On June 4, 2008, President Viktor Yushchenko issued a decree enacting the May 30 NDSC decision “On Conclusions of Ad Hoc Interagency Working Group for Legislative Compliance in the Process of Signing and Implementing the Production Sharing Agreement between the State of Ukraine and the Vanco International Ltd Company for the Development of the Prykerchensky Area of the Black Sea Continental Shelf and Carbohydrates Production.” Thus the general public and experts got an opportunity to read the NDSC decision and understand why Prime Minister Yuliya Tymoshenko refused to vote for it.

The Preamble to the NDSC decision is much more verbose than its operative part; the latter can be summarized as follows:

1. The Council took notice of the Interagency Working Group conclusions, and dissolved the Interagency Working Group.

2. “Actions of the Cabinet of Ministers geared towards creating systemic obstacles to non-state investments in the development of the carbohydrates-producing potential of the Ukrainian part of the continental shelf shall be deemed… running counter to Ukraine’s interests and jeopardizing Ukraine’s economic security” (Reminiscent of witch-hunting, isn’t it?)

3. The Council suggested that the President consider revoking Order #740 of the Cabinet of Ministers dated May 21, 2008 (on Ukraine’s withdrawal from PSA with Vanco International Ltd.).

4. The Prosecutor General’s Office was commissioned to investigate the Prykerchensky case, in particular the activity of those officials in the Ministry of Natural Resources who cancelled the special permit issued to the Vanco Prykerchenska Ltd. Company (in fact, the full name of the company that won the tender and signed the PSA with the Cabinet of Ministers and its place of registration – British Virgin Islands – do not coincide).

5. The Council set up an Interagency (shall we call it “reconciliation” or “strait-jacket”?) Commission chaired by NDSC Secretary Raisa Bohatyriova.

The President gave three weeks for the Bohatyriova Commission to “settle the hassle” between the Cabinet of Ministers and all Vanco companies engaged in the Ukrainian tender for the Prykerchensky area development. According to our sources, the Commission started working on Thursday.

On Wednesday, US Secretary of Trade Carlos Gutierrez came to Ukraine on a similar mission to facilitate conflict resolution between Vanco and the Government of Ukraine.

Before discussion the high-ranking US official’s visit to Ukraine may I refer you to the UNIAN News Agency account of the May 30 meeting of the Our Ukraine/People’s Self-defence Political Council? Speaking to his party fellows, Vice Prime Minister Ivan Vasiunyk (who has never belonged to the camp of Yuliya Tymoshenko’s admirers) stated that the Tymoshenko government had proven “its ability to expedite national interests.” According to I. Vasiunyk, some failures can be blamed on the government, whereas the others were caused by spokes put in the cabinet’s wheels. “Yet if there were one reason to form this government – it would be for the government to terminate this shackling agreement about the shelf,” said I. Vasiunyk, adding that the Cabinet would not give in. “It is not the last step towards Ukraine’s gaining energy independence. If there is another coalition, which some people actively propagate, and if there is another government, Vanco Pryker­chenska Ltd will be back, and so will dozens of similar companies.”

Yet let us return to Carlos Gutierrez’ visit. In the Boryspil Airport the US Secretary of Trade announced that the US Administration was worried over the conflict between the government of Ukraine and the Vanco International Company: “We look at this issue from a commercial standpoint analyzing the enforceability and respect of contracts.” Carlos Gutierrez added that the American authorities and businesses expect the government of Ukraine to explicate whatever questions and doubts it has in respect of any contract in a transparent fashion. “The government of Ukraine should demonstrate to the international community that it respects contracts and fulfills them timely and properly,” said the Secretary, noting that he was planning to discuss the matter with the Prime Minister and President of Ukraine.

On that same day Carlos Gutierrez met with Yuliya Tymoshenko but the official information of their conversation was scanty: the parties met and discussed issues of mutual interest. Details of the discussion and the parties’ argumentation were not furnished.

The journalists wanted to know more than the press service of the Cabinet of Ministers related diplomatically. ZN tried to get in touch with Prime Minister Yuliya Tymoshenko but the best we could do was talk to First Vice Prime Minister Olexander TURCHYNOV.

— Mr. Turchynov, on arrival at the Boryspil Airport yesterday, US Secretary of Trade Carlos Gutierrez spoke of the US government’s concern over the conflict between the government of Ukraine and the Vanco Іnternational Company. Did the US Secretary of Trade and Ukrainian Prime minister really discuss “the respect of contracts” in Ukraine, or the respect of PSA with Vanco International Ltd.? What did the Secretary mean when urging the cabinet of Ministers of Ukraine to express complaints “in a transparent fashion”? What was the Prime Minister’s response?

— The subject of the discussion was formulated differently. Their talks were very specific and focused. The parties did not discuss the government’s attitude toward contracts as the Ukrainian government duly fulfills all of its obligations.

— How, in the Secretary’s opinion, should the Ukrainian Cabinet of Ministers formulate its questions “in a transparent way”?

— I do not know what this comment was about: at the meeting in the Cabinet of Ministers this topic was not raised, although the American party did inquire, in a very appropriate way, about the Black Sea shelf.

