=========================================================
ACTION UKRAINE REPORT -
AUR
An International
Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business,
Religion,
Sports, Government, and Politics, in Ukraine and Around the
World
OPIC CLOSED FOR
UKRAINE
U.S. Overseas Private Investment
Corporation (OPIC)
(Article One)
ACTION UKRAINE REPORT - AUR - Number
892
Mr. E. Morgan Williams, Publisher and Editor,
SigmaBleyzer
WASHINGTON, D.C., TUESDAY, FEBRUARY
19, 2008
INDEX OF ARTICLES
------
Clicking on the title of any article takes
you directly to the
article.
Return to Index by clicking on Return to
Index at the end of each article
2
. "NOW IS THE TIME TO DRAMATICALLY
REFORM
UKRAINE'S LEGAL SYSTEM" OP-ED by Irina Paliashvili, Chair,
Legal Affairs Working Group
U.S.-Ukraine Business Council (USUBC),
Washington, D.C.,
President & Senior Counsel. RULG-Ukrainian Legal
Group, P.A.
Kyiv Post, Kyiv, Ukraine, Thursday, February 14, 2008
3
. TYMOSHENKO GOVERNMENT OFF TO A
PROMISING,AMBITIOUS STARTOP-ED By Anders Aslund,
Kyiv Post
Kyiv, Ukraine, Thursday February 7, 2008
Catherine Belton, Roman Olearchyk, Financial Times (FT)
London, United Kingdom, Tuesday, Feb 12, 2008
Andrew E. Kramer, The New York Times,
New York, New York, Wed, February 13, 2008
Business New Europe (bne), Berlin, Germany, Wed, Feb 13, 2008
Commentary & Analysis: by Alla Yeremenko, Yulia Mostovaya
Zerkalo
Nedeli (Mirror Weekly), # 6 (685)
Kyiv, Ukraine, Monday, February 18, 2008
Analysis & Commentary: by Vladimir Socor
Eurasia Daily Monitor,
Volume 5, Number 30,
The Jamestown Foundation, Wash, DC, Fri, Feb 15,
2008
13
. YUSHCHENKO OUTMANEUVERS PUTIN
U.S.-Ukraine Business Council (USUBC), Wash, D.C. Nov 2007
Harvard University, Friday, March 7-Saturday, March 8,
2008
Harvard Ukrainian Research Institute
BARRIER TO FOREIGN INVESTMENT
By Jim
Davis, Business Ukraine magazine
Kyiv, Ukraine, Monday, February 11,
2008
Amid all the fanfare that has accompanied the signing of a protocol
which
will bring Ukraine WTO membership, it is worth noting that a
disagreement
over a relatively small amount of money has made it impossible
for Ukraine
to enjoy the benefits of an obscure but extremely important
agency of the
United States government, the Overseas Private Investment
Corporation
(OPIC).
Estimates made by well-informed persons involved
in the process relating to
OPIC would suggest that had the problem could have
been resolved when it
first arose in 1999, Ukraine could have gained an
absolute minimum of an
additional USD 5 - 10 billion in foreign direct
investment - and probably a
lot more than that.
The issue could have
been solved years ago, but it was as is so often the
case it is a problem for
which no one had primary responsibility on the
Ukrainian side.
All
those, i.e. the various ministers, who had parts of the responsibility
within
their jurisdictions failed to understand the overall importance of
the issue
and therefore guarded their own turf rather than that of the state
as a
whole.
The end result has been to deny the Ukrainian economy one of the
tools that
could have been attracting investment into the country ever since,
with a
potential opportunity cost running into the billions of
dollars.
A SIMPLE PROBLEM MADE
COMPLEX
The matter involves the non-payment of a state debt
incurred by the Ministry
of Defence about ten years ago at a time when the
needs of various
ministries were seriously under-funded and ministers were
prone to making
deals first and worrying about payment later.
The debt
in question was covered by OPIC political risk insurance. OPIC paid
the claim
to the insured U.S. supplier and looked to Ukraine to ultimately
make good on
the original agreement, as was called for in the
Ukraine-OPIC
agreement.
The amount of the claim, approximately USD 17
million, is quite small when
viewed in the light of the overall budget of
Ukraine.
For the uninitiated, USD 17 million might appear to be a sum that could
be
dealt with in a simple meeting among ministers of any
government.
However, there is no single ministry nor any single minister
who has ever
been tasked with dealing with the problem in a priority manner,
so time and
time again the issue has been discussed at seemingly high-level
meetings
between U.S. ambassadors and embassy staff on one side and
various
ministers and prime ministers on the other.
The matter is
further complicated by the nature of Ukraine's budget process.
No government
has wanted to debate the debt in parliament so it has never
been made a part
of any annual state budget.
With no line item listing of the debt, some
other mechanism would need to
be found in order to keep a payment from being
illegal under the existing
legislation of the state budget act. So far, no
creative payment mechanism
has been found that would meet the needs of both
sides of the disagreement.
The most recent top-level discussions came
during a visit to the United
States by then-Prime Minister Viktor Yanukovych
in late 2006.
At the time Yanukovych promised U.S. officials during
discussions that the
matter would have his personal attention and would be
settled in a very
short time. However, the Yanukovych government neither paid
the amount
owed nor requested or agreed to negotiations to adjust the amount
owed.
ABOUT OPIC
OPIC
is an independent U.S. government agency whose mission is to mobilise
and
facilitate the participation of U. S. private capital and skills in
the
economic and social development of less developed countries and areas,
and
countries in transition from non-market to market economies.
OPIC
assists U.S. companies by providing financing (from large structured
finance
to small business loans), political risk insurance, and investment
funds.
OPIC complements the private sector in managing risks associated
with foreign
direct investment and supports U.S. foreign policy.
Since its
establishment in 1971, OPIC programmes have grown and expanded to
encompass
the support of development in over 150 countries. In 2007, OPIC
assisted 70
projects in 38 countries and regions involving a wide range of
industries. Of
all the projects underway around the world in 2006, 87% or 61
projects
involved U.S. small businesses in 35 U.S. states.
Many OPIC projects
involve U.S. procurements, but it is also small and
medium-sized enterprise
(SME) projects in recipient cooperating countries
that receive the greatest
benefits. For example, in Kazakhstan, OPIC
provided debt financing for a USD
1.89 million investment in the Asian
Credit Fund (ACF), a non-banking
microfinance institution established by
the Mercy Corps.
In
Azerbaijan, OPIC provided financing to SOAKredit LLC (SOA), an
independent
limited liability non-credit organisation. SOA's purpose is to
implement an
innovative finance programme primarily designed to stimulate
local business
growth and facilitate Azerbaijan's transition from a demand
to a market
economy.
In Russia, OPIC is providing financing to ZAO Europlan
(Europlan), the
leading leaser of equipment and vehicles to SMEs throughout
the Russian
Federation, to support a planned USD 450 million
expansion.
CREATING CONFIDENCE, OFFERING
SECURITY
Nadir Shaikh, Chairman of the Board of Citibank
Ukraine, explained that SME
firms and medium-sized projects are the ones that
would benefit most if
Ukraine settles its dispute with OPIC.
Shaikh
has been one of the persons most active in promoting a settlement
with OPIC
and as recently as two weeks ago participated in a meeting with
senior
government officials where this matter was discussed.
"We know from
experience that the largest foreign firms come here fully
prepared to finance
their own way into the Ukrainian market. Their
investments are based on
advice from the most sophisticated sources in their
own companies or from
professional advisors such as investment banks. It is
the smaller foreign
investors who need the type of help and risk coverage
that OPIC is able to
give.
"Making OPIC political risk insurance available would, for example,
would
give many smaller foreign investors the kind of backing that would
first
help convince their own boards of the viability of investments in
Ukraine,
and would also assist them in finding financing for projects here or
in
their home country.
"In addition, it would help Ukrainian companies
to get access to financing
that could be provided by such banks as Citibank,
based on OPIC risk
coverage programmes.
"Settling the current dispute
requires a firm decision and political will on
the part of government to find
a financing mechanism to pay the current
claim. I am optimistic that the
efforts of the current government are more
likely to find a solution to this
problem," Shaikh concluded.
A RELATIVELY
TRIFLING DEBT
One of the most interesting elements in the
OPIC-Ukraine issue is the
flexibility exhibited by OPIC in attempting to
settle the claim. On several
occasions various Ukrainian governments have
been told that while USD
17 million is the amount actually owed, OPIC is
willing to engage in
negotiations that could lead to a solution that would
mean a substantially
reduced settlement.
Even with the clearest
signals possible from OPIC, no Ukrainian government
over the last ten years
has been willing or able to find the will to effect
a settlement.
The
issue has not been filed away in a long forgotten filing cabinet,
either.
Morgan Williams, president of the U.S.-Ukraine Business Council
(USUBC) said
that the OPIC issue has been a matter of discussion between
the two
governments in every meeting that he has attended in Washington or
Kyiv in
recent years.
"On January 31, while addressing a meeting of the USUBC
that included
representatives of the American Chamber of Commerce and U.S.
embassy
officials, Vice-Prime Minister Nemyrya made a point of telling the
audience
that he was fully aware of the problem and that he expects a
solution to be
found soon. We sincerely hope that is correct.
"OPIC
programmes are being used all over the world to spur development and
USUBC
thinks that the inability of Ukraine to solve its OPIC problem has
cost the
country at least one billion and perhaps several billions of
dollars in lost
investment opportunities. In effect, a failure to solve the
OPIC issue has a
negative effect on Ukraine's ability to create jobs and
wealth for all of
Ukraine's citizens.
"For example, in the autumn of 2005 OPIC conceived
and was ready to
implement a USD 100 million private equity fund programme
for Ukraine.
"I have been told on the back channel by top U.S. government
officials in
Washington that the total value of OPIC programmes that could
be
implemented here within a relatively short time might have a total value
of
as much as USD 500 million.
"However, it is the government of
Ukraine that must turn the key to open
what is literally a treasure trove of
new investment and risk guarantee
opportunities. I hope it will make the
effort necessary to find the solution
needed," Williams
concluded.
