A crude business – or the return of a slick operation? Odessa Oil Refinery

A few years ago, when then President Yanukovych and “family” were busy “collecting” all assets they could possibly buy at knock down rates, coerce, blatantly steal, raid, and otherwise take control of one way or another, an entry appeared regarding the sale of Odessa Oil Refinery to VETEK LLC by Luk Oil.  VETEK LLC being a vehicle then fronted by Andrey Koshel on behalf of the now fugitive Serhiy Kurchenko.

It was, as that entry infers, a murky business – which will come as no surprise.

Odessa Oil Refinery

On 25th November 2014, Odessa Oil Refinery was arrested being an asset of Serhiy Kurchenko, wanted in Ukraine for all manner of corrupt activities.  It is no secret that Ihor Kolomoisky was a firm lobbyist for this asset to be seized/arrested, despite transparent statements of disinterest at the time – “It is not our asset, and we are not interested in it, we have underused Kremenchug plant, and the Odessa refinery should be closed so as not to spoil the ecology of Odessa. Odessa should shine after the loss of the Crimea.”

Indeed, Ihor Kolomoisky’s trusted friend Ihor Palitsa was the Odessa Governor at the time of the asset arrest.

Naturally only the truly naive would believe Mr Kolomoisky’s statement of apparent disinterest, for as this blog stated on the day the refinery was seized “Presumably all oil at Odessa Refinery will now be stored at the State owned Ukrtransnefteprodukt.”  As with all State owned enterprises, there are those with an interest and a certain amount of control over them.

In the case of Ukrtransnefteprodukt?  Ihor Kolomoisky and Sergei Pashinsky.

Since November 2014 little (legitimate and/or overt) has really occurred at the Odessa Oil Refinery – although it is now, suddenly, seeing some activity.

It is rumoured that the management has been told to prepare to have the oil refinery running once more.  Security personnel are being replaced.  It is said employment contracts for refinery personnel are being drafted.

The heavily backed rumour by the local “oil people” is that Ukrtransnefteprodukt has taken over (or is about to take over) Odessa Oil Refinery.  Messrs Kolomoisky and Pashinsky will be pleased to have another State owned enterprise from which to guzzle – no matter how long  Ukrtransnefteprodukt will actually own and/or the refinery.

So what happens to the oil at the refinery when it was seized (if it is still there and hasn’t disappeared into the night ne’er to be seen again)?

How has Ukrtransnefteprodukt lawfully taken ownership?  A court verdict?  A deal with  Serhiy Kurchenko?

With whom has a deal been struck to supply oil to the refinery?

With low oil prices and a global glut of oil, to whom will the refinery sell?

Is the State take over, if the rumours be true, less about oil and more about nationalising an oil refinery asset simply with a view to get it on the State books to then list it for privatising and sell on?  To use an oil trading phrase, is the government plan to assume ownership of this seized asset to then “flip title” to a buyer thus gathering in the profit as swiftly as possible?

If so, is there a potential buyer out there?  It is not an asset for which an argument can be made to retain it upon the State books when all is said and done.

Something local to keep an eye on.  A crude nefarious business – or the a transparent slick operation awaits Odessa Oil Refinery?

Some US FDI – Odessa

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.

Looking “East” once more

There has been nothing written about the goings-on in eastern Ukraine in this blog for a while – other than a few lines relating to thoughts of what President Poroshenko would try to do the day after he was elected.

“Naturally, once sworn in, President Poroshenko need immediately deal with issues in the east of the nation. How he will choose to do that will no doubt become clear very swiftly after his inauguration. Regardless of whether force, dialogue or a combination of both are his policy of choice, he would be wise to make his first domestic visit to Donetsk.”

Since then there has been no mention of events in the east.

Why would there be?  Nobody reads this blog for daily or hourly bloody blow by bloody blow accounts.  This blog stumbles around in the policy and political arena, attempting to predict directions and outcomes, as well as occasionally passing an erudite comment on the Ukrainian democratic model – be it being deconstructed or constructed at the time of writing any particular entry.

