Monthly Archives: January 2006

AUR#651Europe & Gas Crisis: Who Is To Blame? What Is To Be Done?; PM And The RosUkrEnergo Enigma; Gazprom’s ‘Gift’ to RosUkrEnergo

An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World

Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, TUESDAY, JANUARY 31, 2006
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
ANALYSIS & COMMENTARY: By James Sherr, Fellow
Conflict Studies Research Centre, Defence Academy of the UK
Published in Ukrainian and Russian by Zerkalo Nedeli, Mirror Weekly
International Political Social Weekly, No. 3 (582)
Kyiv, Ukraine, Saturday, 28 January-3 February
The Action Ukraine Report (AUR), # 651, Article One
Published in English, Washington, D.C. Tuesday, January 31, 2006

                         DEMOCRACY INTERSECT PAINFULLY
THE ISCIP ANALYST, Formerly The NIS Observed,
An Analytical Review, Volume XII, Number 1
Institute for the Study of Conflict, Ideology & Policy
Boston University, Boston, MA, Friday, January 27, 2006

3.             GAS INTERMEDIARY: RosUkrEnergo (RUE) – Q&A
By Roman Kupchinsky, Investigative Journalist and Analyst
Prague, Czech Republic, Thursday, January 26, 2006

                        “The key gas person in Ukraine is the president.”
The magnificent eight: Yuriy Komarov, Andrey Akimov, Alexander Medvedev,
& Alexander Riazanov; & the following members nominated by Centragas AG:
   Yuriy Boiko, Ihor Voronin, Wolfgang Putcheck, & Robert Shelter-Jones
         Represent the ultimate owners of RusUkrEnergo, the beneficiaries
: By Yulia Mostovaya
Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, No 3 (582)
International Social Political Weekly
Kyiv, Ukraine, Saturday, Sat 28 Jan – 3 Feb 2006

Ukrinform, Kyiv, Ukraine, Monday, January 30, 2006

By Geoffrey T. Smith, Dow Jones Newswires
Moscow, Russia, Monday, January 30, 2006


                                  OF FORMER SOVIET BLOC
By Marc Champion in Davos, Switzerland & Guy Chazan in Moscow
Staff Reporters of The Wall Street Journal
The Wall Street Journal, New York, NY, Monday, January 30, 2006


UT1State TV, Kiev, in Ukrainian 1850 gmt 28 Jan 06
         The Russian-Ukrainian gas conflict and its broader implications
           The lost benefit of Gazprom being simultaneously profit of
         RosUkrEnergo will amount to $4 billion a year or $20 billion in
              five years in the framework of the new trading scheme.         
By Stanislav Belkovsky and Vladimir Golyshev
Zavtra, No. 4. Moscow, Russia, Wed, January 25, 2006

Associated Press, Kiev, Ukraine, Monday, January 30, 2006

       Huge coal reserves could help build energy independence for Ukraine
New Trade Union World Briefing – Ukraine
International Confederation Of Free Trade Unions
ICFTU OnLine, Brussels, Belgium, Tuesday, 31 January 2006

By Christopher Condon in Budapest
Financial Times, London, UK, Saturday, January 28 2006

13.                      MINSK DISPATCH: DADDY’S SOURCE
        Politicians & journalists have been imprisoned, killed, or disappeared
      The Ukrainian gas crisis threw light upon Russia’s fuelling of Alexander
            Lukashenko’s despotic Belarussian regime, writes Tom Parfitt
Tom Parfitt, The Guardian, London, UK, Monday January 30, 2006

                          REPORTEDLY FOUND IN UKRAINE
             Painting to be displayed Wednesday, Feb 1 in Chernovtsy
RIA Novosti, Moscow, Russia, Monday, January 30, 2006

Ukrinform, Kyiv, Ukraine, Monday, January 30, 2006

By Jonathan Gorvett in Pripyat, Ukraine, Doha, Qutar, Thursday 26 January 2006

ANALYSIS & COMMENTARY: By James Sherr, Fellow
Conflict Studies Research Centre, Defence Academy of the UK
Published in Ukrainian and Russian by Zerkalo Nedeli, Mirror Weekly
International Political Social Weekly, No. 3 (582)
Kyiv, Ukraine, Saturday, 28 January-3 February
The Action Ukraine Report (AUR), # 651, Article One
Published in English, Washington, D.C. Tuesday, January 31, 2006
What conclusions are the members of the European Union drawing from
the gas crisis? On 3 January, the French newspaper “Le Monde” summed
them up in this way:  ‘A new geopolitics is revealing itself’.  ‘New’ they
might be to Western Europe.  But there is nothing new about these
geopolitics in Ukraine.

On becoming Acting President of the Russian Federation in December
1999, Vladimir Putin cut the supply of oil to Ukraine for the fifth time
since 1991.  Very soon it became clear that the dispute would not play itself

out according to the shambolic, but forgiving rules of the Yeltsin ‘system’.

The taps stayed off until April 2000, when President Kuchma took the first
steps to meet Putin’s political demands. The dynamic of concession led, by
turns, to the dismissal of Ukraine’s then (and once again current) foreign
minister, Boris Tarasyuk in September 2000.

By winter-spring 2001, energy interests, Ukrainian and Russian, played an
influential role in securing the dismissal of the first deputy prime
minister, Yulia Tymoshenko, and finally the then Prime Minister (and now
President) Viktor Yushchenko.  Many Western Europeans never under-

stood that. Many Ukrainians have never forgotten it.

The first paragraph of the official (2003) “Energy Strategy of the Russian
Federation to 2020″ is a model of understated honesty.  It defines the
country’s fuel and energy complex as an ‘instrument for the conduct of
internal and external policy’ and helpfully adds that ‘the role of the
country in world energy markets to a large extent determines its
geopolitical influence’.[1]

What is this influence to be used for?  In his “Wall Street Journal” article
of 11 January, Sergei Ivanov, Deputy Prime Minister and Minister of
Defence, stated that ‘our top concern is the internal situation in some
members of the Commonwealth of Independent States’.

Should that concern trouble the EU, or is it time to accept, à la Ivanov,
that no one should attempt to ‘change the geopolitical reality in a region
of Russia’s strategic interest’?

Once again that question hangs in the balance.  Russia’s gas diplomacy with
Ukraine has been a shock to the European system, a reminder of its ability
to adopt a merciless approach to its ‘legitimate interests’ and a stinging
refutation of the EU mantra that ‘Russia is a major and reliable supplier of
energy’.  Yet after its recent enlargement, the reality for the EU is

Today almost 60 per cent of natural gas in the EU-25 is imported:  50 per
cent of that from Russia and over 80 per cent of that via Ukraine.  By 2030,
the proportion of imports is expected to reach 70 per cent.  So the new EU
mantra has become ‘energy strategy’, and all agree that its premise must be
to reduce this dependence.

In principle, this need establishes a common interest between the EU and
Ukraine-and, for the latter, an enormous opportunity.  But there is a world
of difference between ? common interest and a common front.  Russia has
convinced many that it knows what it wants and knows how to get it.  But

Does Ukraine have the ability to define its interests, pursue them and do
what it says it will do?  Is it capable of acting as the EU’s partner and,
what is more, a future EU member?  Or will the incompetence of its leaders,
the incoherence of its policy and the recklessness of its opponents throw
the opportunity away?

                               PERSPECTIVES OF RUSSIA
Today, few inside Europe’s political establishment like Russia, and it is
fair to say that few inside Russia’s political establishment care.  Does it
matter?  In the words of Gazprom’s senior executive for the UK, Yuriy
Komorov, ‘It does not matter if you like Russians.  Whether it is gas, oil,
mining, wood, it is all here’.  For seasoned pragmatists inside the EU, it
does not matter either.

But what does matter is the rules of the game.  The rules were the first
casualty of the crisis. They existed for a long time, and they have bred
much complacency. ‘Even during the Cold War, the Soviet Union never
used energy as a weapon!’

But during the Cold War, the Soviet Union used weapons as weapons and

by these means controlled what it needed to control.  Unsettling Europe’s
faith in the rules, and in its own reliability, was Russia’s greatest blunder in
the crisis.

But beyond acknowledging this, Europe’s establishment is divided, as it is
in almost all things.  Some of the most experienced people in official
corridors counsel against demonising Russia, and there is reason in what
they say.  Ukraine has for too long had its independence cushioned by
Soviet-era subsidies, and it is not tenable or just that the practice should

For their part, Ukrainians have been evasive negotiators and, until the
ultimata started, Kyiv ignored every proposal that Gazprom had made since
June.  Whatever the Kremlin’s geopolitical motives, it has economic
justifications for acting as it has, and its economic arguments need to be
answered with economic arguments.  That case has been accepted by nearly
every serious analyst and policy maker.

Yet not for the first time, Russia’s methods have overshadowed the other
issues and, in so doing, they have become the issue itself.

[1] For Ukraine, the ‘market’ is that of a monopolist who knows that gas is
a primary commodity and that there is no available substitute.  The
quadrupling of the price in these circumstances (and at the start of winter)
is a destabilising, dangerous step and can only be seen as a hostile act.

[2] Ukraine’s $50 price was not a Soviet era price, but the level
established in the 9 August 2004 supplement to the 2003 contract which,
to be sure, was constructed on the basis of political interests rather than
market principles. In the real world, changed interests regularly lead to
the renegotiation of contracts and, with extreme provocation, their
denunciation.  But even denunciation follows norms which Russia did

not observe.

If this were purely a Russian-Ukrainian affair, the EU would find a way of
compartmentalising it.  But it is not.  It occurs in a definite context, and
that context is full of geopolitical symbolism and substance.

The context, in the words of Vlad Sobell, the Czech born former senior
economist of RFE/RL, is ‘Russia’s re-emerging position as a superpower,
driven chiefly by its actual, or potential, domination of the global
supplies of energy’.  He goes on to say that:

       At this point, Russia’s stance is purely defensive, with Moscow
       being primarily concerned with the maintenance of federal integrity
       and stability in its CIS backyard. However, this could change if the
       West continues to poison relations by lecturing the Kremlin on how
       to manage Russia’s internal affairs and by the promotion of so called
       ‘colour revolutions’.

Is the conclusion, then, that Russia’s defence requires the ‘stability’
(i.e. subservience) of neighbours, and that if Europe refuses to accept
this, Russia might cease to use its energy ‘domination’ defensively?  What
might this mean?

Even those who find this question premature  now discern a strategy, or at
least a method, behind the  latest sequence of steps.

[1] THE FIRST STEP was the agreement to construct the so-called Baltic
gas pipeline: a step that was portrayed in geopolitical terms, predictably,
by Poland, but (publicly at least) by virtually no other EU government at

the time, despite the fact that the pipeline will be 30 per cent costlier than
an overland version.

Yet privately, there was much irritation inside the EU at a bilateral
agreement that appeared to contradict the Union’s ethos of coordination,
the promotion of ‘consistent approaches to market regulation’-and which
appeared to take the Directorate-General Energy and Transport and the
European Regulators Group for Electricity and Gas by surprise.

[2] THE SECOND STEP was the designation of the just retired German
Chancellor, Gerhard Schroeder, to the project, whose German boss,
Matthias Warnig is, according to the “Economist,” a former ‘Stasi’ officer.
That step caused subdued anxiety in the Germany policy-making
establishment itself.  Is the EU dealing with a supplier or a power?

The Russia-Ukraine gas crisis has put these issues in the public domain and
given them far more resonance in policy-making circles than they had only
weeks before.

