Bne: Naftogaz’s fragile success

Article published on bne IntelliNews on March 7th, 2018.

Reforming Ukraine’s state-owned gas company is like doing surgery, Yuri Vitrenko argues.

The commercial director of Naftogaz has a thing for medical analogies, comparing the company to a human body and saying his goal is to turn it into a “healthy, fit person”. But he’s also careful not to oversell the company’s achievements in the last three years: “We’ve stopped the bleeding, we’re out of emergency care, but there still is a lot of rehabilitation to do” he tells bne IntelliNews in an exclusive interview in Kyiv.

Naftogaz found itself in the middle of yet another gas war with the Russian gas monopolist Gazprom on March 2. Naftogaz has just won a years-long arbitration decision in Stockholm and the Russian gas giant is supposed to pay $2.56bn in compensation for overcharging for gas and underpaying for gas transit through Ukraine to its Western customers. Gazprom looks like it will refuse to pay and threatened to break its supply and transit agreement with Ukrainethe next day.

Dealing with an irate Russia is part of the company’s brief and catches the headlines, but more importantly for Ukraine has been the revolutionary change at the company. Gas subsides used to account for 8% of GDP and the company’s debt weighed heavily on the budget. But at the International Monetary Fund (IMF) insistence, the company has been through a dramatic transformation: tariffs have been hiked and today the $3.8bn Naftogaz paid to the state budget in the form of taxes and dividends makes it the biggest taxpayer in the country. It is now moving on to develop new gas deposits and said in January that it hopes to make Ukraine self-sufficient in gas by 2022.

Since he arrived at the leadership of the company with CEO Andriy Kobolyev in 2014, Vitrenko has overseen one of the more spectacular transformation in post-revolutionary Ukraine, helping to turn the strategic gas company from a corrupt, debt-ridden state-run monopoly into a profitable firm. Asked whether he expected this outcome when he took the position of CCO in 2014, Vitrenko let out a short laugh: “No, I have to be open with you, I did not.”

He and Kobolyev were appointed just after the fall of then-president Yanukovych in a period of major political uncertainty – and they did not expect to last long: “Presidential elections were coming and we have this “tradition” that the new president of Ukraine put his own men as heads of Naftogaz,” Vitrenko said. “So we thought we would be replaced after a couple of months.”

Instead, thanks to the support from Ukraine’s international donors, a quickly worsening economic and military situation and good initial results, the two men were kept on to drive Naftogaz’s reforms.

Their tenure quickly took the shape of a two-front war as Naftogaz tried to secure gas supplies amid a general breakdown of relations with Russia, while trying to turn what was, until recently, one of the symbols of the corruption of the Ukrainian elite into a “Western-style corporation”.

Read the rest on the website of bne IntelliNews.

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