THE ACTION UKRAINE REPORT – AUR – Number 628

“THE ACTION UKRAINE REPORT – AUR”
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

“Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World”

“THE ACTION UKRAINE REPORT – AUR” – Number 628
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., THURSDAY, DECEMBER 29, 2005

——–INDEX OF ARTICLES——–

1. RUSSIA’S GAZPROM WINS BIG BELARUS VICTORY
By ceding control of the pipeline, Belarus, a country of 10 million people
between Poland and Russia, may have given up its last leverage over Russia
.
By Judy Dempsey, International Herald Tribune (IHT)
Published by The New York Times
Neuilly Cedex, France, Thursday, December 29, 2005

2. “THE NEW CRIMEAN WAR”
COMMENTARY: By Anders Aslund & Adrian Karatnycky
The Wall Street Journal Europe, NY, NY, Wed, December 28, 2005

3. EU PRESIDENCY SEEKS TO CALM FEARS ON GAS
Haig Simonian in Zurich, Neil Buckley in Moscow, Bertrand Benoit in

Berlin, Martin Arnold in Paris and Christopher Condon in Budapest
Financial Times, London, United Kingdom, Thursday, December 29, 2005

4. FORMER UKRAINIAN PRIME MINISTER TYMOSHENKO
BLAMES CORRUPTION FOR GAS DISPUTE WITH RUSSIA
Inter TV, Kiev, in Ukrainian 1800 gmt 27 Dec 05
BBC Monitoring Service, UK, in English, Tue, Dec 27, 2005

5. UKRAINE UNDER NUCLEAR PRESSURE. RUSSIA DOES NOT

WANT TO SUPPLY NUCLEAR FUEL AT A ‘FRATERNAL’ PRICE
ANALYSIS & COMMENTARY: By Alena Kornysheve
Kommersant, Moscow, Russia, in Russian 5 Dec 05, p 13
BBC Monitoring Service, UK, in English, Sat, Dec 24, 2005

6. ESTONIAN, FINNISH CLAIMS MAY CALL NEW NORTHERN
PIPELINE ”INTO QUESTION”
Gazeta Wyborcza website, Warsaw, in Polish 24 Dec 05
BBC Monitoring Service, UK, in English, Tue, Dec 27, 2005

By Lyuba Pronina, Staff Writer, Moscow Times
Moscow, Russia, Wednesday, December 28, 2005

8. U.S. SET TO SPREAD DEMOCRARY IN RUSSIA, UKRAINE,

Mosnews.com, Moscow, Russia, Wed, Dec 28, 2005

9. “RUSSIA’S ANTI-WEST OFFENSIVE”
EDITORIAL: The New York Times, NY, NY, Tuesday, Dec 27, 2005

10. HUMAN RIGHTS WATCH URGES G-8 MEMBERS TO PRESS

RUSSIA ON CURBING NON-GOVERNMENTAL ORGANIZATIONS
Associated Press, Moscow, Russia, Wed, December 28, 2005

11. “RUSSIA: THE STATE THEY’RE IN”
EDITORIAL: The Guardian, London, UK, Tue, Dec 27, 2005

12. UKRAINIAN PM YEKHANUROV: A FIGHT ON TWO FRONTS
INTERVIEW: With Ukrainian Prime Minister Yuriy Yekhanurov
By Yulia MOSTOVAYA; Nataliya YATSENKO; Serhii SLEDZ
Yuriy SKOLOTIANY; Tatiana SILINA; Oleksandr ROZHEN
Ihor MASKALEVICH; Vladimir KRAVCHENKO
Alla YEREMENKO; Olga DMITRICHEVA
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 50 (578)
International Social Political Weekly
Kyiv, Ukraine, Sat 24-30, December 2005
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1
. RUSSIA’S GAZPROM WINS BIG BELARUS VICTORY
By ceding control of the pipeline, Belarus, a country of 10 million people
between Poland and Russia, may have given up its last leverage over Russia.

By Judy Dempsey, International Herald Tribune (IHT)
Published by The New York Times
Neuilly Cedex, France, Thursday, December 29, 2005

BERLIN – Gazprom has gained control of a transit pipeline that crosses
Belarus into Europe, giving the Russian state-owned energy company a
tighter grasp over a route used to send its gas to European markets.

Under the terms of the deal signed Tuesday, Gazprom will own the
Belorussian section of the Yamal-Europe network that transmits 10 percent
of Russian gas exports to Europe. The agreement comes after several failed
attempts by Gazprom to wrest control of the state-run Beltransgaz network
from the Belarussian president, Alexander Lukashenko.

The opaque deal, for which no value was given, is being paid for with gas
priced below market rates, as well as barter and debt relief. Belarussian
officials could not be reached for comment.

Gazprom said in a statement that it would sell gas to Belarus for $46.68 per
1,000 cubic meters, or 35,300 cubic feet, while Belarus will charge Gazprom
transit fees of 75 cents per 1,000 cubic meters per 1,000 kilometers, or
about 620 miles.

Gas sells in Europe for more than $210 per 1,000 cubic meters, and
European transit fees are nearly $2.30 per 1,000 cubic meters per 1,000
kilometers. Gazprom has said repeatedly that it is planning to end gas
subsidies to former Soviet states.

Alexander Ryazanov, deputy chairman of Gazprom’s management committee,
said Belarus had been given a special offer “because Russia and Belarus were
in the process of establishing a common union state, which implies using
common standards when drafting financial and economic parameters of the
two countries.”

By ceding control of the pipeline, Belarus, a country of 10 million people
between Poland and Russia, may have given up its last leverage over Russia.

“Gazprom has achieved something it wanted for several years,” said Eugeniusz
Smolar, director of the Center for International Relations in Warsaw. “As
Russia’s main foreign policy instrument, Gazprom wanted to weaken its
dependence on Belarus as a transit country, exactly what it is trying to do
with Ukraine.”

Lukashenko, an authoritarian president who has crushed dissent since he was
first elected in 1994 and who will run for re-election in March, had refused
to sell the Beltransgaz pipeline to Gazprom in 2003, despite enormous
pressure from his Russian counterpart, Vladimir Putin.

Putin initially threatened to raise gas prices to Belarus. When Lukashenko
still refused to sell, Gazprom cut deliveries in February 2004. Because of
the clumsy way in which the deliveries were stopped, gas supplies to Germany
and the Netherlands were also interrupted, forcing energy companies there to
dip into their into their storage depots to make up for their shortfalls.

Toms Baumanis, director of the independent Latvian-Atlantic council, which
promotes closer ties among countries of the former Soviet Union and the
European Union and the North Atlantic Treaty Organization, said Belarus had
all but sold out to Russia.

“Russia now controls much of Belarus,” Baumanis said. “It seems that
Lukashenko has opted to go with Putin and not introduce reforms, despite
some pressure from the U.S. and EU to do so. It seems he was afraid of the
contagion of the revolutions in Georgia and Ukraine.”

As Belarus and Russia clinched a deal, Gazprom said it intended on Jan. 1 to
increase its gas price to Ukraine to $230 per 1,000 cubic meters from $50 as
part of its policy to end subsidies.

Ukraine’s prime minister, Yuri Yekhanurov, confirmed Gazprom’s offer, but
said, “The Ukrainian side has considered the question, and views the price
as unacceptable. This constitutes direct economic pressure on Ukraine.”

Energy Minister Ivan Plachkow said Wednesday that Ukraine was prepared
to pay $80 per 1,000 cubic meters during the first quarter of next year.

Russia had earlier suggested linking the level of the price increase to
Gazprom taking a stake in Naftogaz, Ukraine’s state-owned gas pipeline
network. But Ukraine ruled out such an offer since it would lose its main
leverage over Gazprom. Nearly 80 percent of Russian gas exports have to
cross Ukraine.

Political analysts said Ukraine’s refusal to give Gazprom a stake in its
transit pipeline may have hardened Gazprom’s negotiating position over the
price increases. Nicolai Petrov, political analyst at Carnegie Moscow
Center, said Gazprom was determined to gain greater control over its
deliveries to Europe.

“Gazprom dislikes depending on Ukraine,” he said, “which is why Gazprom
has started to diversify the routes through which it exports its gas.”

Gazprom, supported by the German companies BASF and E.ON Ruhrgas,
started work this month on the North European Pipeline, which is meant to
allow Russia to deliver gas directly to Europe by sending it under the
Baltic Sea.

Once completed, that link will be capable of shipping 55 billion cubic
meters per year of gas to Europe, still well short of Europe’s gas needs.

About 170 billion cubic meters of Russian gas are sent to Europe through the
Ukraine and Belarussian pipelines. Gazprom also recently built the Blue
Stream Pipeline, linking Russia with Turkey through the Black Sea.
ROSNEFT PLANS LARGE IPO
Rosneft, the Russian state-owned oil company, hopes to raise up to $20
billion when it places up to 30 percent of its shares on Russian bourses and
in London next year, Reuters reported from Moscow, citing sale documents.

The company wants to secure a listing on the Russian RTS and MICEX
exchanges in April and begin the London part of the initial public offering
on June 26, the documents said.

Rosneft’s public offering is likely to become Russia’s largest ever and will
be part of a complex Kremlin scheme to secure greater control over strategic
energy resources in the world’s second-largest oil exporter. -30-
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http://www.iht.com/articles/2005/12/28/business/gazprom.php
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2. “THE NEW CRIMEAN WAR”

COMMENTARY: By Anders Aslund & Adrian Karatnycky
The Wall Street Journal Europe, NY, NY, Wed, December 28, 2005

Yesterday, Andrey Illarionov resigned as Vladimir Putin’s economic adviser
in opposition to the country’s loss of political and economic freedom. The
resignation of Mr. Illarionov, a market reformer, was only the latest signal
that the Russian president is pursuing a new hard-line policy, both at home
and abroad.

Nothing better illustrates Mr. Illarionov’s warnings of mega state-
controlled corporations than the bitter dispute that has broken out
between Russian energy giant Gazprom and Ukraine.

To judge by the sensationalist headlines emanating from Moscow and Kiev,
the two countries appear on the verge of war. The bone of contention is
energy — specifically, how much Kremlin-controlled Gazprom will charge
Ukraine for natural gas in 2006.

Last year, before the Orange Revolution, when Ukraine had a compliant, less
independent and less Europe-oriented government, Russia’s terms were very
generous. It asked for just $50 per 1,000 cubic meters (mcm). For next year,
Gazprom suddenly is demanding more than four times as much — $220 to $230.

The economic dispute has been fanned by alarmist Russian comments suggesting
that Ukraine’s refusal to accept Russia’s terms is “irresponsible” and is
putting Russia’s delivery of over 100 billion cubic meters (bcm) of natural
gas to Europe (a quarter of the continent’s needs) at risk. Sergei
Yastrzhembsky, the Kremlin’s envoy to the European Union, says Ukraine is
“blackmailing” the EU and “holding European consumers hostage.” Gazprom
officials have spoken in equally alarmist terms.

With Russia’s rhetoric threatening to spin out of control, Ukrainian Prime
Minister Yuri Yekhanurov felt it necessary to assure the EU that the gas
supplies won’t be disrupted. And President Viktor Yushchenko, in an attempt
to de-escalate the situation, even agreed that market forces should
eventually determine Ukraine’s energy prices. “If Ukraine really wants to
become economically independent, sooner or later we have to move to market
relations for energy and organize our energy consumption rationally,” Mr.
Yushchenko said.

However, Ukraine also insists that the current contracts be honored. And a
crucial addendum to a contract between Gazprom and Ukraine’s Naftohaz
asserts that in return for the transit of gas via Ukraine through 2009,
Gazprom is to provide during that period “natural gas at the price of $50 US
per 1,000 cubic meters, a price that cannot be changed by the parties.”
Gazprom, though, appears determined to unilaterally abrogate the contract.

Despite Russia’s tough tone in current negotiations, Ukraine actually has
little to fear from the long-term introduction of market forces. In 2005,
Ukraine imported around 25 bcm of gas from Russia, 38 bcm from
Turkmenistan, and produced 18 bcm itself. For 2006, Turkmenistan has
agreed to increase its natural gas supplies to Ukraine at an inexpensive $60
per mcm.

Were Ukraine and Russia to scrap current contracts for market prices that
have surged to well over $200 per mcm, Ukraine would be in turn entitled to
charge Russia market prices for the transit of gas over its territory. That
transit charge could go up to about $3 per mcm/100 km from the current $
1.09.

With Turkmenistan’s likely increase of gas exports, Kiev could reduce its
supplies from Gazprom accordingly so that the transit fees should be enough
to cover for Russia’s gas supplies. At worst, Ukraine would end up paying
around $1 billion a year more, or a little over 1% of its GDP.

There is a strong case for both countries to move to market prices. Barter
arrangements and special preferences have for years bred corruption. During
the corrupt ’90s, Ukraine may have formally saved a couple of billion of
dollars on gas, but that gain went almost exclusively to a handful of gas
barons.

Transparent market pricing represents the best option, but the issue is how
to get there. Given the large quantities involved and contracts that keep
prices low through 2009, Ukraine asks for a reasonable transition period to
improve its poor energy efficiency, which is three times worse than that of
the U.S.

