A woman enters a bank which re-opened near a barricade in central Kiev on 25 February, 2014. Photograph: Getty Images.
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Investors hesitate as Ukraine teeters on the precipice

In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent

As central Kiev has descended further into violence, the complexity of the divisions - beyond a simple fissure between east and west - have become apparent.

The focal point of the Orange Revolution of 2004-05 was simple: Viktor Yushchenko was the legitimate winner of the presidential election and the people went onto the street to protest the rigged ballot that gave Yanukovych the presidency. Protests were peaceful, the movement had a single figurehead and the objective was clear.

The situation in 2014 is far more complex. Demonstrations were triggered by Yanukovych’s decision not to sign a wide-ranging association agreement with the European Union - a decision the western media attributed to pressure from Russia.

This obviates the role ill-informed EU policy played. In demanding a final, all or nothing, response from Ukraine, a country in need of emergency funding, Yanukovych was left with little room for manoeuvre. President Vladimir Putin was offering cash. The EU was making promises and in so doing, Brussels misplayed its hand.

Branding Yanukovych as "pro-Russia" ignores the competing pressures within Ukrainian politics, particularly when he has taken significant steps to strengthen relations with the west. Ukraine is one of Europe’s most promising energy frontiers and hosts Europe’s third largest shale gas reserves. In November 2013 Kiev signed a production sharing agreement (PSA) with Chevron of the US, worth up to USD 10 billion, to explore for and produce shale gas in the Oleska field in western Ukraine. This was followed in January 2014, with the signing of a similar deal with Royal Dutch Shell for the Yuzivska field in the east of the country.

Conventional oil and gas exploration deals are also being signed. Ukraine agreed a PSA with an ExxonMobil-led consortium to exploit a field of the western coast of the Black Sea.

The signing of such deals with western oil majors is a significant departure from what has gone before. Even under Yushchenko’s pro-western leadership after the Orange Revolution, western companies were largely shut out the country’s energy sector, or put off by uncertain legislation.

Yanukovych, who became president in 2010, in contrast, has been more pragmatic in terms of opening the hydrocarbons production to the west. Efforts have also been made to significantly improve the legislative environment.

Despite this evolution, Ukraine has limited room for political and economic manoeuvre, a fact the EU appears to have ignored during negotiations. Irrespective of the international orientation of its leaders, the Ukraine remains heavily dependent on Moscow for its gas supply, with Russian imports accounting for 60 per cent of consumption. In retaliation for the Orange Revolution, Moscow raised gas prices and cut off supplies in 2006 and 2009, amid pricing disputes. The agreement that ended the 2009 cut-off left Ukraine paying some of the highest prices in Europe.

Unless Ukraine is able to develop its shale gas reserves and wean itself off dependence on Russian energy this cycle of economic vulnerability will continue.

Investors are ditching assets; punishing Ukraine for the protests. In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent. Yields on government bonds maturing in June reached an all-time high of 34 per cent, trading a yield on the 2014 note traded a record 23 per cent about the rate on debt maturing in April 2023.

Ukraine is grappling with a record current-account deficit and foreign reserves are at the lowest level since 2006. The country has USD17 billion of liabilities coming due, excluding interest, through the end of 2015 and at the time of writing Moscow has delayed a USD2 billion purchase of Eurobonds citing "technical delays".

The EU is threatening sanctions, a move that will have limited short-term impact and will do little to end the bloodshed, particularly if Putin opens his cheque book.

In the medium term, Ukraine’s gas reserves and agricultural output have the potential to make it a relatively wealthy country. In the short term, investors are panicking, sending the economy to the brink of a precipice.

The insurance market has all but closed its books to new Ukrainian risk. While there is relative optimism around Ukraine’s prospects over a six month time horizon, in the immediate term underwriters and investors want to minimise their exposures.

It is unclear where the protests go from here. Yanukovych won a relatively free and fair election and it could be considered a loss for democracy if he is forced from office. If he succumbs to pressure who should replace him? The opposition, unlike 2004-05, cannot offer an undisputed successor. It is a disparate grouping with several figureheads, radical elements and no clear leadership.

The departure of Yanuckovych does not provide a viable solution. There is widespread concern in Ukraine about the level of corruption in government. Even if Yanukovych is removed from office corruption will not necessarily diminish. A big question is how intrinsically entrenched Russian business interests are within Ukrainian politics and commerce, as these systemic flaws pose the greatest threat to the development of a democratic system.

JLT Head of Credit & Political Risk Advisory

Getty
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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.