Posts Tagged ‘gas’

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Treading on the toes of Angels – Odessa machinations

December 26, 2016

The name Alexander Angert also know as Angel to use his mafia name, has appeared in this blog numerous times (a reader may use the search facility if particularly interested).  How could it not?  His links with Mayor Trukhanov and Alexander Zhukov (father of Daria, the current Mrs Roman Abramovich) among others of notoriety and the numerous joint and associated business enterprises that do well out of City Hall and Ukraine more broadly, demand that every now and again his name is mentioned.

Indeed Mr Angert was mentioned so often by Yuri Lutsenko when he was Minister of Interior in the Tymoshenko government it would be difficult to have seen him as anything other than a personal nemesis.  (A reader may ponder why he no longer mentions it now he is Prosecutor General).  Misha Saakashvili as Governor was also not adverse to throwing Mr Angert’s name about when it came to the organised criminality in Odessa.

Mr Angert no longer lives in Odessa – but he does visit when the situation is serious enough to demand he personal participation in a “negotiation”.  His last know place of abode (for many years) is London.  Indeed if asking the personal assistant of Mr Zhukov who also lives in London, messages can apparently reach Mr Angert through that channel.  (It seems that via this route Leonid Minin can be reached in Rome too).

The full extent of Mr Angert’s (business) interests is very difficult to gauge.  In some cases his control is “unofficial”.  Others there are clearly cut outs who are known associates.  There are overtly known long term business partners like Igor Uchitel.  There are even one or two business where Mr Angert’s name actually appears.  Thus quite where all the metaphorical and literal bodies are buried is unknown – but there are definitely both metaphorical and literal bodies buried.

Perhaps the best way to identify the assets controlled by Mr Angert are those in Odessa that were left alone by Viktor Yanukovych and “The Family” from 2010 to 2014.  Former President Yanukovych did indeed meet with Mr Angert in Odessa and whatever was said between them seemingly saved Mr Angert’s interests from the attentions of “The Family” – or perhaps saved “The Family” from a slighted and vengeful “Angel”.

angel

Of the businesses that are transparently associated with Mr Angert, one is Odessagaz.  It is co-owned by Messrs Angert and Uchitel and has been for decades.  Neither oligarchs such as Firtash or Kolomoisky and not former President Yanukovych have ever made an attempt upon Odessagaz, nor interfered as they have with other regional and national gas companies.

Clearly tangling with those behind Odessagaz was not worth the blood and treasure – even for such odious, nefarious and powerful men.

Any regular reader is well aware of the frequent mention of the business appetites (by hook but mostly crook) of Igor Kononenko, President Poroshenko’s long term friend, occasional business partner and parliamentary “leg breaker”.  He is, to be blunt, as bad as they come when it comes to scams, schemes, and coercion.  His current appetites and methodology as to feeding them have hardly gone unnoticed – neither has the completely absent desire of President Poroshenko to rein them in.

It would appear however that Mr Kononenko is about to go not only where angels and oligarchs fear to tread, but indeed is about to stand on Angel’s toes.

Mr Angert, or more precisely Odessagaz, for many, many years has been trying to bring about the insolvency of Odessa CHP (thermal power plant).  Bankruptcy petitions have been made and various internal nefarious financial acts have been “encouraged” of the employees within Odessa CHP by Odessagaz (Mr Angert).  The net result was to engineer the bankruptcy of Odessa CHP beholding of large debts to Odessagaz who would then take Odessa CHP as debt settlement.

Recently however, that plan has quickly been undone via the purchasing of a significant quantity of Odessa CHP debts by Energomerezha.  This company is controlled by the brothers Surkis who are in turn puppets of Igor Kononenko.  In buying up those debts Energomerezha has therefore taken control of Odessa CHP financials that can either prevent Odessa CHP bankruptcy or assume the role of leading creditor thus undoing the plans of Odessagaz (Mr Angert).

In short when Energomerezha decides to allow Odessa CHP to go bankrupt at a time of its chosing it would be the largest creditor with a claim to taking control of the asset as settlement.  Thus that can be expected when all the ducks are lined up to insure the loser would be Odessagaz – and by extension Mr Angert.

