Naftogaz drama highlights Ukraine’s politics of non-public destruction

Andriy Kobolyev was controversially sacked as CEO of Naftogaz in late April 2021. (REUTERS / Valentyn Ogirenko)

The “politics of personal destruction” is a term that arose three decades ago during the Clinton era in the United States. Minting was revived in 2017 by Congresswoman Nancy Pelosi in her criticism of Republican rhetoric during the Trump years. While the term is originally American, there is one country where this policy has peaked: Ukraine.

In Ukraine, no head of state seems to step down without being exposed to a wave of abuse, criticism and contempt. Ukrainian presidents, prime ministers, ministers and technocrats, including those with significant achievements, are seldom thanked for their service. If you are removed from office in Ukraine, those who fire you will never thank you. Nor will they acknowledge your accomplishments if they say it’s time for a change.

Such was the case when Andriy Kobolyev was recently deposed as CEO of Naftogaz, Ukraine’s giant public oil and gas company, whose income provides around 15% of the Ukrainian state budget. The hasty dismissal of Kobolyev, which occurred through the action of the Cabinet of Ministers as a shareholder in the joint stock company, fell under the provisions of the Naftogaz Charter and occurred for plausible reasons.

After years of clear success in restoring viability, reducing the margin for corruption, successfully dealing with Russia’s Gazprom, and fighting against the completion of Russia’s Nord Stream 2 pipeline, Naftogaz recently posted massive annual losses. The announced shortfall of nearly $ 680 million made up around ten percent of the conglomerate’s sales. While some of these losses were due to utility backlogs and declines as a result of the market effects of COVID, Naftogaz has been slow to remove questionable intermediaries from the domestic energy market.

Naftogaz also failed to address unresolved issues at one of its subsidiaries, UkrNafta, an oil company over which US-sanctioned Ukrainian oligarch Ihor Kolomoisky wields significant influence. Most importantly, Naftogaz missed its own goals of increasing domestic gas production. Instead, production declined in 2020.

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Rather, the government thanked Kobolyev for his important work during his six years in office, informing him that last year’s disappointing performance warranted a change, and dismissed him in a stream of criticism. This undermined not only the credibility of the former CEO, but also of a company that had previously been a beacon of reform in a notoriously corrupt district of the Ukrainian economy.

But the policy of personal destruction did not end with Kobolyev. Members of Kobolyev’s team, angry at the unbalanced attack on their files, immediately turned in a similar manner against the new CEO of Naftogaz, Yuri Vitrenko, a widely respected reformer.

Vitrenko was the business partner and virtual alter ego of ex-CEO Kobolyev for two decades. Vitrenko served under Kobolyev as the executive director of Naftogaz for six years until differences over reform priorities led to an argument between the two long-time friends. In addition, Vitrenko played a leading role in restructuring and reforming the company, diversifying Ukrainian gas supplies to ensure that no more Russian gas is imported, and managing the complex arbitration process between Naftogaz and Gazprom leading to an award of USD 3 billion to Naftogaz.

Despite this exemplary record, the snooping of Kobolyev’s allies (though not publicly by Kobolyev, who limited his remarks to defending his own record) took various dishonest forms. Criticism ranged from allegations that Vitrenko was indebted to powerful and corrupt oligarchs (although many of their supporters in parliament actually blocked his recent appointment as first deputy prime minister); on its inability, inability and unwillingness to continue Ukraine’s struggle to stop Russia’s Nord Stream 2 pipeline; on his deliberate dismantling of an excellent Naftogaz management team, many of whom decided to leave the company along with Kobolyev.

The stream of negative advertising against Kobolyev, and then with even greater anger Vitrenko, hurt Ukraine and Naftogaz, a company considered by many to be the flagship of the country’s reform agenda. In this way the politics of personal destruction turned into the politics of institutional destruction.

Amid the flood of negative news surrounding Naftogaz, it is time for Ukraine’s western partners and the media to take a sober look at what actually happened.

Western governments rightly expressed concern about the way the dismissal was handled and how Naftogaz’s board of directors was bypassed. While the Ukrainian government acted quickly and stepped on some sensitive toes, it had legitimate reasons and a shareholder’s right to seek a change at the top.

Furthermore, the purpose of a board of directors is not only to be an independent observer, but also to ensure that management is functioning as effectively as possible in generating revenues and profits, a responsibility that is very much at odds with last year’s performance. In that regard, the board seems to have dropped the ball.

Amid the rhetorical turmoil and urge, it is important for everyone to understand that in appointing Yuri Vitrenko, the Ukrainian government is a strong manager, a reformer with a record of integrity and independence, a negotiator with proven skills, and a senior executive with a track record the effective fight against the economic and energy wars of Russia against Ukraine.

Looking ahead, Vitrenko deserves support and cooperation as he wants to build on the achievements of his predecessor while addressing some areas where reform and performance have lagged at Naftogaz.

Adrian Karatnycky is a Senior Fellow at the Atlantic Council.

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The Naftogaz drama sheds light on Ukraine's policy of personal destruction

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The views expressed on UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its associates, or its supporters.

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