:00:00. > :00:12.Ukraine is a country at war with itself, and not just
:00:13. > :00:16.Corruption is endemic, especially in state industries,
:00:17. > :00:22.and Andriy Kobolyev is trying to clean it up.
:00:23. > :00:25.He wants to make gas more expensive, because massive subsidies discourage
:00:26. > :00:32.But energy scams are a big source of income for some powerful people.
:00:33. > :01:03.Are his efforts being sabotaged from the very top?
:01:04. > :01:04.Andriy Kobolyev, welcome to HARDtalk.
:01:05. > :01:14.Let's start with the relationship with Russia, which is hugely
:01:15. > :01:18.important in terms of energy policy and gas supply, because you are the
:01:19. > :01:23.transit point by which Russia flyers not just yourself -- supplies not
:01:24. > :01:27.just yourselves but countries across Europe with gas. You stopped buying
:01:28. > :01:33.gas last November in favour of Europe sources but Naftogaz says you
:01:34. > :01:37.approached it to restart the arrangement. Why? We are always
:01:38. > :01:41.trying to balance out wheel to make the most optimal price rise. That is
:01:42. > :01:49.why we are welcoming any gas supplier who is prepared what is
:01:50. > :01:56.most importantly to supply to Naftogaz, so we are to suppliers on
:01:57. > :02:05.including Gazprom, if they will follow the rules, we are prepared to
:02:06. > :02:10.buy. The man in charge of the company says Naftogaz sent a letter
:02:11. > :02:14.and offered them the opportunity to resume gas supplies into next year.
:02:15. > :02:20.It is a risky business for you given the nature of disputes with Russia
:02:21. > :02:25.in the past Yes January 2006, March 2008, June 2014, circumstances in
:02:26. > :02:29.which the same issues came up, allegations you haven't paid your
:02:30. > :02:34.debts, counter allegations from you that they are interfering with
:02:35. > :02:38.supply? It is difficult, on one hand, on the other hand it has
:02:39. > :02:42.become much easier later. We are not dependent on Russian gas and in more
:02:43. > :02:47.and that is a game changer for us. So our idea is simple, as Naftogaz
:02:48. > :02:51.management we are responsible for being commercial minded and our task
:02:52. > :02:56.was to create as efficient gas purchasing mechanism as possible.
:02:57. > :03:00.For example, now approximately 14 European suppliers are selling gas
:03:01. > :03:06.to Naftogaz. And we are totally fine with that. And, actually, the fact
:03:07. > :03:11.that they are working with us, they are selling gas to ask, and they are
:03:12. > :03:15.happy to operating with us shows that we can be a reliable
:03:16. > :03:20.counterpart. The only trouble we have with this is Gazprom. You see,
:03:21. > :03:24.you say that you are not dependent on gas from Russia any more and it
:03:25. > :03:27.is certainly true the amount supplied directly by Russia has
:03:28. > :03:32.diminished significantly, but isn't it also the case that a lot of this
:03:33. > :03:36.supply you rely on is what is called reversal flows, in other words it is
:03:37. > :03:44.gas that is exported from Russia to other countries, countries like
:03:45. > :03:47.Salva Kiir, then it has come back to you, so ultimately it is Russian
:03:48. > :03:52.gas. It is one of my favourite questions -- Slovakia. I will give
:03:53. > :03:56.you another example, it is similar to electricity, any consumer doesn't
:03:57. > :04:01.know whether the electricity they are consuming is coming from at a
:04:02. > :04:07.meet generation, gas plough plant or whatever, it is the same with gas --
:04:08. > :04:11.atomic -- gas power plant. There are points we used to prove this point,
:04:12. > :04:16.firstly, if the supplier supplying to you is behaving under European
:04:17. > :04:21.rules, not Russian rules, which means if you want we can switch it
:04:22. > :04:27.off, that is a problem with Russian gas, and second, whether Gazprom can
:04:28. > :04:31.stop the supply. They tried this two years ago and they lost $6 billion
