Monday, December 28, 2009

Russia and China should give Kazakhstan a major boost into the next decade

by Greg Shtraks

Last week’s big news in Central Asia was the completion of the natural gas pipeline connecting Turkmenistan and China. The majority of the discussion has, rightfully, focused on the effect that the Samandepe pipeline will have on breaking Russia’s monopsony on Central Asian gas. Indeed, we will see the ramifications of this pipeline play out in Eurasian geopolitics for years to come. A factor that has flown mostly under the radar, however, is the significance of this pipeline to Kazakhstan. Kazakhstan’s economy, badly battered by the global financial crisis in 2007, has struggled to regain its mojo. However, recent investments by Russia and China should give Khazakhstan a major boost into the next decade.

At 1,300 kilometers the Kazakh portion of the pipeline is the largest section outside of China. In fact, the grand-opening of the pipeline took place a week after the fifth annual meeting of the China-Kazakhstan Cooperative Commission (CKCC). The CKCC, a major consultative body co-chaired by Chinese Vice Premier Wang Qishan and Kazakhstan's First Deputy Prime Minister Umirzak Shukee, has had a very busy 2009.

In April, China Guandong Nuclear Power Co (CGNPC) announced a joint partnership with Kazakh state firm Kazatomprom to develop new uranium deposits in Kazakhstan with potential reserves exceeding 40,000 tons. In September, China Investment Corp (CIC) paid $939 million for an 11 percent stake in KazMunaiGas Exploration and Production, an arm of Kazakh State Energy firm KazMunaiGas. Finally, in November, China's state-owned CNPC bought Kazakh oil producer MangistauMunaiGas for $2.6 billion. The aforementioned purchase fortuitously coincided with China’s loan of $10 billion to help Kazakhstan recover from the financial crisis. China also agreed to invest 3.5 billion through joint-venture companies to develop the Kazakh non-energy sector.

China’s investment blitz in Kazakhstan has not been limited to the energy sector. Although China is just Kazakhstan’s third largest trading partner, behind the EU and Russia, Beijing’s role has grown exponentially in the last five years. Trade has boomed since the opening of the free-trade zone in 2007 and has grown by 26 percent to reach $17.5 billion in 2008.

Closer economic relations have naturally created a cultural synergy. On a recent visit to Kazakhstan, Hu Jintao announced an expansion from 100 to 200 in the number of full-tuition scholarships that the Chinese government offers Kazakh students for study in Chinese Universities. Furthermore, Beijing has opened two new “Confucius Institutes” in Kazakhstan over the last two years – one in Eurasia University and another at the Al-Farabi Kazakh National University. The result has been a noticeable shift in the number of Kazakh youths studying Mandarin Chinese instead of English.

However, Astana’s trumpeting of a new era of Sino-Kazakhstan cooperation masks a deep unease about China’s clout among the general Kazakh population. For instance, on December 17th spontaneous protests erupted in Almaty and Astana due to a rumor that Kazakh President Nursultan Nazarbaev is considering leasing 1 million hectares of Kazakh land to Chinese farmers.

Older Kazakhs still recall the 1940’s when neighboring Xinjiang was relatively independent from central Chinese control and had a population that was 85% Uighur. The situation today is quite different as Xinjiang is majority Han and the Uighurs, close ethnic relatives of the Khazaks, are repressed both culturally and economically. Polls show that a majority of Kazakhs are suspicious of China’s intentions believing that, despite good bilateral relations, Kazakhstan’s small population (17 million) and enormous size (2,724,900 sq km - six times the size of France) may eventually create an irresistible temptation for Beijing.

Despite such concerns, Kazakhstan currently finds itself in a very favorable position. On the one hand, Astana continues to enjoy a good relationship with Moscow. Nazarbaev’s recent agreement to form a Customs Union with Russia and Belarus won him accolades in Moscow and Minsk despite being unpopular at home. On the other, Kazakhstan’s close ties with China have given Astana far more leverage in dealing with Russia. Case in point is the December 16th announcement by the Caspian Pipeline Consortium (CPC) to boost the capacity of a pipeline from Kazakhstan to the Russian Black-Sea port of Novorossiysk. Russian companies Lukoil and Transneft will provide most of the $4.5 billion for infrastructure upgrades necessary to increase production.

Immediately after CPC’s announcement, Fitch Ratings, a British credit rating agency, increased Kazakhstan's long-term foreign currency issuer default rating (IDR) from negative to stable. There is a little doubt that both the Chinese and the Russian investments played a role in this improving outlook for the Kazakhstan’s future.

Thursday, December 24, 2009

Ramzan Kadyrov calls on Moscow to Liquidate threats from Georgia and Ukraine

by Paul Goble

(The following article appeared on the website Window on Eurasia)

The Moscow media on Christmas eve are playing up an interview Ramzan Kadyrov gave to Reuters three days ago in which the Chechen president called for Moscow “to liquidate” the threats to Russia that he says Georgia and Ukraine continue to pose by “attacking” those countries on all fronts.

On Monday, Reuters carried a report on the one-hour-long interview its journalist Michael Stott conducted with Kadyrov. That interview attracted considerable attention in the British media Tuesday and Wednesday, and today it is the focus of articles in Moscow outlets.

Kadyrov told Stott that “last year’s attack by US ally Georgia on the pro-Russian rebel region of South Ossetia was part of a Western plot to seize the whole Caucasus region. ‘If they get control of the Caucasus, you could say they’ll get control of virtually all of Russia, because the Caucasus is our backbone.’”

But despite Moscow’s victory a year ago, Kadyrov continued, “Georgia, South Ossetia, Ukraine, all this will go on and on. It’s Russia’s private affliction. Why should we always suffer if we can eradicate this for good? We are a great power; we have everything – an army, technology. We need to attack.”

At the same time, the Chechen leader continued, “I don’t want to kill. Who did I fight? I fought terrorists. Who [sic] did I protect? I protected the whole of Russia so that people in Moscow or St. Petersburg … could live in peace. … They accuse me of killing women and children. It’s not true.”

According to Kadyrov, “today there are few (rebels) left,” although he acknowledged that he did not know exactly how many or where they are. If he did, the Chechen president said, “I would have destroyed them a long time ago.” But he expressed certainty on one point: “The West is financing them.”

“I officially declare this,” Kadyrov said, “those who destroyed the Soviet Union, those who want to destroy the Russian Federation, they stand behind them.” And unless they change course, he added, they will have to deal with this fact: “We have a very strong politician of global stature, Vladimir Vladimirovich Putin. There is no one like him on the world stage.”

Reuters’ Stott noted that “Kadyrov made several references to Putin during the one-hour interview conducted last week but did not mention Russian President Dmitry Medvedev” even once, a pattern consistent with the Chechen president’s past statements and one that many in Moscow and elsewhere will see as significant.

Russian news outlets yesterday and today repeated much of the Reuters interview, but both the repetition and the way in which some of them chose to highlight what Kadyrov said are worrisome. Today’s “Gazeta,” for example, headlined its article on the interview, “We must attack.”

And that paper’s Lev Makedonov pointed out that in his Reuters interview, Kadyrov was expanding on several of the points he had made on December 11th, the 15th anniversary of the beginning of the first post-Soviet Chechen war, comments that attracted relatively less attention in Moscow than Kadyrov’s more recent ones.

At that time, Kadyrov said that “it is not a secret for anyone that the Soviet Union was dismembered despite the will of [its] people,” adding that “In the West, they decided that they must not stop at this. They must ignite the fires of local wars, which will engulf whole new regions and lead at a minimum to the weakening of Russia and possibility to its disintegration.”

Those are themes that Putin and his supporters in Moscow have played up before. Kadyrov’s comments now and especially the way in which they are being played represent a ratcheting up of the pressure in a way that could point to a new Russian attack or alternatively, because of their source, allow Moscow to disown them if it faces sufficient opposition.

Thursday, December 17, 2009

Moldova’s fractured parties

by Tammy Lynch

Following the December 7 failure of Moldova’s ruling parliamentary coalition to elect a president, it now appears the opposition Communist Party (CPRM) may be showing its first public cracks. These cracks have been expected since the CPRM lost power in July’s snap parliamentary elections following ten years in power.

On December 15, four members of the CPRM quit the party. They suggested that party members should have been allowed to vote for the ruling coalition’s presidential candidate, Marian Lupo, despite being part of the opposition.

Although all 53 members of the ruling coalition - the Alliance for European Integration (AEI) – voted in favor of Lupo, they needed seven votes from the Communists to meet the threshold for a presidential election. No members of the CPRM supported the vote. However, this vote may not be an accurate gauge of support for Lupo. CPRM leadership led a walkout of the Communist Party directly before the vote. This likely was the only method available to the CPRM to ensure that no members voted in favor of Lupo. The presidential vote is taken by secret ballot, which would have allowed defections. But defying a public walkout would have been a much bigger issue.

These four party resignations suggest the votes may have been there for Lupo had the CPRM leadership allowed its members to cast ballots.

Regardless, this no longer matters, since constitutional rules suggest that the vote failure automatically triggers a new, snap parliamentary election. The election will be the third since April, with the continual sticking point being the choice of a head of state.

Neighboring Ukraine also faced three parliamentary elections in 2006 and 2007, when the members of various governing parties/coalitions either were not able to work together or were not able to work with President Viktor Yushchenko. Those elections ultimately led to political stagnation.

The vague nature of Moldova’s constitutional requirement to hold a new election allows for significant wiggle-room. The biggest wiggle would be a change in the constitution itself.

