The Sfinx


The Sfinx

In 2005 Yushchenko’s Presidency promised a bright future. At that time, everybody was unanimous in condemning “the Kuchma regime” and praising the new President and his team, calling him “the hope of the nation”. His favorite Ukrainian phrase “Love My Friends” was widely used in the population, not without some irony. The Girl in Kherson Upon taking office as President on a wave of euphoria, Yushchenko had to tackle a whole set of problems for the country. In his January 23 inauguration speech, the new President announced that his goals would be to fight corruption with determination, keep politics and business separate, and commit to freedom of speech and open government.

Kherson, Ukraine - War with Russia
Kherson, Ukraine – War with Russia

He began by reforming the civil service. The Presidential administration was renamed the Secretariat. Oleksandr Zinchenko, head of Yushchenko’s election headquarters, was appointed its Chief of Staff. The new President also announced a reduction of the civil service, replacing all the regional governors and dismissing over 18 thousand employees. Yulia Tymoshenko became his Prime Minister. As happened under previous administrations, it was open season against political opponents, against whom the Attorney General started criminal proceedings, accusing them, among other things, of separatism in favor of Russia.

Yushchenko immediately made it clear that the main strategic foreign policy objective of his Presidency would be the European Union, while maintaining positive Russian relations. This is why President Yushchenko paid his first official visit to Russia, where he arrived on January 25, 2005. On the plane, just before its departure, he made public the appointment of Yulia Tymoshenko as Prime Minister, dispelling rumors circulating in Kyiv that her candidacy would be subject to Russian approval. “A terse message to the Kremlin: Kyiv plans to build relations with Moscow on an entirely different basis,” the Russian newspaper Kommersant wrote, “As the new Ukrainian authorities see it, it will be a relationship of equal partners, not of the younger and elder brother. It is even possible that Ukraine will play the role of the elder brother.”

Another delicacy of the situation was that, at the time Tymoshenko was appointed Prime Minister, a criminal case was opened against her in Russia, and she was put on the Interpol’s most-wanted list. But Tymoshenko’s criminal case was dropped after Yushchenko’s visit to Moscow, and Yushchenko assured Putin that the Ukrainian people were keen on friendly terms with Russia. Yushchenko reiterated that Russia was and remains Ukraine’s strategic partner, and he wanted to build up Ukrainian-Russian relations on a basis of trust and mutual benefit.

A few days later, Yushchenko was supposed to arrive in Brussels, but his January 27 trip was unexpectedly canceled due to “weather conditions”. Yushchenko arrived in the capital of the European Union only in February. There he tried to convince EU officials that Ukraine wanted to become, if not a full EU member, then at least an associate member with a prospect of joining the European community. The EU leadership assured Ukrainians of its support, yet also stressed that Ukraine was not yet ready to join the EU. Ukraine was left with little choice but to throw itself back into the “brotherly embrace” of the Russian bear.



“My government has clean hands and will never steal.”



On January 23, 2005, at the inauguration ceremony, the newly elected President said with a famous catchphrase: “My government has clean hands and will never steal”. Most people believed him, though not everyone did, because Yushchenko did not quite fulfill his promise. An indication of this was the appointment to high government positions of quite a few cousins and others without relevant experience apart from a close personal relationship to himself.55


The first stumbling block for Yushchenko was the constitutional reform that changed the Presidential-parliamentary system to a parliamentary-Presidential one. Kuchma had prepared this reform under Rada pressure, but Yushchenko was in no hurry to implement it, justifying himself by the fact that he had received a broad vote of confidence from the people and did not have to transfer some of his powers to parliament. Nevertheless, before the parliamentary elections of 2006 Yushchenko had to agree to implement this reform and limit his powers, which he had to share with the Prime Minister.

The result was a constant tug-of-war between Tymoshenko and the President. Business was suffering. The population was waiting for real change, not the perennial reshuffling of government offices. No transformation of the economy or politics were happening. Instead, a scandal broke involving Prime Minister Tymoshenko and the head of the National Security and Defense Council (NSDC), Petro Poroshenko, resulting not only in the resignation of Tymoshenko’s government but also in the disappointment of the masses in the ideals of the Orange Revolution and its leaders.

While struggling to reduce the civil service, Yushchenko simultaneously increased the size of his Presidential Secretariat to 600 people. Yushchenko’s office now cost 1.5 billion hryvnia, while the cost of maintaining the Verkhovna Rada was “only” 1 billion hryvnia and the cost of maintaining the central government was 500 million hryvnia. All state decisions were controlled and ultimately approved by the Secretariat and its Chief of Staff who, in effect, became the second most powerful person in Ukraine.

Intentionally or not, Yushchenko carbon-copied the system Putin created in March 2000 in Russia after he became President. When Putin came to power in Russia, his Chief of Staff Alexander Voloshin issued a decree (signed by Putin) under which he became the second most powerful man in Russia. And because the Chief of Staff was appointed by the President himself, he was responsible only to him and could be removed from office by no one but him. Unelected by the people, Putin’s Chief of Staff was more powerful than the Prime Minister who was accountable to parliament. Yushchenko followed suit.

