16:32 04.05.2021

Supervisory Board of Naftogaz reports violation of corporate governance standards upon dismissal of Kobolev

3 min read
Supervisory Board of Naftogaz reports violation of corporate governance standards upon dismissal of Kobolev

Before resigning, in a letter to Prime Minister of Ukraine Denys Shmyhal, independent members of the Supervisory Board of NJSC Naftogaz Ukrainy pointed out the violation of corporate governance standards upon the dismissal of head of the board of the company Andriy Kobolev.

"We cannot support the Soviet methods by which the supervisory board is deprived of the competence for a short time in order to change the chairman of the board. And all this happened on the basis of the same decision of the general meeting of shareholders on the day when the supervisory board had no powers. This is just a mockery of the fundamental corporate governance practices," a letter signed by independent members of the supervisory board of Naftogaz says, the text of which is at the disposal of the Interfax-Ukraine agency.

The supervisory board also recalled the previously voiced explanation of the loss received at the end of 2020, which was indicated as the reason for Kobolev's dismissal, according to which, without taking into account the written off reserve of doubtful debts and compensation for the performance of special duties imposed by the Cabinet of Ministers on the company (PSO), the normalized profit of Naftogaz Ukrainy is UAH 3,2 billion. At the same time, at the end of the year, the company allocated UAH 141 billion to the budget, which is about 13% of total revenues.

"Doubtful debts mainly include debts, firstly, from regional gas supply companies, which do not pay for gas received before the cancellation of the PSO regime for residential consumers; and, secondly, from heating supply companies that have been exposed to unfavorable economic conditions, as a result of which they are slowly paying their debts," the members of the supervisory board said.

Independent directors of Naftogaz also said that the newly appointed head of the company, Yuriy Vitrenko, had a conflict of interest, since he served as Minister of Energy before his appointment, while the existing legislation prohibits the employment of persons authorized to perform state functions in companies over which they had influence.

"Our only recommendation is for the government and the president to explore ways to quickly eliminate the consequences of damage caused to the company and the country's reputation in terms of corporate governance. There is a risk that the cost of such damage will be much higher than the financial damage in 2020 that Naftogaz had to reflect for the proper application of IFRS requirements," the members of the Naftogaz supervisory board said.

As reported, the government at the general meeting of shareholders of Naftogaz Ukrainy on April 28 recognized the work of the supervisory board and the management of the company as unsatisfactory.

The Cabinet of Ministers first terminated the powers of all members of the supervisory board – both independent and representatives from the state – with their subsequent re-election in full, but from April 30, 2021.

Having dismissed the supervisory board for two days, the Cabinet prematurely terminated the powers of head of the board of Naftogaz, Andriy Kobolev, relieving him of office on April 28, and also elected and appointed Yuriy Vitrenko as the head of the company from April 29 for a period of one year.

The Cabinet of Ministers said that the dismissal of Kobolev was influenced by the unsatisfactory financial performance of Naftogaz in 2020: UAH 19 billion of the group's net consolidated loss.

The US, EU and IFIs expressed deep concern over the Cabinet of Ministers' decision to dismiss the supervisory board and replace the head of Naftogaz, doubting Ukraine's commitment to corporate governance reforms.

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