Mind explains what Petro Poroshenko is accused of
And how many of the accusations are true? Spoiler: a lot
The Monday morning of May 23 did not start with coffee for the fifth President of Ukraine Petro Poroshenko .
People's Deputy Viktor Medvedchuk, who is accused of treason and abetting terrorism and is keeping in custody, has revealed a scheme of illegal privatization of Samara-Western Direction oil-products pipeline (OPP), having said that Petro Poroshenko was involved in this manipulation during his presidency. The relevant statement was published by the Security Service of Ukraine, together with a lengthy video with detailed explanations by Viktor Medvedchuk and a visualisation of the privatisation scheme.
Petro Poroshenko's adherents immediately drew the public attention to the political basis of the situation. Not risking to accuse Volodymyr Zelensky directly, representatives of the fifth president call Mr. Medvedchuk's confession the “SBU PR.” Another one counter-argument was that during the war, any internal conflicts were “out of place” as they split the nation and weakened the defences against an external enemy.
Most likely, Mr. Poroshenko's supporters are not mistaken in saying that there does exist the political basis of the accusations. However, they have forgotten that the principle of “not rocking the boat” should work in both directions. According to the generally accepted and most plausible version, in the first days of the war, during a meeting at Bankova street, the leaders of the parliamentary factions were offered a truce until all claims, including legal ones, would be nullified if all politicians united. Such an agreement was reached – and indeed the first half of March was spent in a state of political silence and absence of criticism from the side of the opposition.
Then the rhetoric began to change gradually: according to government officials, Petro Poroshenko's team violated the pact of “internal non-aggression.” In particular, it is believed that attempts to oppose Zaluzhny/Zelensky are of his authorship.
Thus, Viktor Medvedchuk's statements in the media can be seen as a way to stop these covert political attacks. It should be noted that there is no unequivocal reason to say for sure that Petro Poroshenko was involved in processes that undermine the prestige of the government. Although it is very easy to believe. But even if the whole government suffers from collective paranoia, the position of the fifth president of Ukraine does not alleviate the gravity of the charges against him.
Based on Viktor Medvedchuk's statements, Mind explains which pipeline is in question, what its significance is and how reasoned the accusations are.
About the Samara-Western Direction oil pipeline, which is operated by Prykarpatzakhidtrans LLC
The Samara-Western Direction oil pipeline is part of the Druzhba oil pipeline complex. It was built in 1987. It was intended for pumping light oil products from Russia through Belarus and Ukraine to the countries of the Council for Mutual Economic Assistance (CMEA): Hungary, Poland, Czechoslovakia, etc.
What capacity does it have?
In Soviet times, the oil-products pipeline pumped up to 2 million tons of petroleum products. Half of them went to Ukraine, and half – to the countries of Eastern Europe. In addition to the pipelines, it has facilities for storing oil products. The largest of them are near the terminals in Novohrad-Volynskyi (Zhytomyr region) and Smyza (Rivne region).
Why did the disputed ownership of this object arise?
After the collapse of the USSR, the oil-products pipeline was not handed over to the state of Ukraine and it remained disputable.
The pipeline was operated by the Prykarpattya Department of Prykarpattransnaftaproduct (registered in 1993) with an office in Rivne.
In 2001, it was transformed into a subsidiary enterprise Prykarpatzakhidtrans, which was owned by Russia's Transnefteproduct. The shares of the latter are owned by the Russian state company Transneft.
When did the fifth president of Ukraine Petro Poroshenko allegedly start controlling the pipeline?
From the testimony of Viktor Medvedchuk: “In 2016, then President Poroshenko asked me, taking into consideration my contacts and the attitude of the leadership of the Russian federation to me, to purchase either the pipeline, or the Prykarpatzakhidtrans enterprise, which owned it. At the request of Mr. Poroshenko, I started working on the purchasing of the pipe. He asked me to talk to Russian president Vladimir Putin so that Transneft could sell the pipeline in order for Mr. Poroshenko to buy it out.”
Negotiations for the sale began in 2016, and the scheme for duty-free pumping of diesel operated until May 2019.
What was the role of the courts in this case?
From the testimony of Viktor Medvedchuk: “In order for this pipeline to become private property, a number of actions had to be taken – first of all, the judiciary had to be involved. It denied that the pipeline was owned by Transneft. In order to enable Transneft to sell it, it was necessary to do everything possible for it to own the pipeline again and make a decision to sell. And here Mr. Poroshenko resolved all issues both with the judiciary and with matters of administrative bodies thanks to the opportunities that the presidency opened in front of him.”
In March 2011, the Commercial Court of Rivne Region satisfied the claim of the Deputy Prosecutor General of Ukraine in favour of the State Property Fund of Ukraine to transfer the pipeline to the balance of the SPFU.
The Judge's argument: all infrastructure facilities near the union republics, that had been built during the Soviet era, were ceded to the governments of independent states after the collapse of the Soviet Union.
