2018. What kind of pig Year of the Dog prepares for us

In the New Year's children's fairy tales, everything bad is not going on in the next year. But we already know that unfortunately, this does not happen in real life.

That is why at the start of the new year, it is worth to decide what to expect from it first.

On a cozy bed with nails

One of two main issues for Ukraine in the coming year will be fate of the International Monetary Fund's loan program.

It hit a snag after the Ministry of Finance of Ukraine managed in September 2017 to borrow $3 billion for 7.375% from private creditors - Western banks and investment funds.

So, there was no need for $2 billion that the IMF agreed to give at a much lower interest, but on its own terms.

There is a suspicion that for President Petro Poroshenko and his entourage, these terms seem to be as comfort as trestle-bed of Indian Yogi, studded with nails, for an inexperienced tourist. After all, if the ban on purchase and sale of agricultural lands to be lifted and strategic state-owned enterprises to be sold as part of large-scale privatization, as the IMF demands – we will eventually have to stay with Roshen. Possibilities of "mastering" financial flows of Ukrainian state-owned enterprises come to naught.

It will also become quite problematic to compete with transnational agro-corporations – given the fact of their financial strength. Such decisions will definitely not be supported. Representatives of regional "elites" and close associates from the ruling coalition will categorically oppose both such a scenario and the one who will decide to implement it.

That is why on December 7, the Verkhovna Rada extended the moratorium on selling agricultural lands, which ended on January 1, 2018, for another year.

This means that meantime, the IMF program will peacefully gather dust on the shelf. It will be remembered about only as a last resort – contrary to statements of officials about the fidelity of the IMF reform course.

Then, a new round of catchy maneuvers and trades will begin, the goal of which is "to eat fish but not wet the feet".

According to head of the representative office of the Blazer Foundation in Ukraine Oleh Ustenko, the Ukrainian government's need for foreign debt payments for 2018 is $7 billion.

This is extremely much – even if the country's Ministry of Finance manages to borrow another $3 billion in an external bond loan. Even if another $2-3 billion will be get "scraped" by means of domestic loans.

But currency incoming is also needed to cover the trade balance deficit - i.e. outflow, arising from excess of imports over exports.

In January-October 2017, this deficit amounted to $4.573 billion, at least $5 billion is expected by the end of the year.

From this perspective, it will hardly be possible to survive without the IMF in the coming year.

But not land reform and not privatization is issue No 1 in the dialogue with the Foundation for "Family-2". The anti-corruption court, independent of the Ukrainian authorities, is placed in the forefront. If it is created in the form that creditors want, this will at least seriously complicate the "family" life.

In this case, the chances of ending up behind the bars for inhabitants of Kyiv's commanding Olympus as a result of anti-corruption investigations by the NABU and the SAP increase by times. And they understand this perfectly well – as the December events in the GPOU/SBU conflict with the NABU show.

Let us recall that everything began with the interference of security officials of the SBU in the special operation of the NABU, which investigated the corruption case in the State Migration Service of Ukraine.

The NABU officer, who worked undercover, i.e., put simply, an underground agent, was detained on November 30 at the time of transfer of money to first deputy head of the State Migration Service of Ukraine Dina Pimakhova.

Employees of the NABU were accused of provocation. The GPOU opened a criminal case against them, having showed two agents of the NABU and their chief, head of the covert operations department, to the entire country.

Then there was the introduction of bill on the reassignment of the NABU – it was proposed to allow deputies to remove the director of the Bureau from the post without a preliminary independent audit, as the current procedure provides.

This caused heavy criticism of the USA and the EU. The IMF director Christine Lagarde had to personally call P.Poroshenko and explain the inadmissibility of such actions to him.

As a result, the bill was excluded from consideration – but not scrapped. It is characteristic that heads of the largest pro-government factions, the Poroshenko Bloc and the People's Front brought it in – such meeting of their minds does not happen so often.

The stiffness of actions of the GPOU draws attention as well. After all, conflicts between the national security, defence and law enforcement agencies happen at all times and in all places.

But even during such showdowns, there are unwritten rules. Blowing the cover of underground agents of one special service by hands of the other is an unprecedented step that is totally out of line. Why did the GPOU do this?

