Archive for the ‘business introductions’ Category

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Ukraine casts its net for SOE CEOs – but what will it catch?

February 27, 2016

The 26th February saw Government Ukraine launch an official public selection process to attract and appoint CEOs for several large State Owned Enterprises (SOEs).

The SOE’s in question are formally described thus – “PJSC Ukrzaliznytsia (UZ) is state-owned rail monopoly which operates 6 regional rail operators and close to 140 other subsidiaries. The domestic rail network is Ukraine’s strategic asset and a key transport link between the EU and Russia and Central Asia (4 out of 10 pan-European transport corridors cross Ukraine). UZ operates 21,600 km of rail tracks (47 % electrified) and a fleet of c. 4,000 locomotives and 123,000 railcars. It accounts for c. 60 % of total freight transportation and 38 % of passenger transportation in Ukraine, ranking first in Europe (ex-Russia) on freight turnover. UZ is number 2 by passenger turnover in the CIS and number 4 in Europe. Metal and mining goods accounted for 58 % of its 2014 freight transportation in volume terms, followed by construction materials (15 %) and grain (8 %). With over 300,000 employees, UZ is one of the largest employers in Ukraine. Company reported net revenue of UAH 28.9bn for 6m2015 (+23% y-o-y). Company’s net loss narrowed to UAH 4.7bn in 6m 2015 vs. net loss of UAH 8.2bn for the same period of 2014. 

PJSC Centerenergo is one of the TOP-100 largest SOEs in Ukraine managed by the Ministry of Energy and Coal Industry of Ukraine. Centrenergo is Ukraine’s second-largest thermal generator by capacity (7,660 MW), operating three power plants in the industrialised regions of Kyiv, Kharkiv and Donetsk. In 2014 it accounted for 7 % of the total electricity production in Ukraine (18 % of the total production by thermal power generation). For 9m 2015 company generated UAH 82m of net loss compared with net income of UAH 219m for 9m 2014. 

SE Ukrposhta is governed by the Ministry of Infrastructure of Ukraine and is one of the TOP-100 largest SOEs in the country. SE Ukrposhta is a national postal operator of Ukraine, which is wholly owned by the State. The enterprise has 29 branches (inc. 25 regional directorates) and more than 11 800 postal departments all over the country, which makes it the largest postal network in Ukraine. With over 87 000 employees, Ukrposhtaprocesses and delivers to customers about 240 million postal items, 16 million parcels and insured items, 15 million orders, and more than 83 million pensions per annum. For 9m 2015 net income increased 2.5 times compared to 9m 2014 and amounts UAH 30m.

SE Plant Electrovazhmash is governed by the Ministry of Economic Development and Trade of Ukraine and is one of the TOP-100 largest SOEs in the country. The company produces hauling equipment for mines and railways as well as turbo and hydro generators and direct-current electric machinery. EVM’s equipment is used in over 40 countries globally. 73% of thermal power stations in Ukraine is equipped with Electrovazhmash turbo generators and 78% of hydro power stations use hydro generators produced by Electrovazhmash. The enterprise supplies Europe, Asia, Latin America and Middle East markets. Partners of the enterprise are Siemens,ArcelorMittal and others. For 9m 2015 company amounts UAH 53m of net loss and for 9m 2014 company reported about UAH 84m of net income.

SE Ukrspyrt is a 100% state-owned holding company operating 41 domestic distilleries with total annual capacity of 31.3 million decalitres, located in Lviv, Ternopil, Vinnytsia and other regions. Being a state monopoly in production and export of ethyl alcohol, Ukrspyrt is responsible for the implementation of government policy and effective management of state-owned companies in the alcoholic beverage industry. The company has approx. 5 thousand employees, being the main employer in villages and towns where its production facilities are located.Ukrspyrt reported net income of UAH 164m in 9m2015 (+71% y-o-y).

