President Viktor Yanukovych lets Russia keep its Black Sea fleet in Sevastopol until 2042, in exchange for “cheaper” gas in the next decade.
Gas, guns and geopolitics are mixing with volatility once again in Ukrainian-Russian relations.
For the past five years, ex-President Viktor Yushchenko accused his Russian counterparts of neo-imperialistic bullying as he sought to align the nation with the West.
The Russian leadership tandem of Vladimir Putin and Dmitry Medvedev, in return, accused Ukraine of many sins, including stealing its natural gas en route through pipelines to European customers. Russia meted out punishment in various ways, including turning off the energy taps twice.
Now these issues, under President Viktor Yanukovych, are being smoothed over as nothing more than unpleasant misunderstandings between members of the same Slavic family.
Only two months into Yanukovych’s term, the president has abruptly jerked the nation back into Russia’s sphere by signing a new and controversial agreement. The deal melds natural gas prices, military bases and constitutional questions all in one package.
Yanukovych has agreed to give Moscow a 25-year extension on the lease of its Black Sea naval fleet base in Sevastopol, keeping it on Ukrainian sovereign territory until at least 2042.
In exchange, Ukraine will be allowed to purchase natural gas from Russia – essential to fueling industries and homes – at a 30 percent markdown from market price. That deal, Yanukovych said, will save the nation $40 billion by 2019.
The Russian State Duma, which rubberstamps all Kremlin decisions, is expected to give swift approval to the deal. The Verkhovna Rada, meanwhile, is set to take a ratification vote on April 27.
The agreement has prompted calls for Yanukovych’s resignation by his political opponents, including ex-Prime Minister Yulia Tymoshenko. The president’s critics cite the Constitution, which bars the stationing of foreign military bases on national territory. Yushchenko had sought to expel the Russian fleet after its current lease expires in 2017.
Yanukovych and his Russian counterpart Medvedev met in Kharkiv to seal the deal on April 21.
At a tightly-controlled ceremony, Medvedev said, “It’s really a step by true partners, both for Russia and Ukraine.”
Yanukovych, at the joint news conference, said: “Our Russian colleagues, our friends, needed certainty on this issue.”
Nevertheless, the contradictions and consequences of the bilateral agreement are already undercutting the upbeat assessments of the deal from Yanukovych and Medvedev.
First, it appears that the chief beneficiaries of the lower-priced natural gas imports will be powerful oligarchs – many of whom are industrial barons – who fill the ranks of Yanukovych’s Party of Regions parliamentary majority.
Second, the Yanukovych administration has once again decided to loosely interpret the Constitution on the banning of foreign military bases.
Third, details of the new rental agreement for the Black Sea Fleet could have profound implications for Ukraine’s security and even sovereignty, already overshadowed by an increasingly bold and chauvinistic Kremlin.
Ukrainian Prime Minister Mykola Azarov made it sound as if Ukraine had no choice.
“We cannot come out of this without great losses,” he said in an April 20 speech. “Everything depends on the good will of Russia: If they want to come to an agreement with us, to listen to our arguments, then we will be able to review the contract. If they don’t, we will be like serfs.”
Azarov blamed his predecessor, ex-Prime Minister Yulia Tymoshenko for striking a bad gas deal with Russian Prime Minister Vladimir Putin in January 2009. That deal, revised in Kharkiv on April 21, called for Ukraine to pay market prices for imports over the agreement’s 10-year lifespan and to charge Russia the going rate for transit through the nation’s pipelines to European customers.
Azarov accused the Tymoshenko government of negligence for signing the agreement, which raised Ukraine’s gas bill, but also removed a private intermediary gas importing company controlled by allies of the Azarov government: RosUkrEnergo.
Azarov said the Tymoshenko deal made prices for Ukraine more expensive than in the rest of Europe. Numerous industry specialists, however, say that Russian Gazprom’s secretive pricing policies make comparisons all but impossible.
Edward Chow, an energy expert with the Center for Strategic and International Studies in Washington, D.C., said the gas price agreed by Tymoshenko last year was indeed too high. “The pricing formula agreed to on Jan. 19, 2009, was fundamentally flawed,” Chow said. “European gas prices from Russia have a time lag. Pegging Ukrainian prices to European prices in January 2009 effectively reflects the July 2008 oil price peak. So the base price from which Ukrainian prices would adjust was wrong to begin with.”
Chow said that Tymoshenko was more concerned with getting Putin’s support to squeeze out the murky RosUkrEnergo intermediary, which had a monopoly over the sale of Russian gas in Ukraine. Tymoshenko has defended her deal as the best she could get from Russia without violating Ukrainian national interests, as she now accuses Yanukovych of doing.
Chow, however, was also critical of the price announced more recently in Kharkiv by Yanukovych. “As long as Ukrainian negotiators only want to maximize short-term tactical advantages without regard to long-term consequences, these gas agreements will need to be reworked constantly, which is the Russian preference anyway when it comes to Ukraine,” Chow said.
The question of Ukraine’s bargaining savvy is also at issue, since many of Gazprom’s European customers are trying to get lower prices from Russian Gazprom based on increasing supplies and falling demands, all favorable to the consuming nations.
And unlike Ukraine, the Europeans have not had to make glaring concessions to Moscow. “Gazprom has recently agreed to certain concessions, such as allowing a small percentage of the volumes it sells to be linked to spot prices,” according to Katya Zapletnyuk of ICIS Heren, a specialist information provider for the gas market.
The benefits to Ukrainian industrialists – such as Rinat Akhmetov, Ukraine’s richest man, and RosUkrEnergo’s Dmytro Firtash, who allegedly backed Yanukovych’s campaign – may soon become clear under the new deal.
“One could say that the Dmytro Firtash group, with its chemical plants, and Akhmetov, with his metallurgy, use up 50 percent of imported gas,” Oleksander Hudyma, an energy adviser to Tymoshenko, said.
Then there are the thorny constitutional issues raised by keeping the Russian Black Sea Fleet on Ukrainian soil. “The Ukrainian negotiators should re-read the Constitution,” said Mykola Tomenko, a leader of Tymoshenko’s parliamentary faction.
Yanukovuch, however, portrayed the continuing Russian military presence in Ukraine as helpful to European security.
“We also see this issue in the context of the formation of a system of collective European security. We understand that the Black Sea Fleet will be one of the guarantees of security among countries of the Black Sea basin,” he said during the joint press conference with Medvedev in Kharkiv.
In the long term, Ukraine might end up paying a high price for this concession – especially if Russia upgrades its military capabilities in Sevastopol or launches another attack on a third country, as it did against Georgia in August 2008.
No one seems certain that Ukrainian and Russian leaders are declaring all aspects of their agreements just yet.
“This is a rather big deal, and it’s still not clear what else might be thrown in. The Russians have a rather long shopping list,” said Andrew Wilson, a senior policy fellow at the European Council on Foreign Relations.
Kyiv Post staff writer John Marone can be reached at [email protected].
