Naftogaz independent board members decided to resign

After Ukraine’s Cabinet of Ministers replaced
Andriy Kobolev for Yuriy Vitrenko at the position of Naftogaz (NAFTO) CEO last
week, bypassing the supervisory board, all the members of the company’s
supervisory board decided on April 30 to resign in two weeks. Responding to the
board statement, the Cabinet officially offered on May 2 that all the board
members remain at their positions. “The Cabinet of Ministers remains committed to
corporate governance reform under OECD standards,” it wrote in its press
release.

Responding to the Cabinet’s offer, on May 3, three
independent members of Naftogaz supervisory board wrote a letter to PM Denys
Shmyhal rejecting the offer, lb.ua news site reported the same day. In the
15-page letter, the members criticized the Cabinet’s assessment of the Naftogaz
board and management work as unsatisfactory and its decision to replace the
CEO, stating that the government made a “considerable assault” on corporate
governance and Ukraine’s reputation among international investors.

IN the letter, they highlighted that Kobolev had been
“recently” re-appointed to the CEO position for another four years “with the
approval of the Cabinet and the President.” They also noted that the board
“each time did not retain Yuriy Vitrenko as a feasible CEO candidate,” and
revealed their expectation that many executives of the company will refuse to
work with Vitrenko. They also highlighted that Vitrenko’s appointment violates
Ukrainian anti-corruption legislation. In addition, they criticized the
government’s decision to appoint Robert Bensh as a government appointee to the
supervisory board, stating that he “has a chequered reputation within the
global energy industry.”

In their letter, the board members also stated that
Naftogaz management had “an excellent meeting with international investors last
week” aiming at issuing Eurobonds soon. “This issue has now had to be
scrapped,” they added.

Alexander Paraschiy: Another
postponement of the Naftogaz bond placement, after the October failure, is an
immediate result of the scandalous Cabinet decision. It will likely take
another half of the year for the company to prepare the next placement, though
such a lag should not be painful for the company, as its liquidity remains
solid. Also, we see no negative reaction by the markets to the scandal:
Naftogaz Eurobonds have remained relatively flat over the week. 

We welcome the decision of the supervisory board but,
again, are not surprised by another display of overall poor understanding by
the Ukrainian government of high standards of corporate governance in
state-controlled companies. We also warn that it was not in full compliance of
high corporate governance standards and the Naftogaz charter that the
re-appointment of Kobolev had been agreed upon with Ukraine’s president – so we
see that the independent board members should share the guilt regarding poor
governance in the company.