Ukraine to regain control over Ukrnafta oil company, says PM

By bne IntelliNews January 16, 2015

Graham Stack in Kyiv -


Ukrainian Prime Minister Arseny Yatsenyuk has pledged to reassert state control over the country's largest oil company, Ukrnafta, in a move that could put the government on a collision course with powerful oligarch and governor of Dnipropetrovsk region, Ihor Kolomoisky.

During question time in parliament on January 16, Yatsenyuk said that, "the state should renew control over Ukrnafta." He added that he had instructed the energy minister to call a shareholders' meeting for Ukrnafta, and include on the agenda a change in the company's management.

Ukrnafta owns Ukraine's biggest and only fully functioning refinery at Kremenchuk, Poltava region, is the country's largest oil producer and also runs the biggest chain of filling stations.

The state holds a 50%+1 share stake in the company via state energy company Naftogaz, with oligarchs Ihor Kolomoisky and Hennady Boholyubov, the shareholders of Ukraine's largest bank Privat Bank, holding around 45% in the company. But due to a quirk in Ukrainian law that requires a 60% quorum at shareholder meetings, Kolomoisky and Boholyubov have been able to effectively control the company for over a decade by boycotting meetings where decisions unfavourable to their interests might be taken.

But Ukraine's parliament voted to reduce the AGM quorum to 50% on January 14, in line with international norms, in a move seen by many as spelling the end to Kolomoisky and Boholyubov's control of Ukrnafta. The law will take immediate effect for state-owned companies, and will take effect for other companies in January 2016.

Yatsenyuk's own party, People's Front, voted against the change to the law, which to his opponents confirmed the widely-held belief that Kolomoisky is among the party's main sponsors.

Yatsenyuk during question time on January 16 appeared to explain his party's vote by arguing that the new law in fact "would not apply to Ukrnafta". "I regret that the recently passed law does not extend to Ukrnafta," he said. "For this reason, I appeal to members of parliament to amend the law, since it was passed in a rush and has no connection to Ukrnafta. The law requires immediate amendment," he said, as quoted by website The Insider.

Previously, some parliamentarians had argued that the law only takes immediate effect on "state-owned companies," whereas Ukrnafta formally is owned not directly by the state, but by Naftogaz, which is in turn state owned. Thus Ukrnafta could arguably only be affected by the new law in 2016.  

Yatsenyuk only founded the People's Front party in mid-September as his and his allies' vehicle for parliamentary elections held on October 26. But, partly thanks to its apparent deep pockets and also strong support from Kolomoisky's media assets, the party took nearly 23% of the vote, giving it first place for total share of the vote, fractionally ahead of the eponymous party of President Petro Poroshenko. However Poroshenko's party has a significantly larger number of MPs from first-past-the-post constituencies.

Kolomoisky is widely seen now as the most powerful oligarch in Ukraine, after having been made governor of Dnipropetrovsk in February 2014 to shore up support in the regions for a new Kyiv government, brought to power by the Euromaidan revolution in February of that year. Dnipropetrovsk is the home town of Kolomoisky and Boholyubov, and also the headquarters of Privat Bank.

Thus the vote in parliament was also a test of how much influence oligarchs exert over politicians, given that the Euromaidan revolution of February 2014 was to some extent an anti-oligarch revolution, according to analysts. Successive attempts to change the law on quora under previous presidents and governments had all failed.

"This would be an important step towards increasing the state’s manageability over its holdings and a good signal to the international community that shows that the government is effective in challenging powerful oligarchs like Kolomoiskiy," Concorde Capital's Oleksandr Paraschiy said of the law.

Ukrnafta is also the main supplier of aviation fuel in Ukraine, with Kolomoisky the most influential aviation magnate.

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