Contrivances of power
The shock of economic crisis, particularly the dramatic dip in oil prices, has produced entirely foreseeable consequences for Russia's ruling diarchy and its linked sets of apparatchiki, and yet Russia's political elite seems ill-prepared to confront either the economic challenges or those subsequent risks to the current governing system. The crisis has served to exacerbate trends seen likely to develop as a result of the odd structure of authority contrived by the former and current presidents; the conjecture over fissures between president and prime minister seems sharper with increasingly gloomy economic statistics. Concern with the local impact of an international financial slump raises pointed questions about the ability of the prime minister to appear effective in combating a problem that he can do little to control.
Whether by contrived design or as part of a personal campaign to differentiate himself from his predecessor, (1) President Medvedev has spoken out on the need for reform, and particularly for anti-corruption measures (presumably to weed out corrupt members of Putin's elite), and he has spoken to the opposition, or at least to less than regime-friendly newspapers, such as Novaya gazeta, in an apparent effort to bolster a more western-style liberal image.
Despite attention focused on the putative cracks in the Putin-Medvedev tandem, the quirky political design apparently is perceived as relatively secure. More than one year after Medvedev's inauguration, polls reveal a solid 63% of the Russian population view the tandem power system as stable. Perhaps more tellingly, a significant 69% still identify Putin as the "most powerful and influential politician." (2)
While popular perceptions are significant, the import of conjecture over diarchical relations rests primarily within the realm of Russia's political elite. Any sense that there might be, in fact, two masters to attend could grind even necessary bureaucratic activity to a halt as ambitious apparatchiki wait for a clear signal of strength (and, assuming a struggle between the power centers, perhaps an overt victory of one) before proceeding in any direction. It may be instructive that some of the more intense analytical speculation currently is concerned with whether or not Medvedev has made inroads in winning over former "Putin men" to his camp. (3) Speculation over a re-division of personnel assets can evoke a remarkably sudden shift in authority within a hierarchical structure like the Russian governing system. However, uncertainty over issues of loyalty and strength also can give pause to ambition. Particularly, as Stanislav Belkovsky points out, for those left caught in the middle, like Interior Minister Rashid Nurgaliyev: "Very many would dearly like to topple him and take his place…. [T]here are lots of successors and not one of them is even close to satisfying all the factions … The decision-makers do not know who to promote [sic] …." (4)
Last fall, as the extent of the economic crisis began to come into full view, it seemed that the most vocal expression of the Russian government about the crisis was directed at western economies, notably the US. This response seemed a clear attempt to divert domestic attention away from a focus on the Russian government's plans to address the crisis by substituting a viscerally xenophobic blame for the economic situation on the outside world. Putin's most noted appearances throughout the fall tended to be accompanied by calls to change the economic world order, end the dollar currency regime, and create "multi-polarity" (his foreign policy lodestone) in international finance. This foreign policy feint could never have been fully sufficient to divert attention from the local repercussions of the crisis, and as 2009 unfolds, stories (and criticism) from Russia's regions are suffused with dire economic details. The Pikalyovo case, in which Putin personally intervened to end a strike that blocked a federal highway to St. Petersburg (5), is but one tale of regional woe of the many stories being told today, and just one of the countless more likely to come in the near future. (For more on Pikalyovo, see "Domestic Issues" below) Putin is not able to intervene in person and demand a resolution to problems of evaporating demand and consequent job loss. It is likely that he would soon lose his ability to have any impact on events at all, were he even to try the maneuver too often.
Pikalyovo does point in the direction that must present a paramount concern to the Kremlin and government leaders: social unrest. While mass popular uprisings in response to deprivations are neither frequent nor common in Russian history, elite wariness of popular discontent is. As one former Kremlin insider has noted, the social unrest in Russia today could be turned into criminal activity, perhaps in a form similar to the gray and black market undergrounds of the Soviet era (likely with much more significant "protection" this time around). (6) However, Putin's regime styled itself as having fashioned order from chaos and celebrated the use of the security services to accomplish this. Overlooking networks of organized crime probably would be anathema to Putin and his siloviki.
Perhaps soon it will be seen as wise to give economically-based social protest a form of political outlet. Previous regimes (particularly an outgoing Soviet regime, perhaps with strong security services input) have turned to the creation of extreme nationalist political groups to siphon off public anger. Unfortunately, Putin's political efforts of the past two years (via Vladislav Surkov) have been to consolidate political power in a single party unit. Nonetheless, the "organic" sprouting of an extreme nationalist party could provide a welcome diversion for any bubbling social discontent. It also could handily serve as a foil against which the contours of a Putin (or Putin-Medvedev) regime would not appear quite so harsh. If pressed, the sudden appearance of a vocal, xenophobic extremist group also could serve as a knout with which to club Russia's few remaining liberals for daring to trust in the wisdom of the Russian folk.
(1) As an "ideological" battle rages over the activities and intellectual product of Institutes connected to the Kremlin and Medvedev or to Putin and the siloviki, some analysts consider themselves spectators at a demonstration of "good cop, bad cop" techniques and suggest the perceived rifts to be purposefully organized. See, for example, "The Tandem's Great Game," by Alexandra Samarina, Nezavisimaya gazeta, No. 123, 22 Jun 09 via Johnson's Russia List (JRL), 2009-#116, 22 Jun 09. Of course, there are a wealth of resources also analyzing the seriousness of the divide between Putin and Medvedev. Among the more recent, "First signs of competition emerging between Putin, Medvedev," - Russian pundit [Dmitriy Oreshkin]," Ekho Moskvy, 12 Jun 09; BBC Monitoring via JRL, 2009-#111, 15 Jun 09.
(2) "Tandem: Come to stay," by Vera Kholmogorova, Vedomosti, #11, 23 Jun 09 via JRL, 2009-#117, 23 Jun 09.
(3) See "Putin's men gradually become Medvedev's: An interview with Stanislav Belkovsky," by Vladimir Rudakov, Profil, #22, June 2009 via JRL, 2009-#116, 22 Jun 09.
(5) "Pikolyovo 2009," by Nikolai Petrov, Moscow Times, 11 Jun 09 via JRL, 2009-#109, 11 Jun 09.
(6) "Cockroach races along the vertical will inflict damage on society and the economy," by Vyacheslav Kostikov, Argumenty I fakty, 17 Jun 09 via JRL, 2009-#116, 22 Jun 09.
Last week, Russia’s State Statistics Bureau announced that the country’s unemployment rate had fallen for the first time in more than a year. Surprisingly, the statistics indicated that more than 200,000 persons found work in May, lowering Russia’s jobless rate from April’s record 10.2 percent to 9.9. (1) Some have hailed this unexpected upswing as a light at the end of a very long tunnel – a sign that the Russian economy finally is starting to improve after a yearlong downturn sparked by the global financial crisis and fueled by low oil prices.
Despite this hopeful sign, all other statistics seem to indicate that Russia will remain mired in its current recession for at least another year. The new unemployment statistics may represent a positive trend, but the fact remains that more than three million persons lost their jobs over the past year. (2) Many of those who continue to work do so for lower pay, or for fewer hours, (3) raising the question what matters more – the number of persons with jobs, or the number of persons who have been able to maintain their lifestyles, despite the past year’s economic upheaval. It’s telling that the State Statistics Bureau does not detail the kinds of jobs that have allowed 200,000 to move from unemployment, but simply reports a lowering of the jobless rate.
