Kazakhstan turns up heat on Moldovan oligarch oil assets

Graham Stack in Chisinau for business new europe (www.businessneweurope.eu)

Kazakh authorities have brought criminal charges and tax claims against oil companies owned by the oppositional Moldovan oligarch Anatol Stati, in what appears to be a case of authoritarian rulers in the former Soviet bloc learning to cover each other’s backs.

Moldovan President Vladimir Voronin’s animosity towards the small country’s richest man has long been known. But when the Moldovan press published last October an apparently leaked letter from Voronin to his Kazakh counterpart Nursultan Nazarbayev calling on the Kazakh authorities to crackdown on Stati’s activities in the country, he was ridiculed for having overreached himself. It seemed far-fetched that the Kazakh authorities would heed a request from tiny Moldova to discriminate against a foreign investor.

Stati owns two smallish Kazakh oil and gas companies, KazPolMunai and Tolkynneftegaz, and claims to have invested half a billion dollars in the companies since acquiring them in 1999. The special purpose vehicle Tristan Oil was set up in 2006 to issue bonds on the back of the KazPolMunai and Tolkynneftegaz licences. Stati and his holding company Ascom also run operations in Turkmenistan, Kurdistan and South Sudan. It’s a comparatively small setup, but for Moldova, Europe’s poorest country and Ascom’s historic base, it’s big business – and that inevitably means politics.

“[Stati] runs and finances propagandistic campaigns and in non-transparent ways funds political parties in opposition to the current government,” Voronin wrote in the alleged letter, which also accused Stati of engaging in sanctions-busting in Sudan.

Eight months on, no one is laughing any more at Voronin’s bizarre letter, as Stati’s Kazakh operations are facing existential threats from a united front of Kazakh regulatory authorities, including the Ministry of Energy and Mineral Resources, the Tax Committee, and economic crime investigatory units. “We have no doubt about the authenticity of the letter, although the allegations are ludicrous,” Artur Lungu, vice president and CFO of Tristan Oil, tells bne. “It is no secret that relations between Mr. Stati and President Voronin are bad.”

Stati has publicly denied he actively funds oppositional parties – although as a Moldovan citizen it would be entirely within his rights to do so. But the fact that Ascom deputy CEO Iurie Leanca decided to run for the opposition Liberal Democratic Party led by Vladimir Filat and another Ascom top manager, former deputy foreign minister Anatol Salaru, became deputy chairman of Moldova’s Liberal Party led by Mihai Ghimpu and Dorin Chirtoaca, might have convinced Moldova’s authorities otherwise.

Moreover, Stati’s 33-year-old son playboy son Gabriel, a football club and nightclub owner in the Moldovan capital Chisinau and star of celebrity gossip columns, publicly called on Moldova’s youth to vote against Voronin’s Communists in the April parliamentary elections. Gabriel Stati is married to the daughter of opposition Democratic Party Chairman Dumitru Diacov. When mass protests disputing the election results turned violent on April 7, the Moldovan authorities immediately blamed the Statis for instigating the violence, and had Gabriel Stati extradited from Ukraine to Moldova, where he is now in jail awaiting trial.

Kazakh intrigue

However, for Stati’s business interests, the worst blow had already been struck a good deal before the elections in faraway Kazakhstan. From late 2008 onwards, following Voronin’s letter to Nazarbayev, a number of Kazakh agencies began targeting Tristan Oil’s local subsidiaries in a style reminiscent of Russia’s notorious attack on the country’s then-largest oil company Yukos, which was owned by the renegade oligarch Mikhail Khodorkovsky.

First up was the Kazakh Ministry of Energy and Mineral Resources in December. Based on recent changes to legislation that entitled the government to break or change existing licence agreements, the energy ministry challenged Tristan Oil’s licences, alleging it hadn’t supplied all information to properly evaluate the fields in 2003.

