All Flags at Half-Mast. One more quotation from the President of Ukraine.

“If Yulia Tymoshenko is getting into the second round, it will be the time to go to Maidan and dip the national flag”, the President of Ukraine Viktor Yushchenko said during one famous TV-show on 15 January 2010.

871 thousand of Ukrainians are sick with flu, ARVI or pneumonia - Health Ministry of Ukraine

Official information of the Ministry of Health of Ukraine as of 6 November 2009: 871037 Ukrainians are sick with flu, ARVI or pneumonia. 135 died, 25 of them - has died today.

Deputy Head of Kyiv City Administration Irena Kilchytska has just informed at the TV-show I'm watching now that there are 7 proved A/H1N1 cases in the capital of Ukraine, and 2 women died.

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.

What’s up, Ukraine? 15-21 December 2008.

Falling currency . On Thursday, 18 December the Ukrainian hryvnia dropped to its historical low against the US dollar – 10-10.5.
Less than a half of the year ago US dollar cost around 4.8 hryvnias. The Prime Minister of Ukraine Yulia Tymoshenko declared that the hryvnia’s value felt down due to “a special speculative operations planned at the currency market of Ukraine, and organized with the assistance of the National Bank (Central bank) and some other banks of Ukraine”, in particular, Nadra bank.
“The bank that was just bought for 600 million dollars, received from the National Bank financial resources of 7 billion 100 million hryvnias”, Yulia Tymoshenko said, adding that “the bribes made up from 3% to 7% of the total amount of financing”. Yulia Tymoshenko pointed out that Ukrainian businessman Dmytro Firtash (owner of the Group DF holding, which is famous also for a scandal around the financial support of the British Conservatives) and the Presidential Secretariat are standing behind the Nadra bank. “They need to tumble the hryvnia’s value to dollar”.

Getting closer. The U.S. Secretary of State Condoleezza Rice and Ukrainian Foreign Minister Volodymyr Ohryzko signed the U.S. – Ukraine Charter on Strategic Partnership.
The joint U.S. – Ukrainian declaration called a “Charter on Strategic Partnership”, signed in Washington on 19 December, appeals for the expanding of the economic and security ties between two countries, and strengthening of the cooperation in energy, trade and other areas.The document does not have a legally binding status.
The declaration states that the United States intends to open a diplomatic post in the Autonomy Republic of Crimea, a region that is highly influenced by Russia (there are many ethnic Russians and Russian-speaking people with Russian passports), and is hosting Russia's Black Sea fleet in Sevastopol (under a lease agreement until 2017). ”Ukraine welcomes the United States' intention to establish an American diplomatic presence (American presence post) in Simferopol, the capital of Crimea”, said the joint declaration.
State Department spokesman Sean McCormack has already said the Crimean diplomatic post would be a small one, dedicated to the organising of cultural events and doing political reporting. Mr. McCormack denied any intentions to provoke Russia by establishment of this post. ”This is about U.S.-Ukraine bilateral relations. If the Russian government chooses to be upset by ... my stating that we're considering opening up… a one-person or two-person American presence post, well, there's not much I can do about that,” he added. Russian officials haven’t made any statements on this point, but analysts are saying that this answer may be given in more sharp position of Moscow in gas-trade dialogue with Ukraine. Minister Ohryzko told reporters the post “probably will be done next year”.
Also Washington promised to help to strengthen the candidacy of Ukraine for NATO membership, which is another painful question for the official Russia. Nevertheless, U.S. would work within the NATO-Ukraine Commission to agree on a plan for training and equipping Ukrainian armed forces. “We plan to undertake a program of enhanced security cooperation intended to increase Ukrainian capabilities and to strengthen Ukraine's candidacy for NATO membership,” the document said.
Washington also promised to help Ukraine with “rehabilitating and modernizing the capacity of Ukraine's gas transit infrastructure”, cooling down Russian dreams to fort a consortium for the exploiting of Ukrainian gas lines.

Fitch Ratings: The credit outlook for the Ukrainian energy and utility sector during 2009 is negative.
The report issued on Thursday 18 December lists the main problems of the Ukrainian energy and utility sector: a funding crisis in the state-controlled power generation sector, downward pressure on regulated tariffs due to a severe recession, restricted access to bank lending and debt capital markets, and continued turmoil at NJSC Naftogaz of Ukraine (‘B’/Rating Watch Negative). Fitch expects an economic recession in Ukraine in 2009 to drive down power demand, providing only temporary respite to falling capacity reserve margins.
Fitch expects liquidity and refinancing risk to remain high for the Ukrainian energy and utility sector through most of 2009, as foreign banks and markets remain effectively closed to Ukrainian issuers. Naftogaz will continue to confront major challenges in 2009, including a lack of transparency, potentially insufficient state subsidisation for its loss-making residential business, higher import prices, accumulating gas payables and restricted access to external financing. However, Fitch continues to view Naftogaz as an important strategic asset for the Ukrainian government (Ukraine rated at ‘B+’/Outlook Negative) and factors state support into the company’s rating.
The 2009 credit outlook, entitled "Ukrainian Energy and Utilities – 2009 Outlook”, is available on the agency's public website http://www.fitchratings.com/.