Anticipating similar results to those achieved in the last election, members of Moldova’s AEI suggest two scenarios for amending the constitution prior to the next election: 1) a national referendum to institute a simple majority vote for election of the president, or 2) a national referendum to reinstate the direct popular election of a president.

Additionally, there appears to be no constitutional limit placed on the time between the failed vote and the election. There is a stipulation, however, that repeat elections cannot be held within a 12-month period. Therefore, an election cannot be held in Moldova until at least late July 2010.

If a new election is held, there is no reason to believe that Moldova’s historically fractured parties would be able to do what they have failed to do in the past – elect a president – despite their coalition. Clearly, there is significant disagreement already on how to proceed – how to hold the election and what coalition format to retain (if any). Will temporary unity give way to a series of elections that—instead of ending stagnation—actually freeze it in place, as it did in Ukraine?

Wednesday, December 16, 2009

Russia Sends Coast Guard Ships to Georgia’s Abkhazia Region, Holds “Elections”

by Giorgi Kvelashvili

On December 12 the Georgian media reported that Russia reinforced its naval presence in the occupied Georgian province of Abkhazia by sending five patrol ships there. The Mangust and Sobol-type Russian ships entered Ochamchire harbor in central Abkhazia, which had been a significant naval port during the 70 year-long existence of Soviet Georgia.

Reporting this story, the Russian media quoted the FSB’s center for public relations as saying that “the coast guard ships” would participate in “providing security to the state borders and the maritime space” of Abkhazia.

The Kremlin’s move to strengthen its forces through a naval reinforcement coincided with “the presidential elections” in Abkhazia on December 12. As expected, Sergei Bagapsh, the incumbent and Moscow’s longtime protégé won reelection right in the first round, collecting 59, 4 percents of votes and obviating the necessity of holding a runoff election. His main competitor Raul Khajimba, no less faithful to Moscow, though seen as more nationalistic than Bagapsh, came in second with slightly more than 15 percent of the vote.

This was the first time “elections” were held in Abkhazia after Russia’s military aggression against Georgia in August 2008 and the subsequent occupation of the Georgian regions of Abkhazia and Tskhinvali in western and central Georgia, All five candidates allowed to participate in the “election” are strong supporters of the Russian occupation and, presumably would not challenge the status quo created by the Kremlin. Nonetheless, it became clear right at the beginning of the “election campaign” that Moscow’s only choice was Bagapsh and that the Kremlin had no desire to risk even the slightest chance of unpredictability by supporting someone else at this point.

Both the European Union and the United States once again showed their solidarity with Tbilisi by issuing statements on the occasion. The “Declaration by the Presidency on behalf of the European Union on ‘presidential elections’ in Abkhazia, Georgia” stated that “The European Union does not recognize the constitutional and legal framework within which these elections have taken place. The European Union continues to support Georgia's territorial integrity and sovereignty. Similarly, the U.S. Department of State’s Spokesman Ian Kelly said on December 14 that “The United States regrets the decision to hold ‘elections’ in the Abkhazia region of Georgia …and recognizes neither the legality nor the results."United States reiterates its support for Georgia’s sovereignty and territorial integrity within its internationally recognized borders.”

Georgia’s foreign ministry made a special statement on December 12 calling the “presidential elections” “a farce” and requested the international community to continue with “a coherent policy of non-recognition toward the two occupied Georgian provinces.”

As Russia tightens its rule in Abkhazia, more and more ethnic Abkhaz find themselves disappointed with the situation and find ways to cross the administrative border between Abkhazia and the rest of Georgia to request status of an internally displaced person (IDP) from the central government in Tbilisi. According to Georgian TV channel Rustavi-2, some ten Abkhaz families have already fled the Abkhazia region in December “in protest to the intolerable regime of Russian occupation” and they have been given shelter and other provisions by the Georgian authorities. Although this development is not entirely unprecedented and ethnic Abkhaz in previous years too protested the Russian presence in Abkhazia and requested assistance from the central authorities in the Georgian capital, reports say that the number of these cases have only increased since Moscow imposed a direct rule over Abkhazia in August 2008.

More than 300 000 Georgian citizens, mostly ethnic Georgians, have been expelled from Abkhazia since early 1990’s when Moscow militarily ousted Georgian rule in the province. According to some estimates, only one third of the half a million prewar population remain in Abkhazia, including tens of thousands of ethnic Georgians living in constant fear for their lives in the southernmost Gali district.

Unlike the “presidential elections,” Moscow’s decision to send its patrol boats “to guard” the occupied region in violation of the international law has not yet received worldwide condemnation even though, analysts believe, both events are equally dangerous and constitute political and military dimensions of the same process, which is the illegal occupation of parts of Georgian land and territorial waters. The Georgian parliament plans to address both issues in a special address to the international community on December 15.

A different View on Abkhaz Elections.

Paul Goble contributed a somewhat different view of the rlections. The full text of which is available on his blog Window on Eurasia.
Sergey Bagapsh was re-elected president of Abkhazia over the weekend with just over 60 percent of the vote, an outcome that poses challenges both to Moscow, his republic’s chief patron, and to Georgia and the West, which insist that his breakaway republic is illegitimate and thus any elections there invalid.

On the one hand, winning the election in the way that he did – with nearly 40 percent going to his opponents – Bagapsh set himself apart from recent voting in the Russian North Caucasus where leaders routinely claim implausibly large margins of victory, an outcome certain to create problems for Moscow across that region.

And on the other, Bagapsh’s willingness to conduct what appears to have been a free and fair election both reaffirms his own commitment to democracy, something Georgia and the West may find it difficult to counter, and almost certainly gives him greater freedom of action relative to Moscow than many in the Russian Federation might like.

Those conclusions are suggested in a prescient essay by Sergey Markedonov, one of Moscow’s most distinguished commentators on the Caucasus as a whole, his examination of the Abkhazia elections and their likely consequences not only for that republic but for its friends and opponents abroad."

Monday, December 14, 2009

Russians Currently Consume Same Number of Calories Daily that German POWs Did in Soviet Camps in 1941

Paul Goble, one of the finest analysts of the former former Soviet Union, recently posted this article on his blog Window on Eurasia.It is worth reading if not only for the shock value, but for the consequences which confront Russia

After seeing an improvement in caloric consumption since the 1990s, Russians are again consuming an average of only 2550 calories a day, an amount comparable to the amount provided by the diet given German POWs in Soviet camps at the end of 1941 and one that casts a shadow on that country’s demographic future.

Largely because of the economic crisis, Rosstat figures show, Russians consumed 0.5 percent fewer calories in 2008 than in 2007, a small decline but on that understates the country’s food problems, given that even the earlier total – 2564 calories -- was “below medical norms” ({B50CBD92-6CAD-4C27-9CE8-29746F14E4C4}).

The most immediately visible impact of this level of consumption is low weight levels among the draft-age population. Of the 305,000 young men drafted in the last round approximately 45,000 were, according to Viktor Baranets, the military observer for “Komsomolskaya Pravda,” seriously underweight.

And it is not only the expert community that is worried: President Dmitry Medvedev recently told the the State Council that “over the last 20 years, the number of young people ready for military service had declined almost a third” because, often as a result of diet, “the level of [their] physical development does not correspond to the demands of service in the army.”

But it is not just the size of caloric intake that is worrisome: the mix of goods – too much alcohol and too little fresh food – and especially the low quality of food available even in major cities. Recent government tests show that many of the most common products on the shelves are “of low quality, older than their use-by date, or “simply dangerous” for consumers.

“In 70 percent of the cases,” the government testing agency found, the products lacked the required certification, and “in 80 percent,” there was a lack of sanitary and epidemiological testing. As result, specialists could not recommend as suitable for eating “more than 80 percent of the products tested.”

The problems with draft-age young people are only the tip of the iceberg as far as adequate food is concerned. School-age children across the board are suffering. Approximately 3-4 percent of those entering school are classified as “absolutely healthy,” but by the 11th grade, that figure falls to 1.5 percent.

Leonid Roshal’, one of Russia’s leading pediatricians, ascribes this decline to inadequate food. And he says that “never in the history of the country, except immediately after the October revolution and the years during and in [World War II] was the situation [in this regard] like it is at present.”

One explanation for problems in this area is that because of its geographic location and historical problems with agriculture, Russia must import a great deal of its food. Indeed, today, Russian farms “completely satisfy (according to medical norms) the population only for potatoes.”

Not only are imports expensive and often of low quality, Moscow experts say, but “such import dependence” in this key area puts Russia at risk of pressure from abroad. But tragically, they add, the Russian government does not seem prepared to take the necessary steps to overcome this situation and ensure that Russians have enough high-quality food to eat.

Faced with this problem, the Russian powers that be have done what they do in so many cases: they have come up with “a doctrine” on food security that officials claim will guarantee that Russian farms will produce a greater percentage of the foods Russians need sometime in the future but that does nothing to help people right now.

Moreover and despite a great deal of publicity surrounding this “doctrine,” it has not been officially adopted, although it was reviewed at a December 4th session of the country’s Security Council which met under the chairmanship of President Medvedev, who said that addressing the problem of diet in Russia was critical.

“According to the estimates of international experts,” the Russian leader said in striking language, “if the population goes hungry for two or more generations, a situation that in fact is quite characteristic for a large group of countries, then processes of physiological and intellectual degradation at the genetic level arise.”

Friday, December 11, 2009

The Start of a Beautiful Friendship? Russia begins exporting oil through the Pacific port at Kozmino

by Greg Shtraks

A week ago the Russian government released a comprehensive energy report entitled “Energy Blueprint for 2030”. The crux of the report lies in the realization that the western Siberian oil fields have peaked and that substantial domestic investment in the East Siberian fields will be necessary in order to increase domestic output to the desired level of 530-535 million tons of crude oil annually (up by 8.6-9.7 percent from 2008).

