05.05.2021
When comparing the average salaries of management between the profitable Polish national oil and gas company and the unprofitable Ukrainian national oil and gas company, it turns out that Naftogaz executives receive monthly salaries six times higher than the average salaries of their Polish colleagues
The beginning of 2021 was marked by rather “loud statements” from various sides, indicating possible serious personnel changes at the Ukrainian oil and gas Olympus.
Let’s recall some of the chronology of recent events:
In view of the dismissal of the chairman and members of the Naftogaz supervisory board, G7 ambassadors and the US State Department reacted to their dismissal, pointing to the need to adhere to the principles of corporate governance and emphasizing that the management of state-owned enterprises should be free from political interference.
Leaving aside for now the disclosure of the main financial results, ENERGY CLUB decided to investigate only one aspect of Naftogaz’s performance in 2020, which is too sensitive for Ukrainian society – the payment of salaries for the senior management of the main national oil and gas company and compliance with the OECD Guidelines on Corporate Governance of State-Owned Enterprises, which is the fundamental document in the field of corporate governance of state-owned enterprises.
So, at the end of 2020, the consolidated net loss of the Naftogaz group amounted to 19 billion hryvnias. At the same time, Naftogaz’s financial plan, which was approved by the order of the Cabinet of Ministers of Ukraine dated December 23, 2020 No. 1631-р, provided for a net profit of 11.5 billion hryvnias. At the same time, the planned average salary level of senior management personnel in 2020 was approved at about 2.4 million hryvnias per month.
However, at the end of 2020, 671.6 million hryvnias were paid to senior management personnel, which is an average of more than 5 million hryvnias per month.
That is, ending 2020 with losses of 19 billion hryvnias (instead of the expected profit of 11.5 billion hryvnias), Naftogaz management not only did not reduce their salaries, but on the contrary, doubled them.
At the same time, the amount of remuneration paid in 2020 for management, 671.6 million hryvnias, is very close to the amount of remuneration payment in 2018 – 717 million hryvnias.
It is worth recalling that in 2018, the size of such remuneration was due to the payment of a bonus for the Stockholm arbitration. At the same time, in 2018, consolidated profits amounted to 11.6 billion hryvnias, and out of 717 million hryvnias of total remuneration, the amount of remuneration for the chairman of the board was 286.5 million hryvnias.
If in previous years Naftogaz disclosed the amount of payments for senior management in annual reports, then in 2020, having received 19 billion hryvnias in losses and paid itself double salaries, Naftogaz management refused to disclose it.
If we compare the results of the activities of Ukrainian Naftogaz and the national Polish company PGNiG with the payment of remuneration for management, it will also become obvious that in Ukraine the issue of payment of remuneration for management not only violates the principles of relevance and reasonableness, but also principles of ordinary common sense.
According to the report of the Polish PGNiG, at the end of 2020, the company received 7.3 billion zlotys (about 55 billion hryvnias) of net profit. At the same time, a significant part of PGNiG’s profit in 2020 was formed due to winning in the Stockholm arbitration against the Russian Gazprom (1.6 billion US dollars).
When receiving a profit of about 55 billion hryvnias, the remuneration for 6 persons of the management personnel of the Polish company PGNiG was about 8 million Polish zlotys, or about 60 million Ukrainian hryvnias. Thus, when converted to hryvnias, the average salary of the senior management of the Polish national company PGNiG in 2020 was about 830 thousand hryvnias (60 million hryvnias / 12 months / 6 persons).
When comparing the average salaries of management of the profitable Polish national oil and gas company with the average salaries of the unprofitable Ukrainian national oil and gas company, it turns out that Naftogaz executives receive monthly salaries six times higher than the average salaries of their Polish colleagues.
The same question arises regarding the remuneration of members of the Naftogaz supervisory board. Why is their average remuneration in 2020, which amounted to more than 300 thousand hryvnias per month, 5.5 times higher than the remuneration of members of the supervisory board of the Polish company PGNiG (54 thousand hryvnias per month).
Is this fair and reasonable from the point of view of the basic principles of corporate governance of state enterprises – certainly not.
Of course, society will have a fair question – why, with unprofitable activities, a drop in the volume of its own gas production, an increase in gas debt, does Naftogaz management, without any explanation, secretly pay itself remuneration that is 6 times higher than the remuneration of neighboring and prosperous Poland. And should Ukrainians pay such expenses as part of gas prices and tariffs for the maintenance of such management.
In turn, the payment by Naftogaz management to itself of doubled remuneration clearly characterizes the attitude of this management, no longer in words, but in deeds, to the OECD Guidelines on Corporate Governance of State-Owned Enterprises.
According to these principles, Naftogaz, as a state-owned company, must adhere to high standards of transparency and should report relevant financial and non-financial information in accordance with a high level of quality of internationally recognized corporate disclosure standards, and this information should relate to areas of significant importance for the state as the owner, and the community in general. In particular, according to the OECD guidelines, such information includes disclosure of information about the level of remuneration of members of the supervisory board and managers of NJSC “Naftogaz of Ukraine”.
Moreover, the OECD Guidelines emphasize: “It is important that state-owned enterprises (SOEs) ensure a high level of transparency regarding the remuneration of work of members of the Supervisory Board and managers of SOEs. Failure to provide relevant information to the community can have the consequence of negative perception and stimulate the risks of unwanted response to the activities of the owner organization and individual SOEs. This information should relate to actual salary levels and the policies that regulate them.”
Did Naftogaz management comply with the specified requirements of corporate governance in accordance with the OECD principles, paying itself the aforementioned fees – obviously not.
According to the OECD guidelines, the supervisory board of NJSC “Naftogaz of Ukraine” should ensure “that the head’s remuneration is tied to the performance of the state company, and information about this is properly disclosed.”
Did the supervisory board of Naftogaz adhere to the specified OECD principles – the answer is also obvious – of course it did not.
The situation looks quite strange, in which representatives of the highest governing bodies of Naftogaz, ignoring and violating the OECD Guidelines when paying themselves remuneration, simultaneously declare that their dismissal “is an abuse of the fundamental principles of corporate governance of state-owned enterprises”.
It is precisely the payment by Naftogaz management to itself of doubled and already unreasonably high salaries, with disastrous results of financial activity, that is an abuse of the basic principles of corporate governance of state enterprises.
In turn, the decision of the Cabinet of Ministers of Ukraine to dismiss the head and members of the supervisory board of NJSC “Naftogaz of Ukraine” was justified and fully complies with the OECD Guidelines, since it ensures the termination of violation of these principles by the chairman and members of the supervisory board of Naftogaz.
Authors of the analytical report:
Iaroslav Dykovytskyi, Valerii Bezus