SE Ukrenergo is governed by the Ministry of Energy and Coal Industry of Ukraine and is one of the TOP-100 largest SOEs in Ukraine. The enterprise is responsible for operating the domestic high voltage transmission system and cross-border transmission lines and providing power dispatching services. It controls real-time electricity output and monitors power generators’ operational generating units, fuel stocks and production efficiency, balancing electricity consumption with production. Due to its status as natural monopoly, tariffs for the company are set by the sector regulator, which uses a cost-plus approach to set tariffs based on its OPEX and CAPEX needs. Ukrenergo unites seven regional networks and operates 23,000 km of transmission lines operating at 220-750 kV voltage levels. The company regularly conducts cross-border capacity auctions and sells rights to export electricity from Ukraine to neighbouring countries. For 9m 2015 Ukrenergo generated UAH 408m of net income comparing with net loss of UAH 478m for 9m 2014.”

These are CEO roles that clearly require top quality candidates and eventual appointees if these enterprises are to be turned into what they could (and already should) be prior to any privatisation they may ultimately be subjected to.  (Though all may be currently listed for privatisation, certainly there remain questions over just how, exactly, rail will be privatised – a model similar to the US, or a model similar to many European models.  As a former-Deputy Minister was overheard to say by this blog, “privatising rail is simply too difficult” – which is perhaps why this individual is now in the “former” category of Deputy Ministers.)

This is not the first time Ukraine has openly sought top talent for its SOEs.  On 22nd July 2015 it attracted Mark Rollins to head Ukranafta. Mr Rollins’ remuneration is not clear, but a reader would suspect that it is probably far in excess of the (official) remuneration for the CEO of Naftogaz Ukraine.

The issue of remuneration (and perks) is of course pertinent when trying to attract top management – though for many genuinely top managers in any field of endeavour remuneration is perhaps secondary to the challenge placed before them.  Government Ukraine states ” Winners of the selection procedure will receive a competitive remuneration comparable to the private-sector compensation in Ukraine” – Prima facie not that enticing when it is problematic to accurately ascertain what “a competitive remuneration comparable to the private-sector compensation in Ukraine” actually is.  Official remuneration or actual remuneration?  Is Government Ukraine going to use the “actual” rather than the “official” remuneration figures?  The former is certainly far more attractive than the later.

CEO

The governmental plan is to have a Nomination Committee (consisting of 5 Ministers and 5 independent experts) initially compile a shortlist (between 2 – 10 candidates), followed by a final (undefined) selection phase thereafter which the Nomination Committee will recommend an individual to the Cabinet of Ministers for appointment.

Naturally all attention will be focused on the successful candidates as and when they are appointed – there will be “expectations” after all – however it would be perhaps worthy of paying attention to the number of quality candidates (if there are any quality candidates at all) that are subsequently unsuccessful, for they form part of a wider view when considering the attractiveness, challenges and opportunities, top industry professionals mull over when pondering CEO positions in Ukraine.

With Ukraine listing literally hundreds of SOEs for privatisation in the coming years, if it can’t attract top quality candidates for the headline SOEs, what hope for competent management for the lesser SOEs the State ultimately wants off the budget (subsidy) books?

In short, the quality and size of the applicant fields for these first six headline SOEs will be an indicator as to the expectations of candidate calibre for the second tier SOEs.  Whoever is eventually appointed for these first half-dozen CEO roles is perhaps less important than the quality of the applicant pool from which they are pulled.

For any readers interested in applying, the relevant links can be found within the Government of Ukraine announcement.

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French FDI coming to Odessa

June 17, 2015

“In the age of acorns, before the times of Ceres, a single barley-corn had been of more value to mankind than all the diamonds of the mines of India.” – Henry Brooke

Well, perhaps.

However, barley, and in particular malt, seems likely to take on a particular importance in Odessa.

Whether or not Sasha Borovik, who has now been tasked with bringing FDI to Odessa Oblast by Governor Saakashvili has anything to do with it, French FDI into the Oblast is on its way – and malt (presumably barley) is the reason.

