Archive for the ‘oil’ Category

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A crude business – or the return of a slick operation? Odessa Oil Refinery

December 19, 2015

A few years ago, when then President Yanukovych and “family” were busy “collecting” all assets they could possibly buy at knock down rates, coerce, blatantly steal, raid, and otherwise take control of one way or another, an entry appeared regarding the sale of Odessa Oil Refinery to VETEK LLC by Luk Oil.  VETEK LLC being a vehicle then fronted by Andrey Koshel on behalf of the now fugitive Serhiy Kurchenko.

It was, as that entry infers, a murky business – which will come as no surprise.

Odessa Oil Refinery

Odessa Oil Refinery

On 25th November 2014, Odessa Oil Refinery was arrested being an asset of Serhiy Kurchenko, wanted in Ukraine for all manner of corrupt activities.  It is no secret that Ihor Kolomoisky was a firm lobbyist for this asset to be seized/arrested, despite transparent statements of disinterest at the time – “It is not our asset, and we are not interested in it, we have underused Kremenchug plant, and the Odessa refinery should be closed so as not to spoil the ecology of Odessa. Odessa should shine after the loss of the Crimea.”

Indeed, Ihor Kolomoisky’s trusted friend Ihor Palitsa was the Odessa Governor at the time of the asset arrest.

Naturally only the truly naive would believe Mr Kolomoisky’s statement of apparent disinterest, for as this blog stated on the day the refinery was seized “Presumably all oil at Odessa Refinery will now be stored at the State owned Ukrtransnefteprodukt.”  As with all State owned enterprises, there are those with an interest and a certain amount of control over them.

In the case of Ukrtransnefteprodukt?  Ihor Kolomoisky and Sergei Pashinsky.

Since November 2014 little (legitimate and/or overt) has really occurred at the Odessa Oil Refinery – although it is now, suddenly, seeing some activity.

It is rumoured that the management has been told to prepare to have the oil refinery running once more.  Security personnel are being replaced.  It is said employment contracts for refinery personnel are being drafted.

The heavily backed rumour by the local “oil people” is that Ukrtransnefteprodukt has taken over (or is about to take over) Odessa Oil Refinery.  Messrs Kolomoisky and Pashinsky will be pleased to have another State owned enterprise from which to guzzle – no matter how long  Ukrtransnefteprodukt will actually own and/or the refinery.

So what happens to the oil at the refinery when it was seized (if it is still there and hasn’t disappeared into the night ne’er to be seen again)?

How has Ukrtransnefteprodukt lawfully taken ownership?  A court verdict?  A deal with  Serhiy Kurchenko?

With whom has a deal been struck to supply oil to the refinery?

With low oil prices and a global glut of oil, to whom will the refinery sell?

Is the State take over, if the rumours be true, less about oil and more about nationalising an oil refinery asset simply with a view to get it on the State books to then list it for privatising and sell on?  To use an oil trading phrase, is the government plan to assume ownership of this seized asset to then “flip title” to a buyer thus gathering in the profit as swiftly as possible?

If so, is there a potential buyer out there?  It is not an asset for which an argument can be made to retain it upon the State books when all is said and done.

Something local to keep an eye on.  A crude nefarious business – or the a transparent slick operation awaits Odessa Oil Refinery?

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Electoral tales from the underworld – Odessa

November 6, 2015

Normally telling uncorroborated tales is not something that sits particularly comfortably with this blog.  However there is an uncorroborated but interesting tale being told quite openly amongst the hierarchy in certain nefarious circles.  The names have not been changed to protect the innocent (or perhaps guilty) in this tale, though due warning is given regarding the credence that may be drawn from it.  Readers may believe or disbelieve it.  There is certainly no proof that substantiates (certain parts of) the story – those parts will be made perfectly clear and inference may be drawn – or not.

Issak Babel

Issac Babel

The tale is being repeated here because it is so wonderfully/typically nefariously “Odessa” – the prose however being nowhere near as accomplished as those of Issac Babel in his equally nefarious book, Tales from Odessa.

So to a suitable starting point – In 1995 Leonid Lebedev (associated with Russian organised crime as well as being a Russian politician) became the chairman of Sintez Group – a small Russian commodities concern that had a grubby and somewhat opaque little deal with various majors through the years – Rosneft, Luk Oil etc.  In 1995 the company was  turning over about 15 million tonnes of heating, diesel oil and gasoline.  His business partners were/are Mark Garber and Alexander Zhukov.  (Mr Zhukov is the father of Daria Zhukova – who is now the wife of Roman Abramovich).

