Practising journalism is lethal in the Ukraine
Gas, guns & Gongadze
Asking questions about Ukraine's corrupt, debt-
ridden power sector is a dangerous thing to do. Murdered on-line
journalist Gyorgy Gongadze may well have been killed for doing
In the run-up to Ukraine's presidential elections in September
1999, Gongadze asked President Leonid Kuchma why the Ukrainian
security services never caught former prime minister Pavlo
Lazarenko, who is believed to have received millions of dollars'
worth of bribes in a gas trading scandal in 1995-97 and is now in
an American prison awaiting trial on money-laundering charges.
If police knew what Lazarenko was up to, Gongadze reasoned to an
increasingly irate president, did he protect his prime minister
from arrest? And if the security services simply failed to spot
theft on such a gigantic scale, why did Kuchma pin medals on
security chiefs shortly after Lazarenko quit Ukraine?
Gongadze suggested that the security services' failure to
apprehend Lazarenko was breathtaking, given the scale of his
offences and the impunity with which he operated. "Your
[security] ministers messed up. Millions of dollars went abroad.
And now you're giving them medals," he told Kuchma.
The president scowled, asked Gongadze his name, and muttered
something about economic crime being the responsibility of the
security police, not the interior ministry. The exchange was
A year later, in September 2000, Gongadze was murdered. His
headless body was found in a ditch in a Kiev suburb.
And two months after that, Mykola Melnychenko, a former member of
president Kuchma's bodyguard, surfaced in Austria with audio
tapes recorded from a microphone hidden in the president's couch
- on which voices similar to those of the president and his
interior minister discussed the need to do away with Gongadze.
That triggered a political scandal that paralysed Ukraine. While
Kuchma rode the storm and remains in office, the vast majority of
Ukrainians are convinced that Gongadze was murdered because he
asked too many questions.
A year further on, journalists in Ukraine are no safer: -
- On 3 July this year, TOR television station director-general
Ihor Aleksandrov - who exposed corrupt links between politicians,
police and business in eastern Ukraine - was beaten to death by a
gang armed with baseball bats.
- The same day Oleh Breus, founder of the newspaper
XX Vek, was shot dead.
- On 11 July, Oleh Velychko, head of a Ukraine media group, was
beaten and hospitalised.
Olena Prytula, editor of Ukrainska Pravda, the website for which
Gongadze worked, comments: "Tough questions are asked all too
rarely, and I believe Gyorgy's tough questions struck a nerve.
"And these latest murders show that Ukraine is as dangerous as
ever for journalists," he says.
"The killers are encouraged by the blatant failure of the police
to investigate Georgy's death properly," he adds. "The only way
to save Ukraine's image now is to have an international inquiry
into how Georgy died."
The energy sector, particularly the gas industry, remains the
biggest feeding-trough for corrupt business.
Ukraine depends on gas to warm a population of 50 million through
sub-zero-temperature winters and supply wasteful, electricity-
guzzling factories that dominate its industry. Nuclear power has
declined ever since the 1985 Chernobyl disaster, and the only
alternative to gas is the relatively expensive coal.
In Soviet times, Ukraine's natural gas production declined as
resources were concentrated on the Western Siberian fields in
Russia. As a result, after the Soviet Union collapsed in 1991,
Ukraine found itself dependent on Russian and Turkmen gas
imports, which comprise about 54 billion cubic metres - three-
quarters of Ukraine's needs.
The biggest gas scandal of all began with an industrial slump in
the early and mid-1990s as Ukraine plunged into a vicious cycle
of debt and barter payments. In 1995, when Western advisers were
feeding a mania for privatisation in the Soviet republics, the
business of importing, trading and distributing Russian gas was
handed to traders, who needed licences and import quotas from the
The state granted larger import quotas to gas traders it liked,
assigning them solvent customers. Traders made money by paying
producers, mostly Gazprom of Russia, far less than they
Three trading companies dominated the market: United Energy
Systems of Ukraine (UESU), Interhaz, and Itera-Ukraina, the
Ukrainian subsidiary of a much larger Russian gas trader.