In addition to these questions, other factors make it impossible to gauge the true depth and scope of Russia’s unemployment problem. Shortly before the State Statistics Bureau made its announcement, Russia’s Ministry of Health and Social Development announced that it would begin an investigation into the way that the government measures unemployment. The State Statistics Bureau currently relies on external monitoring and opinion polls designed to reflect the International Labor Organization’s (the specialized agency of the United Nations that deals with labor issues) standards of employment. (4) The problem with the ILO polls is that they leave some room for interpretation, and differing interpretations can produce discrepancies between reported and actual employment, as judged by the Health and Social Development Ministry.
For example, according to the Health and Social Development Ministry, approximately 2.19 million persons officially have registered as unemployed. The State Statistics Service, on the other hand, has estimated that there were more than 7.9 million persons without jobs in April. (5) It is possible that many of those without jobs have chosen not to register to receive unemployment benefits, but the size of the discrepancy between these two numbers casts doubt on the figures as presented by each of the agencies. The Ministry of Health and Social Development’s goal, therefore, is to work with the State Statistics Service to outline new standards for judging overall unemployment figures.
No matter how it is measured, the issue of unemployment and underemployment remains a serious concern, especially as the crisis continues and the individuals affected slip further below their accustomed standard of living. Adding to this problem is the rise in wage arrears across the country. Earlier this month, Prime Minister Vladimir Putin traveled to the small town of Pikalyovo, where more than 400 former employees of three local plants blocked a national highway for more than seven hours in protest over mass firings and unpaid wages. The protesters claimed to be acting on behalf of the more than 4,000 men and women, more than one-fifth of the town, who had been left without an income after the three plant owners drastically downsized their operations. (6)
Although Putin accused local and regional government representatives of failing to help their citizens, the major target of Putin’s ire was metals tycoon and favorite Kremlin target Oleg Deripaska, who owns Pikalyovo’s cement and aluminum plant. Deripaska purchased the formerly state-owned plant five years ago and defended his actions by claiming that he had over-leveraged his empire and was forced to cut costs to stay afloat. (7)
The Prime Minister’s unscheduled visit and attack on Deripaska temporarily resolved the situation – many workers were rehired and the regional government also stepped in, handing out aid packages for those who remained jobless. (8) The workers were not entirely persuaded by these measures, however, and have threatened that anything less than a long-term solution will result in renewed protests. (9)
The speed with which Putin rushed to quell the situation in Pikalyovo might suggest that there is a more cynical explanation for the sudden drop in Russia’s unemployment rate. Prior to the announcement by the State Statistics Bureau of a drop in the unemployment rate, analysts had predicted an increase of 10.3 percent. (10) Most of this unemployment is concentrated in small towns like Pikalyovo, where Soviet-era factories supply products for one or two specific industries. These factories are the hub of activity for the unskilled local workforce, which is why towns have been hit so hard by the recent drop in global demand for Russian commodities. (11) The concentration of workers in small cities scattered through Russia’s regions means that accurate reporting from the local level to the federal center is the key to reliable statistics. It is possible that this process is susceptible to political pressure. Some believe that, like the anti-immigration demonstrations that took place last spring, (12) the Pikalyovo protests may be a portent for the future, regardless of official unemployment figures.
There is no reason to suspect that the government is taking advantage of the malleability of its unemployment statistics, but the recent positive news about Russia’s employment prospects was well-timed to follow Putin’s announcement to the cheering workers in Pikalyovo that “everything will be fine, you'll be working.” (13) The question remains whether things have begun to turn around, or if this good news is simply part of a preemptive campaign to keep citizens calm.
(1) “Russian economic slide may be slowing, data shows,” Associated Press via AOL Money and Finance, 19 Jun 09 via http://money.aol.com/article/russian-economic-slide-may-be-slowing/395751. Last accessed 21 Jun 09.
(2) “Fall in Russia jobless rate sparks recovery hopes,” Reuters via The Financial Daily, 20 Jun 09 via http://www.thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=89302/. Last accessed 21 Jun 09.
(4) “Data On Unemployment Level In Russia To Be Verified – Minister,” ITAR-TASS, 17 Jun 09 via Johnson’s Russia List, 2009-#115, 19 Jun 09.
(6) Irina Itiova, “Russia's Putin visits town after protests,” Associated Press via AOL Money and Finance, 4 Jun 09 via http://money.aol.com/article/russias-putin-visits-town-after-protests/508339. Last accessed 21 Jun 09.
(9) “Fall in Russia jobless rate sparks recovery hopes,” ibid.
(11) “Russian economic slide may be slowing, data shows,” ibid.
(12) Rose Monacelli, “Population, immigration, and the economy,” The ISCIP Analyst, Volume XV, Number 8, The Institute for the Study of Conflict, Ideology, and Policy, 19 Feb 09 via http://www.bu.edu/iscip/digest/vol15/ed1508.shtml#domestic. Last accessed 21 Jun 09.
(13) “Russia's Putin visits town after protests,” ibid.
By Rose Monacelli (firstname.lastname@example.org)
SECURITY SERVICES AND ARMED FORCES
Update: Korabel’nikov circus
For the last eight months, there has been considerable debate and controversy over the status of Russia’s military intelligence unit (GRU), and the future of its long-time director, General Valentin Korabel’nikov. In November 2008, reports emerged claiming that Korabel’nikov had resigned in protest over the Defense Ministry’s planned reform package. Then, in February and March reports surfaced, claiming that GRU would be stripped of some of its Spetsnaz and strategic intelligence capabilities, that Korabel’nikov would depart the General Staff as soon as his deputy was ready to take over, and most controversially, that some of GRU’s capabilities would be transferred to the SVR (Russia’s foreign intelligence service). Such reports were met with strenuous denials and indeed specific counter assertions (namely that Korabel’nikov would remain in office until 2011). (1) In late spring, the confusion over Korabel’nikov’s status apparently was resolved.
On 24th April, Gazeta.ru reported that the General finally had “been retired,” by the Defense Ministry, and that President Dmitriy Medvedev had “discharged” him formally from military service. (2) According to defense analyst Pavel Felgenhauer, although the official reason for Korabel’nikov’s dismissal was his age, Defense Minister Anatoliy Serdyukov actually wanted him out of the way so that his reform plan could be enacted. The new GRU Chief, General Aleksandr Shlyakhturov, is viewed as a “serious” intelligence “professional,” albeit with “neither the ambitions nor the influence of his predecessor.” Shlyakhturov moreover, is already 62 years old, making him purely a transitional figure, who theoretically can be replaced with an even more pliant individual when he reaches retirement age next year. (3)
Two further aspects of the GRU story are worth mentioning. The first is that clear attempts are being made to mollify the agency in light of the planned cutbacks, with the Defense Ministry publicly at pains to stress that no Spetsnaz trooper from a downsized unit will be left unemployed, and further insisting that all those affected will be found jobs in “similar units,” which, in turn, are to receive modernized equipment and weapons. (4) Secondly, and more interestingly, Novoye vremya on 7 May carried an unattributed article claiming that Korabel’nikov was being made to pay the price for GRU’s failure to predict and prepare for the Georgian “attack” on Tskhinvali last fall. GRU allegedly did not “deem it necessary” to analyze a “trifle” like Georgia under Korabel’nikov’s tutelage, preferring instead to focus exclusively on the “major enemy,” namely NATO and the US. (5) As interesting as this seemingly Orwellian attack might be, it is useful to note the terminology used to contrast Shlyakhturov and Korabel’nikov: With “neither the ambitions nor influence” of Korabel’nikov, Shlyakhturov reasonably can be expected to take direction from political authorities with less intrigue and remonstrance. It is likely that Korabel’nikov’s removal constitutes a victory for those of the siloviki who have battled for years to reduce GRU’s influence and power.
