Friends! I have just been formally notified that my position is being cut, which means that in two months I will be laid off by Naftogaz. Since one constantly has to fight against misinformation, and “with the overwhelming forces of the enemy” at that, I must again resort to radical openness and set out my understanding of the situation.
It is symbolic that I will be laid off by Naftogaz in a situation when our team, which I have the honor to lead, showed record profits in 2019 against the background of losses incurred by the remainder of Naftogaz (https://bit.ly/35Igd4), and when more than enough work remains to be done ( https: / /bit.ly/2V8c5a).
Reason for the layoff.
I will immediately go to the root causes, to the essence. In such a situation, the most logical explanation for my dismissal is that the fight against Russian aggression, in particular the effective protection of Ukraine’s interests in relations with Gazprom, is not currently a priority. The fight against corruption, particularly its causes in the gas sector, is also not a priority. It turns out that there are other priorities, which, unfortunately, have become a barrier to drawing closer to Europe, changing the rules inside the country to European ones, and forcing Russia to play by civilized rules in relation to Ukraine.
I will explain why we can draw such a conclusion:
– Our team inflicted such a defeat on Gazprom, Russia, and the Putin regime, that it is not surprising that we have been a bone in their throat for a long time. I’m referring to the Stockholm Arbitration, where we repulsed Gazprom’s claims worth more than $80 billion and instead secured compensation amounting to $5 billion; about reverse gas supplies from Europe, which did not allow Ukraine to be brought to its knees due to the termination of gas supplies by Gazprom; about general changes in commercial relations between Naftogaz and Gazprom – if previously the average balance of payments for imported gas and transit was negative for Naftogaz, and $5 billion each year went from Ukraine to Russia, now this balance is positive and hundreds of millions of dollars go from Russia to Ukraine.
– Likewise neither Russia nor its “business partners” in Ukraine liked the fact that our team forced Gazprom to sign a contract with a “ship or pay” commitment, and with volumes higher than originally proposed by Gazprom. This thwarted the plans of those in Ukraine who were already preparing to “cash in” on “direct supplies” of Russian gas. For, if Gazprom has to pay for gas transit even if it does not utilize the full capacity, it must still include these shortfalls in the cost of “direct supplies”. This does not allow “intermediaries” to cash in”. In other words, the intermediaries were anticipating sharing with Gazprom almost $32 per thousand cubic meters, and instead this money should go in effect into the state budget of Ukraine.
– Oligarchs and corrupt people have never liked the way we systematically reduce the space for corruption. Although we are not anti-corruption bodies, and our team’s ability to fight corruption has always been very limited, we fought against it, not in words but in deeds. We did not allow Rosukrenergo-2 to be created. We have significantly reduced corruption opportunities in the Ukrainian gas market, in particular for the Firtash Group and for those such as Favorov. We constantly hindered those who were involved in corruption in procurement in Ukrgazvydobuvannya, Ukrtransgaz and other structures of Naftogaz. Even if you look at Ukrnafta, the large-scale siphoning of money from this company occurred until our team began to affirm the rights of Naftogaz as a shareholder of Ukrnafta (i.e. until 2018). But, as they say, when you fight corruption, it starts to fight you. For example, with fake reports and gossip. It is especially improper when their source is your “colleagues” for whom your principledness interferes with their “work”. But as you know, guilty consciences speak.
– Our team did all this thanks both to internal work and the promotion of European reforms at the state level. For example, through the implementation of European rules in the Law on the Natural Gas Market, and through the introduction of international standards of corporate governance in state-owned companies. However, our initiatives were distorted by political compromises at the law-making stage, and then by incompetence and procrastination at the implementation stage. And we criticized this. Consequently, both those who were opponents of reforms from the very beginning and the mediocrities – the pseudo-reformers, whom these reforms brought to the top like foam – were angry with us.
– Already at the beginning of this year, almost immediately after I had negotiated with Gazprom and signed a new transit contract, and when rumors spread not about my dismissal, but rather about the appointment of me as head of Naftogaz (and even prime minister), I publicly stated my position on the need to continue to actively defend Ukraine’s interests in the confrontation with Russia, force Gazprom to play by European rules towards Ukraine, and adhere to these rules ourselves.
