НАК „НАФТОГАЗ УКРАЇНИ“. Річний звіт англійською (2017 рік) - 9

OUR PERFORMANCE

ANNUAL REPORT 2017

133

132

CAPITAL INVESTMENTS

The total amount of capital investments of Naftogaz group increased in 2017 compared  

to 2016 by 79%, or by UAH 7.5 billion.

9.5

0.6

0.04

17.0

0.7

0.04

5.4

1.7

0.1

12.5

0.6

1.7

0.05

0.1

0.3

1.3

0.1

0.6

0.0

0.1

0.1

0.5

Capital investments

Oil and gas  

condensate sales

Gas storage

Gas production and  

sales under PSO

Petroleum products sales

Gas  

transit

Oil domestic transmission

Sales of natural gas at 

nonregulated prices

Oil transit

Gas domestic transmission

Other

  2016     

  2017     

  2017/2016

–14%

–58%

–9%

–58%

116%

16%

2%

15%

–56%

130%

79%

  Capital investments by business, UAH billion

The group's priority for capital 

investment is still the extraction 

of natural gas, which is further 

directed to the sale and supply 

of natural gas to consumers 

under PSO. 74% of the total 

investment is allocated for this 

business in 2017 (compared 

to 57% in 2016). The amount 

of investment has more than 

doubled in 2017 compared 

with 2016 due to the continued 

expansion of exploration and 

operational drilling capacities of 

Ukrgazvydobuvannya. The total 

cost of these works in 2017 is 

more by UAH 2 billion, or 53% 

compared with 2016.

In addition, significant 

investments of the group 

relate to petroleum product 

sales, where investments 

grew by 116% mainly 

due to an increase in the 

Ukrgazvydobuvannya capital 

investments program. The 

amount of capital investments 

in Gas transit, which represents 

about 10% of the total 

investments, remained almost 

unchanged in 2017 compared 

to 2016.

PAYMENT OF TAXES  

TO THE BUDGET

In 2017 Naftogaz remained 

the largest taxpayer in Ukraine. 

For example, during this 

year Naftogaz group paid 

UAH 109.9 billion of taxes to the 

budget, which is 49% more than 

in 2016.

In addition, in 2017 Naftogaz, 

being a separate legal entity, 

paid UAH 13.3 billion to the 

state budget as a dividend 

calculated based on its 

performance in 2016.

74�0

109�9

  2016 
  2017

49% 

2017/2016

   Total amount of taxes paid by group enterprises, UAH billion

30.4

1.0

41.4

13.3

23.3

4.4

27.7

2.7

3.2

7.7

1.1

3.7

3.3

14.1

2.3

4.3

VAT

Dividends

Subsoil royalty 

charge for gas

Subsoil royalty charge 

for gas condensate

Subsoil royalty charge 

for oil

Income tax

Other

Social charges

  2016                       2017     

  2017/2016

–26�5%

102�0%

36�4%

30�7%

1198�7%

82�2%

18�9%

35�9%

  Payment of taxes by type, UAH billion

OUR PERFORMANCE

ANNUAL REPORT 2017

135

134

LOANS

The total amount of loans of the group during 2017 decreased by UAH 11.5 billion or by 16.3% and amounted 

to UAH 59.3 billion by the end of 2017. Total change of loans in 2017 was as follows:

In terms of maturity, the 

amount of long-term loans 

decreased in 2017 by UAH 

8.4 billion or 36% compared 

to 2016. The amount of short-

term loans at the same time 

decreased in 2017 by UAH 

3.2 billion or by 7% compared 

to 2016.

The increase in euro 

denominated loans in 2017 

compared to 2016 amounted 

to UAH 11.2 billion due to the 

revolving credit line granted 

by Citibank Europe for the 

purchase of natural gas. The 

share of the portfolio in US 

dollars decreased in 2017 by 

38% or by UAH 16.6 billion due 

to the full repayment of the 

loan to Gazprombank.

