Corruption In Ukraine Spells Potential Trouble For Post-War Economic Rebuilding

Forbes

23-04-2025

Ever since the relationship between former President Joe Biden's son, Hunter, and a Ukrainian energy company called Burisma became public, Ukrainian energy companies have been in the public eye. That remains the case, as the Trump Administration and Ukraine work to finalize a framework agreement where US companies could invest in Ukrainian resources and minerals. This appears to be for the purpose of funding potential reconstruction following the war with Russia. A problem has arisen, however, which appears to show that the Ukrainian government may be seizing assets unlawfully from privately owned companies in Ukraine's gas, oil and minerals sectors for the benefit of the Kyiv central government and certain well-connected individuals. If true, this move could lead to years of court litigation, inhibit future private investment in Ukraine, and limit the nation's ability to produce energy when it is most needed.
Among the companies targeted by the Ukrainian state are Enwell Energy, a public company traded on the London Stock Exchange, and Ukrnaftaburinnya (UNB). Since 2022, the Ukrainian government has proceeded systematically to expropriate the assets of these companies, diminishing the interests of private investors, and, in the end, decreasing the amount of energy actually produced.
According to Forbes Ukraine, UNB was, at one time, one of the three largest privately owned producers of oil and gas in Ukraine. It was developing the largest field in Ukraine, known as the Sakhalin Gas Condensate Field (no relation to Russia's Sakhalin Island in the Pacific Ocean). By the start of the Russo-Ukrainian War in 2022, Sakhalin was responsible for 5% of total Ukrainian natural gas production.
Then the trouble started. In 2023, the Ukrainian government began making moves to seize UNB, starting with a seizure of a stake in UNB by a Kyiv Court in 2023, under the claim that UNB was a material witness in a case to which it was not a party. By 2024, the government had replaced the management of the company, placed UNB entirely under state control, held corporate meetings to pass resolutions changing the composition of the company, amended the company's charter, and distributed over $20M of the company's assets as dividends that ended up in Ukrainian state coffers. The original management and shareholders in UNB had no say in these affairs.
UNB's shareholders refused to go quietly. To date they have filed approximately twenty litigations in the Ukrainian courts, but few have confidence in the independence of the Ukrainian judiciary, which is moving very slowly on these cases. Shareholders of UNB have told Forbes they have approached international law firms about filing lawsuits seeking over $1B in compensation. Andriy Pasishnyk, CEO of JKX Oil and Gas Group, a British-owned private player in Ukrainian oil and gas, told Forbes that 'unfortunately, as of today, the courts are in no hurry to take a stance in favor of justice and the rule of law, given the administrative pressure exerted by interested parties within the state authorities. New laws were retrospectively created, and artificial justifications for nationalization were invented to legitimize the process. This is not a matter of state policy – it is outright plunder, disguised under lofty slogans.'
Oleksy Goncharenko, a member of the Budget Committee of Verkhovna Rada of Ukraine, confirmed that corruption remains a serious problem in Ukraine and is not limited to energy. 'Partly,' he notes, 'some confiscations are justified because they were the property of Russian oligarchs...,' but this can extend beyond the property of such oligarchs, making it a very big national problem.
Further evidence of Mr. Goncharenko's concern is the story of Smart Energy, also one of the top private oil and gas businesses in Ukraine, whose two production companies, UGV and Enwell Energy, saw their production halted last year. Enwell Energy, a public company listed on the London Stock Exchange, shuttered its Ukrainian operations in November 2024 after the Ukrainian government suspended its subsoil licenses by imposing sanctions on certain shareholders.
At first, the national security council sanctioned Vadim Novinsky, who has ties to the Ukrainian Orthodox Church, which the Ukrainian government claims is controlled by Moscow. As Novinsky had transferred his assets to a trust, they also sanctioned the Cypriot-based trustees. Enwell's licenses now have been suspended for ten years, forcing the company to mothball its gas wells.
Ivan Gerasymovich, CEO of Smart Holding, said the following when interviewed by Forbes: 'We have repeatedly offered the authorities mechanisms to unblock the assets (without lifting sanctions) while preserving national security interests, which would allow us to resume operations and gas production, as well as prevent job losses. …However, for reasons that are completely unclear, the government is ignoring the business's request and is in no hurry to resume operations.'
As all of this is happening, Ukraine's energy issues are becoming more acute. With Russia continuing to attack Ukraine's energy infrastructure, the actions against private energy companies seem irrational. Overall, according to Gas Infrastructure Europe, Ukraine's natural gas storage has fallen to only 12% of its capacity, compared to 56% for the rest of Europe. Taking steps against one's own energy industry at a time of existential peril seems unusual, but it raises the legitimate question of whether corruption in Ukraine is so endemic that it threatens the future of the state itself. JKX Oil and Gas Group, announced in February that it was being raided by law enforcement officers and was targeted by a defamation campaign in Ukraine aiming to create legal grounds for initiating a criminal investigation. Searches without court warrants were conducted at the offices of its subsidiary. Poltava Petroleum Company, and the homes of its senior executives, some of whom are citizens of the United States.
Energy is not the only area where corruption threatens the stability of Ukraine. Currently, there is confusion about the status of American military aid to that country, which apparently totals approximately $177B since the start of the 2022 Russian war. Mr. Goncharenko, however, strongly disputes the claim that any military assistance has been misused or lost. All of this is properly accounted for, he insists.
Regardless of whether or not huge sums of American aid are missing, the reputation of Ukraine as a country rife with corruption, evidenced by its moves against its own energy sector, absolutely hurts the investment climate. This is at a time when Ukraine needs all of the foreign investment it can get. If the Zelensky government cannot convince investors that their money is safe, Ukraine's troubles may only be beginning.