The public relations department of billionaire Rinat Akhmetov’s System Capital Management – the conglomerate that runs businesses in energy, finance, metallurgy and media sectors – has proudly revealed how much taxes the corporation paid in 2013. Overall, SCM paid $3.4 billion in taxes and invested $1.9 billion to upgrade its production capacities, according to its April 23 statement.
Although impressive and good for Akhmetov’s image as a leading taxpayer,
these figures come weeks before the conglomerate’s consolidated financial
report gets published. It will be published in the beginning of May, SCM
spokeswoman Anna Terekhova told the Kyiv Post.
In fact, the report might show
that the business of Ukraine’s most influential oligarch based on Donetsk is
not that effective.
DTEK and Metinvest – the two holdings that unite SCM’s energy
and metallurgy assets – remain the conglomerate’s main profit generators.
DTEK’s net profit in 2013 reached $403 million, 44 percent down from the
previous year, while Metinvest took in $392 million which is 12 percent less than
2012 figures.
Both holdings use business
models that exploit old Soviet production capacities which had been previously
acquired at rock-bottom prices through non-transparent privatization auctions
held by the State Property Fund. Since the USSR imploded in 1991, Ukrainian
power generating companies, including DTEK, have not built a single new coal
block.
According to the Insider
website, the Party of Regions, of which Akhmetov is a member, is currently
negotiating the possibility of having someone loyal appointed to head the
government electricity regulation body. Akhmetov would also benefit from having
a loyal manager at the helm of the regulator, which sets individual tariffs for
supplying electricity for all power generating companies.
Neither SCM, nor DTEK would comment
on this issue.
Other SCM businesses remain mostly unprofitable or generate
quite miniscule profits. First Ukrainian International Bank is the one and only
business launched by Akhmetov (not acquired through suspicious privatization
procedures), that actually brings some substantial profits. In 2013 its net
profit was $53.9 million, 64 percent up from the previous year. In the first
quarter of the current year FUIB earned $11.7 million of profit.
Interestingly, last year SCM
ordered EY, a global audit company, to calculate its share of Ukraine’s gross
domestic product after which it publicized the figure widely. According to EY
calculations, SCM contributes almost 4 percent to Ukraine’s GDP. “We had
to count around 60,000 positions to get this number,” said EY analyst
Andriy Kitura.
Moreover, EY included SCM, Metinvest
and DTEK on its list of Ukraine’s top 20 employers in 2013.
What pushed SCM to order quite an expensive service from EY? The
answer is simple: using such figures in combination with others, may be a good
argument in an attempt to receive certain tax reliefs. Tax Service chairman Igor
Bilous, in an interview with the Kyiv Post, said that representatives of
Ukraine’s biggest companies have already paid him a visit and tried to raise the
question of tax reliefs while citing their share of the country’s GDP.
“I usually ask them to provide me the figures on the amount
of paid taxes and then we compare them with relevant figures of their Western
peers,” Bilous said. Comparisons usually show that Ukrainian companies are
not contributing their fair share to the state budget.
However, Jock Mendoza-Wilson, director of international and
investor relations at SCM, denied that the conglomerate had this sort of
negotiation with the Tax Service. SCM’s Terekhova refused to comment on this
directly and only mentioned that the corporation “is ready to work and pay
taxes under the current legislation.”
Kyiv Post associate business editor Ivan Verstyuk can be reached
at [email protected].
