Hello to everyone who's still with us out there reading Orange Ukraine, at those, increasingly rare, times that I have been updating the site. It is with quite a bit of sadness that I announce to you that Orange Ukraine will be going static for the foreseeable future.

The gist of the matter is that since Lesya and I have returned to the US to work on the immigration process and will be here through 2009, I won't be able to give you the on-the-spot items I'd been able to up until May. In addition, I have needed to emphasize my editing work, to the detriment of my ability to pass along pertinent information about Ukraine (If you are curious, my site for editing and fiction writing is here).

What you are likely to see in the next few months, though, is more maintenance and expansion of the brand new Philanthropic Ideas page, and also the Book Recommendations page. What I will not be doing much of is the core blogging.

My apologies to all you loyal readers that I won't be able to provide you with the same updates and roundups, editorials and pointers to other news, as I have in the past. I warmly encourage you to look to some of the other great Ukraine bloggers I've linked to: Foreign Notes, Ukrainiana, Neeka's Backlog...

All the best,

Dan

At present the page is divided into organizations for which I have personal recommendations (either mine, or one's that have been made to me), and ones for which I do not yet have such recommendations. So, if you know of a name, but don't know if it's a good cause, or you know of an organization you would personally vouch for, or if you would like to recommend one of the organizations I don't have a recommendation for currently, please make your recommendation in the comments section of this entry.

Thank you for any ideas you have to share, and I hope you find the new page useful. 

Some progress on oil and gas agreements was expected from the talks in Kyiv with Azerbaijani officials last week. The most promising progress would have been on an end-around oil deal to circumvent Russia's near monopoly on fuel transport out of Central Asia. The plan calls for oil to be transported by boat across the Black Sea to Odesa, and then up the Odesa Brody pipeline (using an as-yet-nonexistent extension into Poland) and on to Europe. Actual gains appear to be modest, with Yushchenko saying the usual nice things about how relations are so nice now and signing the usual meaningless cooperation agreements. The not very big news on energy concerns was talk about jointly creating a new refining plant (without commitment).

It may mean progress was made behind the scenes that the next day (Friday, May 23), Yushchenko called Russian fuel transport tactics "blackmail" while meeting with President Mikheil Saakashvili of Georgia. Admittedly the Georgian president is a very sympathetic audience for this kind of statement, but Yushchenko has always been much more circumspect in his criticism of Russia than Tymoshenko, especially about energy issues. If he feels confident enough to make such statements now, it may mean that the Azerbaijanis have given him good reason for it.

This all makes it difficult to determine if Yushchenko's recent decree to pump oil from Odesa to Brody (currently it's being used by Russia in the opposite direction, because Ukraine has had no oil to fill it with in the forward direction).  It could be an indication that he expects oil soon, or could be one of his many "say nice things" decrees, which lacks a proper basis and is meant more like a marketing statement than an expression of political will.

Tymoshenko vs. Vanco

One battle that may have repercussions is Tymoshenko's fight with Vanco over Black Sea shelf drilling rights the company bought in 2005. This has been the topic she's criticized Yushchenko the most directly and strongly about, that I've seen. And, as EDM describes, she has recently engineered to have the company's license revoked.

Tymoshenko seems to have a lot less justification for this overturn than she and Yushchenko had regarding the Kryvoryzhstal privatization of 2004. The Kryvoryzhstal privatization had been for far less than the amount offered by the highest bidder, and hinged on a requirement in the terms of the tender that eliminated all potential buyers except the winning bidder (Akhmetov and Pinchuk). It only went through because it was carried through by Kuchma with help from SPDU(o), his main supporting party.

In contrast, the Vanco deal was not won by such large margins. It took place in October 2005, after Tymoshenko's government was fired by Yushchenko, and NU had gotten its own Prime Minister in place (Yekhanurov) at the cost of allying themselves with Party of Regions to do so. The part of the deal that is Tymshenko's focus is the product sharing agreement that was later signed in 2007, when Yanukovych was Prime Minister. This was signed with a Vanco subsidiary that has partners (only revealed after Tymshenko revoked its license) linked both to Akhmetov (again) and to Russia. She claims this is "selling out" Ukraine's interests.

