THE ACTION UKRAINE REPORT – AUR – Number 634

“THE ACTION UKRAINE REPORT – AUR”
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”

UKRAINE AND RUSSIA HAVE STRUCK A DEAL

“THE ACTION UKRAINE REPORT – AUR” – Number 634
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., WEDNESDAY, JANUARY 4, 2006


INDEX OF ARTICLES


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

1. RUSSIAN, UKRAINIAN GAS CHIEFS MAKE JOINT STATEMENT
“We reached a final agreement, Gasprom is fully satisfied.”
RTR Russia TV, Moscow, in Russian 0800 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

2. RUSSIA, UKRAINE SETTLE GAS DISPUTE, TO RAISE PRICES
Bloomberg, London, United Kingdom, Wednesday, January 4, 2006

3. GAZPROM: RUSSIA, UKRAINE REACH GAS DEAL FOR 2006
The deal appears to be a complex face-saving agreement that
still allows Gazprom to keep the $230 price it has insisted
upon, while allowing Ukraine to pay less than half that amount.
By Greg Walters, Dow Jones Newswires
Moscow, Russia, Wednesday, January 4, 2006

4. RUSSIAN, UKRAINIAN GAS COMPANIES REACH AGREEMENT
Dispute has ignited harsh statements on both sides that underline
Ukraine’s resentment of its historical domination by Russia.
The Associated Press, Moscow, Russia, Wednesday, January 4, 2006

5. RESUMPTION OF GAS SUPPLY TO EUROPE RUSSIA’S DEFEAT
Ekho Moskvy radio, Moscow, in Russian 0500 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

6. UKRAINE’S PIPELINES: A VITAL FORCE IN INDEPENDENCE
COMMENTARY: Dale A Bertelsen in Kharkiv, Ukraine
The Action Ukraine Report (AUR), Number 634, Article 6
Washington, D.C., Wednesday, January 4, 2006

7. YUSHCHENKO READY TO PROTECT UKRAINE’S SOVEREIGNTY
True battle for Ukraine’s independence – harder than the fight at the Maidan
Ukrayinska Pravda On-line, Kyiv, Ukraine, Wed, January 4, 2006

8.OIL SLIPS: RUSSIA AGREES ON UKRAINE NATURAL GAS SALES
By Luke Pachymuthu, Reuters, Singapore, Wed, January 4, 2006

9. RUSSIAN GAS: PUTIN’S MOMENTOUS MOVE
Attempt to destabilise the pro-western government that came to power
after Moscow’s candidate was ousted in Ukraine’s orange revolution
EDITORIAL: The Guardian, London, United Kingdom, Wed, Jan 04, 2006

10. OIL, GAS AND IMPERIALISM: THE RUSSIA-UKRAINE CRISIS
IS A REMINDER THAT POLITICS, NOT THE MARKET,
IS DRIVING GLOBAL ENERGY PRICES
COMMENTARY: by Daniel Litvin, The Guardian
London, United Kingdom, Wednesday, Jan 04, 2006

11. “INFORMATION HYPNOSIS IN THE GAS WAR. WHY DOES
EUROPE FAIL TO HEAR UKRAINE’S VOICE?”
Ukraine victim of Kremlin-inspired smears in western media &
losing the information war in the gas dispute with Russia
ANALYSIS & COMMENTARY: By Maryna Pyrozhuk
Ukrayinska Pravda web site, Kiev, in Ukrainian 3 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

12. LEX: EUROPEAN GAS
Financial Times, London, UK, Wed, January 4 2006

13. DEMOCRACIES IN DANGER: BACKING DOWN
Putin has behaved for years like a cross between a czar and a KGB thug.
EDITORIAL: USA TODAY, Washington, D.C., Tue, Jan 3, 2006

14. TURNING OFF THE PIPES THREATENS TO LEAVE
PUTIN OUT IN THE COLD
ANALYSIS: Michael Binyon, The Times, London, UK, Tue, Jan 03, 2006

15. UKRAINIANS DRINK CHAMPAGNE AS GAS DISPUTE BUBBLES
Albert Dyachenko, a pensioner and a former military officer said,
“It amounts to a war against the Ukrainian people.”
By Olena Horodetska, Reuters, Kiev, Ukraine, Tue, Jan 3, 2006

16. GAS ‘WAR’ WITH RUSSIA LEAVES UKRAINIANS UNPERTURBED
By Stefan Voss & Stefan Korshak, Deutsche Presse-Agentur
Kiev, Ukraine, Monday, January 2, 2006

17. A CHILLING REMINDER: RUSSIAN GAS DISPUTE WITH UKRAINE
LAYS BARE THE RISKS OF RELYING ON VOLATILE SUPPLIERS
Financial Post, Canada,Wednesday, January 4, 2006

18. “TURNING OFF THE TAP”
COMMENTARY: Lloyds List, London, UK, Wed, Jan 04, 2006

19. “21ST CENTURY’S FIRST DECLARATION OF WAR”
PRESS REVIEW: Deutsche Welle, Bonn, Germany, Tue, Jan 3, 2006

20. “PLAYING POLITICS WITH PIPELINES”
OP-ED COLUMNIST: By Anne Applebaum, The Washington Post
Washington, D.C., Wednesday, January 4, 2006; Page A17

21. “RUSSIA’S ENERGY POLITICS”
EDITORIAL: The Washington Post, Wash D.C., Wed, Jan 4, 2006

22. AS RUSSIA IS DOWNGRADED TO ‘UNFREE’
IS IT UNFIT TO HEAD THE G8?
ANALYSIS AND COMMENTARY: By Taras Kuzio
Eurasia Daily Monitor, Vol 3, Issue 2
The Jamestown Foundation, Washington, D.C., Wed, Jan 4, 2006


1
. RUSSIAN, UKRAINIAN GAS CHIEFS MAKE JOINT STATEMENT
“We reached a final agreement, Gasprom is fully satisfied
.”

RTR Russia TV, Moscow, in Russian 0800 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

MOSCOW – [Presenter] Good morning. This is an unscheduled “Vesti”
bulletin, and I am Yelena Martynova.

Russia and Ukraine have struck a deal. Half an hour ago the heads of
Gazprom and Naftohaz [Ukrayiny] held a joint news conference in Moscow
on the results of the overnight talks, where the price for Russian gas
[exported to Ukraine] was discussed. The companies’ representatives
stress that the negotiating process will continue.

Our correspondent Ivan Kudryavtsev joins us live from the Gazprom head
office. Hello, Ivan. We are waiting for details.

[Correspondent] Hello, Yelena. Naftohaz Ukrayiny head Oleksiy Ivchenko
and Gazprom head Aleksey Miller came out to the press half an hour ago.
Everybody noticed immediately that both of them were in a very good
mood. Let’s listen to what they said.

[Miller] Good morning, everybody.
[Ivchenko] Good morning.

[Miller] I can tell you that our negotiations with Oleksiy Lvovych
[Ivchenko] finished late at night. We reached a final agreement at 0230
[2330 gmt 3 January]. I want to say that the negotiations finished
successfully for Gazprom. Gazprom is fully satisfied with the achieved
results.

From 1 January 2006, Gazprom will supply gas to consumers in Ukraine
through the Rosukrenergo company. A long-term contract for supplying
Russian gas has been agreed. It is a long-term contract for five years.
The initial price is 230 dollars for 1,000 cu.m.

A long-term contract for the transit of Russian gas across Ukrainian
territory has also been agreed. The transit rate will be 1.6 dollars per
1,000 cu.m. of gas per 100 km. All payments for transit will be made in
cash. The terms for the transit of Russian gas across Ukrainian territory
are in no way linked with the conditions for supplying Russian gas to the
Ukrainian market.

[Ivchenko] Thank you. Dear friends, we are pleased with the results of the
talks which finished early this morning. We have come to a joint agreement
on a mutually beneficial and therefore mutually acceptable basis which
allows us to fully secure Ukraine’s gas balance on the one hand, and to
secure the transit of Russian gas to Europe on the other hand.

We shall be buying gas of different origins, both Russian and Central Asian,
from the Rosukrenergo company. The price of gas will be 95 US dollars per
1,000 cu.m. at the Russian-Ukrainian border.

I want to add that the price of gas and the transit rate are not linked
because we shall be paying money for gas and Gazprom will be paying us
money for the transit of Russian gas to Europe. The transit rate has been
raised from 1.09 to 1.6 dollars per 1,000 cu.m. of gas per 100 km.

Thus I think our relations are becoming fully market-based and give us an
opportunity to meet our companies’ requirements. Thank you.

[Miller] We are confident that the agreements reached provide additional
guarantees of the security of gas exports to Europe and serve as a good
basis for developing gas cooperation between Russia and Ukraine on market
principles.

[Presenter] Ivan, could you explain the situation, please? Mr Ivchenko spoke
about 95 dollars, and Gazprom gave another figure, that of 230 dollars. So,
what the actual price of Russian gas for Ukraine will be?

[Correspondent] Yes, some explanations are really needed. The matter is that
Ukraine will buy gas not from Gazprom directly but from the Rosukrenergo
company. The latter can buy gas not only from Russia, but also from Central
Asian states.

Therefore, Russia will sell gas to Rosukrenergo at 230 dollars per 1,000
cu.m., then Rosukrenergo will mix it with Central Asian gas, which is
cheaper, and sell it to Ukraine on the border at 95 dollars.

So, as a result of this arrangement Gazprom will sell its gas at the price
it initially offered, that of 230 dollars per 1,000 cu.m., but through the
Rosukrenergo company rather than directly to Ukraine.
[Presenter] Thank you. -30-


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2
. RUSSIA, UKRAINE SETTLE GAS DISPUTE, TO RAISE PRICES

Bloomberg, London, United Kingdom, Wednesday, January 4, 2006

LONDON – Ukraine agreed to almost double the price it pays Russia for gas,
settling a dispute that cut shipments to Europe and damaged Russian
President Vladimir Putin’s reputation as a reliable energy supplier.

The former Soviet republic will pay Russia $95 per 1,000 cubic meters for
the fuel for five years, up from $50 under a previous arrangement, OAO
Gazprom, Russia’s state-owned natural- gas monopoly, said at a press
conference in Moscow today.

“It’s a big shock to Russia’s reputation,” said Jochen Wermuth, managing
director of Wermuth Asset Management in Frankfurt and an adviser to the $150
million Greater Europe Fund. “The Soviet Union supplied gas through the
Afghan war, the boycott of the Olympics, the putsch against Gorbachev, the
break-up of the Soviet Union. It’s a big mistake for Russia in the long
run.”

The agreement is a climbdown for Putin and a blow to Ukraine, the main
corridor for gas exports. Russia wanted to impose a fourfold increase in
prices. Even a doubling of prices will raise Ukraine’s gas bill by $7
billion a year, about a tenth of its gross domestic product, according to
Wermuth.

U.K. Gas for delivery in February at the National Balancing Point fell 2.75
pence, or 3.2 percent, to 83.75 pence a therm at about 8:45 a.m. London time
today, according to broker Spectron Group Plc. That equals about $14.67 per
million British thermal units. A therm is 100,000 British thermal units.

