Sweden freezes shares of shadowy Ukraine gas producer Misen Energy

By bne IntelliNews July 1, 2014

Graham Stack in Berlin -


Sweden has frozen trading of one of Ukraine's leading gas producers, Misen Energy, following bne's exposure of Misen's secret links to the Ukrainian oligarch Dmitro Firtash, who was arrested in Vienna on organised crime charges in March. Documents obtained by Swedish media indicate that Misen Energy may have gained control of over as much as half of Ukraine gas reserves through secret deals with state energy company Naftogaz – and that the Naftogaz official negotiating the deal was a business partner of Firtash.

Sweden's First North stock exchange froze trading in Misen Energy on June 25, following Swedish media reports on Firtash's links to listed energy company Misen Energy. bne revealed these links in April, following Firtash's arrest in Vienna on bribery and organised crime charges: the Cyprus firm Norchamo Ltd, holder of a 30% stake in Misen Energy, is owned by two further Cyprus firms, Heico and Suzel, listed as part of Firtash's Group DF conglomerate in internal documents leaked to media in 2008. Swedish regulatory authorities are currently investigating.

In comments in April, Misen Energy representatives denied any links to Firtash. “Misen and Karpatygaz have no connection to Firtash,” Boris Sinyuk, CEO of Karpatygaz, Misen Energy's 100% owned Ukraine subsidiary, said.

According to Sinyuk, “Misen Energy AB is a public company, shareholders of which are more than 3,000 individuals and legal entities, including conservative Scandinavian pension funds and western investment banks.” But in fact, according to the company's own disclosure, 99% of the company is owned by five companies, one of them being Norchamo, and all of which appear to have Ukrainian links.

Misen/Karpatygaz demanded a retraction from bne of the article under threat of legal action, which bne rejected.

Licence to print money

Now Swedish media have got hold of the story – and published documents sourced locally showing how Misen Energy has effectively taken over half of Ukraine's gas reserves, around 70% of the state-owned reserves, under the terms of a Joint Activity Agreement (JAA) with the Naftogaz subsidiary, Ukrgazvydobuvannya – a deal that was renewed in February 2011. This JAA thus comes close to a 1990s-style backdoor privatisation of the strategically crucial state company.

As bne reported in April, a number of Firtash-linked structures in 2010-2011 took stakes not just in Karpatygaz, but in a whole cluster of companies that held JAAs for gas extraction with Naftogaz. Apparently, judging by the Swedish documents, Firtash then transferred these agreements to the Karpatygaz JAA, while using his influence in the state company Naftogaz to further expand the gasfields governed by the agreements.

As a result, according to the February 2011 agreement now revealed in Sweden media, Misen Energy's operations in fact extend to cover over 50% of Ukraine's total gas reserves, and 70% of total state-owned reserves, totalling 574bn cubic metres (cm), giving valuations of the Swedish company that far exceed its current value.

There are two great advantages to such JAAs as exist between Misen Energy/Karpatygaz and Ukrgazvydobuvannya: firstly, gas extracted under the agreements can be sold at market prices – which have soared as Russia has ratcheted up pressure on Ukraine over gas supplies during the crisis. The law otherwise requires gas extracted directly by Ukrgazvydobuvannya and other state-owned companies to be sold to the population and to utilities at heavily subsidised prices, several times less than the market price. Secondly, the JAAs are extremely opaque, requiring no formation of a new legal entity, with the private partner operating the gas drilling and responsible for all paperwork.

In 2009, Ukraine's state audit committee blasted such agreements for taking Naftogaz to the cleaners, but attempts to revoke them were thrown out by Ukraine's notoriously corrupted courts. Typically, according to the audit committee, Naftogaz contributes almost all the real assets to such JAAs, but receives depleted revenues well below the 50% it should get: the private operators can cook the books, siphoning off funds through inflated supply contracts, while selling gas to related-party traders below market prices. This all makes JAAs potentially a licence to print money.