(In the meantime as usual there is a scam whereby an agreement has been reached between Odessa CHP and Energomerezha that enables Energomerezha (read the brothers Surkis and Igor Kononenko) to clear UAH 1000 in profit for every thousand cubic meters of gas).

Quite how this situation will play out remains to be seen when even the appetites of Yanukovych, Kolomoisky and Firtash left the machinations of Angel well alone in Odessa.

Perhaps Messrs Kononenko and Angert will come to an agreement amicably.

offer

Or perhaps there will be made an offer than cannot be refused.

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Kremlin offers gas at $180 – Ukraine signs a deal with Engie (France)

October 28, 2016

Following President Putin’s very predictable monologue at the Valdai gathering, that day he also made a statement regarding Russian gas prices for Ukraine, should Ukraine decide to buy Russian gas once again.

Nowadays, the price of Ukraine won’t be higher than that for the neighboring states, namely for Poland. I’m not aware of actual prices, but at the moment of our conversation with Ukrainian President Petro Poroshenko, Poland was buying gas at $184-185 per 1,000 cubic meters on contractual terms. We could sell [gas] to Ukraine at $180. I named the price – $180 per 1,000 cubic meters.

We have discussed the issue of gas shipments to Ukraine with the president of Ukraine at his initiative. He asked whether Russia could resume the shipments. Certainly, it could, at any second. Nothing additional is needed – we’ve got a contract and an addenda to it. The only thing required is prepayment.

As far as I know, the price of gas for the ultimate industrial consumer in Ukraine already exceeds $300 per 1,000 cubic meters. We offer a price of $180, but they don’t want to buy from us yet.

Let it be – let them work. The main thing is that they could ensure transit supplies to European countries.

(He also commented upon the “illegalities” of Ukraine buying from western sources “which is a violation of a contract between Gazprom and its western counteragents” and to which Russia “had turned a blind eye.” and inferred to a return of  dubious”middle men” between Ukraine and western suppliers.)

 

engie

At the same time, Prime Minister Groisman was in France.

During this visit a deal was signed with French energy company Engie regarding supply and the reservation of transport and underground storage facilities operated by UkrTransGaz in Ukraine – the deal commencing this winter.

Since mid-2015 Engie has become a major supplier of gas to Ukraine, predominantly via Naftogaz, delivering approximately 3.5 billion cubic meters of gas.  Indeed Engie intends to open a subsidiary in Ukraine.

Thus far, despite quite significant legislative changes in the Ukrainian energy sector to bring it toward EU Third Energy Package compliance and Association Agreement obligations, the Ukrainian energy market has remained impenetrable to external market players.

The proposed privatisation of Centroenergo in 2017, whilst certainly of interest to dubious Ukrainians such as Igor Kononenko (who seems to be filling key positions within the company with “his people”), presents the best and swiftest opportunity for the energy market to receive a competent foreign entrant assuming control and ownership of assets and production in Ukraine – which will cause waves in the corrupt and opaque trough of Ukrainian energy from which no self-respecting oligarch fails to drink one way or another.

Clearly the Engie subsidiary, unless it becomes more than an “on-site” import management entity requires little investment and negligible risk – unlike the purchase of Centroenergo.

Nevertheless, there is a certain degree of symbolism to the French Engie opening a subsidiary in Ukraine which a reader can expect will be embellished for the purposes of political expediency.  Much more to the point however, is a clear move in the direction of a consolidated and irreversible diversification of energy supply for Ukraine.

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Not a question of “why” but “who benefits” – Ukrtransgaz

September 17, 2016

It is no surprise to anybody that Ukraine takes two steps forward and one step backwards having opted for evolutionary rather than revolutionary reform.

Evolutionary by its very definition is a statement of change over time.  Evolutionary also manages to allow for grubby, if perhaps occasionally necessary, deals with those that once held power and/or significant control over the national economy.  Such deals theoretically (and empirically globally) set about the reduction of influence of old elites insuring that they and their patriarchy systems decide not to try and return to power and roll back to old methods in return for avoiding their otherwise deserved comeuppance – or at least the full force of justice.

That thinking perhaps works if the new leaders that come to power, recognising that this option is preferable to other radical and perhaps more risky options presented, are not products of the old system but are unsullied.

