Semmering loses faith in oligarch investors

"We don't have any trace of diesel dust. You can breathe deeply here," says Mayor Horst Schröttner with a sense of pride. Semmering, about an hour's drive from Vienna, is legendary. When you speak to the locals, they do not hesitate to tell you that the concept of winter sports was invented right here more than a century ago. Despite that history, one thing quickly becomes apparent: Semmering's best days are long gone. Today, it is as if the place had fallen into a deep sleep. It is fabulously beautiful, with snow-covered mountains and forests, yet it sits abandoned, frozen in time.

Grand Hotel Panhans: History and charm

Majestically overlooking the Hirschenkogel, or the "Magic Mountain" as it is marketed to tourists, is the Grand Hotel Panhans — a true monument to Semmering's glorious past. The building did more to create the village's legendary aura than any other. This is where Vienna's high society gathered in the late 19th century. The boom was made possible by the Semmering railway, which is a UNESCO World Heritage Site today.

Known as the world's very first mountain railway, the Semmering line began taking tourists up to the hotel, which sits at 1,000 meters (3,300 feet) above sea level, in 1854. Unparalleled fresh mountain air primarily attracted a well-off clientele in search of alleviation and recovery from illness. When the Grand Hotel added a large ballroom and casino in 1911, Semmering seemed set to steal the limelight from the famous Swiss spa St. Moritz.

When wealthy Ukrainian investors showed up in Semmering five years ago, rumors about big plans for a fresh start quickly began making the rounds. The Grand Hotel Panhans has changed hands twice since then. In 2012, it was bought by IBS Umwelt- und Verkehrstechnik (IBS Environmental and Traffic Technologies), a Ukrainian-backed Austrian construction and engineering company.

But a year later, IBS sold the hotel to the Panhans Holding Group, which is owned by a Swiss investment firm. Panhans Holding Group's managing director is a Ukrainian named Viktor Babushchak. Shortly thereafter, plans for the first phase of investment were announced, in which the group said it would pump some €56 million ($67 million) into refurbishing and modernizing Semmering's tourism infrastructure. The Panhans Holding Group's manager promised Austrian journalists that his company would transform Semmering into a "second St. Moritz."

"Money didn't seem to be a problem. The Ukrainians tried to buy up the whole village," recalls Eduard Aberham, the former longtime manager of the Grand Hotel Panhans. Initially, Aberham served as an advisor to the Ukrainians. His business was the first one they bought. Eventually, the Panhans Holding Group managed to buy up every hotel in the village.

The ski lifts and restaurants on Magic Mountain came later. There were also plans to greatly expand the number of ski slopes in Semmering. That meant locals would have to sell their property. "That was when the problems started. It turned out that many of them didn't want to sell," Aberham told DW. Still, that was not the biggest challenge the Ukrainians faced.

Authorities on high alert

Mayor Horst Schröttner says the Ukrainian investors have been under scrutiny from Austria's financial authorities, with inspectors looking into every transaction. "But how long can that kind of inspection go on? Certainly not a year, a year-and-a-half, or two years," the mayor told DW, complaining that if the Ukrainian money came at all, it just trickled in.       
 
The Central Public Prosecutor's Office for Combating Economic Crimes and Corruption in Vienna confirmed to DW that a probe was under way in connection with the Panhans: "There are legal proceedings pending against known and unknown perpetrators accused of money laundering related to the 2012 sale of the Hotel Panhans," said a spokesperson for the office.  

Who are the investors?

So just who are these wealthy Ukrainians whom Austrian authorities are eyeing so closely? That question is not easy to answer. The commercial register does not list the names of the economic beneficiaries of Renco Invest, the Swiss company that owns Panhans Holding Group. Representatives from Panhans Holding have left repeated journalists' enquiries about the source of its finances unanswered. A DW request for an interview was also denied.

Formally, Panhans Holding Group had nothing to do with either the 2012 sale of the hotel to IBS Umwelt- und Verkehrstechnik or the related investigation into allegations of money laundering, as it purchased the hotel one year later. Yet, DW research has found that the same people are behind both companies.

Two of the shareholders behind IBS were the Austrian businessman and politician Thomas Schellenbacher and the Ukrainian Ihor Palytsia, also a businessman and politician. In 2015, Schellenbacher told the Austrian weekly magazine Profil that the two have been friends for years.

Ukrainian network in Austria

Viktor Babushchak, current manager of the Panhans Holding Group that owns the Grand Hotel Panhans, was already employed by Schellenbacher and Palytsia back in 2012, working on projects for the IBS Palytsia Schellenbacher Fund that the two had previously founded. According to company records, Babushchak's residence is registered as St. Leonhard am Forst, Schellenbacher's home town. The local land registry shows that Babushchak's residence is actually in Schellenbacher and his wife's home.

