A year ago, the Cabinet of Ministers carried out the first serious rotation during the war and transferred Alexey Chernyshov from the post of Minister of the Ministry of Regional Development to an even more attractive one - the head of Naftogaz. Within a couple of months, there were rumors that a back office had been created at Naftogaz, and a year later, gas market participants said that Yanukovych-era schemes had returned to the company. Business.Censor tried to figure out whether everything is really so bad and what causes complaints at Naftogaz.
Naftogaz’s financial statements for 2022 were not published for a long time, although they were ready in April 2023. It came out only after President Vladimir Zelensky’s visit to Washington. It is possible not to give the United States an extra argument for criticism regarding the management of Naftogaz.
As is known, since the odious “shutdown” of the Naftogaz Supervisory Board in April 2021, the United States has had complaints about the management features of Naftogaz, the lack of competition for the head and the 7th member of the supervisory board. This council member must be elected by the state.
But it was not only the visit to the United States and the reluctance to get another reason for a cold shower that was the reason for the prolonged non-publication of the report. If you pay a little attention to the details, then, for example, it becomes clear that they are trying to hide the huge losses of a state-owned company behind an artificial increase in the valuation of the company's fixed assets.
“The Group applies a revaluation model to further evaluate property, plant and equipment used in the Group’s core activities. As at 31 December 2022, the carrying value of these assets was UAH 337,000 million, representing 93% of the Group's total property, plant and equipment. Based on the results of this assessment, the Group recognized an additional valuation in the amount of UAH 80,982 million in other comprehensive income (2021 - UAH 84,593 million) and a reversal of impairment in the amount of UAH 692 million in operating expenses for the period (2021 - UAH 2,048 million accrual impairment),” says PWC in its conclusions to the Naftogaz report.
Can you imagine that in a country where such a full-scale war has been going on for two years, someone might decide that their assets have risen in price here?
The company's operating loss for 2022 is 79 billion hryvnia, while for the previous 2021 it was only 12 billion. That is, the company lost 2 billion US dollars. For comparison: this is almost as much as Ukraine borrowed from the IMF in 2022 (2.7 billion US dollars) and more than Germany provided us with grant military aid (1.2 billion US dollars).
NJSC Naftogaz commented on the delay in reporting and covering the failure in work with a revaluation of assets.
“The consolidated financial statements for 2022 were published immediately after verification of its data by an independent auditor and within the time limits established by law and external loan agreements. The revaluation of fixed assets was carried out with the involvement of an independent certified appraiser, in accordance with the requirements of the International Accounting Standard. Basically, the increase in the value of fixed assets is due to the revaluation of oil and gas production assets. The direct impact on financial results is disclosed in the 2022 consolidated statement of income,” the company says.
Regarding the losses, which actually amount to 79 billion hryvnia for 2022, while for the previous 2021 it was only 12 billion, the company advises not to compare the “pre-war” 2021 and 2022.
“We need to take into account the situation of a full-scale war. Factors that influenced the financial result: During the war, the group was assigned by the state special responsibilities (PSO) to supply gas to households and energy producers at a preferential price. The total number of households is 12.3 million. Despite the preferential prices, many consumers - households and energy producers - did not pay for the gas supplied. There are objective explanations for this - military operations, population migration, difficult economic situation. But ultimately, the crisis of non-payments falls on the main energy supplier, Naftogaz. Based on the results of the first half of 2023, the Group managed to significantly improve its consolidated net profit, which amounted to UAH 6.6 billion. Whereas for the same period in 2022, this figure amounted to UAH 57.2 billion in losses,” says the response to a request from Censor.NET.
However, despite the optimistic reassurances from Naftogaz, the report itself raises many questions. And some pages clearly testify not in favor of the company. For example, how funds were lost can be seen on page 21 of the report.
In particular, Naftogaz lost more than 75 billion hryvnia in the natural gas sales segment alone. And for some reason the segment of work with Russians turned out to be the most profitable - gas transit made it possible to receive 4.2 billion in profit.
How the company “found a way out”:
Gas reserves in storage facilities have been critically reduced:
How the company “found a way out”:
Gas reserves in storage facilities have been critically reduced:
“As of the date of approval of the consolidated financial statements, gas reserves accumulated by the Group in underground gas storage facilities amount to approximately 5.9 billion cubic meters,” the statements say.
That is, in December 2022 the company had less than 6 billion cubic meters of gas reserves. For comparison: in September 2021, reserves were about 19 billion cubic meters, and even in November of this year, Chernyshov announced the accumulation of 15 billion cubic meters.
Borrowed:
During 2022, the Group expected to receive UAH 90 billion as a result of implementing the provisions of the Anti-Crisis Law. But he was not accepted.
