Maidan

Where is Ukraine Going?

Speech by Yulia Tymoshenko
Chatham House
Thursday 2 February 2006

This speech is issued on the understanding that if any extract is used, the speaker and Chatham House should be credited, preferably with the date of the speech

Honorary Ladies and Gentlemen,

First of all, I want to sincerely thank Chatham House for inviting me to speak to you.

The theme of my speech is going to be the direction of Ukraine?s development. However, the problems that I will talk about concern not only this country but also the geopolitics of a whole region.

So, where is Ukraine heading?

To answer this question I have to examine some of the recent events and also correct the widespread misunderstanding that has arisen in the West concerning the Orange Revolution - the perception that the people who went out onto the streets did so to define the political and economic orientation of Ukraine and decisively point it to the West, and further away from pro-Russian influences.

I think this was an important by-product of the revolution, but not necessarily its goal.

The key strength and driver of the 2004 revolutionary protests, was the concept of "justice" and "fairness". The people were demanding an end to corruption, an end to falsified elections, and an end to lies regardless of the political colour. They wanted their voices to be heard. They wanted something better.

Have we, the leaders of the Orange Revolution, been able to deliver this?

One political analyst recently compared the new government with a group of people who converge to put out a fire. While the fire rages they forget about their differences and work together, united by a common goal to extinguish the flames. However when the fire is doused, they realise they have little in common.

Truthfully, the post-revolutionary civil servants have had disagreements, which have obstructed the government apparatus and sometimes made the passing of laws almost impossible. This was compounded by individuals who used their posts for personal and political gain rather than honouring electoral pledges.

Notwithstanding these obstacles that frequently blocked our path, as the prime minister of my government for only seven months, I made progress for which credit must be shared with President Yushchenko.

* A large number of laws were passed, which will allow Ukraine to accede to the World Trade Organization this year. Membership of this body, which accounts for nearly 97% of world trade, is crucial.
* Measures were passed that enabled Ukraine to receive from the EU "Market Economy" status. This development further strengthens trade and economic ties with the EU, now our largest trading block.
* At the beginning, progress was made in fighting the shadow economy. For example, a record amount of taxes was collected, and government income increased by 70%.
* We introduced various social reforms, which increased pensions and wages to public sector employees by 30-50%. We did this while maintaining control on inflation. However, some brand these reforms as "populist policies." I say to them, go and ask pensioners, who live on $20 a month, barely making ends meet. For them these are not populist policies but a matter of "honour" and "social justice". Here we are talking about fulfilling pledges, made to the nation by the President.
* Ukraine, for the first time, can be proud of its freedom of speech and truly free mass media.
* We created more beneficial conditions for private enterprises. In order to simplify the process of registering a business, close to 5,000 regulatory acts were annulled, simultaneously curbing one of the sources of corruption.
* We addressed the issue of organised crime. With the help of the "Contraband Stop!" programme, introduced by myself, a significant decrease in border contraband trafficking was achieved. This resulted in a 3.5 times increase in income from goods crossing the border legally.
* My government also tried to regain stolen national property and resell it through auctions in a transparent way. With the example of the Kryvorizhstal steel mill, the country received $2.7 billion – 5 times the sum it had previously been sold for. This honest and transparent auction was broadcast live on television. Through this, Ukrainians saw that arbitrary action could be redressed and that the rule of law applied to the powerful as well as the weak.

While on this issue of reprivatizations I want to set the record straight. In the past I was misquoted as recommending 3,000 reprivatisations - this reference was to potential court disputes that could damage the reputation of Ukraine unless we had clarity on the reprivatisation issue.

Indeed, I have long maintained the need to establish clear selection criteria for reprivatisations and publish a list of probably no more than 20 companies, and declare amnesty for the rest. Our pursuit of justice should not bear the price of deterring investment.

So, do I regret anything? In hindsight: yes. Maybe my biggest mistake was that I wanted to do everything too quickly, to justify the people's expectations. I have learned valuable lessons and am now stronger for it.

What was the reason behind my government's dismissal? It is enough to say that I am one of the few prime ministers who has ever been sacked for trying to fulfil the promises that were made to the people. For example, I took on those powerful forces, the clans and oligarchs, who sought to undermine the values of the Orange Revolution. This was too much for some and I paid the political price.

