Daily Archives: April 27, 2006

AUR#690 RosUkrEnergo Investigated By U.S.; Gas Trade Secrecy Should Be Stripped; Gas Chief Accused Of Incompetence

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ACTION UKRAINE REPORT – AUR
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

UKRAINE’S GAS SUPPLIER ROSUKRENERGO
INVESTIGATED BY UNITED STATES JUSTICE DEPARTMENT
RosUkrEnergo has been supported & defended by Yushchenko Govn’t
Yushchenko advised to probe deeper into RosUkrEnergo
UKRAINE MYSTERY SOLVED?
Two Ukrainians, Dmytro Firtash & Ivan Fursin, are finally identified
as owning stock but are they the only Ukrainian owners of RosUkrEnergo
when the billions in profits are distributed at the end of the day?
ACTION UKRAINE REPORT – AUR – Number 690
Mr. E. Morgan Williams, Publisher and Editor
WASHINGTON, D.C., THURSDAY, APRIL 27, 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
1. U.S. INVESTIGATES CRITICAL SUPPLIER OF RUSSIAN GAS
RosUkrEnergo AG supplies billions of dollars of gas to Ukraine
Europe’s Energy Security Is at Heart of Concerns; Opaque Ownership Queried
By Glenn R. Simpson and David Crawford
The Wall Street Journal, New York, NY, Friday, April 21, 2006

2. SECRECY OF RUSSIAN-TURKMEN-UKRAINE GAS TRADE TO
EUROPE SHOULD BE STRIPPED: NEW GLOBAL WITNESS REPORT
Global Witness, London, UK, Monday, April 24, 2006

3. GAS FUNNY BUSINESS IN THE TURKMEN-UKRAINE GAS TRADE
Six major recommendations from the new report
REPORT: by Global Witness, London, UK, Monday, April 24, 2006

4. GAS FIRM ROSUKRENERGO UNDER U.S. SCRUTINY
By Catherine Belton, Staff Writer, The Moscow Times
Moscow, Russia, Monday, April 24, 2006. Issue 3399. Page 1.

5. UKRAINIAN POLITICAL DISAGREEMENTS RE-EMERGE OVER
NATURAL GAS DEAL STRUCK EARLIER THIS YEAR WITH RUSSIA
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Tuesday, April 18, 2006

6. UKRAINE LEADER YUSHCHENKO ADVISED TO PROBE GAS DEAL
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Friday, April 21 2006

7. “FAREWELL TO ROSUKRENERGO”
AUSTRIAN BANK MAY LEAVE RUSSIA-UKRAINE GAS CONSORTIUM

EXCERPT FROM REPORT: By Renate Graber, Der Standard Website,
Austrian newspaper, Vienna, Austria, Tuesday, April 25, 2006
BBC Monitoring Service, UK, in English, Wednesday, Apr 26, 2006

8. OWNERS OF UKRAINE’S GAS TRADER ROSUKRENERGO REVEALED
“What we still don’t understand is what these men bring to the table.”
Stephen Boykewich, Staff Writer, Moscow Times
Moscow, Russia, Thursday, April 27, 2006. Issue 3402. Page 1.
10. UKRAINE MYSTERY SOLVED: OWNERSHIP OF ROSUKRENERGO
Reuters, Moscow, Russia, Wednesday, April 26, 2006
11. ROSUKRENERGO HITS AT CRITICS BY NAMING OWNERS
Names Dmytro Firtaxh & Ivan Fursin, two Ukrainian businessmen
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Thursday, April 27 2006

12. DMYTRO FIRTASH, UKRAINIAN BILLIONAIRE NOBODY KNOWS
By Tom Warner in Kyiv, Financial Times
London, United Kingdom, Thursday, April 27, 2006

Interfax-Ukraine, Kyiv, Ukraine, Wednesday, April 26, 2006

14. UKRAINIAN OIL, GAS CO. CHIEF ACCUSED OF INCOMPETENCE
Oleksiy Ivchenko called “useless negotiator and cynical politician”
ANALYSIS AND COMMENTARY
: By Alla Yeremenko
Zerkalo Nedeli, Kiev, in Russian Sat, 22 Apr 06; p 1, 3
BBC Monitoring Service, UK, in English, Tue, Apr 25, 2006

15. IMPERIALIST GAS
Russia doesn’t want to “politicize” energy sales.

It just wants to use them to bully its neighbors.
LEAD EDITORIAL: The Washington Post
Washington, D.C., Sunday, April 23, 2006; Page B06

16. IN RUSSIA, CORPORATE THUGS USE LEGAL GUISE
By Peter Finn, Washington Post Foreign Service
The Washington Post, Washington, D.C.,
Thursday, April 20, 2006, Front Page Article
Three articles about Rosneft, the Russian state-owned oil company
A. ROSNEFT FLOTATION WOULD SPUR PUTIN ON
Planned public offering raises serious ethical and energy security issues
Through network of untransparent companies billions of dollars siphoned off
COMMENTARY: By George Soros
Financial Times, London, UK, Wed, April 26 2006
B. SAYING NO TO ROSNEFT
Planned stock market flotation of Rosneft, Russian state-owned oil group
EDITORIAL COMMENT:
Financial Times
London, United Kingdom, Thursday, April 27 2006
C. SOROS IS RIGHT TO BE SCARED OF RUSSIAN MONOPOLIES
VIEWPOINT: The Guardian, London, United Kingdom, Thu, Apr 27, 2006
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1
. U.S. INVESTIGATES CRITICAL SUPPLIER OF RUSSIAN GAS
RosUkrEnergo AG supplies billions of dollars of gas to Ukraine
Europe’s Energy Security Is at Heart of Concerns; Opaque Ownership Queried

By Glenn R. Simpson and David Crawford
The Wall Street Journal, New York, NY, Friday, April 21, 2006

The Justice Department is investigating Rosukrenergo AG, the company that
supplies billions of dollars in Russian and Central Asian natural gas to
Ukraine, according to people in Europe and the U.S. with knowledge of the
inquiry.

Representatives of Swiss-registered Rosukrenergo and of Raiffeisen
Investment AG, a subsidiary of Vienna-based Raiffeisen Bank AG that holds
50% of Rosukrenergo’s shares for undisclosed owners, met recently with
investigators from the department’s organized-crime section at Justice
Department headquarters in Washington, these people said. They discussed
the company’s opaque ownership, though further details of what has drawn
the attention of U.S. officials remain unclear.

Spokesmen for Raiffeisen and Rosukrenergo declined to comment. Drew
Wade, a Justice Department spokesman in Washington, said he couldn’t
confirm or deny the existence of a criminal investigation.

Rosukrenergo, whose cloudy workings and ownership structure have been
attacked as a threat to Europe’s energy security and Ukraine’s political
stability, is now reconsidering plans for a public share offering that
would have required disclosure of the company’s true owners, people close
to the company said.

The other half of Rosukrenergo is owned by OAO Gazprom, the state-
controlled Russian gas titan. Officials from Gazprom, Russia and Ukraine
have denied they know the identities of the shareholders behind the
Raiffeisen stake.

The latest developments for the company — which has become a political
issue in Ukraine and has drawn concern from Western government officials —
are likely to heighten concerns among Western nations about the reliability
of Russian energy supplies amid high prices and growing tensions between
the West and the Kremlin.

The U.S. investigation is also likely to prove uncomfortable for Moscow
as it seeks to use its current Group of Eight presidency to champion energy
security, and could increase concerns in Western Europe over Gazprom’s
efforts to buy energy assets there.

On Wednesday, Gazprom warned European Union diplomats at a meeting in
Moscow against thwarting its efforts to expand into Western Europe, saying
in a statement that it could sell its gas supplies to China and North
America instead of to EU countries, which now get a quarter of their gas
from Russia. About 80% of that gas moves through Ukraine.

Doubts about Rosukrenergo’s ownership structure and affiliates prompted its
auditors to resign in November, according to a resignation letter from the
Vienna office of KPMG International that was obtained by Global Witness, a
London-based, left-leaning, privately funded nonprofit organization that
promotes the emerging world and investigates corruption, and that was
reviewed by The Wall Street Journal.

In the letter, KPMG said Rosukrenergo may be part of a larger undisclosed
business group, presenting an unacceptable risk to KPMG’s reputation.
A KPMG spokesman said he was unable to comment.

Rosukrenergo is at the heart of a bitter political struggle in Ukraine,
where President Viktor Yushchenko has come under attack for giving the
company the central role in a deal with Gazprom to provide gas to Ukraine
in January. Mr. Yushchenko has defended the arrangement as the only way
to get an acceptable gas price for Ukraine, but opponents say it invites
corruption and opens Ukraine to influence by Gazprom and unidentified
businessmen.

In a lengthy forthcoming report, Global Witness provides new details about
the origins of Rosukrenergo, and assembles a 15-year history of arbitrage
by opaque middleman companies given the lucrative right to sell Central
Asian gas to Ukraine via Gazprom’s pipelines. people familiar with the
matter corroborated key details of its account.

The report says two other little-known companies with ties to Gazprom
received energy deals to convey gas to Ukraine, before Rosukrenergo. One of
the firms, Hungarian-registered Eural Trans Gas, has numerous ties to
Rosukrenergo, the group said. Among other things, Eural Trans Gas was
part-owned by an investment company where a British businessman named
Robert Shetler Jones served as a director. Mr. Jones was one of the primary
founders of Rosukrenergo. Spokesmen for Eural Trans Gas and Mr. Jones

had no comment.

Another Gazprom partner highlighted in the Global Witness report is Itera
Group, which played a similar role in selling gas to Ukraine. Itera is a
Russian company that has an affiliate in Florida. The company came under
investigation by the Federal Bureau of Investigation in 2002, according to
an article at the time in Barron’s, which is published by Dow Jones & Co.,
publisher of the Journal.

The probe resulted in no charges, but the previous interest and the
affiliate’s presence in the U.S. could give the Justice Department jurisdiction

to inquire into Rosukrenergo affairs. An Itera spokesman in Florida didn’t
return a call for comment. -30-
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2. SECRECY OF RUSSIAN-TURKMEN-UKRAINE GAS TRADE TO
EUROPE SHOULD BE STRIPPED: NEW GLOBAL WITNESS REPORT

Global Witness, London, UK, Monday, April 24, 2006

LONDON – A vital supply route for natural gas to the European Union is
dominated by mysterious business interests who have made huge profits while
keeping their identities mostly secret, according to a new report by Global
Witness.

‘It’s a Gas. Funny Business in the Turkmen-Ukraine Gas Trade’ charts a

trade linking the Central Asian dictatorship of Turkmenistan with Ukraine
and Western Europe.
The trade takes place against a backdrop of allegations about corruption
and organised crime in the former Soviet Union, and European fears about
access to safe and stable energy supplies.

‘It’s a Gas’ reveals detailed evidence showing that:

[1] Turkmenistan’s maniacal President Niyazov appears to keep his

country’s entire gas revenues offshore and out of the state budget, via
accounts at Germany’s Deutsche Bank;

[2] The gas trade has been dominated by mysterious intermediary

companies which appear from nowhere, turn tiny sums in capital into
billion-dollar deals and reveal little about their ultimate owners;

[3] Two top Ukrainian public officials held key positions at the latest
intermediary company, RosUkrEnergo AG, half of which is ultimately

owned by people who have refused to disclose their identities;

[4] A group of British businessmen who worked with RosUkrEnergo also

played key roles at its equally mysterious predecessor, Eural Trans Gas;

[5] Gazprom, the giant Russian gas firm which owns the other half of
RosUkrEnergo, has given away lucrative chunks of business in recent

years to mysterious third-party companies;

[6] Previously unpublished audits show a history of chronic mismanagement

at Ukraine’s state oil and gas company.

