When in March the General Prosecutor’s Office of Ukraine confiscated $1.5 billion stolen by ex-President Viktor Yanukovych and his entourage, the government promised the money would go to strengthen the defense of the country against Russian aggression.
But the Anti-Corruption Action Center, a Kyiv-based non-governmental watchdog, said that the two largest Ukrainian agroholdings benefited from a good share of the recovered assets in the form of state subsidies.
Millions of hryvnias of financial aid went to Myronivsky Hliboprodukt, owned by Yuriy Kosyuk, former deputy head of President Poroshenko’s administration, and Avangard, owned by Oleg Bakhmatyuk whom the National Bank of Ukraine accuses of owing the state Hr 37.9 billion ($1.5 billion).
The subsidy scheme
On Feb. 8 the Cabinet of Ministers approved a distribution order of government subsidies for the development of agricultural enterprises and stimulation of agricultural production in 2017, with priority given to poultry and egg producers.
According to the data of the State Fiscal Service, the government spent Hr 1.91 billion ($74.6 million) on direct subsidies for agricultural producers in the first six months of 2017.
Four poultry producing companies that belong to Myronivsky Hliboprodukt (MHP) agroholding received Hr 809 million ($31.6 million) altogether. Avangard egg-producing holding, which is a part of a much larger Ukrlandfarming agroholding, received Hr 142 million ($5.5 million) in total.
The rest, Hr 964 million ($37.7 million) were distributed between some 700 companies on the list.
The news immediately stirred public debate on the transparency and rightfulness of such distribution of the state subsidies. But deputy chairman of the parliament committee on agrarian policy and land relations, Oleksandr Bakumenko, defended the decision saying the procedure was within the law. Bakumenko is a former 10-year chairman of Ukraine’s Union of Poultry Breeders.
“There isn’t any violation from MHP side,” he told Interfax-Ukraine news agency on Aug. 28. “The agroholding receives subsidies according to the current legislation – the more a company produces, the more aid it gets. […] It’s a transparent and fair model.”
And Bakumenko says truth. The catch is in the formula itself.
The new scheme was pegged to the amount of value-added tax paid to the state budget, which correlated with the volumes of production. Just as MP Bakumenko explained: the more a company produced, the more it paid taxes, the larger state subsidy it would receive in return.
Both MHP and Avangard are on the list of the largest taxpayers in 2017 which the current legislation defines as a legal entity whose income in the last tax year exceeded Hr 1 billion ($38.9 million) and the taxes paid exceeded Hr 20 million ($779,119).
Cyprus-registered MHP’s financial standing is particularly well. On Aug. 29 Moody’s upgraded its rating from Caa2 to Caa1, changing its outlook from ‘stable’ to ‘positive.’ According to the company data, it earned $600 million in six months, with 58 percent coming from exports to the EU, Africa, UAE and Saudi Arabia. In March it opened a new processing plant in Slovakia.
Daria Kaleniuk, the executive director of the Anti-Corruption Action Center, says that the new subsidies scheme was invented instead of special taxation regime opposed by the International Monetary Fund that allowed meat and poultry producers to retain accumulated value added tax.
“MHP had VAT tax relief. That’s why instead of tax privileges, the authorities came up with a new idea of supporting agroholdings – direct subsidies,” Kalenyuk said. “The formula was pegged to the value-added tax not accidentally.”
The Ministry of Agrarian Policy and Food refused to comment on Kaleniuk’s accusations.
“The ministry doesn’t comment on subjective points of view. This is an author’s right,” Olena Solokha, head of the ministry’s press service, replied to the Kyiv Post.
Sponsored by Yanukovych
Anti-corruption activists also raised a question about the source of funding for the subsidies that the government found in such short period of time.
Kaleniuk claims that the money partially came from the $1.5 billion assets confiscated from the ousted president Viktor Yanukovych and his cronies who fled the country in the wake of the EuroMaidan Revolution in 2014.
Ukraine has been trying to recover the assets stolen by the previous administration, but not so successfully.
At the same time the country became fully entangled into the war with Russia after the occupation of its territories in the Donbas and Crimea in 2014. In support of state defense and security, the government established as special fund in 2015, Kaleniuk explains, financed by means of money or property confiscated from corrupt officials.
Kaleniuk says that the subsidy scheme for agricultural producers was known in the end of last year, but the source of funding was disclosed only in April.
In the end of April, the General Prosecutor Yuriy Lutsenko proudly announced the major achievement – some $1.5 billion from the assets stolen by Yanukovych had been confiscated and would go to the state budget.
However, the original court decision by the Kramatorsk City Court dated Mar. 28 hitherto has been kept a secret. It t sparked outrage among international and local NGOs that demanded from the parliament to publish the court verdict and to investigate alleged violations by the Prosecutor General’s Office during the process of confiscation of $1.5 billion.
On Apr. 19 the Cabinet of Ministers adopted a decree that allocated the money from the special fund accordingly: 51.81 percent for regional development, 22.2 percent for agricultural producers, and 25.86 percent for military block – the armed forces, special services, Ministry of Defense and other agencies altogether.
On May 3 the President Poroshenko informed that $1.1 billion had been transferred to the state treasury. He didn’t mention the confiscation or Viktor Yanukovych’s assets but referred to “the court decision that came into force that restored the justice.”
“Not only does this enhance the capacity of the state budget but also restores justice and allows to invest these funds into the Ukrainian army, strengthen the defense, and restore social justice by protecting most vulnerable groups of the population,” he said at the media briefing.
Kaleniuk of ANTAC believes that part of that money was used for the financial aid to agricultural producers and blames the President Poroshenko, the Prosecutor General Yuriy Lutsenko, and the Cabinet of Ministers for spending money not on strengthening the defense of Ukraine in times of war, as they had promised, but on subsidies to agrarian oligarchs.
“They had been talking about recovery of “Yanukovych’s billions” for two years in order to strengthen the defense of Ukraine, but only a quarter went to support the military block, and almost just as much for private businesses of two oligarchs – friends of Poroshenko,” she said in an interview to Deutsche Welle on Aug. 29.
It’s known that the owner of MHP billionaire Yuriy Kosyuk used to be a former deputy head of Poroshenko’s administration in charge of coordinating the critical army and security forces from July to December 2014.
As for UkrLandFarming’s owner Oleg Bakhmatyuk, the National Bank of Ukraine has been unsuccessfully trying to make him repay the debts of two of his insolvent banks VAB and Financial Initiative. NBU claimed that Bakhmatyuk owed Hr 37.9 billion ($1.5 billion) to the state and depositors.
