DOING BUSINESS IN UKRAINE: Mecca for golfers planned in Kyiv (01/18/98)

DOING BUSINESS IN UKRAINE: Mecca for golfers planned in Kyiv

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Golfers, the serious-minded and duffers alike, soon may tee off on an island on the Dnipro River on the outskirts of Kyiv and shoot 18 holes before retiring to a cozy clubhouse for a beer or a martini. Afterwards they could return to their hotel room or rented corporate villa for a shower and a nap before lunch at a luxurious country club restaurant. In the afternoon they could relax on a beach on the Dnipro River, go yachting, play tennis or make plans for a business meeting in a conference center near the links.

If real estate developer Walter Prochorenko, president of Pro-W Ukraine, realizes his vision, that is what businesspeople and visitors to Kyiv soon will have available to them on a plot of land, which includes a 154-hectare island on the Dnipro, located less than an hour's drive south from the center of Kyiv. The country club and golf resort he envisions for Ukraine, dubbed Twelve Oaks at Koncha Zaspa, would be a gathering place for international businesspeople as well as a vacation resort for affluent Ukrainians and tourists.

Mr. Prochorenko, who has previously completed successful golf resorts in Thailand and Vietnam, has spent the better part of two years laying plans for the realization of his latest project - the first of its kind in Ukraine.

In Ukraine, he said, he has overcome more obstacles than in either Thailand or Vietnam, or any of the other 45 countries in which he has worked in real estate development, including the building of condominiums in Okinawa, Japan, and Guam. "This is one of the most anti-business environments I have ever seen. It is really a unique country when it comes to doing business," said the real estate developer.

Mr. Prochorenko, a 54-year-old Ukrainian American who is the managing partner of Pro-W Ukraine, has invested $1.7 million into the country club resort project in Ukraine. He has an agreement for the lease of 200 hectares outside of the town of Koncha Zaspa, with the collective farm that owns it. Even though the collective farm recently was bought out by Hermes Investment Holdings, a large Ukrainian gas company, the firm has agreed to honor the lease and to come on board as a partner in the project. It will invest $7 million into infrastructure development, luxury housing, tennis courts, a yacht club and clubhouse facilities. Mr. Prochorenko also has a third partner, Fond Reserve, for the project that he foresees costing $34 million.

And although Mr. Prochorenko is looking for another partner, that is not the reason he has not been able to move into the construction phase of the project. He blames groundbreaking delays, of which there have been several, largely on impediments and intrusions by government structures and what he calls "quasi-governmental" bodies.

"The amount of approvals and regulations we need to go through seems to be increasing every day," explained Mr. Prochorenko. "Quasi-governmental organizations that want to give input into the project are coming out of the woodwork."

What he is describing is a post-Soviet phenomenon in the newly independent countries in which directors of city agencies set up private consulting firms that parallel the work of their agencies and become required go-betweens between the investor and the city. For a fee, of course.

"These are people who originally worked within government organizations, but since then the city has made them independent," Mr. Prochorenko went on. "They supposedly do studies, they supposedly get approvals, and they supposedly make things go smoothly between the government organization and the investor. Unfortunately this is not the case."

Mr. Prochorenko named two such firms, Kyivske Investatsiyne Ahenstvo and Pleso. The latter is an intermediary for the Department of Environmental Protection and the Department of Water Resources. "It has been two months, and I still can't get a hold of the guy who promised to start some action on the project," said Mr. Prochorenko.

The real estate developer believes the lack of action can be blamed on a conflict of interest on the consultant's part. Apparently, two other companies are trying to start up a golf course in Ukraine and must also deal with Pleso. "This presents an ethical problem for them because they can't have arm's length transactions if dealing with two competitors on a single project," said Mr. Prochorenko. They can hang one up and push through the other one if they so desire."

The Weekly could not reach Pleso for comment.

Mr. Prochorenko also accused government officials of getting in the way rather than clearing the way for business investment to proceed. "They are not hands-on with their projects, and when they are, they become problematically involved. They will push their own private companies into a project," explained Mr. Prochorenko. He said that, in the past, government officials have forced real estate developers to hire specific construction companies or architectural firms in return for needed clearances and licenses.

"It seems that every government official has a private company parallel to what they are doing in government. In the West this is unthinkable; here it is fairly common," said Mr. Prochorenko.

After two years in Ukraine and more than a year and a half on this particular project, Mr. Prochorenko said he has learned that it is better to let his Ukrainian counterparts be the frontmen because they have a better understanding of the bureaucratic systems and what is needed to get the job done. "They are in a better position to resolve the issues. And they seem able to do so, but not as far as we would like," he explained.

Mr. Prochorenko decided to invest in Ukraine after completing a golf resort in Vietnam, a country that is just beginning to come out from under the Communist cloud and where private investment has exploded. "I decided that Ukraine would be the perfect place to do a golf course for a variety of reasons," said Mr. Prochorenko. Among them: the climate, the potential for growth of the sports and recreation industry, and Ukraine's central location in Europe.

Despite the many problems Mr. Prochorenko sees in doing business in Ukraine - among them "a total lack of understanding between business and government, laws written in such a way that they are unenforceable, accounting rules that are only meant for the propagation of paperwork and for making mistakes, and that change so often that no one can keep up with them" - he said he will stick it out in Ukraine.

"I am here for the long run. I see things changing," said Mr. Prochorenko. "It took me more than two years to get accustomed to how to do business here. Now that I have gotten accustomed, I know what it takes. But you have to be committed, or don't bother," he added.

Mr. Prochorenko advises those thinking about investing in Ukraine to be patient and persistent, to stick to general business rules and to adhere to the laws. "I would advise them not to circumspect the law and not to work on the basis of bribery. Nothing comes of it," he said. "If you can't do it without bribery, don't do it at all." He said he believes that eventually laws in Ukraine will change to make the country investor-friendly.

Another bit of advice he gives is to find local business partners who know business practices and can handle the details. He has pointers for diaspora Ukrainians as well - too many of whom have seen their business investments fail in Ukraine. "A diaspora person cannot be committed if he does not live here. The fact that he has money, speaks Ukrainian and is willing to invest here means absolutely nothing," explained the Ukrainian American. "If he thinks he can invest and manage from a distance even 50 percent of the time, it's not going to work."

Mr. Prochorenko, firm in his commitment and living in Ukraine since 1995, believes that the first phase of his golf resort will be completed in the spring of 1998 when condominiums, a clubhouse and a driving range are scheduled to open.

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