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Finding new CEOs for SOEs – Ukraine

August 6, 2017

Following on from the previous entry, many readers of the blog will have at one time or another, or for many upon multiple occasions, been approached by executive recruitment agencies – otherwise (wrongly) known as “head hunters”.

To be blunt, the experience of the blog would actually separate the executive recruitment agency from an actual “head hunter”.  The former will, when assigned, go out and search for suitable candidates for an executive position.  The “head hunter” however, will often be given a list of names and tasked with convincing one or more to leave their current position and move to pastures new – specifically the pasture of the “head hunter’s” client.

There is competition for top talent – and there is competition to attract those capable of capturing and delivering top talent too.  Thus “head hunters” are indeed head hunted themselves.

Further, a top head hunter will know which assignments to take on and which to kick to the curb – and that is often decided by the quality of the requesting client rather than their client’s wish list (if any) for those that they want to attract – no matter how fanciful that wish list may be.

All of which brings about the vacancies (and perhaps potential vacancies) of some rather strategic and/or large SOEs in Ukraine that for several years now have had no CEO.

Some SOE vacancies were filled fairly swiftly.  In 2015 no less than nine major Ukrainian SOEs found new CEOs via a mixture of search and selection by executive recruitment agencies and also “head hunting”.  These individuals managed to make it through the then fairly transparent selection procedures fairly swiftly.  This undoubtedly helped by the nomination committee being fairly small, comprising of 5 ministers and 5 international experts, and working on a volunteer basis – and none of the feckless wanted to spend a lot of time doing bureaucratic gymnastics for free.

In 2016 the system changed, making the Ministry of Economic Development responsible for candidate selection across all vacancies but increasing the size of the nomination committee to 9 ministers and 9 international experts – remaining voluntary – which seems to have no logic behind its expansion other than internal politicking and power plays within the Ukrainian leadership.  Needless to say, in 2016 only seven CEOs were appointed to strategic and/or large SOEs.

Very much like the NABU vacancy to head Odessa region, which has seen 4 competitions and still no appointment, there are similar tales to tell among the major SOEs that still remain without a CEO – Ukrspirit for example has also seen 4 failed competitions to appoint a CEO.

Needless to say, no differently to the disappointing and clearly manipulated results relating to Supreme Court judge nominations, the selection of Ukrainian SOE CEOs is also open to simple manipulation.

Firstly the decision is ultimately a matter for the ministers, after taking advice from international experts to whom they may or may not decide to listen.  Naturally the ministerial committee is very much open to political pressures, (and those from behind the curtain) for it is politicians making the appointments.

Even so, as with all decision by committee, there is no single individual that holds responsibility for any appointment – or turning away other candidates.  The usual lack of ownership and personal accountability applies to any decision.

It is also a simple matter to frustrate any particular candidate’s appointment for those not keen on particular outcomes – as both  applications to the courts and glacial SBU clearance can bring a candidate’s progress to an effectively indefinite halt.

The result of the post 2016 (supposedly transparent) changes to selection processes and associated fecklessness is that in 2017 nearly a dozen strategic and/or large SOEs still without CEOs, remain so.  No appointments have been made in 2017 within this category of Ukrainian SOE.

Apparently this issue will be forced up the agenda once more in September, with the same 9 + 9 selection committee formula under the Ministry of Economic Development remit – except that this time the SOEs in question will pay for the time of those on the nomination committee and the selecting their new CEOs.

Well, OK, but to return to the introductory paragraphs, “There is competition for top talent – and there is competition to attract those capable of capturing and delivering top talent too.  Thus “head hunters” are indeed head hunted themselves.

Further, a top head hunter will know which assignments to take on and which to kick to the curb – and that is often decided by the quality of the requesting client rather than their client’s wish list (if any) for those that they want to attract.”  

To be quite blunt, top talent is not going to entertain too many contacts from even the best of executive recruitment agencies, nor dedicated “head hunters”, when it comes to Ukraine having been able to witness the entirely untimely selection circus (and its manipulation) over the past few years.  Further, the very best executive recruitment companies and “head hunters” are unlikely to want to mire their reputations among the top talent by trying to interest them in such a nomination circus – unless for enormous fees, and even then some will take a longer view and not wish to be involved with such a potential client at the expense of losing contact with the top talent with who they can and will have other very lucrative opportunities with in the future.

