CHAPTER 6. CORROSIVE IMPACT OF THE RF ON A UKRAINIAN STRATEGIC ENTERPRISE OF THE ENERGY INDUSTRY

As mentioned above, one of the industries in which about 36% of strategic enterprises were formally liquidated is science and technology.

Impulse OJSC was a focus for this project as an entity with a powerful scientific and technical base since Soviet times that was subsequently liquidated. As it turned out in the course of further research, this powerful enterprise and critical element of Ukrainian economic infrastructure was formally liquidated, but actually reorganized with the aim of shifting full control to the leader of the hitherto unknown to the general public V. Yeliseevs’ Financial and Industrial Group (coming from the RF and Donbass). At the same time, appropriation of such a profitable pearl remained unnoticed by both “political elites” and oligarchic clans, which were snatching state property as predators, and not typically minded to leave unattended enterprises even much less significant than Impulse OJSC.

Historical research conducted on the establishment process of the company revealed another possible scheme to boost RF’s hybrid influence on a strategic enterprise in Ukraine. There are cases when destruction of a Ukrainian enterprise can cause damage to the aggressor country itself, for example, a Ukrainian enterprise relied on to service systems or equipment in the RF. In such instances Russia can use the method of establishing control over the enterprise (including using clandestine options) to ensure the security of its own enterprises, obtain intelligence information from the Ukrainian enterprise, and redirect financial flows in the interests of the aggressor country.

In the case of Impulse OJSC – now known as SRPA Impulse PJSC – the project reviewers identified this kind of activity, even after the large-scale military invasion of the RF.

6.1. Brief background description of the enterprise

Impulse dates back to 1956 as the Lysychansk branch of the Moscow Special Designing Bureau No. 245 (developer of automated control systems - ACS - for the national economy and the military-industrial complex).

In 1982, it was designated as the leading organization in R&D of such ACS for the nuclear power plants (NPP) of the USSR. From 1985 to 1994, it took part in installation of control systems at 22 nuclear power units in different countries of the former socialist bloc in Central Europe. After Ukraine gained independence, it was reorganized into an open joint-stock company (OJSC), which developed and installed ACS, including at Russian facilities both nuclear and non-nuclear (Kolsk and Kursk NPPs, Kirishi and Berezovka HEPPs and Production Association Mayak).79 Within Ukraine, nuclear facilities have been targets of Russian aggression during the current war.

Today, the enterprise continues steady operations in line with its profile and participates in tenders for development and installation of products at critical infrastructure facilities not only in Ukraine, but also abroad.

79 https://webcache.googleusercontent.com/search?q=cache:pKWX1C4V1ukJ:https://impulse.ua/index.php/ua/istoriya- predpriyatiyaua&cd=1&hl=ru&ct=clnk&gl=ua

6.2. Formal liquidation of the enterprise by Volodymyr Yeliseev

The company's activities led to its inclusion into the List of enterprises of strategic value for the economy and security of the state by the Cabinet of Ministers of Ukraine in 1997. At the same time, in 2007, the operations of Impulse OJSC were terminated as a result of “voluntary liquidation”.80

In the course of research, reviewers found out that the liquidation was purely formal, since the company's assets were officially transferred to another structure with a similar name, SRPA Impulse PJSC, with the aim of establishing full control over the enterprise by V. Yeliseev.

There is very little information about Volodymyr Yeliseev on the Internet. He was born in 1956 in the Belgorod oblast of Russia. V. Yeliseev does not disclose any details about his education.

V. Yeliseev became an Impulse employee at the age of 25 in 1981, and by 1989 he occupied the position of Vice President.81 Such rapid career advancement was probably related to support from his wife's father –Vasyl Mykhailovych Somkin,82 a leading specialist in the sector of industrial automation of the USSR and a native of the RF. For a long time, Somkin occupied executive positions in the mother structure of Impulse in Russia. When considering the company profile, this career path must have been noticed and supported by the KGB structures of the USSR.

V. Yeliseev established full control over the enterprise in 2002–2003 by transferring the assets of Impulse OJSC to the newly created SRPA Impulse PJSC , of which he owned 100% (Table 6.1).

Controlled by a subsidiary of the Hungarian company Cyklo-Trade and russian AMR JSC, which was affiliated with O. Deripaska.

V.V. Belikov, member of the Party of Regions as of 2002.

