Ukraine puts criminal cases against 'wizards of gas' on backburner

By bne IntelliNews January 19, 2015

Graham Stack in Kyiv -


The apparent shelving of charges against notorious figures linked to Ukraine’s previous corrupt regime is seen as shedding light on deals cut behind the scenes during the ousting of Viktor Yanukovych in 2014 that continue to shape the ‘new Ukraine’.

A statement of criminal charges leaked from the Office of the General Prosecutor of Ukraine, obtained by bne IntelliNews, accuses Oleksandr and Serhiy Katsuba, top managers from 2010 to 2014 at Ukraine's state energy company Naftogaz, of channelling around $60mn from the company in one single deal signed in 2012. But the charges have seemingly been put on the backburner by Ukraine's post-revolution prosecutors.

The unsigned statement of criminal charges notifies Oleksandr of charges against him as the suspect in Naftogaz paying UAH449mn (at the time about $55m) to a dubious supplier of gasoline in 2012-2013, which investigators allege never supplied the fuel despite receiving the funds. 

"I see this document for the first time and can say for 99% that it's a fake," Serhiy Katsuba tells bne. Serhiy is the elder brother of Oleksandr, who was only 26 when in 2012 he was made deputy head of the sprawling energy company that owns the transit pipelines that supply Russian gas to Europe and is the country’s main gas producer.

According to Serhiy Katsuba, prosecutors did not present him with any such document on his last visit to them. "I think someone wants to make a new scandal against us," he claims, denying any wrongdoing.

Oleksandr Katsuba echoed his elder brother in saying that the document was fake, and requesting that it not be published. He argued that it had been drawn up with the purpose of blackmailing the brothers during a time of turbulence in Ukraine. "If this document actually existed, they would have to take me into custody immediately," he says.

bne sources vouch for the authenticity of the document, which is dated October 2014, but has not been signed into effect. The charges as laid out appear to have evolved from a criminal investigation into the whereabouts of the gasoline owned on paper by Naftogaz, ordered by a judge in March 2014, according to Ukraine's register of litigation. The press service of the Prosecutor General declined to comment on the authenticity of the document.

The statement of charges formally names only Oleksandr as the suspect in the case, referring to a separate criminal investigation into Serhiy's activities. Serhiy left Naftogaz in late 2012 to enter parliament, and his position was taken by younger brother Oleksandr. Serhiy during his time at Naftogaz masterminded the controversial acquisition by Naftogaz of two $400mn offshore drilling rigs for the Black Sea, he acknowledged to Forbes Ukraine.

Siphoned off

According to the unsigned statement of charges, Oleksandr Katsuba was the official on the Naftogaz board who supervised the gasoline purchase agreement in 2012-2013, after his elder brother Serhiy, deputy head of Naftogaz 2010-2012, had set up the deal in August 2012.

The deal for Naftogaz to buy gasoline from GazUkraina-2020 was clearly fraudulent, according to the unsigned statement of criminal charges – which claims that GazUkraina-2020 was a 'fictive,' or sham, company, with no facilities of its own, no tender was held as required by law, payment for the gasoline was made in advance, the director of GazUkraina-2020 was a straw man with no connection to the company, and his signature on the contract was faked.

"Katsuba concluded the contracts not with the aim of acquiring gasoline for the company's further profit, but with the aim of removing UAH 449,963,820 from the company's accounts," the statement of charges reads.

According to the document, the deal was structured so that the fraud would remain hidden: GazUkraina-2020 also contracted to store the gasoline after selling it to Naftogaz, until the point in time that Naftogaz required its physical transfer. This date at which the fuel was to be transferred to Naftogaz was then deferred, with the gasoline thus on paper remaining in GazUkraina-2020 storage.

Oleksandr Katsuba acknowledged that such a deal between Naftogaz and GazUkraina-2020 took place in 2012-2013. "But it is not true that Naftogaz never received the fuel. This would have been impossible, because the tax service would have discovered this," he tells bne.