Gas deliveries to Europe were disrupted on Jan. 1-2 when Russia stopped
supplying the fuel to Ukraine. Shipments returned to normal yesterday
following complaints from officials including Javier Solana, the European
Union foreign policy chief. Russia is the source of a quarter of Europe’s
gas.
CULMINATION
The dispute is the culmination of a rift between Putin and his Ukrainian
counterpart Viktor Yushchenko, who is seeking closer ties with Europe and
moving away from Russia. Putin and Gazprom have been demanding an end to
preferential gas prices for Ukraine and other countries that once were part
of the Soviet Union.

Today’s “agreements provide an additional guarantee for the security of
European gas exports and serves as a good base for developing cooperation
between Russia and Ukraine in the gas sphere on market terms,” Gazprom
Chief Executive Officer Alexei Miller told reporters in Moscow today.
‘STEALING GAS’
Russia cut supplies to Ukraine on Jan. 1, accusing the country of siphoning
off fuel. Ukraine took 223.5 million cubic meters of gas on Jan. 1-2 that
Gazprom was due to deliver to Europe, Kupriyanov said yesterday.

Ukraine denied it was siphoning off any gas from Russia. The gas it is
accused of stealing is actually from Turkmenistan and being shipped from
central Asia across Russia, according to Sergei Lukyanchuk, a spokesman at
NAK Naftogaz Ukrainy, Ukraine’s state-owned gas company in Kiev.

“Ukraine got Turkmen gas on Jan. 1 and Jan. 2, and we will get more,” he
said yesterday. “Ukraine isn’t stealing Russian gas.”
Ukraine agreed last month to buy 40 billion cubic meters of Turkmen gas this
year, paying $50 per 1,000 cubic meters, according to Naftogaz.

Under today’s agreement, Gazprom will sell gas to a joint venture it has
with Austria’s Raiffeisen Zentralbank Oesterreich AG for $230 per 1,000
cubic meters, the gas company said. The Switzerland-based venture,
RosUkrEnergo AG, will in turn sell the fuel to Ukraine for $95 per 1,000
cubic meters, Gazprom said.
CENTRAL ASIA
RosUkrEnergo will also supply gas to Ukraine from central Asian states,
including Turkmenistan, Kazakhstan and Uzbekistan, according to Gazprom.
Ukraine will pay $95 per 1,000 cubic meters for the gas. The joint venture
will become “exclusive distributor” for gas imports to Ukraine, said Sergei
Kupriyanov, a spokesman at Gazprom, said today in Moscow.

“The dispute is over,” said Jonathan Stern, author of The Future of Russian
Gas and Gazprom, published last year by the Oxford Institute for Energy
Studies in Oxford, England. “Gazprom has achieved a big increase.”

Crude oil rose yesterday on speculation demand will gain in Europe as users
seek alternative fuels. Enel SpA, Italy’s largest utility, said yesterday
it’s ready to switch to low- sulfur fuel oil to avoid disruptions.

More than 95 percent of European gas contracts are linked in multi-year
contracts to the price of oil, said Brian Little, the forecasting director
at Energy Markets, a U.K. consulting firm.

Gas experts from the EU’s 25 national governments will meet today in
Brussels to consider the “very complex” dispute, European Commission
spokesman Johannes Laitenberger said yesterday.

Gas companies in Poland, Hungary, Austria, Germany, Italy and France said
yesterday that their deliveries across Ukrainian pipes had been restored.
PAST CUTS
The dispute echoes a standoff in February 2004, when Gazprom interrupted
supplies to Poland and Germany by cutting shipments to Belarus for a day.
About 15 percent of the gas Gazprom sells Europe goes through Belarus
pipelines.
Gazprom wanted to raise Belarus’s prices by about 50 percent. Belarus agreed
to the increase and Gazprom resumed deliveries. On Dec. 27, Gazprom agreed
to extend last year’s tariff for Belarus to this year.
FRICTION
Gas has caused friction between Russia and Ukraine since soon after the
Soviet Union collapsed. During the 1995-2005 Ukrainian presidency of Leonid
Kuchma, Gazprom accused Ukraine of siphoning gas shipped through its
territory and threatened reprisals.

The one-year-old Ukrainian government under Yushchenko, born during the
November 2004 “Orange Revolution” that forced the re-run of a presidential
election, is seeking better ties with the West, including membership in the
European Union and the North Atlantic Treaty Organization.

The latest dispute comes as campaigning begins for Ukraine’s next election
for parliament, in March. The vote coincides with constitutional changes
that will for the first time give parliament, or Verkhovna Rada, the power
to name and dismiss the prime minister, a right hitherto reserved for the
president.

Putin openly backed Yushchenko’s rival for the presidency, then-Prime
Minister Viktor Yanukovych, in the 2004 election. Yanukovych wanted closer
ties with Russia and proposed allowing Ukrainians to hold dual Russian and
Ukrainian citizenship.


Eduard Gismatullin in London at
egismatullin@bloomberg.net


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3
. GAZPROM: RUSSIA, UKRAINE REACH GAS DEAL FOR 2006
The deal appears to be a complex face-saving agreement that
still allows Gazprom to keep the $230 price it has insisted
upon, while allowing Ukraine to pay less than half that amount.

By Greg Walters, Dow Jones Newswires
Moscow, Russia, Wednesday, January 4, 2006

MOSCOW — Russia and Ukraine Wednesday announced a 2006 gas deal
aimed at breaking a stalemate that had choked off supplies to Ukraine and
other European countries over the last several days.

Under the agreement, state gas monopoly OAO Gazprom (GSPBEX.RS)
will sell gas to its 50%-owned trading company RosUkrEnergo at $230 per
1,000 cubic meters. The trading company, which will also buy Central Asian
gas at a much lower price, will then sell gas to Ukraine at $95 per 1,000 cubic
meters, less than half the price Russia has recently demanded.

The parties also agreed that Russia will now pay cash for the transit of gas
across Ukraine. Previously, Russia paid in gas.

The price for transporting gas through Ukraine to Europe rose under the
deal to $1.60 for 1,000 cubic meters traveling through 100 kilometers of
pipeline, from $1.09.

Under the deal, reached at 2:30 a.m. Wednesday morning between the heads
of Gazprom and Ukrainian gas distributor Naftogaz, gas exports from
Turkmenistan will be purchased by RosUkrEnergo and re-sold to Ukraine, a
person familiar with the situation told Dow Jones Newswires. The person
didn’t say how much Turkmenistan gas will be sold to RosUkrEnergo or at
what price.

Gazprom had previously contracted 30 billion cubic meters of gas from
Turkmenistan at a price of $65 per 1,000 cubic meters.

Ukraine also agreed to pay cash for Russian gas in the future. Previously
it took gas in trade for transport.

A Gazprom spokesman said the five-year contract foresees prices
fluctuating according to world prices. Under the deal, “RosUkrEnergo,
is the exclusive gas exporter to Ukraine” said, Gazprom spokesmen
Sergei Kupriyanov.

Russia Sunday triggered a gas supply crisis in Europe when it cut off
exports to Ukraine after its neighbor rejected a price hike to $230 per
1,000 cubic meters, more than four times what it had been paying.

More than 80% of Russia’s gas supply to Europe travels across Ukraine.
Shortly after Russia cut off Ukraine’s supplies, France, Italy and a number
of other European countries reported a sharp fall off in gas deliveries from
Russia. Russia Tuesday increased supplies to make up for the shortfall.

The deal appears to be a complex face-saving agreement that still allows
Gazprom to keep the $230 price it has insisted upon, while allowing Ukraine
to pay less than half that amount. -30-


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4
. RUSSIAN, UKRAINIAN GAS COMPANIES REACH AGREEMENT
Dispute has ignited harsh statements on both sides that underline
Ukraine’s resentment of its historical domination by Russia.

The Associated Press, Moscow, Russia, Wednesday, January 4, 2006

MOSCOW – The Russian and Ukrainian natural gas companies agreed
Wednesday to resume gas shipments to Ukraine under a complex price
scheme in which OAO Gazprom will sell gas to a trading company for
US$230 (E195) per 1,000 cubic meters and Ukraine will buy gas from the
company for US$95 (E80).

The heads of the two state-controlled companies, Gazprom and Naftogaz,
announced the conclusion of a five-year contract at a joint news conference
in Moscow.

“The talks ended successfully for Gazprom and Gazprom is completely
satisfied,” Gazprom chief Alexei Miller said, signaling an end to the
furious dispute that had engulfed not only the two companies but the Russian
and Ukrainian governments and threatened long-term repercussions in Europe,
as well.

Europe gets about a quarter of its gas from Russia, some 80 percent of that
amount coming in pipelines that cross Ukraine. Russia stopped selling
natural gas to the neighboring country of 48 million on Sunday as their
price dispute reached a climax, and European customers reported a sharp
falloff of gas supplies on Monday.

The trading company, Rosukrenergo, which is jointly owned by Gazprom
bank and a Swiss subsidiary of Austria’s Raiffeisen Bank, can charge differing
prices to Ukraine because it receives gas from Turkmenistan as well, said
Gazprom spokesman Sergei Kupriyanov. Ukraine buys gas from the Central
Asian nation for a significantly lower price.

Kupriyanov said that the agreed price was US$230 as of Jan. 1 but that it
would fluctuate with the market. He did not indicate how often the price
would be adjusted.

Naftogaz chief Oleksiy Ivchenko said that the two companies had also
agreed to raise the transit fee Gazprom pays to send its gas through
Ukrainian pipelines from US$1.09 (E0.92) to US$1.60 (E1.35) per thousand
cubic meters to travel 100 kilometers – a 47 percent increase.

“We are satisfied with the talks, we reached a broad-based agreement on
mutually acceptable terms,” he said. “Our relationship is shifting
completely to a market basis.”

After a wave of criticism from Europe, Russia boosted the amount going into
Ukrainian pipelines late Monday and supplies in Europe appeared to be
returning to normal on Tuesday. It continued to accuse Ukraine of siphoning
off gas intended for Europe, but Naftogaz said it was using only Turkmen gas
as of Sunday. Gazprom had said Ukraine had not yet received any Turkmen gas
this year.

A meeting of representatives of European Union member states and the gas
industry was scheduled later Wednesday in Brussels to discuss how they
would react to the crisis and deal with future threats to Europe’s gas supply.

US$230 is the price Gazprom had demanded that Kiev pay – a
more-than-fourfold increase over the 2005 price – and Ukraine had resisted
mightily, saying that while it favored paying market prices it needed them
phased in over a transition period of several years. Talks broke down late
last week amid a barrage of accusations of blackmail, sabotage and thievery.

Russia last year supplied about a third of the gas consumed in Ukraine. Both
sides appealed Tuesday for help from the EU – of which neither country is a
member.

Russian Prime Minister Mikhail Fradkov called on EU member nations to put
pressure on Ukraine to ensure that natural gas transiting the country
reaches Europe.