80 Based on data of Unified Public Registry of the Ministry of Justice (received via the Youcontrol system)

81 https://esu.com.ua/search_articles.php?id=17637

82 https://www.computer-museum.ru/histussr/npo_impuls_2.htm

83 Based on data of Unified Public Registry of the Ministry of Justice (received via the Youcontrol system and Smida: https://smida.gov.ua/db/prof/00229760)

Name of the legal entities that owned shares of Impulse OJSC

Shares, 2002 Shares, 2003

4. SRPA “Impulse” JSC (31393258) Severodonetsk - 79,817%

5. Other shareholders (<5% shares)

75,37% (1001 shareholders)

Notes

20,183% Labor team

Analysis of financial indicators for the period from 2001 to 2007 suggests that V. Yeliseev gradually transferred the company’s HR capacity, asset base and contracts from the old corporate structure to the new one, which was entirely under his control (Fig. 6.1). This explains the subsequent “voluntary liquidation” of Impulse OJSC,84 which had strategic value for the security and economy of Ukraine.

According to estimates of the project reviewers, taking into account the equity of Impulse OJSC, V. Yeliseev likely spent at least UAH 950,000 on the organization and reorganization of enterprises, or about USD 175,000 based on the foreign-exchange rate at the time.

The amount could have been lower due to the possible use of administrative tools by V. Yeliseev, such as inducing the labor team to sell shares at a reduced price in exchange for maintaining labor relations.

84 https://www.epravda.com.ua/publications/2012/08/2/331082/

85 Based on data of Unified Public Registry of the Ministry of Justice (received via the Youcontrol system)

However, given a lack of information about Yeliseev’s wealth at that time, it is impossible to make a conclusion regarding any financial support, for example from the RF, in exchange for future loyalty of the management of the company.

Therefore, project reviewers identified other factors that may indirectly reveal or suggest covert connections between Yeliseev and the RF.

6.3. Avoiding raids of the masters of Donbass

The company is located in the city of Severodonetsk, Luhansk oblast, which has always been a fiefdom of the pro-Russian Party of Regions. That party was taking over profitable business of aliens. It is not clear if V. Yeliseev is a party member.

In an interview by the Ukrainian publication “Censor” in 2017, V. Yeliseev commented that, “seeking protection against raider captures by the regionals [representatives of the “Party of Regions”, a pro-Russian political party chaired by Ukraine’s ex-President Viktor Yanukovych],” he transferred the company’s assets to the Cypriot offshore company Industrial Devices & Systems Ltd.86,87 Although such “protection” was not impregnable for the clan of regionals of that time.

The above may indicate that V. Yeliseev had more powerful patrons from the RF who could influence and instruct the ruling Party of Regions and its leadership.

6.4. Using offshore entities that share an address and management structure with other companies serving Russian oligarchs

It was identified that at least in the period from 2012 to 2021, V. Yeliseev used an offshore structure to cover ownership of SRPA Impulse PJSC. The address and management of it matched similar structures of a sanctioned Russian oligarch, O. Mordashov

The Cypriot offshore company Industrial Devices & Systems Limited controlled by V. Yeliseev was located88 at the same address in Limassol, Cyprus, as at least 21 other structures in the orbit of O. Mordashov.89 The same address was used in registration of another offshore entity, Biscone Ltd., which was sanctioned by the decision of the NSDC of Ukraine on January 21, 2022. The offshore company owned by V. Yeliseev has the same managers as the similar structures of O. Mordashov called Astroshine Ltd., Loranel Ltd. and Varndell Ltd. (Fig. 6.2).

86 https://biz.censor.net/r3023286

87 https://impulse.ua/download/struktura_vlasnosti/shema_struktura_vlasnosti_2021.pdf

88 https://opencorporates.com/companies/cy/HE311264

89 webcache.googleusercontent.com/search?q=cache:-o3hFputMJkJ:https://www.e-disclosure.ru/portal/FileLoad.ashx%3FFile id%3D1694115+&cd=17&hl=uk&ct=clnk&gl=de; webcache.googleusercontent.com/search?q=cache:GSi35W-whhkJ:https:// textarchive.ru/c-2605583-pall.html+&cd=27&hl=uk&ct=clnk&gl=de; https://static.istories.media/uploaded/documents/fa3a 5c61792044acb6fdec04d5b62336.pdf; https://opencorporates.com/companies/cy/HE311264; https://opencorporates.com/ companies/cy/HE239494; https://opencorporates.com/companies/cy/HE239790; https://i-cyprus.com/company/264898

An additional and indirect factor confirming the connection between V. Yeliseev and O. Mordashov is the latter's interest in Ukrainian enterprises that serve nuclear energy sector. O. Mordashov owns (as of October 2021) 5.6% of the Ukrainian company Turboatom, through the Cypriot offshore company Biscone Ltd., and also owns the Russian company “Power Machines” OJSC, which is a competitor to Ukrainian enterprises.90

