Posts Tagged ‘infrastructure’


Odessa investment projects – Berezyne – Besarabyazka rail reconstruction

December 25, 2016

Immediately prior to the festive season getting under way, the blog was invited to the Odessa Regional Administration by a friend who is head of the Investment and Tourism Department, Roman Kozlovskyi.


He and his team can be found on the 6th (top) floor within the rabbit warren that is the Odessa Regional Administration building.  (Thus any investor that enters this labyrinth is effectively at his mercy when it comes to actually finding their way out again.)

The result was a commitment by the blog to highlight some of the best opportunities for investment from a particularly long list.  It will also bring to the attention of certain project initiators some of the worst project offerings.  Some projects should be pushed as they are good projects for all concerned.  Others should be pushed into the rubbish bin of wishful but financially retarded thinking.

As such, ad hoc, entries will appear over the coming weeks relating to the good, the bad (and some ugly) investment projects within the Odessa Oblast

This entry highlights an investment project that seems viable.

In 1999 the rail connection between Berezyne and Besarabyazka was dismantled for reasons that would seem politically rather unclear, if criminally somewhat more understandable.

The 1999 dismantling of this section of railway thus pushed goods moving between Moldova to and from the ports of Odessa via rail to go through the Kremlin sponsored enclave and smuggling haven of Transnistria, an area that falls beyond the direct control of Government Moldova.

As such the reconstruction of the Berezyne – Besarabyazka rail link would provide a goods rail link avoiding Transnistria entirely.

Accordingly any investor could be assured both Governments of Ukraine and Moldova would be very much in favour of using this reconstructed route for commodities such as coal, fertilizers, oil, black metals and iron ore.  Indeed, reading between the lines, it is almost assuredly the case that such commodities would be immediately rerouted once the new track is in place.

Such assurances would naturally bring about numerous obvious methods for generating a return on capital employed for any investor – whichever method is ultimately agreed with the Odessa Regional Administration (there is certainly a degree of flexibility to accommodate any investor within the ORA).

It is hardly a difficult task to monitor the track usage and tonnage transported when only Ukrzaliznytsia and Calea Feratadin Moldova (both State owned rail entities) will use the track.

As is often the case, investors see most risk in the construction phase of any project.  Indeed for really large investments such as PFI schemes it is common practice to refinance a project after the construction phase is completed and that risk is thus removed.

Thus to some basic numbers – for that is what counts for any investor.  (For a full and detailed numbers breakdown a reader/investor is invited to contact Roman Kozlovskyi via the following email: or the blog can provide his mobile number more privately.)

Clearly there will not be much environmental impact in the reconstruction of a preexisting rail line.  Most of what is required is already there by way of ground works and utilities.  Thus the laying of 21.5 kilometers (20 in Ukraine and 1.5 in Moldova) of track and whatever ground work is required is not an infrastructure project haunted by unknown and unseen technical issues.  The Odessa Regional Administration figures suggest 9 months to complete the project with a team of 30.

The investment sought is UAH 398256930, or about $15.4 million (exchange rate depending).  Hardly a large sum, and in fact perhaps far too small for some investors to consider.  Nevertheless, such is the low risk nature of this infrastructure project and the obvious methodologies provide that return on investment will be fairly swift and attractive, it therefore falls into the category of a good project for consideration.


SBU claims Ukrainian State IT systems received 247 cyber attacks in 2016

December 23, 2016

According to the SBU, Ukrainian State information systems were subjected to 247 cyber attacks during 2016 (which is 2 weeks from ending at the time of writing – so there will be more before the year is through).  As a result 64 criminal proceedings are apparently under way – “proceedings” however is not defined as being arrests, or charged, or convicted.

As it appears only 64 instances have resulted in criminal proceedings with 5 convictions and 4 “wanted” circulations, it may be “proceedings” amounts to little more than “under investigation”.

Thus according to the SBU, if allocating 1 attack per day, 2 of every 3 days witnessed Ukrainian State IT systems under cyber attack throughout the entirety of 2016.  Naturally that is not how matters occurred on such an evenly spaced timeline – neither does it account for the cyber ops that are and have been on-going undetected daily for months, or perhaps years, against the Ukrainian State.

Were there peaks and troughs in cyber attacks?  Did those peaks and troughs align to peaks and troughs of Ukrainian allies?  If there is any correlation does that provide some form of guide to the capabilities of hostile cyber foes?


Nevertheless 247 is the number of cyber attacks the SBU states the Ukraine State IT system has been subjected to.

