Publication: Eurasia Daily Monitor Volume: 5 Issue: 126

Ukrainian President Viktor Yushchenko has ordered the government of Prime Minister Yulia Tymoshenko to allow the U.S. company Vanco to proceed with its oil and gas exploration project in the Ukrainian part of the Black Sea. Visiting U.S. Secretary of Commerce Carlos Gutierrez also warned that the continuing dispute over the project could damage Ukraine’s international reputation. Tymoshenko, however, continues to insist that the decisions made by her predecessor, the government of Prime Minister Viktor Yanukovych, to issue a license to Vanco and conclude a production-sharing agreement (PSA) were illegal. She has defied all Yushchenko’s orders.

The Texas-based Vanco Energy won an international tender in 2006 and was supposed to explore the 5-square-mile Prykerchenska field off the southeast coast of Crimea. Vanco Prykerchenska, a subsidiary of Vanco, was deprived of the license on April 25, and the Tymoshenko government unilaterally withdrew from the respective PSA on May 21. Tymoshenko said that the interests of Ukrainian energy companies and possibly of Russia’s Gazprom were behind the deal. She also accused Yushchenko of lobbying for Vanco. Yushchenko and one of the Ukrainian companies concerned, Group DF of billionaire Dmytro Firtash, denied the accusations. The Ukrainian National Security and Defense Council (SNBO) decided that Tymoshenko should return to square one (see EDM, May 21, June 4).

Yushchenko upheld the SNBO’s decision on June 4 and ordered the government to restore Vanco’s license and start talks with Vanco to settle the dispute. He also instructed the Security Service of Ukraine to determine what had prompted the cabinet to revoke the license (www.glavred.info, www.korrespondent.net, June 4). The U.S. government expressed its concern through Carlos Gutierrez, who visited Kyiv on June 5. “Every time there is a contract, that is an opportunity to demonstrate to the world that contracts are respected,” said Gutierrez, commenting on the Vanco dispute (AP, June 5).

Tymoshenko’s right-hand man, First Deputy Prime Minister Oleksandr Turchynov, challenged Gutierrez on the same day, saying that the cabinet was right to revoke Vanco’s license. Turchynov said that a special government commission he had chaired had confirmed that Vanco should be banished from the Black Sea. “In spite of the pressure exerted on the government,” he said, “the deposits of the Black Sea and the Sea of Azov stay under state control.” Turchynov also blamed “corrupt officials” for devising schemes “aimed at embezzling this country’s strategic resources” (UNIAN, June 5).

Because the government refused to restore the PSA, Yushchenko issued a decree on June 18 suspending the government’s May 21 decision to withdraw from the PSA with Vanco Prykerchenska. Yushchenko warned that Vanco might sue the government in international courts to seek billions of dollars in damages and that other foreign companies might freeze their projects in the Ukrainian part of the Black Sea (Interfax-Ukraine, June 18)

The government, however, is standing its ground. Its special commission on PSAs, chaired by Turchynov, defended the decision to withdraw from the PSA with Vanco, saying that it was in line with the law and “national interests” (www.proua.com, June 19). Environment Minister Heorhy Filipchuk announced on June 20 that a total of 156 licenses issued to explore Ukraine’s mineral resources should be revoked, as they either had been issued illegally or were not used efficiently. He said that 73 of them had already been revoked, including the one issued to Vanco (Interfax-Ukraine, June 20). Also, 49 pro-government deputies of parliament officially asked the Constitutional Court to rule whether Yushchenko’s decrees favoring Vanco were in line with the constitution (Ukrainski Novyny, June 19).

Asked to comment on the Vanco dispute at a briefing on June 25, Tymoshenko described the PSA with Vanco as “RosUkrEnergo number 2,” referring to the gas trader co-owned by Gazprom and Firtash that she has been struggling to remove from Ukraine since her appointment as prime minister in December 2007. “All illegally issued licenses have been cancelled. Ukraine, on the basis of a unanimous decision made by the cabinet, has withdrawn from these, in my opinion, criminal and murky agreements,” said Tymoshenko. She also warned against “conspiracy aimed at destroying the government plan to put an end to the high-scale international scam involving the Black Sea shelf” (Channel 5, June 25).

Vanco Chairman Gene Van Dyke has said that the Prykerchenska field exploration could be delayed by some ten years if the dispute continued. He said that only one company in the world, which works in partnership with Vanco, can supply the equipment necessary for drawing 3D maps of the field, without which proper exploration is impossible because of the great depths involved. Vanco Prykerchenska confirmed its readiness to adhere fully to the PSA conditions. It said that it was ready to invest about $250 million in the project by 2010 (www.liga.net, June 26).