Ukraine's move to halt the privatisation of energy firms highlights fears that Russian electricity monopoly UES is aggressively taking over the energy market, deepening Moscow's influence on the Ukrainian economy.
UES head Anatoly Chubais announced Thursday in Kiev the acquisition of stakes ranging from 16 to 100 percent in 10 out of 27 local energy providers in this ex-Soviet republic.
The deal, whose value was not revealed, was carried out via a holding group in which UES has a third share, along with the Russo-Ukrainian Energostandart group and Ukrainian oligarch Viktor Pinchuk.
The holding would now own 100 percent of stock in one local energy company and controlling stakes in five others - firms which accounted for 45 percent of Ukraine's electricity sales last year, amounting to one billion dollars.
Chubais, who had long sought to gain a firm foothold in the Ukrainian market, called the transaction a "first stage" in the UES expansion in Ukraine.
Boosted by this deal, which the anti-monopoly committee still has to approve, UES would aim for the stakes currently held by the state.
However, Ukraine's Prime Minister Viktor Yanukovich poured cold water on this ambition, declaring Friday that no privatisation sales were now planned, contrary to the government's original plans to sell off its stock in energy companies next year.
"Unfortunately, there were mistakes made in privatising local energy companies. Until we have prepared these companies for this process in a civilised way, we have no intention of privatising them," Yanukovich said.
"At the current stage, there is no question of privatisation's and so we have told Chubais," he added, without further clarification.
Ukrainian President Leonid Kuchma, whose position in the issue is doubly delicate as Viktor Pinchuk, Chubais's co-partner, is his son-in-law, welcomed foreign investors but judged the UES's acquisition of Ukrainian companies premature.
"Ukraine wants Russian investment but not so that Russian or foreign companies would dictate its policies," Kuchma said.
The UES's expansion in Ukraine comes at a time when ties between Moscow and Kiev are chilled by a border dispute and Moscow's demands for the use of an oil pipeline which links the port of Odessa to the western town of Brody and is due to deliver Caspian crude to Western Europe.
Valentina Semenyuk, an opposition lawmaker who heads the parliament's privatisation commission, also slammed the UES's "forced entry" into the Ukrainian market, which "ties Kiev closer to Moscow", its chief economic partner. "UES is not just any company, it is a state monopoly, a liberal empire like Chubais himself likes to call it, which can bring all its weight down on Ukraine's economy and politics," Semenyuk said.
Ukrainian analysts also cautioned against the transaction which, they say, would only strengthen Russia's hold on Ukraine's economy. "Russia already controls Ukraine's oil, gas and nuclear fuel imports as well as refineries and telecommunication grids," analyst Eldar Gazigulin of the strategic research Center pointed out.
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