UKRAINE: FIRTASH MAKES HIS CASE TO THE USG

S E C R E T KYIV 002414



SIPDIS



DEPT FOR EUR/UMB

EEB/ESC/IEC FOR SGALLOGLY AND LWRIGHT

DOE FOR LEKIMOFF, CCALIENDO, RBOUDREAU

USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK



E.O. 12958: DECL: 12/10/2018

TAGS: EINV, ENRG, EPET, PINR, PREL, POL, UP

SUBJECT: UKRAINE: FIRTASH MAKES HIS CASE TO THE USG



REF: A. KYIV 2383

B. KYIV 2294



Classified By: Ambassador for reasons 1.4 (b) and (d)



1. (S) Summary and Comment: Controversial Ukrainian oligarch Dmytro

Firtash, best known as co-owner of gas intermediary RosUkrEnergo

(RUE),called upon the Ambassador on December 8. Firtash did not

explicitly state why he requested the meeting, nor did he ask the USG

for anything, but he spoke at length about his business and politics

in a visible effort to improve his image with the USG. The

soft-spoken billionaire, arguably one of Ukraine's most powerful

people, expressed strong support for President Yushchenko and equally

strong contempt for Prime Minister Tymoshenko. He claimed that he

had thwarted a coalition between BYuT and the Party of Regions (PoR)

at the last minute, and was now working to build a coalition between

Yushchenko's supporters and the PoR. In a lengthy monolog, Firtash

described his evolution as a businessman from his beginnings as a

food trader to the creation of RUE. Firtash claimed that Tymoshenko

was working with Russia to eliminate RUE, and cited examples meant to

prove that she was making political concessions to Russia to gain its

support to do so. He acknowledged ties to Russian organized crime

figure Seymon Mogilevich, stating he needed Mogilevich's approval to

get into business in the first place. He was adamant that he had not

committed a single crime when building his business empire, and

argued that outsiders still failed to understand the period of

lawlessness that reigned in Ukraine after the collapse of the Soviet

Union. He said he cared truly about Ukraine, and saw Russian

business interests overtaking the economy as the biggest threat to

the country's security. Comment: Firtash's arguments and allegations

are clearly self-interested; he sees Tymoshenko as a clear threat to

his business. End summary and comment.



Firtash Seeks to Improve His Image

--------------



2. (C) Ukrainian billionaire Dmytro Firtash, best known as co-owner

of controversial gas intermediary RUE, sought a meeting with the

Ambassador on December 8. Accompanying Firtash to the meeting was

political consultant and AmCit Zev Furst, and Andras Knopp, the

Hungarian-born number two at RUE. Firtash never specifically stated

why he had sought the meeting, nor did he extend any specific

requests to the Ambassador, but in the course of the conversation it

was clear he tried to use the meeting to portray a positive image of

himself. Furst said he was attending as a "friend and advisor" to

Firtash and during the course of the meeting stated that the USG

might have misperceptions about Firtash. At one point during the

meeting, Firtash began to talk about "mistakes he might have made,"

but diverted the conversation when Furst waved him off.



Firtash's Support for President Yushchenko...

--------------



3. (C) In the meeting, which lasted two and a half hours, Firtash

told the Ambassador that he was not a public person, but had recently

been pulled deeper into Ukrainian politics. He admitted that he has

"loyally served" as an unofficial advisor to President Yushchenko

during tense gas negotiations with Russia and political crises dating

back to the Orange Revolution in 2004. He reported that he met with

the Yushchenko at his dacha (cottage residence) three times in the

last week at the President's request. He described himself as a close

friend and confidante of the President -- someone the President can

trust totally. In his view, Yushchenko made a possibly fatal

political error during the Orange Revolution in that he and

Tymoshenko propagated the concept of two Ukraines -- an orange, more

democratic Ukraine, and a blue Ukraine represented by the Party of

Regions (PoR) and more focused towards the status quo. He added that

this divisiveness throughout Ukraine is exactly what Russia hoped to

cultivate in order to control Ukraine. Firtash felt the only way to

unify Ukraine during the current political and economic crises was to

form a coalition between the President's supporters and the PoR in

order to stop what he termed, "Tymoshenko's plans to offer up the

country to Russia on a silver platter." (Note: On the evening of

December 9, BYuT, Our Ukraine/People's Self Defense Party, and the

Lytvyn Block formed a coalition, keeping Tymoshenko in power and

rebuffing Firtash's hopes for a coalition between the President's

supporters and the PoR. End note.)



