Ukraine's battle with Yanukovych corruption legacy moves hesitantly forward

By bne IntelliNews September 19, 2014

Graham Stack in Berlin -


Ukraine's new authorities are battling with corruption inherited from the administration of ousted former president Viktor Yanukoych, but encountering resistance along the way.

Ukraine's prosecutor general sent shockwaves through civil society when he announced on September 18 that he was dropping all criminal charges brought against a former top energy official under Yanukovych. Evhen Bakulin, former CEO of Ukraine's state-owned energy monopolist Naftogaz – widely regarded as a feeding trough for corrupt politicians – was one of only a handful of former officials to be arrested and charged following Yanukovych's ousting by mass demonstrations against his refusal to sign a deal that would have brought Ukraine closer to Europe as well as massive corruption on his watch. On March 25 he was escorted in a wheelchair from Naftogaz's headquarters by a heavily armed and masked special police unit.

Ukrainian investigators charged Bakulin with the theft of $243.5m from the company in one single case. Minister of Internal Affairs Arsen Avakov in comments at the time of Bakulin's arrest accused him of complicity in the theft of over $4bn from the company during his time in office from 2010 to 2014.

Great then was the surprise when Ukraine's prosecutor general announced September 18 that it had been unable to find any signs of criminal actions on Bakulin's part. The decision prompted a hostile reaction among public and experts alike. "The Poroshenko administration is repeating the mistakes of his predecessors and testing the patience of the Ukrainian public by not pursuing criminal prosecutions of even the most obvious targets," Concorde Capital analyst Zenon Zawada said in response to the decision. "Bakulin was just as mixed up in the corruption of the Yanukovych administration as anyone."

It is, however, credit to the new authorities that they appear acutely aware of the voice of civil society and social media. After an outcry, one day after the decision on September 19 the prosecutor's office retracted the decision in an embarrassing volte face - blaming the decision of the previous day to drop charges against Bakulin on an order from the interior ministry.

This may in fact all be more of a technicality. On April 25, four weeks after he was detained, a Kyiv court released Bakulin on bail of only UAH10m, around $1m. He is believed to have since left the country, ostensibly for urgent medical treatment in Israel, journalist Sevgil Musaeva wrote on Facebook.

Media reported also reported that Serhiy Kurchenko, another figure believe closely connected with alleged corruption at Naftogaz under Yanukovych, as reported by bne, had been sighted at liberty in Kyiv on September 18, despite being on Ukraine's most wanted list. Kurchenko was believed to have fled the country following the ousting of Yanuovych. "If Kurchenko is present in Ukraine unhindered, this can only mean that Yanukovych's henchman has either paid money for his liberty or has reached some other arrangement with Poroshenko," said Oleh Lyashko, leader of Ukraine's Radical Party, who came in third place in presidential elections in May.

Cleaner shale gas

But there was also better news in the anti-corruption struggle on September 19: another state-owned oil and gas firm, Nadra Ukraine, seems likely to cut a shadowy local partner out of massive shale gas production sharing agreements (PSA) that were signed in 2013 with international energy giants Shell and Chevron. Tapping Ukraine's potentially huge shale gas deposits is seen as critical to reducing the country's energy dependency on Russia.

The local partner, a little-known geological consultancy SPK-GeoService, received10% stakes in joint ventures with Nadra Ukraine, which were created to partner multinationals in PSAs for shale gas. The PSAs involve two huge shale deposits – one in east Ukraine, one in the west of the country, and each potentially worth several billion dollars.

International energy giants Shell and Chevron entered the projects in 2013, offering hundreds of millions of dollars on exploration in return for their stakes. But investigative journalists allege that the role of SPK Geoservice in the massive projects was unclear and that the company is likely to be connected to top officials in the administration of Yanukovych.

Following the ousting of Yanukovych in February, the management of Nadra Ukraine changed. Now the new chairman of Nadra Ukrainy, Yaroslav Klymovych, has accused SPK Geoservice of not failing to meet its financial liabilities regarding the companies it holds a 10% stake in, Nadra Yuzivska LLC and Nadra Oleska LLC, and that it should thus be excluded from the deals. "SPK-Geoservice is not fulfilling its liabilities and we believe that this company should be removed from the participants of PSAs," Klymovych said at a press conference, as quoted by Interfax.

Klymovych said the state had notified SPK-Geoservice and the company has 60 days to respond.

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