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A woman passes by PrivatBank 's office in downtown Kyiv on Dec. 15, 2021. (Volodymyr Petrov)
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Editor’s Note: This is issue 63 of Ukrainian State-Owned Enterprises Weekly covering events from Jan. 29 – Feb. 4 2022. The Kyiv Independent is reposting it with permission.

Corporate governance in SOEs

Ukraine has too many SOEs with unconventional legal forms.

The State Statistics Service of Ukraine reported changes in the number of state unitary enterprises (SUEs), budget-supported entities, and municipal companies in Ukraine.

As of Jan. 1, there were:

  • 3,664 legal entities registered as SUEs (compared to 3,713 as of Jan. 1, 2021);
  • 30 legal entities registered as budget-supported enterprises (compared to 32 as of Jan. 1, 2021);
  • 14,188 legal entities registered as municipal companies (compared to 14,174 as of Jan. 1, 2021).

According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, the governments should simplify and standardize the legal forms under which SOEs operate.

When standardizing the legal form of SOEs, governments should base them, as much as possible, on corporate law that is equally applicable to privately-owned companies and avoid creating a specific legal form. The state should transform all state unitary enterprises, budget-supported entities, and municipal companies into either limited liability companies or joint-stock companies.

Ukrainian SOEs make Hr 3.1 billion ($110 million) in profits in the third quarter of 2021 (unaudited).

The Economy Ministry published the Unified Monitoring of the Efficiency of State Property Management for the three quarters of 2021. The SOE Weekly team has analyzed the data.

The state owns 3,323 entities (decreased by eight SOEs from 3,331 in the first half of 2021). Of these, only 1,382 (41.5% of the entire SOE portfolio) are operating, compared to 1,405 operating SOEs at the end of the first half of 2021.

The total (unaudited) profit of SOEs stood at Hr 21.3 billion ($760 million) for the first nine months of 2021. In the first half of 2021, SOEs earned Hr 18.2 billion ($650 million).

Among the operating SOEs, 862 are profitable (833 in the first half of 2021).

The ownership of these companies is dispersed among 88 entities. There are 693,222 full-time employees (decreased by 4,810 employees from 698,032 at the end of the first half of 2021).

SOEs have Hr 1,715 billion ($61 billion) in assets (increased by Hr 47 billion from Hr 1,668 billion at the end of the first half of 2021).

Please note that the results of nine months of 2021 are only based on intermediate, unaudited reporting. The annual audited results will provide a more reliable picture, which may differ from the one produced by the intermediate results.

In previous issues of the SOE Weekly, we published the results of the Unified Monitoring of Efficiency of State Property Management for:

  • the first half of 2021 (see Issue 51);
  • the first quarter of 2021 (see Issue 38);
  • the year 2020 (see Issue 35).
  • The state provides Hr 65.1 billion ($2.32 billion) in loan guarantees to SOEs and Ukravtodor in 2021. According to the State Treasury Service of Ukraine, in 2021, loans for state guarantees were provided for a total of Hr 74.2 billion ($2.65 billion), of which Hr 36.1 billion (49%) were received by SOEs. Ukravtodor, the country's state-owned road construction agency, received another Hr 29 billion (39.1%). The remainder of Hr 8.1 billion (10.9%) were provided to support small and medium-sized enterprises.

70% of state guarantees were provided for foreign currency loans.

The loans received by SOEs include:

  • Ukrenergo – Hr 21.5 billion, or 59.6% of the total amount of state guarantees provided to SOEs (for Eurobonds); Hr 4.7 billion, or 13% of the total for the programme, to increase the reliability of substations and Hr 1.1 billion, or 3% of the total, to ensure the fulfilment of debt obligations under an unspecified loan.
  • Ukrzaliznytsia - Hr 5.1 billion, 14.1% of the total for an electrification development project).
  • Ukrposhta – Hr 1.9 billion, or 5.3% of the total amount of state guarantees provided to SOEs for a logistics network development project.
  • Shostka plant “Impulse” – Hr 819 million, or 2.3% of the total (the information on the purpose of the loan is classified, likely because Impulse is a defense company).
  • The Concern of Radio Broadcasting, Radio Communication and Television – Hr 490 million, or 1.3% of the total to ensure the fulfilment of debt obligations under an unspecified loan.
  • Antonov – Hr 400 million, or 1.1% of the total to ensure the fulfilment of debt obligations under an unspecified loan.

