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Editor’s Note: This is issue 62of Ukrainian State-Owned Enterprises Weekly covering events from Jan. 22 – Jan. 28, 2022. The Kyiv Independent is reposting it with permission.

Corporate governance in SOEs

The Verkhovna Rada establishes a Temporary Commission of Inquiry for State Audit Service, State Customs Service, and Naftogaz. On Jan. 27, lawmakers set up a Temporary Commission of Inquiry for the State Audit Service (SAS), the State Customs Service (SCS), and Naftogaz.

According to the Verkhovna Rada’s resolution and related explanatory note, the establishment of the Commission was caused by possible corruption at government agencies, including SAS and SCS, as well as the results of Naftogaz’s audit conducted by SAS (apparently in 2020 – SOE Weekly). That audit had arguably established ineffective management and risky transactions that may have led to losses of Hr 250.9 billion, including financial violations amounting to Hr 150 billion.

The Commission will investigate these possible corruption cases at SAS and SCS.

In addition, the Commission will examine the business activities of Naftogaz, including:

  • the efficiency of use of Naftogaz’s fixed assets and the condition of gas distribution systems;
  • activities of Naftogaz and other companies engaged in the extraction, transportation, storage, distribution, and supply of natural gas, as well as its foreign business;
  • the implementation of the state ownership policy by Naftogaz and key goals and priorities according to which the state owns the company;
  • information on the company receiving and using state aid.

The Commission also said it would investigate the critical situation with tariff-setting that may have resulted from the actions of Naftogaz’s officials.

The Commission is established for one year and is chaired by lawmaker Ivan Krulko (Batkivshchyna fraction). The report must be heard at Verkhovna Rada’s meeting no later than in six months.

In SOE Weekly (Issue 15), we reported that in February 2021, Prime Minister Denys Shmyhal instructed then acting Minister of Energy Yuriy Vitrenko to report on the execution of the National Security and Defense Council’s decision related to ensuring the energy security of Ukraine. In his response, Vitrenko criticized Naftogaz management and supervisory board referring to the company’s falling gas production, failure to implement the state ownership policy, and the violations that SAS had established in Naftogaz in 2018-2019.

Naftogaz had dismissed the conclusions in the SAS report in October 2020. In its statement, the Audit and Risk Committee of the supervisory board said that the company’s financial statements complied with the Ukrainian law and International Financial Reporting Standards (IFRS).

In SOE Weekly (Issue 12), we reported that the Verkhovna Rada established a Temporary Commission of Inquiry for Ukrzaliznytsia. The Commission was to assess the state of Ukrzaliznytsia and investigate possible inaction and violations of the law, which caused a deterioration of the company’s performance and technical condition.


State-guaranteed debt owed to state-owned banks grows by Hr 22.5 billion in 2021. The state-guaranteed debt owed to Ukrainian banks increased from Hr 7.85 billion in 2020 to Hr 32.11 billion in 2021, an increase of Hr 24.26 billion.

The four state-owned banks accounted for Hr 22.5 billion (93%) of this increase:

  • Ukreximbank (Hr 9.34 billion);
  • Oschadbank (Hr 8.65 billion);
  • Ukrgasbank (Hr 3.79 billion);
  • PrivatBank (Hr 0.76 billion).

As of the end of 2021, the state-guaranteed debt owed to state-owned banks was Hr 30.4 billion, which made up 94.7% of total debt owed to Ukrainian banks.

(The state can guarantee certain loans for the public good, correcting for market failures. For example, the state may provide guaranteed loans for the construction of roads, bridges, or airports when the collateral is not available, and the banks are not prepared to offer such loans otherwise.

However, there is no reason to rely solely on state-owned banks for such loans. A heavy loan concentration may be a sign of special conditions, violating the level playing field, or political meddling, which risks intruding into the banks’ corporate governance.

The Antimonopoly Committee may start an investigation to see whether the level playing field was violated, whether such state guarantees effectively represent state aid, and, if so, whether such state aid was admissible. – SOE Weekly.)

