• Corporate governance of SOEs

• SOE updates

  • Energy sector

• Privatisation

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

• SOE Weekly Event

• Procurement notices – powered by Prozorro

Corporate governance of SOEs

PrivatBank’s annual report approved; the bank will pay UAH 24.2 billion in dividends to the state budget for 2022. On 28 April 2023, the Cabinet of Ministers approved PrivatBank’s annual reporting for 2022. This includes:

• the banks’ annual report for 2022, including the supervisory board’s report;
• the supervisory board’s remuneration report; and
• measures to be taken as a result of considering the supervisory board’s report.

[The above documents were not published along with the Cabinet’s decision and were not yet publicly available otherwise at the time of writing. A remuneration report was publicly available on PrivatBank’s website earlier. – SOE Weekly.]

In addition, the Cabinet approved the following allocation of PrivatBank’s net profit of UAH 30.25 billion in 2022:

• 80% (UAH 24.2 billion) to pay dividends to the state budget;
• 5% (UAH 1.5 billion) to the reserve fund; and
• 15% (4.5 billion) to cover losses accumulated in previous years.

In SOE Weekly (Issue 85), we reported that the Cabinet of Ministers established how much SOEs must pay in dividends for 2022. While most SOEs must contribute 50%, PrivatBank must give 80%.

In Issue 78, we reported that PrivatBank paid over UAH 197.7 million to its top executives and supervisory board members in 2022.

The Cabinet approves Ukrzaliznytsia’s annual report for 2022. The disclosure, approved on 28 April 2022, includes the company’s audited consolidated financial statements, the supervisory board’s report, and the executive board’s report for 2022.

[The above documents were not published along with the Cabinet’s decision and were not yet publicly available otherwise at the time of writing. – SOE Weekly.]

In SOE Weekly (Issue 72), we reported that in 2022, Ukrzaliznytsia saw a net loss of UAH 10.8 billion. The company expects losses of UAH 20.2 billion in 2023 due to the large social burden and restrictions on cargo transportation.

In Issue 70, we reported that on 30 December 2022, the Cabinet of Ministers approved Ukrzaliznytsia’s consolidated financial plan for 2023.

[As we reported two years ago (Issue 27), no information was available to indicate that the Cabinet had considered Ukrzaliznytsia’s annual report, the supervisory board’s report, the executive board’s report, and the distribution of profit for 2020, although it had done so for 2019 and 2021.

In SOE Weekly (Issue 23), we reported that, according to the 2020 results, Ukrzaliznytsia took a net loss of UAH 11.9 billion. The government has never made any statements on such performance of the company.

This was still the case at the time of this writing. – SOE Weekly.]

The Ministry for Communities, Territories, and Infrastructure Development will check all SOEs under its jurisdiction for corruption, starting with Boryspil International Airport. On 2 May 2023, the Ministry for Communities, Territories, and Infrastructure Development announced the launch of a pilot project to audit the corruption prevention system at Boryspil International Airport.

According to the Ministry, the procurement and contracting system will be analysed, and potential risk areas and ways to eliminate them will be identified. This will help to prevent abuse and avoid conflicts of interest at the enterprise. The project will last for two months.

Boryspil Airport has become the first SOE under the Ministry’s jurisdiction to launch a risk assessment and audit project like this. Afterwards, this programme will be repeated at other SOEs, the Ministry added.

Cabinet launches corporatisation of Energoatom. On 2 May 2023, the Cabinet of Ministers approved the conversion of the state nuclear operator Energoatom into a joint-stock company to comply with the law.

The Cabinet established a commission for this purpose. It is chaired by Oleksii Sobolyev, Deputy Minister of Economy, and includes Petro Kotin, Energoatom’s CEO, Farid Safarov, Deputy Minister of Energy, and another eight members.

This commission has the following key tasks:

• to develop a draft plan to transform Energoatom and submit it for government’s approval; and
• to submit documents needed to contribute Energoatom’s property to the authorised capital of the corporatised successor, the new joint-stock company Energoatom.

In SOE Weekly (Issue 80), we reported that, on 17 March 2023, President Volodymyr Zelenskyy signed a law on the corporatisation of Energoatom.

In Issue 79, we reported that corporate governance reform of Energoatom was among the government’s top priorities for 2023. According to the Cabinet’s Priority Action Plan, Energoatom is to be converted into a joint-stock company by May 2023. The nuclear power operator is also slated to receive a competitively selected supervisory board with an independent majority. The deadline is November 2023.

In Issue 74, we reported that the Verkhovna Rada passed Draft Law No. 8067 (in the second reading) on the corporatisation of Energoatom on 6 February 2023. For a detailed account on the corporatisation of Energoatom, see SOE Weekly’s Issues 41, 53, 58, 69, 74, and 79.

SOE updates

Energy sector

Ukrenergo endures another Russian missile and artillery attack on its energy facilities. On 4 May 2023, Ukrenergo reported that Russia launched another missile and artillery attack on Ukraine’s energy infrastructure.

The attack started on 3 May afternoon and continued into the night. According to Ukrenergo, on 3 May, engineers from Khersonoblenergo [company seized earlier from Russian beneficiaries – SOE Weekly] were killed by the massive Russian missile and artillery shelling.

As a result of the shelling, the equipment of electricity distribution companies [i.e., not Ukrenergo’s equipment – SOE Weekly] in Chernihiv, Kharkiv, Sumy, Donetsk, Dnipropetrovsk, Zaporizhzhia, and Kherson oblasts suffered the most damage. Trunk power grids did not sustain any new damage, Ukrenergo added.

According to Ukrenergo, at midnight, Russia launched a missile attack on a power generation facility in Donetsk oblast, damaging equipment and cutting off power to about 186,000 consumers.

