Observers puzzled over Russia gas conflict

January 14, 2009

, ZURICH, January 14 – In the midst of the Ukraine-Russia gas dispute, the role played by a Swiss-based firm, Rosukrenergo, as an intermediary between Russian gas giant Gazprom and Ukrainian interests, is puzzling observers.

Not only has the normally hugely profitable firm recently been selling Russian gas to Ukraine at a loss, its ownership structure is equally baffling, analysts said.

"Since the very beginning people were asking questions about the necessity of Rosukrenergo … We see no need for intermediaries to do the work that Gazprom can do for itself," said Diarmid O\’Sullivan, a campaigner at the non-governmental business watchdog Global Witness.

Nestled in the central Swiss canton of Zug, a discrete low-tax corporate haven that is home to major global commodity traders, the firm is jointly owned by Gazprom and Ukrainian entrepreneurs through an Austrian company, Centragas.

Some analysts speculate that the true beneficiaries of the company\’s billions are in fact at the very top of the political leaderships of both Russia and Ukraine but this has never been confirmed.

Formed in 2004, the intermediary employs four people in Switzerland and reported sales of about 10 billion dollars (7.6 billion euros) in 2007.

It says it purchases gas from Uzbekistan, Turkmenistan and Kazakhstan and covers about three-quarters of Ukraine\’s gas needs. About a fifth of the company\’s gas goes to Europe, mainly Poland, Hungary and Romania.

Rosukrenergo estimates that it is still owed 614 million dollars by Ukrainian state company Naftogaz, which purchases gas for Ukraine, and is seeking to recover that outstanding debt.

In a new twist, Ukrainian Prime Minister Yulia Tymoshenko, who used to work in the gas industry herself, on Wednesday accused Rosukrenergo of being behind the breakdwon in negotiations between Russia and Ukraine last month.

"The negotiations collapsed because Ukrainian politicians tried to keep Rosukrenergo as an intermediary," she told reporters.

She named Ukrainian businessman Dmitry Firtash and two opposition politicians, Yury Boiko and Sergei Levochkin, as the main culprits.

Meanwhile in Moscow, Russia\’s Audit Chamber said it was launching an investigation into the Russia-Ukraine gas trade, including a focus on the role played by Rosukrenergo.

"We don\’t understand where the money is going. Ukraine is not paying us and this concerns above all Rosukrenergo," Audit Chamber head Sergei Stepashin was quoted by Interfax news agency as saying.

Rosukrenergo\’s role as an intermediary, and the fact that it has been selling gas to Ukraine at a loss, is being questioned, particularly at a time when Gazprom and Naftogaz are locked in a payments dispute.

Global Witness, which specialises in the fight against corruption in international trade, noted that it "can\’t see any reason for Rosukrenergo to be in the trade" of gas between two former Soviet bloc countries.

Since the sale of gas to Europe generates profits, noted the NGO\’s O\’Sullivan, then "why is Gazprom foregoing this profit, by sharing it with a company that has private Ukrainian shareholders?"

Centragas, Rosukrenergo\’s other principal shareholder, is itself 90 percent held by the energy and chemicals group DF Group, owned by Ukrainian businessman Firtash.

Last October, Russia and Ukraine signed a deal that allows Gazprom and Naftogaz to conclude direct contracts from 2009, the NGO noted, expressing surprise that "the intermediary is still there."

Analyst Kash Burkett from Datamonitor described Rosukrenergo as "an additional useless cost."

He noted that getting rid of the intermediary could lower costs and thereby ease negotiations towards a settlement in the Russia-Ukraine dispute over gas payments.

"But Moscow is not ready to go through with it" due to the participation of Gazprom in the firm, he argued.

Asked about its role as an intermediary, Rosukrenergo\’s spokesman would only say that he was "happy if we did not have to continue to do business at a loss" in Ukraine.

The company could develop into an independent exporter of gas for Europe, he added.

Russia cut supplies of gas via Ukraine on January 1 following a payments dispute with Kiev.

The flow resumed on Tuesday, after European Union monitors were placed along the pipeline route through Ukraine, only be shut off again hours later as the two sides exchanged charges over who was responsible.

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