Global Witness campaigner Tom Mayne said: “Lack of transparency makes it
impossible for the people of Turkmenistan and Ukraine, or gas customers in
Western Europe, to know who really controls this trade and where the profits
go. In Turkmenistan, none of the gas money seems to even reach the national
budget.”

The report calls for Ukraine to make RosUkrEnergo reveal its beneficial
owners and carry out thorough audits of the country’s entire gas industry,
in the public interest.

The European Union, Ukraine and Russia should also work to promote
transparency in the gas trade in line with benchmarks like the Extractive
Industries Transparency Initiative (EITI), a global initiative of energy
companies, government and citizen groups, and new IMF guidelines.

Mayne added: “The EU is forging a long-term strategy on how to source

and use energy. But this strategy won’t be credible unless it promotes
transparency and good governance in countries which supply Europe’s
energy, because instability in these countries could ultimately threaten
energy supplies.

The EU should also scrap plans to reward Turkmenistan’s dictator with a
trade deal, until he comes clean about his country’s gas revenues and shows
respect for the basic rights of his people.”

The new report can be downloaded from www.globalwitness.org. [NOTE:
This is a very important report. Be sure and read it. AUR EDITOR]
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For more information contact Global Witness on +44 207 561 6361/6363/6364

or on cellphone +44 784 305 8756.

(1) Global Witness focuses on the links between the exploitation of natural
resources and the funding of conflict and corruption. It is non-partisan in
all its countries of operation. Global Witness has been co-nominated for the
2003 Nobel Peace Prize for its work in uncovering how diamonds have

funded civil wars across Africa.

(2) Information on the Extractive Industries Transparency Initiative, which
brings together companies, governments and civil society around the world

to improve the disclosure and tracking of revenues is available at:
www.eitransparency.org . The IMF’s Guide to Resource Revenue Transparency
is available at http://www.imf.org/external/pubs/ft/grrt/eng/060705.htm .
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LINK: http://www.globalwitness.org/press_releases/display2.php?id=349
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3. GAS FUNNY BUSINESS IN THE TURKMEN-UKRAINE GAS TRADE
Six major recommendations from the new report

REPORT: by Global Witness, London, UK, Mon, April 24, 2006

LONDON – This is the story of a trade that brings natural gas from the

Central Asian country of Turkmenistan through Russia and Ukraine to
the European Union (EU).

Far from being open to scrutiny by the citizens of these countries, this
trade has long been controlled by a handful of people and a series of
mysterious intermediary companies. Although the business is worth billions
of dollars a year, it is still unclear where much of this money goes.

The EU is increasingly reliant on gas supplies from the former Soviet Union.
The gas price dispute between Russia and Ukraine in the winter of 2005/6
sent shivers of anxiety across Europe that, in the depths of winter, the
continent might not get enough fuel to keep warm and power its industries.

Yet the dependence of EU countries on gas from Russia and Central Asia is
only likely to grow.

This report poses a difficult question for the EU and its neighbours: can
they meet their energy needs without funding corruption and undermining good
governance in the countries that supply or transport this energy? The time
has come for transparency in the natural gas trade, to the benefit of
citizens across the region.

REPORT RECOMMENDATIONS:

[I] — The governments of Russian Federation and Ukraine should:

[1] Require any companies employed in the transportation of Turkmen
gas to be transparent, independently audited entities that make public
the identities of all their shareholders and beneficiaries;

[2] Avoid the use of barter transactions in gas deals;

[3] Adopt best international practice in the publication, auditing and
citizen oversight of natural resource revenues, drawing on such models
as the Extractive Industries Transparency Initiative (EITI) and the
International Monetary Fund (IMF) Guide to Resource Revenue
Transparency.

[II] — The government of Ukraine should:

[1] Renew efforts to investigate alleged impropriety by government
officials and intermediary companies, publish the results of
investigations and, if wrongdoing is established, prosecute those
responsible;

[2] Publish full, independent audits of the state oil and gas company
Naftohaz Ukrainy for the years where information has not previously
been available (that is, for most of the company’s existence).

[III] — The government of the Russian Federation should:

[1] Show leadership on its G8 Presidency theme of energy security by
investigating all credible allegations of wrongdoing in its natural gas
sector and by endorsing and adopting best practice in revenue
transparency;

[2] Ratify the Energy Charter Treaty and its Protocols which would
provide for more transparent transit arrangements for gas and oil and
provide for a rules based approach to dispute resolution;

[3] Extradite former Naftohaz Ukrainy chairman Ihor Bakai to Ukraine
where he is wanted on charges of the misuse of state funds.

[IV] — The government of Turkmenistan should:

[1] Provide for a full, independent and published audit of all off-budget
funds and adopt best practice in disclosure and management of natural
resource revenues according to the EITI and the IMF Guide to Resource
Revenue Transparency.

[V] — The government of Germany (and the governments

of other EU member states) should:

[1] Tighten banking laws to prevent the use of domestic banks by foreign
public officials who, like President Niyazov of Turkmenistan, are not
subject to even a basic degree of public accountability for their use of
state funds.

[VI] — The European Union should:

[1] Not enter into any agreements with Turkmenistan, concerning trade
or otherwise, until its government makes a commitment to, and shows
measurable progress towards, implementing basic norms of fiscal
transparency as defined, for example, in the IMF Manual on Fiscal
Transparency and Guide to Resource Revenue Transparency;

[2] Recognise that good governance in neighbouring countries in the
former Soviet Union, the Middle East and North Africa which provide
energy to Europe, whether as producers or transit countries, is
inextricably linked to the security of Europe’s energy supplies;

[3] Make the promotion of transparency and improved governance in
the energy industries of neighbouring countries a top policy priority.
This theme should be embedded in all the EU’s neighbourhood
agreements signed with resource revenue-dependent countries and in
the diplomatic, aid and trade activities of the EU and its member states.

This work should include capacity-building assistance to help civil
society groups in these countries act as independent monitors of their
energy industries;

[4 Encourage all resource revenue-dependent countries in Eastern
Europe, the Middle East and North Africa to join the EITI and
implement the provisions of the IMF Guide to Resource Revenue
Transparency and provide technical assistance to help them do so.
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Global Witness is a British-based non-governmental organisation
which investigates the role of natural resources in funding conflict
and corruption around the world.

References to ‘Global Witness’ above and in the body of this report
are to Global Witness Limited, a company limited by guarantee and
registered in England and Wales.

This report is compiled, published and distributed by Global Witness
Publishing Inc. from the results of the investigations carried out by
Global Witness Limited and is used to brief governments, inter-
governmental organisations, civil society and the media.
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LINK: http://www.globalwitness.org/reports/show.php/en.00088.html

FOOTNOTE: This is a very important report. Do not miss reading it.
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[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
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4. GAS FIRM ROSUKRENERGO UNDER U.S. SCRUTINY

By Catherine Belton, Staff Writer, The Moscow Times
Moscow, Russia, Monday, April 24, 2006. Issue 3399. Page 1.

MOSCOW – The U.S. Justice Department is investigating RosUkrEnergo,
the secretive gas trader that has a monopoly on billions of dollars in gas
sales to Ukraine, people familiar with the situation say.

The Swiss-registered company, half owned by Gazprom and half by
unidentified beneficiaries, has come under growing scrutiny after it landed
a lucrative role as Ukraine’s monopoly gas trader in a controversial Jan. 4
deal between Gazprom and its Ukrainian counterpart, Naftogaz Ukrainy.

Former Ukrainian Prime Minister Yulia Tymoshenko has branded the deal a
threat to European and Ukrainian energy security, while one of her top
aides, Olexander Turchinov, has said he investigated the company for
possible links with international organized crime when he headed Ukraine’s
security service, the SBU, last year.

One person familiar with the situation said RosUkrEnergo executives two
months ago traveled to the United States, where “there was a conversation”
with Justice Department officials about the group’s structure.

While that source said there had been no follow-up since then, another
person with knowledge of the situation said U.S. officials had recently
requested information about RosUkrEnergo from the Austrian government.

Austria’s Raiffeisen Bank holds the 50 percent of RosUkrEnergo not owned
by Gazprom on behalf of the unknown beneficiaries.

Justice Department spokesman Drew Wade said he could not “confirm or
deny the existence of criminal investigations.” The Wall Street Journal
reported Friday that investigations were under way.

The company is expected to come under new pressure following the publication
Monday of a detailed report on Ukrainian gas deals by Global Witness, a
highly respected London-based nongovernmental organization that investigates
corruption in the natural resources sector.

A Global Witness investigation into the role of so-called blood diamonds in
funding armed conflicts in Africa helped kick-start the Kimberley Process
for closer monitoring of the global diamond trade, and led to the group
being nominated for a Nobel Peace Prize.

The report focuses on the new monopoly role taken by RosUkrEnergo and calls
on Ukrainian President Viktor Yushchenko to clean up endemic corruption in
the energy sector. It also urges Russia to use its presidency of the G8 this
year to end the use of opaque intermediary companies in gas trading.

The Gazprom-Naftogaz Ukrainy deal highlights the threat posed to European
energy security by putting middlemen with a murky ownership structure in
control of supplies to Ukraine via Gazprom pipelines, the report says.
Europe relies on Russia for about one-quarter of its gas imports, and 80
percent of Russian exports to Europe pass through Ukraine.

“Without transparency there cannot be predictability, and without
predictability there cannot be security of energy supply,” says the 64-page
report, a copy of which was made available to The Moscow Times.

European concerns about energy dependence on Russia reached new heights
when Russia cut off supplies to Ukraine during a standoff over prices at the
beginning of the year, which led to shortfalls to Europe. In the Jan. 4
deal, RosUkrEnergo — previously an intermediary in Turkmen-Ukrainian
sales — gained a monopoly over all sales of Russian and Central Asian gas
to Ukraine.

Tymoshenko has criticized the deal, which almost doubled gas prices for
Ukraine, as a way for Russia to win back control over the country.

The Global Witness report delves into more than a decade of gas deals
between Turkmenistan and Ukraine involving intermediary gas traders with
unclear ownership structures.

Starting with the notoriously opaque regime of Turkmen President Saparmurat
Niyazov, Global Witness cites bank documents as showing that the vast
majority of the billions of dollars made by Turkmenistan in annual gas sales
never made it to the poverty-stricken country’s budget. Instead, it says,
they are kept in Frankfurt, in a Deutsche Bank foreign currency fund. Sole
control of the account rests with Niyazov.

From Turkmenistan, the report investigates a series of traders in
Turkmen-Ukrainian gas deals starting with Respublika, a company headed in
1994 by Igor Bakai, a businessman who was later an adviser to Ukrainian
President Leonid Kuchma.

Respublika was followed by independent gas producer Itera, which had close
ties to the Turkmen regime. Next was Eural Trans Gas, and finally
RosUkrEnergo. Unclear ownership of these middlemen has led to billions of
dollars in revenues being unaccounted for, the report says.

