From Kurchenko to Pashynskyi: What’s with Odesa Oil Refinery?

On February 12, the NABU and the SAPO served ex-MP Serhii Pashynskyi with a suspicion notice: he and five other people are suspected of seizing the arrested oil products of Serhii Kurchenko’s company.  

The media immediately mentioned political pressure on the ex-MP because the alleged crime took place back in 2014. But this story is not so simple as the case concerns the possible embezzlement of the property of the Odesa Oil Refinery—an asset that belonged to Serhii Kurchenko before the Revolution of Dignity, and since 2014, it has either been seized, or transferred into the ownership of the state. The fate of the plant, unlike its petroleum products, has not yet been decided.  

Today, no one really seems to want the plant, which was once quite important. All this is due to colossal problems with its confiscation and management within 10 years after the seizure, no matter how often various officials and politicians stated it was their achievement.  

We started preparing this material long before Pashynskyi was served with a suspicion notice and, apparently, not without reason. Nowadays, the Odesa Oil Refinery is a vivid illustration of how NOT to manage seized and confiscated property.

Rapid but unsuccessful confiscation

This story dates back to February 24, 2014, when the investigation into the unlawful actions of officials from the group of companies Eastern European Fuel and Energy Company, belonging to Kurchenko, began. 

Quite quickly, in April 2014, a judge of the Pecherskyi District Court of Kyiv seized all real estate and a land plot of Odesa Oil Refinery PJSC. In November, the seized movable property of the Odesa Oil Refinery was transferred for sale to the State Enterprise Ukrtransnaftoprodukt.  

The situation developed rapidly for such cases, so in June 2017, the Suvorovskyi District Court of Odesa confiscated these assets by its verdict, approving a plea agreement with the accused Deputy Director for Supply of Odesa Oil Refinery PJSC. Law enforcement officers separated a criminal proceeding regarding Kurchenko on this confiscation from the “main case.” Subsequently, this verdict will get overturned. We will later cover the reasons for this in more detail. 

In October 2017, by another verdict under the agreement, the state collected oil products of the Odesa Oil Refinery or money received from their sale. This money was placed by SE Ukrtransnaftoproduct on accounts with Fortuna Bank. According to media reports, this bank was already in the process of liquidation since February 22, 2017.   

After the confiscation verdict, the government transferred the plant to the State Property Fund, and the latter created a separate state-owned enterprise to work with it on January 4, 2018. The decision of the Cabinet of Ministers on such a transfer of the Odesa Oil Refinery to the SPFU is now being appealed in court, but while the criminal case against Kurchenko is being heard, the trial of this claim has been suspended.

Reasons for overturning the confiscation verdict under the agreement

The verdict on the special confiscation of the Odesa Oil Refinery assets quickly entered into force. But the owners of the asset tried to overturn the confiscation and, with the necessary decision of the Supreme Court, achieved a review of this verdict in the appellate instance. 

Finally, in 2021, the judges of the Kropyvnytskyi Court of Appeal, who reviewed the verdict, found the following violations in its delivery:

• groundless refusal of the representatives of PJSC Odesa Oil Refinery and LLC Energy and Gas of Ukraine to participate in the case on approval of the agreement (also the owners of the property of the plant);
• existence of two different plea agreements in the case, which differ from each other;
• lack of approval of the injured party—the State Fiscal Service of Ukraine, which still existed at that time;
• the prosecution raised the issue of special confiscation not in the concluded plea agreement, but in a separate motion;
• seizure of property was imposed in other criminal proceeding than the one in which the agreement was approved;
• judges did not check whether it was possible to confiscate property that did not belong directly to the accused;
• during the automatic distribution of criminal proceedings, the composition of the court was incorrectly determined. 

Considering these circumstances, as well as other inaccuracies of the concluded agreement and the indictment, the Kropyvnytskyi Court returned the case to the first instance and eventually, in October 2023, it refused to approve this agreement.  

Therefore, the confiscation of the Odesa Oil Refinery, loudly announced by the former Prosecutor General Yurii Lutsenko, turned into a soap bubble due to the unprofessional actions of law enforcement agencies. The confiscated refinery ceased to be confiscated.  

