I read the April 10 letter from Russian President Vladimir Putin to European leaders with some shock. It is long,
therefore the answer needs to be long too.
Vladimir Putin: Ukraine’s
economy in the past several months has been plummeting. Its industrial and
construction sectors have also been declining sharply. Its budget deficit is
mounting. The condition of its currency system is becoming more and more
deplorable. The negative trade balance is accompanied by the flight of capital
from the country.
Paul Niland: All of the above is true. More or less. Stating these things
without even starting to analyze the causes, though, is a bit naughty, to say the
least, right? Ukraine’s economy has plummeted in the past several months,
because the citizens of the country were engaged in removing from office a
deplorable and thoroughly corrupt tyrant who attempted (quite pointedly on
Jan. 16 and Jan. 29) to turn Ukraine in to a
dictatorship. This has caused a little uncertainty, to say the least, and uncertainty
is NOT good for business. But, we are getting much better now the dictator has
gone, thanks. Last thing, you mention capital flight, are you not confusing a
report on Russia’s own economy and mistakenly thinking it was a comment about
Ukraine you were reading? Ok, mistakes happen. No harm done.
VP: Ukraine’s economy is steadfastly heading towards a default, a halt in production and skyrocketing unemployment. Russia and the
European Union member states are Ukraine’s major trading partners. Proceeding from this, at
the Russia-EU Summit at the end of January, we came to an agreement with our
European partners to hold consultations on the subject of developing Ukraine’s
economy, bearing in mind the interests of Ukraine and our countries while
forming integration alliances with Ukraine’s participation. However, all
attempts on Russia’s part to begin real consultations failed to produce any
results.
PN: Ah, I am glad you brought this up… At that summit you said: “Regarding
your question whether we will review our agreements on loans and the energy
sector if the opposition will take power … No, we will not“ What happened
to that? The loan thing we’ll come back to later, but have you kept to the
discounted gas price? No. I understand why you have not, that’s to be expected
frankly, but you are a little bit going back on your word. You also said, on
Jan. 28, that the situation in Ukraine should be resolved
without foreign interference, correct? I’ll just leave that there.
Expats in EuroMaidan crossfire: Many actively support protests
VP: Instead of
consultations, we hear appeals to lower contractual prices on Russian natural
gas – prices which are allegedly of a “political” nature. One gets the
impression that the European partners want to unilaterally blame Russia for the
consequences of Ukraine’s economic crisis.
PN: One gets the impression someone wants to pin Ukraine’s economic
woes on just one thing, gas prices, that’s the impression one gets. That’s not
even a little bit true. Ukraine’s economy is in a mess because the state’s
coffers were systematically looted by people who you were happy to do business
with. Come on, really now, you MUST have known how corrupt Viktor Yanukovych and his
clan were, right?
VP: Right from
day one of Ukraine’s existence as an independent state, Russia has supported
the stability of the Ukrainian economy by supplying it with natural gas at
cut-rate prices. In January 2009, with the participation of the then-premier
Yulia Tymoshenko, a purchase-and-sale contract on supplying natural gas for the
period of 2009-2019 was signed. The contract regulated questions concerning the
delivery of and payment for the product, and it also provided guarantees for
its uninterrupted transit through the territory of Ukraine. What is more,
Russia has been fulfilling the contract according to the letter and
spirit of the document. Incidentally, Ukrainian
Minister of Fuel and Energy at that time was Yuriy Prodan, who today holds a
similar post in Kiev’s government.
PN: This raises a couple of interesting questions… Firstly, the back
story to the discussions with then Prime Minister Tymoshenko is that Russia had
turned off the gas to Ukraine, correct? So she was going there to negotiate but
(as usual…) Ukraine was being held over a barrel a little bit, right? Secondly,
I would not shout too loud about the triumph of that agreement because it was
used to actually send her to jail, not that this was the REAL reason she was
sent to jail of course, we all know that, but it was argued soundly enough for
a judge to rule that she had exceeded her authority in signing such a bad deal
from Ukraine’s perspective and commit her to jail for seven years. Now, let’s just
ask, how is it that a woman with such a vast knowledge of how the gas trading
business works could commit to such a bad deal? One negotiated with you.
