The three-fifths super-majority needed in Moldova’s unicameral parliament to elect a president proved again elusive after the country’s third parliamentary election in two years on November 28: with all the votes counted, Moldova’s Communist Party took 39.3% of the ballots and 42 of the 101 seats, while the three-member governing coalition Alliance for European Integration (AEI) took 52.1% of the vote and 59 seats, just shy of the 61 needed to elect the president.

The result was a huge disappointment to the AEI, whose Liberal Democrat party (PLDM) won 29.4% of the vote, the Democratic Party (PDM) 12.7% and the Liberal Party (PL) 10%.0. At the HQ of the PLDM, initial jubilation turned to apprehension as exit polls that gave it a clear victory and first place with an 8% lead over the Communists, turned out to have been misleading.

The exit poll by Publica TV/RIAS claimed the PLDM had taken first place, with a whopping 34.4% of the vote, with the opposition Communists on 26.0%. Altogether, according to the poll, the AEI had landed 65% of the vote, giving them a mandate to finally elect a president and end the political impasse the country has been in since elections in April 2009.

Prime Minister, and head of PLDM, Vlad Filat even held a victory speech. “The fact that so many citizens have voted looking towards the future has proved that we are a mature society,” said Filat. “As a result, we have just seen how something incredible can happen.”

Moral victory

And incredible was the right word. The first provisional voting returns only two hours later – with 4% of the vote in – reduced PLDM headquarters to stunned silence:  the scenario was suddenly reversed, with the Communists on a total of 50.1% of the vote.
Over the course of the night, it then became clear that the country had again returned a hung parliament. The distortion of the first exit poll – carried out by a Romanian foundation in partnership with a Romanian-owned TV station Publica TV – seemed to confirm fears that the poll may have been politicized.

PLDM’s deputy head. Liliana Palihovic – who earlier in the evening following the publication of the exit poll told bne her party would now claim both the posts of prime minister and president – nevertheless claimed a moral victory. “We felt the mood of the people change during the campaign, when we presented them with real arguments and figures instead of the fairy tales that the communists were telling them,” she said.

Palihovic said that the majority of the population still subscribed to “the old mentality,” but that the work the party had done meant that people had had started to look forward. She said a low turnout of only 59.1% may have hurt the PLDM and AEI.

With Moldovans living abroad able to vote at embassies for the first time, TV showed Moldovan emigrant workers queuing up to make use of the opportunity. Since voters abroad largely favour the pro-European AEI, Palihovic anticipated that this would swing the vote back towards the AEI in the course of the night, with the foreign ballots due to come in last.

There was also apprehension expressed that the discrepancy between the Romanian exit poll and the final result could undermine confidence in the fairness of the election results, despite most observers finding the elections to have been conducted fairly. In April 2009, disputed election results led to mass demonstration and violent sacking of parliament building and presidential palace by mostly young supporters of a pro-European and pro-Romanian course.

But Moldova’s fractious politicians were sounding more ready for compromise yesterday in comments made while polls were still open.

Compromise in air

Vladimir Voronin, head of the Communist Party and president of the country in 2000-2008, said that his party was ready to work together with the liberals to elect a president. The Moldovan Democrat Party (PDM) , headed by former Communist Marian Lupu, is closest to the Communist Party in terms of political position. Lupu, a liberally-minded economist, would be the obvious compromise candidate, and also said he was ready to cooperate with all parties.

Ironically, however, Voronin ruled out the Communists ever supporting Lupu for the post of president, due to what he called the latter’s “treachery” in opportunistically switching from the Communists to the Democrats following the April 2009 elections.

Ideologically, the biggest divide is between the Communists and Moldova’s Liberal Party, headed by Mihai Ghimpu, the acting president. Ghimpu is an outspoken pro-Romanian, anti-Communist and anti-Russian politician, who has supported the idea of Moldova’s unification with Romania, and as acting president antagonized Russia by “rewriting” the Soviet past.

So while there is a commitment on the part of all parties to overcome the constitutional crisis that has seen the country without a president for over a year, the negotiations promise to be difficult and protracted. But with the country still reeling from the global crisis, no one wants fourth parliamentary elections in 2011.

Moldova’s ambassador to the US, Igor Munteanu, tells bne that ideological decisions regarding foreign policy orientation should take a back seat in favour of “existential issues [which] mostly include social and economic issues, but also structural reforms to desovietize state bureaucracy, reduce corruption and create incentives for competitive industries.”

In comments to bne, Finance Minister Veaceslav Negruta also emphasized the need for pragmatism, making clear that consolidating state finances takes priority and confirmed government plans to introduce a corporate profit tax starting January 2011. The Communist administration abolished profit tax as part of a raft of pro-business reforms spearheaded by Marian Lupu.

Chisinau inhabitants voting spoke in favour of stability, but also a continuation of reforms, and expressed largely non-ideological concerns, while criticizing politicians for their fractiousness. “The main thing is for the political logjam to be resolved,” said Alona Kirika, a 27-year-old economist who voted for Vlad Filat’s PLDM. “I wouldn’t be afraid of the Communists joining power, since we had them for eight years and know them already, but I feel we need different younger people for us to really move forward.”