These assets again acquired the status of those seized in the criminal proceedings against Kurchenko. Their fate can be decided either in the criminal proceedings, which are now being heard by the Prymorskyi District Court of Odesa against Yanukovych’s accomplice, or in accordance with the sanctions legislation. 

The National Security and Defense Council imposed sanctions on Kurchenko and blocked his assets, which is the reason for the Ministry of Justice to apply to the HACC with a claim for the recovery of this property. However, there are already questions about whether the state needs these assets, considering their current state. It appears that there will be nothing to confiscate.

Effectiveness of managing the Odesa Oil Refinery, and what Pashynskyi has to do with it

While being seized, the Odesa Oil Refinery was in the hands of at least two managers: SE Ukrtransnaftoprodukt and the State Property Fund after the confiscation, which formed the SE Odesa Oil Refinery. The ARMA could not determine the third manager for almost three years, and therefore initiated a special procedure with the government to determine the manager.  

Prior to the establishment of the ARMA, the handling of material evidence in criminal cases was regulated by the Procedure approved by the Cabinet of Ministers. It was based on this document that both movable and immovable property of Odesa Oil Refinery were transferred by the rulings of investigating judges to SE Ukrtransnaftoprodukt, motivating, in particular, that it was necessary to establish the normal operation of the plant. 

Back in 2015, Ukrtransnaftoproduct was accused of abuse during the sale of petroleum products. Journalists associate this company with the co-owner of the Factor group Serhii Tyshchenko and ex-MP Serhii Pashynskyi. This is where we finally come to serving Pashynskyi with a suspicion notice. 

As it became known recently from the NABU and the SSU, Ukrtransnaftoproduct, under the pretext of “forced sale,” sold the raw materials in full at low prices. The funds received were transferred to controlled companies, not to the state budget. According to the investigation, we are talking about losses of UAH 967 million. 

By the way, in February 2019, Serhii Husakov, the first deputy of the regional branch of the SPFU in Odesa Oblast, reported that after the completion of the asset inventory, many of the company’s equipment lost its function, in particular, because it was not properly removed from service. 

Thus, even specialized state-owned enterprises such as Ukrtransnaftoproduct were not able to ensure proper removal from operation and interim management of this seized asset for 10 years. 

Moreover, in February 2021, the SPFU informed the Odesa Regional Prosecutor’s Office that the SE Odesa Oil Refinery that the Fund had created lacked funding to properly protect this facility. 

Notably, at the beginning of this story, the lack of attention to the problems of managing the seized property was noticed, so the relevant law was adopted, and on February 24, 2016, the government created the ARMA. Therefore, to preserve the assets of the Odesa Oil Refinery, it was transferred to the Agency in May 2021. 

The information from the register of seized assets indicates that the last competition for the management of these assets was announced in May 2022. In August 2023, the ARMA initiated a special procedure before the Cabinet. The Head of the Agency motivated her position by the fact that “strategic assets should be managed by the state! After all, only the state has the resources to preserve them.” 

This statement is strange because, as we can see, it was the state that led the Odesa Oil Refinery to such a condition.  

To date, there is still no information about whether the Cabinet of Ministers determined the manager. 

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Everything we described shows that in the case of the confiscation of the Odesa Oil Refinery, something went “wrong” from the very beginning, and now we have to reap the fruits of haste and shortcomings of legislative regulation.  

The fact is that the quality of the confiscation verdict and, in general, the processes of managing the seized property were and remain extremely low. This is indicated by many factors: 

• the court verdict was overturned a few years later due to a huge number of violations in its delivery;
• The State Property Fund, which received the plant for management after confiscation, appealed to the prosecutor’s office with a letter stating that it could not ensure the preservation of this property due to a lack of funding;
• the property of the Odesa Oil Refinery was systematically embezzled;
• the asset was transferred to the ARMA in May 2021, but the Agency initiated a search for a manager for it before the government only in August 2023. 

There is also the case of Kurchenko, and there are questions about how to handle his property, albeit seized. These cases are related, and each of them needs special attention, even when it comes to serving former officials with suspicion notices. Because if we do not deal with this now, we will have many other “dead” assets in the future and, worse, lawsuits of the owners of these assets demanding compensation for damages caused to them.