Analysis: EU Now Has Chance To Curb Gas Corruption

MOSCOW, Russia -- The European Union was dragged unwillingly into the Russia-Ukraine gas war, but analysts say the EU's role as mediator now gives it the chance to seek reforms of Russia's multibillion-dollar gas trade.

Firewood sellers warm themself next to a fire on January 10 in the center of Zagreb, Croatia.

Critics have charged that shadowy intermediaries earn fortunes from Russia's estimated $75 billion in annual gas sales to Ukraine and Europe, and recently top Russian and Ukrainian officials have joined in calling for reform.

"We have to work together in Europe to try to force Russia and Ukraine to adopt a level of transparency," said Tom Mayne of Global Witness, a London-based rights group that focuses on resource issues, on Sunday.

Anders Aslund, senior fellow at the Peterson Institute of International Economics in Washington, said in an email that the EU should call for the elimination of all middlemen from the gas trade "as they are just means of stealing from (Russian state gas company) Gazprom and the Ukrainian state, and the corrupt revenues are poisoning Ukraine's politics."

The EU has negotiated a deal to monitor Russian gas flow via Ukraine pipelines in a bid to end the cutoff that has left large parts of Europe without heat in freezing temperatures. Russia said it would only resume supplies if EU monitors track the flow and make sure Ukraine doesn't siphon off gas intended for Europe.

Both Russia and Ukraine have strong interests in developing ties with the EU, and they both aggressively sought its support in the crisis. Russia needs support from Europe for prospective pipelines bypassing Ukraine, while Ukraine has been seeking membership in the EU and NATO as part of its efforts to shed Moscow's influence.

Russian Prime Minister Vladimir Putin claimed the current dispute reflected a "high degree of official corruption" in Ukraine. He did not mention Russia.

Putin told reporters that Ukrainian authorities were fighting "not for the price of gas but for a possibility to maintain one or other intermediaries so that they can use the proceeds for their personal gain and also get resources for future political campaigns."

But Aslund and others say that powerful figures in both Ukraine and Russia profit behind the scenes from the gas business.

At a Dec. 30 conference in Washington, Aslund said the Russia-Ukraine gas dispute was "a conflict between very shady businessmen" rather than a dispute between sovereign nations.

"And the amazing thing here is that the EU countries do nothing to secure their energy supplies," he said. "Here they allow themselves to be vulnerable because of some shady organized crime deals."

The main intermediary in Russia's gas trade is RosUkrEnergo, a Swiss-based trading company. According to corporate Web sites, it is half-owned by Russia's Gazprom and half by CentraGas Holding AG, a Vienna-based company controlled by two Ukrainian businessmen.

Critics question the need for Gazprom, a mammoth corporation, to sell fuel through RosUkrEnergo.

"We simply can't understand why the company exists," said Mayne of Global Witness. "There just isn't a good reason for it."

Efforts to reach the company Sunday were unsuccessful.

On its Web site, RosUkrEnergo said it serves Russia and Ukraine "as a coordinative platform for the sale of Central Asian gas in the Ukrainian marketplace" and seeks to ensure "a stable pace of growth in the amounts of Central Asian gas supplied to Ukraine and Europe."

Ukrainian Prime Minister Yulia Tymoshenko, a former gas trading tycoon, has called for eliminating RosUkrEnergo from the Russian gas trade.

Volodymyr Omelchenko, an analyst with the Razumkov Center of Sociological Studies in Kiev, said RosUkrEnergo helps finance the political organization of Tymoshenko's bitter rival, Ukrainian President Viktor Yushchenko.

Yushchenko, however, has denied rumors that he has ties to the gas business.

"My family and I are being accused of involvement in gas," he said last year. "I have more interesting things to do."

Yushchenko beat a Kremlin-backed presidential candidate in December 2004, in the wake of the 2004 Orange Revolution and despite being severely poisoned. Since then, he has led a campaign to bring Ukraine into the European Union and NATO and out of Moscow's orbit.

Russia's criticism of RosUkrEnergo in part may be aimed at weakening Yushchenko politically.

Some media reports linked RosUkrEnergo to Semyon Mogilevich, a 62-year old Ukrainian-born Russian citizen arrested by Moscow police on tax evasion charges a year ago. RosUkrEnergo officials said their company had no relationship with Mogilevich.

But shortly after his arrest, a U.S. Justice Department official confirmed that the department's Organized Crime and Racketeering Section had been investigating his suspected ties to RosUkrEnergo.

U.S. officials have accused Mogilevich of running a powerful organized crime ring in the 1990s. He has also been on the FBI's wanted list since 2003, accused of manipulating the stock of a Pennsylvania-based company that collapsed in 1998.

His lawyer, Alexander Pogonchikov, said Saturday that his client denies the tax charges and was still in jail awaiting trial.

Source: AP