Yanukovich regime earns billions on illegal coal mining

A guest post by an energy and climate activist Oleg Savitsky from Ukraine on how current government benefits from coal, leading to unjustice and adding to climate change.

 

Donbasenergo brutal grab

Ukrainian thermal power plants are old, inefficient and extremely polluting. Ukrainian TPPs have one of the lowest levels of technical, economic and environmental indicators in Europe. These plants were commissioned in 60-70 years of last century and are technically obsolete. At some of the plants technically designed lifespan has already expired and they are currently operating beyond their project lifetime and often in non-project conditions. They emit up to 30 times more hazardous pollutants (dust and ash, heavy metals, sulfur dioxide and nitrogen oxides) than emission limit values adopted in European Union.

Thermal power plant in Slovianks, Ukraine

Photo: Thermal power plant in Slovianks, Ukraine

Ukrainian coal power plants are not very good at providing a safe and reliable electricity supply to the general population, but they are very good for generating huge profits in a very short time.

On 21 August 2013 Ukrainian PJSC “Energoinvest holding” won the tender for sale of 60.773% of the state shares of “Donbasenergo” generation utility offering only 718 920 000 UAH (65 mln euro) for two big TPPs (Starobeshiska – 1940 MW, Slovianska – 880 MW).

Dutch “Energoinvest Holding BV” with statutory fund of just 1000 euros is the owner of 92% shares of Ukrainian PJSC “Energoinvest Holding” with charter capital of 150 million hryvnia (15 mln euro). Ukrainian PJSC “Energoinvest Holding” and Dutch “Energoinvest Holding BV” were registered at the same day – June 20, 2013. On 8 August 2013 this Dutch offshore company became owner of 100% shares of the same name Ukrainian public joint stock company. On, August 9 “Energoinvest Holding BV” sold 8% of the shares to some unknown number of minority stakeholders.[1] Who are these stakeholders and why they are allowed to share the pillage remains in the dark.

Up to August 8 the 100% of shares of PJSC “Energoinvest Holding” was owned by Ukrainian coal mining company “Krasnolimansk” LLC whose owner is Igor Gumenuk, known as a partner and envoy of President Victor Yanukovich and former subservient of Rinat Akhmetov.

Coal laundry involves UK and Netherlands

The most interesting fact about Energoinvest Holding BV is that currently the 100% owner of this Dutch company is British Whitebridge Resources Limited, established in 2003. And unlike the newborn Dutch company it is perfectly known in our country. Whitebridge Resources Limited is the largest buyer of Ukrainian metal in the UK and successfully performs intermediary sells of this dirty metal to European final consumers. The company itself does not produce or processes anything and main activities stated in its official documents are, literally, “other business services”.1Whitebridge Resources Limited is a tax-free enterprise and in fact is regular laundry for money derived from exports and imports from Ukraine.

Whitebridge Resources Limited is used by members of Ukrainian establishment (members and donors of Party of Regions) not only for exports to offshore companies at lowered (fictitious) prices, but also to import raw materials and equipment to Ukraine by specially inflated prices.

Private coal for public money

Before the sale of Yanukovich’s government was urgently pumping giant state funds into “Donbasenergo”. In 2013 Cabinet of Ministers run by Nikolay Azarov adopted a whole series of decisions on allocation of public funds for  reconstruction of Sloviansk TPP. In June Azarov signed a document announcing plans to attract about $1,2 billion USD (9,3 billion UAH) for reconstruction of Sloviansk TPP. 2,5 billion USD were supposed to be spent on reconstruction of a single working unit 7 (800 MW). The remaining funds were supposed to be spent on construction of two 330 MW coal units (with fluidized bed combustion technology) instead of decommissioned 800 MW gas-fired unit.

In June 2013 National Energy Regulatory Commission (NERC) has laid in the electricity tariff for “Donbasenergo” an investment component for the reconstruction of unit number 7 at Sloviansk TPP. Until the spring of 2019 the Ukrainian consumers will have to pay a modest 1.113 billion UAH for stolen dirty coal. This accounts for 44% of the costs of reconstruction of the unit 7. [2]

Should this be considered as small gift from all Ukrainians to current and future owners of Donbassenergo?

And, finally, at 20 December 2013 PJSC “Donbasenergo” has signed an agreement with “Energoinvest trading”  (subunit of  Energoinvest Holding BV) for supply of 3,3 million tons of coal with strange origin[3] for 3,267 billion UAH (4 times the price of “Donbasenergo”) in 2014.

Where “strange coal” does come from?

Igor Humeniyk owns coal mining company “Krasnolimaksya LCC”, which is named after its single one big legal mine. In 2012 this mine “officially”* produced 2,237 mln tones of coal. Real capacity of Krasnolimaksya mine could be much lower and with official numbers it can’t not provide enough coal to power Donbasenergo (3,3 mln tones in 2014). It is obvious that some additional source of coal is needed. So where will another million tonnes of coal will come from? The answer is – illegal mines.

