Publication: Eurasia Daily Monitor Volume: 2 Issue: 37

Ukrainian Prime Minister Yulia Tymoshenko’s radicalism and a conflict of interest have nearly cost Justice Minister Roman Zvarych his position just two weeks after his appointment. The cabinet-imposed ban on exporting oil imported from Russia has prevented a company linked to Zvarych’s wife from meeting its obligations on a foreign contract. Zvarych, who had opposed the ban, tendered his resignation. Only President Viktor Yushchenko’s timely intervention prevented a large-scale scandal. Yushchenko did not accept Zvarych’s resignation and voiced his doubts over the injunction.

On February 16, Tymoshenko’s cabinet banned the re-export of oil imported from Russia, arguing that an inter-governmental agreement with Russia prohibits exporting Russian oil from Ukraine, where oil products are cheaper than on the international market. Oil re-export schemes also provided fertile soil for corruption and cost the state millions of dollars in losses, as the value-added tax is not paid when oil is imported, but is reclaimed after exporting it, Tymoshenko said. Zvarych was the only minister to vote against the ban. Moreover, he tendered his resignation on the following day, in protest of what he described as interference in the work of his ministry and attempts to involve his family in illegal deals.

It turned out that Oil Transit, a company whose deputy director is none other than Zvarych’s wife, Svitlana, had, before the cabinet introduced the ban on oil re-export, bought 3 million tons of oil from Russia in order to sell it to Slovakia. Zvarych was aware of the cabinet’s plans to ban oil re-exports, so he refused to initial the draft of a relevant cabinet resolution. But the resolution was reportedly initialed in his absence, which understandably infuriated Zvarych.

In an open letter to Tymoshenko, printed on the Ukrayinska pravda website, Oil Transit said that the State Customs Service, on instructions from Tymoshenko, refused to allow Oil Transit to export to Slovakia the oil that it had bought in Russia, so the company faced huge losses. Meanwhile, Oil Transit claims that parliamentarian Ihor Yeremeyev, who is linked to the Halychyna oil refinery, suggested that Oil Transit sell the oil to Halychyna. This would have created grounds for Yeremeyev to claim a VAT refund, Oil Transit said. When Oil Transit agreed to sell 35,000 tons of oil, it found out that it would, according to documents, go not to Halychyna, but to an obscure farmer in Kyiv Region who enjoys taxation privileges. Oil Transit branded this as an attempt to draw it into shady schemes. Zvarych went further, saying that the reputation of his family and, by extension, his ministry, was at stake. Yeremeyev denied Oil Transit’s accusations against him and accused Zvarych of putting “the company’s interests above the interests of the cabinet.” But Zvarych denied this. “Can we prohibit a company from pursuing its business? If the business is legitimate, what are we talking about?” he told 1 + 1 TV. “I have never been involved in any business schemes and I will not get involved in them,” he added.

President Yushchenko sided with Zvarych and refused Zvarych’s resignation. “If we say that a government decision can shut down a whole business activity, it is not a market approach,” he said. “We have agreed that the cabinet will review its decision.” This has not been Yushchenko’s first intervention in order to quench the Tymoshenko cabinet’s ostensible desire to eradicate corruption by radical methods. Last week Tymoshenko sent shivers down the spines of many an investor by saying that prosecutors had questions regarding some 3,000 privatization deals. Since then Yushchenko has on several occasions had to downplay that statement as a misunderstanding or misinterpretation when speaking to foreign audiences. He keeps repeating that reprivatization would be considered only in exceptional cases.

Yushchenko and Tymoshenko had proclaimed the separation of business from government as one of their main tasks. But it is no secret that the families of many members of Tymoshenko’s cabinet have business interests. The example of Zvarych demonstrates that cutting those links may be painful and extremely difficult. And, had Zvarych not rebelled against what he viewed as an attempt at compromising him, the fact that his wife is involved in oil business would have hardly ever caught the public eye. “He is absolutely incapable of participating in semi-corrupt schemes, that is why it is difficult for him to work in the current conditions. He is a kind of alien in the team,” Mykhaylo Pohrebynsky, head of Kyiv Center for Political Research and Conflict Studies, has said about the U.S.-born Roman Zvarych, who was a philosophy professor at Columbia University before moving to Ukraine in the early 1990s. Pohrebynsky, who was an adviser to former President Leonid Kuchma’s notoriously corrupt team for many years, must speak from experience.

(Ukrayinska pravda, Inter, UNIAN, February 17; 1 + 1, February 20; Channel 5, February 22).