Ukraine Quarterly Digest: April–June 2019

BY ANDRIAN PROKIP

The second quarter of 2019 was very hot, both literally and figuratively. New president Volodymyr Zelenskyy, who realized an unprecedented level of support among the electorate, immediately announced his decision to dissolve parliament and called on the government to resign, which quickly became a matter for the Constitutional Court. New tensions arose with Russia, which offered Russian citizenship to residents of the separatist regions of Donetsk and Luhansk, threatened to interrupt energy supplies to Ukraine, and refused to return Ukrainian seamen seized in the Kerch Strait in November 2018.

Even as these events were unfolding, Ukraine made significant progress toward meeting its international commitments by starting the last phase of the extremely important electricity market reforms and closed in on the launch of the Anti-Corruption Court.

1. FOREIGN AFFAIRS

Foreign Policy Orientation

On May 20, outgoing president Petro Poroshenko signed a decree on the European and Euro-Atlantic integration of Ukraine. The decree stipulates an action plan for this integration, in keeping with an amendment to Ukraine’s constitution stating that Ukraine’s foreign policy is oriented toward joining the EU and NATO. It is likely Poroshenko took this step as a way to ensure that, with a change in power in the country, the new president would be obliged to stick with the Euro-Atlantic agenda.

Before (and after) the presidential elections, held in March and April 2019, some civic and elite groups expressed the fear that Volodymyr Zelenskyy might not hew to the country’s pro-Western course or, worse, might turn out to be a pro-Russia president.

However, a couple of days before the second round of elections, Zelenskyy confirmed his support for the European-transatlantic course of Ukraine, and his first foreign trip as president was to Brussels, where he met with EU Council president Donald Tusk and European Commission president Jean-Claude Juncker to reaffirm Ukraine-EU cooperation. The first month of Zelenskyy’s presidency showed that the country will not change its foreign policy orientation. However, the new president’s deftness in negotiating foreign policy is still untested.

Relations with Russia

Court victory over seized servicemen. On April 16, Ukraine sued Russia at the International Tribunal for the Law of the Sea, located in Hamburg. The suit sought the immediate release of Ukrainian servicemen and three ships seized by Russia on November 25, 2018, when the Ukrainian ships were traversing the Kerch Strait, the only entrance to the Sea of Azov, which is controlled jointly by Ukraine and Russia.

The suit was taken up by the court on an emergency basis, and on May 25, the tribunal issued its decision. Russia was required to return the three Ukrainian vessels and release twenty-four Ukrainian servicemen immediately. In addition, the tribunal urged both Ukraine and Russia to avoid steps that could escalate the argument.

Russia, which chose not to participate in the hearings, was required to inform the court of the steps it was taking to execute the tribunal’s decision by June 25. However, by the end of June, Russia not only had not executed the decree, it had launched a series of manipulative moves. Earlier in June, Russia appeared before the Permanent Court of Arbitration in the Netherlands to argue for the dismissal of allegations brought by Kyiv that Russia had violated Ukraine’s rights to coastal waters around Ukraine’s Crimea region beginning in 2014; that case is ongoing. On June 25, instead of responding to the International Tribunal, Russia sent a note to Ukraine demanding guarantees that any servicemen released by Russia would be imprisoned in Ukraine. The Ukrainian minister of foreign affairs responded that incarceration would be unacceptable. Russia then accused Ukraine of harping on the issue and making more out of it than was warranted. By the end of June, the Ukrainian seamen had not been released.

Ukrnafta’s Victory in Arbitration against Russia

On April 12, the Permanent Court of Arbitration issued a decision in Ukrnafta’s suit against Russia for breaching an agreement concerning oil in Crimea, specifically by expropriating Urknafta’s property in Crimea after the peninsula was annexed by Russia in 2014. Russia did not participate in the hearings or comment on interim reports. The court ruled in favor of the company.

The arbitration tribunal ordered the Russian Federation to pay Ukrnafta almost U.S. $44.5 million in compensation for the expropriation of investments of Ukrnafta on the territory of the Autonomous Republic of Crimea, as well as more than U.S. $3.5 million in arbitration costs.

Ukrnafta is Ukraine’s biggest oil producer and is owned by both the state and private companies.

