Ukraine government to extend contract with incumbent CEO of gas monopoly

Ukraine government to extend contract with incumbent CEO of gas monopoly
Ukraine's Naftogaz CEO Andriy Kobolev contract has been extended for another year. He has won a reputation as an effective reformer
By bne IntelliNews March 21, 2019

The Ukrainian cabinet will extend a contract with CEO of the nation's state-owned natural gas monopoly Naftogaz Andriy Kobolev for one year, Volodymyr Groysman said at a government meeting on March 20.

The statement followed last week's proposal of the company's board to extend a contract with Kobolev for one year, until March 22, 2020, according to a letter signed by the board's head Clare Spottiswoode.

At the same time, the board has proposed to halve the current level of the company head's salary to UAH520,500 ($19,461) without paying monthly and quarterly bonuses. However, Kobolev can claim for bonuses based on the results of work for 2019 if the nation's gas pipeline operator is created ready for certification, and gas production is increased by January 1, 2020.

Meanwhile, Groysman said on March 20 that a tender to select members of the board of Naftogaz will take place on March 20, 2020.

The PM added that the extension of the contract with the current Naftogaz board for a year is an acceptable solution, taking into account agreements reached during consultations with the supervisory board regarding the reduction of salaries and bonuses of the board members and achieving certification of the gas transmission operator until January 1, 2020 year, as well as increasing the level of natural gas production.

On March 6, the Ukrainian government greenlighted a special resolution with the aim to appoint a new head to Naftogaz. The contract with Kobolev will expire on March 22 under a decision of the government in Kyiv.

Over the past years, Kobolev has won a reputation as a reform-minded manager among Western donors for his attempts to reform the monopoly. Under his leadership, Naftogaz also secured a victory in the Arbitration Institute of the Stockholm Chamber of Commerce over Russia's Gazprom.

According to the arbitration ruling, Gazprom should pay $4.63bn to Naftogaz for the failure to meet gas transit obligations. However, since the court previously ordered Naftogaz to pay Gazprom for gas supply arrears in January, Gazprom's net payment after the two arbitration decisions will be $2.56bn.

At the same time, Kobolev has been under fire for his multi-million bonuses. In 2018, Ukraine’s State Fiscal Service (SFS) fined him UAH8.3bn (around $20mn) for alleged violations of customs regulations when making natural gas imports in 2015. Kobolev has denied any wrongdoing.

According to the Ukrainian government, applications from people wishing to participate in the tender for the post of Naftogaz head are accepted within 30 calendar days from the date of publication of the tender announcement.

Kobolev, in turn, believes that the cabinet's decision to terminate his contract and to announce a tender contradicts Ukrainian legislation. "This contradicts the spirit of reform, because the entire ideology consisted of the fact that the shareholder, that is, the government, its main tool of influence on the state-owned company is the appointment of a supervisory board, professional and non-corrupt," he said on March 6.

He added that he is not going to leave his post. "I need this post to achieve the goals I have talked about, and I hope that the rule of law, a civilised approach and corporate governance principles that were laid in the last five years will win in this situation," Kobolev said.