On June 8, the Supreme Court of Ukraine ended a five-year battle over a multimillion-dollar debt between the state-owned Odesa port-side chemical plant and Ostchem Holding, an agrochemical giant owned by the Ukrainian exiled oligarch Dmytro Firtash.
The court ruled in favor of the plant, relieving it of a $251.2 million debt — $193 million of the main debt and $57 million in penalties — for gas supplied by the Cyprus-based Ostchem during 2012-2013.
“This is a final decision that cannot be appealed,” said Dmytro Sennychenko, the head of the State Property Fund, which currently owns the plant.
Ukraine’s highest legislative body upheld an appeal against a ruling by the Stockholm International Court of Arbitration in 2016.
Meanwhile, according to Oleg Arestarhov, spokesperson at Group DF which includes Oschem, such a decision was “surprising for the company.”
“How can the decision of the international court be ignored?” he said, Interfax reported. “Our lawyers are waiting for the official text of the decision before making appropriate measures.”
History of the debts
The state-owned Odesa port plant — Ukraine’s second-largest producer of ammonia, a basic component for nitrogen fertilizers widely used in agrarian industry — has always been on the radar of oligarchs and top officials.
Built during the late 1970s, the plant stands on 250 hectares on the bank of the estuary, 35 kilometers from Odesa. Last year it produced 90,000 tons of ammonia and 796,000 tons of urea, a synthetic nitrogen fertilizer.
With annual capacities of four million tons, the plant is also the only one in the country which has equipment for the cooling and transshipment of ammonia to sea vessels for export.
For the production of mineral fertilizers, the Odesa plant needs one major component — natural gas. During 2012-2013, Firtash’s company made a fortune while selling the gas to the plant.
Having strong support from the former Ukrainian President Viktor Yanukovych, Firtash’s Ostchem was the only gas supplier for the plant.
While Ostchem bought natural gas from Russia’s Gazprom for $265 per 1,000 cubic meters, it sold it for $430 per 1,000 cubic meters to the Odesa plant. As a result, the plant was left with enormous debts.
Reuters previously reported that during that period, the oligarch’s two offshore Ostchem companies may have made nearly $3.7 billion from the scheme re-selling gas in Ukraine.
The investigation also revealed that profits from gas sales ended up on the accounts of oligarch’s Cypriot and Swiss companies.
One step closer to a sale
With the latest Supreme Court’s decision, the sale of Odesa seaport — one of the properties on the list of the government’s Big Privatization program — may run like clockwork.
At least Sennychenko believes so. “We have deprived Ostchem of the possibility of blackmail and any influence on the operating activities of the plant,” he said.
As a result, potential buyers no longer need to worry about former creditors claiming their rights to the property. “This will help expand the pool of potential buyers and significantly increase the value of the asset,” said Sennychenko. “It is a very important decision for transparent privatization.”
Over the past five years, there were four unsuccessful attempts to sell the plant to private investors. The gigantic debts scared away investors, and no one wanted to buy the plant even for $200 million.
At the same time, the construction of a similar plant from scratch would cost private investors on average $250-400 million, according to Alexander Gorbunenko, managing partner of Agro Gas Trading company, which currently provides natural gas to Odesa port plant.
Gorbunenko believes that privatization is the only option for the plant. “Delays in the sale of the plant led to corruption and brought the company into debt,” Gorbunenko wrote in an op-ed for Novoye Vremya.
