You're reading: Ukraine, Russia at odds over Soviet-era assets

Russia recently concluded negotiations with the Paris Club by signing an agreement that puts the country on track to pay back its debt of roughly $22 billion well ahead of schedule. But recent statements by Russian Finance Minister Alexei Kudrin suggest that his country’s early repayment plans, expected to be completed August 2006, have rekindled an ongoing dispute between Moscow and Kyiv over former Soviet assets abroad.

In an interview broadcast on Russian television news channel Vesti-24 on July 1, Kudrin said “Russia once committed itself to repaying the [Soviet] debt in exchange for a promise made by all CIS countries in 1990 to transfer to Russia all real estate abroad belonging to the former USSR.”

However, as Kudrin noted, Russia’s early repayment of its debt to the Paris Club won’t have any bearing on Ukraine’s persistent claims to about 17 percent of Soviet assets.

Ukraine signed the so-called “zero option” agreement along with all the other former Soviet republics in 1993. Under the agreement, Russia officially assumed all responsibility for Soviet debt (estimated at around $81 billion at that time), in exchange for the other republics waiving claims to their proportional stake in Soviet assets abroad.

Ukraine is now the only successor state not to have ratified the agreement, and, therefore, is the only former Soviet republic not to have formally relinquished its claims on a proportion of Soviet assets.

Although Russia assumed Ukraine’s proportion of Soviet debts, estimated to be around $13.5 billion in 1993, Ukrainian officials have not been willing to move forward with ratifying the agreement until a more updated balance sheet of former Soviet debts and assets is brought to the negotiating table.

Moreover, according to Ukraine’s Foreign Ministry, Ukraine and the Paris Club agreed in 1993 that the Paris Club would make no claims on Ukraine for repayment of former Soviet debt until Ukraine and Russia have reached a final settlement among themselves.

In an April 7 statement, the Ukrainian Foreign Ministry said that a final settlement of the issue hinges on the presentation of “exhaustive information about relevant debts and assets, because the information about the debts and assets of the USSR contained in the documents signed at the beginning of the 1990’s is rated and preliminary.”

The Ministry said that current estimates of Soviet assets are based exclusively on “real estate” and do not include things like gold, surplus currency reserves, the diamond fund and investments, which would likely increase the value of Soviet-era assets abroad significantly.

Russia’s total debt to Western creditors was estimated at around $150 billion in 2001, two thirds of which was incurred by the Soviet Union.

However, without a full evaluation of property and movable assets, it’s unclear whether or not Ukraine’s portion of the Soviet debt is as large as the purported value of its share of Soviet assets.

Oleksandr Sushko, director of the Center for Peace, Conversion and Foreign Policy of Ukraine, said that “although Russia has been able to pay back the Paris Club and, therefore, a part of Soviet debt no longer exists now, there is technically no registry of assets, so establishing what is owed by Ukraine [by calculating 17 percent of debts and assets] is not easy,” he said.

Ivan Lozowy, president of the Kyiv-based Institute of Statehood and Democracy, said that to his knowledge, “the most serious assets that Ukraine may potentially lay claim to, besides former USSR property abroad (embassies and other real estate) and gold reserves, include what are rumored to have been fantastic reserves of precious metals and currency held by the Kremlin under Soviet rule.”

Lozowy added that “there is strong circumstantial evidence that the Russian side has severely underestimated and undercounted the USSR’s assets abroad (real estate), not counting other [aforementioned] assets.”

Ukrainian officials report that unofficial estimates coming out of Russia value Soviet property assets alone at around $400 billion, a figure that still has not been confirmed by the Russian side, not to mention other movable assets and the Soviet diamond mine. The latter does not come under the zero variant agreement, but is also reported to be worth billions of dollars.

“Ukraine has, fortunately, done the smart thing by not ratifying the zero variant agreement, which is heavily skewed in favor of Russia, and is correct in insisting on a definition of the terms (‘assets’) before engaging in a review of the zero variant itself,” he said.

Sushko noted that “this is essentially an unresolved problem that has been left unaddressed, but there seems to be neither the methodology nor the political will to do that,” adding that this is not a matter that can be adjudicated in an international court of law but must be settled by the two parties involved.

Lozowy agreed that this is an issue for inter-state negotiation and settlement, which means bilateral talks and a treaty, adding that the only court that could “possibly provide a forum for either side is the International Court of Justice, which functions under the aegis of the United Nations and was designed to settle inter-state disputes.”

Nonetheless, officials on both sides appeared to be taking steps to resurrect the issue last year. The then newly formed Orange government was keen to put the issue back on the political agenda with Russia.

At a February 21, 2005 meeting, Ukraine’s Foreign Minister Boris Tarasiuk and his Russian counterpart Sergey Lavrov agreed to work on tackling a number of lingering issues in Russian-Ukrainian relations, including the unresolved conflict over Soviet-era assets.

When probed by journalists about this “suitcase problem” between Russia and Ukraine, Tarasiuk said that progress had been made at the meeting insofar as both sides agreed to do what was necessary to lighten the load.

Lavrov stressed that a major obstacle in resolving this dispute is Ukraine’s failure to ratify the agreement, adding that Ukraine had been presented with a list of 28 “facilities.” Recent political events in Ukraine could move in Russia’s favor on this issue. According to Lozowy, the stalemate could be broken under two foreseeable circumstances – the appearance of a pro-Russian government in Ukraine, which could accede to Russia’s proposal, or if Ukraine gains an edge in other negotiations and circumstances, which it could then use to leverage progress on the issue.