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Poland, Belarus & Ukraine Report: June 17, 2003

17 June 2003, Volume 5, Number 23
MILLER WINS VOTE OF CONFIDENCE. The Sejm voted 236 to 213, with no abstentions, on 13 June to support Premier Leszek Miller's cabinet in a vote of confidence requested by Miller following the emphatic "yes" to EU membership in a referendum on 7-8 June (see "RFE/RL Poland, Belarus, and Ukraine Report," 10 June 2003). "I must admit frankly that I did not expect such support," Miller said on Polish Television after the vote. "I had thought that perhaps we would have a majority of three or four votes, so this is an excellent result."

Miller's cabinet was supported by 208 deputies from the Democratic Left Alliance-Labor Union ruling bloc, 13 independents, nine from the Peasant Democratic Party, four from the Peasant Bloc, one from the Peasant Party, and one from Self-Defense. One lawmaker from the Democratic Left Alliance and six lawmakers from Self-Defense failed to appear for the vote.

Before the vote, Miller addressed the Sejm with what was called by Polish media his "second expose" and subsequently answered questions from more than 100 lawmakers. Miller urged all political parties to help his cabinet implement tough reforms to prepare Poland for EU membership next year. He said there are "symptoms of economic revitalization" in the country but admitted they have not been felt by Polish families yet. He pledged that his minority government will boost economic growth to 5 percent, reduce the number of unemployed by 250,000 by the end of the current term in 2005, and lower taxes for entrepreneurs. Regarding his earlier proposal to introduce a flat-rate income tax, Miller cautiously said that "conceptions of an evolutionary introduction of this tax" need to be given "serious consideration."

Despite the two conspicuous victories for the leftist government -- one in the EU referendum and the other in the parliamentary vote of confidence -- Polish commentators are skeptical about Miller's chances to make a new opening and boost the economy to the extent that could bring a palpable reduction of Poland's 18 percent unemployment. This skepticism is shared by ordinary voters. In two recent polls conducted by the Demoskop and OBOP polling agencies, Miller's performance was assessed positively by 20 percent and 15 percent of Poles, respectively.

Last week, Miller nominated Economy Minister Jerzy Hausner on 11 June to be the new deputy prime minister in charge of economic strategy following the resignation of Deputy Premier and Finance Minister Grzegorz Kolodko. In contrast to Kolodko, who had proposed an austerity plan for overhauling the country's public finances, Hausner is generally seen as an advocate of looser budget policies. (Jan Maksymiuk)

PRIVATIZATION OF PETROCHEMICAL INDUSTRY COLLAPSES. On 4-5 June, the Belarusian government expected to kick off with an ambitious privatization program by staging an auction to sell stakes in the country's four largest companies in the petrochemical sector, Palimir and Naftan in Navapolatsk, and Azot and Khimvalakno in Hrodna (see "RFE/RL Newsline," 20 February 2003). However, when the day came, this privatization plan turned into a major embarrassment. The deadline for submitting purchase bids, 21 May, passed with not a single offer received.

The successful sale of petrochemical industries could be viewed as an important indicator showing to what extent President Alyaksandr Lukashenka's government is committed to reforms and whether the Belarusian leader will be able to work out an acceptable deal with the Kremlin to mend its strained relations with the Russian leadership (needless to say, only Russian investors were welcome to submit bids). The outcome of this first privatization attempt in the petrochemical sector warrants negative answers to both questions.

Realistically, the failure of the auction could be seen beforehand, as it was highly unlikely that potential purchasers would accept the conditions of Lukashenka's offer. The government hoped to get $1 billion for the offered stakes in the four companies (investors also had to undertake obligations to invest over $700 million during the next four years), a price that no investor appeared ready to pay. Second, the government was only prepared to sell a 10 percent stake in each company per year over the next four years, without guaranteeing the acquisition of a majority stake in the future. As one Belarusian independent newspaper aptly noted, what Russian investors were offered was a very expensive season ticket valid for a yearlong trip to the above-mentioned enterprises.

Belarusian officials have remained optimistic and advise observers not to make far-reaching conclusions. "No tragedy occurred," Deputy Prime Minister Andrey Kabyakou said, claiming that the government foresaw the outcome. "The conditions for selling the enterprises of the petrochemical sector may be modified, but nobody will sell them for peanuts," Kabyakou added. "These companies will be sold, if not at the first attempt, then at the second," said Anatol Dzhus, head of the Belnaftakhim concern supervising the industry.

However, little indicates that investors will accept the existing conditions at the second attempt. At the same time, it is now clear that the government is going to be extremely short of privatization revenues, which were planned to be $1.5 billion for 2003. In the first five months of 2003, the government managed to attract just slightly over $200 million in foreign investments, and given the fact that investment loans constitute two-thirds of this sum, direct investments stand at just over $50 million. Furthermore, given the fact that $300 million was already included into this year's national budget as expected privatization revenue, it seems that the budget has to be reviewed.

