12 March 2011 Interview With D. Firtash*.
Published in "Politique Internationale" magazine (France)
A Billionaire Steps Out Into LimelightDmitry Firtash, 46, is one of the least publicly known, but at the same time one of the most influential members of quite a closed club: the club uniting the biggest tycoons from ex-USSR countries. Since 2007, this billionaire has headed the group called with his initials – Group DF and employing over 26,000 people. The Group consists of a number of nitrogen fertilizers’ and titanium plants in Ukraine, Estonia, Tajikistan, Cyprus, Austria, Hungary, Switzerland, Germany, and Italy. But Mr. Firtash’s acclaim is first and foremost attributed to his role in the gas sector.
Mr. Firtash’s fortune was made from transporting Turkmen natural gas through Russia and Ukraine for further sale to European countries with a quite a significant surcharge. It made him one of the richest people of Ukraine, an ex-USSR republic with a 46-million strong population going independent in 1991.
All his activity had very limited visibility for quite a while. But suddenly, Dmitry Firtash found himself in the limelight as he became one of the key figures in two gas crises breaking out between Kyiv and Moscow in 2006 and 2009. As you may know, Russia stopped gas supplies due to a disagreement over the price payable for gas. In 2006, supplies were suspended for three days, in 2009 – for fifteen days. For two weeks, during which the chilling Europeans suddenly realized their dependence on Russian gas.
Coming out from nowhere, Dmitry Firtash, head of an enigmatic company specialized in natural gas sale, RosUkrEnergo, participated in the settlement of these two crises. How and why he did so remains unclear to many until now. In 2006, he suddenly became an exclusive intermediate seller in all deals involving Russian natural gas sales to Ukraine. In 2009, he pulled back in the same sudden way. All the negotiations over this sensitive subject were absolutely non-transparent. And Mr. Firtash remaining consistently silent didn’t help to explain anything regarding his role in this conflict.
Today, he finally breaks silence. In an exclusive interview to “Politique Internationale” magazine, the billionaire describes his course of life and explains how somebody coming from a village in Western Ukraine managed to make a fortune over 20 years of chaos which followed after the Soviet system collapse. Also, he tells about the two gas crises from his perspective and very openly describes his relationships with the most significant persons of the Ukrainian politics, including the ex-Prime Minister Yulia Tymoshenko of who he has by far not the warmest regard, and the current President Viktor Yanukovich who he describes in quite a flattering language.
Clearly, the rationale behind this exposure to media is Mr. Firtash’s apparent commitment to establishing a firm foothold for his Group’s entering the stock market. And this is something he talks about for the first time. It means that time to lay down his cards has come.
He received us in his office in Kyiv on the 31st floor of the business center located in the heart of the Ukrainian capital. We were talking for over four hours. Two days later, Dmitry Firtash was elected Head of the Employers Movement of Ukraine, a Ukrainian equivalent of the MEDEF International. He who was called as one of the most silent of Ukrainian oligarchs suddenly turns out to have a voice: from now on, he is to become a public person.
Interview by Alla Lazareva** and Alain Guillemoles***
Alla Lazareva and Alain Guillemoles. − Mr. Firtash, in the past five years, you gave only five interviews. Why have you been so shy when communicating with the media?
Dmitry Firtash. − Until some point in time, I thought it was not interesting for anybody. From my point of view, I did nothing special to tell about. Like many others, I wanted to create something and to earn money. So I did, to this or that extent, but I am someone of a different nature and don’t like any boasting and rumors. I don’t want to tell that I’m shy because it’s not true. I don’t want to go out and yell to the whole world “Here I am!”. If I hadn’t dealt with Tymoshenko, probably nobody would have ever learned anything about me.
A.L. and A.G. − What are the reasons of your tense relations with Yulia Tymoshenko?
D.F. − We are people of different kinds. Tymoshenko is a person who never leads things to completion. Slogans are catchy, the beginning is great but the end is always bad.