Pavlo Lazarenko, who was energy minister in the early 1990s and
prime minister in 1996-97, helped these companies get rich. The
most successful gas trader, UESU, was given exclusive contracts
to supply gas to most of Ukraine's eastern industrial heartland
and grew rapidly to notch up a $10 billion annual turnover.
In December 1998, Lazarenko - who was heading a movement against
Kuchma - fled to Switzerland after Ukrainian officials accused
him of siphoning millions of dollars of public money into Swiss
bank accounts. Swiss authorities arrested him but he posted bail
and skipped the country, resurfacing in the US three months
He has since been arrested and is in jail awaiting trial on
money-laundering charges in the US. He has been convicted in
absentia by a Geneva court for money laundering in Switzerland
and faces extradition proceedings to return him to Ukraine.
How far did the corruption network go? Konstantin Grigorishin,
deputy director of the Ukrainian state-owned electrical company
Energorynok, last year claimed the scam could only work with
Russian help, and that much of Ukraine's gigantic gas debt to
Russia "is artificial, the result of inflated prices for gas, and
done with the collusion of our government."
The London-based Financial Times newspaper which interviewed
Grigorishin last October, suggested that "top management of
Gazprom benefited from these [gas trading] transactions as well".
Iulia Timoshenko - an UESU executive who later became Ukrainian
energy minister and, after a brief spell in jail earlier this
year on fraud charges, now leads an anti-Kuchma political party -
had a close working relationship with Gazprom's chief executive.
And Kuchma and his friends?
Lazarenko, speaking last October through his lawyer to Radio Free
Europe, said that Kuchma knew about money laundering - a charge
the president denies.
What is certain is that in 1999 Kuchma associates found
themselves in control of lucrative gas markets from which UESU
Regulation of private gas traders was tightened and UESU rival
Interhaz was brought into Naftohaz Ukrainy, a new national energy
company that was given a monopoly on gas deliveries to state
organisations and households - an estimated 85 per cent of the
market. The company was run by Kuchma's friend Ihor Bakai, who
was promoted to presidential adviser and then deputy chairman of
the state gas and oil committee.
Many believed control of gas trading had simply passed from one
group of business-political interests to another.
Bakai, who faced numerous corruption allegations, was forced to
resign last year. Ironically, he was pushed out by Iulia
Timoshenko, who, after leaving UESU to move into politics in
1999, became energy minister and the most outspoken critic of gas
Both Timoshenko and the prime minister who appointed her, Viktor
Yushchenko, made friends among Western business people and
international institutions working in Kiev. They wanted Ukraine
to take a pro-Western path: privatisation of energy assets along
with a legal, tax and political framework designed to attract big
Kuchma was ready to go along with them, but not all the way. The
president dismissed Timoshenko last year - apparently because she
upset too many of those who were gaining from corruption - while
Prime Minister Yushchenko was ousted from office in a no-
confidence vote in April.
The energy sector remains mired in a web of corruption. Local
energy distribution companies owe an estimated $2.8 billion to
the wholesale energy market company Energorynok, which in turn
owes $2.8 million to the generators, which owe $3.5 billion for
gas and other fuel, mostly to Gazprom and Itera.
The murky forces who control the energy sector have found a new
game to play: taking control of power stations.
On 28 April, a Naftohaz Ukrainy subsidiary initiated proceedings
under an obscure debt recovery law against one of Ukraine's
largest power generation companies, Donbassenergo. As a result,
three of its five thermal power stations were sold off by the
state executor for $30 million - less than a quarter of their
Donbassenergo legally challenged the sale, but the Supreme Court
turned it down on 27 June. Parliament passed a law freezing
court-ordered sales of state assets - and Kuchma vetoed it.
This story first appeared on Gemini News Service