Still, Russia’s move to market prices remains selective and arbitrary. As
Mr. Ilarionov has indicated, politics trumps business. The Russian
government makes sure that Gazprom maintains low prices of $48 per mcm
for Moscow-loyal Belarus while Georgia and Armenia — two other ex-Soviet
republics with a more independent, pro-Western policy — are to pay $110
next year.

Indeed, if, as President Putin now insists, all this is a matter of
economics, why has Russia eschewed quiet and pragmatic negotiations and

been so vocal in fanning disagreement? There are three political reasons.

[1] First, Russia seeks to influence Ukraine’s March 2006 parliamentary
elections by suggesting to Ukrainian voters that the current government in
Kiev is economically incompetent and its pro-Western tilt harmful to
consumers.
[2] Second, the Kremlin seeks to discredit Ukraine’s “Orange” government
among Russian citizens in order to inoculate its population from the
contagion of democratic revolution.
[3] Third, Russia seeks to drive a wedge between Europe and Ukraine by
painting the Kiev government as reckless and unreliable.

The U.S. and Europe have rightly stayed out of the dispute. But they should
insist that it be resolved according to two principles: strict adherence to
signed agreements and a transition to market prices without politicization.

The U.S. and the EU also should help strengthen Ukraine’s economy and
sovereignty over the long term through closer economic integration and
support of programs to promote energy efficiency.

The real challenge, though, is how the West deals with an increasingly
hard-line Kremlin that is testing how far it can go in using its newfound
energy wealth to promote political ends. This is what makes the West’s

stake in the unfolding Russia-Ukraine gas dispute so large. -30-
———————————————————————————————
Mr. Åslund is director of the Russian and Eurasian Program at the
Carnegie Endowment for International Peace. Mr. Karatnycky is
founder of the Orange Circle, a new international nongovernmental
institute working to promote the deepening of reforms in Ukraine.
———————————————————————————————
FOOTNOTE: Dr. Anders Aslund will join the Institute for
International Economics (IIE) as a Senior Fellow on January 1,
2006. As before, he will study the economies of Russia, Ukraine,
Eastern Europe and the former Soviet Union.

Anders will do this in a community of international economists at one
of Washington’s very best think tanks, eminently directed by Fred
Bergsten. Geographically, the IIE is located just across the street from
Carnegie Endowment where he has been working in Washington.

Anders wrote and said after eleven fruitful years at the Russian and
Eurasian Program at the Carnegie Endowment for International
Peace (CEIP) it was time for change. He gave thanks to all current
and former colleagues at Carnegie for their excellent and pleasant
cooperation. We wish Anders the very best in his new position.

Contact: Anders Åslund, Senior Fellow Institute for International
Economics, 1750 Massachusetts Avenue, NW, Washington, DC
20036-1903, Tel: (202) 328-9000; Email: aaslund@iie.com. EDITOR
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3. EU PRESIDENCY SEEKS TO CALM FEARS ON GAS

Haig Simonian in Zurich, Neil Buckley in Moscow, Bertrand Benoit in

Berlin, Martin Arnold in Paris and Christopher Condon in Budapest
Financial Times, London, United Kingdom, Thursday, December 29, 2005

The Austrian government on Wednesday attempted to calm fears of gas
shortages across Europe as Ukraine’s fuel and energy minister arrived in
Moscow for emergency talks aimed at finding a solution to a row over prices
that could see Russia cut exports.

Martin Bartenstein, economics minister, said ensuring energy supplies would
be a priority of Austria’s presidency of the European Union from January 1.
“Europe needs more investment and greater diversification of its energy
sources,” he said.

Ivan Plachkov, Ukraine’s fuel and energy minister, was due to present a new
proposal in Moscow to resolve the crisis after Russia threatened to reduce
gas flowing into the main export pipeline across Ukraine to western Europe.
Kiev had warned that if Russia did not accept the proposal, it would refer
the matter to the international arbitration court in Stockholm.

Gazprom, Russia’s state-controlled natural gas monopoly, is insisting on an
increase in the price Ukraine pays for Russian gas, from $50 to $230 per
1,000 cubic metres, and a shift from a barter system to cash payments.
Ukraine says the move is politically motivated, arguing that it is being
asked to pay higher prices than some other former Soviet republics.

Suez, the Franco-Belgian energy group, said the dispute was an “alarm bell”
for Europe’s politicians over the risk of becoming too dependent on Russian
gas imports. Gerard Mestrallet, Suez chief executive, said: “Geographical
concentration of supply at a time when our dependence is growing does not
set the stage for prices to ebb from the high levels they have reached in
recent months.”

Many politicians stressed that although there had been occasional disputes
between Russia and Ukraine, supplies had never been seriously disrupted.

Hungary’s economy ministry said Wednesday night Hungarian and Russian
diplomats were together pressing Ukraine not to interrupt the flow of gas
through its territory.

Budapest is preparing legislation that would put limits on gas consumption
in Hungary but this would be introduced to parliament only if Hungary’s gas
supply was severely disputed. Hungary receives more than 75 per cent of its
gas from Russia through Ukraine.

Mr Bartenstein said the situation showed the need for new pipelines, such as
the Nabucco project between Austria and Turkey.

The German government said it had no contingency plans to counter a
possible interruption of Russian supplies, which account for 40 per cent of
its gas imports and about 45 per cent for Europe as a whole.

About half of Europe’s gas transits through Ukraine via the Brotherhood
pipeline.

The foreign ministry said Germany had not been asked to mediate in the
conflict. Gerhard Schröder, the former chancellor, who enjoyed a close
relationship with the Russian president, helped broker an understanding
between Kiev and Moscow at the height of Ukraine’s “orange revolution” a
year ago.

¦Russian state oil major Rosneft wants to raise up to $20bn when it places
up to 30 per cent of its shares on Russian bourses and in London next year,
Reuters reports from Moscow.

Rosneft’s initial public offering (IPO) is likely to be Russia’s largest.
The company wants to secure a listing on the Russian RTS and MICEX
bourses in April and begin the London part of the IPO on June 26. -30-
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4. FORMER UKRAINIAN PRIME MINISTER TYMOSHENKO
BLAMES CORRUPTION FOR GAS DISPUTE WITH RUSSIA

Inter TV, Kiev, in Ukrainian 1800 gmt 27 Dec 05
BBC Monitoring Service, UK, in English, Tue, Dec 27, 2005

Former Prime Minister Yuliya Tymoshenko has blamed Ukraine’s current
gas dispute with Russia on Rosukrenergo, the transit operator that delivers
Turkmen gas to Ukraine.

Speaking during a studio interview on privately-owned Inter TV on 27
December, Tymoshenko said that under what she described as “corrupt”
agreements signed in 2004, Rosukrenergo receives a large share of the
Turkmen gas for its transit services, which it then exports.

Tymoshenko said that the new authorities should have dispensed with
Rosukrenergo’s services when President Viktor Yushchenko came to power,
but they refused to do so. Tymoshenko insisted that current contracts prevent
Russia from raising the price of gas for Ukraine until 2009, and offered her
services to Yushchenko as a negotiator with Turkmenistan, Kazakhstan and
Uzbekistan.

The following is an excerpt from Tymoshenko’s interview on Ukrainian
Inter TV on 27 December:

[Presenter] There are four days left until the start of the New Year. It is
not clear whether Ukraine will receive gas, and if so, at what price. What
do you think is the reason for the critical situation with gas deliveries?
[Tymoshenko] Good evening. It’s true, there are again surprises for our
people ahead of the New Year holiday. Certainly, there is not just one
reason. It seems to me that people have the right to know the truth after
everything that happened during the [2004] presidential election.
In the first place, the truth is that there is very little economics in all
these events linked to the supply of gas to Ukraine. Certainly, this is pure
politics, in pure form. It seems to me that everyone should feel that our
Ukraine is a little house in the middle of a big, rough sea. The world is
cruel, cynical, and only together can we find a way out.
It seems that everyone in Ukraine understands that if, instead of New Year
greetings, our gas supplies are turned off on 1 January 2006, then Russia
will be turning off the gas not just for western Ukraine, and not just for
Kiev, which voted 78 per cent for President Yushchenko, but also for
Crimea, Kharkiv, Donetsk, and for every region of Ukraine.
But I would like to say that this cold shower is not Armageddon. This is a
cold shower. It seems to me that it should bring our people together so they
understand that in these great geopolitical confrontations, where there is
Russia on one side and America on the other, Ukraine should identify its
interests and simply defend them consistently. So first this is politics.
But the fact that the Russian authorities today can behave this way towards
Ukraine, dictating conditions, this is certainly dependent on how strong or
weak the Ukrainian authorities are and whether it is possible to use the
Ukrainian authorities however you like.
I was surprised by the report I heard how [Fuel and Energy Minister Ivan]
Plachkov said that everything is signed, stamped, that everything is agreed,
and then it turns out that Russia denies it.
I have [Ukrainian weekly] Zerkalo Nedeli before me, where Prime Minister
Yekhanurov is asked: Has the situation with gas showed that things are a
complete shambles? I am quoting. And Yekhanurov agreed, saying that’s
correct. I don’t like it that we look so weak. I want us to look stronger.
RUSUKRENERGO’S ROLE AS INTERMEDIARY
[Presenter] This is all political games. What solution are you proposing?
[Tymoshenko] I would like to start with the reason on the Ukrainian side.
Because Russia today is exploiting the situation. But I would like for us to
understand at last that our little fortress, Ukraine, could have been
invulnerable, because we have the gas transport system.
We have everything we need to defend our interests. But sometimes traitors
open up the back door of the fortress, and then the hostile army breaks in
and destroys everything.
Hearing the commentaries that [former Prime Minister Viktor] Yanukovych and
representatives of the former authorities are giving today, I want to say
that the problem began with a huge – monumental – corrupt scheme that was
launched in Ukraine.
The main thing we need to know is that the gas shortage in Ukraine today is
a consequence of the huge scheme that was launched by [former President
Leonid] Kuchma himself, Yanukovych and former Naftohaz head [Yuriy]
Boyko on 29 July 2004.

[Presenter] What specifically?
[Tymoshenko] May I finish. This is very important. The thing is that I have
the signed agreements in my hands, including the government resolution that
was signed by Yanukovych, which introduced a powerful intermediary –
Rosukrenergo – between Russia, Ukraine and Turkmenistan.
This intermediary, according to secret agreements – which we were barely
able to get from the Naftohaz safe – even as prime minister, it was not
possible for me to get hold of it – [changes tack] We today have a specific
document showing that our Turkmen gas was simply divided into two parts. If
36bn cu.m. should have been delivered to Ukraine, then 13.5bn cu.m. went to
Rosukrenergo.
This allowed Rosukrenergo to earn around 1.5bn dollars from operating as an
intermediary between Ukraine and Turkmenistan, and obtaining our gas. If it
wasn’t for these agreements, then there would not be a shortage today.
Russia would not be presenting Ukraine with its demands for the price and
purchase of gas. Because we had a balance. I can say what is the worst
thing. The former authorities – [changes tack] [Passage omitted: Tymoshenko
identifies founders of Rosukrenergo.]
The reason is not just that the former authorities presented this gift to
Ukraine, and they are saying today that when we were in charge there was
gas. What are they talking about, when 13.5bn cu.m. was removed from the
country’s balance? Here is what is much worse.
When I became prime minister, all this was shown to President Yushchenko. We
showed him this model in its entirety, how a colossal amount of gas is being
stolen through Rosukrenergo. I dismissed all those who were founders of
Rosukrenergo, and who were in charge of these corrupt schemes. When
Yekhanurov became prime minister all these people were restored to their
posts.
Yesterday, with great effort, I obtained information showing how much gas
Rosukrenergo took from Ukraine this year under the new authorities – when
there are Ivchenko, Viktor Andriyovych Yushchenko, Yekhanurov.
Nobody listened to any of our proposals to get rid of Rosukrenergo. We
obtained information that Rosukrenergo together with Naftohaz sent 20bn
cu.m. of our gas for export and earned 2.5bn dollars in proceeds for
Rosukrenergo, whose founders are former managers of Naftohaz.

[Presenter] Is it the case that if we get rid of Rosukrenergo, we will get
gas for 50 dollars?
[Tymoshenko] I can say that if we get rid of Rosukrenergo, we will have on
our balance an additional 20bn cu.m. of our gas, which we own in
Turkmenistan, and which we have from transit. If we do this, we do not need
to buy anything from Russia. That is the main thing that I want us to hear.

[Presenter] How can that be done?
[Tymoshenko] For this to happen, as soon as Yushchenko became president, I
became premier, new people came to law enforcement structures, Ivchenko to
Naftohaz, it was necessary immediately to remove Rosukrenergo from its
intermediary role. But Rosukrenergo simply agreed among themselves with the
president’s entourage, the new chief Ivchenko, they are all continuing this
model. The information in front of me confirms that they are all in on the
scheme.

[Presenter] Yulia Volodymyrivna –
[Tymoshenko] The last thing I want to say is that I read with great
enjoyment Yekhanurov’s interview with Zerkalo Nedeli.
[Passage omitted: quotes paper]
NO NEED TO SIGN NEW CONTRACT WITH RUSSIA
[Tymoshenko] I have a very interesting document in my hand.

