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Prosecutor seeks to remove the immunity of Mykola Skoryk

September 23, 2016

On 22nd September Prosecutor General Lutsenko announced that he would be appealing to the Verkhovna Rada to strip Mykola Skoryk of his parliamentary immunity next week.

Mr Skoryk has featured fairly frequently over the years within the blog, naturally mostly during his tenure as Odessa Oblast Governor under the Yanukovych regime between November 2013 – March 2014.

His dismissal from post following the fleeing of Yanukovych however, did not dramatically lessen his appearance in the blog prose due to his actions and influence leading up to the tragedy of 2nd May 2014.  The most recent here.

To be entirely blunt, the local constituency will not be concerned with the plight of Mr Skoryk (unless they are paid to demonstrate for the cameras and/or he turns out his “sportsmen” in an aggressive publicity stunt).  For different reasons he is viewed dimly by both pro-Ukrainian and pro-Russian extremes, and being widely acknowledged as the Mr Firtash/Liovochkin man for the region, hardly scores highly within the domestic psyche.

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Mr Skoryk is also a man that clearly expected to rise far beyond being Odessa Governor under the Yanukovych regime.  He is a man with ambitions that stretch far beyond his rather average abilities.  Those ambitions remain – as do the “old school” methods of achieving them despite the damage such methods cause to the local constituency and nation as a whole.

To be specific, the Prosecutor General seeks to remove Mr Skoryk’s immunity following investigations into an incident that occurred on 19th February 2014 outside the Oblast Administration when Mr Skoryk was Governor.  About 20 journalists, national and local and from across all political biases were covering a small “EuroMaidan” protest outside when about 150 men in helmets carrying baseball bats set upon them.  Naturally there were injuries and broken equipment belonging to the various media outlets.

The involvement of Messrs Skoryk, Orlov and Fuchedzhi (the latter being the Odessa police chief on duty on 2nd May 2014 and now on the run) in such incidents has long been known within the local constituency.  There will be no shocking revelations.  Connecting Mr Skoryk to such incidents should not prove difficult – particularly as it appears Mr Orlov may well play ball with the PGO and give testimony.

The question is not one of revelations, but whether there will be any surprises – such as Mr Skoryk remaining in Ukraine if he believes he will actually be convicted or will see the inside of a jail cell for more than a day or two before being released on bail.

Perhaps he believes there will be insufficient votes to remove his immunity?  A reader should expect that such votes will be found even if Mr Skoryk doesn’t.  (Indeed assuredly there will be more parliamentarians facing a vote to remove their immunity during this session of the Verkhovna Rada – at least two others coming from the Opposition Block.)

Of intrest will be who of the 16 parliamentarians from Odessa will vote for the removal of Mr Skoryk’s immunity in any Verkhovna Rada vote?  Assuredly Alexie Goncharenko will as he has been responsible for petitioning the PGO to take action, but which others?  It is not necessarily a question of ex-Regionaire loyalties, for party names mean little compared to vested interests that cross party lines.

How would it effect any Dmitry Firtash bid for Odessa Port Side if his man is under the cosh?

Does this noticeably strengthen the position of Mr Goncharenko (and his people) in the city and/or the oblast political machinery and/or local constituency perception?  By extension how significantly does that strengthen the President’s party of which he is a part?

How will former allies turned enemies react?  Mr Rabinovych (and NewsOne)?

Despite Mt Skoryk having been politically sidelined for the most part over the last 18 months – partially in a self-imposed sulk – to be blunt hardly even bothering to vote if he decides to grace the Verkhovna Rada with his presence at all – how will the removal of his immunity (and perhaps successful prosecution (even if ultimately in absentia)) change the political dynamics of Odessa within a political elite?  Oppo Block does very little in Odessa without the approval of Mr Skoryk (who in turn does little of significance without the approval of Mr Liovochin/Firtash) yet Mr Skoryk can be replaced.

None of this matters compared to Mr Skoryk being rightly subject to due process for his actions – he is perhaps fortunate that investigative eyes currently focus only upon 19th February 2014 – but there will be political ramifications now this course of action has begun locally – and perhaps nationally when other Oppo Block (among others) parliamentarians become subject to investigations and immunity stripping, for clearly accusations of political persecution will be made.