The licence dispute with Tristan Oil was not unique, and a provisional agreement reached in March gave grounds for optimism. But hopes were dashed in May when other authorities turned up the heat. The Tax Committee and local economic crime investigators launched a double whammy of back tax claims totalling $31m coupled with trumped-up criminal charges, resulting in an assets freeze eerily reminiscent of the Yukos case in Russia. The criminal charges relate to company-operated pipelines that investigators suddenly decided should be reclassified as trunk pipelines that were operating without state permission. The mounting pressure culminated in the arrest of the CEO of Tristan’s largest subsidiary Kazpolmunai, Moldovan citizen Sergiu Cornegru.

The escalation in May made it crystal clear that Tristan Oil was the target of a systematic campaign, according Lungu. “But we can only speculate about who is behind this,” he says.

Besides the “Moldovan version”, linked to the Stati-Voronin feud, there is also the “Kazakh version”, according to Lungu. State-owned oil and gas national champion KazMunaiGas named Tristan Oil’s operating companies as potential acquisition targets at a Merrill Lynch-hosted investment conference in April and is currently evaluating Tristan’s operations, Lungu claims. “Both these versions have their merits,” says Lungu. A Moldovan synthesis of the two is that Voronin’s son Oleg is seeking an ownership stake in Stati’s Kazakh companies in conjunction with KazMunaiGas. “We are definitely not expecting diplomatic support in Kazakhstan from the Moldovan authorities,” Lungu says acidly.

Don’t trust Twitter, Moldovan activist warns Iranians

25 year old Moldovan activist Natalia Morar, who helped trigger Moldova’s post-election protests in April labeled by media the first ‘Twitter Revolution’, has warned Iranian protestors not to trust the Twitter internet service.
:
“This new technology has great positive potential,” Morar said in Chisinau, capital of small ex-Soviet republic Moldova. “But it has equally great danger because of its anonymity and speed. It is too easy to manipulate. Government provocateurs can use it for their own bad purposes.”

“The problem is not only the possibility of government manipulation,” says Morar, “but also that you cannot control what you have started. Things can escalate too easy.”

Morar is now facing a 8-15 year jail sentence on charges of inciting mass disturbances, after Moldova’s ‘Twitter Revolution’ exploded into violence April 7. Morar and her Hyde Park group used Internet and twitter to launch peaceful protests against apparently rigged elections April 5. But on the second day of the protests in Chisinau, stone-throwing youths swept police aside to set the parliamentary building on fire. Morar says she had no connection to the violence.

The Moldovan government ruthlessly exploited TV footage of the mayhem and destruction to smear the opposition as a whole. Morar, and many others in the opposition, allege that government provocateurs mingled in the crowd and acted as ringleaders among the violent minority, while also agitating in cyberspace.

Morar says she and her fellow activists watched the Iranian events unfold with a mixture of joy and trepidation. She says the Moldovan authorities are also nervous about events in Iran. “When protests broke out in Iran, Twitter.com was inaccessible for a while in Moldova.”

Morar is critical of Western media for hyping an unreliable medium like Twitter. “Social networking sites, email, mobile phones are all less anonymous, so more reliable, and were in fact much more important than Twitter in Moldova. But they are less accessible to Western media following events. My fear is that the Iranians will trust Twitter too much.”

Post gas war, Ukraine’s gas market remains a can of worms

Graham Stack in Kyiv for business new europe (www.businessneweurope.eu)

Ukraine’s Prime Minister Yulia Tymoshenko touted January’s gas agreements between Russia’s Gazprom and Ukraine’s main energy company Naftogaz Ukraine as creating transparency in the sector by eliminating the gas trader Rosukrenergo. But while Rosukrenergo has definitely exited, the Ukrainian gas market is a far as ever from transparency – and Naftogaz Ukraine is far from being the only provider of gas to industry.

“Naftogaz has cut off our gas since May 5th, the plant has completely stopped working,” a source close to management of Rivneazot, West Ukraine’s largest nitrogen fertilizer producer, told bne. “And the reason is the Prime Minister [Yulia Tymoshenko]’s personal feud against Dmitry Firtash. We have no debts to Naftogaz.”

Dmitry Firtash was the man who until January 2008, as co-owner of Swiss-registered gas trade Rosukrenergo, appeared to hold all the strings in Ukraine’s notoriously opaque gas industry. For this reason he was the personal bete noir of firebrand Prime minister Yulia Tymoshenko.

