Archive for the ‘Business Admin – Staying Legal’ Category


Germany’s KfW and Oschadbank Ukraine look to SME financing in 2017

December 24, 2016

State owned KfW Bank of Germany together with State owned Oschadbank Ukraine will apparently target the ever under financed SME market in Ukraine following the signing of a memorandum to do just that via a vehicle called the “German-Ukrainian Fund”.

The “German-Ukraine Fund” is not exactly new.  It has been around since 1998 when it was created by Presidential Decree 574/98.  It’s creation was with the very same intent as the memorandum signed on 24th December 2016, and its structure 31.3% National Bank of Ukraine, Ministry of Finance Ukraine 31.3% and KfW 37.4% appears to be unchanged.

Needless to say that since its creation in 1998, judging by the woeful state of financing for the Ukrainian SME market, the results have been less than spectacular over the past 18 years.

Traditionally Oschadbank is not a bank that has ever had anything to do with the financing of SMEs.  It certainly has experience of financing large scale projects (all plundered naturally), but would not be on any list associated with the financing of SMEs.

Indeed it would be fair to state that Oschadbank has absolutely no experience of SME financing – a banking sector that undoubtedly has its own very specific competencies requiring sector expertise.


KfW Bank, aside from being able to borrow cheaply due to being 100% owned by the German State, is split into 3 major banking subsidiaries.  Of most relevance to Ukraine is KfW Entwicklungsbank which lends to governments, commercial banks and public enterprises that engage in the microfinancing of SMEs.

It would appear that whatever the EBRD has done behind the scenes to the internal workings of Oschadbank, part of any result is to open up the banking horizons of Oschadbank and attempt to focus them upon what is an SME economic engine historically ignored.  If nothing else it would diversify the loan portfolio of Oschadbank if a significant number of loans actually take place.

(A reader may suspect that both the EBRD and KfW  will have to lend a good deal of experience regarding microfinancing to Oschadbank for the foreseeable future – though that too may be no bad thing in the short-medium term as the internal Oschadbank management develops.)

All in all, some reasonably positive news to (almost) close the year 2016 – particularly for Ukrainian SMEs or SMEs coming to Ukraine.  If 2016 has been a difficult year for Ukraine, 2017 unfortunately does not seem likely to get any better – that the environment Ukraine finds itself within will get worse is more probable.

So it is with this sliver of hope for Ukrainian SMEs and SMEs entering Ukraine in 2017, that the blog wishes all those who celebrate Christmas on 25th December a thoroughly enjoyable day.


Meanwhile, China marches on in Odessa

April 22, 2016

Over the past few years this blog has attended numerous business and investment forums in Odessa.

On 22 April there is another, the Nordic Business Forum.

As this blog has no business interests whatsoever – anywhere – other than occasionally writing for publications that request a few (far more professional and erudite) lines in return for a small token of appreciation, its attendance at such events are either from a general interest regarding the who, what, where, when and why, rather than schemes, plans, PEST and SWAT considerations, or to meet specific diplomats that contact the blog wanting to put aside some time for a chat – or normally both.

The diplomatic chats aside, the contents of which don’t appear on the blog, there is naturally a lot of chit-chat from the business community about investment, investment climate, nefarious dealings, corrupt and unreliable courts, local and national political problems and how to mitigate as much of the threats and leverage as many of the positives where ever possible – all of which can be done.

At none of these innumerable events has this blog ever witnessed a Chinese presence.  Not once.

Yet China is well on its way to reaching its investment target of $12 billion here – and is likely to go beyond that.

It has spent many $ billions in Odessa Oblast on industrial parks, grain silos and food storage already.

A Chinese company is about to buy a very large IT company with offices in Odessa for approximately $1.2 billion.  The name of both parties cannot be disclosed at the time of writing but will very soon become known – a matter of weeks.


It has now become public knowledge that the Chinese company CNBM International (part of CNGC) has acquired eight solar panel plants (previously owned by Activ Solar behind which were the Kluyev brothers, both now wanted in Ukraine having done rather too well within the Yanukovych regime for all their business dealings to be entirely above board).

The two “Franko” solar farms in Starokozache , both “Danube” solar farms in Artsyz, the pair of “Lakeside” solar farms in Kilivy, and twin “Limanskaya” farms in Renne have certainly been acquired by CNBM.

It is quite likely that the remaining Activ Solar farms in Bolgrad have the same CNBM owners too, although as yet that cannot be confirmed.  Also unconfirmed, but of reasonable likelihood given the source, is a further solar farm being built by CNBM.  CNBM is after all, a renewable energy superpower across Asia and a global heavyweight in wind farm blades – not withstanding thin film solar cells.

(It will surely not be long, if it hasn’t quietly happened already, that parent company CNGC expands its own interests into Ukraine – cement and drywall production and raw material trading on truly global scales.)

Regardless, China via CNBM has just acquired in Odessa one of the top 50 solar power plants in the world, and seemingly intends to expand its solar energy production in Odessa even further.

(With regard to these solar power plants/farms in Odessa, more than 70% of the parts are actually manufactured in China by part of the CNGC industrial empire – thus no surprise that its subsidiary CNBM have now acquired the Activ Solar assets.  Indeed the Kluyev brothers Activ Solar loans were underwritten by these Chinese produced assets.)

Thus there is over the past few years a significant (almost $10 billion) Chinese investment in Odessa in industrial parks, food silos (and storage), energy, soon IT, and a rumoured port terminal (probably Yushni) – undoubtedly justifying the biggest consulate in the city – without any attendance at a single investment conference, nor indeed hosting one.  Indeed the only time the Chinese diplomatic and/or business leaders are to be seen (and chatted with) are at certain restaurants in the city occasionally.

