Yevhen MARCHUK: Commentaries, Forecasts, Estimates

For Ukraine, the start of the third millennium was marked by the sharpening of a number of problems posing a clear and present danger to its national security. In addition to their negative effect on domestic political stability and public peace, these problems have also turned into a quite strong chain keeping Ukraine at a distance from Europe, at least for the time being. Currently, this chain is made up of the following components: the quality of Ukraine’s regime, independence of its state in terms of energy supplies, sharpening relations with Russia, and national debt. Events of the past several weeks — crisis in Parliament, energy market situation, oil-and-gas war with Russia — show that tensions in this chain have reached the critical point. In this interview, Yevhen MARCHUK, Secretary of the National Security and Defense Council, dwells on the preconditions and anatomy of these problems, as well as on possible scenarios.

BETWEEN UNSTABLE MAJORITY AND NEW LEFTIST THREAT?

The Day: We have a crisis in the legislative domain. Of course, it could be interpreted as a threat to national security. Part of the Deputies are sitting in Parliament and the rest, the majority, at Ukraine House. Both parts accuse the other of illegitimacy and each is sure it is right. Of course, each says it will fight to the last man. So what is the best solution to the problem?

Y.M.:At this stage a number of new political trends are receiving an impetus, drawing the line under the long period of uncertainty in Parliament, creating the prerequisites for the development of a vehicle that will step up Ukraine’s movement along the road of economic and social reform. I think this is a positive phenomenon, yet I do not share the euphoria at the meeting of the majority when they collected 240 votes — once even 242. This is not enough for stable and lasting activities. The parliamentary majority remains rather vulnerable. Among the People’s Deputies at least ten have dual status, meaning that they will never work in Parliament on a permanent basis. There are also those unaccustomed to daily parliamentary routine.

Moreover, this majority is under constant stress. This was evident when electing the Speaker, Vice Speakers, and particularly committee chairmen. All it takes is one faction voting against a candidate or abstaining for other reasons and the issue falls through. In other words, this majority will exist only so long as it can maintain its internal consensus, meaning that every issue will have to be agreed upon before being put to a vote. From the standpoint of routine, the majority could be mobilized to pass the budget, a socioeconomic development plan or certain cadre arrangements. Yet the technology of such consensus cannot be maintained with regard to every issue voted on, of course. Thus a situation could develop in which the legislative branch with its parliamentary “majority” and “minority” will simply be paralyzed.

The Day: All this shows that an optimum solution would be a referendum, the sooner the better, and new parliamentary elections. But is there any guarantee that the new Parliament will be better than the present one? Judging by the polls, some 40% of the electorate are likely to vote for the Left.

Y.M.: The majority has a much stronger intellectual, infrastructure, and information potential than the Left. A great deal will depend on how it can use it and on how the authorities behave now after the presidential campaign. The steps currently being taken give one a certain measure of hope: administrative reform, for example, which is underway at the upper echelons so far, yet it’s just the beginning. These measures do not have any tangible economic consequences, not yet, but politically I am certain that they will be understood and supported by society, along with reductions in spending on the state apparatus, various government functions, ceremonies, and festivities that can be put off to a better day. And of course, repealing all those tax concessions and other privileges for those that don’t need them so much — I mean privileges on the strength of one’s office.

As for the pragmatic steps being taken in the foreign trade strategy, I also think that they will meet with public understanding. Discarding further borrowing, international credits, except those already agreed upon, outwardly will not give the people any tangible social benefits, yet this may provide the Ukrainian leadership with important support by strengthening the people’s confidence in the existing regime. Without this support any further cardinal economic transformations will be impossible. Of course, the list could be extended.

What I mean is that over the past six months, considering the possibility of parliamentary elections, those in power should resort to specific positive actions and decisions on the one hand; on the other, they have to get their point across to the people, explain the logic of such changes as being vitally important and irreversible. It is true that the current general trend points to at least 20% of the population constituting the basis of social support of the Left. Yet the presidential campaign gave the authorities a quite positive example. In addition, I think that new forces will appear in the political arena, a number of structured and well financed parties that were absent in the previous parliamentary elections. They may well make corrections in the rules of the traditional election solitaire.

The Day: What do you think will be the outcome of the April 16 referendum?

