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Belarus, Ukraine, and Moldova Report: October 19, 2007

The Power Of A Second Chance

By Jan Maksymiuk

Party leaders Yulia Tymoshenko and Vyacheslav Kyrylenko are set to form a ruling coalition

October 19, 2007 (RFE/RL) -- Now that President Viktor Yushchenko has confirmed that he wants the Yulia Tymoshenko Bloc (BYuT) and the Our Ukraine-People's Self-Defense (NUNS) bloc to form a ruling coalition, the two Orange Revolution allies may have a second chance to deliver on the promises they solemnly made in 2004 and disappointingly failed to meet.

But while Yushchenko and Yulia Tymoshenko have already shown some public signs of unity -- most recently in Lisbon on October 18, where each espoused the virtues of European values during a congress of the European People's Party -- the question remains as to whether they have overcome their past differences sufficiently to run a new government.

After Yushchenko backed the pairing on October 17, Tymoshenko and Vyacheslav Kyrylenko, a leader of the pro-Yushchenko NUNS, presented the coalition deal they initialed on October 15. The entire 105-page document was subsequently published on the Internet.

The most important provisions of the deal state that Tymoshenko is to be proposed as prime minister, while the NUNS bloc will nominate a candidate for the post of parliamentary speaker. Cabinet portfolios are to be distributed on a 50-50 basis between the two blocs.

Tymoshenko, for whom the regained post of prime minister could be a much-coveted springboard to launch a presidential bid in 2009, has already made many compromises to ensure President Yushchenko's support.

The deal makes room for a third "democratically oriented" participant in the coalition, although it does not mention it by name. It does, however, clearly stipulate that neither the Party of Regions nor the Communist Party can be considered as a potential coalition partner, thus narrowing the field to only the Lytvyn Bloc, which has 20 lawmakers in the 450-seat Verkhovna Rada.

Orange Sequel

The overwhelming feeling of deja vu that Ukraine observers may experience upon hearing such news is quite understandable.

A similar, if somewhat shorter, coalition document was preliminarily signed by the BYuT and Our Ukraine immediately after the March 2006 elections. At that time, the desired third coalition partner was the Socialist Party, which failed to win parliamentary seats this year.

After four months of futile coalition talks in 2006, the Socialists switched sides and formed a ruling majority with the Party of Regions and the Communists. President Yushchenko had no choice in August 2006 but to designate Viktor Yanukovych, his bitter political rival, as prime minister.

Could such a situation repeat itself this year? Could the NUNS bloc eventually abandon Tymoshenko and form a "broad" coalition with the Party of Regions, thus uniting the west and the east of Ukraine politically, if not ideologically or emotionally? Such a turn of events cannot be ruled out.

Tymoshenko, for whom the regained post of prime minister could be a much-coveted springboard for launching a presidential bid in 2009, has already made many compromises in order to ensure President Yushchenko's support for her attempt to lead the government once again.

To begin with, she agreed to give the NUNS bloc half of the cabinet portfolios, although her party won 156 parliamentary mandates versus NUNS's 72.

Furthermore, she agreed to endorse a package of 12 bills ahead of the expected vote on her approval as prime minister in the newly elected parliament. Some of the proposed bills, including one on the Cabinet of Ministers, significantly reinforce presidential powers at the expense of those of the prime minister.

An Uncertain Majority

But not even such concessions can guarantee that Tymoshenko will be vested with the powers she craves. BYuT and NUNS together have 228 votes, just two more than the majority required to pass most legislation in the Verkhovna Rada, including the approval of a new cabinet.

President Yushchenko has little chance in the next presidential polls (official site)

Tymoshenko can expect voting discipline within the BYuT ranks, but the NUNS bloc is a motley collection of nine political groups. What if the interests of one of these groups are not duly taken into account in the distribution of post-election spoils? In such a situation, it would not appear to be difficult to persuade just three lawmakers from a dissatisfied NUNS component to skip or abstain from a crucial vote.

It also seems unlikely that the Party of Regions will allow the Orange Revolution allies to adopt the 12 bills Tymoshenko has promised to endorse, which are sine qua non for starting the new government.