[Presenter] Unfortunately, our time is running out…
[Tymoshenko] May I finish. I have an interesting document where Viktor
Andriyovych – I want to show it to him – removed me as prime minister from
issues concerned with gas when I began to destroy the Rosukrenergo scheme.
Now I want to return to your question. What is to be done? That is the main
thing. I want people in Ukraine and everyone involved to hear this.

[1] In no circumstances should any new document be signed with Russia.
Because all the documents that we studied and which lie in front of me
demonstrate that there is no need for us to sign anything. We have concluded
a balance for the transit of gas until 2009 – gas for 50 dollars, transit for 1.09
dollars – and this means that if we do not sign up to any new prices we can
calmly take our volume of gas to cover our balance and categorically not
sign anything about new prices.
Furthermore, I want to say that we have taken the situation with the signing
of a so-called new price for gas under control. I want Ukraine to hear me.
Those who sign this agreement so that gas comes to Ukraine at so-called
European prices, this will be another betrayal of Ukraine.

[Presenter] Yuliya Volodymyrivna –
[Tymoshenko] May I go on? Yes?
[2] The second thing that needs to be done. The president urgently needs to
take the negotiation process with the presidents of Turkmenistan, Uzbekistan
and Kazazhstan under his direct personal control and conclude agreements
on the word, the dependable programme proposed by the president.
If the president cannot do this, I propose to the president right now to
stop the corrupt schemes, and if there is nobody to conduct the
negotiations, then – not being prime minister – I am ready to receive
written authorization from President Yushchenko to conduct negotiations in
Turkmenistan, Uzbekistan and Kazakhstan, and try to get results.

[3] Third, it is urgently necessary to tear up all contracts with Rosukrenergo.
If these contracts remain, you should consider that the new authorities are
preserving corrupt schemes.
[Passage omitted: Tymoshenko says it is necessary to take the dispute to the
Stockholm arbitration court immediately; says Plachkov does not know what
is written in contracts with Turkmenistan; says she is ready to help the
president; calls for lawyers to help study the case.] -30-
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5. UKRAINE UNDER NUCLEAR PRESSURE. RUSSIA DOES NOT
WANT TO SUPPLY NUCLEAR FUEL AT A ‘FRATERNAL’ PRICE

ANALYSIS & COMMENTARY: By Alena Kornysheve
Kommersant, Moscow, Russia, in Russian 5 Dec 05, p 13
BBC Monitoring Service, UK, in English, Sat, Dec 24, 2005

The Russian Federal Atomic Energy Agency plans to raise the issue of
equating the prices of uranium bought from Ukraine and nuclear fuel
supplied to the latter. It said that Russia is arguing that it makes a loss
on uranium deals as the price has risen recently.

In response, a Ukrainian ministry has said the prices of nuclear fuel cannot
be reviewed as they are guaranteed by a bilateral agreement signed in 2003.
The paper said the move will support continuing Russian efforts to raise the
price at which it sells gas to Ukraine.

The following is the text of the article by Alena Kornysheva entitled
“Ukraine under nuclear pressure. Russia does not want to supply it with
nuclear fuel at a ‘fraternal’ price” published by the Russian newspaper
Kommersant on 5 December; subheadings have been inserted editorially:

Rosatom [Russian Federal Atomic Energy Agency] is going to bring up an
issue of equalizing the prices of uranium purchased from Ukraine and nuclear
fuel supplied to that country by state company OAO [open joint-stock
company] TVEL, the Interfax news agency reported last Friday [2 December],
quoting a high-level Rosatom official.

At the Atomic Energy Ministry it was explained to Kommersant that the
uranium price increased very much while the fuel price remained the same,
causing TVEL to lose $150 million every year on its Ukrainian contract.
Officials of the Ukrainian Fuel and Energy Ministry say that they consider
the Russian estimate of losses excessive and the prices of fuel fixed until
2010.
NUCLEAR FUEL DEAL UNPROFITABLE,
COINCIDES WITH GAS CONFLICT
New Atomic Energy Minister Sergey Kiriyenko has started his activity by
bringing up the question of unprofitable nuclear cooperation with Ukraine at
a time when Russia is putting pressure on Ukraine at the highest level (to a
point of cancelling the prime minister’s visit to that country), attempting
to make it pay international prices for Russian gas.

The Atomic Energy Ministry believes that it sells Ukraine Russian fuel
assemblies (TVS), which serve as fuel for electricity generation at nuclear
plants, for prices that are too low and buys uranium from Ukraine for prices
that are too high.

The essence of the conflict was explained to Kommersant yesterday [4
December] by Vitaliy Konovalov, formerly USSR atomic industry minister
and Russia’s first atomic energy minister and presently Kiriyenko’s adviser:
“Ukraine sells its uranium to us at international prices and we supply
nuclear fuel to it at a ‘fraternal price’ – it is not fair.”

According to the Atomic Energy Ministry’s data, the price of 1 kg of natural
uranium has jumped from $25 to $88 in the past two years. The price of fuel
assemblies sold to Ukraine is a commercial secret but, the ministry says, it
remains the same as it was when the uranium price was $25 per kilo, which is
why every year TVEL loses up to $150 million on the Ukrainian contract (in
2005, the Ukrainian company Enerhoatom, which manages all Ukrainian nuclear
power stations, is to receive from the Russian partner 15 batches of nuclear
fuel worth $302.4 million).
UKRAINE SAYS ANY LOSSES OVERSTATED
For its part, the Ukrainian side argues that the figures for losses are
clearly overstated. According to Ukrainian analysts, the cost of uranium
that TVEL buys from Ukraine to make fuel assemblies, which are later
supplied to Ukrainian nuclear power stations, is not more than $70-75m.

In addition, the Ukrainians consider the Russian position vulnerable also
because the Russian corporation won the contract for delivery of fuel
assemblies to Ukraine (the Ukrainian contract does not represent more than
30 per cent of TVEL foreign supplies) at an international tender as early as
1996 and the contract expires only in 2010.

Consequently, all the prices stated in it, Kommersant ‘s source in the
Ukrainian Fuel and Energy Ministry said, are fixed. On top of this, they are
guaranteed by a bilateral intergovernment agreement signed in 2003. At the
same time, Ukraine does not have the same obligations to Russia on its
uranium supplies – in other words, it has every right to sell it at
international prices, which it does.

In addition, as early as last spring, Enerhoatom President Yuriy
Nedashkovskyy announced the plans of Ukrainian nuclear energy producers to
diversify nuclear fuel supplies through cooperation with TVEL’s British-US
competitor Westinghouse, a company that has already installed several fuel
assemblies in Ukrainian nuclear power stations.

Yet, in the immediate future the Westinghouse fuel assemblies will not be
able to meet more than 1 per cent of Ukrainian nuclear stations’ needs and
TVEL is still practically a full monopolist in this segment of the Ukrainian
market. Besides, the process of switching a nuclear power station to fuel
made by a different producer is technologically very complicated and make
take several years:

All Ukrainian nuclear plants are built on the basis of Russian technology,
which means that their electricity is generated by Russian-made VVER-440
and VVER-1000 reactors, which Russia builds also in other countries, such
as China, Iran, and India.
MINISTRY AIMING FOR CHANGE IN 2007
For now, Russian Atomic Energy Ministry officials stress that they “do not
intend to dictate strict conditions to partners” and plan to achieve a
result from 2007. The ministry’s proposal is that uranium be viewed not as a
commodity but as a customer-supplied raw material, which means applying a
scheme similar to aluminium tolling.

In this case, Russia’s TVEL would not pay for the raw material and Ukraine
would only pay for the process of producing fuel assemblies. Officially,
neither TVEL of Russia nor Enerhoatom of Ukraine has commented on the
negotiations that have started on this issue.

Nevertheless, the plan of Mr Kiriyenko may succeed, considering that TVEL
and Enerhoatom have already worked on partnership projects to organize joint
ventures. In any case, Mr Kiriyenko has chosen the right time to start
fighting for change in Russian-Ukrainian energy cooperation: Even if he does
not achieve any specific results on uranium prices, he will effectively
support his colleagues from Gazprom
. -30-
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6. ESTONIAN, FINNISH CLAIMS MAY CALL NEW NORTHERN
PIPELINE ”INTO QUESTION”

Gazeta Wyborcza website, Warsaw, in Polish 24 Dec 05
BBC Monitoring Service, UK, in English, Tue, Dec 27, 2005

WARSAW – Members of parliament in Tallinn want to expand Estonia’s
nautical borders. If Finland does the same, the construction of the
Northern Pipeline will be called into question.

The objective of the initiative, for which signatures are now being
collected in the Estonian parliament, is clear. The idea is to block the
construction of the northern oil pipeline. This controversial German-Russian
project will enable the Russian commodity to be transported to Western
Europe, circumventing countries the Kremlin considers unfriendly: Ukraine,
Poland, and the Baltic States.

Members of parliament from the opposition parties are proposing that the
lines of Estonia’s territorial waters should be extended from 3 nautical
miles calculated from the coastline, out to 12 miles. Such a move would
cause considerable problems for Russia because its access to the Baltic is
not direct, but rather leads through the Gulf of Finland. The latter is very
narrow – in its narrowest point it is only 20 miles wide. The lands
alongside its entrance are the territory of Finland and Estonia.

At present, at the centre of the gulf lie international waters, through
which passes a shipping channel used by the Russian port in St Petersburg.
The oil pipeline is to be laid along its sea floor. But if Estonia and
Finland expanded their waters to 12 miles, the entrance to the gulf would
constitute the territorial waters of these two countries. Although Russian
ships would continue to travel the gulf, laying cables or pipelines along
the sea floor would require the consent of the Finns or Estonians.

And so, a lot hinges upon Finland. Its authorities have not opposed the oil
pipeline, and the state company Fortum is supposed to participate in its
construction. On the other hand, anxieties have arisen in Finland that the
pipeline will have a negative impact on the Baltic environment.

Besides, even if Finland does not opt for a conflict with Russia, Tallinn
will not be without cards to play. The portion of the Gulf of Finland that
Estonia wants to unilaterally declare its territorial waters offers the best
geological conditions for building the pipeline. In exchange for backing
out of the project to expand its borders, Estonia could secure concrete
dividends from the Kremlin, such as lower rates for gas, or finally signing
a border treaty.

Poland cannot follow suit, because the pipeline will not run along the
Polish coastline, but rather along the centre of the Baltic. Besides, our
territorial waters already encompass the region 12 miles from the coast,
and international nautical law does not permit this to be expanded further.
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7. GAZPROM OPEN FOR BUSINESS

By Lyuba Pronina, Staff Writer, Moscow Times
Moscow, Russia, Wednesday, December 28, 2005

MOSCOW – Russia will no longer be ignored by large international
investment funds now that it has lifted the curbs on foreign ownership
of Gazprom, analysts said Tuesday.

President Vladimir Putin on Friday signed the much-awaited law that ends
the cap on foreign investment in the world’s largest natural gas producer
and exporter.

Until now, foreigners ownership in Gazprom had been limited to 20 percent
of the company’s shares. Unable to buy the gas giant’s stock domestically,
the only option for foreign investors was to buy Gazprom’s London-listed
American Depository Shares.

“Two years ago, people who were not directly involved in the Russian equity
market did not know about Gazprom, and this year that has changed,” said
Alfa Bank chief strategist Chris Weafer.

Removing the so-called ring fence will help Gazprom to eventually be
recognized as one of the top global energy giants, taking its place among
BP, the United States’ ExxonMobil and Saudi Arabia’s Aramco, he said.

“This is a landmark event for the whole of our stock market,” Gazprom
chairman Dmitry Medvedev, who is also first deputy prime minister, told the
Security Council on Friday.

Medvedev added that the move would also mean an opportunity to attract
new, top-class foreign investors.

In January, the shares are expected to be listed on the Russian Trading
System and the Moscow Interbank Currency Exchange, Gazprom officials
said last week. As a result, the composition of domestic benchmark indexes
is expected to change dramatically.

“With a current market capitalization of $160 billion, Gazprom will
considerably skew the weighting of the indexes when it comes in,” Weafer
said, adding the next-biggest companies would be LUKoil, with $50 billion,
and Surgutneftegaz, with $40 billion.

The biggest gain is expected to come when Gazprom enters the Morgan
Stanley Capital International emerging market index, which is tracked by
investors managing more than $3 trillion.

Weafer said many global investment funds had stayed away from Russia
because of Yukos, but “once Gazprom comes to MSCI, Russia becomes
too big to ignore.”

Gazprom’s weighting will rise at least tenfold after technical factors for
liberalization have been completed, said William Browder, CEO of Hermitage
Capital Management, which is a Gazprom shareholder and manages $3 billion
in Russian assets. “A lot of people will buy Gazprom, whether they like the
company or not,” he said.

By signing off on the law, Putin made good on promises he made two years
ago — just days after the arrest of Mikhail Khodorkovsky, once Russia’s
richest man and owner of Yukos, which hurt the country’s investment climate.

Putin said then that the gas shares liberalization would take months, not
years, but the process was drawn out as different groups in the government
fought over Gazprom’s merger with state-owned oil company Rosneft.

Weafer said lifting the curbs provided practical evidence that the
government cared about the perception of the investment climate in Russia.