A reader can expect little progress until the political will to stop the (perception of a) circus is found.

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Gathering clouds for Balchun

August 4, 2017

A few weeks ago, Adam Eberhardt of the Polish think tank OSW was in Odessa.  As an old acquaintance, matters Ukraine, Poland and Polish in Ukraine were discussed.

Among subjects ruminated upon, though that conversation is strictly private, the situation surrounding Wojcheich Balchun, current head of Ukrainian railways Ukrzaliznytsya was touched upon – for storm clouds have been gathering around him almost from the moment he won the competition to head that SOE, and his subsequent appointment on 20th April 2016.

His appointment was for 1 year, concluding on 5th June, with a 2 year extension until 5th June 2019 if neither party (Mr Balchun and the Ukrainian State) objected to that extension.

It is no secret that Volodymyr Omelyan, Minister for Infrastructure considers Mr Balchun entirely useless and completely unfit for the role.  For the best part of 10 months he has been calling for, and attempting to engineer, his removal.

Indeed such was the friction between the two men that on 18th January 2017 Ukrzaliznytsya was taken from under the control of the Ministry of Infrastructure by Prime Minister Groisman and made the responsibility of the Cabinet as a whole – clearly in an effort to, if not defuse the intensity of animosity, put distance between the fractious parties.

It was a decision that irked Minister Omelyan even more – openly stating he would challenge the decision in court, whilst still demanding Mr Balchun’s ouster.

In the meantime, 5th June has come and gone and as such, in the absence of any demands to the contrary, Ukrzaliznytsya announced that the 2 year contract extension for Mr Balchun had automatically kicked in, taking into account the provisions of Article 39, paragraph 1, and part 2 of Article 23 of the (antiquated) Labor Code.

Needless to say an already irked Minister Omelyan was furious.  His repeated objections having no weight with Ukrzaliznytsya no longer subordinate to his ministry, or himself.  As and when Minister Omleyan wins that court challenge regarding the removal of Ukrzaliznytsya from his ministerial portfolio – thus reversing it, (and in winning thus undermining the authority of the Prime Minister and Cabinet in the process), there will be further legal issues to undo before his vengeance can be fully satisfied and Mr Balchun ousted.

All something of a mess.

However, it appears that Prosecutor General Lutsenko has now weighed in, calling for the removal of Mr Balchun in a letter dated 2nd August to Prime Minister Groisman.

Without going into detail, Yuri Lutsenko states the prosecutors office are investigating about 90 cases of criminality within the Ukrzaliznytsya business across different locations and at different levels of the business management – none of which, to be absolutely clear, are related directly to Mr Balchun.

In fact the Prosecutor General is calling for the ouster of Mr Balchun not for any deeds on his part, but for his lack of deeds in relation to his subordinates and a growing list of lost court cases by Ukrzaliznytsya to commercial structures.

It may be considered professional, perhaps upon request, or perhaps upon initiative, for the Prosecture General to highlight the number and type of offences occurring within Ukrzaliznytsya for inclusion in some form of  SOE revue by the Cabinet of Ministers, but is it appropriate for the Prosecutor General to state – “I think that such a situation with the railway transport is due primarily to improper performance of the board of PJSC Ukrzaliznytsia and  the assigned duties.  

Considering the aforementioned, I consider it inexpedient to extend the contract with Wojciech Balchun.“?

Is not the Prosecutor General a-political?  Does not the very integrity of that office depend upon staying out of politics?

Is it the remit of the Prosecutor General to offer unsolicited suggestions to the Prime Minister regarding who stays and who goes within SOE management due to his perception of their management ability (rather than criminal undertakings)?  Is it not the extent of the remit of the Prosecutor General to actually get criminal cases to court – and successfully prosecute – regardless of politics?

How many of the 90 cases relating to Ukrzaliznytsya will see successful prosecutions?  Perhaps, by some strange quirk of fate, all court decisions will mysteriously start to go in favour of Ukrzaliznytsya only after Mr Balchun is forced out?

To briefly engage in some “whataboutism”, the Prosecutor General has an absolutely average (to be charitable) record when it comes to successful court results – or indeed procedural victories within the Verkhovna Rada with regard to the removal of parliamentary immunity.  Further, despite his proclaimed “cleansing” of the prosecutors office and its “restructuring”, his prosecutor staff are still regularly arrested for taking bribes.  Perhaps he too should be removed for the continuing corruption failures of his own staff?