Once I told her this, it was in 2005. She wanted to know why I thought that working with her was an impossibility and why her main rival, Yanukovich, was closer to me than she was. I answered: “There’s a great difference between you and Yanukovich. Yanukovich is someone I understand. But I don’t understand you because tomorrow you can pack up and leave for London”. I’d like to mention that at that time her daughter had just married in London. Also, I told her: “Nothing holds you in this country. You have no foundation, no anchor. You’ve never invested a single penny. You were only harvesting and sucking money out of this country while Yanukovich and his team mates are of a different sort. They can’t take away their mining and enrichment plants, they can’t take away their companies, and they build stadiums… Their spirit, the things they do make them closer to me than you are.”
A.L. and A.G. – Do you agree that the Kuchma era was a period of very selective privatization? Only a few chosen by the President in a relatively non-transparent way could not only acquire state companies but also pay very low prices…
D.F. – Let me mention something to describe the period of Kuchma’s presidency. You might remember that currency rates in our country could change 5-6 times per day (1). There were no foreigners in Ukraine whatsoever. Nobody cared about this country! Who could he sell a Ukrainian company to?
Moreover, nobody could tell how much companies would cost at that time. They were not listed. Many of them were not modernized for decades! Kuchma forced new investors to keep all the jobs. Yes, it’s true that when we acquired those plants we began to earn money quite soon. But at the same time we had to support entire cities and regions that depended exclusively on those plants!
And finally, if we calculate how much money we spent to address social issues over 10-15 years it would turn out that the value of those plants is really outrageous. What Kuchma did in fact was he cheated us, he “ripped us off”. He knew how to make any businessman acquire the enterprise…
A.L. and A.G. – For example?
D.F. – I’ll tell you a story which happened to me in Armiansk on the plant “Crimea Titan”. It was a huge Soviet plant, huge territory, everything was neglected, falling apart… I looked at it and, to be honest, I didn’t want to acquire it. Kuchma made me. My partner and I had bought the Crimean Soda Plant nearby, just 15 kilometers away. And Kuchma said: “Listen to me, go ahead and take this plant too! The city is dying.”
And I said: “What can I do?” He answered: “I’ll tell you what you can do. Let’s go.” Everything happened in one day. He and I went to the plant, he introduced me to the staff, though I hadn’t bought anything, and said I was a future investor. Suddenly, I felt like smashed by this burden of responsibility. Then the President made a speech. He said that the plant and all its employees had a glorious future due to me. I was just standing there and listening. Then we went to the town. He showed me of what poor condition its culture club was: it was literally crumbling down. He gathered all intellectuals of the town, introduced me and said that I would fix everything up... Then we went to the hospital, he showed how miserable it was. Then everything repeated all over: he introduced me as a real savior. After that, he got on his helicopter and flew away but asked me to stay and to continue the talk with Armiansk citizens.
So I sat with them till the late evening. When it was already into late night, I understood that this town was under my responsibility from that moment on. I couldn’t just leave as if nothing happened! I made the investments it took. So, we reconstructed the hospital in Armiansk and delivered all necessary equipment. Kuchma returned. He inaugurated the hospital and said: “I told you that everything would be OK, didn’t I?” He manipulated me. After some time, I realized that he acted the way he had to. I believe there was no other way out for the country!
A.L. and A.G. − How do you describe the economic policy pursued by his successor, President Viktor Yushchenko?
D.F. − I know Viktor Yushchenko very well. I met him at the National Bank. I can tell you this: Yushchenko sincerely believed in democracy, he didn’t have any bad intentions in relation to the country and he is not a liar. I don’t even doubt that deep in his heart he is a genuine Ukrainian. I think that Yushchenko designed good reforms in general. Why couldn’t he succeed? My answer is straightforward: the major impediment was Yulia Tymoshenko. After the Orange Revolution victory, she became a Prime Minister. And just after that she began to prepare a launch pad for her election campaign. From the very first day, she was preparing herself to becoming a president. Yushchenko had other priorities: consolidation of the state, protection of national interests…
Yushchenko’s second blunder was his entourage: besides Tymoshenko, who was his political ally, he raised to power the people who were inapt for the jobs.
