In Ukraine, state property became the foundation on which all oligarchic clans built their wealth and political influence. They didn’t launch start-ups or start their business in a garage. They simply went to high-profile officials and “shopped” for the best conditions possible.
Ukraine’s history of privatization over the last 30 years is mostly a story of losses sprinkled with only a few remarkable victories. The most successful case to date was the sale of the largest Ukrainian steel mill, Kryvorizhstal, in 2005 for a record $4.8 billion. But its success won’t likely be repeated because the state simply no longer has assets of a similar scale.
Bilshovyk property
The privatization of the state-owned Bilshovyk plant is coming up soon. The biggest advantage of a 140-year-old machine-building plant that barely makes ends meet today is its size and location. It is close to the Kyiv city center, making it a prime location for new development. During Viktor Yanukovych’s regime, a similar factory — the Kyiv Motorcycle Plant — was obtained by developer Vasyl Khmelnytsky, who demolished all the buildings and turned the former plant into an industrial park for tech people called UNIT.City.
See also: “Shady Sales: Will Bilshovyk auction be latest in a long line of sham privatizations?”
Now Khmelnytsky is often named as the main contender for Bilshovyk, which will likely be demolished and turned into a mixed-use development.
I might be wrong, but I see the risk that there will be no serious bids for this object, and the best price will not be paid.
After all, a few years ago, as a result of the use of corrupt schemes, five buildings on the territory of the plant were stripped away from the state. It’s not clear who bought them, but no one should be surprised if the purchasing firms are affiliated with Khmelnytsky. In any case, the buildings created obstacles to a clean sale.
After the change, a carousel of court disputes began. This means that for any other owner, buying the shares of the plant at auction is actually buying a ticket to the war.
Sad history
This is a typical scheme in Ukrainian privatization. Ukraine lost its iron ore plants in a similar way.
Under ex-President Leonid Kuchma 18 years ago, the privatization of mining and processing plants did not ensure open access to public bidding. Instead, the state limited the number of participants only to those who already had minority stakes. To do this, they even passed a special law.
The lucky ones included a limited circle of oligarchs led by Rinat Akhmetov. As a result, iron ore assets fell into his hands and became a key commodity for sale on the world market. The ore not only made Akhmetov a billionaire but also enabled him to gradually acquire other metallurgical plants whose owners did not have access to iron ore and experienced a constant shortage of raw materials.
Illegal seizure of state assets not only created oligarchic clans but deprived citizens of fair compensation for lost assets.
Rigged sales in Odesa
One of the recent examples of a large-scale seizure was committed by a criminal group in Odesa which was exposed this October by the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialized Anti-Corruption Prosecutor’s Office (SAPO).
The most public figure in the gang is Odesa Mayor Hennadiy Trukhanov. But he was only the tip of the iceberg and not at the heart of a 10-person criminal organization. According to NABU and SAPO, this role belongs to local oligarch Vladimir Galanternik.
Journalist Yuriy Butusov describes him as “the chief mobster of Odessa”: “A man without a position, who controls security officers, bandits and financial flows in the region. Galanternik’s influence in the city is immense as it is he who makes all the key decisions, including about land ownership.”
Galanternik supposedly has even deeper roots — he is connected to Odesa’s top criminal leader Aleksandr “the Angel” Angert, and the latter, in turn, is connected with Leonid Minin, an international drugs and arms trafficker. When a notice of suspicion was issued to Galanternik, he was outside Ukraine as can be deduced from social media. The unofficial owner of Odesa lives in London with his family.
Trukhanov and Galanternik de facto turned Odesa into their private fiefdom, awarding the most lucrative land and municipal contracts to their own companies.
Valuable Odesa land was given to predetermined companies bypassing competition using a mechanism established by the criminal. This deprived the people of Odesa of economic benefits. The price difference was distributed as bribes around the circle, and in return, the Odesa City Council ensured the adoption of the “necessary” decision to lease the land.
The total amount of damages caused by the scheme is an astronomical Hr 689 million ($26 million). There was one particularly cynical example. The Odesa authorities, to seize the lands of the recreational fund, bought a plot of land for the expansion of a cemetery for Hr 131 million ($4.9 million) from the budget. But after obtaining the property rights the concept changed, and instead of a cemetery, they decided to build something else.
Justice delayed
The Trukhanov-Galanternik’s criminal organization has been under the “protection” by the law enforcement for years, particularly provided by the former prosecutor of Odesa Oblast, Oleg Zhuchenko.
Zhuchenko’s career skyrocketed during the era of former President Petro Poroshenko and former Prosecutor General Yuriy Lutsenko. Zhuchenko’s tenure in Odesa was marked by turning a blind eye to the abuses of Trukhanov and Galanternik. Maybe, in return, he received apartments for himself and other prosecutors?
The recent case into the Odesa schemes is not the first high-profile corruption investigation involving Trukhanov. In 2018 NABU charged Trukhanov with alleged involvement in embezzlement through the purchase of the old Krayan factory building. The city council bought the factory building for Hr 185 million in 2016, after it had been purchased earlier that year by another firm for only Hr 4 million.
During Poroshenko’s time, Trukhanov managed to avoid responsibility. Soon after Poroshenko was out of office, in July 2019, a court in Odesa found him not guilty. But this year in February, the Supreme Anti-Corruption Court finally overturned this sentence. The case was remanded to the first anti-corruption court.
It appears that Trukhanov, who should no longer be mayor as he faces such charges, is now trying to prolong the case as much as possible. He still has no second-instance verdict.
In the case of the new high-profile revelation of Trukhanov-Galanternik’s gang, we will have to wait for the verdict for more than one year.
Law enforcement has to serve justice in these property scams. Otherwise, it will further generate impunity when it comes to selling and buying state assets — something Ukraine can’t afford as it moves on with ambitious privatization plans.
Sergii Leshchenko, the former deputy chief editor of Ukrainska Pravda, was a member of Ukraine’s parliament, serving from October 2014 as part of ex-President Petro Poroshenko’s Bloc. He lost his re-election bid in the July 21, 2019, parliamentary race. He started writing columns for the Kyiv Post in October 2019.
