Analytical review of the week №131 from 19.09.2021.

ANALYTICAL REVIEW OF THE MOST IMPORTANT DOMESTIC, FOREIGN POLITICAL AND ECONOMIC EVENTS OF THE WEEK

13.09.- 19.09.2021

 

CONTENT:

 

SUMMARY AND KEY TRENDS.

 

INTERNAL POLICY.

 

1. The Council of Judges was unable to elect three members of the Ethics Council, which blocked the main part of the judicial reform.

2. At the meeting of the Cabinet of Ministers adopted the "Information Security Strategy".

3. The Constitutional Court did not change the form of proceedings on the law on the introduction of the agricultural land market.

4. Resolution of the Cabinet of Ministers on covid certificates and the work of enterprises in quarantine.

 

FOREIGN POLICY.

 

1. A. Lukashenko and V. Putin approved 28 protocols of economic integration. Exercises "West 2021", and purchases of Russian weapons by Belarus.

2. Creation of a military alliance of the United States, Britain and Australia.

3. Statements of Dmitry Kuleba in an interview with "The Independent".

4. Completion of construction of "Nord Stream-2" and record gas prices in Europe.

 

ECONOMY.

 

1. The Cabinet of Ministers adopted and sent to parliament the draft state budget for 2022.

2. The price of gas in Europe has exceeded $ 800.

3. Ukraine by the end of the year may refuse the moratorium on timber export.

4. Ukrzaliznytsia will remain unprofitable in 2022-2024 - the forecast of the Ministry of Finance.

 

SUMMARY AND KEY TRENDS.

 

Summing up the results of the outgoing week, we note that:

Firstly, this week the trend of confrontation between the Office of the President, the judiciary and external players for influence on the country's judicial system continued. The Ukrainian authorities and the judiciary are not interested in transferring key powers for the selection of members of the High Council of Justice and the High Qualification Commission of judges who manage courts to international experts. The Council of Judges did not identify three members of the Ethics Council, which blocked the main part of the judicial reform. Relations between Bankova and KSU continue to escalate. The Constitutional Court did not change the form of proceedings from oral to written in the case on the constitutionality of the sale of agricultural land. The issue will be considered publicly. Thus, another attempt by the Office of the President to influence the decision-making process of the CCU failed.

Secondly, the information security strategy approved by the government continues the government's policy aimed at “tightening the screws” in terms of information warfare against political opponents. The state may try to establish its total control over the country's main media resources. Along with this, there is another reason to accuse the opposition of promoting "wrong" narratives that "harm national security."

Thirdly, this week in foreign policy there was a clear trend towards the crystallization of military-political blocs in the new "Cold War" of the United States against Russia and China, as well as the division of spheres of influence between them. It fits both the deepening of military and economic integration between the Russian Federation and Belarus, and the creation in Southeast Asia of a new military-political bloc with the participation of the United States, Britain and Australia to counter China. At the same time, the downside of Washington's increasing concentration on the fight against China is the weakening of ties with some European allies. The demarche towards France and its subsequent reaction clearly demonstrate this.

Fourthly, another tendency in foreign policy that manifested itself this week is the attempts of the Ukrainian authorities to bluff in front of Western partners, expressed in statements about "disappointment in the promises of the West and the transition to self-reliance." With the help of these statements, the Ukrainian leadership is trying to reduce the pressure from the US, EU and other Western partners to comply with the requirements for control over the corporate governance system and the judicial system.

Fifth, the trend towards attempts by the authorities to compensate for the budget deficit by any available means is manifested in several directions: a decrease in cultural spending by almost 22 percent and the reintegration of the temporarily occupied territories by almost 42 percent in the draft budget for 2022, and at the same time - the lifting of the export moratorium raw wood in the EU with the aim of generating an additional 500 million euros annually. More than 50% of the costs of the state budget of Ukraine in 2022 is planned to be spent on only 2 items: debt recovery and security / defense.

Sixth, state and private enterprises, such as Ukrzaliznytsia or gas consumers, suffer from poor management and forecasting due to the inability to build long-term strategies to optimize costs and search for income sources, poor-quality lobbying of their interests in the government, or lack of motivation to do it is as such.

