Auditing Department proposes liquidating Energy Company of Ukraine

The Main Control and Auditing Department of Ukraine (KRU) has detected financial violations amounting to some 500 million hryvnias after an initial inspection of the 2005-06 performance of the national joint stock company Energy Company of Ukraine. According to its findings, there is no sense for this company to continue operating.

The auditors accuse the company of mismanagement of government property. In 2005 all the company’s affiliates showed financial results five times lower than planned. Instead of earning 170.8 million hryvnias in revenues, they showed losses amounting to 141.3 million UAH.

A number of interesting aspects surfaced in the course of the audit. KRU’s second-in-command Natalia Ruban points to the reduced revenues and assets of the company’s affiliates. All told, the financial wrongdoings amount to 152.3 million hryvnias, including over 37 million resulting from unlawfully understated property values. Huge sums were spent in contravention of these companies’ financial plans.

Some affiliates conducted a number of dubious transactions. According to Ruban, the list includes the public corporation (VAT) Dniproenerho, which overpaid 101.5 million hryvnias when it was purchasing coal from an intermediary rather than from coal mines under the jurisdiction of the Ministry of Mines. When they were checking the Krymenerho Corporation, auditors spotted a transaction worth 13.6 million hryvnias, with obvious procedural violations — there was no documented proof of the receipt of goods under the contract, and the supplier could not be found at the stated address.

Oleksandr Ivoniv, head of the KRU’s government property control department, said that they couldn’t carry out scheduled inspections of two companies affiliated with the Energy Company of Ukraine: Dniproblenerho and Kharkivska TETS-5. The KRU had to go to court to reaffirm its legal right to “visit from time to time” all such government-run companies. The KRU will try to recover the money lost by such companies the same way. To date, 12.1 million hryvnias has been recovered after a hot pursuit of the money. According to Ruban, 70-80 percent of the damages can be recovered this way.

The findings of these scheduled inspections were duly forwarded to the law enforcement authorities. Meanwhile, the auditors have decided to ask the Cabinet of Ministers to consider the matter of the company’s further performance. “It is necessary to revise the company’s function or liquidate it, period, and to transfer its functions to one of the departments at the Ministry of Fuel and Energy,” Ruban insists.

However, the Energy Company of Ukraine considers the findings of the Main Control and Auditing Department of Ukraine one-sided and premature. According to a press release forwarded to The Day, the company says that KRU auditors relied on data pertaining to the period when the company was struggling and when most of the affiliates were in the red. At the time, total losses amounted to 800 million hryvnias, so from the very outset the company believed that carrying out the planned task of 604.4 million hryvnias’ worth of revenues was unrealistic.

Nor does the company agree with the KRU’s statement about mismanagement: the parent company has no right to administratively intervene into the financial and business performance of any of the companies within its structure. At the same time, it acknowledges some of the shortcomings detected by the auditors, including corporate management and vague dividend-receiving mechanisms.

It is possible that the auditors’ findings will speed up the privatization of government-owned energy assets. We know there are two options. The State Property Fund has suggested selling only regional power distribution companies. Deputy Prime Minister Andrii Kliuev wants all energy companies put up for sale. Meanwhile, the KRU is insisting on its own option: to liquidate the Energy Company of Ukraine. Ruban says that cabinet members are actively applying the KRU’s findings even with regard to other matters.