Attack on Ukrenergo in pursuit of billions

19.09.2022   //  

A group of energy experts under the control of Herman Halushchenko is attacking the state-owned Ukrenergo with the help of a dubious audit, and may receive UAH 264 million for the company from Shurma’s clutches this week.

During the invasion, it turned out that corruption in Ukraine is critically dependent on the availability of streams from which to steal. It’s a simple fact, but you won’t believe it until you see how it works.

On the day of the invasion, February 24, Ukrenergo disconnected our power grid from Russia and Belarus to test the stability of autonomous operation before integrating into the European grid. This was the final technical test that Ukraine had to pass before becoming part of the European energy space. It was planned to finally disconnect from the Russian Federation and join the EU only in 2023.

But on February 24, Russian troops invaded Ukraine, and our experts decided not to return to the Russian network. For three weeks, the Ukrainian power system under shelling demonstrated remarkable resilience, which greatly surprised the Europeans. And already on March 16, the Ukrainian power system permanently integrated into the European network. Moreover, Ukrenergo managed to open electricity trade with the EU almost immediately after their physical connection..

Therefore, in the spring, our electricity went to Moldova. And in July, we started selling the first megawatts to the European Union. And every month this flow increases, as European engineers and politicians are convinced of the reliability of working with Ukraine even during the war.

This led to a number of consequences.

Against the background of the devastation of industry in Ukraine during the war, only the energy industry continued to generate large sums of money. And due to the shortage of energy resources in Europe, their electricity has become three to four times more expensive than ours.

The main beneficiary of this price difference was the state in the person of the transmission system operator Ukrenergo. In order for Akhmetov or anyone else to be able to sell cheap Ukrainian electricity abroad at a high price, he has to buy the right to access to cross-border capacity at the Ukrenergo auction. Such an auction is held because there are significantly fewer interconnectors between countries than those willing to sell electricity to Europe. By analogy with the auctions of the GTS operator, this is like the right to pump your gas through the state pipe.

As a result of competitive and open auctions, it turned out that the right to access to cross-border capacity was sold at almost the price of the difference between Ukrainian and European energy. Thus, if energy costs UAH 3 thousand per MWh in Ukraine, and 11 thousand in Romania, then our exporter received 8 thousand. And he paid 6-7 thousand to Ukrenergo for the right to export.

That’s a huge amount of money. In the first week of export, “Ukrenergo” received UAH 100 million of income. And in the future, it grew in accordance with the increase in Europe’s ability to receive our energy. Now Ukrenergo has collected revenue from auctions of almost UAH 5 billion.

This is truly gigantic money for Ukraine in the war time. Ukravtodor asphalt pavers stand by. The extraction of ore costs money because it cannot be exported through closed ports. Grain carriers are working little by little, but it is not at all like last year. Therefore, a flow of UAH 100 million of margin per week made state energy managers dizzy.

The fact is that according to the law, Ukrenergo should send the money received from auctions exclusively for the modernization of existing networks or the construction of power lines to Europe. And they immediately began to do it – in the summer, a project began to restore the line from Khmelnytskyi NPP to Polish Rzeszów (we will return to this story later). However, it costs only a quarter of a billion hryvnias.  And Ukrenergo collects such money in two weeks. Where to spend the rest?

A solution was found in the Verkhovna Rada – half of this income should be given to suppliers in the balancing market (this is actually a subsidy for crisis supplies, a reasonable measure for a country in the state of war), the other half should be given to producers of “green” energy to finance the “green” tariff and support decarbonized energy sources.

This solution turned out to be very difficult to steal something from. Money is distributed for real needs. And not in one hand, but to many market participants. And not by the decision of some official, but by law. There is only one way to change the direction of this cashflow – the parliament adopts changes to the law, while Ukrenergo submits its proposals to change other regulatory documents.

However, in recent years, a team of managers has been working at Ukrenergo, which has proven to international financial institutions that it does not accept corruption. The Head of the Company Volodymyr Kudrytskyi enjoys the trust of the World Bank, the EBRD, the G-7 ambassadors, who in recent years have provided loans for the renewal of our energy networks. Such trust can only be undermined by very serious accusations from a respected person. And the Ministry of Energy, under the leadership of Herman Halushchenko, collected incriminating material to show to Volodymyr Zelenskyi, so that he could use his authority to convince everyone that Kudrytskyi should be dismissed.

Here we have a 400-page audit report on Ukrenergo’s activities for 2018-2022. It is clear that the president fully immersed in the war will not read it. The Commander-in-Chief will not even read a couple-page abstract of this report. He will just listen to Halushchenko saying, “Kudrytskyi is incompetent, he caused losses of 8 billion. He is completely disloyal, he constantly speaks English to foreigners. He is completely unnecessary as my team has a well-defined work plan.”

And it is highly probable that Zelenskyi will just believe these words. Although earlier Herman Halushchenko was a part of the team of the traitor Andrii Derkach, today he enjoys the unquestionable trust of deputy heads of the Office of the President of Ukraine Rostyslav Shurma and Oleh Tatarov, who in turn enjoy the unquestionable trust of the Office’s Head Andrii Yermak. It is because of this trust that Halushchenko managed to restaff the management of Energoatom, National Energy and Utilities Regulatory Commission and all other large state-owned energy companies, except Ukrenergo, with his people.

