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Ukraine's Hot Summer a Prologue to Plenty of Heat in the Fall

5-08-2010, 23:20


The political intrigue in Ukraine is spinning off. Signs are everywhere that serious developments loom on the horizon, a rumor of big asset grabs goes around, the natural gas pricing theme constantly pops up in the headlines, and, accordingly, Russia is at the epicenter as the media debates rage. Driving down the Yalta-Sevastopol expressway, you would see bunches of bikers racing past at brealneck speeds and greeting each other with gestures of the initiated. Chances are the kids gave in to the irresistible temptation to hang out by the seaside for a little extra time in the wake of the bikers' convention to which Russian premier V. Putin paid a snap visit, causing news outlets - Ukrainian nationwide not to mention Crimea's local – to explode with illustrated accounts of the otherwise niche event.

The image-making efforts made by the Ukrainian administration look bleak against the background of what locals see as a large-scale landing operation launched across the country by Russia's political PR industry. White-on-blue posters saying “Yanukovych – the Hope of Crimea” stick out in direct proximity of each other, forming a pervasive near-regular pattern, but – now that Yanukovych has penned the local elections code – the ruling party could be well-advised to rethink its obviously outmoded campaigning techniques. In contrast, the opposition's Yulia Tymoshenko has a reputation for seeking out teams of inventive and pushy campaign managers. Perhaps, the current creed of the administrations is robust anti-populism, and it sells itself as a hard-working crew which, unlike its predecessors, can be expected to fulfill its promises confidently and without much ado. 

There is, no doubt, a problem that does put Kyiv's self-confidence to a test and permanently stays within its sight. Ukraine faces a natural gas price hike effective August 1, just three months ahead of the local elections at all levels, and Tymoshenko must be waiting, with her ambitions reinforced, for the heavier utility bills to anger the electorate. When the moment comes, the opposition is sure to surf the wave and – presented with the golden opportunity - may even attempt to undermine the central government.

Kyiv has already unveiled an adaptation plan which includes a package of compensations for the poor. Moreover, the government says the retired citizens – a particularly vulnerable social stratum in Ukraine - have nothing to worry about in connection with the rising cost of natural gas since the respective utility services will automatically pick up the tab.

As of today, 600,000 households out of Ukraine's population of 17 million have, to varying extents, to rely on welfare. It is well-known that many more are entitled to government support but do not apply for it as the process takes jumping through countless bureaucratic hoops. To spare people the difficulty in obtaining natural gas subsidies, the administration limited the required paperwork to filling in just a couple of papers – an application form and an income statement - with no cumbersome verification procedures involved.

Importantly, the compensations will in no way soften the imminent blow to Ukraine's so-called “middle class”. It must be noted that the majority of supporters of Yanukovych and his Party of Regions are residents of the heavily industrialized districts of Ukraine where the population largely fits into the middle of the income bracket and cannot request the benefits which are intended to offset the higher cost of natural gas. 

At least one aspect of the current dynamics in Ukraine should alert Moscow. The natural gas being pumped from Russia and the signing of a revised supply contract being fresh in the memory, quite a few in the country tend to jump to the conclusion that Russia is in part to blame for the squeeze. Worst of all, the naïve perception spreads in the eastern and southern regions of Ukraine which used to be solidly in the pro-Russian camp even back when the “gas war” - a bitter dispute over natural gas prices between Moscow and Kyiv – was in full swing.

Premier M. Azarov did offer a clarification, the point being that the natural gas market legislation passed by the Ukrainian parliament actually served to accommodate the key requirement pressed by the EU. It is also an easy guess that, as in any other instance of shock therapy, experts from the IMF, the organization with a propensity for demanding that its clients scrap social programs, must have had another tour through Ukraine's corridors of power. Consequences are to follow some day, considering that Kyiv took out a hefty $15bn loan last year. Curiously, Ukrainian officials explain the economic policy twist in a language which seems to have been borrowed from the same source – products, they maintain, must never be sold on the market below cost.

Russia is conveniently cited as an example amidst the gas pricing controversy. Minister of Fuel and Energy Yu. Boyko said that Ukraine no more than reset the end-user price of natural gas to the world level, but immediately refocused on Russia to illustrate the global concept. According to Boyko, the gas price average in Ukraine was UAH 580 per 1,000 cubic meters, while Russian consumers in the Belgorod province, which has a shared border with the country, have to pay the equivalent of UAH 870 regardless of the fact that Russia, an energy champion, produces 600 bcm of natural gas annually, and Ukraine – a modest 20 bcm. 

Let us not be unfair to Yanukovych – the Ukrainian leader took the helm in a country burdened with severe problems. It occasionally happened over the two decades of the Ukrainian independence that its sovereign debt tripled within a year etc, and there are all the reasons to believe that Tymoshenko, if somehow catapulted into the president's seat, would have no option but to instruct her government to take similarly crippling measures, the public discontent notwithstanding.

<!--[if gte mso 9]> <!--[if gte mso 9]> Normal 0 false false false RU JA X-NONE <!--[if gte mso 9]> <!--[if gte mso 10]> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Обычная таблица"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} <!--StartFragment--> Speaking of Tymoshenko, at the moment a huge question mark hangs over her own political future. Multiple calls for reanimating the Orange coalition meet with no success, and her former top ally V. Yushchenko, re-energized since proUA.info reported an upgrade of his individual rating to 7% by unnamed Western pollsters, brushes off the very idea of a common platform with Tymoshenko's bloc. Under some influence, Yushchenko supposedly began to view Tymoshenko and her backers, not Yanukovych and the pro-government faction in the parliament, as the main obstacles in the way of his personal political career, plus Ukrainian policy watchers increasingly suspect that the administration is scheming to set up an opposition on a string, with Tymoshenko ostracized. Overall, the forecast is that Ukraine's hot summer is a prologue to a fall with plenty of political heat. <!--EndFragment-->


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