Deputy Head of President’s Office Shurma on systemic corruption — interview

7 September, 10:55 PM
Deputy Head of the Presidential Office Rostyslav Shurma (Photo:Presidential Office of Ukraine)

Deputy Head of the Presidential Office Rostyslav Shurma (Photo:Presidential Office of Ukraine)

The name of the deputy head of the President’s Office, Rostyslav Shurma, quite often appeared in Ukrainian media headlines in mid-August, along with a scandalous story. Bihus.Info journalists conducted an investigation, concluding that the state had paid Shurma brother’s solar plants for electricity in Russia-occupied territories.

Shurma talked about this and other topics in an interview with the head of the Office of Transformation, Maksym Bakhmatov, broadcast on NV Radio on Sept. 6.

NV: What are you dealing with in the President’s Office? What are your goals? And what will happen with the reconstruction?

Shurma: My area of responsibility in the President’s Office includes economy, finance, energy, business, industry, ecology, and agriculture. And, of course, if we’re talking about reconstruction, this means the creation of conditions for high business activity, for physical reconstruction in all critical sectors of our economy.

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NV: One of Ukraine’s greatest friends, Lithuanian President Gitanas Nausėda, said corruption in Ukraine hampers the supply of weapons to Ukraine by the West. It’s most likely this is the biggest problem for Ukraine and for business, right? How can we overcome it quickly, if we can?

Shurma: This is an extremely difficult issue, extremely painful for our society.

I would probably start with the fact that the problem of corruption is not only a problem in certain government levels. This is a big mental problem that has existed in our society, unfortunately, for more than 30 years. One way or another, unfortunately, the absolute majority of Ukrainian citizens both face and provoke corruption.

Therefore, I believe the most important step to systematically overcome corruption is for each citizen to say not just “I won’t take bribes,” but “I won’t give bribes” and “I won’t look for any way to get advantages, compared to other citizens of Ukraine.”

I recently spoke with the president of Estonia who told me: “Do you know what we felt, what affected us by (Ukrainian) refugees? There is a very large number of positive factors, but what negatively affected us? The fact that we’re trying to build a system for refugees. It’s clear that sometimes they have to wait for some service – several days, sometimes a week, sometimes two weeks, but they will definitely receive one or another humanitarian or social service, we’ll do everything for them. But an extremely large number of Ukrainian citizens, unfortunately, began to look for ways to get personal preference by offering some [financial] benefit to Estonia.” And that was actually very unpleasant to hear.

Therefore, when we talk about corruption, each of us, it doesn’t matter if we are an official, a businessman, a doctor, or an average citizen of Ukraine, should start with ourselves.

And now regarding the government. This is a total, principled fight against corruption, without any exceptions. Through the anti-corruption bodies, through the inevitability of punishment, through high-profile specific cases.

Let’s take one of such cases...

NV: Oligarch Ihor Kolomoisky.

Shurma: I will tell another case. The head of the Supreme Court. I think every country has issues with the judicial branch of government. Some are bigger, some are smaller, but they are everywhere. And we understand why. But I don’t know any country, either developed or not, where such a high-ranking official in the judicial system was detained for bribery.

This means two things. First, the problem was and continues to be systemic. Secondly, such a problem actually exists in most countries. But if the head of the Supreme Court is busted in the country, it means the [anti-corruption] system is starting to work.

NV: Can it be the other way around? That our judges are so brazen, as well as the head. And thank God there is someone to bust him.

Shurma: And that too! This explains many things at once.

The second example you gave yourself is individual oligarchs who robbed the country for decades, withdrew tens of billions of hryvnias from state-owned companies, sometimes from the budget. I don’t want to give any estimates yet. I want only law enforcement agencies to give estimates here. And I know they’re actively engaged in this.

NV: I want to remind you that Ihor Kolomoisky is almost a person with “immunity” who suddenly ended up in a pre-trial detention center.

Shurma: Continuing the topic of corruption. One thing I can say clearly: I know for sure that the president of Ukraine, the head of the President’s Office, the prime minister have an extremely strong and principled desire to overcome this disease in our country. There is a problem of a huge number of officials who, unfortunately, think differently. And it’s a matter of time, principles and perseverance so that we can overcome it. And we’ll definitely do it.

NV: I can’t help but ask this question. The Bihus.Info investigation claims that the state allegedly paid your brother’s solar plants for electricity in occupation. As far as I understand, the plants are located in occupied territories, the electricity was purchased by our Ukrainian state. Why did you not immediately comment on this?

Shurma: First, I already gave all the detailed explanations about this case a bit earlier. I can repeat.

