Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

П'ятниця, 21 червня 2024, 21:15
Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

For twenty years, the largest oil extraction company in the country, Ukrnafta, operated under the control of minority shareholders – Ihor Kolomoyskyi and his partners: Hennadiy Boholiubov, Mykhailo Kiperman, and Ihor Palytsia – leaders of the informal business group Privat. 

NV analyzed nine cases in which the state lost money in the oil sector.

"Ukrnafta was almost bankrupt at that time. I was offered to head Ukrnafta," said Ukrainian businessman and politician Ihor Palytsia in an interview with Ukrainska Pravda, recalling the circumstances of his appointment as head of Ukraine's largest oil extraction company in 2003.

The offer came from minority shareholder Ihor Kolomoyskyi. The idea was approved by the state, the largest shareholder, represented by Ukraine's second president, Leonid Kuchma. Kuchma set a condition for the new management – to work for the benefit of all company owners.

However, with Palytsia's appointment, the era of the so-called Privat business group began at Ukrnafta. The informal leaders of this group were former shareholders of PrivatBank, Ihor Kolomoyskyi, and Hennadiy Boholiubov. The group's oil wing was one of the most powerful, encompassing everything from oil extraction and processing to logistics, retail sales of oil products, and related services. These were both fully private companies and enterprises with state shares. Besides Ukrnafta, the Kremenchuk refinery Ukrtatnafta, in which the state-owned about 43% of shares, was significant.

Context: Ukrnafta and the Role of the Privat Group in Its Operations
Ukrnafta is the largest oil extraction company in Ukraine. Since 1998, Naftogaz of Ukraine has owned 50% + 1 share of the company's statutory capital. About 40% of the shares are controlled by legal entities associated with Ihor Kolomoyskyi, Hennadiy Boholiubov, and their business partners, including Mykhailo Kiperman and Ihor Palytsia. These entities include Bridgemont Ventures Limited, Bordo Management Limited, and Littop Enterprises Limited (all Cyprus-based).
Ihor Kolomoyskyi, Hennadiy Boholiubov, and Mykhailo Kiperman were elected members of Ukrnafta's supervisory board at least by 2003. Ihor Palytsia was the chairman of Ukrnafta's board from February 2003 to November 2007. In 2015, he became a member of the company's supervisory board. In May 2017, a resolution of the general shareholders' meeting removed all four from the supervisory board.
In 2010, Kolomoyskyi, Boholiubov, and Kiperman also joined the supervisory board of the Kremenchuk refinery Ukrtatnafta – the largest oil refinery in Ukraine. In November 2022, the corporate rights of Ukrnafta and Ukrtatnafta were transferred to state management by a decision of the Supreme Commander-in-Chief. Following this, the management and supervisory boards of the enterprises were changed, and the Privat group lost influence over the company.

Political Decisions Leading to the Loss of State Control

As the largest shareholder, the state should have controlled the company's management. However, the management was loyal to the minority shareholders for two decades. Yet, there is a nuance. A former top manager of Naftogaz of Ukraine, who asked to remain anonymous, noted that Ukrnafta's commercial activities consisted of two major parts: oil and gas. Private shareholders had preferences and influence in the oil segment, while the state, represented by Naftogaz of Ukraine, had more advantages in the gas segment and used them quite effectively. Therefore, most disputes with minority shareholders arose over oil and oil products.

The situation became extremely acute after the de facto nationalization during the full-scale war. There were several reasons for this. The most fundamental was that Kolomoyskyi and his partners controlled the largest oil refinery in Ukraine, Ukrtatnafta – the largest consumer of oil.

It was privatized back in 1994. At that time, Naftogaz retained only 43% of the shares. About 47% of the shares were bought by the government of Russian Tatarstan and companies close to Russian Tatneft. However, at the end of 2008, the Ukrainian Supreme Court confirmed a decision that effectively deprived the Russians of their share. In March 2010, these shares were accumulated by structures controlled by Kolomoyskyi, who, together with other Ukrainian partners, controlled more than 50% of the plant's statutory capital.

In Ukrnafta, private shareholders had a little more than 40% of the shares, so they had to cement their influence through political decisions. An agreement was signed between Naftogaz and the Privat group, according to which minority shareholders had the right to propose candidates for Ukrnafta's board, and Naftogaz had to approve these candidates.