A year ago, after the Orange Revolution, the new administration had extraordinary high levels of trust from the people - up to 70%. Today this level of trust has fallen to 15%.

Such a catastrophic trend is a consequence of systemic problems, arising from the formulation of decisions of the new government and its attempts to make them a reality. It is a result of a whole chain of strategic mistakes.

Mistakes of the government:

1) Voting for the constitutional reform, which has significantly reduced the powers of President Yushchenko and created a foundation for some in the old regime to take revenge.
2) Unfounded and widespread replacement of 18,000 officials. The consequence of the lack of a strategy in public appointments has led to the election of many unqualified and corrupt people. It has created chaos in the system of government.
3) Unfortunately, the new government has maintained the existence and practice of clans in political and economic life, and struck compromises with the clans at the expense of the principles of the Orange Revolution. This, in turn, has led to widespread disillusionment, with people losing faith in the government's ability to implement measures needed for justice and fairness.
4) It is difficult to understand the illogical moves to sack the Cabinet of Ministers which I headed and the destruction of the Orange unity.
5) The retention of groups of businessmen in key positions within the Yushchenko team, who have compromised themselves with loud corruption scandals.
6) The signing of the "Yanukovych - Yushchenko" Memorandum, which created a way for the powers of the old regime to take their revenge; the amnesty for electoral falsifications; the assurance of legal immunity for members of parliament - a result of which Ukraine today has more than 300,000 civil servants which are beyond the reaches of the law. Apart from everything else, this memorandum gave back life to Yanukovych and the powers of the past.
7) The public making of peace with the oligarchs and clan leaders, which the citizens of Ukraine have witnessed on television. This serves as a slap in the face of society and rubbishes people's expectations.
8) The greatest mistake, which carries with it the threat to the national sovereignty of Ukraine, has been the signing of the Gas deal - on 4 January, 2006 - between Ukraine and Russia, which I see as not a deal about gas but rather a refined system of control of Ukraine from the territory of the Russian Federation, through the potential debt dependence, which could lead to a loss of Ukraine's strategic oil and gas transport routes and its control over them.

Due to this extraordinary turn of events, only four months after the sacking of my government, I found myself leading the vote of no confidence against Prime Minister Yekhanurov and members of his government. Speaking for myself, I can say that this was not a pre-calculated move to seek political capital. This was a rescue move, aimed at correcting the gas deal, which is not only harmful for Ukraine and Europe but also strikes at the very heart of the values of the Orange Revolution.

The gas dispute between Russia and Ukraine has been a wake-up call for many in Western Europe and Washington, and attracted great attention to the use of energy as a post-Soviet neo-imperialist weapon.

The proposed agreement for the settlement of the argument poses more questions than it answers. Firstly, it ignored the fact that both parties had a valid binding contract until the 1st of January, 2010. The matter could and should have been referred for review to the Stockholm court of arbitration. Secondly, the proposed deal guarantees a price of $95 per 1000 cubic meters of gas only for the first six months of 2006, while at the same time locking Ukraine into an unchangeable gas transit deal for the next five years. Thirdly, the deal places Ukraine's energy interests in the hands of RosUkrEnergo, a shadowy company, with suspected links to international criminals.

During my premiership, my government sought to investigate RosUkrEnergo - to discover who precisely its owners are, how it gained a virtual monopoly on the import of Central Asian gas, and where its profits go. It is perhaps not a surprise that when I left government, that investigation was shelved. I think that in order to find out who exactly benefits from this deal, it is necessary to carry out an investigation where both Ukrainian and international structures participate and that the case is thoroughly examined in a court of law.

For a deeper understanding of the extent of the damage from this gas deal from the 4th January 2006, I want to once more explore in detail the main points of the deal.

