Ukraine Quarterly Digest: July–September 2020

BY ANDRIAN PROKIP

The third quarter of 2020 was relatively quiet in Ukraine. Key developments happened more in domestic affairs than in foreign affairs. The COVID-19 epidemic continued apace, bringing Ukraine into the top ten countries globally in terms of number of currently active cases. The conflict in the Donbas and the functionality of the anticorruption institutions remained the two biggest issues competing for political attention in Ukraine. The ceasefire announced for the Donbas critically reduced the number of victims but did not stop the shooting.

1. INTERNATIONAL AFFAIRS

Relations with the EU and Its Member States
EU-Ukrainian mutual relations continued developing. On September 22, Josep Borrell, EU High Representative for Foreign Affairs and Security Policy, visited Kyiv for the first time. Borrell said that the EU was Ukraine’s strongest and most reliable partner and, as has become traditional, urged Ukraine to continue its reforms and redouble its efforts to battle corruption. Matti Maasikas, head of the EU delegation to Ukraine, said that the EU supports reforms in Ukraine and would help Ukraine meet European standards and be closer to the EU, but that the EU does not plan further steps toward integration now.

Official Kyiv continued bilateral cooperation with the EU member states. President Volodymyr Zelensky visited Austria on September 14–15 and Slovakia on September 24 to promote political and business relations.

Relations with Belarus
In the context of ongoing political protests in Belarus over the results of the recent presidential election and amid charges on the part of some Ukrainians that Kyiv was supporting official Minsk rather than heeding the protestors, Ukrainian-Belarusian relations reached a historic nadir. Ukraine suspended diplomatic contacts with Belarus for some time, and the Ukrainian ambassador was recalled to Kyiv in August. In September, after consultations, the ambassador returned to Minsk, but relations between the two neighboring countries remain tense.

The source of the tension was the outcome of the presidential election, which saw Belarusian president Aleksandr Lukashenko winning a sixth consecutive five-year term with an ostensible 80 percent of the vote. However, the EU, Canada, the UK, and the United States rejected the outcome as flawed because of widespread electoral fraud, and the EU imposed sanctions on Belarus. On September 15 the Verkhovna Rada approved a statement recognizing the Belarusian presidential election as neither free nor fair.

In response, President Lukashenko accused Ukraine of contributing to the political destabilization and protests in Belarus, naming Ukraine, along with Lithuania, Poland, and the Czech Republic, as an external actor managing the protests in Minsk from abroad. He characterized Ukraine’s involvement as part of a long-term plan, masterminded by the United States, to “destroy” Belarus.

The Ukrainian Ministry of Foreign Relations stated that Ukraine does not recognize Lukashenko as the legitimate head of Belarus and that Ukraine supports the Belarusian people.

Relations with Russia and the CIS
Ukrainian-Russian relations continued deteriorating.

On July 5, the Ukrainian government approved a decision on Ukraine’s withdrawal from the agreement on cooperation between the frontier forces of the CIS member states in research activities. On July 7, President Zelensky signed a decree on Ukraine’s withdrawal from the 2012 agreement establishing the Council of Heads of Financial Intelligence Units of the CIS member states. On August 17, the Ukrainian cabinet canceled a bilateral agreement with Russia on maintaining mutual trade promotion offices, which had been in force for the previous seventeen years.

Ukraine had earlier announced its withdrawal from the CIS in 2014, and the Ukrainian government continues cancelling international accords signed while the country was a CIS member. The latest steps are intended to “reduce Ukraine's obligations within the CIS and help protect the state’s national interests.”

Investigation of Downed Ukrainian Passenger Aircraft
Decryption and analysis of the flight recorders retrieved from the Ukrainian aircraft downed in Iran on January 8, 2020, proved that the aircraft was in good working order and the crew was operating it properly, but that the plane was shot down by two missiles. The Iranian government plans to start talks on restitution in October 2020.

International Military Drills in Ukraine
Ukraine conducted two massive military exercises with Western armies in September 2020. The Joint Effort 2020 drills were conducted in different regions of Ukraine and united military specialists from Ukraine, the United States, Great Britain, Germany, Lithuania, and Poland. The forces practiced military maneuvers in civilian areas, including storming settlements and seizing bridges. The Rapid Trident 20 exercise included tactical training and brought together military specialists from Ukraine, the United States (though fewer than half the number participating in 2019), Great Britain, Canada, Germany, Denmark, Poland, Romania, and Lithuania. The goal was to enhance security cooperation and coordination among the partner nations.

2. INTERNAL AFFAIRS

National Bank of Ukraine’s Management Reshuffle
Yakiv Smoliy, governor of the National Bank of Ukraine (NBU), resigned from his post on July 1, saying he was “under constant political pressure.” President Zelensky denied putting any pressure on Smoliy but criticized the NBU for conducting a monetary policy that, in his view, constrained economic growth. The situation caused concern among Ukraine’s financial partners, including the IMF.

The Ukrainian parliament appointed Kyrylo Shevchenko the new NBU governor on July 16. Previously Shevchenko had served as chair of the management board of the state-owned UkrgasBank.