The “Revolution of Dignity” offered no such unsullied leaders to Ukraine in its immediate aftermath.  The presidential elections of 2015 essentially offered a choice between Mr Poroshenko and Ms Tymoshenko.  Mr Poroshenko won, which considering the choice facing the nation was the best possible outcome.  Ms Tymoshenko was, is and will forever be a political disaster for Ukraine should she ever hold the office of President, or become Prime Minister again.

Nevertheless, President Poroshenko is far from unsullied and is not a leader.  He is a manager that believes he can do deals with everybody keeping the elite more or less equally (un)happy, which whilst significantly slowing any reform progress, doesn’t actually stop it entirely – and to stop it entirely is simply politically impossible for reasons internal and external of Ukraine.

During the YES conference in Kyiv 16th/17th September, whilst President Poroshenko, Prime Minister Groisman, Prosecutor General Lutsenko and other senior political and institutional figures predictably put a veneer upon reform progress.

To be fair there have been a few reforms that are on balance probably irreversible, albeit most are certainly not irreversible, many are half completed, the majority poorly implemented or otherwise exist on legislative paper but are de facto all form and no tangible substance.

With so many intellectuals, lobbyists, journalists, opinion-shapers, policymakers and otherwise erudite and wise people gathered at the YES conference in Kyiv, a reader may ponder therefore why this time was chosen for an undoubtedly retarded and backward step within the halls of power.

utg

Contrary to agreement with the EBRD, perhaps inadmissible to Ukraine’s obligations to the EU’s 3rd Energy Package (which requires the “unbundling” of energy monopolies), flying in the face of understandings given to the US regarding Ukrainian energy and the font of corruption that it is, Ukrtransgaz was quietly moved from within the Natfogaz empire and transferred to the control of the Ministry of Economic Development for no apparent or justifiable reason.

This despite agreed plans about how to “unbundle” Naftogaz Ukraine with the EBRD prior to the EBRD jumping in to assist Naftogaz to the tune of $300 million.

Clearly the EBRD has expressed its displeasure publicly, and during the YES conference, calling for this retarded decision to be reversed post haste.

Further it jeopardises a World Bank $500 million loan to Naftogaz too.

Naturally given the YES conference circumstance, it does not put President Poroshenko, PM Groisman et al in a particularly good or comfortable light – whether they had any involvement or prior knowledge of the incident or not.

Unsurprisingly it does little for investor confidence if the Ukrainian State breaks its agreements with a major, frequent and reliable inward international investor – particularly when that investor is in the same YES conference room in Kyiv as a leadership telling the world that this government and executive can be trusted to meet its obligations.

In short, whatever decisions are made regarding Naftogaz, Ukrtransgaz etc., they necessarily have to be consistent with existing agreements.

Was such a retarded decision/action timed to deliberately project a poor image of the current leadership?

If complicit, did the current leadership expect the YES conference media noise to drown out or ignore a planned nefarious act?  On balance was it considered a good weekend to bury nefarious news?  If so it failed.

That Ukrtransgaz would be split from Natfogaz to meet the Ukrainian obligations to the 3rd Energy Package is an absolute requirement.  Resolution 496 of the Cabinet of Ministers dated 1st July 2016 clearly plans for this eventuality.  That Resolution calls for the Public Joint Stock Company “Main Pipelines of Ukraine” to be created under the management (temporary or otherwise) of the Ministry of Energy and Coal.  In summary the substance of that Resolution moves Uktransgaz from Naftogaz, renames it – or transfers the assets to be more accurate – to PJSC Main Pipelines of Ukraine which will operate under the Energy and Coal Ministry (at least initially).

This is all to have occurred within 30 days after a currently pending Gazprom v Naftogaz arbitration in Stockholm – but no asset transfer is to occur prior.

Does this decision affect the arbitration process in Stockholm in any way?  If so how?  To the benefit of Gazprom?

Without going too deeply into Resolutions and plans – suffice to say there are publicly available Resolutions and plans about how Ukrtransgaz was to be dealt with as declared by the Cabinet of Ministers – none of which caused angst or ire of the EBRD when published (or since).

It follows that with the current nonsense surrounding Ukrtransgaz, a reader is therefore asking “Why”?

A good question, but perhaps not entirely the right question of “Who”?  Or more precisely “Who benefits?”.

