For more than a week Tatarstan has not been supplying oil to Ukraine. This is official Kazan’s reaction, totally supported by the Kremlin, to the Ukrainian court ruling that reinstated Pavlo Ovcharenko as chairman of the board of Ukrnafta (Kremenchuk Oil Refinery). According to Radio Liberty, President Mintimer Shaimiev of Tatarstan has publicly accused Ukraine of racketeering. While delivering a lecture at the Academy of Sciences of Tatarstan, he declared: “You can see how Ukraine is seizing our property; they came, brought with them what they said was an effective team, and took over all the leading posts...This is what Ukrainian democracy is all about. You can describe it as orange, blue, red, or whatever...Encroachment on property has no place in a democratic society, especially when we own the stocks.”
Tatarstan believes that writing off the shares was an unlawful act and notes that the Ukrainian government has not taken any meaningful steps to settle the oil refinery conflict.
The history of this case dates to 1994, when a Tatarstan-Ukraine joint venture known as the Transnational Financial-Industrial Oil Company Ukrtatnafta was created. The whole idea was very attractive: we refine their oil at our enterprise — the best in the industry at the time - and we rest on the laurels of our economic success. Once and for all official Kyiv floods the national market with oil products, gets rid of seasonal speculations in this sector, and creates a strategic fuel reserve. Kazan, meanwhile, counts its revenues.
During the “labor” Ukraine had the controlling block of shares at the State Property Fund. The Russian (Tatarstan) side had 28 percent of securities registered with the Property and Land Resources Fund, and Tatnafta owned 8.6 percent.
Unfortunately, the work that was set up turned out to be short-lived, as is the case with practically all joint ventures. Before long, one of the sides started pulling on the blanket, and today it is even difficult to determine exactly which one it was. But to us, this is not all that important. The main thing is to realize why that much- advertised “mutually advantageous cooperation” turned into an international scandal.
There are four large stumbling blocks (let alone minor ones) that allow these erstwhile partners to hurl accusations at each other. It all started in 1999, when the shareholders of Ukrtatnafta discovered “foundlings” among their number, in the form of Seagroup International, Inc. and Am RUZ Trading AG, which eventually turned out to be affiliated with Kazan businessmen. The Ukrainian side, with documents in hand, argued that the unlawful “gambit” was done for the sole purpose of diluting the shares of Derzhkommaino of Ukraine so as to deprive our country of its “controlling” influence on the situation. In view of the fact that official Kyiv retained slightly over 40 percent of the joint venture’s stocks, it is hard to disagree with this point of view.
Then the joint venture became embroiled in a conflict over President Kuchma’s edict on the creation of a vertically integrated oil company (VINK), whereby the State Property Fund of Ukraine let Naftohaz Ukraine have the government’s interest in Ukrtatnafta. Now the Russian-Tatarstan side regards VINK as an ill-concealed attempt to “dilute” its shares and the transfer of securities, as a partner replacement with all legal consequences. Kyiv rejects all these accusations, claiming that what is actually happening is a change of name. Neither side has been able to reach a final agreement and the situation is now frozen. That same year, 2004, Ukrtatnafta’s Tatarstan stockholders with the controlling interest fired Ovcharenko and replaced him with Serhii Hlushko. Proof of the unlawful nature of this decision is that Ovcharenko has now been reinstated by a court ruling. The key issue is that Hlushko could not be appointed as chairman of the board simply because he was not even a member of the company’s board. The Ukrainian side claims that this dubious move was taken for the sole purpose of getting rid of the hardheaded Ovcharenko, who constantly defended Kyiv’s interests.
The last stretch of this thorny path dates back to late August 2007, when the court ruled to reinstate Ovcharenko. The ruling was carried out on Oct. 19. Official Kazan regarded the presence of an official from Ukraine’s Ministry of Justice and his bodyguards during the event as an unexpected hostile takeover of its legitimate property.
This was followed by Tatarstan’s demarche, described above, and Ovcharenko’s appeal to the president of Ukraine and a press conference organized for Ovcharenko. What was learned? Tatarstan’s partners, with Hlushko’s active and direct involvement, had been preparing the Kremenchuk Oil Refinery to be transferred to Kazan’s full control. The method they chose was a tried and true one: a fake bankruptcy. To this end, oil was bought from the “partner” company Ukrtatnafta- Tsentr at excessive tariffs, and gasoline was sold to Navoil at low prices. It is small wonder that after such “mutually advantageous cooperation,” Ukrtatnafta, an a priori profitable business, quickly accumulated 127 billion hryvnias’ worth of direct losses and found itself heavily in debt (3.7 billion hryvnias’ worth of bills payable).
Some raw materials were supplied for contraband processing, involving companies like Gastrade (found to be affiliated with Hlushko; criminal proceedings are underway). In addition, Ukrtatnafta has lately evaded filing income tax payments by hook or by crook, causing losses to the Ukrainian budget. Against this backdrop the following details appear completely “trivial”: instead of the eight million tons of oil that the Kazan partners sent every year to Ukraine, they sent an average of one-third less. In addition, despite promises, they halted the modernization of the oil refinery as early as 2001. The list can be expanded.
What will happen next? The stockholders and the Securities and Stock Market Commission of Ukraine should examine the question of the statutory fund of the enterprise and the chairman of the board. But this obvious attempt to steal the oil refinery cannot be ignored, and Ukraine’s law enforcement agencies must zero in on this case. Neither the stockholders nor politicians can have any say in this matter.
In the situation that has developed, it is especially surprising to see how Kazan is totally ignoring all the accusations of criminal acts, including those against its own citizens. Do they not understand in Tatarstan that the ultimatums to turn everything back are essentially demands that Ukraine sanction and continue to engage in illegal activities to the detriment of Ukrainian national interests?
