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The building of the state-owned postal company Ukrposhta on Maidan Nezalezhnosti (Independence Square) on April 21, 2023, in Kyiv. (Photo by Valentyna Polishchuk/Global Images Ukraine via Getty Images)
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Editor’s Note: This is issue 85 of Ukrainian State-Owned Enterprises Weekly, covering events from April 22-28, 2023. 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

The Cabinet sets a dividend pay-out ratio for SOEs for 2022. On April 18, the Cabinet of Ministers established how much SOEs must pay in dividends for 2022. Most SOEs must contribute 50% of their profits as dividends if 30% of the profit is used to restore the damaged assets and counter Russian aggression.

The resolution does not differentiate among most of the top SOEs, setting the dividend pay-out ratio at 50% for most of them.

Based on the official data and preliminary data from the media, most of the top SOEs will likely be loss-making in 2022, with losses as follows (most figures below are likely unaudited):

  • Ukrposhta – Hr 1.3 billion, or $ 35.5 million (audited);
  • Ukrzaliznytsia – Hr 10.8 billion ($295 million);
  • Energoatom – Hr 3.3 billion ($90 million);
  • Ukrainian Sea Port Authority (USPA) – Hr 0.5 billion ($13.7 million);
  • We have not found any data for Borsypil International Airport, but it will most likely be loss-making as well, because it has not operated since February 2022.

According to the media, two top SOEs should post profits (likely, unaudited):

Most of these SOEs have suffered severe losses due to the Russian invasion of Ukraine.

Based on the above predictions, the aggregate result across the top SOEs is likely to be modest at best, with a negligible contribution from SOE dividends to the state budget. See also the next item on fiscal risks from SOEs, below.

The Cabinet also set individual dividend pay-out rates for the following SOEs:

  • PrivatBank – 80%.

As we reported in Issue 73, PrivatBank made a net profit of Hr 30.25 billion ($827 million) in 2022. This suggests that the bank will pay Hr 24.2 billion ($662 million) in dividends. Note that it is not the first time that PrivatBank pays the highest dividends among Ukrainian SOEs.

In particular, in 2020, Naftogaz predicted Hr 11 billion ($300 million) in profits, but posted Hr 19 billion ($520 million) in losses instead. The large shortage in SOE dividend revenues that occurred due to Naftogaz’s losses at that time is likely to have been covered by increasing the dividend pay-out ratio for PrivatBank, from the originally planned 50% to 80% that year.

See Issue 24 for details.

  • Oschadbank must allocate 30% of its net profit for 2022 for dividends.

As we reported in SOE Weekly’s Issue 73, Oschadbank earned Hr 690 million ($19 million) in net profit in 2022.

  • Naftogaz must allocate 30%, and the rest of the profit must be used to purchase natural gas produced in Ukraine.

In Issue 77, we reported that Naftogaz expects to post a loss of Hr 40 billion ($1 billion) in 2022, according to preliminary results. If Naftogaz gets losses, it will not pay any dividends.

  • Ukrhydroenergo must pay 30% (subject to the allocation of 50% of the profits for the restoration of damaged assets).
  • Ukrainian Financial Housing Corporation – 30% (subject to allocation of 50% of the profits for affordable mortgage lending).
  • Ukrainian Danube Shipping Company – 30% (subject to 50% for fleet renewal).
  • Ukragroleasing – 80%.
  • Ukrbud – 95%.

The Cabinet replaces two state representatives on Ukrposhta’s newly approved supervisory board. On April 25, the Cabinet of Ministers published its decision to approve the new supervisory board of Ukrposhta.

The independent board members are Rinat Abdrasilov, Jakub Karnowski, Gary John Carroll, Olena Malynska, and Ihor Mityukov. For more details on them, see our Issue 80.

The state representatives are Kostiantyn Hura and Serhii Derkach.

Note that these are different from the two state representatives that the Cabinet had named in its release when announcing the new Ukrposhta board on March 23. That release announced Natalia Bernatska and Kristina Prasolova as the newly approved state representatives. For more detail on these prior candidates, see SOE Weekly’s Issue 80.

However, as we wrote in Issue 80, the Cabinet’s decision that the above release referred to was not publicly available at that time. Nor was it available a week later (see SOE Weekly’s Issue 81).

The Cabinet did not publicly explain why the state representatives got replaced.

Kostiantyn Hura has served as the head of the State Agency for Infrastructure Projects of Ukraine since June 2022. Before that, he was the acting head of the State Agency on Energy Efficiency and Energy Saving of Ukraine.