It is however unclear what classification of cyber attacks have occurred and in what number under any sub-classifications of cyber attack.  Such attacks may vary from DDoS, to data hacks, to actually taking control of the systems themselves.

Further the SBU is not the only Ukrainian institution charged with looking after and monitoring cyber naughtiness to which Ukraine is subjected.   The Ministry of Interior also has a very similar statutory  obligation.  There is then the State Service for Special Communications and Information Protection, notwithstanding the Ukrainian Computer Emergency Response Team.

Quite whether each would measure and/or count the cyber attacks to which the Ukrainian State IT systems have been subjected to in the same way as the SBU is unknown.  Are the definitions the same?  Is the ability to monitor (and prevent/mitigate) such attacks the same?  Which is the lead agency?  Is there a lead agency?

Of the 247 attacks, which have been attributed and to whom?  Specifically what was the attack?  State (and/or State infrastructure)?  Business (State Owned Enterprises)?  Banking (State owned banks and/or the NBU)?  Others?

What damage was done?  What losses were incurred?  What was stolen?  Has the “how” been shared with allies and/or applicable regional/international treaty bound institutions?

How many can be publicly attributed to Russia and/or the known Russian proxies?  If they could be attributed, were they?  (Just because they can be, for either political and/or operational reasons they may not be.)

How many can be publicly attributed to organised crime – both that interconnected with Russia, that of domestic origin, and also others?

How many can be publicly attributed to those that are neither State actors (or known State associated actors), or organised (criminal) groups, but that are simply lone actors with either criminal intent or a curiosity that defies legal boundaries?

What is behind the SBU numbers?  Are the numbers of the other statutory monitoring agencies similar to those of the SBU?  If not, what are the discrepancies and where and why do they exist?


The official EU overview of Ukrainian progress 2016

December 13, 2016

A very short entry to bring a reader’s attention to the official EU overview of Ukrainian progress during 2016.


Predictably the issues where Ukraine invariably fails (and highlighted by the blog) is left to the concluding paragraph.

“Reform in Ukraine is a long-term process looking to bring long-term results. As outlined in this report, many important reforms are ripe to move from the legislative and institutional phase to effective implementation, which will benefit Ukraine’s citizens and contribute further to its political association and economic integration with the EU. Ukrainian civil society and other stakeholders have suggested that the EU and Ukraine should do more to communicate publicly, both in Ukraine and abroad, and explain the rationale for, and benefits of, the reforms undertaken by the government.”

If only the blog had a Dollar for every time the phrase “effective policy” and “effective implementation” had been written during the many years it has been running!


Personnel clashes within the Ministry of Infrastructure – Ukraine

December 5, 2016

All is currently not well within the Ministry of Infrastructure.  The Minister, Vladimir Omeljan on a matter of principle point blank refuses to work with the winner of the “competition” to become the State Secretary of the Ministry, Andrei Galushchak.

Regular readers will be aware, there are Ukrainian competitions and there are “Ukrainian competitions” when it comes to filling political and civil service positions.  With “Ukrainian competitions” a reader armed with a little knowledge of loyalties, and/or personal understandings with “the power”, and/or history with those at the top, can normally be successfully tipped to emerge the winner of a “competition”.


With regard to the “competition” for State Secretary of the Infrastructure Ministry, the results were as follows:  The successful Andrei Galushchak 12.14 points.  In second place with 11.18 points was (former acting Deputy Minister, Chief of Staff Dmitry Romensky, with third place occupied by Oleh Mironenko with 9.46 points.  The “competition” based upon examinations, situational taskings and interviews.

Why would a Minister state “We will not work with him” when the winning candidate came first in the “competition”?  Upon what grounds would he publicly voice such an objection?

Mr Galushchak previously has held positions as Deputy Chief of Lviv Railways and Director of Air Express (a SOE).  Does experience in rail and air management not lend itself toward the Infrastructure Ministry?

The matter of any (proven or unproven) nefariousness and graft synonymous with holding lofty positions within Ukrainian SOEs is perhaps not the issue at hand – rather it is the very close association Mr Galushchak has with Vladislav Kaskiv – who is currently seeking to prevent his extradition from Panama to Ukraine, being wanted for the theft and embezzlement of $ hundreds of millions during the time of the Yanukovych regime.

As an aside,it is perhaps perverse that Yuri Lutsenko as Prosecutor General now seeks to extradite Mr Kaskiv, when historically he could have insured his prosecution as Interior Minister in 2005 following the “Orange Revolution” – prison time for which Mr Kaskiv could still have been serving instead of stealing far greater sums under the Yanukovych system.