The report also clearly outlines the projected shift in oil exports away from Europe and toward Northeast Asia as the share of the Asia Pacific region in Russian exports will grow from 8% in 2008 to 25% in 2009. This change in direction is partially out of necessity as transporting oil from East Siberia to Europe is both costly and difficult, but the shift also reflects China's insatiable thirst for oil - a demand that is expected to equal that of the United States by 2030. In fact, the beginning stages of the energy blueprint are already being enacted. On Wednesday, December 9, top Russian leaders attended the loading of tankers at Kozmino in a pompous ceremony designed to announce the opening of the ESPO pipeline linking Russia with Asia. Today, such an event seems to be an obvious part of the natural progression in the unstoppable rise of China, but only two years ago the fate of the East-Siberian Pacific Ocean Pipeline was still far from certain.

A potential pipeline from Russia to East Asia was first proposed by Boris Yeltsin in the mid-1990's and was eagerly seized upon by the Russian oil giant Yukos which wanted to construct a pipeline from Angarsk to China. Meanwhile, the quasi-state owned giant Transneft proposed an alternative pipeline running from Taishent in East Siberia to the Pacific Port of Nahodka. By 2004 Mikhail Khodorkovsky, the founder and CEO of Yukos, was awaiting trial, his company was being dismantled, and the plan for the pipeline to China was shelved until further notice.

The main question in Moscow was not whether such a pipeline needed to be built, but rather where the ultimate destination would be. Moscow tried hard to play Tokyo and Beijing off each other in order to get the best investment possible and, initially, this strategy seemed to be a success. Tokyo was willing to pay a higher price for the oil and to provide substantial investment to develop the East Siberian oil fields under the condition that the pipeline connected Siberia with Nahodka. China, on the other hand, insisted that the pipeline be built to the Inner Mongolian Petrochemical Center in Daqing. Russian leaders dithered on a final decision as the economic and the security apparatuses in Moscow clashed with each other regarding the potential geopolitical consequences of the proposed pipeline.

Analysts at the Russian Department of Energy and of Commerce pointed to the need for Chinese capital to finance the exploration of East Siberian reserves. Security personnel, however, feared that the Far East would become "an energy appendage" for China. Finally, in 2005 Moscow decided on a compromise that would integrate the two variants by building a pipeline from Taishent in East Siberia to both Nakhodka and Daqing. Russian oil giant Rosneft constructed an oil refinery in Nakhodka and built a new port in near-by Kozmino. Still, as the world oil prices reached astronomical heights, Russia delayed the construction of a pipeline that would have provided oil to China and Japan at discounted prices. The global financial crisis changed all that.

In February 2009 oil prices dropped to $25 per barrel and Russian oil giant Rosneft and pipeline operator Transneft were on the brink of collapse. Bejing, sensing that a unique opportunity was at hand, made an offer that Moscow could not refuse. The Chinese Development Bank offered loans to Rosneft and Transneft of $10 billion and $15 billion, respectively, as part of a $25 billion dollar investment that would accelerate the construction of the pacific pipeline. As part of the agreement, Russia would develop further fields, build the ESPO leg for Daqing from Skorovodino to the Chinese border, and supply China with at least 300,000 barrels per day.

Beyond the border, in the Chinese interior, Beijing would construct a domestic pipeline approximately 600 miles long to Daqing. The Chinese loan would be made at 6% interest and would require that price of Russian oil be an extremely advantageous $22 per barrel. In February, many analysts assumed that Russia would negate the deal as soon as the price of oil rebounded to it's natural course. However, the ceremony at Kozmino indicates that, at least in the short term, Russia intends to go through with the deal.

The reasons for Russian acquiescence are two-fold. First of all, according to Brookings Institution analyst Shoichi Itoh, the East Siberian oil reserves are geographically dispersed and vastly untapped. According to Russian estimates an investment of $102 billion is required to extract the 600 million barrels on untapped reserves. However, even during the era of high oil prices and despite substantial tax breaks offered by the Russian government, Russian oil companies were unable to adequately develop East Siberia. As such, Russia will require a sustained investment from all the countries in North East Asia in order to develop East Siberia.

In fact, last week Russia's government began to scrap export duty for crude oil produced at 13 East Siberian fields, including the giant Verkhnechonskoye field. Russia's reputation as a dependable partner in oil excavation is already in ruins and a negation of the deal with China would make cooperation extremely difficult. Secondly, China has worked hard to diversify their supply of oil. Chinese exploits in Africa, Latin America, and the Middle East are will known. On Friday Hu Jintao also visited Kazakhstan and Turkmenistan and participated in the opening of a new natural gas pipeline linking Turkmenistan with China - the first such project in Central Asia. Furthermore, a potential oil pipeline linking Kazakhstan with China was discussed during Hu's meeting with his Kazakh counterpart Nursultan Nazarbayev. China is far from creating a monopsony on oil, but such a variety of sources allow China to be very aggressive in negotiating the price. The ESPO pipeline will completed within a year but I highly doubt that it will remain the only pipeline linking East Siberia with the Pacific.

Thursday, December 10, 2009

Hot air during Ukraine’s winter

by Tammy Lynch

European Union, United States and Ukraine leaders did a lot of talking over the last week. The end result …… more talking. And it wasn’t necessarily a series of friendly chats.

First, the good news (of a sort).

Following a meeting with Ukraine Foreign Minister Petro Poroshenko, US Secretary of State Hillary Clinton “reaffirmed” her country’s “broad partnership” with Ukraine. “A strong and independent Ukraine is good for the region and good for the world,” she said. She further expressed the hope that the new US-Ukraine Strategic Partnership Commission would help the two countries make progress on a host of areas, including economic development, rule of law, trade, security and energy reform.

Of particular interest, in her statement, Secretary Clinton made no mention of any progress that has already occurred or is occurring now under the auspices of this Commission, which was formed in July.

She also signaled concern about the tenuousness of Ukraine’s gains in the area of electoral democracy by gently but clearly stating that the US “looks forward to free and fair elections.”

See excerpts from Clinton’s statement here.

Unlike the US, it seems the EU is done tip-toeing around the reform issue in Ukraine. “Too often, it seems, promises are only partly met, commitments are only partly met, words are not always matched by actions,” EU President Jose Manuel Barroso said during the annual EU-Ukraine Summit in Kyiv last week.

The summit was held amid low expectations - and met them.

In the wake of the freezing of IMF and World Bank stabilization funding, and following repeated statements by President Yushchenko calling for the renegotiation of a Russia-Ukraine gas deal supported by the EU, there wasn’t much to talk about, apparently. It seems EU leaders believe Ukraine hasn’t lived up to its side of the negotiated bargain. This is true – but the EU hasn’t been in a collaborative mood itself.

The EU’s refusal to even mention the far distant possibility of EU membership for Ukraine has consistently irked the country’s leadership who years ago needed some hope on which to hang reforms.

More recently, the EU and Ukraine signed a Joint Declaration at the EU-Ukraine International Investment Conference on the Modernization of Ukraine’s Gas Transit System. Among other things, the declaration commits Ukraine to ensure transparent operation of its gas network, and set tariffs at a rate that will “reflect actual costs incurred.”

In return, the European Commission, Ukraine, and “creditors” commit to “cooperate in seeking to establish a technical co-ordinating (sic) council unit within Naftogaz of Ukraine.” This council would create an EU-approved “full modernization business plan” for Ukraine’s gas transportation system, and would help arrange the funding to undertake the system’s modernization.

The modernization was said at the time to be able to create an additional transit capacity of 60 bcm of gas per year – far more than the floundering South Stream pipeline’s proposed 47 bcm, and at much less cost – although that figure was never confirmed.

But neither side has fulfilled any commitments related to this deal. Ukraine, in particular, shows little interest in reform-oriented proposals. It’s no wonder, then, that although there has been substantial cooperation in the past, meetings now between Ukraine and Western political entities like the EU and the US have an almost perfunctory feel, designed to demonstrate “partnership” but, at the moment, without a lot to show for it.

See excerpts from speeches at EU-Ukraine Conference on the Modernization of Ukraine’s Gas Transit System here, from March 2009.

Wednesday, December 9, 2009

Lukashenka Makes Key Leadership Changes in Belarus

by David Marples

Eurasia Daily Monitor
recently published an excellent article about changes in the Belarus leadership by David Marples.

On December 4, Belarusian President Alyaksandr Lukashenka made sweeping changes to the higher echelons of the leadership. The changes reflect both adverse news on the economic front and the installment of some hard-line personalities on the eve of a series of elections that will monopolize the next 12-15 months. The main opposition newspaper refers to the changes as “KGBization” and restoring ideological control over the media (Narodnaya Volya, December 5).

According to another opposition source, the mini-purge took place after the head of
the Presidential Administration, Uladzimir Makei, was asked to prepare a proposal on potential changes to the government (BG Delovaya Gazeta, December 4). Lukashenka stated that he wanted a team in place that would remain after the presidential elections. He indicated that the changes would be finalized by the middle of 2010 (Belarusian Telegraph Agency [BELTA], December 4).

Among the officials dismissed are the following: Information Minister Uladzimir Rusakevich, Economy Minister Mikalay Zaychanka, and Mikalay Damashkevich as head of the Presidential Property Management Directorate. Two ministers –Defense Minister Leanid Maltsau and Secretary of the Security Council Yuri Zhadobin, exchanged places. Other changes occurred in the Ministry of Taxation and Duties, a post held formerly by Anna Deyko, and at the MAZ truck factory and Belenergo firm, which have been particularly hard hit by the recession (Belapan, December 4).

