Corruption in Ukraine's energy sector (I)

Corruption in Ukraine’s energy sector has long been one of the principal obstacles to the country’s economic modernisation, energy independence and political stability. The sector has historically stood at the intersection of enormous financial flows, political patronage networks and foreign influence—especially from Russia. Despite multiple reforms since the 2014 Revolution of Dignity, entrenched interests have persisted, undermining transparency and slowing Ukraine’s transition to a modern, self-sustaining energy market. The persistence of corruption in energy reflects both institutional weakness and the high geopolitical stakes surrounding Ukraine’s natural resources.

Historical Context: The Soviet Legacy and Oligarchic Capture

Ukraine inherited from the Soviet Union a deeply centralised and opaque energy system. Energy subsidies were vast, gas pricing was manipulated for political ends, and bureaucrats acted as intermediaries between state enterprises and private actors. Following independence in 1991, the state’s inability to pay for Russian gas imports created a breeding ground for intermediaries who profited from arbitrage and opaque barter schemes. During the 1990s and early 2000s, a handful of businessmen—later known as oligarchs—accumulated immense wealth by controlling access to energy flows, particularly natural gas imports and domestic distribution networks. Figures such as Dmytro Firtash epitomised this pattern, building fortunes through companies like RosUkrEnergo, which served as intermediaries between Gazprom and Ukrainian consumers. These arrangements ensured that corruption became institutionalised, linking political elites to the profits of non-transparent energy trade.

The Role of Gas and the Russian Connection

Natural gas has been at the heart of Ukraine’s corruption problem. For decades Ukraine relied heavily on Russian gas, both for domestic consumption and as a transit corridor for supplies to Europe. Moscow exploited this dependency to maintain political leverage, while Ukrainian officials and intermediaries skimmed profits through inflated contracts, preferential tariffs, and hidden subsidies. The so-called “gas wars” of 2006 and 2009 between Russia and Ukraine were not merely disputes over prices; they were crises born of decades of corrupt entanglement between state institutions and private networks on both sides of the border. The opaque structure of gas import contracts made it possible for well-connected individuals to profit at the expense of the state, while consumers bore the burden of inefficiency and inflated costs.

Post-2014 Reforms and Persistent Challenges

After 2014 the government in Kyiv made significant efforts to clean up the sector. With support from the International Monetary Fund, the European Union and the World Bank, Ukraine restructured Naftogaz, the state-owned oil and gas company, to improve governance and transparency. Gas prices were liberalised to eliminate the massive subsidy gaps that had long enabled rent-seeking. The energy market was partially unbundled to align with European Union directives. Nonetheless political interference remained pervasive. Attempts to reform Naftogaz’s management board, curb patronage in regional gas distribution companies, and limit ministerial influence over procurement faced resistance from entrenched elites and vested interests in parliament.

Corruption also persisted at the local level. Distribution networks, electricity generation facilities and coal mines often operated under semi-private arrangements that permitted profit siphoning through inflated procurement, falsified accounting and fraudulent energy subsidies. The “Rotterdam+” pricing formula for coal, introduced in 2016, became a symbol of controversy, as critics alleged that it allowed private firms to extract undue profits from public energy-pricing mechanisms. Investigations into these schemes have been politically charged, reflecting how deeply corruption remains embedded within the political economy of energy.

The Green Transition and New Risks

Ukraine’s increasing focus on renewable energy, supported by Western investment, has opened both opportunities and new avenues for corruption. The introduction of generous “green tariffs” attracted foreign and domestic investors but also generated accusations of selective licensing, political favouritism, and abuse of state guarantees. Some investors claimed that payments for renewable generation were delayed or manipulated, while others alleged that officials used energy regulation to favour politically connected companies. The shift towards green energy has therefore replicated some of the same structural vulnerabilities that plagued the fossil-fuel sector—namely the concentration of regulatory power in a few hands and the lack of transparent oversight mechanisms.

The War and the Energy Battlefield

Russia’s full-scale invasion in 2022 transformed Ukraine’s energy sector from a corruption-prone business domain into a battlefield of survival. Missile attacks on power plants and energy infrastructure forced the state to centralise control over electricity distribution and emergency supplies. However even under wartime conditions, allegations of profiteering, inflated contracts and misuse of reconstruction funds have emerged. The urgent need for equipment, fuel and repair services created opportunities for corrupt practices within emergency procurement systems. International donors have become increasingly vigilant, insisting that Ukraine strengthen anti-corruption safeguards before receiving reconstruction financing for energy projects.