November 17, 2010

The Scandal Around Khimki Could Lead to a Standoff Between the Kremlin and Russian Nationalists

By Graham Stack

With the Kremlin’s gaze apparently shifting from the city of Moscow to Moscow Region, President Dmitry Medvedev will have to publicly take sides in the escalating confrontation between nationalists and civil society. The brutal attack on journalist Oleg Kashin, the latest in a series of attacks on critics of the municipal authorities in the Moscow Region town of Khimki, has become a Russian cause célèbre: Kashin’s name was the third most often mentioned name in the Russian news last week, following Medvedev and Prime Minister Vladimir Putin.

The investigation into the attack is now being conducted by the country’s highest-ranking investigators from the newly-independent Investigation Committee. And in another sign of mounting political pressure on Khimki and Moscow, on November 13, the NTV television channel ran an investigative report into the situation surrounding Khimki, which was extremely hostile to the town’s now notorious Mayor Vladimir Strelchenko. In recent months, similar critical NTV reports have been a sign of the Kremlin’s displeasure with, firstly, Belarusian President Alexander Lukashenko, and secondly with Moscow Mayor Yuri Luzhkov, both of whom combine neo-Soviet patriotism with corruption and authoritarianism.

The NTV report on Luzhkov immediately preceded the dismissal of the long-serving Moscow mayor. NTV’s Khimki report may indicate that the Kremlin will not wait for the results of the investigation into the attack on Kashin, but draw its own “organizational conclusions” about the situation in the region ­ conclusions that may not be limited to Khimki but may also impact Boris Gromov, the governor of Moscow Region, directly.

While public attention has been focused on Khimki and on Strelchenko, whoever speaks of Strelchenko has also to speak of General Boris Gromov, the governor of Moscow Region ­ and of Boevoe Bratstvo (“brothers-in-arms”) ­ the country-wide organization of veterans of the Afghan and Chechen wars, which Gromov heads. Gromov himself was the last Soviet general to command the Afghanistan campaign, and the last Soviet soldier to leave Afghanistan in 1989. And like many of Gromov’s subordinates in the Moscow Region government and the administrations of the region’s towns, Strelchenko is also an Afghan veteran and an active member of Boevoe Bratstvo.

Officially Boevoe Bratstvo’s activities consist of patriotic acts, such as building war memorials across the country to servicemen who died in the Afghan and Chechen wars, and providing extensive material support to veterans. As such, the organization is an improvement on the Afghan veteran organizations of the 1990s, which were basically part of the organized crime scene thanks to their capacity for violence and group solidarity, combined with the extensive tax and customs benefits the government granted them as subsidies to charities.

Unofficially, the signs are that in the early years of holding office in Moscow Region, Gromov deployed Boevoe Bratstvo and a retinue of former army comrades to repress feuding organized crime groups and monopolize protection-racket rents, marked by a wave of violence from 2000 to 2004, which saw several heads of regional municipalities slain.

Mission accomplished and offices gained, Gromov’s people, especially in Khimki, seem to have turned from repressing crime groups to repressing criticism of the new order and its endemic corruption: Khimki, perched on the border of the city of Moscow, one of the world’s most expensive cities, has some of the most attractive real estate in Europe, with tens of millions of dollars worth of easy pickings for unscrupulous bureaucrats to privatize state-owned land plots and re-zone agricultural land.

And the list of names of Khimki-related activists and journalists who have fallen victim to violent attacks after criticizing the authorities is long: prior to the attack on Kashin ­ for which the Khimki link is not the only possible explanation ­ Khimki-based journalist Anatoly Yurov was stabled with a knife ten times in an attack in 2008; his colleague Mikhail Beketov was beaten so severely the same year that he is now severely disabled; and journalists Yury Slyusarev and Yuri Granin were also victims of beatings in 2008. Only days before the attack on Kashin, environmental activist Konstantin Fetisov had his skull broken in an attack on November 4.

Surveying this tragic list gives one the impression that the repeated ferocity of attacks has an ideological nationalist component. The only parallel for the brutal punishment meted out to journalists and activists linked with Khimki is that which has been meted out to journalists and activists by rightwing extremists: leftwing activist Alexander Rukhin was murdered in April 2007 by ultranationalists, while a rightwing extremist has been detained for the murder of human rights lawyer Stanislav Markelov in January of 2009. And there may have been ultranationalist involvement in the still unsolved murder of Anna Politkovskaya in 2006. Like Markelov, she had been active in exposing human rights abuses by Russian servicemen in Chechnya.

Whether the motive for the particularly brutal attacks on Khimki civil society activists is linked to the Afghan veteran networks prevalent in Moscow Region and the nationalist ideology they espouse will only be proved or disproved by an investigation. But a swift Kremlin crackdown on Khimki and on Moscow Region, on Strelchenko and on Gromov, for image purposes or out of genuine concern for civil society, could well add to growing nationalist resentment of the Medvedev administration ­ and force the Kremlin to finally take sides in the nationalism versus civil society clash, even at the risk of becoming a target of nationalist anger.

This is not far-fetched. Nationalist political violence already seems to have targeted state officials in at least two instances. In April 2010 federal judge Eduard Chuvashov, who had given a group of Neo-nazis lengthy sentences for the murder of over 20 immigrant workers, was shot dead in his doorway. In August 2010 a jury again acquitted a gang of nationalists charged with attempting to assassinate 1990s liberal reformer Anatoly Chubais, now the head of state nanotechnology corporation Rosnano, in 2005. The apparent ringleader of the group, retired Colonel Vladimir Kvachkov of Russia’s military intelligence service, while denying the charges, has made no secret of his hatred of Chubais for “selling out the country” and his wish to see Chubais dead. Nationalist rallies led by Kvachkov and rallies such as the November 4 Russian March feature hangings of Chubais in effigy.

