Another anti-corruption initiative for Ukraine? The EBRD

How many anti-corruption initiatives and laws do you need to realise that it is not the number of laws that matter, but that it is the effective, fair and equitable implementation of those that exist that gets results?

It is political will to neither interfere in, and also provide, a suitable legal framework – together with an incorruptible judicial impartiality – that generates if not an entirely corruption free playing field, at least a playing field that is equally corruptible for all players.

Thus it is somewhat with a mixture of dismay and despair that I note the results of a meeting in London yesterday between the EBRD (which is the biggest single investor in Ukraine with investments in 315 projects worth Euro 8 billion) and Ukrainian officials that has resulted in nothing more than calls for yet another anti-corruption initiative and the now standard statements such as this from the EBRD President Suma Chakrabarti – “This will take a lot of work.  We need an Anti-Corruption Initiative that really stands up.”

At a national level, I honestly can’t remember a Ukrainian administration since independence that hasn’t said the same thing – including crafting and passing an anti-corruption law during each term in office.

The effects have been minimal to put it kindly – particularly so when most major corruption takes place within the biggest and most exclusive business club in Ukraine – the RADA.  That would be the same corrupt and exclusive business club in which all members have immunity (and thus act with impunity) towards the very anti-corruption laws they craft and pass.

The average age of a RADA MP is 47 years old with a known annual income of several UAH million.  Add to that the unknown, hidden annual income, and the average Ukrainian RADA MP is 47 and a US$ millionaire several times over.  This has been achieved by fair and uncorrupted practices in a nation with an average monthly income of about $600?  - Hardly!

The one interesting thing that did arise from the EBRD/Government of Ukraine meeting was the suggestion of an independent Ombudsman to impartially oversee business interests of all market players and investors – which seems a reasonable suggestion – until you consider that it is only a reasonable suggestion because the judiciary and legal system can be bought and sold and thus no business dispute can be guaranteed a fair outcome in a Ukrainian  court of law.

Is such a call for Ombudsman nothing more than a way to circumnavigate judicial corruption rather than deal with it?  More laws to be written to create firstly the office of, and then powers of, this Ombudsman?  Appointed by and responsible to whom?  The same corrupt structure (regardless of party in power) that appoints and manipulates the corrupt judiciary?

Any serious business contract worth the paper it’s written on in Ukraine nominates the courts of London or Stockholm for arbitration in the case of business disputes – far outside the jurisdiction of the unreliable Ukrainian judicial system and influence of Ukrainian politicians who act with impunity over the anti-corruption laws they create and also fail to see implemented.

More words, a few more laws, the creation of another office that is likely to be filled by somebody far from independent when it really matters (considering they will be appointed by some of Ukraine’s most corrupt – whether it be a presidential or parliamentary appointment and regardless of party holding power at the time), plus the likelihood of spending a great deal of time and money reinventing (or just tinkering with) anti-corruption policies and initiatives that already exist in huge numbers, be they from the World Bank, IMF, other sovereign nations, the world of academia, the corporate world etc., is going to achieve success where it has failed numerous times before – how exactly?

Is the aim simply to be less corrupt?  Does that make a difference?  Surely not if the rule of law is to be applied equally.  After all the theft of a Snickers chocolate bar and the theft of $1 million is still theft – the very same law still applies to both instances.

Perhaps it is a matter of being less obviously corrupt?  But is there not a kind of perverse honesty relating to the obvious and blatant corruption in Ukraine compared to other nations and entities which sit westwards on the compass, but go to much greater lengths to hide their nefarious dealings?

I know some may think I am somewhat prejudging the outcome of whatever the EBRD/Ukrainian anti-corruption initiative will be, but I have lived here for a long time, under 3 Ukrainian presidents, far more parliaments, seen numerous anti-corruption laws written and left unimplemented (or selectively applied), seen the judicial system interfered with by every administration in that time on several occasions, and regardless of the the political will (existent or not) to implement any such laws, it has always been an abject failure simply because the RADA does not and cannot control the regional fiefdoms. – And it should be said, the EBRD has continued to invest in Ukraine regardless.

