Saturday, January 31, 2009

The theater of the absurd. President Yushchenko's address to the Ukrainian nation - full text.

State of Ukrainian politics is getting worse, more and more resembling the theater of the absurd. I would like to give here a full text of President Yushchenko's urgent televised address to the Ukrainian nation of 30 January 2009 (the official tanslation, provided by the Press office of President).

Dear fellow countrymen,
I decided to address you to provide clear and honest information on economic, budgetary and financial situation in Ukraine. I appeal to you, dear fellow countrymen, to back up the demand to Ukrainian government and parliamentary majority to stop the flow of lie, hypocrisy, aspersions and to immediately, I emphasize that, immediately start acting to save national economy.
The state has absolutely misbalanced financial system.State institutions are knowingly being ruined because of lack of financing. I am not speaking of personal accusations now. I leave this dirt aside.
We were witnesses to a witches’ sabbath in the parliament around the question of the National Bank. It was evidently explained by single intention – to gain access to money printing in order to cover losses in the State Budget. This can result in inflation unseen before. This can result in social catastrophe. I am forced to say this to bring politicians round. Ukrainian industry is falling. People are being fired or forced to long-term leaves. In Moscow, Prime Minister Yulia Tymoshenko made gas deals disadvantageous for Ukraine. The contracts do not correspond with my directives.
The Prime Minister made that decision personally, without consulting collegial opinion of the government. The majority, supporting Yulia Tymoshenko, beginning with her block and to communists, must explain this. The state was put before the fact. The contracts were signed and we must abide by them. In 2009 Ukraine will have to pay for gas 25 billion hryvnyas more than last year. However, Naftogaz’s profit from the transit remains the same as in 2008.The Prime Minister undoubtedly knows that finding additional resources to pay for gas is only possible at internal market, meaning increase of prices for the consumers. Every passing minute is priceless now.
I demand immediate alterations to 2009 State Budget. This is the only way to put things right. I have warned the government and parliamentary majority, who were authors of this year’s state budget, that the document is a cloud-castle. For today the government has not collected even a half of the amount of taxes and dues, planned for January. The cause is the same again – unreal budget. My conclusions are based on evaluation by Minister of Finance Viktor Pynzenyk. The opinion of this Minister is decisive in preparation of estimate in any state. Today he is not heard, first of all in the government.
I address Yulia Tymoshenko and the majority she has organized. This is your responsibility. Respected Yulia Volodymyrivna, you knowingly put unrealistically high numbers and promises into the budget, which you are unable to keep up to today. The funds, including those meant for next repayment of savings, are not concentrated, they are scattered. I address each deputy from Yulia Tymoshenko’s majority. Respected deputy, you support populism, which will tomorrow result in unpaid wages, pensions, scholarships, and other social support. I emphasize that – it is your responsibility. Because of your silent consent – doctors, teachers, and military men will not get their money. There will be no funds for schools or hospitals. You will be answering for that before Ukrainian people.
I address Verkhovna Rada Speaker Volodymyr Lytvyn. Respected Volodymyr Mykhaylovych, you perfectly understand that current budget is top provocative factor to the crisis in Ukraine. For the sake of state interests I ask you to consolidate the parliament to make alterations to the budget and approve urgent anti-crisis decisions. On behalf of the whole country I demand that the government and the parliament immediately worked out honest budget, where expenses would correspond with capabilities of the economy. This is your constitutional, state and political duty.
I emphasize – all the responsibility for economic situation, for disruption of budgetary process, for destruction of banks system in accordance with the Constitution is upon Prime Minister Yulia Tymoshenko in person. When she reaches deadline, she will not be able to hide in opposition. Enough lies.
I appeal to all fellow countrymen to stay calm. You will be protected. We are able to protect the country and people. The most important thing now is to find political will and courage and to approve a realistic budget for 2009.In order to achieve that I will use all instruments necessary in the state of crisis.

Thursday, January 29, 2009

Jaap de Hoop Scheffer: "If there is a Russian-Ukrainian dispute on energy security I think NATO allies should pick that up".

Let me not to tell anything about Ukrainian politics today. Everything is going well here in Kiev, the politicians are going on with presidential campaign, claiming each other in all the possible sins. The main topics of discussion: gas contracts (Presidential secretariat has issued a new research, making the conclusion that the papers signed in Moscow are not good for Ukraine and may - and possibly should - be revised), the date of Presidential election (December 2008 or January 2009), and a couple of dismissals and appointments - current and prospective. Instead of Ukrainian domestic politics saga, I propose some NATO-reading for today: Transatlantic Leadership For A New Era: Speech by the NATO Secretary General at the Security and Defence Agenda - 26 January 2009. This speech, followed with questions and answers session, really worth to be read. I will give here the words of NATO Secretary General Jaap de Hoop Scheffer, which were concerning directly Ukraine and its geopolitical role in global processes.

"We have seen how the need for reliable energy supply is transforming from a mainly economic question into a central security issue. For many nations, being cut off from energy is a matter of national survival. The recent quarrel between Russia and Ukraine was only the latest reminder of this. This latest crisis showed how a bilateral dispute can have a powerful knock-on effect, both in terms of the heat in houses and a chill in international relations".

"Clearly, no one gets a veto over NATO enlargement. That process is central to our aim of consolidating Europe as an undivided and democratic security space and it is not negotiable. The pace and direction will be of our choosing. But the NATO-Russia relationship is too valuable to be stuck in never-changing arguments. We need a positive agenda, one that befits the importance of both Russia and NATO".