Illegal coal mines, or copanky, exist in Ukraine for more than two decades. They have emerged as a spontaneous people’s business, but eventually they were brought under control at first by organized crime and afterwards by “businessmen” backed by officials. Now this have turned into a extremely profitable industry. Today illegal mines in Ukraine produce millions of tons of hard coal and sky high revenues for people who took over Ukrainian coal and invented legalization schemes.

Huge pits, hundreds of multi-excavators and graders, dump trucks string of loaded coal without supporting documents – scope of what is happening, clearly indicates that illegal mines operate on full cooperation with law enforcement agencies and local authorities.

 

Evolution of legalization schemes

Up to 2010 legalization scheme was quite simple and consisted in the fact that state-owned (*and some private ones) mines took coal from copanky and resold it as their own. Since illegal coal costs usually several times less than market price, participants of the scheme managed to not only to capitalize on this difference, but also to acquire direct state subsidies for the amount of black gold mined. Taking coal from copanky these mines actually received money from the air.

After 2010 (when Yanukovich’s criminal regime rises to full power) legalization of “strange coal” started to be done with commercial structures. Since then state owned mines have lost their primary role as coal laundry. Starting from 2010 private companies are buying coal from copanky, process it and sell as if they mined it by themselves.  It appears that these structures have backing at all levels, including law enforcement and local governments. Now pit mines can conduct their activities without interference, while allowing the main beneficiaries to formally remain clean before the law.

Scheme of legalization of coal through the so-called “platforms” and widespread conversion centers works at full scale in Ukraine today. Coal, produced in pit mines in the forests and ravines is delivered to so called “platforms” (local slang) – numerous coal warehouses located in the towns of miners. Another common name for such objects – “reseeder”, as coal is also being sorted and processed there to meet quality standards for marketable coal. There this coal also receives the necessary documents, which gives it a legal status .

There are also big conversion centers “coal playgrounds” – big areas,  where trucks dump hundreds of tons of coal. On such objects usually work dozens of people, special vehicles and other modern equipment. Usually they are organized near the railway lines and processed coal is directly loaded on rail-cars.

This scheme provides safe and cheap way to convert hard coal produced in the pit mines to a perfectly legal and marketable goods, which can be sold to any customer, including from abroad.

Infographics: Coal utilization scheme in Ukraine

 

Infographics: Coal utilization scheme in Ukraine. Click to expand.

 

Family business grows

According to expert estimates in 2012 more than 6,5 mln tones of coal was mined illegally. In the same 2012 year company “MAKO Trading”, owned the President’s eldest son Alexander Yanukovich, has sold on the domestic market 6.65 million metric tons of hard coal.

In 2013 “MAKO Trading” has bought big shares of 5 coal processing facilities which can produce millions of tones of marketable coal. But as it is known now these processing plants where part of business association “Donbass settlement and financial center”, founded in early 2000-th by former deputy from the Party of Regions Edward Prutnik, behind whom stand Viktor Yanukovich himself.[4], [5]

And starting from 2013 “MAKO Trading” has a partner in this dirty business – “Energoinvest Trading”, owned by Igor Humeniyk, the friend of the Family.

So the Family business grows… while Ukraine turns into a plundered failed state.

A perfect mix of crime, labor exploitation, corruption and environmental destruction.

 


 

More on illegal mining in Ukraine:

http://www.bbc.co.uk/news/world-europe-22170976

http://www.worldcoal.com/news/power/articles/Coal_mining_in_Ukraine_180.aspx

https://www.kyivpost.com/content/ukraine-abroad/bloomberg-businessweek-ukraines-illegal-coal-mines-lure-desperate-workers-332569.html

Pit No. 8 – a documentary film on energy vulnerability and failed transition in Ukraine

 

Photos:

http://www.kurtvinion.com/reportage-illegal-coal-mining -  mining and miners in Donbas region

http://www.pravda.com.ua/articles/2011/10/6/6645004/ – Yanukovich’s famous residence “Mezhyhirya”

 

Reportage from mining town “Snizne” – the hot spot of illegal mining (Pit #8 filming place):

http://globalvoicesonline.org/2013/01/17/fighting-unabashed-criminal-dictatorship-in-ukraines-coal-mining-region/

 

Details on White Bridge Resources Limited:

Name & Registered Office: “Whitebridge Resources Limited” (5th Floor, 86 Jermyn Street, SW1Y6 AM, London, UK) Company N 04978674

Status: Active

Date of Incorporation: 27.11.2003

Country of Origin: United Kingdom Company

Type: Private Limited Company

Nature of Business (SIC (03)): 7487 — Other business activities

Accounting Reference Date: 31.12.2005

Last Accounts Made Up To: 31.12.2005 (total exemption small)

Next Accounts Due: 31.10.2007

Last Return Made Up To: 27.11.2006

Next Return Due: 25.12.2007

Last Members List: 27.11.2006.

 

 

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