In a battle of attrition, it’s the Ukrainian oligarchs that have outlasted a key Canadian investor in a bellwether case for foreign direct investment in Ukraine.
Canadian energy giant TIU is throwing in the towel after a protracted legal battle with Nikopol Ferroalloy Plant (NFZ), owned by Ukrainian oligarchs Ihor Kolomoisky, Gennadiy Bogolyubov, and Viktor Pinchuk.
After investing 65 million USD to build solar energy plants in southern Ukraine over the last four years, the Canadian company couldn’t outlast a legal system it says is rigged against them.
Ukrainians and foreign investors alike are tired of oligarchy and injustice. Ukraine is on the wrong track,
said TIU Canada CEO Michael Yurkovich in February, near the beginning of the company’s legal battle.
“The Euro-Atlantic aspirations of the Ukrainian people will never bear fruit unless the administration takes to heart real judicial reform and complete de-oligarchisation of the economy and government. Efforts to date are piecemeal and futile against entrenched interests which regularly degrade the effectiveness of Ukraine's institutions – whether judicial or bureaucratic.”
New kid on the block
It wasn’t long ago that TIU and its activity in Ukraine was vaunted as an example of how far the country had come in its Euro-Atlantic aspirations.
The company was the first investor in Ukraine once the ink was dry on the landmark Canada-Ukraine Free Trade Agreement. The Canadian Ambassador at the time, Roman Waschuk, even attended the ribbon cutting.
“As the diplomat who cut the ribbon at the opening of this facility, it is extremely disappointing to see the power plant cut off from the grid, in a further deterioration of the investment climate”, the former diplomat said when TIU first ran into problems with NFZ. “It is clear Ukraine cannot succeed without rule of law ensuring a level playing-field for foreign investors, including protection against oligarchic abuse."
The Canadian government wasn’t the only one in the company’s corner. At a conference in Canada in 2019, Ukrainian President Volodomyr Zelensky singled the company out for its investments.
We think about the future, that is why green energy will be one of the key sectors of our economy during the upcoming years
Zelensky told the Economic Club of Canada on Feb. 3, 2019 as part of the Ukraine Reforms Conference in Toronto, Canada.
“I know that we have here Canadian company TIU that already successfully works in this area. We are grateful to them for this - please, follow their example".
Round 1 goes to NFZ
It’s not that TIU Canada wasn’t aware of the reputation for corruption among Ukrainian courts and oligarchs, it’s that it had the government’s commitment that its investment would be protected.
Not long after getting its solar plant up-and-running in the Dnipro-area town of Nikopol, the problems began.
Reliant on a substation on land owned by NFZ to put its energy to market, the company awoke on Dec. 23, 2019 to the news that it would be disconnected from the grid due to repairs NFZ said were necessary to the substation.
The disconnection cost the company millions – estimates were at 1.5 million EUR in February 2021, with additional damages accruing daily.
TIU insists the disconnection was illegal. So, TIU took NFZ to court.
Despite what TIU believed to be “overwhelming evidence”, the Kyiv Commercial Court found in favour of NFZ.
TIU might have been knocked down, but it vowed to continue the fight. Not just for its own interests, but for the interests of all foreign investors in Ukraine.
Round 2 Goes to TIU
So, TIU appealed the case.
The company again ran into problems when all three judges overseeing the case were found to have ties to Kolomoisky.
While TIU’s motion to dismiss the judges was denied, the judges decided to recuse themselves anyways.
Score Round 2 for the underdog Canadian company.
“Today was a small victory in a larger war. We will continue our fight for justice under the law", said Yurkovich at the time.
Ukraine must protect foreign investors from oligarch attacks or abandon any hope of attracting real investors.
TIU Gets TKO’d
Unfortunately for TIU, court cases in Ukraine take time. And as the case wound its way through the courts, no repair work was being done on the substation.
Still disconnected from the grid, the delay continued to cost TIU millions.
With the plant wasting away and with no end in sight to the legal case, TIU decided to throw in the towel.
In a bellwether case as to whether foreign investors could compete in Ukraine on a level playing field, the resounding answer was ‘no’.
The foreign business community took notice.
“Attracting high quality investment to Ukraine cannot occur without adequate investor rights, judicial reform, and a level playing field”, said Sviatoslav Kavetskyi, Executive Director of the Canada-Ukraine Chamber of Commerce (CUCC). “TIU Canada is one of the larger Canadian investors in Ukraine. It's experience thus far, despite assurances at the highest levels, hinders investor confidence”.
The sentiment was echoed by another business organisation.
"As everyone has known for a long time, Ukraine faces two main threats: Russia and internal corruption”, said Morgan Williams, President of the US-Ukraine Business Council (USUBC).
“TIU invested heavily in Ukraine to build solar energy plants and help the country reduce its energy dependence on the aggressor state, Russia. Ironically now, after helping Ukraine to overcome one problem, TIU is an unfortunate victim of Ukraine's internal problem of corruption and the lack of political will on the part of the Government of Ukraine to take major steps to significantly reduce the massive levels of corruption instigated by a large number of powerful, well-financed, politically and legally connected, monopolistic corporations”.
As for TIU, they’re taking their plant and going home.
“At least the oligarchs won’t get it as a prize”, said Yurkovich.
“The justice system has failed to protect our investments in Nikopol. So, we decided to get out of there”, Yurkovich told the Voice of America.
“This history of foreign investment in Ukraine had every chance to become a success story. After all … Zelensky himself gave TIU persona l guarantees, welcoming their work at the investment conference in Ottawa,” the disgruntled Canadian investor added.
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