Ukrainian President Viktor Yushchenko and Moldovan President Alexander
Voronin asked the EU to mediate, saying “it is impossible not to see a
scenario aimed at energy pressure and blackmail aimed at disrupting the
economic development of our two countries,” according to a statement from
the Ukrainian Foreign Ministry.

In the past year, both Ukraine and Moldova have turned toward the West
politically, and many observers believe the gas price demands are at the
heart of a Russian strategy to punish them. The dispute has ignited harsh
statements on both sides that underline Ukraine’s resentment of its
historical domination by Russia.

Although European countries including Austria, Slovakia and Hungary
reported their gas supplies had returned to normal Tuesday, the gas fight
has reawakened European fears over Russia’s reliability and potential for
belligerence – criticism that comes as the country assumes the chairmanship
of the Group of Eight, a position it wants to use to boost its international
prestige.

U.S. State Department spokesman Sean McCormack on Tuesday decried
“the use of energy for political purposes.” -30-


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5
. EXPERT SEES RESUMPTION OF GAS SUPPLY TO EUROPE
AS RUSSIA’S DEFEAT

Ekho Moskvy radio, Moscow, in Russian 0500 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

[Presenter] Europe has acknowledged that [Russian gas giant] Gazprom has
resumed gas deliveries according to signed contracts over the last 24 hours.
Gas supplies are not being disrupted now, the EU said.

Meanwhile, economist [and head of research of the Moscow High School of
Economics] Yevgeniy Yasin does not believe that Russia is right in supplying
additional 95m cu. m. of gas per 24 hours to Europe. Russia has shown its
weakness in the conflict with Ukraine, Yasin told Ekho Moskvy.

[Yasin] I regard the fact that we have resumed gas supplies to compensate
for insufficient gas deliveries under European contracts as our defeat, not
a very serious, though. We could have taken into account that Ukraine would
siphon off our gas. We should have understood that they could do it.

Therefore, no matter how much we speak about this, it would be our customers
in Europe who would lose, whereas for them the stability of gas supplies is
of vital importance. So we had to make concessions not to lose markets and
customers’ trust. -30-


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6
. UKRAINE’S PIPELINES: A VITAL FORCE IN INDEPENDENCE

COMMENTARY: Dale A Bertelsen in Kharkiv, Ukraine
The Action Ukraine Report (AUR), Number 634, Article 6
Washington, D.C., Wednesday, January 4, 2006

Of all the reporting of the current gas dispute between Ukraine and Russia,
the most important perspective was one that suggested Russia’s ultimate
motive was control over Ukraine’s pipeline transit system. Once the hysteria
over Russia’s political imperialism has passed, this apparently embarrassing
step onto the global stage will drift inexorably into recent memory.

What will linger is the image of a magnanimous Russia, compromising
gracefully for all the world to see, yes, even as an accommodation to the
influence of Russia’s new found G8 friends. And the price of this
compromise? How about a major piece in the control of overland gas
supplies to Europe?

Ukraine’s pipelines are an essential cog in Gazprom’s monopolistic
dreams–as well as a lynchpin of Russian geopolitical dominance. And to
satisfy the energy hunger of Europe, those pipelines will be claimed as
sacrifice. How else can the redemption of Russia, as a leader among
nations, be managed?

Make no mistake, on surface this row is about gas and market prices–
and even about influencing immediate politics in Ukraine. But the future
implications are far more serious.

Here in Ukraine people are moving on with their lives. The heat has been
turned down for weeks in an attempt to conserve energy, electric heaters
can be seen in many homes, heavy sweaters are an increasingly popular
accessory for the indoor wardrobe, and extra blankets pile the bed. These
are the normal sacrifices of decent citizens who continue to adjust to the
emergence and corresponding emergencies of their nation.

Will these people who historically have suffered much at the hands of Russia
be asked finally to surrender their only apparent source of political power,
their only shield of protection against Russia’s geopolitical ambitions? And
if for some illogical and ill-conceived reason the Ukrainians do agree to
relinquish full control of their pipeline, what then?

What will become of them then under the foot of Russia? Will the rest of
Europe care what becomes of this chaotic nation striving to control its
own destiny? And then what will be the destiny of the balance of Europe?

Ukraine’s pipelines are a vital force in all of Europe’s energy
independence. More importantly, they are a vital force in Ukrainian
independence. Surrendering their control would be the ultimate act of
economic abandonment and civic betrayal.
-30-


Professor Dale A. Bertelsen, Ph.D., Department of Communication
Studies & Theatre Arts, Bloomsburg University, Bloomsburg, PA
Contact:
dbertels@bloomu.edu


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7
. YUSHCHENKO READY TO PROTECT UKRAINE’S SOVEREIGNTY
This is the true battle for Ukraine’s independence –
and much harder than the fight at the Maidan,”

Ukrayinska Pravda On-line, Kyiv, Ukraine, Wed, January 4, 2006

KYIV – President Victor Yushchenko judges Gazprom’s behavior when
negotiating with Ukraine as a direct example of economic pressure. This was
said Sunday at the meeting addressing natural gas demand in Ukraine. Prime
Minister Yuriy Yekhanurov, Minister of Energy Ivan Plachkov, the head of
NAK Naftogas Ukraine Oleksiy Ivchenko and others also attended the meeting.

As reported by the press-service of the president, the present case serves
as “a direct sign of economic pressure” against Ukraine. In such a context,
the president is ready to discuss with the members of the nuclear club the
topic of fulfilling their responsibilities before Ukraine.

“The strength of our position consists in that the truth is on our side. I
am convinced to the very last word and thus state: Ukraine is ready to – in
2006 – transition to market relations; we do not need credits, and we are
ready to pay, ready to mobilize. We are ready to do so with the
understanding that the price is not “arbitrary,” but truly reflective of the
European model,” said the president.

He added that under any calculations the price for the first year should not
comprise above $80 per 1000 cubic meters.

Yushchenko expressed reasons why the general public, and specifically the
mass media, should be informed about the general technical aspects of the
issue – “so that they would feel, why we are so stubborn in our position.”

Yushchenko also stressed that citizens of Ukraine and representatives of
business associations will be regularly receiving full and substantive
information regarding the status of negotiations about the natural gas
question and actions taken by Ukraine’s government.

The president said that everyday he receives hundreds of letters from
everyday citizens who write that they are ready to voluntarily cut personal
usage of natural gas, in order to defend Ukraine’s economic independence.

President Yushchenko underlined that the government is firmly positioned to
protect national interests and the sovereignty of Ukraine. “This is the
true battle for Ukraine’s independence – and much harder than the fight at
the Maidan,” said Yushchenko. -30-


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8
. OIL SLIPS: RUSSIA AGREES ON UKRAINE NATURAL GAS SALES

By Luke Pachymuthu, Reuters, Singapore, Wed, January 4, 2006

SINGAPORE – Oil dipped half a dollar on Wednesday after Russia and
Ukraine settled a natural gas supply dispute, but prices retained most of the
past week’s sharp gains amid a fresh infusion of investor funds.

Deepening light earlier losses, U.S. February light crude slid 48 cents to
$62.66 a barrel by 0734 GMT after Gazprom said it had reached a gas
supply deal with Ukraine, seeming to end a row that briefly disrupted
exports to Europe.

European gas oil futures, which shot 5 percent higher on Tuesday amid fears
that the temporary cut in Russian gas supplies could boost demand for other
heating fuels as the winter turns frigid, slid 1.5 percent to $534.50 a
tonne. London Brent crude traded at $60.83, down 52 cents.

Russia cut natural gas exports through Ukraine on Jan. 1 after its ex-Soviet
neighbour refused to pay a four-fold price increase, but it restored flows a
day later when European nations complained that their supplies had also been
curtailed.

On Wednesday Gazprom chief executive Alexei Miller said the firm had agreed
to sell natural gas to Ukraine for five years from Jan. 1, a move that may
set at ease European consumers who depend on Russia for a quarter of their
gas.

“This amicable resolution will likely reduce the risk premium for supply
disruptions in the global energy markets,” Darius Kowalczyk, Hong Kong-
based senior investment strategist at CFC Seymour Securities.
INVESTORS PILE IN
The dip on Wednesday barely dented a rally that has added nearly $5 to
prices over the past week, as fresh investment and speculative funds flow
into the market, signalling that commodities are set to remain a hot ticket
item for money managers in 2006.

“Investors have an innate tendency to allocate money to sectors that make
money, and the strong commodity bull market still has some way to run, “
said Michael Coleman, managing director of Singapore’s Aisling Analytics, a
hedge fund manager.

Oil averaged $56.70 a barrel last year, about 37 percent more than in 2004,
and analysts say the lack of spare capacity and the existence of
geo-political uncertainties — most recently the Russia-Ukraine gas row —
could keep the rally going.

“Commodity-related funds remain in demand because the fundamentals remain
the same — we have strong economic growth in Japan, the United States and
China that is going to drive up demand, while spare refining capacity
remains limited,” said Tony Nunan, a manager at Mitsubishi Corp’s risk
management business.

The economy in the United States — the world’s biggest fuel consumer — is
expected to expand by 3.4 percent next year, a little less than this year’s
growth, according to a Reuters poll conducted in December.

China, the No. 2 oil user, is expected to grow 8 to 9 percent. In the
short-term traders will be looking toward U.S. oil inventory data for
indications of whether refiners are able to keep up fuel supplies during the
winter. The data will be released on Thursday, a day later than usual due to
the New Year’s holiday.

Warmer than expected weather is likely to have allowed stocks of
distillates — which includes heating oil — to build by 900,000 barrels in
the week to Dec. 30, a Reuters poll found. [EIA/S]

Crude stocks were seen falling by 1.5 million barrels due to lower imports
and year-end tax liquidation, while gasoline inventories were expected to
rise by 300,000 barrels. -30-


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9
. RUSSIAN GAS: PUTIN’S MOMENTOUS MOVE
Attempt to destabilise the pro-western government that came to power
after Moscow’s candidate was ousted in Ukraine’s orange revolution

EDITORIAL: The Guardian, London, United Kingdom, Wed, Jan 04, 2006

After 48 hours of faltering supply, the flow of Russian natural gas came
fully back on stream to the European Union yesterday. There was even talk of
an early deal in Moscow between Russia and Ukraine over their bitter price
dispute that has suddenly catapulted the issue of winter fuel supplies to
the top of every governmental agenda in Europe.

But the midwinter confrontation between Russia and Ukraine is not some
passing event. It has sent lurching and lasting tremors across our
continent, once again vindicating Talleyrand’s brilliant observation that
Russia is always simultaneously too weak and too strong, while also
reminding every European of the dangers that flow from over-reliance on a
single source of energy to keep factories, shops and offices working and
homes lit and heated.

This crisis has been about something larger and more complex than the price
paid by Ukraine for Russian gas. Russia is the world’s largest supplier of
natural gas and its huge state-owned Gazprom energy company is fully
entitled, in principle, to sell that gas at a market price. But Russia uses
Gazprom to set its prices as a way of exerting political influence.