A reader may perhaps wonder, with Ukraine no longer the most receptive of markets for the Russian Federation – and therefore opportunities aplenty exist where they once did not – why it is China that is prepared to walk the business investment walk, whilst it is the Europeans with the DCFTA and reform financing leverage over Ukraine, that are still engaged in business talk.

Still. the Scandinavians are a smart lot – we shall see what they have to say at the Nordic Business Forum beyond the usual PEST and SWAT diet (and off the record diplomatic “chats”).


Agents of change, or simply a changing of agents? The new western CEOs

April 19, 2016

Having witnessed a Cabinet of Ministers containing numerous Ministers of foreign birth and/or western education and/or top level western business acumen be replaced by the latest Cabinet of Ministers that can hardly make such a claim, and having watched two Deputy Prosecutors that passed through public screening prior to appointment leave after suffering various acts of subterfuge and attempts at coercion regarding their reformist/anti-corruption intentions, notwithstanding a number of international advisory entities with hand-picked personalities advising both President and Cabinet, their erudite words prima facie being listened to but unheard,  a reader may ponder the expectations for those foreigners being appointed as CEOs to Ukrainian State Owned Enterprises (SOEs).

Having lost so many injected agents of change at the very pinnacle of national policy making, or seemingly ignoring those that remain in advisory capacities, does inserting those of the same calibre and mindset as CEOs of SOEs simply represent a changing of agents of the agents of change in arguably less politically prickly roles?

The selection process has been thorough.  International headhunters, interviews have taken place, ahead the ever uncertain parliamentary approval that will possibly see the next 3 candidates appointed.  The critical criteria being zero-level tolerance for corruption, an impeccable professional reputation and proven experience in change management.

Thus far during 2015 Ukrgazbank, UkrGasVydobuvannya, Ukrnafta, the State Food and Grain Corporation of Ukraine and a few others have seen new and unsullied CEOs.  Whilst some or all may be still operating at a loss, it would be reasonable to assume that 2016 reporting will record those losses being significantly reduced if the CEOs are indeed as good as their respective Curriculum Vitae purports.

That said, not all such search and select matters have run smoothly.  Governor Saakashvili’s efforts at recruiting “bright young things” for the 28 Districts of Odessa Oblast has met with failures and resistance in 6 of them.  Perhaps 6/28 duds or simply very disliked figures is not such a bad ratio?

Whatever the case, it appears that Wojciech Balczun, who did a tremendous job turning around Polish Railways, will take on the nightmare that is Ukrainian Railways.  So much of a nightmare is Ukrainian Railways that none sitting within the corridors of power past or present have yet decided how it will eventually be privatised, despite deciding it will be privatised.   Presumably Mr Balczum will be tasked with making it worth buying at all whilst such deliberations continue.

Electrotyazhmash, the monopoly SOE dealing in high power generators (predominantly for nuclear and thermal infrastructure), with a fair wind in the Verkhovna Rada, will be headed by Frenchman Jean-André Barbosa, previously of lofty positions within Areva.

Odessa born Igor Smelyansky, currently of KPMG, will take on the Soviet structured and entirely unfit for purpose Ukrposhta.  In fact, it is a fair to state that the Ukrainian postal service fails to deliver – quite literally – and in every sense.

Undoubtedly these people are as good as it gets from those approached by the headhunters that showed an interest.  Their résumés clearly define their accomplishments and quality.  They will earn the western market rate for taking on the roles.  Undoubtedly they will make immediate changes that will reduce losses simply through diligent accounting procedures and the most basic of bureaucratic streamlining .

Perhaps they will be able to work with a minimum of the political interference and/or deliberate meddling that facilitates the continued feeding of the oligarchs and other vested interests with minor shareholdings in SOEs that feed off of the State subsidies required to keep them running.

How easy it will be for them to make significant structural alterations, or indeed significant personnel changes, is the point at which these agents of change may become impotent – ultimately with a similar fate ahead as the original agents of change within the last Cabinet of Ministers (their engineered removal to preserve the status quo).

end near

Simply put, sacking corrupt people within the organisation does not mean they are actually sacked.

For a start, the labour laws of Ukraine do not necessarily make it easy to dismiss people from within State employ.  If they happen to be well placed and connected, it becomes even harder.

Take the on-going saga of police reform as an example.  Thousands of police officers have been sacked either for questionable and unconvincingly explained wealth, professional inability, or simply criminality.

Many of those sacked have appealed to the corrupt courts of Ukraine that have stated they have been wrongly sacked and must be allowed to return to their previous positions.  This had led to Khatia Dekanoidze the Chief of the National Police of Ukraine to state she will sack these people again.  When she does, a reader can guess what the courts will rule – again.

And so it goes on – eventually to an ECfHR already overflowing with Ukrainian human rights case applications.  Perhaps Strasbourg should open a temporary second court of human rights simply to deal with all the Ukrainian cases and clear them all from the lists of the current court.

It seems somewhat fanciful that corrupt yet enriched officials within the SOEs will not be able to buy the court decisions overturning their dismissal by a new CEO as and when inevitable sackings for corruption occur.

As the top SOE management are often associated with facilitating the requirements of the vested interests and/or oligarchy that placed them in their roles, or bought their souls when they reached such dizzy management heights, every effort will be made for them to keep their jobs, and if they can’t be kept, then to insert them into another SOE to serve nefarious interests there.

As the Odessa Regional Prosecutor drama surrounding Nikolai Stoyanov ably displayed, lustrated does not necessarily mean lustrated – unless it is enforced by public protest, the Ministry of Justice and presidential intervention eventually in order to win the day.

