Poland, Belarus & Ukraine Report: October 21, 2005

UKRAINIAN PREMIER APPEARS TO BREAK THE ICE IN MINSK. Ukrainian Prime Minister Yuriy Yekhanurov on 18 October paid an official visit to Minsk, where he held talks with Belarusian President Alyaksandr Lukashenka and Belarusian Prime Minister Syarhey Sidorski. The visit suggests that Ukrainian-Belarusian relations, which soured after President Viktor Yushchenko came to power in the Orange Revolution, are warming up.

Lukashenka could not have been pleased by Yushchenko's presidential victory. Like Russian President Vladimir Putin, Lukashenka congratulated Ukrainian Prime Minister Viktor Yanukovych on having won the presidential runoff with Yushchenko in November despite the lack of a final tally in that vote. The ensuing mass protests in Ukraine and Yushchenko's triumph in the repeat runoff in December no doubt came as a nasty surprise to Lukashenka -- who had only recently staged a dubious referendum that allows him to run for a third term as president in 2006. The Orange Revolution in Ukraine has inevitably kindled hopes that deposing Lukashenka through a similar, popular revolt in Belarus is not out of the question.

By January, before Yushchenko was even inaugurated, Lukashenka had publicly announced that "there will be no pink, orange, or banana revolutions in Belarus." Lukashenka's irritation with Yushchenko in particular, and the Orange Revolution in general, was evidently increased by a statement that the latter signed in early April with U.S. President George W. Bush, pledging "to support the advance of freedom in countries such as Belarus and Cuba." Delivering an annual address to the Belarusian legislature later the same month, Lukashenka slammed Ukraine for allegedly "forming camps" that were intended to train "revolutionaries" for Belarus.

A brief diplomatic squabble between Kyiv in Minsk followed in May, after Belarusian police arrested five young Ukrainians and 14 Russian youths who had come to Minsk to support their Belarusian colleagues during an antigovernment rally. Minsk granted early release to the Russians, while the Ukrainians had to serve jail terms of 10-15 days in full and were subsequently deported and banned from re-entering Belarus for five years. Yushchenko accused the Belarusian authorities of applying double standards to the Russian and Ukrainian demonstrators.

But afterward, the official Kyiv toned down its public statements noticeably regarding Belarus. Before the political crisis caused by the dismissal of Yuliya Tymoshenko's cabinet in September, Ukraine experienced a distressing gasoline crisis. Kyiv appealed for help in dealing with its gasoline shortage over the summer to Belarusian oil refineries. The issue of advancing freedom in Belarus appears to have lost its priority status for Yushchenko; realpolitik appears to have gained the upper hand in Kyiv's relations with Minsk.

Ukraine is an important trade partner for Belarus. Both Yekhanurov and Sidorski have declared that they intend to increase bilateral trade turnover to $2 billion this year, which would represent a 50 percent increase on 2004. Ukraine absorbed some 4 percent of Belarus's exports last year.

However, there is a lingering problem of an economic nature in relations between Minsk and Kyiv. Their governments cannot agree on the topic of Ukrainian debts to Belarus that date back to 1992. Ukraine (or Ukrainian entities) reportedly failed to pay for Belarusian commodities imported by Ukrainian firms in the early 1990s. Belarus subsequently made the ratification of a border treaty with Ukraine conditional on the repayment of those obligations.

Sidorski recalled during his meeting with Yekhanurov that both sides signed an official protocol in 2003, fixing the outstanding debt figure at $134 million. Sidorski proposed that Kyiv repay the obligations through supplies of goods and electricity, while Yekhanurov called the proposal interesting but remained noncommittal on any promises. The Ukrainian prime minister stressed, however, that the debts were incurred by Ukrainian enterprises and cannot be regarded as a liability of the Ukrainian state.