Whenever there is a retarded and backward policy step in Ukraine, the first question that should always be asked before any other is “Who benefits?”.  The next question is then “Why (this way from several possible ways was chosen)?

Recognising that the Ukrtransgaz issue will be resolved to the liking of the EBRD and to try and reduce reputational damage to President Poroshenko, PM Groisman etc., the full question is “who benefits from the fairly short window of opaqueness and unaccountable management decisions in and surrounding Ukrtransgaz during this time?”

For who exactly benefits from what damage can be done/what gains can be made during this time?  Cancelled tenders, or alternatively swiftly awarded tenders will ultimately come to light as will any asset sales, acquisitions, or theft.  The EBRD is not a complainant that the PGO or NABU can ignore when its contractual agreement is with the Ukrainian State.

As yet it is not entirely clear who specifically benefits – but somebody does for such a retarded act to have occurred.  Sooner rather than later it will become clear who benefits (and who clearly believes that any repercussions will be acceptable – as nobody within the elite goes to jail).

In the meantime sadly, as the incompetence of a mere breakdown of communication is rather unlikely, a reader is left to choose between either yet more dirty deeds within the current ruling elite (or at least some of them), and/or a complete lack of government control, or a brazen breach of its obligations.

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Odessa Port Side privatisation – Group DF (predictably) raises its bidding head

September 16, 2016

During the 13th YES conference in Kyiv, President Poroshenko repeated once again the intention of Ukraine to privatise many State Owned Enterprises (SOEs) (most of which are a drain upon the State through subsidies and corruption).

The first on the list is Odessa Port Side (OPS), which Ukraine has already once tried and failed to privatise a few months ago due to lack of interest.  As stated many times by the blog, considering the outstanding debt to oligarch in exile Dmitry Firtash of $251 million, the best possible sale price would be between $350 – $400 million and nothing like the ridiculous starting bid price of $527 million the Ukrainian State initially put forward.

OPS will undergo a second attempt at privatisation very soon – this time the Ukrainian State opening bid price is a dramatically $150 million, a figure that is likely to see something like competitive interest occur – and possibly reach the $350 million(ish) the blog notionally qualified OPS asset worth at so very long ago.

The claims of Ihor Kolomoisky regarding OPS ownership via a previously quashed privatisation have been dismissed by the courts, leaving the major issues as the debt to Mr Firtash and the clauses within any purchase regarding asset investment, workforce etc for any potential bidders.

OPS has long been a State asset that both Ihor Kolomoisky and Dmitry Firtash covet, neither having been shy about their desire to own it historically.

Of the foreign interest muted, Norway’s Yara Norge, US-based IBE Trade Corp, Koch Fertilizer LLC, CF Industries Holdings Inc, and Poland’s Ciech S.A etc, missing any mention has been Dmitry Firtash’s Group DF, or Ostchem, (significant among the and other subsidiaries under the Group DF umbrella).  Perhaps with Mr Firtash being an (in)famous Ukrainian oligarch he is/was seen as a potential domestic bidder regardless of the long-standing foreign homes of his corporate machinery.

Indeed little is mentioned of Mr Firtash since he became marooned in Austria following a US attempt to extradite him following an indictment against him being opened in 2014.  Having checked with people within the State Department only a few weeks ago, US policy toward Mr Firtash remains unchanged, thus Vienna looks likely to remain home for some time.

Boris Krasnyansky

Boris Krasnyansky

Nevertheless, it has become clear via Boris Krasnyansky of Group DF during the YES conference, that there remains a real interest in purchasing OPS.  “For our business in the production of mineral fertilizers it is a logical asset for the completion of the corporate structure and is therefore definitely interesting.”

No surprise.

Perhaps even less of a surprise when Group DF can write off the $251 million it is owed should it become the owner of OPS which owes it.  Internal write-offs happen all the time, particularly within somewhat opaque accounting structures.

Few would doubt Mr Firtash can afford it too?  He is a $ billionaire oligarch after all.

Well maybe he can, and maybe he can’t.  There is a significant difference between asset worth and cash flow/cash on hand.  There is also a question over what Mr Firtash owes others too.

In making his $155 million/€125 million bail in Austria, that available cash came via Vasily Anisimov (Chairman of the Russian Judo Association) – “I have known Mr. Firtash for a number of years, though he is neither my friend nor business partner.  I confirm that I loaned 125 million euros to him. This was a purely business transaction.

