09/12/2010 Interview magazine "Focus"

Mister F

One of the least publicly known businesspeople in the country has decided to emerge from the shadows. The owner of Group DF talked to Focus about Yulia Tymoshenko’s war against him,  the hidden stories behind the gas deals between Russia and Ukraine, and his friendly relationships with representatives of the current Ukrainian government.
   
The office of Dmitry Firtash’s company is located on the 31-st floor of the prestigious Parus Business Centre in the capital of Ukraine. The most enigmatic businessman in Ukraine literally spends every day in the clouds. He has already become a legend in Ukrainian business and politics, albeit a controversial one. The owner of Group DF, which includes a whole range of chemical and titanium companies, is mainly known for his company RosUkrEnergo (RUE), which has been an active participant in gas deals between Russia and Ukraine for some considerable time.
 
The bearded man stands up from a good leather arm-chair and introduces himself without any ceremony as ‘Dima’. He’s friendly and quite sincere. During the conversation, Dmitry Firtash admitted that he never likes to give interviews. However, as he was forced to protect his name, in 2009 he first appeared in a TV studio, and now he has decided to take up a public position for the first time in his life.
 
- Can the fact that you’ve become the Head of the Joint Employer’s Movement of Ukraine, as well as the Co-chairman of the National Tripartite Social and Economic Council under the President of Ukraine, be regarded as your first step into public politics?
 
- I am not involved in politics - this is a public position. The Joint Employer’s Movement allows me to protect the interests of Ukrainian businesses and my own interests. By my own interests I mean the interests of my companies and factories, along with interests of the tens of thousands of people who work with me. Remember the situation with Rivneazot during the premiership of Yulia Tymoshenko (in 2009 the Ex-Prime Minister ordered to stop supplying natural gas to the plant - Focus). The plant was shut down for several months, but we kept paying salaries during all that time, as it was important to help the team to survive. And at that time we received a lot of support from employers’ associations, something I’m grateful for. The situation was very complicated as it was disadvantageous, from a politician’s point of view, to support me. But they believed that such things could not be allowed to happen. They understood that in the end, Tymoshenko’s war was not against me, it was against the people. What about Rivneazot? It has over 4,000 workers, it’s the main employer and the mainstay of the entire city. This is why I always say that whatever the company is called or wherever it is based, it is the people who are really important. I value people, because with people by your side you can achieve anything. Without people, without a team, you are nothing.
 
- Yulia Tymoshenko fought a real war against you. Can you explain the reason behind this conflict, because the public is still unaware of the intricacies of your relationship?
 
- I have never had any relationship with Tymoshenko. People who have worked by my side for many years couldn’t find any explanation as to why she targeted me and not someone else. I’m not her political rival, I’ve never had any business dealings with her, or any dealings related to money.  Let me tell you how I see it.
I think Tymoshenko is a failed businesswoman, and a failed politician. I’m convinced, and I have previously told her, that sooner or later she will end up badly. Everyone involved with her ends up badly. Just look at Pavlo Lazarenko (Prime Minister of Ukraine in 1996-1997 imprisoned for financial fraud – Focus). But Tymoshenko herself always seems to evade liability, as someone else is always held responsible. People seem to forget this, but as a matter of fact in 2005 Tymoshenko became the Prime Minister while she was still on the Interpol wanted list. She was afraid, and in deep trouble. The whole country knew about this. Tymoshenko made money out of Ukraine. And the country paid her debts. As you might remember, together with Lazarenko, they incurred debts of around US$ 2 billion, of which sum practically half was her debt.
 
- What do you mean by “her debt”?
 
