While the general public is stunned by the scale and luxury of former Ecology Minister Zlochevsky's fortress-like home, photographed by journalists, and public activists are unsuccessfully lobbying the Prosecutor General's Office to open a criminal case against this odious figure, his replacement, Andriy Mokhnik, resigned this week along with other Svoboda ministers. But in the nearly nine months the "kamikaze government" has spent at the helm of the executive branch, there has been no fundamental change in the situation regarding the widespread littering of Ukraine with household waste, nor in the shadow flows circulating within the waste sector. Apparently, they smell quite sweet to their controllers.
One of the less-noticed litmus tests of the reforms expected from the post-Maidan government is the management of packaging waste. This includes European integration—the EU has long regulated this issue with a relevant directive. It also includes competition—according to a government decree, manufacturers and importers of packaged goods have the right to enter into service contracts with the state-owned enterprise "Ukrekoresursy," which reports directly to the Cabinet of Ministers of Ukraine, or to independently collect, process, and dispose of such waste. And it also includes the fight against corruption—after all, a huge number of companies and small firms have sprung up under the "Ukrekoresursy" state enterprise, making fees for such services mandatory. And environmental protection – according to the Ukrainian Packaging and Environmental Coalition (UKRPEC), only 3,65% of household waste is recycled in the country (in the EU, it’s up to 85%), meaning not only landfills, but also roadside ditches and suburban forests are littered with waste.
The heads of Ukrekoresursy, the Ministry of Natural Resources, and the Cabinet Secretariat, on the one hand, and the heads of the Ministry of Economy and State Entrepreneurship, on the other, clashed over hundreds of millions of hryvnias of "garbage." The former argued that the old system was viable. The latter ultimately failed to prove anything, losing their positions.
Schemes related to the recycling of containers and packaging found themselves at the epicenter of a major political scandal in September 2014. At that time, the head of the State Service for Regulatory Policy and Entrepreneurship Development, Mykhailo Brodsky (he would later be dismissed as part of the lustration process), successfully challenged a lawsuit to dissolve this government agency in the Kyiv District Administrative Court. Moreover, during the scandal, the minutes of a government meeting surfaced, in which Cabinet Minister Ostap Semerak explicitly stated: "We are liquidating the agency whose leader we cannot replace and creating another agency that will perform the same functions." Prime Minister Arseniy Yatsenyuk's response was succinct: "Your work is clumsy."
A little earlier, Brodsky wrote a letter to Prosecutor General Vitaly Yarema, explaining that Semerak was "protecting" the activities of the previous system in the market for the collection, procurement, and disposal of containers and packaging materials. The liquidation of the State Entrepreneurship Agency pursues a single goal: "to remove me (Brodsky), as the head of the said agency, from the further path of 'successful prosperity' of the corrupt activities of the company and the individuals behind it."
Former Minister of Economic Development and Trade Pavlo Sheremeta added fuel to the fire when he stated the following at the YES summit: "There's a company called Ukrekoresursy. It officially recycles packaging. I tried to destroy this company four times. Once, I was told not to touch it because it was needed to funnel money into the election campaign of one of the parties. Another time, I was told not to touch it because two parties were already receiving funding through it." Sheremeta was clearly alluding to the "government-forming" party, the People's Front, on whose ticket Ostap Semerak ran, as well as the All-Ukrainian Union "Svoboda," whose protégé, Andriy Mokhnik, headed the Ministry of Ecology and Natural Resources of Ukraine. It is this ministry that oversees the environmental inspectorate, without which the Ukrekoresursy scheme would be impossible in principle.
Accounting kinks
What is the current state of the packaging waste management market in Ukraine? All packaging, whether produced in the country or imported, is effectively subject to a special tax called "tariffs for services for the collection, procurement, and disposal of used containers and packaging materials." According to Cabinet of Ministers Resolution No. 915 of July 26, 2001, and joint order No. 789/414/709 of the Ministry of Economy, the Ministry of Ecology, and the State Customs Service of Ukraine,
On July 30, 2009, the state-owned enterprise "Ukrekoresursy" was assigned responsibility for creating a collection and recycling system. This means that domestic producers and importers (when producing packaged goods or importing them into Ukrainian customs territory) must pay Ukrekoresursy in advance.