For those readers interested, Criminal Case Number 1-337/05 relates to Mr Kaskiv’s involvement in kidnapping, assault, protection rackets and conning UAH millions from the 2004/5 “Orange” protesters when heading a “civil organisation” called “Time” and the “Wild Division of the UNA-UNSO” – whose fund he (with others) also stole.  Despite testimony of victims etc.,  then Interior Minister Lutsenko officially suspended the turning of the wheels of justice for the case.  As there is no record the the case ever being heard or closed, presumably in a dusty box long forgotten in a court or prosecutor’s basement sits this case in suspended animation.  No doubt now Prosecutor General Lutsenko would prefer the decision of then Interior Minister Lutsenko to be long forgotten – for if he had done his job the first time instead of striking whatever grubby little deal he struck, the vastly greater criminal activities of Mr Kaskiv may never have occurred.

Whatever the case, prima facie it seems not a matter of what Mr Galushchak may or may not have historically stolen when in various senior SOE positions, but a case of (probable) guilt by (very close) association with the internationally wanted Vladislav Kaskiv (who is closely associated with MP/oligarchSergei Liovochkin) that is the cause of ministerial angst.

It remains to be seen whether the Cabinet of Ministers will heed the cry of one of their number and refuse to nominate Mr Galushchak for President Poroshenko to ultimately appoint – or indeed whether President Poroshenko would appoint Mr Galushchak upon the Cabinet’s nomination.

Should Mr Galushchak not be given the position having “won” the “competition”, then a reader may expect some form of court proceedings ahead.  In the meantime if Dmitry Romensky is not otherwise committed, as he would have been where “the smart money” placed their bets in this “competition”, it may well be that he will fill the appointment (as many expected).

A cynical reader may therefore consider there to be more than an element of stage managed political theatre to the entire event should it unfold with Mr Galushchak ultimately being unsuccessful.  The question of course – to whose benefit (if beyond a PR stunt) would it have been staged this way?


Privatisation and domestic competition – Odessa Port Side and Odessa Port

November 17, 2016

With the second attempt at the privatisation of Odessa Port Side soon arriving upon the horizon, it is necessary to make clear that this time it undoubtedly will sell.


Another failure there will not be – the opening bid price is now about right and likely to encourage a final offer above that opening bid price.

According to the ministry responsible for conducting the privatisation there are both domestic and foreign bidders this time, and although they cannot be named by the ministry, the bidders can of course make themselves known.

It remains unknown whether Group DF will actively pursue this asset long coveted by Dmitry Firtash – or not.  As the link explains there are issues that would politically preclude his success, none more so that the many $ billions of debt owed to Russia’s Gazprombank.

Thus far two domestic bidders have let their interest be known.

One bidder is Glenshee Holdings (Cyprus) owned by Alexander Yaroslavsky.  The second known bidder is Ukrefteburenie, which is in turn owned by Deripon Commercial (Cyprus), owned by Ihor Kolomoisky, who has also long coveted this asset, and Vitaly Homutyunnik (a particularly affluent parliamentarian and Kolomoisky lobbyist therein).

As stated in previous entries regarding this particular privatisation “Though perhaps it is irrelevant whether Odessa Port Side is sold to foreign or Ukrainian owners as long as the privatisation occurs to the highest of international standards, a reader may perhaps have more faith in a foreign investor actually honouring the clauses within the contract of sale than a potential Ukrainian owner.”

That comment still holds true – what matters for Ukraine is that the privatisation meets the highest standards of international practice and that winners and losers all leave the process with complete faith in the integrity of that process and its outcome.  Whether the winner be a domestic or foreign bidder is a secondary consideration (albeit a foreign winner sends a far more desirable signal).

Whatever – It can already be said that there is at least domestic competition for the asset – or can it?

Of the two known domestic bidders any sensible money would be placed upon the Kolomoisky/Homutyunnik Ukrefteburenie (Deripon Commercial) bid being the winner vis a vis Glenshee Holdings and Mr Yaroslavsky.

The reasoning behind that statement is that Messrs Kolomoisky and Yaroslavsky are both active, amicable shareholders in Ukratatnafta.  It is beyond naivety to believe that the winner of this “competition” has not already been agreed privately.  Their relationship has nothing to gain from animosity in a genuine bidding competition.

