EHU Fights Allegations of Financial Misconduct, Needs New Leadership
On May 20, Acting Chair of the European Humanities University (EHU) Anne Lonsdale announced that the current EHU rector Prof. Garry Pollick will soon be concluding his term.
The announcement put EHU in the Belarusian headlines. The unexpected news followed a scandal caused by the leak of a confidential audit report prepared by international auditing company Deloitte for EHU donors.
The report exposed alleged violations of tax law and internal financial regulations, purported to be at the hands of a group of American EHU governing board members and Professor Garry David Pollick, a controversial EHU rector.
According to the official announcement, Dr Pollick ‘has graciously agreed’ to serve EHU until late summer 2016 and “it has always been clear to us on the [EHU Governing] Board that Prof. Pollick had intended to be with us for two years only”. However, it has been just about one year since David Pollick took up the rector position. What’s going on?
Leak of confidential EHU materials on administrative misconduct
The announcement of Pollick’s resignation appeared a few days after an undisclosed group of members of the current EHU staff leaked a report on EHU conducted by Deloitte at the request of the Nordic Council, an inter-parliamentary forum and one of EHU's main donors.
Soon after the leak, two major online media outlets from Belarus, kyky.org and bel.biz, almost simultaneously published extensive analysis of the alleged misconduct by those who run the university. This resulted in a public outcry and calls for the current EHU leadership to be removed immediately.
A few days later, it became known that the Nordic Council discontinued its financial support to the university. Nordic Council insiders privately confirmed that the funding was halted due to the allegations exposed in the leaked Deloitte report.
On 25 May, the EHU Senate, the university's body of academic self-governance, issued a statement calling for immediate action to restore the reputation of the university. The statement also called for the reconstruction of institutional stability that it claims has been let down by EHU executives in the past two years.
The Senate also urged to remove the university’s top executives, including the rector. It further called for broader engagement of the academic community in decision-making and budgeting as well as the launch of internal crisis management procedures.
This is the second time that the Senate has openly opposed the EHU administration in the last five years. The last time, the Senate was subsequently dissolved. EHU alumni also produced a video calling for reform of management of the European Human University and including Belarusians into decision-making at the university.
We reached out to Anne Lonsdale, asking her to explain why people allegedly responsible for financial misconduct and the violation of EHU internal rules (and, potentially, tax laws of two countries) have not been removed from their positions and are instead being praised through public announcements.
Lonsdale’s responded that she had little to add and claimed that these were 'damaging statements which are untrue and for which one has no proof'.
Andrej Laŭruchin was removed from the EHU in 2013 during the administration’s crackdown on ‘unqualified’ dissident staff members. He is currently an Associate Professor at the Higher School of Economics in Russia (a top 100 university in the QS University Ranking) and was willing to share his view:
Dismissal of those responsible would mean accepting the facts. Hence, the accused shall instead be awarded. Then the suspicion will remain ‘suspended in the air’. It’s an old political trick that some political opponents of authoritarian regimes call ‘Byzantine cunning’. The questions are rather: a) whether there’s proof of guilt and b) whether anybody will deal with the case. As my experience of legal disputes in academia shows, this is a very tricky and fraught business that involves huge moral costs since the violators inevitably have influential friends in academic and semi-academic (political) circles.
Protection of donor’s interest: revision of EHU ownership structure
The alleged misconduct exposed by Deloitte, if true, would only have become possible as a result of a lack of effective accountability mechanisms. EHU must introduce a new governance model that reflects the existing ownership structure. Such a move requires fundamental revision of the nominal ownership of the EHU – the General Assembly of Part-Owners (GAPO).
The EHU is a non-profit liberal arts university founded in Minsk in 1992. In 2004 it was forcibly shut down by the Belarusian authorities and relocated to neighbouring Vilnius (Lithuania) where it exists as a Belarusian university in exile, supported by a wide range of European and North American governments and philanthropists.
In 2013, the university entered a period of turbulence and since then its management has been widely criticised for authoritarian governance, even resulting in a call for the creation of an alternative institution.
