On Saturday, December 6, under cover of darkness, the supervisory board of PJSC Centrenergo appointed a new CEO. Unexpectedly, the new CEO was Igor Balabanov, a businessman from Donetsk unknown to the general Ukrainian public but well-known in his native city.
Such a dubious personnel decision immediately raised many questions. First, why Balabanov? The Donetsk millionaire can in no way be considered a Maidan sympathizer—on the contrary, he's a classic Donetsk man, with close ties to the local elite, which is completely at odds with the "New Life" promises. Second, why in the middle of the night? Third, an appointment of this kind should have been coordinated with the Cabinet of Ministers, but this was not done. It seemed as if Balabanov's appointment was shrouded in secrecy. This is hardly surprising, given the Donetsk millionaire's past.
In 2011, Focus magazine included Balabanov in its list of the 200 richest people in Ukraine. The publication estimated his net worth at $10 million. The magazine described the millionaire as a co-owner of the financial and industrial company BIS-Holding, and his main activities included furniture retail and small boat manufacturing.
In reality, Igor Balabanov's interests are much broader. In the 2000s, he owned the Asta furniture factory in Yasinovataya, the Margo furniture hypermarket (named after the businessman's daughter), the Druzhba Hotel and the Plakuchaya Iva restaurant in Donetsk, as well as a plastic window production line, several large plots of land in Donetsk and Svyatogorsk, the financial companies Donfinservis LLC, Donfincom LLC, Fininvest-Group Asset Management Company LLC, the Svyatogorsk-Investbud construction company, the Navigator Water Sports Center LLC, and other assets.
It's especially worth noting that Balabanov's activities also included energy trading. His Donbasuglesbyt LLC supplied electricity to industrial enterprises in Ukraine, as well as fuel and equipment to power plants, effectively acting as an intermediary between energy generating companies and industrial facilities. It's likely that his connections in this sector helped Igor Balabanov gain access to Centrenergo.
Such an appointment, however, can hardly be considered beneficial to the state. For many years, Igor Fedorovich was on the unofficial list of Donetsk raiders and was known for his rather blunt personality in business circles. He successfully operated under the patronage of high-ranking officials, in particular, two vice-governors of the Donetsk region, members of the Party of Regions, Sergei Dergunov and Boris Adamov. Before becoming deputy governor, Dergunov worked as a top manager for Balabanov and headed the same BIS-Holding from 2003 to 2005, from where he was delegated to power. After his departure, Adamov's son-in-law, Kirill Garshin, became president of the holding.
Hotel "Druzhba"
In 2007, BIS Holding and its high-ranking patron, Sergei Dergunov, became embroiled in a corporate raiding scandal for the first time. Balabanov's company, which owned most of the Druzhba Hotel (the holding's headquarters occupied its entire top floor), began ousting the other co-owners from the hotel and forcing them to sell their premises to Balabanov at a price that was clearly undervalued at the time.
At the time, the Druzhba was one of Donetsk's most famous hotels. Situated in the very center of the city at 48 Universitetskaya Street, it was a coveted property. Later, in 2011, it was acquired from Igor Balabanov by Oleksandr Yanukovych's MAKO company. The Druzhba no longer exists—it was scandalously demolished in the summer of 2011, after which another of Yanukovych's skyscrapers rose in its place.
But in early 2007, the Druzhba Hotel still belonged to several co-owners. In addition to BIS-Holding, the building was also owned by Restaurant Druzhba LLC, Inturs-Donetsk, the Druzhba Hairdressing Company, and entrepreneur Tatyana Golembovskaya. After these organizations refused to voluntarily sell their shares in the hotel, a harsh crackdown on the entrepreneurs ensued.
An open letter from victims of Balabanov's raid to Donetsk Mayor Alexander Lukyanchenko, in which they described what happened, has been preserved online:
"Dear Alexander Alekseevich! The owners of the allocated non-residential premises, totaling 808 square meters, on the ground floor of the Druzhba Hotel, located at 48 Universitetskaya Street, Donetsk, are seeking your assistance. Since January 27, 2007, when Bis Holding, a financial and industrial company represented by I.F. Balabanov, acquired 83% of the premises in the hotel building, all co-owners have experienced problems with the legal use of their private property. Through corporate raiding, intimidation, and destruction of our property, Bis Holding intends to deprive us of our right to our property.
Through fraud, deception, and threats, he had already seized the premises of the Druzhba Hotel LLC and the Druzhba hair salon. However, despite our repeated appeals to the Voroshilovsky District Police Department, the Voroshilovsky District Prosecutor's Office, and the city prosecutor's office, law enforcement officials found no criminal offense in the actions of Bis Holding's management and allowed I.F. Balabanov to continue his rampage and destroy our property," stated the letter from entrepreneurs Kaliushko, Sobolev, and Golembovskaya.
The raiders' methods were classic for similar situations, and the letter's authors also described them in detail.
