AUR#899 Aug 22 Economic Outlook; Inflation; Gas Price May Double; Russian Energy; Investors Quit Russia; No Chicken Kiev

 
ACTION UKRAINE REPORT – AUR       
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In-Depth Ukrainian News, Analysis and Commentary

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
CELEBRATE INDEPENDENCE DAY !
17th Anniversary, Sunday, August 24 
                     
ACTION UKRAINE REPORT – AUR – Number 899
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., FRIDAY, AUGUST 22, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited
New York, New York, Monday, August 11, 2008
 
2 UKRAINE 2008 INFLATION TO SLOW DOWN TO 18.2% SAYS RAIFFEISEN 
Business Digest, Sofia, Bulgaria, Wednesday, August 20, 2008
 
ROVER, VOLVO & PORSCHE
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Mon, July 28, 2008
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited, New York, NY, July 2008
 
EMISSIONS, CUT GAS COSTS AND ENHANCE WORKPLACE SAFETY
Cogeneration Project in Donetsk Region Taps into GE Energy’s Jenbacher Gas
Engines to Generate On-Site Power as Coal Industry Modernizes Mine Operations
Business Wire, Jenbach, Austria, Wednesday, August 20, 2008
 
FROM RUSSIAN ENERGY TRADE
Investment atmosphere in the energy trade: corruption and non-transparency
Presentation in London, By Keith C. Smith
Center for Strategic and International Studies (CSIS), Washington D.C., June 2008 
 
Charles Clover in Moscow, Financial Times, London, UK, Thu, Aug 21 2008
 
By Chrystia Freeland, U.S. Managing Editor, FT
Financial Times, London, UK, Thursday, August 21 2008
 
Analysis: By Thomas Deters, Office Director
First International Resources, Washington, D.C.,
Action Ukraine Report (AUR), Washington, D.C., Friday, Aug 22, 2008
 
Analysis: By Elizabeth Piper, Reuters, Kiev, Ukraine, Thu Aug 21, 2008
 
Ukraine’s prime minister has sharply criticised the country’s president for restoring displays
of military hardware to Sunday’s independence day parade amid fears of provoking Russia.
By Damien McElroy in Kiev, Telegraph, London, UK, Thursday, 21 Aug 2008
12UKRAINE TO BEEF UP MILITARY POTENTIAL IN AREAS AT RISK FROM RUSSIA
By Fedir Oryshchuk, Ukrainian daily Delo
Kyiv, Ukraine, Tuesday, August 19, 2008
Published by Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21 2008
 
By Diane Francis, National Post, Don Mills, Ontario, Canada, Thu, August 21, 2008
14THE GEORGIA-UKRAINE ANALOGY: WHAT’S THE REAL LESSON?
With Putin pushing a Russian Imperialist agenda, it’s crucial that former
Soviet republics strengthen their alliances with the West
Analysis & Commentary: Oleh S. Ilnytzkyj, Freelance
Edmonton Journal, Edmonton, Alberta, Canada, Wednesday, August 20, 2008
 
Commentary & Analysis: By Vitaliy Voznyak
Transitions Online (TOL), Prague, Czech Republic, 20 August 2008
 
16.  POLAND, UKRAINE AND THE BALTICS, NERVOUS NEIGHBORS
Russia’s war in Georgia troubles its western neighbours
The Economist, London, UK, Thursday, August 21, 2008 

17.  RUSSIAN EFFORTS AT REGIME CHANGE
OP-ED: By Ethan S. Burger
Action Ukraine Report (AUR), Wash, D.C., Friday, August 22, 2008
By Askold Krushelnycky in Kiev, The Independent
London, United Kingdom,Wednesday, 20 August 2008
Investors Business Daily (IBD), New York, NY, Monday, Aug 18, 2008
20 THE DRIVE TO SECEDE
Georgian provinces likely to join Russia
OPINION: By Eric Margolis, Winnipeg Sun
Winnipeg, Manitoba, Canada, Sunday, August 17, 2008
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1
 ECONOMIC OUTLOOK: UKRAINE
 
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited
New York, New York, Monday, August 11, 2008
 
Although the baseline scenario of the Economist Intelligence Unit is that overall macroeconomic stability will be preserved, the threats from rapidly rising inflation and a widening current-account deficit have intensified. The growth in incomes seen in recent years is unsustainable, and under our baseline scenario, real growth in private demand will ease over the forecast period.
 
In combination with slower expansion in the global economy and the impact on Ukrainian industry of several years of steep rises in the cost of gas imports, this is expected to slow real GDP growth in 2008-09. High export prices should continue to soften the blow on the crucial metals sector. Assuming a soft landing in 2008-09, growth should pick up in the later years of the forecast period.
Short-term economic outlook
 
Real GDP growth picked up to 7.2% year on year in May. However, there are indications that income and credit growth, which have been fuelling consumption, are beginning to ease, supporting our existing forecast that real GDP growth will slow to 6.2% in 2008.
 
In the light of the risk of a substantial rise in the price of gas imports in 2009, the risks to our 5.8% forecast for 2009 growth are on the downside. Annual real GDP growth is forecast to average more than 6% in 2008-12, helped by solid domestic demand and high steel prices.
Although the Ukrainian banking sector is generally sound, the tightening of credit conditions globally promises a less favourable external environment for Ukraine’s corporations and banks, which have increased their borrowing abroad in the past few years to fund domestic credit growth.
The government’s populist spending measures will support household consumption in the short term, but this could translate into even higher inflation, eroding income growth in real terms.
Although our forecast of a 65% rise in global steel prices in 2008 suggests an improving external environment for the sector during the year, output increases will be constrained by the high cost of energy and raw materials used in the metallurgy sector, such as iron ore and coking coal.
Ukraine remains dependent on Russia for most of its energy imports, and Russia is still an important market for Ukrainian metals and machine-building exports. Ukraine has nonetheless made strides in diversifying into new markets. Exports to the EU now consistently exceed those to Russia, but are heavily weighted towards low value added products.
Ukraine’s services sector will continue to benefit throughout the forecast period from strong growth in household incomes. Retail trade turnover increased by over 25% annually in 2005-07, reflecting rapidly rising real incomes and consumer confidence, as well as considerable pent-up demand. Demand for financial services will also continue to grow strongly over the medium term, helped by economic expansion and deepening confidence in the financial sector.
Longer-term outlook
Real GDP is forecast to grow at an average rate of around 4.4% annually in 2008-30. However, this long-term average masks a general trend towards slower rates of expansion, and average annual GDP growth is forecast to slow from just over 6% in 2008-10 to 4.7% in the subsequent decade, and to 3.5% in 2021-30.
 
The slowdown in the long-term growth rate primarily reflects poor demographics, with the result that the deceleration in growth rates on a per-head basis will be considerably less marked. It also reflects the slow pace of institutional change and reduced scope for catch-up as Ukraine becomes richer.
 
However, the economy will grow significantly more quickly than the developed west European economies, with the result that that Ukrainian GDP per head—in purchasing power parity (PPP) terms—will continue to rise closer to EU levels, from around 24% of the EU15 level in 2003.
The real GDP growth rates expected over the longer term are far below what was achieved in the past five years, with considerably less scope for bounce-back following the economic collapse of the 1990s.
 
The far more modest growth rates expected over the long term represent a best-case scenario. They include optimistic assumptions on labour productivity and the growth in capital stock, and presuppose that sound policies bring further economic liberalisation, disinflation and only limited fiscal deficits. The risk is that policymaking will be worse than expected, given the continued strength of vested interests, resulting in even more modest growth rates.
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2.  UKRAINE 2008 INFLATION TO SLOW DOWN TO 18.2% SAYS RAIFFEISEN BANK
 
Business Digest, Sofia, Bulgaria, Wednesday, August 20, 2008

Raiffeisenbank Ukraine’s inflation for the full 2008 will slow down to 18.2 pct from the 26.9 pct year-on-year rate recorded in July, according to a
research by Ukrainian Raiffeisen Bank Aval.

The consumer price index (CPI) declined by 0.5 pct on the month in July and eased on an annual basis to 26.9 pct from 29.3 pct in June. The traditional
summer seasonal fall in fruit and vegetable prices decelerated the food prices growth to 39 pct year-on-year at the end of July from 50.2 pct at the
end of May.

Taking into account the extremely good harvest this year, Raiffeisen’s analysts expect another deflation month in August and a relatively low monthly inflation rate in September. Inflation pressures, however, are unlikely to subside in the face of skyrocketing production prices and expansionary fiscal policy, Raiffeisen noted.

The producer price index (PPI) picked up 3.6 pct month-on-month in July, bringing the annual growth rate up to 46.4 pct. The fastest growers, the
prices in the steel, mining and oil-processing industries, marked a rise of 65.9 pct, 46.8 pct and 41.2 pct, respectively, since the beginning of the
year.

Moreover, the authorities are reportedly considering a substantial gas tariffs hike for households by the end of the year, which could speed up
inflation to over 20 pct if its magnitude reaches 30 to 40 pct.
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3.  WINNER IMPORTS UKRAINE, LTD, JOINS U.S.-UKRAINE BUSINESS
COUNCIL (USUBC), OFFICIAL IMPORTER FOR FORD, JAGUAR, LAND
ROVER, VOLVO & PORSCHE

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, July 28, 2008

WASHINGTON, D.C. The executive committee of the U.S.-Ukraine Business Council (USUBC), on behalf of the entire membership, is most
pleased to announce that Winner Imports Ukraine, Ltd., has been approved for USUBC membership. Winner Imports Ukraine, Ltd, is the official importer for Ford, Jaguar, Land Rover, Volvo and Porsche. 

During a Wimbledon championship in 1991 one of Ford’s top managers in the United States suggested to John Hynansky, the owner of Ford dealerships in
Delaware and Pennsylvania, known under the name of Winner, that he go into a new business in Ukraine.

Mr. Hynansky had worked in the automobile industry for over 25 year at that time. He had built a vast network of automobile dealerships on the East Coast
of the United States and won several awards which highlighted his commitment both to business and to the customer.

John Hynansky, an American with Ukrainian heritage, said he was not quite interested in buying another firm but liked the idea of helping Ford start a
network of dealerships in Ukraine.

Encouraged by this idea, John Hynansky first traveled to Ukraine in 1992, shortly after the republic declared its independence. It was not long until he
came to love the country of his origin. His parents were born in Ukraine but left the country in the late 1930’s and came to the United States.

At the end of 1992, the first Winner Ford dealership was launched in Kyiv. This flagship facility was deemed as the largest facility in Ukraine and set
the benchmark for an automobile industry that was still in its infancy.

VOLVO, JAGUAR, LAND ROVER & PORSCHE

Due to it’s commitment to customer service and high level of professionalism, Winner Imports Ukraine was awarded as the official importer of Volvo cars
to Ukraine in 1999.  This was a monumental step as it was a commitment from another major manufacturer to Winner Imports Ukraine.

In 2004, Winner Imports Ukraine was awarded the Jaguar, Land Rover, and Porsche franchises for Ukraine.  This again, was another prize for Winner as
it showed the high level of commitment and trust from the manufacturer to the importer, as these marquee brands believed in Winner’s commitment to
provide the best automotive experience to the consumer.

In 2006, Winner Automotive, a sister company of Winner Imports Ukraine opened the largest multi-brand concept dealership in Eastern Europe.  This
dealership, located in Kyiv, houses the Ford, Volvo, Jaguar, and Land Rover brands.  This $10,000,000 project reconfirmed Winner’s position as the clear
leader in the Ukrainian automobile business.

35,000 VEHICLES SOLD, 50 SALES & SERVICE POINTS

Winner Imports Ukraine, during the past 16 years has sold more than 35,000 vehicles and has developed a network of more than 50 sales and service points throughout Ukraine.  Winner Imports Ukraine constantly strives to optimize its processes and personnel in order for the consumer to have the best automobilepurchase and service experience possible.

Mr. Bohdan Kulchyckyj is General Director of Winner Imports Ukraine.  An American with Ukrainian heritage, he has lived and worked in Ukraine for the
last 16 years.

Additional information about Winner Imports Ukraine, Ltd and Winner Automotive can be found on their website at: http://www.winner.ua/en.

“The U.S.-Ukraine Business Council (USUBC) is most pleased to have Winner Imports Ukraine, Ltd. join the rapidly expanding USUBC membership.” said Morgan Williams, SigmaBleyzer, who serves as President of USUBC. “Winner has certainly earned its place among the leading automotive companies in Ukraine.”

MEMBERSHIP IN USUBC KEEPS GROWING

Winner Imports Ukraine is the 36th new member for 2008, and the 66th new member since January of 2007. USUBC membership has quadrupled in the
past 19 months, going from 22 members in January of 2007 to 87 members in July of 2008. Membership is expected to top 100 very soon.