The Party of Regions will almost certainly demand separate votes on each of the proposed bills in order to exhaust the combat spirit of the Orange allies and nip their coalition-building effort in the bud. Attempts to block the parliamentary rostrum and even fistfights among lawmakers are not out of the question -- and are even likely -- at the inauguration of a new Verkhovna Rada.

But even if the Orange coalition manages to pass the 12 bills to please Yushchenko, approves Tymoshenko as prime minister, and appeases the hunger of all the NUNS constituents for political jobs, the problem of how to mobilize 226 votes for each individual piece of legislation in the future will remain an issue.

The Lytvyn Bloc, which could stabilize the slim Orange majority, is not eager to reveal its political preferences or appetites. Perhaps it is just waiting for a worthy piece of post-election pie in exchange for its role of kingmaker. But what if the Lytvyn Bloc has decided not to meddle in what seems to be an unavoidable exchange of blows between the BYuT and the Party of Regions, and has chosen an observer role? In that case, the Orange allies will need a political miracle or two to get their ruling partnership going.

On the other hand, a restored Orange coalition appears to be the only way for Yushchenko to perpetuate hopes for launching his presidential bid in 2009. If the president were to again nominate Yanukovych as prime minister, he would stand to lose even the dramatically dwindled support he currently enjoys in western Ukraine.

Eyes On The Next Goal

Tymoshenko has unequivocally declared that she will immediately starts working on her presidential bid if she fails to get the post of prime minister.

It is easy to predict that, given the current distribution of political sympathies in Ukraine, Yushchenko has no chance of qualifying for the second round in the next presidential polls. But keeping Tymoshenko in the government would provide Yushchenko a glimmer of hope -- either by satisfying her political appetite, or by tarnishing her image as a competent and efficient politician who can deliver on her promises.

Tymoshenko has made a lot of unworkable election promises during the campaign, including one on returning lost Soviet-era savings to Ukrainians within the next two years-- an endeavor that would require a sum equal to Ukraine's annual budget.

Another apparently unrealistic pledge, which was written down in the coalition deal, is to abolish the military draft in Ukraine as of the beginning of 2008 and switch to a fully professional army in 2009.

When asked about the plan on the sidelines of the October 18 congress in Lisbon, President Yushchenko told reporters that "I'd like to tell my political friends and colleagues: They may develop certain visions at their level or they may not, but today I'd advise them to follow the National Program for the Development of the Ukrainian Armed Forces."

And Defense Minister Anatoliy Hrytsenko, bewildered after reading the coalition-deal passage pertaining to the military draft, compared it with abolishing Newton's three laws of motion.

Thus, the birth of a new government in Ukraine is taking place on shaky ground and amid heightened expectations of economic and political wonders. Ukraine already has its fairy-tale heroine with a fetching blonde braid -- now comes the time for her to work her magic.

Old Questions For New Odesa-Brody Extension Proposal

By Roman Kupchinsky

The southern terminal of the Odesa-Brody pipeline

October 16, 2007 (RFE/RL) -- Ukraine's Odesa-Brody oil pipeline has been seen as a solution to Eastern Europe's dependence on Russian crude ever since the project was completed in 2001.

But with all the necessary infrastructure in place, including the 674-kilometer pipeline and a new oil terminal located south of Odesa at the Black Sea port of Pivdenny, the dream remains unfulfilled.

The original idea called for Kazakh and Azerbaijani oil to make its way to the Black Sea coast, from where it could be shipped to the Pivdenny port. Once in Ukraine, it would be pumped north through the new pipeline and made available for distribution to European destinations.

But Azerbaijan and Kazakhstan never committed to providing the oil needed to fill the pipeline, and cash-strapped Ukraine was unsuccessful in convincing European states to build an extension that would pump the oil from Brody to refineries in European markets.

White Elephant For Rent

As Stratfor Commentary wrote in September 2003, "The end result was that Kyiv found itself saddled with a white elephant rusting picturesquely in the Ukrainian countryside."

To remedy the situation, the flow of the pipeline was reversed in 2004 to send Russian oil south from Brody to Odesa, and on to global markets by ship via the Bosporus.

Thus, the project envisioned as a way to circumvent Russia in the end became another means to transport Russian oil.

