Kyiv Post

Kobolyev’s Naftogaz hid multimilli­on-dollar bonuses to top executives


Managing state-owned oil and gas company Naftogaz pays off, no matter how much money the company loses.

Despite losses of nearly $700 million in 2020, Naftogaz’s top management pocketed multimilli­on-dollar bonuses this year.

The extra money came as a reward for the company’s $5 billion legal victory over Gazprom in 2018. As part of the Stockholm arbitratio­n court agreement, Gazprom and Naftogaz reached a settlement and dropped mutual claims involving a 2009 gas supply contract.

Overall, 40 Naftogaz employees shared in $46 million in Stockholm bonuses, which represente­d 1% of the $4.6 billion settlement (Gazprom paid another $400 million in accrued interest.)

More than $30 million of the bonuses that got paid in 2021 went to six top executives, led by $12.7 million paid to Naftogaz CEO Andriy Kobolyev after his firing by the government on April 28, 2021, and $10.4 million paid to Yuriy Vitrenko, former executive director and current CEO of Naftogaz.

In a July 1 letter to Naftogaz’s supervisor­y board, Vitrenko, who replaced Kobolyev, called for greater transparen­cy.

In the letter, obtained by the Kyiv Post, Vitrenko criticized the failure to break out individual salaries and bonuses of top managers, a decision adopted by the supervisor­y board when Kobolyev was in charge of the company.

“The absence of this part in 2020 report (which though has been published in 2019) negatively impacts the image of Naftogaz and creates the basis for unnecessar­y speculatio­ns,” Vitrenko wrote.


Kobolyev refused to comment on July 6, but in a Facebook post after this Kyiv Post story was published online, he wrote: “My actual monetary compensati­on for my work in Naftogaz for the period after the extension of my contract in March 2020 amounted to zero hryvnias.”

His claim of receiving no compensati­on contradict­s the documents that the Kyiv Post reviewed.

While Vitrenko called for more transparen­cy, when it comes to his own hefty Stockholm bonuses pegged at $16 million overall by Naftogaz insiders, he was less than forthcomin­g.

“My compensati­on was smaller than $16 million,” Vitrenko said. “But I cannot give you a precise number. It will be a breach of my contract. I can be sued for that. Since I was not an executive board member, my remunerati­on was not public, and was not supposed to be public.”

While “employee contracts are confidenti­al, for executive board members there is a requiremen­t to publish the remunerati­on,” he said.

In his public declaratio­n of 2020 income and assets, however,

Vitrenko listed $10.4 million in compensati­on from Naftogaz.

The company’s 2020 financial report only discloses overall compensati­on of nearly $25 million for 17 top officials that year without detailing the Stockholm bonuses.

Such non-transparen­cy violates basic principles of good corporate governance for state-owned enterprise­s and sets a troubling example.

If Ukraine’s largest state-owned enterprise, Naftogaz, with $7 billion in revenue last year, doesn’t adhere to basic transparen­cy standards, questions are naturally raised about the other 3,500 state-owned enterprise­s.

Additional­ly, according to the Organizati­on for Economic Cooperatio­n and Developmen­t guidelines published in 2015, the six-member Supervisor­y Board of Naftogaz must ensure that “the remunerati­on of the manager is tied to the performanc­e of the stateowned company and the informatio­n is properly disclosed.”

Counting earlier bonuses, Kobolyev’s Stockholm-related bonuses have been estimated at more than $20 million. His base pay was $230,000 in 2020.

The government fired Kobolyev on April 28, 2021, citing the more than $1 billion gap in financial performanc­e between what Naftogaz promised the government and what it actually delivered under his leadership. He had been CEO since 2014.

At the end of 2020, Naftogaz told the government it would have a net profit of nearly $400 million. Instead, the state got nearly $700 million in losses.

To make the switch from Kobolyev to Vitrenko, the Cabinet of Ministers fired the supervisor­y board for two days and installed Vitrenko, who Kobolyev, in turn, had fired about a year earlier, in May 2020.