"Considering the political, security and energy issues that run through Central Asia and the Caucasus, I believe we need stepped up focus on those regions as well. I think NATO should consider its role in energy security much more seriously. There is, to my mind, clear added value for the Alliance".

"It is simply not enough to have Heads of State and Government provide NATO with a mandate in energy security, yet to have Allies hesitate to use NATO as a forum for discussion during crises".

"The Bucharest decision was rather clear, or was very clear, I should say, and as I said in my introductory remarks, we will set the pace and we will decide upon the moment. But the moment is performance-based. So I cannot give you a timeframe. It is not around the corner, I would say, as we speak, as far as, of course, Ukraine and Georgia are concerned. We are intensifying our relationship, as you know, through the NATO-Ukraine Commission, the NATO-Georgia Commission, but I do think that enlargement in this sense is not around the corner, but I can't be more specific here in that regard".

"If there is a Russian-Ukrainian dispute on energy security I think NATO allies should pick that up. Not because we have any ambition, or we pretend to play any role. Please, no! There was a Czech presidency which immediately was proactive and involved. That was the European Union involved. Other people were involved. Certainly not NATO. But that does not mean that those subjects are irrelevant for NATO, if you agree with me that NATO is a political military organization".

"I think Russia cannot afford to have a non-dialogue with NATO, and NATO cannot afford to have a non-dialogue with Russia".

"Of course I'm discussing protecting pipelines in times of crisis. I said protecting pipelines is first and foremost a national responsibility. And it should stay like that. NATO is not in the business of protecting pipelines. But when there's a crisis, or if a certain nation asks for assistance, NATO could, I think, be instrumental in protecting pipelines on land".

"NATO is not in the energy business. So if in a situation like we had over the past weeks NATO allies are totally deprived of gas you will not see a NATO Secretary General stepping forward, raise his finger and tell the Europeans or the Russians or the Ukrainians for that matter, listen, guys, you have to stop this. We have other international organizations, other people to do this, and certainly not a NATO Secretary General, the European pres... the European Union presidency, rather, or others.
So we are not in the energy business, but of course when a nation is for a long time deprived of all gas, or all energy, in the North Atlantic Council, and quite rightly so, when a nation raises its finger and says, Secretary General, we would like to discuss the energy situation, should NATO then say no, that's none of our business? I don't think so. Although you'll not see us in the forefront in the energy business because we are not in the energy business. We're in the security business.
And I say again, we usually use the word energy security. And that's our business".

Tuesday, January 27, 2009

Europe wants action, not talks. While the President of Ukraine was visiting Brussels, he was criticized in Strasbourg.

The Parliamentary Assembly of the Council of Europe adopted the resolution on the state of investigation of a murder of Ukrainian journalist Georgiy Gongadze, mentioned in my previous post. Here is the press release with some highlights: PACE wants action to bring to justice those who ordered murder of Georgiy Gongadze. One more interesting thing about the Council I'd recommend to read is a speech of Terry Davis, the Secretary General of the Council of Europe (January 26, 2009).

The same time the President of Ukraine held talks in Brussels, giving a lot of attention to the issue of gas supply to Europe. Here is the interview of Mr. Yushchenko to the Financial Times, given during the visit. “The myths cranked out by the Russian government or Gazprom are apparently aimed at discrediting Ukraine as a reliable gas transport partner, to get political and commercial control of the Ukrainian gas system,” he said, talking to the FT correspondent.

One of the results of the visit - the scheduling of a high-level conference on March 23 in order to find investments for the modernization of Ukrainian system of gas transit pipelines. Some details of the Brussels talks are given here in the article of the Guardian.

At a joint press conference with Jose Manuel Barroso Viktor Yushchenko said also that the Gongadze case has to be solved as soon as possible. "I hope that using our joint efforts, including those of Interpol, we will find this criminal and finalize this case. This is a priority for me. I promise that Ukraine will devotedly and transparently do all it can to solve this case as soon as possible," he added.

Monday, January 26, 2009

The Parliamentary Assembly of the Council of Europe to come back to the case of murder of Ukrainian journalist Georgiy Gongadze.

The Winter session of the Parliamentary Assembly of the Council of Europe (PACE) started its work today in Strasbourg, France. Among a lot of important questions like the August war between Russia and Georgia, world economy crisis or recent conflict in Gaza in the agenda of the PACE there is one question, which concerns Ukraine directly. It is a report of the member of the Monitoring Committee of the PACE Mrs. Sabine Leutheusser-Schnarrenberger (MP from Germany, ALDE group) called Investigation of crimes allegedly committed by high officials during the Kuchma rule in Ukraine – the Gongadze case as an emblematic example, which will be discussed by the Assembly tomorrow afternoon. Full text of the report may be read here.

As the resolution and recommendation of the PACE, proposed by Mrs. Leutheusser-Schnarrenberger, may (and will) be amended tomorrow, during the debates, I’ll give just a couple of quotations from the mentioned report, which is obviously very important for a future of Ukrainian democracy."

"The Gongadze case and other crimes allegedly involving high officials of the Kuchma regime in Ukraine have been on the agenda of the Assembly for an unusually long time – for a reason: the official investigations also took an unusually long time, and they are still far from being completed, some eight years after the disappearance of the journalist.

The importance of this case, for Ukraine and beyond, stems from the fact that the long list of journalists killed in the exercise of their profession, in Ukraine and in other Council of Europe member states, requires a clear political signal that such crimes are not tolerated.

The first of the two motions underlying the present report was motivated by the failure of the investigations conducted until then to shed any light on the circumstances of the disappearance and murder of the journalist Georgy Gongadze, despite – and some say, because of – widely-publicised information pointing to the possible involvement of high government officials. The second motion drew attention to the fact that the investigations into other crimes allegedly committed by high officials during the Kuchma era were equally stalled, possibly for similar reasons.