Quite simply Mr Kolomoisky wants it more – and has always wanted it – as Mr Yaroslavsky (and everybody else) knows.   Indeed it can be pondered whether Mr Yaroslavsky’s interest is there simply to give the appearance of domestic competition for Messrs Kolomoisky and Homutyunnik, or whether it exists as Contingency Plan B should the Kolomoisky-Homutyunnik bid be deemed unpalatable and Mr Yaroslavsky would then hold ownership for a period of time before selling it on per prior agreement.

As matters stand however, realistically it can be understood that the winner of the Odessa Port Side privatisation is going to be between the Kolomoisky/Homutyunnik Ukrefteburenie (Deripon Commercial) bid and any foreign bidders.

In a few weeks the winner will be known – but sold Odessa Port Side most certainly will be now there is a far more sensible opening bid price.

The blog having decried the original bid price as far too high for the first failed attempt at privatising Odessa Port Side, it is now time to decry a sale price that is far below what it should be – in Odessa Port.

It appears that the Ministry of Infrastructure is attempting to quietly sell off the 12 tugs of Odessa Commercial Sea Port to a company called P&O Maritime FZE.  The tug service at the port is a source of significant income for OCSP – on average a tug costs about $750 per hour.  Annually “tug revenue” generates about $15 million.

It therefore appears that a monopoly at OCSP that generates about $15 million for the port should not be quietly sold off for a mere $50 million – particularly when the rumoured sale will be constructed of an immediate $25 million payment followed by the remainder spread over several years.

Clearly there are few monopolies being sold off that repay outlay within 4 years – thus the nature of this attempt to quietly facilitate this sale at a prima facie undervaluation seems to have more than a whiff of nefariousness about it.

Perhaps Prime Minister Groisman, who stated he would personally look after Odessa during the absence of a Governor would take it upon himself to ask questions of the Ministry of Infrastructure regarding this sale and lowly asking price?  Perhaps he would too – if he knew about it, but a reader probably suspects he is rather too busy to take note of what is happening in Odessa despite his well-meaning rhetoric.

Maybe among the diplomatic corps that drop by the blog, one will privately raise the issue?


One hat in the ring for Governor of Odessa?

November 12, 2016

When Misha Saakashvili unsurprisingly quit as Governor of Odessa on 7th November, something that had been evident since June and thus a long time coming, whilst others immediately wrote post mortem regarding his tenure, the blog preferred to look forward and not back.

The obvious question was who would replace Misha Saakashvili?

Which hats would be tossed in the ring that despite the transparent process (not public process) would have President Poroshenko’s approval (as coincidentally under the new process Governor’s of Kharkiv and Mykolaevskaya Oblasts went to Poroshenko people and there is no reason to believe those coincidences would not continue in a strategically and nefarious money channel like Odessa)?

As stated, “Alexie Goncharenko is an obvious candidate, but he doesn’t want the role.  He is quite happy acting as President Poroshenko’s Deputy Faction leader in the Verkhovna Rada.  When speaking to him it is quite apparent he is clearly enjoying the role and would not seek the Governor position by choice – at least not now.

However, if President Poroshenko tells him he wants him to become Governor (and thus he will win the process) it is likely he would (begrudgingly) accept.

There are however other locals who are BPP affiliated and who would be happy to throw their hat into the Governor of Odessa ring and go through the transparent (not public) process – to probably emerge the winner (if coincidences are to continue).

Both Messrs Alexander Potapsky and Misha Shmuchkovych fit the BPP candidacy bill and are considered loyal.

Both of these candidates are deemed to be “Goncharenko people”.  Mr Potapsky is the current Speaker of City Hall (and becomes acting Mayor if Mr Turkhanov is long term sick – or worse) and Mr Shmuchkovych was acting Oblast Rada Chairman following Alexie Goncharenko’s departure from that role when he entered the Verkhovna Rada.

For the record, the current Oblast Rada Chairman, Anatoli Urbansky is also deemed to be a “Goncahernko man”.”

As no candidate from any other party than the president’s seems likely to be allowed to govern such an important region there were few other obvious choices – unless they came from without and yet had loyalty to, and the trust of, President Poroshenko.  As such other names were highlighted and dismissed under this caveat.

The entry concluded “unless and until those throwing their hat into the ring have done so and a major surprise is among that number.”

Now cometh the first (and perhaps only) surprise capable of keeping Alexie Goncharenko in Kyiv where he (currently) wants to be and out of the Governor’s chair in Odessa (where he currently would prefer not to be) if Mr Goncharenko is unable to advocate for one of “his people” successfully before President Poroshenko.

