Friday, March 25, 2005

One more arrest

A couple of days ago it was reported that the police arrested the owner of a local (and popular) restaurant on charges that he trafficked in women. (The restaurant is near downtown. We pass it all the time.) That is much like the arrests I already reported in the last post. This guy sold women too. They have found 39 of them.

I have followed this trafficking situation here somewhat and know that there wasn’t much headway being made. This looks like headway to me.

The thing that is also interesting about this arrest is that it was reported Interpol was there with the officers. Interpol is not an international police force, contrary to what Hollywood might lead people to believe. It is a clearinghouse for information mostly. (They do consulting too, I know, but that doesn’t change their status at all.) I can assure you that this guy is not resting in an Interpol jail at this moment. He is breathing in the air of a Ukrainian jail.

But Interpol being there means that the arrest was meant to be transparent from the start. These things might not have been transparent before because of the possibility of corruption—the guy might just negotiate his way out of the mess at the scene and we don’t want any witnesses, of course. Interpol being there means that there would be no business like that there.

And the guy apparently thought he might be able to do something because he offered 180,000 to the officers to let him go. There were no takers. Heartening.

Saturday, March 19, 2005

Some interesting arrests

Some information from a Yanukovych stronghold sounds hopeful. It looks like a couple of local police in Dnieper-Petrovsk were arrested the other day for selling 13-15 year old girls into the sex slave trade. These girls ended up in Moscow. This sort of thing is a scandal in this area of the world but they might just as well have ended up in Japan, Western Europe or the US.

These guys were nabbed though and 19 of the girls were returned to their families. (I am not sure if that is all of them.) The thing that may end up being the second most significant thing about this is that the families had lodged complaints with local police officials but they said the complaints were ignored. The fact that something has now been done about and these guys nabbed could mean that the stranglehold on at least this area by corrupt interests has cracked or is being broken. If this is true, that would be very good news and a testament to the election of Yuschenko. I hope this is what it means.

Business opportunity--Europe/Ukraine

Business opportunity—Europe/Ukraine

Firm needs financing for production of new yacht

Business: A European firm has designed a yacht to be produced in Ukraine that will be offered for sale to yacht purchasers and pleasure cruise operators. Firm projects sales of 40 within the first three years from a total market of 200 per year at a net profit per boat of close to $80,000.

Amount needed: $2-$3 million (possible joint venture.) Investment to be used for production and marketing and not for infrastructure upgrades.

Market: Yacht purchasers and pleasure cruise operators worldwide. The yacht is in the under 50 foot range and has been designed to better capture market share from the competition. (Forgiving of sailing skills, greater stability for more passenger comfort—a pleasure cruise must--larger deck area, lower hull maintenance, and lower sales price.) The firm will also be looking to introduce boats to compete in the over 50 foot market later.


This should have been posted a couple of days ago. Blogspot often isn't ready when I am so here we are:

Anatoly Chubais was the focus of an assassination attempt yesterday. A roadside bomb was detonated as his two car convoy passed on the way into Moscow. The assailants fired what were probably AK-47s. (High velocity 7.62 round, cheap to buy, easy to get a hold of and very nasty; can penetrate some body armor and armor plating.) Chubais’s armored BMW was able to drive away even though it was hit in the windshield and front tire. The guards in the second car returned fire but the assailants, dressed in fatigues—special forces either moonlighting or supplementing an income made in the new economy?-- made a getaway into the woods where a car was said to have been waiting for them.

The news reported to day that two had been arrested in connection with this attempt. Chubais thinks he knows who bought the contract on him. And his political party, I can’t remember the name of if right now, says that it was politically motivated.

Chubais is not all that well liked in Russia. He was the one who spearheaded the economic reforms that ushered in the Wild West capitalism that has only diminished somewhat recently. Those reforms made the oligarchs, allowing the concentration of capital into the hands of these few. These reforms are seen by many as having impoverished most Russians. So there are a lot of people in Russia who might think about doing something like this. But with two assailants and roadside bombs, it would be hard to believe that it was some disgruntled pensioner looking to give Chubais his comeuppance.

