The shareholder meeting of Ukrnafta was rescheduled. Pryvat is in no rush to share its profits with the state

Privat believes it's a bad time to collect its money

Photo: Ukrainian photo

The government will have to wait to obtain UAH 1.3 bn of dividends from the largest oil extracting company Ukrnafta. The meeting of its shareholders scheduled for September 11 at which this issue was supposed to be discussed, will not be held “due to technical difficulties”, said a representative of the company. Naftogaz of Ukraine, which on behalf of the state owns the controlling stake in the company, plans to hold the meeting in October. Experts believe that it will be just as difficult to force Ukrnafta pay the dividends at a later date.

Shady organization

On behalf of the state, Naftogaz of Ukraine owns 50%+1 of shares of Ukrnafta, while nearly 42% of the shares are owned by the shareholders of the Privat group controlled by businessman Ihor Kolomoiskiy and his partners. All these figures conceal the reason why the general meeting of shareholders of Ukrnafta could not take place for a number of years. The last time a meeting was held was in March 2011 and since then the state was unable to hold another meeting as the shareholders of Privat did not attend, thereby making it impossible to secure a quorum for holding the meeting. According to the Law On Joint Stock Companies, a meeting of shareholders can only be held on condition that it is attended by the owners of 60%+1 of shares.

The rescheduled shareholders’ meeting had on its agenda the review of 18 issues, the main one being the change in the company’s management and distribution of profits for 2011 – 2013. During this period Ukrnafta earned UAH 3.8 bn and the Ukrainian government insisted on payment of dividends. “I guarantee that the meeting of the shareholders will be convened and the government will receive its share. Naftogaz has already received instructions. An official message was sent to Ukrnafta that the meeting will be held within the statutory period and profits will be distributed,” Premier Arseniy Yatsenyuk promised on August 22. The state wanted to be repaid the due UAH 1.3 bn for the budget and adviser to the head of Naftogaz Yuriy Vitrenko once said that from such assets as Ukrnafta the state could receive US $0.5 bn in dividends per year.

We were unable to discover the organizational reasons, for which the meeting of Ukrnafta shareholders was cancelled and the Ministry of Energy and Coal Industry has also not responded to Capital’s inquiry.

These technical difficulties were described by a shareholder of Naftogaz of Ukraine: the matter is that the meeting was convened by Ukrnafta’s board of directors and under the law and in accordance with the company’s charter it had to be done by the supervisory board of the company. The supervisory board of the company controlled by Privat did not make any decisions on holding the meeting, which resulted in the aforementioned technical difficulties. Naftogaz feared that the legal conflict would lead to challenging of decisions of shareholders’ meeting.

Senior analyst at Dragon Capital Denys Sakva believes that one of the items on the agenda is the stumbling block. It reads: “On conclusion of contracts for natural gas supply between the Naftogaz National Joint Stock Company of Ukraine and Ukrnafta PJSC in 2006 – 2014 for the formation of gas resources with a view to meeting the needs of the population”. This means that the government wants to buy gas extracted by Ukrnafta at discount prices. “This is what Ukrnafta has been trying to avoid for a long time, i.e. signing agreements at regulated prices set by the government. At the moment it is close to US $40 per 1,000 cubic m of gas,” he said.

Amount involved

Sakva says the matter of the sale of gas at fixed price by Ukrnafta is an important issue for the company. This is about approximately 1.9 bn cubic m of gas annually produced by Ukrnafta. This issue outweighs the issue of payment of UAH 1.3 bn of dividends to the state. For example, the state-owned company Ukrgazvydobuvannya sells the full volume of extracted gas, which is later used for the needs of the population, at UAH 349 per 1,000 cubic m, VAT excluded. In early August Chairman of the Board of Ukrgazvydobuvannya Serhiy Kostyuk said this price is even lower than the cost of production, which is UAH 738.

At the same time, the market price of gas is much higher. According to the Ministry of Economic Development and Trade, the average customs value of imported gas this July was US $358.94 per 1,000 cubic m or UAH 4,512 at the rate of 12.57 UAH/USD. Simple mathematical calculations show that with such a difference in the gas price and Ukrnafta’s annual extraction of 1.9 bn cubic m, the amount for Ukrnafta is UAH 7.9 bn.

It is logical that for Privat the issue of gas sale of gas is more important than the payment of UAH 1.3 bn in dividends, on which the government is so insistent. “I am convinced they would agree to payment of dividends, but they would not agree to give all the gas to Naftogaz at bargain prices” said Sakva.

Attempt #2

At the same time, the government continues to try and resolve the problem with the management of Ukrnafta. The message from the board of directors of the company says that on October 10 Naftogaz will convene a new extraordinary meeting of its shareholders.

Sakva believes that if the government does not concede to Ukrnafta on the price of gas, the shareholders meeting will turn into a long-drawn game. In this case, the state, as long as it does not own 60% of shares of Ukrnafta required for a quorum, will have no chance of holding the meeting without the consent of Privat.