:04:32. > :04:36.trying to do so, and they failed. So my answer is no, it is not Russian
:04:37. > :04:41.gas. Alexey Miller of Gazprom calls it a semi- fraudulent mechanism. He
:04:42. > :04:46.says it should be understood it is the same Russian gas, it comes from
:04:47. > :04:53.Ukraine wants against appellate if I was in his place I would have to say
:04:54. > :04:58.something -- wants gas. You are not concerned that it might reduce the
:04:59. > :05:02.flow, the amount might be diminished and suddenly they will say to you,
:05:03. > :05:05.we are really sorry, we want to carry on supplying you but we
:05:06. > :05:09.haven't got enough left over from supplying our own needs. The world
:05:10. > :05:13.has changed a lot and that is exactly what I believe Mr Mellor is
:05:14. > :05:17.missing. Europe has become much more independent from Russian gas and
:05:18. > :05:21.when Gazprom as I mentioned tried these tactics two years ago they
:05:22. > :05:26.failed. So I am pretty much sure they will fail again. But Gazprom
:05:27. > :05:30.and Russia are very efficient in blackmailing their consumers. And we
:05:31. > :05:34.should not underestimate them this winter as well. Interesting you want
:05:35. > :05:42.to have a commercial relationship with a company using is a
:05:43. > :05:48.blackmailer. We have to balance. We have to act in good faith. So if
:05:49. > :05:53.there is any company who has or may be willing to act on good faith, we
:05:54. > :05:58.are obliged to use them. So, Naftogaz is acting in good faith.
:05:59. > :06:01.That is not what the arbitration institute Stockholm Chamber of
:06:02. > :06:06.Commerce said in 2010 we found Naftogaz did what Russia alleged it
:06:07. > :06:09.had done, it diverted gas that was Russian property and said the ruling
:06:10. > :06:13.confirmed that the gas was taken by Naftogaz in breach of the storage
:06:14. > :06:17.contract. I appreciate that was before you became CEO but
:06:18. > :06:20.nonetheless your company has a not entirely enviable record in this
:06:21. > :06:24.regard. This is a very famous arbitration case. It caused a lot of
:06:25. > :06:31.damage to Naftogaz. You must understand that the whole decision
:06:32. > :06:34.of this court was based on the statement made by Naftogaz
:06:35. > :06:45.management at that time, which was closely related to the company who
:06:46. > :06:49.got the gas, a huge amount of gas. And, if you combine these two facts,
:06:50. > :06:53.then this decision from the arbitration becomes a bit different.
:06:54. > :06:58.It is not about Naftogaz taking something against the law, I am not
:06:59. > :07:02.trying to judge if it is the case or not, but the whole failure of
:07:03. > :07:08.Naftogaz was based on that particular statement. There is
:07:09. > :07:13.another case pending due in 2017 from the arbitration institute in
:07:14. > :07:19.Stockholm. It has been estimated if you lose that it could cost 30
:07:20. > :07:25.billion dollars US. The total claim from Gazprom is 38. The total from
:07:26. > :07:31.our side is to be seven, however the estimated value for Ukraine is $50
:07:32. > :07:37.billion US. So it is a big risk. It is a huge risk. It is a very big
:07:38. > :07:41.case. But statistics is in favour of Naftogaz, because Gazprom lost
:07:42. > :07:44.almost all cases of similar times in the past, against other gas
:07:45. > :07:47.consumers. And we believe that Gazprom is a company which has a
:07:48. > :07:52.long history of discriminating different companies in Europe and
:07:53. > :07:56.will lose this time against a what you accuse Gazprom of acting like
:07:57. > :07:59.the Russian army. Last year when speaking at Nato in Brussels you
:08:00. > :08:03.talked about a hybrid war in energy being raged and you have pointed the
:08:04. > :08:08.finger very directly at President Putin. What do you think he is up to
:08:09. > :08:16.- why has he got it in for energy companies like yours? Gas is a
:08:17. > :08:22.powerful weapon and Mr Putin is a dangerous, experienced opponent. You
