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Birth of Giant or Who invested in new heat supply facilities in Dnipropetrovsk Oblast

15 May 20172211

During the recent two years, autonomous boiler houses have been appearing like mushrooms after rain in Dnipropetrovsk Oblast. We are witnessing the emergence of a “system” player providing heat from powerful solid fuel boiler houses that occupies whole towns with support of Dnipropetrovsk Oblast State Administration. However, boiler houses are built not only by this player and not only by investor

The investigation was conducted as part of USAID's Transparent Energy project. The author’s position should not necessarily coincide with the positions of the United States Agency for International Development and DiXi Group Analytical Center.

 

The first, demo

In March this year, the State Agency on Energy Efficiency and Energy Saving of Ukraine (SAEEESU) organized a press tour to a powerful Dnipro-based pellet boiler house, which provides heating to four large regional hospitals.

“Not a single kopeck from the state budget was spent on it: business is coming in. The SAEEESU is interested that business come in here, and our responsibility is to create transparent environment for business. It is also interested that bank capital come in, either domestic or foreign institutional investors", Serhii Savchuk, head of the SAEEESU commented.

Savchuk emphasized the prospects of the project: the boiler house does not consume a single cubic meter of gas, which is a contribution to the energy independence of Dnipro and the entire country. Furthermore, the boilers were produced domestically, and pellets are made from sunflower husk coming from the local plant, Oleina. In other words, everything works for the country and everyone benefits.

Later, the Agency in its press release announced that the boiler house was installed due to raising foreign investor funds, namely – an Austrian company, APS Power Technology.

The presented boiler house on Kosmichna Street in Dnipro is a symbol of birth of a new giant heat provider that eventually grew to encompass the towns of Marhanets and Pokrov (until recently, the town was called Ordzhonikidze). And this is only a beginning.

The boiler house on Kosmichna Street in Dnipro was built by Alternative Energy Resources LLC, and boiler houses in Marhanets and Pokrov – by APS Power Technology LLC. These firms are located at the same address, in the Concord Group building in Dnipro whereas in Vienna, the Austrian investor mentioned by Mr. Savchuk is registered in the same building as the Head Office of Concord Group. Furthermore, one and the same person – Stanislav Kruhliak – presented the boiler houses of these two investors, both in Dnipro and in Marhanets.

In other words, the investor roots are coming from the Concord Group owned by a Dnipro-based businessman, Serhii Dovhaliuk, who by the way is a partner of oligarch Rinat Akhmetov. The main area of the holding activities is a construction and reconstruction of coke-chemical production facilities worldwide. For instance, they cooperate with the ArcelorMittal Kryvyi Rih factory.

The name Dovhaliuk has been mentioned at least several time over the last six month in the mass media again in connection with boiler houses. Journalists were trying to find the secret of success of this investor. Why does the government cooperate with him, moreover – without holding a public tender? Which ties does this investor have?  

Journalists try to find out how it is related to the governor or his advisor, his deputies, that this is our company and why did we go to these towns when we do not earn anything there?” Yurii Holik, advisor to the Head of Dnipropetrovsk Oblast State Administration, says.

Non-transparent processes raise questions and provoke thoughts on possible abuse. At the same time, the topic is of public interest: investors heat health care institutions, kindergartens and schools receiving money from the budgets of various levels.

Dovhaliuk is not a public businessman. Even during the meeting, he asked not to be photographed. Dovhaliuk almost never provided comments for journalists. At least, we were not able to find his comments in the Internet. However, he says he has never been hiding from journalists.

Yet, this investor, by all accounts, has huge plans. Akhmetov-level, so to say.

“We understand that if we want to build a network, for instance, 500 boiler houses in Ukraine, the quality of equipment has to comply with the plans. Otherwise, during the second year we will simply be flooded with technical problems. Who produces normal solid fuel boilers today? The Balts and the Austrians. We purchased an Austrian project, and received Ukrainian terms of reference for it. Then we gave it to Ukrainian factories. Electronics, machinery, pumps – all are branded,” Dovhaliuk says.

One of the APS Power Technology booklets reads that for 2019-2020 the investor plans to commission facilities with the capacity of 120 MW and 140 MW. As a comparison: the solid boiler house in Dnipro, which supplies heat and hot water to four large regional hospitals has a capacity of 10.5 MW.

 

Oblast council gave a go-ahead

The idea and preparation for construction of a boiler house came to the investor even before Valentyn Reznichenko became the Head of Dnipropetrovsk Oblast State Administration.

