EBRD invests in Ukrainian wind

Although you won’t remember, in March 2011, I told you about Ukraine’s first wind farm.  Yes I know it was a very short post, but as it said, it was a start.

Well since then alternative energy has progressed somewhat in Ukraine.  Solar, hydroelectric bio-fuelled  CHPs and wind.  A lot of investment is going into alternative energy production, although not enough to prevent the next generation of civil nuclear power facilities being built.

In fact a lot of money is going into energy in Ukraine, be it alternative, energy efficiency, next generation nuclear, domestic oil and gas exploration and production, as well as Shell and Chevron yesterday being confirmed as tender winners for shale extraction in the west and east of Ukraine.

Of course there are environmental and ecological concerns no matter how energy is produced.  5000 exploratory wells anticipated between Shell and Chevron looking for shale gas, there is a major concern over huge areas of prime agricultural land being used for bio-fuel production at great cost to the soil,  damage to ecosystems with hydroelectric production, flora and fauna damage via huge solar farms spreading across acres of land etc.

Quite simply there is no such thing a zero impact energy production any which way it is produced.  Anybody who says otherwise is a liar.  Even the component parts used to create alternative energy systems are manufactured using conventional energy in buildings constructed by and using materials creating with, conventional energy.  They all have a massive energy legacy to repay prior to actually being beneficial to the planet.

If that sounds like I know what I am talking about it is because I do.  I am a qualified civil engineer and have written numerous ISO 14001 environmental policies, environmental risk management programmes and audit procedures.

Anyway, back to Ukrainian alternative energy, and in particular – wind.

There is no doubt that Ukraine has huge potential in alternative energy production.  Anybody who doubts that need simply follow the projects and acquisitions of DTEK, a company owned by the richest man in Ukraine, Rinat Akhmetov.  Whilst he is best known for being an oligarch whose riches comes from metal production and also being the owner of Shakhtar Donetsk FC, only the willfully blind would not have noticed his serious investments into all areas of energy production over the past 3 or 4 years.  Alternative energy is no exception when it comes to Mr Akhmetov’s energy investment portfolio.

It is therefore no surprise to find that the EBRD in conjunction with the EU’s Clean Technology Fund have decided to pour Euro 9.5 million and Euro 3.8 million respectively (Euro 13.3 million in total) into a Ukrainian/Italian company called Eco-Optima.  The loan is over a 10 year period and payable in two tranches.

Eco-Optima intend to build a wind farm in Starry Sambir (near Lviv) that will consist of 5 wind turbines with an anticipated total annual production of 25.5 GWh.  That is enough for just over 10,000 homes annual useage by my rough calculation, and also reduce carbon emissions by approximately 30,000 per year (in comparison to non-nuclear conventional energy production if we discount any energy legacy involved in production of the technology).

Maybe more encouragingly than anything I have written so far though, is that it is, to my knowledge, the first EBRD investment into Ukrainian wind – ever – which is a positive thing in and of itself!

Social gap between rich and poor explosive in Ukraine

Now you know how sometimes I question why people are paid for stating the obvious and have done so on several occasions in this blog over the years, here we have yet another case where the obvious is stated and as normal no solutions are put forward.

Volodymyr Fenesnko, Director of the Penta Centre for Applied Political Studies gets an A+ for stating the obvious when it comes to there massive and growing gap between rich and poor in Ukraine, and a bonus mark for stating the eventually this may lead to an explosive reaction against the oligarchy and the government of the day (which ever day this explosion may occur upon).

Not exactly a new phenomenon, although the Ukrainian rich have so far managed to prevent applying the match to the powder keg but making statements similar to those allegedly made by Marie Antoinette about eating cake.

Also the government is hardly Louis XVI and is in place by democratic mandate rather than birth right.  It can therefore be removed without Madam Guillotine adorning town and city squares lopping of heads to appease the indignation of the masses.

However, Mr Fenesko gives no apparent solutions to the problem.  He says  “Unfortunately, there was and there is no serious system of new social policies that would reduce the gap between rich and poor.”  Well that may well be true to some extent, but identifying that which is prima facie blatantly obvious is of little use without some suggestions relating how to address that issue.