The other new members in 2008 are MaxWell USA, Baker and McKenzie law firm, Och-Ziff Capital Management Group, Dipol Chemical International,
MJA Asset Management, General Dynamics, Lockheed Martin, Halliburton, DLA Piper law firm, EPAM Systems, DHL International Ukraine, Air Tractor,
Inc., Magisters law firm, Ernst & Young, Umbra LLC., US PolyTech LLC, Vision TV LLC, Crumpton Group, American Express Bank, a Standard
Chartered group company, TNK-BP Commerce LLC, Rakotis, American Councils for International Education, Squire, Sanders & Dempsey LLP,
International Commerce Corporation, IMTC-MEI, Nationwide Equipment Company, First International Resources, the Doheny Global Group, Foyil
Securities, KPMG, Asters law firm, Solid Team LLC, R & J Trading International, Vasil Kisil & Partners law firm, AeroSvit Ukrainian Airlines
and ContourGlobal. 

The complete USUBC membership list and other information about USUBC can be found at: http://www.usubc.org.

BUSINESS INVESTMENT DRIVES UKRAINE’S INTEGRATION

Ukraine’s Euro-Atlantic integration is first and foremost today being driven by the private business community in Ukraine, Europe, and the United States.


“Ukraine’s aspirations for Euro-Atlantic integration, to be a major member of the world’s community of strong, democratic, independent, prosperous,
private business sector driven nations, will be realized largely through the present leadership and investments from the business community and then
hopefully with some real support later from the politicians and government leaders,” wrote Morgan Williams, SigmaBleyzer, who serves as President
of USUBC, in a recent article published by the “Welcome to Ukraine” magazine.
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4. UKRAINE: COMING CRISIS GAS PRICE COULD DOUBLE NEXT YEAR

 
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited, New York, NY, July 2008

The gas price for Ukraine could double next year, threatening both economic meltdown and gas transit to Europe.

Ukraine is facing the threat of the its imported gas price soaring in 2009. Potentially this would be ruinous for Ukraine, thus putting Russian gas supplies to Europe into doubt again. It is not clear whether Ukraine has the means to negotiate with Russia a more gradual transition to EU prices; if it does, the political price is likely to be high.

The price that Ukraine pays for imported gas could double next year, Gazprom CEO Alexei Miller told Russian prime minister Vladimir Putin in a meeting on July 8th. Mr Miller had previously remarked that the price paid by Ukraine could rise from US$179.50/1,000 cu metres this year to US$400 in 2009. Mr Miller’s latest comment is noteworthy because it underlines the Russian state-run gas monopoly’s insistence on a higher price.

Speaking after a meeting on June 28th with Ukrainian prime minister Yuliya Tymoshenko, Mr Putin said that the price paid by Ukraine would rise gradually to market levels. He did not specify a time period, nor indicate how high prices might rise in 2009. Moreover, he noted that the Central Asian states were eager to achieve a “European price” from the start of 2009.

A day later Ms Tymoshenko claimed that the outcome of the meeting was for prices to rise to a Euro-pean level over a period of three-four years. Ukraine’s fuel and energy minister, Yuri Prodan, claimed in an interview published with newspaper Delo on July 9th that Ukraine had an outline agreement to avoid a sharp price rise in 2009. However there is no corroboration of this from any Russian official.

Ukraine has contracted to buy 55bn cu metres of gas each year from Central Asia, via the intermediary RosUkrEnergo. This accounts for the lion’s share
of the country’s consumption, which is high by European standards. BP data show that Ukraine produced 19bn cu metres of gas and consumed 64.6bn cu
metres in 2007.

Ukraine has tried unsuccessfully to re-establish direct contact with the Central Asian gas producers. In mid-March, following a meeting with them,
Gazprom announced that from 2009 the Central Asians would receive a European price for their gas.

Crunching numbers
The so-called European price refers to the cost of Russian gas at Germany’s eastern border, which is determined by a formula linked with the price of
crude and oil products. Recently the price has been around US$335/1,000 cu metres, according to World Gas Intelligence, but the same source has
predicted that prices could soon rise to nearly US$400/1,000 cu metres.

If the import price did rise to this level it would represent an eightfold increase on the price Ukraine paid throughout 2005. The current import price
of just under US$180 per 1,000 cu metres equates to a domestic retail price of around US$240, to cover internal transit costs, a supplier margin and
value-added tax (VAT). So if import prices were to double, the price for end-users would be close to US$500 per 1,000 cu metres.

Apocalypse soon?
The imposition of such a high gas price on Ukraine would have direct and potentially devastating effects.

 
[1] First, it would have a serious impact on industry. The country’s energy-intensive firms have responded well to the tripling of prices since 2005, by making quick and cheap energy-saving changes and where possible shifting to cheaper fuel sources. Anecdotal evidence suggests that these possibilities have been largely exhausted.

Metallurgy enterprises began investment programmes several years ago to introduce more advanced energy-saving equipment into their plants, but a
number of these programmes are two years away from completion and may not in any case have been predicated on such high gas prices.

Ukrainian industry is dominated by metallurgy and chemicals. Base metals and products accounted for 42% of goods exports in 2007, and chemicals a further 8%. It is believed that fertiliser producers would struggle to turn a profit if the gas price rose above US$300/1,000 cu metres.

For steel plants, the tolerance level is understood to be considerably higher, at approximately US$400/1,000 cu metres. The one uncertainty concerns prices for these companies’ output, which determines their margin. Fertiliser prices fell in the early months of this year, but steel prices thus far have remained high.

[2] Second, it would impact on the current-account balance, which has already deteriorated from a peak surplus equivalent of over 10% of GDP in 2004 to a deficit of 4% of GDP in 2007 under the weight of strong domestic demand and several years of steep rises in energy import costs. The deficit is heading for a further widening to well over 5% of GDP in 2008.

To date, the deficit has been comfortably covered by rising inflows of foreign direct investment (FDI) and external borrowing by the Ukrainian
banking sector and corporates, with the result that the domestic currency, the hryvnya, has remained under upward pressure (this led the central bank
to revalue the official exchange rate against the US dollar by 4% in May).

However, concerns over whether Ukraine can continue to finance its current-account deficit in 2009 are intensifying. If gas import volumes remained unchanged and the gas price rose to US$400, the import bill would increase by US$8bn or 4% of GDP, to 7.3% of GDP.

[3] Third, it would place a huge strain on Ukrainian households and public institutions, which combined consume around 25bn cu metres of gas annually.

Thus far the government has cushioned the impact of higher import prices on households by maintaining a regulated end-user price that is lower than the
wholesale price. Losses have been directed onto municipal budgets and the state gas utility Naftohaz. This situation could not continue were gas
prices to double.

Fourth, given the centrality of gas to Ukraine’s economy, it would deliver a huge boost to inflation directly and through second-round effects. Consumer
prices rose by an average of 22% in the first quarter of this year, and over 30% in the second quarter. Although price-growth may now have peaked, a
doubling or more of gas prices would throw that deceleration into reverse.

Taken together, these effects would inflict ruinous damage right across the economy. In such a situation it is not certain whether Ukraine could be
relied upon to deliver the sizeable gas volumes that Russia ships to Western markets via Ukrainian territory.

Some 80% of Russian gas exports to the EU, approximately 120bn cu metres, cross Ukraine. This year the figure may be even higher: in the first half of
the year, according to Ukraine’s fuel and energy ministry, transit volumes rose by 23% to an all-time high of 65.3bn cu metres.

Unattractive options
Facing these problems, Ukraine’s government has several options.

[1] First, it could raise transit fees for Russian gas. The current rate of US$1.70/1,000 cu metres per 100 km is low by European standards; Poland applies a tariff of approximately euro2.50. However, even increasing transit fees to US$3.50/1,000 cu metres per 100 km would not do much to offset the shock of such a rise in the gas import price.

Data on Ukrainian receipts for gas transit are not readily available, but on the basis of a transit fee of US$1.70 and volumes of 120bn cu metres per year it could be approximately US$2.25bn. It follows that by increasing the transit fee to US$3.50 per 1,000 cu metres, receipts to Ukraine would increase by no more than US$2.4bn. This increase pales in comparison with the prospective US$8bn increase in the import bill. However, it would go some way to meeting the increased cost of gas for households and public institutions.

[2] Second, the government could reduce the end-user price by cutting or abolishing VAT, which is currently levied at a rate of 20%. This would offer
limited help to Ukrainian consumers, but at the same time it would reduce the government’s financial possibilities to help cushion the impact of higher prices. Nor would it sit well with the task of narrowing the budget deficit, which is already difficult because of Ms Tymoshenko’s populist
spending programmes.

[2] Third, the government could choose to decapitalise Naftohaz as a partial solution to its problems. However the scope for doing so is limited, given
Naftohaz’s already parlous financial state and the existence of a sovereign guarantee to the company. Moreover, there is a high human and political cost
to decapitalisation; in 2007, 52 people died in Dnipropetrovsk when their apartment building exploded because equipment to regulate gas pressure was
not installed.

Putin’s ponderables
For Russia’s government, a gas-price shock for Ukraine would be a mixed blessing. On one hand, it would have certain advantages. By damaging Ukraine’s
economy, it would undermine the legitimacy of the government that emerged as a result of the 2004 Orange Revolution that Russia opposed.

Ukraine currently represents the greatest challenge to the political and economic development model that Russia champions; its failure would increase
the sense of security felt by Russia’s own elite, which has been anxious to prevent what it terms the “Orange virus” spreading to Russia.

On the other hand, severe socioeconomic instability in Ukraine is not in Russia’s interest, given the strong political, economic, military and human ties between the two countries.

 
If gas became unaffordable for many Ukrainians, or if Naftohaz and Gazprom were at war over prices or transit tariffs, Russian gas exports to Europe would be in jeopardy. Oil transit could be affected too, conceivably. Europe is the major market for these Russian commodities, which together dominate Russia’s export profile.

The Russian calculation with regard to Ukrainian gas prices is also affected by the position of the Central Asian countries. Russia cannot simply dictate
terms to the Central Asians, as the gas price has risen so far and now the EU and especially China have emerged as rival customers for the region’s
hydrocarbons.

It is conceivable that Mr Putin and president Dmitry Medvedev could persuade Turkmenistan, Uzbekistan and Kazakhstan to accept a graduated shift to
European prices, over a period of perhaps two-three years, but the Russian leadership would have to spend significant political capital to achieve this.

For Gazprom’s EU customers, the struggle over Ukrainian gas-pricing next year should be a source of enormous concern. About 80% of the Russian gas
they receive comes via Ukraine; there is little scope for increasing deliveries via Belarus, which may itself soon be in conflict with Russia over the gas trade terms for 2009. The mooted Ukrainian bypass routes Nord Stream and South Stream are years away from completion.

The prospect for gas cut-offs because of disagreements on price or transit fees, or because of theft from the pipeline, is considerable. Ukraine’s government has stressed in the past two years that it is a reliable transit partner and would not take any such steps lightly. But when gas for the population and swathe of industry becomes unaffordable, desperate measures should probably be expected. SOURCE: Business Eastern Europe
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations and investment since 1995.
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5.  UKRAINE’S COAL MINE INDUSTRY CONTINUES WORK TO REDUCE
EMISSIONS, CUT GAS COSTS AND ENHANCE WORKPLACE SAFETY
Cogeneration Project in Donetsk Region Taps into GE Energy’s Jenbacher Gas
Engines to Generate On-Site Power as Coal Industry Modernizes Mine Operations
 
Business Wire, Jenbach, Austria, Wednesday, August 20, 2008
 
JENBACH, Austria – The JSC Coal Company Krasnoarmeiskaya Zapadnaya is the latest Ukraine company to modernize its coal mining operations by signing a framework agreement with GE Energy. Under the agreement, JSC plans to install up to 20 of GE’s ecomagination(TM)-certified Jenbacher coal mine gas-fueled cogeneration units.
 
The engines will use the active mine’s own methane gas to generate about 129 MW in total power output, covering the mine’s on-site power and heat requirements. The initiative will also reduce site emissions and support workplace safety initiatives. The privately owned mine is located near the town of Krasnoarmeisk in the coal-rich Donetsk region in eastern Ukraine.
While many coal mines in Central and Eastern Europe have traditionally utilized a small portion of their coal mine methane (CMM) for generating steam, Ukraine has become a regional leader in installing the latest technology to expand the use of the gas for on-site power generation.
Being one of Europe’s leading coal-producing countries, Ukraine is a founding member of the United Nations-backed Methane to Markets Partnership, an international initiative supporting the cost-effective recovery and utilization of methane, a potent greenhouse gas. Recycling the gas to generate on-site power can offer significant economic benefits.
When the Krasnoarmeiskaya Zapadnaya project reaches full operation, it is expected to potentially reduce the equivalent of more than two million tons CO(2) emissions per year, compared to venting the gas into the atmosphere – qualifying the plant for carbon emission trading certificates.
“Ukraine is encouraging its coal mines to modernize their operations, including the use of mine gas as a new source for on-site power to improve energy efficiency and support the nation’s economic and energy security objectives,” said Alex Pavlov, GE’s Jenbacher gas engine Sales Manager for the Ukraine.
 
