Energy ministry sends Western partners packing – why so?

Why should the Ministry of Energy send Western partners to hell

If we are to preserve the chances of rebuilding the country with the help of partners, we need to wean the authorities off acting as Soviet anecdotes teach. In one of them, cartoon characters Cheburashka and Gena the Crocodile took revenge on the pioneers, putting an iron hatch on each of their heads, shrieking “Here’s his pilotka [a Soviet field cap]!”

Last week, the Ministry of Energy of Ukraine decided to appoint a new head of the gas transmission system. Farid Safarov, deputy of chief of the ministry Herman Halushchenko, simply sent a letter demanding the appointment of his colleague, another deputy minister, Mykola Kolisnyk, as head.

The pioneer has both a pilotka and a drum, the Operator of the Gas Transmission System of Ukraine (OGTSU) has a supervisory board managing the company; there are even laws prohibiting Mykola Kolisnyk from holding such a position. But the cartoon characters who run the industry need to report to the top about the successfully placed sewer hatch on the foreigners’ heads.

It would seem that the problem is far-fetched – the state enterprise and the state itself can do anything. Or do they? The situation is a little more complicated.

Don’t repeat Kirpa’s mistakes

When head of the European Commission Ursula von der Leyen stated at Ukraine Recovery Conference that “nothing is impossible for the people of Ukraine,” she did not mean exactly what the Ukrainian government officials heard.

No one promised money for the reconstruction of Ukraine unconditionally. In the same speech, the head of the EC hinted that “investors must be convinced that money works in the interests of citizens.” This is the most direct hint, which is translated from diplomatic language as “let’s not steal money, because then no one will give it to you.”

What is “not stealing” from the perspective of Europeans and Americans? How can the money for reconstruction be controlled? There are different ways, one of them being a corporate reform, unpopular in Ukraine.

Here is a deeper insight into its true essence. The idea of ​​corporatizing state enterprises is not to pay former MPs a salary to write relevant encomiums on social media or to Western pensioners to sign whatever asked. The point is to build a system of control over the money of state enterprises, which is managed by people who value their own reputation.

In Ukraine, every manager considers Heorhii Kirpa as a role model – not in the part where he got two bullets in the head, but in the repetition of the myth about the head of a state enterprise, who has a Maybach, a street named after him, the love of people, and a lot of money in his accounts. All this is thanks to the skillful management of state property.

In Ukraine, every government also wants to have its own Kirpa, so that he would cut the ribbons before the elections, channel funding to the right foundations, as appropriate, and, if it is urgent, direct idle money on a call to wherever they are needed.

The system of lining party and other pockets through direct “rigged deals” has been operating in Ukraine for a quarter of a century, with all presidents and governments making use of it. Even after two revolutions, it has not vanished anywhere.

But there’s an issue: Europeans and Americans don’t fancy paying for it

 Our partners want the money they allocate for Ukraine to be somehow controlled. Privately, the partners made it clear they will not tolerate any “extremely large construction,” meaning that all the grants, loans and investments will go to companies that work according to rules clear to all.

Supervisory councils were invented in the West specifically to control public money. They do not let large payments be made just “upon command from above,” control managers and their procurements, approve strategies and cut ski instructors under the guise of investors off from work.

If the story about Kirpa seems ancient to you, Naftogaz is another case in point. As early as last year, it had a supervisory board with independent foreigners. Back then, the company had both gas and money to buy it. Last summer, the corporate reform of the largest taxpayer in the state was derailed, and today the company experiences default and is asking for money from a meager budget depleted by the war.

It’s not about Kobolev or Vitrenko – these two guys, after all, are similar both in terms of education and millions in their accounts. The point is who supervised their work.

Ludo Van der Heyden, a member of Naftogaz supervisory board, could easily tell Vitrenkov “Where you studied, I taught,” since he really was the dean of the best school of economics, INSEAD. When the Cabinet of Ministers fired the supervisory board of the National joint-stock company overnight, Ludo was more succinct. “I believe, Mr Vitrenko is personally subordinate to the government and the president, and not to the board,” he said after his dismissal.

Searching for money in the field of rakes

The scandal with the breach of corporate governance taught nobody nothing; in the Office of the President, this story only fueled appetites. During the war, laws allowing literally anyone to be fired and appointed under the guise of “national security issues” were invented there and passed in the Verkhovna Rada.

Exactly one year after the scandal with Naftogaz, the authorities are trying to put a hatch on the heads of Europeans and Americans again – to appoint a new, convenient head of OGTSU.

It’s hard to think of a more idiotic move in a country dependent on foreign creditors, struggling with gas blackmail from Russia and trying to deal with the heating season while at war.

