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Eurasia Daily Monitor - 04/19/2006

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  • Eurasia Daily Monitor - 04/19/2006

    Eurasia Daily Monitor -- The Jamestown Foundation
    Wednesday, April 19, 2006 -- Volume 3, Issue 76

    *New political alliance emerges from Kyiv city council
    *Armenian parliamentary speaker denounces prime minister
    *Gazprom takes over Armenian power station, pipeline

    Banker Leonid Chernovetsky has managed to secure the legitimacy of his
    election as Kyiv mayor. On April 10, the Shevchenkivsky district court
    in Kyiv ruled that there was no proof of vote buying by Chernovetsky.
    Outgoing mayor Oleksandr Omelchenko had accused Chernovetsky of buying
    votes and demanded that his victory be invalidated (see EDM, April 5).

    However, Chernovetsky's position remains shaky. The Yulia Tymoshenko
    Bloc (YTB) has forged a strong alliance to oppose the new mayor at the
    Kyiv city council, and is seeking a rerun of the mayoral election in
    order to topple Chernovetsky. His election has bared yet another rift
    between the Orange Revolution partners, as the deputies elected to the
    Kyiv council from the Socialists and President Viktor Yushchenko's
    People's Union-Our Ukraine party (NSNU) apparently have nothing against

    In the run-up to the March 26 mayoral poll, the YTB was pronouncedly
    neutral. Its candidate, Mykola Tomenko, had withdrawn long before the
    race started in earnest, and the YTB did not back either Omelchenko or
    his key challengers, Chernovetsky and boxing champion Vitaly Klitchko.
    The YTB, however, won more seats than any other party in the election to
    the city council -- 41 out of 120 -- and Tymoshenko's ally Mykhaylo
    Brodsky, who is expected to chair the YTB faction in the council,
    offered support to Chernovetsky, reportedly expects backing for his bid
    for the post of council secretary in return.

    Chernovetsky, however, made it clear that he has a candidate for that
    position from his own, eponymous bloc. This may have triggered the
    conflict. On April 15, YTB people, their satellites from the Civic
    Active of Kyiv (GAK), and the Pora-Reforms and Order liberal bloc
    (Pora-RiP) ignored the first post-election session of the Kyiv council,
    which was scheduled to formalize Chernovetsky's election.

    Chernovetsky was in a difficult situation, as convening the council
    without the three parties would not have a quorum. Thus, according to
    law, Chernovetsky could not have been sworn in. Chernovetsky was saved
    by three deputies from Pora-RiP, who broke ranks and took their seats. A
    visibly nervous Chernovetsky was then sworn in.

    On the same evening, Tomenko gathered a press conference to announce the
    creation of a "coalition of democratic forces" called "Fair Kyiv."
    According to Tomenko, the coalition including YTB, GAK, and Pora-RiP has
    a majority, with 62 of the 120 seats in the city council. (But without
    the three dissenters who attended Chernovetsky's inauguration, Fair Kyiv
    would be two seats short of a majority.) He also said that Fair Kyiv had
    elected Klitchko as its leader, and that they would seek a new election
    for mayor of Kyiv.

    Tomenko argued that Chernovetsky has failed to present an action plan
    for the development of Kyiv, that his legitimacy was in question because
    he scored only slightly more than 30% of votes in the election, and that
    Chernovetsky's coalition, "including the Party of Regions and the NSNU,"
    was "a challenge to Kyivites."

    Representatives of the opposition Party of Regions (PRU) of Viktor
    Yanukovych and the NSNU had indeed been among those deputies who did not
    boycott the council's first sitting. This prompted the YTB to accuse the
    NSNU of cooperating with the PRU in the council in violation of previous
    agreements on a parliamentary coalition, which apparently rules out
    cooperation with the PRU at any level, including local councils. On
    April 17, Tymoshenko forbade her own bloc members to join any local
    alliances with the PRU. She threatened potential dissenters with

    Tomenko and Tymoshenko said that the Kyiv "coalition" between the NSNU
    and the PRU was "unnatural." For some reason, however, they abstained
    from castigating the Socialists, whose representatives attended
    Chernovetsky's swearing in along with NSNU and PRU deputies.
    Tymoshenko's accusations against Yushchenko's party in this case may be
    an exaggeration as, unlike Fair Kyiv, the NSNU and the PRU did not
    formalize any alliance at the council.

    The quarrel over Chernovetsky coincided with another dangerous
    development for the Orange coalition. On April 14, the NSNU rejected an
    accord reached with the YTB and the Socialists a day earlier, which in
    transparent terms stipulated that the post of prime minister in the
    alliance would go to Tymoshenko. Yushchenko's reluctance to return
    Tymoshenko the post from which he fired her last year, and her
    reluctance to accept a coalition on different terms, has so far been the
    main problem in the talks on re-establishing the Orange coalition. The
    rift over Kyiv mayor should only deepen the mistrust between
    Yushchenko's team and Tymoshenko.

