A market opportunity for facilities management – or a privitisation disaster waiting to happen?

For those who do not live in Ukraine, one of the inherited legacies of the USSR that still continues, is that of the Zhek and its responsibilities for maintenance of common areas in otherwise now privately owned apartment blocks.

Quite simply put, whilst the last 20 years has seen a massive move to private ownership of apartments, stairways, lifts, common entrances, lighting and general maintenance of all common use areas has remained the responsibility of the Zhek in the vast majority of apartment buildings both old and new.

Needless to say that whilst paying the monthly Zhek bill, known as the “quadplata” is supposed to insure the cleanliness and functioning of all common areas in most apartments blocks around the country – and you have no choice but to pay – the actual maintenance rarely happens, and when it does it is hardly what can be called timely.

However, it appears that this responsibility is likely to cease in 2015 if the national action plan 2010 – 2014 (also known as “Prosperous Society,  Competitive Economy, Effective State”) is to become a reality.

That will theoretically open up a huge percentage of the national housing stock to facilities management companies – with an domestic occupancy well used to paying through the nose for little to no (timely) service – and in all probability, some serious profit margins.

One has to suspect that there will be a fair few people in the RADA having their closest friends and/or family opening facilities management companies in preparation for 2015 when they will suddenly be activated.

Tomorrow – something more interesting (at least for some).  Tomorrow, for the first time in a few years, the blog is going nuclear!

Property prices – Ukraine

Every now and again I get a message from some readers who have a desire to relocate to Ukraine and I am frequently asked, amongst numerous questions, if I think the price of property will further fall or if it has plateaued.

It would seem that it is neither likely to drop any further nor remain stable.  Due to the increases in the cost of construction materials, it seems that property prices will rise between 6 – 10% in 2013.

Now you can stop asking me!

Structural and contents insurance – Odessa

It is not often I write something that promotes a commercial company (in either a positive or negative light) – but -

In the decade I have been here I have insured my car, every house I have built (prior to sale) and every apartment I own with the same company.  I have only ever had to claim once when a young man decided to try and park his car inside mine at a set of traffic lights.  The issue was dealt with and repairs done within 3 days between the insurance company and main car dealer.  No messing about and no problems!

Yesterday, having now moved to my rather nice place by the sea in Arcadia, it was time to insure the new home.  Naturally I went to the same company, Oranta, but not to the office I have historically used on Kosmonavtov but to the office on Fantanskaya Doroga which is now much closer to where I now live.

The good people at the office as Kosmonavtov have been the same faces for the past decade with no staff turnover whatsoever – alway a good sign – and remember me well a I am probably the only British client they have had (consistently for the past decade anyway).  I am also probably the only person who has had 4 properties insured with them in to the US$ value of millions per property simultaneously with them as well (having built them and  whilst waiting for them to sell).

Anyway, yesterday afternoon I called into the Oranta office on Fantanskaya Doroga, who are not used to me, foreigners in general, or people wanting all encompassing,  completely fully comprehensive insurance for structural and contents insurance.

When stating I wanted said insurance, the (ever so helpful as it turned out) lady promptly stated they had a deal at the moment and for UAH 75 per annum I could get such insurance that would pay out UAH 4000 in event of a problem.

I then explained that such a sum was far, far too small and stated I needed all encompassing structural and contents insurance that would run into many UAH millions.  (That is not as much as you think – Divide by 8 for US$ and 12.75 for Sterling).

“Millions?”  She said somewhat in shock whilst picking up the telephone to make a call to check that such a figure can be insured.

I then rapidly explained that Oranta did indeed provide insurance to such a sum as the Kosmonavtov office had done it numerous times historically – so she called them.

When they asked who and she told them my name, one of the good chaps from the Kosmonavtov office told her to arrange to visit me at home and they would come with her yesterday evening (and also thank me for another foreigner I had referred to them previously – something that I don’t remember doing but whoever it was went and said that I had recommended them).

A time of 6pm was arranged and quite unbelievably for Ukraine, at 5.55pm the arrived.  Not only on time but 5 minutes before time.  As a Brit, 5 minutes before is exactly on time!

