On June 19, an analytical publication entitled “Gas deals in detail” was published. How Yaroslav Dubnevich ended up in the dock.” The material caused discussions in the legal community, since the case discussed in the article was resonant and indicative.
Law enforcement officers themselves call this case one of the most difficult in the economic sphere. The case concerns the arrest of enterprises that support the livelihoods of two cities - thermal power plants in Novoyavorovsk and Novy Rozdol.
The legal association “Bogatyr and Partners” contacted the editorial office with a request for a response and continuation of the discussion. The association’s specialists draw attention to the problem of quality management of seized property and its consequences. Using the “gas case” as an example, lawyers demonstrate the systemic mistakes made by the authorities and law enforcement officers.
When someone's property is seized as part of a criminal proceeding, it must be preserved until the final verdict in the case. Because according to the Constitution, only a court can interfere with a person’s property rights and, if the person’s guilt is proven, decide the future fate of the property seized from his possession. Small items that have become evidence or were the subject of a crime can be stored even in the investigator’s safe. The situation is much more complicated when law enforcement officers enter a working enterprise. Buildings, production equipment, raw materials, goods, funds in accounts, transport, all these assets, while the investigation and trial are ongoing, need quality management. And, unfortunately, they did not learn this in Ukraine. As a result, businesses are destroyed, the state budget suffers losses, and ordinary citizens suffer.
A textbook example
The so-called gas business is indicative in this regard. In it, officials of enterprises owning thermal power plants in Novoyavorovsk and Novy Rozdol, Lviv region, are accused of taking over preferential natural gas from NJSC Naftogaz of Ukraine on a particularly large scale during 2013-2017 and further using it for other purposes. According to investigators, the crime was that thermal power plants were only supposed to produce thermal energy for heating and supplying hot water to the population. But gas was also used to produce electrical energy, which was sold to the state enterprise Energorynok. It was precisely because of the use of part of the gas for purposes other than its intended purpose that Naftogaz allegedly suffered damage in the amount of UAH 2.2 billion. And since one of the defendants in the case was a people’s deputy, the National Anti-Corruption Bureau took over the pre-trial investigation in criminal proceedings.
Although, according to the official data of the victim Naftogaz, he did not suffer any losses (and this casts doubt on the existence of a crime, the legality of the declaration of suspicion and other procedural actions), nevertheless, by court decisions, single property complexes of enterprises were seized and transferred to the management of the National agency of Ukraine for the identification, search and management of assets obtained from corruption and other crimes (known as the Agency for the search and management of assets or ARMA) for further transfer to management under agreements in the order
These decisions actually became points of delimitation of the operation of the thermal power plant. After all, they used to be successful enterprises that declared profits, paid taxes to the budget and provided heat to two Ukrainian regions, but today they have become unprofitable entities that require constant assistance from the state, and create problems for local residents who have lost a stable supply of electricity. According to available information, the total amount of officially recorded losses reached UAH 557.6 million! That is, the state has already spent a quarter of the losses that law enforcement officers calculated on maintaining the seized assets.
How did this happen? We investigated the procedure for transferring the assets of seized thermal power plants to managers and found many violations in the work of ARMA, elected and appointed managers, as well as the Cabinet of Ministers and the Verkhovna Rada. Perhaps the circumstances surrounding the investigation of this case are worthy of being included in textbooks on civil law and criminology as a negative example.
On terms of efficiency
So, according to the general rules, after a court decision to seize assets, responsibility for their safety lies entirely with ARMA, which, in particular, selects managers for further business activities.
The corresponding procedure is clearly stated in Article 21 of the ARMA Law. Assets accepted by the agency for management are subject to:
- assessment, which is carried out by subjects of assessment activities determined based on the results of the competition;
- transfer to the management of legal entities or individual entrepreneurs determined based on the results of the competition in the manner established by the legislation on state (public) procurement.
Asset management is carried out on the basis of a property management agreement in accordance with Chapter. 70 of the Civil Code on conditions of efficiency, as well as preservation (if possible, increase) of their economic value.