It was the Secretariat that Yushchenko had created that ultimately led to dissatisfaction and a drop in his approval rating. Under the circumstances, he had to slightly reduce the size of the state apparatus.56 Under Yushchenko there were three top centers of power: the Presidential Secretariat, the Prime Minister, and the National Security and Defense Council (NSDC). The Secretariat duplicated the functions of the Prime Minister’s government and interfered with its policies as not a single government decree could be issued without the final approval of the Secretariat. This in itself led to clashes. The expansion of the NSDC staff to 220 people, and giving it the right to adjust and prepare government decisions (i.e. duplicating the role of the government), created even more tension and were a constant cause for personal accusations against each other by ambitious politicians Tymoshenko and Poroshenko.

In Russia, Putin controlled the entire civil service and government through his Chief of Staff. In Ukraine, Yushchenko may have thought that he would always be able to “divide and rule” as the neutral arbiter between politicians who fought with each other under him. But this is what ruined his own prospects. People saw Orange Revolution leaders Yushchenko and Tymoshenko as one, as a team of like-minded people who complemented each other. Instead, they turned out to be “A Swan, the Crab and a Pike” who could never agree, as in a popular fable by the Russian writer Ivan Krylov. The discord between the former allies disappointed their supporters, and the rating of the Orange Revolution began to plummet.

Nevertheless, despite his reduced Presidential power over economic and social policy, especially after the constitutional amendments, Yushchenko was able to partially implement the “Ten Steps Toward the People” program. The standard of living in the country went up a little, and child support for mothers increased to, in some cases, ten times basic subsistence.57 During 2007-2008, Yushchenko also introduced the internet campaign “Ask the President”, believing it would help him get feedback from the people and raise his own rating. Here, too, Yushchenko copied Putin, who would communicate with the “people” on air at that time. But after Yushchenko received the question: “Dear Mr President, please tell us how much we ordinary people should pay you, so that you, together with all the deputies of the Verkhovna Rada, ministers, members of the government, will emigrate forever and stop interfering with Ukraine’s development?”, he took offense, and stopped the program.

An import social policy of Yushchenko’s Presidency was to build affordable housing, needed by more than 17 million citizens of Ukraine. But this promise was never fulfilled, neither by him nor by his successors. In 2007, at a meeting with Ukrainian businessmen, Yushchenko also initiated a family program to support low-income children, large families, orphans, and troubled children without parental care, and he brought up the issue of adoption support in parliament, arguing that every child without parental care should find a family. In this he was supported by oligarchs, and other businessmen, thanks to whom the program was partially realized.58


Yushchenko considered reform of the legal system, the Interior Ministry, the Attorney General’s office and the SBU to be the main plank of his Presidency. But the widely proclaimed reorganization of law enforcement did not happen, as the public expected it would. The changes he made further confused the relationships between the legislative, executive, intelligence, and judicial branches of power. All Yushchenko succeeded in doing was to change the heads, appoint supporters instead, and then limit their influence by breaking all these services into smaller independent units.59 Yushchenko’s reform of the State Automobile Inspectorate, however, was extremely popular with motorists he unexpectedly announced the elimination of this agency.

Yushchenko planned, but did not carry through, a reform of the health service. In fact, all he managed to do was hold a meeting on the need for reforms in order to preserve a free medical service. The result was an increase in government funding of medical institutions, where doctors (who swore allegiance to the Oath of Hippocrates, and not “Pythagoras” as Yanukovych had once claimed) could perform their professional duty. But it did not change the health system and the efficiency of medical services did not improve. Patients were forced to come to doctors with their own bandages and medication in some cases, and with money and gifts.

Yushchenko most wanted to bring the “Gongadze case” to a conclusion, to arrest and convict not only the perpetrators of this murder – officers of the Interior Ministry, who carried out the order to dispose of the unwanted journalist – but also the unidentified masterminds of the crime. Numerous trials of the case, however, led only to the escape, or death, of key witnesses, suspects, and defendants. As we saw, the main witness, Interior Minister Yuriy Kravchenko, was found dead in his country house the day before the summons to the Attorney General’s office. The masterminds remained unknown and, thus, remained at large.



Yushchenko – Tymoshenko conflict



Already in the first months of his Presidency Yushchenko and his entourage began to lose the credibility of the 2004 Maidan. The Yushchenko-Tymoshenko duo, which had seemed an ideal match during the election race, began to crack. Part of the reason was that the government headed by Tymoshenko had virtually no supporters (though she could count on Oleksandr Turchynov, Head of the SBU), and not a single member of her party was appointed as regional governor. So the Prime Minister’s position was not strong and was dependent only on the support of Yushchenko himself. At the same time, as the confrontation between Yushchenko and Tymoshenko intensified, ministers and governors supported the “princess” of the Orange Revolution, not the President.