Soufflet Group on 19th June will sign a memorandum expressing interest in developing Illichovsk port – or so sayest those within the Ministry for Infrastructure.

The port at Illichovsk is by far the biggest of the three Odessa ports – though Yushni is the deepest.

Illichovsk has 29 births, covers an area of just under 49 square kilometers (including the container terminals), handles over 300 million tonnes of cargo per annum, and is specially equipped with purpose built terminals for bulk, liquid and general cargo.

With Soufflet Group to sign such a memorandum with Government Ukraine in about a month’s time regarding its investment intentions at Illichovsk, further development of the agriculture/food terminals appears very likely.  It would not be unreasonable to expect expanded grain storage and lifters to appear over the next few years port-side.

For inquiring minds, all major port-sides, as with all major airport runways, are the property of “the State”.  The associated terminals and other logistical infrastructure can be (and often is) privately owned.  The logic for State ownership of Ukrainian port-sides and major runways is one relating to force majeure, and therefore State access and uninhibited use.

That said, Siguler Guff & Company, a US registered investment company (that appears to be little more than a front for Russian investors) will be pleased having secured 50% ownership of Illichovsk port infrastructure earlier this year.

A seemingly prudent decision despite the on-going legal wrangles over a joint venture between Illichovsk Port-side and Illichovsk Container Terminal.  It is Illichovsk Container Terminal that Siguler Guff & Company now own 50% of – the other owners being SSR Deutschland 25%, and 25% owned by Andriy Pavliutin (the original owner).  Indeed with Government Ukraine attracting FDI for the government infrastructure, the raison d’être for purchasing and investing in the container terminals is now underscored for investor digestion.

Whatever the case, whether it be an ill wind that shakes the barley – or not – barley is seemingly about to become far more important to the economy of the Oblast than it previously was thanks to French FDI.

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Ukraine 13th July Investment Conference – USA

June 13, 2015

For those who are unaware – which is almost everybody – there is to be an investment conference relating to opportunities within Ukraine – to privatisation, energy, etc., not to mention the promulgation and reiteration of just how far financial reforms have gone, and have yet to go, in order to boost confidence for those investors attending – on 13th July in the USA.

The amount of the information from the International Support for Ukraine Conference of April 2015 that can be reused is probably rather limited.  A different audience entirely.

Thus detailed and fevered preparation is on-going within the relevant Ukrainian ministries to collate information and generate terribly interesting and attractive opportunities to tempt the US corporate (and perhaps affluent entrepreneurial and philanthropic) community – or not.

Though risk aversion is the current en vogue meme within the “West” politically and economically, that is perhaps not so within the world of big business.  Opportunity is opportunity when all is said and done, and US Embassy Kyiv would be rather pleased to see US interests – outside of the geopolitical – arrive and flourish whilst it holds significant sway with the current Government of Ukraine.

There will be far fewer hurdles to negotiate now than ever before for any US entrant/investor considering the current government composition and considerable US diplomatic effort (and corresponding influence) in Kyiv.

It is logical therefore to have an easily accessible, short investors conference in the US for CEOs and politicians who are otherwise far too busy to fly off to Kyiv to attend what may be a hit or miss event from their perspective.  A few hours can perhaps be found to attend.  A few days, probably not.

Yet investment and partnership deals there are aplenty.  Whether it be Motor Sich and South Africa’s Paramount Group signing contracts to develop the Superhind Mi 24 helicopter, or Dutch companies owning and operating industrial parks in Ukraine, opportunity there certainly is.   China continues with its $10 billion investment plan undaunted.

Opportunity presents itself particularly so when there is a Ukrainian government looking for genuinely foreign investment, rather than recycled and laundered money buying up assets through the facade of Latvian, UK or Cypriot front companies and also seeking to avoid Russian strategic purchases.