The incoming figures are: Information Minister Aleh Pralyaskousky, Economy Minister Mikalay Snapkou (the former deputy chairman of the presidential administration), head of the Presidential Property Management Directorate Mikalay Korbut, Labor and Social Protection Minister Mariana Shchotkina (a position vacant since June, following the departure of Uladzimir Patupchik to the post of Vice-Premier); and Minister of Tax and Duties Uladzimir Paluyan. Syarhey Hurulev, the former chief of staff of the army, is the new chairman of the State Military and Industrial Committee (BELTA, December 4).

Of all the changes, perhaps the most important is the transfer of Maltsau to the Security Council. A 60 year old native of Belarus, he received military education in Ukraine, and holds a candidate degree in Sociology. From 1994 he was head of the Chief Headquarters of the Armed Forces and First Deputy Minister of Defense. He was appointed as the defense minister in 2001 (SB-Belarus’ Segodnya, December 5). In October he was cited as stating that draftees into the Belarusian army –they have included several opposition figures forcibly conscripted– must cancel their membership in political parties (European Radio for Belarus, October 8).

Zhadobin is an equally controversial character. Born in 1954 in Dnipropetrovsk, Ukraine, he joined the army in 1972 and attended a Tank Command institute in Kazan, Russia. Along with positions in Belarus’ civil defense structure and the interior ministry, he is a former Chairman of the Committee for State Security (KGB) and became head of the Presidential Security Service in September 2003 (SB-Belarus’ Segodnya, December 4). In 2004, when Belarus held the referendum that permitted President Lukashenka to remain in office beyond the constitutionally limited two terms, Zhadobin maintained that an assassination attempt on the Belarusian leader was being prepared “from the side of the European Union” (Narodnaya Volya, December 5).

Information Minister Pralyaskousky, a Russian-born, Minsk-educated lawyer who served with Soviet forces in East Germany, also has a checkered past. He has held a number of prominent positions in the presidential administration and in January 2008, became director of its information and analysis center. During the debates on the Law of the Mass Media, which the president approved on August 4, 2008, he called for increased control over information on the internet, including what he termed “content filtration,” meaning the need to block the dissemination of information considered to be in conflict with the legal system (Narodnaya Volya, December 5,, December 4).

The firing of Zaychanka, who was Economy Minister since 2003, can be linked directly to the alarming economic news that after several years of very high growth, Belarus’ GDP fell by 1 percent over the first ten months of 2009. Lukashenka informed new minister Snapkou: “The economy ministry seems to have forgotten that it needs to think about strategy without abandoning earthly things. However, it should also think about the future, a real future and a real strategy that the state could use” (BELTA, December 4).

In late November, Belarus signed an agreement for a customs union with Russia and Kazakhstan that will allow 15 percent GDP growth by 2015, according to Kazakhstan’s President Nursultan Nazarbayev, through joint manufacturing projects and free trade (BELTA, November 27). Lukashenka noted the advantages of the new union for the ailing MAZ truck company, and maintained that the agreement could take effect within 18 months (BELTA, December 1).

Bad economic news can have an impact on election campaigns, which may explain the need to reassemble the leadership. Lukashenka is known for shuffling favored satraps between key posts. The new hierarchy suggests a reversal of the slight moderation in domestic policy over the past year. The new ministers are generally in the same age group as their predecessors –late 40’s to 60’s– and include people known for their hard-line approach, particularly toward the media and the opposition. Very little is being left to chance in Lukashenka’s Belarus.

Tuesday, December 8, 2009

Black Sea Ripples of Russia’s Mistral Bid

by Giorgi Kvelashvili

The possibility that Russia might purchase one or two French helicopter carriers Mistral from France has long caused anxiety in Tbilisi. Although Georgia’s reaction to initial reports about the purported bid was unusually calm, apprehension became more tangible as Russia and France took concrete steps toward realization of the “commercial project.”

It appears that Mistral warships were high on the agenda during Georgian Foreign Minister Grigol Vashadze’s recent visit to France where he held talks with his French counterpart Bernard Kouchner and also met with some of the most influential deputies in the French National Assembly. Later, in his interview to Georgian media, Vashadze on one hand showed diplomatic restraint by saying that “it is each nation’s sovereign right to sell weapons to whomever she deems appropriate,” but showed his country’s growing nervousness on the other by adding that “as allies and friends, we also have the right to express our concern.” In the same interview, Vashadze tried to calm the Georgian audience by claiming that the French side “had carefully listened to Georgia’s arguments.” He promptly added, “I do not think the issues related to the purchase of this vessel by the Russians are that simple.”

As reported by Georgian Imedi-TV, Akaki Minashvili, Chairman of the Georgian Parliament’s Foreign Relations Committee, said on December 4 that the parliament is going to adopt a special statement on the issue since the purchase by Russia of sophisticated French warships would constitute “an immediate danger to Georgia, Ukraine, the Baltic States, as well as the whole region.” It looks like this measure is supported by both the parliamentary majority and the opposition since the Chairman of the Georgian Parliament, Davit Bakradze, President Saakashvili’s close ally and the second in charge by the Georgian constitution, showed his full support for the move. “To us, it is not only a commercial contract,” Bakradze said, “and we hope that France will take into consideration not only its commercial interest but the real situation in the region.” Some of the members of the parliamentary opposition have been even more categorical when they demanded from the government to promptly react in order to “rally international opinion” and “increase international pressure on France.”

Apparently, Georgians became alerted by Vladimir Putin’s response to a journalist’s question in Paris where he travelled last week to meet with French Prime Minister Francois Fillon and discuss, among other things, Russia’s military cooperation with France. During the press conference on November 27, the journalist raised the issue of France planning to sell a Mistral ship and Georgia’s concern that it will be used against it. “We have not yet decided anything on the purchase of a Mistral,” Prime Minister Putin said in response, “but anything is possible.” In reaction to Georgia’s concern, Putin added, “as for our use of armaments, I will tell you that if we buy armaments, we will use them as we see fit.”

Needless to say that every word voiced by the Russian leadership on issues related to Georgia finds broad resonance in Tbilisi and Vladimir Putin’s “we will use them as we see fit” has been interpreted by the Georgians as a direct threat to their already fragile existence. Georgian concerns only increased when the chief of Russia’s military fleet, Admiral Vladimir Visotsky, stated that “if Russia had had Mistral-type vessels during last year’s conflict, the Balck Sea fleet would have performed its task in 40 minutes, instead of 26 hours.”

Currently, some 20 percent of Georgian territory is under Russian occupation, including the north-eastern Abkhazia region along the Black Sea. During the Russian military aggression in August 2008 Moscow actively used its naval capabilities to occupy a significant portion of Georgia’s Black Sea shore, most importantly, the port of Poti, vital for Georgia’s security and commerce. Even without powerful Mistral ships Georgia’s Black Sea coast in Abkhazia is already dominated by the Russian navy and Georgia’s vulnerability will only increase should the Mistral deal materialize. Furthermore, Georgians believe that French President Nicolas Sarkozy as the mediator of the Russo-Georgian ceasefire agreement should do more to make Russia comply with its international obligations and withdraw its troops and naval forces from the occupied Georgian lands and territorial waters.

On December 3 the sizable Georgian community in France initiated a petition to the French government “Against the Sale of Mistrals to Russia” and is trying to mobilize France’s public opinion. Apart from Georgia, the Baltic nations also seem to be alerted by Russia’s Mistral bid, notwithstanding the fact that they have long been members of NATO and the European Union and should feel more secure than Georgia, which is left outside the Western collective security system. As Ants Laaneots, Commander-in-Chief of the Estonian Defense Forces, said on November 21, “If the French eventually sell the ships [to the Russians], we will have to think about what kind of security measures must be taken should they be stationed in the Baltic Sea.” Likewise, analysts believe that the Georgian government and its NATO friends should think well in advance about the consequences of Russia’s Mistral acquisition and the naval imbalance it would cause in the Black Sea and elsewhere.

Friday, December 4, 2009

The Sudden Pairing of Two Russian Vlads

by Greg Shtraks

The concept of “sister” cities is a well-known one - it has been utilized since Keighley, England and Poix-du-Nord, France became twins as a method of reconciliation after World War I. Thus, the twinning of Vladivostok and Vladikavkaz on November 27th was not exactly international news.

On the one hand, Vladikavkaz and Vladivostok are separated by six thousand miles and as geographically and culturally different as any international twin towns. On the other, their partnership marks the first time since the reunification of Germany that two cities within the same country have become “sisters”. Why the sudden pairing of the two Vlads?

Igor Pushkarev, Mayor of Vladivostok, and Sergei Dzantieev, Mayor of Vladikavkaz, emphasized that the decision to twin the cities was based on the “longstanding desire of the local populations to unite our two great cities”. Ironically, this reverie just happened to manifest itself exactly two weeks after President Dmitry Medvedev’s annual address in which he called for a reduction of Russian time zones as a means to make Russia more governable and unified. Equally ironic is that Vladikavkaz and Vladivostok, whose names mean, “control the Caucasus” and “control the East”, respectively, have now become symbols of Moscow’s struggle to retain control over its far-flung empire.

Vladivostok and Vladikavkaz put into perspective the various difficulties that Kremlin has faced in imposing its control over the Russian peripheries. In Vladikavkaz, it is generally agreed that Dzantieev has done a good job as mayor. After all, unlike his two predecessors, Vitaly Karaev and Kazbek Pagiyev, Dzantieev has managed to survive a year in office without being shot down by assassins. Despite this success, in 2009 the situation in the North Caucasus has deteriorated considerably.