Y.M.: That’s a relatively simple question. A capable, professional, and dynamic executive branch is the most important aspect of the development of any state, this and a Parliament willing to cooperate with the government. Without any of these components the state can only mark time. Hence, the referendum offers an alternative; will this country move forward or back? Parliament may become consolidated, using the majority, and assist with reform in the legislative realm. In a word, referendum is a kind of test for the political elite, in terms of constructive cooperation. Without such consolidation the referendum may well cause Parliament to be adjourned. Of the six questions involved in the referendum four are direct action ones and two relate to the Constitution and bicameral Parliament, meaning that they address the future.

The Day: In other words, implementing the referendum’s results in the form of political and legal vehicles depends on the preparedness of the parliamentary majority?

Y.M.: Yes. Parliament’s destiny is in its own hands, rather in the hands of the majority; whether it is capable of consolidating and making quick and effective decisions like passing the 2000 budget.

ENERGY, THE DOMINANT THREAT

The Day: How do you view current threats to national security?

Y.M.: There are immediate and long-term threats. In 2000, for example, there is a threat of default on the national debt, a matter which the NSDC cannot leave unattended. Comprehensive countermeasures have been worked out and the task at hand is getting through this year without default. Yet taking a retrospective view is also very important. Why did it happen? This is a question that entails a number of other questions.

Looking farther ahead, in terms of serious, long-term threats, we are faced with a demographic problem. Regrettably, there are alarming trends in the structure of the population and labor pool. With time we may find ourselves in a deep demographic hole, and this will pose a serious problem from the standpoint of social stability. In the political sphere, there is a whole series of economic, social, domestic, and foreign political threats. Actually, the threats to national security are a complex of problems capable of creating serious imbalances, upsetting political stability and public peace.

In order of priority, I would refer first of all to the energy crisis and a possibility of energy collapse. This is why an NSDC session is scheduled for January-February to deal exhaustively with the fuel and energy sector. In fact, we have been studying the problem and at the coming meeting we will draft the relevant presidential decrees. Let me stress that for the time being we have no formal reasons for declaring a state of emergency in the power industry. Frankly, this industry has long been in a state of emergency. There are serious problems with distribution of resources and managerial technology. For this reason, the point at issue is to liquidate the state of emergency and get the situation under control.

The Day: Would you please expand on the fuel and energy sector? What are the specifics of the problem as seen from the perspective of national security, especially considering that the past two weeks have been marked by news-making events in that sector?

Y.M.: The thing is that national security as such implies domestic energy market stability and energy independence. Ukraine’s current energy crisis threatens its domestic political stability, aggravating social tensions. The question is why there are all those mass electricity cutoffs and critical shortages of nuclear fuel, oil, and coal in the middle of the winter. Of course, emergency measures must be taken to prevent an energy catastrophe. But what are the causes? Why did Enerhoatom, a business entity that should boast superprofits, wind up in the red by 1.4 billion hryvnias last year? Why is the Kyivenerho Energy Company doing business not through the energy market but directly with its customers, which is against the law, using not its own power plants but those run by the state, and not by renting them but by managing them, and not paying for natural gas? Why have several power units at our nuclear power stations not been supplied fuel? Who is responsible for such gross mismanagement, making the nuclear power industry unprofitable, despite producing the world’s cheapest and most profitable energy?

The Day: Are we to assume that the next NSDC sitting will try to answer these and other questions?

Y.M.: Yes, and not only this. There is, for example, yet another conceptually important problem for the future: the privatization of regional energy companies. This subject has attracted a great deal of speculation. Yet in most countries such companies have long been privatized. Kazakhstan, for one, privatized its district energy companies jointly with its strategic investor and now they are collecting some 90% in hard currency from consumers. In Ukraine, 10-15% is considered heroic. On the other hand, it is only proper to wonder whether such companies are being privatized in return for token money. The next NSDC sitting will give rise to serious reforms in the energy sector, ranging from payment discipline on the primary consumer market to finishing construction in the entire sector. The EBRD, currently coordinating a prospective credit to finish construction of power units at the Khmelnytsky and Rivne nuclear power stations on behalf of G-7, puts forth the privatization of district energy companies, involving strategic investors, as one of its basic loan requirements. Such investors must have not only money, but also progressive technologies tested in Europe and the CIS states. I met recently with the head of the EBRD energy department. Among the conclusions reached during the meeting was one about Western investors and official circles considering actual reform in Ukraine’s energy sector a sign of its ability to carry out economic reform in principle.

