Publication: Monitor Volume: 4 Issue: 194

On October 15 Ukraine’s Higher Court of Arbitration confirmed the Dnipropetrovsk tax administration’s decision to fine the United Energy Systems of Ukraine (UESU) 1.443 million hryvnyas for tax violations. The tax authorities say that in 1996 the UESU illegally transferred US$1 billion to the account of its British co-founder, United Energy International (Ukrainian TV, STV channel, October 15). This effectively puts the company on the verge of bankruptcy, as the company’s assets on the territory of Ukraine will not suffice to pay the penalty (Fakty i kommentarii, October 17).

On Monday the UESU accused the Higher Court of Arbitration of a political bias, saying that the court’s decision was prompted by the initiative of the Hromada faction in parliament to dismiss the cabinet of Pustovoytenko (see the Monitor, October 14). The UESU said in its statement that “businesses in Ukraine are politically persecuted” (Ukrainian agencies, October 19). The UESU former president, Yulia Tymoshenko, known for her persistent calls for impeachment of President Kuchma, is the premier in Hromada’s so-called “shadow cabinet” and one of the leaders of Hromada faction, headed by former Ukrainian Premier Pavlo Lazarenko.

The authorities can legally strangle any business, at least in theory, given the underdeveloped Ukrainian judiciary system and the tax legislation which is so imperfect that it is actually rather difficult not to breach it. It would therefore not be easy to refute accusations of a political bias, even if made by a group widely seen as corrupt, where a business which supports the government’s political opponents is involved.

Since Tymoshenko came to the parliament in December 1996, to defend her business interests, her opponents say, the company has been officially run by her father-in-law. The UESU was the most successful Ukrainian private company with a record US$10 billion turnover in 1996. The Dnipropetrovsk-based corporation had its heyday when the Ukrainian cabinet was headed by Lazarenko, who allegedly promoted the UESU’s interests. In 1996-1997 the company controlled the lion’s share of the Ukrainian lucrative wholesale gas market, re-selling the Russian gas. It was edged out of this market by the government when Pustovoytenko became premier in the summer of 1997.

The UESU’s difficulties will have repercussions on the run-up to the presidential elections in the fall of 1999, decreasing the chances of Lazarenko as a candidate. The UESU was set to be directly involved in the campaign of Lazarenko. He was once listed among the strongest presidential contestants, though he has never openly confirmed his presidential ambitions. Recently Lazarenko has distanced himself from the collection of signatures for impeachment of President Kuchma, launched by Tymoshenko (Den, October 20). –OV