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UKRAINE'S EX-MINISTER OF FUEL AND ENERGY GOES DOWN WITH ALL GUNS BLAZING
Zerkalo Nedeli, Kiev, in Russian
March 6, 2004
The sacked Ukrainian fuel and energy minister, Serhiy Yermilov, has
said he has fallen victim to a smear campaign and the pressure his
opponents put on President Leonid Kuchma to dismiss him. Speaking in a
newspaper interview, Yermilov rejected poor performance as the
reasoning behind the sacking, saying a similar plot was carried out in
December 2003 against the then deputy prime minister for fuel and
energy, Vitaliy Hayduk. He also rejected accusations of misuse of
funds levelled at his ministry by auditing bodies, saying he had
refuted every charge in correspondence with the presidential
administration and at meetings in the government and parliament. Like
Hayduk, Serhiy Yermilov is a staunch proponent of using the
hotly-contested Odessa-Brody pipeline to transport Caspian oil to
Europe in order to reduce Ukraine's dependence on Russian fuel. The
following is the text of the interview Yermilov gave to journalist
Tetyana Sylina, published by independent Ukrainian weekly Zerkalo
Nedeli on 6 March under the title "Serhiy Yermilov: 'There should be
no chiefs in national companies who demean themselves and the country
by their actions'"; subheadings have been inserted editorially:
(Sylina) The news that the president had decreed the dismissal of
Serhiy Yermilov from his post as fuel and energy minister came through
when this edition of Zerkalo Nedeli had been virtually made up. But we
had interviewed the ex-minister the day before he was fired. We
urgently telephoned Mr Yermilov and managed to supplement the copy we
had already with a few words commenting on his dismissal. In terms of
the number of reports "from reliable sources" about his supposedly
impending dismissal and by the length of time with which such rumours
circulated, Fuel and Energy Minister Serhiy Yermilov was, undoubtedly,
in the champions' league in this form of Ukrainian political knock-out
competition. But the drip wears away the stone, and what certain
persons and companies had dreamt of for so long and worked on for so
long has finally happened.
Yermilov asked "tricky" questions before dismissal
Yermilov consistently champions Ukraine's European path of development
and supports several energy projects that will enable Ukraine to
diversify its energy supply sources, strengthen its economic
independence and become really closer to Europe.
Needless to say, this stance, adopted by the head of one of Ukraine's
key departments, could not fail to generate a fair number of enemies
both within the state and beyond its northeastern border. On the last
occasion before one, Yermilov was long and persistently being
"dismissed" just before the government's adoption of a laboured
decision to the effect that the oil inside the Odessa-Brody pipeline
would flow in the direction of Europe (rather than eastwards, as
suggested by some Russian companies).
But then last week the political temperature over the minister shot up
once again. Newspaper columns and Internet pages abounded in fresh
"accusations", amazingly similar in content (right down to stylistic
errors): this time, the Ministry of Fuel and Energy and its head
personally had been "compromised" by "a whole trunkload of violations"
that were said to be solidly supported by conclusions from the
Auditing Directorate and the Accounting Chamber. It was not important
that there had been some quite clumsy juggling with the facts and
figures. It looks as though Bankova Street (i.e. the presidential
administration) did not want to dig down to the truth - especially
since some rich and famous Russian visitors were there yet again last
week. And since, at a meeting of the government commission on the
Eurasian oil transport corridor on Thursday (4 March), Serhiy Yermilov
asked the following questions: what had happened to the money
transferred by the tax administration to the Naftohaz Ukrayiny
(Ukrainian Oil and Gas) national joint-stock company (VAT refunds)
that should have been used to purchase the process oil for the
Odessa-Brody pipeline? What offshore company is operating at the
Pivdennyy (Southern; the pipeline's Black Sea) terminal, and why that
company in particular? What curious document was signed by
Ukrtransnafta (Ukrainian oil transport company) with Russia's
Transneft (Russian oil transport company), and for what purpose? What
operator is working at Brody on the transfer of oil from the pipeline
to the railway? Let us note that these same questions were asked, just
before his dismissal (on 5 December 2003), by Vitaliy Hayduk, the
former deputy prime minister for the fuel and energy
sector... (ellipsis as published).
It only remains for us to observe that the owners of the offshore
companies, the heads of several national joint-stock companies and the
Russian "comrades" have won yet another victory. Over what? You will
learn this from the interview with ex-minister Serhiy Yermilov.
President pressurized into sacking Yermilov
Mr Yermilov, what lies behind the latest reports on yet another of
your "retirements" and behind the wave of negative comment that has
beset you from some of the media? You've got through the winter, and
the decision on the Odessa-Brody pipeline has been taken, so why have
they started to "fire" you again?
(Yermilov) People are impatient.
As for the wave of negative comment, I can say the following. We were
obliged to react to all these published items, so the ministry
collected all the material from the Auditing Directorate and the
Accounting Chamber and made a comparative table. We supplied every
paragraph and every point from the published material with data from
the actual Auditing Directorate and Accounting Chamber documents,
provided our explanations, and all this was conveyed to the
presidential administration on Tuesday (2 March).
(Sylina) Why to the presidential administration rather than, say, to
the Cabinet of Ministers?
(Yermilov) I'll explain. The aim of all these articles is to feed
certain information to the head of state and to pressurize him into
taking a personnel decision (on Yermilov's sacking). In the present
case, the Cabinet of Ministers has all the documents from the Auditing
Directorate and the Accounting Chamber and is obliged to react. But,
since no reaction followed, those who were behind the items began to
appeal to the head of state, who signs dismissal decrees. That was why
we conveyed the material we had prepared to the presidential
administration.
I would point out that all the items in the various publications were
produced from a single template. In journalistic circles, it's known
as a "temnyk" (a list of officially approved topics for media
coverage). Their source is also known approximately, but I won't
specify it now.
The data in the items regarding the Auditing Directorate documents and
the amounts quoted are much distorted. They do not reflect the real
state of affairs. Incidentally, the data do not even relate to the
period when I was in office, since material covering several years is
assembled there. Yesterday (Wednesday 3 March - Sylina) the
(parliamentary) budget committee considered financing and the
effective use of budget resources.
Its meeting was attended by representatives from the Auditing
Directorate and the Accounting Chamber. A budget committee decision on
the subject is being drawn up. At the meeting, I presented the
relevant information. According to the verification reports of the
Auditing Directorate and the Accounting Chamber for last year, there
was no inappropriate use of budget funds (in other words, violation of
Article 22 of the Budget Code) by the Fuel and Energy Ministry.
Incidentally, in March, the ministry is embarking on the full-scale
introduction of a wholesale market for power station coal and a new
principle for the pricing of both power station and coking coal, which
makes it possible to start to do without state support for production
costs from the second quarter onwards. This will substantially reduce
the risk of improper use of budget resources. I should like to stress
here that this risk of the improper or ineffective use of budget funds
can only be avoided if there is a complete rejection of them in the
future - which is what we are seeking to bring about, although there
is serious resistance to the process of restoring the coal industry to
economic health. I've spoken about that before.