The investor’s attention was drawn to the topic of heat supply by representatives of the previous convocation of Dnipropetrovsk Oblast Council that was elected in 2010 with the majority from the Party of Regions and worked until autumn of 2015.

Dovhaliuk recalls that they were the first to ask the oblast council about the possibly to launch production of synthesis gas from coal in the industrial park that was planned to be constructed in Pavlohrad, but in the negotiation process they were offered to construct a boiler house on Kosmichna Street in Dnipro. Leadership of the oblast council emphasized that they needed a tariff not exceeding the “gas tariff”, uninterrupted hot water supply (in the past, hospitals used boilers during summer) and heat regulation depending on weather. At that time, Yevhen Udod was the head of the oblast council, and one of his deputies was Viktor Naumenko. In 2012, information was published in the media that Naumenko was lobbying the interests of Dovhaliuk’s Concord Group.

“In the beginning, Naumenko kind of led us by the hand. After we appeared together with Naumenko at two or three different meetings... There was an oblast council session where the investment climate for the period till 2020 was discussed, and Naumenko introduced us. After that, everyone said we had joint business with him, that he was lobbying us. I don’t understand why”, Serhii Dovhaliuk, Concord Group representative, recollects.

The year before last, prosecutor office of Dnipropetrovsk Oblast initiated several criminal cases against Naumenko. He was suspected of illegal obstruction of a street march, organization of unrest in front of the oblast state administration, prevention of journalist activities on 26 January 2014 (first proceeding) and of illegal enrichment (second proceeding). An interesting fact is that within the framework of the second proceeding, investigators suspected that Naumenko was connected with the “green energy” enterprise that constructed a solar power plant in Pokrov. Initially, the court arrested the plant but later the arrest was canceled due to the lack of proper evidence confirming Viktor Naumenko’s connection with the enterprise. As of early 2017, cases against Naumenko were still examined in courts.

Nonetheless, after the proposal from the oblast council representatives, Dovhaliuk began to deal with the boiler house and with the business in the heat supply industry in general.

“We looked at who is building what in Ukraine. We understood that unfortunately no system-oriented people came who would like to work for 10-20-30 years”, he said.

The investor was designing the first boiler house for more than a year involving specialists.

An additional stimulus for Dovhaliuk and his partners was the governmental Resolution № 453 adopted in September 2014, according to which the tariff on heat produced using alternative types of fuel and energy was made equal to the cost of fuel produced using imported natural gas. For instance, pellets are used to produce heat whereas the tariff is the same as if the imported natural gas was used. In other words, investors were additionally attracted to build boiler houses using alternative fuel. Later, this resolution was invalidated. Instead, a law was adopted on stimulating production of heating energy from alternative sources that already came in force. This law will increase the number of Dovhaliuk’s rivals.

“They said we would be monopolists, will sit on the pipe for decades. Yes, in the nearest 2-3 years, no one will be building. But in view of this law, money is supposed to come here. When money comes, after some time it will be like in the Baltic states here: boiler houses are constructed close to one another, and they start competing”, Serhii Dovhaliuk comments.

The boiler house belonging to Alternative Energy Resources LLC on Kosmichna Street in Dnipro that supplies heating to four regional hospitals was constructed in the second half of 2015, and approximately in December it successfully provided heat. At the same time, membership of Dnipropetrovsk Oblast Council was renewed, and the investor moved to the towns of Marhanets and Pokrov, but under the name of APS Power Technology LLC.

 

How towns developed a need for investor

Three towns in the south of Dnipropetrovsk Oblast located close to one another almost simultaneously started the process of heating decentralization.

On 26 February 2016, the towns of Pokrov and Nikopol, and on 31 March the town of Marhanets adopted the programs aimed at refusing to use the services provided by the local utility company, at transferring apartment residents to individual heating, and of budget-funded institutions - to heating by autonomous boiler houses.

The adopted programs read that the town enterprises, namely the municipal company Marhanetsteplomerezha, the municipal company Ordzhonikidzeteploenerho, and the municipal company Nikopolteploenerho experience a financial crisis, are loss making, and only accumulate the debts, that the heating networks are in a terrible condition, and there is no money to for repairs because apartment residents increasingly begin to use individual heating.

Adoption of those programs was preceded by new conditions of Naftogaz for providing gas to heat supplying enterprises.

During the recent heating season, Naftogaz in fact was able to supply gas only to those debtor heat suppliers that pay their current bills by minimum 90% and that have agreed on the schedule of repayment of the accumulated debt for the period till 2021.

"Everyone was shocked", says advisor to Dnipropetrovsk Oblast governor, Yurii Holik.

