Posts Tagged ‘agriculture’

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Pfeifer & Langen buy Mriya sugar mills – Ukraine

December 2, 2016

Less than 2 months ago an entry appeared regarding the exceptionally murky, decidedly criminal, and mysterious yet unknown top level protection being afforded by those with incredible clout to the investment disaster/horror story surrounding Mriya Agro Holdings in Ukraine.

An on-going and unresolved nightmare of which those at the very top have made no efforts to resolve – despite the situation going from bad to worse and the ugly image the situation projects.  Having re-read the above link, it really is an investment horror show.

Nevertheless, it appears that Germany’s Pfeifer & Langen have bought (or are imminently to do so)  the sugar mills of Mriya Agro from Prominvestbank that took control of these particular assets as collateral for past and defaulted loans.

pl

To be fair, Pfiefer & Langen are no strangers to Ukraine.  They have been active in the country for a decade via their subsidiary Radekhiv Sugar Ltd.  (Indeed they are active in sugar in half a dozen or more European nations.)

Clearly Pfeifer & Langen will have done their due diligence and therefore feel confident that they will be able to protect their asset – unlike the numerous well known international investors who now own Mriya and look on forlornly as the remains of that agricultural empire are slowly but surely stolen from under their noses piece by piece by previous owner structures with no resulting action by the Ukrainian political elite or law enforcement structures.

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The neverending Mriya/Dream (or nightmare) – Ukraine

October 10, 2016

This entry has bumped its way up the “should write a few lines about that” list due to further deterioration of the situation as of yesterday when yet more assets were illegally stripped from the Mriya Agro Holding entity that has become something of an international nightmare for the Ukrainian authorities – despite Mriya meaning “Dream” in Ukrainian.

mriya

Where to start this nefarious tale, and which names on the periphery to include or exclude is somewhat subjective.  What happens next is far from clear either.  Whatever the case, there will be many readers left with the perception that the authorities grip upon the rule of law, even with this high profile case involving numerous foreign investors, is more than a little questionable despite innumerable historical and very recent assurances by the authorities to pay special attention to the rights and circumstances surrounding those committing to FDI into Ukraine.

Perhaps most aggravating (aside from an absence of rule of law enforcement) is the fact that this incident is in agriculture – a sector that the Ukrainian authorities view as a leading economic sector to drive and sustain economic growth.

First however, a little historical glossary is required to bring a reader to the present day.

Sometime around 1992/1993 from within the leaderless and lawless rubble of post-Soviet Ukraine Mriya Agro Holdings was created by Ivan and Klaudia Guta.  It went on to become a major agricultural holding in Ukraine – among the top 5 in terms of land under management.

The Guta family, Ivan, Klaudia, Andrei and Mykola remained 80% majority share holders even after a successful IPO on the Frankfurt Stock Exchange in 2008.

Investors such as BNP Paribas SA, Credit Agricole SA and UniCredit SpA, while bondholders include Argentem Creek Partners, CarVal Investors, DuPont Capital Management, Pioneer Investment Management and T. Rowe Price Group Inc piled in, the World Bank and EBRD provided loans for expansion.  Why not?  Mriya Agro was reporting wonderful annual results ($660 million per annum) and reportedly had a truly enormous 320,000 hectares of land under management.

Quite where the due diligence was in all of this is unclear, for Mriya Agro Holdings had within its set up a number of obvious shell companies.  There is nothing wrong with shell companies per se as far as doing business in Ukraine is concerned.  Whilst they may be synonymous with tax evasion and dodgy dealings they also provide Ukrainians with multiple jurisdictions beyond the ruinously corrupted court system that can insure property rights are far from inviolable.

What reader would have left multi-million/billion dollar businesses at the mercy of a thoroughly corrupted Ukrainian judicial system where rights for such entities historically have been temporary in the hands of a suitably selected judge?  Off-shoring is akin to insurance therefore.