Energy sector

MGU tells GTSOU to increase its gas trade on the exchange. According to the Mahistralni Gazoprovody Ukrayiny (Main Gas Pipelines of Ukraine or MGU), its supervisory board is working to increase the participation of the Gas Transmission System Operator of Ukraine (GTSOU) in the Ukrainian Energy Exchange, buying and selling gas to balance the transmission system.

MGU stated that a number of meetings were held and documents were developed and agreed upon to prepare GTSOU to go public and coordinate the activities of GTSOU and the Ukrainian Energy Exchange. GTSOU has participated in the trading since Jan. 19.

(MGU is the owner of GTSOU. It is unclear why MGU directly engages in gas procurement issues of GTSOU and via which mechanisms MGU’s instructions are implemented. In normal corporate practice, the above issues should be dealt with by GTSOU management. – SOE Weekly.)

In addition, MGU’s supervisory board instructed GTSOU to promptly propose an action plan for the heating season 2021-2022 to ensure its liquidity and ability to balance the gas transmission system.

Ukrenergo expects DTEK to repay its debt of Hr 1 billion. According to Ekonomichna Pravda (EP), Ukrenergo asked the Cabinet of Ministers, the Ministry of Energy, the National Energy and Utilities Regulatory Commission (NEURC), the National Security and Defense Council, the Security Service of Ukraine (SBU), and the Ministry of Finance to help recover the debt from DTEK Trading, a company belonging to oligarch Rinat Akhmetov.

According to the EP’s source, the debt accrued from DTEK Trading’s use of transmission services when exporting electricity.

DTEK Trading considers the payment mechanism for electricity exports to be illegal, saying it violates the EU-Ukraine Association Agreement.

In SOE Weekly (Issue 43), we reported that on Sept. 8, the Supreme Court upheld the cassation appeals of NEURC and Ukrenergo against Zahidenergo, one of DTEK’s energy generating companies, which refused to pay for using the state grid when it exported electricity. The Supreme Court ruled that Ukrainian exporters of electricity must pay transmission and dispatch management fees to the grid operator Ukrenergo.

In February 2020, DTEK Zahidenergo went to the Kyiv District Administrative Court to try to get out of the allegedly mandatory fee, which NEURC introduced on Feb. 7, 2020.

Guaranteed Buyer repays its debt to Akhmetov. The Guaranteed Buyer paid its outstanding green tariffs of Hr 2.7 billion to DTEK VDE.

In SOE Weekly (Issue 52), we reported that at an extraordinary meeting on Nov. 13, the Cabinet of Ministers terminated the powers of the Guaranteed Buyer’s CEO, Kostiantyn Petrykovets. According to Petrykovets, he was fired because he refused to follow government officials’ illegal instructions not to transfer money to certain green energy producers.

The Ministry of Energy stated that Petrykovets’ actions were unprofessional and possibly caused damages to the company of over Hr 500 million. During Petrykovets’ term, large volumes of electricity were sold at deliberately low prices to give certain financial and industrial groups an advantage, according to the ministry.

Ekonomichna Pravda (EP) clarified that the ministry was talking about a transaction in late July, where Guaranteed Buyer sold a large amount of electricity before raising price caps on the market. According to EP, in early November, Ukrenergo placed state-guaranteed Eurobonds worth $825 million at 6.7% per annum to pay outstanding debts to green energy producers.

(It is then unclear from the Ministry’s statement why the dismissal only took place three months after those auctions. – SOE Weekly.)

Ukrenergo paid Hr 19.3 billion to the Guaranteed Buyer. Petrykovets was supposed to distribute this sum among market players with the largest share – about a quarter – meant to go to DTEK. However, due to deteriorated relations between Akhmetov and the President’s Office, the government reportedly wanted to withhold DTEK’s payment – and Petrykovets refused to go along with it.

The primary function of the Guaranteed Buyer is to sell electricity produced by Energoatom and Ukrhydroenergo. Its secondary function is to buy all energy produced from renewable sources at a special feed-in tariff, and then sell it on the market.


Ukrzaliznytsia spends Hr 300 million on passenger transportation advisory services. Ukrzaliznytsia announced a tender for the purchase of consulting services for the modernization of its passenger traffic. The starting price is as much as Hr 304.5 million (about $10.6 million).