It was due to the fact that there is no sense to pay more for loss making utility companies that only accumulate their debts, as well as to set increased tariffs that can pull these enterprises out of the financial crisis, that these programs on heating optimization were adopted.

Naftogaz, by all accounts, scared Pokrov Town Council so much that in late February 2016 it decided to stop functioning of the central steam boiler house. In a single action, they refused to continue to use services of the municipal heating supplier without having selected an investor who would build autonomous boiler houses and supply heating to the budget-funded sphere.

"They were no going into nothingness. They knew very clearly that there will be an investor anyway. One or another. No risk", Yurii Holik assures.

By the way, the risks were still there.

Eventually, in Pokrov Ukrenerhoinvest LLC was selected, which at that time was headed by Oleh Batiukov, a former member of Dnipro Town Council, assistant to a member of parliament from the Opposition Bloc party, Oleksandr Vilkul.

This company, according to Dovhaliuk, developed an investment projects based on the official data on the condition of heating supply networks, and in reality the condition of networks was unsatisfactory.

The governor's advisor says that Ukrenerhoinvest LLC suggested that only a boiler house should be constructed without changing the networks.

"Then we made a decision, since Serhii in Marhanets progressed quite far, we said, "Let us make an absolutely calm decision. You sell the company as a legal entity, transfer the documents, and the person continues independently", the advisor to the governor says.

The Department on Housing and Utility Services of Dnipropetrovsk Oblast State Administration in response to a request for information stated that there was no investment tender conducted in Pokrov, because only two investors expressed their desire to cooperate: APS Power Technology and Ukrtekhresurs owned by a local entrepreneur. Not a word about Ukrenerhoinvest LLC.

Dovhaliuk says they came to Pokrov only in mid-September 2016.

"It was impossible by definition to construct a boiler house in 2.5 month. We agreed in order to save the situation", the businessman says.

Perhaps, Dovhaliuk was wrong. The Memorandum on Cooperation with APS Power Technology LLC was signed by Pokrov Town Council on 17 August 2016, and most likely, negotiations began even earlier.

The investor committed itself to replace the networks at its own expense.

APS Power Technology LLC constructed in Pokrov one of the powerful solid fuel boiler houses with the capacity of 4 MW. Two other investors, one of which is a local businessman, constructed several smaller solid fuel boiler houses in the town.

During a session of Pokrov Town Council on 28 October 2016, the Head of Department on Housing and Utility Services, Viktor Rebenok,, two months after signing the Memorandum with APS Power Technology informed the council members and guests that the investor constructing the boiler house for 4 MW was Ukrenerhoinvest.

The process of heating decentralization in Marhanets, unlike Pokrov, was gradual.

In the beginning a program on heating optimization was adopted, and then the Memorandum on Cooperation was signed with APS Power Technology LLC, which envisages construction of six solid fuel boiler houses in Marhanets, and then the town discontinued to use the services provided by the municipal company Marhanetsteplomerezha.

The heating decentralization process stirred protests in Marhanets. People were asking to make it gradual till 2018. Activists demanded the transparency and discussion of the issue with the community and specialists. Participants of the protests sent letters event to the Prosecutor General Office, in response to which law-enforcement bodies probed into the alleged violations.

 

"Impulse" from Reznichenko's Oblast State Administration

A decision on heating decentralization is in fact beneficial for the communities. The most important thing is that they will stop accumulation of unjustified debts by local municipal energy companies. However, there is a surprising synchronization in alls this as if local decision-making was a result of the orders “from the top”.

The town mayor, Olena Zhadko, says that after the threats of Naftogaz she personally asked Dnipropetrovsk Oblast State Administration for assistance.

Already on 25 March 2016, the town mayor convened an operative meeting with the heads of local enterprises, institutions and organizations:

"During the session on 31 March, the program on heating decentralization will be adopted. The program envisages construction of new alternative boiler houses. We have four investors who as of today submitted their proposals. The proposals are studied by the oblast state administration under coordination of Volodymyr Volodymyrovych Prutsakov (Deputy Head of Dnipropetrovsk Oblast State Administration - author), and on 30 March we will be going on visits for consultations, for a seminar. On the 31st, results will be summarized.

On 1 April 2016, a decision will be made on which investor will perform works related to construction, installation, laying the networks and launching the new heating system. It is planned that this will function only for two types of users – the budget-funded sphere, and the enterprises that will sign direct contracts with the investor”.

An interesting fact is that on the day of the operative meeting, 25 March, an entry was made to the state register of legal entities on registration of APS Power Technology LLC".

