Gas industry concerns raised over Ukrainian board appointment

LONDON (ICIS)–Ukrainian and EU gas market stakeholders have raised concerns about the appointment of a former politician to the supervisory board of a company overseeing the gas transmission system operator GTSOU.

Sources said the appointment of Viktor Pynzenyk as government representative to the board of MGU last month without following existing procedures laid down by the cabinet of ministers (CMU) could dent the credibility of the TSO as it battles to retain its transit role.

Speaking to ICIS, Oleksandr Lysenko, a Kyiv-based independent corporate governance consultant, said he filed an appeal to the CMU on 16 November, asking ministers to recall Pynzenyk and ensure the procedure was followed through.

“I have nothing against Mr Pynzenyk, but as a corporate governance specialist, whose responsibility it is to ensure that state owned enterprises apply the correct procedure, it was my duty to appeal this decision,” he said, noting the government has until 16 December to reply.

Under existing regulations, the supervisory board of MGU is expected to have five board members, three of whom are independent and the remaining two are appointed by the government.

According to Ukrainian law, in particular the CMU Resolution No.143 dated 10 March 2017, the candidacy of the two government appointees should be proposed by the ministry of energy, as the sole shareholder of MGU, and should be reviewed by the state-owned enterprise (SOE) nomination committee.

The committee is made up of government representatives as well as international stakeholders from the EU or international financial institutions such as the IMF, the World Bank or EBRD.

The opinion of the SOE nomination committee is then sent to the CMU which is responsible for approving or rejecting the candidate.

Moreover, according to the current legislation of Ukraine, candidacies shall be always determined in accordance with the procedure and for each appointment, including cases of appointment of an individual for a new term.

CORRECT PROCEDURE

Four sources close to the matter told ICIS that in this case the ministry of energy appointed Pynzenyk directly, bypassing the procedure.

They also note that the other government candidate followed the correct procedure and added that one of the independent members, who like Pynzenyk, had served a previous term as an independent MGU supervisory board member, was also appointed in compliance with regulations.

An EU-based source echoed the views, urging the government to recall Pynzenyk and follow the procedure through.

“The problem is that in case Pynzenyk remains on the supervisory board and, let’s say there are three members voting on various decisions, and one of them is Pynzenyk, those decisions will be invalidated. This can affect the operation of MGU and of the TSO,” he said.

ICIS approached Viktor Pynzenyk, the ministry of energy and the cabinet of ministers for comment but did not receive any replies by publication time.

A second EU-based source said that the top 15 Ukrainian state companies, including MGU, have been following the corporate governance recommendations for Ukraine set out by the Organisation of Economic Co-operation and Development (OECD).

One of the 11 near and long-term recommendations made by the OECD states that the board nomination process in Ukrainian state-owned enterprises should be transparent, well-structured, uniform and merit based.

The recommendation also points out that supervisory board members should be shielded from undue political interference.

GOVERNANCE FAILURES

Viktor Pynzenyk, who briefly served as minister of finance in the cabinet of the former prime minister Yuliya Tymoshenko in 2007-2008 was appointed as government representative to the MGU supervisory board in 2019.

A new supervisory board was appointed earlier this summer and it is made up of three Ukrainian nationals and two foreign representatives.

Also this summer, GTSOU was removed from the jurisdiction of the ministry of finance to that of the ministry of energy.

Earlier this year, the supervisory board and CEO of the incumbent Naftogaz were dismissed , raising criticism from international stakeholders that the dismissal procedure was not followed through. The supervisory board was reinstated but has since resigned.

Last year, Walter Boltz, the then chair of the MGU supervisory board was also dismissed by the government, raising questions about the board’s ability to operate independently.

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

The case is ongoing.