Trade Wars with Russia

Collapse of a court case on transit. In 2016, Russia prohibited the road and rail transshipment through Russia of Ukrainian-origin goods destined for Kazakhstan and Kyrgyzstan. Russia later expanded the list of destination countries beyond those two countries. This step complicated and negatively affected Ukrainian exports, especially to Asia. Asia and the Caucasus region are important buyers from Ukraine.

That same year Ukraine filed with the World Trade Organization a claim that Russia’s transshipment policy was discriminatory and in violation of the WTO’s rules. Russia responded by arguing that such steps are allowed in the case of threats to national security. The WTO agreed with Russia that the instability and fighting in eastern Ukraine during 2014–2105 could create threats to the national security of neighboring countries (specifically, Russia). The WTO announced its final decision in May, the first ever ruling from the WTO panel that national security could trump the rules of global trade.

Ukrainian sanctions against Russia. On May 15, the Ukrainian government expanded the list of goods banned for import from Russia, including some agricultural products, chemical fertilizers, certain types of industrial products, vehicles, and some other products. The prohibition did not touch critically important imports, such as energy sources and pharmaceuticals. In addition, the government introduced tariffs on the import of some other goods. The decision was a response to Russia’s earlier decision to prohibit the transit of Ukrainian goods. As the tit-for-tat escalates, Russia may take further steps in response.

Restriction of Russian energy exports to Ukraine. In early April, the Russian government said that starting June 1, Russia would change its procedure for exporting energy resources—oil, petroleum, and coal—to Ukraine. These exports would henceforth require a special permit from Russian authorities. At first the situation was presented as a full ban on exports; only later was the need for a permit clarified.

Ukraine imports about 80–85 percent of all oil and petroleum consumed in the country, and about one-third of that comes from Russia. Another important supplier of petroleum to Ukraine is Belarus, which refines Russian oil. In 2018 Russia was responsible for 42.7 percent of all diesel fuel consumed in Ukraine and 29.1 percent of liquefied petroleum gas (LPG).

The Ukrainian government imposed a tariff on imports of Russian diesel fuel. Russian exporters had obtained the necessary permits to export energy to Ukraine. However, Ukraine twice cut diesel imports from Russia, having substituted for it supplies from other countries, mostly Kazakhstan.

Because energy supplies are critical to the economy, Ukraine’s steps to decrease Russian imports might be construed as an attempt at political blackmail for the purpose of supporting some of the country’s political elites. For instance, the Ukrainian politician and wealthy businessman Viktor Medvedchuk, who is also close to Vladimir Putin, is considered to be responsible for the huge quantities of LNG imported from Russia into Ukraine. And rising domestic prices in Ukraine owing to export restrictions may also favor Medvedchuk’s Ukrainian businesses.

Ukrainian Political Prisoners in Russia

On April 4 a Russian court in the annexed city of Sevastopol, Crimea sentenced Ukrainian citizens Volodymyr Dudka and Oleksiy Bessarabov to fourteen years of incarceration. The Russian Federal Security Service (FSB) considers both men, who worked at the independent think tank Nomos in Sevastopol and were arrested by the FSB on November 9, 2016, to be spies. The Russian Memorial Human Rights Centre considers Bessarabov and Dudka political prisoners.

On June 10, the Russian so-called Supreme Court in Crimea sentenced another political prisoner, Kostiantyn Daydenko, to ten and a half years on an espionage charge. Russian courts also extended the custody period for another political prisoner, the Ukrainian Crimean Tatar Edem Bekirov.

On June 18, the Russian court sentenced five Crimean Tatars to twelve to seventeen years of incarceration. They were tried as part of the “Hizb ut-Tahrir” case.

The U.S. embassy in Ukraine expressed concern over these cases. A spokesperson for the EU Foreign Affairs and Security Policy said that the EU did not recognize the enforcement of Russian legislation in Crimea and Sevastopol and expected all illegally detained Ukrainians to be released without delay.

Despite the concern expressed by Ukraine and Western countries, however, there is still no mechanism for releasing political prisoners held in Russian facilities or on Russian territory, and no progress has been made on that front.

2. INTERNAL AFFAIRS

New President’s Agenda

On April 21, Volodymyr Zelenskyy won the second round of the presidential elections with 73.22 percent of the votes. His opponent, then president Poroshenko, got 24.45 percent and won in a single region, Lviv oblast. Zelenskyy was inaugurated on May 20.