- Even though Tymoshenko was called the “Gas Princess”, she knew as much about natural gas as I know about medicine. Her understanding was limited to devising a fraudulent scheme together with Lazarenko, under which the whole country had to pay them. She abused her authority to boost her business. Tymoshenko’s United Energy Systems of Ukraine (UESU) had total control over natural gas supplies to Ukraine, which employed controversial barter schemes. These schemes resulted in UESU amassing immense debts to GazProm. Thanks to Prime Minister Lazarenko these debts were secretly transferred to Ukrainian enterprises and Naftogaz National Joint-Stock Company, thus defrauding millions of people. They secretly signed the documents which turned the debts of UESU - a private company - into state debts. As regards myself, I think that Tymoshenko had to get rid of her negative image of the “Gas Princess”. And for this she needed to project this negative image upon someone else. It’s like shouting “catch the thief!” when you want to escape. I’m not sure whether she achieved anything by it. But I definitely know the difference between the two of us: the truth is on my side, while it has never been on her side. And I’m totally convinced that when the truth is on your side you will succeed.
 
During the 90-s, Dmitry Firtash developed his business employing the “gas in exchange for goods” scheme, which was common at that time, by arranging food supplies to Turkmenistan. In 2001, he founded EuralTransGas and soon secured control over supplies of Turkmen natural gas to Ukraine.
 
- You are talking about Tymoshenko’s schemes here, but EuralTransGas also employed barter schemes, didn’t it?
 
- I would like to remind you that in 1990 we were all basically left on the streets. There was no country, no flag, no anthem… Nobody needed us. Everyone had to take care of themselves. I used to buy and sell things, just like everyone else out there. If I told you that I came to Moscow with 100 dollars in my pocket, would you believe me? But I did. And all the major businessmen of today were just like me. Some were selling tickets, some were selling other things. But, as opposed to Tymoshenko, I did not have the support of the state machine behind me. At the end of the 1990s, Igor Bakai, Igor Makarov with his Itera (Chairman of the Board of Itera Oil and Gas Company, LLC – Focus) and Tymoshenko with her UESU had already divided the map of Ukraine between the three of them. I had nothing to do with these people. I did not deal in natural gas until 2001.
 
- And what about food supplies to the Central Asia in exchange for gas?
 
- When I supplied goods to Turkmenistan, I didn’t deal on the natural gas market. I was close to it, but not directly in it. I dealt with food supplies.
 
- Tymoshenko repeatedly accused you of having connections with Semion Mogilevich, who is deemed to be an organized crime boss. Right before this interview, WikiLeaks published a report by the US Ambassador in which you confessed that you know this man. What kind of a connection do you have with him?
 
- In fact, Mogilevich is not my problem. He is Tymoshenko’s biggest problem. Who brought this story up? Tymoshenko and Makarov did. They were two allies who clearly understood who they were dealing with. When Itera’s director was murdered in Kyiv, Lazarenko was the Prime Minister, and UESU was fighting Itera at that time. In 2005, Tymoshenko came to power and devised this entire story about me being “Mafia” and with Mogilevich. If I had been connected with Mogilevich then why were all the records on Mogilevich destroyed when Tymoshenko became the Prime Minister and Turchynov became Chairman of the Security Service of Ukraine? Evidently these documents contained information on all the places of secret meetings, all the agreements, some wiretaps, etc. It’s obvious that I wasn’t mentioned in those documents. And I couldn’t have been, because I was still a lower profile businessman at that time. I looked to earn a hundred thousand dollars, while they were already selling gas for billions of dollars.
 
In recent history, Ukraine underwent two gas crises. The first one happened in the winter of 2005-2006, when Russia announced the transition to market prices for gas. The second one happened in the winter of 2008-2009, when direct deals between Moscow and Kyiv resulted in the removal of RosUkrEnergo (RUE) from the gas market.
 
- Perhaps you wouldn’t argue over the fact that in January 2009, when RosUkrEnergo was removed from the gas market, Putin sided with Tymoshenko, would you? Your exclusion from the gas schemes would not have been possible without the approval from Kremlin.
 