It might be because of business interests. Chubais is the head of United Energy Systems, which is supposed to be attempting to bring some competition into the energy sector of Russia. That might tick some people off. The Kremlin thinks differently about UES, accusing management of trying to establish a new energy monopoly. The Kremlin may be making these claims for political purposes—a lot of what comes out of there seems to be for that reason these days—but they are not retrograde enough to try and deal with it by assassination. And Chubais may be a leader of the liberals that would be in opposition to Putin, but the liberals are all but out of power and pretty insignificant. That means Chubais is no political threat to the president, even if it were assumed he would deal with him this way. And I for one don’t believe he or the government would.

As to any business reason, assassination was a tool for dealing with the competition in Russia or for consolidating power in a sector in the past, the bad old 1990s. That sort of thing seems to have diminished quite a bit but it still happens. Chubais might just be in the way.

If it were some sort of old score that is being settled, it could be from anything. But there doesn’t seem to be all that much old score settling this way. Assassination has been a business tool—no offense, this is just business, you understand—not one used for revenge, though it does happen. So I guess it could be that but in the majority of the cases it would be less likely to be the reason.

Who knows though in the end. With the arrest of these two, I hope we end up finding out. The problem is that most of these cases never end up being solved. The suspicion is that those who do these sorts of things have powerful allies that allow them to escape prosecution.

Tuesday, March 15, 2005


Of course the most interesting news from here in the past couple of weeks is the death of Kravchenko, Kuchma's Interior Minister. The SBU (the Ukrainian security service—ex-KGB) thinks it’s a suicide. But the suicides of these people here are never simple. To be a suicide he had to have shot himself twice. The first bullet entered under his chin and exited out the upper part of his jaw. The second entered his right temple. The SBU thinks he shot himself again when he found the first one didn’t take.

But here’s another point of view on it that is interesting:

Zvarych, the justice minister, has expressed doubt that the former interior minister could have recovered sufficiently from the shock of the first wound to have delivered the second."I have certain doubts personally speaking about whether someone can pull the trigger twice in order to commit suicide," he said. "There's this threshold of pain, I think, that one would need to be able to cross in order to be able to do that, something called a 'pain syndrome,' that I think is very difficult to overcome."

But whether it was suicide or murder, this pattern [of deaths] has begun to emerge as a result of the psychological aftershock that these people [of the former regime] must be dealing with at this point.

"Because of the widespread doubts over the announcement that Kravchenko's death was a suicide, Piskun said Friday he was pursuing the investigation as if it were a homicide to make sure any possibility of foul play could be ruled out. (The Los Angeles Times from March 13th as reported in the Action Ukraine Report
#441, article 5.)

Piskun, the Prosecutor General, is doing the right thing. Before it would have been officially declared a suicide within a couple of days, even if it happened under the most suspicious circumstances, and left to disappear on its own. The problem with it is that it always disappears from the press, after a time, but the people don’t forget it. The suspicion that powerful interests had someone killed who was a threat to them always remains. That these kinds of suicides happen over and over makes that suspicion fact to people.

Monday, March 14, 2005

Business opportunity--Ukraine-plastic film

I have gotten some inquiries about investment opportunities in the Ukraine so I thought I might post some here in between trying to figure out what is going on here politically. This one is more specific but some will be more generalized analyses of business opportunities.

Ukrainian factory plant and equipment modernization

Business: Plastic film manufacturing used for candy wrappers, agricultural bagging and packaging, dairy product containers (sacks), detergent packaging, foodstuffs packaging, etc. (The Ukraine has an extensive food processing sector.)

Amount needed: $6-$10 million for plant and equipment upgrade. (Potential for joint venture.)