Mr Zhukov was/is in charge of Sintez production, pipeline transport, and export through Odessa Port (having 7 berths at terminal 10).

(As is oft the case with organised crime there are hiccups along the way.  In one such hiccup, Messrs Lebedev, Garber and Zhukov, together with Kuzma Medanich, Andrey Vazhnik, and Anatoliy Fedorenko had a bit of a run-in with Italian law enforcement in 2002/03 over gun trafficking.  A small matter of Kalashnikov’s, guided missiles, anti-tank missiles and ammunition headed for the Balkans.  Eventually the case collapsed due to lack of evidence with only Dmitry Streshinsky getting convicted and receiving a 23 month suspended prison sentence and a fine.)

However, amongst many subsidiaries of Sintez Group was/is Sintez Oil Ltd run by Mr Zhukov (naturally being a partner in Sintez Group) and which has a large and allegedly controlling nefarious footprint in the Odessa ports.  The long-reigning Odessa mafia Don, Alexander Angert is also associated with Sintez Oil via a subsidiary called Transcargo.  Unsurprisingly Mayor Trukhanov also worked for Sintez Oil for some time – not withstanding his association with Mr Angert during the crazy days of the 1990s when working together in “Captain Security”.

Also associated with Captain Security, and Messrs Angert and Trukhanov back in the day was Ruslan Bodelan, a long time Chair of the Odessa City Council whom it is claimed, transfered the City accounts to the Sea Commercial Bank of Odessa – coincidently owned by the same Mr Zhurkov of Sintez Oil.  There is then Mr Angert’s ROST Group of companies, well known to Mayor Trukhanov by his own admission, and a company extremely successful in winning City contracts.  There is no need to go on and on, describing yet more and more connections between these people – and there are many – after all, why wouldn’t friends and trusted associates do business together (through a lot of different companies)?

Much has been said in the local media regarding Mr Trukhanov’s electoral rival for mayor, Sasha Borovik, and in particular his KGB history and also the KGB history of his father Valeriy – yet it is also no secret that Valeriy Borovik was Head of Security at Sintez Oil in Odessa too.  Thus when running against Gennady Trukhanov his father will have been well aware of his son’s opponent and the interests of those behind Mr Trukhanov – notwithstanding the undoubted access to voluminous tomes relating to Messrs Angert, Trukhanov and Zhurkov gathering dust in SBU storage that will have provided some “light reading” for Mr Borovik during his election preparation.

However as has been previously written here numerous times during the months preceding the local elections elections last week, it has been quite clear, and long and consistently rumoured amongst those that would know, that the presidential administration/The Bankova, probably in the person of Boris Lozhkin, had cut a deal with Gennady Trukhanov relating to his victory and few waves for existing nefarious enterprises (Sintez amongst others) in return for both his and his party’s voting loyalty in line with Solidarity policy.

In short, Mr Turkhanov was seemingly the only choice for Mayor that could satisfy all vested political and organised crime interests.  A deal there was to be made – and it was made.

This deal clearly struck before Sasha Borovik decided to run – for he was late to the electoral fray.

Whether Mr Borovik was aware of this deal before he decided to run as the Solidarity candidate or not is really rather irrelevant.  If he wasn’t aware, then such a deal must have clearly dawned on him rather rapidly in the absence of any Solidarity Party support beyond being able to use the brand name.

devil

Considering Mr Borovik’s KGB schooling, a healthy degree of cynicism would be a rather desirable character trait – and such cynicism would quickly point to deals being done that would effect and insure campaign outcomes.  Cynicism teaches ye that would sup with the devil to do so with a long-handled spoon.

That said, Mr Borovik did well in the elections – his 25 – 30% support is truly impressive considering a late entry, stuttering campaign at the start, and no support from “party central” excepting the use of brand name, and only the overt support of Governor Saakashvili as external pulling power.

So where does Governor Saakashvili sit in all this?

Was he too was unaware of any “Bankova deal”?

If not then he must also have rapidly become aware of the “Bankova deal” that would have insured Trukhanov’s political loyalty in return for his steady hand in managing/protecting the allegedly nefarious interests of Messrs Angert, Zhurkov and himself.