RosUkrEnergo was set up in 2004 to replace its discredited predecessor Eural
Trans Gas, but it has retained many of ETG’s directors, including three
British citizens, Robert Shetler-Jones, David Brown and Howard Wilson, the
report says.

Concerns over RosUkrEnergo’s ownership structure led KPMG to resign as the
trader’s auditor, Global Witness said Friday, citing a letter from KPMG to
RosUkrEnergo. “The political situation in Ukraine and various allegations
raised by the international press contain a risk of reputational damage to
our company. … An adequate assessment of these risks is not possible,”
says the letter obtained by Global Witness, which is dated Oct. 17, 2005.

ETG was founded in 2002 in a Hungarian village by Zeev Gordon, an Israeli
lawyer who for more than 20 years has represented Semyon Mogilevich, a
Ukrainian-born suspected organized-crime boss wanted by the FBI.

Gordon told Global Witness that he had been asked to set up ETG by Ukrainian
citizen Dmitry Firtash, the director of Highrock Holdings, a Cyprus-based
holding company.

Global Witness said Firtash was also the chairman of Nitrofert, a fertilizer
plant in Estonia, which shares the same trading company as Crimean Soda
Plant, which is owned by Shetler-Jones. The trading company, ACI Trading,
has the same Cyprus-based nominee shareholders as a series of investment
vehicles that owned ETG in 2004. The investment vehicles were directed by
Shetler-Jones and Brown, the report says.

When reached by telephone Friday, Shetler-Jones, who has held a position on
the coordinating committee of RosUkrEnergo, refused to comment on the
Global Witness and Wall Street Journal reports.

Turchinov said in an interview in Kiev last month that his investigations
into RosUkrEnergo and ETG had uncovered the involvement of Mogilevich,
Kuchma and Firtash. Turchinov has said the investigation was closed down
after Tymoshenko was fired last September and he stepped down as SBU chief.

The current chief of the SBU, Igor Drizhchany, however, has denied there was
ever any criminal investigation into RosUkrEnergo by the SBU under
Turchinov.

While Yushchenko has stood by the Jan. 4 gas deal, Tymoshenko has
called for it to be canceled.

The rift between Yushchenko and Tymoshenko over the deal was a major
campaign issue in last month’s Ukrainian parliamentary elections and is
hampering attempts to build a new government coalition out of the
Western-leaning parties run by the two former leaders of the Orange
Revolution. Tymoshenko’s party came in second in the elections; she
wants to be prime minister again.

Gazprom spokesman Sergei Kupriyanov said Friday that so far there was no
alternative to retaining RosUkrEnergo as the broker in the Ukrainian gas
deal. He said RosUkrEnergo’s business was “transparent enough,” while
Gazprom’s stake in the trader was transparent too. The ownership of the
other 50 percent, he said, was a question for Ukraine.

“We clearly defined our position,” he said, referring to Gazprom’s calls
earlier this year for Ukrainian gas monopoly Naftogaz Ukrainy to buy the
stake.

Naftogaz has said, however, that it has not received any response to its
proposals to buy the stake. Naftogaz president Oleksiy Ivchenko told a news
conference in Kiev on Friday that his inquires into who was behind the stake
had reached a dead end.

“Should Ukraine seek further explanations? Yes, we have made requests to
various institutions, including Gazprom, one of RosUkrEnergo’s owners,” he
said, Reuters reported.

When contacted by telephone Friday, Wolfgang Putschek, an executive at
Raiffeisen Investment Group and a director of Centragas, the Vienna-based
entity through which the unknown beneficiaries control half of RosUkrEnergo,
declined to comment and referred all calls to Merlin, a London-based PR
agency that represents Centragas. Michael Rommel, a director at Merlin,
refused to comment Friday.

Putschek has said RosUkrEnergo would disclose its ownership structure in
advance of an initial public offering of its shares this year, and that
Raiffeisen had signed off on its due diligence before agreeing to hold the
RosUkrEnergo stake. He has denied any links to organized-crime structures.

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LINK: http://www.themoscowtimes.com/stories/2006/04/24/001-full.html
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5. UKRAINIAN POLITICAL DISAGREEMENTS RE-EMERGE OVER
NATURAL GAS DEAL STRUCK EARLIER THIS YEAR WITH RUSSIA

By Tom Warner in Kiev, Financial Times
London, United Kingdom, Tuesday, April 18, 2006

Disagreements between Ukraine’s “Orange” leaders over a natural gas deal
struck earlier this year with Russia resurfaced on Tuesday as one of the
chief obstacles to forming a new governing coalition.

Yulia Tymoshenko, the former prime minister and the leading candidate to
head a new cabinet, on Tuesday lashed out at prosecutors who were seeking to
detain and question two of her allies in a case that stems from the roles
they played last year investigating the secretive company at the centre of
the gas deal, RosUkrEnergo.

Ms Tymoshenko promised during her campaign to annul the gas deal, a move
that Russia has warned could lead to a new round of supply cuts similar to
the one in January that interrupted the supply of Russian gas across Ukraine
to consumers in other European countries.

The dispute had been moved to the back burner in recent weeks as Ms
Tymoshenko sought to convince the president, Viktor Yushchenko, to rally
support for the coalition. However, in a speech on Tuesday she appeared
enraged by the attempts to arrest her allies and accused the deputy
prosecutor general in charge of the case, Viktor Shokin, of being part of a
conspiracy aimed at wrecking the coalition.

Ms Tymoshenko said her supporters would “tear down the prison” if her allies
were jailed and called on Mr Yushchenko to intervene to contain his allies.
He shot back by issuing a statement that called on prospective coalition
partners to “refrain from the language of blackmail and ultimatums”.

The prosecutor general’s office confirmed it was seeking to detain Olexander
Turchinov, Ms Tymoshenko’s campaign manager, and Andry Kozhemyakin, a
Tymoshenko bloc candidate, in order to bring them in for questioning because
they had not come in to testify voluntarily.

However, the two men were regarded as witnesses, not as suspects, and there
were no plans to detain them for longer than the questioning, a spokesman
said.

Prosecutors want to ask the two men about the alleged disappearance of
documents from the files of the SBU national security police last year, when
Mr Turchinov headed the SBU and Mr Kozhemyakin was an investigator who
worked on the RosUkrEnergo case.

Mr Shokin and the current SBU chief have alleged that a large file on Semyon
Mogilevich, a reputed crime boss who is on the FBI’s most wanted list, was
found missing.

Mr Turchinov and Mr Kozhemyakin have said they merely archived old material
on Mr Mogilevich on microfiche. They claim Mr Shokin is seeking retribution
against them for having investigated RosUkrEnergo, a Swiss-registered
company which is owned half by Russia’s Gazprom and half by unnamed
beneficiaries.

Mr Turchinov’s investigation of RosUkrEnergo included an examination of
suspicions that Mr Mogilevich indirectly controlled the company. The company
has said repeatedly that it has no relationship with Mr Mogilevich. -30-

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6. UKRAINE LEADER YUSHCHENKO ADVISED TO PROBE GAS DEAL

By Tom Warner in Kiev, Financial Times
London, United Kingdom, Friday, April 21 2006

Ukraine’s President Viktor Yushchenko must investigate the companies at
the heart of a controversial natural gas deal with Russia or risk
undermining his pro-western reform drive, according to a hard-hitting

report from Global Witness, the respected human rights group.

In a report due out on Monday, the UK-based watchdog will say the lack
of transparency around gas supplies from Turkmenistan to Ukraine by
RosUkrEnergo, a secretive Swiss-registered company part-owned by
Gazprom of Russia, also threatens the security of gas supplies to Europe.

In adding its voice to the controversy surrounding RosUkrEnergo, Global
Witness is increasing the political pressure on Mr Yushchenko, who is
currently embroiled in tense coalition talks with the leaders of other
pro-western political parties, some of whom are keen to annul the gas deal.

The report will also put pressure on the European Union, which, Global
Witness will say, must “recognise that good governance in neighbouring
countries . . . which provide energy to Europe, whether as producers or
transit countries, is inextricably linked to the security of Europe’s energy
supplies”.

“If we’re not confident about the sources of funding [for gas] and how it is
going to get to Europe, we’re going to be in a difficult position 10 years
down the line,” warned Tom Mayne, one of the report’s authors.

The report is the latest part of Global Witness’s campaign against
corruption in the natural resources sector, which, the group argues, is
often linked to human rights abuses. The report details conditions in
Turkmenistan, where imprisonment and torture of dissidents are said to be
commonplace.

Global Witness describes how it was unable to get a definitive answer on the
outcome of an investigation announced last year by the SBU national security
police into the activities and owners of RosUkrEnergo.

The SBU said last year it suspected the company was controlled by an
organised crime group. RosUkrEnergo strongly denies the claim.

After a change of leadership in September, the SBU told Global Witness no
such investigation had existed, while others claimed the probe was
suppressed.

“Against the background of this confusion, critics might question
Yushchenko’s political will to confront . . . opaque and unaccountable
business practices,” the report says.

Mr Yushchenko has said that Russia chose RosUkrEnergo to supply Ukraine’s
gas and gave him no other option. He has accused the former SBU chief who
investigated RosUkrEnergo of supporting a different intermediary company.

RosUkrEnergo declined to comment on the Global Witness report or on
whether it had any plans to reveal its owners. -30-

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7. “FAREWELL TO ROSUKRENERGO”
AUSTRIAN BANK MAY LEAVE RUSSIA-UKRAINE GAS CONSORTIUM

EXCERPT FROM REPORT: By Renate Graber, Der Standard Website,
Austrian newspaper, Vienna, Austria, Tuesday, April 25, 2006
BBC Monitoring Service, UK, in English, Wednesday, Apr 26, 2006

Raiffeisen Investment AG may well withdraw from the gas transport consortium
RosUkrEnergo, the trustees now reveal themselves. Raiffeisen banker Herbert
Stepic says: Audits are already stricter in the East because of BAWAG and
Hypo Alpe-Adria [Austrian banks now under investigation].

Herbert Stepic, head of Raiffeisen International (RI, the quoted East bank
holding company of the Raiffeisen sector), does not believe Raiffeisen
Investment AG (Riag) will be a participant in RosUkrEnergo much longer. “I
am not a decision-maker there, but I am assuming Riag will withdraw once the
true owners have introduced themselves in public,” Stepic said on Monday [24
April] at the Economic Journalists’ Club in Vienna.

The shares in the gas transport consortium RosUkrEnergo, which is registered
in Switzerland and plays a substantial role in the gas dispute between
Russia and Ukraine, are held in equal parts by Russia’s Gazprombank and (on
a trustee basis) by Riag, but Stepic says the trustees want to “soon go
public” as to whom they are holding the shares for, a fact not previously
revealed.

Regarding the assumption repeatedly made (also by the United States) that
Semyon Mogilevich, wanted by the FBI on suspicion of money laundering and
extortion, could be behind this, Stepic commented: “Everything was examined
by professionals, no criminal background and no close relationship with Mr
Mogilevich were found. The government authorities of Ukraine and Russia have
always known who the owners are.”

Now it is also known by the Austrian supervisory agency FMA, which was
informed this year in response to an inquiry.

Why do the owners want to reveal themselves at this particular time? Stepic:
“There is a new government in Ukraine, and the interim contracts for the gas
deliveries expire in the summer. Now there are new rules of the game.”

