8 Business April 22, 2016 www.kyivpost.com
Editor’s Note: World in Ukraine takes a look at Ukraine’s bilateral relations with different nations. To sponsor this news feature, please contact the Kyiv World in Ukraine Post’s sales team at [email protected] or call 591-7788. In partnership with FREYWILLE Austrians put brakes on new Ukraine investment
BY YULIANA ROMANYSHYN [email protected]
Austria, with its historically deep ties to Ukraine, is one of the coun- try’s most important sources of investment. But Ukraine’s economic crisis, unstable politics and the phantom cease-fire in the eastern Donbas have put fresh Austrian investment – which stands cumulatively at $2.4 billion – on hold for the most part. But even so, Austria remains Ukraine’s fifth biggest investor after Cyprus, the Netherlands, Germany and Russia. Moreover, some companies are even reporting growth. Insurance doing fine There are 43 subsidiary enterprises of Austrian companies in Ukraine. But no new Austrian businesses have entered Ukraine over the past two years, according to Ukrainian- based Austrian business consultant Rainer R. Staltner. The largest Austrian enterprises in Ukraine operate in the bank- ing and insurance sectors, with Raiffeisen Bank Aval and Vienna Insurance Group being the most high profile. Represented in 24 countries, Vienna Insurance Group has found- A participant practices during Red Bull’s Vienna Air King dirt jumping competition event held in Vienna on April 6, 2013. (AFP) Austria at a glance Total area: 83,871 square kilome- ters ed four insurance companies in Population: 8.534 million Ukraine: the Ukrainian Insurance Government type: parliamentary Group, Kniazha, Globus and Jupiter. republic Together, they have a market share Head of state: President Heinz of 4.2 percent, according to VIG’s Fischer 2014 report. GDP: $436.34 billion (2014) For VIG, Ukraine remains a GDP per capita: $51,159 (2014) core developing market, a senior Main sectors of the economy: executive of VIG in Ukraine, Gary food and drink industry, mechanical Wheatley Mazzotti, told the Kyiv and steel engineering, chemical and Post. automotive industry, electrics and He confirmed that despite the electronics industry, wood, pulp and economic turmoil, VIG is still doing paper industry. good business. During 2015, the income of VIG in Ukraine was €54 Ukrainian-Austrian relations million, which was still 14.6 percent less in euros compared to the year Trade: $812 million (2015) before. But Mazotti is happy with Exports from Austria to Ukraine: this result: In hryvnia terms, VIG is chemical products, machinery, phar- doing well. maceuticals The company’s trump card is its Exports from Ukraine to Austria: Austrian origin. raw metals, toys, wood “Customers in Ukraine see the Austria investment in Ukraine: $2.402 billion (2015) value of being insured by an inter- Import: $335 million (2015) national insurance group,” Mazzotti Export: $477 million (2015) said. Main business partners: Raiffeisen Bank Aval, Vienna Investors on standby Insurance Group, Fischer- Those investors who came to Mukachevo UAP, Billa-Ukraine / Ukraine before Russia launched REWE GROUP A tourist climbs a hill near the slalom course track of the FIS Ski World Cup in Kitzbuehel, Austria on Jan. 22. more Austria on page 11 (AFP) www.kyivpost.com April 22, 2016 Business 9
A Raiffeisen Bank Aval van idles outside one of the bank’s branches in Kyiv, on April 21, 2016. Documents released in the Panama Papers leak reveal ties between the bank and President Petro Poroshenko. (Kostyantyn Chernichkin) Austrian authorities review Raiffeisen after Roshen loan emerges in Panama Papers
BY JOSH KOVENSKY man Christof Danz told the Kyiv Post ties, “we bid farewell to all the debts [email protected] that the bank does not comment on and started on a new page.” ongoing investigations or individual Stefes does not keep his busi- President Petro Poroshenko’s off- clients but complies with all laws. ness confined to Ukraine. The shore financial affairs may be casting Liechtenstein company DDE Farm a longer shadow than previously Links to the top that received the initial loan that was thought. In early April, Austrian magazine collateralized by Linquist Services, is The Austrian Financial Market Falter published an article implying owned by both Stefes and Valentyna Authority is investigating whether that Raiffeisen had laundered money Potapova, another Ukrainian Shtefes Raiffeisen Bank International com- on behalf of Poroshenko and gave a executive. plied with anti-money laundering $115 million loan to his confection- The Kyiv Post was told “not to controls. The review was prompt- ary company, Roshen, in 2010. call back” after telephoning the ed by