Daily Archives: January 2, 2006


An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

“Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World”

Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., SUNDAY-MONDAY, JANUARY 1-2, 2006
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

Gas Supplies Cut Off, Poem Two By Andy100
The Action Ukraine Report (AUR), Number 631, Article 1
Washington, D.C., Sunday, January 1, 2006

By Greg White, Staff Reporter in Moscow
The Wall Street Journal, New York, NY, Sun, Jan 1, 2006

“We must hold firm to the end & show Russians they can’t push us around.”
Agence France Presse, Kiev, Ukraine, Saturday, December 31, 2005

TV 5 Kanal, Kiev, in Ukrainian 1750 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sunday, January 1, 2006

By Christian Lowe, Reuters, Moscow, Russia, Sun, Jan 1, 2006

Interfax-Ukraine news agency, Kiev, in Russian 1526 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sunday, Jan 01, 2006

RIA Novosti, Moscow, in Russian 1620 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sun, Jan 01, 2006

By Peter Finn in Moscow, Washington Post Foreign Service
The Washington Post, Washington, D.C, Sunday, January 1, 2006

Jim Heintz, Associated Press Writer, Moscow, Russia, Sun, Jan 1, 2006

Press Statement: Sean McCormack, U.S. Department of State
Washington, DC, Sunday, January 1, 2006

New Year’s address to the nation
UT1 State TV, Kiev, in Ukrainian 2155 gmt 31 Dec 06
BBC Monitoring Service, UK, in English, Sat, Dec 31, 2005

Agence France Presse (AFP), Warsaw, Poland, Sun Jan 1, 2006

Agence France Presse (AFP), Kiev, Ukraine, Sunday, Jan 1, 2006

By Bill Gasperini, Moscow, Voice Of America (VOA)
Moscow, Russia, Saturday, 31 December 2005

Organization for the Defense of Four Freedoms for Ukraine (ODFFU)
New York, New York, Friday, December 30, 2005

Channel 1, Tbilisi, Georgia , in Georgian 1800 gmt 30 Dec 05
BBC Monitoring, UK, in English, Fri, December 30, 2005

Staff Write, Council on Foreign Relations website
Baltimore Sun, Baltimore, Maryland, Friday, December 30, 2005

Sounds like a combustible mixture of nationalism, fascism, and gangsterism.
EDITORIAL: The Boston Globe, Boston, MA, Sun, Jan 1, 2006

As Russia takes over the G-8, the resignation of a top adviser
raises fresh concerns about Kremlin control of the economy.

By Peter Gumbel, TIME Magazine, NY, New York, Sat, Dec. 31, 2005

Ukraine as a Keystone for Transforming Russia into a “Eurasian Nigeria”
ANALYSIS & COMMENTARY: Institute for National Strategy of Ukraine
Authorship group included: Stanislav Byelkovskyi, Oleksandra
Byelkovska, Oleksiy Mushak, and Olesia Yakhno.
Ukrains’ka pravda, Kyiv, Ukraine, Monday, 26 December 2005
Published in English by The Ukraine List (UKL) #374, Article #7
Translated by Nykolai Bilaniuk for UKL
Ottawa, Ontario, Canada, Friday, December 30, 2005

Gas Supplies Cut Off, Poem Two By Andy100
The Action Ukraine Report (AUR), Number 631, Article 1
Washington, D.C., Sunday, January 1, 2006

On New Years day two thousand six
Russia’s leader was in a bit of a fix
By cutting off Ukraine’s gas supplies
He fell under scrutiny of global eyes.

He thought that he’d be nifty
With a fivefold increase from fifty,
And decided to play cruel and dirty
Swell the price to two hundred thirty.

Other neighbors he wanted to show
That for choosing Mr. Yushchenko
Ukrainians must be disciplined, chill and freeze
Then return to mother Russia on their knees.

“The game is quite simple,” Vlad said
“You just have to jump in to bed
Like Alexander, and you’ll pay forty-seven
For you it’ll be bliss and heaven”.

But Ukrainians decided they’d had enough
Of the ways of the Bear – brutal and rough;
For their children they wanted a better life
Living without fear, oppression and strife.

How this story ends we will all see soon
Maybe still in January, maybe in June.
But the moral of the story is simple and plain –
The bear won’t be dancing once more in Ukraine.
FOOTNOTE: Andy100@ukr.net posted his first poem about Russia
shutting off gas supplies to Ukraine on www.2.maidan.org.ua. We
published the poem on AUR#630 for December 31. Today we found
an e-mail from Andy100 in our in-box. He sent us a new poem
based on the latest events. Our thanks to Andy100. EDITOR
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

By Greg White, Staff Reporter in Moscow
The Wall Street Journal, New York, NY, Sun, Jan 1, 2006

MOSCOW — In a sharp escalation of a pricing dispute, Russia cut natural-gas
shipments to Ukraine Sunday, leading to reduced deliveries to Russia’s other
customers in Europe, officials said.

The European Union said consumers aren’t likely to be affected immediately,
Reuters reported, but expressed concern about the worsening conflict between
Russia, which provides a quarter of Europe’s gas, and Ukraine, through which
the bulk of those shipments flow. With much of Europe in the grip of
unusually cold weather, the gas tensions are likely to sharpen debate over
the continent’s dependence on supplies from Russia.

Moscow is demanding a fourfold increase in what Ukraine pays for the fuel it
consumes and made good on a threat Sunday morning to cut deliveries for
Ukraine if no deal on prices was reached by the time last year’s contract

“We have no obligation to ship gas to Ukraine as there is no agreement,
which is the fault of the Ukrainian side,” Sergei Kuprianov, spokesman for
state-controlled gas monopoly OAO Gazprom, told NTV television Sunday

Mr. Kuprianov said initial indications showed Ukraine was siphoning gas
meant for exports to western Europe, Russian news agencies reported. NTV,
which is owned by Gazprom, quoted a company official at the main pumping
station in Slovakia, west of Ukraine, where gas from Ukraine crosses into
the rest of Europe, as saying volumes already were declining, though by less
than the amount that Gazprom had cut deliveries into Ukraine.

But Ukrainian President Viktor Yushchenko, speaking after a crisis meeting
with top officials, insisted his country is fulfilling its obligations to
ship Russian gas through its territory to export customers, the Interfax
news agency reported.

News agencies reported that gas companies in Hungary and Poland said
pressure had dropped in the pipelines bringing gas from Russia across
Ukraine. Gazprom’s biggest customer in Germany said its customers won’t be
affected unless the supply cut via Ukraine is deep and long-lasting. Gazprom
also is a major supplier to France and Italy.

Some Ukrainian officials have accused Moscow of using gas an instrument of
political pressure against Mr. Yushchenko’s pro-Western government. His
party is facing a strong challenge from pro-Russian politicians in
parliamentary elections in March.

Relations between Russia and Ukraine have been stiff and chilly over the
past year, since Mr. Yushchenko came to power over a Kremlin-backed
candidate and vowed to move the country out of Russia’s sphere of
influence and more closely integrate it with the West.

Russian officials insist they are simply asking their largest customer in
the former Soviet Union to pay market prices for fuel. Last year, Ukraine
paid about $50 per thousand cubic meters of gas in exchange for giving
Russia discounted rates for shipping exports to Europe. Gazprom now insists
Ukraine should pay $230, closer to the price the Russian company said its
customers in Europe pay.

Mr. Yushchenko on Sunday denounced Russia for imposing “obvious
economic pressure on Ukraine.” He also reiterated Ukraine’s rejection of
Gazprom’s price demand, saying it is economically unjustified. He has said
a fair price would be about $80. Ukrainian officials say much of the country’s
metals, petrochemical and other industries would be rendered unprofitable at
prices above roughly $100.

Through the day Sunday, Russian and Ukrainian officials traded accusations
about which side was to blame for the breakdown of talks. Russian President
Vladimir Putin had offered a compromise Saturday, saying Russia would ship
gas under last year’s terms for the first three months of this year if
Ukraine would agree to market prices thereafter. Gazprom later said Ukraine
had refused, but Ukrainian officials denied that. It wasn’t clear when talks
between the two sides would resume.

Ukrainian officials have said stocks of gas in underground storage
reservoirs would limit the impact of a cutoff, at least initially. Gazprom’s
European customers also have enough gas to make up for immediate shortfalls.
Gazprom, which has ambitious plans to boost its market share in Europe, has
insisted that deliveries to its customers won’t be affected but has warned
some buyers of possible disruptions.

“If the supply reductions turn out to be very large, last a long time and if
the winter is very cold, our ability to compensate will also run up against
limits,” Bernhardt Bergmann, CEO of Germany’s E.On AG, Russia’s biggest
customer in Europe, said in a statement Sunday. EU energy officials are
scheduled to hold an emergency meeting on the crisis Tuesday.

Gas pressure fell at a connection point at the Polish-Ukrainian border,
according to Poland’s state-run gas monopoly. But Poland’s economics
minister said Polish households wouldn’t be affected. “There is no danger at
all that individual recipients will feel the drop in pressure of gas flowing
from Russia,” Piotr Wozniak told reporters in Warsaw.

French Industry Minister Francois Loos said Sunday that Russia’s assurances
and sense of responsibility, as well as France’s diversity of suppliers,
meant Russia’s decision to cut Ukraine’s gas was unlikely to affect France.
He told Reuters by telephone that 20% of France’s gas supply is piped from
Russia through Ukraine, but that he didn’t think supplies would be

“With the assurances that we have from the Russians, on the one hand, and
with our policy of diversification of suppliers, there is no risk to
supplies for France,” he said. (Write to Greg White at greg.white@wsj.com)
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Send in names and e-mail addresses for the AUR distribution list.
“We must hold firm to the end & show Russians they can’t push us around.”

Agence France Presse, Kiev, Ukraine, Saturday, December 31, 2005

KIEV – Worried but defiant, Ukrainians were bracing for a cut in Russian gas
supplies after Kiev reportedly rejected Moscow’s last-ditch offer to
postpone price hikes until April.

Russian gas giant Gazprom said in Moscow in the early hours of Sunday that
Ukraine had rejected President Vladimir Putin’s offer to maintain current
prices until April on condition that Kiev then agreed to a four-fold price

Gazprom, which controls a third of the world’s natural gas reserves, earlier
threatened to cut gas supplies to the ex-Soviet republic of 48 million
people at 0700 GMT Sunday if a midnight deadline for accepting the offer was
not met.

In the Jitomir region of northern Ukraine, Olena Rakivska anxiously watched
every news broadcast ahead of the deadline. The 74-year-old former nurse was
less concerned about the political tensions playing out between the
neighbouring nations, just worried about keeping her home warm through the
sub-zero winter weather.

“If they close the gas taps that will be a disaster,” Rakivska said. “How
could they? It’s not possible. It’s inhuman. Why is Russia being like that
to us?”

