Business News

Ukrainian State-Owned Enterprises Weekly

Editor’s Note: This is Ukrainian State-Owned Enterprises Weekly, issue 40, covering events between Aug. 14–27, 2021.

Corporate governance in SOEs

Energoatom may be corporatized soon

According to Minister of Energy Herman Halushchenko and Energoatom, a draft law on the state nuclear operator’s corporatization has been developed. The draft has been approved by the Ministry of Economy. After its finalization in the Ministry of Energy and other ministries, the document will be submitted to the Cabinet of Ministers. Halushchenko said that Energoatom’s corporate reform must be completed within 9 months after the law is adopted. According to the minister, Energoatom must now be audited. After that, the company will be converted from a “state enterprise” [an uncorporatized entity – SOE Weekly] into a joint-stock company with 100% of the shares belonging to the state, and a supervisory board will be established.

[Note that decisions to launch Energoatom’s corporatisation have been in the works since 2012, starting at least with the National Action Plan for 2012 on the Implementation of the Programme of Economic Reforms in for 2010–2014. – SOE Weekly.]

Government approves Odesa Portside Plant’s supervisory board

The Cabinet of Ministers approved three independent members and two state representatives to the Odesa Portside Plant’s (OPZ) supervisory board.

Andriy Kolomiychenko, Anatoliy Filonov, and Yuriy Dudenkov were appointed as independent members, while Denys Kudin and Oleksandr Vizhunov, as state representatives.

Kudin serves as deputy chair of the State Property Fund (SPF), and Oleksandr Vizhunov as a Department Director of the SPF. [99.6% of OPZ’s shares are owned by the SPF. – SOE Weekly.]

According to the media, Kolomiychenko is among the founders of the agricultural company Holberi in Kyiv Oblast. He also worked in management positions at Kyivkhlib. Anatoliy Filonov was the CEO of various Vinnytsia-based state-owned and private companies. Yuriy Dudenkov was one of the founders of the Kharkiv company Transportnyk-11.

The elected board members must be approved at the meeting of OPZ’s shareholders before they can assume their duties.

[OPZ is an ammonia-producing company slated for privatization. No further information is available on the above experience of the independent board members and its relevance to their board positions at OPZ. – SOE Weekly.]

In SOE Weekly (Issue 38), we reported that the SOE Nomination Committee selected independent members and state representatives of OPZ’s supervisory board.

State Food and Grain Corporation’s CEO is placed under night-time house arrest for alleged embezzlement of  Hr 71 million ($2.6 million)

The CEO of the State Food and Grain Corporation (SFGC), Andriy Vlasenko, who is suspected of embezzling Hr 71 million, was placed under night-time house arrest and made to wear an electronic bracelet by Kyiv’s Pechersk District Court on 16 August. Vlasenko is indicted of being an accomplice of Roman Tereshchenko, the beneficial owner of Transservice 2008.

According to the official investigation, Vlasenko hired Transservice 2008 for Hr 71 million to provide services due to the SFGC branches’ supposed inability to handle these services on their own.  [No further information is available on what services were procured from Transservice 2008. – SOE Weekly.]

According to the prosecutor, there were no objective grounds to sign a contract with Transservice 2008. The prosecution asked the court to jail Vlasenko and set the bail at Hr 71 million. The court imposed a house arrest instead.

According to the media, the Batkivshchyna (Motherland) faction voted for the state budget in December 2020 in exchange for Vlasenko’s appointment. Vlasenko was affiliated with Batkivshchyna [a parliamentary faction led by Yulia Tymoshenko. – SOE Weekly.]

In SOE Weekly (Issue 39), we reported that the National Police established that management of SFGC had squandered the corporation’s property by selling grain to offshore companies at reduced prices, without prepayment.

On Aug.13, the National Police detained Andriy Vlasenko at Kyiv’s Zhulyany Airport when he was trying to flee Ukraine. His accomplice was detained along with him.

New member of Oschadbank’s Management Board

On. Aug. 19, Oschadbank’s Supervisory Board appointed the winner of the competitive selection, Oleh Strynzha, as a member of the bank’s Management Board responsible for finance. The National Bank of Ukraine (NBU) approved the candidacy.

