[Ohio UZO News] Ukraine: MT; EDM (2)

[Deychak, Orest]

The Moscow Times

 

28 January 2009

http://www.themoscowtimes.com/article/1028/42/373970.htm

Will the Real Gazprom CEO Please Stand Up

 

By Anders Aslund

 

The great Russian-Ukrainian gas war is over, and it is time to assess
the outcome. On the surface, the result looks promising. Finally, Russia
and Ukraine have concluded a normal long-term gas agreement. Both gas
prices and transit tariffs are market-related and based on clear
principles without shady intermediaries or arbitrariness. The gas prices
will probably average $230 per 1,000 cubic meters in 2009, while
investment bankers had expected $250. 

Prime Minister Vladimir Putin claimed that Ukraine had an obligation to
guarantee transit of Russia's gas since Kiev ratified the Energy Charter
Treaty (which Moscow has not ratified). Putin lamented that the
"European Union is placing Russia and Ukraine in the same category," but
the supplier in this transaction is also obligated to deliver. Vedomosti
perhaps put it best: "Gazprom's reliability as a supplier is inseparable
from Ukraine's as a transit state." 

Corruption and Ukrainian domestic politics were major factors in a
conflict in which the prime antagonists were Prime Minister Yulia
Tymoshenko and Dmitry Firtash, partial owner of the shady intermediary
RosUkrEnergo. Both Tymoshenko and Putin claim that RosUkrEnergo through
Ukrainian President Viktor Yushchenko's administration disrupted the gas
negotiations on Dec. 31.

Tymoshenko walked away from this conflict with an outstanding victory.
RosUkrEnergo has been excluded from the Russian-Ukrainian gas trade,
losing profits of at least $1 billion a year. At his news conference on
Jan. 8, Putin implausibly denied that he knew Firtash, although both
were co-founders of RosUkrEnergo in July 2004. Subsequently, Gazprom
sold RosUkrEnergo's debt of $1.7 billion to Naftogaz, allowing Naftogaz
to squeeze Firtash out. 

"Finally, we eliminated a big political slush fund, which fed several
political forces," Tymoshenko said. Firtash has spent lavishly on
Ukrainian politics, mainly on former Prime Minister Viktor Yanukovych's
Party of the Regions but also on Yushchenko's administration. The
elimination of RosUkrEnergo will cleanse Ukrainian politics of gas
money. Although Yanukovych has sensibly kept a low profile, his campaign
financing will most likely dwindle in the end. 

Gazprom's cost in the gas war was very high. Its direct financial loss
was about $2 billion, but its reputation has suffered even more since
the gas monopoly has proven itself an unreliable supplier. Its customers
will try to reduce their dependence on the state-run gas monopoly, but
when Gazprom is the problem new pipelines are of little help.

Before the conflict broke out, Gazprom opened a web site that criticized
Ukraine. This suggests that Moscow was gearing up for a fight. Gazprom
and Putin pulled no punches in going after Kiev. "The current situation
shows a high degree of criminalization of power in Ukraine," Putin said.


During the January 2006 Russia-Ukraine gas conflict, Gazprom's stock
price skyrocketed because investors were impressed when the company
pushed for higher export prices at a time of rising energy prices.
During the latest gas war, however, Gazprom's stocks plummeted as
investors objected when the company treating its customers recklessly by
demanding unrealistically high prices at a time of sharply falling
energy prices. 

Meanwhile, European gas consumers suffered considerably, and the
European Union looked terribly weak, having failed to learn anything
from previous gas wars.

But one European politician stands out as a true leader -- German
Chancellor Angela Merkel. During Putin's news conference with Merkel on
Jan. 16 in Berlin, Merkel lectured him like a teacher to a schoolboy,
placing the responsibility on Moscow, and Putin ate his teacher's humble
pie. 

Austria, France, Hungary, Germany and Italy have quietly built up gas
reserves that could last for three months; they have learned the lesson
from 2006. Now, other European countries are likely to build up large
reserves and further diversify their energy supplies, although this is
very expensive.