 

INTERNAL POLICY.

 

Briefly.

 

This week, the trend continued for the confrontation between the Office of the President, the judiciary and external players for influence on the country's judicial system. The Ukrainian authorities and the judiciary are not interested in transferring key powers for the selection of members of the High Council of Justice and the High Qualification Commission that operates the courts are in the hands of international experts. The Council of Judges did not identify three members of the Ethics Council, which blocked the main part of the judicial reform. Relations between Bankova and KSU continue to escalate. The Constitutional Court did not change the form of proceedings from oral to written in the case on the constitutionality of the sale of agricultural land. The issue will be considered publicly. Thus, another attempt by the Office of the President to influence the decision-making process of the CCU failed.

         The information security strategy approved by the government continues the government's policy aimed at “tightening the screws” in terms of information warfare against political opponents. The president's office is trying to establish its total control over the main media resources of the country. Along with this, there is another reason to accuse the opposition of promoting "wrong" narratives that "harm national security."

 

 1. The Council of Judges was unable to elect three members of the Ethics Council, which blocked the main part of the judicial reform.

 

On September 13, the Council of Judges was unable to elect three members of the Ethics Council, who should control the virtue of the members of the High Council of Justice. The Ethics Council will not be able to sit without delegates from the Council of Judges. Thus, the selection process for members of the High Qualifications Commission and the High Council of Justice, where the decisive vote was recently given to foreign experts, was blocked. Recall that on June 29, the Verkhovna Rada adopted bill No. 3711-D, which provides for the restart of the High Qualification Commission of Judges with the decisive role of international experts. Along with this, on July 14, draft law No. 5068 was adopted, which provides for verification of the integrity of members of the SCJ, and also changes the procedure for bringing judges to disciplinary responsibility. In turn, the people's deputies registered 4 draft resolutions that block its signing.

Six candidates submitted their applications to the Council of Judges, but 2 of them (judges E. Balzhik and O. Chaikina) on September 13 sent letters in which they asked to leave their applications without consideration. None of the candidates received the required number of votes during the secret ballot. Only 4 members of the Council of Judges out of 26 voted for the candidates. In total, the Ethical Council should have six members: three are elected by the Council of Judges of Ukraine, three more - by certain international organizations. On September 10, international partners have already nominated forensic experts for selection and appointment to the Ethics Council.

After the launch of the Ethics Council failed, not wanting to appear in the eyes of Western partners to be involved in the disruption of the judicial reform, Bankova expressed their particular concern about this. On September 16, at the Office of the President, a working meeting was held with the ambassadors of the G7, with the participation of the Chairman of the Council of Judges, the Supreme Court and representatives of parliament. Following the meeting, the participants signed a joint statement, where they insisted on completing the formation of the Ethics Council and the Competition Commission for holding a competition for the position of a member of the High Qualification Commission of Judges. The Council of Judges, which was previously unable to send delegates to the Ethics Council, will continue to work on this issue.

The above events continue the trend of confrontation between Western partners, the President's Office and the judiciary for influence on the country's judicial system. In general, the judicial reform provides for the transfer of key powers for the selection of members of the two bodies that govern the courts - the High Council of Justice and the High Qualification Commission of Judges - into the hands of “international experts”. Despite the external demonstration of readiness to carry out judicial reform according to the Western model, the Ukrainian authorities and the judiciary are not interested in such a scenario, therefore they are in no hurry to completely surrender their positions to foreigners and are trying to minimize losses for themselves by delaying the process. Even after the president signs the judicial reform, the judges find an opportunity to block it.

 

  2. At the meeting of the Cabinet of Ministers adopted the "Information Security Strategy".

 

On September 15, the Cabinet of Ministers approved a new Strategy for Information Security of Ukraine, which, after being approved by the NSDC, entered into force with a presidential decree. According to the Minister of Culture and Information Policy Alexander Tkachenko, the Strategy is designed for the period until 2025 and includes the main measures to counter disinformation, manipulation and outright lies on the part of the aggressor state. In addition, the document provides for the fight against the low level of media literacy of Ukrainian citizens, the protection of state sovereignty and territorial integrity, support by information media and measures of social and political stability.