Who is against? That, I think, is no secret to anyone: there's enough
information in the press. Primarily, there are the opponents of the
newly formed market for power station coal - Skhidenerho (Eastern
electricity company) and those who want to head the economic rescue
process for Dniproenerho (Dnieper electricity company) and are
prepared to bankrupt Tsentrenerho (Central electricity company) too
and the remnants of the secondary market, who are ready to trample on
everything even tomorrow.
It is particularly regrettable that, following Hayduk's dismissal,
that cohort of opponents includes the deputy prime minister for the
fuel and energy sector (Andriy Klyuyev) and the head of the National
Commission for Energy Regulation (Yuriy Prodan). It is regrettable
because a "split personality" between one's own business and state
interests is inadmissible. I am involved in a pointed discussion with
them, but so far the opposing side has presented no arguments. As
regards the coking group (of companies), we have, nevertheless,
managed to raise prices to the break-even level from March onwards,
including wage-arrears repayment schedules. The task also includes
bringing miners' base wages into line with the law.
(Sylina) But, as we can see, your arguments had no effect. Yesterday's
decree dismissing you was not another newspaper canard, but a
reality. Why did the dismissal actually happen?
(Yermilov) All the recent press articles created a necessary
background to secure this dismissal and to suspend the processes going
on in the ministry. This background has been created since August last
year. Special consultative councils of experts have been formed, and
the press has been "fed" (with the desired material). Vitaliy Hayduk
was removed against the same background. You probably remember the
comment made by the prime minister (Viktor Yanukovych) that the deputy
prime minister was dismissed for shortcomings in his work, etc. In
reality, it is not true. The fuel and energy sector has improved its
performance. In my case, the same scheme was used: a (negative) media
background was created for the signing of the (dismissal) decree. But
to me the arguments of my opponents are not convincing.
Yermilov accuses oil major of sabotage
(Sylina) As far as we know, you sent the prime minister a letter
suggesting that the director-general of the Ukrtransnafta open
joint-stock company, Stanislav Vasylenko, and his deputies should be
dismissed from their posts for sabotage and failure to carry out
government instructions. Could you specify what instructions they were
and whether the prime minister considered your letter and what
decision he took?
(Yermilov) There were very many instructions, including the prime
minister's own. They were about starting to implement the Eurasian oil
transport corridor project. For example, one of them was issued about
a year ago. The tax administration was to refund VAT to Naftohaz
Ukrayiny, and the company was supposed to use the money that had been
returned to purchase the process oil for the Odessa-Brody
pipeline. According to a tax administration report, the money was
returned and... (ellipsis as published) successfully squandered. Not a
single tonne of oil was bought. I would add that the VAT refund and
the repayment of Naftohaz Ukrayiny's debt to Ukrtransnafta alone would
have purchased 75 per cent of the process oil needed for
Odessa-Brody. The remaining 18m-20m dollars is not a problem and would
not prevent the project from being launched even as early as in
March. But, unfortunately, everything needs to be started from
scratch.
There is a mass of other examples. There is the experiment to pump
20,000 t of Ukrainian low-sulphur oil consecutively through the
operational Druzhba (Friendship) trunk pipeline system to Europe. Its
main purpose is to work out the ideal schedule for the pumping of
crude that differs in quality from the Russian Urals oil and to
determine standard processes for supplying light Caspian oil to Europe
via Ukraine. The experiment should be conducted by the
Ukrainian-Kazakh Trans-Yug oil transport company. It was set up
specially, by Ukrtransnafta among others, to develop the Odessa-Brody
project. We have already reached the stage in the project at which all
the actions need to be formalized. In other words, the specific head
of a specific company should sign specific contracts and embark on
specific action. But he doesn't do that. Instead there is a mass of
meetings and procrastination over drafting the requisite documents. It
is sabotage. This behaviour by the Ukrtransnafta management has a
negative effect on the Kazakhs' attitude towards the Odessa-Brody
project, and that may lead to a lack of the necessary crude oil. Our
European partners are also bemused.
(Sylina) So the prime minister had already considered your letter
describing the situation?
(Yermilov) Our prime minister is a good-natured fellow, and he gave
(Yuriy) Boyko (first deputy minister for fuel and energy and chairman
of the Naftohaz Ukrayiny board) and (chairman of the Ukrtransnafta
board, Stanislav) Vasylenko another chance to carry out the
instructions given them. They have already carried them out in
part. Money has been paid to PricewaterhouseCoopers for the latest
stage of the work. But we have still not settled up with the company
Energy Solutions, and it is preparing to sue Ukrtransnafta. That may
lead to further complications and will not add anything positive to
benefit the project.
Ukrtransnafta said to serve criminal and Russian interests
(Sylina) The president recently convened a conference on the fight
against organized crime and corruption, at which he drew attention to
criminal components in the operations of offshore companies, which
cause direct losses to the state. In that connection, how would you
comment on the information that an offshore company operates the
Pivdennyy terminal? How was an offshore firm allowed on to a Ukrainian
strategic facility?
(Yermilov) Yes, unfortunately, that is so. At a recent meeting in
Moscow, the Russians criticized us because they can't fill the
Prydniprovski (Dnipro) pipelines owing to the high cost of
transferring the oil (the charge had been raised to 14 dollars a
tonne) and because of middlemen.
So I sent the relevant documents to the Cabinet of Ministers,
requesting that the appropriate bodies should be instructed to carry
out a thorough check on this information. In addition, as head of a
government commission, I sent an inquiry on the subject directly to
Ukrtransnafta, which confirmed, at a sitting of the government
commission today (Thursday - Sylina), that it had switched over to
working exclusively with middlemen from 1 January this year.
Admittedly, since the information has been leaked, the charge has
already been lowered to 6 dollars. But the position of the Fuel and
Energy Ministry is unchanged: there should be no middlemen there, and
Ukrtransnafta should be the only oil transit operator.
(Sylina) In your view, is the agreement between Transneft and
Ukrtransnafta whereby the latter transferred its functions as operator
to the Russian monopoly in the national interests of Ukraine?
(Yermilov) Of course not. What is more, Transneft is acting as the
operator (or middleman) for the owners of Russian oil on Ukrainian
territory, and our Ukrtransnafta provides services to that
middleman. You must agree that this is not the most honourable role
for the Ukrainian monopoly oil transport company. Now Boyko and
Vasylenko, at whose bidding all this has been done, are sitting in
Moscow and trying to persuade Transneft to allow an experiment to be
carried out for the Eurasian oil transport corridor. You're absolutely
right: the minimum requirement is that the terms of the agreement must
be substantially revised, while the maximum requirement is that there
should be no chiefs in national companies who demean themselves and
the country by their actions.