How else can one explain the fact that, until January 1, the same 1,000
cubic metres of gas was sold at such a variety of prices as $120-125 to EU
customers, $110 to Georgia, $50 to Ukraine and $47 to Belarus. And the same
is true, in spades, of the $230 per 1,000 cubic metres that Russia
unilaterally demanded of Ukraine from Sunday.

This was not just a breach of a five-year contract that Gazprom made in
2004. It was also an attempt to destabilise the pro-western government that
came to power after Moscow’s candidate was ousted in Ukraine’s orange
revolution nearly two years ago.

That is why the issue at the heart of this week’s confrontation remains the
deeply entwined relationship between Russia and Ukraine, with their more
than a thousand years of overlapping history, religion, culture and
language. This complex relationship is not going to be resolved by settling
the price of fuel. It will only be resolved if and when the status of Russia
on the 21st century world stage is more clearly settled – and that, as
Talleyrand’s remark implies, may not be soon.

President Vladimir Putin has turned the screws on Ukraine because of the
combination of weaknesses and strengths that, as Russia’s latest
authoritarian ruler among many, it is his destiny to deploy. The
consequences could not just be dire for Ukraine but also destabilising for
the international institutions that, since the fall of communism, have
sought to accommodate Russia.

Nowhere is this more true than in the G8 group of world economic powers, to
which Russia was admitted for political reasons under Boris Yeltsin and of
which Mr Putin became rotating chairman only this week, following Britain’s
year.

If Russia’s enemies had wanted to write a damaging script for the first week
of Mr Putin’s year at the G8 helm, they could hardly have done it better.
And this is even truer of those who have warned for years against
over-dependence on a single source of fuel from politically unpredictable
parts of the globe. No government can afford the lights to go out, so no
government can ignore this kind of threat.

Already governments across Europe are rethinking in the wake of Russia’s
action. Poland is looking for other natural gas suppliers – difficult, since
Iran and Qatar are the largest after Russia. Turkey is to speed up
construction of gas storage facilities as a hedge against shortages. And
Italy, which in a post-Chernobyl referendum voted to reject nuclear power,
announced that the nuclear option was back on its agenda.

Britain cannot be immune from this process either. We too need more storage.
And if the resumption of the British nuclear power programme already looked
likely in 2005, despite the cost, it is now beginning to look a racing
certainty in 2006, thanks to the


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10
. OIL, GAS AND IMPERIALISM: THE RUSSIA-UKRAINE CRISIS
IS A REMINDER THAT POLITICS, NOT THE MARKET,
IS DRIVING GLOBAL ENERGY PRICES

COMMENTARY: by Daniel Litvin, The Guardian
London, United Kingdom, Wednesday, January 04, 2006

You may have thought the age of empires was over, that in today’s
globalising world relations between states were governed by economics,
market forces and free trade, rather than battles for political influence
between the great powers. When it comes to the quest for, and control of,
energy supplies, however, we still live in a partly 19th-century world.

Compared with the situation earlier this week, Russia’s attempt to more than
quadruple the price of the gas it charges to Ukraine is no longer affecting
other European countries as severely as it was. None the less Russia
continues to seek to withhold gas from Ukraine, exerting a stranglehold on
the nation that would appear to be motivated as much by politics as
economics.

Smarting from Ukraine’s recent turn to the west, including Nato and the EU,
Russia wishes to bring its once vassal state back into its sphere of
influence. Russia has long offered subsidised energy to such states to help
keep them within its fold. Threatening to hike Ukrainian gas prices to free
market levels is in this respect the modern equivalent of a warning shot
fired from the Russian imperial gunboat.

But Russia is not alone in treating energy security as the means of, or
motive for, imperial-style endeavours. The quest for influence over oil and
gas reserves underlies much recent western intervention in the Middle East
and has driven high-profile political developments in Latin America, central
Asia and elsewhere. We need to recognise this energy imperialism as a fact
of the modern world. For only by recognising it can we find ways to soften
its nastier elements.

There are two forms of modern energy imperialism. The first, typified by
Russia, involves producers using their leverage over supplies or energy
transport systems to influence political outcomes. Most memorably, Opec, the
Middle East-dominated oil producers’ cartel, tried this by restricting oil
supplies in the 1970s, aimed partly at shifting western policy towards the
region.

Today two Latin American producer states are using energy as a tool in
standing up to the “imperial” west. Venezuela’s Hugo Chavez has threatened
to interrupt oil shipments to the US and is tapping the state’s burgeoning
oil revenues to win political support. In Bolivia, Evo Morales recently
swept to power on promises to take back control of gas reserves from
multinationals.

The second form of this imperialism involves consumer states launching
political or military manoeuvres to secure supplies. Whether or not the US
and Britain invaded Iraq with a sincere belief in weapons of mass
destruction, no one doubts that fears over oil security played a part in
strategic calculations – particularly after September 11 had so shaken the
west’s trust in Saudi Arabia.

Now, with oil prices so high, and many western oilfields in decline, western
firms and governments are working together (peacefully this time) to stake
out new territories to reduce dependence on the Middle East. Around the
Caspian, western political interests have again conflicted with Russia’s:
the path of a new BP-operated pipeline from Azerbaijan to Turkey, for
example, was the subject of a major geopolitical tussle between west and
east.

Japan and China are also arguing over pipeline routes from Russia’s far-east
energy reserves, while China’s oil corporations are busy seeking alliances
with Middle East and African governments.

If Britain opts to build more nuclear power stations this will be partly due
to fears of reliance on foreign (Russian) energy. With our transport system
still dependent on oil, however, reviving nuclear will hardly remove this
problem.

One reason energy helps to revive the imperial urge for consumer nations is
that, for all the growth of free markets and trade, energy security is
paradoxically too important to the smooth running of capitalist economies
to leave entirely to market forces. Our economic systems comprise a huge
investment in infrastructure (including roads, cars, buildings and power
stations) dependent on fossil fuels.

The imperial temptation for producers is related: the political levers it
creates can be too powerful to resist. The issue here is not just geographic
concentration of fossil-fuel supplies but the fixed and monopolistic nature
of energy infrastructure: pipelines supplying entire nations can be flicked
on or off on a political whim.

The inevitability of modern energy imperialism needs to be recognised. For
consuming countries, securing energy supplies must be achieved in a way that
better serves the long term interests of producing countries, rather than
taking the form of western support for compliant but corrupt regimes or
ill-conceived invasions that provoke further violence.

And producing countries should be encouraged to understand that their long
term interest is often better served by working with consumer states, rather
than imposing ultimatums upon them. Russia’s hard-ball tactics with Ukraine
have damaged its credibility as a secure supplier with big European
customers.

Eventually oil and gas may be replaced by renewables but, for the time
being, energy imperialism is here to stay, and efforts should focus on
making it a more benign force.


Daniel Litvin is author of Empires of Profit: Commerce, Conquest and
Corporate Responsibility
daniel.litvin@btinternet.com.


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Be A Vice-President In The Continuing Orange Revolution


11
. “INFORMATION HYPNOSIS IN THE GAS WAR. WHY DOES
EUROPE FAIL TO HEAR UKRAINE’S VOICE?”
Ukraine victim of Kremlin-inspired smears in western media &
losing the information war in the gas dispute with Russia

ANALYSIS & COMMENTARY: By Maryna Pyrozhuk
Ukrayinska Pravda web site, Kiev, in Ukrainian 3 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

Ukraine is losing the information war in the gas dispute with Russia,
journalist Maryna Pyrozhuk has said. In the last few days the Kremlin has
successfully created an image in the western media of Ukraine stealing gas
from European consumers, with Ukrainian officials failing to present
convincing arguments otherwise, she said.

Foreign journalists find it very difficult to reach Ukrainian officials and
experts for comment, which is not helping the situation and jeopardizing the
positive image of Ukraine abroad earned during the Orange Revolution in
2004, she added.

The following is the text of Pyrozhuk’s article entitled “Information
hypnosis in the gas war. Why does Europe fail to hear Ukraine’s voice?”,
published on the Ukrayinska Pravda website on 3 January; subheadings
have been inserted editorially:

Not only is Ukraine scandalous, it is also a thief. These accusations from
the Russian side, so confidently and glaringly voiced by Gazprom’s
spokesmen and actively spread by many Western media, indicate that in
addition to being unprepared for the gas attack by its northern neighbour
of strategic importance, Ukraine is just as unprepared to the media war
launched by the Kremlin.

The latest accusations by Gazprom’s press secretary and statements by
Ukraine’s western neighbours that they are receiving less gas sound like
proof of this.
UKRAINIAN OFFICIALS UNCONVINCING
My colleagues, journalists from those countries, are working hard trying to
reach Ukrainian experts and directly asking why Ukraine doesn’t want to pay
Russia for gas and instead steals other people’s gas, including theirs?

Right now they do not wish to talk about the political component of the
Russian-Ukrainian gas war, and the inarticulate statements by Ukrainian
officials that Ukraine is really not stealing anything are not heard or not
taken seriously.

European politicians are interested in timely supplies of Russian gas to
their countries first of all. Ukraine could avoid this image of a thief,
which is being formed literally before our eyes, had Ukrainian leaders made
adequate and very clear statements right after Gazprom’s accusations.

Proper notes should have been sent immediately to all the countries and
international media, legal and other organizations with clear explanations
of Ukraine’s positions and the real state of affairs in the gas crisis.
Instead, [Ukrainian President Viktor] Yushchenko addressed western
diplomats only after Moscow had already achieved the desired effect.

The statements by Ukrainian cabinet officials that Ukraine is behaving in a
civilized way in this crisis, is not stealing anything and even financing
the transit of Russian gas through its territory with its own money do not
seem to be trusted and are viewed more like pleas.

Also surprising is the statement by [Prime Minister Yuriy] Yekhanurov, who
limited himself to just thanking for supporting the cabinet in the gas war
with Russia and a banal piece of advice to continue celebrating [the New
Year]. Is that what the Ukrainians wanted to hear?

Mr prime minister, I am convinced that most Ukrainians are ready to continue
eating leftovers from the New Year’s feast for a long time and to stop using
gas in their homes for the sake of Ukraine’s honour and dignity. I am also
sure that Ukrainians are always ready to support their government, but the
government needs to provide clear arguments in defence of its position.

“What is happening there? Why is Ukraine stealing gas and discrediting its
image, the one which was hard-earned in the Orange Revolution? How can
we find your cabinet officials? Why are they not accessible at any minute to
western media at this critical time? Do your political elites have a single
position?”

These are questions from foreign journalists, who call me in need or just as
friends, and I have to explain to them in every way possible that the
government and the president of Ukraine are tirelessly and constantly
searching for a fair solution at this difficult time for our country, that
Ukrainian officials are not thinking about some publicity matters, the
election campaign or other less important things, that they are thinking
only about national interests.