According to Katsuba, GazUkraina-2020 even tried to buy the petrol back from Naftogaz a year later in 2013. "Oleh Makhnitsky, [the prosecutor general newly appointed after the revolution in February 2014], stated publicly that law enforcement had confiscated the gasoline," says Katsuba, suggesting it had been subsequently stolen after being confiscated, and the charges were part of a cover-up.

"The decision [to enter the contract] was taken by the board, not by me alone, and I would have been fired if I had not implemented it," Katsuba says, explaining how the deal came to fruition in 2012. "Such a contract in fact has to be approved by 10 to 15 different departments in Naftogaz, which is a very bureaucratic company, and it would have been impossible for me alone to take such a decision without such approval," he said.


Not mentioned in the statement of charges is that GazUkraina-2020 was one of a string of allegedly sham companies – firms lacking premises and employees, and with straw men for directors and owners – that were controlled by a mysterious frontman, Ukraine's so-called 'wizard of gas,' Serhiy Kurchenko, who like Oleksandr Katsuba at the time was only 26 years old.

Kurchenko's rags-to-riches rise during the Yanukovych presidency while only in his mid-20s has come to symbolize the endemic corruption in the country, just as much as Yanukovych's extravagant private residence at Mezhyhirya near Kyiv.

Since Yanukovych's ouster, Ukraine's prosecutor general has charged Kurchenko with grand larceny, he has been placed on the Interpol wanted list, and his assets have been frozen in the EU.  Kurchenko fled apparently to Russia following the ouster of Yanukovych.

Katsuba said that he only learnt later from press reports that Serhiy Kurchenko was linked to GazUkraina-2020. "Naftogaz has many such contracts, and it is impossible to meet directly with the guys involved on the other side," he says.

Just friends?

But while Kurchenko has attracted media attention, he is widely believed to have been a frontman that implemented fraudulent schemes for government and state company officials. But who were his masters?

Katsuba denies his family were ever partners or patrons of Kurchenko. "We do not have any companies where we are shareholders together with him or his family, and never were in joint companies with him," he says.

But the 2012 gasoline deal was not the younger Katsuba's first encounter with Kurchenko-linked structures: before moving to the board of Naftogaz in late 2012, Katsuba had worked as deputy head of Naftogaz’s Black Sea drilling subsidiary Chornomornaftogaz. During Katsuba's watch at the Crimean company, locally-registered sham firms, listed by journalist investigations as controlled by Kurchenko, won over $110mn worth of tenders, according to state tender databases.

Katsuba acknowledges a longstanding acquaintanceship with Kurchenko."We are the same age, and from the same city – I have known him since we were both about 20," he says. Katsuba adds, however, that Kurchenko was not the type of friend with whom he might go to the beach or play soccer together, but simply acquaintances who had met each other 10-15 times over the years.

Katsuba says Kurchenko has been misunderstood. "He is very talented, very smart and very hardworking, I don't know anything about his links to the Yanukovych family," he says.

According to Katsuba, Kurchenko like everyone else had simply been forced to play by the rules of what he called "the system" at the time. "Kurchenko [has become] not the name of a guy so much as the term for the system that was working," he says.

As bne wrote in 2011-2012, TOV Business Consult – another sham firm linked to Kurchenko and registered at the same address as GazUkraina-2020 – received payments ostensibly for supplying equipment to a joint venture with Naftogaz operated by Tekhprojekt, a company once owned and run by the Katsubas. "We no longer owned the company at the time," Katsuba counters.

A recent Reuters investigation also showed that Kurchenko – via another sham company – had traded gas imported to Ukraine by oligarch Dmitro Firtash, a close ally of former energy minister Yury Boiko, in turn an ally of the Katsubas.  "I have never met Dmitro Firtash," Katsuba says.

