EU officials call for probe amid Ukraine gas TSO political pressure claims

BUCHAREST (ICIS)–The European Commission and the Energy Community have called for a transparent review at the Ukrainian transmission system operator, GTSO, amid concerns that allegations of political interference could paralyse its activity.

In a letter sent to government stakeholders on Tuesday and seen by ICIS, the two European institutions called for a transparent investigation into the activity of the supervisory board of MGU, a shell company which was set up to manage GTSO over the last six months.

The EC and Energy Community have warned that without such a review and an immediate strengthening of corporate governance at MGU and GTSO, the TSO could lose its certification and ultimately its five-year transit contract with Russia’s Gazprom.

The EC and Energy Community have also insisted that during the investigation “no facts are created on the ground, which may contribute to even an impression of increasing control over the TSO by the government in such a way as to threaten its independence and certification.”

CHAIR DISMISSAL

The crisis came out in the open on 29 May when the ministry of finance, as the sole shareholder of MGU, dismissed Walter Boltz, the chair of the MGU supervisory board, amid claims that the work of the board had been “improperly organised” since the company started its activity at the beginning of the year.

Two of the remaining three independent board members disagreed with the decision and subsequently threatened to resign.

A new board meeting was expected to be held on 10 June to elect a new board chair, but two of the independent members reportedly failed to attend, which meant that the board did not have the necessary quorum.

Writing to stakeholders, including the Ukrainian prime minister, minister of energy and head of the Ukrainian regulator, the EC and Energy Community said they were concerned about “deteriorating” working conditions on the supervisory board of MGU as well as GTSO.

“The immediate reason for our reaction is the surprising dismissal of the chairman of MGU’s Supervisory Board by the ministry of finance at the end of last week,” the letter said.

“Our concern is, however, broader and primarily about deteriorating working conditions of the supervisory board, notably for independent members, and the impact the dismissal could have on smooth and independent functioning of MGU and GTSO in line with the principles of good governance.

“The decision by the ministry of finance could constitute an intervention affecting the unbundling of GTSO and its certification and as such should be subject to a transparent and independent review. Without such a review, the current situation could lead to a paralysis of the supervisory board and further exacerbate the crisis.”

The EC and Energy Community have also highlighted the fact that the unbundling of GTSO from the incumbent Naftogaz at the beginning of this year was carried out in line with EU rules as well as taking in consideration “Ukrainian realities and political sensitivities.”

In this role, the independence of MGU’s supervisory board is of key importance for the independence of the TSO as well.

TRANSIT CONTRACT AT RISK

An EU official explained last week that the certification process which started at the end of last year needs to be completed this month.

However, he pointed out if the supervisory board cannot prove its independence, the certification process may fall through. This, in turn, may prompt Gazprom, which signed a five-year transit deal with GTSO, to pull out of the contract.

He added that GTSO was one of the highest-earning companies in Ukraine and may attract the interest of various groups of interest, who would be keen to extend their control.

Adomas Audickas, one of the two government-appointed supervisory board members, and currently its vice-chair, told ICIS last week that the certification process was not being jeopardised.

The dismissal of Walter Boltz, formerly executive director of the Austrian regulator, E-Control, coincided with an application made by a group of 47 MPs to the Constitutional Court, requesting that the unbundling of GTSO be declared illegal amid concerns that the TSO was a strategic company.