You're reading: Gas man Firtash on rise again in Yanukovych era

One of Ukraine’s more controversial tycoons is regaining influence in Kyiv and Europe. But it remains to be seen how high he will fly again.

Dmitry Firtash, whose lucrative gas-trading empire was dealt a death blow by former Ukrainian Prime Minister Yulia Tymoshenko in her last year of power, has returned to prominence under President Viktor Yanukovych.

Now Firtash appears to be more powerful than ever and eager to cash in on his alleged campaign support for Yanukovych. He refused to be interviewed for this story.

In Europe, Firtash is ahead in a legal battle that could cost the Ukrainian state – meaning its taxpayers – billions of dollars.

However, analysts and insiders say it’s doubtful that Firtash will regain his position as a key intermediary in the lucrative gas trade in which Ukraine serves as a large consumer and a major transit nation.

This week, Ukraine’s financially moribund state oil and gas company, Naftogaz, confirmed that it had lost the first leg of a legal battle with Firtash.

Swiss-registered RosUkrEnergo, which Firtash co-owns along with Russian state-controlled gas giant Gazprom, was cut out last year by Tymoshenko as the monopoly importer of gas from Russia.

And, after lengthy litigation, the Arbitration Institute of the Stockholm Chamber of Commerce ruled against Naftogaz, awarding RosUkrEnergo $197 million for breach of contractual obligations.

Naftogaz’s press service said the award was only 9 percent of what RosUkrEnergo had asked for in damages, putting the total claim at more than $2 billion. However, another ruling by the Stockholm court is expected this summer and could amount to several billion dollars.

The case centers on 11 billion cubic meters of gas bought from Gazprom on privileged terms but allegedly expropriated from RosUkrEnergo by the government of Tymoshenko, who has publicly denounced both RosUkrEnergo and Firtash as “criminal.”

Losing control over this gas could spell more trouble for the already debt-laden Naftogaz, which has struggled to make monthly gas payments to Russia. And Ukraine’s chances of winning this second ruling just got worse, after a team of Firtash confidantes filled the corridors of Yanukovych’s presidential administration and new government.

Yuriy Boyko, dubbed by Tymoshenko as one of RosUkrEnergo’s “godfathers” and a close Firtash associate, has regained his job as Ukraine’s energy minister. In addition, two executives from a Firtash-owned chemical group, Ostchem, now head key subsidiaries of Naftogaz: Sergey Vinokurov for gas transporter UkrTransGaz and Yuriy Borisov for gas producer UkrGazVudobuvania.

Other reputedly Firtash-friendly administration officials include Serhiy Lyovochkin, who heads the presidential administration and Valery Khoroshkovsky, who heads the country’s State Security Service, a spy agency known by the SBU acronym.

Khoroshkovsky was deputy head of the SBU last year, when the successor organization to the KGB raided the offices of Naftogaz, then under the control of Tymoshenko.

Many, in fact, fear that Firtash could regain his status as monopoly intermediary under Yanukovych.

“Is it really good for Europe to have these people in charge of energy policy in Ukraine?” asks Thomas Mayne of Global Witness, a London-based transparency watchdog.

Global Witness, funded by the European Union and other donors, released a report in 2006 called “It’s a Gas: Funny Business in the Turkmen-Ukraine Gas Trade. It highlighted the energy security risk posed by companies such as RosUkrEnergo, by virtue of government decisions took on crucial yet “non-transparent” roles in a system that supplies Europe with a quarter of its gas.

Last year, Russian Prime Minister Vladimir Putin joined Tymoshenko and the European Union in questioning the transparency of intermediaries – even though Putin had previously sanctioned them.

After agreeing with Tymoshenko to cut RosUkrEnergo out, Putin said: “[The Ukrainians] had to have a middleman so they can receive dividends, and finance their political campaigns.”

Putin added: “From our side, RosUkrEnergo is 50 per cent-owned directly by Gazprom, but from the Ukrainian side, there are some individuals. We don’t know them. But they again are showing us this Mr. Firtash, with whom I have never met, never seen with my own eyes.”

Some in Kyiv believe Moscow used the scheme to back Ukrainian politicians who spouted anti-Western foreign policies. But given the Kremlin’s own recent criticism of RosUkrEnergo, as well as that of others, it is unclear whether Moscow is interested in resurrecting such schemes.

Vadym Karasiov, who served as political advisor to ex-president Viktor Yushchenko, attributes the return of the Firtash team to their political support for Yanukovych. Karasiov called the support of Firtash, who controls lucrative titanium, chemical and media assets, decisive in Yanukovych’s victory over Tymoshenko.

“Without Dmitry Firtash there wouldn’t have been a victory,” he said.

A Firtash representative said the tycoon’s holding company did not back Yanukovych’s election bid. But Firtash was himself unavailable for comment to answer whether he, as a citizen, had done so.

The support came in the form of cash, air time on Inter TV channel, which Firtash’s people admit he has an interest in, and contacts in Moscow, according to Karasiov.

“They gave him [Yanukovych] support, and more than that, they are now his favorites,” Karasiov said.

However, the Firtash team is unlikely to win over Yanukovych completely, Karasiov said. “They will eventually fade … They want their gas back and a lower price on future gas sales,” Karasiov said.

Additionally, Firtash and company would have to push out the likes of powerful Yanukovych supporter Rinat Akhmetov, Ukraine’s richest billionaire.

In Europe, Firtash also may run into opposition. Analysts and insiders alike say it’s unlikely that the new energy team in Kyiv will be able to justify the creation of an intermediary company like RosUkrEnergo in the future – now that Ukraine’s international partners are alert to such schemes.

“We don’t see that intermediaries in the current situation would in any way alter the fundamental challenge Ukraine faces in its gas sector, which is to adjust end-user as well as domestic producer prices to market levels,” World Bank country director Martin Raiser said.

A European lawmaker with knowledge of Firtash’s Group DF said the firm is rolling back its presence in London and Brussels, including a non-profit group called the British-Ukrainian Society.

On the website of the British-Ukrainian Society, Robert Shetler-Jones, a top executive at Firtash’s Group DF, is listed as one of the society’s directors.

The chairman of the society is listed as British Conservative MP Richard Spring. According to the European lawmaker contacted by the Kyiv Post, Firtash had been paying British Conservative MP Richard Spring tens of thousands of pounds in consultancy fees.

Spring could not be reached for comment when this edition of the Kyiv Post went to press.

Kyiv Post staff writer John Marone can be reached at [email protected].