ODESA, Ukraine — In early July, it became known that the Odesa mayor’s office wants to take out a loan of a half-billion hryvnias, or $18 million.
Talks about yet another money draft began in the beginning of this year, making it the fourth loan on Mayor Gennady Trukhanov’s account. Odesa’s City Hall broke the record in terms of reaching the number of loans across all of Ukraine.
The City Council has already borrowed 3 billion hryvnias, or $108 million. The mayor’s office issued two loans at 17.5% and 22.4% annually in 2017 and 2018 at Ukrgasbank. Both loans are worth a billion hryvnia or $360 million.
They will have to be paid within five years.
A third billion hryvnia loan, or $36 million, was taken out last year from Oschadbank at 19.5% per annum with another five-year period.
According to a report by the city’s finance department, most of the money of these three loans went into solving city management problems (repairing elevators and heating systems), capital construction management (repairing schools and stadiums) and road management.
Almost 400 million hryvnias, or $14 million, were allocated for road repairs. All tenders for the reconstruction of the roadway were claimed by Rostdorstroi, which, according to media reports, belongs to Trukhanov and is headed by a deputy from the Odesa’s “Doviriai Dilam” party Yurii Shumakher.
Why does Trukhanov need a fourth loan?
The budget commission of the Odesa City Council has considered the need for the 500 million hryvnia loan. This topic has been discussed twice during their sessions. They plan to take it from the financial institution Alfa-Bank which carries Russian roots.
Deputy Mayor and Head of the Finance Department Svitlana Bedreha said they want to take out the loan for two reasons: first, due to the negative situation with budget filing caused by the pandemic, and second, because of the financing of various works by city departments.
According to Olga Baklazhenko, editor-in-chief of the Odesa edition of USI, during commission meetings she frequently heard hints about the city taking the fourth loan, if this happens, then the mayor’s office will be able to spend it in September. “If we look at the chart on what they plan to spend their money on, then these are very quick jobs: repair of elevators and reconstruction of intra-quarter driveways. This suggests that in the near future we will see pre-election political billboards with the work performed for the funds of this loan. This manipulative strategy is used in Odesa each election,” says the journalist.
As the deputy of the city council Olha Kvasnitskaia notes, when Trukhanov says he is doing everything for Odesa, he must understand: he is performing the functional duties that every mayor is obliged to do.
“There are other questions: how is this money used, how expediently, what is the priority in financing certain works, and whether we need this loan. In order to take out a loan, we must understand whether it is necessary to take us further into a debt hole? Three billion, taking into account the fourth loan, is the money that will need to be given to all residents of Odesa,” the deputy emphasizes.
Olga Kvasnitskaya now says that, according to the State Treasury, the Odesa City Council has a debt of Hr 2.1 billion, or $76 million, and if the mayor’s office takes another loan, this amount will grow to nearly Hr 3.4 billion, or $122 million, taking into account internal and external debt. According to the deputy, the budget needs to be filled not through a loan, but rather through the correct auction sale of communal property, land plots, real estate, and through the transparent provision of services on the coastal territory, to create competitive condition.
What conditions did the Russian bank offer to the Odesa City Hall?
At the beginning of the year, Deputy Head of the National Bank of Ukraine Ekaterina Rozhkova said in an interview with Finclub that Ukrainian subsidiaries of Russian state-owned banks would gradually cut down their activities in Ukraine, but their final exit from the market may not happen soon.
At the time, it was about the Russian “VTB Bank” and “Prominvestbank” that went bankrupt in Ukraine.
As for Sberbank, Rozhkova says this Russian bank is not active in the Ukrainian market. According to her, it was “blown away” by loans and a little by deposits, the NBU makes sure that it has super-liquidity, so that if something happens, Russian’s Sberbank can pay off all obligations.
However, not everything is that smooth with the Ukrainian subsidiary of Alfa-Bank — from which the mayor’s office is going to take out a loan.
According to Youcontrol, its owners are the Russian billionaire, co-owner and chairman of the supervisory board of the Alfa Group consortium Mikhail Fridman, the company ABH Ukraine Limited, registered in Cyprus, and Luxembourg-based ABH Holdings SA, the owners of the latter are businessmen and politicians from Russia.
According to the deputy mayor and head of the city finance department Svitlana Bedreha, representatives of Alfa-Bank themselves offered lending services for the Odesa mayor’s office at the beginning of this year, but then there was no need.
“In April, Ukrgasbank offered 17%, Oschadbank – about the same rate, while Alfa-Bank offered 11% per annum at a discount rate of the National Bank of Ukraine of 5%. The terms of the agreement will be reviewed every six months,” the financier noted.
Nobody knows how the terms of the contract may change. But despite the fact that the Ministry of Finance of Ukraine did not give the green light for the approval of the loan to the mayor’s office, the deputies of the city council still voted for another loan. Now, as soon as officials receive the approval from the ministry, they will be able to immediately draw up documents with Alfa-Bank. It will have to be paid within three years.
As a result, all residents of Odesa will repay these debts with interest until 2024.
Olena Rotari is a journalist with Channel 7 Odesa and Daryna Sarhan is a translation editor. The TV news station is owned by the KADORR Group, which also publishes the Kyiv Post.
