Archive for May, 2018

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Babchenko – A few comments

May 31, 2018

Having had an inbox replete with requests for comment upon the latest Babchenko murder that wasn’t, it would seem sensible to simply write a few lines publicly which may quoted, argued, or ignored as is a readers want.

Firstly, this is not the first time that the SBU has used this modus operandi, as several historical entries make clear.  These two links outline three cases (there are a few others) whereby the SBU faked murders or kidnappings in order to obtain SIGINT or HUMINT that as a result that eventually led to the organisers of these crimes being identified/incriminated via those who agreed to carry out the physical acts.

The significant difference between these historical operations involving a national politician, an Azeri businessman, and a Human Rights lawyer (aside from the mens rea of those responsible) and the currently headlining case of Mr Babchenko, is that the first three events gathered no (or very limited) traction outside of the Ukrainian media.

The case of Mr Babchenko’s “murder” was immediately international headlines as a reader would expect when a Russian, prominent anti-Putin/Kremlin journalist who sought sanctuary in Ukraine was “assassinated”.  The degree of international attention and media coverage was always going to be far greater than previous operations of the same SBU MO that has been successfully carried out within Ukraine with barely a domestic media ripple.

As far as the SBU and the (proven) tactics are concerned, on the presumption that the SIGINT required to identify those that ordered the assassination was obtained, this operation was another success employing this modus operandi.

From the perspective of Mr Babchenko, is it not natural to want to discover not only who was hired for the assassination, but also those who ordered it and recruited the assassin employed to kill you?

To partake in the operation rather than to refuse is probably not a difficult decision to make if you are offered credible information that you are about to be whacked.  An entirely understandable decision on his part.  He may now very well know the answers to those questions if the SBU has shared that information with him.  The question here relates to how credible the information offered was.

It is of course now incumbent upon the SBU and Ukraine to do everything possible to prevent the successful assassination of him.  Those that ordered the alleged hit will no doubt be seeking revenge, and there is naturally the additional incentive of proving that the SBU and Ukraine will not succeed in preventing his assassination.  The risks to Mr Babchenko may have increased rather than decreased – time will tell.

It goes without saying that those who knew of this operation will have been very, very few in number simply for operational security reasons.

However, the Ukrainian authorities should have, could have, or indeed did anticipate international headlines as a result of this operation, firstly with regard to the “murder” and then secondly with regard to Mr Babchenko’s “resurrection” once the SBU had gathered the intelligence anticipated.

A reader is left to ponder just how well and effective that media management/incident framing was carried out if indeed there was some preparation.

There are naturally trade-offs to be made.

Operational integrity, the thwarting of a very real assassination plan, the saving of Mr Babchenko’s life, and the resulting intelligence gathered obviously being the tactical priorities.

Strategically however, it may well prove to be that future claims and statements made by Ukraine will be treated with a little more skepticism, additional burdens of proof will be required to insure that official statements, and statements by officials (not the same thing) are corroborated.

It may become if not quite a matter of habeas corpus, then not far from it for the Ukrainian authorities.

There will be little point to stating Russian security services (and others) too have a history of employing the very same modus operandi.  “Whataboutism” does not do much to repair any damage to Ukraine’s image (if any lasting damage comes of this particular incident – and time will tell).  Indeed “whataboutism” is simply pointless laziness that in no way justifies or legitimises any specific act.  Two wrongs do not make a right – but that is not to say that this SBU operation was in and of itself wrong.

The operational issue here is not the SBU MO (which has repeatedly proven successful in recent years), nor is it Mr Babchenko’s participation in this deliberate deception.

At issue is the Ukrainian preparation for the inevitable media storm relating to this particular case.  There were few official statements during the period of his “death”, but a lot of statements from officials – which again should be stated is not the same thing.

For example, MP Anton Gerashchenko is widely considered to be the mouthpiece of the Ministry of Interior, but he is also the mouthpiece of the MPs within the orbit of Asren Avakov within the People’s Front, and also for Arsen Avakov on occasion.  It is perhaps more difficult to claim he is a mouthpiece for the People’s Front as there are several sets of MPs in the orbits of various People’s Front leaders.  Thus a reader is left to decipher just who Mr Gershcehnko is speaking for at any particular time, the quality and intent of what he says, and just how much he knows or has been told to be true when he says anything at all.  Further, Mr Gerashchenko is not always particularly careful with the words he employs regardless of who he is speaking for, or why.

Meanwhile the official statements of the Ukrainian State are now acting to justify and frame this event long after the damage (if there proves to be any lasting damage) has been done.