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Second. I’m sure that the law enforcement authorities should figure it out to put an end to this issue, so that it’s not just comments, explanations, etc.

Third. This is a slander, sorry, a hit piece. We understand whose and why. And completely distorted facts.

All this was just aimed at dragging me through the mud and then forcing me to make excuses. Therefore, I will say clearly: the state didn’t pay anything to my brother or me. This is the first lie.

Second. Electricity was supplied to Ukraine’s unified power grid, this was confirmed by the operator, the Ukrenergo company, every month, signing acts and providing dispatching services, and loading and unloading commands.

Third. There are more than 70 such objects in temporarily occupied territories. The same algorithms were applied to them. There were companies in which my brother has a share, two or three companies. That’s all. I don’t see any abuse here, any violations of the law, or any violations of moral and ethical standards.

NV: So, you claim this was some hit piece from a leading anti-corruption publication? This is what you claimed on Radio Liberty.

Shurma: Let’s have a meaningful conversation about reconstruction instead. I’ve answered these questions in detail. We can already see the political bias of this material.

It’s a pity that during the war, when everyone, including the state, business, volunteers, and media, must consolidate and unite, some our media don’t just accept orders for hit pieces, but accept orders from those who looted the state. And, in fact, they serve and harm our state, playing along with the aggressor, destabilizing the situation inside the country.

NV: Am I correct in my understanding that you or your brother can provide all the explanations to the key authorities to dot the i’s forever?

Shurma: I’m personally ready [to provide those] at any moment. As far as I know, not only my brother’s companies, but all the companies in this process are already actively cooperating with law enforcement agencies to provide all the information.

NV: We have questions about the restoration of Ukraine. Where to get funds? About the balance of investments, about help from partners. As far as I understand, we’re currently dependent on $3.5 billion in aid from our partners every month.

Shurma: I must spell out the situation. I think the answer will be long, but comprehensive.

First. Current problems and the country’s survival. This is not about investment, not about reconstruction. In fact, the country’s monthly need ranges from $3 billion to $4 billion of financial support from our partners. This is for the country to continue to work and exist. These are the salaries of doctors, [employees] of state institutions. This is the payment of pensions, all of them. This is the payment of utility services by all state institutions. All public expenditures, except for the financing of military needs.

To date, we having almost no capital expenditures. This is exclusively the liquidation of the emergency consequences of the war, this is all current state support.

Wages account for up to 70% of all these costs. And perhaps more than 80%, including taxes. But this is the state’s existence and struggle. This is the first component.

Second. Reconstruction. Of course, everyone wants just to think that “the state will rebuild” or “the state will take funds to rebuild.” In fact, large-scale reconstruction in this format is impossible. Because budget funds not only in Ukraine, but throughout the world, are much less than private ones. And there are always national priorities in budget funds. It doesn’t matter whether it is the U.S. government, the government of France, or the United Kingdom, or any of our partners: their internal needs will always prevail over Ukraine’s needs.

NV: They have their own kindergartens.

Shurma: Of course, kindergartens, and social problems, and electoral cycles... Therefore, we clearly understand that we can claim only a limited amount of these funds.

Therefore, our task, as authorities, is to use them according to two criteria.

The first criterion is to do and build only what business cannot do, what we cannot replace with private funds. For example, we understand that business won’t build a destroyed kindergarten, it must be rebuilt [by the state]. But if we understand that the hospital can be built according to the model of private and public partnership (as it is implemented in Turkey, Korea, Japan, and many other countries), then it’s better to attract private funds for this.

If we understand that the airport can be built at the expense of a private investor, while the bridge over the Desna River will never be built by a private investor, then, probably, we should attract a private investor here, and budget funds should be spent on things where a private investor would never come, like this bridge.

The second criterion is multiplication. Every dollar or euro of financial assistance received must be directed so that it is multiplied by an additional amount of private capital.

NV: Ten?

Shurma: Ten is an unrealistic multiplier. This is the target multiplier that we set for ourselves.

For example, we see that it’s necessary to develop some segment of the Ukrainian economy. [Let’s take] power engineering. We see that private business won’t come by itself. The state must provide some funds either directly or through other state institutions of other countries. Accordingly, we should allocate $1 million only when we understand that another $10 million will be provided by private investors, thus receiving a signal, guarantee, insurance from the state. Therefore, this is the second criterion where public funds should be directed.

And in fact, the lion’s share of the reconstruction [we estimate it will be more than 80%] should take place at the expense of private investments. It’s not expenses, but investments. That is, we can actually make a civilized business out of every sector. How it works throughout the developed world, where you and I are moving. It doesn’t matter whether it is energy, agriculture, infrastructure, IT business, industry, services, as I just gave the example of healthcare – in almost every segment.