Therefore, “Nashi Hroshi” analysed the most vivid accusations stated by Minenergo’s auditors, so we invite everyone to laugh altogether. Well, or to cry over this intellectual disaster of Halushchenko’s auditors.

Ukrenergo is accused of buying transformers and shunt reactors at tenders at the prices inflated by UAH 180 million through intermediary firms in 2020-2021.

“Nashi Hroshi” studied these two purchases (first and second). Soyuz Corporation, which is not a manufacturer of transformers, but has been a contractor of Ukrenergo for the construction of power grids and installation of these transformers for many years, won both tenders. Zaporizhtransformator, the only manufacturer of these transformers in Ukraine, filed for bankruptcy in 2019, so under no circumstances could it participate in the tender as this is a direct prohibition by the law of Ukraine. Therefore, the accusation of purchasing from intermediaries is ridiculous.

And now about the inflated prices. For large transformers, there is a generalised indicator ­– the price per megavolt ampere (MVA). Conventionally speaking, all power transformers in the world should cost approximately the same if their price is divided by their power expressed in MVA. So, at these tenders, Ukrenergo received a price of USD 10.6 thousand per MVA for shunt reactors and USD 13.1 thousand for autotransformers.

This is a very low price. For example, a couple of years before the purchases by Ukrenergo, Sumyoblenergo bought large transformers and reactors. And it ordered them for USD 23,000 per MVA and USD 21,500 per MVA. One of the suppliers was the company EDS-engineering (we will return to it later in this article). Here the difference with the price of Ukrenergo may not be used to call the price of Ukrenergo inflated, but on the contrary. The law enforcement officers thought the same and initiated criminal proceedings for the embezzlement of UAH 24 million on these purchases. However, after the Security Service of Ukraine received a search warrant for this case in October 2019, they for some reason lost interest in embezzlement in particularly large amounts.

It is clear that the Minenergo’s auditors work with a special passion when they consider the price of USD 10.6-13.1 thousand per MVA to be inflated, while EDS-engineering receives a contract for the supply at the price higher than USD 20 thousand and no one is put in prison for this.

The passion of state auditors is not surprising and can be explained in another way.

During Yanukovych’s time, one of the biggest winners in Ukrenergo’s tenders was Zvyazoktechservice, a company from the group of the then Prime Minister Mykola Azarov. It had contracts worth UAH 380 million for connection to the grid of solar power plants by Activ Solar affiliated with the then Vice Prime Minister Andrii Kliuiev. After the Revolution of Dignity, the management of Ukrenergo was in no hurry to pay all the debt under that contract, apparently understanding what margin and delta were sewn into it during the time of Yanukovych’s team. However, Zvyazoktechservice managed to win a number of lawsuits against Ukrenergo and in 2016, there was a final decision obliging the state company to pay Zvyazoktechservice UAH 47 million.

But what a surprise it was for Ukrenergo when, immediately after transferring the money, the national power company received a lawsuit filed by I-Tech Ukraine, which was a subcontractor of Zvyazoktechservice. It turned out that before Zvyazoktechservice finally won the claim against Ukrenergo, it quietly ceded the right to demand this debt to I-Tech. That is why I-Tech jumped out of nowhere with a lawsuit, “You paid the wrong person! Pay us now, too!”

Lawyer Maksym Ponomariov, who represented I-Tech in this ridiculous lawsuit, turned out to be the head of the audit group appointed by the Ministry of Energy to audit Ukrenergo.

Let us digest it once again. Accusations against Ukrenergo of causing losses in the amount of 47 million were made by a lawyer who tried to implement a trick in court to double this amount with regard to the state company. And this testifies not only to a possible conflict of interests, but also to the quality of accusations made by Halushchenko’s auditors against Ukrenergo.

The most extravagant and expensive accusation of this audit was the failure of the state to receive revenues in the amount of UAH 8.1 billion. Please follow me carefully.

In 2018-2019, Ukrenergo concluded an agreement with foreign companies worth EUR 2.3 million to investigate whether it is safe for Ukraine to join ENTSO-E (a network of electricity transmission system operators from 39 European countries). The consultants determined that integration is possible in 2023 but set a number of technical requirements for the process to take place completely safely, without blackouts for Ukraine and Europe. To achieve this, Ukraine only had to reconfigure some electrical equipment and change certain technological procedures.

But, as noted above, these plans were destroyed by Putin’s invasion. In February 2022, the specialists of Ukrenergo together with the European Energy Community fulfilled the basic technical requirements to connect Ukraine to Europe by a year and a half ahead of the schedule in March. Moreover, our electricity exports to Europe started two years earlier than Europeans had planned. Accordingly, Ukraine began to earn considerable money, which is so necessary during the war, two years earlier.