A third investigation by journalist Anna Babinets found documents that apparently showed an offshore run by Kurchenko had ordered four bespoke suits from an Italian tailor for a certain "Mr Kacuba" at a cost of $15,000 each. Katsuba said he believed many negative press reports were politically or financially motivated.

Selective justice

While the Yanukovych 'family' from Donetsk have mostly fled Ukraine, and on January 12 appeared at long last on Interpol’s international wanted list, many of the controversial figures formerly around Naftogaz – with the exception of the 'front man' Kurchenko – remain at large and some even entered parliament in the elections held on October 26.

The parliamentary group of the largest opposition party, Opposition Bloc, is now headed by former energy minister Yury Boiko, regarded as the informal head of the 'Naftogaz' clan. His long-term ally, head of Naftogaz 2010-2014, Evhen Bakulin, also entered parliament for the party.

Bakulin was in fact spectacularly detained immediately following Yanukovych's ouster, with Serhiy Katsuba seen to be in close attendance. The new interior minister of the time, Arsen Avakov, publicly accused him of allowing $4bn worth of fraud to take place at Naftogaz. But Bakulin was later released, and allowed to run for parliament.

These contrasting fates may shed light on deals cut behind the scenes during the ousting of Yanukovych in 2014, which continue to shape what the government is trying to bill as the ‘new Ukraine’: As the New York Times described in a recent investigation, Yanukovych's power melted so rapidly because he found himself deserted by key allies during the winter of 2013-2014, leaving him no option but to flee the country on February 22, 2014. "The president was not so much overthrown as cast adrift by his own allies," the report claimed.

The 'Naftogaz clan’ may have become disillusioned with Yanukovych in the run-up to his ousting, in particular after Boiko's removal as energy minister in December 2012 and his replacement by a close Yanukovych associate called Eduard Stavitsky. "The [post-revolution] government had to rely on the compliance of former Yanukovych people, both to keep order in the regions and to boost parliamentary power. This facilitated shifts in the parliament that helped the new government gain and maintain a majority," says Teneo Intelligence vice-president Otilia Dhand. "Between February 18 and 25, Yanukovych lost his parliamentary majority and that is what in effect broke his neck.”

Deals struck between the leaders of the Euromaidan protests and former Yanukovych supporters could have included promises not to prosecute, analysts say. As a result, "there has been mounting evidence that the current government has been negligent in its attempt to criminally prosecute its predecessors," according to Concorde Capital political analyst, Zenon Zawada.

Prosecutors' slow progress in bringing figures from the Yanukovych era to account has already sparked calls for the firing of current prosecutor general, Vitaly Yarema, a close ally of President Petro Poroshenko. 127 MPs signed a resolution calling for his firing on January 14, claimed MP Egor Sobolev from the Sampomich party, a member of the government coalition.

Business as usual

Meanwhile, the Katsuba family are back to business in the new post-Euromaidan reality – despite negative press coverage over Oleksandr's reportedly extravagant wedding at a Paris chateau in July, and recent drone footage of their palatial family home near Kyiv.  "We have always had our own business and means, this hasn't come out of thin air," Oleksandr tells bne, referring to the family home. "When I was six years old, we already lived in an eight-bedroom house.”

Forbes Ukraine recently even profiled Oleksandr in his new calling as IT venture capitalist - with no mention of his controversial energy past. Forbes Ukraine was acquired in 2013 by none other than Serhiy Kurchenko.

According to the newly launched website of the Katsuba Corporation, their declared assets are mostly in construction materials, commercial real estate and agriculture in their native Kharkiv, as well as an online retail credit start-up.

The only mention of gas on the Katsuba Corporation website is a blog written by Serhiy, in which he gives Ukrainians clever tips on how to cut energy consumption – and thus ease pressure on the state budget: switch off heating in unused rooms, and don’t use hot water to clean your teeth. "Save energy, save Ukraine!" is the motto of his new campaign, without a hint of irony. 

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