As a result, some are abandoning one simplistic paradigm (‘Russian
partnership’) for another (‘a new Cold War’), and some extravagant
thoughts are being aired even in respectable places (e.g., the Frankfurter
“Allgemeine Zeitung,” 3 January: ‘Today Yushchenko’s pro-Western
direction doesn’t suit the Kremlin, and tomorrow it may be an EU
resolution on Chechnya’).

But more sobering thoughts are not far behind.  If the ‘gas weapon’ can be
used against Ukraine, can it not also be used against an EU member, such as
Poland?  When the Baltic pipeline project was launched, this was a question
for discussion.  Today many believe it is a question that calls for action.

Already, member states are articulating a remarkably similar vision of how
they must act:  by diversifying energy sources (liquefied natural gas,
nuclear power, renewables), by building new infrastructure, by diversifying
supply (new pipelines), by conservation and by greater transparency (because
even in the EU, too much information with security implications is regarded
as commercially privileged).

But how should the EU act with regard to Russia?  The realistic consensus
would be:  no retreat from established principles (about values and about
our deepening relationships with newly independent states), no lessening of
cooperation where cooperation makes sense-and, where cooperation does not
make sense, plain speaking with  doors closed and microphones off.

Today that consensus is close to becoming a reality. But where would it
leave Ukraine?  As ever, much of the answer will depend upon Ukraine.


                             PERSPECTIVES OF UKRAINE
Across Europe and Eurasia, millions believe that the more threatening Russia
appears to be, the better Ukraine’s European integration prospects become.
But today there can be no certainty of this. Uncertainty is called for
because for every European decision maker who believes that Russia’s
pugnacity should not be appeased, there is another who believes we should
do nothing to increase it.

The same holds true for EU enlargement.  Were it not for enlargement, the EU
would be less dependent and less vulnerable than it is. ‘Now that we have
cooked this dish, we have to eat it’. To compound these vulnerabilities, to
invite Ukraine into the accession process whilst this plate is still full
would, so the argument goes, be the height of irresponsibility.

Yet the greatest uncertainty for the EU is now Ukraine itself.  Its once
united ‘orange’ forces accuse one another of treachery, its structures of
power are paralysed, and every opinion poll reveals despair, derision and
disgust.   Putin has blundered in Europe, but so far at least, in Ukraine he
has got exactly what he wanted.

What can reasonably be done to ensure that his victory is short lived?
First, political forces need to understand EU perceptions of the agreement
of 4 January, because it affects EU interests and because it is on the basis
of this agreement that future EU-Ukraine energy cooperation will have to

At first, European capitals (and Washington) regarded the agreement as a
lesser evil.  Many continue to do so.  That is because, over the short term,
Russia is fated to remain a monopolist and Ukraine a hostage.

Turkmenistan, which is hostage to the same pipeline network as Ukraine,
might as well  be ‘on another planet’ (as Alla Yeremenko noted in these
pages on 14-20 January).  Within the lifetime of the agreement, there will
be no significant alternative supplies available.  Whilst gas reserves and
Kryvorizhstal money might have enabled Ukraine to ‘hang tough’ for a year,
they are the only silver bullets in Ukraine’s arsenal, and they can be used
only once.

In practice, Ukraine would have been obliged to siphon gas for weeks or
months-or at least until such time as the EU and United States threatened
dire consequences.

So, in the days after 4 January it seemed that Yushchenko and his
negotiators were to be congratulated for avoiding the worst.  They had
saved the pipeline network, secured the EU’s respect, maintained the
support of the United States and strengthened the probability of an
invitation to NATO’s Membership Action Plan in December.

But second impressions are different, and they focus two points.

[1] The lesser point is the extreme instability of the terms regarding

[2] The greater point is the primacy of RosUkrEnergo.  Behind Gazprom
stands the Russian Federation and a line of accountability to the Russian
state. Although Gazprom appears to own half of RosUkrEnergo, behind
the rest stand figures who, as President Yushchenko admits, are largely

It would therefore appear that Ukraine has ceded control over its imports,
over part of its internal energy distribution (by means of a joint venture)
and a portion of Russian supplies to Europe to an opaque structure
accountable only to itself.  The more that Western capitals digest the
implications of this, the more uneasy they are bound to become.

                   CHTO DELAT’? [WHAT IS TO BE DONE?]

       [1] In the short term, the EU, the United States and Kyiv must
re-establish rules of the game between themselves, starting with full
disclosure about what agreements contain and who is party to them;

       [2] In the short term, they must also work out a common negotiating
strategy to ensure that future price rises are incremental and absorbable.
Gazprom should be left in no doubt that it will be deemed responsible for
significant price rises.  The Kremlin should be left in no doubt that a
renewal of the crisis will affect fundamental European interests;

       [3] In the short-to-mid term, the EU and United States must make

a renewed effort to find supplies for the (northern flow) of the Odessa-
Brody pipeline, the operating terms of which come up for renewal in less
than two years time.

       [4] In the short-to-mid term, the  EU and Ukraine should establish

a working mechanism, analogous to NATO’s Joint Working Group on
Defence Reform, designed to stimulate and support the development of
a national energy strategy for Ukraine based on the principles of diversity,
transparency, conservation, modernisation of infrastructure and the
expansion of accountability and competence.  NATO should explore the
establishment of a similar mechanism, focusing on energy security.

For these initiatives to secure support, Ukraine’s authorities must:

       [1] Introduce transparency in Ukraine’s energy policy and

energy sector.  For a start, they should relaunch the curtailed SBU
investigation into RosUkrEnergo and remove any barriers to SBU
collaboration with Western bodies investigating extortion and fraud.

       [2] Behave as an EU partner would be expected to behave

over issues of joint regional concern (Moldova and Belarus)
and, by doing so, demonstrate that Ukraine takes its membership
aspirations seriously.

To those who believe that the EU and Ukraine are doomed to disappoint
one another, this may be asking too much.  To those who believe in
Ukraine’s place in Europe, it is the least one can ask.  -30-
NOTE: The views expressed in this article are those of the author
and not necessarily those of the UK Ministry of Defence.  The AUR
appreciates the author James Sheer sending us the English version
of his latest analysis and commentary article.
Contact James Sherr,
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

THE ISCIP ANALYST, Formerly The NIS Observed,
An Analytical Review, Volume XII, Number 1
Institute for the Study of Conflict, Ideology & Policy
Boston University, Boston, MA, Friday, January 27, 2006

In January, Ukraine’s parliamentary election season began in an
atmosphere largely foreign to Ukraine and other former Soviet republics
– one of free speech, vigorous public debate and a generally free
national press.  The democratic atmosphere, which Ukraine’s leaders
have proudly supported, has been a challenge for them.

Questions about the country’s latest gas deal with Russia, combined
with the introduction of perplexing constitutional reforms, have led to
the virtual paralysis of the presidential administration and the
parliament’s dismissal of the cabinet.

The latter is being contested by the president as unconstitutional,
but, regardless, it has effectively halted much of the government’s
work.   Two months before the 26 March election, the potential
orientation of the country’s next parliament is unclear, political
brinksmanship already is underway over who will assume the premier’s
chair following the poll, and the country faces questions that are
likely to impact its development for years to come.

The current crisis was created in the days following the announcement
of a new gas agreement between Russia and Ukraine.  On 4 January, when
the agreement was signed, Ukraine declared it a success.  “The people
of Ukraine and Russia won,” said Prime Minister Yekhanurov. (1)
Later, President Yushchenko went further.  He proclaimed the deal “a
brilliant achievement” and suggested that “the political fight has been
won.” (2)

At the press conference announcing the deal, the head of Ukraine’s
Naftohaz gas concern, Oleksiy Ivchenko, provided limited information.
“We shall be buying gas of different origins, both Russian and Central
Asian, from the RosUkrEnergo company,” he said.  “The price of gas
will be 95 US dollars per 1,000 cubic meters at the Russian-Ukrainian
border.” (3) Yushchenko later confirmed Ivchenko’s statements.
“Ukraine has gotten a price of 95 dollars.  Look at the map of Europe.
Who has this price?  . We have secured a stable gas balance for five
years.” (4)

But, even at the press conference it was clear that the agreement was
far more complex than stated by Ivchenko – the only official Ukrainian
representative at the negotiation.  Russia’s Gazprom head Aleksey
Miller touted the fact that “a long term contract for supplying Russian
gas has been agreed,” and announced, “The initial price is 230 dollars
for 1,000 cubic meters.”  This price for Russian gas, he later
explained, would be paid to Gazprom by the intermediary RosUkrEnergo,
which would then mix this gas with much cheaper Central Asian gas and
sell the mixture to Ukraine for an average price of 95 dollars.  (5)

Thus, instead of paying between $50 and $65 per cubic meter for Russian
gas, and between $44 and $50 per cubic meter for Turkmen gas, as it did
in 2005, Ukraine would pay $95 for a mixture of these, plus possibly
some additional supplies from Uzbekistan and Kazakhstan.

Soon it became clear, however, that the actual document differed in
some ways from the information provided at the celebratory press
conference.  Most importantly, it provided only limited guarantees for

On 5 January, former Prime Minister and Orange Revolution leader Yulia
Tymoshenko released a copy of the gas agreement at a press conference,
and made it, as well as several other related documents, available on
her political party’s website.   The press conference and contents of
the agreement were discussed extensively on all major Ukrainian media,
and Tymoshenko announced plans to contest the document in court, while
calling for the dismissal of those who stood behind it.

Of particular interest was the lack of any set price – or even
guaranteed gas volumes — for Central Asian gas.  “The sides shall sign
appropriate agreements and contracts,” the document reads, “with the
aim of forming, starting from 1 January 2006, an annual gas balance of
the RosUkrEnergo company in the following volumes .”  No actual
guarantee is given for any volumes listed.

The document sets a price, of sorts, for the Russian gas that will be
sold by Gazprom to  RosUkrEnergo for use in Ukraine.  It states, “Up to
17 Billion cubic meters of Russian gas to be bought from . Gazprom at a
price to be set by a formula, proceeding from the basic gas price (PO =
230 dollars per 1,000 cubic meters).”

Later in the document, RosUkrEnergo pledges to sell to Ukraine “in

2006 – 34 billion cubic meters of gas to be sold at the price of 95 US
dollars per 1,000 cubic meters which is in force in the first six
months of 2006.”  No mention is made of the second half of 2006.
Additionally, while the document notes that RosUkrEnergo will sell gas
to Ukraine at an unspecified price in 2007, the agreement makes no
mention of the years 2008-2010, calling into question statements that
it is a “five-year” agreement. (6)

At her press conference, Tymoshenko objected not only to the lack of
guarantees of price and gas quantity to Ukraine, but also to the
involvement of the gas intermediary company, RosUkrEnergo.  During
her tenure as premier, the company was investigated by Ukraine’s Secret
Service for money laundering and ties to organized crime. Following her
dismissal, the investigation apparently was shelved, although it is
unclear if this was done for lack of evidence or for political

Tymoshenko noted that Gazprom owns 50% of RosUkrEnergo,
while the other 50% is owned by a subsidiary of Austria’s Raiffeisen
Investment.  Raiffeisen claims to merely manage the activities of the
company on behalf of individuals who do not want their identities

Tymoshenko has charged that these individuals are politically
well-connected Ukrainians enriching themselves through RosUkrEnergo’s
deals.  “It is a front company, an artificially created company, so
that gas coming to Ukraine comes through a filter that will catch a
significant amount of money,” she told the New York Times. (7)

Speaking on “Freedom of Speech,” a live Ukrainian debate program, she
further pointed out that the 4 January document commits Ukraine’s
Naftohaz to create a corporation with RosUkrEnergo for distribution of
gas internally to Ukrainian customers.  This, she charged, placed the
management of, and profits from, Ukraine’s gas transport and storage
facilities in doubt.