In other words, the investor for the town of Marhanets, according to the mayor, was selected by Dnipropetrovsk Oblast State Administration, which by the way still failed to provide the procedure for selection of an investor in its response to a request for information of Litsa [Faces] newspaper.

It can be said that the process of investor selection was not public.

Namely Dnipropetrovsk Oblast State Administration of the previous convocation understood the need to organize investment tenders. In December 2014, oblast council members chaired by Yevhen Udod adopted a decision “On Investment Tenders” for construction of solid fuel boiler houses for heating 209 entities belonging to Dnipropetrovsk Oblast Council. After this, the first investment tender was organized for construction of a solid fuel boiler house for Dnipropetrovsk City Multidisciplinary Hospital № 4. Udod signed an order on organizing an investment tender with an announcement, regulations on the commission, and a list of commission members. The tender commission at that time was headed by the previously mentioned Viktor Naumenko.

The oblast council’s decision is logical. Information about the tender could be found at least in the order of the head of the oblast council.

However, in 2015 the investment tender for construction of a solid fuel boiler house for the fourth hospital in Dnipro was never held. Instead, a boiler house was constructed in a different place – on Kosmichna Street, which was mentioned before. There is no information whatsoever about the investment tender for this facility.

The advisor to the governor of Dnipropetrovsk Oblast, Yurii Holik, and representative of the investor, Serhii Dovhaliuk, say they do not know anything about the decision of the oblast council “On Investment tenders”. Holik believes the investment tenders are not relevant since willing participants are almost absent.

"Marhanets and Pokrov said, 'Guys, we will not find the investors. We don’t have local people ready to cope with this volume, give us somebody'. Yet, we were pecked for the investment tender. We don’t understand, what does the investment tender mean? There is an investor who comes and says, 'I have 100 million. I want to invest'.  We tell him, 'Wait. We will now announce the investment tender, and someone will come and give us 150 million'. But the situation is somewhat reverse. Here, we don’t have people queuing – close to the front line. Even more so in Marhanets and Pokrov. To throw in 100 million there? You have to understand very well why you are doing this”, the advisor to the governor says.

Holik believes that the task of the oblast state administration is to chase all adequate people regardless of their origin and to ask them to invest.

"At the same time, when we were talking to Serhii Ivanovych Dovhaliuk we said that in administrative terms we will do everything so that no one poses any obstacles, that everyone helps, and all papers are prepared promptly. On such terms, if the investor is ready to take the risk, he takes the risk”, Holik explained.

Answering the comment that, for instance, there were four companies expressing their desire to work in Marhanets, the advisor to the governor said that these were mostly the companies ready to supply heating for small facilities whereas the need was to cover with the boiler houses’ services all budget-funded facilities in the city. Marhanets town mayor also says that the main precondition was to ensure boiler house’s services cover the entire town.

 

Between Dovhaliuk and Mishalov

On 28 April 2016, the Memorandum on Cooperation with APS Power Technology was signed not only by Marhanets Town Council but also by Dnipropetrovsk Oblast State Administration and by Dnipropetrovsk City Council.

The document commissioned the investor to construct and maintain module boiler houses using biofuel not only in Marhanets but also in Dnipro.

More specifically, it envisages construction of six module boiler houses in the oblast center with the total capacity up to 25 MW for supplying heat to facilities belonging to Dnipropetrovsk Oblast Council. The Memorandum states that it remains valid till 2018 and will be automatically prolonged every year unless one of the parties discontinues cooperation.

Nothing was known about signing the Memorandum with APS Power Technology LLC until the advisor to the governor, Yurii Holik began to popularize experience of Dnipropetrovsk oblast in the sphere of construction of autonomous boiler houses with the inventors’ money (which he did not mention). However, we all know how the officials love to sign memorandums blaring the trumpets.

It is unclear why after construction of the boiler house in Dnipro, the same APS Power Technology LLC that already had official experience did not come to Marhanets and Pokrov? Why a new enterprise was created from scratch? Perhaps, the idea was to go back to square one because the Alternative energy Resources has a rather long story featuring various heads and founders.

According to the data received from the analytical platform, YouControl, a co-founder of Alternative Energy Resources LLC when it still had a different name was Concord Technical Design Bureau LLC established by Serhii Dovhaliuk and Olena Sosiedka. In the past, they used to be married.

Currently, Sosiedka is a co-owner of the Concord Bank, resources of which were involved for implementation of the APS Power Technology project (as well as, according to Dovhaliuk, the resources of private Austrian funds).

