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Mr. E. Morgan Williams, Publisher and Editor 
Washington, D.C., THURSDAY, JANUARY 12, 2006
                           ——–INDEX OF ARTICLES——–
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Return to the Index by clicking on Return to Index at the end of each article
Anna Melnichuk, AP Worldstream, Kiev, Ukraine, Wed, Jan 11, 2006


                                  ILLOGICAL, INCORRECT 
RBK TV, Moscow, in Russian 1200 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wednesday, Jan 11, 2006


Source: RTR Russia TV, Moscow, in Russian 2000 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wednesday, January 11, 2006


                 Will prompt oligarchs and criminals to run for office
Interfax-Ukraine news agency, Kiev, in Russian 1001 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 11, 2006

ANALYSIS: By Anders Åslund
The Action Ukraine Report (AUR), #640, Article 5
Washington, D.C., Thursday, January 12, 2006

By Neil Buckley in Moscow and Tom Warner in Kiev
Financial Times, London, United Kingdom, January 11 2006

AFX News, Kiev, Ukraine, Thursday, January 12, 2005

8.                                      GAS PRESSURE

             The Ukrainian government is the first victim in the gas war
By Sergey Sidorenko, Alexander Chernovalov, Kiev; Sergey Strokan
Kommersant, Moscow, Russia, Wednesday, January 11, 2006

9.                      UKRAINE POLITICS: GAS POISONING
The Economist Intelligence Unit Limited
New York, New York, Wed, January 11, 2006


             Ukrainian government collapses over gas deal with Russia
: By Taras Kuzio
Eurasia Daily Monitor, Volume 3, Issue 7
The Jamestown Foundation, Wash, D.C., Wed, Jan 11, 2006

COMMENTARY: By Sergei Pletnev and Angelina Timofeeva website, Moscow, Russia, in Russian, Tue, 10 Jan 2006
Translated by Olga Bogatyrenko for UKL
Published in English by The Ukraine List (UKL) #380, Article #11
Ottawa, Ontario, Canada, Wednesday, January 11, 2005


Radio Mayak, Moscow, in Russian 0915 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 11, 2006


Untimely-Thoughts, Moscow, Russia, Wed, January 10, 2005
14.                 WILL THE GAS DEAL COME UNSTUCK?
By David Crouch in London, Financial Times
London, United Kingdom, Wednesday, January 11 2006
15.                             PUTIN’S GAS BLUNDER
Moscow won the gas war, but lost in international court of public opinion
: By Peter Rutland
Eurasia Daily Monitor, Volume 3, Issue 7
Jamestown Foundation, Wash, D.C., Wed, Jan 11, 2006
AP Worldstream, Moscow, Russia, Wed, Jan 11, 2006

Agence France Presse (AFP), Washington, D.C., Wed, Jan 11, 2006

  Saakashvili and Yushchenko attend inauguration of Kazakhstan president
By Andrew Osborn in Moscow, The Independent Online
London, United Kingdom, Thursday, 12 January 2006

Hamburg, Germany, Monday, January 9, 2006

Anna Melnichuk, AP Worldstream, Kiev, Ukraine, Wed, Jan 11, 2006

KIEV – Ukrainian President Viktor Yushchenko on Wednesday accused

parliament of destabilizing the country’s political situation by calling to
dismiss the government for agreeing to pay Russia nearly double the price
for gas supplies.

Yushchenko, speaking in the Kazakh capital, Astana, called Tuesday’s
parliamentary vote to oust the Cabinet “unclear, illogical and wrong,” and
said it was a wrong step to take 80 days before legislative elections.

“The decision was made by a parliament that was elected four years ago

by the old regime and is living its last weeks,” Yushchenko told reporters.
“Not always have its decisions been constructive … The decision only
demonstrates one thing: Destabilization of the situation.”

Top Ukrainian officials and some opposition leaders called the vote a ploy
aimed solely at paralyzing Yushchenko’s government ahead of March’s
parliamentary elections. Those elections could determine whether Ukraine
will continue on the pro-western course outlined by Yushchenko.

Yekhanurov also dismissed parliament’s move as illegal and vowed that his
Cabinet would continue work unimpeded. In their vote, lawmakers had

ordered Cabinet members to continue working as acting ministers.

“There won’t be any acting ministers … we are continuing to fulfill our
duties,” Yekhanurov said at the opening of a Cabinet session on Wednesday,
the Interfax news agency reported.

The Tuesday vote came nearly a week after Russia and Ukraine ended their
bruising public fight over natural gas with a deal that nearly doubled the
price of gas for Ukraine.

The compromise was reached only after Russia on Jan. 1 shut off the gas
supply to Ukraine, whose pipeline network pumps most of Russia’s gas to
Europe. Moscow restored supplies and reached a deal days later amid

pressure from the European Union.

Opposition lawmakers accused the government of betraying national interests,
saying the new price for gas was too high for the country’s industries and
would eventually pinch private consumers. They also said the deal gives
Russia too much leverage over gas imports to Ukraine and endangers Kiev’s
energy security.

Citing constitutional reforms adopted last year that significantly boost
parliament’s powers, the Verkhovna Rada voted 250-50 with two abstentions

to dismiss Yekhanurov and his Cabinet.