The rates are as follows: 350 UAH per ton for paper and cardboard packaging, 150 UAH for glass, 200 UAH for wood and textile, 400 UAH for tin, 850 UAH for plastic, 1100 UAH for aluminum or foil, and 1250 UAH for combined materials. These rates were approved over ten years ago, but until now, no one has seen their economic justification. And they are wildly inflated. Since then, the hryvnia has devalued threefold against the euro, yet Ukrainian rates remain higher than their European counterparts. For example, glass waste collection and disposal services are three times higher than in France and five times higher than in Poland.
This doesn't mean that Ukrekoresursy is committed to removing, sorting, and recycling/disposing of 100% of such packaging. According to the state-owned enterprise's 2011 report, of the 302,2 tons of imported packaging, recycling contracts were signed for only 12%. There is no public information whatsoever on how these contracts are implemented.
The State Environmental Inspectorate oversees the payment of the "container and packaging fee." This inspector is no less respected than a tax official, as they can issue an order for violation of environmental standards, which would shut down any business.
However, in 2001, the government stipulated that businesses, organizations, and institutions of all types of ownership could also independently recycle and dispose of packaging. In particular, large retailers and warehouses collect such packaging, sort it, and deliver it to recycling facilities, such as cardboard box factories or glass blowing plants. The funds received from the recyclers largely offset the cost of the packaging. However, the original manufacturers initially paid Ukrekoresursy for its recycling and disposal, which may not even participate in this waste recycling scheme.
A similar situation exists at the household level. The future disposal of all containers and other packaging materials we purchase in stores is already paid for in advance—at the manufacturer or importer level, and is included in the retail price of the item. Nevertheless, we are forced to pay additional fees locally for the removal and disposal of this waste in landfills and dumps. Under such a system, there's no point in pursuing recycling, and so valuable packaging waste often ends up not in recycling facilities, but in the notorious landfills.
In other words, fees for the collection, preparation, and disposal of containers and packaging materials are levied multiple times in the Ukrainian economy. Moreover, the system is structured in such a way that no single entity can be held ultimately responsible for the mountains of waste, including recyclable ones.
Holes on the border
An even more curious situation has arisen with the import of packaged goods from abroad. During Yanukovych's rule, the following system became established. Each customs office employs several entities authorized to collect fees for the subsequent sorting, processing, and disposal of containers. The environmental inspector working at such a customs office typically strongly recommends a company, to which the importer is then obligated to pay the tariffs set by the Cabinet of Ministers.
It's not necessarily Ukrekoresursy. According to the State Environmental Inspectorate for 2013, this state-owned enterprise received only 36,3% of environmental payments at the border, amounting to approximately UAH 99 million: 210 tons of packaging were approved for future disposal out of a total import volume of 578. The remaining payments were received by dozens of private entities. The largest among them are Vip Consult Ltd., Antos-Petrol, Orlan, and Eco-Energoprom. Customs brokers told ZN.UA that many of these entities "don't bother" with recycling, but they are bypassed by any inspections because they are backed by influential members of parliament and businessmen.
The Maidan revolution changed the situation only insofar as electronic customs declarations have become widely used at customs. Currently, approximately 93% of imported goods are processed this way. Environmental inspectors previously stamped the payment of the packaging disposal fee on printed cargo customs declaration forms. The Ministry of Natural Resources repeatedly asked customs officials to consider a procedure for electronic stamping by environmental inspectors, but the State Fiscal Service, whose mission is to simplify customs clearance of goods, ignored these proposals.
As a result, many imported goods are now allowed into Ukrainian customs territory without any permits from environmental inspectors. Paying the recycling fee has become voluntary. Importers see no reason to pay, as they will ultimately be responsible for collecting, sorting, and recycling containers and packaging themselves, as is common practice in the countries from which the goods are sourced.
A significant share of imports to Ukraine comes from EU countries, which have an extended producer responsibility system in place, ensuring the recycling and disposal of a significant portion of packaging waste. Directive 94/62/EC set this figure at 50–65% (depending on the type of material), and Directive 2004/12/EC further tightened the recycling standards, ranging from 55 to 80%. These requirements have been in effect in the European Union for ten years.
If we're moving toward Europe, Kyiv will have to comply with these requirements sooner or later. However, in Ukraine, this figure doesn't exceed 15%, so the system will definitely have to change.
The European approach to waste management means that packaging manufacturers and importers, in collaboration with local authorities, organize the collection, recycling, and disposal of such waste. This system prevents the operation of an opaque monopoly, and domestic producers and importers enjoy equal market conditions.