A nation as large and with such a well educated populous does not rebuff its internal oligarchical interests and throw itself prostrate before the alter of large foreign corporation investment every day.  Neither is such a nation often as dependent upon the goodwill of the Europeans and US either.  The Donbas aside, a more accommodating Ukraine there has never been for foreign corporate/business entry.

Indeed, if it hadn’t been for Kremlin interference within Ukraine by force, the desire and need for genuine foreign investment would possibly have been far more muted, and certainly held hostage  oligarchical control to a far greater degree.  It is now though, a case of needs must.  And when needs must, those that can meet those needs negotiate from a position of strength – as every large corporation/investor knows.

What many in Ukraine will find most interesting in the short term however, is which State owned/controlled entities will be on the list for privatisation submitted for the US audience consumption?  A cherry-picked list?  A full list (if it has been completed)?  A list designed to lead US corporations/investors down a certain sectoral path?

Will there be a similar conference for the Europeans?  (It is to be hoped so with the DCFTA coming into force in less than 6 months.)

What about the Asians?

Should separate conferences for China and India to be held in those nations, thus giving the perception they are held in equal potential investment esteem?

If so, when?

The bigger the foreign corporation/investor, the more they have access to, and the ear of, their national governments.  Thus the more diverse the significant foreign investment interests, the more relevant Ukraine remains in more far flung corridors of power.

The attraction toward US corporations and investors is fair enough, and the reasons why clear enough – indeed it is right to pursue it with vigor – but diversity of investment source is the key to confronting internal oligarchical and Russian strategic purchases by diluting concentrations of power – it reclaims economic sovereignty in the long term whilst simultaneously throwing open Ukraine for global business.

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Some US FDI – Odessa

March 2, 2015

Having not written about anything local for a while, it is perhaps time to write about something positive occurring for Ukraine, and in particular Odessa.

For those who are not acquainted with Odessa, it is home to three large ports.  Odessa, Yushni and Ilyichevsk.

Ilyichevsk is approximately 50 square kilometers of port-side and container terminal with its own rail spur and good road links (as have the other two).  The port itself is a State asset, whilst the container terminal is not – albeit there is an obvious symbiotic relationship of mutual necessity.

Indeed in 2005 Ilyichevsk Container Terminal, then owned entirely by Andriy Pavliutin, and the State owned seaport entered into a joint venture to increase the size of, and upgrade the port side and container terminal, with German forwarding company SSR Deutschland subsequently buying 25% of Ilyichevsk Container Terminal between then and now.  The total expansion and upgrade costs thus far are approximately $56 million to date – and there is much room for further expansion, throughput, and efficiency to be sure.

In January 2015, a court decision to nullify the joint venture between the State owned Ilyichevsk Port and the Ilyichevsk Container Terminal was taken over apparent violation of the Laws of Ukraine on seaports.  That decision is currently being appealed.

How is this positive?  A profitable going concern, and major employer in Ilyichevsk going through legal wrangles?

A few days ago, the US private equity firm Siguler Guff & Company, which manages $10 billion in assets, sealed a deal to buy a 50% share in Ilyichevsk Container Terminal.  The ownership now being 50% Siguler Guff & Company, 25% SSR Deutschland, and 25% still owned by Andriy Pavliutin.

“Siguler Guff & Company consider their interest in the terminal rather promising. Ukraine’s economy will recover. There has been a significant political reboot and important reforms are being implemented. Rich in resources and boasting highly educated population of over 45 million, Ukraine presents new opportunities for the investment firm.

The implementation of the Association Agreement between Ukraine and the EU will inevitably increase Ukraine’s involvement in the world trade. Illichivsk terminal, as one of the market leaders, will grow with the country’s economic recovery. Siguler Guff & Company believes that its decision to come to Ukraine will send a positive signal to the global investment community and contribute to the growth of foreign capital in Ukraine.”

Clearly, Siguler Guff & Company are taking a long term view – as anybody purchasing 50% of a major container terminal in Odessa would be – war with Russia or not.  With a corporate philosophy that states “Siguler Guff strives to provide its clients a diversified global private equity platform that captures outsized returns by investing in and targeting areas of market inefficiency and capital starvation” – Ukraine, it has to be said, is currently a natural magnet for them, and others like them.