Yekhanurov argued that the constitutional changes will only be fully enacted
after the March elections and that the new Cabinet can be appointed only by
the new parliament. The country’s Justice Minister also said the measure was

Ukrainska Pravda, an Internet news site, reported that under Ukrainian law,
parliament has the right to dismiss the Cabinet, but it won’t win the right
to form a new government until after elections take place. However, the law
stipulates that the acting government may remain in place for 60 days – a
period that would stretch almost until the March elections.

Experts said that regardless of the legality of the move, it dealt a severe
blow to Yushchenko’s popularity and that of his party ahead of the vote

and would seriously weaken his government.

“Lawmakers didn’t just sack the Cabinet, but they discredited it by accusing
the ministers of many sins, including betraying (Ukraine’s) national
interests,” said Oleksandr Lytvynenko of the Kiev-based Razumkov think


Mykhailo Pohrebinsky, an political analyst with the Center for Political and
Conflict Studies, which has links with the opposition, said the crisis has
hints of Moscow’s influence.

“The Kremlin hopes that this crisis will lead to the formation of a
pro-Kremlin parliamentary majority which would appoint a new government”
more loyal to the Kremlin, Pohrebinsky said.

During the tumultuous presidential election in 2004 which saw the Orange
Revolution mass demonstrations, the Kremlin openly backed Yushchenko’s
rival, Viktor Yanukovych. As Yushchenko has tried to move Ukraine out of
Moscow’s orbit, seeking EU and NATO membership, Moscow has grown

visibly concerned.

Yushchenko’s spokeswoman Irina Herashchenko also hinted that the Kremlin
stood to gain from the turmoil. “It is not surprising that the decision to
sack the government was supported precisely by those forces which enjoy

open support in neighboring countries,” Herashchenko told The Associated
Press. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                                  ILLOGICAL, INCORRECT 

RBK TV, Moscow, in Russian 1200 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wednesday, Jan 11, 2006

MOSCOW – [Presenter] [Ukrainian President] Viktor Yushchenko has

commented today on the dismissal of the cabinet led by Yuriy Yekhanurov.
The dismissal was initiated by the Supreme Council [parliament] yesterday.

[Yushchenko, captioned as speaking in Astana, Kazakhstan] The decision
remains incomprehensible, illogical, incorrect. I do not think Ukraine
deserves such a decision 80 days before the [26 March] parliamentary
election. The only thing this decision demonstrated was a destabilization of
the situation. -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
      Send in names and e-mail addresses for the AUR distribution list.

Source: RTR Russia TV, Moscow, in Russian 2000 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wednesday, January 11, 2006

[Presenter] The most productive meeting in the history of relations between
Vladimir Putin and [Ukrainian President] Viktor Yushchenko has concluded.
Thanks, Astana. The next round of talks will be held in Moscow. Ukrainian
Prime Minister Yuriy Yekhanurov has been official invited there.

It’s true that one tiny problem still remains. Yesterday a very solid
majority in the Ukrainian parliament voted to sack his government.
Yekhanurov himself is laughing at this and does not intend to leave.

[Yekhanurov, in Ukrainian with superimposed Russian translation] We are
obliged to fulfil our obligations until a new Ukrainian cabinet of ministers
begin their work. This means several months of work. Therefore, no-one will
simply be ‘acting’. I made a mistake yesterday. I was corrected by the
justice minister.

[Presenter] And, indeed, yesterday Yuriy Yekhanurov also thought he would
have to lose the title of prime minister. However, the Ukrainian justice
minister, Serhiy Holovatyy, thinks that everything is fine and there is no
need for the title ‘acting’.

And we now have a live link-up to Serhiy Holovatyy in Kiev. Serhiy
Petrovych, yesterday 250 members of parliament voted for the government’s
dismissal. How do you intend to overcome this position?

[Holovatyy] Well Dmitriy, I can say that we intend to get over this quite
easily. We are simply ignoring the vote held by the parliament yesterday.
That vote is of no legal or political consequence. Today the prime minister
and the entire cabinet of ministers have the same status as they had
yesterday or the day before.

They form an entirely valid, entirely legal executive power body with all
its powers intact. This is why it is quite easy to ignore something that has
no legal force. We will completely, totally ignore it. [Presenter tries to
interrupt] And do nothing else. For everyone in Russia and elsewhere in the
world must know that we have a valid government.

[Presenter] Serhiy Petrovych, in short, the parliament has got rid of the
government, so in this way is the government getting rid of the parliament?

[Holovatyy] No, our constitution does not allow the government [stumbles]
the parliament to take such decisions. And what happened yesterday is not a
legally binding decision. It was an outburst of political emotion, political
intrigue, political arbitrariness – it has no legal force.
[Presenter] Thank you, Serhiy Petrovych.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

       Send in names and e-mail addresses for the AUR distribution list.
                 Will prompt oligarchs and criminals to run for office

Interfax-Ukraine news agency, Kiev, in Russian 1001 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 11, 2006

KIEV – Interior Minister Yuriy Lutsenko is convinced that parliament’s
decision to dismiss the government will prompt oligarchs and criminals

to run for representative power bodies at all levels.

At a briefing in Kiev today, Lutsenko said that yesterday’s events indicated
that parliament can do “whatever it likes”, ignoring procedures and the

“Yesterday’s alliance of all economic and political clans against the
government of [Yuriy] Yekhanurov, its unrestrained behaviour in dealing

with the government, is a great draw for criminals and oligarchs to enter the
future parliament and representative bodies at all levels,” Lutsenko said.