It is true that Yanukovych's action, selling to partnership of which his own party is a major stakeholder, is highly suspicious and shady, Tymoshenko may not win this one. The business community opinion likely matches that of Forbes: US Driller Falls Victim To Ukraine Political Rivalry. Unlike Akhmetov's threats to go to European courts over Kryvoryzhstal, Vanco's statements that it will seek arbitration or go to court are not idle. She can try to blithely dismiss them, but they remain a real possibility---perhaps an educational one for a woman as gung-ho as Tymoshenko.

The legality of Tymoshenko's move may even be moot: The Prosecutor General's Office has just overturned  the revocation of Vanco's license.  

Inflation and a Strengthening Currency?

A word about inflation before closing: it continue, largely unabated. A group of officials from the World Bank and IMF issued a warning two weeks ago. Last week Yushchenko recently met with the National Bank governor, Volodymyr Stelmakh, to discuss the issue. And, counterintuitively, the inflation is accompanied by a strengthening of the hryvnia against the dollar. The hryvnia has been within a (National Bank-defined) band of about 5 to 5.1 to the dollar since 2005, but this spring broke through and has dropped to about 4.5 to the dollar, so far. Experts also expect the trend to continue.

How exactly Ukraine can be experiencing such strong inflation (30% yoy to April) and still be appreciating against the dollar is a mystery to me. Sources and acquaintances have blamed any number of factors:

Collapse of the Housing Bubble in the US: It may have collapsed, but certainly not enough to explain away this discrepancy.

Government Machinations: According to this argument, in an effort to clamp down on the semi-legal gray economy (which avoid taxes by paying unreported amounts under the table, usually in dollars), and make inflation seem less onerous by comparison (something Tymoshenko is obviously keen to do), the government is somehow engineering the strengthening of the hryvnia. This argument seems to founder when one considers how many analysts and organizations believe the strengthening of the hrynia is inevitable: a market-driven, not government-driven change.

Opportunist Exchange Dealers: This theory has it that when the hryvnia first broke $5, people on the streets panicked, and exchange dealers have simply been taking advantage of their fear. This also seems suspect, in that many of the exchanges have had 4.6-4.7 rates off and on since mid-April. In any case, the foreign exchange dealers almost always get the flack for "opportunism" since they're the last ones holding the hot potatoes. The situation is analogous to the way grain producers get tied up in export restrictions amidst accusations of "speculation" when grain prices are high.

At the end of the day, I haven't been able to understand how a currency could be inflating wildly and still be increasing in strength against foreign exchange. If any of you have an explanation, I'd love to hear it. 

Ukraine/Ani Lorak continued to the final round of Eurovision. "we like to think Ukraine has the best shot to take the “Eurovision” crown with Ani Lorak’s catchy pop song borne from club music roots (”Shady Lady”) ." (LA Times)

While there aren't many things that could have made relations between Yushchenko and Tymoshenko worse that I mentioned in my last entry on the subject, the two of them seem to have found ways to do so. Ostensibly for stymieing Tymoshenko's anti-inflation proposals, Bloc Yulia Tymoshenko blocked Yushchenko from giving his annual address on May 13. The effort was also probably in retaliation for Yushchenko's own blocking of Tymoshenko's privatization plan (by ignoring a court ruling in order to keep his anti-privatization State Property Fund Chairwoman Valentyna Semenyuk in place). Rather unconvincingly, even as she was stopping Yushchenko from making he speech, she was wording her description of the action as if it were targeted as some greater, poorly defined "force" opposing her, rather than at the President personally.

This seems like a strange reticence from her, since she has now made other accusations directly against the President, in regards to the sale of Black Sea shelf rights (she accuses him selling out Ukrainian interests, after having been tricked by corrupt businesspeople).

Blocking the podium may have been too extreme an action. In the first place, Tymoshenko should remember that the Party of Regions may have lost as much as a 10% support in the polls for blocking the actions of the Parliament in March. In the second, she may have noticed that the People's Self-Defense party, the NS in NUNS, have begun calling for the resignation of the head of Yushchenko's secretariat, Viktor Baloha, the presumed instigator of Yushchenko's hard anti-Tymoshenko stance. If Yushchenko's closest allies are calling for an end to his attacks on Tymoshenko, she might have been able to wait, instead of forcing things now.

