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. Last Updated: 07/27/2016

Ukraine Probes LUKoil, TNK-BP

Itar-TassThe government in Kiev is investigating allegations that the subsidiaries of Russian oil giants engaged in price fixing.
Ukraine's Anti-Monopoly Committee launched an investigation into Ukrainian subsidiaries of LUKoil and TNK-BP on Wednesday following allegations that the companies had conspired to artificially raise gasoline prices.

The move marked an escalation in the government's battle to fight rising prices at the gas pump, which have ballooned some 13 percent in the past month.

Oil companies have blamed the rise on skyrocketing global oil prices and increases in tariffs and transportation costs. But Ukrainian Prime Minister Yulia Tymoshenko dismissed those reasons.

"The raising of prices is artificial," she said at a news conference in Kiev, news agencies reported Wednesday. Negotiations with the oil companies were "difficult," she said. "They want to put their hands not on our pulse, but on our throat."

Tymoshenko said she planned to meet with the heads of TNK-BP on Thursday and LUKoil on Friday. Ukrainian President Viktor Yushchenko also agreed to meet with the Russian companies, the Kremlin press office said Wednesday.

Marina Dracheva, spokesman for TNK-BP in Moscow, denied any wrongdoing and said the company and its subsidiaries would cooperate fully with the investigation.

"We reject these allegations of price collusion," she said. "The price of imported Russian crude since the beginning of the year has risen over 50 percent."

Dracheva said the oil companies wanted a dialogue with Tymoshenko.

"Ukraine has been facing robust economic growth over the years," she said. "Private companies, including ours, have contributed to that growth. We don't want that balance to be upset."

A spokesman for LUKoil Ukraine in Kiev, who declined to give his name, also blamed soaring global oil prices and transportation costs and said his company wanted negotiations with the government.

The investigation is only the latest step in a desperate struggle by the Ukrainian authorities to check rising gasoline prices, which could fan the flames of inflation through the rest of the economy.

LUKoil Ukraine, TNK-BP Ukraine and other oil companies appealed to Tymoshenko earlier this week to lift price caps at service stations, which were put in place for the spring sowing season. The caps have been largely disregarded, although Tymoshenko has threatened to fine companies that do not keep prices at less than 3 hryvna (57 cents) per liter.

Boris Nemtsov, the Russian politician who was appointed as Yushchenko's adviser on attracting Russian investment, said that fixing gasoline prices was "the stupidest thing a government could do."

Instead of capping prices, the government should invite more oil companies to Ukraine, he said, Interfax reported Wednesday. "When there are five gas stations on every corner, there will be competition and prices will be fine," he said.

TNK-BP Ukraine and the Linos oil refinery -- both owned by TNK-BP -- as well as LUKoil Ukraine, Litasko-Ukraine and the LUKoil Odessa refinery, are under investigation, the committee statement said. Another inquiry was opened into Trade House TNK-Ukraine, the company's trading arm, according to the statement.

A spokesman for the Anti-Monopoly Committee said that companies found guilty of price fixing could face fines equal to 10 percent of their sales for 2004. The committee has calculated the maximum total fine from all companies under investigation at around $300 million, the spokesman said.

"The Anti-Monopoly Committee cannot stand on the sidelines," said committee Oleksiy Kostusyev, according to the statement.

LUKoil, TNK-BP and Alliance wrote a letter to Prime Minister Mikhail Fradkov earlier this week, asking him to intervene in the crisis and help protect their interests.

Ildar Gazizullin, an economist at the International Center for Policy Studies, a Kiev think tank, said the government's best evidence in favor of collusion appears to be increases at different gas stations at the same time.

"This cannot be used as evidence," he said. Even if the companies were guilty, he said, price collusion is very hard to prove.

Tymoshenko's reaction -- price caps and bluster -- has been strikingly similar to that of her predecessor, Viktor Yanukovych, who also intervened to keep gasoline prices in check.

Prices at Ukraine's gas stations have risen from 2.90 hryvna (55 cents) per liter to 3.30 hryvna (63 cents), about 13 percent over the last month, according to The Associated Press.

A spokesman for the Anti-Monopoly Committee said the investigation could take several weeks.