Odesa Port Plant JSC (OPP) is one of the largest and most important enterprises in Ukraine’s chemical industry. The plant possesses unique infrastructure, including terminals for the transhipment of ammonia, and is a key employer for the region. However, due to its high profit margins and the specific nature of its production cycle (in which natural gas is the main raw material), the OPA has remained a tempting target for financial groups for decades.
The latest investigation by the National Anti-Corruption Bureau of Ukraine (NABU) has uncovered yet another large-scale scheme, as a result of which at least 345 million hryvnias were siphoned off from the state-owned plant. This investigation has clearly demonstrated how, through legal manoeuvres and tolling agreements, state resources are converted into private wealth held in overseas accounts.
To understand exactly how the state suffered losses, it is necessary to examine the mechanics of tolling. Under this model, the plant does not purchase gas itself nor does it sell the finished products. Instead, a private tolling company supplies its own gas to the plant, pays the plant only for the service of processing it into ammonia or urea, and then transports and sells the finished products on the market.
Corruption arises when processing tariffs are artificially undercut, and the prices of gas and the end products are manipulated in favour of the tolling party.
According to materials from the NABU investigation and journalistic inquiries, the scheme to siphon off 345 million hryvnias was carried out in four successive stages:
The scheme began with lobbying and the appointment of a loyal management team at the Odesa Port Plant itself, as well as in related state bodies. In particular, the investigation documented attempts and instances of influence over decision-making at ‘Gas Transmission System Operator of Ukraine’ LLC, which was necessary for the unimpeded transportation and metering of gas volumes.
A series of agreements on gas processing were signed between the Odesa Port Plant and controlled intermediary companies. The tariff for the plant’s services was calculated in such a way that it did not even cover the enterprise’s actual costs for equipment depreciation, wage payments and electricity bills. As a result, every tonne of ammonia produced generated a net loss for the state-owned plant, whilst the private supplier’s profits grew.
The plant’s finished products were sold for export at actual world market prices. The difference between the meagre processing fee paid to the plant and the market value of the fertilisers was accumulated in the accounts of specially created intermediary companies. During the short period that this scheme was in operation, the total net profit siphoned off—which should have remained with the state-owned enterprise—amounted to 345 million hryvnias.
The funds obtained as a result of the scheme had to be laundered and moved out of reach of seizure in Ukraine. At this stage, investment banker Oleksandr Muzhel (‘The Frenchman’) was brought in. Using his connections in the banking sectors of the UK, France and Cyprus, he organised a network of transit payments. The funds were transferred under the guise of:
Payments for fictitious consultancy and analytical services.
Inter-company loans and the repurchase of debt obligations.
Investments in overseas property development and venture capital projects.
The scheme’s activities led to the siphoning off of OPZ’s working capital, an increase in the plant’s debt to electricity suppliers, and periodic shutdowns of production facilities. According to estimates by NABU analysts, 345 million hryvnias represents only the initial documented instance. The total potential losses, had the scheme continued, could have reached several billion hryvnias.
The case materials have now been documented, a series of searches has been carried out, and NABU detectives are continuing financial audits to establish the exact amount of losses incurred and to bring all participants in the tolling arrangement to criminal justice.