leaked documents from According to Falter journalist Liechtenstein address at which DDE Panamanian law firm Mossack Josef Redl, the Roshen loan was one Farm is listed. In a phone call Fonseca that revealed a series in a decade-long series of lending with the Kyiv Post, Stefes said that of loans going from the bank to arrangements. For all of the loans, “Poroshenko’s business is a customer Poroshenko-affiliated companies, a British Virgin Islands-registered for me. Raiffeisen Bank was helping with a British Virgin Islands offshore offshore company called Linquist me when I was in Ukraine the first company used as collateral. Services Limited was held up as col- time. There was a very corrupt sit- “There have been some concerns lateral. The journalist discovered it in uation, it was helping me to get the about financing by Raiffeisen Bank the leaked Panamanian documents. first financing for my business here International going to companies According to Redl, the documents in Ukraine. And Poroshenko is no whose ultimate beneficial owner is show a series of loans going back longer in the business.” Petro Poroshenko, so we ordered an to 2003, many of which appear to The firm at the center of the on-site inspection,” Klaus Grubelnik, be linked to companies close to Panama Papers controversy – a representative of the Austrian Poroshenko. Linquist Services – also appeared Financial Protection Authority, For example, in February 2003 in the 2013 sale of Ukrainian told the Kyiv Post in a telephone Raiffeisen extended a €191,625 loan Media Holdings by Presidential interview. to a Liechtenstein pesticide manufac- Administration chief of staff Borys “It’s all due to concerns under the turer called DDE Farm AG. Lozhkin to now-exiled oligarch law against money laundering," he According to Ukraine’s customs Serhiy Kurchenko, suspected to be added, declining to comment further, registry, DDE Farm exports pesti- the front man for ex-President Viktor citing secrecy requirements due to cides to two Ukrainian companies: Yanukovych. the ongoing investigation. Zorya Podillya, a sugar production According to a 2015 investiga- For Raiffeisen, however, the firm owned by Poroshenko, and tion by news website Expres.ua, Poroshenko-related transactions are Margo. Poroshenko held shares in UMH only the latest in a series of transac- Margo is owned by a firm called through Linquist Services. Expres tions over decades involving promi- Shtefes, according to the company’s claimed that Linquist’s shares in nent Ukrainians. website. Shtefes is an agriculture UMH disappeared days before Industrialist Dmytro Firtash had company owned by a man named Lozhkin sold the company to a Raiffeisen account frozen by the Johannes Herbert Stefes, an 88-year- Kurchenko. U.S. Justice Department as part of old German who moved to Ukraine his indictment on bribery charges, in the 1990s to start a business. Longstanding ties allegations that he is denying from In a 2010 interview with Ukrainian Raiffeisen appears to have main- his exile in Vienna. agriculture magazine Zerno, Stefes tained links with top Ukrainian busi- Poroshenko Bloc lawmaker Ihor said that his business’s first main nessmen and politicians since the Kononenko, meanwhile, was found client was Oleksiy Ivanovych early 2000s. to be linked to an account at the Poroshenko, the president’s father. In 2006, U.S. diplomatic cables bank through a British Virgin In the interview, Stefes said that his leaked by Wikileaks showed that top Islands-registered offshore company fledgling company was owed money U.S. officials pressured Raiffeisen called Intraco Management. by local farmers, but that after meet- Raiffeisen International spokes- ing the elder Poroshenko in the nine- more Raiffeisen on page 11 10 Business April 22, 2016 www.kyivpost.com Despite Austria’s neutrality, Ukraine gets some backing
BY BRIAN BONNER Minsk peace agreements: cease-fire, [email protected] disarmament and return of Ukraine’s eastern borders to its control. One of American President John But Austria is not actually neutral F. Kennedy’s favorite quotes was in all areas. While not a NATO inspired by Dante’s Inferno: “The member, Austria is a member of hottest places in hell are reserved the European Union and supports for those who in time of moral crisis the economic sanctions imposed preserve their neutrality.” against Russia for its forced seizure But what about Austria, where of Ukraine’s Crimean peninsula in neutrality is enshrined in the 2014 and the current war in the Constitution, in the law and in the Donbas. psyches of this nation of 8.5 million Russia’s annexation of Crimea people? Neutrality became the price was “done against international law,” -- or condition -- that