Now, the original plan has returned to the fore with the signing of a deal this month to explore the possibility of using the Odesa-Brody pipeline to pump Caspian oil to European destinations.

At the Vilnius energy summit on October 10, Poland, Ukraine, Lithuania, Georgia, and Azerbaijan inked a deal under which a $700 million, 500-kilometer pipeline extension would be built to send Caspian oil from Brody to the central Polish city of Plock.

The first phase of the proposal is for a feasibility study to be conducted, and if all goes well the Brody-Plock extension could theoretically be built by 2012.

But despite the excitement over the new deal, many of the same questions that originally hampered Odesa-Brody remain.

The most glaring of these is, once again, who will provide the oil to fill the pipeline?

Azerbaijan and Kazakhstan are viewed as the potential suppliers, but doubt has already been cast on their participation.

Azerbaijan's excess oil has already been earmarked for export via the Baku-Tbilisi-Ceyhan (BTC) pipeline, and the country currently has no means of increasing production.

The BTC, which in 2005 started pumping oil from Azerbaijan via Georgia to Turkey, sends Caspian crude to the Mediterranean while bypassing the overburdened Bosporus. The BP-led consortium that built the pipeline is unlikely to allow Azerbaijan to divert supplies to a second pipeline, considering that the BTC itself has spare capacity.

Azerbaijan's industry and energy minister, Natiq Aliyev, has previously said that the country's "end target is to maximize the capacity of BTC" and that "we will attract all the oil in the region in order to export it via BTC."

Meanwhile, Azerbaijan's state oil company, Socar, announced on October 15 that it has not yet decided whether it will participate in the new project, saying any decision to do so would not be made until 2008.

Kazakhstan, for its part, made clear from the start that it has no intention of supplying oil for the new Odesa-Brody-Plock route. While the country's energy and natural resources minister, Sauat Mynbayev, attended the October 10-11 summit in Vilnius, he did not sign the new agreement and stressed Kazakhstan's commitments to export its oil via Russia.

Much of the country's oil presently flows through the Caspian Pipeline Consortium network to the Russian Black Sea port of Novorossiisk, from which it is shipped to outside markets.

More Hurdles Under The Surface

Even in the event Kazakh that and/or Azerbaijani oil is found to supply Odesa-Brody-Plock, the proposal faces the formidable hurdle of transporting that oil across Georgia and on to Odesa.

One possibility considered at the Vilnius meeting was to ship the oil by tanker from the Georgian ports of Batumi and Supsa to Odesa, but the costs of doing so would make the project commercially unfeasible.

An alternative Georgian proposal is to build a pipeline under the Black Sea from Georgia to Odesa. But this too presents problems because, aside from the extreme expense involved (most likely to be incurred by the five states that signed onto the project), such a pipeline would have to cross over or under Russia's Blue Stream gas pipeline.

And ultimately, while some in Ukraine might view the pipeline as an excellent way to show its worth to the EU as it vies for admission to the bloc, the millions Russia pays Kyiv every year for use of the Odesa-Brody pipeline may prove insurmountable.

Ukraine's Mysterious Debt To Gazprom

By Roman Kupchinsky

Why was Ukraine caught off guard by the $2.2 billion gas debt?

October 11, 2007 (RFE/RL) -- Ukraine has reached an agreement on its outstanding debt to Gazprom, clearing the air ahead of negotiations on gas supplies for 2008 and mollifying wary European consumers. But behind the turbid deal stands one outstanding question -- how was such a large debt accrued in the first place?

After the Russian energy giant Gazprom threatened earlier this month to cut off natural gas to Ukraine unless it received $1.3 billion for past supplies, Russian President Putin remarked that "the large debt was totally unexpected."

An astonished Ukrainian Deputy Prime Minister Mykola Azarov told reporters in Kyiv, "It can't be true that the debt is as high as [Gazprom] says it is."

And Ukrainian Deputy Energy Minister Vadym Chuprun did did his best to describe a complicated situation in which Ukraine is not responsible for the debts, saying that the many suppliers, owners, and operators involved in supplying Russian-controlled gas to Ukraine had to "settle their accounts first, and when the amount drops we'll see whose debt it is and whose fault it is."