Kompromat? I guess we’ll never know.
VP: The total
volume of natural gas delivered to Ukraine, as stipulated in the contract
during the period of 2009-2014 (first quarter), stands at 147.2 billion cubic
meters. Here, I would like to emphasize that the price formula that had been
set down in the contract had NOT been altered since that moment. And Ukraine,
right up till August 2013, made regular payments for the natural gas in
accordance with that formula. However, the
fact that after signing that contract, Russia granted Ukraine a whole string of
unprecedented privileges and discounts on the price of natural gas, is quite
another matter. This applies to the discount stemming from the 2010 Kharkiv
Agreement, which was provided as advance payment for the future lease payments
for the presence of the (Russian) Black Sea Fleet after 2017.
PN: Hang on. Is it a discount or is it not a discount? If it is an
advance payment for future lease payments of the Black Sea Fleet, that’s not a
discount. Obviously. It’s fair payment for something. Not a favour.
VP: This also
refers to discounts on the prices for natural gas purchased by Ukraine’s
chemical companies. This also concerns the discount granted in December 2013
for the duration of three months due to the critical state of Ukraine’s
economy. Beginning with 2009,the total
sum of these discounts stands at 17 billion US dollars. To this, we
should add another $18.4 billion incurred by the Ukrainian side as a
minimal take-or-pay fine.
PN: Ukraine’s chemical companies, all owned by oligarchs, really
should be investing in more efficient plants using less gas, but anyway they
are hardly in need of a discount. The December 2013 “discount” (let’s just call
it a bribe) was for three months only? I don’t remember that being stated at
the time. I do remember the take-or-pay fine being in the small print we heard
about a few days after this “discount”
was announced though… You negotiated that deal with Yanukovych in December,
Yanoukovych agreed to increased volumes (by a third, extra gas that Ukraine
actually didn’t need, as I remember) under the take-or-pay system. What’s the
sense there? Ukraine would sell it on? To whom? Europe already has cheaper gas
than Ukraine. And, if Tymoshenko went to jail for exceeding authority by doing
one bad deal with you, surely that’s a precedent for another charge to be
leveled at Yanukovych? And, the same question, why would someone agree to such
a bad deal (with you, both times…) against Ukraine’s interests? Kompromat?
VP: In this
manner, during the past four years, Russia has been subsidizing Ukraine’s
economy by offering slashed natural gas prices worth 35.4 billion US dollars.
In addition, in December 2013, Russia granted Ukraine a loan of $3 billion. These very significant sums were directed towards maintaining the
stability and creditability of the Ukrainian economy and preservation of jobs.
No other country provided such support except Russia.
PN: Let’s be clear, this financial assistance was offered to a
ruling regime you supported. The reasons can be analysed by others who need or
wish to do so.
Minister says Ukraine’s stored natural gas enough for one month
VV: What about
the European partners? Instead of offering Ukraine real support, there is talk
about a declaration of intent. There are only promises that are not backed by
any real actions. The European Union is using Ukraine’s economy as a source of
raw foodstuffs, metal and mineral resources, and at the same time, as a market
for selling its highly-processed ready-made commodities (machine engineering
and chemicals), thereby creating a deficit in Ukraine’s trade balance amounting
to more than $10 billion This comes to almost two-thirds of
Ukraine’s overall deficit for 2013.
PN: According to free market economic principles, one side sells
things, one side buys things. Nobody is “using” the other side. But thanks EU
for unilaterally agreeing to cancel a whole bunch of tariffs recently, very
kind of you.
