Scan­dal swirling over pay of Ukr­nafta’s Bel­gian ex-CEO

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

Bel­gian in­vest­ment banker Peter Van­hecke was sup­posed to clean up ma­jor­ity state-owned oil and gas com­pany Ukr­nafta when he was ap­pointed CEO in 2011. He re­cruited a team, some from his for­mer Re­nais­sance Cap­i­tal em­ployer, to pre­pare the na­tion’s largest oil pro­ducer and sec­ond-largest gas ex­trac­tion com­pany for an ini­tial public of­fer­ing on a for­eign stock ex­change.

In turn, the IPO would’ve put an end to the long-run­ning cor­po­rate dis­pute be­tween the state – hold­ing 50 per­cent plus one share through Naftogaz – and a group of mi­nor­ity share­hold­ers led by bil­lion­aire Igor Kolo­moisky and his part­ner Gen­nadiy Bo­golyubov who con­trol com­pany man­age­ment.

In­stead, it ap­pears that Van­hecke got en­meshed in the row, af­ter law­maker Ser­hiy Leshchenko made public parts of a la­bor con­tract the Bel­gian had with com­pa­nies be­long­ing to the mi­nor­ity share­hold­ers. Those share­hold­ers paid him at least $3 mil­lion in com­pen­sa­tion a year and pos­si­bly more in bonuses.

Leshchenko ac­cused Van­hecke, who served as CEO un­til July, of man­ag­ing the com­pany in Kolo­moisky’s in­ter­ests. The law­maker also high­lighted a sup­ple­men­tal clause in the con­tract that says, in Va n h e c k e ’ s ab­sence, his pow­ers get trans­ferred to one of two deputies who al­legedly rep­re­sent mi­nor­ity share­holder in­ter­ests: ex­ec­u­tive Volodymyr Pus­to­varov or com­mer­cial di­rec­tor Olek­siy Kush.

Van­hecke, a lawyer, wouldn’t say whether he re­ceived the sums in the con­tract and re­jected the al­le­ga­tion that he was serv­ing only the in­ter­ests of mi­nor­ity share­hold­ers.

“How is this a kick­back if this is a la­bor con­tract, what other salary did I get…the only thing I re­ceived from Ukr­nafta for a pe­riod of time was Hr 10,000 ($1,250 per month), but I don’t think they would ex­pect me to work for that amount,” he told the Kyiv Post by phone. “This wasn’t a char­ity case.”

De­scrib­ing the ar­range­ment as a stan­dard em­ployee con­tract, Van­hecke said that in 2011 when he was hired, “all the share­hold­ers were com­pletely aware of the sit­u­a­tion, but I can’t say about the cur­rent sit­u­a­tion,” re­fer­ring to the cur­rent man­age­ment of Naftogaz.

Naftogaz, the par­ent com­pany of Ukr­nafta, de­clined to com­ment on Van­hecke’s ar­range­ment and didn’t ad­dress whether he re­ceived a sep­a­rate salary from the com­pany.

As Ukr­nafta CEO for 4.5 years, Van­hecke saw two prime min­is­ters, four energy min­is­ters and two Naftogaz CEOs come and go.

How­ever, the Bel­gian lawyer in­sisted that he “worked in the in­ter­ests of the en­tire com­pany, of all share­hold­ers… three places in the con­tract specif­i­cally state that we have to work in the in­ter­ests of the com­pany.”

He added that pay­ing the “mar­ket rate” of his salary was the “best pro­tec­tion against cor­rup­tion. We never took any dime. Be­cause I’m Euro­pean, I got a mar­ket price for my salary.”

In 2011, Van­hecke in­her­ited a murky com­pany sus­pected of tax eva­sion and a cor­po­rate dis­pute that started five years ear­lier in­volv­ing gas pric­ing, the pay­ment of div­i­dends and con­trol over man­age­ment.

Em­ploy­ing nearly 30,000 peo­ple, Ukr­nafta ac­counts for about 68 per­cent of the na­tion’s yearly oil and con­den­sate share of pro­duc­tion, and 11 per­cent of the nat­u­ral gas mar­ket, ac­cord­ing to the com­pany’s web­site. It op­er­ates more than 550 wholly-owned gas sta­tions with a pres­ence in most re­gions of the coun­try.

Gas prices

Start­ing in 2006, reg­u­la­tors forced state-owned gas pro­duc­ers, in­clud­ing Ukr­nafta, to sell gas to Naftogaz at be­low-mar­ket prices that it then re-sold to house­holds.

Ukr­nafta balked and stopped selling gas to Naftogaz and started selling to in­dus­trial con­sumers who paid more. It con­tin­ued stor­ing some of its gas with Naftogaz’s stor­age cen­ters. Ac­cord­ing to Dragon Cap­i­tal energy an­a­lyst Dennis Sakva, Ukr­nafta re­port­edly pumped 11 bil­lion cu­bic me­ters of gas into stor­age units with­out con­tracts to sell any of this vol­ume.

