Despite a stern warning from the European Union (EU) to drop criminal proceedings against former prime minister and opposition leader Yulia Tymoshenko, she has been found guilty of abuse of power and sentenced to seven years in prison.
Significance
Rodion Kireyev, the judge at Perchersky District court in the Ukrainian capital Kyiv presiding over former Ukrainian premier Yulia Tymoshenko’s trial, ruled that while in office she criminally exceeded her powers in 2009 when concluding the controversial gas supply deal with Russia. She was sentenced to seven years in prison and also ordered to pay the state $188 million and banned from running in the 2012 parliamentary and 2015 presidential elections. Tymoshenko has denounced the verdict as a political indictment by President Viktor Yanukovych.
“The harsh verdict is a serious blow to Ukraine’s already weak democratic institutions.”
Implications
The EU has been watching the trial closely and has already warned that the "methods of selective justice" will be detrimental for bilateral relations. Yanukovych has refused to react to the EU concerns, saying that he cannot meddle in the course of justice.
Outlook
The harsh verdict, which backs all the main charges, is a serious blow to Ukraine’s already weak democratic institutions. The most influential opposition leader is essentially removed from the political scene for the next two elections. The punishment of a former state official for making a poor decision while in office sets a dangerous precedent and will need to be defended by Yanukovych during his upcoming high-level meetings with the EU leaders.
Trial and Verdict
After weeks of delay in one of three court cases against former Ukrainian prime minister Yulia Tymoshenko, judge Rodion Kireyev on Oct. 11 opened the morning session of the trial by reading out his verdict. He ruled against Tymoshenko, the leader of Ukraine’s strongest opposition party Bat’kivschyna, formerly known as the Yulia Tymoshenko Bloc (BYT). In particular the ruling read that: "Y.V. Tymoshenko… used her official powers to criminal ends and, acting consciously, committed actions which clearly exceeded her rights and powers which had heavy consequences."
Kireyev sentenced her to seven years of imprisonment and she was also ordered to pay back $188 million to the state in losses caused by the ten-year natural gas supply contract that Tymoshenko concluded with Russian PM Vladimir Putin in 2009. Kireyev spent four hours reading the verdict, which also barred Tymoshenko from taking part in the upcoming 2012 parliamentary and 2015 presidential elections.
The verdict is likely to spark a negative reaction from the West.
Tymoshenko, who has been in custody since August after being detained for contempt of court, dismissed the judge’s ruling as a political order from her political opponent in the 2010 presidential race, current Ukrainian president Viktor Yanukovych. She vowed to fight the current Ukrainian government, which she called "authoritarian". A defiant Tymoshenko added: "We will fight and defend my good name in the European court… We have to be strong and defend Ukraine from this authoritarianism."
The verdict is likely to spark a negative reaction from the West. The European Union (EU) has already repeatedly expressed its concerns over the use of selective justice in Ukraine, which is often applied to government’s opponents. On Oct. 10, EU foreign policy chief Catherine Ashton that although the 27–member European bloc is likely to continue talks with Ukraine to finalize the Association Agreement and the free-trade deal, this could be affected by the political processes.
President Yanukovych maintains that he is not involved in the trial and does not plan to meddle in matters for the judiciary. However, it was the ruling Party of Regions (PoR) parliamentary commission that first raised the allegations of criminal abuse of power by Tymoshenko.
The 2009 Gas Supply Deal and Its Lasting Repercussions
The guilty verdict against Tymoshenko marks another plot twist in the ongoing story of the January 2009 gas supply agreement between Gazprom and Naftogaz Ukrainy, itself just one of many chapters in the epic saga of Russia-Ukraine gas sector relations. Lest anyone forget, the gas supply deal that Tymoshenko agreed to was negotiated under duress, as a matter of urgency, as European leaders pressed Tymoshenko and Putin to put aside their differences to end a two-week halt in Russian gas exports to Europe via Ukraine.
Although the deal was hailed in Europe as ending the latest "gas war" between Russia and Ukraine, and Tymoshenko herself touted the agreement as eliminating the controversial middleman, RosUkrEnergo (RUE), from Russian gas supplies to Ukraine, the details of the agreement (and its implementation by Tymoshenko’s government) have provided further controversy in Ukraine’s domestic politics over the past two and a half years, particularly after Tymoshenko’s rival, Yanukovych, edged her out in February 2010 to claim the country’s presidency.
While Yanukovych’s election put Tymoshenko into political opposition, she was on the defensive with regard to the gas deal even before she left office, particularly when it came to light that she had agreed to a "base" price of $450 per 1,000 cubic meters (cm) for Russian gas supplies to Naftogaz. Although a 20 percent discount in 2009 alone brought this price down, Naftogaz still paid $360 per 1,000 cm in the first quarter of that year, more than double its end-2008 price.