There are quite a few problems related to the criminalization of the energy market. Economically, this market is quite susceptible to criminalization. Many aspects of cooperation with Russia will have to be worked out. I met with Mr. Adamov, head of Russia’s Atomenergo, Mr. Konovalov, head of the TVEL concern, and my Russian counterpart, Mr. Ivanov. We will have to dig deeply into the gas market lobby structures. Why, how, and on what terms are gas supply contracts made? Why does it happen that the Russian side is prepared to sell gas cheaper and the Ukrainian side signs a more expensive gas supply contract? Such questions have to be cleared up with the Russian side. Next in line is the problem of fuel transit costs, oil and particularly gas, in Ukraine. It is time we found out everything about the alleged unauthorized extraction of natural gas from transit pipelines.

The Russian side, pressing these charges, must provide detailed explanations. On the other hand, Ukrainian structures operating in this market, particularly the Naftohaz Ukrayiny national joint stock company, must respond to such accusations immediately and professionally, using the media. Our response in such situations is always belated. All this damages Ukraine’s political image, while the reputation of a reliable transit corridor is strategically extremely important to Ukraine. Transit can earn this country staggering amounts of money. Some four billion at the most conservative estimate. Naturally, this calls for certain investment in the transit infrastructure. In other words, accusations of transportation piracy must be stopped.

The Day: How would you describe the problem of taking stock of the government debts? How much does Ukraine owe and for what? Especially in terms of oil and gas supplies?

Y.M.: There are two kind of debts. The public debt comes to some $13 billion, including about three billion this year. Here everything is clear, who owes and for what. As for oil and gas debts, there are certain questions that remain open, and not without help from the Ukrainian side. Remember some 900 million dollars mentioned by Anatoly Kinakh? Two weeks later Yuliya Tymoshenko said first it was actually $2.8 billion and then corrected herself: $2.2 billion. The head of Naftohaz Ukrayiny and then his deputy insist on different figures, several times lower. This will not do. What does it mean? Such matters should be determined by a single person in Ukraine, because there are different kinds of debts — Ukrainian business entities’ to their Russian counterparts, among them Russia’s Gazprom or Itera. There are also debts made by the business structures that supplied gas to government structures or the housing-municipal sector. These business structures are business entities only outwardly, for they are actually linked to the budget. In other words, their debts can be classified as government liabilities. On the other hand, one cannot ignore the fact that such entities are due state or communal budget money. And there are debts of state structures to the Russian side. When all of these debts are put together the resultant amount does not reflect reality; it is totally confusing. We are not talking about the debts of Ukrainian structures trading in sugar and bread. No one will broach the subject, because this is their business. The same applies in our case. I think proposals must be made so there would be a single official empowered to deal with the public debt and discuss it, except the President, of course. Why? What does it mean when a ranking government official — in our case Yuliya Tymoshenko — returns from Moscow and comes up with $2.8 million worth of public debt? The Ukrainian side never mentioned it. Russia strongly insists on a pattern that we had a hard time discarding: Gazprom wanted to supply gas to Ukraine, dealing with a single state structure that would assume responsibility for it, while coping with its debts on its own. Instead, we separated national needs from business structures. All this came as the result of long and complicated talks with Russia. Thus when the Ukrainian Deputy Premier mentions these figures it means that, first, Russia will interpret this as Ukraine shouldering all of the arrears on gas supplies; second, our foreign creditors and investors will immediately respond, saying wait a minute! That country is piling up a debt almost three times the amount it has acknowledged up to now. This will have an immediate negative effect on the quotations of our bonds and obligations, lowering our credit rating as a state. That’s why the President had to step in and dot the i’s.

Now the situation makes one sad: two dignitaries, Deputy Premier and head of Naftohaz Ukrayiny, cannot solve their professional problems and turn to the media. Naturally, I don’t mean that the public debt should be kept as classified information, but such matters cannot be allowed to become confusing. Comments on the national debt and current arrears must come only from persons versed in the field and professionally keeping the situation under control. The national debt is a very sensitive matter, and any careless comment by a government official could well damage Ukraine.