Nevertheless, the Belarusian president was conspicuously pleased during his meeting with the Ukrainian premier. "I am ready to conduct a dialogue [with Ukraine] proceeding from what interests us," Lukashenka told Yekhanurov. "Taking into account the proximity of our countries and peoples, we have always made and will continue to make some concessions for the sake of the future, and we are ready to resolve problems on mutually beneficial terms."

Lukashenka's contentment is understandable. Yekhanurov's 18 October trip was only the second such senior official visit in Belarus this year. (Russian Prime Minister Mikhail Fradkov visited Minsk in September.) Lukashenka is a pariah in the international arena and only rarely travels abroad or receives foreign officials in Belarus. His international contacts are largely limited to receiving Russian governors in Minsk -- no big deal for someone who dreamed of taking the helm of a united Russian and Belarusian state during the era of Russian President Boris Yeltsin. This time, however, Lukashenka was doubly lucky: Yekhanurov brought along an invitation for Lukashenka to meet with President Yushchenko in Kyiv. (Jan Maksymiuk)

UKRAINIAN-TURKMEN GAS TANGO. A Ukrainian delegation, headed by Fuel and Energy Minister Ivan Plachkov, which visited Turkmenistan from 11-13 October to negotiate future gas supplies, returned to Kyiv with little, if any, good news.

On the first day of the meeting, the Ukrainians were subjected to a long, televised harangue by Turkmen President Saparmurat Niyazov about the virtues of paying his country on time. Niyazov's showmanship was probably meant more for domestic political consumption than as a bargaining tool. Niyazov angrily claimed that Ukraine owed Turkmenistan almost $500 million in barter payments for gas supplied from the later part of 2004 through October 2005. The Ukrainian side acknowledged this the following day when Plachkov told the media that Ukraine did in fact owe Turkmenistan $470 million in goods and had agreed to repay this partially in cash before the end of the year.

Ukrainian Prime Minister Yuriy Yekhanurov, who is scheduled to visit Turkmenistan in late October, told the press on 14 October that he would call for an investigation of the state-owned energy monopoly Naftohaz Ukrayiny in an attempt to clarify why the debt is not being serviced. The negotiations ended with both sides reaffirming an earlier agreement for delivery in 2006 of 36 billion cubic meters of gas to Ukraine at a price of $44 per thousand cubic meters, to be paid for in cash.

On the heels of Plachkov's acknowledgement of the debt, official Kyiv either rechecked its accounts or decided to call Niyazov's bluff. Naftohaz President Oleksiy Ivchenko told the press on 18 October that Ukraine did not owe anything to Turkmenistan for gas supplied in 2005 and that he had made this point forcibly during the meeting with Niyazov. "I told [Niyazov] that his subordinates had misled him," he was quoted as saying by the "Ukrayinska pravda" website. Ivchenko also complained that Turkmen television had cut out his remarks when it broadcast Niyazov's long diatribe against the Ukrainian side.

Ivchenko blamed the Turkmen customs service for delays in processing barter goods arriving in the country as payment for gas. He said that the customs service had only managed to clear $8 million worth of goods out of $52 million. "They keep telling us that these goods need to be appraised by some stock brokerage. This is not our problem," Ivchenko stated.

Kyiv's long-hoped-for 30-year gas purchase agreement with Turkmenistan -- the main reason for Plachkov's visit to Ashgabad --was put on hold by Niyazov, who demanded Russian participation in the negotiations.

A likely reason Niyazov was stalling on this arrangement is that, in 2003, Turkmenistan and Gazprom signed a contract stipulating that Russia would purchase virtually all Turkmen gas for 25 years -- leaving no gas available to sell to Ukraine. Thus, beginning in January 2007, Ukraine would be forced to purchase Turkmen gas from Russia's Gazprom at a higher price -- presumably much closer to the market price of approximately $120 per 1,000 cubic meters and not the $44 it is presently paying.