Probably, there was a fiat: to cut as hard as possible. Why? The answer to this question can be given by the decision of the Shevchenkivsky District Court of Kyiv on December 5, placed in the Unified State Register of Court Decisions

It follows that on November 13, the SBU began proceedings against the decisions of Solomyansky District Court of Kyiv, which granted the NABU detectives temporary access to the documents of Kuznya na Rybalskomu factory.

The request for access was submitted as part of investigation into the embezzlement of money, allocated from the state budget for the Wall project.

The SBU opened a case under Part 2 of Article 328 of the Criminal Code - divulgence of state secret, which entailed grave consequences. Now we have the following chain.

The Wall is a project on creation of engineering fortifications at the Ukrainian-Russian border, where it is controlled by Ukrainian border guards.

The money for this project was regularly allocated from the state budget from 2015, but there is no Wall itself. Instead, a long ditch was dug on the border, which was proudly called an anti-tank ditch.

According to report of the Cabinet of Ministers, 9 fire positions for 10 people and 5 strong points were also equipped and 32 metal watch towers were put.

Finally, they reported on the performance of work for… $14.2 million. For such money, it was possible to build real reinforced concrete wall - by analogy with the famous Berlin Wall. What is more, along the whole border. The NABU, of course, also drew attention to the apparent inconsistency of the money spent and final result of the work.

Let us specify that Kuznya na Rybalskomu Kyiv shipbuilding plant was formerly known as Leninska Kuznia and belongs to P.Poroshenko.

This enterprise was involved in implementation of the Wall project (European Wall). Now it is possible to see the whole picture.

It explains why the SBU opens a case on suspicion of divulgence of state secret in the investigation of the NABU and why the SBU detains the NABU officers. And the bill on reassignment of the NABU to the Verkhovna Rada receives an explanation too.

From this perspective, it is rather difficult to predict the outcome of the IMF negotiations with the Ukrainian authorities in 2018 and the prospects of loan program.

But more likely, the IMF will not drive Ukrainian authorities to the wall, spurring on to desperate moves – what if they run to the east, to Putin.

The inhabitants of commanding Olympus in Kyiv will not bite the hand that feeds them as well – i.e. to plunge the country into economic chaos as a result of new hryvnia collapse.

And it will be clear at which point the parties will agree on a compromise only after the talks. Not earlier.

Pipeline’s destiny

No less significant issue is about the prospects of the Ukrainian gas transportation system (GTS), or, more simply, the "pipeline".

Through it, a significant amount of Russian gas is supplied to the EU, but the current contract will end in January 2019, i.е. very soon.

OstroV analyzed this situation in detail and came to the conclusion, that the transfer of the Ukrainian GTS to the management of European power companies is inevitable.

This process has already been started, but its speed causes concern. On December 29, the Energy Ministry of Ukraine informed that it had sent invitations to preliminary consultations on this issue.

Invitations were sent to the U.S. embassy, ​​as well as to the EU mission in Ukraine - with a request to distribute this information to the governments of 25 EU countries.

Interested parties should send their proposals by February 1, 2018. After studying the received materials, oral consultations will be held with each potential partner.

Perhaps, with such a pace, the process of creating a consortium will be long. But opponents in the Kremlin are in a hurry to make a decisive move.

On December 8, Gazprom announced the signing of all contracts for the construction of the Nord Stream 2 gas pipeline, which, after putting into operation, will deprive Ukraine of 3% of its gross domestic product.

It remains to get approvals from the European Commission and the governments of a number of countries - and Vladimir Putin can start the solemn ceremony of welding the first joint.

Meanwhile, Naftogaz of Ukraine had previously reported on the signing of memorandums with a number of European energy companies on a consortium for managing the GTS. It is the Slovak Eustream, the Italian Snam, the Dutch Gasunie and the French GRTgaz.

It is not clear why the Ministry of Energy needed to officially invite someone to the negotiations if for these purposes Naftogaz already hired the Italian investment company Rothschild SpA.

In fact, it is interesting, why it happens: whether Rothschild does not justify the hopes, or the head of the Ministry of Energy Ihor Nasalyk needed to portray some activity, or there is a tough struggle between the ministry leadership and Naftogaz.