The strategy provides for the improvement of the regulatory framework in the field of information policy, which determines the interaction of law enforcement agencies with local governments and public organizations.

About the official version, the main task of the document is to counter disinformation, manipulative information, as well as information operations and attacks by foreign countries. To accomplish the task, they want to create a system for early detection, forecasting and warning of hybrid threats. The NSDC will coordinate the work - not according to transparent procedures, but in manual mode. The document says that the most effective response to "disinformation activity" is sanctions, that is, an extrajudicial mechanism of influence. In essence, this means that the authorities intend to continue the practice of closing Ukrainian media outlets without a court decision. The document notes that the SBU will look for threats to information security in the Ukrainian media. Among which is indicated "the aggravation of the socio-political and socio-economic situation." Also, information that calls for "riots" will be removed from circulation. Probably, in this way the authorities want to protect themselves from any form of street protests, as well as from criticism by the opposition media and dissidents from among the leaders of public opinion.

In the future, blocking of Internet resources is planned to be legalized. The document contains the following clause - "legal regulation of identifying, fixing, restricting access and / or removing information from the Ukrainian segment of the Internet, the placement of which is prohibited by law."

The strategy introduces the concept of "strategic narrative" - ​​how the state presents itself in the information field. At the same time, the definition of "information threat" is given a very vague one. society and the state can directly or indirectly harm its interests and ensure the national security and defense of Ukraine. ”Obviously, under such a definition it is possible, if necessary, to selectively sum up anything.

In general, there is a process of forming a repressive instrument that will control the entire information field of the country. The norms embedded in the strategy create a form of relative legitimacy for NSDC sanctions against the media, and at the same time provide another reason to accuse the opposition of promoting “wrong” narratives that harm national security. Now, relying on the objectives of the strategy, a number of bills or bylaws can be developed that can in one way or another infringe on the rights of the media and their viewers / readers.

The information security strategy approved by the government continues the government's policy aimed at “tightening the screws” in terms of information warfare against political opponents. Thus, the state may try to establish its total control over the country's main media resources.

 

3. The Constitutional Court did not change the form of proceedings on the law on the introduction of the agricultural land market.

 

This week the Office of the President made another attempt to influence the decision-making process of the CCU.

On September 16, the CCU considered the issue of changing the form of proceedings in the case of the constitutionality of the sale of agricultural land from oral to written.

On July 1, 2021, the land market officially opened. Until 2024, only citizens of Ukraine can buy agricultural land with a limit of 100 hectares.

The position of the constitutional views on this issue is reduced to the thesis, according to which the free circulation of agricultural lands undermines the foundations of the sovereignty and independence of Ukraine, and also that the "land reform" is possible only if it is approved at an all-Ukrainian referendum.

As the permanent representative of the Verkhovna Rada to the Constitutional Court Olga Sovgirya said, as a result of the meeting, the Constitutional Court did not change the form of proceedings from oral to written according to the constitutional submission on the law “On Amendments to Certain Legislative Acts of Ukraine Concerning the Conditions of Turnover of Agricultural Land”.

Earlier, the deputy head of the Constitutional Court, Sergei Golovaty, set a meeting to change the form of consideration of this submission from oral to written, without notifying the judge-rapporteur in this case, Sergei Sas. Thus, S. Golovatyi intended to speed up the adoption of a decision beneficial to the Office of the President on the constitutionality of the sale of land. Consideration of the issue could have left the public plane. The move to writing means that it will not be possible to follow the progress of the proceedings and hear the debate, thus making the process less transparent.

Now the issue of selling agricultural land will be considered orally, with a hearing of the participants and involved participants in the constitutional proceedings. In such a situation, the likelihood of the adoption by the Constitutional Court of a decision that is unfavorable for Bankova significantly increases, which will further increase the degree of tension between the president and the judiciary. However, it is possible that in the future on this interrogation, the parties will still be able to come to certain behind-the-scenes agreements.

The situation clearly demonstrates that a new attempt by the Office of the President to force the KSU to play by its own rules once again fails and is faced with active resistance from the judiciary. Leaving the proceedings on the issue of the constitutionality of the sale of agricultural land orally, the KSU strengthened its position in this confrontation.

