The individuals who brought the largest state operator on the agricultural market to the brink of
The individuals who brought the largest state operator on the agricultural market to the brink of disaster …
What the SFGCU's seven heads are remembered for …
For almost seven years of its existence SFGCU has had seven bosses, on average one a year. Since its creation, the position of SFGCU chairman has been considered a "political" one, since the person who holds the post controls the largest infrastructure on Ukraine's agricultural market and is a party to one of the biggest international agreements between Ukraine and the People's Republic of China. Another aspect of the position is access to practically limitless shadow revenue streams generated by the state's largest grain operator.
Over a relatively short period of time for the corporate and state sector, SFGCU degenerated from a powerful player on the market – a huge exporter and monopolist on the grain processing and export market – to an ineffective and wasteful structure beset by waste and problems.
This transformation took place under the leadership of the following individuals:
Tenure: August 2010 – June 2012
Agriculture Policy Minister: Mykola Prysiazhniuk
After Viktor Yanukovych was elected president in 2010, his team began monitoring the most profitable sectors of the economy looking for rent seeking opportunities. Agriculture Minister Mykola Prysiazhnyuk – the business partner of oligarch Yuriy Ivaniuschenko (who oversaw the creation of SFGCU) – conducted this work in the agricultural sector. SFGCU was created in August 2010 by concentrating the most profitable assets of the bankrupted state-owned agro company Khleb Ukrainy – several dozen grain elevators and grain production facilities, including port facilities, windmills, as well as the capacity to process the equivalent of almost 10 percent of Ukraine's domestic demand.
Oleksandr Lavrynchuk was appointed to head the newly created structure, which was part of plans being drawn up by Ukraine's new authorities for the country's growing agricultural market, Lavrynchuk previously headed Khleb Ukrainy and was familiar with its assets. He was able to first to filter out the most attractive business assets of the state agro holding and then fuse them into a new powerful structure under the new SFGCU aegis. With the active participation of Lavrynchuk (although he was not a signatory), a precedent-setting contract was signed with the China National Complete Engineering Corporation (CCEC).
Lavrynchuk left the state corporation (but did not relinquish influence on it), moving to a safer position as deputy general director of Ukraine's Agrarian Fund. Before moving on, Lavrynchuk masterfully created the necessary infrastructure that generated extraordinary profits for businessmen with close ties to top government officials, helping create a new subsidiary of SFGCU - LLC Khleb Investbud, which was endowed with limitless resources for work on the grain market. In 2010 the Cyprus-registered company Kalasar became the owner of LLC with 51 percent of shares. The founders of Kalasar remain unknown.
Tenure: June 2012 to January 2013
Agriculture Policy Minister: Mykola Prysiazhniuk
Oleksandr Tsybulnschak is also a fixture of Ukraine's agro sector, having served as general director of Khleb Kyiva named after Vasyl Khmelnytsky and Andriy Ivanov from 2004 to 2010.
During his limited tenure as SFGCU head Tsybulschak participated in the official signing of contract with CCEC – a huge contract worth $28 billion dollars. According to the deal, Ukraine pledged to supply China with annual grain shipments on a progressively larger scale. China in return pledged advanced purchases of grain, as well as plans to facilitate several of investment projects, including the construction of seed factories and irrigation system investments in Kherson region. Of the total amount of the contract, Ukraine received $1.5 billion for the future export of agriculture products, starting with maize, to the People's Republic of China. China was prepared to invest the same amount in agro infrastructure projects in Ukraine.
After a year and a half, having performed his role as contract signatory, Tsibulschak left the corporation. His further career was connected with Kyiv, where he headed the capital's Obolonsky district, almost up to the 2014 Revolution and Dignity in 2014 and subsequent change of power.
Tenure: January 2013 – March 2014
Agriculture Policy Minister: Mykola Prysiazhniuk, Ihor Shvaika
Igor Yakubovych is associated with the period of rampant corruption involving SFGCU. Hailing from the little-known Khleb Investbud company, Yakubovych quickly and aggressively assumed leadership over the agro market. He had no experience or international ties, but relied on administrative resources.