Serhii Derkach has served as Deputy Minister for Communities, Territories, and Infrastructure Development since February 2023. Before that, he held senior positions at the National Agency for the Prevention of Corruption (NAPC), including as the Deputy Chief of Staff and Head of the Department for the Prevention and Detection of Corruption.

The Cabinet approves Oschadbank’s new supervisory board. According to Oschadbank, the new independent members of the supervisory board, approved on April 21, are:

  • Michał Krupińskiserved as undersecretary of state in the Polish State Treasury, alternate executive director of the World Bank Group, head of Global Banking and Markets for Central and Eastern Europe at Bank of America Merrill Lynch, CEO of the insurance company PZU Group, and the CEO the Polish Bank Pekao;
  • Elizabeth Nelsonworked as a Vice President at the EBRD since 2012, including Vice President of Risk and Compliance and Chief Risk Officer from late 2016 until the end of 2019. Before that, she was Head of Credit in the Risk Specialist Division of the Financial Services Authority (FSA, now PRA) in the UK. Prior to that, she had a 30-year career at JPMorgan Chase;
  • Philip Heasleyworked as the president and CEO of ACI Worldwide from 2005 to 2020, and currently serves on the boards of directors of Jopari Solutions Inc. and PayPower; and
  • Volodymyr Lavrenchukformer CEO of Raiffeisen Bank (2006-2019), regional director of NEQSOL Holding Ukraine.

The four new members will replace Baiba Apine, Michael Weinstein, Peter Briggs, and Janne Harjunpaa.

Juan Enrique Perez Calot and Anton Piatygin served as independent members on the previous board, and will continue in that role, Oschadbank reported.

By law, the supervisory board of Oschadbank, as the board of any bank that is 100% owned by the state, must include six independent members and three state representatives.

No information on the reappointment of the state representatives on Oschadbank’s board was available at the time of this writing. According to Oschadbank’s website, Julia Pashko, Roza Tapanova, and Alexander Rodnyansky continue to serve on the board.

In SOE Weekly (Issue 80), we reported that, according to Ekonomichna Pravda (EP), Ukraine must finish forming supervisory boards at state-owned banks to comply with the new IMF programme.

Previously, the government appointed new boards at PrivatBank (see SOE Weekly’s Issue 69 for detail) and Ukrgasbank (see our Issues 73 and 75 for detail).

The competitive selections for PrivatBank, Oschadbank, and Ukreximbank started simultaneously on Oct. 11, with application deadlines of Nov. 11.

The government has not given any public updates on the selection for Ukreximbank.

According to Ukreximbank’s board chair, Olyana Gordiyenko, the selection process of the bank’s supervisory board is at the stage of interviews with candidates.

We are not aware of the reasons for the delay.

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Fiscal risks from SOEs

The Ministry of Finance warns the Cabinet of fiscal risks, many relating to SOEs. The 2023 state budget failed to include the hundreds of billions of hryvnias in compensation for gas and electricity tariffs, potential losses of state-owned banks, and payments of state-guaranteed debts, Ekonomichna Pravda (EP) found out from the letter of Denys Uliutin, first deputy minister of finance, to the Cabinet of Ministers.

These risks include:

  • SFGC’s loan to the Export-Import Bank of China. In Issue 68, we reported that on Dec. 17, the Cabinet of Ministers approved the state guarantee to repay the State Food and Grain Corporation’s (SFGC) $1.5 billion loan from the Export-Import Bank of China.

Per the Cabinet’s Resolution, the state will ensure the repayment of the loans and interest, albeit with deferrals and capitalization of accrued interest. According to EP, it involves deferring interest payments for three years.

At the same time, the SFGC continues to suffer losses, so it is most likely that even after the end of the grace period, the state will have to fulfil its obligations as a guarantor and pay the Chinese debt from the state budget. Even if the company achieves its planned results for 2023, it will suffer losses of $197.4 million, the EP wrote.

“At the same time, there is no [approved] financial plan for the SFGC for 2023 and no action plan to break even,” the Ministry of Finance said.

In SOE Weekly (Issue 63), we reported that the Ministry of Finance transferred Hr 2.5 billion ($68 million) to the Export-Import Bank of China instead of the SFGC in January 2022. According to the ministry, the SFGC repays a loan instalment every six months. As of Jan. 21, 2022, 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.

In Issue 62, we reported that the SFGC offered to restructure its outstanding $900 million debt to the Export-Import Bank of China, according to an October 2021 presentation.