He described the reason for the involvement in the gas transport company as
follows: “Raiffeisen has a good name in Russia and Ukraine and supports the
negotiations of the two contracting parties as a mediator, so to speak. When
Riag entered into the trustee relationship in early 2004, that was an
entirely normal business deal. But then we got caught up in the maelstrom of
the election discussions in Ukraine.” [Passage omitted]

As regards its own plans in Ukraine, RI reportedly made a decision at the
end of May: It either sells its subsidiary there to the best bidder (“We
have very interesting offers”), or Raiffeisen Ukraine will be merged with
the bank Aval acquired in 2005. -30-
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8. OWNERS OF UKRAINE’S GAS TRADER ROSUKRENERGO REVEALED
“What we still don’t understand is what these men bring to the table.”

Stephen Boykewich, Staff Writer, Moscow Times
Moscow, Russia, Thursday, April 27, 2006. Issue 3402. Page 1.

MOSCOW – Gazprom’s Izvestia newspaper announced with a flourish

Wednesday that two Ukrainian businessmen, Dmytro Firtash and Ivan Fursin,
were the beneficiaries behind the mysterious other half of RosUkrEnergo.

Citing what it said were excerpts of a PricewaterhouseCoopers audit of the
secretive gas trader, the newspaper named the men in a front-page article
written in a sarcastic, anti-American tone that attempted to link them to
Ukrainian President Viktor Yushchenko.

The audit named Firtash and Fursin as the owners of Centragas, a company
that owns the 50 percent of RosUkrEnergo not owned by Gazprom. Centragas

is held by Austria’s Raiffeisen Bank for beneficiaries who had refused to be
named.

Centragas confirmed Izvestia’s report in a statement late Wednesday, saying
Firtash owned a 90 percent stake in Centragas, and Fursin a 10 percent
stake.

Firtash is director of the Cyprus-based investment company Highrock
Holdings, as well as board chairman of Estonian fertilizer factory
Nitrofert, according to anti-corruption watchdog Global Witness. Fursin owns
an Odessa bank and a movie theater, and is also president of a branch of
Highrock Holdings, according to Izvestia.

Izvestia said Highrock was owned by Semyon Mogilevich, a Ukrainian-born
businessman wanted by the FBI and reputed to be a major figure in organized
crime.

The revelation came after Gazprom had for months redirected inquiries about
RosUkrEnergo’s ownership to Ukrainian officials.

Yet the article appeared to raise far more questions than it answered — in
particular, about the timing and motives behind its publication.

Written under the name “Vladimir Berezhnoi,” the article attacked the U.S.
Justice Department, which was reported last week to be investigating
RosUkrEnergo’s then-unknown beneficiaries.

“The internal problems of their own country, evidently, have long since been
resolved (the only thing left is to execute the terrorist Moussaoui), and
thus they have the time and desire to meddle in other people’s affairs,” the
Izvestia article said.

Several staff members at Izvestia contacted by telephone Wednesday
identified Berezhnoi as a freelance writer. But a source at Izvestia said on
condition of anonymity that Berezhnoi did not exist, and that the article
had been written by an Izvestia staff member under a pseudonym after a
Gazprom representative showed him the PwC audit.

A search of Izvestia’s archives revealed no other articles published under
the name Vladimir Berezhnoi, and a Russian-language Internet search revealed
no articles in other publications written by a journalist of that name.

Galina Zhukova, a member of Izvestia’s editorial staff, asked that questions
for Berezhnoi be submitted to her by e-mail, and said that Berezhnoi would
reply the same way if he chose to respond. Questions submitted by e-mail had
not been answered by late Wednesday evening.

Gazprom spokesman Sergei Kupriyanov confirmed that Gazprom had possession

of the PwC audit of RosUkrEnergo, though said he could not comment on how
Izvestia had seen it. He also said the revelation of Centragas’ beneficiaries in no
way changed Gazprom’s position.

“We have already said that our partner in the project is Raiffeisen, and
that all other questions should be directed to the Ukrainian side,”
Kupriyanov said. “As for our part, we’ve always been open and transparent.”

A PwC spokeswoman confirmed that the company had audited RosUkrEnergo

but could not provide details.

Earlier this week, Raiffeisen said it would likely withdraw from the
arrangement under which it holds 50 percent in RosUkrEnergo once the
beneficiaries came forward, according to a report published Tuesday on the
web site of the Austrian newspaper Der Standard.

“I am assuming Raiffeisen will withdraw once the true owners have introduced
themselves in public,” Herbert Stepic, head of Raiffeisen International,
said Monday.

There has been much speculation about Firtash’s possible connection to
RosUkrEnergo. A report published this week by Global Witness, which was
nominated for a Nobel Peace Prize for its work tracking corruption in the
natural resources sector, noted that Firtash had registered and was closely
associated with Eural Trans Gas, another secretive gas trader that served as
the immediate predecessor to RosUkrEnergo.

“It obviously clarifies who these people are,” Tom Mayne, a researcher at
Global Witness, said by telephone from London. “What we still don’t
understand is what these men bring to the table.”

Mayne also said the revelation would likely increase pressure on Yushchenko
to explain why RosUkrEnergo had been given exclusive rights as Ukraine’s gas
trader.

Many observers have questioned why the trader was being employed at all,
rather than having Gazprom sell gas directly to Ukrainian gas monopoly
Naftogaz Ukrainy.

The Jan. 4 deal that ended the gas standoff between Russia and Ukraine has
been a major bone of contention between Yushchenko, who has denied any
knowledge of who is behind RosUkrEnergo, and former Prime Minister Yulia
Tymoshenko, his erstwhile Orange Revolution ally.

Tymoshenko has accused Yushchenko of concealing his knowledge of
RosUkrEnergo’s beneficiaries, while Yushchenko has fired back that critics
of the trader only want it replaced with their own favored company.
Yushchenko’s spokeswoman could not be immediately reached for comment
Wednesday.

The Ukrainian government will make official decisions regarding the gas
trader only after the PwC audit is officially published, Fuel and Energy
Minister Ivan Plachkov said Wednesday, Interfax reported.

“We have signed contracts, we are satisfied with the price. … Ukraine will
work and consume gas, just as agreed,” Plachkov said.

Izvestia sought to stress purported links between Firtash and the Ukrainian
president, saying Firtash was friends with former presidential aide
Alexander Tretyakov.
It also related Ukrainian media reports that Firtash had endeared himself to
the president by flying Yushchenko’s American relatives to Kiev for his
inauguration.

But Ukrainian political commentator Boris Pogrebinsky said the links were
tenuous. Firtash’s arranging the flight is “the only information known to me
from any source making some connection” between the two, Pogrebinsky said.

Pogrebinsky also said that while Tymoshenko might seek to use the
information as a way to press her case to regain the prime minister’s job,
there would be little public reaction in Ukraine — even if Yushchenko were
publicly linked to Firtash and Fursin.

“But the public doesn’t react harshly to indications of corruption. This is
far too complicated a matter for the general public,” Pogrebinsky said.
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LINK: http://www.themoscowtimes.com/stories/2006/04/27/004.html

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FOOTNOTE: Many Ukrainian analysts in Washington are not sure that
Dmytro Firtash and Ivan Fursin only represent themselves in the owner-
ship of RosUkrEnergo. It is believed by many that these two Ukrainians
represent themselves and also other Ukrainians who are actually involved
in the ownership structure and who receive fund when the billions in
profits are distributed at the end of the day. AUR EDITOR
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9. TWO UKRAINIAN BUSINESSMEN LINKED TO MURKY RUSSIAN-
UKRAINIAN GAS VENTURE REPORTS RUSSIAN NEWSPAPER

AP Worldstream, Kyiv, Ukraine, Wed, April 26, 2006

Two Ukrainian businessmen are among the main beneficiaries of a secretive
Russian-Ukrainian natural gas venture thrust into the spotlight during a New
Year’s price dispute that briefly cut gas supplies to Ukraine and Europe, a
Russian newspaper reported Wednesday.

The daily Izvestia, citing documents it said were from auditing company
PriceWaterhouseCoopers, said Kiev basketball club owner Dmytro Firtash and
Ivan Fursin, owner of a Ukrainian bank, owned 90 percent and 10 percent,
respectively, of a company called Centragas Holding AG.

In turn, it said, Centragas owns half of RosUkrEnergo, which is central to a
deal that eased the impact of a drastic hike in gas prices proposed for
Ukraine by Russia and its state-controlled gas monopoly, OAO Gazprom.

The other half of RosUkrEnergo is owned by Gazprom.

The complicated deal – and the murky ownership structure of RosUkrEnergo

in particular – prompted wide criticism of Ukrainian President Viktor
Yushchenko’s government, even as it helped settle a bitter price dispute
that caused a temporary drop in supplies to Europe when Russia turned off
the taps to Ukraine.

Izvestia reported that Firtash is a representative of a company called
EuralTransGas, registered in Budapest, Hungary, where it said he lives most
of the time, and that he was on friendly terms with a former top aide to
Yushchenko, Oleksandr Tretyakov.

Gazprom acquired a majority stake in Izvestia last year.

Fursin, who unsuccessfully ran for parliament last year, is the owner of a
bank in the Black Sea city of Odessa and a film studio, according to the
newspaper.

It also said Fursin is president of a branch of Highrock Holdings Ltd., a
company it said is owned by Semyon Mogilevich, a Ukrainian-born Russian
citizen and reputed organized crime figure who is wanted by the FBI and
whose name has been linked with RosUkrEnergo in media reports.

A RosUkrEnergo representative said earlier this year that the company had no
connection with Mogilevich.

Efforts to contact both Firtash and Fursin were unsuccessful. A woman who
answered the phone at the Kiev basketball club refused to comment, and
Fursin could not be immediately located.

Gazprom initially demanded Ukraine pay US$230 (A195) per 1,000 cubic meters
of gas, more than a fourfold increase. The face-saving deal reached in early
January called for RosUkrEnergo to buy Russian gas at that price and sell
Ukraine a mix of Russian and Central Asian gas at US$95 (A80).

Questions have since been raised over whether the agreement will prove
sustainable, and the secrecy surrounding RosUkrEnergo also undermined
Russian claims that the agreement marked a shift to transparency after years
of opaque gas trade practices. -30-

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10. UKRAINE MYSTERY SOLVED: OWNERSHIP OF ROSUKRENERGO

Reuters, Moscow, Russia, Wednesday, April 26, 2006

MOSCOW – Two influential Ukrainian businessmen were named Wednesday

as the owners of a one-half stake in RosUkrEnergo, a mysterious company
that controls Ukraine’s gas imports.

Citing audit documents, the newspaper Izvestia said Dmitry Firtash – who has
in the past played a role in importing gas from Turkmenistan to Ukraine and
owns a Kiev basketball club – and Ivan Fursin, a banker, were the beneficial
owners of the 50-percent stake.

Raiffeisen Zentralbank in Austria confirmed the names, saying it was holding
the stake on their behalf.

In an e-mailed statement, the bank said Centragas Holding, a company based
in Vienna, “is a joint owner of RosUkrEnergo.” Firtash owns 90 percent of
Centragas and Fursin holds the other 10 percent, the statement said.

Raiffeisen said in the past that it held the stake as trustee but declined
to disclose the names of the owners.

Firtash, who reportedly spends most of his time in Hungary, could not be
reached immediately for comment. Fursin also was not reached.

