Categories > TV > 10th Kingdom
Yanukovych’s old guard kills grain exports
0 reviewsAs soon as the government turned its back, the State Food and Grain Corporation of Ukraine (SFGCU) plunged into crisis
0Unrated
As soon as the government turned its back, the State Food and Grain Corporation of Ukraine (SFGCU) plunged into crisis
Ukraine’s state operator on the grain market has not exported anything since the end of November 2016. It’s liabilities on a $1.5 billion loan from China, meanwhile, continue to grow. But instead of a rescue plan, the acting head of the company Oleksandr Grygorovych is sending Ukraine’s Cabinet of Ministers plans on how to sue its creditors, that is, wreck relations with one of the country’s strategic partners, a move that may damage numerous investment projects in various sectors of Ukraine’s economy.
Circle of friends remains paramount
The State Food and Grain Corporation of Ukraine (SFGCU) can’t seem to tear itself loose from entanglements from the past era. Intermittent attempts to reform the state grain trader’s business have been interrupted by unfathomable scheming and losses.
So, we're left again with this to say: “It’s never been this bad before… Just look at this ugly mess.” Some 550,000 tons of grain have accumulated in the warehouses of the enterprise, which hasn’t exported anything since November 2016.
If Ukrainian modern history is a guide, these kinds of disasters are never a coincidence, so it’s worth taking a closer look … What we see is Oleksandr Grygorovych, who took the helm of SFGCU two months before grain shipments were halted at the peak of the export season.
What were previous achievements of Grygorovych which made him eligible for such a responsible post? We don’t find many bright spots on his resume, except for one: he worked as deputy head of the State Agriculture Inspection of Ukraine in 2011.
What happened that year in Ukraine’s agricultural market? After Viktor Yanukovych won the 2010 presidential election, his cohorts - Yuriy Ivaniuschenko and Mykola Prysiazhniuk - initiated a project to create SFGCU. In order to assist with the start up, which was designed to be privatized eventually into the right hands, the country’s grain market was shaken up and transformed.
State regulators headed by the State Agriculture Inspection rushed to disrupt grain purchases and deliveries for export by private companies, while at the same time creating excellent conditions for someone’s future private property. Private grain traders for months were unable to offload grain for export … with SFGCU taking over their contracts. The right conditions were created on the ground so SFGCU was first in line to buy all the grain it needed, leaving other market players waiting in line.
As a result of unprecedented repressive administrative measures against competitors, SGPCU by 2013 accounted for about 10 percent of total domestic grain elevator storage, cereals, flour and grain exports. Companies and associates of Yanukovych’s son Oleksandr then began to appear. Guessing games among agriculture experts about who would become the new owner of SFGCU were put to rest.
Participants in the project to create productive assets for “the [Yanukovych] family” were not awarded medals. Oleksandr Grygorovych received his just reward – a promotion from deputy head of State Agriculture Inspection to director of a machine building department of an agricultural enterprise.
Bankrupting SFGCU
Years have since passed, but revolution and reforms have were not been enough to ditch Yanukovych’s old guard. This explains why on October 5, 2016, in the spirit of rotating cadre and changing times, Oleksandr Grygorovych, loyal helper of Mykola Prysiazhniuk and Yuriy Ivaniuschenko, was appointed SFGCU head.
Sensing that the winds of change were not blowing for the better, Grygorovych got right to work. Several well functioning and profitable departments of the enterprise were reorganized immediately. Their capacities and financial revenues were quickly transferred to newly-created structures within the enterprise headed by Grygorovych’s trusted allies. The revenue streams of the concern quickly dried up.
The new management immediately resumed talks with SFGCU’s Chinese partners, who had extended a $1.5 billion loan in 2012. For some strange reason, the impression was left as a result of the talks that SFGCU should sell all its grain only with the approval of its Chinese benefactors, and at a price $5 to $7 lower than the market price.
Keep in mind, the discount was agreed while interest payments on the Chinese credit amounted to $6.2 million annually. Paying down the balance of the credit was scheduled to start in 2018, with SFGCU promising to make equal payments during the course of ten years. Monthly expenditures of the company together with interest payments are currently UAH 200 million a month.
As a result of Oleksandr Grygorovych’s managerial efforts over two months, SFGCU stopped purchasing and exporting grain altogether. That's been the case since November 2016.
