OREANDA-NEWS. May 19, 2008. There has recently been a dangerous tendency in the power market, which has had a negative impact on the investment attractiveness of the companies in this sector. Having an influence on the management of the ‘Energy Company of Ukraine’ NJSC, the ‘Privat’ Group has unofficially taken control of the regional energy supply companies (Oblenergos), whose controlling stocks are owned by the State.
 
The subject of the national power sector’s destiny suggests itself for consideration. In the midst of the Easter week, an event took place which went unnoticed for the wide public, which could be the start of a ‘crusade’ of the ‘Privat’ Group against Oblenergos. This is what has happened. The management of the ‘Power Supply Company Dneprooblenergo’ OJSC took a decision on shifting the next general meeting of shareholders from 30.04.08 to 30.06.08. The management has duly informed the shareholders, including the ‘Energy Company of Ukraine’ NJSC (the owner of 75% of the shares in the oblenergo), as well as the Regional State Administration and the Securities and Stock Market State Commission (SSMSC). The reason for the shift was the refusal of the state registrar (the financial company ‘Ukrneftegaz’) to submit the register of shareholders based on the supposedly existing prohibition from the court. We write ‘supposedly’ not accidentally, since the court’s decision and even its address details were not provided to the company.
 
In general, ‘Ukrneftegaz’ has more than enough of its own problems. The SSMSC has cancelled its license for gross violation in operation and the legal proceedings in this case are in progress. Furthermore, previously the Office of Public Prosecutor initiated criminal proceedings against the employees of ‘Ukrneftegaz’ and has withdrawn the register of the company. The former Director of ‘Ukrneftegaz’, Svetlana Yushchenko, is wanted by the police and the representatives from the prosecution keep a constant watch near the company’s office. So, without mentioning the energy companies, ‘Ukrneftegaz’ is not able to hold its own meeting and moves it from the capital’s office to Privatbank’s office. 
 
That is why it is more surprising that, in ECU NJSC’s opinion, the unsuccessful meeting of Dneprooblenergo’s shareholders nevertheless took place and this state organization announced this in unison with Privat Group. At the same time, the scheme used on 21.03.08 was almost completely copied in relation to ‘Dneproenergo’. Both on 21.03.08 and 30.04.08, the structures close to Privat Group jointly with officials from ECU NJSC held a ‘picnic’. In other words, it was an imitation of the energy company shareholders’ meeting performed in the open air. All this took place regardless of the court’s prohibition, the management’s decision and an official holiday announced on 30.04.2008 by the Cabinet of Ministers.
 
By repeating the scenario elaborated at ‘Dneproenergo’, the unknown persons (but well-known for certain people), who introduced themselves as the employees of the investment company ‘Business-Invest’, financial company ‘Ukrneftegaz’ and the private security company ‘B.O.G.’ (which took part some time ago in the forced seizure of ‘Ozerki’ and ‘DOPSOK’), have been arranging some kind of shareholders’ registration near the Theatre of Drama named after M.Gorkiy.
 
In the same theatre and at the same time, a ceremonial meeting of former and current employees of ‘Dneprooblenergo’ took place, where the veterans of the largest power supply company of Dnepropetrovsk region were congratulated.
 
According to a special message in ‘Dnepr Vecherniy’ newspaper from the press service of ‘Dneprooblenergo’ OJSC, ‘the illegal action taken on the last day of April by unknown persons has no juridical grounds’. According to our information, the Ukrainian Securities and Stock Market State Commission recorded that the registration of shareholders and their representatives did not actually take place on April 30.  
 
However, within a short time information regarding the results of these meetings of the shareholders of OJSC ‘EC ‘Dneprooblenergo’ as well as decisions made were released in the mass media. In particular, it was reported on the withdrawal of the former members of the Company’s Supervisory Board, i.e. Aleksandr Pozdnyakov, Konstantin Petrikovets, Natalia Shevchenko, Stanislav Sova, Yuriy Rybakov, Ivanna Magda, and the appointment of new ones. The Acting Vice President of JSC ECU, Sergey Serdyuk, is at the top of the list. It also includes other employees of NJSC ECU. Although it is evident that all this not only contradicts the law but levels down the notion of a ‘meeting of shareholders’ as the main Company’s management body, there was no prompt response from ‘the competent authorities’.  
 
It entailed a tough response from Dneprooblenergo’s management instead. The Company’s General Director, Eduard Sokolovskiy, said that attempts to destabilize the activity of Dneprooblenergo in favour of certain FIGs posed a direct threat to national energy security. ‘The situation with ‘Dneprooblenergo’ is not a unique one which should trigger serious concerns of our state authorities. The Directorate uses reasonable endeavours to provide efficient performance of the energy company in spite of provocations. It is illustrated by Dneprooblenergo’s performance in the last quarter. We are getting profoundly prepared for the next meeting of the Company’s shareholders that was postponed until June 30, 2008. The success of the next meeting will be secured by a share register being transferred by ‘Ukrneftegaz’ to the legitimate registrar, with which ‘Dneprooblenergo’ signed the agreement’, he said.    
 
