For a long time, Naftogas – the national oil and gas company of Ukraine, that is de jure a state-owned company is considered Ukraine’s Achilles’ Heel. Repeated reports by the IMF, the World Bank, and the International Energy Agency brought up corruption and violations in the energy sector.
The former management consultant Andriy Kobolyev became Naftogas CEO after the 2014 Ukrainian revolution. His primary aim was reducing the country’s dependence on Russian gas and reforming the company’s business practices. His friend, Yuriy Vitrenko left the company several times, but always has always found a way back to the company’s management. Subsequently, after Maidan( 2014 Revolution) and under the patronage of Kobolyev, he became one of the leading senior manager of the state monopolist.
They seemed to be the Frick and Frack of Ukrainian energy reforms, the two who courageously fought corrupt insiders from Naftogas. Western media has prensted Kobolyev as someone, who “has spent the past five years fighting corruption, boosting profits, and lessening his nation’s dependence on Russia”. “Kobolyev is one of the most remarkable anti-corruption leaders in Ukraine,” said Amos Hochstein, an American member of Naftogas’s board and the former U.S. special envoy for international energy affairs.
However, the independent member of Parliament Andriy Derkach says that Naftogas CEO Kobolyev, Favorov, and Vitrenko ‘naftogazed,’ $1.5 billion from Ukrainians. Derkach stated that “the scheme they earn on Ukrainian people is as folowing: Naftogas’s top managers sell Russian gas to Ukrainians, calling it European. This ‘Renaming’ has brought to the company $1.5 billion in revenue. The originators of the Naftogas reform, including Mr. [Amos] Hochstein, who is fully accountable to Biden, could not help but know about the scam with Russian gas. Considereing the fact that part of the stolen money was wired to American companies, they also covered up that scheme,” Derkach said at a press conference at Interfax-Ukraine in Kyiv on December 17, 2019.
“So, Ukrainians’ money has been ‘Naftogazed.’ The largest importer is the Energy Resources of Ukraine (ERU) Group of Companies, registered both in Ukraine and in tax havens, headed Andriy Favorov. He is in charge of the Naftogas Integrated Gas Business Division. Part of the company’s profit was siphoned into offshore accounts. ‘For example, the company transferred almost UAH 348 million (USD 13.1 million) to ERU MANAGEMENT SERVICES LLC’s bank account from July 21, 2016, to June 23, 2017, and almost UAH 274 million (USD 10.3 million) from May 25, 2017, to July 25, 2017. This is over UAH 620 million (USD 23.4 million). These are only the numbers that investigating journalists could trace. The total actual figure is higher,” said Derkach.
The Naftogas top managers transfer enormous amounts of money abroad using different menthods including family members, offshore companies, foreign bank accounts. How much currency did Kobolyev and Vitrenko export abroad? Tens of millions of dollars, officially exported our of Ukraine as “honestly earned” money by Naftogas “reformists”.
Let’s consider the numbers – how the sums of payments to top managers of Naftogas changed (according to various sources, as the exact numbers are unknown to the wider public):
2014 – UAH 6.4 million (USD ~500,000);
2017 – UAH 179.5 million (USD ~7 million);
2018 – UAH 681.7 million (USD ~26 million).
The salary payment plan for the top management of Naftogas for 2019 was UAH 820 million (USD 31 million), but how much they exactly received is unknown, since they do not submit their declarations. In mid-April the first deputy chairman of the Verkhovna Rada Ruslan Stefanchuk sent a deputy request to Andriy Kobolyev, asking to provide information regarding salaries of the company’s management. However, Kobolyev refused to name the numbers stating that salary information for 2019, and for January-February 2020, is ‘confidential’.
In two years, only “state managers” of Naftogas move out of the country over 1.5 billion UAH (56.5 USD million). This is how they invested their “earnings” in the development of the Ukrainian economy? So much for Patriots and Reformitsts!