Yuriy Vitrenko, former executive director and chairman of Naftogaz, stated that this occurred during Yulia Tymoshenko's tenure as Prime Minister of Ukraine. Another former top manager of Naftogaz, familiar with the details of the Shareholders Agreement, clarified that the agreement was signed on behalf of the state by Naftogaz chairman Oleh Dubyna in early 2010, shortly before Viktor Yanukovych's inauguration as President of Ukraine.

The Shareholders Agreement, some details of which became known in April 2018, remained virtually unchanged for almost ten years. According to it, six members of Ukrnafta's supervisory board were elected from candidates proposed by Naftogaz, and the chairman of Ukrnafta's board and five other supervisory board members were chosen from candidates proposed by Kolomoyskyi's companies. Article 9 also stipulated that the composition of Ukrnafta's board must be approved by the supervisory board based on the chairman's proposal.

Vitrenko clarified that Naftogaz representatives were obliged to vote for the minority shareholders' candidate. Another safeguard for the Privat group was the Law on Joint Stock Companies of Ukraine, which required more than 60% shareholder presence for a general meeting. Thus, the Privat group, with its 40+%, could block meetings.

After Ihor Palytsia, the company was managed by Oleksiy Kush (in 2022, he was suspected of involvement in embezzling over 13.3 billion UAH from the company) and Belgian Peter Vanhecke, also linked to the Privat group. In 2015, then-member of parliament Serhiy Leshchenko claimed that Kolomoyskyi's and Boholiubov's offshore entities paid Vanhecke $3 million annually plus bonuses for not interfering in the company's affairs.

In 2015, the Verkhovna Rada of Ukraine amended the law on joint stock companies, reducing the quorum for general meetings from 60% to 50%. Subsequently, Naftogaz of Ukraine and the Privat group appointed British Mark Rollins to manage Ukrnafta. However, these changes proved largely cosmetic due to the refinery and the Shareholder's Agreement.

Moreover, the management change led to iron bars being installed at the entrance of Ukrnafta's central office and the emergence of an internet meme in which Ihor Kolomoyskyi persistently invited MP Mustafa Nayyem for coffee.

Only in November 2022 did the separation from the Privat group occur. Ukrnafta and Ukrtatnafta were transferred to the Ministry of Defense's management. Both companies were headed by Serhiy Koretsky.

The iron bars in the central office were removed, and more information about the semi-state oil company's management benefiting private minority shareholders began to emerge.

Some of this news gradually turned into investigations by law enforcement agencies, criminal cases, and even suspicions against specific individuals.

To uncover and report the most notable cases of such transactions, NV Business journalists met several times with the new company management starting in November 2022. NV journalists and editors also spoke with government representatives and oil extraction experts and reviewed dozens of court cases. This helped me understand the scale of losses for Ukrnafta and Ukrtatnafta over two decades of management loyal to private minority shareholders.

In addition to financial losses, Ukraine significantly decreased its oil and condensate extraction volumes over these years. If in 2003 this figure was almost 4 million tons, by 2021, it had fallen by more than half to 1.7 million tons. Consequently, dependence on imported oil and light oil products increased at the start of the full-scale invasion.

Below, NV analyzes and presents nine cases of fund withdrawal from Ukrnafta and related enterprises, which can be linked to the activities or inaction of managers loyal to the Privat business group. Just these examples represent potential losses of over 60 billion UAH. The overall figure might be comparable to the PrivatBank story, which had to be nationalized in 2016 to save the entire banking system of the country.

1. Oil and Oil Products Without Payment

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

Perhaps the most significant examples of money and oil product extraction from "Ukrnafta" are the debts of companies associated with Ihor Kolomoyskyi for delivered but unpaid products. There are at least four directions involving dozens of legal entities that received oil, gasoline, and diesel fuel from "Ukrnafta" and "Ukrtatnafta". In total, semi-state companies have not received more than 30 billion UAH since 2015.

1.1. Avias+ Plastic Cards

In the basement of "Ukrnafta" are boxes of scratch cards and fuel cards of the Avias+ system. Theoretically, this represents 126 million liters of fuel worth nearly 3.5 billion UAH. In practice, it amounts to six tons of useless plastic.