Since there was a prior agreement between Yushchenko and Tymoshenko to appoint Tymoshenko as Prime Minister, Yushchenko should have let her form a government of her own choice and thereby make Tymoshenko politically responsible for her policies. But this did not happen. Tymoshenko’s government was anything but a team of like-minded people. As it was a cabinet based on political compromises between different political forces, she could hardly be held responsible for all their decisions. Moreover, Yushchenko’s avowed principle of the separation of business and politics was never executed. Ministers were appointed on the basis of their business interests, including Tymoshenko herself.

Despite disagreements with the Presidential staff and Poroshenko’s NSDC, the government still attempted to fulfill the pre-election promises of the Orange Revolution. Ukraine’s thirteenth independent government was the youngest and most European-oriented, and even the key enforcement ministries were headed by civilians for the first time. The government had a Deputy Prime Minister in charge of European integration, and each ministry had a department in charge of European integration.60 Wages, pensions, and stipends were increased 1.5 to 2 times.

Many analysts believed that the main reason for the disagreements between the “perfect duo” was not so much personal animosity, but rather fundamentally different vision of the reformers’ perspectives, their methods, as well as the protection of interests of different financial and industrial groups. In order to stop land grabbing by oligarchs, foreigners, and foreign companies, Tymoshenko’s faction in parliament prevented the adoption of laws on land sales and secured a moratorium on sales of farmland. This populist move by Tymoshenko led to a conflict with Yushchenko, who believed it was necessary to introduce private ownership of land in order to increase agricultural productivity and boost Ukraine’s second largest export item after iron and steel.

Tymoshenko accused Yushchenko of lobbying the interests of the Swiss company RosUkrEnergo (RUE), half of which belonged to the Russian company Gazprom, and the other half to Yushchenko’s oligarch friends Dmitry Firtash and Rinat Akhmetov.61 Yushchenko and Tymoshenko also disagreed on the issue of transferring the shelf of the Black and Azov Seas under a long lease to the Venko company, which was also backed by Firtash and Akhmetov.62 Tymoshenko considered it a betrayal of Ukraine’s economic interests and said that Yushchenko was in the pocket of local oligarchs who owned RUE and Venko.

Vladimir Putin unexpectedly turned out to be her ally. He supported Tymoshenko in her attempt to remove all intermediaries from Russian natural gas supplies to Ukraine. The net result of this removal would be that Gazprom – part-owned by the Russian state and, it was rumored, 4.5 percent by Putin himself – would supply gas directly to the Ukrainian state company Naftogaz Ukrainy without having to pay these middlemen.

Tymoshenko decided to go all the way in her “Stop Fraud” campaign to bring oligarch businesses that did not pay taxes into the open. It affected not only large but also medium-sized companies.63 The most high-profile and perhaps the only major review undertaken at Tymoshenko’s own insistence was the re-privatization of one of the largest metallurgical conglomerate, Kryvorizhstal. The business was purchased at a relatively modest price of $800 million by the Interpipe company of Viktor Pinchuk while his father-in-law Kuchma was President. Claiming that the privatization had broken the law, the Yushchenko-Tymoshenko government announced a new tender and resold it for $4.8 billion to British metallurgical magnate Lakshmi Mitall. The proceeds from this deal did end up in the Treasury.64


Ukraine’s leading businesses began to sabotage Tymoshenko’s policies. Gasoline and sugar crises were artificially created and prices rose by 50 percent. Tymoshenko did not give in and her government forced an end to the crisis. The standoff continued, however, and in June 2005, Yushchenko, Tymoshenko and parliament were forced to guarantee existing property rights. In addition, at a meeting of the NSDC chaired by its head Poroshenko, himself a major Ukrainian businessman like Tymoshenko, Yushchenko criticized Tymoshenko for her “large-scale re-privatization” and “pressure” on gas companies. It was the beginning of a conflict between Tymoshenko and Poroshenko, who was plotting to take her place.

“Lady Y” did not back down, however. She declared another war: first of all, against Russian oil companies Lukoil, TNK-BP, and Tatneft, which controlled domestic oil in Ukraine. Re-export of Russian oil from Ukraine was banned.65 Tymoshenko’s government also began to pressure Russian oil companies who owned the refineries that supplied oil products to Ukraine. In order to avoid dependence on these Russian refineries, Tymoshenko proposed creating new state-owned gas stations, and building her own refinery in Odessa port for oil purchased from the Middle East and other countries, in order to significantly increase Ukraine’s supplies of non-Russian oil. Yushchenko personally intervened to block her plans and issued a decree that vetoed Tymoshenko’s government’s measures against Russian oil refiners.

The manipulative hand of Vladimir Putin was never far away. During Ukraine’s Independence Day celebration on August 24, 2005, Yushchenko claimed that Tymoshenko’s government was the most successful of all the years of independence, but the simmering conflict between the three centers of power – Yushchenko, Tymoshenko, and Poroshenko – was becoming ever more and more apparent. Yushchenko had surreptitiously instructed Poroshenko to head a bilateral Russian-Ukrainian commission set up by Yushchenko and Putin. The President stated that the NSDC and not the government should be “the only place where strategic decisions are made”. Thus, Yushchenko derogated a set of state powers that had previously belonged to the Prime Minister from her to Poroshenko.

