Ukraine's Minister of Energy resigns citing policy differences (06/18/00)

Ukraine's Minister of Energy resigns citing policy differences

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's energy sector was thrown into further turmoil on June 15 when Minister of Energy Serhii Tulub resigned over fundamental disagreements with the government of Prime Minister Viktor Yuschenko over restructuring of the country's fuel and energy sector.

"In this aggressive atmosphere in which I have found myself and which surrounds the ministry, I cannot fulfill the directives that the president has placed before me, and therefore I offer my resignation," said Mr. Tulub through his press secretary.

During a press conference held earlier in the day, he said the specific reason for his resignation was the government's inability to institute measures recommended by his ministry to resolve chaos in the oil, gas and coal segments of the economy, which are badly in debt and controlled by a few wealthy businessmen.

But chiefly he blamed his boss, Vice Prime Minister Yulia Tymoshenko, whose determination to regulate the Ukrainian gas commodity market he could not accept. He said that too often Ms. Tymoshenko was long on rhetoric and short on action.

"More than once we discussed the biggest problems of the energy sector, but our proposals were either ignored for months, and if accepted only too late," said Mr. Tulub, according to Interfax-Ukraine.

He explained that the little he was able to accomplish was due to interventions by President Leonid Kuchma to break political logjams. Mr. Tulub took credit for increasing coal supplies by 2.5 million tons, ensuring adequate energy supplies to Ukraine's electrical grid during the critical winter months and paying back wages owed to nuclear energy sector employees.

Vice Prime Minister Tymoshenko, whose portfolio includes the vast and very chaotic fuel and energy sector of Ukraine, has been embroiled in controversy ever since she was named to the post in January. She and Mr. Tulub have been at loggerheads almost from the beginning, when Ms. Tymoshenko announced that Naftohaz Ukrainy, Ukraine's major gas wholesaler, owed the Russian government more than $1 billion in gas for some 5 billion cubic meters of gas it siphoned illegally from Russia's Gazprom pipelines, which run through Ukraine to other parts of Europe.

At first Naftohaz Ukrainy denied the charges, but within days its president, Ihor Bakai, had resigned and the company had begun negotiations with Gazprom on debt repayment. At the time, Mr. Bakai said he was forced to resign under government pressure induced by Ms. Tymoshenko, who was looking to restructure the sector more to her favor and to wipe out business and political opponents who had effectively removed her position in the gas industry after her political mentor, Pavlo Lazarenko, was charged with embezzlement and fled for the United States.

Last month more controversy erupted when Ms. Tymoshenko proposed a major shake-up of the energy sector and government regulation of the commodity market.

Today that market is substantially deregulated, although the government continues to be a key player because it holds substantial stock in some of the corporations. The sector's operations, however, remain glaringly opaque, and many of Ukraine's so-called clans have laid substantial claim to it. Among the key players in the lucrative gas trade are Hryhorii Surkis and Oleksander Volkov, both of whom are also politicians with great political influence.

Ms. Tymoshenko has played a prominent role in the gas business, where she made a fortune as one of the first large-scale private traders. She, along with Mr. Lazarenko, made millions of dollars selling Russian gas in barter operations in the mid-90s. Today she has officially distanced herself from the day-to-day workings of her company, United Energy Systems, but her past involvement has opened her up to accusations of conflict of interest.

One such accusation was leveled by Yevhen Marchuk, the secretary of the National Defense and Security Council, who said on June 6 that Ms. Tymoshenko may be artificially inspiring an energy crisis. Ms. Tymoshenko rejected Mr. Marchuk's insinuations the next day, saying his claims have "nothing to do with reality."

"There is indeed a crisis in the fuel and energy sector, but this is not a crisis of the sector itself, but of its oligarchic teams," said Ms. Tymoshenko, according to Interfax-Ukraine. "This is a crisis of corporations that used to work in the energy market's shadows and are now losing that shadow business."

She said that until the Energy Ministry, Naftohaz Ukrainy and Energoatom, which controls Ukraine's nuclear energy supplies, is cleansed of people who have "dirty schemes" the sector will remain in crisis.

"If power remains with the friends of such people as Bakai, Volkov and Surkis, the government will always be hostage to certain provocations," said Ms. Tymoshenko.

Mr. Tulub has said he believes the gas market should remain unfettered by government intrusion, although he has recognized that reforms need to be implemented. During his short press conference he complained that not one of the 37 proposals prepared by Energy Ministry specialists on needed regulatory changes has been accepted by the government. He said he and Ms. Tymoshenko have very differing views on energy sector regulation.

Mr. Tulub seemed to have the support of President Kuchma, who recently criticized Ms. Tymoshenko for lack of action as well. On June 8 he accused the Ukrainian government of failing to review thousands of government recommendations for reform of the energy sector.

"No use has been made of the 11,000 directives from the government committee on reforming the fuel and energy sector and from the fuel and energy ministry," said Mr. Kuchma in remarks that at the time led some to believe that Mr. Tulub had won his feud with the first lady of energy and that her resignation was imminent. He said that Ukraine owed $700 million for gas supplied by Russian companies for merely the first five months of this year.

President Kuchma left for a working visit to Cuba on the day Mr. Tulub resigned and was not available for comment.

There is a general belief among experts that the near bankrupt state of Naftohaz Ukrainy, which supplied much of Ukraine's gas, and Russia's intention to close the door on gas credits will lead to a major energy crisis in Ukraine in the fall and winter of this year. Already Russia has announced that from June through September it will not supply Ukraine with free natural gas, which it has regularly done in payment for its use of the country's pipelines.

Ukraine is one of the world's largest consumers of oil and natural gas, ranked in the top 10 in overall consumption and in the top five in per capita use. Its energy problems, mostly due to its nearly total reliance on Russian suppliers, are compounded by the fact that its electricity generation plants are among the world's most inefficient.

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