Austrians paid Poppeller said. “We will not recog- for national independence, insisted nize that breach of international upon by the Soviet Union, after the law.” World War II allies left in 1955. Another grievance for Ukrainians Today, this means that Austria is what is seen as Austria’s pro-Rus- has a hard time taking a stance sian political and economic stance. and assigning blame in Russia’s war The big Austrian energy company, against Ukraine, in particular the the OMV Group, has strong connec- failure of the Minsk II agreements of tions with the Kremlin’s Gazprom. February 2015 to bring peace. And, as Poppeller acknowledged, “We are not giving up on Minsk,” many Austrian businesspeople “want Austrian Ambassador to Ukraine the sanctions to end today and Hermine Poppeller said in an inter- tomorrow.” But as long as the EU view on April 18. “I think this is the keeps the sanctions in place, she said, only instrument we have to find a so will Austria. When it comes to the solution for the conflict in the east. accusation that Austria is pro-Rus- Even so, it sometimes seems to be a sian, the ambassador said: “I think it slow process.” is a bit exaggerated.” Slow indeed, but the question Moving further down the list of of who is to blame for the fail- Ukraine’s annoyances is what is seen ure of Minsk brings out the fastid- as Austria’s friendly attitude towards ious neutrality of Austria’s official the money of Ukraine’s oligarchs representative. and other elite while adopting a Pausing before answering in the less-than-rigorous stance on putting Austrian Embassy, blessed with a an end to money laundering. view of St. Volodymyr’s Cathedral The list of those Ukrainians who in Kyiv, Poppeller replied: “I think are known to favor Austria’s real Austrian Ambassador to Ukraine Hermine Poppeller speaks in her office on April 18 in Kyiv. (Anastasia responsibility for not implementing estate or banks includes former Vlasova) you can find on both sides. I would Prime Minister Mykola Azarov; for- not make a judgment on this.” mer member of parliament Serhiy And that, in a nutshell, sums up Klyuyev; presidential chief of staff the problems many in Ukraine have Boris Lozhkin; and industrialist ask them,” Poppeller said. of the Organization for Economic with currency restrictions that curtail with Austrian foreign policy. In a Dmytro Firtash, who is still fighting As for whether Austrian banks Cooperation and Development, she their ability to repatriate dividends. conflict, people want their friends to U.S. bribery charges from his exile are engaged in money laundering of said. It would also help if Ukraine had take their side -- especially when the in Vienna. Ukrainian oligarchs’ assets, Poppeller “Austria does not belong to “clear rules for doing business here,” roles of aggressor and victim seem Why do so many of Ukraine’s says the charge is unfair and even those countries which should be she said. “Clear rules also mean less so clear. Russia has violated the elites like to bank, invest or buy prop- inaccurate. Austria complies with all named or can be named as being corruption.” She describes prospec- basic pre-conditions called for by the erty in Austria? “I think you have to the anti-money laundering guidelines famous havens for money launder- tive Austrian investors as interested ing,” Poppeller said. “That’s not the but hesitant. case for Austria.” To further combat She believes Ukraine has a poten- money laundering, she said, requires tially transformative gift in its new an international effort that Austria free trade agreement with the supports. European Union. Poppeller is a career diplomat in “There are so many chances for the Austrian Ministry of Foreign this country,” Poppeller said. “It could Affairs, which does not favor polit- be very competitive on the world ical appointees as ambassadors. market -- it has low wages, educated She has also served as the ambas- people, an association and free trade sador in Latvia in addition to her agreement. I think one should use one year so far as ambassador to this opportunity.” Ukraine. Another focus is simply to Her nation has some very clear strengthen cultural ties. The Austro- priorities for strengthening relations. Hungarian Empire ruled parts of One of them is to rebuild bilateral western Ukraine for 150 years, until trade, which dropped to below 1 bil- its defeat and collapse in 1918 in lion euros last year for the first time World War I. Today, that influence is in several years, dipping to just 812 most visible still in the architecture million euros, with Austrian exports of western Ukrainian cities. dropping to 335 million euros while “Architecture left us a lot of good imports slid to 477 million euros. things,” Poppeller said. “If you go Austrian foreign direct investment to Lviv or Chernivtsi or other small in 2015 was $2.4 billion, making it places, you can still find a lot of the fifth largest investor in Ukraine, architecture which is so European,” she said, with the insurance, finan- Poppeller said. “It gives proof that cial and banking sectors leading this part of the world is not east, the way. it’s central Europe. I felt very much All is not well, however, because A tram drives past the Hotel Imperial in Vienna on Feb. 17. (AFP) Austrian businesses are not happy more Ambassador on page 11 www.kyivpost.com April 22, 2016 Business 11