In Issue 61, we reported that lawmaker Maryan Zablotskyy (Servant of the People faction) wrote on his Facebook page in January 2022 that the SFGC might go bankrupt soon. According to Zablotskyy, the SFGC was unlikely to repay its next $95 million loan tranche on its own.

Later, the 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 supported a “default scenario,” which would automatically invoke a state guarantee.

  • Risks related to privatization. The Finance Ministry warns that there is a risk that privatization would result in a shortfall of about Hr 5.1 billion ($139 million).

Planned revenues from privatization in the 2023 state budget are Hr 6 billion ($164 million).

According to the State Property Fund of Ukraine, privatization revenues were Hr 0.9 billion ($24.6 million) in the first quarter of 2023 (see below).

  • Risks of additional expenditures for the recapitalization of state-owned banks. According to the ministry, there is a high risk that the government will have to make additional expenditures to recapitalize its banks.

Due to the war, many loan collaterals have been destroyed, and borrowers’ solvency has significantly decreased. The National Bank of Ukraine estimates that the share of non-performing loans could increase by 30% of the banking system’s total loan portfolio, the EP added.

“The economic instability provoked by the Russian aggression may also significantly affect the growth of expenditures to support state-owned banks as a result of credit risk,” the Ministry of Finance said.

  • Naftogaz needs over Hr 300 billion ($8.2 billion), largely as compensation for special tariffs. According to the EP, the draft financial plan of Naftogaz for 2023 includes Hr 327 billion ($8.9 billion) that the company wants to receive from the state budget.

This also implies that Naftogaz’s financial plan for 2023 is not approved yet.

The biggest share of this would be used to compensate the company for the public service obligation to pay the difference between market tariffs and discounted consumer tariffs. In 2022, Naftogaz reportedly had Hr 116.5 billion ($3.1 billion) in costs that were not covered by revenues.

“The [state] budget for 2023 does not provide for such expenditures,” the Ministry of Finance said.

The Ministry notes that it has provided comments on Naftogaz’s draft financial plan, to which the company replied that it did not consider it appropriate to make changes, the EP wrote.

In SOE Weekly (Issue 77), we reported that Naftogaz expected to post a loss of Hr 40 billion ($1 billion) in 2022, according to preliminary results.

Naftogaz’s CEO Oleksiy Chernyshov blamed significant receivables that arose due to the state’s use of Naftogaz’s working capital to meet the needs of energy consumers.

Chernyshov said that the company’s underlying receivables had three components: the difference in tariffs (Hr 36 billion, or $984 million), the debt of regional gas suppliers and gas distribution companies (Hr 76 billion, or $2 billion), and public service obligations (PSOs) for 2022-2023 (Hr 158 billion, or $4.3 billion).

  • Energoatom could lose Hr 82.5 billion in 2023. Due to the reduction in electricity production and sales, including the seizure of the Zaporizhzhia Nuclear Power Plant (NPP) by the Russian occupiers, Energoatom estimates that it will lose Hr 82.5 billion ($2.3 billion) in 2023.

As a result, Energoatom would reduce the payment of taxes and fees to the budget by Hr 21 billion, or $574 million (apparently, compared to the 2023 plans).

In addition, if the current electricity tariffs for households are maintained until the end of the year, the “shortage in [Energoatom’s] finances” would exceed Hr 60 billion ($1.6 billion), the EP added.

In SOE Weekly (Issue 71), we reported that due to continuous Russian occupation, losses of the Zaporizhzhia NPP increased by almost 50% – from Hr 28 billion ($) in November to Hr 40 billion ($1 billion) in January 2023.

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Centrenergo starts exporting electricity. On April 26, Centrenergo exported electricity for the first time in its history, according to the State Property Fund of Ukraine (SPFU), which holds a 78.3% stake in this company.

The SPFU believes that exports would enable Centrenergo to reduce its dependence on the situation on the domestic electricity market and gain access to European Union markets.

Ukraine has recently resumed electricity exports due to a surplus in the system. Slovakia, Poland, and Moldova are the major buyers of Ukrainian electricity.

At the end of 2022, Centrenergo suffered a loss of Hr 7.24 billion ($198 million), which exceeded the 2021 losses more than sevenfold.

Ukrenergo to be inspected due to suspension of electricity exports to Slovakia: losses reach up to Hr 20 million per day. On April 26, the National Energy and Utilities Regulatory Commission (NEURC) decided to conduct an unscheduled inspection of Ukrenergo due to the suspension of electricity exports to Slovakia.

The NEURC called the stoppage an emergency, as revenues from electricity exports are critical to restore the damaged infrastructure.

