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17 April, 2012

National Project Watch

An investigation has revealed the essence of Ukraine’s current “national projects”program: these are mostly frauds covered up by hollow promises

In his every speech abroad, Viktor Yanukovych mentions what he calls “national projects.” What the Presidential Administration is apparently trying to show is that someone still dares to invest in Ukraine despite any lack of the rule of law and the all-embracing corruption the country faces every day. Eighteen months after having first declared this idea, the country’s leader still seems to be obsessed with it. However, the only visible observation that can truly be made is that the ‘national projects’ program is nothing short of the rest steps of the current government. They are ineffective, promoted in campaigns which are not backed by real actions, and only a small group of people has profited from them.

NAPOLEON’S AMBITIONS

As this article was being prepared, hope flickered that it would mostly focus on the implementation of the aforementioned ‘national projects’. Alas, it turned out there was nothing to investigate in this area since the State Agency for Investment and National Project Management (SAINProM), run by Vladyslav Kaskiv, could not really boast of any realistic achievements. The national projects remained at the stage of talks and press releases, exactly where they were a year ago. And to prove this sad reality it is enough to say that the ‘Reports’ page of SAINProM’s website has not been updated since July 2011.

The construction of an LNG terminal, advertised as a top national project priority, was still stuck at the feasibility study drafting stage. Where it will be built, and by whom remains unknown.  From time to time, the whole process highlights a funny controversy: while Viktor Yanukovych and Vladyslav Kaskiv were trying to convince the few representatives of foreign businesses, who were still willing to listen, to invest in the terminal, Vitaliy Demianiuk, the LNG Terminal project director, said there was no longer a plan to build one. Instead, the government was going to rent a cheaper and smaller floating LNG terminal, even though it has a lesser capacity. On 21 January, Yuriy Boyko, the Energy Minister, confirmed this by saying: “We could live without building this costly infrastructure and the two years it will take to launch it.”

The progress of other national projects is heading in a similar direction. The Open World, for instance, is a project to set up a 4G network and provide Ukrainian school children with electronic textbooks. In spring 2011 SAINProM officials pompously announced Viettel, the Vietnamese communications operator, as an eager investor. At this point, though, The Ukrainian Week’s sources at SAINProM say the enormous price Ukrainian officials have demanded for granting the 4G monopoly scared the Vietnamese investor away. It was only going to invest $600mn while local politicians had stated $2bn. The intention to sell this frequency resource in Ukraine at its most expensive is indeed worth a comment. No surprise then that it turned out unappealing to any investors other than the offended Vietnamese. Having failed in Ukraine, Viettel quickly invested its cash in Mozambique and is already operating there.

Obliged to report on his work to the public by law, SAINProM’s Director has recently made a sensational announcement. His Agency drew in as much as $450mn investment in 2011 alone. According to the international road show of national projects, contracts worth another $2bn are already waiting to be signed. These numbers certainly look impressive. However, Mr. Kaskiv never talks about these mysterious investors, who just can’t wait to invest their billions in Ukraine, in any concrete terms.

“You report to have personally drawn in $450mn investment. Who is the investor?” is the question for the SAINProM Director. “This is for Air Express, a national railway project,” Mr. Kaskiv replies. “We already have contracts here,” he says. “With whom?” the reporter asks. “”Eximbank, a Chinese-owned bank,” he replies. “Is it giving a loan or investing cash?” the reporter demands. “These are two different things, aren’t they?” “This is a loan to a commercial entity, not the government, so it is essentially investment,” Mr. Kaskiv explains.

What Mr. Kaskiv forgot to add was that the $450mn provided by the Chinese Eximbank he credited as his achievement, would be paid for the work of SMSES, which is also a Chinese company.  The loan backed by the government will be repaid to the Chinese “investors” from what Air Express will earn. Should the wonder train just happen to earn less than expected, the loan would have to be repaid by Ukrainian taxpayers.

Other Ukrainian national projects include ‘Affordable Residence’, ‘Clean City’ and ‘Good-Quality Water’, all alas, only on paper so far. The only one which does actually exist is ‘New Life’, a project to improve childbirth conditions in Ukraine. Funded by the government, the project is building centers in Kyiv, Kirovohrad, Kharkiv and Donetsk. Yet, Mr. Kaskiv & Co are having a hard time meeting all New Life’s deadlines. “The plan is to open four prenatal centers by the New Year,” Mr. Kaskiv had promised many times. After the New Year, the Main Health Care Department of Kyiv City State Administration said that the opening of a prenatal center in Kyiv had been postponed to a date unknown. In late January 2012, only one prenatal center actually opened in Kirovohrad, instead of the four planned all over Ukraine.

After 18 months as the manager of all national projects, Mr. Kaskiv really has hardly anything to be proud of. His friends and ex-party fellows, though, have had a chance to enjoy this profitable affiliation.

DEAR FRIENDS…

In autumn, SAINProM found itself in the midst of a scandal. It ordered advertising worth UAH 12mn in foreign mass media and UAH 13mn in Ukraine. Surprisingly, only two competitors, Cosmopolit Management OJSC and Rozmay NGO, took part in both tenders. Cosmopolit won the first tender for advertising abroad while Rozmay got the second contract. But in reality, the two companies simply divided the UAH 25mn between themselves.

Cosmopolit Management OJSC has no office, telephone or website, yet its founder is Andriy Matiukhanov, who ran in the 2008 election to the Kyiv Council as a member of PORA, which just happens to be the party once led by Mr. Kaskiv. Mr. Matiukhanov was not easy to find, but eventually he barked back a reply and said he was not running the firm and would not tell the reporter where the company has its office, although he did confirm he was the only founder.