It appears that Yevhen Chervonenko has let it be known that should President Poroshenko (transparent process aside) be amenable, he would take on the role of Governor of Odessa.

Those outside of Ukraine and the FSU/post Communist States will probably not have heard of Mr Chervonenko – and thus it is perhaps worth writing a few preparatory lines should he manage gain the necessary presidential blessing to succeed Misha Saakashvili.

These lines are not meant to be the basis of comparisons between the two men – readers of this blog are far to erudite to put their faith and hopes in a singular politician.  It is institutions, process, structure that ultimately build sustainable and consolidated governance.  Practical and systemic central policy implementation as an Oblast Governor is as important as the local initiatives that fall within their limited powers.

Suffice to say in any comparison, they are very different in their personalities, temperament and methods of governance.

So what can be said about Mr Chervonenko?


He is perhaps best known nationally as something of a “petrol head” and a sporting champion of the rally car genre – a sport he took very seriously and did very well at – retiring from competition only a few years ago.

Interesting as that is, a reader wants to know about his political and business history (which for most Ukrainian public figures emerging from the Soviet collapse is inseparable).  Nobody reads this blog for commentary on sport.

He was a stalwart backer of former President Yushchenko.  When the USSR collapsed, he swiftly became, and remains, one of Ukraine’s biggest freight operators/logistics empire owners.

Back in the day he also set up a drinks company called Orlan – which popular folklore would have a reader believe actually sold Ukrainian beer in far more aesthetically pleasing Polish bottles.  That same folklore would have a reader believe there was also a fair bit of smuggling via his logistics empire, beginning with red caviar but swiftly expanding into other merchandise.  There are also tales regarding “AgroInvest”, embezzlement, and some questionable activities relating to a “security firm” under his control during the Yushchenko epoch.

None of this, being folklore has much, if any, hard evidence to back it up.  Nevertheless folklore is not the same thing as myth.

Much more recently, only a few years ago in fact, several criminal cases were opened regarding nefarious activities, large scale fraud and theft regarding the Dnistra PSP project (Criminal cases 4201411000000309, 12014100000001192 and 12013100150000333 refer) in which Mr Chervonenko and long-time associates Aftanaziva Zenko and Igor Sirota feature.  The opaque manner in which those cases were closed per usual within the Ukrainian justice system, does little to decide whether there was a lack of evidence, guilt or innocence.  If rumour is to be believed then the prosecutors were (handsomely) bought off.

Anyway, as an Our Ukraine MP and whilst circling within and being part of the innermost Yushchenko orbit, Mr Chervonenko came to rub shoulders with other potential financial backers preparing for a Yushenko bid for president.  Those people included Petro Poroshenko, Mykola Martyenko, David Zhvania, Kislinsky, Rzhavsky etc – all rather (in)famous.  Some of those names decided to back Viktor Yushchenko whilst others decided against.  Clearly Me Chervonenko was very much with Mr Yushchenko.

The outcome following the inauguration of Viktor Yushchenko as President of Ukraine, was that Mr Chervonenko became the Transport Minister in the Prime Minister Tymoshenko’s government as part of the “presidential quota” of ministers, and remained very much part of the Yushchenko inner circle.

Thus Mr Chervonenko and President Poroshenko have known each other for decades – and both will be quite aware of how each other operates.  Mr Chervonenko has thrown his hat into the Odessa Governor candidate ring – the presidential response is unknown, but will obviously become apparent when a new Governor is eventually installed.

Bringing a reader to the present day, Mr Chervonenko still enjoys easy access to parliamentarians.  His logistics empire is best known for the A2B Direct brand.  He is also forward looking, launching an Uber-esque system for logistics/hauliers with some serious partners – Alpha Bank Ukraine, Kyivstar, Vostok Bank, Unison Insurance, WOG petrol stations and AsMAP.  This system is set to expand into Belarus (where Mr Chervonenko has a 51% stake in a joint venture with the Belorussian Government via SOE Gomeloblavtotrans) and beyond.

Having “retired” from rallying, albeit he will still rally, and having a business empire that can probably run itself without his personal input, is it possible for him to put these distractions to one side and become an effective, (probably business biased – not necessarily a bad thing in a particularly mercantile oblast like Odessa) Governor?

Prima facie he appears to be without any truly robust and unbreakable ties to the existing elite of Odessa.  Politically, Our Ukraine to which he belonged is long since a dead party from which perhaps former Mayor Gurvitz was the only “Orange” to make a significant impact in Odessa.

