Ukrainian Weekly Highlights April 11–17, 2016

Ukrainian Weekly Highlights April 11–17, 2016 from Digests & Analytics Ukraine

Non existent parliamentary coalition appointed a new Prime Minister – Forecasts of Ukraine’s economic development are not encouraging – Gazprom vs Ukraine – New top executives for the largest state-owned enterprises – Restoration of Donbas as the war continues – Haggling over Savchenko – Putin transforms Crimea into a military base

Non existent parliamentary coalition appointed a new Prime Minister

Despite the attempts of the presidential team to ‘recruit’ the necessary number of MPs to create a new coalition from the members of other factions and ‘majoritarian’ MPs, they failed. Therefore, the two largest factions decided to violate the rules of procedure, introducing the "package" vote for resignation of Prime Minister Yatsenyuk, appointment of a new Prime Minister and a new Parliament Speaker.

Former Parliament Speaker Hroisman was elected the new Prime Minister. Representative of the People’s Front party Parubiy replaced him as the new Parliament Speaker. The number of Vice-Prime Ministers in the new Cabinet increased. The Government consists of the members of the two ruling parties, chosen according to the quota principle.

New head of the Verkhovna Rada Parubiy did not announce the creation of a new coalition and could not tell the number of MPs in the coalition. Only 205 MPs of the two main factions out of the necessary 226 voted for Hroisman’s candidacy, the rest of the MPs who voted were not the members of the coalition. Batkivshchyna Party leader Tymoshenko claims that another constitutional coup took place in the country, and that the Parliament repeats the actions of the parliaments of previous convocations.

The new Government Programme of Action was approved only at the third attempt. Hroisman’s Cabinet received immunity from dismissal for a year.

Users of social networks indicate that the new Cabinet will not be the government of the national trust, as it was formed as a result of the backstage conspiracy of oligarchs and authorities aiming to control the financial flows and to "make use" of the budget. The vast majority of experts agree that the victory of President Poroshenko, gaining the control over the government, is in the long term a defeat, since he from now on would have to bear full responsibility for the results of the Government's actions.

Parliament Speaker Parubiy has demonstrated that he is ready for rigging, fraud and violations of the rules to pull through questionable arrangements. The joint voting of the MPs who are oligarchs’ proteges, former members of the Party of Regions and the parties that came to power due to the popular uprisings in 2014 proves the deep crisis of the authorities and the inability of the new leaders to reform the system of relations between the authorities and the voters.

Parubiy claimed that the parliamentary and governmental crisis was resolved. However, most observers are skeptical about the prospects of the new Cabinet and admit the possibility of the collapse of the Verkhovna Rada, up to the announcement of early elections in autumn.

Retired Prime Minister Yatsenyuk criticized his "partner" Poroshenko and is apparently, hoping to return to politics after a while, taking advantage of the falling rating of the President.

According to a sociological survey conducted by the "Rating" group, almost half of Ukrainians support early parliamentary elections. The voters’ trust in politicians is at its minimum, the negative rating of all parties mentioned in the survey exceeds 50%. If elections were held this weekend, 13% of the respondents would vote for the Batkivschyna party, 11% for the Opposition Bloc, 10% for Saakashvili’s party and Samopomich party, 9% for Petro Poroshenko Block, and 7% for the Radical Party. Svoboda party has very closely approached the 5-percent election barrier.

In the Western media the criticism of President Poroshenko and his policy is growing after the scandal with his Panama offshore companies. It is emphasized that he continues to develop his business. At the Kyiv International Security Forum, the US representatives stated that the time has come to introduce austerity measures against Ukrainian corrupt officials in the upper echelons of power. His secret trip to Spain did not improve Poroshenko’s rating either. Reporters noticed that he was "having rest" at the villa, which he did not mention in his declaration. The villa is located next to the villa of Russian President Putin.

What is the direction of Ukrainian economy?

The IMF downgraded growth forecasts for the Ukrainian economy in 2016 to 1.5% and inflation to 15.1% from 2% and 12%, respectively. According to IMF experts, political instability and military confrontation in Ukraine will continue to negatively affect the global economy, trade, and tourism.

