28 April 2010

Sevastopol Lease - a Blunder


Ukraine and Russia recently reached a deal by which Ukraine agrees to extend the lease on the Sevastopol naval base for another 25 plus 5, while Russia agrees to deliver natural gas to Ukraine at a 30% discount. This discount will amount to a subsidy of 3 billion dollars per annum. This rather than a deal that will benefit both sides is a deal that will have a detrimental effect on both.

Sevastopol, which is a predominantly Russian city, has a remarkable history intertwined with the history of the Black Sea Fleet. Its very founding was as a base for the newly founded fleet to operate from after the annexation of Crimea in the 18th century. It was besieged by the French and the British in the Crimean War and by the Germans and the Romanians in the Second World War. In both instances it ultimately fell, but not before the defenders exacted a heavy price on the besiegers. In both instances the sailors and the marines of the navy played an important role in the ferocious defence of the city. It is natural that the Russian Navy would desire to be based from here.

The problem is that Russia is not in the position to be handing out billion dollar subsidies. Russia's own navy is the military arm that has seen the steepest decline since the Soviet years. In the last ten years it has received only four new ships. Many of its remaining vesels are approching the end of their life spans. Instead of worrying about the basing for the Black Sea Fleet beyond 2017 the Russian government would do better to worry about still having a respectable fleet to base in the Black Sea past that time. The 3 billion dollars per annum could instead go toward towards procurement of new vessels and the expansion of its naval base in Novorossiysk.

Or even better it could go toward an investment into the living standard of Russians. Why not a tax rebate to the tune of 3 billion? 3 billion spread over 150 million Russian citizens may not sound like much, but then this is 80 dollars per family per annum. Given the option would Russian families really choose to spend 80 dollars every year on a lease on a naval base in Crimea? I think they would not be hard pressed to come up with more immediate needs.

As for Ukraine, the problem is that Ukraine as it is now could not actually afford to continue to pay the market price for its natural gas. But that is just it. Ukraine is a state which is permanently in crisis of this sort or the other. Its government needs to learn to live within its means instead of relying on Kremlin's largesse to make up for the shortfall. Since the subsidy lessens the pressure on Kiev to get its house in order it is - however intended - not going to prove to be a favour for the Ukrainians.

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