His third mistake, and the key one: at the moment when he came to power, he was put at odds with business community (2). Then he began to rectify the situation, but it was too late. People coming after him pursued the only goal – to get rich (3). And when they entered the Presidents’ administration and Cabinet of Ministers, they instantly began to draw up lists of companies subject to changing hands. I told Viktor Yushchenko: “You can’t do that. What does this list of 100 companies to be nationalized mean? Why not 200 or 500 companies? What principles were they picked on? Call all businesspeople. The party affiliation does not matter. If you want to build the country, you would never do that without their help. Because they invest money. Your policy will make them flee! If the state sells a company, this decision can never be reverted. The authorities may not change the rules whenever people in power change. You’ll throw the country back!” He listened to what I said but he is very stubborn. One should try real hard to make him see that he is being cheated.
А.L. and A.G. − And what about Viktor Yanukovich? Do you know him for some considerable time?
D.F. − Yes, I have known him for many years.
А.L. and A.G. − How do you describe him as a personality?
D.F. − The first thing one should mention when talking about him is his life course. He went through the school of hard kicks. To my mind, this man is marked by the God if he could get out of all those trials and hardships! He grew up without mother. He achieved everything on his own. In the Soviet times, he worked as a director of truck carrier company employing 3 thousand people: DonbassTransRemont. This company was active in the half of the Soviet Union and included diesel units, depots, entrance/exit ways. Someone heading such an organization couldn’t lead without understanding things. Then Yanukovich was a deputy governor of a province, then the governor, twice – the Prime Minister and finally became the President. He didn’t go to any prestigious foreign university. But believe me: the Soviet Union was good at training leaders. And it doesn’t matter if that was a shoe factory or a space launch facility. Yanukovich went through this school.
А.L. and A.G. − Could you tell me how you entered the gas market? 25 years ago, you returned from the army and worked as an ordinary fireman. Did you think then that you would be so rich and influential once? Did you long for it?
D.F. − I’ll start from the very beginning. I was born in Ternopil oblast in Western Ukraine. My native village was called Sen’kiv. My father was a driver and later an instructor at a driving school. My mother has two degrees: in veterinary science and in economics. Part of her career was at a sugar refinery.
We were growing tomatoes in our region. By the way, this business is still on till today. It’s a hell of a work. I had to engage in that too like many other young people in the neighborhood. Since my childhood, parents would make me work every day. Not because they didn’t love me, but because that’s the way everyone lived. One should get up at 5 a.m. to work in a greenhouse and has to work like a dog till 7a.m. before going to school or work. Then in the evening, you come from work and go back to the greenhouse. Everybody came home exhausted and had to do the same thing next day, again and again. I hated those tomatoes, I couldn’t look at them. Later, I saw Dutch greenhouses and they are absolutely different. It’s a mass production. We had to do all the work manually and many things were left from our grandparents’ practices. Twenty thousand bushes of tomatoes grow in one greenhouse. At the beginning, one should plant, then tie up, pollinate… So, taking care of twenty thousand bushes means that you have to bend down twenty thousand times! That’s why when I’m now told that I always work and never sleep, I answer that one doesn’t know what a real work means, my really hard work was before I turned seventeen!
Instead of being at the seaside like everyone else, I was on the markets in the Baltic countries selling those damned tomatoes. And what else could I do? It was the main source of income for us. It did make a good financial sense, though: at that time, a car would cost 5-6 thousand rubles while our family could make this money over a season.
А.L. and A.G. − How did you leave your village?