If somebody would like to pay me to simply list the immediate problems and possible consequences of everything that could be improved in Ukraine, please leave me a comment and I will start work tomorrow.

Fesenko said that in order to resolve this problem, it is necessary to conduct a more active social policy aimed at balancing the income of Ukrainian citizens. However, he said that it was impossible to cope with this task in a year or two.

As my children would say, when somebody states the obvious – “No shit Sherlock!”  He is of course quite right that any active social policies will not sort the problem of explosive inequality within a year or two.  Firstly such policies have to be identified, modeled, costed and then hopefully effectively implemented.  Not really something that can be done overnight, and even when done the benefits take a long time to trickle through the system and markedly improve social imbalances.  It is a long term issue that cannot be dealt with by a short term fix and throwing money at a problem is not always the right solution, even if it brings temporary respite.

On the other hand, in his opinion, not only Ukrainian politicians, but also big businesses are responsible for the problem of “rich and poor.”

“Now the big Ukrainian business behaves too selfishly, without paying any attention to the actual situation. The brazen and contemptuous attitude of oligarchs to ordinary Ukrainians is an irrational and dangerous position. If it does not change, they will face a serious threat to their future.”

Now here we must be absolutely clear.  Social policy is set by government.  Social policy can only be set by government.

Social responsibility is a completely different thing and here is where Ukrainian big business needs to up its game.

However in stating that, I am mindful of the ever increasing pressure and costs related to EU parity when it comes to production methods, production standards, carbon capture, health and safety etc which is simply not cheap.  There is, even if unrecognised, a huge amount of internal investment within Ukrainian big business to move closer to EU norms at no small cost.  All of these internal investments ultimately do have a social gain although it will be several years before they even begin to become apparent.

The long term solution? – What is crucially missing in Ukraine that makes the gap between rich and poor so very obvious is a solid, large and vibrant middle class.  What can be genuinely described as middle class is still relatively small.  Therefore there seems to be no social steppingstone between rich and poor visible to many.

It can be argued that a large and solid middle class is a reasonably stabilising factor in society.   In most circumstances it is not as revolutionary or explosive in the face of injustice, unlike the poor who may feel they have little to lose.  It is also not as ridiculously rich so as to be “brazen and contemptuous” (to quote Mr Fenesko once again).

It would be my assertion that Ukraine’s biggest social policy goal must therefore be to create a middle class to poor oil on the waters of such a striking and potentially explosive divide between the horrendously poor and the obscenely rich.  Simply taking off the rich and giving to the poor is not going to be enough.

We should recongise that many Ukrainians own their own property 100% – no mortgages and no loans – by default of the USSR collapse and the ability to buy their apartments for next to nothing at that time.  In a way that puts many Ukrainians ahead of their international counterparts.  What has failed to happen and that needs to happen, is that wages of typically middle class professions such as teachers, doctors, and other professionals, particularly in government employment, have failed to grow relative to their social worth.  A government issue under the current Ukrainian society model.

To return to Mr Fesenko’s view of Ukrainian big business, many middle and upper managers are earning good money.  Much of what can be called the Ukrainian middle class, come from the middle and upper management structures within Ukrainian big business.  He may be right to look at the wages structures of the shop floor blue collar workers through the lens of social responsibility and fairness but he should not under-estimate the numbers that Ukrainian big business have created in the middle classes directly and indirectly.

The fact Mr Fesenko doesn’t even mention the middle class (creating or enlarging) as a social policy, or offer it as a solution, is somewhat worrisome for a director of a political science organisation.  As I have said, it is a key stabiliser in any society between the haves and have nots.

The government, and not Ukrainian big business, are responsible for creating the social and economic framework for a middle class to emerge.  Not to be disingenuous to the government, the new Tax Code does allow a path for those operating within the black economy and who financially do very well, to move out of it and become a recognisable middle class.  The problem here is firstly trust and secondly corruption.  Nobody trusts the tax authorities and it is also cheaper to pay off the tax inspector with a bribe than it is to pay the taxes which could be used for social policies for the desperately poor.