In the European Union, there are also specially authorized companies (Recovering Organizations) responsible for meeting established recycling and disposal standards. However, unlike the situation with Ukrekoresursy, their activities are subject to very strict state and public oversight. Payment for services is made only upon packaging recycling, rather than a 100% prepayment. This includes non-existent services, as is the case in Ukraine. In the West, the accounting of recycled packaging is much stricter: double counting is virtually impossible.
Corrupt business
from the Ministry of Natural Resources
It would seem that nothing could be simpler than to adopt waste management practices similar to those adopted in EU member states. The Council of Entrepreneurs under the Cabinet of Ministers, the American Chamber of Commerce, and the heads of relevant industrial associations have approached the government with this idea. In their appeals, the entrepreneurs draw the Prime Minister's attention to the corruption that has developed in the economy due to the activities of the state-owned enterprise Ukrekoresursy. As a solution, they propose supporting the government's bill "On Packaging and Packaging Waste" (No. 4266a, submitted to the Verkhovna Rada of the 7th convocation by members of parliament K. Lyapina, Yu. Derevyanko, A. Myrnyi, O. Prodan, and Yu. Shapovalov). This draft was developed by a working group under the Ministry of Natural Resources with the participation of public organizations and industrialists and aims to introduce a packaging waste management system based on a market economy and European legislation. This deprives the state-owned enterprise Ukrekoresursy of its privileged position in the market.
On June 16 of this year, Prime Minister Yatsenyuk issued a decree: “I ask that measures be taken to demonopolize. Create a model like the EU,” and instructed a number of subordinates (including then-ministers Sheremeta, Mokhnik, Shlapak, Groysman, and Petrenko, Read more about it in the article Pavel Petrenko, the "pocket" boy of the Yatsenyuk "Family") process these requests and inform the Cabinet of Ministers.
However, a month and a half later, on July 29, an order from Deputy Prime Minister Groysman appears, in which he “draws attention to a formal approach to the implementation of the Prime Minister’s order.”
As ZN.UA has learned, the Deputy Prime Minister was angered by the position of the Ministry of Ecology and Natural Resources, which blocked reforms in this area despite the efforts of the Ministry of Economy and the State Agency for Entrepreneurship. Mokhnik, the head of the ministry, wrote a letter to the Ministry of Economic Development and Trade, citing a number of court decisions aimed at maintaining the old packaging recycling regime. At the same time, the Minister of Ecology did not forget to lobby for an initiative to allow his subordinates to affix their personal seal not on customs declarations, since this is no longer possible, but on shipping documents. He also prohibited customs clearance of goods without such an environmental stamp.
In another letter, Mokhnik’s deputy, A. Nastasenko, clarifies that there is a decision of the Kyiv District Administrative Court, which declared the State Entrepreneurship Resolution No. 21 of February 21, 2014 (which implied the abolition of the previous procedure for handling packaging waste, approved by the Cabinet of Ministers Resolution No. 915 of July 26, 2001 and the joint order of the Ministry of Economy, the Ministry of Ecology and the State Customs Service No. 789/414/709 of July 30, 2009) invalid.
Nastasenko, who joined the new supervisory board of Ukrekoresursy, also informed his colleagues at the Ministry of Economy that the draft law "On Packaging and Packaging Waste" has been returned for revision, despite having been approved by the Ministry of Justice back in 2013. The reason for this is the change in the leadership of the government agencies that approved the draft law at the time.
However, the bill "On Packaging and Packaging Waste" was withdrawn not in February (immediately after the change of power), but only in July, when Prime Minister Yatsenyuk ordered the acceleration of the implementation of European packaging recycling standards. As it turned out, the document was returned for revision by the Cabinet Secretariat, headed by Cabinet Minister Semerak.
In May, Ara Safaryan, the state-owned enterprise Ukrekoresursy, was appointed head of the company. He had previously implemented a project in Dzerzhinsk (Donetsk Oblast) to reconstruct a boiler plant using "green" investments under the Kyoto Protocol. These funds are the same funds from the sale of greenhouse gas emission quotas Ukraine received during Tymoshenko's premiership, which, according to the prosecutor's office, were misused.
Interestingly, Semerak, who lobbied for Safaryan's candidacy during the Kyoto scandal, was a member of parliament from the BYuT and a member of the political council of Tymoshenko's party. Now he's on the list of Yatsenyuk's People's Front.