When looking at possible conflicts of interest, with a 30 year major logistics empire to his name, are there any really significant contracts within Odessa that would or could compromise him?

Clearly he has no personal need to steal from the regional budget – he is already rich.  Thus should he do so then it would be because he chose to do so rather than had to.  A reader may be inclined – or not – to set aside the smuggling folklore (and probable tax avoidance associated by extension) with a laissez faire attitude toward acts of the 1990’s/2000’s where almost no business or political angels were born – yet the fairly recent Dnistra PSP tale is certainly a cautionary one.

None of this currently matters much as it remains to be seen whether he will be blessed/cursed with the Presidential nod to succeed in the transparent selection process for the vacant role of Governor, emerging as the next overseer of the region.


Nevertheless, his somewhat surprising interest in provincial governance has now been declared.  A hat has been thrown into the ring and Mr Chervonenko’s interest has to be taken seriously.

(Thus far of the names mentioned with regard to the vacancy, Misha Shmuchkovych would seem the best candidate.)


Old feuds – Odessa Airport

October 20, 2016

In 2011 when “The Family” Yanukovych was taking a tribute from anything and everything it didn’t actually steal, raid or otherwise take control of, Odessa Airport a hitherto publicly owned asset was “privatised”.


The City entered into an agreement with “Odessa Airport development”, taking a 25% stake in the special purpose vehicle “International Airport Odessa”.

This SPV was used to attract investment of $90 million – of which the City put up 25%.  The remaining 75% supposedly to come from the other investors.

Those other investors were Viktor Levchenko, Alexander Kirichenko, Mikhail Chernetsky, Sergei Borodin, Sergei Korotkov, Alexander Shabalin, Oleg Gonchar, and Igor Posuhovskogo – notwithstanding two of Odessa’s most notorious businessmen Boris Koufman and Alexander Granovsky (whose political star is currently very much on the rise in Kyiv).

In 2001, the current Mayor of Odessa was merely the regional leader of Party of Regions (among his other activities as nefarious “businessman”).  For whatever reason Gennady Trukhanov was very much against the privatisation of Odessa Airport.  It may be that it was simply due to the fact he was not invited/asked to be a private partner, or it may be that the privatisation of the airport somehow interfered with his business activities and/or increased the cost of doing business.  He is, after all, very capable of a good scam as yesterday’s entry makes very clear.

Nevertheless, former President Yanukovych was insistent and thus Mr Trukhanov as Party of Regions leader was forced to lobby for something that he was actually against.  A reader should note that “investors” Messrs Koufman and Granovsky were very close to Alexander Yanukovych at that time.  (Indeed Mr Granovssky’s FINBANK was allegedly used to launder money for “The Family” frequently.)

A reader should also note that none of the “private investors” have ever ranked highly on Mayor Trukhanov’s Christmas Card list.  None are in his orbit.  To be blunt, he doesn’t particularly like any of them.

Since Gennady Trukhanov became Mayor he has sought to remove City Hall from the airport special purpose vehicle and re-nationalise it.  Several attempts have failed.  October 2015 witnessed a formal settlement between partners and City Hall to settle the feud.  It appears now to have been no more than an armistice.

Within that armistice/settlement there was a booby trap set by Mayor Trukhanov.

  • International airport” Odessa “pledged to July 1, 2016 to complete the construction of a new passenger terminal area of 29 thousand square meters with a capacity of 3-3.5 million passengers per year., And put it into operation no later than September 30, 2016 year.

Clearly 30th September has long since passed and the new terminal is not in operation.  In fact it is nowhere near being ready for use with no internal fit out whatsoever.  It is not ready, in part because City Hall “put a (covert) squeeze” on the construction work.

NABU has also opened a criminal investigation into the “privatisation” during the Yanukovych term.  Criminal Case 52016000000000214 was opened in late June of this year.

Without going into too much detail, on 19th October Mayor Turkhanov managed to steer City Hall through a vote to remove the City from “International Airport Odessa” SPV.  The City’s capital investment will now requiring returning – except, unsurprisingly, the other “partners” have not actually “invested” (yet) other than in a commitment to do so.

Perhaps then, in the absence of any capital return, a 25% stake in the new terminal on the terms of City Hall (rather than old Yanukovych diktats) will be the outcome.  Time will tell whether Messrs Kaufman and Granovsky will be accommodating (one way or another).  Mayor Trukhanov would consider the return of the airport to public ownership and a City Hall stake of 25% in the new private terminal something of a good outcome.