:08:23. > :08:26.must respect all of this. -- he is a powerful weapon. He has a track
:08:27. > :08:31.record of using gas against Ukraine. The contract which was signed in
:08:32. > :08:35.2009 actually lead to very discriminative position of Naftogaz,
:08:36. > :08:39.and the whole country. So, Mr Putin is using this weapon very
:08:40. > :08:43.efficiently. And our task as Naftogaz management is to try to
:08:44. > :08:47.resist in this war and to win this war. Let me ask about the company
:08:48. > :08:51.itself, one of the tasks as CEO, the reason you were brought in was to
:08:52. > :08:55.clean it up, it was described as a Ukrainian MP as having been a
:08:56. > :09:00.hornets nest of corruption. Do you believe Russia was involved in any
:09:01. > :09:05.of that corruption? Gas corruption, when you buy gas from Russian side,
:09:06. > :09:10.is not possible without Russian involvement. If you want to put an
:09:11. > :09:14.intermediary between Russian company and Ukrainian company, definitely
:09:15. > :09:17.some people from Russia should be involved. So, there were
:09:18. > :09:22.intermediaries behaving in a way that was not in Ukraine's interest?
:09:23. > :09:29.Definitely. What has happened? The latest one successfully managed to
:09:30. > :09:36.get more than 12 billion cubic metres of gas from Naftogaz in that
:09:37. > :09:40.decision. Then it was dissolved. Now there is no single intermediary
:09:41. > :09:44.between Naftogaz purchasers and gas supplies from both sides. You have
:09:45. > :09:47.eliminated that problem but you also acknowledge that there are serious
:09:48. > :09:51.problems in the company. You said at the beginning of last year and
:09:52. > :09:55.employee for monitoring the high-pressure pipeline can make $50
:09:56. > :09:58.if he left through part of the gas without passing it through the
:09:59. > :10:09.metre. How much is happening, do you think? Firstly, our team started
:10:10. > :10:12.this with a quick approach. We started with gas supply
:10:13. > :10:18.intermediaries and we are slowly moving lower and lower. I must say
:10:19. > :10:22.that we have decreased gas or losses by more than 30% already as a whole
:10:23. > :10:28.system, which is quite a big change. So, I can assure you 100% this does
:10:29. > :10:32.not happen somewhere in some village in the middle of Ukraine -- so I
:10:33. > :10:36.can't assure you. The size in the degrees of gas losses in huge and we
:10:37. > :10:40.believe we are making good progress. Is government interference affecting
:10:41. > :10:45.your ability to clean up Naftogaz? No. Not at all? We have been
:10:46. > :10:50.strongly supported by the government of Ukraine. We have arguments with
:10:51. > :10:54.some members of the government. We are currently in the middle of a big
:10:55. > :11:04.argument with a minister of energy. That happens. However, this base of
:11:05. > :11:07.reform is slowed mostly not by the government at rather by the
:11:08. > :11:13.parliament - that is where the problem is a. Lemmy bore you do this
:11:14. > :11:17.-- let me put this to you, the Economy Minister, I apologise for
:11:18. > :11:20.mispronouncing his name, he was the Economy Minister until February when
:11:21. > :11:23.he resigned, and he said he resigned because officials were trying to
:11:24. > :11:27.gain influence over state-owned companies including yours and this
:11:28. > :11:30.is what he said, systemic reform is decisively blocked, concrete action
:11:31. > :11:35.is trying to paralyse efforts, the pressure to appoint questionable
:11:36. > :11:38.positions to my team or state enterprises, I can only interpret
:11:39. > :11:44.these actions as the attempt to exert control over the flow of
:11:45. > :11:48.mother money gathered by state-owned enterprises, especially Naftogaz, in
:11:49. > :11:51.other words in really see it was the case that you are being undermined
:11:52. > :11:58.by very senior figures in the government -- money. He is a big
:11:59. > :12:04.friend of mine and I very much respect what he did. Firstly.
