According to the Russian invaders themselves, the so-called “state unitary enterprise” controlled by them, “Krymenerho”, is one of the “largest taxpayers of the Republic of Crimea”, and more than 7,000 people ensure the reliable operation of its equipment [1]. However, despite the fact that according to macroeconomic indicators, “Krymenerho” has the characteristics of an invaders’ “budget-forming enterprise”, the data of its current financial statements and some other facts prove that this “unitary enterprise” is rapidly going bankrupt.

In the previous article [2], we already wrote about the Russian occupiers’ plans to rapidly reorganize the “unitary” Krymenergo into a so called “joint-stock company “Krymenerho”, as well as why such blitzkrieg in the redistribution of energy assets failed. However, new circumstances indicate that a “change of ownership” will still take place. Associate Professor Andriy Chvalyuk will try to predict how this “reorganization” will take place and what consequences it will have for the residents of the occupied Crimea.

“Krimenergo” cannot be called a “prosperous enterprise”. In 2020, it received less than 15 million rubles of “profit”, while its “accounts payable” in the same year rose to 4.09 billion rubles [3]. In January 2017, the so-called “Chairman of the Council of Ministers of the Republic of Crimea” Yuri Gotsanyuk allowed “Krymenerho” to take the “first loan” of 2 billion rubles at 12% per annum. In total, over the past five years, “Krymenerho”, which has a “share capital” of 27.77 million rubles, has raised “loans” of 8 billion rubles. Another “loan” of 2 billion rubles at 9.5 % per annum, “Krymenerho” took in 2021 in the bank “Russia”, allegedly a “commercial credit organization without state participation in the ownership structure”, which we will talk about later [4].

Credit combines several functions, the most important of which, in a market economy, is stimulating. Thanks to credit, companies receive a strong incentive for further development [5]. But this function is realized only if the company’s management is interested in development, while the orders of the current “director-general” of the “state unitary enterprise “Krymenerho” Andriy Tsurkanenko show the opposite goal. Andriy Tsurkanenko used the money borrowed in 2021 to “replenish working capital, salaries and taxes, pay for electricity, goods, works and services” [6]. In fact, “Krymenerho” simply “ate” them; consuming attitude to “borrowed funds” became a tradition in “Krymenerho”.

After all, each new “director-general” (the current is the sixth one since 2014) takes a “loan” to plug the hole in the “enterprise’s budget”, then he “transfers cases” and debts with interest to the next “manager”. Approval of “loans” to support the current performance of “Krymenerho”and complete disregard for internal problems by the Crimean “authorities” slowly led the structure into the abyss. But, as we said above, bringing “Krymenerho” to “bankruptcy” is possible and was the real goal of this “ineffective credit policy”, because the smaller the fish, the easier it is to swallow.

Initially, the Russian occupiers planned to create a “joint venture” with the “Rosseti”, and in order to “maintain control over both sides of the agreement”, the Crimean collaborators were promised to allocate “25% plus 1 share” in a joint creation. Shortly afterwards, other figures began to sound, and the intention to divide the new “joint-stock company” was already “fraternal” – fifty to fifty. [2]. We suspect that the reluctance to “equal partnership” slowed down the process of “reorganization”, announced in 2017.

After all, while some groups of collaborators were engaged in “registration of all facilities and lands of the company” to “increase its assets” at the expense of seized in 2014 property of the Ukrainian corporation “DTEK” [7], others – acted with the opposite purpose and allowed “Krymenerho” to take regular “loans” from commercial Russian banks. The growth of “accounts payable” increases the liabilities of “Krymenerho” and may lead to its financial insolvency. It is one thing to share the shares of a “profitable energy company” and quite another when this “company is already on the verge of bankruptcy”. Given who is the “creditor” – the right of first refusal of payments already belongs to “Bank of Russia”, whose key shareholder is Yury Kovalchuk.

Last year, Russian President Vladimir Putin awarded Yury Kovalchuk the Order of Merit to the Fatherland of the 4th degree. According to the accompanying decree, Kovalchuk was awarded “for his great contribution to the implementation of socially significant projects in the Crimea”. The decree does not specify, what kind of “projects” were done [8]. It is possible that the award was given for the contribution to bringing “Krymenerho” to “bankruptcy”. There is still nothing to lose to Yury Kovalchuk, Putin’s personal “cashier”, who is under the pressure of a full package of sanctions since 2014. In December 2017, “100 % of the shares of the Crimean champagne plant Novyi Svit” were “bought” by the St. Petersburg-based company “Yuzhny Proekt”, a subsidiary of “Russia” bank [9], and now is probably the time for Mr. Kovalchuk to “take in hand” no less valuable branch of the regional economy – the Crimean housing and communal services.