There may well be an existing middle class hidden within the black economy, but Ukrainian society needs that middle class to be visible rather than invisible to prevent the predicted explosive reaction of Mr Fesenko.

Aside from immediate fix, short term policies for the desperately poor as best as can be sensibly afforded, or fiddling with national minimum wage and social entitlements, my contention is that  Ukraine’s number 1 long term social policy must be the creation and continued enlargement of a middle class that is easily recognisable in the white economy.

That, Ms Fenesko, is a defined objective around which to build strategic social policy with long term beneficial effects for Ukraine, and that starts and ends with government recognising the social worth of those on its payroll and acting accordingly, as well as creating a framework for the private sector which is trusted and easily navigated.

Certainly the previous government talked about doing such things and the current government is trying to address such things.  No doubt any subsequent government of any persuasion will also try.  Is he so sure there are no social policies?  This seems to have traction through successive governments.

I do not believe there is such an absence of social policy as Mr Fenesko states.  Having identified a critical social policy (even if they have not named, framed or communicated it very well), successive Ukrainian governments have been talking about the right things.  Where they have all failed is in effective implementation and gaining the public trust.

Sooner or later, with or without a revolutionary explosion as hinted at by Mr Fesenko, a Ukrainian government will name the policy correctly, will frame the policy correctly, will communicate it well enough to gain sufficient public trust to have a reasonable chance of effective implementation with bottom-up support.

Creating a visible middle class is the most essential social policy for Ukraine and will go a significant way to reducing the social gaps between rich and poor.

The break up of Naftogaz Ukraine

Well, it was called for by the EBRD, IMF and no doubt numerous diplomats and governments behind the scenes in order to add weight to the IMF and EBRD voices.

It seems the behemoth that is the State owned Naftogaz Ukraine is going to be broken up and sold off. To what degree it will be broken up remains to be seen, however it seems fairly certain that the gas extraction division will be one of the first to go just as Royal Dutch Shell, PetroBra, BP, Chevron, CPC etc all line up for Black Sea, Sea of Azov and shale gas exploration rights within the next 6 months.

Cynically, my first though was another oligarchy buy off at favourable prices prior to entering some major projects via a rigged and less than transparent bidding process. It would appear however that I would be wrong. I have been unambiguously informed that this division will be subject to an IPO and aims to raise $10 billion.

The question is where the IPO will take place. London, Hong Kong? Nothing has been said as yet.

Should it be successful though you would expect similar IPOs for other divisions of Naftogaz Ukraine. Production, shipping and supplying divisions would all seem to be reasonable bite-sized chunks.

If Naftogaz is to be broken up and subjected to IPOs, one assumes that the oligarchy will turn their attention to acquiring the regional suppliers dependent upon Naftogaz Ukraine. A wise man would keep their eyes on the likes of Odessagaz and corresponding regional entities to see which oligarchs will buy them and for how much.

The next 12 months activities in the regional gas supplier network will be an indication as to whether breakup of Naftogaz Ukraine and the IPO rumours are true.

The return of a very black sheep? – Lazarenko

The clock is ticking towards the release from a US jail of one of Ukraine’s most corrupt, if not the most corrupt, political leaders since independence.

Ex-Prime Minister Pavlo Lazarenko is due to be released from a US jail on 12 January 2012 after being convicted of laundering $200 million gathered through his patronage whilst in government.

Ukraine has had him on the wanted list since 1999 for his nefarious monetary issues as well as involvement in several high profile murders and attempted murders.

The question is really what will the US do with him when his time is served?

He is linked to a company called Capital Investment Group registered in the US that owns almost $100 million of real estate in Ukraine, and the family home is deemed to be a ranch in California. As far as I tell ascertain, he does not hold US citizenship.

On a slight tangent, Mr Lazarenko is a native of Dnipropetrovsk, home of Yulia Tymoshenko. As the convictions in the US relate to nefarious monetary acts funded by gas deals that were then under the monopoly of United Energy Systems of Ukraine run by Yulia Tymoshenko, any possible return to Ukraine may well cause a severe headache for Ms Tymoshenko who is currently being investigated for several misuse of office issues.