D.F. − At the very moment when I turned 17, I decided that I have to run away from this serfdom. My mom and dad tried to talk me out but I went to Donetsk province and entered a railroad school. My first profession is an electric and steam locomotives engineer. From there, I was called up for military service. I served two years in the army like anyone else and came back home after that. I decided to stay in Chernovtsy (4) and went to work at a fire station. At that period, the Soviet Union was already falling apart. I worked for five months and my pay check covered only one. I was already married and had a newly born child… If life had taken a different direction and if the salary had been properly paid, I would’ve never thought of quitting… But I didn’t see other options.
I went to my parents and said I wanted to start up my own business and needed money. I asked for their help. Right then the first cooperatives emerged… It was just the right time to start up. And my father told me that I should return home and that there I had everything I needed – my relatives, a good house. He was totally convinced that I had to stay in the village. My parents had 40,000 rubles on their savings account. It was a whole lot of fortune at the time. My mother tried to dissuade me saying: “We worked hard all our life. You are our only son. You worked with us too. We will give you everything but later. What if something goes wrong in your business? We, you, your wife, your child will be poor. Why take such risks?” I left home angry. Now, I do understand them. Anyway, I had nobody who I could go to. Then I moved to Chernovtsy and tried to figure out how to earn money on my own.
А.L. and A.G. − Soon enough you moved to Moscow…
D.F. − Yes. It was in the beginning of the 90s. I had $100 in my pocket, i.e., nothing. At that moment, I didn’t see myself as a businessman; I didn’t understand what commerce means. I’d never sold anything before, except for tomatoes. But even talking about tomatoes, it was my mother and father who were selling them, while my job was just carrying boxes. I was more inclined to being on somebody’s payroll.
When I came to Moscow, the USSR had collapsed, there was no country, no ideology, nothing at all and nobody needed you. At first, I was shocked. I couldn’t understand it: everyone’s selling stuff to everyone, but no one has anything.
Later, I understood how the things are done.
I’ve known all major Russian businesspeople since that time. Then they were all busy selling things – some were selling tickets, others – something else. I wouldn’t call their names because they are ashamed of that and don’t want to bring it up… But it was a fact and we all went through that – we learned how to earn money.
Everyone coming to Moscow to start business lived then in Russia Hotel. There were Russians, also Turkmens, Uzbeks, Kazakhstanis, Ukrainians, Azerbaijanis and others… I got settled there too. It was the time when I realized that earning money doesn’t take having money. People would make acquaintances in restaurants where Soviet-time songs were played. I joined one company, then another. I got two people acquainted with each other and earned my first $10,000 without investing a single penny. I thought it was a dream. So, I realized I could make money in such way.
А.L. and A.G. − So you went on?
D.F. − I earned about a million dollars in a year. It was an outrageous amount of money. I thought I was so rich… I bought a car immediately, but not a flat. A hotel owned by the plant producing “Moskvich” cars was located in Tekstilshchiki (a district in Moscow). The apartments had two-three rooms with a kitchenette, just like real flats. It was a closed territory with own security. I chose that place because all people from Chernovtsy lived there. As I said before, I lived in Chernovtsy for some time and knew many people from there. As we ran businesses which were common quite often it was convenient to live next door.
А.L. and A.G. − How did you start trading with Turkmenistan?
D.F. − By chance, I met a high-ranking official from Turkmenistan in that very Russia Hotel. He was related to the Ministry of Commerce which traded in everything, including gas. And he was responsible for food supplies to the country, including meat, corn, etc. But when the USSR disintegrated, the state food supplies from other republics stopped and nobody would buy Turkmen natural gas.
So, this man shows a list of products they needed. It turned out that I, with my connections, could supply all of them. In the morning, I gathered my friends and said we had an opportunity to make good money. Some of those people were from Moscow, others from Chernovtsy, so these people earned money with me and knew me well, nobody hesitated. I asked them to invest money in purchasing the products Turkmens needed. The total value amounted to $30 million. Our margin on this deal could be equal to that.
My friends told me: “If you guarantee that the deal is profitable, we are in”. We invested money in this deal as I wanted, all needed products were bought and delivered to Turkmenistan.