Conflicts erupted between the two men who had once worked together in reducing Naftogaz corruption after the EuroMaidan Revolution that

ousted Kremlin-backed President Viktor Yanukovych in 2014.

Before the post-2014 reforms, Naftogaz was routinely costing taxpayers at least $500 million monthly in losses. The company was a citadel of corruption, non-transparen­cy, and insider deals.

Despite the 2020 losses, however, the company still managed to pay $5 billion in taxes in 2020, making it the largest taxpayer of Ukraine, supplying 17% of state revenue.

Hefty bonuses

The supervisor­y board decided in 2018 to distribute the 1% bonus from the original $4.6 billion Stockholm settlement to about 40 Naftogaz employees.

Naftogaz got paid $2.1 billion worth of gas and, with accrued interest, another $2.9 billion in cash from Gazprom.

According to the document that the Kyiv Post reviewed, the supervisor­y board approved these payouts to other top Naftogaz managers.

None was broken out in the 82-page 2020 financial report:

• Sergiy Pereloma, first deputy chairman of the board — $2.3 million in total compensati­on, including base pay of $270,000;

• Otto Waterlande­r, Naftogaz Group chief transforma­tion officer and member of the executive board — $2.2 million in total compensati­on, including base pay of $322,000;

• Petrus Stephanus van Driel, Naftogaz Group chief financial officer and member of the executive board — $1.7 million in total compensati­on, including $270,000 in base pay;

• Yaroslav Teklyuk, director for legal affairs and member of the executive board — $3.4 million in total compensati­on, including $205,000 in base pay.

Excessive secrecy

In an earlier interview with the Kyiv Post, Clare Spottiswoo­de, the chair of Naftogaz’s supervisor­y board, said that the supervisor­y board, at the request of the Naftogaz executive

team, decided not to break out compensati­on figures individual­ly “because it is so politicall­y sensitive.”

Spottiswoo­de, a fan of Kobolyev, is challengin­g the April hiring of Vitrenko, who signed a one-year contract. The supervisor­y board was set to resign but agreed to return.

She defended the supervisor­y board’s secrecy, even though she acknowledg­ed it was a break from past transparen­cy.

“Why should we expose them to a whole lot of that nonsense when the cost of their services is a tiny portion of the company’s revenue?” she insisted.

Getting appointed to Naftogaz’s supervisor­y board is also quite lucrative, with its six members led by Spottiswoo­de making $230,000 yearly, although that figure is not explicitly listed in the 2020 financial report either.

Both President Volodymyr Zelensky, his predecesso­r Petro Poroshenko and ex-Prime Minister Volodymyr Groysman, have criticized what they labeled as excessivel­y high compensati­on of top executives in state-owned enterprise­s.

Spottiswoo­de and others argue that, if competitiv­e and market-based salaries are not paid to leaders, stateowned enterprise­s will not be able to attract top talent.

The issue is transparen­cy, said Andriy Boytsun, an expert on corporate governance in state-owned enterprise­s who writes a weekly newsletter on the topic.

Boytsun told the Kyiv Post in an interview published on June 1 that there is no justificat­ion for withholdin­g from the public the pay of top company officials.

“The people as ultimate owners should know how much management gets paid and why,” Boytsun said.

While state-owned enterprise­s are required to disclose individual top salaries, the measure is poorly enforced.

“I cannot be happy with the progress as such until it’s complete,” he said.

 ??  ?? Ex-Naftogaz CEO Andriy Kobolyev (L) and current Naftogaz CEO Yuriy Vitrenko both became multimilli­onaires from a successful $5 billion Stockholm arbitratio­n victory over Russia’s Gazprom.
Ex-Naftogaz CEO Andriy Kobolyev (L) and current Naftogaz CEO Yuriy Vitrenko both became multimilli­onaires from a successful $5 billion Stockholm arbitratio­n victory over Russia’s Gazprom.

Newspapers in English

Newspapers from Ukraine