Fight over con­trol of state-owned oil com­pany at cen­ter of Kolo­moisky fight

Kyiv Post - - Front Page - BY MARK RACHKEVYCH [email protected] Kyiv Post edi­tor-at-large Mark Rachkevych can be reached at [email protected]

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)

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