Several Austrian banks have links to Ukrainian Austria could be EU businesspeople or politicians gateway for Ukraine
Raiffeisen from page 9 Austria from page 9 ucts don’t just have to be produced, Jan. 1, trade between Austria and business interests to help Ukrainian to back out of an arrangement that but delivered as well,” Staltner said. Ukraine should get a shot in the producers find consumers in would have seen it finance gas trading its covert war haven’t sold their As an illustration, he said that arm. Indeed, at a Ukraine-Austria Austria. by the murky RosUkrEnergo energy assets, but put them on the standby delivering goods the 330 kilome- trade conference on April 13 in “Austria has managed to achieve trading company partly owned by the mode, said Staltner, the business ters from Odesa, Ukraine’s main Kyiv, all of the presentations were what Ukraine wanted, but unfor- Kremlin's Gazprom and Firtash. consultant. sea port, to Reni, a town on the focused on the effects of the free tunately didn’t get – it became a Though Raiffeisen officials relent- Staltner has lived in Odesa since Danube River in Odesa Oblast, is trade agreement and the potential bridge between the East and the ed to U.S. pressure, prosecutors still 1995. He advises investors who more expensive than driving them for Ukrainian investment in Austria. West,” Scherba said. attempted to freeze a Raiffeisen want to enter Ukraine, as well from Odesa to Kyiv (a distance of Austria, a country with a growing Ukraine’s poor image is the big- account held by Firtash in a 2011 as Ukrainian producers looking to 470 kilometers), simply because of gross domestic product and popu- gest problem that Ukrainian busi- bribery indictment. export to European markets. the difference in the road quality. lation of 8.5 million people, shares nesses face when looking to enter Raiffeisen’s Ukrainian subsidiary, According to Staltner, no Austrian Ukraine needs to resolve these borders with six European Union the Austrian market, according Raiffeisen Bank Aval, has received investors have come to Ukraine in problems to fulfill its investment member states. to Scherba.That is party due to state support since it came under the last two years. “They’re inter- potential, Staltner said. “Austria could be the location to Europeans’ poor understanding of control of its Austrian parent in ested, but they’re just watching and establish a company or a subsidiary the conflict in the eastern Ukraine, 2006. Raiffeisen Aval is Ukraine’s waiting,” he said. Investors encouraged of a Ukrainian enterprise, which he said. seventh-largest bank. Across The instability of Ukraine’s econ- As for Ukrainian exports to Austria, would help (Ukrainian exporters) To introduce Ukrainian produc- Eastern Europe, Raiffeisen Group omy continues to put off potential Staltner said agricultural products, to work better in the European ers to Austrian buyers, Scherba has constitutes the region’s second-larg- Austrian investors. Staltner said transport and medical equipment market, a market with 500 million organized a conference for food est lender. Austrians want to see peace in the could all be of interest to Austrian consumers,” Austrian Ambassador retail companies, namely Billa and In 2009, Ukrainian banks were east and a fair judicial system in customers. “There are actually a lot to Ukraine Hermine Poppeller said Germany’s Lidl, which will take foundering in the wake of the global Ukraine. Poor infrastructure also of good (products) here,” Staltner at the April 13 conference in Kyiv. place in May. Next, he plans to financial crisis. In March of that year, scares them off. said. Meanwhile, in Vienna, Ukrainian bring Ukrainian information tech- the National Bank of Ukraine provid- “When an investor comes and And in the wake of the free trade Ambassador to Austria Alexander nology companies to Austria, he ed Raiffeisen Aval with Hr 1 billion in sees the roads, he doesn’t want to agreement between Ukraine and Scherba sees his job as defending said. refinancing. do anything. That’s because prod- the