Publicly, Yushchenko categorically denied that this conflict might trigger the dismissal of Tymoshenko’s government. Nevertheless, that is what happened, though it was on the face of it triggered by an entirely different event: Yushchenko’s Chief of Staff Oleksandr Zinchenko unexpectedly tendered his resignation. At a press conference he accused Poroshenko of gangsterism. “Most Ukrainians do not understand what is happening in the country,” Zinchenko said, “There are enough decent people in the President’s entourage, but a small group of adventurist politicians is trying to use the achievements of the Orange Revolution… Poroshenko illegally influences judges, systematically uses the telephone taps, is involved in ‘protection’ bribery at customs, and forces business representatives to share profits and assets with him… In his actions, Poroshenko says he acts on behalf of the President. But he is making it up because the President gave him no such instructions”.66


Poroshenko flatly rejected all accusations and added “I would very much like to sue” (he did not).67 He also said, “The President has never told me about any claims against me”, and nor had Zinchenko. “Zinchenko is deceitful, claiming that he has been briefing this to the President for two or three months. The only disagreement with Zinchenko during this time was the fact that the Presidential Secretariat is still in charge of law enforcement in Ukraine. I proposed to the Chief of Staff that we change this, but he didn’t agree with me.”68


Nevertheless, on September 8, 2005, Poroshenko tendered his resignation as Head of the NSDC as a result of the corruption charges.69 On the same day, the Verkhovna Rada deprived him of his immunity as a government executive by 269 votes in favor (of 450), and the SBU launched an investigation into corruption allegations against Poroshenko.70


On September 8, 2005, Yushchenko dismissed Tymoshenko’s government as a result of the Poroshenko scandal. The next day every major newspaper in the world devoted front pages to this event. The New York Times neatly summarized what had happened:



The Orange Revolution is coming to an end at least its first act.… If Mr Yushchenko hopes to salvage any of their spirits, he needs to convince his country and a very wary West that not only does he believe in democracy, free markets and the rule of law, but that he is also able to lead Ukraine in that direction.71



On September 20, 2005, Attorney General Svyatoslav Piskun said that his office had found no evidence that Poroshenko was involved in corrupt practices.72 However, on October 10, his office announced that it had opened a criminal case against Poroshenko on suspicion of interference with two firms that were constructing a building on 9-a Mykhailo Hrushevsky Street in Kyiv that could lead to imprisonment for a maximum of 10 years.73


The prosecution was never followed through but at the next political crisis that gripped Ukraine, public opinion was no longer on Yushchenko’s side. In the March 2006 Rada elections, Tymoshenko’s party outnumbered Yushchenko’s for the first time. She won 129 seats, while the Presidential Our Ukraine party received only 81. In 2002, Tymoshenko had 22 seats and Yushchenko 112.



The gas conflict with Russia



After dismissing Tymoshenko’s government, Yushchenko invited his close friend Yuriy Yekhanurov, then governor of the Dnipropetrovsk region (and a businessman like most Ukrainian politicians), to head the national government as Prime Minister. After graduating from the Kyiv Institute of National Economy in 1973, Yekhanurov worked as CEO in the construction industry and had held several ministerial positions in independent Ukraine and had been Yushchenko’s Deputy Prime Minister under President Kuchma.74


Yekhanurov’s candidacy for Prime Minister fell three votes short in parliament, however. Because of this, the President had to seek the opposition support from his former rival Yanukovych. He got it, but Yanukovych extracted concessions, confident that, at the next parliamentary election in 2006, his party would gain the upper hand. The Communists and Social Democrats also received a volley of promises in exchange for refusing to oppose Yekhanurov, and they abstained in the second vote on Yekhanurov. As a result, the new Prime Minister was in office but not in power, trapped as he was in a web of promises by both himself and Yushchenko.

During Yekhanurov’s premiership (2005-2006), a major gas conflict broke out between Ukraine and Russia. Russian monopolist Gazprom wanted to bring prices for gas supplies to the former Soviet republics such as Ukraine in line with international market prices: for several years gas had been fetching record prices. After the collapse of the Soviet Union, relations over gas contracts had gradually morphed from a purely economic one to one dominated by Putin’s foreign policy agenda. Russia began to use gas to put political pressure on the former Soviet republics, as they were totally dependent on Russian supplies.75 The worse the relations with Russia, the higher the price.

In March 2005, under Tymoshenko, Naftogaz Ukrainy had suggested that Gazprom abandon its gas barter scheme and switch to direct cash payment while revising at the same time upwards the price Gazprom had to pay for gas transit (some 80 percent of Russia’s gas exports) through Ukraine’s pipelines to Western Europe. The background to this conflict was that Slovakia, the Czech Republic and Germany were charging from $3 to $13 per 1,000 cubic meters per 100km transit to Gazprom, whereas Ukraine received a mere $1.09 in barter value. Naftogaz proposed that Gazprom raise it to $1.75-2.00 from the $1.09. Until the summer the parties worked out different versions of a new cash-based agreement. In the end Gazprom drew the line at $1.60 per 100km, balancing this against charging Ukraine $160 per 1000 cubic meters for its domestic gas usage – some 60 percent more than it charged other CIS countries that had belonged to the USSR. Ukraine balked at this and rejected the deal. Here at least Yushchenko showed he ran Ukraine’s foreign policy with a measure of independence from Putin.