“GE is helping operators accomplish this goal by supplying Jenbacher specialty gas engines to help lower their energy costs and reduce methane emissions.
“Generating nearly 129 MW of power with mine gas could save about 122 million cubic meters of natural gas a year,” Pavlov noted.
The project will also enhance workplace safety in the mine. As part of the mine’s new gas utilization initiative, the operator is installing an improved mine gas ventilation system, which will further improve worker safety.
 
By capturing mine gas for on-site power, less of the gas will be available to mix with oxygen and create a potentially explosive combination–one of the most significant hazards that coal miners face.
The power project’s engineering and procurement contractor (EPC) Sinapse CHNPP of Kiev secured the framework agreement to install up to 20 of GE’s 3-MW, JMS 620 GS-S.L. systems, which are designed specifically for projects with low methane contents. Sinapse is also GE’s authorized Jenbacher engine distributor for the region.
The cogeneration units will operate in parallel to the local grid. The mine gas-fueled plant will have total electrical and thermal outputs of 60.9 MW and 67.8 MW, respectively, with the electrical and thermal power being used to support mine operations.
The Jenbacher units are scheduled to be delivered to the site between 2008 and 2011. GE is also supplying a complete heat utilization system, emergency cooling, control and synchronization system, as well as start-up and commissioning. Long term service for the Jenbacher units will also be provided by Sinapse, enhancing the value of this alternative energy project.
The Ukraine coal mine industry has now ordered a total of 44 of GE’s J620 GS Jenbacher gas engines for several CMM projects. GE’s previous successful installations were a factor in Krasnoarmeiskaya Zapadnaya selecting the Jenbacher units for its CMM project.
About GE Energy’s Jenbacher Gas Engines
GE Energy’s Jenbacher gas engine business, based in Jenbach, Austria, is a leading manufacturer of gas-fueled reciprocating engines, packaged generator sets and cogeneration systems for power generation.
Jenbacher engines cover an output range of 0.25 to 4 MW and operate on natural gas or a variety of specialty fuels, including flare gas and coal mine gas or alternative fuels like biogas, landfill gas, wood gas, sewage gas and industrial waste gas.
 
Patented combustion systems coupled with advanced engine and plant management systems enable customers to meet stringent international emission standards while offering high levels of efficiency, durability, and reliability.
About GE Energy
GE Energy ( http://www.ge.com/energy) is one of the world’s leading suppliers of power generation and energy delivery technologies, with 2007 revenue of $22 billion. Based in Atlanta, Georgia, GE Energy works in all areas of the energy industry including coal, oil, natural gas and nuclear energy; renewable resources such as water, wind, solar and biogas; and other alternative fuels.
Numerous GE Energy products are certified under ecomagination, GE’s corporate-wide initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges. GE’s Jenbacher biogas, landfill gas and coal mine methane engines have received ecomagination certification, underscoring the environmental and economic benefits offered from the utilization of generating energy from high methane content waste streams.
About GE
GE 28.75, +0.10, +0.4%) is a diversified global infrastructure, finance and media company that is built to meet essential world needs. From energy, water, transportation and health to access to money and information, GE serves customers in more than 100 countries and employs more than 300,000 people worldwide. GE is Imagination at Work. For more information, visit the company’s Web site at http://www.ge.com.
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6.  CORRUPTION, NOT DEPENDENCY IS THE RISK TO
WESTERN EUROPE FROM RUSSIAN ENERGY TRADE
INVESTMENT ATMOSPHERE IN THE ENERGY TRADE:
CORRUPTION AND NON-TRANSPARENCY
 

PRESENTATION IN LONDON: By Keith C. Smith
Center for Strategic and International Studies (CSIS), Washington D.C., June 2008 
 
The growing dependency in Europe on non-transparent financial transfers in the energy trade is as great a danger to Europe as is the increasing dependency on Russia as the primary energy source.  Non-transparent and corrupt business practices can have a corrosive effect on European governments, and especially on the new EU member states of East Central Europe.
 
Western energy companies trying to conduct business in Russia, Ukraine or in Central Asia confront constant pressure from local officials and energy companies to engage in shady business practices when considering investment decisions.  Record high energy prices have increased opportunities for non-transparent Russian state companies to secure influence among Western governments and with political and economic elites in neighboring states.
 
Dubious or outright corrupt business practices are distorting the energy decision-making processes in both consumer and supplier countries.  According to Russian economists, the business climate within the Russian energy sector has become even less transparent and more corrupt in recent years. 
 
Increasing corruption, along with the re-nationalization in Russia of the large energy companies has led to a decline in new investment in exploration and development.  This has resulted in tighter energy markets, higher prices and greater uncertainty among potential importers and investors in the ability of Russia to fulfill its long-term energy contracts.
 
Corruption and re-nationalization has also weakened the bargaining position of Western firms using best practices when engaging in East-West energy trading.  The increasing dominance of Russian state-controlled energy companies has also led to a marked reduction of alternative investment possibilities for Western companies. 
 
This further increases the temptation by Western firms to agree to demands by Eastern energy suppliers to engage in practices not acceptable when dealing with another Western firm. It also raises the likelihood that some Western governments will ignore questionable practices by their countries’ energy suppliers.
 
Predictability in making business decisions is already difficult for Western energy firms.  This is more the result of the increased danger of intervention at any point by elite cartels who dominate the energy trade, particularly in Russia and Central Asia. 
 
These cartels are composed of governmental leaders, intelligence officials and favored business oligarchs.  The composition of these elite groupings can suddenly change, with a shift in the local political balance, only adding to business uncertainty. 
 
Western businesses are often compelled to work with partners favored by elite cartels, with Gazprom and Rosneft as prime examples.  The same often holds true in Ukraine, Kazakhstan and Turkmenistan.
 
The purpose of these elite cartels is to build national and transnational networks and alliances that solidify their own power while they stave off opposition by more transparent and democratic business groups.  The result is to enrich networks of higher level elites, making it even more difficult for reform elements to bring about political and economic change.
 
Polling among Russian business leaders indicates that corruption has significantly increased in the past six to eight years. Why should we in the West assume that the increase in business corruption in Russia has not already spilled over into the activities of these same state-directed firms when they operate in the EU, or even in the U.S.?
 
The Swedish economist Anders Aslund, who has worked for many years in Russia and Ukraine, estimates that 50 percent of Gazprom’s investments are lost through corrupt practices. 
 
William Browder who is now barred from entering Russia, but for years has been active in Hermitage Capital Management, a firm that is heavily invested in Gazprom, has questioned publicly why Gazprom voluntarily foregoes significant profit each year by consigning a large amount of its business to murky intermediaries?  Many commentators assume that Browder is being “punished” for having the temerity to question the practices of a firm indirectly managed from the Kremlin. 
 
However, Browder asks a good question, one that any Western firm dealing with Gazprom or any other state-controlled Russian company should consider before increasing its financial exposure in the energy sector.  Some Western energy companies attempting to negotiate joint ventures with Russian state firms have called off talks with potential Eastern partners rather than agree to funnel profits through off-shore accounts or to intermediary firms that bring no added value to the venture. 
 
Cyprus and other off-shore havens are filled with companies that are reportedly intermediaries in the energy business between Russia, Central Asia and Europe, but bring no added value to the transactions.  It would be an exaggeration to think that all Cyprus-based firms are laundering operations, but many of them appear to have been established for that reason.
 
The highly-publicized asset losses and contractual problems of Shell, BP, Exxon, Matsui and Mitsubishi in Russia are only the most highly publicized cases of contracts being arbitrary changed.  It seems that when doing business in Russia, a contract is not a contract – even if there are solid international arbitration clauses written in to the original agreement.  The recent legal troubles of TNK/BP should be closely studied by Western companies contemplating new energy ventures in Russia.
 
Western firms are rarely in a position to bid on projects where there is a transparent well-supervised tender.  Too often, in Russia, Ukraine and in Central Asia, taking in a “local partner” who is a member of one or another elite oligarchic group is the admission ticket.  Paying the admission fee, however, often leads to a watering down of the Western partner’s assets or ultimately to a complete takeover by the local “investor.” 
 
One European observer said, “Russia pretends to adhere to international business standards, and Europe pretends to believe that this poses no risk to Europe or international security.”
 
The feeble reaction of Western governments and the EU to non-transparent actions by Moscow only encourages the Kremlin to believe in the effectiveness of its aggressive energy policies. As evidence of the West’s weak reaction we could point to their willingness to ignore politically motivated energy disruptions in East Central Europe by Transneft or Gazprom, and to the acceptance by Europe of monopoly and anti-trust practices on the part of Russian companies.  These anti-trust and anti-competition practices are a clear violation of Article 82 of the EC Treaty and of Article 45 of the Energy Charter Treaty
.
There continues to be reluctance on the part of Western governments to investigate and enforce EU and OECD anti-bribery laws and regulations.  The lack of a common EU approach to Russia and Central European energy policies allows Moscow to carry out a “divide and conquer” strategy that plays to the particular vulnerabilities of each European state.
 
Market liberalization and the privatization of energy assets in European states with weak judiciaries or anti-trust enforcement has been an advantage for Russian state companies competing with Western firms – especially when the latter adhere to the OECD convention on anti-bribery of foreign officials.  There is a danger that this may lead, or may have already led, to the enrichment of some well-positioned individuals in European member states.
 
The new democratic governments of Central Europe have been relatively passive in dealing with transparency and anti-corruption issues.  This may be a result of the large number of political and economic leaders who are holdovers from the communist period. 
 
The attention to these matters by the EU has also been diverted by the need to deal with “widening and deepening” issues.  Not enough focus has been given to transparency issues in new member states once EU membership has been achieved, with the exception of Bulgaria and Romania.
 
The weak state of transparency in Central Europe facilitates the formation of new alliances between East European elites and the former communist/intelligence elite in Russia who dominate the major energy companies.  This puts Western firms at a clear disadvantage when negotiating for facilities acquisition or pipeline construction.  With the re-nationalization of Russian energy assets, more of the negotiations with the West are carried out by top governmental officials. 
 
 Fewer agreements are seriously negotiated at the company level.  It is fair to ask whether there are many Western leaders who can negotiate effectively with the seasoned intelligence officers in the Kremlin who are in charge of Russia’s energy policies?  Western leaders rarely have the skills or the ability to fully mobilize state resources required to negotiate on an equal basis. 
 
In addition, Western firms that attempt to carry out due diligence on prospective partners or on government ministries and regulatory agencies are often frustrated by either a lack of information or the reliability of the data fed back to them.  I
 
in some cases, it is impossible for the Western firm to know if those doing the due diligence are really objective agents – even in cases where the firm is headquartered in the West and staffed with Western personnel.  Too many Western energy firms have been taken by surprise by issues that should have been flagged during the due diligence phase. 
 
RECOMMENDATIONS:
 
[1] The EU Commission and Council should push for full implementation of the Parliament’s September 26, 2007 resolution that called for a “common European foreign policy on energy.”  Carrying out the Parliament’s recommendations would help “level the playing field” for Western investors, reduce opportunities to engage in non-transparent or corrupt business practices in the East-West energy business and decrease the large profit that stems from monopoly control of piped natural gas exports from the Caspian Sea countries and Russia to Europe.
 
[2] Western firms should petition the EU, DG COMP and national governments to enforce more vigorously existing anti-trust and competition policy, particularly in regards to Russian state companies.  Greater import competition would lower prices for consumers and for Western power and refinery operators. 
 
Opening existing Russian pipelines to competitors would also increase the supply of oil and gas coming from Russia and Caspian countries and bring more predictability in supply.  The “unbundling” policies being pursued by DG COMP would be a positive step forward.
 
[3] The Council and Parliament should consider establishing an independent regulatory agency with the authority to monitor (but not approve or disapprove) all major energy agreements between EU and non-EU companies. It would report to the Commission regarding the likely effect of the proposed agreement on the broader EU energy market. 
 
The agency could enforce a minimum level of revenue transparency in international energy contracts, extending to all companies (domestic or foreign) that do business within EU member states.
 
[4] Require all member governments to notify the Commission at the start of negotiations with foreign entities regarding the construction of new energy pipelines, the offering of tenders for energy contracts and when conducting talks for the sale of existing facilities within their border. This might counteract the “divide and conquer” activities of Russian state-owned energy firms, thereby leading to greater cooperation by EU states.
 
[5]  Western energy companies would benefit from a uniform reporting requirement that applied to domestic and foreign firms doing business within the EU; one that mandates revenue transparency reporting for their operations at home and abroad. This would weaken the present advantage held by firms from countries with high levels of business corruption and an unwillingness or inability to enforce existing contracts.
 
[6]  Firms should be barred from including confidentiality clauses that hide revenue transparency in contracts with foreign energy companies.
 
