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    Naftogaz Director Resigns over Resistance to Reforms


Hochstein said the company's efforts at reform have been "resisted at every step of the way."

by: Joe Murphy

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Naftogaz Director Resigns over Resistance to Reforms

US businessman and former diplomat Amos Hochstein has resigned from the supervisory board of Ukrainian national gas firm Naftogaz over resistance to reforms and political interference. 

Naftogaz confirmed the resignation in a statement on October 12, noting that "growing opposition to gas market reforms and the transformation of Naftogaz into an independent and efficient company" were among Hochstein's reasons for leaving. "He urged the Ukrainian government to further ensure the independence of supervisory boards at state-owned enterprises in Ukraine as a safeguard against corruption," the company said.

Hochstein has served as an independent director on the board since 2017, when the previous independent members all quit over the government's lack of commitment to corporate governance reforms.  The current board, chaired by Clare Spottiswoode of the UK, includes Bruno Lescoeur of France and Ludo Van der Heyden of Belgium, along with state representatives Nataliya Boyko and Yuliya Kovaliv. 

Resisted at every step

In an article he wrote for the Kyiv Post on October 12, Hochstein did not mince words explaining the reasons for his departure. He praised Naftogaz's successes over the past three years, including its alignment with EU regulations, the unbundling of its gas transit system and the ending of "corrupt" public-service obligations, giving households a choice of alternative suppliers beyond Naftogaz. He also pointed to the company's improved profitability and its victory in a Stockholm arbitration case against Russia's Gazprom over gas supply and transit.

"Unfortunately, Naftogaz management's successful efforts to create a new corporate culture, transparent mechanisms and an adherence to international standards, were resisted at every step of the way," he complained. "The company has been forced to spend endless amounts of time combating political pressure and efforts by oligarchs to enrich themselves through questionable transactions.

"These efforts at sabotage increased over the years as the international community experienced Ukraine-fatigue and the Trump administration no longer pursued an anti-corruption agenda," Hochstein continued. He drew attention to a memorandum that the Ukrainian government signed in May with an until-then unknown US company called Louisiana Natural Gas Exports on US LNG supplies to Ukraine. One of Louisiana Natural Gas' executives Robert Bensh was then offered a seat on Naftogaz's supervisory board, Hochstein said.

"Every part of this sordid affair represents the ills and dangers facing Ukraine as it slides back towards its past," he said. "Signing an agreement with an unworthy and questionable US company while appointing its executive, a man who worked for the very same corrupt Yanukovych and (ex-energy minister) Yuriy Boyko schemes that the EuroMaidan Revolution sought to oust and end." 

Corruption probe

After a year-long effort to convince the government to end public service obligations, "unfounded accusations were levelled at Naftogaz, accompanied by the usual calls for investigations," Hochstein said. Ukraine's anti-corruption prosecutor's office on October 8 announced that Naftogaz' management were suspected of stealing hryvnias 730mn ($26.3mn) of gas supplies in 2016-2017 in a treason case. Naftogaz CEO Andriy Kobolev has denied the accusation and said the company "has nothing to hide."

"The old tactic of using prosecutors and auditors for intimidation and retaliation is back," Hochstein said. "I can no longer stand by and be used to endorse this negative trend, and it's why I must voluntarily leave the board."

He ended his article by calling on the government "to strengthen the independence of state-owned companies, to support democratic institutions, and to empower the Ukrainian people through transparency."

In Naftogaz's statement, Kobolev assured Hochstein that "the company will continue along the reform path and complete its transformation successfully. Meanwhile, the management will further strive for transparent decision-making and will prevent backsliding towards the old corruption schemes." Spottiswoode added that Naftogaz was "resilient to outside influence."

Ukrainian president Volodymyr Zelensky, who replaced Petro Poroshenko in May 2019 after winning a landslide in elections, has vowed to push ahead with reforms and ensure the independence of state institutions. However, there are signs that interference continues. Ukraine's central bank governor Yakiv Smolii resigned in July because of what he said was "sustained political pressure," prompting concern from the IMF over the institution's independence.