And the main thing, that nobody here is trying to steal something, and that
they should believe every word of the Ukrainian prime minister and
president. That Gazprom’s sophisticated men in expensive eyeglasses, who
continue “informing” the world about the criminal and conflict-happy nature
of Ukrainians, are just Kremlin tricks which worked even on my western
colleagues with all their immunity, standards and values!
POSITIVE ORANGE REVOLUTION IMAGE IN DANGER
All the dangers from manipulations of the media in the context of the great
gas war between Russia and Ukraine, which can be identified easily, could
be minimized through a well-planned system of information defence both in
Ukraine and abroad.

In this situation, Ukrainian officials had to bring the real picture of the
war into every Ukrainian and European home through diplomatic and media
channels even before Ukraine was labelled as a thief in the world.

It would also be beneficial in this situation to give a clear assessment in
the context of national interests to those political forces and politicians
who openly defend and lobby Kremlin’s interests in Ukraine, thus assisting
in the smear campaign against Ukraine.

Ukrainians are still trying to lose the bad image of “Kuchma’s Ukraine”. The
image of Ukraine as a thief, which is being cultivated in Europe by Russia,
is not only insulting to ordinary Ukrainians who have nothing to do with gas
and simply cannot steal it. It may also damage the positive image of
Ukrainians, which was earned so hard in the Orange Revolution. -30-


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12
. LEX: EUROPEAN GAS

Financial Times, London, UK, Wed, January 4, 2006

One lesson of postwar history is that nuclear weapons are most effective
when they are not used. Has Russia forgotten this in its tussle with
Ukraine? Amid the drama, it is easy to forget that this is an old dispute.

Russia and Ukraine are like a divorced couple still tied by, among other
things, gas. Ukraine relies on Russian supplies and Russia relies on
Ukraine to pipe exports to western Europe.

Russia’s use of its gas resources as a strategic tool is well-known, so
problems following Ukraine’s Orange Revolution are hardly surprising.
Greater political independence was never likely to be rewarded with
continuing discounts on gas prices.

In addition, Russia has been irked by Ukrainian proposals for a new gas
pipeline to central Asian suppliers, outside of Gazprom’s direct control.
That is a laudable aim, but also hopelessly unrealistic, given Ukraine’s
situation. Meanwhile, Gazprom continues to develop alternative export routes
such as the Baltic pipeline, where work began recently.

The EU is vocal about the need to diversify its energy options, but more
muted in its support for Ukraine’s position. Reducing dependence on
Russian gas supply is a sensible objective, but also a long-term one.

Interrupting supply – and then quickly restoring it – was a typically
unsubtle demonstration of Russia’s annoyance, but it is not interested in
alienating its most lucrative customers. In turn, they are, sensibly,
unwilling to fight this sort of cold war on behalf of Ukraine. -30-


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13
. DEMOCRACIES IN DANGER: BACKING DOWN
Putin has behaved for years like a cross between a czar and a KGB thug.

EDITORIAL: USA TODAY, Washington, D.C., Tue, Jan 3, 2006

Backing down. Russians can tell you something about dashed hopes for
democracy. President Vladimir Putin has behaved for years like a cross
between a czar and a KGB thug, rolling back democracy with near impunity,
impervious to the international community’s feeble protests because he has
had little to fear.

But when Putin, acting to type, tried to cut off natural gas supplies to
Ukraine over the weekend in a pricing dispute, international pressure forced
him to back down.

The Russian president thought he had a good rationale for the cutoff.
Ukraine still pays the ridiculously low gas prices it enjoyed as a Soviet
satellite – less than a quarter of today’s market value. Putin evidently
thought his capitalist arguments for a fair price would win the day and the
international community would join him in condemning Ukraine.

It isn’t so simple. Russia agreed in 2004 to continue the low prices until
2009. But that was before the “Orange Revolution” swept in the pro-Western
government of Viktor Yushchenko. Much as he denies it, Putin wants to use
gas supplies to regain influence: A cut now, in winter, would send Ukraine’s
economy into a tailspin and angry protesters into the streets.

But Putin’s cunning overlooked the fact that many European countries also
rely on Russian gas through the same pipeline. A sure way to enrage Western
nations is to mess with their fuel supplies.

As the Europeans’ supplies fell – Russia says the Ukraine was stealing from
the pipeline – they questioned Putin’s assurances that Russia is a stable
energy supplier. The USA and others joined in the condemnation.

In an added irony, when Russia took over the chairmanship of the Group of
Eight leading industrialized countries Sunday, it made energy security its
cornerstone message.

The fiasco, most immediately, adds fuel to old questions of whether Russia
deserves a place in the G8 at all, let alone its chairmanship. More broadly,
just like the international cooperation designed to keep Afghanistan from
disaster, the Ukraine-gas episode serves as a reminder of the immense power
international pressure and clubs can have in curbing bad behavior – if only

they’ll use it. -30-


http://www.usatoday.com/news/opinion/editorials/2006-01-03-democracies-edit_x.htm


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14
. TURNING OFF THE PIPES THREATENS TO LEAVE
PUTIN OUT IN THE COLD

ANALYSIS: Michael Binyon, The Times, London, UK, Tue, Jan 03, 2006

RUSSIA’S action has caused an immediate political and economic crisis in
both Eastern and Western Europe, dramatically underlining the key role
energy supplies now play in power politics.

But the Kremlin’s action may backfire, damaging long-term relations with the
West and throwing into question President Putin’s commitment to stable
energy supplies. Ukraine’s attempts to win the backing of Western Europe in
a showdown with Moscow are also a high-risk gamble that could leave it
isolated, cold and industrially paralysed.

The Russian action could not come at a worse time – for both President
Yushchenko of Ukraine and for President Putin. Russia took over the
presidency of the G8 for the first time this year and Mr Putin wants to make
energy security the main theme of the annual summit. Already he is under
attack in the West for moves to curb democracy; the action by Gazprom will
convince Western critics that Russia is unqualified to chair a meeting of
industrial democracies.

The Kremlin cannot distance itself from the highly politicised decision by
Gazprom, the state-owned giant that is increasingly influential in Russian
foreign policy. And it must be worried by the immediate reaction of Germany,
its main partner in Europe, which said that cutting off the gas could harm
economic relations with the West.

Investors may now be wary of trusting assurances from the Kremlin and will
be concerned that Russia might try to use its muscle in other ways. Despite
months of negotiations and clear warnings to Kiev in September by President
Putin, the quadrupling of gas prices for Ukraine will be seen by businessmen
and Western governments as precipitate and tantamount to blackmail. It will
make Europe extremely wary of further increasing its dependence on Russian
energy supplies.

There could be real doubts in Germany over the proposed new pipeline under
the Baltic to bring in Russian gas.

Indeed, for the Kremlin, the move may prove as catastrophic as the Arab oil
boycott of 1973, which left the West, and America in particular, determined
never to be so dangerously reliant again on Arab oil.

But Ukraine cannot assume automatic backing from the West. Russia’s argument
that it should pay market rates for its gas are powerful, especially as the
old price of $50 (?29) was absurdly low and the proposed new price of $230
per 1,000 cubic metres is still lower than the rate for Western Europe.
Ukraine says, after all, that it is now a market economy.

If Ukraine, as Russia claims, has indeed caused the sudden drop in supplies
to the West by diverting them into its own network, this will cause uproar.
Kiev denies the charge, though it says it will consider tapping into the
export pipelines to pay transit costs.

Ukraine may also be criticised for turning down President Putin’s offer to
delay any cut-off for three months, raising the suspicion that Kiev wants a
showdown to highlight the constant pressure by a Russia that strongly
opposes its moves to position itself closer to Nato and the EU.

It is no secret that the Orange Revolution has run into difficulties, with
squabbles and splits in the Yushchenko Government; little would so unite the
fractured country as the perception that Russia was trying to freeze it into
submission. Ukraine has raised the stakes by threatening to increase the
rent for the Russian Navy’s use of Sevastopol, the Black Sea port.

At heart, the row centres on deep emotional antipathy on each side. Many
Russians are unreconciled to the loss of Ukraine, a Russian province for
more than 300 years, and many Ukrainians are still deeply resentful of
former Russian domination.

The Kremlin’s open backing for Mr Yushchenko’s opponent last year, its
anger at the overturning of his initial victory and Ukrainian suspicions of
Russian involvement in the poisoning of Mr Yushchenko have further
soured relations. -30-


LINK:
http://www.timesonline.co.uk/article/0,,13509-1967618,00.html


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15
. UKRAINIANS DRINK CHAMPAGNE AS GAS DISPUTE BUBBLES
Albert Dyachenko, a pensioner and a former military officer said,
“It amounts to a war against the Ukrainian people
.”

By Olena Horodetska, Reuters, Kiev, Ukraine, Tue, Jan 3, 2006

KIEV – Many Ukrainians are more interested in enjoying champagne than
worrying about gas shortages this Orthodox Christmas festive season. But
some in the capital Kiev see the gas dispute with Russia as another example
of aggression from their “big brother” under the Soviet Union, and say
relations will never again be the same.

And others further east, in Ukraine’s Russian-speaking industrial heartland,
say their once-trusted ally has let them down.

“We will have champagne without gas. Let Russians choke on their gas,” has
become a favorite joke during the New Year and Christmas holidays, which
started on December 31 and run until January 14 — when most Europeans are
back at work.

Hundreds of text messages, e-mails and radio adverts urge people to use less
gas and to boycott Russian goods in response to Moscow’s move to cut
supplies on January 1.

At the center of the dispute are prices, after Russia’s Gazprom demanded a
four-fold increase that was rejected by Ukraine, which wants a transition
period. Russian energy officials are due to meet their Ukrainian
counterparts for talks late on Tuesday, but Ukrainians appear unworried,
provided their homes are warm.

“Our flat is warm. The holiday is in full swing. I just do not understand
Russians. Why are they so hostile?” said Svetlana, 31, walking with her
small daughter in Kiev’s main street, decorated with Christmas trees and
lights.

Others were more direct. “It is an unprecedented provocation. It is an
attempt to break Ukraine on all issues — economic, political, social,” said
Albert Dyachenko, a pensioner and a former military officer. “It amounts
to a war against the Ukrainian people.”

The Fifth television channel did a survey on January 2 in which over 93
percent of people said the cut in gas supplies was a hostile act.

Still, many of Ukraine’s 47 million people, for example in the
Russian-speaking Donetsk and Luhansk regions, see Russia as a reliable
friend, both during the Soviet Union period and after its collapse.
Even some traditional pro-Russians, however, feel a change. Natalya
Vitrenko, leader of the radical leftist Progressive Socialist party, said
the row could hit parties calling for closer ties with Moscow in a March
26 parliamentary poll.

Other politicians seem to echo the view. “I understand Russia is against our
intentions to integrate with Europe,” said parliamentarian Ivan Bokiy, a
member of the Socialist party. But by taking such a tough position it is
making mistakes. It turns off not only the west of Ukraine … but also
other regions and hurts the companies in the south-east. They mostly use
Russian gas,” he was quoted as saying by Segodnya daily. -30-


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Power Corrupts and Absolute Power Corrupts Absolutely.


