EU Hopes Fade As Gas Lobby Triumphs

European officials have repeatedly warned that closer ties through free trade and association agreements would not happen as long as opposition leader Yulia Tymoshenko remains in jail on charges seen as politically motivated.

Many – but not all – observers think that President Viktor Yanukovych is calling the shots in the judicial assault on the former prime minister, a course of action that is undermining his own often-stated foreign policy priority of EU integration.

Tymoshenko was sentenced on Oct. 11 to seven years in prison for abuse of office in a 2009 gas deal she reached with Russia.

Instead of meeting EU demands that she be released and allowed to take part in the 2012 parliamentary elections, Yanukovych-loyal prosecutors have launched 10 criminal cases against her. In doing so, they have upped the ante in an escalating standoff with the West.

The questions being increasingly asked as Ukraine’s EU prospects dim are: Is the president himself spearheading the prosecutions against Tymoshenko and other opposition politicians?

Or is someone in the president’s inner circle talking him into a course of action that is derailing proposed deals with the EU, in turn setting the stage for Ukraine to fall deeper into Russia’s orbit of influence?

Gas lobby’s revenge?

An increasing number of analysts, oppositionists, former top officials and critics say that evidence points to one group that is pushing Yanukovych to keep Tymoshenko in jail – the so-called natural gas lobby, which has for years been a partner of Russia’s Gazprom in the region’s multi-billion dollar gas trade.

Leading the group, according to experts and Tymoshenko herself, is billionaire businessman Dmytro Firtash, a close associate of influential officials in Yanukovych’s administration, including chief of staff Serhiy Lyovochkin. Firtash could not be reached for this story, despite repeated attempts to contact him.

Firtash made millions on the Russia-Ukraine gas trade in recent years as co-owner, along with Russia’s Gazprom, of Swiss-registered RosUkrEnergo. The company monopolized the supply of gas to Ukraine until Tymoshenko, as prime minister in 2009, convinced Russia to cut it out in favor of direct contracts between Gazprom and Ukraine’s state energy firm Naftogaz.

That decision by Tymoshenko hit Firtash hard, although he is back in business on a grand scale again since Yanukovych came to power, importing natural gas with Russia’s blessing.

But some wonder if revenge is on Firtash’s mind.

In 2009, he allegedly told the U.S. ambassador in Kyiv that the contract that Tymoshenko brokered was criminal for introducing higher import prices and “the most stupid contract in Ukraine’s history.” In the same conversation, Firtash allegedly spoke in favor of arresting Tymoshenko for the contract, arguing that signing the agreement was tantamount to treason.

When a diplomatic cable describing the comments was published by anti-secrecy organization Wikileaks in 2010, Firtash released a statement saying he would not comment on a private conversation. Like Firtash, Tymoshenko has always denied any wrongdoing.

When asked on Nov. 15 in Poland about the influence of the gas lobby on Ukraine’s foreign policy, Yanukovych did not talk about his relations with Firtash and others in the gas lobby. But the president denied that he is influencing courts and pre-trial investigations.

However, more observers are pointing to Firtash and his allies as having vested interests in the failure of EU negotiations in order to preserve lucrative relations with Russia.

Mykola Tomenko

Referring to a new arrest warrant handed down to Tymoshenko on Dec. 8, Mykola Tomenko, a deputy parliamentary speaker from her party, said: “This is an attempt of the pro-Russian lobby from the president’s circle to deliberately exacerbate the situation. This absurdity aims to prevent the signing of the association agreement with Europe.”

Oleh Rybachuk.

Oleh Rybachuk, a former presidential administration chief turned civic activist, said the businesses in Ukraine that depend on Russia will hinder Kyiv’s European integration.

He says Moscow, which is against Kyiv’s closer ties with Brussels, is using its business partners in Ukraine to block the country’s European integration.

“The pure fact of providing RosUkrEnergo with access to the feeding trough [of the gas market] is obviously a payback [to Firtash] for fostering Russia’s interests in Ukraine, namely hindering Ukraine’s EU integration,” Rybachuk said.

Yuriy Shcherbak, Ukraine’s former ambassador to the U.S., believes Ukraine’s gas lobby is taking personal revenge against Tymoshenko, who in the past muscled them out of the gas business and launched scathing public assaults. He said he also suspects the group is sabotaging the country’s integration to the EU in Russia’s interests.

“They [the gas lobby] are first of all acting in their own interests, but they are also Russia’s agents of influence, because everything they do is in the interests of Gazprom [and] against Ukraine’s interests,” Shcherbak said.

Some analysts see the jailing of Tymoshenko as a way to keep her out of political power, where she could damage Firtash’s interests.
“For Firtash, Tymoshenko’s coming back to power would be the end of all his business and influence in Ukraine,” said Dmytro Marunych, head of the Kyiv-based Energy Research Institute.

