Improving Ukraine’s corporate governance will be key to attracting billions in investment

Improving Ukraine’s corporate governance will be key to attracting billions in investment
Ukraine needs to attract hundreds of billions of dollars of investment, but that will be hard unless it can improve corporate governance. / bne IntelliNews
By Ben Aris in Berlin October 10, 2023

Ukraine needs to raise hundreds of billions of dollars of investment to rebuild its economy after the war is over. While just how bad corruption in Ukraine remains disputed, no one denies that Ukraine has a bad corruption problem. The government has its work cut out for it, unless it can convince investors it has made enough progress in improving corporate governance amongst its biggest state-owned enterprises (SEOs). Minimising the risk of corruption has taken on new urgency, the Centre for European Policy Analysis (CEPA) said in a paper reviewing corporate governance in Ukraine.

“Embedding proper corporate governance practices into Ukraine’s SOEs has been key to cementing reforms made since the Revolution of Dignity in 2014, such as the deregulation of energy markets or the liberalisation of the banking sector,” CEPA said.

CEPA studied four of Ukraine’s biggest SOEs: Naftogaz. GTSOU, Ukrenergo, and Energoatom. Based on these case studies, CEPA concluded:

  • Tightening up corporate governance rules in energy SOEs, which are likely to attract large funds, should be a priority for the Ukrainian government and international donors.
  • Some important steps have been taken, but corporate governance safeguards in Ukraine’s largest energy SOEs remain weak. The sector is witnessing a concentration of political power arguably justified by the current extraordinary security concerns and the imposition of martial law even as the influence of some oligarchic interests may be receding. 
  • However, recent developments at Ukraine’s top energy SOEs and interviews with Ukrainian and Western stakeholders suggest that rather than guaranteeing the security of the sector, the increased political interference may put it at risk, potentially leaving it ill-equipped to receive international assistance.
  • Civil society, domestic and international energy companies and international financial institutions continue to push for more transparency and accountability, and for tighter corporate governance rules and practices.

First steps to introducing corporate governance were taken in 2003, when the National Securities and Stock Market Commission, which polices capital markets, released Ukraine’s first corporate governance principles, five which were subsequently revised in 2008 and 2014 and are based on the Organisation for Economic Cooperation and Development (OECD) principles of corporate governance for publicly traded joint stock companies.

Ukraine has a two-tiered system, which would typically mean the supervisory board would hire or fire the CEO, although the government has used legal loopholes to manoeuvre around that and there is a precedent in 2021 when the government suspended the company’s board for 48 hours and directly fired the CEO.

  • Ukraine was traditionally a hierarchical society, with decisions made subjectively by leaders (the Communist Party, oligarchs, politicians) rather than based on objective criteria.
  • There is a general lack of understanding of corporate governance, which is seen as an imported concept.
  • Vested political and oligarchic interests have seen the introduction of independent supervisory boards with the power to appoint CEOs or approve SOEs’ budgets as a threat.

Over the years, these factors have given root to crony capitalism, characterised by a high concentration of capital in the hands of a few business owners who have benefited from strong political connections, fragile institutions and a weak rule of law.

Oligarchs long used an opaque procurement system or market-distorting subsidies to line their pockets, but the Revolution of Dignity of 2014 and the ensuing reforms, which set Ukraine on a Westerly course, put a stop to some of that, including in the energy sector, hitherto seen as one of the biggest sources of corruption.

Ukrainian and international observers see a mixed corporate governance bag, noting that even though supervisory boards were introduced at Naftogaz, Ukrenergo and GTSOU, they were never fully independent or enabled to make decisions on issues such as the appointment of CEOs or companies’ budgets which is usually the case in the West.

“The major difference in SOE governance before and after the start of war in February 2022 is that pre-war political interference, in particular under Groysman’s government during Poroshenko’s presidency, tended to align with entrenched oligarchic interests, whereas now the influence of some once-dominant oligarchs, such as Ihor Kolomoisky and Dmytro Firtash, has waned while political influence has waxed,” CEPA says.