[7] The EU Commission should be more active in defending member states against politically-motivated disruptions in energy flows from Russia, such as occurred in Lithuania and Latvia. An unwillingness to defend EU members from this kind of disruption only disadvantages the energy firms and the state interests targeted by Moscow.  It also further encourages those elements in Russia who oppose domestic reform and enforcement of the rule of law. 
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NOTE: Keith C. Smith is a Senior Associate with the Energy and national Security Program at the Center for Strategic and International Studies (CSIS) in Washington. He also serves as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC), www.usubc.org.   He is a former U.S. Ambassador to Lithuania. The views expressed above are solely those of the author and do not necessarily represent those of the Center for Strategic and International Studies or the USUBC.
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7.  INVESTORS QUIT RUSSIA AFTER GEORGIA WAR 
By Charles Clover in Moscow, Financial Times, London, UK, Thu, Aug 21 2008
Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed yesterday.
Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month.
 
The moves come as President Dmitry Medvedev faces pressure from business leaders concerned that the impact of the global credit crisis is starting to be felt in Russia.
Credit conditions are to be discussed at next month’s “summit of oligarchs”, the Russian Union of Industrialists and Entrepreneurs meeting that former President Vladimir Putin held annually to discuss economic issues.
Vladimir Potanin, head of Interros, one of Russia’s largest industrial groups, has complained about the shortage of long-term credit to Mr Medvedev, the financial newspaper Vedomisti reported yesterday.
The tight credit conditions have been exacerbated by foreign capital flight since the war. Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years, according to Ivan Tchakarov at Lehman Brothers.
The only larger drop in reserves since 1998 was $16.5bn in June 2006, when Russia paid off the bulk of its Paris club debt.
Gennady Melikyan, the central bank’s deputy chairman, said the sell-off had been triggered by the “political situation”, adding: “Foreigners are pulling out of some assets and stock markets and the exchange rate has suffered most. I think we have come close to the bottom now.”
While the value of the rouble has stayed relatively stable since the start of the conflict, with the help of central bank intervention, the stock market has fallen 6.5 per cent since August 7 and companies have found it harder to raise capital as investors demand sharply higher yields to buy their bonds to reflect the perceived risk.
The moves show that Russia’s economy, in spite of having one of the strongest national balance sheets in the world, is not immune to global market sentiment, which could end up being an important check on Kremlin decision-making.
“The million-headed hydra of the bourgeoisie has sent a signal: ‘change your course, comrades!'” wrote the popular internet columnist Dmitry Oreshkin on www.ej.ru  in a joking reference to the communist background of Russia’s leadership.
Alexei Kudrin, finance minister, said the capital flight had largely subsided and would be more than made up for by projected inflows. Russia’s foreign currency reserves, at $581bn, are the world’s third largest. “There is nothing that has happened that could cause us to change any of our plans,” he said.
But the ebbing of foreign investor confidence will make it harder for Russian companies to raise debt and equity finance since foreign sources account for a disproportionate share of long-term capital for Russian corporate borrowers.
“The market is vulnerable to foreign capital flight,” said Kingsmill Bond at Troika Dialogue, the investment bank. “The major Achilles heel of the Russian market is that there is very little domestic long-term capital.” Partly as a result of the Georgian conflict, yields on domestic rouble bonds have increased in the last month by between 75 and 150bp, Mr Bond said.
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8.  THE OLIGARCHS COULD BE RUSSIA’S BEST BET 

 
By Chrystia Freeland, U.S. Managing Editor, FT
Financial Times, London, UK, Thursday, August 21 2008

One of the great debates about Russia is now over. We no longer need to argue about whether Russian leader Vladimir Putin’s reassertion of state power is good for the economy and thus essentially benign.

 
We do not need to ponder whether the selection of the “liberal” Dmitry Medvedev as president means the country?will soon, again, become freer. We can cast aside discussions about whether strong-arm Kremlin chiefs will make more reliable partners for the west than the shambolic democrats who preceded them.
The war with democratic Georgia has created a new, sharp consensus across Europe and North America, as voiced with surprising harmony at Nato’s
emergency summit in Brussels this week. Mr Putin’s neo-authoritarian regime – and it is clearly his state and his fight, no matter that we now call him “prime minister” – is a country with which, as the Nato summit concluded, we cannot continue “business as usual”.
But this sad conclusion has left us with another, trickier dilemma: what can we do instead? The initial answers have been sobering. Having finally agreed
that the new Russia is nasty – and not just to its own journalists or human rights activists – western leaders are also coming to the view that it may be hard to influence, let alone contain.
For one thing, there is Russia’s petro-wealth. Your pain at the pump has resurrected Moscow from a humble recipient of International Monetary Fund
financing in the 1990s to the swaggering holder of more than $581bn in central bank international reserves it is today.
 
Some of that money has gone to Russia’s military, which we now remember is vast, has nuclear capability and, as of August 8, is prepared to strike beyond the borders of the Russian Federation. Its actions too are emboldened, at least in part, by what the Kremlin is keen to portray as Washington’s morally equivalent foray into Iraq.
Moreover, like long-suffering vegetarians who have rediscovered the pleasures of eating meat, Russian leaders have bitten into their new role as
the world’s tough guys with relish. They have had all the best lines of the conflict, with even the small and scholarly-looking Mr Medvedev growling
that “if anyone thinks they can kill our citizens . . . we will come out with a crushing response”.
But, for all the parallels between the current conflict and the stand-offs of the cold war, it is worth remembering that today’s Russia has not yet regressed to the days of the USSR. Russians are less free than they were one decade ago, but vastly more free than they were two decades ago.
 
Mr Putin and his siloviki have done an impressive job restoring central political control, but they are Amnesty International compared with the comprehensive, totalitarian grip of the Communist party of the Soviet Union.
Most importantly, notwithstanding Mr Putin’s efforts to reassert state authority over what Lenin called “the commanding heights of the economy”, this time Russia has private property, private businesspeople and growing ties with the world economy.
 
Russian capitalism – and, more crucially, Russian capitalists – may be our best bet if we hope to limit Russia’s malign actions abroad. Crazy though it may sound to contemplate right now, they could even be critical to Russia’s eventual return to a more democratic path.
Of course, thinking of the Russian oligarchs as the good guys will take some getting used to. For one thing, one of the casualties when Russian tanks rolled past Gori was the beguiling “Golden Arches Theory of Conflict Prevention” proposed by Thomas Friedman, the New York Times columnist: “No two countries that both have a McDonald’s have ever fought a war against each other.”
 
Alas, you can buy Big Macs in both Moscow and Tbilisi, so we now know a little consumer capitalism is insufficient immunisation against old-fashioned clashes between imperialism and independence.
Moreover, when it comes to the oligarchs themselves, kowtowing to the Kremlin is their first commandment: the ones who did not realise that have long since been subject to expropriation, exile or imprisonment. Indeed, Russia’s remaining magnates are those who have figured out how to profit from Mr Putin’s neo-authoritarian policies; they would, no doubt, be happy to help harvest whatever economic fruits might come within their reach as a result of any further neo-imperialist incursions.
Yet even with all of those caveats, business is the most progressive force with any remaining power in Russia today. The oligarchs are crony capitalists, but they are global ones, too. Western capital markets, western consumers, western acquisitions and even western MBAs have all become an essential part of the way they do business. That gives them a powerful vested interest in maintaining good relations with the west that the politburo never had, and that the siloviki do not fully share.
Psychologically, they are different, too. Russia’s capitalists did not experience the collapse of the USSR as the humiliation that it was to Mr Putin and his KGB comrades. The turning-point year of 1991 transformed the siloviki from being a feared and privileged elite into ill-paid civil servants, and occasionally publicly reviled ones. For Russia’s magnates, the end of Soviet rule was a winning ticket in the world’s richest lottery, granting them money, power and international prestige.
This brings me to my modest proposal. The west must, of course, be determined in using the few formal tools it has for hemming in a resurgent Russia, particularly denying it membership of the World Trade Organisation and stepping up support for vulnerable neighbours such as Ukraine. But why not take a page from the Kremlin’s own unconventional and deviously brilliant play-book?
 
Mr Putin, as we have seen, is not squeamish about direct confrontations, but sometimes Moscow finds it more convenient to harass the countries, companies and non-government organisations on its blacklist with the subtler tools if denied visas and zealous tax inspectors – you could call it the TNK-BP technique, in honour of BP’s recent Russian joint venture travails.
 
With their lavish foreign holiday homes, healthy foreign bank accounts and appetite for buying foreign assets, Russia’s tycoons are vulnerable to the same pin-pricks.
 
An oligarch recently told me that Mr Putin’s tragedy is that he wants to rule like Stalin but live like Roman Abramovich, the Russian plutocrat. We need to make it clear to him and his business buddies that they cannot do both.
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http://www.ft.com/cms/s/0/aee68316-6faf-11dd-986f-0000779fd18c.html
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9.  THE GEORGIAN CONFLICT’S IMPACT ON UKRAINIAN POLITICS, ENERGY & INVESTMENT
 
ANALYSIS: By Thomas Deters, Office Director
First International Resources, Washington, D.C.,
Action Ukraine Report (AUR), Washington, D.C., Friday, Aug 21, 2008
There is broad consensus that Russia’s invasion of Georgia following Georgia’s incursion into the disputed region of South Ossetia represents a resurgence of Russian influence among former Soviet states, and the return of Russia as the main military and political force in the region. There is also consensus that Russia will attempt to block any move by Ukraine to join the NATO alliance.
 
The more important questions now are how will Ukraine respond, and how that response will impact Ukrainian politics, energy security, and foreign investment. Our analysis in these three areas points to one conclusion: regardless of NATO or Russian action, a resolution of the current political dispute between President Yushchenko and Prime Minister Tymoshenko is the single most important step in guaranteeing Ukrainian security.
Ukrainian Politics: the Yushchenko – Saakashvili Relationship
Four days after the crisis began, Ukrainian President Viktor Yushchenko organized a trip to Tbilisi that included political leaders from the Baltic countries as well as Poland. President Yushchenko also recently issued a decree restricting the use of the port of Sevastopol by Russian Black Sea Fleet vessels and said that vessels based in Sevastopol could not participate in combat operations off Georgia’s coast. Additionally, President Yushchenko announced that Ukraine could offer NATO the use of Ukraine’s early warning radar system.
The Ukrainian President will face a difficult challenge in ensuring Ukrainian security through closer ties with the West while attempting to counter any Russian action in response. Especially dangerous will be President Yushchenko’s close relationship with Georgian President Mikhail Saakashvili.
 
While there is no volatile ethnic issue like South Ossetia that could easily escalate into a military crisis threatening Russia-Ukraine relations, Russian perception of the close ties between Presidents Saakashvili and Yushchenko could be a wild card, since many of Russia’s statements during the crisis have been directed personally at President Saakashvili.
 
For example, in response to NATO’s August 19 announcement of support for Georgia, Russian Foreign Minister Sergey Lavrov said NATO was trying to “whitewash a criminal regime” and take a “path to the rearmament of the current leaders in Georgia.”
There is most likely a less than positive portrayal in Ukraine of President Saakashvili’s actions leading up to and during the current crisis. If President Yushchenko is seen as personally supporting the Georgian President, he could threaten his already fragile domestic support.
Ukrainian Politics: the Tymoshenko-Yushchenko Feud

Although she did send her Deputy Prime Minister, Grigory Nemirya, to Georgia last week, it is surprising that Prime Minister Tymoshenko, who has made criticism of Gazprom a central theme of her administration, has not commented in public on Russia’s incursion into Georgia.
 
Considering Tymoshenko’s previous habit of railing against foreign powers in her accusations of corruption, an argument that she is not commenting on Georgia since foreign affairs are not in the purview of the Prime Minister is somewhat thin.
 
A possible explanation of Tymoshenko’s silence came on August 18, when President Yushchenko’s office accused the Prime Minister of remaining silent to secure Moscow’s political and monetary support during Presidential elections in 2010. According to a statement from the President’s office, prosecutors were being presented with documents about Tymoshenko’s cooperation with Russian interests.
Even if Tymoshenko is counting on Russian support to assist her in a Presidential bid, the support of the Party of Regions will almost certainly be more important to the winning candidate. Tymoshenko has been a vocal opponent of the industrial groups from the east and south of the country who provide significant support to the Party of Regions.
 
Additionally, recent reports indicate that key players in the Party of Regions may not automatically favor Russia in the current crisis and could possibly view European Union and NATO membership as beneficial for Ukraine’s long term economic interests. Any potential ally of Tymoshenko will also keep in mind that historically, her political alliances have not survived over the long term.
In any event, the only realistic outcome from this most recent episode of the Tymoshenko-Yushchenko feud is continued political deadlock in Kiev, to the detriment of Ukrainian economic growth and security. Indeed, the Fitch credit ratings group last week said it remains more concerned about Ukrainian inflation, debt, and natural gas prices than any military threat posed by Russia.
Ukraine Politics: NATO Accession

Since the conflict started, pundits have commented on what the current crisis means for Ukraine’s NATO accession. Predictions have ranged from accelerated NATO membership due to the threat posed by Russia to an indefinite delay in any Ukraine-NATO interaction. Russian leaders have been clear in asserting that Ukrainian membership in NATO is something that they cannot accept.
 
