UKL444 - Chair of Ukrainian Studies

less than it is supposed to, and it will also seek to re-export what it cannot
consume. But its ability to do either of these things will depend on the good
will of Moscow, in short on further Ukrainian concessions. The latest
concessions demanded are already threatening what Yanukovych is still
determined to protect: retention of at least partial Ukrainian control of gas
transit and the interests of businesses that now support the Party of Regions.
Third, Russia has categorically rejected a further Ukrainian requirement: a
minimum quota on its own trans-shipment of gas across Ukraine. Thus,
Russia preserves the option of shipping gas across other pipeline routes to
Europe if and when they are built. Fourth, the 60 percent rise in transit fees
secured by Tymoshenko has, by virtue of the discount, been annulled.
Finally, Russia has flatly refused to give ground regarding one of
Yanukovych’s core aims: its abandonment of the South Stream project. On
every one of these points, Kyiv has conceded and Moscow has refused to
budge one iota.
The long-term calculations are also faulty. As oil prices rise in 2011 and
possibly beyond, the gains secured by the new pricing formula will be washed
away. Further leniency by Moscow will be needed, and it will come at a price.
The root cause of this sorry state of affairs is not, as Yanukovych supposes,
high energy prices, but the grotesquely unreformed condition of Ukraine: its
inordinately wasteful consumption of energy, its failure to attract investment
in new energy resources, its barriers to genuine market relations and its
failure to stimulate honest entrepreneurship in the country. As early as the
mid-1990s, Western energy companies presented Kyiv with proposals that
would progressively—and substantially—diminish Ukraine’s inordinate
dependency on Russia. Yet Kuchma (in practice, Lazarenko and Tymoshenko)
rejected these proposals for the same reason that Yanukovych, Azarov, Boyko
and Lavochkin reject them now. The reforms required would break the link
between money and power. Which is more affordable for Ukraine: discounts
on 52bcm of Russian gas or a diversified and competitive economy paying
European prices on 26bcm of Russian gas? The question answers itself.
Den’: Who can force the people mentioned by you to reform? Can the West
provide incentives to pursue these reforms?
JS: The new authorities seem to expect that the EU will, in accordance with
the 2009 initiatives, provide finance for the modernisation of Ukraine’s gas
transit system. Why? The premise of that initiative was further steps by
Ukraine to eliminate subsidy and bring Ukraine’s energy market into
accordance with EU standards. Without any consultation with the EU, Ukraine
has now moved in the diametrically opposite direction. It has presented us
with a fait accompli. What obligation do we now have? What interest do we
now have? Why should the EU taxpayer finance economic malpractice in
Ukraine or subsidise Russia? Ukraine is a sovereign country, and its new
authorities had every right to act as they did. But the EU is a collection of
sovereign states with their own interests, their own economic priorities and
their own taxpayers to answer to. Given the scale of the emergency we now
face in Greece, I find it absolutely fanciful that the EU would decide to uphold
its side of the 2009 initiative after Ukraine has walked away from it. And if, by
some series of mishaps, we did grant money for modernisation, we would
merely persuade the new leadership that it had no standards to uphold, no