Ho-hum, another scandal

June 10, 1999

The scandal brewing over the privatization of Ukraine's energy distributors should come as a surprise to no one.

The State Property Fund's effort to launch wide-scale sell-offs of those distributors was half-baked from the minute the plan was concocted in 1997. What that plan proposed, essentially, was to sell minority stakes in all 27 distributors for ridiculously high prices, and throw in ridiculously burdensome investment requirements to boot.

Strategic investors were bound to be turned off by the plan. And crooks with close ties to the government were bound to be attracted.

The state was able to sell off only nine of the 27 distributors, the others failing due to lack of interest. Of those sales that went off, only one, Odessaoblenergo, went to an investor with a proven track record in the energy sector, the international consortium Overcon. Alas, that result was overturned several months later by a court and the stake was awarded to a nebulous offshore company known as FS Trading.

A glance at the chart on page four of this issue proves our point. It is known that three of the investors on that list are controlled by wealthy oligarch Hryhory Surkis - not someone known for transparent business dealings. With the exception of Pryvatbank - definitely not a strategic energy investor - we know virtually nothing about any of the other investors on the list, despite our best efforts to find out. Industry insiders whom we've contacted, for the most part, also know nothing. Those who do know something have warned us that one or more of those companies are run by 'dangerous' individuals, and we'd be better off not asking too many questions.

It is clear now what happened when these oblenergos were originally privatized. In the absence of interest from real investors, officials in the government and/or the SPF rigged the tenders so that holding companies run by their criminal friends would win the tenders. For all we know, those companies didn't even pay for their stakes. The SPF keeps the whole process so opaque that it's impossible to know for sure.

Now those criminal deals are finally coming to light. President Leonid Kuchma, trying to fend off yet another scandal involving high-ranking government officials, is responding by firing officials right and left and demanding the renationalization of the privatized oblenergo stakes in question.

Perhaps Kuchma is right to take the stakes back. But if he's going to do that, he should take personal responsibility that they are quickly reprivatized, and that they fall into the right hands the next time around. Fat chance.

- Greg Bloom