Eternal problem. Russia blocks Ukrainian famine-genocide resolution at the United Nations.
Russia blocked Ukraine-initiated UN resolution claiming Holodomor in the Soviet Union in early 1930s was famine-genocide aimed against Ukrainians, rather than a common tragedy of many nations in the country. “We succeeded to bloc the inclusion of the item into the agenda of the current UN General Assembly,” Russian Ambassador to the United Nations Vitaly Churkin said on Thursday, 18 December, according to the Russian media.
The Ambassador also added the United States and Great Britain backed the Ukrainian motion, which “ended in nothing.” Mr. Churkin said Russian representatives were active in explaining the history of Holodomor to foreign partners. As a result, nine EU countries did not sign the Ukrainian declaration, although “EU members usually act in a consolidated manner”.

Kyiv local elections: Orange Split

On Sunday, 25 May, the capital of Ukraine Kyiv had early elections of Mayor and members of the City Council. Today the official results of elections are supposed to be announced by the Central Electoral Commission. The electoral company has demonstrated all the possible signs of falling down of democratic values in Ukraine. The use of dirty technologies, bribing of voters, “twin” candidates (registration of candidates for the post of Mayor with the same names), etc – all these features of Kyiv elections had place on the background of unfortunate split of coalition of the Orange democratic forces.

Political parties, which led the Orange Revolution in 2004, have lost the unity very quickly. The result of early election – sad for democratic forces – is a clear sign to worry about the outcome of next presidential election.

New Ukrainian President is supposed to be elected at the end of 2009, but in today’s Ukrainian politics there are a lot of unpredictable things. As some informed people say, early presidential election may take place. The same time the “Orange camp” is strongly divided. Contradictions between ex-allies are so deep and serious (up to personal antagonism) that the nomination of the unique candidate for presidential post seems impossible. It may cause a real danger for Ukrainian democracy.

Let’s get back to the Kyiv early elections. They were called by the initiative of Prime Minister of Ukraine Yulia Tymoshenko who accused the eccentric incumbent Mayor Leonid Chernovetskiy in corruption and illegal deals with Kyiv lands. She was sure she will win the prise, but lost. Mr. Chernovetsky stayed on his place and got a majority of Council’s seats.
“Orange coalition” failed to nominate the unique candidate for Mayor. Three candidates – members of coalition were trying to win this post independently, including a famous boxer Vitaly Klitschko. Multiple “democratic party lists” were nominated also for the election to City Council.

Yulia Tymoshenko took the biggest risk personally heading her Block’s list for city Council. Her “right hand” Oleksander Turchinov was a candidate for Mayor’s chair. President Viktor Yushchenko pretended that he doesn’t support any candidate for Mayor, actually being in favour of Mr. Chernovetsky. Ex-Prime Minister Viktor Yanukovych and his Party of Regions supported Vasyl Gorbal – millioner and Member of Parliament.

They say that in private conversation Viktor Yushchenko declared that Kyiv elections would be “a Stalingrad for Tymoshenko” (the battle of Stalingrad was a turning point of the World War Two, when the Nazi army faced a defeat from which it never fully recovered). But it happened that the elections became a “Stalingrad” for Orange democratic forces and for the principles of free and fair elections in Ukraine.

While the democratic candidates were busy trying to fight each other, the “anti-hero” Leonid Chernovetsky was systematically bribing the electorate (mainly the elder people), providing them with free food and money – on exchange for promises to vote for him. Some so-called “technical candidates” (who did not have chance to win but had the mission to split votes) also gave money to people. I know that the photo of ballot paper with “tick” near the name of some candidates could easily be exchanged for money – from 50 to 100 American dollars.

As a result, Leonid Chernovetsky has won almost 38 percent of ballots. The Chernovetsky Bloc is also leading in the city Council vote. Tymoshenko’s ally Oleksander Turchynov got only 19,1 percent of vote – we should notice that her Bloc won about 40 percent of the vote in Kiev in the parliamentary election last year. (The presence of Tymoshenko’s Block in Council is also reduced). World boxing champion Vitaly Klitschko gathered 18 percent of votes, while Mykola Katerynchuk, an ally of Yushchenko, has just 4 percent. Vasyl Gorbal won some 2,3 percent of votes. The most important sign is that the President’s “Our Ukraine People’s Union” didn’t even qualify for the City Council with the result of 2 percent.

Mr. Chernovetsky won back Kyiv for the next five years proving the split of Ukrainian democratic forces, which may cause a real danger for the future of the country. He proved also that anyone who has enough money can win the “free and fair” election in Ukraine.

I am sure that to save democracy in Ukraine the leaders of democratic forces should forget about their ambitions and build up a new democratic block (or single party) – to start to work for Ukraine’s best future. (And stop to call permanently for early elections). Otherwise country is in need of new faces and new political parties, based on ideology and democratic values, not on charismatic leaders and their personal or business interests.