THE ACTION UKRAINE REPORT – AUR – Number 636

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 636
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, FRIDAY, JANUARY 6, 2006

——–INDEX OF ARTICLES——–
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

1. PRESIDENTIAL-PARLIAMENTARY UKRAINE BECOMES
PARLIAMENTARY-PRESIDENTIAL REPUBLIC
Ukrainian News Agency, Kyiv, Ukraine, Sun, Jan 1, 2006

2. Q&A – UKRAINIAN CONSTITUTIONAL REFORM
Constitutional amendments took effect in Ukraine on January 1, 2006
Transfer to parliamentary republic after parliamentary election in March
BBC Monitoring Research Service, UK, Thu, December 29, 2005

3. YUSHCHENKO CHALLENGES CONSTITUTIONAL REFORM
New Ukrainian constitutional amendments come into force
ANALYSIS & COMMENTARY
: By Oleg Varfolomeyev
Eurasia Daily Monitor, Volume 3, Issue 1
The Jamestown Foundation, Wash, D.C., Tuesday, Jan 3, 2006

4. UKRAINE: NAT COMMISSION CRITICIZES AMENDMENTS TO
CONSTITUTION WANTS TO PREVENT ENTRY INTO LAW
Amendments to the Constitution are violation of principles of democracy,
national sovereignty, distribution of powers, rule of law, and legitimacy
.
Ukrayinska Pravda On-line, Kyiv, Ukraine, Wed, December 28, 2005

5. CARPATHIAN MOUNTAIN PROTECTION PLAN STARTS
Hungary’s ratification meant that the environmental protection pact had
been ratified by four of seven signatories and thus came into force.
Ukraine, Slovakia, and the Czech Republic had previously ratified.
REUTERS, Oslo, Norway, Wednesday, January 4, 2006

6. WESTERN UKRAINE SALT MINE HELPS ASTHMATICS
Mine wants to attract more patients from abroad especially British people
By Helen Fawkes, BBC News, Solotvyno, western Ukraine
BBC NEWS, United Kingdom, Tuesday, January 3, 2006

7. DOCUMENTS REVEAL DIPLOMACY DURING UKRAINE UPRISING
Andrew Robinson, Canada’s ambassador to Ukraine, had no time for
diplomatic niceties when it came to the trampling of democracy
By Mike Blanchfield, The Ottawa Citizen
Ottawa, Canada, Saturday, 24 December 2005

8. NASA INVITES UKRAINE SPACE AGENCY TO JOIN PROGRAM
Associated Press (AP), Kiev, Ukraine, Tue, December 27, 2005

9. POLISH COMPANY BARLINEK WILL BUILD WOODEN FLOOR
BOARD FACTORY IN UKRAINE
Barlinek is Poland’s largest and world’s fifth natural wooden floor producer

10. UKRAINE ON TRACK FOR RECORD WHEAT HARVEST
Australian Broadcasting Corporation (ABC) Rural Radio
Sydney, Australia, Wednesday, December 28, 2005

11. UKRAINIAN STATE CO SIGNS CONTRACT WITH U.S. CO
HOLTEC INT TO BUILD NUCLEAR WASTE STORAGE FACILITY
Associated Press (AP), Kyiv, Ukraine, Monday, Dec 26, 2005

12. VILLAGERS REUNITED BY OPENING OF SLOVAK-UKRAINE
PEDESTRIAN BORDER CROSSING, SEPARATED FOR 60 YEARS
Villagers reunited by Slovak-Ukraine border crossing
Andras Gergely, Reuters, Velke Slemence, Slovakia, Fri, Dec 23, 2005

13. FORMER UKRAINIAN PRIME MINISTER YULIYA TYMOCHENKO
MAKES PUBLIC TEXT OF GAS DEAL WITH RUSSIA
UNIAN news agency, Kiev, in Ukrainian 1551 gmt 5 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 05, 2006

14. FORMER SBU HEAD TURCHYNOV SAYS ROSUKRENERGO’S
PRESENCE IN UKRAINIAN-RUSSIAN GAS AGREEMENTS SHOWS
EXISTENCE OF CORRUPTION AT HIGH ECHELONS OF POWER
Ukrainian News Agency, Kyiv, Ukraine, Thu, January 5, 2006

15. UKRAINIAN EX-PRIME MINISTER TYMOSHENKO SAYS
GAS DEAL WITH RUSSIA BETRAYS NATIONAL INTERESTS
One Plus One TV, Kiev, in Ukrainian 1730 gmt 5 Jan 06
BBC Monitoring Service, UK, in English, Thursday, Jan 05, 2006

16. MIXED REACTION FROM UKRAINE OVER GAS DEAL
By Tom Warner in Kyiv, Financial Times
London, United Kingdom, Thursday, January 5 2006

17. RUSSIA-UKRAINE GAS DEAL TOO MURKY FOR COMFORT
ANALYSIS
: By Douglas Busvine and Elizabeth Piper
REUTERS, Moscow/Kiev, Thursday, January 5, 2006

18. STATE SEC RICE CENSURES RUSSIA IN UKRAINE GAS FIGHT
Accused Russia of using its energy wealth as a political weapon
By Anne Gearan, AP Diplomatic Writer, Wash, D.C., Thu, Jan 5, 2006

19. RESTRAINED US REBUKE TO PUTIN ON GAS DISPUTE
By Caroline Daniel and Guy Dinmore
Financial Times, United Kingdom, Friday January 6 2006

20. RUSSIA’S CONDUCT WORRIES ITS PARTNERS
Gas crisis a wake-up call for Europeans
By Anna Badkhen, Chronicle Staff Writer, San Francisco Chronicle
San Francisco, California, Thursday, January 5, 2006

21. HOW NOT TO CONVERT GAS TO POWER
ANALYSIS & COMMENTARY: By Celeste A. Wallander
International Herald Tribune, Neuilly Cedex, France, Thu, Jan 5, 2006

22. FOR MANY COUNTRIES, NOWHERE ELSE TO TURN
NEWS ANALYSIS
: Judy Dempsey, International Herald Tribune
Neuilly Cedex, France, Thursday, January 5, 2006

23. GAZPROM’S A STOCK WORTH WAITING FOR
Energy giant is the winner in the Ukraine/Russia natural gas battle.
Can investors be winners too?

PLUGGED IN – ANALYSIS FROM FORTUNE
By Nelson Schwartz, Fortune senior writer
New York, New York, Thursday, January 5, 2006


24. RUSSIA: GAZPROM — A TROUBLED GIANT
ANALYSIS
: By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, December 6, 2006

========================================================
1
. PRESIDENTIAL-PARLIAMENTARY UKRAINE BECOMES
PARLIAMENTARY-PRESIDENTIAL REPUBLIC

Ukrainian News Agency, Kyiv, Ukraine, Sun, Jan 1, 2006

KYIV – Ukraine has changed its government system from presidential-
parliamentary to parliamentary-presidential with the constitutional
amendments passed by the Verkhovna Rada on December 8, 2004
coming into force.

The constitutional amendments stipulate that this year’s elections to
parliament will be held exclusively on a proportional basis and voters
will vote only for a political party, while the previous requirement that
one half of parliament must be formed on a majority basis (i.e. when
voters vote for a candidate in their constituencies) will be no longer
valid.

The Verkhovna Rada and local council deputies will serve a five-year
term instead of four years.

Rada is required to form a coalition of more than 225 deputies from
parliamentary factions within a month of its election.

Within two months of Rada election the coalition must nominate
candidates for posts of prime minister and ministers and after that the
President officially submits the names of his nominees for the posts
of prime minister, defense minister and minister of foreign affairs.

Rada approves the prime minister’s nominees for seats in the Cabinet of
Ministers, chairman of the Antimonopoly Committee, chairman of the
State Committee for Television and Radio Broadcasting, and chairman
of the State Property Fund.

Previously, parliament consent was required for presidential nominees
for premiership, posts of Antimonopoly Committee chairman and State
Property Fund chairman; the President was to appoint the remaining
Cabinet members himself.

The constitutional amendments vest the President with the authority to
dissolve the parliament if it fails to form a coalition within one month of
its election or fails to appoint the government within two months.

Rada appoints and dismisses the chairman of the Security Service at the
recommendation of the President and gives consent to the appointment
and dismissal of the general prosecutor by the President.

Parliament consent was not require for the appointment and dismissal of the
Security Service head by the President before, and the President appointed
the prosecutor general with parliament consent, but could remove him
independently.

The revised Constitution stipulates that the Rada deputy elected on the
political party list must enter a deputy faction of the respective party and
cannot leave it, or otherwise his deputy mandate will be terminated.

The court may urgently terminate the powers of the deputy who in 20 days
does not execute the norm of the law prohibiting combination of deputy
powers with government service, any other paid activity or entrepreneurship
(except for teaching, research or creative work).

The President, Rada deputies and the Cabinet of Ministers retain their right
to submit legislative initiatives to parliament, but the National Bank no
longer has this right.

The revised Constitution stipulates that in case of early termination of
presidential powers, the parliament speaker will perform his duties until
new president takes office (in the old version the prime minister
substituted the president).

The Cabinet vacates the seats after parliamentary elections (after election
of new president, according to the old version).

The amended Constitution clarifies the provision on publication of laws
vetoed by the President and again passed by parliament: if the President
does not sign the bill in 10 days, the law is to be published by parliament
speaker under his signature without delay.

The amended Constitution gives the President the powers to suspend
validity of Cabinet acts if he considers them unconstitutional and turn to
the Constitutional Court for a judgment on their constitutionality (the
President could simply nullify Cabinet acts before).

The powers to create, reorganize and abolish the ministries and other
central executive bodies of power are given over from the President to
the Cabinet of Ministers.

The Chapter on the Prosecutor’s Office is supplemented with the provision
that empowers prosecutors to monitor observance of human rights and
freedoms and laws thereon.

As Ukrainian News earlier reported, the Verkhovna Rada adopted the
constitutional changes on December 8, 2004 during the presidential
elections contested by Viktor Yuschenko and Viktor Yanukovych.

To end the disputable elections, the frontrunners reached a compromise
to vote on two bills simultaneously, the political reform bill and the bill
amending the law on presidential elections.

Yuschenko considers the constitutional amendments imperfect. The
effective Constitution was endorsed on June 28, 1996 and has never
been revised. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2. Q&A – UKRAINIAN CONSTITUTIONAL REFORM
Constitutional amendments took effect in Ukraine on January 1, 2006
Transfer to parliamentary republic after parliamentary election in March

BBC Monitoring Research Service, UK, Thu, December 29, 2005

KIEV – Constitutional amendments devolving some presidential powers
to parliament take effect in Ukraine on 1 January 2006. In reality, the
transfer to a parliamentary republic will not come to pass until after a
parliamentary election in late March 2006.

However, the future of the reform is touch and go, as President Viktor
Yushchenko has signalled his dissatisfaction with the changes, which may
lead to their revision or reversal.

[1] Q: What is the essence of the reform?
A: The reform is meant to improve the current system of power dominated by
the president by putting more checks and balances into place. The reform
extends parliament’s tenure from four to five years. The amendments grant
the parliamentary majority the right to nominate a prime minister, whose
candidacy the president is obliged to submit to parliament for final
approval.

The prime minister, who is described as the head of the executive branch of
power, then nominates members of the cabinet to parliament for approval.
Under the previous system, the appointment of ministers was the sole
prerogative of the president.

