A Stockholm Conspiracy: The Underbelly of Ukrainian Gas Dealings

By Christian Neef

Part 3: An About Face in Stockholm

Photo Gallery: The Shady World of Ukrainian Gas Deals Photos
dpa

What a triumph it was for Tymoshenko's rivals! Oligarch Firtash, who the Americans believed was one of the key financial backers of the new president, was suddenly part of the inner circle of the powerful in Kiev. Many of Firtash's associates were appointed to government posts. Two of his friends, Yury Boyko and Sergei Lyovochkin, the 38-year-old son of a general, became energy minister and the president's chief of staff, respectively. His confidant Valeriy Khoroshkovsky, owner of the Inter media empire, for which Firtash owned a purchase option until recently, was made head of the state security organization.

With Khoroshkovsky's help, Yanukovich had ministers and top officials in the former government arrested. But nowhere was the purge as radical as at the state-owned Naftogaz, where the entire management team was replaced. Didenko also left the company, "of his own will."

The new president needed only a few months to gain control over the executive, the majority of the parliament and most of the judges, who were already corrupt. The "ancient human instinct of fear has to be activated to a much greater degree again," said his prime minister, who replaced the hated Tymoshenko after her election defeat. Ukraine was on its way to becoming an authoritarian country again.

At this point, things began moving quickly in Stockholm as well. Naftogaz now reported to the Yanukovich administration, which meant that the two parties facing each other before the arbitration court were no longer enemies but friends. In fact, they were one and the same party. On the one side of the table, the de facto representatives of Firtash, Yanukovich and Boyko were negotiating in the interest of RUE, while the Ukrainian government was on the other side: Energy Minister Boyko, representing President Yanukovich, with both men closely tied to Firtash. The case had turned into a farce.

A Catastrophe for Ukraine

It ended on June 8, 2010 with a clear verdict: the Swedes ruled in favor of RUE. The state-owned Ukrainian gas company was to return the disputed 11 billion cubic meters of gas to Firtash's RUE, as well as another 1.1 billion cubic meters of gas as compensation for lost profits.

RUE asked to be paid the cash equivalent of the 12.1 billion cubic meters, and demanded the market price for the gas, not the special price of $1.7 billion to which Gazprom had once agreed. Based on RUE's calculations, the value of the gas had suddenly tripled to $5.4 billion.

This is a catastrophe for Ukraine. If Kiev returns the gas, the country will no longer have enough for the winter. If it agrees to pay the several billion dollars, the government will have to pay Naftogaz's debts. But Kiev itself is broke and has survived on International Monetary Fund (IMF) loans since the worldwide financial crisis began.

But why did Naftogaz suffer such a clear defeat in Stockholm, especially after the initial prospects for the state-owned company were not considered half bad? The Swedes are refusing to comment on the issue, citing the confidentiality of arbitration court rulings. The Yanukovich government also refuses to make any statements.

The Commercial Interests of an Oligarch

SPIEGEL has since been able to review copies of the Stockholm decision. A passage on page 4, under item 4, reads: "Although 'Naftogaz' initially claimed, during the course of this arbitration, that the procurement of the 11 billion cubic meters of gas was sufficiently justified from a legal standpoint, it now states that this was not the case." In a different passage, Naftogaz suddenly admits that this gas "belongs to and has always belonged to RUE."

As dry as these sentences sound, they are also incredibly explosive. It now becomes clear why the new leadership did not publish the arbitration court's decision: Naftogaz, despite being in a difficult financial position, reversed its legal position by 180 degrees after the change of government in Kiev. The company itself pushed the Stockholm court to reach a decision that was unfavorable for Ukraine. Besides, as SPIEGEL has also learned, Naftogaz removed the names of the relevant Gazprom officials from statements. The Russian company, which had facilitated the January 2009 deal, was hardly even mentioned in the proceedings.