(He must also have been aware that it was an immense task for his advisor Sasha Borovik to topple a well established Trukhanov voter base, “Bankova deal” or otherwise.)

Once such awareness reached the Governor, it is claimed, he was concerned that first and foremost the elections were seen to be clean and not “stolen” or “overly rigged” on his watch.  If that meant a second round and “his man” running Mayor Trukhanov a close second then so be it.   There is no perceived disgrace in a close second round loss and there are reputation points in public perception in managing a far fairer race than those normally associated with the politics of Odessa.

The rumour goes that such a deal was struck for a “clean vote”.

Perhaps true – perhaps not.

Governor Saakshvili, when he saw “his man” had momentum may have seen a possible win where none was originally expected.  Having the Mayor in his stable would have changed the game – both in Odessa and for The Bankova which has political interests of its own that may require putting parameters upon the ambition of Governor Saakashvili.

Likewise there may have been some “nervous twitching” from all other parties involved in the nefariously agreed “Bankova deal” when secret polling surveys showed Borovik momentum, and thus forced the decision to go “dirty” and “finish it” in a single round in order to “protect longstanding interests”.

If so, then it is one way to explain the immediate open media warfare that began on election night between the Governor and Kyiv, the Governor and Mr Angert, the Governor and Mr Trukhanov and the clear decision to start “taking down” the City Hall apparatchiks that have long plundered the budget and who surround the Mayor.  (The Mayor is not one for stealing trifling amounts from budget headers himself – big money from nefariously awarded contracts is more his style.)

This targeting of corrupt City Hall appartachiks started with those involved in roads maintenance and water utilities the day following the elections day and is a policy that will continue – as it should simply from a rule of law perspective.

Nevertheless, if this tale is to be believed, then clearly Governor Saakashvili will feel he has been on the wrong end of a broken agreement.  All bets therefore are off (until he is pacified or revenge is exacted – or both).

As importantly he will feel he has had his image tarnished due to grubby elections on his watch.  Loyal to his friend President Poroshenko, but never keen on his Solidarity Party (the Governor has not joined Solidarity), this allegedly broken deal has also seen what appears to be the launch of “Team Saakashvili” as a political entity quite separate from the main body of Solidarity – and “Team Saakashvili” should it become a formal political party will easily garner 5% of the vote nationally to enter the Verkhovna Rada when any elections come.  Bad news for Solidarity, though not necessarily bad news for President Poroshenko whom Mr Saakashvili would support.

Whatever the case Governor Saakashvili will remain in Odessa until the New Year and the formal launch of any political party with him as leader is unlikely before New Year (unless somebody is perceived to “shaft him” again, forcing the issue).

Thus war has seemingly been declared on all fronts by the Governor if his public rhetoric is any indication – wisely or not remains to be seen – however, on the presumption that Mr Borovik accepts his mandate to City Hall, and whether or not he becomes the Secretary to the Council (the second most powerful position), then Mr Borovik is clearly going to be a royal pain in the arse for that administrative cesspit – forcing audits, transparency, calling out dodgey deals, leaking questionable documents etc, whilst the Governor pushes the prosecutors office to continue taking down those surrounding Mayor Trukhanov for their corrupt activities past and present.

Strikingly however, considering  it is certainly a significant jewel in the Odessa Port mafia crown, there has been no mention by anybody of the widely inferred odious influence and activities of Sintez Oil – which depending upon how this uncorroborated tale in interpreted, places a fairly central role.

A tale perhaps not as romanticised as those deeds recorded by Issac Babel, and certainly not written in such glorious prose – but nonetheless a tale that is so entirely “Odessa”.  The reader can decide if it is a tale worthy of those of Issac Babel, or should it be given any credence, a tale worthy of a courtroom.  Questions then of who should stand in the dock and who should bare witness in such a grubby affair?

Nevertheless, a tale worth telling.  Perhaps a little more credence will come when Trukhanov and his Trust Affairs party start consistently voting along the Solidarity Party policy line – which will be the case.

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Naftogaz loses its monopoly (at last) – Ukraine

October 1, 2015

Legally, with effect from 1st October 2015, the opaque, budget burdening behemoth that is Naftogaz Ukrainy loses it monopoly within the Ukrainian gas market – and not before time.