– The “last straw” was probably a detailed analysis of our opportunities to earn more than $17 billion for Ukraine, which apparently was contrary to the interests of Gazprom and the Kremlin https://bit.ly/2wH1vNX, as well as some stakeholders in Ukraine who do not need such changes.
Perhaps the lack of political will to fight Russian aggression, in turn, is due to a lack of understanding that concluding the war successfully for Ukraine is possible only if Ukraine shows that it can defend itself against Russia, if Ukraine becomes strong.
For Ukraine to become strong, for successful reforms to be carried out, established professionals who know what to do are required in leadership positions.
When the administration has other priorities, it appoints weak but politically expedient “executors”; and inconvenient but effective professionals are “tolerated” only as long as they do not threaten the interests of their “bosses”.
And what about Kobolev?
Is he also being dismissed? He’s also a “reformer”, also fighting Gazprom and corruption? Is he not in the same team as me?
No, Kobolev is not being laid off. On the contrary, the Cabinet of Ministers, again without carrying out any competitive search, has extended Kobolev’s contract for four years. And now Kobolev is in fact firing me.
We ourselves helped Kobolev to create his image. Yes, Naftogaz pays for his personal PR, but that’s not the point. We wanted a change in the political leadership. We wanted “new faces”. We needed to defend Ukraine together with the political leadership from Russian aggression. We needed the political leadership to carry out reforms that could bring us into Europe. But we were afraid to “wash our dirty linen in public,” worrying that it would help our opponents criticize our European choice.
And herein lies the perennial problem of relations between the state and society. On the one hand, society should make the authorities strong so that the state is able to perform its functions, especially to protect society from external enemies. But very often those whom we empower do not stand the test of power and cease to act in the interests of society. Therefore, society must force the government to use this power in the interests of society, not their own. Understandably, this creates a conflict. And this requires from society not a blind faith in the image of the powerful, which we ourselves helped them to create, but constant restraining, even a fight against those whom we made the government.
Kobolev is part of the system of power.
One can argue about when he became such, whether he betrayed and moved to the “other side”, but that’s all secondary. The main thing is that he made his choice himself and now fits into the government very organically.
What is a typical “boss” in a system where there is no meritocracy?
He is a parasite on the achievements of others. He says what the people he and his patrons depend on want to hear, although he does not intend to do these things.
At the same time, he tries to hide the inconvenient truth and manipulate the data, to manage the undesirable, justifying it by the need to protect others “from enemies.”
That is why the society cannot accept at face value such “bosses”, or their PR.
It is an illusion that the government does not control Kobolev, and he does what he pleases.
Who in March of this year extended Kobolev’s responsibilities for four years without carrying out any competitive search?
He was recommended by the Supervisory Board, which is appointed and dismissed by the Cabinet, and which as a matter of fact was also appointed without a competitive search, as if it were a “temporary option”. But the final decision was made, formally at least, by the Cabinet itself. And they should have been aware of the parasitic nature of the “bosses”. Therefore, they could definitely have substantiated why Kobolev’s contract should not have been renewed. This was not done. So, they “made a deal” with Kobolev again.
Well, even formally, the decision on changes in the organizational structure, in fact on my dismissal, was agreed with the Supervisory Board, which is appointed by the Cabinet, and which includes representatives of both the Cabinet and the President’s Office.
Kobolev’s image is the garb from the tale about the naked emperor.
I needed to tell you about Kobolev’s role, otherwise the connection between the root causes and the formalities of my dismissal would not be clear.
For many of you, this was unpleasant to hear. You can now understand how unpleasant it is for me to witness this. But now I have not only a moral right, but a moral obligation, to tell society about it.
Our team came to Naftogaz after the Revolution of Dignity to help our country defend itself from Russian aggression and realize the choice of the Ukrainian people – to get into Europe. In this regard, Naftogaz was the most important strategic company. As I wrote above, we carried out our job honestly and successfully. And now we can’t just quietly leave. At the very least, we have to warn society honestly that we are not sure whether our cause remains in safe hands, and explain why.
But first let me remind you that the decision to cut my position, in fact about my dismissal, was formally made by Kobolev. And I’m telling the awkward truth about Kobolev not because he fired me. On the contrary, my dismissal is Kobolev’s reaction to the inconvenient truth which he sees as a threat to his position. In turn, this is used by those who keep Kobolev in this post.