The Russian invaders’ “investment plans” also look doubtful, given the facts. As Serhey Aksyonov said earlier, the amount of “funding for the modernization of networks in Crimea” will be about nine billion rubles [10], but “Krymenerho” has already raised “loans” of 8 billion rubles, which does not prevent his “leadership” to report regularly that “depreciation of substation equipment averages about 80 percent”. Where does the money go? Part goes to the payment of previously taken “loans and interest thereon”. Another part of “Krymenerho’s” income is spent on staying afloat. The rest are being stolen by “Krymenerho’s” “public purchase managers” and other corrupted “officials”.

In 2020, the former “First Deputy General Director” of “Krymenerho” Konstantin Laenko, and its current “Deputy General Director” Alexander Kalachev entered into a conspiracy to obtain money from potential subscribers for services that “were part of the functional responsibilities of the enterprise”. Alexander Kalachev received from the representative of the businessman 300 thousand rubles for “facilitating the accelerated receipt of technical conditions and concluding a contract for connection to the grid” “Krymenerho”, after which he was seized by representatives of the FSB’s “Crimean Department” [11]. It remains to be seen whether Laenko and Kalachev were “merged” for their refusal to “share”, or whether Russian invaders’ punishers began to “cleanse” “Krymenerho” of corruption in advance in order to “further justify the need for reorganization” and, of course, “complete replacement of the energy company’s leadership”.

We consider it necessary to say a few words about the future “supplier of electricity to Crimean consumers”. The current “Krymenerho” joint stock company”, other than above-mentioned “state united enterprise “Krymenerho”, was established as a legal entity by the Federal Agency for State Property Management on May 19, 2008. The reader should not be confused by the date, as it was originally the federal state unitary enterprise “Ayatskoye Peat Enterprise”, located in the Nevyansky district of Sverdlovsk region of Russia, at the village of Ayatskoe, Lenin Street, 20. By the way, the “Crimean enterprise” still uses its actual address in Ayatskoye. After privatization and becoming an open joint-stock company, “Ayatskoye Peat Enterprise” continued to operate in the Sverdlovsk region until it was “sent” to the Crimea by the Russia’s Governmental prescript on July 31, 2017 № 5477p-P9 [12]. Having settled in Simferopol on Rubtsova Street, building 44a, room 101, the former peat extraction specialists began to perform the tasks assigned to them by the government of the aggressor State.

On August 27, 2021, the “General Director” of “Krymenerho” JSC” was replaced, and now Oleksiy Mykolayovych Honcharov holds this position. Although there is no one to command the new “general”, as the number of “employees of the company” is still 13 people. Well, at least the new “manager” has some experience of “effective” management of the energy company, because in the same period when the “joint stock company” was created, Alexei Goncharov, together with Chumakov Andrei Vladimirovich and Krasikov Vladimir Petrovich founded Karelian “United Hydropower Company”. This company worked for 10 years and in February 2018 was liquidated [13].

It was “Krymenergo” JSC” that also “balanced on the border” for many years, showing a penny profit. In 2020, the losses of “Krymenerho” JSC” amounted to 2.09 million rubles, with revenues of 6.5 billion rubles. Despite the fact that the first talks about the “two-way scheme of transformation” of “unitary enterprise” “Krymenerho” into “joint stock company” began in 2018, the stage of financial “pumping” “Krymenerho” began only in 2019, when the “company” received 629,24 million rubles for the “issue of shares”. Over the next two years, the company’s assets increased from 2.1 million rubles to 4.3 billion rubles [14]. However, this “enterprise” is still low-profit, which may indicate inefficient economic activity. Although the “current liquidity ratio” shows the presence of “high risks that the company will not be able to pay its own bills”, other facts indicate that it is indeed being prepared to accept the assets of “state unitary enterprise “Krymenerho” [15] .

What “Krymenerho” JSC” has really succeeded in, is the “consumption” of goods and services. Having a “basic code” 35.12 “Transmission of electricity and technological connection to the distribution network”, which involves “providing certain services by the company”, the fee for which should provide it with “profit”, it is engaged in something else. In the 13 years of its existence, the company, as a “participant in the public procurement system”, has supplied goods or services worth more than 80.8 million rubles, and ordered goods or services worth more than 28.8 billion rubles [15].

Starting from January 9, 2020, “Krymenerho” JSC” began to purchase massively “high voltage power cables” and “services for engineering design of power supply systems”. By October 2021, the “construction and design direction” of procurement was completed and the company switched to ordering office furniture, computers, vehicles and overalls. All this confirms that the warehouses are already “clogged” with equipment that will allegedly “replace the worn-out networks” of the “unitary” “Krymenerho”, and the formation of the office of the new energy company has entered its final phase. The purchase of 8.8 million rubles of overalls demonstrates the readiness of “Krymenerho” JSC” to “expand the staff” [16].

