healthier, happier and richer

Later this week, a new Ukrainian President, Viktor Yanukovych, will be inaugurated. The word “Ukraine” means borderland and, to most outsiders, that is exactly how the country is regarded: the place between the EU and Russia; the place through which Russian gas travels to the EU – unless the Russians turn off the taps, as they did in 2006 and 2009. However, it is more important than that, and not only to Ukrainians. The country is one of the top 20 countries in terms of greenhouse gas emissions and it is the site of Chernobyl. It is also a country which, after it became independent, gave up its nuclear weapons.

Ukraine is in major economic crisis, well summarised by James Sherr of Chatham House (see Chatham House: Ukraine’s Elections: Watershed or New Stalemate?). GDP fell by 14% in 2009 and budget revenue by 20%. Inflation is over 12%. On energy policy, Sherr writes that Yanukovych will:

“… renegotiate … the Ukraine – Russia gas supply contract (which, in the opinion of most energy specialists, has brought greater transparency to European energy markets), and he will resurrect the 2002 scheme to transfer ownership of Ukraine’s state-owned gas transit system to a three-way consortium. As he told Rossiya-24, ‘I would like us to return to the format of relations we had five years ago’. Yet, five years ago, there was no gas consortium, because Kuchma had no intention of going forward with it. There were also no bypass projects, such as South Stream, which Yanukovych hopes Russia will now abandon. What existed then were heavily subsidised gas prices, which Yanukovych plainly hopes Russia will restore in exchange for de facto ownership of the gas transit system … If Yanukovych’s aspirations bear fruit, they will have a profoundly retrograde effect on European gas markets. They will reverse the trends in the direction of market- based pricing, which have been gathering momentum even in Russia’s internal market, and to diminished dependency on Russian supplies. They will remove the greatest impetus towards energy diversification and efficiency in Ukraine (which, before the financial crisis, was the sixth largest consumer of natural gas in the world). They will deprive Ukraine of leverage in future pricing disputes with Russia. Not least of all, they will demolish the rationale for proceeding with EU- and US-sponsored modernization schemes, such as the 23 March 2009 EU–Ukraine agreement, and they will threaten future IMF assistance.“

Thomas Valasek, of the Centre for European Reform, writes that:

“Gas is to Ukraine what cocaine was to Colombia – it has corrupted an entire generation of politicians, who grew rich skimming off profits from the gas trade. Billions are stolen through shady intermediaries who handle gas sales to Ukraine and yet more money goes missing in black trade that exploits price differences in gas retail prices on the Ukrainian market. Trading companies buy gas ostensibly destined to poor households at cheaper, subsidized rates and then sell it to some steel smelter for a lot more. Moscow of course happily collaborates with Ukrainian politicians for a share of the booty. The EU increasingly questions whether Ukraine can ever be a reliable transit country, irrespective of what Russia does … Ukraine needs to reform its gas sector to end corruption and the expensive gas subsidies to households, which are bankrupting the country.“

(See Centre for European Reform: Is Ukraine fit for the EU? The Brussels-brokered loan offer may encourage Kiev to clean up its corrupt gas sector.)

Gas provides almost all (97.5% in 2007) of the heat used in Ukraine. However, 47% of the electricity in 2007 came from nuclear and 34% from coal. There are substantial coal reserves in the east of Ukraine – the part of the country that predominantly supports Yanukovych. Therefore, Ukraine is a classic case of the dilemma – which is less bad, coal or nuclear? When Chernobyl exploded in 1986, many people concluded that nuclear was worse. However, although anti-nuclear feeling in Ukraine increased, a majority of Ukranians remained (and remain) pro-nuclear. According to Anna Reid, who lived in Ukraine from 1993 to 1995 as the Economist correspondent (and wrote the excellent book Borderland about Ukrainian history):

“… the cause was neither equipment failure nor human error, but an experiment that went wrong. In order to test how long the reactor could operate with no external power supply, engineers deliberately lifted all but six neutron-absorbing control rods out of the reactor core, and disabled the automatic shut-down system which would have normally come into play in case of power failure.“

So, Chernobyl was not an accident, it was an experiment that went horribly wrong. Nuclear power stations are not sensible places to carry out experiments. They carry risks, so should be carefully managed and regulated. The Soviet Union did not provide good management or good regulation. Reid writes that:

“Ask a Ukrainian when he stopped believing in communism, and the answers vary. A few quote the invasion of Czechoslovakia, some the Afghan war, others the discovery of Stalin’s mass graves at Bykivnya. Many … look blank, because they have never really stopped believing in communism at all. But by far the likeliest reply is ‘Chernobyl’. A saga of technical incompetence and irresponsibility, of bureaucratic sloth, mendacity and plain contempt for human life, the Chernobyl affair epitomised everything that was wrong with the Soviet Union.“

After becoming independent in 1991, Ukraine gave up the nuclear weapons that were on its soil, inherited from the Soviet Union. It did not do so without international pressure. There were some nationalists who regarded nuclear weapons as a machismo symbol (which sadly is how many worldwide politicians regard them). However, they did agree to give them up, in return for guaranteed supplies of nuclear fuel. Therefore, Ukraine is a good symbol of how nuclear power can be expanded without weapons proliferation expanding too.