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NKREKU – Draft Law 2966-d (Energy Regulator)

September 22, 2016

As part of the ratified obligations made by the Ukrainian State, within the Association Agreement with the EU is mentioned the Third Energy Package and Ukrainian adherence to it.

Quite rightly too for there is no way Ukraine would significantly overhaul its energy sector otherwise – energy is a significant font of corruption that continually spews (no differently to Government subsidies and VAT refunds/fraud/coercion).

It is true that Ukraine has made some real progress in reforming its energy sector – as difficult as each and every step (both forward and backward) has been.  Having now corrected an entirely retarded decision relating to Ukrtransgaz, a reader can nevertheless anticipate an all out assault by vested interests upon Naftogaz Ukraine and its subsidiaries almost immediately after any final Stockholm Court ruling is delivered regarding its claims against Gazprom.

Ukraine now faces the prickly issue of reforming its energy regulator into one that serves the interests of those other than vested interests.  Needless to say a process that has not, and remains, a far from smooth, influence-free, process.

Draft law №2966-d “On the National Commission in charge of regulation in the energy sector and utilities (NKREKU)” easily passed through its first reading within the Verkhovna Rada with 285 votes in favour on 12th April – unsurprisingly as it was authored by a dozen parliamentarians from across 5 parties (including those in opposition).

Nevertheless, despite its inclusive authorship, it has yet to receive its second and final reading and vote prior to being sent to the president for signature and eventually entering into law.

Amendments are being sought.  Meddling from the Bankova (Presidential Administration) occurs.

The draft Bill mandated a staggered replacement of the existing regulatory personnel, with limited departures every 6 months until all were replaced over a period of 18 months.  The fixed tenure appointments replacing them therefore also eventually departing in a staggered fashion some years hence too – which is perhaps wise if institutional memory is to be maintained in any meaningful way.

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As is always the case with Ukrainian politics, who decides, and who decides who decides, is a major issue in most appointments – and one that regularly slows down any process whilst decisions about decisions are decided.

The new regulatory personnel will be decided by a competition commission comprising of two presidential appointees, two parliamentary appointees from within the Verhovna Rada Coal and Energies Committee, and one appointee from the Cabinet of Ministers – when the law is eventually passed.

From this, apparently an independent regulator will emerge over the course of 2 years – allowing for the law to be passed, decisions about decisions to be decided, open competition, interviews, more competition appointment decisions, and eventually a full, staggered, personnel change.  There may yet appear an energy regulator that is an independent authority and arbiter (with a good deal of genuine independence) for the energy market that will defend the interests of consumers, and create fair conditions for suppliers and manufacturers.

Very good – so get on with it.

Indeed, Messrs Leszek Balcerowicz and Ivan Miklos who are part of the official advisory conclave regarding reform have rather tired of such nonsense and delays, stating “Further delay of the adoption of the bill as a whole can have a negative impact both on the state of the energy market in Ukraine, and the country’s international image as a reliable partner.  The independent regulator – A prerequisite for attracting foreign direct investment in the energy sector calls upon all political forces to immediately support the bill as amended, prepared by the Parliamentary Committee for a second reading.”

The passage of this draft law which pushes Ukraine further along its 3rd Energy Package obligations also releases more EU cash.

Perhaps the draft law will receive its final Verkhovna Rada vote this week.  Perhaps the President will sign it at some point.  Perhaps by Christmas the first new personnel will have been selected.  It will be 2018 however before the regulator has been completely overhauled as foreseen by the timetable within the draft law.

A reader may suspect that the necessary butchering of Naftogaz Ukraine as required by the 3rd Energy Package is not about the wait for a completely reformatted Regulator – and the guaranteed battle by vested interests over Nafogaz Ukraine and its subsidiaries prior to, and during Natogaz dismemberment will immediately follow the Arbitration Court in Stockholm making a ruling – that attack certainly won’t wait.  Thus how much more perverted and warped the market the Regulator will be asked to regulate once it is independent and fit for purpose remains to be seen.