Also, on September 23, 2021, the Russia’s Government Commission for Security of Electricity Supply initiated the issue of “expediency of transferring electricity facilities” of the so called “federal state unitary enterprise” “Crimean Railway” to the “ownership of Russia” with further transfer to “Krymenerho” for the “free use” [17].

In view of the above, we believe that the Kremlin wants to “squeeze out” a group of collaborators from the “leadership” of the Republic of Crimea” from the energy business. That is why the bank “Russia” is tightly planting the “republican state unitary” “Krymenerho” on the credit needle, approving “loans” with an economically unpromising purpose. And if “loans” to energy companies of Russia are issued “to finance the current activities of the enterprise” [18], i.e. activities, aimed at making a profit, the “unitary” “Krymenerho”, as mentioned above, issued the money “to pay for electricity, pay wages, pay taxes and for mandatory payments to the budget, payment for goods, works and services” [19].

The difference is fundamental. You do not need to be an expert to understand that a “loan”, issued for such needs will not benefit the “borrower”. Therefore, the purpose of such “lending” can be only one – to further worsen the financial position of the “energy company” and make it the permanent debtor. After all, if the “state unitary “Krymenerho” “goes bankrupt”, it will no longer be necessary to apply the “suspended” from 2017 scheme with “laying” in the form of “transfer of its assets to the Russian treasury”, because the “remnants of power grids” will go, on allegedly “legal grounds”, to the bank “Russia”, or rather – to the persons behind it.

This scheme is not new and has long been used in Russia itself. According to the report of the Accounting Chamber of the Russian Federation, the state policy is aimed at reducing the number of federal unitary enterprises through the privatization of federal property. However, the privatization program is being implemented very poorly, in 2017-2019 the main reasons for the reduction in the number of federal unitary enterprises was not privatization, but mergers, liquidations and bankruptcies [20].

State unitary enterprises have natural defects. The indivisibility of their statutory fund limits the ability to attract foreign investment to ensure and maintain product competitiveness. Such enterprises are focused on budget financing, which is impossible in times of economic crisis. However, in the Crimea, businesses can still see the “investment” only from the “budget”, as our Association has already written.

Also, state unitary enterprises lack economic incentives for production accumulation due to the lack of a real owner, the divergence of interests of the owner-state, employees and management system [21]. Also this “conflict of interest” is exacerbated for the situation in the Crimea, by the “gray zone” of the peninsula’s economy, and it can be clearly seen in the leapfrog of “Krymenerho’s” bosses.

But the creation of a joint stock company will not solve all problems. After all, “private shareholders” usually require from their appointed head a constant increase in profits, which will directly affect the growth of tariffs. According to statistics, in Russia, unitary enterprises provide their energy services at lower tariffs than “joint-stock companies” [22]. Tariff pricing in different territories depends on many factors, but there is reason to believe that after the liquidation of the “unitary “Krymenerho”, tariffs in the occupied Crimea, almost “frozen” by the aggressor State since 2014, will quickly reach the level of “average Russian prices”. As for improving the “quality of services”, even assumptions should not be made. The new “joint-stock company”, remaining a “monopolist” in the Crimea, will not “keep the brand” for a long time and net profit, instead of investing in “enterprise development”, will be fully distributed among shareholders. That is, between Mr. Kovalchuk’s right and left pockets.

Another problem of the aggressor State is that many Russian state-owned companies have become “specific feudal principalities” controlled by their top managers. After all, the management of a “joint-stock company” has the right to set the amount of salary and incentive bonuses, which is why some managers have a salary 22 times higher than their subordinates. As it was shown by the Accounting Board of the Russian Federation, in many “joint-stock companies with state participation” decisions are made to pay remuneration to management, even for unprofitable activities of the enterprise [20]. In the case of the transformation of the “state unitary “Krymenerho” such a practice is likely to be used in the new “joint stock company”.

Summing up, we can conclude that the transformation of “unitary “Krymenerho” into “joint-stock “Krymenerho” will benefit only the management of the new structure of the company and those behind it, in the form of Kovalchuk’s business empire. The population and industrial electricity consumers in the occupied peninsula will only suffer from this reorganization, as they are obviously considered by the Kovalchuks as their own “fodder base”, which will not go anywhere from the services of “shareholders”. Moreover, the ousting of the “unitary “Krymenerho” from the market is only a part of “Ozero” Putin Corporation’s plan for systematic business control over the entire Crimean energy sector. Read in our next article, how those occupiers are trying to profit from the generation of electricity in the Crimea and to squeeze at the same time “private producers” out of the energy market.