In addition to reimbursement of expenses incurred, the manager can even claim remuneration. Funds are allocated directly from income from the use of assets accepted for management. True, the manager does not have the right to alienate assets.
The agreement is terminated in the event of cancellation of the seizure of assets accepted for management or their confiscation, special confiscation, or another court decision on their recovery for state revenue.
All these conditions are specified in the agreement between ARMA and the manager.
But even after the conclusion of the contract, the agency’s responsibility is not relieved, because it must continue to monitor the effectiveness of asset management. In accordance with Art. 22 of the ARMA Law, periodic (at least once a month) inspection is carried out. At the same time, the manager is obliged to provide ARMA authorized persons with access to the assets accepted for management for inspection, as well as to documents on the management of such assets and their use. If mismanagement is established, the agency reports this to law enforcement agencies for verification and response and immediately takes measures to change the manager. The procedure for such control was approved by Resolution of the Cabinet of Ministers dated May 10, 2018 No. 351.
The first pancake is glitzy
As part of this procedure, at the end of August 2018, ARMA invited entrepreneurs to cooperate in managing the assets of two thermal power plants, held a meeting of the tender committee and determined the winner. It became the private enterprise “Garant Energo M”.
After this, an assessment of the assets was carried out, from which it followed that their value decreased significantly compared to the book value at the beginning of the year: by 2.5 times for the Novoyavorovskaya CHPP and by 3 times for the Novorozdolskaya CHPP.
A month after the start of the procedure, property management contracts were concluded between ARMA and the private enterprise (see here and here), for a period of one year with a price in the form of a quarterly remuneration in the amount of 30% of management profits. Moreover, at the time of concluding the contracts, the manager did not have licenses for the production, distribution and supply of energy.
It is not surprising that the manager turned out to be inept. Because already at the beginning of February 2019, the commission on technogenic-ecological safety and emergency situations of the Lviv Regional State Administration discussed the issue of the threat of disruption of the heating season in the cities of Novoyavorovsk and Novy Razdel. At the meeting it was noted that Garant Energo-M had increased its debt to Naftogaz for consumed gas. And due to the lack of allocated gas nominations, there was a threat of stopping its supply to thermal power plants. Although at the same time the manager had to ensure uninterrupted and high-quality provision of heat supply and hot water supply services to urban consumers and ensure repayment of debt.
In April, the same commission already spoke about the threat of an emergency as a result of the shutdown of the manager’s generating facilities. They stated that the private enterprise did not fulfill the obligations of the operator of the distribution system and recorded the identified violations (inadequate maintenance of equipment, provision of low-quality services, lack of work with consumers, accumulation of debt, threat of dismissal of workers). Therefore, the question arose of terminating the management contract, conducting an inspection of financial and economic activities by law enforcement officers, and compliance with licensing conditions by the National Commission that carries out state regulation in the fields of energy and utilities.
Therefore, the regional administration turned to ARMA, the Specialized Anti-Corruption Prosecutor's Office, the National Anti-Corruption Bureau and asked for the intervention of the President and the Cabinet of Ministers to ensure uninterrupted supply of electricity and heat to consumers of these two cities in the Lviv region.
Production and distribution separately
SAPO honestly answered that they did not take any measures against the manager. But ARMA only got around to the problem in August 2019. The agency again invited key players in the energy market to manage the thermal power plant and in September decided on new “crisis managers.”
This time the officials got creative. They decided to divide the functions of producing electrical and thermal energy within the enterprises, as well as the distribution of electrical energy generated at the thermal power plant.
In terms of distribution, the manager at both central centers was the company “Alternativa-T-XXI”, which also did not have all the necessary licenses. But in terms of energy production... the contract with Garant Energo M was extended for a year. ARMA even assured that this company is ready to pay wages.