----------------------------------------------------------------------------------------------
LINK:
http://www.businessukraine.com.ua/ukraine-s-outstanding-opic-debt-----------------------------------------------------------------------------------------------
FOOTNOTE: One of the top
issues for the U.S.-Ukraine Business
Council (USUBC) this past year has been the fact that all the economic
development programs of the U.S. government's Overseas Private
Investment Corporation (OPIC) are closed for Ukraine
(
http://www.opic.gov/).
USUBC has
been speaking out about this critical issue at meetings, in
Washington and
Kyiv, with every top Ukrainian and U.S. government
official who has some
responsibility regarding this major problem.
USUBC will continue speak
out loudly and often regarding this issue
until it is resolved and OPIC is
open for business in Ukraine.
USUBC has been told in recent meetings
that resolving the OPIC
issue is a top priority for the U.S. government by
the U.S. Ambassador
to Ukraine William Taylor and a top priority for the new
government in
Ukraine according to Vice Prime Minister Hryhoriy Nemyria.
USUBC
is encouraging the two governments to have the issue resolved by March
31,
2008.
-------------------------------------------------------------------------------------------------
========================================================
2
. "NOW IS THE TIME TO
DRAMATICALLY REFORM
UKRAINE'S LEGAL SYSTEM"
OP-ED by
Irina Paliashvili, Chair, Legal Affairs Working Group
U.S.-Ukraine Business
Council (USUBC), Washington, D.C.,
President & Senior Counsel.
RULG-Ukrainian Legal Group, P.A.
Kyiv Post, Kyiv, Ukraine, Thursday, February
14, 2008
In light of the fundamental and systematic economic reforms
needed in
Ukraine, and the ongoing sharp increase in foreign and domestic
investment,
it is imperative to ensure that Ukraine's legal system is
prepared to serve
as a modern pillar for the economy and society.
The
current legal foundation is inadequate and to a large extent, sabotages
the
development of a market economy in Ukraine. It is archaic,
anarchic,
and at times absurd.
The market responds to this situation
in a healthy way by avoiding the legal
and regulatory regime and corrupt
judiciary, while ignoring the more absurd
laws and concentrating on
developing the best modern business practices.
Unfortunately, this
creates an ever widening gap between what is written in
law, what is
understood by those who administer the law (government
authorities,
regulators, judges), and the business community.
At first, this may seem
like a reasonable truce, as it does not interfere
with the steady development
of Ukraine's markets. But this solution is not
harmless - it encourages
non-compliance, greatly increases the risks of
doing business, provokes
artificial commercial disputes, and fosters such
ugly trends as corruption,
lack of enforcement, corporate raiders, and lack
of corporate
governance.
The new government's top priority, therefore, should be to
act, swiftly and
decisively. Ukraine's legal system, and consequently the
business climate,
could be immediately and dramatically improved by simply
cancelling the
most archaic and damaging legislation, using the so-called
"guillotine"
principle, which worked successfully in other countries that
successfully
undertook modernization reforms.
However, some of the
problems are of course fundamental and cannot be
solved in a vacuum and
require significant unified political will along with
rational systematic
effort.
The fundamental problems include overall outdated, contradictory,
ambiguous
and low-quality laws, statutes and regulations; an excessive,
inefficient,
and poorly qualified bureaucracy; and a corrupt and
underdeveloped judicial
system. These problems cannot be solved
overnight and will require
generations of work.
There are some
problems; however they can be resolved much faster and
could have a
tremendously positive impact on the business climate.
Corporate
legislation is underdeveloped and nonexistent in key areas such
as
joint-stock companies and limited liability corporations.
The existing
commercial code is anti-market and the civil code is flawed,
and each is in
fundamental conflict with the other. Simply axing the
commercial code would
have a significantly positive impact.
Chronic overregulation and the
resultant government interference in business
affairs are chaotic, arbitrary,
excessive, and incredibly costly. This is
loosely referred to as the "permits
system," or by the broader,
internationally known term, "regulatory
governance." Various Ukrainian
governments made several half-hearted attempts
at deregulation, but in the
absence of true political will, they generally
resulted in yet more
overregulation and chaos.
The highly publicized
government effort to eliminate several thousand
regulatory acts in 2005
failed because the cancelled acts turned out to be
archaic documents, which
had little to do with business regulation and
were not applied in any
case.
The tax system and multiple tax bureaucracies are complicated, with
the
worst offenders being the value-added tax (VAT) and unjustifiably
high
social taxes.
There are two key problems with VAT. First, the
problem exporters have
in obtaining their rightful refunds. Second, the
2005 law imposing a 20
percent VAT on in-kind contributions by foreign
investors into Ukrainian
companies' charter capital, in effect representing a
20 percent
non-refundable tax on in-kind foreign investment.
The
currency regime and financial sector need liberalization.
Unnecessary
obstacles and hidden charges include the overregulation of
ordinary
financial activities.
For example, in order to perform many
one-time simple financial activities,
companies need to be registered with
the State Commission of Ukraine
for the Regulation of Financial Services
Markets of Ukraine.
Furthermore, any sale-purchase of Ukrainian
securities (even outside of
Ukraine between non-residents) must be carried
out only with the
participation of a Ukrainian securities
trader.
Meanwhile, the National Bank of Ukraine (NBU) has excessive
licensing
requirements with regard to foreign currency transactions and
payments
outside Ukraine. The NBU also has draconian international loan
requirements,
and it constantly interferes with the investment regime,
inventing new
barriers to investment.
Inconsistent government policies
discourage foreign investment in the vital
energy sector. Although a
first-ever Production Sharing Agreement was
concluded in 2007 with the
US-based Vanco, most of the energy, and
especially the oil and gas sectors,
remain virtually closed to foreign
investors.
Moreover in 2007, the
government declared the traditional method of joint
activity agreements used
by foreign investors involved in natural resource
exploration and development
unlawful. It further drove out foreign investors
by introducing restrictions
and price controls on the sale of natural gas
extracted in
Ukraine.
Anti-monopoly legislation is unnecessarily broad and
ambiguous,
over-regulating economic concentrations with extremely low
threshholds,
which in turn forces companies to seek the Antimonopoly
Committee of
Ukraine's prior approval of actions that have no bearing on
competition
in the Ukrainian market at all.
Intellectual and
industrial property protection is lacking, especially
in
enforcement.
Another concern is the ongoing moratorium on sale of
agricultural land,
and restrictions on land ownership by foreign
investors.
Property rights remain tenuous and corporate raids are
increasing. All of
these problems, although constantly and loudly criticized
by the business
community, have been neglected by several generations of the
country's
leadership.
No government so far has been willing to develop
a strategic program of
reforms for the legal and regulatory system, and it
remains to be seen
whether the new government will make a serious and honest
effort to
address them.
The good news, however, is that the business
community has not given
up, and demand for reform is reaching critical
mass.
One of the major market tendencies, which will inevitably result in
the
modernization of legal and regulatory regimes, is the immense hunger
of
Ukrainian companies for growth. This is equally true for
multi-industry
giants, medium-sized companies, and small
businesses.
All are looking for financing on both the domestic and
international markets
through initial public offerings (IPOs), mergers &
acquisitions, strategic
and portfolio investment, issuance of corporate debt
instruments, and direct
borrowing from domestic and international lenders.
They can no longer
tolerate the obstacles created by the antiquated legal
regime and
bureaucracy.
Several sporadic positive developments of the
last two years, such as the
adoption of a modernized version of the
Securities and Stock Market Law,
the adoption of several progressive laws to
promote Ukraine's World Trade
Organization (WTO) accession, the adoption of
stronger anti-piracy optical
media licensing rules, the creation of a
regulatory framework for mortgage
lending, and liberalization of
incorporation procedures, were similarly
driven by the business community and
international organizations and
institutions.
2008 will be the pivotal
year in terms of the desperately needed reforms and
modernisation of
Ukraine's legal regime and business climate for two main
reasons.
The
business community no longer wants nor can afford to tolerate
obstacles
created by the legal chaos and inefficient bureaucracy and second,
because
the new government will be unable to remain in power while ignoring
the
business community's
demands.
----------------------------------------------------------------------------------------------
NOTE:
Dr. Irina Paliashvili is chair of the Legal Affairs Working Group
of the US-Ukraine Business Council (USUBC), Washington, D.C.,
(www.usubc.org). She is also president and senior counsel of the
RULG-Ukrainian Legal Group, P.A., Wash, D.C and Kyiv,
Ukraine.
-----------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
[
return to index] [Action Ukraine Report (AUR) Monitoring
Service]
========================================================
3
. TYMOSHENKO GOVERNMENT OFF
TO A PROMISING,
AMBITIOUS START
OP-ED By Anders
Aslund, Kyiv Post
Kyiv, Ukraine, Thursday, February 7, 2008
After
Ukraine's extraordinary parliamentary elections on Sept. 30, it took
no less
than two-and-a-half months to form a government, and it was
confirmed by the
slightest of parliamentary margins. The new coalition
government headed by
Yulia Tymoshenko, however, has started
ambitiously and
auspiciously.
The Ukrainian economy is in good shape with a growth rate
of 7.3 percent
last year. The stock market surged by no less than 120 percent
last year,
and it has barely fallen during the January turmoil.
The
new government's biggest achievement is to make Ukraine ready to join
the
World Trade Organization (WTO) at a February 5 meeting of the WTO
General
Council. One month after the parliament ratifies the accession,
Ukraine will
become a full-fledged member of the WTO. This could boost
the country's
growth by one percentage point a year.
Ukraine's WTO accession is a joint
accomplishment of the four last
governments. The very last obstacle was a
European Union complaint
about the country's export tariffs, primarily on
steel scrap. It has been
relegated to the negotiations about a free-trade
agreement with the EU,
which are likely to be concluded before the end of
2008.
As elsewhere in the region, the greatest economic concern is the
high and
rising inflation, as consumer prices rose by 16.6 percent last year.
As a
consequence, experienced Finance Minister Viktor Pynzenyk
immediately
tightened the budget by balancing it.
Fortunately, no
price controls or export controls are being discussed.
