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Wall Street Journal Europe

Fueling European Cooperation 

Consumers of Russian gas must show a united front.

By VIKTOR YUSHCHENKO
<http://online.wsj.com/search/search_center.html?KEYWORDS=VIKTOR+YUSHCHE
NKO&ARTICLESEARCHQUERY_PARSER=bylineAND> 

For those of us who lived under the Soviet Union, there is a certain
irony about energy supplies. We may have been in a Cold War with the
West, but Soviet gas always flowed uninterrupted across the Iron
Curtain. Nowadays, thankfully, the Soviet Union is no more -- and yet
Russian gas has become a strategic weapon. Those of us who are net
importers cannot help but wonder: Is Moscow saying that gas supplies
will be a problem unless it can have its sphere of influence once again?

So long as those countries which rely on Russian gas are divided, we put
ourselves in a dependent position. Since 2006, though, alarm bells on
the gas issue have been largely ignored. Of course Russia deserves a
fair price for the exploitation of its natural resources, but the
relationship needs to be rebalanced. The politics need to be taken out
of the equation and a more normal commercial relationship established.

Whether Moscow is motivated by political concerns or simply a desire to
increase the return on its assets, it is in the interests of all
importing countries to coordinate our response. Only by cooperating can
we maximize our collective bargaining power and secure our individual
national interests.

As significant net importers of energy, Ukraine and the European Union
have a clear common interest. Energy security for Ukraine, a major
transit country, is also the best guarantee of energy security for our
European neighbors. The energy security of the wider European space is
therefore indivisible.

A strong response to the challenge we face must have at least three
elements: liberalization, diversification and conservation.

By 2030, the International Energy Agency predicts, European gas imports
will double because Europe won't be able to supply its own energy needs.
Much of the extra supply could come from Russia if the necessary
investment is made in new production. But unless action is taken now,
importers could be in a very vulnerable position.

Liberalizing its energy industry would be in Russia's own best
interests. But it will probably resist appeals to do so until the
European Union leads by example: encouraging network operators to invest
in interconnectors to build the energy grid and pipeline networks of the
future, thereby reducing the risk of one customer being played off
against another. Energy independence will come through energy
interdependence. We all need international trade in energy to be open,
transparent and competitive.

The current economic crisis is causing considerable suffering for both
households and businesses. This situation provides an added incentive to
solve the problem that arises from all of us, Ukrainians as much as our
European friends, being at the mercy of a self-interested monopolist.

Working together, we can secure our mutual interests -- and, in the long
term, reduce unnecessary friction with Russia. A single, competitive gas
market would help depoliticize the EU-Russia gas relationship, with
major foreign-policy benefits for Europe. It would also improve the
security of supply for all European gas consumers.

The European Energy Community is the obvious building block for this
approach, but its scope needs to extend beyond market liberalization and
include more proactive and practical forms of cooperation. For our part,
Ukraine is determined to reform our gas sector to encourage investment,
increase efficiency by upgrading the pipeline infrastructure to minimize
energy loss in transmission, and create a modern EU-compatible energy
sector. The EU can further those aims by helping transit countries like
Ukraine to reduce reliance on Russian gas, and hence vulnerability to
energy blackmail.

One way to reduce reliance on Russia, and an important part of the
policy package for any country planning for the long term, is
diversification. In Ukraine's case, for example, our untapped Black Sea
gas reserves needed to be quantified and exploited with European
cooperation. But putting all of our faith in gas is not the answer: The
emphasis should be on cleaner technologies. All of us in the European
neighborhood can learn from each other to increase the proportion of
renewable sources in the energy mix. In other words, limiting global
warming and improving our energy security can go hand in hand.

Short-term deals between Moscow and any country, including Ukraine, are
no substitute for this kind of comprehensive energy security strategy.
Some of the measures will take time to implement, and so it is essential
that the Transit Protocol of the legally binding Energy Charter Treaty
is concluded as soon as possible. Agreement and ratification would
reassure investors in the pipeline network that transit would occur, and
our European neighbors that gas will be delivered.

Action, not further debate, is needed. The EU in particular has the
capacity to change the entire dynamic of energy relations across
Eurasia. But first it must unite and lead.

Across Europe, the pace of energy reform needs to be increased. Equally,
we all need to be more forthright in reacting to the use of energy as a
tool of foreign policy. Ending divisions in the European house is the
only way to assure energy security for our citizens and industries for
the decades to come.

