Posted on 01/05/2006 4:25:52 PM PST by Tailgunner Joe
MOSCOW/KIEV, Jan 5 (Reuters) - Europe may have breathed a collective sigh of relief after Russia and Ukraine signed a long-term gas supply deal, averting a possible repetition of the New Year supply cutbacks that unnerved the continent.
But after a closer look at the complex pact signed on Wednesday, outsiders may yet have cause for concern about the region's energy security, especially after Ukraine's ex-premier Yulia Tymoshenko launched a legal challenge to stop the deal.
The accord uses as middleman a little-known Swiss-based joint venture called RosUkrEnergo, owned half by Russia's gas monopoly Gazprom (GAZPPE.RTS: Quote, Profile, Research) and half by Austria's Raiffeisen Zentralbank.
Sources familiar with the five-year gas deal say Raiffeisen is representing a group of mainly Ukrainian investors but their identity is shrouded in secrecy.
"We represent a group of international investors knowledgeable in the gas business who don't want to reveal their identity," Wolfgang Putschek, of the Austrian bank's investment arm, told Reuters by telephone from Vienna.
Until it is clear who is behind the company's business, uncertainty remains over who stands to profit from it and how exposed it might be to political interference.
"Ukraine cannot sign a contract where the middleman ... is a commercial structure when it declares it is a democratic and transparent European country," said Mykola Rudkovsky, a leader of Ukraine's Socialist Party, which is in the ruling coalition.
"Such schemes are very vulnerable to political changes," he told the Ukrainska Pravda Web site.
Putschek estimated RosUkrEnergo's 2005 sales at $3.5 billion and profits at $500 million. He said its gas sales would rise in 2006 by 35-40 percent from last year's 40 billion cubic metres
(bcm), making RosUkrEnergo one of Europe's top gas marketers.
CORRUPTION RISK
Critics say the non-transparent structure could easily lead to corruption, with money being siphoned off to private pockets, and that it would be better both for Ukraine and Gazprom -- the world's largest gas firm -- to deal directly.
RosUkrEnergo was set up by former Ukrainian President Leonid Kuchma's government shortly before it was ousted from power by a popular revolution after flawed elections, leading critics to fear also that it could be linked to political interests.
Within months of appearing from nowhere it had taken control of Ukraine's gas imports from Turkmenistan by the start of 2005.
During her brief tenure as premier of the reformist government swept to power in Ukraine's 2004 "Orange Revolution", Tymoshenko denounced RosUkrEnergo as a "criminal canker on the body" of state energy firm Naftogaz.
She vowed on Thursday to fight the deal in the courts, saying: "This agreement has put Ukraine into a situation of unstable gas prices. All these agreements should be cancelled."
PROBE
Tymoshenko and her ally and former security service chief, Oleksander Turchinov, investigated whether Semion Mogilevich -- a Ukrainian-born Russian businessman wanted by the U.S. Federal Bureau of Investigation for racketeering, fraud and money laundering -- was behind the Ukrainian side of RosUkrEnergo.
Mogilevich has, through his lawyer, denied any link and the investigation petered out after Tymoshenko and Turchinov lost their jobs last autumn.
Putschek also denied any connection to Mogilevich, saying RosUkrEnergo's backers were reputable. "Our standard procedure for accepting customers is that they have to undergo rigorous compliance checks, and they passed them," he said.
Ukraine is the transit route for 80 percent of Russia's gas exports to Europe. Polish gas company PGNiG (PGNI.WA: Quote, Profile, Research) is one customer of RosUkrEnergo, buying 2 bcm of Poland's annual needs of 13 bcm, industry sources in Warsaw say.
DEALING DIRECTLY
Under the deal, RosUkrEnergo will this year handle gas supplies to Ukraine from Russia and Central Asia, to be sold at an average $95 per 1,000 cubic metres -- up from around $50 now.
But the venture will buy from Gazprom at $230 per 1,000 cubic metres, meaning that part of its business will lose money. Sources said it would market gas to Hungary and Romania independently to make good the shortfall.
"In general we believe this is positive for Gazprom because the prices are higher. But at the end of the day it would be better if Gazprom did this business itself," said Vadim Kleiner at Hermitage Capital Management in Moscow.
Officials at Gazprom and in the Russian government say Russia's side of the bargain is sufficiently transparent, but they cannot influence the way the Ukrainians choose to operate.
"We know who owns the Russian side and we would rather the Ukrainians switched to direct state ownership," one Russian source said. "But that's how they wanted to structure the deal."
That would change, said Putschek, if RosUkrEnergo goes ahead with a planned initial public offering in the next 12-18 months, as it would have to disclose its owners in its issue prospectus.
"Then it would become clear," he said.