RosUkrEnergo bounced into the public eye when it was named as the go-between
in a deal to resolve a gas pricing dispute between Russia and Ukraine which
interrupted supplies to Europe over the New Year.

Russia’s state-controlled monopoly Gazprom owns the other 50 percent of
Swiss-registered RosUkrEnergo.

The U.S. Justice Department’s organized crime section reportedly opened a
probe into RosUkrEnergo, with diplomatic and financial sources saying that
Raiffeisen had cooperated by providing information on the company.

Izvestia, which is owned by Gazprom, published extracts from an audit report
by PricewaterhouseCoopers that named the two men as owners of Centragas.

Ukraine’s energy minister, Ivan Plachkov, was quoted by Interfax- Ukraine
news agency as saying that Kiev may review the January gas deal because of
the revelation.

RosUkrEnergo’s sales in 2005 were around $3.5 billion and it made profits of
$500 million from the sale of about 40 billion cubic metres of gas,
Raiffeisen has said. That makes it one of Europe’s largest gas marketers.

The disclosures come as concern grew that Ukraine, which is the transit
route for 80 percent of Russia’s gas exports to Europe, was tolerating
opaque gas deals, even after the “Orange Revolution” of 2004, that
jeopardize regional energy security.

Ukraine’s state energy company, Naftogaz, is struggling to pay for gas
imports following the January gas deal, under which the import price Ukraine
must pay nearly doubled to $95 per 1,000 cubic meters.

Naftogaz has been unable to pass on the gas price increase to consumers and,
according to local media reports, ran up losses of at least $500 million in
the first quarter of 2006.

Firtash also figures prominently in a recent report by Global Witness, a
non- governmental organization that campaigns against corruption involving
natural resources, on the structures through which Turkmen gas has been sold
to Ukraine.

Global Witness warned that Europe’s energy security was threatened by the
opaque nature of gas supply deals in the former Soviet states. -30-
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FOOTNOTE: Many Ukrainian analysts in Washington are not sure that
Dmytro Firtash and Ivan Fursin only represent themselves in the owner-
ship of RosUkrEnergo. It is believed by many that these two Ukrainians
represent themselves and also other Ukrainians who are actually involved
in the ownership structure and who receive fund when the billions in
profits are distributed at the end of the day. AUR EDITOR
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11. ROSUKRENERGO HITS AT CRITICS BY NAMING OWNERS
Names Dmytro Firtash and Ivan Fursin, two Ukrainian businessmen

By Tom Warner in Kiev, Financial Times
London, United Kingdom, Thursday, April 27 2006

RosUkrEnergo, the secretive energy trader that dominates gas supplies from
Central Asia to Europe, yesterday revealed its beneficial owners in a move
aimed at countering mounting international concern about its ownership.

The Swiss-registered trading company, which earlier this year won
billion-dollar contracts to supply gas to Ukraine and other European
countries, named Dmytro Firtash and Ivan Fursin, two Ukrainian businessmen,
as the owners of a 50 per cent stake. The other 50 per cent is held by
Gazprom, the Russian energy group, whose shareholding was publicly known.

By disclosing its Ukrainian owners, RosUkrEnergo was seeking to take some of
the pressure off Vladimir Putin, Russia’s president, whose government has
been criticised for giving the company exclusive rights to transport central
Asian gas across Russia.

At the Russian Economic Forum in London earlier this week Alexander
Medvedev, Gazprom deputy chief executive, was questioned about
RosUkrEnergo’s ownership and responded that it was an issue for the
authorities in Kiev and not in Moscow.

RosUkrEnergo was the principal beneficiary of the settlement of a
contractual dispute this year between Russia and Ukraine, when Moscow
briefly cut gas supplies to its southern neighbour. Acting as an
intermediary, the company now supplies gas worth about $10bn (Euro8bn,
£5.6bn) a year at current prices, with two-thirds going to Ukraine and the
rest to the European Union.

The ownership details were disclosed yesterday in Izvestia, the Russian
daily newspaper owned by Gazprom. Merlin, RosUkrEnergo’s London-

based public relations company, later confirmed the accuracy of the report
in a phone conversation with the FT.

The newspaper quoted a report by PwC, RosUkrEnergo’s auditors, which
identified Mr Firtash as 90 per cent owner and Mr Fursin as 10 per cent
owner of Centragas Holding, an Austrian-registered company that owns the 50
per cent stake.

Mr Firtash controls chemicals plants in the former Soviet Union and has been
involved in gas trading since 2001. Mr Fursin is the chairman of Misto, a
small Ukrainian bank. Both have close associates involved at senior levels
in Ukrainian politics.

The confirmation that Mr Firtash was the main owner of the stake is unlikely
to quell the speculation that has engulfed RosUkrEnergo ever since the
company commenced operations in 2005. In a parliamentary debate earlier this
year it was alleged that Semyon Mogilevich, a reputed organised crime boss
who is on the FBI’s “most wanted” list on charges of being involved in a
stock fraud, is involved in the company.

Last year the then head of Ukraine’s SBU national security police said he
was investigating suspicions that Mr Mogilevich indirectly controlled
RosUkrEnergo.

Mr Firtash was previously involved in two other gas traders, Highrock
Holdings and Eural Trans Gas, together with Zeev Gordon, an Israeli lawyer
who also represents Mr Mogilevich. Mr Gordon was a nominal shareholder of
Eural in 2002-2004 and set up an Israeli subsidiary of Highrock in 2001.

Mr Gordon said in a telephone interview yesterday that Mr Mogilevich, who is
believed to live outside Moscow, denies any involvement in RosUkrEnergo. Mr
Gordon also said he had not met Mr Firtash through Mr Mogilevich.
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========================================================
12. DMYTRO FIRTASH, UKRAINIAN BILLIONAIRE NOBODY KNOWS

By Tom Warner in Kyiv, Financial Times
London, United Kingdom, Thursday, April 27, 2006

Dmytro Firtash, the 40-year-old Ukrainian who was identified yesterday as
effectively owning 45 per cent of RosUkrEnergo, could be the world’s most
secretive billionaire.

He has never given a published interview. Until now, he has never had his
name and photograph published together. But his name often appears in
Ukrainian and Russian media, which had frequently linked him to RosUkrEnergo
and to two other gas traders, Eural Trans Gas and Highrock Holdings, which
are no longer active.

In the 1990s, Mr Firtash and his wife Maria built up several small companies
in their home town of Chernivtsy, the largest of which was Kmil, which ran
trucks, traded commodities and produced packaged food.

They also had a residence in Berlin and co-owned a German trucking company,
MDF Transspeditions, which they quit in 2000.

Mr Firtash’s fortunes changed dramatically in 2001 after he became director
of the Cyprus-registered Highrock Holdings, which occupied a newly
refurbished office building on Moscow’s glitzy Novy Arbat. The company acted
as a barter agent between Naftogaz, Ukraine’s state oil and gas company, and
Turkmenistan.

Two years later his career took another leap when the Hungarian-registered
Eural Trans Gas secured exclusive contracts to supply Turkmen gas to
Ukraine. After RosUkrEnergo took over those contracts in 2005, Eural
revealed that Mr Firtash was its main beneficial owner.

Mr Firtash has also been named in local media as a beneficial owner of three
Ukrainian chemicals plants, Crimean Soda, Crimean Titan and Rivneazot.

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13. UKRAINIAN PRESIDENTIAL SECRETARIAT WANTS OFFICIAL
DOCUMENTS ON INVOLVEMENT OF UKRAINIAN CITIZENS
IN GAS INTERMEDIARY ROSUKRENERGO
INTERFAX-UKRAINE, Kyiv, Ukraine, Wednesday, April 26, 2006
KYIV – The Ukrainian presidential secretariat hopes to get official
documents the Izvestia newspaper referred to in saying that Ukrainian
citizens are involved in RosUkrEnergo A.G.

The presidential secretariat reports all reliable information on RosUkrEnergo.

The attention of the press service was drawn to an article in the Izvestia
newspaper that Ukrainian citizens are involved in RosUkrEnergo
with reference to a report by the PricewaterhouseCoopers international
audit company.
In this connection, the secretariat of the president will use all legal ways
to get official documents,” the secretariat of the Ukrainian president told
Interfax-Ukraine on Wednesday.

“President [Yuschenko] has marked that Ukrainian state establishments or
officials are not among founders or owners [of RosUkrEnergo],” the press
service said. -30-

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14. UKRAINIAN OIL, GAS CO. CHIEF ACCUSED OF INCOMPETENCE
Oleksiy Ivchenko called “useless negotiator and cynical politician”

ANALYSIS AND COMMENTARY: By Alla Yeremenko
Zerkalo Nedeli, Kiev, in Russian Sat, 22 Apr 06; p 1, 3
BBC Monitoring Service, UK, in English, Tue, Apr 25, 2006

A serious weekly has launched a scathing attack on Oleksiy Ivchenko, the
head Ukraine’s state-run oil and gas company Naftohaz Ukrayiny. The paper
called him a “useless negotiator and cynical politician” and suggested he
was largely responsible for the company’s dire financial situation. It also
accused him to tackle alleged financial fraud within Naftohaz.

The article features an interview with Finance Minister Viktor Pynzenyk, who
criticizes financial documents produced by Naftohaz, saying they lack
concrete plans.

The following is an excerpt from the article by Alla Yeremenko published in
the Ukrainian weekly Zerkalo Nedeli on 22 April; subheadings have been
inserted editorially:

If only Zerkalo Nedeli had known that in order to prove the unscrupulousness
of [head of oil and gas monopoly Naftohaz Ukrayiny] Oleksiy Ivchenko it was
necessary not to get hold of the agreements and protocols hidden from the
government and causing losses to Ukraine, but merely to say that Ivchenko
had bought himself the latest Mercedes with Naftohaz money.

If the paper had only known that in order to prove his uselessness as a
negotiator and primitive cynicism as a politician, it was necessary not to
check Ivchenko’s statements and those by his opponents – [Russian gas
monopoly] Gazprom and [Turkmen President Saparmyrat Nyyazow] Turkmenbashy –
that refute his words, but simply take the Naftohaz chief’s comment
regarding the Mercedes, in which he showed himself in his true colours to
the whole country.

If the paper had only known that the president of Ukraine [Viktor
Yushchenko] was worried only by the Mercedes story, then it would not have
written in detail about how the company under Ivchenko’s leadership was
unswervingly moving towards financial disaster.

But we did not know all that. What is more, we realized why the president
continued to keep in the job a person with such a level of competence,
despite the position of almost the entire government, the prime minister and
the opposition.

The story of the Mercedes and Ivchenko’s entry into parliament on the
[pro-presidential] Our Ukraine list helps the president partly to have done
with the story of Ivchenko’s chairmanship. And given a proper choice of
successor to the post of chairman of the company, to maintain the existing
gas schemes as well.

The Mercedes has been sold and Ivchenko is almost dismissed, but colossal
problems remain.

After our paper (and some like-minded people) insistently drew attention to
the lack of transparency of the 100 per cent state-owned national
joint-stock company Naftohaz Ukrayiny, to the ever growing external debt for
credits and a mass of other looming troubles, on 27 December last year
President Viktor Yushchenko also took an interest in Naftohaz for a while
and issued a decree prescribing in particular the holding of a joint check
on Naftohaz by the Security Service of Ukraine and the Main Auditing
Directorate.

