• Corporate governance in SOEs

• SOE updates

  • Energy sector

  • Defence

• Privatisation

• Confiscation of the aggressor state’s assets, nationalisation, and asset seizure

• Procurement Notices – powered by ProZorro

Corporate governance of SOEs

Energoatom’s corporatisation approved by the Verkhovna Rada. On 6 February 2023, the Verkhovna Rada passed Draft Law No. 8067 (in the second reading) on the corporatisation of the state nuclear power company Energoatom.

The bill was proposed by MPs Ostap Shypailo, Andriy Gerus (both from Sluha Narodu faction), and other MPs. It establishes the legal, economic, and organisational foundations to transform Energoatom from an (uncorporatised) state enterprise to a joint-stock company (JSC) to improve its efficiency and corporate governance.

According to the Energy Committee of the Verkhovna Rada, establishing good corporate governance of SOEs is one of Ukraine’s obligations under the Association Agreement with the EU.

Energoatom remains 100% state-owned, with the Cabinet of Ministers as its ownership entity, the Committee explained.

At the same time, the shares acquired by the state as a result of converting the company into a JSC are not subject to privatisation, and it is also prohibited to divide the state-owned package of shares.

In SOE Weekly (Issue 69), we reported that the Verkhovna Rada approved the first reading of Draft Law No. 8067 on the corporatisation of Energoatom.

In SOE Weekly’s overview of the top 2021 events (Issue 58), we forecasted that Energoatom had every chance to be corporatised in 2022.

Decisions to corporatise Energoatom have been made since 2012, starting with the National Action Plan for 2012 on the Implementation of the Programme of Economic Reforms in Ukraine for 2010-2014.

In Issue 41, we wrote that President Volodymyr Zelenskyy signed a Presidential Decree on 28 August 2021 instructing the Cabinet of Ministers to develop and submit a draft law on the transformation of Energoatom by 30 September 2021.

In Issue 53, we wrote that the 2021 IMF Memorandum included a commitment from the Ukrainian authorities to ensure that the law on the corporatisation of Energoatom is enacted by end-December 2021. Energoatom would then have to get a supervisory board with a majority of independent members. It would also be required to produce financial accounts per international standards by May 2022 (a new structural benchmark at that time).

SOE updates

Energy sector

Ukrenergo faces another Russian missile and drone attack on its energy facilities. Ukrenergo reported that Russia launched another missile and drone attack on Ukraine’s energy infrastructure. This was Russia’s 14th attack in its series of mass missile attacks and 16th in the series of drone attacks [since 10 October 2022 – SOE Weekly], Ukrenergo added.

The attack started during the night of 10 February 2023 and continued until the late morning. According to Ukrenergo, several high-voltage infrastructure facilities in the eastern, western, and southern regions were hit, leading to power outages in some regions.

To minimise the possible consequences of the attack and preserve the power system, Ukrenergo is taking the necessary preventive measures and uses emergency shutdowns.

[After every Russian mass missile attack on Ukraine’s vital infrastructure, emergency outages take place, lasting for days due to the ongoing repair works. During such outages, people in Ukraine are left without electricity, heating, water supply, or access to mobile phone networks. – SOE Weekly.]

In SOE Weekly (Issue 72), we reported on the previous wave of Russia’s missile and drone attacks. According to Ukrenergo’s CEO Volodymyr Kudrytskyi, that time, just like before, Russia did not achieve its goal of causing a collapse in the Ukrainian power system.

In SOE Weekly (Issue 66), we reported about the constant Russian attacks on Ukraine’s vital infrastructure. On 16 December 2022, Ukrenergo reported an emergency situation as Ukraine’s united energy system suffered a 50% consumption loss due to Russia’s missile attacks. [Apparently, consumption dropped because of the attacks on the transmission system. – SOE Weekly.]

Defence

Ukroboronprom starts producing ammunition jointly with a NATO country. On 9 February 2023, Ukroboronprom announced that it has begun producing 120 mm mines jointly with a NATO member state. [Ukroboronprom did not name the NATO country. – SOE Weekly.]

According to the company, the 120 mm mine is the first product to be jointly produced by Ukraine and a NATO member state. Recently, Ukroboronprom signed a contract with Ukraine’s Defence Ministry for the supply of these munitions, so the Ukrainian military will receive them soon, the company said.

Ukroboronprom stressed that the 120 mm mortar is one of the most common types of artillery weapons in Ukraine, actively used by Ukraine’s Armed Forces.

Earlier, Ukroboronprom started serial production of 82-mm mortar rounds abroad, using in-house technology. However, the 120-mm mine is a joint product with Western allies, the company explained.

Besides, on 6 February 2023, Ukroboronprom and the Czech company VOP CZ reached an agreement on the production, repair, and joint development of armoured vehicles, as well as the creation of new supply chains for parts and products.

Privatisation

SPFU puts another seaport up for privatisation. The State Property Fund of Ukraine (SPFU) announced a privatisation auction for the Bilhorod-Dnistrovskyi trade seaport. The auction is to be held on 3 March 2023 with a starting price of UAH 187.6 million. This will be the second sale of a seaport since the independence of Ukraine.

The guarantee deposit fee has been set at UAH 37.5 million, or 20% of the starting price. [Note that on 28 July 2022, the privatisation law has increased the guarantee deposit fees for privatisation auctions from 10% to 20% of the starting price, apparently aiming to minimise the risk of the winning bidder refusing to purchase the asset, which was not an uncommon practice until recently. – SOE Weekly.]

