UKRAINE: Gas and the Government

In January, Ukraine’s parliamentary election season began in an atmosphere largely foreign to Ukraine and other former Soviet republics – one of free speech, vigorous public debate and a generally free national press. The democratic atmosphere, which Ukraine’s leaders have proudly supported, has been a challenge for them. Questions about the country’s latest gas deal with Russia, combined with the introduction of perplexing constitutional reforms, have led to the virtual paralysis of the presidential administration and the parliament’s dismissal of the cabinet.

The latter is being contested by the president as unconstitutional, but, regardless, it has effectively halted much of the government’s work. Two months before the 26 March election, the potential orientation of the country’s next parliament is unclear, political brinksmanship already is underway over who will assume the premier’s chair following the poll, and the country faces questions that are likely to impact its development for years to come.

Gas agreement? What gas agreement?

The current crisis was created in the days following the announcement of a new gas agreement between Russia and Ukraine. On 4 January, when the agreement was signed, Ukraine declared it a success. “The people of Ukraine and Russia won,” said Prime Minister Yekhanurov. (1) Later, President Yushchenko went further. He proclaimed the deal “a brilliant achievement” and suggested that “the political fight has been won.” (2)

At the press conference announcing the deal, the head of Ukraine’s Naftohaz gas concern, Oleksiy Ivchenko, provided limited information. “We shall be buying gas of different origins, both Russian and Central Asian, from the RosUkrEnergo company,” he said. “The price of gas will be 95 US dollars per 1,000 cubic meters at the Russian-Ukrainian border.” (3) Yushchenko later confirmed Ivchenko’s statements. “Ukraine has gotten a price of 95 dollars. Look at the map of Europe. Who has this price? … We have secured a stable gas balance for five years.” (4)

But, even at the press conference it was clear that the agreement was far more complex than stated by Ivchenko – the only official Ukrainian representative at the negotiation. Russia’s Gazprom head Aleksey Miller touted the fact that “a long term contract for supplying Russian gas has been agreed,” and announced, “The initial price is 230 dollars for 1,000 cubic meters.” This price for Russian gas, he later explained, would be paid to Gazprom by the intermediary RosUkrEnergo, which would then mix this gas with much cheaper Central Asian gas and sell the mixture to Ukraine for an average price of 95 dollars. (5) Thus, instead of paying between $50 and $65 per cubic meter for Russian gas, and between $44 and $50 per cubic meter for Turkmen gas, as it did in 2005, Ukraine would pay $95 for a mixture of these, plus possibly some additional supplies from Uzbekistan and Kazakhstan.

Soon it became clear, however, that the actual document differed in some ways from the information provided at the celebratory press conference. Most importantly, it provided only limited guarantees for Ukraine.

On 5 January, former Prime Minister and Orange Revolution leader Yulia Tymoshenko released a copy of the gas agreement at a press conference, and made it, as well as several other related documents, available on her political party’s website. The press conference and contents of the agreement were discussed extensively on all major Ukrainian media, and Tymoshenko announced plans to contest the document in court, while calling for the dismissal of those who stood behind it.

Of particular interest was the lack of any set price – or even guaranteed gas volumes -- for Central Asian gas. “The sides shall sign appropriate agreements and contracts,” the document reads, “with the aim of forming, starting from 1 January 2006, an annual gas balance of the RosUkrEnergo company in the following volumes …” No actual guarantee is given for any volumes listed.

The document sets a price, of sorts, for the Russian gas that will be sold by Gazprom to RosUkrEnergo for use in Ukraine. It states, “Up to 17 Billion cubic meters of Russian gas to be bought from … Gazprom at a price to be set by a formula, proceeding from the basic gas price (PO = 230 dollars per 1,000 cubic meters).”

