In September, the state attempted to reclaim its assets by seizing them from Dmitry Firtash. As expected, the attempt met with fierce resistance.
At the beginning of the month, the leases for the Vilnohirsk (Dnipropetrovsk region) and Irshansk (Zhytomyr region) titanium ore mining and processing plants expired. The plants themselves are state-owned, but have been managed by Firtash's entities for many years. Back in 2004, they were leased long-term to his Crimean Titan CJSC.
Much has happened since then, including the occupation of Crimea, but D. Firtash has no intention of relinquishing control of his enterprises. Incidentally, the state has repeatedly attempted to regain control of the mining and processing plants, but to no avail. In fact, the plants even extended their own leases.
Then Yanukovych came to power, and the Family issue was quickly resolved. Dmitry Vasilyevich was able to extend the leases on the plants without issue. Moreover, as early as 2013, the enterprises were allowed to be privatized, and whose benefit this would ultimately benefit is a rhetorical question. However, then came the Maidan, and a simple acquisition of assets for a specific buyer failed. Especially since the influence of the Privat Group, which is also vying for these assets, has significantly increased.
Moreover, Firtash himself is currently under house arrest in Vienna. Although, to be fair, Ukraine has nothing to do with it; the charges relate to a deal in India. And here, he's so secure that he's quite prepared to fight the state. The Ukrainian government's decision to terminate the lease of the two plants and return them to the State Property Fund was immediately challenged in court.
Moreover, representatives of the State Property Fund weren't even allowed into the mining and processing plants to take inventory of their assets. One of the objections is truly astonishing: it turns out the state has no right to reclaim property it leased. At least they seem to recognize the state itself.
Firtash's team, however, claimed to have invested heavily in the enterprises in recent years. However, the State Property Fund noted that no investment permits had been issued. However, the tenants' stubborn resistance to the inventory is also indicative of something.
In general, the Cabinet of Ministers has clearly defined the transfer procedure. After the State Property Fund returns, it will transfer them to the Ministry of Economic Development and Trade, which will then transfer the enterprises to the state-owned United Mining and Chemical Company. The government intends to grant this company the right to manage the assets of these mining and processing plants. It's a very clear scheme. However, everyone understands that this isn't a matter of formalities, but rather a desire to avoid losing access to affordable raw materials. The Irshansky Mining and Processing Plant has an ilmenite ore production capacity of approximately 400 tons per year, while the Volnogorsky Mining and Processing Plant has an ilmenite ore production capacity of approximately 200 tons.
There are also questions about the financial health of these companies. Similar companies abroad are significantly more profitable.
Overall, the situation surrounding the mining and processing plants is a test of the state's ability to ensure that its people are truly in charge. It can hardly afford to spend years litigating the case again. Titan must start generating revenue for the state, not for Firtash and company.
For now, these statements appear more like declarations of intent. The government hasn't announced anything before the actual process of taking control of the companies. Meanwhile, the Cabinet of Ministers' resolution instructs that operating licenses be issued to the state-owned enterprise United Mining and Chemical Company and that previously issued licenses be revoked for Crimean Titan and its subsidiaries. Has this been accomplished?
At the same time, the Zhytomyr and Dnipropetrovsk regional state administrations were instructed to terminate lease agreements with Crimean Titan within a week and sign similar contracts with the state-owned enterprise. What progress has been made here? Or what about the clause in the same resolution allocating documentation to the state-owned enterprise for the use of new land plots for quarry expansion and mineral extraction. What about this? This is supposedly routine work for officials.
Overall, there are more questions than answers. In reality, officials are clearly in no hurry, and the same people continue to be at the receiving end of the financial flows.
While still seeking to reclaim raw material production for the titanium industry, the state is attempting to privatize PJSC Sumykhimprom, a producer of finished products in this sector. Moreover, here too, they are contending with Firtash, whose structures have firmly established control over the almost entirely state-owned enterprise. Incidentally, just a couple of weeks before Yanukovych fled, they were planning to privatize it under the auspices of this same Dmitry Vasilyevich and his associates.
At the time, it was assumed that 92,75% of Sumykhimprom's shares would be sold. The list of requirements for bidders included the requirement that they "have experience managing a chemical plant specializing in titanium dioxide production," which ruled out all Ukrainian candidates. Since Western companies weren't particularly eager to enter the country, the only potential bidders remaining were Crimean Titan, a company already familiar with titanium mining and processing plants, and Russian companies.
The starting price for the share package, however, amounted to only a fifth of Sumykhimprom's annual turnover. Incidentally, the attempt to sell 5% ended in a major scandal. Already this summer, after the Revolution of Dignity and the arrival of the new government, the "friendly" exchange attempted to exclude the "wrong" bidders from trading the shares.
In reality, however, the company has been run by Firtash's people for four years now. The current situation is best illustrated by the State Property Fund's letter to the Ministry of Justice requesting an investigation into the deliberate bankruptcy of the public joint-stock company. This includes the sale of finished products below cost, the purchase of materials at inflated prices, and even the third-party procurement of titanium dioxide (which the Sumy company produces itself).
The letter to the Ministry of Justice requests that it prepare conclusions regarding any indications of bankruptcy proceedings and illegal actions during the bankruptcy process. The privatizers are also asking the Prosecutor General's Office to do the same.
As of today, the Investigative Department of the Ministry of Internal Affairs of Ukraine in Sumy Oblast has opened a criminal case. It would be desirable for the leadership of the Prosecutor General's Office and the Ministry of Internal Affairs to prevent the investigation from being stalled and to ensure that those responsible are held accountable. After all, the company's accounts payable currently amount to UAH 1,4 billion. Moreover, according to the State Property Fund of Ukraine, disputed purchases amounting to hundreds of millions of hryvnias are involved. This has resulted in a paradoxical situation: increasing losses despite growing sales revenue.
At the end of August, the state also rejected Sumykhimprom's rehabilitation plan. The measures proposed by the company's rehabilitation manager, Igor Lazakovich (a former top manager at Firtash's Ostchem), to restore solvency were, according to the State Property Fund, "obviously declarative and ineffective." Furthermore, they were designed to last for a whopping 17 years. Even this rehabilitation plan was only approved in August 2014, following repeated demands made at creditors' committee meetings.
A few words about the creditors' council. Since it was formed during the period when the Family ruled the country and the plant was controlled by people from the Ostchem group, it turned out to be an interesting body. Five of its six seats were occupied by people affiliated with either Firtash's own companies or those affiliated with his closest business partners. In this case, there's no need to even ask who will be paying off the debts.
However, no seat was found on the creditors' committee for a representative of the state, which owns almost 100% of PJSC Sumykhimprom's shares, nor for representatives of creditor banks to whom the company owes approximately UAH 1,2 billion. Therefore, the Ministry of Justice should focus on changing the composition of the creditors' committee. At a minimum, a thorough debt audit should be conducted, eliminating fictitious debts, and the representation of the state and major creditor banks should be expanded.
The question also arises about the need to replace the property manager and the rehabilitation manager with independent figures who will not be controlled by Firtash.
The stakes for both the mining and processing plants and Sumykhimprom are very high. So, there will obviously be plenty of people willing to let it slide. The government is declaring a new way of life. But what if it's not about new owners of the old systems?
Pavel Dmitrienko, The mirror of the week. Ukraine
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