I’m singin’ in Ukraine…

…just 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?

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16 Responses

  1. Mike says:

    Regarding what Golts said:

    http://en.rian.ru/russia/20100427/158766059.html

    Violating this deal wouldn’t come across well. In such an instance, Russia would be in the arguably just position of staying put for the duration of the newly signed agreement. What would keep them out? Note how the previous Ukrainian president didn’t seek forcing the Russian navy out of Crimea before the end of the existing lease.

    Another particular concerns the relationship of the flow of Russian gas thru Ukraine abroad.

  2. Tim Newman says:

    What would keep them out?

    Switching off the water, fuel, and electricity supply. Naval bases are not self-sufficent.

  3. elmer says:

    If this were just a plain and simple gas-for-fleet barter agreement, it might be OK.

    But it’s not.

    First, the Black Sea Fleet is a political statement. Putler is willing to increase the Russian budget deficit for that statement. Russia claims Sevastopol and Crimea as its own due to “history” (sovok propaganda) and due to “the traditional home of the Black Sea Fleet” – which, of course, was the fleet of the sovok union. To explain – imagine what would happen if the US, which has bases in Japan, claimed that Japan is “part of the US” – that Japan is the US. Further imagine that the US had invaded Manchuria, like Russia invaded Georgia, using naval vessels based in Japan – to “increase security in the area.”

    Second, this deal was not aired out in Parliament. The Party of Regions is a Boss Tweed political machine multiplied by a zillion. There were only 211, out of 450, members of Parliament present. NOT a quorum. Some members of Parliament were out of the country – yet they managed to vote!!! That is how the political machine operates – virtual voting.

    Third, there are all sorts of side deals which the Western press conveniently ignores, involving sales of Ukrainian assets to Russian oligarchs – and much more. Moreover, it requires Ukraine to increase its take of gas. Proponents of the deal tout the price – but that is offset by increased volume requirement.

    Fourth, this deal benefits noone except a very few Ukrainian oligarchs who are heavy industrial users, such as Dmytro Firtash, member of Party of Regions, who has fertilizer and chemical plants. Residential consumers will not see any reduction in prices at all.

    It is a crooked deal done in a crooked way by crooks.

    Ukraine is an oligarchy. It is being strangled by oligarchs, starting with President Yanukovych. And they won’t let go.

    There were supposed to be “reforms.” They ‘re not happening, except to consolidate power, Boss Tweed style, in Yanukovych and the Party of Regions – and “friends” (read Putler and other Russian oligarchs) in Russia.

    You might look at this analysis, which is excellent:

    http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=36310&tx_ttnews%5BbackPid%5D=13&cHash=07e1944658

    • Riurik says:

      Among eligible voters, who was blocked from the vote in the Rada versus simply not wanting to vote?

      Are we to really believe that none of the Russian money will trickle down to Ukraine’s citizenry? As Yushchenko’s presidency continued, Kuchma became more popular. Many Ukrainians have had it with the Orange propaganda which hasn’t delivered.

      Ukraine’s boundaries are “sovok.” Russia and Ukraine go back to a period longer than Communism. The analogy with the US having bases in Japan doesn’t note that Japan and the US were never part of the same nation unlike Russia and Ukraine.

      Some analysis on the ratified deal:

      http://rt.com/Politics/2010-04-27/ukraine-crimea-russian-fleet.html

    • Leos Tomicek says:

      Well, the Russians have nowhere to get their Black Sea fleet, maybe they can relocate to Abkhazia… :-))

      Well and even if they do relocate to Abkhazia, you will still be left with 60% of the population defining itself as Russian in Crimea.

      Russia doesn’t need to stir up Russian irredentism in Crimea, it’s already there.

  4. Leopolis says:

    Andy,

    You say that “today is a pretty good day for Ukraine” but hedge it by saying you “have more sympathy for their argument” because Ukraine’s gas industry is inefficient. This is a gross underestimation of Ukraine’s energy problem. Yanukovych had a choice — either 1) implement energy reform measures that would set Ukraine on a better trajectory for revamping its gas-guzzling industry or 2) cutting a sweetheart deal to maintain the status quo and don’t rock the boat.

