The supply of much-needed coal from South Africa to the nation’s power plants led to a scandal as deliveries raise too many questions, like why the coal was bought from an intermediary and why the price was so high.
On Nov. 6, President Petro Poroshenko expressed
concern over a recent deal by the state energy dealer Ukrinterenergo to buy 1
million tons of coal from South Africa via British-registered intermediary
Steel Mont. Already on Nov. 7, the General Prosecutor’s Office opened a
criminal investigation and began questioning senior official at Ukrinterenergo
as well as Energy and Coal Industry minister Yury Prodan.
Officially at issue is the price – Ukrinterenergo
agreed to pay $86 per ton, according to the published contract, which after
transport, services and other costs, the final tally came to $110-$112 per ton,
depending on the final destination, according to the director of Ukrinterenergo
Volodymyr Zinevych, while spot prices for South African coal are running at $77
per ton. Meanwhile, Russian coal costs around $80 per ton, and it’s closer.
Therefore, the contract regarding South Aftican coal
appears to be poor value for money, even if the contract itself is kosher. Zinevych
has since explained the higher price as the premium the South African coal
suppliers demanded for shipping to Ukraine as a dangerous war zone.
Steel Mont, outraged about any suggestion of
impropriety, on Nov. 11 demanded the Ukrinterenergo make public the contract,
which it did, and announced that for the sake of its reputation, it refuses to
continue doing business with government agencies. According to Zinevych of
Ukrinterenergo, Ukraine will get only half of the planned 1 million tons of
coal from South Africa as a result.
Some analysts suspect a cover-up, whether it be
corruption or incompetence. Analyst Yuriy Korolchuk of Institute for Energy
Strategies said on his Facebook page that the country stands to lose $400
million from this deal and added that keeping the contract details in secret
for so long is something quite suspicious.
Ukrinterenergo’s Zinevych defends the South African
contract by saying that factors other than prices went into the decision, such
as the unreliability of importing Russian coal in light of its war against
Ukraine. “The Prosecutor General’s Office is asking if we could do without
a trader, and the answer is ‘no’,” he said. “We asked the Foreign
Affairs Ministry through their diplomatic missions to help us to find
non-Russian partners, and we received a large number of proposals.”
Energy analyst Yevhen Dubogryz leans more towards the
incompetence side of the debate. “This coal is of poor quality compared to
what one can buy in South Africa, yet it was bought at a price higher than for
the best quality with lower ash rate. The price difference is small – about 8%.
It looks as though someone was not paying attention,” he wrote on his
Facebook page on Nov. 13.
In addition, the expert says that South African coal
can be cheaper, but the buyer needs to work more effectively with those who are
engaged in the delivery and handling, since the prices of their services are
often too high. Dubogryz has been called by the Prosecutor as an expert witness
in the investigation of the South African coal contract.
Coal
creating political division
However, the question arises as to why Poroshenko
waited so long to pry the lid of this particular can of worms, when the
contract was signed and publicly announced on Aug. 19. To date, over 250,000
tons of South African coal has been offloaded at Ukrainian ports, with another
250,000 on its way.
Public officials and private investigators have
suggested that a conflict is underway between the office of the president and
the Cabinet over control of coal supplies. Minister Prodan, shortly after his
questioning, stated that the investigation came about because someone close to
the president has an interest in buying Russian coal and is preparing for a
“re-division” of the Ukrainian coal market as government plans to
sell all the state-owned mines. He also said that much of this Russian coal is
actually Ukrainian coal from rebel-controlled areas, carted across the border,
and then sold by Russian traders.
Korolchuk, an analyst, calls the scandal a coal
‘Watergate’ for the government. Considering the inner closeness of the
government, this news could have been kept quiet, he argues, but the fact that
the president has called out the prime minister and his cohorts publicly
appears to be a deliberate attempt to embarrass him.
Yanukovych’s
circle involved
And what is more, it looks likely that beneficiaries
of the previous regime are trying to get back into the game.
According to the investigative publications Ukrayinska
Pravda and The Insider, Serhiy Kuzyara, a former advisor to ex-Energy Minister
Eduard Stavytsky during the regime of Yanukovych, is lobbying his interests with
the Presidential Administration on behalf of Cyprus-registered Russian coal
suppliers. Stavytsky himself took Israeli citizenship and changed his last name
to Rosenberg.
Kuzyara has, in fact, admitted to lobbying on behalf
of just one Russian-related company called Neocar Contracts, according to
Ukrayinska Pravda. During September and October, Neocar made several offers of
Russian coal at $80 per ton to the state-controlled power generator
Centrenergo, which is also the final destination of most of the South African
coal.
It should be noted that Neocar is owned by a company
called Fynel, whose past and present directors are associated with a major
scandal during the Yanukovych years, whereby the Energy
Ministry bought oil rigs for an inflated price that
cost the Ukrainian taxpayers an estimated $150 million each.
Kuzyara ran for the recent parliamentary elections on
Serhiy Tigipko’s Strong Ukraine party list. He lost.
Coal
shortage
Ukrainian energy generating companies face shortages
of anthracite, a high quality coal, of around one million tons a month, and imports
via seaports could cover only around 400,000 tons a month. DTEK, the energy arm
of oligarch Rinat Akhmetov, will buy around 2.6 million tons of coal from
Russia this year for $70-73 per ton, though the logistics cost raises price to
$91, according to DTEK general director Maksym Tymchenko.
Ukraine’s thermal electric power stations consume 3.2 million
tons of coal per month, while Ukraine will be able to extract no more than 10
million tons during the five-month heating season.
Eighty percent of Ukrainian coal mines are located in
rebel enclaves and total coal output has declined by 23 percent to 40 million
tons in the 10 months of the year, the State Statistics Service announced.
However, production rates have dropped precipitously in recent months – 59
percent in October year-on-year.
Kyiv
Post business journalist Evan Ostryzniuk can be reached at [email protected].