Suffice to say that the entirety of the Guta family were shareholders in (at least) 5 off-shore companies, including HF Asset Management Limited which owned the 80% of Mriya and which was subsequently wound up in December 2014 when the company CFO was the infamous Alexander Cherniavsky (see below).

The summer of 2014 found Ukraine with empty cupboards following the Yanukovych regime grand theft, a war with Russia, and the inevitable crash of the Ukrainian currency.  Mriya Agro Holding could no longer service its $ denominated bonds.  (The total debt portfolio across more than 20 lenders exceeded $1.2 billion.)

By December 2014 it was clear to shareholders of the 20% of Mriya not owned by the Guta family, and also Mriya’s lenders that the Agro Holding was being systematically asset stripped with assets being illegitimately re-registered (often back dated) to other companies, whilst other assets were being stolen, hidden and/or sold off with the proceeds disappearing.  A process requiring dodgy lawyers and “black notaries”.

The Guta family and the senior management left Ukraine swiftly when awkward questions began to be asked.

The remaining international shareholders were then faced with acting swiftly not only to deal with the international creditors, but also to prevent the continuing illicit stripping of Mriya Agro Holding.

It swiftly became clear that the accounts of Mriya audited by Ernst & Young (Kyiv office) were hardly a true reflection of Mriya Agro Holdings.  Aside from the ubiquitous VAT scams associated with agriculture in Ukraine, the asset stripping, fraud, accounts manipulation and cash skimming swiftly became apparent.

Indeed the 320,000 hectares of land reportedly under management turned out to be 220,000 – prior to further nefarious reductions.  In short $ hundreds of millions have been misappropriated

The minority shareholders won control over Mryia Agro Holding in the courts, struck deals the creditors, installed new management and began proceedings in Ukraine (and other jurisdictions), leading to former senior employees being declared wanted.  (Indeed Mykola Guta the former CEO had an Interpol Red Notice raised against him, currently sitting under house arrest in Switzerland.)  Legal process is underway to reclaim about 60,000 hectares of land bought with stolen cash from Mriya under the names of other companies.

Mryia Agro Holding today operates with about 180,000 hectares of agricultural land under management with a storage capacity of about 600kt.  It is now profitable, remains one of Ukraine’s largest agro-holdings, is servicing its restructured debts, has an operating capital of over $40 million, and should head to another IPO sometime around 2018 – 2020.

Bravo the much criticised legal system and law enforcement institutions of Ukraine?

Not exactly.

There have been recent “raider” attacks involving companies in one way or another related to the old Mriya management – FID Global Ltd, Global Health FID, FID Global LLC, Dream Leasing, OOO Bud M Haulage, OOO Bud M ATP, Global Feed Ltd etc.

Over the past month the following has occurred – 21st September 2016, the Kyiv Appeal Court lifted a freezing order on 142 units of agricultural equipment worth around $3 million that was illegally removed from the company by the previous management of Mriya when they defaulted on their debt obligations in August 2014.

The Appeal Court’s decision overturned the freezing order imposed by the Pechersk District Court on  July 6th 2016 as part of the main criminal case against Mriya’s previous management and owners.  That freezing order had returned the equipment to Mriya under its current management.

On October 4th, the former management began removing the equipment from a Mriya storage site and did once again on 10th October 2016 (prompting this “should write about one day” entry).

In response to the Appeal Court’s decision, the Special Anti-Corruption Prosecutor’s Office (SAPO) has prepared a request for a fresh freezing order. However, bureaucratic inaction by NABU is preventing SAPO’s request from going to court since NABU has (so far) not registered the fact that it is leading an investigation of/within the main criminal case against the former owners and management of Mriya.

The fact that SAPO and NABU are now involved can only mean that those individuals that fall within their legislative remit are involved.  The Category A and B public figures – the political class, judiciary, senior civil servants and SOE executives.  (The $ value of criminality certainly demands an investigation by an organisation perceived as having integrity.)