“Due to the suspension of exports to Slovakia, Ukraine loses about Hr 20 million ($547 million) per day,” the NEURC chair Kostiantyn Ushchapovskyi said during the Commission’s meeting.

The NEURC asked Ukrenergo to provide an action plan to launch auctions for access to interstate crossings between Ukraine and Slovakia. The company did not provide information in response to the regulator’s request, the NEURC said.

Since April 21, Ukrenergo has not offered capacity for electricity exports to Slovakia, which previously amounted to 200 MW per hour and was always fully purchased by traders.

Cross-border transmission capacity is regulated by the law of Ukraine “On the Electricity Market” (in particular, Article 43), and the Procedure for Allocation of Cross-Border Transmission Capacity approved by the NEURC resolution No. 763 dated April 3, 2020.

According to European rules, when two countries trade electricity, their grid operators split the distribution profits. When Ukraine’s power system joined ENTSO-E in March 2022, it pledged to synchronize its auction rules with European ones, but a one-year postponement was granted. Now, European operators are demanding profit sharing, the EP wrote.

Ukrenergo holds auctions half an hour earlier than the operators of neighboring countries, including Slovakia. The Slovak transmission system operator did not agree to this, the NEURC reported. On April 19, the operator refused to provide access to its interstate crossing with Ukraine until this issue is resolved.

On April 21, Ukrenergo responded that uninterrupted electricity exports to European countries are currently hampered by the lack of a procedure for holding joint auctions for access to cross-border crossings, and it is the NEURC’s responsibility to approve such a procedure.

Ukrenergo has been asking the regulator to do that for several years now, claiming that the company has provided all necessary data and documents for this purpose.

Although the NEURC has not yet adopted the procedure, Ukrenergo continues to work with partners to ensure that electricity exports can proceed within the regulatory framework currently established by the NEURC, Ukrenergo added.

The company stated that electricity exports to Poland and Moldova continue and that it is working to restore exports to other countries.

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Ukrposhta loses over Hr 1.3 billion in 2022. On April 27, Ukrposhta reported its financial results for 2022.

According to its release, Ukrposhta ended 2022 with a loss of Hr 1.258 billion ($34 million). Of this amount, Hr 0.217 billion ($5.9 million) was due to losses from assets lost in the temporarily occupied territories of Kherson, Donetsk, and Luhansk oblasts, and Hr 0.402 million ($11 million) was lost due to foreign exchange fluctuations.

The company ended 2022 with a net revenue of Hr 10.3 billion ($282 million) from sales of goods and services, down 7.7% from 2021. The data was confirmed by an international auditor, Ukrposhta stated.

The volume of domestic and export parcels in 2022 remained at the level of 2021. Revenues from trade increased by 41.9% compared to 2021. Due to the full-scale Russian invasion, the volume of written correspondence in 2022 decreased by 53.4% year-on-year with a gradual recovery by the end of 2022. Therefore, revenues in this area decreased by 18.3% compared to 2021.

Also, due to the dissolution of many printed media outlets, as well as population migration, revenues from the distribution of periodicals decreased by 22.4%, the company reported.

According to its release, thanks to the profits of previous years and measures to preserve cash, Ukrposhta maintained a strong liquidity position in 2022, which allowed it to maintain operations without a cash deficit, meet its financial obligations on time, and restart its capital investment programme.

In 2022, the company continued to automate its operations, buying and installing 780 point-of-sale terminals in its outlets. By increasing their total number to more than 8,500 units, revenues from acquiring services increased by 194.3% compared to 2021, Ukrposhta said.

In total, in 2022, Ukrposhta paid Hr 2.9 billion ($79 million) in taxes, duties, and mandatory payments.

Pre-trial investigation in the Pyvovarsky case extends, HACC seizes his property. On April 25, former Infrastructure Minister Andriy Pyvovarsky, who was charged with abuse of power, wrote that the prosecutor of the Specialized Anti-Corruption Prosecutor’s Office (SAPO) informed him that the pre-trial investigation would be extended until May 22. According to Pyvovarsky, he has not yet received an official letter about this.

According to a March 3 decision of the National Anti-Corruption Bureau of Ukraine detective, NABU recognized the Ukrainian Sea Port Authority (USPA) as an injured party. It is not yet clear whether the USPA would recognize itself as an injured party. Pyvovarsky’s lawyers have not yet received a response, the ex-official added.

Pyvovarsky also wrote that last week he abruptly found out that his property had been seized by the decision of the High Anti-Corruption Court (HACC). The court confirmed this. The hearing was held behind closed doors back in February. Pyvovarsky’s wife’s property was also arrested, including assets that she owned before she married him, the former minister alleged.