16
. GAS ‘WAR’ WITH RUSSIA LEAVES UKRAINIANS UNPERTURBED

By Stefan Voss & Stefan Korshak, Deutsche Presse-Agentur
Kiev, Ukraine, Monday, January 2, 2006

KIEV – The young Kievite Oksana Romashiuk is still celebrating the New
Year’s holiday. Like most Ukrainians, she is quite calm about the nasty
political fight over gas prices, delivery boycotts, and accusations of
pilfering now boiling over between her government, and Russia.

‘I am an optimist, I am sure there will be a compromise,’ the Schevchenko
university student said, standing there stylishly hatless in the freezing
temperatures.

The fierce battle between Kiev and the Kremlin over natural gas shipments to
Europe, and the degree to which each side should benefit from them, is not
much apparent in the Ukrainian capital.

True, the Khreschatyk main street – normally festive at this time of year
with tens of thousands of holiday lights – was lit on Monday evening like on
an average work day, street lights and store fronts, but no more. The
Ukrainian government ordered energy conservation measures on Monday.

Romashiuk, a woman too young to remember the Soviet Union, has trouble
taking seriously threats of a faraway Russian government to leave Ukraine
cold and dark, if Kiev does not toe Moscow’s line on gas deliveries.

‘It would be terrible if our ovens didn’t work and the schools were to be
cold,’ she said. ‘I can’t believe it will happen.’

For many Ukrainians the escalating conflict on how much Ukraine should pay
Russia for natural gas is less a difference of opinion between two friendly
nations, as simply yet another case of weak paying the price, when the
strong disagree.

‘Mark my words, we simple people will suffer because of this,’ said
pensioner Vladimir, interviewed in the Kiev metro. ‘That is always the way,
when the high and mighty argue about money.’

A war veteran proudly still wearing combat medals, he blames the entire gas
mess on the 1991 break-up of the Soviet Union, which now has placed former
fellow citizens of a superpower, on opposite sides of a modern trade war.

‘I fought against the Fascists and have lived to see this, when the Russians
cut off gas to the Ukrainians,’ he complained. ‘It’s a nightmare!’

Ukraine takes into the conflict with its giant northern neighbour an
advantage: The relatively low expectations of Ukrainian citizens. Unlike
West Europeans, Ukrainians regularly experience power outages and poor
utility services.

Entire blocks of even the wealthiest street of the capital – the
store-jammed Khreschatyk – lose power for hours a day or two every winter.
Ukrainian villages can go without electricity or hot water for an entire
season.

Maria Zinchevska, like many in the former Soviet republic, has not forgotten
times have been a lot worse, than in modern Ukraine with a Russian gas
boycott in progress.

‘Russia has always seen Ukraine as a colony, and they always will,’ the
older woman, primly dressed in khaki overcoat and knitted hat, told dpa. ‘I
live through the famine of 1947, and I know what I am talking about.’

On the political front the Ukrainian opposition, drawing its strength from
the Ukraine’s ethnically Russian eastern provinces, has been remarkably
quiet about the standoff between Kiev and Russian President Vladimir Putin.

Even with a parliamentary campaign in full swing in Ukraine (elections are
scheduled in March), for practical purposes no candidate has attacked
Ukrainian President Viktor Yushchenko for his handing of the gas crisis.

The silence of Viktor Yanukovich, the leader of the front-running party and
Yushchenko’s political enemy, is deafening.

Putin supported Yanukovich, unsuccessfully, in Ukraine’s Presidential
elections last year, which fell apart after millions of Ukrainians protested
vote-rigging in Yanukovich’s favour, and triggered the Orange Revolution.

Putin’s embarassment at failing to put Yanukovich into power, in the opinion
of most Ukrainians, was a key factor in the Russian leader’s decision to cut
of gas to Ukraine on the biggest holiday of the year.

Yet even Yanukovich, a Moscow man in Ukraine if there ever was one, has
limited his public statements to neutral political ads arguing his party has
the right stuff to lead Ukraine into the future, and to a few public shots
at Yushchenko’s ‘unprofessional’ handling of the crisis.

When it comes to Ukrainian politicians overall, a near-miracle has taken
place: they all seem to agree. Across the entire Ukrainian political
spectrum, so far, no one has called for agreement to Moscow’s demands.


[
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17
. A CHILLING REMINDER: RUSSIAN GAS DISPUTE WITH UKRAINE
LAYS BARE THE RISKS OF RELYING ON VOLATILE SUPPLIERS

Financial Post, Canada,Wednesday, January 4, 2006

HOUSTON – The dispute between Russia and Ukraine over natural gas
supplies has implications for the fast-evolving international trade in natural gas.

While Gazprom, Russia’s state-controlled energy behemoth, said on Monday it
would resume pipeline shipments of natural gas across Ukraine to customers
in Europe, its ability to rattle nerves during the European winter served as
a reminder of the growing influence of countries rich in natural gas
reserves.

Global demand for natural gas, which is generally cleaner burning than other
fossil fuels, is soaring.

Governments in gas-rich countries and international energy companies are
racing to meet that demand with ambitious projects to transport natural gas
to industrialized countries by pipeline or in tankers. The global oil market
developed along similar lines decades ago, laying bare the risks in the
United States and Europe of relying on imported oil from politically
unpredictable countries.

“This further underlies the need for greater diversity of supply and more
storage capacity for natural gas,” said Daniel Yergin, chairman of Cambridge
Energy Research Associates. “Gas-importing countries will recognize the
need to build in buffers.”

At first glance, this newly robust international natural gas market would
appear to put Russia in a strong bargaining position. Russia has the largest
natural gas reserves, with 1,700 trillion cubic feet of the fuel, or 27% of
the world’s total, according to BP, the British oil and gas giant. Only two
other countries rival Russia in natural gas reserves: Iran, with 971
trillion cubic feet, and Qatar, with 910 trillion cubic feet.

But analysts say concern over creating too much dependence on Russian
gas, or natural gas from any one country, for that matter, may propel large
gas-consuming nations to consider importing the fuel from a variety of
sources or switching to other fuels for heat and electricity.

For instance, Finland, which shares a border with Russia, is moving ahead
with plans to build the world’s largest nuclear reactor, a move that would
lessen its reliance on imported Russian natural gas.

The concentration of European natural gas imports from Russia may be
why the threat of cutting off gas exports across the Ukraine evoked Cold
War-era fears, when the United States fretted about Europe’s reliance on
Russian gas.

In fact, Russia, which has long viewed itself as a stable energy supplier to
Europe, put energy security at the top of the agenda of the Group of 8, the
club for the world’s large, developed economies. Russia assumed the
chairmanship of the group this week.

A more contemporary concern is related to the dispute’s impact on large
gas-exporting projects in Russia and elsewhere. Gazprom, for instance, has
been aggressively promoting projects to export Russian natural gas to the
United States.

In a move that focuses attention on the scramble for natural resources in
Arctic areas, Gazprom has ambitious plans to develop the Shtokman field, a
large natural gas field in the Barents Sea, and sell that fuel in U.S.
markets.

Two American energy companies, Chevron and ConocoPhillips, have been listed
by Gazprom as possible partners in the Shtokman project, along with Total of
France, and Norsk Hydro and Statoil of Norway. Gazprom has also reached an
agreement with Sempra Energy of San Diego to import Russian natural gas to
markets in California and northern Mexico. Gazprom is believed to need the
technical expertise and financial assistance of foreign partners to help
develop the field.

Still, concerns in the United States about becoming reliant on imported
natural gas from Russia are probably premature. The United States imports
much of its natural gas from Canada by pipeline and is expected to increase
tanker imports of the fuel soon from countries like Qatar, Egypt, Angola and
Norway. Russia, despite the potential might of its natural gas reserves, is
also still struggling to lift its energy industry to Western standards.

“Russia is reminding people that they’re the powerhouse of natural gas
resources, but it’s a false promise,” said Amy Myers Jaffe, associate
director of the energy program at Rice University. “They don’t have their
sector organized enough.”

Indeed, the most immediate lesson of Russia’s dispute with Ukraine may be
that Russia and other natural gas producers are trying with varying degrees
of success to raise the prices they charge for natural gas. This trend,
which involves gas shipped by pipeline as well as in tankers, has to do with
rising demand for the fuel in Britain, southern Europe and the United
States.

Customers for natural gas in Europe have outbid buyers in the United States
in recent weeks for cargoes of liquefied natural gas, illustrating the
fierce competition for supplies even as prices in the United States flirted
with records after the damage from last year’s hurricanes to natural gas
platforms in the Gulf of Mexico.

Until recently, the complexity and expense of cooling and condensing natural
gas to a liquid so it can be transported in ships was an obstacle to the
emergence of a vibrant market for liquefied natural gas. Signalling a shift
in this market, though, a tanker of liquid gas from Trinidad and Tobago in
the Caribbean, the closest supplier of the fuel to the United States, was
rerouted to Britain last month after its producer received a more attractive
bid for its cargo despite relatively high transportation costs.

Still, whether exporters transport their natural gas in tankers or
pipelines, it has long proved difficult for gas-rich countries to exert
lasting leverage over importing nations. In one example from the early
1980s, Algeria briefly cut off supplies to Italy over a pipeline in the
Mediterranean Sea. That effort soon backfired on Algeria, however, costing
it billions of dollars in lost export revenue.

“In the short term, natural gas suppliers might feel they have an enormous
amount of leverage,” said David G. Victor, director of the Program on
Energy and Sustainable Development at Stanford University. “In almost every
instance, that position was a flawed obsession, revealing the gas producer
to be an unreliable supplier.” -30-


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18
. TURNING OFF THE TAP

COMMENTARY: Lloyds List, London, UK, Wednesday, Jan 04, 2006

ENERGY has again become a weapon for holding countries to ransom,
but this time gas, rather than oil, is the ammunition of choice and while
there is yet time to draw back from what might become a sort of 21st
century ‘blockade’, the implications must be considered very seriously.

Many think Russia’s closure of gas supplies to Ukraine is a political move
to punish the country for its attempts to become more independent from
Moscow’s influence, an economic response to a political decision. Already,
the rhetoric has been ramped up, Ukraine’s government accusing its larger
neighbour of resorting to blackmail to undermine its economy

But whether or not Ukraine (as Russia has suggested) has been extracting gas
destined for other customers, Gasprom’s moves to shut down the pipelines
will have knock-on effects in Europe and ultimately to the level of imports
of both liquefied natural gas and oil products.

Security of supply is pre-eminent in the minds of anyone concerned with
future energy policies. The European Union has considered Russia a secure
supplier of natural gas but is bound now to re-evaluate its situation.

Diversity of supply becomes a greater issue than might have been the case a
few weeks ago. Up to now, there has been the over-riding belief that
Russia’s dependence on energy exports for funding it s own industrial
renaissance was as great, if not greater than Europe’s dependence upon
imports from Russia. In terms of realpolitik, it seems inconceivable that
the vital source of currency would be prejudiced, but the necessity of
reasserting political credibility in the Kremlin might have forced the
Russian energy supertanker off course.

