Ukraine's government is waffling over a foreign firm's record-shattering $500 million offer to rescue a half-built hydroelectric power plant in southwestern Ukraine.
The foreign firm, Bahamas-based ESI Engineering & Construction Co., Inc., was told by the government last year that it had won a tender to manage the state's stake in the massive plant, according to plant and ESI officials. Under the agreement, ESI pledged to invest $480 million in construction of the plant over the five years.
That would be one of the largest foreign investment pledges in the history of independent Ukraine, which has only attracted about $3 billion in total foreign investment in its nine-year existence.
Ukraine's government, instead of jumping at the deal, is apparently leaving ESI in the dark over whether it will in fact be allowed to proceed with the project.
The saga began on Oct. 22 of last year, the date when ESI claimed it was told by the government that it had won the tender to revive construction of the Novodnistrovsk hydroelectric power plant, located on the Dnister river in the Chernivtsi oblast. Construction of the plant has been idle for nine years.
ESI's investment was to go toward building three of the seven hydroelectric turbines originally planned for the plant. ESI also pledged to repay the plant's overdue debts and to purchase Ukrainian-made equipment for the project.
In return, ESI was to be given the right to mange the government's 86 percent stake in the plant for five years, with the possible option of extending that right for a further five years. The deal also raised the possibility of joint ownership of the plant by ESI and the government in the future.
Three months ago, ESI was sure it had won the tender. According to Yaroslav Vavzhenchuk, director of the hydroplant in Novodnistrovsk, former Prime Minister Valery Pustovoitenko met ESI's President David Atkinson to discuss the company's investment plans. Pustovoitenko made the agreement contingent on ESI buying equipment from Ukrainian makers for the project, news agencies reported at a time. Pustovoitenko then ordered the Energy Ministry and the SPF to sign a deal with the ESI.
The government issued press releases announcing ESI the winner back in October. News agencies picked up the story, and all that was left for ESI to do, apparently, was to sit back and wait for the government to officially inform the company of its victory. ESI is still waiting.
'We never received a single official letter from the government – nothing,' said Dmitry Strokon, ESI's authorized representative in Ukraine. 'So far, we have no official results of the tender.'
Strokon said his company has never received permission from the government to start work at the plant. ESI initially put the delay down to government paralysis due to the presidential election votes at the end of October and in mid-November. But when election furor died down, and ESI still hadn't heard from the government, the company began to worry.
With the status of the tender still unresolved today, Vavzhenchuk is concerned that the project will die completely.
To implement its project, ESI has to convince its bank that it has indeed won the tender so that it can apply for a loan. But if ESI doesn't apply for the loan by March 15, Vavzhenchuk said, it probably won't receive the money this year.
ESI's Strokon, meanwhile, said that the government's privatization arm, the State Property Fund, is considering canceling the tender. ESI is now in negotiations over the deal with the SPF, Strokon said, but he refused to discuss details of the talks. He did say that the government's requirement that Ukrainian-made equipment be used to finish the plant is not an obstacle to the deal going.
The SPF is also tight-lipped over the ESI deal. According to Iosif Voitsekhovsky, an official at the SPF, the agency is working on a 'whole series of questions' relating to the deal. He referred the Post to his superior, Volodymyr Zaitsev, for more detailed comments. He said Zaitsev is the deputy head of the SPF commission in charge of ESI's case.
Zaitsev declined to comment, describing the matter as 'complicated.'
Novodniestrovsk is a town of 12,000 people located where the borders of Chernivtsi, Vinnytsa and Khmelnytsky oblasts meet. Soviet engineers decided back in 1983 that Novodniestrovsk was the perfect site for a huge hydroelectric power accumulating plant that would regulate the electricity network of the entire Soviet Union.
The plant was to work as a huge accumulator battery, ensuring a steady supply of electricity to the Soviet Union's entire grid. When consumption is low, the plant draws excess power from the grid and uses it to pump water into a reservoir. When electricity demand reaches a peak, the plant drains water from the reservoir, channeling the water flow through turbines to generate extra electricity.
Construction at the plant halted in 1990 after funding dried up. It never resumed, and that, he said, is Ukraine's huge loss. The finished plant, with a total capacity of 2,268 megawatts, could now be used to regulate the Ukrainian power grid and even those of some Western countries.
'In a year or two we'll no longer need anything,' he said. 'The state of the structures will be such that it will be impossible to resume construction.'
Vavzhenchuk said construction at the plant is about 40 percent complete. It will cost an estimated $1.5 billion to get the plant in working condition, he said.
The cost of not completing construction, or at least making the site safe, might be much higher, warned Vavzhenchuk. He said that if some of the plant's subterranean constructions collapsed, there is a real chance that a landslide might be triggered, blocking the Dniester river.
'If it blocks Dniester, it would [flood parts of] Moldova,' he said. Vavzhenchuk also said that the blocked river channel would immediately cause flooding in at least five villages in the region.
It remains unclear how ESI, which was established in Canada in the mid-eighties, planned to recoup its sizeable investment. Strokon declined to elaborate on what financial benefits ESI attains by simply managing the state's share in the plant, saying only that ESI hopes to extend its cooperation with the government for more than just 10 years.
Vavzhenchuk said that ESI would not recoup its investment simply by managing the plant for 10 years.