How did this happen? Despite owning over 500 of its gas stations, "Ukrnafta" did not manage them independently until autumn 2022. These stations were part of the private Avias network, including "Sentosa", ANP, etc., all united under the Avias+ brand. Combined with state-owned Ukrnafta stations, this network comprised over 1600 retail fuel points across the country.

To operate this network, "Ukrnafta" signed contracts with dozens of legal entities for the supply of gasoline and diesel fuel, which they, in turn, sourced from the Kremenchuk refinery "Ukrtatnafta". In July 2015, the state network agreed with 24 legal entities for the supply of petroleum products worth 7.24 billion UAH and paid the entire amount in advance. However, only 572 million UAH worth of petroleum products were delivered.

Since the suppliers did not fully fulfill their delivery obligations, "Ukrnafta" accepted scratch cards as collateral for a part of the sum, worth 3.4 billion UAH, intending to sell the fuel to its customers. However, after the nationalization of the company, the Avias+ system operator, LLC "Intex Invest", blocked the cards. Now, they lie dormant.

Additionally, in an interview with NV Business, Serhiy Koretsky mentioned that most of the margin from selling fuel using Avias+ coupons remained with the issuing company (initially "Alliance Evolution", later "Intex Invest").

"And Ukrnafta just cashed in these volumes of petroleum products at gas stations and received a modest reimbursement for expenses," Koretsky said.

Thus, the company lost real money by cooperating with Avias+.

In 2023, Ukrnafta launched its own coupon and plastic card system for corporate clients.

1.2. NPK "Halychyna" – Episode with Light Petroleum Products

"Ukrnafta" processed its oil at the "Ukrtatnafta" refinery using a tolling scheme. Part of the resulting resource was sold by the company's management to other companies linked to Ihor Kolomoyskyi. One of these companies was NPK "Halychyna" (Drohobych), whose production activities ceased back in 2012. It was then used for storing petroleum products, intermediary activities, and more.

From November 2019 to May 2020, "Ukrnafta" signed contracts to supply almost 400,000 tons of petroleum products worth 6.56 billion UAH. The Drohobych enterprise did not settle these payments. By the end of 2022, the debt stood at 4.8 billion UAH, plus over 600 million UAH in interest. Payments for the sold petroleum products never materialized.

"Ukrnafta" management took the matter to court. In December 2023, the Commercial Court of Lviv Region initiated bankruptcy proceedings for NPK "Halychyna". "Ukrnafta" claimed a debt of 828 million UAH. The total amount of claims "Ukrnafta" will submit is yet to be determined. The review of creditor claims against NPK "Halychyna" was scheduled for February 16, 2024 (with "Ukrnafta" preliminarily estimating it at around 18 billion UAH).

1.3. Fourteen Friends of Privat

Using a similar scheme to NPK "Halychyna", contracts were signed during 2021-2022 for the sale of petroleum products with 14 legal entities for 4.38 billion UAH. They barely settled payments with "Ukrnafta", and by spring 2023, the debt amounted to 3.96 billion UAH.

Some of these companies also feature in court disputes involving "PrivatBank" concerning gas station properties that were leased or provided under leasing agreements. As a result, the bank struggled to reclaim these stations' properties as collateral. Court transcripts mention that gas stations were leased to companies connected to former PrivatBank shareholders.

Currently, "Ukrnafta" has won all lawsuits regarding debt recovery, but it turns out that the debtors have neither funds nor assets.

1.4. Oil for Sale

Under the previous management, "Ukrnafta" sold crude oil to companies linked to Kolomoyskyi, in addition to petroleum products. In 2015, LLC "Kotlas", LLC "Trading House Prykarpattyanaftotrey", LLC "Galnafta", LLC "Garant-UTN", and LLC "Techtrade Group" signed contracts for oil supply worth 10.7 billion UAH on post-payment terms. The oil was processed and sold through the Privat network of gas stations.

"Ukrnafta" never received the money for the raw material, so in 2016, it took legal action. In 2020, a settlement agreement was reached with the debtors for gradual repayment until 2026. By the time "Ukrnafta" was nationalized, the debt stood at 3.9 billion UAH, and by the end of 2023, it had reduced to 3.14 billion UAH in principal debt. The debtors have stopped adhering to the agreed payment schedules.