- The provision of a monopoly supply of natural gas to Ukraine and the loss of direct international contracts with Russia, Kazakhstan, Turkmenistan and Uzbekistan.
- The entanglement of an opaque structure RosUkrEnergo - in the supply of gas.
- The occupation of the internal market of Ukraine by RosUkrEnergo - in effect we have got a double monopoly.
- The transition fee of Russian gas through Ukrainian territory has been secured for the next five years, at two times below market price.
- Ukraine has surrendered the whole of the gas that it was contracted to receive from Turkmenistan at $75, at a time when it is receiving the exact same gas from RosUkrEnergo at $95. Ukraine has, as a matter of fact, accepted a clear system of shadow kickbacks.
- An agreement to buy Russian gas at $230 per 1000 cubic meter, which at the Ukrainian border is actually a higher price than that paid by Germany or France by some $60. Clearly such prices are fatal, considering the energy consumption in homes and in industry, and the need of 2-3 years to prepare an effective system of energy saving technologies.

Ukraine's conciliatory position in talks with Russia has weakened the position of other countries such as Moldova in their negotiations with Gazprom.

I am certain that this deal is not dictated by the market. This is nothing more than energy terrorism.

The gas deal of 4th January 2006 was the straw that broke the camel's back and it is precisely why we decided to vote for the sacking of Yekhanurov's government. It was not a politically motivated act timed to coincide with the elections but rather a reminder that the Orange Revolution embodied accountability and responsibility to the people.

The vote of no confidence was not a betrayal of the national interests - quite the opposite; it was a restated confirmation of national interests. Ukrainian energy supplies, as well as European energy supplies will never be truly safe, whilst control of the transit of gas remains in the hands of a shadowy company - with unknown owners. What we need is an objective, just and transparent solution to the problem, and I will do my best to achieve this.

The gas crisis also highlighted another pressing problem - the necessity for Ukraine to have professional experts and independent advisers that are not aligned to energy politics or spurious business interests. This will help prevent corruption and damaging monopolies from occurring.

Maybe we need to consider the creation, in conjunction with our European partners, of a common working group which would address the question of energy security and reform of Ukraine's energy sector. This could be an important step towards a common European energy policy.

The problems that have arisen from the gas crisis go beyond energy security, once again triggering the question over Ukraine's role in Europe and the world. Ukraine must decide where it fits into Europe and consider the balance that must be struck between its own expectations of EU accession and its relations with Russia and other post-Soviet block neighbours.

Alongside our own declaration that our future course is to become a full member of the EU, we must also accept that few of even the most fervent supporters of European integration want to help Ukraine quickly become a member.

Yet the gas dispute has proven that our fates are more closely entwined than many previously thought. So the message I would like the Ukrainian people to hear is that you - the west - will play your part as Ukraine redefines its historic ties to Russia, and that when the necessary EU conditions are met, we will be welcomed by the UK and the other member states.

Now I want to go on to the question of NATO. I am a supporter of Euro-Atlantic integration of Ukraine. However the reality for my country is that NATO membership is not the most pressing issue for the majority of people. The truth is there is still a certain level of residual antipathy towards NATO, especially in the East and South of Ukraine. It is necessary to draw attention to the old stereotypes of the Cold War, which many people still have concerning NATO, and the new role which the alliance is trying to create and clarify for itself.

Currently NATO is defining a new role in the light of new threats. An accountable government must therefore do a lot more to put before the people all the necessary information and arguments that address the question of NATO's role in regional and global security.

The perspective which I and others see for Ukraine is not a return to the 10th and 11th Century when we were the most powerful country in Europe, but rather a Ukraine which is emerging from the shadows, a Ukraine where the price of corruption does not equate to millions upon millions of people's average monthly wages.

For Ukraine to prosper we must continue on the path to reform our government, our administrative power and roll back the "oligarch state".

This means abolishing the legal immunity that currently places thousands of central, regional and city officials above the law. It means ensuring greater accountability of elected officials with registers for disclosure of salaries and business interests, and clear rules on how people may access this information.

This also means ensuring "affordable" social reforms and equal access to high-quality education and healthcare for all citizens regardless of their financial, social status or place of residence. It means a renewed focus on preventing the spread of HIV/AIDS and eliminating Tuberculosis.

All this can only be achieved with a modern, vibrant economy. For this we must first restore confidence and promote "economic stability" - put an end to the ambiguity that has deterred domestic and foreign investment.

