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Will Ukraine's Orange Revolution Be Undone By Energy Deals?

(Washington, DC--December 1, 2006) During a recent briefing at RFE/RL, Adrian Karatnycky, president of the non-partisan international initiative "The Orange Circle" and RFE/RL regional analyst Roman Kupchinsky expressed very different views of events in Ukraine since a split among the former parliamentary allies, known as the Orange Coalition, three months ago returned former presidential candidate and Prime Minister Viktor Yanukovych to power.

Karatnycky said the changes to the political leadership in Ukraine were not necessarily destabilizing; rather, Yanukovych's return to the Prime Minister's seat represents a "new [political] architecture in Ukraine" that has come into being in the aftermath of the collapse of the Orange Coalition. He said that competing political groups are now struggling over policy within "a reconfigured Ukrainian constitution," where "the Ukrainian courts will play a significant and powerful role." According to Karatnycky, economic and political reforms can continue if there is cooperation between Ukraine's President, Viktor Yushchenko and Prime Minister Viktor Yanukovych. "If there are endless challenges," Karatnycky said, it will "paralyze forward movement."

Ukraine's current balance of political power, Karatnycky said, remains "the same as in the 2004 presidential election," judging from the results of the March 2006 parliamentary elections. Karatnycky noted that Ukraine's voters continue to support the same power blocs, voting 52 to 43 percent in favor of parties identified with reform. The collapse of the Orange coalition came about when the leaders of the Socialist bloc defected to Yanukovych after the March 2006 election, but "Yanukovych's party [The Party of the Regions] does not control the majority" or dictate policy, Karatnycky said.

Karatnycky said that there are "pragmatically oriented blocs" within all of the parliamentary parties in Ukraine today that are prepared for a "comfortable cohabitation," if not with the reform party Our Ukraine, then at least with President Yushchenko. Karatnycky described the balance of power between the President and Prime Minister as "a Greco-Roman wrestling match with two evenly matched heavyweights," because the presidency retains significant powers "to bend all legislation more in his direction."

Although there may be attempts to change Ukraine's constitution to a fully parliamentary democracy, Karatnycky said there will be "at best a deadlock" on the issue. Karatnycky maintained that there are "many vectors in Ukraine, and therefore one needs [the support of] lots of players to move policy. This is institutional pluralism; this is democracy... While Orange Coalitions and orange politicians failed, the Orange Revolution succeeded," Karatnycky said.

Focusing on only one aspect of the Ukrainian government's decision-making, energy policy, Kupchinsky said little progress was being made by the Yanukovych-Yushchenko partnership in setting Ukraine on the road to a reformed and modernized economy. Kupchinsky said that Ukraine, the sixth largest consumer of natural gas in the world, has an "energy intensive economy" that is consuming energy badly -- in Kupchinsky's terms, "wasting it."

Kupchinsky questioned the decision by Prime Minister Yanukovych to appoint Yuri Boyko, the former head of Naftogaz Ukrainy as head of the Ministry of Fuels and Energy, as well as the failure of Ukraine's top political leaders to protest that appointment. "Boyko has always been part of the problem," said Kupchinsky, because he is responsible for the creation of UralTransGas in 1991, "which eventually turned into a company called RosUkEnergo in July 2004." Kupchinsky sees both companies as unnecessary middle men in Ukraine's energy sector who add costs to the purchase and distribution of natural gas in Ukraine. Kupchinsky noted that it has been announced that RosUkEnergo will be the "operator for Central Asian and Russian gas to Ukraine" and "be paid 13 billion cubic meter of gas per year." According to Kupchinsky, "This is more gas than Austria uses; this is billions of dollars as a commission for signing customs declarations." Another part of the current arrangement dictates that "Ukraine doesn't have the right to buy gas directly from Turkmenistan," Kupchinsky said.

Since natural gas prices are "up for review every six months" under existing contracts with Russia's natural gas monopoly Gazprom, Kupchinsky noted that Ukraine's current price of $95 per 1,000 cubic meters of gas may not last long. In June 2006, Kupchinsky said, Turkmenistan raised its price from $65 to $100 per 1,000 cubic meters, as did Kazakhstan. Ukraine will import 55 billion cubic meters of natural gas starting in January 2007, all of which is being purchased from Central Asian producers through Gazprom and RosUkEnergo. Kupchinsky sees both Turkmenistan and Russia as unreliable suppliers of natural gas to Ukraine -- Turkmenistan "will not reveal how much natural gas the country has," while Russia is itself experiencing "severe domestic shortages of natural gas."

Ukraine produces 20 billion meters of its natural gas domestically, said Kupchinsky, but Minister "Boyko has said the Ukrainian government doesn't want Western foreign investment in its energy sector." Off-shore drilling in the Black Sea, Kupchinsky said, can cost $700,000 per day and Ukraine doesn't have the experience or the equipment to explore and develop those gas fields on its own. The Ukrainian gas pipeline which supplies Western Europe, Kupchinsky said, is old and needs major repairs, but rather than bringing in Western investment, Yanukovych "has revived the idea of an International Gas Transport Consortium." "Yanukovych energy policies are absolutely a return to the past. There's nothing progressive," according to Kupchinsky, who added, "The critical mistake was bringing Boyko back; this will endanger Ukrainian and European energy security."

Archived audio of this briefing can be heard in RealAudio and Windows Media formats.