Former top manager of Naftogaz Favorov has given an interview to journalists. Well, maybe not exactly journalists, and not quite an interview – because it was for an Internet site owned by his wife. But this is not surprising – because in a real interview, independent journalists would ask him questions about his responsibility for the record drop in production, deteriorating financial performance, loss of competitive market share, conflict of interest and reasonable suspicion of fraud (https://bit.ly / 2YiNMIt).
You will not find these questions in the “interview”. But you will find charges against me. Completely mendacious, moreover personalizing (again).
I wondered if it was worth responding. At first, I did not want to, especially given the extremely low popularity of this site. Even my Facebook page is more popular. But when his “interview” started to be promoted, I decided to protect my reputation. (All the same, I will not stoop to Favorov’s level with his personal accusations).
I understand perfectly well that unpunished evil breeds even more evil. But Kobolev and Naftogaz’s Supervisory Board should have brought Favorov to justice, not to mention that law enforcement agencies (NABU and the National Police are still investigating cases under the above circumstances), not me.
I can only show once again where he is untruthful.
I will start with the main thing – the fall of production under his leadership.
When he came to Naftogaz, he was saying what a good man Oleh Prokhorenko, who was previously responsible for production, was and promised to increase production, not least from new licenses (https://bit.ly/2Slgyol, https://bit.ly/3d57LhV ). At the time, Favorov also mentioned that “as an expert,” he saw considerable potential for increasing production, and called dependence on gas imports a “crime”.
But very soon after his arrival, production began to fall. Initially, Favorov and Co. tried to hide this while publishing data on production growth during almost six months. The manipulation was done by the comparisons they made with the previous year rather than showing daily data from the beginning of the current year, which clearly showed a decline. https://bit.ly/2V9f7Ln Even in the prospectus for the issue of Eurobonds they continued to talk about increasing production. https://bit.ly/3f7FkBO But later the fall became obvious compared to the previous year. Then it was the turn of another manipulation – by looking at the volumes of commercial gas, not gross volumes. I do not want to start a discussion here about which is more correct. The main thing is that Favorov started talking about it after the fall in production, not before. Furthermore, even if we look at the volumes of commercial gas, under Favorov they fell, and under Prokhorenko they grew by the same billion cubic meters per year as the volumes of gross gas.
I cease to be amazed how Favorov calls black white. Under his leadership, in 2019, official data show a drop even in the volume of commercial gas by 200 million cubic meters, yet he says that he “kept the production of commercial gas at the same level.” The same data show that when Prokhorenko arrived in 2015, the production of commercial gas amounted to 12.8 billion, and in 2018 – 13.8 billion, i.e. 1 billion cubic meters per year more. https://bit.ly/3f3u8q3 And Favorov says that production was not increased.
I must expose another of Favorov’s manipulations. Recently, he has been actively creating the impression that he has changed his priorities – from increasing production to the more efficient use of money, i.e. focusing on economic efficiency. This seems to be a convenient way to distinguish himself from his predecessors, who seemingly invested excessively in production. As for economic efficiency, I have already explained that he simply analyzes it incompetently.
But there is a simpler and more eloquent fact – in 2019, capital investment in “Integrated Gas”, Favorov’s area of responsibility, increased by UAH 2.5 billion compared to 2018, not decreased! At the same time, the operating cash expenditures of UHV (Ukrgazvydobuvannya) in 2019 also increased significantly: by UAH 8.3 billion, excluding income tax paid. This is a lot more than the increase in capital investment. (Official reporting https://bit.ly/2ybet7h, https://bit.ly/2y1PR0Z , https://bit.ly/2yWh2dH , our calculations https://bit.ly/35gWvwg In other words, Favorov spent more money than his predecessors, and production failed. And the real reasons for the failure were the incompetence of management, caused by the forced downtime of many workers. For comparison – in 2019, Ukrnafta, which also operates on depleted fields, but has incomparably fewer investment opportunities, increased gas production by 7.5%. https://bit.ly/2yZhes
Now concerning “fixing the figures”, in the “corrupt system of patronage” that Favorov accuses me of. First, Favorov calls the increase in the difference between the volume of commodity and gross gas “fiddling with the facts.” As I explained above, even if you look at the volume of commercial gas, as Favorov wants, in fact, the picture does not change – with Favorov decline, with his predecessor – growth.
Secondly, Favorov “hits the post” with accusations against me – if this “fixing” took place, it would have been in December 2018 – January 2019 (respectively, for November-December, as the reporting is for the previous month), i.e. when I was no longer the “curator” of Ukrgazvydobuvannya. And ironically, at this time the newly appointed Favorov was already in charge of Ukrgazvydobuvannya. As they say, the main thing in an investigation is not to get it pointing to you. Favorov did just that.
And thirdly, I never managed Ukrgazvydobuvannya, unlike Favorov. I “coordinated” its activities, which means I had limited powers. The formal and real head of Ukrgazvydobuvannya was Oleh Prokhorenko, whose boss was not me, but Kobolev. And it was not me who had to monitor Ukrgazvydobuvannya, but an internal audit, which is subordinated to the Supervisory Board. Surprisingly, Favorov does not know this.
Or he knows, but dishonestly accuses me of delusion, instead of accusing Prokhorenko, Kobolev and the Supervisory Board (and then, only if there are any grounds for such accusations). Also, I would like to note that I do not shun responsibility for “coordinating” the activities of Ukrgazvydobuvannya. I can report on how it helped Prokhorenko’s team to increase gas production (both gross and commercial) by 1 billion cubic meters per year.
