Changes in Naftogaz’s commercial operations would hardly have been possible without what amounts to systemic shifts, i. e. a reform of corporate governance and of the gas market.
In taking this approach, I put no less weight on the results of these reforms as on the way we were working toward those results. I was viewing my work at Naftogaz also as an opportunity to show that its transformation into a modern company, alongside market reforms, can be effective for Ukraine.
My personal role was to develop initiatives aimed at reforms and to promote them. I often get asked, sometimes with a hint of reproach, why it is Naftogaz that is doing these things, rather than the government, which is supposed to be the agent of change.
Firstly, because the best place to find a helping hand is at the end of your own arm. Without reforms, Naftogaz was sinking, and it would not be long before Ukraine sank with it. Secondly, Naftogaz is a national company, and as such it must act in the interests of the Ukrainian people and Ukraine’s statehood. Its natural role is to be an effective mechanism for reform. Thirdly, I think it’s right to use my knowledge, experience, professional network, etc. to help in bringing about change that I myself consider essential for my country.
Naftogaz was recognized as the driver of these reforms. I personally put a lot of effort into making sure we gain competencies that others might lack and that are indispensable for carrying out real, and therefore complicated, reforms. We immersed ourselves in details, studied best practices, worked with the best experts in the relevant fields, helped with public education.
Unfortunately, none of these reforms is yet complete, whether we are talking about corporate governance reform, gas market reform, unbundling of gas transmission, or changes to the practice of hidden subsidies. Most of them are on the wrong path – at least not the path that I have suggested. We have not reached the stage of sustainable development – we have only pulled back from the brink of collapse, possibly not irreversibly. And we have tested the waters of what works and what doesn’t.
However, even the little that was accomplished has changed how Naftogaz and Ukraine as a whole are perceived. Our international partners have said as much.
Marie Yovanovitch, the U. S. Ambassador to Ukraine: “Back in 2014, the new Ukraine understood that Ukraine, that Naftogaz was a priority for reform as it represented – and I have to apologize for this pun – a fuel tank for corruption. If Naftogaz could change, the Ukrainian people and frankly the world would understand that Ukraine was committed to a new way of doing business: efficient, effective, transparent. Working together, the government and Naftogaz embarked on a very difficult path to strengthen corporate governance while reducing graft and corruption. <…> Naftogaz went from receiving upwards of 7 percent of Ukraine’s GDP in subsidies to being a net contributor to the budget in 2016. Against all expectations, Naftogaz won the arbitration gas supply case against Gazprom this May, in Stockholm. This saved Ukraine USD 44 billion, or nearly half of Ukraine’s annual GDP. <…> It is a remarkable story that few would have believed possible in 2014. And that’s, you know, really only three years ago.”
Hugues Mingarelli, Head of the EU Delegation to Ukraine: “The gas market reform was among the most successful in Ukraine and allowed to turn Naftogaz into a transparent and profitable company.”
OECD, in its 2018 report on anti-corruption reforms in Ukraine: “It is beyond doubt that Naftogaz benefited from being the flagship of the corporate governance reform for SOEs.”
Francis Fannon, U. S. Assistant Secretary of State for Energy Resources: “More broadly, we are really focused on reform of Ukraine’s energy sector and I am very pleased that with a lot of spade work and in close cooperation with the Ukrainian government and companies that they are moving forward with the unbundling of Naftogaz, the state company.”
Christine Lagarde, IMF Managing Director, Sept. 6, 2015: “I am extremely encouraged by the progress that has been achieved in the past few months. In a difficult environment, macroeconomic stabilization is taking hold and the economy shows signs of turning the corner. <…> Significant reforms have been launched to bring energy prices to cost recovery levels, with due protection of vulnerable citizens.”
*The feature series “Naftogaz Against Gazprom” is running in partnership with Yuriy Vitrenko, Executive Director of Naftogaz Group. Opinions expressed in these features do not necessarily reflect the views of Naftogaz Group or NV editorial team.