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Case against Ukraine’s ex-Naftogaz chief: political persecution or effective anti-corruption work?

Naftogaz CEO Andriy Kobolyev was dismissed in violation of procedures. Photo: Naftogaz

A former CEO of Ukraine’s state-owned oil and gas company Naftogaz, Andriy Koboliev, faces charges of the High Anti-Corruption Court of Ukraine concerning a case on the alleged embezzlement of around $10 million. This case has stirred heated debates among Ukraine’s political pundits, lawyers, and anti-corruption activists.

Public opinion in Ukraine concerning the case against a former top-ranking official is divided. While one group of experts and activists insists that the case against the ex-Naftogaz chief has signs of political persecution, others believe that anti-corruption institutions must be allowed to get their job done without unnecessary pressure.

Who is Andriy Koboliev?

According to the National Anti-Corruption Bureau of Ukraine (NABU) investigation, ex-Naftogaz CEO Andriy Koboliev is suspected of embezzling a large sum of money. Koboliev denies any wrongdoing by Naftogaz officials and himself during his administration.

Koboliev became CEO of the National Joint Stock Company Naftogaz in March 2014. In two years since taking over the company, Andriy Koboliev cut the dependence of Naftogaz on gas from Russia’s gas monopolist Gazprom, which was a crucial change for the energy security of Ukraine. In 2014, Gazprom supplied 90% of Ukraine’s domestic needs.

Since 2015, Ukraine has stopped buying natural gas directly from Russia. The financial performance of Naftogaz significantly improved under Koboliev. The company lost billions of dollars annually before he took over Naftogaz in 2014. In 2018, it turned a profit and contributed 15% of the government’s revenue through tax and dividend payments. Koboliev’s attempt to loosen the grip of business and political leaders on Naftogaz led to his conflict with an influential Ukrainian billionaire and oligarch, Ihor Kolomoiskyi, who openly supported Volodymyr Zelenskyy during the 2019 presidential elections in Ukraine that Zelenskyy won.

Naftogaz won the Gas Sales Arbitration five years ago and successfully collected $4.63 billion from Gazprom. According to the annual report of Naftogaz, the arbitral tribunal issued the final award on the case of Naftogaz against Gazprom relating to the Gas Transit Contract on 28 February 2018. In April 2018, Naftogaz’s Supervisory Board voted to award the employees who contributed to the Gas Sales Arbitration victory $46 million, or 1% of the prize money. Koboliev received a multimillion bonus for the Gas Sales Arbitration victory, but only half of it was paid to date. His bonus is $22.4 million, or UAH 609.3 million, according to the average annual currency exchange rate of 2018.

On 28 April 2021, the Ukrainian Government dismissed Andriy Koboliev, bypassing the Supervisory Board and violating formal procedures. Koboliev had held the post of Naftogaz CEO for seven years.

Ukraine’s anti-corruption institutions against Andriy Koboliev

On 19 January 2023, the NABU and the Specialized Anti-Corruption Prosecutor’s Office of Ukraine (SAPO) notified Andriy Koboliev of suspicion of embezzling more than UAH 229 million ($6.2 million) in 2018.

According to the NABU’s investigation, Koboliev, contrary to the law, issued an order to bonus the company’s employees, based on which he was paid almost UAH 261 million (around $10 million) for winning the Gas Sales Arbitration. According to the Supervisory Board of Naftogaz decision, apart from Koboliev, 41 Naftogaz employees lawfully received a bonus for the Gas Sales Arbitration victory.

The SAPO suspects Andriy Koboliev took possession of a much larger bonus for his work than it is allowed by law. The SAPO asked the court to give a warrant for the arrest of Andriy Koboliev or set bail for him at UAH 365 million ($9.9 million).

At first, the High Anti-Corruption Court (HACC) completely rejected the prosecutor’s request on 23 January 2023. The HACC’s judge Oleh Fedorov did not impose either arrest or bail on Koboliev. In his decision, Fedorov referred to the explanations of three former members of the Supervisory Board of Naftogaz, Claire Spottiswood, Bruno Lescua, and Ludo Van der Heyden, in an open letter published on 23 January 2023. In the letter, three former members of the Supervisory Board of Naftogaz noted that they consciously decided to award bonuses to Andriy Koboliev and 41 other Naftogaz employees and that there was no pressure on them. Fedorov also called “untenable” the prosecutor’s claim that Koboliev “misled” the Supervisory Board members by concealing information about the Cabinet of Ministers’ resolution regulating the size of bonuses, as the legislation is open. Therefore, the board members could have read it themselves.