However, that “whatabvoutism” aside, a reader perhaps has to consider, that in his professional (or perhaps “professional”) capacity as the Prosecutor General, whether Yuri Lutsenko should be calling for the removal of Mr Balchun at all – whether or not Mr Balchun’s performance should result in his removal or not.

In the meantime another Polish citizen is about to put his head in the Ukrainian SOE noose – for seems Pavel Stanchak of Poland’s PGNiG will be nominated to head Ukraine’s Ukrtranzgaz.

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UK National Crime Agency – Ukraine

August 3, 2017

The UK National Crime Agency, a body tasked with tackling organised criminality, and the Ukrainian National Police have held a working meeting in Kyiv.

One of the outcomes is a decision to share experience of organised criminality.

Another is to cooperate more.

Advisory note – This entry simply seethes with cynicism until further notice!

A reader perhaps would expect two very different perspectives to emerge during that sharing of experience – with one organisation traditionally well versed in tackling complex and ingenious organised criminality, and the other historically well versed in partaking in, and ably assisting organised criminality.

No differently to the UK parliament and Foreign Office invitations to Ukrainian political parties and parliamentarians to visit Westminster, or the UK judiciary historically playing host to its Ukrainian peers – the results of which have simply made zero difference to how the Ukrainian parliament and its parliamentarians behave, nor improving the quality and integrity of the Ukrainian judiciary – the UK NCA has invited its Ukrainian colleagues to the UK.

Perhaps 3rd time lucky when it comes to results of these exchange jollies manifesting in Ukraine?

The NCA made very clear that its interest in Ukraine relate purely to what falls within its own scope organised crime.

Fair enough.

The NCA defines an organised crime group as “Organised crime group structures vary. Successful organised crime groups often consist of a durable core of key individuals. Around them is a cluster of subordinates, specialists, and other more transient members, plus an extended network of associates.”

It goes on to define organised crime as “Organised crime can be defined as serious crime planned, coordinated and conducted by people working together on a continuing basis. Their motivation is often, but not always, financial gain. Organised criminals working together for a particular criminal activity or activities are called an organised crime group.”

A cynical reader may now be visualising whomever comprises the current presidential circle (no differently to past presidential circles) plus a few “in favour” oligarchs and their associated circles (notwithstanding parliamentary deputies, senior institutional personnel and local authorities all of whom are no less organised lower down the food chain).  Nobody would blame following such cynical thinking when looking at the aforementioned NCA definitions and the fact that nobody within the Ukrainian higher echelons goes to jail.

There are of course the identifiable hardcore criminal and :business” networks that do not pretend to hard to be anything else, that are no less organised-(and seeming no less immune to prosecution as their political peers (and associates and/or enablers).

But do any of their activities actually meet the scope the NCA?

The NCA concentrates upon child sexual exploitation, counterfeit currency, cyber crime, drugs, illegal firearms, fraud, modern slavery and human trafficking, people smuggling, identity crime, intellectual property crime, kidnapping and extortion, organised theft and lastly money laundering.

To be sure there are certainly those within the current political class and with a current political mandate that have a history of cyber crime, and/or kidnapping, and/or extortion, and/or gun running, and/or organised theft and/or money laundering – albeit there is not one current politician that can claim the full house.

Nevertheless, the most common, and clearly on-going issues of organised theft and money laundering by the Ukrainian political, senior civil servant, judicial and institutional class continues and thus presents a national priority in tackling it.

The UK NCA states that “Organised theft poses a threat to the safety, well being and the economic prosperity of communities.”  

Undoubtedly so.

It breaks down organised theft into four categories – Commodity related theft – covers a range of commodities, metal, gold and wildlife crime that offer the greatest profit for the lowest risk. Criminals target areas with perceived low levels of security.  

It would have to include amber, oil, gas, scrap metal, grain etc for Ukraine.

Organised vehicle theft – Stealing cars and other vehicles offers large profits at relatively low risk. Some organised criminals are involved in organised vehicle crime principally to profit from reselling stolen vehicles (cars, motorcycles, commercial vehicles and plant) and parts. Some of the profits fund other crime. Stolen vehicles are also used to commit other crimes, for example armed robberies and cash machine raids. 

