Ukraine's battle against corruption faces politicization and tiny salaries

By bne IntelliNews December 11, 2014

Graham Stack in Kyiv -


Ukraine has declared war on corruption, but the politicisation of the anti-corruption campaign and tiny salaries could lead to collateral damage.

On paper at least, anti-corruption in Ukraine is not afraid of big-ticket arrests: on December 10, Serhiy Kostyuk, head of Ukraine's biggest gas producer, state-owned Ukrgazvydobuvanie, was arrested in connection with causing losses to the company worth UAH23mn (€1.2mn).  

However, Kostyuk was not old guard from the regime of ousted former president Viktor Yanukovych, but a fresh appointee to the post by the new pro-reform government under Arseny Yatsenyuk that came to power after Yanukovych's ousting in February. Prime Minister Yatsenyuk only on December 9 announced sweeping reforms in the state energy sector, including a likely future IPO of Ukrgazvydobuvanie.

Kostyuk's arrest shows the pitfalls of the new anti-corruption enthusiasm in Ukraine, which has been carried over from the Euromaidan protests that forced Yanukovych out.

The charges against Kostyuk relate to Ukrgazvidobuvanie's alleged sale of compressed gas at below market prices to private fuel traders, sales that were revealed in a series of investigative pieces on the internet site The Insider. But in September the Insider was revealed to be owned by a certain Oleksiy Tamrazov, who also penned the original exposures of Kostyuk.

Tamrazov is none other than the former first deputy head of Ukrgazvydobuvanie during the Yanukkovych era who was forced out in March, written about by bne here, and himself a fuel trader – adding a strongly political element to the story, but one which prosecutors were apparently happy to play along with.

The shadow of politicization hangs over another high-profile arrest on December 5 – that of head of state power trading company Ukrinterenergo, Boris Zinevich, who was also a new post-Yanukovych appointment. Zinevich was blamed for importing South African anthracite coal to Ukraine to fire the country's power stations, which have seen their supplies of the special coal from rebel-held territories in East Ukraine disappear. According to prosecutors, the coal bought by Zinevich "failed to burn," and the price of the coal had shot up from around $80 on the market to $130 per tonne after closing all the transport and customs arrangements, sparking corruption suspicions. Zinevich had also acquired the coal via a trader that critics say may have political connections.

But former acting head of the presidential administration, Serhiy Pashinskii, who ran the presidential administration in the interim between the ousting of Yanukovych and the advent of current President Petro Poroshenko, called Zinevich's arrest "simple banditry" in comments to the press. Pashinskii is an ally of current PM Yatsenyuk, who initiated the purchases of anthracite coal from abroad using scarce hard currency, instead of buying it from the rebel-held territories.

President Poroshenko and his ally, National Bank of Ukraine head Valery Gontareva, on the other hand opposed any foreign purchases of coal as a waste of hard currency reserves, and are regarded as backing Zinevich's arrest.

Moreover, Prosecutor General Vitaly Yarema, who ordered the arrest of Zinevich and is also a Poroshenko ally, is himself under considerable anti-corruption pressure due to revelations about the wealth of one of his deputies, and could thus have been prompted to make the arrest also from political considerations, experts argue.

On December 1, another new post-Yanukovych appointee, Boris Ostapyuk, named head of Ukrainian Railways in April, was fired from his post due to corruption allegations, after Ukraine's security service launched an investigation into the company.

Investigators conducted extensive searches in houses and apartments of Ukrainan Railways officials, and reported finding $1mn in cash in the apartment of the company's deputy head, Maksim Blank. Blank is a former investment banker who has been tasked by the government with the reform of the railways. Blank said he had entirely legally withdrawn the money from his bank, and complained that the investigation had paralysed the railways' headquarters over a number of weeks, interrupting the development of reform plans.

Tiny salaries

Along with the anti-corruption campaign being politicized, another obstacle to its success are the incredibly small salaries that top officials receive in Ukraine receive, making them vulnerable to external influence.

Thus on December 10 Prosecutor General Yarema announced that new legislation in 2015 would give him and his subordinates a salary hike: His own salary is set to grow to UAH50,000 per month, or a mere $3,000, from its current level of UAH17,000, of which he said only around UAH6,000, or $380, is paid out in cash. According to Yarema, under the new law regional prosecutors will receive UAH13,000, or $832, per month starting in 2015.

Such tiny salaries are usual across the board for Ukraine's top officials. Former star journalist-turned-MP Mustafa Naiem aroused controversy when on his election to parliament on October 26 he complained that MPs are now being paid a mere UAH5,000 per month, or $320, on which it is impossible to live in Kyiv. Many retorted on social networks that this was in fact a handsome salary compared with the reported $100 per month paid to Ukrainian soldiers fighting in East Ukraine.

The newly appointed governor of the strategically crucial Luhansk region, on the frontline with Russian-backed rebels, Gennady Moskal, compained on October 31 that his gross salary is currently UAH3,500 ($270) per month, while heads of the regional districts are paid just UAH2,400 ($192) per month.

Low salaries also extend to the largest state-owned companies. Andriy Kobelev, a former investment banker now heading Ukraine's sprawling state energy company Naftogaz that handles 80% of all Russian gas exports to Europe, said in an interview in September that he is paid just around $2,000 per month, excluding bonuses.


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