Publication: Eurasia Daily Monitor Volume: 5 Issue: 97

The Ukrainian government has revoked the license to develop Black Sea oil and gas fields which was issued to Vanco Prykerchenska, a subsidiary of the US company Vanco Energy. Prime Minister Yulia Tymoshenko said that the agreements which were concluded with Vanco in 2007 were not transparent, and she accused President Viktor Yushchenko of lobbying for Vanco’s interests. Yushchenko flatly denied the accusation and called on Tymoshenko to review her decision on Vanco. Meanwhile, Vanco has threatened to sue the Ukrainian government.

Vanco Energy, which is based in Houston, Texas, used to extract hydrocarbons in the United States and the North Sea. In the mid-1990s, it moved to West Africa. In 2005 Vanco won a tender against such strong rivals as Shell and Exxon Mobil to prospect for oil and gas in the Black Sea’s Prykerchenska area, where the deposits are estimated to contain hydrocarbons worth some $200 billion. A product-sharing agreement (PSA) was signed with the Ukrainian government in October 2007. The government of the then Prime Minister Viktor Yanukovych issued a license to Vanco Prykerchenska, rather than Vanco Energy, which won the 2005 tender.

The government used this circumstance as a formal reason to revoke the license. Environment Minister Heorhy Filipchuk told Zerkalo Nedeli that the tender conditions did not allow Vanco to pass its right to develop the deposits to Vanco Prykerchenska, which did not exist in 2005 when Vanco won the tender.

Tymoshenko told a press conference in Kyiv on May 12 that the ownership structure of Vanco Prykerchenska was not transparent. It was registered in the British Virgin Islands and legally belonged to four young Ukrainian students, according to Tymoshenko. She also said that Vanco Prykerchenska was in talks to sell its rights to develop the Black Sea field, and that Russia’s Gazprom could be the buyer. This, according to Tymoshenko, was a threat to Ukraine’s energy security.

Tymoshenko is also unhappy about the conditions of the PSA with Vanco, according to which Ukraine is entitled to 35 percent of the hydrocarbons extracted in the Black Sea at the first stage of the project. Tymoshenko demands 65 percent. If Vanco did not agree, the best fields in the Black Sea should be taken from it and passed to the Naftohaz Ukrainy national oil and gas company, she said.

Tymoshenko also accused Yushchenko of lobbying in Vanco’s favor. “Everything that happened was on the president’s orders and against Ukrainian national interests,” she said. “A corrupt scheme was launched with Viktor Yushchenko’s permission,” she added. Yushchenko flatly denied this, saying that the legal assessment of commercial deals was the prerogative of the law-enforcement agencies, rather than of the prime minister. On May 14 he called on the cabinet to review its decision on Vanco. Yushchenko’s aide Andry Honcharuk said that Tymoshenko should launch talks with Vanco in order to restore international trust in Ukraine’s investment climate.

Vanco Energy Senior Vice President Jeffrey Mitchell said that an international arbitration procedure would be launched against the Ukrainian government at the Arbitration Institute of the Stockholm Chamber of Commerce, if no agreement with Tymoshenko was reached within 60 days. Speaking in Kyiv on May 15, he revealed that Vanco Energy had three partners in Vanco Prykerchenska: the Donetsk Fuel and Energy Company (DTEK); Shadowlight Investments Ltd, linked to Russian businessman Yevgeny Novitsky; and Integrum Technologies (Austria), whose owners he did not name. Mitchell said that JNR Eastern Investment, which represented the interests of the Rothschild family and was initially Vanco’s partner in the Prykerchenska project, had withdrawn from it before the PSA was concluded.

Many Ukrainian observers have suggested that it was the participation of DTEK in Vanco Prykerchenska that prompted Tymoshenko to revoke the license. DTEK CEO Maksym Tymchenko said that DTEK was invited to join the project in 2006. DTEK is linked to the System Capital Management company of billionaire Rinat Akhmetov, who is one of the leaders of the opposition Party of Regions. Akhmetov opposed the Orange Revolution, which brought Yushchenko and Tymoshenko to power in 2005. Tymoshenko has accused him of involvement in several non-transparent privatization deals before and after 2005. Akhmetov denied the accusations, and implied that Tymoshenko was biased against him.

Tymoshenko complained that Yushchenko’s team put pressure on her at a meeting of the National Security and Defense Council on May 16, demanding that she return the license to Vanco Prykerchenska. She said she would not obey the Council. Commentator Volodymyr Fesenko of the Kyiv-based Penta think-tank opined in a conversation with Kommersant Ukraine that Tymoshenko would not restore Vanco’s license because this was an issue between her and Yushchenko (Ukrainska Pravda, ITAR-TASS, May 12; Channel 5, May 14; Zerkalo Nedeli, May 17; Kommersant Ukraine, May 16, 19).