Interview to Rzeczpospolita
Before the start of Russian invasion, Smart Holding employed 100 thousand people. Among others, in Azovstal. What remains of this empire?
We are an investment company focused on agriculture and heavy industry. In some companies we are only a minority shareholder. This is a separate part of the business. We were employing 130-140 thousand people there before the war. Currently, this number dropped by around 60%.
The other part, where we are a majority shareholder or even sole owner – that is gas, ports, infrastructure and several industrial companies, they were employing another 5 thousand people. There is only 3000 still working.
After the COVID pandemic we were ready for expansion. But an old Ukrainian saying that “black swans appear unexpected” came true. We have about a half of our assets left. In case of gas production, its about 20%, in metallurgy and mining about 60%. Our shipyards are bankrupt, shopping malls destroyed by bombs or taken over by Russians. We have lost half of our production base. We survived, saved by high gas prices and this income held up other branches. We are determined not to close down any companies as long as possible. Even if their operations do not generate profits, we keep them running.
But Smart Holding suffered not only because of the war?
In 2023 another black swan appeared. An internal discussion has been initiated concerning our assets, which has had “unpleasant consequences” for our group. We were deprived of several concessions.
Do you have any business contacts left in Russia?
None. Up to 2014 we were importing Russian coal. We have cut all those ties after annexation of Crymea.
Some companies were investigated by the SBU. Why?
What has happened is not linked to sanctions in any way. The reasons are purely political and tied to the orthodox church and our groups founder, Vadim Nowiński, who left business in 2013 to become a priest.
And in 2022 he ceased their ownership title transferring all the businesses and assets were transferred to a trust fund. I am representing this company as its CEO responsible for business development in Ukraine. The powers in Kiev have accused our Cypriot shareholders of cooperation with Russia and that was the basis used to freeze some of Smart Holding’s assets.
For me, such an argumentation is laughable and baseless. This shows that Ukraine, even in time of war, still has a long road towards rule of law.
Do you know who is taking over your assets once they are frozen by SBU?
It’s the State. But I can’t exclude the possibility that in a few years, there will be new oligarchs appearing. We are a post-soviet country with an entire culture build around benefit from state-owned assets or the state in general. Some businesses in Ukraine were privatized with full responsibility and were responsibly managed. Unfortunately, this does not describe the entire economy. There are new oligarchs and in Ukraine we even tried to implement special laws governing them. Its is shameful that they did not enter into force.
Do you think that this situation can change if Ukraine would sign an association agreemtn with the EU?
I hope so, yes. I would also expect the western partners to assist us wisely, not only to change the law but also to effectively enforce them. I think Ukraine will not be able to make this transition alone.
IMF, World Bank and EBRD are active in Ukraine. Is their presence any kind of support for a business like the one you’re managing?
These institutions have their rules. EBRD has shareholders from 40 countries so it has to obey strict regulations. Even before the war, majority of Ukrainian companies has troubles to fulfill all the necessary conditions. Currently, there’s much hope in the creation of Ukraine’s Recovery Fund backed by BlackRock and JP Morgan. There’s a lot of interest in participation in this venture.
I understand that western businesses want to control the flow of money, which should be consistent with their destination, but Ukrainian business is now fighting for survival. We’re using all available assets to not disappear. We pay taxes, we participate in aid projects, we donate funds for the military. Will our money be enough to even re-create the construction sector? Obviously not. We would like to see institutions like the Wold Bank, IFC, EBRD to exercise a balanced approach. If the western business would enter Ukraine and our companies will not have a chance to participate in the reconstruction of our country, the situation will be very dire for us. I’m open to partnerships, we need support, we need to be transparent but the rules of the game have to change.
You believe it’s possible?
I do believe, we all need to acknowledge and accept us, the private entrepreneurs. Currently, the debate is being conducted at government level. I do not see the will to include business into these processes.
Do you think that despite all these problems you will be able to rebuild Smart Holding?
It’s as you would ask if Ukraine can be rebuilt. Yes, I do believe that is possible.
Ukrainian Minister of Foreign Affairs, Dymitro Kułeba stated that the war can take several more years because the Government is determined to take back the entire territory. Do you, as a representative of the business, think it’s feasible?
As a Ukrainian citizen I don’t have any doubt: we would like to recovery all of our land and we want peace. These are the necessary conditions for normal activities and access to foreign capital ready to invest in our country. But it is difficult to assess how feasible it is at this point in time.
What is left of your agriculture line of business?
This is a sad story. We have minority shares in HarvEast, one of 10 largest agricultural complexes in Ukraine. Before 2014, we were working on 200 000 hectares of land. Today, there’s around 30 000 left. In 2022 we have lost part of our harvest and machines and to cultivate what’s left, we need a thorough de-mining. Logistic chains have been destroyed, seaports cannot function normally.
Before the war, in 2019/20 season, Ukraine has exported 55 mln tons of cereal. In 20/2021 – 45 mln tons, 21/22 when the war started we had plans for 50 mln tons. This was of course impossible to achieve but thanks to the grain agreement, we managed to sell 33 mln tons. In general, the was cut of Ukraine exports by around 100 mln tons of different products so the farmers found themselves in a dire situation. Ukrainian grain is sold 20-30% cheaper but logistics are more expensive for us than for other producers. Recently, it became difficult to transport Ukrainian grain by land. If this situation will not be resolved, Ukrainian farmers will face a real tragedy.
What’s your take on possible solution of this situation?
We need to find new routes to ports in EU member states. These are of course long-term infrastructural projects. I’m not hiding that Ukrainian private sector there’s a strong will to participate in creating these solutions. Another thing is the view from Brussels on the Ukrainian agricultural potential that could make the EU not only self-sufficient in terms of food production but also the biggest exporter of agricultural products. EU member states would not be the recipients but Africa and Asia. I have to say that I am highly interested in initiating a dialogue with Polish private sector on this subject.
Is it your opinion that these products can be transported without conflicts of interests through countries like Romanie, Bulgaria, Hungary or Poland?
Everything can be properly organized if only there’s will for an honest and open dialogue. Substantive dialogue is the tool to resolve this situation.
Who should be conduct this dialogue? You and Polish companies or Ministers from Warsaw and Kiev?
Of course the Government must talk to each other to establish the framework for business to function with respect to all legal obligations. If you don’t apply the rules, you’re out of the game. But entrepreneurs must have a platform for dialogue and understanding on their side. I’m convinced that the private sector is able to reach an agreement much faster than the authorities.
Does the Government in Kiev know that you’re in Poland?
No. But they do follow all press publication in which I appear. I’m all for a strong Ukraine and I think that if we’re having internal problems, we should be transparent in this. Of course, in all matters concerning the conflict with Russia we stand united. Nothing can change this.
Who are you meeting in Poland?
Similarly to my visits in USA, UK and Germany, I’m mostly meeting representatives of the local industry. We already have same advanced projects.
Poland is a market, which we’re getting to know and I intend to promote Ukrainian investments. For now, I have been able to meet representatives of the construction and real estate sectors. I’ve met with a developer from Pomerania, with ongoing project in Gdańsk, Gdynia and Reda. We are complimentary to each other. We have a lot of experience in commercial projects – they are in housing. I see possibilities for future cooperation in Poland and when the war is over, we will be ready to expand our partnership to Ukraine.
You live in Kiev. Do you feel safe there?
Nobody feels safe in Ukraine. Nobody sleeps calmly, and often for several days we don’t sleep at all. But I have 3 000 employees in the country, I’m their boss and I feel obliged to be with them, where they are.
