Ukraine Quarterly Digest: July–September 2021

BY ANDRIAN PROKIP

Over the past three months, Ukrainian politics centered on celebrations of the thirtieth anniversary of the country’s independence, the inaugural Crimea Platform summit, and gas transit issues, especially those posed by the Nord Stream 2 project. The pace of COVID-19 vaccination has somewhat improved, but not enough to prevent a new wave of the pandemic, which started in September 2021. Reforms in the energy sector took a step back with a populist decision by the cabinet not to raise the prices households paid for gas, a blow to the nascent gas market. Finally, Russia’s decision to enroll Ukrainian citizens in the non-government-controlled territories as voters in Russian elections enraged Kyiv and prompted a condemnation of the Russian State Duma elections as illegitimate.

1. INTERNATIONAL AFFAIRS

International Crimea Platform Summit for Deoccupation of the Peninsula

The inaugural summit of the Crimea Platform was held in Kyiv on August 23 with representatives of forty-six countries, including several heads of state or government, ministers, ambassadors, and leaders of international organizations. The Crimea Platform was established by President Zelensky in February 2021 to build a coordinated international effort to pressure Russia to deoccupy the Crimean Peninsula. Participants in the summit signed a joint declaration, which remains open for other countries to join. After the summit, the main office of the Crimea Platform was established in Kyiv. It will monitor human rights issues, security issues, and the environmental and economic situation on the peninsula.

In late September the Ukrainian government approved an action plan for implementing the Strategy for Deoccupation and Reintegration of the Temporarily Occupied Crimea. According to President Zelensky, the plan provides a comprehensive roadmap for the return of Crimea to Ukrainian control.

Nord Stream 2 Pipeline Developments and Ukrainian Gas Transit

On September 10, Gazprom reported that  construction on the Nord Stream 2 (NS2) pipeline had been completed. Finishing the work became possible after the White House waived some sanctions against the operating company, Nord Stream 2 AG, and its CEO in May of this year.

US-German deal. During their July meeting in Washington, D.C., President Biden and German chancellor Angela Merkel discussed the NS2 project and the issues it posed for Ukrainian gas transit; this discussion resulted in a special statement. The parties agreed to establish the Green Fund for Ukraine to support that country’s energy transition, energy efficiency, and energy security, including facilitating the development of hydrogen and accelerating the transition from coal to carbon neutrality. The two countries committed to supporting at least $1 billion in investments in the fund. The agreement also stipulates that Germany and the United States will respond vigorously should Russia attempt to use energy supplies as a weapon against Ukraine, and recognizes the German government as a key player in the energy sector of the EU and Eastern Europe.

Ukraine’s position. From the Ukrainian perspective, the problem is that the $1 billion is the annual gas transit revenue that, under an existing Russia-Ukraine agreement, Ukraine is slated to receive from Gazprom for transiting Russian gas until 2024. If Russia’s gas transit through Ukraine drops because of NS2, the gas transit system will need to be modernized at a cost exceeding the Green Fund monies. Also, Kyiv has no illusions about Russia’s readiness to transit gas to the EU through Ukraine in quantities sufficient to keep the previous level of revenues and to support the pipeline functionality.

International reactions. The governments of Ukraine and Poland addressed the European Commission on possible security implications devolving from operation of the NS2. Both governments called on the European Commission to start consultations on the new gas pipeline.

Lithuanian foreign minister Gabrielius Landsbergis called the U.S.-Germany gas transit deal a mistake that could be resolved only by offering a NATO membership Action Plan to Ukraine. This view was reiterated by Dmytro Kuleba, Ukrainian foreign affairs minister, in an article in Foreign Affairs.