 

4. Resolution of the Cabinet of Ministers on covid certificates and the work of enterprises in quarantine.

 

 The situation with the spread of coronavirus in the country has deteriorated significantly. On September 16, 6,624 new confirmed cases of coronavirus disease were recorded in Ukraine, 1,568 people were hospitalized with COVID-19 or suspected of it, 99 patients died per day, 1,914 people recovered.

 In this regard, on September 13, the Cabinet of Ministers approved amendments to Resolution No. 1236, which establish new quarantine restrictions to prevent the spread of COVID-19. The resolution comes into force 7 days after publication, that is, September 20, 2021. The adopted changes provide for the introduction of special COVID certificates of two types: yellow and green. They will contain information about vaccinations, a negative test result (valid for 72 hours) or recovery from COVID-19. The so-called "yellow" certificate will be able to have those who have received one dose of the vaccine against coronavirus, "green" - who have completed the full course of vaccinations. Along with this, the business is invited to independently determine which format of the quarantine rules proposed by the government they will adhere to: work without restrictions only for vaccinated clients or with restrictions, but provide services to everyone without exception.

To work in the red zone, 100% of employees must be fully vaccinated. Services in this zone will also be able to be provided only to the fully vaccinated, in contrast to the yellow zone, where the business will be able to choose who to serve - only the vaccinated (partially and completely), but without restrictions, or everyone, but subject to the restrictions of the yellow zone.

An important condition for the operation of institutions in the yellow zone is that at least 80% of the institution's employees are vaccinated against coronavirus with at least one dose of vaccine. That is, in order to work, at least 80% of the employees of the institution must have yellow or green certificates.

 

FOREIGN POLICY.

 

Briefly:

 

This week, foreign policy clearly showed a trend towards the crystallization of military-political blocs in the new "Cold War" of the United States against Russia and China, as well as the division of spheres of influence between them. It fits both the deepening of military and economic integration between the Russian Federation and Belarus, and the creation in Southeast Asia of a new military-political bloc with the participation of the United States, Britain and Australia to counter China. At the same time, the downside of Washington's increasing concentration on the fight against China is the weakening of ties with some European allies. The demarche towards France and its subsequent reaction clearly demonstrate this.

Another trend in foreign policy that has manifested itself this week is the attempts of the Ukrainian authorities to bluff in front of their Western partners, expressed in statements about "disappointment in the promises of the West and the transition to self-reliance." With the help of these statements, the Ukrainian leadership is trying to reduce the pressure on their part to comply with the requirements for control over the corporate governance system and the judicial system.

 

1. A. Lukashenko and V. Putin approved 28 protocols of economic integration. Exercises "West 2021", and purchases of Russian weapons by Belarus.

 

On September 10, a meeting of the presidents of Russia and Belarus took place. The talks between Vladimir Putin and Alexander Lukashenko in Moscow lasted for about three hours, and after their completion, the heads of state told what decisions had been made on the Union State and what are expected in the future.

According to them, all 28 programs were agreed to further deepen the integration processes between the two countries.

The price of Russian gas for Belarus in 2022 will remain at the current year's level - $ 128 per thousand cubic meters without indexing dollar inflation. By December 1, 2023, a document will be signed on the unification of the gas markets of the two countries.

The presidents also agreed to unite in the future the markets of electricity and oil products of Russia and Belarus.

The total volume of loans from Moscow to Minsk from September 2021 to the end of 2022 will be about $ 630-640 million.

Russia lifts all covid restrictions on air traffic with Belarus.

The leaders also agreed on equal rights for business entities of the two countries in the Union State.

Russia and Belarus will move to a unified industrial policy, common access to government procurement and government orders.

Citizens of the two countries will receive equal rights and opportunities in the economic and social spheres within the framework of the Union State.

Countries will create a unified methodology for accounting for all indirect taxes, and there will also be a body that will be behind this track.

The union of Russia and Belarus is a model, a “bulldozer” that will clear the way for further unions in the CIS, Lukashenka said.

Finally, all decisions will be approved at a meeting of the Supreme State Council.

Political unification was not discussed at the talks. Vladimir Putin admitted that a parliament of the Union State could be created in the future, but noted that it was not discussed at the current meeting.