Dissolution of parliament and request that the government resign. During his inaugural speech before the Verkhovna Rada, President Zelenskyy announced that he would dissolve parliament. The formal reason was the absence of a coalition in parliament. Zelenskyy’s allies also used the argument of extremely low popular support for the Rada, claiming about only 4 percent of the electorate supported it, as reason for wanting a different parliamentary makeup. Though technically a coalition did not in fact exist, Zelenskyy’s path to early parliamentary elections was dubious at best.

Zelenskyy’s intent to dissolve parliament was well known before he formally announced it, and in response, the People’s Front party, headed by former prime minister Arseniy Yatsenyuk, left the governing coalition on May 17. With the coalition thus terminated, a thirty-day period began in which the various parliamentary factions could attempt to form a new coalition, and parliament could not be dissolved simply for lack of a coalition. By law, even if a new coalition was not formed by the end of that thirty-day period, the president would still not be able to dissolve parliament because of a constitutional restriction on dissolving parliament within six months of regularly scheduled parliamentary elections, which were planned for late October.

On May 21, President Zelenskyy issued the decree dissolving parliament and rescheduling parliamentary elections for July 25. The legal basis for the decree was not clear, and this caused a number of court challenges to be brought. The courts refused to decide on the matter, however, arguing that the Constitutional Court was the appropriate venue. On June 20 the Constitutional Court found the decree dissolving parliament to be constitutional. Parliamentary elections will now be held on July 21.

Within hours after Zelenskyy’s May 20 speech calling on the government to resign, Prime Minister Volodymyr Groysman tendered his resignation, but parliament rejected it on May 30. Parliament also rejected the resignations of Foreign Affairs Minister Pavlo Klimkin and Defense Minister Stepan Poltorak. The new president and the acting parliament were deadlocked: parliament declined to vote on other presidential draft bills as well, and President Zelenskyy publicly charged the parliamentarians with idleness.

The PrivatBank Matter

On April 18 the Kyiv Regional Administrative Court, in a case brought by the Ukrainian oligarch Ihor Kolomoiskyi, declared that the nationalization of PrivatBank in late 2016 on the grounds of insolvency had been illegal. A representative of the National Bank of Ukraine said that should PrivatBank be returned to its previous owners, Kolomoiskyi and his business partner, Gennadiy Boholyubov, the state would again seek to nationalize it.

PrivatBank was and is Ukraine’s largest bank, and international organizations and Western governments had supported its nationalization in 2016 as a way of stabilizing the county’s financial systems.

Return of Contentious Figures

After the second round of presidential elections concluded with the accession of Zelenskyy and the departure of former president Petro Poroshenko from the post, a number of persons who had been living outside Ukraine, trying to avoid criminal prosecution after falling afoul of the former president or his allies, came back.

On May 16, the Ukrainian billionaire Ihor Kolomoiskyi, who had clashed with President Poroshenko, came back after two years abroad. Some saw his return as a sign of the oligarch’s continuing influence and potential political reinstatement in the near future. In addition, President Zelenskyy appointed Andrii Bohdan, Kolomoiskyi’s former lawyer, head of the presidential administration. This step raised more concern over Kolomoiskyi’s future role.

And on May 19, Andriy Portnov, former legal adviser to Viktor Yanukovych and deputy head of his administration, who earlier had been connected to the passage of anti-democracy laws under former president Yanukovych, returned after five years of living abroad. In an interview with the news outlet Strana, Portnov threatened to reveal alleged corruption during Poroshenko’s time in office, potentially connected to the ex-president himself.

On May 28, President Zelenskyy restored Ukrainian citizenship to Mikheil Saakashvili, who returned to Ukraine the next day. Saakashvili had been thrown out of Ukraine after forming his own opposition party, the Movement of New Forces, and sharply criticizing Poroshenko’s administration, charging it with corruption and inaction.

The return of these and other high-profile individuals has reformists and the political elite on edge. Though in most cases they have not been charged with crimes, and in a few cases have been found not guilty by the legal system, their histories and unknown intentions give people pause.