Underlining the threat of anti-state violence from the far right, Russia’s Federal Security Service (FSB) declared on November 11 that it had discovered an arms and explosives cache in Pskov kept by the Slavic Union far-right group. The weapons were apparently intended for an attack on an administrative building in the city on October 31, the date that democrats rally in support of freedom of assembly.

Nationalists like Kvachkov ­ who openly call for violence ­ are hostile not just to “pro-Western democrats,” but to the current regime as a whole, especially now that former President Vladimir Putin has symbolically handed the reins of power over to the liberal Medvedev. Kvachkov’s Web site even details a legal suit against Putin on charges of national treason.

Furthermore, the ongoing root-and-branch army reform has mobilized opposition among veterans’ organizations and the nationalists, especially after a public verbal clash in October between civilian Defense Minister Anatoly Serdyukov, the mastermind behind the reform, and a decorated colonel of an airborne regiment, over perceived irregularities. The resulting furor resulted in petitions and a 1,000-strong demonstration on November 7 of paratrooper veterans calling for the minister’s dismissal. In a disturbing twist, the head of the elite airborne troops division, General Vladimir Shamanov, who publicly sided with Serdyukov and supported the reforms, was hospitalized on October 30 after a lorry mysteriously swerved directly into his car. Investigators say it was an accident.

Apart from Serdyukov and Chubais, and potentially Medvedev, another hate figure for nationalists among government officials is the long-serving deputy head of the presidential administration, Vladislav Surkov. Veterans accuse him of organizing what they regard as “show trials” of a handful of Russian servicemen for crimes committed against Chechen civilians, designed, they believe, to strengthen Chechen President Ramzan Kadyrov.

So in conjunction with these developments, if the Kremlin were to move decisively on Khimki and Moscow Region it could spark a backlash from the far right ­ even to the point of the Kremlin becoming the target of nationalist hate as it was in the 1990s, when nationalists lambasted Boris Yeltsin’s administration as “anti-Russian.”

Luckily, nationalists, especially those from the officer corps, lack popular credibility, not least due to their well-known extensive involvement in corruption. Journalist Mikhail Beketov himself provided a vivid illustration of their double standards in April of 2007: while Russia ­ and Boevoe Bratstvo ­ were up in arms against a decision by the Estonian government to demolish the “Bronze Soldier” war memorial to the Soviet World War II victims in Tallinn, Beketov wrote about Strelchenko’s people in Khimki simultaneously digging up a World War II memorial containing the remains of Soviet pilots, which had the bad luck of being located on a piece of prime real estate.

His article was seized on by international media and badly discredited Russia’s position in the dispute with Estonia. “Patriot” Strelchenko was exposed as a disturber of war graves and a vandal of memorials for commercial motives. In November of 2008 Beketov was beaten to a pulp, and is to this day unable to communicate.

Of all the different constellations of power and property across the former Soviet Union, Ukraine is the country where the rich rule most directly: top tycoons occupy key government posts and at least one out of seven deputies are big businessmen.

In most other post-Soviet states, Valery Khoroshkovsky would be a breakthrough appointment as head of the country’s secret service, the SBU. Aged 41, with a career in business, international experience, no Soviet security service background, a vegetarian with metrosexual good looks that have earned him the nickname “Ken” (as in Barbie’s beau), this could be the man to bring the KGB successor agency into the 21st century.

The problem is that Khoroshkovsky does not just run the country’s secret service, he also owns the country’s largest and most politically influential (and pro-government) TV station, Inter. In fact, he is one of Ukraine’s wealthiest tycoons, with total assets estimated at $804m, according to a rating conducted by the Kyiv-based brokerage Dragon Capital and published by weekly magazine Korrespondent in June. This makes him Ukraine’s 14th richest person, although other ratings put his wealth lower. With characteristic suaveness, he dismisses all talk of conflict of interest by saying he no longer runs his business – his wife does.

Three rich men

Khoroshkovsky is not the only top state official to exhibit a major conflict of interest. Of Ukraine’s four deputy prime ministers – the people who are responsible for taking cross-sectorial strategic and political decisions – three rank among Ukraine’s top-50 wealthiest tycoons.

The wealthiest deputy prime minister is former banker Sergei Tigipko, who clocks in as Ukraine’s 21st richest man with a fortune of $566m. In contrast to Khoroshkovsky, however, Tigipko’s assets are mostly cash, having sold off his TAS bank to Swedbank in 2007. The second-richest deputy PM is Boris Kolesnikov, who Dragon Capital reckons is worth an estimated $231m. Kolesnikov founded and owns Ukraine’s second largest confectionary concern, (the largest confectionary concern is owned by former foreign minister and National Bank head, Petro Poroschenko). The third-wealthiest deputy PM is Andrei Klyuev, who together with his brother Sergei is worth $384m, thanks to the ownership of metallurgical company Ukrpodshipnik. Younger brother Sergei is deputy head of the governing Party of Regions’ parliamentary fraction, and heads the parliamentary sub-committee for the banking sector.