A month went by and nobody paid us! I called this high-ranking Turkmen official and he assured me that everything would be settled soon. Three months passed with no changes. My co-investors felt nervous. As I was an initiator of this deal, they equipped me and sent to Turkmenistan. What else could I do then? I was flying in a plane full of frustration. I had never been there before. The Turkmen official came over to the airport to meet me. He is a good guy, I have good relations with him up until now. He helped me. He showed me how to live in Turkmenistan, how to behave. When I came there for the first time, he brought me to his home. Then there were no hotels in Turkmenistan, the country was in an awful state. My friend told me: “We could take more goods. But we have a problem. We can’t pay with cash, will you take gas in exchange?”.
А.L. and A.G. − Did you know anything about the gas market by that period of time?
D.F. − I didn’t know it at all but I went for it. It was 1993. So, my business in Turkmenistan started. Then I worked in Uzbekistan and met with Uzbeks, Tajiks… Within a couple of years, I got hold of this market. But I didn’t trade in gas myself, I didn’t start to until 2000. At that time I was trading goods for gas. Turkmenistan sold gas to Ukraine through intermediaries at the price of $20 and even $18 per 1,000 cubic meters! That’s how the system worked (5). The whole Ukrainian industry survived hard times owing to those low prices on natural gas.
А.L. and A.G. − What made you focus on gas in 2000?
D.F. − I realized that there was no other way out. Looking back, it appears that I always did something when the situation forced me. Once, I was let down by partners in Ukraine. The losses were outrageous. It was then that I understood that I had to control the whole process by myself. Gasprom wasn’t present in Central Asia then. I managed to persuade Turkmens to let me sell Turkmen gas (6).
А.L. and A.G. − After that, the Orange Revolution broke out in 2005. Then, a year later, the first gas conflict between Russia and Ukraine occurred. How did it occur and how did it happen that your company, RosUkrEnergo, turned out to be involved in this case?
D.F. − I’ll tell you what really happened then. You might remember that in 2005 Russia and Ukraine had a contract whereby natural gas was supplied at a much lower, discounted price compared to the price for European countries: $50 per one thousand cubic meters (7). The contract was valid through 2010. Russia understood very well that it was unprofitable for them. But their hands were tied for more than five years. Gazprom looked for ways to terminate the contract. And they used Tymoshenko for this. In 2005, Viktor Yushchenko declared transition to European gas prices. But it was Yulia Tymoshenko who stood behind this statement. She acted in the interests of Gazprom. What were the real reasons of her behavior? Just mind you: Tymoshenko was on the Interpol’s wanted list at that moment... (8)
2005 comes to an end. Ukraine has no new contracts with Gazprom in place. International oil prices are skyrocketing, and so do gas prices reaching $300 per one thousand cubic meters at the end of the day! As there was no contract between Kyiv and Moscow, supplies of Russian natural gas were stopped. Tymoshenko managed to hold Yushchenko liable for what happened. As I said before, it was 2010 presidential election that was on her mind all the time and weakening the current President was pretty much on her agenda. At that moment, the only company which could resolve the situation was “RosUkrEnergo” (RUE). It had all required contracts on gas transit and sale of big gas volumes. We decided to acquire natural gas Ukraine needed on our own (9). In fact, I subsidised the Ukrainian budget in that sensitive period!
А.L. and A.G. − Why did you do this?
D.F. − First and foremost, I cared about everything that was happening as a Ukrainian and as a businessman. One should understand that I found myself in a very unique position. On the one hand, I traded in gas with Ukraine, on the other, I had plants in this country, which consumed this gas and couldn’t operate without it! I couldn’t set too high a price, or else my plants wouldn’t be able to afford it. Then I decided to sell natural gas to Ukraine at relatively low prices, which is why I say that I sort of “subsidized” Ukraine, while Gazprom got what it was after. They did very pragmatic calculations and went for it. This is how we survived the 2006 crisis. I think if I hadn’t done that, Ukrainian plants would have stopped. I didn’t comment on anything publicly, didn’t communicate with the media, but in essence it was me who did this work because I understood it was my responsibility.