- Putin is not a businessman. He doesn’t buy or sell things; he is a politician. In fact, it was not Putin helping Tymoshenko. It was Tymoshenko helping GazProm. The most important point here is that while RUE was active it was impossible to apply political pressure on Ukraine through gas supplies. GazProm and Ukraine did not have direct agreements. If we had any conflict, then who would GazProm fight against? It would fight against RUE. What was RUE’s main strength? We and GazProm had equal 50 - 50 shares. If I didn’t want to sign something, no matter how hard they tried, they couldn’t go against me. And the same is true for them. I was aware of who I was dealing with. If you are up against the government, it is virtually impossible to win the fight. I knew that my strength was in the documents and in the law. The shareholding agreement with GazProm was governed by English law. If GazProm had terminated even one contract with RUE, I would hate to think how much they would have had to pay me in penalties. So they had to find another way in which they could terminate these agreements.
 
- Why did GazProm want to remove RUE from the market?
 
- The contracts with RUE were valid through 2027. Who benefited from those contracts? It was definitely Ukraine. Under these contracts, Ukraine received guaranteed volumes of Central Asian gas – 62 billion cubic meters per year, through 2027. Let’s not forget that at that time the global financial crisis was at its worst, and GazProm reduced natural gas production by 140 billion cubic meters. Do you think it happened because they lived too well? Or because Russia reduced its domestic consumption? No, it happened because of the reduction in exports. It was understood that Ukraine would not pay more than the price of 180 dollars per one thousand cubic meters. RUE had all the contracts in place to sell natural gas from Turkmen, Uzbek and Kazakh origins. And GazProm had to sell its own natural gas somewhere.
Ukraine is a huge market. It imports 50 billion cubic meters of natural gas per year. Normally Ukraine consumes 75 billion cubic meters per year. 20 billion are produced domestically and the rest is imported. Now, what did Tymoshenko do? She blocked RUE’s international activities. She ordered the Ministry of Economic Affairs to forbid Naftogaz to make any payments to me and to buy gas from me. I couldn’t import gas into Ukraine, and couldn’t export it from Ukraine. The supplies stopped completely. Tymoshenko went to Moscow and came back with a direct agreement with the price of 375 dollars! And this was when Germany paid only 265 dollars per one thousand cubic meters. And the penalty for not purchasing the contracted amount of gas was 300 percent! This was ridiculous, unbelievable! It should have never been signed! Everything written in that contract was exactly what GazProm needed. There was absolutely nothing in the interests of Ukraine there. One more example: Ukraine was responsible for pumping gas into the storage facilities. Let me remind you that before Tymoshenko signed those agreements, gas pumping was the responsibility of GazProm or RUE, and these companies incurred all the costs. Gas output and system pressures were also the responsibility of these companies. And this costs a lot of money. In addition, GazProm had no obligations with regards to how much natural gas should be pumped through the territory of Ukraine. Tymoshenko did not fight against me. By getting herself out of her own trouble, she effectively fought against Ukraine. Tymoshenko was in a situation where she had to carry out the will of others. And as a result of this she did enormous harm to Ukraine.
 
- Why were such agreements signed?
 
- Remember when Tymoshenko became the Prime Minister in 2005. Her first announcement was that Ukraine should not buy cheap natural gas; Ukraine should buy it at the same prices as the rest of Europe. At that time, Ukraine had the contract to buy natural gas for 50 dollars per one thousand cubic meters until the end of 2009. So we could have been buying gas for that price up until the beginning of 2010. But in 2005, Tymoshenko terminated all those agreements. What for? To release GazProm from their obligations to sell gas for 50 dollars per one thousand cubic meters until the end of 2009. During his term at the office, President Kuchma had tied GazProm with these obligations as tightly as possible.
These obligations were disadvantageous for Russia. And a disadvantage for Russia is an advantage for Ukraine. Our country was getting cheap gas. This was of great significance, as the chemical and metallurgy sectors heavily depend on natural gas prices. These sectors of Ukraine’s economy are heavily export-oriented, so the cheaper the gas we get, the more competitive we are in Europe. So the question is: was it worth canceling these agreements? Absolutely not! But Prime Minister Tymoshenko terminated the contracts which were making Ukraine stronger. I want to remind you again that Yulia Tymoshenko was on the Interpol wanted list. In 2005, she became the Prime Minister and terminated the abovementioned agreements. And instantly after that, Russia wrote off a 600 million dollar debt of UESU, and also released some Russian generals imprisoned in connection with Tymoshenko’s case. Why did they do that? They did it because Tymoshenko terminated all the gas contracts, and from the fourth quarter of 2005, Ukraine bought gas at the same price as the rest of Europe.
 
