Q&A with Robert Brovdi, general director of the controversial and quasi-state grain trading company, Khlib Investbud.
Before last year, few farmers or grain traders had ever heard of Robert Brovdi or Khlib Investbud, the quasi-state grain trading company that he leads as general director.
But today, Brovdi and the mysterious Khlib Investbud are among the biggest players on Ukraine’s lucrative agribusiness market.
Domestic and foreign grain traders who have invested billions of dollars over the years into Ukraine’s agriculture sector claim that non-transparent government favoritism has lifted Khlib Investbud from obscurity to market dominance.
These agribusinesses claim Khlib Investbud — and its secretive owners believed to be close to President Viktor Yanukovych — have unfairly benefited from insider deals and large grain export quotas.
Speaking with the Kyiv Post, the 35-year-old Brovdi denied such accusations and accused competitors of waging a smear campaign.
Despite carrying a business card that shows him working under the Cabinet of Ministers’ Ministry of Agrarian Policy, Brovdi was evasive when confronted with questions about what private interests stand behind Khlib Investbud.
Kyiv Post: You headed the regional branch in Zakarpattya Oblast for Arseniy Yatseniuk’s Front of Change political party. Why did you leave politics, opting instead to become head of a grain trading company?
Robert Brovdi: I spent a year and a half in politics. I assisted in Yatsenuik’s presidential campaign and participated in regional elections. Politics interested me. But when I decided to move to Kyiv, I had to quit the board of Yatseniuk’s party as well as the head of regional party organization. But I have remained a member of the Front of Change party.
KP: Did you move to Kyiv to work at Khlib Investbud?
RB: When I came to Kyiv in May of last year, I originally headed the Ukrainian Agriculture Exchange. After working there for a period, I took charge of Khlib Investbud.
KP: Did you have any prior experience in agribusiness?
RB: I was active in business in various sectors, including industry, construction and development. I also had some interests in agribusiness in the Zakarpattya region.
KP: Can you be more specific? What were the names of these companies or businesses?
RB: I will answer the question by saying: Knowledge of certain laws replaces ignorance of the facts. I think that the managerial experience I gained, supplemented by my higher education, can be extrapolated to any sphere.
KP: Who was it that knew your abilities so well that they offered for you to become head of Khlib Investbud, a company which government officials have granted such an important role?
RB: We are spending too much time talking about my personality. Let’s better turn to a discussion of professional issues.
KP: But it is an important question, especially in light of the lack of clarity about Khlib Investbud, which market players describe as a “quasi-state” company. For example, Jorge Zukoski, head of the influential American Chamber of Commerce in Ukraine, called Khlib Investbud the main “beneficiary” of non-transparent processes under way in the grain business, namely the disproportionate issuance of grain quotas.
RB: After two allocations of quotas that were distributed [by the government] for more than four million tons of grain, Khlib Investbud received quotas for the export of only 870,000 tons. That is only 20.8 percent of the total. It should be noted that besides us, 26 companies received quotas in the first quota allocation and 29 in the second one. So, more than 50 companies received a certain amount of licenses for export.
Perhaps they didn’t obtain what they expected, but the country had introduced the quotas for objective reasons.
Of 35-40 million tons of grain produced, Ukraine consumes about 20 million tons. If the country hadn’t restricted grain exports, the question of what was left to consume inside Ukraine would have appeared within months.
The state has to play a role in controlling grain exports because the lion’s share of the harvest is accumulated by export-oriented grain traders. [Editor’s Note: Sources said that Khlib Investbud received nearly half of all wheat quotas and about a third of corn quotas in a January allotment.]
KP: If it is true that you didn’t receive an unfair share of quotas, why is there so much criticism from the side of other market participants directed towards you?
RB: Apparently, when a new player comes onto the market, it triggers negativity from the side of competitors. Considering that grain trading is a rather lucrative business and our competitors have much money, they are playing a record which they want to listen to.