The scope of the consulting services includes:

  • improvement of operational efficiency;
  • introduction of a system for the financing of services for socially important passenger transportation (apparently, a public service obligation – SOE Weekly);
  • improvement of the passenger traffic quality;
  • support to the development of a strategy for the renovation of passenger traffic assets;
  • increase of revenues from the passenger transportation business.

The services are considered to have been provided when the key performance indicators (KPIs) have been achieved. The list of KPIs is to be agreed upon between the customer and the contractor within three months from the date that the agreement is concluded.

(The KPIs appear to be an essential part of the terms of reference of this advisory assignment. It is therefore unclear why the KPIs are to be agreed upon after the winner of the tender is selected, especially in procurement of this magnitude. It is also unclear what happens if the winner and Ukrzaliznytsia should not agree on the KPIs after they sign the contract. – SOE Weekly.)

The advisory services should be provided until Dec. 31, 2023. The auction will take place on March 14.

Other sectors

UMCC wins a $14 million debt collection lawsuit. The Kyiv Court of Appeal upheld three decisions of the International Commercial Arbitration Court (ICAC) at the Chamber of Commerce and Industry of Ukraine to recover debts of $ 13.8 million from Bollwerk Finanzierungs- und Industriemanagement AG in favour of United Chemical and Mining Company (UMCC).

According to UMCC, it signed contracts in 2019 to supply titanium-containing materials to the Austrian company. Bollwerk was supposed to pay for the goods in 2020 but never did.

At the end of 2020, the UMCC went to ICAC, which decided that $4.9 million, $1.5 million and $7.3 million must be collected from Bollwerk for three different contracts.

Former lawmaker Serhiy Leshchenko had said in 2018 that Bollwerk is allegedly related to Mykola Martynenko, former chair of the energy committee of the Verkhovna Rada.

The state receives Hr 253.5 million in dividends from the UMCC, according to the company. This includes Hr 184.5 million in dividends for 2020 and another Hr 68.9 million in surcharges for 2018. Last year, the company paid Hr 50.4 million in dividends.

In SOE Weekly (Issue 60), we reported that according to Marlin, in the first nine months of 2021, UMCC posted losses of Hr 328 million.

In SOE Weekly (Issue 58), we reported that the UMCC privatization auction was postponed three times, with the new date unknown.

SFGC offered to restructure Chinese loan. The State Food and Grain Corporation (SFGC) offered to restructure its outstanding $900 million debt to the Export-Import Bank of China, according to an October presentation, reported by Ekonomichna Pravda.

(We are unaware to whom the presentation was made, if at all, and whether it has ever been considered. There is no official information whether SFGC is filing for bankruptcy. – SOE Weekly.)

The company offered several actions:

  • prolong the current loan for 10 years until 2037;
  • pay interest on the loan for the period of 2022-2025 in 2037;
  • reduce the loan rate to 3% and unlink it from Libor (under current conditions, the rate is 4.5% + six months of Libor);
  • change the loan agreement to allow raising funds outside of the loan agreement.

It was also proposed to raise additional funds in the amount of $700 million in several tranches: $250 million to ensure trade, $150 million to modernise the facilities to increase exports, and $300 million to form a land bank.

(The reason for the SFGC’s failure is that the money injected into it for business development was stolen. It is unclear from the presentation what is to prevent similar theft in the future. – SOE Weekly.)

In SOE Weekly (Issue 61), we reported that lawmaker Maryan Zablotskyy (Sluha Narodu faction) wrote on his Facebook page that SFGC may go bankrupt soon. According to Zablotskyy, SFGC is unlikely to repay its next $95 million loan tranche on its own.

Later, Ekonomincha Pravda (EP) published an article, explaining how the SFGC’s debts accrued and claiming that on Jan. 21, the SFGC would default on its debt. According to the EP’s sources, the President’s Office supports a “default scenario”, which automatically invokes a state guarantee.

