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Poland, Belarus & Ukraine Report: January 13, 2004

13 January 2004, Volume 6, Number 1
MINSK MAY HAVE PROBLEMS WITH RUSSIAN GAS, OIL SUPPLIES. Joint planning and allocation of energy resources was one of the key clauses in the 1999 Union Treaty between Belarus and Russia. But according to Vadzim Papou, speaker of the Chamber of Representatives (lower house of the National Assembly of Belarus), it is simply "not working."

Papou's remark, quoted by Belapan on 8 January, came after major disputes between Belarus and Russia over oil and gas supplies and prices. The rows have an ominous subtext -- if Belarus is to continue to get supplies from Russia at preferential prices, then the Russian suppliers want a stake in the Belarusian infrastructure.

In the case of gas, these demands were seen by some Belarusians as tantamount to blackmail. Under an agreement signed in April 2002, Russia's Gazprom delivered natural gas to Belarus at the same wholesale price as that in force just across the frontier in Russia's Smolensk Oblast (at the end of 2003, this was 912 rubles [$30.7] per 1,000 cubic meters). But in the autumn of 2003, Gazprom stated that these prices could only continue if the Belarusian gas-transport concern, Beltranshaz, were to be privatized and turned into a Belarusian-Russian joint venture.

Belarusian President Alyaksandr Lukashenka in fact had agreed to the privatization plan, though he told a Minsk news conference on 24 October that as far as Belarus was concerned, there was no need to privatize Beltranshaz, since it was working efficiently in its present, state-owned form. Indeed, originally the joint venture was scheduled to be set up in summer 2003, until delayed by the disagreements.

These were concerned with prices and conditions. Gazprom wanted a controlling stake; the Belarusians wanted equal shares. Moreover, Gazprom insisted that Beltranshaz should be privatized at book cost -- an amount variously quoted as $600 million and $1 billion. However, the Belarusian government estimated the market price of Beltranshaz at $5 billion, while the opposition Belarusian Social Democratic Party-Popular Assembly (BSDP-NH) argued that the true value was at least $7 billion. Because, argued the BSDP-NH, the 1,700-kilometer oil pipeline now being built from Baku to Ceyhan is estimated at $3 billion, and the Beltranshaz pipeline system is twice as long. But Gazprom made it clear that unless the Belarusians accepted the privatization on Gazprom's terms, they would have to pay the same price as Ukraine does -- $50 per 1,000 cubic meters.

Furthermore, Gazprom began hinting that it might reroute the gas which it supplies to Central and Western Europe to bypass Belarus, which would accordingly lose the transit fees. This appears to have been partly a bluff: sending the gas via Ukraine would cost an extra $560 million in transit fees, since Belarus charges only $0.54 per 1,000 cubic meters -- half of what Ukraine asks. (However, interviewed in Tokyo in mid-December, Russian Prime Minister Mikhail Kasyanov said that the transit of the present 15 million cubic meters via Belarus is not "crucial" to Russia, compared to the 110 million cubic meters which it intends to send via Ukraine in 2004). And Gazprom's other threat -- to bypass Belarus by laying a pipeline to Germany under the Baltic Sea -- seems even less practical.

The Belarusians in their turn began to bluff by discussing alternative gas supplies from Turkmenistan. These negotiations suited Turkmen leader Saparmurat Niyazov, who has his own gas rivalry with Russia. However, according to the Russian newspaper "Nezavisimaya gazeta" of 22 December, the Turkmens would expect Belarus to pay at full "market" rates -- namely $73 per 1,000 cubic meters. Moreover, Russia so far refuses to permit the transfer of Turkmen gas to Belarus through Russian pipelines, since -- in the words of Turkmen Ambassador to Minsk Ilya Velyanov -- such transit would not be "advantageous" to Russia. For giving Belarus access to Turkmen gas would deprive Russia of an important political lever of influence, "Nezavisimaya gazeta" concluded.

The wrangling dragged on until on 24 December Russian President Vladimir Putin informed Lukashenka that he had instructed the Russian government to "settle the matter of gas supplies" to Belarus within the course of the next few days. The year ended with the privatization agreement still not signed, although Gazprom did agree to reschedule Belarus's outstanding debt for gas supplied in 1999-2002.

