In 2022, at the European Union Summit, Kyiv was promised €1.5 billion a month in 2023 while Ukraine is forced to repel Russian military aggression.

In May of this year, at the meeting of EU energy ministers held in Brussels with the participation of Ukrainian Energy Minister Herman Hlushchenko, a number of decisions were made to strengthen support for Ukraine’s energy system. In particular, about 5 million items of various equipment and materials will be sent to the country in the near future.

The European Union has no doubt in Ukraine’s victory, after which a large-scale recovery will begin, and the EU wants to be a partner within this process.

But what is really happening to the energy business in Ukraine, which has suffered the most damage from large-scale shelling, and which, as it turned out, is also suffering from the actions of Ukrainian law enforcement.

Looking at the situation from the inside, it is clear that Ukrainian law enforcement agencies are now, more than ever, trying to eradicate everything Russian from the country. However, sometimes such actions lead to almost complete blocking of business and the destruction of the image of Western investors, who receive unfounded accusations of ties to Russia.

This story goes back to 2000, when Russian investors, together with Yevgeny Giner, a Kharkiv-born Russian passport holder, started building an energy business in Ukraine. In the same year, they gained control over Sevastopolenergo, Khersonoblenergo, Zhytomyroblenergo and Kirovohradoblenergo, which became part of the VS ENERGY group of companies.

However, the business did not become profitable, having only accumulated debt liabilities of almost $600 million. This was due, among other things, to the change in the political situation in Ukraine. Therefore, in 2013, the situation developed in such a way that minority shareholders realised that they could offer a buyout to the former shareholders themselves, thus becoming investors. The situation was more than dramatic, and most shareholders were happy to get at least a little for the assets that were on the verge of being confiscated by the banks.

The Revolution of Dignity, the outbreak of hostilities in Donbas, and the annexation of Crimea only accelerated the sale process, as by that time Russian investors in Ukraine had already acquired a “non-grata” status. Therefore, the sale of the shares was fully justified from all points of view.

In 2014, Latvian investors Vilis Dambins, who had been a minority shareholder in the group for three years, Valts Vigants and Arthurs Altbergs took control over the VS ENERGY. The amount of debt did not change. Many assessed this significant risk as economic madness. However, the group’s financial difficulties did not become an obstacle for new investors. It was a challenge, first and foremost, for themselves. After all, if the group had been successful in getting out of debt and selling it to investors, the risk would have been primarily for the partners themselves as successful distressed asset managers.

The consistent seven-year implementation of VS ENERGY’s strategic plan to get out of the debt abyss has shown that it should work, as all forecasts suggest that the company should be completely debt-free by the end of 2022-2023.

The group employed more than 11,000 people, and VS ENERGY united a group of 5 power distribution companies – distribution system operators – in a single management system. The group included Khersonoblenergo, Zhytomyroblenergo, Kirovgradoblenergo, Chernivtsioblenergo, and Rivneoblenergo.

However, the ‘success story’ never materialised because the company and its management, like millions of Ukrainians, faced military aggression, which meant systematic massive shelling of critical infrastructure.

Now, VS ENERGY management’s efforts were not aimed at covering debt obligations, but at ensuring the lives and safety of its power engineers, who bravely, under the threat of new shelling, restored the destroyed power facilities in mined areas to bring heat and light back to Ukrainian homes as soon as possible, which were rapidly cooling down in winter.

Maintaining the infrastructure, repairing damaged power grids at own expense, and supplying Ukrainians with electricity became a top priority, and the company successfully met this challenge. Yes, the price was very high. After all, one of the company’s facilities, Khersonoblenergo, is located at the occupied territory. According to Vilis Dambins, the company lost employees due to massive shelling in several regions. Among them are those awarded of the Order of Courage.

The company has also directed its efforts to help the defenders of Ukraine. In the first days of the war, the companies together transferred financial assistance to the Ukrainian army in the amount of UAH 30 million and donated more than 80 pieces of equipment to the Ukrainian army. The company has taken a firm stance – it is on the side of Ukraine and will provide all possible support.

However, such an open and consistent position of condemnation of the armed aggression did not prevent the Ukrainian law enforcement authorities from accusing the shareholders of… “nominal presence”, and links to citizens of the Russian Federation. Representatives of the company were hunted by both the Prosecutor General’s Office and some media, which made unfounded accusations.

