Weekly Highlights: 1-7 December 2014

The new coalition government of Ukraine has been formed. Emerging issues in the energy sector of the country. The fierce fighting for the Donetsk airport, and the villages of Avdiyivka and Debaltsevo are continuing in Donbas. Dozens civilians have been killed as a result of shelling by the separatists. The world is being drawn into the Cold War with Russia.

The formation of a new government

The Ukrainian Parliament adopted the resignation of members of the previous Cabinet and appointed the new ones. Most portfolios in the new formation went to the representatives of the “Petro Poroshenko’s Block”; the positions of the Prime Minister, the Ministers of Internal Affairs and Justice went to the representatives of the “Narodnyi Front”; the positions of the Ministers of Environment, Youth and Sports, and Agriculture to the representatives of the “Samopomich”. Amongst the ministers, there are three, who have received the citizenship of Ukraine by the decree of the President the same day they were appointed. Ministers of Defence and Foreign Affairs retained their positions.
Vice President Biden confirmed that the US supports the new Cabinet of Ministers of Ukraine.
Prime Minister Yatsenyuk promised to adopt the new Budget Code prior to the approval of the budget for 2015, and to make substantial changes to the Tax Code, which will reduce the single social contribution, introduce a progressive scale of taxation, reduce the number of taxes and change their base. Experts doubt the effectiveness of these government measures in view of increasing the tax burden on business.

The economy continues to fall

According to the national and international experts, the new Yatsenyuk government has only two or three months to introduce some drastic measures that could save the Ukrainian economy from collapse and default.
The National Bank continues to weaken hryvnia; in a week period the rate of the US dollar dropped by 3% – up to 15.42 UAH / USD, the exchange rate of USD at the exchange offices are 16 UAH / USD.
The Ministry of Finance reported that during the period of February-November 2014, the total of borrowed loans had been around $9 billion.
The Ukraine’s foreign exchange reserves are less then $10 billion and reached a ten-year low mark, dropping for the past month by 20%. Ms Shcherbakova, the Deputy head of the NBU, who has been responsible for the monetary policy, had resigned.
The European Commission is preparing for the third phase of macro-financial assistance to Ukraine. Assistance will be provided in conjunction with the next tranche of the IMF loan.

Problems in the energy sector

Due to the lack of coal supply from mines located at the territories controlled by rebels, the coal stock at the top five thermal electric power stations will be sufficient only for the couple of days. The scheduled and unscheduled power cuts are carried out in many areas. The re-appointed Minister of Energy and Coal Industry Demchishin stated the need to purchase coal from any supplier around the world. There are theories that the coal from the occupied by rebels territories of the Donetsk and Lugansk regions would be supplied to Ukraine disguised as the Russian coal, and the schemes of the substitutions of the steam coal by solids in power plants continue to operate.
Prime Minister Yatsenyuk announced that the deficit of “Naftogaz” is bigger than the budget deficit.
The government decided to purchase electricity from Russia.
Naftogaz has made an advance payment to Russia for 1 billion square meters of gas and is ready to start its download from Monday, 8 December 2014. Ukraine increased the gas supplies from Europe by 6%, despite a decrease in imports from Poland, provoked by “Gazprom”.
Mr Miller, the head of “Gazprom”, announced about the closure of the project “South Stream” because of the position of Bulgaria and the EU, but will expand the pipeline to Turkey under the Black Sea and further – to Greece.

Beginning of a new “cold war” between the West and Russia

NATO records a significant increase in the number of Russian troops in the border areas, transfers of the advanced systems of military equipment and manpower to Ukraine, increase in the military activity in the Russian Federation in Europe. NATO intercepts the Russian military planes over Europe at the daily basis. On Sunday, the deployments of tactical nuclear complex “Topol-M” in Odintsovo, and S-300 systems in Moscow were recorded.
The Bulgarian and Romanian politicians state about the financing by Russia of the anti-government protests across the “Orthodox” organizations.

War in Donbass

Despite the media claims, the fierce battles in the Donetsk airport, and the Debaltsevo and Avdeyevka villages continue, the defenders fight off all the attacks of the Russian troops and the DNR rebels. Observers daily record dozens of attacks and shelling of positions of the Ukrainian army and neighbourhood areas and cities across the fighting line.
The intensity of the attacks is dramatically increasing after the arrival of the Russian “humanitarian” convoys. Hundreds of units of military equipment are crossing the border of Ukraine every day, the Russian troops conduct redeployment in the occupied territories, aiming to increase groups at the main directions of possible attack.
The number of officially registered displaced person exceeded half a million people.

Preparing for negotiations in Minsk

Despite the repeated statements by the Ukrainian leadership about the impossibility of continuing negotiations with terrorists in the “Minsk” format, the next stage is scheduled for 9 December. President Poroshenko met with Tagliavini, the Special Representative of the OSCE mission, to discuss ways out of the conflict in Donbass. The DNR rebels demanded to reschedule the meeting to 12 December due to the need “to consult with the leadership”. The Law on the “special status of the territories of Donbass” has not been cancelled and continues to operate despite the decision of the National Security Council.
The Russian President Putin and Foreign Minister Lavrov demand that Ukraine reintegrate the occupied territories of Donbass under the conditions of federalization, and do not want to bear the costs of their content, but intensely supply those regions with the arms and soldiers.

Strengthening the defence of Ukraine

NATO announced the launch of trust funds to support Ukraine. Their work will focus on improving logistics in the Armed Forces, communications and the fight with cybercrime. The US House of Representatives passed a resolution in support of Ukraine, providing for the supply of arms.
Minister Defence Poltorak stated about the need for the next wave of partial mobilization for the rotation of military personnel in a combat zone that have been there for the last six months.

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Dmitry Tymchuk

Reserve officer, director of the NGO Center for Military and Political Research, Coordinator of “Information Resistance” (hereinafter “IR”) – a non-governmental project that aims to counteract external threats to the informational space of Ukraine in the main areas of military, economic, and energy, as well as the sphere of informational security.

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