In 2008, she declared it her mission to eliminate Rosukrenergo, and all intermediaries in general, from the gas trade. She claimed to have achieved this in the gas agreement finally signed between Ukraine’s domestic energy operator Naftogaz and Gazprom in January 2009, ending a stand-off between Russia and Ukraine that saw gas supplies to Europe interrupted. The agreement stipulated that Gazprom would in the future sell gas directly to Naftogaz, with Naftogaz granted the status of monopolist gas importer for Ukraine.

In May, the conflict then took another twist, when Naftogaz cut gas supplies to three chemical companies owned by Firtash – Rivneazot, Crimean Soda Plant, and Crimean Titan. Supplies to the Crimean plants, but not to Rivneazot, were later restored. Naftogaz claimed the companies had run up debts for gas supplies, while the companies argued they were consuming gas they has purchased earlier.

Demonstrating how politicized Ukraine’s gas market has become, Naftogaz’ decision to restore supplies to Firtash’ Crimean companies led to the dismissal from the company of deputy CEO Vladmir Trikolich on May 25, according to media reports that were confirmed by Rivneazot. “Tymoshenko demanded his head for the decision,” said bne’s source.

The episode with Firtash’ companies goes to show that the elimination of Rosukrenergo may have increased government control over the gas sector in Ukraine, but it has not created the hoped-for transparency.

In fact, the move may have done exactly the opposite, thanks to the ongoing collapse in Ukrainian industry. Supplying gas to industrial customers is the only profitable part of Ukraine’s gas sector, with gas supplies to households and utilities tightly regulated by the state. So when Tymoshenko vowed to remove intermediaries, part of the idea was to improve Naftogaz’s hitherto disastrous financial position by giving the company a dominant position on the market for industrial customers.

But in times of crisis, having a state-run and budget-subsidized company supply energy to cash-strapped industrial customers has one huge disadvantage: any decision to cut off gas to a major industrial plant, because of debts, becomes a political decision taken at highest level, opening the door to populism, cronyism and corruption and cronyism. Government officials ultimately decide the fate of tens of thousands of workers, and of their oligarch employers.

According to Ukraine’s Centre of Energy Studies, industrial companies’, excluding utilities, payment discipline is at 86.1%, with total debts of $2bn.

So while Firtash’ chemical companies had their gas switched off for (alleged) debts of less than $1m, other oligarchs can run up substantially larger debts with apparent impunity, as seems to be the case with metallurgical giant Industrial Union of the Donbass (IUD), owned by oligarch’s Sergei Taruta and Vitaly Gaiduk. A letter leaked to business daily Kommersant-Ukraine June 10 showed that Naftogas’s deputy head Igor Didenko had directly ordered supplies to be continued to IUD plants, despite IUD having run up nearly $51m in debts.

N.B: Vitaly Gaiduk also just happens to be head of Tymoshenko’s advisory service, and Naftogaz head Oleg Dubinin, until moving to Naftogaz Ukraine in December 2007, was CEO of IUD-owned Dzherzinsky Metallurgical Combine. IUD is one of the most heavily indebted industrial groups, with an estimated $3bn total debt, of which $500m is still due in 2009.

Privat Group’s private gas supply

Privat Group, co-owned by billionaire Ihor Kolomoyskiy, is another oligarch structure for which Tymoshenko is said to have a soft spot for. In 20005, since she backed Privat in its attempt to take Nikopol Ferroalloy Plant from Viktor Pinchuk in scandal that led to her first exit from government.

Privat is also, via Ukrnafta, Ukraine’s largest oil and gas producer, owner of a large stockpile of gas estimated at being from 3bn to 10bn cubic meteres held in underground storage. Ukrnafta. While the state in fact holds a 51% stake in Ukrnafta, Privat group, with a 42% stake exercises operational control over the company via management appointments.

Ukrnafta, as a state-owned company, is by law allowed only to sell its gas to households at prices around 11 timed lower than those charged to industrial customers. Privat has for this reason since 2007 blocked any sale of Ukrnafta’s gas, which is where the stockpile comes from.

