CORRUPTION IN UKRAINIAN RAILWAYS

JSC Ukrainian Railways is a state enterprise, with its career field being rail transportation services. A virtual monopolist in Ukraine, it was transformed into a public joint stock company Ukrainian Railways (Ukrzaliznytsia, abbreviated as UZ) in 2015.

The company is a real giant possessing 1614 stations, 120 major depots, 50 engine houses, 43 railroad car sheds and 13 passenger-and-train houses. Its total line length makes it rank 6th in Europe and 12th worldwide. The operative key stage length is 22.3 thousand km, with the track mileage accounting for 24.1 thousand km and electrified sections reaching 9.8 thousand km (63%). The vehicle stock includes: 63 branded passenger trains, 720 main-line diesel locomotives and 1,256 diesel shunters, 1,720 mainliners, 57,700 freights 3,883 passenger compartments.

Some two decades ago, when Ukrzaliznytsia was headed by the legendary Georgy Kirpa, freight transportation revenues covered both cover passenger transportation losses (train tickets cost peanuts back then) and purchases of traction stock and railway equipment. The railway network has been overhauled, new sections have been completed or electrified, every single station has been repaired within a couple of years, and so on and so forth.

UZ kept that effort under president Yushchenko. It built part of the Odessa-Kiev highway for its own money in the early 2000s, having turned out the only one having financial resources required. Until 2014, the company traditionally remained a major taxpayer in general, and income tax payer in particular.

All in all, by 2014 Ukrzaliznytsia was a dynamically developing enterprise with a huge potential. It did face certain challenges, like, for instance, passenger transportation loss ratio or rolling stock deterioration. But in 2014 the new Ukrainian government inherited an extensive and properly functioning system that could replenish the budget fairly well, despite all the previous difficulties.

The new Ukrainian authorities, along with their foreign curators, were self-conscious about the asset they got their hands on. A rail transportation monopolist enterprise in a country enjoying a perfect transit position between Asia and Europe could not but bring enormous profits.

Of course, the vacant directorship of such a powerful entity garnered attention of various political and oligarchic structures.

As a result, starting in early 2014 and until the summer of 2021, ten people have succeeded each other in this position. They were mostly citizens of Ukraine, but for some time the company was headed by foreigners. Perhaps the most odious of them was Polish rock musician Wojciech Balczun, who lead Ukrzaliznytsia for over a year. During this period, the company found itself at the center of corruption scandals several times.

Having become director of Ukrzaliznytsia, Balczun invited several Polish managers to its board, which cost Ukrainian taxpayers a pretty penny. Thus, five board members decided to pay compensation to themselves for actual hours worked before signing contracts with the company. Payments ranged from UAH 415,000 to 830,000.

In 2017, the board planned to increase the company's administrative cost by 95%, the bulk of which attributed to wage increases for its members. In 2017, 677 million taxpayer hryvnias were additionally allocated for Balczun’s inner circle. To compensate for such an increase in UZ expenses, a decision was taken to raise tariffs for cargo and passenger transportation by 25% and 35% respectively.

It would have been a different matter if the Polish reformer team got this money for some useful work. Hardly that. Its activities nearly entailed a collapse in the country’s railway transportation system.

As of early 2017, Wojciech Balchun himself earned a monthly 463, 000 hryvnias (over $17,000).

In June 2018, the Ukrainian Cabinet formed a supervisory board for Ukrzaliznytsia, tasked with having this honeypot in its pocket as part of the Western-imposed “effective corporate governance.” According to the Cabinet’s official statement, it included Ukrainian and Western independent contributors, mainly financiers, bankers and economists.

In December 2019, the supervisory board featured a minority of Ukrainian citizens, just two out of seven – former journalist Serhiy Leshchenko and economist Oleg Zhuravlyov. Headed by Shevki Ajuner of Turkish origin, the board comprised Swede Anders Oslund, Germany’s Christian Kuhn, Canadian Andreas Mathieu, and Lithuanian Adomas Ąžuolas Audickas. The only one having previous experience in railway transportation was Kuhn, who virtually represented the German railway monopolist Deutsche Bahn supposed to assume control of Ukrzaliznytsia. Notably, salaries of all the supervisory board members exceeded half a million hryvnia per month, and almost all of them lobbied for the interests of some oligarchs or corporations. And Christian Kuhn himself got UAH 11.7 million from September 2019 to late April 2020.

But let's take a closer look at activities of one of the two Ukrainians, Serhiy Leshchenko, a former Ukrainian Truth journalist, ex-MP and one of the Maidan inspirers. His professional activity is intimately associated with public and political organizations funded by George Soros’ Open Society Foundations, which helped him enlist US patronage. Within the council, Leshchenko became head of the compliance (control and risk management) and anti-corruption committee. His duty was to instruct company management and staff in ethical conduct, as well as anticorruption efforts. And by tradition, being an active supporter of the "Soros grant-eating community", he was immediately engulfed in a corruption scandal.

