July 18, 2008

Ukrainian Premier Denies Tycoon Control Over Oil Pipeline

The daily looks at the most recent act of confrontation between the presidential secretariat and the Cabinet of Ministers, in which the former accused the latter of blocking the signing of a deal on the control over the Odessa-Brody oil pipeline with a company affiliated with Ukrainian tycoon Ihor Kolomoyskyy's Pryvat Group. According to the daily's sources, Tymoshenko banned the signing, aiming to keep Kolomoyskyy from gaining "full control" over the pipeline, which, she believes, the presidential secretariat has been lobbying for. The following is the text of article by Oleh Havrysh and Yaroslav Aheyenko, entitled "Hello, Pryvat!", published by Ukrainian edition of Russian business daily newspaper Kommersant on 18 July:

The presidential secretariat has found another reason to confront the Cabinet of Ministers. Yesterday [17 July] it announced that the cabinet was blocking the signing of an agreement on the control over the Odessa-Brody oil pipeline with a company of [one of the wealthiest Ukrainians] Ihor Kolomoyskyy's Pryvat Group. According to Kommersant's sources in Pryvat Group, the agreement would give the group full control over the pipeline, reserving the option of prolonging the deal and using the pipeline in both direct and reverse modes. However, filling up the pipeline with oil was not guaranteed, experts say.

The president's press service said yesterday that Prime Minister Yuliya Tymoshenko banned the state-run company Ukrtransnafta from signing an agreement on oil supplies via the Odessa-Brody oil pipeline with Milbert Ventures Inc. registered in the Virgin Islands. The presidential secretariat said the contract was planned to be signed during a Wednesday meeting at [Ukrainian President] Viktor Yushchenko's, if not for the cabinet's ban.

The Odessa-Brody oil pipeline was built in 2001 to pump Caspian oil to Eastern Europe, however it ended up unacclaimed as supplies turned up economically unsound. Since 2004 the pipeline has been used in the reverse mode to transport Russian oil to the Pivdenny sea port. According to the Fuel and Energy Ministry, 9m tonnes of oil has been pumped since then. Ukraine earned over 250m dollars in transit fees and harbour dues.

Bohdan Sokolovskyy, the president's aide for international energy security, yesterday said that the contracts name Milbert (owned by Pryvat Group - Kommersant) as customer for oil transport and supplies, Ukrtransnafta as contractor. Under the contracts, around 5m tonnes of Caspian oil were planned to be pumped for refining to the western Ukrainian oil refineries (controlled by Pryvat Group - Kommersant), while about 3m tonnes were to be transited directly across Ukraine during two years. Mr Sokolovskyy said that the agreement did not give Milbert the monopoly right to ship oil.

Meanwhile, a member of the parliamentary committee for the fuel and energy complex, Serhiy Pashynskyy (of the Yuliya Tymoshenko Bloc - Kommersant), who was instructed by the cabinet to analyze the document, described it differently: "the agreement gives Pryvat unlimited powers to control the oil pipeline in both direct and reverse modes. Two years after, the agreement will be automatically prolonged by two years. The total duration of the agreement is 14 years."

The head of the presidential secretariat, Viktor Baloha, produced a drastic response to Yuliya Tymoshenko's ban on signing the agreement. He said the prime minister's actions are at variance with energy security interests of the state. Mr Sokolovskyy said they [the actions] " bear signs of state crime". Mrs Tymoshenko replied by repeatedly accusing the presidential secretariat head of corruption. She said the presidential secretariat made an attempt to lobby for Pryvat's commercial interests. "It is not the first time. Earlier Viktor Baloha has been actively lobbying for the interests of the Dnipropetrovsk group at Ukrtatnafta," Serhiy Pashynskyy added.

Companies using the Odessa-Brody oil pipeline were surprised to learn about Pryvat's intention to become a pumping operator. "No- one told us beforehand that there would be changes and reverse pumping would be stopped," LUKOIL's press service said. TNK-BP, the pumping operator, refused any comments. However earlier the executive vice president for downstream operations at TNK-BP Management, Anthony Considine, said that the company had not received any notice from Ukrtransnafta regarding the preparations for launching the Odessa-Brody oil pipeline in the suggested direction [to the west].

A Kommersant's source in Pryvat Group confirmed that the draft agreement reserved the option of prolonging the deal and pumping oil in either reverse or straight direction. Pryvat is seeking to gain control over oil pumped by Russian companies, the deputy director of the Psyche research centre, Hennadiy Ryabtsev, says. "If the agreements are signed, Pryvat will oversee supplies and will be able to dictate pumping fees and take part in profit distribution," he says. Meanwhile, the president of Poti Oil Security & Shipping, Alik Vardanyan, said the pipeline is unlikely to be loaded in the averse mode. "There are no unbooked supplies of Caspian oil now. Almost everything is shipped by tankers to Italy, Spain and Greece. And it is unportfitable to pump Russian oil from the Pivdenny port to Brody, it is cheaper to pump it through Druzhba [pipeline]," he said.

Originally published by Kommersant-Ukraina, Kiev, in Russian 18 Jul 08, p 1.

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