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Lack of Transparency Undermines Eurasian Energy Security

(Washington, D.C.--December 6, 2006) The author of an investigative report on natural gas trading by Turkmenistan, Ukraine, and Russia told an RFE/RL audience last week that Europe lacks energy security as long as there is a lack of transparency in the production and delivery of natural gas from Eurasia. Tom Mayne, Researcher for Global Witness, a London-based non-governmental organization (NGO), in describing the status of European gas supplies said, "If there is no reliability, no predictability, then there's no energy security."

A major portion of Europe's natural gas supply comes from Russia and Central Asia through a pipeline crossing Ukraine, said Mayne, who noted the problem lies in the fact that the natural gas trade is "controlled by a handful of people and a series of mysterious intermediary companies." Global Witness, Mayne said, has tried to interview Ukrainian officials about the gas arrangements, but found that "the Ukrainian government doesn't want to talk about it."

On January 1, 2006, Russia cut gas supplies to Ukraine following Ukraine's refusal to pay a steep hike in the price of imported gas. This meant a sudden loss of gas supply to other European countries as well, because of the shared pipeline. The dispute was resolved on January 4 by an agreement between the Russian gas company Gazprom and the Ukrainian national gas company Naftohaz Ukrainy that gave a company called RosUkrEnergo the right to serve as an intermediary for gas sales to Ukraine. Mayne said that Gazprom owns 50 percent of RosUkrEnergo, while the other 50 percent is owned by two Ukrainian businessmen, primarily Dmytro Firtash.

Mayne said this contract and the ownership structure of RosUkrEnergo raise questions of transparency on a number of levels. First, according to Mayne, there is a "lack of transparency as to how this company got control of this lucrative sector of the economy." There is also a "lack of transparency of interests," Mayne said, because it is not clear whose interests are being represented by the various parties involved in the gas supply contract. More importantly, Mayne said, there is a "lack of transparency in the pricing structure" contained within the contract -- "The formula is completely unknown," according to Mayne. And, finally, there is a "lack of transparency in the profits" of RosUkrEnergo, said Mayne, citing the fact that "96 percent of the declared profits [of RosUkrEnergo] in 2005 were paid out as dividends."

"These questions," Mayne said, are "fundamental" for Europe in its goal of achieving energy security. At the same time, Mayne cited concerns that the return of Viktor Yanukovych as Prime Minister of Ukraine will delay needed reform to Ukraine's energy sector. According to Mayne, Ukraine's potential "quick fix" of cheap gas supplies under the current contract with RosUkrEnergo is "short-sighted" and may lead to problems, especially when the suppliers of natural gas pose demands in the future.

Archived audio of this briefing can be heard in RealAudio and Windows Media formats.