Damning report costs Energoatom boss job

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Feb. 17, 2000, 1 a.m. | Ukraine | Politics — by Katya Gorchinskaya

Katya Gorchinskaya

Katya Gorchinskaya is the CEO of Hromadske TV. She served as the Kyiv Post's deputy chief editor from 2008-2015.

The president of nuclear energy monopoly Energoatom was fired on Feb. 14 in the wake of damning reports in the press alleging mismanagement and corruption at the state-owned company. Mykola Dudchenko, who had headed Energoatom for the past year, was fired together with his first deputy, Tetyana Amosova. 'The situation doesn't look good for him, and specialized institutions might take an interest in him,' said Serhy Parashyn, former director of the Chernobyl Nuclear Power Plant, commenting on the dismissal. He did not elaborate, but his comment seemed to imply that Dudchenko may soon be the subject of a criminal investigation. Dudchenko was replaced by Volodymyr Bronnykov, former chief of the Zaporizhya Nuclear Power Plant, who was fired as head of the plant by Pavlo Lazarenko when the latter was appointed prime minister in 1996. Bronnykov said in an interview to Den newspaper on Feb. 12 that he had been fired from the Zaporizhya plant because he had insisted that the nuclear energy sector, including Energoatom, should be managed transparently. Energoatom, a state corporation created in 1996, manages all five of Ukraine's nuclear energy producing plants, as well as dozens of smaller companies in related fields. According to experts, Energoatom has the potential to become one of Ukraine's most profitable energy-generating companies, but mismanagement has led it to under perform. 'Many of the company's problems are caused by the absence of a strategy: the state has to have a plan, and Energoatom has to carry it out,' Parashyn said. 'Besides, the company's management has completely different goals [other than transparent management],' he said. The Post obtained a Finance Ministry report that describes in detail some of the alleged cases of mismanagement at the company. The report was written by the ministry's main supervisory department in August 1998, following an inspection of over 60 companies within Energoatom. In particular, the ministry's report criticized Energoatom's tariff policy. 'Around 49 percent of the costs for energy produced by the nuclear energy sector ... have nothing to do with the actual production of energy,' the report said. According to the report, 22 percent of the cost of energy go toward management expenses, around 15 percent are expenses not incurred in the actual production process, and another 11 percent of the money charged for energy supplied is supposed to finance the construction of reactors at the Rivne and Khmelnytsky nuclear power plants. The Post requested official comments from Energoatom concerning these and other allegations, but the written answers provided by the company in the main failed to address the Post's questions. The Finance Ministry's control department discovered that the company management's expenses in 1998-99 reached Hr 1.48 billion, which is 190 times higher than permitted in the company's official budget. Moreover, only 56 percent of the tariff money supposed to be channeled to the Rivne and Khmelnytsky nuclear power plants was actually handed over to the plants. The Finance Ministry report also alleges that a web of intermediary companies has been sucking money from Energoatom. In some cases, the company itself paid for the transit of energy that it sold to intermediary companies, resulting in losses of Hr 200 million. In others, it paid intermediaries with promissory notes or veksels issued by its debtors, a practice that cost Energoatom Hr 24 million in losses. The report did not specify the period in which these loses were incurred. According to Parashyn, most electrical energy is paid for through barter schemes rather than in cash. Instead of handling the barter deals themselves, Energoatom's management passed them over to middlemen. 'The middlemen only appear when the company doesn't want to, or can't, do something by itself,' Parashyn said. An Energoatom spokesman told the Post that the company reduced the circulation of veksels by 80 percent in February 1999, and banned any barter operations as of December this year, thus curbing money-making opportunities for middlemen. Intermediary companies supplying nuclear fuel to Energoatom charged a 30 percent commission over and above the cost of the fuel, raising the cost to the nuclear power plants for fuel by a total of $55.1 million. Commission of around 23 percent, totaling $36.1 million, was also charged by intermediaries when the nuclear power plants sent spent fuel to Russia for reprocessing. 'In several cases - for example, at Zaporizha NPP - the sum of commission was more than 50 percent of the cost of utilization of fuel,' the report said. 'When there's such a chance to make easy money, it attracts many people,' commented Parashyn. The Finance Ministry uncovered other alleged violations at Energoatom, including the following: * Despite the fact that the company was created in 1996, it has yet to include the assets of its smaller subsidiaries in its balance sheets, which means that company management does not have full information on its assets; * Economic, accountancy, planning, sales and technical work at individual atomic stations duplicate functions carried out at Energoatom, making the company's staff larger and management less efficient; * Lack of coordination and control allowed Energoatom to sell 310.4 million KWt/h of atomic energy outside of Energorynok (the wholesale energy mediator), resulting in Hr 1.4 million worth of losses. Energoatom, however, denies selling energy outside of the Energorynok structure. * 'Various reviews and checks uncovered misuse of Hr 2 billion in company money, including the purchase of office equipment at inflated prices and the granting of credits to Energoatom management and staff.' The new president of Energoatom, Bronnykov, said Energoatom should be restructured into a holding company, allowing individual atomic plants to control their own finances. Energoatom's responsibilities would be limited to strategic planning and investing profits, and the company would be tightly controlled by the state. '[Energoatom], on behalf of the state, should play the role of a professional owner of nuclear power plants,' Bronnykov told the daily newspaper Den.
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