In short, sacked it appears, often does not mean sacked.  To be fired is often a temporary thing.  At worst it can mean a move from one SOE to another.

Ukraine is looking for about 50 CEOs for the top 50 SOEs.  If a new CEOs does manage to rid their organisations of particularly odious managers, there is every chance that these intolerable individuals will become another SOE CEOs nightmare – or indeed the nightmare of numerous SOE CEOs as they are forced out, forcefully reinserted, forced out again, moved on and inserted, to be forced out and the cycle repeated.  Sacking them is simply not enough – only jailing them will break their particular personal cycle and part in the corruption machinery.

Further, how does a new CEO create and implement structural change without the consent of shareholders – those structural changes possibly requiring legislative changes too?

With the oligarchy and/or vested interests being minority shareholders but also “owning/renting” numerous parliamentarians and political parties, would sufficient shareholder votes (both private and State) be forthcoming to facilitate the necessary changes?

For Ukraine as a State the sooner the loss making subsidy guzzling SOEs are privatised and removed from the books the better – even if these entities sell for $1, the immediate savings in continued subsidies, bad debt write offs etc are immense.   However for the minority shareholders and many of the managers that the “own/rent”, those subsidies, bad debt write-offs and dubious supply chain management agreements are the source of equally immense incomes.

Chicken or egg?  Which to do first?  End the subsidies making restructuring the only way the vested interests/oligarchy can make an income from the SOEs in which they have minority shares, or attempt to restructure and then end the subsidies once these business units become profitable?

When the shareholders (private and State) are one and the same that would be asked to end the subsidies upon which they gorge, how to “encourage” them to do so?  Withholding of “western” finance?  Strict conditionality upon “western” finance with clear and unambiguous linkage to ending subsidies clearly communicated?

In the limited window of reinvigorated “reform momentum” that will initially follow the new Cabinet taking charge, should ending subsidies and/or SOE restructuring prior to privatisation be a priority among so many priorities before the inevitable early Verkhovna Rada elections bring everything to a halt for months?

What are the expectations from the new CEOs vis a vis what are the CEO’s expectations, and what will result?



Jerking knees and poor policy – Kyiv (Panama Papers)

April 7, 2016

Having written a few words regarding the “revelations” surrounding President Poroshenko and the offshore companies recently registered that were exposed in the Panama Papers, followed by a few more lines about the Ukrainian media missing the wood for the trees, as predicted in the first related entry knees are jerking in Kyiv – “One expected outcome for the long pending draft legislation on the use of offshore companies in Ukraine, will in true populist fashion now see it swiftly come to the vote in the Verkhovna Rada.”

That prediction, obvious as it was for a populism driven seat of power, has been outdone by presidential promises to ban offshore entities (presumably including his own – or those created to serve the purposes of those with Power of Attorney/Blind Trust responsibilities).

“I plan to spend a significant reform that can prevent the use of offshore accounts in Ukraine” – President Poroshenko 

Naturally such promises would be met with a good deal of skepticism in a normal “presidential promises” environment.  The list of unfulfilled presidential promises is long, both publicly made to the Ukrainian constituency and also privately to certain individuals.

Nevertheless, when at the centre of the storm, it is perhaps politically unavoidable but to ride the momentum and take control of the issue – and as this latest statement is born of circumstances surrounding the President himself, there is a worrying chance this may actually occur without proper consideration.

As stated in entries prior – “As much as this blog is very much against anonymously owned corporations and companies and their specific use in tax avoidance or other nefarious deeds, it will concede that under certain circumstances, offshore companies make sense if transparently owned and run.”

But isn’t the ban proposed by President Poroshenko better than the existing situation of hidden ownership, the siphoning off of nefariously acquired cash, tax avoidance and/or evasion?


Perhaps it is – but jerking knees avoid all nuance.  It is necessary to consider other reasons for offshoring when it comes to Ukraine aside from the those headlining in popular reasoning.

The most overlooked driver for the oligarchy when it comes to backing political parties and “owning” parliamentarians, (aside from passing favourable legislation, blocking unfavourable legislation and attempting to keep their place at the subsidy and State contract trough) is one that any other investor would have serious concerns about – property rights and the protection of assets.

By taking ownership of investments outside of the jurisdiction of the notoriously corrupt and inconsistent Ukrainian judicial process, the risks of having property rights swept aside, and thus the increased security of property rights over investments, allows investors to have a little more confidence.  Add in contractual arbitration in Stockholm or London courts, and there is perhaps sufficient daylight between the Ukrainian justice system and business to make it worth the risk.

What (genuinely) foreign investor looking at, or that is already in, Ukraine will make the value of his FDI subject to the fate of the Ukrainian judiciary as the unreformed and chronically corrupted judicial system stands?  Is the presidential plan to reduce potential sources of FDI by banning offshore?  Is it not prudent to reform the judiciary and legal mechanisms in Ukraine to instill confidence prior to simply banning offshore?

Further, is it not wise to adjust and amend tax legislation not only to encourage FDI but (if deemed necessary) to tax final beneficiaries as if they were direct owners without offshore entities?  How that would effect existing Double Taxation Conventions/Treaties with other nations would require some serious legal attention and may not be as simple as it first appears, notwithstanding having unintended consequences regarding both potential FDI and existing investments/assets.

Ukrainian taxes are already very low compared to almost every other nation on the continent, thus Ukraine itself would be an attractive offshore centre if only its relevant institutions and judiciary were not so terminally corrupted, nor its statute book so replete with legislative flapdoodle and taxation codswallop.

There is then the most obvious of reactions to knee jerk bans – it makes those using offshores for entirely nefarious purposes dig even deeper underground, and perhaps even expand that category of activity having been forced from the existing legal realm.