It looks like all they wanted was to make sure the right gangsters got "their cut."
Sure does...
Oh well, wait til next year when Russia breaks this agreement. Once they heard the Euros start talking about nuclear energy for the first time in 40 years, they blinked.
Russia is apparently not as enthusiastic about nuclear energy in Europe as they are about Iran.
bingo.
"Ukrainian Security Service chairman Oleksandr Turchynov said publicly earlier this year that he believes Ukrainian-born mafia boss Semyon Mogilevich, known as "the Brainy Don", controls the company. A former member of President Leonid Kuchma's administration, Mogilevich is wanted by America's FBI and Interpol on money-laundering charges. He lives openly in Moscow, and Russia refuses to extradite him." - LINK
"As Wolfgang Putschek said quoted by Reuters “a group of international investors who still prefer to stay unidentified” is behind Raiffeisen Invest AG, another owner of RUE. It reminds one of Vladimir Putin’s declaration made a year ago that a group of “experienced energy specialists” is behind the Baikal Finans Group company which bought Yuganskneftegaz at the Federal Property Management Fund’s auction." - LINK
HUNT FOR THE RED DON - 09/04/1999 - Benex is alleged to have been used by Mogilevich and other Russian gangsters to move large sums from Russia to Britain. Investigators claim that in the six months to March this year, about $4.2 billion, in more than 10,000 transactions, passed through one account. In New York, the bank suspended Natasha Kagalovsky, another senior official involved in its eastern European business. Her husband, Konstantine, also Russian, had recently worked at the International Monetary Fund, fuelling speculation that some of the laundered cash may have originated from IMF grants to Russia.
Shocked........(rolls eyes)
Don't know if your were pinged to this thread or not.
Who is incidentally the grandson of CPUSA's Earl Browder, with some interesting associations in his own right:
HIS GRANDFATHER was chairman of the U.S. Communist Party in the 1930s and early '40s until he was ousted for his "revisionist" thinking. Today William F. Browder, MBA '89, is revising some other thinking about Russia, making his mark in Moscow's nascent capitalist system. In April 1996, armed with $25 million from private investors, Browder formed the Hermitage Fund, called by Business Week "one of the best-performing offshore funds this year." The fund closed last summer after growing to $816 million. Browder is now working on Hermitage II, also aimed at investors who can stake more than $1 million each on stocks such as oil company Lukoil, phone company Rostelekom, and Sherbank, which now holds 75 percent of Russia's bank deposits.
Andrew Capon, "Seeing red: fund manager Bill Browder's anger at Russian companies' treatment of shareholders in spurring reforms. It's also making him rich.", Institutional Investor International Edition, Sept 2002 v27 i9 p65(4):
SNIP
So Browder called his chief financial backer and confidant, Edmond Safra, the legendary banker to the wealthy, who died in 1999. Safra's counsel: "If we want to fight this, we do it properly. We go to war." First, Browder hired bodyguards. Next, he talked to everyone he knew who had leverage with either Renaissance or Sidanco, including Safra's friend, hedge fund manager George Soros, a significant investor in Russia, and Sir John Browne, CEO of BP, which owned 10 percent of Sidanco.
SNIP
BROWDER DIDN'T GO TO RUSSIA EXPECTING TO become an agitator for good corporate governance. After graduating from business school in 1990, he was drawn to Eastern Europe by the fall of the Berlin Wall and by a curious family connection: His grandfather, Earl Browder, had been the leader of the U.S. Communist Party between 1932 and 1945 and had met his Russian wife while taking part in the fractious Communist International debates in Moscow in the 1920s. He died in 1974.
His son, Felix, Bill's father, became a mathematics professor at the University of Chicago. After graduate school, Bill worked briefly for the Boston Consulting Group, then for Robert Maxwell's Central and Eastern European Partnership before joining Salomon in 1994. There he once parlayed a $25 million investment in Russian privatization vouchers into $100 million in six months.
SNIP
Browder's emphasis on holding companies would pay off splendidly. Oligarchs like Mikhail Khodorkovsky, CEO of Yukos Oil, began a concerted campaign to gain full control of their company subsidiaries, with many riding roughshod over investors in these daughter assets. Today just 15 companies control more than 50 percent of Russian output.
SNIP
Erin E. Arvedlund, "An Investor and Gadfly in Russia.", The New York Times, March 14, 2004 pBU2 col 04:
SNIP
He says he honed his confrontational style with the help of another mentor, Edmond J. Safra, the multibillionaire founder of Republic National Bank in New York.
In vivid contrast to Mr. Browder's far-left forebear, Mr. Safra was the ubercapitalist who befriended him and bankrolled the Hermitage Fund, the hedge fund that Mr. Browder opened in 1996. It is now one of the largest hedge funds dedicated to Russia, with $1.4 billion in assets.
