Advisers and Betrayers: Igor Mazepa on the nuances of preparing the privatization of the Krasnolymanska coal company19 December 2019
Igor Mazepa discusses how Concorde Capital is preparing for the privatization the Krasnolymanska Coal Company.
The privatization of Krasnolymanska, the largest state coal mining company, is being blocked for more than a year already. An overview of the complicated situation surrounding this state asset is offered by Igor Mazepa, the CEO of Concorde Capital, whose investment company is the adviser in preparing it for privatization.
In July 2018, Concorde Consulting, a member of the Concorde Consulting group of companies, won the competition to select the adviser for the privatization of the Krasnolymanska state enterprise, the largest state coal mining company.
“At the time, we announced that we would prepare the privatization tender at the highest quality, and we promised to discuss all the hurdles placed on the path to this goal,” said Igor Mazepa. “We are now fulfilling our promise to discuss the situation surrounding Krasmolymanska.”
Concorde Capital, in partnership with the Redcliff legal consulting firm and a Big Four auditing firm, is required to complete the entire procedure for preparing the asset for a transparent privatization competition by the end of 2018.
“Indeed, that is under the condition that the government gives us the appropriate authority, and all the involved state bodies and company executives support the preparation procedure,” Igor Mazepa said. “However, a year and a half has passed from the moment we were announced to have won the competition to be selected as the advisers. And the process of privatizing Krasnolymanska has yet to move forward.”
The absence of political will through September interfered with beginning the process, Igor Mazepa said. “At the start, the selection of Concorde Capital – along with other advisers of the Big Privatizations of state companies – was successfully blocked in the courts by one of our colleagues on the market, Grant Thornton. We have a well-founded suspicion that this company was not alone in interfering with the Big Privatization,” Igor Mazepa said.
The confirmation of the advisers of the Big Privatization of 2018-1H2019 was blocked personally by the then-influential MP Ihor Kononeko, according to Concorde Capital’s information. “I will note that Grant Thornton had unprecedented support from the courts, which has prompted us to think that this company gained cover (a ‘krysha’) from this politician who was influential at the time,” Igor Mazepa said.
In this way, under the presidency of Petro Poroshenko, the chances for unblocking the Big Privatization looked illusive. But the arrival of Volodymyr Zelensky as president has advanced the situation as the state, in the form of the State Property Fund, was able to fight off all court complaints regarding the appointment of advisers.
And in September, the agreement with Concorde Consulting, as the adviser for preparing the privatization, was approved by the Cabinet of Ministers. So the state spent 13 months on the simple process of approving advisers. Indeed, this rough start was not promising for an easy continuation, which was proven true.
Sabotage by state bodies and Krasnolymanska management
An essential element in the successful sale of any large company is (a) the desire of the owner to sell it and (b) the support of company managers in the process of preparing its sale. Only then will the advisers, followed by the potential buyers, have the possibility to сomprehensively become familiar with a company and propose an objective price for it, Mazepa said.
“Unfortunately, in the case of the Krasnolymanska mine, we haven’t observed either of these components. Against the background of grand statements by the new government of the need for a widescale privatization, we were assured at all levels of the maximum support for the preparation of the Krasnolymanska state enterprise for sale. But in practice, the process is being sabotaged,” Mazepa said.
In October 2019, during a warm welcome at the mine itself, Concorde Capital representatives received sincere assurances of the granting of all the necessary information for preparing the mine for sale, Mazepa said. These assurances were offered by the company’s acting director, Serhiy Pydyk. However, after the meeting, Mr. Pydyk ended all communication.
“To this day, we have not received an answer to our requests for information submitted to the mine. Neither verbal or written explanations from the director,” Mazepa said. Attempts to communicate with Mr. Pydyk – by all possible means of communications nowadays – are unsuccessful, he said.
Moreover, our numerous appeals to the Energy and Environmental Protection Ministry – which is the mine’s formal owner – to ensure that Krasnolymanska provides the basic information are constantly ignored. That’s directly by minister Oleksiy Orzhel, as well as by his deputy, Stanislav Kovalevskiy, Mazepa said.
After a brief meeting with the deputy minister to discuss the problems with the mine, during which we heard promises of their quick resolution, Mr. Kovalevskiy began to act the same way as Mr. Pydyk, Mazepa said. “We have gotten no answers to phone calls, text messages, emails or written letters,” he said.
Another unfortunate fact, Mazepa said, is that for two years, the state mine has worked not in the interest of the state, but exclusively for a private company related to Vitaliy Kropachov. And he gained cover under the prior government from Mr. Kononenko, according to the mass media.
Yet even under the current government, the criminal negligence of the biggest state coal asset continues, and the responsibility for that lies with the energy ministry, Mazepa said. The energy minister – more likely consciously than unconsciously – continues to cover all the shameful developments that occur at the state mine.
The situation is easy to resolve
“We believe that the Krasnolymanska privatization is impossible under the current leadership of the company and the current relations between the company and its formal owner,” Mazepa said. “A replacement of the coal company’s management with a more professional one, which is oriented on cooperating with the state, would enable us to prepare quickly the company for privatization with quality.”
The absence of changes in the company’s management indicates the current government doesn’t differ in any way from its predecessors in its desire to cover for revenue streams from state assets and redistribute them to its advantage, Mazepa said.
“We are calling upon the government to use measures to return state control to the coal company,” Mazepa said. “If the formal owner – the Energy Ministry – can’t impose order on the company, then we call upon the government to find a more responsible agency that is capable of handling this task.”
It’s also worth considering that Krasnolymanska’s privatization is not an everyday matter, Igor Mazepa said. This privatization is mentioned in Ukraine’s last memorandum with the IMF. Therefore, this event is one of the indicators of the government’s effectiveness in the eyes of Ukraine’s international partners.
The Krasnolymanska Coal Company state enterprise was once one of the biggest coal producers in Ukraine, mining 2.7 million tons of coal in 2004. But, as with the majority of state assets, the de facto state mine fully works for the benefit of private individuals.
It all began 15 years ago when a private, erected “brother” firm emerged at the state mine under the name of the Krasnolymanska LLC. It gained permission to mine coal for the state mine’s territory, achieving unbelievable success over time.
So if in 2006, the state mine was still mining 2.2 million tons of coal (while the private “brother” mined 0.2 million tons), then in 2010 it reduced its extracted coal to 1.5 million tons (while the private “brother” handled 1 million tons). By 2015, the state mine extracted 0.6 million tons (while the private “brother” handled 1.8 million tons).
Since March 2018, the state enterprise has not been mining coal, and all its mines work for its private “brother.” Since October 2018, Krasnolymanska LLC has stopped giving state bodies information on the amount of mined coal.
The state enterprise reported that Krasnolymanska miners mined 1 million tons of coal in the first three quarters of 2019, yet this information isn’t mentioned in the reports of the Energy Ministry on coal mining in Ukraine.
The founder of Krasnolymanska LLC is Ukrdoninvest LLC, which is tied to Vitaliy Kropachov.