After the Russian invasion, Bilhorod-Dnistrovskyi has been blocked from the sea, but it has been used for transhipment.

According to the SPFU, Bilhorod-Dnistrovskyi’s losses ranged between UAH 23.5 million and UAH 28.5 million in 2019-2021. Its losses in January-September 2022 were UAH 2.9 million.

As of 30 September 2022, the port’s overdue accounts payable were UAH 104.7 million. [This suggests that the buyer will have to repay these debts, which adds up to the selling price of the port. – SOE Weekly.]

In SOE Weekly (Issue 71), we reported that on 17 January 2023, the SPFU sold the Ust-Dunaisk trade seaport for UAH 201 million, a more than threefold increase from the starting price (UAH 60 million). This was the first sale of a seaport in the history of independent Ukraine.

Interest groups have tried to block the deal, challenging the sale via filing a statement with the National Anti-Corruption Bureau of Ukraine (NABU) and sending letters to Prime Minister Denys Shmyhal, speaker of the Verkhovna Rada Ruslan Stefanchuk, and head of the SPFU Rustem Umerov.

Confiscation of the aggressor state’s assets, nationalisation, and asset seizure

Russian oligarch Usmanov’s iron ore worth almost UAH 2 billion transferred to ARMA. On 7 February 2023, the Economic Security Bureau of Ukraine (ESB) handed over almost 170,000 tonnes of sanctioned Russian oligarch Alisher Usmanov’s iron ore with an estimated value of UAH 1.8 billion to the Asset Recovery and Management Agency (ARMA).

According to ESB, the investigation established the location of Russia’s clandestine warehouses in several seaports in Odesa region. They stored raw materials that Russian agents tried to illegally transport to Russia by sea.

In SOE Weekly (Issue 68), we reported that in December 2022, the court seized a batch of iron ore of over 160,000 tonnes belonging to a company associated with Usmanov.

The High Anti-Corruption Court seizes key assets of Russian oligarch Mikhail Shelkov. On 3 February 2023, the High Anti-Corruption Court (HACC) satisfied an appeal by the Ministry of Justice and confiscated the Demurinsky Mining and Processing Plant owned by Russian oligarch Mikhail Shelkov.

The court ruled that all of the plant’s assets, worth UAH 2 billion, should be confiscated in favour of the state. The ruling came into force upon its announcement, and it may no longer be challenged in cassation.

In SOE Weekly (Issue 72), we reported that on 23 January 2023, the HACC partially satisfied the claim filed by the Ministry of Justice against Russian billionaire Mikhail Shelkov, the major beneficiary and member of the board of directors of the Russian VSMPO-Avisma Corporation PJSC, the world’s largest titanium producer.

The HACC said that it seized the company VSMPO TITAN Ukraine LLC and a number of petty assets, such as a tractor, a trailer, and two mid-sized apartments.

However, the court dismissed the claim seeking to seize the Demurinsky Mining and Processing Plant and other companies controlled by Shelkov. The HACC did not find sufficient evidence that Shelkov controlled the plant.

The court was not satisfied with the Ministry’s arguments that 75% of the shares of the Cypriot company that owns 100% of Demurinsky were sold [to a related party – SOE Weekly] for only €3,750 just a few days before the start of the Russian invasion.

At the time of the sale, Ukraine had already imposed sanctions on the seller and the Cypriot company. Meanwhile, part of the management team that worked for Shelkov continued to work for that Cypriot company and the plant after the sale of 75% of the shares.

The DGF sells Prominvestbank’s countryside complex for UAH 311 million. On 8 February 2023, the Individual Deposit Guarantee Fund (DGF) announced that it has sold a countryside complex in Koncha Zaspa [a prestigious Kyivan residential suburb – SOE Weekly] for UAH 311.1 million.

The complex, formerly owned by Prominvestbank (a subsidiary of the Russian bank VEB.RF), featured a luxury furnished villa, several guest houses, a spa, a restaurant, and an on-site hotel. According to DGF, the price increased from an initial UAH 187.6 million to UAH 311.1 million during the auction held on 16 January 2023.

Preparations are underway to sign the sale and purchase agreement, the DGF added. The auction proceeds will be used to pay off the bank’s creditors.

In SOE Weekly (Issue 71), we reported that the DGF transferred the shares of the Ukrainian subsidiaries of Russian state banks to the Ukrainian state, represented by the National Investment Fund of Ukraine, a state unitary enterprise.

These include:

• 99.77% of the capital of Prominvestbank (i.e., all shares previously owned by VEB.RF); and
• 100% of the capital of the International Reserve Bank (previously owned by Sberbank).

In SOE Weekly (Issue 67), we reported that the DGF said that it ensured the transfer of UAH 17 billion from the liquidated accounts of Russian banks to a special fund of the state budget.

According to the DGF, the following funds were transferred: UAH 3.2 billion; USD 372.3 million; as well as smaller amounts in other currencies.

The corporate rights and financial assets were confiscated per the decision of the National Security and Defence Council dated 11 May 2022.

Procurement Notices – powered by ProZorro

Together with ProZorro, we selected procurement notices announced by top 15 Ukrainian SOEs and four state-owned banks from 2 to 9 February with an expected value of more than UAH 1,000,000. State Food and Grain Corporation, Automobile Roads of Ukraine, and PrivatBank are not subject to the requirement to use ProZorro by law and have not used it in the past four years.