Publication: Eurasia Daily Monitor Volume: 5 Issue: 150

There is a new turn in the dispute over the right of the U.S. company Vanco to explore the oil and gas fields in the Ukrainian part of the Black Sea. The government of Prime Minister Yulia Tymoshenko has indicated its readiness to back down somewhat, offering to resume talks with Vanco, whose license it earlier cancelled, in exchange for suspending proceedings against Ukraine in an international court. Vanco said that it might consider suspending the proceedings only if Ukraine started serious talks first. Tymoshenko insisted earlier that her government would defeat Vanco in any court. Apparently, she is no longer confident about that.

Vanco’s subsidiary, Vanco International, won a tender in 2006 to explore the Prykerchenska field off the Crimean coast. A production sharing agreement (PSA) with Ukraine was concluded in 2007 by Vanco Prykerchenska, a subsidiary set up especially for the Ukrainian project. Tymoshenko’s government, which was appointed in December 2007, canceled Vanco Prykerchenska’s license in April 2008 and unilaterally withdrew from the PSA in May. The U.S. government expressed its concern, and Ukrainian President Viktor Yushchenko called on Tymoshenko to reverse her decision. Tymoshenko, however, insisted that “corrupt” interests of certain Ukrainian businessmen were behind the deal and that national interests were under threat. The Donbass Fuel and Energy Company (DTEK), controlled by Ukrainian tycoon Rinat Akhmetov, is known to be Vanco’s partner in the project (see EDM, May 21, July 2).

Yushchenko has not changed his position. Commenting on the dispute at the end of July, he slammed the Tymoshenko cabinet for “disrespecting investors.” He expressed dismay at Tymoshenko’s allegations that Vanco was involved in corruption. Yushchenko suggested that Tymoshenko should either refrain from leveling such accusations or present evidence of corruption (Channel 5, July 28).

Vanco Prykerchenska brought suit against Ukraine at the Arbitration Institute of the Stockholm Chamber of Commerce in July. On July 30 Ukrainian Deputy Justice Minister Yevhen Korniychuk signaled the Tymoshenko government’s readiness to compromise. Korniychuk, who is tasked by the government to deal with the Vanco case, said that Ukraine was ready for talks in order to reach a settlement with Vanco Prykerchenska out of court, but only on one condition: “Our position is that we will hold consultations with Vanco Prykerchenska immediately after it suspends its appeal to the Stockholm arbitration court” (Channel 5, July 30).

Vanco Prykerchenska announced on August 1 that it might consider Korniychuk’s offer but only if the Ukrainian government started serious talks and if real progress was reached at the talks. Vanco Prykerchenska recalled that it had offered on May 6 to negotiate with the government. It said that it had turned to the courts because the offer was ignored in spite of the National Security and Defense Council’s and Yushchenko’s instructions to the government to start direct talks with Vanco. Only after Vanco had turned to the Stockholm court did the government appoint Korniychuk to negotiate with Vanco. For two weeks, however, Korniychuk did not reply to Vanco’s letters urging him to start talks, according to a Vanco press release (RBK-Ukraine, August 1).

The planned Ukrainian line of defense, in case talks with Vanco fall through, has been leaked to the Kommersant-Ukraine business daily. According to the plan, the government’s lawyers will insist in court that the PSA was concluded in violation of several Ukrainian laws. First, Vanco Prykerchenska was not entitled to sign the agreement because the tender was won by Vanco International, not Vanco Prykerchenska. Second, Vanco International did not supply information about Vanco Prykerchenska. Third, also according to Ukrainian laws, Vanco Prykerchenska could not possibly obtain the rights to 70 percent of the products from the Prykerchenska field, as is stipulated in the agreement, but only up to 50 percent. Also, the interests of the Defense Ministry, which has a firing range nearby, were not taken into consideration, according to the government’s lawyers (Kommersant-Ukraine, July 31).

Tymoshenko is apparently not ready to return to square one. She plans to squeeze out Vanco and invite big names to the Black Sea shelf. Oleksandr Hudyma, her adviser for energy, ruled out a compromise with Vanco altogether. “Yulia Tymoshenko plans to divide the Black Sea shelf into parts where world-known companies will work,” he said (Ekonomicheskie Izvestia, July 31). Vanco, a mid-size company, won the original tender against such giants as Shell and Exxon Mobil. Korniychuk said that the right of Vanco International, rather than Vanco Prykerchenska, to explore the shelf was not disputed. “They can return, but probably on somewhat different commercial terms. Vanco Prykerchenska, however, definitely will not work on the shelf,” he said (Kommersant-Ukraine, July 31). Late on August 5 Korniychuk unexpectedly announced that the government had decided to withdraw its offer of an out-of-court settlement (Interfax-Ukraine, August 5).