Ukraine Cabinet prolongs contract with Naftogaz CEO for year

Ukraine’s Cabinet ruled on March 20 to prolong Andriy
Kobolev’s term as CEO of Naftogaz, Ukraine’s state natural gas production and
transit enterprise, for one year starting March 23. In its resolution, the
Cabinet set Kobolev’s performance indicators, the non-fulfillment of which can
lead to his dismissal. They include submitting a draft of the company’s 2019
financial plan that corresponds to Ukraine’s 2019 state budget, completing the
unbundling of the gas transit system and certification of a new gas transit
operator by end-2019, and boosting natural gas production to 18.2 bcm “by
January 1, 2020” (after producing 16.6 bcm in 2018). Also, the Cabinet adopted
the position of the company’s supervisory board intending to halve Kobolev’s
salary and avoid paying monthly and quarterly bonuses, which have been a source
of controversy in recent months.

In another document published on the Cabinet website
on March 20, the government amended the Naftogaz charter to enhance its
authority as the company’s shareholder. In particular, the new charter
stipulates that shareholders have exclusive power to appoint and dismiss the
Naftogaz CEO and members of the board of directors. Earlier, the Cabinet could
do that only with a petition from the supervisory board. 

Alexander Paraschiy: The
prolongation of Kobolev’s term is in line with our expectations expressed last week
and looks like a positive development.

At the same time, the Cabinet’s enhanced authority to
exclusively appoint and dismiss the Naftogaz CEO looks worrying. This
initiative contradicts a law on public companies (which says top management
should be appointed by supervisory boards) and questions the efficiency of
corporate governance reform in state-controlled companies. Also, it increases
Kobolev’s dependence on the government and, consequently, raises the risk that
he could be dismissed any time soon.  For instance, Kobolev can be
dismissed if Naftogaz submits to the Cabinet a financial plan that won’t
satisfy ministers or the PM. In particular, Naftogaz won’t dare any more to
include in a new financial plan multi-billion-hryvnia compensation from the
state budget for losses caused by inefficient government decisions (which the
company had included in its last financial plan).