But when in late February 2009, deputy chairman of Ukrnafta, Valentin Franchuk, linked to Privat Group, moved to become deputy chairman of state-controlled Naftogaz, analysts held it only a question of time before Ukrnafta’a gas seeped through to industrial consumers. Sure enough, at the end of May, the first sketchy reports provided by trading structure insiders surfaced of Ukrnafta gas finding its way to industry, unhindered by the government.

Analysts agree that Ukrnafta has been selling its oil for artificially low prices to Privat-affiliated companies. Since the Privat group comprises gas-guzzling metallurgical and chemical plants, it would not be far-fetched to think that the same scheme is going on with its gas, although this has not been confirmed.

Gazprom Sbyt of the action

The biggest winner from Tymoshenko’s elimination of Rosukrenergo as intermediary is, potentially however, Gazprom itself, in the form of its fully-owned Ukrainian subsidiary, Gazprom-Sbyt Ukraine, as well as a possible direct supplier of Ukraine’s chemical sector itself.

According to the gas agreements signed between Naftogaz Ukraine and Gazprom, Gazprom Sbyt gained the right to purchase up to 25% of gas imports, reselling a maximum of 7.5bn cubic meters to industrial customers. According to Gazprom Sbyt’s CEO Anatoly Podmishalk’skii, the company aims to sell 4-5bn cubic meters in 2009,

“It’s a myth that Tymoshenko got rid of intermediaries,” Bogad Sokolovsky, adviser to President Yushchenko on energy issues, told bne. “What is Gazprom Sbyt, if not an intermediary and indeed one that surpasses all that went before. And explain to me how it is that Gazprom Sbyt Ukraine is managing to conclude contracts with the most solvent companies in the country?”

Gazprom Sbyt cannot undercut Naftogaz in price, since it buys its gas back from Naftogaz at the import price, and has to earn a margin on this. However, in crisis times, it crucially has the resources to offer considerable more flexible payment conditions and also more supply security than cash-strapped Naftogaz. This means it is likely to attract the more solvent companies that can afford to pay the mark-up to get the added payment flexibility, where Naftogaz demands prepayment from industrial customers. This will then leave Naftogaz with the dross who are struggling to pay their bills.

It is however not just Gazprom Sbyt that is filling the void left by Firtash. Big brother Gazprom itself is starting to loom as a potential direct supplier of Ukrainian industry – with the Ukraine’s crisis-stricken chemicals plants serving as a bridgehead.

Ukraine’s industry minister Volodymyr Novitsky announced June 3 that six nitrogen fertilizer producers would be allowed to purchase gas directly from foreign companies. “Nitrogen fertilizer producers are in a very special position,” a source in Ukraine’s Union of Chemical Producers, which was involved in lobbying the resolution, told bne. “Gas for them is not just a source of energy, but their key raw material, comprising around 70% of costs”.

“The suppliers could be famous Russian companies,” the source explained. “This would be a step towards demonopolisation of the gas market. After all, what is Naftogaz Ukraine if not a giant intermediary itself?”

But the move has prompted apprehensions that any company supplying cheaper gas directly to these companies would then be in a prime position to acquire or privatize them. President Yushchenko has been bitterly resisting the government’s attempts hitherto to privatize Odesa Portside Plant, Ukraine’s most strategic chemical asset, and one of the companies on the list. Russia’s largest petrochemicals holding, Sibur, is a Gazprom affiliate.

“The whole thing seems unclean,” Bogdan Sokolovsky says, referring to the government announcement. “It in fact directly contradicts the gas agreement between Gazprom and Naftogaz that stipulates Naftogas as monopoly importer. How will it then be possible?”

West should beware “junta” coalition, says Yatsenyuk

Graham Stack in Kiev

With a grand coalition in Ukraine’s parliament looking set to cancel upcoming direct presidential elections and change the constitution, Arsenyi Yatsenyuk, dubbed Ukraine’s Obama, and one of the favourites to win the elections, has warned the West of a Russian-backed “junta” that could turn Ukraine into “a banana republic.”

