A Ukraine mystery: Who did Russian gas sales benefit?

McClatchy NewspapersFebruary 11, 2009 

KIEV, Ukraine — When Ukraine and Russia ended their clash over natural gas supplies last month, resuming the flow to more than a dozen European countries, the agreement focused a spotlight on a mysterious firm that suddenly was cut out of the deal.

Over the four-plus years of its existence, Rosukrenergo — short for Russia-Ukraine Energy — had collected billions of dollars, much of it as the sole intermediary for gas pumped to Ukraine from Russia.

The man largely responsible for pushing Rosukrenergo aside was Russia's powerful prime minister, Vladimir Putin. One motive appears to be getting even with his Ukrainian nemesis, President Viktor Yushchenko, who's enraged Putin by applying for NATO membership and supporting Georgia in its war with Russia last year. Yushchenko's government, Putin hinted publicly, was getting money from Rosukrenergo or its management.

Putin's partner in the deal, Ukrainian Prime Minister Yulia Tymoshenko, stood to benefit politically by nipping a rumored cash source for Yushchenko and another leading Ukrainian politician.

That's just the simplest interpretation of a tangled, post-Soviet story of riches and power, however. For the West, the company is a reminder of how unpredictable and opaque business ventures still are in the former Soviet bloc, a big problem especially for Europe, where some 25 percent of natural gas comes from Russia.

It's also a warning post of sorts for U.S. foreign policy, which under President George W. Bush presented Ukraine as a beachhead of democracy despite rampant problems with corruption and political rivalry that make the country look like the Wild West.

Little is known about Rosukrenergo, half-owned by the Russian state gas monopoly Gazprom, which has close ties with the Kremlin. A Ukrainian businessman, Dmitry Firtash, owns 45 percent; his name has been associated with a reputed mafia boss who's wanted by the FBI on fraud charges, but he denies any business dealings between them.

The details are further clouded by Ukraine's political infighting. Russian authorities also consistently refuse to discuss the country's financial dealings, which have included accusations that officials in Moscow also profited from Rosukrenergo.

One thing is certain: The description that Firtash offered can be discounted. "Rosukrenergo is a normal company, just like any other," he recently told Ukrainian television.

Who is Firtash, and where does Rosukrenergo's money really go?

Ukrainian officials who ought to know can't say. "This is a shadow kind of company that we still officially have not got any information on. Who is their shareholder? Who is their beneficiary?" said Ukraine's deputy justice minister, Evhen Kornichuk, who's a member of Tymoshenko's party. "That might be Firtash; who else?"

Still, there's been no proof that the company acted improperly or that politicians were pocketing money.

A clue to Rosukrenergo's central role in the dispute came from Putin, who attacked the firm — without naming it — and Yushchenko's administration about a week after Russia shut off the gas.

"I think what matters most for the Ukrainian government is not the gas price," Putin said during a meeting with reporters, "but rather the opportunity to retain certain intermediaries to use the dividends for private purposes, to accumulate personal wealth and obtain financial resources for further political campaigns."

When the deal was announced Jan. 19, Putin, with Tymoshenko sitting next to him, said that Rosukrenergo was out of the picture. "All the intermediaries are to be extracted from the payment structure," he said.

Rosukrenergo sold more than $21 billion worth of gas from July 2004 through December 2007, and made a net income of some $2.3 billion in that period, according to audits posted on its Web site, which didn't include results from 2008.

"There is a lot of corruption in Ukraine, but the magnitude of the cash flows surrounding and associated with Rosukrenergo . . . make it plausible that this could be the largest source of corruption," said a Western diplomat in Kiev, who spoke on the condition of anonymity because of the sensitivity of the issue.

Headquartered in Zug, Switzerland, Rosukrenergo was set up in 2004 and acted as an intermediary between Russia and Ukraine for the delivery of gas, pumped in primarily from central Asia.

The chief of the Ukrainian security services in 2005 told the Financial Times that he was investigating whether Rosukrenergo managers were under the control of Semyon Mogilevich, an alleged mafia leader in Eastern Europe who's on the FBI's wanted list and whom Russian security forces arrested last year. That official, Tymoshenko ally Olexander Turchinov, later was removed from office during a political reshuffle and declined to comment last month.

The FBI alleges that Mogilevich, a heavy-set man with a pockmarked face, previously funded a scheme that defrauded investors of some $150 million with a company incorporated in Canada.