I would say that this action has brought the government to a standstill, but it was essentially immobile before May 13 as well. It makes for very little political news. The Ukrainian Journal seems to blame Tymoshenko. Taras Kuzio blames Yushchenko, and I've been inclined to agree since he ditched Tymoshenko's government for Yanukovych in 2006 2005 [thanks to the commenter who caught this error of mine!]. But at the end of the day, apportioning blame correctly may be as futile as apportioning blame between a couple after a divorce. 

Now might be a good time to move on from the frustrating to the merely ridiculous. 

Candidates for "Most Senseless Statment of the Week"

1. Yushchenko's assurance that Ukraine will be allowed into NATO at the December 2008 meeting. There are a lot of issues of importance he could be talking about or, even better, acting on, before giving his assurance. One big one would be to finally launch the public information campaign on the subject the government has been promising for years.
   
2. BYuT this week offered Klitchko (currently far ahead of their candidate, Turchynov, in the polls) the position of Kyiv Council Secretary if he withdraws his candidacy and Turchynov is elected. They're asking him to give up a strong candidacy in order to take inferior position beneath a weak opponent in the unlikely event that that opponent can overcome a 20% popularity gap in the next week... they must really think as little of Klitchko's intelligence as Turchynov's banners imply they do.
3. In Sevastopol recenlty, Moscow Mayor Yuriy Luzhkov again made a speech that the city, as well as the whole of Crimea, has never been legally part of Ukraine. National Security and Defense Council Secretary Raisa Bohatyrova (herself a former member of the generally pro-Russian Party of Regions) responded with measured irritation, and the SBU has barred Luzhkov from entering the country again. This level of restraint is probably for the best. Getting irate at Russian impudence would likely just give more of an appearance of legitimacy to this balderdash.
   

Take your pick: which of these do you think is most senseless, which second, which third?

Not a very good week for political news. As a consolation, look for some (long overdue) additions to the Ukrainian book library within the next week. If you've got book recommendations, please include them in the comments.

 "The Party of Regions will deny support to the WTO bills submitted by the BYUT faction without elaboration and implementation or appropriate measures to adapt Ukraine's agro-industrial complex to WTO conditions, the party MP Viktor Slauta stressed." (NRCU)

With Parliament not functioning, will Ukraine be able to enter into WTO as planned on May 16th? Have all the bills been voted on and passed in Parliament?

"Fitch Ratings revised Ukraine`s outlook to stable from positive, saying the country`s recent strong macroeconomic performance faces growing risks from accelerating inflation and a rising current account deficit, according to Thompson Financial. " (UNIAN)

"Ukraine drifted closer to the bottom of a global competitiveness index for 55 countries this year. According to international mass media, Ukraine`s rating slipped to 54 from 46 last year - beating just Venezuela - according to the index produced by the Swiss-based International Institute for Management Development (IMD)." (UNIAN)

Since privatization is a big topic again with the fight between Yushchenko and Tymoshenko, I thought it would be worth looking back to see what's going on with Kryvoryzhstal, now Mittal Steel Kryvy Rih.

For background, this state asset was first privatized in an untransparent bid by Akhmetov and Pinchuk in Fall 2004 for $800mn, then reprivatized in November of 2005 in a fair and open bid that provided a massive amount more money for government coffers ($4.8bn: more than the previous 10 years of investment). It's been quite a while since I've seen big news about the plant, but if we're to decide what we think of Tymoshenko's new privatization proposals, knowing the current status of this key privatization will be important.

2006-2007 

In the spring of 2006 ran into troubles (some big troubles) with State Property Fund Chairwoman Valentyna Semenyuk. Taking into account that she fought against the privatization to Mittal Steel from the beginning (preferring, implicitly, the much less economically beneficial, nontransparent, and suspicious privatization to Akhmetov and Pinchuk), this was not an unexpected attack. However, her accusation that Mittal wasn't keeping the promises regarding wages that were part of the privatization deal did not seem to have been refuted by the company in the Ukrainiska Pravda article above, thought the company resolved to do better. Two days later, according to this article, the company raised the wages it pays its employees to the highest in the entire metallurgic sector.