A bitter dispute over the new rates demanded by Russian gas giant Gazprom
has rumbled on for days, with neither side looking likely to give ground.
However, hopes of a compromise were raised on Saturday when Russian
President Vladimir Putin said Ukraine could keep paying for Russian gas at
current prices until April, as long as it agreed to the higher tariffs

Although there was no immediate official reaction from President Viktor
Yushchenko, sources close to the government in Kiev were initially
cautiously positive.

“We have won,” one source close to the presidency said, while another linked
to the energy ministry termed the proposal “very good”.

However, even the postponement of gas price rises for a few months would be
little comfort for Rakivska, who with her husband lives on a monthly pension
of about 150 dollars (135 euros), of which 20 dollars already goes on gas.
“If that (gas) becomes more expensive, it will be hard to manage,” she

Gazprom has demanded Ukraine pay 230 dollars per 1,000 cubic metres (35,316
cubic feet) of gas from the start of 2006, up from the current 50 dollars.
The company says the new tariff reflects standard world rates.

As well as worrying Western Europe, which relies heavily on Russian energy
supplies, much of which transits through Ukraine, the row has stirred up
bitter feelings between Russia and Ukraine.

A few months ago, 27-year-old secretary Katia was very unhappy with the
government in Kiev. Now, she says, she “supports 100 percent” their position
in the gas row. “We must hold firm to the end and show the Russians that
they can’t push us around,” she said, reflecting an opinion held by many of
her compatriots.

A Ukrainian youth organisation has called for a boycott of Russian goods,
with some shops in the centre of the country already declining to sell
Russian beer and chocolates, according to reports. -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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TV 5 Kanal, Kiev, in Ukrainian 1750 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sunday, January 1, 2006

KIEV – Ukrainian President Viktor Yushchenko has said that Russia breached
agreements when it began to reduce gas supplies to Ukraine early on 1
January. Speaking after a meeting with top Ukrainian officials devoted to
the gas dispute on 1 January, Yushchenko urged Russian President Putin to
instruct Gazprom to resume talks with Ukraine to find an acceptable solution
to the gas crisis. The following is the text of a report by Ukrainian television
TV 5 Kanal on 1 January:

[Yushchenko] A few days ago we officially received from Russian Gazprom
the price of Russian gas for Ukraine at 230 dollars per 1,000 cu.m. Ukraine
said that this price was not acceptable for one reason. It had no economic
justification. Today I want to say that this is a virtual price. Until
today, Ukraine has not received any economic justification on how this price
has been set. It cannot be the subject of discussion.

Until the last minute yesterday, we were in talks, and there was a feeling
that the parties almost reached a deal. Unfortunately, in Gazprom’s
interpretation Ukraine allegedly rejected the proposed agreements.

I want to say that officially yet again: [1] Ukraine has never quit talks nor
will it ever do so. Today I want to ask Russian President Vladimir Putin
to give appropriate political instructions to make the Russian party and
Russian Gazprom return to the negotiating table.

[2] Second, we propose that we should be guided by a moratorium on prices
of Russian gas transit to Europe and a moratorium on the price of Russian
gas supplied to Ukraine under the previous contracts.

At any rate, Ukraine is prepared from 1 January to pay a market price that
is agreed during talks. To have a clear compromise and to make sure that the
work of experts is not overshadowed by politics or political pressure, the
parties should undertake not to use non-market methods of influence to
resolve the conflict.

The reducing of gas supplies to the transit system, that started at 10
o’clock in the morning today [0800 gmt], and you understand that this
reduction actually began on 31 December rather than 1 January, is a breach
of earlier accords fixed in appropriate agreements on the transit and
supplies of Russian gas. We view this as a clear method of economic
pressure on Ukraine. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

By Christian Lowe, Reuters, Moscow, Russia, Sun, Jan 1, 2006

MOSCOW – Russia cut gas supplies to Ukraine on Sunday in a dispute that
appeared to hit deliveries to a wintry Europe just as Moscow takes over as
chairman of the Group of Eight hoping to showcase its reliability as an
energy source.

The Russian state monopoly, Gazprom, said it had cut supplies to Ukraine
by a quarter — the level of Ukraine’s own imports — after Kiev refused to
sign a new contract requiring it to pay four times as much. The switch-off
already seemed to be making itself felt further west, with deliveries down
in Hungary and Poland.

Western Europe imports 25 percent of its gas from Russia and most of that is
delivered by pipelines running across Ukraine. The European Union said it
did not expect shortages but was concerned by the standoff. Ukraine’s
Naftogaz energy company accused Russia of brinkmanship that was
jeopardizing Europe’s supplies. European gas demand is near peak
levels because of freezing weather.
Though Russia says it is purely a business dispute, the row has fed concern
that the Kremlin is prepared to use its vast energy resources as a political

Ukraine’s Western-leaning president, Viktor Yushchenko, has irked Moscow
by trying to take his ex-Soviet state on Russia’s western border into NATO
and the European Union. Ukrainian officials say that is why the Kremlin is
punishing Ukraine with such a huge price increase while letting more
Moscow-friendly ex-Soviet states such as Belarus pay far less.

Russia took over the annual presidency of the G8 club of industrialized
democracies for the first time from Britain on New Year’s Day, and its
tenure will come under close scrutiny. “Russia wants to make energy security
its key message to the G8 community, and simultaneously it is becoming a
source of danger,” said Valery Nesterov, energy analyst at the Troika Dialog
brokerage in Moscow.

French Industry Minister Francois Loos told Reuters Russia had given
assurances about its gas exports, and that its G8 presidency meant it would
act with a “sense of responsibility.”
Yushchenko stuck to his position that Ukraine was prepared to pay Moscow’s
asking price, but not immediately. “Ukraine is ready to move to a market
price from 2006. We do not need loans, we are ready to pay … But it should
not be a virtual price but a real price following the European model,” he
said after a 3-hour crisis meeting with top officials.

Moscow wants to raise the price of gas it sells to Ukraine to $230 per 1,000
cubic meters from the current $50 — a level that reflects Soviet-era
subsidized rates. Gazprom spokesman Sergei Kupriyanov said enough gas
was still being piped via Ukraine to maintain deliveries to other countries, and
if they were not getting all their gas, it meant Ukraine was tapping into

Eighty percent of Russian gas exports to western Europe pass through
Ukraine. “We have information from the ground that shows Ukraine has started
illegally siphoning off Russian gas destined for European consumers,”
Kupriyanov said.

The chief European importers of Russian gas are Germany, Italy and France,
which would have to draw down reserves or seek alternative supplies if there
was a major supply disruption. Energy ministers of Germany, Italy, France
and Austria have made a joint appeal to Moscow and Kiev to ensure a steady
flow of gas despite the stand-off. Energy officials from EU member states
hold an emergency meeting on January 4.

Hungary’s gas wholesaler MOL said its Russian deliveries via Ukraine had
fallen by more than 25 percent, forcing it to order big consumers to switch
to oil where possible. Poland’s supplies were down by 14 percent, but
officials hoped to make up for lost pressure from the Ukrainian supply point
by increasing the amount gas flowing in from Belarus.

Homes and businesses in Ukraine were still receiving gas on Sunday thanks to
reserves and the country’s own modest output. But it was expected shortages
would begin to bite within days. Officials say Ukraine has enough in reserve
to see households through the winter, but are making no comment on the
security of supplies to industry.

Yushchenko, propelled to power in the “Orange Revolution” a year ago, has
linked the gas switch-off to the start of campaigning for a parliamentary
election on March 26 in which he faces a tough challenge from pro-Moscow
parties. Ukraine has threatened to retaliate by raising the rent that
Russia’s navy pays to use the Ukrainian port of Sevastopol as headquarters
for its Black Sea fleet. -30-
(Additional reporting by Anatoly Titkin, Dmitry Zhdannikov and Meg
Clothier in Moscow, Olena Horodetska in Kiev, Jeff Mason in Brussels,
Mark Heinrich in Vienna and Balazs Koranyi in Budapest)
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Send in a letter-to-the-editor today. Let us hear from you.

Interfax-Ukraine news agency, Kiev, in Russian 1526 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sunday, Jan 01, 2006

KIEV – President Viktor Yushchenko has said that Ukraine is engaged in a
true fight for its independence during its gas dispute with Russia.

Yushchenko was speaking at a meeting of senior officials called after
Russia’s Gazprom today fulfilled a threat to cut off gas supplies to Ukraine
after it refused to accept a fourfold price increase.

The following is the text of a report by the Interfax-Ukraine news agency:

Kiev, 1 January: President Viktor Yushchenko has said that Ukraine should
develop a well-considered stance on the problem of gas supplies from Russia.

He was speaking at the opening of a meeting on gas supplies to Ukrainian
customers, the presidential press service reported today.

Prime Minister Yuriy Yekhanurov, Fuel and Energy Minister Ivan Plachkov,
[state oil and gas company] Naftohaz Ukrayiny board chairman Oleksiy
Ivchenko, Foreign Minister Borys Tarasyuk, Deputy Prime Minister Stanyslav
Stashevskyy, [Naftohaz Ukrayiny affiliate] Ukrtranshaz board chairman
Roman Shymko also took part in the meeting.

At the start of the meeting, the president said that its participants should
establish the country’s well-considered position on the gas issue today.

“We need to define what challenges we are facing today with regard to the
actions of the other side,” he said and added that “the logic of behaviour”
of every agency involved will also be taken into account.

He said that it is necessary to maintain high political culture in the talks
with Russia and to observe all the agreed commitments. The president said
that Ukraine’s foreign political response to the gas situation is important.
He said that this includes keeping Ukraine’s European partners, first of all
the EU, updated, since they are also interested in a constructive resolution
of this problem.

He added that the basic principles declared by Ukraine with regard to the
gas issue remain unchanged and are in line with the national interest.

“The price of 230 dollars per 1,000 cu.m. is not acceptable for the
Ukrainian side. This is the basic fundamental position. This is not a
subject for discussion, it is unacceptable because it is neither justified
economically, nor formulated on the basis of a market approach or a
European formula for setting gas prices. This is the reason why the price
proposed by the Russian side is 2-5 times higher than the prices in similar
markets neighbouring Ukraine,” he said.

He said that in this case it can be described as “a direct sign of pressure”
on Ukraine. He said that he is ready to talk with the “nuclear club” members
on their compliance with the commitments given to Ukraine [in the 1994
Budapest memorandum on security guarantees in connection with Ukraine’s
accession to the Nuclear Non-Proliferation Treaty], the press service said.

“Our position is strong because the truth is on our side. I am confident of
my every word, and I say: from 2006, Ukraine is ready to move to a market
price – we do not need loans, we are ready to pay, ready to get mobilized,
but this should not be some virtual price, but the true price in accordance
with the European model,” he said, adding that any estimate shows that the
price of Russian gas supplies for the first year (starting from 2006,
Interfax) should not exceed 80 dollars per 1,000 cu.m.

Yushchenko said that it would be sensible to inform the public about the
technical aspects of the estimates, particularly through the leading mass
media, “to give them a sense of why we are so stubborn in our position”.

