The nationalization of Russian assets in Ukraine is the first step towards compensating for the material losses suffered by the country as a result of the Russian military invasion. According to the Russia Will Pay project, initiated by the KSE Institute, the amount of infrastructure damage as of the beginning of April 2022 was estimated at $80.4 billion, or UAH 2.4 trillion, and the estimated total damage to the Ukrainian economy due to the war ranges from $564 to $600 billion.
At the beginning of April, the 305 MPs of Verkhovna Rada (the Supreme Council of Ukraine) voted for a bill clarifying the procedure for nationalizing the property of the aggressor country in Ukraine – “On the Basic Principles of Forcible Seizure of Objects of Property Rights of the Russian Federation and its Residents in Ukraine.”
In total, according to open source data and analysis based on them (in particular, Yucontrol and Opendatabot), there are about 23,000 companies in Ukraine with Russian beneficiaries, founders or shareholders. It should be noted that this figure includes companies that have officially traceable ties with Russia at the level of co-owners. Therefore, taking into consideration the informal influence, the real scale of Russian businesses in Ukraine may be much larger. Of these Russian companies identified, about 450 are located in the Lviv region.
Work on search for Russian assets has started throughout Ukraine and is coordinated at the level of regional leadership. An interdepartmental working group was set up in the Lviv region for revealing the objects of property rights of the Russian Federation by the order № 52/22 of the head of the Lviv regional military administration Maksym Kozytskyy dated 5 April.
It was headed by First Deputy Head of the Military Administration Andriy Godyk and includes representatives of the Bureau of Economic Security, Lviv Regional Customs, Lviv Railway, National Police, Lviv Regional Center for Recruitment and Social Support, and the Western Interregional Territorial Administration of Asset Recovery and Management Agency (ARMA) based in Lviv. The nominal structure of the participants was not approved.
Mr. Kozytskyy's adviser also registered activist Olek Radyk, who took an active part in exposing the business that had not left the Russian market after February 24. In particular, Radyk tried to boycott the Auchan network in Lviv.
Everything indicates that the regional authorities are serious about finding even the slightest manifestations of Russian business influence in the region. But in April, it was reported by the regional media that the head of the region had business ties with companies in the Czech Republic that were close to Gazprom. Mind has analyzed these connections and potential conflicts of interests that may arise in the future.
Maksym Kozytskyy was appointed as the head of the Lviv Regional Administration on February 5, 2020. His track record and experience fully substantiated this appointment – in particular, he managed to be both an official and a businessman.
But it is reasonable to assume that he got his post thanks to his belonging to the regional elite. The current governor's place was provided by his father Zinoviy Kozytskyy, who is one of the biggest businessmen in the Lviv region. A psychiatrist by education, in the 2000s he developed entrepreneurship in an industry that was previously considered the patrimony of the oligarchs.
Zinoviy Kozytskyy's main business is exploration and development of gas fields and natural gas production. Today it is the largest private gas production company in Western Ukraine. Mr. Kozytskyy's assets are united under the umbrella of Zakhidnadraservis group; he is also a beneficiary of Prykarpattia Energy Company (PEC) LLC, Zakhidnadraservis LLC, Georozvidka LLC, Nordic-Bud LLC, Nordic privately held company, RSG LLC, Well Co LLC, Geological Bureau “Lviv” (GBL) LLC, Project-Bud privately held company, Horizons LLC.
The head of the regional state administration Maksym Kozytskyy also has a share in the family business. But the Kozytskyys' business cannot be called entirely family-owned. Zinoviy Kozytskyy's partner of several companies of the group, including PEC, GBL and Horizons companies, through the Dutch holding company MND is a billionaire, a citizen of the Czech Republic Karel Komárek.
Why is this partnership a potential problem?
According to Forbes, Karel Komárek is among the top 5 richest Czech entrepreneurs with a capital of $7.7 billion.
He started running business in the 1990s, having become one of the participants of Moravian Oil Fields privatization. By 2010, Mr. Komárek had managed to buy shares of the company and gain control over it. It produces about 6,000 barrels of Moravian oil and gas a year.
The inevitable evolution of big business leads to the fact that its previous boundaries become too tight for its productive functioning. In 2011, Mr. Komárek's structures signed an agreement with Gazprom, and two years later, a full-fledged agreement on the joint construction of new gas storage facilities was signed. It was stated that the company together with the russian monopolist will build storage facilities in Europe and russia.
Let's note that this information is public – both sides were proud of the partnership and did not seek to veil it.
On Gazprom's website, in the section dedicated to natural gas storage in Dambořice, it is stated that “the project is designed to ensure the reliability of russian gas supplies through the OPAL and Nord Stream gas pipelines.” The storage was finished in 2016. Despite the sanctions imposed due to the building of Nord Stream-2, the total volume of storage facilities that were built to service NS-2 together with Gazprom is 456 million cubic meters.