90 https://suspilne.media/175037-kabmin-proponue-vvesti-sankcii-proti-akcionera-harkivskogo-turboatoma/

6.5. SRPA Impulse PJSC cooperation with RF affiliated structures

It has been established that SRPA Impulse PJSC has dealership relations with at least two foreign companies related to the RF: Bulgaria’s Spartak-B, also a dealer and official representative of the Russian R&D company Elemer; and Czechia’s Škoda JS a.s., controlled via a Dutch structure by the Russian group United Machine Building Plants, whose beneficiary is Yu. Kovalchuk, who is close to Putin.91

It should be noted that in separate tenders for supply of products manufactured by SRPA Impulse PJSC the above-mentioned dealers take part and win, whereas work is performed by SRPA Impulse PJSC as a subcontractor. This may indicate a conspiracy between SRPA Impulse PJSC, its dealers affiliated with the RF, as well as corruption links with the state institution conducting the tenders (Fig. 6.3) allowing for bid rigging.

6.6. Recruiting engineering personnel from the RF

On May 6, 2022, SRPA Impulse PJSC used the Russian online job board at employment-services.ru to post a full-time programming engineer job in the city of Severodonetsk and with payment in rubles for a trial period92 (Fig. 6.4). The job was not posted on Ukrainian job search portals such as work.ua, grc.ua and jobs.ua.

This creates favorable conditions for penetration of Russian special services into a domestic enterprise working in the interests of critical infrastructure facilities of Ukraine.

92 http://employment-services.ru/vacancy/?action=read1&id=12535724

Conclusions to Chapter 6

1. Currently, relying on open sources information to confirm V. Yeliseev's direct connection with Russia is complicated.

2. However, the presence of such a connection can create the following threats:

• Partial withdrawal of capital to the RF. Assessing specific amounts through open sources would be difficult, since information on contractual relations between Škoda JS a.s. and SRPA Impulse PJSC is confidential.

• Leaked information about critical infrastructure, including features of the technological processes of managing energy and transport facilities. The latter threat makes it easier for the aggressor to commit crimes, block technological management processes and committing sabotage or terrorist attacks on critical infrastructure.

• The withdrawal scheme is based on participation of nominally Ukrainian or Western structures that have Russian beneficiaries in the state tenders and on the presence of Russian influence such as family relations and covert operations in Ukrainian structures, which can be market leaders or monopolists of products and services aimed at, primarily, critical infrastructure.

• The elimination of such threats requires the prohibition of participation in state tenders by business entities that have direct or disguised beneficiaries related to the aggressor country as well as those chaired by citizens of the RF.

General Conclusions

1. The economic war against Ukraine should be considered as a component of the hybrid war waged by the Russian Federation.

It is carried out in the form of operations based on the strategy developed by the aggressor country and therefore is not spontaneous but planned in nature, and disguised from the victim for as long as possible. At first glance, the targets of aggressive actions are individual enterprises. But in reality, the totality of affected economic targets promotes achieving the goal of destroying certain sectors of the economy and sometimes also achieving certain political goals. The real goal of the aggressor becomes clear at the final stage of the operation, when preventing destructive consequences is difficult or in certain cases impossible.

2. The covert nature of these operations creates a challenge: how can Ukrainian authorities determine what are aggressive actions of the aggressor country and what is simply unfair competition or bad economic decisions by entrepreneurs? How can they to detect such operations at an early stage and ensure effective countermeasures? The countermeasures should include both legislative measures that are taken in advance and form barriers to aggressive attacks on the economy, as well as systematic monitoring work for the timely detection of disguised aggressive intent in the implementation of attempts to circumvent these legislative barriers.

3. These operations have common features because of the limited number of ways and methods available to implement the plot. A complete list of techniques and methods of the aggressor’s actions can be developed by analyzing a significant number of economic hybrid operations. Understanding such ways and methods will help identify regular signs of the aggressor’s operations, which in turn will inform the design of tools and methods for detecting them.

4. This study of the aggressive impact on strategic enterprises of Ukraine showed that the “processing industry” suffered the most severe losses, as about 50% of enterprises lost their operational capacity or initiated bankruptcy procedures, followed by the “mining industry and quarry development” (about 47% of losses) and “scientific and technical activity” (about 35%).

The strike inflicted on the processing industry deprived Ukraine of income from added value from the production of end user products and also turned the country into an agrarian and raw material appendage of the world economy. Furthermore, this led to a stoppage or reduction of production at the respective enterprises supplying the liquidated enterprises, creating a loss of production chains.

