Huge secret bonuses paid to top Naftogaz executives exposed

Huge secret bonuses paid to top Naftogaz executives exposed
Former Naftogaz CEO Andriy Kobolev was paid a $12.7mn bonus for his role in winning a legal battle against Russia's Gazprom that ended in a $4.8bn settlement in Kyiv's favour. / wiki
By Ben Aris in Berlin July 7, 2021

When Naftogaz CEO Andriy Kobolev was fired in April he pocketed $12.7mn in bonuses as part of his contract, the Kyiv Post reported after seeing company documents into pay and bonuses at the state-owned gas company on June 6.  

All of the company’s top management were paid multi-million bonuses as part of a 1% reward for successfully winning a legal battle with Russia’s Gazprom in Stockholm arbitration courts in 2018 that cost the Russian gas producer $5bn in a settlement paid to Kyiv. Overall, 40 Naftogaz employees shared in the Stockholm bonuses, the Kyiv Post reports based on company documents seen by the paper.

The huge sums will gall Ukrainians, who earn an average of UAH13,543 ($485) a month – the second lowest income in Europe. To add insult to injury, Kobolev was dismissed after the company posted a $700mn loss in 2020, but under the terms of the employment contracts Naftogaz’s top management were entitled to their bonuses irrespective of the company’s financial performance.  

To the managements’ plus is that since they took over they have turned the company around from being one of the biggest drains on the Ukrainian budget into the biggest single tax payer in the country. Despite the 2020 losses, however, the company still managed to pay $5bn in taxes in 2020.  

The company has been transformed and today is run on transparent lines and market principles. Before the reforms, which included the elimination of the RosUkrEnergo gas trading intermediary co-owned by Russia’s Gazprom and exiled billionaire oligarch Dmytro Firtash, Naftogaz was routinely costing taxpayers at least $500mn monthly in losses.

In a July 1 letter to Naftogaz’s supervisory board, obtained by the Kyiv Post, current CEO Yuriy Vitrenko, who replaced Kobolev in April, called for greater transparency at the company.  

Naftogaz current CEO Yuriy Vitrenko

Vitrenko criticised the supervisory board’s decision not to publically disclose the individual salaries and bonuses of top managers.

“The absence of this part in 2020 report (which, though, has been published in 2019) negatively impacts the image of Naftogaz and creates the basis for unnecessary speculations,” Vitrenko wrote. “We strongly believe that we shall be open as much as possible with respect to the past to be successful with the future.”

There is little love lost between Vitrenko and the supervisory board chaired by Clare Spottiswoode. In mid-June Spottiswoode initiated a board meeting to dismiss Vitrenko just after the National Agency on Corruption Prevention found that Vitrenko's appointment violated anti-corruption legislation. Later on, a local court suspended the Agency’s decision.

Naftogaz chairwomen of the supervisory board Clare Spottiswoode

The board that met again on June 24-25 did not consider the proposal to dismiss Vitrenko, but said that it might consider the proposal at subsequent meetings, a statement by the board after the meeting said.

“As we concluded before, there is no political will in Ukraine to dismiss Vitrenko. As such, the board seems to be making another step to find common ground with Vitrenko, with whom they had a public confrontation,” the Kyiv-based Concorde Capital brokerage said in a research note.

Vitrenko’s letter reveals that Spottiswoode is paid $230,000 yearly for her role as chairwoman. Kobolev’s base pay was also $230,000 in 2020.  

In an earlier interview with the Kyiv Post, Spottiswoode defended the decision to conceal the individual amounts and report only aggregate amounts, citing public criticism of top executives’ compensation. Kobolev’s high pay has been the subject of public scandal already in the past.  

The company paid out a total of $16mn in Stockholm-related bonuses but Vitrenko was evasive when talking about his personal share of the payout.  

“My compensation was smaller than $16mn,” Vitrenko said. “But I cannot give you a precise number. It will be a breach of my contract. I can be sued for that. Since I was not an executive board member, my remuneration was not public, and was not supposed to be public.” While “employee contracts are confidential, for executive board members there is a requirement to publish the remuneration, at least in line with the requirements for the joint stock companies,” he said as cited by the Kyiv Post.  

In his public declaration of 2020 income and assets, Vitrenko listed $10.4mn in compensation from Naftogaz.

The company’s 2020 financial report only discloses overall compensation of nearly $25mn for 17 top officials, including five executive board members.

Other executives that received payouts included:  

ex-CEO Kobolyev $12.7mn (including base pay $230,000);

Sergiy Pereloma, first deputy chairman of the board $2.3mn ($270,000);

Otto Waterlander, Naftogaz Group chief transformation officer and member of the executive board $2.2mn ($322,000);

Petrus Stephanus van Driel, Naftogaz Group chief financial officer and member of the executive board  $1.7mn ($270,000); and

Yaroslav Teklyuk, director for legal affairs and member of the executive board $3.4mn ($205,000).