Arsenyi Yatsenyuk: Rebel without a Cause

Graham Stack for Russia Profile (www.russiaprofile.org)

Ukraine’s youthful Presidential Candidate Arseny Yatsenyuk is tailor-made to be a pro-Western leader, but his stagnating ratings show how weak this political constituency has become in Ukraine. Instead, all three leading contenders in the presidential election campaign that kicked off this week are making pro-Russian statements.

History repeats itself as farce, Karl Marx apparently said. The Ukrainian presidential hopeful, 35-year-old Arseny Yatsenyuk’s great historical moment may have come and gone on June 7, 2009. During a week boiling with rumors it seemed that the two largest parties in Ukraine’s unicameral parliament, the Rada, were preparing a grand coalition to achieve a constitutional majority and transform Ukraine into a parliamentary republic, abolishing direct presidential elections. The trigger: Yatsenyuk’s meteoric rise in opinion polls, from zero to over ten percent in the course of months. Extrapolating, neither leader of the two largest parliamentary parties, Prime Minister Yulia Tymoshenko of the Yulia Tymoshenko Bloc or the former Prime Minister Viktor Yanukovych of the Party of Regions, could be sure of winning the presidential elections  January 2010. So they had apparently simply decided to call off the elections altogether, and divvy up power between them.

Yatsenyuk sprang into action. Talking to this correspondent, he called on the West to beware of the imminent creation of a Russian-backed “junta.” “If the coalition’s plans go ahead, Ukraine will return to the sphere of influence of a certain big country,” he warned, “and Ukraine will turn into a banana republic.” Calling the nascent coalition’s plans “an anti-constitutional conspiracy,” he said he would lead people out on the streets to fight them. Asked if there would be a second Orange Revolution, Yatsenyuk replied “you will see it.”

By Sunday, June 7, however, it was all over. The “putsch attempt” has been debunked as just another Ukrainian political stunt. Viktor Yanukovych suddenly backed out of the negotiations, saying that he was alarmed by the anti-democratic nature of Tymoshenko’s suggestions. The episode left Yanukovych looking wily, and even a little democratic, Tymoshenko looking like she would stop at nothing to stay in power, and Yatsenyuk like a callow wannabe popular hero.

Yatsenyuk, with his perfect English, baby-face looks, superb credentials and squeaky clean image, is tailor-made to fit the role of a “pro-Western democratic candidate.” But it is a sign of the times that there is no demand for such in Ukraine today, making Yatsenyuk seem like a rebel without a cause.

From Ukraine’s Obama to Ukraine’s Medvedev

Launching his unofficial campaign in late 2008, Yatsenyuk tried to tap into the buzz surrounding the new U.S. President Barack Obama. The media picked up the “Ukraine’s Obama” jingle, and Yatsenyuk’s spinmeisters playfully disclaimed it, pointing out “significant differences:” “Obama uses a Blackberry, but Arseny prefers an iPhone.”

This strategy paid off in the first half of 2009, as Yatsenyuk’s ratings rose meteorically to around 13 percent, fractionally behind prime minister Tymoshenko. Yatsenyuk’s advance, however, was at the expense of democratic President Viktor Yushchenko, as he was winning over the latter’s residual pro-Orange constituency. As a result, Yushchenko’s own rating fell below the margin of error, with Gallup declaring him to be the most unpopular president in the history of polling. Conversely, as Yushchenko’s rating tended to zero, Yatsenyuk hit his ceiling of around 13 percent, which was still less than Tymoshenko at around 15%, and way behind Yanukovych’s mid 20s.

Realizing that the post-Orange constituency was too small to get in the second round of the elections, let alone win it, Yatsenyuk was forced to change his tune and follow in Tymoshenko’s footsteps. The latter, formerly an iconic figure of the Orange Revolution, had already jettisoned her Orange ballast in 2008. In the course of months in 2008, she spectacularly morphed from an anti-Russian, pro-NATO firebrand into a moderately pro-Russian politician. By September she was  under investigation by the Ukrainian Security Service for acting against Ukraine’s national interest for the benefit of Russia. Not least, she refused to support Georgia in the August 2008 war with Russia over South Ossetia.

To compete with Tymoshenko, Yatsenyuk then likewise discarded the “Ukraine’s Obama” mask. Instead, he donned what Andrew Wilson of the European Council of Foreign Relations called the image of “Putin-lite,” to capitalize on the Russian prime minister’s sky-high approval ratings in Ukraine. Instead of railing Orange-style against juntas and authoritarianism, Yatsenyuk switched to declaring war on corruption, using hard-man talk of filling the jails and cutting off hands. He also showed himself happy to speak Russian in public, supported the Russian stance over gas transport, and praised Putin as “having saved his country.” “Putin-lite” is also reminiscent of Dmitry Medvedev, who enjoys a high level of approval in Ukraine, has declared war on corruption, is young and has a background in law, like Yatsenyuk.