When the EHU was re-established in Vilnius a decade ago, three organisations (the Institute for International Education, the Open Society Foundation (OSF), and the Eurasia Foundation) formed the GAPO and became the supreme decision-making body of the university.
EHU alumni recently produced a video calling for reform of the current EHU governance system and letting Belarusians run the Belarusian University in exile. Read more
As of 2016, no GAPO member organisation (except for OSF) provides significant funding to the EHU, but they are in charge of all internal decisions on EHU spending. Meanwhile, the largest EHU donors have no control over the funds they allocate to the EHU.
The university ownership structure has changed, and it must be reviewed to correspond with actual ownership, with primary focus on the protection of donors’ and stakeholders’ rights. EHU alumni recently produced a video calling for reform of the current EHU governance system and letting Belarusians run the Belarusian university in exile.
Protection of the public interest
Under Lithuanian law the university is a "public institution". Legally speaking, the EHU is a not-for-profit organisation that enjoys certain tax and regulatory benefits because it pursues a public good. But in reality the EHU has been taken over by a group of top managers under the leadership of current EHU President Anatoĺ Michajlaŭ, who as a matter of fact 'owns' the university.
As of June 2016, the university urgently needs to revise the GAPO membership, and conduct an all-encompassing, comprehensive reassessment of its corporate governance policies and disclosure standards.
In May 2016, Swedish International Development Cooperation Agency (SIDA) replaced the Nordic Council in oversight of the EHU Trust Fund, and is expected to make changes to remove the deadlock of the existing crisis.
SIDA should request full compensation for losses incurred by the university as a result of managerial misconduct and introduce a governance model that reflects the existing ownership structure – one that provides administrative representation based on current ownership.
This means that the university must immediately review its corporate governance policies in the light of the existing ownership structure that has changed significantly since 2005. EHU shall let major donors have control over spending and must prevent nominal owners from decision-making outside the ‘actual’ representation quota weighted on the 'ownership' stake.
EHU remains a public academic organisation. It is not a private institution, but a public university run in the public interest, and it must remain as such. This means that the ‘part-owners’ and the ‘board’ , its rector and president are not EHU's masters, but its servants. All members of the EHU community must remind the EHU administration about it.
Serge is the former President of EHU Alumni Association (2014-15).
Will Belarus Lose the Chinese Market in 2016?
On June, 9 the Council of Ministers of the Republic of Belarus appointed high-ranking officials personally responsible for implementing a number of investment projects.
Prime Minister Andrej Kabiakoŭ became supervisor of the BelGee project (vehicles production).
This move emphasises the importance which the Belarusian authorities attach to relations with China, even in spite of permanent criticism of their policies in this regard from independent experts.
The Belarusian government has declared three pillars in this cooperation: mutual support in the international arena, loans and investments from China and growth of Belarusian exports to the Chinese market.
However, exports have always been a weak point in Belarusian foreign policy, particularly in relations with China. In spite of numerous optimistic promises, for many years China has remained the most unfavourable trading partner of Belarus.
Although the years 2014 and 2015 witnessed some seemingly positive changes in this situation, Belarusian exports to China are becoming increasingly counter to the national interest.
Belarus-China trade in 2011-2014: optimistic promises and disappointing results
Belarus-China trade has always been a matter of serious discussion in Belarusian expert circles, due to the fact that it clearly goes against Belarus' declared export-oriented foreign policy. One can hardly expect a positive trade balance between any country (excluding oil and gas exporters) and China.
However, in the case of Belarus the imbalance between Belarusian exports to China and Chinese imports to Belarus has been particularly acute. The clear discrepancy between the officially proclaimed goals of Belarusian foreign policy in general – export growth – and the trade deficit with China has always been a source of tension in the development of Belarus-China relations.
The table below illustrates the export-import balance in Belarus-China trade in 2011-2014:
Such an imbalance can hardly be compared to that with Belarus’ other key trade partners – Poland, Germany and Russia. All are countries with both significant exports and imports, as well as a significant variety of traded commodities:
Moving towards improvement in 2015?
