CEPI Ukraine Watch

Week of December 12-19

Photo: president.gov.ua

22. 12. 2014
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This is the latest in a series of CEPI weekly digest of notable local and international news and analyses covering the Ukraine crisis, all available in English. The CEPI Ukraine Watch focuses on domestic politics, reforms, energy and security developments. Published at www.cepolicy.org

 

Newly appointed Secretary of National Security and Defence Council Oleksandr Turchynov does not believe that Russian aggression could be stopped by diplomatic means. Boris Lozhkin, head of Presidential Administration also gave his first interview (2nd part here).

The Council of Europe and the European Commission have signed a new cooperation agreement to promote human rights, democracy and the rule of law in six Eastern European countries worth of €33.8 million.

The Yatsenyuk Cabinet is losing credibility in Bruselss, Evropejskaja Pravda reports, following the first meeting of the Association Council. Focus has published rating of most influential Ukrainians. Bloc of Petro Poroshenko faction has to deal with discipline in own ranks Capital reports.

1. POLITICAL DEVELOPMENT

Ukrainian pilot and MP Nadia Savchenko, who is imprisoned in Russia, has announced a hunger strike after being denied medical assistance. Russian President Putin said that Ukrainian servicemen arrested in Russia were not prisoners of war, but they were being suspected of terrorist activity.

Russia says it wants east Ukraine to stay with Kiev under reformed constitution: Moscow wants Ukraine to carry out a constitutional reform to allow more autonomy for Russian-speaking eastern regions that would then stay with Kiev, Foreign Minister Lavrov said. Responding to a question whether Crimea can be regarded as a location to place Russian nuclear, he has said that Crimea has now become part of a country that has such weapons under the Treaty on the Non-Proliferation of Nuclear Weapons.” At the same time, Russian Strategic Rocket Forces commander Col. Gen. Sergei Karakayev said that RVSN did not plan to deploy its units in Crimea. In interview for FRANCE 24 Lavrov has repeated that his country was determined to find a solution for Ukrainian crisis. Russia“supports the territorial integrity of Ukraine”, he said.  When asked about Crimea he said: “Crimea is unique, it is the one and only, it is Russian land. It was the will of the Crimean people.” He called Poroshenko the “best chance Ukraine has at the moment”. Lavrov said“We are not suggesting federalization, we’re not suggesting autonomy. It’s for Ukrainians to decide.”

President Poroshenko held a meeting with the Visegrad Group delegation represented by Deputy PM, Minister of Foreign Affairs of Slovakia Miroslav Lajcak, Foreign Ministers of Poland and the Czech Republic Grzegorz Schetyna and Lubomir Zaoralek and Deputy Minister of Foreign Affairs of Hungary Laszlo Szabo. Poroshenko believes that reforms in Ukraine will transform the Visegrad Group from V4 to V5″.  Visegrad Group expressed readiness to help with reforms in Ukraine in a coordinated fashion: Slovakia will be responsible for energy and security reforms; Poland – for decentralization, local government reform and public finance administration; Czech Republic – for civil society, education and media; Hungary – for economic policy, development of small and medium business and establishment of free TRADE area between Ukraine and the EU.

President Poroshenko visited Warsaw: Polish President Komorowski has signed the law on the ratification of the EU-Ukraine Association Agreement in the presence of Ukrainian President. Poland is open to hold talks with Ukraine regarding potential sales of arms, Komorowski saidMemorandum on cooperation to support a local self-government reform in Ukraine was signed. Poroshenko has called for the establishment of joint border and customs control on the Ukrainian-Polish border. Ukrainian president visited the base of future joint Ukrainian-Polish-Lithuanian brigade. It is planned that the brigade would begin its full functioning at the beginning of 2015.

Verkhovna Rada Foreign Affairs Committee has advised to pass a draft resolution terminating Ukrainian membership and involvement in bodies of the Commonwealth of Independent States.

Ukrainian Cabinet appointed a former deputy interior minister of Georgia, Ekaterina Zguladze as the first deputy interior minister. The Ukrainian Security Service said that it has foiled an alleged plot to detonate explosives in a crowded area in the capital, Kyiv.

President Obama signed “Ukraine Freedom Support Act” into law. He also issued an executive orderbanning U.S. exports of goods, technology, or services to Crimea. Obama also authorized the Treasury Department to impose further sanctionsCanada also added new sanctions on Friday, targeting individuals and the oil and gas sector in Russia. Russia’s foreign ministry said in a statement that the fresh sanctions “support Kiev’s ‘party of war’”. “We advise Washington and Ottawa to think about the consequences of such actions,” it said, adding: “we will start to develop counter measures.”

European Council has adopted tighter restrictions on European investment in Crimea, targeting Russian Black Sea oil and gas exploration, TRADE and tourism. New restrictions were published in Official Journal of the European Union.