Things also seem to have improved in fall of 2006, when Mittal Steel got a loan from the European Bank for Reconstruction and Development for $500mn to modernize the facilities. The company claimed to have already invested a further $85mn of its own money in the same effort. This article in New Europe states that the company managed to increase sales by 16% as the result of its efforst in 2006.

In 2007, the company bought a new coke battery, increased production in the first quarter, and submitted plans for further investment and growth, especially growth in sales in the Ukrainian market. A January 2008 report states that the company lifted output for 2007 year by 7%. 

Finally, the company is cited in this report on the Ukrainian steel market as the major factor in increasing competition in the Ukrainian steel production, and thus improving the market overall.

2008 

For it in 2008 is this conflict, in which it seems the company has defaulted on one promise to improve the situation for workers, as well as a number of lesser articles in the privatization agreement of 2005 (again coming into conflict with Semenyuk).

I originally looked back into this issue, because a friend of mine who knows people working in or around Mittal Steel Kryvy Rih told me that his acquantences were complaining that the new company was worse than the old one.

Does anyone else have more information on this? The track record in the articles of continued investment and growth looks good from a business standpoint. However, is this be happening without greatly improving the situation for workers? What's happened to the high wages they were reported to have been earning in 2006?

Thanks in advance for any article links you might have! 

It used to be that Yushchenko would send uncountable directives over to Tymoshenko and she would blithely ignore most of them and work towards her own purposes while saying she "admires" the president. He would veto what she did, issue a new directive, and the process would start again.

Recently, things have degenerated.

The major sticking point is Tymoshenko's extensive privatization plan, the proceeds from which she intends to use mostly for government remunerations (or handouts) to holders of Soviet bank accounts made worthless in the aftermath of the fall of the Soviet Union. Yushchenko considers this an irresponsible use of the money, and accuses her of privatizing into the hands of her allies--the claim made by pretty much every party against a privatization by one of its opponents.

So, for example, since State Property Fund Chairwoman Valentyna Semenyuk has been one of the main agents blocking Tymoshenko's privatizations, Tymoshenko kicked her out and installed her own chairman, Andriy Portnov. Yushchenko reinstated Semenyuk, cancelled the privatizations, and issued a "yellow card" warning to Tymoshenko's government. The Constitutional Court overturned his decision, and Tymoshenko told Portnov to ignore it. Along a parallel track, the privatization of, for example the Odesa Pre-Port Plant has been ordered, suspended, ordered again, and again suspended. The Eurasia Daily Monitor has a summary of all the tit-for-tat.

In retaliation, it seems, BYT lined up with the Party of Regions and Tymoshenko said she supports a vote to decrease the President's power in favor of the Parliament (and she's been taking on a number of advisors from the defunct and unmourned SDPU(o) of Viktor Medvedchuk, though this may not be a retaliatory gesture as much as a tactical one). However, when Yushchenko saw that he lacked the support of the Constitutional Court and the Parliament, he backed down. His statement is a classic one of a politician accidentally saying the truth:

Let us not put to question which organization [of power] we need, but focus on the task of achieving, through dialogue, through the work of public commission, through public referendum, a system of counterweights which would ensure serene future for us and our children.

Exactly. Now why have you been wasting your time on this issue practically since you got into office?

Not that Tymoshenko or Yanukovych are any less to blame. The last link goes to an article in Dzerkalo Tizhnya: it's wordy, but overall a great article. The line that pretty much sums everything up:

Each of the three top Ukrainian political players more or less realize the need of the reforms, but all explain their slackness by the following logic: “Now preparations for the decisive battle are going on. What is of critical importance now is to garner as much resources and voter support as possible. It is imperative that sufficient financial, media and electoral reserves be built up. I will begin attending to the country’s salvation and development once I take the country’s top office for a long enough period”. The result is that Tymoshenko and Yushchenko are competing in populism, while Yanukovych, in the absence of State resource, is busy with NATO and language-related issues. This provides an explanation as to why we keep making the same mistake, which is because we make no headway. A country cannot move ahead unless and until the main state and public challenges are correctly identified and begun to be dealt with. Purely personal and corporate interests of policy makers cannot provide enough progress to drive us away from the same old mistake.

Speaking of wasting their time on political games while gas and inflation crises loom...

