The public sector of the economy suffers from corruption and lack of effective managers even during the war. The scandal involving the sale of coal from state-owned mines to private buyers at low prices when the same coal was needed at state-owned thermal power plants has shown how disconnected officials are from the real needs of a country at war. The mines are not the only, albeit vivid, example of corruption. The NABU (The national Anti-Corruption Bureau of Ukraine) and SAPO (The Specialized Anti-Corruption Prosecutor’s Office) have demonstrated what is happening at enterprises managed by the State Property Fund of Ukraine (SPFU).

Some officials, in cahoots with businessmen close to the government, have been looting the Odessa Portside Plant and the UMCC (United Mining and Chemical Company), while Centrenergo has turned from a profitable company into a loss-making and debt-laden entity. This year, the government plans to announce the resumption of large-scale privatisation. Companies that could be sold at a profit for the budget may go under the hammer for next to nothing. And it’s not just the war.

Corruption has collapsed the value of the OPP by 10 times

Odessa Portside Plant

Odesa Port Plant is a symbol of Ukrainian corruption. The enterprise has been on the privatisation list for 15 years, but every time corrupt officials do not want to say goodbye to their favourite trough. Over the years, everyone has made money from the OPP – from oligarchs to small-time pundits like deputy heads of the State Property Fund. But the state has been losing. Just imagine: in 2009, the plant was sold to Ihor Kolomoisky for $600 million, but then-Prime Minister Yulia Tymoshenko cancelled the tender, while according to the latest estimates, Ukraine could get only about $50 million from the sale of the enterprise.

But last year, at the height of the war, the head of the OPP paid himself and his deputies UAH 7 million in bonuses, even though the plant was being suspended. According to the NABU and SAPO, the former head of the State Property Fund, Dmytro Sennychenko, and his accomplices withdrew $80 million from the enterprise over several years, more than the SPFU estimates it is worth today.

The story is the same with UMCC. Before the war, Ukraine was unable (or unwilling) to sell the company, which is one of the world’s ten largest titanium ore producers, for a miserable $140 million, although Sennichenko was talking about his desire to get more than $400 million. International buyers are afraid to invest in the purchase due to the lack of investment protection guarantees, as well as the legacy of state managers, who have already changed 6(!) times since 2020. The company’s latest analysis revealed a number of questionable deals. Intermediary companies are counterparties to 85% of UMCC’s contracts.

UMCC lost millions of hryvnias in revenue because it sold products to intermediaries rather than directly to producers. The beneficiaries of these schemes are clearly stated in the NABU materials. The damage caused to the company by Sennichenko and his accomplices under four contracts alone amounted to UAH 118 million.

Talks about privatising the UMCC have now resumed. The company’s condition has not improved this year, but the risks of war have increased, so it is unlikely that we can expect any reasonable price.

“Centrenergo: the path from Kolomoisky to Arakhamia and Yefimov

While corrupt officials have been parasitic at the OPP under any government, driving the company into the abyss, Centrenergo managed to restore relative order under the previous president. The state-owned company became profitable again, earning UAH 1.9 billion in 2017 and UAH 499 million in 2018. But after the election, everything went wrong – in 2019, it recorded a UAH 1.98 billion loss.

The reasons for the deterioration of Centrenergo’s position are related to the entry of oligarch Kolomoisky’s people into the company. Dmytro Sennychenko appointed Potapenko and Korchynskyi as heads of thestate-owned company and turned a blind eye to the fact that it had incurred UAH 2 billion in losses by selling cheap electricity to the oligarch’s companies.

In December 2019, Centrenergo started selling electricity to Kolomoisky’s companies under bilateral contracts at 56.7 kopecks/kWh, which is the price of Energoatom, which has a much lower production cost. At the same time, the cost of thermal generation was at least 100 kopecks/kWh at that time, according to market participants.

Centrenergo also started buying coal at high prices from Kolomoisky’s companies. On 30 July 2019, a coal supply agreement was signed between the state-owned generating company and Nafta Force LLC, which the media associates with Kolomoisky. This LLC sold coal from Russia to Centrenergo at a rather high price, while the company accumulated debts to state-owned Ukrainian mines. The situation became widely publicised, with activists even blocking wagons with Russian coal at the Sosnivka railway station in Lviv Oblast.

