Ammonia from Russia as a mirror of confiscation
Domestic authorities soon made a political decision to confiscate all assets belonging to the two northern neighbors, who had joined forces for a military invasion. Almost immediately, this political decision was converted into a legal mechanism, enshrined in a relevant law. Thus, a large number of assets, such as Russian ammonia, fell into the hands of the Ukrainian authorities, writes Alexander Lemenov. ZN.
We are at StateWatch as part of the project Trap Aggressor We constantly monitor the sanctions sector, including by analyzing decisions from the state registry of court decisions. This time, we will focus on the case of the seizure and sale of ammonia, which illustrates the lack of transparency and complexity of the situation in the area of confiscation of the aggressor's property.
There are several key issues that the authorities prefer not to discuss. First, the registry of seized assets, which is managed by the relevant agency—the National Agency for Detection, Tracing, and Management of Assets Obtained from Corruption and Other Crimes (ARMA)—is kept confidential. Second, the commodity exchanges through which assets are sold, selected at the beginning of the year, remain unchanged throughout the year, meaning that only a limited number of people are aware of the sale, which over time translates into reduced revenues to the ARMA deposit account. This, in turn, reduces the amount of funds that could later potentially end up in the state budget. Third, with information about the asset sale, certain "informed" businesses can profit handsomely. But first things first.
Ammonia: Who Closed the Register of Seized Assets and Why
Recently, a prominent Facebook user raised the issue of the sale of Russian-origin ammonia seized by the Ukrainian government at the start of the full-scale war. Why did this become news to widespread social media users and industry experts? The fact is that the register of seized assets, administered by ARMA, was closed at the start of the full-scale war by a government decree. This decision was later reinforced by a letter from the Security Service of Ukraine. Therefore, no potential market participants can know exactly what could be sold or when. Moreover, it's not even clear where exactly such assets will be sold. This problem is not the fault of the National Agency's leadership, but of the unclear policies of the country's top leadership, which is fully aware of the decisions made in February-April. ARMA, in turn, shows no political will, given the balance of power within government structures. Over time, with access to insider information, one can easily enter any trade, knowing the date and the commodity exchange, and then, with little competition, buy the asset cheaply.
It's also worth noting that ARMA confirms the full operation of the aforementioned registry behind closed doors. The agency adds that next year they will finally be able to technically separate Russian and Belarusian assets from others. After all, they are carrying out the will of the Cabinet of Ministers and the Security Service of Ukraine, which are completely controlled by the Presidential Administration. And there, in the presidential office, they know exactly what will be sold and when...
How and to whom was Russian ammonia sold?
Let's return to the sale of the seized Russian ammonia. ARMA management decided to break the aforementioned 42 tons of Russian ammonia into smaller lots and sell it through the Pridneprovye-2021 Commodity Exchange. As of mid-November, three auctions had been held. Protocols were signed based on the auction results. However, getting ahead of myself, I should note: the final winner, having signed the protocol, later failed to pay the funds by the appointed deadline. This company is associated with the "Servant of the People" MP Oleksandr Bakumov, who was elected in a single-member constituency in Kharkiv. And later, we learned that the second-place company entered the third auction instead of the winner and took the ammonia.
So, these trades took place on the Pridneprovye-2021 Commodity Exchange, so we'll provide a brief summary of each trade.
The first of them, confirmed by the protocol No. 11 of August 29, 2022The winner was determined. It was Slavna Energo Gaz LLC, with Khim-Trade LLC as the only competitor. The starting price was UAH 234 million, while the winner paid UAH 238,7 million. The volume of ammonia was 7341 tons, and the price per ton, including VAT, was approximately $960.
The results of the second auction, which resulted in the winner being Agrotorggroup Company LLC, were established by Protocol No. 23 dated October 5, 2022. The bidding was between Slavna Energo Gaz LLC and Khim-Trade LLC. The starting price was UAH 295,7 million, while the final price paid by the winner was UAH 301,6 million. This translates to approximately $890 per ton.
