Ukraine’s embattled energy sector has been further shaken by polemics regarding the dismissal of Ukrenergo CEO Volodymyr Kudrytskyi on Aug. 30.
Two days later, international financial institutions working with Ukraine – the European Bank of Reconstruction and Development, International Finance Corporation (IFI), Ambassador to the EU in Ukraine, and Business Ombudsman Council – reacted to the dismissal, expressing their “grave concern” in an official letter to Ukrainian Prime Minister Denys Shmyhal.
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Ukrenergo is a state-owned electricity transmission system operator overseen by Ukraine’s Ministry of Energy, but it underwent a corporate governance reform and formed its own supervisory board. Its key role is to monitor the balance of Ukraine’s electricity generation and consumption.
“If you generate too much electricity, the equipment will break down. If you consume too much, it will also break down. Ukrenergo’s job is to create a state in which electricity is consumed as much as it is generated,” Managing Director of Energy Industry Research Center (EIR Center) Oleksandr Kharchenko explained to Kyiv Post.
The official justification for Kudrytskyi’s dismissal is unfinished defensive constructions of high-voltage grid facilities that allegedly led to interruptions in the supply of electricity after Russian missile strikes on Aug. 26, Forbes reported.
Financial Stress Index in Ukraine Lowest Since February 2022
Apart from their opposition to dismissal, the IFI representatives and other signatories of the letter of concern also noted the delay in finalizing the selection of the seventh Ukrenergo supervisory board member. The six board members were already appointed but the institution hasn’t been full since 2022, despite having completed the interview process.
“We kindly request that any decision about the dismissal of the chairman of Ukrenergo will consider the consequences and be processed in full compliance with the highest corporate governance standards which would include consideration by a fully staffed and majority independent Supervisory Board,” the letter said.
But to no avail. On Monday night, Sept. 2, the Ukrainian media informed the public about Kudrytskyi being ousted by Ukrenergo’s supervisory board.
The following day Daniel Dobbeni and Peder Andreasen, Ukrenergo Supervisory Board members, released a statement in which they announced their dismissal from the board – and noted that the reasons for Kudrytskyi’s ousting were largely political.
“We strongly believe that the decision on the early dismissal of the CEO of Ukrenergo is politically motivated and, based on the results of the presented report, there are no valid grounds for it,” Dobbeni and Andreasen wrote.
Kudrytskyi himself stated in his post on Facebook that before his ousting, Telegram blogs and “some media” systematically posted “almost identical and unsubstantiated messages, aimed at destroying the company’s image.”
Why Kudrytskyi was dismissed: various versions
The official version of unfinished defense facilities over energy infrastructure has been denied by Kudrytskyi. “The Supervisory Board’s decision regarding my dismissal has nothing to do with the issue of the security of Ukrenergo substations,” Kudrytskyi wrote in his Facebook post.
He said that more than 60 anti-drone defense constructions were built at Ukrenergo high-voltage grid facilities. “I presented a detailed report on each facility to the members of the Supervisory Board. And the members did not have any questions regarding the issue,” the post said.
Ukrenergo did not use a single penny from Ukraine’s budget to finance these constructions, “because they were all built with international aid.” That was not a magic pill, but it facilitated the restoration of electricity transmission within days after the Russian strikes, according to Kudrytskyi.
Ukrenergo Supervisory Board members Daniel Dobbeni and Peder Andreasen also did not criticize the defense construction project in their statement. “The pace of restoration of the high-voltage grid after unprecedented missile and drone attacks allows the Company to fully perform the function of the power system operator,” they wrote.
Ukrainian media outlet Monopolist – run by ex-Biznes.Censor editors Yuriy Vynnychuk and Serhiy Holovnyov – were the first ones to warn about a possible dismissal. They tie the decision to energy minister Herman Halushchenko appointed by Ukraine’s parliament in 2021.
Back then, Halushchenko was proposed to as a minister of parliament by the Office of President Volodymyr Zelensky. Davyd Arakhamia, head of the president’s Servant of the People party, told BBC Ukraine Halushchenko “repeatedly participated in working meetings on the situation in the energy sector and has proven himself as a professional person.”
Halushchenko worked in Ukraine’s largest nuclear energy state company, Energoatom. First, he used to be a lawyer and worked in the Office of the President from 1997 to 2010, then in Ukraine’s Ministry of Justice, only to join Energoatom in 2020.
