Eurasia Daily Monitor
http://www.jamestown.org/programs/edm/

SECURITY SERVICE RAIDS UKRAINIAN STATE GAS COMPANIES
March 6, 2009

By: Roman Kupchinsky

On March 4 and 5 armed units of the Security Service of Ukraine (SBU)
conducted raids on the headquarters of Naftohaz Ukrainy, the state-owned
oil and gas company, and UkrTranshaz, the operator of the Ukrainian gas
pipeline company. According to a March 5 report by the UNIAN press
service, the raids were part of a recent SBU investigation into the
acquisition by Naftohaz of 11 billion cubic meters of gas that once
belonged to RosUkrEnergo (RUE), the shady Swiss-based middleman company,
50 percent of which is owned by Gazprom and 50 percent by Dmytro Firtash
and Ivan Fursin, two Ukrainian businessmen.

The gas is kept in Ukrainian underground storage facilities and was
formally taken over by Naftohaz after RUE's $1.7 billion debt to Gazprom
was transferred to Ukraine as prepayment for the transit of Russian gas
to Europe. Ukrainian authorities took possession of this gas and began
clearing it through customs, when the head of the Customs Service,
Valeriy Khoroshkovskyi, a wealthy businessman with ties to Dmytro
Firtash, blocked the clearance.

In response, the government headed by Yulia Tymoshenko relieved
Khoroshkovskyi of his post, but Ukrainian President Viktor Yushchenko
then appointed him deputy head of the SBU, apparently as part of his
ongoing conflict with Tymoshenko.

Khoroshkovskyi told parliament that the seizure of RUE's gas was illegal
and was carried out by "a criminal group that included the government
leadership" (Itar-Tass March 4). Interestingly enough, Gazprom, the 50
percent of owner of RUE, did not file any complaint about its gas being
stolen by the Tymoshenko government. The only objection apparently came
from Firtash, who was caught in the desperate situation of not being
able to meet his contractual obligations to deliver 5 million cubic
meters of gas a day to Poland or to supply his clients in Hungary.

Kommersant reported on February 20 that Gazprom had accused Firtash's
Hungarian company EMFESZ Kft of illegally importing gas from Ukraine and
had filed an official complaint with the Hungarian Energy Commission.
One high-level manager of Gazprom Export was quoted in Kommersant as
saying, "We need to sort out why the Hungarians are receiving gas that
was not contracted for." However, Alexander Medvedev, the head of
Gazprom Export, is also a member of the RUE coordination council and was
probably fully aware of what RUE was doing in Hungary.

During the raid on Naftohaz headquarters on March 4, members of
parliament from the Yulia Tymoshenko bloc rushed to the building to
intervene with the armed SBU unit and prevent them from seizing the
original signed copy of the January 19, 2009, contract with Gazprom on
gas purchases and transit. Serhiy Davydenko, the chief of Naftohaz's
legal department, told the press that the original contract was needed
in order to clear customs for Russian gas bound for Europe and for
domestic Ukrainian consumption (Moscow Times, March 5).

First Deputy Prime Minister Oleksandr Turchynov told a press conference
that he had urged the security agents to ignore their orders: "You must
not become a tool of criminals and corrupt officials who, with the
consent of the president, run the [security] service or coordinate its
activities" (Moscow Times, March 5). According to the Ukrayinska Pravda
website, the SBU agents eventually left the building without the
original contract.

The key question in the dispute is why Gazprom, an interested party, is
not contesting the legality of Naftohaz taking possession of the gas.
The entire episode points to the possibility that Yushchenko and
Khoroshkovskyi are, in fact, protecting Firtash's interests. This would
support Tymoshenko's long-held view that Firtash was not only helping
the pro-Russian Ukrainian Party of Regions but also Yushchenko
personally. What Tymoshenko carefully avoids mentioning is that Firtash
enjoyed the long-time support of Vladimir Putin and Gazprom. As
Gazprom's (and Putin's) reputations began to suffer from their
association with Firtash and RUE, they decided to break ties with the
company. The RUE scheme was so muddled and opaque, however, that when it
began unraveling it backfired on all the involved parties.

In a related matter, the Russian and Ukrainian auditing chambers
announced that they had begun a joint investigation into the financial
dealings of RUE (UNIAN, March 5). The Russian auditing chamber will look
into RUE's books for 2007 and 2008, while the Ukrainian auditors intend
to begin looking as far back as 2006. One unnamed Ukrainian expert told
UNIAN that the use of the state auditing commission to conduct such an
investigation was highly unusual, since legally it could only audit
state-owned companies, which RUE is not.

The 11 billion cubic meters of gas formerly owned by RUE, which is
hidden in an underground cave in Western Ukraine, is critically
important as technical gas for powering the compressing stations that
keep Russian gas flowing to Europe. If the Yushchenko administration
returns it to Firtash, it would only harm Ukraine's ability to transit
gas reliably and would give aid and comfort to one of the most bizarre
gas scams of the century.