Gas tycoon's revelation fuels more suspicions

A once camera-shy Ukrainian businessman raised eyebrows last week by revealing his beneficiary ownership of a major stake in controversial Swiss-registered RosUkrEnergo, which controls the multi-billion-dollar business of supplying Ukraine with natural gas from Russia and Central Asia.

In a statement and series of interviews given last week, Ukrainian-born Dmytro Firtash admitted to owning a 45 percent stake in RosUkrEnergo through another firm, adding that businessman Ivan Fursin, also of Ukraine, owns 5 percent.

Russian gas giant Gazprom owns the other half-interest in RosUkrEnergo. The company took a monopoly role in supplying natural gas to Ukraine from Russia and Central Asia through a January 2006 accord that brought to an end a several-day-long crisis, during which gas supplies to Ukraine and Europe were reduced. As part of the agreement, Ukraine agreed to buy gas from RosUkrEnergo for $95 per 1,000 cubic meters for the first half of this year, double what the country had been paying, but significantly less than the $230 per 1,000 cubic meters Gazprom was demanding.

Firtash, who had not given interviews until last week, is reported to have investments in a number of businesses in Ukraine, including television channel K1 and Kyiv's basketball club.

By revealing his beneficiary ownership in RosUkrEnergo, which generates billions in revenues as a gas trader in Ukraine, Russia and Central Asia, Firtash established himself as one of Ukraine's richest individuals.

Fursin, who owns the small Odessa-based Misto bank, was previously not regarded as being influential or particularly wealthy.

Firtash gave several interviews to Western press this past week, including the Financial Times and The Wall Street Journal, after an April 26 article in the Gazprom-controlled Russian newspaper Izvestia revealed him and Fursin as the beneficiaries of the 50 percent stake in RosUkrEnergo. Austria's Raiffeisen Investment, which had been managing their stake in RosUkrEnergo and which also refused to reveal the mystery owners' identities for more than a year, issued a statement confirming them as beneficiaries in late April.

In the interviews, Firtash described how he had earned his fortune years ago supplying goods to Turkmenistan through barter payments in return for gas shipments. He denied reports linking him with Ukrainian-born Semyon Mogilevich, an alleged mobster wanted by the FBI on money-laundering and racketeering charges. Nonetheless, he admitted to having met Mogilevich on several occasions and said that Mogilevich's wife once had an interest in one of his companies.

Firtash's decision to go public with his interest in RosUkrEnergo and other firms in the gas-trading business, including Hungarian-registered Eural Trans Gas, could help put and end to years of speculation and rumors concerning who stood behind these once secretive firms.

But it's unlikely to bring an end to the controversy surrounding gas dealings between Ukraine, Russia and Central Asia.

Insiders claim that RosUkrEnergo and Russia are eager to once again raise the price Ukraine pays for gas in the second half of this year.

Furthermore, as questions continue to mount concerning what role private individuals play in the firm, which supplies gas from state-controlled companies through state pipelines, Ukrainian and Russian officials continue to dissociate themselves from these so-called intermediaries.

Caught in a corner?

Analysts and Gazprom minority shareholders have questioned the need for intermediaries like RosUkrEnergo in the gas-trading business, arguing that the revenues they generate could be earned directly by Gazprom. Officials at Gazprom and Ukraine's state oil and gas company Naftogaz Ukrainy have in recent years blamed one another for the use of such intermediaries.

When RosUkrEnergo was chosen in 2004 to replace privately-owned Eural Trans Gas as the operator of Turkmen gas supplies to Ukraine, Gazprom immediately admitted to owning half of the venture. Although Raiffeisen Investment was said to own the other half, it soon admitted to representing the interests of private individuals, whom it refused to disclose.

Through a spokesperson, Firtash told the Post on May 3 that he owns about 45 percent of RosUkrEnergo, adding that he was also the main founder and shareholder of Eural Trans Gas, which earned hundreds of millions of dollars shipping Turkmen gas to Ukraine in recent years.

Soon after Ukraine and Russia inked an agreement that brought an end to the January gas crisis by increasing RosUkrEnergo's role as the monopoly supplier of gas to Ukraine from Russia and Central Asia, Prime Minister Yuriy Yekhanurov defended the agreement, saying it was the best offer at hand.

"We faced an ultimatum, to pay $230 per 1,000 cubic meters for gas from Gazprom or $95 per 1,000 cubic meters of gas from RosUkrEnergo," Yekhanurov said in an interview on the Ukrainska Pravda news website.

"We chose $95," he added.

The reduced price is said to have been the result of an agreement, whereby Russian gas would be mixed with less expensive gas from Turkmenistan. Officials, however, could not explain who owned half of RosUkrEnergo.

Soon after the January agreement, Russian President Vladimir Putin told journalists that the Ukrainian side insisted on using RosUkrEnergo as its gas supplier, underscoring that 50 percent of the company was represented by Ukrainian interests. President Viktor Yushchenko responded by saying that there were no Ukrainian state interests in the venture and that he had no knowledge of who owned the stake.

Insiders have in recent years confirmed Firtash's role in RosUkrEnergo to the Post and other publications. A handful of publications have also openly linked Firtash to RosUkrEnergo recently.