[2] Q: Does this mean Ukraine will have a weak presidency?
A: Not really. The president is empowered to nominate defence minister,
foreign minister and security service chief, whose candidacies are subject
to approval by parliament. In addition, the president retains the right to
appoint all regional governors and the prosecutor-general (the latter with
parliament’s endorsement). In contrast to the current situation, the
president is also entitled to dissolve parliament if it fails to form a
majority within 30 days or fails to appoint a government within 60 days of
the election.

The president keeps the right to sign and veto laws. The president remains
the supreme commander-in-chief of the armed forces, the head of the
National Security and Defence Council and the guarantor of the constitution,
which allows him to overturn cabinet resolutions and parliament’s laws if they
run counter to the constitution.

[3] Q: Who initiated the constitutional reform?
A: The reform was officially proposed in 2002 by the then president, Leonid
Kuchma, who apparently saw it as a way of getting the legislature to share
responsibility for the government’s performance and also as a tool in
disbanding parliament if it became totally uncooperative. With time,
however, the idea of political reform seemed to evolve into a way of
offsetting the consequences of a looming opposition victory in the 2004
presidential election.

Critics of the reform often described it as Kuchma’s ploy to cling onto
power. Meeting fierce resistance from the opposition and losing some of its
most radical provisions, such as the introduction of a bicameral legislature
and the election of the president by parliament, the reform appeared stuck
in parliament in the autumn of 2004, with no simple majority in place, much
less a constitutional one, to approve the second reading.

[4] Q: Then, how were the amendments adopted?
A: The changes to the constitution were adopted on 8 December 2004 as
part of a compromise deal between the then opposition led by Yushchenko
and the supporters of outgoing President Kuchma.

In the middle of a dramatic civil disobedience campaign staged by
pro-Yushchenko forces in protest against a rigged runoff presidential
election and known as the Orange Revolution, Yushchenko agreed to see
his presidential authority curtailed by constitutional reform bill No 4180 in
exchange for electoral law amendments that enabled the opposition to
replace the Central Electoral Commission, minimize election fraud and
ultimately win the rerun of the election. Another bill in the package was
draft law No 3207-1 on local government, which provided for the central
authorities delegating more power to the regions.

[5] Q: How did the vote go?
A: For the constitution to be amended, a two-thirds majority is required, as
well as the go-ahead from the Constitutional Court between the first and the
second readings. The package vote won the overwhelming support of 402
MPs in the 450-strong legislature. This was the second and final reading for
the constitutional reform bill, which had already been okayed by the
Constitutional Court earlier that year.

[6] Q: Why didn’t the amendments go into effect immediately?
A: The implementation of the reform was postponed as a concession to
Yushchenko, whose supporters were blocking all key government buildings,
including President Kuchma’s administration and residence. The
constitutional changes were to have taken effect on 1 September 2005 if
local government bill No 3201-7 had passed the final reading by that time,
which did not happen. If not, the amendments are to enter into force on 1
January 2006 regardless.

[7] Q: What do politicians think?
A: Ukrainian politicians are split on political reform. It is ardently
backed by the pro-Kuchma political forces that suffered defeat in the 2004
presidential election: the Party of Regions and the United Social Democratic
Party. In addition, the reform is supported by the leftist Communist and
Socialist parties. The reform is opposed by pro-Yushchenko parties.

Other political forces, such as former Prime Minister Yuliya Tymoshenko’s
party, have changed their stance from outright rejection to hints about
possibly accepting it – apparently for reasons of expediency rather than
ideology.

[8] Q: What of public opinion?
A: Ukrainian society has largely been indifferent to political reform while
political experts have expressed a wide range of opinions. Some pundits have
described the package vote in parliament as a fatal mistake by Yushchenko,
which cancelled out all his gains in the presidential election. Others, such
as Volodymyr Malynkovych, see the reform as Ukraine’s progress towards
European-type democracy.

The Council of Europe’s Venice Commission quoted by the Ukrainian
analytical press has pointed out some serious flaws in the constitutional
amendments, such as lack of clear mechanisms for the implementation of
decisions and the retention of a strong presidency in contrast with the
declared switch to a parliamentary republic. The independent weekly
Zerkalo Nedeli has pointed out that the new law makes no provisions for
the president’s impeachment should he fail or refuse to implement decisions
by parliament.

[9] Q: What does the president think?
A: Despite frequent criticisms of the constitutional amendments and
admissions that they were adopted under pressure to secure his election
victory, President Viktor Yushchenko had until recently denied any plans
to review the political reform. He said he had no intention of clinging onto
his significant powers. He indicated a change of mood at his latest news
conference on 20 December, promising “not to block the reform” only
until the New Year.

Presidential plans to reverse the reform are indirectly confirmed by a
statement by Justice Minister Serhiy Holovatyy on 28 December, who
denounced the amendments as being illegitimate and not meeting European
standards. Holovatyy recommended challenging the amendments in the
Constitutional Court. -30-
———————————————————————————————
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3. YUSHCHENKO CHALLENGES CONSTITUTIONAL REFORM
New Ukrainian constitutional amendments come into force

ANALYSIS & COMMENTARY: By Oleg Varfolomeyev
Eurasia Daily Monitor, Volume 3, Issue 1
The Jamestown Foundation, Wash, D.C., Tuesday, Jan 3, 2006

On January 1, 2006, Ukraine began its transformation from a
semi-presidential republic into a parliamentary democracy. The reform is
in line with the constitutional amendments that the Verkhovna Rada
(parliament) passed at the height of the Orange Revolution in late 2004.

This was a compromise deal between Viktor Yushchenko and a faction
of the supporters of his rival Viktor Yanukovych, which made it possible
for Yushchenko to be elected president in a repeat runoff election
sanctioned by the Rada. Yushchenko now wants to revise the reform,
arguing that it is not in the nation’s interest.

In the early 1990s, Ukraine preferred a French-type republic with a strong
president and a weak prime minister to a parliamentary republic, the system
chosen by Ukraine’s western neighbors like Hungary and Poland. In the
beginning, this choice probably helped consolidate a nation that had no
history of statehood. But later on, especially during Leonid Kuchma’s term
as president, many critics started to argue that a strong presidency had
become a hindrance to progress.

Closer to the 2004 presidential poll, when it was becoming clear that
Kuchma’s team would lose to Yushchenko, the tables were turned. The
vanquished elite started to push for constitutional reform in order to
weaken the future president. They succeeded on December 8, 2004, when
Yushchenko agreed to back the reform in exchange for the Rada majority’s
go-ahead to the “third round” of the presidential election after the
falsified November runoff election, in which Yanukovych had claimed
victory. After winning the election, Yushchenko did not conceal his
dislike of the reform, but he agreed not to torpedo it for the sake of
stability.

In accordance with the constitutional reform, the new Rada, which should
be elected on March 26, 2006, will serve five, rather than four years, as
previously. It will also be institutionally stronger. The Cabinet appointed
before the election will have to resign, which was not necessary before the
reform. Now the Rada majority, rather than the president, will appoint the
prime minister and most of the Cabinet ministers. The president will lose
the right to fire the prosecutor-general, which will be the Rada’s
prerogative. It will be up to the Cabinet, rather than the president, to
create new Cabinet ministries and other executive bodies.

The reform, however, stopped short of a transition to a fully parliamentary
republic, as the president retains certain important functions and acquires
several new ones. The president retains the right to nominate the foreign
minister, the interior minister, and the defense minister, as well as to
appoint the prosecutor-general and regional governors. Additionally, the
president obtains the right to dissolve the Rada if it fails to form a
majority within 30 days after election or to form the Cabinet within 60
days. The president also remains the army’s commander-in-chief and
chairman of the National Security and Defense Council.

The reform is controversial. It may lead to serious standoffs if the
president and the parliamentary majority belong to rival camps. For example,
it is not quite clear what might prevent the president from dissolving the
Rada as often as he wants to, if there is no stable majority in the Rada and
consequently the Rada is unable to appoint the Cabinet within two months
of the election. The reform is apparently also out of tune with European
standards, as it strengthens the position of the prosecutor-general and
limits political freedom, introducing the so-called imperative mandate,
under which people’s deputies will not be allowed to leave the parties from
whose lists they were elected to the Rada.

These weak points of the reform, not just the reluctance to share authority
with the Rada, as President Yushchenko’s opponents claim, have prompted
him to call for the reform’s reversal. During a December 20 press conference
Yushchenko for the first time announced that he would fight the reform after
the New Year. On December 28, Justice Minister Serhiy Holovaty denounced
the reform, saying it is not in line with democratic standards. In a
televised interview on December 30, Yushchenko said the reform would
“worsen relations between the branches of power and make the government
irrational.” He suggested reversing the amendments through a referendum.

A referendum is probably the only tool that might change the situation in
favor of Yushchenko now. The current Rada overwhelmingly backs the new
system. Not only have the opposition United Social Democratic Party and
the Communists harshly criticized Yushchenko for his calls to reverse the
reform, but Rada Speaker Volodymyr Lytvyn (who has told state TV the
reform should prevent the president from turning into a “tsar”), and
Oleksandr Moroz, whose Socialist Party has supported the Orange
Revolution and Yushchenko’s government also agree. And Yanukovych
even went as far as suggesting that the government deliberately provoked
the natural gas row with Russia in order to disrupt the constitutional
reform. -30-
———————————————————————————————-
SOURCES: Channel 5, December 20, 22; UT1, December 27; 2000,
December 30; Inter TV, December 28, 30
——————————————————————————————–
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4. UKRAINE: NAT COMMISSION CRITICIZES AMENDMENTS TO
CONSTITUTION WANTS TO PREVENT ENTRY INTO LAW
Amendments to the Constitution are violation of principles of democracy,
national sovereignty, distribution of powers, rule of law, and legitimacy
.

Ukrayinska Pravda On-line, Kyiv, Ukraine, Wed, December 28, 2005

KYIV – The National Commission on Democracy and Rule of Law calls for
drafting a submission to the Constitutional court of Ukraine in order to
prevent the entry into force by the Law No. 2222-VI, known as the Law on
political reform.

“The process of review and adoption of the amendments to the constitution
was conducted with the gross violations of rules contained in the Section
XIII of Ukrainian Constitution and in the Rules of Procedure for Verkhovna
Rada” – the Report, prepared by the Commission says.

The paper criticizes amendments to the Constitution as a violation of the
principles of democracy, national sovereignty, distribution of powers, rule
of law and legitimacy.

Moreover, after conducting a comparison of the prospective amendments
with the documents, adopted by the Council of Europe, the Commission
had established a discrepancy between the Law No. 2222-VI and the legal
framework of COU.

“The National commission had come to the conclusion that the Law No.
2222-VI on amendments to the Constitution of Ukraine, dated December 8,
2004 shall be regarded as nullum ab initio. Therefore it may not be
considered as the element of the current Ukrainian Constitution,” – says the
press-release prepared by the Ministry of Justice.

According to Justice Minister Serhiy Holovatiy the report of the commission
is just a legal analysis, free of any political considerations.

Mr. Holovatiy added that according to the report “the changes which are to
be made the constitution according to the Law No. 2222-VI were not supported
by majority of Ukrainian society and by most of the members of Verkhovna
Rada”.

It was widely reported that Mr. Holovatiy is staunch opponent of the
amendments, that were made to the Constitution in December, 2004. The
Law No. 2222-VI would injure on January 1, 2006
. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
5. CARPATHIAN MOUNTAIN PROTECTION PLAN STARTS
Hungary’s ratification meant that the environmental protection pact had

been ratified by four of seven signatories and thus came into force.
Ukraine, Slovakia, and the Czech Republic had previously ratified.

REUTERS, Oslo, Norway, Wednesday, January 4, 2006

OSLO – A seven-nation environmental plan to protect the Carpathian
mountains in eastern Europe, hailed by the United Nations as a blueprint
for conservation, came into force on Wednesday.