He said that “an antipresidential majority made up of revanchists and the
ambitious Yuliya Tymoshenko Bloc” was formed in parliament yesterday.

“In effect, we have a united antipresidential bloc – [Volodymyr Lytvyn’s]
We, [Viktor Yanukovych’s] Regions of Ukraine, [Leonid Kravchuk’s] Ne

Tak [Not Right], the Yuliya Tymoshenko Bloc, and the Communist Party,”
Lutsenko said.

He said that he is not surprised at the position of opposition factions but
is “sincerely concerned at the position of former allies in the
anti-criminal revolution from the Yuliya Tymoshenko Bloc”.

“You can tell stories about Yekhanurov’s cooperation with the council of
oligarchs, but facts are stubborn things. And the facts show that it was
these oligarchs who, in alliance with Yuliya Tymoshenko Bloc, tried to
overthrow the Ukrainian government, which has dealt a colossal blow to

the higher national interests of the state,” he said.

Lutsenko said that, in these circumstances, it will be extremely difficult
for President Viktor Yushchenko to hold talks on gas extraction, in
particular with Kazakh and Russian leaders, since his positions are weakened
in connection with the government’s dismissal.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

ANALYSIS: By Anders Åslund
The Action Ukraine Report (AUR), #640, Article 5
Washington, D.C., Thursday, January 12, 2006

The originally secret Russian-Ukrainian gas agreement that was concluded
on January 4 was published on January 6 by former Ukrainian Prime
Minister Yulia Tymoshenko. It appears very different from the original
presentation of the agreement, and it seems totally rudimentary, with
major aspects missing. Admittedly, secret appendices and additional
agreements are possible, but the salient features of the now publicized
agreement are:

This is not a five-year agreement but a half-year agreement. The key
paragraph says that in 2006 Rosukrenergo will sell gas at the price of $95
per mcm during the first half of 2006. For the second half of 2006, the gas
price is regulated

The agreement only specifies the sale of 34 bcm to Ukraine in 2006, while
Ukraine will need at least 21 bcm more (a total gas need of 75 mcm of which
20 mcm is domestically produced). Naftohaz and Prime Minister Yuriy
Yekhanurov have stated that Ukraine will buy the rest from Turkmenistan for
$50 per mcm during the first half and $60 per mcm during the second half.
The transit fee of this gas through Russia might remain an open issue.

No other binding price specification for gas is given. The only statement is
that Rosukrenergo will buy up to 17 bcm of Russian gas at the price $230 per
mcm and export (to the West) 15 bcm. Thus, it appears as if the Russian gas
is to be exported by Rosukrenergo to the West and that Ukraine will hardly
import any Russian gas, only Central Asian gas.

The main feature of this trilateral agreement between Gazprom, Rosukrenergo
and Naftohaz Ukrainy is that Gazprom’s export arm Gazexport (headed by the
decent Alexander Medvedev) is giving up lots of commercial interest to
Rosukrenergo. Gazexport is to provide Rosukrenergo this year with: 41 bcm
of Turkmen gas, up to 7 bcm of Uzbek gas and up to 8 bcm of Kazakh gas,
that is a total of 56 bcm.

Turkmenistan produces enough gas to supply Ukraine with an additional 20
bcm or so. Rosukrenergo shall be the sole seller of Gazprom-owned gas to
Ukraine, but it is not stated that Central Asian states cannot sell directly
to Ukraine.

Oddly, the transit fee through Ukraine is fixed in dollar terms till the end
of 2010, which is the only long-term commitment. The agreement does not
specify that it shall be paid in cash, but Alexei Miller’s statement makes
that clear, which means the abolition of barter.

Importantly, Russia has not gained any control over the Ukrainian pipeline
system, which was a major Russian objective.

The conclusions of this reading are rather curious. Very little has been
resolved, only the price of 60 percent of Ukraine’s gas import during the
first half of 2006 and the transit fee through Ukraine.

The main substance of the agreement is that the relatively transparent and
decent Gazprom has given up substantial commercial interests to the shady
intermediary Rosukrenergo. Tymoshenko, who might know, claims that
Rosukrenergo has been taken over entirely by Russian interests, which
would make sense.

The main fight thus appears to have taken place between Gazprom’s public
management and Rosukrenergo’s unknown owners. According to plausible
rumors, Rosukrenergo is controlled by the Igor Sechin circle, which may
thus have won over Dmitri Medvedev and Alexei Miller, while Putin is likely
present on both sides.

Ukraine rather appears an onlooker, and it has been given gas for half a
year at a better price than anybody but Belarus for minimal concessions –
the fixed transit fee for five years. One little noticed aspect is that
Ukraine appears to have utilized the low prices last year to fill its huge
underground storage of up to 20 mcm.

Yulia Tymoshenko is claiming that this agreement is criminal because it
replaces the agreement of summer 2004, which set the price of Ukrainian
purchase of gas at $50 per mcm and tied it to the transit tariff. Formally,
she has a good point, but it is difficult to believe that such an absurdly
agreement would be honored, even if it is supposed to be subject to
international arbitration in Stockholm.

The ouster of the Ukrainian government does not mean that the agreement
was bad for Ukraine but that a group of party factions in Ukraine has
found it a good excuse to oust the government, and thus weaken it,
before the elections.