SFGCU’s complaints about the Chinese
Several months have passed since grain exports were halted, so it would be logical to conclude top managers of the state-owned concern have devised a plan to extricate the enterprise from a complicated situation. The plan was seen in government not long. Officials were amazed. Instead of proposing cost cutting measures or developing profitable parts of the enterprise, the key component of the plan was taking the enterprise’s Chinese benefactors to court. Vagueries in the loan contract and the fact that the partners had already filed court motions to regulate the situation justified the proposed course of action.
Such an approach represents the worst competence, or incompetence, in state management practice and should be examined separately.
For starters, it’s certainly possible to argue with the Chinese about a number of formalities and even dispute them. How blaming SFGCU's benefactors for the corporation's demise will benefit the country is another issue.
Court wrangling over terms of international loan may last one year, two years, maybe three. Meanwhile, large amounts of money would be spent on lawyers and not marketers, who could be selling the nation’s grain. Years of seeking the truth in courts will not improve the corporation's current impoverished predicament. Indeed, the corporation may not even survive long enough to enjoy its “brilliant” legal victory.
In addition, Ukraine is currently negotiating with Chinese investors about dozens, if not hundreds of projects. There is talk today of billions of dollars of investments in port and road infrastructure, and projects to enhance industrial production are possible. What will be the fate of these talks if SFGCU, owing to its own ineptitude, begins spending its limited financial resources on suing its Chinese benefactor, instead of paying him back?
It’s not a mystery why going to court suits top managers at the enterprise. In its explanation to the Cabinet, top managers urge that significant funds should be set aside in 2017 to pay for lawyers and legal fees, even a more deceitful expense and waste of money than increasing the amount the enterprise spends on office supplies.
The 2017 Financial Plan
Unfortunately, SFGCU’S downward spiral is already well documented in the grain trader’s main financial document for 2017. With more than half of the once received $1.5 billion still in a deposit account in Ukraine’s Eximbank, the company’s management still has not made proposals on how to put these funds to work to generate new assets. It's as if the interest on the hard currency bank deposit is the most profitable way to invest money in Ukraine’s grain market.
SFGCU specialists, meanwhile, continue to complain to the media that in 2016 they were forced to cut shipments and exports because of a shortage of railway grain wagons and because investment problems for other projects.
The company’s top managers were able explain away even this oversight in its explanations to the Cabinet. They said the evil Chinese are preventing them from developing capacity and grain exports. These are the same Chinese individuals who are attempting to control the deals and expenses of the corporation.
Here is where the rubber meets the road. SFGCU’s partners trusted the word of our country and lent $1.5 billion. They sought in return an arrangement under which they would receive an export product - our grain. This is the reason why it’s difficult to accuse them of being opposed to what they were seeking at the outset.
SFGCU’s partners can oppose the company’s new projects funded by Chinese money only in one case - if the percentage of “local specifics” [doing "business" in Ukraine] in previous expenditures exceeded common sense. But in that case it’s necessary to come to an agreement and offer apologies. The corporation should litigate against the few who are still willing to work with Ukraine.
Moreover, our Chinese partners have grounds to be unhappy with the current situation. After all, for years they have failed to receive the grain promised them.
In 2013 only 216,000 tonnes of grain were exported to China, in 2014 - 57,000, in 2015 - 1.222 million tonnes and in 2016 - 500,000 tonnes. Over the entire period, a total of only 3.3 million tonnes of grain was exported to China, which is prepared to receive about 2 million tones annually. This is the calculation our Chinese partners made when they issued the $1.5 billion loan.
Conclusions
In principle, the contrived situation involving SFGCU is not new for our country. Dozens of state corporations have showed their plans and successes at exhibitions only to be bailed out six months later using state budget funds.
The $1.5 billion loan muddled by SFGCU’s management is, of course, guaranteed by the state. This means Ukrainian pensioners, small entrepreneurs and teachers will pay the price if state managers fail to purchase railway grain wagons on time in order to facilitate exports. They also pay a price when no grain is exported at all. They also suffer because governments led by Arseniy Yatseniuk and Volodymyr Groysman did not retire individuals whose loyalties were to disgraced former officials, instead of to state interests.
Information:
The State Produce and Grain Corporation of Ukraine (SFGCU) was created by the government of Ukraine in August 2010. It is comprised of a network of subsidiaries, line and port elevators, windmills, ready-to-use multi-grain speciality and cereal factories. A total of 53 SFGCU subsidiaries have capacity to store 3.75 million tonnes of grain, including total capacity an offloading centers for export at the Odessa and Mykolaiv ports of about 2.5 million tonnes of grain annually. Some ten percent of certified Ukrainian grain types belong today to the corporation, which can provide up to 12% of Ukraine’s average annual grain exports. The corporation has had seven top managers since its creation.
