Ukraine government can reform TSO to keep transiting Russian gas despite new law proposals – MP

LONDON (ICIS)–The Ukrainian cabinet of ministers (CMU) could press on with immediate corporate governance reform at gas grid operator GTSOU. This is despite “unnecessary” legislative proposals in parliament that could delay the process, the chair of the parliamentary subcommittee on natural gas policy told ICIS.

The reform is critical to streamlining activity at GTSOU and ensuring it retains its certification as an independent gas transmission system operator.

The certification was one of the conditions requested by Russian producer Gazprom in signing a gas transit contract via Ukraine in 2020 and could be key to ensuring Russian gas continues to flow through Ukraine to Europe this winter and beyond.

Andrii Zhupanyn said three pieces of draft legislation have been put forward in recent weeks related to the governance reform, including one that he initiated himself in response to the first draft.

This is because the proposals in the first draft may not align with an internationally-supported reform roadmap.

“I don’t think we need to adopt any new law in order to proceed with corporate reform of GTSOU,” Zhupanyn said. “As a former corporate lawyer, I believe that under effective legislation, the cabinet of ministers of Ukraine has all powers required to merge MGU [shell company with oversight of the grid operator] and GTSOU.

“However, I registered an alternative draft law as I found a few risks embedded into the draft law that was submitted first,” he said.

REFORM

Under a GTSOU action plan, the corporate governance structure at the operator is to be simplified. This means that MGU, as a shell company set up to oversee it, would be merged with GTSOU, which would be put under direct shareholding by the ministry of energy.

In parallel, the existing supervisory board of MGU would be dissolved and a new board selected through a competitive process.

The roadmap has the backing of the Energy Community, an international institution which has been working with Ukraine in its market and corporate governance reform efforts.

Speaking to ICIS, Zhupanyn confirmed that the government could proceed immediately with the implementation of the roadmap under the powers granted by existing corporate governance legislation.

However, he said that despite the fact that there is an action plan in place, some members of parliament initiated draft legislation that would allow the current supervisory board to be automatically appointed to the new supervisory board of GTSOU.

He said he responded by initiating a shorter second draft legislation which ensured the supervisory board would be appointed based on a competitive process.

It is unclear what the third draft legislation includes.

A source close to discussion said the first draft had been initiated following discussions with some members of the MGU supervisory board.

ICIS invited Alexey Kucherenko, one of the co-sponsors of the first draft legislation as well as the initiator of the third draft, to comment on the proposals but he did not respond.

MARTIAL LAW

Huberte Bettonville, chair of the MGU supervisory board told ICIS she agreed with the new selection procedure but added: “I am not sure this is for the time being under martial law the best way forward but if this is decided, no problem.”

She insisted she had no personal interest in staying on other than serving the company and the country.

ICIS contacted other members of the MGU supervisory board – Oleksandr Lisnichenko and Viktor Pynzenyk – for comment but they declined or did not respond.

Last month, the MGU supervisory board came under the spotlight after relieving the CEO of GTSOU, Sergiy Makogon, of his responsibilities.

The board did not comment on the reasons for the dismissal but several sources in Ukraine and the EU said the decision was ill-timed because the country faces a difficult heating season caused by Russia as well as very strict martial law, imposed at the start of Russia’s war in Ukraine on 24 February 2022.