RUE had access to gas fields in Central Asia and gas transit networks destined to Russia, Ukraine, and Europe. Another advantage was that one couldn’t exert political pressure on Ukraine due to RUE. Why? Because Ukraine didn’t have other direct contracts with Gazprom. It was us who made deals with Gazprom. Any conflict which might arise had to be settled by Gazprom only with RUE.
А.L. and A.G. − Why did the second gas crisis break out three years later?
D.F. − In 2009, the situation unfortunately reverted, though at a new level. The 2006 contract talking about RUE participation was valid through 2027. But a financial crisis broke out in Europe. Gazprom understood that European markets were collapsing which would result in consumption volumes reduction. Given the circumstances, Russians decided that they were interested in changing the contract period. But they couldn’t do that unilaterally because I could have sued them. It didn’t make sense for them as penalties would have been huge.
This is why they triggered the second gas crisis using Tymoshenko who terminated the agreement once again. Gazprom did this intentionally. RUE was removed from the market (10). As a result, Ukraine got an unreasonably high price of $450 per one thousand cubic meters.
А.L. and A.G. − How in your opinion should European gas market be optimized to avoid further supplies crises? What do you think of the idea of creating a gas consortium operating Ukrainian pipeline and involving Russian, Ukrainian and Western private capitals which is being widely discussed in Ukraine? (11)
D.F. − The gas consortium wouldn’t bring anything to Ukraine. First, Ukrainian gas transportation system is in a better state than Russian one. Second, Gazprom and Naftogaz (Ukrainian counterpart of Gazprom) are supposed to merge as part of this project. But this alleged merger will in reality be a mere acquisition of Naftogaz by Gazprom. Third, this consortium would include Western investors. But Europeans also depend on Russian gas which 2009 crisis clearly showed. In general, this project is not a satisfactory solution.
My thinking is absolutely different. I think - and I do my best to persuade in this both the government and the President - that Naftogaz National Joint-Stock Company should enter the stock market and a 20-25% stake should be sold. We will know for sure how much it costs. I think if Naftogaz enters the stock market it will bring about $20 billion in foreign investments to Ukraine. Europeans will participate in the process. In such a way, our public enterprise wouldn’t fall victim of acquisitions as in case of the solution offered by Gazprom. Ukraine will become an important and independent player on the world arena. We don’t have to turn into the fifty-fifth state of the United States or a province of the Russian Federation.
А.L. and A.G. − And what do you think of the prospects of Nabucco pipeline which would supply Central Asian natural gas to Europe bypassing Russia? (12)
D.F. − For Ukraine, choosing a different approach makes better sense. Do you know that Ukraine builds a terminal to receive liquefied natural gas in Yuzhnyi Port located in the neighborhood of Odessa? It will receive Turkmen natural gas supplied through Azerbaijan and Georgia, which makes better sense than Nabucco. What are Ukraine’s strengths? It has huge underground storage facilities where considerable volumes of natural gas can be stored, and a good transportation network connected to Europe. That’s why I think we don’t need to build both “Nabucoo” and the “South Stream” (13). The solution can be much simpler. Liquefied gas can be supplied to Ukraine and then redirected to Europe, so transportation through the Black Sea isn’t required any more. It doesn’t matter to Europeans. If we find a way to buy cheap liquefied natural gas, it would be to our advantage. If we make one terminal, we will be able to build two, three or more terminals… We will be able to offer Western countries an alternative to Nabucco as well.
А.L. and A.G. − Your “Group DF” was founded in 2007. What is its objective?
D.F. − When I entered gas market, I already knew that eventually I will start looking for ways to diversify my business. I began to invest and acquire companies. Later, organizing all these different types of activity became a necessity.