KP: But another bone of contention is that the ownership of Khlib Investbud is unclear. The state is a majority owner of such an important company, but neither the prime minister nor agriculture minister can say who the state’s partners – private stakeholders – are?
RB: Speaking about Khlib Investbud, the creation of state operator on the market was based on many factors. There is a situation in the country where we have an army of farmers (nearly 90,000) on one side, and an army of grain traders (about 5,000, including 20 big ones) on the other side.
Each player on this market has its interests. When a trader buys grain from a farmer, he is guided solely by global market conditions. But there is also the state which wants to preserve the national patrimony – the Ukrainian farmlands – and also aims to increase the country’s food production and protect the national producer.
KP: Has Khlib Investbud become the state’s partner in protecting food security?
RB: No, the State Food and Grain Corporation of Ukraine (a.k.a. DPZKU), created in the end of last year, became this partner. This 100-percent state-owned company received the assets of state company Khlib Ukraine.Those assets consist of 49 grain silos, including two port silos in Odessa and Mykolayiv.
The assets also include 21 flour mills that can produce 10 percent of the nation’s flour needs and, in turn, provide affordable bread and cereals for those that need it.
DPZKU aims to become a vertically integrated agriculture producer. It is building up a fleet of 1,000 harvesters, 500 of which will start operation in coming months. Another aim of DPZKU is creation of its own farmland bank. The strategy for the next three years is to develop production, storage and processing.
In accordance with the law on state procurements, DPZKU could not [itself take part in tenders to become the grain trader buying up grain on the market to build up state reserves. The legislation prohibits a company with more than 50 percent state ownership from taking part in such tenders.]
Therefore, Khlib Investbud, a grain trading company in which DPZKU owns a 49 percent stake, was created. Private investors own a 51 percent stake in our company, but they have no claim on state property such as silos or ports, which are owned by DPZKU. Their assets will remain in state ownership.
KP: You are speaking in the tone of a government official, despite the fact that your company is only partly state-owned. What upside or interest exists for private investors who put money in your company?
RB: The private investor in Khlib Investbud is a company called Kalasar. Its only role is to attract investment.
We hope to attract some $3 billon in coming years. This private investor will obviously share in profits. We are selling grain, whose world price significantly differs from the internal Ukrainian one. So the foreign capital that was attracted by our company has a guaranteed liquidity.
But in the midst of this, DPZKU is lobbying for adoption of legislation that will allow our company to become totally state-owned.
KP: So, if legislation is changed, the state will buy out the majority stake in Khlib Investbud from private investors?
RB: Yes. There are no long-term obligations that bind us to private investors.
KP: But who made the decision to choose these private investors and who are the beneficiary owners?
RB: In connection with a non-disclosure agreement, I am unable to comment on the identity of these investors. I can say that we are currently still looking for private investors. We are open to talks.
KP: How are you planning to attract new investors, through an IPO?
RB: Probably.
KP: Can you provide financial results for your company?
RB: We will submit the full financial report in the end of the marketing year. As of today, all the quotas that were received by us have been totally used and the grain – all 877,000 tons – has been shipped.
We also continue to supply grain under intergovernmental agreements to about six countries. We have fulfilled the first forward contracts for filling the state intervention reserve and will continue with contracts for next year’s harvest.
The amount of export, with which we are concluding this marketing year, will be about 1.5 million tons, plus 700,000 tons which we did last fall in the process of filling up the state intervention reserve.
KP: Lawmaker Yuriy Ivaniushchenko, from the pro-presidential Party of Regions, is one of the few who has come out to defend the role of Khlib Investbud. Why do you think he has spoken so positively about your company? Do you know him?
RB: I am not acquainted with him. Let me go further. Of all the domestic politicians and so-called foreign masters such as [Russian Prime Minister Vladimir] Putin, whose names have been mentioned as being linked to us, none have any relation to our company or DPZKU.
Kyiv Post staff writer Oksana Grytsenko can be reached at [email protected]