I told Kobolev to his face that his shortcomings as a leader undermined the achievements of our team at Naftogaz and discredited reforms. That his insufficient level of competence and moral and ethical qualities is a problem for the transformation of Naftogaz into an effective national company. That this affects negatively first and foremost Ukraine’s ability to successfully resist Russia, fight corruption, and develop the economy. That off late it smacks of parasitism. I also told this to the Supervisory Board. Read on to learn more about how and why I raise this awkward truth.
Let me remind you that in the Ukrainian legislation there is no such reason for cutting a position as the “threat to the authority and to the position of the boss”. Furthermore, Kobolev should have agreed the decision to eliminate my position with the Supervisory Board, which includes representatives of the President and the Cabinet, and which in principle is appointed by the state. Thus, the question is not why Kobolev wanted to release me, but why he was allowed to do so. That’s why above I pointed out the deeper reasons behind my being laid off.
Now, after this lengthy introduction, let’s talk honestly about whether Kobolev can effectively manage Naftogaz ?
To begin with, it is necessary to answer the question why Kobolev became the head of Naftogaz and remains in this position, despite political changes.
In 2014, Yatsenyuk, under the influence of Martynenko and Yeremeyev (by the way, he was Firtash’s business partner at the time), appointed Kobolev without a competitive search – as a compromise between society’s demand for untainted officials after the Revolution of Dignity and the desire to have a politically convenient executor. What did they expect when they appointed a person without managerial experience to a responsible position at such a difficult time? Let’s look at the facts.
By the way, they could have told you about them in a slightly different way ? For example, in an interview with Yanina Sokolova, Kobolev said without hesitation that he was chosen through a competition, and was recommended by the then Minister Pivovarsky. But the problem is that there was no competition, and Pivovarsky worked for Yeremeyev at that time, and became a minister only in Yatsenyiuk’s second government (that is, not in March 2014). Of course, it’s all easy to check. https://bit.ly/2SK4HjC
What kind of trust can there be in the authorities when people are deceived so blatantly by those looking them in the eye?
But back to the facts.
– The first thing they did after Kobolev’s appointment was to send him to Moscow to meet with Miller to negotiate about Russian gas supplies. Kobolev could not reach an agreement. Most likely, this was what those who were preparing to create a “Rosukrenergo 2” were counting on. Their plans were thwarted, on the one hand, by the hostilities in the Donbas and the resulting public feeling in Ukraine, and, on the other hand, by the success of our team at Naftogaz in securing gas supplies from Europe and in the Stockholm arbitration.
– Now let’s return to 2020 and look at the latest developments. After our team at Naftogaz, without the participation of Kobolev, who was in effect removed from the process, forced Gazprom through the Stockholm Arbitration Court to pay $2.9 billion and sign a new contract with the “ship or pay” principle, Russia realized that Kobolev himself was not a threat to it. On the contrary (more on this later). In addition, we have a “peaceful” process being promoted by Yermak. There is also an influential politician in the security structures, Avakov, and an influential businessman, Kolomoisky, who like Kobolev. And there is Zelensky, who has to balance. In view of these facts, a logical explanation emerges as to who needs Kobolev at the helm of Naftogaz.
Let me note that grasping certain things does not always mean agreeing with them. I also emphasize once again that I am telling you about Kobolev so that you better understand the threats involved.
Of course, Kobolev can say that under his leadership, Naftogaz became profitable, defeated Gazprom, was the engine of reforms and significantly reduced the level of corruption.
But to what extent should we be grateful to Kobolev for these achievements? You’ll agree that there is a difference between the achievements of Kobolev himself and the achievements of others during his leadership of Naftogaz. For example, we owe the successful development of ProZorro in 2016-2019 not to Kubiv, who was the Minister of Economy, but to his deputy, Max Nefedov. Likewise, we attribute the success with the launch of the Patrol Police in 2014-2016 primarily not to Minister Avakov, but his deputy Eki Zguladze. We can also mention the successes of Sakvarelidze under the stewardship of Shokin (who fired him out of revenge :). We can refer to the extreme example of the Cherkasy minesweeper team, which displayed heroism during the Russian seizure of Crimea, despite the orders of the brigade commander, who betrayed Ukraine.