In SOE Weekly (Issue 52), we reported that according to Ekonomichna Pravda, in early November, Ukrenergo placed state-guaranteed Eurobonds worth $825 million at 6.7% per annum to pay outstanding debts to green energy producers.

Ukrzaliznytsia’s board chair elected

The supervisory board of Ukrzaliznytsia elected Gebhard Hafer as its chair, with Serhiy Leshchenko as deputy chair.

Gebhard Hafer is the vice-chancellor of the University of Applied Sciences and a professor of logistics and global supply chain management. Hafer served as Director of Deutsche Bahn AG for Central and Eastern Europe for five years.

Serhiy Leshchenko is a member of Ukrzaliznytsia’s supervisory board since December 2019. He is a former member of Ukraine’s parliament, serving from October 2014 to August 2019. Previously, he was an investigative journalist at Ukrayinska Pravda.

In SOE Weekly (Issue 60), we reported that on Dec. 29, the Cabinet of Ministers approved new members of the railway operator’s supervisory board. Anatoliy Amelin, Alexander Doll, Jakub Karnowski, and Gebhard Hafer became independent members of the supervisory board, while Serhiy Leshchenko, Serhiy Moskalenko and David Lomjaria will serve as state representatives on the board.

The government removes Havva from Ukrhydroenergo’s supervisory board.

On Dec. 2, the Cabinet of Ministers canceled the contract of Oleksandr Havva, state representative on Ukrhydroenergo’s supervisory board, and appointed him as acting CEO at the state-owned enterprise Market Operator.

Now, Ukrhydroenergo’s supervisory board consists of six members out of seven required.

Earlier, Roman Sutchenko was acting CEO of the Market Operator. He was dismissed on 24 November 2021.

Acting CEO of Ukrspyrt resigns.

Serhiy Bleskun announced his resignation on Facebook.

According to Bleskun, he won the competitive selection for the position of Ukrspуrt’s CEO in August 2021, but was never appointed (which may explain Bleskun’s resignation).

During Bleskun’s term, Ukrspуrt’s 26 distilleries were successfully privatized, generating a revenue of Hr 1.5 billion ($53.5 million) for the state budget. In 2020, under Bleskun, Ukrspуrt demonstrated the best financial performance in the company's history. Prior to his appointment, the distilleries were loss-making and engaged is massive corruption and crime.

According to Taras Melnychuk, the government representative in the Verkhovna Rada, the Cabinet of Ministers temporarily assigned Vitaliy Zhadobin as acting CEO of Ukrspyrt.

Previously, Vitaliy Zhadobin managed the legal department of Ukrspyrt.

Ukrspyrt last had a permanent CEO in 2014, and the company has since been led by various “acting” CEOs.

G7 Ambassadors advocate for transparent privatization, compliance with OECD Guidelines at Ukrainian SOEs.

G7 Ambassadors’ Support Group for Ukraine published detailed priorities of its group for 2022. These include transparent privatization of SOEs and state-owned banks and the improvement of corporate governance of those remaining under state control in line with OECD Guidelines.

SOE updates


The four state-owned banks earned a profit of Hr 11.5 billion ($410 million) in the third quarter of 2021, with 83% of this amount generated by PrivatBank.

According to the Ministry of Finance, state-owned banks increased their profit by 4.5% over the first three quarters of 2021.

  • PrivatBank earned Hr 9.6 billion in the third quarter. In the first nine months of 2021, the bank made a profit of Hr 21.2 billion, which is 0.3% less than in the same period the previous year.
  • Ukrgasbank earned Hr 1 billion in the third quarter. In the first nine months of 2021, the bank reached a profit of Hr 1.7 billion, a 155.1% increase from the same period last year.
  • Ukreximbank earned Hr 627 million in the third quarter. In the first nine months of 2021, the bank earned Hr 1.7 billion compared to 2020, when the bank lost Hr 2.24 billion in the same period.
  • Oschadbank earned Hr 337 million in the third quarter. In the first nine months of 2021, the bank earned Hr 849 million, a fivefold decrease compared to Hr 4.7 billion in the first nine months of 2020.