Strynzha has over 25 years of experience in the banking sector. Previously, he worked at Société Générale Ukraine, ING Bank Ukraine, and Pekao Ukraine. He also served as director of the finance department and member of the Management Board of Universal Bank. Strynzha was also Deputy CEO for Financial and Administrative Affairs at Renaissance Capital Bank.

In the past six years, Strynzha worked as director of the National Bank of Ukaine’s Financial Controlling Department.

Government replaces acting CEO at UMCC just before the privatization

The Cabinet of Ministers agreed with the State Property Fund’s proposal to temporarily appoint Yehor Perelyhin as acting CEO of the United Mining and Chemical Company (UMCC). Perelyhin has already been on the company’s management board. Prior to that, Artur Somov was the company’s acting CEO. As we reported in SOE Weekly (Issue 33), the privatization auction of UMCC will take place on Aug. 31, 2021.

SOE updates

Energy sector

The government pays Hr 653 million ($24 million) in coal mines’ wage debts to the miners

The State Treasury Service of Ukraine, at the initiative of the Ministry of Energy, gave 10 state-owned coal mines Hr 653 million to pay wage arrears to miners.

[The payment was implemented as a re-allocation of costs from one cost item of the state budget, “Measures to liquidate non-viable coal mining enterprises”, to another cost item, “Restructuring of the coal industry.”

In other words, instead of spending money to liquidate or restructure the loss-making coal mines, the government decided to spend the same money on covering their operating costs.

Note that the Cabinet’s Resolution “On approving the criteria for assessing the eligibility of state aid to entities in the coal industry” includes a clause allowing the state aid to cover coal mines’ operating expenses until Sept. 1, 2022. According to the OECD Guidelines on Corporate Governance of SOEs, providing state aid to SOEs to cover their operating expenses violates the level playing field principle. – SOE Weekly.]

Energoatom posts Hr 1.7 billion ($63 million) in profits since the beginning of the year (unaudited), plans to make a total of Hr 1.5 billion in 2021. On Aug. 18, the Cabinet of Ministers approved Energoatom’s financial plan for 2021. According to the plan, the company expects a total profit of Hr 1.52 billion in 2021.

According to the explanatory note attached to the financial plan, Energoatom’s revenues are projected at UAH 56 billion. The government expects to received UAH 18.6 billion from the company in payments such as taxes and profit share. The financial plan also provides for capital investments of Hr 11.5 billion.

Later this week, Energoatom reported that in the first seven months of 2021, the company’s net revenue amounted to Hr 28 billion, with a gross profit of Hr 3.3 billion and net profit of Hr 1.7 billion.

[Note that the seven-month net profit is already higher than the projected annual profit in the 2021 financial plan, suggesting that Energoatom has room to lose about Hr 200 million in the remaining five months of 2021. Please also note that the company’s seven-month results are based on intermediate, unaudited financial reporting. The annual audited results will provide a more reliable picture, which may differ from that produced by the intermediate results. – SOE Weekly.]

Energy Ministry asks state-owned banks to give Centrenergo a loan to buy coal

Centrenergo does not have the money to procure a sufficient supply of coal for the upcoming heating season

The Ministry of Energy asked state-owned banks to lend money to the company. The Ministry of Economy made the announcement following a meeting attended by the Minister of Energy Herman Halushchenko, head of the State Property Fund Dmytro Sennychenko, Deputy Head of the National Bank of Ukraine Serhiy Nikolaychuk, and representatives of Oschadbank, Ukreximbank, and Centrenergo.

[It appears that no representatives of PrivatBank or Ukrgasbank were invited to or present at the meeting. – SOE Weekly.]

Halushchenko said that cooperation of all government agencies is required to get through the heating season.

[This kind of lending from state-owned banks to SOEs would distort competition and violate the level playing field principles set in the OECD Guidelines on Corporate Governance of SOEs. It can also be considered state aid and should be evaluated by the Antimonopoly Committee in terms of potential negative impact on competition and may be considered as inadmissible by the Committee. – SOE Weekly.]

As we wrote in SOE Weekly (Issue 37), Centerenergo reported a loss of Hr 591.2 million ($22 million) in the first half of 2021. The company is slated for privatization.

