Energy company president speaks on investment climate in Ukraine (04/20/97)

Energy company president speaks on investment climate in Ukraine

by R.L. Chomiak
Special to The Ukrainian Weekly

WASHINGTON - Ukraine is paying its bills for natural gas imports from Russia, and this is making Russia very unhappy.

Russia, in this case Gazprom - the privatized gas monopoly corporation, of which 40 percent still is owned by the Russian government - has its eyes on a very valuable asset owned by Ukraine: the transmission pipelines carrying Russian gas to the west. With the debt mounting, Ukraine would have been forced to part with the pipelines.

This was the message delivered by Yulia Tymoshenko in Washington on April 14. She spoke at a seminar held at the Nitze School of Advanced International Studies of Johns Hopkins University (SAIS). The main purpose of her weeklong trip to the U.S. was to repair the damage caused by the recent spate of negative articles in the major press outlets about the bad investment climate in Ukraine. The climate is chilly, but the articles didn't tell the whole story, she said. "They covered up important information," she underlined.

At age 37, Ms. Tymoshenko is a very powerful person. She is president of United Energy Systems of Ukraine (known by its Ukrainian acronym, YES) - one of eight regional utility companies formed in Ukraine to take the responsibility for taking energy from the government, and giving it to the private sector. (Technical assistance paid for by the U.S. Agency for International Development played a role in this transformation.)

She also is a member of the Ukrainian Parliament, winning a seat from Kirovohrad in 1996. Her company is headquartered in her native city of Dnipropetrovsk. It is not only paying for the gas it buys from Russia, but is making deals with Turkmenistan and Uzbekistan.

When Ukraine's energy debt to Russia reached $2.3 billion, Ms. Tymoshenko told the SAIS seminar, Gazprom made an offer to exchange it for the ownership of transmission facilities. But this, she contended, would have meant repaying Ukraine's debt with its assets and would have been a blow to Ukraine's sovereignty. Instead, in 1994, she related, the Ukrainian government was able to restructure its debt, and transferred the buying and selling of gas to private companies. It also allowed these companies to use what she called "non-traditional methods for assuring energy supplies for Ukrainian consumers."

As the result, she said, the eight new companies paid Russia for all the gas imported in 1996, and prepaid 1997 deliveries, "but in 1997 Gazprom made severe new demands for future contracts." At the same time, she continued, "the conservative lobby" in the Verkhovna Rada, backed up by the Soviet-era bureaucracy, started to make demands that energy supply should revert back to the government.

One of the reasons she ran for Parliament, Ms. Tymoshenko said, was to introduce legislation that would create "proper conditions for foreign investors in Ukraine." She needs foreign investment for the modernization of her company's aging infrastructure, she said. And in a press handout prepared by an American public relations firm arranging her trip, she is quoted as saying: "My hope is to have Ukrainian industry work with 21st century technology."

She blamed the Verkhovna Rada for not passing tax legislation and the budget, which has led to the abandonment of investment plans by such companies as Motorola.

"The conservative lobby and the bureaucracy are trying actively to eliminate private business [in Ukraine]," she charged.

Regarding the negative stories about her company that have appeared in the Western press, Ms. Tymoshenko said, "they don't reflect reality."

She urged her listeners to look at the record: "We have avoided debt [for imported Russian gas], and we have preserved Ukrainian assets. Some people don't like that."

She also explained the "non-traditional methods" her firm and the other seven use to pay for energy. In each utility's region, roughly 20 percent of the consumers (both enterprises and individuals) are able to pay for gas, and 80 percent at this time are not, "but the government couldn't just turn off their heat." Instead, the utilities, which have on their staffs scientists, engineers, financiers and entrepreneurs, help revive companies that had lost their markets after the break-up of the USSR and turn them into paying customers.

The government gives subsidies to impoverished individuals, "but there are no government subsidies for regional utilities."

UESU President Tymoshenko assured her audience that given a chance "for young Ukrainian businesses" to grow under conditions of realistic reforms, "Ukraine can be rich and not a burden on the backs of American taxpayers, but, of course, we are very appreciative of the aid we have received."

Ukraine, she said, has made a lot of progress, "but still has a long way to go." During her current visit to the U.S., Ms. Tymoshenko said she wants to have an open dialogue about the negative and positive developments in Ukraine "without cover-ups of information."

She also said she is making plans to hold a conference of political and business leaders about market reforms.

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