The base price in the time-lagged, oil-indexed supply deal—tied to what had been the highest ever Russian gas export price for the European market—has been a key bone of contention between the current Ukrainian government and Russia, with Ukrainian officials alleging that the price is unfairly high. Although Yanukovych negotiated a 30 percent discount for Naftogaz in its Russian import price under the April 2010 "fleet-for-gas" deal with Russian president Dmitry Medvedev, Ukrainian authorities only belated appeared to realize that this "discount" price was merely a reduction from an inflated base price.
Tymoshenko’s consent to the asymmetrical supply and transit obligations under the January 2009 deals also has raised the ire of the current Ukrainian government. Aside from a commitment for Naftogaz to buy between 40 to 52 bcm of gas from Gazprom per year—which means Naftogaz is obligated to pay for no less than 33.6 bcm of Russian gas each year until 2019 under "take-or-pay" conditions—the Ukrainian "Gas Princess" also failed to secure a similar long-term commitment from the Russian gas giant to pump gas via Ukraine’s strategic gas transportation system (GTS).
Ukraine’s sluggish economic recovery from the 2009 financial crisis has meant that Naftogaz needs far less gas than envisioned in the 2009 deal to meet Ukraine’s gas demand, while Gazprom’s construction of "Ukraine bypass" pipelines like Nord Stream jeopardizes Russian transit volumes via the GTS over the coming decade, particularly as Gazprom has refused to guarantee gas transit shipments via Ukraine beyond 2015.
What is more, Tymoshenko’s implementation of the transit addendum to the 2009 deal has caused problems for Ukraine as well. The former PM’s decision to lay claim to more than 11 bcm of gas in Ukraine’s underground storage in 2009, the title of which was held by RUE, generated controversy as it disrupted RUE’s own exports to Poland, as well as prompted RUE to file an arbitration claim for compensation. A Stockholm arbitration court in 2010 ruled against Ukraine, effectively stating that Tymoshenko’s government expropriated the gas, forcing Naftogaz to return the gas to RUE, which then resold the gas to Gazprom.
The current Ukrainian government is continuing to press charges in the embezzlement case against Ihor Didenko, former Naftogaz Deputy CEO, and several former State Customs Service officials that were involved in the transfer of title of the gas from RUE to Naftogaz, apparently acting on Tymoshenko’s orders. The Kyiv Pecherskyi District Court has postponed the latest hearing in that criminal case until 20 October.
Outlook and Implications
The inherent problems in the January 2009 gas supply and transit agreements between Naftogaz and Gazprom have prompted the current Ukrainian leadership to seek to cast blame on Tymoshenko, while at the same time attempting to convince Gazprom and the Russian government to revise the terms of the 2009 supply deal. With Ukraine failing to sway Russia to consent to revise the deal, Yanukovych last month ordered the Ukrainian government to put together a plan for unbundling Naftogaz, a sly move that could potentially carry favor with the EU in undertaking overdue efforts to restructure Ukraine’s gas sector, but which was immediately interpreted in Russia as an attempt to break the existing supply deal.
By pinning the blame on Tymoshenko, the government is hoping to share the brunt of social discontent, especially in the upcoming 2012 legislative election.
Ukraine’s threat to take Gazprom to arbitration to revise the deal, together with subsequent talks between Yanukovych, Putin, and Medvedev, seem to have brought Russia and Ukraine closer to a potential compromise, which could see Gazprom gaining a long-sought-after stake in the operation of the GTS, as well as perhaps win a concession for Naftogaz on a reduction in its Russian gas price and/or the company’s import volume obligations. In that regard, the Tymoshenko guilty verdict could push the two sides closer to a final deal, given the alternative—in the event that Russia continues to refuse to revise the existing contract, the Ukrainian government could theoretically seek to annul the 2009 agreement entirely, citing the illegal actions by the former PM in overstepping her authority to approve the deal.
Ukraine is under pressure to liberalize its gas prices to unlock the stalled talks with the International Monetary Fund (IMF) but this is a highly unpopular move among the Ukrainian voters. By pinning the blame on Tymoshenko, the government is hoping to share the brunt of social discontent, especially in the upcoming 2012 legislative election. However, the foreign policy costs of this tactics, especially for EU-Ukraine relations, are going to be high and potentially delay the Association Agreement further.
That said the EU’s influence over Ukraine has been relatively limited. The European bloc’s policy to grant greater co-operation to Ukraine in return for steady reforms and commitment to democratic governance makes Ukraine’s dialogue with EU a long-drawn-out process. In the meantime Yanukovych appears to take one step at a time in fixing his government’s political and economic problems.
