Holding out for a hero: energy companies, M&A, barristers in Ukraine

*Crow holds household aluminum electrowire

Is not it nice saying to lenders: “Hey folks,  I forgive you all my debts!”

Restructuring and privatization of energy supply in Ukraine presents opportunities for services of corporate/ M&A and litigation lawyers, collectors and security services.
On know-how solving households debts to municipal utilities in Ukraine,  addicted to
used to be cheap Russian natural gas and Ukrainian electricity.

Is not it nice saying to lenders: “Hey folks,  I forgive you all my debts!” …. At least those, that I accumulated before the last 3 years”.

It might be a powerful sound indeed: the debt of Ukrainian households for consumed services of municipal utilities amounted to UAH 19 bln. (equivalent of USD  706 mln. at a time) by March 2017 . Of those electricity-related energy debts amounted to UAH 11  bln. (USD 408 mln.).

The winner takes it all

The most impressive M&A deals in energy sphere in 2017 in Ukraine amounted the sum equal 1/3 of households electricity debt. Amongst them werte UAH 1,3  bln. – worth acquisitionn transactions of one Ukrainian business group, that has bought last remaining state-owned stakes in regional electricity utility companies Kievenergo, Zahidenergo, Donetskoblenergo (25%  of each). Consequently by the end of 2017 controlling stakes of 6 local electricity suppliers (LECs ) were privatized and ended up in de-facto complete control by one Ukrainian private investor, who’s business group  prior completion of these deals already owned around 70% stakes in mentioned companies. And In March 2018 Kiev region households obtained electricity bills from private DTEK company instead of Kievenergo.

Another set of substantial M&A deals is under way in 2018, Ukrainian national energy company NafroGaz (Oil natural Gaz in Ukrainian) is to be reorgabized, consultant – well-known firm EY Ukraine., advising up-coming LED Centerenergo’ controlling stake in 2018.

It all started in 2000, when USAID-funded project invited company Hunton &Williams, U.S.A., to advise on Ukrainian electricity market deregulation and relevant structural reforms. This team consisting of lawyers from USA and Ukraine prepared ground for reforms, resulting in successful privatization of 6 Ukrainian regional electricity utility companies (LECs ). Thus, foreign investors entered Ukrainian electricity market, amongst them  – AES Corporation that operated in Ukraine for 12 years. AES Corporation left Ukraine in 2013, selling its share in Kievoblenergo and in Rivneoblenergo to Russian investors in 2013. Reasons are unclear, but just before making this decision, then Prime Minister Mr.Azarov publicly reprimanded management of AES Energy, that “it is no good having bad attitude to people”. After another wave of M&A , electricity utilities ended up in ownership of certain Ukrainian business group.

They have not, we have got

Surely, this powerful business group had never met an M&A deal it didn’t like, and there are good reasons for it in case with LECs:

  1. Structural energy industry reforms taking place in Ukraine since 2000;
  2. Solutions for legal issues:

–  Recent application of simplified debt  collection;

–  Recent liberalization of collector’ services in Ukraine;

–  State subsidies on municipal services;

–  Collateral-insured households debt in Ukraine.

There is no reason they should know

Why would property owners accumulated such a debts in a first place?

The recipe for backing such a lump debt included assortment of local legislation, economic reality and psyche. During former Soviet Union dwelling property was distributed to citizens by state, since then the best investing option for individuals in Ukraine has been acquiring a flat in private ownership. de facto debts of households are secured by availability of collateral (private property) with registered property rights in Ukraine. People got used to rely on state, majority of population is still sure nobody could take away their Constitutional right to court protection, which could not be executed without debtor’s presence in court, hence sacred right to be informed about court case and time of hearings.

Until recently legislation and law – enforcement did  not meddle with lax payment traditions. For instance, everyone may read legal opinion published in official Ukrainian government newspaper, advising on 3-year threshold for municipal debts payment. Thus, in line with art.256 of Civil Code of Ukraine, individuals may file for relief of municipal debt being accumulated over 3 years; there is Law on municipal debt restructuring and state subsidies for population (“for needy “).  And it was not so important – energy tariffs for population were kept almost as low, as during Soviet times. …As surely tariffs for public transportation and infrastructure by look of it… Ukrainian economy historically addicted to used to be cheap Russian natural gas and cheap electricity that was mostly generated on Ukrainian territory during the former Soviet Union.

t’s Your problem now

And suddenly after 2015 indebted population became subject to mass-campaign of court utility claims. Thus, the art.279 of Civil Procedure Code of Ukraine provides for simplified debt collection procedure enabling issuing civil court order without debtor’ prior notification and hence without debtor’ presence during court hearings. So often unsuspected debtor would find out court order and compulsory collector order from collector. In this case debtor should pay municipal debt plus court duty, court legal expenses and various collector fees.  This instant court procedure is specifically applicable when debt amounts less than 100 official minimal “bread baskets” (constitues UAH 176 200 or equivalent of EURO 5500 on the date of this article).This procedure was available for a long time, but became widely practiced by new creditors.

An army of lawyers is mobilized  in Ukrainian legal market

So there is a need for mobilizing an army of so called “barristers” in Ukraine. But unlike in UK, there is no Bar association in Ukraine. In contrary to privileged and respected caste of barristers in UK, Ukrainian employers call low-skilled-lawyers as “barristers” because their role is to deliver sacs of copy-pasted simplified debt claims (mostly of households) to court.

The needy and the greedy-

market for collector and security services

Population is yet to learn paying debts obviously, the best way protecting a dwelling. Though there is legal way of circling a square of simplified debt collection and how to let plaintiff enjoy his court protection. Surely, the wealthy are for more sophisticated legal services, as there are plenty more interesting M&A deals for couple of years to come.

Other opportunities for professional services presented in Ukraine now are collector services and security services. One might not be worried about protection of national service market, while here is expertise on how to deal with this. There are other foreign companies successfully operating in Ukraine: ENI, G4s Security, as well as plenty franchise operations of foreign banks and financial institutions.

Holding out for a hero

Judging by plenty of hipsters, army of barristers and lots of privately-household- owned  property around, – we are living in affluent times in Ukraine now. At least, there is conventional  wisdom behind it: predominant share of private ownership on household dwelling could be a sign of society wealth. The same is true for abundance of lawyers in Ukraine called as a “barristers”. Similar logic applies for beard-fashion amongst atheist young men, that could be explained by heightened social competition between so many boys succeeded to grow up and being around, because of affluent times in affluent societies, times holding for heroes.

Where have all the good men gone
and where are all the gods?
Where’s the streetwise Hercules
to fight the rising odds?@Bonnie Tyler



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