what the roles of the Ministry for Reintegration and Ministry of the Economy are towards Oschadbank. There is a risk that such “co-ordination” could lead to the introduction of public service obligations (PSO) for Oschadbank without proper reimbursement from the state budget. Such coordination may open doors for undesired political meddling.
According to the Organization for Economic Cooperation and Development guidelines on corporate governance of state-owned enterprises: the state should implement effective separation between the different state roles with regard to SOEs; SOEs need to be adequately compensated for the fulfilment of public policy objectives; and the state as an owner should avoid undue political interference. – SOE Weekly.]
Energy sector
- Gazprom is reducing gas transit through Ukraine. According to Serhiy Makogon, CEO of Gas Transmission System Operator of Ukraine (GTSOU), after the Turkish Stream gas pipeline was launched, gas transit to Turkey, Greece and Bulgaria completely switched to the new pipelines, reducing transit through Ukraine.
Currently, gas moving southwards through Ukraine only goes to Moldova. If the Turkish Stream gas pipeline expands through Bulgaria and Serbia, Gazprom will also use this pipeline to transport gas to Hungary.
For Ukraine, this means an additional loss of 10-12 billion cubic meters of gas transit per year. Makogon stated that it is very important to make sure that the construction of Nord Stream 2 should not be completed.
He added that, from April 1, gas supplies to Romania will be fully provided by Bulgaria via the Turkish Stream.
On Jan. 1, 2020, the transit contract that Naftogaz and Gazprom had signed in 2009 expired. On Dec. 30, 2019, a new transit contract was signed, as well as a transport agreement between Naftogaz and the GTSOU and an inter-operator agreement between GTSOU and Gazprom. The new transit contract provides for the transmission of at least 65 billion cubic meters of Russian gas through Ukraine in 2020 and 40 billion cubic meters in 2021-2024.
- Persons allegedly affiliated with Ihor Kolomoisky earned Hr 370 million on Ukrvuhlezbahachennya Group LLC, allegedly related to Ihor Kolomoisky, has reportedly made Hr 120 million by reselling state coal to Centerenergo, and owes Hr 250 million to coal mines.
According to an investigation by journalists, in mid-March, Centerenergo’s press service stated that, in early 2021, the coal mines supplied coal to the company through a middleman, Ukrvuhlezbahachennya Group LLC, despite the Ministry of Energy’s order banning the supply of coal through private intermediaries without prepayment.
According to the journalists, in January-February Ukrvuhlezbahachennya sold about 400,000 tons of coal to Centrenergo. The intermediary bought this coal from coal mines for an average of Hr 1,200/ton and resold it to Centrenergo at an average price of Hr 1,640/ton.
Discounted by the cost of enriching the purchased coal, Centrenergo’s estimated earnings in just two months were Hr 120 million.
At the same time, according to the investigative journalists’ sources at the Ministry of Energy, Ukrvuhlezbahachennya still owes the mines about Hr 250 million for the coal supplied. If this outstanding debt is included in the calculation, then Ukrvuhlezbahachennya has made Hr 370 million in total.
In SOE Weekly (Issue 19), we reported that, according to Centrenergo, coal supplies from state-owned mines to Centrenergo were made through a private company, Ukrvuhlezbahachenyya, that did not pay the state-owned mines.
Ukrvuhlezbahachennya has all the characteristics of a dubious intermediary. According to the State Register of Legal Entities, the company has an authorized capital of as little as Hr 500 and is owned by a person unknown in the market, registered in Cherkasy. In addition, until November 2020, the company was called Construction Group Montazh-Bud and was classified as a residential and non-residential construction company before it changed to coal mining.
Infrastructure
- Searches at Ukrzaliznytsia’s central office. According to Yulia Hryshyna, the chair of the Temporary Commission of Inquiry of the Verkhovna Rada, the State Bureau of Investigation (DBR) searched the headquarters of Ukrzaliznytsia.
On April 8, the National Police announced that they uncovered a scheme that involved importing more than 600 railway cars from Russia to Ukraine. [Railways cars are among the goods that, according to the Cabinet of Ministers Resolution No. 1147, dated 30 December 2015, may not be imported from Russia. – SOE Weekly.]
The DBR suspects that the railway cars were brought to Ukraine in breach of law and registered using forged documents.
According to the media, the searches took place in the office of Adomas Audickas, a member of Ukrzaliznytsia’s supervisory board (state representative), because of his possible involvement in the mentioned illegal imports.
[It is unclear why the DBR only searched the office of Adomas Audickas, whether other supervisory board members also have offices at the headquarters of Ukrzaliznytsia, and whether these have been searched as well.It is also unclear whether the railway cars were imported for Ukrzaliznytsia or some other carrier(s). Even if the cars were imported for Ukrzaliznytsia, the corporate governance set-up of Ukrzaliznytsia would not allow an individual supervisory board member to single-handedly decide on the transaction.
This suggests that – if DBR suspects that a supervisory board member was involved in the scheme – then they think that he acted in a different role rather than abused his powers as a supervisory board member. – SOE Weekly.]
Defense
- Ministry of Defense loss-making hotels. State-owned hotels run by the Ministry of Defense suffer net losses and decay year after year.
According to the media and the financial reports, Kozatskyy hotel, located in Ukraine’s central square – Maidan Nezaleshnosti in Kyiv, reported a net loss of Hr 12.2 million in 2020; Vlasta hotel, located in Lviv, lost Hr 251,000 in 2020; and Bratislava hotel in Kryvyi Rih lost Hr 820,000 in the first nine months of 2020.
The State Property Fund (SPF) had requested all three hotels to be transferred from the Ministry of Defense to the State Privatization Fund for privatization, as these are not the ministry’s core assets and are loss-making. However, the ministry rejected the idea of privatization and kept the hotels under its control.
In 2019, the National Anti-Corruption Bureau (NABU) investigated abuse by officials of the Kozatskyy hotel. According to NABU detectives, from 2015 to 2019, hotel’s officials used online booking services to channel customer payments to their private accounts rather than the hotel’s accounts. As a result, the state-owned hotel suffered damages of Hr 12.09 million.
[Notably, there is no rationale for the state, in general, and the Ministry of Defense, in particular, to own hotels. This also contradicts the government-declared basic principles of state ownership policy. As hotel services are readily available from private providers in the competitive market, state-owned hotels should be privatized. – SOE Weekly.]Procurement Notices – powered by ProZorro
Together with ProZorro, we selected procurement notices announced by the top 15 Ukrainian SOEs and four state-owned banks from March 25- 31 with an expected value of more than Hr 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.
Ukrainian SOE Weekly 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
