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Ousted Naftogaz Boss Warns of Corruption Risks for Ukraine

Ousted Naftogaz Boss Warns of Heightened Graft Risks for Ukraine

The ousted head of Ukraine’s Naftogaz Ukrainy warned of a possible return to an era of mismanagement and corruption at state-owned companies as he prepares to challenge his controversial dismissal by the government.

Speaking in an interview, former Chief Executive Officer Andriy Kobolyev maintained that firing him over the energy producer’s 2020 losses was illegal as it contravened governance rules. That’s a position that’s been backed by Western donors including the U.S. and the World Bank, though the Justice Ministry has denied violations.

The situation risks further delaying transfers from a $5 billion International Monetary Fund loan and comes before a visit to Kyiv this week by U.S. Secretary of State Antony Blinken. The State Department has called the matter “troubling.”

Ousted Naftogaz Boss Warns of Corruption Risks for Ukraine

Kobolyev’s departure last week prompted the resignations of all but one member of Naftogaz’s supervisory board, which was bypassed by the cabinet. Chair Clare Spottiswoode cited a “total destruction of good corporate governance.”

“If the government thinks supervisory boards don’t matter, then this is a whole new reality,” Kobolyev said Saturday. “I don’t believe Western partners will agree because this is a return to, at best, ineffective management and, at worst, deep corruption. If corporate-governance reforms are nullified, it will be a very big and unpleasant blow to economic growth.”

Eurobond Delayed

Corruption has dogged Ukraine since the fall of communism, with successive administrations struggling to make major inroads. This isn’t the first time interference by politicians in the operations of state-run enterprises has bubbled over: Economy Minister Aivaras Abromavicius complained of similar meddling by lawmakers when he resigned in 2016.

Kobolyev, at the helm of Naftogaz since 2014, helped overhaul Ukraine’s energy industry, reduce the burden on the state from subsidies and win a multi-billion-dollar legal battle with Russia. He did face some criticism, however, as heating costs were gradually increased and the company reported 19 billion hryvnia ($680 million) in losses last year.

Kobolyev says he was ousted for refusing to direct Naftogaz funds to the state budget -- something the cabinet requested. He also mentioned an uneasy relationship with Andriy Yermak, who heads President Volodymyr Zelenskiy’s administration. The personnel shakeup has derailed plans for Naftogaz to sell Eurobonds this week, Kobolyev said.

The company’s executive board urged the government on Wednesday to resolve the situation around the supervisory panel, saying its continued absence risks disrupting operations.

©2021 Bloomberg L.P.