ENERGY REFORMER TO GO?

The embattled Ukrainian Deputy Premier for Fuel and Energy Yulia Tymoshenko is being forced out of the government. Since her appointment in January, Tymoshenko, striving to introduce market principles in Ukraine’s most corrupt industry–energy–and to ease energy dependence on Russia, has struggled against the oligarchs and gas dealers entrenched in the corridors of power. Now she faces a hostile parliament, opponents in the government and a president who doesn’t conceal his disapproval of her work.

Those opposing her are targeting the company she chaired in 1995-1997, United Energy Systems of Ukraine (UESU). Oleksandr Tymoshenko, UESU board member and Yulia’s husband, and Valery Falkovych, UESU’s first deputy director, were arrested on order from the General Prosecutor’s Office on August 18 on three counts. First, of embezzlement in 1993, when, as the prosecution holds, they swindled the state out of US$800,000 during a metal import operation. Second, of smuggling natural gas worth some 3 billion hryvnya (US$545 million) to Great Britain in 1996-1997. Third, of forgery. Yulia Tymoshenko denied each of these charges, claiming that the arrests were made to intimidate her and prevent reforms in the energy sector. Though the charges have not been proven and the investigation is still underway, Kuchma has managed to cast significant doubt on the integrity of O. Tymoshenko and Falkovych. “I cannot say that these are honest people,” he commented at the time of the arrest. On September 1, Deputy Prosecutor General Mykola Obikhod accused UESU top management of wiretapping employee telephones. He claimed as well that UESU illegally exported over US$1 billion from Ukraine, US$100 million of which lined the pockets of former Ukrainian Prime Minister Pavlo Lazarenko. Obikhod, coincidentally or otherwise, is the chief investigator against Lazarenko, who is believed to have patronized UESU. Finally, on September 3, the Ukrainian tax chief, Mykola Azarov, accused UESU and Tymoshenko (as its former director) of large-scale tax evasion.

After such allegations, it will be difficult for Tymoshenko to survive politically. She may end up like her former boss Lazarenko, as a scapegoat fingered by President Leonid Kuchma to convince the West that Ukraine takes its obligation to fight corruption seriously. Other clever businessmen, whose noses are no cleaner, but who are more loyal to the president, remain at large. Tymoshenko was appointed by the reform-minded Premier Viktor Yushchenko, who was chosen by Kuchma to demonstrate to the West that the Ukrainian government wants reforms, old international debts restructured and more borrowing. But, ever since then, Ukraine has received nothing, neither from the International Monetary Fund (IMF) nor from other lenders “under Yushchenko.” Media allegations about the misappropriation of the IMF loans by Kyiv in 1997-1998 threw doubt on Yushchenko’s moral stature. Yushchenko was then the central bank governor. These allegations were not confirmed by subsequent international audits, but Yushchenko’s reputation and stature nonetheless suffered. The rift between the him and Kuchma is growing: Yushchenko did not appear in public with the president on Independence Day on August 24, neither did he attend the parliament session opening on September 5. These are troublesome indications. Though Yushchenko has always supported Tymoshenko, he is scarcely in a position to defend her openly now.

Given Kuchma’s recent and strong criticisms, Tymoshenko’s chances of survival in government do not seem particularly good. The president ruthlessly slammed the deal on supply of 20 billion cubic meters of natural gas from Turkmenistan, which Tymoshenko had signed with Turkmen President Saparmurat Niazov on July 25. Kuchma said that only he as president can make such agreements and claimed the price Tymoshenko agreed upon was too high. The deal was canceled, apparently not without interference from Russia. Reportedly, after Tymoshenko’s visit to Ashgabat, Vladimir Putin phoned Kuchma to tell him how unhappy Moscow was with the deal, because Russia views Turkmenistan as its main competitor on the CIS gas market. Kuchma is also furious about Tymoshenko’s opposition to the so-called “energy island” plan, according to which three northern Ukrainian Regions should be connected to the Russian power grid and be independent from the Ukrainian one. Tymoshenko argues that this would increase Ukraine’s energy dependence on Russia. But she has strong opponents also in the government: Newly appointed Fuel and Energy Minister Serhy Yermilov is on Kuchma’s side on this issue. Tymoshenko is set to have problems with parliament. On September 5, Deputy Speaker Stepan Havrysh announced that Tymoshenko has no chance to preserve her chair. He warned that, should she stay, the future of her government will be in question. Havrysh belongs to the Regional Revival group, which includes Ihor Bakay. Bakay had chaired the oil and gas monopoly, Naftogaz Ukrainy, until Tymoshenko edged him out last March. Regional Revival, along with several other key pro-presidential parliament factions, is set firmly against Tymoshenko. In the legislature, Tymoshenko can count on support only from her own faction, Motherland, and the small factions of Ukrainian People’s Movement and Socialists, who are Motherland’s tactical allies. Arguably, Kuchma may preserve Tymoshenko in her post for some time, if he wants Motherland’s support in the upcoming vote on his constitutional amendments. Motherland’s thirty-two ballots may be crucial for the amendments’ adoption, for which 300 deputies’ votes will be needed (Ukrainian radio, July 27; Ukrainska pravda, July 28; Kyiv Post, August 24; New Channel, August 28, September 1; Zerkalo nedeli, September 2; UT-1, September 3; Den, September 6; see the Monitor, May 17, June 26)

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions