“Chimney sweeps”

Naftohaz Ukrainy CEO Oleksiy Ivchenko has never before paid much attention to politics or mentioned it as a factor influencing the image of his company. “Political factors within and without Ukraine,” he told journalists recently, “have produced numerous myths concerning our company’s performance.” The political rhetoric was probably a response to the government’s decision to reject, at Finance Minister Viktor Pynzenk’s initiative, the NU’s financial plan, and this appears to signify another sharp conflict in the ruling elite. Is it an economic reflection of the current political process, creation of a parliamentary coalition, or is it caused simply by a personal confrontation? Both possibilities seem likely.

First, a few words about the external factor. Ivchenko treats it very calmly and says that the prices of gas supplied to Ukraine by Russia will be stable not only in the second quarter, but also in the second half of the year, provided he keeps his post, of course. As for the information about the NU’s debt to Rosukrnergo that has attracted public attention of late, Ivchenko says it is another myth and that Ukraine has paid for January in full, although it wasn’t easy, and is paying for February, “which is hard,” due to the prices incurring losses on Naftohaz Ukrainy.

The finance minister described the inner political threat to NU. According to him, the company is evading taxes. Ivchenko considers this allegation “incorrect, mildly speaking,” and bluntly accuses the opponent of falsehood. The differences between Ivchenko and Pynzenyk are outwardly caused by purely economic problems. Starting this year, VAT will have to be paid for natural gas imported from Russia. Ivchenko says that Naftohaz Ukrainy, suffering a cash gap because of higher prices of Russian gas and comparatively low prices for the population, municipal and budget sustained organizations, cannot afford it. NU could pay the budget by installments, over 180 days, while issuing an appropriate promissory note to the tax administration. Pynzenyk wants the money now and recommends a loan. Ivchenko does not want to burden the company with the interest. He cites figures showing that Naftohaz Ukrainy is not blame for budget gaps, considering that last year the company doubled its budget payments, although its own revenues far from increased that much. He, in turn, recommends that the finance ministry venture a credit to patch up the gaps.

Besides, domestic gas prices remain the stumbling block between the two entities. These prices will be officially up by 25 percent for the population as of May 1 NU statistics point to 38 percent (without the VAT and transportation and delivery tariffs). NU would like to increase these prices almost twofold already in July. However, the heaviest blow will be dealt to the residents of the cities, whom the government promised not to increase the gas prices this year (Ivchenko does not share the responsibility for this unfulfilled promise because he has always supported economically substantiated tariffs), by the teplokomunenerho [heating-municipal-energy-supply] enterprises, for which the price of gas will increase by 29 percent in May and by another 70 percent in July. As a result, the winter season of 2007-08 may prove rather expensive for the Ukrainian families (the municipal bills received by Ukrainian citizens include up to 60 percent central heating and hot water). Although it is possible that the ratio will remain, considering that the regional and municipal authorities have no alternative but to increase the cost of the other municipal services in approximately the same proportion.

Be that as it may, the government will have to revise the budget and look for additional resources to increase subsidies to the population. And this is not the government’s biggest concern, as a considerable part of the budget funds meant for target-oriented subsidies will be provided by Naftohaz Ukrainy at the expense of its increased revenues. It will be far more difficult to find the money for central heating at budget-sustained organizations: schools, hospitals, military units, courts of law. In this sphere gas tariffs will increase by 30 percent at the first stage and then by 75 percent. All told, they will grow 2.2 times compared to the current situation.

It is probably here that one ought to look for the roots of the current economic confrontation between Naftohaz Ukrainy which is Ukraine’s largest budget-forming corporation (Ivchenko says it shares 10 percent of the budget income items) and the Ministry of Finance of Ukraine responsible for the replenishment of the central budget. NU CEO suggests that the ministry regard the company as a milk cow (in 2005 it had almost doubled its payments to the budget compared to the previous year), but notes that if this cow is kept on a meager diet it will stop giving milk and may topple drop dead.

Financial arguments are, of course, just the tip of the iceberg. Politics surfaces seldom and in a vaguely. Nevertheless, it is possible to assume that, in the absence of political differences, the economic ones within the government structures could be effectively resolved. The reader might as well be reminded that the finance minister’s first “mutinous act” that Yuriy Yekhanurov had to endure after being assigned the post held by his female predecessor took place before the elections. Pynzenyk was then talked into retaining his post and going off on pre-election holidays. It is likewise possible to assume that this minister is once again on the verge of resignation; this would stand to logic not only in view of considerable budget problems that are easily predictable, but also and mainly because of the fiasco suffered by his political force during the elections. He must be fully aware that his political career is in its twilight, and that he can only count on renewing it if and when Yulia Tymoshenko becomes prime minister again.

Here most likely is the main reason for the confrontation with Naftohaz Ukrainy. If Pynzenyk succeeded in retiring Ivchenko, this would add to his chances of remaining a member of the third government after the Orange revolution, headed by Yulia Tymoshenko who appears resolved to revise the January Ukrainian-Russian gas accords (in which case the cost of Russian gas for Ukraine will increase very much).

Compared to Pynzenyk, who has a limited room for maneuvering, Ivchenko has a much larger room, so he can choose between a political career (he has a seat in parliament as Our Ukraine’s nominee) and keeping at the head of Naftohaz Ukrainy. Hopefully that little incident with his Mercedes has not had an adverse effect on his relations with the president (after all, the NU CEO told journalists that “no one has intended or is planning to retire me”), the more so that he managed to sell the expensive limo quickly, received good money for it, and offered a logical explanation of the sale (it appears that he inherited from his predecessor a rented car and that paying rent was far more expensive than purchasing a new car as company property). At the same time, Ivchenko is placed within certain rigid boundary lines. After declaring that he will not cooperate with governments including BYuT and Party of Regions people, he practically sentenced himself to resignation as Naftohaz Ukrainy CEO if and when any of such practicable coalitions takes place.