Prime Minister Yulia Tymoshenko declared on May 12 she wants to change the contract under which Vanco Energy Co. will explore the Black Sea shelf.
o Energy Co. will explore and claim deposits in the Black Sea shelf, arguing its conditions are against Ukraine’s national interests.
Ukraine’s Ministry of Environmental Protection canceled on April 25 Vanco’s special license to explore the Black Sea’s Prykerchenska shelf, causing the American firm to file a 60day arbitration notice against the government for violating contract terms, during which it will seek an outofcourt settlement.
The image of Ukraine’s business climate risks mostly shortterm damage if the conflict reaches arbitration in the Stockholm international court, observers said.
“Tymoshenko’s reprivatization drives cause concern to Westerners, including Vanco,” said Ivan Lozowy, a Kyiv political analyst at the Institute of Statehood and Democracy, financed by its clients.
“But in the long run, this deal cancellation will not seriously impact Western investors here. They come because of high profit margins in the range of 15 and 20 percent.”
Vanco signed an October 19 deal with the Ukrainian government to explore for natural gas and oil in a 12,960squaremeter section of the Prykerchenska Black Sea shelf.
Under the deal, Vanco is entitled to 70 percent of the natural gas and oil discovered, while also securing 70 percent of the profit the Ukrainian government gains from the remaining 30 percent.
Tymoshenko alleged such conditions are outrageous, while company officials said they are normal, compared to agreements reached by other governments.
The contract indicates no deadline for the government to compensate the drilling expenses, which the company also said is normal.
Tymoshenko had the Economics Ministry draft a bill that would limit any explorer’s share of production to no more than 30 percent, prior to any compensation of expenses.
Vanco Energy Chair Gene Van Dyke said his firm planned to invest $20 billion in the Prykerchenska project, and lawyer Oleg Alyoshin of Vasil Kisil & Partners said Vanco stands to lose up to $100 million if the deal is canceled.
However, Tymoshenko accused Vanco of being a mere speculator, intending to resell drilling rights to companies such as Russian giant Gazprom. Vanco already has business relations with Russian oil and gasoline producer Lukoil.
Furthermore, Vanco’s most recent annual revenue was a mere $7.5 million, the Ukrainian media reported, casting doubt on the company’s ability to invest billions of dollars even with crediting and financing. Vanco offocials didn’t confirm this figure.
In criticizing the government’s deal with Vanco, Tymoshenko laid blame squarely on “soldout leaders and officials,” namely President Viktor Yushchenko, with whom she’s currently engaged in a political duel that has grown fiercer with every passing day of her government, formed in late December.
She demonstrated she is undaunted by accusations of having harmed Ukraine’s investment environment.
“Government representatives will say we are acting against investors and are worsening the investment climate,” Tymoshenko said. “But it’s simply not necessary to betray national interests.”