During the program, representatives of Yushchenko and Yekhanurov’s
political party, Our Ukraine, vigorously denied that the joint venture would
lead to loss of control over any of Ukraine transport or storage facilities.
(8) However, point 3 of the agreement does, in fact, announce the creation

of a joint venture, “whose authorized capital shall be formed by contributing
cash and bringing in other assets.”

Charles Tannock, a British Conservative member of the European
Parliament, echoed the concerns about RosUkrEnergo, during a
discussion of the gas deal by the European Commission’s delegation for

He noted the “very opaque” nature of RosUkrEnergo, suggesting its
ownership structure leaves it open to “allegations by minority
shareholders in Gazprom and the Western political classes that there is
a possibility of political corruption here as a result of this secret
deal.”  (9)

President Yushchenko has denied vigorously the charges about
RosUkrEnergo, suggesting that he is prepared to investigate any
corruption allegations.  But he says that he has seen no evidence of

However, during an interview with Great Britain’s Channel 4 news, the
president was, according to reporter Jonathan Miller, “at a loss for
words” when asked who profits from RosUkrEnergo’s business.  After
a long pause, Yushchenko answered, “I don’t know.  They may be
Ukrainians, but I really don’t know who these people are.” (10)  In
spite of this, according to Prime Minister Yekhanurov, Ukraine was
forced to make the deal with RosUkrEnergo.

“It is not that we were not aware of what RosUkrEnergo is and so on,”
he said during a television interview.  “We have no alternative. The
Russian side offered a company. We have no proof [of RosUkrEnergo’s
alleged shady deals]. Neither our security agencies nor our commercial
partners have any official proof of lack of transparency in the
operation of that company.”

Moreover, “The thing is that whole of the pipeline extending from the
Turkmen-Uzbek border to the Russian-Ukrainian border at Novopskov
is filled [with gas] by Gazprom’s contractor RosUkrEnergo, and we were
offered a choice: either this [work with RosUkrEnergo] or ship gas by
train. So, we had no choice.” (11)

And what of the price for gas?  It appears that under the new
agreement, Ukraine will have limited choice in this area also.  When
asked about the price Ukraine will pay for gas in the future, Ukrainian
Economic Minister Arseniy Yatsenyuk said, “This is an extremely
difficult question.  The 95 dollar price depends on how the venture is
to be created and what contracts it will sign thereafter.”  (12)

Further, Ukrainian Defense Minister Anatoliy Hrytsenko said last week
that “most members of the government do not know what was actually
signed in Moscow on 4 January.”  He suggested, “Information published
in the press leaves a lot of unanswered questions.  To what level will
the private middleman raise the price in the second half of the year –
to 130, 230, 330, 530 dollars?  . Who now will guarantee Ukraine a
balance of gas for the whole year?  Today I don’t know the answer to
these and many other questions.”  (13)

As a result of the level of criticism of the deal, and questions about
Ivchenko’s right to sign the document on Ukraine’s behalf, officials
have now publicly downgraded the document from a “long-term contract”
to a “protocol of intent.”

It appears that Ukrainian negotiators may have hoped to conclude
supplementary intergovernmental agreements before specific information
about the 4 January document was released.  Given the ease with which
documents were kept out of the public eye throughout President Leonid
Kuchma’s administration, this hope was not unfounded.

However, despite questions about the current government’s commitment
to rooting out corruption entirely, Ukraine is no longer Kuchma-land.
The press is no longer muzzled.  The political opposition is no longer
oppressed. Yulia Tymoshenko is no longer denied access to the airwaves.

It very well may be that the government’s continuing negotiations with
Russia will close the holes noted above.  However, Tymoshenko is
calling on Ukraine to reject all the terms in this deal, suggesting
that the country should depend on an already existing agreement signed
in 2004.   What Russia’s response to this suggestion would be, during
one of the coldest winters in Ukraine in over 20 years, is unknown.

But, no matter what the result of any new negotiations, the initial
misdirection surrounding the “deal” provided effective fodder to the
government’s opponents, who, just two months before the parliamentary
election, set their sights on the cabinet.

On 10 January, after days of building questions, and increasing attacks
from political parties vying for places in the election, parliament
voted to dismiss the government of Prime Minister Yuriy Yekhanurov.

Support for the dismissal came from a disparate a group of parties.
The Yulia Tymoshenko Bloc joined with Parliamentary Speaker Volodymyr
Lytvyn’s People’s Party, the Communists, the former Kuchma-allied Ne
Tak Bloc and Viktor Yanukovich’s Party of Regions.  Although a number
of charges were leveled at the Prime Minister, the primary
justification given was that the gas agreement with Russia violated
Ukraine’s national interests.  The fact that the members of these
parties largely see themselves as having been wronged in some way by
the president and government probably also was not an insignificant

The vote came as something of a surprise even to many deputies, since
no confidence votes are generally announced at least four days in
advance, and constitutionally can only be held after a written request
for a vote by one-third of the members of parliament.  (14) Because
these provisions were not met, President Yushchenko immediately called
the vote “unconstitutional,” “incomprehensible and illegitimate,” and
refused to recognize it.  (15)

However, according to the official Decision of the Verkhovna Rada
(parliament), the vote to dismiss the government was based upon a
constitutional amendment that came into effect on 1 January, and that
appears to give the parliament an extraordinary ability to dismiss the
government with no cause.  Article 85 of the amended constitution says:
“Powers of the Verkhovna Rada shall include:

(12) Appointing to office – upon the submission by the President of
Ukraine – the Prime Minister of Ukraine, .; appointing to office – upon
the submission by the Prime Minister of Ukraine – other members of the
Cabinet of Ministers of Ukraine, .; dismissing from office the
officials mentioned above; deciding on the resignation of the Prime
Minister of Ukraine and of members of the Cabinet of Ministers of

The Constitution gives no criteria on which the parliament should base
a decision to “dismiss from office the officials mentioned above,” and
no corresponding legislation or procedures appear to supplement this
article.  Furthermore, the article does not clearly state that a
dismissal results in the resignation of the cabinet (as is specifically
stated in the article outlining the criteria for a no confidence vote).

The questions surrounding the implementation of this constitutional
article has led to paralysis in many areas of the government’s work.  A
curious additional vote by parliament to dismiss, once again, the
Justice and Fuel and Energy Ministers – but this time individually –
added further confusion, as did a vote demanding that the government
reconsider the gas protocol.   Finally, the fact that Ukraine’s
constitution does not allow a new government to be formed until after
the election underscores the uncertainty over this move in Ukraine.

Because of these constitutional questions, (Acting) Prime Minister
Yekhanurov recently announced that plans to sign supplemental
intergovernmental agreements with Russia are on hold, suggesting that
Ukraine was “unable to prepare the documents.” (16)  The Head of the
Presidential Secretariat, Oleh Rybachuk, explained, “Lawyers are
working to confirm the authority of each of the cabinet ministers in
order to remove any doubt about their right to sign [international
documents].”  (17) Ukrainian media have reported also that plans to
create the Naftohaz – RosUkrEnergo joint venture, for the moment, are

While the primary effect of the parliament’s vote has been to undermine
the government’s ability to work, the political effects are more
difficult to assess.  Most analysts suggest that voting on the same
side as the stigmatized Viktor Yanukovich will weaken support for the
Yulia Tymoshenko Bloc in the upcoming election.  There was, indeed, a
backlash against the move in certain areas of Ukraine.

A poll conducted from 12-17 January by the Razumkov agency found that
Yushchenko and Yekhanurov’s Our Ukraine had received a small bump in
its support following the gas confrontation with Russia, from around
13% to 15%, while Tymoshenko’s poll numbers have remained even at
around 12%.  It is difficult to know, however, if those numbers will
hold as questions about the gas agreement linger.

Additionally, talk of a public “coalition” between Tymoshenko and
Yanukovich seems far-fetched, and Tymoshenko has begun attempting
to dispel this idea by returning to her Bloc’s historical anti-corruption,
oligarch-bashing roots.

On 20 January, the Bloc released transcripts of a Secret Service
interrogation of  Mykhailo Chechetov, the head of the State Property
Fund under President Kuchma.  The transcripts, which later were
confirmed as authentic by Interior Minister Yuriy Lutsenko, are filled
with accusations of wrong-doing in the privatization sphere not only by
President Kuchma but also then-Prime Minister Viktor Yanukovich.

On the final day of the parliament’s session, the Tymoshenko Bloc was
joined by the Socialist Party and the Reforms and Order Party (both of
which opposed the dismissal of the government) in calling on the
president to take action regarding these accusations.  The vote failed,
after being opposed by both the current “opposition” and the majority
of Our Ukraine.

For his part, Yushchenko this week reiterated his call for a public
referendum – possibly as early as late April or May – on the changes to
the constitution that allowed the parliament to vote to dismiss the
government.  (18)

It appears that, as Ukraine heads into the height of its parliamentary
election campaign, the only aspects that are absolutely clear are that
democracy and free speech are painfully but vigorously growing,
political “coalitions” are fluid, personal grudges are rampant, and the
constitutional crisis likely will not end with the campaign. -30-
                                     SOURCE NOTES:
(1) “Russia and Ukraine reach complex deal,” International Herald
Tribune, 4 Jan 06.
(2)  NTN TV, 1700 GMT, 6 Jan 06; BBC Monitoring, via Lexis-Nexis.
(3) RTR Russia TV, 0800 GMT, 4 Jan 06; BBC Monitoring, via
(4) NTN, Op. Cit.
(5) RTR Russia TV, Op. Cit.
(6) “Soglashenie ob urehulyrovaniy otnoshenii v gazoboi sfere,” Bloc
of Yulia Tymoshenko Website, 5 January 2006, in Russian,
(, and “Agreement
on settling relations in the gas sphere,” UNIAN News Agency, 1551 GMT,
5 January 06, in English, (
(7) “Ex-Premier of Ukraine Attacks Gas Price Deal,” New York Times, 6
Jan 06.
(8) Svoboda Slova (Freedom of Speech), ICTV, 20 Jan 06; video via
(9) “EU: Questions Linger about Russian-Ukrainian Gas Deal,” RFE/RL,
12 January 06.
(10)  “Ukraine’s Gas Deal for Europe,” Channel 4 News, 19 Jan 06; via
(11)  TV 5 Kanal, 1800 GMT, 12 Jan 06; BBC Monitoring, via Lexis-Nexis.
(12)  One plus One TV, 1730 GMT, 22 Jan 06; BBC Monitoring, via
(13) “Interview with Ukrainian Defence Minister Anatoliy Hrytsenko,”
Fakty i Kommentarii, 19 Jan 06; BBC Monitoring, via The Action
Ukraine Report (AUR).
(14) Constitution of Ukraine, Article 87.
(15) Agence France Presse, 10:25 GMT, 12 Jan 06; via Lexis-Nexis, and
Agence France Presse, 5:10 PM GMT, 10 Jan 06; via Lexis-Nexis.
(16) UNIAN News Agency, 21 January 06; via ForUM, 23 Jan 06.
(17)  Interfax-Ukraine, 1227 GMT, 22 Jan 06; BBC Monitoring, via
(18) Website of President Viktor Yushchenko (,
23 Jan 06.
The author may be contacted at

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
3.       GAS INTERMEDIARY: RosUkrEnergo (RUE) – Q&A

By Roman Kupchinsky, Investigative Journalist and Analyst
Prague, Czech Republic, Thursday, January 26, 2006

Q. What physical property does the Swiss company RosUkrEnergo (RUE)
own? Does it own any gas fields in Russia or Central Asia, or any pipelines
in the former Soviet Union? What services does RUE provide?