I will also comment on the accusation against me insinuating that if I started to implement the “20/20 Program”, which Favorov describes as “complete absurdity” and “blatant populism”, saying that it “should have been thrown in the trash”, and boasts that he “destroyed” it.
I have already mentioned that when Favorov came to Naftogaz, he had nothing against this program. He began to criticize it only when he began to fail. At the same time, again ironically, I have a very indirect link to this program. The relevant production plans were drawn up by Prokhorenko and Romanyuk, as well as by a team from a leading international consulting company led by Otto Waterlander, who recently joined Naftogaz as Favorov’s boss.
Moreover, I have always been careful with this program. On the one hand, I have seen figures and calculations from authoritative sources suggesting that Ukraine has the resource potential to significantly increase production. On the other hand, gas production in many countries is transformed from a “resource” to a “technological” business, i.e. the emphasis is placed on technologies, specialists, and efficient internal processes. I saw problems with this in Ukrgazvydobuvannya, and I was not satisfied with the progress in solving these problems.
And I openly told this to Prokhorenko. Specifically, I proposed to make the attraction of international partners with technology, and investment, a priority. I must say that Prokhorenko was also unhappy with many things in Naftogaz. To address the problems that had accumulated, a transformation of Naftogaz was planned. But it did not happen as planned…
I will comment on a few more false / manipulative statements by Favorov aimed at my colleagues.
He accuses Vitaliy Volynets of alleged “losses” and claims that he is “the weakest trader.” But, again, the main thing in an investigation is not to end up having the finger painting at you, and Favorov manages to do it again.
Before Favorov became Volynets’ boss, Volynets showed excellent results – he multiplied Naftogaz’s share in the competitive market, earned profits for the company, and so on. However, after Favorov headed this area, Naftogaz’s market share fell to almost zero, and losses began due to the underestimation of the cost of gas in underground storage, which acted as collateral for Ukrtransgaz’s balancing services. https://bit.ly/2V9f7Ln (p. 51) Volynets followed Favorov’s instructions and suffered from the inefficiency of the leadership in this area. Who made a profit? You guessed it, ERU, which was owned by Favorov. And when Volynets started talking about it, he was fired.
Favorov also writes that in any trading company such an employee (who lost UAH 300 million) would be blacklisted forever, he would never find a job in the energy sector. Is he writing about himself?
Honestly, I look forward to the moment when Naftogaz will be forced to admit losses from gas trading, for which Favorov was responsible. We are talking about the purchase of huge volumes of still unsold imported gas during Favorov’s time, at a price that far exceeds the current market price. This is at best billions of hryvnia damage. “Black Spot”, you say?
I should note that “Integrated Gas” under Favorov’s leadership has already shown a significant deterioration in the financial result (by UAH 6.3 billion). https://bit.ly/35gWvwg Well, you can also mention the “brilliant” “Prepaid Gas Stock” campaign.
And a few more comments.
It seems that Favorov was irked by my thesis about his overly “comfortable” relationship with Firtash’s group. I receive many reports about how under Favorov Naftogaz’s interests have been “neglected” in favor of Firtash’s companies. This is clear even from the “interview” itself. Earlier, Favorov said in another interview that Firtash’s regional gas companies should only transport gas, and Naftogaz should deliver it directly to the population. Yet here, for Favorov the regional gas companies of Firtash (RGK) are transformed from parasitic intermediaries to “the largest consumer” of gas.
It is really amusing that when Favorov says something negative, he aims at me. But when he talks about the new transit contract, which I personally signed, he says that this contract was signed by Ukraine.
Favorov writes that “five years ago no one could have thought of leaving such a powerful state-owned company of their own free will.” Well, now he has gone and done it. I wonder what it should prove and to whom? And from the very start of his work at Naftogaz, he was surprised by my “defiant behavior”, when I would disagree with the decision of the head of the company or the Supervisory Board, and at the same time not resign.
What can I say about this? I resigned from Naftogaz three times of my own free will – in 2003, 2005, 2007. That is, when, in his words, “no one could contemplate such a thing.”
But in 2014-2018, I in fact made reforms so that, to paraphrase Favorov, the “corporation reached a level where professionals may disagree with the chairman and supervisory board of the company, and not be fired.” By the way, I started reading the book “The Narrow Corridor” (about how countries become democratic and successful), and there it says precisely that a successful system is when on the one hand, there is a strong government, and, on the other hand, ordinary people do not allow this power to restrict their freedom. And there is a quote from the philosopher Philip Pettit, who says that lack of freedom is a situation when, for example, “the employee does not dare to complain against the employer.”
Favorov’s culture, way of thinking and previous experience, unfortunately, do not allow him to understand that for me Naftogaz is not the realization of the dream of many managers from Russia in the 90s – to become a boss in a state oil and gas company, to outdo everyone else, “privatize” something, and become billionaire. For me, this is not even the realization of professional ambitions. It is the defense of the independence and the development of my country. By the way, unlike Favorov, a citizen of Russia and the United States, I, as a citizen of Ukraine, am one of the ultimate owners of Naftogaz.
P.S. Favorov’s “interview” begins with him recounting how he flew in a helicopter with an instructor. And what about quarantine? Or does it not apply to the “chosen” ones, and Favorov can not only violate it, but also to talk about it from above to affirm a sense of justice in people?
In fact, it seems to me that the level of discussion that Favorov displays in this interview, as usual, is very telling.