Although Ingushetia and Dagestan are the epicenters of insurgency fueled violence, the situation in North Ossetia is also perilous. The province, which was rocked by the Beslan tragedy in 2004, is often the launching pad for Russian wars in the region. As Moscow prepares to deploy an “enormous” amount of troops prior to the 2012 Olympic Games in Sochi, Vladikavkaz could find as the central front in a civil war.

In Vladivostok the situation is far less volatile but equally unstable. Throughout the 1990’s politicians in Primorski Krai spoke ominously of a “yellow peril” separating the Far East from the rest of Russia. Today, with an airplane ticket from Vladivostok to Moscow four times as costly as a ticket to Beijing or Tokyo, those same politicians welcome Chinese, Japanese, and Korean businessmen with open arms. Moscow has tentatively welcomed such investment. For instance, Vladivostok received $3.8 billion in federal funding for infrastructure renovations in preparation for the 2012 Asia-Pacific Economic Cooperation (APEC) conference.

However, the ongoing immigration of Far Eastern Russians to China and Japan, coupled with an increasing economic dependency on trade with those countries, has sounded warning bells inside the Kremlin. In February, when a tariff on Japanese cars caused major protests to erupt in Vladivostok, Moscow’s decision to send riot police to quell the violence raised eyebrows throughout the west. Such draconian actions indicate profound insecurity in the region’s long-term stability.

Russia has often tried to unite itself through forced relocation of entire nationalities from one end of the country to another. With such tactics no longer an option, Russia will have to come up with different strategies for national unification. Publicity stunts like the twinning of cities may be a start, but they are unlikely to reverse the ongoing process of disintegration.

Thursday, December 3, 2009

EU Supports “Authoritarian” President Tymoshenko?

by Tammy Lynch

In advance of Friday’s annual EU-Ukraine summit, the EU Observer carried an interesting quote: A “senior diplomat from one former Communist EU country” suggested that a victory by Prime Minister Yulia Tymoshenko in the upcoming 17 January presidential election seemed likely. And despite accusations in the article that she is “cultivating an authoritarian style,” this victory would be welcome. "Under Tymoshenko, Ukraine will be more Kuchma-like,” he said. “But she is a rational person. Ukraine will be more stable and more predictable if she is in charge.”

The comment is not dissimilar to those made by many Europeans about Russia President Vladimir Putin. Authoritarian leaders are, after all, easier to work with – if they’re on your side, that is, and if you don’t worry about that pesky thing called freedom.

Of course, the comment presumes Tymoshenko harbors authoritarian tendencies. This is debatable but understandable given her governing style. Regardless, both the comment and tone of the article suggest that Europe has decided that Tymoshenko will win the election.

A mid-November poll would suggest this is far from a foregone conclusion.

The poll by the Research & Branding Group gave opposition leader Viktor Yanukovych a large lead over Tymoshenko – 32.4% to 16.3%, respectively. This is a two percent shift toward Yanukovych since the organization’s October poll, which found 30.2% support for Yanukovych and 18.5% for Tymoshenko. The reputation of polling firms in general in Ukraine is not good. However, numerous additional surveys and polls have shown Yanukovych with a comfortable lead.

This is not to suggest that the lead in insurmountable. Tymoshenko is known as the country’s best campaigner, and Yanukovych’s support outside his home base in eastern Ukraine is weak. As Ivan Lozowy wrote in his Ukraine Insider, “Ukrainian voters have few illusions about Yanukovych - who, according to credible information, deals in hundreds of millions of dollars in slush funds - as someone who cares about ordinary voters.” Lozowy also suggests that Tymoshenko has “used government largesse to buy votes,” and notes that the Prime Minister’s opponents are “in a quandary about what to do about her.”

It should be noted that the Prime Minister’s political and campaign skills routinely cause this type of reaction in her opponents – she often enters elections well behind (whether in opposition or in power) and somehow manages to either win or significantly exceed expectations.

Ironically, using the authoritarian yardstick, Europe should be even more welcoming to Yanukovych. The former prime minister has been accused of being complicit in clamp-downs on journalists and human rights activists and he allegedly either took part in or was aware of the rigging of Ukraine’s 2004 presidential election in his favor. Yanukovych, however, appears less predictable than the current PM.

This may be why Yanukovych’s 2004 benefactor, Russia, appears to have decided to turn away from him and also back Tymoshenko. Following recent negotiations over the Russia-Ukraine gas agreement, Putin called his counterpart “a tough negotiator.” But, he said, “We’ve always been able to agree, despite all difficulties, and we have managed to keep all of our commitments.” In other words, their relations are predictable.

The electorate actually is far from predictable, however. Despite Tymoshenko’s past come-from-behind success, nothing is assured. Both the EU and Russia might end up dealing with an unexpected result.

Tuesday, December 1, 2009

Kidnapped Georgian Schoolboys Remain in Russian Custody

by Giorgi Kvelashvili

As the Jamestown Blog reported on November 9, four Georgian schoolboys Giorgi Romelashvili, Aleko Sabadze, Victor Buchukuri and Levan Khmiadashvili had been kidnapped by Russian occupational forces in Georgia’s Tskhinvali region from the neighboring village of Tirdznisi, which is under Georgian control and well beyond the zone of Russian occupation. The kidnapping occurred on November 4, almost one month ago, and despite the Georgian government’s diplomatic efforts the teens remain in Russian custody.

The only available channel of communication with the boys has been through the International Red Cross which involves only letters delivered a few times by Red Cross officials between the Georgian teens and their desperate parents in Tirdznisi.

The Russian news agency Regnum reported on November 5 that the four Georgians were arrested on November 4 on charges of “violating the state border and illegally possessing and carrying four hand grenades and explosives.”

Later, on November 19, the Russian media reported that the Georgian teens would spend two months under arrest in accordance with the law of the Russian Federation.

Georgian officials have discussed this most recent and outrageous case of kidnapping with various international organizations and at their bilateral meetings with representatives of other nations requesting their assistance to free the kidnapped boys. Their fate has been one of the topics during the unprecedented visit of ambassadors from all 27 EU member states to Tbilisi on November 12-1 and the issue was also raised by Georgian Foreign Minister Grigol Vashadze when he spoke last week in Paris with his French colleague Bernard Kouchner.

The EU Monitoring Mission in Georgia (EUMM) – an organization that is denied access by the Russians to the occupied Georgian territories even though its mandate covers Georgia within its internationally recognized border – became involved from the beginning. In its press release, the EUMM expressed “profound concern over the detention of four under aged Georgian citizens,” but instead of requesting their immediate and unconditional release, appealed “to the de facto authorities in South Ossetia to find common ground with the relevant Georgian structures in order to bring the present situation to a prompt manner and satisfactory resolve.”

The EUMM is of course well aware of the fact that the “four under aged Georgian citizens” were persecuted under the Russian law and by the occupational forces, but it failed to publicly acknowledge this fact and demand their release from the Russian Federation, rather than from the nonexistent “de facto authorities in South Ossetia.”

On November 27, the Council of Europe’s Commissioner for Human Rights Thomas Hammarberg arrived in Tbilisi and his meetings with various Georgian officials as well as those with the authorities in Tskhinvali will continue until December 4.

Georgian parliamentarians both from the ruling party and the opposition had severely criticized him for not doing enough for the release of the kidnapped schoolboysin particular and not issuing a special statement for almost one month after their kidnapping.

Both Georgia and Russia are members of the Council of Europe and despite the fact that this organization has already several times acknowledged that the Russian Federation is in breach of the August 2008 Russo-Georgian ceasefire agreement, mediated by French President Nicolas Sarkozy, little, if any, action has been taken to punish Russia for violating Georgia’s sovereignty and territorial integrity.

The first attempt by Hammarberg to enter Tskhinvali on November 29 failed after he was stopped on the “border” by Russian forces and, according to the Georgian media, several shots were fired from the city.

The next day Hammarberg was more fortunate and managed to hold talks in Tskhinvali, but nonetheless came back to Tbilisi empty-handed.

According to the Russian media, the authorities in Tskhinvali would agree to the release of the kidnapped Georgian schoolboys if Georgia frees several criminals who currently serve long prison sentences in Georgian prisons and are accused of burning Georgian villages and of other crimes committed during the Russo-Georgian war in August 2008. No wonder, the Georgian response to this type of “exchange” has been negative so far.

Moscow distances itself from the kidnapping, maintaining all along that the issue should be solved between “South Ossetia” and Georgia. Many analysts believe that by paying high-profile visits to the occupied town of Tskhinvali the international organizations are willingly or unwillingly playing into Russian hands and instead they should request directly from Moscow the release of the kidnapped Georgians and the full observation of its international obligations, including those outlined in the ceasefire agreement.

Monday, November 30, 2009

The Nevsky Express – Terrorism Returns to Russia

by Roman Kupchinsky

At 9:34 P.M. on Friday, November 27, train number 166, the luxurious Nevsky Express, carrying 681 passengers, bound from Moscow to St. Petersburg was blown up by a 15 pound TNT homemade bomb.

The attack took place in the vicinity of Alekshinka-Uglovka in Tversk region. 25 passengers were killed and some 90 were injured by the blast.

Shortly after the initial blast, another bomb exploded in the same vicinity without causing additional damage. According to the head of the Investigation Committee of the Russian Prosecutors Office, Aleksandr Bastrikin, the placing of two bombs meant to explode seperately was a trademark used by North Caucasian rebels and therefore they became the primary suspects behind the blast, the deadliest terrorist attack on a train in contemporary Russian history.