It has already been stated by Russia that UES whilst under the control of Ms Tymoshenko still owes a debt of $405 million. Ms Tymoshenko has eventually acknowledged there is a debt but disputes the amount, having previously denied for many years there was any debt at all.

None of this, it has to be said, has anything to do with the current investigations. The return of Lazarenko if deported from the US however could lead to yet further investigations into Ms Tymoshenko and nefarious gas dealings. Not really what she needs right now one has to suspect.

It is difficult to see how the once fairly powerful Dnipropetrovsk patronage system would be able to help these two once leading lights from Dnipropetrovsk now the Donetsk patronage have assumed control of Ukraine.

Interestingly, Ukraine’s most unpopular ex-President, Viktor Yushenko, recently visited Lazarenko whilst in the US. One can only imagine the shenanigans discussed in that conversation. Who was he speaking for and what was said?

Meanwhile, the PGOs office in Ukraine has clearly stated that should Lazarenko return to Ukraine he will be investigated for all the original matters from 1999. Should the US deport him to Ukraine that sends a clear political message that the US considers Ukraine to have a far less persecutory judicial system than it currently orates the cases against Ms Tymoshenko over which they “have concerns over selective justice”. It is more than likely his return will add additional charges against Tymoshenko considering the US court evidence used to convict him and the source of the money he laundered to be found guilty.

Undoubtedly he would wish to do a deal to have the US convictions seen as time served for any resultant Ukrainian convictions in the case of the gas issues and then face the evidence of murder and attempted murder on their own individual merits which may not stand up so easily to scrutiny when it comes to direct evidence.

In effect he may become a star-witness/co-accused against Tymoshenko and her deeds when running UES with nothing to lose but everything to gain.

It could all get rather sticky in January 2012 should the US deport him. It could be just as sticky if they don’t, after all the Americans found him guilty, so how can they deny the Ukrainian population the same opportunity.

Roads to transparency in Ukraine

Sometimes people say something that make you stop and profoundly reexamine what you do, why you do it and what it means.

Yesterday was one of those days.  Quite by chance I met somebody via a mutual acquaintance from Dnipropetrovsk who managed to get themselves stuck with almost 20 metric tons of steel billets when a buyer dropped out, thus incurring storage fees at one of the Odessa docks on a daily basis.

Did I know any foreign buyers who would be interested in a quick purchase?  Indeed I do, but that is rather irrelevant to this tale.

This particular individual then started asking questions of what I have done in my life, the qualifications I hold and all that sort of thing.  Undoubtedly the reasoning was to discover if I would be a good outlet/intermediary for him in the future, but day/spot trader I am not.   Term contracts on the other hand may raise my interest and those whom I know when it comes to striking a deal.

Anyway, for some reason he had the impression a civil engineer (which I am) was very similar to a social engineer (which I am not).  Quite how bridges, roads, shopping centres, airports, hospitals and other infrastructure can be construed as social engineering relating to national psychological structure, the various types of agencies governmental and non-governmental and societies interaction with them would at first seem quite a leap, other than providing society with the means to physically get from A to B or a center for logistical/medical/educational necessities (of whatever sort).

Those civil engineers more involved in city planning, on the other hand, may have more of a claim to some form of social engineering when deciding what goes where, and whom, what they put where, will serve within the community.  Their social engineering, if it exists, comes in the physical delivery rather than the ideals behind it.

However, having mulled over a few things in my usually unproductive and under-employed mind, there is a certain blurring of the lines when it comes to civil and social engineering from a certain viewpoint and in particular when stepping out of the UK “island” mindset that has traditionally governed my past history of civil engineering.

On the continent of Europe, where Ukraine sits in all its glory, connecting population centres A, B and C can very well connect three cities in three different nations.  Connecting three nodes on the British Isles inter-connects nodes only within the same sovereign entity (less projects like the Channel Tunnel of course).

What has this got to do with transparency in Ukraine?  I’m coming to that.