“A lot of people see it as a counterbalance to Yukos,” he said.

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8. U.S. SET TO SPREAD DEMOCRACY IN RUSSIA, UKRAINE,
THE CAUCASUS AND CENTRAL ASIA

Mosnews.com, Moscow, Russia, Wed, Dec 28, 2005

MOSCOW- A Senior State Department official said the U.S. agenda for the
trans-Atlantic relationship in 2006 is to broaden NATO’s mandate and extend
its global reach; to advance democracy in Russia, Ukraine, the Caucasus and
Central Asia; and to cooperate with Europe in every region of the world
through political, economic and security partnerships, the State Department
said on the official website.

R. Nicholas Burns, under secretary of state for political affairs, outlined
U.S. goals for a European Institute audience on Dec. 15 in Washington.
The State Department released his remarks Dec. 27.

Burns characterized 2005 as the year Europe and the United States stopped
the trans-Atlantic war of words, rediscovered each other and got back to
work on the world’s problems, having recognized they are “wed together in a
long-term marriage with no possibility of separation or divorce.”

He cited a long list of U.S.-European achievements in 2005, ranging from
Lebanon and Syria, where the United States and France led the way to
“unprecedented and constructive U.N. action,” to Belarus, where the
alliance is “delivering a united message for freedom against Europe’s last
dictator.”

Turning to the agenda for 2006, Burns said the United States wants to
continue to work through NATO as the core trans-Atlantic link but to
broaden and extend NATO’s mandate to Africa, Asia and the Middle East. In
working with the European Union, “the next great mission for us together is
spreading the freedom we enjoy in Europe and America,” Burns said.

“We also need to complete our work in Europe by attending to the Balkans,
Ukraine and Russia,” he said. “We need to continue fostering democracy
and opposing repression in Central Asia and the Caucasus. And, most
importantly, the United States and Europe need to intensify our efforts in
the broader Middle East, as well as Africa and Asia.”

He reiterated the U.S. commitment “to pursuing the Freedom Agenda in
Russia and Ukraine.” In Central Asia, he said, “we must engage Kazakhstan,
Kyrgyzstan, and Tajikistan, and demand reform from Uzbekistan and
Turkmenistan.” -30-
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9. “RUSSIA’S ANTI-WEST OFFENSIVE”

EDITORIAL: The New York Times, NY, NY, Tuesday, Dec 27, 2005

To no one’s great surprise, Russia’s Parliament voted overwhelmingly last
week to increase control of charities, foundations and other nongovernmental
organizations in Russia. The vote endorsed a slightly better version of the
bill than the original one. Under pressure from the West, President Vladimir
Putin dropped proposed rules that would have forced foreign groups to
register as purely Russian groups. But they still will have to prove
periodically that their work does not contravene Russian national, social or
security interests. That is broad enough to make all unofficial groups
permanently vulnerable to the Kremlin’s whims.

Nobody denies a government’s right to regulate nongovernmental
organizations. But this law was written mostly to weaken Western support
for democratic movements in Ukraine and other former Soviet republics.
That was evident when Lyubov Sliska, one of Mr. Putin’s many supporters
in the Duma, the lower house of Parliament, snidely asked one of the bill’s
few critics, Vladimir Ryzhkov, what kind of passport he carried.

A bill with this baggage is unfortunate for three reasons: it reflects the
Soviet attitude that Ukrainians, for example, would not have supported
Viktor Yushchenko had they not been incited by devious outside powers.
Though some nongovernmental organizations are patronizing and meddlesome,
most are doing genuinely good and useful work. And finally, Mr. Putin is
popular and respected by his constituency, so he does not need to constantly
expand the Kremlin’s powers.

There is no stopping the bill. We can only hope that Mr. Putin and his
bureaucrats do not adopt it as a weapon with which to attack perceived
critics and opponents. Russia and the other former Soviet dominions need all
the honest voices they can muster. -30-
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10. HUMAN RIGHTS WATCH URGES G-8 MEMBERS TO PRESS
RUSSIA ON CURBING NON-GOVERNMENTAL ORGANIZATIONS

Associated Press, Moscow, Russia, Wed, December 28, 2005

MOSCOW – Human Rights Watch Wednesday urged members of the
Group of Eight to press Russia – chairing the G-8 in 2006 – on new
legislation that would severely restrict non-governmental organizations.

The bill has been approved by both chambers of parliament and is expected
to go to President Vladimir Putin for signature before the end of the year.

Critics see the measure as part of a Kremlin campaign to increase control
over society and stem dissent. Human Rights Watch said that the bill, in
spite of some softening amendments, would have an “extremely negative
impact” on Russian rights organizations and could result in the closure of
foreign-affiliated NGOs.

“Russian government officials would have an unprecedented level of
discretion in deciding what projects, or even parts of NGO projects, comply
with Russia’s national interests, as required by the bill,” Human Rights
Watch said in a statement circulated Wednesday.

The legislation’s sponsors claim it was necessary to stem extremism, but
critics say that it threatens the future of human rights groups and others
the Kremlin considers possible opponents.

“This unprecedented assault on the work of human rights groups will
invariably undermine the rights of all Russians,” Human Rights Watch
representative Holly Cartner was quoted as saying. ‘Leaders of the G-8
countries must put this issue at the top of their agenda with President
Putin.”

The bill’s backers and critics alike say it has grown from the Kremlin’s
increasing displeasure with NGOs that criticize the government, advocate
democracy and promote human rights before parliamentary and presidential
elections in 2007 and 2008.

Many such groups, which often get financing from Western institutions,
played significant roles in the mass demonstrations that helped bring
opposition leaders to power in the former Soviet republics of Georgia,
Ukraine and Kyrgyzstan, alarming Moscow and other governments in the region
and leading to claims that the political change was fomented by the West.

Human Rights Watch pointed to recent statements by highly placed officials
that called into question the legitimacy of foreign NGOs working in Russia.

The head of Russia’s Foreign Intelligence Service, Sergei Lebedev, said
earlier this month that humanitarian missions and noncommercial entities
were good covers for foreign spy agencies. Deputy Foreign Minister Alexander
Yakovenko said Russia’s foreign policy was seen through a distorted lens
“because Russian and foreign media quote opinions and comments of NGOs
financed by western money.”

The bill provides for a new agency to oversee the registration, financing
and activities of Russia’s more than 400,000 NGOs. That agency, not the
courts, would determine if an NGO should be dissolved. It would require
stringent, continual accounting before the government, which NGOs worry
would draw too many staff and resources away from their real work.
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11. “RUSSIA: THE STATE THEY’RE IN”

EDITORIAL: The Guardian, London, UK, Tue, Dec 27, 2005

Vladimir Putin will be keeping busy on the world stage in 2006 as Russia
assumes the presidency of the G8 for the first time. The country’s seat at
this exclusive global table owes more to flattery and nostalgia than
anything else. The G7 grew into the G8 in Boris Yeltsin’s day, though
fast-growing Russia (the world’s 10th-ranked economy) is not yet rich
enough to chair meetings of finance ministers. Still, it will be managing a
weighty agenda that includes macroeconomics, health spending,
development aid, climate change and terrorism.

So it is unfortunate in terms of substance and timing that the Duma,
dominated by pro-Kremlin MPs, has just passed a law tightening state
control over non-governmental organisations – part of the civil society
which any healthy democracy must embrace.

The bill was watered down after protests in the west, easing restrictions
for foreign groups such as Greenpeace and Amnesty, though not for their
Russian counterparts working on human rights and the environment. President
Putin insists the law is needed to stop terrorists and spies undermining the
state – an argument he has deployed to justify scrapping elections for
regional governors and restricting media coverage.

The truth is that he is stifling free debate while apparently working to
bring all aspects of Russian life under Kremlin control before parliamentary
and presidential elections in 2007-08. The sponsors of the legislation, with
a hint of KGB-style paranoia, wanted to weaken foreign, especially American,
support for democratic movements after the revolutions in Ukraine, Georgia
and Kyrgyzstan. Moscow has also been trying to undermine western
monitoring of elections in the “near abroad”.

The fact that all this forms part of a now familiar pattern does not make it
any more palatable. Those who want to see Russia become a properly
functioning modern country cannot ignore these developments, or episodes
such as the conviction of the ambitious oil tycoon, Mikhail Khodorkovsky.

Mr Putin has been one of the big winners of the post-9/11 “war on terror” –
indulged by George Bush and Tony Blair over Chechnya and treated with kid
gloves by Germany and other Europeans because of their energy needs.

Mr Putin famously deplored the collapse of communism as “the greatest
geo-political catastrophe of the 20th century”. But the future belongs to
democracies with civil societies, free media and independent judiciaries,
not to managed, waxwork versions of them. Russia’s G8 partners will have

to remind him of that in the course of the new year. -30-
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12. UKRAINIAN PM YEKHANUROV: A FIGHT ON TWO FRONTS

INTERVIEW: Ukrainian Prime Minister Yuriy Yekhanurov
By Yulia MOSTOVAYA; Nataliya YATSENKO; Serhii SLEDZ
Yuriy SKOLOTIANY; Tatiana SILINA; Oleksandr ROZHEN
Ihor MASKALEVICH; Vladimir KRAVCHENKO
Alla YEREMENKO; Olga DMITRICHEVA
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 50 (578)
International Social Political Weekly
Kyiv, Ukraine, Sat 24-30, December 2005

On Thursday, the Prime Minster of Ukraine, Yuriy Yekhanurov, paid a visit to
Zerkalo Nedeli. He answered questions from our journalists for almost three
hours and created the impression of a man standing firmly with both feet on
the ground. A few longed for a fight.

We did not remember that this New Year the Yekhanurov Cabinet will mark its
first one hundred days in office. We are grateful to Yuriy Ivanovych
[Yekhanurov] for accepting our invitation during such hard times for him,
his Cabinet and for Ukraine.

Currently, the Ukrainian Prime Minister resembles a peninsula in a storm of
problems: gas, the budget, a pre-election inefficient parliament,
disciplinary uncontrollable pro-governmental factions, the plans of the
opposition (and not only it) for the Prime Minister’s dismissal; and
internal opposition in the Our Ukraine party.

The isthmus, inspiring confidence in the Prime Minister, is his stable
relationship with the President. Yushchenko favors his second Prime Minster.
Not only does Yekhanurov provide a political, charismatic and managerial
competition; he is always distinctly proper, clear, industrious, and
organized. For the time present, Yekhanurov tops the list of Yushchenko’s
desired candidates for the Prime Minster’s post after the parliamentary
election.

Yekhanurov is not the first Prime Minister to come on a visit to ZN. His
predecessor also honored us with her presence. Unwittingly, we want to
compare our two guests.

Yulia Tymoshenko is the epitome of enchanting spectacle, elocution, economic
experiment, fantasy, flatness, energy, adventurism, workaholism,
ambitiousness, and creativity. She tries to charm everyone and to prove her
case.

Yekhnaurov demonstrates contempt for politics, confidence in his knowledge,
adherence to stability and classic solutions, as well as competence on
economic issues and awkwardness on political issues. He does not try to
please everyone or anyone. He answers questions honestly, ineloquently, yet
thoroughly. Yekhanurov does not try to make the impression of Mr. Know-All:
if he doesn’t know anything he openly says so, which is a rare quality.

Yekhanurov and Tymoshenko are like fire and water.

Tymoshenko would make a good Prime Minister for an even-tempered,
confident president, who can delegate power but at the same time who is
aware of his limits is and able to insist on his point of view.

Yekhanurov would make a good Prime Minister for a strong and creative
president, able to produce ideas.

So, it looks as if after the parliamentary elections Yushchenko will have to
look for someone different from these two (if he has a chance for that).

However, currently Yuriy Yekhanurov is on the front line. He organizes
defense, rallies forces, and finds allies to go on the offensive. His major
problem is that he cannot turn his back on the rear. Yet judge for
yourselves.
THE PRIME MINISTER, DISPUTING THE DAYS OFF
[ZN] – Yuriy Ivanovych, let us begin with the most interesting question: Was
it your idea to make January 1 to 9 days off; it is true that this idea
resulted from a lack of a clear vision by the government on whether Ukraine
will have gas after January 1 or not? They say that the Cabinet needs the
Nemiroff brand promotional action: “Booze instead of fuel” [which has a play
on words in Russian] as a time to realize what is going on with gas and to
secure itself against surprises.
[PM] – Super! This is a clear example of what may come out of a harmless
initiative.
We raised the issue of Christmas holidays, initiated by Kyiv’s
administration, in the talk with the president. Yushchenko supported this
idea, having mentioned that Christmas holidays are observed all over the
world. To tell the truth, at a Cabinet meeting I raised this issue without
any preliminary work or preparation. Only the Finance Minister and Social
Policy Ministers were against it. The discussion that followed proved that
most Cabinet members were positive about this idea. In any case, they
stopped coming to me with requests to approve their “business trips” during
the first week of January.
As a matter of fact, this is not an obligatory order, but a recommended one:
we cannot tell private businesses when they should work and when not.
Moreover, this recommendation does not apply to a whole number of state
organizations, such as the Post Office or the Pension Fund.

[ZN] – We can understand the position of the Finance Minister: fewer taxes
will go to the state budget. But why was the Labor Minister against it?
[PM]- He believes that the transfer of workdays to February and March will
have a negative effect on the wages of contract workers.