The first terrorist attack on the Nevsky Express took place on August 13, 2007 in the Novgorod region. Nobody was killed; however 60 passengers were injured and the Russian Railways suffered a loss of 236 million rubles.

The alleged organizer of the 2007 attack was 29-year-old Pavel Kosolapov, a former Russian army soldier who joined the Chechen resistance and took part in combat operations. In 2003 he is alleged to have taken part in a number of attacks on bus stops in Krasnodar. Kosolapov was named as a potential suspect shortly after the attack on the Nevsky Express last week.

The attack on the Nevsky Express is the first large scale terrorist act outside the borders of the North Caucasus’ during Dmitri Medvedev’s presidency and Russian observers are carefully watching how the Russian President will react to this serious national security threat.

On November 28, Medvedev met with the heads of all government departments working on restoring normalcy after the attack and demanded that he be personally informed of all new developments. According to Vedomosti, Medvedev had no plans to address the Russian nation about this incident.

What is surprising is that few in Moscow are questioning Prime Minister Vladimir Putin’s strategy of placing Ramzan Kadyrov in charge of Chechnya, which some claim has been instrumental in reviving the rebellion by his use of brute force and repressive (according to many) criminal measures, against the local population in order to please Putin and enrich himself and his closest supporters.

Sunday, November 29, 2009

Militant rhetoric in Baku and Yerevan

On 22 November, the presidents of Azerbaijan, Ilham Aliyev, and of Armenia, Serzh Sargsyan, met in Munich amidst very harsh statements from both sides. Two days before, President Aliyev said that if the talks failed, Baku might reclaim Nagorno-Karabakh by force, and on the day after the meeting, the Armenian president’s spokesman Samvel Farmanian stated that, should tension rise Armenia will recognize the independence of Karabakh. The objective of this rhetoric seems to have been for each side to put pressure on the other and the intermediaries (the OSCE Minsk Group), and to improve their own bar¬gaining positions. The conflict may be resolved, at least partly, within the next few months, and Moscow continues to play a key role in the peace process (President Aliyev had already visited Russia on 24 November).

Aliyev and Sargsyan discussed the details of conflict resolution based on the ‘Madrid principles’ (which envisage the withdrawal of Armenians from the areas surrounding Karabakh, the unblocking of transport routes, and the post-ponement of any decision about Karabakh’s final status). The two presidents were meeting for the sixth time this year, but this was the first time after the signature on 10 October of protocols normalising relations between Arme¬nia and Turkey, which met fierce criticism in Azerbaijan. According to Baku, opening the Armenian-Turkish border would considerably hinder progress in the regulation of the Karabakh issue.

The normalization of relations between Yerevan and Ankara and the Karabakh peace process are undoubtedly related, and the governments involved are currently conducting very intensive consultations about the future structure of the region. Russia remains the most active player in this respect (apart from the countries directly involved). President Sargsyan went to Moscow im¬mediately after the signature of the protocols in October, and the objective of President Aliyev’s recent visit to Russia was to gain the support of Russian President Dmitri Medvedev. (East Week Analytical Newsletter, November 25, 2009).

Friday, November 27, 2009

Czech Efforts to Reduce Dependence on Russian Energy Faltering

by Jiri Kominek

Martin Roman, CEO of state-owned utility CEZ announced on November 3 that three companies submitted bids to construct the third and fourth reactor blocs for the Temelin nuclear power station along with options to construct a fifth reactor bloc at the Dukovany nuclear power station in a deal that will cost at least USD28 bn.

The three were Russia’s Atomstroyexport, Westinghouse of the US and French company Areva. Roman said he expects a winner to be selected in 2011 and said the third and fourth blocs at Temelin would be scheduled to go online in 2019/20.

What Roman didn’t tell the media is that the Russian government is placing, what some Czech diplomatic sources have described as an unprecedented amount of pressure on Czech officials to select the state-owned Atomstroyexport in what will undoubtedly be the largest nuclear power deal in history.

Vaclav Bartuska, the Czech envoy for energy security issues publicly warned the Czech political elite about the consequences of selecting Russia as the prime contractor since such a decision would tie the Czech Republic’s energy security for at least the next 15 years to a country with an unstable political future.

Czech diplomatic sources have said off-the- record that Bartuska was recently reprimanded by a member of cabinet of Prime Minister Jan Fischer’s caretaker government for what was described as “his excessively pro-Western views on matters concerning energy security.

Officials from Atomstroyexport
announced on October 30 that if selected the company would farm out up to 70 percent of the work on the Temelin and Dukovany projects to local companies such as reactor builder Skoda JS.

On November 8 Atomstroyexport and Skoda JS publicly announced the creation of a consortium to jointly bid for the Temelin project.

The only problem with this, however, is that as of 2004 Skoda JS is a Russian-owned enterprise purchased by OMZ which in 2006 was nationalized by the Russian government.

Martin Roman and his colleagues at CEZ already have a history of selecting Skoda JS and other Russian state-owned enterprises for the company’s ambitious, and seemingly unstoppable expansionist activities throughout Central and Eastern Europe (CEE).

Apart from dominating the Czech market, CEZ i also active in Slovakia, Poland, Hungary, Romania, Bulgaria, Ukraine, Albania, and Turkey.

The management of CEZ which is the largest utility in CEE has recently come under fire for running the company as though it were a private fiefdom that finances the country’s largest political parties – the Civic Democratic Party (ODS) and the Social Democrats (CSSD) which ineffectively govern the country and split the economic spoils as a cartel together with a select group of other private equity companies including PPF and J&T. The latter two firms have been highly active in Russia since the early 1990s and their senior management is known to have links to the former Czechoslovak StB security service and the Soviet KGB.

Over the years journalists have jokingly re-named the country the CEZ Republic.

A Czech court, however, recently ruled that CEZ is a state company and must therefore comply with disclosure practices regarding its business activities.

CEZ CEO Roman was previously the CEO of Skoda Holding which in 2003 was sold to the Netherlands domiciled Appian Machinery which less than a year later sold the reactor building subsidiary Skoda JS to OMZ.

One of the key people who convinced the Czech government in 2004 to appoint Martin Roman CEO of CEZ was Vladimir Johanes, one of the most powerful lobbyists in the country and son of the last communist-era foreign minister Jaromir Johanes. Vladimir Johanes studies at MGIMO during the early 1990s.

It was also Roman and the CEZ management team that opted to select Russian state-owned TVEL to supply Temelin with nuclear fuel cells beginning in 2010.

The current Czech government has also launched an investigation into a company called CEEI which was selected by CEZ to construct a storage facility for spent nuclear fuel from the Temelin nuclear power station.

The Czech media in September traced CEEI to a Liechtenstein-based company called U.B.I.E. One of the company’s directors is Markus Buchel, the Russian honorary consul to Liechtenstein. Buchel, however, claims that he is not the ultimate beneficiary officer (UBO) of U.B.I.E. and further claimed that he does not know the identity of the UBO.

Since this mounting pile of evidence clearly demonstrates that the management of CEZ does not appear to be working in the best interests of the taxpayers of the Czech Republic which in 1999 joined NATO and in 2004 the EU. It begs the question: In whose interest is the management of CEZ really working for?

Thursday, November 26, 2009

Putin sits in catbird seat over Ukraine

by Tammy Lynch

In 2004, as Ukrainians celebrated the “success” of their “Orange Revolution,” few would have believed that five years later the country would be depending on the largess of Russian Prime Minister Vladimir Putin to help save its economy and maintain its gas supply. After all, wasn’t the “revolution” partly a revolt against the meddling of Russian politicians in Ukraine?

Yet, here Ukraine stands, thanking Mr. Putin for his support.

On 19 November, following talks with Ukraine Prime Minister Yulia Tymoshenko, Putin agreed not to levy huge fines on Ukraine for failing to fulfill the “take or pay” provision of its gas supply contract. The provision commits Ukraine to purchase and pay for a contracted level of gas and asses fines if the country does not do so.

But “take or pay” provisions lost favor throughout the world over the last two years, as gas prices and industrial production plummeted. Countries suddenly found themselves buying gas they didn’t need.

Following loud complaints from its European customers, Gazprom gradually has been removing the “take or pay” provisions from most of its European contracts or simply agreeing to ignore them.

This concession has now been made to Ukraine. Russia will not penalize its neighbor for buying approximately 25 percent of its contracted gas in 2009. But even more, Russia agreed to drastically lower the amount of gas Ukraine had previously contracted to purchase in 2010, from 52 billion cubic meters to 33.75 billion cubic meters. This will save Ukraine billions of dollars.

At the same time, Putin told reporters that Russia had agreed to raise by 60 percent the transit price paid by Russia to Ukraine for gas shipped through its pipes to Western Europe. And finally, the price of gas paid by Ukraine reportedly has been set at an average of $280 per 1000 cubic meters, which Gazprom suggests is the average price for Europe.

These concessions and agreements came remarkably quickly compared to previous years – two of which included shut offs of Ukraine’s gas.

Putin suggested that the agreements were relatively simple because of his counterpart. “She’s a tough negotiator,” he said of Tymoshenko following the agreements. “But we’ve always been able to agree, despite all difficulties, and we have managed to keep all of our commitments.”

Message sent and received – Mr. Putin can work with Ms. Tymoshenko.

But Ms. Tymoshenko must work with Mr. Putin. Her country has been badly hit by the global economic crisis and survived for a year only on IMF assistance. But since Ukraine President Viktor Yushchenko supported and signed a 20 percent raise in the country’s minimum wage (over Tymoshenko’s objections), the IMF froze a $3.8 loan tranche. Ukraine, however, still needs support and money or risks international debt default and the inability to pay wages and pensions.