Convergent interests

It is no secret that Yury Borisov, head of Ukrgazvydobuvannya in 2010-2014, had previously been CEO of Firtash's holding companies Ostchem and Group DF, as bne reported in April, indicating the extent of Firtash's influence. According to bne enquiries, the Ukrgazvydobuvannya official who actually negotiated the 2011 deal with Misen Energy, is himself connected to Firtash's Norchamo Ltd. Oleksiy Tamrazov, first deputy head of Ukrgazvydobuvannya until March this year, is named in the Misen Energy contract as representing Ukrgazvydobuvannya, and he acknowledges himself that he was the architect of the deal.

In 2011 – the same year as the deal was signed – Norchamo founded a Ukrainian company, NK Magistral, registered in Kyiv at Turgenev street 15, office 52. According to court documents, this is the exact same address as the postal address of a gas trading company co-founded by Tamrazov, Zakhidna Naftogazovaya Kompaniya (ZNGK). Tamrazov held top management posts at ZNGK, including CEO, prior to his job at Ukrgazvydobuvannya. He is not on paper as an owner at ZNGK, but makes no secret that he is a partner in the business together with the formal owner Serhiy Chornyi

Tamrazov denied to bne any connection to Norchamo or Firtash. “ZNGK is connected only to me and to my partner, and has no connection to Firtash,” he said. “And Firtash is not the beneficiary of Norchamo, I know who the real beneficiary is."

“NK Magistral is on the floor below ZNGK and I have never seen any Firtash people there,” he added.

Tamrazov acknowledges that ZNGK collaborates in gas trading with a number of Firtash-linked companies, including Group DF's chemical giants. According to Tamrazov's personal website, ZNGK company's turnover in 2013 totalled around $0.5bn, and is one of the top-10 importers of motor fuel and diesel in Ukraine.

Clan wars

For all Firtash's clout in Ukraine, Misen Energy/Karpatygaz did not enjoy plain sailing after signing the 2011 deal. In December 2012, Eduard Stavitsky, a friend of the family of exiled president Viktor Yanukovych, replaced Firtash-linked Yury Boiko as energy minister. The move caused a fissure between the Yanukovych family and Firtash that gradually destabilised the regime throughout 2013, until the now legendary protests kicked off on Kyiv's Maidan at the end of November 2013.

Almost immediately the cosy Misen Energy relationship with Naftogaz also hit the rocks – with the energy ministry refusing to book its gas starting January 2014, preventing it from being sold on the domestic market and effectively cutting off Misen Energy's revenues. The company is now using the episode to dissociate itself from the disgraced Yanukovych family – and from Firtash. “In the summer of 2013, Misen Energy faced problems which would have been unlikely to emerge if the Company had indeed had connection with the aforementioned individuals,” Sinyuk told bne.

Thus the departure of Yanukoyvch was not a mortal blow to Misen Energy and the JAA in Ukraine, despite Firtash's inconveniencing in Vienna. “At this stage, the situation with the energy ministry is virtually resolved,” Sinyuk told bne in April.

Tamrazov has also been fighting a rear-guard action against new competitors in the Naftogaz trough: he has been writing as an investigative journalist for respected outlet The Insider, exposing what he alleges is new corruption at Ukrgazvydobuvannya involving fuel trader and politician Ihor Eremeev.

Back in Sweden, investigative journalists and regulators are now taking a close look at whether Misen Energy – created in 2011 as the result of a reverse acquisition of an existing Swedish-listed company by the Karpatygaz shareholders – is compliant with Swedish corporate law. And in a different direction, they are scouring the paperwork for traces of Firtash's alleged erstwhile mentor – mobster Serhiy Mogilevich, wanted by the FBI in connection with fraud at a Canadian-listed company in the 1990s.


Related Articles

Ukraine's largest PrivatBank faces down nationalisation fears

Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.