Russian companies Sibur (controlled by Gazprom), Lukoil, Slavneft, Alfa Group, and UES Russia have announced their plans to expand their presence on the Ukrainian market recently. Most of these have managed to get hold of a number of Ukrainian industrial giants. Thereis nothing wrong about investors stepping up their efforts, of course. Except for the synchronicity with which the whales of Russian business are mounting their expansion in the Ukrainian economy does expose a few nuances.
In toto, Russian capital’s onslaught on Eastern European economies is coming more and more into the open as is its amazing scope. In fact, the possibility of regulating the new Russian presence on the most prestigious markets is heatedly debated in Poland, Hungary, the Czech Republic, and even in Austria. The only reason the Polish Sejm is dragging its feet with the $4 billion privatization of the PGNG Concern (controlling oil and gas exploration, development, transport, and sales) is that Russia’s Gazprom is apparently after it. The Czech Republic says it wants to privatize its gas transport system, yet some sources insist that the Czech leadership has decided off the record to be on the lookout for Gazprom bids.
Ukraine appears to be the only exception; the local business and political elite seems to have to put up with the insistent presence of these dear guests. In any case, Russian companies have surfaced as key players in almost every recent episode in privatization.
The Ukrainian oil market provides a vivid illustration of the onslaught of fraternal capital from the east. Lukoil has Odesa’s oil refinery; TNK has the one in Lysychansk; Alliance Group has the one in Kherson, and Tatarstan holds an interest in Ukrnafta with its controlling interest in the Kremenchuk oil refinery. Slavneft has recently made it clear that it wants to control it. Its president, Mikhail Gutseriev, declared that it has been officially decided to set up a joint venture based on precisely that oil refinery. Before long, he added, Slavneft will “compete” for several other oil refineries. This company is owned by the governments of Russia and Belarus and was set up precisely to keep Mozyr’s oil refinery supplied. Its current Ukrainian market aspirations are further evidence that Russia’s capital onslaught is the result of a coordinated effort by Russia’s political and business elites.
To complete the picture of Russia’s presence in the best-paying Ukrainian markets, suffice it to recall that AvtoVAZ now controls the Zaporizhzhia Aluminum Combine as does Russian Aluminum Mykolayiv Alumina. The Alfa Group controls several banks and insurance companies and has an interest in Golden Telecom. Gazprom bought Rivneazot via an affiliated company, and Lukoil has Ukraine’s largest chemical enterprise Oriana. The Russians control Ukraine’s largest tire manufacturer, the Rosava Joint Venture, through its Amtel registered in Singapore. Once again, these are Ukraine’s largest enterprises and the government’s control over them is on paper only.
Incidentally, Anatoly Kinakh, while still on the Pustovoitenko team, refused to sign a Ukrainian-Russian protocol on the redemption of liabilities to Russia using blocks of shares of highly liquid enterprises. In other words, the new premier can hardly be expected to take any great strides toward Russian capital or vice versa, at least on personal initiative. Unlike the previous cabinet (with its supposedly Western image), Premier Kinakh’s team has far less room for maneuver; his freedom of movement within the president-parliament-cabinet triangle is limited, and Ukraine’s international image in the aftermath of recent political events is no help in actively wooing Western investment. Meeting with Anatoly Kasianov at the Minsk summit, Kinakh did not rule out the possibility of privatizing Ukrainian arterial oil pipelines, “ with Russia also taking part.” Perhaps this was an “export” declaration. Perhaps not.
Interestingly, the Ukrainian business elite seems unalarmed by the offensive of the so-called new Russians. “The coming of Russian capital might be a disheartening phenomenon, but how can we do otherwise, considering that Western capital is in no hurry to come here?” People’s Deputy Viktor Pinchuk told the Le Monde.
“All fortunes in Ukraine were made using Russian gas,” Oleksandr Volkov pointed out quite frankly in an interview with Russia’s Nezavisimaya gazeta. Any gentleman’s agreements between the most influential business people in both countries are not likely, but there have been no conflicts to date. After all, the Russians claim control mostly over intensive gas-consuming or oil-refining industries. Thus, Sibur made no secret of its being interested primarily in a closed cycle of Gazprom, oil field, and end user cycle, meaning big-time consumers, Ukrainian chemical enterprises to be precise.
Hence there are no political players in Ukraine, let alone domestic capital, strong and interested enough to support an economic balance between the Western and Russian investors. The point is not only the different Russian-Western weight categories. While discussions continue of our Ukrainian oligarchs, their Russian counterparts are actively operating on the Ukrainian market. Under the circumstances, the advantage of Russian capital becomes increasingly obvious, considering historical tradition and the Ukrainian economy’s technological dependence.
Incidentally, visual means of influence are also something the Russians are concerned about. Alfa Group is involved in Kyiv’s New Channel, and Lukoil is taking fraternal care of STB. Moscow’s NTV holds an interest in Kyiv’s Inter. Companies with access to powerful media resources are not only protected from the changing political winds but can also change their direction.
Assuming that the more than healthy appetite of Russian business is a reality, one is left to point to certain opportunities for Ukraine in it. In particular, by providing favorable conditions for Russians in Ukraine, the domestic authorities receive arguments in their struggle for similar conditions for Ukrainian companies in Russia. Moscow has so far been consistent in crowding out our producers from Russian markets. Among the victims are pipe mills as well as caramel and sugar suppliers. Leonid Svatkov, chairman of the State Food Committee, says Russia is preparing a special customs duty to be levied on Ukrainian beer and oil. “Oleina holds 17% of Moscow’s vegetable oil market, so they want to close this market for us,” he complains.
So integration is in vogue these days. But why not make the process reciprocal? Unless the cabinet, president, and parliament seriously consider supporting Western-Russian investment balance — or at least of really protecting domestic business interests on our foreign (primarily Russian) and domestic markets, Kyiv’s dependence on Moscow could well exceed the energy limits.
INCIDENTALLY
Official statistics show that Ukraine has received a mere $3.9 billion worth of foreign inland investment (compared to Poland’s $50 billion).
An analysis of Ukraine’s investment climate, released on June 5 and carried out by the Ukrainian Independent Political Studies Center jointly with the Institute of the Competitive Society, revealed already traditional reasons for the Western investor’s stubborn reluctance to deal with the Ukrainian economy.
Project coordinator Kseniya Liapina noted, “The main barriers frightening off foreign investors on our market are not macroeconomic problems, and not even the high tax rates, but primarily the unreasonable and mostly unpredictable regulatory policy of the state.” Indeed, even the most reliable business project cannot provide for contingencies such as a sudden government action levying additional insurance fees or, say, a new licensing system that can simply demolish the entire company development plan. “In addition,” she stressed, “there is the government’s prerogative to institute tax and customs exemptions for certain enterprises within the same industry. Now this is something utterly indigestible for a Western investor accustomed to fair competition.”
Simultaneously, tentative government efforts to make the Ukrainian investment climate a little more attractive for Western capital turn out abortive in practice. Yaroslav Zhalylo, director of the Anticrisis Studies Center, finds the reason for such constant failures lies in the inconsistent approach to macroeconomic problems which are mainly caused in Ukraine by worsening microeconomic indices. For example, liquidating the budget deficit inevitably leads to a heavier fiscal pressure, and minimizing inflation is traditionally accompanied by hardships in receiving bank financial resources. Oleksandr Sorokin, chairman of the board, Ukreksimbank, told
The Day earlier that “there is an ever higher credit nonpayment risk, caused, among other things, by the weak judiciary which is unable to protect the investor’s interests.”