Nevertheless few such within that elite class would have the influence over the Appeal Court regarding such a highly visible on-going case with international complainants acting within a very sensitive economic sector for Ukraine.

Somebody with very serious clout is behind the above mentioned rulings less than one week ago – but who?  Undoubtedly the door to the Presidential Administration will be getting kicked down (once again) by numerous diplomats connected to the nations of shareholders and creditors – and rightly so.  Thus somebody who considers themselves “untouchable” by the Presidential Administration seems most likely to be behind the ordering of the Appeal Court decision.

Is there anybody in the Mriya Agro Holdings history capable of wielding such influence on such a sensitive case?  Do any such figures stand out from the others as having previously displayed the “right experience”?

From its inception in 1992/3, along the way the Mriya Holding certainly came into contact with numerous infamous names renowned for their less than stringent adherence to matters relating to the law.

For example, during 2003/4 it was associated with Yuri Karmazin who was something of a celebrity lawyer/parliamentarian at the time associated with questionable activities – among which land regularly featured.

Mriya’s association with Mr Karmazin seemingly came via Elena Berezhnaya, an “enabler of privatisation” granted numerous permanent and surprising legal abilities having done the “legal” for Party of Regions head office in Luhansk during post-Kuchma/pre-Orange 2004/5 elections.

Ms Berezhnaya’s daughter, Irina, miraculously found a role within the Verkhovna Rada in 2002 as an “assistant adviser to Yuri Karmazin and headed the Verkhovna Rada Sub-Committee for Synchronisation of Legislation in Ukraine.

While Elena Berezhnaya stayed in Luhansk and built a dubious but exceptionally profitable legal practice, her daughter Irena became something of a star within the Verkhovna Rada.  That stardom was not founded upon her legal qualifications or wily understanding of legislature, but rather that she was the first to bring cleavage to the VR coliseum, the first to bring tits to the theatre of the absurd, the first to bring admirably presented bare bosom to the most elite and feckless business club of Ukraine.

Irina Berezhnaya

Irina Berezhnaya

In short, womanliness was first displayed through fashionable “working apparel” within the corridors and halls of the Verkhovna Rada by Irina Berezhnaya, where conservative female dress code had otherwise prevailed.

To be honest, even as a “leg man”, the 2002 (onward) daily fun-pillow displays Irena presented to parliamentarians certainly caught the eye.  However, neither association with the then power of Mr Karmazin, nor Irena’s rather splendid boobs were her only attractions.  She was also associated with a very dubious notary service (black notary service) called Astra-Service.

By 2004 the illicit practices of this dubious (black) notary service had acquired clients such as VAB Bank, Ukrsotsbank and Mriya Agro Holdings.  To be blunt, such a notary service is rather useful when it comes to acquiring agricultural land rights by hook or by crook.

In 2006 Mr Karmazin lost his parliamentary position and was duly traded in by Irena Berezhnaya for one of Ukraine’s most infamous characters, Boris Fouksman.

Mr Fouksman is long (and strongly) rumoured to have made a fortune smuggling antiques and icons out of the USSR prior to its collapse, for having been involved in gun-running and having close Russian mafia connections – notwithstanding significant influence within Party of Regions at the time.

It therefore follows that the buxom Ms Berezhnaya became a Party of Regions Deputy within the Verkhovna Rada in 2007 under such patronage (collecting numerous honours and awards along the way both within Ukraine and an Honorary Professorship from the International University of Economics Vienna), until 2014 and the aftermath of the Yanukovych regime flight whereby she lost her parliamentary mandate.

It is rumoured that the daughter of Irena Berezhnaya is fathered by Boris Fouksman – though this has not been confirmed or denied.  The godfather of the child is known – the almost universally despised Nester Shufrych.

