Home / News / World /  Ukraine gets $15 billion from Russia

Kiev/Moscow: Ukraine sealed $15 billion of Russian financing and a one-third discount on energy imports from its neighbour as anti-government protesters in Kiev demanded to know what President Viktor Yanukovych had ceded in return.

Russia will buy government debt this year and next and will cut the price it charges for natural gas to $268.5 per 1,000 cubic metres, President Vladimir Putin said on Tuesday in Moscow after meeting Yanukovych. The two leaders said they didn’t discuss a Russia-led customs union after speculation Ukraine was close to joining riled pro-European demonstrators in Kiev.

“The news is positive for Ukraine in the short- to medium-term—the Russian deals will provide support to the Ukrainian economy, improving the balance of payments and helping replenish reserves," Credit Agricole SA analyst Alexander Pecherytsyn said on Tuesday by phone. “The only thing that we don’t know is what the Ukrainian president promised in return."

Yanukovych is grappling with the biggest protests since 2004 after he turned his back on a European Union (EU) integration accord last month in favour of repairing relations with Russia, which had opposed the deal. The former Soviet republic, a crucial east-west energy transit nation, is struggling with its third recession since 2008 and plunging foreign reserves.

The yield on Ukrainian dollar bonds due 2023 plunged more than 1 percentage point to 8.89% as of 5:42pm in Kiev, the lowest since 17 June, data by Bloomberg show.

Eurobond Sales

“Considering the problems of the Ukrainian economy linked to the world financial crisis, and to support the budget of the Ukrainian government, the Russian government decided to place part of its reserves from the National Wellbeing Fund in Ukrainian state securities," Putin said on Tuesday at a joint briefing with Yanukovych.

Ukraine will issue a total of $15 billion of Eurobonds for Russia to buy, with one tranche to be sold this year, Russian finance minister Anton Siluanov told reporters in Moscow. Ukraine currently pays about $400 per 1,000 cubic metres of Russian gas.

Protesters have blocked Kiev’s city centre since the government pulled out of a planned EU association agreement. Hundreds of thousands joined competing demonstrations of the anti-government camp and supporters of Yanukovych two days ago.

Ukraine’s opposition was suspicious of Yanukovych’s trip to Moscow before Tuesday’s announcement.

‘Already Decided’

“We are sure that everything is already decided: that Yanukovych will bring quite good loans, financial support, a new gas price," Vitali Klitschko, head of the opposition Udar party and a parliament member, told reporters in Kiev on Monday. “The question is, in exchange for what?"

Borys Tarasyuk, an opposition lawmaker, said another anti-government protest is planned for Tuesday as a show of strength to coincide with Yanukovych’s Russia trip to prevent him from signing up to the Russian customs union deal.

Klitschko, in a comment on Tuesday in Germany’s Bild newspaper, urged designated German foreign minister Frank-Walter Steinmeier to come to Kiev as a mediator on his first trip. He also urged early elections in March, according to a statement on the Udar website.

Parliament Blocked

Parliament was due to meet for the first time in Kiev on Tuesday since police unsuccessfully tried to push protesters off Independence Square in the early hours of 11 December. Opposition politicians again blocked the rostrum and the session didn’t begin, television’s Channel5 showed in live footage. The opposition has been blocking the chamber since lawmakers failed to back a no-confidence vote to oust the cabinet of Prime Minister Mykola Azarov on 3 December.

“The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight," Fitch Ratings wrote in a note on Monday.

Yanukovych on Monday fired 24 regional administration leaders, including 13 from western Ukraine, according to decrees on his website. No reason was given for the dismissals. Mykhailo Chechetov, a Ukraine Party of Regions governing lawmaker, said that cabinet changes will be made by year-end. Hanna Herman, another ruling-party lawmaker, said the party asked Azarov to change 90% of his ministers.

Cabinet Changes

Yanukovych will dismiss economy minister Ihor Prasolov, foreign minister Leonid Kozhara and industrial policy minister Mykhailo Korolenko for failing to inform the government in time about risks linked to signing an EU trade deal, Kommersant reported, without saying where it got the information.

Klitschko said firing some of the ministers wouldn’t be enough and the opposition wants the dismissal of the entire cabinet.

Even so, securing Tuesay’s deal with Russia without joining its customs bloc may ease the protests against Yanukovych, according to Vladimir Osakovskiy, the Moscow-based chief economist for Russia at Bank of America Corp.Merrill Lynch.

“Yanukovych has finally got what he wanted," he said. “Cheap gas, cash and no customs union commitments. I guess this takes EU association off the table for now. This might give a boost to protests, but with no customs union membership this should be okay." Bloomberg

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