Undoubtedly a reader is now considering President Putin’s affection for Judo, and how and why the Chairman of the Russian Judo Association would lend “neither a friend nor business partner” so much cash, and the contractual details of this “purely business transaction“.

Whatever the case, Mr Firtash was clearly unable to raise that cash sum himself back in 2014.

Perhaps cash on hand issues have improved since then, but if not, where will anywhere between $150 and $400 million come from to buy OPS, and can the gas debt simply be written off within the Group DF structure if it owes money elsewhere?

Who would it owe money to?

Where has Group DF and Ostchem found its money before?

Historically it has come from Gazprombank whilst directly/indirectly under the control of Yuri Kovalchuk (currently under western sanctions) and euphemistically known as “Putin’s personal banker”.  Gazprombank has a reputation of being the “collective Putin” pocket bank.  That bank has had at peak, somewhere between $7 – $12 billion in lines of credit open to Mr Firtash’s business empire.  In 2011, for example, Mr Firtash owed Gazprombank $2.08 billion but it went on to lend another $2.2 billion (about 25% of the bank’s total capital.)

Perhaps those debts have been repaid – perhaps not.  It is rumoured that Mr Firtash’s gas intermediary business made between $1 and $2 billion per annum, but assuredly that money was not all his.  In such deals, there are outstretch hands – and everybody’s got to eat.

The question therefore is where and who the money comes from for any Group DF (or Ostchem) bid regarding OPS if the apparent cash flow issues surrounding 2014 bail payments have not been overcome?

As those recognised by the Ukrainian State as “aggressors” will not be allowed to compete and win in any (strategic) asset privatisation (read Russia), how will Group DF be viewed legally, politically and economically as a corporation if still in hock to Gazprombank for $ billions – even if a different lender provides credit for any OPS purchase?

If Group DF is now with more than enough cash on hand without lines of credit or loan borrowing, how would the Ukrainian constituency react to selling OPS to a man widely known to have close Kremlin associations, pro-Kremlin views, and perceived to have been involved in numerous nefarious schemes?  Currently he personally is out of sight and therefore, for the most part, out of mind – even if his business partners and rented politicians are less fortunate when it comes to continued public scrutiny.

Fortunately for Ukraine, even if holding the most transparent OPS privatisation, being the highest bidder does not mean automatically becoming the owner – there is thus significant wiggle room to avoid that outcome if necessary.  Further, it is not as though OPS has to be privatised at any cost, whether that cost be counted in $ or political points (albeit understandable to get it off the government books when it requires so much modernisation and subject to management that is perhaps not the best available).

The end of September will see the second attempt to privatise OPS begin when interested parties will have to declare their interest.  By the middle of November, OPS may well have a new owner.  It probably won’t be Mr Firtash – but never say never.

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Firtash/Ostchem repays UAH 3 billion to Naftogaz

December 26, 2015

According to Prime Minister Yatseniuk, Dmitry Firtash, or more precisely one of his companies, Ostchem, has paid a due debt from 2010 of UAH 3 billion.

Jolly good.

A bad debt that should not have been written off – and wasn’t – has been paid, and in full.

That it took the arrest of some of Mr Firtash’s assets in Ukraine to accomplish it was no doubt necessary.  Presumably those assets are no longer subject to arrest now that the debt has been paid – or at least those assets arrested specifically in connection with this particular debt have presumably been released.

ostchem

A particularly robust and forceful method of credit control and debt recovery has seemingly paid off – Bravo.

However, Prime Minister Yatseniuk is attempting to frame the matter as part of the deoligarchisation of Ukraine and part of the fight against corruption.

Quite how the recovery of a bad debt contributes to the deoligarchisation of Ukraine is somewhat unclear.

The percentage of national GDP controlled by the oligarchy has not reduced due to the repayment of this debt.  The percentage of national employment within oligarch controlled companies has not reduced by the payment of this debt.  The political influence and interference within national politics has not reduced with the payment of this debt.  The “limited access” Ukrainian market place has not become a “free market” with the payment of this debt.

Indeed with the payment of this debt, presuming all arrested assets specifically arrested in connection with this debt will/should now lawfully be returned to the control of Mr Firtash.  Those arrested assets therefore returning to oligarchical control.

