Table of Contents
See previous part: How Russia prepared to seize Ukraine’s nuclear energy. Part 2: Inside Derkach’s Operation
Wartime Corporatization: A Cynical Cover-Up Strategy
In general, an author intended to continue with initial dramaturgical plan, but Derkach’s followers use well-known Russian techniques to cover up their own embarrassments — they simply replace one embarrassment with another, even more audacious and cynical. Therefore, an author is forced to write about the “sudden” corporatization of the National Atomic Energy Generating Company Energoatom!
So, on August 9, the Cabinet of Ministers of Ukraine recommended for consideration a new draft law On the peculiarities of establishing the joint-stock company National Atomic Energy Generating Company Energoatom, which defines the legal, economic, and organizational principles of the process of transforming Energoatom into a joint-stock company subordinate to the Cabinet of Ministers of Ukraine.
The last time this topic was initiated was by the Ministry of Economic Development and Trade in the summer of 2017. The Ministry of Energy and Coal Industry did not support the project, as was communicated and argued in a corresponding letter dated August 8, 2017. Further attempts by the Ministry of Economic Development and Trade to push this topic forward were futile. And now, we see that it has been raised again, amidst the ongoing war and dreadful expectations for the autumn-winter season.
First of all, why?
In the explanatory note to the draft law, the formulation “for all life cases” is used to enhance its efficiency, including through improving corporate governance. Dear colleagues, what prevents us from doing this without corporatization, and how can corporatization contribute to it?
In the 2017 attempt, corporatization was a condition for receiving a €600 million loan from the EBRD and Euratom for the nuclear power plant modernization program. Corporatization provided the National Atomic Energy Generating Company Energoatom with the ability to access loans from these organizations, as the path through state guarantees was too complex and time-consuming.
The Debt Trap: 40 Billion UAH and No Assets to Pledge
Currently, thanks to the “successful” leadership of Galushchenko, Kotin, Hartmuth, Boyaryntsev, Energoatom is arguably the country’s largest debtor, with debts exceeding 40 billion UAH (1,088,779,754.45 USD). Due to this, regardless of the status as a joint-stock company, it cannot obtain any loans since it does not have assets to pledge as collateral. There is no doubt that the supervisory board of the established joint-stock company will be significantly represented by creditors, whose primary task is debt recovery. Thus, the benefit to the state from this, even in the short term, is highly questionable.
Secondly, how can this be done?
Corporatization is a complex process with high uncertainties and risks. According to the EBRD requirements, the transformation of Energoatom was supposed to follow a roadmap and be accompanied by an international consultant from the Big Four (Deloitte and Touche). The submitted draft law envisions the “development of a transformation project commission, the development of a transformation plan, and its submission for approval to the client.” It is unclear where and how these experts will be found, as it opens up huge possibilities for abuses.
Thirdly, why are esteemed leaders engaged in this instead of addressing issues that threaten hundreds of thousands of people freezing in winter?
They are occupied with many things, but all of this leads to the loss of nuclear energy. They have sequestered all budget items, aiming to allocate the funds for the purchase of new units. They have neglected repairs, payment of wages, and even fuel, which are essential for the functioning of nuclear energy. It can only be described as sabotage, nothing less.
The budget coverage level with available funds is 30%, and suppliers are expected to negotiate deals at Nazarivska Street 3, with kickbacks ranging from 20% to 30%. Moreover, not only the Atomkomplekt (Centralized Procurement) but also the nuclear power plants themselves, whose contracts do not allow such “kickbacks,” are required to go to Boyarнntsev.
Does this state of affairs ensure the reliable operation of nuclear power plants? When and how will Ukraine’s energy system suddenly be left without nuclear capacity?
We are reassured by statements that the energy sector will overcome winter challenges. However, such statements should be based on some objective foundation: action plans, protocols, assignments, reports, contracts. It is necessary not only to create reserves of energy resources but also to establish alternative response scenarios to likely events such as the destruction of power lines, warehouses, supply routes, gas pipelines, and so on. Nothing is being done in this direction.
