Last Saturday night, Prime Minister Vladimir Putin of Russia and his Ukrainian counterpart, Yulia Tymoshenko, met behind closed doors in Moscow to end an energy dispute that had left millions of households in eastern Europe without heating.

[...] "The agreement is a big success for Ukraine," said Hryhoriy Nemyria, Ukraine's deputy prime minister and an ally of Tymoshenko. "The deal allows us to deal directly with Moscow and not through RosUkrEnergo. It will mean predictability, stability and transparency in the energy sector. Ukraine will no longer be vulnerable to external influences," he said, referring to Russia.

Tymoshenko, a controversial, ambitious politician who knows the energy sector inside out after working in this lucrative business before entering politics, had long sought the dismantling of RosUkrEnergo. The board members of this shadowy, intermediary gas trading company include Aleksandr Medvedev, deputy chairman of Gazprom, Russia's state-owned energy company, and the Ukrainian oligarch (and Tymoshenko opponent) Dmitry Firtash.

RosUkrEnergo was established in 2004 by Putin, who was then president of Russia, with the aim of promoting Russia's energy and political interests in Ukraine. He had one consistent strategy for his western neighbor. "It was to get hold of Ukraine's gas pipeline transit network, which sends 80% of Russian gas to Europe," said Dietmar Stüdemann, former German ambassador to Kyiv. "If Russia succeeded, it would undermine Ukraine's sovereignty."

Putin skillfully played on Ukraine's divisions, winning over some of the oligarchs who oppose Tymoshenko. With their help, RosUkrEnergo went out to buy gas from Central Asia and export it to Ukraine and Eastern Europe. The price, quantity and distribution were never precisely known.

[...] It would be na?ve to place all the blame on RosUkrEnergo for Ukraine's inability to reap the benefits of the Orange Revolution of 2004-2005. The country is rife with corruption on almost every level, according to the World Bank and Transparency International. Many reforms, especially combating corruption, have been promised, but few delivered.

Then there are the bitter power struggles between the two Orange Revolution leaders, Tymoshenko and President Viktor Yushchenko. At one stage last year, they were not even on speaking terms. The Parliament, whose legislators represent the interests of the oligarchs rather than the electorate, has been fractious and disruptive.

The infighting has benefited Viktor Yanukovych, leader of the pro-Russian Party of the Regions that is based in the eastern, industrial part of the country.

[...]

Even in its relationship with Russia, Ukraine has lost international support. In 2006, when Moscow first shut down its gas pipelines crossing Ukraine to the West in order to teach its rebellious neighbor a lesson, Western public opinion was firmly with Kyiv.

That dispute was ostensibly about what price Ukraine should pay Russia for its gas imports. But there was an underlying political motive: Putin was furious with the Orange Revolution, fearing Moscow would lose further influence in a fiercely proud country determined to pursue the path of democratization. Then, Ukraine's leaders found it easy to blame Russia for the energy shortages in Europe, even though Ukraine siphoned off quantities destined for Russia's European customers.

During the latest energy dispute, Putin and Gazprom ran a highly professional public relations campaign. It was Ukraine, not Russia, that was responsible for the cutoff, claimed Moscow. Ukraine found itself on the defensive. While the Kremlin and Gazprom arranged conference calls with international media, the government in Kyiv had absolutely no public relations strategy. "Ukraine was caught off guard," said St?demann. "Russia conducted a much better PR campaign."

Tymoshenko's last-minute success in Moscow in persuading Putin to cut RosUkrEnergo out of energy deals between both countries is all the more remarkable under these circumstances. It could give the Ukrainian prime minister an opportunity to press ahead with major reforms, winning her popular support and over time even regaining Western sympathies. But do Tymoshenko and Yushchenko have the political will to seize the moment?

"Ukraine's leaders squandered the Orange Revolution," said Igor Burakovsky, director of the independent Institute for Economic Research and Policy Consulting in Kyiv. "With RosUkrEnergo out of the picture, there just might be a chance for a new beginning. I would not like to bet on that."

Complete article: http://www.iht.com/articles/2009/01/21/europe/letter.3-412998.php