Viktor Yanukovych Tells Oligarchs to Pay for His Social Initiatives – A Satire

By Taras Kuzio

President Yanukovych announced social populist bribes ahead of the October elections to assist the Party of Regions whose popularity is falling. The populist promises will cost $2-3 billion and Western commentators wondered how Ukraine’s cash starved budget would cope. What follows below is a fictitious transcript of a meeting between Yanukovych and a group of Ukrainian oligarchs that was probably really held last month in the President’s palatial residence, Mezhyhirya.

President (speaking to the oligarchs): We have to win this f***ing election; without a parliamentary majority it will be impossible to secure my re-election in 2015. All of you know that my presidency is the guarantor of your further enrichment otherwise those f***ing goats – nationalist bandits and populists – will come to power. If that g*****n woman is released from jail we are all f***ed!

Oligarch: What do you want us to do?

P: You all have done very well in the last two years. Isn’t that right? So, now is the time to pay an “election tax.”

O: What is an “election tax?”

P: This is a thank you to me for turning a blind eye on all of you for bending the rules and an insurance policy against the so-called opposition coming to power.

O: Ok – we understand! What do you have in mind?

P: We have to bribe those damned stupid voters by throwing them a few crumbs from our table so they don’t vote for those c**k-s****r oppositionists. Just enough crumbs so they think we really give a s**t about their sorry lives. I am going to propose some social initiatives next month to increase social and payment benefits on housing and to repay Soviet bank deposits. These crumbs and our administrative resources should be enough to get us 40 percent support in the proportional elections. We will then buy up most of the single mandate deputies who, if they refuse to join us, will get a f**king visit from the tax boys.

O: Won’t these social initiatives damage our relations with the IMF?

P: Screw those c**k-s****rs. We have hired some people in Washington to take care of this. Anyway, it won’t matter because after the elections we will comply with the IMF demands and raise household utilities so that the money starts flowing again. By then it will be too late for the idiot voters to do anything.

O: This is a great idea, right lads!!!! Who thought of this?

P: It doesn’t make any difference, f**k!!! What matters is that you come up with the “election tax” of $3 billion.

O: But, you said the “election tax” was $2 billion!!!

P: Ah, yes, sorry. F**k! I forgot to tell you that my son Sasha – you all know him of course, he is following in his father’s footsteps – will be collecting a $1 billion “administration fee.” I want the babka (cash) on my table by the first day of March. Understood? If you don’t come up with the goods expect a visit from the Security Service.

O: Ok.

P: Fine, that’s settled. Who fancies going hunting with me?

Difficulties and Shortcomings Encroach on Poland’s Shale Gas Dreams

By Matthew Czekaj

Those eagerly calculating the strategic gains in energy security that shale gas promises to bring Central and Eastern Europe (CEE) may need to run the numbers again. According to a US Energy Information Agency (EIA) study from April 2011, Poland’s natural gas reserves locked up in shale rock were estimated at 5.3 trillion cubic meters – the largest such reserves in Europe and enough to last Poland for two or three centuries. However, the newest survey [PDF], carried out by the Polish Geological Institute (PGI) and made public on Wednesday, March 21, reveals that those original assessments were seven to 13 times too large, and that Poland’s reserves are more likely between 346 and 768 billion cubic meters. This is even smaller than the pessimistic predictions in the Financial Times this week that Polish reserves would turn out to be around one trillion cubic meters.

Though by far the largest CEE economy, Poland consumes only 14 billion cubic meters of natural gas annually. If the country’s gas consumption holds steady, its recoverable shale gas reserves will last for 35 to 65 years. But, Poland’s energy resource mix has for decades been overwhelmingly skewed toward highly polluting coal and lignite. More than 90 percent of its electricity is generated by burning domestically mined coal. This is problematic due to Poland’s obligations to meeting ever more stringent EU air quality and carbon dioxide emissions standards. Increased domestic production of natural gas would have allowed the country to move away from coal and toward a higher proportion of the significantly cleaner “blue” fuel source in its energy mix. Warsaw’s frequent efforts to slow and hold back EU “green energy” initiatives clearly reveal the government’s anxiety about being able to quickly switch to cleaner and less carbon-heavy sources of energy, and the PGI’s reserve estimate downgrade will only exacerbate these concerns.