During a visit to Homel on 10 January, Belarusian Prime Minister Syarhey Sidorski said that Belarus was prepared to settle its debt owed to Gazprom (which he quoted as $129 million), and that it is now paying for its energy in full. He also stated that there would be no problems with gas supplies, that it would be "warm in our people's homes" this winter. However, two days later, the Belarusian human rights group Charter-97 reported that there had been no deliveries from Gazprom whatsoever since the beginning of January, and that demand was being met "with difficulty" and at a high price, from independent Russian suppliers -- Transneft and Itera -- at $45.56 per 1,000 cubic meters, which is 50 percent above the 2003 Gazprom rate.

The situation with oil is equally fraught. In 2003, Belarus transmitted 83 million tons of Russian oil westward (roughly half of Russia's non-CIS exports). At the same time, Belarus received 15.8 million tons for its refineries. Of this latter amount, 7 million tons was for domestic consumption and the remainder was re-exported. These figures were expected to increase in 2003 -- back in October, Ivan Bambiza, chairman of the Belarusian state-owned petrochemical concern Belnaftakhim, spoke of 89.4 million tons of transit oil, and 17 million tons for the Belarusian refineries.

Then suddenly the Russians declared that they could only guarantee the 7 million tons for Belarusian domestic use, adding that any further supplies would be at the "discretion" of Russia and would depend on the outcome of current legal rows around the Mazyr oil refinery. Russia's Slavneft had a 42.7 percent stake in the refinery, slightly more than the Belarusian government's 42 percent. However, in October 2003 the Belarusian government tried to grab from Slavneft a further 15 percent. This eventually fell through but created considerable Russian hostility.

The other dispute was over the Russian-owned Zapadtransneftprodukt enterprise which transports diesel fuel via the Mazyr pipeline complex to Western companies. In 2002, the Belarusian Supreme Economic Court cancelled Zapadtransneftprodukt's registration. However, the latter continued to trade and, indeed, appears to have been given permission by the Belarusian authorities in February 2003 to go on trading, pending a final resolution of the problems. However, the Mazyr Tax Inspectorate then began legal action, demanding a swinging fine and the confiscation of all Zapadtransneftprodukt's profits since the cancellation of the license -- some $13 million in all. Interviewed by "Belorusskaya delovaya gazeta" in November, Russian Ambassador to Belarus Aleksandr Blokhin said that the Russians would be willing to convert Zapadtransneftprodukt into a joint venture with Belarus but that Russia must retain ownership of the pipeline. "Belarus wants to take away our pipeline," he said.

At the beginning of this year, the Zapadtransneftprodukt issue, and consequently the year's supplies of oil to Belarus remained unsolved. The 7 million tons for domestic use seem assured; however, the Russians now say that any crude above this amount which they may deliver to Belarusian refineries should remain, after refining, under Russian control, to be sold where the Russian side wishes. The Belarusians seem to be countering with the only means at their disposal -- by increasing transit costs. On 9 January, Russia's Prime-TASS news agency quoted an unnamed Belarusian "government official" as saying that the Belarusian government plans to raise the tariff from the current $0.51 per ton of crude per 100 kilometers to the rate charged by Ukraine -- $0.73 per ton per 100 kilometers. The Belarusian government's ruling on this point has already been drafted but Belnaftakhim is apprehensive of the consequences, the source claimed.

This report was written by Vera Rich, a London-based freelance researcher.

DIVISIONS WITHIN SOCIAL DEMOCRATS CONTINUE TO CAUSE CONFLICT. The conflict that has been developing between Viktor Yushchenko's Our Ukraine and Viktor Medvedchuk's Social Democratic Party-united (SDPU-o) continues to snowball (see "RFE/RL Poland, Belarus, and Ukraine Report," 11 November 2003). It is difficult to see how the SDPU-o could remain a political force in Ukraine if Yushchenko wins the October presidential elections. The anger and frustration of national democrats after a Yushchenko victory are likely to be focused on Medvedchuk and the SDPU-o, rather than other oligarchic clans.

Ironically, the wholesale deterioration of relations between Our Ukraine and SDPU-o is not in the latter's interests. The former president and head of the SDPU-o parliamentary faction, Leonid Kravchuk, has always stood out as an example of moderation, recently cautioning President Leonid Kuchma that he will only inherit a positive historical legacy if a peaceful transfer of power takes place (such as Kravchuk himself organized in July 1994). In an interview published in the 10 January "Den," Kravchuk also criticizes the manner in which the Constitutional Court's decision to allow Kuchma to run for a third term is being used. In the same interview, Kravchuk warns that if Kuchma runs again this will lead to Ukraine's international isolation in the West. This would leave Ukraine with only one path, to Russia, which Kravchuk would see as the undoing of his work in facilitating Ukraine's drive to independence in 1991-92.