A. RosUkrEnergo does not own any property except a few bank accounts,
pens, pencils, a few computers and some very expensive Mercedes sedans.

Most gas fields in Russia belong to Gazprom which owns the licenses to
extract gas from these fields. According to Russian law, only Gazprom is
allowed to sell Russian gas outside the borders of the former Soviet Union.

In Central Asian countries, gas fields are owned by those countries. None
of these fields are leased to RUE in either Russia or Central Asia.

The pipeline from Central Asia is called the “Center” pipeline. It
transverses Turkmenistan, Uzbekistan, Kazakhstan and Russia to the
Ukrainian border and is owned respectively by the countries it goes through.

RosUkrEnergo does not own any length of this pipeline or the compressor
stations which pump the gas through the “Center” pipeline. RUE merely
manages the transport of gas going through the pipeline until it reaches

The services which RosUkrEnergo performs is to sign transit documents
and customs declarations and send bank transfers to pay those countries the
customs fees and for the cost of the work they perform in pumping gas (the
transit fee). RUE does not have any technicians, any repair men or
technicians to operate the compressor stations. .

Q. How is RUE paid for signing these documents and paying bills?

A. The payment details for RUE were NOT included in the copy of the
4 January “agreement” which was released by Yulia Tymoshenko to the
press so all I can base my answer on is the old Eural Trans Gas agreement
I have a copy of and media reports.

I say “agreement” because it is not a contract and does not contain any
contractual obligations by either side. It is an expression of intent and
nothing more.

The original contracts between RUE and Gazprom and Naftohaz Ukraine,
signed in 2004, were never made public despite numerous vows on the part
of Putin, Kuchma, Yuriy Boyko, the head of Naftohaz Ukraine and Alexei
Miller, the head of Gazprom, that RUE was as pure and transparent as
mothers milk.

According to media reports, RUE is to be paid in the same manner as its
predecessor, Eural Trans Gas was paid – the Ukrainian side will give RUE
13 (or possibly 15) billion cubic meters of gas which RUE will then sell to
Europe using the services of Gazexport, the foreign sales subsidiary of
Gazprom. RUE will make a profit of close to $2 billion by reselling the gas.
This is a very hefty fee for signing documents.

Since RUE is registered in a Swiss Canton, it will only pay an agreed upon
amount of taxes to the Canton. The Russian treasury will not see a penny in
taxes from this deal.

Q. Why did Russia give RUE exclusive rights to be the sole supplier of gas
to the Ukrainian border? Was there a tender?

A. There was no tender when RUE, or its predecessor, Eural Trans Gas,
were given exclusive rights to be the middleman in this arrangement.
Gazprom simply decided on what type of  company it wanted, formed
the company, and signed an agreement with it.

It is not clear if RUE pays Gazprom for this exclusive right. In the Eural
Trans Gas contract there was no mention of any fee paid to Gazprom for
this right. In reality however, part of the huge fees which RUE is paid by
Ukraine might go back to the Russian side – but to whom and how much
is a Russian (and apparently an Austrian) state secret.

Q. Could not Gazprom or Naftohaz Ukraine have performed the same
services which RUE performs and saved a lot of money?

A. Yes, that is the main point of contention. Of course Gazprom could have
done this without RUE as well as Naftohaz Ukraine.  There was no need to
have a company registered in Zug (RUE) and two other companies registered
in Austria (Arosgas Holdings and Centragas Holdings) and an Austrian
Investment company which does nothing except hold bearer bonds and make
a lot of noise about its suspiciously clean bill of health.

There was no need to set up Eural Trans Gas in 2002 in a forlorn town
outside of Budapest, owned by an unemployed Romanian actress and a young
Romanian married couple who could not pay their own gas bills and a lawyer
in Tel Aviv who represented Semyon Mogilevich to be the owner of the
company and to have Dmytro Firtash ask this lawyer to please, do us a favor
this one time and help us transport Turkmen gas to Ukraine.

Q. What value does RUE add to the Ukrainian-Russian gas deal?

A. None. All it does is act as a transmission belt for huge sums of money
and a tax shelter for Russia’s finest. Its main assets are its bank accounts
and close contacts to the Russian elite. RUE in reality is the alter ego of
Gazprom.  -30-
NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He was director of the RFE/RL Ukrainian Service
for 10 years. Contact:
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

                      “The key gas person in Ukraine is the president.”
The magnificent eight: Yuriy Komarov, Andrey Akimov, Alexander Medvedev,
& Alexander Riazanov; & the following members nominated by Centragas AG:
   Yuriy Boiko, Ihor Voronin, Wolfgang Putcheck, & Robert Shelter-Jones
         Represent the ultimate owners of RusUkrEnergo, the beneficiaries

Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, No 3 (582)
International Social Political Weekly
Kyiv, Ukraine, Saturday, Sat 28 Jan – 3 Feb 2006

Strange as it may seem, Ukraine’s Prime Minister Yuriy Yekhanurov had
very little to do with the Ukrainian-Russian gas negotiations and agreement
reached on 4 January 2006. According to MP Vira Ulyanchenko, “the key
gas person in Ukraine is the president,” and the negotiating team that he
personally oversees is closed to any outside interference.

Yuriy Yekhanurov realized the true implications of the agreement signed by
Olexiy Ivchenko post factum from personal contacts with gas experts,
oligarchs, economists, industrialists, and from the press.

The signing of statutory documents of a joint venture to be established by
RosUkrEnergo and NJSC Naftogas Ukrainy pursuant to the 4 January
agreement has been delayed several times. There are rumors of silent
bureaucratic sabotage of the joint venture’s incorporation.

Officials in the Ministry of Foreign Affairs, Ministry of Economy, Ministry
of Finance, and other governmental agencies seem to have been taken aback
by the joint venture’s draft statute proposed by their Russian counterparts.

Moscow suggests including in the statute every minute detail, such as
management and maintenance of the gas transportation system. Our
government is not prepared to go as far as that, therefore the Ukrainian
party is trying to curtail the joint venture’s mandate and reduce its
functions to trade in gas, as envisioned in the 4 January agreement.

The impression is that the prime minister of Ukraine, having lost some of
his earlier illusions, opposes the officially adopted line of behavior and
interpretation of the gas agreement between Moscow and Kyiv as a
“breakthrough and huge success” that Viktor Yushchenko claimed in his
article published in The Wall Street Journal.

Yekhanurov, alongside the Antimonopoly Committee, is perplexed and
bewildered by the involved parties’ unwillingness to produce a package of
documents with the necessary and sufficient data on RosUkrEnergo, the
company likely to become a sole supplier of gas to Ukraine. Under the
circumstances, it takes a lot of courage for the Ukrainian premier to insist
on this lawful requirement.

At the same time, Yuriy Yekhanurov has made a series of statements that he
never should have made. For instance, at a press conference on 25 January,
Yekhanurov said that Deputy Chairman of the Board of the NJSC Naftogas
Ukrainy Ihor Voronin and former Chairman of the Board of Naftogas Yuriy
Boiko had, indeed, been members of the RosUkrEnergo Coordination
Committee but recently left it.

He also said he was in possession of documents that testify “in October
2004, the NJSC Naftogas Ukrainy Collegium decided to delegate Boiko and
Voronin to the Coordination Committee.” According to Yekhanurov, Ihor
Voronin provided a certificate bearing the RosUkrEnergo seal and confirming
that Voronin was no longer a member of the company’s Coordination

“I was told,” continued the prime minister, “that there is a similar letter
concerning Boiko, but I did not see it.” The key phrase here is “I was
 told.” Some time ago, Yuriy Yekhanurov asked journalists to investigate the
RosUkrEnergo company’s activities.

In our opinion, recent ZN publications were informative enough for an
intelligent reader to understand what kind of a company it is.

If the head of government still has his doubts, why doesn’t he ask a couple
of questions of those who told him?

[1] Question one: Do the premier’s sources know that the NJSC Naftogas
Ukrainy has no Collegium, but rather has a Board of Directors instead?

[2] Question two: Why wasn’t the prime minister shown the minutes of the
RosUkrEnergo general meeting on the establishment of the Coordination
Committee? The people responsible for duly and timely informing the
country’s top executive official have those minutes at their disposal.

Had Yuriy Yekhanurov leafed through them, he would have noticed it was not
Naftogas Ukrainy that “delegated” Yuriy Boiko and Ihor Voronin to the
Coordination Committee. The two men represented the RosUkrEnergo
shareholders who set up the Centragas Holding.

Moreover, the head of the cabinet would have never overlooked a difference
in the dates: he told the press the NJSC Naftogas Ukrainy Collegium had made
its decision in October 2004, whereas the decision to found the Coordination
Committee and designate Yuriy Boiko and Ihor Voronin as its members is
spelled out in the minutes of the RosUkrEnergo general meeting dated 29 July
2004. Wasn’t the premier told whom these two gentlemen were representing in
Vienna for over two months?

Furthermore, in an interview to the NTN TV Channel, Yuriy Boiko argued that
“the coordination board is something like a supervisory council in a
Ukrainian JSC.” Had the supervisory council in a Ukrainian JSC had such
functions, who would have needed a board?

The minutes of the RosUkrEnergo AG general meeting read quite clearly: “Mr.
Shmeliov opened the meeting and explained that its aim was to found and
appoint members to the Coordination Committee, the company’s corporate
body that would meet on a regular basis, exercise supervision over the
company business management by the CEOs and Board of Directors, and
serve as a forum for the company’s ultimate owners to discuss and resolve
the company business issues outside the general meeting.

This general meeting has thus formed the Coordination Committee to consist
of the following members appointed by Arosgas AG: Yuriy Komarov, Andrey
Akimov, Alexander Medvedev, and Alexander Riazanov; and the following
members nominated by Centragas AG: Yuriy Boiko, Ihor Voronin, Wolfgang
Putcheck, and Robert Shelter-Jones.

The meeting resolved that the Coordination Committee’s decisions should not
be valid unless made unanimously, provided that at least two persons
nominated by each company shareholder were in attendance at the committee

The minutes read: “The Coordination Committee can make decisions with due
regard of its absent members’ votes, which decisions should be valid if
supported by at least two members nominated by each company shareholder.”

                        THUS, THE MAGNIFICENT EIGHT
Thus, the magnificent eight, including Messrs Boiko and Voronin, represent
ultimate owners of RosUkrEnergo, the beneficiaries, i.e. all those whose
names remain an enigma to a number of investigative agencies and Ukrainian
negotiators. It is in the ultimate owners’ interests that the Coordination
Committee “exercises supervision and makes business decisions.”

Hence the next question: whom did the Ukrainian high-ranking officials
represent in the committee given that the NJSC Naftogas Ukrainy is not a
shareholder of RosUkrEnergo? And why were they “delegated,” as
Yekhanurov puts it, to the Coordination Committee if the Ukrainian JSC
holds no shares in RosUkrEnergo?