For this purpose, the Prosecutor General’s Office “revived” criminal proceeding No. 12012000060000073 dated 22 November 2012, which was opened on grounds of petty criminal hooliganism committed in 2006-2008, which, of course, had nothing to do with VS ENERGY. However, the case was later re-classified.

It’s hard to believe, but at the same time as Ukraine’s energy infrastructure was suffering from massive rocket attacks from Russia during autumn and winter of 2022, and VS ENERGY’s energy specialists were busy repairing the destroyed power facilities, prosecutors of the Prosecutor General’s Office, together with the Security Service of Ukraine, deliberately blocked the work of the companies and searched the headquarters of VS ENERGY in Kyiv city.

A significant amount of computer equipment, phones and documents were seized during the search. Numerous summonses for interrogations of the company’s employees and threats of alleged criminal punishment in case of failure to testify about cooperation with Russian citizens also significantly destabilised the company, which is a strategic company by its field of activity.

European investors have also received threats demanding that they confirm the presence of a “Russian trace” in the company. The appropriateness of such an “influence” on part of law-enforcement agencies will hopefully be legally assessed.

Prosecutors have seized the property and accounts of the companies through the courts, for which shareholders are forced to fight in the courts. Some of the lawsuits have already been completed, and the Ukrainian judiciary has sided with VS ENERGY investors and lifted the seizure of property. However, the equipment has not yet been returned to the owner, and any applications for enforcement of the court decision are rejected by law-enforcement.

These court rulings do not stop prosecutors from repeatedly trying to seize the seized equipment, which should have been returned, through the courts, even without changing the grounds, which delays the trials and forces the shareholders to defend their position on the lack of cooperation with the Russians in the courts.

Investors’ lawyers note: “The most ironic thing is that all the accusations against VS ENERGY are based on publications from unverified information sources from 15 years ago, which concerned former shareholders. However, due to the Prosecutor General’s Office’s fuelling of rumours and speculation, these publications were “resuscitated” and rewritten in a new, convenient way.”

Prosecutors themselves, despite the presumption of innocence in Ukraine, are unable to restrain themselves from public comments and interviews with the media, where they openly accuse investors of collaborating with Russian citizens.

Moreover, it is with the help of the media that law-enforcement officers justify their pressure on the company in the eyes of the public, emphasising in comments to journalists that “the company’s owners, Russian oligarchs, are already under sanctions, so the Security Service of Ukraine has ‘every right to come there with searches’. Thus, they are laying down the right to come to virtually every business that the media falsely accuse of having ties to Russia. After all, the public was not presented with any evidence, and court decisions in favour of VS ENERGY indicate the opposite – the absence of Russian influence.

Of course, the media also started their hunt for shareholders and employees, which created appropriate pressure on the company and has already born its toxic fruit in the form of a negative public opinion. Because of this, the society itself, without waiting for a court verdict, began to spread a negative wave towards VS ENERGY shareholders and employees: they say that Latvian investors did not buy out assets in Ukraine from the Russians, and the Russians put nominal owners in place to cover themselves in these assets.

Even this public opinion is not unequivocal. Chasing a sensation, media come up with more and more new versions of VS ENERGY investors’ connection with the Russians: 1) either Latvian investors made a deal with the Russians to hide their business and became nominal owners, 2) or they did buy back the assets in 2014, and redistributed the shares in the business, and kept their wives as “controllers” as shareholders, 3) or this “deal” with the sale of assets is a cover-up of ties with the Russian company VSMPO-AVISMA, headed by Mikhail Voevodin (yet with totally different patronymic – Viktorovich, not Vasilievich, what is interestingly ignored by the law-enforcement agencies or even concealed from others).

Even the MP Andrii Herus made accusations. However, even in this case, his statements do not seem logical: “In 2020, Russian Mikhail Voevodin allegedly bought out Babakov and Giner’s shares in VS ENERGY, but what really happened at that time is unknown, as this transaction was not reflected in the official registers. The official owners remain EU citizens.” It is difficult and even impossible to believe that someone could become the owner of shares in a European company without leaving the relevant information in the register. Moreover, it is impossible to sell what you don’t have, because Babakov has never owned shares in the company, and the Russians’ name could have been used as a tool for dirty competition between different business groups.