During her parliamentary period Ms Berezhnaya became “known” for supporting “raids” on corporate entities – for example Tochmash and Sinbias Pharma among several that had dealings with VAB Bank (behind which sat Boris Fouksman).  VAB Bank being one of the first VIP clients of Ms Berezhnaya’s (black) notary service Astra-Service along with Mriya Agro Holding.

Since losing her Deputy’s immunity, she has, perhaps unsurprisingly, having facilitated so much nefarious activity within the elites, not been subjected to any repercussions as far as the rule of law is concerned.  No doubt “insurance policies” of historical transactions exist should she fall under the eye of the law.

She is however, hardly powerful enough to have caused the latest Appeal Court judgement.

What seems most prominent in the history of Mriya Agro Holdings prior to its unsavory revelations of 2014 is the very short term appointment of the infamous Alexander Cherniavsky as CFO between September to December 2014 – the time when Mriya Agro Holdings then defaulted on $1.2 billion of bonds and land and assets where illegally re-registered in alternative company names.

Mr Chernaivsky is associated with Rinat Akhmetov, Sergei Liovochkin and Artem Ershov and in particular to the dodgy dealings surrounding the purchasing of Ukrtelecom many years ago.

A reader may possibly perceive that Mr Chernaivsky was deliberately installed for a specific (and nefarious) purpose considering such a short tenure as CFO and what occurred during that time.  Questions perhaps regarding Mriya’s interaction with Rinat Akhmetov’s FUIB bank may be asked?  (Rumours also circulate regarding Alpha Bank involvement.)

Is Mr Akhmetov the “untouchable”?  If a reader believes that the occupied Donbas will return to Ukrainian control, then it will surely be stewarded by Rinat Akhmentov as the biggest employer in that region.

That said, the vast majority of illicit money channels from scams and schemes did not flee with the Yanukovych regime.  The names of the end recipients simply changed.  Some of those surrounding President Poroshenko have hardly displayed morality or integrity since he came to power.  It is well within the realms of possibility (maybe even probability) that for a large enough fee, the desired Appeal Court decision would be reached upon their nod despite serious and numerous negative implications for the Ukrainian State.

Whether a Ukrainian journalist will attempt to find out the puppeteer behind the Appeal Court ruling, or ascertain exactly who among the ruling elite is playing “roof” for the Guta family and their on-going schemes remains to be seen.  Perhaps in the next few days a name will become apparent.

In the meantime international shareholders and investors continue to get shafted in Ukraine despite favourable court rulings and the instigation of criminal proceedings, whilst criminal proceedings and court rulings thus far have put nobody in jail almost 2 years after they were instigated.

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Tymoshenko and the IMF – or is it really about the IMF?

September 21, 2016

Yulia Tymoshenko knows a thing or two about dealing with the IMF.  She has said so herself on several occasions when recently cricitising first former Prime Minister Yatseniuk, and latterly the current Prime Minister, Volodymr Groisman.

Indeed when Prime Minister she negotiated a deal with the IMF, the conditions to which she agreed she then reneged upon when required to implement them – which may make a reader wonder just how skilled at negotiation with the IMF she really is.  (If one instance of poor negotiation is not enough, then a reader may reference the gas deal she struck with The Kremlin resulting in the worst gas deal with Russia in Ukrainian history, (despite the welcome removal (visible) of intermediaries), is also worth pondering.)

tymo

Ms Tymoshenko apparently knows what the current IMF conditions are according to a report by Interfax – “Among Ukraine’s obligations are the cancellation of the moratorium on the sale of agricultural land.  If the moratorium is not prolonged, Ukraine will lose its main resource.

She claimed that the IMF also planned to “virtually introduce external control over national, state Ukrainian banks.”  as well as seeking commitments to reduce the network of Ukrainian educational institutions.

So far, so standard regarding IMF conditionality just as the hiking of utility prices has long been a standard IMF demand – and the demand that she balked at when it was her turn to implement the IMF agreement she agreed that also included utility hikes.