There is no denying that the oligarchy have for decades gorged at the public trough through subsidies, recapitalisation of state enterprises in which they hold minority shares, and through bad debt write-offs for debts they created and never intended to pay (knowing there would be State funded recapitilisation and bad debt write-offs).

To be charitable, at a stretch it can be argued that because this debt was not written off (as historically would be the norm), it is a token (and perhaps genuine) gesture toward fighting corruption – against an oligarch that finds himself marooned in Austria due to US desires to subject him to due process over other alleged corrupt activities.

Quite what corruption this has fought (is failing to pay a debt corruption?) and whether the signal it sends will prevent any further corruption amongst the oligarchy or any of the Ukrainian elite remains to be seen.  It is even less clear how Mr Firtash’s Ostchem repaying the debt to release Firtash assets back to his control in any way “deoligarchs” Ukraine.

It is hard to see this as anything more than simply hard-nosed credit control and debt collection of legitimate debt (leaving aside any possible/probable perceived political motivation/persecution, for the debt was indeed due regardless).

To deoligarch Ukraine requires an open free market with numerous competing entities in every market sector, market transparency, a level business and legal playing field – thus ultimately reducing the oligarchy percentage of GDP and national employment to a point where they are simply no longer dominant – but there is no requirement that they be necessarily destroyed for the sake of destruction and remove them from the market place.  It also requires an end to subsidies of State owned companies – indeed it requires the privatising of State owned companies to as many foreign buyers (not shells or fronts) as possible simply to diversify and dilute the national GDP contributers.  Deoligarchisation also requires restrictions upon their odious interference and influence within politics.  Has any of that been accomplished by Ostchem paying a UAH 3 billion debt?

However, deoligarchisation aside, will Naftogaz now go after the other UAH billions that it is owed by numerous other debtors with the same vigorous credit control/debt recovery determination  shown when dealing with Ostchem and Mr Firtash?  Many of those debtors are not oligarch owned entities – but are debtors nonetheless.

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Effective implementation? Something of a fail (again)

December 3, 2015

According to Naftogaz Ukraine, with effect from 1st January 2016, some 280,000 Ukrainian homes may be without gas.

This is not due to the Kremlin turning off the gas tap – indeed Ukraine is not buying any Russian gas presently, and it is claimed it has no need to do so for the remainder of the year.

The reason for the gas being cut from these homes relates Ukrainian law and its implementation – or lack of it.

It is not an issue that can be blamed upon Naftogaz Ukraine either – for it is not responsible for the creation and passing of the law, nor is it responsible for the implementation of the law.

It so happens that fairly recent changes in legislation relating to gas supply, specifically for those using gas in the heating of water, required the fitting of individual gas meters in all such Ukrainian homes – a necessary step toward energy efficiency and transparency for customers regarding their gas bills undoubtedly.  The law stated all homes using gas to heat water were to be fitted with gas meters by 31st December 2015.

Thus from 1st January 2016 the inference is that those who are not in compliance with the law will have their gas service terminated – presumably until the relevant meters are fitted and they are in legal compliance.

gas

According to Naftogaz Ukraine, thus far only 75% of the homes that meet the requirements for mandatory gas meters have had them fitted – meaning approximately 280,000 homes are likely to fall foul of the law with effect from New Years Day.

The relevant gas meters are fitted for free by the relevant local/regional gas suppliers, to whom Naftogaz Ukraine supply gas.  Naftogaz Ukraine has no direct contact, contract, or access with end customers.  Naftogaz Ukraine simply supplies gas to the relevant Oblast suppliers that deal with and bill customers.

It is therefore those local/regional suppliers that have failed to fit the required gas meters within the alloted time, that will be turning off the gas to the dwellings they have yet to fit the relevant meters within.

The questions therefore raised are firstly who is responsible for dwellings failing to comply with the law with effect from 1st January 2016, and secondly will the gas be turned off for these unmetered dwellings in compliance with the law, or will the law be broken and temporarily ignored in recognition of (another) implementation failure?

The finger pointing, whichever decision be made, will naturally begin very shortly.  Yet in apportioning responsibility, the problem may lie with either an unrealistic implementation time frame within the law passed, or ineffective implementation by the regional gas supplying companies – or both.