Ukraine’s refusal to sign the agreement resulted in cancellation of Russia’s Prime Minister minister’s visit to Kyiv. More to the point, Russia unilaterally raised the price it charged Ukraine for gas to $230 when the current agreement came to an end. It was a blatant shake-down of the country. The Ukrainian delegation interrupted its negotiations in Moscow and returned to Kyiv as winter set in. Putin’s government meanwhile unleashed an anti-Ukrainian propaganda campaign blaming its neighbor for insufficient gas supplies passing through Ukrainian pipelines to Europe. Many European countries were concerned about the situation and called upon both parties to come to an agreement. Not minded to give in, Gazprom stopped supplying gas to Ukraine as of January 1.

The day before, Putin, speaking at the Security Council of the Russian Federation, said that “Ukraine is first and foremost our brother. And we have to consider relations between Russia and Ukraine: that is why I am instructing the Russian government and Gazprom to ensure gas supplies to Ukraine in the first quarter of 2006 on 2005 terms and prices, provided that our Ukrainian partners sign before the end of this day what Gazprom proposes and switch over to market prices in the second quarter of 2006. In case of no clear agreement, we will consider our proposal rejected.”


On the night of January 3 to 4, 2006, Gazprom and Naftogaz reached an agreement on the terms and conditions of gas supply via Swiss middleman RUE (RosUkrEnergo) and on the condition of uninterrupted Russian gas transit to Europe for the next five years, ending in 2010. RUE earned about $1.5bn from reselling Russian gas to Ukraine. Under the agreement, Gazprom undertook to deliver gas to Ukraine at a price of $95 per thousand cubic meters in the first quarter of 2006, as Putin had set out days before, and then at the “European market price” of $230. At the same time, Gazprom and Naftogaz Ukrainy agreed to hand over to RUE their contracts for the purchase in 2006 of 56 billion cubic meter of gas from Central Asia.76


Putin and Yushchenko stated that the gas conflict between the two countries was now over. However, if the conflict was considered solved at a political level, problems remained at the level of relations between the two companies, leading occasionally to the resumption of aggravation. After the signing of the gas contracts with Russia, the Verkhovna Rada heard a report on these energy negotiations from Yekhanurov’s government, and, dissatisfied with it, passed a resolution for his government to resign. Yushchenko managed to persuade parliament with great difficulty to have the government continue as a minority government until the upcoming parliamentary election, in the hope that the new Rada would reverse its decision.



Parliamentary elections 2006-2007



Parliamentary elections were approaching. The election itself took place on March 26, 2006, but the election campaign had started much earlier, and all political crises between the Presidential and parliamentary branches of power were focused on the upcoming election. The disintegration in the “Orange” camp fueled the interests of Viktor Yanukovych’s “Blue-White” regions. The electoral system itself had also changed.77 While in the 2002 elections 33 political parties and blocks participated, in 2006 there were no less than 45 of them vying for the 450 seats.78 The more than 3,500 international observers present agreed that the elections had been held without violations and passed international voting standards.

The 2006 parliamentary elections had a special significance for President Yushchenko because the political reform and constitutional amendments debated under Kuchma were finally signed into law as a result of the horse trading during Yushchenko’s term. They curtailed his influence as important powers were transferred to the Verkhovna Rada. Henceforth parliament had to approve the country’s Prime Minister, Defense and Foreign Affairs ministers, and the Prime Minister now had sole discretion to appoint their ministers.

Even though the pro-Presidential Our Ukraine came in third, Yushchenko tried to recreate an Orange Coalition in the Rada by negotiating with Tymoshenko and the Socialists. That coalition had 243 seats in parliament. A coalition of Yanukovych party (the largest in the Rada with 189 seats), Socialists and Communists would have received more – 240 votes. It made the Socialists the Rada’s king makers in the 2006 parliament.

Socialist leader Oleksandr Moroz wanted to become Speaker and when the Orange Coalition advanced Poroshenko instead, Moroz went over to Yanukovych and joined his “Anti-Crisis” coalition.79 It nominated Yanukovych as Prime Minister and Moroz as Speaker of the Rada. Yushchenko waved through Yanukovych as Prime Minister, but tried to sabotage Moroz’s appointment, hoping to strengthen his position in parliament.