The IMF has been fairly consistent with its requirements with every Ukrainian government that has negotiated with it – from gas pricing, to the funding of vast number of universities within the nation, to lifting the moratorium on the sale of agricultural land, there is really nothing new in her “revelations”.

Indeed the only thing new about the IMF demands this time is that both Prime Minister’s Yatseniuk and Groisman have more or less honoured the obligations they have entered into – unlike Ms Tymoshenko when it was her time to do so.

What catches the eye is this statement – “The nationalization of large Ukrainian private banks is foreseen. We want to know what the bank is, what the date of nationalization is and who will be responsible for the obligations the banks have to Ukrainians”.

Clearly she is referring to Ihor Kolomoisky’s Privat Bank.  A bank which is structurally critical to the current operation of the Ukrainian banking system, but that is otherwise bankrupt and has been for years.  This situation too, is no secret to anybody.

Indeed the nationalisation of Privat is unlikely to create too many issues for Ihor Kolomoisky given its otherwise bankrupt status.  He may well realise that if he can get rid of it now, it will save some severe and problematic issues in the not too distant future.  (The health of Ukrainian Airways (MAU) another Kolomoisky company is worthy of a look too for those interested in the Kolomoisky empire.)

Privat Bank, its condition and structural importance would of course raise flags for the IMF when considering the robustness of the Ukrainian banking system.

The question Ms Tymoshenko is really asking is what, if anything, Ihor Kolomoiskhy gets out of the deal on his side, and what the current leadership get (themselves) if the State nationalises Privat Bank removing this impending problem for Ihor Kolomoisky and also easing concerns within the IMF?

Do Mr Kolomoisky (and partners) retain any minority shares?  What about the high value loans heavily biased to other Kolomoisky companies and their ability to repay them – or not?  Are profitable bits of Privat (card payment infrastructure etc) to be split off, and if so who will own them and reap the rewards?  Who would be the negotiator with Ihor Kolomoisky if not President Poroshenko, the only person Mr Kolomoisky would negotiate with?

What reward does President Poroshenko personally desire from any such negotiations that ultimately remove a problem for Mr Kolomoisky?

The answer to that, if strong and repeated rumour be true, is a majority share in Mr Kolomoisky’s top rated TV station 1+1.

The President has one eye on his woeful popularity figures, and another eye on Presidential elections in just over 2 years time.  A 1+1 favourable editorial line toward President Poroshenko would be gratefully received and the only way to insure it with a sly character like Mr Kolomoisky is to own the majority share of 1+1.

1+1 together with the President’s Channel 5, and perhaps the fairly amenable (read rentable/for hire) Vadim Rabinovich and Evgen Muraev with NewsOne, will form a fairly solid national TV media platform from which to launch a presidential campaign for a second term – notwithstanding the administrative ability to throw a few policy sweeteners to the constituency and a few fairly big fish into the judicial frying pan if and when necessary – all with the timeliness associated to pre-election electioneering rather than official electioneering.

If this be the case, how does President Poroshenko buy a majority share in 1+1 when his business activities are now supposed to be run through a blind trust?  Is the trust blind in only one eye?  Will a trusted third party do the 1+1 (plausibly deniable) honours on behalf of President Poroshenko?

Will Mr Kolomoisky accept President Poroshenko saving him from serious banking problems/liabilities at the expense of control over the influential 1+1?  It is a question, according to rumour, that is still being pondered.

With Inter (if it is still operating and belonging to Dmitry Firtash) being an Opposition Block TV platform, the question in Ms Tymoshenko’s head perhaps is not what happens to Privat, but undoubtedly being aware of the persistent rumours surrounding the deals around what happens to Privat, is where she will find a national media platform that could compete.

Unless Ms Tymoshenko is entirely deaf to rumours circulating within her workplace, she already has a good idea of the answers to all the other questions – as do a lot of other people.