We will see who follows their lead, and when – if anybody.  Nevertheless some good FDI news for Odessa and Ukraine.

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Another foreigner joins the anti-corruption battle – Ukraine

December 12, 2014

Clearly in approaching a well known foreign reformer in Eka Zgulatze to head the National Anti-Corruption Bureau, President Poroshenko was attempting to send a domestic message that (corrupt) “business as usual” is about to meet an experienced and robust wall head on, should it try to continue per bygone days.  The message externally is that there is somebody to talk to who has dealt with this before and who will not bow to internal shenanigans.

Time will tell whether Ms Zgulatze will be as effective in Ukraine as she was in her native Georgia of course.

Ukraine has now seen another foreigner appointed in an anti-corruption role.

Algirdas Semeta

Algirdas Semeta, a Lithuanian, is a former European Commissioner for Taxation, Customs, Statistics, Audit and Anti-Fraud, and will assume the role of Business Ombudsman within the Ukraine Anti-Corruption Initiative.

This initiative was created via a Memorandum  of Understanding in May 2014 between Ukraine, the EBRD, OECD, ACC, EBA, Federation of Ukrainian Employers, UCC, League of Industrialists and Entrepreneurs and a good deal more of the alphabet soup relating to representative groups doing business in Ukraine.

As it is a fairly sensible thing to honour commitments made – particularly so after Ukraine requested assistance from the OECD regarding tax systems, competitiveness and tackling corruption – on 26th November, Cabinet Resolution 691 created created the Business Ombudsman Council, a permanent body, financed at least in part by the EBRD which has allocated Euro 1.5 million annually to the office of Business Ombudsman.

Thus the new Business Ombudsman creates a (foreign) independent person entitled to appeal publicly to the government if corruption in customs, tax services, public authorities or state regulators is being detected or where the rights of business and entrepreneurs are impaired, as well as keep the alphabet soup of interested business entities up to speed with any specific cases.

As the ombudsman’s office will apparently assess claims, will be able to request further investigation by the relevant bodies, and seek to have complaints addressed by governmental authorities where it believes wrongs have been committed, it does appear something of a major challenge for an ombudsman, two deputies and a sprinkling of employees from the secretariat.

It is quite easy to envisage an initial deluge of cases and a subsequent, ever-growing backlog.  Questions of administrative capability, and thus timeliness, may very well become issues that will effective the perceptions of effectiveness around this new office.

Nevertheless another small but positive step – and one that may become a major step if the new Business Ombudsman is actually allowed to do the job created and receive unquestioning political support when matters are raised.

What actually becomes of the cases brought to the attention of government by this new office remains to be seen – but if it is done publicly, then any inaction thereafter falls clearly at the governmental door.

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External threats…..continued

September 22, 2014

In yesterday’s entry, this blog noted that, certainly as far as Odessa is concerned, there is far less threat from the Russian military and its proxies, than there is from consistent and ne’er ending political coercion and subterfuge from Moscow amongst the regional leadership.

“As has been written before on the blog, cities such as Odessa have far less to fear from military invasion than they do from a coercive political assault amongst their corrupt political class and weak institutions. Only should such a political assault fail entirely, would the real prospect of military confrontation in Odessa rear its head. Such a confrontation would certainly bring about a reaction from Europe that would inflict serious damage on The Kremlin one way or another very quickly. The cost of physically taking the city for The Kremlin would be immense both in body count and western reaction – far outstripping anything seen so far. Therefore incessant political coercion and subterfuge is likely to be the chosen battlefield for Odessa unless The Kremlin decides to “go for broke”, quite literally.”

A case of too great a military and further imposed economic cost for overt adventurism into Odessa and other cities for The Kremlin, but corrupt and weak political classes and institutions remain enablers of importance.