A more thorough check on the owners of the two abovementioned companies interestingly enough revealed a crowd of Mr. Kaskiv’s friends, colleagues and party fellows in addition to Mr. Matiukhanov who had “won” a total of UAH 29mn on various national project tenders.

One of the findings was Mr. Matiukhanov’s current employment at the Institute for Euro-Atlantic Cooperation (IEAC) chaired by Borys Tarasiuk. Mr. Matiukhanov’s boss is Oleh Hariaha, a one-time head of the PORA party Kyiv office. Mr. Kaskiv admitted he was acquainted with Oleh Hariaha. Moreover, Messrs. Matiukhanov and Hariaha are both shareholders at Business Studiya MKS OJSC.

Mr. Hariaha denied any assumptions of his involvement in his employee’s profit churning, although he was still mentioned in the developments that followed. On 9 November 2011, SAINProM signed a UAH 2mn contract with Vistka OJSC to produce printed materials. The business founders included Kostiantyn Yevtushenko, the younger brother of Serhiy Yevtushenko, Mr. Kaskiv’s one-time right hand man at PORA and Director of the One Stop Shop Investment, one of the key projects at SAINProM today; Roman Zhorin, a member of the Vasylkiv County Council from UDAR, Vitaliy Klychko’s party, whose faction leader is the abovementioned Oleh Hariaha; and Vadym Kastelli, director and linguist who is known in the media as Mr. Yanukovych’s personal interpreter.  

Mr. Kastelli confirmed that the Presidential Administration sometimes invited him to interpret for the president. Apparently, though, this is not the only factor that brought him into the narrow circle of SAINProM’s tender winners. In a private conversation, Mr. Kastelli mentioned he was friends and had a business with Mr. Kaskiv’s “young team.” As a result, Rozmay NGO founded by Mr. Kastelli got UAH 13mn from SAINProM to “create positive attitudes towards Ukraine” in the local mass media. On 7 November, it got another UAH 1.5mn. “I have these people who came over and said, ‘Boss, we’re taking part in a tender’,” commented Mr. Kastelli, who is unknown in the advertising business, during a conversation about his victories in SAINProM tenders. “What’s it about, I asked them. They said it was advertising. Sure, why not! I said”

“Did you know you have won UAH 13mn in that tender?” the reporter asked him. “Cool, I like that,” Mr. Kastelli replied.

“Tenders held by our agency are perfectly transparent,” Vladyslav Kaskiv assures the reporter. “So, digging for some distant friendships or family relations looks like media provocation to me.” “Your deputy’s brother has won the tender from your agency,” the reporter says. “Is this distant friendship?” “How do I know,” Mr. Kaskiv wonders. “It’s not my job to know who’s who.”   

Clearly the UAH 29mn, which people linked to Mr. Kaskiv will bag, is nothing compared to the billions grabbed in other industries by companies close to the government. What makes the situation all the more cynical is that most of the tasks listed in the tender were never carried out either by Cosmopolit Management OJSC or Rozmay NGO. According to a report by SAINProM, all they did was publish a few articles in on-board airline magazines instead of arranging a wide-spread campaign in the leading mass media abroad. Added to this, Ukraine got only a few barely visible ads in some domestic publications rather than an extensive campaign on Ukrainian TV and billboards.

PROMISES, PROMISES

Mr. Kaskiv’s agency might indeed display some signed contracts and real investors daring enough to invest in Ukraine sometime in the spring, yet the numbers reported by the SAINProM Director will almost certainly turn out to have nothing to do with reality. This was the exact effect of Ukraine’s investment potential road show in Japan. Mr. Kaskiv praised it as a “success exceeding… expectations” resulting in “over 3.500 publications about Ukraine in international media.” However, no matter how hard the author searched for any publications on Mr. Kaskiv’s business trip abroad, neither the US version of Google, nor a direct search at the Financial Times, The Wall Street Journal, The New York Times and other websites gave any results on his trip around the world’s biggest cities which cost the taxpayers UAH 12mn.

All the leading Western press has been writing about Ukraine over the past few months is mostly the country’s everlasting corruption, or the verdict of Yulia Tymoshenko, even though Arzinger, a law firm responsible for arranging the road show, was paid millions from the budget to pay for publications abroad. Eventually, after being repeatedly appealed to, the firm still failed to provide any list of publications it was supposed to have had dealings with.

After a slew of arguments, SAINProM finally disclosed the list of articles printed in the press Mr. Kaskiv was so proud of. Surprisingly, it mostly included Ukrainian publications translated into English and posted on the English-language websites of Ukrainian online publications. Perhaps the only real publication on Ukrainian national projects in a leading foreign press agency was an article on Bloomberg about the lack of money to build the LNG terminal in Ukraine.

Vladyslav Kaskiv is going to tour another 25 cities all over the world in 2012. However, it looks like influential foreign investors have already made up their mind about Ukraine and Mr. Kaskiv’s presentations or meetings are unlikely to reassure them of the opposite. IKEA’s ex-CEO Lennart Dahlgren explained why his company was still not in Ukraine as yet: “Ukraine is totally corrupt. I met with Kuchma in 2004, several times with all Ukrainian premiers, Yushchenko when he was president and Yanukovych just recently. They all say they want to help us. But we never reached any deal. This is all because IKEA’s system has no money to bribe people. Clearly, it’s not just presidents and premiers, but local bureaucrats that are the problem too. And how could land in Kyiv be three times more expensive than in Moscow or London?”

Last year, the state budget had UAH 1.15bn for SAINProM including UAH 31mn as maintenance costs and UAH 47mn to improve Ukraine’s investment image. The rest was supposed to be spent on the national projects, specifically their implementation. Now, it is up to the readers to decide how effective public spending has been in this area.

The article was prepared with the help of SCOOP, an international program to support investigative journalism


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