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JOHN  MARONE, KYIV
THE SMELL OF GAS IN UKRAINE

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Ukrainian Prime Minister Yulia Tymoshenko’s long running efforts to break the stranglehold on her country’s gas supplies are beginning to pay off – due to assistance from an unlikely ally.

Russia, which has been widely accused of using gas sales to put geopolitical pressure on Ukraine and other Western neighbors, now appears to be cleaning up its act.

On Jan. 30, police in Moscow arrested Semion Mogilevich, a reputed international crime boss wanted by the FBI, on charges of tax evasion.

The U.S. Justice Department had been investigating Mogilevich’s alleged connection to the monopoly supplier of gas to Ukraine, Swiss registered RosUkrEnergo, which is half owned by Russian gas giant Gazprom.

Since returning as premier late last year, Tymoshenko has stepped up her campaign to cancel the “services” of RosUkrEnergo, which made profits of $70 million in the first quarter of last year alone, although the middleman company neither produces nor transports the gas it sells to Ukraine.

Commenting on the arrest of Mogilevich during a news conference in Brussels, Tymoshenko said: “The presence of additional middlemen is a sign of specific corrupt activities. The recent arrests demonstrate that the international community is following events and will not allow the development of any shadow models, including among states bordering the EU. Therefore, my position remains unchanged: all shadowy middlemen will be shut down.”

The FBI has accused Mogilevich of being part of an organization of drug trafficking, illegal arms dealing and prostitution.

Nevertheless, the Russians said they wouldn’t extradite the reputed gangster to the US, arguing that Mogilevich is a Russian citizen.

Dmitry Firtash, a Ukrainian businessman who together with a minority partner owns the other half of RosUkrEnergo, denied any link between his company and Mogilevich.

“We supply Ukraine and Europe with gas. We don’t have anything to do with Mogilevich, either directly or indirectly,” Firtash told a Russian newspaper on January 28.

However, not only has Firtash been linked by the Financial Times to Mogilevich’s wife through a business deal, but the otherwise minor Ukrainian businessman has acknowledged being a friend of Vladimir Nekrasov, who was arrested by Moscow police in the same roundup of Mogilevich.

“It’s no secret that I know Nekrasov. We have a normal, friendly relationship,” Firtash said in the same newspaper interview.

RosUkrEnergo was created in 2004, started selling gas to Ukraine in 2005 and had a monopoly over gas imports to Ukraine by 2006.

Within two years time, Russia’s Gazprom has raised the price that Ukraine pays for gas at the border from $95 per thousand cubic meters to the current $180.

Also, RosUkrEnergo, with ample support from the former, Moscow-friendly government of Viktor Yanukovych, has muscled its way into domestic gas sales through the creation of yet another intermediary company, UkrGazEnergo.

UkrGazEnergo, half owned by RosUkrEnergo and half by Ukraine’s state oil and gas company NaftogazUkrayiny, will make at least $150 million in pure profits in 2007, UkrGazEnergo CEO Ihor Voronin told journalists on Jan. 26.

Pushing Naftogaz to the brink of bankruptcy, UkrGazEnergo was allowed to supply all Ukraine’s paying customers with gas, while Naftogaz has been stuck with collecting debts from deadbeat state enterprises and the cash-strapped general public.

Ukraine has the most energy intensive economy in the world. Its choice of fuel is natural gas, three fourths of which it gets from Russia.

Ukraine is also responsible for transiting the lion’s share of gas that Europe buys from Russia and Central Asia through its significant pipeline network.

Now, Tymoshenko wants to use Ukraine’s gas transit card to force the Russians back to the negotiations table and secure a better import deal.

She has suggested publicly that she would raise the transit fee for the gas Russia sells to Europe.

“The issue being studied by the government is that just as we are moving toward a market price, albeit within the framework of signed agreements, so must we also move towards a market price for the transit of gas,” she told a press conference in Kyiv.

While the transit issue is scheduled to be raised during Tymoshenko’s visit to Moscow at the end of February, she is already meeting resistance to her plans at home.

Officials from RosUkrEnergo and UkrGazEnergo, deprived of their support from the previous government have begun crying foul.

Both companies are claiming that only corruption and higher prices will ensure if they are removed from the food chain.

A member of UkrGazEnergo’s board of directors, Andriy Galushchak, has accused the Tymoshenko’s government of trying to pressure them out of business in order to replace them with a middleman company favorable to Tymoshenko.

“The reason for the increased attention to us by the authorities is clear: at issue is an attempt to administratively divide up Ukraine’s gas market,” he said.

On the political front, Ukrainian Communist leader Petro Simonenko has accused President Yushchenko of getting a cut from the current gas import scheme.

Simonenko accused the president’s brother Petro of “directly laundering money … that is to say that this is happening via a company belonging to the president’s brother, which launders the dirty money in cooperation with UkrGazEnergo,” the leftist opposition leader said.

Tymoshenko’s right-hand man, Oleksandr Turchynov, said in August 2005, after he had been sacked as head of Ukraine’s Security Service, that Yushchenko had ordered him to halt all investigations into RosUkrEnergo.

Now controlled by Yushchenko, Ukraine’s Security Service reported on Tuesday that they were not investigating Mogilevich.

As Tymoshenko continues to consolidate her authority as an anti-corruption fighter among Ukrainian voters and Western governments, the president and the parliamentary opposition/previous government will continue to look at least ineffectual if not opposed to cleaning up Ukraine’s shady gas business.

As for the Russians, with Gazprom in the process of seeking to list on the New York Stock Exchange and its chairman, Dmitry Medvedev, campaigning to be his country’s next president, taking down Mogilevich may have been a tactical necessity, which at least for now, has inadvertently helped Ms. Tymoshenko clear the air to her political advantage.

John Marone, a columnist of Eurasian Home website, Kyiv, Ukraine

January 31, 2008



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