Mysterious Gas Deal Roils Politics In Ukraine

KIEV, Ukraine -- The official residence of the managing director of a company now set to control Ukraine's supply of natural gas is a one-story, clapboard house in a tumbledown village bordering a defunct collective farm outside Moscow. A dirty rug covers the floor, a bare light bulb hangs from the ceiling and scraps of plywood plug gaps in the wall.


Olga Sakharova, 49, lives there with her mother and a German fox terrier called Lyusa, and she has never heard of the director, Oleg Palchikov, who operates a business worth $7 billion a year.

"What boss would want to live here?" Sakharova asked, surprised to learn that she occupied one of the few known addresses of any of the executives of the shadowy gas trading company involved in a controversial deal between Ukraine and Russia that continues to roil politics here in Kiev, nearly 640 kilometers, or 400 miles, away.

The company, RosUkrEnergo, became a broker in a deal to resolve a New Year's confrontation between Russia and Ukraine over the price of natural gas - a deal that has prompted accusations of corruption and almost certainly contributed to President Victor Yushchenko's poor showing in parliamentary elections Sunday, when his party finished a distant third.

The mysteries surrounding the company - ranging from the identity of its owners and the circumstances of its selection, to the places where its executives live and work - reflect the post-Soviet combustion of politics and business that still afflicts Ukraine despite the significant progress that Yushchenko and his allies have made in making the country a freer, more democratic society.

Yulia Tymoshenko, Yushchenko's erstwhile ally in the mass protests that swept him to the presidency in 2004, campaigned fiercely against the deal, citing it as an example of the corruption and untrustworthiness of the leadership of Yushchenko's party, Our Ukraine.

With her party having won significantly more votes than Yushchenko's, according to nearly complete results announced Wednesday, she has now claimed the right to lead the coalition in Parliament representing the reformist, Western-leaning forces who took part in what came to be known as the "Orange Revolution."

And she has promised that one of her first acts as prime minister, should she return to the post she held for the first eight months of Yushchenko's presidency, would be, "by all means," to scuttle the deal and RosUkrEnergo's part in it.

"These are the standards preached by Kuchmaism," she said of the deal in an interview on Wednesday, referring to the scandal-tainted presidency of Ukraine's previous leader, Leonid Kuchma.

Tymoshenko's fierce opposition to the deal echoes her zeal in revisiting scandalous privatizations that took place during Kuchma's tenure, and could complicate efforts to reunite the coalition that swept Yushchenko to power.

Already, Yushchenko and his aides have met with his bitter rival, Victor Yanukovich, whose party won the largest bloc of votes, 31 percent, raising speculation that he would seek a parliamentary alliance that would exclude Tymoshenko. Yushchenko's party announced Wednesday that it would not commit to any coalition until at least April 7.

Reopening the deal could provoke a new conflict with Russia over the supply of natural gas, only months after a New Year's showdown that resulted in a disruption of supplies across Europe, deeply rattling countries that rely heavily on Russian and Central Asian gas that passes through Ukraine's pipelines.

"Any agreement that is unstable is one that is undesirable from the point of view of Europe," said Thane Gustafson, a senior analyst at Cambridge Energy Research Associates.

The deal's critics say the instability comes from the murky nature of the arrangement, which granted substantial control over Ukraine's gas market to a little-known company with links to Russia's state energy monopoly, Gazprom, and unknown investors.

Even now, nearly three months after the deal was announced, the ownership and operations of RosUkrEnergo remain murky. Registered in Zug, Switzerland, it is owned half by Gazprom and half by Centragas, an umbrella corporation run by Austria's Raiffeisen Bank for a group of investors whom the bank will not identify, despite pressure from American and European officials.

Officials in Russia and Ukraine have accused one another of having beneficiaries in the company and have provided contradictory accounts of who suggested that RosUkrEnergo be included in the first place.

"This is the Ukrainian part, and you need to ask them," President Vladimir Putin said earlier this month. Yushchenko, by his own accounting, knows no more. "I have personally turned several times to the Russian side to receive this information," he said at a news conference earlier this month. "Unfortunately, as of today, I do not have any information about the founders of this structure."

Executives of the company, some of whom also work for Gazprom itself, declined to discuss the matter in detail. Alexander Medvedev, the director of Gazprom's export arm, Gazexport, and one of eight members of the board of RosUkrEnergo, has denied knowing the unknown investors.

The vacuum of information has led to reports, so far unsubstantiated, that RosUkrEnergo's beneficiaries have links to Yushchenko's top advisers. Yushchenko himself was forced to deny any involvement by his brother, Petro, who has been involved in the gas-trading business.

Although much remains unclear, there is little doubt the deal has weakened Yushchenko politically, tarnishing his reputation as an uncorrupted reformer. Mychailo Wynnyckyj, a professor of sociology at the University of Kiev-Mohyla Academy, attributed the electoral failure of Yushchenko - and Tymoshenko's success - to the gas deal.

"Yushchenko came to power on the whole idea of transparency," he said. "And he was pushing a deal that obviously had some corrupt aspect to it."

Source: International Herald Tribune