Publication: Eurasia Daily Monitor Volume: 3 Issue: 160

Ukraine’s new prime minister, Viktor Yanukovych, paid his first visit abroad in that capacity on August 15-16 to Russian President Vladimir Putin’s residence in Sochi. The visit’s results are inconclusive, but Russia’s message to Ukraine seems clear: Economic favors are ruled out for the time being, but may become available later through mechanisms of “integration.”

Yanukovych held talks with Russia’s leaders and attended a summit of the six-member Eurasian Economic Community (EurAsEc: Russia, Belarus, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan) in line with Ukraine’s observer status in that group. Extensive discussions between Yanukovych and Russian Prime Minister Mikhail Fradkov were followed by a one-hour Putin-Yanukovych session on the second day (August 16), just before Yanukovych caught his flight back to Ukraine. The ushering in of Yanukovych at the last moment underscored the Kremlin’s wait-and-see attitude toward Ukraine’s new government. Landing in the Crimea in the evening to report to President Viktor Yushchenko there, Yanukovych could only tell the awaiting press, “We are aware of our quite difficult relations in the oil and gas sector” (Interfax-Ukraine, August 16).

Opening the prime ministers’ session, Fradkov cautioned Yanukovych that declarations about Russia being a priority in Ukraine’s foreign policy “should advance from words to deeds” and that Russia “needs full clarity” from Ukraine. Fradkov called for a “market approach” to bilateral economic relations, including energy supplies; Yanukovych, for a “market approach [that] also takes into account the level of Russia-Ukraine relations.” While Fradkov’s “market approach” implies monopoly and price dictation, Yanukovych’s qualification implies favors to Ukraine within a context of Ukrainian economic gravitation toward Russia.

Fradkov urged the Ukrainian side to participate more actively in preparations for creating the Single Economic Space (SES, with Russia, Belarus, and Kazakhstan) and, as an intermediate step, to fully join EurAsEc and its planned Customs Union. Fradkov described such participation in “integration processes” as one of the main factors that will determine the shape Ukraine’s relations with Russia. Yanukovych seemed to demur on SES, announcing only that First Deputy Prime Minister Mykola Azarov would represent Ukraine in the High-Level Working Group on the Formation of SES. Regarding EurAsEc’s Customs Union, Yanukovych answered cautiously that Ukraine would consider selective participation in those activities that would correspond to Ukraine’s national interests. Even so, this would seem to go farther than the previous government’s policy of seeking no more than a Free Trade Zone.

At this Sochi meeting, the presidents of EurAsEc’s member countries decided to accelerate preparations for the Customs Union, aiming to announce its founding by July 2007. Concurrently, the presidents of the three full-fledged SES member countries decided to forge ahead with that project. Such bifurcation would seem to enable Ukraine to opt for the softer form of such “integration.” However, participation in this Customs Union would jeopardize Ukraine’s accession to the World Trade Organizations and relations with the European Union. Yanukovych’s public remarks during this two-day meeting did not include any reference to Ukraine’s relations with the EU.

In the run-up to the Sochi summit, Yanukovych had publicly expressed hopes that Russia might reduce if only symbolically the price of gas for the remainder of 2006 and consider a price cut for 2007 (see EDM, August 16). These unrealistic hopes were dashed in Sochi. At the visit’s end, Yanukovych cited speculation about a price range of $150 to $230 per 1,000 cubic meters in 2007, which must look horrific in Ukraine, compared to $95 at present. But he assured the country on his return that there would be “no jump” in the price next year, and that the price of gas to household consumers would rise only moderately in 2007.

Thus, the issue remains in suspense as the heating season approaches. Fradkov and Yanukovych added to the uncertainty by announcing that a whopping 24.5 billion cubic meters of Russian gas would be pumped into Ukraine’s underground storage sites ahead of winter, at a rate of 130 million cubic meters daily. There is no word as to how much of this volume is intended for export to EU countries and how much for Ukraine’s consumption, how will the already indebted Ukraine pay for its share, and what fees Russia would pay for Ukraine’s storage services.

There was no word in Sochi about revising Kyiv’s suspect arrangements with the RosUkrEnergo gas company. The new government seems reconciled to those arrangements, to which both the first Yanukovych government and the Yushchenko contributed in an ironic demonstration of “bipartisanship.” Gazprom’s Vice-Chairman Alexander Ryazanov, who concurrently sits on RosUkrEnergo’s Coordinating Committee, was a key participant in the Sochi talks with Yanukovych.

Both sides aim to convene a meeting in Kyiv of the Russia-Ukraine Intergovernmental Commission on Economic Cooperation. The meeting would prepare decisions for a subsequent meeting of the Putin-Yushchenko Commission, the top though dormant authority on bilateral relations. In Sochi, Yanukovych pressed for an early meeting of the intergovernmental commission, to be followed the next day by the presidential commission’s meeting. Fradkov, however, seemed in no hurry, and neither did Putin. The Russian side wants “careful preparation” of the first meeting and, after that, careful preparation again of the presidential-level meeting. Yanukovych clearly tried to secure for Yushchenko the meeting with Putin that the Ukrainian president insistently seeks; but the Kremlin clearly feels that Ukraine needs Russia more than Russia needs Ukraine at this point.

(Interfax-Ukraine, UNIAN, Channel Five TV [Kyiv], August 15, 16; see EDM, August 14, 15)