The share of net assets of state-owned banks in the banking sector decreased to 47.5% at the end of the third quarter from 52.5% at the beginning of the year.

According to the same report, the state-owned banks decreased their holdings of government bonds by Hr 60 billion ($2.14 billion) from Hr 402 billion ($14.4 billion) at the beginning of the year to UAH 342 billion ($12.2 billion) at the end of the third quarter.

In SOE Weekly (Issue 62), we reported that the state-guaranteed debt owed to Ukrainian banks increased from Hr 7.85 billion in 2020 to Hr 32.11 billion ($1.14 billion) in 2021, an increase of Hr 24.26 billion ($867 million). The four state-owned banks accounted for Hr 22.5 billion (93%) of this increase.

Municipalities actively borrow from state-owned banks in 2021.

According to the Ministry of Finance, municipalities borrowed a total of Hr 18.2 billion, including:

  • 61.5% (Hr 11.2 billion) from state-owned banks;
  • 29.6% (Hr 5.4 billion) from international financial institutions (IFIs);
  • 5.0% (Hr 0.9 billion) from private banks;
  • 3.9% (Hr 0.7 billion) from the Ministry of Finance.

Out of the loans provided by the state-owned banks:

  • 39% (Hr 4.3 billion) was provided by Oschadbank;
  • 34% (Hr 3.8 billion), by Ukreximbank;
  • 27% (Hr 3 billion), by Ukrgasbank.

PrivatBank was only state-owned bank that did not lend to municipalities.

Municipalities may borrow money for public goods, correcting for market failures. For example, they may take loans for the road construction or other infrastructure projects 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.

Political meddling may result in cases when loans are provided to local authorities in exchange for political loyalty.

Note that two members of the SOE Weekly team, Andriy Boytsun and Dmytro Yablonovskyi, published a policy paper titled “What should the state do with its banks?” in 2017. They concluded that the risks of state ownership of banks in Ukraine outweighed the benefits, suggesting that all state-owned banks should be privatized. The state can obtain the same services from private banks or international development finance institutions.

Oschadbank’s 2021 profit drops to just over a billion hryvnias (unaudited)

According to Oschadbank, its net profit in 2021 was Hr 1.1 billion. This is 2.5 times less than in 2020.

Oschadbank’s operating profit amounted to Hr 5.6 billion, while the trading result was negative (a loss of Hr 4.4 billion). Oschadbank attributed this to the strengthening of the hryvnia and the indexation of securities in the bank’s portfolio.

The bank received Hr 13.4 billion in net interest income, which is 1.7 times (Hr 5.4 billion) more than in 2020. Net commission income is Hr 6.2 billion. Compared to 2020, this figure increased by Hr 1.2 billion, or 24.9%.

Note that the above results are based on unaudited financial reporting. The audited annual results will provide a more reliable picture, which may differ from these reported by the bank.

In SOE Weekly (Issue 47), we reported that the Cabinet of Ministers approved Oschadbank’s development strategy for 2021-2024. Oschadbank must achieve a projected net profit of about Hr 4.2 billion, about 15% return on capital, and costs to income ratio of less than 65%.

Energy sector

State Bureau of Investigation searches homes, offices of Naftogaz’s former top executives

These searches were conducted at the home of Naftogaz CEO Andriy Kobolyev, as well as the offices of Ukrtransgaz and other private companies.

According to Ekonomichna Pravda, the searches are due to Ukrtransgaz transferring 300 million cubic meters of gas to a pool of companies in 2020, allegedly causing Naftogaz to lose Hr 2.2 billion.

The current acting CEO of Ukrtransgaz is Serhiy Pereloma.

According to the Bureau, after being approached by Ukrtransgaz, management of Naftogaz approved an amicable agreement with commercial companies without appropriate powers and grounds. Kobolyev signed off on the transfer without the consent of Naftogaz’s supervisory board. The pre-trial investigation is ongoing.

Apparently, the State Bureau of Investigation refers to paragraph 31 of the clause 70 of Naftogaz’s charter. According to that paragraph, the exclusive competence of the supervisory board of Naftogaz includes preliminary approval of the executive board’s decisions concerning the activities of the business companies fully owned by Naftogaz, namely concerning approval of significant transactions and related-party transactions of such business companies.