Personal theft – Most personal theft is opportunistic in nature. However there is an increasing trend of this being used as a means of exploiting the rise in the UK smart phone market, with activity focused on London and at music events and other areas of night time economy.

Business theft – Organised criminals continue to target a range of commercial interests including museums, art galleries, cash holding facilities and ATM machines. Target hardening at some sites has led to more complex and well organised attacks, and increased levels of violence used in commercial robberies.

With regard to “Business theft” and Ukraine, it would have to add the theft of the entire business – bricks, mortar and all other assets included.  Corporate raiding continues apace and can be measured in the thousands of incidents per annum when including everything from choice commercial and industrial assets to innumerable small farms.  Systematic VAT fraud in huge numbers is a very Ukrainian specialty too.

There is of course money laundering to consider, for keeping illicitly acquired cash within Ukraine (unless literally in cash under the bed – as many e-declarations of officials show to be fairly popular) requires taking to safer havens if in huge quantities.

The NCA identifies to types of money laundering – The first, cash-based money laundering, which can involve the physical movement of currency over national borders, as well as the use of companies with high cash throughput as a cover, with payments being broken down into smaller amounts to avoid detection.

The second, “High-End” money laundering, which is specialist, usually involves transactions of substantial value, and involves the abuse of the financial sector and so-called ‘professional enablers’.

It is the latter where the NCA concentrates its efforts.

The Ukrainian elites and organised criminals (when an occasional difference can be identified) operate and dwell in both categories – when not dwelling in London property bought with cash of exceptionally dubious provenance and which in many instances result in some form of organised theft from the Ukrainian taxpayer at the very least.

Yet of all of the major Ukrainian organised criminals living in the UK, or of all the highly dubiously financed London properties owned by the Ukrainian elite, or of all the highly questionable (mis)use of UK (and Scottish) companies and UK banking facilities, when was the last time the UCA and UK authorities actually prosecuted anybody from Ukraine for serious and organised crime?

Now, eventually putting cynicism aside, the only public threat to go after any Ukrainian in recent memory was made by the UK Ambassador to Ukraine with regard to Roman Nasirov – who holds UK citizenship anyway.   Nevertheless, bravo Ambassador Gough, some much needed prickly public diplomacy relating to that case.

In all seriousness however, a reader is left to ponder whether the priorities of the UK NCA will equate to the priorities of their Ukrainian colleagues when it comes to organised crime – for there will assuredly be priorities by way limited budgets and personnel limitations/capacities on both sides of this agreement.

From the UK NCA perspective it is perhaps human trafficking, cyber crime and intellectual property crime emanating from, or passing through Ukraine entering and/or victimising the UK that would be the priorities.  From a Ukrainian perspective the continuing very large sums subject to organised theft and money maundering, at least in the nearest term, should probably be the priority.

T’will be interesting to see what organised criminality, and which organised criminals, are targeted if or when existing cooperation steps up a gear as is apparently intended.

 

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(Another) Pilot Project – Odessa Port

August 2, 2017

Not much has appeared on the blog regarding Odessa Customs and the ports of Odessa since the resignation of Yulia Marushevskaya and the decampment of the Saakashvili team from Odessa.

Suffice to say as Misha Saakashvili was replaced by Maksim Stepanov as Governor, Ms Marushevskaya was also replaced.

The current head of Odessa Customs is Alexander Vlasov, an individual thus far distinguished by having never been mentioned by the blog other than in relation to the circumstances surrounding the “competition” for his appointment.

Nevertheless, as that entry made clear, despite those dubious circumstances, that did not mean that Mr Vlasov was not the best candidate for the vacancy – “For those wondering about Mr Vlasov’s background, for the first decade of this century he worked within the machinery of the SBU, more recently followed by year or two stints within the Tax Service, and then Economics Ministry.  In 2016 he was the head of the Inter-Regional Management of Operational ATO Support Zone of the SFS (Phantom Unit), with his last position being Chief of the Interdepartmental Center for the Prevention and Detection of Violations of the Law on State of Customs (also known as the “Black Hundreds”).

Prima facie, an impressive resume – so why such a clearly opaque, rigged and rushed “competition?  At the time of writing there is nothing to suggest (serious) nefariousness by Mr Vlasov historically, nor any noted lapses in integrity.  Perhaps some will surface, perhaps there are none to surface.”