[ZN] – Many foreign ambassadors complaint that holidays are very unexpected
in Ukraine. It is very difficult for diplomatic missions (and not for them
only) to plan their work when it is not known how many days off will be
allowed for this or that holiday.
[PM]- In our case, everyone was informed two weeks in advance. The final
decision will be made at the Cabinet meeting on Friday. However, there is
indeed such a problem and it must be solved, despite the fact that it is not
the only problem requiring regulation.
ABOUT GAS, ARBITRATION, AND ROSUKRENERGO
[ZN] – Now the main thing. Will there be gas in Ukraine since January 1,
2006?
[PM] – I believe that the contract will be carried out and the gas will be
supplied. But. we will still be conducting nervous negotiations.

[ZN] – You mean the gas will be supplied despite the unfinished bargaining?
[PM] – As a matter of fact there is a contract between Naftogas of Ukraine
and Gasprom of Russia on volume and conditions of transit of Russian natural
gas through the territory of Ukraine for the period between 2003 and 2013.
It is currently in effect. I cannot imagine how a public company bound by
contract obligations can refuse to fulfill them. I asked the deputy head of
Gasprom, Oleksandr Riazanov, during our negotiations in Moscow on
December 19 in the presence of the head of the Russian Cabinet Mikhail
Fradkov: “Is the contract effective?” And he said: “Yes.”

[ZN] – Then why do the Russians say that they will stop contract supplies
of gas to Ukraine on January 1, 2006?
[PM] – One can always find a reason to make a statement. But in article 14
of this contract it is clearly stated that: “This contract comes in effect
on January 1, 2003. It remains effective until 10 am on January 1, 2014.”
And one more thing: “During the period between 2005 and 2009 the Customer
(Gasprom) will sell annually natural gas at the price of 50 US dollars for
1000 cubic meters, which is not subject to change by the parties, from the
gas transportation services of Russian natural gas through the territory of
Ukraine to ensure the gas balance of Ukraine.”

[ZN] – What do you think of possible arbitration with Gasprom?
[PM] – “Any disputes about these contract or as a result of it are subject
to examination and final settlement in the Arbitration Institution of the
Chamber of Commerce in the city of Stockholm.” (This is Article 12 of the
contract). I am not afraid of possible arbitration. Ukraine has already had
a positive experience of arbitration. So if we have to appeal, we know what
to do and where to go.

[ZN] – Under which conditions will Ukraine appeal to the Stockholm
arbitration?
[PM] – If we have some factual grounds for it. For the time being I don’t
have such grounds. But do you know, that I already have experience in the
Stockholm court? One summer the then-Minister of Justice approached me. He
called me in Dnipropetrovsk and said: “Yuriy Ivanovych, our planes are being
seized. I ask you [to help], you know property [issues].” I agreed that in
November I would fly to Stockholm. And then suddenly I’ve changed work. But
the Stockholm Court insisted that since we promised an expert, he must
appear before the court. They were told that the expert is the Prime
Minister, but said that did not matter. In short, we had to arrange a direct
TV link and I testified at the Stockholm court. Now I know how they work
there and can tell that they are very serious people.

[ZN] – Apart from the contract, there are appendixes to it and the documents
from the last negotiations. For example, Appendix # 4 of 9 August 2004 laid
down the conditions of the clearing of Ukrainian gas debts for the period of
2005 to 2009 for the total amount of 1 billion 250 million dollars. It also
laid down the price of the Russian gas (towards payment for the transit
services) at 50 dollars at the transit rate of 1.09375 dollars per 1,000
cubic meters in 100 kilometers. However, as it follows from the minutes of
negotiations between Gasprom and Naftogas on 23 August 2005, it was Naftogas
who put forward a proposal to “to consider the issue of early cancellation
of Appendix 4 of 9 August 2004. Doesn’t it come out that Naftogas proposed
changing the current gas price and the transit rate? Is there a documented
proof that such an intention was stated?
[PM] – I see what you are driving at. Indeed, there are two documented
proofs: the minutes from negotiations between Gasprom and Naftogas on 23
August and the minutes from 30 August 2005. Let’s consider them official
documents, since they were produced during an official negotiation, and
leave out the fact that such minutes do not entail commercial obligations.
The first of the two sets of minutes, in addition to the propositions of
Naftogas, reads that Gasprom will regard the proposal of the Ukrainian party
and will give its answer by 26 August 2005 with consideration of all
aspects, including the judicial one. If we assume that the letter of the
deputy to the Gasprom chair board A.Riasanov of 26 August was such an
answer, then it gives a negative answer concerning the change of the
conditions of the acting contract.
The last document is the minutes of the meeting in which it was said that
about 20 bilateral covenants, agreements and contracts should be changed in
order to reconsider the conditions of the contract.
Now, let’s see who signed those documents on behalf of Ukraine. Ihor
Voronin, deputy board chairman of Naftogas of Ukraine, signed Agreement 4
(2004), and Yuriy Nemchenko, another deputy board chairman signed both sets
of minutes.

[ZN] – Did Yuriy Nemchenko have enough authority to propose the
above-mentioned changes to the contract on behalf of the Ukrainian party?
[PM] – Yuriy Nemchenko was given the directive concerning his participation
in the negotiations. But it stated different things, which means that he was
given other oral instructions.

[ZN] – From whom? What is the issue, if he acted within the scope of his
authority? Is it gas transit indeed?
[PM] – The issue is the well-known organization RosUkrEnergo, which could be
called a private business supplying Turkmen gas to Ukraine. This is the
commercial or business component of the entire gas transportation project.
It makes money for its founders. The previous Cabinet made a decision to
replace RosUkrEnergo, because it was a “wrong” organization and it
transported the “wrong” gas. They wanted to substitute it with the “right”
organization with the “right” gas. This, however, did not happen.

[ZN] – As we understand, you defend RosUkrEnergo?
[PM] – What for? I defend previous the Prime Minister of Ukraine!
[ZN] – Why would not you seek to replace the operator of Turkmen gas
supplies to Ukraine?
[PM] – Why would we replace it? I am satisfied with the transportation, I am
satisfied with the fact that currently gas goes to Ukraine. You see, during
wars there are certain painful points of pressure on the opponent or
adversary. The number of such points should be limited. We cannot fight on
all fronts at once. A fight on two or three fronts has never been
successful. That is why Fuel and Energy Minister of Ukraine Ivan Plachkov is
now (December 22 – editors) in Turkmenistan and I can fly there the moment
it is needed.

[ZN] – Yuriy Ivanovych, who profits from the operations of RosUkrEnergo on
the Ukrainian side: Levochkin? Firtash? Boiko? Kuchma? Mohilevych? Or the
new people in the government?
[PM] – I don’t know this. I can only tell you that the current problems are
chiefly due to the fact that the system, which had been built for years, was
ruined recently. Now we should sort out the situation and think what to do
further. Of course we should look for the founders and find out the details.
We will. But now I don’t have time for that.

[ZN] – What authorities does Minister Plachkov have for negotiations in
Turkmenistan?
[PM] – I signed a directive for Plachkov.
[ZN] – What is it about, if it is not a secret?
[PM] – What secret! What are you talking about? We are a transparent
government. Plachkov went with a directive. I personally dictated it and
signed it.

[ZN] – Does it talk about the price of 60 dollars for 1000 cubic meters of
Turkmen gas at the border of Turkmenistan and Uzbekistan?
[PM] – What are you talking about! Even at the market people bargain in such
a way so that others do not hear them.
[ZN] – Yuriy Ivanovich, initially you supported the dismissal of Oleksiy
Ivchenko from the post of the board chairman of Naftogas of Ukraine and the
post of the deputy minister. Now you are not against his heading Naftogas.
What has changed?
[PM] – I did not like it that Ivchenko held two posts at the same time that
could not be combined. And it was not only him. There were three persons in
the Cabinet. Now Ivchenko has been dismissed from the political post.
[ZN] – Are you satisfied with his work?
[PM] – It is hard to say. I will be satisfied with it if we have normal
relations with our main supplier of energy sources. We’ll see.
ABOUT THE ECONOMY, PRICE FORMULAS AND THE
POLITICAL MANAGEMENT OF GASPROM
[ZN] – In the long run, is the gas price in Ukraine a good or unbearable
problem for Ukraine?
[PM] – It is an absolutely bearable problem. It is only a matter of a
transition period for the gas price increase. I believe that eventually it
will ensure true independence for Ukraine and transition from patriarchal
relations to normal business relations. Then we will indeed become a
European country.
But let us look at the gas balance first. About 76 to 80 billion cubic
meters of gas is annually consumed in Ukraine. What are the production
losses? I’ll tell you: 7.8 billion, or 10% of the total consumption. This
figure is alarming. That is why I ask: first, why do the gas losses make up
such a huge amount? Second, where is the gas lost?

[ZN] – In fact, you are speaking about the theft of the gas in Ukraine?
[PM] – Yes.

[ZN] – Will Ukraine set up its own gas meters at its eastern and western
borders? Or will there be only meters on the Russian side and meters for the
gas receivers on the Western border of Ukraine, as before? Or maybe we are
not interested in this?
[PM] – Now they’ll be set up. We are very interested in this. And
power-consuming furnaces will be replaced. But if you ask me the question
“When?” I’ll answer: I don’t know yet. I haven’t approached this topic yet.
Instead I have already gained an understanding of metrology issues. Our
metrology laboratory in Boyarka will be equipped with the most modern
equipment. After the appropriate certification procedure, it will be
authorized to certify operation pipelines.
We will take the following path: having received the conclusion of the
metrological laboratory we will be able to ask for an increase of gas
pressure in the main Ukrainian pipelines by 25%: in other words, to increase
by a quarter the carrying capacity of the Ukrainian gas transportation
system. We will have to do this, since Europe’s need in gas will
significantly increase, while we must ensure a reliable gas transit to
Europe through its territory.
The Bohorodchany Uzhhorod gas pipeline, which is currently under
construction within the framework of the Ukrainian-Russian gas consortium,
will increase the carrying capacity of the Ukrainian gas transportation
system, in the course of time. Meanwhile, we must enable our existing
facilities. The reliability of the gas transportation system is currently
the priority.

[ZN] – Much is said about a transition period in gas payments. But it is
unclear when it will start and how long it will be?
[PM] – Here is one option for a transition period, which is adopted in the
civilized world. Our current price is 50 dollars per thousand cubic meters.
This is a bargain price since we have patriarchal relations with Russia.
What price does Russia want to propose to us for January? Name one.

[ZN] – 230.
[PM] – The first issue is the fight about this price, the second – the
transition formula. We, for example, propose a 24-month transition period.
Or let’s say 12 months to make our calculations easier. Let’s multiply 50
dollars by 11 months and add to it 230 multiplied by 1 and divide it by 12.
This (65 dollars -editor) is the real January price. Then multiply 50 by 10,
230 – by 2 and so on. We will come up with the figure 230 for the last month
of the year.
I would like to emphasize: Gasprom is an open, public, and civilized
company, set up in line with the principles of international law. It cannot
allow price discrimination for its consumers. Consequently, we ask questions
which the Economics Minister will formulate: what is the price of the gas
transported to the Caucasus, Baltic region, Moldova, Belarus,
Transdnistrovie, and Ukraine? How is it arrived at? Then it may turn out
that a resident of the London suburbs, who owns some shares in Gasprom,
goes to court with the question: “Why is the management of an open public
company affected by politics, which in its turn negatively affects the
economic indices of the enterprise in which I have invested my money?”

[ZN] – To put it differently, I don’t care whether Russia is friends with
Belarus. It must sell gas to Belarus at the price of 230 dollars instead of
47 as it does now?
[PM] – Absolutely true. It is a matter of politics. A month ago the State
Duma of Russia adopted a law on liberalization of Gasprom shares; it such a
way, this company is becoming absolutely civilized. It can sell its shares
on the international market. But when a state interferes in the company
management, it worsens the management, which results in financial losses.
ABOUT FOREIGN COUNTRIES THAT WILL HELP US
[ZN] -Europe is another interested party. We know that you met with the
ambassadors of France, Great Britain, Germany and the United States last
Wednesday. Three of them represent the guarantor states of Ukraine’s safety
in compliance with the Budapest memorandum signed in 1994, when Ukraine
gave up nuclear weapons. Did you deliver letters to the ambassadors of these
countries requesting the implementation of the mechanism provided in article
6 of this document?
[PM] – No.
[ZN] -Will you?
[PM] – We do not have reasons for that.

[ZN] – But you know that Article 3 of the Memorandum prohibits economic
pressure aimed at subduing Ukrainian sovereignty to somebody’s interests and
thus gaining certain advantages. So, do you believe that Russia is not
currently exercising economic pressure on Ukraine?
[PM] – I gave instructions to the Economic Ministry, so that they will give
a clear definition of what “economic pressure”, “price discrimination”, etc
is. This will be done.

[ZN] – If on January 1st Russia reduces the gas supply to the Ukrainian pipe
by the amount allotted for Ukraine, while Ukraine continues collecting its
share from the gas pumped to Europe, which side will Europe take?
[PM] – There are no grounds to stop supplies of gas to Ukraine, since the
contract is still in effect. What does it mean, “reduce”? There is a maximum
pressure in the pipe, and a minimum. When there is a minimum, Europe will
not receive gas purely for physics reasons.

