7. PRESERVING THE TRAP? UKRAINE AND RUSSIA DRIVE THEMSELVES INTO A GAS POLITICAL DEADLOCK

ANALYSIS & COMMENTARY:
By Volodymyr Skachko Kiyevskiy Telegraf, Kiev, in Russian
17 Dec 05; p 1, 2 BBC Monitoring Service, UK, in English, Thu, Dec 22, 2005

Ukraine and Russia have reached deadlock in the ongoing dispute over gas supplies, a Ukrainian weekly has said. Russia is using its raw materials to exert power over former Soviet countries. In exchange for gas supplies, Russia wants Ukraine not to join the WTO before it, and not to review its agreement with Russia on the leasing of bases in Crimea to the Russian Black Sea Fleet.

The nightmare scenario for Russia would be for Ukraine to hand control over ABM radar stations run by Russia to the USA and refuse to extend use of Russian heavy missile launch sites. It said the sides will be forced to negotiate, although both leaders have said that whatever happens gas supplies to Europe will not be interrupted.

The following is an excerpt from the article by Volodymyr Skachko entitled “Preserving the trap? Ukraine and Russia drive themselves into a gas political deadlock”, published in the Ukrainian newspaper Kiyevskiy Telegraf on 17 December; subheadings have been inserted editorially:

We cannot know what US Secretary of State Condoleezza Rice can have said to Ukrainian President Viktor Yushchenko during her visit to Kiev, but Vladimir Putin, the leader of Russia (another strategic partner for Ukraine along with the USA) was seriously annoyed.

As a result, Russia does intend to yield an inch to Kiev in the most painful question – the price for its gas, without which Ukraine is threatened not only with its population being frozen this winter, but also a collapse of the entire economy reliant on cheap Russian gas like an addict on a needle. And this means that a new era appears to be looming in Ukrainian-Russian relations – political concessions from Kiev can no longer be exchanged for economic privileges and indulgences from Moscow.

Money is at the heart of the relationship. Hard and convertible. And reciprocally supplied by the parties in exchange for goods and services.

And in the logic of things, it only remains now to try find out whether the countries are ready for such a scenario. There are large suspicions that they are not. Because at the present historical stage, as it is customary to say, a definitive gas rupture may be catastrophic for both. However, in this process, as always, there are reciprocal pluses and minuses.

And so, let us look at the pluses. They are obvious, because they lie in the purely economic area. Equal partnership and cooperation comes in only when the partners do not depend on making concessions to each other, but are prepared to buy everything necessary for money. And obtain mutual benefit by being absolutely free to choose both the suppliers of the raw material required, markets for their products and the country’s course. Both internal and external.

If Ukraine jumps out of the Russian “gas needle” and finds the funds to buy gas at market prices, it can act on the foreign policy scene without looking over its shoulder at the former “elder brother”. And for example, join the EU, NATO or the WTO with the SES [Single Economic Space – proposed economic union of Ukraine, Russia, Belarus and Kazakhstan]. Even the African Union – that is its sovereign affair.

There is also an advantage for Russia in a definitive “withdrawal” of Ukraine. The Kremlin would get by its side an independent neighbour, and its illusions would disappear forever (or for a long time) regarding its own hegemony in the post-Soviet space, “gathering Russian lands” on foreign territory and so on and so forth. Life will become easier.

It will be possible to concentrate on exclusively internal problems and spend money on them freed up from the implementation of the above-mentioned “missions impossible”, and finally to raise the living standards of the 25m Russians who, according to Putin, are today living below the poverty level because [Russian gas monopoly] Gazprom is subsidizing the Ukrainian economy by low prices for its gas. The Russian president, “discovering” Ukraine after Rice’s visit there, as is known, made his calculations.

According to his arithmetic, taking account of the current prices, the future losses for Gazprom will amount to 3.6bn dollars plus 1bn dollars in direct subsidies from the Russian budget for Ukraine, since Russia has moved to levying tax on payments for natural gas, gas condensate and oil with Ukraine according to the country of destination.

What is more, Putin added separately that he was using the word “direct”, since “there are no two-way flows of such groups of goods and in essence it is budget support for our Ukrainian friends”.

In other words, Russia is not only selling gas to Ukraine, but is also allowing it to receive sales taxes. And there is nothing of the sort in Russia, and consequently the taxes are not coming into its budget. So, indeed, why pay excessive money for the role of hegemony? It seems illogical.

And Russia today is demonstrating readiness to go to the end and make Ukraine move to market relations in the gas question. [Passage omitted: recalling events in gas talks of previous week]

GAS AS POLITICAL PRESSURE

However, today’s logic dictates that neither Ukraine nor Russia will be able for now to realize the scenario of a rupture and move to swimming independently. Because they are connected not only economically, but also politically. And thank God Russia is no longer hiding the political component of the dispute. At an international conference on the theme “After the 2004 elections, before the 2006 elections.

