The Eagle and the Trident by Steven Pifer

Author:Steven Pifer
Language: eng
Format: epub
Publisher: Brookings Institution Press

Back to Reform and Assistance

In the aftermath of Clinton’s visit, the embassy continued to closely follow Kyiv’s reform program and progress with the IMF. The Ukrainian government offered periodic high-level briefings, sometimes with the prime minister himself, to report progress on the EFF conditionalities and to say it was answering all IMF questions about past NBU actions.

Unfortunately, Western embassies received less optimistic briefings from IMF officials. I had raised this disconnect between what diplomats heard from Ukrainian authorities and what they heard from the IMF with the finance minister in late May. Mityukov conceded that Kyiv could not meet all of the conditionalities. Yekhanurov told me in September that the IMF had finally closed the audits, but there was still no decision on resuming disbursements. At that point, Ukraine had gone one year without IMF credits. Yushchenko made a similar point in an early October meeting, noting that the EFF remained a prerequisite for further credits from the World Bank and the European Bank for Reconstruction and Development (EBRD).

The embassy, USAID, and the assistance coordinator had decided to restructure U.S. assistance by reducing the number of programs and targeting more funds at priority areas. Over the course of the summer the embassy became intensely involved in several reform and assistance issues that showed the varying degrees of difficulty of effecting genuine change, even when the U.S. and Ukrainian governments agreed on the objective.

One example of success involved the electric power sector. A senior cabinet official had told me that Yushchenko wanted Tymoshenko to tackle the energy sector because she knew it and was prepared to take on the oligarchs, particularly Surkis and Bakay. She also appeared to want to build a reputation as a reformer. She had earlier raised with U.S. officials the issue of privatized oblenerhos (regional energy distributing companies) collecting electricity tariffs but not remitting monies to the generating or long-line transmission companies. She said this was the case with ten of the twenty-seven oblenerhos, and some of the ten were collecting 90 percent of the electricity tariffs and remitting as little 4 percent to the generating companies, even though generating the electricity amounted to roughly 75 percent of the overall cost of providing electricity. Her initial recommendation was that the government “reprivatize,” which in effect meant nationalize, the oblenerhos. Her enthusiasm for the project was likely enhanced by the fact that several of the oblenerhos were owned by her political opponents.

The embassy worked with the EBRD and Tymoshenko directly on this problem. Neither EBRD officials nor the U.S. government favored nationalization. We proposed instead that, in each of the oblasts where a privatized oblenerho operated, a special account be established at a local bank and all electricity tariffs be paid into that account. Each week, the bank should distribute the collected monies to the local oblenerhos, the long-line transmission company, and a fund for the generating companies according to a transparent algorithm, based on a cost breakdown between the three. We discussed this proposal in a June 16 meeting with Tymoshenko and EBRD first vice president Charles Frank.

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