Furthermore, the smaller shale gas estimate will likely have a negative effect on Warsaw’s future budget calculations. Two thirds of the country’s natural gas is imported from Russia, and Poland pays Gazprom a premium price of over $550 [link in Polish] per 1,000 cubic meters – at the extreme high end among EU customers. According to Minister of the Economy Waldemar Pawlak, domestically recovered shale gas would cost [link in Polish] Poland only around $200 per 1,000 cubic meters. Thus, if it substituted all imports from Russia, shale gas would have brought the government annual savings of $3 billion. But, the lower reserves will likely put pressure on the government to tamper down the rate of shale gas recovery so as to maintain its national resource for as long as possible. In addition, the smaller estimate may radically scale back Poland’s plans to export its natural gas to its neighbors. Poland’s largest gas company, PGNiG, was recently considering converting the liquefied natural gas (LNG) terminal being built at Świnoujście from a strictly importing facility to one that can also handle Polish gas exports. Such plans are unlikely to go ahead now (Financial Times, March 19). Having little shale gas to export after meeting domestic demand will not just harm Poland’s trade balance but also potential regional importers, many of which are significantly more dependent on Russian gas than Poland. On the other hand, the PGI’s announcement will substantially improve the financial argument in favor of the Polish government’s plans to build two nuclear power stations in the country (Financial Times, March 19).

Poland’s recent obstacles to taking advantage of its shale gas have not just been limited to a smaller shale gas stock, however. In an interview with the Financial Times on March 18, Chevron’s head of oil and gas production, George Kirkland, cautiously noted that it is still too soon to tell whether Poland’s geology will be as amenable to large-scale profitable shale gas production as in the United States. Moreover, he suggested that starting up shale gas production outside America may not happen until the next decade. The Polish government had expected that commercial extraction of 0.5 to 1 billion cubic meters of shale gas annually could begin by 2014-2015. While Chevron and PGNiG have had some early successes in drilling test wells, worryingly, Exxon Mobil’s first two wells were both deemed unproductive (though it is still far too early in the process to make any real judgments) (Financial Times, March 19).

Poland may not have any control over its geology, but legal and political issues have crept into the picture as well. In its rush to capitalize on the country’s shale gas findings, the Polish government has already given out over 100 concessions for drilling to domestic and foreign gas companies. However, Prime Minister Donald Tusk has admitted [link in Polish] that the process of handing out concessions was not well thought through. In addition, cases of bribery and corruption are coming to the fore. In January, the Polish Internal Security Agency arrested seven individuals accused of bribe taking or giving, including government functionaries in the Environment Ministry, three employees of firms seeking gas concessions as well as a person working at the PGI. Finally, environmental concerns [link in Polish] related to hydraulic fracturing (“fracking”) used to extract shale gas compelled parliamentarians from the “Greens 2004” Party to demand that the Polish Senate’s Supreme Audit Office (SAO) thoroughly study the safety of fracking techniques being employed in the country. The SAO will likely begin its study this year. Though largely driven by Russian lobbying, environmental concerns about fracking pushed the Bulgarian Parliament in January 2012 to extend a moratorium on all shale gas projects in the country.

Despite all these setbacks, opposition Law and Justice Party leader Jarosław Kaczyński [link in Polish] is still optimistic. Earlier this week, Kaczyński called shale gas a national treasure and appealed to the Polish state to be more fully involved with its exploitation for the collective good of the nation. Indeed, it will now be difficult to entirely slow or reverse the shale gas momentum started in Poland and the wider CEE region, even with negative forecasts and trends appearing. Illustratively, the Ukrainian government hopes to emulate Poland’s shale gas drive and plans to release tenders [link in Polish] to exploit shale gas to foreign companies and investors in short order. Finally, as the Financial Times was quick to point out following the PGI’s March 21 announcement, the latest Polish estimate of shale gas reserves may eventually be revised upward since it was based on “data collected more than 20 years ago from 39 test wells. More wells have been sunk more recently and when the results of those tests are analyzed, the outlook may well look rosier.”            

Although shale gas extraction will likely still move ahead in Poland despite the recent obstacles, production may very well occur at significantly lower levels than predicted and later than forecast. Consequently, the prospects for providing a plentiful, cheaper alternative to Russian conventional natural gas in Central and Eastern Europe may need to be revised. With downgraded Polish shale gas reserves, the importance of LNG terminals, nuclear power plants, “clean coal,” carbon dioxide sequestration projects, regional pipeline inter-connectors, and Caspian basin gas shipments across the “Southern Corridor” will certainly grow. Examples of all of these shale gas alternatives are, to varying degrees, currently being pursued in the region. Thus, as shale gas euphoria cools, CEE countries will likely need to double their efforts unilaterally, in joint projects and with the EU’s help to assure sufficient diversification in their gas and energy markets. As energy experts and even the President of the United States have often said, there will be no silver bullet for achieving energy security. Poland’s more sobering shale gas forecasts are just the latest regional case in point.