Despite the signing of these documents, it is obvious that there is no talk of a breakthrough in relations between the countries and in the integration process. Not only documents on political integration not signed (although a strategic decision was made back in 1999), but also on military or financial-monetary unification. We tend to view the signing of these documents through the prism of the parliamentary elections in the Russian Federation, on the eve of which it took place.

Immediately after the talks between the two presidents, large-scale military exercises "West-2021" began in Belarus and the western regions of Russia. They lasted from 10 to 16 September at nine test sites in Russia, in the Baltic Sea and at five test sites in Belarus.

The exercises were attended by about 200,000 people, more than 80 aircraft and helicopters, up to 760 units of military equipment, and up to 15 ships. The legend of a large-scale military event assumed the joint repulsion of the troops of NATO countries in the event of their invasion of Belarus.

On September 12, it became known that Belarus plans to purchase weapons from Russia for over $ 1 billion. Belarusian President Alexander Lukashenko announced this during the Zapad-2021 military exercises at the training ground near Baranovichi in the Brest region.

Prospects for the supply of Russian anti-aircraft missile systems (SAM) S-400 to Minsk were discussed at the talks in the Kremlin on September 9, Lukashenko said. "We were just talking about the fact that the S-400 will be appropriate for us," he said and added that anti-aircraft missile systems are needed to cover the border with Ukraine, the length of which is 1200 kilometers.

In response to Russian-Belarusian integration, joint military activity and contracts for the supply of weapons, anti-Belarusian sentiments intensified in Kiev. In particular, Ukrainian Foreign Minister Dmytro Kuleba proposed to build a wall on the border with Belarus, arguing that Lukashenka could direct the flow of Middle Eastern refugees towards Kiev.

In addition, on September 15, the American publication Politico, citing the US defense bill for 2022 and information from a source in Congress, wrote that the United States could sell two batteries of the Israeli Iron Dome missile defense system to Ukraine. Against the background of agreements between Moscow and Minsk on the supply of S-400s to Belarus and their deployment along the Ukrainian border, this looks like an attempt at a symmetrical (albeit rather weak) response.

Conclusions from all of the above, it seems to us, are quite simple. First, last year's attempt to arrange a "Maidan" in Minsk and the "aircraft sanctions" introduced this summer pushed Belarus towards closer economic and military-political integration with Russia, although the process of which is far from complete.

Secondly, along the border between Ukraine and Belarus, today there is a rift between the spheres of geopolitical influence of the United States and Russia. That is why this region will be intensely militarized in the near future. If we try on the patterns of the past "Cold War" for the current confrontation between the great powers, then the border between Ukraine and Belarus will be somewhat akin to the border between West and East Germany. The only difference is that the FRG was then a full-fledged member of the NATO bloc, and Ukraine is now de facto a buffer inter-bloc zone, albeit under the influence of Western countries.

 

2. Creation of a military alliance of the United States, Britain and Australia.

 

USA, UK and Australia on Wednesday, September 15, formed the defense alliance AUKUS (Australia, United Kingdom, United States). His appearance was sealed by a joint video conference of the leaders of the three countries. It is noteworthy that Japan and India were not invited to be founders.

From the previous numerous remarks of the officials of the three countries, it follows that they consider China the main threat in the region. At the same time, British Prime Minister Boris Johnson on Thursday in parliament insisted that opposition to Beijing is not the goal of the alliance. “I consider it important to clarify to the House of Commons that the AUKUS partnership was not intended to confront any other country,” he replied when asked if the alliance was a response to increasing China's military might.

However, China sees the created alliance as a threat. The representative of the Chinese Embassy in the United States called on the participants in the tripartite pact to "get rid of the mentality of the Cold War times and ideological prejudices."

The first major project of the new alliance will be to equip the Australian Navy with nuclear submarines. In the next year and a half, the three countries will have to determine how best to implement this project. The Australian government intends to build submarines in Adelaide, in close partnership with the United States and Great Britain.

The announcement that the United States and the United Kingdom will build submarines for Australia has sparked an outcry in France. It was she who won the Australian tender for the construction of submarines worth $ 38.5 billion in 2016. The French-design submarines were supposed to replace the Collins-class submarines built in the 1990s. As noted by Bloomberg, over the past time, the value of the contract for 12 submarines has increased to $ 66 billion. Now the Australians will refuse this contract.

