Business Blog
Sugar Daddy spurns Ukrainian partner:
If you're fishing for a reliable business partner then who could be better than a long established reputable British company? That's how many of us think and for the TEKT Group in Ukraine it was no different. TEKT is also a well established investment and finance company and saw the opportunity of being a junior investor in a Sugar Factory with the British giant ED & F Man as being a pretty safe move. This is where this story should have ended but unfortunately this particular partnership has become a nightmare for the junior Ukrainian partner. It's hard to tell if this situation is caused by the agents of ED & F Man, based in Poland, supplying misinformation or by the typical British reticence in the face of criticism but the fact remains that the British company is not standing by its own CSR statement or of its statements regarding partnerships, accountability or transparency.
On partnerships they say on their website.... '...Over the past several decades we have worked hard to establish long term relationships with strong and ethical participants in our markets. In this spirit of partnership we are conscious of our social and global responsibilities.'
I first heard about this situation from another Englishman who is also working in partnership with a Ukrainian firm and he was worried about the damage this kind of situation causes to other British firms operating here.
'We value our good reputation for fair and honest business; it puts us well ahead of the Americans and some other European businesses that are often seen to exploit local conditions...'
So what happened? I decided to do some sniffing around. It seems that a sugar factory 'Zaelski Sugar Factory' USC.Ltd of which ED & F Man own a majority share (75%) was being managed by an appointee of the British company's agents, who are based in Poland. TEKT bought UPC, a limited liability company, which owned the remaining 25%. This manager, along with the Polish agents, seems to be at the root of the problem.
These Polish agents first tried to prevent the sale by putting pressure on the UPC owners to stop the transaction but this failed.
At their first meeting TEKT was told by the Polish agents that they should 'get out' of the enterprise or 'bad things will happen'. The agents from Poland arrived late for the meeting and were drunk when they arrived. They made threats and suggested that life would be much simpler for TEKT if they looked for another investment. They suggested that the shares owned by Man Sugar could be sold to certain Russian Criminal elements in an effort to make TEKT pull out of the deal.
Alarmed by this behaviour by Mr Magiera and Mr Yakubchak, the Polish agents, TEKT then contacted the factory manager, Tamash Brzhezinski and suggested a meeting to update them on progress and future plans for USC to which he first agreed and then changed his mind and sent a fax to say he had nothing further to say. He immediately tried through corrupt legal proceedings to have a prohibition issued against the new ownership. This also failed however.
TEKT wrote to the Board of Directors of ED & F Man to bring the situation to their attention. Also to inform them that no attempt was made to discuss any possible cooperation as partners.
'Wherever we operate we endeavour to build local knowledge and forge alliances with the domestic stakeholders.' ED & F Man
So what was actually happening at this sugar factory? It seems these Polish agents were pulling some kind of scam and using the name of ED & F Man to give themselves credence and time to swindle themselves a huge amount of money.
The factory director, Mr Brzhezinski, ordered 20,000 tons of coal at an inflated price of $2,000,000 dollars for the boilers of the factory. These boilers require a special type of high grade coal only available from Russia but this coal was ordered from a Ukrainian source, Makkon, and when deliveries began to the factory some of the workers protested that it wasn't actually coal at all, but rocks and dirt mixed with coal dust. They were told by Mr Brzhezinski to keep silent and deliveries continued for a year. Now the Polish agents have asked UPC to provide another $2,000,000 to buy the correct coal and, amazingly, Mr Brzhezinski is still director of the factory.
Mr Brzhezinski also can't, or is reluctant to, explain why he bought equipment from a redundant factory in Ireland and at the same time received compensation from the Irish government for the disassembling of the equipment. The equipment was then bought by USC at an inflated price.
It also seems that USC, when they bought the factory, didn't buy everything. A stretch of railway on the property as well as 58 pieces of equipment still belonged to UPC, the minority partners. Another part of the railway belonged to a company called Delfiy-C. TEKT, when acquiring UPC also got a part of Delfiy-C and so owns the railway connecting the factory to the main line. Mr Brzhezinski, however has taken over the railway and is using it for his own purposes without the permission of the owners, despite being informed that the track is in a dangerous condition and urgently needs repairs and maintenance. The Chief of the Kherson railway network has ordered that use of the railway be halted but USC continues to use it.
A representative of Delfiy-C, Mr Ruslan Bereshenko stated:
'...previously the holding E.D. & F man offered us payment for this railway however this agreement wasn't interesting for us. We were ready to consider variations of use of the railway line for a long term rent however the management of the factory apparently decided not to pay for the use of the railway line at all'
'We put great emphasis on sustainable production by providing fair markets to farmers, adhering to environmental standards and respecting social rights throughout our operations.' ED & F Man
The factory was to begin work on 14th June this year but the incompetence or corrupt activities of Mr Brzhezinski have prevented this and his neglect of safety procedures have resulted in accidents at the factory with two deaths and several cases of serious traumas. They refuse to explain why the factory has been idle for two years or even state their plans for the near future. The factory was set up to process raw sugar from huge stocks in Poland but new tax restrictions now make this an unprofitable option.
'Our management remains committed to a highly accountable collegiate structure that puts much emphasis on corporate governance and responsibilities.' ED & F Man
TEKT has repeatedly tried to bring these facts to the attention of the Board of ED & F Man but without response or action. Why doesn't this British giant want to investigate these allegations or even make a statement regarding the actions of its Polish agents? Does this silence implicate them in what seems very obvious to any outsider to be a very suspicious operation? It remains a fact that this kind of association can only lead to the damaging of the reputations of British firms in general, which is shame for those who work hard and fairly to show the world that we are different from others in the way we do business and that people can value that. This tale smacks more of the way our colonial cousins do business. 'As long as the cash is coming in. Who cares?'
'We foster a can do culture that embraces ideas, talent and initiative and encourages team work combined with open communication.' ED & F Man....