Politkovskaya appeal filed
On February 17, a not-guilty verdict was returned by the jury in the Politkovskaya case. Convictions of the accused had been made almost impossible during the trial, largely due to incompatible DNA and fingerprint evidence. The reaction to the panel’s pronouncement was one of universal disappointment and outrage: prosecutors insisted that an appeal would be forthcoming, Politkovskaya’s family firmly blamed a “half-baked” prosecution presentation for the outcome, while some activists claimed that the Secret Services had withheld evidence for fear of revealing sensitive information. (6) On 27 May, RenTV announced that prosecutors had filed appeal documents with the Supreme Court, asking for each of the acquittals to be overturned. (7) The case was heard on June 25, and the verdict was “invalidated.” (8) It will be interesting, if this assumption is correct, to watch the government’s convulsions as it attempts to square an overruling from the top with the democratic image that an open jury trial was supposed to present.
Borders: Creating de facto realities
In the last few months, the Russian government has taken concrete steps to consolidate the results of last year’s military operations against Georgia by deploying Border Guard troops in both Abkhazia and South Ossetia.
On 30th April, ITAR-TASS announced that President Dmitri Medvedev, along with Sergei Bagpash of Abkhazia and Eduard Kokoity of South Ossetia had signed a five-year agreement for the protection of “state borders.” For the near future at least, Russia will “provide aid” (read troops) to both republics, and in the long term, the Russian government has undertaken to create individual border protection units for each of the “countries” in question. (9)
By the end of the first week of May, troop movement into the breakaway regions of Georgia was in full flow, with the goal being the deployment of enough manpower to “fully cover the land border” between Georgia-proper and its secessionist areas. (10) No troop numbers have been released yet, but plans have been laid to build 20 patrol camps along the South Ossetian border alone, as well as the relevant housing and living facilities in Tskhinvali. (11) The language used, and the justifications cited for the deployment of FSB troops could be described both as outrageous and absurd.
First, in explaining the agreements to the Security Council, President Medvedev explicitly linked the issue of border control to the NATO question. The alliance’s planned summer exercise in Georgia amounted to a “direct provocation” of Russia, since it would be a violation of the “six principles agreement” that ended the conflict last fall: NATO activities furthermore, would “encourage” Tbilisi in its goal of “remilitarization.” (12)
The second and most outrageous justification given for the agreement was that border troops would facilitate the launching of a new “humanitarian” program in Abkhazia: “highly-professional specialists” from the FSB’s Main Clinical Military Hospital will provide “free” medical care to those living in the border regions of Abkhazia, while educational and scientific specialists will work in local schools “at the initiative” of the service. (13)
Finally, in mid-June, FSB Chief Aleksandr Bortnikov claimed that South Ossetia and Abkhazia remain huge “channels” for “illegal weapons turnover,” and specifically for the arms-smuggling trade into Russia. Bortnikov asserted that Security Services had logged 17,000 felonies in the Southern Federal District of Russia, i.e. Chechnya and Dagestan between January and May 2009 alone, (14) in which militants carried out “armed attacks,” against government officials and law enforcement personnel. (15) In order to stem these incidents, the FSB needs to seal the smuggling routes in a “reliable” manner. (16)
This is the only one of the arguments made to justify the Border Guards deployment that is remotely plausible, given the realities in that region. The anti-NATO argument likely is a further political cog in the Kremlin’s attempts to equate Kosovo with Georgia, while the humanitarian assertions probably are little more than attempts to counter the international community’s concern at the lack of independent aid allowed into the conflict zones. After all, why should independent organizations be allowed in, when the Russian government is fulfilling its humanitarian obligations?
(1) See The ISCIP Analyst, Volume XV, Number 10 (26 March 09).
(2) “Russian Military Intelligence Chief Dismissed For Opposition to Reform-Website,” Gazeta.ru website, Moscow, in Russian, 24 Apr 09; BBC Monitoring via Lexis-Nexis.
(3) “Russia: Minister Serdyukov Hand-Picking Officials for Key MOD Posts. Article by Pavel Felgenhauer titled “Ministry of Defense Ministry of Defense Changing its Appearance," Novaya gazeta, 30 April 09; OSC Translated Text via World News Connection.
(4) “Russia: Changing Tack, Leadership Opts For Stronger, Upgraded Airborne Troops, Article by Andrei Fedorov: ‘Demobilization Reversed. Russian Airborne Promised New Equipment Instead of Cutbacks,” Lenta.ru, 3 Jun 09; OSC Translated Text via World News Connection.
(5) “Russia: GRU Chief Korabel’nikov Dismissed To Make GRU “Face Up To Reality,” Unattributed Article: “Military Gambit,” The New Times, 7 May 09; OSC Translated Text via World News Connection.
(6) See The ISCIP Analyst, Volume XV, Number 9 (5 March 09)
(7) “Russian Prosecution Appeals Against Acquittal in Politkovskaya Murder Case,” RenTV, 27 May 09; OSC Translated Text via World News Connection.
(8) “Court To Hear Appeal from Acquittal Judgment In Politkovskaya Case on June 25,” ITAR-TASS, 29 May 09; OSC Translated Text via World News Connection.
(9) “RF, Abkhazia, South Ossetia Sign 5 year Deal To Protect State Borders,” ITAR-TASS, 30 Apr 09; OSC Transcribed Text via World News Connection.
(10) “Russian Troops Take Georgian-Abkhaz ‘Border’ Under Full Control-Agency,” Interfax, 8 May 09; OSC Translated Text via World News Connection.
(11) Deployment of Russian Border Guards To Georgia’s South Ossetia Completed,” 11 Jun 09; OSC Translated Text via World News Connection.
(12) “Russia: Russian Border Troops are Securing Borders of South Ossetia and Abkhazia Article by Oleg Gorupay on the use of troops of the Border Service of the Federal Security Service of the Russian Federation to guard the border between Abkhazia and Georgia and the border between South Ossetia and Georgia. The author notes that, according to the terms of the agreements signed by Russia, Abkhazia, and South Ossetia on 30 April, Abkhazia and South Ossetia "are delegating authority to the Russian side for protection of the borders until they form up their own border services,” Krasnaya zvezda, 6 May 09; OSC Translated Text via World News Connection.
(13) “Russian Security Services Launches ‘Humanitarian Programme in Abkhazia,” Interfax, 21 May 09; OSC Translated Text via World News Connection.
(14) “Weapons Smuggling In Abkhazia, S. Ossetia Must Stop,” Interfax –AVN Online, 16 Jun 09; OSC Transcribed Text via World News Connection.
(15) “Militants in N. Caucasus Still Have Weapons To Commit Acts of Sabotage-FSB Director,” Interfax, 16 Jun 09; OSC Transcribed Text via World News Connection.