Would anybody bet on any newly elected RADA from 26th October lasting a full 5 year term?  Bets against other cities political classes being turned and/or coerced toward “special status” regions far beyond any decentralisation to be offered in the near future?

However, there are other external threats that cannot be ignored both for Odessa and the rest of Ukraine more generally.

As this entry displays – underlining President Poroshenko’s continued line in speeches abroad over the past few days – the Ukrainian economy is in dire straits.

Ukrainian GDP is at -5% and expected to shrink further.  Retail sales have shrunk to peak financial crisis levels.  Industrial production has plummeted.  The local currency has devalued at a shocking rate despite NBU interventions, and inflation is running at more than 14%.  Default is a real possibility, although not guaranteed.

Thoroughly grim – but as explained yesterday;

“Nevertheless, for reasons of political and legal expediency for both Russia and Ukraine, not to mention the EU, IMF, WB, OSCE etc., the ceasefire will be deemed as holding. Only a gross violation of it, such as the fall of Donetsk airport or the city of Mariupol would probably constitute acknowledgement of its failure – and perhaps the fall of Donetsk airport would not be deemed enough even then. The fall of Mariupol could not, however, be ignored.

Thus for Ukraine, the ceasefire need to be seen to officially hold to facilitate the 26th October elections, as well as further IMF lending in the winter, whereby Ukraine hopes that the 3rd and 4th tranches will be simultaneously released by the IMF. A recognition of war simply puts an end to both necessary events for Ukraine.”

Hence nobody wants to officially recognise that there is indeed an inter-State war (albeit it within a small geographical theatre) in the east of Ukraine.

In short, for Ukraine to survive it needs a serious influx of capital in the short term, and western FDI and meaningful western corporate appearances in the medium term – as has already been hinted at in the blog, one way is via preferred bidders in certain government tenders.  Aside from the obvious job creation that comes with major western corporations pitching their tent in Ukraine (and not just in Kyiv), there is a psychological element for the domestic Ukrainian constituency.

The usual objections regarding risk would need to be mitigated – perhaps partnering with the EDRD, Government of Ukraine or via home nation government guarantees as an indirect form of aid to Ukraine.  Whatever the case, risks can be reduced by a little clever thinking, legal gymnastics, and political/diplomatic backing.

A “Ukraine first” western policy is of paramount importance for the coming years – at least 5 years, probably more.  That is especially so as western policy toward The Kremlin and imposed sanctions are probably about to hit a lengthy “wait and see” period.

Unless there is a serious upping of the ante from Moscow, there is little likelihood more sanctions will be introduced – by the same token, those existing sanctions may well remain in place for quite some time too.

The western nations now have two policies to formulate with immediate effect, and for the decade ahead.

One regarding Russia and the current Kremlin designs, both internally and externally of Russia itself.

The other, a policy to underpin the DCFTA policy and Ukraine during transition in exceptional circumstance, if the European neighbourhood policy is to actually be deemed a success in the years ahead.  If not, it will become the policy that finally buried the EU as an actor with projection ability in the face of opposition on the international stage.

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The management reserves the right – Євромайдан only brothel

December 29, 2013

Although quite probably part of an obvious and much broader tactic by the authorities to discredit those at – and supporting – Євромайдан  – and therefore more serious in its intent than this post is likely to portray – you cannot help but wonder, if true, whether this alleged Євромайдан only brothel is simply a case of the management reserving the right to refuse admission.

Stage managed and spurious as this may very well be, without wishing to cause offence to the lady in question, you do have to wonder whether custom can be turned away based on an ideology considering the numerous and far more aesthetic/appealing alternatives in that line of work that pre-existed Євромайдан.

What next?  Same sex couples amongst the supporters?  Gay clergy?

Somehow I expect it will be much harder to smear Євромайдан out of existence than the authorities may think.

Nevertheless, a probable staged smear propaganda piece designed to dismay the conservative and religious when it comes to those supporters of liberal democracy.

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