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    Naftogaz needs 'professional supervisory board': CEO


Yuri Vitrenko wants improvements to the way in which independent members are selected for the Ukrainian state gas company' supervisory board.

by: William Powell

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Naftogaz needs 'professional supervisory board': CEO

Following the resignation of three independent members of the Naftogaz Ukrainy supervisory board September 7,  CEO Yuri Vitrenko told NGW he hoped a new board would be selected soon, "based on the candidates’ merits and the difference they can make for the Ukrainian people."

“I wanted to refrain from commenting on the situation around the Naftogaz Supervisory Board, but recent events are forcing me to express my point of view," he said in a statement emailed to NGW September 10.

For reasons going back  some years, he said, "none of the independent board members has a field-specific (oil and gas) degree and production experience; none has a legal degree and experience; there isn’t a skilled certified expert in international financial reporting standards; and none of them are experts with experience working in Ukraine. In fact, independent members actually hold the majority on the supervisory board.

He said he hoped that all the independent members of the supervisory board would be selected as soon as possible through an open and competitive process, 

He said that the sustainable development of Ukraine depends on whether the company operates effectively. So it is "important for Ukraine to provide for the effective operation of Naftogaz, for the sake of its own national interests. In turn, the effective operation of Naftogaz depends on the effectiveness of its corporate governance (Naftogaz is a “corporation,” it was created in the process of incorporation of the state oil and gas committee).

"One of the key elements of corporate governance is the supervisory board. It should control the actions of the Naftogaz management ensuring their effectiveness and serve the interests of the company, which is solely owned by the state of Ukraine. That is, neither in their own interests, the interests of the supervisory board, nor the interests of representatives of other states. Also, it implies ensuring tangible accountability for the effective job execution by the management before the Ukrainian people, as the ultimate owner of the company.

"How can this be ensured? This issue has long been addressed by the OECD – Organization for Economic Co-operation and Development, which was created in post-war Europe, as an element of replacing the occupation model with an integration model – when the Allied countries finally realised that instead of holding back Germany’s development, it was rather necessary to give a boost to sustainable economic development in Europe.

"The OECD has developed guidelines on corporate governance of state-owned enterprises. One of the key principles is an open, competitive process of selecting independent members of a supervisory board, based on candidate merits (by the way, the OECD country practices vary in terms of the role of independent members and supervisory board powers in general, but that is different story).

"Unfortunately, as far back as 2017, the open, competitive process for selecting independent members of Naftogaz supervisory board was neglected. Instead, they were simply suggested by the embassies of the relevant countries along with representatives of international financial institutions.

"Thereafter, the government of prime minister Volodymyr Groysman [April 2016-August 2019] appointed one independent member to the supervisory board outside the competitive selection process. Then, the independent members were reappointed. Then again. And then again," he said. 

"I understand that my words are unpleasant for the Supervisory Board, for those who 'nominated' them, and those who supported them. Yet, if we sincerely support the supervisory board as an institution, and not as a group of individuals, and if we really are in favour of corporate governance reform serving the interests of the Ukrainian people, then let us support a real competition to elect all independent members of the Supervisory Board, as soon as possible.

"And then, this new supervisory board elected in line with the OECD guidelines, will be able to decide on the candidacy of the next Naftogaz CEO – again, through an open, competitive, and merit-based process.”

NGW interviewed Vitrenko on Ukraine, gas and internal and external politics in August. It may be read here.