- The Washington Times - Friday, April 23, 2010

A top Ukrainian official said in an interview Friday that the government’s controversial decision to allow a Russian naval fleet to remain in the country for another 25 years will help unlock a string of deals to boost the country’s economy, secure critical new aid from the International Monetary Fund and even deepen Kiev’s economic ties to Western Europe.

Serhiy Tihipko, Ukraine’s new vice prime minister for economy, said he was personally not happy with the secretive way the Russian deal had been negotiated, but said the payoff — an estimated $4 billion cut next year in fuel bills for oil and natural gas imports from Russia — will be immediately beneficial to the economy and the country’s finances.

The presence of the Russian fleet in the Black Sea port of Sevastopol, the result of a leasing deal dating back to the breakup of the Soviet Union, “is a very painful issue for most Ukrainians,” Mr. Tihipko told The Washington Times, speaking through an interpreter on a visit to Washington for the annual spring IMF and World Bank meetings.

“What I am against is that the agreement had been done under the table and that I, as a citizen of Ukraine, was not consulted,” he said. “But in the end, it is a price we can afford to pay.”

Mr. Tihipko, a former chairman of one of Ukraine’s biggest banks who came in third in the country’s January presidential vote, said the expensive, unreliable gas supply deal with Russia had to be renegotiated anyway, and the deal struck by new President Viktor Yanukovych and Russian President Dmitry Medvedev will boost Ukraine’s economic fortunes in a number of ways. Ukraine, Mr. Tihipko argued, was paying the highest energy prices in the region, hurting consumers and undercutting the competitiveness of the country’s private sector.

Based in part on new revenues and savings from the energy accord, Ukraine’s Cabinet on Friday said it had completed a draft budget to be presented to the country’s parliament next week, with the lower energy costs accounting for $40 billion in savings over the next ten years. Even before the gas deal, Mr. Tihipko said, Ukraine’s rebounding economy grew at an annual rate of 6 percent in March, after severely contracting in 2009.

The new budget is also critical to Ukraine’s hopes to secure a $12 billion line of credit over the next 2 1/2 years from the IMF to finance further economic reforms.

The IMF had suspended the last payments of a previous $16.4 billion program late last year after the government of former Prime Minister Yulia Tymoshenko passed into law a number of spending increases. The Ukrainian government has said it will produce a budget keeping the deficit under 6 percent of GDP to qualify for renewed IMF help. Mr. Tihipko said Kiev hoped to have the new IMF credit line in place by May.

The economics minister said this week’s deal with Russia will also provide a boost to the country’s top economic priority — signing an association membership deal with the European Union. Mr. Tihipko said the Yanukovych government, which enjoys a small but stable majority in the country’s parliament after years of gridlock and infighting among the country’s major power players, hopes to push through other EU-oriented reforms in hopes of obtaining the membership deal by the end of the year.

But the Sevastopol tradeoff remains politically volatile in Ukraine, with critics seeing it as part of Mr. Yanukovych’s larger drive to move closer to Moscow and away from the West. Both Mr. Medvedev and Russian Prime Minister Vladimir Putin hailed the agreement as proof of warming ties between Moscow and Kiev following years of tension.

Mrs. Tymosehnko, a leader of the pro-Western “Orange Revolution” of 2004-2005 and who now heads the biggest opposition group in parliament, on Friday called the fleet lease extension “a strategic mistake.”

“Ukraine has lost control over its territory,” she warned.

Former President Viktor Yushchenko, another top Orange Revolution figure, said the deal amounted to a Russian “military occupation” of Ukraine, according to a report by the Associated Press.

The lease for the Russian navy base in Sevastopol was to expire in 2017, and Ukraine’s former pro-Western governments had pledged not to renew the arrangement. The base issue became even more heated in 2008, when it was learned that ships from Sevastopol had been used to support the Russian military action against Georgia, whose pro-Western and pro-U.S. government had enthusiastically backed the Orange Revolution. In exchange for a 30 percent cut in energy exports to Ukraine, Russia will now be able to berth its fleet at the Ukrainian port through at least 2042.

Like Mr. Tihipko, Mr. Yanukovych defended the pact as a way to boost the economy.

“This decision will give us the chance of really helping our economy,” he told reporters in Kiev.

Both the Russian and Ukrainian parliaments will be asked to approved the accord this week. Given the government’s slight majority, Ukrainian Prime Minister Mykola Azarov is expected to prevail on the vote.

Should the agreement pass, it may mean the end for what has become an annual New Year’s Eve drama in which Russia and Ukraine faced off over unpaid fuel bills and control of key pipelines into Western Europe as old contracts expired. The most serious confrontation led to a brief mid-winter shutdown of pipelines supplying countries across Eastern and central Europe in the first days of January 2006.

“I don’t think there will be any more like that,” Mr. Tihipko said with a smile.

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