The Cabinet of Ministers led by Prime Minister Yulia Tymoshenko declared on May 21 it will terminate the Ukrainian government’s contract with Vanco Energy Co.
The Cabinet of Ministers led by Prime Minister Yulia Tymoshenko declared on May 21 it will terminate the Ukrainian
government’s production sharing agreement with Vanco Energy Co. to explore oil and natural gas in the Black Sea shelf and share the proceeds.
The decision followed a May 20 order from Ukraine’s prosecutor general to reinstate Vanco’s license to extract oil and natural gas, escalating a conflict that has become a battleground between Tymoshenko and President Viktor Yushchenko in their ongoing war.
Tymoshenko has characterized the Vanco deal as a scheme, and was undaunted by possible penalties.
“Even if some kamikaze turns to any international court based on these illegal actions, Ukraine won’t only win, but strongly win all these arguments and I don’t want to allow even the thought that Ukraine will have to pay for all this,” Tymoshenko said.
The ongoing conflict between Ukraine’s two leaders has made foreign investors, thousands of which were in town for European Bank for Reconstruction and Development’s meeting this weekend, concerned about Ukraine’s investment climate.
“The way it’s being handled is sending shockwaves and negative signals throughout the business community,” said Morgan Williams, president of the USUkraine Business Council. “Companies are wondering whether their deals will get caught up in political battles. Is this really against Vanco, or a fight against the president? It’s raising questions among the business community and what signals it is getting from the government.”
After Vanco endured attacks on its legitimacy and credibility from Tymoshenko, Yushchenko stepped in its defense.
On May 20, Prosecutor General Oleksandr Medvedko filed a protest with Ukraine’s Ministry of Environmental Protection, claiming it had no legal grounds in denying Vanco its exploration license, canceling the decree’s effect and requiring its annulment.
Tymoshenko announced on May 12 she wants to change the contract conditions under which Vanco will explore and claim deposits in the Black Sea shelf, arguing they are excessively generous and violate Ukraine’s national interests.
The company won the right to explore and drill in nearly 12,960 square kilometers on the Black Sea shelf in April 2006, and signed a contract with the Ukrainian government, then led by Yushchenko and former Prime Minister Viktor Yanukovych, in October 2007.
“How will companies sign contracts if they are canceled at a press conference, without negotiations to find out whether the company is willing to make changes before all this is aired as part of campaign speeches?” Williams said.
Vanco is a legitimate company without intentions to resell its rights to drill, Williams said, contrary to Tymoshenko’s claims that it’s a fraud.
Days after Tymoshenko declared war on Vanco, company officials held a May 15 press conference to disclose its partners in the Prykerchenska oil and natural gas exploration project.
They are Donbass Fuel and Energy Company owned by Rinat Akhmetov, Shadowlight Investment Ltd. owned by Russian Yevgeniy Novitskiy and Integrum Technologies Ltd., believed to be an Austrian holding company.
“These are practically equal partners in managing and financing, but Vanco is the project’s leader as the technical expert,” said Maksym Tymchenko, the general director of Donbass Fuel and Energy. The company got involved at the end of 2006, he said, and was invited by Deutsche Bank.
The revealed partners may have served to dispel Ukrainian media reports that Vanco is incapable of financing the project, earning only about $7.5 million in a recent fiscal year.
Vanco representative Jim Bown declined to reveal the company’s revenues or profit.
US Ambassador to Ukraine William Taylor, Jr. said he was disappointed with the Tymoshenko government for terminating the agreement and asked that it consider further negotiations.
“For the government of Ukraine to attract investors, particularly in those sectors vital to its energy security, it needs to make clear that it respects the sanctity of contracts and the rule of law,” Taylor, Jr. said in a May 21 press release.
