Ukrainian State-Owned Enterprises Weekly – Issue 80

Ukrainian State-Owned Enterprises Weekly
·5 min read

Editor’s Note: This is issue 80 of Ukrainian State-Owned Enterprises Weekly, covering events from March 18-24, 2023. The Kyiv Independent is reposting it with permission. 

Ukrainian SOE Weekly is an independent weekly digest based on a compilation of the most important news related to state-owned enterprises (SOEs) and state-owned banks in Ukraine. This publication was produced with the financial support of the European Union within the project “Supporting Ukraine in rebuilding and recovery” implemented by the KSE Institute. The contents of this publication are the sole responsibility of the editorial team of the Ukrainian SOE Weekly and do not necessarily reflect the views of the European Union.

Corporate governance of SOEs

Sennychenko, former head of the State Property Fund, accused of stealing Hr 500 million ($13.7 million) from UMCC and Odesa Portside Plant. On March 23, the National Anti-Corruption Bureau (NABU) and the Specialized Anti-Corruption Prosecutor’s Office (SAPO) said that they had exposed a criminal group run by the former head of the State Property Fund (SPFU), Dmytro Sennychenko.

Sennychenko headed the SPFU from September 2019 to February 2022. He filed his resignation letter in November 2021, but the Verkhovna Rada only approved his resignation on Feb. 17, 2022.

According to NABU, the criminal group headed by Sennychenko misappropriated over Hr 500 million ($13.7 million) from Odesa Portside Plant (OPZ) and United Mining and Chemical Company (UMCC) throughout 2019-2021, but it did not end there. The criminal group’s members allegedly received Hr 2 billion ($55 million) in benefits while controlling the Odesa plant, NABU stated.

The Odesa Portside Plant, located in the town of Yuzhne in Odesa Oblast, is a major producer of ammonia and urea. In recent years, the company has operated under tolling arrangements, in which a private company supplies gas to the plant, which it rocesses into fertilisers and returns to the gas supplier. In this arrangement, the supplier owns both the gas and the fertilisers. The Odesa Portside Plant does not pay for the gas and only collects a fee for the processing.

The plant has been slated for privatization since at least 2009. It was named as the benchmark case of large-scale privatization after the EuroMaidan Revolution, but three attempts to sell OPZ have failed.

In their 2018 analysis, SOE Weekly members Andriy Boytsun and Dmytro Yablonovskyi argued that OPZ served as a showcase of how protracted privatization plummets state-owned enterprises’ value due to corruption. (See article here: “Thirteen years of lies and imitation: Does Ukraine still have a chance for real privatization?”)

The UMCC was one of the world’s largest producers of titanium raw materials, accounting for 4% of the global market, measured by titanium ore extraction. It had originally sold its products to more than 30 countries worldwide. The SPFU, then headed by Sennychenko, postponed its privatization three times in 2021. See SOE Weekly’s Issue 57 for a more detailed account on UMCC privatization attempts.

According to NABU, Sennychenko’s accomplices included:

  • a person close to the head of the SPFU (co-organizer);

  • an adviser to the head of the SPFU;

  • two acting CEOs of OPZ (in different periods);

  • the acting CEO of UMCC;

  • two owners of the company that won the auction for the supply of gas to OPZ; and t

  • wo other accomplices.

The acting CEO of OPZ and the adviser to the head of the SPFU were detained. Seven people were notified of suspicion in absentia, including Sennychenko, a person close to him, the acting CEO of OPZ, the acting CEO of UMCC, two owners of the companies that supplied gas to OPZ, and one other individual. Another person was served a notice of suspicion in person, NABU said.

According to the investigation, Sennychenko managed to appoint people loyal to him to the supervisory board of OPZ, 99.56% of which is owned by the state. These people subsequently agreed to appoint a member of Sennychenko’s alleged criminal group as the Odesa plant’s CEO, NABU said.

According to NABU, between May 2020 and October 2021, the suspects illegally extended OPZ’s gas processing deal with a company that they controlled (Agrogaztrading LLC), in order to pay the plant less money.

The members of the criminal organization realized that the constant unreasonable contract extensions could raise questions. For that reason, they arranged a competitive tender for gas suppliers for show, assuming that Agrogaztrading would win.

However, when it did not win, they illegally cancelled the results and had an agreement signed with Agrogaztrading. As a result, OPZ saw its fee for gas processing shrink instead of growing. OPZ incurred unforeseen contractual costs of more than Hr 80 million ($2.2 million), NABU claimed.

The investigation concluded that the tender was deliberately disrupted to allow Agrogaztrading to continue to misappropriate the money, NABU also stressed.

According to NABU, Sennychenko, his close associate, the acting CEO of OPZ, and the owner of Agrogaztrading illegally extended additional agreements on gas processing into urea and ammonia on terms that were unfavourable to OPZ.

The other part of the case concerns UMCC. Sennychenko is suspected of appointing a loyal acting CEO who signed four contracts for the sale of titanium-containing raw materials (ilmenite concentrate) at reduced prices with a Czech company controlled by Sennychenko’s adviser in 2020-2021.

That company then resold this product at market prices. As the investigation established, the ilmenite concentrate was supplied to enterprises in Russia and Russian-occupied Crimea, NABU said. This resulted in losses of over Hr 118 million ($3.2 million) to the state.

Note that according to Ekonomichna Pravda’s (EP) investigation in 2017, Agrogaztrading LLC was allegedly connected to former SPFU head Igor Bilous and former head of the presidential administration, Boris Lozhkin.

NABU also said that Sennychenko posed as a corruption whistle-blower to eliminate a potential competitor (another company that wanted to get the gas processing deal with OPZ), filing a NABU statement claiming that he was offered a bribe on June 22, 2020.

After that, Sennychenko allegedly continued to engage in the said crimes. The next day, on June 23, 2020, Sennychenko ensured that a new contract was signed between OPZ and Agrogaztrading on terms unfavourable to OPZ, NABU said.

So far, there has been no public reaction from Sennychenko. EP contacted him for comment, and he replied that he would “definitely provide a comment after consulting with the legal team,” which he said would take several days.