The treaty seeks to protect wildlife in the Carpathians from Romania to
the Czech Republic, preserve the cultures of about 18 million people in
the region and promote forestry, mining and tourism without spoiling the
environment.

The Carpathian region contains Europe’s greatest reserve of pristine forest
and is a refuge for brown bears, wolves, bison, lynx, eagles and some 200
unique plant species,” the United Nations Environment Programme (UNEP)

said in a statement.

It said that Hungary’s ratification of the Carpathian Convention meant that
the environmental protection pact had been ratified by four of seven
signatories, triggering an automatic entry into force on Wednesday.

Slovakia, Ukraine and the Czech Republic had previously ratified. Poland,
Romania and Serbia and Montenegro have yet to ratify the convention,
agreed in 2003.

“This legally living treaty is aimed at balancing the economic needs of the
people with the need to conserve the environment,” said Klaus Toepfer,
Executive Director of UNEP.

UNEP said it was also looking at ways to protect the Caucasus mountains
and was “sharing its experience on the Carpathian Convention with other
mountain regions such as the Andes, Central Asia and Hindukush-
Karakoram-Himalaya,”. -30-
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LINK: http://www.alertnet.org/thenews/newsdesk/L04104975.htm
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6. WESTERN UKRAINE SALT MINE HELPS ASTHMATICS
Mine wants to attract more patients from abroad especially British people

By Helen Fawkes, BBC News, Solotvyno, western Ukraine
BBC NEWS, United Kingdom, Tuesday, January 3, 2006

Solotvyno is not exactly a glamorous destination. But the Soviet-looking
Ukrainian mining town attracts thousands of visitors each year. They come
to this run-down area searching for a remedy buried deep underground.

The Solotvyno Salt Mine, near the Romanian border, offers speleotherapy,

an alternative treatment for people with respiratory conditions. It now hopes
to attract patients from Britain, where more than five million people suffer
from asthma.

At Solotvyno, patients spend several hours a day breathing in the salty air
more than 300 metres (984ft) below the surface.

When you get out of the lift, which is shared with salt miners, you step
into what looks like a magical kingdom. The walls appear to be sculpted out
of white ice.

Everywhere salt crystals sparkle and twinkle. “It’s beautiful, and it looks
like a marble castle from a fairy tale,” says Maria Congard, from Denmark,
who suffers from bronchitis. “The air is very good, so you don’t have
problems with your lungs down here.”
BREATHING EASY
The mine is said to have a unique micro-climate because of tiny salt
particles in the air. It is claimed that this helps people with breathing
difficulties.

At around 22C it is also very warm underground, so most people just
wander around the tunnels in their pajamas. This salt sanatorium specialises
in helping youngsters – about half of the 200 people who get treated every
day are children.

“It’s easy to breathe and it’s pleasant to sleep here. Nothing disturbs
you,” says Yaroslav Chonka, the mine’s chief doctor. “The kids who come
here start running around like mice as soon as they get down into the mine.”

Treatment takes place over a two or three week period. Some people stay
underground for a few hours every day, while others spend the night. Each
session costs $22 (£13).
INTERNATIONAL AMBITION
Wearing bright green pyjamas, Roxlana colours in a picture of a princess,
helped by her mum. The seven-year-old from central Ukraine has come
here because she has asthma.

“I’m not frightened about being here, why should I be? The mine is very
interesting and very beautiful. “It looks like somewhere that Father
Christmas would live. And it makes me cough less.”

In the giant children’s room, some of the youngsters play, others rest on
their beds and a couple play chess. All along the passages there are small
rooms which have been carved out of salt. There are about four patients
to a room, each with a blue curtain for privacy.

This state-run salt mine was established as a treatment centre during Soviet
times and most of the patients are Ukrainian.

But there has been an increase in the number coming from Europe, now
that people from EU countries no longer need a visa to get into Ukraine.

“We were not allowed to promote this place, so for many years only a few
people knew about us outside the USSR,” says Mr Chonka, the chief
doctor. “Now we want to attract more patients from abroad – especially
British people, as according to medical research they have some of the
highest levels of asthma in the world.”
WONDER CURE?
Western doctors are sceptical of claims that salt therapy can cure
respiratory problems. But many of the patients have already been won
over. Twelve-year-old Anya is giving piggybacks to friends.

Throughout the mine you can hear children running around – something
that many of them often find quite difficult. For these youngsters just a
few days or weeks free from their condition is good enough for them.

“I came here to get treated as I have severe asthma,” says Anya. “I feel
great because the salt is very good for helping my condition and since
I’ve been here I haven’t had any asthma attacks.” -30-
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LINK: http://news.bbc.co.uk/2/hi/europe/4575388.stm
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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7. DOCUMENTS REVEAL DIPLOMACY DURING UKRAINE UPRISING
Andrew Robinson, Canada’s ambassador to Ukraine, had no time for
diplomatic niceties when it came to the trampling of democracy

By Mike Blanchfield, The Ottawa Citizen
Ottawa, Canada, Saturday, 24 December 2005

Andrew Robinson knew revolution was just four days away, but the only
thing he was not sure of was how bloody it would be.

It was Nov. 17, 2004, and Canada’s ambassador to Ukraine correctly
predicted the historic elections in the former Soviet- bloc state were
rigged and would unfairly elect the hand-picked, Russian-backed Viktor
Yanukovych to the president’s office.

“Declaration of a Yanukovych victory would probably be followed by street
demonstrations (in) Kiev and a few other cities, put down by force, with
probably loss of life,” Mr. Robinson reported back to Ottawa in a diplomatic
dispatch. “Regardless of the balloting, however, the results of the vote
count are likely to be close thanks to the enormous efforts of the
authorities to hold onto power, through a parody of democratic elections.”

Within days, hundreds of thousands would take to the streets of Kiev as the
world witnessed the birth of the Orange Revolution as Ukraine wrestled free
of the chains of its Iron Curtain totalitarian past. The worst-case
scenario — tanks and soldiers putting down democratic protest — never came
to pass. Opposition candidate Viktor Yush-chenko, who became a symbol
of the struggle, would ultimately win another ballot on Dec. 26, 2004.

That result was monitored by thousands of international observers, including
former prime minister John Turner and 500 Canadians. Canada led the
international condemnation of the rigged Nov. 21 election in Ukraine,
raising alarms even before that first fraudulent vote.

That emphatic and outspoken criticism was the result of the front- line
dispatches from Mr. Robinson and his team in Ukraine.
Indeed, Mr. Robinson was called on the carpet by the Russian- backed
government of Ukraine months earlier for his comments.

Now, for the first time, the extent of Canada’s diplomatic efforts on the
ground have been made public, released to Ottawa researcher Ken Rubin
under Access to Information.

The Foreign Affairs documents portray our man in Kiev as a tough- minded,
straight-shooter who had no time for diplomatic niceties when it came to the
trampling of democracy.

On Nov. 22, one day after the fraudulent vote, Mr. Yushchenko — whose
deep facial scars were the result of a poisoning attempt on his life — met
with Mr. Robinson and other ambassadors in Kiev to hand-deliver his

“appeal to the parliaments and nations of the world to bolster the will of
the Ukrainian people, to support their aspiration to return to democracy.”
When he reported back to Ottawa, Mr. Robinson referred to Mr.
Yushchenko as “the real winner of yesterday’s election.”

A week later, as the protests and the political stalemate continued, Mr.
Robinson appealed to the federal government to do more, saying its past
gestures had been greatly appreciated. “A point may come when a
particular gesture from Canada will make a difference,” he wrote.

Two weeks later, the government announced Mr. Turner and a team of 500
monitors would be dispatched to the Dec. 26 election as the first mission
of the newly formed Canada Corps.

Meanwhile, Mr. Robinson assigned staff to monitor the hearings in the
Ukraine Supreme Court on the legality of the Nov. 21 vote.

“According to the embassy’s observer in the Supreme Court, Yushchenko’s
team appears to have the upper hand as far as knowledge of the law,
professionalism, preparedness and tactics,” wrote Donald Banks, a
Canadian counsellor.

Mr. Banks also said letters from voters “confessing that they were part of
the fraud” had started streaming in, detailing how they had been paid to
vote for Mr. Yanukovych. “Unlike previously, when fear suppressed such
information, people are signing these letters and providing their
addresses.”

A few days later, Ukraine’s high court ordered another election take place
on Dec. 26.

While Mr. Yanukovych had been “significantly weakened” by the court
order, Mr. Robinson did not expect the hand-picked successor of
departing president Leonid Kuchma to be that easily defeated. “This
campaign has seen numerous black tricks, the stakes remain high, and
we should not rule out further surprises before election day,” said Mr.
Robinson.

As the election day approached, anxiety mounted. Mr. Robinson reported the
Kuchma regime was beginning to realize it would lose to Mr. Yushchenko’s
opposition movement, “but that does not mean that they will just lie down
and accept their loss of power.”

Mr. Robinson accused Mr. Kuchma of trying to prevent the printing of
ballots, and he expressed concern armed groups would incite violence the
day after the vote in order to justify a state of emergency. Meanwhile, the
embassy was making contingency plans to protect Canadian observers
on the ground.

As the returns flowed in on Dec. 26, it became apparent Mr. Yushchenko
would not be denied the victory this time. He won close to 60 per cent of
the 16 million ballots cast. -30-
————————————————————————————————–
NOTE FROM AUR: Andrew Robinson is now an Ambassador-in-
Residence, Pearson Peacekeeping Centre, Ottawa, Canada.
We thank him for his excellent service to Ukraine while serving as
Canada’s Ambassador to Ukraine and wish him well. EDITOR
arobinso@peaceoperations.org, andrew.robinson@international.gc.ca.
——————————————————————————————–
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8. NASA INVITES UKRAINE SPACE AGENCY TO JOIN PROGRAM

Associated Press (AP), Kiev, Ukraine, Tue, December 27, 2005

KIEV – U.S. space agency NASA has offered Ukraine a role in a new
program, Ukraine’s space agency said Tuesday.

NASA administrator Michael Griffin invited Ukraine to take part in a U.S.
program aimed at returning humans to the moon by 2020 and ultimately
launch manned flights to Mars and beyond, the National Space Agency
said in a statement.

Ukraine inherited a powerful rocket-building industry from the former
Soviet Union, and last year its rockets put seven satellites into orbit.
Earlier this year, Ukraine joined the multinational Galileo project, aimed at
establishing a new European-run network of global positioning satellites.
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9. POLISH COMPANY BARLINEK WILL BUILD WOODEN FLOOR
BOARD FACTORY IN UKRAINE
Barlinek is Poland’s largest and world’s fifth natural wooden floor producer

Polish News Bulletin, Warsaw, Poland, Tue, Dec 27, 2005

WARSAW – The producer of natural wooden floors Barlinek, which gained
over ZL58m from its September share issue on the Warsaw Stock Exchange,
decided that it will construct a wooden floor board factory in Ukraine.

“The company is currently receiving the necessary administrational
permission for the construction of the factory,” said Barlinek’s communique.
Apart from Ukraine, the company also considered locating the works in
Russia and Romania.

Before Christmas Barlinek announced that if it receives the required
documents, production estimated at about 2m square meters of wood
annually could be launched in the third quarter of 2006.

