Blue &Yellow: Politics and Economics in Ukraine

The deal extending the presence of the Black Sea Fleet until 2042 was ratified by the Rada. Inside the Rada it was raucous situation, with  fights breaking out. Regions blocked the podium until Lytvyn showed up. Once at the podium  the speaker was pelted with eggs. This played out as PACE met with President Yanukovych.  The events in the Rada led to Presdient Yanukovych's most insightful comment concerning  democracy.

• Time inconsistency problem in the gas/base deal could benefit Kyiv. [Window on Eurasia]
• Links on Chernobyl, including a request for funds to pay for the concrete shield over the reactor. [ABC, Russia Today, Washington Post]
• One the 24th anniversary of Chernobyl. [NPR, Deutsche Welle, Itar-Tass]
• Ukraine seeks $19-20 billion from the IMF for 2010-2012. [Interfax-UA]
• How long will the opposition remain united over the base agreement. [Zik]
• Financial Time's Brussels blog thinks the EU needs to be bolder in engaging with Ukraine. [FT]

The $40 billion is to be considered “investment aid” in Ukraine’s economy, Yanukovych said. The lease on Russia’s Black Sea Fleet base on the Crimean peninsula was extended until 2042, with the possibility of a five-year extension.

Take a peek at the numbers. I asked Ed Chow, whom O&G readers will recall as a former Chevron negotiator in Russia, and who is now a senior fellow over at the Center for Strategic and International Studies, for a rundown of current gas pricing in Europe. Chow said that European customers under contracts are paying about $240 per thousand cubic meters for their gas. Meanwhile, spot gas prices -- meaning what users are paying for Qatari liquid natural gas that's flooding the market -- are about $150 per thousand cubic meters. By these measures, Ukraine got no bargain -- it is paying right around the market price, and in fact 60% higher than the spot price.

But there is one thing that this agreement may do, Minchenko says. It could “consolidate the opposition in Ukraine.” Up to now, there have been several, “but now they will be united.” That could make politics in Kyiv more interesting and more serious; at the very least, that possibility will be part of Yanukovich’s calculus about how hard he will push for ratification.

From Paul Globe at Window on Eurasia about possible ramifications of the gas-base agreement. The Constitutional Court chairman has also announced that only the cabinet of ministers or president can appeal the constitutionality of the agreement. Finally, President Putin has indicated that Russia will pay higher rent for the base, but not until 2017. 

I didn't include in my earlier post anything concerning the legality of the base agreement.There is isn't much yet on that aspect, though some have noted that the agreement needs to be approved by the Rada. Yulia  Tymoshenko is attempting to cancel the base agreement, arguing the the agreement violates article 17 of the Ukraine constitution. 

• The location of foreign military bases shall not be permitted on the territory of Ukraine

Emphasis mine, I presume she's referring to this from article 17. However in Chapter XV, there is also this proviso. 

• 14. The use of existing military bases on the territory of Ukraine for the temporary stationing of foreign military formations is possible on the terms of lease, by the procedure determined by the international treaties of Ukraine ratified by the Ver khovna Rada of Ukraine.

"We made the extension decision already in 2010 when it is essential for us. The spoon is dear when lunchtime is near, as they say," Yanukovych said.

He said that the simultaneously reached understandings on the Black Sea Fleet and gas deliveries are beneficial. "We found a mechanism that allowed us to make the two decisions simultaneously," he said.

Those comments are from President Viktor Yanukovych who successfully negotiated a gas price discount with Russia. According to the New York Times, the Russians get a 25 (!) year lease extension on the naval base in Crimea , while the Ukrainians get a 30% gas price cut, to around $240 per ton cubic meters. The Regions-led government is focusing  on the lower price that Ukraine will pay for gas, second lowest after Belarus (under the new agreement between Ukraine-Russia). 

"This price is lower than in Poland, Slovakia, Czechia, Hungary, Romania, where it is in the second quarter in the range of 300-330 dollars" - Borodin said. 

"This price is lower than in the Baltics, where in the first quarter it was around 260 dollars. In the second quarter it will probably be closer to 275-280 dollars. It is less than in Moldova, where in the first quarter price was 231 dollar ", - he said.

• Paul Globe looks at a possible shift in policy by Yanukovych in Crimea. [Window on Eurasia]
• Crimean Russians want the president to ban Tatar bodies. [Radio Free Europe]
• FP article about Ukraine  uranium deal, they mistakenly call Yanukovych, Yushchenko. [Foreign Policy]
• Taras Kuzio offers a contrast between Adrian Karatnycky and Alexander Motyl discussing Yanukovych, but to be fair the Karatnycky article wasn't very good to begin with. [Taras Kuzio]
• Polish president and wife buried. [Radio Free Europe]

Reporters Without Borders voices its support for the open letter which 17 journalists working for privately-owned television station TVi have sent to President Yanukovych urging him to put a stop to interference in the media by the SBU, the country’s main security agency. TVi’s journalists complain of harassment by the SBU and accuse it of defending the personal and business interests of its director, A. Khoroshkovskiy.