European solidarity can bring warm homes -- and warmer relations with
Russia.

Mr. Yushchenko is president of Ukraine.

The Washington Post

INTERNATIONAL BRIEFING 

19 February 2009

FINAL

D04

UKRAINE

State Will Not Default, Prime Minister Says

Prime Minister Yulia Tymoshenko sought to quell speculation that the
recent resignation of the nation's finance minister and problems with a
crucial International Monetary Fund loan signaled that a sovereign
default was imminent. "I would like to tell the whole country that the
state . . . is paying all its credits," she said. "Today there is
nothing in the government sector to suggest raising the issue and
pronouncing the word default."

Financial Times

Ukraine on the brink

Published: February 16 2009 

Ukraine's name, by some accounts, means "at the edge" - which is where
its economy finds itself today. Austria's finance minister warned last
week of the risk of an economic "catastrophe" in the 46m-strong country
triggering a "domino effect" of problems further west. Ukraine's finance
minister, meanwhile, resigned amid differences over budgetary policy
that delayed the second tranche of a $16.4bn International Monetary Fund
loan, due this weekend. Fitch downgraded the country's credit ratings to
B. Some forecasters say the economy could contract by 10 per cent this
year; the national currency has slid 40 per cent against the dollar.
Spreads on Ukraine's credit default swaps are over 3,000 basis points.

Demand and prices have plummeted for steel, previously 40 per cent of
Ukraine's exports, while industry faces higher prices for Russian gas.
Cheap foreign financing has dried up. The woes are compounded by the
fact that the president and prime minister, leaders of the 2004 Orange
Revolution, spend more time mudslinging than working together on
coherent anti-crisis policies.

The main sticking point over the IMF loan is a projected 3 per cent
budget deficit this year, when the IMF's conditions stipulated a
balanced budget. But scope remains for a compromise to get the IMF
programme back on track. If so, notes Dresdner Kleinwort, with public
sector gross external financing needs of $3bn this year, the country
should still be able to service its sovereign debt, which accounts for
only about one-fifth of its total $105bn external government and
corporate debt.

But with gross financing needs of about $45bn for the economy as a
whole, mounting corporate and bank defaults are inevitable - as in
Russia. Russia, however, has greater resources for selective corporate
bail-outs. And its less dire economic position gives Moscow potential to
reassert influence. Russia is one of several partners from whom Ukraine
is seeking $5bn of loans to bridge its budget gap.

The Washington Times

Tuesday, February 17, 2009 

LETTER TO EDITOR: The Russian fleet in Crimea

I wish to compliment Joshua Kucera on his effort to give an objective
picture of the situation in Crimea in the context of Ukrainian-Russian
relations ("Status of Crimea hangs over Russia, Ukraine," World, Feb.
9). However, a few points have to be clarified. 

The fact that Crimea is part of Ukraine is no bigger a "historical
quirk" than that California is part of the United States or Sakhalin is
part of Russia. It also should be remembered that long before the
establishment of the Russian naval base in Sevastopol, the peninsula was
densely populated by various ethnic groups. In the 1940s, Josef Stalin
deported hundreds of thousands of the Crimean Tatars and also Greeks,
Germans and Bulgarians from Crimea to Central Asia. Their place was
subsequently taken by Russian settlers. 

Further, I disagree with the statement that "the Ukrainian government
has done its part to raise tensions, as well, by imposing new language
laws." With 90 percent of the Ukrainian book market and about 60 percent
of the print media still in Russian, and with just seven Ukrainian
schools functioning on the Crimean peninsula, it is bizarre to hear
claims that the Ukrainian government is suppressing the Russian
language. The "new language laws" just restore the Ukrainians' right to
speak their mother tongue after centuries of Russification. 

Mr. Kucera is right that Russia's Black Sea Fleet is more a political
and economic tool than a significant military force. Nevertheless, it
poses a grave problem for Ukraine's security because of its potential
for active involvement in military conflicts contrary to Ukraine's
national interest. 

Proponents of the prolonged stay of the fleet in Sevastopol claim that
it helps the city's budget. However, experts have calculated that if all
the territories presently occupied by the fleet were open to economic
development, city revenues would increase manyfold. 