If we look at the natural advantages that Ukraine has, we have up to a dozen sectors where business projects in Ukraine are more attractive compared to other European countries. I didn’t just mention energy, agriculture, certain types of industry, such as power engineering, green metallurgy, building lithium or titanium cycles, woodworking, etc.

NV: Do we need about $500 billion?

Shurma: Roughly so.

NV: For 30 years of independence, Ukraine has attracted about $50 billion if I’m not mistaken. Do we need to attract 10 times more in the next 5-10 years than we did before?

Shurma: I think not in five years, but in 10 years, most likely. Yes. And I don’t see any problem in this. If we look at the experience of countries like Poland, Slovakia, and South Korea, they all started at some point. Korea [started] in the 1980s...

NV: It experienced four military coups before that.

Shurma: Poland [started] in the early 2000s. When they really started and multiplied the number of investments.

Fundamental changes must take place for them to begin.

NV: Name three changes.

Shurma: Three key things. The first is joining NATO. Because the main risk that worries any investor today is the risk of physical loss of an asset.

The second is joining the European Union. Because the Ukrainian market won’t be sufficient to cover all necessary production or investment. This investment should work for the entire European market. And, in addition to the market, it’s also access to cheap financing. Two things that are required from the European Union. The first and second are actually 80% of the necessary changes.

And the third is reforms, which I would divide into several components. This is the liberalization of business regulations. This is business deregulation so that it is physically easier to start a business in Ukraine than in neighboring Romania, Poland, Hungary... This is far from the case now; [to] get land plots, connect to networks, obtain permits, get environmental approvals...

The second is an anti-corruption reform so that any investor who comes here is sure that tomorrow no one will demand a bribe for any procedures or cause problems.

NV: Can law enforcement agencies create problems?

Shurma: Anyone can theoretically create these problems. This is an anti-corruption reform.

The third is the so-called rule of law. This applies to both honest courts and law enforcement. In particular, this is tax reform. Because any company that makes a decision on where to start its business, both international or Ukrainian, considers the set of criteria that I’ve already listed: access to markets, available financing, regulatory field, and tax burden. Accordingly, if the tax burden on income in Hungary is 9%, and 18% in Ukraine, what will be the solution?

NV: And the cost of money for Hungary is 7%, and 15% for us.

Shurma: To win this fight, this competition for investments, we need to carry out the whole set of these changes.

NV: Who is primarily responsible for making everything work?

Shurma: These are very diverse tasks. Therefore, there is a person responsible for each segment.

Regarding NATO and the European Union. I think the whole government team is working on this, but there is a special deputy prime minister for Euro-Atlantic integration. If we’re talking about the law enforcement and judicial system, there are special managers in the President’s Office who are currently working on relevant reforms. If we’re talking about anti-corruption reform, the whole team is working now, not only the President’s Office, but also the government and the law enforcement system, to work out and implement the relevant changes.

Regarding the regulatory environment that I was talking about, I work together with the Economy Ministry. Regarding tax legislation, I work together with the Finance Ministry and MPs. Each body has a set of responsibilities.

NV: Are you primarily a professional manager?

Shurma: Manager.

NV: And you know all that is nothing but hot air without clear key performance indicators (KPI). Are there such KPIs? Does the whole team understand this? Do they gather together at the same table?

Shurma: Of course, the KPIs are clear in each specific segment, including dates, terms, numbers, etc.

But we must understand that it’s possible to fulfill the seven points of this program. But nothing will happen until the two main ones are fulfilled, namely joining NATO and the European Union.

NV: Let’s imagine that we are told: “You have such a neighbor, Russia, you will never join NATO. We will give you written guarantees, swear on blood, but you won’t join NATO.” What will should do then?

Shurma: NATO is not a goal in itself. The goal in itself is to ensure security on the territory of our state.

If we’re talking about investments, the question is transformed as follows: how much does a potential investor believe in this security structure? Why am I talking about NATO? Because by virtue of my position I communicate with a huge number of financial, industrial, strategic, medium, and large investors. And I’m testing: what security guarantees do you see? What I feel now: apart from NATO, as of today, no one particularly trusts anyone. Because it’s a brand.

Therefore, it’s not so much about physical security as about perception and trust in the security formula. Maybe we can find and write some other security formula. We’re definitely working on it. We’re not waiting to be accepted into NATO or not. We’re working on it. But the main thing is that business and potential investors believe in it.

NV: There is a U.S. investment company, BlackRock. They have trillions of dollars under management.

