Inside Ukraine September 20, 2016 №59 September 20, 2016 Сontent PUBLIC POLICIES ............................................................................... 1 Introduction of martial law in Ukraine: chances, challenges, threats .................. 1 Statements on the introduction of martial law: a real threat or muscles-flexing? ............................................................................... 2 Position of the parties.................................................................................................. 3 Strengthening of President’s power, restriction of citizen’s rights ...................... 3 If martial law “yes”, then Minsk “no” ......................................................................... 5 ECONOMIC ANALYSIS......................................................................... 6 The weakening of the hryvnia exchange rate: the causes and consequences .... 6 ENERGY POLICY ................................................................................. 9 The future of Ukraine’s natural gas transmission system ..................................... 9 Slowdown in energy market reform indicates its inefficiency ............................... 9 ‘Warlike’ rhetoric shall not effect constructive dialogue .....................................10 Situation shall not be underestimated ....................................................................10 Ukraine’s capacity vs. Gazprom’s economic calculations ....................................11 Competitive gas market is Ukraine’s dire necessity .............................................12 POLITICAL COMPETITION ................................................................ 13 Start of the new political season: «the war of all against all» .............................13 Towards «autocracy» .................................................................................................13 «President – «People’s Front» confrontation ..........................................................14 Confrontation between new and old politicians ....................................................15 2 Inside Ukraine 59 September 20, 2016 PUBLIC POLICIES Introduction of martial law in law in the case of internal destabilization and/ Ukraine: chances, challenges, or disaster at the front. threats On September 6, 2016, speaking at the open- ing of the fifth session of the Verkhovna Rada Recent statements of the President of Ukraine of Ukraine with a report “On the internal and on the introduction of martial law show that the external situation in Ukraine”, President Petro political leadership of Ukraine is considering Poroshenko stressed that the conflict in eastern such a possibility as one of the options to ensure Ukraine cannot be resolved by military means. governability of the country. It can strengthen To his mind, Ukrainian diplomacy has to per- President’s positions inside Ukraine, enhance form this function. Addressing MPs, the head of his authority in the regions due to military ad- state also noted that introduction of mobiliza- ministrations, provide immunity from possible tion or martial law depends entirely on Russia’s early elections, curb domestic opposition and actions. protest sentiment in the society. However, such a measure could potentially destabilize the in- President of Ukraine is not ternal situation in Ukraine, and on the inter- considering a military solution national stage it could turn into a full-scale war to the conflict with Russia, the loss of trust and support, in- cluding financial aid among Western partners. Therefore, given opportunities and threats, the Meanwhile, Russia conducted large-scale mil- President will probably introduce the martial itary exercises near Ukrainian borders, which Inside Ukraine 59 1 September 20, 2016 according to the National Security Strategy of Ilovaisk trap (August 2014). However, it wasn’t Ukraine of May 6, 2015 is a threat to our na- introduced in practice. The rhetoric of Ukrainian tional security. There are constant conflicts on officials has periodically changed becoming soft- the frontline. There are no results from the at- er. In particular, on September 1, 2016 after the tempts to establish a truce. It remains a threat to start of the new school year in Donbas, the intro- the resumption of a full-scale conflict. Although duction of a ceasefire regime was announced, and Ukrainian army has strengthened its defense ca- Poroshenko hoped that the West will strengthen pabilities, in case of involvement of Russian mil- anti-Russian sanctions in the case of the conflict itary units Ilovaisk or Debaltsevo tragedies may escalation in eastern Ukraine. The martial law be repeated. wasn’t mentioned. Oleksandr Turchynov linked the introduction of martial law with the “pres- However, the economic situation is deteriorat- ence of threat to the sovereignty and security of ing, unemployment rates, housing and commu- Ukraine as a whole”. It should be recalled that nal services are rising, social tension is increas- during the occupation of Crimea, chairing the ing. Ukrainian citizens express their dissatisfac- NSDC as acting President, Turchynov was the tion of the deterioration of social standards and only person who advocated the introduction of lack of reforms. This can lead to increasing of martial law at that time. protest sentiment in the society and possibly to the social explosion. Speaking about martial law, Poroshenko didn’t dare take The worsening of social such a step economic situation could lead to a social explosion Today it is unclear whether these statements are the attempts to explore the ground, preparation Thus, in case of internal destabilization or sig- for the introduction of martial law or a mus- nificant deterioration of the security situation at cles-flexing, or PR-action with certain objectives. the front there are serious prerequisites for the introduction of martial law. And among the experts, there is a view prevailing that Poroshenko and Turchynov are not going to introduce the martial law but manipulate public opinion in Ukraine. Their aim is to distract atten- Statements on the introduction tion from domestic issues (new tariffs on housing of martial law: a real threat or and communal services, the slow pace of reforms muscles-flexing? or their absence) to external threat, and also to blackmail the West urging it to take a decision Ukraine’s political leadership, in particular Pres- in favor of granting a lethal weapon to Ukraine. ident Petro Poroshenko and NSDC Secretary This argument is proved by the statements of Po- Oleksandr Turchynov, has repeatedly appealed roshenko, who is used to shift responsibility for to the issue of the introduction of martial law in all problems in Ukraine on the war. Ukraine depending on the operational security situation in Donbas. The last time the martial law Due to the talks about martial issue was raised during Russian provocations in law Poroshenko and Turchynov Crimea in August 2016, and before that – ​during distract people’s attention from the fighting in Debaltseve (February 2015) and domestic problems 2 Inside Ukraine 59 September 20, 2016 Statements by President Poroshenko on the intro- duction of martial law have also the underlying meaning as Poroshenko is interested in increasing defense spending. It enables structures affiliated with the President and “People’s Front” to receive large state contracts increasing their profits. President is interested in increasing defense spending Position of the parties “doves” that mainly appeal to the violations of The position of the main political players with the international law. regard to the introduction of martial law differ. We can distinguish the so-called “party of war” Business representatives are likely to be against (“People’s Front”, Radical Party of Oleh Lyashko, the idea of martial law introduction as it will “Svoboda”) that support the idea of the intro- place restrictions on business activity. duction of martial law, and the “party of peace” (“Opposition Bloc”, “Batkivshchyna”) that take On the international stage the West, Russia and an opposite position. In 2014 at the meeting Ukrainian neighbors make their stance against of NSDC on the situation in Crimea leader of martial law, supporting instead the Minsk ne- “Batkivshchyna” party, Yulia Tymoshenko took gotiation process and considering it as a single a stance against the introduction of martial law. option. They all probably do not support the in- “BPP” faction representing President’s interests troduction of martial law. in the parliament supports a diplomatic way of the conflict resolution. “Samopomich” is consid- Both domestic and foreign ering such a possibility in the case of amending players mostly opposed the the existing laws in the military sphere, while introduction of martial law stressing on the need for a diplomatic settle- ment. The positions of deputies’ groups “Renais- sance” and “People’s Will” depend on the posi- Thus, the introduction of martial law will be tion of their sponsors. However, the experience supported by nationalistic part of the society. of forming a new coalition in the parliament has Most citizens, politicians and Western partners proven that the President, if necessary, could will not support such a decision. find a common ground with these two groups. Despite this, it will be difficult for Petro Poro- shenko to collect the necessary number of votes Strengthening of President’s in support of the introduction of martial law. power, restriction of citizen’s The