[ZN] – And what then?
[PM] – Then Europe will deal with the supplier together with us.
[ZN] – Will it deal with us and Russia or join us and deal with Russia?
[PM] – It will join us, I believe.

[ZN] – Against the background of gas negotiations, Russian politicians and
diplomats make statements concerning the return of VAT on the sale of energy
resources of the country of origin and on the toughening of Russia’s
positions on issues of the property of the former USSR abroad. Did they make
such proposals official in the negotiations?
[PM] -No.

[ZN] – Do you believe that the actions of Russia concerning the gas issue
were dictated by a wish to change the course of foreign policy of Ukraine?
[PM] – I think that it is you, dear journalists, who should give such an
assessment. This is a qualitative question. Please assess and draw your
conclusions, and we will draw ours.
CHAOS AND UNANIMITY ON THE GTC ISSUE
[ZN] This situation has exposed complete chaos in this country.
[PM] Not only this country. But you are right.

[ZN] Nevertheless, in Russia all the branches of government are
demonstrating a consolidated policy. They are like one fist. And the
Ukrainian officials are pluralistic in their words and deeds, to say the
least. Nobody knows what Matviyenko, Kinakh, or Lytvyn is saying about
natural gas at the moment. In January there will be even more chaos. When
will the Ukrainian government learn to work professionally and as a single
team? Will it ever learn?

[PM] Yes, this year our forces became sort of unbalanced. But I wouldn’t say
I have any problems with the National Security and Defense Council. Twice a
week, at 8 a.m. sharp, Anatoliy Kinakh comes to me and we discuss the
topical issues of the day and work out a common position. If you hint at his
statement on the gas transportation system, I can tell you that our opinions
on this issue are identical.
It’s easy to work with those who are “in the game”. Problems are created by
those who look for every pretext to advertise themselves by disseminating
firsthand statements, without even having read them.
And you are right that we, unfortunately, don’t have a serious information
policy. The former institutes have been liquidated and new ones haven’t been
created yet. What kind of information policy did we have before? – just
regular directives to journalists. Now they are free, but they haven’t
learned to work at a higher professional level. Our public service bodies
have too few high-class specialists in this field. Learning takes years.
And yet, this country is different now. [Lithuanian Prime Minister]
Brazauskas told me about the chairman of the Lithuanian state property fund,
who journalists caught driving the fund’s car to a forest. The official
found himself in the spotlight and was on the hot seat for two months: the
press wrote a lot about morality and taxpayers’ money. There was another
example in the Czech Republic: a high-ranking official was seen at a
football match at 7 p.m. and two hours before he was noticed getting into a
car. And one journalist saw him driving from one city to another with
flashing lights on – to get to the match in time. The journey between the
two cities took at least two hours, so the man had to leave his office one
hour earlier. And that was enough for him to have to resign.
It’s all about a healthy atmosphere in society. And we are on the way to it.
You know, (former U.S. President) Bill Clinton said when he visited Ukraine
last time, ‘Your press has been lashing out at politicians and members of
government so ferociously of late that I have the impression that your
country is really becoming democratic.’
As far as the parliament is concerned. Yes, the leaders of the major
factions have visited Moscow. When I was visiting Moscow last time, our
parliamentary delegation was there. I think some people have a switch in
their brains, which changes the color of their positions once they cross the
border. Of course, the different tenors of their statements don’t add to
Ukraine’s positions. Maybe the Russians are right, saying that we need some
catalyst to consolidate, that our nation lacks patriotism. But we are
already on the way: I have information from our industrialized regions about
seriously growing consolidation. Nothing consolidates people more than.
A threat to the business of owners of energy-consuming industries.

[ZN] In theory, the problem of sharply raised prices for natural gas
supplies ought to consolidate the Ukrainian society which is split by the
previous elections. But it’s not that simple. On the one hand, there is the
pro-Yushchenko electorate. Those who support the “orange team” regard the
gas problem as just an instrument of Russia’s political pressure on Ukraine.
But on the other hand, the pro-Yanukovych forces may just as well blame this
problem on the orange team: firstly, it initiated the changeover to a new
payment scheme and secondly, it has failed in negotiations with Moscow. If
the government keeps the people posted on its every step and avoids mistakes
in the negotiations, then the gas menace may split the country even more,
instead of consolidating it.

[PM]What can I say? – The question is absolutely correct. This problem has
several components: a state management, a legal, an informational, a civil,
and a corporate one. By a consolidated position I mean unanimity among the
President, the Government, and the Parliament. They are supposed to come up
with a unanimous position and convey it to everyone through direct contacts.

I think you can see that we have solved the problem of different comments. I
prohibited all members of the government except [Fuel and Energy Minister]
Ivan Plachkov from making any comments about the “gas process”. It is really
hard for former opposition politicians to put up with the restrictions of
their new executive positions. The former oppositionists, intoxicated by
freedom, need some time for “decompression”.

[ZN] A week before Plachkov went to Turkmenistan, Ukraine nearly disrupted
the regular air link between Kyiv and Ashgabat just because of a miserable
debt. How do you explain this fact?
[PM] I didn’t know.

[ZN] So what is your and Kinakh’s unanimous position with regard to the
Russo-Ukrainian gas transportation consortium?
[PM] Ukraine is for an international gas transportation consortium, which is
supposed to build new pumping facilities for the Novopskov-Uzhgorod
pipeline. The first part of the project should cover the 254-km
Bogorodchany-Uzhgorod section. A new 1,500-km pipeline would be a good job
for the consortium.
Besides, the Ukrainian side is positive (while the Russian side is not) that
the next part of the project should be the construction of a pipeline
section from the Kazakhstan-Russia border to Novopskov, and we insist that
this work be carried out by the GTC. I laid it all out to the Russian
officials during the negotiations.
We hail the idea of founding a consortium that would do this kind of job,
and everyone has to understand that we won’t agree to anything else. This is
the common position of the President, the Prime Minister, and the National
Security and Defense Council.

[ZN] The Russians have a different idea of a gas transportation consortium.
Why can’t you specify it?
[PM] Moscow offers us European prices.
[ZN] Or else…?
[PM] No “elses”. We are waiting for Russia’s official proposal on the
pricing formula.
THE BLACK SEA FLEET AND UKRAINIAN CHARITY
[ZN] Have you been to Crimea in the capacity of Prime Minister? This
question interests us because on Wednesday the Cabinet of Ministers
discussed the problems of the Russian Navy’s presence on Ukraine’s
territory. The prevailing sentiments in Crimea are pro-Russian rather than
pro-Ukrainian.
[PM] I haven’t visited Crimea. An order to study the issue was given back in
February by Yulia Tymoshenko. It took almost ten months to prepare the
necessary materials: the issue was ping-ponged from one agency to another.
The first agenda item at the Wednesday session was joint inspections by the
Ukrainian and Russian Defense Ministries. We agreed with the Russian side
that our inspectors would have access to the Black Sea Fleet premises and
the Cabinet of Ministers determined the inspection procedures.
Item number two was the 1997 agreement on the stationing of the Russian
naval base. Its first part pertained to the land and buildings leased to
Russia. This issue is in the competence of the Ukrainian Defense Ministry,
because this property belongs to Ukraine. The second part pertained to the
land, which the Black Sea Fleet used in Soviet times but has not ceded it.
They just stay there. We have referred this issue to the State Property
Fund. Besides, we have found 146 hectares of free land occupied without
permission by the Russian Navy. I asked [SPF Chairwoman] Valentyna Semenyuk,
‘Do you need a gun or will you go there unarmed and tell them that this land
belongs to us? You could tell them: all right, guys. If you need it, then
let’s strike a rent deal. If you don’t, then how much time do you need to
withdraw?’ I think it’s a normal approach.
There is also a question of Russian children going to our schools in Crimea.
This is Ukraine’s “humanitarian aid” to the Russian Federation. We don’t
demand money, but we want to know what status this process has. Our
polyclinics and hospitals render medical aid to Russian seamen and their
families. No problem – we wish them good health, but we want to know how
much we need to appropriate for their treatment. We calculate expenses for
medical aid to a certain number of Ukrainian citizens, but in actual fact
our hospitals provide services to more people. So we have to spend more.

[ZN] So how many hectares does the Russian Black Sea Fleet occupy?
[PM] I’ll give an exact figure as soon as the State Property Fund completes
the inventory. The available figures are tentative.
We know that a delegation from Moscow came to Kyiv in the spring. They
wanted to meet with Semenyuk, but she didn’t receive them.
I know about this unpleasant fact. I asked her, ‘What is your fund doing? If
you are against privatization, then who needs you here? If you don’t want to
deal with state property, why keep so many people on the staff?’
Finally, we found a common language and now the fund is ready to take on
this extra job. I think the fund will have a separate department to deal
with these issues.
[ZN] How realistic is your government’s resignation?
CHANCES FOR THE CABINET’S RESIGNATION AND
PROSPECTS FOR POST-REFORM AUTHORITIES

[PM] You know, this question doesn’t concern me personally. It is about the
government of Ukraine. It is hard to negotiate with anyone when your
opposite number takes you as a provisional head of government. Everybody
understands that the competence of this Cabinet expires in May, but its
current status is especially important, because it is a matter of national
interests and patriotism.
I might just as well capitalize on my “interim” status, but it’s against my
principles. I think I’ll never be a public politician – I’m not that type.
Besides, my background is that of an executive. The interim status may be
convenient for me in a way, but it’s not good for Ukraine and its economy.
A lot of political forces would be happy if this government resigned before
the parliamentary elections in March. But that is not allowed by the
Constitution. Besides, the parliament has too little time to give us our
walking papers, because its final session ends in mid-January.

[ZN] Who will be appointed Vice Prime Minister for Regional Policy?
[PM] The President has made up his mind and will name the Vice-Premier
next week.
[ZN] Is it Serhiy Grynevetsky?
[PM] I told you: the Vice-Premier will be appointed next week.

[ZN] A lot of Western analysts say that one of Ukraine’s biggest problems is
the permanent electoral process. The too-short period between parliamentary
and presidential elections leaves too little time for comprehensive reforms.
You top the election roll of the political force that is sure to win a lot
of seats in the new parliament. Are you going to initiate legislative
changes toward solving this problem?
[PM] Of course, it would be good if parliamentary elections immediately
followed presidential elections or vice versa. Then voters’ attitudes would
not change much. If parliamentary elections took place three or six months
after presidential elections, then both the legislative and the executive
branches of government would be dominated by the same political force.
Imagine what happens if a new parliamentary majority appoints a prime
minister who opposes the head of state and elects a speaker who opposes
both.

[ZN] What happens if there is no accord within this triangle?
[PM] You see, there are things I can agree or disagree with. But there are
rules of team play. There are higher goals and motivations that should
restrict one’s personal ambitions. To my mind, ambitions are irrelevant to
state affairs. And I want gradually to turn the Cabinet of Ministers into a
parliament of executives engaged in collective work.
In such a government, no one would hide under the table when the government
makes an unpopular decision like a price increase. In our government,
unpopular decisions are made by one man – Finance Minister Viktor Pynzenyk.
His post obliges him to make them and he is always left holding the bag. But
it’s not the way it should be.

[ZN] If the new parliament produces a speaker and a premier who represent
political forces that are alternative to Viktor Yushchenko, we will get an
uncontrollable and ineffective machine with each part clashing with the
other. But there is another bad scenario. A lot of businessmen are running
for parliament, so the new legislature is going to be dominated by business
interests even more than the incumbent one is. And when they receive their
MP mandates, they may join forces under the presidential auspices and elect
their speaker and premier. Then we will have a limited liability company
with all financial flows, staff competences, and other resources distributed
among the stakeholders. Do you know that?
[PM] It may happen so. You know, I am in a unique situation. I find it very
easy to negotiate both with other countries and within this country. On the
one hand, everybody knows and says that this government is short-lived. But
on the other hand, I am absolutely free as I am not bound by any
obligations.
I said to Oleksandr Moroz before my appointment, ‘If any member of my
government fails to fulfill any decision the Cabinet makes, he’ll be fired
on the same day. If you don’t agree, you may vote against me.’ The
Socialists debated for a long time and finally decided that the ministers
would have to comply with the Cabinet’s decisions. And the way SPF
Chairwoman Valentyna Semenyuk acted during the privatization of
Kryvorizhstal proved that the Socialists kept their word.

[ZN] She simply took a sick leave.
[PM] It’s not so. I called her on Thursday evening and told her to come next
morning and sign some documents. She came next morning and signed
everything she had to, and then took her sick leave. She did everything that
was necessary to complete the privatization procedure. I have no complaints
about her. When she asked to resign, I called the President and told him,
‘Semenyuk has fulfilled all her duties properly and she shouldn’t resign.’