Ukraine’s key anticorruption body finally gets a chief; key watchdog is unhappy

However, an appeal chamber of the HACC overturned the previous decision of the HACC and set bail for Koboliev at UAH 230 million. After the former Naftogaz’s CEO did not pay the full amount of the bail, prosecutors went back to court to arrest him or increase his bail.

Koboliev now faces seven to 12 years in prison. While the NABU and the SAPO believe Koboliev illegally rewarded himself with an extraordinary bonus in 2018, the ex-Naftogaz chief claims he did not reward himself. It was the Supervisory Board of Naftogaz that legally decided on the bonus. The NABU insists that the statutory amount of such bonus payments for Ukrainian officials could not exceed UAH 37.48 million, according to Ukraine’s legislation, namely resolution no. 859 of the Cabinet of Ministers (Ukraine’s government) regulating the size of bonuses.

The Supervisory Board of Naftogaz approved the bonus proposal. After that, Koboliev issued a corresponding order. According to the SAPO’s prosecutor Olena Drobotova, Koboliev should have warned the Supervisory Board members about the restrictions on the size of bonuses set out in Ukraine’s Cabinet of Ministers’ resolution, but he did not do so.

“I am sure I did not violate any laws. The Supervisory Board of Naftogaz legally did the right thing. Our activity was in the best interest of Ukraine,” Koboliev said in his interview with Forbes.

According to Koboliev’s lawyer Oleksiy Nosov, the SAPO and NABU refer to the resolution on bonus restrictions that did not apply to the head of Naftogaz in 2018, at the time when the said bonuses were awarded to Koboliev. Therefore, the  Supervisory Board of Naftogaz made the decision about bonuses in a legal way, Oleksiy Nosov said.

“Koboliev did not issue bonuses to himself and only himself. This is an assumption of the investigation, not a legal construction. Koboliev, as the Chairman of the Board, was obliged to sign the documents, including the bonus order, to implement the decision of the Supervisory Board of Naftogaz. This is a direct requirement of the company’s internal documents. The bonus order contains the names of forty-one people to whom the bonus, 1% of the total amount of the Gas Sales Arbitration victory in Stockholm, was distributed,” Oleksiy Nosov claimed in court.

Top Ukrainian officials resign in anti-corruption drive

Subsequently, Oleksiy Nosov provided the court with email correspondence between the Supervisory Board members to confirm that they had initiated the payment of bonuses to Andriy Koboliev and the other company employees.

The court considers that the evidence and circumstances presented by the prosecution are sufficient for the investigation to continue. It does not mean that Naftogaz’s CEO is guilty. There are no obstacles for the prosecution and the defense to prove their position with arguments, Olena Shcherban, the head of the Legal Department of the Anti-Corruption Action Center non-profit organization, said in an interview with Radio NV. Olena Shcherban does not see any political motivation in the case against Andriy Koboliev.

“I often hear these words ‘the court will figure everything out.’ I do not think it is correct. Detectives of the NABU and SAPO had to figure everything out. That is what the anti-corruption institutions were created for in the first place,” Koboliev said in his interview with Radio NV. “Now I face an opportunity to spend some time in a detention center behind bars waiting for detectives to figure everything out. It should not be this way. Being inside this process, I have noticed that anti-corruption institutions afford to act in an old Soviet-style manner, which is not what justice looks like to me. I do not want to comment if the case against me has any political motivation behind it, but this case will definitely have political consequences,” Koboliev added.

What Ukrainian lawyers and activists say

A Ukrainian lawyer, former head of the legal department and deputy chief of staff of the Supreme Court of Ukraine, Mykola Khavroniuk told Euromaidan Press that it does not matter whether the case against Koboliev is politically motivated; what matters is the establishment of legal facts by the independent anti-corruption institutions.