(16) “RF Secret Services Block Channels of Arms Deliveries to N. Caucasus,” ITAR-TASS, 16 Jun 09; OSC Transcribed Text via World News Connection.
Moscow kicks the can on WTO bid
After more than fifteen years of painstaking negotiations over Russia’s bid to join the World Trade Organization (WTO), Moscow’s recent proposal for a multilateral accession with Kazakhstan and Belarus may have brought the process back to square one. The surprising announcement, following closely on the heels of renewed hope for Russian accession to the WTO, raises a number of questions about Moscow’s bid. Preliminary analysis offers economic and political rationales for a decision that constitutes an indefinite postponement of Russia’s inclusion in the global trade regime.
On June 9th, at a meeting of the Eurasian Economic Community (EurAsEc), Prime Minister Vladimir Putin officially announced that Russia would be changing the basis of its bid for WTO accession from an individual approach to a joint application on behalf of a customs union with Kazakhstan and Belarus. (1) Belarus’ Prime Minister, Syarhey Sidorski, spoke enthusiastically about the prospect of linking the three Eurasian economies and noted the agreement on joint accession. (2) On June 11th, Kazakhstan signaled its endorsement of the proposal very directly by officially freezing its own ongoing accession process with WTO. (3)
Moscow’s new approach was especially surprising since the prospects for its membership had improved markedly with the change of administrations in Washington. As recently as June 5th, the lifting of some of the Bush administration’s prior objections to proceeding with accession, as well as new progress in talks with the European Union, raised expectations that Russia could join the WTO as early as the end of this year. (4) Interestingly, at the time Anatoli Chubais warned that such optimism could be undone by a Eurasian customs union, which would have unpredictable effects on Russia’s bid. Russian First Deputy Prime Minister Igor Shuvalov, perhaps foreshadowing the announcement, did not dispel such concerns when he responded by saying “If there are real prospects of completing WTO talks, we shall coordinate actions with our counterparts (in the Customs Union) and decide what is to be done next. Either Russia joins the WTO and we continue our Customs Union plans or on 1 January we join the Union and continue WTO negotiations." (5)
Chubais must be given credit for his prescience in questioning the impact of a move toward a customs union on Russia’s WTO prospects. To begin with, by Finance Minister Aleksei Kudrin’s estimate, the union will not be complete until sometime in 2011, forestalling its membership until at least that point. (6) Moreover, the format of the customs union the three countries plan to create calls for regulation only of trade in goods, while WTO rules mandate negotiations solely with entities that regulate all trade in goods and services. Perhaps most significantly, while membership by a customs union in the WTO is not precluded per se, there is simply no precedent for such a body joining the trade regime. (7)
These issues already are creating friction between the WTO’s members—who must all approve any new applicant for admission—and the three Eurasian states. After a tense meeting in Geneva on the 17th of June, the head of Russia’s delegation to the WTO acknowledged that “[t]he discussion was quite tough” and the prospects for quick accession appeared bleak. (8)
Though both Putin and President Medvedev have claimed that Russia does not want to abandon the WTO, the practical effect of the move to a multilateral bid would be to forestall accession for years to come. (9) It seems clear that Russia places a greater importance on forging economic linkages with its immediate neighbors than it does on bringing itself into line with the norms of the international trade regime. While Eurasian countries make up a relatively small part of Russia’s trade profile, Russia is the number one source of imports to countries like Kazakhstan and Belarus, providing them 38 and 60 percent of all imported goods, respectively. (10) Formalizing and deepening these economic ties would help Moscow’s political ambition to rebuild and maintain its influence in the former Soviet Union. Building a regional trade bloc rather than joining the WTO also would accord with Moscow’s foreign policy philosophy of multi-polarity by raising the prospects for a new, non-Western economic power center.
Additionally, Russia itself has reasons for its reluctance to abide by WTO rules. It long has been opposed to US demands that it lower import duties on meat and poultry as part of accession – a move that would expose Russia’s agricultural industry to stiff competition from its heavily subsidized American counterpart. The global recession also may have tempered Moscow’s appetite for trade liberalization. WTO membership would have prevented Moscow from undertaking some of the protectionist measures it imposed to defend its ailing industries from foreign competitors, such as its increased tariffs on imported automobiles.
Whatever the rationale behind the recent shift in approach, it is difficult to imagine that Russian policy makers believed applying for WTO membership as a customs union would not be detrimental to the country’s bid. While not necessarily eliminating the prospect of membership for the three countries involved, this approach adds a significant complication to an already complex process, almost certainly adding years to future negotiations.
(1) “Russia, Belarus, Kazakhstan suspend separate WTO talks, to seek joint membership,” ITAR-TASS, 9 Jun 09; BBC Monitoring via Lexis-Nexis
(2) “Belarusian premier optimistic about Eurasian customs union,” Interfax, 10 Jun 09; BBC Monitoring via Lexis-Nexis
(3) “Kazakhstan freezes WTO accession talks,” ITAR-TASS, 11 Jun 09; BBC Monitoring via Lexis-Nexis.
(4) “Russia expects to complete WTO talks with EU by year-end,” ITAR-TASS, 5 Jun 09; BBC Monitoring via Lexis-Nexis.
(6) “Minister expects Russia, Belarus, Kazakhstan customs union to be set by mid-2011,” RIA Novosti, 13 Jun 09; BBC Monitoring via Lexis-Nexis.
(7) The European Union is not quite an exception to this claim, since its individual member countries joined the WTO before its accession in 1995 and retain their membership status as individual states. See “Member Information: The European Communities and the WTO,” World Trade Organization via http://www.wto.org/english/theWTO_e/countries_e/european_communities_e.htm.
(8) “Russian negotiator admits consultations on WTO accession not going well,” Interfax, 17 Jun 09 via Johnson’s Russia List, 2009-#114, 18 Jun 09.
(9) Medetsky, Anatoly, “Putin against starting over on WTO,” The Moscow Times, 19 Jun 09 via Johnson’s Russia List, 2009-#115, 19 Jun 09; “Customs union does not mean Russia gives up on WTO ambitions - president,” Interfax, 9 Jun 09; BBC Monitoring via Lexis-Nexis.
(10) World Trade Profiles 2008, World Trade Organization, Geneva: WTO Publications, 2008. pp. 17, 91, & 138.
By Shaun Barnes (email@example.com)
Europe sets aside winter lessons come summer
In January, when Gazprom shut off the flow of natural gas to Ukraine leaving European customers downstream in the lurch, Brussels responded with a $4.6 billion slate of projects aimed at reducing European dependence on Russian gas supplies now and in the future. “We need to learn the lessons of the recent gas crisis and invest heavily in energy,” said European Commission chief Jose Manuel Barroso. (1) Today, as another gas crisis looms, the lessons of winter appear to be all but forgotten, replaced on the EU agenda by parochial exigencies that have allowed Moscow to continue to dictate the terms of energy supply to the continent.