Crimea is and remains a disaster.  The new Odessa Mayor since his election has returned all the odious and corrupt to City Hall.  Ex RADA MPs jailed for murder have been released a full 10 years early by corrupt Kyiv courts.  The list goes on and on, but in short, there is a lot of Ukraine that cannot be forgotten about because of the troubles in a small part of the east of the country – headline grabbing as that may be.

However, going more than a few weeks without mentioning eastern Ukraine would also be remiss to say the least – and particularly so now there is a new Ukrainian President with a plan.

The question is how well with the plan work?

The obstacles are many and of varying difficulty to overcome.

The most obvious difficulty is that there needs to be somebody to negotiate with from the Luhansk and Donetsk Oblasts that represent the disillusioned, but whom have not bloodied their hands in any fighting.

Perhaps even more difficult, is finding a  leader whatsoever.

Thus far few if any “self-declared” mayors/governors seem to last no more than a few weeks before either being replaced, or falling out with their counterparts resulting in the fragmenting of any “people’s” political framework.  The percentage of Russian “self-declared leaders” seems to have risen whilst that of Ukrainian “self-declared leaders” is falling – though that ebbs and flows as they rise and fall.

Who to sit down with, when those with whom you do, may not last as a representative for even the duration of any negotiation?  How many to sit down with when the self-declared leaders are so fragmented and disjointed?  That continued further fragmentation seems likely for the time being.

What to do in the meantime?  Continue to drive out or kill those armed against you, or cease hostilities in the hope some form of coherent and consistent leadership and narrative emerges? – This in the full knowledge that any such a ceasefire is likely to be neither lasting and also abused.

As has been written here before, there are several paymasters behind several groups.  Those paymasters do not have the same visions of a Donbas, or Ukrainian future.  Indeed their motivators are different.  Their funding will continue – or not – as they wish.  As such, their mercenaries will continue to fight – or not – regardless of who sits down at the negotiating table opposite President Poroshenko.

Without any clearly defined and accepted leadership emerging from Luhansk and Donetsk of a purely political nature, who sits opposite at any negotiating table?

If and when that eventually occurs, where is the middle ground?  Where will the compromise be?  The presidential parameters and plan is clear.  Thus far there is no desire from the other side to cede any negotiating ground.

Even if there were some meeting in the middle in some form of variant of the Dayton Agreement or Northern Ireland Peace Agreement – neither of which fit the Ukrainian circumstance well – both in many respects were little more than putting a band aid on a very large wound, and neither have effectively dealt with the underlying, festering, issues.

What is a better outcome?  The fact there is currently nobody to negotiate with, and that in effect prevents a Transnistrian styled governance emerging and taking root – or the fact that there isn’t, meaning open ended fighting against little more than warlordism?

Perhaps a policy being considered is simply a continued squeeze by the authorities whilst watching “self-declared” this and that emerging and disappearing, fighting amongst themselves, eventually to pick up the pieces?

Will this hell with fucking russian terrorists ends?! I want to celebrate Independence day of Ukraine in Donetsk & with Donbass!

— Evgeniya Liashenko (@PoorCholerik) June 10, 2014

Can anybody answer Evgeniya’s question above with any degree of certainty?

Under the current circumstance and employing the current tactics, there seems to be no answer in either the short or medium term – presidential plan or otherwise.

 

A market opportunity for facilities management – or a privitisation disaster waiting to happen?

For those who do not live in Ukraine, one of the inherited legacies of the USSR that still continues, is that of the Zhek and its responsibilities for maintenance of common areas in otherwise now privately owned apartment blocks.

Quite simply put, whilst the last 20 years has seen a massive move to private ownership of apartments, stairways, lifts, common entrances, lighting and general maintenance of all common use areas has remained the responsibility of the Zhek in the vast majority of apartment buildings both old and new.

Needless to say that whilst paying the monthly Zhek bill, known as the “quadplata” is supposed to insure the cleanliness and functioning of all common areas in most apartments blocks around the country – and you have no choice but to pay – the actual maintenance rarely happens, and when it does it is hardly what can be called timely.