One of the most important outcomes of this vote might be that
Tymoshenko managed to line up with Victor Yanukovich, Victor
Medvedchuk and the Communists. A change of political alliances in
Ukraine might be under way.

To sum up, the key results of the gas agreement appear to be:

     1. Rosukrenergo has taken control over more of Gazprom’s and
     Central Asia’s gas export. This can only benefit the owners of
     Rosukrenergo, and to the disadvantage of Gazprom’s minority
     2. Ukraine has got low gas prices, but only for half a year.
     3. Gazprom has achieved somewhat higher prices and stabilized
     its access to the European markets in the long run.
     4. Russia has lost the international beauty contest and shaken its
     credibility in Europe as a reliable energy supplier, tilting the energy
     debate toward nuclear energy and LNG rather than gas through
     pipelines.  -30-
NOTE: Dr. Anders Åslund is a Senior Fellow at the Institute for
International Economics (IIE) in Washington, D.C. Contact:; website:

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                 Send in a letter-to-the-editor today. Let us hear from you.

By Neil Buckley in Moscow and Tom Warner in Kiev
Financial Times, London, United Kingdom, January 11 2006

The sacking of Ukraine’s government has raised new questions over last

week’s agreement with Russia on gas prices, already starting to look fragile
only days after it was signed.

Analysts say the framework deal reached on January 4 leaves many

questions unresolved. Its reliance on cheap gas from central Asian states,
mostly Turkmenistan, to offset a more than four-fold increase in the price of
Russian gas for Ukraine could be vulnerable to attempts by those states to
raise their own prices.

Few expect the gas deal to be reopened before Ukrainian parliamentary
elections on March 26. But this week’s parliamentary clashes in Kiev have
made clear the main opposition parties will fight the elections on a pledge
to renegotiate the deal, obliging them to try to do so if they win.

That could lead to further uncertainties over Russian gas supplies to
western Europe – 80 per cent of which travel across Ukraine – in the middle
of Russia’s presidency of the Group of Eight industrialised nations.

Both sides sought on Wednesday to stress they would stand by the agreement.
Vladimir Putin, Russian president, met his Ukrainian counterpart, Viktor
Yushchenko, for the first time since the gas dispute at the inauguration of
Kazakh president Nursultan Nazarbayev.

After the meeting, Mr Putin promised Gazprom, the state-controlled gas
monopoly, would meet its commitments to Ukraine under a deal he called an
“absolutely reasonable and mutually profitable settlement”. Mr Yushchenko
said Ukraine “would not violate a single letter” of the agreement.

But an apparently authentic text of the deal published on the website of
Yulia Tymoshenko, Ukraine’s former prime minister, has already exposed

“It is an extremely vulnerable agreement,” said Vladimir Milov, head of the
Institute for Energy Policy in Moscow and a former deputy Russian energy
minister. “There are a lot of black holes and uncertainties that can only be
resolved through further negotiations.”

Though presented as a five-year deal, the price Ukraine will pay for gas
($95 per thousand cubic metres), – up more than 50 per cent from last year –
is fixed for only six months. Only the transit fee Ukraine receives for
shipping Russian gas across its territory is set for five years.

To reach the $95 average price, gas bought from Gazprom for $230/tcm will be
mixed with cheaper gas from Turkmenistan, Kazakhstan and Uzbekistan. Gas
will be sold to Ukraine through a shadowy intermediary, RosUkrEnergo, half
owned by Gazprom and half by unidentified investors.

Christopher Granville, chief strategist at United Financial Group, said the
loser was Turkmenistan, set to sell gas to RosUkrEnergo at only $50/tcm in
the first half and $55 in the second. “We think this agreement is unlikely
to be the final word,” he said. “The most obvious risk is that the Turkmens
will try to raise their price.”  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

AFX News, Kiev, Ukraine, Thursday, January 12, 2005

KIEV – The latest political tension in Ukraine centers ostensibly on a deal
with Russia on pricing for natural gas, a complex and opaque accord signed
on Jan 4 that is fiercely contested by the nation’s opposition.

Details of the gas pact have not officially been made public and accounts of
its contents made public by media and politicians leave questions
unanswered. Here are some key aspects of the accord that are in the public
domain and some of the questions that remain unanswered about it:
                                             KEY POINTS
[1] Ukraine agrees to import most of its natural gas from RosUkrEnergo, a
Swiss-registered gas trading firm. This firm is controlled on a 50-50 basis
by Gazprombank, a banking subsidiary of Russian energy giant Gazprom, and

a trust fund administered by Austria’s Raiffeisen Zentralbank on behalf of
beneficiaries it has declined to name.

[2] Ukraine agrees to pay, for at least six months, a price of 95 usd per
1,000 cubic meters of natural gas it purchases from RosUkrEnergo. This
represents nearly twice the 50 it paid until the end of last year, but is
well short of the 230-usd “European market rate” that Gazprom had been

[3] Russia agrees to pay for the next five years a fee of 1.60 usd per 1,000
cu m of gas for every 100 km that the gas transits through a pipeline
network on Ukrainian territory. This figure is substantially higher than the
1.09 usd Russia paid until the end of last year.