It is also important not to forget that Naftogaz has formally introduced the principle of “Individual responsibility” of managers and affirms the principle of “openness”. Therefore, let’s talk candidly about the responsibility of a particular leader in specific processes.
And there’s no point hiding behind the mantra of “teamwork”. In a large company there are many teams – the “bosses” are not always a team. In any case, teamwork is a double responsibility; it does not remove the individual responsibility of each team member for the contribution to the overall result. Other wise, it’s just manipulation to conceal their own failure and avoid individual responsibility.
In a normal company, where there are different areas of activity, the head of the company will never be evaluated by the results of only one of the areas. Because success in one direction should not make it possible to hide failures in other areas. Moreover, the head of the company can only be indirectly involved in the successful area, because he must deal primarily with general management, which in turn means responsibility for the organization of the management in each of the areas.
Let’s look at Naftogaz’s record profits in 2019. If we subtract the result (UAH 68.4 billion) in the area of work (gas transit) of our team in Naftogaz, which is directly headed by me and not Kobolev, the rest of Naftogaz shows a huge loss (UAH 5.1 billion). https://bit.ly/3eYqzS5 In the recent high-profile victory of our team in recovering $2.9 billion and the conclusion of a new transit contract Kobolev was completely removed from the negotiations with Gazprom and the signing of the agreements. https://bit.ly/2Vv6zgZ
As for Naftogaz’s previous high-profile victories, Kobolev did not initiate the relevant processes, nor directly manage them, and his role was generally ambiguous. This applies to the victory over Gazprom in the Stockholm Arbitration, the organization of gas supplies from Europe (when Gazprom cut off gas), reforms related to this, and the fight against corruption.
He was connected to them, and he can even be called a member of our team that worked on these processes, but he was not a leader in these teams. His task was rather to “deal” with his superiors (to whom he was obliged by his position), or to perform a representative function.
Yes, a leader and a boss are not the same thing. And Kobolev and I have different cultures of management. It is telling that when Kobolev can really boast of participating in the resounding victories of Naftogaz, he was a member of the team of which I was the leader. At the same time, it is important that despite the fact that he was formally my boss, in these teams the culture of management was determined more by me, and he adapted to it.
By the way, in 2018 I resigned from the position of the head of the Integrated Gas Business precisely because Kobolev began to demonstrate that he was the “boss” and did not allow me to be a leader and to introduce my management culture (which corresponded to the new corporate principles). I already knew then that when Kobolev was the “boss”, when his unprofessional, post-Soviet management culture dominated, there could be no success.
And this was only confirmed by the results of 2019: if we subtract the results in our team’s area, the rest of Naftogaz, where Kobolev is the “boss”, saw losses, notwithstanding the fact that gas prices had risen (increasing 10 times compared to 2014).
When Kobolev was not in my team, when I did not control the whole process, he did not show himself to be either very conscientious or a competent specialist. Here are two specific examples to back this up. I have to do this because it is also directly related to the threats I am talking about. These are also examples of what I mean when I say that Kobolev had an ambiguous role in the victories over Gazprom.
In 2009, Dubyna and Didenko, then leaders of Naftogaz, relied on Kobolev in the 2009 negotiations. As an adviser to the chairman of the board, he was supposed to verify that Gazprom’s proposed wording of the “take it or pay” contract was in line with European standards. We all know very well how it ended – Gazprom deceived Naftogaz, which resulted in a problem for Ukraine to the amount of more than $80 billion, which our team then had to solve with huge problems in the Stockholm arbitration. And we were all very fortunate that the arbitration came down on our side. Next time we may not be so lucky. But this problem might not have arisen at all if Kobolev had done his job properly and shown that Gazprom’s proposals did not conform with European norms, even with the help of examples available on the Internet, and then Dubina and Didenko would have negotiated with Gazprom and, if necessary, persuaded Tymoshenko to raise this issue in talks with Putin.
In the summer of 2009, Naftogaz’s management instructed Kobolev to prepare a letter to Gazprom stating that the transit tariff was too low and that Naftogaz wanted to revise it. Kobolev prepared such a letter, the management signed it, and it was sent to Gazprom.