It is something of a truism that he/she who frames first and robustly comes out on top.

 

 

 

Thus it is not left for Ukraine to justify or legitimise the SBU tactical operation, for there was nothing wrong in that, but it is now left for Ukraine justify what was said and why during and after this tactically successful SBU operation if a strategic failure is to be avoided.

There will be expectations (rightly or wrongly) for the SBU to present the intelligence gains from this operation sooner rather than later if it is to play its part in managing the immediate media outcome.

Not only that, lessons may perhaps be learned with regard to “statements by officials” that are not “official statements” (whether or not this SBU operational tactic is employed once again – and it will be employed again).

Clearly there is a requirement to frame such incidents both during and afterward carefully and being particularly careful in the words used.  The “golden hour” to frame the news narrative.  Thus part of operational planning will have to encompass media management/messaging henceforth and become an operational consideration in some instances.

However, such careful media management/messaging would stand out against the currently otherwise often careless statements of officials that are too frequently mistakenly interpreted as official statements – and that would perhaps have operational consequences.  It would perhaps be wise therefore to begin to educate Ukrainian officials who make statements to approximate with the lexicon of official statements of State to minimize obvious differences in the weeks, months and years ahead.

The other alternative is to routinely make clear that the statements of officials are not necessarily the official statement of State in order to control and/or mitigate media fallout.

For now however, Ukraine has some work to do in order to insure that it wins the framing war over this incident.

 

 

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Getting behind the numbers – Politicians and public tenders

May 30, 2018

According to Ukrainian anti-corruption NGOs, Ukrainian parliamentarians, their immediate families, or trading entities closely associated to the politicians, won public State tenders for UAH 4.1 billion during 2017.

To be clear, the statement in the above link outlines no methodology or sources from whence the claims are drawn.  A reader is left to conclude that the figures are extracted from ProZorro, or perhaps similar public procurement databases also.

Neither is it entirely clear as to the exact definition of immediate family members, so it is left for a reader to presume that similar family members equates to the qualification to that of e-declarations submissions.

It is also unclear how subjective, or objective, are the links to trading entities to the Ukrainian politicians actually are.  A reader is once again left to presume that the same criteria as the e-declarations are the parameters.  If so then there will remain a lot of trading entities, school friends, former colleagues etc that perhaps would qualify as associations that a politician may benefit from (usually opaquely) that remain undeclared.

Further with decentralisation being more or less successful, much of the decentralised budget and powers have also decentralised and increased the earning opportunities of corruption within local governance – away from the centre.  That however, does not mean that those in the centre do not benefit from the nefarious actions of unknown interests and historical associations in the provinces.

Certainly those surrounding or associated with Mayor Trukhanov in Odessa do very well from local tenders – if local tenders must be suffered and alternative circumventing schemes cannot be implemented by those at City Hall.

Whatever the case, and however the figures are formulated, the anti-corruption NGOs stated the following that companies affiliated with Ukrainian MPs won UAH 4.1 billion via approximately 12,500 successful tenders during 2017.

By their count 2423 people are linked to the 423 Ukrainian MPs or their immediate family members.

By way of political party breakdown, the anti-corruption activists claimed that Will of the People (ex-Regions) won UAH 2 billion in State tenders, Oppo Block (ex-Regions) won UAH1.1 billion, Block Poroshenko UAH 616 million, People’s Front UAH 50 million, Vidrogina UAH 21 million, Samopomich UAH 6 million and Batkivshchyna 259,000.  Independent/non-faction MPs accounted for UAH 297 million in successful State tenders.

Notably this relates only to State tenders and not local government tenders.

If a reader is seeking the names of those that topped the numbers individually, then “Will of the People” Stepan Ivahiv (UAH 1.6 billion), “Oppoblok” Alexei Bely (UAH 467 million), another member of the group “Will of the People” Vyacheslav Boguslaev (UAH 442 million), another “Oppobloka” Deputy Yulia Levochkina (UAH 433 million, sister of Sergei Levochkin mentioned below),  and non-factional Alexander Gerega (274 million UAH).

They are followed by the companies of the Block Poroshenko faction member Maxim Yefimov (UAH 257 million), Oppoblock Sergei Levochkin (UAH 207 million), Block Poroshenko MPs, Dmitry Andrievsky (UAH 139 million), Bogdan Dubnevich (UAH 116 million) and Alexander Revegi (UAH 38 million).

The top tendering State institutions/SOEs were the National Police of Ukraine, Turboatom, Antonov, Ukroboronprom, Aviakon, Mukacheve  and Mukachevvodokanal.

