Tuesday, May 4, 2010

The Usual Suspects: Who is Behind the Proposed Russian-Ukrainian Gas Merger?

By Jiri Kominek

When Russian Prime Minister Vladimir Putin proposed a merger of Gazprom and Naftogaz on April 30 in Sochi, his Ukrainian counterpart Mykola Azarov responded by saying the offer was an “impromptu move”, but that his government would nevertheless consider the offer.

Putin’s spokesman Dmitry Peskov countered by telling media that the merger was “thoroughly thought through” and reflects the extent to which Russia is ready to integrate with Kyiv”.

Gazprom head Alexei Miller said that negotiations over the proposed merger or joint venture would begin immediately following the May holidays (First week of May) and ideally would result in the creation of a new entity that would be integrated across the production chain from exploration to the end user.

Sources in Kyiv have pointed out that the Ukrainian government hired a law firm that has worked closely on numerous contracts revolving around Naftogaz to study the legal aspects of a merger between the state-owned company and Russia’s Gazprom.

This would indicate that Putin‘s impromptu merger proposal has indeed been in the making for quite some time. It also casts doubt over how serious the Yanukovych Administration is serious about further integrating Ukraine with Western structures such as the E.U.

Western diplomats monitoring recent events in Ukraine ranging from April’s agreement to extend the lease for Russia’s Black Sea fleet in exchange for discounts on gas to the most recent Gazprom-Naftogaz merger proposal are said to be alarmed at the pace of developments. Western governments are now having to take a good hard look at the direction in which Ukraine's new government chooses to lead the country.

The recent calls for a merger add credibility to speculation in media that Ukrainian businessman Dmitry Firtash, the co-owner of the opaque Swiss-registered RosUkrEnergo (RUE) gas trading venture could be lobbying the Yanukovych government on behalf of the Kremlin’s interests to merge Gazprom with Naftogaz.

Firtash, after all, does share a cozy relationship with Sergiy Lyovochkin who is chief of staff to President Viktor Yanukovych.

Apart from RosUkr Energo, the two men were allegedly involved in a number of other less-than-transparent schemes including financial machinations revolving around a number of banks including TKB and the Ukrainian National Bank.

As a significant financial sponsor of the Yanukovych Presidential bid, Firtash appears to be cashing in for his loyalty by orchestrating the appointment of a number of his confidantes to the Azarov government including energy minister Yuriy Boyko whom former Prime Minister Yuliya Tymoshenko refered to as one of RosUkreEnergo’s “godfathers”.

It remains to be seen whether Firtash, Lyovochkin and Boyko prove to be the Kremlin’s point men who lobby in favor of a Gazprom-Naftogaz merger by making Viktor Yanukovych an offer he can’t refuse.

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