Posts Tagged ‘commodities’

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Proving me wrong – Government intervenes in currency

November 9, 2012

Yesterday I wrote this stating that it was “interesting” Ukraine was attempting to force transparency in the extraction industries – a place from where the oligarchy wealth comes, amongst others.

It is interesting because it attempts to force some transparency into what and how much is extracted, and thus will give indications of what is sold in comparison to what has supposedly been extracted.  The difference between the two is therefore what lays on the inventory and would in theory be there to physically see.

Let us be quite honest, a lot of what is extracted can quite easily be, and is, sold internally or exported under the radar of tax, customs revenue and ultimately the struggling State budget is the loser.

Be it coal, coke, ore, oil, gas etc, the majority that leaves Ukraine, officially or nefariously, is bought and sold in US$.

Considering this “extractive transparency”, it becomes especially interesting that the government seems quite determined to prove my long standing prediction of an exchange rate of UAH 9 to US$1 by the year end wrong, (and UAH 10 or 11 to US$1 by mid 2013 as well, by extension), and to do so they are seeking to force exporters -many of whom are the same people that are the extractors now required to be more transparent – to convert part of their foreign currency earnings into Hryvnia.

Those forcibly converted US$s then being used to intervene in the market and keep the Hryvnia from depreciating – at least temporarily – and thus delaying my prediction.

Just how long the peg to the US$ can be maintained by doing this remains to be seen.

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Corruption – The Puppet Masters

October 27, 2011

Anybody who has put deals together in Ukraine involving commodities either domestically or for import/export will have come across smoke and mirrors, shell companies, umbrella companies, kick-backs, rebates to seemingly uninvolved foreign registered companies, intermediaries and business associates closely connected to decision makers etc.

The bigger the numbers involved, the further up the slippery pole the puppet masters sit.

Only this morning I had an inquiry from a corporation external to Ukraine seeking a rolling commodity contract and requesting introduction to a person of influence.  Introduction duly made of course.  Does that make me an intermediary or an advocate for their cause?  One man’s lobbying is another man’s advocacy after all.  The difference is transparency.

That is not to single Ukraine out from the rest of the international community of course.  Personal relationships count for a great deal, particularly the higher up the greasy pole you climb.  Whilst I no longer climb any poles or even hang from them, just like any alumni system, getting access or being accessed yourself never completely disappears.  Such is the web of patronage or loyalty within certain  movements in any society, Ukrainian or otherwise.

Anyway, for those of you who really want an insight into the shenanigans of legal manipulation, corruption and smoke and mirrors at the highest levels, this report from the World Bank called Puppet Masters is extremely accurate and terribly interesting, albeit giving the clueless a clue regarding how to go about it.

A long and somewhat technical read in places, it certainly does not miss the mark.

In most cases around the globe, it can be metaphorically stated that the fish rots from the head down, although that is not necessarily always the case.  Occasionally the fish maybe rotting unbeknown to the head of the fish.

The question therefore arises, if the police who police the police are corrupt, who polices the police police?

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Health and Safety in Ukraine – More mining deaths

July 30, 2011

In yet another example of poor health and safety in Ukraine, it seems scores of men have died in two separate incidents in Ukrainian mines.

Needless to say, all attention will be focused on the issues surrounding mines and mining in Ukraine, and one wonders how the Chinese, who are quite likely to buy several Ukrainian mines, are viewing the latest incidents (of which there are many each year).

Now Chinese health and safety may not be perfect, it suffers its own mining tragedies, but there are quite likely to be inherent problems in owning mines on foreign soil when it comes to incidents of this nature. Undoubtedly their acquisitions will reduce incidents, not necessarily due to any concern for the people working in the mines, but upgraded and modern equipment, by its nature when used by competent and trained people, will reduce the risk to people. I believe that in the incidents mentioned in the link, at least one mine is privately owned by MetInvest, part of the Rinnat Akhmetov empire.

There is also the cost issue of buying, fitting and using expensive equipment to subsequently damage or destroy it, irrelevant of human cost by way of injury or death, do to slipshod and poor health and safety.