But Khoroshkovsky and the golden trio of deputy PMs are only the tip of the iceberg when it comes to the direct role that businessmen’s money plays in Ukrainian politics. Of Ukraine’s richest 100 people, 27 sit as deputies in Ukraine’s unicameral parliament, the Verkhovna Rada, according to Dragon Capital, despite laws prohibiting deputies from pursuing alternative activities. This means that not only are they directly involved in the legislative process, but that they also enjoy almost unchallengeable immunity from prosecution.

In fact, according to analysts, around 65 deputies of the 450, or one in seven, are company owners – ie. businessmen using deputy status for lobbying and personal protection purposes. The assets of deputies counted among Ukraine’s richest 200 business people by Focus magazine totals $14.3bn. Billionaire metallurgists Rinat Akhmetov and Konstantin Zhevago account for $8bn of this sum. Adding wealthy regional bosses such as Kyiv mayor Leonid Chernovetsky ($700m) gives a round total of $15bn assets owned by top politicians. (And this ignores officials and deputies who are oligarchs’ placemen, such as the head of presidential administration, Sergei Levochkin, and Energy Minister Yury Boiko, both widely seen as stooges for gas trader and Party of Regions sponsor Dmitryi Firtash.)

With nominal GDP at $117bn in 2009, according to the International Monetary Fund (IMF), $15bn worth of assets means that Ukraine’s top politicians have personal assets equal to a whopping 13% of the country’s economic output.

A closed shop

Like can deal with like, so is the commercial mindset of Ukraine’s politicians good news for investors? Only if the interests of the outsiders coincide with those of the plutocracy.

For instance, the government’s readiness to comply with demands from the IMF showed the strength of business and personal interests. To secure IMF support that’s essential for macroeconomic stability, the government was ready to prolong the lease of the Russian Black Sea fleet in the Crimea to gain a 20% reduction in the price of gas imported from Russia, and to hike gas prices for utilities and customers by 50%.

The government has also shown eagerness, even excessive zeal, in proposed slashing of corporate taxes, also pointing to its big business backers and participants. The government was originally planning to slash corporate profit tax from 25% to 19% immediately in 2011. Only after IMF representatives lambasted the plan as dangerous for the budget did Prime Minister Mykola Azarov shelve the idea. He now proposes to stagger the reduction over three years.

On the other hand, tax and customs authorities, largely loyal to local oligarchs, are using existing foreign investors in metallurgy and grain trading as cash cows, taking up as much as three years of profit tax in advance, and still not reimbursing VAT paid on exports. And with the export lobby dominant in government, the National Bank of Ukraine is stemming appreciation of the hryvnia, hurting the mostly foreign-owned banks that doled out dollar credits before the crisis and are now swamped by bad loans post-devaluation.

The government and its backers are also clearly reluctant to open up to foreign investors, even Russian ones, preferring that assets stay in local hands. The privatisation of locomotive builder Luganskteplovoz to Russia’s Transmash holding was reversed by a court, the terms of the upcoming privatisation of fixed-line monopolist Ukrtelekom restrict most potential foreign bidders, and Firtash bought up the second-largest chemical plant Stirol from Party of Regions deputy Nikolai Yanovsky, although Russian-owned Sibur initially seemed the more likely purchaser. And although there has been much noise about Russian-Ukrainian intergovernmental deals in energy and aviation, they seem to be slow in coming.

Among foreign corporations, only Russia’s Evraz metals and mining concern, whose largest shareholder is Roman Abramovich, is making inroads in Ukraine. Businessmen linked to the company snapped up Ukrainian steel plants in the first half of the year. But Evraz’s apparent success may simply be the exception that proves the rule: Ukrainian top-five oligarch Ihor Kolomoisky holds a 10% stake in Evraz. And Valery “Ken” Khoroshkovsky, as unlikely a steelmaker as he is head spook, was himself president of Evraz from 2004 through 2006.

Democracies need openness to flourish, while autocracies thrive on secrecy. By that standard, Ukraine – nearly 20 years into national independence – is stuck in the Soviet past, with leaders denying citizens essential information.

In the Soviet Union, everything belonged to the state, including information. It was tightly controlled under the watchful eye of one party, and publicly delivered through state-run media outlets.

It was a true monopoly of power.

The unraveling of that empire was hastened by its last leader, Mikhail Gorbachev, whose policies of glasnost and perestroika eventually revealed to society many of the sinister crimes the Soviet state had committed against its citizens for 70 years.

Nearly 20 years since Ukraine’s independence, the nation’s rulers have not advanced far from that authoritarian heritage.

A pervasive culture of withholding government information from citizens persists.

If democracy flourishes in openness, then Ukraine’s form of government is closer to autocracy – in which officials pull curtains of secrecy around their actions and decisions that affect the lives and fortunes of 46 million people.

Such a method of governing only fuels Ukraine’s endemic corruption as officials abuse their powers in secrecy and with impunity.

The public, meanwhile, is left in the dark and denied their democratic powers to provide meaningful checks on the powers of the people they elect to govern.

As a result, few know how national and local governments spend money — efficiently and for the public good, or ineffectively and for private gain.

On Nov. 1, parliament chose to let government continue functioning under the cloak of darkness when lawmakers postponed a vote for a public access to information bill on the eve of the scheduled vote.

