Daggers Drawn

Economic News

22 Jul 2010
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If Ukraine's biggest casualty in 2005 was idealism over the orange revolution, it looks now as if the biggest victim in 2006 will be political stability. Despite reaching a deal in a high-profile gas war with Russia, last week the country was thrust into limbo after the parliament sacked the government.

While President Yushchenko was in the Kazakh capital last Tuesday, some 250 out of 450 Ukrainian lawmakers passed a bill of no confidence in the government, accusing it of accepting a crippling twofold increase in gas prices.

Contrary to most international media, Ukrainian deputies did not recognise the break-through gas deal with Russia as a victory for both sides.

Several parliamentarians questioned the sustainability of the new arrangement, which promised the import of a blend of Russian and Central Asian gas to Ukraine at $95 per 1000 cu metres. This was far below the $230 initially demanded by the Russian gas monopoly, Gazprom.

Under the new deal, Ukraine will import all of its gas via a Swiss-registered trading company Rosukrenergo - part owned by Gazprom and several unnamed Ukrainian businessmen. All transactions will be cash-based and Ukraine will receive almost 50% more for transporting gas to Europe.

The compromise with Russia was reached on January 4. This was after a prolonged game of brinkmanship between the two countries, and only after Gazprom had executed its threat to withholding the supply of gas meant for Ukraine if no deal had been reached by January 1.

Fortunately, the mid-winter gas crisis was short-lived, with Ukraine able to leverage its position as a transit country for some 80% of Russian gas supplied to Europe.

As supplies to most Gazprom customers in Europe dropped because of reduced volumes in Ukraine's gas pipelines, political pressure in Europe - coupled with international media condemnation of Russia's use of energy as a geopolitical tool - helped to break the deadlock.

Nevertheless, despite the moral high ground gained during the standoff with Russia and, by all accounts, a reasonable compromise deal, the Ukrainian parliament remained immune to good news.

Parliamentary deputies, even those formerly related to Yushchenko's Orange camp, accused the government of betraying Ukraine's national interest.

Several deputies argued in the parliament that the twofold increase will cripple the country's gas-intensive industries, which consume almost as much gas as Germany.

Other deputies who spoke during the no-confidence vote session on January 10 expressed their concern over the fact that the Rosukrenergo trading company will now be largely responsible for Ukraine's energy security.

Not helping matters was the fact that despite some pressure from the deputies, Prime Minister Yuri Yekhanurov was unable to name the Ukrainian co-owners of the country's new gas-import monopoly. Some media sources, including the Ukrainian Security Services, have made allegations in the past that Rosukrenergo may be linked to international organised crime figures.

According to many analysts, however, the whole gas-price dispute was in fact just a red herring, and the real motivation behind the no-confidence vote was to inflict a fresh wound upon a much-weakened President Yushchenko ahead of parliamentary elections in March.

The so-called "anti-presidential" bloc formed during the no confidence vote included the party of Yushchenko's former ally - the ousted Prime Minister Yulya Tymoshenko - as well as traditional rivals such as the Party of the Regions and the Communists.

A surprise turn around, analysts say, came from Parliamentary Speaker Volodymyr Lytvyn, who was expected to back President Yushchenko, but instead went against the government.

Many Kiev-watchers argue that all the political parties are seeking to reduce Yushchenko's clout in parliament, in order to gain maximum negotiating power in forming the new government after the elections take place.

At the same time, the constitutional reforms that came into force on January 1 have in theory transformed Ukraine into a parliamentary democracy, triggering a dramatic shift in the balance of power between the president and the parliament.

According to changes adopted at the height of the presidential election crisis in 2004, it will be the parliament and not the president who will appoint the next prime minister after the March elections.

Meanwhile, the country hangs in limbo following the parliamentary vote of no confidence in the government. Both the president and the sacked prime minister, Yuri Yekhanurov called the vote "unconstitutional, destabilising and illogical".

In the absence of a functioning supreme court, however, there is no one to adjudicate the legality of parliament's decision.

Yet by and large, analysts say, the legal side of things is actually irrelevant. Parliament achieved what it set out to do - dealing Yushchenko a severe pre-election blow from which he will struggle to recover.

With less than 80 days left until the crucial parliamentary elections, the government led by Yekhanurov is expected to continue in its current caretaker capacity.

But the political stability in the country is not likely to improve in the near future, with a rift between the various camps and institutions likely to deepen.

Now that the daggers have been drawn between the president and the parliament, the battle is expected to become even fiercer. With so many competing interests and personalities entering the fray, the situation is likely to remain fluid and unpredictable until a new power balance is finally struck.

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