The European Bank for Reconstruction and Development has arranged $56 million in funding to oilseed producer Kernel Group to build four biomass power plants in Ukraine, the EBRD press office announced on Feb. 25.
The EBRD presented the investment as a way to reduce carbon intensity in Ukraine’s energy sector.
However, Kernel, a giant by Ukrainian standards, has been accused of manipulating the Verkhovna Rada to win favorable tax rebates at the expense of smaller farmers. Several lawmakers and their relatives owned Kernel shares, allegedly creating conflicts of interest.
The EBRD did not immediately respond to requests for comment on why it chose Kernel in spite of these allegations.
As an oilseed producer, Kernel generates hundreds of thousands of tons of sunflower husks, which the EBRD hopes to put to use in the projected biomass plants. The plants will generate 338,500 megawatts of energy from 228,000 tons of husks annually. According to the announcement, Kernel will also support education programs for young people from rural areas.
The EBRD is providing $48 million for the project, while the remaining $8 million will come from the World Bank’s Clean Technology Fund. Energy reform and independence is one of EBRD’s primary areas of investments in Ukraine.
Kernel is Ukraine’s largest vertically-integrated agribusiness. Besides oilseed crushing, the company also trades grain, farms crops and provides shipment and silo services.
The company was founded in 1995 by former Rada lawmaker Andriy Verevsky, who was later stripped of his role in parliament for serving on the Rada’s agricultural committee while chairing a company. Despite this, Kernel maintained ties to the Rada.
In 2015, lawmaker Andriy Khomutynnik, a member and former chair of the Rada’s tax committee acquired 5 percent of Kernel’s shares through his Cascade Investment Fund. Cascade’s share increased to 6.59 percent in 2017.
The Anti-Monopoly Committee gave Khomutynnik’s Cyprus-based company the right to purchase majority shares of the charter capital of seven agricultural companies that previously belonged to Verevsky.
Kernel may also have ties to Verevsky’s cousin, lawmaker Oleksiy Mushak, who entered the Rada in 2014. He is also a member of the Rada’s agricultural committee and had dealt with accusations of taking Kernel’s side in legal disputes.
Since 2015, the Rada made changes to the tax code, effectively stripping small-scale farmers of a great deal of Value-Added Tax refunds that they previously enjoyed. These refunds helped keep small farmers afloat, and canceling them introduced a massive financial burden, according to multiple statements by the protesting farmers.
At the same time, the Rada increased VAT refunds for large companies such as Kernel, who exported significant proportions of their production abroad. These changes drew accusations of conflicts of interest.
Large agroholdings enjoy huge benefits from the Ukrainian government. State agricultural subsidies are often marketed as aid to small and medium-sized farmers and agricultural enterprises, but more often it’s the big players who reap the benefit.