It is of course quite easy to condemn the health and safety conditions in Ukraine on a universal scale across all areas of life when putting them in comparison to other nations. Writing as an IOSH and SMSTS qualified person, I can say with some confidence that from what I have personally witnessed in the years I have been here, whilst deaths and serious injury are almost always reported, less serious and minor accidents inherently are not. There are then what are known as “near misses” that would be reported in the UK for example, where nobody was injured at all through luck rather than judgment, in order for those in charge of H&S at that location to correct the situation after investigation of the circumstances.

To be fair, certainly to the major construction companies in Ukraine, I have witnessed a major improvement over the years, but these are privately owned entities where the authorities have little problem in making examples of owners and management should something go wrong. The same cannot be said of the smaller companies I would add.

A completely different set of circumstances to those where many mines are still owned by the State where more often than not, nobody is held accountable for incidents at such premises.

I have never seen or heard of a proactive H&S inspection in Ukraine. They are always reactive as they will be with regards to these mining incidents. The problem of course, is H&S inspectors are government employees and thus are easily influenced to leave State owned organisations alone.

The next problem is they are obviously underpaid being State employees and therefore, such is the culture of Ukraine, happy to accept payments to turn a blind eye even with privately owned organisations or sufficiently fudge an investigation to avoid liability for those with money.

The acceptance of money to avoid inspections or fudge investigations is only part of the problem. The whole concept of health and safety is to avoid deaths, injuries of any severity and “near misses”. The lessons lost and not communicated to relevant industry participants and fellow inspectors by following this path can be, and probably has been, catastrophic. The learning curve that should grow with every investigation and reported incident simply does not occur.

Nobody is in denial that there has been little or no investment or upgrades to the Ukrainian commodities industries since the collapse of the USSR. Given that is the case, few can expect a zero incident rate. No country on the planet has a zero incident rate with regards to health and safety.

The American OSHA system of health and safety is, in comparison to the UK IOSH system, nowhere near as flexible to individual circumstance and would probably close or suspend work at far more Ukrainian industrial and commercial units than than that of IOSH, which is more geared to solve the problem on a bespoke and more timely basis. That said, either system if rigorously enforced in Ukraine would have a dramatic effect upon accident statistics with, undeniably, an affect on profit margins, at least initially.

Nevertheless, what cost to the image of Ukraine and knock on effects to DFI, compared to a national health and safety clamp down similar to those that Ukraine has now voluntarily entered into with Ensreg for nuclear facilities in the wake of the Japanese incident?

Will it take a disaster of such scale to address this issue in respect of State owned producers?

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Ukrainian/Chinese trade set to exceed expectations‏

June 22, 2011

Well as you would expect when the President of China Hu Jintao is in town, trade and investment are high on the list of talks. Nobody wants to miss out on the ebb of cash China is strategically seeping in various directions around the globe and particularly not Ukraine.

That said, China would not overlook Ukraine. It is rich in all those things China needs to feed its economy. Ores, coal, fertilizers, chemicals, grain, metals and off-shore oil and gas which China has been invited to explore with Ukraine.

According to the Chinese and Ukrainian leaders, trade with China has increased by 80% this year. A very fortunate state of affairs for a commodity export economy like Ukraine of course. It is anticipate that Chinese/Ukrainian trade will pas $10 billion year, a figure that would exceed what both nations initially aimed to achieve.

Unsurprisingly, there is now a Chinese consulate in Odessa. You would expect nothing less for a nation projecting its influence. Odessa is a major logistics hub and a location where much going to and coming from China will enter and egress.

What the above link doesn’t say is that China also loaned Ukraine $3 billion yesterday. That said, you suspect the Chinese may feel safer loaning money to Ukraine than buying US Treasuries. At least Ukrainian loans can be repaid in ores, metals, minerals and all the things the Chinese economy needs if Ukraine should default by way of cash repayments. Raw materials and commodities must be a very attractive security in a world of fiat financing, much of which has no security at all.

I suspect a continued interest in Ukraine by China. Some mines and steel mills badly in need of investment will probably end up under Chinese ownership within the next 5 years. R&D in space will pick up by way of joint ventures. Energy, technology and raw materials will undoubtedly be a solid base for the Chinese/Ukrainian foreign and trade relations for the next 20 years.

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