Ukraine’s state operator on the grain market has not exported anything since the end of November 2016. It’s liabilities on a $1.5 billion loan from China, meanwhile, continue to grow. But instead of a rescue plan, the acting head of the company Oleksandr Grygorovych is sending Ukraine’s Cabinet of Ministers plans on how to sue its creditors, that is, wreck relations with one of the country’s strategic partners, a move that may damage numerous investment projects in various sectors of Ukraine’s economy.
Circle of friends remains paramount
The State Food and Grain Corporation of Ukraine (SFGCU) can’t seem to tear itself loose from entanglements from the past era. Intermittent attempts to reform the state grain trader’s business have been interrupted by unfathomable scheming and losses.
So, we're left again with this to say: “It’s never been this bad before… Just look at this ugly mess.” Some 550,000 tons of grain have accumulated in the warehouses of the enterprise, which hasn’t exported anything since November 2016.
If Ukrainian modern history is a guide, these kinds of disasters are never a coincidence, so it’s worth taking a closer look … What we see is Oleksandr Grygorovych, who took the helm of SFGCU two months before grain shipments were halted at the peak of the export season.
What were previous achievements of Grygorovych which made him eligible for such a responsible post? We don’t find many bright spots on his resume, except for one: he worked as deputy head of the State Agriculture Inspection of Ukraine in 2011.
What happened that year in Ukraine’s agricultural market? After Viktor Yanukovych won the 2010 presidential election, his cohorts - Yuriy Ivaniuschenko and Mykola Prysiazhniuk - initiated a project to create SFGCU. In order to assist with the start up, which was designed to be privatized eventually into the right hands, the country’s grain market was shaken up and transformed.
State regulators headed by the State Agriculture Inspection rushed to disrupt grain purchases and deliveries for export by private companies, while at the same time creating excellent conditions for someone’s future private property. Private grain traders for months were unable to offload grain for export … with SFGCU taking over their contracts. The right conditions were created on the ground so SFGCU was first in line to buy all the grain it needed, leaving other market players waiting in line.
As a result of unprecedented repressive administrative measures against competitors, SGPCU by 2013 accounted for about 10 percent of total domestic grain elevator storage, cereals, flour and grain exports. Companies and associates of Yanukovych’s son Oleksandr then began to appear. Guessing games among agriculture experts about who would become the new owner of SFGCU were put to rest.
Participants in the project to create productive assets for “the [Yanukovych] family” were not awarded medals. Oleksandr Grygorovych received his just reward – a promotion from deputy head of State Agriculture Inspection to director of a machine building department of an agricultural enterprise.
Bankrupting SFGCU
Years have since passed, but revolution and reforms have were not been enough to ditch Yanukovych’s old guard. This explains why on October 5, 2016, in the spirit of rotating cadre and changing times, Oleksandr Grygorovych, loyal helper of Mykola Prysiazhniuk and Yuriy Ivaniuschenko, was appointed SFGCU head.
Sensing that the winds of change were not blowing for the better, Grygorovych got right to work. Several well functioning and profitable departments of the enterprise were reorganized immediately. Their capacities and financial revenues were quickly transferred to newly-created structures within the enterprise headed by Grygorovych’s trusted allies. The revenue streams of the concern quickly dried up.
The new management immediately resumed talks with SFGCU’s Chinese partners, who had extended a $1.5 billion loan in 2012. For some strange reason, the impression was left as a result of the talks that SFGCU should sell all its grain only with the approval of its Chinese benefactors, and at a price $5 to $7 lower than the market price.
Keep in mind, the discount was agreed while interest payments on the Chinese credit amounted to $6.2 million annually. Paying down the balance of the credit was scheduled to start in 2018, with SFGCU promising to make equal payments during the course of ten years. Monthly expenditures of the company together with interest payments are currently UAH 200 million a month.
As a result of Oleksandr Grygorovych’s managerial efforts over two months, SFGCU stopped purchasing and exporting grain altogether. That's been the case since November 2016.
SFGCU’s complaints about the Chinese
Several months have passed since grain exports were halted, so it would be logical to conclude top managers of the state-owned concern have devised a plan to extricate the enterprise from a complicated situation. The plan was seen in government not long. Officials were amazed. Instead of proposing cost cutting measures or developing profitable parts of the enterprise, the key component of the plan was taking the enterprise’s Chinese benefactors to court. Vagueries in the loan contract and the fact that the partners had already filed court motions to regulate the situation justified the proposed course of action.