We expect that the Russian Federation will honor its international legal
obligations and vacate its base in Sevastopol by 2017. Consequently, the
city will enter a new era of revived economic activity, fulfilling its
potential as a dynamic civilian port and tourist destination. An
important factor of political and military instability finally will be
removed from Crimea. 

OLEH SHAMSHUR 

Ambassador of Ukraine 

Washington 

 

   

Eurasia Daily Monitor

February 18, 2009

Gongadze Murder Still Casts a Shadow over Yushchenko Presidency

On January 27 the Parliamentary Assembly of the Council of Europe (PACE)
issued another damning report about the poor state of Ukraine's
investigation into the murder of opposition journalist Georgi Gongadze
in the fall of 2000 (www.assembly.coe.int). The involvement of senior
Ukrainian leaders in the murder was made public using tape recordings
made in President Leonid Kuchma's office by presidential guard Mykola
Melnychenko, who sought asylum in the United States in April 2001.

Four years after the Orange Revolution and Viktor Yushchenko's promise
to investigate the Gongadze murder, there has been little progress in
the inquiry. Three lower-ranking policemen have been sentenced for their
involvement in the murder, but the organizers have managed to escape
justice thus far: Leonid Kuchma remains in Kyiv, then-Interior Minister
Yuriy Kravchenko allegedly "committed suicide" under suspicious
circumstances in March 2005, and General Olexiy Pukach, who is alleged
to have actually murdered Gongadze, supposedly fled Ukraine in 2004.
Gongadze's wife, Myroslava, accused senior Interior Ministry officers of
hiding Pukach in a similar manner to that of Ratko Mladic, a Serbian war
criminal.

Melnychenko's recordings, which are crucial to any investigation, were
ignored by the prosecutor until December 2008, when the tapes and tape
recorder were handed over to the Prosecutor's Office, which agreed to
organize the first analysis of the tapes by an impartial European
organization.

It is no coincidence that after four years of inactivity the
Prosecutor's Office, which is constitutionally under the control of the
president, has only now become interested in the Melnychenko tapes.
Ukraine will hold presidential elections in December, and progress in
the Gongadze murder case could help Yushchenko improve his current
dismal 2.4 percent popularity rating (Democratic Initiatives, January
2009 poll [www.dif.org.ua]).

Three key individuals in the investigation have refused to give voice
samples for comparison to those on the tapes: Kuchma, Volodymyr Lytvyn
(head of the presidential administration during the Gongadze scandal),
and the chairman of the Security Service at the time, Leonid Derkach.
Lytvyn, as speaker of parliament, is the only one of the three who is
still a public figure.

Melnychenko suggested that Yushchenko should set an example by
voluntarily giving a voice sample: "If Yushchenko states that this
affair is a matter of his honor, then he is obliged as a Ukrainian
citizen to come forth and set an example and give evidence" (Radio
Svoboda, January 29). The PACE report demanded that the identity of the
voices on the tapes be ascertained.

In a visit to Ukraine last month, Melnychenko said that the European
analysis of his tapes not only would reveal information about the
organizers of the Gongadze murder but would allegedly include details
about high-level abuse of office by Ukraine's elites and interaction
with their Russian counterparts.

Melnychenko directs much of his criticism at Lytvyn as the agitator who
persuaded Kuchma to order the Interior Ministry to "deal" with Gongadze.
Any undermining of Lytvyn could potentially unravel the Orange coalition
that was reestablished in December only after the Lytvyn bloc had agreed
to join. Without the Lytvyn bloc's 20 deputies, there could not be an
Orange coalition, and Prime Minister Yulia Tymoshenko's government could
collapse.

A full analysis of the tapes could be problematical for more people than
Lytvyn; after all, the majority of Orange leaders (including Yushchenko
and Tymoshenko) were either in government or in business, or both, in
the 1990s. Melnychenko's recordings were made in 1999 and 2000 after
Tymoshenko had entered parliament in the opposition Hromada but before
Yushchenko joined in 2001.

Melnychenko has accused Lytvyn of being protected by Russia in a deal
struck in the last days of the Kuchma regime. On January 12 the Russian
Prosecutor's Office declined to assist in the investigation because it
would infringe on Russia's "national interests."

