Oleksandr Hrechko (UNIAN)
The IMF mission to Ukraine is examining priority reforms in the economy
declared by the Ukrainain authoirities, the prime minister threatens
the customs officials with a so-called "Black Hundred," while the
fight for Ukraine’s largest gas producer Ukrgasvydobuvannya broke out with more
vigor – these are the main economic news of the past week.
The work of the IMF mission in Ukraine is the most important event of the
past week. After all, on the findings of the mission depends whether Ukraine,
which has become an outpost of deterrence against the expansion of distraught
Russia to the West, will receive another portion of assistance from the IMF
after a prolonged pause.
"In such a difficult time for Ukraine, the support is very important,
including the IMF support. But we also consider our cooperation as an
opportunity for structural reform which will enable Ukraine to ensure its
transformation from a post-Soviet state to a modern European country,"
said Prime Minister Volodymyr Groysman during a meeting with the head of the
IMF Mission, Ron van Ruden.
Groysman assured the IMF official that among the priorities of the new
government is a reform of customs, the change in taxation, providing
transparency of public administration, including at the state-owned
enterprises, as well as improving the public procurement system and conducting
an honest privatization.
If the mission makes positive conclusions about the state of affairs in
Ukraine and is convinced of the seriousness of the intentions of the Ukrainian
authorities to carry out reforms, Ukraine will be able to get $1.7 billion by
the end of the first half of 2016. In addition, resuming cooperation with the
IMF will open the possibility for Ukraine to receive an additional $5 billion
from other external creditors. In particular, Ukraine can count on $1 billion
in loan guarantee from the U.S. Government and nearly $600 million from the
European Union.
By the way, Ukraine has fulfilled another important requirement of the IMF
by appointing a new prosecutor general - Yuriy Lutsenko, whose main task is to
clean "the diamond prosecutors’ stables."
But if the next tranche of financial aid from the IMF is delayed until the
autumn, the devaluation of the hryvnia will continue – to the level of UAH 28 /
USD by the end of the year, according to Da Vinci AG’s Ukrainian Economic
Trends Forecast.
The most important factor in the issue of exchange rate stability,
according to the Da Vinci AG estimates, is a slow pace of recovery of positions
of the Ukrainian exporters in foreign markets, resulting in a negative impact
on foreign currency earnings of exporters and on a currency flow into the
reserves.
Customs threatened with a "Black Hundred"
The issue of smuggling and corruption in customs has not gone anywhere.
A week before, it was raised by the head of Zakarpattia Regional State
Administration Hennadiy Moskal, who, protesting against the change of the head
of regional customs office, wrote a resignation letter. In addition, Moskal
said that smuggling is “protected” in high Kyiv offices, not without the
participation of the head of the State Fiscal Service, Roman Nasirov. President
Petro Poroshenko later persuaded Moskal to remain in office and promised
support in the implementation of the decentralization program and the fight
against smuggling.
On May 10, Prime Minister Groysman decided to personally fix the situation,
appointing a meeting with both officials and instructing them to promptly put
an end to the mess in the customs system and eradicate the so-called gray and
black smuggling schemes. The same day, the prime minister visited the border
checkpoint Krakovets to hold a meeting with the Lviv regional customs
office, with Roman Nasirov also attending.
"You have three months to restore order in the Ukrainian customs. If
there is a political will to do this, I will support you, if not – then
write your resignation letters today, as you will be swept off," said
Groysman.
At the same meeting, the prime minister threw a sacramental phrase about
establishing a "Black Hundred" - an interdepartmental unit for
monitoring the operations of customs officers.
"It will be a hundred people, equipped with all the technical means to
show you how the work must be done. I will provide them with everything they
need," said Groysman.
According to the head of the government, today at the customs system,
starting with the major departments and ending with local customs and crossing
points, there are various shadow smuggling schemes, which deprive the state
budget of tens of billions of hryvnias through non-payment of fees and charges.
According to the calculations of the Cabinet, with the elimination of gray
schemes, the increase of customs payments to the state budget could exceed UAH
50 billion.
In this context, Groysman recalled the case of smuggling of timber in
Zakarpattia region. "There is a struggle for the checkpoint Tisa, where
there is a major flow of smuggled goods," he said. Through this
checkpoint the expensive timber is exported from Ukraine, which is
illegally logged in the national parks across the Carpathians. In order to
prevent further exposure of the Ukrainian Carpathians, the authorities took a
radical step. On May 11, the Cabinet of Ministers supported the proposal of the
Ministry of Environment to temporarily ban logging in forests and dismiss the
head of the State Forestry. This was preceded by a trip of Ecology
Minister Semerak to the national parks in the Carpathians, where he saw
firsthand the industrial scale of illegal logging.
For years, the forests in the Carpathian Mountains were destroyed under the
guise of sanitary felling, but chose the most high-quality wood, to be able to
export it at the highest price.
It should also be noted that in the framework of the reform of the State
Fiscal Service, Groysman instructed the agency to stop the illegal practices of
tax police in the sphere of monitoring procurement and exports of walnuts.
Destination gas independence
The subject of providing Ukraine with natural gas and the cost of fuel
remained relevant last week. The government has once again stated that Ukraine
has all the opportunities and resources to become energy efficient in the
medium term. At the same time, officials said that the Ukrainians should not
completely give up the gas and switch to burning wood, as Vice Premier Pavlo
Rozenko previously proposed. It’s just that the gas must be used more
efficiently.
