Eurasia Daily Monitor – 05/18/2005

The Jamestown Foundation
Wednesday, May 18, 2005 — Volume 2, Issue 97
EURASIA DAILY MONITOR

IN THIS ISSUE:

*Tbilisi sets deadline for Russia to close bases in Georgia
*Bush appears to exempt Armenia from democratic wave
*Kyiv addresses looming energy crisis
*Ukrainian officials arrest former governor of Trans-Carpathia

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GEORGIA AND RUSSIA MARCH TOWARD DIPLOMATIC WAR

On March 10, the Georgian Parliament passed a resolution that set a
May 15 deadline for progress in the bilateral negotiations about the
terms for closing the two remaining Russian military bases in Georgia.

Since the parties have failed to make any progress, beginning May 15
the Russian bases became illegal and must operate under a “regime of
departure.” The anticipated restrictions on the Russian military bases
in Batumi (in Ajaria) and Akhalkalaki (in Javakheti, southern Georgia)
could include cutting energy supplies, halting Georgian entry visas
for Russian servicemen, prohibiting military exercises, banning any
modernization of military equipment at the bases, and billing Russia
for environmental and other damages that the bases have inflicted on
Georgia. Givi Targamadze, chair of the parliamentary Committee for
Defense and Security, declared that Georgia could charge Russia $1
billion. Effective today (May 18), Russian soldiers will not be issued
visas for Georgia.

The latest diplomatic war began on May 12, when Georgian Parliamentary
Chair Nino Burjanadze told an inter-parliamentary conference in Riga
that Georgia would follow the resolution and “impose strict measures”
on the Russian bases after May 15. Ironically, Burjanadze had opposed
the March 10 resolution when it was originally passed (see EDM, March
11). Moscow’s pained response seemed to feign ignorance about the
content of the resolution.

The subsequent anti-Georgian hysteria in the Russian State Duma
culminated in a strictlyworded official message to Tbilisi. “Quite
tough measures might follow from the Russian side,” Valery Loshchinin,
Russian deputy foreign minister, warned. These measures might include:
freezing bilateral relations, energy sanctions, deporting Georgian
labor immigrants, and even forcible actions in case of any threat to
the bases.

Currently the Russian bases in Georgia are home to 3,000 servicemen,
152 tanks, 241 armored vehicles, and 140 artillery systems. About 40%
of the staff at both bases are local contract employees. According to
Russian media, a monthly salary of a contract serviceman at
Akhalkalaki totals $250, quadruple the average Georgian salary of
$60. Last month a minor Russian-engineered rally of locals protesting
closure of the Akhalkalaki base led nowhere. Kote Gabashvili, chair
of the Georgian parliamentary Committee on Foreign Affairs, called the
Duma’s statement a “laughable” attempt to scare Georgia.

Georgian officials rebuffed Russian demands for $300 million to
compensate for withdrawal from the bases. Georgian Defense Minister
Irakli Okruashvili told a news conference on May 13 that Georgia has
its counterclaims. According to him, 20 Georgians have been killed by
Russian mines left at other abandoned Russian bases. “We do not intend
to pay anything,” confirmed George Baramidze, Georgian State Minister
for European Integration. Although Okruashvili said that the Georgian
side was not going to take any radical steps in the next few days, the
Tbilisi-based Headquarters of the Group of Russian Troops in Georgia
had its water supply cut two weeks ago due to unpaid bills, which the
Georgian side claims to be $500,000.

The ongoing war of words, however, has not hindered efforts at
backdoor diplomacy. On May 13, Georgian Foreign Minister Salome
Zourabichvili acknowledged receiving an “interesting” new proposal
from Russia about their military bases, a proposal that brought the
positions of the two parties “closer.” Tbilisi has reportedly
responded with its own proposals, and the next round of talks is
scheduled for May 23.

However, the new proposals from Moscow have coincided with a
resolution adopted by the U.S. Senate on May 12 that calls for the end
of the Russian military presence in Georgia and underlined
U.S. support to Georgia in the negotiations with Russia on this
issue. After President George W. Bush’s cautious remarks about the
pullout of Russian bases during his May 9-10 visit to Georgia, many
analysts believed that the United States would stay away from this
issue.

It appears that Tbilisi’s bold attitude to have the Russian bases
removed from Georgia by the end of 2007 is backed by more than
Georgia’s own resources. If left to face Russia alone Tbilisi, given
its heavy dependence on Russian energy-carriers and the great number
of Georgian guest workers in Russia, could hardly afford such a bold
stance regarding the military bases. The type of concessions, if any,
that Moscow might make about the terms of the pullout could indicate
how much the Western community has pressured Russia on this issue (see
EDM, May 11).

Tbilisi presumably does not want to aggravate an already tense
situation. President Mikheil Saakashvili’s spokesman, Gela Charkviani,
told a news conference on May 14 that although the parliament’s
resolution remains in force, Georgia would not rush to implement it
because this might harm “hopeful tendencies” at the talks.

The withdrawal of Russian bases, a longstanding dream for the
Georgians, has great political importance not only for Georgia but
also for Saakashvili and his party. His lavish pre-election promises,
including the quick removal of the Russian bases, remain
unfulfilled. Moscow’s delay tactics likely are intended to hurt
Saakashvili politically. Should Saakashvili be successful and have the
bases removed by the end of 2007, it would give him and his party a
tremendous assets going into the 2008 parliamentary and 2009
presidential elections.

(Kommersant, May 12; Strana.ru, May 13; 24 Saati, May 11, Caucasus
Press, TV-Rustavi-2, TV-Imedi, Khvalindeli Dge, Alia, May 13-14;
Caucasus Press, May 17)

–Zaal Anjaparidze

U.S. RELUCTANT TO PRESS YEREVAN DESPITE FREEDOM PLEDGE

U.S. President George W. Bush’s emphatic endorsement of Georgia’s 2003
“Rose Revolution” and its consequences was meant to demonstrate
U.S. support for similar change elsewhere in the world. But it exposed
a fundamental contradiction in his administration’s stated pursuit of
democratization across the South Caucasus and Central Asia.

While holding up Georgia as a role model for other, less democratic
ex-Soviet countries, the United States appears reluctant to go to
great lengths in forcing their rulers to stop rigging elections and
abusing human rights.

Authorities in at least one of them, Armenia, have surely taken
notice. Washington did not condemn them for unleashing unprecedented
repression against their political opponents last year and are hardly
facing U.S. pressure at the moment.

John Hughes, editor of Armenianow.com, a Yerevan-based online
publication, had reason to wonder: “In the U.S. President’s roll call
of heroes – was there any thought that as near to Tbilisi as DC
is to Delaware Armenian citizens were still recovering from senseless
bludgeoning, when last year they tried to hop the democracy train
encouraged by the smell of Georgia’s roses but crushed by Armenia’s
smelly reality?”

Bush’s pronouncements during his visit to Georgia were rather
ambiguous in that regard. “As you watch free people gathering in
squares like this across the world, waving their nations’ flags and
demanding their God-given rights, you can take pride in this fact:
They have been inspired by your example and they take hope in your
success,” he told tens of thousands of people in Tbilisi’s Freedom
Square on May 10.

Indeed, thousands of disgruntled Armenians were inspired by the
Georgian revolt when they took to the streets of Yerevan in April 2004
to demand President Robert Kocharian’s resignation. The most important
of the opposition demonstrations at the time took place just meters
away from the U.S. embassy in the Armenian capital and was brutally
broken up by security forces on the night of April 12-13.

The wholesale beatings and arrests of peaceful demonstrators were
followed by the ransacking of the offices of Armenia’s main opposition
parties. They were part of the regime’s broader crackdown on dissent
that involved mass imprisonments of opposition activists across the
country, a transport blockade of Yerevan and worst ever violence
against journalists. Human Rights Watch condemned and provided a
detailed account of the “cycle of repression.”

The U.S. State Department, however, stopped short of explicitly
criticizing Kocharian’s handling of the protests, calling instead for
a “dialogue” between the two sides. As if to drive home Washington’s
point, the then-U.S. ambassador to Armenia, John Ordway, dined with
Kocharian at a jazz club in Yerevan a few days later. It was the very
nightspot where Kocharian’s bodyguards beat to death in September 2001
a man who greeted the Armenian leader in a way they found too
familiar.

Despite the glaring lack of U.S. support for their efforts to
replicate the Rose Revolution, leaders of Armenia’s increasingly
pro-Western opposition have continued to pin their hopes on
Washington. Especially after the Bush administration threw its weight
behind last November’s “Orange Revolution” in Ukraine.

But as a senior U.S. administration official indicated in a conference
call with Armenian and Azerbaijani journalists ahead of Bush’s trip to
Tbilisi, Washington does not consider regime change imperative for
Armenia’s or Azerbaijan’s democratization. The United States will
instead work with “reformers in and outside the two governments,” the
official said.

Observers were quick to note that virtually no Armenian oppositionist
was invited to the official opening on May 6 of a new U.S. embassy
building in Yerevan. Kocharian and most members of his government
attended the ceremony. The current U.S. ambassador to Armenia, John
Evans, subsequently denied snubbing the opposition, citing a lack of
space for guests in the vast embassy compound.

Evans has repeatedly said in recent months that Armenia is “headed in
the right direction” both politically and economically. “Sometimes
progress is not as swift as we’d like, but the basic direction is
right,” he told a group of Armenian-Americans last February.

Evans did not specify what he means by “progress.” The two disputed
presidential elections held by Kocharian in 1998 and 2003 were
criticized by the U.S. in equally strong terms. The 2003 vote was the
most violent in Armenia’s post-Soviet history. Yerevan’s human rights
record, regularly slammed by the State Department, has also hardly
improved under Kocharian.

On the contrary, last year’s crackdown on the Armenian opposition was
the worst since the Soviet collapse. The Armenian law-enforcement
agencies have since been exercising KGB-style functions of secret
police monitoring and suppressing opposition activity. The situation
with freedom of speech has likewise deteriorated since the scandalous
closure three years ago of Armenia’s sole television station critical
of Kocharian.

The ruling regime is thus inherently disinterested in genuine
political reform as it would mean an almost certain loss of power and
enormous wealth accumulated by its members. Whether the Americans fail
to realize this, distrust Kocharian’s foes, or have more overriding
regional priorities such as a resolution of the long-running Karabakh
conflict is not clear.

Armenianow’s Hughes suggested that the U.S. motives are not
necessarily rational. “America loves a winner, especially if he speaks
Ivy-League English,” the American editor explained, referring to
Georgia’s U.S.-educated President Mikheil Saakashvili. “Coming close
(as in Armenia’s failed opposition) doesn’t count in war and democracy
pimping.”

(Armenianow.com, May 13; RFE/RL Armenia Report, May 13, May 10;
U.S. State Department statement, April 14)

–Emil Danielyan

UKRAINE MOVING TO REDUCE RUSSIAN MONOPOLY ON OIL MARKET

On May 17, Ukraine’s Verkhovna Rada passed a government-submitted bill
eliminating import duties on high-octane gasoline and diesel fuel. The
legislation aims to stimulate such imports in response to artificially
induced shortages and steep price hikes by the informal cartel of
Russian oil-product suppliers in Ukraine.

Six oil refineries in Ukraine, four of them owned or controlled by
Russian companies and all operating on Russian crude, hold an
aggregate 90% share of Ukraine’s oil product market. Lukoil and TNK-BP
are by far the largest suppliers and refiners, and they also control a
critical mass of retail outlets.

Russian crude oil is currently being sold to Ukraine at $340 per ton,
compared to $318 for the same quality of Russian oil on other European
markets (Interfax-Ukraine, May 11). Moreover, Russian refiners have
increased product prices on the Ukrainian market by approximately 30%
since April. The suppliers and refiners alike are exploiting their
quasi-monopoly position in Ukraine to gain windfall profits. The price
hikes have hit Ukraine’s economy particularly hard during spring
planting work. On April 14, the Ukrainian government responded by
introducing price controls on high-octane gasoline and diesel fuel.

Although the government relaxed those controls somewhat on May 12, the
major Russian companies are retaliating with full force. They stopped
operations at some refineries “for repairs” — e.g., the Kherson and
the Lysychansk refineries (the latter accounts for one-third of
refining output in Ukraine). They reduced crude oil supplies to the
Kremenchug refinery, the sole Ukrainian government-controlled major
refinery. And, as of May 16, Lukoil and TNK-BP have limited sales at
the pump to a maximum of 10 liters per vehicle. Lukoil currently owns
177 filling stations in Ukraine and plans to raise that number to 300
by the end of 2006. TNK-BP owns 51 stations, plans to expand to 75 by
the end of 2005, and subcontracts approximately 1,000 filling stations
at present (Interfax-Ukraine, May 16).

The situation may further deteriorate after June 1, when Russia’s
export duty on crude oil is scheduled to increase from $102 to $136
per ton, translating into another price hike in Ukraine.

Prime Minister Yulia Tymoshenko is working on a package of short- and
medium-term measures that she outlined to the press on May 11, 16, and
17 (Interfax-Ukraine, UNIAN, Ukrainian TV Channels One and Five, May
11, 16, 17).

As an emergency measures, the government is arranging to bring in
consignments of motor fuel from Belarus and Poland in the coming days
and weeks. Meanwhile, the Ukrainian government is initiating
negotiations with the governments of Kazakhstan and Iraq to import
crude oil from those countries later this year.

According to some Ukrainian officials, crude oil from Kazakhstan can
provide enough feedstock to produce one-third of Ukraine’s motor fuel
requirements at Ukrainian refineries. Tymoshenko is recommending that
the government build 1,000 new filling stations within the next three
months. These would be owned and operated the Ukrnafta state company.

Tymoshenko proposes to re-equip the Kremenchug refinery for processing
oil from Kazakhstan (instead of Russian oil) and increase its
processing capacity to 900,000 tons of crude oil monthly, from 600,000
at present. Such expansion requires building a downloading ramp at
Kremenchug to receive oil by railway tank-cars. This ramp can be built
within three months in order to handle oil from Kazakhstan later this
year, according to Tymoshenko.

Moreover, the prime minister proposes building a new refinery in
Odessa to process non-Russian oil. According to her, such a plant can
be commissioned within a year and a half. According to Transport
Minister Yevhen Chervonenko, the Ukrainian tanker fleet is capable of
transporting up to 2 million tons of oil to Ukraine monthly, for
processing at Kremenchug and Odessa.

In all of her public statements, Tymoshenko underscores the need to
extricate Ukraine from dependency on the de facto monopoly, exercised
by Russian companies along the chain of supply, refining, and
marketing. The May 16 legislation, eliminating import duties, is a
first step toward supply diversification.

Tymoshenko’s political rival, National Security and Defense Council
Petro Poroshenko, is criticizing the government’s proposals. According
to him, “Ukraine is not going to switch refineries from Russian oil to
Iraqi or Kazakhstani oil.” In contrast to Tymoshenko’s concern over
the Russian monopoly, Poroshenko disapprovingly characterizes both the
price controls and the elimination of import duties as a “trade war
against Russia,” and calls for an early repeal of these measures
(Inter TV, Interfax-Ukraine, May 17).

–Vladimir Socor

TWO DOWN, ONE TO GO? UKRAINIAN OFFICIALS TARGET ANOTHER OLIGARCHIC
CLAN

The May 13 arrest of the former governor of Trans-Carpathia, Ivan
Rizak, follows the capture of the head of the Donetsk oblast council,
Borys Kolesnykov, one month earlier. The widespread arrests of
lower-ranking officials for election fraud and corruption have now
moved up to medium-level officials.

Rizak is formally accused of driving the dean of the University of
Uzhorod to commit suicide in May 2004. Volodymyr Slyvka was found dead
with his veins slashed and a knife in his heart. The charge could lead
to 7-12 years imprisonment.

Rizak also stands accused of massive corruption in Trans-Carpathia,
including extorting protection money from local businesses for the
Social Democratic Party-United (SDPUo). Transport Minister Yevhen
Chervonenko also revealed that during the April 2004 mayoral elections
in the Trans-Carpathian town of Mukachevo, Rizak ordered Interior
Ministry spetsnaz to beat up Our Ukraine deputies and organized
massive election fraud (Ukrayinska pravda, May 15).

The next arrests will undoubtedly be senior figures in Rizak’s SDPUo
and Borys Kolesnykov’s Regions of Ukraine (RU). The arrest of Rizak
hits the SDPUo particularly hard, because the SDPUo was the only one
of Ukraine’s three clans to not be popular in its home base. Instead
of Kyiv, the SDPUo put down roots in Trans-Carpathia, where it still
faced challenges from more liberal groups.

Since the 2004 presidential election, regional officials in
Trans-Carpathia have been replaced by those loyal to President Viktor
Yushchenko, whose Our Ukraine is the most popular political force in
the region. In the 2002 elections, Our Ukraine and the Yulia
Tymoshenko bloc together won 41% of the Trans-Carpathian vote, and
Yushchenko also won the 2004 presidential race in Trans-Carpathia. In
contrast, Our Ukraine has made few inroads into Donetsk oblast, where
the Donetsk clan and RU can remain secure.

Stripped of its home base, the SDPUo is likely to follow the demise of
the Dnipropetrovsk clan’s Labor Ukraine (TU). Labor Ukraine de facto
disintegrated after the Orange Revolution as its leader, Serhiy
Tyhipko, was discredited for being the head of the Viktor Yanukovych
campaign. Tyhipko went to Austria on a “skiing holiday” in late
November and only returned four months later. To distance itself from
Tyhipko, TU elected a new young leader, Valeriy Konovaliuk, a defector
from RU.

Ukraine’s centrist parties are tainted with election fraud and massive
corruption, making it impossible for the Yushchenko team to treat them
as if they were a real opposition force. The RU and the SDPUo’s
efforts to portray the arrests of Kolesnykov and Rizak as “political
repression” have fallen on deaf ears.

Parliamentary speaker Volodymyr Lytvyn does not regard either the RU
or the SDPUo as “opposition.” According to him, “In Ukraine, aside
from the Communist Party, there is no opposition. Those that declare
themselves to be in opposition are simply demoralized and “they
do not possess a clear position” (Ukrayinska pravda, May 17). Former
SDPUo adviser Mikhail Pogrebynsky also believes that the SDPUo “has no
strategic plan of how to be in opposition” (Ukrayinska pravda, March
24).

Besides these factors, the SDPUo also suffers from four other problems
that will contribute to its ultimate demise.

First, SDPUo leader Viktor Medvedchuk is a liability, but his
leadership is fundamental to the party’s existence.

Second, Medvedchuk admitted to the SDPUo congress that his experience
heading the presidential administration from 2002 to 2004 damaged the
party’s popularity (sdpuo.org.ua, April 2). The SDPUo obtained 6% of
the vote in 2002, while today its popularity hovers around 2%. The
party may not cross the 3% threshold for the 2006 parliamentary
elections.

Third, the investigation into Yushchenko’s poisoning is homing in on
the SDPUo. Medvedchuk and Volodymyr Satsiuk, deputy chairman of the
Security Service in 2004, likely will be implicated in this criminal
case. Yushchenko fell ill following a dinner at Satsiuk’s house.

Fourth, details are slowly emerging about a conspiracy to cover up the
murder of opposition journalist Heorhiy Gongadze in fall
2000. Prosecutor-General Sviatyslav Piskun has revealed that, after
Gongadze was murdered, he was disinterred and re-buried by a second
group (Ukrayina moloda, May 5).

This second team placed Gongadze in a shallow grave, leaving items on
him that could identify him. They also re-buried him in Socialist
Party leader Oleksandr Moroz’s constituency north of Kyiv. The aim,
Piskun believes, was to undermine the government, which at that time
was led by Prime Minister Viktor Yushchenko. The Yushchenko
government’s crackdown on graft in the energy sector had particularly
affected the SDPUo, which therefore wanted to see his government go.

A detailed investigation in Ukrayina moloda (April 14) adds to this
theory, claiming that the SDPUo moved Gongadze in order to discredit
President Leonid Kuchma and force early elections. This scenario
suggests that the SDPUo knew that about the incriminating audiotapes
made in Kuchma’s office by presidential guard Mykola Melnychenko.

According to Melnychenko, in the event of early elections, either
Medvedchuk or Yevhen Marchuk, then secretary of the National Security
and Defense Council, would have succeeded Kuchma. Melnychenko told
former Russian oligarch Boris Berezovsky, whose Civil Liberties
Foundation financially assisted him in exile that he had worked for
Marchuk.

–Taras Kuzio

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