So many are the entries within the blog going back many years calling for the butchering of this monopolistic monstrosity that there are simply too many to link to.  However an entry last year raised the question (again) over the restructuring of Naftogaz Ukrainy vis a vis bankrupting it, and starting again with an entirely new structure that falls squarely within Ukrainian obligations to the EU Third Energy Package.

“Unbundling the gas transport system from the gas production and the end user network is perhaps one way to restructure Naftogaz. In doing so, it may eventually come to light as to just how this massively opaque behemoth actually manages to lose so much money every year – and when Naftogaz deficits can run at anywhere between 3.3% – 7% of GDP per annum, questions really do need to be asked about firstly how they are actually accrued, and secondly why successive governments continue to finance a structure that is simply a lead weight upon any annual budget?

So big, cumbersome, opaque and costly is Naftogaz to the nation, it appears to have become too big not to fail if Ukraine is to survive economically in the current circumstances – and as the saying goes, “never waste a good crisis”.

Therefore, is restructuring Naftogaz a better option than making the most of the current crisis, and taking the opportunity to declare Naftogaz bankrupt – and then restructuring the hard assets into entities that would fall neatly within the EU 3rd Energy Package, whether those entities be entirely or partly State controlled, or indeed privitised entirely?

It could, of course, be incredibly messy. Does anybody actually know who owes what to Naftogaz, or who Naftogaz owes within its opaque internal structures? How many entities have contracts with Naftogaz? Dozens? Hundreds? Thousands? Who are they, What are they?

Naftogaz is now so big, opaque, unwieldy and economically unbearable, restructuring is an absolute requirement. The question presented to any new leadership is therefore whether partial dismantlement or complete obliteration of this behemoth will be the answer they arrive at.”

So where to go from here when 1st October marks a very significant legislative date regarding Ukrainian energy?

Theoretically and legislatively the liberalisation of the energy sector has now begun.  No longer will the State be able to control either prices or allocation.  The corruption that accompanied such practices will face difficulties going forward as long as new entrants step forward and regulators prevent cartels.  Certainly the corruption that occurred via arbitrage and the capping of domestic production via pricing look set to face challenges.

naftogaz_1

Market based prices will lead to energy efficiency rather than the wanton waste that currently exists.  Market based prices rely upon ending subsidies, bad debt write offs and endless recapitilisation to Naftogaz Ukrainy in order to create an open and free market – and not before time.

Naftogaz Ukrainy is Ukraine’s largest vertically integrated state-owned oil and gas producer, whose companies provide for more than 97% of domestic production of oil and gas.  Naftogaz Ukrainy is engaged in mining, oil and gas extraction, transportation and sale of petroleum products through its own network of filling stations.  Some clear and obvious dismemberment presents itself that would serve to fulfill the Ukrainian obligations to the EU’s Third Energy Package.

Firstly there is no alternative to separating the transit companies within Naftogaz Ukrainy from the rest of its subsidiaries.  Thus Ukrtransnefta (oil pipelines) and Ukrtransgaz (gas transit) legislatively and corporately are required to stand alone, no longer subservient nor part of Naftogaz Ukrainy, and legislatively proscribed to allow guaranteed transparent and equal access to their transport systems for all market players.  If the government of Ukraine continues to believe that the transit systems are jewels in the State crown and not to be sold, then it will be necessary to create an independent operator per the Third Energy Package.

Alternatively, the government of Ukraine should privatise these entities (which seems unlikely given the deep-seated belief within the political elite that the transit systems are a matter of national security).

Clearly the petrol stations owned by Naftogaz Ukrainy can and should be sold of – as should the trading subsidiaries of Naftogaz Ukrainy.

Is there any need to have a State gas producer having opened the gas market?  Probably not, so the privatisation of subsidiaries such as Ukrgazvydobuvannia (which would undoubtedly sell for many $ billions in and of itself) would be entirely in line with butchering this State monster.  A similar line is desirable within the oil subsidiaries of the Naftogaz Ukrainy.

However, as yesterday’s entry made clear, selling minority shares in these entities is not enough – in fact it could well be a backward step – “Quite simply, aside from other sovereign governments, or those eilite large companies with close relationships and direct channels within their governments, who is going to buy a minority share in entities that will be at the directional whim of the Ukrainian government of the day?