In 2010/2011, 2011/2012, 2012/2013 Khleb Investbud was one of the top three grain exporters, having set a precedent duplicated by no operator. Khleb Investbud masterfully received all necessary quotas for fulfillment of international quotas and experienced no problems with receiving certificates for grain exports. The company was always was able to pay Ukrzalyznitsia for railway grain wagon shipments. Such quick successes were met with resistance from grain market players. Khleb Investbud had the reputation as one of the most corrupt players on the agro market. Yakubovych formally took the top position in the corporation, which was actually completely controlled by his deputy, Donetsk region businessmen Ihor Filipenko, who as deputy SFGCU chairman was directly connected with Yuriy Ivaniuschenko and Mykola Prysiazhnuk.
Ihor Yakubovych arrived at the post just before the change of power in Ukraine and before Yanukovych fled the country. Appointed as per the quota allotted to the Sboboda Party, Agriculture Minister Ihor Shvaika dismissed Yakubovych, who at the time was located in Russia. It was one of Shvaika's first orders as minister.
Tenure: March 2014 – December 2014
Agriculture Policy Minister: Ihor Shvaika, Oleksiy Pavlenko
Petr Vovchuk, as many of his predecessors at SFGCU, had previously worked at the state agro holding Khleb Ukrainy (according to unofficial information, in addition to working for Ukraine's secret services). He was probably invited to head the corporation in order to conduct an audit following the departure of Mykola Prysiazhniuk's management team. Vovchuk was known as head of the SFGCU's Land Fund, which began the careful accumulation of agricultural land plots throughout Ukraine on the eve of attempts by authorities to allow land market turnover. Vovchuk was familiar with the schemes employed by SFGCU.
Inasmuch as Vovchuk's appointment was recommended by democratic forces, many hoped he would take SFGCU out of the shadows and liquidate murky schemes. What happened was exactly the opposite. In 2013 and 2014, taking advantage of the chaos gripping the country, some $200 million was siphoned from SFGCU. The funds were sent to offshore companies in compensation for grain shipments which were never made. The biggest scandal involving the board chairman involved the export of a large shipment of grain with delayed payment, which the corporation has not received to this day. When it became impossible to ignore the scandal any longer and civil society activists began raising the alarm (as after the Revolution of Dignity with the participation of, or with, as a minimum, the blessings of the Agriculture Minister appointed on the Svoboda Party quota) old schemes on the agro market not only remained, but were improvised on. Vovchuk was relieved of his duties.
Valeriy Tomylenko (acting SFGCU head)
Tenure: December 2014 – May 2015
AgriculturePolicy Minister: Oleksiy Pavlenko
Valeriy Tomylenko was the only top manager of SFGCU not connected with the former team and with the agro market in general. He was appointed during the period when government was seeking technocrats – professionals from the corporate sector to manage state assets. The Agriculture Policy Ministry at the time was headed by another technocrat, Oleksiy Pavlenko.
Tomylenko exhibited maximum professionalism at his post. He was brought in from the corporate sector in order to make the corporation healthy and negate past losses. However, like many technocrats, he had to deal with the state machine and bureaucracy, with which he was unable to combat effectively. Using business approaches, he did not take into account risk factors inherent in the state management sector, i.e. incompetence and lack of motivation of employees, who at times committed deliberate sabotage and engaged in corrupt activities.
The chairman of the board was also hostage of China contract fiasco, the conditions of which he was forced to fulfill. He attempted to correct imbalances in the deal to Ukraine's favor, signing addenda to the General agreement with the CCEC. As a result, the Agriculture Policy Ministry, as the state organ managing the corporation, reprimanded Tomylenko for exceeding his authority. In addition, bank failures in Ukraine multiplied during his tenure. Corporation funds were deposited in several so-called "problem" banks and much of Tomylenko's work as SFGCU acting chairman was devoted to negotiating with the National Bank of Ukraine. Tomylenko stayed on for six months before being forced out without fully realizing his knowledge and business experience.
Borys Prikhodko (acting SFGCU head)
Tenure: May 2016 to October 2016
Agriculture Policy Minister: Oleksiy Pavlenko, Taras Kutovoy
Borys Prikhodko, whose expertise was in the field of marketing was initially regarded as compromise figure to head SFGCU, at least until a more suitable candidate could be found. He was transferred to chair No. 1 after heading the corporation's department of foreign economic affairs for about three months. Prikhodko, however, managed to hang on much longer than his more experienced predecessors. The reason was the change of government, which delayed personnel changes in state companies until the formation of a new Cabinet of Ministers. This was followed by several months of horse trading over control of revenue flows.