Talks between Yushchenko and Yanukovych about their power sharing lasted from August to September 2006 but led nowhere. Nevertheless, in September 2006 the parties signed a “Universal Principle of National Unity”, declaring their intention to pursue greater European integration and eventual accession of Ukraine to NATO, stating the need to depoliticize the state, creating a legal basis for the opposition’s role, and proclaiming the need to create the conditions for privatization of agricultural land. It was signed by all Rada parties, except Tymoshenko’s.80


Tymoshenko argued that the declaration was the result of a bargain between Yushchenko and Yanukovych. In many ways she was right.81 In December 2010 WikiLeaks published classified reports of the US Ambassador in Ukraine. They said that on 22 March 2006, i.e. four days before the elections in the 2006 parliamentary election, Defense Minister Anatoliy Hrytsenko, who was a member of Yushchenko’s inner circle, met with the US ambassador for a meeting on NATO.82 He leaked to the Ambassador that an alternative coalition between Yushchenko’s and Yanukovych’s parties was being explored.83


While Yushchenko failed to reach an agreement with the leaders of the “Anti-Crisis Coalition”, he did manage to insert in Yanukovych’s government eight of his own ministers, including his Defense Minister Hrytsenko and Foreign Minister Borys Tarasyuk.84 Yuriy Lutsenko became Interior Minister. All three had a pro-western orientation.85


It made little difference. For example, during his visit to Brussels in September 2006, Yanukovych stuck closely to what Putin liked to hear and stated that “Ukraine is not ready to join the EU and NATO,” arguing that there was no political and civil consensus in society. According to Yanukovych, only a popular referendum could decide whether or not Ukraine should move toward Euro-Atlantic integration. Although in theory there was nothing wrong with this, in the context of Ukrainian politics Yanukovych’s statement meant a complete and abrupt change of all previous Ukrainian policies aimed at European integration.

Not surprisingly, Yushchenko and his supporters called Yanukovych’s position a “betrayal of Ukraine’s national interests,” especially since the Prime Minister made an unscheduled visit from Brussels to Moscow, where he met with Putin and his Prime Minister Dmitri Medvedev to discuss expansion of Ukrainian-Russian economic cooperation and they agreed to dial down again the price of Russian gas for Ukraine to $95 per thousand cubic meters as a reward for Ukraine for changing its pro-European political course to a pro-Russian one.

In October 2006, Yushchenko’s faction announced its withdrawal from the parliamentary coalition, switching to the opposition and recalling its ministers. A new political crisis had begun which continued throughout 2007. The defense and foreign ministers who remained in the government under the “President’s prerogative” declared that they would continue to focus on Europe as part of the NATO-Ukraine program and prepare the ground for Ukraine’s associate membership in the European Union. Yanukovych then demanded their resignation and, on December 1, 2006, secured a parliamentary decision to dismiss the ministers who opposed his policies – as per their right in the new Constitution. In response, however, Yushchenko refused to sign the decree required to release them. The fight between the President and his Prime Minister was now a full-blown constitutional crisis.



The political crisis of 2007



The power struggle between Yanukovych and Yushchenko had to be resolved. Although the President did not recognize the parliament’s decision to dismiss his foreign and defense ministers, Yanukovych continued to insist on his right to appoint and dismiss ministers. In January 2007 parliament passed a “Law on the Cabinet of Ministers” which limited the President’s authority, and which Yushchenko in turn vetoed. Yanukovych also tried to expand his coalition to 300 deputies in order to be able to overturn Yushchenko’s Presidential veto and make changes to the current constitution.

The climax came on April 2, 2007, when Yushchenko ordered the dissolution of the Verkhovna Rada and called new elections for May 25. Yanukovych’s government coalition, of course, did not accept this and refused to provide funds for early elections, and began organizing numerous protests in the capital. Since Donbas was Yanukovych’s base, miners from Donbas were again paid and bused into the capital for rallies. They received the wry epithet, “bus rallies”.

Yanukovych’s coalition also challenged the legality of the Presidential order dissolving parliament in the Constitutional Court. The court tried to sidestep a conclusive decision, not wanting to be drawn into a political showdown between Yushchenko and Yanukovych. For their part, the opposition parties to Yanukovych also called upon their supporters to protest. Another period of civil unrest began, and with some frequency the rallies continued until the winter of 2007.

Again, the police as well as Interior Ministry special units called “Berkut” (Golden Eagle), were mobilized to patrol the political strife, barricading various government institutions from protesters. The Berkut, in particular, were unpopular, having been formed after independence from Ukrainian officers who had been part of the USSR’s anti-riot units.

Defense Minister Hrytsenko declared that he would follow the orders of the country’s Commander-in-Chief Yushchenko rather than civilian Prime Minister Yanukovych. There was an implied threat of involvement of the armed forces in the conflict, but attempts to concentrate troops in the capital were unsuccessful. The Railway Minister, who followed Yanukovych’s orders, refused to transport the armed military units to the capital. A personnel reshuffle began in the security and law enforcement agencies – who were under Yushchenko’s control. Having shown “insufficient zeal” to defend the President, Yushchenko fired the President of the Constitutional Court and a number of judges (under his “Presidential prerogative”), as well as the Attorney General.

As a result of lengthy negotiations, violent clashes between the factions were avoided. Yushchenko agreed to postpone the elections from May to June, and then to July 2007. Many observers believed that during this crisis Yushchenko (unlike Tymoshenko) did not follow a consistent course and tried to compromise with Yanukovych, which only prolonged the crisis. The boycott of the Rada by Tymoshenko and other parties supporting the President paralyzed its work.86 Eventually, after a long confrontation all sides agreed to elections on September 30.87 A total of 20 parties and blocs entered the race, almost half the number of the previous elections.88



The second government of Yulia Tymoshenko (2007-2010).