A common thread between the two topics consists in the recordings of many hours of conversations in the President’s office allegedly produced by one of his bodyguards, Mykola Melnychenko (“Melnychenko recordings”). These recordings could provide important clues to the political, and possibly also the criminal responsibility of a number of high-ranking officials surrounding the former President. These recordings, their treatment, and the political games played around them, may shed light not only on the political culture which prevailed in Ukraine under the Kuchma regime, but also on the seriousness and determination of the “Orange Revolutionaries” to make good on their earlier promises that, once in power, they would investigate and expose the whole truth, without regard to the rank and political role of the suspects.

The Gongadze case was clearly one of the catalytic events leading up to the “Orange Revolution” brushing aside the Kuchma regime. Given the symbolic importance of the Gongadze case for ordinary Ukrainians, it is my view that President Yushchenko would be well advised to act in such a way that cannot give rise to any suspicion that he is no longer on the side of those who want to see not only the perpetrators of the crime against Gongadze brought to justice, but also all those who ordered and organised it. The award by President Yushchenko, in February 2007, of the Order of Prince Yaroslav the Wise to former Prosecutor General Mikhail Potebenko has given rise to doubts in this respect, as Prosecutor General Potebenko is widely regarded as responsible for the disastrous conduct of the crucial initial phase of the investigation.

Prime Minister Yulia Timoshenko has also promised publicly several times that the elucidation of the Gongadze case was a priority for her administration. I was therefore surprised that she failed to answer two parliamentary questions on this matter that were addressed to her following her speech before the Parliamentary Assembly during its April 2008 part-session.

In my view, two phases of the investigation can be distinguished, which roughly coincide with the period before and after the so-called “Orange Revolution” in December 2004. I tend to share the point of view of the authors of the “Gongadze Inquiry” reports, who summed up the evolution of the political will as follows: whilst under the Kuchma regime efforts were made to hamper, delay and block the investigation at all levels, the political interferences after the “Orange Revolution” were aimed at focusing public attention on the prosecution of the actual perpetrators of the crime whilst diverting attention as much as possible from the organisers and instigators of the crime.

On 15 March 2008, the three policemen were convicted – of premeditated murder committed following a conspiracy, and of abuse of official functions with severe consequences. But the investigation aimed at identifying the organisers and instigators of the crime has barely progressed since 2005 – in particular as regards the possible evidentiary use of the “Melnychenko recordings” and the inquiry into the responsibilities for the blunders committed during the crucial initial phase of the investigation.

Saturday, January 24, 2009

Gas tricks. The Secretariat of the President of Ukraine issued an analysis of Russia – Ukraine gas agreement.

Just to note some figures for a future reference. Yesterday (23 January 2009) the Secretariat of the President of Ukraine issued an analysis of Russia – Ukraine gas agreement.

Acording to the Secretariat, an average price of Russian gas for Ukraine in 2009 will be $256/tcm (price in the 1st quarter 2009 - $450, actual Ist quarter price with the 20% discount - $360). Average price of Russian gas in 2009 for Slovakia will be $240 (Ist quarter price - $296), for Hungary – 237 ($403), for Poland - $300-310 ($458), for Czech Republic - $340-350 ($420), for Romania - $310-320 ($470), and for Germany - $250-260 ($330-340).

If the “Secretariat prices” are true (I may question the current gas price for Germany, which is told to be $330-340, but is around $450), Ukraine with the base price of $450 in the 1st quarter of 2009 looks like a definite loser.

Next regular election of the President of Ukraine will be held in October 2009. Or in January 2010. Or in December 2010.

The Prime Minister of Ukraine Yulia Tymoshenko made a very interesting statement yesterday. She said, “it left 9 month until the election of President” in Ukraine. It was not a kind of “slip of the tongue”: Mrs. Tymoshenko repeated the phrase about the nine months a couple of times. So, she will try to schedule the regular Presidential election for late October 2009.

The Head of the Committee on Judicial Policy of the Verkhovna Rada of Ukraine Sergiy Mishchenko said on Friday, 23 January that he has the information from the insiders in Presidential Secretariat that they are trying to agree with the Central Election Commission to hold the presidential vote in December 2010. Besides, Mr. Mishchenko himself is sure that the Presidential election should be held on 17 January 2010, counting this date from the Inauguration day of 23 January 2005.

According to Ukrainian law, the date of the regular election of President has to be scheduled by the resolution of Parliament.

A bit of history:
The first President of Ukraine – Leonid Kravchuk – was elected in one tour on 1 December 2001.
In 1994 the early presidential election was held together with early parliamentary election: first tour took place on 26 June 1994, and the second tour – on 10 July 1994. Leonid Kuchma was a winner of presidential race, Leonid Kravchuk lost.
The third presidential election in Ukraine was held in 1999: first tour was on 31 October 1999 and second tour – on 14 November 1999. The leader of the Communist party Petro Symonenko couldn’t beat President Kuchma, and he saved his post with more than 56% of voters’ support.
The first tour of presidential election 2004 was held on 31 October. Current President Viktor Yushchenko and current opposition leader Viktor Yanukovych met in a second tour on 21 November. The Central Election Commission declared the winner was Viktor Yanukovych. After the mass actions of protest, later called the Orange revolution, the Supreme Court of Ukraine cancelled the results of the 2nd tour on 3 December. The new second tour was held on 26 December. Viktor Yushchenko won with the result of 51.99%.