Tymoshenko desperately needed a reduction in gas volumes. Ukraine also desperately needs financial support, and rumors abound that Russia agreed to provide $1 billion to the country’s struggling gas company, Naftohaz, in order to avoid a bond default.

The question that remains unanswered is what Russia expects for its largess in the long-run. And how, of course, Ukraine went from demanding full independence from its neighbor in 2004 to begging for concessions in 2009.

Wednesday, November 25, 2009

Moscow Backtracks From Strategy to Bypass Ukraine’s Gas Transit System

by Vlad Socor

The following article by Vlad Socor appeared in the Eurasia Daily Monitor

Russian Energy Minister Sergei Shmatko declared on November 16 that the Nord Stream pipeline on the Baltic seabed would not be used for diverting gas volumes away from Ukraine’s transit pipelines to Europe. In effect, this statement acknowledges that the Nord Stream pipeline, from Russia directly to Germany, is not a Ukraine-bypass project (Interfax, November 16).

As if on cue, the Gazprom-led Nord Stream consortium confirmed for Western audiences that this project is not about avoiding East European transit routes, but is simply targeting North European gas markets other than those being supplied through the Ukrainian transit pipelines (Wall Street Journal, November 18).

In a similar vein, Russian Prime Minister Vladimir Putin declared on November 14 that the South Stream project –from Russia via the Black Sea to southern and central European countries– is intended to “discipline Ukraine.” This statement, too, implies that the undersea South Stream is meant to pressure Ukraine, not actually to bypass it, particularly as Russian authorities have never been able to identify gas sources to supply South Stream (Interfax, November 14).

These statements mark a political retreat from Moscow’s long-standing threats to circumvent Ukraine through Nord Stream and South Stream. Those threats had aimed to intimidate successive Ukrainian governments into ceding control over the Ukrainian transit system to Gazprom, lest the flow dry up.

Gazprom’s threats were hardly credible, however. All along, the Russian company lacked the means to modernize the Ukrainian transit system (unless it would enlist allied companies in West Europe to finance the upgrades in Ukraine for Gazprom). Moreover, the European Union and Ukraine signed an agreement in March 2009 on upgrading Ukraine’s gas transit system, irrespective of Gazprom. This agreement solidified the European interest and strategic stake in preserving the integrity of Ukraine’s gas transit system and its full-throttle operation for Russian gas deliveries to Europe.

By the same token, Moscow’s disclaimers of intent to bypass Ukraine might discomfit certain European parties to the Nord Stream and South Stream projects. From Germany (main customer for Nord Stream gas) to Slovenia (latest entrant to Nord Stream since November 14), those parties had taken Moscow’s threats to bypass Ukraine seriously. Some conventional wisdom had it that Nord Stream and South Stream were Ukraine-bypass projects and that their viability rested on gas volumes being shifted from the Ukrainian system into the two Stream projects.

At the moment, Russia wants Ukraine to consider an agreement on bilateral cooperation in the gas sector. The Russian draft’s centerpiece is a proposal on Gazprom’s participation in upgrading Ukraine’s gas transportation system until 2030, apparently through a consortium arrangement. As energy minister Shmatko admits, however, Ukrainian approval is far from assured and would have to be sought from several power centers in Ukraine (Interfax-Ukraine, UNIAN, November 17).

The Russian proposal is clearly timed to coincide with Ukraine’s ongoing presidential election campaign. It seems designed to test the position of Ukraine’s political forces and draw support from Moscow-friendly parties and candidates ahead of the January election, when those forces need Moscow’s goodwill more than they would later. It looks like an opening proposal in what Moscow probably anticipates to be a post-election negotiating process. And it adds to the circumstantial evidence that Moscow is not holding fast to the previously intimated strategy of circumventing Ukrainian pipelines through Nord Stream and South Stream.

Ukrainian Prime Minister Yulia Tymoshenko has promptly clarified her position: “No matter where I am, in power or opposition, I will never allow our gas transport system to be privatized, any consortiums to be created, or any other states to encroach on our gas transport system. This is our national treasure, which must permanently remain in Ukrainian state ownership” (Interfax-Ukraine, November 16).

With Russia’s own gas production stagnant and its declared readiness to assume new supply commitments growing, a wide gap has opened between Russia’s actual export potential and its declared promises of gas to external consumers. Some of those potential consumers (notably in German business circles) reckoned with Gazprom’s monopsony to continue with regard to Turkmen gas, so as to free up gas volumes from Russia’s own production for export to Western Europe. That expectation, however, now seems increasingly unlikely to be fulfilled. The financial-economic crisis has compelled Gazprom to suspend its imports of Turkmen gas since April and to downscale its declared offer to import Turkmen gas next year and afterward. Turkmenistan’s Dauletabad field, which accounted for the lion’s share of Turkmen gas exports to Russia, is now being partly reoriented for export toward Iran.

In mid-November, Turkmenistan completed the construction of a new export pipeline from Dauletabad, southward to Iran, with a first-stage capacity of 6 billion cubic meters (bcm) per year and a planned second-stage capacity of another 6 bcm annually. The new pipeline, which runs in eastern Turkmenistan, adds to the existing pipeline in the western part of the country, Korpeje-Kurt Kuy, delivering up to 8 bcm of Turkmen gas to Iran (, November 20).

Turkmenistan and China are set to inaugurate in December the new gas pipeline from the Bagtyarlik contract area, for an ultimate volume of 30 bcm of Turkmen gas to China via Kazakhstan. Thus, early production from newly opened Turkmen fields is headed in directions other than Russia, in line with Ashgabat’s export diversification policy.

With Russia’s monopsony rapidly losing ground in Turkmenistan, the ambitious Nord Stream and South Stream project look even more questionable. South Stream can hardly expect to be filled with Turkmen gas; and Nord Stream can hardly count on Turkmen gas volumes in Russia to free up equivalent Siberian gas volumes for export to Germany and other possible Nord Stream destinations.

Thus, Moscow now seems to backtrack from its earlier threats to bypass Ukraine through Nord Stream and South Stream. Russia’s own stagnant production, the loss of monopsony in Turkmenistan, and –at least as importantly– the E.U.-Ukraine agreement on upgrading Ukraine’s transit system are at this stage defeating Moscow’s strategy to bypass Ukraine. Accordingly, Moscow is reverting to its earlier strategy to seek control of the Ukrainian system under the guise of a consortium formula that would include Western companies allied with Gazprom.

Tuesday, November 24, 2009

Tbilisi’s Dilemma: Will Belarus Recognize Independence of the Occupied Georgian Territories?

by Giorgi Kvelashvili

On November 17 Belarus, arguably Russia’s closest ally in the world, sent its delegation to Georgia on a three-day visit to study the situation on the ground and report back to the Belarus parliament and the leadership of that country. Altogether nine parliamentarians arrived in Georgia – six in Tbilisi and three in either of the two occupied regions.

The delegation headed by Sergei Maskevich, Chairman of the Parliamentary Commission for Foreign Relations held high-level talks in the legislative and executive branches of the Georgian government. Maskevich outlined his mission by stating that “it was extremely important to communicate with people who suffered most in the course of the conflicts.”

Apart from talking with Georgian officials, including this country’s Foreign Minister Grigol Vashadze, the members of the delegation also met with those who have been expelled from Abkhazia and Tskhinvali and now live in villages the Georgian government promptly built for them. The Russian media reported that the Belarusians also planned “to conduct consultations in the Russian Duma” upon concluding their mission to Georgia.

The puppet regimes established by Moscow in Abkhazia and Tskhinvali had long asked Minsk to recognize their independence. Alexander Lukashenka, the mercurial President of Belarus, responded by claiming that given the importance of the issue it should first be carefully studied by the Belarusian parliament before the government makes its decision.

Belarus, squeezed between the European Union and the Russian Federation, found itself in a rather uneasy position. On one hand, it is a member of Russia-led international organizations created by the Kremlin in the aftermath of the dissolution of the Soviet Union, such as the Commonwealth of Independence States (CIS) and the Collective Security Treaty Organization (CSTO). – Even more importantly it has been in alliance with Russia as a constituent state of the Russia-Belarus Union – and feels obligated to support its powerful ally.

On the other hand though, Belarus as the European Union’s neighbor and a member of many European and international organizations does not seem to want to take such steps in the international arena that go against the mainstream trend and which might upset the delicate balance between the West and Russia.

The United States’ and the EU’s strong support for Georgia’s sovereignty and territorial integrity and their adherence to the established norms and principles of the European security architecture was a signal that made Mink feel that it should think twice before recognizing Georgia’s disintegration through military means. As reported in the media, Brussels “threatens to worsen its relations with Minsk” if the latter “recognizes Abkhazia and “South Ossetia.” Apparently, President Lukashenka is not willing to risk further isolating his country and jeopardizing Belarus’ participation in the EU’s newly inaugurated and much promising Eastern Partnership Program.

Valentin Velichko, Ambassador of Belarus to Ukraine, has recently said that Minsk would not make any “rash decisions” on the issue of recognition and the topic “is not included on the Belarusian parliament’s agenda.” The spokesman of Russia’s foreign ministry, Andrei Nesterenko, claimed that “[recognition] is a sovereign right of the Belarusian parliamentarians.

Commenting on the issue, President Medvedev of Russia argued that “the Russian Federation has never requested from other countries to recognize Abkhazia and South Ossetia,” although he added that “it would be good for Russia if the list of countries recognizing [them] becomes bigger.”

