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Democratic deficits

Ukraine’s prime minister survives for now, but the battles for power – and control of the energy sector – continue

More than a month has passed since Arseniy Yatsenyuk’s government survived a vote of no confidence. The dismissal of a deeply unpopular prime minister might have pacified an unhappy public for a while, but as things stand Yatsenyuk could have immunity until at least the autumn – when parliament’s next chance to unseat him arises. Either way, it matters for Naftogaz and Ukraine’s energy sector, which is at the centre of the politicking.

The unsuccessful vote has given rise to murmurings of conspiracy between President Petro Poroshenko, an opponent of Yatsenyuk, and a number of oligarchs, further unsettling parliament. Members of minority parties Batkivschina and Samopomich have announced their resignation from the governing coalition. Negotiations within the cabinet, and involving the president and outside interests seeking some governing clarity if there is to be a reshuffle, are meant to be underway, but have been held up by members who still want to sack the prime minister, but don’t have enough clout to approve a replacement. The stand-off buys Yantsenyuk some scope, perhaps enough to survive the reshuffle.

If that happens Yatsenyuk’s position could improve significantly. He would have the chance to get rid of energy minister Vladimir Demchishin, who is considered much closer to the president, and whose relation with the prime minister grew tense last year. That said, a new prime minister could mean a new energy minister, and a complete change of direction for Ukraine’s oil and gas industry – though quite in what direction, it is impossible to say.

Naftogaz, the state-owned oil and gas company, also has substantial influence on matters. Chairman Andrey Kobolev is considered close to Yatsenyuk, but his position – as a Yatsenyuk man – depends on the prime minister’s survival.

Political chaos reigns either way. On 3 February economy and trade minister Aivaras Abromavicius announced his resignation, due to “growing resistance against the reforms”. His position became untenable when a deputy was imposed on him by Igor Kononenko, a member of the Poroshenko Bloc and confidant of the president. “The candidate brought me the full package of documents needed, saying, ‘I am your new deputy minister, I represent Kononenko’s team and my appointment is already agreed in the higher spheres’,” said Abromavicius. The deputy, Andrey Pasishnik, Naftogaz’s executive director and acting deputy chairman, was to bridge the divide between state-owned companies and the ministry. But the attempted appointment failed.

Ukrainian Prime Minister

Given Kononenko’s relationship with Poroshenko, his elevation effectively gave the president more direct influence on Naftogaz. Pasishnik has been at loggerheads with Kobolev in the past over issues such as Ukrnafta, an upstream firm, and its debt to the state. So the appointment could have been definitive for the country’s energy future. Ukrnafta, in which controversial businessman Ihor Kolomoysky holds a key stake, owes UAH10.2bn ($386m) to the state in back-taxes and other monies. Pasishnik was ready to deepen the standoff withUkrnafta (and Kolomysky), while Kobolev’s position on the matter is more moderate.

While the political battles to control it rage in the background, Naftogaz is drafting an unbundling scheme, which might see it separated from key subsidies Ukrgazvydobuvannya, the country’s biggest gas producer, and Ukrtransgaz, which operates the gas-transmission system and storage. This will bring the company in line with EU standards, by separating its upstream, storage and transportation units. The parent company and the energy ministry have differing views on the value of the assets, how they are to be unbundled, who is to manage them during that transition period, and who has the final say.

Intricacies of the discussions have gone public, further highlighting Poroshenko and Yatsenyuk’s overzealousness in dictating the country’s economic and industrial landscape. The inevitable reshuffle may mean one of them is forced to take a step backward, but until then the country’s political and economic crisis will teeter on.

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