If the EBRD expects leadership in this area then it will have to force the issue somehow (perhaps by leading?) – without opening the door for Russia or China to fill those investment gaps with the inevitable geopolitical consequences that would have.

EBRD to take on long term currency risks in Ukraine

Well here is a bit of good news for Ukrainian entrepreneurs, SME’s and big business alike.

The EBRD is going to credit Ukrainian banks in foreign currency on the proviso that the Ukrainian banks lend to Ukrainian businesses in local currency.  A case of if you don’t lend the Hyrivnia, we won’t load you up with foreign currency reserves it seems.

This declared strategy from the EBRD would seem, prima facie, very good for Ukraine.

To what end and why is the EBRD prepared to share the currency conversion risks on a 50/50 basis, when Ukraine can turn on or off the Hryvnia printing presses and drastically devalue the Hryvnia overnight?   I am already anticipating the devaluation of the Hryvnia around the turn of the year.

Maybe the EBRD gets half the spread on the currency transactions and is using those millions of $ a day in the exchange racket of Ukraine to bail out Greece?

Maybe with all those additional Euros flying about after the printing presses went into overdrive to recapitalise the EU banks, putting the excesses into the Ukrainian market and getting them out of the Eurozone monetary cycle works for those economic wonders in Brussels/Frankfurt.  Maybe it doesn’t.  Maybe if I asked 3 economists why the EBRD is doing this I will get 3 very different answers.

Bankers, economists out there – why would the EBRD be doing this (on the presumption there are no nasty little clauses in the small print)?

EBRD invests in Ukrainian wind

Although you won’t remember, in March 2011, I told you about Ukraine’s first wind farm.  Yes I know it was a very short post, but as it said, it was a start.

Well since then alternative energy has progressed somewhat in Ukraine.  Solar, hydroelectric bio-fuelled  CHPs and wind.  A lot of investment is going into alternative energy production, although not enough to prevent the next generation of civil nuclear power facilities being built.

In fact a lot of money is going into energy in Ukraine, be it alternative, energy efficiency, next generation nuclear, domestic oil and gas exploration and production, as well as Shell and Chevron yesterday being confirmed as tender winners for shale extraction in the west and east of Ukraine.

Of course there are environmental and ecological concerns no matter how energy is produced.  5000 exploratory wells anticipated between Shell and Chevron looking for shale gas, there is a major concern over huge areas of prime agricultural land being used for bio-fuel production at great cost to the soil,  damage to ecosystems with hydroelectric production, flora and fauna damage via huge solar farms spreading across acres of land etc.

Quite simply there is no such thing a zero impact energy production any which way it is produced.  Anybody who says otherwise is a liar.  Even the component parts used to create alternative energy systems are manufactured using conventional energy in buildings constructed by and using materials creating with, conventional energy.  They all have a massive energy legacy to repay prior to actually being beneficial to the planet.

If that sounds like I know what I am talking about it is because I do.  I am a qualified civil engineer and have written numerous ISO 14001 environmental policies, environmental risk management programmes and audit procedures.

Anyway, back to Ukrainian alternative energy, and in particular – wind.

There is no doubt that Ukraine has huge potential in alternative energy production.  Anybody who doubts that need simply follow the projects and acquisitions of DTEK, a company owned by the richest man in Ukraine, Rinat Akhmetov.  Whilst he is best known for being an oligarch whose riches comes from metal production and also being the owner of Shakhtar Donetsk FC, only the willfully blind would not have noticed his serious investments into all areas of energy production over the past 3 or 4 years.  Alternative energy is no exception when it comes to Mr Akhmetov’s energy investment portfolio.

It is therefore no surprise to find that the EBRD in conjunction with the EU’s Clean Technology Fund have decided to pour Euro 9.5 million and Euro 3.8 million respectively (Euro 13.3 million in total) into a Ukrainian/Italian company called Eco-Optima.  The loan is over a 10 year period and payable in two tranches.

Eco-Optima intend to build a wind farm in Starry Sambir (near Lviv) that will consist of 5 wind turbines with an anticipated total annual production of 25.5 GWh.  That is enough for just over 10,000 homes annual useage by my rough calculation, and also reduce carbon emissions by approximately 30,000 per year (in comparison to non-nuclear conventional energy production if we discount any energy legacy involved in production of the technology).

