EDITORIAL: Shadowy gas deal (01/08/06)

EDITORIAL

Shadowy gas deal

A gas row between Ukraine and Russia, which threatened much of Western Europe's energy supply, was ironed out this past week. Ukraine, it appears, stood firm on its position that its energy-craved heavy industry cannot tolerate a fourfold increase in the price of natural gas and said that any increase in the price it pays for Russian gas will have to be phased in over a period of years.

While this initial news was certainly good to hear, the terms of the deal left many questions.

In the details of this deal was Russian President Vladimir Putin and RosUkrEnergo, a shady Swiss-based joint venture owned half by Russia's state-controlled gas monopoly Gazprom and half by Austria's Raiffeisen Zentralbank.

RosUkrEnergo was created by former Ukrainian President Leonid Kuchma and, according to the Associated Press, "within months of appearing from nowhere it had taken control of Ukraine's gas imports from Turkmenistan by the start of 2005."

Under the terms of the agreement, Russia will sell gas to RosUkrEnergo for $230 per 1,000 cubic meters, the price it originally wanted to charge Ukraine. RosUkrEnergo, which also buys much cheaper gas from Turkmenistan, will mix up its expensive Russian gas with other cheaper fuel and sell the finished product to Ukraine for roughly $95 per 1,000 cubic meters. Exactly how RosUkrEnergo stands to make a profit from this deal is anyone's guess.

In the broader picture, the international sale of gas and oil has always been a murky and complex world of tangled pipelines and secret motivations, to be sure. But the deal between Ukraine and Russia is no less tenuous largely because its key players remain shrouded in secrecy.

"We represent a group of international investors knowledgeable in the gas business who don't want to reveal their identity," said Wolfgang Putschek, CEO of Raiffeisen Investment, the investment arm of the bank that owns half of RosUkrEnergo.

RosUkrEnergo was under investigation recently by the Security Service of Ukraine for, among other things, its alleged link to reputed crime boss Semion Mogilevich, a Ukrainian-born Russian citizen who is wanted in the United States by the Federal Bureau of Investigations.

"Not a single dollar has anything to do with illegal activity," Mr. Putschek told the AP. Mr. Mogilevich "definitely has nothing to do with RosUkrEnergo, and never has." Mr. Putschek said that any claims of wrongdoing by the company were politically driven by former Prime Minister Yulia Tymoshenko, who has in the past also found her name tied to shady energy deals.

For his part, Mr. Putin said that relations between Russia and Ukraine "are assuming a new quality and becoming a truly transparent market partnership." Just how transparent that partnership is depends on the viewpoint. If, like Mr. Putin, the viewpoint was from within the negotiations, then a view of the deal's details would surely seem transparent. But, if the viewpoint was from outside of the negotiations, then transparent is the last thing we can call this deal. And the devil, as the old saying goes, is in the details.

| Home Page |