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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

RUSSIAN OLIGARCHIC CAPITALISM GETS SECOND WIND IN UKRAINE

3 March, 1998 - 00:00

The Ukrainian-Russian dialogue, which has for several months been gaining momentum, reached its apogee last week as the two Premiers met to initial a ten-year agreement on economic cooperation. This, the Russian major businessmen's reconnoiter to Ukraine, shedding light on Russia's economic interests there, and President Kuchma's state visit to Moscow, legally sealing both parties' economic "expectations," caused experts to extrapolate the impact of these bilateral attainments on the prospects for capitalist development in Ukraine.

Only two years ago, when Western consultants and creditors were especially popular, few would have doubted that Ukraine would accept a strategy of market reform strategy, similar to that implemented in East Central Europe and the Baltic states. Things seem to have changed since then. It looks like models for entering the market and needed resources will be sought in the East. The 1998-2007 economic cooperation treaty with Russia remains inaccessible to the general public which has to be content with commentaries offered either by those who actually drafted it or their informed opponents. At the same time, Russia's business envoys visiting Ukraine and voicing Russian claims allow one to have a rather clear idea about what Ukraine can expect from this brotherly friendship suddenly made even warmer.

Official sources maintain that the February 24 meeting between Russian entrepreneurs and the bureaucrats in charge of Ukrainian business was meant to provide consultations to the Russian side as potential investors. Vice Premier Tyhypko in particular stated that Russian businessmen would be operating "in the legislative field existing for all foreign investors." However, the Moscow guests never said a word about abiding by the Ukrainian laws. Instead, they made it perfectly clear that top-level bureaucratic support was the key to their getting control of Ukrainian property. And they might just have a point there, because the Ukrainian laws on privatization encourage the most active bureaucratic involvement. Take, for example, the clause about privatization with obligations to invest which allows bureaucrats to adjust the process of privatization easily adjustable to the needs and preferences of a specific investor. By the way, several such "specific investors" had a chance last week to agree on their individual contributions to Ukrainian legislation.

Russian experts say that the visitors from Moscow had much to discuss with their Ukrainian partners. Their experience in seizing former government property in Russia, including industrial assets, real estate, and privileges added to downstream, could very well be used in Ukraine's next privatization campaign. The Expert, an influential Russian journal, suggests the presence of two superoligarchs in today's Russian economy: Gazprom, Russia's natural gas behemoth, and the Onexim Group which last year swallowed up each several banks, industrial giants, newspapers, and ranking bureaucrats, while being fed billions of dollars worth of investments by Western strategic partners.

It is hardly surprising that Gazprom, together with its affiliated banks, was the first of the two leaders of Russian capitalism to lay claims to Ukrainian's national assets. It is generally known that Russia's nonpayment crisis played into the hands of this major monopolist, making property so liquid that not a single owner of a medium and even rather sizable business can be certain of not losing it the next day. At present, the entire Ukrainian economy is in the same situation. Billions upon billions in arrears on last years' gas supplies and vague payment prospects under current contracts pose the Ukrainian government a very unpleasant dilemma: either cooperate with Gazprom, in keeping with a polished scheme of legally pure alienation of property (subsequently drawing Ukraine into the orbit of Russian oligarchic capitalism), or remain under the constant threat of a halt to gas supplies (tantamount to political destabilization in Ukraine).

Although the Ukrainian Cabinet is not saying which strategy it has chosen and does not identify its principal strategic partners in Russia, the list of projects and composition of the Russian delegation practically leaves little room for doubt. Premier Pustovoitenko mentioned among bilateral cooperation priorities joint ventures involving oil refineries in Lysychansk, Kherson, Odesa, and Kremenchuk. Then he called on the Russian businessmen to participate in completing two power units at the Khmelnytsky and Rivne nuclear power stations (both units being 85-90% ready), stressing the profitability of joint investment in the machine, shipbuilding, and aircraft industries. Naturally, only big-time Russian capitalists could afford this, and the Moscow guests top the list.

Considering everything, the Russians' (mainly those oriented toward oil and gas) undisguised anger at Ukraine's unstable legislation becomes understandable. Anatoly Ternavsky, head of Russia's Fuel and Energy Ministry's Coordinating Committee, said at a meeting with the Ukrainian President on February 17 that changing privatization clauses and raising the cost of Russia's interest in the Lysychansk oil refinery by $130 million, and in the Kherson one by $100 million, brings the possibility of Russian companies' participating in these privatization projects "to a dead end." Other Russian businessmen spoke similarly; they could not understand why the Ukrainian government, after agreeing to take Russian investments, did not invite the companies concerned to take part in drafting the relevant legal documents.

It is also true that the prospects of Ukrainian-Russian cooperation depend not only, and not so much, on the personal wishes of the contracting parties. One has to keep in mind the national conditions in which their concepts take shape — specifically, Mr. Chubais' statement to the effect that hierarchical capitalism is a dead end for Russia. In Ukraine, however, this type of capitalism may well get its second wind.

 

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