Dmitry Firtash: "Putin Outplayed Everybody"

The most enigmatic Ukrainian businessman talks about trade in Russian natural gas, enterprises acquisitions and relations with presidents and store clerks
«I was no one’s base son» — «The whole RUE story was Russian invasion »

According to the Ukrainian Forbes magazine, Dmitry Firtash, 45, with an estimated fortune of $996 million ranks among Ukraine’s top-ten richest businesspeople. Nevertheless, he still remains the most enigmatic businessman. In his interview to the Russian Forbes magazine, Dmitry Firtash talks about trade in Russian natural gas, enterprises acquisition, his relations with presidents and store clerks, about Vladimir Putin having outplayed everyone and about Yulia Tymoshenko who played up to this outplay.

 — As you dealt with gas business, your margin originated from the differential of prices to natural gas supplies from Central Asia and from Russia. At the end of the day, due to European gas sales where prices were a lot higher, gas in Ukraine was being sold at a cheaper price than it had been bought …

— It was indeed. Annually, we had 62 billion cubic meters (CBM) of Central Asian gas in our possession. On top of that, we could buy another 12 billion CBM of Russian gas. These are quite sizeable volumes. Before the crisis broke out, Ukraine used to consume about 70-72 billion CBM of natural gas – while these days there is a huge consumption imbalance – of which about 20 billion CBM originated from Ukraine while the remainder of about 50 billion CBM had to be imported. Of these 50 billion CBM, some 40 to 42 billion CBM were being consumed and some part was stored in underground gas storage facilities (UGSF). That’s where the gas was then destined to export from. The price to Central Asian gas was clear, no formula applied to pricing (under the formula, the gas price for the European market and, starting from 2009 – for Ukraine as well, is determined based on the price to replacement fuels: fuel oil and gasoil — Forbes). Each year we had a clear fixed price which afforded us with a certain opportunities [of profitability]. Furthermore, we had a gas surplus: we had enough to meet Ukraine’s demand and additional 14 to 17 billion CBM would be sold on European spot markets (for a long time, spot deals, i.e. goods sales on a cash-on-the-nail basis made a lot better financial sense than Gazprom’s  long-term arrangements — Forbes). Thus, our principal earnings were made in the West which allowed us to compensate our costs in Ukraine.

— You keep arguing that you were subsidizing Ukraine. What were these subsidies expressed in?

— In money, obviously. Early or late, everything counts in money. The logic was straightforward and there is no cheating whatsoever. By sustaining low prices to natural gas in Ukraine, we subsidized its economy with several billion US dollars.

— But why after all was it you who dealt with supplies rather than Russian Gazprom and Ukrainian Naftogaz?
 
— Scandals around the gas situation in 2009 – 2010 showed that governments are reluctant to come to terms with each other. Different governments had different ideologies, pursued different objectives and we fit into the situation perfectly. RosUkrEnergo (RUE) was founded as an investment company. What for, you might ask? Listen, after EuralTransGas (ETG) I had a clear understanding of all problems, whether Uzbek, or Turkmen, or Kazakhstani, or Ukrainian or Gazprom’s ones. For instance, we assumed a commitment before Turkmenistan to help them eventually raise gas supplies from 34 billion up to 50 billion CBM. To make it happen, Uzbek transportation system expansion was essential but Uzbeks would say: “Listen guys, you need it, you do it. Go ahead and invest, we have no money”. Gazprom needed West-Ukrainian UGSFs and Borodchany-Uzhgorod pipeline expansion to arrange for spot trading in Europe. And I was out there to help them all.

 — How exactly?

— Very simple! UGSFs are based in the West of Ukraine. To end up in a storage facility, gas has to cross the entire country while in cold winters it was being massively taken off during the transportation. I was pressing on Turkmens to supply more gas, we would increase pressure, I was sating Ukraine’s demand and made it possible to pull up gas [from UGSFs] for Gazprom’s exports. The same was the case in Uzbekistan through which Turkmen gas was being transited. Uzbeks would normally sell 10 to 12 billion CBM of their domestic natural gas per year. In the winters, they were short of gas but they wanted to receive payments for gas all year long [while selling gas only in warm seasons]. So, what we had to do was to give them Turkmen gas from January through mid-April without collecting payments for that. They would cover their needs in the winter and by selling their gas during the April-December period, they were able to pay back our volumes. Would Gazprom go for it? Don’t even think about it! RUE was doing well because I personally knew each and every problem. And mind you: at that time, Gazprom wasn’t present in Central Asia. Neither Central Asia nor Ukraine was interesting for Gazprom. What could you gain from Ukraine where gas prices at times dropped down to $18 for a thousand CBM? Gazprom’s job was extracting and sel1ing Russian natural gas.
 