[4] Middleman RosUkrEnergo in turn purchases natural gas from Gazprom at a
rate of 230 usd per 1,000 cu m. This is the price Gazprom had sought from
Ukraine and is only slightly below the European average gas price of 240

[5] In addition to buying gas from Gazprom at international market rates for
resale to Ukraine, RosUkrEnergo also agrees to buy gas from Turkmenistan and
two other ex-Soviet Central Asian republics — Kazakhstan and Uzbekistan — 
at the far lower price of around 55 usd per 1,000 cu m.

[6] The bulk of gas to be supplied to Ukraine will come from Turkmenistan
and the price differential between the Russian gas and the Central Asian gas
allows Ukraine to pay the fixed rate of 95 usd. It is of note that Gazprom
owns the gas transport pipeline network in Turkmenistan.
[1] Who are the beneficiaries represented by the Austrian bank trust that
controls half of RosUkrEnergo?

[2] How long does the 95-usd gas price apply for Ukraine? The Jan 4 accord
stipulates only that this rate applies for the first six months of 2006, but
Ukrainian officials say it will stick for at least a year and perhaps

[3] How long does the 1.60-usd transit fee apply for Russia? The Jan 4
accord stipulates that it is in effect for five years, but Ukrainian
officials say that if the gas price rises during this time the transit fee
rises also. (yad-cb/gk/dg/tr)

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
         Send in names and e-mail addresses for the AUR distribution list.
8.                                        GAS PRESSURE

             The Ukrainian government is the first victim in the gas war
By Sergey Sidorenko, Alexander Chernovalov, Kiev; Sergey Strokan
Kommersant, Moscow, Russia, Wednesday, January 11, 2006

                               THE FIGHT FOR POWER 
Ukraine’s Supreme Rada assembled yesterday to discuss the agreement with
Russia on natural gas and fired the country’s government, accusing it of
“inability to defend national interests.” In response, Ukrainian President
Viktor Yushchenko threatened to dismiss the parliament and his party, Our
Ukraine, called for direct presidential rule until parliamentary elections
in March. Although the current government is continuing to function, the
ministers are being called “acting.” This is a heavy blow to Yushchenko,
not least because big business is supporting the opposition. Ukrainian
industrialists are not happy with the agreement or with the government.
                               A PRINCIPLE DECISION 
A political crisis broke out in Ukraine yesterday after the unexpected
dismissal of the Cabinet. The no-confidence vote in the Supreme Rada led

to a complex situation. Even though it has dismissed the government, the
Supreme Rada cannot appoint a new one until after the parliamentary
elections in March because political reform in Ukraine will only give it
the right to do so then. The president cannot dissolve the Rada nor appeal
its decision to the Constitutional Court because that court does not exist
in the Ukraine – the Rada is blocking the confirmation of the judges.

Clouds began gathering overt he government last week. “It is time to stop
the attempts by a high-placed party to experiment on Ukraine,” Rada speaker
Vladimir Litvin said, adding that “the government and people in the gas
industry should read documents before they sign them. I think that the
Supreme Rada will come to the same conclusion.”

Addressing the Rada yesterday, Prime Minister Yury Ekhanurov gave a long
but vague explanation of how Ukraine will “unconditionally win” from the
new contract because “$95 is not bad price for gas considering European
market conditions.” He said that it was impossible to preserve the barter
system with the price of $50 per 1000 cu. m., although Ukrainian
negotiators were considering moving the conflict into the courts.

“We could go into retreat and not sign any documents. But a trial in the
Stockholm court would last several months, if not years. Who would our
victory help if we go without gas for several years with ruined industry and
social services?” Ekhanurov asked rhetorically. He also said that, because of
the unexpected success of negotiations, the government would not raise gas
prices to the public by 25 percent, as it had decided to do before the end
of last year.

Ekhanurov gave shallow answers to penetrating questions. In particular, he
would not say what the price of gas would rise to in the second half of
2006 and was unable to explain why Ukraine agreed to the participation of
the RosUkrEnergo Co. in making supplies. He said that he did not know who
the founder of that company was. The prime minister’s comment that
negotiations were not finished and a concrete text with specific prices had
not been drawn up yet.

“Negotiations are continuing. The necessary specifications and explications
will be made and the necessary foreign trade agreements will be signed,”
he stated, adding that the next round of talks would take place in Astana
on Wednesday during a meeting between the presidents of Russia and
Ukraine, who will be in Kazakhstan for the inauguration of President
Nursultan Nazarbaev.

After Ekhanurov’s address, parliament members spoke. It soon became

clear that the prime minister had very few allies present and they were in a
state of confusion. The speech of Yury Orobets, chairman of the
pro-presidential Our Ukraine Party, was characteristic. He was the first
member of the party to speak and read his speech from a text. He said that
the criticism of the government’s actions was in essence electioneering.
“The gas conflict is over… I suggest that we stop belittling our own
government,” he said. He went on to comment on the role of RosUkrEnergo
in supplying gas to Ukraine. “No one is naming the owner of that firm,” he
said. “For some reason, everyone is afraid of the name Putin.”

Commenting on the prime minister’s speech, Litvin stated that the Supreme
Rada “has not received reliable information” on the causes and effects of
the gas crisis, which received what he called the worst possible resolution
for Ukraine. “The impression arises that we were presented with that
resolution without alternatives,” he noted. Litvin also expressed
perplexity over the fact that the government did not present a legal
evaluation of the Russian-Ukrainian agreement.