Earlier this year Russia threatened to aim nuclear weapons at Ukraine if it joined the alliance. There is certainly a concern that as Europe’s dependence on Russian energy continues, countries like Germany may not want to address Ukrainian membership in NATO during the December 2008 meeting out of fear of provoking Russia.
On Tuesday, August 19, NATO released a statement urging Russia to immediately withdraw from Georgia, saying there could be no “business as usual” between the alliance and the Kremlin while Russian forces maintain a presence in Georgia. NATO also announced a new commission between the alliance and Georgia, intended to strengthen the country’s ties with the organization.
 
While these statements could be interpreted as falling short of a security guarantee to Georgia and by extension the prospect of a guarantee to Ukraine, both the NATO statement and the public comments of NATO Secretary General Jaap de Hoop Scheffer strongly supported the “territorial integrity” of Georgia.
The December 2008 NATO meeting will provide the next opportunity to understand NATO’s intentions and to find out if the Alliance can gain consensus on offering a membership action plan to Ukraine. If Germany feels that the prospect of Ukrainian membership will provoke Russia too dramatically, it could consider energy considerations as just too important.
 
France, the other country that opposed offering a membership action plan to Ukraine during the most recent NATO summit, played a major role in negotiating the Georgia-Russia cease fire.
 
It is possible that President Sarkozy’s experience in Georgia could influence France’s vote in December. It is also very possible that the U.S. will punt a NATO decision on Ukraine until 2009, especially if Senator Barack Obama wins the November 2008 Presidential elections. If Senator McCain wins, his administration will push hard for NATO membership for Ukraine, and could even offer bilateral military assistance.
What is certain is that Ukraine stands no chance of NATO membership unless the political deadlock in Kiev is broken, since government action is necessary to fulfill the steps required for any country to join. NATO is aware of the opposition to the alliance on the part of a majority of the Ukrainian people. Any effort to help convince people of the benefits of NATO membership will require unity of action from the Ukrainian government.
 
Additionally, the Russian naval base at Sevastopol and Ukraine’s contribution to Russia’s defense industry will need to be addressed before NATO will offer membership. There is little prospect the Kiev can address these issues in the short term. Until that happens, discussions of how external factors will influence Ukrainian membership are premature.
Energy Security

Turning to the issue of energy security, the recent conflict in Georgia resulted in the shutdown of the Supsa oil pipeline, following the earlier shutdown of the Baku-Tbilisi-Ceyhan (BTC) pipeline due to a fire not related to the Georgia-Russia conflict. While the Supsa pipeline remains closed, British Petroleum announced that BTC would reopen the week of August 25.
 
While the fighting so far hasn’t resulted in a dramatic increase in the price of oil, it did call into question future oil and gas pipelines in Georgia, which exports almost 500,000 barrels of trans-shipped oil from its ports each day.
The Nabucco gas pipeline, proposed to span from central Asia to Europe (bypassing Russia), is the project most likely to face delay due to the recent fighting. Although a European Commission energy spokesman said that none of the proposed pipelines going through Georgia was affected, there is growing sentiment that Nabucco will have to surmount regional instability along with supply issues before it is completed.
The tension surrounding the perceived threat to Ukraine and a possible crisis surrounding Ukraine’s NATO bid brings the natural gas trade between Russia, Central Asia, and Ukraine into stark relief. Some analysts have pointed to Prime Minister Tymoshenko’s recent cordial negotiations with Prime Minister Putin on natural gas as a sign that the accusations of her cooperation with Russian interests are true.
 
Several recent studies have shown that the shock to the Ukrainian economy from a sudden increase in natural gas prices would be devastating. If Russia perceives that a Ukrainian move toward NATO is imminent, a cutoff of natural gas or at the very least a demand for price renegotiation could be a first retaliation. The repercussions on Ukraine’s economy would only heighten the level of tension.
Investment Climate
Georgia, of course, will face a terribly difficult challenge in maintaining economic growth, even though several NATO countries have vowed to assist in rebuilding that country’s infrastructure.
 
Russia seems to be in much better shape, regardless of comments from Republican Presidential hopeful and U.S. Senator John McCain, U.S. Secretary of Commerce Carlos Gutierrez, Secretary of State Rice, and Democratic Presidential hopeful Barack Obama, who all called into question Russia’s World Trade Organization bid in light of the recent crisis.
 
The only remaining countries to conclude bilateral WTO agreements with Russia are Ukraine and Georgia. Ukraine opened its bilateral negotiations with Russia soon after joining the WTO this year, and Georgia had already concluded a bilateral agreement with Russia, but pulled it in early 2008 in protest over what Georgia perceived as provocative Russian actions in South Ossetia and Abkhazia. Ukraine could use the WTO bilateral as a lever against Russia, but retaliation in the energy sector would be likely.
Although the cost of managing Ukraine’s debt has risen due to the conflict in Georgia, the need for effective governance in Kiev instead of political deadlock is the single most urgent requirement for expanded foreign investment and economic growth.
 
Even though Citibank recently advised caution in investing in Ukraine, citing a “more aggressive” Russian foreign policy, the same report also highlighted Ukraine’s unique problem with high inflation and political deadlock.
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(NOTE: First International Resources, LLC is an international corporate and political consulting firm with extensive experience in crisis management, strategic communications counseling, international political campaign counseling, political risk analysis and public affairs counseling, www.first-intl.com.)
First International Resources is a member of the U.S.-Ukraine Business Council (USUBC), www.usubc.org.
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10.  UKRAINE FEARS IT MAY BE THE  NEXT TARGET FOR RUSSIA

ANALYSIS: By Elizabeth Piper, Reuters, Kiev, Ukraine, Thu Aug 21, 2008

KIEV – Ukraine fears it could be the next target of Russia’s campaign to reassert influence over countries it long dominated in the Soviet Union, with Moscow well placed to foment separatist feelings in its Russian-speaking regions.

Ukraine stood by Georgia in its war with Russia over the region of South Ossetia. President Viktor Yushchenko traveled to Georgia to show his support and announced tougher rules on Russian naval movements from a base in Ukraine.

And in a departure from his usual careful balancing act between Russian and Western interests, Yushchenko attacked Russia over South Ossetia in a way more akin to Georgian President Mikheil Saakashvili.

Some political analysts say that could heighten the risk. “When Ukraine prioritizes its national interests, it goes against Russia’s interests and, of course, there will be conflict,” said Viktor Chumak, an analyst for Ukraine’s International Centre for Policy Studies.

“And Russia has broken through a psychological barrier to start this kind of war on former Soviet territory … Georgia had created itself in the shape of an enemy of Russia, and many in Russia already see us in the same way … We probably rank third in the list of Russia’s leading enemies.”

Both born out of bloodless revolutions, one orange and one rose, Yushchenko and Saakashvili’s administrations want to join NATO, the European Union and secure close ties with the United States.

Like Georgia, Ukraine was not put on the fast-track to NATO membership at the alliance’s summit last April, but was promised it would be allowed in one day.  All of this has angered Russia which is fearful of having the Western military alliance on its doorstep.

Other former Soviet republics have also been considering their rankings. Moldova, whose Communist government has courted the West rather than traditional ally Russia, fears it has taken the same path as Georgia and has Russian peacekeepers patrolling in its separatist Transdniestria region.

Even Belarus’s leader, Alexander Lukashenko, initially distanced himself from the war, which was criticized in the West. But subsequently, at Moscow’s prompting, he praised Russia’s “wisdom” in the way it handled the crisis.

CRIMEA
Analysts say the Crimea region in southern Ukraine could be used by Russia to destabilize Ukraine. It hosts Russia’s Black Sea fleet in Sevastopol and the majority of people living there are ethnic Russians. Russian-speaking eastern Ukraine could also provide fertile ground, the analysts say.

Chumak said Russia could take advantage if Ukrainian politicians failed to resolve their differences and continued to let legislation slide. Yushchenko and his prime minister, Yulia Tymoshenko, have sparred over almost all policy decisions since she came to power in December.

“In that situation then Russia will start playing games, start provoking Ukraine, especially with Crimea,” he said.

Yushchenko was quick to call on the West to protect Georgia’s territorial integrity.  When we think about our position on Georgia, I have no doubts … The loss of sovereignty, putting into doubt the territorial integrity of Georgia — this means revising the sovereignty of all,” Yushchenko, swept to power by the 2004 “Orange revolution”, said in a statement.

Russia could also hold Ukraine ransom over its gas supplies. Moscow controls about 80 percent of Ukraine’s supplies and in 2006 Russia cut supplies to Ukraine over a pricing dispute.
“There is a reason to be wary in the short-term future, there is a threat in that Ukraine is similar to Georgia in terms of what has happened in recent years,” said political analyst Oleksander Dergachev.
“But I find it difficult to think that the threat posed is a military one. Russia relies on the fact that it has more of an influence over Ukraine economically.”
Most analysts cautioned against scare-mongering and said Ukraine could avoid confrontation by taking a pragmatic stance first and then reforming its economy in the long-term.
“If Ukraine sorts out its domestic situation and consolidates its foreign policy in terms of European and Atlantic integration and this goes at a good pace then we can avoid the South Ossetian scenario,” Chumak said.
“I mean there is no stronger enemy to Ukraine than Ukraine itself, especially its politicians.” (Editing by Richard Balmforth)
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11.  UKRAINE LEADERS DIVIDED OVER RUSSIAN THREAT

Ukraine’s prime minister has sharply criticised the country’s president for restoring displays
of military hardware to Sunday’s independence day parade amid fears of provoking Russia.

By Damien McElroy in Kiev, Telegraph, London, UK, Thursday, 21 Aug 2008

Battle lines between the former political allies are hardening at a treacherous juncture in the country’s history.
As President Victor Yushchenko prepares to fight presidential elections in 2010, Yulia Timoshenko has issued what amounts to a broad scale challenge to her partner in Ukraine’s 2004 Orange Revolution.
Grigory Nemyria, vice-prime minister and Miss Timoshenko’s closest advisor, told The Daily Telegraph that differences over the parade formed part of a much wider divergence between the two leaders. “The prime minister thinks the military parade is inappropriate because of the cost at a time when Ukraine has to cope with severe flooding but also because this flexing of muscles is a provocation,” he said.
Preparations for the parade have given Kiev the feel of a city preparing for occupation. Loud cannon fire has echoed through the canyon-like Soviet-era boulevards during the evening rush hour this week. Newspapers are filled with pictures of tanks. To crown the sense of siege, jets on a fly-past flew fast and low over the city.
Residents were shocked by the sudden militarisation of the Ukrainian capital, which has struggled hard to present a modern image. “This is the first time we’ve seen this in seven years,” said Oleg Pashchenko, a newspaper vendor. “Why now and for what? The president must be crazy to think he is scaring the Russians.”
In the wake of Russia’s assault on Georgia, pressure on the Ukrainian leadership to row back from pro-western policies has escalated. While President Yushchenko resisted with measures that directly targeted Russian interests, the prime minister has shown increasing disquiet.
Mr Nemyria hinted that the prime minister was prepared to put a strategic change of direction before the electorate, a development that would mean breaking a pledge not to run.
“Foreign and security policy has not before been an issue in Ukrainian elections,” he said. “But in the just beginning presidential elections it will be and it will be up to each party to explain their approach in the manifestos.”
Miss Timoshenko has distanced herself from the president’s determined pursuit of Nato membership. Mr Nemyria said the collapse of Georgia’s army proved that upgrading the military of aspiring allies was unequal to the task of preserving peace next to Russia.
“Purely security based arrangements are not enough,” he said. “We need a much more ambitious set of policies. The EU cannot remain on the sidelines. We need to demand that you the countries of Western Europe take a much more proactive approach to stability, particularly in regard to frozen conflicts.”
Miss Timoshenko has also been critical of a presidential decree restricting the movements of Russia’s Ukraine-based Black Sea fleet in its waters.
“This unilateralism on both sides causes problems,” said Mr Nemyria. “The president took unilateral action in his announcement. There must be a mechanism to cover this issue but if it’s not workable and not enforceable, it could act as a pretext for the other side.”
Russia’s intimate relationship with Ukraine stretches beyond the origins of its empire. The two nations share an ethnic Slavic make-up and the Orthodox religion. Ukraine has successfully steered west since 2004 while Russia under Vladimir Putin has become steadily more autocratic, both at home and abroad.
With at least 17 per cent of Ukrainians claiming Russian nationality on census forms, a ready constituency for Moscow lives in Ukraine. If inter-ethnic frictions build, Russia would have a reason to intervene as it did in Georgian.
So far Ukraine has avoided ethnic clashes. Mr Nemyria, a native Russian-speaker, claims that the handling of communal tensions is one of the great achievements of its independence.
However, there are signs that distrust is mounting. Ukrainians increasingly insist on speaking the national language, a development that has left many Russians excluded from both national affairs and small-scale social events.
At a riverside disco in Kiev, Tatania Lytvyn, a 32-year-old IT consultant, visiting from the Russophone city of Donetsk, partied inconspicuously yesterday in a showcase venue for Kiev’s newly prosperous elite. But during a prize giving announcement in Ukrainian, she was suddenly dismayed.
“It’s become really hard for us. Everything is pressure to use Ukrainian and people get really mad if we don’t,” she said. “But who cares about Ukrainian?
 