Who from the above won what (if anything) from these enterprises was not stated and would require some (very basic) analysis to compile – and to be blunt is not the point of this entry.

The most eye-catching statistic presented by the anti-corruption entities during their statement was that 94% of those tenders were won by politicians were without any competition/contest.

That would suggest one of three alternatives.

Competitors, by a corporate lack of ability to meet the tender requirements or a genuine lack of interest, decided not to tender for those State contracts.

There are simply no competitors.

There is a cartel/understanding (coercion or bribery) that when certain companies tender for a certain contract, competitors will not tender, and State contracts that cannot be won/or are uninteresting to those associated with politicians are fair game and are thus there to be won.

Few, if any other sensible options present themselves that would account for 94% of uncontested tenders won by politicians/those directly in their orbit.

It is beyond obvious that certain spheres of the Ukrainian economy will only escape oligarchy capture by diluting the market with new entrants.  None of the oligarchs are going to jail when all is said and done.  It also follows that if the larger political class are to see their hold on the Ukrainian economy diluted, then that too must see the market place diluted by more competitive entrants.

That requires not only competitors with the necessary funds, expertise, equipment and track record, but also a belief that the playing field is reasonably level.  Not something that has yet been achieved in Ukraine.  Thus encouraging a reasonably sensible number of serious, new entrants remains difficult.

Submitting tenders is also an expensive business – all the more expensive if winning remains elusive and the costs associated with any tender can therefore not be recouped.   There is then the potential issue of “unforeseen problems” if a tender is won to the angst of those that can “create problems” and then offer solutions unaccounted for in any tender – which again have costs.

The cycle however has to be broken – preferably before these people simply get old and die.  More competition is necessary for Ukraine to further grow and develop.

It is not as simple as voting these people out of office – though that may be a start.  That may remove any official political title, but it does not remove political influence or “shadow rank” when it comes to influence.

Neither is it as simple as foreign sovereign governments providing some form of tacit or real underwriting/insuring (if they would) of ventures for their businesses to encourage them to enter Ukraine.

It is similarly pointless to have competitors tender simply to avoid the appearance of an uncontested State tender.

Any reader that follows the tenders in Odessa is well aware that many tender contests are actually “contests” whereby through coercion, bribery, or often related interests, competition is in fact “competition” and is there only for show and issues of perception – nothing more.  This in the hope that neither the Anti-Monopoly Committee or NABU or public will have “flags raised”.

The answer is clearly not simple.  The answer is certainly not going to be found, and even if it is it will certainly not be implemented prior to the Verkhovna Rada elections in October 2019.  Yet an answer has to be sought.

Nevertheless, if accurate, it is very difficult to ignore that 94% figure, for among all those figures, it is that which stands out.

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Euro 1 Billion (with the usual caveats)

May 29, 2018

The European Council (at the level of ministers rather than Heads of State) has finally endorsed a macro-financial package for Ukraine following the European Parliament approval.

The full agreement can be found here. or can be downloaded at the bottom of the Council’s website statement.

“A further €1 billion in loans will cover Ukraine’s financing needs over a period of two and a half years. The loans will support economic stabilisation and a programme of structural reforms, supplementing resources provided by the IMF and other donors.

The IMF has identified a $4.5 billion financing gap for 2018 and 2019, going over and above funding committed so far by the international community.

Macro-financial assistance is an exceptional form of financial aid that the EU extends to partner countries with balance-of-payments difficulties. This is the third operation for Ukraine since 2014. The EU additionally provides assistance under its neighbourhood policy.

The EU pledged €1.6 billion of macro-financial assistance in 2014 and €1.8 billion in 2015, of which Ukraine received €2.81 billion. A €600 million installment was cancelled in January 2018 due to incomplete compliance with the conditions set.”

With the loans due during and from 2019 clearly upon the fiscal horizon, notwithstanding whatever the national budget deficit will ultimately prove to be, this financial assistance, much like the required IMF lending, is necessary.

The usual caveats apply however, and those caveats are very similar to those of the IMF – except somewhat less explicit.  “The further disbursements will be conditional on Ukraine respecting democratic mechanisms and the rule of law, and guaranteeing respect for human rights. They will be subject to economic policy and financial conditions, focusing on structural reforms and sound public finances and including a time frame for their fulfillment. The conditions will be laid down in a memorandum of understanding between Ukraine and the Commission.

The Commission will be responsible for disbursing the macro-economic assistance. The Commission and the European External Action Service will monitor the fulfillment of the conditions.”

There is some wiggle room for the EU and the European Council within those words, albeit the EU will expect much the same from Ukraine as the IMF – or much needed funds for 2019 will be absent.