Photographs, forms completed, signatures and stamps, payment and receipt made all at home (no come to the office tomorrow nonsense as is often the case here as “the company stamp” is not allowed out of the office) and all singing, all dancing, all encompassing insurance was mine at the value I had guessed at and they quoted without any prompting from me.

The cost of the said insurance?  UAH 5030 for the year.

Very hard to critise the service, the cost, or the timekeeping.  Almost as though I wasn’t in Ukraine!

Still, mustn’t grumble!

Reforming the administration – A NGO invitation

Well, like him or not, and as a character I am not overly fond, but as an administrator he is very good, Prime Minister Azarov is certainly talking the right talk.  Obviously there is an election coming up and the talk is of course partially aimed at influencing voters and those in-State actors who can influence voters as well.  We should expect nothing less.  All sitting governments up for reelection do the same thing.

Anyway, Mr Azarov has issued an appeal to NGOs in Ukraine to assist the government in ridding itself of unnecessary administrative organs.

As he rightly states, “This work is not because we want less work, but because many administrative services are completely unnecessary.”  Quite true but only half the issue.  Not only is much of it unnecessary, but a lot of it that can be justified is overly complex and never situated in the same place, requiring different documents in a certain order, stamped and signed in a tour–de–bureoucratic organs before returning to your first port of administrative call, for them to conclude the most simple of official documentation matters.

Much of it is simply repetitive when production of document “A” would prove your have already have/done 99% of what is required for the production of document “B”.  Why repeat the entire process again?

Far too many administrative State organs have a requirement to be in the mix for simple document production  when there is no real justification for them to be part of the process at all.

I am quite sure an academic/NGO study of the Ukrainian administrative model could shrink it by a further 20% over and above any shrinkage already carried out by the government.

Cynically I am also quite sure the government are quite aware of this but want to involve NGOs and civil society in the run up to an election in an effort to get them “on-side” as much as possible.  After all, there are numerous neighbouring States that have made the administrative transition from USSR bureaucracy to a more modern administrative system who would be only too pleased to share their experiences with Ukraine.

If it were not an election year, you would suspect that tax-payer funded jollies to these nations to investigate their new administrative systems would have been the preferred governmental methodology.

However, it is an election year, the invitation has been made and any NGO worth the title will actively engage with the government given such an open invitation.  A foot in the door and collaboration over this makes it easier to gain access through the same door when pushing other issues the government is not so willing to action.

Let us hope it is an opportunity not only seized by the civil society active in Ukraine, but also the diplomatic missions of those nations with embassies and consulates here as well.  Who better to give advice over bureaucracy in other nations and their systems than the bureaucrats from other nations?

Mr Hague, FCO, UK Ambassador to Ukraine and boiler room staff in Kyiv, you all hail from possibly the oldest established civil service in Europe if not on the planet.  Choose a subject, for example tax and tax administration, and promote our experience and systems to the government of Ukraine.  As much as I dislike paying tax as the next person, our UK system is far easier to cope with than that of Ukraine as a tax payer.  I have experience of both.

This must be a golden opportunity to get very friendly with the current Ukrainian government if the UK government chooses to take it.

Go on FCO – I dare you to make a positive difference to every Ukrainian by showing the current Ukrainian Cabinet of Ministers a better, more streamlined and efficient way in an administrative area of your choice.

Gauntlet publicly thrown down Mr Hague and chums!

(As an aside, Valeriy Khoroshkovskyi, First Deputy Prime Minister of Ukraine is in the interrogation seat at Chatham House tonight (1730 – 1830 BST) for a grilling on Ukrainian foreign policy by my esteemed and astute fellow Chatham House members.  If he says anything unexpected I’ll let you know over the course of the next few days.)

Another good idea but with no clear implementation policy

You know how I continually highlight the Ukrainian government spouting numerous good ideas as solutions for numerous obvious problems but failing because would would be effective policy falls short on the means of implementation?

