Ukraine Country Profile

Environment, Natural Resources and Extractive Industry

Business Corruption

Coal mining employed 450,000 people in Ukraine in 2004. Many of these mines are no longer profitable. However, there are reports of some profitable mines that have been falsely declared bankrupt, then closed and flooded, according to a February 2005 article by Radio Free Europe/Radio Liberty. Subsequently, the mines are sold to private companies, who then drain the mines and resume production.

Licensing of land lots for resource extraction to private companies is also a venue for corrupt practices. Laws for licensing resource extraction land plots, such as open auction, are by-passed by licensing state-owned companies who then sub-license to private companies within joint private-public venture contracts. Free from public-private licensing regulations requiring transparency etc., the sub-licensing company can then non-transparently award the licence to another private company under the guise of commercial secrecy. In 2007, an auction administrator was chosen to administer the allocation of resource extraction lots. However, the circumstances behind the selection have been questioned by observers because the company that won the competition to administer the lots, Multiservice, was already under the scrutiny of the Anti-Monopoly Committee.

At the end of February 2009, the headquarters of Ukraine's national natural gas company Naftogaz Ukrainy were raided by the national intelligence agency, SBU, in connection with an anti-corruption investigation, as reported in a 2009 article by All Headline News. According to the source, the company had allegedly made a secret agreement to market USD 3.9 billion worth of natural gas despite a disputed title.

Political Corruption

Ukraine's industrial regions are still influenced by economic oligarchs who will sometimes try to secure protectionist practices for industries in their home regions, according to the USAID and MSI Corruption Assessment 2006. There have been examples of vote-buying in Parliament in order to secure protectionist advantages in some markets, such as vehicles, sugar and vegetable oil.

Massive corruption scandals are connected to the privatisations of former state industrial complexes at the regional level that occurred under former President Kuchma. These privatisations were marked by strong behind the scenes political interference. The former President Yushchenko initially intended to review these privatisations and reverse those deemed corrupt, but abandoned the project.

The role of the RosUkrEnergo gas trading company, which is the sole provider of natural gas from Russia and Central Asia to Ukraine, remains somewhat mysterious, as reported in a 2007 article by Zerkalo Nedeli. According to the article, RosUkrEnergo, which was formed by the Russian energy giant Gazprom, exists to act as a middleman between high-level Russian and Ukrainian political figures; this, in turn, could facilitate corruption. This perception is supported by the Freedom House 2009, according to which, the fact that Ukraine in 2008 continued to buy Russian and Central Asian natural gas from the RosUkrEnergo, set up in 2004 to take over from the discredited EuralTransGaz, demonstrates the lack of transparency at the highest level of the economy and political system.

There is little transparency in Ukraine's energy export arrangements with Russia. This has led observers to conclude that the arrangements involve corruption and kickbacks. Ukrainian senior officials deny these allegations, but claim that the non-transparent operations ensure a low energy prices in Ukraine.

Frequency

EBRD & World Bank: BEEPS Ukraine 2005:
- 6.5% of the companies surveyed stated that bribery was frequent in their dealings with environmental inspections in 2005.

- The average number of annual visits by environmental agencies to surveyed companies was 0.9, with each visit averaging almost 1 hour.