Therefore, during 2022 the Group:
additional internal financing in the amount of UAH 13.4 billion was attracted;
a loan from the European Bank for Reconstruction and Development (EBRD) guaranteed by the state and G7 countries in the amount of up to 300 million euros was agreed upon and its disbursement began;
agreed to receive grant funding from the EBRD Special Crisis Response Fund in the amount of up to 189 million euros, guaranteed by the Government of Norway.
They took money out of another state company
“JSC Ukrtransgaz entered into an agreement with OGTSU to compensate for the lost necessary income from gas transportation, obliging the latter to compensate for the lost income from gas transportation for the regulatory period 2020-2024 in the amount of 47,943 million hryvnia of receivables, of which UAH 27,000 million was received on October 4, 2021, and the rest receivables are payable monthly in an amount equal to 50% of OGTSU revenues from gas transit, starting in December 2021. According to this agreement, Ukrtransgaz JSC retains the rights to compensation for the adjustment of lost income from gas transportation, which was previously included in the initial fair value of receivables under the purchase and sale agreement, if such compensation is approved for OGTSU for regulatory periods 2025-2034 ", says the NAC report.
And now, for comparison, two more sentences from the report. For 2022, the Group received eleven monthly payments in the total amount of UAH 14.4 billion. Whereas in the previous year 2021 there were four monthly payments totaling 3.7 billion hryvnia.
They took government money
In 2022, Naftogaz received government funding from the Cabinet of Ministers in the amount of 12.7 billion hryvnia through a special program, which was implemented through an agreement with the Government of Canada. Despite this, Naftogaz still accused the Cabinet of Ministers of default due to the ban on repaying Eurobonds.
At the same time, everyone in the company experienced an increase in doubtful debts by UAH 39.9 billion. In particular, due to the deliberate transfer of gas to Firtash’s gas sales in the first quarter of 2022. Firtash’s companies did not pay for the gas and, as a result, the debt to Naftogaz for gas increased by 37 billion, and the receivables for balancing services, which formed in 2021 and amount to 35 billion, were never repaid.
All this happened against the backdrop of the fact that Naftogaz is constantly pumping up new assets and receiving new business lines at the expense of the state.
“Only in recent years has he taken over gas supplies to the population, regional gas companies, state-owned thermal power plants and heating and power plants, and began building solar power plants and bio-thermal power plants,” notes former head of OGTSU Sergei Makogon.
In May 2022, the Cabinet of Ministers, by its order, transferred to Naftogaz 100% of the corporate rights and assets of GLUSCO UKRAINE LLC, GLUSCO RETAIL LLC and other related entities (Glusko Group).
We are talking about 229 objects, including more than 120 gas stations. In September 2023, the government transferred these gas stations to the management of Ukrnafta.
In July 2022, Naftogaz entered into an agreement with the Asset Tracing and Management Agency (ARMA) to manage 26 enterprises for a period of 5 years. All enterprises are operators of regional gas distribution networks.
“They planned to turn Naftogaz into a national champion several times, but it always turns out to be a “black hole” into which funds from the state budget need to be poured,” this is a quote from the same column by Makogon, where he expresses his opinion on how to effectively divide Naftogaz.
Since the management of Ukrnafta, Ukrtransnafta and Ukrtatnafta has already passed to the Ministry of Defense, and in the future should be transferred to the Sovereign Fund, and all non-core businesses - state-owned thermal power plants, new “green” thermal power plants and thermal power plants - should be privatized or transferred to others state companies into management, then the most important step remains - separation from Naftogaz "Ukrgasvydobuvannya". But, of course, no one will give up this gold mine so easily.
But at least then the company could at least manage it effectively. But instead, they appoint either dubious personnel or incomprehensible temporary acting responsibilities unknown to anyone.
Ukrgasvydobuvannya periodically releases some positive news about itself. The last one - on the eve of winter, Ukraine launched two powerful gas wells. Together they produce almost 500 thousand cubic meters of gas per day. One of the wells is an exploration well located in a recently discovered field. The other is operational, at a field that is more than 50 years old.
Another news is that the company drilled the deepest well at 6,600 meters.
But according to the consulting company ExPro, in 2022 gas production in Ukraine, due to the war, showed the lowest value in the last 20 years.
In fact, either the return of the Black Sea shelf or horizontal drilling can provide a significant increase in volumes. This is about 5-6 wells, which in the future could give the Ukrainian economy up to 50 billion dollars. And this should be done by global giants like Halliburton and Baker Hughes.
“The US government should have provided money for this project in the form of a grant - $250 million. But this will not happen until changes are made in corporate governance. And there will be no changes in the management of Naftogaz, because Shmygal said in Washington that during the war no one would carry out a competitive selection of the chairman of the board, members of the board and business leaders of NJSC and change Chernyshov,” says an interlocutor on the gas market.
