U.S. State Department expresses concern at Naftogaz board resignation

The U.S. is “deeply concerned at the ongoing leadership
crisis at Naftogaz, including the September 8 resignations of the Naftogaz
independent board members,” Department of State spokesman Ned Price told a
press briefing on Sept. 9. “As Russian aggression and occupation continue, our
strategic partner Ukraine does not need to have questions about its commitment
to corporate governance being raised,” Price said, adding that the U.S.
welcomes the Ukrainian government’s “active engagement to resolve this issue
positively”. Recall, three independent members of Naftogaz (NAFTO) supervisory
board decided to resign as they
failed to find common ground with the government and the company’s CEO Vuriy
Vitrenko.

Alexander Paraschiy: The
insurgent supervisory board members pointed out at their Sept. 8
press-conference that Vitrenko is subordinated directly to the Cabinet and
president, so they no longer see a role for themselves on the Naftogaz board.
There is no surprise in Vitrenko’s behavior, taking into account that he was
appointed as CEO by the Cabinet that ignored the position of supervisory board.
This clearly shows that the Cabinet and supervisory board have very different
views on Naftogaz. The position of the Cabinet – Natfogaz’ owner – is superior.

Two problems arise from the Cabinet’s “doing what it
wants” in Naftogaz. First is the breach of Ukraine’s commitments to implement
high standards of corporate governance, as Price stated. This breach adds
nothing positive to U.S. – Ukraine relations. Moreover, such breach might bring
into question Ukraine-IMF relations, as strengthening Naftogaz corporate
governance –  diminishing the role of the Cabinet in the CEO’s appointment
– was among the key commitments of Ukraine (structural benchmarks) under the
on-going Stand-by program.

Another problem is that “direct governance” by the
government has already led to Naftogaz’ de-facto bankruptcy in 2014-2015, and
there is a risk that this story will repeat somewhere in the mid-term.

For the nearer future, the key questions are whether
Naftogaz will be able to balance itself between the need to keep gas prices for
households and heating unitilties at “affordable” levels amid a need to import
expensive natural gas from E.U., and whether the company will be able to
refinance its USD 335 mln Eurobond maturing in ten months. While we believe the
company will be able to manage that, we see the risks of NAFTO’s shortest bond
are higher than can be justified by its market price.