(Sylina) Can you now say to whom the Odessa-Brody pipeline and the
Pivdennyy terminal will be transferred as a concession?
(Yermilov) Many different comments have been made on this subject
too. Speculation has even started. The proposals made by the MPs who
submitted to parliament a bill amending the law on concessions were
supported by the deputy prime minister for the fuel and energy sector
and by the government as an additional way of getting things
moving. In other words, if permission is granted for the Odessa-Brody
pipeline to be turned into a concession, the probable concessionaire
will have a prime interest in seeing that the pipe starts
operating. We regard the concession option only from that
viewpoint. We have put the relevant proposals both to our Russian and
to our Western partners. The matter has gone no further. Since
parliament has so far deferred the issue, we are working along the
lines of building up a partnership with the unitary state company that
will transport oil from Odessa to Brody.
Fuel and Energy Ministry still has role
(Sylina) Since the Energy Company of Ukraine was set up, some
observers have said that the Fuel and Energy Ministry is simply being
converted into a coal ministry. What will your ministry actually do,
given that, apart from Mr (Oleh) Dubyna's holding company (i.e. the
Energy Company of Ukraine), we now have both Naftohaz Ukrayiny and
Enerhoatom (the national nuclear energy company)?
(Yermilov) You have to read the president's decree approving the
statute on our ministry and the decree setting up that company. It is
then clear that our functions don't cut across one another
anywhere. In effect, the president's decree provides for blocks of
shares in the state energy supply and energy distribution companies to
be assigned to the national joint-stock company's (i.e. the Energy
Company of Ukraine's) authorized capital. In other words, a holding
company is being formed. It will manage corporate rights and earn its
income from that. It is, in effect, a financial holding company.
In 2003, our ministry had no corporate rights in management either. If
you remember, they were handed over to the State Property Fund by a
special decision at the beginning of the year. No-one was then saying
that the Fuel and Energy Ministry was being stripped of some of its
functions. It's the same now. Moreover, the national joint-stock
company is being given only state-owned blocks of shares, but there
are also some that are not owned by the state and which fall within
the jurisdiction of the Fuel and Energy Ministry. There are also
privatized companies. Who will ensure that state policy is being
implemented in the fuel and energy sector and ensure the state's
energy security? Who will draw up proposals to improve the economic
levers for stimulating the fuel and energy sector's development, and
help to form, regulate and improve the fuel and energy market?
I have always said that the ministry should become functional rather
than sectoral. In other words, the administrative and routine economic
functions should recede into the background, and more emphasis should
be laid on strategically important matters. In our country we lost a
great deal while "the fires were being put out". After all, we have
constant emergencies. Either we're preparing for the winter or we're
rescuing the coal industry. Or we're deciding how to pay our gas
debts. But strategically important matters have been neglected, since
there was no time to deal with them. We have allowed matters relating
to the development of market relations to slide. To some extent, they
already exist in the electricity industry, but in oil and gas we have
ended up with a supermonopoly. There is also a mass of other problems.
So, returning to your question, I would reply that I can't see any
contradictions here. Moreover, it will be far easier for the minister
to work if he realizes that there is one manager who is responsible
for the group of companies. Structuring of this kind has already taken
place in private companies.
The question is raised more by those who would themselves like to have
the power to manage the streams of finance and commodities.
Gas transport consortium is still in doldrums
(Sylina) Top-level Ukrainian-German consultations have taken place
recently. Were any decisions on a gas transport consortium taken in
Berlin? When will European participants be finally involved in setting
it up?
(Yermilov) (German gas company) Ruhrgas has declared verbally through
its representative in Ukraine that it intends to take part in the
first leg of the construction of the gas pipeline from Uzhhorod to
Bohorodchany (in Ivano-Frankivsk Region). There has still been no
official word on the subject from the German government.
(Sylina) How could it happen that the transporting of Turkmen gas to
Ukraine and the exporting of gas from Ukraine to Europe is being
effected by a company with a dubious reputation, registered, according
to media reports, by three unemployed Romanians in Hungary?
(Yermilov) Yes, articles are written about that, but there are no
documents. But who knows who (originally) owned the Itera corporation
(Russian gas operator)? It's also registered somewhere outside Russia.
In this situation, Naftohaz Ukrayiny's chief was evidently guided by
the criteria of possible benefit for the company. Certainly we got the
transport slightly cheaper, by some 2 per cent, than Itera was
offering. But Itera was obliged to sell, independently, all the gas
obtained as payment for the transit on the Ukrainian market. In that
way, first, we maintained the gas balance and, second, there was no
absolute monopoly. There was at least some competition in our
market. That's not the case today. As a result - for that reason among
others - the stocks of natural gas in the storage reservoirs have
declined by over 7bn cubic metres. In other words, while gaining in
one area, we have lost in another. On the one hand, the transit, the
delivery of gas, may have become marginally cheaper, but, on the
other, the state's energy security in the gas supply field has fallen
markedly. The president made a critical remark on the subject at a
recent meeting. So we shall react too.
Yermilov praises outgoing Russian government
(Sylina) But, in a situation in which Russian gas is being re-exported
at artificially low prices, how do the Russians themselves react?
After all, they are, effectively, incurring losses, since it would be
far more profitable for them to sell the gas themselves at the
European market price.
(Yermilov) According to the intergovernmental agreement, Ukraine has
to liaise with Russia over the amount of gas to be exported. All
unauthorized amounts are subject to additional duty. Agreement was
reached on some amounts, although Russia reacted quite sharply last
year to the exporting of gas from Ukraine and to its price. But
matters did not go so far as any specific sanctions.
(Sylina) But such sanctions can be imposed?
(Yermilov) Very easily - if there is any flagrant violation of the
terms of the agreements.
(Sylina) Do you think the dismissal of the (Mikhail) Kasyanov
government and the formation of a new cabinet (in Russia) will affect
Ukrainian-Russian cooperation in the energy field?
(Yermilov) Let's wait for the new government to be formed before
making any judgments. The dismissed Russian government was highly
professional. It operated over a very long period, and it managed to
do a great deal both in its country's economy and in relations with
other states. Progress can be seen in internal reform, there has been
a noticeable growth in the macroeconomic indicators and substantial
improvement has taken place in finances. So I don't think that the
president of Russia will allow the next government to be any less
professional. Current ministers will certainly form its
nucleus. Specifically, Deputy Prime Minister (Viktor) Khristenko will
probably not see his status reduced at the very least, and a whole
series of key ministers will retain their portfolios.
We can only envy the Russians as regards the stability within their
government. That makes it possible to implement long-term economic
programmes that raise the state to a higher economic and political
level.