Firstly, there is a need to identity some reasons why things are not quite as transparent as they could and should be.

There is a need to recognise that Ukraine whilst a single entity on the map, is almost a federal collection of regional fiefdoms in reality.  For example there is a saying in Odessa that “Ukraine is Ukraine but Odessa is Odessa”.  It is quite true and reflects the attitudes of the majority of those that live in Odessa.  Very few here care what is happening in Kyiv or Donetsk or Lviv at a political or social level.  Those in power in Kyiv (of whatever party holds power) are somewhat deluding themselves if they think that most of the time people in Odessa care what they are doing (or not doing).

Even at the level of Odessa as a region, those in Odessa recognise Odessa as the “self” and Ukraine as the “other” in almost all aspects of every day life.  Political and civil society pressures are aimed at the Mayor and Oblast Administration and very rarely the government of the day.  It was the same under the last two mayors and this continues to be the case under the current one.  It has proved to be the case regardless of party lines of electorate or mayor.

This is an important contributor to transparency or opaqueness.  In short, political power, social interaction and economics are understood in smaller regional building blocks and not seen as a national inclusive.  That has serious implications for those in central power to penetrate the regions, as Odessa is certainly not alone in how it thinks of the nation when it comes to political power, social interaction and economics.  Local first and then national.

So much is this this case that the more forward-thinking nations are opening national consuls in the major cities as penetration into those regions without a local presence is particularly difficult (unless you happen to be a multinational with a rather famous brand/image).  This is particularly true if that sovereign nation has a particular strategic (current or future) interest in a region.  A few examples, China in Odessa due to the three commercial ports, refineries and soon to be built LNG terminal.  France in Lviv as a preemptor to the agricultural west of Ukraine.  Rocket science it is not.

This fact of regional, rather than national politics, social interaction and economics seems not to be identified by quite a few western nations, quite possibly due to the fact that our central governments have far less difficulty in projecting power and influence into our own regions and thus automatically make the assumption that talking to those in Kyiv will have an effect in the regions.  From living here for so long and witnessing things for myself, that is certainly a very flawed way to interpret Ukraine.

One of the major problems is that rule of law is not interpreted or dictated by the central powers in Kyiv when it comes to the regions.  On paper and in theory it is, however in practice that is certainly not the case.  The law in the regions is dictated by a very few people with self interest rather than party politics (even their own party), or social needs as their driver.  This leads to local patronage rather than central state rule of law.  As such, the big people get bigger and their patronage far more influential at a local level than the central government or rule of law.  Some would call it a mafia system but I prefer the word patronage as not all actions, in fact very few actions of the influential people in the regions, are actually illegal.

Whilst ever the regions and the patrons of the regions remain stronger than the central government, rule of law and communications to the regions from central government and national influence will gain no foothold.

What has this got to do with civil engineering and roads?

The DCFTA will increase trade for Ukraine with the EU and the EU with Ukraine.  Market opportunities will open up where they were difficult before.  Far more infrastructure will be necessary.  Ukraine has already made declarations to build 50,000 kilometers of new roads in the next 10 years.

With an inflow of those used to the rule of law in numbers far greater than ever before, those in the regions will swiftly find complaints, via Ambassadors and Consuls reaching central government that cannot and will not be influenced so easily by their patronage (or lack of).  Communication, like the logistics due to the new roads,  will be much easier, more direct and more efficient, circumventing the regional powers if they do not act fairly and within the law.

More and more legal action will be brought with the full knowledge of central government in regional courts.  More and more complaints of corruption will be brought by foreigners through the courts and via their embassies, consuls and via head offices in a different nation.  The pressure both externally and internally on the regional patronage system will grow and grow (from within and outside Ukraine) if the numbers of Europeans doing business throughout Ukraine dramatically increase due to the DCFTA.

Whilst the government sees the DCFTA and new roads as an economic route to national prosperity, it can, if handled properly (both by the Ukrainian central government and external sovereign governments) lead to a radical change of ethic and “understanding” in the regions.

It may also change the view society has of central government as this too is seen as nothing more than a patronage system on a grand scale by the general populous regardless of which party is in power.

