Ukraine Quarterly Digest: January–March 2018

BY ANDRIAN PROKIP

The first quarter of 2018 was relatively calm in comparison with the end of 2017, especially with respect to internal affairs. Mihkeil Saakashvili was deported from the country and later received a four-year ban against reentering, which probably means the end of his Ukrainian story. The sphere of international relations, by contrast, saw continuing tensions with Hungary and Poland, and a new round of sparring with Russia commenced.

1. FOREIGN POLICY ISSUES

Relations with the United States

Financial Aid. On March 23, the U.S. president Donald Trump signed the Consolidated Appropriations Act for 2018, which allots more than U.S. $620 million in aid to Ukraine. Of this amount, $200 million is earmarked for military aid.

Locomotive Deal. On February 23, the Ukrainian state-owned railway company signed a fifteen-year deal with the U.S. company General Electric that has Ukraine buying new locomotives, some production operations of which will be carried out in Ukraine. The local component starts at 10 percent at the beginning of the arrangement and rises to 50 percent by the end. The total amount of the deal is $1 billion. Though some experts have said the deal could have been more beneficial for Ukraine, with a greater share of production done locally, the arrangement might be one way to improve U.S.-Ukraine relations, as was probably the case with the agreement to deliver U.S. coal supplies to Ukraine last year (an article on the coal deal is available here).

Russia

Crimean Military Equipment and Fleet. On January 11, Russian President Vladimir Putin proposed returning to Ukraine military equipment that had been based in Crimea when Russia annexed the peninsula, including ships, aircraft, and armored troop carriers. His rationale was that the equipment was in poor working condition. Ukrainian officials responded with a blanket refusal. Prime Minister Volodymyr Groysman suggested that Russia return Crimea together with the military equipment and fleet.

Diplomats Expelled. As an act of solidarity with Western countries that deported Russian diplomats in response to the poisoning of Serghey Skripal and his daughter, Ukraine deported thirteen diplomats as well. The Ukrainian Ministry of Foreign Affairs said that all thirteen were working for Russian special services, and the Security Service of Ukraine (SBU) said it had informed Russia it had evidence that those diplomats were working against Ukrainian interests. That was the largest number of diplomats expelled compared to other European states’ removals. In addition, the SBU prohibited those Russian diplomats who had been deported from the United States and Great Britain from entering Ukraine for five years. In response, Russia declared thirteen Ukrainian diplomats persona non grata.

New Gas Dispute with Gazprom

On February 28, the state-owned company Naftogaz of Ukraine announced it had prevailed in a suit brought by Gazprom concerning gas transit through Ukraine. The case had been heard by the Arbitration Institute of the Stockholm Chamber of Commerce. The Arbitration Institute decided that Gazprom should pay Naftogaz U.S. $4.63 billion in compensation for pumping less gas through Ukraine than was stipulated by the contract as a result of the transit-or-pay clause. When the adjusted arrears owed by Naftogaz to Gazprom in a previous case concerning the take-or-pay clause are subtracted, the total amount Gazprom now owes Naftogaz is U.S. $2.63 billion.

According to the court’s decision, Naftogaz also must buy 5 billion cubic meters (bcm) of gas annually from Gazprom (before the suit this volume was 52 bcm). To meet its obligation, Naftogaz made a single prepayment at the end of February to buy gas in March. However, Gazprom returned the funds, arguing that no additional agreement for the purchase had been signed between the companies, and refused to pump gas to Ukraine. With the low temperatures in late February and early March, however, Ukraine anticipated an increased demand for gas for heating, which could have precipitated a gas shortage. To avoid this situation, the government together with Naftogaz launched a hashtag campaign urging the public to turn down the heat. To cover the expected shortage, Naftogaz also bought Qatar-origin gas from Poland.

With relations fraught as a result of the Arbitration Institute’s decision, Gazprom officials announced their interest in cancelling the current contract with Naftogaz to transit gas to Europe, a situation Europe was not expecting before the end of the current contract in 2020. Furthermore, Russia still needs Ukrainian pipelines to transport gas to the EU: in 2017, 93.5 bcm were supplied from Russia through the Ukrainian gas transmission system.

This provocative gesture on the part of the Kremlin, like others before it, was an attempt to present Ukraine as an unreliable energy partner for Europe. However, gas transit from Russia to the EU through Ukraine has not fallen off. As a spokesperson for the U.S. State Department said, Gazprom failed in its attempt to portray Ukraine and Naftogaz as unreliable transit partners.

Later in March Gazprom appealed the decision of the Arbitration Institute to the Svea Court of Appeal in Sweden.

Tensions with Poland over Historical Memory Policies

The beginning of 2018 saw a new round of tensions between Ukraine and Poland over historical memory policies, a highly contentious issue (for more background on the differences, please see a previous issue of the Digest).

