Publication: Monitor Volume: 6 Issue: 64

On March 24, the chairman of the board of directors of the Ukrainian state oil and gas monopoly Naftogaz Ukrainy, Ihor Bakay, announced his resignation–claiming that the West had pressured him to do so. His name, he said, was being used “to blackmail the highest officials of the state” but he refused to specify what or who he meant by this. Bakay is regarded as one of the most influential of Ukraine’s oligarchs, but apparently has no commercial interests in the West.

Reportedly, Bakay was denied an entry visa to the United States several times following allegations of corruption which appeared in the press. On January 28, the Financial Times reported that U.S. senior officials had given Ukrainian President Leonid Kuchma a list of officials–including Bakay–they said should be barred from policymaking. The real reasons behind Bakay’s resignation, however,” lie in the domestic arena, where he lost a power struggle with Deputy Premier for Fuel and Energy Yulia Tymoshenko. Another successful entrepreneur in politics, Tymoshenko has been pushing for Bakay’s dismissal since her appointment to the government of Premier Viktor Yushchenko in January. Tymoshenko and Bakay have been bitter rivals over the natural gas market since the mid-1990s, when Bakay was chief of Respublika and subsequently the Intergaz companies, and Tymoshenko headed the privately owned United Energy Systems of Ukraine (UESU).

Bakay’s businesses were elbowed out of the market by 1995-1996, when then Premier Pavlo Lazarenko, who is currently seeking asylum in the United States, awarded UESU the most lucrative chunks of Ukraine’s domestic wholesale gas market. In December 1996, Tymoshenko was elected to the parliament and formally relinquished her post in UESU. When Lazarenko resigned in 1997 amid corruption charges, UESU was pushed out of the market. Then Premier Valery Pustovoytenko canceled Lazarenko’s division of the domestic gas market among several companies and created Naftogaz Ukrainy to monopolize gas and oil extraction and trade in Ukraine. Bakay became its director. Appointed to Yushchenko’s cabinet, which took the reins in December 1999, Tymoshenko accused Naftogaz Ukrainy of inefficient management and blamed Bakay for the accumulation of an over US$2 billion debt to Russia for natural gas. She came up with a plan to deregulate the gas market, according to which Naftogaz should be divided into several companies and privatized. Bakay vehemently protested.

At a news conference on March 24, Bakay suggested that Naftogaz would be bought by “the one who splits it,” which was interpreted by journalists as a clear reference to Tymoshenko and UESU. Whether this turns out to be true, Ukraine is set to see one more redistribution of its gas market with bitter fights among the gas tycoons close to power. Another market division may further complicate the situation with Ukraine’s energy debts to Russia (Financial Times, January 28; Inter TV, AP, March 24; Den, March 25).

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