The answer is only those that can directly influence the Ukrainian government of the day – and that remains the existing oligarchy!

As foreign governments and large foreign corporations are not likely to be excited about buying minority shares ranging from 5% to 46% in Ukrainian State owned companies with the major shareholder (Government of Ukraine) being historically either unpredictable or predatory or both (and there is nothing to suppose that cannot return with any election) it seems likely that only an oligarchy that already influences the government will have any serious interest in buying minority shares in State owned enterprises.

After all, holding minority shares in State owned enterprises is nothing new for the oligarchy – and neither is using their influence within the Verkhovna Rada to insure that their interests overrule the interests of the State majority shareholder.”

At the very least, if the State is intent on retaining shares in any of the severed and dismembered parts of Natfogaz Ukrainy, then the State should hold a (significantly) minority share.

Of course, if Ukraine does not provide the right tax stimuli for producers and effective recourse for suppliers when buyers will not/cannot pay, then a legislative end to the Naftogaz Ukrainy monopoly is not going to create an active and vibrant Ukrainian energy market – de facto the monopoly will continue due to lack of competition.

“On October 1, the Law of Ukraine on the gas market will come into force, and it will radically change the system of coordinates and the gas market itself. Naftogaz Ukrainy will lose its monopoly both for the supplies and the sale of natural gas. In fact, we are building a fully European non-monopolized system of the natural gas market, when the supplier may personally determine to whom and where to sell, and when the buyer may personally decide from whom he wishes to buy” – Prime Minister Yatseniuk.

Let’s hope he is proven to be correct, if it is to be so then there are many necessary privatisation and taxation issues to be addressed to support any new market – together with statute guaranteeing any market entrant use of State retained transport systems.

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Energy – Who’s responsible?

September 16, 2015

Following on from the last entry relating to the energy sector and subsidising corruption, comes this statement – “The government doesn’t control the situation in the energy sector… The reason for that might be an objective one, but it’s more of a subjective plan – six orders of the Prime Minister and four of my orders to the Energy Minister remained unanswered properly.” – Deputy Prime Minister Valeriy Voschevsky.

Voschevsky

He went on to say “the reason for the situation was the economy being controlled from two centers simultaneously – the president’s and the prime minister’s.”

To be blunt, nobody would be surprised – the harmonious and seamless workings of the office of president and that of prime minister/cabinet of ministers is as rare as rocking horse sh*t in Ukraine.  The inability to remain within the constitutional boundaries offered to certain office has been a recurring historical issue within Ukrainian governance at the very top – and these are exceptional times in Ukraine unlikely to stop the historical trend.

Constitutionally, the president, aside from specific political appointments and dismissals, in broad policy brush strokes is responsible for foreign policy, defence and upholding the constitution.  Everything else, using equally broad brush strokes, is the responsibility of the government.

Ergo energy is the responsibility of the energy ministry, the cabinet of ministers, and ultimately the prime minister according to the allocation of power by the constitution.

Except – is not energy and energy security also a foreign policy and defence policy issue too?

Which nations these days do not consider energy security as a national security issue?

As it is certainly a national security issue for Ukraine, it therefore falls within the presidential remit.  Thus the presidential administration, particularly in the current circumstances Ukraine finds itself, can make a legitimate claim to involvement within the energy sector of Ukraine without any legislative/power overreach any otherwise would-be justification for overstepping constitutional boundaries perhaps would have needed.

Nevertheless, energy policy also remains a governmental responsibility according to the legislation too.

Therefore the two branches of political power both have legitimate and constitutional rights to be meddling with energy policy, and viewing it through slightly different lenses too.  Is it therefore any wonder that control has been lost?  Into that chaos (or perhaps void) assuredly further corruption, inefficiency and oligarchical interests will seep.

If the oligarchy are to be confronted, and at the very least legitimate limits placed upon their drinking from the currently corrupt energy font, then such actions are more easily taken whilst the oligarchy are currently weakened.  They will not remain weak for long unless major reforms are taken soon.

How easily any reforms can be implemented with two different centers of power meddling within the same ministry and tinkering within the same policy domain remains to be seen.  A dreamy two-step or two left feet?

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Ukrainian Oil & Gas to get international management?

