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. Last Updated: 07/27/2016

Gazprom, UES Deals Rattle Ukraine

ReutersKuchma, right, seen here with Russian Foreign Minister Igor Ivanov earlier this year, has made the pipeline deal a top priority.
KIEV -- Ukraine's president fired his vice prime minister after he made public comments throwing doubt on a multibillion dollar deal to upgrade natural gas pipelines that supply much of Europe's energy needs, an official said Saturday.

President Leonid Kuchma, who made the pipeline deal a top priority, dismissed Deputy Prime Minister Vitaliy Gaiduk late Friday. Gaiduk's ouster came just hours after he told reporters at a news conference that Ukraine had abandoned the high-profile project.

The project involves creating a consortium to renovate Ukraine's ailing Soviet-era pipeline system, which generates some 15 percent of government revenues. The consortium plan had been drawn at a meeting in June 2002, between Ukraine, Russia and Germany.

Kuchma fired Gaiduk after he insisted the pipeline network was working well -- and thus did not need any outside management.

Gaiduk stressed the decision was based on studies showing that none of the proposals for running the consortium -- allowing it to run the pipeline on concessionary terms, transferring the pipeline to a management group or granting the consortium operational responsibility -- was feasible.

Prime Minister Viktor Yanukovych said that Ukraine had not ruled out allowing the consortium to operate the pipeline system, Itar-Tass reported late Friday.

Kremlin spokesman Alexei Gorshkov told Prime-Tass that Gaiduk's comments "sounded fairly strange" in light of the fact that the Gazprom consortium had already been created.

Kuchma appointed Gaiduk to the post in November 2002 after he served in top positions in the Fuel and Energy Ministry.

At the same news conference, Gaiduk railed against another Russian monopoly, Unified Energy Systems, saying the electricity giant would not be allowed to buy state stakes in Ukraine's regional power utilities as long as the Russian government holds a controlling stake in the company.

This remark, however, was later backed up by Yanukovych, who said Kiev had frozen plans to sell its stakes in regional power companies across the country, one day after UES acquired shares in the prized assets and looked set on making a play for a controlling stake.

"Until we prepare the energy companies for privatization in a civilized way, we will not [privatize them]," Interfax quoted him as saying.

Yanukovych stressed that the companies' debts must be restructured and the country's energy market stabilized before the government would sell its shares.

On Thursday, UES said it had struck a deal to buy from 16 percent to 100 percent of 10 regional Ukrainian power companies as the first step in its long-term strategy to gain control of some of Ukraine's largest power suppliers.

UES acquired the shares in a deal with two so-called "oligarchs" -- one of whom is President Leonid Kuchma's son-in-law, Viktor Pinchuk. The two businessmen each retained 33.3 percent of the energy suppliers, Vedomosti said Friday, citing UES board member Andrei Rapaport.

UES said Thursday it hoped to buy Ukraine's state-owned shares to secure control of the companies.

Ukraine's State Property Fund, the agency charged with selling government assets, said Friday it had postponed sales of 25 to 27 percent blocs of state-owned shares in three of the companies involved in the UES deal.

Before the deal was announced Thursday, Kuchma told UES CEO Anatoly Chubais, the architect of Russia's controversial privatization program of the early 1990s, that Ukraine welcomes Russian investment in its energy sector, but balked at selling the country's strategic assets.

Many opposition leaders and nationalists have criticized the government for allowing Russia to control Ukraine's energy supplies.

(AP, MT)