The bill, championed by Bloc of Yulia Tymoshenko parliamentarian Andriy Shevchenko, was supposed to ensure public and expedient access to government and municipal actions and budgets as well as open up other previously closed information. It had the endorsement of the Parliamentary Assembly of Council of Europe.

“I view this law as part of a package of laws I’ve drafted that make civil society as strong as possible in the current political situation; the more we know, the more we have access to information, the better Ukraine will function as a state,” Shevchenko said. “It’s really not about legislation, it’s about the culture of bureaucracy, and this law will make politicians more open and transparent.”

President Viktor Yanukovych promised in July to ensure the bill gets passed.

Hanna Herman, deputy chief of the presidential administration, also pledged on Oct. 13 to Dunja Mijatovic, the Organization for Security and Cooperation in Europe’s representative on freedom of media and speech: “The president asked me to say that we’ll do everything possible so that the public access to information law will be adopted as soon as possible in parliament…”

The nixed vote was seen by experts as another democratic milestone missed by the Yanukovych administration.

Instead lawmakers from his allied Party of Regions party registered a different law, which it will consider on Nov. 5.

The Party of Regions have twice stalled the “right to know” bill’s adoption in July and October.

Ukraine has already postponed to Jan. 1 the date when a package of European-endorsed anti-corruption laws was supposed to enter force.

The anti-corruption bill is part of Ukraine’s obligation before the Council of Europe’s Group of States against Corruption (GRECO), which it joined in 2006.

Earlier in October, Drago Kos, the president of GRECO, said that his organization sees no improvement in Ukraine’s efforts to fight corruption.

“Any real fight against corruption is not noticeable. Some institutions are created and that’s it. It looks as though something is being done, but in fact nothing is happening,” he said.

More than half the countries of the world have not yet adopted so called “right to information” laws and many that have done so have failed to implement them adequately, according to Article 19, a British freedom of expression and information organization.

This means the Soviet practice of arbitrarily classifying public information as “secret,” “for internal use only” and “not for publication” will remain in place.

For this 90-year habit to change, “political will is needed as well as the understanding that the public owns information,” said Yevhen Zakharov of the Ukrainian Helsinki Human Rights Association.

According to Zakharov, there is no way of knowing how many existing presidential and Cabinet of Ministers’ decrees are classified.

For example, Yanukovych issued three decrees in August whose contents are unknown and not listed on the preisential website.

“The information requested regarding a list of all acts bearing the stamp ‘for internal use only,’ which contain confidential information that is state property, is itself confidential,” was the Kafkaesque response of Olena Lukash, first deputy head of the presidential administration, in a letter dated July 27 to freedom-of-information activist Oleh Severin.

This broad culture of secrecy is one reason why the Kyiv Post still hasn’t received a response from Deputy Prime Minister Sergiy Tigipko to a July 27 faxed inquiry regarding allegations that he tried rigging an exit poll in 2004 for $1 million.

According to legislation, government officials must respond within 30 days of receiving inquiries.

The Kyiv Post has also twice sent information inquiries to the State Affairs Department and to Yanukovych asking how much was spent on his lavish 60th birthday party on July 9, but twice received formal responses that money from the state budget was not spent on it, but provided no further details.

Online news source Ukrainska Pravda is currently suing Yanukovych in court for not revealing which joint-stock company he founded.

And it also remains a mystery why the Security Service of Ukraine, known as the SBU, recently classified as “top secret” its criminal case against Ruslan Zabily, a historian and former director of a Lviv historical museum. Zabily was detained by six state security operatives on Sept. 8 on “suspicion of disseminating state secrets and collecting information in an unlawful manner”.

According to Zabily, his research has focused on declassified materials dating to the Soviet-era and centered on the strategy and tactics of the Ukrainian Insurgent Army, known by the UPA acronym, the guerrilla fighters who battled Soviets to achieve Ukrainian national independence during World War II.

Human rights activists said classifying Zabily’s case top secret restricts his right to a defense and is being used to restrict public scrutiny over the case.

“This is absurd. We’re talking about declassified, Soviet documents, which can’t be secrets of the Ukrainian state,” Helsinki’s Zakharov said.

Yevhen Zakharov

“Now that the case is top secret, Zabily would need a lawyer with access to state secrets, which makes it a violation of Article 6 of the European Convention on Human Rights,” he said referring to the basic civil rights people have when facing criminal charges.

According to Bloc of Yulia Tymoshenko lawmaker Shevchenko, the SBU would have a hard time classifying Zabily’s case “secret,” since the bill has a three-step justification process in place through which a government body must go through in order to classify something.

A study conducted by the Kharkiv Human Rights Protection Group revealed that only 55 percent of 1,528 inquiries submitted by non-government organizations to government bodies in 2005-2007 were answered, of which 40 percent were answered in full, while 169 responded after the legally prescribed 30-day period.

The same study showed that 1,274 responses contained parts that said information cannot be supplied due to classification.

Even lawmakers get rejected on information requests.

Hennady Moskal, an Our Ukraine parliamentarian within the opposition faction, told the Kyiv Post that “90 percent of my inquiries as an MP aren’t satisfied.”

Apparently, the authorities have something to hide, he concluded.

Another study conducted by the Ukrainian Independent Center for Political Research, a reputable Kyiv think tank, in May 2007 revealed that 58 percent of the websites of central executive government bodies had the legally stipulated information listed according to a 2002 law on the activities of executive government bodies.

