Wednesday, January 11, 2006

Contracts, agreements, and cynical deals

Scott's last posting highlights what all Ukrainian and Russian politicians know, but nobody has said, i.e. that the contracts between Naftogaz Ukrainy and Gazprom/Kremlin [GazKrem?] are not contracts as normally understood at all, because they are not enforceable by any higher body, rather they are agreements between two antagonistic parties that have leverage over one another. The 4th January document is entitled ‘Soglasheniye’ – Agreement.

Russia has its foot on pipes providing Ukraine with gas, but Ukraine has its foot on Russia's pipes to Europe. Furthermore Ukraine has faucets which it can screw into the latter pipes when required; but Russia has its other foot on pipes from Turkmenistan supplying a major portion of Ukraine's gas. This degree of mutual capacity for blackmail means that any dispute over prices will inevitably be resolved quickly.

The events of the first days of this year were ritualistic and calculated posturing by the Kremlin with the purpose of showing how mean and tough they can be. Ukraine acted completely predictably, turned off valves feeding gas westward, then, again predictably, shock and anxiety in the world media, and finally the whole matter resolved indecently quickly, ending in a bout of mutual backslapping. Most reasonably well-informed Ukrainians realize the 'contract' is just the first stage of inevitable stepped gas price hikes, although Ukraine's 'foot on the pipe" will always provide a healthy discount. The Kremlin will not stop trying to get its hands on the pipes, by fair means of foul, in the future. The two protagonists know one another so well, like two soccer teams that play each other several times a season, so these games will usually end in a draw. But for end-users in Europe, this is a wake-up call - they now know who they are dealing with. The EU should close ranks and develop a common energy strategy, but they won’t of course because it is such an unwieldy self-serving structure.

Putin must have been certain of what Ukraine's reaction, and what the subsequent knock-on effects in Europe would be to his rather contemptuous actions. He may well have calculated that Ukraine would receive more of the blame, but overall I get the feeling that despite bad press in the west, he will be reasonably satisfied with the last few days work, and not too worried about riling the Europeans. He has made his mark. Respect, that's the important thing.

It was the fact that the Ukrainian government did not 'come clean' with the electorate immediately the gas agreement was made that has caused indignation amongst Ukrainians who were misled into believing that prices would be stable for five years. But even more annoying was the realisation that all gas supplies will be exclusively handled by a shady middleman, 'RosUkrEnego'. Ukraine is big enough to deal with the organ-grinder, not a monkey with a can in its hand.

In a country as corrupt as Ukraine, every citizen understands perfectly well how this works. The notion that if you are in a position to take bribes you have to milk the situation for all its worth, is deeply engrained, and if you don't, then you are a fool. "So? Everybody else does it," and "It's a sin not to sin," are heard as justification, even though people are aware corruption is the biggest evil which has to be dealt with.

It was hoped that after the Orange Revolution the government would start tackling this, but the gas deal has shown everyone how breathtakingly cynical the Ukrainian Government and GazKrem can be. Sure, there is a political angle to yesterday's turmoil in the VR - everyone is out to improve their chances in the March VR elections, but the breakdown of VR deputies voting for Yekhanurov's resignation is revealing: e.g. 'Our Ukraine' faction - 19 against, 21 abstentions. Kinakh's party [a member of Ukr Gov] 1 against, 13 abstentions, and so on, altogether 250 for the motion, over 100 abstentions, and only 50 against the motion to dump him. An astonishing result.

Yekhanurov's dismissive statements that it was GazKrem who wanted the middlemen are simply not believed. As you say Scott, 'you’ve got to talk to the people to tell them what you're doing and why. A lot of what has happened could have been eased in a bit more if they had communicated what was going on'. Yekhanurov is now paying the price for trying to 'pull a fast one' on the electorate. Shady middlemen skimming off billions are no longer acceptable.

Ps I read that Tymoshenko is suggesting that Yushchenko introduces Presidential rule until the elections in March [as is Nasha Ukraina]. She wants to be show her intention was ‘only to wound, but not kill'. Maybe she's used one club too much..

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