In the meantime, as a reader will be accustomed by now, between attempts at amendments and politicking between the Verkhovna Rada Committee, Cabinet and Presidential Administration, Draft Law 2966-d remains exactly that – a draft law.

Nevertheless, if an independent regulator does eventually emerge, that can only be a positive outcome.

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Tymoshenko and the IMF – or is it really about the IMF?

September 21, 2016

Yulia Tymoshenko knows a thing or two about dealing with the IMF.  She has said so herself on several occasions when recently cricitising first former Prime Minister Yatseniuk, and latterly the current Prime Minister, Volodymr Groisman.

Indeed when Prime Minister she negotiated a deal with the IMF, the conditions to which she agreed she then reneged upon when required to implement them – which may make a reader wonder just how skilled at negotiation with the IMF she really is.  (If one instance of poor negotiation is not enough, then a reader may reference the gas deal she struck with The Kremlin resulting in the worst gas deal with Russia in Ukrainian history, (despite the welcome removal (visible) of intermediaries), is also worth pondering.)

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Ms Tymoshenko apparently knows what the current IMF conditions are according to a report by Interfax – “Among Ukraine’s obligations are the cancellation of the moratorium on the sale of agricultural land.  If the moratorium is not prolonged, Ukraine will lose its main resource.

She claimed that the IMF also planned to “virtually introduce external control over national, state Ukrainian banks.”  as well as seeking commitments to reduce the network of Ukrainian educational institutions.

So far, so standard regarding IMF conditionality just as the hiking of utility prices has long been a standard IMF demand – and the demand that she balked at when it was her turn to implement the IMF agreement she agreed that also included utility hikes.

The IMF has been fairly consistent with its requirements with every Ukrainian government that has negotiated with it – from gas pricing, to the funding of vast number of universities within the nation, to lifting the moratorium on the sale of agricultural land, there is really nothing new in her “revelations”.

Indeed the only thing new about the IMF demands this time is that both Prime Minister’s Yatseniuk and Groisman have more or less honoured the obligations they have entered into – unlike Ms Tymoshenko when it was her time to do so.

What catches the eye is this statement – “The nationalization of large Ukrainian private banks is foreseen. We want to know what the bank is, what the date of nationalization is and who will be responsible for the obligations the banks have to Ukrainians”.

Clearly she is referring to Ihor Kolomoisky’s Privat Bank.  A bank which is structurally critical to the current operation of the Ukrainian banking system, but that is otherwise bankrupt and has been for years.  This situation too, is no secret to anybody.

Indeed the nationalisation of Privat is unlikely to create too many issues for Ihor Kolomoisky given its otherwise bankrupt status.  He may well realise that if he can get rid of it now, it will save some severe and problematic issues in the not too distant future.  (The health of Ukrainian Airways (MAU) another Kolomoisky company is worthy of a look too for those interested in the Kolomoisky empire.)

Privat Bank, its condition and structural importance would of course raise flags for the IMF when considering the robustness of the Ukrainian banking system.

The question Ms Tymoshenko is really asking is what, if anything, Ihor Kolomoiskhy gets out of the deal on his side, and what the current leadership get (themselves) if the State nationalises Privat Bank removing this impending problem for Ihor Kolomoisky and also easing concerns within the IMF?

Do Mr Kolomoisky (and partners) retain any minority shares?  What about the high value loans heavily biased to other Kolomoisky companies and their ability to repay them – or not?  Are profitable bits of Privat (card payment infrastructure etc) to be split off, and if so who will own them and reap the rewards?  Who would be the negotiator with Ihor Kolomoisky if not President Poroshenko, the only person Mr Kolomoisky would negotiate with?

What reward does President Poroshenko personally desire from any such negotiations that ultimately remove a problem for Mr Kolomoisky?

The answer to that, if strong and repeated rumour be true, is a majority share in Mr Kolomoisky’s top rated TV station 1+1.