Putin has the most complex motivation in all of this. By directly
commanding Gazprom and taking over the negotiations, Putin confirmed the
old assumption that he is the real CEO of Gazprom. Although Ukraine had
paid its gas bills by Dec. 30, Putin ordered the disruption in the gas
supply, making him the main culprit. 

Gazprom's damaged reputation will likely impair its stock price and debt
rating. The conflict was also a disaster for Russia's foreign policy.
President Dmitry Medvedev's hastily arranged "gas summit" attracted no
heads of state and was the largest snub to Russian diplomacy in recent
memory.

Putin has been identified as one of RosUkr-Energo's main beneficiaries,
but now he has accepted the fact that this middleman will have to be
eliminated from gas transactions. Moreover, he looked panicky when he
lost himself in technical details, accusing Ukraine of "theft" of tiny
gas volumes, far smaller than customary losses.

In the end, the gas war had to be settled by Russian and Ukrainian prime
ministers. The press photos showed a strident Ukrainian prime minister,
while Putin looked increasingly frustrated.

So why did Putin instigate the gas war in the first place? My suspicion
is that his main purpose was to whip up Russian patriotism against
Ukraine and enhance support for the government in a time of economic
decline. This was perhaps his only success. According to the state-run
pollster VTsIOM, 63 percent of Russians believed that Ukraine was solely
responsible for the conflict.

Another suspicion is that Putin hoped to destabilize Ukraine by
exploiting its domestic divisions and its severe financial crisis. If
this were his goal, he failed. Tymoshenko had little choice except to
liquidate RosUkrEnergo since it was an issue of her political survival. 

After Putin and Tymoshenko signed the gas peace treaty, Ukraine has
eliminated a major source of corruption. Now it should reform its
distorted energy sector to improve efficiency and save energy. Ukraine
must stop subsidizing its imports of gas, and it should also raise the
government's purchasing price for domestically produced gas to stimulate
domestic production. 

And the EU should get more serious about its own energy security.
Whatever Putin's motive was, he is likely to offer more shocks as the
situation grows worse for both Russia and Putin in a deepening economic
crisis. The EU must realize that it needs a Russia policy no less than
it requires an energy policy.

Only two winners are apparent -- Tymoshenko and Merkel. There are many
losers: Firtash, European gas consumers, Gazprom, its shareholders,
Yushchenko and, last but not least, Putin. 

Anders Aslund, a senior fellow of the Peterson Institute for
International Economics, is the author of "Russia's Capitalist
Revolution: Why Market Reform Succeeded and Democracy Failed."

 

Eurasia Daily Monitor

http://www.jamestown.org/programs/edm/

January 28, 2009

**EDM Commentary


Territorial Claims Can Work Two Ways: Russia and Ukraine


By Taras Kuzio

The majority of Western comments on territorial claims arising from the
breakup of the USSR focus on Russia's demands against its neighbors. The
best known, such as the Crimea and frozen conflicts in the Caucasus, are
frequently mentioned in the Western media. Added to this are Russian
comments that repeatedly have focused on the alleged "artificiality" of
post-Soviet borders. Ukraine in particular is pointed out by Russian
officials as an allegedly "artificial" and thereby "fragile" state.

These Western media reports and Russian comments overlook two facts:
First, potential territorial revisions exist throughout the former USSR;
and second, all of the borders of the 15 post-Soviet republics,
especially the Russian Federation, are "arbitrary" and "artificial."
Countless post-colonial frontiers throughout the world are of a similar
nature, and this is more the rule than the exception.

Belarus made territorial claims against Lithuania in the 1990s and
Estonia and Russia have sparred over their border, the treaty for which
was signed but never ratified by the Russian State Duma. The
Trans-Dniestr region of Moldova, a frozen conflict since 1992, was part
of the inter-war Ukrainian SSR as the Moldovan Autonomous Soviet
Republic. Similar potential territorial disputes abound in the North
Caucasus (e.g., Chechnya and Ingushetia), the South Caucasus (Georgia
and Armenia), and Central Asia (Uzbekistan and Kyrgyzstan).

