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29.12.07
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On A Collision Course
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By Dmitry Babich
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After three months of coalition building in the Rada, Ukraine’s parliament, the country finally corralled the majority needed to vote in a government headed by the controversial, populist prime minister, Yulia Tymoshenko.
A former ally of President Viktor Yushchenko during the Orange Revolution three years ago, Tymoshenko was sacked by Yushchenko in fall 2005 because of disagreements over privatization and macroeconomic policy. Judging by the first steps her government has taken, Tymoshenko appears to be headed for yet another collision with the president. This may appear surprising for the head of a weak government which was voted into power on December 18 by a slim majority of just two votes in the 450-member Rada. Tymoshenko’s divisive tactics, however, become more understandable if you bear in mind one fact: Ukraine will hold presidential elections in 2009.
After taking office, Tymoshenko started acting on two major policy tracks. First, she renewed discussion on energy prices with neighboring Russia. The previous Ukrainian government headed by Viktor Yanukovich managed to set the price of Ukrainian gas shipments to Russia at $180 per one thousand cubic meters. The second track is a series of populist social payouts, including compensation for money Ukrainian investors lost in the Soviet savings monopoly, Sberbank, after the Soviet Union’s collapse in 1991.
On gas prices, Tymoshenko toned down her rhetoric somewhat. Ukraine buys the gas it needs from both Russia and Central Asia, though all of the gas must go through pipelines in Russia to the Ukranian border. The $180 price is considered a major achievement of Yanukovich’s cabinet in its negotiations with the Kremlin.
Recently the government of Uzbekistan agreed to sell Russia its gas at the same price of $180. In November, the Turkmen leader, Gurbanguly Berdumakhamedov, raised the price of Turkmen gas to $130 per one thousand cubic meters in the first six months of 2008. Turkmenistan agreed with the Russian company Gazprom to add $20 to this price later, making it $150 in the second half of 2008. Russia will have to pass such price hikes on to its end customers, like Ukraine.
Yanukovich lobbied for the interests of industrial giants in Eastern Ukraine which are extremely dependent on Russian energy supplies. Working closely with the Kremlin, he managed to set the best gas price of any CIS country after Belarus and Armenia. Those two countries gave Gazprom major stakes in their pipeline companies. Ukraine stubbornly refuses to allow Gazprom to have any stake in the ownership of its gas pipelines. Gazprom’s clients in Western Europe pay more than $300 per one thousand cubic meters of its gas, almost twice as much as the Ukrainian government under Yanukovich.
Weeks before her ascent to the position of the prime minister, Tymoshenko blasted Yanukovich’s government for failing to make the price of Russian gas even lower, calling the current price “one of the highest in Eastern Europe” and “one of the signs of the failure of his [Yanukovich’s] policy in general.”
The rhetoric and Tymoshenko’s subsequent election sent shockwaves through the Russian gas giant where, according to the Russian daily Vremya Novostei, several Gazprom officials nearly cancelled their New Year’s vacations, fearing a gas war with Ukraine. The memory of the previous gas stand-off, which coincided with the New Year’s holiday in 2005, is still fresh in everyone’s mind.
For now, Tymoshenko has stopped short of demanding price changes, limiting policy shifts to a promise to remove the intermediary, RosUkrEnergo Company, from the Russian-Ukrainian gas transactions. Now, RosUkrEnergo, a private company headed by a Ukrainian businessman Dmitry Firtash, is responsible for delivering Russian and Central Asian natural gas to the Ukrainian border.
The new foreign minister of Ukraine, Volodymyr Ogryzko, recently vowed to proceed with Kiev’s “Euro-Atlantic plans,” a euphemism for joining the NATO bloc despite Russia’s protests. This is one of several steps by the Tymoshenko government putting Moscow on edge and muddying the waters for improved relations with the Kremlin.
However, foreign policy is not the plank of Tymoshenko’s strategy that sets her on a collision course with the President Yushchenko. His parliamentary block, NUNS, is a formal partner of Tymoshenko’s supporters in the anti-Russian Orange coalition. Formally, Yushchenko also supports Ukraine’s membership in NATO and advocates a tough stand on a whole range of issues between the two countries. The candidacies of foreign minister Volodymyr Ogryzko and interior minister Yuri Lutsenko were both put forward by Yushchenko and not by Tymoshenko, in accordance with the revised constitution adopted in 2005. However, Lutsenko and Ogryzko will work for Tymoshenko and her two powerful vice-premiers, long-time loyalists Olexandr Turchinov and Grigory Nemyrya.
Instead, the populist promises on the domestic front create the most tension. The promise to return the old Soviet Sberbank debt to millions of Ukrainian investors is one such promise. At his press conference on Thursday, President Yushchenko reminded Tymoshenko that the total amount of the state’s debt to people was about $26 billion or one-half of the entire state budget for 2008. Tymoshenko has already earmarked $4 billion for these compensations next year alone. In Russia, compensations are paid only to the oldest victims of the Soviet Sberbank’s collapse, in much smaller batches every year, for fear of inflation.
“I understand all the sources of these political decisions, I understand how they were taken, but I am convinced that a great part of the savings which were included in the state debt, this part is not a matter of the coalition only, but of the whole state,” Yushchenko said at the press conference, stressing that compensation payments should not destabilize the economic situation and that budget deficit should remain below 2 percent, while the inflation should not exceed 9.9 percent in a year.
“The state should tackle its obligations in a responsible way and it should find a mechanism, set a schedule and establish a procedure in which the payment of these compensations should be secured,” Yushchenko said at his traditional annual press conference, where he summed up this year’s results. Tymoshenko was conspicuously absent from the conference
Recently, Yushchenko’s decided to appoint Raisa Bogatyryova, the former leader of Yanukovich’s Party of the Regions faction in the Rada, to head the National Security and Defense Council (SNBO). This appointment is seen as the first shot in a looming war between the Orange president and Orange prime minister.
In her new position, Bogatyreva, a long-time time foe of Tymoshenko, could become a sort of a counterweight to the ambitious head of government. In 2005, it was also the powerful head of SNBO and Tymoshenko enemy, Petro Poroshenko, who played the biggest role in Tymoshenko’s ousting from the prime minister’s office. He agreed to resign simultaneously with his Tymoshenko after a series of mutual corruption accusations.
“I think Tymoshenko will have a full-fledged government until April. Afterwards it will be a caretaker government because, by that time, the ruling coalition will lose its critically small majority (228 deputies of the required 225),” said Vladimir Sivkovich, a member of the Party of the Regions faction in Rada.
“Tymoshenko is short of time and for that reason she wants to make all the social payments before spring,” said Vladimir Fesenko, the head of the Kiev-based Penta think tank. “Everyone understands that Ukraine, as well as some other countries of the post-Soviet space, will face a surge of inflation later during the year 2008. But if Tymoshenko’s government resigns right after making the social payments, inflation will be a problem of the next government, not hers.”
“I would point your attention to the fact that the presidential election in the year 2009 is Tymoshenko’s last chance to become the head of Ukrainian state,” said Kirill Frolov, the head of the Ukrainian desk in the Moscow-based Institute of CIS Countries. “Later on she may become a much less attractive candidate, both physically and politically. So, she views her prime-minister’s job primarily as a launching pad for her presidential campaign.” |
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