Ukraine Pre -Election Update

by Tammy Lynch

On October 19, Ukraine’s presidential election campaign will officially begin, in advance of the first round of elections on January 17.

The campaign is set to take place during Ukraine’s worst economic crisis since the mid-1990s, amid an atmosphere of cynicism and increasing apathy. Nevertheless, a recent poll suggests that a majority of Ukrainians plan to vote in the election.

The Kyiv-based Research and Branding Group found 60% of those polled said they were likely to vote, while 23% may vote. In 2004, the Central Election Commission recorded an approximate 75% turnout in the first-round of the election. However, given questions raised by monitors about the entire election process in 2004, it is likely that this figure is inflated.

The bad news for the current leadership is that they continue to trail in the polls behind nominal opposition leader Viktor Yanukovych. Mr. Yanukovych will forever be known as the man who was named president during the 2004 fraudulent election, but saw his “victory” overturned by massive street protests and the country’s Supreme Court. There is every possibility that he could also become known as Ukraine’s next president.

This month’s Research and Branding poll gives Yanukovych 30.2% support, with Prime Minister Yulia Tymoshenko garnering 18.5% and upstart Arseniy Yantsenyuk earning 8.9%. President Viktor Yushchenko barely rates on the chart. The President - blamed for not fulfilling most reforms demanded during the 2004 protests that led to his election – is supported by just 3.1%.

The poll shows a slight lengthening of Yanukovych’s lead over Tymoshenko. In an August poll by the same company, Yanukovych was supported by 26% of those asked, while Tymoshenko earned 16.5%. Yatsenyuk at that time could count on 12.5%.

Yanukovych appears to have benefited from the continuing economic crisis, a number of unproven corruption charges from opponents against Tymoshenko, and Yanukovych’s loud but financially untenable demands to raise pensions and minimum wages.

In response, Tymoshenko, who is known as a highly effective personal campaigner, is pushing her Bloc of Yulia Tymoshenko hard, with her most important allies focusing on the election issue. It is possible that she is spurred by the knowledge that her bloc is dangerously close to splintering, held loosely together only by her personal power and prestige. The Russia-tilting ProUA.com recently reported a back-door conversation with a Party of Regions (Yanukovych) deputy, suggesting that if Tymoshenko loses the presidency, they have assurances of the defection of a large number of her current allies.

All is not rosy for Yanukovych, however. ProUA also reported that support for him personally – and of more importance, financially – is weak within his own party. He also is an inferior campaigner to Tymoshenko, although he has improved in recent years. And there is trepidation within Yanukovych's Party of Regions over past polling numbers for Tymoshenko that proved to be up to 10 points less than actual results.

The biggest loser since August clearly is Arseniy Yatsenyuk, however, whose campaign staff, advertisements and message have been confused and muddled. While it is too soon to count out the former parliamentary speaker, all signs point to a two-horse race heading into the January poll. Should a second round be necessary,a prospect which is almost guaranteed, it will likely take place in early to mid February.

Eurasian Energy Briefs

By Roman Kupchinsky

Germany appears to be on the path to greater diversification of it natural gas suppliers.

On July 15, RWE signed an agreement with Turkmenistan which outlines conditions for the development of gas deposits in a section of Turkmenistan’s part of the Caspian shelf. According to the Warsaw-based Center for Eastern Studies, the agreement improved Germany’s chances of becoming the leading player in the export of Turkmen gas to the West as part of the Nabucco pipeline consortium.

Since the start of the still unresolved gas conflict with Russia in April 2009, “Ashgabat has been increasingly courageous in seeking closer co-operation with the West – for example, it has openly declared support for the projected Nabucco gas pipeline. Signing an agreement with Germany’s RWE while the gas conflict with Russia is ongoing is a way for Turkmenistan to strengthen its position in the gas negotiations with Gazprom concerning the terms on which the exports of Turkmen gas could be resumed.”

The European Commission along with international financial institutions agreed to extend Naftohaz Ukraine, the state-owned oil and gas monopoly, $1.7 billion in credits. Participating will be the European Bank for Reconstruction and Development ($750 million), the European Investment Bank ($450 million) and the World Bank $500 million).

The Commission had demanded a restructuring of the Ukrainian gas sector before extending any credits and apparently the Ukrainian government’s decision to raise domestic gas prices in September-October this year satisfied the banks.