...And Contempt for Tymoshenko

--------------



4. (C) Firtash defined Tymoshenko as an accomplished oligarch who had

made deals with Moscow that would leave Ukraine vulnerable to Russian

oligarchs in the future -- something neither he nor Ukrainian

billionaire and PoR backer Rinat Akhmetov could stand by and watch

happen. Firtash referred to Tymoshenko's title of "gas princess" as

a misnomer; he explained that Tymoshenko did make lots of money off

of a corrupt, perpetual gas debt scheme during the 1990s, but she

knew nothing about the gas business. He added that Tymoshenko hid

her wealth in property and investments in the U.K. to give the false

impression that she was not actively involved in business. He

believed that Tymoshenko's hatred for him stems from Tymoshenko's

missed opportunity to develop her own RUE back in 2005, when she was

Prime Minister for the first time.



5. (C) Firtash stated that he felt Russia was strongly supporting a

BYuT and PoR coalition and that such a coalition was about to be

finalized on December 7, with only Regions leader Viktor Yanukovych

needing to sign. He claimed that he torpedoed the coalition at the

last moment by convincing Yanukovych that an alliance with Tymoshenko

would never last. Firtash recounted that on December 6, Tymoshenko

was on nearly every Ukrainian TV channel and in every newspaper,

prophesying that a BYuT and PoR coalition agreement would be signed

on the evening of December 7. Firtash was visibly delighted as he

recounted how he used his television station INTER to air an

interview in which Yanukovych refuted Tymoshenko's claim that a BYuT

and PoR coalition was a done deal (Ref A). Responding to a question

by the Ambassador on whether he worked with Akhmetov to derail a

BYuT/PoR coalition, Firtash said that they had worked separately,

even if they were pursuing the same goal.



6. (C) Firtash said he and Akhmetov both wanted a coalition between

the President's supporters and the PoR. He claimed that he had

brokered a subsequent meeting between Yanukovych and Yushchenko for

the evening of December 8. He was not sure if Yanukovych and

Yushchenko could form a new coalition, but saw it as the only way out

of Ukraine's prolonged political strife.



From Humble Beginnings...

--------------



7. (C) Firtash described himself as a simple person who grew up in

the village of Synkiv in the Ternopil oblast in Western Ukraine.

Firtash explained he had very humble beginnings -- his father taught

driver education and his mother worked in a sugar factory. He added

that since his parents hated communism, they did not benefit from

valuable contacts that could have helped him get into a university,

which was his childhood dream. Firtash said he shared his parents'

disdain for the Communist party and only agreed to join the Communist

youth movement Komsomol after being locked in a party member's office

for two days without food or water.



8. (C) Firtash told the Ambassador he attended an occupational

institute before be drafted into the army in 1986 and studied to

become a fireman after completing his military service. In 1991,

when the Soviet Union collapsed, Firtash stated his parents thought

it was the end of the world and he was concerned about making a

living during unpredictable times. He added that he felt he was

"between two countries -- one that had ended and one that was

beginning." He described his future as unknown, stating he was

"living in a country with no laws and no taxes." Firtash also

described himself as a "natural businessman" without a university

education who "had a nose" for business opportunities, and who would

make the best of the uncertainty.



9. (C) (Note: The Ukrainian newspaper "Ukrainska Pravda" researched

Firtash's life and reported that Firtash was not highly educated, but

was a highly decorated soldier who had used his contacts to build a

canned goods and dry milk business which shipped goods first to

Uzbekistan. According to press reports, Firtash's first wife and

business partner Mariya Kalinovska was given credit for Firtash's

first business success. This business then turned into a profitable

canned goods production factory and a transportation company

registered in Germany. Firtash and Kalinovska were married from

2002-2005, with Kalinovska reportedly receiving a large divorce

settlement, despite efforts by former Fuel and Energy Minister Yuriy

Boyko to misrepresent the true scale of Firtash's wealth. End note.)