March 30, 2015

After all the unnecessarily public shenanigans that played out last week between the majority and minority shareholders of Ukrnafta – the State and Igor Kolomoiski – and other potential confrontations, such as Uktransnafta, Prime Minister Arseney Yatseniuk has announced that a change of management, which had a great deal to do with the unnecessarily public collision between State and Igor Kolomoiski, will occur.

It will occur with international management being brought in to insure transparency for all stakeholders.

“A new approach to the state of public companies – Ukrnafta, Ukrtransnafta, and all others, Ukrtatnafta – The state recovers its management, we respect the rights of other shareholders, receive and distribute dividends, and we put in place a new high-quality foreign management.”

First and foremost, a reasonable compromise in light of the aforementioned public spat.  Indeed, perhaps a way to combat corruption at the top of many State owned entities, from energy to the defence entities and beyond.

Naturally to attract the best international industry specific senior professionals, the State and other shareholders will have to pay the commensurate international remuneration (plus perks, and possibly “golden hello’s” and/or “contractually assured “golden handshakes” too) for such management.  That said, it will probably still save the State (and shareholders) a small fortune in losses due to gargantuan corruption by doing so.

The Prime Minister went on to state that “The new leadership will Ukrnefti, it must be selected by an international audit, through professional people with serious international reputation.  “We, the government, decided that now all heads of state companies have elected only in open competition, publicly, live, and no longer can there be inserted a godfather, brother or matchmaker.

Fair enough.

However, the issue will be whether the senior industry specific professionals with a “serious international reputation” can be attracted – and the remuneration + package, is not going to be enough to do that on its own.

As any professional “headhunter” knows, money and perks have to be attractive, but the actual challenge of the job on offer also has to appeal.

Those that have previously been “headhunted” will attest to this being undoubtedly true.  Indeed, your author attests to it being true.

The question therefore arises as to the professional challenges that appeal to these specific international professionals – for the challenges that the Ukrainian companies face will not appeal to all who may be approached, dependent upon the parameters of the job role.

UNM

What is the aim of changing the management?  To insure more transparent dividends for the shareholders and nothing more?

How much of a free hand will any new senior international professionals have to restructure the businesses?  A restructuring that is drastically required.

Can they go through the supply chain like the proverbial dose of salts, reducing or increasing access to the supply chain, whilst undoubtedly annoying a few vested interests in doing so?  Is the supply chain “tiered”, similar to BP for example?  How broad should Tier 1, 2 or 3 be?  Is there a requirement of oversight for any subcontractors/suppliers to those appointed Tier 1, 2 or 3 suppliers regarding quality assurance?

Are they equally at liberty to go through the existing employees with the same proverbial dose of salts, considering many have been placed there through nepotism, rather than on merit?

Whilst corruption and transparency will undoubtedly be atop of the agenda for any new international management, is there scope for corporate expansion during their tenure?  Is there a need for reduction to core competencies?  Perhaps there is a desire to become more of a global player, and more actively tender/bid for international opportunities in due course?  Does the desire exist to act as a (minority or majority) partner in any global opportunities?

It would be foolish to waste the global relationships that senior international industry professionals bring with them, as there is much to be said for personal relationships and the opportunities they can (and generally do) bring.  Would the shareholders want to make that leap as and when such opportunities present themselves?

Whilst it may appear from Mr Yatseniuk’s words above, that Ukraine would be interviewing any serious professional international candidate, it would be rather naive to think of it that way.  The truth be told, it is very much vice versa – Ukraine will be interviewed by the candidates in line with their (primarily managerial) expectations, if they are to make the move from their current positions to those that are on offer.

To be very blunt, there will not be many serious international industry professionals interested in a managerial role confined to insuring that dividends are transparent and duly paid to shareholders.

If, however, the gauntlet is thrown down to turn these State entities into respected and competitive industry players, with a (more or less) free managerial hand to accomplish that, then top quality global candidates there most certainly will be – for the challenge presented would then certainly appeal to many.

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Committees and quorums – Kolomoisky

March 17, 2015

Over the past month, several entries relating to the rise and fall of some or all of the oligarchy have appeared here.  There are those clearly in the ascendancy such as Igor Kolomoisky, and those that are not – pretty much all the others.

Whether the government and presidential administration are reasonably content to allow Mr Kolomoisky to suppress the influence of the others, leaving them the eventual task of having to deal only with Mr Kolomoisky at an opportune moment – or whether he is becoming far too influential to do so, and it is already a matter of managing one oligarch, rather than several, following his peer containment, is a matter of conjecture.

