NEWS ANALYSIS: Ukraine pundits split on fleet, OK cheap Russian gas

By Stefan Korshak Apr 22, 2010, 15:18 GMT

Kiev - Ukrainian pundits on Thursday were split on a recent agreement with Russia to allow its Black Sea Fleet continued basing rights. But across the political rainbow observers agreed: the cheap Russian gas financing the deal will help Ukraine's battered economy.

Ukraine's newspapers, airwaves, and news web sites have been jumping since a Wednesday joint press conference by the Russian and Ukrainian presidents, and their smiling declaration to television cameras that bad relations between Kiev and the Kremlin were now history.

Moscow was slashing the price of natural gas sold to Ukraine by 30 per cent, in exchange Kiev's permission to base Russian navy warships and personnel in the Ukrainian port Sevastopol, for another quarter- century, Russian President Dmitry Medvedev explained.

Ukraine and Russia have laid their past differences aside, and will cooperate in energy, aerospace, and - as was announced on Thursday - even allow one country's national television channel to broadcast unhindered across the other country's air waves, Ukrainian President Viktor Yanukovych said.

The navy bit of the agreement - involving permission for some 20 aging Russian warships to tie up at a Sevastopol wharf, and have Russian shore installations there to support them - has stirred up a hornet's nest of Ukrainian opinion.

'Yanukovych has betrayed Ukraine, her national values and her interests,' thundered Yulia Tymosheko, the politician defeated by Yanukovych in Ukraine's recent presidential election. 'He violated the constitution.'

'This is the best news we could possibly have expected,' said Vasyl Parkhomenko, leader of the Sevastopol branch of the Communist Party of Ukraine. 'The Russians have every right to be here.'

Ukraine's supreme court on Thursday ducked the conflict, announcing it would not hear a suit filed last year by another of Yanukovych's political opponents, former President Viktor Yushchenko, claiming Ukraine's constitution bans the presence of any foreign military bases on Ukrainian territory.

A national referendum could be held on the question, Yanukovych said Thursday.

Public opinion surveys ordered March by the Yanukovych administration, only days after taking office, showed 60 per cent of Ukrainians approve of the gas-for-naval base deal, the independent Ukrainska Pravda web magazine reported.

Even inveterate opponents of Yanukovych's pro-Russia stance conceded an infusion of cheap Russian energy would benefit Ukrainian heavy industry.

'The present government is obsessed with economic issues, although, perhaps, right at this moment that probably makes sense,' Karasev told Unian web news. 'But too much focus on the economy, and we could lost our very state.'

'First and foremost, the beneficiaries of cheap Russian gas are our (Ukrainian industrial) oligarchs,' said right wing politician Iosif Vinsky. 'What we must do now is demand from them (compensation to the Ukrainian taxpayers) for this preferential treatment.'

The Russian gas price cuts will reduce Ukraine's fuel bill by between 1.2 and 1.4 billion dollar annually, for the next decade at least. Most helped will be Ukraine's chemical, shipbuilding, cement, and power industries, according to news reports.

Ukraine's largest-circulation Segodnya newspaper was upbeat: 'The dramatic reduction of the price of gas will finally allow (Ukraine) to pass its national budget bill for 2010...what is more, energy is an important part of the price of Ukrainian exports, so they will now become more competitive internationally.'

'With the gas price reduced, the (Ukrainian) government now looks fully capable of trimming its general deficit to six per cent of GDP, as required by the IMF,' wrote Andrey Bespyatov, senior researcher for the Dragon Capital investment bank.

'Inflation may realistically slip to the single digits by year- end.'

Passage of a national budget combined with renewed loans from the IMF could bring substantial private capital back into Ukraine by 2011, as Kiev was no longer in open conflict with Moscow, many observers said.

'At the end of the day, I think what was driving the (Yanukovych) government was their assumption the Russians had no intention of leaving Sevastopol,' said Maksym Kovalenko, an Odessa-based political scientist specialising in Black Sea security issues.

'Under those terms, the rational move was to make the Russians pay as much as possible, for the right to stay.'