Michal Solowow, Barlinek’s largest shareholder, announced in October that
the construction of a new factory abroad may cost around ZL120-150m.
Barlinek is Poland’s largest and world’s fifth natural wooden floor producer
with a 65-percent market share in Poland. -30-
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10. UKRAINE ON TRACK FOR RECORD WHEAT HARVEST

Australian Broadcasting Corporation (ABC) Rural Radio
Sydney, Australia, Wednesday, December 28, 2005

SYDNEY – The Ukraine wheat harvest is on track for a record 5.5 million
tonnes this season, making it the sixth largest exporter in the world.

Figures from the US Agriculture Department show improved production
techniques and more port facilities have made Black Sea countries fierce
competitors in the global grains market.

The Ukraine is also expected to bring in a four million tonne barley
harvest this season, second only to Australia. -30-
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LINK: http://www.abc.net.au/rural/content/2005/s1538807.htm
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========================================================
Be A Vice-President In Charge Of The Continuing Orange Revolution
========================================================
11. UKRAINIAN STATE CO SIGNS CONTRACT WITH U.S. CO
HOLTEC INT TO BUILD NUCLEAR WASTE STORAGE FACILITY

Associated Press (AP), Kyiv, Ukraine, Monday, Dec 26, 2005

KIEV (AP)–The state-run company responsible for managing Ukraine’s four
nuclear power plants signed a contract with a U.S. enterprise Monday for the
development of a storage facility for spent nuclear fuel, the Ukrainian
company said.

The $152 million project, launched by Ukraine’s Energoatom and Marlton,
New Jersey-based Holtec International, foresees the development of a facility
where spent nuclear fuel rods from Ukrainian nuclear power plants will be
stored before being sent for reprocessing in Russia, Energoatom said in a
statement.

Ukraine was the site of the world’s worst nuclear accident when a reactor in
the Chernobyl nuclear plant exploded in 1986, spewing radiation over much of
northern Europe. Chernobyl’s reactors were shut down for good in 2000, and
Ukraine has pledged to improve the safety of its operational nuclear plants.
———————————————————————————————
http://www.energoatom.kiev.ua/en; http://www.holtecinternational.com
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12. VILLAGERS REUNITED BY OPENING OF SLOVAK-UKRAINE
PEDESTRIAN BORDER CROSSING, SEPARATED FOR 60 YEARS
Villagers reunited by Slovak-Ukraine border crossing

Andras Gergely, Reuters, Velke Slemence, Slovakia, Fri, Dec 23, 2005

VELKE SLEMENCE, Slovakia – Anna Pasztor cried as she embraced a
cousin who lives only a few hundred metres down the street, but whom
she had not met for over 20 years because of the fortified border wall
dividing the village.

The ethnic Hungarian village, now split between Ukraine and Slovakia, had
been divided since 1945 when a wall marking the new Soviet-Czechoslovak
border sliced through its main street, breaking families apart and cutting
off the school and cemetery from half the residents.

On Friday, after 60 years of separation, the Ukrainian and Slovak
governments opened a pedestrian border crossing in the twin village,
Velke Slemence in EU member Slovakia, and Maliy Selmentsi in Ukraine.

As Ukrainian folk and pop music blasted from loudspeakers, ministers
cut a ribbon in the Slovak and Ukrainian national colors, symbolizing the
destruction of the wall that separated two states and 1,100 villagers.

“We wanted this border crossing to be opened for Christmas,” said Slovak
Deputy Prime Minister Pal Csaky, himself an ethnic Hungarian, as he
celebrated an event made possible by the greater openness of the new
Ukrainian government.

“This wrenched my heart, it should have happened earlier,” said Pasztor as
she lined up to get her Slovak passport stamped and walk across to her
relatives on the Ukrainian side.

Almost all the villagers are ethnic Hungarians and some speak only
Hungarian. In Hungarian, the two sides of the village are called
Nagyszelmenc (Slovakia) and Kisszelmenc (Ukraine).

Those now in their 80s have been citizens of four different states —
Hungary, Czechoslovakia, the Soviet Union and Slovakia or Ukraine —
without leaving the village.

Hungarian until the end of World War One, when Hungary lost two-thirds
of its territory and millions of citizens, the village was part of
Czechoslovakia from 1920 to 1938, when Nazi Germany occupied the
country.

The Soviet Army conquered the area in 1944, and the peace treaty ending
World War Two resulted in a new boundary cutting right through the village.

The Soviet Union fortified the border with dramatic speed, bisecting the
village in a single day with the bulk of a five to six meter high wall with
electric sensors and watchtowers.
“TERRIBLE TERROR”
Villagers on the Soviet side were subject to a curfew and were not allowed
to communicate with friends and relatives on the Czechoslovak side, even by
shouting across the border.

“There was terrible terror,” said Zoltan Jelcsak, who lives on the Ukrainian
side. “They would come into the house at night to check the soles of our
boots to see if we had been outside because they were afraid we would

cross over.”

“I was born in 1921, I went to school there, my father’s grave is there,
within 200 metres, the two villages shared a school and had one cemetery,”
said Jelcsak. For some, a short visit to relatives across the street on
that day turned into a six-decade stay in a different country.

After the collapse of the Soviet Union in 1991, Maliy Selmentsi became part
of newly independent Ukraine, and Velke Slemence went to Czechoslovakia,
then to Slovakia when it became independent in 1993.

But the nationalism of the new states ensured that the border wall stayed in
place, and villagers had to travel 50 kilometres (30 miles) to reach the
other side of the street.

For many of the poor residents of Maliy Selmentsi, the high price of a
passport and visa ruled out the trip altogether. That may not change much,
because Ukrainian citizens need a visa to travel to EU countries.

Although Velke Slemence is far from Slovakia’s economic hub, it is at least
part of a country whose economy is growing at over 6 percent a year and is
catching up with richer EU states.

For those on the Ukrainian side of the street, an EU standard of living is
decades away. Average monthly wages in Ukraine are about $150, compared
with $500 for Slovak workers. -30-
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13. FORMER UKRAINIAN PRIME MINISTER YULIYA TYMOCHENKO
MAKES PUBLIC TEXT OF GAS DEAL WITH RUSSIA

UNIAN news agency, Kiev, in Ukrainian 1551 gmt 5 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 05, 2006

KIEV – The news agency UNIAN is publishing the text of the agreement
between the national joint-stock company Naftohaz Ukrayiny [Ukraine’s
fuel monopoly], the open joint-stock company Gazprom [Russia’s gas
monopoly] and the Rosukrenergo company [gas intermediary] on gas
delivery to Ukraine. The agreement was signed in Moscow on 4 January.

The text of the agreement is published on the basis of a copy which
Ukraine’s former Prime Minister Yuliya Tymoshenko handed over to
UNIAN at a news conference in UNIAN [in Kiev today].

Agreement on settling relations in the gas sector. Moscow. 4 Jan 2006.

[1] The open joint-stock company Gazprom (the Russian Federation),
hereinafter called Gazprom, in the person of Board Chairman A[leksandr]
B. Miller, who acts on the basis of the statutes, on the one hand,
[2] the national joint-stock company Naftohaz Ukrayiny (Ukraine),
hereinafter called Naftohaz Ukrayiny, in the person of Board Chairman
O[leksiy] H. Ivchenko, who acts on the basis of the statutes, on the other
hand,
[3] and also the Rosukrenergo company (Switzerland), hereinafter called
Rosukrenergo, in the person of Executive Directors O.A. Palchykov and

K.A. Chuychenko, who act on the basis of the articles of association,
which are jointly called the Sides,
have signed this agreement striving to settle relations in the gas sector on
a mutually beneficial basis and agreed on the following:

1. To ensure transit of natural gas which belongs to Gazprom (Gazeksport
Ltd) and Rosukrenergo through Ukraine and the Russian Federation, the
Sides have agreed on the rate of payment for transit to the amount of 1.60
US dollars per 1,000 cu.m. per 100 km until 01.01.2011.

2. The Sides have agreed on the Rosukrenergo company as the supplier
of natural gas to Ukraine. From 1 January 2006 Gazprom shall not deliver
Russian natural gas to Ukraine, while Naftohaz Ukrayiny shall not export
from Ukraine the natural gas that came from the Russian Federation.

3. To sell the natural gas that came from the Russian Federation on the
Ukrainian domestic market, Naftohaz Ukrayiny and Rosukrenergo shall set
up a joint venture, within the shortest possible time but no later than 1
February 2006, whose authorized capital shall be formed by paying money
and bringing in other assets.

4. The Sides shall sign appropriate agreements and contracts (shall ensure
the signing of appropriate agreements and contracts) with the aim of
forming, starting from 1 January 2006, an annual gas balance of the
Rosukrenergo company in the following volumes:

TO PURCHASE:
– 41bn cu.m. of Turkmen gas to be bought from Gazeksport Ltd and
Naftohaz Ukrayiny to the amounts at their disposal;
– up to 7bn cu.m. of Uzbek gas to be bought from Gazeksport Ltd with
the aim, in particular, of swapping with gas deliveries in the Transcaucasus;
– up to 8bn cu.m. of Kazakh gas to be bought from Gazeksport Ltd with
the aim, in particular, of swapping with gas deliveries in the Transcaucasus;
– up to 17bn cu.m. of Russian gas to be bought from the open joint-stock
company Gazprom at a price to be set by a formula, proceeding from the
basic gas price (Po = 230 US dollars per 1,000 cu.m.).

TO SELL:
– in 2006 – 34bn cu.m. of gas to be sold at the price of 95 US dollars per
1,000 cu.m. of gas which is in force in the first six months of 2006, to the
joint venture created according to Paragraph 3 of this agreement (to be sold
to Naftohaz Ukrayiny until 1 February 2006 until the creation of the joint
venture) for subsequent sale on the Ukrainian domestic market without the
right to re-export;
– from 2007 – up to 58bn cu.m. of gas to be sold to the joint venture
created according to Paragraph 3 of this agreement for subsequent sale
on the Ukrainian domestic market without the right to re-export;
– 15bn cu.m. of gas for export under joint programmes with Gazeksport
Ltd.

5. The rate of payment for transit and the price of natural gas which are
set in this agreement can only be changed upon the mutual consent of the
Sides. [Passage omitted: the Sides’ addresses and names of the signatories]
——————————————————————————————-
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14. FORMER SBU HEAD TURCHYNOV SAYS ROSUKRENERGO’S
PRESENCE IN UKRAINIAN-RUSSIAN GAS AGREEMENTS SHOWS
EXISTENCE OF CORRUPTION AT HIGH ECHELONS OF POWER

Ukrainian News Agency, Kyiv, Ukraine, Thu, January 5, 2006

KYIV – The former head of the Security Service of Ukraine (SBU), Oleksandr
Turchynov, believes that the retention of the RosUkrEnergo company as an
intermediary in the Ukrainian-Russian agreement on natural gas demonstrates
the existence of corruption within the high echelons of power. The Yulia
Tymoshenko Bloc’s press service announced this in a statement, a text of
which Ukrainian News obtained.

Turchynov said that the retention of RosUkrEnergo, which, according to him,
is suspected of global speculations and corruption, demonstrated that the
country’s leadership was not ready to fight the threats posed by corruption
and protect the national interests of Ukraine.

“Moreover, the retention of the intermediary functions of RosUkrEnergo,
despite the obvious use of shadow mechanisms by [RosUkrEnergo]
demonstrates an interest in preserving such mechanisms at the highest level
of power,” Turchynov said. He also described the results of the Ukrainian-
Russian gas agreements as a betrayal of Ukraine’s national interests.

“The self-congratulation of the authorities regarding the obvious defeatist
agreement only prompts irony. It turns out that despite losing, the
Ukrainian authorities have not yet understood that they lost,” Turchynov
said.