The destruction of one-third of the enterprises in the scientific and technical sector deprived the domestic economy of progress in development, led to Ukraine's dependence on foreign technologies (the cost of which in some places exceeds the cost of products manufactured using them), as well as the outflow of experienced personnel

5. Understanding the losses and admitting mistakes makes it possible to determine priorities when planning the economic recovery after the war ends. Titanium extraction and processing is an example (Chapter 3). Analysis of other sectors and sub-sectors of the economy will show promising areas for capital investment.

6. The aggressor’s operations along the economic operational line have an economic impact but also maximize the impact of other, non-economic elements of the hybrid war. The destruction of the Dnipropetrovsk Paper Factory is an example of that (Chapter 5).

7. Factors contributing to successful conduct of hybrid operations along the economic operational line include:

• Incompetent authorities;

• corrupted power structures in all branches of government;

• seizure of the state by the aggressor through covert infiltration of authorities, including establishment of covert control over regulatory institutions, particularly those overseeing the economy;

• carrying out support operations along other operational lines;

• insufficient study of the very phenomenon of hybrid war, which contributes to a misunderstanding of the processes taking place.

8. Immediate actions are required in order to protect the national interests.

• The Cabinet of Ministers of Ukraine should urgently revise the approach to managing the Register of Strategic Enterprises: o Accelerate the development and regulatory definition of the “strategic enterprise” concept from the perspective of the importance of economic entities to ensure the needs of state defense and the protection of national interests, primarily during conditions of full-scale war; o develop new criteria for recognizing entities as having strategic importance for the economy and the security of the state, regardless of the ownership type; o fully assess all economic and industrial potential available in the state, based on the regulatory definition of “strategic enterprise” and established criteria; o provide legislative consolidation of the balance of interests between the state and business regarding the assets of strategic enterprises in the private sector of the economy, which work for the defense of Ukraine. This is to ensure uninterrupted production of the necessary defense industry products. In particular, introduce a ban on repurposing or artificially stopping production during war; normalize the possibility of introducing a temporary state administration at those enterprises that have already stopped their work or are at different stages of bankruptcy.

• The Verkhovna Rada of Ukraine: o legally prohibit granting ownership rights to the assets of strategic enterprises, regardless of their ownership type, to citizens and legal entities from the Russian Federation, Belarus or other states that supported Russian aggression in Ukraine. o legally enshrine the forced return to state ownership of the assets of strategic enterprises directly or indirectly owned by citizens of Ukraine where personal economic sanctions have been imposed by the Decree of the President of Ukraine on the basis of decisions declared by the National Security and Defense Council of Ukraine if the ultimate beneficiaries are citizens of Russia, Belarus and other states against which some personal sanctions have been imposed by the EU, the UK, Canada or the USA due to Russia's invasion of Ukraine.

• The CMU in cooperation with the Verkhovna Rada of Ukraine: o develop a targeted program of financial support for innovative activities by strategic enterprises in the state sector of economy, including the implementation resources of projects funded by the financial institutions of the EU, the U.S. and other countries contributing to the “Ukraine Recovery Program”. o In August, the project implementation team submitted the above proposals to the National Security and Defense Council of Ukraine (NSDC), which forwarded them to the Cabinet of Ministers of Ukraine for consideration.

9. The study results indicate possible directions of efforts to restore the economy of Ukraine.

Soon after completion of the research and analytical work on the project, a significant event took place, which was directly related to the problem under study and largely reflected the views of the authors of the study.

A decree of the President of Ukraine dated October 19, 2022 (#727/2022) enacted the decision of the National Security and Defense Council of Ukraine titled “On application of and amendments to personal special economic and other restrictive measures (sanctions).”93

This decision imposed sanctions on more than 250 businessmen, more than 1,500 companies and 4,000 propagandists, collaborators, and related companies. This enabled the confiscation of the assets of these legal entities and individuals for the benefit of the state.

The sanctions applied via these acts are bringing to a standstill or significantly complicate the conduct of hybrid operations along the economic operational line.

At the same time, the legitimate mechanism for deciding the future of these assets, although simplified as much as possible, involves a certain legal procedure. And this is natural for a lawful state, which Ukraine is.

Taking into account the intense pressure exerted by the aggressor, as demonstrated in the case of struggle of the Ukrainian authorities to regain control over the titanium industry, we anticipate a furious struggle at the stage of implementation of the decisions made.

In collecting the evidence for making a decision in favor of the state at the stage of case filing to the court, the Ministry of Justice can involve all necessary institutions of Ukraine, in particular the State Security Service and intelligence, as well as analyze public sources of information. The latter opens wide opportunities for participation of public organizations in the process. Moreover, taking into account the scale of work and certain limitations of time available for its implementation, such involvement becomes extremely essential.

93 https://www.president.gov.ua/documents/7262022-44481