Polish outcome: Nicholas Zlochevskyi receives oil & gas assets of Jan Kulczyk

February 2, 2016

After the death of an influential Polish businessman that for many years headed the rankings of Forbes Polska, his family is getting rid of assets in Ukraine.

The sale of 70 % stake in KUB-Gas by a Canadian public company Serinus Energy was announced yesterday. KUB-Gas produces gas in Dnieper-Donets Basin (in particular, Olgovskoye, Makeyevkoye, North Makeyevkoye, Vergunskoye and Krutogorovskoye fields in the Luhansk region).

The buyer is Resano Trading LLC, an affiliate of Burisma Holdings, founded by Nicholay Zlochevskyi, the former Minister of Ecology and Natural Resources of Ukraine in the government of Mykola Azarov. Today, Burisma Holdings is one of the largest private oil and gas companies in Ukraine that is developing most promising fields in the country.

In 2014, shortly after the Revolution of Dignity that brought a change of power in Ukraine, the Wall Street Journal and New York Times reported that the Board of directors at Burisma Holdings was joined by Hunter Biden, the son of Vice President of US Joe Biden and a former President of Poland Aleksander Kwasniewski. Later, this information appeared on the Holding’s official website. President Kwasniewski also confirmed his appointment and the ownership of Nilokay Zlochevskyi on his official page on Facebook. Previously, Mr Zlochevskyi strongly denied any affiliation with Burisma Holdings.

“There are no reason to talk about him (Zlochevskyi. – Forbes) as a person of Yanukovych. We should remember that … Petro Poroshenko also served in the government of Azarov, and it’s not fair to label him as a former-regime-guy “, wrote President Kwasniewski two years ago.

A 70% stake in KUB-Gas now belongs to Burisma Holdings. From 2010, it was controlled by Kulczyk Investments, owned the richest Pole Jan Kulczyk. He received it following a deal with the businessman Mikhail Afendikovym in Luhansk. While 30% remained in the ownership of a Canadian Cub Energy, Mr Afendikov remained the controlling shareholder. The word on the market was that KUB-Gas was linked to the family of the former People’s Deputy Efim Zviagilskiy, which has long controlled the largest mine in Donetsk – Zasyadko.

Also among the owners of Lugansk gas company is an American businessman Robert Bensh. Apart from acting in a number of oil and gas companies in the United States and Ukraine, he was a special agent of the US Drug Enforcement Administration.

Due to the armed conflict in Donbass region, as well as a deepening crisis in the Ukrainian economy and smoldering reforms in the past year, KUB-Gas was forced to reduce staff by a third. A lack of investment has led to a drop in production: in Q3 of 2015 production amounted only 229.5 million cubic meters.  It is 38% less than in the same period of 2014, and 5% less compared to Q2 of 2015.

There is every reason to believe that after the change of owners, the business of KUB-Gas will improve. Hunter Biden and Aleksander Kwasniewski will continue to successfully lobby the interests of Burisma Holdings at the highest political level – without this, it is impossible to develop oil and gas business in any country.

“The acquisition of promising assets in Ukraine is an important part of Burisma’s strategy. Among our core values ​​is energy independence and energy security of the country … We will also continue to search for new investment opportunities both in Ukraine and abroad “, commented the deal yesterday an independent director at Burisma Holdings Devon Archer.

 Aleksander Kwasniewski stressed that today Burisma is “the most technologically and professionally trained group with required expertise in natural gas production in the Ukrainian conditions”.

The fate of other projects of Kulczyk Investments in Ukraine remains unknown. After the death of Jan Kulczyk in July 2015, his holding lost an effective lobbyist, since he was personally involved in promoting his business interests in Ukraine.

In 2014, Kulczyk enjoyed protection from government of Arseniy Yatsenyuk and gained support for a few projects in the energy sector, which promised his company considerable profits. In particular, Kulczyk started the construction of a gas corridor East – West to supply liquefied natural gas to the Ukrainian market with an LNG terminal on the Baltic Sea at Swinoujscie outside Gdansk.

The businessman also considered the possibility of supplying Polish coal to Ukrainian power stations. In the spring of 2015, the Cabinet of Ministers of Ukraine approved a decree on the preparation of the “Energy bridge Ukraine – European Union”, based on which Polenergia owned by Jan Kulczyk could buy cheap Ukrainian electricity at the Khmelnitsky nuclear power plant, and to supply it to the European Union, where there is a shortage of electricity.

A lack of progress in these ambitious projects is also due to the exacerbation of the internal political confrontation in Ukraine, which is on par with the armed conflict in the Donbass region, reduces the attractiveness of the domestic economy to foreign investors. In addition, the level of corruption remains one of the highest in the world.

A few days ago, on January 27, Transparency International has published a new World Corruption Perceptions Index CPI at the end of 2015. Ukraine took the 130th place out of 168, with 27 points out of 100. It is only 1 point higher than in 2014.

Transparency International notes that a slight increase in Ukraine’s index was ensured by a stronger public condemnation of corrupt officials, the creation of anti-corruption bodies and the emergence of a social movement to combat corruption. However, the delay in the actual punishment of graft and corruption component in the strengthening of relations between business and government interferes Ukraine to make a significant progress in terms of CPI.