This is what Prime Minister Yulia Tymoshenko said concerning further interactions of the Ukrainian government with Vanco Prykerchenska Ltd. (Vanco International Ltd., registered in Bermudas) after the Cabinet of Ministers of Ukraine decided to dissolve the Production Sharing Agreement on May 21.

Not long before that, on April 25^th, the Ministry of Environmental Protection of Ukraine had cancelled the special permission for the exploration and development of the oil-and-gas bearing deposit in the Prykerch territory of the Black Sea issued to Vanco Prykerchenska Ltd.

For some reason, Vanco Prykerchenska Ltd. is called an “American company” although it is not known whether there is a 10% share of Vanco International Ltd. (registered in the Bermudas) in it or not. Vanco International Ltd., in its turn, is a 100% subsidiary of American Vanco Energy Company (Houston, Texas, USA or maybe Delaware, USA?). It was Vanco International Ltd. that won the tender on exploration and development of about 13 thousand square kilometers of the Prykerch oil-and-gas bearing deposit in the Black Sea. The production sharing agreement (PSA), concluded afterwards, stated that Vanco International Ltd. could transmit its permission for the development of natural resources to the company, in which it would have at least a 10% share. It is also not known where the official decision of the Cabinet of Ministers of Ukraine on annulment of the special permission for the development of natural resources should be sent since it is not known who is the CEO or the president of Vanco International Ltd…

Well, it is certainly possible to disagree with the Prime Minister’s decision and the decision of the Cabinet of Ministers. However, considering that the American affiliated company Vanco Energy Company or at least its subsidiary Vanco International Ltd. doesn’t have a 10% share in Vanco Pryker­chenska Ltd., the decision to issue special permission for the exploration and development of natural resources in the Prykerch territory to Vanco Prykerchenska Ltd. was undoubtedly illegal. And any political or commercial preferences do not have anything to do with this.

The decision of the Cabinet of Ministers on dissolution of the PSA with the “American" company was preceded by a number of noticeable events.

On May 16, the National Security and Defense Board of Ukraine analyzed the problem with Vanco Pryker­chenska Ltd. and ordered the Ministry of Environmental Protection to recall its decision on annulment of the special permission for the development of natural recourses given to Vanco Prykerchenska Ltd. It was also proposed that a special commission be established to investigate the problem.

On May 17 (when the previous issue of ZN with another article about the problem with Vanco had just been published), the General Prosecutor’s Office of Ukraine protested the decision of the Ministry of Environmental Protection to annul Vanco’s special permission for the development of natural resources. "The decision of the Ministry of Environmental Protection of Ukraine to annul Vanco’s special permission from April 25, 2008, is illegal since it contradicts the requirements of the Natural Resources Law of Ukraine and is not based on legal grounds,” was the statement of the General Prosecutor’s Office of Ukraine.

The Ministry of Environmental Protection had 10 days to respond to the protest of the General Prosecutor’s Office. The Ministry could try to substantiate its position and most likely receive an order from the General Prosecutor’s Office to recall the decision in response. The Ministry’s second option was to dispute the protest in the court. And this, as you understand, could take a long time.

Someway or other, but according to the press-cutting service of the Cabinet of Ministers, on May 21^st, the government decided to dissolve the “Agreement on sharing of hydrocarbon production extracted from the Prykerch lead in the continental shelf of the Black Sea” concluded between Ukraine and Vanco International Ltd.

Prime Minister Yulia Tymoshenko ruled out the possibility of international claims and punitive measures against Ukraine in connection with the dissolution of the PSA with the American company Vanco. “Even if some kamikaze takes it into any international court, Ukraine will win the dispute with confidence, and I would like to assure you that Ukraine won’t pay for anything,” noted the head of the government.

Additionally, according to ZN sources, all members of the government signed an appeal to President V. Yushchenko about conducting , alongwith the Verkhovna Rada, the National Security and Defense Council and the Presidential Secretariat, a joint investigation of the reasons forconcluding an agreement which was unfavorable for Ukraine.

Meanwhile, on May 22^nd, representatives of Vanco Company organized a press conference within the Kyiv International Energy Forum to announce their disagreement with the intention of the Cabinet of Ministers of Ukraine to dissolve the PSA. When they were asked whether it was true that ZN wrote about their company in its previous issue they answered: “You have your own opinion, we have our own.”

According to O. Alioshyn, Vanco representatives didn’t understand the decision announced on Wednesday by Y. Tymoshenko: “In our opinion, the Ukrainian government is simply trying to avoid all necessary official procedures of dissolution of the agreement as it is afraid of arbitrage." And George Brown said he was sure that Vanco would win this dispute if it were taken to court. O. Alioshyn also noted that “for the time being, the actions of the Ukrainian government resemble a kamikaze’s actions.”

Therefore, the press conference was organized exclusively for that phrase. However, it was staged very professionally since the temporary charge d'affaires of the USA to Ukraine, James Pettit, had mentioned Vanco Company during his speech at the energy forum. He said that Vanco was a positive example of foreign investments in the energy sphere in Ukraine. He was quite tactful about the conflict between the Cabinet of Ministers and Vanco: “We want to eliminate all misunderstandings and start a constructive dialog.”

I don’t know whether Vanco representatives and temporary charge d'affaires of the USA to Ukraine were aware of the fact that on May 22^nd, when the Energy Forum was taking place, all members of the Cabinet of Ministers including Minister of Justice Mykola Onyshuk signed the resolution on dissolution of the agreement with Vanco due to some newly discovered facts. However, on May 23^rd, M. Onyshuk changed his position and said that he had warned that it would be hard to protect the interests of Ukraine at arbitrage.

One of those new facts is that the winner of the tender that had received the right to explore and develop 13 thousand square kilometers of the Prykerch oil-and-gas bearing territory for 30 years almost immediately transmitted this right to Vanco Prykerchenska Ltd. However, according to point 11 of the PSA, it is possible to transmit the right to explore and develop the abovementioned territory only after the governments' approval and state expertise, which wasn’t conducted.

The second fact is violation of the second part of point 26 of the PSA, which states that it is necessary to conduct a thorough check and audit of the company, to which the winner of the tender is intending to transmit the right to develop and explore natural resources. This procedure wasn’t conducted either.

Thus, all these “new facts” gave the government the right to dissolve the PSA. The role of the government in this story is not positive. However, if the rights of the state are violated, they should be restored anyway.