SMART HOLDING (CYPRUS) LTD (hereinafter – SMART HOLDING), the shareholder of KHARKIVOBLENERGO JSC, asks the Prosecutor General’s Office of Ukraine to urgently consider taking a set of measures to stop the embezzlement of the energy company’s funds and assets. In particular, by ensuring proper pre-trial investigation and procedural guidance in numerous criminal proceedings filed on the facts of illegal actions by officials and staff of the joint-stock company.
SMART HOLDING has sent a corresponding statement to Iryna Venediktova, the Prosecutor General, and a member of the National Security and Defence Council of Ukraine, and to Oleksiy Danilov, the Secretary of the National Security and Defence Council of Ukraine.
The Company has repeatedly drawn the attention of the government authorities and the public to the poor financial condition of one of the largest energy companies, which is of strategic importance to the State, holding 65.001% of shares in KHARKIVOBLENERGO JSC. This situation is a direct consequence of inefficient management and desperate efforts of the company’s top executives to keep the existing governance system in place at all costs, which creates conditions for numerous corruption schemes and embezzlement.
In his statement, the authorized representative of SMART HOLDING Maksym Kladikov noted that a preliminary audit of the energy company’s financial and economic activities showed that in recent years KHARKIVOBLENERGO became one of the most unprofitable companies in the industry, compared with its peers or even smaller energy companies in terms of the assets size and operation scale1. Thus, while until 2015 the net profit from KHARKIVOBLENERGO’s activities consistently amounted to UAH 30-35 million, in subsequent years this figure did not rise higher than UAH 3-5 million.
As the statement says, it is obvious that extremely low financial performance of KHARKIVOBLENERGO is created artificially, and the company’s assets and profits are being embezzled, which leads to lost dividends for shareholders, for the State in the first place, as well as to underpayment of huge amounts of taxes. The company’s senior management not only does not prevent the embezzlement of funds and numerous corruption schemes, but is probably directly involved in illegal activities.
The representative of SMART HOLDING emphasizes that at least 20 criminal proceedings are known, which are currently being investigated by NABU detectives, SBI investigators, and the police. Most of them are about serious and especially grave crimes by KHARKIVOBLENERGO’s officials, such as abuse of power or abuse of office, misappropriation of property or acquisition of property through abuse of office.
Among the corruption schemes revealed by law enforcement agencies are abuses in procurement (losses ranging from UAH 7 million to UAH 108 million have been found) and the use of distorted electricity consumption metering through interference with metering devices. The pre-trial investigation of the majority of criminal proceedings concerning illegal activities in KHARKIVOBLENERGO is not actually carried out, and no procedural guidance for such proceedings is exercised.
‘Criminal proceedings against the same officials of the company, the same ways of committing crimes, are unreasonably investigated by investigative units of different law enforcement agencies and are hampered in every possible way. After the loud beginning, cases remain without any progress for years,’ says the statement to the Prosecutor General.
According to Maksym Kladikov, this allows people who committed those serious and especially serious crimes to avoid responsibility and continue their illegal activities. In numerous criminal cases concerning the commission of serious and especially serious crimes by officials of the joint-stock company, not a single official was suspended from office, and was not even interrogated2.
The situation is becoming particularly acute, says the representative of SMART HOLDING, taking into account public information about the preparation of KHARKIVOBLENERGO for privatization. There is an impression of deliberate artificial depreciation of the asset by bringing down its profitability for further selling of the company at low price, which indicates high corruption risks and preparation for causing serious material damage to the State.
In view of the above, SMART HOLDING addresses the Prosecutor General with a motion to take the pre-trial investigation of the above criminal proceedings under personal control; to consider merging the materials of the pre-trial investigation relating to different episodes of illegal activity, interconnected through the subjects or having a common intention, into one criminal case; to ensure efficient procedural guidance to the pre-trial investigation of the merged criminal proceedings in order to bring the perpetrators to justice and ensure compensation for the caused damages; to involve SMART HOLDING as an injured/affected party, and more. For its part, SMART HOLDING, as a shareholder of KHARKIVOBLENERGO, guarantees maximum facilitation to the pre-trial investigation authorities.
1For comparison: in 2020, the profit of DTEK Odesa Grids amounted to UAH 529.5 million, DTEK Dnipro Grids – UAH 346.4 million, Poltavaoblenergo – UAH 264.1 million, and Mykolaivoblenergo – UAH 286.7 million.
2For example, criminal case no. 42020221480000211 of 17 December 2020 under part 3 of Article 191 of the Criminal Code of Ukraine. In the course of the investigation it was established that “officials of enterprises operating in Dergachivskyi district of Kharkiv region and Kharkiv city, in collusion with officials of Kharkivoblenergo JSC, embezzle public funds by interfering with electricity meters and adjusting them so that only 30% of the actual electricity consumption is accounted. As a result of interfering with the electricity consumption meters, UAH 500,000 to UAH 1,000,000 losses were caused to the State during December 2020 – January 2021. In February of this year, the media widely covered the information about the results of searches: according to the Kharkiv Regional Prosecutor’s Office, documents, draft accounts, money, electricity metering devices with traces of interference were seized. However, unfortunately, so far the perpetrators have not been prosecuted, and the State has not received any compensation. Similar situation is in the pre-trial investigation of criminal case no. 42019221070000251 of 10 December 2019 under part 5 of Article 191 of the Criminal Code of Ukraine on a criminal collusion between officials of Kharkivoblenergo JSC and Energo-Time LLC in the tender procurement, where the price was deliberately overstated and the caused losses amounted to UAH 108,896,158.
SMART HOLDING (CYPRUS) LTD, which holds 29.795% of shares in KHARKIVOBLENERGO JSC and KHARKIVENERGOZBUT PJSC, has started the procedure of convening an extraordinary general meeting of shareholders of these companies. The meeting will be held online on 3 September 2021.
The shareholders of KHARKIVOBLENERGO JSC and KHARKIVENERGOZBUT PJSC can get acquainted with the draft agenda, draft decisions and other information through the following websites:
The date of posting a cumulative voting ballot is 31 August 2021 (at 11:00).
The date of compiling the list of shareholders entitled to participate in the General Meeting is 30 August 2021 (as at 24 hours 00 minutes).
SMART HOLDING is one of the largest investment groups in Ukraine. The interests of the Group focus on the industries that are the key ones for the economy of the country. The companies of SMART HOLDING invest in metals and mining, oil and gas segment, agriculture, shipbuilding, real estate and energy sector. The SMART HOLDING’s strategy is aimed at efficient management of a diversified investment portfolio in order to increase its value in the long term.
SMART HOLDING (CYPRUS) LTD is the top holding company of the Group that was established and operates under the laws of the Republic of Cyprus. Its beneficiary is Vadym Novynskyi.