— But for you and for other players Gazprom has always been a transitor. Isn’t it a very advantageous position: it could say yes and pump your gas through, and could have said no…
 
— Not quite. On the one hand, Gazprom did pump our Central Asian gas through Russia, though on the other hand, Ukraine transited gas, including Russian one, on to Europe. There was no altruism about it. It was a forced situation and Gazprom just had to reckon with it.
 
— Why after all didn’t Gazprom become part of RUE’s investment projects?
 
— Let’s take a look at RUE structure. In essence, it’s about eight people sitting on a coordination board – four top managers from Gazprom and four – from my side, plus another two co-directors, one from each side. Directors didn’t make any decisions. It was the coordination board without which nothing could work as all RUE decisions were being unofficially discussed at the Board, then the documents were forwarded to Gazprom where their Board voted, and their Board granted its representatives in RUE respective powers. And it’s not until then that they could come back to the company and vote. When a question of assets acquisition came up, it became evident that Gazprom wouldn’t be able to make a swift decision. That’s when a solution was agreed to: I will be buying with my own money with the commitment to pass the assets over to RUE as soon as Gazprom completes all its internal procedures. That is what I signed under.
 
— And where were investments channeled?
 
— We invested everywhere: in Uzbekistan, in Ukraine, in underground storage facilities, even in Slovak gas fields.

«I was no one’s base son»

 — I am still struggling to comprehend how you managed to reach a bargain under different circumstances. Central Asia is special in its way, so is Gazprom. The Russian government, President’s Administration… Ukraine is unique, so is Europe. How have you managed to come to terms with everyone?
 
— There is nothing unique about it. I was no one’s base son or relative.
 
— But in the outset, back in the 1990s your business was quite modest …
 
— Small indeed.
 
— Wouldn’t you agree that it’s not quite common for someone owning a small business to come whether to the Ukrainian or Turkmen government, or to Gazprom and they would say: we trust you, we are going to work with you …
 
— For many years, I was supplying foodstuffs, then fertilizers and machines to Turkmenistan, remember? Every single one knew me there. I wouldn’t say “everyone from the president all the way to…” but each storage clerk or a fork-lifter driver knew me. It did not matter whether or not the president OK’d the shipment, it is a storage clerk who accepts goods. I walked ministries and I wasn’t a stranger to them. And never cheated them, too.
 
— All right. But “Tajikazot” was your first chemical company, wasn’t it? How did you manage to reach an agreement?
 
— The story was quite simple. The war had just ended in Tajikistan and not too many were willing to go there. When I arrived there, people at the negotiations table were sitting with their machine guns. I remember sitting in the President’s office and as we talked, his subordinates reported to him three times that his power was taken away and then regained. The facility had been heavily bombed, all gates and doorways wide open, not even stray dogs could be seen, everything was embezzled. Tajiks didn’t believe it could have been restored. I wasn’t sure as I didn’t have an industrial experience, so I brought some specialists along and asked them: can the whole thing be restored? They said: “Sure, just a matter of will and money”. At the end of the day, we invested something in the neighborhood of $100 million.
 
— Why did you choose to invest in chemistry at all? You dealt with food and equipment supplies, and then, out of the blue, here you go…
 
— It’s not a here-you-go thing. By that time, I had already supplied chemicals to Turkmenistan: carbamide, nitrates, ammonia. And I needed the company because it was just 400 km away from Turkmen border. I was producing fertilizers there and could meet my quotas.
 
— And yet, how did you happen to find yourself in the right place, at the right time and next to right people?
 
— I keep saying: no matter how big a company, it’s the people that work there. Each company has a couple of right guys leading the way. If you find common language with them… What is friendship, anyway? It’s about properly balanced financial relations. If you understand what each of them wants…
 
— I can’t believe it that you, while dealing with big gas supplies, didn’t meet and talk to nations top leaders. At what point in time did you meet the Turkmen-bashi [President of Turkmenistan]?
 