The NABU Investigation: A Defining Moment

The gravity of the problem was once again underscored by the announcement on 10 November 2025 of a large-scale investigation by the National Anti-Corruption Bureau of Ukraine (NABU), codenamed “Operation Midas.” Conducted jointly with the Specialised Anti-Corruption Prosecutor’s Office (SAPO), this operation targets what prosecutors describe as a criminal organisation embedded at the highest levels of the national energy system. According to NABU’s public statement, the investigation has taken some fifteen months of preparatory work, during which more than one thousand hours of audio recordings were analysed. Over seventy searches were carried out across Ukraine, including at properties in Kyiv and regional offices of state enterprises.

The primary focus of the probe is the state nuclear-power operator Energoatom, whose contractors were allegedly coerced into paying kickbacks of between ten and fifteen per cent of contract values in exchange for maintaining business access. Investigators claim that this system operated under a form of “shadow management” in which individuals with no official position within Energoatom exercised de facto control over procurement, personnel appointments and financial flows. Evidence also indicates that an office in central Kyiv linked to the family of former Ukrainian MP and now Russian senator Andriy Derkach served as a laundering hub through which approximately one hundred million US dollars were channelled via offshore companies and black-ledger accounting networks.

Searches were also conducted at the residence of former Energy Minister—now Justice Minister—Herman Halushchenko, and at business premises associated with Tymur Mindich, a media entrepreneur and co-owner of Kvartal 95, who is reported to be personally acquainted with President Volodymyr Zelenskyy. Mindich is said to have left Ukraine shortly before the searches began. The Presidential Office issued a statement affirming that it fully supports the investigation and insisting that, should the accusations prove substantiated, formal charges must follow. SAPO, meanwhile, has launched an internal review into possible data leaks from the pre-trial case files, reflecting the sensitivity and political magnitude of the operation.

Structural Implications and the Path Ahead

This new investigation marks one of the most serious anti-corruption drives in the history of independent Ukraine’s energy sector. It highlights that corruption is no longer confined to inflated tariffs or regional monopolies but penetrates strategic industries essential to national defence and reconstruction. The targeting of Energoatom, responsible for Ukraine’s nuclear power generation, elevates the matter from a financial scandal to a question of national security. The existence of a “shadow governance” structure directing the company’s affairs illustrates that the formal reforms of the past decade have yet to eradicate informal patronage systems that thrive on opacity and personal networks.

The timing of NABU’s operation is equally significant. As Ukraine seeks to rebuild her shattered infrastructure under constant Russian attack, she depends upon Western financial and technical support. Allegations of multi-million-dollar fraud at the core of her energy system therefore risk undermining donor confidence at a moment of existential vulnerability. At the same time, the case provides an opportunity for Ukraine to demonstrate the strength and independence of her anti-corruption institutions. The fact that NABU, SAPO and the courts are pursuing a case touching upon current and former ministers indicates that political immunity is weakening—a necessary step for a country aspiring to European Union membership.

Nevertheless the obstacles to lasting reform remain formidable. It is one thing to launch a high-profile investigation; it is another to secure convictions, recover assets and restructure governance frameworks to prevent recurrence. The question of institutional independence is particularly acute, given reports of leaks and political interference. Furthermore if the investigation implicates individuals connected to the President’s inner circle, the ensuing political turbulence could distract from wartime governance and slow down reconstruction.

Conclusion

Energy sector corruption in Ukraine is not merely an economic issue but a geopolitical and moral one. It has drained public finances, compromised national security, and delayed integration with Europe. While significant progress has been made since 2014 in liberalising markets and improving transparency, the persistence of old habits—patronage, political interference and opaque intermediaries—continues to endanger reform. The unveiling of NABU’s Operation Midas and its revelations about a vast network of graft within Energoatom represent a watershed moment. If Ukraine succeeds in prosecuting those responsible and strengthening institutional oversight, she may finally begin to dismantle the nexus between political power and financial exploitation that has for decades plagued her energy governance. Only by confronting these entrenched networks can Ukraine transform her natural and human resources into the foundation of true sovereignty rather than the spoils of corruption.