The third and final auction, as of today, has been completed and recorded in Protocol No. 28 dated October 27, 2022. Polaris-100 LLC emerged as the winner, with competitors including Khim-Trade LLC, Raiz-Vostok LLC, and Slavna Energo Gaz LLC. The starting price was UAH 295,7 million, but competitive bidding significantly increased the price to UAH 375,5 million. This translates to approximately $1115 per ton.
We must also emphasize the position voiced by ARMA: an additional $250 to $290 should be added to each price paid by the winners for ammonia storage at the Odessa Port Plant, as well as for the transshipment of the chemical. However, the announced $250-$290 per ton surcharge has not yet been confirmed by anything other than the ARMA representative's statement. We have every right to doubt this statement, as we have already observed how seized vehicles were stored at one of the sites, and it was the National Agency, not the buyer, that was then responsible for paying for them. These facts were cited in the report of the Accounting Chamber of Ukraine.
As we can see, in the absence of prior, comprehensive information about the auction, only those with access to insider information win. While domestic law does not consider this a crime, insider trading is a serious criminal offense abroad.
Now we can compare this with trades conducted through the Prozorro.Sales system. Specifically, on September 16, the state-owned enterprise Ukrhimtransammiak sold the same chemical at $1312 per ton. Furthermore, there is analytics from the Prozorro system for 12 trades, which also involved ammonia sales. The results can be found in the document.
At this point, a question may arise: why are the auctions being conducted through the little-known "Prydniprovye-2021" exchange and not through the specialized state-owned enterprise "Prozorro.Sale"? ARMA's answer is simple: at the beginning of the year, all the platforms through which the seized property under ARMA's control could be sold submitted applications to participate. However, the state-owned enterprise in question failed to submit such an application. Therefore, for the entire year, they have been unable to participate in the auction of the assets the National Agency wants to sell.
Consequently, a logical conclusion, based on knowledge of economic laws, is that increased transparency and predictability of auction dates for all market participants translate into increased competition, which will then increase deposit account revenues. In this case, if a court fully orders the confiscation of funds in the interests of the state, the budget will receive significantly more financial resources.
And now for the final interesting aspect of the sale of Russian or Belarusian assets. When the register is closed and access is clearly limited to a limited number of people, this creates a non-competitive advantage for certain business groups. Let's take the aforementioned ammonia auction as an example.
We tried to find the real beneficiaries for each of the winning companies, since officially they are mostly unknown individuals. But where do they get the tens and hundreds of millions of hryvnias to acquire Russian assets? One of our insiders reported that Slavna Energo Gaz LLC is controlled by a Yanukovych-Arbuzov associate, former Party of Regions MP Kiselev. Agrotorggroup Company LLC is controlled by Givi Nemsadze, an influential figure from the 1990s known for his involvement in the Donbas. The third company, which ultimately won, officially has American roots: Raiz-Vostok LLC. registered in Wyoming. However, a simple online search reveals that this organization is linked to the "egg oligarch" sought by NABU detectives. Oleg Bakhmatyuk, which owed up to $2 billion to foreign creditors and state-owned banks, in particular Oschadbank. And it was this structure, as reported at the official website ARMA made the purchase with the largest price increase—up 26% from the starting price. But are these prices truly market-relevant? The question remains unanswered.
How to resolve issues with the sale of sanctioned property
First, the register of seized property must be opened. This is nothing new for the aggressors, if they are indeed the real owners. For other businesses, this will serve as an indicator of transparency, and for the public, a sign of accountability in the sale of Russian or Belarusian property seized in criminal proceedings.
Secondly, it's necessary to expand the range of exchanges and platforms where assets are sold, which will increase competition in auctions. This will potentially increase the amount of further financial resources available to the budget if the guilt of certain entities whose assets have been seized is proven. Thirdly, the two previous factors will help eliminate the lack of transparency in processes that potentially allow certain business or political groups to enrich themselves.
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