Ukr­nafta also sold about 1 bil­lion cu­bic me­ters of gas in 2012-2013 to ni­tro­gen fer­til­izer pro­ducer Dniproa­zot, which Kolo­moisky

owns, but which Naftogaz leases and whose terms were never dis­closed.

Mean­while, Ukr­nafta last year suc­cess­fully sued Naftogaz in the Supreme Eco­nomic Court to sell 2 bil­lion of the 10 bil­lion cu­bic me­ters of gas it has in stor­age.

Ukr­nafta also stopped pay­ing roy­alty taxes when the gov­ern­ment raised them in Au­gust 2014, run­ning up an es­ti­mated Hr 10 bil­lion debt, ac­cord­ing to Dragon Cap­i­tal.

Man­age­ment con­trol

Kolo­moisky since 2003 has con­trolled Ukr­nafta’s man­age­ment partly be­cause he man­aged to block the hold­ing of share­hold­ers’ and su­per­vi­sory board meet­ings.

While Leonid Kuchma was still pres­i­dent in 2004, Kolo­moisky told a spe­cial par­lia­men­tary com­mit­tee in March that he had to pay a com­bined $5 mil­lion monthly to him and his bil­lion­aire son-in-law Vic­tor Pinchuk for con­trol over com­pany man­age­ment.

Pinchuk, who is su­ing Kolo­moisky and Bo­golyubov for con­trol of a Ukrainian ore-min­ing com­pany in Lon­don’s High Court, re­jected the claims as “another vile in­sin­u­a­tion of Mr. Kolo­moisky.”

In an e-mailed re­sponse to the Kyiv Post through his press ser­vice, Pinchuk said: “It is a part of an on­go­ing im­proper cam­paign to put pres­sure on Mr. Pinchuk to call off his law­suit against Mr. Kolo­moisky and Mr. Bo­golyubov in Lon­don. As pre­vi­ous at­tempts, it will not work.”

Kuchma’s spokes­woman, Dariia Olifer, didn’t re­spond to a Kyiv Post re­quest for com­ment.

Un­til Jan­uary, law stip­u­lated that a quo­rum of 60 per­cent of vot­ing shares was needed to hold share­holder meet­ings where the state has 50 per­cent plus one share vot­ing rights. Par­lia­ment re­duced the quo­rum to 50 per­cent plus one share.

Prime Min­is­ter Arseniy Yat­senyuk this month said that Bri­tish citizen Mark Rollins, a for­mer vice pres­i­dent of Bri­tish oil and gas com­pany BG Group, will take over Ukr­nafta. His con­tract terms haven’t been made public.

Div­i­dends

Based on two share­holder meet­ings held since the quo­rum change took ef­fect, Ukr­nafta owes the state Hr 2.4 bil­lion in div­i­dends, Naftogaz told the Kyiv Post in an e-mailed

re­sponse.

In

re­sponse, Over the years, Ukr­nafta’s earn­ings have been volatile, prompt­ing sus­pi­cions that the the fig­ures that the com­pany pro­vides aren’t rep­re­sen­ta­tive of its true fi­nan­cial per­for­mance. Ukr­nafta said it paid the div­i­dends, but not in cash. In­stead, the oil pro­ducer wrote off the value of gas it says Naftogaz owes it.

Ukr­nafta ad­di­tion­ally hasn’t paid div­i­dends to mi­nor­ity share­hold­ers as well.

Stock­holm ar­bi­tra­tion

On July 16, the Cyprus-reg­is­tered com­pa­nies af­fil­i­ated to Kolo­moisky and Bo­golyubov – Lit­top En­ter­prises, Bridge­mont Ven­tures and Bordo Man­age­ment, three of the five com­pa­nies that had signed Van­hecke’s pay­roll con­tract, – filed a law­suit against Naftogaz at the Ar­bi­tra­tion In­sti­tute of the Stock­holm Cham­ber of Com­merce. They jointly own 40 per­cent of Ukr­nafta, while the lit­i­ga­tion seeks com­pen­sa­tion for losses in­curred as a Since 2006, oil and con­den­sate pro­duc­tion at Naftogaz has steadily fallen. re­sult of the gov­ern­ment al­legedly lim­it­ing the com­pany’s abil­ity to sell gas in 2006-2014, ac­cord­ing to an emailed note from Dragon Cap­i­tal.

The law­suit is for a re­ported $5 bil­lion, the same amount Ukr­nafta de­manded in Jan­uary from Naftogaz in a let­ter, cit­ing the iden­ti­cal losses they had al­legedly in­curred.

Oil and Ukr­tat­nafta

The oil that Ukr­nafta pro­duces goes to the na­tion’s largest oil re­fin­ery in Kre­menchuk op­er­ated by Ukr­tat­nafta. Naftogaz owns 43 per­cent of the re­fin­ery, while Kolo­moisky, Bo­golyubov, and Kharkiv’s rich­est busi­ness­man Olek­sandr Yaroslavsk­y own the rest.

Ukr­tat­nafta pro­cesses the oil to pro­duce diesel and gas fuel, the lat­ter of which it sells back to Ukr­nafta to fill its net­work of gas sta­tions.

Peter Van­hecke (Ukrafoto)

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