A Crimean view” that was held on 10 December this year in Crimea, a deputy of the Russian State Duma [parliament], Konstantin Zatulin, no longer hid the fact that Russia was exchanging its cheap gas for Ukraine for its – Ukraine’s – political loyalty. And he quoted the example of Belarus, which will continue to receive cheap raw materials from Russia for this loyalty.

And he made a direct appeal to representatives of the Ukrainian opposition: win the parliament elections, he said, take power and “we will discuss the problem of the gas contract with you”. It is also clear even now what Russia does not want from Ukraine.

[1] First, accelerated entry into NATO, seeing it as undermining its own security. [2] Second, rapid accession to the WTO without Russia, which threatens Russian markets. [3] Third, a review of the rental conditions for facilities of the Russian Black Sea Fleet stationed in Crimea, which was directly spoken of last week by the deputy head of the Ukrainian presidential secretariat, Anatoliy Matviyenko. [4] Fourth, the transfer to US control of Ukrainian radar stations of the missile attack warning system in Sevastopol and Mukacheve that are currently operating exclusively in the interests of Russia.

The former commander of Russia’s anti-ballistic missile defence, Lt-Gen Volter Kraskovskiy, is sure that giving American specialists access to the radar stations in Sevastopol and Mukacheve will lead to Russia losing anti-missile control in the south-west strategic direction over the entire area of Central and Southern Europe and also the Mediterranean.

And, according to an evaluation by Russian experts, Russia has an alternative – to develop new radar stations on its territory. But that will take time, two or three years, and money comparable with what Moscow can receive from increasing the prices of gas sales to Ukraine, or even more.

[5] Fifth, there are fears in Russia that Ukraine may refuse sign the intergovernment agreement concluded during the recent visit to Moscow by Ukrainian Defence Minister Anatoliy Hrytsenko on extending the use of the 15P118M missile complex (launch installations for the RS-20 heavy missile complex, classified by NATO as “Satan”).

Russia has over 100 of these heavy missiles, which have over 10 self-guidance nuclear warheads, and they are what the USA fears most of all. And these complexes, developed in Dnipropetrovsk at Pivdenmash, have been on combat duty for over 15 years with the strategic missile troops of the Russian armed forces, and it is proposed to extend their use with the help of Ukraine for another 10-15 years. If that help is not forthcoming, Russia faces having to scrap those missiles and produce others to counter the threat.

That will require huge funds – 3-4bn dollars, since at present not more than six domestic Topol-M ICBM’s – the replacements for the 15P118M – are being produced a year. Incidentally, Russia suspects that these questions one way or another were discussed during Rice’s visit to Kiev and were decided in favour of Washington rather than Moscow.

[6] Sixth, the issue of the Ukrainian-Russian border in the Azov-Kerch region is not being resolved: Russia is frightened of NATO ships in the Sea of Azov and, therefore, does not want to settle contentious problems

AGREEMENT WILL BE REACHED

[7] Finally, there is also the purely technical impossibility of “the war of the taps”, whereby, some hotheads propose, Ukraine will cut off Russian gas to Europe and Russia in retaliation will not supply its gas and not allow Turkmen gas through. Because there will simply be nowhere for the gas to go.

The bypass gas pipeline along the bed of the Baltic Sea has not yet been built, and the capacities of Belarus and the Baltic countries are insufficient for that. And because Europe, in which both Moscow and Kiev have an interest, will not allow its economy to be halted because of a lack of raw materials.

Apart from that, sober-minded Russian experts are convinced that a transfer to world prices in the gas trade with Ukraine is more beneficial for Ukraine than for Russia, in which gas for internal consumers is sold at reduced prices. The reason being, so it goes, that Ukraine in that case will be able more rapidly than Russia to modernize its economy and introduce energy-saving technologies, having sought out additional funds in hard times. [Passage omitted: criticizing negotiating skills of Naftohaz Ukrayiny chief Oleksiy Ivchenko]

And this means that the parties will reach agreement again. Both Yushchenko and Putin have already given assurances that that would be no disruption of gas supplies to Europe under any circumstances. [Passage omitted: further recalling past week’s events]

The head of Gazprom, Aleksey Miller, told journalists: “As far as compromise is concerned, of course it’s possible. The Ukrainian side knows about it. It is the question of the gas transport consortium.” Germany, the third member of the consortium, is also in favour of it.

What is there left for Ukraine to do? Consequently the former mutual dependence will remain, very similar to a trap or a deadlock. At least for the year that Ukraine is demanding for a smooth transfer to world prices. If it used that time to reduce the energy intensiveness of its economy… [ellipsis as published] But, I repeat, it is hard to believe in that – we have elections staring us in the face. And indeed, there is nobody to do it. [ellipsis as published] -30-

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