Europe’s alternatives for piped gas supplies are limited to Norway, which is
presently pumping at full capacity, North Africa and marine delivered LNG,
where a very small spot market means there is little so far in the way of
flexibility.

We can expect European nations and energy suppliers to become more
vigorous in their drive to find new sources of gas and perhaps more pressure
on a greater spot market in the Atlantic basin to open up. But, perhaps the
lesson to be learned is that diversity in energy supplies is absolutely
essential for any advanced economy, in a world which is rather less stable
than many people seem to believe. -30-


Lloyd’s List, 69-77 Paul Street, London EC2A 4LQ


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


19
. “21ST CENTURY’S FIRST DECLARATION OF WAR”

PRESS REVIEW: Deutsche Welle, Bonn, Germany, Tue, Jan 3, 2006

European editorial writers are keeping an eye on the gas dispute between
Russia and Ukraine, which has been likened to an energy policy earthquake,
the effects of which are being felt across Europe.

[1] Rome’s La Repubblica called the dispute a “threat to the entire region.”
“The gas dispute has already moved beyond the borders of Russia and
Ukraine,” the paper wrote, adding that it will spread to wealthy western
European countries and then to poorer nations as well. The paper doesn’t
regard Moscow’s promise to guarantee gas delivery to the EU as stable,
writing: “Moscow caved in to the pressure from the European Union, but
warned that it won’t be able to continue covering for theft by the
Ukrainians.”

[2] The Independent, from London, asked why Ukraine has been singled out
by Russia for a price hike in natural gas when other former Soviet states also
pay less than the going market rates. The paper concluded that it was a
political decision. “Vladimir Putin intends to destabilize Russia’s western
neighbor in the hope of unseating its leader, Viktor Yushchenko,” the
Independent wrote.

“The Ukrainian president has been a thorn in the Kremlin’s side since he was
swept to power amid mass demonstrations against Russian influence. With
elections looming in Ukraine, President Putin regards this as the right time
to exert pressure.” The paper said that the crisis has made it clear that
Europe is urgently in need of a common energy policy.

[3] Magyar Nemzet, from Budapest, urged Hungarian politicians in charge of
energy issues to no longer keep their heads stuck in the sand, as Hungary is
more dependent on energy imports than its neighbors. “Hungary is to 80
percent dependent on imports, and natural gas makes up more than 40 percent
of the energy sector,” the paper wrote.

“It is very regrettable that it is only now, in such a critical situation,
that we are weighing the options of having coal and nuclear energy play a
bigger part in meeting our energy needs — albeit after the use of more
environmentally friendly renewable energy sources.”

[4] Liberation, from Paris, commented that Ukraine is now staring the
capitalist revolution in the face. “Russia is demanding market prices for
its gas, otherwise it will turn off the tap,” the paper wrote. “With that,
Russia is using a tried and true strategy of international capitalism — how
can this be thrown in Russia’s face?”

[5] Paris’ Le Monde labeled the dispute the “first declaration of war in the
21st century.” “One country cuts off the energy supply of another because it
doesn’t give into its demands,” the paper wrote. “Russia, the largest
natural gas producer in the world, pushed the button on the gas weapon. With
the emergence of consumer giants such as China and India, raw materials have
become the economic weapons of deterrence, if not mass destruction.”

[6] “Of course it’s hardly sensible or fitting that Ukraine or other
countries of the former Soviet Union build their economies on the back of
extremely cheap Russian energy imports,” wrote Berlingske Tidende from
Copenhagen. “But as an energy superpower, Russia has a responsibility to
raise prices gradually over a number of years, so that it doesn’t force its
clients into a crisis situation. The current demonstration of power over the
Ukraine is insupportable, because it so baldly demonstrates the iron fist of
the Kremlin when it comes to foreign policy.”


LINK:
http://www.dw-world.de/dw/article/0,2144,1844373,00.html


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


20
. “PLAYING POLITICS WITH PIPELINES”

OP-ED COLUMNIST: Anne Applebaum, The Washington Post
Washington, D.C., Wednesday, January 4, 2006; Page A17

Most Russians celebrate the new year with a few firecrackers, a glass of
sweet champagne, perhaps vodka and pickled herring to keep the party going.
This year the Russian president, Vladimir Putin, celebrated by switching off
the flow of natural gas to Ukraine.

As the inhabitants of Moscow and Kiev were waking up Sunday morning, nursing
their hangovers, Russian state television was broadcasting live from a
compressor station near Kursk. The pipeline branch boss was shown barking
into a telephone: “Yes. Yes. And through the big pipes — nothing. Fine.
That’s clear. Let the operators work on it.” As the cameras rolled, workers
turned the big metal wheels, scrutinized computer terminals and watched the
gauges drop.

By the end of the day, the Ukrainian government had called the shut-off
“unacceptable.” The Russian government had denounced the Ukrainians for
turning down a “super-beneficial” new gas contract, one that would quadruple
the price Ukraine now pays for natural gas.

The U.S. government had issued a statement expressing “regret.” The European
Union had announced it would hold a meeting. And thus began 2006, the year
in which Russia will assume the presidency of the Group of Eight for the
first time, the year in which the Russians want “energy security” to be the
G-8’s major theme.

In a way, it made sense. By no ordinary measure does Russia deserve to
belong to the G-8, a group meant to include only the leaders of the world’s
richest democracies. In sheer size, Russia’s economy lags behind those of
Holland, Mexico and Brazil, among others. In per capita income, Russians lag
behind Malta, Brunei, Chile and Uruguay. Even in conventional military
power, Russia, with its army still stuck deep in the Chechen mud, is hardly
the behemoth it used to be.

But in its ability to manipulate European supplies of natural gas, Russia is
once again emerging as a superpower. There are still limitations: It is true
that Ukraine was paying less than the world price for its gas, and also true
that Ukrainian and Russian oligarchs were both profiting from that
post-Soviet arrangement (which helps explain why it existed so long).

It is furthermore true that Ukraine, through which Russian gas also flows to
Western Europe, is not without leverage. Indeed, on Monday, as gas flows
into Austria, Italy, France, Hungary, Poland and Slovakia dropped sharply,
too, loud protests forced the Russians to switch the gas back on.

Nevertheless, the theatricality of the shut-off — those television pictures
of big men turning big wheels — suggests that this was a political
decision. The facts suggest that, too. After all, the object of the
blackmail was Ukraine, a country that is striving to achieve political
independence from Russia — not neighboring Belarus, a country that remains
subservient to Russia. It was also President Putin, not Gazprom, the Russian
gas monopoly, who publicly announced the decisions this week.

More to the point, the decision fits neatly into a pattern. Last month, when
Gerhard Schroeder, the former German chancellor, accepted a seat on the
board of a consortium led by Gazprom, the Russian gas monopoly — a
consortium that will build a Russian-German pipeline that Schroeder approved
during his final days in office — we learned that Russian gas money has
already been used to garner political influence.

This week’s events are further proof that the Russian government is willing
to use its gas pipelines for political purposes as well. Today, Ukraine


next year, why not Germany?

Europe can still avert future blackmail. European governments could invest
in alternative infrastructure, such as marine terminals for receiving and
storing liquefied natural gas — more of which would make gas easier to
trade internationally — or a pipeline from the Caspian Sea, under the Black
Sea and through Ukraine.

Theoretically, the Europeans could also fight back diplomatically, in
concert with the United States. Take that presidency of the G-8, for
example: Is everybody still absolutely sure that Russia should remain a G-8
member? Is everybody absolutely positive that they want Putin to act as the
G-8 president?

But before Western leaders can even contemplate asking such impolitic
questions, they’ll have to recognize Putin’s new year’s celebration as the
warning signal it was. Manipulation of television stations, harassment of
human rights activists, imprisonment of the president’s political rivals


none of that has so far excluded Russia from the club of civilized nations.

Like the war in Chechnya, Russia’s bitter dispute with Ukraine over gas
prices was, until now, largely dismissed as a regional spat. That has to
change. Perhaps if the Russians want to talk about “energy security” in
2006, we should take them up on it.


The writer’s husband was recently named Poland’s defense minister.
Her e-mail address
isapplebaumanne@yahoo.com.


http://www.washingtonpost.com/wp-dyn/content/article/2006/01/03/AR2006010301280.html


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21
. “RUSSIA’S ENERGY POLITICS”

EDITORIAL: The Washington Post, Wash D.C., Wed, Jan 4, 2006

RUSSIAN PRESIDENT Vladimir Putin once again has overplayed his hand. In his zeal to reestablish Moscow’s dominion over Ukraine, he has, as he did
during the Orange Revolution, triggered an international crisis that could end
up weakening rather than strengthening Russia’s international position. Mr.
Putin hoped that by shutting off gas supplies to Ukraine on Sunday, he could
undermine its democratic and pro-Western government.

Instead, he has provided a timely wake-up call to Western European countries
dependent on Russian energy supplies. Those nations now see how Mr. Putin
understands the question of “energy security,” which he would make one of
the principal topics for discussion by the Group of Eight this year.

For Ukraine and other former Soviet republics, Russia’s crude use of energy
for political ends is an old story. For years Moscow has been using its
control over natural gas to reward neighbors who submit to its political
diktat, such as Belarus, and punish those who seek greater independence,
such as Georgia and Moldova.

It has also been trying to gain control over pipelines carrying gas and oil,
as well as electricity networks, by using gas as a lever. That leverage is
considerable: Russia holds more than a quarter of the world’s gas supplies
and is a major supplier to virtually every country in Europe.

Ukraine used to be one of Moscow’s pampered clients. In 2004, as part of his
overt attempt to install a pro-Moscow puppet as Ukrainian president, Mr.
Putin promised to heavily subsidize Ukraine’s gas for years to come. But his
meddling catalyzed the Orange Revolution, which gave Ukraine a democratic
government determined to preserve its independence.

So now Mr. Putin, acting baldly through the state-controlled company
Gazprom, is seeking to quadruple the price Ukraine pays just weeks before
parliamentary elections in which pro-Moscow parties are bidding to regain
power. In partially shutting down supplies on Sunday, Mr. Putin calculated
that Ukraine would allow Russian gas free transit to countries farther west
through the same pipeline — or, if it did not, that Western governments
would blame Kiev.

Instead, when gas pressure fell off sharply yesterday in Vienna, Rome and
Paris, it was Mr. Putin who was reproached — including by such customers as
Germany, which recently agreed to a controversial plan for a new pipeline
under the Baltic Sea. Mr. Putin was forced to back down, though the
underlying price dispute with Ukraine remains unresolved.

He has a sensible way out of the conflict, which the Bush administration is
urging on him: a negotiation in which Ukraine agrees to a gradual shift
toward world market prices. Poland and the Baltic countries have cut such
deals with Russia in the past — though the prices they pay Gazprom are
nowhere near what Mr. Putin proposed to charge Ukraine.