In the meantime, perhaps a formal and legal deadline extension based upon realistic installation completion dates should be made either by Decree or legislative amendment to insure nobody breaks the law unnecessarily?

Once the finger pointing is over however, one wonders whether any lessons will be learned from what will have been a fairly large undertaking, when it comes to national implementation of policy that manifested itself in a very tangible form.  Those lessons, be they learned, would perhaps benefit future energy efficiency implementation projects be they either regional or national in scale.

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A long hot Autumn/Winter – Ukraine

August 30, 2015

If the summer has not been hot enough, both by way of weather and political, diplomatic, economic and military engagement, the Autumn is likely to get far hotter even as the summer sun fades.

31st August will see the constitutional amendments relating to “decentralisation” strong-armed through the Rada, delivering nothing like the outcome The Kremlin envisaged.  It’s interpretation of what Minsk II required of Ukraine being roundly rejected by Ukraine, the USA and the Europeans alike.

The current up-tick in fighting on the Donbas front line, the most visible and widely reported of the numerous “hot fronts” being employed to display Kremlin displeasure.  Whilst it may be able to console itself that the “separate law” the constitutional amendments mention with regard the Donbas is still in some way to play for, if a strong Ukraine emerges over the next 5 years or so, legislatively it is far easier to repeal the “separate law” than it is to change the constitution again to remove any detailed constitutional status for the Donbas.

It is a matter of processes and Rada numbers when it comes to the ease of legislatively doing things – or indeed, and far more to the point, undoing things at a later date.

It remains to be seen whether the envisaged 1st September ceasefire will hold or not.  Recent history would suggest not, but sooner or later one will (more or less) occur.  Nevertheless, as it is far from certain that it will hold, the remainder of this entry will be written in line with consistent recent historical ceasefire failures.  (To be blunt, either prior to immediately after any ceasefire takes hold, we could perhaps expect to see Zakharchenko “sidelined” somehow and replaced.)

Presumably the release of the MH17 report in mid-October will be met by a defiant, albeit perhaps brief, up-tick in violence by the Kremlin and Kremlin sponsored proxy forces – as well as a renewed diplomatic and “troll” effort to mislead and misinterpret anything the Kremlin finds distasteful/unhelpful within the text.  By now it will have an advanced copy of the report, thus its spin and rebuttal strategy is likely to be well advanced too.

Ukraine will also have an advanced copy of the report (as will other capitals), is Ukraine (or other capitals) as PR/media/diplomatically prepared for its publication as The Kremlin will be?

Skipping past the local elections and the opportunities for Kremlin subterfuge and sabotage to insure Ukraine appears unchanged by way of democratic progress, and loudly condemning any democratic failures (imaginary or real) internationally – perhaps sabotaging the election process is not necessary considering the vested interests in Ukraine that will corrupt the process for the sake of their own survival and/or influence – the next “hot issue” will be a resolution to gas prices and pricing to and through Ukraine as brokered with the EU.

220px-Gazprom-Logo.svg

With oil currently dropping and no significant increase anticipated for quite some time, Ukraine will be keen on getting a gas price of less than $200 per unit after transit fees to Europe have been deducted.

Oil and gas pricing has a certain linkage within the Kremlin petro-state machinery – and both Russian gas and oil State companies are seeking subsidies and loans from the Kremlin.  Anything approaching a current market price, considering the grotesque mismanagement of Messrs Sechin and Miller, would dictate actual losses once corruption, managerial ineptitude and Kremlin politicking with their business unit economics take their collimative effect.

How good a gas deal is reached remains to be seen.  On the one hand, The Kremlin can spin any good deal for Ukraine as a market driven business transaction free of political linkage to its domestic constituency.  On the other, all know that Gazprom, Rozneft et al., are simply extensions of the Kremlin/State and are often little more than tools on the political tool kit.  Their economic wellbeing secondary to Kremlin realpolitik.

It is claimed by those who (should) know, a deal will be reached by the end of October/early November.  We will see.  Whether the lead up to, and aftermath of the gas deal negotiations is accompanied by increased military front line engagement will depend upon the Kremlin desire to separate what can be feasibly spun as an entirely business arrangement from the politicking over Ukrainian future direction out of the Kremlin orbit.