Well here is yet another good idea that will undoubtedly fail through ineffective implementation and result in being a government statement that will be counterproductive.

The Prime Minister has announced that Ukraine will introduce a 30 year mortgage at 10% interest in order to stimulate the housing market.

Now for many readers, you will think there is nothing special about that.  However you should be aware that mortgages spread over 30 years in Ukraine simply do not exist and have never existed.  A Ukrainian would do exceptionally well to find a mortgage that runs over half that time.  More often than not it is for a period of 10 years or less.

The interest rate of 10% is also unbelievably low for Ukraine.  Standard borrowing rates are typically 21% to 27% – I kid you not!

So, how will the Prime Minister, having made this statement, create a system where banks are offering 30 mortgages at 10%?

Create a Freddie Mac or a Fanny Mae?  Forcing private banks such as OTP, Aval, Alpha, Delta, Pump, Privat et al seems very unlikely.

He is undoubtedly right that banks offering such terms would stimulate the housing market and construction industries, but how is he going to achieve them doing so?

Challenging conventional wisdom – Freedom of movement – Ukraine/Russia

You know how sometimes it is necessary to play the devil’s advocate or think laterally in order to get a better understanding of something?  At least to see an alternative view when looking through the same lens at the same issue?

Well with the Duma elections today in Russia resulting undoubtedly in a few people my good lady knows retaining their seats and October 2012 in Ukraine having the same result for people she knows in Ukraine also retaining their seat here, one wonders why both Russia and Ukraine are so keen to accomplish an agreement with the EU over freedom of movement (Visa-free) when it would expose their citizens to a far less managed style of democracy than they see at home.

(I will take a moment to say hello to my fellow bloggers, acquaintances and throughly solid citizens,  Charles Crawford and The Democratist who are monitoring said Duma elections in Moscow and Ufa respectively.)

You would think that seeing alternatives to the power vertical, effective and engaged opposition parties with alternative policies (rather than simply saying “no” when those in power say “yes” as is all to often the case in Ukraine, or vice versa), and the rule of law far more evenly applied (although not perfect), the very last thing the current crop of political leaders, both in power and opposition in some cases would want, is to expose their citizens to working alternative models of governance.

Of course both Russian and Ukrainian societies are quite well aware of the European principles and working methods and both societies spend a lot of time in cyberspace where neither Russia nor Ukraine really make any attempt to stop the free flow of information.  Large numbers already travel within the EU for business and tourism despite the Visa hassles.

Why though do these nations want to encourage absolute freedom of travel when it will allow a direct comparison of models in a physical rather than theoretical environment for their citizens in far, far greater numbers?

The USSR indeed stopped such travel to prevent this happening in attempts to avoid any such comparison and enforce the legitimacy of the system that was in place.

Is it not self-defeating to encourage their citizens to see a viable alternative to what they have at home?

These thoughts came to me whilst completing yet another on-line Visa application for a Ukrainian citizen yesterday.  (Maybe I should consider making a business out of it I complete so many.)

After a little contemplation, I decided that conventional wisdom of those within the EU championing Visa-free for the FSU nations, were following a similar thought process as that I outline above.  The more exposure to  the European environment, the more society (rather than ineffectual NGOs) will demand changes.

As I have said before, the current Ukrainian government has not bowed to NGOs in any obvious way but have bowed to public bottom-up A-political protests over issues like the proposed new Tax Code which brought more than 10,000 camping outside the RADA.

So why is it that both ruling Russian and Ukrainian politicians who have an interest in retaining the power vertical, are so keen to have their entire societies free to physically experience (rather than read about) alternative models?

A possible answer came to be via the Visa application I was completing.  Those most likely to experience an alternative structure and recognise its benefits are the students, business people and “middle class”.  They are also those most likely to be capable of organising, publicising  and participating any bottom-up A-political large scale protests for changes in the structure.

These people though are far more likely to be offered work or afford residences outside Russia and Ukraine within Europe and return to their home nations to visit family and friends sporadically.  Thus allowing the free movement of a largely well educated youth to seek further education and employment within Europe, or having the “middle class” have alternative homes outside of Russia and Ukraine where they will spend their time as much as possible, removes a large section of society best placed to challenge the current power vertical in either nation for protracted periods of time.