French Foreign Minister Jean-Yves Le Drian called the creation of AUKUS a stab in the back. Armed Forces Minister Florence Parley and Le Drian said in a joint statement that the US decision results in the exclusion of the European ally France from the crucial partnership with Australia.

France immediately called on Europe to develop a course of "strategic autonomy" with less reliance on American technology and military forces.

The events described above demonstrate to us two important tendencies of modern international relations, dialectically related to each other.

The first is the new Cold War, that is, a geopolitical confrontation in which the United States and its allies oppose China and Russia. And if NATO has long existed to "contain" Russia in Eastern Europe, now Washington has created its analogue in Southeast Asia to counter China.

However, here the second tendency makes itself felt: the weakening of American influence in the international arena with the change of the system of international relations from unipolar to multipolar. Its result is that by expanding the theaters of geopolitical confrontation with opponents, the United States is losing influence over its old allies and satellites. This is exactly what we see in the case of France, which is already threatening to return to the idea of ​​creating a "single European army" instead of NATO and the demarches of the 1960s of the last century (in 1966, France withdrew from the military part of NATO cooperation).

 

3. Statements of Dmitry Kuleba in an interview with "The Independent".

 

Ukrainian Foreign Minister Dmytro Kuleba said this week that Kiev no longer believes the promises of the West.

Therefore, in his opinion, the country needs to learn how to turn into a "flexible militarized state" like Israel.

The head of the Ukrainian Foreign Ministry said this in an interview with the British edition of The Independent.

The exact quote from Kuleba sounds like this: “This country has learned a number of bitter lessons, Western promises are probably not being fulfilled. We do not believe in promises ... Circumstances leave no choice. The army, diplomacy and the Ukrainian people are what we need to survive. "

In other words, the minister hinted at the need to “rely only on our own forces”. A sort of Ukrainian version of Juche Songun.

However, one should not be deceived by these statements of D. Kuleba. All talk about "self-reliance" will remain just talk and a primitive bluff in order to "blackmail the West" or ask for more help.

But what are the purposes of the statement by the head of the Ukrainian Foreign Ministry?

It is not difficult to understand them if we recall the history of the relationship between our government and the "Western partners" over the past six months.

The axial lines around which these relations are developing are a number of demands put forward to the Ukrainian side. They were voiced most succinctly and unambiguously by US Secretary of State Anthony Blinken during his speech at the July conference on Ukraine, held in Vilnius.

These are the requirements:

First: to adopt a bill on reforming the High Council of Justice, followed by the law on the High Qualification Commission of Judges in the wording that assumes the decisive vote of the so-called. "International experts" in the appointment of judges. This law was adopted in the summer, but its provisions have not yet been implemented, so the requirement is still relevant.

Second, ensure that the selection of the leadership of the National Anti-Corruption Bureau and the Specialized Anti-Corruption Prosecutor's Office is transparent (that is, that people approved by “partners” are appointed to their positions).

Third: the adoption of a law on transparent corporate governance, which will protect the independence of the supervisory board, CEOs and will comply with the standards of the Organization for Economic Cooperation and Development. Translated from the diplomatic language, this means a requirement to retain foreign control over the largest state corporations, including Naftogaz and Ukrzaliznytsia.

Fourth: the adoption of legislation that will demilitarize and depoliticize the SBU and transfer the work to combat corruption and organized crime to other government institutions. The Servants of the People are also in no hurry to fulfill this requirement, fearing to cause disloyalty in the ranks of the state security officers, for whom the powers to fight economic crimes are the main source of "left" income.

And the fifth requirement is to bring corrupt officials to justice. Everything is the same here. For 7 years of "anti-corruption" reforms, not a single high-ranking corrupt official has been punished.

 

It is very difficult for the current Ukrainian government to understand all these requirements, because this would mean a significant loss of control over the political, legal and socio-economic processes in the country and the ability to use them for their own benefit. That is why the Americans are resorting to blackmail, presenting all the same requirements as conditions for receiving the next loan tranches from the IMF.