However, it appears that this responsibility is likely to cease in 2015 if the national action plan 2010 – 2014 (also known as “Prosperous Society,  Competitive Economy, Effective State”) is to become a reality.

That will theoretically open up a huge percentage of the national housing stock to facilities management companies – with an domestic occupancy well used to paying through the nose for little to no (timely) service – and in all probability, some serious profit margins.

One has to suspect that there will be a fair few people in the RADA having their closest friends and/or family opening facilities management companies in preparation for 2015 when they will suddenly be activated.

Tomorrow – something more interesting (at least for some).  Tomorrow, for the first time in a few years, the blog is going nuclear!

Property prices – Ukraine

Every now and again I get a message from some readers who have a desire to relocate to Ukraine and I am frequently asked, amongst numerous questions, if I think the price of property will further fall or if it has plateaued.

It would seem that it is neither likely to drop any further nor remain stable.  Due to the increases in the cost of construction materials, it seems that property prices will rise between 6 – 10% in 2013.

Now you can stop asking me!

Structural and contents insurance – Odessa

It is not often I write something that promotes a commercial company (in either a positive or negative light) – but –

In the decade I have been here I have insured my car, every house I have built (prior to sale) and every apartment I own with the same company.  I have only ever had to claim once when a young man decided to try and park his car inside mine at a set of traffic lights.  The issue was dealt with and repairs done within 3 days between the insurance company and main car dealer.  No messing about and no problems!

Yesterday, having now moved to my rather nice place by the sea in Arcadia, it was time to insure the new home.  Naturally I went to the same company, Oranta, but not to the office I have historically used on Kosmonavtov but to the office on Fantanskaya Doroga which is now much closer to where I now live.

The good people at the office as Kosmonavtov have been the same faces for the past decade with no staff turnover whatsoever – alway a good sign – and remember me well a I am probably the only British client they have had (consistently for the past decade anyway).  I am also probably the only person who has had 4 properties insured with them in to the US$ value of millions per property simultaneously with them as well (having built them and  whilst waiting for them to sell).

Anyway, yesterday afternoon I called into the Oranta office on Fantanskaya Doroga, who are not used to me, foreigners in general, or people wanting all encompassing,  completely fully comprehensive insurance for structural and contents insurance.

When stating I wanted said insurance, the (ever so helpful as it turned out) lady promptly stated they had a deal at the moment and for UAH 75 per annum I could get such insurance that would pay out UAH 4000 in event of a problem.

I then explained that such a sum was far, far too small and stated I needed all encompassing structural and contents insurance that would run into many UAH millions.  (That is not as much as you think – Divide by 8 for US$ and 12.75 for Sterling).

“Millions?”  She said somewhat in shock whilst picking up the telephone to make a call to check that such a figure can be insured.

I then rapidly explained that Oranta did indeed provide insurance to such a sum as the Kosmonavtov office had done it numerous times historically – so she called them.

When they asked who and she told them my name, one of the good chaps from the Kosmonavtov office told her to arrange to visit me at home and they would come with her yesterday evening (and also thank me for another foreigner I had referred to them previously – something that I don’t remember doing but whoever it was went and said that I had recommended them).

A time of 6pm was arranged and quite unbelievably for Ukraine, at 5.55pm the arrived.  Not only on time but 5 minutes before time.  As a Brit, 5 minutes before is exactly on time!

Photographs, forms completed, signatures and stamps, payment and receipt made all at home (no come to the office tomorrow nonsense as is often the case here as “the company stamp” is not allowed out of the office) and all singing, all dancing, all encompassing insurance was mine at the value I had guessed at and they quoted without any prompting from me.

The cost of the said insurance?  UAH 5030 for the year.

Very hard to critise the service, the cost, or the timekeeping.  Almost as though I wasn’t in Ukraine!

Still, mustn’t grumble!

Reforming the administration – A NGO invitation

Well, like him or not, and as a character I am not overly fond, but as an administrator he is very good, Prime Minister Azarov is certainly talking the right talk.  Obviously there is an election coming up and the talk is of course partially aimed at influencing voters and those in-State actors who can influence voters as well.  We should expect nothing less.  All sitting governments up for reelection do the same thing.