Incidentally, this week Igor Yusufov (Russia's acting energy minister)
and I signed the joint electricity and crude oil balances for 2004 and
the Russian and Ukrainian joint crude oil balance up to 2020. These
are very important documents, and it's the first time they have been
signed. They provide an understanding of where we shall get our oil
from up to 2020, and they demonstrate a mutual interest in long-term
cooperation.
Energy strains within Single Economic Space
(Sylina) Last week saw the first anniversary of our being told that a
start was being made on forming the Single Economic Space (SES,
consisting of Russia, Belarus, Ukraine and Kazakhstan). How are the
affairs of the four progressing in the energy field? To judge from the
Russian-Belarusian gas conflict, the comrades are at loggerheads.
(Yermilov) We planned to hold a meeting of the four countries' energy
ministers within the SES framework in February, after a series of
bilateral talks. We have settled our relations with Kazakhstan and
with Russia too. We have no problems with Belarus, I have to say. The
Russian-Kazakh talks also passed off normally. I don't think that
Kazakhstan and Belarus have anything to carve up either. We were all
waiting to see how the Russian-Belarusian dialogue would end. It's
failed so far.
I don't think there's any energy problem there. Evidently, financial
matters are uppermost - a failure to pay for sources of energy. There
is an economic problem - a lack of agreement on pricing levels. I
think there are political factors too.
But the precedent cannot be exclusively bilateral. After all, you know
that Poland has suffered, and its government was on the brink of
resignation. The European Union has shown clear anxiety. The European
Commission hinted unambiguously that such action was inadmissible.
Incidentally, at the recent trilateral consultations between Ukraine,
Poland and the EU, we devoted over half the time, in fact, to the
diversification of energy supplies, the protection of domestic
interests and mutual work to reduce risk in energy supplies.
(Sylina) During the Belarusian-Russian (gas) conflict, Ukraine offered
to boost the transit of gas across its territory. Do you think that
was a fraternal action vis-a-vis Belarus? Or were we performing our
duty to Europe?
(Yermilov) We can't interfere in bilateral relations, and our gas
transit system belongs to everyone. We have ratified the treaty
attached to the energy charter and grant unimpeded access to the
transit of natural gas across our territory. At the recent trilateral
meeting, incidentally, it was stressed that Ukraine had not once
permitted the slightest disruption to the transport of gas to Europe
in 30 years (despite accusations from Russia several years ago). In
Europe, Ukraine is regarded as a reliable partner in this field. If we
had issued a refusal to Europe for political reasons - let's say, out
of a feeling of fraternal solidarity with Belarus - that would have
been wrong, especially since no-one had asked us to display any such
solidarity. Our gas transit system has spare capacity. In recent
years, we have invested quite a lot not only in maintaining its normal
technical state, but also in developing it. Equipment is being
replaced at pumping stations, we are even changing whole sectors that
give rise to concern and we are changing the automatic regulation
equipment. We have increased the reliability and have virtually
reached our gas transit system's designed throughput capacity. It is
not being used at full capacity even today. So, anyone who is able to
do so, please transport (gas through our system).
One can only hope that Belarus will settle its relations with Russia
as soon as possible and prove that it is a reliable partner, although
I think that Russia could have tried to resolve these matters through
negotiation rather than by turning off the taps. The image both of
Belarus and of Russia has suffered, and the countries of Europe have
begun to think even more about diversifying the sources of their
supplies of gas and other fuel.
Ukraine has edge over Russia in energy sector reform
(Sylina) Last autumn, Mr (Anatoliy) Chubays, the ideologist of Russian
"liberal imperialism", promised that the Unified Energy System of
Russia company (of which he is chairman of the board) would soon be
dealing with crisis management not only in Russia, but in Georgia,
Armenia, Ukraine and Kazakhstan too. So, have they resolved anything
in our country? And the second part of the question: recently Mr
Khristenko recalled that the lion's share of Ukraine's oil-refining
sector belonged to Russian companies and declared that the Ukrainian
electricity system was next. How do you see this latest possible
expansion of Russian capital into Ukraine?
(Yermilov) Let's leave Mr Chubays's comments to his own conscience. As
for management quality, I think that we are several years ahead of
Russia over this issue - in promoting market reform, in improving
relations between the entities involved, in transparency and so on. So
they ought to come here and learn from us. Even Chubays's deputies say
so. We have a whole group of privatized companies that are now
operating very efficiently. Yes, we trod a very hard path in shaping
the relations between the state and the owners of those
companies. There was a very difficult period in 1998-1999. But today
we can see the results. Wholesale market payments by the privatized
regional electricity distributors are running at a level of 100 per
cent. Investment is being made in these companies' development and
primarily in the electricity accounting system - in other words, in
energy saving and in boosting the reliability of power transmission
lines and substations. Last year, for the first time, we reversed the
tendency for commercial and technical losses in the power grids to
grow and reduced the losses by 1.3bn kWh. Translating that into coal
terms, for example, it represents a saving of some 600,000 t.
Russia, on the other hand, has spent several years discussing the
direction in which reform should go. Now that they've drawn up their
blueprint, they need several years to implement it. So I disagree with
Mr Chubays on this. Today there is only one respect in which we can't
compete with Russia - the cost of primary raw materials. If we were to
unify the price of gas and coal for our power stations, I think the
electricity sales pressure would be towards Russia (although we
operate today on the principle of a zero balance in electricity
transfers). When Russia discusses with possible future WTO partners
the terms for its entry to that organization, one of their main
conditions is the parity of internal and external tariffs. If the
Russians won't do that, it means they are pursuing an uncivilized,
no-competition policy towards their partners, including those in the
SES, which has to be seen as one of the stages for the WTO entry of
its members. If Ukraine joins the WTO first, it will have to apply WTO
norms to its SES partners too. The SES blueprint makes provision for
integration at different speeds and at different levels. So we say to
our partners in the SES: let us join the WTO first. But we immediately
find ourselves in an impasse, since, having joined that international
organization, we shall have to apply exactly similar criteria
straightaway to our SES partners.
Chubays was holding talks in Ukraine with minority private
shareholders in energy companies, but, according to my information,
they have decided against any such cooperation, since they do not see
anything attractive in it at the present time.
(Sylina) So Mr Khristenko somewhat exaggerated the capacity of Russian
capital to buy up the Ukrainian electricity system?
(Yermilov) There is a free market - the secondary market in corporate
rights and shares that can be bought today and tomorrow. Everything
has its price, after all. But, when a new owner wants to join as a
minority shareholder, he must offer something to his partners -
whether it be know-how, new management techniques or something
else. Otherwise he derives no benefit. He purchases a block of shares,
but control over the management lies with the state or with the owners
of the majority shareholding. I repeat that the Ukrainian private
shareholders rejected a minority holding in the Unified Energy System
of Russia, since they worked out that it was unprofitable for them and
ineffectual. As for the privatization of the state-owned blocks of
shares, that, according to the president's decree, is impossible.