Some months on from that entry, Mr Vlasov has not managed to get mired in any scandals.  Nor have any major historical scandals surfaced.  The wise words of Socrates prevail – “Strong minds discuss ideas, average minds discuss events, weak minds discuss people”, albeit Socrates perhaps would and should allow for some smudging of those lines on occasion, for such discussion infrequently occur in a vacuum but more often aligned to a Zen diagram.

Indeed Mr Vlasov, via his Facebook account, seems quite intent upon keeping the local population up to speed with events at the ports – which may go some way to prevent weak minds doing exactly what Socrates so wisely pointed out.

But what of ideas and the discussion thereof?  Disappointing Socrates would never do.

For sure Mr Vlasov has not managed to irradiate all nefarious events that occur at the ports of Odessa – nor will he.  Yet without ideas, then minds will focus on events and ultimately only upon his ability to curtail the nefarious shenanigans – or not.  Without ideas to mitigate and manage such nefarious shenanigans the perception of progress will simply not manifest under his tenure.  His impressive curriculum vitae almost  demands progress whilst in this role before he can move on.  The ports of Odessa are one of the many poisoned chalices of Ukraine.

Lo, a first major pilot project under his leadership is due to begin on 22nd August.

Some months ago, the concept was floated regarding a “single window” or “one-stop-shop” for car imports via Odessa Port, to be run on the Euroterminal site.  The plan to clear up to 100 cars per day, fully documented, licenced and registered (complete with number plates for any region of Ukraine).

Undoubtedly something that will be beneficial to those whose cars are imported and then have to run around not only Odessa, but further afield, documenting and legalising their car prior to being able to take from the port.  A bureaucratic nightmare.

Administratively therefore, the “autohub” will require seven (yes 7) different government agencies and institutions to work together in a single location to produce all the required clearance and vehicular documents to get a car off of the port premises in a single day.  That, at the very least, will require some form of electronic database incorporation between Customs (which currently falls under the State Fiscal Service, which is itself subservient to the Ministry of Finance) and the Ministry of Interior.  That in turn, following recent headlining Russian cyber attacks on Ukraine, raises questions over cyber security – for the bigger the tent, the more likely there is a weak link within, and the more likely there are incompatibility issues.

Thus there will be problems.  Seamless, at least behind the curtain, is probably a little ambitious from the off- whether or not the public facing “single window” is oblivious or not.

Needless to say the idea and the associated pilot project will be fairly closely followed in Kyiv (perhaps for reasons both good – and bad, if this steps too heavily upon nefarious financial flows into certain expectant pockets).

The development of the pilot project has also been followed by the SBU of Odessa – as has, it should be noted, Mr Vlasov himself.  Naturally the SBU will consider it has genuine reason to keep up to speed regarding this project.  Perhaps it also has genuine reason to put Mr Vlasov under (what appears to be ad hoc) surveillance too – albeit that Mr Vlasov is aware of the SBU surveillance would suggest that either their counter-surveillance techniques are poor, or that the SBU deliberately want him to know they are watching him.

Further the relentless and ever stringent eye of Odessa civil society and anti-corruption activists, which in the case of the ports of Odessa is most prominently fronted by Viktor Berestenko, will no doubt be swift to offer a critique of the pilot project – perhaps too quick.

However, the blog (as always) chose its words carefully upon the appointment of Mr Vlasko as the Odessa Customs Chief, suggesting that some months need pass before any form of impact assessment – be it for the better or for the worse – was made.  The same will surely apply regarding the success of this project – or not.

Mr Vlasko holds his final preparatory meeting regarding the “autohub” pilot project on 10th August at 1500 hours – with an open invitation for all that would wish to attend.  It would appear, short of any final and/or last minute tweaking, the project commencement date will remain 22nd August.

So to the question of how to measure the success of the project?

The speed and simplicity for the importer of a car?

The seamless functioning behind the administrative curtain (including the cyber security “big tent” issues and system interoperability of numerous different government agencies and institutions that all, no doubt, suffer from numerous and different vulnerabilities)?

The reduction in corruption?  (If so what illicit cash flows are identified as being generated through the current system?)

