While the Ukraine's media, and that of other countries is completely focused on the Tymoshenko gas case, 'Dzerkalo Tyzhnya', in a sober and well investigated recent article, revealed that Yanukovych and his close associates Yuriy Boyko and Andriy Kluyev, allegedly played fast and loose with Ukraine's laws and made decisions in the Russian-Ukrainian gas trade which cost the country many times more than the $190m Tymoshenko alleged 'screwed up' on.
In the April-August 2004, a Yanukovych-led cabinet of ministers concocted a scheme to repay Gazprom debts incurred by Ukraine between 1997 and 2000 for gas which was consumed but not paid for.
Earlier, on November 15th 2001, the Verkhovna Rada of Ukraine ratified an "Agreement between the Cabinet of Ministers of Ukraine and the Russian Government on additional measures to ensure the transit of Russian gas through Ukraine" (Law № 2797-III), in accordance with Art. 9 of the Constitution of Ukraine, which subsequently became part of national law.
This intergovernmental agreement determined a mechanism for repaying Naftohaz Ukraine's debt to the Gazprom by means of issue of standard corporate Eurobonds with maturity dates between 2004 to 2013. The agreement also defined the initial principal amount of debt - nearly $ 1.4 million. Later the Russian side determined the debt to be $ 1.26 billion, but with penalties, fines and other payments the final debt figure was set at $ 1.62 billion. For Ukraine, this scheme of gas debt repayment was most beneficial. It allowed repayment of all debts to be completed by 2013 in a gradual and predictable manner without worsening the financial situation of Naftohaz Ukraine.
The Ukrainian Ministry of Finance appointed The Bank of New York [London] to handle the entire business, and international legal consultants White and Case to provide oversight.
However, as subsequent events showed, the decision taken later by top Ukrainian officials, in clear violation of the law, resulted in Ukraine being saddled with huge additional costs.
Gazprom never fully accepted the intergovernmentally agreed method of settling the unpaid debt, and during the protocol negotiations of August 6, 2002 between Naftohaz and Gazprom, the-then Naftohaz chairman Yuriy Boiko and deputy chairman of Gazprom, Alexander Ryazanov nominated the Russian VneshEkonomBank (VEB) as sole financial consultant in this matter; legal counsellors White & Case were added into the mix. They began to implement what was to be a disastrous plan to change the scheme of repayment from Eurobonds to pure cash.
White & Case warned Naftohaz that the new plan was far from optimal for settling its debt with Gazprom, and that risks were involved. The Ukrainian Ministry of Finance, the Ministry of Justice, the Ministry of Economy and European Integration of Ukraine, and Ukrainian tax authorities all protested too, but Yuriy Boiko and the-then Deputy Prime Minister, Andriy Klyuev ignored all these objections and continued to do away with the fixed repayment plan, which had also included an early settlement of debt option.
Naftohaz Ukraine chiefs then 'legalised' a new mechanism which they had set up jointly with Gazprom and VEB [whose Supervisory Board Chairman, incidentally, was Vladimir Putin].
Naftohaz's board agreed to Gazprom's proposal to transfer all of their debt (the principal sum, penalties, fines and arbitration collection) to VneshEkonomBank, contrary to the previously developed scheme. This was all approved by a resolution of the Cabinet of Ukraine № 1002 of 06.08.2004. But 'Dzerkalo Tyzhnya' asks the question: Was the law violated when the-then Prime Minister V. Yanukovych, signed the allegedly illegal resolution?
According to this Cabinet resolution, Gazprom gave Naftohaz Ukraine an advance of $ 1.25 billion as partial payment for transit of Russian natural gas across Ukrainian territory for the period 2005-2009.
As a result, Ukraine would have pay for the 5 billion cubic meters of gas per year [the cost equivalent of transiting Russian gas to Europe] for those five years out of its own pocket, in exchange for the cancellation of the debt from the previous decade when gas cost $50 per thousand cubic metres. [A major portion of the total cost of transiting gas is the price of the gas used to drive the gas turbine pumps situated along the length of the pipeline.]
However, in the period between 2006 to 2009 gas prices rose from $ 90 to $ 450 dollars for thousand cubic metres, so Yanukovych's fiddling of the initial 2002 agreement cost Ukrainian consumers an additional several billion dollars...
Tymoshenko's deal, made under duress in 2009, for which she may be jailed for seven years, allegedly caused losses of under $200 million..
LEvko thinks the date of the Cabinet of Ministers' resolution is interesting...there have been many allegations, e.g. in Andrew Wilson's "Ukraine's Orange Revolution", that Russia spent between $ 600 and 900 million on Yanukovych's 2004 presidential election campaign, a portion of this allegedly channeled via Gazprom and Naftohaz..
Update: Excellent analysis from Anders Aslund in 'Moscow Times' on the current Ukraine/EU/Russia situation here