There can be no other conclusion: Viktor Yanukovich, the president of Ukraine, served the commercial interests of an oligarch with whom he has close ties -- at the expense of his own country. And, in doing so, he also did Moscow a favor.

Sergei Vlassenko, the lawyer and parliamentarian, calls this "cynical." He is sitting in the bar of the Riviera, a four-star hotel in Kiev's historic Podol district, looking out at the banks of the Dnieper River. "What is the guarantee that the same thing won't happen again tomorrow, in another case?"

Facing Imprisonment

Vlassenko has drawn a diagram of the empire of Dmitry Firtash onto a yellow paper napkin. The drawing resembles the tentacles of an octopus. "Firtash's profits from the Stockholm affair are likely to be immense," he says. To divert attention away from this process, says Vlassenko, Firtash's friend, security chief Khoroshkovsky, launched an anti-corruption campaign that solely targeted leading members of the previous orange government. In addition to former Naftogaz deputy chief Didenko, his main accountant, the head of the Ukrainian customs agency and other government officials were arrested. Two former ministers were also arrested, and the former head of the Interior Ministry is under supervision. Criminal action was initiated against former Prime Minister Tymoshenko on Dec. 15, and she was forbidden to leave the country. Five days later, Tymoshenko was charged with misuse of state funds, and she too could now face imprisonment.

The conclusion is unavoidable that these charges and arrests constitute political payback. "Didenko was charged, under Article 191 of the Criminal Code, with misappropriation of assets on a large scale," says Vlassenko with a bitter smile. "That's absurd. Last year a Kiev court ruled that Didenko had acted legally in Moscow. Now, after the change of government, the court decisions are of course different. Now he is even expected to suffer for the fact that the government has to pay for the deal between Naftogaz and Gazprom."

The meeting at the Riviera took place at the end of October. On Nov. 24, Ukraine's highest court upheld the Stockholm decision. On Dec. 6, oligarch Firtash announced that he had repaid his debts with Naftogaz and Gazprom and, in return, had received the 11 billion cubic meters of gas plus the additional 1.1 billion cubic meters, which the Stockholm court had awarded him as an "injury award." Firtash claims that he has since sold all of the gas to Gazprom, although he has declined to specify the price.

Experts have calculated that the Ukrainian government lost about $1 billion in this process of shifting 12.1 billion cubic meters of gas back and forth. Firtash, however, is raking in a huge profit at current prices. The 12.1 billion cubic meters are now worth $3 billion. The oligarch denies that Ukraine came up short in the deal, and that the gas reserves are no longer sufficient for this winter.

The Kiev newspaper Kommersant disagrees, writing that half of the 24 billion cubic meters currently being stored in tanks is now gone, corresponding to about a quarter of annual requirements. This, the paper writes, creates the risk of an energy collapse.

Didenko, for his part, remains in Lukyanivska Prison. A Kiev appeals court extended his pretrial detention on Dec. 9. What is happening here, says Didenko, is "a political trial in the interest of dirty economic groups." He could face several years in prison.


The following Letter to the Editor was received by SPIEGEL ONLINE International in response to the above article:

Dear SPEIGEL,

The judgment and award made by the Arbitration Institute at the Stockholm Chamber of Commerce ("Tribunal") in the case brought by Rosukrenergo (RUE) against Naftogaz for the theft of 11.1bcm of RUE's gas, were based solely on the overwhelming weight of evidence against Naftogaz. The reasons for the award are clearly set out in the full and detailed written judgment given by the three eminent international arbitrators who specifically stated that their "position is supported by the evidence before the Tribunal".

The confiscation of RUE's gas was therefore illegal

Naftogaz's pleadings were all presented to the Tribunal before the presidential election and therefore before there was a change of Government.

It is unfortunate that the article made unfair insinuations and drew unfounded conclusions against Mr. Dmitry Firtash. Mr. Firtash's only concern throughout this process has been to defend his commercial interests through the application of the rule of law.

Robert Shetler-Jones
CEO Group DF
London

Translated from the German by Christopher Sultan

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