The President has one eye on his woeful popularity figures, and another eye on Presidential elections in just over 2 years time.  A 1+1 favourable editorial line toward President Poroshenko would be gratefully received and the only way to insure it with a sly character like Mr Kolomoisky is to own the majority share of 1+1.

1+1 together with the President’s Channel 5, and perhaps the fairly amenable (read rentable/for hire) Vadim Rabinovich and Evgen Muraev with NewsOne, will form a fairly solid national TV media platform from which to launch a presidential campaign for a second term – notwithstanding the administrative ability to throw a few policy sweeteners to the constituency and a few fairly big fish into the judicial frying pan if and when necessary – all with the timeliness associated to pre-election electioneering rather than official electioneering.

If this be the case, how does President Poroshenko buy a majority share in 1+1 when his business activities are now supposed to be run through a blind trust?  Is the trust blind in only one eye?  Will a trusted third party do the 1+1 (plausibly deniable) honours on behalf of President Poroshenko?

Will Mr Kolomoisky accept President Poroshenko saving him from serious banking problems/liabilities at the expense of control over the influential 1+1?  It is a question, according to rumour, that is still being pondered.

With Inter (if it is still operating and belonging to Dmitry Firtash) being an Opposition Block TV platform, the question in Ms Tymoshenko’s head perhaps is not what happens to Privat, but undoubtedly being aware of the persistent rumours surrounding the deals around what happens to Privat, is where she will find a national media platform that could compete.

Unless Ms Tymoshenko is entirely deaf to rumours circulating within her workplace, she already has a good idea of the answers to all the other questions – as do a lot of other people.

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Corruption, jurisdiction, and stopgap roles to European public figures

September 19, 2016

With the cleaners still clearing up after the YES Conference in Kyiv, and the Davos Conference in Kyiv on-going, a reader may be forgiven for missing the fact that Denmark has been appointed “point man” for the EU with regard to implementing a 3 year anti-corruption programme worth €16 million.

The Danish Foreign Minister Kristian Jensen, and the Danish Ambassador to Ukraine will have a difficult task when it comes to achieving any benchmarks (whatever the benchmarks are) relating to this programme and accounting for any successes or failures.

Indeed the Danish FM is on record sharing a very dim view regarding the retarded attempts by the Ukrainian political class to neuter the legislation it passed regarding e-declarations – “We fully share the view of the anti-corruption committee – there should be no changes made to the law.  Commissioner Hahn and I raised that in our meetings with Prime Minister Volodomyr Groisman.  Delays have already left a bad impression. No-one should forget that the EU is watching carefully as the final decisions are taken on visa liberalisation.

Anti-corruption activists however, perhaps naturally, expect more than robust rhetoric and diplomatic pressure and are advocating joint prosecutor teams for joint jurisdiction cases.

It has to be said that in the diplomatic and political circles there is indeed discussion over some European judges taking a role in any specialised anti-corruption court if and when one appears in Ukraine.  Quite how that will sit within existing Ukrainian legislation is unclear, or indeed how it would sit constitutionally too.

There are also issues over joint jurisdiction, what it actually means, and how it would fit within any Ukrainian legislation and/or the Constitution.  Lest it be forgotten the ratification of the Rome Statute – an instrument relating to the ICC – was long delayed (and was this year postponed for 3 years when it should therefore enter into effect in accordance with Ukraine’s EU Association Agreement obligations after Constitution changes).

It should be noted that the ICC jurisdiction is complimentary to national courts –  and even that complimentary status was a constitution hurdle – yet there are far less political (and perhaps socially) prickly issues than that of joint jurisdiction that is concurrent .  An issue perhaps irritated further by whether a State adopts a monoist or dualist approach to regional or international law.

None of that should prevent prosecutors and investigators working together of course, the issue will be at which court due process occurs and arguments over where any criminal act was actually committed.  Neither do such jurisdictional issues prevent any EU nation from enforcing its own laws (which they all seem to do with the Ukrainian elite far, far more often than not) regardless of Ukraine failing to enforce its own .

Whatever the case and the issues of joint jurisdiction, or indeed any agreed (or not) definition of corruption aside, as EU “point man” Denmark will be implementing a pilot anti-corruption programme in 2 regions of Ukraine – it is to be hoped that some irreversible headway is made.

