Gas pricing wars between Russia and Ukraine, like the one breaking out now, have generally ended badly for the two countries and Gazprom, the Russian energy monopoly.
But not for Dmytro Firtash, a Ukrainian businessman who made a career and a fortune as a middleman in this troubled energy trade. For more than five years, Gazprom sold Firtash fuel at reduced prices. He resold it to the Ukrainian state energy company, Naftogaz, and other clients in Ukraine at a markup, making billions of dollars along the way.
Throughout the former Soviet Union and Eastern Europe, such gas middlemen, who arrange big-ticket deals between suppliers and buyers, have been essential to the region's energy dealings, as well as its politics. An open question after the change of leadership in Ukraine this year is whether a new gas middleman will play a role in the current pricing dispute.
In the past, players like Firtash have helped broker solutions. Worried about higher energy prices, European governments were willing to accept murky arrangements with the middlemen to assure a steady flow of natural gas.
An energy crisis in Ukraine now seems imminent, analysts say. In an analytical note published recently, the policy research group IHS wrote of the two sides' intransigence: "A new gas war between Russia and Ukraine could spark an actual war."
But this time around, the middlemen may not have the same political capital to work out a deal. In the months after the Ukrainian revolution, such players have come under increased scrutiny for their business and political activities.
Two court cases in the United States, one criminal and one civil, shed new light on Firtash's operations - and the role of the gas middleman, not only in Eastern Europe but around the world.
In a civil court case in the US District Court for the Southern District of New York, lawyers have argued that Firtash funnelled profits from the Gazprom deal into supporting pro-Russian politicians in Ukraine.
The lawsuit against Firtash and RosUkrEnergo, a gas-trading company he co-owned with Gazprom, was filed in 2011 under United States racketeering laws and the Alien Torts Statute by Yulia Tymoshenko, a former Ukrainian prime minister and presidential candidate. It claims that Firtash first laundered a portion of the Gazprom funds through Manhattan real estate deals that also benefited an American political advisor of the former president, Viktor F Yanukovych. Lawyers recently asked for additional time in the case to collect as evidence documents discovered in the Ukrainian presidential residence after the revolution.
In the criminal court case, federal prosecutors in Chicago recently unsealed an indictment accusing Firtash of bribing government officials in India after transferring money through American banks. Firtash was detained in Austria on those charges and is awaiting an extradition ruling.
Firtash has denied wrongdoing in both cases.
A lawyer involved in Firtash's defence said that the businessman "categorically denies the allegations in the indictment and questions why the US government went through so many years and so much tax money pursuing a case involving an Indian mine, Indian officials and a Ukrainian businessman".
Of the case filed by Tymoshenko, the lawyer said, "Anybody who regards this case as serious needs to look at the history of frivolous RICO claims filed in New York and what has happened to them."
Energy analysts and minority investors in Gazprom have long criticized the company for allowing middlemen to siphon off profits. Firtash, for example, had been buying about eight billion cubic meters of Gazprom's gas a year at a price $95 to $105 lower - per 1,000 cubic metres - than what Gazprom charged the state energy company, Naftogaz, costing Gazprom about $800 million annually. Gazprom has said its pricing policies are purely commercial.
"Gazprom needs a middleman like a hole in the head," said Ken McCallion, a lawyer with McCallion & Associates, a law firm representing Tymoshenko and other Ukrainian political opposition figures in the lawsuit. Tymoshenko, whose nickname is "the Gas Princess," would know: Before entering politics, she was chief executive of a gas trading company, United Energy Systems of Ukraine.
"The middleman was there for one purpose, to grab some money and grease the operation of this political-industrial machine," McCallion said.
Jonathan Stern, an authority on the European natural gas market at the Oxford Institute for Energy Studies, said Ukraine's gas middlemen, whatever their role in politics, also helped Gazprom provide flexible pricing to Ukraine's industrial gas customers, some of which would have been compelled to close factories if charged the full rate. In a letter to European leaders released this month, President Vladimir V Putin of Russia noted that such discounts to Ukraine's chemical industry most likely kept factories open and workers employed.
The New York lawsuit makes clear they also allowed a profit for Firtash. It traces his funneling money from Ukrainian gas deals to a New York real estate fund established with the help of Paul J Manafort, a Republican political operative who advised Yanukovych on his 2010 campaign in Ukraine.
In 2008, Firtash's investment fund struck a deal to buy the former Drake Hotel on Park Avenue for $885 million, according to documents filed in the lawsuit. The fund planned to reopen it as a mixed-use retail and residential building to be called Bulgari Tower, named for the luxury goods brand.
Firtash and Manafort, who was a principal at the lobbying firm Davis Manafort Partners, solicited investors for the building deal. But the deal fell apart before it closed. Another senior partner at the firm, Rick Davis, was on leave while serving as campaign manager for Senator John McCain's 2008 presidential race.
Despite numerous efforts, neither Manafort nor Davis could be reached for comment.
The criminal indictment in Chicago became public after Firtash was detained in Vienna on March 12 at the request of the Federal Bureau of Investigation.
The indictment accuses Firtash and associates of bribing officials in the Indian state of Andhra Pradesh to secure rights to mine titanium they planned to sell to Boeing. Boeing quickly broke off the deal and is not accused of any wrongdoing. Firtash wired about $18.5 million in bribes to Indian officials, some of it through American banks, court documents contend.
Firtash said, through a spokesman, that the case relates to an eight-year-old deal in India and reflects political spite, as it came so soon after the change of government in Kiev. Firtash's lawyer, Dieter Böhmdorfer, the former Austrian justice minister, couldn't be reached for comment.