With all major parties being in favour of the DCFTA and AA and moving into a more European (rather than Russian) orbit, inherently whoever is in power will have to insure the Europeans decide to stay in business in Ukraine after making such a big political noise about the benefits of the DCFTA domestically.  That will mean the Europeans can and will depend, ultimately, upon the rule of law and the transparency that is generally (but nor always, even in Europe) associated with it.

Therefore, whilst the DCFTA and new roads/infrastructure are seen as purely economic drivers, quite possibly within government as well, the ability for Ukrainians to deal far more easily in Europe and Europeans far more easily in Ukraine in a business sense may force the unwilling central and regional patrons to recognise their days are numbered and a reliable system of rule of law will emerge…….and with it, far greater transparency.

Much to be said for us road builders you know (even if I have retired from such pursuits myself).  Civil engineer or social engineer?  I’m not sure myself anymore!

Then, as I have said many times here, everything is connected…..even when it seems it’s not.

Taking action in the US Courts. A good idea for the Ukrainian elite?

Now dear readers, as I wrote some months ago, Ms Tymoshenko lodged a law suit in the USA against RosUkrEnergy over alleged misdeeds very similar, as I pointed out at the time, to misdeeds she was quite capable of carrying out when she ran Unified Energy Systems (of Ukraine) and throwing stones in glass houses was not necessarily a good idea in a nation where counter-suits are habitual. Well guess what?

You have to say the law suit she submitted reads as though it was written by somebody not overly conversant with the fact that every word must be chosen carefully in any litigation process, but that is an issue for Ms Tymoshenko and the US Courts to tackle at a later stage.

Suffice to say it reads as though it was written by somebody with at best, only a passing interest in law. I have seen far more accomplished legal writing in standard contracts to be honest.

Ms Tymoshenko, until recently has always maintained UES had no debts to anybody, but however has conceded that there are debts to Russia though not to the $405.5 million Russia claims. Her exact words when forced to admit there was indeed a debt contrary to all her previous statements “Look at Ukrainian and Russian laws and you will understand that no debt can be reckoned for 15 years. Then again, the debt has never been the size cited.” One wonders why there was a need to lie about it in the first place then.

Anyway, the US Southern District Court has suspended the legal action against RosUkrEnergy temporarily having now received this legal action against Ms Tyomshenko and UES from a US registered company called Universal Trading and Investment Co (UTICo).

It seems that inherently, using the US RICO laws (which are probably quite difficult to enforce outside the USA), will only lead to one alleged Ukrainian racketeer using the same laws against another. No honour amongst racketeers eh?

Still, the US won’t have to go far to hear from Ms Tymoshenko’s former business partner and ally. He is still sat in a US jail for money laundering and would probably fancy a change of scenery and a day out.

You sometimes wonder whether there is any circumspection whatsoever amongst these people when pursuing their personal spats in the courts (domestic or foreign.) Now she will face legal action not only in Ukraine but also the USA, and an action that could well rake up old evidence against her in relation to her former business partner who was convicted and jailed in the US system.

I hate to be the one to say I told her so (not that she would read my ruminations). Glass houses and stones and all that!

Circumspection – a word for all Ukrainian politicians to understand before embarking on any actions, particularly in foreign courts.

Ex-President Kuchma speaks on trade (and influence)

Well, after a few rather heavy and hopefully thought provoking posts over the past few days, I expect you are wanting a return to lesser matters dear readers.

Fear not, the political holidays will soon be upon us in Ukraine, although of course, the politics and diplomacy will not stop.

In the meantime, Ex-President Kuchma, whilst at a reception hosted by the Russian Embassy in Ukraine, gave a short but interesting statement warranting a little analysis. It is worthy of note not only for what was said, but also what was not. The subject – the EU DCFTA and AA verses the Russian Customs Union.