In August 2007, Yushchenko and Tymoshenko met and talked about forming a coalition of “democratic” forces in parliament if they won the election. They scored a victory, as their parties were returned with 228 seats, a majority of 3.89 Tymoshenko once again became Prime Minister and Yushchenko once again had to “play a duet” with her.90 But the salvation from political chaos that the voters expected did not come. The political crisis just entered a new phase.

Tymoshenko’s election as Prime Minister did not go smoothly. Despite the new Orange Coalition and its majority of three seats, Tymoshenko was not confirmed at the first attempt on December 11, 2007. She gained 225 votes out of 226 needed. She was one vote short. Why? As it turned out later, the electronic voting system malfunctioned and did not take these two votes into account. On December 18, there was a second round without using the electronic system; by a simple show of hands she got in.91


In mid-January Tymoshenko submitted to the Verkhovna Rada her program “Ukrainian Breakthrough: for People, Not Politicians.” While populist, it otherwise contained no practical measures.92 The program was subjected to extensive criticism at the Rada’s commission meetings. Before being adopted, it underwent more than 300 amendments.93 Nevertheless, according to the program, the priority tasks for the government were, apart from developing industry and fighting corruption, increasing wages and pensions. This the government could deliver, as three quarters of the economy were still run by companies whose shareholder was the state. Years after Tymoshenko’s departure, people still remembered their increase of salaries and pensions.94


NATO was again the cause of a crisis. In January 2008, Foreign Minister Volodymyr Ohryzko gave NATO Secretary General a letter signed by Yushchenko, Tymoshenko and Speaker Arseniy Yatsenyuk about Ukraine’s ambition to join the “NATO Membership Action Plan” at the Bucharest Summit in April 2008.95 The contents of this letter had not been discussed in Tymoshenko’s cabinet or by the Rada before it was sent to Brussels.

As public opinion was split on Ukraine joining NATO, this gave Yanukovych and the Communist faction the opportunity to criticize Ukraine’s top leaders harshly. In a statement written by them on January 21, 2008, they damningly accused them of secretly hijacking the issue, “Being afraid of its people, [the government] decides the fate of our state behind closed doors, behind the scenes, in threes”.96 The scandal around the “secret negotiations” with NATO paralyzed the Rada for two months as opposition deputies boycotted its agenda. Only on March 6, 2008, did parliament resume work, after Yanukovych accepted a resolution stating that the decision on Ukraine joining NATO “shall be taken on the basis of the referendum that may be held on the people’s initiative”.

Only six months later, on September 16, 2008, Ukraine lurched into a new crisis. It was caused by Putin’s attack on Russia’s former Soviet satellite Georgia. Despite Georgia being a member of CIS, the Russian equivalent of the EU formed after the USSR’s collapse, Ukraine’s political top was not united in its foreign policy response to Putin’s aggression.97 It caused the implosion of the ruling “Democratic Alliance” in the Rada as two government parties, one of them Tymoshenko’s Fatherland party, split during a parliamentary debate on the Russian-Georgian armed conflict. Yushchenko and his supporters supported Georgia and condemned Russian aggression. Tymoshenko took a measured stance, however, calling on both sides to stop the bloodshed and resolve the conflict peacefully. For this she was sharply criticized by Yushchenko’s Secretariat and his Our Ukraine party, which accused her of betraying national interests.

Yushchenko’s Secretariat’s sniping at Tymoshenko had begun as early as August 2008, at the height of the Russian invasion of Georgia. Deputy Chief of Staff Andriy Kislinsky accused the Prime Minister of “systematically working for Russia,” saying that “she has no way back. They dictate her position on the war in Georgia.” Tymoshenko’s neutral view on the Georgian issue had a financial context. During these very months she was involved in difficult gas negotiations with the Russian government. Tymoshenko’s “impartiality” towards the Russian-Georgian war was likely the quid pro quo Putin had extracted in return for a lower offer on Ukraine’s domestic gas supply.

Yushchenko tried to glue together the splintering alliance, but he failed to achieve his goal. On October 8, he dissolved the Verkhovna Rada and called early parliamentary elections for December 7. Now it was Tymoshenko’s turn to claim the Rada’s dissolution was illegal. Tymoshenko and her lawyers spent two days preparing the legal grounds for her complaint, and on October 10, a court in Kyiv suspended Yushchenko’s decree. Frantic discussions ensued with one of the opposition parties, promising its leader appointment as Speaker.98 A deal was struck and on December 8, the newly elected Speaker announced the restoration of the coalition. Tymoshenko’s government avoided resignation. Its plans were highly ambitious: to settle the perennial Ukrainian-Russian gas conflict once and for all.