Any “Normandy Four” or “Contact Group” meetings will continue to see the preceding and following notable up-tick in front-line engagements and attempts at diplomatic framing.  It would appear that the Kremlin still believes an up-tick in the violence and threats via its proxies of taking more ground, constitutes it “negotiating from a position of strength”.  It also appears to believe that when those negotiations do not reach its desired outcomes, punishment at the front line will weaken rather than entrench the Ukrainian negotiating position.

The “elections” within the “DNR” and “LNR” will naturally not be recognised by anybody – perhaps not even The Kremlin  officially.   It may simply “take note” of the results and try to use them to try and force Kyiv (or have other capitals try and force Kyiv) to enter direct dialogue.  Either way it seems entirely unlikely Kyiv will enter into direct negotiations from elections that are not conducted in accordance with Ukrainian law – quite rightly too.  This unless, as inferred in yesterday’s entry, a special electoral law is to appear for the Donbas which would naturally therefore be according to Ukrainian law (or at least a law of Ukraine) that ultimately then facilitates direct dialogue.

A defiant up-tick in front line engagement once Kyiv (and everybody else) refuse to recognise those elections would appear probable if/when any 1st September ceasefire fails.

Another issue will be the $3 billion bond due to The Kremlin at the year end, a bond that Ukraine seeks to restructure.

At the time of writing, it is particularly difficult to see The Kremlin agreeing to this, for no other reason than its domestic audience expects Russian “victories” rather than the Kremlin handing “victories”, no matter how small, to Ukraine.  Notwithstanding that, the war the Kremlin is conducting against Ukraine is not just military.  It is political, diplomatic and economic.

For all the fluffy thinking about various ways to delay the Ukrainian payment – for example not paying and reducing the $3 billion from the war reparation claims Ukraine has and continues to submit against Russia etc., the bond is legally due.

If restructuring is not an option, Ukraine will either pay – or not.

If it pays the Kremlin, then there will be the perverse situation of financing a war against itself.  If it doesn’t and defaults, the question is how markets and other lenders will react.

There is then the key dates of 31st December 2015 and 1st January 2016.

At the time of writing there seems very little likelihood of The Kremlin meeting the Minsk II agreement terms.  It has shown no desire to do so thus far – its only interest in Minsk II being that Ukraine unilaterally meets all conditions that favour Kremlin outcomes in the hope of pocketing them and then making yet further onerous demands, or simply failing to deliver its side of the agreement.

Few realistically believe (or have ever believed) that control of the internationally recognised Ukrainian border will returned to Ukraine by the year end, particularly in light of the failure of the Kremlin to force its interpretation, and thus desired outcomes, into the new text of the Constitution of Ukraine.

Thus the year end in all probability (although it cannot be ruled out that there may be a rapid change of policy by somebody somewhere) will come and go, and the date within the Minsk II agreement pass without successful conclusion.

An increase in front line violence seems very likely in an effort to try and force new concessions from Ukraine in a Minsk III agreement, yet there seems very little likelihood that any Minsk III would gain further concessions from Ukraine.  It no longer needs to buy time by conceding space.

A major offensive by the Kremlin, despite posturing, does not seem particularly likely either – although it cannot be ruled out.

Thus any negotiations regarding Minsk II when deadlines expire will probably related to new deadlines (that will probably come and go once more) and a heated front line during those negotiations.

It should be noted that despite the numerous mentions of increased military action at the front line, that does not necessarily translate into territorial gains – or indeed the desire for territorial gains from a Kremlin perspective.  It does not want or need The Donbas for any other reason than to use it as a Trojan Horse within Ukraine to control, or at the very least, frustrate the Ukrainian future and stop the trajectory from Moscow’s orbit.

Thus far that plan is failing.

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The other major deadline that will arrive, without any major concessions to The Kremlin will be the full implementation of the EU-Ukraine AA/ DCFTA on 1st January.  This seems very likely to see The Kremlin simply put a ban on (almost) all imports from Ukraine in retaliation – probably simultaneously.

Whilst the Ukrainian military is charged with holding the line against Russian troops and Kremlin proxies, the next three months (and into early 2016) are going to be defined by a significant battle of governance and the holding of political nerve.

All of that being said, the biggest battles for Ukraine still remain the internal battles – Rule of law, structure and sustainability.

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