And where are the funds seized for the construction of new units? No one knows because all data regarding these matters are completely classified. All procurements have been taken out of the Prozorro system and closed within Atomproektengineering. Such audacity by the nuclear industry has never been seen before: even the chief design institute for nuclear power plants should be licensed, such as KIEP or KhIEP, but instead, there is some unknown intermediary firm.
Furthermore, nobody understands how procurement and payments are carried out at the occupied Zaporizhzhia Nuclear Power Plant. Currently, Zaporizhzhia NPP is a “black hole” capable of absorbing any funds, valuables, and documents related to it. Perhaps that’s why out of the 180 pages in the Annex to the Order of Energoatom from June 30, 2022, No. 01-389-n, which contains a list of procurements allowed to be conducted outside of Prozorro, 76 pages specifically pertain to Zaporizhia NPP. How can this be explained?
Fourthly, considering the unclear benefits and possibilities, why is this being done precisely now, in extremely difficult circumstances, especially at Zaporizhzhia NPP?
The Zaporizhzhia Loophole: Excluding Occupied Assets from Inventory
And it’s all quite simple because on the very first page of the draft law, it states: “… conducting a complete inventory of the assets of Energoatom, except for the inventory of assets that are part of or located on objects in areas of hostilities or on the territory temporarily occupied, surrounded (blockaded) due to the military aggression of the Russian Federation against Ukraine, and which, for the purposes of inventory provided for by this provision, shall be taken into account based on the inventory results as of December 31, 2021…”
Based on the experience of 2017, the inventory of Energoatom requires 1 to 2 years, and the validity period of the obtained results is 1 year. What does this provision mean?
It is difficult to immediately understand the true motives hidden in the formulation, but we are aware of the excessive tendencies of “friends” to manipulate. It is unknown how the previous inventory data will be used, and even more unknown is what information they contain. What has been transferred and procured at these facilities over the past six months? It presents a unique opportunity to disrupt all financial schemes and cover up misconduct while conveniently citing Russian aggression.
One might think, what is critical about it? However, the property transferred by the founder to the statutory capital of the newly formed joint-stock company must be assessed (in accordance with the current legislation on property valuation, property rights, and professional valuation activities), which can only be done based on the consolidated acts of the conducted inventory. Therefore, the absence of accounting for Zaporizhzhia NPP’s assets equals the absence of their valuation, the absence of inclusion in the balance sheet of the newly formed company, and therefore, either a gift to the occupiers or brazen theft.
During a period when news is filled with reports of Russian military attempting to synchronize Zaporizhzhia NPP with the energy system of Russia, it is the “perfect” time to initiate property inventory and corporatization.
Of course, the draft law stipulates that the founder of the new company can make a decision to “exclude from the list of property to be transferred to the statutory capital of the company” certain assets recorded on the balance sheet of Energoatom. This means that the key tangible and intangible assets that have been developed over years within the state enterprise using taxpayers’ money will be “thrown out” from the balance sheets. What exactly is this property? Why has it lost relevance for the state? Could it be recently acquired property?
This cunningly allows for circumventing the valuation process. The draft law provides that all property owned and recorded on the balance sheet of Energoatom as of the valuation date is transferred to the statutory capital of the company. However, anything that is not considered and not accepted manually, as a result, will not be evaluated and will not be included in the balance sheet.
And here comes a funny story: amendments are being introduced to the Ukrainian Law On State Registration of Property Rights to Immovable Property and Their Encumbrances (by the same draft law) stating that the state registration of ownership rights will only be conducted after a technical inventory of immovable property and property rights. If something is not inventoried and evaluated, we lose ownership rights. And this happens at a time when Russia is convening the UN Security Council, while personally shelling a nuclear facility! At a time when Russians are trying to synchronize Zaporizhzhia NPP with their own energy system, disconnecting it from Ukraine! At a time when Russian soldiers plan to ensure the power supply for the station’s own needs (reactor cooling systems) through Crimea!