One of the key EU initiatives following the midwinter gas crisis was a proposal put forward in March to partner with Ukraine to ensure safe, transparent, and predictable transit of natural gas by allowing EU member states to buy gas on the Russian-Ukrainian border, while providing grants and loans to modernize Ukraine’s decrepit energy infrastructure and eventually double its transmission capacity. (2) The joint declaration also foresaw the lease of Ukrainian gas storage facilities to third-party customers, so that Europe’s winter gas supplies could be purchased ahead of time, during summer months. (3) The plan aimed both to enhance European energy security and to empower Eastern European countries “by treating them as independent states and not as pawns that are organically linked to Russia,” according to Poland’s Foreign Minister Radislaw Sikorski. (4) In Moscow, the plan sparked outrage as officials struck out at the EU and Ukraine claiming that they were systematically ignoring Russian interests. “It seems to me the document about which we are talking is, at a minimum, ill-considered and unprofessional because to discuss such issues without the basic supplier is simply not serious,” said Russia’s Prime Minister Vladimir Putin. (4)
Recognizing that a plan to upgrade the Ukrainian transmission route would have little chance of success without Russian participation, Ukraine’s Prime Minister Yulia Tymoshenko approached Moscow in April with a proposal for a joint $350 million investment in Ukraine’s pipeline to upgrade capacity, which would allow Gazprom to move an additional 60 billion cubic meters of gas annually via existing routes. (5) But, Moscow rebuffed Tymoshenko’s April overture and signaled its disinclination to partner with Ukraine again in May with an announcement that Gazprom and Italy’s ENI had agreed to increase the annual capacity of South Stream, a pipeline set to bypass Ukraine in 2015, from 31 billion to 63 billion cubic meters. (6) Once it had established clearly that there would not be enough gas to supply both South Stream and Ukraine’s export route, Moscow set about shifting blame for perennial gas crises to Ukraine.
In May, Russia began expressing doubt about Ukraine’s ability to pay the $4.2 billion needed to fill its gas storage facilities in order to ensure winter deliveries for EU customers. (7) Ukraine’s underground facilities hold 19 billion cubic meters of gas, pumped in during summer months when demand for fuel is low and tapped in winter when demand peaks. (8) Under the two countries’ supply arrangement, Gazprom sells gas to Ukraine’s Naftogaz for summer storage and buys back the volumes to export in the winter. This year, Naftogaz stands to suffer heavy losses from the resale as gas prices are predicted to fall in coming months.
Although Tymoshenko expressed optimism that a compromise could be found after meeting with Putin in Moscow, the Russian side has proven unwilling to discuss payment arrangements and instead raised the stakes by announcing that Ukraine likely would default on payment due for May gas deliveries. (9) If Naftogaz missed the deadline, Putin warned, Gazprom would exercise its right to demand prepayment for future supplies and would cut the flow of gas if advance payments were not received. When payment came due on June 7, however, Gazprom released a statement confirming that the bill had been paid in full. (10) Nonetheless, Ukraine has admitted that without foreign assistance it will be unable to afford the cost of filling its storage facilities, and Putin has threatened to shut off gas transit at the end of June or the beginning of July if the problem remains unresolved. (11) Putin raised the issue with European leaders and, throwing the EU-Ukraine Joint Agreement back at its authors, suggested that EU member states should shoulder Ukraine’s gas debts to ensure their own energy security.
With another gas crisis looming, Europe has shown little patience for Ukraine’s financial weakness. Asked whether the EU would provide aid to avert another gas crisis, Barroso said “[t]hat is not our responsibility, I should make that clear.” (12) Faced with budget shortfalls, the EU has declined to prepay for its winter gas and then lease Ukrainian storage facilities as was stipulated in the Joint Agreement, a decision that likely spells the end of the arrangement made in March. Instead, the EU has appealed to international financial institutions to provide Ukraine with stopgap funding, deepening European reliance on Russian energy supplies for the foreseeable future.
Challenges without and within
Spring has presented the Saakashvili administration with several significant obstacles, including the threat of renewed Russian aggression, a mutiny in the Georgian military, and ongoing opposition protests. The challenges have produced a tense mood in Tbilisi, as no one knows precisely how the summer will unfold.
The first challenge faced by the government is an external one – the threat of a renewed war with Russia. The onset of warmer weather makes the mountain passes into South Ossetia and Abkhazia more accessible and raises the annual specter of an escalation of tensions between Moscow and Tbilisi, which last year resulted in violent conflict and the occupation of portions of Georgian territory by Russian troops. A large-scale Russian military exercise, “Kavkaz 2009,” will be held from 29 June to 6 July in the Russian north Caucasus. The maneuvers will include around 8500 personnel and are comparable in scope to a similar exercise held in the same region last year, just prior to the August 2008 conflict. (1)
In addition to positioning large numbers of Russian troops on Georgia’s northern border, in recent months Moscow has taken significant steps to reduce the presence of international observers in the conflict areas. Prior to the Russian invasion last August, the OSCE had been the primary international body involved in negotiations over South Ossetia. Earlier this spring, the OSCE mission in Georgia fell victim to Russia’s insistence on procuring Tskhinvali’s permission for the OSCE presence (i.e. treating South Ossetia as a sovereign state rather than Georgian territory); the OSCE mission in Georgia will end on 30 June.
Russian authorities recently took similar steps to remove an international presence in Abkhazia. The UN Observer Mission in Georgia (UNOMIG) has operated there since 1993. UNOMIG’s mandate was to observe the ceasefire between Abkhazia and Georgia and to monitor the CIS peacekeeping force, an essentially Russian operation commissioned by the CIS. UNOMIG’s mandate required periodic renewal by the UN Security Council and often proved a topic of contentious debate. This last and final round proved to be no exception.
During the latest negotiations to renew the mandate, Russia refused to approve the extension, claiming that UNOMIG’s mandate was based on “old realities.” (2) Russian officials rejected a formulation of the mandate that maintained Georgia’s territorial integrity, (3) while Georgian authorities accused Russia of “remov[ing] the international community’s final instrument” for tracking developments in Abkhazia. (4) The Russian veto came despite UN Secretary General Ban Ki-moon’s strong support for the mission as a means of promoting regional stability. (5) As a result of the disagreements in the Security Council, UNOMIG officially was terminated on 17 June.
The withdrawal of these two international missions leaves intact only the EU monitoring mission, established with the mediation of French President Nicolas Sarkozy in September. EU monitors, however, have been confined to the “border” areas of the conflict and have been restricted in their ability to patrol within the conflict zones. The absence of monitors in the Russian-occupied portions of Georgia raises the prospect of a human rights crisis, particularly for the ethnic Georgians in Abkhazia’s Gali region.
The Saakashvili administration also has faced two internal challenges in the form of ongoing opposition protests and a military mutiny. On the morning of 5 May, approximately 500 members of a tank battalion stationed in Mukhrovani (about 20 miles from Tbilisi) ceased to obey orders from their commander. (6) The ostensible goal of the mutiny was to overthrow the current government. According to the Georgian Interior Ministry, the mutiny was coordinated by Gia Gvaladze, a former commander of the Defense Ministry’s special forces under Shevardnadze. (7) A video of Gvaladze and three other men was released on 5 May by the Interior Ministry. In the footage, the men are seen discussing the assassination of senior Georgian officials and receiving support from Russian troops. (8)
Saakashvili, who traveled to Mukhrovani to address the mutinying troops personally, linked the rebellion to the NATO exercises that were due to start on 6 May, to which Russia had strenuously objected, and accused Moscow of attempting to destabilize Georgia.
The rebellion was subdued fairly quickly and its leaders, including Gvaladze and former National Guard commander Koba Kobaladze, were arrested.
The details of the mutiny – its objective and the precise events of the morning of 5 May – remain murky. Russian officials have denied any involvement in the rebellion and Georgian opposition leaders have called for an international investigation into the mutiny.