The Polish parliament voted to amend the 1998 law that created the Institute of National Remembrance (IPN). Despite concerns expressed by officials from other countries, the amendment was signed by the Polish president Andrzej Duda on February 7. The amendment criminalizes the attribution of Nazi crimes to the Polish nation or the Polish state, and permits penalties to be exacted for denying crimes committed by Ukrainian nationalist during World War II and after.

The antidefamation law threatened to spark new conflict between Ukraine and Poland over the interpretation of painful events in their shared history and how such events should be appropriately commemorated. Official reactions came swiftly. The Ukrainian minister for foreign affairs Pavlo Klimkin stated that the law would not promote dialogue but only the development of a historical mythology. President Poroshenko said that the law did not accord with the principles of strategic cooperation between Ukraine and Poland announced earlier. He also emphasized that dialogue was needed to get at the heart of historical truth, a process that would be impeded by such prohibitions as the new law codified.

Nonetheless, Ukraine was restrained in its response. Ivanna Klympush-Tsyntsadze, vice-prime minister for European and Euro-Atlantic integration of Ukraine, said that adopting a similar law in Ukraine in response to Warsaw’s move would be not effective and would cause harm. On February 6, the Ukrainian parliament approved a resolution condemning the IPN amendment, expressing disappointment with the actions of the Polish parliament and calling for a return to constructive dialogue.

U.S. and Israeli officials also expressed dismay. Before the bill was signed, the U.S. State Department issued a statement supporting open discussion of historical differences and appealed to Poland to “reevaluate the legislation in light of its potential impact on the principle of free speech.” The Israeli Foreign Ministry spokesperson said that the country opposed any attempt to challenge historical truth. On signing the law, President Duda said he would ask the Constitutional Court to review the constitutionality of those articles in which Ukraine was mentioned. At the same time, the biggest Polish opposition party, Civic Platform, proposed amending the law, which had brought such international tensions. The strong diplomatic reactions from outside the country and internal opposition provide some hope that the law might be amended in the future to eliminate its more radical provisions

Tensions with Hungary over Language Policies

Tension remained between Ukraine and Hungary in the spring of 2018 over Ukraine’s recent revisions to its law on language policy, particularly the language in which schoolchildren are to be educated (for more on this topic, please see a previous issue of the Digest). The law softens certain protections for the use of minority languages, and Hungarians form a large ethnic and language community within Ukraine. The international institutions did not have strong objections (except for some recommendations issued by the Venice Commission for Ukraine in late 2017). On January 23 the Parliamentary Assembly of the Council of Europe adopted Resolution 2196 (2018), “The Protection and Promotion of Regional or Minority Languages in Europe,” and Ukraine and its education law, which had provoked concern over the possible diminution of minorities’ rights in 2017, are not mentioned in it. Nonetheless, Hungary continued to decry the potential effects of Ukraine’s modified language policy on ethnic Hungarians living in Ukraine and couched its concern in official communications. The country sought any leverage to pressure Ukraine into amending or rescinding the law, including vetoing a meeting of NATO-Ukraine defense ministers on February 14 and 15.

Péter Szijjártó, Hungary’s foreign minister, asked that Ukraine refrain from putting the law on the language of education into effect until all the details had been worked out with and approved by Ukraine’s Hungarian minority. Later, in March, his demands became more specific: the law should be amended to provide minorities with more rights to study in native languages and its implementation should be postponed to 2023. Szijjártó also appealed to other European minsters not to remain on the sidelines, without mentioning the problems Hungarian officials had ignited with their desire to shut down the Soros-founded Central European University in Budapest. On March 29, Ukrainian deputy-minister for foreign affairs Lana Zerkal said that Ukrainian officials had arranged a settlement with the Hungarian ethnic community in Zakarpattia regarding the language used in schools. She also noted that the arrangement would probably not cause Hungary to back off from its demands regarding the law on education.

Foreign-Sponsored Attacks on the Hungarian Cultural Center. In February the office of the Center for Hungarian Culture in Zakarpattia region was attacked twice by initially unidentified assailants. In the first attack, on February 4, the criminals hurled Molotov cocktails through a window in the facility. During the second attack, on February 26, the criminals installed an explosive device on the windowsill of the office and set off the charge. Both cases were considered acts of terrorism and were successfully investigated by Ukrainian police. In the first case, three Ukrainian citizens were arrested. In the second case, two Poles were arrested by the Polish agency for domestic security in cooperation with Ukraine’s SBU. The governor of Zakarpattia region said that the principal agent in both cases was a person living in Transnistria (Moldova) who had acted under the instructions of the Russian FSB. The attacks were widely interpreted as an effort to sabotage good relations between Ukraine and EU states.

The attacks led official Budapest to request an OSCE mission in the region, which was done. The OSCE subsequently informed the governments involved that the situation in Zakarpattia was calm.

2. INTERNAL AFFAIRS

Saakashvili. The End of the Ukrainian Story?