Zeev Gordon, a former attorney for Mogilevich who's based in Tel Aviv, Israel, told McClatchy that his client "denies any links to Firtash. He knows him, but he denies any links." Gordon said that Mogilevich also "denies any links to the company Rosukrenergo."

Gordon acknowledged that he'd once helped Firtash establish a gas-trading company by flying to Budapest, Hungary, and registering the company's shares in a trust. However, Gordon said that the fact that he'd represented both Firtash and Mogilevich suggested nothing about their relationship with each other.

In Ukraine, several officials have alleged that the company or those connected with it were paying off two sides in national politics: that of President Yushchenko and the rival he'd ousted, Viktor Yanukovych, who's close to Russia.

Yushchenko and Yanukovych deny any wrongdoing. Former oil and gas Minister Yuri Boiko, a Yanukovych loyalist, told McClatchy he suspects that Tymoshenko, a one-time gas executive, might have "decided to bring in her own companies." Boiko, however, has been accused of having ties to Rosukrenergo. While he headed Ukraine's national gas company, he also sat on Rosukrenergo's coordination committee for a year, according to a report by Global Witness, an international organization that researches corrupt exploitation of natural resources.

Yushchenko and his supporters have derided Tymoshenko's deal in Moscow as an attempt to gain Kremlin backing for her presidential bid. Observers in Kiev, however, including those with past official ties to Yushchenko, say there's no question that the president and Firtash are closer than they admit.

Just after her deal with Putin, Tymoshenko fended off attempts by Yushchenko to renegotiate the contract, saying publicly that, "I will not allow the president to bring back a corrupt intermediary."

Russia's motives for ending the deal are less obvious.

Analysts speculate that the Kremlin wanted to tamp down the company's influence, especially after Firtash reportedly bought 75 percent of an oil and gas company and its claims to a gas field in southwest Russia in 2006.

"This infuriated Gazprom, which was eyeing the same field for itself and whose offer was turned down," said Yulia Latynina, a Russian journalist who's widely considered to have good sources in the government and business community. "It also proved that a company set up to oversee gas trade had stolen enough money to buy gas fields."

As one analyst in Kiev put it: "Firtash, who played along with Russia for some time, got out of their reach and starting making the wrong friends." The analyst asked not to be named because of fears about angering powerful men.

Firtash and Rosukrenergo representatives declined to be interviewed by McClatchy. A Gazprom spokesman in Moscow said only that "Relations in the gas sphere should be transparent and businesslike."

According to his holding company's Web site, Firtash got an early start in the gas trade during 1993 with a barter deal in Turkmenistan that included "fresh produce supplies."

He founded an intermediary company in 2002 and obtained exclusive contracts to supply Turkmen gas to Ukraine. Rosukrenergo was founded two years later, but Firtash's stake in the firm wasn't made public until 2006.

Although Firtash has denied working with Mogilevich, the Paris-based Web site Intelligence Online published a schematic diagram last year showing multiple points where the two men's financial interests allegedly intersected. In 2003, for example, Firtash bought Mogilevich's ex-wife's shares in a company he now controls, a move he acknowledged in a 2006 interview with The Wall Street Journal.

"What seems to be pretty clear is that Firtash knew or had dealings with Mogilevich at some time in the past, but that's not necessarily conclusive," the Western diplomat in Kiev said.

When Mogilevich was arrested in Moscow in January 2008 on charges of tax evasion, some analysts speculated that it was a precursor to a new gas deal between Russia and Ukraine.

"In Russian leadership, there were two groups: One backed Rosukrenergo, another opposed it. The fight against it started over a year ago, and the first volley in this fight was the arrest of Semyon Mogilevich, the guy who stood behind Rosukrenergo," said Stanislav Belkovsky, the head of the Council on National Strategy, a government-friendly research center in Moscow.

Mogilevich's lawyer in Moscow, Alexander Pogonchenkov, said he had no information about ties with Ukrainian gas, and that Mogilevich couldn't be interviewed because he was being held by the FSB, the successor agency to the KGB.

"There are forces which want him to remain behind bars, but I do not want to speculate on who these people may be," Pogonchenkov said.

(McClatchy special correspondent Alla Burakovskaya contributed to this report from Moscow.)

ON THE WEB

Rosukrenergo

Dmitry Firtash's holding company

Report by Global Witness on the Ukrainian gas trade

Report by Intelligence Online about possible ties between Dmitry Firtash and Semyon Mogilevich (requires free registration)

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McClatchy Newspapers 2009

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