Such a prospect seems to be even more realistic as privatization of the Beltranshaz gas-transportation and -distribution network is set to suffer a similar failure. A deal to sell Beltranshaz to Russia's Gazprom was ordered to be concluded by 1 July. In the preceding months, however, the sides have come to a standstill over conditions of the sale, as none of the three sale scenarios proposed by the Belarusian government (two of them provided for the acquisition of minority stakes by Gazprom, the third offered a majority stake in exchange for a share in the Yamal-Europe pipeline built by Gazprom and traversing Belarusian territory) satisfied the Russians. Once again, Minsk overshot with the price: the value of Beltranshaz assets was set at more than $2 billion, a sum similar to the cost of Gazprom's entire Blue Stream project to transport gas to Europe via the Black Sea.

Now Lukashenka is plunging still deeper into a credibility crisis in dealing with Russia. The success of the privatization would have had profound political implications, as it would have meant that Russia's largest oligarchies agreed to play with Lukashenka according to his rules and that this agreement was backed by the Kremlin (after mistreatment of several Russian companies over the last few years, it is highly unlikely that any big investment in Belarus would come without certain political guarantees of its security). It needs to be mentioned that Lukashenka's promises to sell both Beltranshaz and petrochemical companies helped the Belarusian president last year to end a lengthy war of words with the Kremlin over a reduction of gas supplies to Belarus. While Lukashenka remains opposed to the penetration of Russian corporations into his country, the latter may intensify the pressure on the Kremlin to make the Belarusian leader more docile and accommodating towards Russian interests. This in turn may produce a new political standoff between Minsk and Moscow.

Anyway, the boycott of the 4-5 June auction sent a clear signal to Lukashenka: He has to be much more cooperative if he still hopes to enjoy Russia's support in the future. This means that he will have to sell more for less. Perhaps Lukashenka himself realized this on 8 June, when he surprisingly agreed to a plan of introducing the Russian ruble in Belarus on 1 January 2005, which is far from putting Belarus on a par with Russia in this monetary union (see "RFE/RL Newsline," 13 June 2003). The history of the previous decade taught everybody not to take agreements signed by Belarus and Russia for granted. It is possible that Lukashenka wants to compensate his failure to fulfill his privatization pledges with a new promise and then to backtrack after several months. But after failing with privatization, he will hardly have anything else of interest to promise to the Kremlin.

This report was written by Vital Silitski, an associate professor at the Department of Economics at European Humanities University, Minsk.

KUCHMA'S ILLUSIVE 2004 CANDIDATE. Whom will President Leonid Kuchma choose as the pro-presidential candidate for the October 2004 elections? Discussions are under way between Viktor Yushchenko, head of the pro-reform Our Ukraine bloc, and two radical opposition groups, Oleksandr Moroz's Socialists (SPU) and Yuliya Tymoshenko's bloc, to unite behind Yushchenko.

Yushchenko has maintained his position as Ukraine's most popular politician since he was prime minister from December 1999 to April 2001. In a May poll by the Ukrainian Democratic Circle, Yushchenko obtained 27.8 percent backing (rising to 42.3percent if Moroz's and Tymoshenko's support is added) and Communist Party of Ukraine (KPU) leader Petro Symonenko 17.9 percent. The opposition is likely to have two candidates -- Yushchenko and the KPU's Symonenko.

Of the two opposition candidates, Yushchenko is clearly the favorite. No Communist candidate relying solely on KPU support would be able to win elections in Ukraine. With their high ratings, both opposition candidates could possibly enter the second round, which would make a Yushchenko victory certain.

It has always been in Kuchma's interest to have the opposition vote fractured with all four opposition leaders as candidates. In May, Kuchma said that Yushchenko had made a mistake in not siding with pro-presidential centrists after the 2002 elections, and he ridiculed talk of a united opposition candidate.

An April poll by Kyiv's "Politychna Dumka" (Political Thought) journal discussed four possible scenarios for 2004. The best scenario, from the viewpoint of anti-Kuchma forces, was a joint non-Communist opposition candidate leading to Yushchenko and Symonenko entering the second round where they would obtain 53.1 percent and 28.8 percent respectively.

In these four scenarios, a pro-Kuchma candidate would have to obtain sufficient support in the first round in order to beat Symonenko into the second round. Individual opinion polls for the three potential pro-presidential candidates -- Prime Minister Viktor Yanukovych, National Bank head Serhiy Tyhypko, and presidential administration head Viktor Medvedchuk -- are low. But they should be added together with an additional 5 percent-10 percent from "administrative resources." Although opposition candidates have access to state television's Channel 1, they will be blocked from Channels 2 and 3 controlled by Medvedchuk.