Such an approach represents the worst competence, or incompetence, in state management practice and should be examined separately.
For starters, it’s certainly possible to argue with the Chinese about a number of formalities and even dispute them. How blaming SFGCU's benefactors for the corporation's demise will benefit the country is another issue.
Court wrangling over terms of international loan may last one year, two years, maybe three. Meanwhile, large amounts of money would be spent on lawyers and not marketers, who could be selling the nation’s grain. Years of seeking the truth in courts will not improve the corporation's current impoverished predicament. Indeed, the corporation may not even survive long enough to enjoy its “brilliant” legal victory.
In addition, Ukraine is currently negotiating with Chinese investors about dozens, if not hundreds of projects. There is talk today of billions of dollars of investments in port and road infrastructure, and projects to enhance industrial production are possible. What will be the fate of these talks if SFGCU, owing to its own ineptitude, begins spending its limited financial resources on suing its Chinese benefactor, instead of paying him back?
It’s not a mystery why going to court suits top managers at the enterprise. In its explanation to the Cabinet, top managers urge that significant funds should be set aside in 2017 to pay for lawyers and legal fees, even a more deceitful expense and waste of money than increasing the amount the enterprise spends on office supplies.
The 2017 Financial Plan
Unfortunately, SFGCU’S downward spiral is already well documented in the grain trader’s main financial document for 2017. With more than half of the once received $1.5 billion still in a deposit account in Ukraine’s Eximbank, the company’s management still has not made proposals on how to put these funds to work to generate new assets. It's as if the interest on the hard currency bank deposit is the most profitable way to invest money in Ukraine’s grain market.
SFGCU specialists, meanwhile, continue to complain to the media that in 2016 they were forced to cut shipments and exports because of a shortage of railway grain wagons and because investment problems for other projects.
The company’s top managers were able explain away even this oversight in its explanations to the Cabinet. They said the evil Chinese are preventing them from developing capacity and grain exports. These are the same Chinese individuals who are attempting to control the deals and expenses of the corporation.
Here is where the rubber meets the road. SFGCU’s partners trusted the word of our country and lent $1.5 billion. They sought in return an arrangement under which they would receive an export product - our grain. This is the reason why it’s difficult to accuse them of being opposed to what they were seeking at the outset.
SFGCU’s partners can oppose the company’s new projects funded by Chinese money only in one case - if the percentage of “local specifics” [doing "business" in Ukraine] in previous expenditures exceeded common sense. But in that case it’s necessary to come to an agreement and offer apologies. The corporation should litigate against the few who are still willing to work with Ukraine.
Moreover, our Chinese partners have grounds to be unhappy with the current situation. After all, for years they have failed to receive the grain promised them.
In 2013 only 216,000 tonnes of grain were exported to China, in 2014 - 57,000, in 2015 - 1.222 million tonnes and in 2016 - 500,000 tonnes. Over the entire period, a total of only 3.3 million tonnes of grain was exported to China, which is prepared to receive about 2 million tones annually. This is the calculation our Chinese partners made when they issued the $1.5 billion loan.
Conclusions
In principle, the contrived situation involving SFGCU is not new for our country. Dozens of state corporations have showed their plans and successes at exhibitions only to be bailed out six months later using state budget funds.
The $1.5 billion loan muddled by SFGCU’s management is, of course, guaranteed by the state. This means Ukrainian pensioners, small entrepreneurs and teachers will pay the price if state managers fail to purchase railway grain wagons on time in order to facilitate exports. They also pay a price when no grain is exported at all. They also suffer because governments led by Arseniy Yatseniuk and Volodymyr Groysman did not retire individuals whose loyalties were to disgraced former officials, instead of to state interests.
Information:
The State Produce and Grain Corporation of Ukraine (SFGCU) was created by the government of Ukraine in August 2010. It is comprised of a network of subsidiaries, line and port elevators, windmills, ready-to-use multi-grain speciality and cereal factories. A total of 53 SFGCU subsidiaries have capacity to store 3.75 million tonnes of grain, including total capacity an offloading centers for export at the Odessa and Mykolaiv ports of about 2.5 million tonnes of grain annually. Some ten percent of certified Ukrainian grain types belong today to the corporation, which can provide up to 12% of Ukraine’s average annual grain exports. The corporation has had seven top managers since its creation.
Sign up to rate and review this story