The Oil and the Glory

Ukraine’s long natural gas row rolls onto U.S. shores

For the last half-decade, one of the biggest — and most menacing — tales in energy has involved the shady natural gas business in Ukraine. The story has included three consecutive years of dead-of-winter heat cutoffs to major parts of Europe, Russian political bullies poised to pounce on the continent, and billions of dollars in ...

Sergei Supinsky  AFP/Getty Images
Sergei Supinsky AFP/Getty Images

For the last half-decade, one of the biggest — and most menacing — tales in energy has involved the shady natural gas business in Ukraine. The story has included three consecutive years of dead-of-winter heat cutoffs to major parts of Europe, Russian political bullies poised to pounce on the continent, and billions of dollars in alleged underhanded dealings. In sideshows, the West and Russia have unveiled dueling, multi-billion-dollar natural gas pipelines, and in December rowdy Ukrainian politicians erupted into a free for all in parliament. Now, the spectacle has spilled out into U.S. courts.

This latest episode in the saga centers on Rosukrenergo, a Swiss-based middleman company that earns billions of dollars by arranging for the shipment of natural gas from Turkmenistan and Russia through Ukraine and on to Europe. Granted, it’s no simple matter to move raw materials of any type across former Soviet borders, as any trader will tell you. But this company has been the source of much mystery because of its scale of fees. Some people have wondered why Gazprom, for example, the mighty, muscular Russian natural gas giant, has been willing to share fees with this comparatively no-name company with no visible sign of geopolitical leverage.

A week ago, Yulia Timoshenko, Ukraine’s former prime minister (pictured above), filed suit in U.S. federal court in New York against Dimitry Firtash, a Ukrainian billionaire who controls Rosurkenergo, and is allied with her blood enemy, Ukraine President Viktor Yanukovich. In a nutshell, she alleges that the Ukrainian government threw — that is, deliberately lost — a natural gas arbitration dispute in Stockholm that, as a result, netted Firtash, the plaintiff in the case, hundreds of millions of dollars in natural gas belonging to the Ukrainian state. An unspecified portion of these winnings, the suit alleges, went as a kickback either in cash or kind to finance the Yanukovich government’s political and financial dealings.

Firtash’s press service in Kiev, quoted by the Kiev Post, denied the allegations: "Fully supporting the ruling of the Stockholm arbitration, Mr. Firtash doubts that Ms. Timoshenko has any grounds to challenge this decision in New York’s courts or any other judicial bodies," the press service said.

The suit is part of an uptick of a trend in which the politics of dysfunctional governments around the world are playing out in the courtrooms of western capitals, most prominently those of the United States and the United Kingdom.

It is specifically a retort to Yanukovich, who last year hired two ultra-connected and hardball-playing Washington law firms — Akin Gump and Trout Cacheris — to dig up dirt on Timoshenko. They emerged in October with a high-minded charge-sheet that accused Timoshenko of high crimes such as diverting European monies intended for clean-air projects into Ukraine’s ailing pension fund account. They filed a related lawsuit in federal court in Oregon.

Separately, Ukrainian prosecutors last month opened an investigation into a maneuver that Timoshenko pulled as then-prime minister in 2009 that resulted in Rosukrenergo being (temporarily, it turns out) shown the door out of the natural gas equation. The prosecutors say that Timoshenko agreed to a deal with Russian Prime Minister Vladimir Putin that resulted in Ukraine paying exorbitant natural gas prices to Gazprom. (Yanukovich, incidentally, almost immediately on taking power cut a disadvantageous natural gas deal of his own with Putin.)

But Timoshenko says in her suit that, au contraire, she may have negotiated a higher gas fee, but she also dislodged Ukraine from its far-more-onerous obligations to Rosukrenergo. Specifically, she arranged for Ukraine to take possession of 11 billion cubic meters of Gazprom gas that Rosukrenergo was storing in Ukraine, unpaid for. This unpaid-for gas was part of an enormous row with Russia — Putin was extraordinarily aggravated about it. So, Timoshenko asserts, Ukraine paid off the $1.7 billion bill, and took the gas.

Firtash, livid over Timoshenko’s temerity, filed an arbitration complaint in Stockholm. His case got a considerable boost with the 2010 Ukraine election, which Timoshenko lost and Yanukovich won. According to Timoshenko’s suit, the Yanukovich government proceeded to deliberately lose the Stockholm arbitration, resulting in Ukraine having to hand back over to Firtash the 11 billion cubic meters of gas, in addition to a penalty of 1.1 billion cubic meters.  

According to Reuters, Firtash agreed to reimburse some $2.5 billion to Gazprom and Naftogaz, the Ukraine state gas company. But Timoshenko claims that the gas was worth about $3.5 billion, leaving about $1 billion in profit. She claims that some of that went for mischief against Yanukovich’s opposition, including herself. "Since taking power, the Yanukovich administration, aided and abetted by the defendants and other co-conspirators, have launched a wave of arrests and investigations aimed at plaintiff Timoshenko and her political allies in what most objective observers consider to be a concerted campaign to intimidate, suppress and ultimately eliminate any and all political opposition in Ukraine," the suit alleges.

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