Earlier, in September, Lukashenka unequivocally blamed the Russian media for the delay in Mink’s recognition of Abkhazia and “South Ossetia” as independent states. He was referring to claims made by Russian newspapers close to the Kremlin that Lukashenka postponed the decision due to Moscow’s refusal to grant $500 million to Minsk as a quid pro quo for the recognition. It is difficult to say whether the Kremlin indeed offered Belarus this amount of money, but it would be fairly logical to argue that Moscow does indeed seek Minsk’s backing on the issue.

It is no secret that by recognizing “the independence” of the Georgian provinces of Abkhazia and Tskhinvali one in fact recognizes not their independence per se but Russia’s hegemony in the post-Soviet space and the emergence of its sphere of influence. Nicaragua and Venezuela apparently already did so since they recently recognized Abkhazia and “South Ossetia” in one form or another.

For Georgia, it is crucial that the number of countries recognizing the forcible change of its borders not increase in the future and the Belarus dimension in Georgia’s foreign policy acquires a new significance. The United States’ and EU’s pressure on Belarus is important, and even decisive, and Georgia’s friendly relations with Ukraine - Belarus’s important southern neighbor - also seems to be instrumental. But Tbilisi, arguably, should galvanize its relations directly with Minsk.

A recent visit by Belarusian entrepreneurs to Georgia and their meetings with Georgian officials, including President Saakashvili himself, represent auspicious developments in this regard. Some analysts even claim that a meeting between Saakashvili and Lukashenka is on the horizon.

Monday, November 23, 2009

Russian Crime and the Cypriot Connection

Business New Europe recently published an interesting article “An Eastern European island getaway” by Prague-based journalist Jiri Kominek

“For many, Cyprus is synonymous with sunny beaches and Mediterranean flair. Yet as a recent lawsuit by the natural gas trader Itera Group shows, the Greek half of the island is still mired in a post-Cold War shadowy world of Eastern Europeans laundering ill-gotten gains five years after it joined the EU.

Documents compiled by a law firm representing the Netherlands Antilles-based Itera - which has a long, but murky, history of trading gas in the former Soviet Union - claim that a notorious Russian businessman Valery Mikhailovich Korotkov has embezzled over $20m from Itera's various holdings, using 19 shell companies where he is the ultimate beneficiary. These shell companies are registered in Cyprus, Belize and other offshore tax havens, and all of them hold bank accounts in Cyprus.

According to Itera's lawyers, who have filed a complaint with the Cypriot Financial Intelligence Unit (Mokas) over the alleged unlawful activities of Korotkov in the country, all the 19 companies have no other assets other than the capital Korotkov has invested in them using funds allegedly stolen from Itera.

According to Russian police sources, Korotkov and his Russian partners are also under investigation by Russian civil and criminal authorities, who are looking into their alleged involvement in the theft of tens of millions of dollars through illegal transfers and unpaid loans, which were then transferred to offshore accounts in Cyprus and elsewhere.

Short arm of the law

Korotkov has a long history with the Russian authorities: in 1995, he was under investigation for allegedly organising fictitious shipments of crude oil to Belarus, Ukraine and Greece while he was deputy head of TransKreditBank. The investigation revealed that in November of 1994 the Russian Ministry of Finance transferred RUB7.12bn (€166m in today's money) to TransKreditBank for use by the Ministry for Internal Affairs. Allegedly, Korotkov used this money to send fictitious deliveries of oil to refineries in Ukraine, Belarus and Greece. The proceeds of these alleged scams were deposited into Korotkov’s offshore bank accounts. Sources in Moscow say the investigation has been mysteriously suppressed, suggesting that Korotkov has powerful friends in high places. Indeed, Korotkov still resides in Moscow, where bne contacted him via telephone. On the Cyprus allegations, Korotkov tells bne that, "Everything is a misunderstanding and I am willing and able to clear up the entire matter with Russian and Cypriot investigators."

Russian law enforcement sources also tell bne that Korotkov has worked for other Russian and Ukrainian companies involved in the energy sector and for individuals in these companies who have close ties to top officials in the Russian government, to the senior management of Gazprom and, allegedly, to the Solntsevo organised crime syndicate.

Some of his associates have allegedly been involved in supplying pipes at grossly over-inflated prices for the Russian phase of the Blue Stream pipeline, a trans-Black Sea gas pipeline that carries natural gas from Russia into Turkey. While Turkish authorities arrested and convicted senior management of the state-owned crude oil and natural gas pipelines and trading company Botas for overcharging on the local construction phase of the project, nothing of the sort happened in Russia and business has gone on as usual.

Cyprus' Financial Intelligence Unit, Mokas, would neither comment on the Korotkov case specifically, nor on money laundering in general. Yet such activities still plague the new EU member state, which hosts a well-developed, complex web of offshore banking institutions offering a plethora of services including assistance in the creation of shell companies.

Although Cyprus ratified in March the Council of Europe's Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, US and European intelligence and law enforcement officials say Cyprus remains a haven for shadowy enterprises ranging from Islamic terrorists to narco-gangsters, as well as for Russian and other citizens of the former Soviet Union seeking the perfect destination to park, clean and re-export billions in stolen cash. Cyprus has been one of, if not the, largest source of foreign direct investment (FDI) into Ukraine for over a decade. The overwhelming amount of this investment is, in reality, laundered money that was spirited out of the country and then reintroduced to the local economy via construction projects and other ventures.

According to a report published in 2005 by the European Council's anti-money laundering group, or Moneyval, "the money laundering situation has not changed in Cyprus in the last four years." The US government and Brussels have urged the Cypriots to tighten up their supervision of the banking industry, but the lure of easy money appears to be too strong despite the mounting international pressure.

Though the Cypriot government in 1996 established Mokas, headed by the country’s Attorney General, to combat money laundering, success in prosecuting such activities remains largely ineffective. A court in Nicosia in January 2007 freed Russian businessman Vladislav Kartashov who was wanted by the Russian Prosecutor General's Office in connection with the now-bankrupt Yukos oil company. Kartashov, who fled to Cyprus in 2003, allegedly headed three front companies that were accused of helping Yukos evade taxes to the tune of $13bn.

Friday, November 20, 2009

Obama consultants land in Ukraine

By: Kenneth P. Vogel and Ben Smith

American political consultants are hard at work in Ukraine. This fascinating article can be read in its entirety on

"In Kiev and Kharkiv and other cities in Ukraine, American political consultants who worked against one another in Iowa and New Hampshire and then in the general election are facing off again in a somewhat surreal Eastern European replay of the 2008 campaign.

The firm headed by Hillary Clinton’s former chief strategist, Mark Penn, is helping run incumbent President Victor Yushchenko’s campaign. Meanwhile Paul Manafort, whose firm worked on Republican John McCain’s losing effort, and Tad Devine, a top strategist on the Democratic presidential campaigns of Al Gore in 2000 and John Kerry in 2004, are consulting for Victor Yanukovych, the pro-Russian frontrunner in the polls.

For Penn, Manafort and Devine, foreign elections have been a lucrative source of business for years. But for the Chicago-based media consulting firm AKPD, the contract to help guide Prime Minister Yulia Tymoshenko’s campaign is part of a new, growth area of business that presented itself after the firm helped Barack Obama win the White House last fall.

Also assisting Tymoshenko is John Anzalone, a pollster who worked on the Obama campaign. And Obama's lead pollster in the campaign, Joel Benenson, also worked briefly in Ukraine this year, helping supporters of a rival presidential candidate, former Parliament speaker Arseniy Yatsenyuk, who courted comparisons with Obama (and whose billboards bear a faint resemblance to the iconic posters of Obama by Shepard Fairey)."

Thursday, November 19, 2009

Eurasian Energy Briefs

by Roman Kupchinsky

Ukrainian Prime Minister Yulia Tymoshenko announced that the transit fee for Russian gas going to Europe via the Ukrainian pipeline system will be doubled from $1.70 per 1,000 cubic meters/100 kilometers to $3.40. Tymoshenko did not specify when the new transit fee will take effect – presumably it will begin in January 2010.

The announcement came on the eve of Tymoshenko’s visit to Russian Prime Minister Vladimir Putin to discuss the gas trade between the two countries. Tymoshenko has been upbeat in her public statements about the reliability of the Russian Federation to meet its commitments in the gas trade and praised Putin for “never letting her down.”

Ukrainian President Viktor Yushchenko however, takes a less benign view of the gas trade between the two countries. In an open letter to Russian President Dmitri Medvedev on November 19 posted on his website, Yushchenko urges the Russian president to consider changing the January 2009 gas supply and transit contract which he considers as harmful to Ukrainian interests.

Gazprom, meanwhile, has threatened to demand some $8.5 billion in penalties from Ukraine for not fulfilling its 2009 gas purchase contract. Ukraine has purchased some 14 billion cubic meters less than what it contracted for in 2009.

The Ukrainian side is disputing this figure and many analysts
fear that a combination of the increase in the transit price and the unwillingness of Ukraine to pay the alleged penalties might result in another gas war” which could lead to a shut-off of gas supplies to Europe in the coming winter months.

Moreover, East Week, published by the Polish Center for Eastern Studies reported that Tymoshenko has admitted that extending co-operation with the IMF is Ukraine’s only anti-crisis program. After the suspension of the program, Ukraine is unlikely to receive short-term support from other international institutions and Western states, which have made their loans conditional on Ukraine’s continued co-operation with the IMF.

No support would be forthcoming from the European Commission (€610 million), the World Bank (US$500 million) or the EBRD (the first payment of US$300 million under the loan to Naftohaz) should be expected until Ukraine resumes co-operation with the IMF. Both Tymoshenko and Yushchenko had hoped on IMF funds to help them pay off gas debts to Russia and not force them to spend their hard currency reserves reputed to be some $30 billion.