Yushchenko administration survives its first controversy (02/27/05)

Yushchenko administration survives its first controversy

by Zenon Zawada
Kyiv Press Bureau

KYIV - Viktor Yushchenko's presidency has survived its first scandal, though not without casting doubt upon his ability to fence his government off from the myriad clashing business interests that dominate Ukrainian politics.

The center of controversy was American-born Roman Zvarych who was appointed the nation's minister of justice by President Yushchenko early in February.

Last week Mr. Zvarych threatened to resign his post out of concern that he and his wife could possibly be dragged into scandal because of her oil dealings. Svitlana Zvarych is assistant manager of Oil Transit, an oil re-exporting firm that buys oil from Russia and resells it to other nations.

Mr. Zvarych backed off his threat on February 21, saying he would remain as justice minister and has no present conflicts with fellow ministers, including Prime Minister Yulia Tymoshenko.

"I will continue to work along those lines clearly charged to me by the president," Mr. Zvarych told Ukraina Moloda, a Ukrainian daily newspaper. "Most of all, this is a rooting out of any cases of corruption in the executive power."

To some high-ranking officials, Mr. Zvarych's resignation threat appeared to be an attempt to pressure the government to reconsider its ban on oil re-exportation, a decree issued on February 16 that had the unanimous support of all Cabinet ministers, except for Mr. Zvarych.

The government decree stated that its goal was to "prevent negative phenomena and to forestall destabilization of the situation on the internal oil market," as well as "to guarantee the stability" of work and output of the country's oil-producing industries in order to fulfill the needs of agricultural enterprises during the spring farming season.

As Ukrainian journalists began uncovering more details about his wife's business dealings, it became apparent that Mr. Zvarych was also trying to defuse any potential scandals that could have escalated into serious public relations damage to the Yushchenko administration further on.

Ms. Zvarych confirmed this in an interview with Ukraine's Trybuna website. Her troubles involve Ihor Yeremieyev, a Verkhovna Rada national deputy who is a major shareholder of the Halychyna oil refinery.

She told Trybuna that Oil Transit had no choice but to agree to sell oil to Mr. Yeremieyev because National Customs Service director Mykola Kalenskyi denied her the ability to re-export it, even before the ban had been enacted.

Oil Transit sold 35,000 tons to Mr. Yeremieyev, according to a letter written by an employee and sent to Ms. Tymoshenko. This document alleges that Mr. Yeremieyev's plan was to acquire oil through Halychyna and other firms he owns, thereby enabling him to create illegal schemes to take tax compensation from the government.

Though Ms. Zvarych said she was not involved in any scheme, she grew increasingly concerned that Mr. Yeremieyev would tie her and her husband to his shady dealings. She canceled her plans to sell him oil after becoming skeptical of his business practices.

"Imagine the situation if we agreed to follow Yeremieyev's scheme," Ms. Zvarych told Trybuna. "But who would have believed that our company, which set a contract for further illegal tax compensation to be extracted from the state budget, did not obtain anything?" Ms. Zvarych said.

Such an outcome would have put them in a very vulnerable position with their opponents, she said.

Mr. Yeremieyev, elected to represent the Volyn region, is a member of the People's Agrarian Party, which recently changed its name to the People's Party. Its leader is Volodymyr Lytvyn, the chairman of the Verkhovna Rada.

The Zvarych controversy is the first sign that the Yushchenko administration faces enormous obstacles before it makes even the slightest progress in untangling the nefarious web of business and politics in Ukraine, experts said.

"There is a high level of expectation, that is by itself dangerous because that level is not possible to realize," said Mykhailo Pohrebynskyi, the director of the Center for Political Research and Conflict Studies in Kyiv.

"Corruption will remain, and there's a huge task just to limit it - let alone eliminate it. They will blame the president because he promised to end corruption," Mr. Pohrebynskyi added.

The Cabinet unanimously supported a ban on oil re-exportation, particularly because of a deficit of oil and petroleum materials for agricultural use.

However, Ms. Zvarych insists that such deficits don't exist.

On Wednesday, Ms. Tymoshenko announced that Ukraine would impose a 20 percent value-added tax (VAT) on oil imports into Ukraine. All questions regarding re-exportation of oil have been set aside, she said, implying the blockade still stands.

Incidentally, Mr. Zvarych never intended for the threat of resignation to become public, said his press secretary, Liya Ilchenko. Once the threat became public however, Mr. Zvarych agreed to an interview with Channel 5.

"I won't tolerate some businessmen, who are also national deputies in Ukraine and have powerful positions in the oil-refining sector, to interfere with the work of my ministry," Mr. Zvarych stated on Channel 5 last week.

"And, secondly, I also won't allow attempts to drag members of my family into corrupt schemes as a result of the acts and decisions of certain members of government," he said.

Those comments made by Minister Zvarych became front-page news for Kyiv's newspapers, particularly those that sought out the opportunity to portray a fractious and divided Yushchenko government.

Mr. Yushchenko said the current controversy over oil re-exportation could apply to other commodities.

"If there isn't re-exportation of oil, then that raises the question: what about seeds?" President Yushchenko said. "Can we re-export Russian wood? Can we re-export Russian pipes, chemicals and metals, and so forth?"

It'll take more than a public relations gaffe by a minister to severely dent President Yushchenko's image as a reformer, Mr. Pohrebynskyi said.

"For now Yushchenko has such high public trust that I don't think this will hurt his popularity."

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