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Something fishy? Cargill to invest $130 million in Yushni Port

August 18, 2015

A few days ago, your author bumped into the ever radiant Lily Lynch, owner of the Balkanist.  Rather flatteringly a request for a few (hopefully erudite) lines was subsequently requested for inclusion in the Balkanist in the near future  – albeit lines with little to do with the Balkans.

Today, those few lines were written relating to corruption schemes at the ports of Odessa, a brief look at the who’s who, the what’s what, and how far the scheme(s) climb up the nefarious Ukrainian hierarchical tree.

Upon completion and emailing, the first news read by your author related to Cargill confirming the long-known intention of a $130 million investment in Yushni Port, Odessa.

As such, this entry would be far better as a follow-on to the essay/article now in possession of the Balkanist awaiting editing if they decide to use it.  If not, undoubtedly it will appear here some time in the future.

Just as Lord of the Rings trilogy was shown in cinemas prior to the making of The Hobbit, you now have a far less entertaining, but equally out of sequence entry.

Suffice to say, what currently sits with the Balkanist outlines the relationship between nefarious and corrupt goings-on at port terminals in collusion with, and also expressly instigated by the Customs and Borders, State Fiscal Service,  Administration of Seaports of Ukraine, and the Ministry of Infrastructure.  It also identifies suspicious roles and personal relationships from Odessa to those in Kyiv.  Hence this entry would be better read post and not pre any Balkanist publication – but that’s life!  After all you watched Lord of the Rings before The Hobbit.

Anyway the Cargill announcement was long expected, it is of course good news for Odessa, and Yushni in particular.  Cargill is obliged to acquire 51% of the terminal to be built by MV Cargo and the new terminal will allow Cargill to ship up to 5 million (more) tonnes of grains and other goods per year.

Yushni

Yushni

Two things are striking about the announcement however, the first is that whilst the figure of $130 million is stated in the signed memorandum yesterday, the initial numbers mentioned by Prime Minister Yatseniuk were that of about $100 million only one month ago.

Does an additional $30 million class as “about” on a forecasted $100 million project?  Who costed the job so badly to be out by 30% upon initial costing?  Can there really be an additional $30 million in client desired “extras” added in the course of a month from Mr Yatseniuk’s first announcement?

Having shipped from, and heavily invested in other ports in Odessa since 1993, Cargill knows very well what it is doing – and the nefariousness of the ports and associated authorities.

None are more nefarious than the Administration of Seaports of Ukraine currently headed by Andrei Amelin – who just happens to be a “Yatseniuk man”, and co-signatory of the Memorandum with Cargill.

This leads to the other striking issue.  During the past 22 years it has managed to export enormous quantities of grain from Odessa ports that are nowhere near as deep as Yushni.  Yushni is by far the deepest Ukrainian port at 18.5 meters, yet such a depth requirement has never been an issue for Cargill in all these years.  In fact at 18.5 meters, Yushni is the deepest port on the Black Sea.

For some unknown reason, Andrei Amelin has stated the Administration of Seaports of Ukraine will dredge the bottom of Yushni port – despite it already being considerably deeper than existing ports that Cargill have invested in and work from.

So be it, although it would seem unnecessary prima facie and raises questions –  At what cost the (actual verses invoiced) dredging?  At whose cost the dredging?  Part of a $30 million investment hike in the space of a month?  An ask no questions, just send the invoice, way of facilitating the corruption chains that run from Odessa to Kyiv via the nefarious entity that is the Administration of Seaports of Ukraine?

Perhaps, coincidently (or not), Cargill having managed to rescue more than $100 million from Delta Bank when it liquidated, passing those losses on to the State Deposit Guarantee Fund and depositors with sums greater than the deposit guarantee – in short Ukraine – the deal was that the money would be reinvested in Odessa should the Ministry of Finance allow Cargill to save otherwise “dead” capital and turn it into capital that stands a chance of making a profit?