VP: To a large
extent, the crisis in Ukraine’s economy has been precipitated by the unbalanced
trade with the EU member states, and this, in turn has had a sharply negative
impact on Ukraine’s fulfillment of its contractual obligations to pay for
deliveries of natural gas supplied by Russia. Gazprom neither has intentions
except for those stipulated in the 2009 contract nor plans to set any
additional conditions. This also concerns the contractual price for natural
gas, which is calculated in strict accordance with the agreed formula. However,
Russia cannot and should not unilaterally bear the burden of supporting
Ukraine’s economy by way of providing discounts and forgiving debts, and in fact, using these subsidies to cover Ukraine’s deficit
in its trade with the EU member states.
PN: Wow! That’s a massive conflation. And distortion. I could just
as easily argue that if Yanukovych and his clan (again, you knew how corrupt he
really was, right?) were guilty of thieving $70 billion over three years, that
breaks down to $23 billion per year, so in other words this theft from the
state is what caused the gas debt of $10 billion and also the trade deficit
with the EU of another $10 billion. If you want to go lumping unrelated things
together. Note, that’s one estimate, respected economist Anders Aslund
estimated the size of the theft from the major scams as being between $10
billion and $15 billion per year. We’re working on the details. Watch this
space.
Putin says situation around Russia-Ukraine energy cooperation complicated
VP: The debt of
NAK Naftogaz Ukraine for delivered gas has been growing monthly this year. In
November-December 2013 this debt stood at 1.451,5 billion US dollars; in
February 2014 it increased by a further 260.3 million and in March by another
526.1 million US dollars. Here I would like to draw your attention to the fact
that in March there was still a discount price applied, i.e., 268.5 US dollars
per 1,000 cubic meters of gas. And even at that price, Ukraine did not pay a single dollar.
PN: Forgive us. We have been a little busy and have had to undertake
a complete audit of the state’s finances. Counting what’s left didn’t take
long. To be fair though to the current government who only took charge at the
end of February, they can’t really be blamed for the situation that came
before, can they. Also, to be fair, at this juncture let’s say a big thank you
for financial aid to Japan ($1.5 billion) the US ($1 billion) The World Bank
($3 billion) and the IMF ($14-$18 billion) among others (the EU) and let’s
point out that there’s no way these parties would have put up a dollar while
Yanukovych and his band of (alleged, until they stand trial) criminals were in
charge because everybody knows they’d have stolen it all.
VP: In such
conditions, in accordance with Articles 5.15, 5.8 and 5.3 of the contract,
Gazprom is compelled to switch over to advance payment for gas delivery, and in
the event of further violation of the conditions of payment, will completely or
partially cease gas deliveries. In other words, only the volume of natural gas
will be delivered to Ukraine as was paid for one month in advance of delivery.
PN: Is this the right time to raise the issue of the remaining $12
billion of the loan agreement from December? Give a brother a hand.
VP: Undoubtedly,
this is an extreme measure. We fully realize that this increases the risk of
siphoning off natural gas passing through Ukraine’s territory and heading to
European consumers.
PN: What? Is anybody expected to believe that Ukraine could simply
siphon off some volume of gas that would be metered entering the country and
metered exiting the country? What? That’s preposterous. Well, with the
exception of the amount of “technical gas” that has always been a nice little
grey area for people to line their pockets with of course. In the murky world
of gas dealings of the past, sure such games would have been possible and such
things no doubt did happen, but it must be technically (and easily) possible to
monitor volumes of gas in and gas out so that no such siphoning occurs. How
about Ukraine just agrees to have that transparently monitored, that’ll allay
any fears on this issue.
VV: We also
realize that this may make it difficult for Ukraine to accumulate sufficient
gas reserves for use in the autumn and winter period. In order to guarantee uninterrupted transit, it will be necessary, in the nearest future, to supply 11.5
billion cubic meters of gas that will be pumped into Ukraine’s underground
storage facilities, and this will require a payment of about $5 billion.
PN: That sounds like a) dictating terms, and b) an ultimatum. How
about sitting down properly and discussing things?
VP: However,
the fact that our European partners have unilaterally withdrawn from the
concerted efforts to resolve the Ukrainian crisis, and even from holding
consultations with the Russian side, leaves Russia no alternative.
