Practising journalism is lethal in the Ukraine

Gas, guns & Gongadze

By SIMON PIRANI, Kiev

Asking questions about Ukraine's corrupt, debt- ridden power sector is a dangerous thing to do. Murdered on-line journalist Gyorgy Gongadze may well have been killed for doing so.

In the run-up to Ukraine's presidential elections in September 1999, Gongadze asked President Leonid Kuchma why the Ukrainian security services never caught former prime minister Pavlo Lazarenko, who is believed to have received millions of dollars' worth of bribes in a gas trading scandal in 1995-97 and is now in an American prison awaiting trial on money-laundering charges.

If police knew what Lazarenko was up to, Gongadze reasoned to an increasingly irate president, did he protect his prime minister from arrest? And if the security services simply failed to spot theft on such a gigantic scale, why did Kuchma pin medals on security chiefs shortly after Lazarenko quit Ukraine?

Gongadze suggested that the security services' failure to apprehend Lazarenko was breathtaking, given the scale of his offences and the impunity with which he operated. "Your [security] ministers messed up. Millions of dollars went abroad. And now you're giving them medals," he told Kuchma.

The president scowled, asked Gongadze his name, and muttered something about economic crime being the responsibility of the security police, not the interior ministry. The exchange was televised.

A year later, in September 2000, Gongadze was murdered. His headless body was found in a ditch in a Kiev suburb.

And two months after that, Mykola Melnychenko, a former member of president Kuchma's bodyguard, surfaced in Austria with audio tapes recorded from a microphone hidden in the president's couch - on which voices similar to those of the president and his interior minister discussed the need to do away with Gongadze.

That triggered a political scandal that paralysed Ukraine. While Kuchma rode the storm and remains in office, the vast majority of Ukrainians are convinced that Gongadze was murdered because he asked too many questions.

A year further on, journalists in Ukraine are no safer: -

• On 3 July this year, TOR television station director-general Ihor Aleksandrov - who exposed corrupt links between politicians, police and business in eastern Ukraine - was beaten to death by a gang armed with baseball bats.
• The same day Oleh Breus, founder of the newspaper XX Vek, was shot dead.
• On 11 July, Oleh Velychko, head of a Ukraine media group, was beaten and hospitalised.

Olena Prytula, editor of Ukrainska Pravda, the website for which Gongadze worked, comments: "Tough questions are asked all too rarely, and I believe Gyorgy's tough questions struck a nerve.

"And these latest murders show that Ukraine is as dangerous as ever for journalists," he says.

"The killers are encouraged by the blatant failure of the police to investigate Georgy's death properly," he adds. "The only way to save Ukraine's image now is to have an international inquiry into how Georgy died."

The energy sector, particularly the gas industry, remains the biggest feeding-trough for corrupt business.

Ukraine depends on gas to warm a population of 50 million through sub-zero-temperature winters and supply wasteful, electricity- guzzling factories that dominate its industry. Nuclear power has declined ever since the 1985 Chernobyl disaster, and the only alternative to gas is the relatively expensive coal.

In Soviet times, Ukraine's natural gas production declined as resources were concentrated on the Western Siberian fields in Russia. As a result, after the Soviet Union collapsed in 1991, Ukraine found itself dependent on Russian and Turkmen gas imports, which comprise about 54 billion cubic metres - three- quarters of Ukraine's needs.

The biggest gas scandal of all began with an industrial slump in the early and mid-1990s as Ukraine plunged into a vicious cycle of debt and barter payments. In 1995, when Western advisers were feeding a mania for privatisation in the Soviet republics, the business of importing, trading and distributing Russian gas was handed to traders, who needed licences and import quotas from the state.

The state granted larger import quotas to gas traders it liked, assigning them solvent customers. Traders made money by paying producers, mostly Gazprom of Russia, far less than they themselves collected.

Three trading companies dominated the market: United Energy Systems of Ukraine (UESU), Interhaz, and Itera-Ukraina, the Ukrainian subsidiary of a much larger Russian gas trader.

Pavlo Lazarenko, who was energy minister in the early 1990s and prime minister in 1996-97, helped these companies get rich. The most successful gas trader, UESU, was given exclusive contracts to supply gas to most of Ukraine's eastern industrial heartland and grew rapidly to notch up a $10 billion annual turnover.

In December 1998, Lazarenko - who was heading a movement against Kuchma - fled to Switzerland after Ukrainian officials accused him of siphoning millions of dollars of public money into Swiss bank accounts. Swiss authorities arrested him but he posted bail and skipped the country, resurfacing in the US three months later.

He has since been arrested and is in jail awaiting trial on money-laundering charges in the US. He has been convicted in absentia by a Geneva court for money laundering in Switzerland and faces extradition proceedings to return him to Ukraine.

How far did the corruption network go? Konstantin Grigorishin, deputy director of the Ukrainian state-owned electrical company Energorynok, last year claimed the scam could only work with Russian help, and that much of Ukraine's gigantic gas debt to Russia "is artificial, the result of inflated prices for gas, and done with the collusion of our government."

The London-based Financial Times newspaper which interviewed Grigorishin last October, suggested that "top management of Gazprom benefited from these [gas trading] transactions as well".

Iulia Timoshenko - an UESU executive who later became Ukrainian energy minister and, after a brief spell in jail earlier this year on fraud charges, now leads an anti-Kuchma political party - had a close working relationship with Gazprom's chief executive.

And Kuchma and his friends?

Lazarenko, speaking last October through his lawyer to Radio Free Europe, said that Kuchma knew about money laundering - a charge the president denies.

What is certain is that in 1999 Kuchma associates found themselves in control of lucrative gas markets from which UESU was ousted.

Regulation of private gas traders was tightened and UESU rival Interhaz was brought into Naftohaz Ukrainy, a new national energy company that was given a monopoly on gas deliveries to state organisations and households - an estimated 85 per cent of the market. The company was run by Kuchma's friend Ihor Bakai, who was promoted to presidential adviser and then deputy chairman of the state gas and oil committee.

Many believed control of gas trading had simply passed from one group of business-political interests to another.

Bakai, who faced numerous corruption allegations, was forced to resign last year. Ironically, he was pushed out by Iulia Timoshenko, who, after leaving UESU to move into politics in 1999, became energy minister and the most outspoken critic of gas corruption.

Both Timoshenko and the prime minister who appointed her, Viktor Yushchenko, made friends among Western business people and international institutions working in Kiev. They wanted Ukraine to take a pro-Western path: privatisation of energy assets along with a legal, tax and political framework designed to attract big Western corporations.

Kuchma was ready to go along with them, but not all the way. The president dismissed Timoshenko last year - apparently because she upset too many of those who were gaining from corruption - while Prime Minister Yushchenko was ousted from office in a no- confidence vote in April.

The energy sector remains mired in a web of corruption. Local energy distribution companies owe an estimated $2.8 billion to the wholesale energy market company Energorynok, which in turn owes $2.8 million to the generators, which owe $3.5 billion for gas and other fuel, mostly to Gazprom and Itera.

The murky forces who control the energy sector have found a new game to play: taking control of power stations.

On 28 April, a Naftohaz Ukrainy subsidiary initiated proceedings under an obscure debt recovery law against one of Ukraine's largest power generation companies, Donbassenergo. As a result, three of its five thermal power stations were sold off by the state executor for $30 million - less than a quarter of their value.

Donbassenergo legally challenged the sale, but the Supreme Court turned it down on 27 June. Parliament passed a law freezing court-ordered sales of state assets - and Kuchma vetoed it.

This story first appeared on Gemini News Service (www.gemininewsservice.com).