“I know the West is exhausted of the stand-off in Ukraine,” 35 year old Arsenyi Yatsenyuk, parliamentary deputy and leader of Ukraine’s “Front for Change”, told this correspondent in perfect English, ”but this is very dangerous. Because if the coalition’s plans go ahead, Ukraine will return to the sphere of influence of a certain big country,” he added, leaving no doubt he had Russia in mind. “It will also turn Ukraine into a banana republic,” he added.

Yatsenyuk called the nascent coalition’s plans to cancel presidential elections and shift power to the parliament “an anti-constitutional conspiracy,” and promised to head a campaign to stop what he referred to as a “junta”.

Asked if there would be a second Orange revolution, Yatsenyuk said, “you will see.”

The two parties which are negotiating the coalition, Prime Minister Yulia Tymoshenko’s Bloc Yulia Tymoshenko and opposition leader Viktor Yanukovch’s Party of Regions, together command 70% of the parliament, meaning the coalition will monopolise power in the country if comes to fruition, as it is expected to within this week.

Currently, presidential elections are scheduled for January 2010. The nascent coalition and its plans to abolish presidential elections are expected to be formally announced coming Tuesday.

Analysts agree that the move would condemn Ukraine to follow Russia and Belarus along the path to authoritarianism, by sidelining opposition and restricting political participation.

Until Yatsenyuk threw his hat into the ring, the presidential elections were seen as a two horse race between Yanukovych and Tymoshenko. Incumbent president Viktor Yushchenko, although also intending to run, has poll ratings of 2%, making him a marginal candidate.

Yatsenyuk’s rating has already reached 14% and is rising monthly. PM Tymoshenko is on 15% and opposition leader Yanukovych on 25%.

Yatsenyuk’s campaign team have no doubt that his rapid rise has prompted the move to cancel elections, with both Tymoshenko and Yanukovych now uncertain of their chances in the winner-takes-all presidential race. Yatsenyuk declared his candidacy on May 22 on turning thirty five, the minimal age for a presidential candidacy.

Former PM Yanukovych and current PM Tymoshenko were on opposing sides during the globally-acclaimed 2004 Orange revolution. It was largely Tymoshenko’s firebrand rhetoric and actions that stymied Yanukovych’s attempt to rig the elections in his favour. Now they appear to be divvying up power between them to keep Yatsenyuk out. Reports indicate Yanukovych will have himself elected president by parliament, in return for Tymoshenko continuing as prime minister.

Yanukovch openly favours a pro-Russian Ukraine. Tymoshenko, formerly vehemently pro-Western, has shifted radically to a pro-Russian position since the Russian-Georgian conflict of August 2008, prompting Ukraine’s secret service to investigate her for betraying the national interest.

Yatsenyuk’s soaring popularity in Ukraine has led to him being dubbed the Ukrainian Obama. Like Obama, he is a legal scholar by profession, with a background in civil activism. Despite his youth he has held high office in Ukraine as Minister of Economy, Foreign Minister and Parliamentary speaker. He has however avoided being mired in political sleaze and backstabbing that has dogged the country.

His campaign is also modeled on Obama’s success in 2008, with its slogan of ‘change’, and reliance on grassroots activism and also financial support from the pockets of ordinary people donating via the Internet.

His campaign team, however, playfully disclaim any such parallel, saying there are significant differences between the two young politicians. “Obama uses a blackberry, while Yatsenyuk prefers an i-phone’ a source close to Yatsenyuk joked.

–

Would the real Ukraine please stand up?

Graham Stack in Kyiv for Russia Profile (www.russiaprofile.org)

Opinion polls show Ukraine to be a Russian-leaning country very different from the one described by Western media and Ukrainian foreign policy elites.

“If we were to fantasise, and pretend that {Russian Prime Minister} Vladimir Putin would run for the post of Ukrainian president, then according to opinion poll results he would win right off,” says analyst Alexei Lyashenko of Kyiv’s polling institute Research & Branding (R&B). “His only serious competitor would be {Russian President} Dmitry Medvedev.”

