Gas Trader Emerges From the Shadows

Dmytro Firtash, the Ukrainian businessman named as a major shareholder in RosUkrEnergo, emerged from the shadows last week as he pledged transparency for the multibillion-dollar gas trader in a string of first-time interviews with Western newspapers.

In interviews with The Wall Street Journal, the Financial Times and Austria's Kurier newspaper published Friday, Firtash told of his rise to the top of the Turkmen-Ukrainian gas trade. From small beginnings in 1990s barter deals, he graduated to owning 90 percent of Centragas, the Vienna-registered vehicle that owns half of RosUkrEnergo, the monopoly gas trader for Ukraine, Firtash said.

It was unclear Tuesday whether his overtures to the press would lay to rest growing controversy over a gas trading company that former Ukrainian Prime Minister Yulia Tymoshenko has called a Russian political weapon to retake control of Ukraine and "a criminal canker" on the country's gas deal with Gazprom. One leading Ukrainian politician, former Deputy Foreign Minister Olexander Chaliy, warned Tuesday that the disclosures were just the start of "a big scandal for the top leadership of Ukraine."

Until last week, the man named as being behind Centragas had shunned media attention, even though former Ukrainian security service chief Olexander Turchinov had named him as a major player in the country's gas trade.

But last week's leak of a PricewaterhouseCoopers audit report that named Firtash as Centragas' majority owner apparently set the PR wheels in motion for Centragas, a company that has been the target of investigations in Ukraine for alleged ties to organized crime. Its ownership had been zealously guarded by Austria's Raiffeisen Bank, which held the shares in trust. Gazprom owns the other half of RosUkrEnergo.

Flanked by bankers from Raiffeisen, lawyers and aides, including British businessman Robert Shetler-Jones, Firtash told the FT in a plush Knightsbridge, London, office that giving his first media interview felt like "I am losing my virginity." Firtash vowed to boost transparency and list the company on the London Stock Exchange this year in an effort to raise additional financing for investment projects.

Ukraine's security service, the SBU, had been investigating the trader over possible ties to a reputed major figure in international organized crime, Semyon Mogilevich, who is wanted by the FBI on racketeering and fraud charges.

The probe was dropped, however, following a change of leadership at the SBU. The organized crime division of the U.S. Justice Department questioned RosUkrEnergo executives two months ago in a meeting in Washington, where the executives disclosed Firtash as an owner.

In his FT interview, Firtash denied any links with Mogilevich. "I have met Mogilevich a few times. But I have never been in any partnership with him and have never done any business with him," he said.

To The Wall Street Journal, however, Firtash conceded that Mogilevich's wife had once held a stake in a company he controlled, the Cyprus-based Highrock Holdings Ltd. He told the WSJ he took over the stake once he learnt of the connection to Mogilevich and stressed Highrock had no connection to RosUkrEnergo or to its predecessor, Eural Trans Gas.

Chaliy, who as deputy foreign minister was in charge of gas negotiations with Russia, said Tuesday that he did not believe the ownership chain stopped with Firtash.

"Firtash is not the end of the chain. He is just the beginning and the beginning of a big scandal for the top leadership of Ukraine," he said.

"Ukraine's leadership couldn't not know who was behind RosUkrEnergo," he said. "Why was it these people exactly who were awarded a multibillion-dollar contract? This could only have been because of corrupt ties."

"It is clear to everyone that independently he could not get such a deal. Much stronger forces are behind this," he said.

In the first sign Ukrainian President Viktor Yushchenko might withdraw his backing for RosUkrEnergo, a presidential aide said Friday that Ukraine might replace the trader with another.

"It is now vital to think of Ukraine's energy security," the deputy head of Yushchenko's secretariat, which runs his office, Anatoly Matviyenko, told a briefing in Kiev on Friday, Reuters reported. "If we are talking about 2007, it is clear that, given this discussion, we need to talk about possibly finding another intermediary or firm to supply gas to Ukraine."

Neither Tymoshenko nor her aide Grigory Nemyria could be reached for comment on Tuesday, a national holiday in Ukraine.

Tymoshenko has lashed out at the Jan. 4 deal that gave RosUkrEnergo a monopoly on supplies of Russian and Central Asian gas to Ukraine and nearly doubled the price Ukraine pays. The deal became a major issue in parliamentary elections in March and the heart of a battle between Tymoshenko and her former Orange Revolution ally Yushchenko.

Critics say the agreement opened the way for Gazprom to win leverage over strategic chunks of Ukraine's economy.

The disclosure Firtash was an owner of Centragas apparently even surprised senior executives at Gazprom. In an interview on the sidelines of an investment forum in Tomsk on Thursday, Gazprom deputy CEO Alexander Medvedev said that until the PwC disclosure last week Gazprom had been unaware who was behind the Centragas stake.

In the interview with the WSJ, Raiffeisen executive and Centragas director Wolfgang Putschek said the bank had introduced Firtash as "our technical expert" during negotiations with Gazprom, but had not disclosed that he was a shareholder.

Gazprom spokesman Sergei Kupriyanov told the Journal on Thursday that the company would continue working with RosUkrEnergo.

On Tuesday, however, he would only say that the choice of Centragas owners lay with Ukraine and repeated that Gazprom executives had only found out who was the owner when the PwC audit was made available to them some days earlier.

Putshchek told the FT that Raiffeisen had been satisfied by all the findings of its due diligence work before taking on the Centragas shares.

"There were three questions our compliance department had to answer. First, did the client have any links to criminal activities? Second, did the client have links to known criminals? The answer to both was a clear 'No,'" Putschek said.

"The third question was, did the client have any links to known criminals in the past? In the course of answering that question, some issues came up. But they were explained. That is they were cleared off."

Zeev Gordon, a lawyer for Mogilevich, said Tuesday that Firtash had asked him to help establish both Eural Trans Gas, a predecessor to RosUkrEnergo, and an office for Highrock in Israel. According to company documents obtained by The Moscow Times, the office was founded at the same address as Gordon's law firm.

Gordon said Firtash had given him power of attorney to find a lawyer to help set up the firm and that his involvement with Highrock had ended with that.

He repeated he had questioned Mogilevich on several occasions about whether he had had any involvement with Eural Trans Gas or with RosUkrEnergo. He said that Mogilevich's answer had always been no.

Gordon said geopolitics were behind the constant attempts to tie Mogilevich's name to the gas traders. Stressing that he was expressing his own opinion and not that of Mogilevich, he said Tymoshenko's aides had leaked that they were investigating ETG and RosUkrEnergo for ties to Mogilevich because they were attempting to replace it with their own crony company, Itera.

Yushchenko has also alleged in interviews with Ukrainian media that Tymoshenko was trying to reinstate Itera, which in 2000 received the backing of U.S. Congressman Curt Weldon as a gas supplier independent of Gazprom.

Tymoshenko made a fortune in the Ukrainian gas industry in the 1990s, when Itera was handling the trade.

Firtash told the FT last week that he had teamed up with Itera president Igor Makarov in 2000 to take over the entire goods-for-gas barter trade with Turkmenistan. They handled the trade jointly through Highrock Holdings, he told the paper.

Itera spokesman Yevgeny Ostapov said Tuesday that Highrock was one of the companies Itera sold gas to.

Firtash told the FT he had parted ways with Makarov shortly after President Vladimir Putin in 2001 replaced senior management at Gazprom. Gazprom's new management soon moved to squeeze Itera out of the Turkmen-Ukrainian gas trade.