Apparently Babushchak is not the only Ukrainian that Schellenbacher has helped to take up residency. Schellenbacher, who until recently was a representative for the right-wing populist Freedom Party of Austria (FPÖ) in the country's National Assembly, has a number of Ukrainian stakeholders in his companies. According to Profil, those stakeholders were also registered as residents in his home and that of his parents. The Ukrainian politician and businessman Ihor Palytsia is said to have been one of them. Above all, Austrian residency and business investments helped the Ukrainians close deals more easily in Europe. For his part, Schellenbacher also happened to be the chairman of the Austrian-Ukrainian parliamentary group in the Austrian National Assembly.

During that time, Schellenbacher intensified his business partnerships in Ukraine. For instance, IBS was selling technology for hydroelectric power plants there, and wastewater treatment plants and other equipment made in Austria were part of IBS' product portfolio.

In 2012, Schellenbacher's company won a major contract in Ukraine when it won a bid to build a wastewater treatment facility at the country's largest ski resort, Bukovel. That was the time when IBS took over the purchase of the Grand Hotel Panhans in Semmering.

The Bukovel connection

It is an open secret among those in the know in Semmering that Bukovel's shareholders are the same Ukrainians who invested in Semmering. Mayor Horst Schröttner, for instance, visited Bukovel at the invitation of those investors. "I paid for my flight and hotel myself," Schröttner stresses.

While in the Ukraine, the mayor met the brothers Oleksandr and Viktor Shevchenko, who are both part owners of the resort and run all of its business operations. As in Bukovel, the younger of the Shevchenko brothers took over all of Semmering's restaurants and catering connected to the ski slopes.

In Austria, he and two more Ukrainian business partners are shareholders in the restaurant and gastronomy firm Ambikom, as can be seen in the company register. Viktor Shevchenko, who like his brother is a Ukrainian parliamentarian, has kept his business dealings in Austria a secret, despite being obliged to declare them under Ukraine's anti-corruption laws.

But it seems that Ihor Palytsia is the man calling the shots in Semmering. "When we negotiate over anything, Babushchak always says, 'I have to confirm it with Palytsia,'" as Mayor Schröttner told DW. The mayor says he knows Palytsia personally and that he regularly visits Semmering.

Palytsia's behind-the-scenes role is also something that Andreas Stühlinger, a former spa hotel owner, notes. In October 2013, he, too, sold his business to Panhans Holding Group.

Stühlinger says that Babushchak signed the sales contract, but adds that Ihor Palytsia was also present: "He was the mastermind. The purchase was a milestone for the investors. For the longest time I thought that Palytsia was the actual investor. But then I heard rumors that an even more important person was behind it."

A behind-the-scenes oligarch?

The important person behind Palytsia is apparently Ihor Kolomoiskyi, one of the wealthiest oligarchs in Ukraine. Kolomoiskyi, alongside the Shevchenko brothers, is also part owner of the Bukovel ski resort. According to press reports he is the project's biggest investor. In Ukraine, Palytsia is said to be the billionaire's right-hand man. He was, among other things, Kolomoiskyi's representative on the supervisory board at the majority state-owned oil company Ukrnafta. Although Kolomoiskyi only has a minority stake in Ukrnafta, he has nevertheless been able to make decisions about the company's finances for years.

Kolomoiskyi is no stranger to the residents of Semmering. When shown a photo and asked, "Do you recognize this man?" Stühlinger does not hesitate. "Yes, that's him," says the former spa owner. "Just before I sold, Babushchak brought him to look at the spa and hotel. At the time I had no idea who he was. But the Ukrainian whispered his name almost as if in awe," Stühlinger recalls, saying that when he later spoke to the investor, the Ukrainian inquired about the costs of renovating his spa hotel.

But business is not the only thing that binds Kolomoiskyi and the other Bukovel investors. They are also all members of the right-wing nationalist UKROP party, the most important financial backer of which is Kolomoiskyi himself. His right-hand man Palytsia is an elected party representative in the Ukrainian regional parliament in Volhynia, where he is also the president of the body. The Shevchenko brothers are UKROP members as well.

Euphoria is over

Today, five years after having been sold to the Ukrainians, the Grand Hotel Panhans stands empty. Renovation work began this spring. That work, however, has been regularly interrupted by raids in which authorities have arrested illegal workers from Ukraine. In response to a DW enquiry, a spokesperson from the Austrian Ministry of Finance said that "the Ukrainians were deported - they had neither residency nor work permits."

According to the ministry, authorities are currently investigating a network of front companies suspected of being involved in organized human trafficking. Other problems beyond those surrounding the employment of illegal workers have also generated negative headlines.

Meanwhile, power to the Grand Hotel has been shut off due to unpaid bills, and employees have complained about outstanding wages. Not even the ski lifts, which also belong to the Ukrainians, were up and running when this year's ski season got under way.