We must have:

* A clear and streamlined legal framework, which respects property rights and the rights of shareholders.
* A stronger political approach to preventing tax evasion and combating corruption.
* The simplification of tax procedures
* An ending to the reprivatization saga

Hand in hand with economic stability comes the necessity to "stimulate investments". We must:

* Simplify the process of doing business in Ukraine. This means a review of customs tariffs with the aim of stimulating domestic and foreign trade; cutting bureaucratic red tape; simplifying the process to purchase non-agricultural land for foreign investors; a review of credit policy to attract foreign banks and ease restrictions to business borrowing.
* Stimulate transparent areas of development which would appeal to foreign investors in key industrial sectors and regions. This includes the modernization of our coal, metallurgical and chemical industries - and also the creation of technology parks to tap our low cost but highly qualified labour resources.

A crucial aspect to modernising our economy will be to implement a new Energy Security Strategy that takes advantage of our geographic position as the energy conduit to Europe, and exploit more fully our existing natural assets and warm water ports for import, export and oil refining.

Of particular importance is the need to have a broader energy basket. Huge potential exists to attract foreign investment to modernise the nation's coal mining infrastructure and revitalize the economy in the east.

At the same time a Ukraine connected to the European grid, could be a major exporter of electricity. We currently have a capacity to generate more than twice our needs. These and other energy measures, including conservation, will contribute to greater energy independence, which, I must stress, would be realised whilst respecting and safeguarding Russian interests.

Indeed, historical and cultural ties with our neighbour mean we could never turn our back on Russia. These ties, together with healthy, transparent trade agreements should form the cornerstone of our relationship - one that embodies mutual trust and respect.

So what must be done today, when there exists in the country an extremely difficult political situation? The Orange team is in crisis. Yanukovych - is leading pre-election polls. If we combine the latest ratings of all the political forces then we can see that the Orange team is losing power.

Is there a way out of this situation?

There is!

We must take a few steps to return to last year's expectations and try again to build a democratic, just and open society.

1. It is an imperative to realize that our team and the President's team must combine our efforts. We must put an end to the suicidal competition, not just in declaration but reality. We must agree to a return of the principles, goals and ideas of the Orange Revolution. We must outline the framework of the future governing team.
2. In order to ensure such unity we must make use of all the political powers that supported Viktor Yushchenko during the presidential elections.
3. Urgently, with common intellectual purpose, we must eliminate all newly created triggers of influence on Ukraine from abroad, including those in the energy sector, which have come about due to the unprofessional actions of the Cabinet of Ministers.
4. We must implement the reforms the people expect us to take, particularly in relation to the rule of law and social-economic reforms.
5. Provide maximum effort to undertake the most important of the promises made by the authorities, in particular - those concerning the investigation of the murder of Gongadze, electoral falsifications, and curb the appetites and actions of the clans.
6. Ensure government is free from the spectre of corruption.

Apart from this, I wanted to warn against another possible mistake, which is already brewing today at an adviser level. I am talking about the so-called grand coalition "Yushchenko-Yanukovych". This would really be the last mistake of the authorities, after which we will end up with a complete disequilibrium in the positions of the President and Prime Minister Yanukovych. This will be the end of reform in Ukraine.

We will be left with an Orange President and one Orange street, where the President is based, with a Blue government and Blue internal and external politics.

I call for President Yushchenko, whom I highly regard, to reach out for a strategic compromise and unite. I will not sign any agreements with the communists, nor with Yanukovych's Party of Regions. It would be irresponsible to do this and would equate to a return to the dark ages. I will be either with the President or in opposition.

I still passionately believe in the principles laid down in the Orange Revolution. Even though the revolutionary enthusiasm has been replaced by a steely pragmatism, these principles endure. Ukraine may well be a normal country with an abnormal past but this neither preordains our future nor precludes a sense of optimism.

I want to see Ukraine as an energetic, prosperous and socially responsible country. A nation that plays a constructive role at the heart of Europe, with good relationships with its neighbours - east and west. This is where, I pray Ukraine is going. To get there we will need effective and responsible government and also - crucially - support from you all.

I strongly believe in the European future of Ukraine!

Thank you.