Though reined in quickly, the mutiny indicates that not all elements of the Georgian military support the current administration. Such a degree of discontent within a group that consistently has supported Saakashvili could present problems in the future if not adequately addressed, particularly in the event of further Russian aggression.
The administration’s second internal challenge has come from a loose group of political opposition parties that has staged continual protests since 9 April. This group includes former officials who have broken with the Saakashvili administration, including former Speaker of the Parliament Nino Burdjanadze and Ambassador to the United Nations Irakly Alasania. The protesters repeatedly have called for Saakashvili to resign over his handling of the August war and to hold early parliamentary and presidential polls, due in 2012 and 2013, respectively. Although the number of protesters has fluctuated since the initial protest (numbering tens of thousands) on 9 April, opposition leaders drew a crowd of around 60,000 as late as 26 May. (9)
Though the protests have not achieved the goal of setting new elections, they have served to raise already heightened tensions in the capital. The political discourse employed by opposition leaders is very emotional, and officials and opposition politicians frequently exchange barbed comments. Also, protesters periodically have blocked the streets of Tbilisi’s busiest thoroughfare, causing considerable disruptions in the capital.
The government has made several overtures to the opposition, including an offer to give the position of deputy minister within the controversial Interior Ministry to a member of the opposition. Opposition leaders generally have rejected these gestures, claiming that to accept them would be equivalent to being co-opted by the administration.
The administration has met the ongoing internal political challenge with an impressive show of unity within its leadership. Last autumn several government officials resigned in protest over the war with Russia and a small cadre of diplomats joined Irakly Alasania’s opposition political movement. These few defections serve to highlight the strength of Saakashvili’s ruling party, however, rather than representing its weaknesses.
Though there have been small clashes with law enforcement personnel in the course of the protests, the Saakashvili administration has taken pains not to allow itself to be provoked into using force against demonstrators, as it did on 7 November 2007. This measured response to the ongoing protests has prevented escalation, but has not eliminated domestic tensions. With no major breakthroughs in sight and fears of a renewed war with Russia continuing unabated, the domestic political standoff only adds to the tense mood in Tbilisi.
Ter-Petrosian’s party third at polls, but boycotts council
The election for Yerevan’s City Council was the first political race for former president and current opposition leader Levon Ter-Petrosian since the February 2008 presidential election. His defeat in the 2008 election spurred protests by his supporters (who questioned the official vote tally) and led to a crackdown by Robert Kocharian’s government in which eight protesters were killed and many more arrested. (The precise number of individuals detained is in dispute. Ter-Petrosian claimed that 98 of his supporters had been arrested, while the government only acknowledged taking 58 persons into custody. (10)) The controversy surrounding Ter-Petrosian’s last bid for public office made the results of this poll a topic of heightened interest.
In the 31 May City Council election, Ter-Petrosian’s Armenian National Congress (ANC) party placed third in the polls, winning enough votes to secure 13 of the Yerevan council’s 65 seats. The ruling Republican Party secured 35 seats on the council, while the Prosperous Armenia party garnered 17 seats. (11) The ANC announced that it would boycott the council and demanded that Ter-Petrosian’s supporters from the February 2008 protests be released from custody. (12) The ANC’s decision to boycott the council may cost the party and Ter-Petrosian much needed support in future political contests against the ruling party.
Ter-Petrosian has scored one victory from the elections, however. In an attempt to tamp down domestic pressure, President Serzh Sarkisian proposed an amnesty that would affect some of the protesters arrested during the 2008 demonstrations. This move also may reduce international pressure on Sarkisian’s administration; Yerevan has come under considerable criticism from international organizations for its heavy-handed response to those protests. This pressure, in addition to Ter-Petrosian’s demands, prompted the Armenian parliament on 19 June to approve an amnesty for approximately 500 individuals, as well as to reduce the sentences of an additional 1500 persons. (13)
(1) “Spokesman outlines tasks for Russia's Caucasus-2009 drill,” Interfax, 11 Jun 09; BBC Monitoring via Lexis-Nexis.
(2) “Russia blocks mandate for UNOMIG,” UPI, 16 Jun 09 via Lexis-Nexis.
(3) “Russia blames West for completion of UNOMIG operations in…,” Russia and CIS Diplomatic Panorama, 16 Jun 09 via Lexis-Nexis.
(4) “Georgian Foreign Ministry Statement on Russia’s veto of UN Mission,” Ministry of Foreign Affairs Website, 16 Jun 09; BBC Monitoring via Lexis-Nexis.
(5) “Russia blocks mandate for UNOMIG,” UPI, 16 Jun 09 via Lexis-Nexis.
(6) Misha Dzhindzhikhashvili, “Georgia says it halts army mutiny,” AP, 5 May 09 via Lexis-Nexis.
(7) “MoD says military unit mutinies,” Civil Georgia, 5 May 09 via http://www.civil.ge/eng/article.php?id=20848&search=MoD%20says%20military%20unit%20mutinies.
(9) “Tens of Thousands Rally,” Civil Georgia, 26 May 09 via http://www.civil.ge/eng/article.php?id=20992&search=protests.
(10) Marianna Grigoryan, “Armenia: Administration, Opposition Take Tentative Steps Toward Opening Dialogue,” Eurasianet, 8 May 08 via http://www.eurasianet.org/departments/insight/articles/eav050808a.shtml.
(11) Haroutiun Khachatrian, “Armenia: Opposition Looks for a New Strategy,” Eurasianet, 10 Jun 09; BBC Monitoring via Lexis-Nexis.
(12) “Armenian National Congress withdraws from its mandates in the Yerevan Council of Elders,” ARMINFO, 1 Jun 09 via Lexis-Nexis.
(13) “Armenian parliament OKs amnesty for election riots,” AP Worldstream, 19 Jun 09 via Lexis-Nexis.
By Robyn E. Angley (firstname.lastname@example.org)
Uzbek president peddles contradictory versions of Ferghana Valley attacks
Uzbekistan’s President Islom Karimov may be about to prove that when it comes to government-sponsored misinformation, his government, at least, can have its cake and eat it, too. President Karimov’s administration has reported two very different versions of the May 26 attacks in the cities of Andijon and Khanabad (located in Andijon Province in the Ferghana Valley). In one version, Uzbek law enforcement officials blamed the violence on Islamic militants who entered from Kyrgyzstan, thereby provoking the ire of Kyrgyz border security officials. (1) In the second version, reportedly issued by “Tashkent diplomats” to Russian news agency Itar-Tass, the attacks simply were written off as part of an ongoing feud between domestic organized crime groups: “It seems nothing serious has happened there. There might have been a wrangle between criminals and customs officers. The explosion at the checkpoint had no serious consequences.” (2) It was the second version of the story which President Karimov chose to reiterate to his fellow leaders at the June 16 Shanghai Cooperation Organization (SCO) summit in Yekaterinaburg, (3) perhaps having decided that it was time to mend fences with Kyrgyzstan’s President Kurmanbek Bakiev.