Market: The manufacturer is looking to position the company to take advantage of two market opportunities. The first is in manufacturing packaging to customer specifications allowing for direct sale to the customer. Cuts out several layers from the distribution chain resulting in a cost savings.

The second market is to supply Twispan film to local candy makers at a savings in cost and in time. 80% of this product is imported. A minimum order of 17 tons is require to make the order. (Local customers must pool orders to come up to the minimum.) Importation causes delays of from 7 to 14 days and results in tariffs costs for entry. Local manufacture would save time and result in cheaper product.

Other potential markets: There is potential for export to the CIS region and to Europe.

Technology and infrastructure: Company uses older technology but is looking to upgrade to the state of the art. The plant facilities are mostly remnants of the Soviet era so they also need to be modernized.

Privatization revisited

A lot has happened since I have been posting here regularly. One of the most interesting from my point of view is the court annulment of the Kryvorizhstal steel mill privatization, the mill sold to Kuchma’s son-in-law, Pinchuk and to Donetsk oligarch Akhmetov. The good thing about it is that it will reverse what all have considered to be a cooked deal to give Kuchma people a valuable state asset. The steel mill was sold to both of these men in the face of higher bidders like Russia’s OAO Severstal and US Steel.

The real problem though is that this might have opened up the reconsideration of most of the privatization deals made during the 1990s, if not all of them. That amounts to about 3000 businesses from what the news has reported. And Yulia Tymoshenko has confirmed that they will be looking into these deals.

This is a problem because it will turn off investors interested in looking at the Ukraine. What they will see is not the righting of severe wrongs but the re-nationalization of a company originally privatized. And if the government can do it once, it has the power to do it again as soon as the opposition gets its hand on the levers once more. The point is that title to these companies has to be quieted in some way in order for investors to have any confidence that they will not have a company nationalized out from under them. If there is any risk of that, any risk, they will avoid investing in the Ukraine. And there are indications that investors have had their confidence shaken recently with the announcements of these investigations.

That there were all sorts of state assets sold corruptly to friends and supporters of those in power there is no doubt. That may end up being true for all the privatizations that took place in the 1990s. A sense of justice would require that these be reconsidered so that the people can get fair value for these assets in the form of more money to the state coffers to pay for services and infrastructure. Ukraine needs money for both.

But an examination on such a wide scale will spook investors and they will end up going to more private property friendly countries to make what would be safer investments where they will not have this kind of threat hanging over their money. And there are any number of countries just a short distance to the west of here now members of the European Union where they would not be subject to that kind of risk.

Ukraine needs investment and it needs it badly. There are very few companies that have been able to modernize on their own here. The European Bank for Reconstruction and Development has been of some help in this providing loan guarantees for certain projects. But they have only worked in the hundreds of millions of dollars (or euros) and the Ukraine needs billions to modernize. That type of capital can really only come from private investments. The Ukrainian government needs to encourage that kind of investment, not discourage it. Taking action against all the privatized deals will not be encouraging it.

One thing that is driving this in part I think is not just getting justice for the people, though I do take them at their word on that. The problem is that the government faces a budget shortfall and 3000 deals made in the 90s could end up generating the kind of revenue to the state that would make their budget for next year. That is what Georgia did. They actually kind of blackmailed the people who got these kind of sweet deals under Shevardnadze (a real statesman, I think, who just got in over his head when president.) They went to these people and told them to cough up money on their assets. I don’t know if they paid the difference between the market price and the price they actually paid. But all of them came up with the money and the government was able to bridge somewhat their budget gap. I think this is some of what is animating the administration here.

But they stand to lose more than they might gain in the long run if they investigate so widely. The Ukraine represents more of an investment opportunity than Georgia does. One minister in the Georgian cabinet said, for example, that it would take 75 years for them to have a European standard of living. The Ukraine is only at the very most a decade from that if they get the policies right and investment starts coming in. (There are numerous opportunities for investors in the Ukraine which I hope to get to in the next few weeks here.)

