Energoatom's development requires new law: report

The corporatization of Ukraine's Energoatom requires the development of a special law that will need to take into account all its characteristics as nuclear power plant operator, a consultancy report has concluded. The report was presented last week by a consortium selected by the European Bank for Reconstruction and Development (EBRD) to advise Energoatom on its restructuring. The consortium consists of the UK's Deloitte Touche Tohmatsu LLC and Ukraine's IMEPOWER.

The project is part of the London-based bank's Corporate Sustainable Development programme and the report, presented to Energoatom and government officials in Kiev on 11 October, represents the first stage of the project.

Deloitte presented its initial report on implementation of the nuclear power plant operator's corporatization project in April. The report envisages 39 main activities to be implemented in three stages - to study and evaluate the existing legislative framework; to establish a roadmap that identifies the rights and obligations of the company and determines the role of the state; and to complete corporate governance issues. In addition, a ten-year development plan will be developed for financial management and attracting long-term capital investment. Deloitte is in close contact with all the relevant stakeholders in the project, including the Cabinet of Ministers, the State Nuclear Regulatory Inspectorate, creditors and the International Atomic Energy Agency.

At the 11 October meeting, Energoatom President and CEO Yury Nedashkovsky said the need for corporatization of Energoatom is based not merely on Ukraine's commitments to the EBRD, but also to the urgent need to improve the company's operations.

According to a company statement, Nedashkovsky said: "Corporatization will expand Energoatom's capabilities in the sphere of international cooperation by increasing its appeal to investors." He added that Energoatom is the only nuclear power plant operator in the world to still be a state unitary enterprise.

Property rights

Presenting the report, consultants from Deloitte and IMEPOWER said a new law on Energoatom's corporatization would need to "streamline relationships and ensure the conditions for Energoatom as a joint stock company to continue to use property that is not subject to privatization".

The consultants highlighted a paradox in Energoatom's legal status, the company said. "On the one hand, under Ukraine's existing international obligations, Energoatom should be corporatized, and this has been approved by Ukrainian legislation," it said. By international obligations the company referred to the conditions of its loan agreements with the EBRD.

"But, as the specialists have emphasized, Ukrainian laws - on the privatization of state property; on state property not subject to privatization; and on the management of state property rights - property owned by Energoatom cannot be transferred into ownership in the authorized capital of Energoatom as a joint-stock company. And that includes property that corresponds to the company's main economic activities," it said.

This means, it added, that in establishing Energoatom as a joint-stock company according to current legislation, the company will be able to use to make a profit some 97% of the state property it owns free of charge, but a relatively small amount of the authorized capital, in relation to the total value of the state property accounted for on the company's balance sheet, will not contribute to improving the investment attractiveness of the enterprise.

As a result, the consultants have forecast a "negative value" for the size of the authorized capital, which would make it impossible for the state to register Energoatom as a new joint-stock company, it said. "However, it should be borne in mind that, according to its international obligations, Ukraine's adoption of all necessary measures for the corporatization of Energoatom should take place on condition that the size of the company's authorized capital is not reduced," it added.

The consultants "paid special attention" to the fact that nuclear materials - which according to the Ukrainian law on the use of nuclear energy and radiation safety are "exclusively state-owned property" - are an integral and essential component of Energoatom's economic activity.

Deloitte noted that, if the corporatization of Energoatom is to proceed, then as a joint-stock company it will be a party to contracts for the acquisition of nuclear materials and, by paying for these, the company will acquire the right to property that is exclusively state-owned, according to the statement.

"The need to reform the management system of state-owned enterprises in Ukraine has led to the recent introduction of amendments to legislation, with the introduction of the supervisory board as the governing body of a state-owned enterprise," it said. "Regarding the identity of the management bodies of a state-owned enterprise and a joint-stock company, the issue of property relations with respect to property that is not subject to privatization becomes a priority," it added.

The consultancy report states that Energoatom is of strategic importance to Ukraine's economy and security, and the settlement of legal disputes – which make the effective corporatization of the enterprise impossible - concern the strategic interests of the state.

"Deloitte is convinced therefore that a special legal regime for the use of property prohibited for privatization should be established by a public joint stock company created in the process of the corporatization of Energoatom," the company said.

Independence

During the discussion, a senior banker at the EBRD, Olga Eremina, noted the need for an independent management model for the company. "The result of corporatization should be the company's achievement of independence in making economic and budgetary decisions in its own interests and as part its development strategy. This is especially important in the context of the introduction of a new electricity market model in Ukraine," she said. Energoatom's corporatization should "release the company from the need to coordinate each and every step with the state in its investment activities", she added.

Taras Seryy, head of Deloitte's work on the corporate development of Energoatom, said: "Unfortunately, today the state does not have a strategic vision on what to do with Energoatom in the future, on how to develop the company. To form such a vision is our next collective task."

Researched and written
by World Nuclear News