The object of interest was the effectiveness of the use of credits obtained
by Naftohaz in 2004-05. By raising the topic not point by point, but in a
concentrated form, our paper raised the question: “Who will answer and how
for the credits of Naftohaz Ukrayiny?” (see Zerkalo Nedeli No 6 published on
18 February 2006). And already then we described the basic nuances of the
credit-discrediting biography of Naftohaz.

PROBE FINDS NAFTOHAZ IN SORRY SHAPE
As soon as on 7 March the head of the Security Service of Ukraine, Ihor
Drizhchanyy, sent a letter to President Viktor Yushchenko with a more
detailed account of the finance and credit position of the biggest national
oil and gas company.

The letter compiled as a result of the check by the Auditing Directorate and
the Security Service said in particular:
“Over the period in question Naftohaz Ukrayiny had attracted from seven
non-resident banks and five resident banks credit funds to the value of
20,197.2m hryvnyas [almost 4bn dollars], including long-term credits of
9,484.2m hryvnyas [about 1.8bn dollars] and short-term credits of 10,713m
hryvnyas [over 2bn dollars]. [Passage omitted: breakdown of how much money
lent by which non-resident banks]

Naftohaz Ukrayiny obtained the credit resources to replenish its working
capital and carry out payments for imported natural gas. The loans were
provided by non-resident banks against collateral of all the company’s
assets and by resident banks against collateral of the property rights to
the proceeds from selling natural gas.

An analysis of the company’s financial and economic activity shows that it
depended on long-term obligations in 2004 to 58.3 per cent, and in 2005 to
97.6 per cent. For use of the credit funds over 2004-05 Naftohaz Ukrayiny
paid out interest amounting in total to 320.6m hryvnyas, or 62.1m dollars.

Because of the shortage of its own working capital, the company is not in a
position to carry out its obligations at the expense of its own assets
without external loans, which renders the company dependent on creditors and
makes it impossible to expand production and pay back the debts on time.

Taking account of all this, the overall financial and economic situation of
Naftohaz Ukrayiny is in crisis and seen as unstable.
[Passage omitted: danger of bankruptcy]

Proceeding from the above, the SBU deems it expedient:
– to make it mandatory for Naftohaz Ukrayiny to get the consent of the
Finance Ministry, the Economics Ministry and the Justice Ministry of Ukraine
prior to obtaining loans and their conditions;
– for the Fuel and Energy Ministry of Ukraine urgently to develop a set of
measures to improve the financial health of the company… [ellipsis as
published]”

It is worth noting that the version of Drizhchanyy’s letter sent to the
president differs somewhat from the original draft, which suggested, for
example, specific staffing changes in the management of Naftohaz.

On 13 March the president instructed Prime Minister [Yuriy] Yekhanurov “to
conduct an in-depth analysis of the state of affairs of Naftohaz Ukrayiny
and develop an effective programme for improving its financial health”.

On 15 March the prime minister in turn instructed nine state officials,
including Fuel and Energy Minister [Ivan] Plachkov, Economics Minister
Arseniy Yatsenyuk; Security Service Chairman Drizhchanyy; State Property
Fund Chairwoman [Valentyna] Semenyuk and also Ivchenko, “in accordance with
the requirements of the president of Ukraine to conduct an in-depth analysis
of the state of affairs at Naftohaz Ukrayiny and make coordinated proposals
to improve the financial and economic position of the company… [ellipsis
as published] The deadline for this is 6 April 2006.”

As far as I understand, the Security Service head had done all he could even
before that. Fuel and Energy Minister Plachkov is a clear ally of his former
deputy and Naftohaz head Ivchenko. So it looks as if it was none other than
Ivchenko himself who dealt with the “improvement” measures in Naftohaz.

As a result of this, it must be supposed that the Cabinet of Ministers
received the same basic composite financial indicators instead of the
expected financial plan together with coordinated proposals to improve the
company’s financial and economic position.

FINANCE MINISTER’S DISPLEASURE
And there clearly is something that needs improving in Naftohaz. It is not
for nothing that on 19 April the consideration of the company’s financial
plan for 2006 ended up with nothing – “for further work to be carried out” –
apart from the scandal with [Finance Minister] Viktor Pynzenyk.

After the failure of Naftohaz’s financial plan, the company’s head,
Ivchenko, not mincing his words, said “Go on listening to Pynzenyk’s
position and the diarrhoea that he is spouting. The finance minister should
not do that.” In a word, here is Mr Ivchenko the way he is. And none of the
finance minister’s conclusions produced the due effect on him.

Meanwhile, Pynzenyk apart from criticizing “the basic financial indicators”,
also confirmed that Naftohaz Ukrayiny did indeed have a problem with cash
flows, since its income and expenditure did not coincide in time.

However, in that case the movement of funds should be reflected in the
relevant documents. “I want to see a month: income, expenditure and movement
of funds. We see cash shortages and then we understand for what period and
what amounts they need to be given permission to obtain credit,” Pynzenyk
said.

Apart from that, the Finance Ministry stated that in principle it would
change its approach to financial plans, both of Naftohaz and of other state
enterprises. [Passage omitted: high wage costs in Naftohaz]

Naftohaz has what appears at first glance to be a modest affiliate,
Naftohazobsluhovuvannya [Oil and gas services]. It is in charge of
Naftohaz’s fleet of cars. But that is only the icing on the cake. Under the
pretext that the company is in tax security, Naftohaz does not buy cars
directly.

Its affiliate enterprise and departments buy them. And Naftohaz rents all
this stuff from them at the usual prices, even higher than usual prices –
93m hryvnyas [over 18m dollars] for 2005 (for that money they could have
bought 40 Rolls Royces with moderate fittings.

Although, if you get down to it, Naftohaz is renting it all from itself. But
it is written off as expenditure. And that is only the rental. For example,
the rental of Ivchenko’s newly sold Mercedes would have cost the company
(which in essence owns it) 45,000 hryvnyas [under 9,000 dollars] a month.
Then there is also servicing. For a simple check-up of a new car, Naftohaz
easily spent 5,000 dollars.
NO GAS SUPPLIES FROM TURKMENISTAN
It looks as if Ivchenko did not manage to get to grips with the
Naftohazpostach [oil and gas supplies] company either. And why was that?
Well, who will check how expensive is the equipment – often second-hand –
that this “daughter” sells to Naftohaz? And who will check that the
isolation layer on pipes being laid is twice as thin as agreed, declared and
paid for by Naftohaz?

Just as nobody checks how much gas is really used in the country and how
much as in olden days is written off as losses, etc. Why is it that the
balances of gas consumers and gas sellers do not match up?

There are many other strange things in Naftohaz, which our wise men have not
even heard of. The strangest things are in the foreign economic activity of
Naftohaz. For example, Ivchenko recently, emotional as ever, assured
everyone that Naftohaz was regularly receiving Turkmen gas. No problems with
supplies, apparently.

Only he forgot to add that there was only one supplier, Rosukrenergo, to
which Naftohaz already owes a considerable amount. True, the head of
Naftohaz also denies the fact that the debt actually exists and believes in
the reliability of Ukraine’s sole gas supplier.

According to our information, it is all not as rosy as Ivchenko portrays it.
To be more accurate, it is exactly the opposite. Turkmen gas did not arrive
in Ukraine in the first quarter and the Ukrainian side to a considerable
extent has not paid Rosukrenergo.

What is more, Gazprom in the person of the deputy chairman of the board,
Aleksandr Medvedev, has announced a possible price rise. And Rosukrenergo is
not ruling out the possibility that prices for Ukraine may change from June.

Despite this, Ivchenko sees no prerequisites and grounds for raising prices
and refers to the agreements and contracts signed. It is possible that
before winter the Russians, in particular from Rosukrenergo, will not start
taking radical actions, but as the cold weather draws closer, they will
certainly say: “Winter… [ellipsis as published]”

[Passage omitted: danger of Gazprom taking over Ukraine’s gas transportation
system; quote from Ivchenko’s 2005 interview in Zerkalo Nedeli]

“I’m not going anywhere,” Ivchenko said at a news conference on Friday [21
April]. He said that his leaving Naftohaz depended on who would head the new
government. In other words, on whether he will be able to keep the existing
gas scheme untouched or not.
INTERVIEW WITH FINANCE MINISTER PYNZENYK
In order to get all the details right in the Finance Ministry-Naftohaz
quarrel over financial indicators, our paper asked Ukrainian Finance
Minister Viktor Pynzenyk to comment.

[Yeremenko] Mr Pynzenyk, after preliminary consideration of the Naftohaz
Ukrayiny financial plan, you said that that this was no sort of financial
plan for the company. Why do you believe this? And what then did the cabinet
consider at its 19 April sitting?

[Pynzenyk] Naftohaz Ukrayiny presented the government with what they call
basic financial indicators. But the law envisages that a government
resolution should be backed precisely by a financial plan rather than basic
financial-economic indicators of the national joint-stock company. Clear-cut
criteria for the compilation of such a plan are set out in writing. Naftohaz
did not bother to present anything of the sort.

[Yeremenko] Was that why you as finance minister were against approving the
document?

[Pynzenyk] Definitely: this is the position of the Finance Ministry and it
is entirely justified, since Naftohaz Ukrayiny does not have a financial
plan.

[Yeremenko] But apart from that, if I’m not mistaken, you found
discrepancies even in those indicators of the financial documentation that
were presented by Naftohaz. What did they consist of?

[Pynzenyk] If one looks at the financial indicators of Naftohaz and at how
they are compiled, it is obvious that income and expenditure do not tally.
In connection with this, a legitimate question arises: what is considered
income and what expenditure?

[Yeremenko] Then clarify please how do you consider it and how does
Naftohaz?

[Pynzenyk] The problem here is not with me or Naftohaz. Because when the
income and expenditure of any company, i.e. any business activity, is being
planned, they present what expenditure is essential for production and what
income they can expect to receive as a result.

In Ukraine, unfortunately, this is often not taken into account. And not
only in Naftohaz; it’s just that in this company it is manifested in the
most critical dimension. They have revenue and there is a concept of losses,
i.e. the wish to spend what they don’t have. [Passage omitted: expanding
this]

[Yeremenko] For example, there was the S-class Mercedes costing 215,000
dollars.

[Pynzenyk] This story became public knowledge, and that’s maybe not a bad
thing. But there are also more substantial intentions of Naftohaz. Without
having resources, the company plans to invest 2bn hryvnyas abroad. From what
sources? From the profit of 500m plus amortization payments?

Then there are capital investments. Last year Naftohaz had 3.6bn hryvnyas of
them and this year they want to invest 6bn.
[Passage omitted: this is clearly unsound thinking]

[Yeremenko] What about the 400m dollars invested in the United Arab
Emirates?

[Pynzenyk] If I’m not mistaken, the amount there was 1.922bn. And it’s the
same problem as in the Russian Federation, only plus, probably, nuances of
the local oil and gas business.

[Passage omitted: new rules mean that Naftohaz has to get Finance Ministry
approval for new loans]
NAFTOHAZ TRYING TO AVOID PAYING TAX
[Yeremenko] Naftohaz is asking for a deferment of payments to the budget for
six months. The Finance Ministry is opposed. Why?