- But it was thanks to this gas crisis that RUE entered the natural gas market. How did it happen?
 
- 2005 was coming to an end. Ukraine voluntarily gave up all the arrangements it had, and didn’t sign anything to replace those arrangements. The price of oil was increasing, which in turn raised natural gas prices to as high as 300 dollars per one thousand cubic meters. Russia had no obligations to Ukraine and GazProm didn’t have any contract in place with our country. The scandal was breaking out. Was this beneficial for Tymoshenko? Apparently it was. Had Yushchenko lost this fight and had GazProm stopped the gas supplies, he would have been carried out of his office feet first and would have become a political corpse. Who else would have benefited from this? Apparently GazProm, as Yushchenko didn’t fit in with them;  he was a burr under their saddle. Then the arguments started. RosUkrEnergo had nothing to do with anything that happened. We were supplying natural gas from Central Asia as we did before. Again, 2005 was coming to an end, and there were no new gas contracts for Ukraine. The risk that Ukraine’s gas supply would be cut off was growing ever stronger.
At that moment, RosUkrEnergo was the only company which could lend its shoulder to Ukraine. RUE had valid contracts for natural gas supplies and transit. Obviously, as I am a Ukrainian and do business in this country, I was not indifferent to the situation. I have invested a great deal of money in Ukrainian industry. Negotiations over the new contracts were tough. We didn’t need this war, even at the cost of losses. We took the decision that RUE would subsidize Ukraine from the money it earned from selling gas to Europe. I shared my money with Ukraine. This helped our country avoid the crisis, but also allowed for normal operation of my industrial enterprises. However, Tymoshenko had sold the national interests of Ukraine in exchange for getting herself out of trouble. Her next step was in 2009, and this time the consequences for Ukraine were even worse.
 
- What do you mean?
 
- I mean the unreasonably high natural gas prices for Ukraine which resulted in both the general public and industry having to pay much more. In addition to that, Tymoshenko forced Ukraine into international legal proceedings. The damages involved amounted to more than $5 billion. The Stockholm arbitrators were asking: at what price does the cost of gas have to be compensated? And the gas price for Ukraine at that moment was 450 dollars per one thousand cubic meters. It was clear the price that Naftogaz had to pay for compensation. But I did not ask for financial compensation. I repeat once again that my position is very clear. I am not an altruist, but I’m a citizen of Ukraine and I invest in Ukrainian industry. I care about the country and the people I work with. Therefore the only acceptable solution was to compensate in natural gas.
 
During the 2009 gas war, Yulia Tymoshenko seized 11 billion cubic meters of natural gas from the underground storage facilities and transferred it to the balance of Naftogaz by the scheme of reassigning the RUE debt to GazProm. RUE was the owner of this gas. The company filed a suit against Naftogaz to the Arbitration Institute of the Stockholm Chamber of Commerce and won the case at the beginning of 2010.
 
- Please explain the agreements with Naftogaz and GazProm with regards to the natural gas volumes which should be returned? Where will this gas be transferred to?
 