There will probably be numerous court cases regarding the re-nationalisation – or prevention thereof -despite the “investors” having never fulfilled their commitments to the existing and operating Odessa Airport.  It seems probable that City Hall will win and the current Odessa Airport will return to public ownership.  It will be a political and possibly very personal win for Mayor Trukhanov whose motivation for this, at least in part, is principled revenge over an issue he has always been against.

If Mayor Trukhanov is successful, and it appears he will be, then he too will have to be wary of revenge from the likes of Messrs Kaufman and Granovsky.  Another little local war behind the curtain may just have begun.


Gov UA – What cost obligation and reputation?

October 4, 2016

Much has appeared in the blog regarding Government Ukraine’s obligations and reputation with regard to investment and the international arena.  Too little prose has been written regarding the obligations and reputation of Government Ukraine with regard to what occurs domestically.

It is perhaps overdue to raise such an issue once again.

Having written on numerous occasions about the privatisation of Odessa Port Side, to continue on a familiar theme for regular readers, there were, and remain, both domestic and international parties interested in its purchase – and by international that means genuinely international companies rather than Ukrainian owned internationally registered companies such as Dmitry Firtash’s Group DF.

With Ihor Kolomoisky’s claims toward Odessa Port Side now dealt with, the most prominent hurdle for privatisation to a foreign investor/company is most certainly the legitimate $251 million gas debt to Dmitry Firtash’s chain of companies.  (That is on the presumption that debt is truly to Dmitry Firtash and not ultimately to Gazprombank to which he is indebted to the tune of several $ billions.)

If (a significant if) Mr Firtash can write of the debt to himself, then Odessa Port Side will be a very cheap acquisition for Group DF – but perhaps he cannot.  Despite Ihor Kolomoisky’s long interest in owning Odessa Port Side, the bankrupt (in all but legal proclamation) position of PrivatBank, and equally questionable health of his MAU (Ukrainian Airlines) probably rules him out of any acquisition.

It is the question of legitimate debt to Mr Firtash that may very well force international investors to think and rethink any bids for Odessa Port Side.

Which (mostly European) international companies want to buy Odessa Port Side and be forced to write a cheque to “Mr Dmitry Firtash, marooned oligarch in exile, Vienna” for $251 million, when Mr Firtash is wanted by the USA and extradition attempts to get him will never end?    There are issues of corporate reputation at stake.


The Ukrainian government has acknowledged the debt as legitimate and the opening bid price for Odessa Port Side has been radically reduced to acknowledge this.  Having done so, and recognising that some domestic bidders will have no consideration for reputation, the Ukrainian government are surely aware that some otherwise solid international bidders have such reservations.  If Gov UA is not aware of such reservations, then this blog certainly is.

For the sake of coalition survival within the Verkhovna Rada, the sale of Odessa Port Side to Dmitry Firtash is a non-starter.

Why then has the Ukrainian government not arranged the purchase of Odessa Port Side in a way that will save any external purchaser the reputation issues associated with giving a man wanted for corruption by the USA, $251 million?

It is not beyond competency or legal structuring of a purchase for Gov UA to assume the Firtash debt, receive and accept a good bid in full and then use part of the sale dividend to settle the Group DF debt without any reputational damage to an international buyer.

The US, as does everybody else, knows full well that Odessa Port Side has to be privatised.  It will also be well aware of the reputation issues many potential international buyers have with being forced to settle directly with Mr Firtash.  Whilst US patience with the current Ukrainian leadership is clearly thinning rapidly, there will be no issue with Gov UA settling with Mr Firtash if it would facilitate a successful international privatisation.

The US is also keenly aware that the Ukrainian government simply does not have the unallocated funds to settle the Firtash debt prior to privatisation.

To be absolutely clear, the Ukrainian government has little option but to sell Odessa Port Side – whether a reader considers Europe’s biggest fertilizer manufacturer a strategic asset for Ukraine when considering the scale of its agriculture, or not.

Gov UA simply cannot afford to continue to subsidise Odessa Port Side as it does to the tune of UAH billions.  The only reason it has to subsidise what would be a clearly profitable entity otherwise is due to the nefarious hands that make it unprofitable knowing the plant will be subsidised.

As is usually the case, regardless of the desire and recognition within the Cabinet of Ministers of the financial need to get Odessa Port Side off of the State books before next year’s budget, there are many influential hands within the Verkhovna Rada that require the privatisation to fail in order to maintain the dodgy deals and nefarious revenue streams from which they benefit lavishly.