Keep these questions in mind, and await the Balkanist piece.

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Odessa – The Singaporean Model?

July 25, 2015

Iran has been in the news a lot recently for reasons of non-proliferation (and a much less discussed lifting of conventional arms embargoes in due course).

Yesterday, the Iranian Ambassador to Ukraine, Mr Mohammad Beheshti-Monfaredom together with a fairly large delegation, met with Governor Saakashvili, long-time friend of this blog and head of the Odessa MFA Konstantin Rzhepishevski, and an equally sizable Odessa delegation.

Odessa Iran

Now, as most of the world is aware, Governor Saakashvili is an “ideas man” (amongst other things).  Occasionally it is difficult to discern whether he speaks from an agreed agenda with Kyiv (or others), whether ideas simply come to him mid-sentence and are blurted out without due consideration, or whether his preconceived ideas are “dangles” with the tacit approval of Kyiv (or others) for whichever audience he is addressing (or is listening internally or externally but not actually present in the room).

During yesterday’s meeting with the Iranian Ambassador and delegation, Mr Saakashvili dropped the “idea” of an Odessa Development Fund based upon the Singaporean model, and announced the first “Oblast Council for Economic Development”.

The plan then, to turn Odessa into some form of a “city-State”, based upon incorruptibility, high efficiency and vitality?  A model reformation for the nation?

Well why not – at least within the parameters of Ukrainian sovereign integrity and unity?

The USA has clearly labeled Odessa as the front line for the fight with corruption, which can only help (for the most part) rather than hinder the Governor’s vision.  To paraphrase W Clement Stone, there’s nothing wrong with aiming for the moon, and if you miss hitting a star – although it is a wise politician that manages the expectations of their constituents.

Ignoring the very high concentration of millionaires Singapore boasts, as well as being an established trading centre in southeastern Asia, there is a lot that Odessa can and should emulate – starting with the efficient and consistently incorruptable One-Stop-Shop planned to begin work in October.

If Odessa doesn’t have the power to repeal the now 20+ Ukrainian laws (and the list is still growing at the Oblast Administration) that simply stifle and complicate business, it can at least make the bureaucratic process as swift, cheap, and painless as possible.  Likewise the streamlining of property registration and unbiased enforcement of contracts within the Oblast would also go hand-in-hand with the idealism behind the One-Stop-Shop.  In all these things Singapore excels, though it has the ability to change the laws as a sovereign State, unlike an Oblast within Ukraine.

Infrastructure, education, efficiency in public administration and services, innovation, political stability and rule of law, are also the hallmark of Singapore.

Odessa on the other hand, currently can claim to have the education (although some centres of excellence would seem a good idea) and a certain amount of innovation (the latest i-Hub in the city courtesy of the sovereign fund of the Kingdom of Norway), but nothing approaching quality or sustainability in any of the other areas.

That said, the US is investing a huge amount of political and diplomatic energy in the Oblast directed at rule of law, customs and customs procedures, and advice upon civil service reform.

As your author told the last US diplomatic mission, (and hopefully it was their “takeaway”), to reform Odessa Oblast (and city) there needs to be three things – rule of law, structure and  sustainability.  The rest will sort itself out fairly swiftly without any heavy-handed or overly intrusive governance.

There is a long way to travel, and it will be a marathon and not a sprint, but both marathon and sprint begin with the first step – and those first steps (even if some are rather unstable) are being taken.  Hopefully it will not be a case of one step forward, two steps back, but undoubtedly there will be some meandering and mis-steps along the way.

If there is to be a rule of thumb regarding reform and anti-corruption measures for the Oblast, it should be one that makes it quicker and cheaper to do things legally, than it is to resort to corruption and cronyism to get things done.  Quite simply, undercut corruption and cronyism for speed and cost throughout all Oblast bureaucratic machinery.

There are, of course, issues with sustainability for Odessa should this Singaporean model prove to be even half-way successful, but such issues are a long way down the road.

The Iranians expressed interest in certain areas of development – specifically in infrastructure and agriculture.  (Unsurprisingly, as recently France has also stated interest in development in exactly the same areas within the Oblast, and China is many $ billions “in” already over the past 5 years, as are corporations like Cargill for $ hundreds of millions.)

Whether or not Governor Saakashvili’s “city-State” Singaporean “Odessa Development Fund” and “Oblast Development Council” concepts have been run passed Kyiv, or whether he sees such scope within the “decentralisation” of powers to the regions due before the year end and thus hasn’t mentioned the idea, is a question worthy of asking – for the Singaporean model involved a good deal of governmental intervention and planning (albeit not a rigid plan) that on occasion swung as a pendulum between “plan” and “free market”.  Indeed, during its rise to economic stardom, the best possible label to put upon the Singaporean model is probably “structural”.

Rule of law, structure and sustainability – three reoccurring themes in this blog.

Whatever the case, and it is extremely unlikely Odessa will be the next Singapore as much due to Ukrainian politics as anything else, if the only part of the model that is adopted and consolidated is incorruptible efficiency, that would qualify as a major success in and of itself.

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A transition bank that fails due to transition? – FDI bureaucracy

July 19, 2015

On Monday 20th July Kyivska Rus” Bank, insolvent since March 2015 must be liquidated – except that need not have been the case – and indeed may at the 11th hour prove not to be the case, although the clock is almost entirely run down.

It need not be the case, as since April 2015, a large private UK investor with a global investment portfolio and exposure in the Ukrainian market since 2007, has sought to purchase a transition bank – that bank being Kyivska Rus” Bank.  The transition bank was to, and perhaps may yet, invest in agriculture, construction and energy businesses in Ukraine.

Aside from saving the nation UAH 2 billion in losses – the State would otherwise have to pay about UAH 1 billion by way of depositor guarantees and assume the loss of a UAH 450 refinancing loan provided – those liabilities which would be assumed by the new owners.  The UK investors will also put $100 million into the bank activities, and thus into the aforementioned Ukrainian markets that it has identified as of interest.

That matters have reached 48 hours before liquidation of  Kyivska Rus” Bank , and the issue has still not been settled despite interest in the purchase 4 months ago, is simply due to the usual unhelpful Ukrainian bureaucracy.

To be specific, the NBU (necessarily) changed its rules after documents were submitted, and the Anti-monopoly which has a role in the process, saw its head replaced (perhaps less necessarily).

Thus new documents were required to meet new rules and a new anti-monopoly review conducted in line with new rules and under new leadership.

To aggravate matters further, the creation of transition banks – or not – seemingly lacks a certain amount of compatibility amongst Ukrainian statute, unsurprisingly given the calibre of those that create statute in Ukraine.

The Depositor Guarantee Fund requires an investor to have the NBU approval to purchase the bank before it is tuned into a transition bank.  At odds with this, the Law of Ukraine (On Banks and Banking Activity) requires this after the bank has been created.

Needless to say, that whilst this bureaucratic disaster is not going to turn away a UK private investor that has been in the Ukrainian market for 8 years, it is certainly going to delay the investment that was going to come via the transition bank – for if  Kyivska Rus” Bank is liquidated on 20th, the another suitable banking entity has to be identified with debts that the investor deems acceptable to assume.

Trans

It is difficult to see how the Ukrainian economy would not benefit from a few well funded international transition banks.

By Tuesday morning, we will know whether a combination of finding wiggle room in the text of the relevant statues, and a super-fast tracking of effort by the NBU and Anti-Monopoly Committee will have saved the investment day and sent the right message to the private FDI community – or not.

Can it be that a transition bank that is/was to have $100 million to invest into the Ukrainian economy, will fail to materialise due to a Ukrainian bureaucratic transition?

Something to watch for on Monday that probably won’t make the headlines.

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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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