The problem is that the government can’t just ignore the privatizations either. A lot of these assets were bought at fire sales (where there was no fire) by those who had the right contacts in government. That can rankle and end up souring people on market solutions if things get a bit tight or worse. So what should they do? They should go after the most egregious cases of banditry in the privatizations deals. To do this, they should sit down and set out, possibly by presidential decree, just what is an egregious case and then stick to that definition all up and down the administration. That may be a difficult thing to do but it must be done if they are going to have rule of law and are going to give people confidence in the Ukrainian governmental systems at all. These are problems here too that need to be solved. Giving more confidence to investors would be a result of this.

What about the rest of the companies? There could be some sort of non-privatization way of dealing with them. What about losing priority in dealing with the government if they don’t establish the transparency of their original purchase? Or maybe they could lose a tax benefit or some other benefit that might be useful in doing business if they don’t? At the very least, maybe the government could establish a list of companies that have cleared themselves of the cloud of having gotten their assets corruptly. That would at least give people some information about who they might not want to deal with.

In other words, what should be done with the rest of these companies is to put the burden on them to come clean or suffer some sort of penalty short of re-privatization. If they can’t establish this, then they should be required to pay to reinstate themselves in some way. This would serve to respect the property right while adding to the state coffers on all or most of these companies. And it would also give the people more confidence that justice was done.

This has to be done across the board too with the moguls of the administration who also acquired assets in the 90s. They should come clean on how they got hold of their companies too or it will look like business as usual, that is, the party who gets power puts it to the party who lost power. The courts will be working full time bringing people to some sort of justice, but it will be believed, if it is not the fact, that it is only the people who had certain party affiliations. That is the sort of thing Yuschenko has said he wants to change and I believe he does want to change it.

There is some indication though that the government may not revisit all the privatizations. Yuschenko himself has said that maybe a dozen or so will be but that is all. That would be good but what criteria they are using to go after what companies should be set out clearly. We’ll see if it happens.

Friday, March 11, 2005

Yanukovych and the national hero

The following should have been posted yesterday but I couldn't get on the blogspot server. Here it is:

Yesterday was the anniversary of Shevchenko’s birth. Taras Shevchenko is considered to be a national hero of the Ukraine. He lived in the 19th century and was part philosopher, part poet, part educator and he was also an artist of some repute. It would be hard to equate him with anybody from US history across the board but he bears some resemblance to Jefferson. He shared with Jefferson that sort of Everyman quality, an ability to be good at a number of things and was even involved in politics. A Renaissance man is what we he would be considered now, if anybody considers such things. But the thing that keeps him in the hearts of the people is that even though he lived in Russia for some time, he still wrote in the Ukrainian language and wrote of freedom, freedom, that is, from the Czar. Many of his poems were made into Ukrainian songs. We went to a concert a year or so back and heard a group sing some of these. Many Ukrainians can recite a poem or two of his by heart.

In Kiev, a university is named after him and there is a park with a monument in the center of it dedicated to him. And the Russians count him as one of their own also and erected a monument to him in Moscow. So he is a significant figure for Ukrainians and Russians alike.

Which brings us back to yesterday. On this anniversary yesterday, there was a pilgrimage to the monument of Shevchenko by the likes of Tymoshenko, Moros and other political figures to lay flowers in honor of the day and of the man. (Yuschenko is out of town I believe or he would have been there too I suspect.) Tymoshenko spoke there and said cryptically that the time had come for the words of Shevchenko to come true. (He wrote about Ukrainians improving their lives so it may not have been a reference to Russia, though, since it was Tymoshenko speaking, it would be hard to discount that.)

Meanwhile, in Moscow, the loser of the 2004-2005 election for the president of the Ukraine, the man who some consider to be the head of the opposition in Ukrainian politics, Victor Yanukovych, laid a wreath at the monument to Shevchenko there. When he laid the wreath, he said a few words in Ukrainian. His wife was by his side but, interestingly, said nothing.

