Formerly reclusive gas transit intermediary refutes allegations of links to organized crime, says it plans to become a major player in gas market
m that late last year snatched a lucrative contract to supply Turkmen gas to Ukraine, has moved into the open to refute reports that it has connections with organized crime, insisting that it has nothing to hide and its business is legitimate.
The arrangement, which gives ETG control over one third of Ukraine’s gas supplies, has been criticized by analysts who question whether such an intermediary is needed at all. It has also been labeled as a threat to Ukraine’s energy security by U.S. Ambassador to Ukraine Carlos Pascual.
Although ETG does not itself own substantial volumes of gas or the pipelines through which it is pumped, the newly created gas trader has ambitions to become a major player in transporting gas from Turkmenistan to Ukraine and European markets. And it hopes that what it describes as its “big friends,” including Russia’s Gazprom and Naftogaz Ukrainy, will help it do so.
“Our target is to explore additional markets and not steal the existing ones from our parents [Naftogaz Ukrainy and Gazprom],” Andras Knopp, managing director of ETG, told the Post on July 16. “We will not enter these markets as serious players unless we get the help of Gazprom and Naftogaz.”
While Gazprom and Naftogaz are not currently ETG shareholders, Knopp said that ETG “does not act independently from them. They created ETG.”
Although both Gazprom and Naftogaz have declared in recent years that they have dropped their original plan to become shareholders in ETG, Knopp said it is only legal technicalities that have prevented them doing so.
Knopp said he expected the current confusion about whether Gazprom and Naftogaz would become shareholders in ETG to be resolved by the end of the year, when “the real shareholders will take over.”
Created last December by Gazprom and Naftogaz Ukrainy, ETG was contracted to deliver Turkmen gas to Ukraine by Gazprom, replacing the previous intermediary, Itera.
Subsequently disowned by both companies, ETG is currently owned by four little-known individuals that company representatives say just happened to be in the right place at the right time. They are Israeli Zeev Gordon and three Romanians, whom ETG did not name.
Knopp said that Gordon and the three Romanians were legal tools used to create the company, allowing it to benefit from a 3 percent privileged tax rate offered by Hungary.
“Obviously the four [owners of ETG] are nominal – the restructuring process of ETG’s ownership is ongoing, and both Gazprom and Naftogaz Ukrainy will in some way share in ETG,” he said. “They were supposed to buy into ETG – become shareholders.”
Naftogaz and Gazprom may not be the only companies interested in acquiring an interest in ETG.
In June, UK-registered JKX announced its intention to acquire a share in ETG in cooperation with a previously unknown Dutch-registered firm called Benam Holdings. Given that Naftogaz owns about 9 percent in JKX, such a deal would give it a share in ETG.
Knopp claimed not to know who stands behind Benam Holdings, but said the chances that the acquisition will go ahead are “very realistic.”
If new shareholders do not buy into ETG, however, the four current shareholders, or whoever stands behind them, could be sharing in the $200 million to $1 billion in profits the company may generate this year.
Criminal connections?
Part of the reason why Eural Trans Gas got a lot of bad publicity early on was because it appeared from nowhere, and its representatives could not easily be reached for comment.
Its image was also tarnished by reports, primarily originating at U.S.-funded Radio Free Europe/Radio Liberty, that the firm had ties with an organized crime group headed by Ukrainian-born Semen Mogilevich, who is wanted by the FBI on fraud and money laundering charges.
U.S. Ambassador Pascual recently called upon Ukraine and Russia to modify the Turkmen gas supply arrangement, citing the reports and Mogilevich’s alleged involvement with ETG.
The RFE/RL reports alleged that ETG was set up by and works closely with figures with close ties to Mogilevich. These include Ukrainian-born Igor Fisherman, who is wanted by the FBI in connection with previous business dealings with Mogilevich, and Dmitry Firtash, who heads Cyprus-based Highrock Properties, a company involved in barter transactions used to pay for gas in the CIS. The reports alleged that a Highrock Properties subsidiary was registered at Zeev Gordon’s address in Israel.
RFE/RL also cited allegations apparently originating in Russian law enforcement agencies in the late 1990s that linked Mogilevich and Knopp, a former top executive at Reemtsma, a German tobacco company.
Knopp said ETG does have business relations with Highrock Properties, but he denied knowing Mogilevich and described allegations that he has ties with his firm as gossip.
“I have never seen or heard Mogilevich on the ETG premises, though he is obviously ‘always with us,’ as unsubstantiated news reports make the claims regularly,” he said. “In my view, any statement should be proven, and that certainly refers to the diplomats as well.”
Knopp pointed out the firm occupied space in the same Budapest office center as parts of the U.S. Embassy, including the commerce department, the embassy library and USAID.
“We are not hiding from anyone. We are absolutely legal, available and ready to answer questions,” Knopp said.
A representative of the Bank Center office complex in Budapest said that ETG leases more than 1,000 square meters. Knopp said ETG currently employs about 30 individuals including CIS-born individuals and Hungarians.
The U.S. Embassy in Budapest said it was aware that ETG was leasing office space in the building, but referred the Post to Hungarian law enforcement agencies when asked about ETG’s alleged ties to Mogilevich and Fisherman, indicted fugitives wanted in the United States.
Ambitious plans
Knopp said that with the help of Gazprom and Naftogaz, ETG could become a major player in bringing Turkmen gas to Europe.
He said his company is currently selling all the Turkmen gas it receives from Naftogaz as payment for transit back to Naftogaz at the Ukrainian border. The transit fee accounts for 38 percent of the 36 billion cubic meters of gas Ukraine is buying from Turkmenistan. This transaction alone brings ETG about $600 million in annual revenue, said Valery Nesterov, a gas analyst at Moscow’s Troika Dialog securities brokerage.
ETG will have to pay Gazprom up to $500 million for the use of its pipeline, but the remainder – between $100 million and $200 million – is profit, Nesterov said.
Knopp said that his company is also exporting more than 4 billion cubic meters of gas from Ukraine. Most of it is of Kazakh origin, and it is sold to Gazprom subsidiaries operating in Europe.
“We have got so far two contracts for gas deliveries totaling 4.3 billion cubic meters per year,” he said.
While that is a smaller contract than the transit of Turkmen gas to Ukraine, the margins could be higher, given that gas prices in Central and Western Europe are about $100 per 1,000 cubic meter, much higher than the $44 per 1,000 cubic meter in Ukraine.
ETG has even bigger plans for the future.
Knopp said ETG would like to transport more central Asian gas through Ukraine toward Europe in partnership with Naftogaz and Gazprom.
“Experts predict a gas shortage in the coming years in Europe,” he said. “We are sure we will be able to sell gas in Europe, since Europe is currently strengthening efforts to liberalize its gas markets, partly by providing equal access to pipeline systems for all traders.”
The U.S. government, however, has been lobbying Ukraine to help get Turkmen gas to Europe without involving Gazprom. By doing so, Ukraine and Turkmenistan could improve their energy security, U.S. Ambassador Pascual said.
Knopp described U.S. opposition to ETG’s role in Turkmen gas supplies as unfounded.
“Their position is that ETG is a long arm of Gazprom in Ukraine and represents a danger to Ukraine’s energy security. This is ridiculous,” he said, adding that Naftogaz would also benefit if it becomes a shareholder in ETG because it would share in profits generated in the transit.