Some time after she divorced Dovhaliuk, she married Viacheslav Mishalov. Although at present, according to Mishalov’s declaration, they are officially divorced as well. Last November, Olena Sosiedka wrote on her Facebook page about her separation with Mishalov more than one year ago. In other words, if this is true, they separated before the local elections held in the autumn 2015. Yet, their child was born in early 2016.

“We don’t live together, and I see him much less frequently than city council members, so I don’t have any influence on him anymore. Otherwise, we would live happily together”, Olena Sosiedka explained.

Viacheslav Mishalov is a secretary of Dnipro City Council and a son of a well-known in Dnipro developer, Dmytro Mishalov whose companies seemed to be more in demand under Valentyn Reznichenko as a governor and his son as a secretary. Among others, Nashi Hroshi wrote about this.

"Currently, the governor supports the business, in which the bank of the wife of the new secretary of Dnipropetrovsk City Council invests”, is written on the project web site. Furthermore, on the resource Zакупівлі 2.0, which combines information from the Procurement Newsletter and ProZorro, one can see, for instance, the “take-off” of Maister-Bud LLC connected with Dmytro Mishalov. In other words, the company started winning more subcontracts ordered by the units of both Dnipro City Council and by Dnipropetrovsk Oblast State Administration since 2015 (the year when Valentyn Reznichenko became the head of the Oblast State Administration)

The Memorandum on Cooperation with APS Power Technology LLC on behalf of the city council was signed by its secretary, Viacheslav Mishalov.

Dovhaliuk says that information about Mishalov’s lobbying the interests of APS Power Technology in the oblast state administration is nonsense.

"Olena Viliivna is my ex-wife. Mishalov is her husband. Which relations can I have with him? This is unwise by definition.  The one who says such things is trying to make words out of thin air. This is utter rubbish”, Serhii Dovhaliuk says.

 

Who else?

Taking into consideration the available information, the situation looks as follows: Alternative Energy Resources LLC constructs a boiler house in Dnipro with support of Dnipropetrovsk Oblast Council of the previous convocation. The boiler house demonstrates its working capacity. A new oblast council is elected in autumn 2015, and in spring 2016, APS Power Technology LLC is created, which is approximately one month later is selected by the oblast state administration as an investor for Marhanets. Then, the main boiler house in Pokrov is transferred to APS Power Technology LLC.

So, can it be that APS Power Technology LLC is a result of agreements? The result of a combination of business groups with ties and relations, due to which Dnipropetrovsk Oblast State Administration gives an “impulse” for construction of boiler houses both in Marhanets and in Pokrov? Who else can be related to the investor?

The founder of APS Power technology LLC is Hanna Levchenko. She is a sister of Olena Ostrinina, acting Chair of the Board of Concord Bank. In the past, Levchenko worked for the Assets Management Company, Altus Assets Activities. According to the information from the analytical platform YouControl, as of 7 September 2016 this company was among the co-founders of Liberator LLC, which manufactures solid fuel boilers.

Viacheslav Mishalov is the owner of the trademark for Liberator’s goods and services, which is mentioned in his e-declaration. The phone number of the Liberator LLC’s contact person entered in the state register of legal entities and individuals belongs to Illia Mykhailets.

We were not able to contact Viacheslav Mishalov, but instead we could reach Illia Mykhailets. When asked whether we called Liberator LLC he answered negatively. Yet, when he began to dictate the phone number he got confused and said we can find it on the web site.

— Is it Illia Mykhailets?

– Yes.

— Can you tell us why your phone number is indicated in the register as a contact phone number for this company?

— And why are you asking?

— I am a journalist of Litsa newspaper.

— Yes? Ааааа. And what do you want?

— I wanted to talk to a representative of this company, and your number is indicated in the register as a contact.

— It simply happened so, Mykhailets answered.

— For no reason?

— Such things happen. As Freud said, sometimes a cigar is just a cigar.

In 2013, Illia Mykhailets became the Chair of the Supervisory Board of the Dnipropres factory. This factory at some point was bought by Viacheslav Mishalov.

"In 2011 I decided to go in for heavy industry. I began to invest in Dnipropetrovsk Press factory”, Viacheslav Mishalov was saying before the 2015 local elections.

He was elected to Dnipro City Council from Samopomich [Self-Reliance] party (in April this year, it was announced he had been excluded from the party faction). Together with Mishalov, Illia Mykhailets ws also a candidate for a member of the city council but he was not elected.

Furthermore, Liberator, according to the information posted on the company’s web site, is located in the Kub business center, where Dnipro-based Samopomich organized its press conferences and presentations during the election campaign for the 2015 local elections.