“Obviously it was signed at night. There is no evaluation,” he mused. He
also pointed out repeatedly that the main negotiators with the Russian,
Minister of Fuel and Energy Ivan Plachkov and Naftogaz Ukrainy head
Alexey Ivchenko, were not present. “I think that the Rada should make a
principle decision,” he said.

The discussion lasted almost three hours, after which the no-confidence
vote was held. Leader of the social democrats and first president of
Ukraine Leonid Kravchuk introduced the resolution. He said that his faction
would vote for the dismissal of the government “for its lack of
professionalism in the gas negotiations with Russia.” He stressed that “We
don’t know what the price of gas will be in half a year. We don’t know who
is guaranteeing supplies to the country. A government that disregards the
economic security of Ukraine cannot, in my opinion, exercise its authority.”

The opposition has stated its intention to hold a no-confidence vote on
Monday. Nonetheless, even yesterday morning the parliamentarians spoke

of the vote as a distant possibility. The majority of Rada member did not
think that the necessary 226 votes could be found.
                                A POLITICAL CONSPIRACY 
The vote proved to be sensational. Of 450 deputies, 250 voted no
confidence. Implacable opponents, the Orange Yulia Timoshenko Bloc,
Litvin’s People’s Bloc, Viktor Yanukovich’s Party of the Regions and the
Communists, voted against the Ekhanurov government. The parliament
authorized the current ministers to serving in acting roles until a new
government can be formed.

When he saw the vote results, Ekhanurov simply smiled and shrugged.
Speaking to journalists after the session, he said he thought the events
were a “political conspiracy” for the sole purpose of which he considered
the approaching parliamentary elections. He placed the greatest blames for
them with Litvin. He added that the government discussion the possibility
of its dismissal this month, and was prepared to work in the new

The political council of the Our Ukraine Party made a similar
statement that evening. Member of parliament Nikolay Katerinchuk read a
statement that called the dismissal of the Ekhanurov government “the same
kind of reprisal as that against the Yushchenko government in 2001.”
The statement mentioned the parties of Timoshenko and Litvin separately and
hinted that Our Ukraine no longer considered them allies. Those political
forces that we looked on as allies after the parliamentary elections have,
unfortunately, chosen a different path,” Katerinchuk said. “In the face of
the threat of national disaster, we call for direct presidential rule until
the elections to the Supreme Rada, which must be held honestly and
transparently, in accordance with the Constitution,” read the statement
issued at the meeting of the Our Ukraine political council.

It should be noted that the dismissal of the government does not change
power in the country. Ekhanurov and all the ministers will remain in their
posts and will only have the qualifier “acting” appended to their titles.
The parliament cannot appoint a new prime minister until after the
parliamentary elections scheduled for March 26. Between January 1 and the
elections, there is a transitional period in the constitutional reform. The
old procedure for electing a prime minister had been suspended, but the

new one, under which the government is to be formed by a coalition of
parliamentary factions, has yet to come into force.
                                         WHAT NEXT 
News of the dismissal of the government reached Yushchenko on the road to
Astana. He flew there yesterday afternoon for the inauguration of Kazakh
President Nazarbaev. His press secretary, Irina Gerashchenko, said that his
first reaction was to say that the dismissal of the cabinet had a political
motivation. When he arrived in Astana, he announced the possibility of the
dissolution of the Rada had arisen because of its “unconstitutional actions.”

Observers in Kiev concluded that the president’s statement was emotional
and Yushchenko does not have the authority to dissolve parliament in the
unfolding legal chaos. Ukrainian presidential legal advisor Nikolay
Poludenny expressed the opinion that the parliament did have the right to
dismiss the government, in spite of the legal conflicts it created.

Timoshenko held a press conference last night as well. When asked by
Kommersant how the dismissal of the government would effect the further
development of events and the negotiations between Kiev and Moscow on
natural gas, she stated that “there is not a single political party in
Ukraine that thinks that contract should have been signed. The great
victory of Ukraine was that Ukrainian politicians showed the ability to
unite before the threat of external risks, regardless of ideological and
political differences. Nonetheless, there will never be a union between our
bloc and other political parties.”

Timoshenko said that “the dismissal of the government means that the
parliament has taken responsibility for how the situation will develop with
guaranteeing Ukraine natural gas.” She wanted to see the parliament form an
official negotiating group with special responsibilities. That group would
establish “where the corruption is” and where negotiations with Uzbekistan,
Kazakhstan, Turkmenistan and Russia were conducted unprofessionally. “If
the parliament forms such a negotiating group, I want to be part of it,”
Timoshenko added.

Commenting on the scandal, observers in Kiev say that the no-confidence
vote was a heavy blow to the president in the run-up to the parliamentary
elections. In one of his comments last night, Katerinchuk called the recent
events Russia’s revenge on Ukraine for its firm stance on gas. Observers
point out that the initiators of the vote, both Orange and the others, had
been in Moscow in recent months and wee received on a high level.

The hardest blow to the presidential team was the statement made by
Ukrainian industrialists, representing such major groups as the Ilyich
Mariupolsky Metals Combine, Azovstal steel company, Makeevsky Metals
Combine, Novokramatorsky Machine Plant, Nikopolsky Ferrous Alloy Plant
Zaporozhstal steel company, the Severny, Tsentralny and Inguletsky mines
and others.