Tymoshenko says that
she has learned not to do so from her tenure in
2005.
Tymoshenko's
most worrisome campaign promise was to compensate
Ukrainians who lost their
bank savings in the early 1990s because of
hyperinflation and to do so in the
course of two years.
Fortunately, the government has capped this
compensation program at $1.2
billion, which is less than one percent of gross
domestic product, and it
has distributed the money swiftly and
equally.
As in all democratic post-communist countries, corruption was
the biggest
concern during the election campaign. Wisely, Tymoshenko made it
her key
theme. In order to substantiate her promises to combat corruption,
she has
moved quickly on three fronts.
The most obnoxious and
conspicuous corruption was the previous government's
practice of selling
value-added tax refunds for exporters at a "commission"
of 20 to 30 percent.
Tymoshenko is determined to sort that problem out
through personnel
changes.
The customs problem, which Tymoshenko cleaned up in 2005, has
again
become one of her focal points of corruption, and she is set to repeat
her
prior success.
The most intricate corruption is persistently in
gas trade, which Tymoshenko
is very knowledgeable about from her old
business. The intermediary
RosUkrEnergo does not appear to have any reason to
exist. Nor does its
half-owned Ukrainian subsidiary, UkrGazEnergo.
The
apparent purpose of these two nontransparent joint ventures is to siphon
off
money to a number of prominent Russians and Ukrainians. The costs of
this
boondoggle are so large that the Ukrainian state oil and gas
corporation,
Naftogaz Ukrayiny, is on the verge of bankruptcy.
We do not need to know
the details to understand that something has to be
done. Tymoshenko has moved
to exclude these dysfunctional structures
from Ukraine's gas trade.
Fortunately, Gazprom chairman and Russia's
president-in-waiting Dmitry
Medvedev expresses the same view.
In the last two years, Ukraine has
carried out minimal privatization. On
Jan. 18, the new Ukrainian government
published a list of 19 state-owned
companies slated for privatization this
year. The total value of the stakes
to be sold is assessed at some $5
billion.
Sensibly, the new government has abandoned its predecessor's
tactic of
selling very small posts, instead offering large majority posts in
three
major companies, including Ukrtelecom, Ukraine's old fixed-line
monopoly.
Year after year, Ukraine has prolonged a moratorium on the sale
of private
agricultural land, benefiting only large businessmen who have
bought up tens
of thousands of hectares. The new government has let this
moratorium lapse,
and it is intent on swiftly adopting the necessary
legislation to facilitate
land trade.
President Viktor Yushchenko,
Tymoshenko and Parliamentary Speaker Arseniy
Yatseniuk have signed an
application for a Membership Action Plan to NATO
in advance of the alliance's
summit in Bucharest in April. This was somewhat
surprising because Tymoshenko
has avoided the topic.
Together with WTO membership and a free trade
agreement with the EU, the
MAP, which may or may not lead to NATO membership,
defines Ukraine's
firm Western-oriented foreign policy.
The worst
policy that Tymoshenko pursued in 2005 was reprivatization, but
she seems to
have learned that lesson as well, so far staying away from such
a
destabilizing policy.
The new Ukrainian government has delivered a very
impressive start, and
there is strong hope that much more is to come. One
outcome of the last
parliamentary elections was that the three dominant
parties share a broad
market economic consensus.
All three are
democratic, center-right parties that are financed by big
businessmen, most
of whom are quickly gentrifying because the market
values of their
corporations surge with transparency and orderliness.
Several of the
biggest Ukrainian businessmen have voluntarily abandoned
transfer pricing and
started paying taxes in full. They are also devoting
large resources to
charitable donations, mainly in education and health.
Yet, as a consequence
of scandals with big businessmen-cum-ministers,
they are almost absent from
the new Cabinet.
Ukraine has all along suffered from constitutional
disorder. Although the
constitution has not changed, improved practices are
apparent. The dominant
opposition party, the Party of the Regions, has set up
a shadow government.
The two coalition partners, the Yulia Tymoshenko
Bloc and Yushchenko's
Our Ukraine, have divided the Cabinet posts so that
Tymoshenko controls all
economic appointments while Our Ukraine controls
foreign policy, security
and culture. An orderly balance of power between the
president and the prime
minister seems to be emerging out of their persistent
power struggle.
Obviously, one month is far too early to pass any
judgment on a government,
but its start has been truly
impressive.
Ukraine sets an illustrative example for how Russia could
have evolved if it
had developed its democracy and market economy through
competition
among the oligarchs instead of abandoning
democracy.
Because of its more radical, market-based economic reforms in
the 1990s,
Russia still benefits from better legislation. Even so, property
rights
appear more secure in Ukraine now because of democracy's
greater
transparency and checks and
balances.
---------------------------------------------------------------------------------------------
Anders
Aslund, a senior fellow of the Peterson Institute for
International
Economics, [Washington, D.C.] is the author of "Russia's
Capitalist
Revolution: Why Market Reform Succeeded and Democracy
Failed."
[Aslund is a Senior Advisor to the U.S.-Ukraine Business
Council
(USUBC).]
-------------------------------------------------------------------------------------------
LINK:
http://www.kyivpost.com/opinion/oped/28334/ ------------------------------------------------------------------------------------------------
[
return to index] [Action Ukraine Report (AUR) Monitoring
Service]
========================================================
4
. UKRAINE: INVESTORS
CAUTIOUSLY OPTIMISTICBy Zenon Zawada, Kyiv Post Chief
Editor
Kyiv Post, Kyiv, Ukraine, Thursday, Jan 31 2008
Prime Minister
Yulia Tymoshenko consults with Vice Prime Minister for
Euro-Integration
Hryhoriy Nemyria at a Jan. 24 conference. The increasingly
influential
Nemyria has served as a point man for investors and diplomats.
As more
wide scale business reforms are unveiled by Prime Minister Yulia
Tymoshenko
with every passing day, investors are both hopeful for
improvement and
concerned about radical steps.
More than 350 businessmen filled the
Cabinet of Ministers Club on Jan. 24 to
get a direct impression of
Tymoshenko's business agenda, including vows to
improve rule of law, combat
corruption, and create more favorable investment
conditions.
"We have
the intention to truly change everything," Tymoshenko said.
"Whoever doubts
whether we can change everything, I again want to remind
you that most people
in the country and beyond didn't believe in pre-term
elections, didn't
believe in the democratic coalition's creation and didn't
believe in the new
government's formation, but this all happened."
While businessmen and
lawyers were largely hopeful of such change, some
recoiled at the more
radical measures, particularly an initiative to allow
government officials to
ignore what she deemed illegal court rulings that
would undermine that very
goal.
Kyiv lawyer Oleh Makarov of Vasil Kisil & Partners asked
Tymoshenko to
clarify her Cabinet's Jan. 23 decree allowing tax and customs
officials to
countermand, or simply ignore, court decisions which, according
to the
measure, "gives the freedom and right to deliberately not execute
criminal
court verdicts on the Constitution's basis."
Finance Minister
Viktor Pynzenyk cited egregiously corrupt court rulings
that gave
businessmen, their affiliates, and even any future related
businesses full
immunity from taxes and customs.
"I think it would be very interesting
for you as a lawyer to examine these
exotic verdicts, and it would be
interesting for me to look at these judges
who do this and what methods they
use to reach these decisions," said
Tymoshenko, chuckling.
She assured
the assembled investors she would act "exclusively within the
limits of the
legislation of Ukraine's Constitution." Judges found liable
for corrupt
decisions will be dismissed, Tymoshenko said.
In discussing the decree on
Jan. 23, Tymoshenko said her Cabinet will
compile a list of "illegal
verdicts" and submit them to the Ministry of
Justice.
Ukraine's
Supreme Court will also review the cases and draw conclusions,
she said. Yet
lawyers and businessmen wanted more details.
"Unless the government
provides substantial clarifications as to how its
idea will work, it risks
sending the wrong signals to the investment
community and electorate alike,"
said Geoffrey Smith of the Renaissance
Capital investment bank in a
report.
Another declared initiative to double or triple tax revenue drew
concern
from investors because such measures "typically mean tax
authorities
pressuring and harassing," said Morgan Williams, president of the
US-
Ukraine Business Council.
"The big concern is that you can't just
wave a magic wand at some of these
issues and tell tax authorities to double
or triple tax income," Williams
said.
To demonstrate her commitment to
fighting corruption, Tymoshenko
announced she adopted the European Business
Association's (EBA)
"Barriers to Investment in Ukraine" as her
framework.
She pledged her government will work to combat each of the
report's
identified problems and implement its proposed solution
one-by-one.
Among the most discussed new programs was the
Tymoshenko
Transparency Initiative (TTI), which the prime minister said
would
introduce a three-level court system, election of judges,
and
accountability for corrupt verdicts.
Transparent privatization,
land sales, license issuances, simplified and
shorter tax procedures, and
introduction of a single-import declaration
are also addressed in the
TTI.
In the spirit of her proposals to create citizens' councils to
advise the
government, Tymoshenko suggested the creation of an investors'
council
to consult the government.
The proposal seemed serious.
Throughout the Jan. 24 question-and-answer
session, Tymoshenko urged
investors to exchange contact information with
top officials in her
government, particularly Economics Minister
Bohdan
Danylyshyn.
Value-added tax (VAT) returns were also
addressed.
Williams asked Tymoshenko whether US agricultural
multinationals Cargill
Corp. and Bunge would get back more than $250 million
in VAT taxes
owed them by the Ukrainian government.
"This puts Ukraine
as the worst country in the world in terms of the size of
the VAT tax
arrears, and the length of time it takes to get them back,"
Williams said.
"Some of these are more than a year old. They're loaning
$250 million to you
with no interest. This is not fiscally responsible."
Incidentally, the
government of former Prime Minister Viktor Yanukovych
efficiently compensated
VAT taxes last year to businesses based in Donetsk,
his hometown and main
base of support. Donetsk is also the hometown of
Rinat Akhmetov, the main
financier of Yanukovych's Party of Regions of
Ukraine.
Finance
Minister Viktor Pynzenyk told investors he was aiming for
value-added taxes
to be returned within a day, "without delay."