Despite the abrupt changes, Ukraine’s financial system and national currency remained stable. Shevchenko personally praised the policy of his predecessor for its efficacy.

Scandal over Russia’s Military Contractor Mercenaries in Belarus
After seizing thirty-three Russian Wagner Group mercenaries in Belarus (through which they planned to travel to Venezuela) just before that country’s presidential elections, local officials informed the Ukrainian government that some of them had participated in the war in the Donbas on the side of the separatists. A Ukrainian court issued arrest warrants in absentia for twenty-eight of the militants, and official Kyiv asked Minsk to transfer them to Ukraine. However, on August 16, Belarusian authorities sent them all back to Russia, ignoring Ukraine’s request. This was one of the causes for the rapid worsening of Ukrainian-Belarusian relations.

Later, Ukrainian press reports claimed that the appearance of the Russian-backed mercenaries in Belarus was part of a special operation conducted by the Ukrainian and US secret services aiming to arrest these who fought in the Donbas against Ukraine. The press blamed the Presidential Office for causing the operation to collapse in its final stages by informing the Russian side, a charge the authorities denied. However, the Security Service of Ukraine proved that it had collected data on these mercenaries. An official investigation was launched to determine whether any information had been leaked from the President’s Office to Moscow.

COVID-19 Developments
The number of new cases of COVID-19 continued to grow in the third quarter of 2020. As of the end of September, Ukraine was in eighth place globally in terms of total number of currently active cases (registered as such). With the number of new cases daily also continuing to rise, the government extended the quarantine until the end of October.

According to official data, as a result of the economic crisis related to the pandemic, Ukraine’s GDP fell 11.4 percent in the second quarter of 2020 compared to the same quarter a year ago. In the first quarter the drop amounted to 9.9 percent in a year-over-year comparison. In the first half of the year the state budget received 7.8 percent less revenue than anticipated. The unemployment rate rose to 9.9 percent in the second quarter, compared to 8.6 percent in the first quarter and in 2019 overall.

In April the Verkhovna Rada approved establishing a UAH 65 billion (about US $2.35 billion) fund to finance coping with COVID-19. Later, even as the epidemic raged on, this fund was directed toward financing other spending. More than half of it, UAH 35 billion, was transferred to finance road construction under the presidential program “Big Construction.”

Developments with the Anticorruption Bodies

Specialized Anti-Corruption Prosecutor’s Office. On August 21, Nazar Kholodnytskyi, head of the Specialized Anti-Corruption Prosecutor’s Office (SAPO), resigned three months before the expiration date of his contract. SAPO was established five years ago as part of Ukraine’s anticorruption reform measures. During that period, SAPO worked on more than 200 cases, leading to 390 individuals being charged and forty convicted of high-level corruption.

Kholodnytskyi was engaged in a public conflict with General Prosecutor Iryna Venediktova, who criticized SAPO’s inaction and failures in May 2020. But Kholodnytskyi himself had been drawn into a number of public scandals. In 2018 he accused the National Anti-Corruption Bureau (NABU) and its chief, Artem Sytnyk, of organizing spying and wiretapping against him. In turn, Sytnyk accused Kholodnytskyi of disclosing investigation secrets and violating prosecutorial ethics. These developments brought into conflict the two anticorruption agencies and their chiefs.

In early September 2020, the EU and the World Bank communicated with Ukrainian authorities in regard to the future of SAPO’s leadership. They stressed the need to create a selection commission that would ensure transparent procedures in appointing the new SAPO head.

On September 17 the Rada voted to approve members of the commission, all close allies of President Zelensky, which raised concern among Ukraine’s Western partners. The US and EU embassies in Kyiv issued similar expressions of concern.

NABU. On August 28, the Constitutional Court of Ukraine issued a decision on the unconstitutionality of the former president Petr Poroshenko’s decree appointing Artem Sytnyk director of NABU in 2015. Ukraine’s constitution does not give a president the authority to appoint chiefs of agencies like NABU; thus President Poroshenko exceeded his authority in 2015. Since then the Presidential Office has considered NABU’s chief to be acting only.

NABU called the decision of the Constitutional Court politically motivated. IMF representatives informed the Ukrainian government that amending the legislation on NABU in such a way as to threaten its independence could affect the IMF’s cooperation with Ukraine. The establishment of independent anticorruption institutions was among the key conditions of the IMF for Ukraine to access credit programs, and of the EU for Ukraine to join the visa-free regime.

A Military Aircraft Accident
On September 25, the military aircraft An-26 crashed on landing during a training flight. Of the twenty-seven people on board, mostly pilot-cadets, only one survived. The cause of the accident is under investigation.

3. PROGRESS IN REFORMS AND SUCCESS STORIES

Despite difficult economic times for Ukraine, there has been some progress in the country’s development. Ukraine improved its ranking on the Fraser Institute’s Economic Freedom of the World index in 2020; nonetheless, the country remains among the group of “less free” countries, placing 138th among the 162 countries rated. On a more positive note, as of 2019, Ukraine became the second largest supplier of organic foods to the EU, with a share of 10.4 percent of EU’s gross organic imports.