However, it did not happen as expected. In October, the regional administration informed the Ministry of Community and Territorial Development about the threat of an emergency in Novoyavorovsk and Novy Rozdol. The possibility of disruption of the heating season is explained by the same debts to Naftogaz for consumed gas. And due to non-payment of wages, workers began to quit en masse. Once again the commission on security issues meets, where it is even proposed that LOGA and the mayors of regional centers should borrow money for the manager to pay salaries.
Despite the fact that asset management was carried out ineffectively and was accompanied by a violation of obligations, ARMA, which should monitor the process on a monthly basis, did not actually react.
Other recorded violations also include the lack of permission from the Antimonopoly Committee of Ukraine for concentration, non-compliance of managers with the qualification criteria established by the agency itself during the competition, lack of reporting, causing losses to state-owned enterprises and private business entities.
Negotiation procedure due to exclusivity
In November 2019, ARMA turned to the Cabinet of Ministers of Alexey Goncharuk for a solution to the accumulated problems. The government agrees with the proposed option and adopts order No. 1040-dated November 6, 2019 “Issues of ensuring the sustainable passage of the 2019/20 heating period in the years. Novoyavorovsk and Novy Rozdol, Lviv region.”
But according to the law, the Cabinet of Ministers did not have any authority to resolve this issue, that is, the government went beyond its competence. Because in 2019 there was no exclusive or special procedure for determining a manager on the basis of an administrative act.
However, as part of the adoption of urgent measures, they decided to change the manager of the property complexes of the Novoyavorovskaya and Novorozdolskaya CHPPs by applying the procurement procedure provided for in Art. 35 of the Law “On Public Procurement”. At the same time, the National Commission that carries out state regulation in the field of energy and utilities and the Antimonopoly Committee were recommended to “resolve the issue of immediately providing the new manager... with the appropriate permitting documents.”
It is interesting that the order was adopted at a government meeting without coordination with the interested executive authorities and without preliminary elaboration in the Cabinet Secretariat. And the Ministry of Justice, together with other interested executive authorities, was instructed to formalize it in accordance with regulatory requirements.
Therefore, the text of the administrative act was finalized by the ministries after its adoption. In particular, the Ministry of Justice drew attention to the fact that ensuring social management (the passage of the heating season) does not fall within the powers of ARMA. The Ministry of Economic Development, Trade and Agriculture, having analyzed the provisions of the Law “On Public Procurement”, saw no basis for applying the negotiation procedure in this case and assigned such responsibility, in accordance with the requirements of the current legislation, to the ARMA tender committee.
The Ministry of Finance noted that the transfer to management must be carried out in accordance with the law in the prescribed manner. And the Ministry of Regional Development approved the “project” without comments (see the approval materials provided by the Cabinet of Ministers upon request for public information).
As part of “drawing out an order in accordance with regulatory requirements,” the provision on transferring the property complexes of thermal power plants directly to NJSC Naftogaz of Ukraine or a legal entity authorized by this company disappeared from the version of the document voted at the meeting. At the same time, ARMA, together with the Lviv Regional State Administration and Naftogaz, instructed to develop and approve an action plan to restore and ensure the stable operation of the Novoyavorovskaya and Novorozdolskaya CHPPs.
How then to evaluate the fact of the adoption of the order, taking into account the above? ARMA officials initiated, and the Prime Minister of Ukraine and members of the government, outside their competence, adopted an illegal act. Without appropriate approval and in violation of regulations.
Victim – manager
But this order created the necessary pretext for using the negotiation procedure to elect a new manager for the thermal power plant by ARMA. It became Naftogaz Teplo LLC, the sole owner of which is... NJSC Naftogaz of Ukraine. It is precisely the subject who, according to law enforcement agencies, is the victim in criminal proceedings, within the framework of which the assets of the thermal power plant were arrested.
Naftogaz Teplo, created in 2018, carried out activities to obtain interest on bank deposits. The Antimonopoly Committee drew attention to the lack of experience in activities necessary to manage the assets of a thermal power plant in its decision dated November 22, 2019 No. 770-r “On granting permission for concentration.” But in November 2019, the following types of economic activities were included in the company’s charter: supply of steam, hot water and air conditioning; production of electrical energy; supply of electrical energy; trade in electricity – carrying out business activities to supply electricity to consumers. Therefore, the new manager also could not meet the qualification criteria of the ARMA tender committee.
