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Analysis: Ukraine's Soviet energy legacy

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by John C.K. Daly
Washington (UPI) Jan 15, 2009
The ongoing Ukrainian-Gazprom dispute is an appropriate moment for Eurocrats in Brussels to question the wisdom of the range of policies toward the entire post-Soviet space since communism imploded in 1991.

While the European Union's newest Eastern members shiver because of the dispute, the fact remains that the Soviet-era pipeline network responsible for bringing nearly a quarter of Europe's natural gas imports is itself a Soviet legacy originally designed to supply the Soviet Union's Eastern European allies via a unified pipeline network, with 80 percent of those pipelines now transiting Ukraine.

The turbulent economic events of the last year, which saw record-high energy prices before the global recession began in the autumn, should not overshadow the fact that in its rush to embrace alternative forms of power, most notably nuclear, the West should not forget a Soviet-era legacy in Ukraine that has become a byword for technological arrogance: Chernobyl, humankind's greatest nuclear power disaster.

In the U.S.-led push last year to integrate Georgia and Ukraine into the North Atlantic Treaty Organization, Western military concerns have overlooked political and economic realities that overshadow the countries' geographical position on the periphery of Russia.

In Ukraine, the fragility of its post-Soviet economy and the threat it poses to the West is underscored by the fact that, according to Vladimir Goncharenko, chairman of Citizens' Rights for Ecological Safety, during the past several years scavengers have removed from the Chernobyl exclusion zone 6 million metric tons of scrap metal that was subsequently smelted at metallurgical combines and reprocessed into new metal. While in theory each metallurgical combine should be equipped with radiation-monitoring equipment to check all incoming scrap, financial shortfalls have meant this was rarely the case.

Real GDP growth in Ukraine reached about 7 percent in 2006-07, underwritten by high global prices for steel, Ukraine's leading export. In 2007 Ukraine ranked eighth in global steel production, producing 43 million tons.

How much of that used scavenged material is a matter of speculation.

In 2007 ecologists sued the Nature Ministry, the Health Protection Ministry and the Metallurgical Combine of the city of Krivoy Rog in court, alleging the combine did not adequately inspect incoming metal and that the ministries did not enforce compliance. Goncharenko's group also claimed the state does little monitoring of Dnepropetrovsk's 120 million metric tons of uranium ore processing tailings in Zheltyie Body and Dneprodzerzhinsk.

Such a sobering tale highlights a number of "inconvenient truths" -- to paraphrase former U.S. Vice President Al Gore -- about Ukraine, Russia and their energy relationship.

The first is that, while until recently Russia was flush with energy revenue, Ukraine is not. In 2007 its oil production was 102,400 barrels per day, while oil consumption was more than 345,000 bpd. A similar disparity exists in its natural gas industry, with 2007 production totaling 19.5 billion cubic meters vs. consumption of 84.9 bcm.

The two countries need each other, however. Ukraine needs Russian natural gas imports, and the Kremlin in turn needs access to Ukraine's network of pipelines. Accordingly, after 1991 Kiev and Moscow reached a rough accord that Russia would supply subsidized gas at below-market rates in return for untrammeled access to the Ukrainian pipeline network.

Similar to the Soviet Union under Mikhail Gorbachev, however, since 2005 the Ukrainian government has put political reform over deep-seated economic reform, with the result that the Ukrainian economy, hobbled by rampant corruption, made only fitful progress toward developing an economy able to compete in the global market.

What changed everything in the prickly but pragmatic post-Soviet Russian-Ukrainian relationship was the "Orange Revolution" of November 2004 to January 2005, following a contested presidential election that saw the overthrow of the Soviet-era government of Leonid Kuchma and his handpicked successor, Viktor Yanukovych, in favor of Viktor Yushchenko. On Jan. 23, 2005, Yushchenko was sworn in as president, and the following day he appointed Yulia Tymoshenko as prime minister.

From the outset, Yushchenko was unabashedly pro-Western, while Tymoshenko was much more circumspect toward Ukraine's giant northern neighbor. The last four years have seen the Yushchenko-Tymoshenko partnership dissolve into a bickering feud.

Given Yushchenko's pro-Western stance, it was inevitable that friction would increase with Moscow, and the first round of pricing disputes with Moscow over natural gas imports dates from two months after his inauguration.

The Russian government has many disputes with Ukraine, but topping the list are disagreements over the status of Sevastopol, home to Russia's Black Sea Fleet and the finest harbor on the northern Black Sea coast, and Yushchenko's persistent push for Ukrainian membership in NATO. The latter ambition has been promoted relentlessly by the outgoing Bush administration, most recently at last April's NATO summit in Bucharest, Romania. To expect that Moscow would not make its displeasure over such an action known is a mistake made only by naive inside-the-Beltway neocon hawks.

A number of European NATO members led the fight to blunt the Bush administration's initiative in Bucharest, a position they must have remembered with relief last August, when Russia and Georgia fought a five-day conflict over South Ossetia and Yushchenko's government strongly supported Tbilisi.

While there is undoubtedly an element of political coercion in the present dispute, the fact remains that, stripped of rhetoric, Moscow is now simply asking a nationalist Ukrainian government to pay full market prices for its gas imports. Western European NATO members glibly lecturing Moscow bear a fair share of responsibility for the debacle.

Rather than chiding Russia for pressuring Ukraine to pay up, thoughtful European NATO nations might engage in a bout of earnest reflection to consider why Ukrainian membership in NATO is regarded by Russia as such a threat.

European sales of natural gas are critical to the Kremlin, as two-thirds of Gazprom's revenue comes from the sale of gas that crosses Ukraine. That said, NATO's careless offers to Ukraine are inflaming nationalists in Kiev into believing they can confront Moscow with impunity. In the former Soviet Union, energy, politics and security are indissolubly linked, a simple fact that apparently has escaped everyone both inside the Beltway and in Brussels.

More thoughtful Europeans also might ponder that in promoting military alliances instead of genuine economic reform, in the resultant fiscal chaos, Ukrainians seeking to survive will continue to strip metal assets from Chernobyl and its surrounding territory, the Soviet Union and Ukraine's greatest fiscal catastrophe, whose overall cost is estimated at $200 billion in inflation-adjusted dollars. The 19-mile-wide exclusion zone undoubtedly still contains rich pickings.

Should the West not switch its emphasis in its dealings with Kiev and begin acting as an honest broker in resolving the gas issues rather than further alienating Moscow by loudly seeking "alternative" energy routes and sources, while dangling eventual NATO membership, then Brussels could do worse than make mass purchases of dosimeters, as Ukraine will continue to sell anything that is not bolted down in order to pay its gas bills, and that includes steel made with scrap.

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