Perhaps nailing and jailing the regional elites will be far more efficient than the attempts to do the same with the national elites which clearly remains a major problem.  “Family Yanukovych” may not longer be on a corruption, coercive, corporate raiding blitzkrieg, carpet bombing and plundering the nation of any State and/or private asset that took their eye, but a slightly more subtle “sniper-fire” of more targeted plundering and raiding still actively continues.

Only today was the blog approached asking if there were any names of European public figures it was in contact with that could sit as executive or non-executive directors on corporate boards where their presence may then keep “Mr Kononenko and Co” (their phrase) from acquiring them against their will (now or in the future).

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So, for the likes of Carl Bild, Lady Ashton, Stefan Fule, John Herbst et al., there is still a job they can do for Ukraine by actively assisting in the fight against corruption/coercive corporate raiding.

There are Ukrainian firms that would appreciate such personalities accepting positions on their boards for no other reason than in the hope that such public profiles can be sufficient to dissuade the current wolves.  Executive and non-executive roles are waiting for such specific personal qualities only such a cadre can offer.  There is clearly a demand and there is a very practical role that can be played which will not interfere with the richly deserved lecture circuit/punditry/think-tank leadership/consultancies and the rewards they give.  It is not the “offensive” (ability to open doors, insightful comment, strategic awareness etc) perceptions that come with such names, but the “defensive/preventative” capabilities that come with them name that are sought.

It is of course a stopgap solution being sought by some in Ukraine to the continuing failure of the current elite to get a firm grasp on the rule of law.  Hopefully The Kingdom of Denmark will implement a trail-blazing anti-corruption programme that is spectacularly successful and swiftly repeated throughout all regions, but as  innumerable European diplomats and bureaucrats have said ad infinitum, when it comes to removing corrupt leaders in Ukraine, then “Ukraine has to own the process” (read “do it”).  As that is not going to happen at the very top, in the meantime a few emails to a few “European public figures” have to be written.

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Not a question of “why” but “who benefits” – Ukrtransgaz

September 17, 2016

It is no surprise to anybody that Ukraine takes two steps forward and one step backwards having opted for evolutionary rather than revolutionary reform.

Evolutionary by its very definition is a statement of change over time.  Evolutionary also manages to allow for grubby, if perhaps occasionally necessary, deals with those that once held power and/or significant control over the national economy.  Such deals theoretically (and empirically globally) set about the reduction of influence of old elites insuring that they and their patriarchy systems decide not to try and return to power and roll back to old methods in return for avoiding their otherwise deserved comeuppance – or at least the full force of justice.

That thinking perhaps works if the new leaders that come to power, recognising that this option is preferable to other radical and perhaps more risky options presented, are not products of the old system but are unsullied.

The “Revolution of Dignity” offered no such unsullied leaders to Ukraine in its immediate aftermath.  The presidential elections of 2015 essentially offered a choice between Mr Poroshenko and Ms Tymoshenko.  Mr Poroshenko won, which considering the choice facing the nation was the best possible outcome.  Ms Tymoshenko was, is and will forever be a political disaster for Ukraine should she ever hold the office of President, or become Prime Minister again.

Nevertheless, President Poroshenko is far from unsullied and is not a leader.  He is a manager that believes he can do deals with everybody keeping the elite more or less equally (un)happy, which whilst significantly slowing any reform progress, doesn’t actually stop it entirely – and to stop it entirely is simply politically impossible for reasons internal and external of Ukraine.

During the YES conference in Kyiv 16th/17th September, whilst President Poroshenko, Prime Minister Groisman, Prosecutor General Lutsenko and other senior political and institutional figures predictably put a veneer upon reform progress.

To be fair there have been a few reforms that are on balance probably irreversible, albeit most are certainly not irreversible, many are half completed, the majority poorly implemented or otherwise exist on legislative paper but are de facto all form and no tangible substance.

With so many intellectuals, lobbyists, journalists, opinion-shapers, policymakers and otherwise erudite and wise people gathered at the YES conference in Kyiv, a reader may ponder therefore why this time was chosen for an undoubtedly retarded and backward step within the halls of power.

