Divorce With the City Council Taking Part

The losses of the joint venture to make electrical transformers in 1994-97 were $120,000, $400,000, $500,000 and $760,000 each succeeding year. This year losses are likely to reach $1 million. Moreover, after detailed analysis of the situation, Deputies came to the conclusion, that the foreign company had deliberately orchestrated this in order to evade taxes and avoid sharing profits.

This is why the meeting of the joint venture participants decided to liquidate the enterprise. But the foreign company “...delays the work of the liquidation commission, continues sending semifinished goods abroad, and on August 12 an attempt was made to begin the removal of the equipment without coordinating this question with the State Property Fund of Ukraine,” the decision reads.

City Council deputies appealed to the Parliament demanding to adopt the law on joint ventures. The authors of the letter are convinced that the presence of the foreign company in Khmelnytsky was intended to “ruin Ukrainian electrical transformer-building and reduce the number of jobs from 2500 to 450,” The Day was told by chairperson of the city council press-service Halyna Fedoryshyna.

It all started with the loud applause from both sides and numerous articles in the print media, predicting good future to the joint venture.

THE DAY’S REFERENCE

Acea Brown Bovery Ltd. (ABB) is a network of electromechanical companies in various countries. ABB AB of Sweden and ABB AG of Switzerland are its two owners with equal rights. The headquarters of the ABB Acea Brown Bovery is in Zurich. Its first joint venture in Ukraine, ABB - Ukrelektroaparat - Transformer, was formed in 1994 in Khmelnytsky and became a manufacturer of oil and dry electricity distribution transformers for energy systems and enterprises.

THE DAY’S COMMENT

The chief adviser of the Acea Brown Bovery ABB representative office in Ukraine Dmytro Kukhniuk comments on the situation in the joint venture ABB - Ukrelektroaparat - Transformer. According to him, it is the open stock company Ukrelektroaparat who is interested in liquidation of the joint venture most of all because they want no competition. Kukhniuk is convinced that the facts, mentioned above, are not true: “On April 16 a decision was made to liquidate the joint venture because market volume and customers’ purchasing power remains low, and the costs of maintaining the joint venture are high. It was also connected with the fact that its partner, the SPF, was not ready to make additional investment in the enterprise’s development. However, willing to stay in the market and trying to avoid withdrawal of investments, ABB found an alternative way – to launch manufacturing at the new sites of the open stock company Temp in Khmelnytsky.”Kukhniuk confirmed that the enterprise is unprofitable, but the size of its losses are a commercial secret and the figures had been taken from the internal bookkeeping system, used in the ABB companies, “and the results of this system are considerably different from the results of the system used in Ukraine. Incidentally, according to the Ukrainian system, the joint venture is not that unprofitable.”As to the decision of the Khmelnytsky city council, Kukhniuk considers it blatant interference in the enterprise’s activity of the enterprise and in violation of Articles 27 and 33 of the law On Enterprises in Ukraine. In a telephone interview with The Day, Ukrelektroaparat board chairman Mykhailo Kyrpychenko denied his interest in liquidating the joint venture, and reported that his enterprise always fulfills its obligations according to the agreement, while the venture is five months behind in its rent and payments for other services.By Serhiy Tsyhankov, The Day