The document, addressed to President Yushchenko, notes that the
industrialists have a very negative evaluation of the agreement with Russia
that “placed the economy of Ukraine under threat of collapse and loss of
its market competitiveness.” “We will openly demand the disavowal of the
natural gas agreements signed between Ukraine and Russia and the immediate
dismissal of all officials, without exception, who were involved in
creating this extremely dangerous situation,” the document reads. That
statement shows that big business in Ukraine has made its choice. And hat
choice is not n the president’s favor.
The RosUkrEnergo AG oil and gas company was formed in July 2004 on a parity
basis between the Russian Gazprombank (through its wholly-owned subsidiary
Arosgas Holding AG) and the Austrian Raiffeisen Banking Group (through its
wholly-owned subsidiary Raiffeisen Investments AG and that company’s
wholly-owned subsidiary Centragas). It is registered in the Swiss canton of
Zug, at 19 Damstrasse (180 companies are registered at that address).
According to Dun&Bradstreet, the company’s turnover in 2004 amounted to

The chairman of RosUkrEnergo is Wolfgang Putschek and its co-directors

are Gazprom management board member Konstantin Chuichenko and
former head of the Moscow office of EuralTransGas Oleg Palchikov.

The company has been supplying natural gas from Turkmenistan to Ukraine
since January 1, 2005 and has been supplying gas to Poland since March 1.

Analysts estimate that the company has supplied Ukraine with about 50
billion cu. m. and Poland with about 44 billion cu. m. at an average price
of $85-90 per 1000 cu. m. Its turnover was around $2.5 billion and its
market share in the CIS and Europe is 3-4 percent.
After the Orange Revolution, Ukrainian authorities questioned the
transparency of the company’s operations ad announced their desire to
buy Raiffeisen’s share in the company. The press reported that the bank
was willing to sell its share in the company for $500 million, but no
transaction took place.

At the same time, former Ukrainian authorities made other accusations
against RosUkrEnergo. On June 21, 2005, former head of the Ukrainian
Security Service Alexander Turchinov stated that part of the assets of the
company are personally controlled by former Ukrainian president Leonid

Turchinov said that the supply plan for the company was devised by
Kuchma and former prime minister Viktor Yanukovich to “insure their
positions and economic control over the country.” Turchinov suggested
that Kuchma then sold his share in the company to Gazprom employees
close to Russian President Vladimir Putin. He also said that Yushchenko
knows about that, but forbade him to “deal with it.”
Since July 27 the former security service head has stated several times
that Gazprombank’s share in RosUkrEnergo is controlled by businessman
Semen Mogilevich, who was convicted of embezzlement twice in Russia
and is now wanted by the FBI on charges of embezzlement and money
laundering. However, Turchinov said, the Ukrainian Security Service has
only indirect evidence of Mogilevich’s involvement in RosUkrEnergo.
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9.                         UKRAINE POLITICS: GAS POISONING

The Economist Intelligence Unit Limited
New York, New York, Wed, January 11, 2006

The dismissal by parliament of Ukraine’s government, over the controversial
gas deal with Russia, has little policy impact because a fresh election is
due in late March. Nevertheless, it is a blow to President Viktor
Yushchenko’s faction and deepens the rift with his erstwhile allies from the
“Orange Revolution”-perhaps opening the door for oligarchic participation in
the next government. More generally, the confusion caused by the
parliamentary vote reflects a deeper institutional uncertainty within
Ukraine’s political system.

The Ukrainian parliament voted on January 10th to dismiss the cabinet headed
by the prime minister, Yuriy Yekhanurov-less than four months after Mr
Yekhanurov took office and barely three months before the parliamentary
election scheduled for March 26th.

Most likely, the Yekhanurov government will nevertheless still remain in
place, in a caretaker capacity, for the next two months. The disparate
parliamentary groups that ousted his cabinet are unlikely to be able-or
want-to form a government of their own before then. This limits the
practical repercussions of the January 10th vote, particularly as the
Yekhanurov cabinet had already de facto been serving as a caretaker since
coming to power.

Mr Yekhanurov’s ouster nevertheless still represents a blow for Mr
Yushchenko, whose popularity had already fallen sharply from the highs he
enjoyed at the time of his election a year ago. The attacks on his prime
minister-who heads the pro-presidential Our Ukraine bloc-will have weakened
both men further.

Our Ukraine’s chances in the parliamentary election are now likely to be
worse than before, while relations with potential coalition candidates have
deteriorated. Both outcomes increase the risk that Mr Yushchenko might face
a hostile parliament after the election in March. Although a
pro-presidential majority in the new parliament is still, on balance, a more
likely outcome, any such coalition will be even more fragile than previously

Moreover, the risk has increased that the 2004 presidential election loser,
Viktor Yanukovych, could form part of a post-election majority coalition.
This would certainly be bad news for the course of political and economic
reforms in Ukraine.
                           ELECTORAL POLITICS, NOT GAS
The cabinet’s sacking was ostensibly sparked by the unpopular gas contract
that it signed with Russia’s Gazprom at the start of the year. Most
parliamentary groups except Mr Yushchenko’s closest allies have condemned
the deal, which doubles the price that Ukraine pays for its imported gas
over the next six months and offers no guarantee that prices won’t rise
further thereafter.

Critics complain that Ukraine achieved only a modest increase in the tariff
it applies on Russian gas going to European markets via Ukraine-and,
crucially, that it has agreed to fix this tariff for five years. In
addition, the deal’s provisions for murky intermediaries to handle the gas
trade have sparked accusations of corruption.

