Cabinet dismisses Naftogaz supervisory board, reshuffles executive board

Cabinet of Ministers dismissed two executive board
members of Naftogaz (NAFTO) and appointed four members to vacant positions on Sept.
27, rbc.ua news site reported. This became possible after the Cabinet dismissed
all the members of the company’s supervisory board and, as the sole
shareholder, assumed the authority of the board. Last week, the supervisory
board dismissed two executive board members, COO Otto Waterlander and CFO
Petrus van Driel, according to Interfax-Ukraine. In this way, the Naftogaz
executive board has been fully reshuffled and only CEO Yuriy Vitrenko has
retained his position.

Recall, three independent members of Naftogaz
supervisory board announced their resignationon Sept. 7, so they had two weeks to conclude their responsibilities in the
board. With their exit, the board has lost its quorum and became dysfunctional.

In other news, CEO Vitrenko has sent a letter to PM
Denys Shmyhal estimating Naftogaz’ extraordinary expenditures and working
capital needs at UAH 123 bln (USD 4.6 bln) in the short-term, rbc.ua news site
reported on Sept. 24. They include UAH 17.5 bln for the import of 0.9 bcm of
natural gas, UAH 33.7 bln extra gas production royalty (the royalty is tied to
the price of imported gas), UAH 53.2 bln in extra working capital needs related
to gas supply to heating and gas distribution companies, UAH 10 bln extra tax
expenditures related to the division of Ukrnafta assets and other extra costs
of UAH 8.9 bln. The company offers to cover the deficit with a UAH 51.2 bln
payment from the operators of the gas transit system and the rest with money to
be received from the implementation of a special law on debt settlement on the
gas market, including budget outlays of UAH 33.7 bln and UAH 10 bln, which are
expected collections by the government of extra taxes/royalties from Naftogaz.

According to Vitrenko’s letter, Naftogaz had UAH 57.7
bln cash as of May 1, which has been fully spent for stockpiling natural gas
(including 2.1 bcm of imported gas for UAH 27 bln).

Alexander Paraschiy: Now that
the insurgent supervisory and executive board members have left the company,
Vitrenko and Shyhal are taking full responsibility for Naftogaz operations, for
good or bad. At least, for the company and its shareholder, it will be much
easier to adopt any decisions necessary to resolve any liquidity issues. In any
case, it is likely that Naftogaz will try to place a Eurobond this autumn to
partially cover its working capital needs for the upcoming season and secure
the repayment of the nearest Eurobond in July, after the season is finished.
Taking into account all the challenges that Naftogaz meets now, its bonds might
become more volatile in the short-term.