According to Pyvovarsky, the court representative told the lawyers that he has been notified of the above by post. Neither he nor his lawyers received the mail, Pyvovarsky claimed. Moreover, the arrest was made even before the detective himself recognized the state-owned company as the injured party, the ex-official wrote.

Pyvovarsky was served with a notice of suspicion by NABU and SAPO for allegedly causing over $30 million in damage in 2015. This damage resulted from an allegedly illegal order issued by him as the minister of infrastructure: The order allowed private companies to charge half the harbor dues at Pivdenny seaport.

Pyvovarsky then argued that the charges were unfounded because according to the law “On Sea Ports of Ukraine,” proceeds from tonnage tax are distributed between the user of the port’s harbor (in this case, USPA) and the owner of the operational harbor (in this case, private company TIS).

He posted bail of Hr 10 million ($273 million), as ruled by the court. Pyvovarsky has also been handed a request to extend the pre-trial investigation until May 22, with the amended suspicion accusing him of causing $43.6 million in damage.

For a detailed overview of the Pyvovarsky case, see SOE Weekly’s Issues 76, 77, 79, 80, 82, and 83.

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Sale and purchase agreement for the first seaport in Ukraine signed. On April 21, the State Property Fund of Ukraine (SPFU) announced the signing of a sale and purchase agreement for the Ust-Dunaisk trade port with the winner of the auction, Elixir Ukraine LLC.

According to the SPFU, Elixir Ukraine, an official representative of the Serbian company Elixir Zorka, which trades in complex mineral fertilizers, aims to increase transshipment volumes. It also plans to upgrade the port’s infrastructure and, in the long term, build a 50,000-tonne grain terminal.

In SOE Weekly (Issue 71), we reported that on Jan. 17, the SPFU sold the Ust-Dunaisk trade seaport for Hr 201 million ($5.5 million), a more than threefold increase from the starting price (Hr 60 million, or $1.6 million). This was the first sale of a seaport in the history of independent Ukraine.

Kropachov fails to explain why he did not complete the purchase of the Bilhorod-Dnistrovskyi trade seaport. The winner of the Bilhorod-Dnistrovskyi trade port privatization auction, Ukrdoninvest LLC, owned by Ukrainian businessman Vitaliy Kropachov, said that it backed out of the sale at the stage of hashing out the terms of the sale and purchase agreement with the SPFU regional office in Odesa and Mykolaiv oblasts.

Ukrdoninvest did not provide any further details. There was no public comment from the SPFU at the time of this writing.

The sale price of the port was Hr 264 million, or $7.2 million (including VAT). According to Ukrdoninvest, the company would not demand a refund of the Hr 18.8 million (about $0.5 million) guarantee fee from the state and hopes that these funds would be used to improve the defense capability of Ukraine.

It is remarkable that Ukrdoninvest gave up on an amount of as much as $0.5 million without providing any explanation of what went wrong at the negotiation stage.

The first privatization auction for Bilhorod-Dnistrovskyi trade seaport failed as no one registered, but the second auction was held with a winning bid of Hr 220 million ($6 million) by Ukrdoninvest LLC. However, the winner missed the payment deadline.

Later, the SPFU announced that it would put the Bilhorod-Dnistrovskyi trade seaport up for privatization for the third time.

This is not the first botched privatization auction involving Kropachov’s Ukrdoninvest. In 2018, the company participated in the privatization auction for Centrenergo, but the SPFU later canceled the auction because the documentation submitted by the bidders did not meet the legal requirements.

In 2018, Ekonomichna Pravda (EP) wrote that Kropachov had monopolized the supply of coal to Centrenergo. According to the EP, more than 80% of the coal supplied to Centrenergo was provided by entities directly or indirectly linked to the businessman.

For more detail, see SOE Weekly’s Issues: 74, 78, 79, and 84.

State budget gets Hr 902 million from privatization in the first quarter of 2023. On April 26, the SPFU reported that in the first quarter of 2023, the state budget earned Hr 902 million ($25 million) from the privatization of assets in logistics, trade, warehousing, distilleries, and other assets.

On April 27, lawmaker Roksolana Pidlasa (Servant of the People faction), chair of the State Budget Committee, wrote on her Facebook page that the state budget received Hr 1.027 billion ($28 million) from the privatization of state property in less than four months.

In Issue 68, we reported that from Aug. 19 to the end of 2022, Prozorro.Sale conducted 220 privatization auctions. As a result, the state and local budgets were expected to receive Hr 1.5 billion ($41 million).

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