NV Business asked Andriy Kobolyev and Yuriy Vitrenko, who consecutively chaired "Ukrnafta"'s supervisory board from November 2014 to June 2020, to comment on these agreements.

Kobolyev declined to comment until the full text of the article was published.

Vitrenko (who dealt with "Ukrnafta" issues as executive director of NJSC "Naftogaz of Ukraine" from late 2018, and chaired "Ukrnafta"'s supervisory board from April 2019 to June 2020) stated that to evaluate the management's actions during this period, it is necessary to analyze the texts, execution, and circumstances of specific contracts. If any legal violations are found, the current management should file lawsuits.

He also highlighted the lack of market conditions for oil sales and processing in Ukraine over the past decade. The country had only one major refinery operating, and oil exports were artificially restricted.

In other words, "Ukrnafta" effectively had no market conditions for its operations.

2. Extraction: Joint Activities and Joint Ventures

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

"Ukrnafta" engages in extraction not only independently. The company has four joint activity agreements (JAA) and two joint ventures (JV), to which dozens of wells have been transferred. Sources within "Ukrnafta" close to the new management assert that the best fields and most productive wells have been assigned to these JAAs and JVs. However, partners in these projects have not always fulfilled their obligations diligently and often failed to pay for services on time. At the time of "Ukrnafta's" nationalization, the total debt across all JAAs and JVs amounted to nearly 240 million UAH, which had decreased to 38 million UAH by early August 2023.

The most problematic joint activity is with "Momentum Enterprises Ltd" (Cyprus). Formally, its beneficiaries are unknown, but "Momentum" participated along with companies associated with Ihor Kolomoyskyi in other contracts with "Ukrnafta" and "Ukrtatnafta," which became problematic for the enterprises. According to NV Business, this partnership dates back to 1997, when a Joint Investment Activity Agreement No. 999/97 was signed between "Ukrnafta" and "Momentum Energy International Inc" (Cyprus) without creating a separate legal entity. A year later, "Momentum Enterprises Ltd" (Momentum Enterprises (Eastern Europe) Ltd, Cyprus, hereafter referred to as "Momentum") replaced the partner, committing to invest $28 million by March 31, 1999.

The "Cypriots" did not meet their direct investment plan on time, and part of the investments came from profits generated by the JAA. Meanwhile, "Ukrnafta's" share gradually decreased, and 44 high-debit gas wells were transferred to the JAA's balance and sold at undervalued prices. According to "Ukrnafta," in 2013-2015 alone, it lost a net income of $117.1 million. In 2015-2016, additional accounts receivable of 2.3 billion UAH arose due to the gratuitous transfer of goods and advance payments for the purchase of products.

This JAA's activities were halted in March 2016. However, under the leadership of then-chairman Mark Rollins, all 48 JAA wells changed ownership form—they were transferred to joint ownership and used with "Momentum." The current management of "Ukrnafta" does not comment on the consequences of this partnership. According to the editorial office, the possibility of a legal dispute is being explored.

Interestingly, Momentum Enterprises (Eastern Europe) Ltd is simultaneously litigating with "Ukrtatnafta." One court decision explains that from 2019 to 2022, this company and several dozen other entities received light petroleum products from the refinery and "Ukrnafta" for sale under commission contracts. However, the sales through the "Avias" and ANP gas station networks were conducted without full tax documentation. It was established that from 2019 to 2021, "Momentum" and other companies "associated with private shareholders of Ukrnafta" received products worth 19.7 billion UAH but did not pay for them.

To keep the plant operational, instead of paying for the received petroleum products, the contractors provided "Ukrtatnafta" with repayable financial assistance, increasing the company's accounts payable. The established debt amounts to about 11 billion UAH. In 2023, Momentum Enterprises (Eastern Europe) Ltd decided to claim 405 million UAH of this assistance from "Ukrtatnafta" in court. The plant has appealed.