Viktor Yanukovych – Forever!

By Taras Kuzio

The arrest and imprisonment of Yulia Tymoshenko and Yuriy Lutsenko in 2010-2012 baffled Europeans and Americans because it seemed irrational for Yanukovych to undermine the Association Agreement with the EU that opened up the world’s largest market to Ukrainian business. This could be countered by the fact that Ukraine’s elites, like elites throughout Eurasia, prioritise their own self enrichment over state interests. The EU may have blocked the Association Agreement but why should this matter when Ukrainian elites can still own property, have offices and send their children to universities in Britain, France, Switzerland, Lichtenstein and of course Cyprus. The EU has blocked Ukraine from integrating into the EU while still permitting its elites the ability to live, work and shop as other Europeans.

The step also made it more difficult for Yanukovych to balance relations and negotiate with Russia at a time when Ukraine is isolated in the West (Serhiy Kudelia, “Why Yanukovych Did It: Explaining the Rationality of His Choice,” http://www.gwu.edu/~ieresgwu/assets/docs/ponars/KudeliaOct18.pdf and EDM, November 4, 2011, http://www.jamestown.org/single/?no_cache=1&tx_ttnews[tt_news]=38631).  This factor assumes wrongly that Yanukovych was always a promoter of a multi-vector foreign policy similar to that pursued by President Leonid Kuchma.
    

Former US Ambassador to Ukraine Steven Pifer writes that Kuchma’s multi-vector foreign policy centred on Europe, the US and Russia but of “the three, he increasingly placed emphasis on Europe” (http://www.brookings.edu/articles/2012/03_ukraine_pifer.aspx). Russia – not Europe - has always been the main emphasis in Yanukovych’s multi-vector foreign policy, but Western policymakers did not want to see this and believed his rhetoric about European integration.

A third factor why the arrests of opposition leaders were deemed to be irrational was because it gave Yanukovych no exit from power; if he left office, Tymoshenko could be released and she would take her revenge. A freed Tymoshenko would not only be a threat to Yanukovych but to many others in “The Family” (see EDM, December 2, 2011) and security forces (Security Service, prosecutors, judges, etc.) who have been involved in political repression.

This factor always rested on the assumption Yanukovych was considering leaving office. But, what if his strategic plan was to copy other Eurasian authoritarian leaders and think: Yanukovych – forever!

Unwritten rules under President Kuchma meant he would not imprison opposition leaders because he “understood that in this country one could not take power forever.” But, as Ukrainian Catholic University historian Yaroslav Hrytsak has pointed out, “The current authorities act as if they have come to power for 100 years” (http://expres.ua/main/2012/02/18/60595).

There are growing signals that the presidential administration is already contemplating ensuring a second term for Yanukovych in 2015 and, more dangerously, an indefinite prolongation of his presidency beyond his two term limit in 2020.

President Viktor Yanukovych no longer has to travel to downtown Kyiv and can work from his palatial Mezhyhirya home. His 30 car motorcades were a nightmare for Kyivites and reduced his always low popularity even further in Kyiv, Ukraine’s capital city. In March a rental agreement was signed between Mezhyhirya and the State Administrative Directorate (Derzhupravlinnia spravamy [DUS]) for Yanukovych’s new office in his palatial home. DUS is a relic of the Soviet era that manages all property owned by the presidential administration and National Security and Defence Council (NRBO) and provides services such as housing, clinics and transport for senior elites.

The contract runs until 2020, which means Yanukovych assumes he will be re-elected in 2015 for a second term. The contract provides for an extension beyond 2020, which also suggests Yanukovych may be considering staying in power beyond the constitutionally proscribed two-term limit (see analysis and photos at http://www.pravda.com.ua/articles/2012/02/27/6959508/).

Yanukovych has always denied owning the Mezhyhirya palace but this is no longer possible to do. DUS signed the contract with its virtual owner Tantalit that, as Leshchenko has investigated, is Yanukovych’s “own company.” He found that Mezhyhirya is owned by three parties: Yanukovych admits to owning a land plot of 2 hectares and Tantalit owns 27 hectares. The Vidrodzhennia Ukrainy (Renaissance of Ukraine) Charity leases another 8 hectares. The rent paid for Yanukovych’s new office is paid by the state budget to Yanukovych’s own company, Tantalit (see http://www.pravda.com.ua/articles/2011/11/21/6773868/). Yanukovych also is renting his jet and a helicopter from a company owned by his family members (http://www.pravda.com.ua/articles/2011/07/20/6405659/).