But Yatsenyuk is not the only one trying to tap into the buzz surrounding Putin and Medvedev. The polls’ frontrunner, Viktor Yanukovych, has the best pro-Russian credentials, although he is hardly a Putinesque figure. Yulia Tymoshenko can match Putin for charisma, and has been hard at it, with Putin/Medvedev-like phrases, such as “dictatorship of the law” and “legal nihilism” tripping off her tongue, along with Putin-style promises to restore Ukraine’s Soviet-era high-tech aerospace and ship-building sectors. Tymoshenko’s enthusiasm for Putin apparently even caused the latter to postpone a meeting with her in October, lest it seem he was favouring her in the elections.

This means that switching to “Ukraine’s Medvedev” has not brought Yatsenyuk the anticipated breakthrough in the polls. The latest ratings have seen him fall back to around ten percent, and his chances of getting into the second round of elections ahead of Tymoshenko are fading. Meanwhile, Yanukovych is for the first time looking likely to beat Tymoshenko in a second round run-off.

But the remarkable result of Yatsenyuk’s switch to “Putin-lite” is that the leading three candidates in Ukraine’s crucial presidential elections are now all actively campaigning on their lack of hostility toward Russia, and their current order in the ratings corresponds to the respective plausibility of this platform

Ukraine’s new foreign minister Poroshenko “will not oversee” EU free trade negotiations

Graham Stack, Berlin / Kyiv

According to Ukraine’s ambassador to Germany, Natalia Zarudna, new foreign minister Petro Poroshenko will not oversee trade negotiations with the EU, despite being tasked by President Viktor Yushchenko with achieving an associate membership agreement with the EU as soon as possible.

“Petro Poroshenko will not oversee negotiations on the free trade part of the Ukraine-EU associate membership agreement,” Zarudna told this correspondent in an interview. “This will be done separately by ministry trade experts, with Poroshenko overseeing only the political component of the agreement.”

Zarudna says this rules out any conflict of interest with Poroshenko’s business dealings: Poroshenko is not only a close associate of President Viktor Yushchenko and political high-flyer. He is also a top businessman, and his assets are held to include Ukraine’s second largest car producer Bohdan Corporation, although he does not officially acknowledge ownership of the car maker.

“Poroshenko may be a shareholder in Bohdan, but he is not involved in operational control of the company, since this would contradict Ukrainian legislation,” explains Zarudna.

The issue is pertinent, because Bohdan Corporation is one of the principle victims of Ukraine’s economic crisis, with its revenues down 87.4% in the first half of 2009, and losses totaling $27.1m.  Analysts are questioning whether the company can continue servicing its debt, after having come close to default in August.

In an interview with this correspondent earlier in the year, Bohdan Corporation CEO Oleg Svinarchuk demanded a government U-turn on trade policy, with a shift from free trade to protectionist tariffs to save Ukraine’s car industry. Svinarchuk also bitterly criticized the terms of Ukraine’s accession to the World Trade Organisation.

This indicates Poroshenko’s ties to Bohdan Corporation could clash with his duties as foreign minister – in particular concerning trade negotiations, where higher import tariffs on cars would directly benefit Bohdan Corporation.

There are already signs Poroshenko’s appointment will benefit the company. Immediately following his appointment, the government announced a raft of measures to help Poroshenko’s automotive holdings. Prime Minister Yulia Tymoshenko called Bohdan “a strategic partner in bus production,” and announced a government order for 750 school buses worth UAH 150m, and orders for Euro 2012. There is also talk of a government credit line to modernize bus production facilities, according to sources at Bohdan.

Tymoshenko’s generosity contrasts with previous animosity between herself and Poroshenko, whom she openly accused of corruption in 2005, days before Yushchenko ended her first spell as prime minister. However, considering that votes from Tymoshenko’s party Bloc Yulia Tymoshenko were crucial for Poroshenko’s confirmation by Ukraine’s parliament, the Rada, it is likely that some wider deal is in place, believes Yelena Biberman, Ukraine foreign policy expert at Brown University.

“It could involve Poroshenko buying into Tymoshenko’s more pro-Russian foreign policy line,” says Biberman. Biberman points out that among Poroshenko’s first actions as foreign minister was to reject US radars in Ukraine as part of the US anti-missile defence system. Poroshenko said such plans, aired by U.S. Deputy Defense Secretary Alexander Vershbow, would “contradict the constitution.”

According to Zarudna, however, Poroshenko’s appointment does not signify any shift in Ukraine’s foreign pro-NATO policy. “But because of the crisis, foreign policy may be temporarily more oriented to trade and aid,” she concedes.

Meanwhile, the foreign ministry itself is pinning its hopes on Poroshenko to secure more budget funds. “The foreign ministry suffered disproportionately from budget cuts in 2008, compared to ministries more loyal to the prime minister,” complains Zarudna. “We think that Poroshenko will use his ‘special diplomatic skills’ to get more funds for the ministry.”

According to Zarudna, Ukraine’s foreign representations have had funding cut to 40% of 2008, with budget funding down 20% and hryvnia devaluation doing the rest. “We are being inventive and attracting sponsors to help with our functions,” Zarudna says.

Will Putin sign up China?