Church Autocephaly Issue

At the beginning of 2018, with the support of President Poroshenko and influential political groups, the Ukrainian Orthodox Church of Kyiv Patriarchy and the Ukrainian Autocephalous Orthodox Church were united and received recognition and autocephaly from the Constantinople Patriarch. This led to the establishment of the Orthodox Church of Ukraine.

However, on June 20, the head of the former Ukrainian Orthodox Church of the Kyiv Patriarchate Filaret announced his decision to remain non-united and organized a synod (a meeting of the hierarchs). The head of the Orthodox Church of Ukraine, Metropolitan Epiphanii, did not recognize the synod. Currently the two groups of clerics are in conflict, and the future of the united church is not clear.

3. PROGRESS IN REFORMS AND SUCCESS STORIES

High Anti-Corruption Court

On May 7, outgoing president Petro Poroshenko signed a decree appointing judges to the High Anti-Corruption Court. The Verkhovna Rada had approved the bill “On the High Anti-Corruption Court” on June 7, 2018; the following eleven months saw delays and more than two thousand additional amendments to the bill proposed. The court, which will hear cases in which damages are assessed at U.S. $31,000 or more, is set to begin work in early September.

Establishing an Anti-Corruption Court was among the most important requirements of the EU for Ukraine and an indication of the country’s progress in reforms. Over the past five years Ukraine has made strides in reducing corruption, moving up in the Transparency International ranking from 145th place to 120th place.

New Electricity Market Design

On July 1, a new electricity market was introduced in Ukraine, according to the law adopted in 2017. The law stipulates running a market model similar to the one working in the European states. Over the past couple of months there has been vigorous debate in Ukraine as to whether the launch of the new market should be postponed. Proponents of delaying the start argued that more time was needed to better prepare the country and to get certain administrative procedures in place. However, parliament did not amend the law, and the market opened as planned. The new market model should help modernize Ukraine’s electricity sector, though there will be an impact on prices. The electricity market reform is discussed in more detail in a previous Focus Ukraine piece.

Energy security was the first issue of concern for Ukraine’s new president. Zelenskyy and the security and defense agencies accountable to him expressed concern and proposed postponing opening the new energy market. The agencies were sensitive to some technical problems that they thought might jeopardize national security, while Zelenskyy may have been sensitive to the higher costs end-users would pay, and may not have wanted that to cloud his presidency so early. In any event, Ukraine’s European partners have been clear that they expect the country to meet its agreements, and the market opened on the latest revised schedule.

Language Law

On May 15, President Poroshenko signed the law “On Ensuring the Functioning of Ukrainian as the State Language.” Ukrainian is now the country’s only official language and its use is mandatory for authorities and in all public spheres. The law does not regulate the use of language in the private sphere. However, the Venice Commission (the European Commission for Democracy through Law) has yet to evaluate the law. The EU has also expressed interest in evaluating it.

President Zelenskyy’s representative stated that his team would analyze the law to be sure it did not infringe on the rights of all citizens.

4. THE SITUATION IN THE DONBAS

During the second quarter of 2019 there was no perceptible progress in the Donbas. The separatists did not keep to the agreed-on Easter ceasefire and continued attacks.

Foreign Affairs Minister Klimkin said that Ukraine may leave the Minsk peace process if Germany, France, and other states in the Council of Europe lift the sanctions on Russia.

Double Citizenship Issue

On April 24, three days after the second round of elections in Ukraine, Russian president Vladimir Putin signed a decree simplifying the process of acquiring Russian citizenship for residents of Donetsk and Luhansk oblasts. Russian media had announced these intentions at least one week before the decree was issued. The timing of the decree suggests Putin immediately set about testing Ukraine’s new president-elect.

This maneuver elicited a strong reaction from Kyiv and many Western countries. The UN Security Council held a session on it that, while not resulting in any official statement, saw most of the member states condemning dual citizenship—which is disallowed under Ukraine’s constitution—in this case. The EU stated that Russia’s issuing citizenship to Ukrainians was another attack on Ukraine's sovereignty; the United States issued a similar statement.

Dual citizenship poses an existential threat to Ukrainian security, especially if Russia decides to carry out new military actions. Russia in the past has elevated the logic of “protecting Russian citizens” as an excuse for invading non-Russian territory and could easily be preparing to do so again.