Nearly four weeks after the attacks, which consisted of an explosion by one suicide bomber in Andijon and the attack on the police station on the outskirts of Khanabad, (4) it is still quite unclear not only who the perpetrators were, but how many of them were involved (estimates of the number of attackers vary from three or four to as many as twenty), where they came from and subsequently fled to, and how many victims were killed or injured as a result of the violence. Law enforcement representatives initially reported that the attack on a local police station was perpetrated by a few unknown “bandits” who crossed into Khanabad from Kyrgyzstan. (5) An anonymous source in the security services then informed Russian media agencies that the attackers were thought to be affiliated with the Islamic Movement of Uzbekistan (IMU). (6) A group calling itself Islamic Jihad allegedly claimed responsibility for both the Andijon and Khanabad incidents, according to the Uznews.net agency’s website. Islamic Jihad is believed to be an offshoot of the IMU and claimed responsibility for attacks carried out in Uzbekistan in spring 2004. (7) The stories of Islamic militant involvement are the ones which have received by far the most media attention, and the one element that all of these versions have in common is the claim that the attackers entered the country from Kyrgyzstan, by slipping past a Kyrgyz border checkpoint. Not surprisingly, these statements have not been well-received by Kyrgyz officials and since May 26, both the Uzbek and Kyrgyz border services have imposed greater restrictions on cross-border travel, as well as engaging in a series of tit-for-tat arrests of each others’ personnel.
The Kyrgyz-Uzbek border as it currently stands has yet to be officially recognized by the post-Soviet regimes of both countries. In fact, there has been considerable disagreement, and, in some cases, outright conflict over the precise location of the border, as well as over whose security services have jurisdiction in settlements which straddle both sides of the border. Kyrgyz villagers in some of these settlements recently have accused Uzbek law enforcement personnel of carrying out unlawful search-and-seizure operations and arrests. Uzbek authorities, on the other hand, long have complained about the porous state of the Kyrgyz border, which, they allege, permits smuggling, terrorism and various other criminal activities to penetrate Uzbek territory. The attacks in Andijon and Khanabad have given Uzbek security services an opportunity to bolster their presence in the border regions significantly, as well as to exercise much stricter control over cross-border travel. Naturally, this has done nothing to ease tensions between the two countries.
Deteriorating relations between Uzbek and Kyrgyz border forces in the wake of the attacks may have been what prompted President Karimov’s recent trip to the SCO summit. While at the summit, he conducted a side meeting with President Bakiev, where he resurrected a report that claimed the recent violence was the result of a squabble between Tashkent-based crime groups who had been competing for profits from cross-border trade. (8) Whether or not this version of events is closer to the truth is almost immaterial – if it helps smooth relations between the two leaders and if this, in turn, helps calm tensions along the Uzbek-Kyrgyz border, it will have accomplished its purpose. Karimov’s assurances also may have been designed to calm any fears harbored by his other neighbors about a new eruption of Islamic militantism in the Ferghana Valley.
However, since very few Russian or Western media agencies seem to have reported on the Karimov-Bakiev meeting in Yekaterinaburg, it is the Islamic militant story that will have the biggest impact internationally, where it will undoubtedly elicit Western sympathy, and more importantly, funds and equipment, for Uzbekistan’s share in the war against terror – the icing on Karimov’s cake.
(1) “Kyrgyzstan denies involvement in Uzbekistan unrest,” 27 May 09, Agence France Presse via Lexis-Nexis Academic.
(2) “Khanabad explosion might have been crime-customs wrangle – diplomats,” 26 May 09, ITAR-TASS via Lexis-Nexis Academic.
(3) “Russian paper says recent explosions were showdown between Uzbek power groups,” 19 Jun 09, Uznews.net via <http://www.uznews.net/news_single.php?nid=10691>, last accessed 25 June 2009.
(4) Bakhrom Mananov, “Uzbekistan shuts border after suicide attack: officials,” 26 May 09, Agence France Presse via Lexis-Nexis Academic.
(5) Kyrgyzstan denies involvement in Uzbekistan unrest,” 27 May 09, ibid.
(6) “Khanabad attack launched by Islamic Movement of Uzbekistan – source,” 26 May 09, Central Asia General Newswire; Interfax via Lexis-Nexis Academic.
(7) “Islamic Jihad group claims responsibility for Uzbek attacks – agency,” 27 May 09, Interfax; BBC Worldwide Monitoring via Lexis-Nexis Academic.
(8) Russian paper says recent explosions were showdown between Uzbek power groups,” 19 Jun 09, Uznews.net, ibid.
By Monika Shepherd (email@example.com)
Russia and Ukraine play cat and mouse over gas
For the first time in many years, Ukraine owes no debt to Russia for consumed gas. Consequently, various Russian politicians have had to concoct a new line of criticism. This criticism best can be described as the “Ukraine will not pay” theme. Ukraine, Russia’s leaders repeatedly say, will not be able to pay for its gas this month. Which month are they talking about? Pick one.
The “Ukraine will not pay” theme first arose over Ukraine’s bill for gas consumed in March. That bill was due on 7 April according to the gas agreement signed by Russia and Ukraine in January. “Now, the main problem of Ukraine is payment for current supplies of Russian gas,” Gazprom CEO Aleksei Miller said on 3 April. “In this context, the most urgent task,” he continued, “is finding acceptable sources of financing to pay for the gas that Ukraine consumes.” (1) Miller seemed unconcerned that Ukraine had not asked for financing and had said it would have no problem paying its bill.
In fact, just one day earlier, Ukraine Prime Minister Yulia Tymoshenko, responding to a question from a Russian reporter, had vowed to pay the March bill before the due date. She told a news briefing, “I am pleased to inform you that since 1 January, payments for gas … have been made on time and in full: for January in full and on time, for February in full and on time, and all payments for March will be made as stipulated by the contract.” (2)
Ukraine then paid its bill two days before the 7 April contractual payment deadline.
One month later, relations between Ukraine and Russia appeared momentarily improved, as Russian Prime Minister Vladimir Putin praised Ukraine’s timely payments for gas. “Payments are being made regularly, without failure,” he said during a joint press conference with Tymoshenko in Moscow. He further expressed gratitude for Ukraine’s work to solve any gas disagreements. “We know that the current financial and economic situation in Ukraine is not perfect, and we are therefore grateful,” he said, “and we understand this requires certain effort on the part of the government, and we hope this will continue.” (3)
Oddly, however, on the very same day, Gazprom’s Deputy Head Viktor Valov claimed, “We are worried about the situation with Ukraine, taking into account the low level of solvency and political instability in Ukraine.” (4)
Furthermore, despite Russian PM Putin’s kind words about steady payments, just one day later, Deputy PM Igor Sechin suggested “there has been no success so far in achieving guaranteed stability of [gas] transit through Ukraine.” He also claimed that Ukraine’s problems could lead to a “catastrophic development” for Europe. (5) Clearly, Putin must have missed a memo. Operation “Ukraine will not pay” continued.
To the possible chagrin of Russia, Ukraine then paid its bill for the April gas in full and on time. In May, Russia increased the stakes; not only did the country claim that Ukraine was unable to pay, it vigorously requested that the EU step in, while reaching out to the international media to make its point.
On 29 May, European Commission President Jose Manuel Barroso said, “Prime Minister Putin called to tell me about the difficulties he anticipates in payments coming from Ukraine, and to say that Ukraine has asked for some support for financing these payments.” (6) Barroso then proceeded to respond to “Ukraine’s” request for assistance. “It is difficult with our budget, if not impossible, to provide support from the Community budget for Ukraine,” he explained, while turning down “Ukraine’s” request. (7)
The problem was that while Ukraine had asked Russia for a more favorable payment arrangement, it had not asked the European Commission for assistance. Yet, for a reason that may be clear only to him, Barroso responded to a request supposedly from Ukraine presented to him by Putin. He then answered the request seemingly without contacting any Ukrainian officials and without determining that Putin’s request was valid. At least in the EU, the “Ukraine will not pay” theme worked well during May.