The Kyiv Mayoral Election vs. Macroeconomics

Taras Kuzio, writing in the Eurasia Daily Monitor, thinks BYT's candidate in the Kyiv mayoral election, Turchynov, will be able to get past Klitchko and Chernovetsky, citing corruption charges against both of the latter. I still fail to see how Turchynov is going avoid similar charges sufficiently to overcome the huge gap in public support between himself and the main contenders--particularly since there will be no runoff. Not that we should want Chernovetsky to win (which recent polls think he might, using the same tactics as last year).

This mayoral election is the biggest distraction from the two main problems for Ukraine, both of which are economic: inflation and fuel price hikes. 

While Tymoshenko was certainly overstating things when she said her government was getting the highest appreciation in the world and holding inflation policy unchanged will be enough, it is true that she was praised by the WTO.
The IMF was more moderate in its praise. In this report it did not actively argue against her privatization plan, but it definitely suggested holding back at least some of the money thus earned to promote a more balanced budget (meaning less going to Tymoshenko's handouts). Another one of its main points is that the hryvnia should be allowed to float against the dollar (meaning appreciate, in the current economic climate). According to the Ukrainian Journal, the NBU seems interested and Tymoshenko has reigned in her criticism of the bank on at least this issue. The WTO and IMF both make the situation with inflation seem less dire than Dzerkalo Tizhnya seems to think it is, but DzT bases more of its assessment on an expected massive fuel price hike from Russia (something I also think is imminent, and the IMF notes as a potentially major problem).

Two More Good Items 

One alternative to politics-watching is this entry on Ukrainiana about Chernobyl. It includes Taras's own story from living (six years old) in Kyiv at the time. It also is heavily laden with YouTube videos related to the event.

Another wonderful and unrelated article by John Marone at Eurasia Home praises the introduction of national standardized university examinations. One step forward for transparency, one step backward for corruption.

February and part of March were the Party of Region's chance to waste everyone's time blocking parliament with their NATO Circus of Obstructionism. The end of March seems to have been burnt up looking for the next issue for politicians to focus on. Now it's April and they've finally found something to keep themselves from addressing any of the multiple looming disasters—the Kyiv Mayoral Election.

NUNS is the less popular party, but is pushing for the vastly more popular candidate in this election: Klitchko. BYuT's candidate is Turchynov, who has about 6% popularity to Klitchko's 31%. That means that if Tymoshenko wants him to win she'll have to spend massive amounts of time and political capital to do so. So far she doesn't seem to have been deterred at seeing what PoR earned for its anti-NATO efforts on a national level—a ten percent drop in popularity and repeated local election losses to Bloc Yulia Tymoshenko.

Certainly Baloha and his new gang (a breakaway from NUNS) haven't acted constructively and won't do so in the future. But NUNS bleeds votes every election because of their pettiness and unprofessionalism. It's BYuT, which is stronger and more politically savvy that will need to compromise here, because there are much bigger national problems her Cabinet needs to be addressing.

Inflation

Thank's to IIU's blogging, readers here already know that inflation is a big problem that's getting worse. Years without reform, worldwide price increases for foodstuffs, government-on-government increases in unsupported payouts to voters (the most recent being Tymoshenko's payments on Soviet accounts) have all resulted in 26% inflation this March.

As with other issues, NUNS and BYuT are working at cross-purposes. Tymoshenko's payouts went through, but the privatizations she proposed to use to generate the money to pay for them were vetoed by Yushchenko. She's tried to get rid of a longstanding land auction ban which she also thinks could improve economic growth (I do, too) and has again been vetoed by Yushchenko. I would be less apt to think Yushchenko was simply playing spoiler if I saw any indication that he has a better plan instead of his usual vague generalities.

Tymoshenko has said the government going to stop inflation in five to six months. To do this will take actual reforms, though, and that means working with NUNS. That may not be possible under any circumstances, but fighting over the Kyiv mayor is the one way to ensure defeat.

Gas Price Hikes

RosUkrEnergo is still hanging on in Ukraine-Russia gas deals despite Tymoshenko's opposition. She is claiming a victory anyway by saying that the deals will happen on Russian soil so it is technically "out of the Ukrainian market", but it looks from this angle like she's trying to save face after failing to eliminate it.

