Ukrainian PM Blames Russia for Oil Woes

Prime Minister Yulia Tymoshenko on Saturday accused Russia of suspending oil deliveries to Ukraine, and gas stations throughout this ex-Soviet republic began running out of fuel.

"Oil deliveries to Ukraine are being deliberately stopped even though all contracts have been paid for," Tymoshenko said after a Cabinet meeting Saturday.

Tymoshenko said that "for five days, no oil was pumped at all, even though we have all the necessary agreements."

The allegations are just the latest charges the Ukrainian government has lobbed against Russian oil companies, which supply 80 percent of Ukraine's fuel. Last month, Ukrainian officials accused Russian oil majors of conspiring to raise the price of gasoline and ordered a moratorium on prices, which the companies reluctantly agreed to after being threatened with court action.

Ukraine's First Deputy Prime Minister Anatoliy Kinakh criticized his Cabinet colleagues Saturday for trying to intervene and set prices, suggesting that had led to the shortage in supply.

"When you have a complicated problem to do with the growth of prices, trying to resolve it by looking for an enemy or using administrative force to put pressure on the market ... this doesn't work," said Kinakh, who is considered business' best friend in the government.

By Saturday evening, gas stations throughout Ukraine - run primarily by Russian companies - were selling gasoline only to buyers who had special coupons or customer cards. Numerous cars were being turned away after waiting in long lines, leaving drivers scrambling to find ways to keep their cars on the road.

Representatives of Russian oil companies could not be reached to comment Saturday, but Russian media quoted oil officials from Lukoil and Tatneft as saying supplies were still being pumped and TNK-BP saying it was supplying a smaller volume due to work on one of its pipelines in Ukraine.

Russian media also suggested that Ukraine had suffered problems with its own pipelines, leading to temporary shutdowns last week.

Ukraine's huge dependence on its former imperial master for fuel is a source of big concern to the new pro-Western government. Tymoshenko has said it is a priority of her government to find alternatives, and suggested that Turkmenistan, which already supplies some fuel to Ukraine, and Iran could become possible suppliers.

"With the situation now being a serious dependence on Russia, Ukraine believes it is necessary to begin studying these variants," Tymoshenko said during a meeting late Friday with a top official from France's state-owned gas company, according to her office.

Russia and Ukraine regularly tussle over energy supplies, leading to temporary disruptions. While the energy-starved Ukrainians are in a more delicate position, the Russians also depend on Ukraine as a transit point to pump their supplies to lucrative markets in the rest of Europe.

Problem is, no one else will come in under these kinds of situations, especially when the government is busy nationalizing industry.

This points up something I've noticed. The deals made when Soviet industry was first privatized, in Russia as well as in Ukraine, sound like robbery in hindsight. But they don't take into account the situation at the time, when many of these industries were at the edge of collapse.

Once the country has stabilized, and bankruptcy averted, its easy to say the industry was worth much more, but that is after the fact.

The old soviet economy was not a cash economy, it ran on politics, influence, command. If an industry was worth a billion on the open market, who rising from within the soviet economy was likely to have a billion in his sock drawer? If the industry sold to a Russian, or a Ukrainian for a mere $100 million, who in fact was going to have even that kind of money?

The alternative might be to sell to international investors who did have cash, but then you have the opposite complaint, of foreigners picking up assets at fire-sale prices.

Then you have the next problem, which is the fact that to invest in a country on the edge of collapse is not for the faint of heart, and to invest in a country that has no commercial law is again not for your average 401k account manager. If rule of law is not firmly in place, the only way anyone can guard their assets is through personal influence, personal contacts, and the ability to defend themselves physically. By definition, men who can operate in this pre-legal environment are "oligarchs", mafia. No one else can operate in this environment.

Over time laws are enacted, because even oligarchs have an interest in defending their property legally. If you are protected by law, you don't need to control who sits in the presidential palace, after all. And over time, given the will to do so, you transition to a market economy. But to point to the men who initially stepped forward to take over failing businesses in an imploding country, and complain after the fact, is pointless.

Putin has complained about the "oligarchs", but so far has only gone after a couple. Yuschenko has come into office promising to roll back the original privatizations, and this strikes me as either dangerous or corrupt, or both. If it is well intentioned, it proves that in Ukraine the rules can be changed after the fact, and who would want to invest in such a country? And if it is for corrupt reasons, simply taking an asset away from an opponent to award it to a friend, again, who would want to invest in such a country?

In both countries, it seems to me, now that the assets have been distributed, the proper answer is to draw a curtain over the past, and set about building a body of commercial law. Forget how much who paid for what, and just go forward.

A friend of mine was on a team that went into the "stans" after the collapse, looking at assets that might be worth investing in, on behalf of a middle-sized oil company. His recommendation was for them to steer clear. The industries were in terrible shape, the labor relations were toxic, the governments themselves corrupt and dangerous to the point of scary. And so that company did not invest. Other companies did invest, and have done well, but the point is that investing in the ex-soviet union in the months following the collapse was not a game for just anyone. The picture now is completely different, but at that time no one could predict how it was going to turn out.

What is your opinion?

Ukraine has no shortage of oil products – Energy Ministry official

17.05.2005, 15.25

KIEV, May 17 (Itar-Tass) -- Ukraine has no shortage of oil products, the deputy chief of the oil, gas and oil refining industry department at the Fuel and Energy Ministry, Tatyana Stadnik has said, when asked about the gasoline supply situation and panic buying at car filling stations.

At the same time Stadnik acknowledged that this month saw export-driven soaring demand for oil products in Western regions.

According to the ministry’s sources the reserves of gasoline at oil refineries and at oil tank farms on May 1 stood at 341,000 tonnes – an amount equivalent to monthly consumption. On May 16 the reserves at refineries, excluding the Odessa refinery, which presents no statistics, were at 71,000 tonnes, which is a normal level. The term “small” applies to reserves under 30,000 tonnes.

The Fuel and Energy Ministry has said the sole question about reserves should be addressed to the TNK-BP-controlled Lisichansk oil refinery, which accounts for half of Ukrainian oil refineries’ reserves – 30,000 tonnes. “Apparently it is unprofitable to sell up the reserves at the current prices,” the Fuel and Energy Ministry specialist said. For its part, the TNK-BP has said that this “dead stock” that cannot be recovered from the reservoirs.

The ministry argues these reserves are commercial.

The refineries this month have shipped to customers over 100,000 tonnes of gasoline, as much as in April. In May a total of 278,600 tonnes of gasoline is expected to be produced, an amount sufficient to meet the normal demand. Alongside this the government-controlled Ukrneft oil company has purchased 70,000 tonnes of light petroleum products in Belarus and the Baltic countries to be sold at government prices in the Ukrainian market. This zero profitability transaction is expected to return the market to stability

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.