There are other questions worth asking of those who “told” things to the
prime minister. Suppose the document dated October 2004 does exist. In
this case, did Voronin and Boiko produce it at their meetings with the SBU

If it really confirms that Naftogas delegated its representatives to the
RosUkrEnergo Coordination Committee, it could have spared them many
problems last spring. Did they deny any involvement with RosUkrEnergo?
Why did they conceal their activities in Vienna until now?

If the NJSC Naftogas Ukrainy nominated Voronin and Boiko to the Coordination
Committee, why then did RosUkrEnergo release them? Did it have the relevant
powers? Does it mean that they were replaced with the new Naftogas Ukrainy
managers? If not, why?

At the time of their appointment to the Coordination Committee, both Boiko
and Voronin were public servants. Who gave directions to Boiko, then
Chairman of the Board of the NJSC Naftogas Ukrainy, in respect of voting at
the Coordination Committee sessions? President Kuchma? Prime Minister
Yanukovych? Minister of Fuel and Energy Tulub?

Can Boiko present copies of those directives or official documents
describing the purposes of his business trips to attend the RosUkrEnergo
Coordination Committee sessions? Did the Ukrainian public servant get any
remuneration from RosUkrEnergo, and who paid for their trips to Vienna?

Even if the answers to the above questions imply unpleasant consequences
for Boiko and Voronin, there is no need for them to worry: there is no rule
of law in this country.

That is why Voronin could make plans for heading the Ukrainian-Russian
joint venture that is being born in the throes, and Boiko could hope to take
over the helm at Naftogas Ukrainy after the elections.

Yet why should the leader of the Our Ukraine election bloc be trying to
shield a representative of the opposing bloc?

Yekhanurov should do his best to keep his image untarnished by the new
administration’s controversial acts, but he tries to whitewash the old
regime instead. Why? It is yet another question to those who “told him.”

NOTE:  Subheadings inserted editorially by The Action Ukraine Report.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    Send in names and e-mail addresses for the AUR distribution list.

Ukrinform, Kyiv, Ukraine, Monday, January 30, 2006

KYIV – The national joint-stock company NaftoGaz Ukrainy didn’t sign any
constituent documents with the RosUkrEnergo company (Switzerland) on
establishment of a joint enterprise for realization of natural gas to
Ukrainian consumers, the NaftoGaz Ukrainy press center said, by way of
commenting on ex-Prime Minister Yuliya Tymoshenko’s statement regarding
the documents were allegedly signed in the January 27/28 night.

As leader of the “Batkivshchyna” party Yuliya Tymoshenko said on Sunday
evening air of the NTN Ukrainian tv channel, the NaftoGaz Ukrainy and the
RosUkrEnergo signed an agreement of establishing the joint venture, which is
provided by the Ukrainian – Russian gas agreement of January 4, 2006.

“We have an information that the relevant agreement was signed at 3 a m,
with which the NaftoGaz Ukraine fully surrendered the internal gas market

of Ukraine to the RosUkrEnergo”, Mrs Tymoshenko said.

The NaftoGaz Ukrainy press service circulated a press release stating that,
as of January 30, 10 a m, the company kept on negotiating with the
RosUkrEnergo toward concluding the agreement on establishment of the joint
venture for realization of natural gas on the territory of Ukraine. The date
and place of the agreement signing will be reported additionally.

The establishment of the joint venture of the NaftoGaz Ukrainy and the
RosUkrEnergo is envisaged in the agreement of regulation of gas relations,
which was signed in Moscow on January 4, 2006. The RosUkrEnergo, which
was defined as supplier of Russian and Central Asian natural gas to Ukraine,
may supply up to 34 billion cubic meters of gas in 2006 and starting from
2007 up to 58 bn. cu. m. of gas.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

By Geoffrey T. Smith, Dow Jones Newswires
Moscow, Russia, Monday, January 30, 2006

MOSCOW — Ukrainian state oil and gas company Naftogaz Ukrainy

(NGAZ.YY) expects to finalize on Tuesday details of a joint venture to import
gas from Russia and Central Asia, a spokesman told Dow Jones Newswires
Monday. “The talks haven’t been concluded yet, but it is expected they will
be Tuesday,” he said.

Earlier Monday, former Prime Minister Yulia Timoshenko said Naftogaz had
already agreed the terms of a joint venture with RosUkrEnergo, which is
itself a 50-50 joint venture between Russian gas monopoly OAO Gazprom
(GSPBEX.RS) and unidentified parties.

RosUkrEnergo is responsible for importing natural gas to Ukraine from Russia
and the Central Asian states of Turkmenistan and Kazakhstan [under special
rights given to it by Gazprom].

Under a recent makeshift compromise agreed three weeks ago, RosUkrEnergo

is to sell gas to Ukraine at a price of $95 per thousand cubic meters until the
end of the month. Gazprom says that it will sell its gas to RosUkrEnergo at
$230 per thousand cubic meters.

Numerous Ukrainian politicians have called for Naftogaz to take a more
active role in gas importing, rather than have the task done by
RosUkrEnergo, a privately-held company that discloses no financial
information and whose ownership structure is a closely-guarded secret.

The Naftogaz spokesman said it is unlikely that Naftogaz will get immediate
knowledge of RosUkrEnergo’s owners as a result of the deal.

He also noted that it was still unclear whether Naftogaz itself, or its
100%-owned domestic gas supply unit Gaz Ukrainy would be RosUkrEnergo’s
partner in the joint venture.  Company Web site:
By Geoffrey T. Smith, Dow Jones Newswires (+7 095) 974 8055;
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

                                 OF FORMER SOVIET BLOC

By Marc Champion in Davos, Switzerland & Guy Chazan in Moscow
Staff Reporters of The Wall Street Journal
The Wall Street Journal, New York, NY, Monday, January 30, 2006

Russia’s natural-gas diplomacy is driving some of its former satellites to
look elsewhere for energy supplies but is drawing others closer to Moscow’s
orbit, reshaping economic dependencies and stirring deep unease in the

The Republic of Georgia, a new democracy just across the Caucasus

mountains from the Russian region of Chechnya, is moving as fast as it can
to find other energy sources after pipeline explosions earlier this month cut
off its supplies of Russian gas. Islamic separatists in Chechnya have been
battling Moscow for over a decade. Russia, which has the world’s largest
gas reserves, has blamed the Jan. 22 pipeline blasts on unidentified

The disruption came amid a continuing clash between Russia and Ukraine, a
country of 50 million people, over the price of the gas Moscow ships there.
At one point, the dispute led to a brief shutoff of supplies, also reducing
deliveries to Western Europe, which gets most of its Russian gas through
pipelines across Ukraine. Neighboring Moldova, too, saw its gas supplies
cut before signing a deal to pay higher prices to Russia’s gas monopoly,
OAO Gazprom.

Russian officials say they are simply shifting to market-based prices for
fuel, ending a Soviet-era practice of subsidized gas sales to their
neighbors. But the abruptness of the shift and Moscow’s high-handed
behavior toward pro-Western governments such as Georgia’s has added to
worries that the Kremlin is using Russia’s vast energy reserves as a
political lever. They fear that gas has become a means for Russia to reward
regimes it views as loyal and punish those it views as too independent.

In an interview at the World Economic Forum in Davos, Switzerland,

Georgian  President Mikheil Saakashvili said Moscow’s response to the
pipeline explosions — including unreturned phone calls and slow repairs —
highlighted the need to find alternative sources of energy. “We knew we
were in trouble, but this has accelerated things,” he said.

Mr. Saakashvili said he believes Russia’s handling of the explosions that
hit the gas pipeline to Georgia was part of “Soviet”-style efforts by
Moscow to destabilize his pro-Western government.

On Friday, other former Soviet satellites farther West, including Poland
and Romania, called for construction of new liquefied-natural-gas terminals
to receive fuel shipments, and urged that construction of a gas pipeline
from Turkey to Austria be speeded up, to reduce their dependence on Russia.

Russian officials have reacted angrily to Georgia’s assertions and its
criticism of their response to the pipeline blasts, contending that crews
worked around the clock to restore supplies. Yesterday, Gazprom turned
Georgia’s gas back on. But repairs that were supposed to take just a few
days dragged on for a full week, leaving many Georgians without fuel

during a cold snap.

The energy tensions come as Western capitals have watched with growing
alarm as Russian President Vladimir Putin has further tightened political
control at home, undermining democratic institutions and warning that
foreign agents are trying to destabilize his country.

Georgia’s Mr. Saakashvili has all but accused Russia of causing the
explosions, comments that the Russian authorities have dismissed as
“hysteria” and “bacchanalian.”

“It’s ridiculous to accuse Russia of blowing up its own pipeline,” said
Sergei Mikheyev, a foreign-affairs analyst at the Center for Political
Technologies, a Moscow think tank.

Mr. Saakashvili said he wasn’t saying he had proof of Russian
responsibility, but that he was most concerned about the way Russia
responded once the gas was cut. He said some in Moscow wanted to

punish Georgia for turning West, to use TV footage of “miserable”
Georgians to demonstrate that democracy doesn’t work and to turn
Georgians against his government.

Mr. Saakashvili said Georgian officials immediately called Russian Prime
Minister Mikhail Fradkov after the explosions and that Mr. Fradkov told
them he would call back in one to two days once the situation was clearer.
“He never called,” Mr. Saakashvili said. Calls to Gazprom also went
unreturned, he said. Only once he began giving interviews to CNN and the
BBC did Moscow begin to respond, he added.

Although Gazprom then said the company had arranged for extra gas to

pass to Georgia through a pipeline in Azerbaijan, that lasted only briefly.
Russian officials blamed a failed compressor station on the line.

“In a way it was a blessing, because we are looking for other alternatives
now,” Mr. Saakashvili said. Rather than wait for Gazprom to fix the
pipeline, Georgia announced on Friday a deal to import emergency supplies
of gas from Iran via Azerbaijan, which borders both countries.

Beyond looking abroad for new sources of energy, Mr. Saakashvili said he

is accelerating plans to build hydroelectric plants, continuing a process that
has seen Russia’s share of electricity supplies to Georgia drop to 30%
currently from 80% in 2003. A new pipeline due for completion in the autumn
from the Shakh Deniz field in Azerbaijan will let Georgia cut its complete
dependence on Russian gas to about half, Mr. Saakashvili said.

Mr. Saakashvili also said he is planning to invite energy ministers and
companies from around Europe to a meeting in Georgia this summer to

figure how best to diversify energy supplies in the region.

Russia’s recent energy disputes with its neighbors mostly involve Gazprom’s
efforts to force gas importers in Russia’s so-called “near abroad” — the
former Soviet republics — to start paying market prices for gas, rather
than the heavily discounted prices they have enjoyed until now.

Belarus, a close ally of Moscow that ceded ownership of key export channels
to Gazprom, has so far been allowed to keep a gas price of less than $50
per 1,000 cubic meters, compared with the market price of more than $230.
Ukraine, Georgia and others have said they are prepared to pay more, but
that the transition should be staggered. Georgia reached a deal late last
year to double the price it pays for Russian gas to $110 per 1,000 cubic

The U.S. and European Union have expressed concern over Russia’s tough
energy tactics — especially when Gazprom’s tussle with Ukraine caused gas
pressure to fall in pipelines transiting Ukraine to Western Europe — but
they have limited leverage. Russia is currently the linchpin, for example,
in bringing diplomatic pressure to bear on Iran over its alleged
nuclear-weapons program.