At the same time, the Ministry of Economic Development improved the inflation forecast for the first half of 2016 from 7.5% to 5.5%.

The Government claims that the inflation growth rate will slow down due to tight monetary policy, growth of world commodity and energy prices, and low aggregate demand.

The results of the sociological survey conducted by GfK Ukraine shows decreased level of consumer sentiment of Ukrainians, who expect further growth of inflation and deterioration of the financial situation, which makes larger purchases, especially of expensive imported goods, inappropriate.

Current market situation could be affected by the resumption of crediting by the IMF and the EBRD. They expressed their readiness to continue cooperation with the new Ukrainian Government reforms are implemented and the reuirements set earlier are met, including achieving the real success in fighting corruption.

Without the support of international donors, the situation in the financial sector remains extremely difficult. Newly appointed Finance Minister Danylyuk hopes to improve the situation by resuming cooperation with the IMF, reforming the civil service, finance sector, and privatization. The extension of the moratorium on the repayment to Russia of the "Yanukovych debt" was an important move, which indicates the refusal of the Ukrainian authorities to compromise with the Ministry of Finance of Russia.

Gazprom vs Ukraine

A warm winter allowed Ukraine to significantly save on heating, so a record amount of the natural gas remained in its underground storage facilities. According to the Energy Ministry, during the first three months of 2016, Ukraine reduced its natural gas consumption by more than 9% compared to the previous year. At the same time, the industrial gas consumption decreased by 23%. In accordance with the Law on Natural Gas Market, Naftogaz is consistently pursuing the reorganization of its subsidiaries. The "Gas of Ukraine" company was liquidated, and its assets will be transferred under the "Naftogaz" management.

Reduction of the Russian natural gas consumption by Ukraine has seriously affected the financial results of Gazprom, besides, the Stockholm arbitration is considering the counterclaims of Gazprom and Naftogaz on reciprocal penalties for violation of the supply contract. Head of Naftogaz Kobolev denies the possibility of the pre-trial settlement of the dispute.

Ukraine made a strong move, announcing the actions of Gazprom on the Ukrainian natural gas transit market to be non-competitive, resulting in a fine against the Russian monopoly in the amount of UAH85 billion (just over €3 billion). Gazprom's attempts to appeal the decision of the Antimonopoly Committee of Ukraine in the Kyiv Economic Court were unsuccessful.

The EU countries, after obtaining alternative gas delivery channels, with the help of lawsuits are trying to renegotiate the conditions of theit contracts with Gazprom, which was forced to change the pricing formula. Now the price of the Russian gas is tied to the spot price of natural gas in Europe. After the crisis of 2008, natural gas consumption significantly decreased, and the Gazprom prices, which were tied to the oil basket, were almost always higher than the actual market prices. For this reason, European natural gas traders suffered losses and were forced to sell Russian gas at cheaper prices. Gazprom partially compensated that by offering discounts and different formulas, but at the moment this policy has led to an even greater drop in sales. Major concessions of Gazprom have greatly reduced foreign exchange earnings and decreased its market capitalization.

New top executives of large state-owned enterprises

A Committee to elect the head of Ukrzliznitsya, the largest state monopoly, approved the candidacy of Polish citizen Balczun, who previously headed Polish railway. French citizen Barbosa was named a candidate for the post of the head of another large company Electrotyazhmash. These appointments should be approved by the Cabinet. According to Minister of Economic Development Abromavicius, the salary of these executives will amount from several hundred thousand to half a million dollars a year.

Some experts believe that these and other appointments can be disrupted by claims from unsuccessful candidates. This happened earlier in the case of the competition for the positions of the heads of Ukrspit and Tsentroenergo.

Politicians and oligarchs consider enterprise executives as a mechanism to control financial flows and obtaine advantages during further privatization. The "quota" composition of the government makes iti possible to predict the further intensification of competition between the candidates put forward by various financial and industrial groups.

Restoration of Donbas as the war continues

President Putin during a call-in show with participation of Russian residents once again stated that Russia has fulfilled all the requirements of the Minsk agreements and it is now Ukraine’s turn. At the same time, he stressed that he did not expect an escalation of the conflict in Donbas and was not against the consolidation of the OSCE contingent there.