There is nothing particularly objectionable about a ban on offshore companies, but Ukraine is in no position to simply impose a blanket ban on offshore companies at least until it offers FDI a predictable, reliable, and proportional judicial system that protects property rights.  It will have to present a tax system that severely restricts the opportunities for illicitly “soliciting” or “coercing” or “extracting” revenue from either companies directly, or from within the numerous faulty parts that form the machinery of the State system.

There is nothing wrong with a ban on offshore companies if that is to be the policy.  However that policy has to be accompanied by a strategy that will prevent the otherwise fairly clear counterproductive outcomes of a knee jerk blanket ban.

There is surely a far more nuanced policy that can be achieved that will provide more transparency, reduce tax avoidance and/or evasion, avoid FDI flight, and make Ukraine more attractive than to simply “ban” because it is the headline issue of the day surrounding the president.

Promising to address or review offshore usage in the immediate future is absolutely right – all policy should be reviewed from time to time, and now it is politically expedient.  However to state the headline issue of the day will simply be banned is really rather unwise.


Academic Acrimony – Ukraine

June 15, 2015

Aside from fairly frequent high-brow meetings with diplomats from those nations that are active (rather than simply in) Ukraine, this blog gets to meet visiting/researching academia, think tankers, NGOs and  journalists, somewhat ad hoc when they are passing through Odessa and make contact wanting a chat.

The dividing line these days between academia, think tanks and certain NGOs becomes ever increasing smudged and blurry.  Your author’s genuine academic heroes, such as Sir Lawrence Freedman, become more and more difficult to find in an environment where publish or perish of acquired knowledge (of which we are all capable) has replaced scholarly thinking and subsequent wisdom and sublime insight (of which we are not all capable).

One of the benefits of blogging about Ukrainian and regional policy (and politics) in English from the provinces such as Odessa, is that the “regional view” is read and actively sought out when the enlightened pass through.  Rightly, any excuse to get out of the “Kyiv bubble” is taken – if only the senior Ukrainian politicians did the same.

Over the past 48 hours, Professors from Moscow, Carnegie Moscow, Yale researchers and think tankers/NGOs from Kyiv have all, in various ways and to various degrees, emptied you author’s head over good food and in pleasant surroundings.

There is a certain amount of sympathy for researchers.  The boys and girls of the academic boiler room that make Doctors and Professors look good, but who are generally nothing more than a footnote on a published work and thus almost invisible when said Doctor’s or Professor’s published work is cited elsewhere.  That said, being an “intern” is even worse.

From here on in, The Chatham House Rule applies.

One of the issues that raised its head with some of the enlightened, amongst the numerous issues discussed and which may well be visited in later entries, was that of academic acrimony.

A current case in point – USAID has financed several Kyiv based NGOs that will remain nameless, to tackle the issue of SMEs, existing and future government policy, bureaucratic hurdles, (the complete lack of) DCFTA/EU regulation awareness, certification requirements and sources for certification etc., and delivering some long hanging policy fruit that can be dealt with swiftly, as well as a more strategic policy paper.

Rather than finance the 3 NGOs to work separately, USAID stated it would source a collaborative effort.  Thus former NGO and think tank/academic rivals become current NGO and think tank/academic partners – not necessarily to the benefit of the subject matter.  Funding trumps all history and current notions of competitiveness and adversary.

Part of academia is to put reasoned, thoughtful ideas and suggestion “out there” for peer review and comment – and if not unnecessarily heavily cloaked in discipline specific jargon, the hoi polloi will understand it too (God forbid).

(It has to be said academic writing is tedious.  Journalistic writing is generally dull.  Hopefully regular readers of this blog will class the writing here as “conversational”.  After all, are you not regularly offered dilemmas and questions to think about, rather than simply being given answers to prickly problems?)

Naturally for any given academic view, there is often an alternative academic view, and occasionally what has been put “out there” is taken to the next level by others.  On rare occasions, take the Keynes verses Hyatt discourse in The Times many moons ago, it can become somewhat publicly acrimonious.  Indeed contesting the content can be replaced with attacking the author.   It pays to separate message from messenger in most walks of life – and academia is no different.

Anyway, six months into the current USAID funded project – and having eventually reached consensus over the “what” of the study (and the “what” is always harder to define than the “who”, “when”, “where”, “why” and “how”) field work is underway in five randomly(ish) picked Oblasts.

For a few swift results as required by the USAID funder, that low hanging fruit will have to be very low hanging indeed – tick tock, tick tock, six months have passed already!

Yet for there to be a coherent consensus driven outcome, a coherent consensus driven input is required.  And there are issues already, despite so little having been done thus far.

At the end of December 2014, the Rada passed a law that stated business and SMEs were to use electronic tills that produce receipts for customers – Shock!  Horror!  An attempt to drag some of the grey economy into the white?

These tills cost approximately UAH 5000 each.  For many businesses and SMEs not a major outlay – for others problematic.

The Ukrainian Business Associations were rightly miffed that they were not consulted about this law before it was passed, even if the government policy of mandatory introduction was unlikely to change by any SME/Business Association input.

It was indeed bad form by the government not to consult, or at least be seen to consult, the business and SME organisations whether it had any intent to actually listen or not.

Indeed, there is not really that much objection to the introduction of the tills amongst the business and SME community – the contentious issue is who is to pay for these tills?

How dare the Rada pass an arbitrary law that costs SMEs and business money?  If they insist business and SMEs use such tills, then the government should pay for them.