Kommersant wrote that the Ukrainian government had asked for $4.2 billion, but this was rejected. Moreover, Naftohaz will only receive $300 in 2009, a sum which will hardly make a dent in improving the monopoly’s dire financial problems.

Exxon and Gazprom seem to be on a collision course. The Russian government is now demanding that Exxon divert gas from the Sakhalin-1 project to Russian domestic consumption in the Khabarovsk region and is mounting pressure on the U.S. company to drop plans to export gas to China.
"Given that nearly all the gas from the Sakhalin-2 project has already been sold under long-term contracts and other Sakhalin projects are not expected to start production in the medium term, the gas from Sakhalin-1 can be the only source for domestic supplies until at least 2015," said Vladimir Kozlov, head of Gazprom's Sakhalin office.

This is not an unexpected development. Western and Russian analysts have been predicting for years that Russia would use gas from Sakhalin island for domestic needs.

Speaking at the annual oil and gas conference in the island's capital of Yuzhno-Sakhalinsk, Vladimir Kozlov, the head of Gazprom’s Sakhalin office, said the growing demand for gas in Russia's four far eastern regions would reach 13 billion cubic meters by 2010 and further grow to 16 bcm and 19 bcm by 2015 and 2020, respectively.

This development will most likely strain Russian-Chinese relations and further scare Western investors from entering the Russian gas market.

China’s rich panda challenges the poor Russian bear’s Turf

by Roman Kupchinsky

The Chinese financial and trade behemoth has begun to slowly make its might felt in the states of the former Soviet Union, a territory proclaimed by the Kremlin to be its scared sphere of influence.

These inroads are not only being made in countries close to China such as Turkmenistan where Beijing has signed important gas pipeline and purchase deals, but are now proceeding further Westward.

Belarus recently announced that it would pay China in Yuan for goods purchased from the People’s Republic. On July 29 the Chinese Central Bank transferred $3 billion worth of Yuan to the Belarus Central Bank in a currency swap.

In terms of local currencies, the Chinese swapped 20 billion Yuan for 8 trillion non-convertible Belarus Rubles. The Yuan will be used to pay China for imports such as potash fertilizers, spare parts, microchips and chip assemblies, chemical products and machine tools.

In 2008 Belarus-Chinese trade reached $2 billion.

One week before the parliamentary elections in Moldova, China, according to the Financial Times on July 28, signed an agreement to loan the “cash strapped, resource strapped country” $1 billion dollars.

The Financial Times noted “The money will be funneled through Covec, China’s largest construction company. It will ostensibly be put towards infrastructure and projects such as energy modernization, water systems, treatment plants, the industrialization of agriculture and the creation of high-tech industries, which Moldova sorely needs.”

Ukraine, meanwhile has avoided approaching China for a loan, but is looking to Asia for investments and on July 16 Prime Minister Yulia Tymoshenko arrived in Seoul, Korea, seeking to encourage Korean investments in Ukraine’s energy sector.

Tymoshenko promised that the Ukrainian government would form a special group of assistance to South Korean investors, which will be headed by Vice Premier Hryhoriy Nemyria.

"We will create special mechanisms of cooperation. A special group will be operating under Ukraine's government, which will be promoting your investments into the fields of cooperation with Ukraine," she said.

Nonetheless, Tymoshenko has also stated that Ukraine hopes to step up its trade and economic cooperation with China.

"We hope that our mutual relations will continue developing actively as well, but apart from that, we hope to step up cooperation concerning potential investment in Ukraine's economy by Chinese businessmen," she said at a meeting with Chinese delegates in Kyiv on June 26.

Chairman of the China Council for the Promotion of International Trade Wan Jifei, in turn stated that 2008 had been one of the best periods in the development of trade and economic relations between Ukraine and China.

Jifei said that representatives of 50 Chinese companies, representing such areas as engineering, the energy sector, electronics, and light industry, had arrived in Ukraine to attend various business forums and exhibitions.

"We consider today's meeting as one of the most large-scale events in recent years, and we hope to deepen our cooperation," he said.

How the Kremlin will react to Chinese trade and financial initiatives in the former USSR is unpredictable, but the possibility exists that it will be viewed with suspicion by a highly aggressive Kremlin looking to consolidate its regional power.