“I think that the Ukrainian leadership is in a very difficult position. We must take a political decision, but there is no certainty that on the one hand and on the other hand, those assurances and those promises will be fulfilled. Of course, I would like the level (of Russian-Ukrainian relations) to be much better, and I think that Ukraine would also like it to be better. I still believe that Ukraine has no future without Russia.” – Interfax

Short and somewhat true. My personal opinion is that Ukraine should go no further than Switzerland or perhaps Norway when it comes to EU integration and membership. A move from the top right of the below diagram to the centre left where you will find the Swiss and Norwegian flags.

As the diagram shows, that puts a barrier between the current position of Ukraine and Russia and the probable position of Ukraine fairly soon should the Ukrainian flag join that of Switzerland or two barriers should it join the position of Norway.

Whilst the signing of the EU AA and DCFTA will be a geopolitical victory of sorts for the EU, Ukraine makes up only about 2% of EU trade. The EU, on the other hand makes up about 50% of Ukrainian trade. The other 50% laying to the East and Russia.

What the DCFTA and AA with the EU does do for Ukraine is open the door, with more guarantees of a level playing field, for FDI from the EU corporations. FDI is very much needed. It may also generate problematic issues due to the still existing and quite deliberate Soviet policy of one nation rarely having the capacity to construct things alone. An example being aircraft and helicopter engines are still made in Ukraine whilst the chassis are still made in Russia.

President Yanukovych when seemingly turning his back on the Customs Union in favour the the DCFTA with the EU offered a Customs Union + 1 route as a compromise along WTO lines. The WTO is of course a somewhat sore point for Russia who is yet to join. Ukraine has of course already stated it would support Russia’s entry numerous times. Where several member of the Customs Union and Ukraine may be able to work together is in some form of Black Sea area OPEC styled grain consortium. Much depends on the devil in the detail of Ukraine’s existing WTO membership and any DCFTA is signs with the EU.

Needless to say, an OPEC styled grained consortium of the Black Sea region, a region responsible for huge amounts of grain production and export globally may well be a way to pacify Russia. We will see what happens in this regard, but it is certainly a matter of discussion at the highest levels of government.

Ukraine also is reliant upon Russian oil and gas as most of Europe is, but to a far greater degree. There is considerable strain upon the existing agreement at present, to such a degree there can be no certainty it will withstand the political forces it is under. The promise of extremely cheap Russian oil and gas should Ukraine abandon the DCFTA and AA with the EU is not to be rejected lightly. Thus far, the current government is pressing onwards towards the EU agreements but that needs to be dealt with rather swiftly, particularly within the EU, as Russia is very likely to install Mr Putin as President again in March 2012.

Both the EU and Ukraine will be well aware an emboldened President Putin come March 2012 is very likely to test the resolve of all concerned given his ability at brinkmanship and hard-core decision making. Severe problems may lay ahead if EU/Ukraine agendas are not concluded in a swift manner. Much will depend of the Franco-Germanic influence on Russia and vis-a-vis Russian influence on them should things linger too long.

President Yanukovych has been rather forthright in Ukrainian/EU negotiations recently, by insisting that there is a written guarantee that Ukraine will eventually have the right to join the EU within the agreements. He is quoted as saying without such a written guarantee that all current negotiations would be “empty”.

That is not quite true, Ukraine would still benefit from EU FDI and inherently become more Europe orientated by default but he does have a political point. To unnecessarily anger a large and essential neighbour without having something concrete to show the Ukrainian public regarding their eventual future will not sit well with the voting populous when gas and oil prices rise from an angry Russia and import/export issues that did not exist before suddenly occur along the large Ukrainian/Russian border.

A major card in the EU deck regarding Ukrainian public opinion is Visa-free travel when it comes to tourism/short term visit (90 days or less). It is a consistent source of irritation to the Ukrainian populous that they must produce an absolute mountain of official documents which take longer to collate than the two weeks holiday they had planned to visit the EU for, and at no small cost to do as well, just to get a tourist visa. This one single act by the EU would go a tremendous way to mitigating anything Russia may throw at Ukraine as punishment for signing the DCFTA and AA, as far as public opinion is concerned.

It would also be a tremendous blow to Russian pride that Ukrainians can travel freely throughout the EU on holiday when the Russian populous still requires a Visa.