Graham Stack for Russia Profile (www.russiaprofile.org)

 

Russian Prime Minister Vladimir Putin’s last visit to China, when he attended the opening of the Beijing Olympics in August of 2008, went badly wrong when Georgia opportunistically attacked South Ossetia, and the resulting war damaged relations between Russia and the West. Putin could now continue Russia’s eastward shift on his upcoming visit to China, by signing long-term gas supply agreements between Gazprom and the China National Petroleum Corporation.

Speculation is mounting that a long-term gas supply agreement might finally be signed between the Russian gas giant Gazprom and China National Petroleum Corporation (CNPC). The plan, outlined in a number of memorandums signed by the Russian and Chinese sides, but since bogged down in negotiations over price, envisages new gas pipelines from Western and Eastern Siberia to China and the development of virgin East Siberian gas fields.

As president, Putin was closely involved in the negotiation process during his previous visits to China, and may feel that it’s now time to go the final mile. The last Memorandum of Understanding on the issue was signed in 2006: it specifies a pipeline running from West Siberia with a 30 billion cubic meters capacity, and another from East Siberia with a capacity of 38 billion cubic meters, with work due to start in 2011. That date is now clearly unrealistic, but still, for most analysts, it is just a question of time.

“We have long taken for granted that Gazprom will sell significant amounts of gas to China,” said Alfa Bank energy analyst and Head of Research Ron Smith. “The resource base of East Siberia and Russia’s Far East is very large, including two untapped world-class gas fields in Chayanda and Kovykta that are very well situated for pipeline exports to China, not to mention the Sakhalin reserves that are already being tapped.” So analysts perceive Putin’s hastily arranged visit to China as indicative of the fact that a long-term deal has been finalized for signing.

Negotiations to date have been shrouded in secrecy, but the main problem holding up implementation of the project has been arguing over the price mechanism. Russia is rooting for the same price mechanism applied to Gazprom’s European Union customers. China has pushed for a discount price previously paid by former Soviet countries, such as Ukraine. “Since then, however, the discounted deal with Ukraine ended in a very high-profile manner, and Russia is also paying full price for gas purchases from Central Asia,” said Chris Weafer, an analyst at UralSib brokerage. “Hence the rationale for China’s discounted price demand is eliminated.”

But the Chinese may instead want a gas price linked to coal prices and not to oil prices, as is the case for European customers. Since there is no global market price for gas, gas prices are linked to the cost of the fuel gas substitutes for, which in Europe is crude oil and heating oil. In China, however, gas will substitute mainly coal used in power generation. “We are not sure whether the Chinese prefer a coal-linked price, as that fuel generates the bulk of the country’s power, or whether it is a matter of a simpler argument about the absolute level of prices,” said Smith.

“Linking the price of gas to the one of oil is an anachronism,” argued Mikhail Korchemkin of East European Gas Analysis. “There is an oversupply of inexpensive gas in the world, and the market prices of oil and of gas often move in opposite directions.”

Coal prices are currently very low following the economic crash, while oil prices have soared back up to 2007 levels, making it harder to reach a compromise. However, according to a source quoted by the Russian business daily RBK, in the absence of final agreement on a long-term price mechanism, Gazprom and CPNC could still provisionally agree on fixed prices for short-term delivery volumes.

But the Chinese have some trumps that could induce Gazprom to bring the prices down from the European levels. Firstly, China is flirting not only with Russia, but also with Central Asian countries. The 7,000-kilometer-long Central Asia-China pipeline is set to take Central Asian gas to China, particularly from Turkmenistan, which has contracted to supply 40 billion cubic meters of gas annually for 30 years. Korchemkin believes that Turkmenistan probably agreed to prices around 50 percent lower than Gazprom’s European price. “Moscow will be keen not to lose the opportunity to be a direct gas supplier to China, especially with a lot more uncertainty over future gas export volumes to Europe,” said Weafer.

Secondly and most importantly, with the economic crisis having raised the cost of borrowing even for Russian giants such as Gazprom, Chinese state companies can offer cheap credits unavailable elsewhere. The summer has seen a slew of Chinese credits granted to Russian companies in telecommunications, cement and energy. According to Kingsmill Bond of Troika Dialog brokerage, “China provides cheap financing and equipment for the development of Russian infrastructure. As the head of the Russian cement association poignantly said, ‘we can’t borrow from Russian banks at less than 20 percent, but from China we can borrow at under ten percent.’”

In June of 2009, China provided Turkmenistan with a $4 billion loan to develop its massive South Yolotan field. But the mother of all such deals was signed between Russia and China in February of 2009, with CNPC and the China Development Bank offering a $25 billion loan to Russian oil pipeline operator Transneft and state-owned oil company Rosneft, as part of an agreement for Russia to supply 15 million tons of oil annually for 20 years. The credit, at an unbeatable estimated interest rate of 5.7 percent, will finance oilfield development and pipeline construction from East Siberia to China.

“If that deal were to be replicated in the gas sector, we could see a timeline agreed not only for the pipelines, but also for the development of the giant Kovykta gas deposit, as that is the logical source of gas sales to China,” said Weafer.