 

On a side note:

Recently, the web site 49000.com.ua published the feasibility study for solid fuel boiler houses constructed by the municipal company Komunzhylservis of Dnipro City Council in the vicinity of Pivdenmash factory in Dnipro. They are built because the district residents pay the highest tariff for heating. The boiler houses are constructed by a municipal company for budget funds.

Given that, the published document states that the principal equipment for boiler houses includes solid fuel boilers manufactured by Liberator.

 

The Assets Management Company, Altus Assets Activities LLC where Hanna Levchenko used to work is connected with a Dnipro businessman, Vadym Yermolaiev. One of the co-founding companies of Altus is registered in Dnipro, at the same location with Yermolaiev’s trade and production corporation, Alef.

Based on the information published by the media, the businessman can have indirect partnership relations with Dovhaliuk, by the way, in the green energy sector.

In one of the publications by Forbes, it is said that in February 2011 an Austrian company, Wellmind, is mentioned among the co-founders if the Production Association Oskar LLC founded by the employees of Vadym Yermolaiev’s Alef corporation.

Wellmind also became one of the founders of Development Crimea LLC. The company was going to build a wind-driven electric power station with a capacity of 100 MW. The partner of the Development LLC was Concord Group, “which is building a network of wind-driven electric power stations in Crimea with the total capacity exceeding 500 MW”.

Kyiv Post wrote that Dnipropetrovsk-based Concord Group builds wind-driven electric power stations in Crimea, but Dovhaliuk during the interview said that “before 2013-2014 we were not dealing with the issues of alternative energy or heating”.

Moreover, when this material was prepared for publication, Halyna Zimenko who is registered in Crimea became the founder of Liberator LLC according to the state register of legal entities. She is also a founder of the Production Association Oskar Met LLC. In the past, according to the analytical platform YouControl, the founder of this company was the Assets Management Company, Altus Assets Activities LLC.

An interesting fact is that Vadym Yermolaiev had (and maybe still has) business in Crimea, and Viacheslav Mishalov has an unfinished construction site in Crimea, and even the Deputy Head of Dnipropetrovsk Oblast State Administration, Oleh Kuzhman who signed the Memorandum, until 2014 was a civil servant in Crimea.

Mishalov is believed to be Vadym Yermolaiev’s partner. By the way, even before the elections, Dnipro mass media wrote that the city’s Samopomich was financed by Mishalov-Yermolaiev.

 

Nikopol. Their Own Investor

In April 2015, Nikopol authorities announced they started to look for entrepreneurs who would agree to supply heating for schools, kindergartens, and other budget-funded institutions. Approximately one month after that announcement, Komunservis Teplo Nikopol LLC was created.

In November of the same year, a technical council at its meeting gave its consent for Komunservis Teplo Nikopol LLC constructing block-module boiler houses. Several days before the council meeting, on 30 October 2015, local elections took place in the town and the first round of the town mayor elections.

The decision of the technical council was formalized in the form of the Memorandum of Cooperation with Komunservis Teplo Nikopol LLC, which was approved by Nikopol Town Council om the end of December 2015, on the New Year eve.

In February 2016, Nikopol Town Mayor Andrii Fisak created a working group consisting of more than 20 members to examine the issue of transferring social and cultural entities of the town to individual heating. The working group was chaired by Serhii Donets, the first assistant to Nikopol Town Mayor.

Local authorities, according to Donets, announced that it was searching for entrepreneurs, and nine companies responded (the town mayor said there were 15 altogether). In the beginning, three companies were selected, but two of them did not take any action for several months so cooperation with them was stopped.

"We had to beg the only investor that was left. This was Komunservis Teplo Nikopol", the first assistant to Nikopol Town Mayor, Serhii Donets explains.

Serhii Donets emphasizes the company's advantages, "It is registered in Nikopol. All people working there - they are Nikopol residents so taxes are paid here".

Furthermore, Donets says that the company has experience – in 2015, it started in Pershotravensk, Mykolaiv Oblast.

Serhii Mykhailovych believes that the town authorities did everything in an appropriate and transparent way, "No one will have any claims against us".

An activist from Nikopol, Deputy Head of Dnipropetrovsk Oblast Center of the National Liberation Movement Pravyi Sektor, Oleksandr Kyrylov, believes that in reality, ordinary lobbying of one investor took place.

"We can forget about transparency in general. It was lobbying of one investor. Lobbying and agreements with the town mayor", Oleksandr Kyrylov told us.

