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06KYIV4375, UKRAINE: COALMINE METHANE-1 PROJECT – OPIC RESPONSE

November 28, 2006

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Reference ID Created Released Classification Origin
06KYIV4375 2006-11-28 12:56 2011-08-30 01:44 UNCLASSIFIED Embassy Kyiv

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #4375/01 3321256
ZNR UUUUU ZZH
R 281256Z NOV 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0482
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC

UNCLAS KYIV 004375 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS TO OPIC/SMEF/GALE 
DOE FOR LEKIMOFF, CCALIENDO 
 
E.O. 12958: DECL: NA 
TAGS: EPET ENRG EINV PGOV UP
SUBJECT: UKRAINE: COALMINE METHANE-1 PROJECT - OPIC RESPONSE 
 
Ref: STATE 150913 
 
1. Summary.  The following information is sent in response to reftel 
action request for embassy comments and clearance on OPIC financing 
for a coalbed methane project involving Ukrainian companies 
EnergoCapital, EnergoImpex, and Gorlovsky.  Post was unable to 
ascertain definitive ownership information for the companies 
EnergoCapital and EnergoImpex, which refused to meet with EconOff 
despite repeated requests.  All three companies are believed to be 
connected to two large Ukrainian industrial groups -- the Industrial 
Union of Donbas and Systems Capital Management.  Coalbed methane is 
an alternative energy source in Ukraine with great potential, and 
could assist Ukraine in becoming more energy independent.  Post 
grants its clearance on the loan application.  End Summary. 
 
EnergoImpex and EnergoCapital 
----------------------------- 
 
2. Post was unable to ascertain ownership information for the 
companies EnergoImpex LLC and EnergoCapital LLC, and the management 
of both companies failed to respond to repeated requests to meet 
with EconOff.  EnergoImpex is registered in the city of Donetsk as a 
coal enrichment enterprise, and the National Electricity Regulatory 
Commission previously has granted EnergoImpex gas distribution 
licenses.  EnergoCapital is registered in Kyiv at 14B Yaroslaviv 
Val. 
 
3. Embassy internet research found that EnergoCapital supplied 
equipment valued at $77,000 to the Ukraine Methane Group (UMG) in 
2005.  UMG was registered in July 2005 with $78,000 of statutory 
capital and one employee (General Director Yuri Fedorov, who 
previously worked as an engineer at EnergoImpex LLC).  According to 
on-line data, UMG's line of business is natural gas production, but 
UMG conducted no economic activity in 2005.  UMG shares 
EnergoImpex's address in Donetsk at 66 Maiska Street. (Comment: 
Reftel notes that UMG was owned by the project's U.S. sponsors and 
EnergoCapital.  UMG may have been registered expressly for the 
project described reftel.) 
 
Possible Connections to IUD 
--------------------------- 
 
4. Embassy conjectures that EnergoImpex and EnergoCapital are 
Industrial Union of Donbas-affiliated structures, based on the 
intertwined finances, office locations, and reftel's mention of 
AmCit Jonathan Kelafant's involvement in the proposed project as 
president of Covalent.  Kelafant is also Senior Vice President of 
Advanced Resources International (ARI), which is the U.S. contractor 
for a 2005 Trade Development Agency feasibility study currently 
underway on coalbed methane capture in the Donbas basin.  ARI's 
Ukrainian partner in the project is EcoMethan, a company which 
belongs to the Industrial Union of Donbas (IUD). 
 
Industrial Union of Donbas 
-------------------------- 
 
5. IUD is a diversified holding company which controls over 40 major 
enterprises in metallurgy, mining, engineering, food processing and 
agriculture in Ukraine, Russia, and Eastern Europe.  Billionaire 
co-owners Serhiy Taruta and Vitaliy Hayduk each control equal 49.99% 
shares of the company; the remaining 0.02% share belongs to Donetsk 
based Oniks-Don company, the ownership of which is unknown. 
President Yushchenko recently appointed Hayduk Secretary of the 
National Security and Defense Council. 
 
Gorlovsky Machine Building Factory 
---------------------------------- 
 
6. The Gorlovsky company, which according to reftel is owned by 
EnergoImpex, is likely the Gorlovsky Machine Building Factory, which 
produces coal mine equipment and is one of eight holding companies 
making up UkrUgleMash (http://uum.dn.ua/en/).  According to local 
press, several Donetsk-based industrial groups founded UkrUgleMash 
in 1998 to gain control over the coalmining equipment sector.  One 
of the founders of UkrUgleMash was ARS, a company with ties to 
Ukraine's wealthiest man, Renat Akhmetov, who is also a member of 
parliament and the main financial backer of the Party of Regions. 
The current General Director of UkrUgleMash, Sergey Pavlenko, was 
previously Deputy General Director of Economic Affairs at the 
Industrial Union of Donbass. 
 
Krasnolimanska and Kirovska Mines 
--------------------------------- 
 
7. Krasnolimanska coalmine is a part of the GOU-owned Krasnolimansky 
holding company, created in 1996. The holding's other asset is 
Krasnolimansky Coal Enrichment Factory.  Krasnolimanska mine began 
operations in 1958 with a designed annual production of 1.2 million 
tons.  It is one of the most dangerous mines in Ukraine due to 
methane gas concentrations which can lead to explosions. 
Krasnolimanskaya conducts systemic degasification; in 2004, the mine 
captured 19.3 million cubic meters (mcm) of methane and used 1.82 
mcm at the mine's boiler facility. 
 
8. Kirovska mine is part of GOU-owned MakeevUgol, which consists of 
5 mining complexes located in and around Makeevka, Ukraine. 
Kirovska also i
s considered a dangerous site due to methane gas and 
conducts degasification operations. In 2004, all five MakeevUgol 
mining enterprises captured a combined 60.3 mcm of methane gas and 
used 30 mcm at their facilities.  Kirovska mine is one of the sites 
participating in the current Trade Development Agency feasibility 
study on coal bed methane production.  Makeevka is a region in the 
Donetsk Oblast, which is reportedly under the political and 
financial control of former Deputy Donetsk Oblast governor and now 
Minister of Environment and (reportedly) Renat Akhmetov's right-hand 
man Vasyl Dzharty. 
 
Donetsk Coal Basin 
------------------ 
 
9. Donetsk Coal Basin (Donbas) is believed to be one of the world's 
largest methane deposits with up to 12 trillion cubic meters of 
estimated reserves. (Note:  Conservative estimates are for a minimum 
of 1.7 trillion cubic meters.)  However, large scale production of 
coal bed methane has not been developed because of the depth of 
Donetsk mines and the lack of infrastructure to supply captured gas 
to potential consumers such as heat and power plants. In addition to 
Krasnolimanska and Kirovska, other mines in Donbas that have 
developed on-site methane capture and utilization technologies 
include Zasyadko, Krasnoarmeiskaya-Zapadnaya, Glubokaya and 
Scheglovskaya-Glubokaya mines. 
 
Comment 
------- 
 
10.  Large financial industrial groups, and their politically 
connected owners, are common in Donetsk Oblast.  Post was not 
surprised that the companies in question appear to have connection 
to one or more of these large groups.  Coalbed methane is an 
alternative energy source in Ukraine with great potential, and could 
assist Ukraine in becoming more energy independent, a goal the U.S. 
supports.  The present loan request may have evolved from the 2005 
TDA coalbed methane feasibility study.  Post grants its clearance on 
the loan application. 
 
TAYLOR

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