By Volodymyr Verbyany

(Bloomberg) -- Drafted in to help Ukraine’s post-revolution
government tackle endemic corruption, foreign experts and
managers have slowly been defeated by the forces they were
brought in to fight.
The latest example is natural gas company NAK Naftogaz
Ukrainy, whose three British independent directors have now
quit, complaining that politicians are backsliding on reforms.
They follow a steady tide of departures that began last year
with Lithuanian-born Economy Minister Aivaras Abromavicius and
continued more recently with the Polish head of the national
rail monopoly.

Andry Kobolyev, Naftogaz’s reformist chief executive officer, has vowed to stay in his post despite the resignation of his board, also composed of reformers. (UNIAN/Anastasia Sirotkina)

Three years after ousting their Russian-backed leader,

Ukrainians remain furious at widespread graft, which is cited as
a bigger obstacle to investment than the nation’s separatist
conflict. After initial progress, anti-corruption efforts have
faded. Activists accuse officials of seeking to block their
efforts and the International Monetary Fund has urged new reform
impetus to keep transfers from a $17.5 billion bailout flowing.

“Despite assurances from senior politicians, deadlines have
passed and commitments have not been delivered,” Paul Warwick,
chairman of Naftogaz’s supervisory board, said Tuesday in his
resignation letter. Political meddling became “increasingly
evident and, unfortunately, the norm.”

Officials have long been accused of using Naftogaz for
personal enrichment, inserting middlemen into energy deals and
other procurement to siphon off cash. The supervisory board was
created to absorb powers from management and the government to
strengthen corporate governance.

But board members’ positions
were kept subject to annual review and directors were asked to
submit asset declarations -- a tool designed to root out
corruption among Ukrainian officials. They were also asked to
entrust holdings in other companies to asset managers registered
in Ukraine.
The board’s departure poses “huge risks” for plans to boost
domestic gas output and for borrowing from international
lenders, Naftogaz’s chief executive officer, Andriy Kobolyev,
told reporters Wednesday in Kiev. The European Bank for
Reconstruction and Development called the board’s achievements
“extraordinary,” saying a new wave of reforms is now needed.
Prime Minister Volodymyr Hroisman told a government meeting
Wednesday in Kiev that he “guarantees” Naftogaz reforms will
accelerate. International investors looked past IMF delays this
week, flocking to Ukraine’s first international-debt placement
since Russia’s annexation of Crimea in 2014.

The storm at Naftogaz follows last month’s exit of Wojciech
Balczun, the 47-year-old head of state rail operator
Ukrzaliznytsya. Balczun fought to raise cargo tariffs to turn
the company profitable, a move that would have boosted costs for
big industrial groups. He left complaining that old-guard
politicians were blocking change, and said firing corrupt
employees was tricky.

“When it comes to state-run companies in Ukraine, it’s
always about the struggle between different groups of
interests,” said Volodymyr Fesenko, head of the Penta research
institute in the capital, Kiev. “Balczun’s case can be used as a
serious argument by those who want to end the experiment of
inviting foreigners to Ukraine.”

Overseas hires in government and the General Prosecutor’s
Office have seen a similar fate.
Abromavicius quit after little more than a year,
complaining that a ruling-party lawmaker wanted to install an
associate in a key management role at a state company. Ex-
Georgian leader Mikheil Saakashvili, who won plaudits at home
for tackling graft, was hired as governor of the Odessa region.
He later fell out with President Petro Poroshenko, who he
accused of being uninterested in such initiatives. His Ukrainian
passport was revoked last month.
Transparency International ranks Ukraine 131st-worst of 176
countries for corruption. Two foreign CEOs, both Polish, remain
at government-controlled companies. One is at road operator
Ukravtodor, the other at national gas-pipeline operator
Ukrtransgaz, though his appointment is being blocked by the
State Security Service, according to Kobolyev.

To contact the reporter on this story:
Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net