3. Halychyna Oil Refinery – An Episode with Gas for Generation

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

Before nationalization, "Ukrnafta" consistently cooperated with other companies owned by Ihor Kolomoyskyi and his partners. The Halychyna Oil Refinery, already mentioned, operates a combined heat and power plant (CHP) that produces electricity and heat for the city of Drohobych. The refinery purchased natural gas from "Ukrnafta," which had characteristics of substandard goods. An NV Business source in "Ukrnafta" familiar with the situation reported that in 2022, the Drohobych refinery received this gas at a price several times below the market rate, potentially causing multimillion-dollar losses.

However, on February 21, 2023, a new contract was signed between the enterprises, as mentioned in a decision by the Commercial Court of the Lviv region. "Ukrnafta" committed to supplying 22.8 thousand cubic meters of gas to the Halychyna Oil Refinery in January-December 2023. The price per thousand cubic meters, excluding transportation costs within Ukraine, was 4440 UAH including VAT. Yet, payments have not been received. As of October 2023, the debt under the new contract amounted to nearly 93 million UAH. "Ukrnafta" states that by early 2024, the claim amount had increased to 134 million UAH.

Why was a new contract signed? "Ukrnafta" explains that this is associated with gas, which lacks the quality characteristics for sale to commercial consumers or the population. Therefore, from a technological standpoint, the CHP of the Halychyna Oil Refinery is the only consumer of such products in the region. To change the situation, "Ukrnafta" needs to seek alternative ways to process substandard gas, such as investing in building a gas piston power plant to generate electricity independently or with partners.

4. Acquiring Services from "Pivdenny" Bank

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

"Ukrnafta" is Ukraine's largest mono-brand gas station network, with 537 gas stations, about 450 of which remained operational after the full-scale invasion. Each station is an active point of sale and an attractive client for banks that can install terminals for card payments – acquiring services. In March 2023, Serhiy Kuyun, director of the A-95 consulting agency, reported that before nationalization, the provider of this service to "Ukrnafta" was "Pivdenny" Bank. Its owners are a group of businessmen from Odesa, formally unrelated to Kolomoyskyi and Boholiubov.

Earlier, in late February, Serhiy Koretsky stated in an interview with "Business Censor" that "Ukrnafta" had optimized acquiring across its network by almost half and was transitioning to a state bank. According to public information, the base rate for acquiring services at "Pivdenny" Bank was 2%. Therefore, "Ukrnafta" might have been paying 4-5%.

"Pivdenny" Bank's press service told NV Business that the terms of cooperation with clients are a commercial secret that the bank does not disclose.

"However, like any bank partner, Ukrnafta had full access to quality and timely acquiring services," the bank said, without specifying why and when exactly the cooperation with the gas station network ended.

According to Kuyun, transferring "Ukrnafta's" accounts to state banks could save up to 100 million UAH on acquiring services in 2023 alone. Today, cashless transactions in the "Ukrnafta" retail network are processed through "PrivatBank" terminals.

5. Fuel Truck Services

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years

In December 2022, "Ukrnafta" director Serhiy Koretsky stated that the company could halt operations due to transportation issues. After nationalization, it was revealed that the Ukrainian oil giant did not have its transport for moving light petroleum products across the gas station network. Former logistical partners suddenly ceased providing services immediately after nationalization.

"Ukrnafta" managers urgently found new contractors, maintaining the operation of the retail network. Early last year, Koretsky mentioned in an interview with "Business Censor":

"We are now providing logistics for petroleum products using external transport, halving the cost of transporting a ton of fuel."

To further reduce dependence on external factors, the company decided to create its fleet. Twenty-five tractors and tank trucks for transporting light petroleum products and LPG were purchased, with the first hitting Ukrainian roads in July 2023. Over 70 fuel trucks, providing transportation services, are owned by external companies. Another feature of current cooperation with contractors is the mandatory branding of tanks with "Ukrnafta" logos.

What is the cost of this service? "Ukrnafta" does not disclose the figure, citing commercial secrecy. Prime Group co-owner Dmytro Lyoushkin says that the cost of transporting light petroleum products in Ukraine is usually tied to the price of one liter of diesel fuel without retail markup.

"Currently, transporting gasoline and diesel fuel costs about 42 UAH per km with VAT. But there's a nuance – payment is for round-trip mileage," says Lyoushkin.