Does the horizontal accountability and inter-dependence of a successful and efficient “single window” across seven (yes 7) governmental agencies and institutions create a self-policing environment that proactively reduces corruption opportunity – or rather will it create a “single window” of monopolised corruption?

Is there a lead agency?  If so is it (presumably) Customs, or the Ministry of Interior?  To put it another way, who is ultimately responsible for what occurs when it comes to resolving the problems, the functioning, the output, and the policing of the pilot project?  Ownership and accountability, and all that!

Clearly a project to revisit in 3 – 6 months.

Another obvious question will be that while all this is going on, how much attention will it divert from tackling the other, long standing and on-going scams at the ports?  (Not that such matters are in any way a reason not to progress this pilot.)

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Revisiting old and postponed decisions – Gas (U turn on a U turn?)

July 31, 2017

Following on seamlessly from the previous entry relating to (the mostly oligarch owned) electricity infrastructure and the proposal for RAB incentive based investment (or probably not when it comes to actual owner investment), the same energy regulator,  the National Commission for Energy Regulation and Utilities (NCRECU), seems set to revisit an old policy suggestion/regulatory plan relating to gas.

It is a policy it proposed, and submitted regulations for, on 28th March – and promptly withdrew on 1st April 2017.

A particularly swift policy/regulatory U turn even for Ukraine.

That is not to say that the policy was the wrong policy, undoubtedly as unpopular as it would be, but it is suffice to say that independent regulators are not exactly independent in Ukraine.

It took only a few words from President Poroshenko suggesting that the proposed regulations be suspended, for that suggestion to be immediately implemented – “Without dialogue with people, such decisions are not accepted,  I appeal to the government and the NKRECU to find an agreed solution that does not provide for raising tariffs and distributing subsidies for all types of payments for all who need it.

For those readers that may question lawfulness of the political interference by President Poroshenko with an independent regulator, it is fair to say that he exceeds his constitutional parameters, trampling heavily upon the constitutional areas of responsibility of the Verkhovna Rada, judiciary and independent bodies on a frequent basis.  NKRECU is clearly no exception.

That said, a reader might also ponder whether there is an occasional necessity to do so during a time of transition (at the presidential pace).  If accepting that to be the case, there should be few complaints when necessity is replaced by habit – and it is habitual.

Nevertheless it appears that on 4th August that the once proposed, adopted and subsequently canceled/suspended NKRECU regulatory proposal will again resurface.

The prickly issue at hand is the regulator’s proposal to implement a standing charge for the use of the gas distribution system.

A fixed monthly fee.

Except that fixed monthly fee is not the same for everybody.  There is a convoluted system relating to what sort of gas meter a customer has and its associated throughput, also for those without gas meters, and programmed cost differences across the oblasts.  For the purposes of this entry, there is no requirement to go into the specific methodology, suffice to say such schematics exit.

Nevertheless, this billing differentiation step relating to the delivery system is required as part of the energy reform within Ukraine – notwithstanding an EU obligation within the 3rd Energy Package.

It will insure is a reasonable amount of transparency when it comes to funds charged and dedicated to gas distribution networks and maintenance – which  no differently to the electricity grid mentioned in the previous entry, has been allowed to systematically fall into far into disrepair since independence.

As usual the owners are more interested in sucking out the money.  Only begrudgingly spending (rather than investing) when critical repairs involving scotch tape and “make do and mend” are required.  Ergo, the Ukrainian gas distribution and transportation system is more than a little leaky and inefficient.

(As an aside, for those readers who consider the gas transport system (GTS) to be a strategic matter for Ukraine with regard to the revenues it brings in when transporting Russian gas to Europe, and thus that is the cause of intense Ukrainian dislike for the Nord Stream II project, the blog takes a different view.  The GTS is strategically important for Ukraine less so for the revenues, but more so for the fact that Nord Stream II simply makes Ukraine less relevant to the EU if it be bypassed.  That strategic importance is far more important than the $ revenue the GTS provides.)

Returning to the gas distribution networks and the oblast infrastructure, while Odessagaz is owned by mafia Don Alexander Angert and Igor Uchitel, across the nation approximately 70% of the oblast gas distribution systems is owned by Dmitry Firtash (and associates) – oligarch in exile in Vienna pending extradition proceedings to Spain and the USA on corruption charges.