Melnychenko asserts that "the organizers met and required certain
assistance from senior levels of the Russian authorities." Whether this
indicates that the Gongadze affair was a "Russian conspiracy," as
Yushchenko and his national democratic allies have always believed, or
(more likely) that the organizers sought Russian support after the
crisis began unfolding remains unclear. Kuchma re-orientated Ukraine to
Russia from 2001 to 2003 after becoming isolated and shunned by the
West.

Melnychenko claims that Russia's knowledge of the real details of the
Gongadze murder enables it to "blackmail Lytvyn and Kuchma's entourage,"
something that is more in Russia's national interests than assisting the
investigation. In a BBC Ukrainian service interview (February 2),
Melnychenko said that as a presidential candidate, "Lytvyn is supported
by Russia in the form of Dmitry Medvedev, Vladimir Putin, and FSB
Director Oleksandr Bortnikov."

It is very likely that blackmail materials on Kuchma and Lytvyn are in
Russian hands (as are similar materials about Russian leaders in Kyiv).
Ukrainian and Russian elites, particularly in the energy sector, are
said to have operated as a criminal joint venture during the "Wild West
capitalism" of the 1990s. With such blackmail materials, Russia may
indeed hope that it would be in a position to manipulate a future
"President Lytvyn."

Opinion polls show, however, that this scheme would be farfetched: the
two top presidential candidates have long been Tymoshenko and Party of
Regions leader Viktor Yanukovych (on whom the Russian leadership might
also have blackmail material, as Yanukovych was Donetsk Governor during
the "Wild West" of the 1990s). Lytvyn is both trailing and is being
out-flanked by the rising star of former speaker Arseniy Yatsenyuk.

The PACE report and Melnychenko's accusations continue to shed light on
an episode that is one of the most important in recent Ukrainian history
and remains a black spot on Yushchenko's presidency. As Melnychenko
rightly states, "The result we received [from the Kuchmagate crisis] in
2004 was in the form of the Orange Revolution" (Radio Svoboda, January
29). Other young democracies have managed to investigate similar
conspiracies-Peru under Alberto Fujimori and contemporary Turkey-but the
Gongadze affair continues to elude a thorough investigation by Orange
Ukraine.

-Taras Kuzio

AP

EU Ukraine Financial Crisis; Ukraine's Naftogaz warns of Gazprom arrears


By MARIA DANILOVA 

Associated Press Writer

19 February 2009

KIEV, Ukraine (AP) - Ukraine's debt-ridden gas company Naftogaz warned
Thursday that it may again run into arrears with Russia's Gazprom
<javascript:void(0);>  monopoly because of the financial crisis, in an
unsettling echo of the January gas shutoff by Russia.

Company officials stressed that the warning was aimed at collecting some
4.6 billion hryvna ($555 million) owed to Naftogaz by regional energy
companies which have been stung by falling revenue from slumping economy
and higher gas bills.

But the statement was a reminder of the January gas war with Russia over
unpaid debts and pricing terms that cut off Russian gas to more than a
dozen European countries for two weeks. The row ended with Naftogaz
agreeing to pay a higher price for gas, though lower than Gazprom
<javascript:void(0);> 's earlier demand.

Naftogaz has long been plagued by financial problems. It is struggling
to stay afloat with over $4 billion in debt. It has twice narrowly
averted technical default on its Eurobond obligations.

Naftogaz, which distributes gas to regional energy companies, said in a
statement that the failure of the regional companies to pay back
Naftogaz may lead to "a possible worsening of the situation connected
with payments to OAO Gazprom <javascript:void(0);> ."

"We are imposing financial discipline on the internal market," said
company spokesman Valentyn Zemlyansky. "We are conducting explanatory
work."

Gazprom <javascript:void(0);>  officials were not immediately available
for comment.

The payment delays have already led to heating and hot water shortages
across the country.

Ukraine is among the countries worst hit by the global financial crisis.
The economy is expected to contract by 6 percent this year, according to
analysts, after years of impressive growth.

Industrial output slumped by 34.1 percent in January, year-over-year,
the biggest fall in the country's history.

The national currency, the hryvna, has lost 40 percent of its value
since last fall, due to a drastic fall in exports. The hryvna continued
to slide Thursday, trading at 8.37 to the dollar at the foreign currency
exchange, down from 4.9 in September.

Ukraine's stock market rose Thursday by 1.7 percent after falling 8.1
percent to the lowest point in over four years Wednesday.

 

 

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