Sergii Leshchenko: This is how Akhme­tov robs Ukrza­l­iznyt­sya

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Ed­i­tor’s Note: Sergii Leshchenko, a Kyiv Post colum­nist and former mem­ber of Ukraine’s par­lia­ment, is a mem­ber of the su­per­vi­sory board of Ukrza­l­iznyt­sia, the state rail­way com­pany. He joined it in De­cem­ber 2019. Rep­re­sen­ta­tives of bil­lion­aire oli­garch Ri­nat Akhme­tov and his com­pa­nies have con­sis­tently de­nied seek­ing po­lit­i­cal favors for their busi­nesses.

Re­cently, the Se­cu­rity Ser­vice of Ukraine, known as the SBU, held a spe­cial oper­a­tion in­ves­ti­gat­ing al­le­ga­tions of cor­rup­tion at the coun­try’s big­gest state en­ter­prise, rail­way com­pany Ukrza­l­iznyt­sia.

Within the in­ves­ti­ga­tion, the SBU searched the house of one of the sus­pects and found that he stored huge amounts of cash in his re­frig­er­a­tor, on a shelf next to lemons. In Ukraine, “le­mon” is a slang term for “mil­lion.” And that’s what cor­rup­tion costs Ukrza­l­iznyt­sia — many, many mil­lions of dol­lars.

The in­ves­ti­ga­tion is only one ex­am­ple of the fight for clean­ing up Ukrza­l­iznyt­sia. The fight has been tak­ing place in the past sev­eral months, af­ter the en­ter­prise got a new chair­man.

Big­gest em­ployer

Ukrza­l­iznyt­sia is the big­gest em­ployer in Ukraine. It gives jobs to 250,000 peo­ple. Its chair­man man­ages a num­ber of em­ploy­ees that is roughly the pop­u­la­tion of the state of Bar­ba­dos. The com­pany is a mo­nop­o­list in pas­sen­ger trans­porta­tion, a chron­i­cally un­prof­itable busi­ness. It man­ages the third-big­gest net­work of rail­roads in Europe.

In Au­gust, Volodymyr Zh­mak be­came chair­man of Ukrza­l­iznyt­sia. His back­ground and the ac­tion plan he pre­sented to the board lead us to have high ex­pec­ta­tions of him as some­one who can real-ly change the ways of Ukrza­l­iznyt­sia.

Pre­vi­ous chair­man

Yevhen

Kravtsov, who was very fond of award­ing him­self big bonuses, man­aged Ukrza­l­izn­tysia for two years and re­signed in Jan­uary, leav­ing the com­pany un­re­formed and plagued with cor­rup­tion.

One re­cent ex­am­ple of cor­rup­tion at Ukrza­l­iznyt­sia was es­pe­cially im­pres­sive: The money meant for re­pair­ing a pas­sen­ger train’s lo­co­mo­tive was spent to buy two Audi A8 Long cars for man­age­ment.

Cor­rup­tion fight

Try­ing to move on from this heritage, Ukrza­l­iznyt­sia pro­claimed a pol­icy of zero tol­er­ance to cor­rup­tion. In the past sev­eral years, there have been many abuses of of­fice and sus­pi­cious pro­cure­ment. For ex­am­ple, Ukrza­l­iznyt­sia pur­chased so much ro­tary bear­ings that this sup­ply will last for decades. The sup­plier com­pany be­longed to a mem­ber of par­lia­ment, who in ex­change was sup­port­ing then-Prime Min­is­ter Volodymyr Groys­man, whose Cabi­net con­trolled Ukrza­l­iznyt­sia.

An­other ex­am­ple. In the pre­vi­ous con­vo­ca­tion of the Verkhovna Rada, Ukraine’s par­lia­ment, head of the Trans­port Com­mit­tee was the rail­road’s main sup­plier of braces for rails and ties. It was Yaroslav Dub­nevych, and he went on to be­come the first mem­ber of this con­vo­ca­tion who faced crimi-nal charges.

Things are look­ing up now. Since the start of 2020, Ukrza­l­iznyt­sia has been pur­chas­ing diesel fuel, its main fuel, be­low the mar­ket price. It is set

ting a good ex­am­ple for other state com­pa­nies.

But nev­er­the­less, such changes aren’t chang­ing Ukraini­ans’ opin­ion of Ukrza­l­iznyt­sia’s ser­vice: They get on the trains and don’t see any im­prove­ment.

The thing is, Ukrza­l­iznyt­sia is likely the only rail­way com­pany in Europe that doesn’t get com­pen­sa­tion from the state bud­get for pas­sen­ger trans­porta­tion, which is in­vari­ably loss-mak­ing for all rail­way op­er­a­tors in the world.

It means that Ukrza­l­iznyt­sia has to bal­ance its books us­ing the prof­its it gets from cargo trans­porta­tion.

Akhme­tov’s free ride

But here’s what makes this sit­u­a­tion ab­surd: Be­cause of po­lit­i­cal deal-mak­ing, Ukrza­l­iznyt­sia is trans­port­ing some cargo at be­low-cost tar­iffs. This sweet deal mainly con­cerns the iron ore trans-ported by the en­ter­prises of the Ri­nat Akhme­tov, the rich­est of Ukraine’s bil­lion­aire oli­garchs.

While Akhme­tov makes enor­mous prof­its on sell­ing ore abroad, Ukrza­l­iznyt­sia loses hundreds of mil­lions of hryv­nia on trans­port­ing the ore for him.