Well, I suppose only time will tell if press intimidation and harassment becomes the new normal in Ukraine. 

"Today the Constitutional Court issued a ruling recognizing the constitutionality of the creation of the parliamentary coalition. So now I can say with confidence that there's effective and agreed work in the government team in Ukraine. And this chain - the president, the government and the parliamentary coalition - will work effectively," he said.

Ukrainian President Viktor Yanukovych commenting on the Constitutional Court decision on constitutionality  of the parliamentary coalition. Actually, concerning how Regions created its current coalition. The president, naturally, applauded a decision that confirms the coalition led by his party. The Razumkov Centre's statement on the decision has several salient point on this issues. Here is one key excerpt from the statement, emphasis mine. 

Thirdly, it is known that the creation of the parliamentary coalition “Stability and Reforms” and the formation of a new Cabinet of Ministers were publicly justified by high-ranking public officials, members of the Party of the Regions and other political forms which made up the coalition as being necessary to stabilize the situation in the country. This can be deemed indirect political pressure on the Constitutional Court.

Yes, the coalition's creation was questionable from its inception, but the need to get on with governing appears to override lawfulness. However, it fits into recent behavior by Regions to use the Rada for its own ends.The Constitutional Court has been susceptible to political pressure and this time the pressure must have been immense. Either the court confirms the legitimacy of the coalition or else be blamed for any resulting "instability". Yet, as the Razumokov Centre notes the decision could have serious ramifications for the country. 

The Constitutional Court has effectively legitimized the possibility of radical change in the position of National Deputies in the ratio “government – opposition”, regardless of the political forces whose lists they were voted in on. This renders meaningless the will of citizens as expressed at the elections through support of political parties (blocs) and their pre-election programmes

The Ukrainian government hopes to persuade voters to accept a loss of control over the national gas transit system, if Russian gas can be bought at $200 per one thousand cubic meters in the cash component of the price. The barter component of the price in the form of assets would in that case become less visible; and the issue of transferring additional assets to pay for Russian gas in the future could be postponed.

Besides the abolition of a number of institutes and committees created by orders of Viktor Yushchenko, President Victor Yanukovych and formed their own series of structures, including the Committee on preparation and conducting in Ukraine of finals of European Championship 2012, which was headed by himself and the Public Humanities Council , headed by Deputy Head of Presidential Administration Anna Herman.

The Yanukovych administration has moved swiftly to replace or undo actions taken by former President Yushchenko, excerpt above from BBC Ukraine. Itas-Tass described it in an article as shaking off Yushchenko's "ideological heritage".  Besides replacing institutions his also replaced governors appointed by Yushchenko. Also, the court ruling in Dontesk repealing the Hero of Ukraine to Bandera was a move backed by Yanukovych government.  Yanukovych can afford to undue Yushchenko's work. His undoing the work of a president whose approval ratings were in the low single digits. NATO membership did not have widespread support Ukraine and the same goes for Bandera (except in western Ukraine).  These moves also please Russia who has yet to give the Ukrainians anything in return.  

• Here's more on the controversial new education minister. [RFE/RL]
• And here's something on those controversial comments about women. [WSJ]
• And here's something on the economy. [Business Week]
• Finally, something about eastern European disputes. I'm disappointed they didn't look at national capital spellings in Moldova and Ukraine.  [The Economist]

So the first month of the new regime comes to a close and we've seen snippets [2] of the future in Ukraine and the region.   Azarov's decision to look into a union with Russia and Belarus may not lead to substantive action.  The prime minister is also renegotiating the gas contract with Russia and modernizing the GTS.  On top of the that, the government has to restart  IMF cooperation. 

The IMF mission in Ukraine is negotiating with the government on how much he 2010 budget deficit will be.  Also, Ukraine requested $5 billion in the fourth tranche from the IMF. Bloomberg points out that credit-default swaps on Ukrainian debt has fallen substantially this year, part of a broader rally in the equity and bond markets in Ukraine.

The benchmark PFTS Index of stocks surged 64 percent and JPMorgan Chase & Co.’s EMBI+ Index of Ukraine government bonds gained 21 percent in the first quarter, topping 267 equity and bond gauges tracked by Bloomberg, as newly elected President Viktor Yanukovych pledged to resume cooperation with theInternational Monetary Fund on a stalled $16.4 billion bailout. The Washington-based lender froze its loan program last November as political infighting prevented parliament agreeing a budget.

I figure the drop in cds is partly due to reduced political turbulence since the presidential election in January.  While there is a nice rally going on, that doesn't mean that the country doesn't need the IMF to shore up its finances. In that vein, Tymoshenko thinks the budget deficit should be 4% of GDP and 10% inflation. The Yanukovych government wants a budget deficit of 10%.