Firstly, it is an open slap in the face of foreign partners. A letter with a demand to appoint a deputy minister of energy was sent to the supervisory board of “Mahistralni Hazoprovody Ukrainy” JSC (which controls OGTSU, as they decided during the unbundling) on ​​the same day when the G7 ambassadors issued a statement on the need to restore independent control over Naftogaz; on the same day, when the supervisory board of “Mahistralni Hazoprovody Ukrainy” JSC made its decision to elect a new manager. It was not Kolisnyk, but another applicant, who had passed all the interviews.

The situation will be perceived unambiguously. Do you want a supervisory board in a bankrupt company? You are welcome! But we are breaking corporate governance in a company that is still making money.

Secondly, the appointment of the deputy minister of energy as head of the GTS Operator violates the Law “On Prevention of Corruption,” which explicitly states that no person must participate in the management of organizations they could influence while working for the state.

This is another safeguard against corruption, laid down during the reforms, so that no one forms policies to suit their preferences. With the same violation, Yurii Vitrenko was appointed last year, causing a scandal and an order of the National Agency on Corruption Prevention (NACP) to cancel the decision. The relevant letter from the NACP has already been received, and this week the agency asked the responsible stakeholder to clarify the situation.

The Ministry of Energy confused it all even more. They officially announced “they have changed the distribution of powers of deputies.” The problem is that the change of authority does not apply to the whole of last year, and during this year Kolesnyk could not but "influence the gas sector” – at least because, before being appointed to the post of Halushchenko’s deputy, he worked in the Directorate of the Ministry of Energy, where he “ensured the formation of policies in the oil and gas complex, interaction with enterprises of the oil and gas complex, implementation of projects to increase gas production, signing agreements on the distribution of products.” That’s what the ministry’s website says – it’s a clear admission of guilt.

Thirdly, such an appointment will turn into a risk for the current contract for transit, which was signed with Gazprom with so much difficulty. The letter about the need to appoint Kolisnyk was not signed by Halushchenko himself, but by his deputy Farid Safarov, who is also a member of the supervisory board of Ukrposhta. The same “Ukrposhta,” which for some reason obtained a license to trade in gas.

The national regulator, the National Commission for State Regulation in the Fields of Energy and Public Utilities, tried to carefully explain to the ministry that this was not just a violation of the Law “On the Gas Market.” This jeopardizes the certification of the gas transmission system of Ukraine, and hence, the contract for the transit of Russian gas. This is exactly what the Russians are waiting for.

No reaction ensued. In response to the criticism that had already begun to unfold in the media, and to questions from foreign partners, Farid Safarov hastily prepared a letter to the embassies, where on several pages he dwelt on the need to reform the OGTSU, on the Napoleonic plans to implement this reform (after the heating season) and on the need for the urgent change of management (against which the supervisory board of “Mahistralni Hazoprovody Ukrainy” JSC did not oppose – it even found a replacement). There was not a single word about contradictions of his own proposals with existing laws.

Misleading embassies is not an ingenious move considering its efficiency and one’s future career. However, the hatch must be placed on the head.

A game of chess instead of explanations

Why does the Ministry of Energy do such a stupid thing on the eve of the heating season and negotiations on the provision of financial assistance and so boldly send all the ambassadors packing? If we reject the idea of ​​deliberate Russian sabotage, then there is only one logical answer.

The tradition has returned to politics, the one called “checkerboard carve-up,” when key appointments to the government and state enterprises are handed out in the president’s office in exchange for specific obligations.

Rumors about a change in part of the government and management of “Naftogaz of Ukraine” NJSC have been heard on the market for a long time; the question is not if but when it will finally happen. And the combination of control over Naftogaz and OGTSU is a tidbit indeed. Given the fact there is still “cheap” gas for the population in Ukraine, magic happens between these two enterprises. “Cheap” gas for the public sometimes turns into expensive gas for chemists, businesses and enterprises. The main thing is to get the right arrangement in the back seat of the new Bentley.

Apparently, the president’s office hopes to make all appointments quickly, and only then will they begin negotiations on how to save the country. “Nothing is impossible for the people of Ukraine,” they mentioned.

At the beginning of July, head of the office Andrii Yermak demonstrated that he understood the partners’ position. “Transparency and trust should be the main principles of using the funds allocated for the reconstruction of the country,” he said at the conference in Lugano.

Already a month later, the authorities are deepening mistrust and demonstrating behavior that can hardly be called transparent. Our international partners have studied the Ukrainian political system and understand that there can be two explanations: either the head of the president’s office was deceitful and gave the go-ahead for the appointment of the “right” people, or they are doing it behind the back of the office, under the guise of “high offices.”

However, Europeans and Americans are not interested in the motivation of Gena the Crocodile and Cheburashka from the Ministry of Energy. They have a vested interest in the result and an effective corporate reform. And they have time to wait and see, unlike you and me.

Read this article by Mykola Teslia in russian and Ukrainian.

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