He said that Ukrainians and businessmen will be regularly and fully updated
on the course of gas talks and the actions of the Ukrainian authorities. He
said that he receives hundreds of letters every day from ordinary citizens
who say they are ready to voluntarily limit their own consumption of gas
with the single goal of protecting Ukraine’s economic independence. He said
that Ukrainian authorities are firmly aiming at protecting national values
and the sovereignty of Ukraine.

“This is a true fight for Ukraine’s independence, and it is even tougher
than it was on the Maydan (large-scale acts of protest in the Kiev centre
during the presidential election of 2004, Interfax),” Yushchenko said.

He said that the gas issue must be removed from the political realm because
“there are only rumours working”, the press service quoted Yushchenko as
saying. He said that it was due to the politicization of the issue that
talks failed to become constructive. -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

RIA Novosti, Moscow, in Russian 1620 gmt 1 Jan 06
BBC Monitoring Service, UK, in English, Sun, Jan 01, 2006

MOSCOW – The price which Gazprom wants Ukraine to pay for Russian gas
in 2006 is economically justified. This is what Gazprom’s official spokesman
Sergey Kupriyanov said commenting on Ukrainian President Viktor
Yushchenko’s remarks about the price for Russian gas being “virtual and

“The price offered under the contract proposed by Gazprom from 1 January
is calculated on the basis on the ‘net back’ method applied to Gazeksport
contracts on gas supplies to Eastern and Western Europe, minus the cost of
transit through Ukrainian territory,” Kupriyanov said. He added that “the
price is totally justified”.

In 2006, Gazprom expects to supply gas to Romania, Bulgaria and Hungary
for prices in the range of 230-260 dollars per 1,000 cu.m. and to Austria,
Germany and Italy for prices expected to be in the range of 245-265 dollars.

“Ukraine itself knows perfectly well the market price of gas since it has
re-export contracts under which, if they are carried out, in 2006 the price
for gas supplies will exceed 250 dollars,” Kupriyanov stressed. -30-
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By Peter Finn in Moscow, Washington Post Foreign Service
The Washington Post, Washington, D.C, Sunday, January 1, 2006

MOSCOW – The state-controlled Russian energy giant Gazprom cut off
the supply of natural gas to Ukraine on Sunday after weeks of intense
negotiations, including a last-minute intervention by Russian President
Vladimir Putin, failed to resolve a dispute over pricing.

The dispute is ostensibly centered on Gazprom’s desire to move immediately
to market pricing and Ukraine’s willingness to accept only a phased
transition to the kind of prices paid in Western Europe. But the stand-off
has a fraught political backdrop and could also have potentially
far-reaching implications for Europe, which is increasingly dependent on
Russia for critical supplies of natural gas.

Russia has long used cheap natural gas to maintain influence in the former
republics of the Soviet Union. Ukrainian officials say the price increase,
far higher than for other former Soviet republics, is politically motivated
and punishment for the pro-Western policies of President Viktor Yushchenko,
who is committed to taking the country into NATO and the European Union.

In a New Year’s address to his country, Yushchenko tried to rally his
countrymen. “A year ago, we beat the dictatorship and won a real victory,”
he said, referring to the popular movement that swept him into power after
elections in which he defeated a pro-Kremlin candidate. “Today we have to go
a step further to ensure together Ukraine’s economic independence.”

Sergei Kupriyanov, a Gazprom spokesman, said in Moscow on Sunday that the
company had reduced pressure in the pipeline entering Ukraine, leaving only
the amount of gas that is pumped across the country to markets in Western
Europe. Russia supplies about 25 percent of the gas that Europe consumes,
and 80 percent is shipped across Ukraine with branches of the pipeline to
supply the domestic Ukrainian market.

There are fears that Ukraine, to meet the needs of its gas-dependent
industries and consumers, could siphon off supplies intended for customers
farther West and trigger energy crises in other countries.

“From the very beginning the Ukrainian authorities had plans to begin to use
gas without permission from January 1,” said Kupriyanov. “To be more
precise, they planned to start to steal gas — steal it from European

Ukrainian officials have sent mixed messages about their intentions.
Yushchenko has said that supplies to other European countries would not be
affected by the dispute, but Ukrainian Prime Minister Yuri Yekhanurov said
his country was entitled to 15 percent of the gas crossing Ukraine as a
transit fee.

Naftogaz, the state-owned Ukrainian energy company, said in a statement
Sunday that Gazprom, in cutting off supplies to Ukraine, had also decreased
the amount intended for Europe. Gazprom’s spokesman said the Ukrainians
would answer that claim in court.

Gazprom’s tactics are raising longer-term concerns in Western Europe and
come as Russia assumes the year-long chairmanship of the Group of Eight
leading industrialized countries.

The government of former German Chancellor Gerhard Schroeder recently
championed a multibillion-dollar deal to build a pipeline from Russia to
Germany across the Baltic Sea, bypassing the Baltic states and Poland. The
new pipeline will be controlled by Gazprom with German partners holding
minority stakes.

In the wake of the dispute with Ukraine, some Germans are questioning the
country’s strategic energy policy.

“For seven years, Schroeder narrowed the German energy strategy on Russia,”
said a commentary in the German newspaper Die Welt. “It is now in the hands
of the new federal government to secure sources of natural gas for Germany
that are outside Russia. The example of Ukraine should teach caution to all
of Europe.”

The European Commission, the executive branch of the European Union, has
called a special meeting of its gas coordination group to discuss the
dispute between Russia and Ukraine on Wednesday.

After months of negotiations, Gazprom announced late last month that it
intended to raise prices for Ukraine from $50 to $230 per 35,300 cubic feet
of gas — an increase that would have a severe impact on Ukraine’s economic
growth. Some of the country’s key industries, including steel and chemicals,
are heavily dependent on gas for energy.

Ukrainian officials rejected an offer from Putin to freeze prices at 2005
levels for three months and then shift to the $230 price. The Ukrainian
government wants a much slower transition to higher prices, and Yushchenko
suggested a price of $80 for 2006.

Under new pricing accords, Armenia, Georgia and the Baltic States pay $110
per 35,300 cubic feet. And Belarus, an increasingly authoritarian country
closely aligned with Russia, pays $47. Gazprom officials say that Belarus
has provided the company with a stake in the pipeline that crosses its
country, allowing the company to continue to provide subsidized gas.

Ukraine has rejected any compromise based on giving Gazprom a stake in its
state-owned pipeline network.

Some Ukrainian officials believe that Russia is exploiting its energy
dominance to reverse the country’s drift away from Russia’s sphere of
influence. Yushchenko, who defeated the Kremlin’s favored candidate in late
2004, faces important parliamentary elections in March. His opponents have
seized on the energy issue.

Ukrainian officials said they have enough gas in reserve and coming from
alternative sources to guarantee supplies through the worst of the winter.
Russia supplies about one-third of Ukraine’s gas. But there were suggestions
Sunday that Ukraine was already siphoning.

Authorities in Poland said Sunday that they had recorded a drop in pressure
at their border with the country. There were also reports on Russian
television of reduced pressure at Slovakia’s border with Ukraine.

“This indicates a fall in supplies originating in Ukraine and is a
consequence of the decision by Russia’s Gazprom to restrict deliveries of
Russian gas to Ukraine,” Poland’s gas company, PCNiG, said in a the
statement. But the Russian government said Ukrainian authorities were solely
responsible for any reduction in natural gas supplies exiting Ukraine.

“We hope that Ukraine will fully meet its international obligations and
guarantee the uninterrupted transit of natural gas intended for E.U.
countries via its territory and do everything in its power to prevent any
unsanctioned use of natural gas,” the Russian Foreign Ministry said in a
statement Sunday. “If such steps are not taken, the responsibility for any
possible worsening of Russian-Ukrainian relations in the gas sector and
problems caused to European countries will rest solely with Ukraine.”
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By Jim Heintz, Associated Press Writer, Moscow, Russia, Sun, Jan 1, 2006

MOSCOW – Russia’s natural gas monopoly halted sales to Ukraine in a price
dispute Sunday and began reducing pressure in transmission lines that also
carry substantial supplies to western Europe. Ukraine’s natural gas company
Naftogaz acknowledged the reduction by Russia’s Gazprom.

“Gas is not flowing at all through some transit routes, which can lead to a
fall in pressure in all the pipelines and limit the overall supply of gas to
Ukraine and Europe,” said Naftogaz spokesman Eduard Zaniuk. However,
he said, “for the people and municipal services there will be enough gas.”

Gazprom had given Ukraine a deadline of midnight Saturday to agree to pay
quadruple the amount it previously paid for Russian gas, which accounts for
about a third of the consumption in the country of 48 million people.

The showdown has underlined the tensions between the two former Soviet
republics since Ukrainian President Viktor Yushchenko – a West-leaning
leader who wants to reduce Moscow’s clout in his country – defeated a
Russian-backed rival in a bitter electoral battle a year ago.

The gas crisis comes as Ukraine prepares for parliamentary elections in
March, in which Yushchenko’s bloc faces a strong challenge from the party
of Viktor Yanukovych, who lost the presidential ballot after mass street
protests forced a revote.

The Russian Foreign Ministry said Sunday that Ukrainian authorities
“consciously decided to ruin the talks process with the Russian side and to
use the gas problem almost to create the image of an enemy with the goal of
manipulating the internal political situation.”

On Saturday, Russian President Vladimir Putin said Ukraine could continue
paying the old price of $50 per 1,000 cubic meters for the first quarter of
2006, but only if Ukraine agreed by the end of the day to start paying the
new price of $230 in the second quarter.

Gazprom spokesman Sergei Kuprianov said Ukraine refused the offer, but
Naftogaz denied that claim Sunday. In a statement posted on its Web site,
Naftogaz said it sent a “draft agreement that envisioned a transfer to
market prices after the first quarter of 2006″ to Russia before midnight

Gazprom has said the price increase is necessary to conform to world gas
price levels. Ukraine has not objected to a market price but wants the
increase to be phased in. Yushchenko said late Friday that the most his
country could pay now is $80 per 1,000 cubic meters.

Gazprom provides about half the natural gas used in the European Union,
and about 80 percent of that is sent in pipelines that cross Ukraine.

Ukraine’s government has said its transit arrangements allow it to siphon
off up to 15 percent of gas moving through the country. Russia says that
would be outright theft.

Ukrainian officials also say the country has sufficient gas reserves to
weather a Gazprom cutoff for at least several weeks but decline to specify
how much is in reserve. There were no immediate reports of gas service being
lost to Ukrainian homes or businesses, even as Kuprianov predicted Ukraine
would suffer quick and severe effects.

The refusal “to meet our proposals for resolving the problems will have
catastrophic consequences for the economy of Ukraine and, unfortunately,
for the brotherly Ukrainian people,” he said.

The U.S. on Sunday expressed concern over Russia’s decision, saying the
move raises questions about the “use of energy to exert political pressure.”
“Such an abrupt step creates insecurity in the energy sector in the region
and raises serious questions about the use of energy to exert political
pressure,” State Department spokesman Sean McCormack said in a statement.

The dispute with Ukraine has raised wide concerns that EU supplies could be
affected. But Kuprianov offered assurances on Russian television that
“export gas for Europe is moving at full volume.”