This immediately refutes the media’s accusations that VS ENERGY’s European shareholders were carrying out Babakov’s “instructions”, as there is no documentary evidence of his involvement in the company. This effectively paralyses the activities of a European investor who was unlucky enough to acquire a “business with a history” back in 2014, which was supposed to be a dream come true but in fact became a real problem.

And yet, it is unclear whether the organised criminal group owned the shares before 2014 and sold them to nominal Europeans, or, as Andrii Herus says, one member of the organised criminal group bought the shares from another member of the organised criminal group? How many new versions will we hear? It is precisely all these “legends” that allow law-enforcement officers to spin the VS ENERGY investigation in the direction they need, ignoring the fact that more than 10,000 employees of critical infrastructure enterprises are suffering from their actions.

We also have an example of this in this VS ENERGY story, when in May 2023, the investigation asked the financial monitoring body of Ukraine to block all accounts of the regional power distribution company. There is no mistake here – law-enforcement asked to block all accounts, and this is an opportunity for the oblenergos to pay salaries to their employees – ordinary Ukrainians who are already struggling to survive during the war. It is also an opportunity for the regional power distribution companies to help the families of power workers who were killed by Russian shelling while doing their main job – bringing electricity back to Ukrainians. It is also an opportunity for the oblenergos to pay taxes into the Ukrainian economy, which is at war. It is also an opportunity for the oblenergos to provide financial and humanitarian assistance to the Ukrainian armed forces. And all this is happening against the backdrop of constant shelling of Kherson by Russia. By blocking the accounts of the regional power company on the instructions of law-enforcement officers, it blocked the possibility of repairing the energy sector in Kherson, a long-suffering city that has long been under occupation by Russian troops, and now both the people of Kherson and the energy sector suffer daily from shelling by Russia, which has become especially critical after the Russians blew up the Kakhovka hydroelectric power station.

Only after numerous public appeals from the owners of regional power distribution companies, their employees and trade unions, and military administrations, law-enforcement officers withdrew their order to block. This act of law-enforcement cost the power companies not only time to restore their capacities, but also the lives of Ukrainians – every unpaid drone, car, bulletproof vest for the Armed Forces of Ukraine cost the lives of Ukrainian soldiers.

The shareholders note that the energy business is very complex, and do not deny that they had contractual relations with certain Russian citizens in the distant past. Some of the old obligations had a long-term maturity. Such obligations were duly fulfilled because war does not write off business debts. Law-enforcers look at this as nothing more than concealing the “real” shareholders.

At a time when European investors VS ENERGY have been helping the Ukrainian military since 2014, first during the ATO and JFO, and now during the full-scale invasion of Ukraine by Russia, they are openly and publicly told by the country’s top officials: “we will take away your business”, “it’s only a matter of time, a lawsuit is already being prepared”, “your assets will be confiscated and transferred to a specially created state body”, which, by the way, according to open sources, was created on the instructions of officials from the Office of the President of Ukraine.

Therefore, unfortunately, the example of VS ENERGY, in which European investors came to Ukraine, investing their knowledge, experience and reputation, and in return received only accusations of collaboration with the aggressor, can become a red beacon for other investors who would like to rebuild Ukraine and its economy. No business would want to risk its good name when any investment could become a target of terror by Ukrainian men in uniform.

Pressure from law-enforcement agencies also hinders business development and is a direct threat to further EU assistance, which is flowing to Ukraine in an unrestrained manner. After all, the main principle of such assistance is transparency of its use. However, such manipulations of the energy business by law-enforcement agencies and unfounded accusations call into question the feasibility of receiving and using it.

Ukraine is a priority for EU countries in implementing their cooperation policy, particularly in the field of investments. Latvia is one of the few EU countries that has consistently supported Ukraine’s intentions to follow the European path of development. Almost 10 years ago, Latvia was one of the first countries to clearly express its position on the illegality of the annexation of Crimea and supported Ukraine in the military confrontation in Donbas (in terms of the country’s territorial integrity) as reported by the Ambassador of Ukraine to Latvia, who is concerned about the situation around VS ENERGY in Ukraine.

However, it now seems that Ukrainian law-enforcement is beginning to hunt down even those who seek to help.