That the government also has a mandatory requirement that all nationals have an internal passport that the individual pays for and that the government does not, is besides the point.  That every driver pays for their driving license because the government states you must have one to drive, again is besides the point.  Because the government has made it mandatory to have electronic receipt giving tills for customers (and tax officials) this is something the government should pay for – unlike internal passports or driving licenses it also insists upon, and people pay for.

Perhaps if the government pass a law that snow tyres must be on all vehicles when the snow is deeper than “x” and temperatures lower than “y” on the grounds of public safety/saving lives, the government should pay for snow tyres on every mechanically propelled motor vehicle that uses a public highway in Ukraine?

When these Ukrainian businesses and SMEs begin trading with the EU and have to meet the EU standards, perhaps the EU should pay for these businesses and SMEs to reach those standards to be able to trade within the EU?  If a new standard is introduced the EU should pay for Ukrainian businesses to reach it – even if they don’t pay for EU businesses to reach it?  EU standards are arbitrarily imposed and cost money to meet!

For any new SMEs starting up, this new law is simply part of the start-up costs and budgeted for accordingly.  For those existing this law is onerous and thus outrageous.

Whatever the case, the law is the law.  How effective it will be at dragging part of the grey economy into the white, or indeed reinforcing customer rights, remains to be seen.  After all, electronic till or not, it does not mean all transactions are going to go through the till.  Alternatively when the little corrupt tax inspector arrives and in their opinion not enough tax has been paid, evidence of sales and tax liability based on electronic till receipts and not the corrupt tax inspectors best guess and whim have some evidential value to the SME being squeezed.

Unsurprisingly (or perhaps not), there is now a fracture between the collaborating NGOs over whether the government or private business/SMEs should shoulder the costs of the arbitrary government decision.  Apparently it is an on-going argument over several months amongst what is supposedly an erudite and enlightened group of people tasked with far larger issues by USAID, relevant as this may be.

Seemingly the ability to agree to disagree and create a research/policy recommendation document that can contains either/or variations on such an issue and move on, is beyond contemplation.  Suggesting a compromise of business/SME’s paying and then getting a tax break to cover it over a period of “x” years is not an option for consideration.  Alternatively, suggesting that if government pay it is in the full knowledge that the government will either raise or introduce a tax to cover the costs – and undoubtedly that tax will remain long after those costs have been covered, is not how these things can be framed.  Heaven forbid that a deal is struck that SMEs and business pay for the tills yet other regulatory issues that have to be tackled by government are delayed long enough to recoup the UAH 5000 outlay before more inevitable changes occur – be those changes recommended by the collaborative USAID funded research or not.

There is often much to be gained by academic collaboration, and there can equally be much lost.  The wisdom is found in forming the right collaborative agencies – and that is rarely done when funding for all concerned parties overrides compatibility and/or maturity.  When that academic line becomes blurred in the muddier waters of think tanks, NGOs and funders desired outcomes, friction will occur.

If the collaboration is allowed to become fractious, competitive and positions entrenched, USAID would have been far wiser either finding more compatible partners, or funding 3 separate research programmes and drawing their conclusions from each upon their own merits

Hopefully the 3 NGOs will get a grip.  Six months to decide upon the “what”, to and then immediately get hung up on a single conflicted issue in such a broad and important research effort is not particularly promising when it is not especially difficult to arrive at several valid paths for consideration and sets of recommendations for each.  .


Going against the grain – Cargill (USA) & Delta Bank

March 18, 2015

On 3rd March the National Bank of Ukraine dramatically hiked interest rates from 19.5% to 30% overnight, as part of a pick ‘n’ mix bag of measures to help support the currency.

That same day, the NBU announced that Delta Bank, then the 4th largest bank in Ukraine by way of assets, had gone into temporary administration and was part of the cleansing of the banking system of insolvent banks.

For months the NBU had been trying to find a way to keep Delta Bank running, as its insolvency could have forced a run on the banks – however with the headlines naturally concentrated upon the dramatic rate increase, it was thus not a bad day to bury bad news regarding Delta and the liabilities the State would have over deposit guarantees.

Like comedy, everything is in the timing.

Delta Bank was/is owned 70% by Nikolai Lagun and 30% by US agriculture group Cargill via its Ukrainian enterprise.

What is less well known is that on 5th February, those in Kyiv authorised the transfer of loans from 9 “troubled banks” to other lenders.  Amongst those authorised were Cargill Financial Services International – those loans transfered in excess of $100 million.

Thus Cargill’s Odessa based interests – Ilichevsk Grain Port, Stroybud Illichivsk, Yablunevy Dar and Tank Trans – were offered new loans directly with Cargill Financial Services International and can no longer be classed as “debtors” to Delta Bank during its temporary (or perhaps permanent) insolvency.

All of this occurring prior to a recent changes in Ukrainian banking legislation, increasing the liability of bank owners.

Bravo Cargill – its shareholders should be proud that it managed to mitigate its liabilities as part owner of Delta Bank almost entirely.  Unfortunately, the society in which Cargill’s Odessa assets are located and operate, is now forced to pick up the State guarantee tab for the Delta Bank depositors who have lost out.

Ergo,  despite no inference of anything illegal occurring, there is indeed reputation damage to Cargill.  Naturally it rubs against the grain somewhat.

So, having managed to salvage in excess of $100 million, whilst leaving the tab for many of those employed by the company, those within its supply chain, and for the local population to pick up – whilst also avoiding the newly imposed legislative liabilities for bank owners – perhaps a little gesture of goodwill would be in order lest such a story gather yet more local momentum, recognition and umbrage?

For a chump change (and probably a tax write-off), as well as investing in Cargill’s future local personnel, and also uplifting the “Brand USA” image, perhaps a charitable overhaul of Odessa Agriculture University’s IT and laboratories would be worthy of consideration?  A dozen annual agricultural scholarships to US universities?  Some goodwill tangibly sown back into the local community?

