Stealing — atom by atom

On Aug. 13 President Yushchenko of Ukraine signed a decree suspending the cabinet’s decision to establish the state-run Ukratomprom concern until the Constitutional Court rules on its legitimacy. But it is not only the creation and functioning of this facility that looks extremely dubious from the legal point of view. On Aug. 15 Anatolii Holovko, Minister for Industrial Policies, said that a power-generating machine building association must be set up on the basis of Turboatom, part of Ukratomprom. Will such a company be created or will this state-run enterprise continue working against Ukraine’s interests and thus compromise national security?

The fact that the head of Ukratomprom is ex-MP, ex-Socialist, and now Party of Regions member Andrii Derkach is also very troubling. This runs counter to the Code of Labor Laws, the Economic Code, and a number of other standard-setting instruments that forbid individuals to head two economic entities simultaneously. Meanwhile, Derkach is general manager of Ukratomprom and president of the national power-generating company, Enerhoatom, which is part of the former. The resolution appointing Derkach general manager also established authorized capital of 21 billion hryvnias, although the law does not permit any authorized capital in this kind of entity.

Another breach of the law was the shady procedure of transferring property to Ukratomprom’s authorized fund from businesses that are part of the concern. Suffice it to say that this was done without any preliminary consultations with relevant agencies. As a result, the concern’s authorized fund somehow acquired businesses that are on the list of state- owned facilities not subject to privatization.

But while the emergence of Ukratomprom “somewhat” violates Ukrainian legislation, the Russian nuclear industry is sure to benefit from this concern. This is precisely the aim of the agreements that were signed on June 4 in Kyiv by Derkach and Sergei Kirienko, head of the Russian Federal Atomic Energy Agency. These agreements will involve Ukraine’s orientation to Russian nuclear-power technologies and the use of Ukrainian raw materials and industrial facilities by Russian businesses.

Back to the procedure: these letters of intent were signed in a rather strange way. Kirienko, a high-placed government official at the ministerial level, signed an agreement only with the head of a Ukrainian state- run enterprise. In addition, Derkach was not authorized (at least by the Cabinet of Ministers) to enter into such talks, let alone sign official bilateral documents. Moreover, they were signed secretly and made public only when the fact that they had been signed became common knowledge. This behind-the-scenes modus operandi shows that the two sides were aware of their unlawful conduct and could well foresee the further destiny of the signed documents.

But the most interesting thing happened two days after the conclusion of the Derkach-Kirienko agreement. On June 6, on the initiative of Ukratomprom’s management, the cabinet suggested that the Verkhovna Rada allow the corporatization of Ukratomprom’s four state- run facilities that the Russians consider the most valuable and important. In addition, a special instruction from Derkach, as the head of Enerhoatom, provided for the transfer of the property of the Khmelnytsky Nuclear Power Plant, an integral part of Enerhoatom, and the state-run Eastern Ore-Refining Mill to Ukratomprom in order to increase the latter’s authorized capital and corporatize these facilities “for the purpose of attracting investments to the exploitation of uranium deposits and construction of power reactors Nos. 3 and 4 of the Khmelnytsky Nuclear Power Plant.”

As a rule, under Ukrainian conditions the corporatization of state-run businesses leads to “shadow privatization” and loss of state control over the assets of these businesses which, incidentally, are of strategic importance for the country’s energy security. There are a lot of time-tested patterns of such “corporatizations,” including additional emission, reduction of state-owned stakes, sales of shares, privatization by management, illegal seizures, and endless litigation over trivial issues. This scheme is already underway at Ukratomprom.

The Russians are showing tremendous interest in Ukrainian nuclear power facilities, which have a considerable raw-material, industrial, scientific and technological potential. Today, Russia’s TVEL Corporation is responsible for 17 percent of the world’s sales of fresh nuclear fuel. At the same time, the uranium being extracted in Russia does not fully meet its domestic requirements. The IAEA estimates our country’s uranium deposits at 95,700 tons, with more than 62,000 tons clustered in Kirovohrad oblast. Therefore, the Ukrainian deposits are of colossal importance to the Russians: having acquired stakes in the Eastern Ore-Refining Mill and the promising Nova Kostiantynivka deposit, Rosatom will establish control over the extraction of Ukrainian uranium and the production of uranium concentrate, and will thus fully satisfy its nuclear fuel requirements. In order to understand “the value of the question,” it is enough to recall that the price of uranium monoxide has gone up 15-fold in the past 4 years — from $20 to $300 a kilogram.