Kravchuk's views are echoed by those of Defense Minister Yevhen Marchuk, who has remained close to the SDPU-o and whose "Den" newspaper is reportedly still financed by the party. "Den" has always stood out as a patriotic, pro-Western publication that espouses moderation compared to other rabidly anti-American SDPU-o newspapers, such as "2000" and "Kievskie vedomosti." Kravchuk and Marchuk have long been advocates of Ukraine's membership in NATO. Therefore, this wing of the SDPU-o is in fundamental conflict with the pro-Russian wing led by Medvedchuk, who said at last year's SDPU-o congress that his party should become the leading advocate of Russian interests in Ukraine.

The conflict of interests within the SDPU-o between its pro-Western and pro-Russian wings is best seen in terms of Ukraine's non-European domestic policies, which clash with its declared goals of EU and NATO membership. In the case of the EU, which is offering no membership prospects for Ukraine, there is no "carrot" for Ukraine's leaders to follow.

In the case of NATO this is different, as Ukraine could be invited to join later in the decade. The November 2002 NATO-Ukraine Action Plan includes an entire section devoted to nonmilitary issues. Yet, these are being systematically infringed by the pro-Russian wing of Ukrainian politics, both by Viktor Medvedchuk, in his position as head of the presidential administration, and his brother, Serhiy Medvedchuk, as head of the Lviv Oblast State Tax Administration (now appointed deputy head of the State Tax Administration). The Marchuk wing, on the other hand, is serious about its intentions to fulfill the military sections of the Action Plan. One wonders then how Marchuk must feel knowing that Medvedchuk is undermining his work. This is likely to lead to a postponement on upgrading Ukraine's Action Plan to a Membership Action Plan at NATO's summit later this year.

An example of the growing conflict between Our Ukraine and the SDPU-o can be seen in recent developments in the Transcarpathian town of Mukachevo. Speaking at this month's "Europe on the Path to a New Era" conference in Berlin attended by high-ranking EU officials and West European leaders, parliamentary Committee for European Integration head Borys Tarasyuk described the Mukachevo events as a "cynical rape of democracy and parliamentarism in Ukraine."

In the 20 June 2003 mayoral elections, Our Ukraine candidate Vasyl Petyovka won and defeated his nearest rival, SDPU-o member Ernest Nuser, in a bitterly fought campaign. The SDPU-o had considered Transcarpathia as one of "their" oblasts since the mid-1990s and this loss was therefore seen as a slap in the face.

The SDPU-o turned to the courts, claiming that the outcome of the vote had been rigged. A district court in Lviv agreed with the SDPU-o complaint. Mukachevo's election commission ignored the court decision and voted to confirm the election of Petyovka as mayor, refusing to order fresh elections. The Mukachevo election controversy was later reviewed by the Supreme Court, which confirmed that Petyovka was elected in a legitimate way.

However, on 25 December a presidential decree described the June election as illegitimate and installed as temporary mayor SDPU-o member Myroslav Opachka. The following day the city council reconfirmed Petyovka as its head. Berkut riot police and Sokil special-task units were then flown in to prevent the council loyal to Petyovka from entering the building. Last week, Mukachevo's election commission voted to hold repeat mayoral elections on 18 April.

Ukrainian Human Rights Ombudsman Nina Karpachova has sent an urgent inquiry to the Constitutional Court about the legality of the presidential decree. The Supreme Court is also investigating the issue. Meanwhile, Our Ukraine has held daily demonstrations outside Mukachevo City Hall and is planning to hold a parliamentary hearing on the subject. An attempt to hold a demonstration in support of the presidential decree failed to take place.

Our Ukraine believes the decree is illegal as the constitution does not grant the president the right to appoint temporary mayors. Our Ukraine also believe that the disbanding of the election commission and the refusal to allow elected officials and parliamentary deputies into the building violated Ukraine's constitution and law on local self-government as well as the European Charter on Local Government.

Medvedchuk's "managed democracy" is akin to that practiced in Russia and Azerbaijan, which continue to remain pro-Western. However, there is no room for a "managed democracy" inside NATO or the EU.

This report was written by Taras Kuzio, resident fellow, Center for Russian and East European Studies, University of Toronto.

"Transcarpathia in its history was under many authorities -- Hungary, Austro-Hungary, Czechoslovakia, the Soviet Union. However, under none of them did armed people break down a town hall's door to get inside. Did this really have to happen in independent Ukraine?" -- Zoltan Lendel, an official in the Mukachevo City Hall, commenting on the current crisis in this city (see Ukrainian item above) in the 10-16 January issue of "Zerkalo nedeli."