Zerkalo Nedeli, Kiev, in Russian
March 6, 2004
The sacked Ukrainian fuel and energy minister, Serhiy Yermilov, has
said he has fallen victim to a smear campaign and the pressure his
opponents put on President Leonid Kuchma to dismiss him. Speaking in a
newspaper interview, Yermilov rejected poor performance as the
reasoning behind the sacking, saying a similar plot was carried out in
December 2003 against the then deputy prime minister for fuel and
energy, Vitaliy Hayduk. He also rejected accusations of misuse of
funds levelled at his ministry by auditing bodies, saying he had
refuted every charge in correspondence with the presidential
administration and at meetings in the government and parliament. Like
Hayduk, Serhiy Yermilov is a staunch proponent of using the
hotly-contested Odessa-Brody pipeline to transport Caspian oil to
Europe in order to reduce Ukraine's dependence on Russian fuel. The
following is the text of the interview Yermilov gave to journalist
Tetyana Sylina, published by independent Ukrainian weekly Zerkalo
Nedeli on 6 March under the title "Serhiy Yermilov: 'There should be
no chiefs in national companies who demean themselves and the country
by their actions'"; subheadings have been inserted editorially:
(Sylina) The news that the president had decreed the dismissal of
Serhiy Yermilov from his post as fuel and energy minister came through
when this edition of Zerkalo Nedeli had been virtually made up. But we
had interviewed the ex-minister the day before he was fired. We
urgently telephoned Mr Yermilov and managed to supplement the copy we
had already with a few words commenting on his dismissal. In terms of
the number of reports "from reliable sources" about his supposedly
impending dismissal and by the length of time with which such rumours
circulated, Fuel and Energy Minister Serhiy Yermilov was, undoubtedly,
in the champions' league in this form of Ukrainian political knock-out
competition. But the drip wears away the stone, and what certain
persons and companies had dreamt of for so long and worked on for so
long has finally happened.
Yermilov asked "tricky" questions before dismissal
Yermilov consistently champions Ukraine's European path of development
and supports several energy projects that will enable Ukraine to
diversify its energy supply sources, strengthen its economic
independence and become really closer to Europe.
Needless to say, this stance, adopted by the head of one of Ukraine's
key departments, could not fail to generate a fair number of enemies
both within the state and beyond its northeastern border. On the last
occasion before one, Yermilov was long and persistently being
"dismissed" just before the government's adoption of a laboured
decision to the effect that the oil inside the Odessa-Brody pipeline
would flow in the direction of Europe (rather than eastwards, as
suggested by some Russian companies).
But then last week the political temperature over the minister shot up
once again. Newspaper columns and Internet pages abounded in fresh
"accusations", amazingly similar in content (right down to stylistic
errors): this time, the Ministry of Fuel and Energy and its head
personally had been "compromised" by "a whole trunkload of violations"
that were said to be solidly supported by conclusions from the
Auditing Directorate and the Accounting Chamber. It was not important
that there had been some quite clumsy juggling with the facts and
figures. It looks as though Bankova Street (i.e. the presidential
administration) did not want to dig down to the truth - especially
since some rich and famous Russian visitors were there yet again last
week. And since, at a meeting of the government commission on the
Eurasian oil transport corridor on Thursday (4 March), Serhiy Yermilov
asked the following questions: what had happened to the money
transferred by the tax administration to the Naftohaz Ukrayiny
(Ukrainian Oil and Gas) national joint-stock company (VAT refunds)
that should have been used to purchase the process oil for the
Odessa-Brody pipeline? What offshore company is operating at the
Pivdennyy (Southern; the pipeline's Black Sea) terminal, and why that
company in particular? What curious document was signed by
Ukrtransnafta (Ukrainian oil transport company) with Russia's
Transneft (Russian oil transport company), and for what purpose? What
operator is working at Brody on the transfer of oil from the pipeline
to the railway? Let us note that these same questions were asked, just
before his dismissal (on 5 December 2003), by Vitaliy Hayduk, the
former deputy prime minister for the fuel and energy
sector... (ellipsis as published).
It only remains for us to observe that the owners of the offshore
companies, the heads of several national joint-stock companies and the
Russian "comrades" have won yet another victory. Over what? You will
learn this from the interview with ex-minister Serhiy Yermilov.
President pressurized into sacking Yermilov
Mr Yermilov, what lies behind the latest reports on yet another of
your "retirements" and behind the wave of negative comment that has
beset you from some of the media? You've got through the winter, and
the decision on the Odessa-Brody pipeline has been taken, so why have
they started to "fire" you again?
(Yermilov) People are impatient.
As for the wave of negative comment, I can say the following. We were
obliged to react to all these published items, so the ministry
collected all the material from the Auditing Directorate and the
Accounting Chamber and made a comparative table. We supplied every
paragraph and every point from the published material with data from
the actual Auditing Directorate and Accounting Chamber documents,
provided our explanations, and all this was conveyed to the
presidential administration on Tuesday (2 March).
(Sylina) Why to the presidential administration rather than, say, to
the Cabinet of Ministers?
(Yermilov) I'll explain. The aim of all these articles is to feed
certain information to the head of state and to pressurize him into
taking a personnel decision (on Yermilov's sacking). In the present
case, the Cabinet of Ministers has all the documents from the Auditing
Directorate and the Accounting Chamber and is obliged to react. But,
since no reaction followed, those who were behind the items began to
appeal to the head of state, who signs dismissal decrees. That was why
we conveyed the material we had prepared to the presidential
administration.
I would point out that all the items in the various publications were
produced from a single template. In journalistic circles, it's known
as a "temnyk" (a list of officially approved topics for media
coverage). Their source is also known approximately, but I won't
specify it now.
The data in the items regarding the Auditing Directorate documents and
the amounts quoted are much distorted. They do not reflect the real
state of affairs. Incidentally, the data do not even relate to the
period when I was in office, since material covering several years is
assembled there. Yesterday (Wednesday 3 March - Sylina) the
(parliamentary) budget committee considered financing and the
effective use of budget resources.
Its meeting was attended by representatives from the Auditing
Directorate and the Accounting Chamber. A budget committee decision on
the subject is being drawn up. At the meeting, I presented the
relevant information. According to the verification reports of the
Auditing Directorate and the Accounting Chamber for last year, there
was no inappropriate use of budget funds (in other words, violation of
Article 22 of the Budget Code) by the Fuel and Energy Ministry.
Incidentally, in March, the ministry is embarking on the full-scale
introduction of a wholesale market for power station coal and a new
principle for the pricing of both power station and coking coal, which
makes it possible to start to do without state support for production
costs from the second quarter onwards. This will substantially reduce
the risk of improper use of budget resources. I should like to stress
here that this risk of the improper or ineffective use of budget funds
can only be avoided if there is a complete rejection of them in the
future - which is what we are seeking to bring about, although there
is serious resistance to the process of restoring the coal industry to
economic health. I've spoken about that before.
