I’m singin’ in Ukraine…
what a glorious feeling,
gas’s flowing again.
The deal to extend Russia’s lease on the naval base in Sevastapol was ratified by Ukraine’s Rada today, but not without a fight… literally.
Opposition MPs, largely from Yulia Tymoshenko’s bloc, pelted the Speaker with eggs, forcing his aides to shelter him with a pair of (fortunately well placed) umbrellas. MPs also set of smoke bombs and brawled, with one MP reportedly taken to hospital with concussion.
All in all, it sounds like Ukraine’s lawmakers had a high old time, and they certainly gave everyone outside of Ukraine a good laugh. But, leaving aside the damage done to Ukraine’s image as boring farmers, did their lawmakers make the right decision in extending Russia’s lease for another 25 years?
Well, actually, I think that today’s been a pretty good day for Ukraine. By extending the lease until 2042 in exchange for a 30% reduction in gas bills, Ukraine’s pro-Russian President Viktor Yanukovych has negotiated a cracking deal.
In real terms, 30% translates to around $4 billion per year – and over $120 billion over the lifetime of the deal. And all for a naval base that (a) Ukraine probably doesn’t really mind Russia having and (b) if Russia left, Ukraine would have to pay to decommission.
The Financial Times disagree – they think that this deal is a bad one for Ukraine. Politically, the FT mainly seem worried that Russian operatives will destabilize the Crimea, but I can’t see why they wouldn’t be able to do that anyway from just across the Russo-Ukrainian border. And, additionally, deferring the Russian pull-out for another 25 years means that, in a decade’s time, the Ukrainian government won’t have to deal with tensions caused by the pullout. Much better to leave the Russian Navy in place, and take their cash.
(Alexander Golts, of the Yezhednevny Zhurnal, writing in the Moscow Times, by the way, is speculating that Ukraine might have pulled off a stunning coup – because they can take the 30% discount over the next 10 years, and then turn around and kick Russia out of their Crimean naval base anyway. I’m not sure that stealing the Russian bear’s honey, then turning around and kicking it in the nuts is a particularly sensible long term strategy, but it’s a fun idea!)
The FT is also worried that receiving the boost of a 30% discount will stop Ukraine from addressing its real problem – that it gobbles gas like there’s no tomorrow. Here I have more sympathy for their argument. Ukraine consumes three times as much gas as its similarly sized and more productive neighbour Poland. The real challenge for Ukraine’s government is going to be cutting down on gas usage, and lowering the cost isn’t going to help much there. But the problem is that high gas prices risk cutting gas usage by crippling production, leading to a vicious cycle of economic depression. The optimist in me wants to believe that at least a little bit of the savings will be invested in providing more efficient heat and industrial energy – we shall see…
What do you think? Has Ukraine negotiated its way into a good deal, or has the Russian Bear just wrapped Ukraine closer in its cozy embrace?