Even as former Soviet satellites try to find sources of energy outside
Russia, Russian diplomats and gas executives have been working hard to
reinforce their dominant positions in the energy-rich former Soviet states
of Central Asia.

Uzbekistan, isolated internationally after its brutal suppression of
protests in the town of Andijan in May, last week joined a Moscow-led bloc
of former Soviet states, the Eurasian Economic Community. That followed
Uzbek President Islam Karimov’s decision to kick out a U.S. military base
and the signing of a $1.5 billion deal between Gazprom and Uzbekistan’s
state oil and gas company to jointly develop some of the country’s gas
fields. That deal would give Gazprom complete control over Uzbekistan’s

gas exports.

On Friday, Gazprom CEO Alexei Miller also visited impoverished

Kyrgyzstan, pledging “hundreds of millions of dollars” to help it explore
and develop its oil.

The countries hardest hit by Russia’s gas negotiations have tended to be
those that have started looking West. Mr. Saakashvili is scheduled to
travel to Germany this week, where he expects to meet Chancellor Angela
Merkel and to discuss energy diversification. Germany buys the largest
proportion of its gas from Russia of any Western European nation and is
planning to build a pipeline direct to Russia under the Baltic Sea.

“If these things are possible in the direction of Georgia, then they are
possible in every direction,” Mr. Saakshvili said of the Russian supply
disruptions. “Everyone’s policy should be to diversify.”  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
         Send in a letter-to-the-editor today. Let us hear from you.

UT1State TV, Kiev, in Ukrainian 1850 gmt 28 Jan 06
BBC Monitoring Service, UK, Saturday, January 28 2006

The state-owned UT-1 television channel ran an election advertisement

of the opposition Party of Regions on 28 January.

A male voice-over says: “The gas crisis has emerged because of an
unnecessary conflict with Russia. And now there is a dirty deal which will
push gas prices up to the extent that this will bankrupt enterprises and
raise heating bills excessively. The Party of Regions is a strong
administration, which will build special relations with Russia, solve the
gas crisis and make heating and gas bills affordable again.”

Video shows newspaper headings in Russian: “Ukraine initiates the creation
of a gas consortium”, “Oil prices are rising”, “No fuel to warm private
homes in Kharkiv”. Words “Party of Regions” are shown at the bottom of

the screen.

Video also shows blue and white banners (campaign colours of the Party of
Regions), Viktor Yanukovych smiling, and people carrying slogans “For the
Party of Regions!”.

The last video picture shows the Party of Regions’ top election candidates
Rinat Akhmetov, Taras Chornovil, Viktor Yanukovych, Yevhen Kushnaryov

and Nina Karpachova standing together. An inscription is run on the
foreground: “The Party of the Regions and Viktor Yanukovych. Improving
your life now!”.

The voice-over says: “The Party of the Regions and Viktor Yanukovych.
Improving your life now!”.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
9.                                    GASSIFIED RUSSIA
          The Russian-Ukrainian gas conflict and its broader implications
            The lost benefit of Gazprom being simultaneously profit of
          RosUkrEnergo will amount to $4 billion a year or $20 billion in
               five years in the framework of the new trading scheme. 
By Stanislav Belkovsky and Vladimir Golyshev
Zavtra, No. 4. Moscow, Russia, Wed, January 25, 2006

The recent gas conflict with Ukraine offers some insight into the
methods and priorities of Putin’s ruling corporation. Contrary to
the Kremlin’s propaganda, Russia did not win the gas pricing
dispute. The whole saga demonstrates that Russia is becoming a

On January 10, 2006, the Supreme Rada (parliament) of Ukraine
voted to dismiss the Yekhanurov government – supposedly, for
betraying national interests by signing the new gas agreement with

The monarch’s dream-interpreters in the Kremlin and
elsewhere, erroneously described as “politicians” or “analysts,”
hastened to inform the story-starved January media of the good
news: look, didn’t we tell you that the famous protocol of January
4 is good for Russia rather than Ukraine? We’ve won, damn it!
This is a bluff, of course; blatant and clumsy, like all the
Kremlin’s propaganda over the recent non-election years. The
evidence, meanwhile, speaks of an indisuptable success for
Ukraine, President Viktor Yushchenko, and Prime Minister Yuri
Yekhanurov in their gas conflict with the grim Great Russian
supplier. From the standpoint of Gazprom, its broad and snow-
covered majority shareholder (commonly known as Russia), and
its credulous minority shareholders, the results of this widely-
publicized conflict seem very odd, to put it mildly.
In reality, the results are as follows.
Gazprom no longer supplies natural gas to fraternal Ukraine.
RosUkrEnergo becomes the exclusive supplier for the next few
years. Notorious Semen Mogilevich participated in establishment of
this company in 2004. This company is a much more serious market
player than it may seem at first glance. Founders are its main
asset. RosUkrEnergo belongs by 50% to Gazprombank, which will in
turn become property of Dresdner Bank, one of the most influential
business partners of President Vladimir Putin, by 2007. The other
half of RosUkrEnergo is controlled by Raiffeisen Investment A.G.,
a semi-offshore company registered in comfortable Switzerland.
Composition of the real owners and beneficiaries of this small and
shady joint stock company changed a few times when old persons
responsible for Russian-Ukrainian gas trade left the political
arena and new persons appeared on it. Now there are reasons to
believe that the private individuals on which the price of Russian
gas finally depends and their German cronies are standing behind
Raiffeisen. Thus, henceforth gas supplies to Ukraine will be
guaranteed not by loose Gazprom that always covers its tracks in
non-transparent blue streams but a company of very solid men
willing to remain prominent energy businessmen after 2008 and
Ukraine is no longer buying Russian gas. These 17 billion cubic
meters that obedient RosUkrEnergo buys from proud Gazprom
for advertised enormous $230 are exported to Western Europe in
reality. The entire gas due to Ukraine under the contract is
bought by RosUkrEnergo from Turkmenistan, Uzbekistan and
Kazakhstan at $45-60 and is supplied to Ukraine at $95.
The lost benefit of Gazprom being simultaneously profit of
RosUkrEnergo will amount to $4 billion a year or $20 billion in
five years in the framework of the new trading scheme. If we read
attentively the notorious protocol of January 4 we can make sure
that RosUkrEnergo also receives more than 20 billion cubic meters
of gas already bought by Gazprom dirt-cheap (at $65 per 1,000
cubic meters) from Russia.
The offshore company from Switzerland will also export this gas at
the most predatory West European price. Rumbling through the
rough fabric of crooked figures it is possible to find the real meaning:
Gazprom has presented a significant part of its revenues to an
immodest intermediary for which these revenues are evidently more
Gazprom ceased being the monopoly exporter of Russian gas to
the European Union. Moreover, it acquired a competitor on the
European spot gas market in the form of RosUkrEnergo that it
itself had born. Taking into account raising of the transit tariff
by Ukraine from $1.09 to $1.60 for transportation of 1,000 cubic
meters by 100 kilometers the gas conflict looks totally lost by
the Russian monopoly and hence the Kremlin standing behind.
In such situation these should be Russian elites who worry and demand
report (if not dismissal) of the Russian government and management
of Gazprom. However, nobody worried because Russian elite is not
of the kind to think about trifles like $20 billion stolen from
Russia. Everyone steals. There is nothing surprising and blamable
in this.
What made Vladimir Putin who at the end of 2005 declared
himself nearly the future energy emperor of Eurasia and vicinity
agree with such astonishing deal?
[1] FIRST, these were primitive private interests. Who has said
that $20 billion on quiet accounts in toy Liechtenstein look worse
than in the corporate treasury of vast Gazprom?! As long as
progressive political humanity does not finally understand that
first of all Putin is a businessman motivated by healthy marketing
greed and only after that a politician the logic and motivation of
the Kremlin will keep generating hundreds of questions being
equally simple and confused.
[2] SECOND, Putin was frightened by the menacing shout from
Brussels. On January 3, the Russian President learned that on
January 4 the energy commission of the European Union would
condemn Russia in Brussels and would demand Gazprom to supply
gas unconditionally to Ukraine that was preparing to freeze for the
sake of independence.
Vladimir Putin, the best friend of the European gas consumers, could
not allow such scenario. That is why Putin ordered Gazprom to reach
an agreement urgently until the fatal morning of January 4.
The top management of Gazprom did not have time enough to
bargain with Alexei Ivchenko, leader of the congress of Ukrainian
nationalist and incumbent CEO of the Ukrainian state-run company
Neftegaz Ukrainy. The final figure of $95 was almost 60% less than
it had been demanded before. As to the virtual $230 for
RosUkrEnergo, everything was clear about this figure a long time
Equally well Gazprom could sign a contract with its Sibneft
subsidiary for supplies of gas of especially rare kind at $500 per
1,000 cubic meters and to tell the whole world about the “new
marketing reference points.” This was not incidental that already
on January 5 and 6 Romania and Moldova inspired by the Ukrainian
example demanded lowering of the gas price for them, obedient and
poor, too.
All in all, the outcome was bad only for Gazprom and for
Russia. For the top managers of these two commercial entities and
for the friendly state of Ukraine everything was well. There are
no reasons for alarm.
Why does the Ukrainian opposition feel such unhidden rage?
Why did 250 parliament members of the 450 possible (along with 226
necessary) supported the vote of no confidence in the cabinet of
Yuri Yekhanurov?
This happened because Victor Yanukovich, Yulia Timoshenko and
other lower-rank opposition members are motivated by the real
offence not at Yushchenko and Yekhanurov and even not nationalist
Ivchenko but at excellent Vladimir Putin.
Back in autumn of 2005, Yanukovich and Timoshenko reached an
agreement on everything with the Kremlin. By February of 2006, the
gas crisis had to reach its apogee including empty underground
reservoirs, dead plants and mines, infuriated Ukrainian people and
fuel Maidan brandishing pieces of the sacred gas pipeline. At that
moment opposition leaders had to come to the stage undertaking a
high intermediary mission and reaching a happy agreement on
everything. This meant that they would win the parliamentary
elections scheduled for March 26 easily.
Whereas Yanukovich claimed mostly political mediation
Timoshenko was also going to become a gas master establishing a
new market operator to replace RosUkrEnergo that had grown old.
In alliance with semi-forgotten ITERA (this company was allied with
former CEO of Gazprom Rem Vyakhirev and had friendly relations
with Timoshenko back in the mid-1990s when the future orange
princess was head of the trader company United Energy Systems of
Ukraine) the former Prime Minister of Ukraine was going to supply
Central Asian gas to Ukraine at $115-120. The generous Kremlin
promised to arrange reliable transit. This was not incidental that
all criminal proceedings were dropped when the gas crisis was in
full swing because there was no need for legal actions anymore.
In any case, in the morning of January 4 both most prominent
opposition politicians of Ukraine woke up with a feeling that kind
uncle Putin “let them down.” They did not take into account that
for a businessman of Putin’s kind a wish to punish damned
Yushchenko was nothing in comparison to stability of gas revenues
and delicate financial schemes. Then Timoshenko and Yanukovich
decided to stake their all, to announce Yekhanurov’s $95 a defeat
and a treachery. Well, at elections of March 26 it will be clear
to which extent this tactic is justified and successful.
The ended “war” gives us a right to once again to look into
the corpulent self-complacent face of the Putin’s ruling
The odd finale of the Russian-Ukrainian conflict has shown
evidently that:
      [1] Putin’s team is entirely dependent, both politically and
psychologically, on external forces, primarily the European Union
and the United States;
      [2] for these people their own private economy is much more
important than general state policy;
      [3] they are unable to compete seriously in a really
competitive environment.
With such brave guys in charge, it is impossible to build an
empire, even a gas empire. It is only possible to build a colony.
This is a colony where authorities steal from 50% to 100% of
everything that can be stolen, people drink cheap vodka in
hopeless misery and foreign corporations methodically achieve
their goals through bribes and moderately cynical attitude to the
silent colonial population.
This is the gasified Russia prepared for us by the Kremlin.
(Translated by Pavel Pushkin)
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Associated Press, Kiev, Ukraine, Monday, January 30, 2006

KIEV – Ukrainian President Viktor Yushchenko Monday blamed local

officials in an eastern Ukrainian city for mismanagement that left tens of
thousands of residents shivering in unheated apartments during last week’s
record-breaking cold spell.