SNIP
In the 1990's, he picked a fight with an oligarch, Vladimir Potanin, over Sidanco, an oil company, concerning a share issue that would have diluted minority holdings. Russian securities officials canceled the disputed share issue, saving the Hermitage Fund alone $63 million.
''More or less everybody hates me,'' he said, rattling off a list of people and companies who have been targets of his shareholder battles, including Anatoly B. Chubais, chairman and chief executive of UES, the Russian electricity monopoly; Rem I. Vyakhirev, the former chairman of Gazprom, the Russian natural-gas monopoly; and the American accounting firm PricewaterhouseCoopers. ''But I'm not here to be liked.''
Mr. Browder does not wage all his battles alone. His latest effort -- a lawsuit filed this month in a Siberian regional court against Surgutneftegas, Russia's fourth-largest oil company -- was filed jointly with Russia's Investor Protection Association and a large group of Surgutneftegas minority shareholders, including two other hedge funds, Prosperity Capital, based in Moscow, and the Firebird Fund, based in New York.
SNIP
''Under Putin, the political winds have shifted in favor of investors, even if only at the margins,'' said Ian Hague, a partner at the Firebird Fund.
SNIP
As for his personal politics, Mr. Browder says he is ''not a Communist'' like his grandfather. He's a longtime supporter of the Democratic Party in the United States. When he does argue politics with American relatives, he said, ''the one thing we all agree on is that we have to get rid of George Bush.''
Stil wondering what the word dhimmi (sp?) means. Thanks for the ping!!!
Sure looks like very rich criminals are getting richer by the minute.
RUSSIA'S ANTI-UKRAINIAN BRAINWASHING CONTINUES
Russia wants to rock the gas boat to influence the outcome of the
very important March 26 parliamentary elections in Ukraine.
COMMENTARY: By Volodymyr Hrytsutenko, Lviv, Ukraine
The Action Ukraine Report (AUR), #638, Article 4
Washington, D.C., Tuesday, January 10, 2006
In the wake of the soothing declarations from Russia's Gazprom and
Ukraine's Naftohaz many have been misled into believing that the gas spat
has been sorted out and it's business as usual in Ukraine's relations with
Mother Russia.
This is hardly the case. After watching Russia's Channel 1 on Sunday, Jan.
8, the following conclusions can be made:
1. The smearing of President Viktor Yushchenko has not subsided. On the
contrary, it has even picked up. Our President is portrayed as an
ineffective leader, distancing himself from the country's real needs and
interests as well as showing an ill-conceived craving to integrate Ukraine
into NATO and the EU.
2. The present biased coverage by Russia's media of Ukraine is basically
the same as it has been recently. The earlier accusations of gas siphoning
[theft] are hammered home to Russians - with no alternative coverage from
Putin's pocket media.
3. Russia's Channel 1, for instance, kept absolutely mum about the breaching
by Russia of its long-term gas contract with Ukraine OR the use of fuel
deliveries for political leverage over Ukraine OR the damage done to Russia's
reputation as Europe's reliable partner by the blatant shut-off of gas to
Ukraine.
4. In so doing, Vladimir Putin and his entourage have once again shown that
history lessons are not for them to be learned. They continue to treat
Ukraine with their age-old imperial contempt. Most importantly, they openly
disregard their own people by feeding them lies and brainwashing them into
an openly anti-Ukrainian stance.
5. In the light of what has been said above, the final conclusion is that
Russia does not view the gas spat as settled. On the contrary, the empire is
continuing to blow up the stand-off with Ukraine - to rock the gas boat to
influence the outcome of the very important March 26 parliamentary
elections in Ukraine.
THE PATH TO ENERGY SECURITY
OP-ED: By Mikheil Saakashvili, The Washington Post
Washington, D.C., Monday, January 9, 2006; Page A19
TBILISI, Georgia -- Last week Russia announced that it would halt and
then -- not long after -- that it was restarting natural gas shipments to
Ukraine. It was a momentary crisis that should have wide-ranging
ramifications for the economic security of Europe and raise questions
about any notion of a role for Russia as a reliable energy supplier.
Russia's arbitrary cutoff sent a clear message to the European Union:
There can be no energy security when an undependable neighbor is
willing and able to use its energy resources as a weapon in political
influence.
We in Georgia watched these events with great interest for two major
reasons. Last August, Georgia and Ukraine initiated the creation of the
Community of Democratic Choice. The CDC held its first meeting in Kiev
last month and began to mobilize democracies to work toward our common
goals.
In the course of the Rose and Orange revolutions in Georgia and Ukraine,
respectively, our peoples chose to develop open, democratic societies and
set out to reorient our economic and political ties to the West.
