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Place your bids (and ignore events) – Odessa Port Side privatisation (Part Deux)

July 14, 2016

One month ago an entry appeared regarding the first major State Owned Enterprise to be privatised since the current leadership came to power 2 years ago – Odessa Port Side.

The main points within that entry related to an opening bid price of $527 million, which is pushing the boundaries of the industrial plant’s worth if not exceeding them, several clauses within the purchase worthy of note, and also outstanding due process claims against Odessa Port Side and also over the actual legitimacy of the sale of Odessa Port Side.

All of that said, potential purchasers having carried out due diligence will be well aware of the issues – at least the issues at the time the due diligence was carried out.

The 18th July is the date that potential bidders are to formally declare an interest – or not.

The 26th July will witness the privatisation process.  It cannot be overstated how crucial it is that all bidders (and observers) deem the process to have been fair, whether they win or lose, if the stage is to be favourably set for subsequent privatisations and maintaining foreign interest.

Though perhaps it is irrelevant whether Odessa Port Side is sold to foreign or Ukrainian owners as long as the privatisation occurs to the highest of international standards, a reader may perhaps have more faith in a foreign investor actually honouring the clauses within the contract of sale than a potential Ukrainian owner.

The biggest risks for any new owner is perhaps the outstanding and separate litigation by two (in)famous and competing oligarchs.

Mr Firtash makes legal claim over alleged gas debts owed to his РГК Трейдинга company.  A debt figure of $1.237 billion in relation to 217 million cubic meters of gas is claimed – plus interest.

Igor Kolomoisky claims rightful ownership of Odessa Port Side having once partaken in a previous privatisation of the plant almost 10 years ago which he won.  It was then scuppered by the government of the day, he claims because he won and it was not the desired result.  His legal claim is one of rightful ownership and thus the plant should not be sold.

These issues are known.  Any bidders are aware of the issues, and thus to submit formal participation in privatisation of events post 18th July, thereby indicates the risk/reward calculus of those partaking.

However, 14th July has seen some developments both in, and surrounding Odessa Port Side – just 4 days prior to the significant 18th July date for the Ukrainian government.

Firstly the National Anti-Corruption Bureau of Ukraine (NABU) has arrested two Odessa Port Side officials for the usual nefarious schemes.  It is rumoured the two detained are Messrs Perelon and Shyrikov.  If that be so, then association will be made with Messrs Martynenko and Ivanchuk, the People’s Front and former Prime Minster Yatseniuk.  (Indeed had it not been for US pressure/advice from Uncle Jo Biden, Mr Martynenko would never have resigned as an MP and then PM Yatseniuk would have continued to defend him.)

There is naturally nothing wrong with NABU arresting Messrs Perelon and Shyrilov (if they are indeed the two arrested).  Quite the opposite – corruption is corruption.  Arrests must be made.  One day, perhaps somebody will actually go to jail – and for a long time.  Then again, perhaps they won’t, for nobody has yet.

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Whether their arrest is directly linked to activities in the forthcoming privatisation or not is unclear.  It seems unlikely.  Historical misdeeds are much more certain to be the reason for their detention.  Nevertheless for the arrests to occur so close to the official privatisation process beginning in earnest reminds potential bidders of the continuing corruption surrounding Odessa Port Side – something that any eventual purchaser will have to deal with.

Also coming to light on 14th July is an alleged complaint by a Swiss company Allseeds BLACK SI – which is a company run by Vyacheslav Petrysche (and is in reality a Ukrainian concern registered in Switzerland), to the Anti-Monopoly Committee and to Prime Minister Groisman regarding the leasing of prime land within the Oblast without competition by Odessa Regional Administration.  4.5 hectares of land were leased by Odessa Regional administration to “Energo Product Co., Ltd.” for a period of 49 years.

“Energo Product Co Ltd” is owned by the founder of the agricultural holding UkrLandFarming, a man called Oleh Bakhmatyuk – a name already mired in several apparent corruption scandals.

Whether Governor Saakashvili had any direct involvement in the leasing of this land to Mr Bakhmatyuk or not, the Governor has twice over a period of several months, failed to respond to questions from the Anti-Monopoly Committee regarding the issue.  It may be that the Governor instructed and expected the Regional Administration to respond and they didn’t – however the incident raising its head now may well cause some bidders to question any assurances from Government UA regarding property rights, monopolies and corruption in Odessa.

Whatever the case, it is a matter of interpretation and perception as to whether these two events of 14th July relating to Odessa Port Side and property (land) rights shenanigans in close proximity, are coincidentally or conspiratorially close to 18th July and the commencement of meaningful process in the first major privatisation event in years – both in Odessa and Ukraine.

To be blunt any foreign investor that has decided to go ahead and enter the privatisation process, being aware of pending the due process issues relating to Messrs Kolomoisky and Firtash, are unlikely to be frightened off at the last moment by a few corruption arrests of people related to Odessa Port Side, or alleged land shenanigans nearby if the timing of such events are indeed designed to sway the wary and/or undecided.

Nevertheless, some may perceive the timing to be a little “unhelpful” when this privatisation has to be seen to meet the highest international standards within a wider environment of investment predictability.  That said, if it all falls flat and goes to hell in a handcart, Government Ukraine has timed the event to occur a few days after parliamentarians disappear on their holidays, so unpopular winners or procedural disasters are likely to gain but a muted political response from sun loungers in southern Italy, Spain or Phuket.

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