It seems that the EU is prepared to play Visa card having given Ukraine a road-map to Visa-free travel, but as Mr Kuchma implies, it is one thing to be given directions but yet another to arrive at your destination.

There is also the internal political issue that Yanukovych has publicly and repeatedly stated Ukraine is heading towards the EU. Whilst it is a direction agreed with by all major political parties, a U turn back towards Russia is not a position any politician would want to make lightly having made so many public statements to the contrary. The EU must step up to the plate and offer such a guarantee, no matter how convoluted the language used to do so in order to pacify all EU members states or vague regarding time-lines for Ukraine, to be waved under the noses of the Ukrainian public as producing something worthwhile.

A further consideration is that the Ukrainian oligarchy seem to have decided their interests will be better protected and possibly better served looking West. Whilst an EU level playing field would in itself be a disadvantage over what they currently enjoy, a turn East gives rise to genuine concern that by hook or by crook, their prized assets would come under the control of Moscow eventually. That said, Ukraine is an export economy and Russia is a major customer to many. The overall feeling though, at least from those I have spoken to, is that of heading towards the EU level playing fields as the best long-term option. We shall see.

It is very much a catch 22 situation for the current government that involves some very difficult and hard choices that, whichever had been taken, will cause hardship in the immediate term. The EU needs to make that hardship worth while and the unpopular reforms seem necessary, by offering guaranteed solid gold carrots for the Ukrainian public (not politicians) and inherent political goodwill it would bring in a rather expedited manner if this is not to flounder on the rocks of EU bureaucracy and untimeliness, to be subsequently submersed by the immediate promise of cheap oil and gas from a much more politically nimble Russia.

Big geopolitical stakes at risk here and the Ukrainian croupier is trying to deal the EU the better hand. How long that will continue depends on the nerve of the croupier, the skill of the EU players and whether there is a Russian ace tucked up a Russian sleeve somewhere.

Ukraine can expect a tense autumn as DCFTA and AA negotiations draw to a conclusion, possibly a cold winter if Russia sees fit, an anxious spring to insure the momentum of the 27 EU member states signing the agreements is moving faster that the re-installment of President Putin in Russia, leaving the summer of 2012 as yet unknown depending on how upset Russia may or may not be with any result……not withstanding a small football tournament as well.

Phew!

Corruptio optimi pessima? Ad iudicium? – Oil rigs and opaque procurement

Now there is a little challenge for you dear readers. What does my shockingly poorly written Latin title mean?

No sadly, it doesn’t mean “Hello from Switzerland and this year’s annual Bilderberg meeting.” I assume my invitation has been lost by the Ukrainian postal service once again. Not even an email reminder!

So, to help you work out the title, here is a little on-going tale.

Not so very long ago, the ex-Prime Minister and government where involved in some actions and transactions that Kroll Inc highlighted to the present government as somewhat questionable and worthy of further investigation. Their work (with others) is the basis of many of the current investigations into the ex-Prime Minister and members of her government.

Fair enough. If you are told there is smoke billowing from a location you go and look to see if there is indeed a fire.

However, when you are provided with a fairly detailed location via the Kroll Inc report, including names, diagrams, organagrams, and an idiots guide to how it was all worked to allegedly assist directly and indirectly those with the purchasing power with the public purse, you would think that any of those implicated in the current investigations would be given a wide berth by the new authorities. To continue to involve them could possibly undermine your case. Ad iudicium!

However, it seems that certain parts of an allegedly corrupt web have been retained and are yet again involved in a somewhat opaque deal, this time involving the current government. Corruptio optimi pessima would seem to transcend all parties and parliamentarians regardless of party and continually involve the same external web.

For just over a week I have been watching the tale of an oil rig bought by the current Ukrainian authorities unfold. In a nutshell, the winning tender for the rig was $400 million but the seller ended up with $250 million. A cool $150 million somewhat unaccounted for, at least initially.

The subsequent response from the Energy ministry seems somewhat unsatisfactory to many. Amongst those many less than satisfied would seem to be the President and the SBU.

This story has yet to reach a conclusion but it really is one to follow. I will endeavor to keep you up updated.