It is clear that in any case with this approach it is difficult to count on success in the chess game with the Kremlin. But another thing is much more important.

A list of companies, selected as potential partners, suggests some reflection. It should be considered in the context of the Nord Stream 2 participants - since this project is an alternative to the Ukrainian route for the transit of Russian gas to the EU.

So, 10% of New European Pipeline AG company, which is the operator of Nord Stream 2, belongs to the German companies Uniper AG and Wintershall AG.

These are the subsidiaries of the energy concern E.ON and the industrial concern BASF - the pillars of the German industry. Austrian corporation OMV owns another 10%.

So, among the potential "suitors" for the Ukrainian "pipeline" there is not a single company from Germany, where main European lobbyists of Nord Stream 2 reside.

Their word is decisive, as Germany is the undisputed economic leader of the EU. This means that it is the biggest consumer of gas resources as well.

It remains to add that the Dutch-British corporation Royal Dutch Shell plc. owns 10% of the New European Pipeline AG, and the French Engie owns another 9%.

Gasunie and GRTgaz are highly respected and well-known companies.

But if, for example, Gasunie is a major player of European caliber, Shell has a transnational scale, operating in more than 70 countries.

That is, the weight of these conditional supporters and opponents of Nord Stream 2 from France and the Netherlands is incommensurable. As for Snam, it is a subsidiary of the Italian energy concern ENI. This is a very influential player, but only in the market of Southern Europe. The EU's third largest economy position is strong in the Mediterranean region.

But Italy and ENI do not affect the state of affairs in Northern and Western Europe, in the proposed zone Nord Stream 2. Germany and German companies "rule" there.

But they are virtually invisible in Southern Europe, the economic "fiefdom" of ENI and Italy.

The OMV can be considered as intermediate link here: it is equally convenient for Austria to receive gas from both the southern direction and from the north.

And its accession to the Russian project should be regarded as the last drop, which bowed the chalice in favor of Nord Stream 2.

As for the Slovak company Eustream - it's just a companion of Naftogaz in misfortune.

It will be likewise deprived of the lion's share of income in the event of a redirection of Russian gas from the Ukrainian route to the North European one.

Yes, the current European Commissioner for Energy Maroš Šefčovič represents Slovakia and this fact should not be completely discounted. However, in general, Slovakia’s vote is not so powerful that those who will make decisions in Brussels listen to it.

Proceeding from this analysis, the conclusion follows: the construction of the Nord Stream 2 is almost a solved matter and the Ukrainian side will not be able to disrupt the project.

At least, the probability of such a scenario is not high. Another issue is the Turkish Stream gas pipeline, bypassing Ukraine along the Black Sea bed. This is a project to replace the South Stream, from which Gazprom had to refuse earlier.

The construction of the Turkish Stream 1 is already under way. But it is designed to meet the needs of the Turkish economy. Therefore, this part of the project does not threat the Ukrainian GTS.

Another matter is Turkish Stream 2, which provides for the further transit of Russian gas to Greece, Italy, Serbia, Bulgaria, Croatia.

ENI can stop this project, becoming the operator of the Ukrainian gas transmission system in conjunction with Ukrtransgaz and investing into the modernization of the Ukrainian "pipeline" in the south.

Again, given the love of Europeans for half-hearted decisions (as it was in the case with the verdict of Stockholm arbitration in the dispute between Naftogaz and Gazprom), it is logical to assume that Nord Stream 2 will still receive a green light, while Turkish Stream 2 will be blocked in Brussels.

This means that Ukraine will lose not 3% of its gross domestic product due to a complete loss of revenues from gas transit, but approximately 1.5%.

But the remaining "perks" will have to be shared with consortium partners, managing the Ukrainian "pipeline". Totally, it turns out that only 0.75% -1% of GDP will be saved. It's not much. but better than nothing at all.

And everything else will be fine.

World prices for commodities - iron ore, steel, wheat, sunflower, etc. - are at a relatively decent level and there is no reason for their collapse in the foreseeable future.

This will support both the hryvnia exchange rate and the Ukrainian economy as a whole. It should be positively affected by the recovery of the financial system - the growth of the capitalization of banks and the transition to new requirements for transparency of operations, etc.

Vitaliy Krymov, OstroV