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A view of the Russian-occupied Zaporizhzhia nuclear power plant in southern Ukraine on June 15, 2023. (Olga Maltseva/AFP via Getty Images)
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Editor’s Note: This is issue 109 of Ukrainian State-Owned Enterprises Weekly, covering events from Oct. 28- Nov. 3. The Kyiv Independent is reposting it with permission.

Ukrainian SOE Weekly is an independent weekly digest based on a compilation of the most important news related to state-owned enterprises (SOEs) and state-owned banks in Ukraine. This publication was produced with the financial support of the European Union within the project “Supporting Ukraine in rebuilding and recovery” implemented by the KSE Institute. The contents of this publication are the sole responsibility of the editorial team of the Ukrainian SOE Weekly and do not necessarily reflect the views of the European Union.

Corporate governance of SOEs

Ukraine is one step away from meeting the IMF’s structural benchmarks on corporate governance reform of GTSOU. On Nov. 1, the Gas Transmission System Operator of Ukraine (GTSOU) reported that the Cabinet of Ministers approved four out of five candidates for its pending supervisory board of GTSOU.

The candidates are:

  • David Charles Davies (UK; non-executive director and chair of the audit committee at Petrofac Limited, as well as a member of the supervisory board and chairman of the audit Committee at Wienerberger AG, Austria) – independent member;
  • Jan Chadam (Poland; associate professor at the Faculty of Economics of Maria Curie-Skłodowska University and previously a member of the supervisory board at Main Gas Pipelines of Ukraine (MGU) – independent member;
  • Sergiy Konovets (Ukraine; СFO at Torwell Holding Limited, previously a member of the supervisory board at Ukreximbank and earlier, CFO at Naftogaz) – independent member;
  • Svitlana Grynchuk (Ukraine; Deputy Minister of Energy and former advisor to the Prime Minister on climate change) – state representative.

With the Cabinet’s approval, the Energy Ministry is now able to formally appoint these candidates.

GTSOU has also published the updated charter of the company on its website, approved by the Energy Ministry on Oct. 23. According to the new charter, the supervisory board should be appointed by the ministry, acting in its capacity as the company’s general meeting.

The ministry is also required to consult with regulator – the National Energy and Utilities Regulatory Commission (NEURC) – and the Energy Community Secretariat to obtain their non-binding opinion on this matter.

Economy Minister: Economic recovery requires return of 4.5 million Ukrainians
While over 6 million Ukrainians fled abroad during the full-scale invasion of Ukraine, only one million have come back, according to UN figures. Preliminary Economy Ministry estimates show that attracting another 4.5 million people to return will “significant accelerate the pace of recovery.”

As we wrote in SOE Weekly’s Issue 97, according to the structural benchmark in the IMF’s current program, a new GTSOU charter, developed and agreed with the NEURC in consultation with the Energy Community Secretariat, should have been adopted by the end of July 2023.

A second GTSOU-related structural benchmark in the IMF’s program requires that the company’s new supervisory board should be selected and appointed via a competitive, transparent, and merit-based nomination procedure by the end of October 2023.

Note that, according to the charter, GTSOU’s supervisory board should consist of five members, three of whom should be independent. The Cabinet of Ministers did not explain the reason why the fifth member of the supervisory board – a state representative – has not been selected yet.

Prime Minister Denys Shmyhal reportedly favored the candidacy of Viktor Pynzenyk as a state representative on GTSOU’s board. Pynzenyk previously had the same role on MGU’s board.

Note that Ukraine’s commitments to the IMF require selecting and appointing a new supervisory board for GTSOU. Both Viktor Pynzenyk and Jan Chadam previously served on both the first and second MGU boards. It is unclear whether such a supervisory board of GTSOU would be considered as a new one.

As we wrote in SOE Weekly’s Issue 83, members of MGU’s supervisory board are likely to have been paid up to $4.8 million as of the end of March 2023 since the board was established. Based on SOE Weekly’s analysis, this figure would be $5.2 million at the end of October 2023.