As a result, the able, but inexperienced top specialist (not manager) brought the corporation to the brink of catastrophe and voiding of the key contract with China. The Chinese side expressed dismay with the status of their interlocutor, who was poorly acquainted with details of the agreement. The Chinese conveyed this message to Ukraine's Agriculture Policy Ministry, saying they did not see any point in further negotiations if Prikhodko would be involved in them.
Tenure: October 2016 - ?
Agriculture Policy Minister: Taras Kutovoy
Oleksandr Hryhorovych is the alter ego of Serhiy Tryhubenko, one of the most infamous managers from the Yanukovych years. He headed one of the most corrupt agencies in the agro market - the State Agriculture Inspection – when Mykola Prysiazhniuk served as Agriculture Policy Minister. Hryhorovych worked with Tryhubenko at the State Agriculture Inspection, which received corrupt payments from each and every Ukrainian grain export. Hryhorovych together with Tryhubenko was transferred to the Agriculture Policy Ministry to head one of the ministry's departments.
After a hiatus following the Revolution of Dignity, Oleksandr Hryhorovych returned to public service at the ministry under Oleksiy Pavlenko, first as an advisor. Later, under Minister Taras Kutovoy, he received the spectacular promotion to head SFGCU.
Since the moment of his appointment to the problem-stricken corporation, chaos has reigned supreme. Seizing on the opportunity to "optimize" the corporation, Oleksandr Hryhorovych restructured part of the enterprise, separating out the most profitable bits of the corporation. A mass exodus of qualified SFGCU employees began three months after he took charge. Trading job positions at the corporation ensured, not just in the central office, but in the corporation's subsidiaries, all the way down the line to grain elevator supervisors.
With a guaranteed market within the framework of a contract with the CCEC, the SFGCU did not once adhere to agreed upon indicators. This did not prevent Hryhorovych to predict a record (and unattainable) export target – more than 5 million tonnes for the next export season.
The SFGCU's top manager has also taken credit for correcting the contract with China, as if his personal participation in the talks and talent as a negotiator compelled the Chinese side to soften their bargaining position. The conditions of the contract, however, have become even more unprofitable for Ukraine. The CCEC confirmed its monopoly right as main partner, which presupposes SFGCU grain sales only with their participation. Moreover, grain export prices were set from $5 to $7 dollars lower per tonne than the market rate, which will entail
SFGCU more losses with each export deal. Not seeing the economic viability in buying Ukrainian grain (moreover, China this year started selling its own grain reserves), the CCEC stopped buying SFGCU's exports, offering Hryhorovych to find other buyers while retaining the exclusive partnership with CCEC, which reserves the right to a share of the profit margin of each tonne sold. And this is all done in strict accordance with the letter of the contract, which SFGCU's new chief so "successfully" redacted.
As a result, exports of grain – the most profitable party of the corporation's activities – were halted in November 2016. SFGCU, formerly the leading exporter of agricultural produce from Ukraine, for the past two months has not sold one (!) tonne of grain, and retains 500,000 tonnes of grain at storage facilities. According to the most conservative estimate, the corporation faces losses due to lower world grain purchase prices and storage costs, as well as correction for the loss of grain export quality, totaling a minimum of $1.7 million.
Monthly interest payments on the Chinese credit amount to $6.2 million. The corporation earns not more than UAH 200 million monthly. The difference is covered by interest on the deposit of about $800 million of the Chinese loan in Ukrehksimbank. So, instead of increasing profits by boosting operational activity to a minimal level, SFGCU is simply burning up a passive asset.
In his public statements Hryhorovych proclaims Napoleonic plans – the creation of the corporation's own railway grain wagon park, forming a land plot bank, a number of other large infrastructure projects and the modernization capacities. But all this is either deliberate attempt at obfuscation to mollify the Ukrainian government and Chinese creditor or a real misunderstanding of the actual predicament of the corporation headed by Hryhorovych. Payments on the Chinese loan principal are scheduled to start in 2018. The situation is deteriorating each day and SFGCU will be unable to make them.
"One should not be afraid to say honestly that the current situation is tantamount to an unavoidable default," said an agro market expert, who requested anonymity. "The Cabinet must either take urgent measures or quickly find a new SFGCU chief. With each passing day room for maneuvers is narrowing for the state's largest grain operator, which is heading straight into the abyss."