Who is against? That, I think, is no secret to anyone: there's enough
information in the press. Primarily, there are the opponents of the
newly formed market for power station coal - Skhidenerho (Eastern
electricity company) and those who want to head the economic rescue
process for Dniproenerho (Dnieper electricity company) and are
prepared to bankrupt Tsentrenerho (Central electricity company) too
and the remnants of the secondary market, who are ready to trample on
everything even tomorrow.
It is particularly regrettable that, following Hayduk's dismissal,
that cohort of opponents includes the deputy prime minister for the
fuel and energy sector (Andriy Klyuyev) and the head of the National
Commission for Energy Regulation (Yuriy Prodan). It is regrettable
because a "split personality" between one's own business and state
interests is inadmissible. I am involved in a pointed discussion with
them, but so far the opposing side has presented no arguments. As
regards the coking group (of companies), we have, nevertheless,
managed to raise prices to the break-even level from March onwards,
including wage-arrears repayment schedules. The task also includes
bringing miners' base wages into line with the law.
(Sylina) But, as we can see, your arguments had no effect. Yesterday's
decree dismissing you was not another newspaper canard, but a
reality. Why did the dismissal actually happen?
(Yermilov) All the recent press articles created a necessary
background to secure this dismissal and to suspend the processes going
on in the ministry. This background has been created since August last
year. Special consultative councils of experts have been formed, and
the press has been "fed" (with the desired material). Vitaliy Hayduk
was removed against the same background. You probably remember the
comment made by the prime minister (Viktor Yanukovych) that the deputy
prime minister was dismissed for shortcomings in his work, etc. In
reality, it is not true. The fuel and energy sector has improved its
performance. In my case, the same scheme was used: a (negative) media
background was created for the signing of the (dismissal) decree. But
to me the arguments of my opponents are not convincing.
Yermilov accuses oil major of sabotage
(Sylina) As far as we know, you sent the prime minister a letter
suggesting that the director-general of the Ukrtransnafta open
joint-stock company, Stanislav Vasylenko, and his deputies should be
dismissed from their posts for sabotage and failure to carry out
government instructions. Could you specify what instructions they were
and whether the prime minister considered your letter and what
decision he took?
(Yermilov) There were very many instructions, including the prime
minister's own. They were about starting to implement the Eurasian oil
transport corridor project. For example, one of them was issued about
a year ago. The tax administration was to refund VAT to Naftohaz
Ukrayiny, and the company was supposed to use the money that had been
returned to purchase the process oil for the Odessa-Brody
pipeline. According to a tax administration report, the money was
returned and... (ellipsis as published) successfully squandered. Not a
single tonne of oil was bought. I would add that the VAT refund and
the repayment of Naftohaz Ukrayiny's debt to Ukrtransnafta alone would
have purchased 75 per cent of the process oil needed for
Odessa-Brody. The remaining 18m-20m dollars is not a problem and would
not prevent the project from being launched even as early as in
March. But, unfortunately, everything needs to be started from
scratch.
There is a mass of other examples. There is the experiment to pump
20,000 t of Ukrainian low-sulphur oil consecutively through the
operational Druzhba (Friendship) trunk pipeline system to Europe. Its
main purpose is to work out the ideal schedule for the pumping of
crude that differs in quality from the Russian Urals oil and to
determine standard processes for supplying light Caspian oil to Europe
via Ukraine. The experiment should be conducted by the
Ukrainian-Kazakh Trans-Yug oil transport company. It was set up
specially, by Ukrtransnafta among others, to develop the Odessa-Brody
project. We have already reached the stage in the project at which all
the actions need to be formalized. In other words, the specific head
of a specific company should sign specific contracts and embark on
specific action. But he doesn't do that. Instead there is a mass of
meetings and procrastination over drafting the requisite documents. It
is sabotage. This behaviour by the Ukrtransnafta management has a
negative effect on the Kazakhs' attitude towards the Odessa-Brody
project, and that may lead to a lack of the necessary crude oil. Our
European partners are also bemused.
(Sylina) So the prime minister had already considered your letter
describing the situation?
(Yermilov) Our prime minister is a good-natured fellow, and he gave
(Yuriy) Boyko (first deputy minister for fuel and energy and chairman
of the Naftohaz Ukrayiny board) and (chairman of the Ukrtransnafta
board, Stanislav) Vasylenko another chance to carry out the
instructions given them. They have already carried them out in
part. Money has been paid to PricewaterhouseCoopers for the latest
stage of the work. But we have still not settled up with the company
Energy Solutions, and it is preparing to sue Ukrtransnafta. That may
lead to further complications and will not add anything positive to
benefit the project.
Ukrtransnafta said to serve criminal and Russian interests
(Sylina) The president recently convened a conference on the fight
against organized crime and corruption, at which he drew attention to
criminal components in the operations of offshore companies, which
cause direct losses to the state. In that connection, how would you
comment on the information that an offshore company operates the
Pivdennyy terminal? How was an offshore firm allowed on to a Ukrainian
strategic facility?
(Yermilov) Yes, unfortunately, that is so. At a recent meeting in
Moscow, the Russians criticized us because they can't fill the
Prydniprovski (Dnipro) pipelines owing to the high cost of
transferring the oil (the charge had been raised to 14 dollars a
tonne) and because of middlemen.
So I sent the relevant documents to the Cabinet of Ministers,
requesting that the appropriate bodies should be instructed to carry
out a thorough check on this information. In addition, as head of a
government commission, I sent an inquiry on the subject directly to
Ukrtransnafta, which confirmed, at a sitting of the government
commission today (Thursday - Sylina), that it had switched over to
working exclusively with middlemen from 1 January this year.
Admittedly, since the information has been leaked, the charge has
already been lowered to 6 dollars. But the position of the Fuel and
Energy Ministry is unchanged: there should be no middlemen there, and
Ukrtransnafta should be the only oil transit operator.
(Sylina) In your view, is the agreement between Transneft and
Ukrtransnafta whereby the latter transferred its functions as operator
to the Russian monopoly in the national interests of Ukraine?
(Yermilov) Of course not. What is more, Transneft is acting as the
operator (or middleman) for the owners of Russian oil on Ukrainian
territory, and our Ukrtransnafta provides services to that
middleman. You must agree that this is not the most honourable role
for the Ukrainian monopoly oil transport company. Now Boyko and
Vasylenko, at whose bidding all this has been done, are sitting in
Moscow and trying to persuade Transneft to allow an experiment to be
carried out for the Eurasian oil transport corridor. You're absolutely
right: the minimum requirement is that the terms of the agreement must
be substantially revised, while the maximum requirement is that there
should be no chiefs in national companies who demean themselves and
the country by their actions.