Belarusian President Lukashenko met with President Poroshenko on December 21. Kazakh President Nazarbayev will also pay an official visit to Ukraine on December 22.

2. SECURITY UPDATE

Ukraine has no ambitions to become nuclear power again according to President Poroshenko.

President Poroshenko has said that night into Tuesday “was the first night when not a single shot was fired, when there was not a single breach of the ceasefire regime.” Spot report by the OSCE Special Monitoring Mission to Ukraine, 16 December 2014: OSCE SMM Patrol caught up in small arms crossfire. A total of 162 army servicemen have been killed during the regime of silence, Ukrainian General Staff said. A total of 185 servicemen had been captured and 298 had gone missing during this period.

The Kharkiv, Dnipropetrovsk and Zaporizhia airports have been closed for security reasonsKharkiv and Dnipropetrovsk airports returned to full operations on Tuesday. Zaporizhia airport will stay closed until December 23. The decision to close the airports was taken by the State Aviation Service based on information that militants may possess surface-to-air missiles with a range of 250 kilometres.

Merkel and Hollande discussed Ukraine crisis with Poroshenko: The parties have agreed that the trilateral contact group should meet as soon as possible to take measures on the further implementation of Minsk agreements. The French and German leaders “encouraged president Poroshenko to start the expected reforms to redress Ukraine’s economic and FINANCIALsituation[1]”.

Ukraine’s Ukroboronprom is the world’s 58th biggest arms manufacturer, according to Stockholm International Peace Research Institute. Ukroboronprom has signed a contract with U.S.-based Defense Technology Inc. on the delivery of AN/TPQ-49 anti-mortar radars for the Defense Ministry of Ukraine

UN warns of ‘life-threatening’ conditions for Ukraine’s civilians in its latest report on the situation in the country: Report by Office of the United Nations High Commissioner for Human Rights cautions about a “breakdown in law and order” in Ukraine’s eastern region fuelled by the inflow of heavy and sophisticated weaponry and foreign fighters, including from the Russian Federation. From mid-April to 12 December, at least 4,707 people were killed and 10,322 wounded by fighting.

NATO SG Stoltenberg discussed the Alliance’s efforts to support Ukraine’s government with Prime Minister Yatseniuk at NATO Headquarters. Yatsenyuk said he asked the alliance for assistance in shaping a new defense and national security strategy for his country and “additional support to improve the stance of the Ukrainian military and the National Guard.” Yatseniuk believes that “in order to become a NATO member, it is necessary: the first issue, to approve the amendments and pave the way for membership, the second, to pass reforms to meet all NATO standards and criteria, the third, to obtain the consent of the Ukrainian people – and I am sure that such consent is and will be, and the fourth – not just to send an application, but get NATO membership”, he concluded.

Volunteer battalion repeatedly blocked trucks with Rinat Akhmetov foundation’s aid: The trucks carrying humanitarian aid heading for the occupied territories in Donbas were blocked by volunteers’ battalions and returned to Dnipropetrovsk. The situation has repeated on Wednesday. Samopomich MP Semenchenko and commander of Donbas battalion said that volunteers would not let humanitarian cargo reach militant-controlled territories in Donbas until captives are released. Akhmetov’s humanitarian fund has addressed President Poroshenko, asking him to take control over the situation. The supplies were restored on Friday.

The Aidar battalion will be reorganized by the end of 2014, Chief of the General Staff of the Ukrainian Armed Forces Viktor Muzhenko has said.

During his annual news conference Russian President Putin said that situation in Eastern Ukraine “should be solved through political measures, not with the pressure… of an economic blockade or the use of armed forces.” “I think we have been right on the Ukrainian crisis and think out Western partners were not.” Full transcript can be read here. Ukrainian Major-General Razmaznin stated that all members of Joint Centre for Control and Co-ordination would be ready to launch joint patrols across all “DPR” and “LPR”-controlled territories by 28 December. JCCC is now fully equipped to conduct joint patrols, and was only waiting for the finalisation of the current ceasefire agreement.

Ukraine is not yet ready for the introduction of a visa-free regime with the European Union, but could be by the time of the Eastern Partnership summit in Riga, head of the EU Delegation in Ukraine Jan Tombiński said.

President Poroshenko has submitted the draft law on the abolition of the non-aligned status of Ukraine to Verkhovna Rada.

The Ukrainian Security Service is ready to exchange “all for all” prisoners in the anti-terrorist operation in the east, but states that the ten most dangerous criminals cannot be transferred.