As Ukrainian News earlier reported, the Naftohaz Ukrainy national
joint-stock company’s Board Chairman Oleksii Ivchenko said on Wednesday,
January 4, that Ukraine had reached agreement with Russia on raising the fee
for transiting Russian natural gas through Ukraine from USD 1.09 to USD 1.6
for pumping 1,000 cubic meters through 100 kilometers of pipeline on January
1.

According to Ivchenko, Ukraine also agreed to buy natural gas at the border
with Russia at USD 95 per 1,000 cubic meters.

On December 28, 2005, Turchynov accused Naftohaz Ukrainy’s former
chairman Yurii Boiko and deputy former deputy chairman Ihor Voronin
of abuses during purchase of Turkmen natural gas.

According to Turchynov, Boiko also represented the interests of
RosUkrEnergo, an intermediary company during purchases of Turkmen

natural gas by Ukraine, when he held the post of Naftohaz Ukrainy
chairman.

He said the hiring of RosUkrEnergo – and the Hungarian company
Uraltransgaz before that – as intermediaries in gas supplies to Ukraine
inflicted severe damage on Ukraine.

Turchynov added that the hiring of intermediaries in those deals was
sanctioned by former President Leonid Kuchma and former Prime

Minister Viktor Yanukovych.

According to him, these corruption schemes remained in 2005 and First
Presidential Aide Oleksandr Tretiakov was the official that coordinated
them within the circle of President Viktor Yuschenko.

Turchynov said when he, in his capacity as the head of the Security Service
of Ukraine, informed Yuschenko of the criminal schemes involving natural
gas, Yuschenko instructed him to not interfere in the situation and that
Naftohaz Ukrainy’s current board chairman of Oleksii Ivchenko asked
Yuschenko to issue an order prohibiting then-Prime Minister Yulia
Tymoshenko from interfering in gas problems.

According to Turchynov, the SBU launched a criminal case into misuse
of natural gas last June and the names of Boiko and Voronin figured in the
case. The SBU closed this criminal case at the beginning of December
2005 because no crimes were committed. -30-
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========================================================
15. UKRAINIAN EX-PRIME MINISTER TYMOSHENKO SAYS
GAS DEAL WITH RUSSIA BETRAYS NATIONAL INTERESTS

One Plus One TV, Kiev, in Ukrainian 1730 gmt 5 Jan 06
BBC Monitoring Service, UK, in English, Thursday, Jan 05, 2006

KIEV – [Presenter] Assessments of the Ukrainian-Russian gas deal by
Ukrainian politicians range from mutually beneficial contract to betrayal of
national interests. European experts think that Russia’s image was damaged
most of all in the conflict. So, who won and who lost in the short gas war?
Here are some thoughts of Ukrainian politicians.

[Correspondent] The negotiators are criminals. The state is losing its
strategic property. Fatherland is in danger. Expressive as usual, the leader
of the Yuliya Tymoshenko Bloc, Yuliya Tymoshenko, tried to convince that
Ukraine had lost in the gas stand-off with Russia. Ukraine’s biggest
concession is breaking the link between the price of Russian gas and gas
transit.

Under the signed contract Russia will have the right to increase the gas
price in the future, but Ukraine will be committed to transporting Russian
gas to Europe at a fixed price for the next five years. Tymoshenko believes
it was not worth for Ukraine to begin talks, and Ukraine should pump the
necessary amount of gas until 2010 [expiration date of the previous gas
agreement with Russia].

[Tymoshenko] We should not have signed anything, because we had
everything signed already. Taking such decisions practically has signs of
betrayal of Ukraine’s national interests.

[Correspondent] Yuliya Tymoshenko proposed to dismiss the negotiators
from their posts and then prosecute them. The contract signed with Russia
should be cancelled. Tymoshenko’s lawyers are preparing necessary appeals
to courts and the Prosecutor-General’s Office.

Prime Minister Yuriy Yekhanurov, who is convinced that the gas contract
signed with Russia is a great success for Ukraine, promised as a joke that
he will surely listen to Tymoshenko’s proposals, because she, helping
Ukraine to buy gas in the past, earned great fortunes and her experience
could be useful. High-ranking officials also reject accusations that
Ukraine’s energy security will depend on a single and questionable
company.
ROSUKRENERGO PROBLEM OF OUR PARTNER GAZPROM
[Anatoliy Kinakh, secretary of the National Security and Defence Council]
Rosukrenergo is the problem of our partner, Gazprom, which has the right
to choose an intermediary itself. It is very important for us that the
required amounts of gas are supplied in time at the agreed price of 95
dollars per 1,000 cu.m. We will strictly monitor this. [Passage omitted:
other comments]

[“Our president is now carving wooden plates in Ivano-Frankivsk Region.
Of course we should be proud that we have such a unique president who
has unique skills in all spheres of his life. I would prefer that we now stop
carving plates, return to Kiev and begin hard work to deal with the gas
crisis,” Tymoshenko told a news conference today in a rare direct attack
on Yushchenko, 5 Kanal TV reported at 1800 gmt today.] -30-
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Power Corrupts and Absolute Power Corrupts Absolutely.
========================================================
16. MIXED REACTION FROM UKRAINE OVER GAS DEAL

By Tom Warner in Kyiv, Financial Times
London, United Kingdom, Thursday, January 5 2006

Ukrainian industry is “very happy” with the gas deal agreed with Russia
this week, analysts said on Thursday. Opposition leaders however called it
a “betrayal” and prepared to make criticism of the deal a central part of
their campaigns for parliamentary elections in March.

The details of the deal announced on Wednesday, in which Russia agreed
to supply gas to Ukraine for $95 per thousand cubic meters (tcm) through
the Swiss-registered intermediary RosUkrEnergo, were still being worked
out on Thursday. Rosukrenergo said it expected to have a signed contract
early next week.

But Yulia Tymoshenko, a former prime minister who supports Viktor
Yushchenko, Ukraine’s president, on most issues, told a press conference
she would challenge the “illegal” agreement in court. Other more radical
opposition leaders said they would press for a no-confidence vote against
Mr Yushchenko’s government.

Yuri Yekhanurov, Ukraine’s prime minister, hit back at Ms Tymoshenko,
pointing out that she had been head of a highly profitable gas-trading
company with close links to the government before she entered politics in
the mid-1990s. “Her huge experience could be very interesting,” he said
wryly.

Analysts, meanwhile, said industry was relieved by the deal, which they said
would probably result in a moderate increase of prices to industry from the
current $83.5/tcm to no more than $110/tcm. “This is the price that
[industry] budgeted for,” said Dmytro Tarabakin of Dragon Capital, a local
brokerage.

Analysts said it was very difficult to estimate the extra cost of the new
contract because Ukraine had traditionally acquired gas through complex
barter deals that were very hard to value.

Last year Ukraine paid a notional sum of $50/tcm to Russia for gas, but the
“payments” were actually part of a barter deal in which Russia paid gas to
Ukraine in lieu of fees for transit of Russian gas to Europe. Ukraine paid
$44/tcm to Turkmenistan for gas last year but gave more than a third of it
to RosUkrEnergo in lieu of fees for transit of gas from Turkmenistan to
Ukraine.

This year Ukraine will pay $95/tcm for gas at its border with Russia,
regardless of the origin of the gas, and will receive cash fees for transit
of gas to Europe of $1.6/tcm/100km. Estimates of the extra cost range
from $500m/yr to $2bn.

Andry Gostik, an analyst at Concorde Capital, another local brokerage,
said the increase could at worst shave up to 2 points off Ukraine’s gross
domestic product growth, which grew by only 2 per cent last year, but he
still expected a recovery.

Mr Gostik said Ukraine’s chemicals industry is most sensitive to gas prices,
but it is also enjoying very high world prices for its products because of
the much higher gas prices that their competitors in other countries are
paying, typically above $250/tcm.

The second-most sensitive industry is steel, but gas accounts for only 5-7
per cent of mills’ total production costs. “This might eat a bit into [steel
plants’] profits, but it won’t make their products uncompetitive,” Mr
Tarabakin said. -30-
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17. RUSSIA-UKRAINE GAS DEAL TOO MURKY FOR COMFORT

ANALYSIS: By Douglas Busvine and Elizabeth Piper
REUTERS, Moscow/Kiev, Thursday, January 5, 2006

MOSCOW/KIEV – Europe may have breathed a collective sigh of relief
after Russia and Ukraine signed a long-term gas supply deal, averting a
possible repetition of the New Year supply cutbacks that unnerved the
continent.

But after a closer look at the complex pact signed on Wednesday,
outsiders may yet have cause for concern about the region’s energy
security, especially after Ukraine’s ex-premier Yulia Tymoshenko
launched a legal challenge to stop the deal.

The accord uses as middleman a little-known Swiss-based joint venture
called RosUkrEnergo, owned half by Russia’s gas monopoly Gazprom
(GAZPPE.RTS: Quote, Profile, Research) and half by Austria’s
Raiffeisen Zentralbank

Sources familiar with the five-year gas deal say Raiffeisen is representing
a group of mainly Ukrainian investors but their identity is shrouded in
secrecy.

“We represent a group of international investors knowledgeable in the gas
business who don’t want to reveal their identity,” Wolfgang Putschek, of
the Austrian bank’s investment arm, told Reuters by telephone from Vienna.

Until it is clear who is behind the company’s business, uncertainty remains
over who stands to profit from it and how exposed it might be to political
interference.

“Ukraine cannot sign a contract where the middleman … is a commercial
structure when it declares it is a democratic and transparent European
country,” said Mykola Rudkovsky, a leader of Ukraine’s Socialist Party,
which is in the ruling coalition.

“Such schemes are very vulnerable to political changes,” he told the
Ukrainska Pravda Web site.

Putschek estimated RosUkrEnergo’s 2005 sales at $3.5 billion and profits at
$500 million. He said its gas sales would rise in 2006 by 35-40 percent from
last year’s 40 billion cubic metres (bcm), making RosUkrEnergo one of
Europe’s top gas marketers.
CORRUPTION RISK
Critics say the non-transparent structure could easily lead to corruption,
with money being siphoned off to private pockets, and that it would be
better both for Ukraine and Gazprom — the world’s largest gas firm — to
deal directly.

RosUkrEnergo was set up by former Ukrainian President Leonid Kuchma’s
government shortly before it was ousted from power by a popular revolution
after flawed elections, leading critics to fear also that it could be linked
to political interests.

Within months of appearing from nowhere it had taken control of Ukraine’s
gas imports from Turkmenistan by the start of 2005.

During her brief tenure as premier of the reformist government swept to
power in Ukraine’s 2004 “Orange Revolution”, Tymoshenko denounced
RosUkrEnergo as a “criminal canker on the body” of state energy firm
Naftogaz.

She vowed on Thursday to fight the deal in the courts, saying: “This
agreement has put Ukraine into a situation of unstable gas prices. All these
agreements should be cancelled.”
PROBE
Tymoshenko and her ally and former security service chief, Oleksander
Turchinov, investigated whether Semion Mogilevich — a Ukrainian-born
Russian businessman wanted by the U.S. Federal Bureau of Investigation for
racketeering, fraud and money laundering — was behind the Ukrainian side of
RosUkrEnergo.

Mogilevich has, through his lawyer, denied any link and the investigation
petered out after Tymoshenko and Turchinov lost their jobs last autumn.

Putschek also denied any connection to Mogilevich, saying RosUkrEnergo’s
backers were reputable. “Our standard procedure for accepting customers is
that they have to undergo rigorous compliance checks, and they passed them,”
he said.

Ukraine is the transit route for 80 percent of Russia’s gas exports to
Europe. Polish gas company PGNiG (PGNI.WA: Quote, Profile, Research)
is one customer of RosUkrEnergo, buying 2 bcm of Poland’s annual needs
of 13 bcm, industry sources in Warsaw say.
DEALING DIRECTLY
Under the deal, RosUkrEnergo will this year handle gas supplies to Ukraine
from Russia and Central Asia, to be sold at an average $95 per 1,000 cubic
metres — up from around $50 now.

But the venture will buy from Gazprom at $230 per 1,000 cubic metres,
meaning that part of its business will lose money. Sources said it would
market gas to Hungary and Romania independently to make good the
shortfall.

“In general we believe this is positive for Gazprom because the prices are
higher. But at the end of the day it would be better if Gazprom did this
business itself,” said Vadim Kleiner at Hermitage Capital Management in
Moscow.

Officials at Gazprom and in the Russian government say Russia’s side of
the bargain is sufficiently transparent, but they cannot influence the way
the Ukrainians choose to operate.

“We know who owns the Russian side and we would rather the Ukrainians
switched to direct state ownership,” one Russian source said. “But that’s
how they wanted to structure the deal.”

That would change, said Putschek, if RosUkrEnergo goes ahead with a
planned initial public offering in the next 12-18 months, as it would have
to disclose its owners in its issue prospectus. “Then it would become clear,”
he said. -30-
———————————————————————————————-
Also reporting by Dmitry Zhdannikov, Moscow and Kuba Kurasz, Warsaw
http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nL05390474
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18. STATE SEC RICE CENSURES RUSSIA IN UKRAINE GAS FIGHT
Accused Russia of using its energy wealth as a political weapon

By Anne Gearan, AP Diplomatic Writer, Wash, D.C., Thu, Jan 5, 2006

WASHINGTON – Secretary of State Condoleezza Rice accused Russia of
using its energy wealth as a political weapon, and warned on Thursday that
Moscow must play by international rules if it wants to be part of the global
economy.

Rice said it was “ironic and not good” that Russia used gas exports to apply
pressure to former close ally Ukraine just as Moscow was assuming the
rotating presidency of the Group of Eight economic powerhouse nations.

“It was not a good week from the point of view of Russia’s demonstrating
that it is now prepared to act … as an energy supplier in a responsible
way,” Rice told reporters.

“When you say you want to be a part of the international economy and you
want to be a responsible actor in the international economy, then you play
by its rules,” Rice said.

European nations made that point strongly, following moves to drastically
raise gas prices or cut off supplies to Ukraine, formerly part of the Soviet
Union and until 2004 still largely under Moscow’s influence.

The crisis came in the middle of the cold Ukrainian winter and just two
months before parliamentary elections in Ukraine. The voting is the first
since the tumultuous Orange Revolution mass protests that catapulted to
power a critic of Russia, Viktor Yushchenko.

Under international pressure, Russia signed a complicated energy deal
with Ukraine this week that keeps gas flowing but requires Ukraine to pay
sharply higher prices.

Until Thursday, the United States had expressed concern about Russia’s
actions but avoided saying Russia had used energy to retaliate against
Ukraine for moving toward Western-style democracy.

Ukraine had bought gas from Russia at a steep discount, a relic of the
old Soviet system. Rice said there is nothing wrong with ending that
arrangement gradually.

“But when you do it in the way that this was done, with an obviously
political motive, of course it causes problems,” Rice said. “I think that
kind of behavior is going to continue to draw comment about the distance
between Russian behavior and something like this and what would be
expected of a responsible member of the G-8.”

Russia sought G-8 membership for more than a decade partly for the
economic clout it carries and partly for the prestige of membership in
what had been known as the Group of Seven highly industrialized
countries.

The group turned down a U.S. proposal to invite Russia to join as a full
member in 1992 – a proposal made as a political gesture to encourage
democracy in Russia – but accepted Russia’s full-fledged membership a
decade later. Russia assumed the presidency this year and will host the
annual G-8 summit this summer in St. Petersburg.

The other members are the world’s seven wealthiest nations – United
States, Britain, Canada, France, Germany, Japan and Italy. Russia has
the 16th largest economy in the world, but argues that its role as a top
energy producer makes it an essential partner. -30-
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19. RESTRAINED US REBUKE TO PUTIN ON GAS DISPUTE

By Caroline Daniel and Guy Dinmore
Financial Times, United Kingdom, Friday January 6 2006

The US urged Russia yesterday to “play by the rules” if it wanted to be
regarded as a responsible supplier of energy to world markets.

Delivering the Bush administration’s sharpest public criticism of Moscow’s
decision on January 1 to cut off gas supplies to Ukraine, Condoleezza Rice,
secretary of state, said the move was clearly politically motivated.

She stressed that Russia had miscalculated – on the day it took over the
rotating chair of the Group of Eight industrialised nations. “You can’t

play that way,” Ms Rice told reporters. “You play by the rules.”

It had not been a good week for Russia, she said, if it was intent on
demonstrating its willingness to act as a responsible energy supplier.

Although Ms Rice was blunt, Washington appears keen to limit the
diplomatic fallout from the gas price dispute, which was resolved on
Wednesday, by not taking the opportunity to raise a long list of US
concerns over what it sees as President Vladimir Putin’s slide to
authoritarian rule.

But for many Russia watchers in the US, Moscow’s increasingly assertive
and aggressive behaviour raises questions about the credibility of the Bush
administration’s strategy of close engagement.

“This really is an acid test for the Bush administration. They have cut the
Russians an enormous amount of slack to do whatever they want in central
Asia and the former Soviet republics,” said Robert Boorstin, senior
vice-president for national security at the Center for American Progress, a
think-tank. “Russia is a tremendous blind spot with Condi Rice, who is
supposed to be a Russian expert.”

The gas dispute has provided fodder for those in Congress, such as
Senator John McCain, who have been calling for a more assertive policy
towards Russia, including its expulsion from the G8.

Zeyno Baran, director of international security and energy programmes at
the Nixon Center, said the administration was swinging away from close
engagement with Moscow and moving towards a tougher approach. She
saw tensions worsening, with both sides seeing a “zero sum” game in their
attempts to influence the outcome of elections in Ukraine and Belarus while
engaged in military rivalry in central Asia.

Over the past year, she said, it appeared that President George W. Bush and
Ms Rice had started to change their positive views of Mr Putin’s government.

Analysts also point to the personal challenge for Mr Bush of stepping back
from his close personal relationship with the Russian leader. “The US has
Putin policy, not a Russia policy,” said Mr Boorstin.

But the relationship with Russia remains critical for the US because of its
focus on the war on terror and efforts to stop the proliferation of weapons
of mass destruction.

“There has been a period of intense focus on North Korea and Iran, where
the Russians were more co-operative,” said Mark Medish, partner at law
firm Akin Gump and a former senior director at the National Security
Council for Russia.

“The oil and gas dispute can’t be the driver when the US has paramount
security issues to worry about with Russia. “The last thing you want is
relatively minor local controversies hijacking the security agenda.”

Stephen Sestanovich, senior fellow at the Council on Foreign Relations
who advised former president Bill Clinton on Russia, said that a year ago
Mr Bush had recognised, in the wake of the Ukrainian elections, that he
could not ignore the issue of democracy in Russia. “You have seen an
accumulation of negatives in the US-Russia relationship without any real
positives,” he said. “Putin has generated the number one item on the G8
agenda: himself.” -30-
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20. RUSSIA’S CONDUCT WORRIES ITS PARTNERS
Gas crisis a wake-up call for Europeans

By Anna Badkhen, Chronicle Staff Writer, San Francisco Chronicle
San Francisco, California, Thursday, January 5, 2006

Russia’s yearlong presidency over the Group of Eight industrial nations was
supposed to help President Vladimir Putin boost his international clout and
show the world that his country has evolved from the authoritarian backbone
of the former Soviet Union into a trustworthy business partner to the
world’s most influential countries.

Instead, a bitter dispute over natural gas prices between Russia and Ukraine
in the first days of Russia’s chairmanship of the group has prompted sharp
criticism of the Kremlin from the United States and Western Europe, and it
has signaled that the new leader of the Group of Eight wants to be a great
power that plays by its own set of rules, analysts said.

Putin “wants to be a member of the West, but he wants it on his own terms,”
said Michael McFaul, a Russia expert at the Carnegie Endowment for
International Peace. The day its presidency began on Sunday, Russia cut off
the natural gas supply to Ukraine, an ex-Soviet republic and a former ally
that recently turned its back on the Kremlin, after Ukraine rejected
Moscow’s demand for a fourfold price increase.

A lengthy cutoff would have left the nation of 48 million people without
access to a major heating source in winter’s freezing temperatures. Also
facing shortages were other European countries, which increasingly depend
on Russia for natural gas.

In the face of strong criticism, Russia resumed supplying Ukraine with gas
after negotiations Wednesday — getting a far lower price than it had
demanded. But Russia’s image as a trustworthy partner — which its G-8
membership was supposed to improve — appears to have been badly
damaged.

The dispute was a wake-up call for Europe and for the United States, which
has seen Russia’s vast oil and gas resources as an alternative to buying oil
from the volatile Middle East, said Celeste Wallander, director of the
Russia program at the Center for Strategic and International Studies in
Washington.

“It is an indication of how Putin’s leadership thinks: that it can throw its
weight around and use its energy supplies in political terms,” she said. “It
has given people a reason to reconsider that Russia is a way around
dependence on the Middle East.”

Russia said its state-controlled gas monopoly, Gazprom, was merely
seeking a more realistic market rate by raising the price of gas it sells to
Ukraine from $50 per 1,000 cubic meters to $220 to $230 — a price
Ukraine said it could not afford.

But critics of the Kremlin say Moscow was using its energy resources to
punish Ukraine in the wake of the 2004 Orange Revolution, which
catapulted Ukraine’s pro-Western President Viktor Yushchenko into office.

“The Russians felt inclined to punish Ukraine, to teach Ukraine a lesson,”
said David Satter, a Russia scholar at the Hoover Institution at Stanford.

Under the complex deal worked out Wednesday, which allowed both sides
to say they had secured the price they wanted, Gazprom will sell natural gas
to a trading company, RosUkrEnergo AG, for the asking price of $230 per
1,000 cubic meters.

RosUkrEnergo, which is jointly owned by Gazprom’s subsidiary,
Gazprombank, and a Swiss subsidiary of Austria’s Raiffaisen Bank, [on
behalf of a group of unidentified private investors some of which are
reported to be Ukrainians, AUR Editor] will mix the Russian natural gas
with cheaper gas from Central Asia and then will charge Ukraine $95 —
double, not quadruple, the price of what Ukraine has been paying for gas.

Other European countries, which receive about one-quarter of their gas from
Russia via a pipeline that runs through Ukraine, reported drops in their
supplies after Moscow shut off Ukraine’s gas. The pipeline carries about 80
percent of Russia’s gas exports to Western Europe. The Kremlin accused
Ukraine of siphoning off gas bound for Europe, an accusation Ukraine
denied.

European Union officials, concerned that their countries might be left with
dwindling energy supplies in the winter, convened an emergency meeting
Wednesday. Although the officials said they were satisfied that Russia and
Ukraine had reached an agreement, major concerns clearly remained.

“We should discuss what happened in those 24 hours when a number of
European countries suffered from a reduced gas supply, which happened
for the first time in over 40 years,” Austrian Economy Minister Martin
Bartenstein said Wednesday.

Analysts said the dispute raises additional questions about Putin, who views
Russia’s energy as a critical component in the nation’s attempt to reassert
itself on the global stage. “He believes, not without reason, that Russia’s
ticket for being recognized as a great power in the world today is not
nuclear weapons, it’s not the size of the country, it’s oil and gas,” McFaul
said. “But the way he’s manipulated it this week is a sign of ineptitude. In
one 24-hour news cycle, he has wiped out Russia’s credibility in this
field.”

Still, Europe will have to continue to rely on Russia, which holds a virtual
monopoly on natural gas in the region, said Wallander. But she said Russia’s
customers also should look elsewhere for energy so that would not have to
rely exclusively on Russia.

“It’s not the matter of don’t buy energy from Russia but a matter of don’t
buy energy only from Russia,” she said.

Satter, of the Hoover Institution, said the dispute also calls into question
Russia’s fitness to preside over the G-8 free-market democracies. “This is
how the West thinks: that if Russia is admitted into G-8 it would behave
like one of G-8 countries,” he said. “It wasn’t behaving like one at the
time, it isn’t behaving like one now, and it won’t behave like one in the
future.”

The G-8, which also includes Canada, France, Germany, Italy, Japan,
Britain and the United States, invited Russia to join in 1997, hoping
membership would give Moscow incentive to steer the country toward
democracy. The group continued to meet in the Group of Seven format
until 2002, when Russia became a full-fledged member at the behest of
President Bush, who saw the Kremlin as an ally in the war against terror.

But democracy has been steadily eroding in Russia.

Since his ascent to power in 2000, Putin, a career KGB officer, has
quashed virtually all opposition in the media, canceled regional elections,
filled the parliament with pro-Kremlin politicians and cracked down on
human rights groups and charities that operate without the Kremlin’s
blessing.

Last week, Andrei Illarionov, a former top Kremlin official who led
Russia’s successful bid to join the G-8, resigned as Putin’s economic
adviser, warning that Russia would have been refused membership if it
had applied today.

“Now we have the leadership of the group of democratic market economies
in the hands of an authoritarian Russian ruler,” said Satter. -30-
——————————————————————————————–
Chronicle Foreign Service contributed to this report. E-mail Anna
Badkhen at abadkhen@sfchronicle.com.
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http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/01/05/MNGL8GHMUK1.DTL
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21. “HOW NOT TO CONVERT GAS TO POWER”

ANALYSIS & COMMENTARY: By Celeste A. Wallander
International Herald Tribune, Neuilly Cedex, France, Thu, Jan 5, 2006

WASHINGTON-The Russian-Ukrainian natural gas dispute should serve
as a wake-up call for countries concerned about their strategic interests in
the 21st century.

Russia, the largest country in the world, is destined by virtue of its
wealth of natural resources to become a pivotal player on the global energy
chessboard in the coming decades. Russia holds the world’s largest natural
gas reserves, and its oil reserves may equal those of Iraq. As world energy
demand grows, particularly because of China’s explosive rise as an
economicforce, Russia’s wealth and potential power are certain to grow
as well.

Energy is central to the Russian political leadership’s strategy for
greatness. President Vladimir Putin declares openly that Russia will
reassert its rightful place on the world stage with wealth and influence
built on global energy contracts. Putin regularly entertains American and
European political and business leaders competing for access to
investment and commercial deals in Russian energy, while Japan and
China vie for new pipelines.

The Kremlin’s deployment of energy for foreign-policy influence is
primarily exercised within the civilized bounds of normal state-to-state
power politics. Russia usually dangles oily carrots rather than brandishing
pipeline sticks.

But Russia’s cut-off of natural gas to Ukraine illustrates that coercion is
as much of a part of Russian energy security policy as are the more subtle
enticements of foreign investment opportunities or exclusive pipeline
deals. Europe and the United States usually are wooed by Russia’s energy
wealth, while Russia’s weaker neighbors have tended to experience energy
politics with the gloves off.

By woefully underestimating the degree to which Ukraine and Europe are
highly interdependent in their downstream natural gas relationship, the
Kremlin leadership mistakenly exposed Europe to the naked exercise of
Russian pipeline power.

Russia, of course, has every right to pursue and defend its national
interests, including being paid market prices for natural resources.
Furthermore, Russia’s successful emergence on global energy markets as
a modern, technologically advanced and reliable producer of energy will
be key to American and European national interests in the coming decades.

“Energy security” is cited by many but defined by few: if it has any real
meaning for the United States and Europe, it means diversification in the
sources and types of energy so that suppliers cannot force political
acquiescence on dependent customers. Russia has a potential role to play in
reducing energy insecurity for the United States and Europe by diversifying
energy supply sources. But the dispute with Ukraine has illustrated the
danger that Russia’s emergence as a global energy power may itself create
new vulnerabilities through dependence on a country willing to use its
energy power for political coercion.

The good news is that there is a very real opportunity for engaging the
Russian leadership in an effective dialogue on the true meaning of energy
security. This week, Russia assumed the chair of the Group of 8. This
event encapsulates a paradox: a Russia poised for integration and global
leadership, but posing fundamental questions about its reliability and
responsibility as a great power.

This suggests that the spectacle of Russia’s disastrous first week as G-8
chair can be transformed into an opportunity. Russia’s leaders care very
much about the country’s status as one of the global system’s great powers.
Russia’s G-8 partners should use the months before the Russian G-8 summit
in July to educate and motivate Russia’s leaders on the requirements of
political and economic greatness in this century. They should encourage
Russia to give meaning to the empty phrase “energy security,” and they
should actively shape that term to draw Russia into global networks, on
G-8 terms.

Russia’s leaders must learn that a 21st-century great power is expected to
respect contracts, negotiate in good faith and maintain a proper distance
between private enterprise and foreign affairs. True great powers must
sustain a rule of law that facilitates foreign investment and guarantees
commercial contracts, and maintain transparency as protection against
corruption and nefarious deals. Anything less, and Russia will be part of
the problem of global insecurity, not part of the solution.

The West’s long-term strategic interests have not changed since the end
of the Cold War, although individual leaders come and go. Russia must
be integrated into global economic, business, political and leadership
circles. But Russia does not get to distort the rules of the system. It
must adapt to them.

After the self-defeating confrontation with Ukraine, Russia’s leaders
need to be ready for a pragmatic and responsible approach to achieve
the dynamic global role the country deserves. -30-
——————————————————————————————–
NOTE: Celeste A. Wallander directs the Russia and Eurasia Program at
the Center for Strategic and International Studies (CSIS) in Washington.
LINK: http://www.iht.com/articles/2006/01/05/opinion/edwall.php
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22. FOR MANY COUNTRIES, NOWHERE ELSE TO TURN

NEWS ANALYSIS: Judy Dempsey, International Herald Tribune
Neuilly Cedex, France, Thursday, January 5, 2006

BERLIN – Whatever the West thinks of the way President Vladimir Putin
and the state-owned energy giant Gazprom got Ukraine to agree Wednesday
to pay more for natural gas from Russia and other former Soviet lands,
analysts say many European countries are locked into long-term energy
contracts that will make them critically dependent on Gazprom for years
to come.

Just last month, for example, before the dispute between Ukraine and
Russia started heating up, the Wintershall company in Germany agreed
to buy 8 billion cubic meters of gas a year from Gazprom in a contract
that will start in 2010 and last until 2030.

Gazprom, with support from Wintershall and another German company,
E.ON Ruhrgas, will build a E4.6 billion North European Pipeline to send
the gas under the Baltic Sea directly from Russia to Germany and Western
Europe.

Even if the Ukraine-Russia dispute leads the European Union to take a hard
look at its present dependence on Russia for a quarter of its energy needs,
as some EU officials in Brussels said Wednesday that it would, it is not
clear what the EU can actually do about it.

George Sch�¶pflin, a Hungarian legislator in the European Parliament who
believes that West Europeans do not understand that Putin is using Gazprom
to try to strengthen Russia’s hold over the rest of the former Soviet Union,
said, “Regardless of who has won in the Ukraine-Russia dispute, West
European companies have too much to lose if the EU radically changed its
policies towards Russia.”

FOR EXAMPLE:
[1] E.ON Ruhrgas, the only foreign company that is a member of Gazprom’s
board, has a contract through 2030 to import 20 billion cubic meters of gas
from Gazprom, about 30 percent of the company’s total imports.

[2] VNG, the former East German gas monopoly that supplies 95 percent
of the market in Eastern Germany, buys 50 percent of its gas needs from
Gazprom under contracts lasting until 2012.

[3] Gaz de France buys 12 billion cubic meters of gas from Gazprom, which
now supplies a quarter of France’s gas needs. The contract was signed in
2003 and will last until 2015.

[4 ]The Dutch energy company N.V Nederlandse Gasunie has a contract,
agreed in 1999, to buy a total of 80 billion cubic meters of gas from
Gazprom until 2019.

[5] Italy’s ENI, through its subsidiary Snam, will receive up to 28 billion
cubic meters of gas a year from Gazprom under long term contracts signed
in the mid-1990s and lasting until 2008.

[6] �–MV, the Austrian oil and gas group, imports an annual 6.5 billion cubic
meters of gas, covering two-thirds of Austria’s demand. The contracts were
extended in 2004 until the end of the decade.

[7] Finland’s leading energy company, Fortum, has signed a contract with
Gazprom to import gas until 2014 and has joined a consortium to develop
the Shtokman gas field in the Barents Sea.

[8] Several of these companies have worked closely with one another and
with Gazprom to set up joint ventures in Eastern Europe or privatize transit
pipelines there.

Gazprom and Ruhrgas, for instance, have cooperated in privatizing gas
industry facilities in Slovakia, the Czech Republic and Hungary. Gazprom,
Ruhrgas and Gaz de France cooperated in buying the shares in the Slovak
gas company SPP.

Pavol Demes, director of the operations in Slovakia of the German Marshall
Fund of the United States, says the region’s contracts with Gazprom go far
beyond gas deliveries. “They are about Gazprom controlling the exploration,
delivery and sale of gas to any country; they are about political power,”
said Demes. “As we have seen with Ukraine, Gazprom can use its monopoly
status and political power to dictate the prices regardless of previously
agreed contracts. These countries cannot turn elsewhere for their energy.”

From Lithuania to Bulgaria, Gazprom has set up joint ventures to control
retailing and distribution outlets or has bought the transit pipelines – as
it did with Belarus last week in return for charging Belarus just $46 per
1,000 cubic meters of gas.

Agata Loscot, energy analyst at the Center for Eastern Studies in Warsaw,
says these networks have given Gazprom influence over the policies and
strategies of these countries, particularly in the eastern part of Europe.

“Gazprom locks these countries into long-term contracts, making it very
difficult for other players to enter the market,” Loscot said. “Because
these countries are dependent on Russia for their energy, energy has
become Putin’s way of trying to influence these countries.”

The success has been mixed. Until recently, Russia had supplied Moldova
with gas at $70 per 1,000 cubic meters, apparently to encourage it to remain
pro-Russian. But Moldova’s president, Vladimir Voronin, is now coming
under the same pressure to accept higher prices as President Viktor
Yushchenko of Ukraine did when he chose to adopt a more Western
stance.

As with Ukraine, Russia unilaterally announced it was raising the price of
gas to Moldova to $150-$160 per 1,000 cubic meters. This week, it has
threatened to cut all supplies unless Voronin, who wanted the price
increases to be phased in, agreed to them.

The European Union, which could do little to help Ukraine except complain
about the way Gazprom demanded the sudden price increase, has encouraged
former Communist countries now in the EU to diversify their energy sources,
analysts say.

But Marcin Zaborowski of the EU’s Institute for Security Studies says such
policies have been almost impossible to implement in most of the former
Communist countries because Gazprom has locked up these markets.
“How can these countries diversify when it is already too late?” Zaborowski
said. “They are already trapped.”