At the same time, MGU has not published any annual reports, audited annual financial statements, supervisory board reports, or board committee reports since 2020. For these reasons, it is difficult to tell what the MGU board and its committees did from 2020 until now, and how they performed.

EBRD and UK to develop war risk insurance project to encourage investment in Ukraine
The European Bank for Reconstruction and Development and the British government are to develop a war risk insurance project, Ukraine’s Economy Ministry announced on Nov. 2. The aim is to help private sector companies do business in Ukraine, supporting reconstruction efforts.

In 2021, the Ukrainian media published a letter from Pynzenyk to the Prime Minister, which had the potential to stall and disrupt the corporate governance reform of GTSOU at that time. It is therefore unclear how a proposal to appoint such an individual was or would be received by the SOE Nomination Committee.

In addition, according to YouControl, the Energy Ministry officially became the new owner of GTSOU, while the previous owner, MGU, was dissolved.

In SOE Weekly Issue 104, we reported that the Cabinet of Ministers had decided to transfer the corporate rights of the GTSOU from the previous owner, MGU, directly to the Ministry of Energy. This Cabinet’s decision was made in accordance with Law No. 3293-IX on the merger of MGU and GTSOU which introduced the legal framework to reform GTSOU.

Law No. 3293-IX was known earlier as Draft Law No. 9311-1-d. That bill built on its earlier version, No. 9311-1, which had been proposed by MPs Maksym Khlapuk (Holos), Yaroslav Zheleznyak (Holos), and other MPs. Draft Law No. 9311-1 was drafted by two members of the SOE Weekly team, Oleksandr Lysenko and Andriy Boytsun.

As we also wrote in Issue 104, on Sept. 26, the Economy Ministry announced the competitive selection to find three independent members for GTSOU’s supervisory board.

Energy sector

After accumulating large debts due to losing the Zaporizhzhia nuclear power plant, Energoatom is able to fulfill all PSOs again since September. This means that the nuclear operator can meet the public service obligations (PSOs) without growing its debt, it said in a Oct. 24 statement.

The Zaporizhzhia Nuclear Power Plant was occupied by Russian troops in early March 2022. After losing the plant, which generated more than 40% of Ukraine’s total nuclear electricity, Energoatom lacked the income to handle its PSOs without going deeper into debt.

Energoatom covers 85% of the country’s electricity PSOs. Services provided through PSOs account for 64% of Energoatom’s net income.

As of Oct. 24, Energoatom had covered 76% of the cost of delivering affordable electricity to households, equivalent to Hr 9 billion ($250 million). The September PSO costs, Hr 8.4 billion ($234 million), were paid in full.

Energoatom also repaid Hr 2.1 billion ($59 million) in debts in September and again in October.

International court rules Russia must pay $267 million to energy giant DTEK
The International Court of Arbitration in The Hague ruled that Russia must pay $267 million in damages to DTEK, Ukraine’s largest private energy company, the company announced on Nov. 2.

Energoatom and Ukrhydroenergo were granted the right to sell electricity on market terms from Oct. 1, 2021. Under the new PSO’s financial model, the proceeds were used to compensate electricity providers for the difference between the regulated household tariffs (Hr 1.44/kWh and Hr 1.68/kWh depending on the volume of consumption) and market prices.

Since October 2021, the Cabinet of Ministers has repeatedly extended the PSO mechanism to keep electricity tariffs for households unchanged. The PSO mechanism was in place until April 30, 2023 – the price of electricity for households remained unchanged until the end of the previous heating season.

On May 30, the Cabinet of Ministers approved an increase in the electricity tariff for households to Hr 2.64/kWh from June 1.