The vast majority of Ukrainian municipalities are not open to public scrutiny, despite the integral public interest roles they carry out.

According to the East-Ukrainian Center for Civil Initiatives, only three out of 200 cities fully complied with requests from non-profit organizations to access city plans, including both text and cartographic information.

“A significant quantity completely failed to respond, and we counted over 15 different ways they directly or indirectly refuse public access to the plans, most of which have legal foundation in law,” said East-Ukrainian Center for Civil Initiatives head Volodymyr Shcherbachenko.

The vast majority of municipalities said such plans bore the stamp “for internal use only,” according to Shcherbachenko.

Some cities such as Kyiv, the nation’s capital, even classify their entire general municipal development plans as “secret.” While a handful of cities – Donetsk, Lviv and Odesa – claim to provide access to general plans on their websites, in fact these websites display only rudimentary cartographic information.

The culture of secrecy is perpetuated from the top.

Political observers have noted that Yanukovych has only given one open press conference to journalists in the eight months he’s been in office.

According to an Oct. 29 issue of Korrespondent weekly magazine, only loyal journalists who toe the presidential line are allowed to accompany the president and ask him questions during in-country and foreign trips.

And often, requests for basic public information just linger and die.

For instance, Ukraine’s treasury department still hasn’t responded to journalists’ requests asking where the $4.8 billion from the sale of the previously state-owned Kryvorizhstal steel plant, the nation’s largest, had been transferred.

“This trend of not disclosing what essentially is public information and owned by the public is worsening in the current political situation because we have a top-down form of governance and the lower ranking officials see what those at the top are doing and copy their actions,” Shevchenko, the public information-crusading lawmaker, said.

An information law dating to 1992 regulates public access. Another law on state secrets dating to 1994 regulates what can and cannot be classified. The latter emulates the Soviet practice of having “experts” based in every government agency who determine what information is public and what is not.

“These so-called experts have a very wide spectrum through which they could classify information and most often this depends on the will of the person classifying information,” Zakharov said of the arbitrary way in which public information gets restricted.

“The concept of public ownership isn’t developed in Ukraine. Many Soviet habits persist today.”

The human rights activist noted that every oblast administration has its own list of items of what can be classified and limited to public disclosure yet they all have the same amount of authority according to law.

The law on information currently in place is outdated compared to international best practice, making a mockery of the country’s international obligations including to the Parliamentary Assembly of the Council of Europe.

“There’s been a huge leap forward internationally and Ukraine has so far missed the boat,” said Helen Darbishire, head of Access-Info, a leading European non-governmental organization pushing for freedom of information.

According to Darbishire, the main elements of the last decade’s revolution in access to information encompass the clear presumption that it’s the public that owns information, and that all public bodies, branches of power and private bodies performing public functions are covered.

Meanwhile, Ukraine lags decades behind with Soviet-level access to information that should be public.

The Ukrainian Exchange (UX) is only two years old, but already accounts for roughly three-quarters of total equity trading volumes, replacing the cumbersome former monopolist PFTS as Ukraine’s main share trading platform. Its meteoric rise is the result of better technology and greater transparency, CEO Oleg Tkachenko tells bne.

Ukrainian stock prices soared in 2006-2007 as investors piled into the market, but the infrastructure on the main trading platform PFTS remained rudimentary – a quote-driven market only useful for handling low-liquidity stock, with market-makers determining prices but impairing transparency.

Tkachenko winces as he remembers the paperwork and time it took to conclude a trade on the old PFTS. “We could simply not continue like that. You have to remember, there was not even a real-time index. The PFTS index used to be calculated once a day on close of trading, which was the equivalent of taking the average temperature in a hospital.”

“So the PFTS stagnated in terms of infrastructure development, market participants were increasingly unhappy, but the owners were not responsive to their complaints. At the same time, Russia’s state-of-the-art RTS exchange was looking to expand into Ukraine seeing a lot of potential,” recalls Tkachenko.

After RTS’ initial attempts to buy the PFTS were rebuffed, in 2008 Ukrainian market participants clubbed together with the RTS to set up an entirely new and modern exchange based on RTS’ Quik online system. As is the case with the RTS, market participants were co-owners. And in stark contrast to the antiquated PFTS system, RTS technology supported a modern order-driven market, transparent, anonymous and online, and also compatible with internet and futures trading

While the impulse for the new exchange came from the preceding years’ stock market boom, ironically it was set up against the background of the post-Lehman collapse, which saw Ukraine’s PFTS index fall into the abyss. But instead of spelling doom for the project, Ukraine’s economic meltdown proved a boon for the new system, says Tkachenko. “All brokerages were badly hurt by the meltdown and a crisis of mistrust broke out on the market due to non-cleared trades, where parties to a trade failed to pay or to supply,” he says.

But a guiding principle of UX has been that it would take responsibility for clearing and require 100% pre-depositing of cash and securities to cover all trades in advance. “We thus provided a solution to the problem of counter-party trust. We have now passed 600,000 trades, and not a single trade has failed to clear,” says Tkachenko.

According to Dorian Foyil, owner of brokerage Foyil Capital, the new standards and ease of trading mean the exchange is attracting much more local money from private investors who used to invest in areas like real estate.

Within the first month, UX launched Ukraine’s first online real-time index. “If you now look at the volatility within the course of a day, it seems unimaginable now to think of trading without seeing this,” says Tkachenko.