The pitiful and wholly ineffectual lamenting by the relevant  diaspora have made no difference to the power vertical in either nation.  A larger diaspora is unlikely to make any difference to the current power vertical in either nation as we are dealing with short term, grab what you can politicians when all is said and done.  The long term (25 years from now) is not their concern when it comes to expanding their power or assets in the immediate term.

It therefore pays the current power vertical in either nation to encourage those most likely to challenge it effectively and from the bottom-up, to have them studying, working and living outside the national borders under the guise of championing their rights to travel.

It is incredibly easy to employ the psychological “self” and “other” when it comes to foreign sponsored or completely foreign NGOs.  The current saga of NTV and Golos in Russia is an example.

(My good lady help set up NTV in 1993 and according to her there is a “history” between NTV and Golos dating back to 1995 – That’s another story though.)

Neither opposition in Russia or Ukraine have any real policies to sell to the populous.  Not many sit in the same place on the left to right political spectrum and are therefore unlikely to present a united front against the current majority leaderships.

Ms Tymoshenko’s calls for opposition unity are a waste of time as the Ukrainian opposition parties range from the far right to firmly in the left.  There can be no political unity when there is no shared ideology other than being in opposition to the current ruling majority.  The enemy or my enemy is my friend, does not make for a good government should you win, as Ukrainians discovered with the Yushenko/Tymoshenko debacle.

In effect the opposition is so fractured ideologically, they are ineffectual.  There is also the issue of whether the opposition would be any better.  Nobody really believes Ms Tymoshenko is the champion of democracy she claims to be.  Would her power vertical be any different to the current one in Ukraine?

So in summary, whilst actively seeking to obtain free travel in Europe for Russian and Ukrainian citizens may seem somewhat self-defeating for the current power vertical by exposing it for what it is and allowing the experience of alternatives, also allowing the most effective and dangerous sections of society, (the business/middle class and highly educated students) to spend many years outside the national borders as quasi-diaspora in actual fact may prolong the current arrangements for those in power.

Whereas the USSR policy was to keep external influences out to preserve the system, is the current policy to allow internal influences out to achieve the same ends?

What do you think?  Is it time for me to try an alternative medication or is there some twisted logic in what I have written?

Micro-geopolitics in a macro-geopolitical battle – Crimea

The macro-geopolitical battle over Ukraine between the EU and Russia is obvious to anybody. The AA and DCFTA against the Russian led Customs Union is but one example. Cooperation with the CSTO verses NATO is yet another. Ukrainian ability to transport Caspian Sea oil and gas to the EU without Russian involvement is yet another. Almost every part of business and civil society is subjected to an on-going macro-geopolitical tug of war. A tug of war that the EU desperately wants to win for numerous reasons both present and future.

Nowhere is this more concentrated and prima facie than Crimea, the Autonomous Republic gifted to Ukraine back in 1954 by the then USSR leadership.

It is of course home to the Russian Black Sea Fleet, for now at least, and possibly until 2042. There is a very large percentage of the population with Russian heritage. A large number of Crimean citizens hold both Ukrainian and Russian passports despite this being illegal due to Ukrainian laws.

Crimea is incredibly popular with Russians as a holiday location and the city of Moscow, when Yuri Luzhkov was Mayor signed a development program with the Crimean authorities. Alexander Lebedev, owner of the UK’s Independent newspaper (amongst others) has spent $ billions on developments in Crimea.

Only 6 weeks ago I turned down a job to manage the construction of a $250 million complex in Yalta fronted by a very well known and legitimate Austrian company for a development being paid for by an unnamed Russian billionaire.

Russians and Russia have spent literally $ billions and billions over the past 10 years in Crimea and will continue to do so.

