Sovereignty and the cost of Cheap Gas
Even a disparager of Ukraine’s independence could not have plotted the farce that played out on April 27th, when the country’s parliament ratified a deal to keep Russia’s Black Sea fleet in Sebastopol in exchange for cheaper gas. Eggs flew at the speaker, who sheltered under umbrellas. Flares filled the chamber with stinking smoke. Fisticuffs broke out beside a giant national flag stretched over the seats. Electronic voting devices were jammed. On the same day Russia’s parliament ratified the deal in an orderly fashion and with little argument.
The eggs, the smoke and the fighting are a sad reflection on Ukraine’s failure to bolster its independence since 1991 with proper reform, mature political debate and a functioning legal system. The contrasting obedience of the Russian parliament testifies to a lack of political competition and scrutiny of the Kremlin. Zerkalo Nedeli, a Ukrainian weekly, commented that whereas Russian politicians rip off their country in imitation of a strong state, Ukrainian politicians do it in imitation of a democratic one.
Under the agreement, Russia’s fleet will stay in Sebastopol until 2042 (its present lease expires in 2017). Ukraine will get a 30% discount on its gas, worth as much as $40 billion over the next ten years. It was the election of Viktor Yanukovich as Ukraine’s president in February that was seen in Moscow as paving the way for the return to the Russian fold of a prodigal son who went astray after the Orange revolution in 2004. The deal, said Vladimir Putin, Russia’s prime minister, showed an “understanding of common interests and historic goals.” It was a foundation to build on, he added.
More details of the energy bit of the Russians’ ambitions emerged in a leaked draft this week. The idea is that Russia and Ukraine should jointly develop and operate Ukraine’s energy resources, including electricity and nuclear generation, and sales. Ukraine, it seems, would get no assets in Russia, and would guarantee to respect Russian assets in Ukraine and not siphon off gas from pipelines.
Ukraine’s opposition accused Mr Yanukovich of betraying the national interest and surrendering sovereignty. Yet the real betrayal is not the Sebastopol lease, but a failure to reform the economy and reduce energy dependence on Russia. The new deal will help with neither of these.
It also reflects badly on Russia. Energy remains almost the only effective tool that Russia has to shape its relations with its neighbours. Ukraine’s logic is clearer. The budget deficit is crippling. A big drain on the public purse is subsidised domestic gas prices. Removing the subsidy and passing on the cost of gas to consumers was necessary but unpopular. Now Mr Yanukovich will be able to reduce his budget deficit without risking his support. And extending the stay of the Russian fleet is backed by some 60% of Ukrainians.
The practical effects of the deal are limited, too. It will remove any chance of Ukraine joining NATO, but that had already receded beyond the horizon. Forcing the Russian fleet from Sebastopol against its will might have sparked a conflict. The military significance of the fleet is small. It has three large battleships, the most modern of which is almost 30 years old and was built for combat with America’s navy, and several smaller vessels and aircraft. During the August 2008 war in Georgia, Russia sent ships from Sebastopol into Georgian waters, but they did little. The Russians argue that extending the lease will allow it to modernise the fleet.
Yet the true value of Sebastopol to the Russians is symbolic. A city of Russian glory built by Catherine the Great, it has a big place in the national psyche. Withdrawal from Sebastopol, which was besieged and suffered grievously in the Crimean and “great patriotic” wars, would be a humiliation. Russia’s presence in the Russian-speaking city is also a symbol of wider influence across the post-Soviet space.
This deal is not cheap for Russia. Its cost will be borne by Russian taxpayers rather than by Gazprom, as the discount in gas prices to Ukraine will be provided by a cut in export duty paid by Gazprom to the Russian state. Gazprom also benefits from guaranteed gas supplies to Ukraine. The recent fall in gas prices and exports, and the prospect of competition from shale gas, are big worries for Gazprom. To entice Ukraine to sign contracts, Gazprom will allow it to re-export any gas it does not consume domestically. But if shale gas starts to replace natural gas in Europe, all these plans could go up in smoke. One feature of Russian agreements with Ukraine is how often and how easily they are revised or broken.
Source: The Economist