Is far more, or far less, political energy spent containing Mr Kolomoisky after he triumphs in the oligarchical wars, compared to having no oligarch come out on top and having to try and contain all of them?

Whatever the case, it appears Mr Kolomoisky intends to remain atop the oligarchical heap as this extract from a link above outlines:

“Indeed, Mr Kolomoisky and Mr Pinchuk are currently in on-going litigation against each other in the High Courts of London relating to one such historical deal.

Mr Kolomoisky is clearly currently in confident mood, taking all by surprise and giving testimony to the relevant parliamentary committee last week – and whilst doing so insured he mentioned a $5 million per month extortion racket he claims he was coerced into paying to Mr Pinchuk, for delivery to his father-in-law, then President Kuchma. The “Special Control Commission on Privatisation” parliamentary committee was in a closed session – at least prior to Mr Kolomoisky’s arrival.

That Mr Kolomoisky testified before the parliamentary committee at all, without request or summons, whilst (unofficially) one of the most powerful people in Ukraine today, should perhaps be pondered. The committee whilst chaired by his friend Boris Filatov, is not exactly filled with Kolomoisky fans.

So the questions are why did he do it, and to what end?

One of the first outcomes has been “invitations” being sent to Messrs Akhmetov, Pinchuk and Firtash (the latter by video-link being stuck in Austria) to give testimony over historically dubious privatisations by the parliamentary committee. Whether they will take up the invitations remains to be seen – though they would perhaps not wish to waste the opportunity.”

Following that testimony last week, it is now apparent that the “Special Control Commission on Privatisation” has now appealed to the Prosecutor General to investigate the $5 million per month Mr Kolomoisky claims was coerced from him by Mr Pinchuk and then President Kuchma (to the tune of $110 million in total).

filatov1_16

Despite this committee being chaired by his friend Boris Filatov, to claim undue bias of this parliamentary commission is however, perhaps unfair.  It is not overflowing with those who are particularly enamoured with Mr Kolomoisky.  It is though, perhaps, duty bound to raise such allegations with the PGO, it then being a matter for the Prosecutor General to decide if to conduct an investigation – or not.

Whatever the case, Mr Kolimoisky seems intent upon righting historical wrongs he believes done to him whilst he currently sits atop the oligarchy tree.

Yesterday also saw the resignation of Andrei Ivanchuk as Chair of the Rada Economics Committee.  This resignation continuing the inability (despite forthright instruction by Rada Speaker Groisman) for the committee to form a quorum, allowing it to pass changes to the Law on Joint Stock Companies – long awaited by the Rada to vote upon.

This law has expensive implications for Mr Kolomoisky (and others of course).  Thus those MPs loyal to him insure no committee quorum appears when these amendments are on the agenda.  Should the amendments finally pass the committee stage, and then make it through a Rada vote, then Ukranafta, of which Mr Kolomoisky is a major shareholder together with the State, would have to pay an extra UAH 2 billion (approximately) in additional dividends to the State budget.

Naturally these amendments would not only effect Mr Kolomoisky or Ukranefta – however both have become inextricably associated as target number 1 of the changes.  As any such eventual changes will not be retrospective, every day that Mr Kolomoisky can foil attempts to amend the current legislation is financially beneficial for him – though it is doubtful whether this is about the money.

Having associated Mr Kolomoisky and Ukranefta as target number 1 – this is clearly a display of power by Mr Kolomoisky.  Albeit he will not be able to delay the amendments forever, he has more than managed to do so thus far.  He is clearly sending a message when one Rada committee is duty bound to further his cause following his surprise evidence before it, but yet another Rada committee cannot even manage to form a quorum when likely outcomes undermine his interests.

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Third Energy Package & Ukraine

March 6, 2015

There are simply far too many historical entries on the blog identifying Ukrainian energy as a major font of corruption from which so many drink – directly and indirectly.  In every such entry over the many years the subject has been raised, albeit ad hoc, each one has called for the butchery of Naftagaz, the epicenter of energy corruption in the nation.