However, the year 2015 witnessed more positive changes in bilateral trade, a trend which started in the year 2013. The table below illustrates these changes:
In spite of the low growth in Chinese imports, Belarusian exports to China demonstrated significant growth. A number of Belarusian and Chinese officials pointed to these figures as a successful achievement in bilateral relations and even as a qualitatively new trend in mutual trade. Unfortunately, this trend was not sustained in January-March 2016. The table below illustrates this:
No new trend, the same decline
The dramatic fall in Belarusian exports to China combined with the comparative slow down in Chinese imports to Belarus are grounds to examine more carefully the reasons for the positive trends in 2015.
Potash fertilisers contributed $650m, or 83.16 per cent, of Belarus’ exports to China in 2015. In 2014 the share of potash fertilisers totaled 71.1 per cent of Belarusian exports to China. This means that de facto Belarus reduced its exports in China.
This reduction corresponds with the general trend in Belarusian foreign trade since 2012 and, as some experts believe, illustrates the processes of de-industrialisation in Belarus and the decline of its economy. The emergence of competitors in the potash fertiliser market and the decrease in the value and amount of other commodities mark the first main trend in the Belarusian export to China.
The decrease in prices for Belarusian exports to China marks the second basic trend in bilateral trade. The table below illustrates this trend via the medium price (in USD K.) for the five most significant groups of commodities:
Unfortunately, Belarusian statistics do not include the prices for potash fertilisers exported to China. The figures in the table reflect the export prices for Belarusian potash fertilisers sold beyond the CIS members. Usually, Belarus sells these fertilisers to China at even lower prices.
For example, Bloomberg reported that in 2015 Belarus sold potash to China for $315 per metric tonne, including shipping costs. Competitors considered this price to be unsustainably low. No clear information is available on the prices in 2016. However, according to data from VTB bank, market prices may go below the psychologically important level of $200.
Two other main commodities – polyamides and heterocyclic compounds with nitrogen atoms – have also seen a decrease in their export price to China. Polyamides experienced the lowest price level compared with export prices to other countries.
Is China playing on this scenario?
The tables above illustrate that the Belarusian authorities, who desperately need foreign currency, have concentrated their efforts on increasing the volumes of exported potash fertilisers on account of prices cuts. Such a policy will lead to positive results only in the short-term, while in the medium- and long-term it can have only negative outcomes.
Sad to say, Chinese policy-makers are well aware of this and have an elaborate strategy to protect their economic interests on the potash market. Bloomberg’s and VTB’s experts report that
China is sitting on above-normal inventories of up to 5 million tonnes, domestic production is running at full speed and railway deliveries from Russia as large as 120,000 tonnes per month continue, so the country is not in a rush.
Some of this 5 million tonne stock certainly came from Belarus in 2015.
It is not the first time that the Chinese have adopted this strategy of buying low-priced potash fertilisers, accumulating large stocks and promoting further competition between suppliers to keep prices low. In particular, the same scenario occurred in 2013.
However, the Belarusian authorities do not have many choices: the country needs currency now, and it seems that nobody is thinking even in a medium-term perspective. The logical results of this policy already came to bear in the first half of 2016 when Belarus failed to make significant exports to China, including of potash fertilisers, and now risks facing a dramatically low price of $200 per metric tonne.
Shaping results for the year 2016
There is no doubt that any exporter to China faces great challenges in this market. However, the analysis of Belarusian exports to China since 2013 reveals a substantial narrowing in the range of exported commodities, lowering of medium prices and a growing share of potash fertilisers in the overall export market. This policy brought moderately positive results in 2013-2015, promoting slow growth of exports and reducing the imbalances between exports and imports.
Unfortunately for Belarus, trade results for January-March 2016 demonstrate that such a policy has exhausted its capacities.
The year 2016 is going to be a catastrophe for Belarusian exports to China due to low prices for potash fertilisers and the total absence of any opportunity to compensate these prices by increasing volume of supplies, as well as the lack of capacity to propose other goods to the Chinese market.
It seems Belarus is going to see significant currency losses in its trade with China this year in the context of a deepening economic crisis in the country.
Aliaksandr is a PhD in Political Science, Dean of the Faculty of Extended Education at the Belarusian State University of Culture and Arts, and expert of NGO "The Liberal Club".