We then used this letter in the Stockholm arbitration on the transit agreement – as a request to review the transit tariff from 2010. The arbitration decision was that this request did not correspond to the formal conditions of the contract, and therefore the arbitration tribunal would not even consider our claim on its merits. Fortunately, we had an alternative claim, on the basis of which we won $4.6 billion. But meeting our basic requirement could have given us $7.8-12.3 billion more. For this, in particular in 2009, Kobolev only needed to have indicated in the letter the obvious changes in the formation of transit tariffs in Europe and show that the Ukrainian tariff did not correspond to the European one.
But in addition to the successes of Naftogaz under the leadership of Kobolev, we also have to talk about failures. As I said above, from the second half of 2018, I see mostly failures in other areas which negate the achievements of our team in Naftogaz and discredit reforms. At the same time, unfortunately, a substitution of concepts is evident – support for reforms is replaced by support for Kobolev in office.
The year 2019, when I stepped down from the general leadership and dealt mainly with the confrontation with Gazprom, is indicative in this regard:
– If you deduct the profits in my area of work with Gazprom (transit), Naftogaz is unprofitable.
– Production shows a two-decade record decline, despite ever-increasing investment and costs. I have recently written about this and the responsibility of Favorov, who was appointed by Kobolev, rhttps://bit.ly/3a3MYcN, https://bit.ly/2SX6BxJ
– Contrary to the plans, a system of remunerating managers (salaries and bonuses) which most Ukrainians would consider transparent and fair, has not been created. All this leads to an extremely negative perception of Naftogaz by the general population.
– Even the process of separating gas transportation activities from production and supply activities (unbundling) would have been a failure if I had not helped bring it out of the dead end into which Kobolev had taken it.
You can respond that not everything depends on the head of the company, in this case Kobolev. I agree. But he has to bear responsibility within the sphere of his duties, and his is quite broad.
In particular, he assumed personal responsibility for the transformation of the management system. As my fellow analysts noted in their report, progress in this extremely important area for Naftogaz in 2019 could be described as “too little, too late” https://bit.ly/2V9f7Ln. In other words, it failed. This negatively affected the course of negotiations on a new transit contract.
I will add that our team was the main developer of both the reforms, and the company’s strategy, its transformation plan. Kobolev and the external consultants involved were co-authors, and they agreed with us. But the evidence shows that the problem was not in the plans, but in their implementation. And this despite the fact that our team has provided Naftogaz with such financial resources that other companies in Ukraine can only dream of.
As I have already mentioned, if we analyze the reasons, Kobolev objectively lacks both the competence and integrity (moral and ethical qualities).
And this is not a claim, but a statement. Kobolev has neither oil and gas education, nor business education. He has no experience in operational activities – production, transportation, trade, supply of gas and oil. There is no managerial experience either in market conditions or in a normal company. Therefore, it is not surprising that in an area he is personally responsible for, things turn out as “not enough, too late”. That the truth about this personal responsibility becomes so inconvenient. But sooner or later people will understand the true state of affairs.
And integrity is, for example, when you declare zero tolerance for corruption because you do not tolerate corruption in your life that you know about, or even only suspect. As they say in English, you need to walk the talk (do what you say).
I understand that it can be difficult to accept all this, because it is another source of disappointment. Perhaps you still refuse to believe that Kobolev is “no” manager. Then try to find significant achievements of Naftogaz yourself, where Kobolev’s role would not be secondary at best, or for which we should attribute to his organizational skills.
And this despite the fact that, as I have repeated, the last high-profile victory of Naftogaz, the recovery of $2.9 billion from Gazprom and the conclusion of a new transit contract, was obtained when Kobolev was completely removed from the negotiations with Gazprom. Thus, the facts prove that the successes of Naftogaz do not have to be connected to Kobolev at all. But the main failures of Naftogaz, as I have already shown, are directly linked to Kobolev.
I have always openly reported to you about the results of our team’s work and my individual responsibility – these are the main victories of Naftogaz that you have heard about. But I and at least some key members of our team will leave Naftogaz soon. And Kobolev will remain the head of Naftogaz.
That is why we are not sure that our business will remain in safe hands.
I hope, as I promised, I have explained why.
What’s next?
I do not know how events will unfold over the next two months, which I have still to complete at Naftogaz (as the law sets certain timeframes and procedures for redundancies).
I want to believe that everything will be done in a civilized manner, both in relation to the members of our team and in the transfer of the files.
And on the last day of work, I will post a good write-up on Facebook thanking everyone who has helped me and our team for the past six years.