The Choice of Reformers from the Ministry of Economic Development and Trade: Between Shame and a War with the System

The Choice of Reformers from the Ministry of Economic Development and Trade: Between Shame and a War with the System

Former head of the Kharkiv plant Electrotiazhmash, Volodymyr Hlushakov, has achieved European notoriety.

Western media report an investigation into his European assets.

The Russian translation of this essay can be found here.

But while Europe searches for the source of the wealth exported Westward by the “red director,” in Ukraine everything is moving toward Hlushakov lawfully—and again—returning to that well: the director’s chair of the state enterprise Plant Electrotiazhmash. The only enterprise in Ukraine for the development and production of hydrogenerators, hydrogenerators-motors, turbogenerators for thermal and nuclear power plants, electric motors for rolling-mill drives, mine hoists, irrigation-channel water pumps, and traction electrical equipment for railway and urban transport.

In 2015 year, Volodymyr Hlushakov was dismissed from the position of plant director by Minister of Economic Development Aivaras Abromavicius. Moreover, he had to “finish the job” twice. In August of that year the director was dismissed by an order of the Ministry of Economic Development for, mind you, $1,55 million of profit not received by the enterprise. But already in October the Pechersk Court of Kyiv considered one and a half million dollars insignificant and reinstated Hlushakov. The minister of MEDT then fired him again in November—for gross violations of foreign-currency settlement procedures, due to which Electrotiazhmash incurred losses of 2,666 million hryvnias. But that was only the beginning of the struggle.

In the blue corner of the ring was a successful Lithuanian entrepreneur, favored by the authorities with Ukrainian citizenship and invited to Kyiv in 2014 to serve as minister of economic development and trade to implement systemic reforms and fight corruption. In the red corner—an “aftertaste of the Yanukovych era,” directly accused of harming the country’s economic interests: according to MEDT data, in January–September of 2015 the plant’s net loss amounted to 53 million hryvnias versus a net profit of 84 million hryvnias for the same period the previous year. Electrotiazhmash supplied products to Germany, the Czech Republic, Norway, Croatia, Hungary, Greece, Poland, and other countries. But the press, including Western press, wrote that 70% of the plant’s exports went through offshore intermediaries who took margins of up to 25% on each contract. It seemed the outcome of the confrontation was easy to predict. Not so.

In January of 2016 Volodymyr Hlushakov tried to regain control of the enterprise with the help of a group of armed men. He burst onto the plant’s territory and attempted to gain access to seals and banking documents. “I will not work with ‘red directors’ and corrupt officials,” Abromavicius then declared. “State-ownership reform is moving in the right direction; we have changed our approach to personnel policy. SE Plant Electrotiazhmash is one of the strategic state enterprises. Such companies should be managed by modern managers who work for the shareholders—the state and its citizens—selected through a competitive process and enjoying the full trust of the Ministry of Economic Development as the governing authority.”

A couple of days later MEDT restored control over the enterprise. And in the euphoria of justice’s triumph few paid attention to the regrettable fact: the armed raider suffered no punishment, although anyone can verify the full force of the domestic Criminal Code by taking a pistol mock-up in hand (not to mention a combat weapon) and attempting to seize even a small rural workshop.

Here we are talking about a strategic enterprise of the country. And it is not even about its exclusive products, but the shadow this struggle casts on Ukraine’s image—an image that had seemed to be solidified by the blood of its citizens’ sacrifices for a European choice. The Ministry of Economic Development understood this and held a meeting on the situation at Electrotiazhmash, where the minister said that the situation with management at the state enterprise negatively affects the investment attractiveness of Ukrainian state companies.

And the plant’s affairs were improving. According to acting director Dmytro Kostiuk, in the nine months of 2016 Electrotiazhmash sold products for 1 billion hryvnias, reducing its loss sixfold, and repaid 30 million hryvnias of bank loans inherited from the previous management (and no additional loans were taken). Profitability increased more than twofold. The plant also supported MEDT’s initiative and became a participant in open electronic procurement ProZorro—even though, under current legislation, it was not obliged to do so.

Only the fighter in the blue corner of the ring—Aivaras Abromavicius—can only bitterly smile at these successes, which are a direct result of his policy. As is known, at the beginning of 2016, under pressure and threats, the minister resigned. If you remember, he officially explained this step by his unwillingness “to be a screen for outright corruption or a puppet controlled by those who want to establish control over state funds.” That phrase concerns not only Hlushakov and Electrotiazhmash. But Electrotiazhmash and Hlushakov are definitely included.