Kobolyev denied the allegations. He said that in the process of resolving this problem, which occurred more than 20 years ago, Naftogaz and Ukrtransgaz were guided by the interests of these companies and prevented illegal an write-off of about Hr 2 billion, including returning more than Hr 200 million that had already been written off.

In SOE Weekly (Issue 03), we reported that Ukrtransgaz asked the Commercial Court of Kyiv to approve a settlement to transfer 300 million cubic meters of gas to a pool of companies. After court approval, private company Fin-Invest had to return Hr 226 million in funds withdrawn from the Ukrtransgaz accounts based on a previous court decision, while Ukrtransgaz was to transfer more than 304 million cubic meters of gas to the company.

In SOE Weekly (Issue 33), we reported that Naftogaz’s subsidiary Ukrtransgaz is demanding a compensation from Naftogaz for returning 305 million cubic meters of natural gas to Profi Gaz LLC.

The company claimed that, in 1999, Naftogaz illegally supplied 305 million cubic meters without the consent of the gas’s owner, Ukrenergozbut. This forced Ukrtransgaz to tap into its own reserves to return the gas to Ukrenergozbut (now called Profi Gaz LLC), following a decision by the Arbitration Court of Kyiv on 12 July 2020.

Naftogaz denied that it had disposed Ukrenergozbut’s gas without permission. Naftogaz argued that, during the disputed period, the company did not have the authority to distribute gas. Naftogaz also stated that it has no obligation to return 305 million cubic meters of gas to its subsidiary.

Other sectors

The Ministry of Social Policy proposes to introduce a funded pension at SOEs

According to the media, the Ministry of Social Policy proposed to introduce a funded pension in enterprises with a state share of over 50%.

The initiative would see pension contributions of 2% of employees’ salaries to private pension funds. SOEs should include the cost of paying these pension contributions for at least half of the employees in their financial plans for 2023.

It is unclear why the Ministry of Social Policy did not address the private companies with such a proposal.

The state pays $87.6 million to a Chinese state bank to cover SFGC’s loan instalment.

According to Ekonomichna Pravda, the Ministry of Finance transferred Hr 2.5 billion to the Export-Import Bank of China instead of the State Food and Grain Corporation (SFGC).

According to the Ministry, SFGC repays a loan instalment every six months. On Jan. 21, the company paid just $8.8 million of the $96.4 million it was supposed to. Due to the state guarantee, the Ministry of Finance had to pay the rest.

Additionally, Ukraine received China’s response to a proposed loan restructuring. The Chinese side proposed that this issue should be resolved at the level of “relevant authorities,” apparently, suggesting that the Ukrainian proposal was rejected.

In SOE Weekly (Issue 62), we reported that SFGC may have asked for a restructuring of its outstanding $900 million debt to the Export-Import Bank of China, according to an October presentation reported by Ekonomichna Pravda.

In SOE Weekly (Issue 61), we reported that lawmaker Maryan Zablotskyy (Servant of the People party) wrote on his Facebook page that SFGC might go bankrupt soon. According to Zablotskyy, the Grain Corporation was unlikely to repay its next $95 million loan tranche on its own.

Later, Ekonomincha Pravda published an article explaining how SFGC’s debts accrued and claiming that on Jan. 21 SFGC would default on its debt. According to news outlet'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 Grain Corporation's debt 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, the Grain Corporation'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 ($2.5 million) and was placed under house arrest, was “relieved of his duties as acting CEO” by the Ministry of Economy in September. Vasyl Kovalenko, was appointed as the new acting CEO.

In SOE Weekly (Issue 39), we reported that the National Police established that the 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 International Airport when he was trying to flee Ukraine. His accomplice was detained along with him.

In SOE Weekly (Issue 30), we reported that the Grain Corporation was among the biggest loss-makers among all Ukrainian SOEs, with its 2020 loss totaling UAH 5.9 billion ($210 million).


State Property Fund to privatize 5 distilleries.

According to Ukrspyrt, the State Property Fund announced five distillery privatization auctions. The auctions will take place from Feb. 25 until March 4. The sum of the starting prices in these auctions is over Hr 140 million ($5 million).

Detailed information on the objects and auctions is available here.

Since the beginning of 2020, 26 distilleries have been successfully privatised, generating a revenue of Hr 1.5 billion ($53 million).

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