Relations with Germany

Germany and Ukraine are in a permanent dialogue over energy and security issues. On July 12, President Zelensky visited Berlin and met Chancellor Angela Merkel and other officials of the German cabinet. Later, on August 22, Chancellor Merkel visited Kyiv. During both meetings the key topics of discussion were the NS2 pipeline and the unclear future for Ukrainian gas transit, as well as the situation on the front lines in the Donbas. Ukraine proposed halting the rollout of the NS2, while Germany focused on mechanisms to save Ukrainian gas transit, without, however, mentioning any specific volumes. Ukraine demands more clarity on these issues, and the two governments have not yet reached a mutual understanding as to the path forward. President Zelensky is now trying to make the energy issue part of the Normandy Format talks.

New Level of Tension with Hungary: Gas Transit

In late September the Hungarian government announced it had signed a new gas deal with Gazprom that would provide Hungary with gas for the next fifteen years through the Turkish Stream pipeline, and no longer via the Ukrainian pipeline. In light of the unclear future of the Ukrainian gas transit system after the NS2 becomes fully operational, Kyiv saw this step as unfriendly, politically motivated, and pushed by the Russian government in its ongoing effort to undermine Ukrainian interests. In response to Hungary’s announcement, Kyiv canceled an upcoming meeting of a joint commercial committee with Hungarian representatives.

Even though Ukraine-Hungary relations had been continuously deteriorating, they reached an unprecedented nadir with these developments.

Zelensky’s Visit to the United States

At the end of August, President Zelensky paid a visit to Washington (after earlier postponements)  and met President Joe Biden, as well as many other American politicians, officials, and businessmen. The United States reaffirmed its support for Ukrainian territorial integrity and for Ukraine’s integration with Europe. The United States also reaffirmed the strategic partnership between the two countries in a separate statement and recognized that bonds between the two countries are stronger than ever. The United States plans to allocate over $463 million in assistance to Ukraine this year to support programs focused on democracy, human rights, local governance and decentralization, privatization, and judicial reform. An additional $60 million assistance package was allocated to support Ukraine’s security sector.

During the visit, representatives of the U.S. Department of Defense and Ukraine’s Ministry of Defense signed the Strategic Defense Framework, aimed at strengthening security cooperation.

Also, the Ukrainian state-owned Energoatom agency signed a memorandum with Westinghouse to build new nuclear reactors on Ukrainian nuclear power station sites. The arrangement would advance Ukraine’s goal of achieving decarbonization. Both the time span and cost of such a project and the source of funding, however, remain unclear as of this date.

Ukraine-Russia Relations

In July, President Putin published an article promoting the historical unity of Ukrainians and Russian as one nation. Interestingly, the article, with its manipulative logic, became a must-read text for the Russian army. At the same time, public opinion polls demonstrate that Ukrainians do not consider themselves part of the same nation with Russians.

In August, the Russian government expanded the list of Ukrainians under sanctions, adding seventy-three persons to it. Among them are members of parliament, Ukrainian foreign affairs minister Dmytro Kuleba, Security and Defense Council secretary Oleksiy Danilov, and Liudmila Denisova, the Ukrainian ombudsperson.

2. INTERNAL AFFAIRS

On August 24, Ukraine celebrated the thirtieth anniversary of its independence. As surveys demonstrate, most Ukrainian are not nostalgic for the Soviet Union, and more than half of Ukrainians support integration with the EU.

Thirty years ago in Ukraine, people had different expectations and aspirations for the future, not all of which were realized, as discussed in a separate Kennan Focus piece on the postcommunist transformation. Moreover, despite three decades of independence, Ukraine still depends on Russia for energy supplies—but energy independence is a must for Ukraine to become fully independent of Russia.

Law on Oligarchs

On September 23 the Verkhovna Rada passed a law aimed at limiting the political influence of persons recognized as oligarchs by the Security and Defense Council. The law restricts oligarchs’ right to finance political parties and politicians, engage in political agitation, and participate in rallies and protests. According to the law, a person can be considered an oligarch if three of four criteria are met: (1) participation in political life, (2) having a significant influence on media, (3) owning a company holding a monopoly position, or (4) owning assets valued at over 2.379 billion UAH (about U.S. $90 million).