“I can see that anti-corruption institutions are truly independent,” Khavroniuk said. “When we talk about judicial independence, one of the indicators is the percentage of acquittals. This is just one of the indicators, but it is very important. In the days of Yanukovych [the former President of Ukraine who was indicted for state treason and is currently in Russia, a fugitive from justice], we had a percentage of acquittals in all courts far less than one percent, around 0.250% of all cases. Now the High Anti-Corruption Court shows it can safely deliver such acquittals.”

Other cases of the NABU against former top-ranking officials that took an active part in reforms in Ukraine include the indictment against former Minister of Infrastructure of Ukraine Andriy Pyvovarskyi (the case of abuse of office in 2015) and the case against former Infrastructure Minister Volodymyr Omelian. The Supreme Court acquitted Omelian of budget losses and closed the case against him on 28 March 2023.

Persecuting effective managers and former top-ranking officials like Pyvovarskyi, Omelian, and Koboliev with such groundless suspicions is unacceptable. It causes extremely great damage to the state as an employer for highly qualified people, Andriy Guck, a Ukrainian lawyer at Ante Law Firm, wrote on Facebook.

“The NABU once again shows its inability to understand which cases and circumstances are worthy of suspicion and which are just old political garbage that has not been cleaned up in time,” Andriy Guck said.

The Chairman of the Board of the Anti-Corruption Action Center and head of the Public Control Council at the National Anti-Corruption Bureau of Ukraine, Vitaliy Shabunin, welcomes the constructive criticism of NABU activities by the public. However, Shabunin sees no problem with the cases against Koboliev, Omelian, and Pyvovarskyi, saying that these cases are just three out of 1212 cases against officials NABU is working on.

Masi Naiem, a lawyer and former Ukraine’s Armed Forces soldier severely wounded in combat during the ongoing Russian invasion of Ukraine, disagreed with Vitaliy Shabunin. Naiem believes that Pyvovarskyi, Omelian, and Koboliev were not involved in corrupt practices, and cases against them attack successful top managers who have benefited the country.

“These are cases against people who implemented real reforms. Moreover, both Pyvovarskyi and Koboliev created problems for Russia with their reforms. Koboliev sued Gazprom for billions of dollars and won (for which he received an award), and Pyvovarskyi created competition for Russian ports,” Naiem wrote on Facebook.

The future of independent anti-corruption institutions in Ukraine

Heated debates amongst the Ukrainian public about the activity of the anti-corruption institutions show that society in Ukraine closely monitors the fight against corruption, despite the Russian invasion of the country that absorbs most of the attention. Much work still needs to be done to make anti-corruption institutions effective. This work may require introducing some changes to the legislation in the future.

According to Mykola Khavroniuk, the selection process that helps to pick up the best candidate and appoint heads of anti-corruption institutions needs to be changed to become more transparent and clearer.

The selection process is not sufficiently regulated in advance. The procedure should be unified for everyone,” Khavroniuk said in his interview with Euromaidan Press. “Because we end up with a situation where we select, say, judges of the High Anti-Corruption Court by one procedure, members of the High Council of Justice of Ukraine by another procedure, members of the High Qualification Commission of Judges by a third procedure, the head of the Specialized Anti-Corruption Prosecutor’s Office by a fourth procedure, some other prosecutors by a fifth procedure, the head of the NABU by a sixth procedure, and the head of the State Bureau of Investigation by a seventh procedure. This is not right. There must be a single procedure. There may be certain peculiarities for judges, for prosecutors, but in general, there should be a single procedure. And the participation of the foreign element, the participation of the public, the participation of scholars should be equally proportional. All this should be clearly regulated.”

All in all, the independent anti-corruption institutions in Ukraine are only at the beginning of their journey. The fight against corruption is a great challenge for Ukraine, as important as establishing effective and independent anti-corruption institutions. It is impossible to avoid mistakes on the way.

Still, the fact that Ukraine is moving in the right direction by establishing an independent anti-corruption system is not denied by anyone: either those who criticize NABU, SAPO, and HACC for their activity or those who are satisfied with their work. The fight against corruption in Ukraine is now institutionalized, and Ukrainian society pays close attention to the work of the anti-corruption system, which gives a reason for cautious optimism.

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