There is also a brisk trade in Ukrainian scientific resources. Last April it was reported that the Kyiv- based Enerhoproekt Research Institute, the chief designer of all Ukrainian nuclear power reactors, had changed shareholders, selling a part of its shares to the Russian Group E4 joint-stock company and its client Capital Invest Ltd. These two entities have grabbed a 49.99-percent stake, but they are continuing to buy shares from natural persons. In point of fact, Ukraine has sold its nuclear power plant designer to its Russian rivals. The same lot befell the Kharkiv-based Enerhoproekt: in late June the Russian company Power Plants bought a higher than 80-percent stake in this research institute.

Power Plants is also laying claim to another Ukrainian enterprise, Turboatom, and it is this Russian interest that led to incorporating this Kharkiv-based turbine factory part into Ukratomprom. This Russian company has long dreamed of making Turboatom its permanent subcontractor or, to quote Kirienko, “imbedding” the Ukrainian plant into the Russian nuclear industry.

By all accounts, the process of turning this factory into a Power Plants subsidiary is well underway. On Aug. 8 it was announced in Mexico City that Turboatom, together with Power Plants, had won the bid to supply hydro turbine equipment to the local La Esca hydroelectric power station. Tellingly, the results of the Mexican bidding were hyped as a major victory for the Ukrainian producer, but in reality Turboatom plays a subordinate role in this contract because there can be no equal partnership between the entities that have a ten times larger turnover — naturally, not in favor of the Ukrainian enterprise.

How is Mr. Derkach managing to make such tricky deals? Obviously, his activities are supervised and supported at the highest governmental level. It will be recalled that Derkach is on the Party of Regions’ election list with a “go-through” number 96. It is not so difficult to guess who the chief lobbyist of this “inclusion” is. It wasn’t, of course, Borys Kolesnikov, who made an unsuccessful trip to Moscow and failed to receive an audience with Vladimir Putin, nor Viktor Yanukovych, who remembers only too well that in the fall of 2004 Derkach successfully sued the government for failure to implement a number of important nuclear energy programs and thus ensure nuclear and radiation safety. The prime minister was so angry that during his visit to Yenakievo he even refused to take part in the Derkach-organized celebrations to mark the commissioning of the second hydro unit at the Tashlyk pumped storage power plant.

Experts believe that Derkach’s “godfather” is Deputy Prime Minister Andrii Kliuiev, who is gradually gaining the upper hand in the Party of Regions’ election headquarters, where Kolesnikov is still the formal leader. As a matter of fact, Kliuiev was the moving force in the creation of Ukratomprom. Initially, there were plans to set up Ukrenerhomash, an entirely different business concern subordinated to the Ministry of Industrial Policies. That was an attempt to launch a program to support Ukraine’s own power-generating machine building. The ministry planned to establish a state-run corporation that would cover the largest enterprises in this sector, such as Turboatom, the Kharkiv-based Shevchenko Instruments Plant, the Kharkiv Electromechanical Plant, and the Heavy Electrical Machines Plant.

Establishing a corporation to control these state-run facilities would have greatly improved the performance of the sector and launched a closed-cycle production of high-tech power plant equipment for the foreign and domestic markets. However, preference was given to “crossing a grass snake with a hedgehog,” as Ukrainians say — an option drawn up by Derkach. As a result, Turboatom, a turbine producer, was made part of Ukratomprom, an entity chiefly aimed at creating a closed nuclear fuel cycle.

The Ministry of Fuel and Energy is not exactly rushing to fulfill the president’s decree and has even announced that this it is simply impossible. So we’ll have to wait for the Constitutional Court’s ruling.