(Sylina) Can you now say to whom the Odessa-Brody pipeline and the
Pivdennyy terminal will be transferred as a concession?
(Yermilov) Many different comments have been made on this subject
too. Speculation has even started. The proposals made by the MPs who
submitted to parliament a bill amending the law on concessions were
supported by the deputy prime minister for the fuel and energy sector
and by the government as an additional way of getting things
moving. In other words, if permission is granted for the Odessa-Brody
pipeline to be turned into a concession, the probable concessionaire
will have a prime interest in seeing that the pipe starts
operating. We regard the concession option only from that
viewpoint. We have put the relevant proposals both to our Russian and
to our Western partners. The matter has gone no further. Since
parliament has so far deferred the issue, we are working along the
lines of building up a partnership with the unitary state company that
will transport oil from Odessa to Brody.
Fuel and Energy Ministry still has role
(Sylina) Since the Energy Company of Ukraine was set up, some
observers have said that the Fuel and Energy Ministry is simply being
converted into a coal ministry. What will your ministry actually do,
given that, apart from Mr (Oleh) Dubyna's holding company (i.e. the
Energy Company of Ukraine), we now have both Naftohaz Ukrayiny and
Enerhoatom (the national nuclear energy company)?
(Yermilov) You have to read the president's decree approving the
statute on our ministry and the decree setting up that company. It is
then clear that our functions don't cut across one another
anywhere. In effect, the president's decree provides for blocks of
shares in the state energy supply and energy distribution companies to
be assigned to the national joint-stock company's (i.e. the Energy
Company of Ukraine's) authorized capital. In other words, a holding
company is being formed. It will manage corporate rights and earn its
income from that. It is, in effect, a financial holding company.
In 2003, our ministry had no corporate rights in management either. If
you remember, they were handed over to the State Property Fund by a
special decision at the beginning of the year. No-one was then saying
that the Fuel and Energy Ministry was being stripped of some of its
functions. It's the same now. Moreover, the national joint-stock
company is being given only state-owned blocks of shares, but there
are also some that are not owned by the state and which fall within
the jurisdiction of the Fuel and Energy Ministry. There are also
privatized companies. Who will ensure that state policy is being
implemented in the fuel and energy sector and ensure the state's
energy security? Who will draw up proposals to improve the economic
levers for stimulating the fuel and energy sector's development, and
help to form, regulate and improve the fuel and energy market?
I have always said that the ministry should become functional rather
than sectoral. In other words, the administrative and routine economic
functions should recede into the background, and more emphasis should
be laid on strategically important matters. In our country we lost a
great deal while "the fires were being put out". After all, we have
constant emergencies. Either we're preparing for the winter or we're
rescuing the coal industry. Or we're deciding how to pay our gas
debts. But strategically important matters have been neglected, since
there was no time to deal with them. We have allowed matters relating
to the development of market relations to slide. To some extent, they
already exist in the electricity industry, but in oil and gas we have
ended up with a supermonopoly. There is also a mass of other problems.
So, returning to your question, I would reply that I can't see any
contradictions here. Moreover, it will be far easier for the minister
to work if he realizes that there is one manager who is responsible
for the group of companies. Structuring of this kind has already taken
place in private companies.
The question is raised more by those who would themselves like to have
the power to manage the streams of finance and commodities.
Gas transport consortium is still in doldrums
(Sylina) Top-level Ukrainian-German consultations have taken place
recently. Were any decisions on a gas transport consortium taken in
Berlin? When will European participants be finally involved in setting
it up?
(Yermilov) (German gas company) Ruhrgas has declared verbally through
its representative in Ukraine that it intends to take part in the
first leg of the construction of the gas pipeline from Uzhhorod to
Bohorodchany (in Ivano-Frankivsk Region). There has still been no
official word on the subject from the German government.
(Sylina) How could it happen that the transporting of Turkmen gas to
Ukraine and the exporting of gas from Ukraine to Europe is being
effected by a company with a dubious reputation, registered, according
to media reports, by three unemployed Romanians in Hungary?
(Yermilov) Yes, articles are written about that, but there are no
documents. But who knows who (originally) owned the Itera corporation
(Russian gas operator)? It's also registered somewhere outside Russia.
In this situation, Naftohaz Ukrayiny's chief was evidently guided by
the criteria of possible benefit for the company. Certainly we got the
transport slightly cheaper, by some 2 per cent, than Itera was
offering. But Itera was obliged to sell, independently, all the gas
obtained as payment for the transit on the Ukrainian market. In that
way, first, we maintained the gas balance and, second, there was no
absolute monopoly. There was at least some competition in our
market. That's not the case today. As a result - for that reason among
others - the stocks of natural gas in the storage reservoirs have
declined by over 7bn cubic metres. In other words, while gaining in
one area, we have lost in another. On the one hand, the transit, the
delivery of gas, may have become marginally cheaper, but, on the
other, the state's energy security in the gas supply field has fallen
markedly. The president made a critical remark on the subject at a
recent meeting. So we shall react too.
Yermilov praises outgoing Russian government
(Sylina) But, in a situation in which Russian gas is being re-exported
at artificially low prices, how do the Russians themselves react?
After all, they are, effectively, incurring losses, since it would be
far more profitable for them to sell the gas themselves at the
European market price.
(Yermilov) According to the intergovernmental agreement, Ukraine has
to liaise with Russia over the amount of gas to be exported. All
unauthorized amounts are subject to additional duty. Agreement was
reached on some amounts, although Russia reacted quite sharply last
year to the exporting of gas from Ukraine and to its price. But
matters did not go so far as any specific sanctions.
(Sylina) But such sanctions can be imposed?
(Yermilov) Very easily - if there is any flagrant violation of the
terms of the agreements.
(Sylina) Do you think the dismissal of the (Mikhail) Kasyanov
government and the formation of a new cabinet (in Russia) will affect
Ukrainian-Russian cooperation in the energy field?
(Yermilov) Let's wait for the new government to be formed before
making any judgments. The dismissed Russian government was highly
professional. It operated over a very long period, and it managed to
do a great deal both in its country's economy and in relations with
other states. Progress can be seen in internal reform, there has been
a noticeable growth in the macroeconomic indicators and substantial
improvement has taken place in finances. So I don't think that the
president of Russia will allow the next government to be any less
professional. Current ministers will certainly form its
nucleus. Specifically, Deputy Prime Minister (Viktor) Khristenko will
probably not see his status reduced at the very least, and a whole
series of key ministers will retain their portfolios.
We can only envy the Russians as regards the stability within their
government. That makes it possible to implement long-term economic
programmes that raise the state to a higher economic and political
level.