[ZN] Which would you prefer after the elections: a government headed by
Viktor Yanukovych or a government headed by Yulia Tymoshenko?
[PM] I would prefer a government headed by Yekhanurov.
[ZN] Do you, as a candidate for the Premiership, have a program for the
country’s economic development?
[PM] I have a program in a small book and its full version is on my
computer.
[ZN] Why do you keep it under wraps?
[PM] I can’t make it public. I need to win the race. My economic views are
known well enough, so there’s not much to publish.
Do you think you can win the race, keeping your election program under your
hat like all other competing political forces do?
The publication of the program won’t help! You should understand one thing:
real actions are never articulated. They mustn’t be. There must be certain
limits of what can be said.
[ZN] Should voters hear lies?
[PM] You didn’t get it. There is 100 percent truth: the realities we are
living with and the problems we are facing. I don’t exceed the limits of
this 100 percent and don’t mix the truth with lies. But I can’t tell the
whole truth. Before a surgery the patient has to be prepared, at least
psychologically.
Such “window” plans may work in the international electoral practice. But we
in Ukraine have a specific situation. After last year’s dramatic
presidential elections, our voters became politically active. They are
interested in the political situation and seek information from the mass
media. There are many “autonomous” analysts who form the public opinion.
They are well aware that this country needs a plan of development.
The competing political forces try to compensate for the absence of real
plans and strategies with emotions, revanchist slogans, or their leaders’
charismas. But the voters (at least the most intelligent ones) are sick and
tired of hollow slogans and fetishes. They want to see a clear and honest
road map. Today all our political forces are repeating the previous
leadership’s mistake. You underestimate the people, palming off bright
banners and slogans instead of offering them feasible solutions to their
problems.
I let my practical deeds speak, leaving it up to the people to evaluate
them. I don’t want to lie, but I can’t tell them the whole truth, either. I
can’t tell them what Russian Prime Minister Fradkov said to me. I kept notes
of our talks and I can show them to you. But don’t use them anywhere! They
will not only destroy our trust, but will tell on the atmosphere of our
negotiations with Russia.
I can’t tell the whole truth to the country, but it doesn’t mean that I’m
not trying to solve at least twenty percent of all the problems. And here’s
what Fradkov said.

[ZN] Do you think we will have a strong government after the elections?
[PM] No. Take Brazauskas, for instance. He is criticized severely and we are
breaking our backs to achieve Lithuanian living standards. The Lithuanians
are dissatisfied with their low salaries. Their country is a member of the
European Union, but their monthly salaries average a mere euro 500.

[ZN] Are the Lithuanians satisfied with their taxes?
[PM] Who’s ever been happy about taxes?
It’s not until next fall that the new parliament will start passing bills.
And tax-related bills won’t be considered before the end of next year. If
the lawmakers manage to carry out a tax reform in 2007, then we can
introduce a new taxation scheme in 2009. Take, for instance, taxation of
real estate. It will take more than a year to start working. The bill on
taxation of real estate has been in the making for three years, and I’m
still unsure that it is ready.

[ZN] But the new parliament will hardly differ much from the incumbent one.
It might be even worse.
[PM]That’s exactly what I said to calm everyone down. I told Pynzenyk, ‘The
new parliament will be something! When you submit your national budget bill
for 2007, you’ll have a lot more problems than you’ve had with this budget.’
THE ARMY AND THE PRICE OF LIFE IN UKRAINE
[ZN] Your government adopted a defense program and the President supported
it. Under this program, UAH 8,900 million [$ 1,762 million] was earmarked
for defense in 2006. The NSDC decided to cover all expenditures with
allocations from the central budget, sparing the army the trouble of looking
for UAH two billion. This position was supported by the President. But in
accordance with the budget bill that the government submitted to the
parliament, the army is supposed to earn this two billion somehow. Is Viktor
Pynzenyk in charge of national security and defense?
[PM] The parliament has the final say.

[ZN] Yes, but the agricultural sector does not have to earn money: it
receives
subventions from the central budget. Why does the army have to?
[PM] Our state has been independent for 14 years, but our political elite
has not yet realized the vital importance of the army as an indispensable
institute of any sovereign state. At the same time, everyone understands the
importance of agriculture. Pynzenyk offered a compromise solution, which he
worked out jointly with the Budget Committee. That’s his job – to be the bad
guy.

[ZN] Why is the 2006 budget based on the old approach to life insurance?
Why is a police officer’s life priced at UAH 100,000 while a military
serviceman’s life costs UAH 17,000?
[PM] This is a matter of insurance. I see your point. Such inequality is
certainly a mistake. But it was my fault: I tried to solve this problem but
failed. We are going to work on it.
ON THE PRIVATIZATION PROGRAMME, PROPERTY
AND AMICABLE SETTLEMENTS
[ZN] – Mr Yekhanurov, you are one of Ukraine’s top experts on ownership
issues. Last time you spoke publicly about property rights and privatization
was at The Economist magazine forum in Kyiv. You said approaches to the
privatization of the Kryvy Rih oxidized ore works would be made public
within a week. Yet there has been no progress whatsoever since then.
Conflicting statements have been made about re-privatization. We still do
not know which owners will be eligible for amicable settlements, and which
won’t. Will privatization continue in 2006? It is not idle curiosity: the
lion’s share of the proceeds from privatization (totaling UAH 2.12 million,
as stipulated in the 2006 budget) is to be channeled into the
agro-industrial sector.
[PM] – Earlier we could see what was going on: the corruption-related,
shadow components were evident. Now the situation is less clear.

[ZN] – Hence my next question: why should the government want to run an
ordinary privatization if it could learn from Partskhaladze, who had his
corporation listed on the London Stock Exchange, made it a public company
and sold 35% of shares for about USD $140 million? Can you imagine how many
billions of dollars Ukraine could have got for KRYVORIZHSTAL, had it been
sold on the stock exchange? And the enterprise would have been spared the
owner’s dictate. Can we sell other enterprises in this way?
[PM] – I have always dreamt of doing so. I have been lecturing on
investments and stock markets since 1988. Yet the truth is that our country
has been unable to adopt national corporate legislation for years now. The
other day I spoke with a well-known MP, urging him to facilitate the passage
of the law on joint-stock companies. He said “no”. Do you know why? Because
of the closed joint stock companies! The law does not provide for their
operation.
It is a matter of legislation. Thus, for the time being, we will have to run
privatization on a case-by-case basis.
Besides, companies under Ukrainian jurisdiction can only place depositary
receipts on international markets, which is not a direct sale of companies’
shares but a sort of placement of secondary securities.

[ZN] – So Parliament would not adopt the law on joint stock companies,
would it?
[PM] – Unfortunately, every time we submit the draft to the Rada they
blackball it. Everybody knows the country needs this law. It is not bad, it
contains very clear provisions. However, the Supreme Rada Committee for
Economic Policy would not recommend it for passage because, as you correctly
noted, most committee members represent business, closed joint stock
companies, and they know what is in their interest and what is not. I was
told a few years ago that the joint stock company law would not be passed
before 2007. I thought the situation had changed, but it does not look like
it.

[ZN] – Shall we talk about the Nikopol Ferrous Alloy Plant ? The President
says it will be privatized; you say it will remain state-owned. What will Mr
Kinakh [Secretary of the National security and Defence Council] say?
[PM] – You will not find any scandalous disagreement on this matter. I just
voiced my personal opinion. I believe there are certain sectors or, rather,
sub-sectors and clusters in Ukraine that should have a secure niche on the
world markets. These are the aircraft building industry, ferrous alloys,
titanium, etc. It means I must bring together all the top managers of those
clusters and think what role the state should play with them and in
promoting them in their respective international markets.
Ukraine has the biggest share on the world market of ferrous alloys. The
Nikopol Ferrous Alloy Plant is the fourth biggest manufacturer in the world.
If we managed to harmonize the interests of all our national ferrous alloy
manufacturers so that they could stand united and play on the same part of
the field in international markets, we could achieve much more. So I see my
task as identifying the best possible way of developing the industry at
large, and then deciding whether to give it over into private hands, or keep
it in the state ownership. I have to know the target and how to hit it.

[ZN] – Prime Minister, sir, are there any guarantees that, while under the
State Property Fund’s (SPF) control, the Nikopol Ferrous Alloy Plant will
not be managed like KRYVORIZHSTAL was between private owners? As we
learnt from petitions from MPs, while the Socialist Valentyna Semeniuk was
managing KRYVORIZHSTAL on behalf of the SPF, a company owned by
a relative of another Socialist Party Member was receiving 180 thousand tons
of rolled metal monthly, which (by the most conservative estimate) amounts
to USD nine million per month.
[PM]- There are no guarantees, I am afraid. In my opinion, everything should
be privatized. I believe in private ownership, with no reservations. Yet I
want to reiterate, and I want to be heard: our aviation industry, titanium
and ferrous alloy industries should occupy the place they deserve on
international markets.
We need to identify this place and know our objectives. Only then can we
start selling enterprises. Having got the “big picture” and all the small
details, having studied the situation carefully and comprehensively, I might
suggest selling the all enterprises of an industry together, as a cluster. I
cannot rule out this possibility. My primary concern is for Ukrainian
manufacturers to become powerful and respected players on the international
markets.

[ZN] – Are you planning to sell shares to portfolio investors?
[PM]- Of course, we are. But again, it is up to the Supreme Rada to make the
decisions that would allow it. Adoption of the law on joint stock companies
will send a positive message to the outside world that we have introduced
civilized approaches in this country.
To be treated as a civilized economy, we should have clear and stable rules
for the game, say, on the stock market that the whole world will understand.
As matters stand, we are still trying to catch up with the “engine of
civilization”. We cannot afford to let it pass by and go ahead without us;
otherwise we will lose direction. There is an organization called the
Organization for Economic Cooperation and Development (OECD) uniting the
world’s thirty most developed countries. I have a dream that Ukraine would
become at least an observer in that organization. Then we would probably
understand the way the “golden billion” think, the way their legislatures,
economies and societies operate. Then, drafting national legislation, we
would take on board the best international management practices.
You know, there are very specific indicators and criteria that distinguish a
developing country likely to become a member of the club one day. We still
have a chance to belong to the “golden billion”. Amazingly, the current gas
crisis could enhance our chances.
It is in the Ukrainian mentality to want to please everyone. But things are
not like that in real life. In sustainable democracies, when a certain issue
is put to the vote, there will be those who lose the vote and feel bad about
it, but society at large will benefit. We are different. Our society reminds
me of a limited liability company with a slogan “Let us divide everything so
as to please everyone”. Who are those “everyones”? Decision makers are the
only ones who are pleased.

[ZN] – It is like the situation with protecting national sugar
manufacturers: we expedite the interests of 18,000, while 46,000,000 have to
buy expensive sugar.
[PM]- Right, but that would be another story. I have a document with me from
which I would like to quote just one phrase: “Ukraine is on the threshold of
the developed countries’ club”. This document substantiates this thesis.
Interestingly, the sector where I have special expertise – construction –
has a great role to play in advancing Ukraine towards the club of developed
economies. On Tuesday, at a meeting with the regional and local media, I
discussed ten criteria of civilized life. I spoke of the money that cannot
be made in either gas industry or metallurgy. The most promising sectors of
today where one could want to invest are sanitation, water supply, electric
power facilities, other municipal services, and infrastructure.
On land, scheming and construction

[ZN] – Do you agree that land is a colossal resource for budget revenues?
[PM]- I do.

[ZN] – [The Minister of Finance] Pynzenyk is struggling to draw up a modest
budget while huge revenues lie, literally speaking, beneath our feet.
[PM]- That is correct, but all land regulations are within Parliament’s
purview. Back in March, such issues were addressed effectively and
non-obstructively. Now we have to push laws through the Rada with great
effort. I am thankful to [Speaker] Lytvyn for his compassion and support!
It is three and a half years to go until the nest Presidential elections.
The country has an opportunity to carry out reforms. I recently spoke with
Slovak Prime Minister Dzurinda who, with a popularity rating of four per
cent, has managed to conduct all the required reforms.

[ZN] – To put one’s rating at stake, one should love one’s country more than
one loves oneself.
[PM]- Yes. We know what to do. We have three and a half years to do it. We
can transform the country within this time. Look at Lithuania. They had the
same starting conditions, but they have changed their country entirely.

[ZN] – Coming back to the construction industry, what is going on there? The
dynamic has been negative throughout the last year.
[PM]- We lack investments for want of stability. Investment is a process
extended in time. During the last presidential campaign it stalled – nobody
risked bringing money into a country living through a revolution. After the
elections, free economic zones were abolished. Potential investors thought
it was the beginning of an economic revolution that would bring
nationalist-communists to power. While they were sorting things out, time
was lost and opportunities missed.

[ZN] – But Ukrainians are ready to invest in construction; people are
willing to deposit their money in banks. Don’t you think it is more about
monopoly or collusion?
[PM]- Yes, all land plots have been distributed and it is very difficult to
break through onto the construction market. By way of explanation, rather
than excuse, I can tell you that in local governments, not a single official
in charge of land resources has been replaced over the last year. We have no
way of influencing local personnel policies. It is the local council’s
prerogative. When I was touring Dnipropetrovsk Oblast as a governor, people
kept asking me why old apparatchiki were still in their jobs. I did not know
what to tell them.