Discontent with this, Ukrainian officials, in turn, are trying to publicly accuse Western countries of "insufficient support" for Kiev and blackmail them with a "rejection of the pro-American course" in foreign policy.

 

4. Completion of construction of "Nord Stream-2" and record gas prices in Europe.

 

On the morning of September 10, the construction of the Nord Stream 2 gas pipeline was fully completed. This was reported by the Russian company "Gazprom" in its Telegram channel.

On the eve the price of gas in Europe has renewed its historical maximum and reached $ 700 per thousand cubic meters. Analysts attributed this to the low gas reserves in European storage facilities.

At the time of this writing, the gas price in Europe has fallen to $ 800 after rising to a record $ 970.

Actually, for European gas consumers, this does not bode well for immediate disasters. The countries of the European Union buy blue fuel under long-term contracts, and they resort to purchases at the exchange only in order to buy insignificant volumes of gas, which they lack. For example, in the case of a cold winter.

Ukraine is another matter. In our country, only natural persons-consumers of gas under annual contracts, as well as enterprises of teplokommunenergo, to which they promise to supply gas under annual contracts, are relatively protected from uncontrolled growth in prices (however, they have a nuance - the volumes of cheap gas will be limited by the limits beyond which gas will have to be purchased on the market).

For other consumers (primarily for industry), recently, at the request of the IMF, the price is formed on a monthly basis based on spot gas prices in the EU. That is, based on those same 900 and more dollars per thousand cubic meters. For them, the news from Europe is very sad.

On September 15, at the Ukrainian energy exchange, gas prices for October delivery jumped above 31 thousand hryvnias (that is, almost $ 1,170).

If this continues the entire autumn-winter season, serious problems will begin for the already breathing Ukrainian industrial enterprises.

 

ECONOMY

 

Briefly:

 

The trend towards attempts by the authorities to compensate for the budget deficit by any available means is manifested in several directions: a decrease in spending on culture by almost 22 percent and the reintegration of the temporarily occupied territories by almost 42 percent in the draft budget for 2022, and at the same time - the lifting of the moratorium on the export of unprocessed timber to the EU with the aim of generating an additional 500 million euros annually.

State and private enterprises such as Ukrzaliznytsia or gas consumers suffer from poor management and forecasting due to the inability to build long-term strategies to optimize costs and search for income sources, poor-quality lobbying of their interests in the government, or lack of motivation to do so as such.

 

1. The Cabinet of Ministers adopted and sent to parliament the draft state budget for 2022.

 

On September 15, the Cabinet of Ministers adopted and sent to parliament the draft state budget for 2022, reducing the budget deficit to 3.5% compared to 5% in 2021.

At the same time, the old and ineffective ideology of forming the state budget remains. So, more than 50% of the costs of the state budget of Ukraine in 2022 is planned to be spent on only 2 items: debt recovery and security / defense.

It is also planned to reduce funding for the Ministry of Culture (by 21.7% compared to 2021) and the Ministry for the Reintegration of Temporarily Occupied Territories (by 41.5%). According to the Prime Minister, the draft budget envisages UAH 197.2 billion. for medicine.

"This is 31 billion more than this year. Compared to 2019, the budget for medicine has doubled. Such an increase in expenditures makes it possible to set the minimum salary for a doctor at UAH 20,000 in 2022. The average salary for a doctor will be higher than 22.5 thousand ", - he said.

It is noted that UAH 185.6 billion. will be directed to education, which is UAH 21 billion. more than this year.

Also UAH 329 billion. will be directed to social protection, 5.95% of GDP will be allocated to the security and defense sector, namely UAH 319.4 billion, UAH 13.5 billion. - for culture, UAH 11.3 billion. –For sports and over UAH 120 billion. will be directed to the construction of roads.

Thus, the decrease in funding for culture and reintegration of the temporarily occupied territories clearly indicates the government's interest in these aspects of the country's life in society.

It is the adoption of the budget that will once again become a test for public administration in Ukraine, the results of which will determine the fate of the government and a new (most likely informal) parliamentary coalition.

