In the service of the oligarchs
Napoleonic scale plans were set for the State Property Fund to earn UAH 12 billion for the state in 2020. Due to the coronavirus pandemic this has been replaced by a far more modest target of just 0.5 billion UAH. Not being able to make money on the sale of state property, the heads of the SPF Dmitry Sennichenko and Sergei Ignatovsky instead appear to have given a green light to black profit schemes and the arrival in the state company of odious individuals looking for the interests of oligarchs in the place of effective managers of state enterprises. Such actions not only harm quite viable city-supporting state-owned enterprises like regional power companies, they negatively affect the well-being of citizens and the country's economy as a whole, and at the same time cut the rating of President Zelensky and his Servant of the People party and brand. Inefficient activity and corruption in state-owned enterprises is a good reason, as the fable writer Krylov wrote, to "use power."
According to last year's data from the State Statistics Service, there were 3,789 state-owned enterprises in our country. According to the Cabinet of Ministers, half of them are bankrupt, 20% are ruled by parasitic businessmen of various calibers and only the remaining 30% are profitable. In recent decades, inefficient state-owned enterprises have cost our country more than 82 billion in losses, and the situation continues to worsen.
Dmitry Sennichenko
In the domestic vertical of power, the State Property Fund, which is currently headed by Dmitry Sennichenko, is responsible for the state of affairs at state-owned enterprises. Let's try to understand how effectively the SPF performs its function of monitoring the effective management of state assets and whether its leadership can, in principle, distinguish between professional leaders from those looking out for the interests of oligarchs and as such driving normally profitable state companies into a black hole of losses and bankruptcies.
"And who are the judges?"
Readers may remember this line from the hero of Griboyedov's cult comedy "Woe from the Mind" as it was emotionally asked. In our case, the "judges" are those who, according to their managerial responsibilities, must monitor the effectiveness of the management of state-owned enterprises, ensure transparent staffing competitions and prevent the practice of replacing successful managers of state-owned companies with the notorious representatives of oligarchs. Even while under pressure from those same very powerful oligarchs. And these people are Dmitry Sennichenko, the head of the State Property Fund, and Sergei Ignatovsky, his deputy in charge of managing the State Enterprise Fund.
Sergey Ignatovsky
It is absolutely clear that only someone who understands the principles and standards of enterprise management, especially in times of crisis, can judge the quality of management. There can be no doubt that Sennichenko does not belong in this category of specialists. In order to see this a brief analasys of the results of his work as director of real estate and infrastructure management at the state-owned post service Ukrposhta is all that’s needed. In the biographical information distributed on the Internet, an important noted achievement of the current head of the SPF is the introduction of the practice of leasing real estate of that enterprise through the Prozorro system. However, the impartial conclusions of the auditors from the State Audit Office, like waves crashing against a stone, shatters this myth of Dmitry Vladimirovich's managerial feat into a harsh reality. After looking through the pages of their audit report on the activities of Ukrpochta during the period when Sennichenko worked there, from 01/01/2016 to 31/12/2018, we learn that the number of premises that are not leased and do not bring any income to Ukrpochta increased by more than 37%.
As of December 31, 2018, the number of lease agreements compared to the beginning of 2016 decreased by 32.5%, and the area of ??leased premises of Ukrpochta decreased by 20.6%. Thus, the claimed "successful state manager", who received a sky-high salary following the example of his boss Igor Smelyansky, Dmitry Sennichenko, oversaw the deterioration of the performance in the field where he claims his success by 30% compared to his predecessor in this position. At the same time, it is clear that the salary of his predecessor was many times lower than Sennichenko's, and he had never heard of Prozorro.
The auditors note that due to Sennichenko's failure to comply with the law and not renting out clearly defined Ukrpochta premises, this state-owned enterprise not only did not receive income, but in fact had to bear expenses in the amount of 1,809,000 UAH due to the lack of productivity.
In general, the losses of Ukrpochta under the leadership of Smelyansky's management team, in which Dmitry Sennichenko played one of the first violins, are estimated by auditors at 540.5 million UAH, a colossal figure that is enough to take your breath away. But instead of saying goodbye to Sennichenko forever as a state manager, dismissing him from this whole line of work, Ukraine’s current authorities appoint this person as chairman of the SPF, in fact, the manager of all state property.
As reflected in his work at Ukrpochta, Sennichenko is a complete layman in matters related to effective state property management. However, as US President Franklin Roosevelt said of Nicaraguan leader Anastasio Somos, "He may be a son of a bitch, but he is our son of a bitch." Adhering to this principle, high power patrons, putting "their" Dmitry Vladimirovich in an important position then needed to add a deputy in the person of Sergei Ignatovsky, a classic "solver" of situations and a participant in many businesses over many years. This is the real shark world of "cuts" and other graft schemes known in the sphere of state-owned enterprises.