:12:05. > :12:08.Secondly, what he is referring to is more pressure from the government on
:12:09. > :12:13.Naftogaz but rather on the government from people outside the
:12:14. > :12:16.government who would like to regain control over different state
:12:17. > :12:21.entities including Naftogaz. Including according to him a close
:12:22. > :12:25.ally of the president. I can't comment on this particular bit. I
:12:26. > :12:30.know there is an investigation under way and we hope the results of its
:12:31. > :12:33.own. So I prefer not to comment on that. Are you sure that President
:12:34. > :12:42.Poroshenko wants Naftogaz to be free from state control? Um... The simple
:12:43. > :12:47.and quick answer to this, which I believe, is that any president of
:12:48. > :12:50.any country would like to be able to exert influence over state-owned
:12:51. > :12:55.entities. And he is no different from any other? That is natural so
:12:56. > :12:59.what is it? I believe, yes, because people in charge of the country
:13:00. > :13:03.would like to have controlled, and usually that is human nature for
:13:04. > :13:11.many processes to bite OK, do you feel that pressure? Sometimes, yes.
:13:12. > :13:16.In what way? We are often discussing many important elements of Naftogaz
:13:17. > :13:20.reform and gas sector reform with participation of the President. He
:13:21. > :13:25.always has his opinion and sometimes we argue, sometimes we have defined
:13:26. > :13:30.compromise, but I view this as a natural process. OK, then, what is
:13:31. > :13:33.his opinion? Is he committed to reform, the end of Naftogaz, is he
:13:34. > :13:38.committed to competition, to reducing the subsidy is a lot of
:13:39. > :13:45.people have relied on and have come to take for granted? That is exactly
:13:46. > :13:49.the reason why many people, high standard politicians, would like to
:13:50. > :13:53.see Naftogaz transparent, and would like to be involved, at least, in
:13:54. > :13:59.discussing our matters. If you look at Naftogaz, in 2014 the number of,
:14:00. > :14:03.or the amount of money transacted, was $10 billion US. This year it is
:14:04. > :14:08.zero. Naftogaz has achieved some progress. People who are now looking
:14:09. > :14:12.at Naftogaz, and I allow this question, which was mentioned by Mr
:14:13. > :14:16.Joe Biden at one meeting, it has become a shiny thing, so everyone in
:14:17. > :14:21.Ukraine would like to see how Naftogaz would be given this money.
:14:22. > :14:25.I am sure the President's decision is different, isn't it, so I will
:14:26. > :14:26.ask you once more, are you sure that President Poroshenko wants Naftogaz
:14:27. > :14:36.to be free from state control? I believe President Poroshenko would
:14:37. > :14:39.like to see a fitting control over Naftogaz will make him confident it
:14:40. > :14:47.will not become a black hole any more -- efficient. The change is
:14:48. > :14:51.irreversible. Do you think the authorities, especially the justice
:14:52. > :14:55.authorities, are taking the problem of corruption in state-owned
:14:56. > :14:59.industries, including the gas industry, seriously enough? I
:15:00. > :15:09.believe yes. Because last December you told Energy Magazine that the
:15:10. > :15:17.prosecutors were not doing enough, with things in plain view but not
:15:18. > :15:21.pursued. We have made significant regress with new law enforcement
:15:22. > :15:26.authorities, which have taken much more focus on gas matters, and we
:15:27. > :15:30.hope this progress will lead to significant improvement around
:15:31. > :15:35.corruption with Naftogaz. Do you need prosecutions? Will that make
:15:36. > :15:43.people more frightened about taking the risk? Definitely. There has not
:15:44. > :15:47.been enough yet? That has not been the case so far, but we see pressure
:15:48. > :15:51.on these people mounting, and we hope the pressure will result in
:15:52. > :15:56.prosecuting the right people who are truly at fault. Naftogaz was
:15:57. > :16:00.described at the end of 2014, a year of great difficulty with Russia over
:16:01. > :16:05.gas supply, as a state-controlled ass giant with a bigger budget
:16:06. > :16:10.deficit in Ukraine. Part of the deal with the IMF to help Ukraine with
:16:11. > :16:20.financial support was that Ukraine would achieve a subsidy energy
:16:21. > :16:24.sector risk and reduce, but can a timetable still be met? That
