WASHINGTON – Ukraine is under fire from Western governments and international financial institutions after it sacked the management of the state-owned energy company. Critics say this undermines years of anti-corruption reforms.
An earlier attempt to oust the management of state oil and gas giant Naftogaz Ukrainy was spearheaded by allies of President Donald Trump, who have also been linked to the efforts of Trump’s personal attorney Rudolph Giuliani to provide harmful information about then-presidential candidate Joe Biden and find his son, hunter. That attempt failed, but now the Ukrainian government has achieved the same goal and sounded the alarm in Washington and Europe.
The decision threatened to damage US and European relations with Ukraine, just as Kiev had received a lot of Western support in recent weeks during a massive Russian build-up on its borders.
Naftogaz had been portrayed by US officials and European officials as a success story in the country’s longstanding fight against corruption. However, the Ukrainian cabinet on Wednesday suspended the company’s board of directors and removed CEO Andriy Kobolyev, who has been in office since 2014.
The government quoted the company’s losses last year of around $ 684 million and so-called low gas production as “unsatisfactory”.
The Biden administration expressed grave concern at the sudden shock that occurred just days before US Secretary of State Antony Blinken’s trip to Ukraine next week.
“This calculated step – using a procedural loophole – to oust respected experts from the boards of several state-owned key companies reflects a disregard for fair and transparent corporate governance practices and complicates the longstanding efforts to reform the Ukrainian energy sector and improve its investment climate.” State Department spokesman Ned Price said in a statement Thursday.
The Ukrainian embassy in Washington, DC did not immediately respond to a request for comment.
John Herbst, former US ambassador to Ukraine, said the move would jeopardize a key element in efforts to eradicate corruption and open up opportunities for possible Russian interference.
“It’s a worrying development,” said Herbst, now in the Atlantic Council think tank.
Before reforms were introduced after 2014, corrupt actors had managed to withdraw large sums of money from the gas company, and the reduction in management would open the door to similar practices again, according to Herbst.
If carried forward, “it would eliminate one of the few sources of strength in the Ukrainian economy and budget,” said Herbst, adding, “There could be some Russian-linked hands that could benefit from the asset spin-off.”
The earlier efforts to oust Naftogaz leadership from Naftogaz came to light during the first Trump impeachment investigation, when allies of the former president – and some senior officials – pushed for a change at the top of the company, NBC News previously reported.
Two Florida businessmen, Lev Parnas and Igor Fruman, who helped Giuliani unearth harmful information about Biden and his family, also sought to install new board members and management at Naftogaz, NBC News reported in 2019. That attempt ultimately failed.
In a joint statement from the European Union, the European Bank for Reconstruction and Development, the European Investment Bank, the World Bank and the International Finance Corporation, officials said they were “seriously concerned about recent events at Ukrainian state oil and gas company Naftogaz, where the Supervisory Board was temporarily suspended to dismiss the incumbent management team. “
The statement added: “We call on the leadership of Ukraine to ensure that important management decisions in state-owned companies are made in full compliance with the principles of recognized corporate governance standards.”
Naftogaz is one of Ukraine’s most valuable companies, transporting billions of dollars of natural gas every year. Under Kobolyev’s leadership, Naftogaz went from an annual loss of billion dollars in 2014 to a profit by 2018, contributing a significant portion of the government’s revenue through tax and dividend payments.
Kobolyev, the government-sacked CEO, said past experiences had shown the dire effects of what he called political interference in Ukraine’s state-owned corporations.
“Political interference in the Ukrainian energy sector has had disastrous consequences for our country,” Kobolyev told NBC News in a statement.
“We cannot afford to go back to the era of price manipulation and oligarchic intermediaries that Russia is exploiting to expand its influence in Ukraine and hold the country back,” he said. “Unless Naftogaz and other state-owned companies are.” isolated from political interference, the entire reform process in Ukraine has no chance. “
Kobolyev clashed with a number of governments. Current government officials accused him of being overpaid and allowing gas prices to be too high.
Marie Yovanovitch, the former US ambassador to Ukraine, who dismissed Trump after Giuliani called for it, called Kobolyev “as clean as they come” in her testimony to impeachment investigators in October 2019.
The former diplomat said Kobolyev was “fearless and determined to mess things up in some way.”
Oleksiy Honcharuk, who was the country’s prime minister from August 2019 to March 2020, described the decision as a step backwards from anti-corruption reforms aimed at preventing political interference in state-owned companies.
“It is a decision against corporate governance reform in Ukraine,” said Honcharuk. “In the past five to seven years,” he said, the changes at Naftogaz “have been one of the most important pillars of the overall fight against corruption in Ukraine”.
Vitaly Shabunin, the head of the Anti-Corruption Action Center, a non-governmental organization, blew up the government, saying that it compromised the support of the West in a moment of peril for Russia, calling it “treason”.
The government appointed Yuriy Vitrenko as the new CEO and said at its first press conference that he had spoken to President Volodymyr Zelensky about his appointment and that increasing gas production in Ukraine was “a national security issue”.
Veronika Melkozerova reported from Kiev.