Publication: Monitor Volume: 5 Issue: 139

Ukraine’s overall indebtedness to Russia is roughly estimated at US$3 billion, with no agreement on the precise obligations of various Ukrainian debtors and no clear concept of debt servicing and reimbursement. During Stepashin’s visit, the sides continued to differ significantly over the size of Ukraine’s debt for Russian gas: Moscow puts it at US$1.8 billion while Kyiv acknowledges a maximum of US$1 billion, seeking to unload the balance on “private” Ukrainian importing firms–some of them defunct–for whose debts the government disclaims any responsibility. One of those companies, United Energy Systems of Ukraine (YESU), created by the fugitive ex-prime minister Pavlo Lazarenko while he was in power, owes some US$450 million debt for past purchases of Russian gas. In the negotiations with Stepashin, Pustovoytenko amiably offered to put in a good word with YESU that it may start repaying some of that debt.

The Ukrainian side resisted Stepashin’s debt-repayment proposal that Russian capital take over certain Ukrainian energy and transportation enterprises. The negotiations produced consensus “in principle” on three other reimbursement methods. First, deliveries of Ukrainian foodstuffs and industrial goods to Russia, to be valued at Russian market prices–that is, below world prices. Second, crediting Ukraine for the value of supplies and services to Russia’s Black Sea Fleet. And, third, deducting Russia’s arrears to Ukrainian defense industry–estimated at US$300 million–from the value of Ukraine’s debts to Russia. The two prime ministers are due to discuss an implementation mechanism next month in Moscow.

The same methods have, however, been discussed, but without any significant results. Last November, for example, the Ukrainian government agreed to begin delivering US$1 billion worth of goods to Russia as a condition to continued Russian gas supplies. But Stepashin complained during his visit that Ukraine had only to date delivered US$16 million worth of goods under that agreement.

Agricultural products are supposed to form the lion’s share of Kyiv’s payment-in-kind program. But on the eve of Stepashin’s visit, Kuchma dismissed Agriculture Minister Borys Supikhanov and reprimanded other officials for poor performance in the harvesting campaign. Ukraine’s State Committee for Statistics now projects significantly lower harvest figures than the ministry had. The sugar beet crop and sugar production–a major Ukrainian export, for which Kuchma successfully fought to retain a guaranteed share of the Russian market–have collapsed in the last few years. All this throws into serious question any agreement on debt repayment by means of deliveries of Ukrainian agricultural products to Russia. As Stepashin had to conclude, “the problem is not with [calculating] debt figures; the problem is that Ukraine can’t pay.”

Beyond that bilateral framework, Ukraine’s debt situation points to the urgent need for international agreement on forgiving a significant portion of Ukraine’s accumulated debts. The total external indebtedness is estimated at more than US$12 billion, mostly to Western creditors, and clearly beyond the country’s means to repay without risking a Romania 1989-style social cataclysm. Kuchma hinted last week that Western governments and banks currently consider placing Ukraine on the same footing as Russia with regard to debt forgiveness (UNIAN, Eastern Economist Daily (Kyiv), Itar-Tass, AP, July 15-19).