BETWEEN PRESSURE FROM THE EAST AND INFANTILE EUROPEAN CHOICE

The Day: What do you think of Russia’s new national security concept? What are the likely consequences for Ukraine?

Y.M.: None for the time being. I think that the new concept is one of the aspects of the acting Russian President’s election campaign. The new formula of nuclear weapons’ use, actually allowing their usage, is also part of the campaign, but that’s my personal opinion. Without doubt, any sober-minded politician realizes that it’s impossible to use nuclear weapons these days. Another thing is that nuclear weapons can be brandished to maintain a certain political balance. On the whole, the new Russian concept evidences the strengthening role of the federal government faced with the threat of Russia’s disintegration. As for Ukraine, Russia’s hardening domestic policy and brandishing nuclear weapons as an element of its foreign policy are not likely to produce any tangible effect here, but we will have to take a closer look anyway. To this end, we must cooperate with Russian politicians even closer, at all levels, so we can block certain hazardous processes among the Russian political elite with regard to Ukraine. The specifics of the Russian concept mentioned and the harsher economic policy concerning Russia’s neighbors cast a heavy shadow of doubt on CIS’s future. In other words, if Russia persists with the current trends, I think this will speed the CIS’s disintegration.

The Day: Given this situation, what do you think of Vladimir Putin’s prospects as the next Russian President? Many believe that his election will indicate further complications in Ukraine’s relationship with Russia; he demonstrates a hard-line style, and this seems quite popular on the Russian political market.

Y.M.: I wouldn’t want to jump to conclusions, because a presidential candidate’s political technology and conduct during the campaign, and post-election political realities demanding specific decisions are two different stories. On the other hand, what should we have expected? Do we want Russia to pat us on the shoulder or take a benign view of our debts? Seriously, what Russia did for awhile could be described as pampering Ukraine. Many people in Ukraine got used to burning as much gas as they pleased and ignoring gas bills. Also, for quite some time Russia remained Ukraine’s important and interest-free creditor. Actually, I do not expect any mellowness from the Russian leadership, whether or not under Vladimir Putin. This hard line attitude toward neighbors is dictated by the very specifics of Russian politics. If not Putin, any other politician would have taken a similar approach. Russia has a lot of economic problems itself, due to lowering oil and gas output, and even with its own energy consumers. If Putin is elected and shows a hard line policy but an objectively fair one, I see no danger. Still, one must remember that Ukraine has just as effective vehicle to pressure Russia: oil, gas, and electricity transport via Ukraine, Black and Azov seaports that are also working for Russia’s economy, and freight transit. I hope it will never go that far, but the fact remains that Ukraine has its edge on Russia, except that we must not allow a situation to develop where this would become necessary.

The Day: Apart from the energy sector problems in Ukrainian-Russian relationships as strategic partners, there is also the heel of Achilles, the Russian fleet deployed in the Black Sea. It means an opportunity (rather its absence) to monitor Russian naval operations, considering information about Russian marines in Chechnya, the increasing Russian military presence in Ukraine (deployment of strategic bombers in the Crimea), and other factors that look anything but problem-free. So what can Ukraine expect from the Russian Navy in the Black Sea?

Y.M.: It is true that there are a number of issues still to be agreed on between Ukraine and Russia, concerning Russia’s naval presence in the Black Sea. Although the principal problems have been resolved, there are still nuances to be settled, which are important for Ukraine’s future. For example, regulations on the Russian Navy’s special services in Ukraine, Russia’s participation in ecological projects with regard to the Russian Black Sea Navy’s damaging effect on the environment, and certain aspects of land ownership. Yet the most complicated issue is the Russian Navy’s status. It is not that of a naval base in the classical sense, but of a military formation extensively integrated into the Ukrainian civilian structures of Sevastopol. This is something we will have to reckon with for a long time. Besides, despite substantial reductions, the Black Sea Navy remains a quite powerful force. Two military structures, Ukrainian and Russian, coexisting on a small territory will somehow or other produce a lot of factors, often hazardous to Ukraine, that we will have to foresee and resolve in advance. For this reason, we must remain active and dynamic, initiating the development of our relationship with Russia at all levels.

The Day: Suppose we get back to the West. You visited Poland recently with the President. One of the topics discussed with the Polish side must have been European integration. What do you think could be done there at this stage, to make Ukraine’s European prospects a closer reality?