Supply problems for Europe could undermine Western trust in Russia’s natural
gas industry, one of the keystones of the country’s economy, and tarnish the
Russian stint as chairman of the Group of Eight industrial nations, which
started Sunday.

A Foreign Ministry statement Sunday said Russia would “strictly fulfill” its
supply commitments to Europe. It said the “responsibility for any possible
… problems for European countries caused by the actions of Kiev will lie
with Ukraine.”

EU spokeswoman Mireille Thom said energy experts would meet Wednesday
to look at the situation and discuss how European countries should react.
“We hope the two parties will find an agreement quite soon,” she said.

EU Energy Commissioner Andris Piebalgs said last week that Europe could
cope with a temporary interruption to its gas supply.

Burkhard Bergmann, the head of Germany’s E.On Ruhrgas gas distributor,
said Sunday that Russia’s move could eventually crimp supplies for
industrial customers, but homeowners should not worry. -30-
Associated Press writer Aleksandar Vasovic in Kiev, Ukraine,
contributed to this report.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]


Press Statement: Sean McCormack, U.S. Department of State
Washington, DC, Sunday, January 1, 2006

The United States regrets the Russian decision to cut off gas from Russia
to Ukraine, with potential effects on gas supplies elsewhere in Europe.

Such an abrupt step creates insecurity in the energy sector in the region
and raises serious questions about the use of energy to exert political
As we have told both Russia and Ukraine, we support a move toward
market pricing for energy but believe that such a change should be
introduced over time rather than suddenly and unilaterally.
Russia and Ukraine have a shared interest in maintaining good reputations
as gas supplier and transit countries. The US has encouraged a
compromise solution, and we remain hopeful that a resolution will be
reached between the two sides that provides energy security and
predictability for all concerned. -30-
See http://www.state.gov/r/pa/prs/ps/ for all press statements
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Be A Vice-President In Charge Of The Continuing Orange Revolution

New Year’s address to the nation

UT1 State TV, Kiev, in Ukrainian 2155 gmt 31 Dec 06
BBC Monitoring Service, UK, in English, Sat, Dec 31, 2005

President Viktor Yushchenko has urged Ukrainians to unite to ensure the
country’s economic independence. In his New Year’s address to the nation
in the last minutes of 2005, Yushchenko praised the country’s progress in the
year since he came to power and emphasized his commitment to the reforms
he said would bring Ukraine closer to European standards.

The following is the text of Yushchenko’s address broadcast by Ukrainian
state-owned television UT1 on 31 December:

Dear Ukrainian community! Ladies and gentlemen!

The last minutes of 2005 are passing. We are gathering with our families and
friends for our holiday feast. We are remembering the road we have taken
over the year. We are speaking of our successes, hopes and plans.

Certainly, the year that is ending brought glory and freedom. A year ago,
Ukrainian citizens stood up for their highest right – to choose their
authorities. We proved that we are a people, that we are ready to fight for
changes for the better. The most important thing, we proved to ourselves
that these changes are irreversible. We started to create a new country of
which every citizen can say: Yes, I am Ukrainian, and I am proud.

The world has come to know Ukraine. Ukraine has become popular. Ukraine
has become wanted – even fashionable – in the world. We have made
confident steps on the road to justice, on the road to a worthy life.

This year, children were born into a new country, where parents and state
jointly care for babies. Today, a youth who joins the Ukrainian army will
return to his home not after 18 months, but after a year. Journalists have
forgotten when censorship is. Ukrainians have begun to breathe the air of

We fulfilled our promise and held an honest competition for the sale of
Kryvorizhstal [steelworks]. The money received from the privatization of
this plant will work for every citizen, and that means for the state.

In these December days, Ukrainian soldiers returned home from Iraq.
They will celebrate the New Year and Christmas in their homes.

Ukrainian families have become more wealthy. In 2005, almost a million
Ukrainians found new jobs. Small and medium business received real
support from the state. The authorities are concerned about dialogue with
business people. Business, in turn, will honestly pay taxes.

We are on the right track. And this is just the beginning.

It is the duty of the authorities to go to all Ukrainians, to ensure their
welfare, decent education and worthy health care, to defend their rights and
freedoms. This is my obligation. The obligation of the president of Ukraine.

I am aware of my personal responsibility for this. I am determined to
continue to carry out my election programme – Ten Steps Towards People.

We will continue state reforms that will bring Ukraine close to European
standards, and will improve all our lives.

We are a contemporary European people with a rich history. Life has set
a lot of difficult tasks for us. A year ago, we together defeated
dictatorship, and chose true freedom. Now we must make the next step:
to choose together Ukraine’s economic independence.

Looking into the future, I call on the Ukrainian community – every Ukrainian
family, every Ukrainian – to unite in the name of Ukraine. I call on all
citizens, people of various nationalities and faiths, supporters of various
political forces, to unite. United, we will bring peace and calm, love and
prosperity to our homes.

United, we will securely defend our freedom and independence, and speed
up our irreversible progress towards democracy. United, we will certainly
become a wealthy nation, which will take its rightful place among European

I believe in my people. I believe in all of you. I believe in our common
victory. I wish every Ukrainian family God’s blessing and health, love and
joy, happy Christmas, generous carols, tasty kutya [traditional Christmas
food], fulfilment of dreams and wishes.

May 2006 be successful for every citizen of our country. May all homes
be warm and comfortable. I, your president, will take care of this.

Happy New Year, my dear people. -30-
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Agence France Presse (AFP), Warsaw, Poland, Sun Jan 1, 2006

WARSAW – Supplies of natural gas to Poland have been hit by cuts
imposed by Russia on the amount of gas entering the pipeline system in
neighbouring Ukraine, Poland’s gas company PCNiG has said.

“Today at 11:00 am (1000 GMT), PGNiG was informed by the National
Gas Directorate of a fall in pressure at the connection point at the
Polish-Ukrainian border at Drozdowicze,” PGNiG said in a statement.

“This indicates a fall in supplies originating in Ukraine and is a
consequence of the decision by Russia’s Gazprom to restrict deliveries
of Russian gas to Ukraine.”

The restrictions on Russian supplies to Ukraine would affect 14 percent
of the overall volume of natural gas used in Poland, the statement added
Sunday. Ninety percent of the natural gas imported into Poland comes
from the east.

Russia, the world’s biggest producer of natural gas, cut back on supplies
entering Ukraine’s pipeline system Sunday amid a bitter dispute over energy

The move followed the expiry of a deadline for Kiev to agree to a four-fold
price increase for gas from Russia, a rise Ukraine says is excessive while
Moscow insists it merely reflects global market prices.

The neighbouring nations have been locked in the bitter dispute for months,
sparking concerns in European Union states, including Poland, that depend
heavily on Russian energy supplies, particularly during the winter, that their
supplies of gas will be affected.

Moscow has insisted the row will not affect supplies to Europe. On Friday,
Polish Economy Minister Piotr Wozniak warned of a supply risk to his
country. “The harmful potential effects of a fall in deliveries (of Russian
gas via Ukraine) risks being felt in Poland from the first days of January,”
Wozniak said. -30-
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Agence France Presse (AFP), Kiev, Ukraine, Sunday, Jan 1, 2006

KIEV (AFP) – Ukrainian President Viktor Yushchenko has said he would
ask his Russian counterpart Vladimir Putin to bring state-controlled
Gazprom back to the negotiating table in order to find a solution to a
deadlocked gas dispute between the two countries.

“I will call on Vladimir Putin… for Gazprom to return to the negotiating
table,” Yushchenko told reporters, adding that the Ukrainian side “never
abandoned the negotiations.”

Ukrainian Prime Minister Yury Yekhanurov, sitting next to Yushchenko,
said the Ukrainian president would try to speak with Putin later Sunday.

Yushchenko also insisted that Moscow’s move to cut off Ukrainian gas
supplies would not affect Russian gas transit to Europe, amid concern that
supplies from Russia to the European Union are being disrupted. “Ukraine
assures the transit of gas to Europe without obstacles,” he said.

Yushchenko also rejected accusations that he was using the gas crisis as a
domestic political instrument to strengthen his authority ahead of key
parliamentary elections in March.

But Yushchenko said Moscow was trying to put pressure on Kiev. “We
consider this cut-off an obvious form of economic pressure on Ukraine,”
he said. For his part, Yekhanurov said Ukraine was ready to pay “market
rice” for Russian gas and indicated that European experts had been invited
to set a fair price. -30-
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By Bill Gasperini, Moscow, Voice Of America (VOA)
Moscow, Russia, Saturday, 31 December 2005

MOSCOW – An outspoken former economic adviser to Russian President
Vladimir Putin resigned this week to protest what he calls “a lack of
political freedom” in Russia. Andrei Illarionov says the final straw was the
bitter dispute between Ukraine and Russia over natural gas prices.

Former Kremlin adviser Andrei Illarionov says Russia’s attempt to more than
quadruple gas prices for Ukraine amounts to a resurgent Russian imperialism.
Mr. Illarionov said Saturday he decided to resign earlier this week, when he
was asked to present the price hike as purely an economic measure.

Russia’s giant state-run energy company, Gazprom, has threatened to cut off
gas supplies to its neighbor, if Ukraine does not agree to pay four times
more for its gas. Ukraine wants any price increase to be gradual, and does
not accept Russia’s argument that the steep price increase is only economic.

The move comes one year after the Kremlin lost a battle of wills in the
so-called Orange Revolution that brought pro-Western Viktor Yushchenko
to power.

President Putin quickly accepted Mr. Illarionov’s resignation soon after the
44-year-old economist offered to leave his post as Kremlin adviser. Mr.
Illarionov was one of the longest serving officials within the Kremlin, but
he says he long had doubts about the direction Russia is heading under Mr.

He says that, as long as one “has an opportunity to fulfill your duties, it
makes sense to stay in your position and do what you think is right.” But,
he says, when those opportunities are gone, “you must leave.”

In the past, he has said Russia is lacking in freedom, and has moved from
being partially free to no longer free. Analysts say Mr. Putin kept Mr.
Illarionov in the Kremlin to demonstrate some criticism of his policies is

“He might be a symbol that some kind of discussion in decision-making still
remains within the Kremlin, but I would reduce Illarionov to a puppet,” said
Boris Makarenko, with the Political Science Center in Moscow.

Many foreign leaders have also expressed concern that Russia is backtracking
on democratic reforms under Mr. Putin’s leadership. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Organization for the Defense of Four Freedoms for Ukraine (ODFFU)
New York, New York, Friday, December 30, 2005
NEW YORK – The Organization for the Defense of Four Freedoms for
Ukraine (ODFFU) issued a statement condemning the tactics of the
Russian state-controlled energy giant Gazprom to quadruple gas prices
it charges Ukraine as having little to do with gas and more to do with
nascent Russian imperialism.

The ODFFU has launched a “Stop the Energy Blackmail” fax and letter

writing campaign. “We’re asking all Ukrainians and our American friends
to send a letter or a fax to the Russian Ambassador in the United States
to stop the energy blackmail against Ukraine,” said Zane Halkowycz,
vice-president of the ODFFU. Sample letters are available on the
organization’s web site at www.fourfreedoms.net.