If Yanukovych is considering staying in power at the very least until 2020 – and possibly beyond – his imprisonment of his two strongest opponents, Tymoshenko and Lutsenko, are rational steps. Both opposition leaders are protyvnyky (mortal enemies) with who one cannot do a deal and therefore they represent a major threat. Deals can be done with oponentiv (opponents) whom one can buy off with deals and state positions, as in the case of Sergei Tigipko (whose Strong Ukraine party is to merge with the Party of Regions on March 17; see Taras Kuzio, “Tigipko to be Yanukvych’s Successor as Party of Regions Leader,” Jamestown Foundation Blog, August 5, 2010. http://jamestownfoundation.blogspot.com/2010/08/tigipko-to-be-yanukovychs-successor-as.html), Arseniy Yatseniuk and of course Viktor Yushchenko. Protyvnyky are similar to police officer Frank Serpico in the 1973 movie Serpico who refuses to follow other police officers and take bribes only to have them turn against him.

So, it would seem: Yanukovych – forever!

Amid Shifting Strategic Priorities, Poland Cancels Construction of Its Most Advanced Naval Corvette

By Matthew Czekaj

Polish Prime Minister Donald Tusk announced [link in Polish] on Friday, February 24 that his government was cancelling further construction of the “Gawron”-class naval corvette, a vessel based on the German MEKO A-100 design. In explaining the move, Tusk cited the project’s overwhelming cost overruns as well as the country’s changing security priorities. The Ministry of Defense spent 402 million PLN ($130 million) [link in Polish] on the advanced corvette, but after nearly 11 years of work on the Gawron (Polish for “rook”), the naval shipyards in Gdynia only managed to build the hull and install the engine. Finishing construction would have required another 1.1 billion PLN ($324 million), not even including the costs of arming the corvette with missiles and torpedoes – estimated [link in Polish] by the government in 2009 at 250 million PLN ($81 million). Had it entered service, the corvette’s maintenance and operational costs would have also overwhelmed the country’s military budget, Tusk added. The Polish MoD budget in 2011 [PDF in Polish] totaled 27.5 billion PLN ($8.9 billion).

The Gawron multi-role corvette would have been the most advanced vessel in Poland’s Navy, featuring [link in Polish] anti-radar stealth technology, anti-ship and anti-air missiles, anti-submarine torpedoes, electronic jamming systems, surface and air radar, as well as an advanced combined diesel and gas turbine (CODAG) [link in Polish] engine of an Italian design capable of reaching speeds of about 30 knots (close to 34.5 miles per hour). Warsaw realized in the late 1990s that its Navy required state-of-the-art vessels to patrol the Baltic, yet the path toward acquiring the Gawron was a long and bumpy one, culminating in a dead end.

Construction of the Gawron corvette began in November 2001, with an initial plan to build seven vessels. That order was soon revised down to 3-4, followed by a pair, and finally just one ship, to be christened the ORP Ślązak (Polish for Silesian), which was to enter service by 2012. The decrease in orders for Gawron corvettes drastically increased costs per unit for the Naval Shipyards. The Gdynia shipyard’s ongoing financial problems, coupled with its feud with the MoD over payments, eventually culminated in bankruptcy in April 2011. Moreover, in late 2011, Minister of Defense Tomasz Siemoniak noted that “not without reason” Poland’s General Prosecutor was looking into the Gawron construction project for signs of misappropriation of funds, financial fraud and corruption (Kurier Lubelski, February 24). Defense Minister Siemoniak has pledged to try to sell the Gawron hull abroad.

A final decision on whether to continue building ORP Ślązak was supposed to come in March. Instead, however, Tusk revealed the Defense Ministry’s choice to scrap it at the end of February, and dressed the announcement as part of the larger list of achievements and plans decided in the government’s first 100 days in office. As Tusk noted, canceling the “nonsensical” Gawron program was part of the effort in the last few months for a “radical increase in efficiency” of the Defense Ministry’s spending. As part of a larger military modernization scheme, in addition to stopping construction of what Minister Siemoniak called “the most expensive motorboat in the world” (Gazeta Wyborcza, February 24), the government plans to raise soldiers’ salaries, purchase new multi-role helicopters and possibly more military transport planes – either the CASA or C-130 Hercules. Finally, the government plans to reduce the number of generals and streamlining the officer corps not directly attached to the army’s command hierarchy to achieve what Minister Siemoniak termed “more army in the army” (Gazeta Wyborcza, February 24; Gazeta.pl, February 24). Opposition Law and Justice politician Ludwik Dorn emphatically agreed [link in Polish] with the decision, saying in an interview with TVN-24 that today the Gawron’s anti-radar stealth technology would have been already outdated and that the vessel would have made a “floating target.”