Firtash’s power

Analysts and opposition politicians say Firtash’s influence is vast.

In addition to being close with Lyovochkin, Energy Minister Yuriy Boyko is considered an associate. Years ago he served on the board of RosUkrEnergo and reportedly held power of attorney over Firtash’s assets.

Valeriy Khoroshkovsky, who heads Ukraine’s SBU security service, has said that Firtash had an option to jointly own or buy out his leading television holding, U.A. Inter Media Group Ltd. At the SBU, Khoroshkovsky has overseen criminal investigations into Tymoshenko, including her decisions as prime minister to cut RosUkrEnergo out as a supplier of gas to Ukraine.

Tymoshenko has repeatedly claimed they are all members of one political-business group.

Boyko, like Firtash, did not respond to requests for interviews. In a written response to the Kyiv Post, Lyovochkin, Yanukovych’s chief of staff, reiterated that European integration remains Ukraine’s top foreign policy priority. Khoroshkovsky’s SBU press service also denied he is sabotaging EU integration.

In a Nov. 3 interview with Ukrainian daily newspaper Den, Firtash said he as a businessman favors Ukraine integrating with Europe, but noted that Ukraine should compare the advantages of the EU vs. Russia. “I am not sure the European Union is an answer to all our questions,” he said.

Transparency activists say that although Ukraine’s richest businessmen tend to look to the West, not all of them are ready to go West by implementing clear-cut and transparent rules of the game.

Tom Mayne, a campaigner at anti-corruption watchdog Global Witness, argues that Firtash has historically been against transparency, citing the fact that he as a RosUkrEnergo co-owner for a number of years had been hiding behind Raiffeisen Investment. The analyst says that this would seem to suggest Firtash is not a big fan of making some of his business dealings very open.

“More integration with the EU would, hopefully, force more transparency on Ukraine’s gas industry. And that’s not what people who control it want,” Mayne said.
Ukraine is a signatory of the Energy Charter Treaty, along with all EU member states. The legally binding treaty is designed to open up the national energy market and make it more transparent.

A cooling off in EU-Ukraine relations would open the door to closer ties with Russia.

A large share of Firtash’s businesses in Ukraine depends on Russia’s willingness to supply cheap gas directly or permit Central Asian blue fuel to be transported across its pipelines to Ukraine.

Firtash owns four of Ukraine’s fertilizer producers and has his eyes on buying up more chemical plants, sources said. He acquired three in the past two years, reportedly with about $1 billion in financing provided by Russian banks.

Valeriy Chaly, deputy director of the Kyiv-based Razumkov Center think tank, said the profitability of Firtash’s chemical plants depends on affordable gas prices from Russia. “It is important for them [Firtash’s group] to maintain shadowy relations [with Russia], an acceptable price for Russian gas. Clearly, there is no European integration there,” Chaly said.
Taras Chornovil, a former Yanukovych adviser and currently a member of the pro-presidential coalition in the parliament, had a similar outlook.

“There is a suspicion that in exchange for good relations with Russia, Firtash is sabotaging Ukraine’s European vector [of foreign policy],” Chornovil said.
Some in Ukraine’s parliament, however, say that Firtash should not be considered pro-Russian just because he does business with Russia.

Oleksandr Hudyma, a lawmaker and Tymoshenko ally, said Firtash is not against European integration and does not want Kyiv to join a Moscow-led customs union. This would be “a threat to his interests,” making him too vulnerable to Russia. “For now Firtash is interested in Ukraine being in the gray zone where all major assets are redistributed. But in the future he will support closer relations with the EU,” Hudyma added.

Yanukovych in charge

Analysts also say it would be wrong to see Firtash as the power behind the throne. In reality, they say, Yanukovych is the man taking the decisions after assessing various options.
“The president says the final word,” Razumkov Center’s Chaly said, adding that Yanukovych ultimately will be held accountable for his policies.

Diplomats and observers say Yanukovych wants to strengthen his grip on power and is taking revenge on Tymoshenko for humiliating him during the Orange Revolution, which overturned Yanukovych’s fraud-tainted election in 2004 and led to Viktor Yushchenko’s coming to power.

The president denies interfering in the judicial process.

Oleksandr Sushko, an analyst at the Institute for Euro-Atlantic Cooperation, said Yanukovych’s desire to keep his archenemy behind bars prevailed over EU integration.

“Yanukovych’s absolute priority that overweighs everything else is keeping Tymoshenko in prison,” Sushko said.

Kyiv Post staff writer Yuriy Onyshkiv can be reached at onyshkiv@kyivpost.com. Vlad Lavrov can be reached at lavrov@kyivpost.com.