The cost of transporting light petroleum products with own transport ranges from 25-30 UAH/km (with VAT), depending on the technical condition of the fuel truck and the number of orders. Fuel trucks for gas stations usually travel 300-500 km daily. Consequently, inflating the tariff by even one hryvnia per kilometer can lead to potential overpayments of 9-15 thousand UAH per month for each fuel truck. If there are a hundred trucks, this risk translates into a monthly overpayment of 900 thousand to 1.5 million UAH. Koretsky mentioned a tariff increase of two times, meaning the actual losses could be significantly higher.

6. Railway Access Through Intermediaries

"We received our railway code. It's hard to believe, but the largest oil company did not have a railway code and used exclusively third-party services," announced Serhiy Koretsky in November.

When sending or receiving cargo by rail, a proprietary code of the consignee or consignor is indicated in the documents. The company became a direct sender or receiver without involving intermediaries.

Did "Ukrnafta" manage to save on these changes?

"Forwarding services typically cost 3-5% of the transportation price," says CTS director Serhiy Vovk.

However, much more important than the price is the professionalism level of the specialists who can organize fast and high-quality rail cargo movement from point A to point B. The department for cooperation with "Ukrzaliznytsia" is a professional logistics expertise.

7. Energy Traders with Dubious Reputations

"We participated in tenders on the ProZorro system to find a licensed electricity supplier. However, 'Privat' companies won," said one of the top managers of "Ukrnafta" on condition of anonymity, adding that the prices offered by the potential winners did not reflect the market rates.

The company did not respond to inquiries about the volumes of electricity consumed by "Ukrnafta" and who specifically wanted to supply it. However, in December 2022, a tender was announced on the ProZorro system for the procurement of nearly 493 GWh of electricity with a total expected value of about 2.2 billion UAH. It was divided into 24 lots. In the vast majority of cases, the best offers were submitted by "New Energy Ukraine," "Pivden Energo Zbut," and "Tsentrenergozbut." The publication "Nashi Groshi" links these companies to Ihor Kolomoisky and his associates. In particular, "New Energy Ukraine" appears in the case of the energy trader "United Energy," which might have operated in the businessman's interests.

In early 2024, NABU and SAP reported uncovering a scheme involving this company's acquisition of electricity from NEC "Ukrenergo." As a result, NABU announced a search for Mykhailo Kiperma, a long-time business partner of Ihor Kolomoisky. He will be mentioned again.

"Ukrnafta" canceled the tender for electricity procurement, "found its supplier license," which it has held since June 2019, and began purchasing electricity independently. From April to December, the savings from day-ahead market (DAM) prices amounted to 2%. In absolute figures, this was nearly 25 million UAH.

"The company buys almost all the necessary capacity for its operations from nuclear power plants – SE 'Energoatom' – and from renewable generation through SE 'Guaranteed Buyer'," "Ukrnafta" reported in December.

And There Was Also the Refinery

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years 

In addition to "Ukrnafta," in November 2022, the largest oil refinery in Ukraine, "Ukrtatnafta," also came under state control. The state already held a minority stake in this company. Unlike the extraction company, the condition of the Kremenchuk refinery after several missile strikes is not commented on by "Ukrnafta" or other state institutions. This includes the period before the full-scale Russian invasion.

Only from off-the-record conversations and court registries can it be determined that there was also commercial activity "bypassing the cash register" at the refinery. This is somewhat surprising, given that Kolomoisky and his partners had complete control over the enterprise.

For example, Serhiy Kuyun mentioned that toll refining at "Ukrtatnafta" involved "technological losses" of 16-17%, although he had never heard of losses exceeding 9% in Ukrainian oil refining.

According to estimates from one of the managers working in the oil industry, processing 2 million tons of oil annually could result in a yearly loss of official revenue for the enterprise of $170-190 million. This could be explained by an unwillingness to pay taxes on the full sale of light oil products. Additionally, the plant did not formally have its system for loading light oil products into transport. The operator of this equipment was a separate legal entity. This entity not only received a fee for the mandatory service but could also shut off the tap and halt the plant's operations at any moment.

In these cases, it is difficult to assert specific losses without obtaining "concrete" evidence. However, there are several episodes of "Privat" activity at "Ukrtatnafta" that have surfaced with specific amounts and descriptions of manipulations not in favor of the state.

8. The Disappeared SOCAR Oil

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years 

Among the few almost conclusively proven facts of misconduct, the story of the previously mentioned Mykhailo Kiperman stands out.

