It was a sunny, but bitterly cold January day in Nikopol in 2018, a typical industrial city on the Dnieper River in Ukraine’s southwestern heartland. Following two years of strenuous work, research, and construction, the Calgary based TIU Canada was opening its first solar energy station and becoming the first major investor under the new Canada Ukraine Free Trade Agreement (CUFTA).
Ukraine was finally going green and developing its domestic electricity resources to end its dependence on Russian energy. Canadians were once again looking at Ukraine as an investment option. Three years later, the optimism is gone and the villain, in this case, is not Russia, but Ukraine’s own oligarchs.
The current legal battle between TIU Canada, a mid-cap company focusing on Ukraine’s renewables sector and the notorious and recently US sanctioned oligarch, Igor Kolomoisky, is a sad and cautionary story for foreign investors who want to do business in Ukraine.
In dispute, is the illegal disconnection of its 10.5 MW solar station from the electricity grid. This was an illegal act according to Ukrainian energy laws which prevent electricity producers from being disconnected from the energy grid without their permission.
However, despite multiple appeals and discussions, including direct talks with Kolomoisky, NFZ management proceeded with disconnecting TIU Canada from the substation on the morning of March 2, 2020, for supposed repairs within an indefinite timeframe. To date, this illegal disconnection has caused more than $2.2 million (CDN) in monetary damages to TIU Canada.
So how is this a cautionary story? Because within this story, there are revealed the practices within Ukraine’s still dominant oligarchic business culture despite years of promised reforms.
The oligarchic intention is to maintain and expand monopolistic business practices that would maintain their hold on essential infrastructural investment and operations. Their constant strategic goal is to keep out and firmly dissuade foreign investors from penetrating Ukraine’s potential growth opportunities in the renewables sector and to prevent market competition.
Second, oligarchs want to continue to benefit from government-guaranteed revenue streams. Ukrainian oligarchs are not wealth creators, but parasites who rely on controlling monopolies, continuously fighting against the establishment of free market competitive conditions.
Third, they are comfortable in their manipulation of the country’s court system at every level. The oligarchic practice assumes that if a foreign investor cannot be dissuaded from walking away from their investments, either through acts of intimidation or direct business ‘raids’, they will ultimately flee the jurisdiction because the foreign investor is made to feel that they will not obtain fair recourse in the province of Ukraine’s judicial system.
These practices continue, especially in regard to small and mid-cap investors, because in Ukraine it is still an expected, assumed, and accepted form of business practice.
It continues because individuals in government are too afraid of the consequences of standing up to these forms of intimidation, and don’t feel that they can rely on the integrity of the judicial system to halt such practices.
But the real question is why after the bloodshed of Euromaidan in 2014, are such practices continuing and tolerated?
Unfortunately, in Ukraine, after years-long efforts at judicial reform, most judges do not resist the temptation of literally selling their decisions for money.
Thus, despite numerous promises and public declarations, successive governments continue to fail to transform the country’s business culture, especially in regard to the moral and legal foundations upon which sound business cultures are based.
That is, establishing a free market based on the rule of law.
That is, operating and conducting business based on ‘trust’ and ‘fair play’.
That is, establishing an effective legal and regulatory regime applicable to all and applied with fairness and honesty.
That is, respecting the foreign investor and recognizing the pivotal role that foreign investors play in Ukraine’s economic growth while providing some semblance of protection against internal manipulators.
That is, showing a commitment to punishing or restraining unfair business practices.
That is, pursuing anti-monopolization efforts that would free up a corrupt economy which would then attract foreign investment capital in the context of a freer and competitive marketplace.
Being mindful of the potential economic fruits for consumers that would benefit through competitive pricing and/or in product or service availability by offering free market-based alternatives and choices.
Finally, cleaning up the courts and providing petitioners with the opportunity of receiving just decisions.
Since the EuroMaidan Revolution of 2013-14, successive governments have failed to demonstrate that they have learned and incorporated the most important lesson in regard to attracting sustained foreign investment. That lesson being establishing the connection between providing a consistent, fair, and legally based investment climate that would lead to consistent economic growth, an investment space that would energize economic growth and which is prepared to incorporate western investment dollars to grow Ukraine’s economy and encourage job creation.
As Ukraine’s politicians call for increased FDI by Western partners, it is not out of line for foreign investors to have the right to assume that business would be conducted in ‘good faith’. That negotiated agreements would be honored and contractual obligations be fulfilled.
And secondly, to assume that any disputes will be fairly resolved, if not through direct negotiation between parties, then through legal recourse based on the principle of ‘fair relief’ absent of corrupt intention.
As Roman Washchuk, who served as Canada’s Ambassador to Ukraine from 2014-2019, said, “It is clear Ukraine cannot succeed without rule of law ensuring a level playing field for foreign investors, including protection against oligarchic abuse.”Where does a mid-cap company such as TIU find fair and just relief in its fight against Ukraine’s most notorious oligarch, whose behavior has warranted recent US government sanctions for corruption to add to his existing investigation for fraud and money laundering? In Ukraine’s courts? In a foreign court? Through the application of diplomatic pressure?
Discussions with both active and retired Western diplomats reveal an admittance of failure to articulate a broader connection between Western economic interests and Ukraine’s business practices. They admit that lack of sustained diplomatic pressure on Ukraine’s successive governments has failed to illustrate to Ukraine’s leaders the relationship between Western orientated business practices and its future economic growth and overall security, in addition to its quest in transforming its civic culture.
Ukraine, along with its Western partners and investors from the West, would show wisdom in heeding the lessons of the cautionary story represented by TIU’s fight against the oligarch Kolomoisky and his partners.
How long will such stories be the norm and not the exception?