On February 12, the State Border Guard Service of Ukraine seized Mikheil Saakashvili in a restaurant in Kyiv and deported him to Poland (because he had arrived in Ukraine by way of Poland, breaking border-crossing rules). The legal basis for his arrest and deportation was that Saakashvili had failed to obtain the status of refugee he sought in Ukraine: on January 3, the Kyiv regional administrative court refused to recognize Saakashvili as a refugee. Saakashvili’s team appealed this decision to the Kyiv regional administrative court of appeal but lost the case on February 5.

Saakashvili said he would look for a way to return to Ukraine in the future. However, in February the Ukrainian State Border Guard Service decided to prohibit him from entering Ukraine until February 13, 2021.

Soon after Saakashvili left the country in such a precipitous manner, the political party he was affiliated with, the Movement of New Forces, began declining in popularity.

3. PROGRESS IN REFORMS AND SUCCESS STORIES

The first quarter of 2018 marked the fourth anniversary of the Revolution of Dignity, thus serving as a kind of reminder of the reforms still needed in the country. As a press release from the U.S. State Department noted, “Ukraine has taken important steps over the past four years, yet there is still more work needed to fulfill the promise of the Maydan and unlock Ukraine’s potential.”

International organizations in the EU similarly marked the occasion with nudges to Ukraine to continue on the path of reform. The International Monetary Fund reminded Kyiv of its obligation to use market principles for household gas pricing, which is among the conditions Ukraine needs to meet to continue cooperation with the IMF. The government had proposed a new gas-pricing mechanism but did not get agreement on it from its international partners and donors, so the current system of gas pricing for households will remain in effect until June 2018. The price of household gas is a sensitive issue for most citizens, and the government hopes to find a solution that will satisfy all and be affordable by households.

Energy Efficiency Fund

On January 1 the Ukrainian Energy Efficiency Fund began operation. Ukraine is the most energy-hungry country in Europe, and enhancing its energy efficiency is key to strengthening the country’s energy security. The idea behind establishing the fund, which will be paid for out of the state budget and by international donors, is to help finance energy modernization. In 2018 Ukraine plans to spend 2 billion UAH (about U.S. $76 million) for energy modernization. Germany has agreed to allot €100 million to improve Ukraine’s energy efficiency. Government figures project a decrease of 1.5 bcm in gas consumption annually through improved energy efficiency (currently Ukraine consumes about 33 bcm of gas annually).

Privatization

On January 18 the Verkhovna Rada approved a bill to require privatization of state-owned enterprises and transparency of the process. This law replaces several earlier laws regulating the privatization process. Later, parliament approved another bill prohibiting Russian citizens and companies from buying Ukrainian state-owned assets.

4. THE SITUATION IN THE DONBAS

Donbas Reintegration Bill

On January 18 the Verkhovna Rada voted for, and on February 21President Poroshenko signed, the law “On the Specifics of State Policy Regarding Providing for the State Sovereignty of Ukraine in the Temporarily Occupied Territories of Donetsk and Luhansk Regions.” Known more widely as the Donbas reintegration bill, the law introduced updated means for providing security in the uncontrolled territories of Luhansk and Donetsk regions. A new system for managing military operations in the region (replacing the Anti-Terrorist Operation) will be initiated as an Operation of Joint Forces, in which Ukraine’s services will work together under the general oversight of the Ministry of Security and Defense. The law specifically recognizes Russia as an aggressor and invader, and describes Russia’s actions in Luhansk and Donetsk region as armed aggression.

This language prompted an official reaction from Moscow. The Kremlin stated that such characterizations of Russia delayed resolution of the conflict. On January 19, President Putin held a meeting of the Russian Security Council on Ukraine’s new law. Former deputy secretary general of NATO Alexander Vershbow stressed that Ukraine had to clarify that the Donbas reintegration bill did not supersede the Minsk agreements

Status of the Minsk Agreements

January 11 marked the third anniversary of the signing of the Minsk 2 agreements. However, little progress in negotiations has been made. Despite the relative absence of full-scale battles, armed encounters—shootings—have been happening on a daily basis, with both Ukrainian soldiers and civilians dying. Threats and harassment of personnel from the OSCE special monitoring mission intended to prevent them from conducting observations also are regular occurrences.

The third signing anniversary did provide an occasion for the issuing of statements from different countries and their officials, including France and Germany, which are important mediators in the negotiations. A few days earlier, on February 5, the Ukrainian and French ministers of foreign affairs met in Paris. In the ensuing press-release, France called on Russia to uphold its obligations under the agreement, especially in the area of security, and on Ukraine to continue implementing the measures concerning it. In separate statement issued by Germany’s Ministry of Foreign Affairs, the ministry noted that “the status of implementation three years on is far from satisfactory,” while also recognizing that the Minsk agreements made it possible “to contain the conflict in eastern Ukraine and prevent a conflagration in the region.” The Ukrainian MFA spokesperson tweeted that during the three years in which Minsk 2 had been in effect, Russia had not executed any of its duties under the agreement.