47.7

23.1

Short-term  

loans

Long-term  

loans

  2016    

  2017     

  2016/2017 

–7%

–36%

  Loans by repayment terms, UAH billion

21.2

27.3

26.7

43.3

11.4

0.2

UAH

USD

EUR

  2016    

  2017     

  2016/2017 

–23%

–38%

5274%

  Loans by currency, UAH billion

14.7

44.6

  2016          2017 

59�3

–16�3% 

2017/2016

   Total amount of the group 

loans, UAH billion

   Total change of the group loans, UAH billion

140

120

100

80

60

40

20

0

70�8 

48�9  

(63)  

2�6  

59�3  

31�12�2016 

Proceeds

Repayment

FOREX profit/loss

31�12�2017 

70�8

Average interest rates in 2017 

kept on decreasing compared 

to 2016 for all currencies. The 

average rate on loans in UAH 

decreased by 1.3% compared to 

2016, due to the NBU base rate 

decrease in 2016. Interest rates on 

loans in the US dollars and euros 

decreased in 2017 compared 

to 2016 by 1.1% and 4.9% 

respectively, due to a decrease in 

the interest rates on existing loans 

and an increase in the share of 

cheaper international funding in 

the group's portfolio.

19.0%

17.7%

7.8%

6.7%

7.2%

2.3%

UAH

USD

EUR

  2016    

  2017     

  2016/2017 

  Average interest rates, %

-4�9%

-1�1%

-1�3%

OUR PERFORMANCE

ANNUAL REPORT 2017

137

136

126 

128 

111 

131 

29 

11 

  2016    

  2017 

WORKING CAPITAL

The net working capital of the Naftogaz group's businesses in 2017 increased by 10% or UAH 7.6 billion 

compared to 2016 due to increase in the value of natural gas inventories as a result of the increase in gas 

stock volumes and the prices of its purchases, as well as a significant increase in receivables for sold and 

supplied natural gas, as already mentioned in the previous sections.

  Structure of working capital of businesses

76

, 

UAH billion

50.2

1.3

80.6

60.2

0.8

88.2

49.2

(2.8)

59.0

(7.2)

(7.2)

7.7

(2.3)

(9.0)

(15.5)

6.2

(9.9)

(11.7)

Inventories

Other non- 

current assets

Working  

capital

Accounts  

receivable

Provisions

Accounts  

payable

Prepayments and other 

current assets

Income tax  

liabilities

Advances received and other 

short-term liabilities

  2016    

  2017     

  2017/2016 

10%

329%

25%

–25%

154%

–44%

–20%

20%

20%

  Turnover by type in days

Inventories

77

Accounts receivable

78

Accounts payable

79

76 

Except the obligations that can not be directly attributed to the segment result

77 

Calculated as average inventories divided by the total cost of sales

78 

Calculated as average receivables before deducting the reserve for doubtful debts, divided by revenue from sale

79 

Calculated as average payables divided by the cost of purchases

A 20% growth of reserves in 

2017 compared with 2016 was 

mostly due to an UAH 11 billion 

increase in value of gas arising 

from UAH 6.5 billion growth 

in volume and UAH 4.6 billion 

effect on price. The reserve 

turnover did not change much 

compared with 2016.

The amount of trade accounts 

receivables increased by 20% 

in 2017 or by UAH 9.8 billion 

compared to 2016. The major 

factor was a 38% or UAH 8.3 

billion increase in trade accounts 

receivable of RSC's for resale 

to households. The reasons for 

this are described in the Gas 

production, import and sales to 

RSC's for resale to households 

section. As a result, the turnover 

of accounts receivables impaired 

by 20 days in 2017 against 2016.

Prepayments and other current 

assets decreased in 2017 due to 

the reduction of the amount of 

advances from imported natural 

gas.