However, many suspect the law will not be effective. These doubts were confirmed by the fact that the law was supported by several MP groups affiliated with Ihor Kolomoysky and by oligarchs alike. The law was submitted to the European Commission for Democracy through Law (the Venice Commission) for review but later was approved by the Verkhovna Rada without waiting for the commission’s input.

Attack on Zelensky’s Chief Assistant

On September 22, unknown people fired twenty shots at the car of President Zelensky’s chief assistant and business partner, Serhii Shefir. Shefir was not hurt during the attack, but his driver was badly injured. Police are investigating the attack as an attempt at a political assassination.

A New Round of Ministerial Reshuffling

In mid-July, Arsen Avakov, the long-standing minister of interior, resigned. Avakov was Ukraine’s longest serving minister, having held the position since the end of the Revolution of Dignity in February 2014; he had served in the cabinets of four prime ministers and two presidents and was considered among the most powerful officials. The reason for his resignation most likely was a demand by President Zelensky. Many civil activists were not satisfied with Avakov, considering him unable to carry out the police reform.

COVID-19 in Ukraine

After the summer, a new wave of the pandemic started in Ukraine in September. As of September 30, Ukraine was second in daily death cases in Europe and eleventh globally. By the end of September, around 14 percent of the population had been fully vaccinated and 3 percent more had received at least one shot.

The President versus the Constitutional Court

President Zelensky continued his fight with the Constitutional Court of Ukraine (CCU), demanding the resignation of several of its members suspected of corruption. In July the Ukrainian Supreme Court found that President Zelensky’s decision to cancel the appointment of two CCU judges was illegal. Representatives of the presidential administration appealed this decision. Meanwhile, the CCU remains dysfunctional.

The Price of Utility Services

In August the cabinet adopted a decision to reduce electricity prices for households, which already were far from covering the cost of production. This step is retrograde to the spirit of market reforms in the energy sector, needed to keep Ukraine on the path of energy independence and synchronization with the EU’s policies, and to Kyiv’s commitment to abandon the practice of cross subsidization. The cabinet also signed a memorandum with regional authorities to prevent increased prices for central heating services caused by gas prices hike in the EU. These decisions were driven by populist sentiment and are antithetical to creating a true energy market; as such, they will likely be carefully scrutinized by the IMF and the EU.

3. PROGRESS IN REFORMS AND SUCCESS STORIES

Last July the Verkhovna Rada passed a law on rebooting the High Council of Justice and the High Qualification Commission of Judges, which is considered to be a positive step toward judicial reform. However, implementation of the reform has stopped as the judiciary seems unable to select their representatives to the Commission.

Virtual Assets and Currencies

The Verkhovna Rada recently passed the law “On virtual assets,” which is a first step toward legalizing and regulating cryptocurrencies in Ukraine. This act will also rein in money laundering with the use of cryptocurrency.

4. THE SITUATION IN THE DONBAS

The situation on the Donbas front line deteriorated so much that the commander of the Ukrainian Joint Forces Operation canceled his order banning shooting in response to the separatists’ provocative fire. SMM OSCE reports show a steady increase in fire on the front line. According to the report published in late September by the UN Office of the High Commissioner for Human Rights, during the first six months of 2021, the number of violations of the ceasefire agreement increased by 51 percent over what it was in the preceding six months.

Extension of Russian Citizenship to the Population of Donbas

Before the parliamentary elections in Russia on September 17–19, the Russian Federation’s government sped up the distribution of Russian citizenship and associated passports to residents of the non-government-controlled parts of the Donbas. The new “citizens” gained access to an online voting service or were offered physical transport to Russian territory to vote.

The Ukrainian constitution does not recognize dual citizenship, however, and on September 22, the Verkhovna Rada approved a resolution condemning the new State Duma of Russia. The Verkhovna Rada also appealed to the international community to investigate the illegal voting in Crimea and the Donbas and the lack of adequate facilities for human rights organizations to observe the voting.

We will continue to monitor these developments and report back to you at the end of the next quarter.

The opinions expressed in this article are those solely of the authors and do not reflect the views of the Kennan Institute.