Fight over control of state-owned oil company at center of Kolomoisky fight
On the same day he accepted Igor Kolomoisky’s resignation as Dnipropetrovsk governor, President Petro Poroshenko on March 25 signed a bill that allows the state to assert control over joint-stock companies where it has 50 percent plus one share or more voting rights. The law prevents gridlock situations from happening when it comes to decision-making on how earnings get disbursed, for example.
Passed by parliament on March 19, the legislation now lets the state convene a general shareholders meeting at the nation’s largest producer, refiner and retailer of oil, Ukrnafta. State-owned oil and gas monopoly Naftogaz owns 50 percent plus one share of the company, while Kolomoisky controls 42 percent and has loyal management installed that handles the daily operations of Ukrnafta.
After Poroshenko signed the bill, Naftogaz executive director Andriy Pasishnyk said that new management at Ukrnafta will be hired through a competitive process “in the presence of journalists and lawmakers,” Interfax news agency reported citing his Facebook page.
The Kyiv Post couldn’t reach Kolomoisky for comment through his spokesperson Borys Braginsky.
Previous legislation required a quorum of 60 percent of shareholders in joint-stock companies to vote on such decisions as, management changes and the payment of dividends. The state hadn’t received its share of Ukrnafta’s earnings for the years 2011-2013 until an October shareholders meeting approved the measure.
“Such a high quorum has often created the so-called ‘ deadlock’ situations when there was (an) impossibility to reach it and in consequence the normal activity of a company was hindered,” Maksym Cherkasenko, head of corporate and mergers and acquisitions practice at Arzinger law firm, said in an emailed statement.
Since the October meeting, state coffers have received Hr 120 million in dividends out of a total of Hr 3.8 billion that Ukrnafta is supposed to disburse to shareholders by April 10, according to a statement published on the company’s website this week. The state is still owed Hr 1.78 billion, or half the total amount.
Prior to the latest shareholders meeting, the last gathering took place on March 11, 2011. Five such meetings had taken place in 2010-2014, Ukrnafta says on its website.
The quorum bill is part of the parliamentary coalition agreement under the section that deals with “transparency of energy markets,” said Cherkasenko. “The newly adopted law introduces the right approach. The above changes should have a positive impact on the business environment…and thus create favorable conditions for attraction of foreign and domestic investments…”
In a letter of intent that Ukraine sent to Washington, D.C.-based lender International Monetary Fund on Feb. 27, the government promised to clean up its bloated and corrupt energy sector, including Naftogaz and its subsidiaries.
Mentioning Naftogaz in particular, the memorandum stated: “With the assistance of the European Bank for Reconstruction and Development, we are also seeking to improve corporatization of key state companies. We will introduce best international standards and practices in their corporate governance based on the Organization for Economic Cooperation and Development guidelines.”
Naftogaz’s deficit was 5.7 percent of gross domestic product in 2014 and is slated to improve to 3.1 percent of GDP this year and 0 percent of GDP by 2017, according to Ukraine’s letter to the IMF.
“The loss-making and opaque gas sector in Ukraine weighs heavily on public finances, the external sector, and the overall economy,” reads the letter. “The very low tariffs for residential gas and district heating encourage excessive energy consumption and lead to large quasi-fiscal losses by Naftogaz, push gas imports up, discourage investment in domestic production, and breed governance problems.”
Employing more than 25,000 workers, Ukrnafta reported a net income of Hr 760 million in the third quarter of 2014, and for the same period in 2013, according to Swiss investment fund Eastern Energy and Infrastructure Invest. It reported a 20 percent year-on-year increase in revenues in September to Hr 18.2 billion.
The company holds interests in 96 onshore oil and gas fields as well as 2025 oil wells and 208 gas wells, according to Bloomberg. Ukrnafta also operates 563 wholly-owned gasoline stations, and 25 liquefied petroleum gas filling stations in Ukraine, according to the company’s website. Its share of the nation’s annual oil and condensate production amounts to 68 percent; the corresponding share for natural gas is 11 percent.
Igor Kolomoisky. (Ukrafoto)