:16:25. > :16:32.timetable has been met. You have already eliminate the deficit? That
:16:33. > :16:37.is an impressive achievement. It is, and it is something the government
:16:38. > :16:41.has made a decision on, to equalise all prices for all consumer
:16:42. > :16:45.categories from April this year to make it clear this is not a final
:16:46. > :16:50.gas market yet. There is still a way to go. We still need to push through
:16:51. > :16:54.a law in Parliament which will allow us to finally implement the gas
:16:55. > :16:57.market reform to make all prices market-based, but we hope this can
:16:58. > :17:02.be done within a short period of time. How important do you think
:17:03. > :17:10.shale gas deposits could be for Ukraine as a potential source of
:17:11. > :17:24.gas? I don't have a well grounded and factual -based evidence this is
:17:25. > :17:28.for Ukraine. Naftogaz is not looking at shadows. Part of the difficulty
:17:29. > :17:35.is that two important international partners pulled out, Chevron was
:17:36. > :17:39.going to do testing in the West of Ukraine, and then Shall pulled out
:17:40. > :17:43.apparently because it would operate in is, which is difficult at the
:17:44. > :17:49.moment, citing heightened geopolitical risk -- Shell. Whether
:17:50. > :17:53.or not shale gas would have been a shining opportunity for Ukraine, we
:17:54. > :18:00.may have to find out in the future, but this war is costing your country
:18:01. > :18:05.dear. It is. And it is difficult not only for the humanitarian side, but
:18:06. > :18:11.also the economic side. The Naftogaz company has suffered a big loss in
:18:12. > :18:15.Crimea, we have suffered a bit lost in the eastern part of Ukraine. That
:18:16. > :18:20.cannot be compared with the human loss in Ukraine. Are the politicians
:18:21. > :18:23.in Ukraine truly committed to a liberalised energy market, in which
:18:24. > :18:29.Naftogaz is competing with other companies, trying to drive down
:18:30. > :18:34.prices accordingly, and are prepared to see new players coming in? I
:18:35. > :18:40.believe yes. There is big evidence that they are committed to this. The
:18:41. > :18:44.previous government has allowed all companies from the European side to
:18:45. > :18:49.trade freely with Ukraine. The government has made all prices
:18:50. > :18:54.equal. We as Naftogaz are trying to be as market oriented as possible,
:18:55. > :19:01.trying to play by the rules, and actually we are strange and unusual,
:19:02. > :19:07.in allowing European companies to compete with us in our market. When
:19:08. > :19:12.you increase prices, something which consumers don't like on one hand,
:19:13. > :19:15.but if on the other hand, you have to show them the benefit of the
:19:16. > :19:20.free-market, and the benefits is the same as competition. For Naftogaz to
:19:21. > :19:23.make change irreversible, we understand we have to accept painful
:19:24. > :19:31.things and help bring good things. That is what we are trained to do.
:19:32. > :19:33.Let me tell you what a private firm said recently, the government has
:19:34. > :19:37.already pushed independent businesses out of the gas market by
:19:38. > :19:42.introducing Naftogaz to large industrial consumers, to ensure
:19:43. > :19:47.financial support for Naftogaz, forcefully redirecting in favour of
:19:48. > :19:54.Naftogaz as a small-minded and shortsighted remedy. There was a
:19:55. > :19:59.specialist government agreement adopted during the war where the
:20:00. > :20:03.company and the whole country were struggling for cash. Naftogaz except
:20:04. > :20:08.the decision of the government was not market-based -- accent. We made
:20:09. > :20:14.a clear statement about this. However, as a company, it was
:20:15. > :20:18.leading state support, and the state was not able to give support in any
:20:19. > :20:22.other form. That is the problem, they can talk the talk, when it
:20:23. > :20:28.comes to walking the walk, they can't do it or they don't really
:20:29. > :20:32.want to. I would say that was an emergency one-time measure that has
:20:33. > :20:36.never happened before, and since then, but the government and
:20:37. > :20:42.Naftogaz made it clear that the new mass-market or which was adopted in
:20:43. > :20:46.2013 would be followed, and the government is following this law.