Who learns that language?
“Russian is known all over the word. It’s disgusting but what can we do.”
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http://www.telegraph.co.uk:80/news/worldnews/europe/ukraine/2596872/Ukraine-leaders-divided-over-Russian-threat.html
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12.  UKRAINE TO BEEF UP MILITARY POTENTIAL IN AREAS AT RISK FROM RUSSIA

By Fedir Oryshchuk, Ukrainian daily Delo
Kyiv, Ukraine, Tuesday, August 19, 2008
Published by Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21 2008

The events in Georgia are making the Ukrainian leadership rethink the country’s military doctrine, a daily has written. Quoting a high-ranking source at the Ukrainian Defence Ministry it said that more attention is going to be paid to protecting national interests in Crimea and Ukraine’s eastern regions bordering Russia. This will be accomplished by deploying new air defence units there.

The following is the text of the article by Fedir Oryshchuk, entitled: Ukraine pointing missiles eastwards published in the Ukrainian daily Delo on 19 August; subheadings are as published:

The war in Georgia is changing the concept of Ukraine’s national security. The military are starting to strengthen defence in the country’s south-east. The Georgian-Russian military conflict is forcing the leadership of Ukraine to step up the state’s defence capability. As early as this autumn the Defence Ministry will demand that parliament increase funding for the army.

Previously the ministry had planned to allocate an additional 2bn hryvnyas, but now the requests of the military will grow significantly. It is planned to spend the extra funds on the formation of new subunits and weapons upgrading in existing army units in the south and east of the country.

In the words of a high-ranking source in the Defence Ministry, the relevant conversation has already been held with the president [Viktor Yushchenko].
The head of state has given preliminary agreement to the proposal of the military.

Newspaper headlines like Crimea will be next did not passed unnoticed for the Ukrainian authorities. Assumptions that Ukraine might become the next
object for Russian aggression are forcing our military to take unprecedented steps.

Starting as early as this year, the state is planning to allocate additional funds for the defence of Crimea and the east of the country from a potential
attack. As the high-ranking source in the Defence Ministry told Delo, the strengthening is due to affect air defence units first of all.

According to the deputy chief of General Staff of the Defence Ministry, Ihor Romanenko, a new air defence anti-aircraft missile regiment was already
formed last year in the east of Ukraine. Its task is to provide a defence umbrella over Donetsk and Luhansk regions.

We are not standing still, but are improving ourselves in accordance with the challenges that are appearing in the world, is how he commented on the
need to create the new regiments on the left bank of the Dnieper.

Apart from that, starting from this year, the Defence Ministry will be focusing on the defence of the state’s southern regions, in particular Crimea. It may be a matter of a numerical increase in air defence forces, redeploying anti-aircraft missile complexes and fighter planes from other regions and upgrading existing missiles and anti-aircraft missile complexes (AMC).

Missiles already being tested

Apart from that, active funding of our own multi-functional missile complex is continuing at the present time. Work on its development has been carried
out for several years, and especially intensively over the past three years. The main designer is the Dnipropetrovsk-based Pivdenmash missile plant. In
the words of Lt-Gen Romanenko, the complex offers the unified use of air defence missiles for infantry and aviation troops, as well as for naval forces.

The same basic missile will be used in the ground to air, ground to ground, shore to ship, ship to shore and ship to air schemes, the General Staff deputy chief says. Testing of individual elements of the multi-functional complex will start after 2010, he said. The new air defence system will be of entirely Ukrainian manufacture, with the exception of an insignificant number of parts.

In the framework of increased funding, in the words of the Defence Ministry source, it is intended to raise in parliament this autumn the question of
allocating additional funds to conduct exercises of air defence subunits. This question, according to Delo’s information, has already been discussed with the president. Yushchenko assured the military that the funds will most probably be allocated.

At the present time firing training from AMCs is being conducted at the only test site in Ukraine, Chauda, near Feodosiya. At the same time, at exercises
here in Ukraine, Ukrainians can use only AMCs like Buk, S-300 and Osa.

Firing from the most powerful S-200 complex, which in 2001 accidentally shot down a Tu-154 Russian passenger plane over the Black Sea, has been banned since then. For this reason, our anti-aircraft forces have been forced to conduct exercises at test sites in Russia.

In Romanenko’s words, depending on the location of the test site, Ukraine pays Russia from one to two million dollars a year for this service. Incidentally, it is not ruled out that following the statements by Russian Federation representatives about the participation of Ukrainian air defence specialists in combat actions on the side of Georgia, the question may arise of a ban on Ukraine carrying out such measures on Russian territory, in spite of the fact that Ukraine has officially denied the participation of its military specialists in the Caucasus war.

Replacement for nuclear weapons

In the words of a former adviser to the president on military questions, Maj-Gen Vadym Hrechaninov (retired), the Defence Ministry raised the question of strengthening the defence capability of Ukraine’s eastern and southern regions back in the early 1990s. After the collapse of the USSR, the army was concentrated primarily on the territory of the western regions of Ukraine.

However, in the 1990s it was difficult to finance the redeployment of troops to the south and east. Apart from that, it was virtually impossible from the
political point of view. For that reason, the reorganization was deferred. But today Russia is strengthening its grouping in the North Caucasus, and this means Krasnodar Territory, our neighbours, and we need to think about this (strengthening the defence of south-eastern Ukraine – Delo), the major-general says.

In Hrechaninov’s words, after renouncing nuclear weapons, Ukraine was forced to look for new means of preventing war. In place of nuclear weapons, a
strong air force and powerful ground-based missiles complexes may serve as such a means for Ukraine.

In any case, the military conflict in South Ossetia gave a chance to the Ukrainian army to draw the attention of the authorities to itself. It is not ruled out that thanks to the new argument – the Russo-Georgian war – the Defence Ministry will succeed in gaining appropriate funding for the army at a level of 2 per cent of GDP. This year, the ministry’s budget amounted to about 10bn hryvnyas, which is only 1 per cent of the country’s GDP.

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13.  UKRAINE: RUSSIA AT THE GATES AGAIN

 
By Diane Francis, National Post, Don Mills, Ontario, Canada, Thu, August 21, 2008
 
With Georgia indefinitely in Russia’s clutches, militarily or psychologically, can Ukraine be far behind?
That’s my 46-million question which is the number of people who live in Ukraine. The country gained independence in 1989 then suffered a succession of corrupt and inept leaders. Russia backed fraudulent elections and its candidate, Viktor Yanokovich, who nearly stole the presidency.
But Ukrainians stood up to this fraud even after their candidate, President Viktor Yushenko, was nearly murdered with poison. In November 2004, the Orange Revolution began as Ukrainians took to the streets and the courts and rescued their country from Moscow’s clutch.
Now Ukraine is a member of the WTO, applicant to NATO and the EU and its Orange Revolutionaries run the country — Prime Minister Yulia Tymoshenko and President Viktor Yushchenko. But there are problems with pipeline disruptions, treaty negotiations and other irritants. Most seriously, however, are indications that a separatist movement is being seeded in the portions of Ukraine that are heavily populated by ethnic Russians.

Russification: the gift that keeps giving

When Ukraine, Georgia and most of central and eastern Europe were controlled by a communist military dictatorship out of Moscow, their countries were “russified”. This consisted of oppressive laws against local languages, in favor of Russian, the relocation of tens of millions of Russians into these countries to form important minorities and then favoritism in government jobs for them.
After 1989, most of these Russians remained in these countries, many of which were more prosperous than back in Russia. But they have still been the breeding grounds for dissidents, separatism and fraudulent, illegal activities against governments from Estonia to Georgia’s two breakaway provinces, Kazakhstan, Azerbaijan and now Ukraine.
Crimea: the next Georgia?
Ukrainian National  Security and Defense Council is investigating claims that Moscow is illegally distributing Russian passports to Russian speaking sympathizers in the port city of Sevastopil. Ukraine leases much of this port to the Russian Black Sea Fleet.
What’s notable about this is that issuing bogus Russian passports to trouble-makers was exactly the same tactic, then excuse, the Russians used to move into South Ossetia and another province in Georgia. Once the separatist movement gained steam, aided by Moscow, Russian “peacekeepers” were sent in to restore the “peace” and have been taunting the government of Georgia ever since.
 
The final result came days ago when Georgia foolishly took the bait, invaded South Ossetia, thus giving Vladimir Putin’s government the reason it needed to invade Georgia. It took over the country militarily, ignored ceasefires and has thoroughly frightened all its neighbors in the region.
For Ukraine, this is very scary. It looks like the Russian military dictatorship is using the same tactic in Crimea and, worse yet, could more easily make trouble for Ukraine because its navy is already well-ensconced in Sevastopil.
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http://network.nationalpost.com/np/blogs/francis/archive/2008/08/21/ukraine-the-next-georgia.aspx
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14.  THE GEORGIA-UKRAINE ANALOGY: WHAT’S THE REAL LESSON?
With Putin pushing a Russian Imperialist agenda, it’s crucial that
former Soviet republics strengthen their alliances with the West

ANALYSIS & COMMENTARY: Oleh S. Ilnytzkyj, Freelance
Edmonton Journal, Edmonton, Alberta, Canada, Wednesday, August 20, 2008
 
If the Georgian conflict holds a lesson for Ukraine and the west, as many commentators suggest, it is important to draw the right conclusions from this painful educational experience. Some say Russia must be allowed its own sphere of influence, for it is her natural and historical birthright as a great power–and that smaller states like Georgia and Ukraine may need to be sacrificed to ensure the European Union’s access to Gasprom’s natural gas.

A truer understanding would be to realize that Russia is resorting to an old imperial mindset in a futile — yes, futile — attempt to re-establish an outdated sense of greatness that can only lead to a pan-European disaster. Vladimir Putin has been laying the groundwork for this outdated national ideology since the day he came to power, by crushing Chechnya and embracing the symbolism of the former empire and Soviet Union.

If the brutal invasion of tiny Georgia is a warning to Ukraine about its European orientation, then it is also a pathetic attempt to resurrect a model of “Russian” nationality and identity that subsumes Ukrainians and Belarusans under Moscow’s rule as “fraternal” East Slavic people, a strategy that stopped working around the Age of Romanticism.

 
Ukrainians have been rejecting a unified East Slavic nation headed by the Russians since at least the middle of the 19th century. The Russians, however, are still pursuing this fantasy, believing they can intimidate Ukrainians into a cultural and political union that will restore Russian control over the heartland of East Slavic culture and Orthodoxy.

MOSCOW’S SPIN DOCTORS

To rebuild a national identity on imperial foundations, the Russians must first colonize the mind of the west, which remains a semi-hostage to Russia’s historical spin and is not entirely prepared to admit the unnaturalness of its ambitions in Eastern Europe and the near abroad.

The post-Soviet era may have been marked by a liberation from some of the worst ideological propaganda that justified Russia’s hegemony in central and eastern Europe, but recognizing the national pathology that is driving Russia to misguided “greatness” in Georgia, and now potentially in Ukraine, is far from complete. There still remains a big temptation to believe Russians when they conceptualize the history of the East Slavic world as their own national space, depriving Ukrainians and Belarusans of history, culture and statehood.

Many western journalists and historians still represent Russia as a 1,000-year-old state, with its first seat of power in Kyiv, thereby falsely conflating the immense influence of the Kyivan state on Russia with Russia itself. Of course, if so-called “Russians” ruled in Ukraine in the 10th century, then why not today?

Putin relies on such deceptive wisdom to disarm the west. At the NATO summit last April, Putin asked U.S. President George W. Bush: “Do you
understand, George, that Ukraine is not even a state?” insisting that most of Ukraine’s territory was “given away” by Russia.

Typically, Russia never admits that much of so-called Russian territory is the result of imperial conquest and the suppression of indigenous populations. Russian propaganda instead creates “fake” countries, questioning the legitimacy of Ukraine and Georgia, in order to dismember them in the name of a “real” Russia.

Russia’s manipulation of cultural and historical issues for its own grandiose purposes is a dangerous game in which only the naïve can believe.
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NOTE: Oleh S. Ilnytzkyj is a professor in the department of modern languages and cultural studies at the University of Alberta and editor of Canadian
Slavonic Papers
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http://www.canada.com/edmontonjournal/news/ideas/story.html?id=b046cb06-0492-4afd-9eb8-2165fa3980d3&p=2
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15.  PUTTING UKRAINE ON THE NATO MAP (MEMBERSHIP ACTION PLAN)

 
COMMENTARY & ANALYSIS: By Vitaliy Voznyak
Transitions Online (TOL), Prague, Czech Republic, 20 August 2008

The Caucasus conflict should not be used as an excuse to keep Ukraine out of the North Atlantic alliance.

The Georgian-Russian war has resurrected the debate about NATO’s enlargement eastward and specifically Ukraine’s future, if any, in the North Atlantic alliance.