[ZN] – Actually, not all land plots have been allocated so far. One of your
notorious party-fellows has devised, in cooperation with a Russian-Ukrainian
businessman, a so-called “Seven Districts” scheme, whereby party lists would
be formed for elections to seven district councils in Kyiv Oblast (Boryspil,
Obukhiv, Brovary, etc) and their “men” would be planted onto other parties’
lists so as to get hold of the majority of seats, enabling them to control
decision-making in respective local councils. Those councils have in their
disposal land in the prestigious areas adjoining the capital-city. They
anticipate the effect of seven KRYVORIZHSTAL plants. Isn’t it clever? We can
have this plan implemented throughout the country: parties will have full
discretion to allocate land and their representatives will have immunity
from prosecution. Are you not terrified at that prospect?
[PM]- I am. And I am ready to take the steps necessary to prevent it from
happening.

[ZN] – What exactly are you going to do?
[PM]- You see, there are things that I cannot comment on. At the dawn of my
prime-ministerial career I started to talk, but then I realized I was wrong.
I was wrong once, twice, three times.

[ZN] – The President told you so, didn’t he?
[PM]- No, he didn’t. Our relations are most constructive. I am grateful to
him for giving me room to maneuver and be creative. For instance, I
nominated candidates for all the oblast administration heads appointed since
I took office. Of course, I never suggest that we consider only one person
for the position. I bring at least three CVs to the President, and he
decides whom to choose. Accidentally, all three recently appointed
administration heads are women.

[ZN] – Yes, we can see you prefer female officials.
[PM]- It all started with the head of the Main Audit Department.
As for the actions that I am planning to undertake, I can show you a list
that I drafted on the day of my visit to Moscow, at 5 AM. But I will not
discuss it with you lest it be misinterpreted later.
ON TECHNO-POOLS, INNOVATIONS AND
FREE ECONOMIC ZONES
[ZN] – Mr Yekhanurov, the 2006 budget has been tagged “the
development-oriented budget”. Yet no development is possible in a country
where all the resources for extensive growth have been depleted and all the
levers of intensive development have been liquidated. The President vetoed
the law on techno-pools; economy-related articles in the law on innovations
were blocked; the State Innovation Agency seems to be defunct. Under the
circumstances, how will Ukraine develop?
[PM]- Parliament has revised the draft law, with due regard for the
President’s recommendations, and considered it under another name. I will
try to persuade the head of state to sign it, and thus we will resolve
numerous problems.

[ZN] – Do you mean the law on techno-pools?
[PM]- Yes, the Cabinet passed a resolution to mitigate the situation with
equipment exports ensuing from the liquidation of free economic zones and
territories of priority development. However, there will be no returning to
the previous system. We admit there are problems with granting privileges.
Now we have to minimize the adverse impact. The governmental resolution and
the new law will allow us to rectify the situation.

[ZN] – What is being rectified, Prime Minister? The President insists on a
positive solution with respect to the bona-fide investors in free economic
zones, but the government, purportedly, is incapable of proposing such
solutions and effectively cooperating with Parliament towards their
approval.
[PM]- I will sign the new law on techno-pools.

[ZN] – Yet it is a particularity. For the innovations to work, the law
should give a broad definition of “innovations”. It should give freedom of
action not only to high-tech pools in Ukraine’s major
research-and-development centres, but also to scores of innovators locally.
[PM]- The fact of the matter is that talented Ukrainian entrepreneurs use
very narrow definitions of the national legislation as a bridgehead for a
“wide frontal attack”. Could anyone have imagined that some of our “most
creative innovators” would use free economic zones to import meat and such
things as produce? Our people are sometimes too ingenious.

[ZN] – Why have the Poles (as inventive a nation as the Ukrainians) managed
to make techno-pools work and bring massive dividends to the country? Why
should we impose so many restrictions as to rule out any initiative and
enterprise? Look at China, where innovation periods in techno-pools are
fully funded by the state. Why does it work there? Yuriy Ivanivych, do you
know about a joint Chinese-Ukrainian techno-pool in which our researchers
and engineers participate? They regret having to give their best ideas away
to another country. There, these ideas are translated into commodities that
sell like hot cakes for very good money. China makes huge profits. Yet in
this country, these same researchers and engineers working in very similar
techno-pools do not get anything. Moreover, they are treated as thieves.
Maybe they are not to blame, don’t you think?
[PM]- One should bear in mind that the law, once it is passed and signed,
will enliven some areas of innovation. However, it is my firm conviction
that the rules of the game should be the same for domestic and foreign
businesses, and that any privileges are faulty, in essence. In the late
1990s, they gave rise to several negative phenomena. At that time, it was
possible to pursue a local economic policy (in a privileged territory) that
had nothing to do with the country’s economic development and benefited
nobody but the people directly involved in the process. This is the nature
of all privileges. In Ukraine they are always discriminatory and, for the
most part, unfair.
ON “OUR UKRAINE”: THE PARTY LIST,
PROSPECTS AND COALITIONS
[ZN] – The President, you and some other party members suggested removing
the people implicated in corruption scandals – no matter whether fault has
been ascertained or not – from the party election list. Yet they stayed.
More than that, they manage the party. How could that happen?
[PM] – I think the people whose names the media frequently mentioned in a
negative context should have stepped down. Yet the party is a democratic
organization and took a different decision. I think a lot can be put down to
the Ukrainian mentality again: we did not want to hurt anyone. Besides, we
have been through very hard times together. Allegations have not been
proven, and the scandal died away.
That we all had an opportunity to voice our concerns in an open discussion
is a token of the party’s future transparency and organizational health. I
am glad I stated my position explicitly, although it cost me a friend or
two.

[ZN] – But the party is controlled by Poroshenko, Zhvania and…
[PM] – It is not true. Besides, you should remember the party’s age. It has
yet to grow and mature as a political force. There are a lot of young people
in the party. I once boasted of having a good reserve: now these people are
coming to the fore. My advisors are under thirty, graduates of western
universities, with fluent English. They gave up high salaries at foreign
companies for the sake of serving Ukraine. And they are starting to gain
true clout in the country’s politics.

[ZN] – Being number one of the “Our Ukraine” bloc, are you happy with
the election list?
[PM] – Frankly speaking, it is not the best list that we could have
produced. There are fewer new names than I would like to see on the list.
This morning, I studied it most thoroughly as a reserve cadre for the party
leadership. I know many of them personally as I used to chair the party’s
executive committee. As a rule, these are young people that would be in
demand soon.

[ZN] – Don’t you think it was distressing for the incumbent ministers to
find themselves at the bottom of the list? For example, at one of the recent
“Our Ukraine” conventions, Cabinet Minister Boutsa (who came to the
government together with you) was at the top of the list, while Messrs
Plachkov [Minister of Fuel and Energy] and Shandra [Minister of Industrial
Policy] were at or near the very bottom of the list.
[PM] – Boutsa is not on the list.

[ZN] – Not on the final list, that is true, but the party showed little
respect to the ministers. Why?
[PM] – You should not forget that Boutsa was the first deputy chair
of the party’s executive committee.
[ZN] – And Mykola Martynenko is the faction leader…
[PM] – One should judge by the end result.

[ZN] – What is your estimation of the “Our Ukraine” share of votes?
[PM] – I think we can expect 20% of the vote. What we actually get is
another matter. Our bloc has not launched its campaign yet, while several
other political forces have already reached their campaign apex. We will go
onto the campaign trail soon.

[ZN] – Will the Prime Minister and other ministers take a leave of absence
from their jobs for the campaign period?
[PM] – I guess we all have to continue working. I will discuss it with the
ministers representing other parties, too. I think they should stay active
in their jobs, taking no direct part in the campaign. The country cannot
afford to grant leaves of absence to half the Cabinet. On the other hand,
their parties have enough people on their list to run effective campaigns
without ministers.

[ZN] – Do you think the Bloc “Pora – Reforms and Order Party” has good
electoral chances?
[PM] – I think their chances are very good. They have got experienced
politicians and, more important, the people representing the spirit and
ethics of last year’s orange coalition, like Volodymyr Filenko and some
others.
ON ELECTRICITY EXPORTS, VAT REIMBURSEMENTS,
AND CLEAN UP
[PM] [1] – Can I tell you something that other journalists haven’t heard
yet? Starting on the first of January 2006, Ukraine will be exporting
electric power to Belarus in the amount of 2.5 billion kW/h. And I
appreciate the Belarusian President’s initiative in this transaction. The
Belarusians decided to diversify their power supplies.

[2] Second, we are opening the Dnipro River, and the Belarusians are
exporting their potash fertilizers to Europe, via Ukraine by the Dnipro and
then by the Danube. The Yugoslavs have restored the bridge in Novy Sad
and the process will be kicked off any time now.

[3] Third, electric power from Western Ukraine will be exported directly to
Slovakia, without entering Hungary (which was never the case but the
documentation used to indicate otherwise). Two weeks ago, electricity
tariffs for Hungary were raised. Thus Hungary will pay as much as other
importers of our electricity do, rather than half as much like before.

[4] Fourth, by 31 December 2005, the total non-reimbursed outstanding VAT
will have been reduced to UAH 700 million. This is the amount appealed in
courts. We will have returned the rest.

When in Lithuania, I asked local businessmen: “You know, we have reimbursed
the VAT and, I believe, the kick-backs have decreased. Is that so?” They
answered: “Yes, we have heard it’s eight per cent instead of the former
thirty”.

It is a joke, of course, but we are decontaminating our economy, withdrawing
it from the shadow step by step. You know we have to choose between figures
that look nice in reports and the need to clean up the national economy. The
latter will enable our country to reform.

At the moment we are cleaning up wholesale trade. In January-November it
decreased by 9% as compared with a similar period last year. Our GDP has
declined, which is bad. We take a lot of flack, but I do not despair. At the
same time, petrol prices are going down, although oil sales have made up as
little as 16% of the last year’s volumes. Our financial indicators have
improved two-fold. If you analyze the situation objectively you will come to
the same conclusion: traders have ceased re-selling oil several times
without leaving their office.
YURIY YEKHANUROV’S FORECAST FOR 2006
[ZN] – What are your forecasts for the next year?
[PM]- It will be better that this year. We will think more realistically. We
will behave in a more pragmatic manner. We will not have our heads in the
clouds but, rather, set attainable goals and seek down-to-earth ways of
achieving them. This will allow us to gain more confidence from our
compatriots, whose expectations of the administration will become more
reasonable as well.

It will be a challenging year for the government, which will have to learn
to operate under new conditions. So far we have no idea what these
conditions will be like. How will the branches of power interact? How will
the authority be distributed amongst the President, Parliament and Cabinet?
A lot will hinge on the passage and implementation of the laws “On the
Cabinet of Ministers”, “On the President”, “On Parliamentary Committees”,
etc.

They have already been drafted, but they should be adopted in conjunction
with a series of other laws and regulations. My impression is that the
Supreme Rada will start its lawmaking activities in October. We cannot
possibly do without them.

[ZN] – Do you mean to say that until October, Parliament will be
structuring itself?
[PM] – I think so.

[ZN] – The new Constitution, which is to take effect on 1 January 2006,
stipulates that unless parliament forms a majority within a month, the
President can dissolve it. Do you think the President will wait till October
to exercise this right?
[PM] – I think the imminent threat of dissolution will consolidate MPs, at
least for some time.

[ZN] – Which political forces will form alliances? What will the first
coalition look like?
[PM]- It is a difficult question. I hope we will be able to reconstruct
something like the “People’s Power” coalition. Of course, members of last
year’s orange coalition have very different approaches to the economy, but
we still can negotiate and agree on the principal matters.

The incumbent cabinet is very heterogeneous in terms of economic viewpoints
and political allegiances. It is a challenge to work together as it is, but
I am sure heading the next government will be much more complex an
undertaking. Every minister in the new government will have a political
force behind him or her, invincible due to its status as a coalition member.

Today, ministers know they can be fired for failing to do their job
properly. In the future, it will be difficult to dismiss an incompetent
minister propped up by a coalition member-party. On the other hand, a
minister will become a more responsible and independent player. He or she
will have real managing powers, which I like.

[ZN] – What about state secretaries, a position the President is going to
re-introduce in the ministries?
[PM]- State secretaries will have a different role to play. The country
cannot take the risk of depending on politicians, who often replace one
another. Somebody has to ensure sustainable public administration. This will
be the state secretaries’ task.

[ZN] – What are your economic projections?
[PM] – At this juncture, it is hard to say. I will not give you any
indicators different from those cited in the 2006 State Budget.
Fundamentally, the situation is not bad, but a lot depends on the outcomes
of the gas negotiations.

[ZN] – You expect Parliament to start making laws in October. Given that,
when will Ukraine accede to the WTO?
[PM]- For that we should adopt all the required legislation.

[ZN] – If Parliament starts adopting it in October next year, Russia will
make it to the WTO before us, won’t it?
[PM] – Moscow’s path to the WTO is thornier. The difference between
Ukraine’s and Russia’s approach to WTO accession is that Ukraine is
prepared to reach compromises, where Russia is not. It is more difficult
for them to negotiate.

[ZN] – But the Russian working group is larger and more experienced than
ours.
[PM] – I’ll tell you this: Ukraine often declares its intention to join NATO
and has a staff of eight in our rep office in Brussels. Russia does not plan
to join NATO but its rep office in the Alliance’s HQ is 80-men strong. It is
just an illustration of the difference between declarations and practical
steps in promoting national interests. -30-
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