[Pynzenyk] To start with, we proposed that Naftohaz reduce the gap between
real income and planned (unjustified) expenditure, including investments in
various companies. That meant reducing it by 6bn hryvnyas. Naftohaz does not
agree with this. What is more, it does not even want to pay taxes to the
budget either.

But given financial planning, they would already be part of the company’s
plan. We agreed to go for tax privileges, but on condition that that
Naftohaz spending was reduced. However, Naftohaz wants to get excessive
credits while not paying taxes at the same time.

[Yeremenko] Naftohaz is relying on the fact that in connection with the
scrapping of the VAT zero rate on gas, it will have a temporary gap in
payments to the budget. Formerly there was a VAT zero rate, and there was no
such problem, so it goes.

[Pynzenyk] The thing is that VAT is a tax not on the company, but on the
consumer, that should immediately go into the budget. It is not part of
Naftohaz income. The income of Naftohaz is the price of gas.

Technically the company pays the tax when gas is sold, but VAT does not form
part of the price of the energy source; it is counted on top of it, and so
does not belong to Naftohaz. [Passage omitted: expanding this]

[Yeremenko] What sum are we talking about?

[Pynzenyk] Unless I’m mistaken, it’s something in the order of 5-6bn
hryvnyas [about 1bn dollars]. And it will be extremely problematic to make
up for it to the budget from other sources.

[Yeremenko] What is the restructuring of payments for income payments for
oil and gas extracted according to Naftohaz?

[Pynzenyk] I really don’t know what Naftohaz can gain in this case. The
budget law envisages privileges and subsidies for the population. They are
paid out by the Finance Ministry, as determined by law (for five years now),
from revenues from income payments. Money is returned to Naftohaz from

those funds in the form of privileges and subsidies.

So, if Naftohaz stops making income payments to the state budget, the
Finance Ministry will simply be forced, in accordance with the requirements
of the law, to stop payments of privileges and subsidies to Naftohaz.

So, will Naftohaz or the state budget be the winner? -30-
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
15. IMPERIALIST GAS
Russia doesn’t want to “politicize” energy sales.
It just wants to use them to bully its neighbors.

LEAD EDITORIAL: The Washington Post
Washington, D.C., Sunday, April 23, 2006; Page B06

RUSSIAN FOREIGN policy seems to grow more aggressive with each
week that President Vladimir Putin serves as chairman of the Group of
Eight nations, which consists of seven rich industrial democracies and
his own resource-exporting autocracy.

Last week the chairman of the state-controlled gas exporter, Gazprom, which
provides a quarter of the European Union’s supply, crudely threatened E.U.
governments that his company will sell its product in other markets unless
they give way to its “international ambitions.”

The chairman, Alexei Miller, was reacting to reports of British unease at
the possibility that Gazprom might seek to purchase Britain’s largest gas
company. With a cynicism reminiscent of former Soviet bureaucrats, Mr.
Miller denounced supposed Western attempts to “politicize questions of gas
supply,” even though Mr. Putin is overtly using Gazprom and its
near-monopoly control of energy and pipelines to restore Moscow’s dominion
over neighbors such as Belarus and Armenia.

Lacking Soviet military might or a large economy, Mr. Putin now describes
Russia as an “energy superpower.” He offered a taste of what this might mean
in January, when he personally ordered a cutoff of gas to Ukraine — which
had the temerity to reject his candidate in a presidential election — even
though this also meant a shortage of gas in Vienna, Rome and Berlin. Given
Mr. Putin’s consolidation of power at home and stated regret over the
collapse of the Soviet empire, there is good reason for disquiet over
Gazprom’s acquisition strategy.

As for the politicization of economic markets, Europeans wondering about
Russia’s intentions need look no farther than Georgia and Moldova, two
former Soviet republics that, like Ukraine, have attempted to consolidate
democracies and establish independence from Moscow. Late last month Russia
abruptly banned the import of their wines, even though these supply more
than 40 percent of the Russian market and account for a large part of the
two countries’ foreign exports.

The health reasons cited by Russian officials were unserious; the real
reason was the Kremlin’s ire over arguments by Georgia and Moldova that
Russia should not be allowed into the World Trade Organization until it
stops supporting separatist regimes on their territories and removes troops
it was bound to withdraw years ago.

Mr. Putin’s attempts to strangle Georgia, Moldova and Ukraine and to
consolidate control over Belarus haven’t slackened even as he prepares to
host President Bush and the other G-8 leaders at a St. Petersburg summit
this summer. In fact he clearly hopes the summit will ratify Russia’s return
as a global power with the right to its own sphere of influence. President
Bush has resisted suggestions that he short-circuit this by skipping the
summit or proposing Russia’s removal from the G-8.

His administration did, however, take a little-noticed but important step
last week toward pricking Mr. Putin’s inflated ambitions. At a G-8 meeting
in Moscow, U.S. and European diplomats insisted that Belarus, Georgia and
Moldova be added to the agenda for discussions at preparatory meetings
leading up to the summit. That should make it hard for Mr. Putin to exclude
a review of his bullying at the summit itself.

If St. Petersburg can become the forum at which Western leaders make clear
they will not accept Russia’s use of economic blackmail or military force to
dominate its neighbors, or its backing of a dictatorship in Belarus, then
the summit might be worth having after all. -30-

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http://www.washingtonpost.com/wp-dyn/content/article/2006/04/22/AR2006042201026.html
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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16. IN RUSSIA, CORPORATE THUGS USE LEGAL GUISE

By Peter Finn, Washington Post Foreign Service
The Washington Post, Washington, D.C.,
Thursday, April 20, 2006, Front Page Article

MOSCOW — The general director of the Na Ilyinke catering company was

very much alive when his coffin arrived. “In memory of dear Alexei Alexeyevich
Likhachev,” read the message on a ribbon attached to an accompanying wreath.
“We will never forget you.”

The empty pine coffin, draped in red cloth, was delivered to the company’s
central Moscow office by a courier service. Soon the phones began to ring as
shareholders, who had received telegrams inviting them to a memorial
service, called about poor Alexei’s unexpected passing.

For the owners of Na Ilyinke, the ghoulish stunt carried an unspoken
message: Sell or else, according to Oleg Gubinsky, a shareholder and head of
the company’s legal team. “It was an opening move,” Gubinsky said.

Na Ilyinke is the target of a new breed of Russian financial predator, one
that hunts in lesser-known parts of the country’s booming economy: small and
medium-size companies. Often the goal is not the company itself, but the
real estate it occupies, acquired in the privatizations of the early 1990s.

In those days, people wanting to take over a company often simply sent

armed thugs to occupy it. The new raiders employ some of that old-style
intimidation, but dress it up in legality by teaming with corrupt lawyers,
accountants, judges, bureaucrats and police to exploit weaknesses in
Russia’s fledgling corporate legal system, Russian lawmakers and
entrepreneurs say.

Typically the raiders are politically connected developers and their allies
in the bureaucracy. Their activity is drawing attention at the highest
levels of the government, where officials fear it undermines Russia’s
investment climate and adds to the sense that rule of law remains illusory
in the country.


“Honest business people and property rights should be protected,” President
Vladimir Putin told an audience of prosecutors in February. He added that
the criminal seizure of property was destabilizing the country.

In Soviet days, Na Ilyinke was the government-owned catering facility for
the Moscow City Committee of the Communist Party. Located in downtown
Moscow, it was also a center of social life and shopping for the party
elite. Its basement held a supermarket carrying such hard-to-find products
as Coca-Cola; senior party officials held wakes and receptions on its
premises, which at one point had a tunnel to the nearby headquarters of the
KGB.

During the waning days of the Soviet Union, Likhachev ran the place as a
government employee. After the collapse of the communist state, he and a
team of investors bought it and turned it into a private company, a
hand-over similar to other privatization deals that took place all over
Russia in the 1990s.

Today, its staff of 60 continues to run cafeterias in government buildings,
including the former party building across the street that became the office
of the presidential administration.

Na Ilyinke’s prime fixed asset is its 130,000-square-foot headquarters.
Given its choice location, real estate experts estimate it would fetch at
least $35 million as is, and much more if refurbished and converted into
luxury offices or apartments.

Gubinsky said he had suspicions as to who the raiders were, but no proof. He
believes that the real estate value is what drew their interest; he and the
other owners foresee rehabbing the building themselves but think the timing
isn’t quite right.

The delivery of the coffin spooked Likhachev, an elderly man. He sold his
shares to two colleagues, Gubinsky and Ilya Dyskin, who had the spirit to
fight the raiders’ next moves. One occurred at a private depository company,
where Na Ilyinke stores its official documents that list its shareholders.

Last September, a Ukrainian citizen named Sergei Shevchuk came to the firm
and presented a power of attorney document that indicated he had the legal
right to manage the shares of Gubinsky and Dyskin.

Shevchuk then sold the shares, 58 percent of the company’s total, to Tamara
Tobiya, another Ukrainian. Three days later Tobiya sold them again, to a man
named Evgen Halynski, who provided a Warwick, N.Y., address on official
forms.

The Warwick address, it turns out, is a dry-cleaning shop. A person who
answered the phone there said there was no one named Evgen Halynski living
or working in the building. And no one responded to messages left at the
Brooklyn, N.Y., address of a man by that name. Both Shevchuk and Tobiya,

who worked at a stall at an open-air market in Moscow, later vanished.

None of this was known at Na Ilyinke, Gubinsky said, until after a letter
arrived from the depository last fall informing it of the company’s new
ownership structure. “It was like thunder from a blue sky,” Gubinsky said.

The rightful shareholders quickly secured an investigation by the Federal
Financial Markets Service. A report it issued last November documented the
fraudulent sales and concluded that the power of attorney document that set
them in motion had been forged. The agency suspended the transactions and,
in January, revoked the license of the depository company, according to
agency documents, on grounds it should have tried to ascertain that the
power of attorney was real.

“We know about maybe 1,000 cases a year, but the real scale of these attacks
is probably closer to 10,000 or 15,000,” said Gennady Gudkov, head of a
parliamentary working group examining the issue. “This problem is almost
impossible to solve in a corrupt state.”

“Big business can usually protect itself,” said Yuri Glotser, head of the
Federation for the Protection of Entrepreneurs’ Rights in Moscow. “Smaller
businesses are much more vulnerable, and their property can be worth a lot
of money.”

In Na Ilyinke’s case, the fraudulent share sale was just one element of the
attack. Last year it also found itself fighting off three separate court
orders. Each one followed a pattern: Legal papers would arrive at the
company informing it that a judgment had been returned against it, in a
proceeding that the company was entirely unaware of. The company then had to
respond with its own attorneys.

One order was issued by a court in St. Petersburg and another by a court in
Moscow, freezing the company’s assets, Gubinsky said. The third originated
in the city of Tuva, near the border with Mongolia. A court there ordered
the company to vacate its Moscow building, saying it had been leased to a
Tuva company. The person listed as the Tuva firm’s director turned out to be
a student at the local agricultural college.

Gubinsky estimates the company has spent $300,000 defending itself. The
multiple attacks in the courts are a pretext to establish some legal basis
to send security guards to seize the building, Gubinsky said. If they
successfully occupy the targeted property, the police typically tell the
ejected party to go to court and fight it there.

As a defense, Na Ilyinke’s building now resembles an armed camp. An alarm
system at the front entrance can trigger the closing of steel doors that
seal off all sections of the building. The rear entrance has a large steel
gate and is surrounded by barbed wire. “If you lose physical possession of
your property, you are in serious trouble,” Gubinsky said. “So far, we’ve
kept them out.”