Thursday, January 22, 2009

The Time Bomb. According to the new Russian gas price formula, with the recovery of a world economy, the economy of Ukraine will feel worse.

In the comment to my last post, Leopolis mentioned (very reasonably) that the reliance on a cheap gas has harmed Ukraine’s energy security. It harmed Ukrainian economy as well. Yes, that’s true that Ukraine lost a lot of time, not taking any significant measure to ensure the development of energy saving programmes. As a result, Ukrainian industry is extremely energy consuming, and Ukrainian economy is one of the most energy intensive on the continent. But it is not a fault of Viktor Yushchenko as a President (though he could do something in this field instead of just talking). The problem is that Ukrainian and foreign (mostly Russian) oligarchs who privatised big powerful plants and factories – at a very low price actually – didn’t care at all about any energy saving during all the 17 years of independence of Ukraine. These people, together with Ukrainian politicians, just used low gas prices to earn millions, or even billions of dollars. Business climate is so co-dependent with political situation in Ukraine that it’s really more reasonable for businessmen to have a fast profit today than to invest in an uncertain future.

Anyway, to switch to the market gas prices at the peak of the world economy crisis is also an evil for the country. Ukrainian industry simply doesn’t have time and financial strength for quick modernization and re-equipment. As a result, thousands of workers will lose jobs, provoking the social crisis. It opens a room for some radical or extremist ideas to override the common sense, which is really dangerous.

But the main problem with Russia-Ukraine gas agreement is that it contains a delayed-action bomb – according to the gas price formula, with the recovery of a world economy, Ukrainian economy will feel worse. Everyone noticed that the base gas price for that formula (which nobody have seen) is $450 per tcm. So, de facto Ukraine agreed for the raise of the price of Russian gas almost in three times – in December 2008 Kiev still paid $179.5 per tcm of gas from Russian pipeline.

$450 is really a very high level, taking to the account the geographical closeness of Ukraine to Russia. For example, in the first quarter-2009 Germany will pay $470/tcm, but the cost of transit of gas from Russia-Ukraine border to Germany costs not less than $50/tcm (only Ukrainian transit fee is around $20/tcm). One more example: according to the information of the Secretariat of the President of Ukraine, Hungary will pay for Russian gas only $400/tcm in the first quarter-2009. Romania pays $470, but buys only around 4 bcm of gas every year.

So, if we take these “European averages” together, we will have a base price for Ukraine around $400-420, but not $450.

Ukraine will not suffer a lot from the new gas price in 2009, as it will be presented with 20% discount. Meanwhile, it is still not clear, how much will Kiev pay in average during the year. Gazprom officials made public only the price for the first quarter 2009 – $360/tcm, and mentioned that the average price “may be less than $250”. The Prime Minister of Ukraine Yulia Tymoshenko said that the average figure is $228.8. It’s still $50 more than a price-2008, but Ukraine will definitely survive.

Well, Ukrainian industry will survive in 2009, but not develop. European industry instead will have a unique opportunity to use low gas prices for future growth of its potential. Ukrainian plants and factories will definitely lose their market competitiveness. I have to mention here that – according to the Moscow agreements – the GazpromSbytUkraine Company will control up to 25% of the domestic industry gas market of Ukraine, so, Russians will have a possibility to support loyal and “punish” competitive Ukrainian enterprises.

But the most important changes are expected not in short-term, but in mid-term prospects. What will happen, when the world economy will start recovering from the current crisis? Oil price will grow. As oil price will grow, gas for Ukraine will be more and more expensive. I would like to inform that the gas price of $450 corresponds not with a peak oil price of 2008 - $140/barrel – but with the price of Brent at the level of $111,4, according to the Naftogaz source. So, in 1,5-2 years time Ukraine will unfortunately face its own big economy crisis. …But it’s not an important question for Ukrainian politicians: all the worst is going to happen AFTER the presidential election.

Monday, January 19, 2009

Ukraine-Russia gas transit and supply contracts: Europe will not suffer from gas-cut during next 10 years, gas price for Ukraine still in shadow.

First of all, I would like to thank Tammy Lynch, Bakinets, and Anonymous reader for their comments to my gas posts. Well, I have to confess that my price prognosis has appeared to be rather pessimistic. I will be really happy, if I am wrong: the less the gas price is, the better it is for Ukraine and its economy.

Why I suggested that the gas price for Ukraine will be around $320 per tcm in 2009? My thoughts were based on three things:
1. Ukrainian negotiators were insisting on fixed gas price (I was pleasantly surprised when I’ve heard today that the gas price formula has been worked out for Ukraine).
2. The Prime Minister of Russia Vladimir Putin, President Dmitri Medvedev and the head of Gazprom Alexei Miller were declaring the “European price” for Ukraine at the level of $450 per tcm (last time Mr. Putin told that on Saturday, 17 January).
3. Gazprom has just switched to some “European formula” in his relations with Turkmenistan, and the price of Turkmen gas for Russians in the first quarter of 2009 will be about $300 per tcm.

It seemed logical to assume that the gas price for Ukraine should be at least more than $300. It is really great if the today’s statement of Prime Minister of Ukraine Yulia Tymoshenko is true, and Naftogaz will pay only around $235-250 per tcm. (She also told that the 20% discount will save $5 billion, which is possible when the price is $220). It would be like a miracle, if the average price for Ukraine were $199 as was suggested by the Secretariat of Ukrainian President. But we have to think, why Moscow agreed for such a low price level, as the Gazprom is clearly not a charity foundation, especially at crisis times.

