A scandal has erupted between Petro Poroshenko's Administration and Arseniy Yatsenyuk's Cabinet over the redistribution of "coal flows." The former wants coal from Russia and the occupied territories, while the latter wants it from South Africa via a convenient trader with a long-standing relationship with the country's largest financial-industrial groups.
The war in eastern Ukraine has created a shortage of coal needed to power thermal power plants, reports Insider.
Before the war, Ukraine was the largest producer and exporter of thermal coal, exporting approximately 5 million tons annually. The leaders in this sector were Rinat Akhmetov's DTEK and Oleksandr Yanukovych's Mako Trading.
The former president's son's companies purchased fuel from state-owned mines and pits, while the company of Ukraine's richest man exported coal mined at the Rovenkianthracite and Sverdlovanthracite holdings, which were acquired under concession from the state.
Currently, more than 80 mines are located behind the front line – in territory controlled by the self-proclaimed “DPR” and “LPR”.
The 37 mines remaining in Ukraine's eastern and western regions are unable to provide the country with the required volumes. According to Yuriy Zyukov, First Deputy Minister of Energy, Ukraine needs to purchase approximately one million tons of coal monthly during the winter to ensure the normal operation of its thermal power plants.
On August 19, the state-owned company Ukrinterenergo signed a contract with the British trader Steel Mont Trading to purchase one million tons of coal from South Africa at $112 per ton, including delivery. The contract ultimately amounted to 500 tons, of which 250 tons are already in Ukraine. The contract is valid until February 15, 2015.
At a Security Council meeting on November 7, President Petro Poroshenko expressed doubt that the African coal had been purchased at a reasonable price. Following this, the Prosecutor General's Office, led by Vitaliy Yarema, launched an investigation into the Ministry of Energy and Coal Industry and interrogated its top officials.
"The gist of the Prosecutor General's Office's claims is: could we have arranged this deal without a trader? What was the price and why was it set this way? What is the quality of the coal? Could we have done without a trader in such a deal? The answer is no," says Ukrinterenergo Director Volodymyr Zinevich. "The Ukrainian coal market is currently being re-divided. It seems to me that coal supplies from South Africa are a hindrance to someone."
Russia can supply our country with all the thermal coal it needs, but there's a risk that supplies could be blocked at any time for political reasons. "We've approached the Ministry of Foreign Affairs, asking them to help us find a non-Russian partner through their diplomatic missions. We've received a significant number of offers," says Zinevich.
For example, Peru offered Ukraine coal of the required quality on FOB terms (price at the port of shipment, excluding the cost of cargo delivery) for $150 per ton, China - $105 (FOB), traders from the USA - $75 (FOB), but its quality did not meet the requirements.
Officials settled on the English trader Steel Mont Trading Ltd.
"They were the only ones who offered us the opportunity to finance this deal, and the trader is financing 80% of the purchase. Ukrinterenergo is only providing a 20% advance payment, and we pay the remaining 80% upon delivery of the vessel to the port," Zinevich asserts.
What determines the price of African coal? According to Ukrinterenergo, freight at the South African port of Richards Bay costs $20 per ton, while Steel Mont's markup is $1-2,5 per ton.
"Many ship owners cancelled their insurance for calls at Ukrainian ports due to the ATO. This meant they had to insure their cargo and pay for quality inspections. This brings the price to $86 per ton," comments Zinevich.
Ukrinterenergo's markup was $2 per ton. As a result, the price of a ton of African coal delivered to the Zmievskaya TPP was $112 per ton, and to the Trypilska TPP, $110 per ton.
Counterparty of Akhmetov, Ivanyushchenko and Abramovich
So, which international trader received the controversial government contract? Steel Mont Trading is registered in the UK.
According to UK registry documents, the trader's authorized capital consists of two shares with a par value of £1 each. The shares are owned by the Cypriot company Steelmont Holding Limited. Its shareholders are a married couple from India, Kasturi Saraiya and Rajesh Kumar Saraiya.
The Indian press calls Saraiya the first Dalit billionaire, or untouchable. According to reports, the businessman owns a multinational metal trading company.
Interestingly, however, in British documents, Saraiya appears as a Ukrainian resident. Indian media have mentioned that the businessman's company is also based in Ukraine.
Indeed, Steel Mont has long had a representative office in Kyiv, managed directly by Saraya. Another of his London-based companies, Ultratest System Limited, is registered there.
In other words, Saraiya cannot be called an outsider.
It turns out the businessman's companies are actively operating in Ukraine. The Fiscal Service reported that Steel Mont and its affiliates actively collaborated with Ukrainian financial-industrial groups.