This has implications with Ukraine heading towards the EU slowly but surely as Crimea has a historical identity of its own long before being arbitrarily gifted to Ukraine less than 60 years ago. Not only is it already an acknowledged Autonomous Republic with its own constitution, but is has a historical claim that would stand quite firmly against any scrutiny should it seek independence from Ukraine and seek a right to self-determination.

There is also the Tartar issue and links with Turkey.

It could become very messy if the Government of Ukraine and the EU do not keep a watchful eye and try to match the Russian FDI in Crimea with the associated work and rise in living standards this generally produces one way or another.

This, it seems, has dawned on some prominent members of the EU. Stefan Fule, EU Commissioner for Enlargement and European Neighbourhood Policy was in Yalta only a few days ago and obviously has recognised the macro-geopolitical battle exists in a very condensed micro-geopolitical circumstance in Crimea. Quite possibly somebody in the EU is now realising that speaking only to those in Kyiv does not necessarily bring the entire country along with those they speak to. Ukraine is in many ways a system of quasi-federalist fiefdoms and what is said in Kyiv does not always trickle down into the fiefdoms. Something made even more difficult when Crimea has its own constitution and parliament.

Thus Crimea more than any other region of Ukraine must be a cause for on-going concern both in Kyiv and Brussels given the undoubted Russian influence in the numerous forms it takes. That said, as Ukrainian law allows anybody from any nation to by land and property within the nation (less agricultural land) it is quite impossible and also illegal to deny such rights only to Russians.

The only way to stamp any EU message within the Autonomous Republic is to match the Russians by way of FDI.

The EU is now therefore trying to engage with the leadership of Crimea. Whilst in Crimea, Mr Fule addressed the Crimean leadership and stated “The EU is ready to assist the reform launched in the republic and its development. We are interested in the economic and social development of the autonomy, the implementation of infrastructure projects and cooperation with the public. Crimea has a chance to become a priority region in cooperation with the EU.

We are ready to introduce Crimea as an investment platform to the European Union, and assist gradual development of the autonomy’s districts.”

In response the Crimean leadership, who were well courted in a recent visit to Brussels in May, stated “We propose to open a EU visa center in Simferopol in the near future, and we are also ready to find premises for it.

All initiatives are working and realistic. Our interest towards Europe is systematic in many directions: tourism, economy, investments, experience exchange, culture and humanitarian sphere.”

Battle has eventually be joined between the EU and Russia in Crimea, and to be fair it is a more than appropriate microcosm from which to view the eddies and flows of the macro.

Once again, at least publicly, the EU in its glacial and cumbersome movement has been slow to counter the swift and nimble Russian foreign policy. That though is the problem with 27 navigators on only one bus.

The break up of Naftogaz Ukraine

Well, it was called for by the EBRD, IMF and no doubt numerous diplomats and governments behind the scenes in order to add weight to the IMF and EBRD voices.

It seems the behemoth that is the State owned Naftogaz Ukraine is going to be broken up and sold off. To what degree it will be broken up remains to be seen, however it seems fairly certain that the gas extraction division will be one of the first to go just as Royal Dutch Shell, PetroBra, BP, Chevron, CPC etc all line up for Black Sea, Sea of Azov and shale gas exploration rights within the next 6 months.

Cynically, my first though was another oligarchy buy off at favourable prices prior to entering some major projects via a rigged and less than transparent bidding process. It would appear however that I would be wrong. I have been unambiguously informed that this division will be subject to an IPO and aims to raise $10 billion.

The question is where the IPO will take place. London, Hong Kong? Nothing has been said as yet.

Should it be successful though you would expect similar IPOs for other divisions of Naftogaz Ukraine. Production, shipping and supplying divisions would all seem to be reasonable bite-sized chunks.

If Naftogaz is to be broken up and subjected to IPOs, one assumes that the oligarchy will turn their attention to acquiring the regional suppliers dependent upon Naftogaz Ukraine. A wise man would keep their eyes on the likes of Odessagaz and corresponding regional entities to see which oligarchs will buy them and for how much.

The next 12 months activities in the regional gas supplier network will be an indication as to whether breakup of Naftogaz Ukraine and the IPO rumours are true.