The decision was not implemented. Russia's Transnefteprodukt demanded its abolition in all courts.
On April 21, 2015, the Rivne Regional Commercial Court (Judge Yaroslava Gudzenko) granted the application of the Prykarpatzakhidtrans subsidiary enterprise to reconsider the 2011 decision and transferred the pipeline back to Russia's Transnefteproduct.
The Judge's argument: facilities built during the Soviet era were written off. And the renovation and operation work actually created a new facility. In fact, only the section of the oil product pipeline Grozny–Armavir–Trudova, which ran through the territory of Ukraine, was written off.
The trials in this case have been going on for several years. One of the latest decisions was the decision of the Supreme Court of May 30, 2018, which dismissed the cassation appeal of the Deputy Prosecutor General to return the oil pipeline to the ownership of the SPFU.
How was the agreement implemented and who were the nominal owners of the oil pipeline supply scheme?
In 2017, the subsidiary enterprise was re-registered in Prykarpatzakhidtrans LLC. At the same time, Transnefteproduct allegedly sold the oil pipeline to the Swiss company International Trading Partners, owned by a German citizen living in Switzerland, Anatoli Schäfer.
At the beginning of 2019, a controlling stake in Prykarpatzakhidtrans LLC (51%) was bought by Belarusian businessman Mikalai Varabei through the Belarusian company Naftobitumny Zavod.
The only supplier of diesel fuel (DF) from OPP was the Swiss company Proton Energy owned by Nisan Moiseyev, an Israeli citizen. Proton Energy has signed an exclusive contract with Rosneft for the supply of diesel fuel. Proton Energy still has the largest sales margin for Rosneft.
In addition, in 2016, Nisan Moiseyev bought Rosneft's network of gas stations in Ukraine under the TNK brand, which now operates under the Glusko brand. The network is owned by the Swiss company of Mr. Moiseyev – Glusco Energy S.A.
The companies of Wexler Group owned by Ukrainian businessman Petro Belz became the largest buyers of Mr. Moiseyev's diesel fuel in Ukraine. This very group manages the Glusco gas station network.
Recently, Naftogaz of Ukraine has taken control over this network.
Who is whose?
Anatoli Schäfer is probably a dummy person, a hired manager-lawyer. The sale of Rosneft was executed in order to divert public attention from the fact that Ukrainian courts handed over the OPP to a Russian company. In addition, after the resale of an asset, it is more difficult to return it to state ownership through the courts.
Nisan Moiseyev is a proxy person of the godfather of Russian President Vladimir Putin. In November 2016, journalists filmed the arrival of Viktor Medvedchuk on his personal plane from Moscow to Nisan Moiseyev's company.
Prior to the sale of OPP to Mr. Schäfer, Petro Belz was a second-tier oil trader. He never had large volumes of supply, as well as his own network of gas stations for sale.
It is him, who claims that he had become the great buyer of the diesel fuel from the pipeline due to the fact that together with Mr. Moiseyev “he invested in the auto-filling terminal in Novohrad-Volynskyi and in the working condition of the pipeline in time.”
Wexler Group used about half of the pipeline's imports. In the first half of 2019 – about 100,000 tons per month out of 200,000 tons pumped by OPP in Ukraine.
It is likely that the scheme needed a trader inside the country for guaranteed sales of diesel fuel. That's why a middle-class businessman who knowed the market well was invited.
Mikalai Varabei is one of the three shareholders of the Belarusian logistics company Bremino Group, which received tax benefits from the Belarusian government. Belarusian media emphasise his connection with the eldest son of Belarusian President – Viktor Lukashenko.
How did the supply scheme work?
Proton Energy of Mr. Moiseyev bought the resource either from Rosneft or BNC (Belarusian Petrochemical Company) and sold it to Ukrainian consumers at the Novohrad-Volynskyi terminal, where the diesel fuel was bought by almost all large gas station networks until August 2019.
The largest wholesale buyer was Wexler Group, owned by Mr. Belz, who used to supply this resource to the largest state consumers – Ukrzaliznytsia and the Ministry of Defence – until the presidential election of 2019.
Mr. Moiseyev's Proton Energy paid for the pumping of Prykarpatzahidtrans LLC of Mr. Varabei – Mr. Schäfer. The pumping tariff was not officially announced. The state did not influence it. Although in other sectors the revenues of natural monopolies of energy transportation (Ukrtransnafta, Ukrenergo, GTS Operator) were regulated by the National Commission for State Regulation of Energy and Public Utilities.
It was Proton Energy where Mr. Moiseyev's largest margin remained due to Rosneft's low purchase prices and high market prices in Ukraine. According to the estimates of the chairman of the parliamentary committee on fuel and energy Andriy Herus, the margin of Proton Energy reached $40 per ton of diesel fuel by August 2019.
If we take into account that from 2018 to the first half of 2019, the import of the diesel fuel through the pipeline was reaching 200,000 tons, the net profit of Proton Energy could be about $100 million per year.