SPFU to sell Tai-Minerals, previously owned by sanctioned oligarch Shelkov. On Oct. 27, the State Property Fund of Ukraine (SPFU) reported that it was preparing to privatise Tai-Minerals, a company that leases cars and trucks, as well as agricultural and construction machinery and equipment.

Mikhail Shelkov, who used to own it, is a major figure in Russia’s defense sector. He was also a shareholder in the VSMPO-Avisma titanium corporation.

The starting price is approximately Hr 5 million ($139,000). The date of the auction will be announced soon.

In SOE Weekly Issue 97, we reported that the SPFU announced the start of privatization of assets seized from Russian oligarchs.

As we wrote in Issues 99 and 100, the first two attempts to sell agricultural company Investagro, which previously belonged to Shelkov, failed.

SPFU plans to privatize 188 assets by the end of 2023. On Nov. 1, the SPFU reported that it would sell another 188 properties in small-scale privatization auctions by the end of 2023. The total estimated book value is over Hr 1.36 billion ($38,000).

These include the Zarubinsky distillery (book value Hr 245.4 million, or around $6.8 million), Ivano-Frankivsk bakery (Hr 52.2 million, or around $1.5 million), the Bdzhilnyansky distillery (Hr 68.2 million, or around $1.9 million), and other assets.

As we wrote in Issue 105, SPFU reported that in January-September 2023, the state budget received Hr 2.7 billion ($75 million) from privatization.

Government announces new export rules for agricultural products
Ukraine has introduced mandatory registration for agricultural export companies designed to prevent abuse of laws like tax avoidance in the export of food, the Agriculture Ministry reported on Nov. 1.

In SOE Weekly’s Issue 96, we reported that SPFU raised Hr 1.82 billion ($50 million) from privatization auctions in the first half of 2023. This suggests that privatization yielded about Hr 900 million ($25 million) in the third quarter.

The 2023 annual revenue from privatization to the state budget was projected to be Hr 6 billion ($167 million). This amount would represent 0.45% – that is, less than half per cent – of the total state budget revenues planned for 2023.

The privatization proceeds in the first nine months, Hr 2.7 billion ($75 million), are responsible for 0.2% of the total budget revenues planned for 2023.

Cabinet simplifies privatization procedure for loss-making SOEs. The list of mandatory documents that have to be submitted by unprofitable SOEs pending selloffs has been cut down, the Economy Ministry reported on Oct. 27.

The Cabinet’s resolution was not publicly available at the time of writing.

According to Deputy Economy Minister Oleksiy Sobolev, the resolution would speed up the process of transferring the SOEs to the State Property Fund (SPFU) for privatization, liquidation, or management reform.

The change will affect 103 enterprises including Ukrmedprom, Medicines of Ukraine (Liky Ukrayiny), Topaz, and Kyiv Radio Plant.

The government wants to keep about 100 strategic enterprises and sell the rest in whole or in parts, Sobolev said.

In SOE Weekly Issue 83, we reported that the Verkhovna Rada approved a mechanism for liquidating non-performing SOEs. As we wrote in Issue 94, the SPFU plans to liquidate over 1,200 loss-making SOEs.

National Bank: Ukrainian businesses report more pessimistic outlook due to labor shortages
Ukrainian enterprises report that a serious shortage of personnel is contributing to a more pessimistic economic outlook, according to the October edition of a monthly survey published by Ukraine’s National Bank on Nov. 1.

According to the SPFU, the liquidation of non-performing assets would allow it to reduce the debt burden on the state budget, pay wage arrears to employees, create new businesses using the property of unprofitable enterprises, and develop the Ukrainian economy.

Liquidation of an enterprise can take from four months to 1.5 years. The SPFU plans to liquidate 347 companies in 2023, 400 companies in 2024, and another 141 in 2025.

This makes up a total of 888 enterprises. Apparently, the SPFU intends to liquidate the remaining 300+ enterprises after 2025.