Other non-current assets 

decreased in 2017 compared 

to 2016 by 44% or by 

UAH 0.6 billion due to a 

reduction in the amount 

of restructured long-term 

receivables from gas consumers 

as a result of reduction of 

the principal amount of the 

restructured debt.

Accounts payable increased by 

2.5 times due to an increase in 

debt for natural gas compared to 

2016.

OUR PERFORMANCE

ANNUAL REPORT 2017

139

138

PROCUREMENTS BY NAFTOGAZ 

GROUP COMPANIES IN 2017

For two years now, state institutions pursuant to the Law 

of Ukraine "On Public Procurement" are obliged to procure 

goods and services using the ProZorro system. Procurements 

by Naftogaz account for about 20% of the total purchases 

through ProZorro.

In 2017, the companies of Naftogaz group used the ProZorro 

system for 9,944 purchases for a total of UAH 119.2 billion.

Of these, 49% of purchases were by Ukrgazvydobuvannya, 

35% by Ukrtransgaz, 8% by Ukrtransnafta, 3% by Naftogaz, and 

another 5% by other companies of the group.

Improvements to internal Naftogas group procurement 

procedures with the aim to ensure transparency of business 

processes resulted in savings of about UAH 6.9 billion in 2017. 

Of these, UAH 3.8 billion was saved by Ukrtransgaz as a result 

of the procurement of natural gas for technological needs and 

balancing. The savings achieved by Naftogaz group prove the 

success of the economy of scale effect.

The savings achieved by Naftogaz group since ProZorro has 

been in operation equal almost UAH 13 billion or 32% of the 

savings of all customers in the system.

  Procurements by Naftogaz group using ProZorro in 2017

49%

35%

8%

3%

3%

2%

Ukrgazvydobuvannya

4�902 procurements 

UAH 39�0 bn

Ukrtransnafta

797 procurements 

UAH 1�5 bn

Ukravtogaz

263 procurements 

UAH 0�5 bn

Ukrtransgaz

3�464 procurements 

UAH 76�9 bn

Naftogaz

285 procurements 

UAH 1�2 bn

Other companies of the group

233 procurements 

UAH 0�1 bn

Completed

9�944 procurements

Total expected value

UAH 119�2 bn

Key results 2017

UAH 6�9 billion

saved due to procurements using 
the ProZorro system

9�944 

procurements made using ProZorro

UAH 119�2 billion

the total expected value

97% 

of the contracts are concluded with Ukrainian 
companies

Naftogaz group, which includes 

18 individual legal entities or 44 customers, 

is one of the biggest users of the ProZorro 

public procurement system.

  The main procurement items in 2017, UAH billion

81%

 

of the budget of 2017 was planned for the purchase of goods, which is explained  

by the purchase of natural gas by Ukrtransgaz to meet technological and balancing needs�

2�8

MINING AND  

CONSTRUCTION EQUIPMENT

3�6

TRANSPORT EQUIPMENT AND 

AUXILIARY EQUIPMENT

4�5

INDUSTRIAL MACHINERY

5�1

CONSTRUCTION WORKS AND 

REPAIRS

10�7

AUXILIARY BUILDING 

PRODUCTS

11�5

SERVICES RELATED  

TO OIL AND GAS  

INDUSTRY

69�8

PETROLEUM PRODUCTS,  

FUEL, ELECTRICITY

2�1

ARCHITECTURAL, CONSTRUCTION AND ENGINEERING SERVICES

2�1

CHEMICAL PRODUCTS 

1�5

REPAIR AND MAINTENANCE SERVICES

81%

15%

4%

81% 

(UAH 96.3 BN) – GOODS

15% 

(UAH 17.7 BN) – SERVICES 

4% 

(UAH 5.1 BN) – WORKS

Facilitating the development of the domestic supplier

Reform of the procurement 

system is still underway and 

the management of Naftogaz 

group is making the most 

of its efforts to promote 

transparency and strengthen 

controls in the procurement 

process.

