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Not a question of “why” but “who benefits” – Ukrtransgaz

September 17, 2016

It is no surprise to anybody that Ukraine takes two steps forward and one step backwards having opted for evolutionary rather than revolutionary reform.

Evolutionary by its very definition is a statement of change over time.  Evolutionary also manages to allow for grubby, if perhaps occasionally necessary, deals with those that once held power and/or significant control over the national economy.  Such deals theoretically (and empirically globally) set about the reduction of influence of old elites insuring that they and their patriarchy systems decide not to try and return to power and roll back to old methods in return for avoiding their otherwise deserved comeuppance – or at least the full force of justice.

That thinking perhaps works if the new leaders that come to power, recognising that this option is preferable to other radical and perhaps more risky options presented, are not products of the old system but are unsullied.

The “Revolution of Dignity” offered no such unsullied leaders to Ukraine in its immediate aftermath.  The presidential elections of 2015 essentially offered a choice between Mr Poroshenko and Ms Tymoshenko.  Mr Poroshenko won, which considering the choice facing the nation was the best possible outcome.  Ms Tymoshenko was, is and will forever be a political disaster for Ukraine should she ever hold the office of President, or become Prime Minister again.

Nevertheless, President Poroshenko is far from unsullied and is not a leader.  He is a manager that believes he can do deals with everybody keeping the elite more or less equally (un)happy, which whilst significantly slowing any reform progress, doesn’t actually stop it entirely – and to stop it entirely is simply politically impossible for reasons internal and external of Ukraine.

During the YES conference in Kyiv 16th/17th September, whilst President Poroshenko, Prime Minister Groisman, Prosecutor General Lutsenko and other senior political and institutional figures predictably put a veneer upon reform progress.

To be fair there have been a few reforms that are on balance probably irreversible, albeit most are certainly not irreversible, many are half completed, the majority poorly implemented or otherwise exist on legislative paper but are de facto all form and no tangible substance.

With so many intellectuals, lobbyists, journalists, opinion-shapers, policymakers and otherwise erudite and wise people gathered at the YES conference in Kyiv, a reader may ponder therefore why this time was chosen for an undoubtedly retarded and backward step within the halls of power.

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Contrary to agreement with the EBRD, perhaps inadmissible to Ukraine’s obligations to the EU’s 3rd Energy Package (which requires the “unbundling” of energy monopolies), flying in the face of understandings given to the US regarding Ukrainian energy and the font of corruption that it is, Ukrtransgaz was quietly moved from within the Natfogaz empire and transferred to the control of the Ministry of Economic Development for no apparent or justifiable reason.

This despite agreed plans about how to “unbundle” Naftogaz Ukraine with the EBRD prior to the EBRD jumping in to assist Naftogaz to the tune of $300 million.

Clearly the EBRD has expressed its displeasure publicly, and during the YES conference, calling for this retarded decision to be reversed post haste.

Further it jeopardises a World Bank $500 million loan to Naftogaz too.

Naturally given the YES conference circumstance, it does not put President Poroshenko, PM Groisman et al in a particularly good or comfortable light – whether they had any involvement or prior knowledge of the incident or not.

Unsurprisingly it does little for investor confidence if the Ukrainian State breaks its agreements with a major, frequent and reliable inward international investor – particularly when that investor is in the same YES conference room in Kyiv as a leadership telling the world that this government and executive can be trusted to meet its obligations.

In short, whatever decisions are made regarding Naftogaz, Ukrtransgaz etc., they necessarily have to be consistent with existing agreements.

Was such a retarded decision/action timed to deliberately project a poor image of the current leadership?

If complicit, did the current leadership expect the YES conference media noise to drown out or ignore a planned nefarious act?  On balance was it considered a good weekend to bury nefarious news?  If so it failed.

That Ukrtransgaz would be split from Natfogaz to meet the Ukrainian obligations to the 3rd Energy Package is an absolute requirement.  Resolution 496 of the Cabinet of Ministers dated 1st July 2016 clearly plans for this eventuality.  That Resolution calls for the Public Joint Stock Company “Main Pipelines of Ukraine” to be created under the management (temporary or otherwise) of the Ministry of Energy and Coal.  In summary the substance of that Resolution moves Uktransgaz from Naftogaz, renames it – or transfers the assets to be more accurate – to PJSC Main Pipelines of Ukraine which will operate under the Energy and Coal Ministry (at least initially).

This is all to have occurred within 30 days after a currently pending Gazprom v Naftogaz arbitration in Stockholm – but no asset transfer is to occur prior.

Does this decision affect the arbitration process in Stockholm in any way?  If so how?  To the benefit of Gazprom?

Without going too deeply into Resolutions and plans – suffice to say there are publicly available Resolutions and plans about how Ukrtransgaz was to be dealt with as declared by the Cabinet of Ministers – none of which caused angst or ire of the EBRD when published (or since).

It follows that with the current nonsense surrounding Ukrtransgaz, a reader is therefore asking “Why”?

A good question, but perhaps not entirely the right question of “Who”?  Or more precisely “Who benefits?”.

Whenever there is a retarded and backward policy step in Ukraine, the first question that should always be asked before any other is “Who benefits?”.  The next question is then “Why (this way from several possible ways was chosen)?

Recognising that the Ukrtransgaz issue will be resolved to the liking of the EBRD and to try and reduce reputational damage to President Poroshenko, PM Groisman etc., the full question is “who benefits from the fairly short window of opaqueness and unaccountable management decisions in and surrounding Ukrtransgaz during this time?”

For who exactly benefits from what damage can be done/what gains can be made during this time?  Cancelled tenders, or alternatively swiftly awarded tenders will ultimately come to light as will any asset sales, acquisitions, or theft.  The EBRD is not a complainant that the PGO or NABU can ignore when its contractual agreement is with the Ukrainian State.

As yet it is not entirely clear who specifically benefits – but somebody does for such a retarded act to have occurred.  Sooner rather than later it will become clear who benefits (and who clearly believes that any repercussions will be acceptable – as nobody within the elite goes to jail).

In the meantime sadly, as the incompetence of a mere breakdown of communication is rather unlikely, a reader is left to choose between either yet more dirty deeds within the current ruling elite (or at least some of them), and/or a complete lack of government control, or a brazen breach of its obligations.

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