Publication: Monitor Volume: 6 Issue: 97

Ukraine’s ailing energy industry has been an arena of confrontation between several firmly entrenched oligarchic groups and Deputy Premier Yulia Tymoshenko ever since her appointment in January. Early on, she came up with a reform plan to boost payments in Ukraine’s debt-burdened energy market, a plan which could prove a problem for several well-connected businessmen, who–Tymoshenko argues–have managed their market segments rather poorly. These oligarchs are counterattacking by accusing Tymoshenko, a former partner of Ukraine’s now fugitive Premier Pavlo Lazarenko in shady energy deals, of promoting a company she founded, United Energy Systems of Ukraine (UESU). UESU, which enjoyed a virtual monopoly on natural gas supplies under Lazarenko, was edged out of the market after his dismissal in 1997.

Tymoshenko’s plans apparently reach as far as replacing the top management of the state oil and gas monopoly, Naftogaz Ukrainy, and eventually even breaking it. (This could lay the ground for UESU to resume an active role in the gas market.) Naftogaz board chairman Ihor Bakay was forced to resign in March after Tymoshenko blamed him for accumulating a US$2 billion debt to Russia (see the Monitor, March 30). Tymoshenko continued her offensive in late April, accusing Naftogaz of cheating the state out of 650 million hryvnyas (US$120 million) by a clearing transaction with eight privatized regional power distribution companies (Oblenergos) via Ukrainian Credit Bank. The cabinet of ministers cancelled this transaction on May 5. Tymoshenko’s move, however, may do her more harm than good. The Oblenergos in question, as well as the bank, is controlled by the financial-industrial group led by Deputy Parliament Speaker Viktor Medvedchuk and MP Hryhory Surkis, whose party, United Social Democrats (USDP), is a leading member of the pro-presidential majority in parliament. USDP has long been pushing for Tymoshenko’s dismissal.

Reactions to the cancellation have been heated. Naftogaz acting chairman Ihor Didenko called a news conference on May 10 to deny that the transaction damaged the state, and called on the authorities to check into the company’s operations to confirm their legality. He alleged that Tymoshenko attacked as a way of exacting revenge on Naftogaz for its refusal to pay its outstanding debt to a UESU affiliate. Medvedchuk also went on the defensive, denying his group’s participation in privatizing the energy market, saying that USDP had never demanded Tymoshenko’s dismissal. He made a point of adding that he and those he represented want Premier Viktor Yushchenko to retain his post until the end of President Kuchma’s term in office.

The reference to Yushchenko was pointed. USDP has been so far very critical of his reform efforts, especially those in the energy field. At the government’s April 19 energy meeting, Kuchma suggested that Tymoshenko might be dismissed, whereupon Yushchenko reportedly threatened to resign. Kyiv needs Yushchenko in the government, however, or it risks any chance of receiving international loans (see story above, and the Monitor, February 3, May 11). Yushchenko has apparently pinned his hopes on Tymoshenko’s energy reform plan, though international lenders are somewhat wary about it. On April 26, the World Bank spoke out against Tymoshenko’s intention to forbid Oblenergos from collecting electricity payments–a key point of her plan. Unable to reach a compromise on Tymoshenko’s reform package with the international financial organizations, the cabinet last week refused to approve it. Then, on May 12, Yushchenko openly expressed doubt about whether such a plan is even necessary. Fuel and Energy Minister Serhy Tulub, an influential figure who, incidentally, went straight to Kuchma to voice his strong objections, supported him.

It would seem that Tymoshenko is losing ground to the government despite gaining it against the oligarchs in the energy market. She has registered as a candidate for the by-election to parliament, scheduled for June–a sign that she is unsure of her future in the government. By keeping Tymoshenko on board, Yushchenko keeps the feud between her and the rival oligarchs running, weakening them both, while keeping himself safely outside the battle lines. This, however, hinders reforms in the energy sector (UNIAN, May 10; DINAU, May 4; STB TV, May 10, April 26, 19; Zerkalo nedeli, April 22; Den, May 12, April 29; New Channel TV, May 10, 12, April 28).