Ukraine To Lose Economic Independence

Russian oil oligarchs are gaining the control over the Ukrainian oil industry

It took the Russian oil industry eight years to change the situation in Ukraine fundamentally. The national fuel business of Ukraine is already living in compliance with the law that are determined by Russian companies. However, bigger changes are about to happen too. Russian oligarchs are trying to gain the total control over the oil industry and the oil export infrastructure in Ukraine. The consequences of such changes for Ukraine are already obvious: the country may be deprived of its economic independence. Yet, Ukrainian politicians are trying to sell it for good money.

The offensive of Russian oil oligarchs on the Ukrainian front is coming to its end. One more step is left for the final, and it will not take too much time. The Russian business has proved over recent years that political and economic problems in other countries can be settled very quickly. The situation in Ukraine is a good example for it.

Having gained the control over the majority of Ukrainian refineries, Russian companies managed to cancel benefits for the import of petroleum products in the country. Ukrainian companies are losing their independence, while interventionists are delivering a lot of oil to the Ukrainian market. It allowed them to re-export oil. The official petroleum products export via Ukrainian ports has turned out to be too large, so both the local business and authorities had to take efforts to extend the capacities. New plans have appeared - to build new terminals for the export of crude and petroleum products.

It seems that Ukraine's efforts have ameliorated the relations between the local and the Russian business. As a token of appreciation for "foreign" oil companies, which have made the Ukrainian economy livelier, the Ukraine's government agreed for unprecedented concessions. After years of negotiations, the company Tatneft gained the control over the Kremenchugsky Refinery. In addition to it, the Tyumen Oil Company (known for the Russian initials as TNK) started exporting oil along Odessa-Brody pipeline in the reverse direction Brody-Odessa. Until recently, Ukraine strongly opposed even a possibility of negotiations regarding the issue. The mentioned oil pipeline has not been used since 2001, it has even become a symbol of the Ukrainian independence. The pipeline was built to export the Caspian oil bypassing Russia, although there was no oil in Ukraine and the transportation was too expensive.

Of course, the changing policy of the Ukrainian government has  surprised everyone. Yet, it has become known that the transit of the Caspian oil to Western Europe will start at the end of the current year. Ukrainian President Leonid Kuchma has recently revealed the real state o things. The president stated that there was an opportunity for the deserted pipeline to start working in the reverse regime. In addition to it, it became known that one of the Russian companies might get the whole Ukrainian oil transportation system in its disposal. This suggests an idea that Ukraine wants to lose its economic independence deliberately. In fact, there is nothing surprising about it. The presidential election will take place in Ukraine in the autumn of 2004. The candidacies for this position need the financial loyalty and lobbying opportunities of Russian oligarchs. "Sponsors" are ready to take the Ukrainian oil complex together with the transportation infrastructure.

Foreign companies control four of six Ukrainian refineries, which is more than 85 percent of the national refining capacity. Tatneft, TNK, KazMunaiGaz (Kazakhstan), Russian group Alliance, Lukoil own Ukrainian refineries. Local companies control only two small factories in the Lvov region of Ukraine.

When Russian companies acquired Ukrainian refineries, it gave a reason to the Ukrainian government to raise their industrial output. Ukraine does not have its raw materials: the oil extraction makes up only 3,7 million tons a year. This inevitably leads to the oil dependence and fuel crises. Russian companies quickly solved the oil shortage problem. Oil deliveries on Ukrainian refineries have increased four times since 2000 and made up 16,55 million tons in 2002.

The companies UkrTatNafta and LiNOS became the leading refiners in Ukraine last year – 35,5 percent and 30 percent of the total volume of refined oil respectively. Yet, it turned out that the Ukrainian market is incapable of handling its own output. "The proportion between home deliveries and export of petroleum products last year was 58 percent against 42 percent. The exporting volume increased seven times. We would like to change this proportion towards the export - 30 percent vs. 70 percent. The home market is incapable of consuming the oil that we have now available," spokesman for UkrTatNafta Sergey Bilenky said.

Sergey Bilenky said that mazut still remained the major export production for the majority of Ukrainian refineries. Yet, some specialists believe that the export of light petroleum products increased in 2002. The Ukrainian home market is supplied with petroleum products, whereas the majority of the Ukrainian production is exported. That is why, the volume of refinery does not grow, which means that Ukrainian enterprises are not going to change in the nearest future.

The standstill can be observed on the home market of petroleum products too. The Ukrainian retail market is getting Russian. It can be described as the "quiet mess," for a lot of scandals have been happening there recently, especially about dumping games of the Russian companies. On the other hand, there are several strong oil companies in Ukraine too: Sentoza, Galneftegaz, Kontinium. Nevertheless, the standstill in the Ukrainian oil industry does not mean that nothing is happening there. The interests of the Russian business have changed.

On the photo: President Vladimir Putin and President Leonid Kuchma

Russky Fokus