The most "artificial" post-Soviet republic is Russia, which was
established as the residual home for what remained of the Tsarist empire
after the non-Russian republics were created. Post-Soviet Russia could
not return to the borders of a pre-imperial Russian nation-state because
none had ever existed. Unlike England and France, which were
nation-states before becoming empires, Russian city-states merged into
Muscovy before it emerged as an empire in the eighteenth century.

Russia therefore resembles the Ottoman Empire inasmuch as the Turks also
had no pre-imperial nation-state to fall back on when their empire
collapsed after World War I. The difference between the Turks and the
Russians is that a nationalist leader, Kemal Ataturk, came forward and
forged a new Turkish nation-state, while no "Ataturk" appeared in late
Soviet Russia and, unlike his Turkish or Ukrainian counterparts,
President Boris Yeltsin never prioritized nation-building.

Alone of the 15 Soviet republics, the Russian SFSR has never declared
independence from the USSR. Russia's annual "independence day" is
therefore a myth, as it derives from the June 1990 declaration of
sovereignty within the USSR.

Three decades prior to the transfer of the Crimea in 1954 from the
Russian SFSR to the Ukrainian SSR, larger territories were transferred
from Ukraine to Russia. The Ukrainian-Russian border was the subject of
confrontation between the collapse of the Russian Empire in 1917 and the
territorial adjustments made in the two years after the creation of the
USSR in 1922.

Ukraine's pro-independence governments fought with the White and
Bolshevik forces who both opposed the creation of an independent
Ukraine. Although the Volunteer Army of the Whites was dominated by the
liberal Kadets, they defended Russia's unity and indivisibility, opposed
a federally reconstituted empire, and especially denounced "Little
Russian" (Ukrainian) autonomy, let alone forging an independent state
separate from Russia.

The Starodub region northeast of Chernihiv Oblast was part of Ukraine
under the 1918 Treaty of Brest-Litovsk but was transferred to Russia.
Other areas with ethnic Ukrainian majorities transferred to Russia were
Kursk and Voronezh Oblasts east of the Ukrainian oblasts of Sumy,
Kharkiv, and Luhansk. The Taganrog region of Russia's Rostov Oblast,
east of Ukraine's Donetsk Oblast, was also contested by Ukraine and
Russia. These areas adjacent to the border of the Ukrainian SSR were
claimed by Kyiv, because they were 65 to 75 percent ethnic Ukrainian
and, together the Kuban, contained two million Ukrainians (see three
maps in Vasyl Boyechko et al, Kordony Ukrainy: Istorychna Retrospektyva
ta Suchasnyi Stan, Kyiv, 1994).

The Kuban region of Russia's Northern Caucasus had been populated by the
Ukrainian (Black Sea) Cossacks from the eighteenth century. After the
Ukrainian Cossack State was absorbed under Catherine the Great into the
Tsarist empire, Ukrainian Cossack forces were disbanded, except in the
Kuban. There Ukrainian Cossacks were permitted to maintain the only
Ukrainian Cossack unit (the "Kuban Cossack Host") until the end of
Tsarist rule; it was one of 12 Cossack armies in the Russian Empire.

>From 1917 to 1920 political forces in the Kuban supported opposing
tendencies, some backing the White armies while others called for
unification with independent Ukraine. The large ethnic Ukrainian
majority in the Kuban gave rise to territorial demands by Ukrainian
national communists who ran Ukraine until the imposition of Joseph
Stalin's great terror in the late 1920s and early 1930s and an
artificial famine in Ukraine in 1933.

The famine was permitted to spread from Ukraine and devastated the
largely ethnic Ukrainian Kuban region. This, coupled with the
replacement of Ukrainian by Russian in the schools starting in 1934,
transformed the Kuban's ethnic composition. The Kuban became Russified
during the course of the following decades, although Ukrainian-language
pronunciations can still be heard in local spoken Russian (for example.
Mikhail Gorbachev's Russian).

The 1989 Soviet census gave a total of 44.2 million Ukrainians in the
USSR of whom 37.4 million lived in the Ukrainian SSR. Of the 6.8 million
living elsewhere, the largest group was 3.7 million in the Russian SFSR.