Shurma: Up to $10 trillion. The largest [investment] manager in the world.

NV: A private one. These are ordinary managers who got together, explained the structure, gave the result, and they were entrusted with managing $10 trillion.

Shurma: Our GDP is slightly more than $150 billion. And the budget, the revenue part barely exceeds $30 billion.

NV: Such numbers are beyond my comprehension.

Shurma: It’s enough for us to convince several dozen players, such as BlackRock, [to invest] 0.5% or 1% of their portfolio in projects in Ukraine. That’s $100 billion from just one company.

But what should we understand? It’s not about “I like it or not.” This business has very clear regulations and mandates. It’s not their money. This is money that they manage on behalf of investors. Investors, handing over money to them, sign relevant documents. These documents clearly set out the mandate, in particular the risk mandate, which countries they can invest in or can’t. What types of projects they can take, which sectors they can invest in, e.g., green transformation, which they can’t invest in, say, coal, etc.

Therefore, our task is to offer such a portfolio of projects and an environment where they can check the boxes – “yes, we confirm.”

What is important. BlackRock is a company that manages trillions, they have plenty to do. The number of projects, investors and countries they deal with... Why do they deal with us? Not only because we’re good at convincing. But because they believe in Ukraine’s prospects.

And even if, as of now, they haven’t yet made a decision [to spend] any funds in Ukraine, they have [involved] their human resources. A separate team, about 10 people. They don’t stay here, they work in different offices, such as New York or London. They’re currently working on the fund’s concept and model, which will be used to attract funds to Ukraine. Trust me, every BlackRock employee is hundreds of thousands of dollars in salary. Accordingly, they singled out, by the way, very strong people who deal exclusively with Ukraine, because they believe that this moment will come. And they want to be among the first. It seems to me that this is a win-win situation.

NV: The key story in any project is to look at the numbers to see what will happen.

Shurma: Given that we’re in the hot phase of the war now, that no investment fund will open limits on Ukraine until our victory, until the end of the war, until the security guarantee, given that we were able to mobilize the teams of BlackRock, JP Morgan, McKinsey, the largest consultants, bankers, managers across the world, this is already a good achievement. So that when we win, we don’t have to wait four years, as Germany waited for the Marshall Plan.

NV: Let’s talk about oil company Ukrnafta: abuse by Kolomoisky and involvement with municipal enterprises. You said you had something to say.

Shurma: Let’s start with Ukrnafta. First. I believe that only law enforcement agencies should give the final assessment of all this. But what we see from the preliminary audit results, from the preliminary results of the work of the new management, almost UAH 100 billion [$2.7 billion] have been withdrawn from the company in recent years. It was still according to the previous exchange rate.

The schemes were quite simple. Oil products or oil were transferred to some LLC, but there is neither oil nor oil products. Oil products worth tens of billions of hryvnias were also sold to other companies. The payments did not take place. Advances and prepayments for the same amounts have been made. Parts of the oil products were paid for with coupons from the same companies, there are eight tons of coupons in the basement, some pieces of paper worth another five or six billion of hryvnias. Like bitcoins. It’s written: 20 liters of gasoline to LLC. This is the level of complex schemes, the third class. This is what we saw.

At the same time, the new management has been working for a little more than six months. What do we see? The company earned more than UAH 13 billion [$355.5 million] in profit. At the same time, these funds are now in the company’s account. This is not a drawn profit. Second. The company paid UAH 21 billion [$574.3 million] in taxes in eight months. Think about this number. The company is now either No. 1 or No. 2 taxpayer in Ukraine. It pays UAH 2.5 billion [$68.3 million] to the budget every month. And all this money goes to the Armed Forces of Ukraine. Previously, this figure was many times smaller.

NV: Is it just because this person, despite the fact that the state had priority in shares, simply controlled the cash flow?

Shurma: Yes. And there is a very big question to the entire previous management of Naftogaz [state oil and gas company].

NV: It included some prime ministers, right?

Shurma: Very titled both in the supervisory board and the management, etc. These are obvious things, these were not complex schemes, they could see them from the first day of work. But this is a fact.

In the end, I believe the state got a big gain and victory by making such a decision. The management is working effectively now. What the previous ones did...

NV: Will someone be put in prison?

Shurma: It’s not for me to judge.

NV: What do you think as a manager? Would you recommend prison time if you saw that a shareholder stole a hundred billion?

Shurma: I would certainly prove my position in court, I would demand the appropriate court decision that you talked about.

NV: You’re a state representative, you can now demand that.

Shurma: Law enforcement agencies are dealing with this. I see the law enforcement agencies are now very seriously engaged in this.

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