Ukraine TSO board members raise alarm over interference

Author: Aura Sabadus

2020/06/04

BUCHAREST (ICIS)--Two independent board members of Ukraine’s MGU, which manages transmission system operator GTSO, have threatened to resign following the dismissal of the supervisory board’s chair on 29 May.

In a letter sent to stakeholders on 2 June and seen by ICIS, the members raised alarm over political interference in the running of GTSO.

The letter said: “Just as Ukraine has committed to strengthening the corporate governance of state enterprises, state officials are simultaneously responsible for interference in the work of an independent supervisory board through the dismissal of its chairman without valid basis and explanation, and by attempting to intimidate other independent board members and jeopardise the independence of the TSO.”

It said the dismissal could have serious implications for the certification of GTSO as an independent operator from energy regulator NERC, which needs to be completed by the end of the month.

A key requirement of the certification for GTSO, which was unbundled late last year, is to ensure the company has an independent supervisory board.

The chairman of MGU was one of four independent board members, with another two now threatening to resign, leading to concern the certification process will fall through.

“You are surely aware, that during June 2020, MGU and GTSOU LLC will have to prove that all of the conditions of certification have been fully implemented to ensure that the crucial certification of the Gas TSO is finalised.

“This is one of the most important underlying conditions of the €7bn transit contract with Gazprom and thus we believe is of vital importance for the Ukrainian economy. Any ill-considered measures that could endanger the transit contract should be avoided at all cost,” the letter said. TIMOSHENKO’S MOVE

The removal of the chairman coincided with an application to the constitutional court on 29 May by 47 members of parliament, led by former prime minister Yulia Timoshenko, requesting that the unbundling of GTSO be declared illegal.

After GTSO was unbundled it was placed under the management of MGU, whose sole shareholder is the ministry of finance.

Several sources close to MGU told ICIS that board members have been submitted to increasing political pressure and obstructive tactics by the government.

They also pointed to growing tension between the two government appointees and independent board members, including the chairman.

TRANSIT CONTRACT AT RISK

An EU official told ICIS the latest action was very concerning as GTSO is now the highest earning company in Ukraine.

“It’s [GTSO] a big pot of honey with some of the highest profits in Ukraine. It has drawn the attention of many parties.

“If its independence is jeopardised, then the certification would have to be questioned at which point [Russia’s] Gazprom will immediately say that since the TSO is not independent then the transit contract would [be cancelled],” the official said.

ICIS approached the deputy minister of finance who issued the board chair’s dismissal and the two government-appointed board members for comment.

The deputy minister did not reply, nor did Viktor Pinzenyuk, one of the board members that was also a minister in Yulia Timoshenko’s government. IMPROPER ORGANISATION

A statement on the MGU website said the decision to terminate the mandate of the board chair was made because of the “improper organisation of the work of the MGU supervisory board.”

In a reply to ICIS, Adomas Audickas clarified that even though he and Viktor Pinzenyuk were appointed by the government, they were independent members of the board that shared the same responsibilities and authority as other members.

He noted the board had failed to pass decisions in a timely manner because of differences in opinion.

He said: “It was not government representatives against independent members. If we had such, then decisions would be passed very fast, since there are two government representatives and four independents.

“I am alluding to the fact that there were different positions among independent members as well.”

NEW CEO

Audickas also confirmed that he cancelled a ballot that was expected on 30 May for the election of a new CEO of MGU

He said: “I did cancel the ballot voting for several reasons. First, appointing a CEO through ballot voting and not through a usual live (via video call or live meeting) discussion is not good corporate governance practice.

“Second, the candidate we had in mind works in GTSO, and therefore according to the current charter of MGU, the candidate would have a conflict of interest […] because under the current charter of MGU, the CEO of MGU acts as a shareholder of the GTSO.”

ICIS understands that two independent legal studies commissioned separately indicated that there would be no conflict of interest.

Audickas insisted the latest developments would not have an impact on the certification of GTSO.

In an e-mail to ICIS, Alexander Lisnichenko, acting CEO of MGU, said the certification process would not be affected.

He said: “The next immediate agenda matter of the next supervisory board meeting is to elect a new chairman. The meeting has been already scheduled.

“Hence, the supervisory board with a majority of independent members continues to serve as a cornerstone of meeting the criteria of independence and certification of TSO. A potential threat to resign expressed by two independent members will not impede the board because the selection process of new independent members has been already initiated.”