Even if Mr. Putin adopts this course, Western countries should absorb an
important lesson. Without a prosperous or technologically advanced

economy and with greatly reduced military strength, Mr. Putin hopes to
restore Russia’s world-power status through its control of gas. That
inevitably means manipulating supplies to other countries for political ends.

Western countries that do not wish to receive Mr. Putin’s ultimatums — from
Germany, France and Britain to the United States, which is being pressed by
Russia to line up as a major customer for new Arctic gas fields — should
realize that dependence on Russian gas is not consistent with “energy
security.” Instead they should develop alternative sources of supply, or a
greater emphasis on nuclear energy. Russia cannot be allowed to hold its
neighbors, or the world, hostage during a future cold winter. -30-


http://www.washingtonpost.com/wp-dyn/content/article/2006/01/03/AR2006010301283.html


[
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22
. AS RUSSIA IS DOWNGRADED TO ‘UNFREE’
IS IT UNFIT TO HEAD THE G8?

ANALYSIS AND COMMENTARY: By Taras Kuzio
Eurasia Daily Monitor, Vol 3, Issue 2
The Jamestown Foundation, Washington, D.C., Wed, Jan 4, 2006

It is perhaps fitting that the Ukraine-Russia gas conflict has rekindled
debates whether Russia truly belongs in the prestigious G8 group of
advanced liberal democratic market economies. The Wall Street Journal
Europe (January 3) editorialized that, ‘All of this makes Russia’s
assumption of the G-8 presidency this month not just ironic but almost
as absurd as when Sudan chaired the U.N. Human Rights Commission.
Moscow’s inclusion in the club was never (and still isn’t) justified on
economic grounds’.

The conservative Daily Telegraph (January 3) wrote more bluntly still:
‘The West has to tell Russia that, plainly and simply, its conduct is
unacceptable if it wishes to remain part of the club of civilized nations’.

The New York-based human rights tank Freedom House’s 2006 world
human rights report shows the degree to which there is a total mismatch in
Russia’s presidency of the G8 and its downgrading from ‘partly free’ to the
status of ‘unfree’ (www.freedomhouse.org). This has taken place in the
same year as Freedom House upgraded Ukraine from ‘partly free’ to ‘free’.

The Russian-Ukrainian gas dispute is therefore no longer a conflict between
two former Soviet republics but a conflict between an autocratic,
non-democratic regime headed by ‘Putin’s Mafia Politics’ (Wall Street
Journal Europe, January 3) and a democratizing regime headed by Viktor
Yushchenko. As The Daily Telegraph (January 3) pointed out, ‘The methods
of gangsterism and blackmail now being used by Gazprom are reminiscent
of the Soviet era’.

Russia’s downgrading to ‘unfree’ places it on a par with other autocratic,
non-democratic regimes in the CIS such as its client state, Belarus,
Azerbaijan, and all five Central Asia states except Kyrgyzstan.

Kyrgyzstan is the exception because its ‘Tulip’ revolution led Freedom
House to upgrade it from ‘partly free’ to ‘unfree’. Kyrgyzstan joins
Georgia, Armenia and Moldova as the CIS four ‘partly free’ states. In
being downgraded Russia has joined seven ‘unfree’ CIS states.

One reason why Russia’s status was downgraded to that of ‘unfree’ is that
the authorities hostility to NGO’s and civil society has steadily grown. In
late December 2005 both houses of the Russian parliament approved a
new law requiring NGO’s to re-register and making it more difficult for
those re-registered to obtain foreign funding.

Such restrictions on civil society inside Russia are only the latest in
salami tactics used by President Vladimir Putin against the media, regional
governors, oligarchs and democratic political parties. Russia’s attitudes
towards civil society place it squarely in the same camp as the last
dictatorship in Europe – Belarus – propped up by Russian gas subsidies.

Both Russia’s and Belarus’s views on civil society as only being able to
exist because of foreign funding are inherited from the former USSR when
dissidents were routinely accused of being ‘CIA’ or ‘Zionist’ agents. These
Soviet views are added to by equally Soviet-era conspiracy theories that
blame the colored revolutions on the US.

Freedom House downgraded Russia to ‘unfree’ because of the
marginalization of the political opposition, state control of the media,
decline in independent judiciary, growth of ‘anti-democratic tendencies’,
and pressure on civil society. These are all areas where Freedom House
noted improvements in Ukraine.

Freedom House also rightly condemned (before the gas conflict erupted)
Russia’s attempts at undermining democratic progress in the CIS. A final
factor in downgrading Russia was Moscow’s support for anti-democratic
regimes in the CIS.

In contrast, Ukraine is the first CIS state to join the ‘free’ group of
countries in the world. This places it in the lead among the four
post-Communist states that have experienced colored revolutions (Serbia
[2000], Georgia [2003], Kyrgyzstan [2005]). Freedom House upgraded
Ukraine to just inside the ‘free’ group of states.

In being upgraded, Ukraine has joined the 12 East-Central European states
out of 27 post-communist states also designated as ‘free’. Three
East-Central European and four CIS states are defined as ‘partly free’ while
Russia and six other CIS states are ‘unfree states’.

Thus, these designations show the degree to which post-communist states in
East-Central Europe and the CIS are radically diverging. They also show how
2004-2005 were pivotal years where Russia and Ukraine diverged in their
paths, the former towards autocracy and the latter towards democracy.

Few Western commentators have bothered to connect Russia’s growing
autocracy and undemocratic regime at home with a return to a neo-Soviet
aggressive foreign policy. It is now evident that Russia’s aggressive stance
towards Ukraine both in the gas conflict, and during the 2004 presidential
elections, show how Russia’s domestic and foreign policies are closely
woven.

The resignation of Russian presidential adviser Illarionov on the eve of the
gas conflict brought home this inter-connection. The use of gas pressure,
Illarionov claimed, was first tested inside Russia during regional governor
elections. After their success, the Russian authorities decided to apply
them towards foreign countries (grani.ru, December 21).

Recent events in the gas dispute, and Freedom Houses designations, have
also brought home another close connection between Russia’s undemocratic
domestic policies and its support for autocratic regimes abroad. Of the six
CIS states that are designated by Freedom House as ‘unfree’, four are
politically aligned with Russia (Belarus, Kazakhstan, Uzbekistan,
Tajikstan).

Russia supported Uzbekistan’s brutal massacre of civilians in May 2005
which led to Tashkent’s re-alignment from the US to Russia. Freedom
House defines Uzbekistan and Turkmenistan as two of the eight worst
human rights offenders in the world.

During President George W. Bush’s second term the US has gradually
become more aware of the inter-connection between Russia’s undemocratic
domestic and aggressive external policies. But, it is ‘old Europe’ inside
the EU that is now finally having to come to terms with the real Russia
under Putin.

Germany has already changed its view of Russia after the Social Democrats
lost the elections. But, traditionally Russophile France continues to hold
on a view of Putin’s Russia that, as the gas conflict proves, is out of
touch with reality. -30-


Taras Kuzio, Visiting Professor, Institute for European, Russian
and Eurasian Studies, George Washington University, Washington,
DC,
tkuzio@gwu.edu


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published in English four times a year please send an e-mail to
ArtUkraine.com@starpower.net. Complete information can be found
on the web at:
http://www.artukraine.com/availbooks/index.htm.


“THE ACTION UKRAINE REPORT- AUR” – SPONSORS
“Working to Secure & Enhance Ukraine’s Democratic Future”
1. THE BLEYZER FOUNDATION, Dr. Edilberto Segura, Chairman;
Victor Gekker, Executive Director, Kyiv, Ukraine; Washington, D.C.,
http://www.bleyzerfoundation.com.
Additional supporting sponsors for the Action Ukraine Report (AUR) are:
2. UKRAINIAN FEDERATION OF AMERICA (UFA) , Zenia Chernyk,
Chairperson; Vera M. Andryczyk, President; Huntingdon Valley,
Pennsylvania
3. KIEV-ATLANTIC GROUP, David and Tamara Sweere, Daniel
Sweere, Kyiv and Myronivka, Ukraine, 380 44 298 7275 in Kyiv,
kau@ukrnet.net
4. ESTRON CORPORATION, Grain Export Terminal Facility &
Oilseed Crushing Plant, Ilvichevsk, Ukraine
5. Law firm UKRAINIAN LEGAL GROUP, Irina Paliashvili, President;
Kiev and Washington,
general@rulg.com, www.rulg.com.
6. BAHRIANY FOUNDATION, INC., Dr. Anatol Lysyj, Chairman,
Minneapolis, Minnesota
7. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine,
yuriy.sivitsky@softline.kiev.ua; Volia Software website:
http://www.volia-software.com/ or Bill Hunter, CEO Volia Software,
Houston, TX 77024;
bill.hunter@volia-software.com.
8. ODUM– Association of American Youth of Ukrainian Descent,
Minnesota Chapter, Natalia Yarr, Chairperson
9. UKRAINE-U.S. BUSINESS COUNCIL, Washington, D.C.,
Dr. Susanne Lotarski, President/CEO; E. Morgan Williams,
SigmaBleyzer, Chairman, Executive Committee, Board of Directors;
John Stephens, Cape Point Capital, Secretary/Treasurer
10. UKRAINIAN AMERICAN COORDINATING COUNCIL (UACC),
Ihor Gawdiak, President, Washington, D.C., New York, New York
11. U.S.-UKRAINE FOUNDATION (USUF), Nadia Komarnyckyj
McConnell, President; John Kun, Vice President/COO; Vera
Andruskiw, CPP Wash Project Director, Washington, D.C.; Markian
Bilynskyj, VP/Director of Field Operations; Marta Kolomayets, CPP
Kyiv Project Director, Kyiv, Ukraine. Web:
http://www.USUkraine.org
12. WJ EXPORT-IMPORT, Agricultural Companies, Kyiv, Ukraine,

David Holpert, Chief Financial Officer, Chicago, Illinois.
13. EUGENIA SAKEVYCH DALLAS, Author, “One Woman, Five
Lives, Five Countries,” ‘Her life’s journey begins with the 1932-1933
genocidal famine in Ukraine.’ Hollywood, CA, www.eugeniadallas.com.


“THE ACTION UKRAINE REPORT – AUR” is an in-depth, private,
independent, not-for- profit news and analysis international newsletter,
produced as a free public service by the non-profit
www.ArtUkraine.com
Information Service (ARTUIS) and The Action Ukraine Report Monitoring
Service The report is distributed in the public interest around the
world FREE of charge. Additional readers are always welcome.
TO GET ON OR OFF THE DISTRIBUTION LIST
If you would like to read “THE ACTION UKRAINE REPORT- AUR”
please send your name, country of residence, and e-mail contact
information to
morganw@patriot.net. Additional names are welcome. If
you do not wish to read “THE ACTION UKRAINE REPORT” around
five times per week, let us know by e-mail to
morganw@patriot.net. If
you are receiving more than one copy please contact us and again please
contact us immediately if you do not wish to receive this Report.


PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer
Emerging Markets Private Equity Investment Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
Mobile in Kyiv: 8 050 689 2874
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com


Power Corrupts and Absolute Power Corrupts Absolutely.


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