Acting head of the SPFU Fedoryshyn interviewed. Acting head of the SPFU Oleksandr Fedoryshyn was interviewed by Ekonomichna Pravda (EP) this week. We selected the key points.

On managing confiscated companies:

  • “In most cases, we get companies without accounting, without any documentation, without understanding what accounts payable are, what contractors or counterparties are. All this is investigated manually.”
  • “When assets are transferred to us, we register ownership and appoint our own management, if we have a controlling stake. The management is immediately tasked with conducting an in-depth inventory: what is available, what are the debts, what are the fixed assets and property, whether there are bank accounts and funds on these accounts.”
  • “At the same time, we look at whether we can launch the company’s operations. If we can, and there are no obstacles in the form of asset seizures or other restrictions in criminal proceedings, we do everything we can to get the business up and running.”
  • “We cannot do anything without the consent of the investigators. It all depends on the company and the criminal case against it. In any event, all our enterprises are under interim management, and we are preparing for their privatisation.”

According to EP, the SPFU received 136 confiscated objects, 20 of which are corporate rights, i.e., shares in companies. Only 17 of them are on the government-controlled territory.

There are four stages of preparing these assets for privatization: taking them under management, registering property rights, preparing them for privatisation, and putting them up for auction.

Bloomberg: EU’s 12th sanctions package on Russia could target $5.3 billion in trade
The European Union is discussing the adoption of a 12th round of sanctions against Russia, which would target $5.3 billion in trade, Bloomberg reported on Oct. 31.

Shelkov’s Investagro has been put up for auction, and another four companies are being prepared for privatization. Most of the assets are in the process of being registered, EP added.

On Investagro’s privatization:

  • “We put it up for privatization. We tried to keep the lease agreements in force. The company continued to cultivate its land plots.”
  • “The mechanism for the state to recover Russian assets is imperfect and needs to be improved by amending the law. These amendments should be aimed at preserving the economic activity of enterprises from the moment the state begins to seize them until they are accepted by the relevant governing body.”
  • “There are examples where seizures are made within criminal proceedings or after sanctions have been imposed. A lot of time passes from the moment of seizure to the moment when the SPFU receives the asset for interim management through a court decision. The company is idle or suffers damage that is difficult to repair.”
  • “Therefore, we propose to amend the Law on Sanctions and empower the government to determine the management body that will manage the sanctioned asset from the beginning of its blocking to its confiscation.”
  • “Demand drives the market. Potential investors are probably looking at the first sanctioned assets with caution. Many may have concerns about buying it as a former Russian asset. There were reports that the price was allegedly high. There are other circumstances that, unfortunately, I cannot comment on – these are security issues.”
  • “We are planning the next auction, but we probably won’t be able to do it this year. We hope it will be in the first quarter of 2024. According to the law, the first time an asset is put up for auction, it is put up at 100 per cent of its value, and the second time – at 50%. For the third time, the SPFU can put the asset up for a Dutch auction, where the price is reduced step by step.”

As we wrote in Issues 99 and 100, the first two attempts to sell agricultural company Investagro failed.

US sanctions Russian national for helping wealthy Russians launder money
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions on Yekaterina Zhdanova, a Russian citizen, for her role in helping the Russian elite launder their money and avoid sanctions, according to a press release on Nov. 3.

On Demurinsky Mining and Processing Plant:

  • “Now the company is sending new contracts to the SPFU for approval to pay off the debts, so they are starting to operate. We are planning some other measures to clean up the asset to make it as attractive as possible for investors.”
  • “We are planning to offer investors to buy Demurinsky Plant as a merged entity with another SOE, United Mining and Chemical Company (UMCC). This is a large-scale privatisation target that is to be offered at book value.
  • “There are still a lot of bureaucratic issues to be resolved to prepare the [Demurinsky] plant – about 20 points. We need to return certain property to the authorized capital, such as the enrichment plant, and revalue fixed assets.
  • It’s easier with UMCC: they must complete some audits and wait for us to complete all the procedures for Demurinsky. In the first quarter of 2024, we will have their total book value, which will allow us to put them up for privatisation.”