New National Security Strategy Approved
President Zelensky signed the new National Security Strategy on September 14. The strategy identifies human life, health, dignity, and security as key national priorities. It characterizes Russia as an aggressor state and an invader of Ukrainian sovereign territory. Integration with the EU and NATO are stipulated as priorities in Ukraine’s foreign policy. The strategy lists the key international partners of Ukraine as the United States, the UK, Canada, Germany. and France. To protect national interests and contribute to regional security, Ukraine will seek to develop or strengthen strategic partnerships with Azerbaijan, Georgia, Lithuania, Poland, and Turkey.

Legalization of Gambling
On July 14 the Verkhovna Rada passed a bill regulating gambling in Ukraine. Gambling had been under an official ban for more than eleven years. However, halls with slot machines were operating illegally in many cities. The new law allows gambling to be regulated, with some minimal restrictions regarding location, facilities, staff, and equipment.

According to recent polls, 60 percent of Ukrainians do not support the legalization of gambling.

Successful Case of “Big Privatization”  
On July 15 the State Property Fund of Ukraine conducted a successful privatization of the four-star Dnipro Hotel, located in the center of Kyiv. During the auction, conducted on the online platform ProZorro.Sale, the price rose to fourteen times the original offer, reaching US $41 million.

This sale was conducted as part of the government’s “big privatization” plan, intended to sell state-owned enterprises.

Liberalized Gas Market
Beginning August 1, the Ukrainian government canceled gas price restrictions for households. This means that gas prices for households will be valued at market prices, just as it has been for industrial consumers in recent years. Households’ gas consumption will no longer be subsidized by utility companies. The price for gas to produce heat and hot water will remain regulated at least for the upcoming winter months.

Establishing a free gas market has been among the key requirements of the international financial institutions for many years.

Green Energy Feed-in Tariff Negotiations
On July 22 the Verkhovna Rada passed a law decreasing the feed-in tariffs paid by renewable electricity producers. This step was needed to decrease the cost of renewable electricity and help settle debts, which were part of the huge energy crisis Ukraine faced this year. Some producers still do not agree with this decrease and have announced their intention to sue, which will likely end in arbitration. The debt crisis in renewables has not been solved yet either.

4. THE SITUATION IN THE DONBAS

Just Another Ceasefire
On July 22 the Trilateral Contact Group, comprising representatives of Ukraine, Russia, and OSCE, held a video conference meeting. The parties agreed to establish a full ceasefire beginning July 27.

The ceasefire has considerably reduced incidents of shooting, and consequently the number of victims, on the line of contact. However, according to the OSCE Special Monitoring Mission, there were a total of 1,066 ceasefire violations in both Donetsk and Luhansk oblasts, including 207 explosions, nine projectiles in flight, 13 illumination flares detected, and 837 bursts of gunfire or isolated episodes of shooting. Several Ukrainian troops and separatist fighters died as well.

Foreign affairs Minister Dmytro Kuleba noted that, despite the provocations, Ukraine insisted on the importance of adhering to a sustainable and comprehensive ceasefire regimen. President Zelensky stated that the Ukrainian army would do everything in its power to achieve a ceasefire but, in the case of serious attacks and incidents of shooting from the separatists, Ukraine would respond in “a tough manner.” Earlier, on the first day of the ceasefire, Putin’s spokesperson had said that Russia could not guarantee the ceasefire.

Issue of Joint Inspection at the Warfare Zone
On September 9, the President’s Office announced its intention to conduct a mutual inspection in Shumy village, Donetsk oblast, with the participation of the OSCE and armed separatists. This step was in response to separatists’ claims of violations of the ceasefire by the Ukrainian army and Ukraine’s need to position new military equipment there.

The announcement of a planned joint inspection with the separatists immediately ignited protests by the Ukrainian opposition, veteran organizations, and civil society. Under pressure, the Ukrainian authorities canceled the inspection. That same day, armed separatists fired at Ukrainian forces near Shumy, violating the ceasefire agreement.

The Issue of Local Elections in the Noncontrolled Donbas
The Verkhovna Rada approved the start of local elections in Ukraine (voting is to be held on October 25, 2020). According to the Rada’s decision, there will be no elections in the annexed Crimea and in the noncontrolled part of the Donbas until those areas are de-occupied. Later, a representative of Ukraine’s delegation, former president Leonid Kravchuk, said that Russia’s representative was demanding that Kyiv hold elections in the Donbas, as required by the Minsk agreements.

This issue was discussed on September 11 in Berlin at a meeting of political advisers to the Normandy format leaders. The parties did not reach agreement on it. Later, Ukraine’s Presidential Office said that local elections in the noncontrolled part of the Donbas would be possible only after de-occupation and the settling of all security issues according to OSCE standards.

Holding elections in the noncontrolled Donbas is an issue of grave concern to Ukrainian society. It remains unclear whether the authorities were ready to organize these elections but demurred because it is such a hot-button issue or whether it was just a diplomatic maneuver.

We will continue to monitor developments in these areas and report back to you in January 2021.

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.