Both IMF and the EU have already withheld funds for failures by Ukraine to meet its negotiated obligations.  “Parliament, Council and Commission agreed a joint statement in the light of unfulfilled conditions and the cancellation of the third installment of the previous programme.

Further macro-financial assistance will be conditional on progress in the prevention of corruption, as well as on the progress of the IMF programme, the statement reads. The memorandum of understanding will include obligations to strengthen governance, administrative capabilities and the institutional set-up for preventing corruption.

Upon each disbursement, the Commission will report publicly on the fulfillment of the conditions, in particular those concerning the prevention of corruption.”

It now remains for the European Parliament and the Council (without further discussion) to adopt the decision – a foregone conclusion.  It also remains for Ukraine to meet its negotiated obligations – which is not a foregone conclusion.

As predicted in January 2018, the anti-corruption court legislation will pass and will become law as close to the summer political holiday as possible.  A deliberately long and drawn out process will then follow to insure that there is no fully functioning anti-corruption court before the March 2019 presidential elections and certainly insuring no chance of allowing any verdicts prior to the Verkhovna Rada elections of October 2019.  (To allow parliamentary immunity and impunity be first provided to the next political actors.)  The timetable was transparent from the get-go.

Thus as the timeline is following the blog’s January predictions and there is no reason to expect that to deviate significantly.

Whatever the case, hopefully the anti-corruption court will inspire more confidence than the “judicial reform” has thus far achieved – for that “reform” is hardly worthy of the dictionary definition.  Nevertheless hope is the last human emotion to leave the human soul, so hope is directed toward the anti-corruption court legislation being if not very good, then at least not bad.

Aside from the anti-corruption court becoming a reality and (eventually) functioning, no doubt the EU will have requirements regarding AML legislation and ratification of certain AML regional instruments too.  There will also be a legislative desire for an “end beneficiary” register.

Therefore, as such legislation will not be popular among the legislators, oligarchs, and organised criminality (if and when they can be separated) that legislation too will only reach the top of the parliamentary agenda just in time for urgent macro-financial assistance to be released – and not before.  (Late November, early December – perhaps even January although the serious electioneering and mud-slinging will have begun for the March presidential elections and perhaps some parliamentary bets will be off during that period.)

Nevertheless despite such prickly (and necessary) legislation ahead, President Poroshenko stated “I welcome today’s decision of the EU Council, which opens the way for the launch of a new macro-financial assistance program for Ukraine, which we agreed with the EU leaders at the end of last year. This is an important signal from the EU member states to assess progress on reform and devotion to further support of Ukraine.”

He is also perhaps hoping that it will open the door to better commercial borrowing conditions, alleviating the reliance upon the IMF and EU (among others) – for that comes without “the usual caveats”.

 

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Akhmetov looks (to expand assets in the) West

May 26, 2018

Rinat Akhmetov and his SCM Group are well known in Ukraine.  He is purportedly the wealthiest of the oligarchs in Ukraine.

He owns, or perhaps better stated has significant sway across large sectors of the Ukrainian economy – those spheres of the economy commonly described as “captured”.  Mines, metals, telecoms, alternative energy etc., etc.

This notwithstanding his political sponsorship of political parties (historically Party of Regions, now a part funder of Oppo Block and also a funder of the Radical Party) and numerous individual politicians across almost all party lines.

Little attention is paid to his affairs outside Ukraine – rarely are his assets beyond Ukrainian borders mentions (unless they are being frozen/arrested by foreign jurisdictions such as is penthouse in London).  Yet Mr Alhmetov, via SCM and a host of subservient companies does indeed own industrial and commercial assets outside Ukraine (discounting high value homes).

The best known Akhmetov owned companies are SCM, MetInvest and DTEK, although there are others, some of which are equally significant in their own way.

Naturally he is not the only oligarch (or minigarch, or corrupt bureaucrat) to own, sometimes via smoke and mirrors, sometimes less opaquely, high value assets beyond the territorial borders of Ukraine.

Nevertheless, it sometimes pays to keep a watchful eye upon the commercial expansion of the Ukrainian oligarchy, rather than concentrating upon what is already known regarding assets that they already hold internally and externally of Ukraine.

It is thus interesting to note the Platts SBB Daily Briefing (of 21 May 2018) and rumours of SCM expansion in Galati (Romania), Skopje (Macedonia) and Piombino (Italy).  MetInvest is unsurprisingly the corporate vehicle of choice, as the assets in question fall squarely within its portfolio – for all the assets are steel works.