PN: Again, things are being conflated. Ukraine’s “crisis” is one
thing. The situation with the gas debt is entirely unrelated, or, at least, it
should be, right? With regards to people withdrawing from concerted efforts to
resolve the crisis (and, not at this point looking at what’s fuelling (no pun
intended!) the crisis) – for example there was a recent meeting planned in
Belarus. Russia’s representative pulled out. Right?
Ukraine’s debt to Russia stands at $10 billion after severing Black Sea
Fleet agreements
VP: There can
be only one way out of the situation that has developed. We believe it is vital
to hold, without delay, consultations at the level of ministers of economics,
finances and energy in order to work out concerted actions to stabilize
Ukraine’s economy and to ensure delivery and transit of Russian natural gas in
accordance with the terms and conditions set down in the contract. We must lose
no time in beginning to coordinate concrete steps. It is towards this end that
we appeal to our European partners.
PN: What’s needed to stabilize Ukraine’s economy is, well,
stability. What we keep seeing though are demands for one thing or another and
through this a provocation of conflicts that really did not exist in Ukraine,
if anybody is to be making any demands, it is Ukraine that has to demand that
people respect that she is an independent sovereign state and let her people go
back to being in peace and then sitting and peacefully discussing areas of
disagreement and finding ways to ensure every citizen is safe and happy. When
there is stability and peace amongst the people of Ukraine stability in the
country’s economic situation will follow, the investments being made by parties
earlier mentioned are important in this. Agitation and provocation contribute
to instability and if there is any deliberate agitation and provocation against
an independent country by outside forces, that is a crime against that state.
VP: It goes
without saying that Russia is prepared to participate in the effort to stabilize
and restore Ukraine’s economy. However, not in a unilateral way, but on equal
conditions with our European partners. It is also essential to take into
account the actual investments, contributions and expenditures that Russia has
shouldered by itself alone for such a long time in supporting Ukraine. As we
see it, only such an approach would be fair and balanced, and only such an
approach can lead to success.
PN: There are many approaches that can lead to success, that’s for
sure, closing off all other avenues with language like “only this approach can
be successful” isn’t just arrogant, it’s wrong. There has been no indication
from anybody on the Ukrainian side that they intend to default on any
obligations that have been incurred by the previous authorities. There has been
no indication from the current government that there would be any reneging on
any of the contractual commitments that the state has, for any reason whatsoever,
and that includes the agreement for the Black Sea Fleet to remain on Ukrainian
territory. Ukraine will manage her debts. A strong investment driven economy
will help Ukraine meet these obligations while at the same time not having
approximately $15 billion stolen from the economy per year will also be a not
inconsiderable help, not just in meeting external obligations but in resolving
internal issues as well. Like a proper police force, paid a proper salary so
they do not have to rely on bribes and are therefore are themselves part of the
criminal structure. Like a medical system where healthcare professionals are
recognized and rewarded fairly for their passion and dedication in terms of the
salary they receive and also in the refurbishment of the environments in which
they work.
The list of those who deserve better goes on and decent hard working people like mines deserve safer working environments, teachers who are earning $200 per month have little reason to be passionate educators, yet many are.
The
list of people who deserve better extends to about 45 million people, all of those
who were victims of the crimes of Yanukovych and his clan. There were people who have continually stood in the way of
Ukraine’s development as they considered only their own personal wealth and
never the good of the nation. Many of them today are being sheltered in Russia.
When the regime fell the worst of these bandits fled immediately to and sought
refuge in Russia and remain there at liberty today. If anybody is making any
demands today it should be this, Ukraine demands the return of these people so
that they can stand trial for the crimes they have been accused of. We would
like your help in facilitating this. These people are promised the fair trial
they were happy to deny others as they attempted to remain in power through
obvious human rights abuses which were contrary to specific terms of the
constitution they were supposed to be upholding.
Paul Niland is managing director of PAN Publishing, which publishes Panorama and What’s On magazines.
