Publication: Monitor Volume: 7 Issue: 33

On February 11-12, Russian President Vladimir Putin paid an official visit to Ukraine in Dnipropetrovsk. Against the background of Ukraine’s internal political crisis, Putin staged the visit as an implicit demonstration of political support for the embattled President Leonid Kuchma and, by the same token, an exercise in exploiting the weakness of political power in Kyiv in the interest of rebuilding the ties with Moscow.

–Industrial Privatization. Kyiv’s unconvincing performance in attracting Western investments is leaving the field open for Russia to take advantage of the privatization process in Ukraine. During the course of last year, Russian capital snapped up some of Ukraine’s major metallurgical and petrochemical plants.

In the run up to Putin’s visit, a political and legal battle erupted in Kyiv over the privatization of the Zaporizhzhia Aluminum Plant, Ukraine’s sole producer of primary aluminum. Prime Minister Viktor Yushchenko and his supporters tried unsuccessfully to prevent the manipulation of the tender by those Ukrainian officials who favored Russia’s giant concern AvtoVAZ over the Ukrainian bidder, the Kremenchuk Automotive Plant. The latter had offered a substantially higher price and won the tender, but was disqualified in favor of the Russian bidder. On February 8, Ukraine’s State Property Fund signed the sale-and-purchase agreement with AvtoVAZ. Yushchenko termed that outcome “a sad experience for the state, the triumph of force over law” and “a blow to the credibility of the privatization process.” Kuchma had initially seemed to support Yushchenko in this battle, but on the eve of Putin’s visit the Ukrainian president seemed to distance himself from the matter (New Channel Television, February 9; STB, February 12).

The fate of the Khartsyz Steel Pipe Plant came up for discussion during Putin’s visit. That state-controlled plant is the sole producer in the CIS of large-diameter, anticorrosion coated steel tubes for oil and gas pipelines. Khartsyz is also the flagship in a group of Ukrainian steel plants which are largely and dangerously dependent on exports to the Russian market. Russian steel producers are now lobbying their government to slap heavy protectionist tariffs on Ukrainian-made steel pipes. Kyiv fears that such a move could drive the Ukrainian steel plants into bankruptcy and leave them ripe for takeovers by Russian capital. The Kremlin, for its part, seems comfortably placed to either authorize that move on Ukraine, or alternatively stay the move in return for political concessions from Kyiv. The first privatization tender of Khartsyz failed last September because no bidders were prepared to pay the asking price. The plant currently operates well below its production capacity and sells its pipes mainly to Russia’s Gazprom. During Putin’s visit, Ukraine’s First Deputy Prime Minister Yury Yekhanurov publicly and almost beseechingly invited Gazprom to bid for the controlling stake in Khartsyz at a price substantially lower than that of the first tender. “This will be the tenor of upcoming talks with the Russians on the steel pipe issue,” Yekhanurov said.

–Aerospace and Aviation Industry. Putin and Kuchma’s joint appearance at the Pivdenmash aerospace plant was the public relations highlight of Putin’s visit. Kuchma had worked for many years there as an engineer and rose to head the plant in Dnipropetrovsk, the Soviet Union’s main producer of intercontinental ballistic missiles. The plant, which has since been converted for civilian commercial use, is involved in a wide range of joint programs with the aerospace industries of Russia and other countries. Current programs include the use of Cyclone, Zenith and Dnipro/Dnepr booster rockets for satellite launches from Russia’s Plesetsk airspace center, from Kazakhstan’s Baikonur, and as part of the Sea Launch program in the Pacific with the participation of America’s Boeing and Norway’s Kvaerner companies. While the record of Sea Launch is on the whole a successful one, the launches from Baikonur and Plesetsk have a checkered record. Most recently, the launch of six Russian communications satellites by a Ukrainian Cyclone-3 booster from Plesetsk on December 27 ended in failure and the loss of all satellites. A new Russian-Ukrainian joint project involves the Sich-1M spacecraft which is due to be launched in the first quarter of 2002.

