Waiting on March 26

There aren't many new proposals out there, what with the March election coming up and no politician wanting to get involved in anything. So it looks like the continuing rumble of the gas crisis is again the focus of attention. However, to be perfectly honest I've run out of gas-related entry titles that don't explicitly refer to flatulence, so I think going to stick with this more subdued title.

There's a major bright spot in this lack of non-gassified news, though. What we aren't hearing about are accusations of media crackdowns and use of administrative resources that came up so often in the last election. This is true even from Regions of Ukraine. All I could find was a tiny bit of whining about decal removal from Pora which is directed at Kyiv Mayor Oleksandr Omelchenko not the Yushchenko government, and the usual rubbish from Ne Tak.

This is a phenomenal improvement on 2004. All the folks who took part in the ORev protests can take heart: whatever problems there have been in Ukraine since January 2006, their efforts won them not only one fair election, but if things continue on like this, a second one as well. 

Can we try that whole "gas agreement" thing one more time?

So now, according to Yekhanurov, the Ukrainian government is “willing to change the gas intermediary if Russia wants to,” picking up on recent Putin comments about RosUkrEnergo not being totally transparent. Ukrainian Radio went ahead and said they were already in negotiations, despite the fact that Yekhanurov hadn't even sent a letter to Fradkov about the idea yet. Nice optimism.

Along with Yekhanurov's wishful thinking, Yushchenko is backpedaling on his support for the gas agreement with Russia, but trying to spin it as merely a natural continuation of his commitment to transparency. His change of heart is by no means too early. Finance Minister Pynzenyk says that at the current price, 2006 budget targets are only barely reachable. Fuel and Energy Minister Plachkov admits that unknown Ukrainian businesspeople own stakes in RosUkrEnergo.

Worst of all, according to the Eurasia Daily Report, the additional shadowy intermediary, UkrGasEnergo, between gas and Ukrainian consumers is likely meant to help provide Russia with a wedge for prying Ukrainian transportation assets away from the nation. The price of gas is deeply volatile, and dependent on a Turkmenistan which has stated its interest in raising prices, but at the current price pegs Naftogaz is primed to quickly fall deep into debt, at which time Ukrainian ownership of its own transportation infrastructure will be funneled through the two layers of intermediaries to Russia.

Kommersant thinks the price pegs will hurt Russia, because the country won't be able to pass along the price hikes from Turkmenistan, but their reasoning seems doubtful, since it relies on the effectiveness of price controls and seems at variance with everything else I'm reading. (Execrable formatting in the article, at least if you’re using Firefox, so if you want to read it, I suggest cutting and pasting to a word file)

The G8 ministers (aside from Russia) took one look at this mess and said: give us market mechanisms and diversified supply.

Half-Empty and Half-Full Economists  

Economic reports don't get much more diametrically opposed than this: 

Anatoliy Halchynskiy rips in to the Yushchenko government's long-term economic strategy in this article in Zerkalo Nedeli. To him, the basic problems are that the Yushchenko government did not use its phenomenal early popularity to push through necessary reforms, and has now "forgotten what the word means". Furthermore, since reforms haven't provided the cash, the massive social spending increases of last spring are now unsupported.

On the other end, SigmaBleyzer begins its January 2006 report, which assesses much of 2005, with the words, "Despite early concerns about Ukraine's economic situation in 2005, the country ended the year with a relatively good performance overall."

They point out that while budget expenditures went way up in 2005, the elimination of a number of privileges and exemptions allowed the government to collect enough new tax revenues to pay for the spending, subsidized by the massive addition of Kryvorizhstal privatization money. (whether or not more of that money should have been put into capital improvement, like desperately needed reductions in energy consumption by major industry, is not covered). They say that if the $95 figure holds through the next year or so, (a big if, as we know), then Ukraine will be challenged, and lose perhaps 2% GDP growth, but this is acceptable and much better than some of the scare figures that came up at the end of December.

Not as bad as it could have been, is their final estimation.

One last little bit of privatization news thrown in here: Parliament imposed a moratorium on the sale of Nikopol Ferro-alloy Plant, for the same old "strategic importance" reasons that held up the sale of Krivoryzhstal.

Sharpening Teeth for the Campaign

Yushchenko gave his annual address to the Rada. Zerkalo Nedeli responded with little enthusiasm. A primary example:

The major emphasis in the presidential speech was laid on the constitutional reform. In fact the constitutional reform was referred to as a main state concern. Everyone who is aware of the nature of Yushchenko’s claims to the political reform can draw the following conclusion: the fight for restitution of authority will be his priority for this year. Such a fight, as a rule, leaves too little time and strength for the implementation of the other tasks [many of which ZN enumerates in the article].

And while Yushchenko was giving his speech, his party was accusing Tymoshenko of carrying out smear campaign. They were also accusing Regions of Ukraine deputies of having no political platform, and, by the way, of being traitors. (the latter accusation is a commentary on their behavior in the gas, milk, and meat disputes with Russia)

Yanukovych came back blaming Yushchenko and his party for Ukraine’s economic woes.

As for the neighbors, Yushchenko again gave lip service to the importance of relations with Russia. Yanukovych said the same thing, but also talked about continuing to work on the Action Plan signed with the EU. The latter positioning beats his stance in 2004, when Yanukovych was notoriously quiet about EU entry in fall 2004.

In contrast, Security Council Chief Anatoliy Kinakh said that since market relations seems to be the order of the day with Russia now, maybe that means Ukraine should get market rate rents from Russia for the Black Sea fleet. After all, Russia unilaterally scrapped a gas deal good through 2009 based on market principles, why not scrap the Black Sea Fleet agreement, good through 2017, on those same principles?