Donetsk clan to monopolize Ukrainian grain–export market
Who are the people behind the country's largest grain scheme?
Agriculture Minister Mykola Prysiazhniuk recently found himself outside his comfort zone – journalists forced him to reveal his own version of the new scheme being implemented on the Ukrainian grain market and particularly the role played by a new favorite – Khlib Investbud Ltd. (KhIB). The minister made an attempt to convince the mass media that everything was just fine: the state has a 61–percent stake in a company which has been given unprecedented preferences to export grain and is now operating as the grain supplier for the Agrarian Fund. However, The Ukrainian Week obtained a document which shows that Mr. Prysiazhniuk’s figure is off the mark.
Billions for millions
In early August 2010, it transpired that the Agrarian Fund – essentially the state’s granary – contracted KhIB in a no–bidder procedure to supply five million tons of grain worth UAH 7 billion; this comes to an average price of UAH 1,400 per ton.
At the same time, the government tightened the screws on grain exporters. Following the redistribution of export quotas, a number of big–name transnational corporations that have been active on the Ukrainian market for years got next to zero in terms of allowed exports volumes. The void thus created was filled by KhIB. The bureaucrats’ desire to re-carve the market was so unabashedly obvious that British ambassador to Ukraine Leigh Turner even crossed the limits of diplomatic discourse.
“In 2010, grain quotas were quite unexpectedly introduced. This means that grain traders lost an opportunity to freely buy and sell grain,” Turner said. "Essentially, Ukraine took a step which has hurt the business climate creating barriers to business in the country. This situation in which some companies get the opportunity to earn money using grain quotas while others don’t facilitates corruption", he added.
The ambassador’s reasoning is easy to follow. First the government gives incredible preferences to a state company, thereby pushing private businesses out of the market. Then a stake in this company is sold into private hands. Then a different state agency was tasked with overseeing its operation: a year ago the state–owned Khlib Ukrainy (Bread of Ukraine) was believed to be KhIB’s sole founder, but it was officially declared bankrupt in the fall of 2010. The government is establishing the State Food and Grain Corporation of Ukraine (DPZKU) to replace it.
Meanwhile, KhIB continued to live off the fat of the land. The Ukrainian Week obtained a document dated 21 January 2011 in which DPZKU asked permission of the Ministry of the Economy to contract KhIB in a one–bid procedure to supply 3.5 million tons of grain worth “approximately six billion hryvnias.” Taking this approximate figure as the starting point for our calculations, we find that a ton of grain would cost approximately UAH 1,700. DPZKU is literally pleading with the ministry to give the go–ahead for this transaction. If the corporation fails to place this contract, “nearly 5.5 million employees and their families will experience financial difficulties,” it says.
Funding for this scheme is already being sought. In January, the government issued a regulation that reveals its intention to grant a five–billion loan to the Agrarian Fund by selling internal bonds and, at the same time, the government decided to raise the sovereign debt cap by this same amount.
To sum up the situation, in the summer of 2010, the Agrarian Fund bought five million tons of grain from KhIB at UAH 1,400 per ton, while now the state corporation wants to purchase 3.5 million tons at UAH 1,700 per ton.
A grain of truth for the minister
No wonder the press had questions for Mr. Prysiazhniuk. If a company with this much revenue is fully owned by the state, it’s one thing, but if it shares its profits with a private investor, there is legitimate doubt that the state would get any portion of it.
The Ukrainian Weeksent an inquiry to the Agriculture Ministry asking about the current owners of Khlib Investbud and how much the state earned by selling a stake in a company that landed a colossal grain supply contract and was given huge grain–export quotas by the government. The press secretary politely replied that the ministry has nothing to do with KhIB and thus will not offer any comments.
Driven into a corner by journalists’ questions at one point, Mr. Prysiazhniuk was forced to say this: “The state’s share in Khlib Investbud is 61% if my memory serves me right.” He refused to name the co–owner, saying he didn’t know.
Meanwhile, The Ukrainian Week obtained a reference from the state business register which says that KhIB’s authorized capital of UAH 31,000 is comprised of two shares: one belonging to Khlib Ukrainy (UAH 15,190) and the other one to Kalasar Ltd. (UAH 15,810). Thus, Kalasar owns 51% and the state 49% of the company’s stock.
The Ukrainian Week has also learned that this private investor got involved in August 2010, precisely when KhIB landed a contract from the Agrarian Fund. Intriguingly, Khlib Ukrainy is still listed as a KhIB co–founder, even though it is now being replaced by DPZKU. Who is entitled to the state’s share is an open question.
The CEO and one of the founders of Kalasar is Oleksandr Kozyriev who was recently reported in the press as the CEO of companies which the Agrarian Fund contracted last fall to supply UAH 717 million hryvnias worth of sugar at 10% above the market price.
Mr. Kozyriev was also the CEO of Ukrainian Investment Company (UIK) which earlier founded Forest City Ltd. In 2009, UIK was replaced as a founder by Andrii Adamovsky, head of the supervisory board at Rinat Akhmetov’s Farlep–Invest; Olha Dzharty, daughter of Head of the Crimean Council of Ministers Vasyl Dzharty; and Tetiana Prysiazhniuk, Mykola Prysiazhniuk's daughter.
Mr. Prysiazhniuk must have known about who owns KhIB and should have avoided supplying media with questionable information.
When Mr. Prysiazhniuk spoke to the press, he said, among other things: “Zerno Ukrainy, a state–owned enterprise, is the state operator on the grain market. Khlib Investbud is not a state grain operator.”
Meanwhile, government bill No. 8053 was published which introduces the concept of a “state export securing agent.” Such a company must be a state–owned enterprise or a commercial business co–owned by the state and chosen by the Cabinet of Ministers for the job. KhIB fills the bill.
If this government bill passes parliament, the export agent will have an exclusive right to purchase agricultural products intended for export. No other companies will be permitted to do likewise. Naturally, all producers will have to do business through this government–appointed agent and pay export commission fees.
That is pretty much what is already happening on the grain–export market. Lacking export quotas, some large exporters started receiving proposals to purchase some of the quota belonging to Khlib Investbud.
The shambolic renovation of the Central Electoral Commission, which has been in progress for several years now, looks about to be finally concluded. On Feb. 5, the President submitted a list of candidates to the Verkhovna Rada and this suggests that the process is finally being unblocked