ODESA, Ukraine — The privatization of state-owned fertilizer producer Odesa Portside Plant, one of Ukraine’s largest factories, has been delayed many times since the 1990s.
This year the plant, which is located next to the Yuzhny Sea Port in Odesa Oblast, is scheduled to be privatized yet again.
But vested interests that profiteer from the loss-making and poorly run state company may block its privatization again.
In another scenario, the plant may be sold to firms affiliated with top officials, as opposed to an investor with a transparent ownership structure.
The Odesa Portside Plant did not respond to repeated requests for comment.
The plant’s net loss amounted to Hr 1.4 billion in 2017, compared with a Hr 3.8 billion in 2016.
Privatization attempts
There have been about eight attempts to privatize the plant since the 1990s, but all of them have failed.
In 2009, tycoon Ihor Kolomoisky bought the plant for Hr 5 billion ($625 million in 2009), but the State Property Fund canceled the deal, saying the plant had been undervalued.
In June 2016, the State Property Fund unsuccessfully tried to sell it for Hr 13.1 billion ($524 million). And in December 2016 the fund again unsuccessfully tried to sell the plant, this time for Hr 5.2 billion ($208 million).
The current starting price for the Odesa Portside Plant’s privatization is $54 million, or Hr 1.4 billion.
Mykola Shchurikov, a deputy CEO of the plant, admitted to the Kyiv Post that the Odesa Portside Plant’s privatization was being “sabotaged” but did not specify by whom.
Vested interests
Experts attribute the repeated failure to sell the plant to vested corrupt interests that profiteer from supply contracts with the plant.
“State companies are a source of corruption,” Andriy Boytsun, an advisor on privatization at the Strategic Advisory Group on supporting Ukrainian reforms, told the Kyiv Post.
“When they are controlled by politicians, there’s always a temptation for the authorities to siphon money out of them. Those who steal money from them and profiteer from them will always be against privatization.”
Another reason why the plant has not been privatized is its “toxic debt” to tycoon Dmytro Firtash, Boytsun said.
In February 2017, a Vienna court ordered that Firtash be extradited to the United States to face charges that he had secured a titanium extraction permit in India through paying $18.5 million in bribes.
However, Austria’s Justice Ministry has not yet authorized Firtash’s extradition.
The plant owes $193 million to Firtash’s Ostchem, as well as Hr 434 million ($16.6 million) to gas pipeline monopoly Ukrtransgaz and Hr 1.5 billion ($57 million) to state-owned oil and gas monopoly Naftogaz. The issue of the debt should be resolved before privatization, Boytsun said.
“It won’t be possible to sell the Odesa Portside Plant quickly and efficiently,” he added.
Shchurikov said he estimated the fair price of the plant at about $400 million, if its debt are not taken into account.
“If the debt to Firtash and Naftogaz Ukrainy is deducted, the plant is worth nothing today – not even the latest $54 million estimate,” Shchurikov said.
Intentional bankruptcy?
In April, the plant halted operations because gas pipeline monopoly Ukrtransgaz said that the plant’s supplier, the All Ukrainian Energy Company, had violated its contract by halting gas supplies.
Back in 2017, the plant also suspended production twice to conduct repairs. Odesa-based investigative journalist Grigory Kozma, and Mykhailo Kuzakon, the head of the Odesa branch of the People’s Movement of Ukraine party, believe that the Odesa Portside Plant’s management is intentionally driving it to bankruptcy.
“To make sure that an external investor doesn’t come, they’re creating the impression that the business is loss-making and unstable,” Kuzakon said.
Kuzakon and Kozma argue that Ukrainian President Petro Poroshenko’s allies, including lawmaker Ihor Kononenko, were planning to buy the plant for themselves. Kononenko did not respond to a request for comment.
Commenting on accusations that the plant is intentionally being made bankrupt, Shchurikov said that “the plant was made bankrupt a long time ago – consider just the $251 million debt to Firtash.”
Shady contract
In late 2017, the little-known All-Ukrainian Energy Company won a contract to supply gas to the Odesa Portside Plant. The firm had obtained a gas supply license not long before that. The firm was founded by businessman Vadym Kolesnikov.
The Prosecutor General’s Office is investigating All-Ukrainian Energy Company over allegedly stealing Ukrtransgaz’ natural gas worth Hr 500 million.