Later in the document, RosUkrEnergo pledges to sell to Ukraine “in 2006 – 34 billion cubic meters of gas to be sold at the price of 95 US dollars per 1,000 cubic meters which is in force in the first six months of 2006.” No mention is made of the second half of 2006. Additionally, while the document notes that RosUkrEnergo will sell gas to Ukraine at an unspecified price in 2007, the agreement makes no mention of the years 2008-2010, calling into question statements that it is a “five-year” agreement. (6)

At her press conference, Tymoshenko objected not only to the lack of guarantees of price and gas quantity to Ukraine, but also to the involvement of the gas intermediary company, RosUkrEnergo. During her tenure as premier, the company was investigated by Ukraine’s Secret Service for money laundering and ties to organized crime. Following her dismissal, the investigation apparently was shelved, although it is unclear if this was done for lack of evidence or for political expediency. Tymoshenko noted that Gazprom owns 50% of RosUkrEnergo, while the other 50% is owned by a subsidiary of Austria’s Raiffeisen Investment. Raiffeisen claims to merely manage the activities of the company on behalf of individuals who do not want their identities disclosed.

Tymoshenko has charged that these individuals are politically well-connected Ukrainians enriching themselves through RosUkrEnergo’s deals. “It is a front company, an artificially created company, so that gas coming to Ukraine comes through a filter that will catch a significant amount of money,” she told the New York Times. (7)

Speaking on “Freedom of Speech,” a live Ukrainian debate program, she further pointed out that the 4 January document commits Ukraine’s Naftohaz to create a corporation with RosUkrEnergo for distribution of gas internally to Ukrainian customers. This, she charged, placed the management of, and profits from, Ukraine’s gas transport and storage facilities in doubt. During the program, representatives of Yushchenko and Yekhanurov’s political party, Our Ukraine, vigorously denied that the joint venture would lead to loss of control over any of Ukraine transport or storage facilities. (8) However, point 3 of the agreement does, in fact, announce the creation of a joint venture, “whose authorized capital shall be formed by contributing cash and bringing in other assets.”

However, during an interview with Great Britain’s Channel 4 news, the president was, according to reporter Jonathan Miller, “at a loss for words” when asked who profits from RosUkrEnergo’s business. After a long pause, Yushchenko answered, “I don’t know. They may be Ukrainians, but I really don’t know who these people are.” (10) In spite of this, according to Prime Minister Yekhanurov, Ukraine was forced to make the deal with RosUkrEnergo.

It appears that Ukrainian negotiators may have hoped to conclude supplementary intergovernmental agreements before specific information about the 4 January document was released. Given the ease with which documents were kept out of the public eye throughout President Leonid Kuchma’s administration, this hope was not unfounded. However, despite questions about the current government’s commitment to rooting out corruption entirely, Ukraine is no longer Kuchma-land. The press is no longer muzzled. The political opposition is no longer oppressed. Yulia Tymoshenko is no longer denied access to the airwaves.

It very well may be that the government’s continuing negotiations with Russia will close the holes noted above. However, Tymoshenko is calling on Ukraine to reject all the terms in this deal, suggesting that the country should depend on an already existing agreement signed in 2004. What Russia’s response to this suggestion would be, during one of the coldest winters in Ukraine in over 20 years, is unknown. But, no matter what the result of any new negotiations, the initial misdirection surrounding the “deal” provided effective fodder to the government’s opponents, who, just two months before the parliamentary election, set their sights on the cabinet.

Government? What government?

On 10 January, after days of building questions, and increasing attacks from political parties vying for places in the election, parliament voted to dismiss the government of Prime Minister Yuriy Yekhanurov.

Support for the dismissal came from a disparate a group of parties. The Yulia Tymoshenko Bloc joined with Parliamentary Speaker Volodymyr Lytvyn’s People’s Party, the Communists, the former Kuchma-allied Ne Tak Bloc and Viktor Yanukovich’s Party of Regions. Although a number of charges were leveled at the Prime Minister, the primary justification given was that the gas agreement with Russia violated Ukraine’s national interests. The fact that the members of these
parties largely see themselves as having been wronged in some way by the president and government probably also was not an insignificant point.