Anyway, it is still difficult to say, how much Ukraine will pay for gas in 2009. There is not much information about the gas supply contract at all. Here is all I know today:
a) Gas supply and gas transit contracts are signed for 10 years;
b) Starting from 2010, the transit fee and the gas price will be calculated on a base of a clear formula (I hope this “Ukrainian formula” does already exist);
c) In 2009 there will be a fixed gas price for Ukraine, based on “average European gas price minus 20%”;
d) Transit fee in 2009 will stay at the level of 2008 – $1.7 per tcm for 100 km;
e) There will be no mediators in gas trade between Ukraine and Russia (but I think it’s early to say good bye to RosUkrEnergo as a player on European gas market).

Yulia Tymoshenko promised to make the new gas price public “in one-two days”, and it seems that the price is not agreed yet, despite of any paper signed. As the Russian TV reported, after signing the documents and press briefing Mrs. Tymoshenko went to the Gazprom office for some extra negotiations.

Talking about the gas price in 2010, I would like to propose a link, which leads to the fresh prognosis of Goldman Sachs Group Inc., forecasting “swift and violent rebound” in energy prices in the second half of the 2009.

Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said at a conference in London today. A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.

New York crude futures for delivery in December, trading near $56 a barrel, currently cost some $15 a barrel more than March futures, a market situation known as contango, where prices are higher for later delivery. The contango is likely to flatten as supply cuts by OPEC and other producers take effect, reducing the availability of oil for immediate delivery, Mr. Currie said.

Sunday, January 18, 2009

Double-cross. New gas agreement with Russia will cost Ukraine from 3 to 4 billion dollars.

Today (at night actually) the Prime Minister of Ukraine Yulia Tymoshenko reached a preliminary agreement with the Prime Minister of Russia Vladimir Putin on gas supply to Ukraine in 2009-2010: Ukraine will switch to “European price” with the 20% discount, and the gas transit fee will stay at the previous level.

In my previous post I gave the main figures of Russia-Ukraine gas trade. I mentioned that if Ukraine had agreed for Russian December proposal of gas price of $250 per tcm and unchanged transit fee of $1.7 per 1 tcm for 100 km, Kiev would pay to Russians around $3.85 billion more in 2009. But in new reality the losses of Ukrainian economy will be much more significant.

If the “average European price” is $400 per 1 tcm (Russian authorities have previously declared that it may be up to $460), Ukrainian price for this year would be around $320 per tcm. Ukraine consumes 55 bcm of gas every year, this amount costs $17.6 billion. So, this year Ukraine will overpay the price-2008 on $7.727 billion.

Direct loss of a non-signing of gas supply contract on conditions, proposed by Russia in December, is $3.877 billion (if the price-2009 is $320 per tcm). Even if the price will be different – higher or lower – Ukraine will lose from 3 to 4 billion dollars of budget money. The extra losses of January gas conflict: the cut of budget revenues due to the stoppage of work of more than 20 biggest plants and factories, further gas price raise on the internal market, and a dramatic damage of image of Ukraine as a business partner and predictable democratic country. And how can we call this if not the betrayal of the State interests?

It will be possible to smooth over the budget damage if Ukraine have the permission to perform re-export of gas to Europe (at European prices): financial crisis decreased the gas consumption, Ukraine also has significant amounts of gas in storages, and it can just sell the excesses. But there is no information, if Gazprom will give to Naftogaz Ukraine the re-export permission.

The agreement on gas supply to Ukraine in 2009-2010 is supposed to be signed on 19 December.

Saturday, January 17, 2009

Transit myth. The raise of the fee for gas transit via Ukrainian pipeline system will not make up the extra-expenses for European level gas prices.

According to the info we’ve got now, the Gas summit in Moscow ends without any significant result – at least in frames of bilateral Gazprom-Naftogaz negotiations on gas supply to Ukraine. Nevertheless Europeans may count on re-establishment of gas flow next week, but Ukraine is not likely to sign any contract today for its own energy needs. Though Vice Prime Minister of Ukraine Oleksandr Turchynov told yesterday that today Mrs. Tymoshenko will achieve the total agreement with her Russian counterpart. At the time I’m writing these words Yulia Tymoshenko and Vladimir Putin are still talking in private somewhere in Russian White House, and my story will not be about them. I would like to say a couple of words to unveil a very popular statement of Ukrainian top politicians, claiming that Ukraine will gain super-profits after switching to European level of gas transit prices. That’s not true.

I wrote about the transit-fee-myth in the Ukrainian Ekonomicheskie izvestia (Economic News) newspaper in 2004 and especially in 2005, when – after Orange revolution – the President of Ukraine Viktor Yushchenko, Prime Minister Yulia Tymoshenko and people from Government started to declare their will to move to the European level of prices for gas from Russia. I guess they hadn’t read my articles or just didn’t care about profits of Ukraine, and the “fruitful” negotiations with Russians ended in ruining of the existed agreement on gas price for Ukraine of $50, established until 2009. The transit fee rose from $1.09 per 1 tcm (thousand cubic meters) for 100 km to $ 1.6 ($1.7 in 2008), but that hadn’t influence the harm for Ukrainian economy. Today Ukrainian officials are actively declaring again that the raise of the transit fee to the European level will be profitable for Ukraine.

Here are some figures. In 2008 Ukraine transported around 120 bcm (billion cubic meters) of Russian gas to Europe. The length of Ukrainian export pipelines is up to 120 km (let’s take the average – 110 km). So, last year (not taking to the account the fact that some amounts of transit money went for old-debts-payments) Ukraine received from Russia approximately $2.057 billion. The same time Ukraine bought 55 bcm of gas from Russia, paying $179.5 per tcm – the check was $9.873 billion.