The introduction of the separate line item fee should amount to approximately UAH 15 billion being identified specifically for gas delivery systems.  The regulator expects that 38% will go toward wages, another 38% toward production and technology costs, and 6% toward capitol investment (and other things).  The remainder, presumably, is profit before tax.

However, as stated in the previous entry – “Messrs Kolomoisky, Akhmetov, Grigorishin feature prominently – as does the Russian firm VS Energy, ultimately owned by Alexander Babakov (who is associated with numerous organised crime figures such as the late (assassinated) Maxim Kurochkin, Alexander Lebedev et al).  It therefore follows that scandalous and nefarious acts are to be expectantly anticipated from all involved” – few if any readers would expect the likes of Don Angert and Dmitry Firtash not to enter into scams, schemes, and nefarious acts to defy the regulator and insure that most of the raised sums disappear offshore, or are otherwise put to other use.

What the distribution system owners can be certain of is a steady and predictable income, no longer subject to seasonal peaks and troughs.  Lo, the proceeds of acquisitions financed by original sins/organised crime during decades past become not only legitimate but increasingly and predictably organised – c’est la vie when failing to put people in jail over the preceding decades for their organised criminality.

Nevertheless the average Ukrainian would, in the long term, win on the proviso that the regulator can force the infrastructure owners to invest in their otherwise ignored assets and deliver efficiently for the social good.  Reliable, quality infrastructure naturally has societal benefits.

However, just as the previous entry doubted the ability to force those owning the electricity infrastructure to invest, there must be serious doubts about the ability of the regulator do the same with gas.

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RAB – The right policy for Oblast Energy?

July 30, 2017

It appears that the National Commission for Energy Regulation and Utilities (NCRECU), the Ukrainian regulator, is set to introduce Regulatory Asset Base (RAB) tariff incentives for the regional electricity providers.

How very European – in fact RAB is a UK concept employed across much of Europe.

A reader should think of RAB as a sort of alternative to PPP (Public, Private Partnership) as a way to bring investment into infrastructure – ex ante.

The issue with ex ante is that the Ukrainian consumer/customer will have to hope that the NCRECU gets its math right – for ex ante relies upon the regulator being able to differentiate between the operating costs recoverable from users and what is not.  It is also dependent upon existing asset value assessment employed in the regulated function.  In short it simply has to arrive at an accounting number that reflects the historical investment in infrastructure – albeit in the Ukrainian case, it will reflect the assets acquired by the oligarchy that have seen little (or no) investment historically as all profits were simply sucked out year on year.

Thus any accounting figure necessarily takes the view of valuing long-lived infrastructure more highly than its worth for it will eventually require replacement at today’s cost – not those of yesterday when the assets were acquired.

The ultimate aim of RAB, via the regulator, is to (at the very least) insure that capitol investment in the infrastructure remains and that monetary and/or asset market value is consistent through the passage of time, whilst also placing a form of ex ante price control on the participants.  Ergo by default ex ante presumes some form of free market failure/exceptionally high barrier to entry (and nobody is going to arrive in Ukraine and install a new electricity infrastructure).

There is also a requirement for the regulator to get the math right regarding new investment (that by default increase the RAB value), asset depreciation, the aforementioned operating costs, and financial costs (loans etc).

Further, specific agreements clearly identifying licencing, responsibilities/obligations and rights have to be addressed. – which brings about just how the regulator will evaluate performance – quality and delivery (superior life cycle investment), or delivery efficiency (target driven)?

Is there any flexibility in either approach that may (and therefore will) facilitate shenanigans by the owners of the Oblast energy infrastructure?

Will the RAB incentive model equate to better social welfare outcomes?  (That will almost certainly depend upon the strength of the Ukrainian NCRECU regulator.)

So what is the RAB incentive for oligarchy/current owners of Ukrainian infrastructure?

How do they benefit by investing money when traditionally they have simply sucked all the money out, investing only enough to keep their infrastructure running held together with scotch tape and “make do and mend” maintenance – particularly when the NCRECU is capping profits?

The regulator it appears, will provide for 12.5% profit from the value of the decrepit infrastructure already owned which will be deliberately over valued.  That over-valuation, it is claimed, equates to something approaching UAH 30 billion per annum for those in the business, plus an additional 12.5% from any new infrastructure investment.