In SOE Weekly (Issue 47), we reported that the Cabinet of Ministers set up an inter-ministerial working group to look into the State Food and Grain Corporation’s (SFGC) debts and grain supply obligations to Chinese state-owned companies. SFGC received a $1.5 billion loan in 2012 to be repaid by 2027. It was issued under Ukrainian state guarantees in order to establish a systematic supply of grain to China.

As we reported in SOE Weekly (Issue 44), from January to September 2021, SFGC’s elevators were working at 10% of their total capacity, and the corporation has not sent a single grain shipment to the China National Machinery Import and Export Corporation. This was a record low since the start of their business relationship.

In SOE Weekly (Issue 42), we reported that Andriy Vlasenko, who is suspected of embezzling Hr 71 million and placed under house arrest, was “relieved of his duties as acting CEO” by order of the Ministry of Economy dated Sept. 15, SFGC said on its Facebook page, and Vasyl Kovalenko, was appointed as new acting CEO.

In SOE Weekly (Issue 39), we reported that National Police investigators 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 Vlasenko at Kyiv’s Zhulyany airport when he was trying to flee Ukraine. His accomplice was detained along with him.

In SOE Weekly (Issue 30), we reported that SFGC was among the biggest loss-makers among all Ukrainian SOEs, with its 2020 loss totalling as much as Hr 5.9 billion.


SPF sells Elektronmash for Hr 430 million. The State Property Fund (SPF) sold Elektronmash at the privatization auction for Hr 430 million. The starting price was Hr 65.6 million.

Five companies took part in the auction. The winner is Ukrainian Image LLC. The company is little known, if at all. According to the register, it has an authorized capital Hr 50,000 and is engaged in legal services.

In SOE Weekly (Issue 56), we reported that according to ProZorro.Sale, the Elektronmash privatization auction was recognized as not having taken place, as the winner of the auction failed to sign the contract on time.

In SOE Weekly (Issue 51), we reported that the SPF sold Elektronmash at a privatization auction for Hr 970 million in November.

(In that auction:

  • the highest bid was Hr 970 000 000.01 (offered by Lorten Group);
  • the second highest bid was Hr 970 000 000.00 (offered by Stream Capital);
  • the third highest bid was Hr 560 000 100.00 (offered by Diprobudmashyna);
  • the fourth highest bid was Hr 560 000 000.00 (offered by Time Call).

Notably, Lorten Group, Stream Capital, and Time Call did not participate in the January auction. Diprobudmashyna did participate in the January auction, but it only offered Hr 300 million, which about a half of the bid that it made in the November auction.

Diprobudmashyna’s bid was the second highest in the January auction. If it had offered Hr 560 million, it may have won the January auction.

Also notable is that Ukrainian Image LLC, the winner of the January auction, had not participated in the November auction.

This possibly abnormal behaviour of the bidders may be a good ground for the Antimonopoly Committee of Ukraine (AMCU) to enquire into possible collusion among the bidders. – SOE Weekly.)

The Cabinet of Ministers plans to accelerate privatization. The Cabinet of Ministers approved a decision to improve the procedure for putting state-owned objects on the list for privatization.

According to Prime Minister Denys Shmyhal, the changes should speed up the preparation of the necessary documents by the agencies. He added that the relevant authorities are expected to provide an expanded range of information on state property, including ownership, availability of property complexes, court decisions, and the like.

In SOE Weekly (Issue 54), according to the state budget for 2022 approved by the Verkhovna Rada of Ukraine on Dec. 2, the state will privatize Hr 8 billion worth of assets in 2022.

The Verkhovna Rada fails to dismiss the SPF’s Head. On Jan. 27, the Verkhovna Rada failed to dismiss the Head of the State Property Fund (SPF) Dmytro Sennychenko. The decision was supported by 223 votes, which is three votes less than required.

First Deputy Chairman of the Verkhovna Rada Oleksandr Kornienko referred to a failure in the Rada voting system.

A new application for Sennychenko’s resignation was registered in the Verkhovna Rada.

In SOE Weekly (Issue 52), we reported that Dmytro Sennychenko announced his resignation as the Head of the State Property Fund (SPF) on Nov. 18.

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