RosGas AG to Control 20 Percent of Hungarian Gas Distribution

Barely nine days after the Hungarian gas trader Emfesz KFT announced that it will begin receiving supplies of 3 billion cubic meters annually from the Zug (Switzerland) based company RosGas AG, rather than the now inactive RosUkrEnergo (RUE) the Russian press reported that Emfesz has been sold to RosGas (EDM, May 5; Vedomosti, May 7). Thus RosGas, a little-known company, now controls 20 percent of the Hungarian domestic gas distribution market.

Emfesz was owned by Dmytro Firtash, a Ukrainian businessman who is also the 45 percent owner of RUE. The company was created in 2003, when Firtash secretly owned the Hungarian-based company, Eural Trans Gas (ETG) which then became the intermediary for Turkmen gas sales to Ukraine.

ETG from its inception was a highly controversial company. Numerous media reports claimed that it was linked to Semen Mogilevich, an alleged member of the Russian mafia wanted by the FBI for major fraud. ETG denied these charges, but the suspicions did not vanish. In January 2008 Mogilevich was arrested in Moscow on charges of aiding and abetting a tax evasion scheme, but many observers believed this was false and that his arrest was directly linked to a struggle between Firtash and Gazprom over the control of Emfesz. According to informed sources, prior to his arrest Mogilevich disclosed that Gazprom was determined to take over Emfesz and that he had played a role in this plot.

As the controversy surrounding ETG grew, Gazprom decided to break its links with the company and in 2004 it created RosUkrEnergo to take its place – but Firtash remained, and he was allowed to control 45 percent of RUE along with Ivan Fursin -another Ukrainian businessman with a 5 percent share. Gazprom meanwhile, along with then-Russian President Vladimir Putin and current President Dmitry Medvedev audaciously claimed that they did not know the identity of the 50 percent owners of RUE.

An article in Vedomosti on May 7 written by Irina Reznik, a journalist with long-standing high-level Gazprom contacts, cited unnamed sources "close to Gazprom and Emfesz" who said that RosGas will be controlled by the Bulgarian gas middleman company, Overgas.

Overgas, like RosGas, is a highly opaque structure. In February 2009, after the Ukrainian-Russian gas conflict ended and deliveries were restored to Bulgaria, government officials announced that they would again seek to remove two middleman companies -Overgas Inc., and Wintershall Erdgas Handelshaus Zug AG (WIEE)- from the gas supply chain between Russia and Bulgaria. They intended only to deal with Gazprom Export, a fully owned subsidiary of Gazprom headed by its CEO Alexander Medvedev (Moscow Times, February 4). Bulgaria tried to end the role of the two middlemen on two previous occasions, but Alexander Medvedev countered by saying that the companies were only suppliers (www.sofiaecho.com, February 4).

Medvedev’s argument was at best disingenuous. Overgas does not own any gas fields and relies on Medvedev’s company, Gazprom Export, for its supply of gas. Despite the best efforts of the Bulgarian government, Overgas was not liquidated and is still functioning. Apparently the government in Sofia is no match for Medvedev and Gazprom and now, according to Vedomosti, Overgas is being manipulated into acting as Gazprom’s proxy within Hungary. A role similar to that played by Austria’s OMV in its recent takeover of Hungary’s energy giant MOL.

According to the Overgas Annual Report for 2007, the last year available, Gazprom owns 0.49 percent of the company, Gazprom Export 49.51 percent, and the London-based Overgas Holdings, Ltd, 50 percent. The chairman of the board of Overgas, Inc. is Alexander Medvedev who, as noted above, is also the head of Gazprom Export, the company which technically sells Gazprom’s gas to Overgas. Bulgarian law does not regard this as a conflict of interest.

The Executive Director of Overgas, Inc. Sasho Dontchev is a graduate of Moscow’s Oil and Gas Institute, and according to media reports, was largely responsible for making Overgas a leading Bulgarian domestic gas distributor (EDM, February 13).

The saga of Overgas and its affiliated directors led to an alleged Russian intelligence agent being arrested in Canada in November 2006, whose hired representatives were also employed by the Overgas holding company in London known as Energy Consultants Ltd (EDM, February 13).

There might be serious implications for the EU, if the Bulgarian Overgas is permitted to buy Swiss RosGas and thereby secure control over 20 percent of the Hungarian domestic gas distribution market acting as a proxy for Gazprom. Hungary and Bulgaria are rapidly becoming the weakest links in the EU gas diversification strategy and appear to be submitting to Russian pressure -and possibly organized crime links sanctioned by the Kremlin- in order to strengthen Gazprom’s influence within Hungary and by default in Europe.

The EU commission has not yet commented on these developments, but the time is ripe for both the Europeans and the U.S. authorities to have their say on one of the most dangerous of the Kremlin’s long list of criminal enterprises.