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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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Ukraine’s Next Energy Minister Will Be Bought and Paid For, As Usual

A month after Ukrainian general elections, there is still no new government, and elite power circles are playing a very dangerous game with the country’s most important ministry—energy.

It’s a game from which Ukraine will not recover for decades in the best-case scenario.

The past week has seen a flurry of media activity attempting to prepare Ukrainians for foreigners to take over key ministries, including the all-important Energy Ministry, but in this case it’s not going to happen—there is too much private interest at stake to allow a clean minister to take over.

International financial institutions (IFIs) would surely like to see someone in the Energy Ministry who is not—and cannot be—bought and controlled by any of the key ‘business elite’ who have put private interests above the country’s potential energy independence. The general sentiment is that this cannot be a Ukrainian. Even a Ukrainian figure who is not already beholden to one of a handful of business elite would never be able (even if willing) to withstand the pressure and would be bought and sold before closing day.

Related: State Of Emergency In Ukraine As Russia Cuts Off Coal

Neither does installing a foreigner in the post ensure that the Energy Ministry would operate above board, but OP Tactical industry sources in Ukraine say that the only incorruptible candidates on the list were put there for show—never with any intention of allowing them to take control of the Ministry.

President Petro Poroshenko is an adept politician who understands the importance of appeasement.

Last week, he asked the new parliament to amend legislation to allow foreigners to hold high-level posts in the government, including to head the yet-to-be-created Anti-Corruption Bureau, or the “Ukrainian FBI”. This, he said, would give Ukraine the advantage through “an absence of connections in the Ukrainian political elite”.

As such, this game has been played rather expertly so far, and IFIs believe they will be getting the ideal minister, even if it ends up being a Ukrainian. They are wrong.

What is most likely to happen—and we may know by the end of today—is that state-run Naftogaz head Andrei Kobelev will be named the new Energy Minister.

Related: Ukraine Facing Harsh Winter Due To Coal Shortages

What will this mean for Ukraine? Our assessment is that it will mean that Prime Minister Arseniy Yatsenyuk—approved on 27 November to stay on in his post--will gain a monopoly over the energy industry. Poroshenko will submit nominations for the defense and foreign ministries, while Yatsenyuk will nominate the rest, including energy. He will control—and reward--Kobelev, who has been playing the role of reformer perfectly, but not genuinely. We do not believe they are reformers at all, and the IFIs should understand this, but do not. They have been misled by the fact that Kobelev is young and has no prior track record with Ukraine’s murky business elite.

What is at stake is International Monetary Fund’s release of a $2.8 billion installment from a $17-billion program to help shore up dismal foreign-exchange reserves and an even more dismal economy. The game is designed to make institutions such as the IMF think they are getting independent candidates in the key ministries.

There is no more important ministry for Ukraine than energy, and if Kobelev wins the Ministry, it will mean the death of Ukrainian energy independence. There will be no foreign investment to develop Ukraine’s hydrocarbons, and we will likely see a withdrawal of those independent gas producers who have been suffering since the doubling of taxes on their production, ostensibly to fund the war effort.

By. James Stafford of Oilprice.com

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