Leader of Ukrop faction in Nikopol Town Council Dmytro Bychkov says that the faction is the only one that did not vote for the transfer of the town to individual heating, and not because they are against the process, but because they were not satisfied exactly with the approach to selection of an investor. He does not understand why the process of heating decentralization was done by Serhii Donets of all people. In the town, Donets is believed to be one of those who participated in destruction of Nikopolteploenerho. There were even materials published by the local Internet media with the title, "Donets came - This means the end of the heating network".

According to Bychkov's information, the group created for the search of an investor did not vote to make decisions while the decisions were made personally by Serhii Donets.

In view of the fact that Komunservis Teplo Nikopol LLC was the first to come to the town, and it was the first to sign the Memorandum of Cooperation (with additions introduced in summer 2016), and only then the real process of heating decentralization began, including the search for entrepreneurs — it can be said that unequal conditions for investors were created. In other words, in that situation the investor received more attractive facilities, and not everyone takes less attractive ones, therefore investors refuse to cooperate.

According to Nikopol Town Mayor, Andrii Fisak, he even talked to the investor that began to cooperate with local authorities in Marhanets and Pokrov, in which pellet boiler houses were constructed. However, this conversation took place in September 2016, when the lion's share of facilities in Nikopol was already granted to Komunservis. The "pellet-builders" were offered so to say the remnants – nine facilities, but they did not demonstrate their interest.

Creation of unequal conditions and restriction of tender is usually related to corruption and political agreements. Moreover, there are grounds for such agreements.

Co-owner of Komunservis Teplo Nikopol LLC Yevhenia Dubinska has a share in the company that since 2014 has been working in Nikopol, but in another sphere - Management Company Domkom Nikopol LLC.

At some point, this company also rather rapidly and unexpectedly entered the town's utility domain. In August 2014, representatives of the local authorities, including Andrii Fisak, who one month before became an acting mayor of Nikopol and Serhii Donets who at that time still was the deputy town mayor as some others announced involvement of two management companies, on of which was Management Company Domkom Nikopol LLC. The company was established approximately one month before the press conference, at which the management companies were presented.

During the meeting with journalists, it was said that nine companies submitted their applications for participation in the tender. However, as in the case with heating, some of them refused to continue immediately.

Similarly, the word 'Nikopol' was added to the name in order to create an impression that this is a local Nikopol-based company.

Domkom started its activities in Kryvyi Rih in 2011, and the main private heating supplier of Nikopol is related exactly to this town, which is located more than 100 km away from Nikopol.

Dubinska's husband, Yaroslav Zhylkin was born in Kryvyi Rih, and this is where their business started. In 2010, Zhylkin was elected a member of Kryvyi Rih Town Council from the Strong Ukraine party, and then he joined the Party of Regions faction.

In 2013, Yevhenia Dubinska at an international congress that was officially supported by the Ministry of Regional Development, Construction, Housing and Utilities Infrastructure (Minregionbud) was introduced as an advisor to the Minister of the Minregionbud, Hennadii Temnyk. He is a close associate of the incumbent member of parliament from the Opposition Bloc, Oleksandr Vilkul who at that time was the Vice Prime Minister of Ukraine.

Both Oleksandr Vilkul and Hennadii Temnyk (not born but worked) are also from Kryvyi Rih. Vilkul's father is still the mayor of the town where the business owned by Dubinska and Zhylkin works.

Zhylkin also was an executive secretary of the State Interdepartmental Commission on Memorializing Victims of War and Political Repressions that was chaired y Oleksandr Vilkul.

The Minregionbud, in 2013 when Hennadii Temnyk was there, was also a place of work of Hennadii Lebid, head of Komun Servis Ukraine LLC that owns Komunservis Teplo Nikopol LLC. Lebid was the person who presented the first boiler houses in Nikopol.

He is a former mayor of Verkhodniprovsk, Dnipropetrovsk Oblast, from the Party of Regions. As of today, he is a member of Verkhodniprovsk Raion Council from the same political party as Serhii Donets - Vidrodzhennia [Renaissance]. By the way, this party received the majority in Nikopol Town Council.

"You should better, perhaps, talk to the town leadership, they will tell you more," Hennadii Lebid answered.

Ihor Sinchenko, who was the first head of Komunservis Teplo Nikopol LLC (it was during his leadership when the Memorandum of Cooperation was signed) and through whom we tried to talk to Yevhenia Dubinska, said she asked us to talk to Hennadii Lebid.

When asked, how their company was selected, Sinchenko answered, "I cannot comment on such things".