- The Stockholm Chamber of Commerce ruled that everything should be restored to the initial position with regards to the payments and expenses. RUE owed $1.7 billion to Naftogaz for the underground storage, and this has already been returned. Moreover, RUE paid Naftogaz an additional $450 million for gas transportation and underground storage for the period when the practically stolen gas was in the underground storage facilities but RUE could not use it. So Naftogaz even received an additional $450 million. In the end, Naftogas got $1.7 billion plus $450 million, so in total, RUE paid Ukraine $2.15 billion. This also enabled Naftogaz to buy from GazProm the necessary amounts of gas at the discounted price of $230 per one thousand cubic meters. RUE also paid $810 million to GazProm. Naftogaz has to return to RUE 12.1 billion cubic meters of natural gas. In addition to that, Gazprom signed a five-year contract with Naftogaz covering natural gas transit, and has already made a pre-payment. In this way, Ukraine made GazProm commit to a certain amount of gas for transit. Now if GazProm gives Ukraine less than 112 billion cubic meters per year for transit, Ukraine will receive compensation. Ukraine will receive not 80 billion cubic meters, but 112 billion for transit. So you can see that Ukraine has actually gained as a result of this settlement.
Ukraine has secured its gas balance and received a large sum of money. As a result, Naftogaz did not suffer any losses, and Ukraine obtained cheap gas. In addition, Ukraine received the payment for the underground gas storage and secured a guaranteed annual transit of 112 billion cubic meters for 5 years – which Tymoshenko failed to get with her 2009 gas contracts. So I consider this to be a perfect deal for Ukraine.
 
- So does that mean that RUE has now completely gone out of the gas business?
 
- That’s correct.
 
- When Tymoshenko speaks about the gas conflict, she mentions not only you, but also the Head of the Presidential Administration Sergii Liovochkin, the Chairman of the Security Service of Ukraine Valerii Khoroshkovskyi and the Fuel and Energy Minister Yurii Boiko. Please talk about your relationships with these people?
 
- Let’s begin with Valerii Khoroshkovskyi. In January 2009 he was the Head of the State Customs Service of Ukraine. I know that when Tymoshenko requested customs clearance from him for the gas that was seized from RUE, he told her one simple thing: “It’s a criminal offense. And Firtash has nothing to do with it. I would rather resign”. And that’s exactly what he did. Khoroshkovskyi did not protect me. But he stood by his principles and beliefs.
 
- However Khoroshkovskyi protected you later when he became the First Deputy-Head of the Security Service of Ukraine.
 
- He said to Tymoshenko, publicly, that property rights may not be violated. Tymoshenko can fight Firtash or whoever she wants. But one may not create the precedent of property seizure by counterfeiting documents. Khoroshkovskyi realized that this country would be worth nothing after such actions by the Government. And many other people were aware of that as well. Tens, even hundreds of people have invested a lot of money into this country, into their businesses in Ukraine. And for all of us it’s important that Ukraine is worth something. Meanwhile, Tymoshenko doesn’t care about that at all, because she has not invested a single penny into Ukraine. So there’s a huge difference between Tymoshenko and us. We invest our money here and we live here.
 
- What about your relationships with Liovochkin?
 
- I have a good relationship with him. We have been friends for many years.
 
- Is it true that you had common business with Yurii Boiko?
 
- It’s not true. I met him only after he had been appointed Chairman of Naftogaz. And you won’t believe me if I told you where I met him – at the office of the Deputy Prime Minister of Turkmenistan. Back then, I used to spend around three weeks every month in Turkmenistan or in other Central Asian countries. I basically lived there. And I was earning my money there. I wasn’t sitting in a cafe somewhere in Moscow or in Kyiv. I was in the fields and sands. And I had never seen Boiko before that day. In a few words, I got a call and was asked to drop by. So I came into the room and the Deputy Prime Minister of Turkmenistan said: “Please meet the Chairman of Naftogaz from Ukraine”. I saw a very serious young man standing in front of me. And he gave me such a frowning look, that I even asked him jokingly: “Do I owe you something?” That was how I met him for the first time.
 
The recent Presidential Elections strengthened Dmitry Firtash’s positions, at least in economic terms.
In August 2010 he acquired the major chemical concern ‘Stirol’ from Mykola Iankovskyi, the ‘Party of Regions’ MP.
 
- What does this acquisition bring to you?
 
