In Through the Out Door -More Gazprom Subterfuge

by Jiri Kominek

Gazprom made yet another attempt to foil Ukraine’s efforts to reduce its dependency on Russian gas, and thereby weaken Moscow’s control over its neighbor.

This time, however, the pressure didn’t come directly from the Kremlin or Gazprom headquarters; rather it came via a subsidiary based in the Czech Republic called Vemex. Making matters worse, Gazprom’s attempt to dupe the Ukrainians appears to have been done with the full knowledge, acquiescence and participation of Czech government authorities.

The Czech-Ukrainian joint commission for economic, industrial and scientific-technological cooperation met in Kyiv on September 17-18. The commission was chaired by Czech industry and trade minister Milan Hovorka, while the Ukrainian delegation was headed by the country’s industry minister Viktor Novickiy.

One of the key topics of discussion was an offer put forward by the Czech delegation to allow Vemex, a Czech registered gas trading company to lease gas storage facilities in western Ukraine. Initially plans would call for storing 500 million cubic meters of gas. Later this amount could be tripled.

Apart from storing gas, Vemex also lobbied the Tymoshenko government to service and repair Ukraine’s natural gas pipeline network controlled by the Ukrainian state owned Naftogaz.

By September 21 the cat was out of the bag. Whether the information was obtained by the Tymoshenko government, the Yushchenko camp, someone with a conscience from the Czech side, or the media, someone performed elementary due diligence and discovered that Vemex is in fact a subsidiary of Gazprom and subsequently blew the whistle to the media.

Czech public records indicate the shareholders of Vemex to be the German-based ZMB GmbH, a Gazpromexport subsidiary which controls 51 percent in the Czech company.

Two opaque shell companies control the remaining 49 percent. These include the Vienna-based Centrex Europe Energy & Gas AG which holds 33 percent and the EW East-West Consult AG based in Appenzell, Switzerland which controls the remaining 16 percent.

On 21 September, the Czech news agency Mediafax citing Ukrainian media sources wrote that Gazprom via Vemex was attempting to hijack an existing agreement between Brussels and Kyiv to allow EU companies a greater role in modernising Ukraine’s gas pipeline infrastructure as part of an effort to help reduce the latter’s dependence on Gazprom.

Paradoxically this agreement was penned during a joint EU-Ukrainian summit in March on the heels of the latest Russian-Ukrainian gas row, and came at a time when the Czechs held the six month rotating EU presidency.

What is abundantly clear is that Gazprom has implemented legal loopholes to use Vemex, and subsequently the Czech government as a Trojan horse to further boost influence over Ukraine’s gas sector at the expense of legitimate EU companies.

This, according to Czech daily Lidove Noviny, could serve as an attempt to discredit the Czechs viable partners who offer promises of assistance, while in reality serving as tools of the Kremlin.

It also helps demonstrate that Russia is increasingly using the Czech Republic, which is both a member of the EU and NATO, as a forward staging ground for expanding its economic and foreign policy goals within Europe proper, but also in former ex-Soviet countries such as Ukraine.

Since 1989, Russia’s presence in the Czech Republic has diminished only on the surface. While Russian troops withdrew and bases closed, Prague and Moscow have embarked on a steady course of forging ever-closer economic and political ties particularly through the energy sector.

With respect to gas supplies the Czech Republic is 90 percent reliant on Russia. Russian oil giant Lukoil is steadily applying pressure on Prague to surrender control over state companies MERO which controls the Druzhba pipeline on Czech territory and CEPRO which manages Czech state fuel and other strategic reserves.

Lukoil is further interested in acquiring a stake in local refinery Ceska Rafinerska which is currently controlled by Poland’s PKN Orlen and expanding its retail filling station network.

On the nuclear energy front, Czech President Vaclav Klaus, who has never made efforts to disguise his pro-Russian leanings, plans to officially visit Moscow in mid-October to discuss allowing the Kremlin-controlled Atomstroyexport to be awarded prime contractor status in constructing two new reactor blocs at the Temelin nuclear power station owned by the Czech state-controlled utility CEZ (the largest utility in Central and Eastern Europe).

The total value of the contract is expected to be USD-14.3-28.6 billion.

In return Atomstroyexport has promised that if selected as prime contractor it will farm out 60 percent of the work to Czech companies. Some of the companies mentioned include reactor builder Skoda JS. The only problem with this promise, however, is that Skoda JS was sold to the Russians in 2004.