Demes and other energy analysts say the EU should take a hard look at its
long-term security needs. “We should speak with one voice and say to

Russia if you want to be a global player, then you play by the rules,”
Demes said.

“Gazprom has shown its true colors in the dispute with Ukraine. Europe
should start rethinking an energy policy that looks beyond the Putin era, if
it is not too late.”
-30-
———————————————————————————————–
LINK: http://www.iht.com/articles/2006/01/04/news/assess.php
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23. GAZPROM’S A STOCK WORTH WAITING FOR
Energy giant is the winner in the Ukraine/Russia natural gas battle.
Can investors be winners too?

PLUGGED IN – ANALYSIS FROM FORTUNE
By Nelson Schwartz, Fortune senior writer
New York, New York, Thursday, January 5, 2006

NEW YORK – The just-concluded battle between Ukraine and Russia over
natural gas seems to have produced only losers.

Ukrainians will end up paying more for gas, Russian President Vladimir Putin
solidified his image as a heavy-handed autocrat when Russia briefly shut off
the supply to Ukraine last weekend, and Europeans seem warier than ever of
depending on Russia for natural gas, now that the idea of shivering through
a Russian energy embargo isn’t so far-fetched.

Lost amid the headlines is the affair’s one winner — Russian energy giant
Gazprom. Not only will the Russian energy giant receive higher fees from
Ukraine, it’s also likely to get a leg up in its controversial plan to build
a pipeline from Russia to Germany that bypasses longtime Russian rivals
like Poland and Ukraine.

Europe is dependent on Russia for gas, and despite European talk about
diversifying their supply, they really don’t have anywhere else to go. So
anything that makes that connection seem more reliable will appeal to
Europeans, especially in Germany, Europe’s largest economy. Former
German Chancellor Gerhard Schroeder recently agreed to a top job with
the Gazprom pipeline project, which only underscores Gazprom’s top-
flight political connections in Europe.

Although stories on Gazprom usually focus on politicians like Schroeder,
Putin and Ukrainian President Viktor Yushchenko, the rise of Russia as a
gas power and the unique role of Gazprom have major implications for
investors.

The Kremlin now controls 51 percent of Gazprom, but the Russian
government agreed in late December to lift restrictions on foreign ownership
of the other 49 percent. And that’s got longtime Gazprom investors like Bill
Browder, manager of the Moscow-based Hermitage Fund, very excited
about Gazprom’s prospects. Gazprom is by far his fund’s biggest holding.

“Gazprom is the cheapest hydrocarbon company in the world,” says
Browder. “It trades at $1.50 per barrel while BP and Exxon trade at $15
per barrel.”

And Gazprom has plenty of barrels. It accounts for roughly a quarter of
global gas production, and its reserves are rivaled only by countries like
Iran and Qatar. But its shares are traded mainly in Moscow, and are
available in the U.S. only in thinly-traded, over-the-counter shares that
sell at a premium to the underlying Moscow shares.

According to Browder, a U.S. American depository receipt (ADR) won’t
be available till later this year, but investors should keep an eye on
Gazprom and pounce if and when a U.S. ADR becomes available.

“On an asset basis, Gazprom trades at a 90 percent discount to western oil
companies and a 50 percent discount to Russian oil companies. I think it so
undervalued it will ultimately eclipse the valuation of Exxon and Royal
Dutch Shell at some point in the future.”

That may be a bit bold, even for Browder. But he says the recent showdown
will force Ukraine to pay up for gas and boost Gazprom’s profits.”I have
been wondering why it was taking so long for Gazprom to finally hold the
Ukrainians feet to the fire and get them to pay a fair price.”

There’s still plenty of evidence at Gazprom of its legacy as a state-
dominated company — murky accounting, bloated payrolls, and political
leverage by the Kremlin. But as the company gradually becomes more like

its Western peers, investors should be among the clear winners.

And with the political backing of the Kremlin and majority ownership by the
Russian government, there’s no danger of a Yukos-like seizure of its assets.
As an investor, if you’re going to have a partner in the Russian energy
business, it might as well be President Putin.

If you want to see what happens when Putin isn’t your partner, just ask
the Ukrainians. -30-
——————————————————————————————-
Nelson Schwartz, Fortune senior writer, nchwartz@fortunemail.com
http://money.cnn.com/2006/01/05/news/international/pluggedin_fortune/
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
24. RUSSIA: GAZPROM — A TROUBLED GIANT

ANALYSIS: By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, December 6, 2006

Gazprom, the largest gas company in the world, is the jewel in the crown of
Russian business. It employs over 300,000 people and its tax contributions
account for more than 25 percent of the Russian budget.

Gazprom owns the entire gas pipeline infrastructure in Russia — all 144,000
kilometers, along with the compressing stations. Not only is the company
the largest producer of gas in Russia, it also controls the sole means of
getting gas to domestic and export markets.

By Russian law, Gazprom is obligated to allow other entities to use its
pipelines for domestic needs, although not for foreign exports. However,
it is allowed to refuse to do so in the case of pipelines being filled to
capacity — the company often does so without offering any evidence.

Gazprom, among other holdings, owns its own bank, Gazprom Bank; an
insurance company, Sogaz; a media holding company, Gazprom Media;
and recently it purchased the Zenit football team in St. Petersburg.

The company has close ties with the Kremlin. The chairman of the board of
directors is Dmitrii Medvedev, Russian President Vladimir Putin’s former
head of administration. The president is Aleksei Miller, a close friend of
Putin’s from St. Petersburg.

Gazprom controls 25 percent of the world’s gas reserves and 94 percent
of Russia’s natural gas. It is the only company in Russia legally allowed to
sell gas outside the borders of the former Soviet Union — a factor that
largely contributed to the recent gas conflict between Ukraine and Russia
and placed European gas supplies in danger.
BRIEF HISTORY
Gazprom traces its origins to the Soviet Gas Ministry, which was created
in 1965 when the USSR first decided to place a greater emphasis on gas
production and consumption.

In 1989, the ministry became Gazprom and its first head was Viktor
Chernomyrdin, presently the Russian ambassador to Ukraine, who earlier
had been appointed by Soviet leader Mikhail Gorbachev to be gas minister.

In 1993, the corporation was reorganized into the Russian shareholding
company RAO Gazprom, which in 1998 was renamed OAO Gazprom, the
name it bears today. In 2005, the Russian state became the majority
shareowner (51 percent) of Gazprom.
PRODUCTION AND INVESTMENT PROBLEMS
Despite its size and predominant position in Russia and the world, Gazprom
is seen by many as a mismanaged giant unable to reform itself into a modern
company and one with substantial problems hidden from the public inside its
glass and steel headquarters in Moscow.

In its 2005 country brief on Russia, the U.S. Energy Information
Administration (EIA) was downbeat about Gazprom’s market position:

“Russia’s natural gas industry has not been as successful as its oil
industry, with both natural gas production and consumption remaining
relatively flat since independence. Moreover, Gazprom’s natural gas
production forecast calls for only modest growth (about 1.3%) by 2008.
Russia’s natural gas sector has been stunted primarily due to aging fields,

state regulation, Gazprom’s monopolistic control over the industry, and
insufficient export pipelines.

Three major fields (called the ‘Big Three’) in Western Siberia — Urengoy,
Yamburg, and Medvezh’ye comprise more than 70% of Gazprom’s total
natural gas production, but these fields are now in decline; and the
government and Gazprom each project steep declines in Russia’s natural
gas output between 2008 and 2020.”

The EIA study reflects the views expressed in a Russian gas industry
analysis prepared in 2004, which examined Gazprom’s long-term prospects
and its ability to supply domestic as well as European and Asian customers
with enough gas to meet skyrocketing demand.

The study found that in order for Gazprom to meet its obligations in 2020
it will need to begin a serious revamping and expansion of its gas
transportation system — the trunk pipelines and compressor stations —
as well as develop new fields.

According to the Russian industry study this means:

[1] The construction of 26,000 kilometers of 1420 millimeter diameter
trunk pipelines between 2004-2020
[2] 137 new compressor stations
[3] The development of new major gas fields — the most important
being in Yamal and in the Ob-Taz shelf, both in western Siberia.
As it stands today, the “big three” major fields in production will
be producing only 23 percent of Gazprom’s needs by 2020.

The Russian study estimates that, for new trunk pipeline construction
alone, $3 billion per year is needed.

The study broke down the sectors where major investments are needed
by the gas industry from 2001-2020:

[1] Geological exploration: $25.5-33 billion
[2] Production costs: $44.4-52.5 billion
[3] Processing costs: $21-22 billion
[4] Transportation (pipelines etc.): $83-96 billion

That would mean investments totaling between $173 billion and $203 billion.

A recent study by the OECDnotes that the development of the fields in the
Yamal Peninsula and the Ob-Taz shelf will cost $25 billion, with the
infrastructure costing another $ 40 billion.

Furthermore, the time lag of five-seven years between the start-up of work
and the beginning of production suggests that no other super field outside
of the Zapolarnoye gas field will be brought on-stream before 2010.

The recent Russian gas industry study further notes that Gazprom does not
have the money for these investments. On 1 January 2003, its accumulated
investment deficit had grown to $21.2 billion in addition to debts of some
$10 billion. By 2005, this had greatly increased with the purchase of
Sibneft for approximately $10 billion.

The recent liberalization of ownership of Gazprom shares is intended to
raise the money needed for these projects and might indeed succeed in doing
so — or it might not, depending on how institutional investors react to the
recent Russian-Ukrainian gas conflict and the price for Gazprom shares.

Gazprom has traditionally argued that much of its financial woes stem from
artificially low domestic prices for gas. The OECD study shows that the
current wholesale price for 1,000 cubic meters of gas for a Russian
household in late 2003 was around $15.90, and to industrial users at around
$24.20. By comparison, in the EU, household tariffs varied from $159 in
Finland to $735 in Denmark for 1,000 cubic meters.

The OECD study of 2004 also reiterated the criticism made by the EU and
other critics: “The reform of Russia’s crucial and highly monopolized gas
sector has repeatedly been postponed, and it is not clear that any
substantial reform will be undertaken in the foreseeable future. Despite its
enormous importance, the natural gas industry is perhaps the least reformed
major sector in Russia.”

Other critics, such as the Moscow-based Hermitage Capital Management,
have contended that Gazprom is one of least transparent and wasteful
companies in Russia.

Despite the less than rosy appraisal of Gazprom by industry experts, Russian
Energy Minister Viktor Khristenko was quoted by Interfax on 5 January as
saying that “Russia and Gazprom have been reliable partners for European
consumers at all times. Gazprom has stood by its commitments since Soviet
times, therefore Europeans do not have any doubts about Gazprom’s
reputation.”

How Gazprom intends to remedy these wasteful and possibly corrupt
practices is not known. However, what is known is that the Russian
government does not intend to liberalize the gas industry in Russia and
allow for competition.

The Gazprom monopoly on gas exports was reiterated by Khristenko on 5
November 2004, when he announced that it will continue at least until 2020.
Europe will be forced to deal with Gazprom, the only gas company in Russia,
if they want to buy Russian gas. -30-
————————————————————————————————-
NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He graduated from Long Island University in Brooklyn
with a degree in political science. He was the president of Prolog Research
and Publishing Corporation in New York prior to joining RFE/RL where
he was director of the Ukrainian Service for 10 years.
————————————————————————————————-
http://www.rferl.org/featuresarticle/2006/01/aacaf75d-5629-436a-b453-7c8a470c4368.html
——————————————————————————————–
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