A week later, Williams said
the two companies received between 15
and 20 percent of their VAT
refunds.
"It's the first payments of that size in a long time," he said.
"It's a step
forward. I think there's much more hope at this point, that
(Viktor)
Pynzenyk and (Vice Prime Minister Hryhoriy) Nemyria will make
a
difference."
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5
. VICE PRIME MINISTER HRYHORIY
NEMYRYA ADDRESSES
THE U.S-UKRAINE BUSINESS COUNCIL (USUBC) IN
KYIVU.S.-Ukraine Business Council (USUBC)
Kyiv,
Ukraine, Monday, February 4, 2008
KYIV - Hryhoriy Nemyrya, Vice-Prime
Minister of Ukraine, addressed an
overflow crowd of members and guests of the
U.S.-Ukraine Business
Council (USUBC) in Kyiv on Thursday, January 31, with a
vivid description
of changes that have already been made during the first few
weeks of the
Yulia Tymoshenko government.
This was Nemyrya's debut
performance before any business organization
since becoming one of two vice
prime ministers and a leading player in the
new government's Westward-looking
reform program.
Nemyrya emphasized the immense opportunities that lie
ahead as soon as the
World Trade Organization board approves Ukraine's
membership application
and parliament ratifies the agreement. WTO approval is
expected on Feb. 5,
with parliamentary approval expected before the end of
February.
WTO accession, as important as it is, is only a precursor to
the next step
that is thought by many to be of greater importance to
Ukraine's economic
future.
Nemyrya said that preparations have already
been made for the beginning of
negotiations of an EU-Ukraine Free Trade
Agreement and that he expects EU
Trade Commissioner Peter Mandelson to visit
Kyiv to kick off the
negotiations in March.
Nemyrya cautioned,
however, that in spite of the early progress that appears
possible with the
EU's help, it would take at least two years to negotiate
the
treaty.
Nemyrya pointed to the guiding principles encapsulated in the
Tymoshenko
Transparency Initiative as not just words on paper but an actual
plan of
work that the government takes very seriously and is pursuing
very
vigorously.
As a part of this effort to run an entirely open and
transparent government,
Nemyrya will head the Government Committee for
European and International
Integration. "If we're serious about going global,
we have to be predictable
and reliable partners," Nemyrya added.
The
vice prime minister pointed to the very recent disbursal of some
sizable
payments in VAT refunds as a example of the way the government want
to
not only deliver on its promises but to do so in an expeditious fashion.
He
said new procedures are being implemented that should soon
significantly
reduce the huge VAT refund backlogs, over $250 million,
suffered by
USUBC members.
He also pointed to RosUkrEnergo, the
controversial intermediary that now
deals with Ukraine's natural gas supplies
from Russia, as an example of
an unnecessary and possibly corrupt structure
that must be swept aside.
Nemyrya spent over an hour answering questions
from a considerable
number of USUBC members and guests on issues such as tax
reform;
restrictive grain export quotas; customs regulations and delays;
business
partnerships with international energy companies; land
privatization;
corporate raidership; intellectual property rights for IT,
agricultural
seed/crop protection companies, and pharmaceutical
companies;
reform of the legal and court system and the major
government
reorganization needed for effective decision making and for
the
implementation of policies and programs.
He emphasized the
government is doing everything possible to solve
problems rapidly and fairly
and to implement new business reforms.
However, in response to a member's
question about the government's ability
to help business and industry deal
with the problems that might be caused in
complying with new WTO regulations,
Nemyrya admitted the government has
a long way to go.
"We fear
agencies and ministries are not ready to deal with WTO. We will
try to
improve their skills and capabilities to deal with all the issues.
The whole
challenge is one of compatibility."
The VPM was asked what the new
government planned to do about the
Overseas Private Investment Corporation
(OPIC), a major business
development agency of the U.S. government, being
closed for Ukraine
because of a rather small claim that has not been settled
by the Ukrainian
government since 1999.
Nemyrya said he was fully
aware of the situation and expected the problem
to be resolved soon.
When questioned by USUBC president Morgan
Williams, with SigmaBleyzer, as to
whether 'soon' meant within 90 days
Nemyrya said he expected the issue to be resolved within that time
period.
The VPM outlined the important role he thinks the new investors
council
to be appointed by Prime Minister Tymoshenko will play. He asked
the
USUBC and AmCham to recommend members for the council and to
support
the secretariat needed for the council to be effective.
USUBC President
Williams said he believed Nemyrya's appearance marked
an excellent beginning
to hopefully a new era of cooperation between
Ukrainian governments and the
international business community.
"The USUBC believes that Hryhoriy
Nemyrya is an excellent choice for
VPM in the new government. With him at the
prime minister's side,
there is an extremely competent official, who is well
known in the
international business community, to help deal with important
issues,"
Williams said.
Williams thanked Jorge Zukoski, president of
the American Chamber of
Commerce in Ukraine (AmCham) for attending along with
Jim Hitch,
Partner, Baker & McKenzie law firm, a new member of USUBC,
who
serves as chairman of the AmCham board. "USUBC and AmCham's
joint
efforts should increase the business communities ability to make a
positive
impact on Ukraine's future," he added.
Members and guests of
USUBC who attended the meeting included: AES;
Baker & McKenzie; Bechtel;
Bunge; Business Ukraine; Cargill; Capital
Partners; CFC Consulting;
Chadbourne & Parke, Citi; Deloitte & Touche;
Deutsche Bank; DHL;
Dipol Chemical International; Eli Lilly; Horizon
Capital; IBM; IETG; Kraft;
Kyiv-Atlantic Ukraine; Kyiv Post; Marathon;
Max-Well; NDI; PBN; RULG; Salans;
Shell; SigmaBleyzer; Softline; Squire,
Sanders & Dempsey; Toepfer/ADM;
The Bleyzer Foundation; UMBRA;
CRDF; Ukrainian Weekly; US-Ukraine Foundation;
U.S. Department of
Justice, U.S Treasury Department, U.S. Department of
Commerce, U.S.
Embassy, USAID, Westinghouse, Vanco and Volia
Cable.
The USUBC meeting was held in the conference room of the new
corporate
offices of the SigmaBleyzer Emerging Markets Private Equity
Investment
Group located in the Mandarin Plaza in
Kyiv.
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6
. RUSSIA BREAKS TIES WITH
GAS MIDDLEMAN
Catherine Belton, Roman Olearchyk, Financial Times (FT)
London, United Kingdom, Tuesday, Feb 12, 2008
Russia and Ukraine on
Tuesday agreed to cut out a controversial
Swiss-registered trading company at
the heart of a dispute between
the two nations, as Kiev and Moscow settled a
broader deal over natural
gas debts.
RosUkrEnergo - 50 per cent owned
by Gazprom, the Russian state gas
monopoly, and 50 per cent by two Ukrainian
businessmen - has been a bone
of contention between the two capitals. It won
a monopoly on Gazprom's
supplies to Ukraine following a standoff over prices
in 2006.
Yulia Tymoshenko, Ukraine's prime minister, had vowed to
eliminate
the trader as a middleman, calling it a "criminal canker". But
Gazprom
had warned its replacement could lead to an increase in gas
prices.
Vladimir Putin, Russia's president, and Viktor Yushchenko,
his
Ukrainian counterpart, emerged from talks in the Kremlin on Tuesday
to
announce they had negotiated settlement of more than $1bn (?690m,
£513m)
in debts Gazprom claims is owed by Kiev.
The two leaders agreed
the deal just minutes before a deadline which would
have seen Gazprom
reducing supplies to Ukraine, a threat that had renewed
fears in Europe that
its supplies could be affected.
Alexei Miller, Gazprom's chief executive,
said last night that a deal
had been clinched to axe RosUkrEnergo and replace
it with a joint venture
owned directly by Gazprom and Ukraine's energy
monopoly, Naftogaz Ukrainy.
A spokesman said the new entity would supply
gas from central Asia and
Russia to Ukraine on the same terms and prices as
RosUkrEnergo for 2008.
He could not say when the joint venture would be
formed.
The trader had looked to be threatened after Semyon Mogilevich,
suspected
by Ukrainian politicians to be connected to the regional gas
business,
was arrested in the Russian capital last month on charges of tax
evasion
related to a Moscow perfume retailer. Political analysts in Moscow
have
suggested his arrest could have been connected to a shake-up in
the
Ukraine-Russia gas trade.
Ukraine's security service had investigated
RosUkrEnergo for possible ties
to Mr Mogilevich in 2006. The investigation
was never completed.
RosUkrEnergo, Dmytro Firtash and Ivan Fursin, who
together own half
the trader, have denied any ties to Mr Mogilevich. A lawyer
for Mr
Mogilevich has denied his client has any links to the gas
business.
A spokesperson for Mr Firtash declined to comment last night on
the news
the trader was no longer the middleman. A spokesman for RosUkrEnergo
also declined to
comment.
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7
. PRESIDENTS RESOLVE
UKRAINE GAS DISPUTE
Andrew E. Kramer, The New York Times,
New York, New York, Wed, February 13, 2008
MOSCOW-The
presidents of Russia and Ukraine averted a threatened
cutoff of natural gas supplies to Ukraine on Tuesday, at the same time
that
Russia's president said his country might aim nuclear missiles at
Ukraine
if it followed through on its intention to join NATO.
"It's
horrible to say and even horrible to think," President Vladimir
V. Putin of
Russia said about the prospect of possibly aiming missiles
at
Ukraine.
Mr. Putin made the remarks in response to a question at a
Kremlin news
conference. After speaking for a time about Ukraine's long
cultural ties
to Russia, he said that NATO might deploy antimissile systems
in Ukraine,
and that Russia would have to respond.
"Russia could
target its missile systems at Ukraine," he said. "Imagine
that for a
second."
Ukraine's president, Viktor A. Yushchenko, who was sitting
beside Mr. Putin
at the news conference, responded, saying that Ukraine had
the right to
choose its own alliances and that his country's Constitution
prohibited
foreign military bases on its territory.
Mr. Putin and Mr.