The lack of awareness was difficult to fathom, considering that one of the companies deemed responsible for accruing the debt, the Swiss company RosUkrEnergo, has three powerful members of Gazprom's management committee on its board.

Even more befuddling was the fact that when the smoke cleared and the numbers of the debt-payment agreement were crunched, the combined debt by all debtors was $2.2 billion.

Examining The Debt

The debt was purportedly incurred by two companies -- RosUkrEnergo and UkrGasEnergo (UGE), a Ukrainian-registered joint venture between RosUkrEnergo and Ukraine's state-owned Naftohaz Ukrayiny.

Much of the disagreement centered on ownership of natural gas stored in underground facilities in Ukraine.

When Ukrainian Energy Minister Yuriy Boyko on October 9 signed an agreement with Gazprom CEO Aleksei Miller to pay off the debt by November 1, it was decided that 8.5 billion cubic meters of gas belonging to RosUkrEnergo, worth $1.2 billion, would be turned over to GazpromEksport. The remainder of the debt, $929 million, would be paid by UkrGazEnergo and Naftohaz Ukrayiny from their own funds, in cash.

The full text of the signed agreement has not been published and has yet even to be seen by Ukrainian President Viktor Yushchenko, raising fears that it will forever remain hidden from public scrutiny.

Perhaps this should not be surprising, considering the opaqueness of the system under which Ukraine receives Russian-controlled gas.

The middleman Swiss company RosUkrEnergo was created in July 2004 by Russian President Putin along with former Ukrainian President Leonid Kuchma. Other key players in the deal were Yuriy Boyko, the current Ukrainian energy minister who in 2004 headed Naftohaz Ukrayiny; Dmytro Firtash, a Ukrainian businessman with no affiliation to the Ukrainian government; and Gazprom CEO Miller. RosUkrEnergo was essentially formed to replace the discredited Budapest-based EuralTransGas, which was later exposed in the Western press as being a creation of Gazprom and Firtash.

Gazprom presently owns 50 percent of RosUkrEnergo while Firtash and his partner, Ivan Fursin, a banker from Odessa, own the rest through a company called Centragas, which in turn is owned by the secretive Mabofi Holdings in Cyprus.

Medvedev, the deputy head of Gazprom's management committee, sits on RosUkrEnergo's board, as does Valeriy Golubev, who is in charge of Gazprom's sales to CIS countries. And Konstantin Chuichenko, the head of Gazprom's legal division, serves as co-director of RosUkrEnergo.

Trail Of Numbers

According to the January 2006 agreement signed between Ukraine and Russia, RosUkrEnergo -- at Gazprom's insistence -- was brought in to be the monopoly supplier of Central Asian and Russian gas to Ukraine.

The agreement stipulated that RosUkrEnergo would purchase a "basket" of Central Asian and Russian gas from GazpromEksport at $95 per 1,000 cubic meters. The total volume of gas purchased by RosUkrEnergo, according to the agreement, was 73 billion cubic meters (bcm) -- about 20 bcm more than Ukraine consumed when Ukrainian production of 20 bcm is taken into account.

The extra 20 bcm was the commission Naftohaz Ukrayiny paid to RosUkrEnergo for its services. RosUkrEnergo in turn sold this gas in Europe to, among others, Emfesz KFT, a Hungarian-based company controlled by Firtash. Emfesz then resold part of the gas to Poland -- undercutting Gazprom's price -- and sold the rest on the Hungarian domestic market.

However, in mid 2007, sources in the Russian gas industry reported that Firtash's companies had accrued a debt to RosUkrEnergo of more than $2 billion. It appears Gazprom become wary of Firtash's ability to repay the debt and decided to rein him in, but had little leverage over the maverick businessman who seemingly maintained a close working relationship with Ukrainian Prime Minister Viktor Yanukovych's administration in Kyiv and, above all, with Boyko and Yanukovych's chief of staff, Serhiy Levochkin.

Considering the complexity of the gas-transit arrangement and the internal dealings, it appears that the October 9 debt deal is just a temporary solution to a recurring problem. And one can expect that the 8 bcm of gas returned to GazpromEksport will be used as leverage over the new Ukrainian government as negotiations for Gazprom supplies to Ukraine in 2008 kick off this month.