The role of Naftogaz in 

supporting local producers 

and the development of an 

efficient domestic supplier is 

evidenced by 98% of contracts 

concluded with companies 

incorporated in Ukraine.

Every year, Naftogaz group 

procures goods and services 

for a high total value, and in 

such a way actively supports 

domestic producers and their 

dealers. These procurements by 

Naftogaz group help to boost 

domestic enterprises and create 

and revitalize the domestic 

market. This relates primarily to 

mechanical engineering and 

related industries – turbines, 

pipes, construction.

During 2017, the companies 

of the group concluded 

7 314 contracts worth 

UAH 73.409 billion mostly 

with enterprises registered in 

Ukraine. Foreign companies 

are mainly involved where 

procurement of equipment 

or technology is required that 

is not available from local 

companies.

We are doing our best to enable our suppliers to compete 

with each other. Transparency in procurement is one  

of our priorities."

Orest Logunov, chief procurement officer of Naftogaz group.

OUR PERFORMANCE

ANNUAL REPORT 2017

141

140

  Major suppliers by volume of procurements

Company of the group 

Number of contracts with the counterparts registered:

on the territory of Ukraine 

beyond Ukraine 

Ukrgazvydobuvannya 

 3 938 

 (84% of the value)

93

Ukrtransgaz

 2 099 

(97% of the value)

5

Ukrtransnafta

591

(74% of the value)

5

Ukravtogaz

153

 0

Naftogaz of Ukraine

 217 

(21% of the value)

17

Naftogaz group publicized

 

7 314

 

contracts  

through ProZorro

98%

 (7 194 contracts) Ukraine

2%

 

(120 contracts) beyond Ukraine

Upgrading procurement process

The companies of the group 

continue the large-scale process 

of reforming the procurement 

system, including the improvement 

of transparency standards, 

formalization of requirements to 

participants, approval of standard 

processes and procedures, 

and updating of manage ment 

structures.

During 2017, new directors 

for procurement at 

Ukrgazvydobuvannya Felix 

Cherni and at Ukrtransgaz Andriy 

Khomenko were appointed 

as well as the procurement 

director of Naftogaz group Orest 

Logunov.

The companies continue 

improving their procurement 

business processes. For example, 

Naftogaz group procurements 

process has been reformed, 

including the approval of unified 

requirements for banks whose 

banking products are used as a 

security for the proposal under 

the procurement procedure 

or as a security for contract 

enforcement.

In 2017, the following key 

internal documents on 

procurement of goods, works 

and services were approved and 

put into effect: 

•  Regulation on Conflict

Committees;

•  Procedure for the procurement

of goods, works and services in 

Naftogaz group;

•  Procedure for procurement

monitoring;

•  Regulation of interaction

between the company's 

structural units during the 

procurement of goods, works 

and services.

In 2017, the introduction of 

category management with the 

expansion of functions and powers 

of the procurement department 

continued, which would allow 

for the optimization of costs 

and increase the efficiency of 

procurement procedures in the 

near future.

In 2017, 3,055 procurements 

with an expected value of 

UAH 17,893 million initiated 

through the ProZorro system 

were cancelled or declared void 

by Naftogaz group. About 70% 

of the tenders were canceled 

due to submission of less than 

two bids.

The high rate of cancellation 

is due to:

•  low interest of potential

suppliers, contractors for 

works and service providers in 

participating in the tenders;

•  unclear or overly narrow

requirements for the subject 

of procurement / excessive 

qualification requirements for 

participants that are difficult to 

meet;

•  wrongly estimated expected

value of procurement / terms 

and conditions of payment or 

supply that do not correspond 

to the market.

Interaction with suppliers and appealing procurements

Naftogaz group of 

companies are keen to 

make communication with 

businesses sound and effective. 

They inform suppliers about 

procurements through 

ProZorro and arrange open 

meetings to clarify needs. 