Russia and Ukraine are currently developing jointly the An-38, An-70, An-140 and Tu-134 types of transport aircraft. Financial problems are delaying serial production of the medium-haul passenger airliner Tu-134. On February 9, a prototype of An-38 performed successfully in Bangalore at the Aero-India-2001 air show. That plane is set to compete in the Indian military’s tender for an airborne troop carrier. The main commercial hope in the Antonov series, however, may have crashed on January 27 along with the An-70 prototype of a medium-range carrier of troops and military hardware. The prototype was badly damaged in the course of a forced landing near the Russian city of Omsk in Siberia. Two of its four engines failed testing in subfreezing temperatures. Putin and Kuchma decided during their meeting to continue the An-70 program “in spite of the difficulties.” The earlier hopes for a breakthrough on international markets with the An-70 were receding, however, even before the failure in Omsk. The plane’s only likely customers are the Russian and the Ukrainian military. Meanwhile, the civilian transporter An-140 is being developed successfully–primarily by Ukrainians–at the joint venture near Isfahan in Iran.

–Crimea. Putin and Kuchma agreed “in principle” to support the construction of a bridge between the Crimea and Russia’s Krasnodar Krai across the Kerch Strait, which is five kilometers wide at its narrowest point. The initiative is that of Moscow Mayor Yury Luzhkov, an open advocate of reattaching the Crimea to Russia. Apparently with such purposes in mind, Luzhkov has in the last few years used Moscow city funds to subsidize civilian construction projects for the Russian navy on rented land plots, mainly around Sevastopol. Now, the Russian government and navy propose to buy those land plots and, thus, obtain extraterritorial rights there. On February 9 in Crimea’s administrative center Simferopol, Luzhkov’s delegates discussed details of the bridge project with Leonid Grach, the Communist chairman of the Crimean Supreme Soviet.

On February 12, Luzhkov flew to Dnipropetrovsk and presented the project to Putin and Kuchma. The project envisages a multilevel construction which would include a highway bridge, rail bridge, gas pipeline, electricity transmission line and irrigation water pipeline, at a minimum height of 64 meters in order to leave the strait free for shipping traffic. The construction time is estimated at six years and the cost in the range of US$500 million to US$1 billion. This looks like an underestimate.

Luzhkov and Grach propose to establish, in Kerch, a joint company for this project with 51 percent of the shares to belong to the city of Moscow, 25 percent to the Crimea and 24 percent to Russia’s Krasnodar Krai. The scheme would exclude Ukraine’s central authorities. Such an exclusion was already implicit in the agreement of intent, which Luzhkov and Grach signed in Moscow last December in violation of Ukraine’s and the Crimean autonomy’s constitutions, neither of which entitle the autonomy to enter into external agreements without the central government’s approval (see the Monitor, December 19, 2000). On February 12 in Simferopol, the Communist Party and the Union of Soviet Officers staged a rally in support of the project. Although these and similar organizations oppose Kuchma, they hailed his and Putin’s agreement to support the project. Its feasibility in the form proposed is, however, another matter and is indeed being seriously questioned.

–Electricity. Russia’s United Energy Systems (UES) president Anatoly Chubais and Ukraine’s Fuel and Energy Minister Serhy Yermilov signed an agreement on connecting, and ensuring the joint operation of, the Russian and Ukrainian electric power grids. The joint operation is supposed to preclude power outages in Ukraine, such as those that occurred repeatedly in recent weeks when Russia’s gas exporting company Itera–a Gazprom affiliate–promptly cut gas supplies to indebted Ukrainian thermal power plants. The joint operation agreement means a net increase in Ukraine’s overall dependence on Russian energy supplies. It also strengthens the hand of Russia’s UES in bidding for the upcoming privatization of Ukraine’s regional electricity companies (the Oblenerhos)–a process from which many in Kyiv and in the West hope to exclude Russia in the interest of consolidating Ukraine’s independence. Finally, the agreement reflects Chubais’ favorite idea of using the electricity networks of Russia’s neighbors in order to export surplus Russian electricity to third countries west and south (UNIAN, RIA, Eastern Economist Daily (Kyiv), Intelnews, February 8-14).

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