According to Michael Koziupa, president of the ODFFU, “In less than

three months, Ukraine will be hosting new parliamentary elections.
Creating an artificial energy crisis is the Kremlin’s way of meddling in
those elections.” The March 2006 elections have been called the
unofficial fourth round of Ukraine’s 2004 presidential elections that
brought about the Orange Revolution.

Ukraine recently underwent a constitutional shift transferring some
presidential authority to the prime minister. The party that wins a

majority in the elections will likely be able to put forward their candidate.
“This makes the elections more about who will be prime minister than
what party will dominate Ukraine’s parliament,” said Koziupa.

“We want Ukrainians to know they have the full support of the Ukrainian
Diaspora. We also want the Russian government to know that Ukrainians

stand together wherever they may be,” Koziupa stressed. -30-
The ODFFU was founded in Newark, NJ in 1946 by a group of Ukrainian
Americans displaced by the Second World War. It acted as a voice for
Ukraine’s liberation movement that fought against both Nazi and Soviet
aggression. Today it has over 50 branches throughout the United States.
Contact: Mr. Michael Koziupa, President, Organization for the Defense
of Four Freedoms for Ukraine (ODFFU), www.fourfreedoms.net,
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Power Corrupts and Absolute Power Corrupts Absolutely.
Channel 1, Tbilisi, Georgia , in Georgian 1800 gmt 30 Dec 05
BBC Monitoring, UK, in English, Fri, December 30, 2005

TABILISI – Georgian President Mikheil Saakashvili has said that high oil

prices encouraged Russia’s current “aggressive” behaviour towards Georgia
and Ukraine.

In his end-of-the-year interview with the Georgian Public TV, Saakashvili
said that Russia was increasing gas prices because “they think that their
time has come”. “But I think Russia has enough domestic problems, so they
should deal with their problems and let us resolve our problems,” he noted.

The following is an excerpt from the recorded interview carried by Georgian
Public Television Channel 1 on 30 December; subheadings have been inserted
George Bush’s visit boosted Georgia’s position
[Interviewer] Batono [polite form of addressing a man] Mikheil, let me wish
you a happy New Year and congratulate you on the birth of your son, little
Nikoloz. How do you feel as a father of two sons?
[Saakashvili] Let me also wish you a happy New Year. Of course, the birth of
my child is an important event for me. This is an event that determines a
person’s life. I feel more responsibility and I think I am more serious now.
[Passage omitted: answering the next question, Saakashvili reviews his
government’s achievements in 2004-05]
[Question] What are the most important achievements in foreign policy?
[Saakashvili] There were several very important developments this year, both
inside and outside the country. Of course, dividing domestic and foreign
policy is not quite correct. Georgia is respected because Georgia has proved
that it is possible to build a truly modern, European state on this
territory, in this region, which had been regarded as hopeless by the whole
world. This is a great discovery and surprise to everyone. That’s why we are
Georgia is not only a subject of passive admiration. [US President George]
Bush’s visit alone proves that. We, Georgians, cannot fully appreciate
anything, simply because we don’t have experience. It’s not that we are
ungrateful people, we simply don’t have experience and cannot make
So, Bush visited Georgia, and US presidents rarely visit such small
countries, but even more important was what he said here. His praise for
Georgia was unbelievable, it is very rare, I cannot recall a US president
saying anything like that about any other country. This has brought our
international position to a new level.
Ukraine, Georgia becoming “leaders of a new wave”
In addition, we are active makers of our foreign policy. Georgia and Ukraine
have established the Community of Democratic Choice. This is an absolutely
new geopolitical reality. NATO and EU member states as well as other
countries of the region have joined this community. Georgia and Ukraine,
small Georgia and great Ukraine, are becoming the leaders of a new wave in
the European and Eurasian space. This was demonstrated by the Borjomi
declaration signed in August, the 23 November conference in Tbilisi that was
attended by so many presidents, and the 1-2 December meeting in Kiev. I
think that this has considerably strengthened our international positions.
Of course, the pullout of the Russian troops [from Georgia] is a very
important process, but this is just the beginning of Georgia’s complete
liberation from foreign troops. The liberation of the Tskhinvali region
[South Ossetia] and Abkhazia from foreign troops and foreign influence will
be the most important stage. And, in the next year, our position with
respect to [joining] NATO should become stronger.
Georgia wants to join NATO in 2008, but this is not guaranteed at all. We
have to do a lot of work to achieve this. However, for the first time since
our independence, this is a very realistic goal. We have established a good
basis for this work this year, and we will begin the next stage in the next
US involvement to help Georgia resolve separatist conflicts
[Question] However, as regards integration into Europe, there is a problem
of the country’s territorial integrity. What are the Georgian government’s
plans for 2006 with respect to the Tskhinvali and Abkhazia problems?
[Saakashvili] First of all, the restoration of Georgian state control over
Abkhazia and the restoration of justice in Tskhinvali are the main goals of
the Georgian state. We should achieve these goals by becoming stronger.
Attempting to do it from a weak position would be impossible, wrong and
fatal. We need economic growth, we need to become stronger, we need to join
NATO and make progress in our integration into Europe.
The main message of NATO, delivered by its secretary-general, is that
[separatist] conflicts are not an obstacle to Georgia’s membership [of the
alliance]. In the past, it was thought that we could never join NATO as long
as we had [unresolved] conflicts. But these conflicts should not be blamed
only on Georgia, so Georgia cannot be solely responsible for resolving them.
For the first time since our independence, the United States of America has
got directly involved, at this stage, in the settlement of the Tskhinvali
conflict, at the level of the [US] president and the secretary of state.
After so many months of Russia ignoring our initiatives [changes tack] –
We had to present these initiatives in Strasbourg and other forums because
no-one in Russia was willing to talk to us seriously about it, not to
mention the so-called government in Tskhinvali. This is not a government,
this is a mere branch of Russia that has illegally encroached upon our
We should realize that the Russians have started to react to the American
factor. I would prefer to settle this matter with the Russians, without any
interference, but it was not possible. The wider the circle of our friends,
the more chances we have to settle this problem painlessly and in a timely
We are patient, but we should also realize that we are dealing with
problems every day – the threat of kidnappings, the absolutely sickening
trade in body parts, smuggling, robberies, and so on. In reality, we are
going to deal with this problem in a serious manner.
High oil prices behind Russia’s new “aggressive” foreign policy
[Question] Batono Mikheil, as you have said, the Russian factor is very
important for the settlement of these conflicts. What can Georgia do? Is it
at all possible to have warm relations with Russia? Why cannot the Russian
leadership realize that Georgia’s territorial integrity is in their
interests too?
[Saakashvili] Today, Russia thinks that it can be aggressive in its foreign
policy because oil prices have risen. They are now increasing gas prices,
they think that their time has come. But I think Russia has enough domestic
problems, so they should deal with their problems and let us resolve our
problems. What is now happening with respect to Georgia and Ukraine is a
reaction to the fact that, for the first time, Ukraine and Georgia have a
chance of becoming truly European states.

So, all their [Russia’s] remaining levers, all trump cards have been put to
use. The doubling of gas prices is a serious blow to our economy, I do not
want to diminish it, that would be dishonest. There are also restrictions
imposed on our [agricultural] products exported to Russia, more obstacles
regarding visas, and so on.
I’d like to say that, on the one hand, of course this is a problem, but on
the other hand this gives us a chance to build a truly competitive economy
that can withstand such pressures. Therefore, we should open our eyes wide
and work hard. We should work together. No-one will save us except
ourselves. We will have some moral support, we may get some financial
support from America and the European Union, but this will not be enough to
get back on our feet.
We should take care of ourselves, and we will achieve that. For the first
time, Georgians have seen that it is possible to achieve many things by hard
work. This is just a beginning. Our people should not lose this new feeling
that can transform Georgia into a truly competitive, European state.
[Passage omitted]
Our main strategic goal is to ensure that Georgia is prepared, when the
appropriate conditions arise, to restore its territorial integrity. This
requires patience, caution, and courage at the most important moment. I am
sure that we will achieve this goal. [Passage omitted] -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Staff Write, Council on Foreign Relations website
Baltimore Sun, Baltimore, Maryland, Friday, December 30, 2005

Country after country in the former Soviet sphere has held up Ukraine
as its model for democratic upheaval, down to the campaign tactic of
adopting a dopey color. Why?

A year after the Orange Revolution, polls show that most Ukrainians are
dissatisfied with the direction of their country. The economy has tanked.
Corruption remains endemic. And the reformist Cabinet was sacked in
September for political infighting. Things are so bad that the party of
Viktor F. Yanukovich, the pro-Kremlin stooge who lost last year’s election
runoff, has emerged as Ukraine’s most popular political group.

So what happened? Many things, some of which offer clues for opposition
leaders in nearby states such as Kazakhstan, Azerbaijan and Belarus to
avoid suffering similar fates.
Viktor A. Yushchenko, the hero of the Orange Revolution, stood on stage in
November in Maidan, Kiev’s downtown square, and promised to create millions
of new jobs, to put “the bandits in jail” and to place Ukraine on the fast
track toward European Union accession. He succeeded in none of the above.

“So many people had high expectations but are now disappointed,” says Iryna
Chupryna, a member of the youth movement Pora that backed Mr. Yushchenko
last year. “The government still has the mentality of the old Soviet
regime, with its lying and corruption.”

Mr. Yushchenko has urged patience, reiterating that it takes more than a
year to completely transform a poorly managed country of 48 million people.
The most commonly heard complaint in Ukraine one year after is not about
corruption or the economy – it’s about Mr. Yushchenko’s personality.
Ukrainians say their leader, however well-intentioned, may be too soft for
post-Soviet politics and unfit to take on their country’s legions of
corrupt politicians and oligarchs.

Specifically, Mr. Yushchenko has failed to find those responsible for
poisoning him last year, which left his face badly pockmarked. He also has
made only ham-fisted attempts to bring to justice the killers of Georgi
Gongadze, the muckraking journalist murdered in 2000.
Mr. Yushchenko came to power surrounded by an assortment of politicians
from various parties -the so-called Orange Coalition – many with motives
having nothing to do with reforming Ukraine. Inevitably, their egos would
clash as allegations of corruption surfaced.

“What has disillusioned and disappointed our people have been the
differences within the Orange camp, which were received fairly
traumatically by our citizens,” Mr. Yushchenko recently told Newsweek. In
September, he heeded the words of the 6th century B.C. Chinese military
strategist Sun Tzu, and fired his Cabinet.
Mr. Yushchenko was panned in the press after his 19-year-old son, Andrey,
was seen cruising around Kiev in a tricked-out BMW over the summer. The
president’s overreaction – ridiculing the Ukrainian press for covering the
non-story – only made matters worse.
Mr. Yushchenko has been too forgiving of crimes committed by his
predecessors’ cronies. For instance, he tried to ignore past privatization
deals dished out at basement prices. Worse, he backed a new bill that would
grant immunity to politicians for past crimes, even Ukraine’s notoriously
clannish local deputies.