Such communication with the 

businesses helps get results 

that are more relevant to the 

tasks in hand, and also helps 

businesses to better prepare 

for the procurement process, 

collecting the necessary 

certificates and licenses so 

that in the case of the best 

price offer, they cannot be 

disqualified due to lack of the 

necessary documents.

In order to adhere to the 

principles of open and 

transparent procurement, a two-

tier system of appeal has been set 

up within Naftogaz group.

If necessary, a complaint can 

be filed to the local conflict 

commission at each group 

enterprise, or contact the central 

conflict commission which also 

considers complaints about 

local commission decisions. 

That is another step in the fight 

against corruption.

  Appeal of procurement other than appeals to Antimonopoly Committee of Ukraine

■

  Is established in the Headquarters

■

  Considers appeals of procurement decisions

■

  Reviews the grounds for rejecting bids and 

cancelling tender procedures

■

  Review of complaints with regard to local 

conflict commission decisions

■

  Makes resolutions and provides 

recommendations

■

  Is established at each 

enterprise

■

  Considers appeals of 

procurement decisions

■

  Makes resolutions and 

provides recommendations

Central 

conflict 

commission

Local  

conflict 

commission

TO SUBMIT A COMPLAINT:

Personally or by mail: 6 B. Khmelnytskoho Street 6,  
e-mail: sckk@gasukraine.com.ua 
phone: +380 (44) 537 0560

Detailed information on the submission 
of an appeal is posted on the official 
websites of the group enterprises

!

і

Procurement plan for 2018

The total procurement budget 

for the key enterprises of the 

Naftogaz group (UTN, UTG, 

UGV, Ukravtogaz, Naftogaz) in 

2018 is about UAH 120 billion. 

In 2018, Ukrgazvydobuvannya 

plans to spend the most 

among all enterprises of 

the group for procurement 

of goods and services – 

UAH 88.9 billion. For comparison, 

in 2017, Ukrgazvydobuvannya 

spent UAH 66.8 billion on 

purchases, and 4 years ago – 

UAH 300 million.

In 2018, Ukrgazvydobuvannya 

plans to increase the cost of 

purchased works and services. 

While in 2017 they accounted 

for 46% of total expenditures, 

in 2018 the figure is 53% 

(UAH 46.8 billion). The cost of 

procured materials as a portion 

of the total expenditures of the 

company will grow from 16% to 

17%, and that of equipment will 

decrease from 38% to 30%.

Planned purchases will be 

related mainly to drilling, 

geophysical research and 

procurement of services 

including core recovery, use 

of coiled tubing technology 

and contracting for hydraulic 

fracturing of formation (HFF).

For Ukrtransgaz, procurement 

is a service function aimed 

at ensuring the reliable and 

uninterrupted operations of the 

Ukrainian GTS.

OUR PERFORMANCE

142

  Tentative procurement plan for 2018, UAH billion

Ukrgazvydobuvannya

Ukrtransgaz

Ukrtransnafta

Ukravtogaz

Naftogaz

•  Compressor 

equipment

•  Energy equipment
•  Mobile drilling rig 

for workover

•  Reconstruction 

of the 
compressor 
shop

•  Piping armature
•  Gas fuel

•  Auxiliary 

construction 
products

•  Fuel, electricity, 

petroleum 
products

•  Reconstruction 

and overhauls

•  Natural gas
•  Purchase 

of mobile 
NGV filling 
stationand 
mobile gas 
filling station

•  Reconstruction 

and moderni-
zation of gas 
accounting 
units

•  Current and 

major repairs

•  Financial 

investigation 
services

•  Software

0.3 

Naftogaz

0.4 

Ukravtogaz

2.2 

Ukrtransnafta

29.9 

Ukrtransgaz

88.9 

Ukrgazvydobuvannya

Next year, amendments are 

planned to the Regulation 

on interaction between the 

structural units of Naftogaz 

of Ukraine NJSC during 

the procurement of goods, 

works and services based 

on the lessons learned from 

its application in 2017 and 

analysis of the effectiveness of 

procurement of goods, works 

and services. 

