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Ukraine: A Conflict Over Gas And Power

Petro Poroshenko following Oleksandr Zinchenko's resignation, where the president's chief of staff accused him of corruption The long-simmering conflict between former Prime Minister Yuliya Tymoshenko and the National Defense and Security Council Secretary Petro Poroshenko, which most Ukrainian analysts believe led to the dismissal of her government on 8 September, had already grown intense by early this summer.

In mid-summer, Poroshenko made a number of statements demanding a far-ranging reform of the Ukrainian Security Service (SBU), then headed by Oleksandr Turchynov, a Tymoshenko loyalist and widely regarded in the media as a scrupulously honest broker.

This surprised many people, for it was the first time that Poroshenko had expressed this view and it came after a decision to reform the SBU had already been adopted by President Viktor Yushchenko and Turchynov anyway. Why did Poroshenko suddenly become so adamant about reforming the SBU at that time?

Allegations Of Corruption In Gas Sector

On 18 June Turchynov announced that a number of criminal investigations dealing with corruption in the gas industry had been launched, Interfax reported. Turchynov and Tymoshenko both made strong statements condemning the previous government's use of a middleman, Eural Trans Gas, and its replacement, RosUkrEnergo, to act as the transit operator for Turkmen gas to Ukraine. According to Tymoshenko, the use of these companies had cost Ukraine "more than $1 billion" (see "Ukraine: Criminal Cases Filed Over Gas Schemes")

In her televised appearance on 9 September, Tymoshenko said that she had gone to see Yushchenko about the allegedly crooked schemes in the gas sector, and his response was to forbid her from dealing with the energy sector.

Turchynov, according to Interfax on 18 June, placed responsibility for the Eural Trans Gas deal on former President Leonid Kuchma; Yuriy Boyko, the then head of Naftohaz Ukrayiny, the state energy monopoly; and on "the highest state officials in Ukraine and Russia."

After Turchynov's announcement, the Russian gas monopoly Gazprom announced that it would raise the prices it charged Ukraine for gas to international levels. Also soon afterward, the Russian Military Prosecutor's Office announced that Tymoshenko was still under investigation for bribery and fraud, despite the fact that Interpol had earlier announced that Tymoshenko had been cleared of all charges.

While it's not clear that the military prosecutor's announcement was in any way related to Turchynov's allegations of high-level corruption in Russia, it seems unlikely that a prosecutor would say such things about Ukraine's prime minister without the approval of Russia's highest political leadership.

Then, on 3 July Interfax quoted Tymoshenko as saying that the RosUkrEnergo scheme was a "criminal enterprise" and warned unnamed officials close to Yushchenko "not to replace the old schemes of the Kuchma government with new ones." She added that Naftohaz was "beyond the control of the cabinet of ministers" and that she had asked the new head of Naftohaz, Oleksiy Ivchenko, to report on Naftohaz's activities at a cabinet meeting. Ivchenko never attended the meeting, claiming to have suddenly gone on vacation.

Who's In Charge?

Ivchenko, a member of the Congress of Ukrainian Nationalists, a small party in the Verkhovna Rada that supports Yushchenko, was allegedly chosen to head Naftohaz Ukrayiny by Poroshenko and Oleksandr Tretyakov, Yushchenko's top aide. Tymoshenko consistently denied having been consulted about his appointment, despite ordering that all heads of state-owned companies should be appointed on the basis of competition.

Poroshenko, however, did not seem to attach any great significance to the investigation of RosUkrEnergo and never mentioned corruption in the gas business as a major concern. In an interview with the Internet publication Obkom, he downplayed the allegations of criminal connections to Eural Trans Gas and said that all he knew about the case was from media reports.

On 5 July, Poroshenko told Interfax that there were no significant problems in the gas business and that "the good relations between Presidents Yushchenko and Putin" would insure that all gas-related issues would be peacefully settled.

Then on 6 July, Yushchenko sent a letter to Tymoshenko in which, according to Interfax, he said that all "rumors" about Naftohaz must end and that the company should not be drawn into "political intrigues." He chided Tymoshenko and her colleagues for "unthought-through, emotional articles by people who have no relation to the gas sector." People close to Tymoshenko believe that this letter was in fact composed by Tretyakov, who later was accused of corruption by presidential chief of staff Oleksandr Zinchenko. (see "Corruption Allegations Abound")

On 13 July, Interfax reported that the SBU had given Yushchenko documents detailing the alleged illegalities of the RosUkrEnergo middleman arrangement. Tymoshenko was quoted in the same report as saying that Naftohaz should itself be the middleman and not pay others to transport Turkmen gas to Ukraine.