Yushchenko called the news conference to announce that
they had resolved a
dispute just minutes before the deadline for
a threatened midwinter shutoff
of a quarter of Ukraine's heating fuel.
Last Thursday, Gazprom, the
world's largest natural gas producer and
a monopoly half-owned by the Russian
government, demanded a settlement
for what it said was $1.5 billion in debt
and threatened to halt
25 percent of Ukraine's natural gas supply at 6 p.m.
on Tuesday.
The two leaders announced the deal a few minutes before 6
p.m.
The disagreement had worried European governments because 80 percent
of
Gazprom's supplies to Western Europe cross Ukrainian territory,
snaking
through a network of old Soviet-designed pipelines from gas wells
in
the Arctic to homes and factories in the West.
Mr. Yushchenko said
Ukraine would start repaying the Gazprom debt on
Thursday.
Two years
ago, Gazprom halted shipments of natural gas to Ukraine in
the middle of
winter in another dispute. That was a year after the so-
called Orange
Revolution installed Mr. Yushchenko's pro-Western government
in Kiev, leading
critics to call the shutoff politically motivated, which
Gazprom
denied.
The latest dispute, too, follows a change in government in
Kiev.
Yulia V. Tymoshenko, a leader of the Orange Revolution, resumed
her
duties as prime minister after elections last fall. Ms. Tymoshenko
has
said Ukraine should revise what it charges Gazprom to ship gas
across
its territory.
Gazprom's threat to cut off the gas came 22 days
after Ukraine's pro-
Western leaders formally applied to be put on a path to
NATO membership.
The letter, signed by the president, the prime minister
and the speaker of
Parliament, asked Secretary General Jaap de Hoop Scheffer
of NATO to review
Ukraine's status in time for an alliance summit meeting in
April in Romania.
In perhaps a favorable sign for Ukraine's request,
President Bush will
attend the meeting and is to visit Ukraine afterward,
Bloomberg
News
reported.
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8
. YUSHCHENKO STEALS PM'S
THUNDER BY RESOLVING
GAS DISPUTE WITH
RUSSIA
Business New Europe (bne), Berlin, Germany, Wed, Feb 13,
2008
Russian president Vladimir Putin and Ukrainian President
Viktor
Yushchenko resolved a dispute over gas prices at a meeting
Tuesday,
February 12 that could have ended with Russia once again
cutting
Ukraine off from its main energy source.
Russia's state-owned
gas giant Gazprom was threatening to cut off
Ukraine's gas deliveries from
that day if an argument over debts and
gas prices wasn't resolved. This
wasn't an empty threat: Russia shocked
Western Europe by cutting off
Ukraine's supplies and hence those to most
of Western Europe in the winter of
2006.
This time, though, the two presidents agreed on gas shipment terms
for
2008 and the following years on terms that suited Gazprom, Putin
said
after the meeting. "The proposals made by the Ukrainian partners
suit
Gazprom.
Hopefully, all agreements will be implemented," Putin
was quoted by
Interfax as saying after the meeting. "As major European
countries,
Russia and Ukraine bear a significant share of responsibility
for
stability and security in Europe."
Regarding the field of energy,
Putin said: "We are extremely interested
in making our cooperation [with
Ukraine] absolutely transparent. We have
very good prospects for developing
our energy cooperation with the aim
of enhancing Ukraine's role as a major
energy player in Europe."
The last time Gazprom cut of gas to Ukraine was
a public relations
disaster for Russia and the Kremlin is hoping to repair
some of the damage
this time with a smiles-all-round result. Putin said that
the two sides
had negotiated "the principles of cooperation for 2008 and the
coming
years," with deliveries in 2008 remaining at the base price of
$179.
The two presidents also settled an argument over exactly how much
Ukraine
owes to Russia in unpaid gas bills. "We agreed that the 2007 debt
will be
covered, covered in the near future in the volumes and on the
terms
stipulated in the relevant agreements," Yushchenko said at the
press
conference.
The two countries will also set up a forum for
Gazprom and Ukraine's
national gas company Naftogaz to liaise in order to
ensure that relations
run smoothly from now on.
"Under an agreement we
have reached, Naftogaz and Gazprom will form
a working group, which within
days will work through a way of establishing
simpler, direct and more
transparent relations in matters of organizing
the market and the shipments,"
Yushchenko said.
FACE TO
FACE
In a statement released later by Gazprom, Gazprom chief
Alexei Miller
said RosUkrEnergo would be eliminated from the gas trade, and
instead
Gazprom and Naftogaz would set up a new 50-50 joint venture to
handle
the gas sales, according to Interfax.
How this arrangement, if
it comes about, will satisfy Ukrainian Prime
Minister Yulia Tymoshenko isn't
clear. Tymoshenko, who made her millions
in Ukraine's murky gas trading
industry in 1990s, has somewhat ironically
demanded an end to all
intermediaries operating in the gas trade.
The Ukrainian president also
said he will actively work to accelerate
Russia's accession to the World
Trade Organisation - something that
has been high on the Kremlin's wish list
for a long time.
Ukraine joined the organisation in February and
potentially has the power
to impede Russia's bid.
Russia said February
12 it hopes to join the club by the start of next
year. "Ukraine is
interested in Russia's earliest possible membership of
the WTO and will do
all it can to facilitate it," Yushchenko said.
"Adjusting our trade
policies to the standards and rules of the World
Trade Organization is in our
two countries' interests."
The Ukrainian side believes, Yushchenko said,
that "restrictions hinder
bilateral trade." With this promise, Yushchenko
plays his trump card and
thus takes it out of the game. This statement is
clearly meant as a peace
offering to the Kremlin, which seems to have been
accepted.
Meanwhile, Putin demanded that Russian investors should not be
discriminated
against. "We hope that our companies and our investors will not
be at a
disadvantage compared with other investors in Ukraine.
Russian
and other foreign investors must be put on an equal footing. All
disputable
issues must be dealt with within legal procedures. We talked
about this with
Viktor Andreyevich [Yushchenko] - he assured me this will
be so," Putin
said.
"Problems have arisen recently over our investment in Ukraine. I am
sure
this has to do with problems in the Ukrainian legislation and in
the
privatization procedure, not with Russian investors' activities,"
Putin
added, referring to a series of de-privatisation cases that have
been started
involving companies acquired in Ukraine by Russian investors.
The two
presidents talks also touched on Ukraine's bid to join Nato.
"Anything
Ukraine does [on the path of its integration into Nato] is not
designed to
work against a third party, not to mention Russia.
We have agreed that we
will hold consultations on this issue," Yushchenko
said, pointing out that
the Ukrainian constitution does not provide for
the setting up military bases
of other countries on Ukraine's territory.
However, Ukraine's bid to join
the Nato Membership Action Plan has already
resulted in gridlock in the Rada,
as the opposition Party of Regions is
blocking any further work.
On
February 11, Rada faction leaders failed to reach any agreement on how
to
proceed after the country's leadership wrote to the Nato secretary
general
requesting that Ukraine be included in the Nato Membership Action
Plan. Polls
this week showed that 60% of Ukrainians are against Nato
membership.
All in all, the meeting helped smooth the rather
battered relations that
exist between the two countries. In recent weeks,
there have been
conflicting signals coming out of Kyiv over how to deal with
the Russia
gas situation.
PM Tymoshenko has taken a hard line and
called for the notorious
intermediaries in the gas trade to be abandoned;
Yushchenko has taken
a softer line calling for cooperation with the
Russians.
With the deal, Yushchenko has effectively stolen Tymoshenko's
thunder,
who has also arrived on an official visit to Moscow. If a deal
hadn't
been agreed by February 12, then the ball would have dropped
into
Tymoshenko's court, who would have probably used the issue to
earn
herself some political capital.
Polls released recently show that
her approval rating has been rising
and Ukrainians approve of the hard line
she's taking with the
Russians.
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9
. GAS
VICTOR?
The Economist, London, UK, Thursday, February 14, 2008
Ukraine's president has made a surprise breakthrough, by gaining
Russian agreement to oust gas-trade intermediary RosUkrEnergo in
favour
of direct sales at the current price, which is less than
two-thirds of the
tariff paid by EU states.
However, many important aspects remain
undecided, including when
RosUkrEnergo will be removed and the share of its
domestic market
that Ukraine must cede to Gazprom in return.
In
conjunction with the Russia-Ukraine competition, there is also
an
intra-Ukrainian struggle between President Viktor Yushchenko and
Prime
Minister Yuliya Tymoshenko.
Mr. Yushchenko achieved a key Ukrainian
objective in talks with his
Russian counterpart on February 12, securing
Vladimir Putin's agreement
to replace Swiss-registered intermediary
RosUkrEnergo (owned jointly by
Russia's Gazprom and two Ukrainian
businessmen) in Ukraine's gas import
business while keeping the current
price of US$179.5 per 1,000 cu metres
unchanged for the rest of the year.
Less than a week ago, when Russian threats to reduce gas supplies to
Ukraine over unpaid debts had brought the issue to the top of the agenda,
Gazprom officials had suggested that Ukraine would have to pay a higher
price if it bought gas directly from Gazprom.
Ukraine will keep the
current price, which is considerably lower than
prices of around US$300 per
1,000 cu metres paid for Russian gas in
Western Europe, because it will
continue to consume mainly Central Asian
gas.
If Central Asian
supplies fail, as Mr Putin noted, Gazprom will make up
the shortfall, but at
a "European price". In place of RosUkrEnergo,
Gazprom and Ukrainian
counterpart Naftogaz will form a 50-50 joint
venture. Another 50-50 venture
will be created to market gas in Ukraine;
under the 2006 accords, this role
was assigned to Gazprom-RosUkrEnergo
joint venture UkrGazEnergo. Ukraine's
unpaid debts will also be settled.
OUTLINE OF A DEAL
Much remains unclear and
plenty is subject to subsequent negotiation.
For instance, it is not
clear when RosUkrEnergo will be ousted.
Optimistic Ukrainians hope this can
be done by March, but other
commentators insist that the Swiss-registered
intermediary will remain
in place until the end of the year.