According to an official document from the PGO obtained by the Kyiv Post, prosecutors had not filed charges against half of the 22 accused Yanukovych allies currently under EU sanctionsRussian special services have kidnapped an employee of the Ukrainian Prosecutor General’s Office in Crimea, accusing him of terrorism, Prosecutor General’s Office said. Russian Investigative Committee has opened a criminal case against Ukrainian Security Service chief Valentyn Nalyvaichenko on charges of libel, the organization of the use of prohibited methods of warfare, and abduction.

3. ECONOMY & REFORM EFFORTS

Ukrainian economy built thanks to Russia, Kyiv about to face 1990s again – Medvedev:  Russian Prime Minister Dmitry Medvedev has opined that the economy of independent Ukraine was built thanks to Russia’s support and the sum of Russian investment, preferential loans and deliveries has topped one hundred billion dollars. Full Medvedev op-ed titled “Russia and Ukraine: Living by New Rules” and published by Nezavisimaya Gazeta can be read here[2].

IMF First Deputy Managing Director “impressed by vision for an economic transformation of Ukraine”: Lipton gave no indication as to whether additional loans to Ukraine were being planned.Zerkalo Nedeli has reported that the fund’s review mission is being dissatisfied with the current status of Ukraine’s implementation of conditions, and thus not willing to disburse a third tranche.  NBU Valeriya Gontareva has reportedly also said  that international donors were not satisfied with the pace of reforms in the country.  An IMF mission is expected to return to Kyiv to continue the policy discussion in January 2015.

The rate of growth of Ukrainian exports to the EU has begun to fall, as the ability of Ukrainian businesses to fully utilize the preferential trade deal with the EU has been exhausted. Deputy Economic Development and Trade Minister Piatnytsky said that Kiev needed to change legislation to fully utilize potential of preferential trade.

Association Council urges Ukraine to accelerate process of enhanced reforms: the first Association Council meeting between the European Union and Ukraine with the participation of Ukrainian Premier Arseniy Yatseniuk, EU High Representative for Foreign Affairs and Security Policy Federica Mogherini and European Neighbourhood Policy Commissioner, Johannes Hahn took place in Brussel. Joint Press Release can be read here. Commissioner Hahn said the EU would continue to provide “an unprecedented level of financial support” to Ukraine – hinged on reforms. PM Yatseniuksaid that government was working to prepare National Reform Strategy by donor conference for Ukraine. Ukraine may not receive the full amount of a second tranche of EU assistance totalling EUR 105 million in 2015, since the implementation of certain reforms cannot be completed by the deadline. Tetiana Kovtun, from Delegation of the European Union in Ukraine, has said to Europeiska PravdaDenmark has ratified the Association Agreement between Ukraine and the European Union.

European Commission President Jean Claude Juncker has said, that IMF estimates Ukraine needs another $15 billion to withstand an economic crisis but the European Union has only limited capacity to help. He has added that member states will have to contribute – as the EU is not able to do this.

The surplus of Ukraine’s foreign trade in January-September 2014 reached $803 million, while foreign trade saw a deficit of $9.7 billion.

Canada will help Ukraine optimize free legal aid. The project of international technical assistance is designed for 5 years and is aimed at improving access to justice for vulnerable groups of the population.

Ukraine and the European Investment Bank will soon sign a loan agreement for EUR 200 million, which will be spent on restoring regional life support systems and infrastructure in Donbas, Deputy Premier, Regional Development Minister Hennadiy Zubko announced.

President Petro Poroshenko held a meeting with High Representative of the European Union for Foreign Affairs and Security Policy Federica Mogherini. The parties paid attention to the situation in the Donbas and the necessity of fulfilling the Minsk agreements. They have discussed the implementation of reforms in Ukraine. “We expect the Parliament to approve a series of reforms next week,” Poroshenko noted. Prime Minister Yatseniuk met with High Representative Mogherini, too.

Cabinet to draw up 2015 budget based on a hryvnia exchange rate of UAH 22 to the dollar, according to sources in parliament, Ekonomichna Pravda has reported. The government has not decided on the final forecast for the hryvnia exchange rate for drafting the national budget for 2015, seeing it in the range of Hr 15.77-17 per $1 and waiting for a forecast from NBU, Prime Minister Yatsenyuk has said. “The budget package envisages zero nominal growth in 2015″, Finance Minister Natalia Jaresko said.

Prime Minister Yatseniuk claims that Ukraine has passed its toughest anti-corruption laws, which has made it possible to eradicate corruption at the macro level.

Industrial production in Ukraine in November 2014 decreased by 16.3%, the State Statistics Service has reported. Donetsk region industrial production fell by 51.3%. In Luhansk region it collapsed by 82%.  Ukrainian metallurgical enterprises are expected to cut steel production by 16.8% in 2014, and by 0.7% in 2015, Ukrpromzovnishekspertyza has stated.

The Cabinet of Ministers of Ukraine has approved a bill to dissolve a convention with Cyprus on the avoidance of double taxation and moved it to Rada, Prime Minister Yatseniuk said.