Ok. Let’s imagine that Ukraine raises the transit fee to the average European level. The President of Russia told it’s $3.4 per 1 tcm for 100 km. As a result Ukraine will receive twice more transit money from Russia – $4.114 billion. But the price of gas will be raised also; it will be from 350 to 450, as I can understand the Russian Gazprom’s mathematics. So, Ukraine will have to pay not around 10, but around 20 billion dollars, gaining 2 billion from transit-fee-raise. If Ukraine agreed for Russian proposal of gas price $250 with transit fee of $1,7, it would have to pay to Russia (literally – RosUkrEnergo) twice less – around $3.85 billion more. I would like to remind here that Ukraine has to pay more every year since it declared the will to move to European level of gas prices during three years.

Friday, January 16, 2009

FKPtt Universal Swissland – brand-new item in the Russia-Ukraine gas puzzle.

Igor Pukshyn, Deputy Head of the Secretariat of the President of Ukraine, issued a statement today, indirectly accusing the Prime Minister of Ukraine Yulia Tymoshenko in lobbying her own business interests in current gas conflict with Russia. Mr. Pukshyn claims that there is a need in a careful examination of the possible “wish of the Head of the Government to include the company, which is close to her, in the scheme of gas supply to Ukraine”.

With reference on “media sources” and “statements of the parliamentary opposition”, Igor Pukshyn assumed that “Yulia Tymoshenko, using the authority of her position, is making significant efforts to put into the European gas market an affiliated company – FKPtt Universal Swissland (the spelling of President’s press-service. – T.V.), registered in Switzerland – which have to receive significant amounts of Russian fuel. The information stating that the co-owners of this company are odious Viktor Medvedchuk (ex-Head of the Administration of Leonid Kuchma. – T.V.) and Igor Bakai (a famous gas tycoon close to President Kuchma, and the first Head of Naftogaz Ukraine until 2000. – T.V.) also worth attention”.

In this context, Mr. Pukshyn mentioned “the active opponency of Mrs. Tymoshenko to the activities of the gas trader RosUkrEnergo, which is a direct rival of the mentioned Swiss company, and the absence of the contract signed between the Naftogaz Ukraine and Gazprom on direct gas supply”. The Security Service of Ukraine and the General Prosecutor’s Office will examine all the mentioned accusation, the President’s aide informed.

Tuesday, January 13, 2009

Parliamentary Control. Starting from today, a special Investigation Commission of MPs will follow the gas negotiations between Ukraine and Russia.

Today the Parliament of Ukraine has founded a Temporary Investigation Parliamentary Commission to follow all the developments of current gas crisis. The Committee is going to examine the actions of Ukrainian officials in the sphere of gas supply and gas transit in 2008, and also will follow the negotiations with Russian Gazprom in 2009. The questions of signing the new gas supply and transit contracts – including financial issues, like gas price – will be under everyday control of the Commission.

222 MPs voted in favour of the Commission’s founding: 174 members of the Party of Regions (total size of faction – 175 MPs), 27 members of Communist party (total size – 27), and 19 members of the Block of the Speaker Lytvyn (total size – 19). The Block of Prime Minister Yulia Tymoshenko (BYT) and all the faction Our Ukraine – People Self-Defence (OU-PSD) didn’t support the idea of establishing the parliamentary control of gas problematic.

The new-elected Head of the Temporary Investigation Commission Inna Bogoslovska (member of the Party of Regions) promised to give the information on its findings to press every three days. “Our task is to speed up the signing of two contracts”, Inna Bogoslovska explained. On 6 February the preliminary report of the Commission will be presented in Parliament. The Commission (according to the size of every faction, it comprises 4 MPs from the Party of Regions, 3 MPs from the BYT, 2 MPs from the OU-PSD, 1 MP from BL and one Communist) is going to work during two months.

“It may well happen that, according to the results of this Commission’s activities, the question on the impeachment of President and the resignation of Government will be raised”, Inna Bogoslovska said. The leader of the Party of Regions Viktor Yanukovych went further today, calling for the immediate Government resignation. The Communist party on its turn proposed to start the impeachment procedure as soon as possible.

P.S. I’m not going to comment a lot the today’s “blockade” of Russian gas transit to Europe as I still think that this “problem” is staged by some forces from Russia AND Ukraine. I would only add one point concerning the gas interests of Russia. It is important to pay attention to one interesting figure the Prime Minister of Russia Vladimir Putin mentioned during his meeting with foreign journalists last week. He told that Russia might pay for the Middle Asian gas “on average $375 per tcm” in 2009. As the European gas prices (in most of the EU countries) are linked to the oil prices, and the oil prices are still falling despite of all the Russian efforts and the statements of the OPEC countries, it is reasonable for Moscow just to win time for extra negotiations, in particular, with the successor of Turkmenbashi. But I have to say that Russia will have to re-start gas export to Europe in a very short time – there are simply not enough of gas storage facilities on the Russian territory. In a while Moscow will face only two choices: to transit the gas to Europe or to burn it (or to close some gas wells), losing money Gazprom needs too much today.

Sunday, January 11, 2009

High Treason – II. Some conclusions from the Cold War started by Russia-Ukraine gas dispute.

The Gas Cold War 2009 caused by the Russia-Ukraine gas dispute has not finished yet, but we can already make some important conclusions. Sitting in the cold Kiev flat (we’ve got very low pressure in central heating system), I will try to give my point of view as briefly as possible.