Sharp divisions within the 26-member bloc led to a scuttling of the U.S.-backed plan earlier this year to extend a so-called membership action plan to Georgia and Ukraine, with the Bush administration arguing that closer ties with NATO would strengthen democracy in both countries and reward their contributions to alliance-led operations.

 
Opponents believe neither country is politically mature enough and there are concerns about offending Russia – Europe’s main energy partner and fierce opponent of extending the alliance. The result was an ambiguous promise of membership at a future date.

Unfortunately, rather than encouraging dialogue, the Caucasus war has only reinforced each camp’s original position.

Georgia now represents a particularly difficult challenge for NATO, but in the case of Ukraine, there are two pressing reasons to continue with the integration process: regional security and strengthening democratic norms.

REGIONAL SECURITY

Kowtowing to Moscow’s demands by leaving Ukraine and Georgia outside the North Atlantic area is a dangerous signal in an international system that will be interpreted in the Kremlin as yielding to its view of post-Cold War spheres of influence.

Ambiguity on which country is “in” and which is “out” has grave historical precedents. The failure to approve a membership action plan, or MAP, for Georgia has, arguably, emboldened Russian intentions in the Caucasus. Some fear that Ukraine could be next.

Aside from maintaining territorial integrity, further integration with NATO will aid Ukraine in achieving its long-term goal of membership in the European Union. That the road to the EU lies first through membership in NATO is not lost on policymakers in Kyiv.

Of course, this is not a one-way street. Over the years, Ukraine’s troops have actively participated in NATO operations. Today, it contributes to NATO missions in Kosovo and Afghanistan, and has participated in Operation Active Endeavor, an antiterrorism campaign in the Mediterranean Sea. It also has 37 officers and NCOs serving in the U.S.-led operations in Iraq.

STRENGTHENING DEMOCRACY

Ukraine’s 2004 Orange Revolution ushered in a new chapter of that country’s history marked by reinvigorated civic engagement, freedom of the press, and competitive elections, even as corruption and regular power struggles are still very much a problem. The membership action plan and active engagement with other NATO members would help strengthen Ukraine’s European norms and values, and professionalize its military.

Membership action plans have helped other former communist states consolidate their democracies in a cost-efficient manner and to prepare them for full membership. As a vehicle of Euro-Atlantic integration, NATO works by facilitating the transfer of rules and norms of behavior common to all its members.

And yet, the argument for Ukraine’s membership is not immune from criticism.

[1] First, some analysts argue that offering a MAP to Ukraine would overburden NATO and put it in direct conflict with Moscow, which has warned it would not sit idly by as the alliance grew.

 
Others mistakenly argue that if a membership action plan is given to Ukraine, the country would then fall under Article 5 of the North Atlantic Treaty, the mutual defense clause. Such concerns are misleading because Article 5 is binding only on alliance members and does not apply to those in the vestibule.

[2 ]Another argument voiced against Ukraine’s integration with NATO is that this would intrude on what the Kremlin still views as its sphere of influence. Which begs the question, when will Moscow not view Ukraine as part of its blizhneye zarubezhye? its Indeed, geographic and historical factors ensure that Moscow will always feel that Ukraine is part of its “near abroad,” but it does not have a monopoly.

 
Looking from the west, Ukraine is just as much part of Brussels’ “neighborhood.” The EU has a direct interest in seeing that Ukraine does not regress politically and economically the way Belarus and Kazakhstan have done, and that it chooses the democratic route taken by its Polish, Slovak and Hungarian neighbors.

[3] A third argument against membership is the public’s tepid support for it. According to a survey conducted in June by the Kyiv-based Sofia think tank, 40 percent of Ukrainians thought that the government should abandon plans to join NATO; 31 percent wanted a solution mutually agreeable to both Moscow and Kyiv; 17 percent wanted unabated progress toward the alliance regardless of pressure from Russia.

Although the survey suggests that the public is far from overjoyed about joining NATO, this ought to be expected after decades under Soviet propaganda and more lately the Kremlin’s warnings about extending the alliance ever closer to Moscow.

 
Of those who oppose membership, many do so based on incorrect beliefs that being a member means, for example, having to participate in U.S.-led wars (which isn’t true – just ask Germany or Spain), or that Ukraine would become a target for terrorists (Ukraine has so far not faced terrorist attacks despite its involvement in NATO and U.S. operations).
 
Consequently, the public’s opposition to closer integration is grounded not on an intrinsic anti-Western feeling, but on the success of the anti-NATO side in framing the public perception.

Putting Ukraine on the path to membership will undoubtedly promote a broader public debate about NATO and the country’s role in the organization. That debate would be healthy for a nation divided between its pro-Russian east and pro-European west, and it would also show skeptics in the EU that Ukraine is serious about its commitment to democracy and healing its internal rifts.

If Ukraine gets the green light to eventually join NATO, it would be a crucial first step in ensuring the country’s ultimate integration with the rest of Europe. Alliance leaders should take that first step when they meet in December.
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NOTE: Vitaliy Voznyak is a doctoral student specializing in Ukrainian politics and U.S.-Russia relations at the University of Illinois in Chicago. He runs a blog on corruption, democracy, and Eastern European politics. (http://www.tol.cz/)

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16.  POLAND, UKRAINE AND THE BALTICS, NERVOUS NEIGHBORS
Russia’s war in Georgia troubles its western neighbours

 
The Economist, London, UK, Thursday, August 21, 2008 

NOBODY has watched the war in Georgia more anxiously than Russia’s western neighbours. Recently the Russians have been bellicose towards Ukraine, the three Baltic states and Poland. It was no surprise when leaders from the other four flew with the Polish president to Tbilisi to express solidarity with Georgia’s Mikheil Saakashvili.

It was also no coincidence that Poland signed a deal with the Americans to host missile-defence interceptors. The deal marks the end of a game of hardball, with the Poles turning down many American offers (even after the Czechs agreed to host tracking radars). The negotiations were not helped by the frosty relationship of President Lech Kaczynski with the prime minister, Donald Tusk, and foreign minister, Radek Sikorski.
 
The Americans are to modernise Poland’s military defences. The two countries have also agreed to co-operate more closely if faced with external threats. This was a coup, as America tried to convince Poland that NATO membership was enough of a guarantee.
 
“The Poles kept telling me they’d been betrayed before and weren’t falling for it again,” says one American diplomat. Mr Sikorski notes that Poland is not worried about attacks from Iran. But the more firmly the country is anchored to the West, the less the risk of Russia being tempted to take back what it lost in 1989.
Poland had made itself a target for Russian attack, said a Russian general in response to the deal. President Dmitry Medvedev said it was obvious that missile defences were aimed at Russia and called the idea of threats from rogue states a “fairy tale”. Yet Mr Sikorski insists that only “bad people” need fear missile defences. After the war in Georgia, Polish public opinion has swung strongly in favour of the system.
The Baltics have been even jumpier. Like Georgia, Ukraine and Moldova they were once Soviet-ruled. A chunk of their population are ethnic Russians, many of whom are stroppy. The Kremlin has rowed with the Balts over war memorials, energy supplies, cyberwarfare—and language and citizenship laws.
 
Mr Medvedev’s threat to deliver a “crushing response” to anybody mistreating Russian “citizens” sounds ominous. Yet Baltic membership of NATO may give even hawkish Russians pause.
The biggest worrier is non-NATO Ukraine, which has 8m Russians and also hosts Russia’s Black Sea fleet in Sebastopol, at least until the lease expires in 2017. “The vacuum of security has spread from conflict zones to the entire former Soviet space,” notes Hryhory Nemyria, Ukraine’s deputy prime minister.
 
President Viktor Yushchenko said Russian naval vessels engaged in Georgia should not be admitted back to Sebastopol, though two returned this week.
Mr Nemyria wants Ukraine to join Europe’s security and defence policy, which unlike NATO membership is backed by almost all Ukrainians. Yet the war is also a political issue.
 
Mr Yushchenko has accused his prime minister and rival, Yulia Tymoshenko, of cosying up to the Russians. Her government says Mr Yushchenko is behaving irresponsibly. Anatoly Gritsenko, a former defence minister, concludes that the best way to protect Ukraine is to strengthen its institutions against populist politicians.
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17.  RUSSIAN EFFORTS AT REGIME CHANGE
 

OP-ED: By Ethan S. Burger
Action Ukraine Report (AUR)
Washington, D.C., Friday, August 22, 2008

Truth is not arrived at by a majority vote.  As a general rule, a country should seek support for its foreign policy in multi-national institutions such as the United Nations or the Organization for Security and Cooperation in Europe before taking unilateral action.  The rules of both organizations are such that the likelihood of achieving a unanimous position on a particular issue is almost zero, but at least the world’s governments are given an opportunity to focus on a potential threat to peace.

This raises the question what should be done if collective action is not possible.  Who gets to decide questions of war and peace?  The answer unfortunately is whatever state’s government is willing to use force when it is confident it will succeed, even if the objective is the overthrow of another country’s elected leader.  Nonetheless, this does not mean that if a state is successful in the short-term, the same will occur when one takes a long-term perspective.

The Bush Administration may have learned this lesson from its experience in Iraq with respect to Iran (Senators McCain and Obama appear to have learned of the importance of multilateral action when carrying out military actions abroad).  It also apparently warned Georgian President Mikheil Saakaskvili to avoid taking actions that would give the Russians a pretext for militarily intervening in Georgia.

Perhaps he naively (or arrogantly) thought that the world community would support his country’s right to self-defense, irrespective of his actions.  Unfortunately, he acted impetuously – perhaps he underestimated Russian resolve or wanted to act before a new U.S. president was in the White House.  President  Saakashvili impulsive policies do not excuse Russian behavior, which risks losing a lot of economic and political capital.

In April 2005, then Russian resident Vladimir Putin remarked in a nationally-televised address before the Federal Assembly that the break-up of the Soviet Union was “the greatest geopolitical catastrophe of the century.”  Unfortunately, we may be witnessing only the first stage of a process where Russia is reasserting its power over its geographic periphery.

A number of factors have led to the Russian decision to react in the way if has with regard to Georgia.  The Russian leadership wishes to portray its actions as motivated by a desire to acts as “peacekeepers” that can protect ethnic Ossetians in Southern Ossetia, which happens to be part of the sovereign state of Georgia (Gruzia).  Its actions, however, belie its rhetoric.

For more than a decade, Russia has materially and politically supported Abhazian and Ossetian separatists in Georgia.  While Russia has every right to complain of any alleged discriminatory acts of the Georgian government, there are international fora within which to air and win backing for its concerns.  Nonetheless, Russia does not have a right to militarily intervene unilaterally, particularly in a manner that is its official statements concerning its objectives.  Perhaps regime change in Tblisi is indeed Russia’s ultimate goal.

What could be motivating the Russians at this time of Olympic festivities?  Even if President Dmitrii Medvedev’s declaration that Russian forces will cease offensive operations, it is not clear the Russian forces on the ground are in compliance.  While this could merely be a matter of time (armies often seek to improve their military positions halting operations), or it can reflect that President Medvedev is either playing the “good cop” or lacks the authority to control Russian armed forces.  It is significant that Russian Foreign Minister Sergei Lavrov’s recently Prime Minister Putin’s use of the term “regime change” even after President Medvedev announced the ceasefire.

There are numerous factors behind Russian policy in Georgia.

•       The Russian governing elite has never accepted the demise of the Soviet empire and considers the countries constituting the “near abroad” as being within its sphere of influence.  This is the reason Ukraine’s and Georgia’s indication that they might wish to join NATO is so unacceptable to them.  While the Baltic States may constitute a “special case” that must be tolerated, they do not serve as a model.

•       The Russian Government needs to assert itself on the national stage.  It was humiliated when NATO forces (without UN Sanction) dismembered Serbia – leading the way to an independent Kosovo.  The Russian armed forces could do little more than watch – now NATO will experience what it faced in Hungary (1956), Czechoslovakia (1968), and Poland (1980).

•       Prime Minister had to make clear to both the Russian population and the world community that he remains in control over (at a minimum) the country’s economic, foreign and defense policy.  As the front-line figure for Russia in this conflict, regularly on TV, he appears to continue the role he possessed when he was de jure president.  By contrast, the staging of the conflict demonstrates President Medvedev’s influence is either limited or symbolic.  In either case, Mr. Putin and his principal supporters will not acquiesce in the equivalent of another “color” revolution.

•       Russia will not permit foreign states or private companies to interfere with its “energy weapon” foreign policy tool.  The Baku-Tbilisi-Ceyhan pipeline may be permitted to operate, but only on Russian terms.  Central Asia, China and Europe should harbor no illusions.

•       The Kremlin wants to remind all residents of the Caucuses, both within Russia and abroad (as well as those Caucasians living in other parts of Russia), that Russia will not tolerate separatism or meaningful federalism.

Georgian President Saakashvili has undoubtedly not unified his country politically; indeed there is an active political opposition in the country for whom economic growth and foreign investment are not the barometers of a successful presidency.  He overestimated the degree to which the West could and would support his irresponsible actions.  Attending Columbia University is not the gold standard for being a democratic liberal ruler.  In any case, small countries must learn how to live with powerful neighbors, particularly suspicious ones like Russia.