Soon after, this partnership went beyond just business and turned into social and sports projects – for example, Mr. Komárek sponsored the Continental Hockey League, where Alexander Medvedev, former deputy chairman of Gazprom (in 2014-2019), holds the presidency. This sponsorship is sometimes interpreted as a bribe, but it is possible that the billionaire just loves hockey.
The partnership with Gazprom also included the purchase of 16% of shares of Gazprom's Czech subsidiary company Vemex, which supplies fuel to European countries. Mr. Komárek spent about 1 billion kroons for that purpose (over $45 million at the current exchange rate). At the same time, a complex for receiving, storing and distribution of oil was purchased in Oktyabrsk, Samara region.
That means that the entrepreneur is a partner of Gazprom and at the same time he is also a partner of the family of the governor of the Lviv region. This created a serious conflict of interests: the top official responsible for the search for Russian assets is related to such himself through his relatives.
How does it manifest itself?
Business ties are reflected in public activities within the region. Thus, at the end of spring, a Czech-Ukrainian business forum was announced in Lviv. It was planned to involve about 20 leading Czech companies and representatives of the Czech Republic's authorities to establish contacts and hold B2B meetings with the representatives of the Ukrainian business community.
“The head of the Lviv Regional State Administration Maksym Kozytskyy stressed the importance of cooperation between the two countries and thanked the Czech Republic for the support of Ukraine, together with its sovereignty and territorial integrity in the international arena,” the administration said in a press release. It is difficult not to link this activity with the business relations of the governor's family, as Lviv business forums with a focus on a specific country are still not an everyday phenomenon.
It would be appropriate to note that Mind does not question the governor's ability to act objectively. But the current situation requires at least an internal protocol at the level of the working group on the search for Russia's assets in order to negate the conflict of interests.
In response to Mind's request, the head of the interdepartmental group at Lviv regional public administration (LRPA) Andriy Godyk noted that at the current stage the information on economic entities in Lviv region in terms of taxes paid, the number of employees in 2021, Russian and Belarusian owners is still in the process of collecting. (In fact, all the information on business entities related to Russia and Belarus is collected by the youcontrol system and is available to the media and government agencies. – Mind ed.)
“This information will be summarized for further processing in the way provided by the current legislation,” it was said in response to Mr. Godyk's signature.
According to the available to Mind protocol of the meeting of the Interdepartmental Group of April 8, the Main Department of the State Tax Service in Lviv region was instructed to provide the Department of Economic Policy of LRPA the information on various parameters, including taxes paid and the number of employees natives of Russia. “In its turn, the department, after analyzing the input data, should provide the interdepartmental group with generalized information on the scale of Russia's business influence within the region,” it was said in the document.
What has changed after the war?
According to open data, the status quo of business relations between Mr. Kozytskyy Sr. and Karel Komárek have not changed since February 24.
The Prykarpattia Energy Company, responding to a request from Mind, confirmed that the status of these relations was saved. MND Group came to Ukraine in 2014, having bought shares of three companies, PEC, Horizons and Geological Bureau of Lviv, and still remains their co-owner today.
However, according to the PEC's response, MND's close ties with Gazprom are greatly exaggerated. “The group does not implement and does not plan to implement projects to build new gas storage facilities in Europe and especially in the Russian Federation in partnership with Gazprom, neither does it regarding any other gas infrastructure,” the company said in a statement.
The building of the Dambořice gas storage facility, which is co-owned by MND and Gazprom, began in 2013. However, the reasons for maintaining this partnership are not economic, but geopolitical ones, and they take into account the interests of the state. “The JV is supported at the request of the Czech government – in particular in order to ensure that an important Czech energy asset is not controlled by Russia,” PEC said. “The fate of this facility has already been already decided – most likely, the share of Gazprom will pass to the Czech Republic. In the future, MND Group does not plan any cooperation with Russia.”
On February 24, Karel Komárek publicly criticized the Russian aggression against Ukraine, and his Family Foundation has become a powerful volunteer foundation, which provides humanitarian aid to Ukraine. In particular, one of the company's buildings has been converted into a center for Ukrainian refugees.
“The business interests of the KKCG Group are focused on Western Ukraine and Europe, and the asset in Dambořice is a paltry share of all KKCG's assets,” the company emphasized.
Kozytskyy's business structure has not received any inquiries yet.
For reference
We should note that the nationalization of assets is a widely used and insurmountable legal mechanism.
Russia referred to it (albeit unreasonably) during the annexation of Crimea – according to the Ministry of Foreign Affairs of Ukraine, after March 2014, more than 400 Ukrainian enterprises and 18 gas fields were illegally nationalized. The Ukrainian authorities have sent a lawsuit on compensation of losses to the European Court of Human Rights. The cost of this lawsuit exceeded UAH 1 trillion (at the current exchange rate – over $ 45 billion).