Government transfers Dubnevyches’ heating plants to Naftogaz

The Cabinet of Ministers ordered that the Novoyavorivska and Novorozdilska combined heat and power plants (CHPs), which belonged to Yuriy and Pavlo Dubnevych, should be transferred into management of Naftogaz’s subsidiary Naftogaz Teplo.

The Asset Recovery and Management Agency (ARMA) must ensure the transfer of assets to Naftogaz Teplo until the risk of interruption of both CHPs’ operation is eliminated.

The Cabinet said that it followed a special procedure for selecting managers for strategic and socially important assets


Zelensky wants to establish a national airline by the end of the year

After meeting with Mark Roche, director of the aviation consulting firm Aérogestion, President Volodymyr Zelensky said that he wants to engage the firm in the establishment of Ukraine’s national airline. According to Zelensky, the domestic air transportation market does not meet all of the state’s strategic needs, making a national carrier necessary. The French government will provide a grant to finance the consultant.

[There is no rationale for the state to own an airline. This contradicts the government-declared basic principles of state ownership policy, as air carrier services are readily available from private providers in the competitive market.

If there is a market failure in providing local air travel, the state can attract private air carriers to local routes through a public-service obligation mechanism. The state may offer subsidies to private airlines for servicing specific routes via public auctions. The company asking for the lowest subsidy will get the route. Such an approach will not only decrease corruption risks but also put the business risks on the private carrier rather than the state. – SOE Weekly.]

UkSATSE and Boryspil Airport may suffer losses due to Ukraine International Airline’s failure to pay its debts

The National Security and Defense Council (NSDC) instructed the government to resolve the issue with Ukraine International Airlines’ (UIA’s) debts to the Boryspil International Airport and Ukrainian State Air Traffic Services Enterprise (UkSATSE).

According to NSDC Secretary Oleksiy Danilov, UkSATSE and Boryspil have incurred debts due to UIA’s failure to fulfill its obligations. As a consequence, UIA may cease to operate.

Danilov added that the Cabinet of Ministers needs to take urgent measures within a month to ensure the safe and continuous operation of the aviation industry by approving an action plan to minimise associated risks.

[If UIA suspends its operation, it is unclear how its debts to the state-owned companies will be paid off. – SOE Weekly.]

In SOE Weekly (Issue 30), we reported that both UkSATSE and Boryspil were among the biggest loss-makers in 2020, with losses of Hr 1.49 billion ($55 million) and Hr 1.48 billion, respectively.

Also, in SOE Weekly (Issue 36), we reported that in the first quarter of 2021, UkSATSE made a net loss of Hr 205.8 million and Boryspil, a loss of Hr 196.7 million. Please note that this reporting was not audited.

Other sectors

Export Credit Agency recapitalized by Hr 1.8 billion

On Aug. 18, the Cabinet of Ministers amended the charter of the Export Credit Agency (ECA) to recapitalize it by Hr 1.8 billion ($67 million).

According to the Cabinet’s resolution, ECA’s authorized capital will be increased by issuing new shares. The Ministry of Finance will issue UAH 1.8 billion in government bonds, with a maturity of up to 15 years and an interest rate of up to 9.3% per annum, in exchange for ECA’s newly issued shares.

[Note that this will increase the government debt accordingly. – SOE Weekly.]

In SOE Weekly (Issue 21), we reported that on March 31, the Cabinet of Ministers intended to recapitalise the Export Credit Agency (ECA) by Hr 1.8 billion, bringing its total authorized capital to Hr 2 billion.

[It is unclear what kind of services ECA will provide. On the one hand, the agency was supposed to provide insurance to cover country risks when such insurance is not available on the market.

At the same time, according to the news on its cooperation with the state-owned Oschadbank, it intends to offer insurance for loans not sufficiently backed by collateral. Since this kind of insurance may be available from private insurance companies, this type of activity may be considered state aid or an implicit state guarantee for loans.

In addition, ECA is registered as a private joint-stock company rather than a government agency. At the same time, although registered as a company, ECA does not fall under the general regulatory framework for insurance companies. – SOE Weekly.]

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