Naturally this blog has to declare an interest, and recognises that this entry is perhaps slightly biased – not being a shareholder in Cargill, but being a taxpayer that is left to pick up the State guarantee tab.


EaP revisited – Ukraine

March 10, 2015

Ms Mogherini, EU High Representative and EEAS boss, together with Johannes Hahn, European Commissioner for Neighbourhood Policy, have decided upon a review of the current neighbourhood policies – The EaP policy toward the EU’s eastern neighbours, and particularly Ukraine being of greatest interest to this blog – naturally.

The geopolitical landscape is far more tense than it was when the Neighbourhood Policy was last reviewed.

To say it has suddenly changed, or is suddenly different as far as the EU’s east is concerned, is something of a stretch – for this blog was warning in 2012 that Russian geopolitics would take a far more coercive, robust and forceful turn as AA/DCFTA agreements were due to be signed and ratified within the “joint neighbourhood”.  (A view that earned the author of this blog a public and on the record dressing down by then EU Commissioner Stefan Fule as being “unhelpful” at the time.)

As a result of stubbornly ignoring warning signs, the EU has been left reactionary and behind the curve ever since..

It also has to be said, that neither Ms Mogherini nor Mr Hahn instill much confidence with regards to either personal, or their nations, positions regarding The Kremlin.  To be generous both they, and their respective home nations, would be seen as “understanders” in the softest kindly Aunt sense of the word (rather than the sense of expert comprehension), some, perhaps overly critical, may say “appeasers”.

Fortunately neither Ms Mogherini or Mr Hahn set EU foreign policy.  That remains, ultimately, a decision of the European Council and the leaders of the 28 Member States – and not that of the EEAS or European Commission.

Thus Ms Mogherini and Mr Hahn may try to set the agenda, or put forward suggestions, which is indeed part of their respective remits, (such as the previously dismissed “January Mogherini Paper“) but in doing so, it should be recognised it may have no effect on outcomes within the European Council.

With regard to the “Mogherini Paper”,  there were only 3 problems – weak language, extremely poor timing, and a profound/astounding lack of understanding of what drives Russian foreign policy – and thus the fundamental differences between Russian realism and EU institutional liberalism, which will result in little more than a transactional relationship for the foreseeable future.  Kremlin “zero sum” vis a vis EU “win-win” ideology will not be reconciled.

In short there was no recognition that “delete partner” and “insert competitor/adversary” in all Russia concerned affairs, was (and is) a necessary amendment under current Kremlin management with regard the “shared neighbourhood”.  No surprise then, that the European Council rolled its collective eyes, quietly tutted, and pushed the paper back with “Must try harder” stamped across it.

However, for those on the outside looking in that questioned who actually decides EU foreign policy, such a public short shrift provided a very clear answer – Not Ms Moghereini or the EEAS.

That said, Ms Mogherini and Mr Hahn do have a very prominent role with regard to the level, intensity, and depth of political engagement of the EU institutions with Ukraine.  Ergo risks arise for Ukraine should that engagement decrease.  It will be up to Ukraine (and no doubt the situation will be closely watched and oft commented upon publicly by “the Balts” and Poland) to keep that engagement both driven and focused.

Nonetheless, to be very blunt, even without the explicit recognition of eventual EU membership, the EU has still offered a more attractive social and economic model than that offered by The Kremlin – the latter a dismal model well known to Ukraine.   Thus an EU offering “anything”, is seen by many as far more attractive than “something” being offered by The Kremlin – and only The Kremlin itself can be blamed for not having made itself socially and economically more attractive to its neighbours over the past 20 years.  It certainly has had the time and money to do so, but failed to even try.

Anyway, Ms Mogherini and Mr Hahn are absolutely right in pushing for an EaP policy review in light of current and foreseeable regional circumstances, though the outcome may not be anything like what they are expecting with regard to massaging Russian sensibilities.  Yesterday Foreign Secretary Phil Hammond clearly stated he expected the UK-Russian relationship to be “prickly” for some time to come.  Lithuanian President Dalia Grybauskaitė and fellow Baltic States are certainly not about to take a soft line regarding the Kremlin either, ditto Poland and Sweden.

As the tweet above outlines, EU foreign policy often comes down to the lowest common denominator  – the place where all 28 Member States manage to agree – thus finding a consensus of goodwill toward The Kremlin as some Member States or EU institutions might like, seems unrealistic short of dramatic U turns by numerous EU members.  Similarly, the renewal of some sanctions appears more than a little open to question, despite the rhetoric from some hawkish European capitals.  In short, a “Russia Policy” seems far from a reality, with at best a strategy of “wait and see” – for as long as it is possible to “wait and see”.

However, any Ukraine (or any other EaP nation) policy is not a Russia policy.  Any policy the EU may arrive at regarding Russia or Ukraine (or others) may have some overlap, or dovetailing, but they are not one and the same thing – particularly so as there are now ratified Association and DCFTA Agreements existing which, as EU Trade Commissioner Cecilia Malmstrom made crystal clear only a few days ago, “will not be amended.

Ergo, as these ratified agreements provide a comprehensive political/democracy and trade model with freely undertaken legal obligations to comply, any mollycoddling of Kremlin concerns can only be found within any wiggle room of the text therein, or issues that are excluded from the agreements.

As is being ably demonstrated, that is not an outcome The Kremlin is going to accept willingly.

Thus the review of the EaP will have to look at the ends, ways and means regarding the driving any redefined policy in light of ratified AA/DCFTA agreements first and foremost – what is the goal of such a policy and how does it fit with the expectations/desires of the EaP partner States?  There is, at the very least, a ratified strategic document now in existence that must be considered.