In 2013, the Avdiivka Coke and Chemical Plant, owned by Rinat Akhmetov's Metinvest Group, and the Yenakiyeve Coke and Chemical Plant, which is also controlled by Metinvest, along with entities belonging to Yuriy Ivanyushchenko and Ivan Avramov.
The Ukrainian companies Evraz Bagleykoks and Evraz-DMZ named after Petrovsky, which are controlled by the Evraz Group, also worked with the Steel Mont Group for export. The group's main shareholders are Roman Abramovich, Alexander Abramov, and Alexander Frolov.
Ultratest System, Saraya's second company, appears in the Donetskstal report. Victor Nusenkis as one of the main clients.
The Indian businessman has a long and successful history of working with Ukraine's largest financial and industrial groups. The facts cast doubt on the Ukrinterenergo head's assertion that a non-Russian coal supply partner should have been sought through the Ministry of Foreign Affairs.
War between the Cabinet of Ministers and the Presidential Administration
What's behind the big scandal surrounding South African coal?
The combined information gathered from various sources allows us to conclude that a serious war has broken out between the Presidential Administration and the Cabinet of Ministers over the "coal flow."
Several weeks ago, people aligned with Poroshenko began promoting a story in the media about billions in subsidies being transferred to state-owned mines in the occupied Donbas.
"About 3 billion hryvnias were transferred to enterprises in the uncontrolled territories. Moreover, the transfers went to repair plants where separatists repair armored vehicles," claimed a high-ranking official close to Poroshenko.
Later, one of the BPP leaders, Yuriy Lutsenko, directly named Deputy Energy Minister Yuriy Zyukov as "the organizer of this scheme" on his Facebook page. "The answers to these questions lead to the procedures established within the current government," Lutsenko explained vaguely.
All this is happening against the backdrop of negotiations over the future coalition and the new Cabinet. It's also worth noting that the South African coal case is being investigated by the Prosecutor General's Office, which is part of the presidential vertical of power.
Meanwhile, a source in the Ministry of Energy and Coal Industry said that the Poroshenko administration is lobbying for a different coal procurement scheme – not from South Africa, but from Russia.
"Homeless" and Mezhyhirya
In this regard, another coal contract, recently concluded by the state-owned company Centrenergo with the Cypriot firm Neocar Contracts Limited, is of interest. According to a source at the Prosecutor General's Office, this contract has also become the subject of law enforcement investigation.
Neocar is owned by Serhiy Kuzyara, a former advisor to Eduard Stavytsky, the Minister of Energy during Viktor Yanukovych's presidency.
Kuzyara confirmed this information. According to him, the contract provides for the delivery of 150 tons of coal monthly until the end of the year. This is grade A (anthracite) and grade T (lean), which are the grades Ukraine is experiencing a shortage of.
The fuel price is $80 per ton. According to Neocar's owner, the contracted coal is mined in the Kuzbass region of Russia.
The fuel is sourced from Russian coal mining companies, including Igor Zyuzin's Mechel and Sibuglemet, which, according to Kommersant, was purchased this year by "Russian shareholders of the Industrial Union of Donbass, led by Alexander Katunin."
Kuzyara was previously considered one of Oleksandr Yanukovych's managers. Through DRFC, a company that united coal enrichment plants, Yanukovych supplied coal to the state-owned company Centrenergo and the private power generation company Donbassenergo. Since 2013, a controlling stake in this company has belonged to Donetsk businessman Igor Gumenyuk, for whom Kuzyara also worked.
Kuzyara also served as an advisor to Yuriy Boyko when he served in the Azarov government. Most recently, he served as an advisor to ISD co-owner Serhiy Taruta when he served as governor of the Donetsk region.
"I've spoken with absolutely everyone involved in coal. If you ask anyone who's been in the market for the last 15 years, I'm sure my name will be one of the first to come up," Kuzyara says of himself.
The nominal director of Neocar, the Cypriot firm Fynel, has already been the subject of journalistic investigations.
As Ekonomicheskaya Pravda reported, the legendary "Riga homeless" Stan Gorin and Erik Vanagels, who were implicated in the scandal surrounding the purchase of the "Boyko towers," were listed as directors of Fynel.
However, Fynel has nothing to do with this story. The firm acted as a nominee director, just like in the Neocar case, at the British company Navimax.
At one point, Navimax was a key element in the unofficial ownership structure of former President Yanukovych's "Family." The company indirectly owned the "Family's" Crimean real estate, as well as stakes in the Lemtrans corporation and the DRFC association, which united five formerly state-owned mining and processing plants.