This testimony by Igor Kolomoisky yesterday, himself a beneficiary of nefarious energy deals, mergers, acquisitions – and ultimately corruption – is but the tip of the iceberg.  Indeed the testimony reveals nothing that wasn’t already previously known to those that follow the shenanigans surrounding energy in Ukraine.  It does however, at the very least, partially display the systematic, systemic, long standing, and occasionally complex/occasionally blatant dirty deals and bribery made behind the curtain.

It comes on the same day that the EU again called on Ukraine to make headway toward meeting the legal requirements of the Third Energy Package (legislation that is entirely abhorrent to The Kremlin).  Compliance with this legislation would at the very least require a “restructuring” of Naftogaz, which if not quite the much needed butchery, would certainly go beyond cosmetic surgery.

Ukraine is already a member of the Energy Community Treaty, which theoretically if actually implemented in full and enforced, when multiplied by the requirements of the Third Energy Package, would also put Ukraine in compliance with Chapter 15 of the acquis communautaire regarding “Energy”.

Chapter 15 of the Acquis underlines the EU energy policy objectives including the improvement of competitiveness, security of energy supplies and the protection of the environment. It also consists of rules and policies, notably regarding competition and state aids (including in the coal sector), the internal energy market (opening up of the electricity and gas markets, promotion of renewable energy sources), energy efficiency, nuclear energy and nuclear safety and radiation protection.

There is then the AA/DCFTA between the EU and Ukraine which refers to the above linked ECT, and created a four pillared approach relating to pricing (and dual pricing), transport and transit (per Art 7 of the ECT and Art V of GATT), independent regulators and non-discriminatory exploratory /production rules.

If Ukraine is genuinely to attempt EU membership over the distant horizon, compliance with as many acquis chapters as possible (and near compliance with others) would be wise – albeit a leap above what is required in the DCFTA, even prior to any application.  However, in the case of energy, regardless of any EU aspirations, in order to confront a major source of corruption, meeting DCFTA, Energy Charter, GATT and Third Package commitments is a worthwhile goal in and of itself.

The EU is right to press Ukraine over energy as a top priority.

However, as the (self-serving) testimony of Igor Kolomoisky indicates, it is going to be exceptionally difficult to accept the European energy legislative future, without dealing with the ghosts of Ukrainian Naftogaz energy past.

There are historical issues of illegal/very dodgy privatisations, sales, part privatisations, re-privatisations, outstanding assets and liabilities to numerous actors, the unpicking of some very intricate schemes, and the confronting of some very blatant corruption to deal with.

But where to draw the historical line over issues that have not become statute barred by time, and yet have genuine grievances either by State/Naftogaz against (nefarious) contractor/partner, or (nefarious) contractor/partner against Naftogas/the State?

It is a situation made no simpler when issues like the Naftogaz accounts show that Ukrnafta, in which Mr Kolomoisky holds a large share, is listed as “Unknown manufacturer” with $ billions listed, rather than under its corporate name.

How many other “unknown manufacturers” appear on Naftogaz accounts?  And who owns them (in full or in part)?  Do they owe, or are they owed?  How did the become contractors/partners?  Through fair means (unlikely), or foul (almost certainly)?

It all becomes a little bit Donald Rumsfeld-esque – “There are known knowns (Naftogaz). These are things we know that we know. There are known unknowns (Mr Kilomoisky/Ukrnafta). That is to say, there are things that we know we don’t know. But there are also unknown unknowns (the other “unknown manufacturers” who are systematically paid because they always have been paid, but are otherwise entirely unknown as to ownership or added value). There are things we don’t know we don’t know.”can

Few contracted parties will acquiesce when $ billions are in dispute, and will thus “lobby” (corral the MPs who “owe” them) in parliament, and litigate in court, to stall new any legislation whilst their vested interests remain unsatisfactorily resolved – even if they reluctantly accept that the “European legislative way” cannot be delayed forever.

In short, unless the nefarious history of Naftogaz is confronted and outstanding grievances/”issues” dealt with, it is going to be very tough going to get European harmonising legislation passed.  How this can of worms will be dealt with remains to be seen.

If and when these historical matters are addressed, then begrudgingly, resistance to legislation relating to the Third Energy Package, whilst simultaneously getting to grips with a source of billion $ corruption in Ukraine, may stand a far better chance of becoming law.  Perhaps no small amount of domestic political, and external diplomatic energy, will be well spent finding some creative solutions given the high importance of reforming all things “energy” in Ukraine.

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