Secondly in light of an adversarial and aggressive Kremlin over some EaP nations and their chosen directions westward, how will the Kremlin obstruct, undermine and slow progress?  How to mitigate that when concessions are simply pocketed by Moscow, but demands remain unchanged?

With the integration model/strategy now ratified, and thus European markets opening up, together with a Visa-free regime likely to be raised at the Riga summit two months hence, perhaps resulting in a projected implementation date now Ukraine has got its biometric act together, both motivating factors of markets and mobility may be at least partially achieved by the year end/beginning of 2016.

If Ukraine has some sense, it will not allow the “mobility” driver to stop at Visa-free tourism, or opening markets to be adversely effected by Visas either.  It may do well to then consider a move toward abolishing entirely, the current Visa requirement for EU citizens to do business in Ukraine, taking the next sequential step, which in turn will then lead to similar – and naturally protracted over many years – reciprocal dialogue.  In the meantime, the European SMEs that drive the EU economy would be free to enter Ukraine and do the same thing without needing an appropriate Visa.

This naturally takes a degree of political will by Ukraine to drive ever onward toward Europe, by giving Europe far simpler access and business facilitation, exceeding current bureaucratic limitations, regardless of how reticent Europe is about any Ukrainian accession pretensions.

There is perhaps a perceived half-way house regarding membership of the European Economic Area as a potential next step that may be deemed progression by Ukraine, and yet a holding position by the EU regarding membership – perhaps France, a nation dead-set against EU membership for Ukraine, would feel far happier at such an outcome.  A place where all can buy political time, and a place where Norway and Iceland seem reasonably happy to sit, going no further toward EU membership after all.

If the ratified AA/DCFTA agreements are to become a strategic document within a Ukraine Policy (within a broader EaP Policy) – and it is certainly a strategic document for Ukraine and its reform process – then perhaps any new “Ukraine Policy/Strategy” within an EaP context would be wise to concentrate upon/prioritise certain parts of the agreement – those that would benefit both Ukraine and the EU the most in current turbulent circumstances.

Perhaps the following should be given priority, considerable political energy, and sufficient funding:

ARTICLE 7 –Foreign and security policy

1. The Parties shall intensify their dialogue and cooperation and promote gradual convergence in the area of foreign and security policy, including the Common Security and Defence Policy (CSDP), and shall address in particular issues of conflict prevention and crisis management, regional stability, disarmament, non-proliferation, arms control and arms export control as well as enhanced mutually-beneficial dialogue in the field of space. Cooperation will be based on common values and mutual interests, and shall aim at increasing policy convergence and effectiveness, and promoting joint policy planning. To this end, the Parties shall make use of bilateral, international and regional fora.

2.. Ukraine, the EU and the Member States reaffirm their commitment to the principles of respect for independence, sovereignty, territorial integrity and inviolability of borders, as established in the UN Charter and the Helsinki Final Act of 1975 of the Conference on Security and Cooperation in Europe, and to promoting these principles in bilateral and multilateral relations.

3. The Parties shall address in a timely and coherent manner the challenges to these principles at all appropriate levels of the political dialogue provided for in this Agreement, including at ministerial level.

ARTICLE 337 – Energy Cooperation

1. The Parties agree to continue and intensify their current cooperation on energy matters for the enhancement of energy security, competitiveness and sustainability, which is crucial for the promotion of economic growth and to making progress towards market integration, including through gradual approximation in the energy sector and through participation in regional energy cooperation. The regulatory cooperation shall take into account the need to ensure relevant public service obligations, including measures to inform and protect customers from unfair selling practices, and access to affordable energy for consumers, including for the most vulnerable citizens.

2. Such cooperation shall be based on a comprehensive partnership and shall be guided by the principles of mutual interest, reciprocity, transparency and predictability, consistent with the market economy, the Energy Charter Treaty of 1994, the Memorandum of Understanding on cooperation in the field of energy and other multilateral and related bilateral agreements.

ARTICLE 14 – The rule of law and respect for human rights and fundamental freedoms.

In their cooperation on justice, freedom and security, the Parties shall attach particular importance to the consolidation of the rule of law and the reinforcement of institutions at all levels in the areas of administration in general and law enforcement and the administration of justice in particular. Cooperation will, in particular, aim at strengthening the judiciary, improving its efficiency, safeguarding its independence and impartiality, and combating corruption. Respect for human rights and fundamental freedoms will guide all cooperation on justice, freedom and security.


A regular dialogue will take place on the issues covered by Chapter 2 of Title V (Economic and Sector Co-operation) of this Agreement.

Also, the EU would be wise to invest heavily into the Ukrainian civil society with both political energy and sufficient finance, insuring it remains robust, engaged, influential, and able to function without political interference.

Fiscal and economic issues will be subjected to IMF overview for the next 4 years anyway (assuming a 4 year loan is forthcoming), so until the next EaP policy review that follows that of 2015 – whenever that will be – it would perhaps be wise, whilst not disregarding the other legal obligations Ukraine has undertaken within the AA/DCFTA, to focus policy, political energy, finance and policy on a few crucial and mutually beneficial points.

If a well defined European “Grand Plan” is absent, which it definitely is, the Neighbourhood Policy is to subjected to lowest common denominator agreement, thus the 2015 review may very well result in little more than a fuzzy overarching policy umbrella devoid of clear goals and leadership, then perhaps a truly focused bilateral progression strategy prioritising AA/DCFTA Chapters, under the auspices of whatever fuzzy policy umbrella that emerges, will be the best option Ukraine can hope for.