 

2. Growth in gas prices.

On September 15, gas futures for October delivery reached $ 880 per thousand cubic meters, according to data from the European exchange Ice Future. According to the Ukrainian Energy Exchange (UEB), in September one thousand cubic meters of gas for business costs an average of about UAH 18,500. In October, the same volume of gas may cost 60% more - UAH 30,066.

In the coming months, the population of Ukraine will not feel a sharp jump in the cost of gas because in May the Cabinet of Ministers transferred household consumers to annual contracts with gas suppliers. Now, until April 2022, the gas tariff for the population will be in the range of 8-13 UAH. per cubic meter As of September 16, Ukrainian UGS facilities are 60% filled - 18.6 billion cubic meters of gas. This is sufficient, based on the historical consumption of the country, but provided that the winter is warm, and coal-fired thermal power plants will not massively switch to gas due to record low coal reserves in their warehouses.

As for the gas price for Ukrainian business, according to the analyst of the Ukrainian Energy Exchange Bogdan Zaika, the price from January to October 2021 increased almost 4 times - from almost 8 thousand in January to 30 thousand in October 2021.

As noted in NJSC Naftogaz of Ukraine, heat producers continue to massively ignore his proposals to sign a three-year contract with a gas price of 7.4 UAH. per cubic meter Thermal operators in response appeal: Naftogaz is putting forward too harsh conditions, because of which the tariffs for heat and hot water for the population will have to be raised by 40-70%.

Most likely, the government will intervene in the conflict and utility costs will not rise much. There are undoubtedly mechanisms for solving the problem - from redirecting gas of its own production at a fixed price to the needs of the population, to increasing the cost only for commercial consumers and utility companies.

There is also time in stock. A gas deficit on the Ukrainian market is unlikely to occur earlier than February-March 2022, when prices for it on the European market may also fall due to the launch of Nord Stream 2. But the government's mistakes in this area can lead to accelerated inflation, crises in the utilities and energy sectors. and social protests.

 

3. Ukraine by the end of the year may refuse the moratorium on timber export.

On September 14, the head of the State Forestry Agency, Yuriy Bolokhovets, in an interview with Interfax-Ukraine, said that Ukraine by the end of the year could permit the export of timber by adopting a law on the timber market, which would permit the export of unprocessed timber and sawn timber from Ukraine. He sees no big threats either from the point of view of preserving the forest fund, or from the point of view of protecting and supporting Ukrainian business.

The EU annually purchases Ukrainian timber for about 500 million euros. Thus, lifting the moratorium on timber exports will help stabilize the financial flow to Ukraine from such exports.

 

4. Ukrzaliznytsia will remain unprofitable in 2022-2024 - the forecast of the Ministry of Finance.

The Ministry of Finance, on the basis of the information provided by Ukrzaliznytsia, predicts that the state-owned company will cause damage to the state this year and in the next 3 years. The Ministry of Finance analyzed the risks associated with Ukrzaliznytsia according to the baseline and pessimistic scenarios (the baseline was taken to calculate the budget for the next year). According to the baseline scenario, the damage to UZ in 2021 should amount to UAH 725 million, in 2022 - UAH 967 million, in 2023 - UAH 2.62 billion, and in 2024 - UAH 724 million. The pessimistic scenario of the development of events presupposes even greater losses to the state railway monopoly: UAH 852 million. in 2021, UAH 1.45 billion. in 2022, UAH 2.84 billion. in 2023 and 2.95 billion UAH. in 2024.

"Thus, in the conditions of the baseline and pessimistic scenarios in 2021 - 2024, unprofitable activities of Ukrzaliznytsia are expected, which will negatively affect the financial condition of the Company and the volume of payments to the state budget of the relevant taxes and payments," the Ministry of Finance states. According to the department's analysis, Ukrzaliznytsya remains quite dependent on borrowed capital. Moreover, both in the baseline and in the pessimistic scenarios, this dependence will only grow in the coming years. As for the liquidity of Ukrzaliznytsia, the government sees a deterioration in the situation with it in 2024, which may lead to the need to attract additional financing to UZ to fulfill its current obligations.

Edited by:

Ruslan Bortnik,

Daniil Bogatyrev.

Authors:

Daniil Bogatyrev,

Oksana Krasovskaya,

Andrey Timchenko.