According to "Kommersant" on 14 April, the 2003 Gazprom contract with Turkmenneftegaz stipulates that the Russian company in 2007 will receive 63-73 billion cubic meters of gas; in 2008, deliveries of 63-73 billion; and beginning in 2009, 70-80 billion cubic meters. The paper notes that this is not realistic as current Turkmen gas production capacities are rapidly declining.

One important factor, which was not mentioned in the media reports of the Ukrainian-Turkmen meeting in October, was the future role of RosUkrEnergo, the controversial Swiss-based company contracted by both Gazprom and Naftohaz to act as the middleman for transporting Turkmen gas to Ukraine. In June, the Ukrainian Security Service (SBU) began a criminal investigation into RosUkrEnergo. This investigation was stopped, according to Oleksander Turchinov, then head of the SBU, on Ukrainian President Viktor Yushchenko's orders.

One of the purported reasons the investigation ended was that there were grave suspicions by the SBU that former Ukrainian President Leonid Kuchma, Niyazov, and Russian President Vladimir Putin were all involved in substantial kickback schemes through RosUkrEnergo. Had these schemes been exposed, Ukraine stood to lose gas deliveries from both Russia and Turkmenistan. The other reason provided by Turchinov as to why the investigation was stopped was that some of Yushchenko's closest advisors were themselves now linked to RosUkrEnergo.

As the investigation gathered steam, Niyazov ordered that the heads of Turkmenistan's energy companies be arrested. They were all reportedly sentenced to long prison terms.

However, the new head of the SBU, Ihor Drizhchanyy, in an interview with the 10 October issue of the weekly "Zerkalo tyzhnya," stated that the investigation is still continuing, although many in Kyiv believe it will not be pursued with the same vigor as before.

A number of Ukrainian experts have remarked that a chaotic situation continues to exist in the country's energy sector. Naftohaz Ukrayiny is no longer under the control of the cabinet, as it was during the Kuchma presidency, and now remains directly accountable to the president and his administration. A lack of firm oversight only heightens suspicions of opaque dealings by a company long suspected of dubious practices. Naftohaz was headed for a long time by Ihor Bakay, who is presently in Russia and wanted by Ukraine on a long list of criminal charges including large-scale fraud. Russian law does not allow for the extradition of Russian citizens and, according to the Russian Interior Ministry, President Putin has signed a special decree granting Bakay Russian citizenship for his "contributions to Russian culture."

Critics charge that by keeping Naftohaz in a separate administrative category, an unclear chain of command over the energy sector exists, which fosters corruption and fraud. The head of Naftohaz is also the deputy energy and fuels minister; he is not directly accountable to the minister, but to the president.

The current stalemate could mean Ukraine signing a long-term gas-purchase agreement with Turkmenistan. And the inevitability of rising gas prices could mean Ukraine has to finally begin implementing an energy-conservation program. In 2003, Ukraine, a country the size of Texas, consumed 74 billion cubic meters (bcm) of natural gas, more than the combined gas consumption (44.1 bcm) of all the Central European states of Poland, Hungary, the Czech Republic, and Slovakia. Ukraine, according to a study prepared by Margarita M. Balmaceda of the Woodrow Wilson Center (Washington, 2004), with a population of only 48 million, was the sixth-largest gas consumer in the world.

The need for conservation measures was underscored by Yekhanurov on 14 October when he was quoted by Interfax as saying that Ukrainian industry should prepare to consume 2 1/2-times less gas in the near future. Is this realistic? No Ukrainian government, including Yushchenko's during his stint as prime minister, has ever bothered to implement conservation measures. At the same time, the pressure from both state-owned and private enterprises to maintain cheap gas and coal prices is enormous as that insures profitability in Ukraine's largest export sectors, the metallurgical and pipe-making industries.

As to finding alternative sources of gas, the Ukrainian side is apparently having difficulties in convincing the United States that a gas pipeline from Iran could do the trick. Washington is dead set against Iranian gas sales to Europe, fearing that this will only allow Iran to continue to fund its nuclear-weapons program. (Roman Kupchinsky)