Vice Prime Minister Hennadiy Zubko said that half of the volume of
natural gas consumed in the residential sector (17 billion cubic meters) is
being used inefficiently because of the lack of measures for the modernization
of older apartment complexes and private houses.
"Today, virtually the whole residential sector consumes 17 billion cubic
meters of gas. Private heating sector and multi-apartment heating sector share
about the same figures of 7.5-8 bcm each. We believe that today the losses are
at 50%," Zubkov said during the 2nd Forum of Energy Efficiency Partnership
"Energoservice: Investments in energy efficiency of the public sector and
the benefits for residential buildings."
According to Zubko, provided that the energy efficiency measures are taken
and the buildings built before 1990’s are thermo-modernized, in a few years,
Ukraine will be able to reduce gas consumption in the residential sector down
to 12 bcm. It is also necessary to improve the system of state aid to complete
an extensive thermo-modernization of buildings because under the current
system, the effectiveness of such measures remains under 20% with the potential
40-50%.
Zubko also said that the country needs to actively modernize the heating
networks, as losses of these networks significantly exceed the norm. As an
example, he cited the cogeneration plant in Kryvyi Rih, where the losses amount
to 47%.
"We need renovation of about 70% of the Ukrainian networks," said
the deputy prime minister.
At the same time, Prime Groysman said that the government's decision to
establish in Ukraine the market price of gas for all consumers, adopted in
April this year, is a major impetus for overcoming corruption in the sphere of
gas supplies and increase of its production. According to the prime minister,
the market price of gas will allow to modernize Ukrgasvydobuvannya and thus
increase Ukraine’s own gas production. At this, he also reiterated that there
is no reason for panic related to the market price of gas.
"Anyone who has a small income and need compensation will get it.
There will be targeted compensations. So, no panic," said Groysman.
Fighting for a delicious asset
Last week was also marked by a struggle for the country's largest gas
producer Ukrgasvydobuvannya. CEO Oleh Prokhorenko, speaking at a
government meeting with a report on the prospects of development of
Ukrgasvydobuvannya and plans to increase gas production, noted, among other
things, that the operations of the company headquarters are paralyzed by the
SBU officers sporting balaklavas, armed with machine guns.
"Now there are about 50 people from SBU’s Alpha [SWAT team]
there," said Prokhorenko. The prime minister acted surprised, asking
whether the top managers are anxious over what’s happening, Prokhorenko replied
curtly: "We have nothing to fear."
The next day, the company press service said that the searches had been
conducted according to the Pechersk court decision in a pre-trial investigation
of February 28, 2014, into the facts of the commission of offenses by the
company officials. The press service stressed that during a search, documents,
information, office equipment and personal cellphones of the current top
managers were seized.
Meanwhile, Oleh Prokhorenko, appointed as Ukrgasvydobuvannya CEO in June
2015, noted that the company has for several months witnessed a series of
various checks. He has earlier repeatedly stated that there was pressure
inflicted on the company, in particular, by the people's deputies and law
enforcement agencies, which, in his opinion, is connected with the
intensification of changes within the company, designed to eliminate corruption
and criminal schemes.
Apparently, the elimination of corruption schemes in the state-owned
company by its new leadership deprives of sleep certain individuals who have
long parasitized on cash flows from Ukrgasvydobuvannya. With the establishment
of market prices for gas, the company expects in 2016 to receive UAH 63 billion
of income from the sale of natural gas, petroleum products, and other services.
Given that the state company receives three times more profit from May 2016 for
the sale of gas than it has before, the struggle for the distribution of these
cash flows might become even more fierce.
MP from the Bloc of Petro Poroshenko, a former journalist Serhiy
Leshchenko, commenting on the incident, said that the search may be an attempt
by deputies from the groups titled Volia Narodu [“Will of the People”] and
Vidrodzhennia [“Renaissance”] to restore their influence in Ukrgasvydobuvannia,
which was lost with the arrival of the new top management.
Will of the People has long had its interests in this company. Deputies
Yaroslav Moskalenko and Oleksandr Onishchenko have joint venture
contracts with Ukrgasvydobuvannya. The explanation for the current search may
be an attempt to threaten the current management of the company, as it is
disloyal to the group. There is also a deputy from Renaissance, Serhiy Katsuba,
who also has agreements on joint operations," Leshchenko said.
Industry experts say that the control over Ukrgasvydobuvannya has become a
bargaining chip between the presidential administration and parliamentary
groups on the issue of support of the bills promoted by the Head of State.
The prime minister spoke in defense of the state-owned company, stressing
that he would not allow the destruction of Ukrgasvydobuvannya’s management
system, including by applying pressure on the company and carrying out searches
in the corporate offices.
"If law enforcement agencies have questions, they have the right to
ask them and find out what they need. However, in my opinion, there is no
reason to suspend the management currently assigned. I came to the government
to work for the state, and hence – the Ukrainian people. And I will not let
anyone take control of something that belongs to the people. Each state company
will operate for Ukraine and the Ukrainians," said the prime minister.
However, he denied statements disseminated by some politicians about
alleged government plans to privatize the largest gas producer.
Ukrgasvydobuvannya is a state-owned company. It should be successful and it
should belong to the state. Allowing privatization of such company is in no
case possible. There are no plans, and there will be no plans [fot its
privatization],” said the head of the Cabinet.
On Friday, Groysman decided to learn in detail the peculiarities of the
company’s operations and its problems by going to Kharkiv region, where he
visited the production facilities of Ukrgasvydobuvannya – gas wells and Shebelinskiy
plant for processing gas condensate and oil.
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