For the previous two years, the state-owned enterprise "Ukrekoresursy" was headed by Dmitry Radionov, a protégé of the son of former Prosecutor General Pshonka. Several criminal cases have been opened against Radionov, as Safaryan made clear at a recent press conference. However, Radionov unexpectedly resurfaced as the head of another state-owned enterprise, "Ukrainian Environmental Initiatives," which reports directly to the Ministry of Natural Resources.
Idle garbage trucks
Auditors from the Accounting Chamber concluded back in 2011 that the state-owned company Ukrekoresursy was failing to develop and implement a waste collection, procurement, and disposal system. "The complete collection, transportation, disposal, destruction, and burial of household waste and the limitation of its harmful impact on the environment are not ensured, which ultimately leads to an additional burden on the State Budget of Ukraine," the Accounting Chamber board concluded.
Safaryan, head of the state-owned enterprise "Ukrekoresursy," admitted that the earmarked funds received by the enterprise in recent years have been used extremely ineffectively. For example, 27 units of leased specialized equipment worth UAH 40,3 million are idle. Ara Safaryan agrees that his predecessors failed to take effective steps to address the problem of used packaging disposal in any locality, and that virtually all of the enterprise's work was aimed at "laundering" funds. According to accounting data, the total value of property and equipment acquired but not yet commissioned as of July 1, 2014, was UAH 136,2 million (excluding VAT).
The head of Ukrekoresursy cites the company's main activities in recent years as leasing property to crony private enterprises and providing them with financial support, purchasing equipment at inflated prices, and transferring significant sums for recycling services that do not actually increase the volume of recycling of packaging materials. Safaryan prefers not to elaborate on the state-owned company's recent fundamental changes, limiting himself to the war with its "predecessors."
In developed countries, the lion's share of municipal solid waste is recycled. This sector serves as a reliable source of inexpensive recyclable materials and is designed to generate additional revenue for the state budget, not serve as a corrupt trough for officials at the Ministry of Natural Resources and other agencies. The issue here isn't the names of specific officials, but the mechanism of the packaging waste disposal system—it should be European-style, meaning transparent and highly competitive. Otherwise, one shouldn't be surprised by the high cost of packaging and the vast accumulation of waste in Ukraine's unique black soil.
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In a clarification addressed to ZN.UA following the publication of "You're Working Clumsily" (No. 33 of September 19, 2014), along with a demand for a retraction of certain allegedly falsely stated facts, the Ministry of Ecology and Natural Resources of Ukraine stated that it would like to transfer the State Corporation "Ukrekoresursy" (in the letter they still refer to it as "Ukrekokomresursy") under its own control. Mokhnik's now former department proposed doing this with good intentions.
The purpose of this decision is to "take public opinion into account and to prevent and suppress potential corruption schemes." The Ministry of Natural Resources stated that this decision was allegedly coordinated with all central executive authorities. However, we know that neither the Ministry of Economic Development nor the Ministry of Regional Development consented to the transfer of Ukrekoresursy from the Cabinet of Ministers' jurisdiction.
In its letter to ZN.UA, the Ministry of Natural Resources also writes that it advocates for the repeal of joint order No. 789/414/709. "This document, as failing to ensure transparent and competitive business procedures, was recently repealed at the initiative of the Ministry of Natural Resources, jointly with the Ministry of Economic Development and the Ministry of Revenue and Duties, but soon, contrary to the opinion of the relevant ministries and the public, the court reinstated this order," the government agency complains. However, the relevant ministry neglects to add that it actually... supported that court decision.
We are talking about the ruling of the Kyiv District Administrative Court dated May 13
In 2014, a lawsuit was filed by the Ukrekoresursy State Corporation against the State Enterprise. The Ministry of Natural Resources was designated as a third party in this legal proceeding; however, as stated in the court documents, its representatives failed to appear at the hearing, despite being notified of the date, time, and location of the hearing. Furthermore, the District Administrative Court stated in its ruling that the Ministry submitted its written explanations, requesting the court… to satisfy the claims. That is, to overturn the State Enterprise's decision to invalidate Joint Order No. 789/414/709.
As ZN.UA has learned, the most recent court ruling to date is the ruling of the Supreme Administrative Court of Ukraine on October 28, 2014, which partially upheld the complaints of the Ministry of Justice and the Ukrainian Packaging and Ecological Coalition and remanded the cases to the court of first instance. Therefore, the battle for control over waste collection, sorting, and recycling schemes will intensify once a new government is formed.
Andrey Blinov, Veronika Nagaevskaya, ZN.UA
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