The nominal “partner” of Navimax in Ukraine was the former trade union organizer of the Mezhyhirya residence.
"Fynel is in no way connected to Boyko's towers," says Kuzyara. "It's a secretarial company that services numerous legal entities."
Overlapping suppliers
According to the Ministry of Energy and Coal Industry, in addition to Neocar, two other companies submitted commercial proposals to Centrenergo's management.
Hong Kong-based Arida Global Limited, represented by Semyon Katsman, offered to supply 400 tonnes at $86 by the end of the year. The company was founded in May 2011.
The Cypriot company Spolinia Enterprises Limited has offered to supply 250 tons by the end of the year at the same price. Yulia Shemetova is listed as its representative in the "offer." According to the Cypriot registry, the company was established in October of this year.
The specifications and quality of these companies' coal are completely consistent with Neocar's. However, their proposals were not accepted.
Kuzyara denied any connection to them. "They are intersecting suppliers. Initially, there was talk of delivering 400 tons of coal per month. However, the need for that volume subsequently disappeared," the trader said.
How did Kuzyara manage to negotiate with Centrenergo for Russian coal supplies? According to a source at the Ministry of Energy and Coal Industry, Kuzyara, with the help of Russian embassy representatives, managed to secure the support of Boris Lozhkin, the head of the Presidential Administration.
"This 'coalman's' car can often be seen near the Presidential Administration," the source says. Arseniy Yatsenyuk's Cabinet of Ministers is confident that the president's office is lobbying for coal purchases from Russia.
This theory is supported by the fact that $80 per ton is an inflated price for Russian coal. A source at DTEK previously reported that the fuel was selling in Russia for $70-73 per ton this summer.
Kuzyara denied any connection with Lozhkin. "By definition, this person doesn't deal with the economy. Such agreements should be made at a different level – at the Cabinet of Ministers and the relevant ministry," he stated.
Boris Lozhkin could not be reached.
It's worth noting that Centrenergo is currently headed by Oleg Zhebsky, a business partner and ally of Energy Minister Yuriy Prodan. "He was pressured by the Presidential Administration to sign a contract for the supply of Russian coal," the government claims.
Trading House and the "DPR"
A source in the Cabinet of Ministers also reported that Kuzyara initiated the creation of a scheme under which Ukraine can purchase coal from territories controlled by the "DPR" and "LPR" at 1300 UAH per ton.
For this purpose, the source says, a legal entity has already been created – Trading House "Energoalliance." According to the State Register, a company with this name was registered in Donetsk in June.
A company with a statutory capital of one million hryvnias listed its main activity as “wholesale trade in solid, liquid, and gaseous fuels.”
Its founder is listed as Yuriy Degtyarev, who previously headed the tender committee at the state-owned enterprise Shakhterskantratsit. The trading house's director is Elena Bondarenko.
"I can't speak about the Energy Alliance, but I came to ask about how to work with these 'republics,'" Kuzyara partially confirmed this information.
It's worth noting that the government is also seeking to purchase coal from the Donbas. "Currently, there are about four million tons of coal sitting in mine warehouses," says First Deputy Minister of Energy Yuriy Zyukov. "It has zero value; we paid subsidies for it. Besides, the miners in the Donbas need to make a living somehow."
The only thing preventing representatives of the Presidential Administration or the Cabinet of Ministers from openly declaring the need to purchase coal from the territories of the "DPR" and "LPR" is public reaction. Meanwhile, Ukraine still won't have enough coal from South Africa.
"Coal from Donbass is both closer and more understandable to us," Kuzyara explains his original proposal.
As previously noted, Kuzyara worked as a manager for Igor Gumenyuk. Prior to that, he worked at the company "ARS," a close associate of Rinat Akhmetov. According to a popular theory, the name "ARS" stands for "Alik, Rinat, Samson."
At least two representatives of the "DPR government" have been linked to Gumenyuk's structures and the ARS. This includes the "head of the DPR," Alexander Zakharchenko.
However, the government rejected Kuzyara's scheme. "We are not conducting any negotiations with militants regarding coal supplies," Yuriy Prodan stated after being questioned by the Prosecutor General's Office on November 10.
According to sources at the ministry, this doesn't mean the government has abandoned the idea of purchasing coal from militant-controlled territories altogether. What matters is who will implement the supply system and who will oversee it.
Prosecutor's Truth
Subscribe to our channels in Telegram, Facebook, Twitter, VC — Only new faces from the section CRYPT!