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6 October, 2011  ▪  Rostyslav Pavlenko

Europe Must Act Now!

Ukraine will only be able to avoid turning into yet another one of Moscow’s puppet and the promoter of its interests on the EU border if the EU insists on keeping political processes in Ukraine within democratic limits

Ukrainian authorities appear to have come to terms with Russia in energy relations, which possibly include economic concessions in return for Russian political support. The Belarusian experience suggests that such an exchange leads to loss of sovereignty and succumbing to Russian influence. However, this scenario might be averted if the EU acts promptly and resolutely.

It looks like the strained Ukrainian-Russian relations, which some have already labeled a gas war, are over. Having met with Mr. Putin and Mr. Medvedev, the Ukrainian government looks much more relaxed. Yet, even the tiny bits of information, leaked to experts after the meeting, hint at a gas capitulation rather than war. Politicians are once again discussing scenarios for the creation of a consortium that will manage the Ukrainian gas transit system. Russia has apparently accepted the trilateral format of the consortium rather than the bilateral Belarusian scenario where the Kremlin has the opportunity for a complete takeover of the pipeline. For Ukraine, however, the former is not much better than the latter, given the long-term relations between Gazprom and some European gas companies.

The Ukrainian Week has suggested that the resolute declarations of Ukrainian officials might be merely a cover up of the intent to solve the gas price problem in the usual corrupt manner. Even at the height of the information war, Premier Azarov spoke of the possible granting the Russians access to the entity established on the basis of the current Ukrgazvydobuvannia, Ukrainian gas extraction company. It is likely that the “formats” of the consortium surrounding the gas transit system are also from this sphere.

The habit of Ukrainian officials to rely on their own arguments alone and mistrust alternative information has played a bad trick on them. It looks like Russian leaders have managed to play two scenarios. Firstly, they used the “pressure and relax” scheme. Moscow’s hard line has been driving Mr. Yanukovych & Co desperate. When the pressure suddenly weakened at an informal meeting in Zavidovo, the official residence of the Russian President, Ukrainian authorities felt emotionally inclined to reach a “compromise.” Secondly, Ukrainian leaders seem scared. Gazprom launched yet another campaign to promote its South Stream project and signed a series of documents with European companies shortly before the Ukrainian-Russian negotiations. This does not mean that the prospect of building the pipeline bypassing Ukraine is inevitable. Yet many Ukrainian officials became concerned about “what to do” with the local gas transit system.

If these trends prevail, the Russian Federation will make a huge leap towards gaining control over strategic sectors of the Ukrainian economy. Once it gets control of the pipeline and gas supply to Ukrainian enterprises, Russia will be able to create an environment for their operation, whereby the establishment of joint ventures, at which Ukrainian assets will be handed over to Russia, will be inevitable.

After Mr. Putin officially announced his intent to become president of the Russian Federation, the pressure on Ukraine is only likely to grow. The former and the future president of Russia does not tolerate sentiments: neighbouring countries must serve as a resource for his economic and geopolitical ambitions. Meanwhile, Ukrainian authorities seem to have something else on their minds. 

The temporary relief from Russia has already had a palpable impact on Ukraine’s domestic politics. Apparently, Ukrainian authorities have been feeling confident enough to insist on political repressions. As a result, Yuriy Lutsenko, who is seriously ill, remains behind bars. The Tymoshenko case no longer intimidates them either: the Prosecutor General demands a tough verdict. Another bold move was the draft law to decriminalize certain economic crimes, which was submitted by President Yanukovych. It offers to whitewash actions beneficial for some businesses rather than cancel criminal liability for politicians under the articles used against opposition leaders which could be a compromise of sorts allowing the President to meet EU requirements to stop repression and save his reputation. The list of actions that could become legitimate if the bill is passed includes the illegal opening or use of foreign currency accounts outside Ukraine, fake bankruptcy, the deceit of buyers and clients, forcing business players to conduct coordinated anti-competitive practices and so on.

However, sentencing in the Tymoshenko case has been postponed until 11 October, the date is “approximate”. In the meantime, Ukrainian authorities are trying to bargain with Europe. Taking part in the Eastern Partnership Summit in Warsaw on 29-30September, President Yanukovich is quoted to have told the participating leaders of EU countries that amending legislation to release Tymoshenko is still an option – however she must “publicly admit to her mistakes” and “compensate Naftogaz for its losses” worth nearly USD 200mn.

Meanwhile, it has been planned that Ukraine and Russia will be finalizing the Zavidovo agreements in October, which means that it could be a critical month for turning Ukraine away from Europe. Russia is in a rush to implement this scenario - it appears that in its own relations with the EU, the period for the provision of gas in violation of European rules is coming to an end. EC representatives have searched Gazprom subsidiary offices in Germany and the Czech Republic upon charges of price manipulation and abuse of their market position. Europeans have long been observing these “special features of business a-la Russia” but it looks like they are determined to make Moscow play by the rules now.

This shift in the European approach to cooperation with Russia gives hope that Ukrainian leaders will be forced to fulfill their commitments, as well. Their background and mindset allows politicians in power to understand a hard line and clear alternatives.

Ukraine will only be able to avoid turning into yet another of Moscow’s puppet and the promoter of its interests on the EU border if the EU insists on keeping political processes in Ukraine within democratic limits, which means letting all opposition leaders run in elections, having free elections and so on, and having the deals with Russia that do not contradict EC energy packages, which means that Gazprom as a gas extractor cannot be involved in running the system that transits its gas.

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