Conclusion 1. The indisputable winner of the Gas Cold War 2009 is Russia and Russian Gazprom.
I would not agree with some observers who say that the image of Russia as a reliable gas supplier and the Gazprom as a relevant business partner suffered a lot. Europe and Europeans may think and feel whatever they want, but it is really impossible to replace more than 160 billion of cubic meters of Russian gas with some alternative source of energy. So, Europe will stay dependent on Russian gas supply, whatever the image of Russia will be.
Actually Russian Gazprom has already received a lot of profits from the Cold War:
1. Gas prises. European consumers were predicting the Russian gas average prices for Europe to fall to around $320 per tcm (thousand cubic metres) in 2009 due to the low oil prices level. New Cold War led to rise of the oil demand in Europe as of the alternative energy resource, and this will prevent the significant fall of gas prices.
2. Alternative pipeline projects. Gazprom currently has two new gas pipelines projects: the Nord Stream pipeline, which runs under the Baltic sea from Russian Vyborg to German Greifswald, and the South Stream, which will cross the Black Sea to Bulgaria and then split in the direction of Austria and Greece. Both pipelines will definitely get bigger support of the European companies, as the alternative for “non-adequate” Ukrainian route. (Though Ukrainian route cannot be eliminated as it transports around 80% of Russian gas export to Europe).
3. Punching Ukraine. Undermining the image of Ukraine and its President Viktor Yushchenko was a “pleasant revenge” of Russia and its top-authorities for Orange Revolution, support of Georgia, and Holodomor festivities. After this crisis nobody (except of some ultra-pro-Ukrainian-idealists) in Europe would think seriously about the possibility for Ukraine to join the EU earlier than in 100 years, and nobody in NATO would seriously consider future Ukrainian full membership in the Alliance.
4. Extra money. The crises appeared to become the real opportunity to rise gas prices for Ukraine and to get extra-profits.

Conclusion 2. The Gas Cold War was artificially organized.
Of course, Ukraine could sign the gas supply agreement with Russia before the New Year and prevent the crisis. Gazprom proposed the price of $250 per tcm, which is acceptable for Ukraine and its economy (in case of proper management of the State Oli and Gas Company Naftogaz Ukraine and fair distribution of up to 18 billion cubic meters of gas the Ukraine is producing by itself every year. The price of $250 is logical: last year Ukraine was paying $179,5 per tcm, and there is an agreement that the price will raise gradually to the European level during three years. It is approximately plus $70-80-90 every year, so, Russians should charge $250 or even more, and it was predictable.

But the gas agreement with Russia was not signed, and the Ukrainian officials who refused to sign the documents were consciously provoking the gas crisis. No agreement – no supplies, even a schoolboy may predict such a situation. Some Naftogaz officials said that the President of Ukraine Viktor Yushchenko prohibited signing of this agreement. It sounds unconvincing, as at that time nobody, including the Prime Minister of Ukraine Yulia Tymoshenko, made any rough statement on this point. It is also very naïve to think that the Gazprom and Naftogaz Ukraine really have communication problems and cannot reach a deal on gas supply to Ukraine. It’s unbelievable even if we take to the account the fact that the Head of Naftogaz Oleg Dubyna is flying in one plane with his Gazprom counterpart Aleksei Miller.

So, the gas crisis was surely staged by Kremlin and by some high authorities in Ukraine. Viktor Yushchenko is not among them, though he didn’t do anything (he could do a lot) to prevent the Gas Cold War. I would also add that the Head of Naftogaz Ukraine Oleg Dubyna was appointed to his position by the Yulia Tymoshenko’s quota, and that he is in very close relations with the Industrial Union of Donbass business group, which has permanent conflict of interests with “gas trade middleman” Dmytro Firtash who controls half of the “RosUkrEnergo” intermediate company.

Conclusion 3. In frames of Ukrainian domestic politics the gas crisis played not in favour of President Yushchenko.
Everyone might notice that the President of Ukraine was trying not to be involved into the gas crisis from the very start. He was mentioned a lot by all the participants of the negotiations (in positive and negative manner), he made some phone calls to his counterparts in Europe and to Russian President Dmitriy Medvedev, but he was avoiding to get inside the negotiations and discussions by himself. Why? It seems that he has a very vulnerable position, when one is talking about the gas supply question. During his Presidency, Mr. Yushchenko has been accused a lot of times in having some profits from the work of the RosUkrEnergo. In particular some people were accusing Mr. Firtash in paying some bills for Kateryna Chumachenko, the wife of the President. These accusations were never proved, but also never dishonoured, though Viktor Yushchenko could for example appeal to courts. If these accusations were true (even semi-true), Viktor Yushchenko is going to lose one of the main sources of his financial support before the Presidential election. By the way, some of the money may be re-transferred in favour of Mrs. Tymoshenko, if we just hypothetically assume that the Itera Company of Igor Makarov may come back to the big gas-supply scene as some people say.

Conclusion 4. The main loser of the Cold War is Ukraine as a country, its economy, and the State oil and gas company Naftogaz Ukraine (but not the current management of this company).
In the geopolitical sense the image of Ukraine as a country (and as a democratic country in particular) has suffered a lot. The New Cold War has demonstrated that Ukraine is totally unpredictable, since the actions of its authorities and state companies are based on the today’s interests of domestic politics, rather than on long-term programmes or interests of the country. Despite of the declarations about the dedication to the democratic ideals and the European course of current leaders of Ukraine, they showed up as a real threat to Europe, European economy and even to the health of the citizens of the European States.

The State Oil and Gas Company Naftogaz Ukraine is close to bankruptcy today. Though I am sure that with normal management this company may easily become a mail financial supplier of Ukrainian budget. (I was trying to make some calculations earlier, and maybe will publish the results here one day, of course, after careful self-proof-reading).