President Poroshenko has announced that constitutional commission for decentralization will be created next week.

Information Policy Ministry may be funded by enterprises and could bring revenue to Ukraine, the head of the ministry Yuriy Stets said.

Justice Minister Pavlo Petrenko said some of his deputies would be foreigners to whom Ukrainian citizenship will be granted.

Prime Minister Yatseniuk met with German Foreign Minister Frank-Walter Steinmeier to discuss current financial and economic situation in Ukraine and prospects of European Union support for the implementation of reforms. Steinmeier also held meeting with President Poroshenko. Poroshenko has appointed Andriy Melnyk Ambassador of Ukraine to Germany.

4. ENERGY UPDATE

Ukraine has not received Russian steam coal since December 6, when 50 kt of coal were imported, the tyzhden.ua news reported citing the Energy Ministry. Centrenergo and DTEK confirmed to that coal supplies from Russia were very scarce and irregular.

Chevron terminated contract with Ukraine to extract shale gas in western Ukraine after trying for more than a year to get the government to simplify taxation for this type of business.

Ukraine and EBRD have signed a credit agreement for EUR 150 million to modernize Urengoy-Pomary-Uzhgorod gas pipeline.

Ukrinterenergo has approved regulations on the sale of electricity to the temporarily occupied territory of the Autonomous Republic of Crimea. The private companies will be able to supply electricity to consumers only if they will make advance payments in full or provide guarantees from state banks. Thus, state-owned banks under this regulation undertake paying for electricity to the occupied peninsula if the payment is not made by the supplier.

Gazprombank said it could demand the arrest of 5.7 bcm of natural gas in Ukraine’s underground storage facilities, if Ostchem, owned by billionaire Dmytro Firtash, fails to repay $842.5 million in loans. Naftogaz owned 11.45 bcm of the total 13.9 bcm in Ukrainian storage as of December 1, according to Naftogaz.

Naftogaz will pay a second tranche of debt to Gazprom by the end of this year, Finance Minister Natalie Jaresko said.

Polish Gaz-System and Ukrtransgaz will do a feasibility study to see whether to expand capacity to transport gas between the two countries, Gaz-System said.

Gas supplies from Europe to Ukraine via Slovakia will continue, and their volume may even be increased, Slovak Foreign Minister Miroslav Lajcak has said.

An administrative court ruled to cancel the Ukrainian government’s resolution that made state Naftogaz the exclusive supplier of natural gas to biggest consumers in Ukraine.

Cabinet approves 2014 gas balance. Ukraine in 2014 plans to import 19.899 bcm of natural gas, 28.9 percent less than in 2013 (27.974 bcm). Gas supplies from Gazprom will amount to 14.87 bcm this year.

DTEK energy holding, owned by Rinat Akhmetov, believes that the quickest way of ending the shortage of coal in the country is removing coal from the ATO zone. “At present, around 3 million tonnes of anthracite coal is there,” DTEK official said. The fears that state money paid for coal could go to the rebels are groundless, he added.

The government has passed a decision to allow any company operating in the electricity market to directly buy electricity from abroad. The electricity shortages have forced Ukrenergo to impose power restrictions across the country. PM Yatseniuk has said that that power restrictions could also be imposed on rebel regions.

5. VISEGRAD NEWS AND VIEWS

Polish humanitarian convoy worth of USD 1 mil has arrived to Kharkiv
Interview with Slovak Minister of Foreign Affairs Miroslav Lajcak
Hungary to finance exports to Ukraine and send its experts in reform– foreign ministry
Ukraine, Hungary to open another border checkpoint, implement joint border control – Klimkin
Eustream was informed by MGT about technical problems, which prevent the test operation of SK-HU gas pipeline

Noteworthy Resources

Ukrainian Hackers Leak Russian Interior Ministry Docs with ‘Evidence’ of Russian Invasion
Bohdan Chomiak: Agriculture needs reform not posturing
War-torn Donbas faces threat of ecological disaster
AEI: The Ukrainian revolution, one year later: A conversation with US Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland
Households too heavy burden on Ukraine’s energy system
EU leaders ready long confrontation with Russia
Maya Mykhailyuk: Do you know what people dying of hunger smell like?
Kolomoisky Ukraine International Airlines intends to push new market rules through court
Kuzmin accuses Kuchma of paying a $1 billion bribe to be cleared of Gongadze murder charges

Interviews

Interview with new energy minister  Volodymyr Demchishin
Interview with Igor Kononenko, 1st deputy head of Presidential Administration
Interview with Alexey Chaly, speaker of the parliament in Sevastopol

Food for thought

The Feudalization of Ukraine? By Balázs Jarábik

Polls

DIF: The public opinion in the liberated areas of Slavyansk and Kramatorsk

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