This man has got to have some of the worst political instincts ever. He’s got a real tin ear. He is considered to be the Russian’s Ukrainian and the easterner’s man in Kiev. All of this is on the strength of his Russian credentials. But he goes to Russia and speaks Ukrainian at the monument of a national hero. Maybe he has gotten a hold of an advisor who wants him to triangulate. It worked for Bill Clinton why not for Yanukovych?

All I can think of is that he might have thought, if he thought at all, that he was killing two birds as the saying goes. He can show how pro Moscow he is by going there. That secures his base and keeps up his ties with the motherland. (I wonder though how welcome he is there these days.) But he can also appeal to the Ukrainians in the West and in Kiev by laying a wreath at Shevchenko’s grave and by making some remarks in Ukrainian. But I guess he doesn’t know that by speaking Ukrainian he alienates his own people in the east and by appearing at the monument in Moscow he alienates the people in the West. It would have been better for him to appear at the monument and speak in Russian which would claim Shevchenko for the Russian speakers. That appeals to his base. Or he could have appeared at the monument in Kiev and spoken Ukrainian there to appeal to the West. But he could not appeal to both.

Of course he might have been there and just taken the occasion to lay the wreath. But that plays into the prejudices of a lot of people here. They think he is in the pocket of Moscow anyway and appearing there confirms this.

Anyway, the people I spoke to just laughed about it when they heard what he did.

Life goes on here

I have not been around for awhile as you can tell, those of you still around, that is. I have been busy trying to get our apartment in shape to live in and we have been trying to get all the services turned on so we can live with less difficulty than we have had to live for the past month or more.

My wife went to the government agency in charge of certifying the apartment building the other day to see if she could get them to turn on the hot water and some other things. She talked to the head guy and he said that he had problems with the building, that the builder needed to convince him that things were done right and he did not know when the building would be certified. He was bureaucratic perfunctory with her but showed some humaneness when she said we had a small child. But even so he was still not able-- or not willing-- to give her a date when the services would be turned on.

A couple of days later, however, there was a note by the elevator that the hot water would be turned on the 9th and 10th of March. That note could be taken two ways though. One way was that the water would be turned on for those days only we think because they want to make sure that the pipes don’t leak in the building, the ones carrying the hot water. The other was that they would be turning on the hot water and it would take those two days to do it. We preferred the second interpretation and the woman who guards the building—I used “guard” loosely because graffiti has started to show up on the stairway walls, on a new apartment building no less—said that they would be turning it on for good.

We were thinking that my wife’s visit had had some effect, that is, until yesterday the 9th. Yesterday, there was no hot water. And this morning, the morning of the 10th, there is still no hot water.

The elevator saga continues. They said it would be on 24 hours beginning a couple of weeks ago. But we come home often to find that it is off. And on this past Monday and Tuesday, holidays here, the elevator was off. (“Don’t you know it’s a holiday? The elevator does not work on a holiday.”)

And on the day before, we had come back from church at about 1 p.m. My wife grabbed the kids to see if she could get them up by elevator. I had to go back to the church to find something we had left. I got back to our building and found the elevator off.

Some minutes later, when my wife opened the door and gave me oxygen, she explained that an apartment owner had gone over to the government agency and had paid an employee there, the one in charge of the elevators, to come and turn it on for him on that Sunday. (Otherwise it was going to be off all day.) That apartment owner was taking his stuff up when my wife and the kids got to the elevator. She let them go on up but had the oldest boy ride along to make sure the elevator got back. That government employee was on the elevator when he got back but was on it turn it off again. When he saw my wife with the kids and the baby, however, he made one more trip and took her up. That was nice of him but it shows the real problem.

Last night though, the elevator was off when we left but when we got home at about 9 p.m. we just went in to check it in the off chance that it might be working. It was to our surprise. Why it was we do not know but it seemed to be working until late last night. This remains an inscrutable mystery.

Anyway, life goes on here.