In addition, in terms of quality 

management of procurement 

the following is planned:

•  introduction of a unified 

approach in determining the 

expected value of the subject 

of procurement of goods and 

services at the enterprises of 

the group in order to set up the 

economic bases for increasing 

the efficiency of procurement;

•  development of standard 

requirements for 

documentation to be 

submitted for procurement 

procedures;

•  consolidation of purchases 

and benefits from economies 

of scale;

•  introduction of a new 

procurement mechanism 

which would be based on 

framework agreements;

•  development of a 

methodology for the 

preparation of annual plans 

for purchases and changes to 

these plans.

Plans for 2018

CORPORATE 

GOVERNANCE

CORPORATE GOVERNANCE

ANNUAL REPORT 2017

145

144

CORPORATE GOVERNANCE

A GOOD CORPORATE GOVERNANCE SYSTEM IS AN EFFICIENT TOOL THAT ENSURES:

■

  management and control;

■

  procedures for establishing and achieving company goals and monitoring their implementation;

■

  a clear definition and allocation of powers, rights, and responsibilities between all participants in 

corporate relations including the board (an executive body), the supervisory board (a supervisor), 
the general meeting (a shareholder), company body officials, management, employees and other 
stakeholders; 

■

  understandable rules and procedures for decision-making;

■

  efficiency, transparency and accountability;

■

  conflict prevention and resolution;

■

  availability of checks and balances, as well as internal controls functions.

The implementation of an 

effective corporate governance 

system results in better 

strategic and day-to-day 

management, increased 

operational efficiency of 

companies (as a result of 

setting goals and monitoring 

their implementation), higher 

levels of transparency and 

control, higher profitability and 

better opportunities to attract 

external financing, better 

relationships between internal 

and external participants 

in corporate relations, and 

improved reputation.

The companies of Naftogaz 

Group are significant players in 

the energy market of Ukraine 

and play an important role in 

its respective segments. This 

means that the implementation 

of a good corporate 

governance system in the 

Naftogaz group is an important 

contribution to ensuring 

economic efficiency and market 

competitiveness.

Corporate governance reform

Naftogaz's corporate 

governance reform was 

launched in 2015. The Corporate 

Governance Action Plan (CGAP) 

developed by experts and 

legal advisers has become the 

roadmap for this reform. It is 

worth mentioning that Naftogaz 

reform is part of the broader 

corporate governance reform 

process for all state-owned 

enterprises in Ukraine.

The reform aims to implement 

rules and procedures that are 

in line with best international 

practices. It should ensure the 

protection of the owner rights, 

the availability of fully-fledged 

and effective management 

bodies, a clear division of 

powers, functioning internal 

controls, the elimination of 

political influence and the 

creation of a level playing field 

with commercial companies 

on the market that meets 

OECD Principles of Corporate 

Governance. 

THE BASIC PREREQUISITES 

NECESSARY FOR ACHIEVING 

THIS GOAL ARE: 

–  elimination of political 

interference in company 

management;

–  formation of a supervisory 

board with a majority of 

independent directors;

–  investing the supervisory 

board with the required 

scope of authority including 

the right to approve 

strategy, financial plans, and 

appointment of the executive 

body;

–  introducing effective internal 

controls to replace existing 

inefficient statutory controls;

–  determination of status of 

the company's property, 

including shares in the 

companies where the 

Company is a shareholder. 