However, the auditors of the Ministry of Energy made the following conclusion from all this:

“The opening of the electricity exports for only 100 MW from June 30, 2022 testifies to the unreasonable delay by NPC Ukrenergo to open and increase the opportunities for the export of electricity to Europe (under the conditions of the energy crisis in Europe due to restrictions on Russian energy resources) this led to the shortfall of funds for the cross-border capacity, to limitation of opportunities of state producers and their loss of profit from the export of electricity to Europe due to the limitation of the cross-border capacity. […] Trading at the auction for access to the cross-border capacity between the IPS of Ukraine and ENTSO-E with a trade capacity of 100 MW brings income to NPC Ukrenergo in the amount of UAH 10 million per day. In case of increasing the cross-border capacity up to 800 MW by NPC Ukrenergo, the company could get 10 times more revenue, that is UAH 100 million per day. Loss of profit (lost income) of the National Company is 90 million hryvnias per day, or 90*30 = 2,7 billions of hryvnias per month”.

Then the loss of profit of UAH 2.7 billion per month was multiplied by three (apparently for some reason it was decided that Ukrenergo lost only three months, not one and a half year) and brought 8.1 billion in lost profit to the state. Not happily earned money from the early launch of exports, but “lost income”. Because as a result of the 2019-2021 studies, it wasn’t taken into account that Putin would attack in 2022, and the connection to the European network would not go as planned.

There is a new rock bottom. As auditors have reached the figure of UAH 8.1 billion, it is already such a big loss that they should be investigated no longer by the NABU on corruption articles of the Criminal Code, part 5, article 191. This loss of profit was classified as high treason under the article 111 and included in the case of the Security Service of Ukraine (SBU), which is under the patronage of Tatarov’s people. And already the SBU, not NABU, began to investigate other episodes of the work of Ukrenergo in order to form an evidence base. It is worth noting that they did not include their own data on the abovementioned transformers from EDS-engineering in the case file because against their background, Ukrenergo transformers are simply crazy discounts.

But the chekists have launched another activity. And, unfortunately, in a completely different direction.

A quarter of a billion for Shurma’s entourage.

It is about the reconstruction of the high-voltage Rzeszów–Khmelnytskyi powerline. This is a necessary project for both Ukraine and Poland. Through it, it is possible to export up to 24 thousand MWh per day to Poland, and this would bring Ukraine about UAH 40 million for the price difference in just one (!) day.

Ukrenergo is currently conducting a tender for the installation of transformers and relay equipment at an expected cost of 263.80 million hryvnias. The intrigue could be buried even before the auction.

The scheme is as follows. Minister Halushchenko ordered to start the construction of the line to Rzeszów in the summer. Ukrenergo immediately started the development of project documentation. The development contractor was EDS-Project from the same EDS group as the above-mentioned EDS-Engineering.

On the eve of choosing this contractor some representatives of the SSU visited some market participants with preventive visits, because of which the searched firms realized that there is no point in meddling into the history of someone else’s success. Those who still wanted to do the project, could not compete with the proposal of EDS – neither in terms of price, nor in terms of payment, nor in terms of completion of work.

Thus, EDS gained a strategic advantage over anyone else. The fact is that to test the work of the planner you need to virtually repeat all his work. For example, the builder gets a project that says that the ground here needs to be drilled with this kind of drill, because it fits these soils. And what if during drilling it turns out that the soil there is not this, and the builder will break the planned drill and will look for a stronger one, disrupting the work schedule? Or a planner will write that the relay QWERTY№;%:1234 is needed in this place. But later it will turn out that QWERTY№;%:1235 is necessary, and again the contractor has to run, look for the right relay. And it is almost impossible for a builder to discover such “mines”.

However, just a few hours before the start of the auction on September 16, the top management of the state was informed about the circumstances of this tender. And the company EDS decided to withdraw its offer away from sin. Because even though EDS is a real market participant, its proximity to the deputy head of the President’s Office is an aggravating circumstance.

For reference. The founder of EDS-engineering is entrepreneur Oleksandr Zapyshnyi. He also owns a number of solar energy companies (Fortis Solar, Eco ray, Solarfield-3), registered in Mezhova village (Dnipropetrovsk region), 4 Hrushevskoho str.

Solarfield-2 LLC is registered at the same address, the co-owner of which is Oleh Shurma, brother of the aforementioned Deputy Head of the Office of the President Rostyslav Shurma.

During Yanukovych’s time, Rostyslav Shurma was a member of the Party of Regions, worked as a director of Rinat Akhmetov’s “Zaporizhstal”. In 2019, he ran for the Verkhovna Rada at number six on the list of the «Opposition Bloc», together with Yevhen Murayev, Oleksandr Vilkul, Hennadiy Kernes and Hennadiy Trukhanov. However, he later found a common language with Volodymyr Zelenskyi’s team. In the spring of 2021, Rostyslav Shurma entered the Supervisory Board of the state «Ukrboronprom», and soon became Andrii Yermak’s deputy on energy and industry.

Therefore, we have this situation

If rebels manage to implement their plan to eliminate Volodymyr Kudrytskyi’s team from Ukrenergo, they will be able to:

– rapidly change the rules for the formation of billion flows from the exports of electricity;

– finally close the energy sector from Western eyes, which monitor how Ukraine spends foreign money.

 

Yuriy Nikolov, Nashi Hroshi