Former government minister Oleksiy Chernyshov took over as chief executive of Ukrainian state energy company Naftogaz on Friday, facing a host of challenges including an ongoing debt problem and the war with Russia.
Chernyshov, 45, was appointed by a government order signed by Prime Minister Denys Shmyhal on Thursday. He replaces Yuriy Vitrenko, 46, who quit this week without giving a reason after less than two years in the role.
Chernyshov did not comment on Friday. He had been Ukraine’s minister for communities and territorial development since March 2020. A successful businessperson from the northeastern Kharkiv region, he had also served as governor of the Kyiv region.
Naftogaz is Ukraine’s largest national oil and gas company and its subsidiary, Ukrtransgaz, operates a pipeline system that carries Russian gas to Europe.
Some of Naftogaz’s facilities have been damaged by Russian shelling and Russian missile strikes have increasingly targeted energy infrastructure in recent weeks.
Naftogaz is locked in an arbitration battle with Gazprom, saying the state-run Russian energy company has not paid transit fees for sending its gas to Europe.
Naftogaz, which accounted for almost 17% of Ukraine’s budget revenue last year, is also stuck in default after bondholders of two of its three main international bonds refused to sign up for the debt payment deferral plan offered earlier in the year.
Vitrenko’s position became untenable after the government openly criticized Naftogaz’s handling of the debt problems, which at times looked poorly coordinated with Kyiv’s own request for a debt payment freeze, which was subsequently agreed.
A source close to bondholders that rejected Naftogaz’s debt deferral proposal in August said there was hope that Chernyshov’s appointment and the likely appointment of new advisors would break the deadlock – financial advisory company Lazard is tipped to take on the role.
“Hopefully that will inject some urgency into the process,” the source said, disgruntled that there had been “zero engagement” from the firm or government since the spurned deal.
Naftogaz’s announcement on Thursday of a big net loss in the first half of this year highlighted the difficulties the company faces following Russia’s Feb. 24 invasion of Ukraine.
Naftogaz’s net loss widened to 57.16 billion hryvnias ($1.57 billion) from 1.65 billion hryvnias a year before, with most of the losses recorded in the first quarter, it said.
Additional deductions for bad debt reserves associated with decreases in the solvency of its counterparties, as well as higher purchase prices of imported gas compared with sales prices, contributed to the losses, it said.
The destruction of assets because of Russian shelling also affected its first-quarter loss, although the company said it made a profit of 420 million hryvnias in the second quarter.
On its ongoing default, it said on Thursday that it continues to develop new terms for the restructuring of its bonds and intends to start a new consent solicitation process in the near future. The holders of one its main bonds did agree to its August proposal but those owning its two others did not.
The final terms to be offered to bondholders are be approved by the government, it added. Naftogaz remains under an order that prohibits it making any debt-related payments without the approval of the cabinet.
“There is no secret to where we are, we are not hiding anywhere,” said the source close to bondholders that rejected the Naftogaz’s debt deferral proposal in August.
“We know this is an existential situation, but we think there is a constructive conversation to be had.”