Yushchenko appears to have met Firtash before becoming president.

In an interview in The Wall Street Journal last week, presidential advisor Mykhailo Doroshenko said that he introduced Firtash to Yushchenko in 2004. Doroshenko has not responded to inquiries from the Post. However, it remains uncertain whether Yushchenko knew Firtash's role in RosUkrEnergo and Eural Trans Gas.

Yushchenko's Presidential Secretariat announced its surprise late on April 26 in response to the Izvestia report, which alleged Firtash was the beneficiary of nearly half of RosUkrEnergo, adding that it was eager to receive proof regarding the allegations. A day later, Firtash gave interviews during which he admitted his involvement. In an interview with Austria's Kurier, he also claimed that RosUkrEnergo had the support of Yushchenko himself.

Yushchenko's press secretary Iryna Herashchenko could not say in a phone interview with the Post on May 3 whether Yushchenko had in the past met with Firtash, but stressed that "the president does not have information as to who controls this company."

"He has inquired with law enforcement and other agencies to find out, but has not received an answer yet. The president has repeated time and again that no state entity has no relation [to the founding or ownership of RosUkrEnergo]. The president is not involved in business," Herashchenko added.

Herashchenko insisted that gas-trading intermediaries such as RosUkrEnergo and Eural Trans Gas are delegated their role by the Russian side, which controls the gas transportation pipelines to Ukraine.

In a May 2 interview on Ukrainian television channel NTN, Anatoliy Matvienko, deputy head of the Presidential State Secretariat, denied having prior knowledge of Firtash's involvement in RosUkrEnergo, which he described as a "satellite of Gazprom."

"I, at least, did not know," Matvienko said.

"We don't know this for certain today, since all we have are public statements by Mr. Firtash and Mr. Fursin," Matvienko said, adding that they "are citizens of Ukraine, but they were not given authority by the government for this duty in any way."

"Nobody at the Secretariat works in the interests of Fursin and Firtash. We did not push to use RosUkrEnergo. This structure worked during the years of [President Leonid] Kuchma. This is a satellite of Gazprom. We did not propose RosUkrEnergo [as an intermediary]. Our primary concern is the price we pay for gas," he added.

Tip of the iceberg?

In an interview with The Moscow Times, former deputy foreign minister of Ukraine Oleksandr Chaliy said he believed that Firtash, whom he said was not influential enough to land such a major role, likely represented the interests of another party, but didn't reveal who that party was.

"Without a doubt, it's difficult for the Ukrainian administration to explain this situation," said Volodymyr Saprykin, chief energy expert at the Kyiv-based Ukrainian Center for Economic and Political Studies. "Either they don't know who owns these intermediaries, which sounds incompetent and harder to believe than ever, now that it's been made public that Ukrainians are behind it," or top officials knew the details and lied about knowing them, suggesting corruption, Saprykin said.

"According to some sources, Firtash was present during the signing of the gas agreement in January," Saprykin said. "If they [top officials] didn't know, they could have suspected and inquired, and should not have signed documents until they received an answer. Moreover, there was evidence that Firtash played a role in this company."

"The kind of profits they [these intermediaries] are generating, in the range of $600 million annually, is quite suspect," Saprykin added.

Like Chaliy, Saprykin suspects that Firtash could be representing the interests of other individuals, adding that it is hard to believe that they could be allowed to remain in this business without support from the top echelons of governments in the region.

"Several countries and top officials gave permission for these companies to play this role and earn such large profits," Saprykin said.

During his presidential election campaign in 2004, Yushchenko pledged to do away with shadowy dealings involving the government.

Yulia Tymoshenko, who served as prime minister under Yushchenko's presidency until her ouster last fall, has repeatedly referred to RosUkrEnergo as a corrupt scheme backed by questionable interests. Tymoshenko ally Oleksandr Turchynov, who served as head of Ukraine's State Security Service last year, claimed to have launched a criminal investigation into RosUkrEnergo, alleging it was part of a scheme to siphon billions out of state coffers.

Turchynov, who quit his post at the Security Service when Yushchenko fired Tymoshenko, claims that Yushchenko last summer ordered him to halt the investigation.

Tymoshenko, who is attempting to return as prime minister through coalition talks following a strong show of support in the March 26 parliamentary elections, has pledged to revisit the January gas accord and squeeze RosUkrEnergo and other intermediaries out of their current lucrative roles.

"RosUkrEnergo is a threat to national security," Tymoshenko said during an April 28 press conference.

Earlier this year, United States Ambassador to Ukraine John Herbst said that the U.S. does not understand why small companies such as RosUkrEnergo, which employ only a dozen or so employees, should play such a significant role in gas dealings in the region, adding that the billions they earn would be better off in Russia or Ukraine.

The Wall Street Journal reported that U.S. Justice Department officials had inquired into the ownership and activity of RosUkrEnergo.

"When little-known individuals with several computers and offices play such a big role, I can't say it's criminal, but why should such an intermediary be playing such a huge role in intergovernmental trade?" Saprykin asked.

Roman Olearchyk, Kyiv Post Staff Writer
May 04 2006