The vote came as something of a surprise even to many deputies, since no confidence votes are generally announced at least four days in advance, and constitutionally can only be held after a written request for a vote by one-third of the members of parliament. (14) Because these provisions were not met, President Yushchenko immediately called the vote “unconstitutional,” “incomprehensible and illegitimate,” and refused to recognize it. (15)

However, according to the official Decision of the Verkhovna Rada (parliament), the vote to dismiss the government was based upon a constitutional amendment that came into effect on 1 January, and that appears to give the parliament an extraordinary ability to dismiss the government with no cause. Article 85 of the amended constitution says:

“Powers of the Verkhovna Rada shall include:

(12) Appointing to office – upon the submission by the President of Ukraine – the Prime Minister of Ukraine, …; appointing to office – upon the submission by the Prime Minister of Ukraine – other members of the Cabinet of Ministers of Ukraine, …; dismissing from office the officials mentioned above; deciding on the resignation of the Prime Minister of Ukraine and of members of the Cabinet of Ministers of Ukraine.”

The Constitution gives no criteria on which the parliament should base a decision to “dismiss from office the officials mentioned above,” and no corresponding legislation or procedures appear to supplement this article. Furthermore, the article does not clearly state that a dismissal results in the resignation of the cabinet (as is specifically stated in the article outlining the criteria for a no confidence vote).

The questions surrounding the implementation of this constitutional article has led to paralysis in many areas of the government’s work. A curious additional vote by parliament to dismiss, once again, the Justice and Fuel and Energy Ministers – but this time individually – added further confusion, as did a vote demanding that the government reconsider the gas protocol. Finally, the fact that Ukraine’s constitution does not allow a new government to be formed until after the election underscores the uncertainty over this move in Ukraine.

Because of these constitutional questions, (Acting) Prime Minister Yekhanurov recently announced that plans to sign supplemental intergovernmental agreements with Russia are on hold, suggesting that Ukraine was “unable to prepare the documents.” (16) The Head of the Presidential Secretariat, Oleh Rybachuk, explained, “Lawyers are working to confirm the authority of each of the cabinet ministers in order to remove any doubt about their right to sign [international documents].”  (17)Ukrainian media have reported also that plans to create the Naftohaz – RosUkrEnergo joint venture, for the moment, are stalled.

The Political Reverberations

While the primary effect of the parliament’s vote has been to undermine the government’s ability to work, the political effects are more difficult to assess. Most analysts suggest that voting on the same side as the stigmatized Viktor Yanukovich will weaken support for the Yulia Tymoshenko Bloc in the upcoming election. There was, indeed, a backlash against the move in certain areas of Ukraine. A poll conducted from 12-17 January by the Razumkov agency found that Yushchenko and Yekhanurov’s Our Ukraine had received a small bump in its support following the gas confrontation with Russia, from around 13% to 15%, while Tymoshenko’s poll numbers have remained even at around 12%. It is difficult to know, however, if those numbers will hold as questions about the gas agreement linger.

Additionally, talk of a public “coalition” between Tymoshenko and Yanukovich seems far-fetched, and Tymoshenko has begun attempting to dispel this idea by returning to her Bloc’s historical anti-corruption, oligarch-bashing roots.

On 20 January, the Bloc released transcripts of a Secret Service interrogation of Mykhailo Chechetov, the head of the State Property Fund under President Kuchma. The transcripts, which later were confirmed as authentic by Interior Minister Yuriy Lutsenko, are filled with accusations of wrong-doing in the privatization sphere not only by President Kuchma but also then-Prime Minister Viktor Yanukovich. On the final day of the parliament’s session, the Tymoshenko Bloc was joined by the Socialist Party and the Reforms and Order Party (both of which opposed the dismissal of the government) in calling on the president to take action regarding these accusations. The vote failed, after being opposed by both the current “opposition” and the majority of Our Ukraine.

For his part, Yushchenko this week reiterated his call for a public referendum – possibly as early as late April or May – on the changes to the constitution that allowed the parliament to vote to dismiss the government. (18)