Minister of the Social Policy Reva says that the residents of the occupied territories of Donbas were eligible to receive social benefits, as the part of the territory of Donbass, which is not controlled by Ukraine, does not have a status of the occupied territory. According to him, payments to the internally displaced persons are connected to the place of their registration, so the appropriate authorities control their places of residence. Minister for the temporarily occupied territories Chernyh also supports the full payment of social assistance to the residents of the uncontrolled territories as "all the citizens of Ukraine have equal rights," though he does not know the ways to implement it in practice.

Some experts believe that in this way, the "schemes" to plunder budget funds are being prepared, since it is impossible to confirm the facts of birth or death of citizens in the uncontrolled territories. One more goal of such statements could be the movement of the internally displaced persons to the occupied territory. Temporary migrants are forced to rent accommodation, their wages often do not even cover their rent, payments to such persons are minimal, so they often have to go back to their former places of residence.

In addition, such statements indicate the unwillingness of the authorities to return the so-called "certain areas of the Donetsk and Luhansk regions" captured by the militants and the Russian army or to introduce their economic blockade and to refuse to support them by giving them the status of the occupied territories.

Against the background of the statements of the new ministers, the situation at the frontline in Donbas remains extremely tense, the number of clashes is growing. The suburbs of Avdiyivka, held by the Ukrainian army despite the continuous shellings and militant attacks, remain a flash point. This position allows the Ukrainian army to control the strategic Donetsk-Horlivka route, making it difficult for the occupation army to transfer equipment. The shelling and attacks on the Ukrainian positions with the use of heavy artillery, tanks and self-propelled guns are reported along all the entire front line. During the attacks, the militants and the Russian forces are suffering serious losses, confirmed by the observers at the border and in the settlements controlled by the "DPR" and "LPR."

Haggling over Savchenko and Ukrainian hostages in Russia

Putin considers Nadezhda Savchenko a trump card in his negotiations with the West. During the call-in show with the residents of Russia, he stressed that the problem of Savchenko has not yet been solved. Her lawyers state the same. Savchenko continues a hunger strike, her condition deteriorates. The parties are expecting a court decision regarding the two Russian special force soldiers captured during fighting in the Luhansk region. One possibility could be the exchange of these servicemen for Savchenko and other political prisoners. Officials of the Ministry of Justice announced the scenario of their exchange for them to serve their sentences at home, but Savchenko, in terms of international law, is innocent.

Putin converts Crimea into the Russian outpost in the Black Sea

Russia holds in Crimea the second in the recent months large-scale exercises of artillery, air defense and coastal defense. The stated goals of the exercise are the defense of the coastline and the destruction of NATO ships in the western part of the Black Sea.

For the sustainable supply of the peninsula, in the absence of supplies from Ukraine, Russian authorities are going to establish a reliable supply of electricity from the North Caucasus and to build a bridge to transfer reserves. The Russian government announced the commissioning of the third stage of the "energy bridge" across the Kerch Strait, but for the reliable supply of electricity, the occupation authorities will have to rebuild the entire system of power lines, initially focused exclusively on the supply from the mainland Ukraine. Besides, the North Caucasus region of Russia experiences energy shortages, and its power grid was not designed to be connected to an additional burden in the form of Crimea.

The construction of a bridge across the strait has already begun, but the term of its commissioning from the very beginning has been extended for a year. According to the assessments of hydrologists and geophysicists, the project implementation is problematic, because the strait is in tectonic fault zone, and the bottom relief is constantly changing. If the bridge is built, it could create serious obstacles to navigation in the Azov Sea, but the Russian authorities continue building it, not paying any attention to the Ukrainian public protests.

From the point of view of security of the military bases, the indigenous population of the peninsula, the Crimean Tatars, are a risk factor, so the Russian authorities are trying to oust them from their places of residence and are carrying out the acts of intimidation in the areas of their compact settlement. Crimean Tatars consider such actions as a genocide and the continuation of Stalin's deportation policy. The next demarche was banning the Mejlis activities by the Crimean prosecutor's office. Head of the Majlis Chubarov, President Poroshenko, the Turkish authorities, as well as a number of international human rights organizations spoke against such Russia's actions.