The thing is that, ever since Soviet times, Ukrza­l­iznyt­sia has dif­fer­ent tar­iffs for trans­porta­tion of dif­fer­ent goods. For ex­am­ple, when it trans­ports a train loaded with iron ore, its owner pays Ukrza­l­iznyt­sia less than if that train was trans­port­ing grain.

Speak­ing in num­bers, the prof­itabil­ity of trans­port­ing iron ore for Ukrza­lianyt­sia is “mi­nus 19%.” The tar­iff is so low that the state com­pany is los­ing money when it’s trans­port­ing iron ore. Its tar­iff for trans­port­ing ore is 2.5 times lower than in Poland, and 4.5 times lower than in Slo­vakia.

More ab­sur­di­ties

But the ab­sur­di­ties don’t stop there.

Ukrza­l­iznyt­sia’s tar­iffs are dif­fer­ent even for trans­port­ing empty cars to the next client. The price de­pends on what was trans­ported in these cars be­fore. The trans­porta­tion of an empty car af­ter it car­ried iron ore costs the client less than if that car car­ried grain.

Ukrza­l­iznyt­sia has been try­ing to de­prive pri­vate com­pa­nies of this priv­i­lege — first of all, the com­pa­nies of Akhme­tov. They sell iron ore on global mar­kets while pay­ing a laugh­able rent to Ukraine and a laugh­able price to the state rail­way op­er­a­tor to have the ore trans­ported to a port.

It’s es­pe­cially im­por­tant now since this year has been very chal­leng­ing for Ukrza­l­iznyt­sia.

The com­pany has been plan­ning to start equal­iz­ing the cargo tar­iffs grad­u­ally: first, for empty cars, then for iron ore. It would have brought the com­pany some $150 mil­lion within the first six months.

Akhme­tov’s lobby

But the com­pany’s ef­forts met with Akhme­tov’s lobby. Of­fi­cials from a low-key state agency, the State Reg­u­la­tory Ser­vice, ve­toed Ukrza­l­iznyt­sia’s sug­gested tar­iffs.

Mean­while, paid-for ar­ti­cles were pub­lished in the Ukrainian me­dia that said that the in­crease of trans­porta­tion tar­iffs by Ukrza­l­iznyt­sia would have bad im­pact on “Big Con­struc­tion,” a state pro­gram of con­struct­ing in­fra­struc­ture ob­jects, cu­rated by the Pres­i­dent’s Of­fice. The sto­ries al­leged that higher tar­iffs would make “Big Con­struc­tion” more ex­pen­sive. It’s a cyn­i­cal lie that aims to set an im­por­tant anti-cri­sis mea­sure of Ukrza­l­iznyt­sia against the state pro­gram that is im­por­tant for Pres­i­dent Volodymyr Ze­len­sky.

Cur­ry­ing favor

The end goal of this whole ef­fort is to save money for the oli­garch. This money will then be “in­vested” in pol

itics: to curry favor with law­mak­ers and of­fi­cials.

Ukrza­l­iznyt­sia also suf­fers from Akhme­tov as a con­sumer of elec­tric­ity. The gov­ern­ment is cur­rently try­ing to put to­gether a spe­cial fund to pay out what it owes to the pro­duc­ers of green en­ergy. To fill that fund, the state plans to in­crease the tar­iffs on trans­porta­tion of elec­tric­ity. This money would go di­rectly to pay the green en­ergy pro­duc­ers. The big­gest bene­fac­tor of this will be, again, Akhme­tov, whose com­pany con­trols ev­ery fourth sun en­ergy panel in Ukraine.

Campaign of ha­rass­ment

Mean­while, Akhme­tov is run­ning a campaign of ha­rass­ment and re­venge to the few public fig­ures who dare to crit­i­cize his schemes. This sum­mer, his TV chan­nel sent a crew to Turkey to spy on An­driy Gerus, a law­maker and head of the En­ergy Com­mit­tee in the par­lia­ment, while he was on va­ca­tion.

His TV chan­nel ded­i­cated sev­eral pseudo-in­ves­tiga­tive pro­grams to me. I’ve seen five dif­fer­ent TV crews ro­tat­ing on duty next to my apart­ment. But it’s not go­ing to stop my ef­forts to find jus­tice — both for Ukraini­ans and for the state com­pany Ukrza­l­iznyt­sia, where I’m a mem­ber of the su­per­vi­sory board.

In case of Ukrza­l­iznyt­sya, we are be­ing robbed twice. First, we aren’t get­ting div­i­dends from the com­pany for the state bud­get, which would pay for new roads, hos­pi­tals, and schools. At the same time, the im­pov­er­ished Ukrza­l­iznyt­sia lacks the money to buy new com­fort­able trains or main­tain the rail­ways in a good con­di­tion to guar­an­tee fast trans­porta­tion.

Where is this money? It’s not hard to find it. Just look at Akhme­tov’s latest pur­chase — a €200-mil­lion villa on the south coast of France.

Dis­as­sem­bled pas­sen­ger car­riages stand at the Cen­tral Rail­way Sta­tion in Kyiv in July 2016. Ukrza­l­iznyt­sia’s pas­sen­ger ser­vice is loss­mak­ing, forc­ing the com­pany to sub­si­dize it with the money it makes on cargo trans­porta­tion. But it’s not mak­ing enough.

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