The defenders of RosUkrEnergo responded to these charges in an article in the Internet publication Forum on 4 August, in which author Yuriy Zakrevskyy wrote that without RosUkrEnergo, Ukraine would be forced to pay even more for gas and that the country should be grateful to such a company "built on Western principles and totally transparent."

As the situation heated up, Interfax reported on 12 August that the SBU had conducted a search of Naftohaz headquarters for documents relating to RosUkrEnergo. Interfax reported that the company's new management reportedly collected materials and gave them to the Prosecutor-General's Office, SBU, and other law enforcement bodies, which allowed a number of criminal cases to be filed.

A week later, on 20 August, Interfax quoted Poroshenko as saying that "the SBU was itself a danger to the security of the state" and needed major revamping. This was widely regarded as a formal declaration of war on Turchynov by Poroshenko.

Tymoshenko, in her televised appearance on 9 September, shed further light on the conflict when she said that at a meeting just prior to her dismissal with Yushchenko, Poroshenko, and others close to the president, she was asked to agree to SBU head Turchynov's dismissal. Tymoshenko refused and told the television audience that Turchynov was considered a threat by those present at that meeting.

In late August, Poroshenko announced that he would go to Moscow personally to negotiate with Gazprom on prices for gas and to arrange a long-term supply agreement. Although he was not a cabinet member and thus not legally empowered to negotiate on behalf of the government, Yushchenko did not interfere and Tymoshenko could not prevent him from going.

Former Naftohaz head Yuriy Boyko, who is under investigation in the Eural Trans Gas-RosUkrEnergo affair, continued to deny any wrongdoings and on 5 September issued a statement saying that he was filing a libel suit against Tymoshenko. Two days earlier, Boyko publicly accused the SBU of following him and said that he feared for his life, Interfax reported. Whether he coordinated this announcement with anyone from Yushchenko's inner circle is not known, but few believe that it was coincidental.

Role Of President's Aide

The SBU investigation into the transit of Turkmen gas was also looking into the role, if any, played by Tretyakov, the 35-year-old businessman who was Yushchenko's top aide.

Tretyakov, according to a 31 January report by RFE/RL's Ukrainian Service correspondent Serhiy Rudenko, made his money in the oil-and-gas business in Ukraine, was the owner of a company named ATEK-95, and while in parliament was a member of the Energy Committee.

ATEK-95 was a company which dealt with oil and gas and was affiliated with a company, TiKo, that owned filling stations and supermarkets in Kyiv and was affiliated with former Kuchma aide Dmytro Tabachnik's brother. ATEK-95 eventually came under the control of an offshore holding company based in the Bahamas, Thyssen Corporation, in which Tretyakov is a shareholder.

In July, Tretyakov was named by the website Obkom as having arranged a meeting between Yushchenko and Dmytro Firtash, one of the main players in Eural Trans Gas and a man believed to be closely associated with RosUkrEnergo. Firtash bought a television broadcasting license in Ukraine during the last days of the Kuchma administration and was accused of owing a large sum of money ($28 million) to the Moscow-based Itera corporation, which is the subject of litigation in Moscow. Tretyakov has denied knowing Firtash and introducing him to Yushchenko.

In his statement (as published on the Ukrainian website Obozrevatel on 5 September) charging Tretyakov with corruption, presidential chief of staff Zinchenko claimed that Tretyakov, after his appointment as Yushchenko's top aide, became a member of the supervisory boards of a major bank, Oschadbank, and Ukrtelekom. These positions had previously been held by Kuchma adviser Serhiy Lavochkin. Zinchenko believed that these supervisory posts were being used by Tretyakov as part of an influence-peddling scheme.

Zinchenko also accused Tretyakov of trying to control the gas business in Ukraine but did not go into specific details except to say that it was Tretyakov who insisted on keeping Ihor Voronin as deputy head of Naftohaz. Voronin, according to Zinchenko, was deeply involved in the Eural Trans Gas-RosUkrEnergo affair.

With Tymoshenko and Turchynov gone, it will be important to see if the SBU investigation of RosUkrEnergo and Eural Trans Gas continues and is brought to trial. If, however, the case is closed due to lack of evidence or lack of will to prosecute, it will raise further questions about Yushchenko's commitment to transparent government and his ability to fight high-level corruption.

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