The assets it is apparently to bid for belong to ArcelorMittal, itself known in Ukraine, as is its “Ukrainian face” Mohammed Zahoor.

It remains to be seen whether Italian company Marcegaglia will jointly bid with MetInvest for these steel works as is the rumour, or whether any joint bid will be limited to the Italian plant, or whether MetInvest will ultimately bid alone.

Naturally Mr Akhmetov knows Mr Zahoor, however it is likely to be the sole decision of the Mittal family in India that will decide the fate of any Akhmetov/MetInvest bids.

With ArcelorMittal having received EU permission to purchase the Ilva plant in Italy (perhaps the largest in Europe) it may well be that the sale of the Romanian, Macedonian and Italian Piombino plant were a requirement of the Ilva purchase – anti-monopoly issues et al.  That said, it may be that these smaller plants are being sold to raise capital for the purchase of Ilva by ArcelorMittal.  Perhaps both.

A reader is also left to ponder the motivation for Mr Akhmetov in bidding for these three steel plants (with or without any Italian partner).

Naturally having assets outside of the jurisdiction of Ukraine is attractive to a degree – but they are not fireproof with regard the reach of Ukraine.

Also such opportunities do not present themselves on a regular basis, thus there will be a natural interest in considering such opportunities when they do present themselves.

However, a reader may also ponder the events surrounding Mariupol and a major MetInvest asset within the city.

There have been several very vocal public protests regarding the emissions from the MetInvest plant in Mariupol.  To reduce those emissions will require significant investment.

This occurs at a time when Mariupol and the Sea of Azov are clearly subject to Kremlin attention now that the Kerch Strait bridge between the annexed Crimea and Russia is open.  It has been built in such a way as to limit the size of the commercial sea fleet passing under it.  That is perhaps problematic to a Mariupol steel producer and exporter if Mariupol port becomes unfeasible and product is forced to travel by rail or road to a Ukrainian seaport further away – for there are obviously additional costs that were once not there.  Those additional costs will ultimately be passed on to the buyer.

Ergo, having lost numerous assets in the occupied Donbas, Mariupol perhaps becoming evermore problematic, there is an obvious attraction to purchasing alternative plants located further west within the European continent.

Something to keep an eye upon.

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Gazprom, the EU Commission and Ukraine – A speech worthy of note

May 24, 2018

Just over a month ago an entry appeared regarding North Stream II and the issues it presents for Ukraine, the EU, Russia (and the USA).

In summary after acknowledging that NSII will become a reality, and simultaneously acknowledging that when it does, even with a southern route (from the many proposed) also eventually becoming a reality, there would still be a requirement (albeit vastly reduced) to employ the use of the Ukrainian GTS, the entry concluded thus:

“So what now for Ukraine?

It is perhaps then in the Ukrainian economic and national security interest to seek to swiftly and thoroughly integrate into the European gas network in order to be able to import as much EU gas market supply as possible, and after fulfilling the Stockholm Arbitration Court judgement, returning to a policy position of not buying Russian gas (directly), while politically accepting that any Russian transit fees across its territory are transactional incomes around which no national budget nor oligarchical interests can continue to be built (as historically was once the case).  Bi-directional pipelines and interconnectors with the EU would seem the prudent path for the future, and is perhaps where transit fees should be targeted in financing that goal.”

24th May 2018 witnessed the European Commission impose binding obligations upon Gazprom – conditions that would underline the national security concept of Ukraine rapidly integrating into the EU gas system and investing in bi-directional, or simply incoming pipelines and interconnectors with Europe:

“Statement by Commissioner Vestager on Commission decision imposing binding obligations on Gazprom to enable free flow of gas at competitive prices

Brussels, 24 May 2018

*Check against delivery*

Today, the Commission has adopted a decision imposing on Gazprom a set of obligations. These obligations will significantly change the way Gazprom operates in Central and Eastern European gas markets. To the benefit of millions of European consumers who rely on gas to heat their homes and cook their food. And to the benefit of European businesses that rely on gas for production.

To recall: the Commission sent Gazprom a Statement of Objections in 2015. We set out our competition concerns that Gazprom pursued an overall strategy in its long-term contracts with customers to partition gas markets. This happened in eight Member States – Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. This strategy may have enabled Gazprom to charge higher gas prices in five of these Member States.

Today’s decision puts an end to this behaviour by Gazprom. It removes obstacles created by Gazprom, which stand in the way of the free flow of gas in Central and Eastern Europe.

Because all companies doing business in Europe have to respect our rules on competition. No matter where they are from.

But more than that – our decision provides a tailor-made rulebook for Gazprom’s future conduct. It obliges Gazprom to take positive steps to further integrate gas markets in the region and to help realise a true internal market for energy in Europe.

