Independent director at Naftogaz resigns over opposition to reforms

Independent director at Naftogaz resigns over opposition to reforms
Amos Hochstein resigns from Naftogaz supervisory board
By bne IntelliNews October 12, 2020

US businessman and former diplomat Amos Hochstein has resigned as an independent director on the supervisory board of Ukrainian national gas company Naftogaz, complaining of opposition to reforms and of political interference. His departure comes as a power struggle over control of the state-owned firm heats up, with prosecutors recently launching a treason probe into its management.

Naftogaz said in a statement on October 12 it had received notice of Hochstein’s resignation. Hochstein has served in the role since 2017.

“Among the reasons behind his decision to leave the supervisory board, Amos Hochstein mentioned growing opposition to gas market reforms and the transformation of Naftogaz into an independent and efficient company,” the company said. “He urged the Ukrainian government to further ensure the independence of supervisory boards at state-owned enterprises in Ukraine as a safeguard against corruption.”

In an article written for the Kyiv Post, Hochstein complained that the company’s management’s effort over the years to "create a new corporate culture, transparent mechanisms and an adherence to international standards were resisted at every step of the way."

“The company has been forced to spend endless amounts of time combating political pressure and efforts by oligarchs to enrich themselves through questionable transactions,” he said. “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.”

As an example of this “sabotage,” Hochstein pointed to a memorandum that the Ukrainian government signed with a US firm called Louisiana Natural Gas Exports in May for the export of US LNG to Ukraine. One of the company’s executives, Robert Bensh, was subsequently offered a seat on Naftogaz’s supervisory board. No information is publicly available on Louisiana Natural Gas’ ownership structure or its assets.

“Every part of this sordid affair represents the ills and dangers facing Ukraine as it slides back towards its past,” Hochstein 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.”

Naftogaz finally managed to convince the government to end public service obligations for households in August, under which the company to buy gas from its production arm for onward sale to residential consumers. The end of these "corrupt" schemes has given Ukrainian households a choice of supplier for the first time, Hochstein said. But this was followed by “unfounded accusations” against Naftogaz's management, he said.

Ukraine’s anti-corruption prosecutor’s office has said it suspects Naftogaz’s top executives of stealing UAH730mn ($26.3mn) of gas supplies in 2016-2017 in a treason case. Naftogaz CEO Andriy Kobolev insists 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.”

“Acting to strengthen the independence of state-owned companies, to support democratic institutions, and to empower the Ukrainian people through transparency, are not signs of weakness, they are signs of strength,” he concluded. “The sooner the government of Ukraine internalises this fact, the stronger Ukraine will be. Failing to do so will imperil Ukraine’s quest to build a strong, democratic and free Ukraine.”

All the independent directors on Naftogaz’s supervisory board resigned in 2017 over resistance to reforms. The former government of President Petro Poroshenko unsuccessfully tried to oust Kobolev last year, who has built up a reputation of a reform-minded manager with good standing internationally. Poroshenko's successor Volodymyr Zelenskiy has promised to fast-track reforms and ensure greater independence at state institutions. But Hochstein’s comments, and the resignation of Ukraine’s central bank governor Yakiv Smolii in July over what he said was “sustained political pressure,” suggest otherwise.

With Hochstein’s departure, the current board comprises chairperson Clare Spottiswoode (UK), Bruno Lescoeur (France) and Ludo Van der Heyden (Belgium), as well as state representatives Nataliya Boyko and Yuliya Kovaliv.

Kobolev thanked Hochstein for his involvement in corporate governance reforms launched in 2014 that helped free Naftogaz of “political and other interference,” as well as his role in securing the company’s victory in an arbitration case against Russia’s Gazprom.

"I want to assure him that the company will continue along the reform path and complete its transformation successfully," Kobolev continued. "Meanwhile, the management will further strive for transparent decision-making and will prevent backsliding towards the old corruption schemes."

Supervisory Board chairperson Clare Spottiswoode added that Naftogaz was “resilient to outside influence.” The board will “continue to protect the company from political influence and any attempts to roll back anti-corruption steps in the state-owned energy sector.”

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