 

So, the main investor for heating the budget-funded sphere in Nikopol, as it is often the case here, was NOT a classical business company whose representatives have never been involved in power and politics. The investor has connections with former council members, people from the Minregionbud, and even a former mayor of one of the towns in Dnipropetrovsk Oblast. The head of company owning Nikopol private hearing provider is a member of the same party as one of the leading consultants to the town in the heating decentralization process.

On a side note: It is very likely, that the centralized heating provider will be told goodbye also in the town of Zhovti Vody in Dnipropetrovsk Oblast. At least, a company, Komunservis Teplo Zhovti Vody LLC, has already been created, and the local press has published announcements that an investor is coming to the town.

 

Selection Shadow

By all accounts, the process of selecting investors was held, as always, without sufficient transparency. The collected information prompts one to think that funds were invested in such promising business by the people who are, putting it mildly, closer to the authorities than others.

There is an impression that the heating decentralization process in Marhanets could be launched for the specific investor. On 24 March 2016, Hanna Levchenko signed a decision on establishing APS Power Technology LLC, and on the following day Marhanets Town Mayor at an operative meeting said that approximately within a week the town council would adopt the Program on Optimization of Heating Supply System, and that on 1 April 2016 the investor would be selected.

Yet, on 12 April 2016 in the Announcements section of the web site of Dnipropetrovsk Oblast State Administration an announcement inviting the investors was posted saying that on 28 April 2016 a meeting of the management committee on investments and strategic development of Dnipropetrovsk Oblast would take place, at which the issue of involving investments for the budged-funded sphere would be discussed for transferring it to alternative types of fuel. On the same day, the Memorandum was signed with APS Power Technology LLC.

The person who one could address with the questions about the meeting – Volodymyr Marchenko, employee of the Department on Housing, Utility Services and Construction of Dnipropetrovsk Oblast State Administration, on the phone said he did not remember anything about the tender, as a result of which APS Power Technology LLC was selected.

"I don't remember what was going on yesterday. If I was responsible for only one object...", Volodymyr Marchenko, employee of the Department on Housing, Utility Services and Construction of Dnipropetrovsk Oblast State Administration, told the journalist on the phone.

The advisor to the governor, Yurii Holik, believes he does not understand the need for investment tenders and admits that the Oblast State Administration supported Dovhaliuk. Holik's explanations in favor of the investor are its systemic work and possibilities.

On the one hand, the advisor to the governor says that Dnipropetrovsk Oblast is close to the front line and that there is no queue of investors in it, but on the other, when talking about, probably, a premature decision of Pokrov Town Council on termination of the work of a steam boiler house, Holik says that the investor would be found anyway and there was no risk.

The process of heating decentralization as such is really beneficial. This fact has been acknowledged even in those towns where it was implemented. The towns of Marhanets and Pokrov got rid of municipal enterprises supplying heat that accumulated gas debts. Today, the growth of debts to the NJSC Naftogaz stopped. Payment of these debts is to be negotiated between the local authorities and the national gas provider.

Autonomous boiler houses using sunflower husk pellets contribute to the country's energy independence. Moreover, they offer lower tariffs. For instance, this winter the cost of 1 Gcal (heat measurement unit) per a boiler house of Alternative Energy Resources LLC in Dnipro was 1.526 UAH (including VAT). The cost of 1 Gcal in boiler houses of APS Power Technology LLC in Marhanets was nearly 1.667 UAH (including VAT), in Pokrov – 1.774 UAH.

In Nikopol, which has predominantly gas and electricity boiler houses, the tariffs are higher. This is despite the fact that on 1 March 2017, the town executive committee reduced them. The cost of 1 Gcal from NEW ENGINEERING SYSTEM  LLC is nearly 1.995 UAH (including VAT), from Komunservis Teplo Nikopol LLC – 1.832 UAH (including VAT), from TITAN PLUS – nearly 2.504 UAH (including VAT), but on 18 April their tariff was reduced to 2.346 UAH.

In general, in the institutions and facilities of the budget-funded sector that are heated by autonomous boiler houses it is really much warmer now. Sometimes even too warm. In Nikopol, some admit that sometimes in the educational institutions the air temperature exceeded the sanitary norms.

Besides, there is a possibility now to adjust the temperature depending on weather.

An activist from Nikopol, Deputy Head of Dnipropetrovsk Oblast Center of the National Liberation Movement Pravyi Sektor Oleksandr Kyrylov believes that increased air temperature in educational institutions is conscious inappropriate use of the budget funds.

 

Anton Filippov

 


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