Another gas conflict with Russia



The new gas conflict with Gazprom, which erupted at the beginning of 2008, was directly related to Tymoshenko’s attempt to cut Swiss intermediary RUE from the Gazprom deal for Ukraine’s gas. Having received support from Putin (who was nominally Russia’s Prime Minister from 2008), her government announced it was cutting ties with the company, which by then owed Gazprom nearly $1.5 billion in gas payments. Tymoshenko said in February 2008, “Ukraine and Russia do not need intermediaries in their gas supply, and the government will stand firm on this”. At that time, while on a visit to Moscow, she managed to put together an agreement that Russian gas supplies to Ukraine would be delivered directly under a contract between (Russia’s state-owned) Gazprom and (Ukraine’s state-owned) Naftogaz. Russia had offered Prime Minister Tymoshenko a joint Russian-Ukrainian venture to sell gas inside Ukraine. But this carrot she rejected, saying that Naftogaz was capable of selling Russian gas domestically without Russian help.

Having secured direct gas supplies, Tymoshenko then raised the issue of the $1.5 billion debt, arguing they were not Ukrainian state debts, but debts of RUE to Gazprom. The intermediary company, however, had no intention of paying the balance which by now had risen to $2.2 billion. Trying to off-load the debt on to the Ukrainian Treasury, RUE received unexpected support in this matter from President Yushchenko himself.

More horse-trading ensued. In October 2008 Ukraine and Russia officially agreed to exclude the middlemen as of January 1, 2009. Having realized that RUE’s $2.2 billion debt had to be paid off, Tymoshenko suggested a barter by buying more than 11 billion cubic meters of Russian gas and pumping it into RUE Ukrainian storage facilities as payment for the debt.99 At the same time, Tymoshenko assured European countries that the new agreement provided for uninterrupted Russian gas transit to Europe on a long-term basis. The new contract, with all its terms now agreed, was to be signed on December 31, 2008. Meanwhile, RUE did everything possible to derail the signing of this contract and even offered Gazprom to pay a price of $285 instead of $235 for the supply of Ukraine’s gas (all to be paid for ultimately by the ill-starred Ukrainian population, of course).100


They failed. Except, on December 31, 2008, Yushchenko ordered the CEO of Naftogaz101 to return from Moscow and not to sign the Tymoshenko agreement with Gazprom. He blamed his Prime Minister for derailing the talks, saying she was working on behalf of Russia, whose government had accommodated her in the gas negotiations and bought her silence on the Georgian issue.102


On January 1, 2009, Gazprom announced that it was once again cutting off Ukraine’s domestic gas. Under the Tymoshenko agreement, Gazprom was supposed to set Ukraine’s new price based on eastern European prices for Russian gas. Instead, Putin made it clear that Ukraine would now have to pay $470 per thousand cubic meters. At the same time, Russian gas supplies to Europe via the Ukrainian pipeline were sharply reduced. And, on January 6, European countries once again called on Russia and Ukraine to settle the dispute as soon as possible and resume regular gas deliveries.

This time parties returned to the negotiation table as late as January 18-19, but these were negotiations unlike any other.103 Dmytro Firtash and Ivan Fursin, the Ukrainian co-owners of RUE, were accused by Gazprom of being a front for Semyon Mogilevich, the Ukrainian-born godfather of the Russian mafia who had deep ties to the KGB/FSB. Mogilevich himself may have been on the most-wanted list of many countries, but he lived undisturbed in his dacha outside Moscow where no one ever made any attempt to arrest him. In fact, he shone at local social events.

After much haggling, the price of Russian gas for Ukraine was brought down from the $450 Putin had threatened Tymoshenko with to $291.23 per thousand cubic meters, on which Naftogaz was given a “fraternal” 20 percent discount to $232.98. The transit price Russia paid for gas export to Europe through Ukraine was simultaneously raised by over 50 percent to $2.7 per 1000 cubic meters per 100 kilometers.104 And the Russian Interpol warrants for the arrests of Firtash and Fursin were as quickly filed away as the Red Notice for Tymoshenko herself had once been issued and withdrawn.

An important result of the agreement was that it finally fixed the cost of the gas delivered to consumers in Ukraine. Immediately after signing the contract, the NSDC (to which Yushchenko had just appointed a new head), recommended to Ukraine’s energy regulator that gas prices be increased by 35 percent for domestic users and by another 5-10 percent for businesses that used large amounts of gas. The latter charge mostly affected Ukraine’s industry which was concentrated in the east. When Naftogaz raised consumer gas tariffs Tymoshenko intervened, however, and said: “I categorically object to raising the price of gas for people. I undertook a commitment that during this year price on gas for people will not change, and I will stick to my word… I do not understand the President.”


Tymoshenko prevailed in this dog fight. In a desperate effort to reduce Ukraine’s energy dependence on Russia, her government planned energy savings programs, diversification to other sources of energy, and again mooted alternative sources: Central Asia, Azerbaijan, the Middle East, Arab countries, and even Europe.

Having overcome Yushchenko, in the second half of 2009 she herself tried to negotiate with Yanukovych to form a coalition in parliament. She, too, was after an absolute majority to amend the Constitution and further limit Yushchenko’s Presidential powers. However, Yanukovych considered an alliance with his eternal rival too risky and pulled out of discussions at the last moment.

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