PROBLEMS OF CORPORATE 

GOVERNMENT REFORM

The government has taken a 

number of decisions that do not 

take into account the interests 

of the Company. Below is a list of 

important CGAP measures that 

have not been implemented in 

full or partly:

–  drafting of laws envisaging 

the elimination of political 

interference and submitting 

them to parliament;

–  approval of the Corporate 

Strategy of Naftogaz group;

–  replacement of inefficient 

statutory controls with 

effective corporate 

governance;

–  introduction of generally 

recognized internal controls 

procedures to enable Naftogaz 

to operate on the same level 

as commercial companies;

–  investing the supervisory 

board with full authority 

including: appointment/

termination of powers of the 

head of the executive body, 

approval of strategy, financial 

and investment plans, etc.;

–  determination of the status 

of Naftogaz corporate rights 

in the authorized capital of 

controlled entities;

–  approval of new version 

of the Company's Articles 

of Association (a draft was 

developed by the Board, 

approved by the Supervisory 

Board, and submitted for 

approval to the Cabinet of 

Ministers of Ukraine). 

Corporate governance reform in 

Ukraine is at a crucial stage, since 

without legislative changes all 

proposed solutions will remain 

incomplete. In addition to the 

appointment of professional 

members of the supervisory 

board, it is of paramount 

importance to create the right 

environment for their activities 

and to find solutions to the issues 

of electronic declarations and 

assets owned by independent 

directors of the state companies 

who are foreign citizens.

Two-level board of directors (mandatory in Ukraine)

SUPERVISORY 

BOARD 

EXECUTIVE  

BODY 

COLLEGIAL   

(the board headed by the 
chairperson of the board)  
OR 

SOLE  

(general director)

CURRENTLY: 

limited range of powers, 
the prior approval of the 
supervisory board or 
shareholder for operational 
issues is required.

CURRENTLY: 

it manages the joint stock company and 
supervises and regulates the activities of the 
executive body (which results in the duplication 
of functions and conflict of powers of the 
supervisory board and executive body).

OBJECTIVE: 

management of day-to-day 

company activity, development 

and implementation of strategy 

and budget. Representation of 

the company.

(independent directors 
+ other members of 
the supervisory board 
(state representatives)

Іnternal control system

The company now has its internal controls in place as implemented in the Naftogaz group in the 

following areas:

Internal 
audit

Risk Management

Compliance

Financial 
control

Investment 
management

Governance and Internal 
Control System (ICS) 
(consolidated)

CORPORATE GOVERNANCE

ANNUAL REPORT 2017

147

146

REPORT OF NAFTOGAZ 

SUPERVISORY BOARD 2017

BUSINESS OVERVIEW OF THE COMPANY: OPERATIONAL AND FINANCIAL PERFORMANCE

Key results of the company’s 

operational and financial 

performance in 2017:

•  Naftogaz generated a 

UAH 39.3 billion net profit 
which is almost twice as 
much as the budgeted net 
profit and 1.5 times more 
compared to net profit in 
2016;

•  for the first time since 

2012, the company paid 
UAH 13.3 billion in dividends 
to the state budget for 2016;

•  for the second consecutive 

year, the company received 
no aid from the state 
through recapitalization with 
government bonds;

•  in 2017, the company 

satisfied its demand in natural 
gas imports with supplies 
from the European market 
only;

•  8.7 bcm of imported natural 

gas (0.4 bcm more than in 

2016) was purchased from 
13 European suppliers none 
of which accounted for more 
than 25% in total imports by 
Naftogaz;

•  new payment mechanisms 

for natural gas imports 
(payment upon delivery 
and letters of credit) and 
more flexible procurement 
strategies with short-term 
contracts were introduced 
in order to optimize the 
company’s portfolio costs;

• natural gas totaling more 

than EUR 645 million 
procured via credit 
facility guaranteed by 
the International Bank 
for Reconstruction and 
Development (IBRD): the 
IBRD confirmed that the 
company’s natural gas 
procurement business 
processes complied with 
international practices;

• EFET master agreements 

concluded with 8  European 

gas suppliers. As of the end 
of 2017, the company had 
30 effective EFET master 
agreements;

•  loans from the EBRD, City and 

Deutsche Bank guaranteed 
by the IBRD utilized, 
Gazprombank loan repaid 
early, the company’s bonds 
repaid in a timely fashion 
allowing for a decrease in 
weighted average effective 
interest rates on financial 
liabilities from 18.9% to 17.6% 
in UAH and from 7.7% to 5.1% 
in foreign currency.

