"Ukrzaliznytsia is on the brink of default, while Butkevich has acquired the Aerok assets confiscated from the Russians."

Corporate Governance of State Enterprises

IMF Memorandum Updated. On December 20, 2024, the International Monetary Fund (IMF) published an updated Memorandum on Economic and Financial Policies following the sixth review of the Extended Fund Facility (EFF) program for Ukraine.

Ukraine's commitments regarding state banks are as follows:

• Exit all banks with majority state ownership managed by the Ministry of Finance. Any nationalized non-systemic banks will be immediately transferred to the Deposit Guarantee Fund for Individuals (FGVFL) for resolution ( permanent structural benchmark ).

[As we reported earlier , foreign investors expressed interest in acquiring "Ukrgasbank" and "Smysl Bank". – SOE Weekly .]

There are also several commitments related to state enterprises that are not included in the structural benchmarks:

• By September 2025, revise Cabinet of Ministers Resolution No. 777, which regulates the procedure for appointing independent members of supervisory boards in state enterprises, in consultation with the IMF and international partners.
• Continue the implementation of regulations under Law No. 3587-IX, particularly developing methodology and conducting regular independent assessments of the activities of the supervisory boards of state enterprises.
• Implement state property policy by:
• Classifying state enterprises of strategic importance;
• Implementing a privatization framework (full or partial);
• Preparing a concept for consolidated management of state enterprises;
• Refining legislation on the mandatory formation of supervisory boards and evaluating their performance;
• Introducing financial reporting in accordance with International Financial Reporting Standards (IFRS), considering the relevant transition period;
• Introducing disclosure of information about state enterprises and the remuneration policies for their managers.

• Assess the financial viability of key state enterprises as part of developing a management system for quasi-fiscal expenditures, including special historical obligations for providing public services (so-called "PSO").

The new supervisory board of "Energoatom" has not been operational for five months. In a comment to "European Truth" on December 16, 2024, the EU Ambassador to Ukraine, Katarina Maternova, highlighted the need to launch the full operation of "Energoatom's" supervisory board, which was formally established in June 2024.

"I would like to emphasize that we are very interested in forming the supervisory board of 'Energoatom'. And we in the G7 sent a letter about this to the Prime Minister last week."

The composition of the supervisory board was formed in June, and it is time to finalize the process, sign contracts, and launch the supervisory board. Her opinion will be an important factor in decisions regarding the financing of various projects," – Maternova noted.

On December 18, 2024, First Deputy Minister of Economy Alexey Sobolev reported that the Cabinet expects positions from the independent members of the "Energoatom" supervisory board, whose first meeting has been ongoing since July 17, 2024, regarding contracts and readiness to continue working.

"On July 17, 2024, the supervisory board opened its first meeting, and it is still open because discussions about contracts are ongoing. On November 26, the government made a decision to approve the terms of civil law contracts with 'Energoatom'. They are now with the independent members, and we expect their position every day regarding whether they are ready to sign them and continue their work," Sobolev added.

He also noted that at the first meeting, the members of the supervisory board are to elect a chairperson. Sobolev added that this is the first case where contracts remain unsigned for such a long period.

"The government put forward its proposals, and the members of the supervisory board made proposals, some of which contradicted the legislation. We tried to moderate and formulate a position that allowed us to make a decision on November 26 and approve the contracts. I hope they will sign them now. "I cannot disclose details, contracts for official use," Sobolev noted.

Responding to a question about the level of remuneration, Sobolev stated that it corresponds to the levels of remuneration in other energy state enterprises in Ukraine, such as "Ukrenergo" or "Naftogaz", adding that the conditions for all members of the supervisory board ["Energoatom" – SOE Weekly] are the same.

[The terms of contracts with independent members of the "Energoatom" supervisory board and representatives of the state in this board were approved by the Cabinet on November 26, 2024.

As we reported earlier, on June 21, 2024, the Cabinet approved all five members of the supervisory board: Timothy John Stone, Michael Elliott Kearst, and Jarek Neverovich as independent members, and Vitaliy Petruk and Tymofiy Milovanov as state representatives upon the proposal of the Ministry of Energy.

In September, we wrote that the "Energoatom" supervisory board was supposed to become operational by the end of July 2024, but this did not happen by that time (more details in one of our previous digests).

Forbes Ukraine then reported that only Ukrainian members of the supervisory board had signed contracts, while foreign independent members believed that the first meeting could only take place after the contracts were signed. To avoid violating the law, the first meeting was opened within 30 days after the appointment of the supervisory board members, but the board did not make any decisions and could not conclude the meeting, the publication reported at that time.

During the session of the Verkhovna Rada on September 6, 2024, Energy Minister Herman Halushchenko reported that the "Energoatom" supervisory board was convening – there is an open meeting. According to Halushchenko, the finalization of contracts is ongoing, and the supervisory board is authorized. More details on this can be found in one of our previous digests. – SOE Weekly.]

Energy Sector

Fitch confirmed the long-term issuer default rating (IDR) of "Naftogaz" at "CC". The rating of the company's senior unsecured bonds, issued by Kondor Finance plc, is confirmed at "C". The recovery rating is "RR6". The standalone credit profile (SCP) of "Naftogaz" remains at "CC".

According to Fitch , the IDR of "CC" reflects the anticipated weak liquidity of the company due to ongoing very high operational risks in Ukraine amid the continuing war with Russia, slow payments for gas, and limited external financing options.

The agency identified key factors affecting the rating:

• Absence of transit revenue: The transit agreement of "Naftogaz" with "Gazprom" expires at the end of 2024, and it is expected that it will not be extended.
• Servicing of restructured eurobonds: "Naftogaz" continues to make payments on eurobonds restructured in 2023.
• Functioning infrastructure: The infrastructure of "Naftogaz" continues to operate but remains at risk of damage due to Russian attacks on Ukraine's critical infrastructure. Domestic production covered 87% of "Naftogaz's" customer consumption in 2023, and "Naftogaz" expects this figure to rise to 91% in 2024 with a 5% increase in production.
• Improved performance results: In the first half of 2024, the cash flow from operations of "Naftogaz" amounted to 56 billion UAH (1.3 billion euros) compared to 19 billion UAH (481 million euros) last year. This is due to the sale of gas for electricity generation at a more favorable tariff for "Naftogaz" than for residential consumers and heat providers.
• Absence of state compensation in 2024: Since the beginning of the war, "Naftogaz" has been operating under special obligations (so-called "PSO"), which stipulate that the company must supply gas to certain categories of consumers at subsidized prices, provided that the state compensates for the negative