— What company did they inquire about: Vanco International Ltd. (Bermudas), Vanco Pryker­chenska Ltd. (Virgin Islands) or Vanco Energy Company (USA)?

— They asked about problems relating to the Production Sharing Agreement.

— Put differently, the US officials did not discuss a specific company. What was the Ukrainian party’s answer to their “general questions”?

— We explained to the US representatives, in an equally polite way, what mistakes were made because of the failure to observe the terms of tender to develop the Prykerchensky area. Thus, Vancо Prykerchenska Ltd. belongs to the jurisdiction of the British Virgin Islands, and Vanco International Ltd. belongs to that of the Bermudas. In other words, no American company is involved, although the Vanco Energy Company that originally took part in the tender is registered in the USA. We told the American counterparts about serious breaches of procedures for bidding, contract awarding, PSA signing and license issuing.

— Could you cite at least some of them?

— First, when the tender was held, the bidder did not provide information about Vanco International Ltd., which is an off-shore company…

— ZN has written about it…

— … Instead, its bid contained data about the American Company Vanco Energy. It violates the tender terms. Second, Vanco International Ltd., even before it got the necessary authorization and license, assigned its rights to another off-shore company – Vancо Prykerchenska Ltd. The tender terms, however, were very strict in this regard: the bidder was required to demonstrate the availability of adequate financial resources, fixed assents and experience in prospecting and producing oil and gas. Understandably, Vancо Prykerchenska Ltd., registered only a few months before it got the license, could not possibly have the necessary experience and resources (apart from the authorized fund of USD 12,000). The above is sufficient evidence of failure to observe the substantial terms of tender and subsequent PSA signing. Moreover, the special permit for subsoil use (license) was also issued with gross violations. There are other issues whose enumeration will take longer than ZN can squeeze into one publication.

— Why was Yuliya Tymoshenko the only person, except for the absent NDSC members, to vote against the NDSC decision on 30 May?

— Because Yuliya Tymoshenko, unlike her male colleagues, was brave enough to stand up for Ukraine’s national interests.

— Is that the only reason and argument?

— What other reasons can there be? I feel ashamed for the people who raised their shaking hands voting at the NDSC meeting on 30 May. Mind you, they did not vote to institute criminal proceedings against corrupted bureaucrats who masterminded such schemes. Instead, they voted against those who protected national interests.

— Did you see the “shaking hands”?

— I am sure nobody feels happy voting for unseemly deeds.

— How will you interpret paragraph 2 of the NDSC decision, which qualifies the Cabinet of Ministers’ actions as “creating systemic obstacles to non-state investments in the development of the carbohydrates-producing potential of the Ukrainian part of the continental shelf and running counter to Ukraine’s interests…”?

— As a governmental official I am not in the position to comment on the NDSC decision. As a citizen, however, I think decisions of this kind do not do credit to those who make them and to the state at large. These are subjective decisions of people with vested interests.

— Could you name them?

— Look at the list of those who voted.

— All participants of the NDSC meeting on May 30 voted in favour (B.Paton, V.Ohryzko, Yu.Loutsenko and A.Medvedko were absent). What were their motives?

— Some voted out of fear, others had their personal vested interest. It was obviously an instance of cynical tramping on Ukraine’s interests. How can a business entity with an authorized fund of USD 12,000 (too little to open a vendor’s kiosk in the streets of Kyiv) claim to be fit to develop almost 13 thousand square kilometers of the Black Sea shelf?! Our officials call this swindle a “promising investment.”

— What is your forecast for further developments (in relations between the Cabinet of Ministers and Vanco)?

— I am positive that the government is doing the right thing, despite all the pressure brought to bear on us, including investigations by law-enforcement authorities and trumped-up cases against advocates of Ukraine’s national interests. We will be able to prove our case in any court trial, although our opponents are very powerful, have colossal financial resources and are skillful in “cultivating” connections in the judiciary (suffice it to mention the new attempt to have the final court decision on Dniproenergo revised). Nevertheless, the government’s position is clear and firm. I would like to use this opportunity to appeal to law enforcement and other uniformed officers: do not disgrace yourselves by persecuting those who protect Ukraine – it is your duty, too.

— Is the government going to repeal its Order #740-p “On Terminating the Agreement between the Cabinet of Ministers of Ukraine and the Company Vanco International Ltd. on Sharing Carbohydrates Produced in Prykerchensky Area of the Black Sea Continental Shelf” dated May 21, 2008, especially given that no carbohydrates have been produced there as yet?

— No, it is not. As a Chair of the Interagency Commission, I can tell you that at the Commission meeting on June 5, 2008 we, upon carefully analyzing all aspects of the matter, confirmed the legitimacy and feasibility of the decision by the Cabinet of Ministers and Ministry of Natural Resources to recover the entire Black Sea shelf of Ukraine.

— Does the government know who the true owners of the Company Vancо Prykerchenska Ltd. (whose license the Ministry of Natural Resources cancelled) are?

