Heads of state-owned companies to be appointed and retained in line with best international practice – Energy Minister


Kyiv, October 27, 2015. Ukraine’s Ministry of Energy and Coal Industry manages 280 companies. In the majority of cases such management of state-owned enterprises is ineffective. This leads to a situation when the quality of services these companies offer does not meet the price level they request. There are several reasons for that: firstly, most state-owned companies are natural monopolies, secondly, management quality does not meet modern standards. “We can change this situation for the better with two main tools: change heads of state-owned companies on a competitive basis and make the companies use their funds in a more effective way,” said Volodymyr Demchyshyn, Minister of Energy and Coal Industry at a press briefing at Ukraine Crisis Media Center.

The Minister presented 34 companies that have held competitive selection processes. The selection committee includes 15 members and decisions are made by consensus. The main challenge they face is a lack of individuals wishing to take on serious responsibility and work in a transparent way for relatively low remuneration as a state-sector  manager. It happens that there might be only one applicant, in such a case the competition is re-announced,” the Minister said. He also added that corruption remains a huge problem – thus it became a reason why managers at some companies had to be re-selected. The Minister elaborated that “it is not possible to overcome corruption if salaries are not raised, if the remuneration mechanism for the manager and staff at key positions is not defined.” He also emphasized that any abuse of power by newly selected managers will receive a rigorous reaction. “Incidents with corruption are noted daily and we do pass them on to respective agencies […] Directors have been appointed based on fair competition and if they do not meet the transparency criteria they need to be fired,” emphasized Demchyshyn.

The Minister noted that formulating a financial plan and reporting is just as important as changing management when it comes to efficiency of the state-owned companies as “the approved financial plan may optimize expenditure, and form key factors of effectiveness that will serve as a benchmark for the head of the company.” For this purpose several auditors were engaged in the work of the financial unit, said Demchyshyn. “Many companies are now against the practice of having their financial plans approved. You’ve heard the discussion on Naftogaz that suggests switching to a new corporate management system. The principles in question are generally accepted and are operational in EU member states. Whether these instruments or the powers of the steering committee are going to work under Ukrainian conditions, especially with state-owned companies and especially with the ones that get additional financing from the state budget, is quite a serious question. I am not taking a rigid position I am only urging to analyze the risks,” the Minister said. “Before the companies are independent it is a bit premature to have their powers passed to independent directors.”