Conclusion 5. The intermediate gas supply company RosUkrEnergo may seem to be a loser, but is not.
The intermediate company RosUkrEnergo also may be considered as a loser in the New Cold War as it will probably be eliminated from Russia-Ukraine gas trade scheme. But I don’t think this statement is true, taking to the account billions dollars of profit RosUkrEnergo had received during the last four years, operating in the sphere of the re-export of gas from Russia to Ukraine and Europe (Hungary, Romania, Poland and Slovakia) and gas trade inside the domestic market of Ukraine. Half owned by Gazprom, RosUkrEnergo was founded as a temporary source of profits, and now it’s just a time for something new. I will not be surprised if Mr. Firtash would be among founders of a new gas trade company who will operate on European – and Ukrainian – markets in coming years.

Conclusion 6. The Europe, still suffering from lack of gas supply, may be considered as a loser also, and the object of manipulation as well.

Conclusion 7. The Cold War is an evidence of a betrayal of the interests of Ukraine by its highest authorities – President, Prime Minister, and Head of State Oil and Gas Company. Their actions and failure to act as well may be called as a high treason with all the consequences it should cause.

Monday, January 5, 2009

The High Treason. Non-settled gas dispute with the Russian Gazprom is leading Ukraine to energy bankruptcy and deep economy problems.

On 1 of December Russian Gazprom cut off gas supply to Ukraine. This news was among the top-3 in the entire world media during the New Year holidays. I think it would be first if there was no war in sector Gaza. The reasons of Gazprom’s actions are totally legitimate: unpaid debt for gas supply to Ukraine in 2008 and non-existence of a supply contract for 2009. Such a confusing situation seems to be not a terrible negligence of Ukrainian authorities, but a carefully planned scheme. The goal is to take the case to state of total mess, and then to re-divide the scheme of control of profits from gas supply to Ukraine. As a side effect, the State oil and gas company Naftogaz Ukraine may go bankrupt and Ukraine may lose control of its huge gas transportation system in favour of Russia or some Russia-leaded consortium.

These actions of Ukrainian officials can definitely be qualified as a high treason. But nobody will be charged for that.

There is no need to remind here the very details of the debt-dispute Russia and Ukraine had in late December 2008 – the media explained it very good. Talking in general, the Naftogaz Ukraine failed to pay off a debt for gas shipped from Russia in 2008: it paid $1.52 billion just one day before the New Year, but Gazprom claimed the total debt was $2.1 billion (including $450 million of penalties for the late payment for November and December gas shipments).

Current situation differs from the gas problems of early 2006. Now Ukraine has significant amounts of gas saved in storages: about 17 billion cubic metres (bcm) is owned by Naftogaz Ukraine, and the intermediary RosUkrEnergo (I’ll talk about this company later) has extra 11 bcm. That’s why there is no evidence of harm for Ukraine caused by the gas cut-off. Yet. But the gas battle with Gazprom will definitely influence the crisis-hit Ukrainian economy, pushing it down. World economy crisis reduced the industrial energy consumption in Ukraine almost by a quarter, and the main problems may be laid on shoulders of Ukrainian citizens. Higher gas prices will lead to rise of a gas fees for the households, which are heavily subsidising by the state.

The problem is that a dramatic raise of gas prise was not planned in the budget of Ukraine for 2009, approved by Parliament and signed by President before the New Year holidays. Moreover, a gas-supply part of the budget had been highly criticised even before problems with Gazprom went too far. The Deputy Head of the Secretariat of the President of Ukraine Oleksandr Shlapak said on 29 December that the 1.6 billion hryvnias, the budget assigned for Naftogaz Ukraine to keep low gas prises on the internal market, is not enough at all. “If we even manage to keep a gas price at $179.5 per 1,000 cubic meters (tcm) during the talks with our Russian partners, and the Ukrainian hryvnia’s rate to dollar stay at 7.5, there will be a need to compensate for Naftogaz Ukraine up to 9.2 billion hryvnias. Feel the difference”, he informed.

This means that in 2009 somebody will go bankrupt: either Naftogas, or Ukrainian citizens, or even Ukrainian state.

The gas price for Ukraine is really a painful question for years. In 2008 Naftogaz Ukraine had to pay $179.5 per tcm for gas from Russia, which is almost 3 times less than EU countries were paying. Due to the agreement to switch to market prices “step by step”, Gazprom offered the price rise to $250 per tcm for 2009. But it was already too high for Ukraine: it was going to pay not more than $201 per tcm (according to budget plans of the Government). As a result, Ukrainian officials didn’t sign even temporary agreement and left the country without contracted gas supply at all. Can somebody imagine such a thing to happen on a state level in any other European country?

It’s obvious that something is standing behind this artificially made conflict. It seems that the real source of Ukrainian gas problems, which may easily ruin the country’s economy, is a fight for the profits from gas transit and supply to Ukraine. As for this moment the only party of gas-supply scheme didn’t lose a cent from this situation is the RosUkrEnergo, the gas-trading intermediary between Russia and Ukraine. This company is making profit “buying” huge amounts of Russian gas on Ukrainian border and re-selling it to Ukraine (working also indirectly on Ukrainian domestic market) and some Eastern European countries (like Hungary and Romania). So, everyone who is in charge of RosUkrEnergo has guaranteed billions of profit. As for today, Russian Gazprom owns 50% of RosUkrEnergo, another half is under control of the commercial structures of Ukrainian-born businessman Dmytro Firtash. By the way, he also is linked with Ukrainian Nadra bank, which was accused by Yulia Tymoshenko in fraud with hryvnia rate in December (here is a link to my post about this matter).

That’s all I have time to write today. To be continued…