Ukrenergo emphasized that despite all the losses and damage, Ukraine’s power system continues to operate in a balanced manner and there is no electricity shortage.

In SOE Weekly (Issue 78), we reported on the previous wave of Russia’s missile and drone attacks on 9 March 2023. This was Russia’s 15th mass strike since the attacks started.

[After every Russian mass missile attack on Ukraine’s vital infrastructure, emergency outages often last 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.]

Privatisation

The SPFU will try to sell the dilapidated Elektronmash for the third time. On 3 May 2023, the State Property Fund of Ukraine (SPFU) announced a third attempt to auction off the Elektronmash factory in Kyiv.

SPFU scheduled the auction for 29 May 2023, with a starting price of UAH 61.3 million (excluding VAT). The plant’s property includes 37 real estate objects (workshops, administrative buildings, warehouses, and a 16-storey office centre).

According to SPFU, Elektronmash was one of the most powerful computer manufacturing companies in the former Soviet Union, employing around 10,000 people. During Ukraine’s transition to a market economy, the plant was unable to adapt to competition and slowly decayed into ruin.

The company has overdue accounts payable of UAH 21.4 million. In 2022, Elektronmash suffered a loss of UAH 8.2 million, in 2021 – UAH 24.0 million, and in 2020 – UAH 10.9 million, SPFU added.

The company has also been cutting its workforce: In 2020, Elektronmash employed 175 people, in 2021 it had 149, and in 2022, just 127.

According to SPFU, the previous two auctions for the sale of Elektronmash could have brought UAH 970 million and UAH 430 million to the budget, but unscrupulous investors failed to complete the purchases on time.

[See more in SOE Weekly’s Issues 51, 56, and 62.]

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

Ukrnafta wants to manage Ukrnaftoburinnya, owned by Kolomoisky, Fuks, and Khomutynnik. On 3 March 2023, Ekonomichna Pravda (EP) reported that Ukrnafta’s CEO Sergii Koretskyi asked the Ministry of Economy to hand the corporate rights of Ukrnaftoburinnya to Ukrnafta. The state previously took these corporate rights away from its owners.

[According to the registry, Ukrnaftoburinnya’s ownership is split between Ares Systems Ltd (22.49%), Deripon Commercial Ltd (22.49%), JKX Ukraine B.V. (10%), and Ariana Business Limited (22.49%). According to the media, the company is associated with businessmen Kolomoisky, Pavlo Fuks, and Vitaliy Khomutynnik.

Ukrnaftoburinnya is one of the largest private gas producers in Ukraine, producing 725.4 million cubic metres in 2021. According to EP, its 2021 net profit was UAH 5.65 billion. In 2022, this fell to UAH 3.77 billion. – SOE Weekly.]

Ukrnafta’s letter to the Ministry of Economy was dated 27 April 2023. In the letter, Koretskyi claims that Ukrnaftoburinnya was developing the Sakhalin oil and gas condensate field, but focused on gas production, although the oil reserves at the field are greater.

Koretskyi’s letter says that Ukrnafta would be able to increase oil production in the Sakhalin area by 14% and increase gas production by an unstated amount.

Ukrnafta also wants to take over Sirius-1 LLC, Sakhalinske LLC, and East Up Petroleum LLC, which are Ukrnaftoburinnya’s partners in joint venture agreements in the Sakhalin field. Shares of these companies had been seized and given to the Asset Recovery and Management Agency (ARMA).

Meanwhile, EP reported that on 3 May, the Pecherskyi District Court of Kyiv granted Ukrnaftoburinnya’s motion to cancel seizure of Ukrnaftoburinnya’s shares. The ruling of the investigating judge is not subject to appeal, the ruling states. The full text of the ruling will be published on 8 May.

However, on 4 May, following a new motion of the Prosecutor General’s Office and the State Investigation Bureau (DBR), the court seized the corporate rights of Ukrnaftoburinnya and transferred these to ARMA again.

In SOE Weekly (Issue 84), we reported that ARMA received all shares of Ukrnaftoburinnya after the asset was seized on 7 April 2023.

The shares were seized in connection with a criminal investigation into the development of Ukraine’s largest explored gas field, the Sakhalin, in Kharkiv Oblast.

[See more about this case in Issue 84 – SOE Weekly.]

SOE Weekly Event

Discussion: Stepping on the same rake – Salary populism for the public sector. On 4 May, the SOE Weekly hosted this discussion in co-operation with Ekonomichna Pravda.

The speakers included: MP Volodymyr Tsabal and SOE Weekly’s team members Andriy Boytsun, Oleksandr Lysenko, and Dmytro Yablonovskyi (moderator).

As we reported in SOE Weekly (Issue 83), on 10 April 2023, the Verkhovna Rada adopted Draft Law No. 8312. Among other things, this law set a salary cap of civil servants and SOE employees in wartime (effectively, UAH 67,000). On 11 April 2023, MP Volodymyr Tsabal (secretary of the Rada’s budget committee, Golos faction) proposed a draft parliamentary resolution to cancel the decision to adopt the above law.

The event’s speakers discussed the negative consequences of such a cap, including its adverse effects on the corporate governance of SOEs and its inconsistency with Ukraine’s commitments under the EU’s macro-financial assistance programme and the IMF’s EFF programme. They also agreed that such limitations would not lead to any actual saving on budgetary costs.

The recording of the discussion in Ukrainian is available here.

Procurement notices – powered by Prozorro

Together with Prozorro, we selected procurement notices announced by top 15 Ukrainian SOEs and four state-owned banks from 27 April to 4 May with an expected value of more than UAH 1,000,000. Note that the State Food and Grain Corporation has not used Prozorro since 2017; PrivatBank, since 2018; and Automobile Roads of Ukraine, since 2021.