:20:47. > :20:49.Let me ask you about one of the other big developments that will be
:20:50. > :20:53.crucial to your future and the future of energy suppliers across
:20:54. > :20:56.Europe, and that is what Russia does. This development in the Baltic
:20:57. > :21:03.Sea, which will effectively meaning it will have reduced sharply after
:21:04. > :21:07.2020 to one tenth of what it is now the gas transited through your pipes
:21:08. > :21:12.and on to other customers. You worried by that? It sounds like a
:21:13. > :21:14.very big loss of business potentially. We are very worried,
:21:15. > :21:21.definitely. It will negatively affect Naftogaz, and also cost
:21:22. > :21:26.Ukraine approximately US $2 billion, huge amount for our country. But on
:21:27. > :21:29.the other hand, we are trying to show it to our European counterparts
:21:30. > :21:34.that it will not only negatively affect us, but also create a
:21:35. > :21:41.negative effect on the whole central and eastern Europe. You called it a
:21:42. > :21:44.Trojan horse. Yes, I did. Why? Because that would allow Russians to
:21:45. > :21:49.exercise tactics of divide and conquer. Personally to divide
:21:50. > :21:55.European countries by offering them different gas prices, and then the
:21:56. > :22:01.approach of trying to exchange geopolitical concessions for gas
:22:02. > :22:07.pricing. They are all tactics and Russia has or is being efficient at
:22:08. > :22:14.this, and Europeans, Ukraine will be affected. Can you trust Europe to do
:22:15. > :22:20.the right thing? We do trust Europe, and so far, Europe has been
:22:21. > :22:25.reliable. We still have some unresolved issues such as the flow
:22:26. > :22:30.from the European Union to Ukraine. We are working on this. I was going
:22:31. > :22:35.to say, you may trust subject what happens next, but the Prime Minister
:22:36. > :22:39.of Slovakia certainly did not trust Europe this time last year. He said
:22:40. > :22:42.for months they have had talks at the European Council about the need
:22:43. > :22:46.to help Ukraine stay a gas transit company and help them do the
:22:47. > :22:49.difficult winter months, and then the announcement from Gazprom that
:22:50. > :22:56.are designing a contract with Western European member states about
:22:57. > :22:59.building another not sure. They are going against political discussions
:23:00. > :23:03.with Ukraine. They don't sound a very trustworthy bunch at brussels.
:23:04. > :23:10.There are different interests in European countries, and there are
:23:11. > :23:14.many people who are trying to present it as a commercial exercise,
:23:15. > :23:19.which is not the case. It is not a commercial project, and does not
:23:20. > :23:25.have commercial sense. Unfortunately, the site is big. You
:23:26. > :23:29.can't not take into account -- Gazprom. Such statement from these
:23:30. > :23:36.companies are result of actions of them. I respect what they did for
:23:37. > :23:41.Ukraine, they did help in 2013, and opened the gas flow for us. But
:23:42. > :23:46.again, we still want also in Slovakia to fully implement the rule
:23:47. > :23:51.of European law, and make Gazprom lay by the rules. Such cases where
:23:52. > :23:58.Gazprom have avoided playing by the rules in many countries, sometimes
:23:59. > :24:00.is like that. Andriy Kobolev, Chief Executive Officer of Naftogaz in
:24:01. > :24:23.Ukraine, thank you. Yesterday it took a while for
:24:24. > :24:28.the sunshine to come through, but once it did, given the humid
:24:29. > :24:32.air, temperatures really shot up.