The R&B poll published May 25 show that for all the rhetoric about westwards-bound Ukraine breaking free of Russia’s malign influence and Putin’s imperialism, the reality on the ground is very different.

“In fact, Vladimir Putin’s rating in Ukraine is nothing new, but quite steady,” adds Lapshen. “It was over 50% even during the Orange Revolution.”

Opinion poll results published in May indicate that 58% of Ukrainians have a positive relationship to Vladimir Putin, and 56% to current Russian President Dmitry Medvedev. 21% have a neutral relationship to the Russian PM and ex-president, and 16% negative, with the respective figures 25% and 14% for Medvedev.

R&B’s survey also finds that 35% of Ukrainians would like to see Ukraine united with Russia, Belarus and Kazakhstan, compared to 22% who wished to join the EU, and 10% who wanted a restored Soviet Union.

These results were confirmed by a poll published June 17 by the Kyiv International Institute of Sociology (KIIS). According to KIIS president Valery Khmelko, 23% of Ukrainians desire full unification with Russia – compared to only 12% of Russians wishing the same.

Doubtlessly due to the 2008-2009 political and economic crisis wracking Ukraine, the number of Ukrainians desiring ‘reunification’ has risen over the last year from 20% to 23%, and the number of Russians in favour has fallen from 19% to 12%.

“These findings also indicate that the ‘prevailing willingness of Russians to append Ukraine to their country forming one state’ is an erroneous idea as the overwhelming majority of Russians do not want such a union,” notes KIIS president Khmelko.

While only a quarter of Ukrainian respondents want full unification with Russia, 68% want an EU-style border-free regime with Russia, with Russia and Ukraine being ‘independent but friendly states’ without a visa regime or custom controls.

Only 7.8% of respondents were in favour of Ukraine’s relations with Russia becoming the same as relations with other countries, i.e. with border controls, customs and visas.

This in fact contrasts even with sentiment in Russia, where respondents are far more cautious about union with Ukraine. Perhaps due to the Ukrainian leadership’s antagonistic policies towards Russia, amplified by the Russian state-controlled media, only 50% of Russian respondents want to see a border-free regime between the countries. 29.1% want relations with Ukraine to be the same as for other countries.

“Ukrainians’ attitude to Russia is much better than Russians’ attitude to Ukraine; over 90% of people in Ukraine have a positive attitude to Russia – and it has become even better over the past year,” points out Khmelko.

According to Lyashenko, the Ukrainian affection for Putin and Medvedev is most concentrated in East Ukraine, where 75% are positive. However, even in the West Ukraine districts where Russian is hardly spoken, around 25% of respondents described their relationship to the Russian leaders as positive.

Surprisingly, in contrast to geography, age group does not influence the attitude towards Russia and its leaders, according to the polls.

“Ukrainians preference for Russian state-controlled television, and the desire for strong leadership in crisis times, also play a role,” says Lyashenko.

“But the main cause that Medvedev and Putin score so high,” he adds, “ is the endless conflicts and score-settling in Ukrainian politics that make them look good.”

None of the current Ukrainian leaders can compete with Putin and Medvedev in terms of popularity. Pro-Russian head of opposition Party of Regions Viktor Yanukovych currently enjoys a 25% rating, Prime Minister Yulia Tymoshenko 14%, and new face Arsenyi Yatsenyuk 13%.

Only 2% of Ukrainians would vote for President Yushchenko, the most anti-Russian top Ukrainian official, in upcoming elections January 2010.

Neither do Ukrainians have much sympathy for Georgian President Mikheil Sakhashvili, whom Yushchenko vocally supported during the country’s conflict with Russia over South Ossetia August 2008. According to Lyashenko, 45% have a negative opinion of Saakashvili, and only 11% a positive opinion.

According to an opinion poll published in Polish daily Rzeczpospolita in March 2009, 56% of Polish respondents fear Vladimir Putin, and 58% believe that Russia is conducting a foreign policy that endangers Poland’s national security. This despite the fact that Poland has no border with Russia, excluding Kaliningrad, and is a member of both NATO and the EU.