Incidentally, this week Igor Yusufov (Russia's acting energy minister)
and I signed the joint electricity and crude oil balances for 2004 and
the Russian and Ukrainian joint crude oil balance up to 2020. These
are very important documents, and it's the first time they have been
signed. They provide an understanding of where we shall get our oil
from up to 2020, and they demonstrate a mutual interest in long-term
cooperation.
Energy strains within Single Economic Space
(Sylina) Last week saw the first anniversary of our being told that a
start was being made on forming the Single Economic Space (SES,
consisting of Russia, Belarus, Ukraine and Kazakhstan). How are the
affairs of the four progressing in the energy field? To judge from the
Russian-Belarusian gas conflict, the comrades are at loggerheads.
(Yermilov) We planned to hold a meeting of the four countries' energy
ministers within the SES framework in February, after a series of
bilateral talks. We have settled our relations with Kazakhstan and
with Russia too. We have no problems with Belarus, I have to say. The
Russian-Kazakh talks also passed off normally. I don't think that
Kazakhstan and Belarus have anything to carve up either. We were all
waiting to see how the Russian-Belarusian dialogue would end. It's
failed so far.
I don't think there's any energy problem there. Evidently, financial
matters are uppermost - a failure to pay for sources of energy. There
is an economic problem - a lack of agreement on pricing levels. I
think there are political factors too.
But the precedent cannot be exclusively bilateral. After all, you know
that Poland has suffered, and its government was on the brink of
resignation. The European Union has shown clear anxiety. The European
Commission hinted unambiguously that such action was inadmissible.
Incidentally, at the recent trilateral consultations between Ukraine,
Poland and the EU, we devoted over half the time, in fact, to the
diversification of energy supplies, the protection of domestic
interests and mutual work to reduce risk in energy supplies.
(Sylina) During the Belarusian-Russian (gas) conflict, Ukraine offered
to boost the transit of gas across its territory. Do you think that
was a fraternal action vis-a-vis Belarus? Or were we performing our
duty to Europe?
(Yermilov) We can't interfere in bilateral relations, and our gas
transit system belongs to everyone. We have ratified the treaty
attached to the energy charter and grant unimpeded access to the
transit of natural gas across our territory. At the recent trilateral
meeting, incidentally, it was stressed that Ukraine had not once
permitted the slightest disruption to the transport of gas to Europe
in 30 years (despite accusations from Russia several years ago). In
Europe, Ukraine is regarded as a reliable partner in this field. If we
had issued a refusal to Europe for political reasons - let's say, out
of a feeling of fraternal solidarity with Belarus - that would have
been wrong, especially since no-one had asked us to display any such
solidarity. Our gas transit system has spare capacity. In recent
years, we have invested quite a lot not only in maintaining its normal
technical state, but also in developing it. Equipment is being
replaced at pumping stations, we are even changing whole sectors that
give rise to concern and we are changing the automatic regulation
equipment. We have increased the reliability and have virtually
reached our gas transit system's designed throughput capacity. It is
not being used at full capacity even today. So, anyone who is able to
do so, please transport (gas through our system).
One can only hope that Belarus will settle its relations with Russia
as soon as possible and prove that it is a reliable partner, although
I think that Russia could have tried to resolve these matters through
negotiation rather than by turning off the taps. The image both of
Belarus and of Russia has suffered, and the countries of Europe have
begun to think even more about diversifying the sources of their
supplies of gas and other fuel.
Ukraine has edge over Russia in energy sector reform
(Sylina) Last autumn, Mr (Anatoliy) Chubays, the ideologist of Russian
"liberal imperialism", promised that the Unified Energy System of
Russia company (of which he is chairman of the board) would soon be
dealing with crisis management not only in Russia, but in Georgia,
Armenia, Ukraine and Kazakhstan too. So, have they resolved anything
in our country? And the second part of the question: recently Mr
Khristenko recalled that the lion's share of Ukraine's oil-refining
sector belonged to Russian companies and declared that the Ukrainian
electricity system was next. How do you see this latest possible
expansion of Russian capital into Ukraine?
(Yermilov) Let's leave Mr Chubays's comments to his own conscience. As
for management quality, I think that we are several years ahead of
Russia over this issue - in promoting market reform, in improving
relations between the entities involved, in transparency and so on. So
they ought to come here and learn from us. Even Chubays's deputies say
so. We have a whole group of privatized companies that are now
operating very efficiently. Yes, we trod a very hard path in shaping
the relations between the state and the owners of those
companies. There was a very difficult period in 1998-1999. But today
we can see the results. Wholesale market payments by the privatized
regional electricity distributors are running at a level of 100 per
cent. Investment is being made in these companies' development and
primarily in the electricity accounting system - in other words, in
energy saving and in boosting the reliability of power transmission
lines and substations. Last year, for the first time, we reversed the
tendency for commercial and technical losses in the power grids to
grow and reduced the losses by 1.3bn kWh. Translating that into coal
terms, for example, it represents a saving of some 600,000 t.
Russia, on the other hand, has spent several years discussing the
direction in which reform should go. Now that they've drawn up their
blueprint, they need several years to implement it. So I disagree with
Mr Chubays on this. Today there is only one respect in which we can't
compete with Russia - the cost of primary raw materials. If we were to
unify the price of gas and coal for our power stations, I think the
electricity sales pressure would be towards Russia (although we
operate today on the principle of a zero balance in electricity
transfers). When Russia discusses with possible future WTO partners
the terms for its entry to that organization, one of their main
conditions is the parity of internal and external tariffs. If the
Russians won't do that, it means they are pursuing an uncivilized,
no-competition policy towards their partners, including those in the
SES, which has to be seen as one of the stages for the WTO entry of
its members. If Ukraine joins the WTO first, it will have to apply WTO
norms to its SES partners too. The SES blueprint makes provision for
integration at different speeds and at different levels. So we say to
our partners in the SES: let us join the WTO first. But we immediately
find ourselves in an impasse, since, having joined that international
organization, we shall have to apply exactly similar criteria
straightaway to our SES partners.
Chubays was holding talks in Ukraine with minority private
shareholders in energy companies, but, according to my information,
they have decided against any such cooperation, since they do not see
anything attractive in it at the present time.
(Sylina) So Mr Khristenko somewhat exaggerated the capacity of Russian
capital to buy up the Ukrainian electricity system?
(Yermilov) There is a free market - the secondary market in corporate
rights and shares that can be bought today and tomorrow. Everything
has its price, after all. But, when a new owner wants to join as a
minority shareholder, he must offer something to his partners -
whether it be know-how, new management techniques or something
else. Otherwise he derives no benefit. He purchases a block of shares,
but control over the management lies with the state or with the owners
of the majority shareholding. I repeat that the Ukrainian private
shareholders rejected a minority holding in the Unified Energy System
of Russia, since they worked out that it was unprofitable for them and
ineffectual. As for the privatization of the state-owned blocks of
shares, that, according to the president's decree, is impossible.