New Firm at Crux of Ukraine Gas Deal

RosUkrEnergo, the murky gas-trading vehicle half-owned by Gazprom, will continue to handle sales from Russia to Ukraine until a replacement can be set up, company officials said Wednesday.

The new firm, to be 50-50 owned by Gazprom and Ukraine's state-owned Naftogaz, has little of more substance than a political blessing, and past failures at trying to bring the handling of gas sales to Ukraine above board cast doubt on the chances of success this time.

Spokespeople for Gazprom, Naftogaz and RosUkrEnergo said they could not divulge details of the deal, as none had yet been decided.

Top officials from Gazprom and Naftogaz were due to meet in Moscow on Thursday, as part of a working group to set up the new company that will, in theory, initiate direct gas sales from Russia to Ukraine.

Gazprom spokesman Sergei Kupriyanov declined to comment on a timeline, saying only, "We'll try to do it the quickest possible."

Ukrainian Prime Minister Yulia Tymoshenko lauded the decision to do away with RosUkrEnergo, as part of the deal announced on Tuesday after two days of talks between top Russian and Ukrainian officials to avert a gas cutoff over Ukraine's billion-dollar debt to Gazprom.

The deal was announced after talks between President Vladimir Putin and Ukrainian President Viktor Yushchenko.

"The gas talks were a great victory for the democratic team," Tymoshenko told a Cabinet meeting, Reuters reported from Kiev. "This is another step toward establishing order in the gas market; another step toward eliminating corruption and shadow schemes in the energy sector."

Tymoshenko, who built her fortune in the 1990s gas trade, had made RosUkrEnergo's removal a personal mission since returning as prime minister in December.

"There are elements of trying to show they have left [the 1990s] behind and that [Tymoshenko] has also moved past that phase," said Chris Weafer, chief analyst at UralSib.

Tymoshenko has pushed for Ukraine, which was accepted into the World Trade Organization earlier this month, to develop closer ties with the European Union.

Analysts and at least one prominent Ukrainian politician, however, were skeptical about the new scheme's ability to deliver greater transparency.

"This is the same thing, only seen from a different angle," said Anatoliy Hrytsenko, chairman of the Ukrainian parliament's Security and Defense Committee. Hyrtsenko was a key figure in the Orange Revolution that first brought Tymoshenko and Yushchenko to power in 2005.

"But now Gazprom will become an even more powerful player, with the chance to have even greater influence on our internal market and boost its capitalization. This is clearly not in Ukraine's interest," Hrytsenko said in a statement, Reuters reported.

A key victory for Gazprom is the clause in the deal allowing the state-run firm to boost its hold over Ukraine's domestic distribution to 50 percent, said Elena Herold, an analyst at PFC Energy.

The replacement of RosUkrEnergo with a 50-50 joint venture between Gazprom and Naftogaz was one of the two main points in Tuesday's agreement.

The second point calls for the removal of UkrGazEnergo, the 50-50 joint venture between RosUkrEnergo and Naftogaz that handles domestic sales once the gas crosses the Russian-Ukrainian border, in favor of a 50-50 Gazprom-Naftogaz tie-up, thus boosting Gazprom's share in the trade.

"Distribution is the prize," Herold said.

Gazprom has long been seeking distribution assets in Western Europe and among its ex-Soviet neighbors, often meeting harsh political resistance.

RosUkrEnergo spokesman Andrei Knutov declined to comment on what role Dmitry Firtash, who owns 45 percent in the firm alongside Ukrainian businessman Ivan Fursin, could take.

Firtash has long held an interest in Ukraine's gas trade, owning a stake in RosUkrEnergo's predecessor Eural Trans Gas. He long hid his involvement with Swiss-registered RosUkrEnergo, prompting media speculation that he represented other interests who wished to remain unknown.

"The difficulty will be on the Ukrainian side, because clearly someone is going to lose a lot of money," Weafer said.

The crisis between Moscow and Kiev, which quickly escalated to a threat by Gazprom to shut off the gas to Ukraine unless it paid a large debt to it by 6 p.m. Tuesday, came weeks after the surprise arrest of Semyon Mogilevich, a suspected crime boss wanted by the FBI and held by Russian authorities on charges of tax evasion.

Mogilevich denies he is part of Ukraine's gas trade, but media speculation persists.

"It is a question of politics," said Zeev Gordon, a lawyer for Mogilevich who has represented Firtash in the past.

"Firtash owns a very strong company in the energy sector and, basically, business is business. The only way in the last few years that [they got] to take it away from him is to claim that criminals are behind this operation," he said, explaining the persistent talk of links to Mogilevich.