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

IN THIS ISSUE:
*New political alliance emerges from Kyiv city council
*Armenian parliamentary speaker denounces prime minister
*Gazprom takes over Armenian power station, pipeline
TYMOSHENKO SET TO OUST NEW MAYOR OF KYIV

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
Chernovetsky.

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 Its candidate, Mykola Tomenko, had withdrawn long before the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
expulsion.

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

GOVERNMENT INFIGHTING HERALDS START OF ELECTION CAMPAIGN IN ARMENIA

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
ministers.

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
Republicans.

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

–Emil Danielyan

ARMENIA’S GIVEAWAYS TO RUSSIA: FROM PROPERTY-FOR-DEBT TO
PROPERTY-FOR-GAS

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
elements:

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
Turkmenistan.

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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