The All-Ukrainian Energy Company’s phone numbers are the same as those of a different company, Energomerezha of businessman Dmytro Kryuchkov.
Kolesnikov headed Energomerezha’s supervisory board in 2014.
In April, Kryuchkov was arrested in Germany as part of a corruption case into power company Zaporizhzhyaoblenergo that is being investigated by the National Anti-Corruption Bureau of Ukraine.
The power company’s owner Grigory Surkis is also being investigated in the case, while Kononenko has been accused by Poroshenko critics like lawmaker Sergii Leshchenko, fugitive lawmaker Oleksandr Onyshchenko and others of profiteering from Zaporizhzhyaoblenergo, which he denies.
A week after Kryuchkov’s arrest, Radio Liberty’s Schemes investigative show filmed the cars of Poroshenko, his top ally and lawmaker Oleksandr Hranovsky and Surkis, together with his brother Ihor, visiting the Presidential Administration on April 20, implying that the three were meeting to discuss the investigation against Surkis.
Hranovsky is largely believed to be a gray cardinal in charge of the law enforcement system. He denies this.
A representative of the Surkis brothers said they had discussed soccer-related issues during the meeting, since Surkis is a vice president of UEFA.
Hranovsky did not respond to a request for comment.
Corruption cases
The NABU is investigating Kononenko, Hranovsky and ex-People’s Front lawmaker Mykola Martynenko in a graft case linked to gas supplies to the Odesa Portside Plant. They have denied profiteering from the plant.
Martynenko’s business partner Serhiy Pereloma, the chairman of the plant’s board of directors, and Shchurikov, a deputy CEO of the plant, were charged with embezzling money from the Odesa Portside Plant through supply contracts and were released on bail in 2016.
“The NABU tried to link me to the Odesa Portside Plant as part of its struggle against the previous Cabinet of Ministers,” Martynenko told the Kyiv Post. “There was a lot of black PR but it turned out to be lies… The NABU is persecuting Pereloma and Shchrurikov as part of fabricated cases that are collapsing in courts.”
Olga Tkachenko, an ex-aide to Hranovsky, used to be a member of the Odesa Portside Plant’s executive board, while Oleksandr Vizir, an aide to Kononenko, became a member of the Odesa Portside Plant’s board of directors in 2016.
Fugitive lawmaker Onyshchenko told the Kyiv Post that he had been paying a Hr 2,000 bribe per 1,000 cubic meters to Kononenko to supply natural gas to the Odesa Portside Plant.
“The boss (Poroshenko) gave me the green light to supply gas to the (Odesa) Portside Plant,” Onyshchenko told Kononenko in May 2015, according to alleged correspondence between Kononenko and Onyshchenko published by the Slidstvo. info investigative news website.
Kononenko replied that he was “having a lot of problems with Martynenko, and a couple of days is needed to push him out,” according to the correspondence.
“Why have I been thrown out of gas supplies to the (Odesa) Portside Plant?” Onyshchenko asked Kononenko in June 2015.
“You promised!” Kononenko replied that he didn’t know, and then started negotiating the price of gas supplies to the plant.
Later Kononenko proposed that Onyshchenko pay the same price as Martynenko’s business partner Pereloma.
“The woman said she had reached a deal on gas supplies to the Odesa Portside Plant with you,” Onyshchenko asked Kononenko on July 13, 2015. “Is that the case?” “A four-month contrast has already been signed for the Odesa Portside Plant,” Kononenko replied. “We’ll renegotiate later.”
Commenting on the accusations that politicians profiteer from the plant, Shchurikov said that the current natural gas supply scheme “completely ruled out the possibility of any corruption.” Under the scheme, a supplier exchanges natural gas supplied to the plant for fertilizers produced by it and pays a fee for the processing of the gas.
“There can be no (corruption) at all because the plant doesn’t buy gas – a scheme in which the price can be increased, and the gas can be bought from certain people,” he said. “The plant doesn’t sell products when it can decrease the price and sell to “its own people” for kickbacks. The plant just takes a processing fee.”
Shchurikov said that “there can be no lobbyists (to supply gas to the plant) now, and even if there were lobbyists, there’s a competition, and you can offer a better price.”
President Petro Poroshenko’s top allies and lawmakers Ihor Kononenko and Oleksandr Hranovsky are under investigation by the National Anti-Corruption Bureau of Ukraine for allegedly profiteering from the Odesa Portside Plant. They deny the accusations of corruption.