What are the achievements of Sennichenko's right hand, Sergei Ignatovsky? The list would be very impressive, but it is not related to such concepts as honesty and observance of the law. Suffice to say that before working at the SPF, Ignatovsky served as director of legal affairs in the famous agricultural holding "Dream". Through that business the former shareholder Nikolai Guta took his creditors (among them the authoritative IFC, Alfa Bank, Credit Agricole, Deutsche Bank DBU, Erste, FUIB) for as much as 760 million euros and then simply disappeared, "dissolving into thin air." Tasked with the mission of returning property to creditors, Ignatovsky came up with only the right to lease for 5 thousand hectares of agricultural land and a small agrobusiness in the Ternopil region. Against the background of the huge assets amassed at Dream, it is even difficult to call this even a drop in the ocean.
One can imagine how effectively Ignatovsky manages state assets with such an approach. But there is no doubt that, given the old ties with oligarch Rinat Akhmetov's structures when he worked at Metinvest Holding, the current deputy head of the SPF will help his ex-boss get pocket managers placed among the executives in state-owned companies being endlessly shuffled now by the SPF.
Diagnosis: running graft schemes
As chairman of the SPF, Dmitry Sennichenko demonstrates a huge appetites, he promised to raise an impressive 12 billion hryvnia for the budget from privatisation. But already on March 30, these grand plans fly away like smoke from a chimney. That is to say, misfortune triumphed over happiness. His Majesty Quarantine comes into play, and it is, of course, unwise to sell state (or any) property in a crisis. Now the mythical 12 billion UAH is in the past, with coronavirus as an excuse the government of Denis Shmygal set UAH 0.5 billion set as the revised privatisation income target for the SPF for the whole of 2020. For Sennichenko and Co. these plans should not be hard to fulfil, especially as 300 million UAH has already been earned. And then there is a major difference to consider: if privatisation leads to the real receipt of money in the state budget (even if part of it in the form of backroom dealings settles in the pockets of government officials), then on the other hand the management of state enterprises by parasitic oligarchs through their pocket managers and the placement of "acting" managers in state businesses is the exact opposite. Schemes of corrupt earnings in this area are well known. Among them the purchase of goods at inflated prices, notorious tolling schemes, the sale of products to related parties at reduced prices, and so on.
Instead of privatization, which fills the budget, today’s SPF leadership focuses on the appointment of "watchdogs" who control the management and flows of key, or rather rent-producing, state-owned enterprises. As a result, a strict cleansing of the ranks of the management of state-owned companies has begun. These are the tasks that have fallen to Sennichenko, Ignatovsky, and the oligarchs behind them, allowing them to get people they control in a very convenient "acting" (appointed without competition) status at the heads of many such companies.
Personnel changes which have taken place without transparent competitions, "on the word of honour" of the heads of the SPF, have already led to or are leading to a significant deterioration in the activities of state companies. Previously profitable state-owned enterprises (sometimes on which entire cities depend) significantly reduce the efficiency and performance of their work.
One of the most striking examples of what is underway is the Odessa Portside Plant (OPP). At the end of January 2020, the Cabinet of Ministers changed the management of the plant, appointing Nikolai Sinitsa, whose companies (including the Two Geese restaurant chain) are suspected of fraud and tax evasion. Following this appointment, the plan to privatise the plant slowed down, and then the SPF abruptly cancelled a tender for the supply of raw materials to the plant right at the stage when they should have been announcing the winner of the tender. When unprofessional management comes to an enterprise it is always a danger, and no more so than when the new management of the plant is illiterate in or has no experience of being in a senior position in the chemical industry. According to the deputy director of OPP, Nikolai Shchupikov, though it is not declared the company continues to amass debt. “If in 2019 the plant ended with a loss of UAH 80-90 million, then in the first quarter of 2020 the losses increased to more than UAH 1.5 billion."
According to the first deputy director of OPP representatives of the SPF have resorted to sabotage. In an interview, the Chairman of the State Property Fund of Ukraine declared that the change of management at OPP is intended to bring about a high quality and transparent preparation for privatization, optimization and transparency of procurement, reduction of overhead costs of the enterprise, transition of the enterprise to its own purchase of gas and sale of mineral fertilizers. But it turned out the other way around. It is not a privatisation that is being prepared, but the taking of the plant into predetermined private hands. As things appear, the company is being deliberately driven into debt and drowned by incompetent management, which will lead to the obvious devaluation of the enterprise which in turn will mean a sale for pennies of an important state asset. "This opaque privatization is more like a raider seizure of an enterprise, led by Sergei Ignatovsky, deputy chairman of the State Property Fund," Nikolai Shchupikov told Ukrainian News in an interview.
