Gas Contracts and Fighting Corruption

Gas Contracts and Fighting Corruption: The Long Link between Lyubi Druzi and Firtash

Taras Kuzio

Lingering doubt over Yulia Tymoshenko’s signing of the 2009 gas contract with then Prime Minister Vladimir Putin has remained. Nevertheless, what is clearly seen in Ukraine’s gas relations with Russia during the last decade are three points. Firstly, it would be mistaken to assume only one Ukrainian gas contract (signed in 2009) was bad when all of them were corrupt. Secondly, there was little to differentiate the 2006, 2009 and 2010 gas contracts in terms of their poor quality. Thirdly, the so-called “pragmatic wing” (Lyubi Druzi) of the national democratic camp have never viewed gas intermediaries with Russia as problematic and some, such as Peto Yushchenko made millions from them. Serhiy  Taruta was reported by a US diplomatic cable as saying  that Viktor ‘Yushchenko never raised gas intermediaries as a problem that required a resolution and was comfortable with RUE.’

Ties between the Western Ukrainian gas lobby, President Viktor Yushchenko and RosUkrEnergo began as early as December 2004 and were confirmed by the 2006 gas contract. Serhiy Taruta told the US Ambassador to Ukraine that ‘both he and
Haiduk had heard Firtash was now meeting regularly with Yushchenko’.
 The 2006 contract introduced RosUkrEnergo into Ukraine’s gas relations with Russia and led to major financial benefits in the billions of dollars annually for Firtash (who owned 45% of RosUkrEnergo) and through Ivan Fursin (Party of Regions deputy) others gained such as Serhiy Levochkin and Leonid Kuchma. This group of people creamed off profits from the gas trade that could have gone to Naftohaz Ukrainy.
The Ukrainian delegation did not follow instructions from the Ministry of Foreign Affairs or the government but took them from Firtash and Naftohaz Ukrayiny Deputy Chairperson Oleh Voronin.  Many members of the government were kept in the dark about the non-transparent negotiations.
The 2006 gas contract was signed by Our Ukraine leader and then Prime Minister Yuriy Yekhanurov and Roman Besmertnyy, campaign manager for Our Ukraine in the 2006 elections. They both defended and supported the gas contract as did Chief of Staff Oleh Ryabchuk who hailed the contract ‘as a great victory for Ukraine.’ Besmertnyy, as a US diplomatic cable reported from Kyiv, cynically defended the contract by saying, ‘Because gas is all about theft and con games and manipulation of monopolistic advantage.’
Relations between Yushchenko, luibi druzi and the gas lobby were cemented at the same time as the group were integrating with the Party of Regions. Negotiations for grand coalitions between Our Ukraine the Party of Regions took place after the 2006 elections and in 2007 as part of the compromise to hold pre-term elections. In 2006, Yekhanurov and Poroshenko had been sent by Yushchenko to negotiate a grand coalition.
Thus, a clear group of people (Yushchenko, Rybachuk, Besmertnyy, Yekhanurov, Petro Poroshenko, then Chief of Staff Viktor Baloga and then RNBO Secretary Ivan Pluishch) had close and probably profitable ties to the opaque  RosUkrEnergo gas intermediary. With the collapse of Our Ukraine in 2008-2010, the gas lobby invested in Vitaliy Klitschko and UDAR.
The close ties between Lyubi Druzi and the gas lobby was clearly seen in late 2008 when negotiations began for a new gas contract in which Prime Minister Tymoshenko wanted to remove RosUkrEnergo. RosUkrEnergo and President Yushchenko  unconstitutionally intervened in December 2008 to prevent a price of $235 per 1, 000 cubic metres of gas to be agreed with Russia. During Yushchenko’s testimony to the Tymoshenko trial he perjured himself by lying that he had never intervened. In fact he, acting on behalf of RosUkrEnergo, worked to derail the December agreement and as experts at the Razumkov Centre told this blogger, if Tymoshenko is in jail so should be Yushchenko.
A December 2008 US diplomatic cable from Kyiv reported that Firtash “expressed strong support for President Yushchenko and equally strong contempt for Prime Minister Tymoshenko.”  Firtash claimed he “was now working to build a coalition between  Yushchenko’s supporters and the PoR.” As the US diplomatic cable continued: “He admitted that he has “loyally served” as an unofficial advisor to President Yushchenko during tense gas negotiations with Russia and political crises dating  back to the Orange Revolution in 2004. He reported that he met with the Yushchenko at his dacha (cottage residence) three times in the last week at the President’s request. He described himself as a close friend and confidante of the President — someone the President can trust totally” .
Then Naftohaz Ukrayiny Chairman Oleh Dubyna testified during the 2011 trial of Tymoshenko that he had met executives of RUE ‘in the office of the president, three times in Viktor A. Yushchenko’s office and twice in Baloha’s office.’ He believes that the gas price of $235 per thousand cubic metres agreed with Gazprom for the 2009 contract was undermined by Yushchenko who ordered him not to sign and RUE offered the higher price of $285.
With the collapse of the negotiated price a 17-day gas crisis spread from Ukraine to Europe. It was ended only by EU officials lobbying Tymoshenko to sign any contract to end the gas crisis. The contract offered by Putin was by then (compared to that the previous month) quite unfavourable to Ukraine.
 In 2009 both Yuriy Boyko and Firtash told the US Ambassador they believed Tymoshenko should be jailed. Boyko told the US Embassy that the 2009 contract was a ‘betrayal of national interests.’ While Firtash described the 2009 gas contract as ‘criminal’ and ‘the most stupid contract’ in Ukraine’s history.  Firtash told US Ambassador william Taylor that ‘he would have supported Tymoshenko’s arrest because, in his view, signing the agreement was paramount to treason. If anyone else had signed such an agreement, “he would have already been hanging from the street lights” .
The 2009 gas contract was used as the basis for the Kharkiv Accord so-called “discount”, which was a major mistake. More importantly, the Azarov government suspiciously never took Russia to the Stockholm Arbitration Court (as Prime Minister Arseniy Yatseniuk is doing now). Western experts on energy such as Edward Chow (Washington-based Center for Strategic and International Studies)  believe Azarov did not take the gas contact to Stockholm because some tycoons such as Firtash were making huge profits from the contract, buying gas through Ostchem at less than $250 and re-selling it to industrial users at over 400 while leaving Naftohaz Ukrainy to deal with the loss-making household gas sector.
Two conclusions.
Firstly, the gas contract eventually signed by Tymoshenko and Putin was not a good contract – but neither was that signed in 2006 by Prime Minister Yekhanurov and the one signed a year later with the Kharkiv Accords by Prime Minister Nikolai Azarov.

Secondly, the gas lobby which is today funding Poroshenko’s election campaign were behind the revenge meted out against Tymoshenko in 2011 when she was jailed, revenge they had talked about in 2009.

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