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Analysis & Opinion
28.04.10 Rada Rules
By Roland Oliphant

Amid scenes of chaos, the Ukrainian Parliament yesterday ratified an agreement to extend the Russian navy’s lease on the port of Sevastopol until 2042. In exchange, Russia has promised to provide discounted gas to the tune of up to $40 billion over the next decade. It’s good news for the Ukrainian economy, and a political victory for Ukrainian President Viktor Yanukovich. But the Ukrainian opposition warns that it’s a blow to national sovereignty, and Russians are wondering just what they’re paying for.

It can’t have come as a surprise. Days before the ratification Volodymyr Fesenko, head of the PENTA Center, a Kiev-based political think tank, told Russia Profile that the usually fractious opposition had managed to rally around the standard of opposition to the Black Sea Fleet, and that the attempt to ratify it could spark a “parliamentary crisis.”
“Mayhem” may have been a better word. On the day of the ratification vote in Parliament, female deputies hurled eggs at Parliament Speaker Volodymyr Litvin as he tried to open the session. Somebody set off smoke grenades and rival deputies fell into open brawling as the chamber filled with smoke and the opposition tried to unravel a huge Ukrainian flag. But despite the chaos Litvin ordered the vote to go ahead, and the motion passed by a narrow but solid margin of ten votes.

Igor Zhirnov, the head of Open Policy, a Kiev-based think tank, told the BBC’s Russian service that “Yanukovich’s political stability ended the moment he signed the agreement,” and predicted that the brawl in the Rada was “only the beginning” of a process that could end in “political catastrophe.”

So, has Yanukovich seen off the strongest challenge the opposition could throw at him? Or could discontent around the Black Sea Fleet snowball into revolution?

It is probably the former. For now. Tuesday’s vote in the Rada proved that the ruling coalition, which includes Yanukovich’s Party of Regions, the communists and the eponymous Volodymyr Litvin Bloc, could hold together under pressure even in the face of one of the most polarizing issues in Ukrainian public life. “It was Yanukovich’s first crisis, and he’s passed it. He’s still a strong president – for now,” said Fesenko.

In fact, Yanukovich’s consolidation of power is one of the most interesting things about yesterday’s vote. When he was battling then-Prime Minister Yulia Tymoshenko for the presidency in elections in February, many analysts – including Fesenko – saw him as the weaker potential president. While Tymoshenko was said to wield an iron grip on every branch of government that would make her a near-dictator (some pundits even spoke darkly of her “authoritarian tendencies” and feared that she would introduce a Russian-style “power vertical,” undermining the democratic advances of the Orange revolution), Yanukovich was predicted to be so constrained by checks and balances that it would take him half a year just to kick Tymoshenko out of the prime minister’s chair.

Today, those sage words seem a world away. By mid-March Yanukovich had installed his own choice of prime minister – Mykola Azarov, a Party of Regions stalwart and an old Yanukovich ally – and had cobbled together the parliamentary coalition that passed yesterday’s resolution in the face of stiff opposition. With a grip on the government, Parliament and the presidency itself, he has proved “that’s he’s a strong president and he can implement his policies without being influenced by the opposition,” said Anna Ostapchuk, a Moscow-based independent expert on Ukraine.

The question then is whether those policies are good for Ukraine. Opponents of the deal say it is a treasonous surrender of national sovereignty and an outrageous violation of the Ukrainian constitution – specifically Chapter 1, Article 17, which forbids the location of foreign military bases on Ukrainian territory. Others say the Baltic Fleet is in such a state of disrepair that it couldn’t threaten the independence of anyone, let alone draw Ukraine into a war. For Fesenko, the risk lies not so much in the presence of the Black Sea Fleet in Sevastopol, but in the fact that its lease has been extended for so long. “It limits Ukraine’s geopolitical independence, and strengthens its dependence on Russia,” he said.

Whatever the truth, the upside of the deal is indisputable. Even though the frequently quoted figure of $40 billion may be an exaggeration – taking into account falling demand for natural gas in Ukraine the savings are likely to come to more like $30 to 35 billion – the economic benefits are unambiguous, said Andriy Gubachov, an analyst at Alfa Bank Ukraine. “This is very good news for the stability of the balance of payments; it solidifies a good base for economic growth in Ukraine; and it eliminates serious risks of financial meltdown like the one we saw at the end of 2008,” said Gubachov. “The net effect is vastly positive.”

Well, for Ukraine it is. In Russia, however, the size of the subsidy – which will be achieved by waiving export duties and therefore will be at the expense of the federal budget rather than Gazprom – has raised eyebrows. “I’m honestly not sure about the value of this deal to us,” said Alexei Mukhin, head of the Center for Political Information in Moscow. “Finance Minister Alexei Kudrin has already predicted that it will cost Russia between $4 and 6 billion a year, and that doesn’t even include the cost of renovating the Black Sea Fleet, which is a major task,” he said.
Russian Prime Minister Vladimir Putin went some way to acknowledging the absurdity of the price tag, popularly quoted as $40 billion over the next ten years, when he told Ukrainian reporters Monday that “I’d eat Yanukovich and your prime minister too, for that kind of money.”

He went on to insist that the deal was “not just about money, but also about cooperation with Ukraine,” and that the most important thing was the building of trust and resulting “opportunity to cooperate in economic, social and political issues.” Sergei Markov, a pro-Kremlin political analyst and United Russia deputy in the Russian State Duma said, trying to paint the subsidy as a kind of investment. “Russia gave this money for economic cooperation with Ukraine that should return a profit greater than this $40 billion,” he said.

But economists aren’t buying it. “I don’t have the exact figures in front of me, but I can’t see Russia making more than $10 billion back from this deal,” said Gubashov. “A good chunk of the subsidy will be netted by Ukrainian oligarchs, and only a few of the companies that stand to benefit most are Russian owned.”

So Russia is unlikely to see a real return on its “investment,” and even Putin is prepared to admit that $40 billion is an absurd price for a naval base. True, there is the question of prestige - Russia’s Black Sea Fleet has been based in Sevastopol for over 200 years, and there is a degree of political capital bound up with maintaining the naval presence there. But as Gubashov points out, prestige costs money – but not that much money.

Probably the gas subsidy has more to do with Ukraine’s ability to pay. “When oil prices rose, the deal negotiated by Tymoshenko when she was prime minister turned out to be unaffordable. So the question was whether Ukraine was going to pay at all,” said Gubashov. “If Russia hadn’t offered this discount, Ukraine would have tried to find a way out of the contract altogether.”

But the negotiations aren’t over. On Wednesday morning Kommersant reported a draft deal regulating all elements of Russian-Ukrainian energy relations, from import to processing, storage and use. Most of the points would be to Russia’s advantage, but Yanukovich is unlikely to accept any of them without winning concessions of his own for fear of wasting hard won political capital. For now, the link with Sevastopol leaves Yanukovich looking “very cool,” said Gubachov. “He has given Russia some worthless prolongation of the fleet, which is rusting there in Sevastopol, in exchange for a huge amount of money. If he signs all those Russian terms without requesting anything in return he’ll look like a total loser. And he doesn’t want that.”
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