Y.M.:Integration into the European community of nations and rapprochement with the European Union are really important conceptual strategic problems. Three of Ukraine’s neighbors — Hungary, Poland, and the Czech Republic — have reached a new stage of integration into the North Atlantic alliance and European Union, so our cooperation with these countries, not only in the economic, but also in the humanitarian, cultural fields — should receive increasing impetus. These countries could serve as both our guides to Europe and a barrier on the road to Europe. It is good that our contacts with Poland are quite extensive and dynamic. Needless to say, the friendly personal contacts of the Presidents play an important role here.

I would like to point out that Aleksander Kwasniewski promised to make every effort to secure Ukrainians visa-free entry to Poland and vice versa. I think that there will be no threat of closing the Polish border in the near future. We might also make similar arrangements with Hungary and Slovakia.

Also, the European vector poses the Ukrainian regime a number of relatively new tasks relating primarily to forming the institutions of civil society. In other words, the Ukrainian government must assist this society in establishing contact with Western European democracies beyond the limits of government regulation. Incidentally, it has been decided to found a Ukrainian- Polish university.

As for European integration as a whole, meeting EU requirements appears to be a major priority now. Most importantly, however, we must approach European living standards. Here lie the foundations for consolidating Ukraine’s political forces. Besides, I think business structures and the government have common interests here. I also believe that European sentiments are sufficiently widespread in Ukraine. It is important to neutralize all attempts by the Left extremists, particularly the Communists, to attack Ukraine’s European choice. Only perfect ignoramuses and frank enemies of the Ukrainian state can deny the need for Ukraine to integrate politically with Europe. Opposing this integration means opposing the movement toward European living standards. In short, implementing Ukraine’s European choice requires our authorities not only to create legislative and economic vehicles, but also to launch an extensive propaganda campaign. Counting on Western Ukraine’s support of the movement toward Europe would be an unpardonable mistake. To this end, we need nationwide publicity. Incidentally, I think that all Ukraine’s troubles that have come to the fore of late are stepping up this process of educating the Ukrainian political elite and society as a whole. In this society, the political and psychological atmosphere is now favorable to European integration. If we fail to instill mass European sentiments and develop powerful political vehicles supporting the European choice, making it a rea lity will be extremely complicated.

POSTSCRIPT

The Day: Many often wonder what role the National Security and Defense Council now plays. Has the NSDC changed? Any comment?

Y.M.:The NSDC functions and composition are determined by the Ukrainian Constitution and other laws, meaning that its role cannot be changed. The Constitution says there must be at least five NSDC members and that the President may order this membership expanded. It is also true, however, that NSDC does not have to handle day to day matters. Mr. Kuchma said so recently. As NSDC Chairman, he personally supervises its performance. As for current matters, we have agencies whose leaders are NSDC members. The council is to cope with problems that cannot be handled by one or even several such agencies. For example, the energy problem exceeds the limits of competence of a single agency, and is even beyond the Cabinet. Moreover, there are issues that haven’t been studied yet: for example, how to use the IMF credits. These problems need to be investigated. As it is, there is plenty of political speculation. Another problem is why foreign loans should be received by Ukrainian business entities under Cabinet guarantees, causing serious damage to the state. Finally, why should no one show any interest in this problem? Also, there is the problem of the tax concessions and excise and income tax exemptions granted certain firms. Add here the management of public property. How come the state gets nothing out of it? Why does the state budget get only token money from the lease and enjoyment of public property? Naturally, many objective factors and difficulties are involved, but is this the only reason? Suppose all these problems are singled out as a problem of budget losses, then estimates point to some 30 billion hryvnias annually. Let me stress that we are talking a whole budget revenue item lost. Such losses would be understandable if this money were spent on new factors of economic growth in various sectors, but this is not the case. Next in line is the problem of capital outflow abroad. Its scope is also a threat to national security. There are a host of open questions concerning budget losses. And there is another aspect: the lack of knowledge about these problems has given rise to the idea of carrying out an analysis of the effectiveness of the Coordinating Committee against Corruption and Organized Crime. Actually, the President has issued the NSDC certain instructions to this end.

Thus the NSDC copes with strategic problems calling for a systemic approach. Moreover, its supervisory functions will be further enhanced as provided by law.