It got to the point where Centrenergo stopped paying for the coal it bought from other suppliers. By the end of the year, the debt to Shakhtarsktrans reached UAH 362.7 million, to Ukrdoninvest Trading – UAH 1.44 billion, and to state-owned Lvivvuhillya – UAH 92 million. The latter lost its working capital to pay for electricity, which led to a power outage for state-owned mines on 22-23 December. Even the state-owned trader Derzhvuhleppostach, to which Centrenergo owes UAH 339 million, went to court.

Recently, Centrenergo’s CEO was replaced by Volodymyr Yegorov, a top manager of MP Maksym Yefimov, who has interests in the energy sector. Yefimov has common business interests with the head of the Servant of the People faction, David Arakhamia. They control the entire vertical: from state-owned mines to the coal consumer represented by Centrenergo. “The state-owned energy sector, which consists of coal mines and thermal power plants, has finally turned into a corrupt cesspool. The entire segment of the economy responsible for Ukraine’s energy independence has been transferred to the hands of fraudsters,” said Kostyantyn Ilchenko, advisor to the Centre for Strategic Studies.

This is not the only connection between Arakhamia and Yefimov that has been discovered. You will read more about their other transactions in the following materials. But, as a result of this scheme, the collapse of management and scheming, Centrenergo has UAH 3 billion in debt to Naftogaz and more than UAH 1 billion in tax debt.

Hundreds of millions of dollars in cash end up in the pockets of dealers

The situation at state-owned mines is no better. These enterprises were supposed to provide Centrenergo with coal, but last autumn, Maxim Nemchinov, an adviser to Energy Minister Herman Galushchenko, organised a scheme to sell coal to private entities at prices 2-3 times lower than market prices. ZN.UA published an investigation that showed how private companies received state coal at an incredible discount of up to 50% off the market price. Last autumn, the state-owned enterprises Ukrvuhillya and Dobropillyavuhillya-Vydobuvannya sold coal to private buyers at UAH 1900-4300 per tonne, while Centrenergo TPPs were forced to buy fuel 2-3 times more expensive. It got to the point where Naftogaz limited the supply of fuel to the state-owned Trypillia TPP, as it took gas but did not pay for it.

According to ZN.UA, the SBU opened a criminal investigation. In early March, searches were conducted at addresses associated with Maksym Nemchynov.

This story did not end with the announcement of suspicions. It was only about the redistribution of spheres of influence in the state energy sector. The beneficiary of the searches, according to ZN.UA, was the minister’s adviser, Ihor Myroniuk, a man of the state traitor Andrii Derkach. In fact, the current Minister Galushchenko himself comes from Energoatom, where Derkach was in charge.

After the period of “left-handed” coal sales ended, Vitaliy Zyuzko, director of Ukrvuhillya, resigned from his post and was replaced in January by Oleksandr Heilo, a man lobbied by David Arakhamia. After this scandal, Arakhamia and Yefimov significantly strengthened their positions in the coal market. At the same time,Minister Galushchenko allocated UAH 2.5 billion from Ukrenergo for the purchase of coal, which meant that control over the mines became a very tasty morsel for their curators.

At state-owned mines, the schemes are supervised by “lookouts”. In western Ukraine, it is Andriy Vengrin. The head of the Independent Trade Union of Miners of Ukraine, Mykhailo Volynets, says that Vengrin is linked to the plundering of the Lviv-Volyn coal basin, namely the state-owned Lvivvuhillya. Last year, he placed his people at state-owned mines after the state allocated UAH 2.5 billion for the purchase of coal.

There is a lot of information about Vengrin’s coal scams. In particular, dealers underreport the official production of state-owned mines in order to channel hidden volumes of coal “to the left” for cash.

Hundreds of millions of dollars in cash end up in the pockets of the dealers. It’s enough for everyone: those in the Cabinet of Ministers, those in the State Property Fund or the Ministry of Energy, and all those who approve candidates for public office in Centrenergo. And no one cares that the state is brought to its knees. Today, PJSC Centrenergo is a danger to the state because it is used as an instrument of crime, which causes huge losses to the state.Konstantin Ilchenko

The state economy is currently in a systemic crisis. The corporate governance reform has been de facto cancelled, there has been a partial return to the communist centralised management system, and the institution of an independent regulator has been effectively eliminated – The National Commission for State Regulation of Energy and Public Utilities exists only for show. Rostyslav Shurma is in charge of the economic block in the Presidential Office. Ukrainian media call him the “roof” of all corruption schemes in state-owned companies. They say that reforms are not on the agenda during the war, but wasting precious time enriching certain individuals close to the government can cost us a lot in the future when we need to quickly restore the damaged economy.

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