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Contrary to agreement with the EBRD, perhaps inadmissible to Ukraine’s obligations to the EU’s 3rd Energy Package (which requires the “unbundling” of energy monopolies), flying in the face of understandings given to the US regarding Ukrainian energy and the font of corruption that it is, Ukrtransgaz was quietly moved from within the Natfogaz empire and transferred to the control of the Ministry of Economic Development for no apparent or justifiable reason.

This despite agreed plans about how to “unbundle” Naftogaz Ukraine with the EBRD prior to the EBRD jumping in to assist Naftogaz to the tune of $300 million.

Clearly the EBRD has expressed its displeasure publicly, and during the YES conference, calling for this retarded decision to be reversed post haste.

Further it jeopardises a World Bank $500 million loan to Naftogaz too.

Naturally given the YES conference circumstance, it does not put President Poroshenko, PM Groisman et al in a particularly good or comfortable light – whether they had any involvement or prior knowledge of the incident or not.

Unsurprisingly it does little for investor confidence if the Ukrainian State breaks its agreements with a major, frequent and reliable inward international investor – particularly when that investor is in the same YES conference room in Kyiv as a leadership telling the world that this government and executive can be trusted to meet its obligations.

In short, whatever decisions are made regarding Naftogaz, Ukrtransgaz etc., they necessarily have to be consistent with existing agreements.

Was such a retarded decision/action timed to deliberately project a poor image of the current leadership?

If complicit, did the current leadership expect the YES conference media noise to drown out or ignore a planned nefarious act?  On balance was it considered a good weekend to bury nefarious news?  If so it failed.

That Ukrtransgaz would be split from Natfogaz to meet the Ukrainian obligations to the 3rd Energy Package is an absolute requirement.  Resolution 496 of the Cabinet of Ministers dated 1st July 2016 clearly plans for this eventuality.  That Resolution calls for the Public Joint Stock Company “Main Pipelines of Ukraine” to be created under the management (temporary or otherwise) of the Ministry of Energy and Coal.  In summary the substance of that Resolution moves Uktransgaz from Naftogaz, renames it – or transfers the assets to be more accurate – to PJSC Main Pipelines of Ukraine which will operate under the Energy and Coal Ministry (at least initially).

This is all to have occurred within 30 days after a currently pending Gazprom v Naftogaz arbitration in Stockholm – but no asset transfer is to occur prior.

Does this decision affect the arbitration process in Stockholm in any way?  If so how?  To the benefit of Gazprom?

Without going too deeply into Resolutions and plans – suffice to say there are publicly available Resolutions and plans about how Ukrtransgaz was to be dealt with as declared by the Cabinet of Ministers – none of which caused angst or ire of the EBRD when published (or since).

It follows that with the current nonsense surrounding Ukrtransgaz, a reader is therefore asking “Why”?

A good question, but perhaps not entirely the right question of “Who”?  Or more precisely “Who benefits?”.

Whenever there is a retarded and backward policy step in Ukraine, the first question that should always be asked before any other is “Who benefits?”.  The next question is then “Why (this way from several possible ways was chosen)?

Recognising that the Ukrtransgaz issue will be resolved to the liking of the EBRD and to try and reduce reputational damage to President Poroshenko, PM Groisman etc., the full question is “who benefits from the fairly short window of opaqueness and unaccountable management decisions in and surrounding Ukrtransgaz during this time?”

For who exactly benefits from what damage can be done/what gains can be made during this time?  Cancelled tenders, or alternatively swiftly awarded tenders will ultimately come to light as will any asset sales, acquisitions, or theft.  The EBRD is not a complainant that the PGO or NABU can ignore when its contractual agreement is with the Ukrainian State.

As yet it is not entirely clear who specifically benefits – but somebody does for such a retarded act to have occurred.  Sooner rather than later it will become clear who benefits (and who clearly believes that any repercussions will be acceptable – as nobody within the elite goes to jail).