    The deal is the perfect example of Yanukovych’s short-term thinking. Why reform and modernize the economy when you can go for a quick fix? “Cheap” Russian gas now would plug up the budget deficit, and allow the opportunity for even more borrowing from the IMF. Both Yanukovych and Russia had a good opportunity, to rid themselves of the quid pro quo of subsidies for political favors, but they chose the usual opaque and non-market economic sweetheart deal. Ukraine will continue to waste gas, while Gazprom may not have enough of the stuff to fill both Nord Stream and South Stream. I’m sure Aleksei Miller is livid right now, but we know who really runs Gazprom.

    Gazprom has long argued it would no longer hand out subsidies because it plays by market principles. The gas-for-BSF deal destroys that argument. Plus, what is a “discount” when you are the only game in town? Ukraine is getting 30% of high prices that Europeans have already lowered due to plummeting demand. Kyiv is getting a raw deal.

    Mike,

    You say that “overall, the political trend in Ukraine reveals a decrease in seeking to unnecessarily tweak Russia.” With all of those eggs being hurled around the the Rada, you can be sure that political divisions inside Ukraine are going to actually get worse and this will negatively affect bilateral ties. Strike one against Yanukovych the pragmatist and the bridge builder in a divided country, as he gushingly promised to do.

    The more under-the-table sweetheart deals that Yanukovych crafts with his oligarchs and the Kremlin, the louder the Ukrainian national-democratic opposition will get. Yanukovych’s constituency in the south and east may be loud on NATO or Russian language, but they are not as organized or as active overall (not to my knowledge have “orange” activists ever been paid to protest, unless you believe that “the so-called orange revolution was a CIA-sponsored conspiracy” canard). Ukraine’s national-democratic bunch are more organized, angrier, and have lots more experience under their belt fighting what they perceive is encroaching pro-Russianism than Yanukovych’s passive electorate.

  5. Mike says:

    Leopolis

    It has been observed that some small advocacy groups compensate their numbers with great activism. In relation to their numbers in Ukraine, the Ukrainian views which are the most critical of Russia get disproportionate coverage in the West. Overall, Yanukovych is more in sync with reality than his predecessor. One also gets the impression that an increased number of influential folks in the West are viewing the situation with less enthusiasm for your expressed sentiment.

    The manner of the attempt to stop the recent vote in the Rada has problematical aspects.

    Of possible interest is this panel discussion on the deal –

    http://www.russiaprofile.org/page.php?pageid=Print+edition&articleid=a1272639916

  6. Leopolis says:

    Mike,

    A group of a few hundred anti-NATO protesters in Crimea made the Western papers in summer 2006. Was that disproportionate coverage?

    Yanukovych is “more in sync with reality” than Yushchenko? All of these clowns in the Rada and on Bankova are about as divorced from reality as you can get. Their antics the other day prove that. The corruption of the BSF deal mirrors the corruption of RosUkrEnergo under Yushchenko.

    The manner of the attempt to stop the recent vote in the Rada certainly does have problematical aspects. I would point out that the opposition is using the same tactics that Party of Regions used during the past several years to block the Rada. Is one side more justified than the other? No.

    These “sentiments” are not mine, I’m simply making observations.

    • Mark Timm says:

      Russia wants Ukraine and all the former block countries back….Yanukovych is a Russian puppet and criminal with no brain of his own. The split in Ukraine is a good starting point for a military intervention by Russia just like Georgia was.
      The Black Sea Fleet is a good fuse for creating part of this along with natural gas which is being used as a weapon. Soon with more corruption from Yanukovych and his government we will see the motives behind this chess game with real people. And the new upsurge of how good a man Stalin was…wow the biggest mass murder in history being portrayed as a savior and not so bad a guy by Putin…I think people need to look at all that is going on there , these are real people with a major problem .

  7. Mike says:

    Leopolis

    Concerning past manner in the Rada, I don’t offhand recall the extent of what made worldwide headline news this week. In addition, the past rowdyism wasn’t exclusively from folks on the “Blue” side.

    Like I said, the number of protestors relating to the views on the whole aren’t always in sync with reality. Ukrainians in general agreement with me readily acknowledge how their views are understated in terms of activism.

    There’s no denying that the corruption factor covers the spectrum.

    For all the negativity levied against Yanukovych note that he:

    – hasn’t gone thru with making Russian a second official language (instead seeking the regions to be involved on this matter on a region by region basis)
    – has expressed opposition to Ukraine joining the CSTO
    – supports Ukrainian EU membership, while not committing to the customs union involving Russia.