...To Powerful Oligarch

--------------



10. (C) Firtash gave a detailed account of how he got into the gas

business. Firtash explained that his food and commodities business,

which he started in Chernivtsi in Western Ukraine with his wife

Mariya, was first called KMIL, and later expanded into High Rock

Holdings. Due to his commodities business, he became acquainted with

several powerful business figures from the former Soviet Union.

Firtash said he met Ukrainian businessman Igor Bakai in Turkmenistan

who was selling cars in Ashgabat, but had bigger plans. According to

Firtash, Bakai convinced then Ukrainian President Kravchuk to give

him permission to buy gas exclusively for the Ukrainian market in

Turkmenistan. Firtash noted that Bakai's success also sparked

Firtash's interest in the gas business. (Note: In 1993 Bakai then

formed the Respublika company, which later became Intergas, which set

the precedent for profitable gas trading between Turkmenistan and

Ukraine. Bakai would go on to be the first Head of Ukraine's state

oil and gas company Naftohaz from 1998-2001. End note.)



11. (S) Firtash also described the gas business in Ukraine during the

mid 1990s as particularly dangerous. Firtash said that then Prime

Minister Pavel Lazarenko had hired criminals to run the Ukrainian

government and used his position as Prime Minister for corruption.

He added that Tymoshenko headed Ukrainian Energy Systems, where she

earned her fortune. Firtash claimed that Lazarenko, Tymoshenko, and

Lazarenko's Assistant Igor Fisherman divided and conquered the

Ukrainian gas market. He stated that Lazarenko ordered the killings

of Donetsk Governor Yevgen Scherban in 1996 and the head of Itera in

Kyiv for not sharing Lazarenko's gas business philosophy.

(Note: Igor Fisherman was known in the Ukrainian press as

Mogilevich's right hand man who was also High Rock Holding's

financial director during the late 1990s. End note.)



12. (C) Another such businessman was Igor Makarov, who founded the

Itera gas trading company in 1992, which provided Turkmen gas to

former Soviet republics. Firtash claimed that Makarov hired a former

KGB head as his security chief to direct Makarov's gas trading empire

in Central Asia. Firtash recounted that he gave Itera food

commodities through High Rock Holdings, which Itera used to buy gas

in-kind from Turkmenistan. Makarov then paid Firtash in cash with

the proceeds of his gas sales. According to Firtash, Makarov refused

to pay Firtash $50 million in 2001, which drove Firtash to explore

his own gas trading business, ousting Makarov at the same time.



13. (C) According to Firtash, he hired Hungarian-born businessman

Andras Knopp to negotiate new gas trading deals with Kazakhstan,

Turkmenistan and Uzbekistan. Since these Central Asian countries

trusted Firtash as a reputable businessman, they agreed to sign with

Firtash's EuroTransGas (ETG) company, leaving Makarov's business in

ruins.



14. (S) Firtash also recounted that Makarov invited him to dinner in

Kyiv in January 2002, shortly after Firtash had signed the gas deals

with Central Asia. Firtash added he went to that dinner not knowing

if he would be beaten up or even killed for having taken Makarov's

business from him. According to Firtash, Makarov was there with his

head of security, Semyon Mogilevich, Sergei Mikhas, from the

Solnstevo Brotherhood, and a Mr. Overin when Makarov told Firtash he

would regain his gas business as easily as Firtash had taken it away.

Firtash walked away from the meeting alive, and credited his ability

to keep his life and his gas business to his good reputation among

Central Asian leaders.