His softness on corruption has only emboldened the now-opposition party of
Yulia Tymoshenko, the flamboyant oil-tycoon-turned-populist-turned-prime
minister-turned-public-icon. She hopes to reclaim the post of prime
minister in March when voters elect a parliament.
Immediately after assuming power in January, Mr. Yushchenko, riding a wave
of popular support, decided to raise government wages and pensions. The
move, however well-intentioned, stung Ukraine’s economy by doubling its
debt. Inflation soon kicked in, as the gross domestic product plummeted
from 12 percent growth in 2004 to below 4 percent. Not surprisingly,
Ukrainians’ euphoria quickly soured.

Mr. Yushchenko has since found his footing. He helped orchestrate the
recent $4.8 billion blockbuster sale of the Kryvorizhstal mill to Mittal
Steel. He has also cut back on the country’s notorious red tape that
hindered small businesses. He has stood up to Russia’s attempts to jack up
the price of Ukraine’s natural gas. This month, Ukraine was finally awarded
free-market status by Europe, paving the way for Kiev’s bid to join the
World Trade Organization and, eventually, the EU.

As voters in former Soviet republics go to the polls in the years ahead,
the same question invariably arises: Could a color revolution be in their

While it’s welcoming that Ukraine’s Orange Revolution has instilled hope
in opposition candidates across the region, it would be wise for aspiring
revolutionaries not to blindly follow Mr. Yushchenko’s path to Western-
style democracy. That requires having a clear plan in place for the
day after the revolution, not just a color to rally around for the day of
the revolution. -30-
Lionel Beehner is a staff writer with the Council on Foreign Relations’
Web site, Washington, D.C. His e-mail is lbeehner@cfr.org.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Send in names and e-mail addresses for the AUR distribution list.
Sounds like a combustible mixture of nationalism, fascism, and gangsterism.

EDITORIAL: The Boston Globe, Boston, MA, Sun, Jan 1, 2006

THE RESIGNATION of Russian President Vladimir Putin’s top economic
adviser, Andrei Illarionov, was an uncommon gesture of integrity. Its
importance to the outside world lay in the ominous verdict on Putin’s
transformation of Russia that Illarionov pronounced at his departure. This
insider’s alert ought to be heeded as an authoritative warning about a
disfiguring concentration of political and economic power in the hands of
Putin and his inner circle.

”This year Russia has become a different country,” Illarionov said on Dec.
21 during his annual news conference. ”It is no longer a democratic
country. It is no longer a free country.”

If these generalized criticisms were not enough to provoke a backstage move
to force his dismissal, Illarionov — the economist who had drawn up Putin’s
first economic program in 1999 — went on to denounce Kremlin actions about
which Putin’s ruling group is known to be extremely defensive.

He described as ”swindles of the year” recent notorious takeovers of
private energy companies by state-owned outfits. He also crossed a red line
by praising the Ukrainian government of President Viktor Yushchenko for
annulling the fraudulent sale of a state-owned steel plant to the son-in-law
of his corrupt predecessor, Leonid Kuchma, for only $800 million. The plant
was then sold to a German firm for $4.82 billion.

Illarionov had to know that spotlighting the Putin clique’s particular shady
deals, and lauding Yushchenko’s contrasting honesty, were intolerable
transgressions against a Kremlin code of ”omerta.” Such knowledge renders
his action all the more admirable. As too few office-holders in Western
democracies are willing to do, Illarionov was ready to cede his high post
for the sake of principle.

When he formally announced his resignation Tuesday, Illarionov used the
occasion to warn that the Kremlin insiders’ drive to take possession of
Russia’s oil and natural gas assets has made possible ”the selective use of
energy as a weapon outside Russia.”

He was alluding to punitive price increases for natural gas that Russia had
been selling to Ukraine, Moldova, and Georgia — former Soviet republics
that are now independent countries aligning themselves with the democracies
of Europe and America. Putin has also been siting natural gas pipelines to
bypass Ukraine and Poland and to bolster a strategic partnership with China.

The Western democracies need to pay careful attention to Illarionov’s
warning about the Kremlin’s ”new corporatist model for political, economic,
social, public, and international life.”

He knows what he is talking about, and it sounds like a combustible mixture
of nationalism, fascism, and gangsterism. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
As Russia takes over the G-8, the resignation of a top adviser
raises fresh concerns about Kremlin control of the economy

By Peter Gumbel, TIME Magazine, NY, New York, Sat, Dec. 31, 2005

For much of the past decade, Andrei Illarionov has played a unique role in
Russia: that of a liberal economist who helped shape policy while at the
same time openly criticizing the government. He called for a devaluation of
the ruble before the August 1998 financial crisis; he is credited as one of
the architects of Russia’s flat income tax; and from the outset of the first
term of President Vladimir Putin, who appointed him economic adviser in
2000, he has been outspoken in his efforts to curb state interference in the
economy, especially in the all-important energy sector. “He’s one of the
smartest people in Russia,” says William Browder, founder of a Moscow-
based investment fund.

But last week Illarionov, 44, abruptly resigned. “When I took the job, we
spoke about pursuing a liberal economic policy,” he explained. “Now, the
state has evolved in quite the opposite direction.” In an interview with
Time, he implied that he had been under pressure to stop speaking out. “My
job assumed the ability to hold free public discussion of ongoing
processes,” he said. “My willing suspension of this ability would have been
a gross dereliction of official and professional duties on my part. I chose
to resign instead.”

Illarionov’s resignation coincides with Russia’s assumption of the G-8 group
leadership this year. Putin is expected to use the forum to stress how
Russia today shares key Western values and ideals. Illarionov’s departure is
thus awkwardly timed for Putin, but it is also a sign that, under his
presidency, Russia is a very different place from the free-market economy
and pluralistic democracy that many Western and Russian reformers once
hoped it would become. During Putin’s tenure, the Kremlin has taken steps to
regain control of the nation’s oil and gas resources – including breaking up
and renationalizing most of Yukos, once Russia’s biggest and most successful
private oil producer.

It has curtailed political freedoms, among them the ability of philanthropic
and nongovernmental organizations to operate in Russia. And in the last days
of December, Russian officials were playing hardball with Ukraine over
natural gas prices, even as they were finalizing a deal with Belarus to take
control of the pipeline that crosses its territory into Western Europe. The
tough negotiations with Ukraine are widely seen as an attempt to weaken the
party of Ukrainian President Viktor Yushchenko in advance of March’s
parliamentary elections.

In an echo of Soviet-era threats, on Russian television last week industry
officials enthusiastically demonstrated how they would cut off all gas
supplies to Ukraine if it refused to agree to the new price – $230 per 1,000
cu m, more than four times the $50 it currently pays. “This [price] war was
the final straw in my decision to resign,” Illarionov told Time on Saturday.
“I was invited to take part in it to explain why the price hike, and
everything else in our bilateral relations, are liberal economic policies.
But the factors that led to this decision have nothing in common with
liberal economic policies.”

The increasingly authoritarian style of Putin’s leadership poses a dilemma
for the West. European governments are anxious to purchase Russian natural
gas and oil (roughly half of the European Union’s gas supplies currently
come from Russia), and the U.S. and Japan want to expand business there. So
far, political unease hasn’t affected growing commercial ties, although that
situation could change if Putin’s agenda comes into more direct conflict
with the West’s.

If the prospect of Russia using its energy policy to pursue geopolitical
goals scares the West, nobody in authority is saying so very loudly. In
Washington, the State Department urged both Moscow and Kiev to reach a
compromise in the gas-price talks. Spokesman Adam Ereli allowed only that
the dispute “is a question of energy supply that we and the Europeans are
all following closely.”

Indeed, Putin seems eager to secure Western political influence at high
levels: last month, he persuaded former German Chancellor Gerhard Schröder
to become chairman of a company building a new gas pipeline from Russia to
Western Europe that will bypass Ukraine by going under the Baltic Sea. Putin
also offered a top job at a Russian state-owned oil company to former U.S.
Commerce Secretary Donald Evans; Evans declined the position.

Putin insists that he is merely pursuing his nation’s best interests. And he
can claim some success: growth is a robust 6%; foreign debt has been slashed
to one-tenth of what it was (as a percentage of the total Russian economy)
six years ago; and, like Norway, the nation has been stashing away a part of
its oil revenues in a “stabilization fund” that can be tapped in the future
if oil prices drop sharply, causing a shortfall in the state budget.

Putin also argues that, as the world’s top natural-gas exporter and a
leading oil producer, Russia needs to keep tight control on energy to ensure
security of supply. “Russia must aspire to claim world leadership in the
realm of energy,” he told his Security Council late last month. Russia even
justifies the Ukrainian gas price increases by saying that it is simply
demanding a long-overdue market rate.

Moreover, Putin is taking steps to ensure that Russia remains in favor with
international investors. On Dec. 23, he signed a law that allows foreigners
to acquire up to 49% of state-controlled gas and oil company Gazprom. And
Rosneft, the Russian firm that acquired the key assets of Yukos, is
currently planning a public offering of up to 30% of its stock in 2006, a
move that could raise as much as $20 billion. Rosneft is expected to seek a
listing on the London Stock Exchange in the process.

But critics, including Illarionov, say that Russia’s economy is actually
underperforming. Given the windfall profits it has been receiving from high
oil prices, Russia’s growth rate should be more like 15% than 6%, says
Illarionov. Furthermore, Russia runs a clear risk by pegging so much of its
economy to the energy sector.

Illarionov describes Russia as evolving into “a new corporatist model” – one
in which the economy is dominated by monopolistic quasi-state controlled
corporations. In addition to Russia’s renationalization of the oil industry,
in November the country’s weapons-trade monopoly, Rosoboronexport,
announced it was taking control of Russia’s largest auto manufacturer, the
formerly privatized AvtoVAZ.

The combination of such reassertion of state control and the opening up of a
portion of state firms to private investors enables Putin to argue that he
is introducing market reforms into the economy even as he tightens his grip
elsewhere. The media has long been muzzled, the judiciary controlled;
regional governors are now appointed by Putin rather than elected; and the
activities of political parties have been harshly curtailed.

“The trends that have been long accumulating,” Illarionov says, “found their
completion and finally shaped up in 2005.” Lilia Shevtsova, senior analyst
at the Moscow Carnegie Center in Moscow, laments that Putin has “abandoned
even halfhearted attempts at deregulating the economy, pursuing
administrative reform or curbing corruption.” Instead, she says, “Russia is
completing the creation of a post-Soviet state, which continues the Russian
tradition of authority raised high above society.”

