Ukraine gas company board defends sacked CEO

The supervisory board (SB) of state Naftogaz Ukrainy said in a letter dated April 29 that it does not agree with the Council of Ministers' verdict that the company's executive board performed poorly in 2020.

The day before, the CEO Andriy Kobolev was summarily dismissed three years before his contract was due to expire, after presenting the annual report. He has since been replaced by his former colleague Yuriy Vitrenko.

The SB evaluated the company's performance as "very good if not excellent, given the context in which it was operating," its letter, attached to an email and signed by the SB chair, Clare Spottiswoode, said. 

Removing the CEO directly was not only against Ukrainian law but also jeopardised the company's business continuity, the SB said. The government had begun implementing a programme to improve the corporate governance of state-run enterprises along OECD lines. This plan is now in doubt. 

The main adverse factor was the accumulation of debts run up by regional gas supply companies and district heating companies as the government only cancelled the public service obligation, whereby Naftogaz supplied gas at a loss, in the middle of last year. Under International Financial Reporting Standards, the company had to report a bad debt provision which led to a loss. Another handicap was the loss of its profitable transit business, which was unbundled by government decree. the letter said.

But in other respects the company did very well, including a "substantial positive free cash flow" which was needed for investments and which was achieved through remarkable capital and liquidity discipline embedded by the new executive board, set up at the beginning of 2020. The board also "demonstrated remarkable performance in steering the Naftogaz Group through the Covid-19 crisis and highly unfavourable global energy markets," the SB said.

Given that Naftogaz meets more than 13% of budget revenues, raises financing in international capital markets, the management of the company in line with best corporate governance practices is crucial for the financial stability of the state, the SB said.