The timing of UX’s launch also proved to be successful in that it coincided with the start of the post-crash rally. “The rally of course wasn’t caused by the launch of UX,” jokes Tkachenko, “but it’s worth noting that we launched the index on March 26 at 500, and by the end of the year it had reached just under 1,500 – i.e. over 190% growth.”

Although the PFTS has since desperately tried to play catch-up with UX, launching an order-driven market two months later, by August 2009 UX already held the number-one spot in terms of volume of share trading “and became the centre of liquidity for share trading,” according to Tkachenko.

Ukraine’s stock market is still firmly in the frontier market category with total market capitalisation of around $60bn, compared with Poland’s nearly $170bn. But Tkachenko firmly believes it now has the infrastructure in place for more sustainable development.

Look to the law

Tkachenko sees two fundamental problems confronting Ukraine’s stock market: lack of demand and lack of supply. “Before the crisis, around 80% of trading volume was foreign investors, now it is well under 50%,” he says. Tkachenko repeats the age-old cry for pension reform to finally bring “Ukrainian-based long money” to the exchange, but acknowledges this will be a good while coming.

Supply is also limited by the very small free float available on the market, says Tkachenko – the average free-float among blue chips is 8%. Engineering company Motor Sich with its nearly 34% free float is the leading light.

In terms of increasing supply, Tkachenko sees one opportunity and one risk. The opportunity could come from opening Ukraine’s stock market to Ukrainian companies traded abroad, and consequently registered as foreign companies, although their assets are in Ukraine. “These included well-known brands such as MHP, Ferrexpo and Avangardco,” says Tkachenko. “If these names were traded on Ukrainian exchanges, it would attract investors.”

Tkachenko highlights Russian legislation requiring Russian companies placing shares on foreign stock markets to place 15% of the share issue volume domestically as well. This could require legislative changes – Tkachenko sees this happening before the end of 2010 in a best-case scenario.

The biggest risk to supply is also linked to legislation. While Tkachenko sees the 2008 law on joint stock companies – an attempt to bring Ukraine’s corporate law closer to European models – as generally supportive of stock market development in Ukraine, an amendment to the law that passed its first reading in parliament in July could have potentially disastrous effects. The amendment introduces a squeeze-out option for shareholders with 95% or more of a company’s stock. Given Ukraine’s small average free float, the clause, if enacted, could have broad application. “This will inevitably deter investors in companies with a 5% free float or less, since they will fear that they could be forced to sell their shares at an unfavourable price if the market falls,” says Tkachenko, who believes the amendment is backed by big business owners. Five of the 18 companies included in the index basket have free floats of only 5% or less.

While there is much hysteria in the air about Russian investors snapping up Ukrainian assets – in December 2009, Russia’s other main exchange, Moscow Interbank Currency Exchange, or Micex, bought PFTS – investment of Russian stock exchanges in Ukraine has brought Ukraine’s stock market into the 21st century. “RTS has contributed technology, expertise and experience,” says Tkachenko, “and we are now expecting increased activity on the Ukrainian market of Russian brokerages and investors.”

For business new europe (www.businessneweurope.eu) in Kyiv

With Ukraine’s economy turning round, a host of businessmen who are seeing their businesses start to recover are taking determined and often fraudulent action to rid themselves of their bank debt.

Mykola Orlov, partner at the law firm Orlov, Mikhailenko & Partners, says what Ukraine is witnessing is the result of omissions in the past: banks’ failure to identify the real owners of companies and link them to loans that those companies took out. “It is not retail clients, but the failure to pay on loans of well-connected corporate clients that is currently driving banks down. If this situation is not resolved, if the court system fails to deliver, it could bring a collapse or meltdown in the banking system,” warns Orlov, who calls the situation “a stress test” for Ukraine’s court system and law enforcement. “Banks have gone from giving out money to anyone, to giving out money to no-one.”

According to Yaroslav Kolesnik, CEO of Bank Forum, Commerzbank’s Ukrainian subsidiary, which is wrestling with a number of large fraudulent borrowers, the most popular schemes to evade paying back loans are either a fictive bankruptcy or the multiple resale of property pledged as collateral, both of which leave shell companies behind loaded with debts, with the assets elsewhere. “The biggest problem is that not a single offender has yet been prosecuted, although the offences are obvious,” says Kolesnik.

While banks have until now mostly tried to regulate these disputes using civil litigation in the hope of getting the loaned money back or the collateral, one of Orlov’s cases has now resulted in public prosecutors opening a criminal case of fraud against unknown persons. This cause celebre relates to a dispute between Ukrsotsbank, the Ukrainian subsidiary of UniCredit Group, and the owners of the Puzata Khata chain of budget diners specializing in cheap Ukrainian cuisine beloved of students.

Diner debts

According to Ukrsotsbank CEO Boris Timonkin, who went public with the case in June, the Puzata Khata companies – operating company and companies holding certain key premises leased by the chain restaurants – had taken out a total of $69.3m in the run-up to the crisis, mostly using the properties as collateral. When the debt ceased being serviced early this year, bank investigations then revealed that all the Puzata Khata companies had filed for bankruptcy over the course of February and March.