"It has emerged that Sergey Leshchenko and other Ukrzaliznytsia’s Soros minions work at the railway monopolist, providing multimillion-dollar contracts for the purchase of diesel fuel at an over-inflated price to Tomáš Fiala! He is George Soros’ partner on political and business projects. Fiala does this secretly, through figureheads,"

Klymenko Time reported.

According to the media, July 2020 witnessed Ukrzaliznytsia purchase fuel worth over UAH 110 million from the Alliance Energo Trade company, affiliated with Tomáš Fiala’s Dragon Capital group. And the price of fuel was almost twice as high as in Europe. Thus, fuel from Soros' partner cost UZ $680 per ton, while in Europe it was $373.

Undoubtedly, one of the most clamorous scandals in UZ since 2014 has been the purchase of diesel locomotives from America’s General Electric. On February 23, 2018, an agreement was signed between UZ, Ukreximbank and General Electric, stipulating for Ukraine’s purchase of 225 locomotives worth over $1 billion.

The signatories were acting UZ board chairman Evgeniy Kravtsov and General Electric Transportation Executive Director Rafael Santana, and among those present were then Ukrainian President Petro Poroshenko, US Ambassador to Ukraine Marie Yovanovitch and Ukreximbank board leader Alexander Gritsenko.

The first step to implement the agreement signed was Ukreximbank’s purchase of 30 TE33A diesel locomotives from General Electric for $140.4 million and their transfer to UZ by means of the finance lease mechanism in hryvnia. The deal took place without a tender, with funds for the purchase leased, as UZ claimed.

Because of the contract Ukraine would overpay $2 million for each locomotive, Ukraine’s ex-Deputy Minister of Infrastructure Oleksandr Kava noted. Moreover, given Ukraine's desire for transparent procurement, the reason why the machines were purchased without open tendering is not quite clear.

"Logically, volume purchases of this kind should be carried out by tender. General Electric sold 1,000 diesel locomotives to Indian Railways for $2.5 billion, which implies $2.5 million for each. For us, they are more expensive, and it is not about fair competition,"

Kava said.

At the same time, technical experts in Ukraine and other countries noted that the purchase of diesel locomotives was driving Ukrainian railways back, since most countries abandoned those in favor of zero emission vehicles.

The purchase was also stated to have necessitated personnel retraining and creation of a supply and maintenance system fraught with heavy financial expenditures.

According to rail transportation experts, it would be more expedient to modernize and repair Ukraine’s existing fleet of diesel locomotives. This would help financial resources stay in the country, and provide jobs to domestic enterprises. Moreover, America’s brand-new machines have proven devastatingly unreliable.

Why did it happen that the state signed an unprofitable contract?

Most experts agree it has nothing to do with Ukrainian railways’ immediate needs, being politically-motivated instead.

The purchase of diesel locomotives at inflated prices and without a tender is a form of political bribe to the American leadership. That is, Ukraine bought heavily from the United States in a bid to gain loyalty and support from its leader. Let me remind you that the signing ceremony was personally attended by President Poroshenko and Ambassador Yovanovitch.

"Whatever the cost, Poroshenko needs loyalty from Yovanovitch, who has direct contact with Washington. Of course, at the public expense. The reason to assert this is the purchase price of diesel locomotives, which is almost twice the price of a similar GE model for Kazakhstan: $4 million for Ukraine and $2 million for the Kazakhs. Apart from overpayment, the manufacturer raises issues, too: GE needs a contract with Ukraine to keep the Kazakhstan KTJ plant run at full capacity,"

well-known Ukrainian journalist Alexander Dubinsky said.

In general, the state of affairs at UZ is dismal. A giant enterprise capable of bringing enormous profits to the country's budget lurches from crisis to crisis.

Naturally, ordinary machinists, repairmen, crawlers and conductors receive less than due. The company’s managers and supervisory board members pay up their own multimillion-dollar salaries and bonuses.

The UZ management has been accused of corruption and grand theft. Over the past two years (that is, already under Zelensky), the SBU has registered 237 criminal proceedings, including repair activity scope overstatement, supplies of suspect spare parts, and service ordering from third organizations.

What is the reason for such a state of affairs?

Recently, it was the UZ supervisory board which de facto became the company’s operating control authority. Its directors come and go, with their appointments lobbied by both political forces and business circles. Which is why real leverage over the Ukrainian infrastructure giant, including anti-corruption efforts, has fallen under the responsibility of supervisory board members, for which read foreign representatives. A sure thing, they are least of all interested in ensuring company development and appropriate functioning of its subdivisions.

Corruption has always been there in Ukrainian state-owned companies, and the railway transportation system is no exception in this respect. While until 2014 it was only embezzled by the company’s Ukrainian management in league with oligarchs, with the stolen money having at least remained inside the country, the "reforms" hardly changed this practice, but Western politicians and companies started playing first fiddle in corruption schemes. And the funds stolen are withdrawn from the country.