Suspicious Gas Dealings With Russia

PRAGUE, Czech Republic -- After following and writing about gas deals between Ukraine and Russia for the past four years, I feel confident in stating that the agreement to create a joint venture between state oil and gas company Naftogaz Ukraine and Swiss-registered RosUkrEnergo is a setback for Ukraine. I say this without any hesitation or reservations.

Executive chiefs of joint venture RosUkrEnergo Oleg Palchikov (R) and Konstantin Chuychenko (L)

This deal could come back to haunt Ukraine and President Viktor Yushchenko one day. It could also destroy his reputation and the reputations of those who were party to this unnecessary and murky transaction. In my opinion, it is one big mistake.

Beginning in December 2002, Eural Trans Gas (ETG) was registered in Hungary and awarded a contract to supply Ukraine with gas from Turkmenistan. RosUkrEnergo has since replaced ETG as the firm handling transits from Turkmenistan, and most recently importing gas from Russia and Central Asia. It is a lucrative business through which such firms generate hundreds of millions of dollars annually for unclear services.

Nobody in the top echelons of government or the companies involved has been able to adequately explain why state-owned gas companies like Ukraine’s Naftogaz and Russia’s Gazprom, which controls gas pipelines stretching to Ukraine’s borders, can’t handle the transit themselves. There are many other unanswered questions.

Nobody in the Russian or Ukrainian governments has explained the role of ETG’s Romanian shareholders.

What value did ETG add to the transport of Turkmen gas to Ukraine? Yuriy Boyko, the then-head of Naftogaz, claimed that everything was “transparent” and that Eural was saving Ukraine a great deal of money. This doesn’t appear to be the case.

Former Ukrainian President Leonid Kuchma didn’t attempt to stop the deal, maintaining silence throughout while he was in office. The bottom line was that Eural was awash in cash.

Nobody could answer why such little-known companies should be given such lucrative contracts and what role they played. Equally important, nobody could explain where the profits earned ended up. As far as I have been able to ascertain, it didn’t go into the pockets of the Romanian shareholders.

Then, for reasons still unknown, mysterious beneficiaries, or those who really controlled the lucrative business, got rid of the Magyars, Romanians and an Israeli lawyer. In July 2004, RosUkrEnergo was set up, replacing ETG as the operator of Turkmen gas supplies to Ukraine.

“A model of transparency” Boyko proclaimed at the founding ceremony in Yalta. Still, RosUkrEnergo, owned half by Gazprom subsidiary Gazprombank and half by unknown parties, appeared to be a continuation of the old Eural scheme, as well as the proclivity of top brokers in the region’s gas business to conduct opaque transactions.

To show how “transparent” everything was, they brought on board Raiffeisen Investments – a company that added a respectable name to the murky deal. Raiffeisen appears to do nothing except act as a nominee shareholder on behalf of the unknown owners of Centragas Holdings, which owns half of RosUkrEnergo. Its beneficiaries have not been disclosed. Thus, Raiffeisen Investment appears to have fulfilled the role of attractive packaging.

Nobody in Ukraine made any serious objections at the time. In the case of Eural, millions of tax-free dollars piled up on company accounts and it remains unclear where they ended up.

When the new administration took over in Ukraine, its members vowed to fight corruption and the remnants of the Kuchma era. An investigation was launched by the Ukrainian State Security Service (SBU) into the operations of Eural and RosUkrEnergo.

Russian President Vladimir Putin was in a potentially uncomfortable position. It appeared that Yushchenko was doing his bidding. Oleksandr Turchynov, then head of the SBU, said he’d been told to wrap up the investigation, and to stop pestering “our boys.” Then Yushchenko fired Turchynov’s political ally, Yulia Tymoshenko and brought in a new team.

The gas deal appeared to be too profitable to fold up. When the time came this year to negotiate a new gas sales deal with Ukraine, RosUkrEnergo ended up gaining a bigger role, gaining control of gas shipments not only from Turkmenistan, but also from other Central Asian states and Russia. The joint venture established last week also gives RosUkrEnergo a piece of the business of supplying gas on the Ukrainian market.

The Ukrainian government conducted the negotiations as best they could, but could have done better. They misled the Ukrainian people over and over, insisting it was a transparent deal.

President Yushchenko scolded the press for writing “fairy tales” (‘Bajky’) about RosUkrEnergo, while disassociating the state from the firm. He insisted that no government company had a share in it.

The head of the Anti-Monopoly Committee of Ukraine last week concluded that the creation of a joint venture between Naftogaz and RosUkrEnergo didn’t violate Ukraine’s antimonopoly laws. But regulations and commercial secrets forbade him from revealing the names behind RosUkrEnergo. Committee head Oleksy Kostusev did say, however, that these names should be made public. Why should the names of shareholders in a commercial venture remain secret, when it is the government that owns part of the venture?

What prevents President Yushchenko from telling the Ukrainians clearly who owns 50 percent of RosUkrEnergor? Is he covering for someone?

If Ukraine expects to join Europe and the World Trade Organization, then this is not the way to go about it.

If blame is to be apportioned for the Ukrainian side of this fiasco, then most of it can be placed on the doorstep of the current authorities. President Yushchenko’s approach to governing, his choice of personnel and his difficulty in keeping electoral promises to fight corruption are largely responsible for this mess.

Yulia Tymoshenko must also be held accountable for her actions after the gas affair began. By arguing that the old price of $50 per 1,000 cubic meters could be maintained was pure nonsense. By making wild and unsubstantiated claims, Yulia has only created more confusion and uncertainty than what already exists.

Influential power brokers in the region, possibly including Russian President Vladimir Putin, appeared influential in this deal. This, however, does not excuse the president of Ukraine and the government from concealing the truth from their own people. It would have been far better to rely on honesty and tell it like it is. Most reasonable people would have believed President Yushchenko. Instead, he chose the path of least resistance.

Source: Roman Kupchinsky (RFE/RL)

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