And now there is again a public relation disaster in Naftogas – Vitrenko leaves the company (or, more precisely, is getting fired), calling Kobolyev “the naked king”. Until last summer, he was the closest ally of the company CEO, Andriy Kobolyev. Kobolyev and Vitrenko, in fact, started post-Maidan energetic reforms that have hit the people’s pocket painfully. After they headed “Naftogas”, the company reported record breaking revenue. However, It’s important to mention the fact that “super-profits” were generated by raising heat tariffs for population and companies. By these means, Kobolyev and Vitrenko became ‘super-efficient managers’. They strengthened this image after the West supported Ukraine in the fight against Russia and allowed Kyiv to win the gas arbitration in Stockholm.
This spring, with no competition in sight, Andriy Kobolyev received a renewed contract with Naftogas. But Yuriy Vitrenko, apparently, was expelled from the company, blaming this on two factors – the reluctance of the new government to “repulse the aggression of Russia”, and the intrigues of his ex-chief (- Kobolyev. On May 13 Vitrenko wrote on Facebook “It is symbolic that they will fire me from Naftogas in a situation when our team, that I had the honor to lead and showed record profits in 2019,”. Naftogas issued the following statement on Kobolyev’s behalf, explaining this situation as re-structuration – “Naftogas continues to streamline its organizational structure, distribution of functions, and responsibilities among departments”. Vitrenko said that, before 2018, there was a “large-scale withdrawal of money” from Ukrnafta. “But, when you fight corruption, it fights you.”
There are various opinions regarding the current conflict. “Kobolyev and Vitrenko have had a conflict for over two years – both personal and professional,” tells Dmitry Marunich, cofounder of the Energy Strategies Fund. Vitrenko has already written several times about his resignation. And after Otto Waterlander became the executive director of Naftogas, Vitrenko’s resignation was already decided. The Waterlander was taking up his position. Obviously, the last straw for Vitrenko was the renomination of Kobolyev”.
“They fired Vitrenko because of Ihor Kolomoisky (Ukrainian Oligarch). He relied on Kolomoisky, maybe counting on his increasing influence on the current president of Ukraine V. Zelensky. However, it did not happen,” says Yuriy Korolchuk, the Strategic Research Institute analyst. Kolomoisky and his people are now actively losing their influence. So Vitrenko lost the credibility of Naftogas, controlled by European gas traders. But they kept Kobolyev in office, because of his close relations with the US, leaving him a very narrow range of influence”.
The image of successful super-managers with millions as salaries and bonuses, created jointly by Kobolyev and Vitrenko is a complete illusion. It’s clear that their bonuses are a sort of legalized corruption as they transferred this money further along the chain.
Do they have any specific achievement? Let’s see! Complete failure on gas production, lots of questions on gas transit, sky rocking tariffs and list goes on and on. Naftogas constantly needs the state’s subsidies, otherwise the energy giant is not that profitable as Vitenko and Kobolyev were trying to present. What will happen with Naftogas after its unbundling? To remind, completing unbundling is a condition of the Ukraine-EU Association Agreement and of the Protocol on the Accession of Ukraine to the Energy Community Treaty. After the procedure is completed, Naftogaz will no longer be a monopolist in mainline gas transportation. Thus, after the complete unbundling Naftogas will lose its controlling power – actual powers and budget will be transferred to other structures. Remain to be seen, if this restucturing unveils additional corruption schemes and violations within Naftogas that were happening for years.
So, what can we state? The head of the Naftogas company Andriy Kobolyev openly states that he has a “golden parachute” in case of his dismissal. What will happen with Vitrenko? Obviously, he doesn’t have such powerful patrons, including those abroad as Kobolyev. Vitrenko made a bet on Kolomoisky he was working for him for the last year. This bet just did not deliver on all its promises. Maybe he will receive another job offer (in particular, at the Ukroboronprom system, since he was a member of its Supervisory Board), or Vitrenko starts a private business. Taking into consideration all his accumulated “bonuses” and salary, he will surely can establish himself in either or. Unfrotunately, Naftogas will remain Ukraine’s weakest link and major battlefield for the corrupted politicians and oligarchs.