- This decision was made in very hard times. In 2009, Prime Minister Tymoshenko raised the gas price for Ukraine’s chemical industry, but she didn’t set any duties to protect national producers. As a result, the Ukrainian market was flooded with Russian imports. So we, major chemical companies’ owners, met to discuss this situation and jointly decided that we would subsidize our own companies. This would mean every one of us would lose 3 to 5 million dollars per month. Otherwise, we would have to sell the all factories for scrap. In this way, we protected our country and the people who worked with us. And that’s how we held out for the whole of 2009. Ukrainian chemical enterprises managed to survive, but Russia still grabbed a 35 percent share of the domestic chemicals market. Unfortunately, not all of us could afford to subsidize their companies. At that time the major Russian holding company ‘Suburb’ was interested in acquiring ‘Stirol’. But we had to protect the domestic market. I made a higher bid for ‘Stirol’ and acquired this company. It was obvious for me that we needed to increase our production capacities and consolidate those enterprises which could not withstand the economic strain on their own. As a result, Ukraine is becoming a major player on the global chemicals market, and the outlook is really positive.
 
Besides his nitrogen chemistry business, Firtash also runs his titanium business. For a number of years, there has been talk of the need to establish a unified titanium holding company based on a public-private partnership principle. It now seems that Firtash will finally bring these plans to fruition.
 
- Do you have plans to establish a titanium holding company together with the Government?
 
- Presently this is the situation on the global titanium market. Russian companies are major players, but they don’t have their own raw materials base in Russia. Well, as a matter of fact they do, but the amount of money they would need to develop it would be out of this world. So Russians get all of their raw materials from Ukrainian mining and enrichment plants. Here’s another example for you. We’ve completed construction of the Mezhyrichenskyi Mining and Enrichment Complex and launched it in October 2010. But we hadn’t been able to launch it for two years, because the Cabinet of Tymoshenko held up the necessary land allotment. Because of that, I had to bring ilmenite from Africa to supply my plants! Needless to say, it is not beneficial for Russia’s titanium industry if Ukraine becomes a major player on the global titanium market.
There is a number of titanium industry assets in the state ownership in Ukraine. Let me give you a short overview of the current state of these enterprises, so that you have a better picture. The ‘Sumykhimprom’ company has UAH 1.2 billion of debts; the quality of its products is not good enough, and the whole enterprise is nearly finished. The same with the ‘Zaporozhye Titanium and Magnesium Combine’ (‘ZTMC’): it has UAH 800 million of debts; it produces 8 thousand tons of titanium sponge, half of which should be scrapped because of its low quality. Now let’s have a look at the ‘Crimea Titan’ company, where the shareholders are myself and the state. This enterprise currently produces 105 thousand tons of titanium dioxide per year, and in the near future we plan to reach 140 thousand tons. The quality of our products is ideal. When I came to this enterprise, it produced only 40 thousand tons per year. So I brought in 7 experts from Europe, and they studied the situation at the enterprise and developed a plan. To get this enterprise up and running I needed to invest US$ 300 million. I invested the money, we started manufacturing high quality products and, as a result, ‘Crimea Titan’ grabbed its market share. Today, it’s impossible to create a viable titanium holding company without my enterprises (the ‘Crimea Titan’ and its mining and enrichment subsidiaries). Obviously it’s impossible without the state-owned enterprises as well, but these enterprises require huge investments first. Even though we’ve had the mining and enrichment facilities on loan from the state, we’ve still invested hundreds of millions of UAH.
Speaking about plans, the whole titanium program requires 2 to 2.5 billion dollars of investment. 450 million dollars should be invested in the ‘Stremygorodske’ deposit in Zhytomyr alone. We want ‘Sumykhimprom’ to increase its production to 160 thousand tones of titanium dioxide per year. We plan to modernize the old 40 thousand tons per year production line, and also to install two new lines producing 60 thousand tons each. At ‘ZTMC’ we want to produce 24 to 30 thousand tons of titanium sponge and 180 to 200 thousand tons of titanium slag per year. We are in negotiations to acquire titanium assets in Europe, which would help us get a foothold on the European markets. We are also considering a titanium project in India. I want to become a major player on the global titanium market, and I want to make Ukraine a major player.