But the lack of competition for the position of head of NAC is actually just the tip of the iceberg. All major enterprises are headed by acting directors. This is a familiar pattern for the Ukrainian authorities, because then the leader becomes much more loyal. As a result, Ukrgazvydobuvannya has an acting manager from May 2022, at Ukrtransgaz - from January 6, 2023, at the gas supply company Naftogaz - from August 2021.
So, from May 2022 to the present day, the head of the State Internal Affairs Directorate has not been fired, but only suspended. At the same time, until January 2023, Alexander Romanyuk was acting, and then he was replaced by new acting Oleg Tolmachev.
There are objective doubts regarding Tolmachev’s managerial competencies. The company Eclipse Resources, in which he held leadership positions from 2013 to 2020, actually went bankrupt.
After the liquidation of Eclipse Resources, Tolmachev did not work anywhere for more than a year until he joined UGV.
Also, until recently, Tolmachev’s assistant worked in the reception area, Daria Taranova. It is unknown how exactly Taranova helped, but she was fired only after the intervention of the SBU regarding her Russian citizenship.
Although the company denies this.
“According to information received from the HR department of the UGV, Daria Taranova worked in the company since 2019, having all the permits for official employment, until June of this year. The termination of employment relations with Ms. Taranova was not associated with any external factors,” says Naftogaz’s response to Censor.NET’s request.
Another “specialist”, a citizen of the Republic of Azerbaijan, Akshin Mehdiyev, became the Director of Drilling and Downhole Operations of the UGV. This is a key division of the company on which gas production depends.
Mehdiyev does not have a specialized higher education. He submitted false information on his resume. Deliberately concealed information about the experience of working with Schlumberger Services Ukraine LLC (which was recognized by NAPC as an international sponsor of the war) at well No. 888 of the Shebelinskoye gas condensate field and work experience in the Russian Federation during 2006-2009.
Mehdiyev was hired by the State Internal Affairs Directorate despite the fact that back in 2022, criminal case No. 6202200000000638 (Part 5 of Article 191 of the Criminal Code of Ukraine) was opened on the fact of inflating the cost of engineering support services (for which Akshin Mehdiyev was responsible) by the total an amount of more than 154 million hryvnia.
He also remained the owner of the oil and gas business, which, in principle, is a direct conflict of interest. In particular, he is the Director of WELLPATH LIMITED in Britain and projects in Ukraine are indicated on the website of this company.
The Union of Drillers of Ukraine has already sent an open letter to NJSC Naftogaz of Ukraine on this matter.
But the company denies problems with this shot.
“Akshin Mehdiev was hired by decision of the management of the State Administration as a candidate who, in terms of education, experience and competencies, meets the qualification criteria defined by the job description. Upon appointment, an internal audit was carried out by the personnel security sector of the Department of Safety, Security and Security of the State Administration, as a result of which the procedural status of Akshin Mehdiev was not established as a suspect in any criminal proceedings,” Naftogaz said in its response.
The publication's sources claim that recently most of the mid-level managers of the UGV were transferred to employment contracts for three months. NJSC Naftogaz denies this fact. But there are people whose contracts this actually happened to.
“Such a practice has never happened. This creates an atmosphere of complete uncertainty in the team, because who will work normally for you with the prospect of being fired in three months. Unless you obediently follow orders in order to survive,” notes one of the publication’s interlocutors.
“This, in turn, leads to the return of schemes with the “supervisors” of the Yanukovych era, who actually make major management decisions not on the basis of industry expertise and the interests of the company, but guided by private mercantile interests,” he adds.
There is talk on the market that in Chernyshov’s reception there is a man named Alexander Sergeev, he is called Chernyshovaz’s assistant and you can agree with him on almost any issue.
“For example, you can agree on the payment by the State Administration of the amount owed to private creditors for 30-50% of the amount, which must be returned in cash for resolving the issue,” says the publication’s interlocutor.
His 25-year-old daughter was Deputy Minister of Social Policy.
Of course, until someone films Sergeev on a hidden camera for NABU, this will all only look like slander by opponents. Which NAC bravely rejects: “This information is not true. Our operating principles are consistent with the values of business ethics, namely honesty, reliability and transparency. All payments by the State Administration to contractors are made in a timely manner, in accordance with the terms of existing contracts. At the same time, if you have other information, we suggest that you contact the authorized bodies in the prescribed manner with these facts.”
But it is obvious that there is no smoke without fire. And if they’ve been talking about the back office for a year now, and the number of dissatisfied people is growing, then sooner or later all this will come back to haunt the authorities.