15. (C) According to Firtash, by 2002, ETG was the sole transporter

of Turkmen gas to Ukraine. (Note: According to media reports, by

2005 Firtash had already created a gas trading empire that allowed

him to easily transition into RUE. In addition, Firtash owns

majority shares in companies in Ukraine, Estonia, Russia, Germany,

Switzerland, Italy, Tajikistan, and Austria all under the umbrella of

the Group DF which he formed in 2007 (Ref B). He also owns 61% of

the Ukrainian Inter Media Group which owns or co-owns 7 television

channels and the Ukrainian News Agency. By 2006, Firtash's estimated

worth was over $5 billion, but most experts believe that Firtash had

low-balled his true worth and estimated it was in the tens of

billions. In his conversation with the Ambassador, Firtash gave no

indication of the scope of his wealth. End note).



The Future of RosUkrEnergo (RUE)

--------------



16. (C) When asked about Tymoshenko's promise to rid Ukraine of RUE,

Firtash responded by making a link between Tymoshenko and Russia. He

argued that the Prime Minister was seeking Russian support to get rid

of RUE, and was making concessions to Russia to accomplish this goal.

He specifically cited what he said was her silence on the August

events in Georgia, her avoidance of a stand on the Holodomor and the

issue of the Black Sea Fleet in Crimea, as examples of the political

concessions she was making to Moscow. Firtash acknowledged that he

was having more and more problems with Russia. He alleged that the

Russians had already excused a $600 million debt that she owed from

her previous gas business that could be used as pressure to get

concessions from her. If Moscow really wanted to get rid of RUE,

Firtash added, it could do so as long as Tymoshenko was at the helm.



17. (C) Responding to the Ambassador's question, Firtash said

Ukraine's current gas debt to RUE was near $3 billion, adding that

the debt was owed directly to RUE and not to Gazprom. In his view,

Ukraine could only clear the debt to RUE in gas since it didn't have

enough cash to pay outright. He added that according to the RUE

charter with Gazprom, any shipments or supplies of gas to RUE must be

confirmed by two signatures on a gas transfer document -- one

signature from Gazprom -- the other from RUE (Firtash). Firtash

argued that if he does not sign the gas transfer document, then

legally there is no proof that gas has been supplied to RUE or

Ukraine, so Gazprom forfeits its ability to demand payment from RUE,

thus keeping RUE in the gas arrangement for some time. He estimated

that Ukraine would have to pay RUE 12 billion cubic meters (bcm) of

gas to settle the debt. This could be done by transferring Ukrainian

gas already in storage to RUE, bringing RUE's reserves in storage in

Ukraine up to 23.5 bcm, since RUE already has 11.5 bcm in storage

(Ukraine's maximum storage capacity is 34 bcm). The gas would

normally be exported to Europe at market prices, which despite

falling world gas prices would still be very profitable. Firtash

hinted that if RUE was removed with Russian approval, Ukraine would

most likely attempt to take or steal all of RUE's gas in storage.



Ties to Russian Organized Crime

--------------



18. (S) The Ambassador asked Firtash to address his alleged ties to

Russian organized crime bosses like Semyon Mogilievich. Firtash

answered that many Westerners do not understand what Ukraine was like

after the break up of the Soviet Union, adding that when a government

cannot rule effectively, the country is ruled by "the laws of the

streets." He noted that it was impossible to approach a government

official for any reason without also meeting with an organized crime

member at the same time. Firtash acknowledged that he needed, and

received, permission from Mogilievich when he established various

businesses, but he denied any close relationship to him.



19. (S) Firtash's bottom line was that he did not deny having links

to those associated with organized crime. Instead, he argued that he

was forced into dealing with organized crime members including

Mogilevich or he would never have been able to build a business. If

he needed a permit from the government, for example, he would

invariably need permission from the appropriate "businessman" who

worked with the government official who issued that particular

permit. He also claimed that although he knows several businessmen

who are linked to organized crime, including members of the Solntsevo

Brotherhood, he was not implicated in their alleged illegal dealings.

He maintained that the era of the "law of the street" had passed and

businesses could now be run legitimately in Ukraine. He underscored

the importance of unifying Ukraine politically in order to reduce the

influence of Russian organized crime bosses on Ukrainian businesses.



TAYLOR