Whatever the case, as the policy review is not due to be completed until the year end (by which time the full weight of the AA/DCFTA (and possibly Visa-free) comes into force), it will be interesting to see what the enlightened arrive at for as a new, fit for purpose, Neighbourhood Policy.


Kremlin goes back to the DCFTA

March 4, 2015

Yesterday, away from all the headlines, EU Trade Commissioner Cecilia Malmstrom met with Russia’s Economic Development Minister Alexey Ulyukayev in Brussels – the issue discussed the EU-Ukraine DCFTA and The Kremlin concerns.

Kremlin meddling with the DCFTA at this time was to be anticipated, as this recent post made very clear.

“The Kremlin will now be swift to try and unpick these economy transforming and European integrating agreements prior to it coming into force on 1st January 2016. European political defeat lies in allowing an external 3rd party veto or amendment to a ratified bilateral agreement. Any such precedent would be a disaster for the EU.”

No surprises that The Kremlin was stone-walled over any chance of altering an already ratified bilateral treaty.

I place great importance on our trade and investment relationship with Russia, and it is in our mutual interest to overcome the current difficulties. To fulfil our relationship’s potential, the current Ukraine crisis needs to be solved. As I have stated in many occasions, this is a political problem requiring a political solution. I hope that the respect of the measures agreed in Minsk will lead to the way out of the crisis.

I therefore support the resumption of trilateral talks between the EU, Ukraine and Russia in order to achieve practical solutions to concerns raised by Russia with regard to the implementation of the DCFTA between Ukraine and the EU. We continue to stand ready to find ways to address the concerns expressed by Russia, within the flexibility provided by the EU-Ukraine DCFTA, which, however, will not be amended.

It is only via a solution to the Ukraine crisis that we can lay down the foundations for a renewed bilateral partnership based on dialogue and cooperation. Moreover, Russia needs to respect its WTO commitments in full. Once conditions are met, we can start envisaging something more ambitious for our bilateral trade relationship.”

Bravo – It is beyond time that Europeans stopped simply offering concessions, swiftly pocketed by The Kremlin, with no return.  A far more robust negotiating stance has to be adopted with the current Kremlin management.   The Kremlin has made it quite clear for several years, for those who have cared to look, that it has no intention of being like the rest of Europe – pretending otherwise is pointless, and also self-defeating.  Hopeful mirroring is not going to help, and is indeed a factor in how matters have been allowed to progress so far already.  Trust and goodwill are spent.

But what can be reasonably done to allay the purported/perceived Kremlin trade concerns (be they real or fabricated), beyond “country of origin” labeling/packaging/electronic tagging?  Should anything be done at all, and if so what is the cost of doing so?  Is it not beholding of Russia to insure its borders and customs deal with any such problem?  (Admittedly The Kremlin clearly has issues with the control of its own borders, when small armies and masses of military equipment pass through apparently unseen by the authorities after all.)

How much greater would the “reexport” problem become for Russia?  It does not complain about the (organsied) smuggling from Finland, or the Baltics.

The bilateral nature of the DCFTA was a point conceded by Mr Ulyukayev – at least publicly.  He stated “There is no doubt that the agreement is a matter between Ukraine and the EU, but our concern is to protect our companies, our business and economy from possible consequences.”  The anticipated threats to Ukrainian trade were also made “if Moscow’s concerns are not taken into account Russia would have to take protective measures, including the introduction or toughening of customs tariffs on Ukrainian goods.”  No surprise to anybody of course – though it is a double-edged sword when certain Russian industries, even in time of war, still rely on Ukraine.  The costs and timeliness of becoming self-reliant are not small.

If there is one place that the EU will beat the Kremlin without much effort, but simply due to natural design,  it is within its bureaucratic and technocratic system.  One of the very few advantages of being a behemoth of bureaucracy and technocracy, is that circumventing or short-cutting the system is simply not going to happen – not even for the Member States.    It is for this reason that The Kremlin stays as far from the EU machinery as possible, preferring far swifter bilateral agreements with Member States whenever possible.

Although rhetorical, there is the question as to why The Kremlin has a problem with the DCFTA, and yet Minsk and Astana have nothing to say.  They are now part of the same common economic space with Russia, that is the EurAsian Union after all.  What prevents European goods being reexported from Ukraine to Belarus or Kazakhstan, and then on to Russia?  Certainly not the rule of law, or the ethics of those meant to enforce it in those nations.  Thus, is it now, no longer a “Russia” issue but a “Eurasian Union” issue?

That said, the EU would be wise to avoid dealing with Kremlin concerns via the EurAsian Union entity.  Just as Russia avoids the EU structures and looks to bilateral national interaction as the preferred option, the EU should do the same.  Indeed both Belarus, Kazakhstan, and others, for the immediate future may also prefer to keep as many bilateral channels open as possible.

The war between Russia and Ukraine will not only be fought with tanks and guns, but also (and increasingly) with politics and economics (not to mention subversion, coercion, etc.)  It is also a war that will continue for as long as the current Kremlin management remains in place, or until Ukraine acquiesces and accepts The Kremlin yoke once more.  At least ten years of Kremlin obstructionism and aggressive interventionism awaits Kyiv (and Europe) – possibly longer.

In the meantime, if Russian concerns are to be met by “the flexibility provided by the EU-Ukraine DCFTA” one suspects that a lot of time will have to be spent upon the elasticity of the language therein, and agreeing upon some rather imaginative (bordering upon preposterous) interpretations thereafter, that do not entirely sacrifice the spirit or conditions of the bilateral agreement.

How far terms will be reasonably stretched to accommodate The Kremlin – if at all – remains to be seen in the months ahead.

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