According to Mind's data, this profit was authorised by Rosneft. It went to Viktor Medvedchuk by Mr. Putin's order, and then Mr. Medvedchuk used that money to finance TV channels 112, ZIK, and NewsOne.
What is the evidence (indirect and/or direct) of the involvement of Ukraine's top leadership in the scheme?
From the testimony of Viktor Medvedchuk: “Most of these events are directly related to Mr. Poroshenko, who was the incumbent President of Ukraine then, and, of course, all the machinations were done at his request…”
The OPP diesel fuel supply scheme could not have been built without the assistance of the Ukrainian authorities. Among which are the courts, which are influenced by the President. As well as the Antimonopoly Committee, which issued permits for concentrations during the sale of OPP. First by Transnefteprodukt to Mr. Schäfer, then by Mr. Schäfer to Mr. Varabei.
The establishment of a scheme of this level required the participation of the Presidents of three countries: Ukraine, Russia and Belarus. Russia is a seller of resources and co-owner of the pipeline, Belarus is a transit country and co-owner of the pipeline, Ukraine is a consumer and a transit country to Europe.
It was also largely up to the Ukrainian President to ensure a duty-free supply regime – and thus maximise profits.
It was Mr. Medvedchuk who was the liaison between the three parties.
Has anything changed after Petro Poroshenko stopped being President?
From the testimony of Viktor Medvedchuk: “The pumping of diesel through the pipeline stopped in May 2019, i.e. after the end of Mr. Poroshenko's presidency.”
Deprivation of political opponents of the source of funding was the main reason for the introduction of tariffs on imports of diesel fuel through the pipeline. According to the resolution of the Cabinet of Ministers №624 of July 17, 2019: 3.75% – starting from August 1, 2019 and 4% – starting from October 1.
Andriy Herus became the initiator of the special duty.
A suitable time was chosen, as in the summer, 2019, world prices for oil and petroleum products went down.
From 2018 to the beginning of 2019, 40% of all imports of diesel fuel to Ukraine were imported through that pipeline. Another 50% were imported by rail transport from Belarus and Russia.
Mr. Belz, as a partner of Mr. Moiseyev, said that in August 2019, the pumping of diesel fuel through the OPP would be stopped. Mr. Belz organised a PR campaign, which claimed that the tariffs would stop the OPP, which would lead to a shortage of diesel in Ukraine and rising prices. Mr. Herus accused the Wexler Group of blackmailing the market.
Was the pumping stopped?
Yes, but only temporarily. The pumping of the diesel fuel through the pipeline was stopped in August 2019. Wholesale market prices have risen. The big players contracted the volumes of diesel fuel through the seaports. Wexler Group fulfilled its contracts for August by importing the resource from RB by rail.
The deficit did arise. But not because of the lack of resources to purchase, but because Ukrzaliznytsia was unable to quickly process the additional supplies of diesel fuel that moved from the pipeline to the railway. By October, the deficit had been eliminated.
In December, Prykarpatzahidtrans resumed pumping of the diesel fuel into Ukraine. According to expert data, imports through OPP were estimated at about 50,000-60,000 tons in December 2019.
The resumption of supplies became possible thanks to the growing spread between quotings in northern ports which the importers from Belarus and the Mediterranean oriented to, and which Rosneft's price for Proton Energy of Mr. Moiseyev is tied up to. Even taking into account the 4% duty, its price has become competitive compared to the resource of the Belarusian Oil Company.
Who was the main beneficiary of the scheme?
From the testimony of Viktor Medvedchuk: “Officially, Petro Poroshenko spent $23 million. The pipeline earned almost twice as much as was paid. Earnings for the year were estimated at $41-42 million.”
The biggest profit of the seller was given by the Russian side to Viktor Medvedchuk for his political activity in Ukraine and financing of pro-Russian media.
After the introduction of the duty in August 2019, the profit from the supply scheme decreased significantly.
Supplies resumed in December because, on the one hand, market conditions contributed to that, and on the other hand, it became clear to supply chain managers (Mr. Moiseyev, Mr. Belz) that they could not lobby for the cancellation of duties on import through OPP.
How is this situation likely to end?
Adherents of Petro Poroshenko will insist on a version of political persecution and count on a change of government in Ukraine. We are unlikely to see a repeat of Yulia Tymoshenko's case – if Petro Poroshenko is asked to leave the country, he will most likely take advantage of this offer without waiting for a court verdict.
For Viktor Medvedchuk, the opportunity to be exchanged and leave for the Russian Federation remains open.
If you have read this article to the end, we hope that means it was useful for you.
We work to ensure that our journalistic and analytical work is of high quality, and we strive to perform it as competently as possible. This also requires financial independence. Support us for only UAH 196 per month.
Become a Mind subscriber for just USD 5 per month and support the development of independent business journalism!
You can unsubscribe at any time in your LIQPAY account or by sending us an email: [email protected]