Naftogaz CEO Oleh Dubyn conceded that RosUkrEnergo would be around
for some time, and that Naftogaz would soon sign a new contract with it.
This seems at odds with Mr Yushchenko's victory. However, the reason
behind it is also tied up with the outstanding debt. Despite the long-
term nature of the 2006 accords, Mr Dubyn says that Ukraine and
RosUkrEnergo were in the habit of concluding monthly supply
agreements.
Because no contracts were signed for November or December, but gas was
delivered, RosUkrEnergo claimed that debts had sharply accumulated while
Naftogaz refused to acknowledge them.
The debt figure, according to
Mr Dubyn, was also inflated because it
referred to volumes that were
consumed in 2006 but invoiced in 2007 at
2007 prices.
On this small
point, he seems to have won: debts for November and December
will be cleared
at a price of US$130 per 1,000 cu metres. And because
the trade is conducted
by monthly contract, Ukraine needs to sign fresh
agreements with
RosUkrEnergo until Gazprom is ready to take over.
Ukraine's first deputy
prime minister, Oleksandr Turchinov, says that
the timing of RosUkrEnergo's
ouster depends purely on Gazprom-although
for Ukraine, the earlier the
better.
WHAT'S A WIN?
The biggest single unanswered question, at least with regard
to 2008,
centres on arrangements in the Ukrainian domestic market.
Naftogaz has been pushed to the point of bankruptcy because of the 2006
accords, which saddled it with a higher import price while simultaneously
cutting it out of the lucrative business of gas re-export and sales to the
industrial sector.
According to Mr Dubyn, in 2005 Naftogaz had 99%
of the industrial market
and 43% of the total market; today, its total
market share is less than
1%. Ms Tymoshenko's government had already
undertaken steps to change
this, by limiting UkrGazEnergo's share of the domestic market, with a view
to
increasing Naftogaz's revenue--which is a necessity, given its parlous
financial state and its obligation to provide affordable gas to Ukrainian
households.
The major doubt, on the basis of information available
currently, is
whether Ms Tymoshenko's plan to put Naftogaz back as the
dominant force
in the Ukrainian gas market can be reconciled with the
agreement for
a Gazprom-Naftogaz joint venture.
The key question is
the role within the domestic market that will be
assigned to this venture,
and whether Naftogaz will separately be
permitted other roles. On the face
of it, Russia has done Mr Yushchenko
and Ms Tymoshenko a huge favour by
agreeing to push out RosUkrEnergo;
what price has it extracted, or will it
extract, in return?
YUSHCHENKO 1,
TYMOSHENKO 0
While looking after Gazprom and Russian
economic interests, Mr Putin
also seems to be playing a role in Ukraine's domestic political struggle.
Although Mr Yushchenko and Ms Tymoshenko are political allies, their
relationship is also marked by rivalry: Ms Tymoshenko is regarded as
a
strong potential challenger to the incumbent at the election due in
2010.
Her early moves as prime minister suggest that she is eager to achieve
quick results, in the expectation that she will not be in post for very
long (Mr Yushchenko has already sacked her from the premiership once,
in September 2005).
On the face of it, Mr Putin has given a boost
to Mr Yushchenko by cutting
a deal with him--and by allowing him to notch an
unexpected victory.
Ms Tymoshenko, in Kiev, was left scrambling to hail
the deal as a team
victory and to insist that her government was ready to
participate in
drawing up new contracts for direct gas sales. It would be a
major setback
for Ms Tymoshenko if RosUkrEnergo remains on the scene until
the year-end,
or if Gazprom's encroachment prevents Naftogaz from returning
to its place
at the heart of Ukraine's domestic market.
It is too
early to declare Yushchenko the winner, or to conclude that
Mr Putin decided
to help his counterpart and so deal a blow to the more
fiery and
determinedly pro-Western Ms Tymoshenko. The Ukrainian prime
minister's
popularity and political skills are such that she is a serious
challenger,
or perhaps even the favourite, for the Ukranian presidency in
2010.
Thus Russia's leadership has an incentive to cultivate her. With many
political questions and gas-related issues undecided, in particular
regarding the extent to which Gazprom will benefit from the ouster of
RosUkrEnergo and UkrGazEnergo, it is possible that Ms Tymoshenko will
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10
. ARM AND LEG TO
GAZPROM
By Alla Yeremenko, Yulia Mostovaya
Zerkalo Nedeli (Mirror Weekly),
# 6 (685)
Kyiv, Ukraine, Monday, February 18, 2008
On February 12, after
three hours of negotiations, Presidents Viktor
Yushchenko and Vladimir Putin
found a new formula of gas cooperation
between Ukraine and Russia. They
announced that Ukraine's Naftogaz
and Russia's Gazprom would found two joint
ventures on parity terms.
The news inspired hopes that Ukraine would get
rid of the much hated
intermediary companies RosUkrEnergo and UkrGazEnergo.
Viktor Yushchenko sounded satisfied with the agreements reached in
Moscow and Prime Minister Yulia Tymoshenko called them "a victory of
the
democratic team."
SAME OLD STORY
On second thought, the agreement does not look that
encouraging.
The day after the talks between Yushchenko and Putin, the
latter's
future successor and currently first vice-premier Dmitriy Medvedev
stated quite unambiguously, "Most probably, we will need an
intermediary, because Ukraine can not afford any prices higher than
the
price of Central Asian natural gas, i.e. 179 dollars per thousand
cu m."
He stressed that it would be impossible to deliver Central Asian natural
gas to Ukraine without intermediaries. "The contracts already concluded
will have to be fulfilled by intermediaries, no matter what you may name
them," Medvedev said.
At the same time, he stated Russia's readiness
to supply its gas without
go-betweens.
"We may as well supply our
gas without go-betweens. All we need is money.
But the moment Ukraine begins
to buy Russian gas instead of Turkmen gas
the price will grow by a third.
That is too much for Ukraine's economy,"
Medvedev warned, reiterating
Russia's readiness "for any forms of
cooperation with Ukraine in natural gas
supply."
One of the possible "forms of cooperation" was disclosed on
February
14 by MP Yuriy Miroshnichenko of the Regions Party. On the live
talk
show "I Think So" on 1+1 TV channel he quoted some excerpts from
a
draft agreement on founding two new Russo-Ukrainian joint ventures.
The
document (which may not be the only one up Gazprom's sleeve)
contains
anything but parity terms. On February 15 Naftogaz came up
with a feeble
statement, saying that "the contents of the quoted
document contradicted the
agreements reached by the Presidents of
Ukraine and Russia and the positions
of the negotiating sides."
However, Naftogaz did not refute the
existence of that draft
agreement or the fact that Gazprom had offered it to
Naftogaz.
Neither did Gazprom.
What would suit Naftogaz in the new
joint venture? On the external
market it hopes to have a vote in price talks
with Turkmenistan,
Uzbekistan, and Kazakhstan, thus having a hand in the
delivery of
natural gas to the Russia-Ukraine borderline. Naftogaz would
like to
have partial access to Central Asian gas (which is now under the
full
control of Gazprom's daughter company Gazpromexport).
Naftogaz
also hopes to get a quota for export of natural gas to Europe
(albeit within
the joint venture) and thus be able to export surplus
amounts.
In
2006 RosUkrEnergo exported some 9 billion cu m of gas via Ukraine,
declaring
$95 per 1,000 cu m at customs and selling it at $300. It is
easy to
calculate how much Ukraine could have earned but for that
go-between. In
2007 RosUkrEnergo exported some 7 billion cu m.
The scheme was the same:
declaring $130 at customs, RosUkrEnergo
sold the same gas at $300 - $400.
Naftogaz would like to buy up and dispose of all gas delivered to
the Ukrainian border. However, the Russian version of the gas
agreement
states the following: "The natural gas supplied to
Ukraine and extracted on
Ukraine's territory is meant exclusively
for Ukrainian consumers and may not
be sold beyond Ukraine's
border."
This definitely means a ban on
exporting gas, which Ukraine hoped
for when trying to get rid of
RosUkrEnergo.
In the meantime, RUE stays on the market, and not only as
an
intermediary supplier but also as the monopoly exporter of gas to
Europe (under active long-term contracts).
The future joint venture
is supposed to receive natural gas from
Gazpromexport (or another company
affiliated with Gazprom). Annual
contracted supplies (currently owned by
RUE) are to consist of:
- 40,500M cu m of Turkmen natural gas at $130.75
per 1,000 cu m in
the first semester of 2008 and $150.75 from July 1;
- 10,500M cu m of Uzbek natural gas at $130.75 per 1,000 cu m in
the
first semester of 2008 and $160.75 from July 1;
- 4,000M cu m of Kazakh
natural gas (the price is not set).
The tentative agreement proceeds
from the current annual quota for
supplies of Central Asian gas to Ukraine -
55 billion cu m. Besides,
the new joint venture is to start operating in
April at the earliest.
Interestingly, the Russians want the joint
venture to be registered in
Switzerland (just like RUE). Someone must be
very reluctant to leave
the friendly canton of Zug where taxes are so low.
Here is another excerpt from the Russian draft of the Agreement on
Development of Relations in the Gas Sector:
"2. Establishment of the
JV
2.1. . The parties have agreed to found on parity terms (each holding
50% in the statutory fund) Joint Venture 1 and Joint Venture 2."
JV
1, tentatively named Rosukrgaz AG, will be registered in the Swiss
canton of
Zug for . "supplying natural gas to Ukraine."
PIKE SENTENCED TO DROWNING
The Russian
authors of the draft agreement see Joint Venture 2 as
a limited liability
company or a closed holding selling natural
gas to industrial and other
consumers.
Prima facie, the new company is meant to solve two big
problems
created by UkrGazEnergo since it was founded in 2006:
a)
the supplier is unreliable; b) the supplier tends to overcharge
Ukrainian
consumers, especially the most solvent category -
industrial companies.
By hook or by crook, in late 2007 UGE became the monopoly supplier
of natural gas to all big industrial consumers in Ukraine.
Moreover,
consumers had to pay UGE for storage of gas in underground
gasholders. As
the monopoly, UGE was now able to dictate its terms to all
industrial
enterprises in this country.
