Lack of money will prevent Ukraine's drift to authoritarianism

Several days ago well-known Ukrainian journalist Vitaliy Portnikov addressed the eleventh meeting of the Polit Club discussion group. [Video here ]

He made the following points:

Ukraine is lagging 10 years behind Russia in its development. "In August 1991, Russia already had a real civil society. In Ukraine, in that year the local Communist Party declared independence - not out of patriotic motives but rather because they had no other choice".

Sadly, Russia was not able to endure the test of democracy, and latterly Ukraine is struggling too. If Yushchenko had found enough strength within himself, he would have usurped the power, just as Yeltsin had done. But his failure to do so gives Ukrainian society a chance to avoid the "Russian scenario."

According to Portnikov, in Ukraine, a process is taking place  similar to that which occurred in Russia when Yeltsin handed over power to Putin and after which the government ceased to pretend to be democratic. Ukraine is living through a period similar to the first years of Putin's Russia - there is not a big difference between the chekists and bandits.

Portnikov concludes: "The only thing that can save us - is our lack of money. The totalitarian government in our country cannot feed a population that would be prepared to accept this [authoritarian] option. In a situation where there is no money, we need to think what to do once the government lets go of the tiller, because this it will certainly [be forced] to do."

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At a recent press conference, the head of Ukraine's State Property Fund. Oleksandr Ryabchenko, complained that despite the 'openness and transparency of privatization tender schemes', foreign investors have all but ignored them. The utility companies and public enterprises sold recently were all purchased by domestic businesses.

Volodymyr Lartsev at 'Radio Svoboda' explains the cynicism behind these statements.

During the two years of the current government, the investment climate in Ukraine has declined to almost zero if you ignore the few billion dollars Ukrainian oligarchs have redirected from their offshore Cyprus bank accounts into their business projects.

The bidding conditions for the sale of the state's stakes in Ukraine's energy sector have been specially formulated in order to suit specific national customers. The primary requirement is that potential participants use at least 70% Ukrainian coal in the enterprises being privatized.

However, the domestic coal market is dominated by Rinat Akhmetov whose businesses account for more than 60% of its production, so in terms of winning the privatization tenders for purchase of shares in the state-owned "Kyivenergo", "Zakhidenergo", "Donetskoblenergo", "Dneprenerho", "Dneproblenerho", "Krymenergo", "Tsentrenergo" and "Donbassenergo", it is very clear who will emerge victorious.

Akhmetov has used his close ties to Ukraine's ruling politicians to his advantage many times. In April 2011, parliament canceled all debts in the energy sector, in total $ 24 billion, thus significantly lowered their capitalization value before exposure to privatization.

The value of these assets were artificially depressed by 2-2.5 times their market value by assessors. Akhmetov has been provided a guaranteed market for the production of his coal mines, and, by buying coal from his own mines to supply his own power stations he can minimise payement of taxes by inflating its price. Ultimately it will be the ordinary citizen who has to pay for all of this.

Volodymyr Lartsev also describes the corrupt shennanigans that went on during the sale of the state's 50% stake in "Zakarpateoblenergo" and "Vinnitsaoblenergo"

The State Property Fund allowed three contenders to bid: "Lugansk Energy Union", controlled by the Ukrainian-Russian oligarch Konstantin Grigorishin, "VS Energy" owned by Russian politician and businessman Aleksander Babakov, and "Lvivoblenergo" belonging to the Surkis brothers.

According to representatives of the last of these, on February 3 when the contest took place, members of the tender committee all received calls on their mobiles and suddenly left the room thus breaking the required quorum; doors were locked and bidding had to be postponed.

By the time a postponement announcement was made, several members had in fact returned and a quorum reformed - but too late.

Several days later "Lvivoblenergo" were allowed to take part again, but on Feb. 10 it was announced they could not participate in the contest as the result of a challenge by the Prosecutor General who was conducting an additional inspection of supporting documentation of companies that had applied for the competition.

The eventual winner of the auction to purchase 50% shares of "Vinnitsaoblenergo" was "Lugansk Energy Union".

Lartsev provides another example of a recent opaque sell off by Ukraine's State Property Fund which ran a privatization tender to sell the hotel "Sport" complex in Kiev. The prospective purchaser was obliged to upgrade the complex as part of any deal.

On October 19 last year, the tender committee of the National Agency for Euro 2012 announced the results of the competition. It had been won by Vadym Novinsky's "Euzhyn" plc. Numerous attempts by journalists to find the identity of the other bidders using access to public informaiton laws were unsucessful. For any privatization to be declared lawful, there has to be at least two participants, but it seems that a 'dummy bid' by the co-owner of the Kyiv Hilton, Boris Fuksman, had been 'pulled'. The Fund will not now admit any problem with the legality of the competition starting price.

On April 2, the press service of the State Property Fund announced that the winner was "Euzhyn", part of the "Smart Holding" group owned by Vadym Novynsky. He had offered 67 million hryvnya, just a little more than the starting price - 66.324 million. Some experts valued the company at about double this figure. No other bidders have been named.

The secret contest was unprecedented, even by the standards of the shady 20-year history of privatizations in Ukraine.

p.s. Influential German media are linking Tymoshenko's imprisonment to EURO 2012...