We believe it is critical to our future safety and economic security that we
integrate ourselves with Euro-Atlantic structures, which is why we are
working to gain membership in NATO and the European Union. We are
constantly striving for good relations with our giant neighbor, but the
Russian government's recent actions are yet another example of that
country's attempts to influence nearby countries. Because of our democratic
solidarity with Ukraine, our Black Sea neighbor, we shared the outrage
expressed in Europe at Russia's heavy-handed action.
We also expressed support for Ukraine because of our own experience. While
this was the European Union's first experience with a politically motivated
cutoff of natural gas, Russia has attempted to pressure Georgia this way on
many occasions. That is why we seek diverse sources of energy. In the wake
of these dramatic events, it is critical that the E.U. move to diversify its
energy sources and develop new transportation routes for its supplies. The
fig leaf of "market rates" that Russia traditionally uses as cover to jack
up prices or to cut off energy supplies is disingenuous at best.
There is nothing "free market" or "market rate" behind Russian energy
prices. Manipulation of energy prices and supplies is a critical tool of
those in Russia who believe that hydrocarbons are the best means of
political influence. In Georgia, both Abkhazia and South Ossetia, two areas
that are outside of our control and whose separatist authorities are
directly controlled by Russia, receive natural gas free -- hardly a practice
free-marketeers would applaud.
Russia uses not only its energy supplies but also the vast energy
transportation network that former Soviet states inherited -- and depend
on -- to exercise energy control. For example, when Russia demanded steep
price increases in natural gas from my country, we approached Kazakhstan and
reached a preliminary agreement to purchase gas from it at a genuine market
rate. But Russia's Gazprom refused to allow shipment through Russian
territory, thereby scuttling the deal.
It gets worse. The E.U. should take note that in December 1999 Georgian
natural gas from Russia -- our sole supplier -- was cut off for no reason in
the dead of winter and was restored only through U.S. intervention.
For Georgians, our path is clear: We are moving aggressively to diversify
our energy sources and transportation networks. The recently completed
Baku-Tbilisi-Ceyhan pipeline, which brings natural gas from Azerbaijan to
Turkey and crosses Georgia is a critical piece of this effort.
For Europe, the Black Sea states hold the key for new routes to bring in
energy supplies from the Middle East and Central Asia. We are willing to
work closely both with our European partners and with Russia to make the
whole system transparent, predictable and immune to -- or insulated from --
political shocks. -30-
Long ago, when Gazprom sold gas at the price of $20 on the border of the USSR and Ruhrgas distributed it in Germany at the price of $100 I thought "why people do such stupid business?"
Afterwards, when I found out that about 40 intermediate firms take participation between Gazprom and Ruhrgaz I realized that such a big variation in prices cutting up among many CEO, top managers, politicians etc. I know communists too much well so as to think another way.
Mr. Chernomyrdin created "Gazprom" and "Forbes" mag. consider him as multi-millionaire. When Chernomyrdin became prime minister of Russia in 1992, his permanent companion Rem Vyakhirev was head gas-company. Guess, who is Mr.Vyakhirev in the "Forbes" now?
Son of Mr.Vyakhirev became CEO of "Gasexport". When Mr.Vyakhirev was retired on a pension, his son found oneself under investigation (as though, after Putin's question "Where is money?"). Russian exported 157,2 bcm in 2004, 147,5 of them via Ukraine. I hope now you understand why Mr.Chernomyrdin became Russian ambassador in Ukraine. We heard permanent scandals how 'Ukraine steal gas'. May be so but where is money? There is not answer.
After orange revolution Mr.Yuschenko want transparency in gas-business. As we can see in result, intermediate RosUkrEnergo under control "Brainy Don" Semyon Mogilevich between Russia and Ukraina. In such case ma'am Timoshenko want transparency (perhaps Semyon is not from her men). I have weak hope, may be frau Merkel open investigation from German side…
Thank you for the update.
Thanks for the ping.
"Back in June 2005, as part of a criminal case launched against Rosukrenergo, the former head of Ukraine's Security Service, Alexander Turchinov, stated the a part of the non-Russian shares of RUE were controlled personally by former President Leonid Kuchma and former Prime Minister Victor Yanukovich, and that the managers of the shares were respectively, Pinchuk and Akhmetov. The billionaires supported Yanukovich in his losing bid against now President Victor Yushchenko. Turchinov later said that Kuchma and Yanukovich had resold their shares to Gazprom, but also indicted he had information that the shares were resold to their managers via Cyprus, Hungarian and Swiss offshore entities. The investigation abruptly ended in mid-August 2005 and Turchinov was removed from his post."
Thanks!
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