Russian companies already own four of six
Ukrainian oil refineries.
We all remember too well how they stopped as one
"for scheduled
maintenance," creating gasoline shortage crises in the
country.
Now it looks like Ukraine is going to be vulnerable to crises in
other sectors that depend on natural gas.
UGE controls the
industrial segment of the national market. Now,
through JV 2, Gazprom will
get its hands on practically all
segments, including the socially important
ones. And once it gets
its foot in the door, it will never leave.
The authors of the draft agreement set another trap: they mean to
authorize JV 2 "to sell the whole amount of natural gas - both
imported
and extracted on Ukraine's territory."
This means that Naftogaz, which
extracts natural gas in Ukraine and
sells it to households, governmental
structures, and public utility
enterprises, will have no right to dispose of
it! In other words,
this means direct sociopolitical climate control in
Ukraine from
the Kremlin (through Gazprom's office).
What if that JV
2 decides to raise the price for households on
the eve (or instead) of a
presidential or parliamentary election?
Furthermore, the draft agreement
says that in case JV 2 is not
starting to operate in April 2008,
UkrGazEnergo may possibly be used
instead of it.
According to our
sources, the Russians even accept Voronin as
the president of JV 2.
Everything is simple. Thus, we don't really
need to change the name
"UkrGazEnergo".
Creation of JV 2 will double the Russian part in the
Ukrainian gas
distribution sector. This is a very expensive way to get cheap
gas.
We should also remember that two days ago a quadripartite
commission
on revision of gas supplies and payments started its work in
Moscow.
This commission is made up of the representatives of Gazprom,
Naftogaz, RosUkrEnergo and UkrGazEnergo. We believe that someone
will be
surprised with the results of the revision when he finds
out how much money
was stolen.
WHAT SHOULD BE SACRIFICED:
RATINGS OR INDEPENDENCE?
It looks like neither the President
nor the Prime-Minister or new
Naftogaz's management is satisfied with the
proposition from the Russian
side. However, every one of them could be
satisfied with completely
different results of negotiation talks.
The President could be satisfied with no results at all as long as
Ukraine receives gas for USD 179.5. He could also accept Voronin and
Firtash in charge of UkrGazEnergo.
The President indicates that the
price of gas is much more important
than the scheme employed for its supply
and distribution in the country.
In fact, most Ukrainian citizens
support the President in this matter.
What can we add here?
Yulia
Tymoshenko will be very disappointed if the Russian and Ukrainian
sides
don't reach an agreement before April 1, 2008 - the deadline defined
by the
Russians. If the agreements reached during negotiations include at
least
half of the terms stated in the abovementioned draft, this will
hardly bring
any positive changes for Ukraine.
However, Yulia Volodymyrivna is ready
to sacrifice the country's interests
for the low price of gas and
liquidation of RUE. Naftogas is receiving
directives from both the Presidential Secretariat and the Cabinet of
Ministers.
Besides, it should follow the price policy defined by
Yushchenko and
Tymoshenko: Ukraine should receive "cheap" gas since neither
the Prime
Minister nor the President want to make decisions that would
negatively
influence their ratings before the upcoming elections of 2009.
At the same time, Naftogaz is not provided with information about
Gazprom's internal tendencies that could be helpful during
the
negotiations.
Naftogaz is not provided with necessary information about
the Central
Asian region; Naftogaz often receives contradictory orders from
the Presidential Secretariat and The Cabinet of Ministers...
It is
thoughtless to say that liquidation of RUE will automatically
make the
existing gas supply scheme transparent.
The only possible transparent
gas supply scheme is the one in which
a) Ukraine buys gas from Russia
for market price, i.e. for USD 314;
b) Russia pays market price for gas
transit and gas storage in
Ukrainian underground storage facilities;
c)
Naftogaz transparently distributes gas inside the country;
d) the government
provides budget and utilities sectors with gas
produced in Ukraine and is
not worried about the price of gas for
the enterprises of Akhmetov, Firtash,
Pinchuk or Indian investors.
If we begin to buy gas for European prices
and use transparent
schemes in the gas sphere, we will be able to increase
our national
gas production, re-equip our power-consuming industries and
cultivate development of alternative sources of energy.
It could be
a strong impulse for technological progress and a real
step towards
strengthening of national security.
However, neither Tymoshenko nor
Yushchenko is ready for this step.
Notwithstanding the fact that their teams
have people who agree with
this transparent gas supply scheme, there is no
hope that it will be
implemented in our country this year. Eventually, we
will receive gas
for European prices.
This will happen much earlier
than we think. However, by legalizing
Gazprom in our market, we won't have
any impulse for re-equipping
the power-consuming industries - we will live
under the patronage of
Gazprom.
Thus, Tymoshenko, Yushchenko and
Yanukovych should take the risks
of losing their ratings and make the decision about buying gas for
European prices.
They also should do everything to make this process
less painful for
the citizens. Otherwise, all talk about transparent
schemes, national
security, technical re-equipment and eliminating
corruption will be
just talk.
------------------------------------------------------------------------------------------------
LINK:
http://www.mw.ua/1000/1550/62086/ -----------------------------------------------------------------------------------------------
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11
. VISIT OF UKRAINIAN
PRES YUSHCHENKO TO MOSCOW
Commentary & Analysis: by Dmitry Vydrin,
Eurasian Home, Moscow,
Russia, Thursday, Feb 14, 2008
The visit of the Ukrainian President
Viktor Yushchenko to Moscow on
February 12 can be summed up in the following
way: Yuliya Tymoshenko
articulates the policy which Viktor Yushchenko
implements.
Yushchenko manages to do what the Prime Minister fails for
different
reasons - from psychological and political to historical. The
Moscow
officials have a more cautious attitude towards Tymoshenko than
to
Yushchenko. He looks a more predictable and consistent policy-maker
who
is as good as his word.
Probably, now Moscow prefers to cooperate with
Yushchenko. Over
the long term Yushchenko-Putin Committee is most likely to
resume
its activities.
After the presidential election it will work in
the new capacity
since Vladimir Putin may fill a new state
position.
But the agreements that have been made public are only the tip
of
the iceberg. Most probably, there are other agreements. It
is
significant that Putin said that the agreements had been reached
not
only about the acute issues but also about the future.
Moscow is afraid
of making Tymoshenko a counterpart in addressing
the issues, which were not
made public. It believes that it is too
early (or, on the contrary, too late)
to do that. As a result,
Yushchenko again became the major negotiator with
Russia.
This turn of events does not serve Tymoshenko's interests.
Her
position, as Prime Minister's, becomes more advantageous
because the gas
supplies are guaranteed. But as a politician she
is at a disadvantage. So, it
is entirely possible that she will
behave sternly, which may make the
existing agreements more
complicated or even destroy them.
Maybe, she
will mark time until Yushchenko make a mistake or
the situation in Moscow
changes.
Yushchenko is strengthening his hand as the major negotiator
with
Moscow thanks to the fact that some Russian officials are
angry
because such a project as the Party of Regions led by
Viktor
Yanukovych is unprofitable, the investments have not proved
their
value, and the agreements, for example on the Russian language,
have
been violated.
In this connection Moscow wants to replace a
negotiator. Yushchenko
lays claim to be that negotiator and, as a result, his
image can be
politically transformed. Yushchenko may seek to gain the voters
in
Ukraine's
east.
------------------------------------------------------------------------------------------
Dmitry
Vydrin is a Director of the European Institute for Integration
and
Development, Member of the Party of the Free Democrats,
Kyiv
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12
. RUSSIA-UKRAINE GAS
RELATIONS: MURKY AFTER PUTIN-YUSHCHENKO
MEETING
Analysis & Commentary: by Vladimir Socor
Eurasia Daily Monitor,
Volume 5, Number 30,
The Jamestown Foundation, Wash, DC, Fri, Feb 15,
2008
Presidents Vladimir Putin of Russia and Viktor Yushchenko of
Ukraine
have agreed on a reshuffling of the cards in Russia-Ukraine
gas
relations.
During Yushchenko's February 12-13 visit to Moscow (see
EDM, February
14) the two presidents adopted on a personal basis what
Yushchenko
termed "tactical decisions" on gas relations for 2008 and
"strategic
decisions" for the years thereafter.
Regarding the latter,
Yushchenko declared, "We have agreed on
the strategy, but will not publicize
[afishirovat] it at this time."
He disclaimed "any desire as President to
have to deal with gas issues"
and credited Putin with a similar aloof
disinterest: "I am sure that
the same is true of Vladimir Vladimirovich"
(Kremlin.ru, February 12;
Russia Television Channel One, February 13). Putin
did not seem to
take umbrage.
The decisions focus on replacing the two
intermediaries, RosUkrEnergo
and UkrGazEnergo, from the Russia-Ukraine gas
trade. In their stead,
Gazprom and the Ukrainian state company are to
establish two new joint
companies, each on a 50%-50% parity basis.
As
Gazprom's chairman and Russia's president-in-waiting Dmitry Medvedev
told
journalists on this occasion, the intermediary's title is immaterial
as long
as the system continues. Gazprom, he said, can supply gas to
Ukraine at
European prices of some $300 without intermediaries, if Ukraine
chooses that
option.
But if Ukraine wants cheaper Central Asian gas, it must accept
an
intermediary by agreement with Gazprom. The Russian side is ready
for
either option, Medvedev said. He recalled that Russia had in
2005
proposed to create such an intermediary in the form of a
Gazprom-Naftohaz
joint company, but that the Ukrainian side favored the
RosUkrEnergo
solution (Itar-Tass, February 14).
The two existing
intermediaries are Gazprom's offshoots. RosUkrEnergo,
50% owned by Gazprom
and 50% by Gazprom's Ukrainian allies, buys gas from
Gazprom and delivers it
through Gazprom's pipelines to the
Russia-Ukraine
border.
UkrGazEnergo, 50% owned by RosUkrEnergo and 50%
by Naftohaz -- and
managed by long-time Gazprom collaborators in Ukraine --
buys that gas
from RosUkrEnergo at the border and sells it within Ukraine.