And it gives Gazprom customers in Central and Eastern Europe an effective tool to make sure the price they pay is competitive. In other words, customers can ensure that their gas price will now be driven by the competitive gas prices that already exist in Western Europe.

As always, this case is not about the flag of the company – it is about achieving the outcome that best serves European consumers and businesses.

Details of Gazprom’s obligations

So, how exactly will Gazprom’s behaviour in the region change after the decision?

There are three parts to Gazprom’s obligations: That Gazprom’s customers are free to decide what happens with the gas they have bought, that they have more flexibility on where they want Gazprom to deliver it, and that they pay a competitive price for the gas.

So, the first two parts are about enabling gas to flow freely in Central and Eastern Europe.

First, Gazprom has to remove any contract provisions that prevent customers from re-selling gas across national borders. As well as any other provision that reduces a customer’s incentives to re-sell gas across borders, such as clauses that give Gazprom a share of the re-sale profit.

In future it will be for the customer – and not Gazprom – to decide what happens to the gas they have bought. That is an important condition for gas to be traded effectively by Gazprom’s customers.

But for gas to actually flow freely across Central and Eastern Europe, it is also necessary to have the infrastructure for its transport, namely interconnectors that link national gas markets with each other. Unfortunately, the availability of such interconnectors is still insufficient in parts of the region, namely in the Baltic States and in Bulgaria.

That is why we made sure Gazprom’s obligations don’t stop at just removing contractual barriers: the second part requires Gazprom to take positive steps to further integrate these gas markets.

For example, Gazprom must give customers an option to change where they want their gas delivered to. Customers that bought gas, originally for delivery to Hungary, Poland or Slovakia, can have all or part of it delivered to Bulgaria or the Baltic States instead. Gazprom must offer these swaps in both directions for a fixed transparent fee.

This means that gas can flow to and from the isolated markets as if the gas interconnectors existed already. It will allow Gazprom’s customers to seek new business opportunities even before interconnectors become available, to the benefit of consumers and businesses in Bulgaria and the Baltic States.

These obligations on Gazprom will increase cross-border competition and lead to better integrated markets, which should help keep down gas prices.

But we wanted to enable customers directly to ensure that prices in the region will be competitive. That’s because one of our competition concerns was that Gazprom was charging higher prices in five countries, namely Bulgaria, Estonia, Latvia, Lithuania and Poland.

We were concerned that customers in those countries faced higher prices than could be justified, compared to competitive gas prices in Western Europe.

That’s why the third part of Gazprom’s obligations is about giving customers in these countries an effective tool to make sure the price they pay is competitive.

In future, these customers will have the right to get their gas price adjusted, if it diverges from competitive benchmarks. These explicitly refer to prices quoted on Western European liquid gas trading hubs in Germany and in the Netherlands. If Gazprom does not agree to the customer’s demand within 120 days, an arbitrator is appointed that will impose a competitive gas price that takes full account of these benchmarks.

This will make sure that customers in these countries will never again face gas prices that are not competitive compared to the prices in Western Europe.

Finally, the obligations also address the concern that Gazprom may have used its market position in gas supply in Bulgaria to obtain favourable treatment concerning gas infrastructure. In particular, Gazprom cannot seek any damages from its Bulgarian partners following the termination of the South Stream project.

So, our decision today imposes on Gazprom a strict set of rules on how to do business in Central and Eastern Europe. It imposes clear obligations on Gazprom and gives effective rights to Gazprom’s customers. Combined, this will enable the free flow of gas at competitive prices.

Feedback from market test

We reached this decision also thanks to extensive input from a wide range of stakeholders – governments, national competition authorities, gas wholesalers, industry associations and academics. We had asked for their views on an earlier version of the proposal in March last year, and I would like to thank each and every one of them for their contribution.

It helped us in our intensive discussions with Gazprom since the market test, leading to this final set of obligations we imposed today. A lot of different big and small pieces needed to come together, like cogs in a machine, for these obligations to be effective.

To name just a few of the improvements we made: More customers will be able to benefit from the option to have Gazprom deliver part of or all their gas to Bulgaria or the Baltic States, instead of the destination they had initially agreed. Or the other way round. And these customers are given much more flexibility and safeguards. They can swap smaller quantities of gas at shorter notice. Plus, the fees that Gazprom may charge for this service are fixed at a low level to make the swap financially attractive. They are about 30% lower than in the initial proposal. Finally, Gazprom can only refuse to perform the swap if there is no transmission capacity.