Naturally, then there were appeals to the supreme authorities, the regional governor, law enforcement structures and energy market colleagues. Yet, as we said, nobody cares except those already mentioned. They should have cared though. In this case, the Privat Group gains control (or certainly they are trying to do it) over state power supply companies though simple tools (‘friendly’ registrar, ‘friendly’ state management and ‘friendly’ men of straw) avoiding the privatization process or payment of any money for the right to rule over the Ukrainian power sector. Indeed, is it worthwhile wasting money for privatization bids if one has the tried-and-trusted scheme of introducing loyal managers to the management bodies of energy companies? The further development of the situation will be the same as with ‘Ukrnafta’: while the company is formally owned by the state, it is entirely ‘managered’ (as Kolomoyskiy fancies saying) by the Privat Group.     
 
The fact that ‘Dneprooblenergo’ is just a touchstone can be distinctly tracked down judging by the actions of the registrar ‘Ukrneftegaz’ controlled by Privat Group. In March-April, it frustrated the scheduled meetings of shareholders of ‘Nikolaevoblenergo’, ‘Zaporozhyeoblenergo’, etc., as the way things were, did not allow for introducing managers controlled by Privat. ‘Kievenergo’, ‘Zapadnergo’, ‘Centrenergo’, ‘Donbassenergo’, ‘Krymenergo’ will be also subject to such metamorphoses.
 
As soon as the replacement of the management for ones loyal to Privat is actually prepared, ‘Ukrneftegaz’ will issue the register to allow for the ECU’s ‘staff counterrevolution’. Otherwise, the register is not issued and transferred to the other registrars: the exact way it happened with ‘Dneproenergo’ when the register was not transferred to the Odessa affiliate of Prominvestbank that had been elected by the Company’s management as the new registrar instead of ‘Ukrneftegaz’ that had been deprived of its license. As you can guess, the court decisions to hand over the registers are just being ignored while the court enforcement service resorts to forced withdrawal of registers in very rare cases. But even if to assume that ‘Ukrneftegaz’ would be ready to transfer the register, it would be to yet another Privat-related registrar. The one that would go on with the practice started by ‘Ukrneftegaz’: no handing over of registers and disrupting shareholders meetings. Furthermore, the Privat Group has at least ten such registrars. It is just enough to mention ‘Slavutich-Registrator’ Ltd., an active participant of the conflicts around ‘Neftekhimik Prikarpatya’ OJSC and ‘Nikopol Ferroalloy Works’; or another Privat-related registrar – ‘United Stock Registrar - Zaporozhye’ Ltd. involved in the conflicts related to large companies: the steel mill Dneprospetsstal OJSC and the transformer equipment manufacturer Zaporozhtransformator OJSC. Thus, to reword it, ‘an exchange of a registrant does not affect the result’.
 
Therefore, conditions are becoming favourable for the Privat Group to establish its control over the largest national energy suppliers – the project conceived a long time ago, which could be traced to the conflict with Konstantin Grigorishin, but which has not been implemented until the appointment of Vladimir Zinevich as the head of ECU NJSC.
 
The press has written a lot about the role of Zinevich in the Privat-beneficial expansion into regional energy supply companies (oblenergos), but the reason of his sympathy for Privat was explained in a trite way: he was said to be used to working in Ukrnafta, still have some contacts there and be playing in Privat’s favour with the consent of Yuriy Prodan.
 
In reality, the relationship of the energy chief with the largest financial and industrial group is much deeper. According to official data, Mr. Zinevich still remains the founder of such companies as ‘ESCO-Pivnich’ Ltd. Some time ago, this company received loans from Prominvestbank to implement a project on magnesium electrolytic production at ‘Magniy’ CJSC, wherein it had 75%. But something went wrong and they failed to repay the loan and a part of the company’s shares was semi-officially assigned to the Privat Group, which agreed to wage a legal war with Prominvestbank to the benefit of Mr. Zinevich.
 
If the current head of ECU NJSC evaded supporting Privat in its crusade for the energy sector, the Group would withdraw from the ‘magnesium game’ leaving Mr. Zinevich alone to face the austere and determined creditors, while the case is troublesome, costly and, without a smoothly running mechanism of getting favourable court decisions, certainly loss-making.
 
The mixture of interests of some individuals and whole financial and industrial groups is a very dangerous thing, fraught with the continuous neglect of state interest and bringing the situation to a point close to no return. It is not the mechanism itself that is dangerous but also the consequences of Privat’s control: the Group is well known for using the so-called ‘locust’ method: ‘eating up’ the profit of companies under its management and bringing them into a sorry plight, and sometimes even into bankruptcy. All this is done under the claim of protecting ‘public property’ and under the guise of altruism, which, judging from the recent interview of Igor Kolomoyskiy, could be attributed to the PR support of Privat Group’s expansionism, which makes a rat spiteful while showing a similarly sharp-toothed rodent - a hamster - fluffy and affectionate.