“These people don’t deserve respect, they deserve to be sacked,” Yushchenko
said, referring to local officials in Alchevsk in the Luhansky region. Some
60,000 people have been without heat for more than a week in the city.

The shutdown occurred Jan. 22 when one of the main pipes pumping hot water
from a central boiler into apartment houses, schools and other municipal
buildings froze and broke down. Yushchenko called for a criminal
investigation, and pledged that his government would do whatever it took to
get the heat flowing again.

“For a week already, Alchevsk…resembles the frozen side of the moon,”
Ukraine’s Gazeta Po-Kievskiy declared. Ukrainian media broadcast images of
residents sitting around kitchen tables bundled up in winter hats, coats and

Ihor Krol, spokesman for the Emergency Situations Ministry, said that some
3,600 workers from across the country had been dispatched to Alchevsk to
restore the heating supply. Gradually, buildings were being hooked up to the

A first allotment of $494,000 was being sent to the city to fund repairs,
Yushchenko’s office said. He said that a special emergency headquarters

was now in charge in the city, Ukraine’s Unian news agency reported.

Last week’s cold snap caused a record jump in gas consumption in Ukraine

and led to the deaths of some 220 people as this country’s aging and inefficient
heating systems struggled to cope. Most of the deaths occurred in the
Luhansky region; the Health Ministry has said many were homeless and
intoxicated people. Temperatures have since risen to more normal winter
levels in Ukraine.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
      Huge coal reserves could help build energy independence for Ukraine

New Trade Union World Briefing – Ukraine
International Confederation Of Free Trade Unions
ICFTU OnLine, Brussels, Belgium, Tuesday, 31 January 2006

BRUSSELS – The cut off in the supply of Russian gas to Ukraine on 1
January 2006 has reopened the debate on the country’s energy

independence. Could the huge coal reserves in Ukraine’s subsoil help to
build this independence?

Ukraine’s mining trade unions believe so, but are also well aware that most
of the mines are in a growing state of disrepair and require massive

Their dilapidation – the result of bad management of the State mines and the
machinations of oligarchs bent on making a quick fortune – has also
contributed to making Ukrainian mines amongst the most dangerous in the

In 2005, 157 workers died as a result of accidents in Ukrainian mines, 7768
were injured. Thousands of retired miners continue to toil in the pits, as
their pensions are too low to provide them with a decent standard of living.
Women and children are working in the clandestine mines that are
proliferating wherever coal can be found close to the surface.

All of this under the gaze of the unscrupulous businessmen who have become
powerful “oligarchs” by exploiting the numerous flaws in the Ukrainian
authorities’ management of the mines. Having made their fortunes, they are
now investing in their own businesses, such as football clubs.

Entitled “Ukraine: the miners’ great depression”, this Trade Union World
Briefing released today by the ICFTU sheds light on the disastrous social

situation in the coalmining region of Donbass in southeast Ukraine.

Its towns and cities are now referred to as “depressed”, having lost their
economic heart with the closure of the coalmines and the subsequent sharp
decline in social services, which had until then been provided by the mine
(such as road maintenance, funding for schools and nurseries, etc.). There
were 1.2 million mining jobs in Ukraine when it became independent in 1991.
Today, there are only around 300,000. Many ex-miners have had to resort to
leaving the country.

The Ukrainian government wants to privatise all the coalmines still in
operation, to the great dismay of the mining unions, who consider the public
authorities to be the only viable investor, given the massive injection of
funds needed to renovate the mines, which will only start to make a profit
after several years.

For the unions, the authorities’ bad management is responsible for the
growing dilapidation of most of the State mines, and their consequent lack
of profitability. The corruption of all too many bureaucrats at all levels
has allowed oligarchs to amass fortunes at the expense of the mines and
their workers.

“Some privatisations were handled by groups of people in power who
considered the State budget to be a supplement to their own businesses,”
affirms Volodymir Novikov, Ukraine’s deputy minister of fuel and energy.
Only 10 out of 167 mines, that is, those requiring very little investment to
become profitable, are currently in the hands of serious private investors.

This new Trade Union World Briefing also raises the question of Ukraine’s
energy independence. Following Russian gas giant Gazprom’s suspension,

on 1 January, of its supplies to Ukraine, owing to disagreement over prices,
the Ukrainian energy ministry notified three power stations of the need to
replace part of the gas with coal.

Although a solution has, in the meantime, been found to this crisis in
relations between Russia and Ukraine, the episode has rekindled hopes in the
Donbass region, where the mining unions believe that Ukraine has sufficient
coal reserves to be energy independent. Major economic and ecological
challenges will nonetheless have to be taken up if the Ukrainian government
commits to this path.  -30-

NOTE: You can read the entire Trade Union World Briefing: “Ukraine:
the miners’ great depression” by clicking on the following link:

The ICFTU represents 155 million workers in 236 affiliated Organizations in
154 countries and territories. ICFTU is also a member of Global Unions:
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

    If you are receiving more than one copy of the AUR please contact us.

By Christopher Condon in Budapest
Financial Times, London, UK, Saturday, January 28 2006

BUDAPEST – Eight central and east European countries yesterday appealed

for financial help from Brussels to help reduce their region’s dependence on
Russian gas.

Meeting in Budapest, representatives from Poland, the Czech Republic,
Slovakia, Austria, Hungary, Slovenia, Croatia and Romania agreed to a

broad plan that would leave them less vulnerable to sudden cuts in Russian
gas due to political disputes or technical problems.

The plan calls for the construction of shared gas storage facilities,
acceleration of the Turkey-to-Austria Na-bucco pipeline project, and the
building of smaller intra-regional pipelines and two terminals for receiving
liquefied natural gas (LNG) in Croatia and Poland. Janos Koka, Hungary’s
economy minister, said the group also agreed to urge Brussels to step up
talks with Russia on guaranteeing stable supplies of gas.

The request came as Andris Piebalgs, the EU’s energy commissioner, speaking
at the World Economic Forum in Davos, said he believed Russia would be a
reliable energy supplier to Europe in the long term.

In Budapest, however, Mr Koka stressed that central and east Europe’s energy
supplies were at risk not merely because of political factors, but also for
technical reasons.

The region has been struggling to cope with lower than normal supplies and
near record demand because a week-long cold snap sent temperatures below
freezing as far south as Greece and killed more than 100 people.

The cold snap follows a price row between Russia and Ukraine at the
beginning of January that caused Gazprom, the Russian gas supplier, to cut
supplies. Several of the countries present at yesterday’s meeting receive
Russian gas via Ukrainian pipelines.

On Thursday, the Croatian and Hungarian governments agreed to co-operate

in building an LNG terminal at Croatia’s Krk island and a 340km pipeline
linking the terminal to Hungary. Ivo Sanader, Croatia’s prime minister, said
the LNG terminal would cost about Euro 1bn ($1.2bn, £685m). Poland would
like to build an LNG facility on the Baltic Sea and increase its access to
Norwegian gas.

The Group of Eight countries, which will be expanded at future meetings to
include the three Baltic countries, Serbia and Bosnia, wants the EU to
promise financial support and to endorse tighter energy policy co-operation
at an energy summit to be held in March.

The group agreed to finalise by next Wednesday a set of written proposals
that would be presented to Mr Piebalgs, who is working on a proposed

common EU energy policy ahead of the March meeting. (Additional reporting
by Reuters)  -30-
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             Send in a letter-to-the-editor today. Let us hear from you.
13.                 MINSK DISPATCH: DADDY’S SOURCE
       Politicians & journalists have been imprisoned, killed, or disappeared
     The Ukrainian gas crisis threw light upon Russia’s fuelling of Alexander
           Lukashenko’s despotic Belarussian regime, writes Tom Parfitt

Tom Parfitt, The Guardian, London, UK, Monday January 30, 2006

A crust of blood had already formed on Vassily Grodnikov’s crushed skull
by the time his brother broke down the door of his cottage and found his

The 67-year old writer had got drunk and fallen on his head, prosecutors
in Belarus later concluded. “It’s absurd,” says Mr Grodnikov’s brother,
Nikolai, who shakes with fear at speaking openly for the first time about
the death. “The postmortem showed there wasn’t a drop of alcohol in his

As Europe wakes up to the Kremlin’s stranglehold on its natural gas
supplies, a stark light has been shone on how the Russian president,
Vladimir Putin, does business with the other independent states that once
made up the Soviet Union.

Moscow’s demand for Ukraine to pay a fivefold increase for deliveries of
Russian gas earlier this month was widely seen as punishment for Kiev’s
push to join the European Union and Nato since its “orange revolution”
last winter.

What is less known is the flip side to this gritty political game: the
Kremlin is propping up a despotic pro-Moscow regime on the edge of
Europe that only survives because it gets extremely cheap gas from Russia.

Belarus – wedged between its giant neighbour and Poland – looks and feels
like a microcosm of the old Soviet Union, complete with bad suits, big
squares and ruthless KGB oppression. It is run by President Alexander
Lukashenko, a paternalistic hardliner who brooks no dissent.

“Lukashenko has put fear into this country in a way that hasn’t been seen
since Stalin,” says the Belarussian opposition leader, Alexander
Milinkevich, a physicist who plots strategy against his nemesis in a
mouldering apartment in the suburbs of the capital, Minsk. “He wouldn’t
last a month without Putin giving him cheap energy.”

Lukashenko uses the crushing weight of an 80% state-run economy to exert
almost total control, says Milinkevich. Gas supplies from Russia at $47 per
1,000 cubic metres (compared to the $230 market price that Moscow
demanded from Ukraine) keep Soviet-era factories creaking along. And there
are no inconvenient oligarchs to fund the opposition.

But while Belarus’s GDP is on the rise, the eerily spotless streets and
facades of Minsk conceal a dirty underworld of persecution, killings and

Mr Grodnikov’s alleged murder comes as Lukashenko’s hardline regime

twists a tourniquet on the slightest sign of dissent in the run up to
presidential elections on March 19.

The writer’s body was discovered recently at the cottage outside Minsk

where he wrote articles about state corruption for Belarus’s last surviving
daily independent newspaper, Narodnaya Volya (People’s Will).

His brother, Nikolai, thinks he knows why he died. “They killed him

because they are terrified of a revolution, and he found out about their
plans to squash any protest,” he said.

Guardian Unlimited has learned Mr Grodnikov was investigating rumours
of police plans to secretly detain opposition activists at a dacha
settlement for senior interior ministry officials near the capital. He died on

the day he planned to go to the settlement. State prosecutors refused to

Since Lukashenko – who is known as Batka (Daddy) – came to power in
1994, a series of politicians and journalists have been imprisoned, killed,
or simply disappeared.

As a result, the United States and European Union countries are trying to
crank up pressure on Lukashenko ahead of the presidential poll in March.