Aside from 247,000 Ukrainians who were living in Moscow, a similarly
large number lived in the Tyumen Oblast of Western Siberia. They had
arrived in the Leonid Brezhnev era to provide technical expertise in gas
exploration (Ukraine was an important center of gas expertise in the
former USSR, especially in western Ukraine. where gas storage facilities
are located).

Russia, in recognizing the independence of South Ossetia and Abkhazia,
has opened up a potential Pandora's Box of territorial claims throughout
the former USSR that could backfire on Moscow.

**Taras Kuzio is Visiting Professor at the Elliott School of
International Affairs, George Washington University. His most recent
books are Ukraine-Crimea-Russia. Triangle of Conflict and Theoretical
and Comparative Perspectives on Nationalism: New Directions (both by
Hannover: Ibid.-Verlag, 2007).

 

(Note:  Ukraine, of course, hasn't made any territorial claims against
Russia.  Nor have Ukrainian officials characterized her eastern neighbor
as an "artificial" state and questioned Russia's existence. Ukraine
simply wishes to be left alone to develop as a normal country with good
relations with all of her neighbors . For you fans of '70's rock, I'm
reminded of an old friend of mine, recently retired as a US diplomat,
back during Soviet times singing along to the Pink Floyd classic Another
Brick in the Wall and often substituting the refrain "Teachers, leave
them kids alone!" to "Russia, leave them Ukes alone!" Not a bad
sentiment even today, 30 years later. OD) 
  

Eurasia Daily Monitor

The Role of Russian Organized Crime in the Gas War of January 2009

Volume: 6 Issue: 17

January 27, 2009 

 

Category: Eurasia Daily Monitor, Russia, Energy 

By: Roman Kupchinsky
<http://www.jamestown.org/articles-by-author/?no_cache=1&tx_cablanttnews
staffrelation_pi1%5Bauthor%5D=485> 

 

On January 20 Alexei Miller, the CEO of Russia's state-owned gas
monopoly, Gazprom, made an amazing confession. He told Interfax that in
late December 2008, when negotiations between Ukraine and Russia on a
new gas supply contract broke down, the party largely responsible for
this was RosUkrEnergo (RUE), the Swiss-based middleman company that sold
Central Asian gas to Ukraine.

RUE is 50 percent owned by Gazprom and 45 percent by a Ukrainian
businessman, Dmytro Firtash. "Yes, it is true that when the prime
ministers of Russia and Ukraine agreed to a price of $235 for 1,000
cubic meters of gas...RosUkrEnergo proposed paying $285. This company
was betting that by making such an offer it would remain in the market,"
Miller stated. What Miller failed to explain is why RUE would dare
undermine the Russian government.

>From its inception RUE has been accused of opacity by the media and of
"criminality" by Ukrainian Prime Minister Yulia Tymoshenko. Most of the
charges centered on Gazprom's partner in RUE, Dmytro Firtash, and his
alleged links to a notorious Russian mobster, Semen Mogilevich. Dmytro
Firtash has denied any direct links to Mogilevich. This might be true,
but the indirect links suggest that Mogilevich was indeed tied to
Firtash, the Kremlin leadership, and the Ukrainian elite.

The history of RUE began in December 2002 when Firtash registered a
company in Hungary named Eural Tran Gas (ETG), which signed a contract
with Gazprom on December 5, 2002, becoming the middleman in the Turkmen-
Ukrainian gas trade.

Strange circumstances surrounded ETG's creation: unemployed Romanians
became principles of the company; an Israeli lawyer with ties to
Mogilevich became a nominal director of the company; and Andras Knopp, a
former Hungarian communist cultural functionary with no knowledge of the
gas business became the director of the company. Even stranger was
Firtash's refusal to reveal that he was the ultimate beneficiary of ETG.
Soon after the contract was signed, ETG was given a $70 million loan by
Gazprom Bank, which also became the guarantor of a $227 million loan to
ETG by Vnesheconombank (Moscow Times, November 27, 2003).

