July 15, 2014
An interview with the adviser to the Government of Ukraine Kakha Bendukidze:
− You once said that it would be very difficult to carry out reforms in Ukraine, as systemic corruption is the main problem the country faces. What do you think about this now?
− Now I think the same. Ukraine faces a real danger. Maybe in a year it will not exist in today’s borders.
For example, it is said in Ukraine that taxes should be reduced and they will do it in 2016, but it is necessarily to survive until 2016. If the government doesn’t begin to act now, it will be just another country. If they do not carry out reforms, then Putin will come and implement them himself – in his own way, of course.
− We are talking about the reforms carried out in Georgia in 2004-2007?
− In Ukraine, energy subsidies, which we did not have, play a very important role. Georgia managed to move very quickly to the market principles in the energy sector, in Ukraine a situation is quite different.To put it simply, they spend $ 150 per ton of coal, and then sell it for $ 50. Energy subsidies of all kinds generally occupy 12% of Ukraine’s GDP, that is, if 40% of the budget of Georgia went on energy subsidies. It’s impossible to even imagine.
− Now what do they have to do?
− Something they do, but slowly. For example, electricity tariffs were increased and brought closer to market level. It is clear that they have serious problems – if they stop subsidizing Donetsk and Lugansk, the entire population will oppose the government – as this is a region where a number ofminers reaches 180 000, so it’s a big problem.
− Will a rejection of Russian gas bear any risk to Ukraine?
− Actually, no, since Ukraine has enough its own gas. If to sell it at the market price, then it will besufficient for the whole country. In Georgia, the economy is much less energy expending, several times less than in Ukraine.
For example, Ukraine has four nuclear power plants, which produce cheap energy, but they do not work full-time as the authorities made a political decision to use more expensive gas and coal for energy production.
Motivation was not to live people without job. But there is no such approach anywhere in the world. In Russia there was a very large coal industry, but it has been reformed, after which only profitable mines survived while unprofitable- were closed. Big reform was carried out in Poland. Ukraine did not do anything, so coal companies lay a heavy burden on the economy. The practice of tax evasion and money laundering in the industry has become widespread.
− If we talk about Russia, how they will benefit from getting such a large area as the Crimea in the long run?
− In 2013, the Russian government issued economic growth forecast which has been revised several times. According to it, in the next 20 years the country’s economy will grow by 2.5% per year, which is very small, just ridiculously small. Certain sanctions have already been imposed on Russia, they certainly are pretty bland, but their escalation is inevitable.
− How real are tougher sanctions, given Europe’s energy dependence on Russia?
− This question can be divided into two parts – oil and gas. As for oil, Russia sells to Europe 150 million tons, and it can easily be replaced by Iran, although certainly not immediately.
Ideally, the Iranian and Iraqi oil may be enough, it should be noticed that Iran is less dangerous for the world community than Russia. Iran does not occupy but two uninhabited islands in the Persian Gulf.
If the Iranians want, they will be able to do 5 atomic bombs in 10 years, while Russia has now – 2 300. Which of them is dangerous? Naturally, Russia.
As for gas, Europe now receives from Russia 130 billion cubic meters of gas per year. Alternatively, the EU has terminals which allow obtaining 120 billion cubic meters of liquefied gas, and they are loaded by only 20%.
− Can Georgia’s role as a transit country grow in this situation?
− Of course, Georgia’s role will grow. Azerbaijan becomes even more important partner for Turkey and Europe. I cannot say that this will lead to the prosperity of Georgia, but they are very good projects, and will be very useful if they are implemented. This will increase our energy independence and grow revenues in the budget – not 2-3 times, of course, but in any case, there will be growth.