Two separate sources inside Poland and in Kyiv have learnt that Kuchma confided in President Aleksander Kwasniewski on a visit to Poland earlier this year that his preferred presidential candidate was Tyhypko. Such a choice would certainly be logical as Tyhypko, although re-elected head of the Dnipropetrovsk clan's Labor Ukraine party at its April congress, is not commonly perceived as a corrupt oligarch. Tyhypko also has a relatively good image in the United States as a "reformer," the only such image among pro-presidential leaders. After becoming National Bank head in December, Tyhypko began a self-promotion campaign which nobody in this position had ever undertaken.

Within Ukraine both Medvedchuk and Yanukovych have drawbacks in relation to Tyhypko. Medvedchuk has made even more enemies than he already had prior to becoming presidential administration head in May 2002. The Social Democratic Party-united (SDPU-o), which is led by Medvedchuk, is the only oligarch party unpopular in its home base, in Kyiv. There are indications that Medvedchuk is willing to sit out the 2004 election and work towards the 2009 elections, including as head of the SDPU-o opposition party, if Yushchenko wins.

Yanukovych's rating is growing because of his dynamism since becoming prime minister in November. His visit to Paris in May was deemed a success and considered the best visit to France by any Ukrainian government. Yanukovych's usefulness to Kuchma was in converting the Donbas into a "mini Belarus," as Ukrainian commentators have described it, where he has ensured the domination of the local "party of power" (Regions of Ukraine).

Yanukovych's strength in Donbas may be his liability in the remainder of Ukraine. Although Yanukovych will be prime minister for nearly two years prior to the 2004 elections, it is not clear that this is sufficient time to change his image from governor of Ukraine's "mini Belarus" to a potential president of Ukraine.

Tyhypko has advantages over both Medvedchuk and Yanukovych as he is the best of the three to take on Yushchenko. Whether Tyhypko's image of an oligarchic "reformer" conforms to reality is difficult to say. Tyhypko's proficiency was never rated highly when he was deputy prime minister and economy minister in the Valeriy Pustovoytenko government from 1997-99. Yuliya Tymoshenko, leader of the eponymous opposition bloc, claims that when Tyhypko was economy minister in the Yushchenko government, he "professionally sabotaged all of my work" (P. Loza, "Nevypolnennyy zakaz," Kyiv, Taki Spravy, 2002, p.70). In May 2000 Tyhypko resigned in protest as economy minister over reforms introduced by the Yushchenko government.

The manner in which Tyhypko became National Bank head in November 2002 is also not a good indicator of his character. After failing to obtain sufficient votes, a dubious secret voting system was created to ensure the replacement of Yushchenko loyalist Volodymyr Stelmakh. Tyhypko's appointment is the first occasion the head of a political party has headed the National Bank, a factor the Ukrainian Bank Association sees negatively because of its impact on the bank's independence.

In January and July 2002, Yuliya Tymoshenko Bloc member and lawmaker Hryhoriy Omelchenko sent documents to the Prosecutor-General's Office detailing accusations against Tyhypko of money laundering and transfers of hard currency from Ukraine in 1995-96, when Tyhypko was head of Pryvatbank (1992-97), "Ukrayina moloda" reported on 28 November 2002. The "Grani" website, linked to the Socialist Party, published in May 2001 the names of offshore companies linked to Pryvatbank. Ironically, one of Tyhypko's first actions as National Bank chairman was to discuss illegal capital flight which had grown to a record $2.27 billion in 2002 during the Anatoliy Kinakh government that replaced Yushchenko.

Besides being a presidential candidate, Tyhypko's major service to pro-presidential forces in the 2004 elections could be his control over financial resources. He is already indulging in monetary populism by offering to repay bank deposits at Oshchadbank lost during the hyperinflation of 1993 through issuing dollar-denominated, long-term state bonds.

This report was written by Dr. Taras Kuzio, resident fellow, Centre for Russian and East European Studies, University of Toronto, and visiting fellow, Institute for Security Studies-EU, Paris.

"The readiness with which the Russian Central Bank is extending credits to support the Belarusian ruble and the way the Belarusian National Bank is managing these credits show what mutual relations will be established between the two countries after they switch to a common currency. Belarus earns nearly 225 million Russian rubles [$7.4 million] annually, having deposited the credits received from the Russian Central Bank in [other] Russian banks. In the future, Russia will have to pay more, and there is no guarantee that this money will do Belarus good. However, the Russian authorities apparently believe that they are able to pay for all burdens of transition suffered by their [Belarusian] ally." -- The Moscow-based "Vedomosti" on 17 June.