It is no coincidence that former Prime Minister Yateseniuk appointed two people very close to Mykola Martynenko to sit on the board and manage the plant.  It is also no coincidence that another board appointee was a former assistant of Alexander Granovsky, who is close to Ihor Kononenko (President Poroshenko’s leg-breaker within the Verkhovna Rada).  Unsurprisingly the exceptionally odious Sergiy Pashinsky and dubious Sergiy Tishchenko also have vested interests in Odessa Port Side.

To be blunt Messrs Martynenko, Granovsky, Kononeko, Pashinsky and Tishchenko have no reason to welcome the privatisation of Odessa Port Side.  This is a particularly powerful group of individuals, all of whom do very well from existing schemes to the point where the plant records losses rather than the profits it would otherwise make.  Privatisation to a foreign corporation would end those lucrative schemes.

Nevertheless, it seems somewhat incredulous that Gov UA has not insulated the reputation of any foreign buyer from having to directly pay an oligarch in exile $251 million that is (and will remain) wanted by the USA for corruption.

To pluck another example from Odessa that shines a dim light upon Gov UA and its internal reputation and obligations, during the Yanukovych regime a major water treatment works project was commissioned and delivered in full by an engineering company from Odessa.

(Full disclosure, the blog is acquainted with the owner.)

It was a major project that included closing the cooperation of Turkey in closing the Bosporus Strait whilst pipe was brought through as the below YouTube clip displays.

It doesn’t take a civil engineer or quantity surveyor to realise that such a project costs many, many $ millions, nor that the project brought with it a tangible benefit to Odessa and the Black Sea environment.

This is a company that can deliver major projects and manage international supply chains.  It operates in Africa and the Gulf States too.  Such private Ukrainian contractors are few and far between.

It will not be working for or with the Ukrainian Government again any time soon however.

When the Yanukovych regime and government fled, it fled with unpaid contractors all over Ukraine – the above engineering company being one such contractor.  This Odessa company was and remains owed in excess of $20 million.

Unlike many such contractors, this company from Odessa is owned by a man with sufficient influence to sit in the Prime Minister’s office and raise the issue of The State’s unpaid debt.  When a contract is with the State, it is with The State and not whomever is currently in power.  If Gov UA can recognise as legitimate the $251 million owed to Dmitry Firtash (which it is), then there are a lot of other contractors with claims against the Ukrainian State which are equally as legitimate.

The answer given to the owner of this engineering company by Prime Minister Groisman was apparently “Ask the Americans”.

There is no way that the USA is going to undertake to repay Ukrainian State debts to contractors it has failed to pay.  It is simply a non-starter.  Indeed unless the Ukrainian leadership really start making strides (rather than tip-toe) with real and effective reforms US patience will expire sometime in 2017, just as the European patience will.  Real support will ultimately be reduced to little more than that surrounding territorial integrity and sovereignty.

It is for the Government of Ukraine to honour its obligations as “The State” to its unpaid contractors.  It may very well decide to use US backed guarantees to begin to fund such an effort – for as long as the US is prepared to issue such guarantees, and that will not be for much longer if the current leadership continue as is.  It may have to find other ways to pay them.  Whatever the case, the reputation of Gov UA will continue to suffer domestically so long as it fails to even recognise its obligations, let alone arrive at a strategy to honour them.

Quite what the State debt to unpaid contractors amounts to is probably a very scary number – and as it is unlikely that there is even $20 million unallocated cash available to settle even this single case.  Undoubtedly the Government of Ukraine will continue to ignore such issues rather than reach some form of accommodation with the domestic businesses, including those rarities capable of delivering large infrastructure of international standard.

As long as that situation continues, such contractors are not going to be enthusiastic about other opportunities with Government of Ukraine.  Instead the “bodge it and scarper” companies will be used.

Perhaps yet worse with a long term view, the contractor in this example has numerous clearly beneficial projects to both Odessa and the environment already drawn up – but it will not approach City Hall, the Oblast Administration, nor Gov UA with them unless it can be sure of a third party (EBRD or a sovereign investment fund) that provides some faith in contracts being fully honoured.

As such The State reaps as it has sown – and will continue to do so.

President Poroshenko is unquestionably the most PR aware president in Ukrainian history, thus a reader may well ponder quite why there is such disregard for reputation and obligation toward those with which the State engages (or hopes to engage).

%d bloggers like this: