So who are these guys?

Russia and Ukraine reached agreement Wednesday on restoring natural gas supplies to Ukraine, ending � for now, at least � a dispute that ripped an even larger chasm between the two former Soviet republics, rattled European consumers of Russian gas and called into question Moscow's reputation as a reliable energy provider to the West.

Almost a week after negotiations collapsed amid accusations of blackmail, sabotage and thievery, both Moscow and Kiev claimed victory in the complicated, five-year deal that involves a complex pricing plan, gas from Central Asia and a Russian-Swiss trading business that had been under investigation in Ukraine.

...Analysts had mixed reactions to the deal, which has Ukraine buying gas from the RosUkrEnergo trading company for almost twice what it had been paying, but still lower than the fourfold increase Russia originally sought.

...Under the complex deal, Gazprom will sell gas to RosUkrEnergo for the same price it had demanded Ukraine pay beginning Jan. 1 � $230 per 1,000 cubic meters. Ukraine will then buy gas from the company for $95 � nearly twice what it had previously been paying Gazprom.

The deal also makes RosUkrEnergo the sole provider of gas to Ukraine. Little is known about the company, however, except that it is owned by a Gazprom bank and a Swiss subsidiary of Austria's Raiffeisen Bank. Wolfgang Putschek, a member of the executive board of Raiffeisen Invest, said Centragas was acting as custodian for "a group of international investors in the gas business."

No one answered the repeated phone calls to RosUkrEnergo's offices in Zug, Switzerland.

The two companies also agreed on a 47 percent increase in the transit fee Gazprom pays to Ukraine to send its gas through the pipelines � to $1.60 per thousand cubic meters to travel 100 kilometers. Ukraine will also pay cash for gas deliveries and Russia will pay cash for transit, Gazprom spokesman Sergei Kupriyanov said, ending a barter system that had displeased Russia.

RosUkrEnergo can pay and charge the different prices because it also buys gas from the Central Asian nations of Turkmenistan, Uzbekistan and Kazakhstan that will be added to the mix, Kupriyanov said. According to Ukrainian President Viktor Yushchenko, Turkmen gas sells for about $50 per 1,000 cubic meters.

...RosUkrEnergo last summer was under investigation by Ukraine's state security agency, which was also probing Naftogaz and groups affiliated with Semyon Mogilevich, a Ukrainian-born Russian citizen and reputed organized crime
figure who is wanted by the FBI.

Putschek said "the whole criminal investigation is complete nonsense," and that all claims of wrongdoing were "politically driven" by former Prime Minister Yulia Tymoshenko, now a key opposition leader, and her ally Oleksandr Turchinov,
the former head of the security agency.

Did Russia cave in, as Captain Ed believes? I don't think so. Gazprom gets to buy its own gas through the RosUkrEnergo subsidiary at a high price, then turn around and sell it at a lower price to Ukraine along with the other Central Asian gas feeds that it now can buy. That might turn out to be a pretty good deal for Gazprom. It gets a five-year contract to, at a price it says it can adjust with market changes. Ukraine got to take up the price it charges for transiting gas through its pipelines from $1.09 per 1000 cf to $1.60. But Jerome Guillet thinks that this is built into the $95 price, which means the Turkmen gas to be mixed in is essentially free. (I did note that the two sides said they pay cash to each other -- I don't see that as negating this point.) More to the point, as Levko points out, this gives the Russians a good bit of control over the flow of CenAsian gas. Who's not to say that was the point of the exercise for Russia? I think Putin won, though it appears to be spun as a loss.

And who is RosUkrEnergo, anyway? This is a company that was under investigation in Ukraine under the Tymoshenko premiership. The Kyiv Post had an investigation of the company, which ended when the Tymoshenko cabinet was sacked by Yushchenko in August.

Intermediaries such as RosUkrEnergo and Eural Trans Gas generate billions of dollars in revenues annually transporting gas they don�t own through pipelines, which they also do not own. They are essentially paper companies granted lucrative privileges whose existence has proven difficult to explain for top managers at Gazprom and Naftogaz. Minority shareholders at Gazprom insist that their company could handle the transit itself; some Ukrainian officials insist that Ukraine should also have a share in the business.

Gazprom and Naftogaz announced in July 2004 that Eural Trans Gas would be replaced by the newly established RosUkrEnergo starting 2005. ETG has acted as intermediary in the previous two years...

It remains unclear who the beneficiary shareholders of ETG and and RosUkrEnergo are, and whether Gazprom and Naftogaz Ukrainy control the company. Gazprom and Naftogaz Ukrainy have repeatedly denied owning ETG, but ETG officials say their company does not operate independently of the Ukrainian and Russian gas companies.

Press reports have linked ETG with Ukrainian-born reputed mobster Semion Mogilevich. Mogilevich is wanted by the FBI on money laundering, racketeering and fraud charges.Several of the media outlets that alleged those links were forced to retract their claims after they lost lawsuits brought against them by ETG.

Former U.S. Ambassador to Ukraine Carlos Pascual last year called upon Ukraine and Russia to modify the Turkmen gas supply arrangement, citing reports that Mogilevich has ties to ETG. Pascual said that ETG�s influence over Ukraine�s gas supplies is a serious threat to the country�s energy security.

Here's the FBI warning on Semion Mogilevich. Taras Kuzio reported last August that Mogilevich is living openly in Moscow. And there is some sketchy evidence that RosUkrEnergo was in the middle of the war within the Tymoshenko cabinet that eventually led to her dismissal. Shortly after she left, the investigation into RosUkrEnergo was suspended.

And now they stand in a position to generate large amounts of revenue as the middleman between Central Asian gas and Ukraine, and to provide Russia with control over its flow. Something in this deal smells really bad.

Categories: economics, Ukraine