In what areas are we present? Chemistry, including nitrogen fertilizers industry. We want Ukrainian chemical industry to become a serious player on the world market. We haven’t announced this publicly yet. Ukraine can turn into one of the world leaders in nitrogen exports. It’s an ambitious but realistic plan. To implement it, we will acquire many other plants. It will be a huge company. We plan to achieve this goal by the end of 2011. The existing chemical plants in Ukraine have much higher a production capacity than the domestic market needs. None of them can survive on their own. This is why our project is heavily export-oriented. I see it as a possibility that the chemical branch of Group DF might be listed on the stock market in the future.
The second area is the titanium business. Russia says it will create a titanium valley. The Chinese started to build large production facilities in this sector which is a very meaningful signal. In the future, this market will see a huge boost. Planes, nuclear power plants, tubes, blades, even dentistry – we get more and more areas where titanium is used. There are good prospects and Russia understands this. Currently the largest world titanium company is “Avisma” in the Urals. But Russians buy all the raw materials from us, from our mining and enrichment plants! Definitely, it would be advantageous for Russians if Ukraine were just a raw material supplier. But Ukraine takes another position. My idea is to create a Ukrainian titanium production sector. Afterwards I want the concern to be listed on the stock market and to sell it. If everything works out well, Ukraine will rank second after Russia in the titanium production. In total, this program requires four years and $2.5 billion worth of investments.
А.L. and A.G. − You finance the Ukrainian program in Cambridge University in the UK. What does it bring to you?
D.F. − Trying to launch the Ukrainian program took us seven years. In my mind, Cambridge is very important for Ukraine. It’s a University of the world importance. For over 800 years Cambridge has been raising highly qualified specialists. It’s surprising and sad that the University had almost all departments except the Ukrainian one. Our goal is quite simple – to tell students as much as possible about Ukraine, its history and values of the Ukrainian people. And that Ukrainians are the same Europeans, like people from Poland or Great Britain.
А.L. and A.G. − Ukrainian magazine Focus estimates your fortune to be almost $2 billion. Is it correct or not?
D.F. − Such estimations always surprise me. How can it be calculated? For me, money is a means to realize my opportunities in the first run. I only think of two things: 1) what I have to do, and 2) how much it would cost. That’s all! How much does my Group cost? We will be able to understand this when we enter the stock market. Now we have to consolidate the assets, invest, modernize, integrate new technologies, prepare the specialists etc… Today we should do a lot of work to make our businesses be estimated at the maximally high prices when they enter the market. We should do all these things because Group DF’s market entry will be some kind of an appraisal for Ukraine. I believe that Ukraine is a country with a great future and great opportunities. I hope we will see this in the nearest 5-10 years.
* Ukrainian businessman, president of Group DF (gas, titanium, chemistry).
** Ukrainian journalist, correspondent of the Ukrainian BBC department in Paris.
*** Journalist, “Economics” columnist of the French magazine “La Croix”.
Alla Lazareva and Alain Guillemoles published the joint article “Gazprom, le nouvel empire” (“Les Petits Matins”, 2008).
1. Leonid Kuchma was a President of Ukraine from 1994 to 2004. When he came to power, Ukraine was going through hyperinflation in the third year of its independence. Destruction of economic relations built and maintained in the Soviet times brought about a dramatic surge of prices and currency collapse (transitional currency called karbovanets). Prices began to stabilize starting from 1996 when new and ever since ultimate currency was issued: hryvnia.
2. One of the first steps undertaken by the new government after the Orange Revolution was publication of the list of 100 enterprises to be nationalized. The new government thought that these enterprises had been acquired at too low a price and not in a transparent fashion at the time when the previous President, Leonid Kuchma, was in office. Yulia Tymoshenko’s Government wanted to start privatization of these 100 enterprises again.
3. Mr. Firtash means some businesspeople who took side of the Orange Revolution: Petro Poroshenko, David Zhvaniia, Alexandr Tret’iakov and some others. According to the media close to Viktor Yanukovich’s Party of Regions, they supported the revolution only with one purpose: to benefit from the privatization processes organized by their “friends” who came to power.