The US secretary of state, Condoleezza Rice, has called for Belarus “to
throw off the yoke of tyranny” and Britain is taking a confrontational
stance, with ambassador Brian Bennett accusing Lukashenko of leading “a
slide into dictatorship”.

One senior western diplomat in Minsk confirmed that foreign experts are
being drafted in to “help [opposition] parties with their organisation, and
showing them how democracy works, how to get in touch with the people”.

It is a tricky pursuit, as paranoia grows in Russia and Belarus about
western “meddling” in their internal affairs. The two countries have a union
with each other, military cooperation is strong and their peoples are
practically inseparable in terms of national identity. Moscow supports the
Minsk regime because it wants to preserve it as a buffer zone against Nato

Lukashenko, meanwhile, has warned foreign states to keep their noses out
of the election.

Last month, his simpering “parliament” made it a crime to discredit the
country by passing “false information” to a foreign state or organisation
about its political, economic or legal situation. The popular uprisings in
other former Soviet states were “simple banditry, deftly carried out with
western money”, Lukashenko claims.

Observers say the president was rattled by the rose revolution in Georgia in
2003 and the orange revolution in Ukraine in 2004. “He’s worried,” said the
diplomat. “He knows he can engineer 80% of the vote in his favour, but he’s
forming special police units to break up crowds, just in case.”

The opposition faces a huge task to oust Europe’s pariah. Anti-Lukashenko
parties have not a single seat in parliament and most have been denied
registration. Independent press is being hounded out of existence. And
because of his grip on the state-run economy, Lukashenko’s opponents can
be cowed with threats of being sacked and never working again.

Milinkevich, the opposition leader who is due to meet senior EU officials
today, is seen as the only hope for change, but his profile is low because
he is denied exposure in state media.

“I’m placing my hopes in the younger generation,” says the scientist, who
heads a loose coalition of democratic forces and will stand for the
presidency. Underground youth movements like Zubr (Bison) are small, but
their numbers are swelling as increasing numbers of students are expelled
from university for dabbling in politics.

“If the presidential election is falsified, we will go the streets to
protect our rights,” says Nikita Sasim, 21, a Zubr leader who says he was
hospitalised with concussion after police beat him at a recent protest.

Yet the opposition know its chances are slim. Lukashenko dominates
television broadcasts and is riding high in official polls with an almost
trance-like power over many of his compatriots.

“He is an excellent example in all areas,” says Sergei Yuran, 45, an
engineer, shuffling through snow in central Minsk. Ludmila Yolkina, a music
teacher, says: “We don’t want all that civil unrest like in Ukraine. Look at
our ordered city and nice clean streets.”

The gas crisis made western Europe question President Putin’s democratic
credentials as he took over the presidency of the G8. His support for Batka
could be the next big point of confrontation.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                           REPORTEDLY FOUND IN UKRAINE
               Painting to be displayed Wednesday, Feb 1 in Chernovtsy

RIA Novosti, Moscow, Russia, Monday, January 30, 2006

KIEV – An artist from western Ukraine said he had found a painting by
Ukrainian-born Kazimir Malevich, a leading figure in the Russian
Avant-Garde, or by one of his students.

Anatoly Fedirko, known in his home town of Chernovtsy for his uncommon
artistic enterprises, said experts had confirmed the picture could have been
painted by Malevich, a pioneer of geometric abstract art and the founder of
Suprematism in Russia, or one of his students.

The painting will not be less valuable if the latter version is confirmed.
Experts said it dated back to the early 20th century and mimicked the
artist’s legendary style.

The finding is currently being kept in a Kiev bank. Fedirko said he would
display the painting in Chernovtsy February 1.

Malevich is best known for his works “Black Square” (1915) and “Black
Cross” (1916-1917), renowned for their previously unseen geometrical

Malevich, who studied art in Kiev and Moscow and experimented with
various modernist styles, including Cubism and Futurism, turned to teaching
in 1922 in Petrograd (later Leningrad and now St. Petersburg).

Under Stalin, Malevich was sent to a prison camp because his work was in
opposition to official ideology at the time. He died in poverty in Leningrad
in 1935.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Ukrinform, Kyiv, Ukraine, Monday, January 30, 2006

KYIV – President Viktor Yushchenko called on Ukrainians to honor the

Kruty heroes, three hundred young Ukrainians, who perished on January
29, 1918 defending Kyiv and the Ukrainian People’s Republic from
Bolsheviks, led by Muravyov, attacking.

The President is convinced that January 29, 1918 was a unique page of
Ukrainian history “which bears a colossal emotional and historic load.”

He urged on the Government and the people together to defend Ukraine’s
national interests and on politicians to be tolerant and asked citizens to
be wise. “Our unity gives us might,” he concluded, having reminded that
controversies in the Ukrainian People’s Republic ruling caused weakening
positions of the Ukrainian independent state and its further invasion by the
bolshevist Russia.

On January 21, 2006 President Viktor Yushchenko signed a resolution on
commemoration of the memory of Kruty Heroes in connection with the 88th
anniversary of their deed.

Under the document, memorial places lengthwise the Kyiv – Moscow railroad
and at the Kruty station, where some 300 cadets were atrociously killed, as
well as the Kyiv Dnieper slopes at the Askold Sepulchre in Kyiv, where due
to efforts by the Union of Ukrainian Youth bodies of 27 heroes were buried
in 1991 and a cross erected, will be made orderly.

In the Soviet time the Kruty tragedy was concealed by historians and the
burial place was leveled to the ground.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

By Jonathan Gorvett in Pripyat, Ukraine, Doha, Qutar, Thursday 26 January 2006

As Ukraine looks to nuclear power to fuel its increasing energy needs,
critics have warned that the lessons of the 1986 Chernobyl reactor
meltdown may have gone unheeded.

Ukraine’s dispute with Russia over gas supplies in early January caused
panic in Europe – and even the eventual defeat of the government in Kiev.

With high oil prices and increased demand continuing to dominate
international markets, interest in nuclear power has resurged as securing
energy sources becomes a key issue for many European countries.

Ukraine is planning to boost its nuclear sector, and Viktor Yushchenko, the
president, has even floated the idea of using the old Chernobyl site as a
new dump for nuclear waste

Paulius Kuncinas, a Kiev-based energy analyst, says: “In 2004, Ukraine
commissioned two large new reactors.

“The government plans to build up to 11 new reactors by 2030. The

rationale is that it is a cheap way to replace gas. Ukraine also has large
uranium deposits.” But the move towards nuclear energy may be lingering
in Chernobyl’s shadow.
                                      FATAL MELTDOWN 
The result of an experiment that went horribly wrong, the Chernobyl nuclear
plant’s reactor number four exploded on 26 April 1986, releasing large
amounts of radioactivity into the atmosphere. A radioactive cloud affected
people as far away as Scotland.

The nuclear sector in Europe took a plunge in the wake of the disaster.
Many countries moved to decommission existing nuclear power stations and –
except in France and Finland – cancelled plans for new ones. Low oil prices
and fears over nuclear safety were key factors in this loss of public trust.

Today, the reactor sits at the heart of a 30km exclusion zone, an area still
dangerous for visitors.

“It’s something of a wildlife sanctuary,” says Maxime Orel of the Ukrainian
Ministry of the Catastrophe, a special government unit set up to manage and
monitor disaster relief at the site.

“The reason is that hunting is banned, because the animals are laced with
Strontium 90, a deadly radioactive isotope. They get it from eating the
plants, which are also radioactive.”

Nobody knows how many people died in the disaster, particularly as effects
such as cancers may not appear for years. Official estimates, which are
widely disputed, from the three former Soviet countries affected – Ukraine,
Belarus and Russia – say about 25,000 had died by the year 2005.

“At the time, no one wanted to believe this disaster had happened,” explains
Orel. The Soviet authorities covered up much of what had happened.
                                         GHOST TOWNS 
We are walking in the abandoned city of Pripyat, 1km from the reactor and
once a home to more than 40,000 people.

“The residents of Pripyat say they heard only a small noise when the reactor
blew – a hand clap, nothing else – at about 2am,” continues Orel. “The
following morning, people, mothers with children, went about their daily
business. No one told them what had happened, but the radiation level was
already extremely high. There was radioactive dust in the air and it covered
all the buildings and streets.”

The entire town was evacuated some days later. Because residents were told
they would return in three days, they left clothes, furniture and pets
behind. “When they came back, all the pets were dead,” Orel told

Now the town stands deserted, its miles of apartment blocks, shopping
centres, wide boulevards and amusement parks too radioactive to be lived in
again. With the wind and snow, followed by spring rains and summer heat, the
concrete buildings will likely have long since cracked and eroded away
before the radiation levels become safe.

Yet this natural process of decay is also a growing cause for alarm.
                                       GROWING ALARM 
“Chernobyl is one of the most complex sites, geologically, of any nuclear
power station,” says Jan Vande Putte, the nuclear campaigns coordinator for
environmental activists Greenpeace International.

“Several million cubic metres of radioactive waste were dumped around the
reactor in ditches, most of it in the 12 months after the disaster and in an
emergency situation. They did this next to a river which regularly floods.”

The fear is that radioactive material could get into the water table and
seep down river into the Kiev Reservoir, which lies north of Ukraine’s
capital. Kiev lies two hours’ drive downstream from Chernobyl.

In the immediate aftermath of the 1986 explosion, thousands of soldiers,
firemen and rescue workers – known as liquidators – also rushed to the site
to pour thousands of tons of lead and sand around the reactor. Many of them
died or received severe radiation burns in the process, but eventually they
contained the reactor in what has since become known as “the sarcophagus”.
Yet this structure too is now causing alarm.

“Inside the sarcophagus, in one second you can take a fatal dose of
radiation,” says Orel. “Yet its north wall is unstable. Ground water is
undermining the cement and sand dropped by the helicopters during the
emergency, it’s a mess. Highly polluted and very unstable.”
                                       CONTAINMENT HOPES 
French company Framatom is working fast onsite to build a new sarcophagus

to contain the old one. Orel hopes it will be completed as soon as possible.

Nuclear sector companies have been busy recently elsewhere in Ukraine too.
Reactor number four was just one of several at Chernobyl, yet all these have
been closed since 2000.

To compensate for the loss, the Ukrainian government commissioned two new
Russian designed reactors, Khmelnitsky 2 and Rivne 4, and received financial
backing from a string of European, US and Russian authorities.

“There is pressure on the Ukrainian government to find new energy
resources,” Kuncinas told

“Coal-fired power plants and nuclear plants are the two options being
considered. Coal is not very popular as it enjoys little support outside
                             CHEAP ENERGY PRODUCTION 
Tony Blair, the British prime minister, announced late last year that his
government would be reviewing “the development of a new generation of
nuclear power stations”.

Elsewhere, countries from Lithuania to China have also announced nuclear
plans. Advocates argue that it is a way of producing cheap energy that does
not harm the environment by producing greenhouse gases.

A return to nuclear power has also been welcomed by Western business
groups. They fear that uncertainty over energy supplies – such as that
recently shown in Russia’s spat with Ukraine – coupled with rising gas and

oil prices will have a major impact on their future competitiveness.

Yet back in the snows of Pripyat, such considerations seem a long way away.
“Once, they thought of this as a paradise,” says Orel. “The people who lived
and worked here at the reactor were all young – the average age was 25. They
were paid much more than normal Soviet citizens and had everything they
wanted. Now who knows how many are still alive.”

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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