Another example for an improvement concerns the right of customers with long-term contracts to adjust their gas price. Now, Gazprom has to give this right not only to its existing but also to future customers in the countries concerned.

Imposing obligations versus a fine

So, we have come a long way to get to this solution. In line with our standard rules, we can implement such a solution because it fully addresses our competition concerns. But I know that some would have liked to see us fine Gazprom instead, no matter the solution on the table.

However, a fine would not have achieved all of our competition objectives in this case. We can only make sure that Gazprom takes positive steps to integrate isolated gas markets, if Gazprom commits to do so. And we can only offer Gazprom’s customers an effective right to adjust their gas price, if we bind Gazprom to a structured process.

With today’s decision Gazprom has accepted that it has to play by our common European rules, if it wants to sell its gas in Europe. In fact, it has accepted to play by a rulebook that is tailor-made to ensure that European consumers can benefit from the free flow of gas at competitive prices.

If Gazprom fails to comply with any of its obligations, the consequences would be serious. The Commission can then impose a fine of up to 10% of the company’s worldwide turnover. We can do so without having to prove an infringement of EU antitrust rules. In 2013, for example, we fined Microsoft over half a billion euros when the company broke its obligations on choice of web browsers. In other words, the case doesn’t stop with today’s decision – rather it is the enforcement of the Gazprom obligations that starts today.

So this decision reaches the outcome that best serves European consumers and businesses.

Energy Union

And it also matters to our climate. If we want to achieve our ambitions from the Paris Agreement we need to increase the share in our energy mix of renewable energy, such as wind and solar. That also means we need gas as a flexible back-up capacity for the days when the sun is not shining and the wind is not blowing.

At the same time, effective competition in European gas markets of course cannot be achieved by the enforcement of competition rules alone. It also depends on how much you invest into gas supply diversification. As well as on legislation to complete our Energy Union. My colleagues Maroš Šefčovič and Miguel Arias Cañete have made a lot of progress on this already.

That also shows why we have both regulation and competition enforcement. Because it is when competition enforcement and regulation each fulfill their role that we get gas markets that really serve European consumers and businesses.”

Hopefully, if those in Kyiv that read the blog erroneously missed the previous linked entry relating to considerations when Russian GTS fees drop dramatically and the suggestion therein that Russian gas transit fees be ring-fenced for new pipeline and interconnector infrastructure into the EU system, it is fairly certain that they will not have missed this speech from the EU Commission relating to Gazprom.

The Ukrainian GTS is not going to remain the “Ukrainian Crown Jewel” that many who have for so long “sat on the pipe” and made dubious fortunes have got used to.  The vastly reduced fees, together with renting out space in the vast underground gas storage facilities Ukraine has, would be wisely employed to build the infrastructure to receive from Europe.

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“The Beeb”, Trump and The Bankova (and $400,000)

May 23, 2018

What can you get for $400,000 in Ukrainian politics?

According to the BBC, it buys Ukrainian President Poroshenko a meeting with US President Trump – via a little smoke and mirrors involving lawyerly Trump acquaintance Michael Cohen and a NYC Jewish organisation.

Questionable ethics and individual morality appear to be the charges leveled.

The Bankova has very robustly denied the BBC report – even threatening legal action unless there be a retraction.  Rarely is such robust rhetoric to be seen aimed at western media.

We will see what happens.  It is to be hoped that “BBC legal” were convinced regarding unnamed sources quoted before the story was published, for robustness of The Bankova rhetoric is most unusual.

However, whatever the truth – or lack of – relating to the BBC article, $400,000 for such a meeting for those within the Ukrainian political and business elite would probably been seen as economical.  A bargain in fact.

Both Ms Tymoshenko and Mr Firtash over recent years have spent more than that lobbying the US with arguably very little to show for their money.  Just what other Ukrainians that lobby the US, the likes of Mr Pinchuk et al get for their money is also questionable.

It is also necessary to be entirely blunt.  The cost of “doing politics” in Ukraine has always been high.

Historically and perhaps even now, it has cost far more the $400,000 to get “prickly” or “difficult” domestic legislation through the Verkhovna Rada.  When parliamentary votes are absent for “vital bills” then either coercion, or favour, or money has been used to find the necessary votes.  Something exiled oligarch and former parliamentarian Olexandr Onyshchenko certainly claims is still the norm (if a reader chooses to place any credence in anything he has to say).

So, if there is any merit to the BBC story despite, unusually strong denials from The Bankova, the issue for many in Ukraine is not one of surprise that it happened, but rather would those within Ukraine consider that money well spent?

Well, the US is still very much engaged with Ukraine despite the change of White House administration.