4. Chernovtsy is a small town in the west of Ukraine not far from the native region of Mr. Firtash.
5. The applied scheme actually was nothing but barter implemented with the help of numerous intermediaries. At that time, cash was scarce and the trade between the newly independent ex-Soviet Republics was renewed through barter. Dmitry Firtash supplied goods to Turkmenistan. Turkmenistan gave natural gas to Ukraine. An intermediary in Ukraine sold this natural gas. With the help of this intermediary, Dmitry Firtash managed to return his investments made partially in cash and new goods. The system turned to be quite profitable for Ukraine as the purchase price of natural gas obtained through barter was about twice lower than the price at which Kyiv then acquired it from Russia to meet its other needs.
6. Up to 2000, Dmitry Firtash dealt only with goods supplies to Central Asia and was paid by private intermediaries reselling natural gas. In 2000, he founded EuralTransGaz, a company selling gas to Ukraine and Central Europe without intermediaries. Then in 2002, he founded RosUkrEnergo, a new company specialized in gas sale and co-owned by the Russian giant Gazprom. Dmitry Firtash and Gazprom own 50/50 stake in RUE. RosUkrEnergo’s headquarters is based in Switzerland. Dmitry Firtash’s name appeared in the media for the first time when he was mentioned as a head of this company.
7. At that period, European countries would pay for Russian natural gas about four times more than Ukraine did. The agreement under which Kyiv got a discounted price was signed by Leonid Kuchma in 2000. As opposition alleged then, Kyiv had to enter into some clandestine agreements in exchange for this discounted price. Under these agreements Ukraine, including its safety, was made subdued to Russia.
8. In 2004, Russia started a criminal prosecution against Yulia Tymoshenko on the charges of corruption, and put her on the international wanted list. In 2005, Russia stopped this prosecution after several months of Yulia Tymoshenko coming to power.
9. Under the agreement intended to settle the crisis, RUE was to be an exclusive intermediary in gas trade between Ukraine and Russia. Since 2006, Ukraine has been buying all natural gas through RosUkrEnergo which gets supplies from Russia and Central Asia. Russia wants to sell natural gas at European prices but Ukraine can’t afford it. Then RUE comes up with a new arrangement. The enterprise buys Russian gas at $250 per one thousand cubic meters and mixes it with gas bought at $35 per one thousand cubic meters in Central Asia. So Ukraine pays RUE for natural gas only $95 per thousand cubic meters. Some part of gas is also sold to Europe at high prices.
10. The second gas crisis resulted in signature of a new contract providing for no intermediaries between Ukraine and Russia. Since then, Gazprom has sold natural gas directly to a large Ukrainian distributor, Naftogaz. And the most important point is that Ukraine may not buy cheap gas in Central Asia as it doesn’t have contracts allowing natural gas transportation to its territory from Central Asia through Russia. So the crisis outcome is not only higher transparency but higher prices too.
11. About 80% of gas volumes exported by Russia to Europe goes through Ukraine. Since the time when Ukraine declared its independence, Russia has been looking for ways to control this export corridor. Kyiv, from its side, resists this intention. Transit gas pipeline is left in the Ukrainian state ownership. To avoid new crises and to increase the funding of the pipeline modernization, Russia offered to found a Russian-Ukrainian consortium which would own the gas pipeline. Ukrainians, in turn, expressed willingness that Europeans should participate in the consortium. This idea first raised ten years ago seemed to be then committed to oblivion. But it was brought up again when Viktor Yanukovich came to power in Ukraine in January 2010.
12. “Nabucco” is a project of a pipeline connecting the Caspian region with Central Europe. This project supported by the EU should allow Europe to diversify supplies.
13. “Southern Stream” is a project of the pipeline being in competition with Nabucco. It is supposed to supply gas from Russia to Central Europe. This project of a gas pipeline bypassing Ukraine through the Black Sea is offered by Gazprom.