In the meantime sadly, as the incompetence of a mere breakdown of communication is rather unlikely, a reader is left to choose between either yet more dirty deeds within the current ruling elite (or at least some of them), and/or a complete lack of government control, or a brazen breach of its obligations.

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Odessa Port Side privatisation – Group DF (predictably) raises its bidding head

September 16, 2016

During the 13th YES conference in Kyiv, President Poroshenko repeated once again the intention of Ukraine to privatise many State Owned Enterprises (SOEs) (most of which are a drain upon the State through subsidies and corruption).

The first on the list is Odessa Port Side (OPS), which Ukraine has already once tried and failed to privatise a few months ago due to lack of interest.  As stated many times by the blog, considering the outstanding debt to oligarch in exile Dmitry Firtash of $251 million, the best possible sale price would be between $350 – $400 million and nothing like the ridiculous starting bid price of $527 million the Ukrainian State initially put forward.

OPS will undergo a second attempt at privatisation very soon – this time the Ukrainian State opening bid price is a dramatically $150 million, a figure that is likely to see something like competitive interest occur – and possibly reach the $350 million(ish) the blog notionally qualified OPS asset worth at so very long ago.

The claims of Ihor Kolomoisky regarding OPS ownership via a previously quashed privatisation have been dismissed by the courts, leaving the major issues as the debt to Mr Firtash and the clauses within any purchase regarding asset investment, workforce etc for any potential bidders.

OPS has long been a State asset that both Ihor Kolomoisky and Dmitry Firtash covet, neither having been shy about their desire to own it historically.

Of the foreign interest muted, Norway’s Yara Norge, US-based IBE Trade Corp, Koch Fertilizer LLC, CF Industries Holdings Inc, and Poland’s Ciech S.A etc, missing any mention has been Dmitry Firtash’s Group DF, or Ostchem, (significant among the and other subsidiaries under the Group DF umbrella).  Perhaps with Mr Firtash being an (in)famous Ukrainian oligarch he is/was seen as a potential domestic bidder regardless of the long-standing foreign homes of his corporate machinery.

Indeed little is mentioned of Mr Firtash since he became marooned in Austria following a US attempt to extradite him following an indictment against him being opened in 2014.  Having checked with people within the State Department only a few weeks ago, US policy toward Mr Firtash remains unchanged, thus Vienna looks likely to remain home for some time.

Boris Krasnyansky

Boris Krasnyansky

Nevertheless, it has become clear via Boris Krasnyansky of Group DF during the YES conference, that there remains a real interest in purchasing OPS.  “For our business in the production of mineral fertilizers it is a logical asset for the completion of the corporate structure and is therefore definitely interesting.”

No surprise.

Perhaps even less of a surprise when Group DF can write off the $251 million it is owed should it become the owner of OPS which owes it.  Internal write-offs happen all the time, particularly within somewhat opaque accounting structures.

Few would doubt Mr Firtash can afford it too?  He is a $ billionaire oligarch after all.

Well maybe he can, and maybe he can’t.  There is a significant difference between asset worth and cash flow/cash on hand.  There is also a question over what Mr Firtash owes others too.

In making his $155 million/€125 million bail in Austria, that available cash came via Vasily Anisimov (Chairman of the Russian Judo Association) – “I have known Mr. Firtash for a number of years, though he is neither my friend nor business partner.  I confirm that I loaned 125 million euros to him. This was a purely business transaction.

Undoubtedly a reader is now considering President Putin’s affection for Judo, and how and why the Chairman of the Russian Judo Association would lend “neither a friend nor business partner” so much cash, and the contractual details of this “purely business transaction“.

Whatever the case, Mr Firtash was clearly unable to raise that cash sum himself back in 2014.

Perhaps cash on hand issues have improved since then, but if not, where will anywhere between $150 and $400 million come from to buy OPS, and can the gas debt simply be written off within the Group DF structure if it owes money elsewhere?

Who would it owe money to?

Where has Group DF and Ostchem found its money before?