In effect, this suggest that the SPFU’s previously announced plans to privatize UMCC as one of the first targets would be delayed. It is not clear why a merger of Demurinsky and UMCC is needed, how it would improve or deteriorate the chances of getting either asset sold, or how it would improve or deteriorate the value of the contemplated deal.

As we wrote in Issue 106, the SPFU planned to determine the starting price for UMCC’s privatization. See more on the previous attempts to sell UMCC in SOE Weekly’s Issues 33, 41, 49, 56, and 57.

Military: Russian planes dropping explosives on Black Sea shipping corridor
Russian warplanes have dropped “explosive objects” along the likely route of civilian vessels in the Black Sea three times in the past 24 hours, Ukraine’s Southern Operational Command said on Nov. 1.

In SOE Weekly Issue 74, we reported that on Feb. 3, the High Anti-Corruption Court (HACC) satisfied an appeal by the Justice Ministry and confiscated the Demurinsky Mining and Processing Plant formerly owned by Shelkov.

In Issue 77, we reported that the Cabinet of Ministers transferred the assets of Shelkov to the SPFU, including Investagro and Demurinsky Plant.

On why Deripaska’s assets are still not managed by the SPFU:

  • “When an asset is recovered as state revenue, the HACC decision is sent to the Cabinet of Ministers, and the Cabinet sends a letter to all interested state bodies to express their positions. The SPFU expressed its position that it was ready to take these assets under its management for further privatisation.”
  • “All other authorities have also expressed their positions. There may have been some comments or reservations or letters from law enforcement agencies. This required more time for the government to investigate certain circumstances.”
  • “Ultimately, the issue was not resolved until Sept. 22. Amendments to the law came into force on Sept. 22. They stipulate that the SPFU now automatically accepts confiscated assets for management. We have asked the government about these assets. We have already had several meetings to discuss this.”
  • “We have previously agreed that the position of all stakeholders would be expressed, including the relevant opinion of the Justice Ministry. Based on the positions collected, a decision will be made on how these assets will be transferred to the SPFU. This case will definitely end by the end of the year.”

On the privatization of the state-owned share of Ocean Plaza:

  • “We have submitted a draft resolution to the government to include the stake in Ocean Plaza in the list of large-scale privatization projects. The government has not yet made a decision.”
  • “We have also challenged the charter of Investment Union Lybid LLC (which owns the Ocean Plaza – SOE Weekly), which was registered by the previous participants a few weeks before the court’s decision to recover the stake for the state. The complaint has been filed with the Justice Ministry, and we expect the matter to be considered. If the complaint is upheld, we would be able to change the management.”
  • “We negotiated with the other shareholder (apparently, Andriy Ivanov – SOE Weekly) and tried to define a matrix of powers, but did not reach an agreement. We also plan to audit Ocean Plaza by the end of 2023. It is necessary to do a financial clean-up of the asset.”
  • “This facility is still being prepared. If the government includes it in the list of large-scale privatization targets, it will allow us to start holding meetings of the auction commission to determine the terms of privatization. At the same time, we will be looking for investors, including foreign ones.”

As we wrote in Issue 106, the SPFU wants to sell the state’s 66.65% stake in Kyiv’s Ocean Plaza shopping mall, previously owned by the sanctioned Rotenbergs, with a starting price of Hr 1.3 billion ($36 million). See more details on this case in Issue 106.

Ukraine war latest: Zelensky is considering holding presidential elections in March, FM says
Key developments on Nov. 3: * Kuleba: Zelensky is considering holding elections as scheduled * Russian mass drone attack against Ukraine hits infrastructure, civilian sites overnight * Death toll of Russian attack on Nova Poshta depot rises to 8 * Moldova’s security chief says Russia spent $55…

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