A difficult situation has also developed around the United Mining and Chemical Company (“UMCC”). The legal department of this company has accused the SPF of blocking the company's operations and even not allowing employees to work. This happened after Mikhail Makarov, the legal head of the UMCC, was replaced whilst on sick leave during the quarantine (also without any competition) by Peter Davis, who was appointed by the SPF. The UMCC stated that Davis, a British citizen who has a poor command of both the Ukrainian language and legislation, acting on the instructions of Sennichenko and Ignatovsky, is committing destructive actions at yet another of the country's strategic enterprises.
Sennichenko and Ignatovsky are actively appointing their people to state-owned enterprises in the energy sector as well. For example, Alexei Bespalov, an adviser to the head of the SPF, was appointed a member of the supervisory boards of the state energy companies in the Cherkasy, Zaporizhia and Kharkiv regions. There’s a degree of spice to the situation by the fact that Bespalov is involved in a National Anti-corruption Bureau of Ukraine (“NABU”) investigation into the withdrawal of state funds to the accounts of the private company Energomerezha. Until 2015, Bespalov headed the Supervisory Board of this company, which was headed by Dmitry Kryuchkov, who sat on the Verkhovna Rada Committee on Energy. In 2015, regional power companies which were managed by the SPF concluded agreements with Energomerezh on the assignment of consumer debts for services at large enterprises. As a result, Energomerezha received funds from companies for the purpose of making settlements with regional power companies, but instead it is alleged that they transferred these funds to individuals and companies. As a result, the state suffered millions of dollars of losses.
The latest examples of personnel reshuffles from the SPF are management replacements at Kharkivoblenergo and Khmelnytskoblenergo. In Kharkiv, the State Property Fund appointed Konstantin Logvinenko to steer the regional power company instead of Vasily Skopenko without explanation. Despite the fact that it was under Skopenko that for the first time in seven years the investment program at that regional energy firm was fully implemented, which meant 296 million UAH in invested capital for the construction and reconstruction of power grids and substations of Kharkiv region. The 2020 investment program has been fulfilled to the amount of 45% of the total annual volume during the first two months of this year alone.
The situation is similar with Khmelnytskoblenergo. In 2017-2019, despite being a state-owned enterprise, the financing of the investment program there was 100%. Add to this the dynamically growing net profit of UAH 85.7 million in 2019, which exceeds the profit of all other state energy companies combined. But instead of extending the standards of work of "Khmelnytskoblenergo" to other regional power companies, the SPF changed the acting General Director of the enterprise Oleg Kozachuk for another person – and the same happened in Kharkiv - without competition, with violations of norms of the Law "About joint-stock companies." It is possible to imagine only what carcass will remain from the once profitable and effective activity of regional power companies after the replacements of their respective successful management teams.
A “roof” for the oligarchs
A roof is a common term in the post-Soviet space for a person giving cover to others, it is this kind of structure that the SPF under Sennichenko turned into. Despite loud promises, there are no privatisation proceeds. Their realisation was quarantined. But in the sphere of management of companies with state shareholding, blatant scheming and providing a “roof” for oligarchs thrives. As soon as the enterprises are transferred to the SPF or to privatization, the burnt-out lawyer Ignatovsky changes their charter, thanks to which he receives appointees from the Fund in the form of "his" people.
We asked experts to anonymously assess exactly how and how much Sennichenko, Ignatovsky and Co. earn on state property. According to experts, two well-developed schemes are used.
The first scheme works on small government assets, where you can easily calculate flows by analyzing accounting. Here, the heads of the SPF receive a share - 25-50% of the "fat" in the state enterprise, which can range from 200 thousand to several million dollars. At large enterprises, such a scheme does not work, because it is necessary to have a good understanding of industry specifics and flows are difficult to calculate. Sennichenko and Ignatovsky are not industry experts, so a second scheme appears in the area, namely receiving a fixed amount for the appointment of the “acting” heads ofo those businesses that are necessary for the oligarchs. This amount can range from 100-200 thousand dollars at small state-owned companies, to $1.5 million at large facilities.
But the most damaging thing is that the rating of President Zelensky and his party suffers irreparably from the deals of the SPF today.