“Without any grounds or warnings, on July 17, 2007, at 5:30 a.m., information stands and advertising boards belonging to Intours-Donetsk LLC and Restaurant Druzhba LLC were smashed in a barbaric manner in the hotel premises and on the building’s facade.
After the police were called, the actions of the employees of ZAO FPK Bis-Holding became even more barbaric. On orders from I.F. Balabanov, they cut off power to OOO Inturs-Donetsk and sealed all the locks on the entrance doors of T.V. Golembovskaya's office with epoxy glue. All this time, I.F. Balabanov threatened to confiscate our premises if we did not voluntarily surrender them, and he continued to vandalize our property.
So, on August 3, 2007, despite repeated appeals to the police to protect our property and about impending pogroms, I.F. Balabanov gave the order to his workers to cut off part of the ventilation box of the exhaust system belonging to the Druzhba restaurant and weld it shut with metal grates."
The appeals yielded no results, and ultimately the entrepreneurs were expelled from Druzhba, with BIS-Holding taking complete control. Artem Furmanyuk, a well-known Donetsk journalist and author of numerous investigative journalism, named Deputy Governor Sergei Dergunov as an accomplice to the corporate raid in his publication.
Attack on the Donbasstransstroy Trust
But Balabanov's collaboration with another vice-governor, Boris Adamov, proved far more fruitful. Together, in 2007, they carried out a hostile takeover of Donbastranstroy CJSC, then one of Ukraine's largest railway construction and repair companies.
The pretext for the attack was a number of highly attractive company assets. The trust included completely useless and unnecessary construction and assembly trains and a defunct reinforced concrete plant in Krasnoarmeysk, as well as quite profitable subsidiaries—an active sand quarry in Krasny Liman and the Artemovsk wall materials plant, which produced bricks. It was no coincidence that Adamov was interested in these assets. Boris Adamov's son, Alexander, is the owner of a large construction company, Directorate of Administrative Buildings, which has built a number of facilities in central Donetsk over the years.
The trust also had another remarkable asset: an office building located in the very center of Donetsk at 15 Teatralny Avenue. In the pre-crisis year of 2007, when real estate prices in Ukraine reached their peak, the building's value amounted to several million dollars.
Because of him, Adamov and Balabanov set their sights on the Donbasstransstroy trust, and ultimately, the deputy head of the regional state administration got what he wanted. After the trust was seized, his office was converted into high-end boutiques.
Donbasstransstroy CJSC presented an ideal target. Its shares were distributed among 5 shareholders—mostly its employees and their families. The company was in crisis and was not paying dividends to shareholders. The purchase of its shares was arranged through Igor Balabanov's financial company, Donfinservice LLC, which was part of BIS-Holding, headed by Boris Adamov's son-in-law.
By law, only a company that has a special license for this purpose can purchase securities.
In the spring of 2007, Donfinservice purchased the shareholder register of Donbasstransstroy CJSC from the share registrar. Such information is usually classified, and its purchase is traditionally the beginning of a corporate raid. Mobile groups of share buyers visited the shareholders' addresses, operating in Artemovsk, Krasnoarmeysk, Debaltseve, Yasinovataya, Krasny Liman, and Volnovakha, where the company's branches were located. The price offered was many times lower than the actual value, but with no alternative, the shareholders readily parted with their certificates.
The trust's management learned of the share buyout fairly quickly. Letters were sent from the firm to shareholders urging them not to sell their shares to Donfinservice, but Balabanov's company had already acquired 10% of the shares by that time and continued operating. The purchaser of the shares was formally Donbassbudinvest-Holding LLC, a Cyprus-registered company created by Adamov's entities. The trust's shares were transferred to its ownership, and thus, the raiders soon declared themselves holders of a blocking stake. By the fall, Adamov's representatives managed to acquire approximately 40% of Donbasstransstroy and hold a shareholders' meeting in Khartsyzsk, at which the trust's management was ousted. However, not a single shareholder, except Adamov's Donbassbudinvest-Holding, was admitted to the meeting. Thus, the trust was effectively devoured by its new owner.
Newspaper article about the seizure
Donbasstransstroy's management even attempted to complain to Yanukovych about the Adamovs, father and son, but an open letter in which the company's staff scolded the "mafia family" that dared to hide behind Viktor Fedorovich's "holy name" remained unanswered.
Interestingly, a year later, another similar enterprise, AOZT Agrospetsmontazh, suffered the same fate as the trust. It was also acquired by Adamov's company with the help of Igor Balabanov's firm. However, this time, a contract was reached with the management, and the attack was not followed by scandals or protests.
Given this background, the appointment of Igor Balabanov as head of Centrenergo is, to put it mildly, alarming. Clearly, there's no point in talking about combating corruption with such a leader.
The dire state of Ukraine's energy sector and the state's catastrophic lack of funds would seem to have at least temporarily blocked the possibility of such personnel changes. But as it turns out, even the real prospect of state bankruptcy and social upheaval hasn't blocked the path to lucrative positions for members of the "old guard."
The Donetsk team feels quite comfortable in Ukraine even without Donetsk.
Denis Kazansky, LB
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