Predictably for such a high-profile military-industrial program reversal, however, the scrapping of the Gawron corvette created a political firestorm in Poland. The Polish Navy naturally responded quite negatively [link in Polish]. Retired Polish Admiral Zbigniew Badeński said in an interview with the Polish press that having a corvette like the Gawron was a national interest for Poland, a maritime country with a 273-mile coastline. He added that the Gawron-class corvette would be “able to operate in every region, with everyone and against anyone – a multi-role vessel: meant to defend against surface, air and underwater targets, as well as asymmetric threats, both in the Baltic and beyond” (Polska Times, February 24). At the same time, Leszek Miller, former prime minister and current leader of the center-left Democratic Left Alliance, angrily rebuked [link in Polish] the government in an interview with RMF FM radio, asserting that coastal Poland needed the vessel and that the government’s decision will set in motion the phasing out the country’s entire Navy. In following interviews with the press, Miller suggested sarcastically [link in Polish] that to save money, perhaps the government should eliminate the Army next. He also encouraged [link in Polish] Polish President Bronisław Komorowski – of PM Tusk’s Civic Platform party – to save the Gawron since the decision to begin constructing the corvette in 2001 occurred while Komorowski served as Minister of Defense.

Tusk’s government was not swayed by such arguments, however. Indeed, the termination of ORP Ślązak’s construction fits into a larger and longer-term decision by Warsaw to downscale and alter the shape of the Polish Navy. Opinions abounded within the Ministry of Defense that a singular vessel like the Gawron corvette would be useless in the Baltic and be unable to protect ships carrying liquefied natural gas (LNG) or oil to Polish ports. Rather, a series of cheaper, smaller patrol vessels would be more efficient for patrolling Polish sea-lanes (Rzeczpospolita, February 20). Furthermore, in announcing the Gawron’s elimination, PM Tusk also added that the government was not expecting to repair Poland’s ailing older frigates. TVP journalist Marek Świerczyński wrote back in 2008 for Central European Digest about Warsaw’s moves to drastically downscale the Navy, focusing state resources instead on “missile and aerial defense, heavy airlift and armored vehicles.” To offset its growing lack of surface vessels, Poland plans to beef up its shore-based missile artillery system composed of Swedish RBS-15s. Decidedly less seriously, Stanisław Koziej, the head of the National Security Bureau, suggested on RMF FM radio that the Navy invest in some unmanned autonomous underwater vehicles [link in Polish]. With a shrinking sea-worthy fleet, Poland will thus need to rely more and more heavily on the navies of its NATO allies, Denmark and Germany, to protect its interests in the Baltic Sea (CED, October 15, 2008).

It is clear that Warsaw is consciously prioritizing its Air Force and Army well ahead of its Navy – to the point of enhancing the two former branches at the expense of gradually eliminating the latter. In an ongoing age of fiscal austerity, all NATO allies are under increasing pressure to do more with less and pool or share resources, at times eliminating entire military branches or capabilities in order to devote more resources to more efficient, specialized, or niche capabilities. Yet, if this is the Polish Defense Ministry’s strategy, Warsaw will need to be careful. All of its allies are currently also slashing their defense budgets to the bone. Moreover, Russia has long-term plans to bolster its own Baltic Fleet including eventually adding an advanced, French-made Mistral helicopter carrier. The Russian navy in the Baltic may not be a direct security concern to Poland at present – and arguably will not be an existential threat even with a Russian Mistral patrolling the Baltic Sea. Yet, the Alliance and each of its Baltic-littoral members will need to be mindful of Russia’s growing regional strength and act to discourage Moscow from possibly becoming more aggressive in the Baltic Sea.

The NATO summit in Chicago is fast approaching, and one important topic of discussion will be better coordination in defense procurement and training to enhance NATO’s overall security and ability to defend all of its members. Poland – whose navy is shrinking so drastically – will have to do its best in Chicago to ensure Alliance cooperation and cohesion remains strong and European defense-centric if it wants to rely on its allies for Baltic Sea defense.