Anyway, Mr Azarov has issued an appeal to NGOs in Ukraine to assist the government in ridding itself of unnecessary administrative organs.

As he rightly states, “This work is not because we want less work, but because many administrative services are completely unnecessary.”  Quite true but only half the issue.  Not only is much of it unnecessary, but a lot of it that can be justified is overly complex and never situated in the same place, requiring different documents in a certain order, stamped and signed in a tour–de–bureoucratic organs before returning to your first port of administrative call, for them to conclude the most simple of official documentation matters.

Much of it is simply repetitive when production of document “A” would prove your have already have/done 99% of what is required for the production of document “B”.  Why repeat the entire process again?

Far too many administrative State organs have a requirement to be in the mix for simple document production  when there is no real justification for them to be part of the process at all.

I am quite sure an academic/NGO study of the Ukrainian administrative model could shrink it by a further 20% over and above any shrinkage already carried out by the government.

Cynically I am also quite sure the government are quite aware of this but want to involve NGOs and civil society in the run up to an election in an effort to get them “on-side” as much as possible.  After all, there are numerous neighbouring States that have made the administrative transition from USSR bureaucracy to a more modern administrative system who would be only too pleased to share their experiences with Ukraine.

If it were not an election year, you would suspect that tax-payer funded jollies to these nations to investigate their new administrative systems would have been the preferred governmental methodology.

However, it is an election year, the invitation has been made and any NGO worth the title will actively engage with the government given such an open invitation.  A foot in the door and collaboration over this makes it easier to gain access through the same door when pushing other issues the government is not so willing to action.

Let us hope it is an opportunity not only seized by the civil society active in Ukraine, but also the diplomatic missions of those nations with embassies and consulates here as well.  Who better to give advice over bureaucracy in other nations and their systems than the bureaucrats from other nations?

Mr Hague, FCO, UK Ambassador to Ukraine and boiler room staff in Kyiv, you all hail from possibly the oldest established civil service in Europe if not on the planet.  Choose a subject, for example tax and tax administration, and promote our experience and systems to the government of Ukraine.  As much as I dislike paying tax as the next person, our UK system is far easier to cope with than that of Ukraine as a tax payer.  I have experience of both.

This must be a golden opportunity to get very friendly with the current Ukrainian government if the UK government chooses to take it.

Go on FCO – I dare you to make a positive difference to every Ukrainian by showing the current Ukrainian Cabinet of Ministers a better, more streamlined and efficient way in an administrative area of your choice.

Gauntlet publicly thrown down Mr Hague and chums!

(As an aside, Valeriy Khoroshkovskyi, First Deputy Prime Minister of Ukraine is in the interrogation seat at Chatham House tonight (1730 – 1830 BST) for a grilling on Ukrainian foreign policy by my esteemed and astute fellow Chatham House members.  If he says anything unexpected I’ll let you know over the course of the next few days.)

Another good idea but with no clear implementation policy

You know how I continually highlight the Ukrainian government spouting numerous good ideas as solutions for numerous obvious problems but failing because would would be effective policy falls short on the means of implementation?

Well here is yet another good idea that will undoubtedly fail through ineffective implementation and result in being a government statement that will be counterproductive.

The Prime Minister has announced that Ukraine will introduce a 30 year mortgage at 10% interest in order to stimulate the housing market.

Now for many readers, you will think there is nothing special about that.  However you should be aware that mortgages spread over 30 years in Ukraine simply do not exist and have never existed.  A Ukrainian would do exceptionally well to find a mortgage that runs over half that time.  More often than not it is for a period of 10 years or less.

The interest rate of 10% is also unbelievably low for Ukraine.  Standard borrowing rates are typically 21% to 27% – I kid you not!

So, how will the Prime Minister, having made this statement, create a system where banks are offering 30 mortgages at 10%?

Create a Freddie Mac or a Fanny Mae?  Forcing private banks such as OTP, Aval, Alpha, Delta, Pump, Privat et al seems very unlikely.

He is undoubtedly right that banks offering such terms would stimulate the housing market and construction industries, but how is he going to achieve them doing so?