On June 2, 2023, the Security Service of Ukraine, together with the Bureau of Economic Security, notified Kiperman of suspicion of transferring almost 600 million UAH abroad from the accounts of "Ukrtatnafta." This occurred on February 24, 2022, the day the full-scale Russian invasion of Ukraine began.

According to the investigation, the oil refinery lacked Ukrainian-produced raw materials to fully utilize its capacities. Therefore, Kiperman was responsible for finding and supplying oil from other sources. Specifically, a contract was signed with the Azerbaijani state company SOCAR.

The supply was conducted by two Swiss legal entities: SOCAR’s subsidiary and the trader Nordwind Trade, whose owner and director is Kiperman himself. As of February 24, 2022, 53,000 tons of oil from SOCAR and 19,000 tons from Nordwind Trade were stored at Black Sea oil terminals under customs warehouse status.

The plant planned to purchase 23,000 tons of SOCAR oil. However, after the full-scale invasion began, the management of the refinery, controlled by "Privat," decided not to pay the Azerbaijanis – $20 million was sent to Kiperman’s Swiss company under fake contracts.

The investigation claims that all the oil stored in Odesa was pumped out and processed at the refinery without payment to the seller, customs clearance, or tax payment. The total losses in taxes and to the counterparties are estimated at 600 million UAH.

SOCAR Ukraine does not comment on this process, citing the sensitivity of the issue.

9. Soaring Debts

Billions from Ukrnafta: How Ihor Palytsia and the Privat Group Drained the Company for Years 

The airline Ukraine International Airlines (UIA), of which Ihor Kolomoisky was one of the shareholders, had already nosedived before the full-scale invasion. It quickly went from being the largest national airline to practically halting flights by the end of 2021.

It seems that a significant oil trace will remain in its history. Over two years, the airline received aviation fuel from "Ukrtatnafta" without paying for it. From November 2019 to January 2020 and in February 2022, the refinery shipped aviation fuel to UIA worth an estimated 410 million UAH.

The courts began addressing these funds in May 2023. Will the refinery be able to recover even a portion of the debt? There are numerous other claimants ahead of it in line. Moreover, key assets of the airline have either been sold or are in poor condition.

Additionally, in December 2023, the state-owned "Ukreximbank" initiated bankruptcy proceedings against the airline.

Just the Facts

These examples alone show that over the 20 years that "Ukrnafta" and "Ukrtatnafta" were under the control of the informal "Privat" group, both companies might have missed out on tens of billions of hryvnias.

The government spent 155 billion UAH to rescue "PrivatBank." However, in five years of effective corporate governance, the financial institution fully returned this amount to the state budget in the form of dividends.

A similar scenario is likely to unfold in the oil business. Balance sheet gaps will be covered by future profits.

"Ukrnafta" is still summarizing its results for 2023. However, as of November last year, its net profit exceeded 20 billion UAH.

What’s Next?

Many years ago, Ihor Palytsia said in an interview with "Ukrainska Pravda" that his appointment as the head of Ukrnafta was meant to help the company overcome a crisis. Today, his family is building its business empire. Kiperman is abroad. Boholiubov is in Ukraine, giving video interviews about the energy of money and the meaning of life.

As for Ihor Kolomoisky himself, in February 2023, the SBU and the Bureau of Economic Security raided him, stating that this was part of an investigation into schemes for embezzling 40 billion UAH from "Ukrnafta" and "Ukrtatnafta."

On September 2, he was served with suspicion under two articles of the Criminal Code of Ukraine: fraud and legalization (money laundering) of property obtained through crime. At that time, the SBU claimed that between 2013 and 2020, Kolomoisky had laundered over 500 million UAH by transferring it abroad using the infrastructure of controlled banking institutions.

Since then, he has been in an SBU detention center.

NV Business sent questions to Kolomoisky through the lawyers handling his case. At the time of publication, the editorial office had not received a comment.

Author: Oleh Ivantsov, with contributions from NV Business special correspondent Artem Ilyin

The project «Ukraine: realities» is implemented by the News agency «Konkurent» together with the Civic Movement «SVIDOMI» in English for readers from other countries to tell to tell about current news and events in Ukraine.

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