All of this clearly disturbs Illarionov. “I wish Russia would be a G-8
member as a developed, free and democratic country. I worked to that end,”
he told Time. Putin will be taking a different message to the G-8. The
question is, Who will the other seven believe? (With reporting by Yuri
Zarakhovich / Moscow) -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Ukraine as a Keystone for Transforming Russia into a “Eurasian Nigeria”

ANALYSIS & COMMENTARY: Institute for National Strategy of Ukraine
Authorship group included: Stanislav Byelkovskyi, Oleksandra
Byelkovska, Oleksiy Mushak, and Olesia Yakhno.
Ukrains’ka pravda, Kyiv, Ukraine, Monday, 26 December 2005
Published in English by The Ukraine List (UKL) #374, Article #7
Translated by Nykolai Bilaniuk for UKL
Ottawa, Ontario, Canada, Friday, December 30, 2005

The term “Gas Crisis” needs to be qualified. Today there is no basis for
speaking of a threat of systemic economic crisis in Ukraine, or even of the
precursors of such a crisis. Even if the price of Russian gas for Ukraine
were to be set at $230 (which, as we will attempt to show below, is almost
believable), this would not constitute a fundamental threat of ruin to the
Ukrainian economy.
To be sure, this will require the government to consequently exert
substantial effort to prevent a substantive rise in gas prices passed on to
the population and the social sphere, and not allow too harsh a rise for
industry, most of all in chemicals and metallurgy. However, if these
measures will be carried out competently and honestly, then Ukraine will
survive a radical rise in Russia’s gas prices peacefully and with dignity.
The notion of a “crisis” arises more readily in the domain of politics and
propaganda. It reflects not so much an assessment of potential problems to
the national economy of Ukraine so much as:
– the crisis of the philosophy of post-Soviet Russian-Ukrainian relations
such as they arose in the years 1992-2004;
– the crisis of mutual acceptance that is affecting the elites of both
countries after the Orange Revolution
– the crisis of Russia’s re-thinking its role and place in the modern world,
which can no longer be called postsoviet. It is post-postsoviet.
One could say that the crisis is substantially driven by the fact that the
existence of the “postsoviet space” as a geopolitical and geoeconomic
reality has fully run its course.
Thus, today Ukraine (meaning the government, but also the population) faces
the question: What do we do? How does one fend off the Kremlin’s “gas
attack” with most palatable possible economic and political consequences for
The source and initiator of the “gas attack” and consequent gas crisis is,
it’s safe to say, Russia. And thus it is important to assess what are
Russia’s true aims in the present energy war with Ukraine.

