I wrote:
In a few years, when it becomes clear that the new leader cannot be "pro-Western" (whatever that means), because it's objectively impossible,
See what I mean?:
International Herald Tribune December 27, 2004 Energy needs forge Ukraine's link to Russia By Judy Dempsey
BERLIN: No matter who wins the presidential election in Ukraine on Sunday, the next president will oversee an economy pulled between Russia and the European Union, almost a mirror of the election campaign itself, economists say.
Prime Minister Viktor Yanukovich has pledged to maintain close ties with Russia while the opposition leader Viktor Yushchenko has vowed to bring Ukraine closer to the European Union.
Yet neither candidate can afford to choose one at the expense of the other. Ukraine depends on its giant eastern neighbor for energy while, to the west, it increasingly relies on the European Union as its largest export partner and a bloc poised to become a major investor once reforms are introduced.
But it is Ukraine's relationship with Russia that is more important and complicated.
Consisting of a web of mutual dependencies, the relationship could be broken only if both countries believed they could prosper without it, analysts say.
The deciding factor is energy.
"Ukraine is crucial for any Russian export strategy," said a recent report by the International Energy Agency, the energy division of the Paris-based Organization for Economic Cooperation and Development. "Ukraine transits about 80 percent of Russian gas exports to Europe."
Yet as Igor Burakovsky, director of the independent Institute of Economic and Policy Consulting in Kiev, points out, Ukraine needs Russia for its energy supplies.
"Ukraine is a net importer of gas and of oil as well," he said. "Ukraine imports approximately 80 percent of its gas from Russia or Turkmenistan and imports about 90 percent of its oil from Russia."
The result is that Russia and Ukraine are highly dependent on each other and, for the moment, neither can break that dependence.
Ukraine's dependence on Russian energy gives President Vladimir Putin immense political and economic leverage - he could stop the flow of gas to his western neighbor, if he chose.
Russia had no qualms about such action in the past. Gazprom, the state-owned Russian gas monopoly, stopped deliveries to Belarus last February, including all transit volumes destined for Western Europe through a new Belarus pipeline.
Belarus had questioned the transit fees and contracts for transporting gas across Belarus to Poland.
Until the breakup of the former Soviet Union in 1991, transit fees were never an issue for Moscow. But once Belarus and Ukraine gained their independence, Gazprom found itself in the unprecedented position of having to negotiate new transit terms.
When Belarus challenged the fees last year, Russia used its political and economic muscle to stop supplies, knowing Belarus had no alternate sources of energy.
Gazprom's action sent ripples across Europe. Poland and Lithuania were affected; deliveries to Germany and the Netherlands were met by dipping into storage facilities in Germany owned by Wingas, a gas company owned 35 percent by Gazprom and 65 percent by the German energy group Wintershall.
Gazprom has not had a smooth ride with Ukraine either.
The International Energy Agency said that, after the dissolution of the Soviet Union, "relations between Ukraine and Russia became tense over allegations of authorized siphoning, payments problems and other issues" by Ukraine.
According to the agency, by 2000 Ukraine owed Russia $1.4 billion for previous supplies. The debt was settled after both sides agreed to a long-term transit contract.
Putin, who openly supported Yanukovich as president, has been careful not to threaten Ukraine with any cuts although he did warn of the economic consequences of strikes during a wave of anti-government demonstrations earlier this month.
Western diplomats in Kiev said that any threat by Putin to cut energy supplies would have a devastating impact on Gazprom's credibility as a reliable partner for European markets.
Nevertheless, Russia's dependency on Ukraine as a major transit country has forced Gazprom to look for alternate routes.
It recently started using the Yamal pipeline, bypassing Ukraine, for some of its deliveries.
It has also built the Blue Stream pipeline to Turkey, although even this pipeline has its problems as Turkey and Russia haggle over handling charges.
Back in Ukraine, energy-intensive heavy industry has started to seek alternative and cheaper energy suppliers, mainly because it cannot compete on an even playing field with Russian industry which, like its domestic consumers, pays less than marker prices for its energy.
Seventy percent of Gazprom's sales are to the domestic market in Russia, but they produce only 30 percent of its revenues.
The remaining 30 percent of its sales, which are exports - at world prices - to Europe and Ukraine, account for 70 percent of Gazprom's revenues.
As a result, Ukraine has sought to diversify its energy supplies.
"Ukraine started importing from Turkmenistan, paying around $50 per 1,000 cubic meters while Russia charges Ukraine $80 for the same amount," said Burakovsky.
Ukraine believed it had struck a bargain with Turkmenistan until it became clear that the energy from Turkmenistan had to be transported via Russia.
"There was no other way to avoid Russia," Burakovsky said, implying the advantages were being eroded by transit charges.
Georgia’s energy sector is of particular interest to Russia. Last December, Russia’s largest energy company, United Energy Systems (UES), purchased a 75% share in the Telasi electricity distribution company in the Georgian capital of Tbilisi. Telasi was formerly owned by the U.S. company AES.
Entering of the Russian electricity monopoly into the Georgia market triggered a protest of by the opposition leaders, who later took over power in the country, in fear of Russia’s "economic expansion." But Georgia’s new authorities say they want to implement joint projects with UES.
"Joint ventures in the energy sector may be set up. Talks are underway over the construction of a power transmission line, which will connect Russia with Turkey, via Georgia. Through the new line, Turkey will receive 5 billion kW/h of electricity annually," The Minister of Fuel and Energy, Nika Gilauri, told Civil Georgia on the 28th of May.
http://www.civil.ge/eng/article.php?id=7031
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