It will be a particularly sensitive issue – for many Ukrainian electricity infrastructure owners are the oligarchy.  Messrs Kolomoisky, Akhmetov, Grigorishin feature prominently – as does the Russian firm VS Energy, ultimately owned by Alexander Babakov (who is associated with numerous organised crime figures such as the late (assassinated) Maxim Kurochkin, Alexander Lebedev et al).

It therefore follows that scandalous and nefarious acts are to be expectantly anticipated from all involved – notwithstanding a possible further price hike to insure maximised returns within the regulatory price cap.

Nevertheless, what of the core policy goal of upgrading the infrastructure?  Will it bring much needed investment by these men into what it beyond decaying infrastructure?

At a RAB capped 12.5% profit from new infrastructure investment it seems extremely unlikely.  The high street banks are offering between 13% – 16% on UAH deposit accounts.  Quite simply, other than emergency investment/maintenance, the offered bank interest is better than the investment return (and some of the above individuals own minority/majority/completely the banks).

So, is the RAB policy the right policy (even if it is a well used policy across Europe and beyond)?  If it is, then are not the details in need of tweaking to insure the desired outcome?

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A transitional mixed bag – High Qualification of Commission of Judges results

July 28, 2017

7th December 2016 witnessed the beginning of a vetting process for those wishing to become Supreme Court Judges – be they Civil, Criminal, Economic or Administrative.

From 1436 applicants, 653 were admitted to the competition, from which 625 eventually underwent assessment.

During the evaluation, participants of the competition completed professional and psychological tests, were scrutinised by the National Anti-Corruption Bureau of Ukraine, the National Agency for the Prevention of Corruption, and the Public Council for Integrity,   The Public Council for Integrity had a semi-veto on applicants requiring the Higher Qualification of Judges Commission to vote by 2/3rds to overturn that quasi-veto – and it did on numerous occasions.

Indeed, whilst the PCI continued to highlight lifestyles and assets far beyond applicant incomes, the HQCJ continued to demand proof of corruption.  In short the new Supreme Court will almost certainly not be staffed by those that passed every “sniff test” of a “reasonable person”.

A low moral and ethical bar thus apparently been set.

As a result more than 350 interviews took place for those seeking to fill the 120 vacancies.  The advantage of interview scores of course is that they are subjective and can therefore be used to artificially bolster otherwise distinctly average (or minimum acceptable) written examination scores.  The final, published candidate scores providing only a final overall candidate score.

Truth be told there are names on that final list, across all four categories for positions within the Supreme Court, that would make any reader familiar with them simply roll their eyes and express something similar to “FFS!”

However, the list (per final assessment and ranking scores) does also include some apparently morally upright and seemingly independent applicants.

To throw out the good (or at least potentially improved) composition of the Supreme Court in pursuit of the best is perhaps not the wisest policy – albeit disappointment should be recognised insomuch as some names simply should not be on that list if the process had not been manipulated along the way.

The results should perhaps be interpreted as transitional and a further reflection of a Ukrainian elite trying to slow societal progress for their benefit, but ultimately being dragged in the direction the vast majority of constituents want to go.

It is beyond doubt that this Presidential Administration is no more capable of surrendering control over the prosecutors and judiciary than any that came before it.  It is also clear that the current Presidential Administration is running out of wiggle room before it has to address progress that will curtail and/or infringe upon its own vested interests.

But

As with any transition this is to be expected.  It is the current reformers among the national, regional and local middle management working within a transitional regime that are learning the ropes and schemes and noisily fighting against it that are, ultimately, the future.  Civil society remains robust too.

Thus a similar view is perhaps required when looking at the results for the 120 vacancies within the Supreme Court.

Cynically a reader will expect the names that shouldn’t be on the judicial list but are, will somehow manage to (coincidentally) preside over cases requiring certain outcomes for certain circles within the elite.  “For my friends anything – for everybody else the law” will probably continue to be the Presidential Administration’s policy, but perhaps to a far lesser extent that recent Ukrainian history has witnessed as certain trends become apparent and associated public ire is made known.

However, as disappointing as it may be,”For everybody else the law” should perhaps be seen as (limited) progress if equal application of the law, and proportionate verdicts are the result.

Whether Lady Justice via a newly staffed Supreme Court will prove to be blind, and on balance more ethical, or whether it should fall upon its sword remains to be seen.

 

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