By July 2004 media criticism of ETG forced the Kremlin to eliminate the
company and create RosUkrEnergo in its place. RUE came into being during
a meeting between Russian President Vladimir Putin and then-Ukrainian
President Leonid Kuchma in Yalta. At that time both leaders stressed
that RUE would be a fully transparent company, tacitly acknowledging
media reports that ETG was opaque. One of the two co-directors of RUE
was Konstantin Chuychenko, a former KGB officer, the head of Gazprom's
legal department, and a classmate of Dmitry Medvedev (Chuychenko's
biography was posted on the Gazprom website, www.gazprom.com
<http://www.gazprom.com> , but was removed after he left Gazprom to join
Medvedev's administration). The other co-director was Oleg Palchykov,
the former director of the ETG office in Moscow who represented
Centragas, a company silently controlled by Firtash (Izvestia, April 27,
2006). Palchykov's appointment as co-director of RUE was met with a
great deal of skepticism.

"His [Palchykov's] candidacy was submitted by Raiffeisen Investment [the
nominal owners of Centragas]; and we were unable to stop it," Alexander
Ryazanov, the deputy director of Gazprom and a member of RUE's
coordinating committee, told the Russian newspaper Vedomosti
(www.proua.com <http://www.proua.com> , February 8, 2005). Why Gazprom
wanted to prevent Palchykov's appointment in the first place was not
clear. Gazprom had always insisted that their partners in RUE were
honest, transparent businessmen. Had this view suddenly changed?

Part of the explanation could be that the Moscow ETG office Palchykov
headed was located in a building on Novy Arbat 14 that was also used by
an alleged mobster, Igor Fisherman, who was wanted together with
Mogilevich by the FBI. According to Vedomosti on May 30, 2006, Fisherman
was Firtash's partner in the purchase of 75 percent of a Russian company
Zangas. The flow of money from RUE to Gazprom was also murky. Apparently
it first went to a shell company in Cyprus and then on to Moscow to
another shell company, "Rubin" (Stern, September 13, 2007). Why wasn't
the money sent directly to Gazprom?

Chuychenko, Dmitry Medvedev's man in RUE, however, remained adamant in
his whitewashing of Firtash and RUE. "Dmytro Firtash is a very
well-known figure in the gas business," Chuychenko told Ukrayina
Television on December 1, 2006. "He has been working in the gas business
in Ukraine for a long time, so his appearance in this field was no
accident."

On October 9, 2007, Medvedev made an incredible statement on the German
television station ARD: "We will most likely review the scheme of our
relations [with Ukraine] and will end the existence of middlemen
structures, which we do not fully understand." How could Medvedev, the
head of Gazprom's board of directors, not understand what RUE was?

Chuychenko's claims about Firtash were soon disputed by Putin, who told
Interfax on January 8, 2009: "50 percent of RUE belongs to Gazprom...
the Ukrainian side belongs to persons we do not know...they showed us
Mister Firtash once..."

A controversy over massive Ukrainian debts to RUE and RUE to Gazprom
heated up in January 2008, and Mogilevich was arrested in Moscow in
February 2008. He was charged with aiding a Russian businessman,
Vladimir Nekrasov, the alleged owner of the chain of Arbat Prestige
perfume stores, in a tax evasion scheme. Documents from the Russian
business registry in the possession of Jamestown, however, show that
Firtash was instrumental in creating Arbat Prestige.

The day after the Ukrainian-Russian gas agreement was signed, the
Russian press reported that a Moscow court had ordered that Mogilevich
and Nekrasov remain in detention until March 23
(www.newsru.com/russia/<wbr></wbr>21jan2009/prodlen.html, January 21).
Was the timing coincidental or was it linked to RUE's debt to Gazprom?

The litany of contradictions voiced by top Russian officials in the RUE
case, as well as documented evidence, suggests that organized crime is
linked not only to RUE; it is a stark indication that corruption in the
Kremlin has expanded since Putin's election in 2000. Who stood to
benefit from RUE? Putin claims it was the Ukrainian leadership-the facts
suggest otherwise.

 

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