Could it be that Energoatom and the Ministry of Energy currently have no other problems to consolidate efforts for their resolution? Of course, they do have other problems, but “convenient” situations don’t last long and rarely present themselves.
And what about us? Once again, we are “swallowing” everything and even demeaning ourselves with the sarcastic prediction of results in the explanatory note, specifically stating: “… the implementation of the act project will allow Ukraine to fulfill its international obligations and create a state-owned joint-stock company in the public sector of the economy. As a result, it will increase the efficiency of the energy sector in Ukraine, the competitiveness of the Ukrainian nuclear facility operator, tax payments, and mandatory payments to budgets at all levels…”
So, does this mean it is an acknowledgment of their own incompetence in managing the entire vertical? An acknowledgment of previous tax evasion? Or are there deeper motives?
I want to draw your attention to the fact that such a transfer contradicts the current legislation of Ukraine regarding the distribution of functional responsibilities between the Cabinet of Ministers, the Ministry of Energy, and Energoatom.
Expertly, an author can state that the Cabinet of Ministers will not be able to perform managerial functions since it is a collegial body, and its officials are not experts in the field of nuclear energy and radiation safety, lacking the necessary competencies and permits. Therefore, the remarks in the explanatory note are not substantiated. Such corporatization cannot be considered an optimal and efficient management system.
After the corporatization of the company and the transfer of its ownership to a 100% state-owned public joint-stock company, the Law of Ukraine On Joint-Stock Companies comes into effect, which includes Article 51 on the creation of a Supervisory Board. The Supervisory Board “protects the rights of the company’s shareholders and, within the competence defined by the statute and this Law, manages the joint-stock company, as well as controls and regulates the activities of the executive body.”
The competition for independent members of the Supervisory Board is announced by the government body responsible for the management of the state enterprise. And once again, interesting questions arise: which candidates are the Minister of Energy interested in?
Of course, when changing the ownership structure of a company, no one wants to lose control over financial flows. Therefore, the answer is obvious: the real asset management system will not change because if the control and regulatory functions are transferred to the Supervisory Board, the Cabinet of Ministers can be a shareholder, but its functions as a shareholder will be very limited. Moreover, such corporatization violates international obligations under the guarantee agreements between Ukraine, the EBRD, and Euratom, as a result of obtaining credit facilities for the implementation of a comprehensive program to enhance the safety of nuclear power plants.
So, why is such an initiative being put forward? It’s all simply banal.
“The team of merry friends,” fully aware of the consequences of its actions, has decided that there is nothing more to lose and it should seize the opportunities of wartime because, after all, war erases everything. Since the assets of the Zaporizhzhia Nuclear Power Plant are currently occupied, why not allocate funds for its urgent support?
The Final Heist: Funding the Occupied Plant While Ukraine Bleeds
While Ukrainian brave soldiers valiantly defend the territory of Ukraine from Russian troops, the National Nuclear Energy Generating Company Energoatom conducts 70% of all procurements to meet the needs of the Russian-occupied Zaporizhzhia NPP, and of course, without utilizing the Prozorro system. And what can be done about it? This is not the first experience of entering into dubious contracts. And if there is no punishment, it means it is allowed.
At a time when Energoatom is suffering from imbalances, unpaid contracts, and debts, decisions are being made to allocate the company’s last funds to the occupied facility. The most interesting question arises: at a time when the Armed Forces of Ukraine are unable to approach the Zaporizhzhia Nuclear Power Plant, while ordinary contractors have the opportunity not only to supply materials and spare parts but also to carry out works without hindrance. It raises a question in classic terms: coincidence? The author doesn’t think so!
Therefore, Derkach and his friends are simply laughing in our faces…