European Union launched on Ukraine’s image, reputation and The refinancing occurred under a “program to stimulate the crediting of farming enterprises,” Interfax-Ukraine quoted Poroshenko - then the head of the Council of the National Bank of Austrian ambassador says she felt Ukraine - as saying at the time. The ongoing Austrian investiga- tion is not Raiffeisen’s first brush ‘at home’ on first visit to Chernivtsi with controversy. Herbert Stepic, the bank’s former chief, resigned in 2013 after a document leak revealed that Ambassador from page 10 http://www.encyclopediaofukraine. ple are doing outside the capital,” plenty of chances to get to know he had used offshore companies to com. “The Austrian influence on Poppeller said. each other with three relatively purchase property in Asia. at home the first time I came to government, transportation and The focus extends to the cheap flights daily between Kyiv “Raiffeisen had a very look-the-oth- Chernivtsi.” architecture is still felt in the terri- Austrian belief in decentralization and Vienna from Austrian Airlines er-way, wink-wink attitude towards The warm feelings are returned, tory known as Halychyna.” and deregulation. Aside from the as well as flights from Odesa, how it operated in the CIS, which if the Encyclopedia of Ukraine is to Austria is building on historic ties package of EU aid, Austria also Dnipropetrovsk and Lviv. “We are is why it’s been such a favored be believed. by setting up a network of honorary wants to launch a 1 million euro really well-connected with Ukraine,” bank,” international lawyer Jamison “Ukrainians look back at the consulates throughout the country vocational training program to, the ambassador said. Firestone told the Kyiv Post. Austrian period with fondness and that, by the time the mission is among other things, help agricul- Cultural diplomacy will also play Firestone represented Firtash in as a time when strides were made in complete, will place its representa- ture “not in areas where you have a prominent role in bilateral rela- the April 2015 Vienna proceedings in establishing national consciousness, tives in Dnipropetrovsk, Lviv, Odesa, big farms, but small-sized farms tions, Poppeller said, through film, which a judged denied a U.S. govern- because of the relatively more liber- Chernivtsi and Kharkiv besides in the mountains, to give people a artistic and other events. “People-to- ment extradition requiest. Firestone al policies that came from Vienna,” Kyiv. (The consulate in Donetsk was chance to survive in their areas and people contact is what is needed to said Raiffeisen conducted proper due according to the encyclopedia’s closed because of the war.) in their villages,” Poppeller said. build up common European values,” diligence in Firtash’s case. Internet site, which can be found at “It so important to see what peo- Ukrainians and Austrians have Poppeller said.
Vested interests stall drive to sell state-owned firms
Privatization from page 3 Cabinet itself does not have the bankers, since once a state-owned authority to execute the privatization enterprise is corporatized, it is no – a plan that serious investors have program. longer a subject of privatization, and to be able to see. “There is only one body in the therefore the State Property Fund is “When will Centenergo be put country that is responsible for prepa- not responsible for it. up for privatization?” Perry asked ration and conduct of privatization “So whatever non-core assets they Bilous. “If it’s not until 2018, then we – that is the State Property Fund,” have, they are selling them by them- just need to know that, and people Bilous said. selves,” Bilous said. will move on, investors will move on Infrastructure Minister of Ukraine and do other things.” Volodymyr Omelyan added that Asset transfers Realistically the privatization of cooperation between the Economy For the State Property Fund to pri- Centrenergo will take place around Ministry and the State Property Fund vatize state-owned enterprises, it the second quarter of 2016, Bilous was good right now. must first receive controlling stakes said. Omelyan’s ministry manages 250 in these enterprises from the minis- state-owned enterprises, includ- tries. “We very often have this sort Lines of responsibility ing Ukrzalyznitsia and Ukrposhta, of mid-level sabotage at the minis- Bilous made it clear that while the which are now at the stage of tries,” Bilous said. “The preparation ministries and government are corporatization. of a company for privatization takes responsible for identifying and pro- Bilous said that the infrastructure six to nine months for a big compa- posing privatization strategies, the ministry needs to hire investment ny.”