What will the long-term consequences be of Russia’s flexing its muscles? 

 
While the ruling elites in most Western European countries have short memories, there are certain lessons they probably will not forget: (i) pursuing a policy to achieve energy independence is a high priority, (ii) while the use of force in Europe is probably a thing of the past, Europeans need to maintain credible defense establishments, and (iii) major efforts need to be made to understand the ramifications of Russian energy exports and foreign investment has on their domestic economies – certainly the business community is rethinking its assessment of risks in connection with their activities in Russia.

Perhaps the International Olympic Committee should consider an alternative location for holding the 2012 Winter Olympics so that their athletes will have a place to compete – the Committee has plenty of time to complete this task.

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NOTE: Ethan S. Burger is an Adjunct Professor at the Georgetown University Law Center, Washington, D.C. and a Scholar-in-Residence at School of International Service, American University, Washington, D.C. 
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18.  UKRAINE RISKS WRATH OF RUSSIA AS YUSHCHENKO SIDES WITH THE WEST

 
By Askold Krushelnycky in Kiev, The Independent
London, United Kingdom,Wednesday, 20 August 2008
Nato foreign ministers kept alive the hopes of Georgia and Ukraine yesterday that they could eventually become members of the military alliance. But even without the provocation to Russia of a clear timetable for either country to join, many Ukrainians fear they could be next to face the force of a resurgent Russia seemingly bent on avenging the disintegration of the Soviet empire.
Ukraine had mastered a skilful balancing act since independence in 1991, courting the West while at the same time trying not to overtly offend Moscow.
But, with the outbreak of conflict in Georgia, the Ukrainian President, Viktor Yushchenko, seemed to make what, to many fellow countrymen, looks like a suicide leap off that tightrope.
 
He went to Tbilisi to show support for Georgia, ordered restrictive new regulations for the Russian Black Sea Fleet based in Ukraine’s Crimean peninsula, and offered Ukrainian co-operation in a Western missile defence system despite the knowledge that neighbouring Poland received a chilling warning from Russia for agreeing to allow deployment on its territory of elements of the US missile defence shield.
 
For the first time since independence, Ukrainian television has aired discussion of possible conflict with Russia and even politicians considered to be pro-Moscow have begun warning that Ukraine could be next in the firing line.
“If the West swallows the pill and forgives Russia the Georgian war, the invasion of ‘peacekeeping tanks’ into Ukraine will just be a matter of time,” Oleksandr Suchko of the Kiev-based Institute for Euro-Atlantic Cooperation, said.
Russia has never completely reconciled itself to Ukraine’s independence which Moscow viewed as an affront to the vision nurtured by Vladimir Putin, of Russia restored to its former might. Ukraine humiliated Mr Putin in 2004 when millions joined in demonstrations that became known as the Orange Revolution to overturn the results of a presidential election rigged in favour of a pro-Moscow candidate.
Almost all of Ukraine’s vital gas supplies come from Russia and Russia has tried to punish Ukraine by enormous price increases in gas and even turning off supplies. Moscow’s attempts to install a pro-Moscow government are, to a large extent, governed by its desire for absolute control over the pipelines that are responsible for most of its wealth.
But Ukraine’s last census showed that 17 per cent of the country’s population of around 47 million were ethnic Russians. Most of those are concentrated in Ukraine’s east and south and Moscow has persistently backed Russian groups there which pine for past days of rule from Moscow. Crimea is the only part of Ukraine where ethnic Russians outnumber Ukrainians and its port city of Sevastopol is home to the Russian Black Sea Fleet.
The peninsula is a tinderbox and many have already tried to start a fire. It was from Sebastopol that Russian ships sailed to shell and land invading troops in Georgia last week. Mr Yushchenko said the use of Russian ships for war violated Ukraine’s neutrality and risked drawing it into conflict. Now Ukraine is insisting that the Russian fleet must leave when its lease expires in 2017.
Ukraine’s first president, Leonid Kravchuk, who negotiated the terms of the Sebastopol lease under heavy pressure from the Kremlin, doubts that Ukraine’s small navy could prevent Russian ships from returning. “How do you prevent the Russian ships from coming in?” he said. “I don’t know of any way to do so. If we continue to stick to the point of view of ‘not letting them in,’ this will mean a war between Ukraine and Russia.”
Ukraine had already angered Moscow five years ago when, under the nominally Russian-friendly presidency of Leonid Kuchma, the country applied for Nato membership. Although most Ukrainians want to join the EU, they are deeply divided over whether their country should join the military alliance and many see Mr Yushchenko’s robust rhetroic on Nato as an attempt to win back nationalist votes ahead of 2010 presidential elections.
 
Yet many Ukrainians also believe that the French and German-led opposition to a concrete timetable for membership at the Nato summit held in Bucharest in April encouraged Russia’s current aggression.
During the 2004 Orange Revolution, pro-Russian politicians brought the country to the brink of civil war by threatening to split the country into the half that leaned towards the West and Nato membership and an eastern portion where most want to attach themselves to Moscow.
A Russian military analyst, Pavel Felgenhauer, believes Ukraine could be next on a Russian expansionist agenda. “Russia right now wants at least half of Ukraine to be annexed,” he said.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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19.  UKRAINE: NO CHICKEN KIEV

 
Investors Business Daily (IBD), New York, NY, Monday, Aug 18, 2008
Geopolitics: Another former province of the evil empire wants to participate in U.S. missile defense plans. It’s an offer we can’t refuse. As NATO meets in emergency session, it should welcome two new members.
 
NATO leaders from 26 member countries are scheduled to meet Tuesday to consider possible responses to the Russian invasion of Georgia. A move we would recommend is approve the membership of two former Soviet satellites — Georgia and Ukraine.
The NATO bureaucracy has dragged its feet on the issue. Some members say the two countries are not ready in terms of military strength and structure. Others fret the action might provoke Moscow. The fact that Europe depends on Russia for 25% of its oil and 40% of its natural gas hasn’t helped.
But as its Georgian aggression has shown, Russia is operating on its own timeline and an agenda that includes reconstituting its former empire. Being a democracy under Russian guns should qualify a country for fast-track consideration. As its own historical experience demonstrates, Europe cannot afford, as Winston Churchill once put it, to feed the crocodile hoping it will eat Europe last.
The delay in admitting Georgia to NATO was a clear green light to the new czars in Moscow. Had Georgia been in NATO, today’s conversation would be different.
It’s time to put up a big sign that says “stop” and take down the one that says “yield.” Western attempts to bring Russia into the world community have obviously failed.
Just as Putin’s march through Georgia concentrated Polish and American minds into finalizing a long-delayed agreement calling for missile interceptors to be stationed on Polish soil, Ukraine has made a startling offer to also cooperate on missile defense.
As the London Telegraph reports, Ukraine has offered the U.S. and Europe access to and use of satellite tracking stations on its territory that were once part of the Soviet Union’s ballistic missile defense system. Moscow recently annulled a post-Soviet agreement governing their use.
“The fact that Ukraine is no longer party to the 1992 agreement allows it to launch active cooperation with European countries to integrate its information,” the Ukrainian Foreign Ministry said in a statement.
Ukraine has experienced first-hand the treachery of which Moscow is capable. Putin celebrated New Year’s 2005 by temporarily cutting off gas supplies to Ukraine and tripling the price it charged. The gas shut-off had as much to do with Ukraine’s acceptance of democracy than any sweetheart deal it may have had.
 
Putin opposed the Orange Revolution that sprang up in reaction to a fraudulent election engineered to keep a Russian stooge in power. The Ukrainian people forced a new election and recognition of the victory of Viktor Yushchenko — who survived a poisoning, allegedly by elements of the KGB, permanently scarring his face.
Yushchenko has made noises about the lease agreement by which Russia’s Black Sea fleet operates out of the Sevastopol port in Crimea. The lease extends until 2017, but Ukraine has said it may bar use of its ports for operations against Georgia. Ukrainian officials say they have no intention of renewing the lease.
“In order to prevent the circumstances in which the Ukraine could be drawn into a military conflict, Ukraine reserves the right to bar ships which may take part in these actions from returning to Ukrainian territory until the conflict is resolved,” the Ukrainian Foreign Ministry said on its Web site.
Ukraine in NATO is Moscow’s worst nightmare, as is the prospect of American warships armed with the Aegis anti-missile system cruising the Black Sea from a base in Ukraine. It should not be NATO’s job to help Putin sleep at night. It should admit Ukraine — and Georgia.
When Hitler marched his horse-drawn infantry into the demilitarized Rhineland in 1936, Europe failed to call his bluff.
As Putin marches into Georgia, this time the West’s reaction needs to be quite different.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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20.  THE DRIVE TO SECEDE
Georgian provinces likely to join Russia

OPINION: By Eric Margolis, Winnipeg Sun
Winnipeg, Manitoba, Canada, Sunday, August 17, 2008

On Aug. 8 Russia’s Prime Minister Vladimir Putin swiftly and deftly checkmated the United States on the Georgian strategic chessboard. Georgia’s President, Mikheil Saakashvili, fell right into Moscow’s trap.

Georgia and Russia have been feuding since 1992 over two Georgian ethnic enclaves, South Ossetia and Abkhazia, whose people wanted to decamp Georgia and join Russia.

The young, U.S.-educated Saakashvili became Georgia’s president in 2003 after an uprising, believed organized by the CIA and financed by U.S. money,
overthrew the able former leader, Eduard Shevardnadze. I interviewed Shevardnadze in Moscow when he was Mikhail Gorbachev’s principal ally and
architect of Soviet reform.

Saakashvili quickly became the golden boy of U.S. right wing neocons, who saw him as a model of how to turn former Russian-dominated states into
“democratic” U.S. allies. Critics claim Saakashvili kept power by bribery and vote rigging.

U.S. money, military trainers, advisers, and spooks poured into the former Soviet Republic of Georgia. Israeli arms dealers, businessmen and intelligence agents quickly followed.

The Bush administration brazenly flouted agreements with Moscow made by presidents H.W Bush and Bill Clinton not to expand NATO into the former
U.S.S.R.

Russia’s tough Deputy Prime Minister Sergei Ivanov sneeringly termed Georgia a “U.S. satellite.” This former KGB elite foreign directorate agent certainly knows a satellite when he sees one.

Georgia provided the U.S. with oil and gas pipeline routes from Azerbaijan, Turkmenistan and Kazakhstan that bypassed Russian territory. Russia was
furious its Caspian Basin energy export monopoly had been broken and vowed revenge.

On Aug. 7 Saakashvili, his head swelled by Washington’s promises of additional aid, arms and eventual membership in NATO, rashly sent his little army to invade the breakaway region of South Ossetia. Washington likely backed this attack or at least knew of it.

Putin seized upon Saakashvili’s disastrous blunder and unleashed two Russian divisions against the Georgians, who were quickly routed. Impudent Georgia
and its American sponsors were humiliated.

South Ossetia and Abkhazia likely will move into Russia’s orbit. The West backed independence of Kosovo from Serbia. The peoples of South Ossetia and
Abkhazia have as much right to secede from Georgia.

PUTIN THWARTS BUSH
In one swift blow, Putin thwarted Bush’s clumsy attempt to further advance U.S. influence into the Caucasus. He delivered a stark warning to Ukraine
and the Central Asian states: Don’t get too close to Washington. Putin put the U.S. on the strategic defensive and showed that NATO’s new eastern
reaches – the Baltic, Bulgaria, Romania, and the Caucasus – are largely indefensible.

It’s a good thing Georgia was not admitted to NATO. Is the West really ready to be dragged into a potential nuclear war for the sake of South Ossetia?
Georgia is a bridge too far for NATO.

President George W. Bush, VP Dick Cheney and Sen. John McCain all resorted to table pounding and Cold War rhetoric against Russia. McCain, whose senior foreign policy adviser is a rabid neocon and registered lobbyist for Georgia thundered, “the U.S. has important interests in Georgia.” Interests that are barely a few years old, senator. Russia’s go back two centuries.

The Caucasus is Russia’s backyard. Imagine Washington’s response if Russian troops were deployed to Quebec.

Hypocrisy was thicker than shellfire. Bush, who ordered the invasion of Afghanistan, Iraq and Somalia, denounced Russia for invading “a sovereign ation.” Putin, who crushed the life out of Chechnya, piously claimed his army was saving Ossetians from ethnic cleansing.

Paper tigers Bush and McCain demand Russia be punished and isolated. The humiliated Bush is sending some U.S. troops to deliver “humanitarian” aid.
Their response is dangerous, provocative and childish.

RUSSIAN INTERESTS
The West must accept that Russia has vital national interests in the Caucasus and former U.S.S.R. Russia is a great power and must be afforded respect. The days of treating Russia like a banana republic are over.

The most important foreign policy concern for the U.S. is keeping correct relations with Russia, which has thousands of nuclear warheads pointed at North America. Georgia is a sideshow.
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LINK: http://www.winnipegsun.com/Comment/2008/08/17/6479426-sun.html
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