During the bankruptcy proceedings, it transpired that Ukrsotsbank was not the only creditor of the restaurant chain, nor even the largest. In fact, it transpired that the $69.3m debt constituted less than 30% of the total debt that Puzata Khata claimed to have ratcheted up from unknown companies. The suspicion is that these unknown companies who claimed to have amassed debts of the chain many times in excess of the value of the collateral on offer are all linked to the original owners of the restaurant chain – a classic case of fictive bankruptcy. Sure enough, the bustling restaurant chain acquired new operators, while the bank looked on powerless.

It also transpired that three restaurant premises pledged to Ukrsotsbank as collateral for the credit line had been transferred to other parties without either the consent or knowledge of the bank. This is the point at which Ukrsotsbank decided to bring criminal charges in the hope of proving that the resale and other disposition of property pledged as collateral had been fraudulent and thus void.

But against whom to proceed? Conventional wisdom always held that the “real” owners of Puzata Khata were the shareholders of the large construction company Kyiv Donbass Development, which floated on the London stock market as KDD. They include the Konstantinovskie twin brothers, Vyacheslav and Oleksandr, Alexander Levin, Olena Topolov (wife of the former fuel and energy minister, Viktor Topolov) and Petro Slipets. But KDD denies having anything to do with Puzata Khata, although the KDD prospectus for the IPO lists Puzata Khata as a group project. “The reality of the situation,” explains Orlov, “is that formally these people [KDD] have no direct involvement in Puzata Khata, although there is certain evidence linking them.”

Kolesnik’s Bank Forum says it has an identical problem concerning the politically well-connected developer Sparta Group from Dnipropetrovsk, widely regarded as linked to the Privat Group around Privatbank owners Ihor Kolomoisky and Gennady Bogolyubov.

According to Kolesnik, Sparta Group, which was co-founded by Gennady Axelrod, Oleg Levin and Miron Snosnovsky, owes Bank Forum around $38m and is using fraudulent means to avoid repaying the debt. Sparta Group representatives refused to comment.

Kolesnik says that Sparta Group pledged a shopping mall in Dnipropetrovsk as collateral for the $38m loan. But in an attempt to avoid the collateral being seized, the part of the street on which the building is located has since been renamed, so that the address of the property specified as collateral no longer corresponds to the current address. The building was then resold a number of times via offshore structures. In April, Levin and Axelrod formally exited the business, succeeded by another Privat Group bigwig, Vitaly Timshin. Bank Forum realized the game was up, and went public with a lawsuit.

It’s not just western banks that are having these problems. Russian VTB Bank’s Ukraine subsidiary went public over the summer with complaints that LSE-listed egg producer Avangard was trying to wriggle out of a total $27m debt held by a number of subsidiaries. Avangard is owned by Oleg Bakhmatyuk, former deputy chairman of gas monopolist Naftogaz. “VTB Bank is considering appealing to the London Stock Exchange and the British Financial Services Authority to exclude the shares of Avangard from the listing, as a company violating the principles of civilized conduct of business,” the company threatened June 22. But VTB now says it has refrained from appealing to the LSE after Bakhmatyuk returned to the negotiating table. Bakhmatyuk disputes the debts.

According to Pavel Cetkovsky, CEO of Erste Bank’s Ukrainian subsidiary, “problematic borrowers throttle any resumption of lending, by making banks apply strict policies even for good customers, as keeping the price of loans high.”

Among Erste’s most colourful cases is a $1.8m debt owed by an election campaign adviser to President Viktor Yanukovych, Valery Paschenko, who the bank claims put his business through fictive bankruptcy.

Ironically, Paschenko is leader of the public movement called “Trust in the future”. Indeed, in a rating compiled from public sources by the weekly Zerkalo Nedeli , of Ukraine’s 25 worst debtors according to volume and extent of bad faith, six of the top 25 are Party of Regions deputies at a national or local level, and another 10 have close links to other political parties or organisations. The top 25 together owe a total of $3bn.

The number-one spot in the ranking is major machinery plant Azovmash, owned by Party of Regions parliamentary deputy, Aleksandr Savchuk. The company owes around $550m-750m to a range large banks. A local court decision in June found that loan guarantees originally accepted by the banks had not been valid and could not be called in. Their position weakened by the verdict, banks restarted negotiations on restructuring in August.

Tip of the iceberg

Banks admit the scale of the debt problem is much larger than suggested by the number of conflicts that have gone public. As a rule, banks stay mum about their largest problems, since they do everything to avoid a breakdown in relations with big and protected debtors, hoping to get at least some of their money back.

Last year, banks proved happy enough taking cars and apartments off punters tricked by the 60% hryvnia devaluation and at whom the banks had been throwing dollars right up until the crisis struck. But regarding corporate clients blatantly acting in bad faith, they act very cautiously. Ukrsotsbank CEO Timonkin says that his bank would continue to work with the developer KDD despite the suspicions about their shareholders being involved with the restaurant chain Puzata Khata. “Their behaviour in relation to the company KDD shows that they are capable of acting properly,” he says.

The irony is that many of the companies that banks accuse of ripping them off are doing good business. Avangard post-IPO is full of plans for expanding egg exports; Puzata Khata’s restaurants are full; and the KDD shareholders apparently launched the Domino’s Pizza franchise in Ukraine. Moreover, KDD signed an agreement in June with Swissotel to build a twin-skyscraper five-star hotel in time for the Euro 2012 football championships.

It all goes to prove true the old adage: if you owe the bank a little, the bank owns you; if you owe the bank a lot, you own the bank.