— Well, I wouldn’t remember. And it’s not even interesting.
 
— It is very interesting. You must have enchanted him…
 
— I didn’t have to. It all worked out very simple: Turkmens were willing to work with people that came over with goods. [Igor] Bakai [founder of “Republic” corporation] was a pioneer. Ukraine needed natural gas and before him, no one knew how to work with gas. He came along and cut deals with everybody. No matter what kind of man he is, I keep saying: Ukraine owes him a pro vita monument. He does deserve it for feeding the nation with gas at $18 per thousand CBM for 3 to 5 years. How he did it does not matter. Obviously, this money was being made in Central Asia rather than in Ukraine or Russia. Obviously, Turkmens didn’t give gifts away; Turkmen-bashi just didn’t have cash while his nation had to be fed. The state planning system was gone, supplies discontinued, Russia was not interested in buying gas as it had to deal with its own gas surplus… Turkmens knew how to do things right as they were driven by a major objective: to provide the nation with food. 
— But you had to establish relations within Gazprom, didn’t you?
 
— I didn’t have to establish anything there either. We entered into agreements with Central Asia. We entered into a sale agreement with Ukraine. It all didn’t matter to Russia. You keep looking for big scales but they aren’t there, it’s all banal and simple: Gazprom was transiting gas and we were paying them. They didn’t care if it was ITERA, myself or anyone else. It was only receiving payments for the transit that mattered to them.
 

«The whole RUE story was Russian invasion»

 
— I was told that the ones who benefited from RUE foundation were a clan within Gazprom led by Andrey Akimov, Chairman of GazpromBank and Alexander Medvedev, Vice-Chairman of Gazprom’s Board…
 
— It’s not true…
 
— … and that they were looking to found ITERA-2, accumulate assets around RUE and then exit.
 
— No way. In reality, the whole RUE story was a neat Russian invasion. Russia never managed to make its way to Central Asian gas while RUE did make it. Putin masterminded a unique play-off. His first move was an entry to Central Asia in 2005, owing to me. It was only because we founded RUE that he was let in. His second move in 2009 was burying us. Because we stood on his way. He had direct access to neither Central Asia nor Ukraine and only gained it via ourselves. But he wasn’t interested in petty cash anymore, he wanted to be a key player, as he likes because he is a head of an empire. Putin doesn’t trade in business. He sells and buys politics. In plain terms, we shared our business with Gazprom and paved Russia’s way to Central Asia. Whether or not I like it, but I take off my hat: Putin outplayed everyone. And Tymoshenko played up to it.
 
— Tymoshenko played up to Russia?
 
— She did. Because for all this time, she was working only for Russia’s benefit. I think she was working off the debts [which her gas company had incurred due to barter arrangements whereby she paid back to Gazprom by supplying construction materials to Russia’s Ministry of Defense in mid-90s]. I am asking myself: are Ukrainians really so stupid that they turned down gas at $50 for a thousand CBM choosing instead to buy it at $300? Or is Tymoshenko that stupid? No. Therefore, there must have been another reason that made her do it. Right after the gas agreements were signed in Moscow, her criminal case was lifted, she was deleted from the Interpol’s wanted list and her liens were written off. Ukraine meanwhile borrowed $16 billion from IMF and paid virtually all of this money to Gazprom.
 
— Why would Gazprom want such a sophisticated combination?
 
— They needed to oust me. If it were Gazprom ousting me, they would have ended up in courts of arbitration. They realized that I would have been after them claiming some $12-15 billion [worth of lost profit]. So, they pulled off a special operation putting Tymoshenko at gunpoint. As a matter of fact, it was she rather than Gazprom who terminated the RUE contract leaving Ukraine stripped of gas in 2009. It was she who wrote a bunch of letters to Gazprom pledging that she wouldn’t buy gas from RUE. It was she who had answers ready to any question. Gas  scandal – more than happy, the decision is ready. Pipe expansion – be my guest. UGSF – you are most welcome. Export – my pleasure. We wanted to continue growing. After all, the initial intention was to keep RUE up and running for 28 years. That’s what was written down in documents. But in the end, Gazprom reaped the profit twice: receiving dividends as a stockholder and earning revenues from additional gas sales to Ukraine as a transitor. Ukraine obtained gas at the price below the market price. And the check after this “party” was paid by RUE.