    The creation of Fair Kyiv, meanwhile, has apparently triggered the
    dissolution of the Pora-RiP bloc. On April 17 Pora leader Vladyslav
    Kaskiv announced that the bloc had ceased to exist because its leader,
    Klitchko, had joined Fair Kyiv without consent from Pora. Kaskiv,
    however, did not make it clear whether his people will be in the
    opposition to Chernovetsky.

    (NTN TV, April 10; UNIAN, April 14; ICTV, April 15; Ukrayinska pravda,
    April 14, 17; Ekonomicheskie izvestiya, Channel 5, April 17, 18)

    --Oleg Varfolomeyev


    Armenia's governing coalition is beset with fresh infighting between the
    two largest political parties loyal to President Robert Kocharian, which
    could have repercussions for next year's parliamentary election. The
    Orinats Yerkir (Country of Law) Party of parliamentary speaker Artur
    Baghdasarian has publicly denounced Prime Minister Andranik Markarian
    and his Republican Party (HHK) over questionable privatization policies
    pursued by the Armenian government.

    The move appears to mark the start of Baghdasarian's election campaign.
    The 36-year-old speaker, who is one of Kocharian's potential successors,
    is widely believed to be trying to enhance his populist appeal by
    attacking a government in which his party is represented by three

    The row broke out on April 11 at the start of parliamentary debates in
    Yerevan on the privatization of remaining state assets from 2001 through
    2004. A government report on the process was expected to be accepted by
    the Kocharian-controlled National Assembly without much fuss. The
    parliament did endorse it, but only after three days of bitter
    recriminations traded by the two coalition partners in front of
    television cameras and gloating opposition parliamentarians.

    Orinats Yerkir lawmakers strongly challenged the integrity of the
    privatization deals handled by Armenia's Department for State Property
    Management, humiliating the pro-Markarian head of the government agency,
    Karine Kirakosian. They pointed to the fact that 48 of 69 state-owned
    enterprises put up for sale during the four-year period were privatized
    without tenders or auctions and at knockdown prices. Most of those
    enterprises have long ceased to operate and were primarily of interest
    to private buyers as pieces of real property.

    It emerged that virtually all properties located in central Yerevan were
    sold off at ridiculously low prices ranging from to per square meter.
    The market value of real estate in the increasingly expensive city
    center is at least 0 per square meter. Newspaper reports said last week
    that among the lucky buyers of lucrative properties were Trade and
    Economic Development Minister Karen Chshmaritian and a businessman whose
    daughter is married to Kocharian's elder son.

    Baghdasarian and his loyalists allege that the huge price disparity is
    the result of government corruption and nepotism. "They have
    appropriated millions and have to account for it," Baghdasarian charged
    without naming names. He also accused the government of illegally
    privatizing buildings that once belonged to educational, cultural, and
    scientific institutions.

    Markarian and HHK parliamentarians rejected the accusations, presenting
    them as yet another manifestation of Orinats Yerkir's trademark
    populism. "All privatizations were approved at government sessions," he
    told reporters on April 12. "Representatives of that party were present
    at those sessions. If they had questions they could ask them and be
    given explanations." Markarian aides implicitly threatened to publicize
    "compromising material" against Orinats Yerkir in retaliation. The
    threats led the latter to somewhat tone down its anti-government
    rhetoric. "Had we gone a bit further, we would have destroyed each
    other," admitted another HHK leader, Galust Sahakian.

    The key question is what prompted Baghdasarian to lash out at the
    HHK-dominated government now, just two months after he and other
    coalition leaders pledged to stop embarrassing each other in public and
    to preserve their uneasy marriage of convenience at least until the 2007
    election. "One can arrest any official who has dealt with the
    privatization sphere at any moment and rest assured that justice has
    been done," wrote a columnist for the 168 Zham newspaper. "On the other
    hand, it is clear to everyone that Orinats Yerkir does not care much
    about state property privatized for nothing."

    What the party does care about is a strong showing in the next
    legislative polls. Barring the absence of personal attacks on Kocharian,
    the pre-election discourse of its young leader has always differed
    little from that of opposition leaders. Baghdasarian's statements may be
    often demagogic and short on specifics, but they won him the post of
    National Assembly speaker and the second-largest faction in the Armenian
    parliament after the HHK in 2003. He is arguably the most electable
    member of the ruling regime, which explains the persistent speculation
    about his ambition to succeed Kocharian, who is expected to step down
    after completing his second five-year term of office in 2008.

    Baghdasarian already scored more political points last October when he
    forced the government, reportedly with Kocharian's blessing, to start
    compensating some of those Armenians whose Soviet-era savings bank
    deposits were wiped out by hyperinflation in the early 1990s (see EDM,
    October 6, 2005). (Compensation of the former deposit holders was a key
    Orinats Yerkir campaign promise in 2003.) So observers wonder if his
    latest offensive in the parliament was also agreed with the Armenian
    president. But it is not clear why Kocharian would want to undercut the
    HHK, Armenia's number one "party of power" that has served him so well.