Other owners wish they’d taken such precautions. Near Moscow’s Kiev railroad
station, a group of prominent artists is battling in the courts to get back
light-filled studios that were seized last April by private security guards
after the ownership of the studios was re-registered in what the artists
call a fraudulent transaction.

The studios would fetch millions if converted to penthouse apartments. “It
was monstrous,” said Lev Tabenkin, a painter who was forced out after the
raiders persuaded a court to issue an eviction order. “I don’t understand
our system.”

In January, Rinat Kudashev, general director of a former state institute
that designs pipelines and other facilities for transporting oil and gas,
was escorted out of his offices by about 30 private guards. The previous
November, he said in an interview, one of the institute’s minority
shareholders called a meeting without the knowledge of Kudashev or the
company’s two majority shareholders and merged the business with another
company. The original two companies were then liquidated.

Vitaly Semyonov, general director of a Moscow transportation company, said
his company has been raided 31 times by different government agencies, the
orchestrated prelude to a $10 million offer for a business that he values at
$25 million. He rejected the offer, he said, not only because it was low,
but because what the raiders really wanted was the land his business sits
on — and they intended to lay off his 1,000 workers. He remains ensnared in
several court actions.

“In the ’90s, your enemy operated openly and you knew how to defend
yourself,” Semyonov said. “I was shot by bandits who wanted our business,
but we survived. Today I’m facing Oxford-educated lawyers.” -30-

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http://www.washingtonpost.com/wp-dyn/content/article/2006/04/19/AR2006041902376.html?sub=AR
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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17. SAYING NO TO STOCK MARKET FLOTATION OF ROSNEFT
Three articles about Rosneft, the Russian state-owned oil company
A. ROSNEFT FLOTATION WOULD SPUR PUTIN ON
Planned public offering raises serious ethical and energy security issues
Through network of untransparent companies billions of dollars siphoned off

COMMENTARY: By George Soros
Financial Times, London, UK, Wed, April 26 2006

The planned initial public offering of Rosneft, the Russian state-owned oil
company, on the London Stock Exchange raises serious ethical and energy
security issues.

The ethical issues are relatively straightforward. The main asset of Rosneft
is the Yugansk oilfield that was acquired from Yukos when that company was
assessed for back taxes and its assets were auctioned off. But it was not
acquired directly. The auction was won by an unknown Russian company that
sold itself within days to Rosneft.

The transaction was widely believed to have been engineered by President
Vladimir Putin’s powerful aide, Rosneft chairman Igor Sechin, and it was
financed by compliant Russian banks. The unknown owners made an unknown
amount of money on the transaction. Part of the IPO proceeds would go to
repay the Russian banks.

The question is, should an IPO be allowed to go forward without disclosing
the pertinent information; indeed, should it be allowed to go forward at
all? To argue that it will improve transparency ignores the fact that
Rosneft is an instrument of state that will always serve the political
objectives of Russia in preference to the interests of the shareholders. Is
Rosneft willing to put this into the prospectus?

The energy security issue is more complicated and requires some explanation.
When the Soviet system disintegrated, the energy sector was privatised in a
chaotic fashion. Devious transactions were perpetrated, such as the loan for
shares scheme, and enormous fortunes were made.

When Mr Putin became president, he used the power of the state to regain
control of the energy industry. He put the president of Yukos, Mikhail
Khodorkovsky, in jail and bankrupted the company.

Mr Putin put his own man, Alexei Miller, in charge of Gazprom and pushed out
the previous management that had built a private fiefdom out of Gazprom’s
properties. The president did not dissolve the fiefdom, however, but used it
to assert control over the production and transportation of gas in the
neighbouring countries.

This led to the formation of a network of untransparent companies that
served the dual purpose of extending Russian influence and creating private
wealth. Billions of dollars were siphoned off over the years. The most
valuable asset was the gas of Turkmenistan, part of which was resold by a
company registered in Hungary at a multiple of the price at which it was
bought.

While the ownership of Eural Trans Gas was never disclosed, the decisions to
give it contracts were made jointly by Mr Putin and the then president of
Ukraine, Leonid Kuchma. I believe that was one reason why Mr Putin exposed
himself so publicly in backing Mr Kuchma’s nominee, Viktor Yanukovich, for
president of Ukraine in 2004.

After the Orange Revolution, the contract with Turkmenistan passed into the
hands of RosUkrEnergo, a company with obscure ownership set up by
Raiffeisenbank of Austria.

At the start of 2006, Russia cut off the gas supply to Ukraine. Ukraine, in
turn, tapped into the gas that was passing through Ukraine on its way to the
rest of Europe. This caused an uproar in Europe and forced Russia to restore
supplies to Ukraine; but in the subsequent settlement Russia gained the
upper hand.

It promised gas supplies at reduced prices through RosUkrEnergo for six
months, but Ukraine committed itself to fixing the transit fees for five
years. After six months, Russia will be able to exert political pressure on
Ukraine by threatening to raise gas prices. Russia already exercises
considerable influence over Belarus.

The result is that Europe is relying for a large portion of energy supplies
on a country that does not hesitate to use its monopoly power in devious and
arbitrary ways. Until now, European countries have been competing with each
other to obtain supplies from Russia. This has put them at Russia’s mercy.
Energy dependence is having a major influence on the attitude and policies
of the European Union towards Russia and its neighbours.

It will serve the national interests of the member states to develop a
European energy policy. Acting together, they can improve the balance of
power. In the short run, Russia is in the driver’s seat: an interruption of
gas supplies disrupts European economies immediately while an interruption
of gas revenues would affect Russia only with a delay. In the long run, the
situation is reversed. Russia needs a market for its gas and few
alternatives exist as long as Europe sticks together.

Europe could tell Russia that if it wants to maintain and increase its
market in Europe, it must agree to a change in conditions by ratifying the
European Energy Charter and the Extractive Industries Transparency
Initiative. This would turn the pipelines into highways, break up the
Russian gas monopoly and inhibit the currently prevailing devious
arrangements.

Energy security is on the agenda of the forthcoming Group of Eight meeting
in St Petersburg. If the Rosneft IPO went forward, it would consolidate and
legitimise a state of affairs that is detrimental to Europe’s energy
security and weaken the EU’s hand in negotiating better conditions with
Russia. -30-
————————————————————————————————
The writer is the author of “The Age of Fallibility: Consequences of the War
on Terror” to be published by Weidenfeld and Nicholson in early July

————————————————————————————————
http://news.ft.com/cms/s/360e76c4-d4c0-11da-a357-0000779e2340.html
=====================================================
B. SAYING NO TO ROSNEFT
Planned stock market flotation of Rosneft, Russian state-owned oil group

EDITORIAL COMMENT: Financial Times
London, United Kingdom, Thursday, April 27 2006

The planned stock market flotation of Rosneft, the Russian state-owned oil
group, presents investors with an unprecedented opportunity to buy into
Russia’s oil riches. But it is an offer that raises profoundly uncomfortable
political, legal and moral questions.

As George Soros, the financier, wrote in yesterday’s Financial Times,
Rosneft is above all an instrument of the Russian state, which will retain a
majority stake and management control. The Kremlin will be happy to see
Rosneft make money – but the drive to maximise profits will be tempered by
pressure to achieve other policy aims.

The experience of Gazprom might persuade many investors the risks of state
control are worth taking – that in Vladimir Putin’s authoritarian Russia it
is best to have Kremlin protection. Certainly, Gazprom shareholders have had
little reason to complain, with the market value soaring from $10bn to
$250bn (£139bn) in five years.

However, Kremlin protection comes at a price. State-controlled companies
reserve the right to withhold crucial information, such as details of
Gazprom’s deal with Ukraine. Outside shareholders can expect to have little
say in senior appointments, as top jobs go to political favourites such as
Igor Sechin, the Rosneft chairman and Mr Putin’s deputy chief of staff.

Nor will investors have much influence if they find fault with these
appointees, especially in questions of incompetence or corruption. The
Kremlin alone will decide. Investors who question companies aggressively may
be harassed and even barred from Russia, as William Browder, a fund manager
and Gazprom shareholder, has discovered to his cost.

In the longer term, investors should not forget that state-owned industry
has a baleful record nor that Russia is prone to dramatic political
upheavals. The shareholders of the Yukos oil group profited greatly under
former president Boris Yeltsin.

Under Mr Putin, the company has been bankrupted and Mikhail Khodorkovsky,
its founder, jailed for fraud. The state seized Yukos’s main asset in lieu
of unpaid tax and sold it to Rosneft.

Yukos shareholders have pledged to fight the Kremlin. It will be a hopeless
battle, but it could mire Rosneft – and its future shareholders – in years
of unsavoury litigation.

Investors must also consider the moral dimension. They will be denounced by
Yukos shareholders as receivers of stolen goods. The charge is simplistic.
Mr Khodorkovsky made his fortune through one arbitrary state act – an
untransparent privatisation – and lost it in another – a
Kremlin-orchestrated tax probe.

Both acts were unjust. The state first cheated the Russian people and then
robbed Mr Khodorkovsky and his fellow shareholders. Now, in an equally
arbitrary way, it is inviting outsiders to share in the spoils. It will
indeed be a fabulous feast. But there will be unquiet spirits at the table.

————————————————————————————————
http://news.ft.com/cms/s/2306b57a-d58b-11da-93bc-0000779e2340.html
=====================================================
C. SOROS IS RIGHT TO BE SCARED OF RUSSIAN MONOPOLIES

VIEWPOINT: The Guardian, London, United Kingdom, Thu, Apr 27, 2006

The word from Moscow is not to expect a bid from Gazprom for Centrica any
time soon, but don’t expect the tale to go away.

Gazprom has an ambition to supply 20% of the British gas market, and so the
comments by George Soros yesterday on the true nature of Russia’s
state-controlled energy companies deserve to be heard.

His prime concern is the danger of allowing Rosneft, the oil company, to
float in London, but his analysis applies equally to Gazprom. Both companies
are in effect controlled directly by Moscow.

This is what Soros said: “Europe is relying for a large portion of energy
supplies on a country that does not hesitate to use its monopoly power in
devious and arbitrary ways.”

Gazprom’s heavy-handed, and widely condemned, act of turning off the taps to
Ukraine in January is the prime piece of evidence.
To that, we could add last week’s warning from Gazprom’s chief executive
that “no good results” would follow if the company was denied its ambition
to expand in Europe.

The argument here is very simple. Gazprom is not a normal company. It’s a
monopoly supplier that wants to restrict access to its own markets and is
not afraid to adopt bullying tactics abroad.

The question of whether Gazprom should be allowed to buy British, or other
European assets, is not an argument about protectionism. It is about the
wisdom of relying on a company that doesn’t play by standard rules and
pursues political ambitions.

This point has apparently yet to be appreciated by the government if it is
really true that Tony Blair has ruled out ministerial interference in any
future Gazprom bid for Centrica, Britain’s biggest home-owned utility.

Such a hands-off policy would be taking belief in open markets to an absurd
extreme. Soros’s solution – common European resolve to force Russia to agree
binding agreements on supply – sounds far more sensible.

The sooner the government accepts this the better – before we wake up to
find that Gazprom has raided the market for 10% of Centrica’s shares.

————————————————————————————————
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