Monopolist reported that Halushchenko wants to take control over Ukrenergo’s cash flow of Hr.100 billion annually ($2.4 billion), and financial aid from the Western partners of $1.5 billion alongside the opportunity to purchase construction resources to build energy grids cheaper than Energoatom and Ukraine’s Ministry of Reconstruction, led by another minister proposed by Zelensky, Oleksandr Kubrakov.
Halushchenko’s will to control Ukrenergo was confirmed by a Kyiv Post source who used to work in the Ministry of Energy but wished to remain unnamed. “Ukrenergo behaved independently, and the Ministry of Energy wasn’t pleased, potentially causing envy,” the source said.
“Halushchenko has been at war with Ukrenergo and its corporate governance since 2021. I am very sure, that this is nothing other than his move to regain control of the financial inflow of the company,” Kharchenko agreed in a comment for Kyiv Post.
“A professional person” with a will to control Ukrenergo’s independence
On Aug. 8, Ukrenergo held a conference dedicated to decentralized energy. Ukrenergo presented their suggestions on how to boost businesses to find resources for building smaller electric grids and also sell the same electricity to Ukrenergo, for everyone to remain profitable.
When foreign and Ukrainian representatives gathered at the conference, representatives from Ukraine’s Ministry of Energy were conspicuously absent.
“Ukrenergo formed a successful corporate governance, without letting the energy minister take all the credit for the work they had done,” the Kyiv Post source said.
In the letter to the prime minister, IFI representatives noted Ukrenergo’s successful work with Western partners, particularly in cooperation with IFI and becoming a member of ENTSO-E, the power system of Continental Europe into which the power system of Ukraine has now been integrated.
Ukrenergo also prepared the power system of Ukraine for disconnection from the power systems of Russia and Belarus in order to integrate it with the European grid.
Membership in ENTSO-E has helped Ukraine import electricity starting from the first blackouts caused by Russian missile attacks in October 2022, when the country’s resources to cover its needs became scarce.
“During the full-scale war, Ukrenergo attracted more than €1.5 billion of international support for restoring the power system, maintaining liquidity, and building engineering protections,” the supervisory board members’ statement said.
Allocating such a huge sum is a precedent for any state-owned company in Ukraine since they usually lack trust from partners. “No other Ukrainian energy company has received such money from foreigners,” Oleksandr Parashchii, head of research at Concorde Capital, told Kyiv Post.
Kudrytskyi became Ukrenergo’s chairman in 2020, and the state-owned enterprise has a list of other achievements since then. In 2021, Ukrenergo issued a 5-year Green and Sustainability-linked Eurobond for a $825 million at a 6.875 percent yield.
Moreover, Ukrenergo created reserves of equipment for power grids in case the equipment were destroyed due to Russian attacks on the energy infrastructure.
“Ukrenergo built an emergency system that helped effectively operate the system during Russian strikes and after them,” Kharchenko told Kyiv Post.
The Ministry of Energy could not boast such results. Shortly after the Aug. 26 strikes, Ukrainian lawmaker Yaroslav Zheleznyak accused Halushchenko of publicly lying to parliamentarians when the International Atomic Energy Agency (IAEA) reported that its unit 2 at the South Ukraine nuclear power plant was temporarily shut down due to a transformer problem in the 330 kV open switchyard.
This caused blackout in Ukraine for almost seven hours after a wave of Russian strikes – the power system had few resources to reconnect electricity after the strikes. But Halushchenko previously reported this information is a lie, according to Zheleznyak.
Zheleznyak also has also reported on Energoatom’s systemic procurement corruption – prices can be higher by millions of hryvnias, he wrote in his blog. Ukrainian lawmakers did not want to vote for the construction of two nuclear reactors at the Khmelnytsky Nuclear Power Plant and opposed the idea of rebuilding an abandoned Chyhyryn nuclear power plant from scratch.
“Investing billions now in one facility, on which millions of Ukrainians depend at the same time, is idiocy and corruption. The new nuclear power plant is a convenient target for Russian missiles and drones,” Ukrainian lawmaker Inna Sovsun wrote on her Facebook page.
Halushchenko’s ideas, however, did not seem to bother the President’s Office. Nor did the scandal around another destroyed corporate governance in a state-owned company – something the Western partners invested their money and effort in, not to mention the efforts of the Ukrenergo team.
“Our protection system has worked, but there is serious damage to our power system. Our energy workers and emergency services specialists are fighting, I am very grateful to them,” Zelensky said during his latest press conference on Aug. 28.
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