— It is an off-shore company registered in the Virgin Islands. You will know that off-shore companies typically avoid disclosing information about their real shareholders and owners (beneficiaries). I can tell you the company has not provided any data on its beneficiaries. At the same time…

— Yet a representative of two companies — Vanco Internatio­nal Ltd. and Vanco Energy – in Ukraine assured the public that the Cabinet of Ministers had received all the necessary materials. Is it not true?

— We have no materials on the ultimate beneficiaries of this structure.

— Does the Vancо Prykerchenska Ltd. Company have a representative office in Ukraine?

— We know nothing of either the representative office or of official materials.

— Do you mean to say they did not produce the required documents and you do not know what sort of company it is?

— There are no documents attesting to the company’s history because the company has no history.

— What will happen to the special permit for the subsurface use issued to Vanco Prykerchenska Ltd. (British Virgin Islands) and cancelled later? Will it be renewed? If yes, what company of the Vanco Group will obtain the license?

— On June 5 we discussed this issue at the Commission meeting and I instructed the Ministry of Economy, Ministry of Natural Resources and other agencies to formulate, in the shortest possible time, a public policy on shelf development and oil and gas development in the shelf. It should be a comprehensive policy with uniform norms and standards; it should be clear and transparent; it should attract investors and promote Ukraine’s national interests.

— Are you speaking about amendments to the law on production sharing agreements and related legislation?

— Yes, but the key task is to make it impossible for a handful of bureaucrats, no matter what senior positions they might hold, to decide the destiny of the Black Sea and the Sea of Azov. We should make it impossible for off-shore companies to obtain thousands of square kilometers of the shelf and export strategic resources form the country for a trifle.

— I want to ask you about the investment pool. As far as I know, the Vanco International Company was to provide the tender committee with financial guarantees worth USD 330 million (which it, supposedly, did). In fact, those guarantees were originally provided by the American Vanco Energy Company and a solid bank.

— That is the point. The tender terms were tough (the bidders were required to have sufficient financial resources and meet other requirements) but the modest company Vanco International (Bermudas) managed to outperform internationally renowned competitors, using the reputation and documentation of the American company. To add insult to injury, it assigned the rights to a third off-shore company – Vanco Prykerchenska Ltd. (British Virgin Islands), which does not meet the tender terms in the least.

— Has the government received any documents confirming that Vanco Prykerchenska Ltd. (Virgin Islands) is a subsidiary (at least with 10% if not 100% ownership) of the successful bidder Vanco International Ltd. (Bermudas)? Were all other required documents produced, in particular financial guarantees? Who provided them? Was it one of the four companies in the pool (Vanco Energy Company, USA; Donbass Fuel-and-Energy Company, Ukraine; Shadowlight Investments Ltd., Russia; Integrum Technologies Ltd., Austria), which publicly announced their participation in the Prykerchensky project funding on May 15, 2008?

— It does not matter if the parent company has 10%, 20% or 100% in the subsidiary. What matters is why much more potent companies than Vancо Prykerchenska Ltd. eventually lost to it. I think the investor, the American Vanco Energy Company, was subject to a lot of pressure from some officials and corporate groups. As a result, the tender committee and the government received misleading information. We do not and cannot have any complaints to the American party, because we are dealing with an off-shore company, which is not entitled to develop the Prykerchensky area of the Black Sea shelf.

— How will you account for the so-called investment pool’s preparedness to fund the Prykerchensky Project?

— I take it, the Vancо Prykerchenska Company was a dummy company disguising certain interests of certain corporate groups. Understandably, they hoped the Yanukovych government would stay in office and the agreement with the then Cabinet and Presidential Office would be implemented. They did not expect the administration to change. Nor did they expect that the new people would be ready to protect the national interests.

— Will Yuliya Tymoshenko and you carry the Vаnco issue through?

— You know we have always fought to the end, even under harder circumstances. I think that history repeats itself. I used to have a conflict with a high-ranking official who is now backing the off-shore Vanco Pryker­chenska Company as ardently as he backed RosUkrEnergo some time ago. We removed RosUkrEnergo from the domestic energy market as a parasitizing intermediary.

Now the same people have got a new idea, a new way of making super profits – through the off-shore Vanco Prykerchenska Company. We held on to the last then, in spite of the threat of dismissal. Today the situation is similar, and we will expedite national interests as long as possible. Unfortunately, people do not learn lessons from their own history, however recent and sad.

* * *

The First Vice Prime Minister provided some of the answers. We hope to receive the other answers in due time. For example, when the government states it is ready to cooperate with any investor on sensible and transparent conditions, does it really mean “any” investor or does it have someone special in mind?

Shall we ask Mr. Dmitry Firtash about the beneficiary of the first quarter of equity in Vanco Pryker­chenska; Messrs Viktor Yanukovych, Andriy Kliuyev and Rinat Akhmetov about the second quarter of the company’s equity; Mr. Medvedev about the third quarter; and Vanco about the fourth? It would be a good idea to ask Mr. Miller if GAZPROM has an option for 25% in Vanco Prykerchenska.

Will any of them volunteer an honest answer?