Naftogaz reported on the financial results for 2019


Today Naftogaz reported on the financial results for 2019. https://bit.ly/2ybet7h

Since Naftogaz has formally introduced the principle of so-called individual responsibility, I should also report on the financial results in the area of ​​activity for which I am individually responsible – the transit of natural gas.

Using management terminology, I head only one Gas Transit business unit, and therefore will report exclusively on its results. I should note that I had a collective responsibility for the overall management of Naftogaz, but it was in 2014-2018

Revenue from Gas Transit in 2019 amounted to UAH68.4 billion (See Table 1, https://bit.ly/3eYqzS5).

Compared to the results of 2018, profit increased 14 times (by UAH 63.6 billion)

You can ask the right question about where this money went.

Of the money earned from Gas Transit, the State Budget has already received UAH12.2 billion in income tax and will receive an additional UAH48.2 billion in dividends from Naftogaz in 2019. The State Budget finances, in particular, the country’s defense, medicine and education, and the pension fund.

Also, a part of this profit went to cover the losses of the rest of Naftogaz. In 2019 this amounted to UAH 6.1 billion (in 2018 there was a profit of UAH 6.8 billion). Thus, unfortunately, the profit of all of Naftogaz in 2019 is UAH63.3 billion, which is 6.1 billion less than the profit in the area of “Gas Transit”.

As you can see, in fact, the only source for Naftogaz to pay income tax and dividends for 2019 was the profit in the direction of “Gas Transit”.

It is also important for professional managers not only to show the financial result in the field of their responsibility, but also to explain the main factors that produced the result.

I will emphasize straight away that the profit in the direction of “Transit of natural gas” was received NOT through the increase of tariffs for Ukrainians, it in general was received NOT at the expense of the Ukrainian consumers, but at the expense of Gazprom.

More precisely, it was due to the changes in relations with Gazprom that our team initiated and implemented. In the language of professional managers, this is called “controlled factors” (in reality, especially for big business, which is part of geopolitics, we can talk of “semi-controlled factors”).

As the main component of the profit in the direction of “Gas Transit” in 2019 is the recovery of $2.9 billion from Gazprom as a result of the decision of the Stockholm Arbitration, I will report on what our team (which was engaged in arbitration and recovery of money, and then a new transit contract), which I had the honor to lead and for which I am individually responsible, did in this regard:

– Planning, organization, strategic control and directing all the Company’s work on relations with Gazprom in the right direction, not only at the Company level, but also at the level of trilateral negotiations in the Ukraine-Russia-EU format, bilateral negotiations in the Ukraine-Russia format, etc.

– Development of a communications campaign based on a narrative that helped to involve stakeholders (including civil society in Ukraine, and an international audience) in the history of the confrontation between Naftogaz and Gazprom. It was this campaign, entailing many events in Europe and Ukraine, that helped to defend the position on the inadmissibility of refusing the victory from the decision of the tribunal in 2018 on transit arbitration, and on the need to apply European rules in the new transit contract, etc. 

– Preparation (formulation, calculation, substantiation and submission to the tribunal on November 1, 2019) of new claims from Naftogaz amounting  to $12.2 billion dollars. It was these claims that were effectively exchanged for a new transit contract with Gazprom’s “ship or pay” obligations.

– Opposition to Gazprom’s attempts to appeal against the results of previous arbitration awards.

– Organization of the forcible recovery of the winnings from the decision of the tribunal in 2018 for transit arbitration ($2.56 billion plus interest).

– Active participation in negotiations on a new transit contract at the political level, which in particular enabled us to increase the rate and volume of transit in the contract (compared to what the Russian side agreed to in the negotiations without my participation) and oblige Gazprom to pay in full $2.9 billion as awarded by arbitration.

– Conducting successful bilateral negotiations with Gazprom on a settlement agreement and a new transit contract; moreover, without the agreements reached during these negotiations (lasting almost a week 24/7 at the end of December in Vienna), primarily on the exchange of new lawsuits for “ship or pay”, the value of the new transit contract would have been insignificant and close to zero.

See more about what our team has done, who is part of it, about the myths surrounding our work in the infographic and read this topic in the previous post on https://bit.ly/2V8c5a6

Of course, our team’s achievement is a victory for the whole of Ukraine, the realization of our common goal.

We owe these results to many people both in Ukraine and among Ukraine’s international partners. We remember all of them and are grateful to everyone.

We have always said that this is a common victory. And that is why we do not allow others to “privatize” it without justification. In particular, we try to respond promptly to the spread of false information about the main factors of success.

In addition to being dishonest and unfair to those who worked conscientiously in this area, as well as to those who really helped, it is also dangerous for the country – to misunderstand the causal links to our greatest successes and failures.

When you hear that all this is not the merit of our team, that someone did all the work for us, you need to look at the results of this “someone” in other areas, where our team did not participate. Unfortunately, you will not see even remotely similar results. And this is not surprising – because those who attribute to themselves the achievements of others, usually themselves are not capable of anything.

But, if someone talks about working with our team, when cooperation really took place, and even if he or she does not have similar results beyond such cooperation, we, on the contrary, are always ready to share success honestly – so that everyone knows which team it is worthwhile to work with.