Historically it has come from Gazprombank whilst directly/indirectly under the control of Yuri Kovalchuk (currently under western sanctions) and euphemistically known as “Putin’s personal banker”.  Gazprombank has a reputation of being the “collective Putin” pocket bank.  That bank has had at peak, somewhere between $7 – $12 billion in lines of credit open to Mr Firtash’s business empire.  In 2011, for example, Mr Firtash owed Gazprombank $2.08 billion but it went on to lend another $2.2 billion (about 25% of the bank’s total capital.)

Perhaps those debts have been repaid – perhaps not.  It is rumoured that Mr Firtash’s gas intermediary business made between $1 and $2 billion per annum, but assuredly that money was not all his.  In such deals, there are outstretch hands – and everybody’s got to eat.

The question therefore is where and who the money comes from for any Group DF (or Ostchem) bid regarding OPS if the apparent cash flow issues surrounding 2014 bail payments have not been overcome?

As those recognised by the Ukrainian State as “aggressors” will not be allowed to compete and win in any (strategic) asset privatisation (read Russia), how will Group DF be viewed legally, politically and economically as a corporation if still in hock to Gazprombank for $ billions – even if a different lender provides credit for any OPS purchase?

If Group DF is now with more than enough cash on hand without lines of credit or loan borrowing, how would the Ukrainian constituency react to selling OPS to a man widely known to have close Kremlin associations, pro-Kremlin views, and perceived to have been involved in numerous nefarious schemes?  Currently he personally is out of sight and therefore, for the most part, out of mind – even if his business partners and rented politicians are less fortunate when it comes to continued public scrutiny.

Fortunately for Ukraine, even if holding the most transparent OPS privatisation, being the highest bidder does not mean automatically becoming the owner – there is thus significant wiggle room to avoid that outcome if necessary.  Further, it is not as though OPS has to be privatised at any cost, whether that cost be counted in $ or political points (albeit understandable to get it off the government books when it requires so much modernisation and subject to management that is perhaps not the best available).

The end of September will see the second attempt to privatise OPS begin when interested parties will have to declare their interest.  By the middle of November, OPS may well have a new owner.  It probably won’t be Mr Firtash – but never say never.

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Romania to spend €43.5 billion on infrastructure – Anybody in Odessa know?

September 15, 2016

Although it becomes wearisome to continually state that Kyiv has to radically improve its relations and communication primarily with Warsaw and Bucharest in the immediate neighbourhood, it is once again stated.

15th September witnessed Romanian Transport Minister Sorin Buse unveil an infrastructure master plan for Romania between now and 2030.  A total of €43.5 billion will be spent on roads, railways, airports, ports etc.

Sorin Buse

Sorin Buse

The reason for this huge investment?  The fact that Romania is consistently losing significant inward investment from EU manufacturers due to poor infrastructure – or at least that is what the EU manufacturers are consistently telling Government Romania.

With regard to the investment into roads and rail specifically, for there is a clear interest insofar as Odessa is concerned, 6800 kilometers of new roads and 5000 kilometers of rail modernisation is planned within Romania.

Most of this new and revamped infrastructure will naturally head from Romania toward neighbouring EU nations in order to remove/mitigate the current hurdles to inward EU manufacturing investment in Romania.

However the political leadership in Odessa (and/or Ukraine) may be wise to pay a visit to their Romanian counterparts (something they simply do not do enough of anyway) considering the previously mentioned Odessa-Reni road that is meant to swiftly link Ukraine to Romania, and Odessa ultimately to Bucharest, not withstanding plans to rehabilitate dilapidated rail links between Odessa and Chisinau, ultimately leading to Bucharest and Sophia.

First and foremost, do these routes still feature in the Romanian grand plan for its infrastructure following this announcement?

Does the Romanian grand plan open up any other opportunities as far as Odessa (and Ukraine) is concerned?  Not only road and rail, but ports, airports etc?  Cheap commercial flights?  Air cargo?  Are any of the ports to be modernised situated on the Danube Delta?

In short are there any feasible “bolt on” infrastructure projects that can reasonably be developed on a similar timescale in the Odessa side of the border?

Did anybody in Odessa or Ukraine know about the small matter of a €43.5 billion Romanian infrastructure grand plan next door?

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