    Some local commentators say the HHK is not 100% reliable for Kocharian
    and his closest associate and most likely successor, Defense Minister
    Serge Sarkisian. The latter ran for parliament on the HHK ticket in 2003
    and promised to name in February the party with which he will team up
    for the 2007 vote. But Sarkisian has still not made the announcement,
    suggesting that he might be lacking faith in Prime Minister Markarian's

    (168 Zham, April 13-14;, April 13; Aravot, April 13; Haykakan
    Zhamanak, April 12)

    --Emil Danielyan


    Armenian critics describe the government's new agreement with Russia,
    giving up infrastructure property for moderately priced gas, as the
    equivalent of giving up the family's milch cow -- or at least selling
    the cow for the price of milk.

    The preliminary Armenian-Russian sale-and-purchase agreement, first
    announced on April 6, was not signed as scheduled on April 14 -- an
    indication that the bargaining continues over some details. It also
    appears that Moscow and Yerevan need a decent interval to condition --
    if not convince -- Armenia's population to accept the terms of the
    energy agreement and, more broadly, the changing nature of Armenia's
    relationship with Russia from partnership of choice to servitude without
    a choice.

    According to Gazprom announcements and Armenian officials' statements
    from April 6 to date, the 25-year agreement includes the following

    1) Gazprom will charge 0 per one thousand cubic meters of gas supplied
    to Armenia from April 1, 2006, through January 1, 2009. The price will
    be subject to negotiation from 2009 onward. Armenia had paid to per
    one thousand cubic meters until 2005, and it will sell assets to Russia
    in 2006 in order to be able buy the gas at double the old price.
    However, the price of gas delivered to Armenian consumers will rise only
    slightly, because the government will use the proceeds from the asset
    sale to Russia in order to subsidize the domestic gas sales.

    2) The joint ArmRosGaz company is taking over the fifth power bloc of
    the Hrazdan gas-fired power plant and unifying it with the four old
    blocs, which are already controlled by Russia's Unified Energy Systems
    (UES), under a single management system. Hrazdan's unfinished fifth bloc
    was slated to become Armenia's largest and most modern power generating
    unit. Gazprom is to pay 9 million for Hrazdan-5 in three annual tranches
    from 2006 to 2008.

    Of this amount, 9 million will be nominally transferred to Armenia's
    government, which will use the funds to subsidize moderately priced gas
    supplies to Armenian consumers. Significantly, those funds are earmarked
    for ArmRosGaz to ensure its profitability -- i.e., they are to revert to
    Gazprom, which is the dominant stakeholder in ArmRosGaz. Curiously, the
    remaining million is to be transferred in cash into the Armenian
    Defense Ministry's extra-budgetary account.

    3) ArmRosGaz is to take over the Iran-Armenia gas pipeline. It shall
    acquire Armenia's ownership title to that pipeline's first section,
    Meghri-Kajaran (40 kilometers), which is due for completion before the
    end of 2006; and will become the general contractor for construction of
    the pipeline's second section, Kajaran-Yerevan (197 kilometers). Thus,
    Gazprom will be in a position to dictate the terms of Armenia's access
    to Iranian supplies or prevent Armenia from diversifying its supply
    sources altogether. Meanwhile, Russia uses Turkmen gas for deliveries to
    Armenia, and Iran had similarly planned to supply Armenia with gas from

    4) Gazprom's existing, 45% stake in ArmRosGaz shall increase to a
    veto-proof majority, between 75% and 82%, by adding Gazprom's stake in
    the Hrazdan-5 power bloc. The Russian company is to invest 0 million in
    the completion of Hrazdan-5. Gazprom's offshoot Itera holds another 10%
    stake in ArmRosGaz.

    Construction of the Hrazdan-5 power bloc was being completed by Iran's
    Sanir company under a 2005 investment agreement. Iran made available to
    Armenia a 0 million soft loan for completing Hrazdan-5 and a million
    investment for building an electricity transmission line from Hrazdan to
    Iran. Armenia was to repay the loan by supplying electricity from
    Hrazdan, using Iran-supplied gas to produce that electricity. The
    project envisaged annual profits of 0 million for Armenia, which would
    have retained ownership of Hrazdan-5 and covered more than 40% of the
    country's electricity requirement from this project.

    Russia already owns Hrazdan's first four power blocs and some smaller
    hydropower plants, as well as Armenia's electricity distribution grid
    (all under Unified Energy Systems) and controls the gas distribution
    network (through ArmRosGaz), as well as exercising financial management
    of the admittedly obsolete Metsamor nuclear power plant. The transfers
    of Hrazdan-5 and control over the Iran-Armenia pipeline will deliver
    Armenia's energy sector totally in Russia's hands.

    (Noyan Tapan, Mediamax, Arminfo, Interfax, April 7-17; see EDM, January
    17, 20, April 6)

    --Vladimir Socor

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