ANALYSIS: Yushchenko, Tymoshenko clash over gasoline issues (06/05/05)

ANALYSIS

Yushchenko, Tymoshenko clash over gasoline issues

by Jan Maksymiuk
RFE/RL Belarus, Ukraine and Moldova Report

The hottest news in Ukraine last week was not the Eurovision song contest in Kyiv - an unusual event in this post-Soviet country by any standards. The real shocker was a report in the Kyiv-based weekly Zerkalo Nedeli that President Viktor Yushchenko suggested that Prime Minister Yulia Tymoshenko should tender her resignation over her incompetence in dealing with the country's fuel crisis.

To toss even more gasoline on that fire, the report asserted that the suggestion was made "half-publicly" during a heated Yushchenko-Tymoshenko exchange at a May 19 meeting with senior executives from the Russian oil sector, including Transneft, LUKoil, and TNK-BP.

Have the two heroes of the Orange Revolution already had enough of their partnership and resolved to launch an internecine war?

For the time being, it appears they have not. A string of statements from Mr. Yushchenko's and Ms. Tymoshenko's press services that followed the report on their May 19 meeting avowed that the relations between the president and the prime minister remain friendly and full of mutual trust. "I trust the prime minister, my generally positive assessment of the government's work is unaltered. Only those doing nothing make no mistakes," President Yushchenko asserted in one statement. "We have found a formula to resolve the oil problem, because we have found courage in ourselves to conduct an open, public and honest dialogue, as well as to make hard and responsible decisions both within and outside [our] team," he stressed.

Moreover, on May 22, during a solemn occasion at the grave of Ukrainian national poet Taras Shevchenko in Kaniv, Mr. Yushchenko and Ms. Tymoshenko renewed their earlier pledge to form a coalition for the 2006 parliamentary elections of Mr. Yushchenko's Our Ukraine People's Union, Ms. Tymoshenko's Fatherland Party, and the People's Party headed by Verkhovna Rada Chairman Volodymyr Lytvyn. "I'm sure that the Orange Revolution and the values with which we came to Kyiv's maidan [Independence Square] truly belong to these three political forces," Mr. Yushchenko said in Kaniv. Ms. Tymoshenko added, "I support with all my soul our union, our teamwork, our joint political activity for many years ahead."

But some skeptics in Ukraine immediately recalled another election alliance made in Kaniv, by four presidential candidates during the 1999 presidential campaign (Yevhen Marchuk, Oleksander Moroz, Volodymyr Oliinyk, and Oleksander Tkachenko), which lasted no longer than three weeks.

What actually transpired between President Yushchenko and Prime Minister Tymoshenko on May 19? According to the influential and usually well-informed Zerkalo Nedeli, which attributed its information to four unnamed participants in the meeting, Mr. Yushchenko apologized to the Russian oil traders for the Tymoshenko Cabinet, which, the president claimed, had obstructed their work. Mr. Yushchenko purportedly said he wished he had never appointed Ms. Tymoshenko as prime minister.

He also is said to have suggested that she might tender her resignation and join the opposition Social Democratic Party - united and the Party of the Regions in order to "blow their pipes and beat their drums." To add insult to injury, Mr. Yushchenko reportedly invited everyone except Ms. Tymoshenko to the next room to have champagne. All this purportedly took place after Ms. Tymoshenko categorically and repeatedly disagreed with Mr. Yushchenko's assessment that she had dealt with the fuel crisis by way of essentially administrative and non-market levers.

Leaving aside the shocking nature of the Ukrainian "family quarrel" under the Russian eyes, as Zerkalo Nedeli put it, one could argue that Mr. Yushchenko was to a large extent correct. Gasoline prices began to rise in Ukraine in early April, presumably stimulated by a more than 50 percent rise in the price of crude oil, a 30 percent increase in the excise tax, and increased tariffs for rail transport. Ms. Tymoshenko ordered in mid-April that prices for gasoline be stabilized at a level below 3 hrv ($0.6) per liter.

Simultaneously, the Ukrainian Ministry of the Economy warned Russian oil companies that it would guarantee their property rights for Ukraine's refineries only if they agreed to cut retail fuel prices - which they did. But following the cuts, some Russian-owned refineries in Ukraine significantly decreased their daily output or halted it altogether for "planned repairs." As a result, Ukrainians saw long lines at gasoline stations run by LUKoil and TNK-BP, some of which reportedly introduced rationing.

Seeking more market-oriented methods to defuse the fuel crisis, the government hurriedly drafted a bill to abolish import duties on fuel; the Verkhovna Rada equally hurriedly passed the legislation earlier this month. The aim of the legislation is twofold: to stop fuel prices from rising, and to create a more competitive environment for fuel imports from refineries not owned by Russians, notably from Lithuania and Romania. And the law seems to be working, at least for the time being. Fuel prices have now been fixed at 3.2 hrv, 3 hrv, and 2.85 hrv per liter of A-95 gasoline, A-92 gasoline, and diesel fuel, respectively. And some suppliers have begun looking for Lithuanian fuel.

On the other hand, Prime Minister Tymoshenko's argument that the fuel crisis was a "plot" by Russian oil traders to destabilize the government that is not liked by the Kremlin, seems to convince many Ukrainians as well. A poll conducted by the Razumkov Center among some 700 Kyiv residents last week found that more than 50 percent of respondents attributed the fuel crisis to "Russia's economic pressure as a means of influence on Ukraine's policy," according to Zerkalo Nedeli. That should not come as a surprise, not only because of the popular belief in Ukraine that Russia is to blame for most of Ukraine's political and economic troubles but also because of the situation on the Ukrainian fuel market.

Russian oil traders control 75 percent of fuel supplies to Ukraine, which effectively creates an informal foreign cartel that can easily coordinate its pricing policies in Ukraine not only to secure higher margins but also to achieve other economic or political objectives, especially when such policies are consecrated by "market rules."

Russian President Vladimir Putin said in an interview with Komsomolskaya Pravda on May 23 that Russian companies need to apply market-based pricing policies in the export of energy resources. Referring specifically to Georgia and Ukraine, Mr. Putin said it is necessary to find "transparent, market tools for interaction" with these countries. But Mr. Putin singled out Belarus, saying it is an exception in Russia's market-based export policy, since, the Russian president explained, "We are trying to find a way to build a union state with Belarus." This seems to be a circuitous way of saying what Ms. Tymoshenko essentially, and less diplomatically, said about the roots of Ukraine's fuel crisis.

"There is no Russian conspiracy here [in the fuel crisis]," Mr. Yushchenko said at a business forum in Kyiv on May 25. "I demand only one thing of the government: Learn lessons like that of oil markets." To which, according to Reuters, Ms. Tymoshenko, who sat alongside him, responded: "May my president forgive me."

But an equally essential question here is whether she has forgiven Mr. Yushchenko for his words during last week's meeting with Russian oil traders - for what seemed to be a severe blow to her self-worth if not an outright humiliation. The answer to this question might also include an answer to the question about the viability of the current political establishment in Ukraine.

Jan Maksymiuk is the Belarus and Ukraine specialist on the staff of RFE/RL Newsline.

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