There are two such goals: strategic and intermediate. Russia’s strategic goal
is gaining control of the gas transport system of Ukraine. This goal is
dictated by the geoeconomic strategy of Russia, which took on its full shape
this year.
The key features of this strategy, with a planning horizon of 2012-2013, are
as follows:
– Russia no longer feels a need to pursue a national imperial project;
– Russia’s fundamental mission is to be a stable and indispensable supplier
of energy products, in the first instance natural gas and crude oil, to
Western Europe, and to a lesser extent, to the USA, making it a “Eurasian
At the October 3, 2005 summit between Russia and the EU, Vladimir Putin
declared that “We decided to allow European partners to take part in gas
developments on the territory of the Russian Federation. They have come
some ways to meet us too – they have allowed us into their distribution
networks, including those for electricity on the territory of Europe.
Together we aim to carry out large infrastructure projects, among them the
construction of the North European Gas Pipeline.” Speaking about the
participation of European countries in gas project development, the
president of Russia emphasized “Europeans will control everything from
the extraction to the end user.”
– Under the conditions of a steep depopulation and the irreversible decline
of a whole array of government institutions (the army, and partly also the
legal system) Russia is no longer able to fully independently secure its
territorial integrity and the inviolability of its external borders.
Therefore, to ensure these tasks are maintained, outside powers will be
called upon, namely, the key consumers of the energy resources of Russian
origin (the EU, USA, and to some extent China). These powers should be
made to understand that preserving the Russian Federation within its present
borders is a better guarantee of stability in the deliveries of raw
– Russia does not require any features of an economic or socio-political
system, which aren’t key it its mission to be the “Eurasian Nigeria.”
– The realization of this mission requires successful competition against
alternative suppliers of energy, and victory in this battle requires, in
turn, the maximal possible control over the infrastructure of energy transit
in Eastern Europe.
The year 2005 became a watershed: After this year, the nation-state with
semicolonial features that is being built up by Putin, will no longer have
any particular need for a geopolitical role, not even on a regional scale,
or for military-strategic ambitions.
For this reason, the Kremlin is no longer interested in tethering itself to
other postsoviet countries, and can deal with them in a way that provokes
more political tensions. Semi-governmental companies (Gazprom and so on)
that are now in fact under the control of Vladimir Putin’s business team,
require gas and oil pipelines.
Thus, Belarus received guarantees of a very favourable gas price ($46.8 for
1000 cu metres) for Russian gas after agreeing to hand over to a Gazprom
subsidiary 50% of the shares of the government owned gas transport
company “BelTransGaz.”
On December 20 2005, Gazprom Vice President Oleksandr Medvedev declared
that “Belarus is the only country, on the territory of which the main trunk
export gas pipeline belongs to Gazprom with full rights of ownership, and
the land beneath it is under long-term lease to Gazprom.”
[3] Thirdly, renewed substantive talks with BelTransGaz are underway,
successful completion of which will give Gazprom control over the entire gas
transport system in Belarus. This is an important factor in strengthening
Gazprom’s market position in Europe, and raising its competitiveness. This
is why Gazprom’s policy towards Belarus is completely market driven. It is
rooted in economics and is desirable for all our shareholders, both the
state and private investors.
At the same time, those countries which until recently (due to inertia) were
viewed by Moscow as geopolitical partners, can no longer expect preferential
treatment from Russia in the energy sector. Thus, the price Armenia is to
pay for gas will be increased from $54 to $110, which the Armenian economy
can barely handle.
This will happen regardless of the fact that Armenia was and shall remain
the only more or less reliable Russian ally in Transcaucasia, and despite
the fact that there is a Russian military base on Armenian territory, for
which, incidentally, the Russian Federation doesn’t pay anything. Even joint
expenses are covered by the Armenian side. It’s simply that to Putin’s team,
Armenia isn’t seen as an energy transit territory, and therefore the Kremlin
doesn’t see any reason for making concessions to this country.
In short, during 2005 Russia decisively turned away from its former
geopolitical ambition to be the political and cultural leader of the
Eurasian heartland, and armed herself to pursue a new geoeconomic ambition,
to be the Eurasian Nigeria. Any and all relevant actions of the Russian
leadership is from now on subordinated to the logic of this project.
Moscow’s “gas attack” bears witness to the start of putting the “Nigerian
project” into practice, on all fronts and in full scale. In the process, the
Kremlin is letting it be known that Ukraine is no longer needed as a
strategic political partner.
The intermediate-term objective of the “gas attack” is regime change in
However, the interest in regime change has neither a political nor a
geopolitical character. Vladimir Putin is simply convinced that he cannot
succeed in reaching an understanding about the joint ownership of the gas
transport system in Ukraine with Victor Yushchenko, the melancholy
connoisseur of Trypillia culture, but that he can reach an understanding
with the non-ideological pragmatists Victor Yanukovych and Yulia
In this sense, the abrupt closure by the Procurator-General of the Russian
Federation of the case against the ex-prime minister of Ukraine, right in
the middle of the conflict (26 December 2005), cannot be a coincidence. As
early as in September during the lunch at Vladimir Putin’s, an agreement was
reached with additional terms that are being kept under wraps.
In fact the Kremlin doesn’t care what will be the fundamental ideological
vector of the next Ukrainian government: Will they legalize the Russian
language in Ukraine, will they give an official status to the veterans of
the OUN-UPA, and so on. Today’s Kremlin is even prepared to give up the
Russian Black Sea Fleet, because deep down in its soul it sees no sense in
the fleet’s existence.
For analogous reasons, this year Russia pulled out its military base from
Georgia, even though it had all the necessary political and economic levers
needed to keep Russian military forces in this country. Putin is willing to
put up with any configuration of the next Ukrainian government, so long as
he can keep the gas export pipeline for himself.
One cannot ignore the deeper assumptions underlying Russia’s geoeconomic
strategy, which finally took shape in 2005. This strategy reflects the
system of Vladimir Putin’s personal life strategies, and those of his inner
When Vladimir Putin leaves the post of President of the Russian Federation
in 2008, he will be quite young (55), athletic, and still full of manly
charm. He will also be one of Europe’s wealthiest people: $15 billion is a
fairly conservative estimate of his personal net worth on January 1, 2008.
The principal business partners of the second democratically elected Russian
president will also be billionaires.
Before these people there now stand three questions that are important to
their lives, and make sense:
– how to legalize the huge sums that they control;
– how to create a system which will allow them to partially invest their own
funds, and to benefit from the profits of their investments without any
– how to avoid undesirable and unfriendly attention from the legal organs of
the USA and EU on account of the huge sums earned in 1997-2005 by
people whose official pay never exceeded $50 thousand per annum?
In Putin’s inner circle the reigning conviction is that the only true
guarantee of personal and economic security for this group of people lies in
creating an enduring self-interest for this result on the side of the
leading countries of the EU and also the USA, by making them co-owners
and top managers of the energy transport systems from Russia to the West.
One can speak with a high degree of confidence about a future in which, once
Vladimir Putin leaves the presidential post, he will become the CEO of the
North European Gas Pipeline Company (NEGPC), the chairman of which is
already the ex-kantzler of the Federal Republic of Germany, Gerhard
As is widely known, the main goal of NEGPC (which is an offshore structure,
registered in the canton of Zug in Switzerland), is to build the North
European gas pipeline which will run along the bottom of the Baltic Sea and
connect Russia directly to customers for its energy resources in Western
Europe – in Germany, the Netherlands, and Great Britain. This gas pipeline
project, the cost of which is pegged at $4 billion, is the most important
element in the gas transport infrastructure, which will guarantee the
mission of the Russian Federation as the “Eurasian Nigeria.”
What emerges from the logic and basic motivations of the current Russian
regime (meaning the inner team), is that in negotiating a compromise with
Kyiv concerning the control over the gas transit system, ownership of the
main trunk gas pipelines in Ukraine will lie not with the Russian
government, nor even with a private sector company that has a majority
government shareholding.
At first the owner will be a commercial consortium, in which the interests
of the three participant countries – Ukraine, Russia, and Germany as the
main guarantor and energy consumer – will be represented by partially
government-owned and more vaguely government-related companies.
However, after 2 or 3 years have passed, it will inevitably emerge that a
controlling interest of the shares in the consortium’s leading company are
in private hands, and the shape of the palms will be those of Putin,
Schroeder, and so on.
The financial plan of Gazprom for 2006 is based on the assumption that the
price of the gas paid to Ukraine as barter for the transit of Russian gas to
Western Europe is $145 for 1 thousand cubic metres.
This means that in reality, Russia will soften its demands on Ukraine in the
very near future, and will agree to a final price somewhere in the $140-155
corridor per 1000 cu metres, and will also agree to a transit fee hike by
Ukraine to $1.75 per 1000 cu metres per 100 kilometres. This would
correspond to the symmetric transit fee increase for Ukrainian gas,
purchased in Turkmenistan, and crossing Russian territory.
Naturally, Russia’s retreat from the $230 they are now demanding for 1000
cu metres won’t happen just like that, but rather:
a) it will be allegedly in response to a request from “Ukrainian friends” of
Russia, which might include Victor Yanukovych as well as Yulia Tymoshenko.
In this way the Kremlin hopes to stimulate the electoral successes of those
forces, with which they have secretly cut a deal already;
b) upon a demonstration by Ukraine of at least an intent to negotiate over
the medium term the questions of forming an international consortium to
operate the gas transit system in Ukraine.
Concerning these points, b) is not that important to Russia to achieve over
the next 3 months. The Kremlin believes that it cannot do a deal with
Yushchenko, so the main result being awaited now towards the realization of
the Kremlin’s desired scenario of “gas invasion with a tactical retreat” is
building a Yushchenko-free or outright anti-Yushchenko majority in the next
Ukrainian parliament.
The fact that many and varied Ukrainian politicians are talking about the
gas problem, and that “alternative plans” are being floated to solve the
crisis, and so on, is absolutely not accidental: This is being dictated by
these politicians’ desire to take credit for the future reduction of the gas
price from $230 to $140-155 and the “salvation” of the Ukrainian economy.
In view of its thinking described above, official Moscow is treating more
than just warmly the PR bluff by its potential loyalists.
The political maneuver, which the Kremlin and its potential fellow
travellers in Ukraine are embarking upon, cannot be described as being free
of subtleties. Overly enthusiastic critics of Russia’s “imperial” ambitions
are not taking into consideration that in exchange for the gas transit
consortium, Putin will even be willing to sign an agreement to withdraw the
Black Sea fleet over a medium term. A replacement base in Novorossiysk
costing $10 billion would probably not get built, so the fleet itself would
be scrapped by the Kremlin.
In the first ten days of January, the Russian Gazprom may try a few tactical
actions to frighten Ukraine, notably, reduce the supply of gas through
Ukraine by approximately 20%. However these moves will not be long term,
and the most important thing for Ukraine in such a situation will be to not
panic and await a peaceful resolution of the threatening PR-action.
Ukraine’s responses to managing the gas crisis should be built on an
awareness and understanding of the true objectives and direction in the
Kremlin’s behaviour.
Rumours of a collapse in the Ukrainian economy in the event of a material
increase in the price of Russian gas are greatly exaggerated.
Consider the most believable scenario as a starting point: $145 for 1000 cu
metres of Russian gas, $1.75 transit tariff per 100 km for 1000 cu metres.
In this case, Ukraine could refrain from raising the internal price for gas
deliveries to the population and social institutions ($38), and keep within
a reasonable corridor (up to $100 for 1000 cu metres) the price charged to
the country’s industry.
In order to carry out this task, Ukraine would need to budget an additional
$700 million dollars in 2005.
These funds would not be difficult to mobilize even without any correction
to the agreements concerning the rent Russia pays for the Black Sea Fleet,
nor to the conditions attached to the use of the Strait of Kerch [the
waterway leading into the Sea of Azov – ed]. From an economic, political,
and social standpoint, the optimal source for these funds would be proceeds
from legitimizing past privatizations, namely, surcharges to the owners of
businesses, which were privatized at symbolic prices in the period
Furthermore, the legitimization of privatizations can start precisely from
those enterprises, that have the most sensitive need for mitigating the
effects of gas price increases. As a result, support for these businesses
will be financed de facto by the lucky owners themselves.
Of course, this approach does not consider the investments in the
modernization of plants directed at the introduction of contemporary
technologies for energy conservation. Various experts have estimated that
such modernization requires an investment in the range of $2 to $9 billion
dollars within the next 6 years.We believe that the resources required for
this could be provided through the same legitimization of privatization
mechanism, which includes the possibility of the cost of modernization being
borne by the owners whose plants are being modernized.
On the whole, the USA and Europe welcome Russia’s geoeconomic plan to
become a “Eurasian Nigeria,” because it’s very convenient for them to have
Russia renounce imperial ambitions, and oversee the death of the eurasian
empire as a potential geopolitical competitor. This is why the West will
assist Vladimir Putin in carrying out his bold colonial project.
Despite this, the USA and EU are not interested in having a monopolist
supplier of energy resources and seek to diversify their energy suppliers as
well as the transit routes. For this reason, they are objectively against
the marginalization of Ukraine in its role as transit country, and oppose
the transfer of the country’s gas transport infrastructure to Russian
In view of the above, the position of the leading countries of the G7 with
respect to the Russian-Ukrainian conflict is approximately as follows:
a) The price of gas in contracts between Russia and Ukraine is a
commercial question between the two countries, and it is inappropriate
for third countries to become directly involved in this;
b) Russia must not cut the supply of gas transiting Ukraine, and doesn’t
have the right to demand the surrender of the gas transit system of Ukraine
as a necessary precondition for further supplies to the country. Prices
should be reasonable, and should be arrived at as a mutually beneficial
compromise between Russia and Ukraine.
It is also worth considering that, notwithstanding the periodic anti-Western
rhetoric of the Russian president (which he tends to spout on travel to the
Russian heartland), Vladimir Putin is completely economically and
psychologically dependent on the USA and EU.
Without influential Western partners, the “Eurasian Nigeria” project cannot
be put into practice, and cannot be achieved without long-term guarantees of
personal and economic security for Putin’s team. For this reason, the
Kremlin cannot strategically resist pressure from Washington and Brussels.
This means that Ukraine can count on a certain amount of support and
mediation services on the part of the EU and USA in negotiations with Russia
over a resolution to the gas problem.
a) First of all, one must envision what outcome to the negotiations is
palatable for Ukraine. In our opinion, it would look like this: a gradual
transition during 2006 to a price for Russian gas consumed in Ukraine of
$145 for 1000 cu metres (in January, $65 for 1000 cu metres), and turning
down any pretensions of the part of Russia for control of the gas transport
system in Ukraine. Such conditions have to be adopted internally as a
sensible objective.
b) It is essential to expose the Russian scenario before all the people, and
remove from the playing field all unnecessary middlemen, who dream of
turning a reduction in the price of Russian gas from $230 to $145 to their
political gain in the elections of 2006.
c) It is essential to make full use of the USA and EU as resources for
lobbying and mediation.
d) It is essential to launch as soon as possible legal actions in the
Stockholm arbitration, because Gazprom is really not prepared for a legal
war. Their refusal to take part could be exploited by Naftogaz Ukraine as an
important lever against Russia, in exchange for which one can and must
demand gestures of goodwill.
e) It is essential to make use of experienced commercial middlemen, who have
been successful in multiple negotiations in having trade issues with Russia
decided in favour of Ukraine. For example, the company RosUkrEnergo.
There is no doubt that the sidelining of this company from the gas trade is
just a matter of time. However, there is no great need to hurry. It’s
important to remember, that all of Gazprom’s strategic agreements are to
some extent built on corruption and on the personal interests of top
f) One may propose to Russia, in keeping with the changing fundamental logic
of Russian-Ukrainian relations, that the steep price increase for Russian
gas supplies to Ukraine (to $145 this year and maybe $150 in the next years)
be tied to some other political agreements, which will emphasize the
cessation of the existence of the Commonwealth of Independent States as an
organizing concept for the postsoviet space, for example:
– an agreement for the timely withdrawal (by 1 January 2012) of the Russian
Federation’s Black Sea Fleet from Sevastopol;
– a protocol, according to which Russia as a matter of principle agrees not
to object to Ukraine’s entry into NATO in the near future (2008-2010).
In the event that the price of Russian gas in 2006 will be $145, and from
January 1 2007 $150 for 1000 cu metres, Gazprom will earn an additional
$10 billion over the 6 years (2006-2011). This is enough money to build a
military and naval base for the Russian Black Sea Fleet in Rovorossiysk.
Ukraine could even propose that the entire difference between the old and
new prices would be set aside by Naftogaz Ukraine into a special fund
“Novorossiysk 2012,” which will be used to finance the construction of the
new base for the Russian BSF.
Actually, in this case Ukraine would be acting like an investor-sponsor of
the re-basing of the BSF. Of course, we believe that neither the fleet or
the base are actually needed by Putin’s team, but the Kremlin will not be
able to admin this today under any circumstances.
Naturally, the above data is predicated on the assumption that Ukraine’s
demand of Russian gas will not decline in the coming years, but such a
decline would be the natural result of the introduction in Ukraine of energy
conserving technologies in large enterprises, who are the largest consumers
of gas.
In the course of negotiations, these demands can be traded away in exchange
for Russia agreeing to a gradual transition during 2006 to the final price
of $145, and for Russia’s dropping any pretenses towards ownership of the
Ukrainian gas transport system.
g) Ukraine could promote an alternative concept of a consortium for the
management of the gas transit pipeline in the country, via a “South European
Gas Transport Corporation” (SEGTC). The basic features of this concept
would be more or less as follows:
– The founders of SEGTC would be: Ukraine via the company Naftogaz
Ukraine, the principal actual and potential suppliers of gas to Ukraine
(Russia, Turkmenistan, Uzbekistan, and Kazakhstan), and the largest

consumers (USA and the EU countries);
– SEGTC would be the operator, but not the owner, of the gas transport
system of Ukraine under the conditions that this Corporation would come to
own newly built gas transit capacity, but not only on the territory of
Such a concept would not suit Gazprom, as a result of which Russia won’t
even be able to play an effective role in such negotiations, let alone in
its realization.
It can be said with confidence that with the mediation of the EU and USA,
agreement on all key aspects of the supply of Russian gas to Ukraine (and
through the territory of Ukraine) will be achieved no later than January 31,
The postsoviet space has ceased to exist as a geopolitical reality. In place
of the USSR and CIS, from now on there exists a multi-polar world, in which
Ukraine has become one of the centres of crystalization or gathering points,
regardless of whether its elites wanted this or not.

Ukrainian sovereignty has entered a new phase of its development. Its youth
is behind it, and a maturity begins. The new phase demands that the elites
deliver a higher quality of responsibility, long-range strategic vision, and
ability to formulate a long-range doctrine for the development of the
country. The old ideology, which foresaw the crystalization of Ukrainian
statehood by means of “pushing away” from the Russian empire, is consigned
to recede irreversibly into the past along with Russia’s imperial project.

The elites will have to take upon themselves full responsibility during the
next 5-7 years for carrying out several system-creating political, economic,
and social programmes, from legitimizing privatizations, to industrial
modernization with the aim of achieving a high quality reduction in energy
consumption in manufacturing. Putting these programs into practice demands
of both the political elites and of large capital that they put the general
national interest ahead of private interests. -30-
LINK: http://www2.pravda.com.ua/news_print/2005/12/26/37054.htm
UKL 374, 30 December 2005, Compiled by Dominique Arel, Chair of
Ukrainian Studies, University of Ottawa, 559 King Edward Ave., Ottawa
ON K1N 6N5, CANADA; 613 562 5800 ext. 3692, fax 613 562 5351
For a free subscription to UKL, write to darel@uottawa.ca
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