US political rhetoric and diplomatic energy remains supportive of Ukraine.

It has received the long sought after (and mostly symbolic) Javelins from the current US Administration.  However this has set an example regarding sending defensive lethal weaponry to Ukraine where many other nations (although not all) had previously feared to tread.

The US is very much against Nord Stream II.  Even if this ire is for its own reasons, Ukraine will take that situational alliance quite happily.

And so it goes on.

Ukraine and many Ukrainians, even if $400,000 was paid (with or without the knowledge of the President’s involved) would probably consider that money very well spent.  Indeed a sound investment after witnessing so many feckless Ukrainian politicians lobbying their personal cause (and not for the benefit of Ukraine) for so many years and spending far more than that upon ineffective US lobbying.

Ukraine and Ukrainians would not care if Mr Cohen pocketed the money, gave it to charity, or paid his Trump Golf Club fees with it.  That presidential meeting, if it were paid for as claimed, would be considered worth it by many – and in fact it would be considered a bargain compared to the cost of domestic politics.

The repercussions domestically for the current Ukrainian elite would be very little indeed as the perception of the US-UA relationship is generally positive, despite initial concerns when the White House administrations changed.

It is the international perceptions that will concern Ukraine, hence the remarkably strongly worded rebuttal to the BBC report.  How the White House responds, if at all, remains to be seen.  Clearly Ukraine will have concerns over White House sensibilities.

Nevertheless, perhaps a story to watch as it seems unusually likely that The Bankova may actually expect and go after the retraction they seek from the BBC.

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“They think it’s all over……it is now!” Ukraine rolls up organised crime in football

May 22, 2018

The Ministry of Interior, via the Minister’s Facebook page, claimed that the Ukrainian police rolled up an organised crime syndicate involving 5 organised groups involved in match-fixing across the Ukrainian football league.

After 2 years of investigation, on the eve of the Champions League Final in Kyiv, the police executed 40 authorised searches in Kyiv, Zhytomyr, Dnipro, Donetsk, Zaporozhye, Kirovohrad, Mykolayiv, Chernigov and of course Odessa.  Clearly the timing of this event was deliberate, for what easier way to highlight the fight against organised criminality than when the world’s media have arrived to cover the European Champion’s League final?

Not only was the timing obviously deliberate to obtain maximum international publicity, but a rather slick video relating to the organised criminality was simultaneously released to accompany the announcement.

Perhaps an English subtitled video would have been somewhat more comprehensible for the vast majority of the international media in Kyiv?

It is claimed that $5 million per annum was raised via betting in the Asian markets upon results that the criminal syndicates had organised.  It involved 35 football clubs and included presidents of clubs, former and active players, referees and assistant referees, coaches, and associated commercial structures.

Interior Minister Avakov claims a total of 320 people the have been questioned in relation to 57 matches.

As it is possible to bet on the timing of the first throw in, the first corner, the first scorer, the first foul, and who/which player is responsible for them these days, perhaps going to the lengths of fixing the results was a little unnecessary?  It is surely easier to bribe or threaten a player to kick the ball out for a throw in in the 3rd minute than it is to arrange a final score of 2-1 and all that would involve?

Disregarding the obvious political timing of this operation, (after 2 years of investigation there is nothing to suggest that operational requirements in rolling up this organised crime syndicate could not have waited until after the Champions League Cup Final and the disappearance of the World’s media), it has to be duly noted that 2 year investigations are not the norm (unless politically expedient to have them drag on and on).

If this investigation has been carried out diligently and with integrity then there is credit to be given for those that were involved.  Investigations of that length, particularly in Ukraine, have a habit of being “blown” due to a lack of discipline and/or somebody involved tipping off the organised criminals for a (large) fee.

Naturally the integrity of the evidence chain and the legitimacy of the evidence gathering are unknown at the time of writing.  Court cases regularly fall apart the world over not over the quality of evidence, but how it was obtained, or the integrity of the evidence chain once it has been obtained.

It will be interesting to discover just how engaged in this criminal syndicate the Football Federation of Ukraine was.  After all, with the investigation lasting years (and thus the criminality longer), 57 matches were allegedly fixed, and 320 people detained, it is difficult to believe nobody knew within the FFU.

Whatever the case, it would appear that this particular organised criminality has been dealt a blow, and thus to quote Kenneth Wolstenholme in 1966  “They think it’s all over………..it is now!” – at least until others take over the business model when the dust has settled.

If only the blog could believe that the poor form of Odessa’s Chernomoretz FC was due to either bribery or coercion – but some things are beyond even organised criminality!

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