Around the same time, Gazprom’s Miller announced, “We see the payment situation regarding gas supplies in May as very, very grave,” and threatened to move toward “100% advance payments.” (8) Further, Russian President Dmitriy Medvedev explained, “We are ready to help Ukraine, but we would like the EU to take a significant role in this work.” (9)
“Ideas” promoted by Russia during May to “assist” Ukraine in purchasing its gas included a consortium involving Russia, Ukraine and other entities to run Ukraine’s gas pipeline system. Additionally, Russia suggested increased EU support for the construction of Gazprom’s South Stream pipeline. Both ideas limit Ukraine’s role in gas transit. These ideas also benefit greatly from any perception among Europeans that Ukraine is an unreliable transit partner. Any inability to pay, of course, would suggest instability and unreliability.
In late May, Tymoshenko met again with Putin in order to determine the best method to fill Ukraine’s gas storage tanks. The tanks normally contain not only gas for Ukraine’s winter domestic gas consumption, but also gas to be used to run the turbines/switching stations that propel and transport gas to Europe, and gas from some small individual traders that provide gas to Europe.
While Tymoshenko always steadfastly claimed that Ukraine would pay its bills, she also made no attempt to hide the fact that the country faced serious financial pressures. As the country with the deepest recession in Europe, Ukraine has depended on assistance from the IMF, World Bank, and European Bank of Reconstruction and Development (EBRD) to weather the crisis, while enacting a number of reforms to attempt to minimize the budget deficit (now conservatively forecast for 6%-8%).
In Moscow, Tymoshenko reportedly attempted to either arrange a loan to pay for storage gas or reach an agreement that any gas not consumed by Ukraine could be returned to Russia. She also reportedly attempted to convince Russia to pay in some capacity for the “technical” gas used to power Ukraine’s transit system. Putin balked, as Miller and Medvedev increased the alarm about Ukraine’s so-called inability to pay. “Time is running out,” Miller said. (10)
Since gas volumes provided by Russia during winter months cannot fully supply both European and Ukrainian needs, one or the other could face shortages if Ukraine’s gas needs are not met through stored gas. According to both Russia and Ukraine, 19.5 billion cubic meters of gas are needed in storage as a failsafe against winter shortages, and to ensure that the country can power the system needed to transit gas. Ukraine can store up to 32 billion cubic meters, and in fact, during 2008, entered the winter with 30 billion cubic meters on hand. It is unclear if Gazprom this year has requested that Ukraine store gas eventually intended for transit to Europe, and if that gas is to be purchased and then resold by Ukraine.
Following Russia’s rejection of a new gas storage payment plan, Ukraine’s government and Naftohaz appealed to international banks for assistance in purchasing gas for storage. On 23 June, a number of media outlets reported that the IMF and EBRD were close to coming to terms with Ukraine on a $4 billion stopgap, short-term loan. (11)
Even without this loan, however, on 6 June, Ukraine paid its bill in full and on time for all gas consumed in May.
Further, on 24 June, Prime Minister Tymoshenko assured Ukrainians during a news conference that all gas consumed in June would be paid for in full and on time. She also surprised many by announcing that, contrary to Russian reports, Ukraine had purchased 1.1 billion cubic meters of gas for storage in June, as well as smaller amounts in April and May. (12)
Naftohaz then announced that the country’s gas in storage, including that left over from 2008, totaled over 19 billion cubic meters. It is entirely unclear if this figure is accurate, and indeed, it seems high. However, the presidential secretariat, which rarely agrees with Tymoshenko’s cabinet, announced that, as of May, the country maintained over 17 billion cubic meters in storage. (13) Gazprom also confirmed that Ukraine had injected over one billion cubic meters of gas into storage in June, and had paid for it – a feat that it earlier had said was impossible.
At the same time, Naftohaz approached several European countries about using Ukraine’s excess storage capacity to store their own gas, thus providing added security during the winter months.
Faced with this, Russia one day later expressed deep concern over the “disappearance” of eight billion cubic meters of what it said was Gazprom’s gas in storage. (14) Ukraine, Gazprom implied, is not somewhere that you want to store your gas. In other words, not only is the country unstable and unreliable, it is also responsible for theft.
Naftohaz quickly responded by noting that Ukraine has not stored gas belonging to Gazprom since 2006. “The entire amount of Russian transit gas that enters Ukrainian territory is transported to consumers in European countries in full,” the company said in a statement. (15)
For her part, Tymoshenko complained of regular “stormy statements” at the end of each month, and urged Gazprom to “be calm” and “get to work.” (16) Only hours later, President Viktor Yushchenko’s chief energy advisor Bohdan Sokolovsky held a news briefing to express concern over Gazprom’s “poor financial condition.” This “puts into question stable transit of natural gas to Europe,” he said, and urged the EU to examine the situation surrounding Gazprom closely. (17)
(1) RIA Novosti, 1345 GMT, 3 Apr 09; BBC Monitoring Former Soviet Union; Political, 3 Apr 09 via Lexis-Nexis.
(2) UT1, 1134 GMT, 2 Apr 09; BBC Monitoring Former Soviet Union; Political, 2 Apr 09 via Lexis-Nexis.
(3) ITAR-TASS,, 1629 GMT, 29 Apr 09; BBC Monitoring Former Soviet Union; Political, 29 Apr 09 via Lexis-Nexis.
(4) RIA Novosti, 1516 GMT, 29 Apr 09; BBC Monitoring Former Soviet Union; Political, 29 Apr 09 via Lexis-Nexis.
(5) RBK-TV, 0800 GMT, 30 Apr 09; BBC Monitoring Former Soviet Union; Political, 30 Apr 09 via Lexis-Nexis.
(6) Upstreamonline.com, 1340 GMT, 29 May 09.
BBC Monitoring Former Soviet Union; Political, 7 Apr 09 via Lexis-Nexis.
(8) Upstreamonline.com, 0703 GMT, 26 May 09.
(9) Platts Oilgram News, 26 May 09 via Lexis-Nexis.
(10) Interfax News Agency, 1625 GMT, 28 May 09; BBC Monitoring Former Soviet Union; Political, 28 May 09 via Lexis-Nexis.
(11) Bloomberg, 0123 EST, 23 Jun 09 via www.bloomberg.com.
(12) UNIAN, 1729 CET, 24 Jun 09 via www.unian.net.
BBC Monitoring Former Soviet Union; Political, 7 Apr 09 via Lexis-Nexis.
(13) Interfax-Ukraine, 0645 GMT, 30 May 09; BBC Monitoring Kyiv via Lexis-Nexis.
(14) The Financial, 1056 EST, 25 Jun 09 via www.finchannel.com.
(15) Interfax-Ukraine, 1857 GMT, 24 Jun 09 via Yahoo News.
(16) Delo, 16:57 CET, 24 Jun 09.
(17) Ukrainian News Agency, 1608 CET, 25 Jun 09 via www.ukranews.com.
By Tammy Lynch (firstname.lastname@example.org)
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