Therefore, the story with the security commission of the Lviv Regional State Administration repeated itself again. There they once again stated the fact that the new manager had failed to fulfill his obligations, as well as the failure to take any control measures on the part of ARMA, which entailed the danger of disrupting the new heating season.
Legalization after the fact
After the events described, a special procedure for managing assets “for exceptional cases” was introduced.
Law No. 1530-IX of 06/03/2021 established that in the event of a risk of failure and/or interruption in the functioning of assets, which could lead to emergencies or failures in heat, energy, electricity, water supply or drainage or natural gas supply, the management transfer of assets may not be carried out in a general manner, but through direct transfer to the management of state-controlled enterprises. ARMA informs the Cabinet of Ministers of the existence of such negative circumstances and the need to apply a special procedure for transferring assets into management, and the Government instructs the relevant ministry to conduct consultations on identifying a manager. Based on the results of these consultations, a corresponding project is prepared and submitted to the Cabinet of Ministers, which makes a decision on transferring assets into management “in connection with an exceptional case.”
The corresponding article 21-1 appeared in the ARMA Law in 2021, which indicates attempts to legalize the already implemented scheme with a new CHP manager.
But even here they could not do without violations. This was done on the sly while preparing draft Law No. 5309 for the second reading. After all, initially this project to improve the system of functioning and appeals of public procurement did not provide for changes to the ARMA Law at all.
It is important to understand here that according to Art. 116 of the Rules of Procedure of the Verkhovna Rada, proposals and amendments can only be made to the text of the bill that was adopted as a basis. But this did not prevent the head of the Servant of the People faction in the Verkhovna Rada, David Arakhamia, from proposing third-party additions, and the relevant committee taking his proposals into account.
The violation of the Regulations and the fact that these amendments went beyond the scope of regulation of the project were noticed by the Main Legal Department of the Rada Apparatus, but the deputies ignored the norm of the regulatory law and the position of lawyers and supported the innovations.
The manipulative nature of such changes, which were supposed to legitimize the illegal scheme, is confirmed by the fact that despite the continued existence of problems with the manager, these problems were already used as the basis for defining the same Naftogaz Teplo as a manager according to new rules (by order of the Cabinet of Ministers dated 08.20.2021 No. 972-r “Some issues of managing assets seized in criminal proceedings in exceptional cases”).
That is, the government recognized the exceptionality of the case and the need to apply a special procedure.
And here a paradox arises: on the one hand, if the threat of emergency situations and disruptions continues, then this indicates the ineffectiveness of the manager elected according to a special procedure.
If such a manager has coped with the crisis situation, then the norm of Art. 21-1 of the ARMA Law, according to which, after the elimination of negative circumstances, assets are subject to transfer to management in a general manner with the obligatory provision of continuity of their management.
Obviously, no one plans to do this. Because it is impossible to find a responsible and qualified business entity who will take on further risks and responsibilities for managing assets that have become clearly problematic. And so, when enterprises are in conditions of legal uncertainty, the appearance of legality is created for the general public.
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It turns out that the asset management system created in Ukraine is far from effective. Using the example of the “gas business,” we cannot talk about either increasing the economic value of thermal power plants, or even maintaining it. Due to ongoing management problems, the lack of qualified entities (or perhaps their exclusion from the market or reluctance to establish a contractual relationship with ARMA), the value of a once successful business is gradually being lost.
Then the question arises of the feasibility of the existence of the Agency for the Search and Management of Assets. At least in terms of management functions. Indeed, in order to correct the results of the unsatisfactory work of ARMA, local authorities are forced to seek additional funds, and the highest bodies of executive and legislative power are forced to commit obvious violations of the law. So that people do not freeze in their homes and some kind of man-made emergency does not occur at the energy enterprise.
It is obvious that there is no one to answer for such a criminal approach to organizing work.
