The hidden victims of the new gas deal

The deal signed between Russia and Ukraine ending the current gas crisis could break up a complex and secret system that has governed the flow of gas between the two countries for the last 15 years.


The agreement signed on January 19 between energy giants Gazprom and Ukrainian counterpart Naftogaz aims to end the spat between Kiev and Moscow over gas shipments from Russia, through Ukraine, to Europe. But it could also end the shadowy role of corporate intermediaries in the gas trade between the two countries.


Indeed, it is the first time in 15 years that Gazprom and Naftogaz have signed a contract directly with each other without the use of such intermediaries. Since 1994, deliveries of gas to Ukraine have involved a network of intermediaries. In practical terms, it has not been Gazprom delivering to Ukraine, but a company called RosUkrEnergo.

A hidden web

RosUkrEnergo is based in Switzerland, in the canton of Zug, a tax haven. The company was created in 2004 and is half-owned by Gazprom. Until 2006, the shareholders holding the other 50% of the portfolio, handled by Austrian bank Raiffessen Investment, remained anonymous.


In 2006, after a US Justice Department inquiry into the activities of RosUkrEnergo and its links with Russian-Ukrainian-Israeli-Hungarian businessman Semion Mogilevich, who is wanted by the FBI, these anonymous shareholders came out into the open.


These were two relatively unknown Ukrainian businessmen – Dmitri Firtash and Ivan Fursin - who owned, respectively, 45% and 5% of the company and denied having any links to Mogilevich.


The trading relationship between RosUkrEnergo, Gazprom and Naftogaz was complicated. Gazprom bought the gas from Turkmenistan in Central Asia, then re-sold it to RosUkrEnergo. RosUkrEnergo then sold it on to other intermediary companies on the Ukrainian market, in particular UkrGasEnergo, itself half-owned by Naftogaz and RosUkrEnergo. UkrGasEnergo then sold it on to Ukrainian consumers.


“The role of these intermediaries is very difficult to understand,” says Alexander Souchko, a specialist in political science and director of the Ukrainian Institute for Euro-Atlantic Cooperation. According to him, one of the triggers behind the current gas crisis has been the desire of the Ukrainian government, and in particular Prime Minister Yulia Timoshenko, to get rid of these intermediaries and to have agreements signed directly between Naftogaz and Gazprom, something Gazprom was refusing to comply with until now.


“The signature on this agreement signals the end of RosUkrEnergo and a victory for Yulia Timoshenko,” says Leonid Saprikyn, energy programmes director at the Razoumkov centre of Political and Economic studies in Kiev.


No one at Gazprom, RosUkrEnergo and Naftogaz, all contacted by FRANCE 24, was available for comment at the time this article was published.

Concerns of corruption

Direct deliveries of gas – without the involvement of intermediaries – took place for three years after the collapse of the Soviet Union. Then the first “gas wars” erupted between Russia and Ukraine.


Russian energy monopoly Gazprom accused Ukraine of not paying for its gas despite the fact that Ukrainian consumers were paying state-controlled Ukrgazprom – which later became Naftogaz. Russia could not get the bills paid without the risk of Ukraine cutting off the supply of its gas to Europe.


The solution was found in 1994 with the creation of the first intermediary companies Nordex and Omrania, who were then replaced by Itera.


Itera, having found the means to bypass the Ukrainian national gas company, started to buy gas direct from Gazprom and sold it on to Ukrainian factories, the country’s biggest gas consumers. The Ukrainian oligarchs who owned these companies are suspected of playing a big role in this shadowy system.


“The big end-users edged into the market by buying more gas than they actually needed -  and then selling on the surplus,” explains Jerome Gillet, a banker specialising in energy investment, who writes the blog “European Tribune”.


He adds: “The 2006 gas wars and the current disagreements are essentially conflicts about power-sharing between Russian, Ukrainian and Turkmenistani oligarchs. The senior management of Gazprom is also implicated in all this.”


Other companies appeared in Ukraine’s energy sector, such as United Energy Systems of Ukraine, the main importer of gas under the government of Leonid Kuchma. Ukraine’s current Prime Minister Yulia Timoshenko ran the company in the 1990, where she made her fortune and gained her nickname “The Gas Princess”.


After Vladimir Putin came to power in 2000 and after the installation of Alexei Miller as head of Gazprom in 2001, the makeup of the intermediary companies changed. Itera was replaced by EuralTransGaz. When concerns about the role of Semion Mogilevich came to light, EuralTransGaz was replaced by RosUkrEnergo.


“The system of intermediaries is evidence of the fact that oligarchs in Russia and Ukraine do politics and business side-by-side, and often use politics to achieve personal ends,” says Maïté Jaureguy-Naudin, coordinator of the energy programme at IFRI, an independent French research institute.


A face-saving panacea?


The content of agreement signed on January 19 has not been officially divulged. The text is made up of several different contracts signed by Alexei Miller, head of Gazprom, and by Oleh Doubina, who runs Naftogaz, in front of the prime ministers of both countries.


Russian Prime Minister Vladimir Putin and Ukrainian counterpart Yulia Timoshenko held a press conference declaring that Gazprom would resume gas deliveries to Ukraine. Putin made the point that intermediaries would no longer play a role in gas trading with Kiev.


But Jerome Gillet remains sceptical: “These kinds of announcements are made every year but in reality not very much actually changes. Much of the actual agreement has been kept secret and these intermediaries will reappear, in one form or another, in a couple of months’ time.”


Until the new accord was signed, little in the nature of the gas wars that erupted every winter between Russia and Ukraine changed – except for the names of the intermediary companies.


Only time will tell if the new deal will signal an end to these conflicts.


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