STRUCTURE OF THE BOARD 

AND ITS COMMITTEES

Changes in the board 
 
In line with Resolution of 
the Cabinet of Ministers of 
Ukraine dated 29 March 2017 
No. 232 “Matters pertaining to 
formation of the supervisory 
board of Public Joint Stock 

Company ’National Joint-Stock 

Company ’Naftogaz of Ukraine’”, 

the board’s composition was 

expanded from five to seven 

members, four of whom shall 

be subject to independence 

criteria envisaged by legislation, 

and the government initiated 

the selection process for new 

board members.

Beginning in April 2017, several 

supervisory board members 

resigned:
•  Kovaliv Yulia Ihorivna;
•  Proctor Charles Richard

Faraday;

•  Warwick Paul Cyril;
•  Richards Marcus Trevor.

Before the termination of 

the authority of the three 

independent directors in 

October 2017, the board 

operated with a composition 

of four members, which 

constituted the majority of the 

total number of the supervisory 

board members as set by the 

general meeting.

The new composition of the 

supervisory board had been 

formed by Order of the Cabinet 

of Ministers of Ukraine dated 

13 December 2017 No. 892-p 

“On certain matters of the 

supervisory board of Public 

Joint Stock Company ’National 

Joint-Stock Company ’Naftogaz 

of Ukraine’” which came into 

force on 15 December 2017.

Spottiswoode Clare Mary Joan, 

Lescoeur Bruno, Jean, Gaston, 

Hochstein Amos and Haysom 

Steven John were elected 

as independent directors. 

They were joined by Popyk 

Sergii Dmytrovych, Kudrytskyi 

Volodymyr Dmytrovych and 

Demchyshyn Volodymyr 

Vasylyovych as government 

appointees.

During 2017, all of the 

supervisory board members 

elected were compliant with 

the necessary criteria including 

regarding competences and 

dedication of time to the work 

of the board.

The independent directors 

made statements of their 

independence to the 

nomination committee for 

appointment of officers 

of strategically important 

enterprises at their 

appointment confirming that 

they are fully compliant with 

the independence criteria 

as established by Article 2 of 

the Law of Ukraine “On Joint 

Stock Companies” and Article 

11 of the Law of Ukraine 

“On Management of State 

Property”. Identical statements 

are available on the company’s 

official website. 

During January and February 

2018, the company concluded 

service agreements with the 

majority of board members 

pursuant to Order of the 

Cabinet of Ministers of Ukraine 

dated 17 January 2018 No. 21-p 

“On certain matters pertaining 

to conclusion of service 

agreements with members of 

the supervisory board of Public 

Joint Stock Company ’National 

Joint-Stock Company ’Naftogaz 

of Ukraine’”.

According to the provisions 

of the existing agreements, 

remuneration for performance 

of the board member 

functions (including 

compensation for expenses) 

is payable for the period 

starting from 15 December 

2017. Compensation for the 

performance of board duties is 

Chairperson of 
the supervisory 
board

 

Spottiswoode 

Clare Mary Joan

Deputy chairman 
of the supervisory 
board

 

Demchyshyn 

Volodymyr 

Vasylyovych

Independent 
director

  

Lescoeur Bruno, 

Jean, Gaston

Independent 
director

  

Hochstein Amos

Independent 
director  

Haysom Steven 

John

Board member

  

 

Popyk Sergii 

Dmytrovych

Board member  
 

Kudrytskyi 

Volodymyr 

Dmytrovych

SUPERVISORY BOARD