Though Russia has been able to keep its intermediary (and its active push to keep RosUkrEnergo throughout the negotiations last month confirms that it is, indeed, Russia's preferred intermediary), this won't stop Ukraine's gas prices from increasing significantly in the next few months. The ultimate driving force will be simple, rational self-interest: why sell at under $200 per m³ to Ukraine when Europe will soon be paying over $300 per m³ to Europe?

The price rise has already been foreshadowed: a month ago Russia increased the price it pays Central Asia for gas. This was not out of generosity: it was a revision to preempt hard bargaining by Central Asia, or (much worse for Russia) actual progress on alternative gas routes to Europe that don't include it (one of them is Tymoshenko's White Stream project, lauded by The Economist, which would be a great use of her considerable political skills if she weren't too busy in Kyiv). Russia's price increase is likely to be passed on to Europe in the near future, and Ukraine should not expect to be far behind.

We should not be distracted from this issue. Yes, another Russian general has threatened to attack Ukraine militarily (and with "other methods" as well), and responding in a professional manner was important. Yes, Kommersant claims Putin said Ukraine "isn't a real nation" and it will "cease to exist" if it joins NATO (a claim his government has not refuted). Ukrainian politicians should remember this when dealing with Russia (Hey, Yanukovych, you've been shouting a lot about Ukrainian national sovereignty at anti-NATO rallies—refresh my memory, when did any NATO ally threaten that as much as Putin just did?). Nevertheless, the real motive force in the gas sphere will be the $100 per m³ price differential. Either Russia will take payment in cash, or in ownership of Ukrainian energy assets, but it won't sit for long without payment.

I don't know when the hike will come. Gazprom may not know, and maybe not even the Russian government. But since the Russian government doesn't like NATO and doesn't think Tymoshenko is going to give it anything in exchange for the discount pricing, the hike will certainly come this year. If Russia is looking to improve its chances of getting paid, it may hike them this summer or wait until inflation is more under control, so it doesn't catch Ukraine when it is more desperate. If it wants to shake Ukraine up more it may load on the hike about the same time that inflation problems come to a head.

Not Even Together Enough To Host A Soccer Match

Inadequate preparation for Euro 2012 should be a big issue. There is $25 billion more investment that needs to be made, Ukraine's reputation is on the line—this should be a cause for major concern. But, because the government has gotten into an inflationary and budgetary mess that dwarfs even this event, all that I'll do is note that it's still a problem. I will add, though, that it particularly unhelpful to see Yushchenko blithely state that everything is going smoothly despite warnings from Ukraine's host partner Poland and the Euro 2012 committee.

Tymoshenko Should Support Klitchko 

Below inflation, gas prices, Euro 2012, somewhere under corruption in public transportation, is the Kyiv mayoral election. And yet, the politicians of an entire nation are occupying themselves with this single city election.

Tymoshenko doesn't need to look very far to know what she should do in this situation: all she needs to do is remember her own decision ahead of the 2004 presidential election.

In 2004 she gave up her own candidacy in order to support Yushchenko, despite her ego and despite the animosity between them that is unlikely to have emerged fully-formed in January of 2005. The reason she did so was that she did not have a real chance at the presidency (her public popularity was in the low teens, I believe), but Yushchenko needed help to overcome his opponent Yanukovych. Divided, their two parties could have both lost a legitimate election to Yanukovych. In doing the right thing, Tymoshenko also earned enough voter support to improve her political rating far beyond anything she had had thusfar.

Tymoshenko should support Klitchko. Like Tymoshenko in 2004, Turchynov in 2008 is little more than a spoiler. This is especially true since the mayoral election, unlike the presidential, is decided without a runoff (though BYuT is trying to change this). If Turchynov and Klitchko fight one another, it is likely that both will lose to to Chornovetsky, whi is still polling above 30% popularity.

In a real, monetary way, Ukrainians cannot afford to watch BYuT and NUNS continue to squabble. If Tymoshenko makes the magnanimous step here, not only will it improve the nation's chances in the upcoming crises, but likely result in voters rewarding her as they did after 2004.

Update: 5 more laws have to be passed for Ukraine to be able to enter into WTO.