Because Abromavicius, while still minister, asserted that the court cases Hlushakov won were dubious, if not bought. Because he accused the first deputy head of the parliamentary faction of the president’s party, Petro Poroshenko’s Igor Kononenko, of blocking his ministry’s work. Because Hlushakov recently won yet another court case. And let someone say: who, besides Bankova, can still manipulate our courts? And although a competition has been announced for the coveted plant-director portfolio (which, by the way, was supposed to end late last year), everything indicates that the personnel tender will be canceled as unnecessary, since Volodymyr Hlushakov will be reinstated by a court decision.

Where does that confidence come from? First, because we see that Hlushakov, even being dismissed twice, feels like the master of the situation. On 2 February last year the ex-director convened a meeting of the labor collective (!) and announced that privatization could save the plant. At the same time Hlushakov subtly informed that back in 2006 businessman Kostiantyn Hryhorishyn planned to buy Electrotiazhmash and “he still had an interest in the plant.”

Second, because the words of the “ex” are immediately followed by action. On that same day, 2 February 2016, the State Property Fund proposed to the Cabinet of Ministers to include Electrotiazhmash in the list of privatizable objects. In August the CMU approved that list. And at the very end of last year, almost in sync with Hlushakov’s winning another court case, the SPF published an announcement inviting proposals from potential investors for privatization of the state enterprise Plant Electrotiazhmash. Bingo?

So what if, thanks to Abromavicius’s efforts, Electrotiazhmash began to restore production and Ukraine regained some investment attractiveness? What if EU countries are searching for Hlushakov’s assets? If a person with such a credit history is returned to the chair, it means people from President Poroshenko’s circle will get in return something more important (for themselves personally) than the country’s image and the market efficiency of a strategic enterprise (for all Ukrainians).

Not to mention the hands into which a strategic enterprise might fall. It is appropriate to recall the experience of another Kharkiv plant—the tractor plant—where, before the war, the strategic partner was the Russian Group GAZ. Back in 2014 its managers were removed from the supervisory board of KhTZ. And in June of 2016 the SBU foiled an attempt to export equipment from KhTZ’s foundry shops to Russia, as well as technical and design documentation. If you dig, this is a classic scheme for destroying our industrial potential in a hybrid war: recruitment of personnel, leakage of technical documentation and design developments to the Russian Federation, and so on—similar problems occurred at Antonov, Yuzhmash, Motor Sich, etc.

Moreover, the market departure of Electrotiazhmash would please not only, for example, Russian Elektrosila, but also competitors from Belarus, China, Europe (Siemens, Alstom) and even the USA. For example, the old contracts of Kharkiv specialists with Kazakhstan are no longer valid, and now General Electric products are present there.

Furthermore: can the SPF and the Cabinet of Ministers guarantee that Electrotiazhmash will not be taken over by Russians through, say, a stock platform somewhere in Vienna? Are there not enough examples of Russian business acquiring our enterprises “through third hands”? And we should not lose sight of the Chinese, or has the example of the Varyag being sold for scrap price (with all technological documentation!) taught no one?

The question of saving Electrotiazhmash, preserving and developing its potential is not a private case but a systemic problem. The situation is so serious that even the current prime minister, Volodymyr Groysman, despite a sincere desire to cleanse strategic enterprises of the dominance of “red directors,” still cannot influence even the specific contest for the director position at Electrotiazhmash.

A dead end? Strangely enough, the creeping return of Hlushakov can be stopped by… Abromavicius. But not personally—by the anti-system efforts of the team he cultivated. Yes, after his departure the press ran headlines like “Abromavicius’s team resigned en masse.” Fortunately, not completely. Deputy minister Maksym Nefyodov, the father of ProZorro, remained and can and should challenge the System.

After all, it is shameful and disgraceful that a twice-dismissed “red director” by their ministry could, by returning to the plant, spit in the back of the minister-expat. Defeated not by a rival but by a judge in the ring and by sideline referees.

And if shame does not work, sooner or later a full-scale resignation will have to be confirmed. Because on one side of the scale are the reforms they declared, the European choice, and the fight against corruption; on the other is the System that absorbs yesterday’s reformers and revolutionaries, embodying the Soviet and post-Soviet mentality of the domestic variety, which evokes nothing in the West but revulsion.

Ruslan Yakushev