Two Naftogaz board members resign citing government interference

Two independent members of Naftogaz’s supervisory
board, Paul Warwick and Marcus Richards, announced they submitted their resignation
on Sept. 19 from overseeing Ukraine’s state gas transit monopoly. Among the
reasons for their decision, they cited “government interference” with the
operation of Naftogaz subsidiaries, the appointment of senior executives
dismissed from Naftogaz to government positions and “a lack of meaningful
approval” by the Cabinet of Ministers of Naftogaz’s 2017 business plan.
“Despite assurances from senior politicians, deadlines have passed and
commitments have not been delivered amidst an environment of government
control,” they wrote.

The position of the board members was supported by
Naftogaz CEO Andriy Kobolev, who claimed on Sept. 20 that delays with reforms
of the company may lead to halted financial support from the EBRD and the World
Bank. The EBRD and the U.K. Embassy in Ukraine also published their concerns
about the resignations and lack of reforms in the state company.

Alexander Paraschiy: The
transformation of Naftogaz is considered to be among the best examples of progress
in reform that the Ukrainian government has done in the last three years.
However, this most recent stage of the transformation – splitting into separate
businesses – is being blocked by key officials.

What particularly bothered board members is that Ihor
Prokopiv, who was dismissed from CEO of a Naftogaz subsidiary in March 2017
(for alleged corruption), was appointed about the same day as deputy energy
minister responsible for supervision over Naftogaz and its further reform.
Needless to say, that appointment has become the core reason of conflict beween
Naftogaz and the ministry, intensified “government interference” and delays
with reforms in the company. That eventually led to the resignation of the
independent board members.

The resigning board members were also dissatisfied
with the government’s rejection of the 2017 business plan that assumed gas rate
hike for households and heating utilities as of October. The Cabinet had to
adjust the price by up to 19%, based on its resolution adopted in March 2017
(which was agreed upon with the IMF), but instead it is trying to revise its resolutionto avoid the price hike (an attempt that has yet to be approved by the
IMF). 

All this increases the risk that Naftogaz reform
will be halted and that the Ukrainian gas giant will lose its financial support
from IFIs. And this illustrates a strong risk of the Ukrainian government
swerving off the reform path, even in areas where it has achieved interim
success.