There,
UkrGazEnergo supplies the lucrative industrial market and
Naftohaz
the debt-ridden household market.
This system is in place
under the January 2006 agreements signed by
Yushchenko's energy team with
Gazprom.
Through this arrangement, Ukraine receives gas at prices far
below those
prevailing in Europe, although the price charged to Ukraine is
rising each
year and should reach the European level by 2011. Ukraine pays
$179.5 per
1,000 cubic meters in 2008, compared to more than $300 paid by
most of
Gazprom's customers in Europe.
Gazprom sustains this discount
to Ukraine by buying Turkmen and other
Central Asian gas far below European
prices, adding some volumes of
"European-priced" Russian gas, and selling the
mix to RosUkrEnergo for
transport to Ukraine, where UkrGazEnergo distributes
it to consumers.
Attractive in the short term, this system of discounts
is actually depriving
Naftohaz of revenues, pushing it into indebtedness, and
preventing it from
modernizing Ukraine's gas transit system, which Naftohaz
owns and operates.
By pushing Naftohaz toward bankruptcy, Gazprom aims
for some form of
shared control of Ukraine's gas transit system.
In late
January-early February, Gazprom threatened to reduce gas supplies
to Ukraine
as of February 11, unless Naftohaz begins reimbursing arrears
worth $1.5
billion. By Gazprom's accounting, $500 million of that sum
stems from a
suddenly increased "Russian" portion in the Central Asian-
Russian mix of gas
supplied to Ukraine during November-December 2007.
With frost-hit Central
Asia facing gas shortfalls, Gazprom compensated
for the missing Central Asian
volumes by adding expensive "Russian" gas
for delivery to Ukraine by
RosUkrEnergo.
Furthermore, Moscow complains that Naftohaz bought 5
billion cubic meters
of gas in January 2008 from UkrGazEnergo without a valid
contract, once
the price of the gas mix went up (Interfax-Ukraine, UNIAN,
February 12-14).
The debt-formation mechanism has operated as follows:
Naftohaz is unable
to pay to UkrGazEnergo, which in turn cannot pay to
RosUkrEnergo, which
in its turn owes that amount to Gazprom. Thus, Gazprom
turns to the Kremlin
to collect the debt from Ukraine. The mechanism seems to
work as Moscow
intended all along.
The Ukrainian government is now
looking at debt-repayment options, which --
according to Fuel and Energy
Minister Yuriy Prodan -- include: collecting
arrears from Ukrainian gas
consumers, "restructuring its debts to Gazprom,"
or taking yet another
international loan to pay Gazprom through that chain
of
intermediaries.
On February 14, the Ukrainian cabinet of ministers under
Yulia Tymoshenko
decided to set up a commission to disband UkrGazEnergo and
replace it
with a Naftohaz-Gazprom parity company. Thus, Gazprom can move
directly
into the transmission and distribution system within Ukraine, taking
over
50% of the business if this arrangement takes shape.
RosUkrEnergo
is to continue operating in 2008, pending its replacement
in accordance with
the February 12 Putin-Yushchenko agreement. That
agreement is only an
outline, likely to be challenged politically
in
Ukraine.
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LINK:
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13
. YUSHCHENKO OUTMANEUVERS
PUTIN
Andriy Dutsyk, Kyiv Weekly, Kyiv, Ukraine, Wed, Feb 15, 2008
The
official visit of President Viktor Yushchenko to Moscow turned
out to be the
most well best organized visit of a Ukrainian leader
in this past decade. The
significance of this meeting should be
measured not only by concrete results,
but also by the thorough
preparations by the Ukrainian
side.
Meanwhile, the fact that the Kremlin agreed to participate in
a
meeting of the Yushchenko-Putin Commission testified to
the readiness of the
Russian elite to hold talks with the current
leadership in Ukraine, which not
up until recently was viewed
through the prism of anti-Russian ideas and
dependence on
Washington.
ALL SAID AND
DONE
In preparation for the president's visit, Yushchenko's
team did
everything possible to strike the most heated and disputable
issues
off the agenda of Ukrainian-Russian talks. The first issue
concerns
Ukraine's accelerated integration into NATO: the president,
government
and parliamentary majority support this course.
At the same
time, all political forces feel that the Ukrainian people
are the main judges
to decide the fate of their country's membership
in NATO through a nationwide
referendum. The scheme has become so
transparent and understandable that it
is becoming ever more difficult
for Russia to accuse Ukraine of uncongenial
behavior.
Secondly, the current government and the political opposition
reached
a compromise on the country's integration into the EU, while Russia
is
mostly viewed as a trading partner, cooperation with which is
imperative
in establishing a free trade zone. Integration into the WTO ahead
of
Russia will give Ukraine an additional trump card in its
negotiations
with Russia, particularly on the sensitive gas issue for the
two
countries.
Thirdly, Russia has not succeeded in establishing a
pro-Russia political
non-government project on Ukraine's political arena.
Less than 10% of
the population considers themselves primarily citizens of
the former
Soviet Union, according to a survey by the Institute of
Sociology
under the National Academy of Sciences (NASU).
It is
virtually impossible to gain a political edge or have influence
with the
votes in this category of citizens as they are scattered
between different
forces.
Besides, Russian oligarchs turned out to be much more visionary
than
the Putin administration by maintaining constant ties with the
Ukrainian
president. As a result of such an approach, LUKoil, TNK, Alfa Group
and Yevraz Group can decide on issues and lobby them without the
permission or assistance of the Kremlin.
In short, Russia's
political elite managed to lose yet another lever
of influence in its talks
with Yushchenko and the ability to conduct
a policy of protecting the
economic interests of Russian manufacturers
in Ukraine.
LOFTY RELATIONS
Yushchenko's
team took all these factors into consideration when
preparing the president's
visit to Moscow. At the same time, sensing
strong support of the West and
confident control over a certain
political "backup" within the country,
Yushchenko managed to play
his bargaining chip in a particular
conflict.
Indeed, just before the president's visit to Moscow the
conflict over
certain hydrographic objects in Crimea was aggravated, the
"black
lists" of Ukrainians that have been deemed persona non grata
for
entry into the territory of Russia were reinstated and the
State
Security Service (SBU) of Ukraine took note of the heightened level
of
activity on the part of radical pro-Russian organizations that
support
and propagate the notion of separatism on the Crimean
peninsula.
While the aggravation of conflicting issues once played into
the hands
of official Moscow prior to the latest Ukrainian-Russian
diplomatic
talks, now these issues are more of an "ace up Kyiv's
sleeve".
Having allies in the current government and in Tymoshenko's
parliament
gave Yushchenko the opportunity to not react to these issues and
maintain
his composure and position during the talks in Moscow.
The
Ukrainian president did everything possible to avoid a new conflict
with
Putin during his meeting and psychologically prepped the Russians
for tough
yet constructive dialog.
Specifically, Yushchenko demonstrated his
ability to suppress the excessive
radical initiatives of Tymoshenko in the
gas sector by not offering his
support of the Cabinet of Ministers in its
attempts to review the scheme
for the supply of Russian gas to Ukraine,
participation in the construction
of gas pipelines from Turkmenistan to
Ukraine that bypass Russia and
a fivefold hike in transit tariffs for
Gasprom.
In his latest exclusive interviews on the country's main TV
channels
Yushchenko sent a clear message to the Kremlin: gas relations will
be
stable if Gasprom agrees to the proposals of the Ukrainian
president.
The fact that NSDC Secretary Raisa Bohatyryova with her
pro-Russian
ideas went to Moscow with the president instead of pro- western
Foreign
Minister Volodymyr Ohryzko or Premier Tymoshenko is testimony
that
Ukraine's president wishes to maintain amicable ties with
Russia.
This important visit to Russia had its minuses as well. For
instance,
the information campaign on the joint appeal of the president, the
VR
speaker and the premier about Ukraine joining the plan of action
for
gaining membership in NATO to the NATO General Secretariat was
a
miserable flop;
the official statement of Vsevolod Loskutov, adviser and
messenger
at the Russian Embassy in Ukraine, that Russia could alter
relations
with Ukraine in connection with the latter's membership in NATO
(first
and foremost, this concerns the military-industrial
complex);
and the threats by Gasprom of possibly cutting off gas supplies
to
Ukraine due to its outstanding debts to the UkrGasEnergo
company.
At the same time, even these doubtful trump cards that Putin
is
playing are not likely to destroy Ukraine's diligence in the
artful
preparation of Yushchenko's visit to Moscow on the highest level
and
the skill of the Ukrainian president's team at smoothing out the
rough
edges.
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LINK:
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14
. UKRAINE'S GAS WOES
UNDERSCORE DOMESTIC POWER
STRUGGLE
ANALYSIS & COMMENTARY: by Tammy
Lynch
THE ISCIP ANALYST, An Analytical Review, Volume XIV, Number 8
Boston
University's Institute for the Study of Conflict, Ideology &
Policy
Boston, Massachusetts, Thursday, 14 February 2008
On 12
February the international press heralded a "solution" to the latest
dispute
between Russia and Ukraine over the latter's gas debt. (1)
Ukraine's
politicians publicly celebrated, too. Prime Minister Yulia
Tymoshenko
termed the "agreement" made between Russia President Vladimir
Putin and
Ukraine President Viktor Yushchenko a "victory of the democratic
team."
In particular, Tymoshenko stressed that both sides had agreed
to pursue "the
elimination of all mediators from the gas market of Ukraine,
including the
shadows and corruption." (2)
However, it is likely that
this celebration is just a bit premature. A
close examination of the
situation shows that, with two major exceptions,
the "agreement" actually
contained only outlines for future discussions.
The exceptions are
important. In a clear negotiating maneuver, Gazprom
figured the cost
of gas used (and not paid for) in the final quarter of 2007
at the 2008
price of $179 per 1000 cubic meters instead of the 2007 price of
$130 per
1000 cubic meters. Putin and Yushchenko finally agreed that the
price
would be $130 per 1000 cubic meters, which will, according to
Yushchenko,
lower the debt by over $150 million. (3)
Gazprom also agreed to
remove the
