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Ukraine's Energy Power Struggle, Or Gas at Gunpoint

Security agents stormed the Naftohaz headquarters in March in a show of force by President Yushchenko.

Security agents stormed the Naftohaz headquarters in March in a show of force by President Yushchenko.

Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko traveled together to Brussels last month to ink a 2.5 billion-euro ($3.3 billion) deal with the European Union aimed at holding their country's state-owned energy company, Naftogaz, to EU market standards.

After the January standoff between Moscow and Kyiv over gas supplies, which temporarily deprived millions of Europeans of heat during an exceptionally cold winter, this would seem a welcome development. But when it comes to Ukraine, agreements on paper should not obscure the contentious reality on the ground.

Nothing could highlight more starkly the dangerous lack of transparency in the Ukrainian energy sector than the sight, a few weeks before the Brussels meeting, of a heavily-armed swat team storming Naftogaz headquarters. Company officials, who for the moment remain loyal to Tymoshenko, claimed the security forces subordinate to Yushchenko raided the company to confiscate contracts concerning the transit of Russian gas through Ukraine to Europe. In the end, the documents stayed in their filing cabinets, but Naftogaz paid up on its February bill for Russian gas.

It is not clear what exactly the masked security men were looking for, but it is obvious that the drastic move was a show of force by President Yushchenko in his political duel with Tymoshenko, his former Orange coalition partner. Yushchenko sent a message to his rivals, and to Moscow, that he can force payment -- even at gunpoint.

The Russia-backed opposition, the Party of Regions, is watching and licking its chops, but it is also licking the wounds inflicted in its own internal squabbles. That said, the ability of the Party of Regions, or more accurately of Moscow, to retake the helm and reorient Kyiv's foreign policy should not be underestimated in times of economic hardship, which have hit Ukraine harder than most of its neighbors.

Power Struggle

As these events make clear, Ukrainian politics are not focused on reform, or even on building a popular base: President Yushchenko's approval ratings are in the low single digits. It's all about jockeying for power in a world of energy oligarchs and nontransparent natural-gas contracts with Russia.

The most recent such arrangement involved a questionable intermediary between Naftogaz and Russia's Kremlin-controlled Gazprom called RosUkrEnergo. That Swiss-registered entity, half-owned by Gazprom and half by Ukrainian oligarchs who contributed large sums to all of the country's major political parties, was the main conduit through which Ukrainian and Russian politicians and business leaders were able to profit personally from gas transit to the EU.

Since January, RosUkrEnergo has been phased out, only to be replaced by an equally opaque arrangement. The swat team's show of strength seems to indicate that it is the spoils from this new deal that Ukraine's leaders are currently fighting over.

If implemented effectively, EU-sponsored energy reforms may reduce this violent jockeying. But the one major incentive that could spur true reforms and bring transparency to Ukraine's gas transit routes would be a clear path to EU membership. While NATO membership is enormously controversial in Ukraine, all major political players affirm their commitment to joining the European club.

However, because the response from Brussels and key EU member states has been noncommittal at best, no political leader in Kyiv has made a serious bid for the niche of the reformist, EU-oriented candidate, especially in the midst of a no-holds-barred struggle over gas money.

Ukraine's current political, economic, and energy-security situation means it is a long way from EU membership. But without the serious prospect of EU accession, the situation in Ukraine, and Europe's energy-security problems, will only get worse.

The only winner will be Russian Prime Minister Vladimir Putin, who has sought to fuel instability in Ukraine ever since the 2004 Orange Revolution. A weak Ukraine strengthens Russia's hand vis-a-vis the EU in talks about energy policy, NATO and EU expansion, business relationships, and human rights.

The International Monetary Fund has already offered Ukraine a major economic bailout package. The EU should prepare to offer the political equivalent: a commitment and clear path to full EU membership. This wouldn't be so much a favor to Ukraine as a bid to reduce the likelihood that Europe will be held hostage to continued chaos in Ukraine's gas sector.

Alexandros Petersen is Dinu Patriciu Fellow for Transatlantic Energy Security and associate director of the Eurasia Energy Center at the Atlantic Council of the United States. The views expressed in this commentary are his own, and do not necessarily reflect those of RFE/RL

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