Maybe more encouragingly than anything I have written so far though, is that it is, to my knowledge, the first EBRD investment into Ukrainian wind – ever – which is a positive thing in and of itself!

Ambitious numbers? GDP growth forecasts for 2012 in Ukraine

The Ukrainian government has forecast GDP growth at 6.5% in Ukraine for 2012.

What?

Almost every other government in Europe will be green with envy if they pulled that off.

The EBRD however forecasts a GDP growth of 4.5% growth in 2012.

What?

Almost every other government in Europe will be green with envy if they pull that off.

Ukrainian economic growth forecast upgraded by EBRD‏

Shocking isn’t it? A headline, not that I care much for headlines (as content is king), showing growth in a European nation that isn’t in Germany or Poland.

Not only showing growth but the growth estimates being revised upwards. Undoubtedly a few envious governments sat on the European continent right now!

Those people at the EBRD have upgraded forecast Ukrainian GDP growth by 0.5% to 5% for the year.

Blimey!

EBRD and EIB make pledges for the GTS‏

Remember what I wrote yesterday about external factors influencing the current lack of political will to address the utility subsidies in Ukraine?

No? – Briefly I said there is a political unwillingness amongst the current government to remove or reduce the current, exceptionally expensive subsidies on utilities to Ukrainians at present. A major reason being the looming winter heating season, another being parliamentary elections in 2012. The result is likely to be a suspension of IMF funds until this issue is addressed as promised.

It seems the EU in the form of the EMRD and EIB are now adding to the pressure to remove said subsidies from the governmental expenditure in Ukraine by pledging $308 million investment into the Ukrainian gas transport system but only when the government subsidies to the public relating to pricing have been addressed according to the promises made to the IMF.

It maybe too simple to think that the current government will wait until the results of the 2012 election before complying with the IMF conditions and thereby allowing the EBRD and EIB to release funds for the GTS.

Thus far the current president has resisted incredible pressure from Russia to immediately begin a bilateral upgrade of the GTS at the expense of essentially ceding control of th GTS to Russia. That pressure is very likely to intensify after the Russian presidential elections in March 2012, particularly if the EU and Ukraine do initial the DCFTA and AA at the end of the year and stand strong against the current Russian bans on meat and dairy produce from Ukraine in retaliation for shunning the Russian Customs Union in favour of the EU. You can only expect that the bans will cover more products or import taxation will rise considerably to make Ukrainian products far less attractive to the Russian market.

The current president has consistently maintained however, that the EU should have a role in the upgrade of the GTS if Russia is to be given a role. It must be a trilateral rather than bilateral solution. Having now got some public commitment from the EU, the question is will he now want to press ahead with the GTS upgrade whilst the issue is currently on the front burner or if he will gamble on a 2012/13 timetable and the ability to withstand Russian pressure?

Yet another issue is explaining to a soon to be voting public, why things are happening and to what end. Ukrainian politicians are notorious bad at interaction and explanation to the public that puts them there. (It has been true of every political leadership ever since I arrived in Ukraine from Russia. Even Putin manages to engage with his voters in a far better way that the Ukrainians do with theirs.)

The current authorities would do well to engage in a long term conversation with the voters immediately explaining why they are doing what they are doing. Most of what they are doing will have a medium and long term gain for the country but they need to explain the short term implications in a far more clear and concise manner than they currently do.

Bizarrely whilst the current government’s popularity is declining, the popularity of the opposition is not growing which leaves only the impression of disenfranchisement from within society. A long and if necessary technical conversation now will go a long way to explaining the actions and engagement with both the EU, IMF and Russia and the consequences of the decisions made.

Unfortunately for some of the opposition parties, this ECBD and EIB announcement does nothing to help their cause as they are adamantly against both the reduction and/or removal of government subsidies of utility prices to the average Ukrainian or allowing external parties any form of partial ownership or control over the GTS. Neither policy is economically viable no matter how populist they may think it is.

Let’s see if this additional pressure will force the current authorities to think again about utility subsidies and equally as importantly, explaining to the public what they are doing and why.