Since the Revolution of Dignity in 2014, Ukraine has made important steps to establish a transparent procurement system, an asset-declaration system, and a public database of top politicians and officials, or politically exposed individuals, to help banks or potential business partners conduct due diligence.


  • Historically associated with corruption and Russian influence.
  • Underwent corporate governance reforms but remains susceptible to political influence.
  • Experienced changes in supervisory boards and CEOs, often influenced by political factors.

“Long a major source of corruption and particularly vulnerable to Russian influence, Naftogaz has been at the forefront of the government’s corporate governance reform. Although it has made progress since its first corporate governance charter was adopted in 2014, including winning a multibillion-dollar arbitration ruling against Gazprom in 2018, the company remains vulnerable to political influence,” says CEPA.

Under Andriy Kobolyev’s management, the company went from soaking up 27% of the state budget in 2014 to contributing a net €3.6bn ($4bn) to government coffers in 2019. Still, he is accused of misleading Naftogaz board members into paying him a large bonus in 2018 after winning an arbitration against Gazprom that earned Naftogaz $4.6bn. If convicted, he faces up to 12 years in prison. He denies wrongdoing.

GTSOU (Gas Transmission System Operator of Ukraine):

  • Created as an independent limited liability company in 2020.
  • Raised concerns about political interference after unbundling from Naftogaz.
  • Shifted between government ministries, impacting its independence and certification status.

“Allegations of political interference at [the Energy Ministry holding company owner of GTSOU] MGU arose almost immediately after the transmission operations were unbundled. The Finance Ministry, at the time the sole owner of MGU, abruptly fired the chair of the shell company’s supervisory board, prompting resignation threats from two of the remaining three independent board members and concern from international stakeholders, including the European Commission and the Energy Community, which had certified GTSOU as an independent operator.  The operator’s political independence was a condition of a lucrative, five-year contract it had secured with Gazprom for the transit of Russian gas to European buyers via Ukraine,” says CEPA.

Ukraine’s international partners have called for an overhaul in the shareholding structure of GTSOU, and the IMF has made it a condition for disbursing a new tranche of funds. To that end, parliament passed a bill in late July 2023 to disband MGU and put GTSOU under the direct ownership of the Energy Ministry. The government intends to have the reforms in place, including a new charter, supervisory board, and CEO for GTSOU, by the end of October.


  • Operates Ukraine's electrical grid and manages electricity-related functions.
  • Faced governance challenges, including conflicts of interest and government interference.
  • CEO changes and supervisory board appointments have been influenced by politics.

The IMF demanded a supervisory board at Ukrenergo, and the Cabinet appointed one but after one member stepped down, the board remained without a qualified majority as well as not having a chairman since 2020. At the end of August 2023, the company announced that one of the independent board members had been appointed as chairperson, although the vacancy for the seventh member was yet to be filled. Nevertheless, the appointment of the chairperson could help to sway votes in favour of the independents as the vote of the chair counts twice.

“Interviewees said Ukrenergo has performed well recently, despite dire wartime conditions, noting that under Kudrytskyi, Ukraine disconnected from the Russian and Belarusian electricity grids in early 2022, hooking up to the European transmission infrastructure even as war raged,” says CEPA.


  • Operates multiple nuclear power plants in Ukraine.
  • Compares in size and role to Naftogaz.
  • Confronted issues related to electricity sales and debts to state companies.
  • Efforts to introduce corporate governance reforms have faced delays.

“Given the importance of Energoatom and concerns of potential corruption, the IMF set deadlines for the corporatisation of the company by December 2021 and the establishment of a supervisory board by May 2022. Both dates were missed, and in February 2023 Parliament finally adopted a law on the corporatisation of Energoatom. The process, which involves carrying out an inventory of assets, producing a corporate governance charter, and providing documentation to the securities and exchange regulator, was underway as of June 2023,” says CEPA. Interviewees told CEPA the company was expected to settle outstanding debts by mid-July 2023 and complete the corporatization process but there was no progress reported as of September 2023, and it is unclear whether the government would first seek to select a supervisory board, which would then appoint a new CEO in line with corporate governance principles.