But the Yekhanurov cabinet’s dismissal is clearly more about the
parliamentary election campaign now in full swing than it is about gas. No
one thinks that the gas deal’s main critic, former premier Yuliya
Tymoshenko, who is running against the Yushchenko-linked Our Ukraine
bloc in the election, could have negotiated a significantly better deal.

And murky arrangements involving potentially corrupt intermediaries were
common practice long before Mr Yushchenko took office-when many of
the other vocal critics of the latest deal, including Mr Yanukovych, held
top government posts.

With an eye to the upcoming election, these critics all saw that the gas
deal-which they could easily paint in an unfavourable light-might serve to
damage the Yushchenko camp and thereby bolster their own electoral

Unlikely to win an outright majority, they are thinking ahead to coalition
negotiations, presumably with an eye either on the prime minister’s spot or
the parliamentary speakership. Under the constitutional changes in effect
since the start of 2006, the importance of both posts has increased
Ms Tymoshenko in particular has made no secret of her hopes of returning
to the prime minister’s spot-having been dismissed from that position in
September when her alliance with the president turned sour.

Her eponymous bloc’s popularity is currently roughly equal to that of the
pro-presidential Our Ukraine bloc, and the two are still expected to form
the nucleus of a pro-presidential majority in the new parliament. In
anticipation of this, Ms Tymoshenko is clearly intent on emerging from the
election with her bloc as the senior partner.

Ms Tymoshenko’s role in ousting Mr Yekhanurov will nevertheless have
deepened existing divisions between her bloc and the Yushchenko team.
As a result, any eventual coalition between the two former allies in the new
parliament is likely to be even more brittle than previously expected.

Moreover, the chance of an alternative coalition forming in the new
parliament has now increased: with relations between Ms Tymoshenko and
Mr Yushchenko at a new low, neither will now exclude the possibility of a
coalition with Mr Yanukovych, who is expected to win the largest single
block of seats in the new parliament.

Although Ms Tymoshenko could never politically afford to suggest to her
anti-oligarchic voters that she might work with Mr Yanukovych after the
election, once the votes are counted her calculations could change.
Moreover, she has set a precedent by working with Mr Yanukovych to
oust Mr Yekhanurov.

Mr Yushchenko, for his part, has always been relatively open to working with
all sides. He too has set a precedent, having relied on Mr Yanukovych’s
votes to secure parliament’s original approval of the Yekhanurov cabinet in
September 2005. For the time being, however, an alliance with Mr Yanukovych
remains an outside possibility for both the president and his former prime
                                CONSTITUTIONAL CHAOS
On the constitutional front, the cabinet’s ouster has highlighted how
unprepared Ukraine is for the shift to a more parliamentary form of
government that took place on January 1st. Considerable confusion has
surrounded the switch. Not least, there is no consensus over the legality of
parliament’s vote to dismiss the government, and no clarity over how to
appoint a new cabinet.

Parliament now theoretically has the right of appointment, but the required
mechanisms do not yet appear to have been established. The president,
meanwhile, has been stripped of the lead role he previously played in the
process of cabinet formation. To add to the uncertainty, it is unclear what
government will be in place after the 60 days constitutionally remaining to
the Yekhanurov administration are up. The elections will still be two weeks
away, and post-election coalition talks could drag on.

The resulting chaos is likely to prompt the presidential administration to
intensify its campaign to undo the recent constitutional changes. This will
only further add to the political scene’s instability. The president’s
allies argue that both the substance of the recent constitutional changes
and the controversial circumstances surrounding their original adoption-as
part of a deal to end the election crisis in December 2004-contravene the
country’s constitution.

Unfortunately, this debate too could be protracted: in anticipation of a
constitutional court challenge, the parliamentary leadership has dragged its
feet on filling vacancies on the constitutional court, without which no
decision can be reached.

Fifteen years after independence, these recent developments in Ukraine have
confirmed that the country’s institutional framework remains disturbingly
weak, and that basic questions over the institutional balance of power are
still far from settled.

Even though Mr Yushchenko’s first year in power has brought some
noteworthy results-including a democratisation of the political process, an
improved human rights record, greater civic participation and a free media-
the ongoing political turbulence in Ukraine provides a sobering reminder of
the amount of work still needed.  -30-
The Economist Intelligence Unit, New York, NY, E-mail:, Website,

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
             Ukrainian government collapses over gas deal with Russia
Eurasia Daily Monitor, Volume 3, Issue 7
The Jamestown Foundation, Wash, D.C., Wed, Jan 11, 2006

Yesterday, January 10, the Ukrainian parliament voted no confidence in the
government of Prime Minister Yuriy Yekhanurov, which has only been in
place since late September 2005, when he replaced Yulia Tymoshenko

President Viktor Yushchenko seems oblivious to the building furor over the
new gas contract with Russia, suggesting that he is out of touch with
reality and that the authorities are unable to muster a convincing case
either at home or abroad.

The no confidence motion comes only six days after Ukraine and Russia
signed a new gas contract to replace the 10-year contract signed in 2003 but
unilaterally discarded by Gazprom. Although ostensibly a rebuff of the new
contract, the vote also allowed parties to score points ahead of Ukraine’s
March 26 parliamentary elections.

Yushchenko People’s Union-Our Ukraine (NSNU) faction voted against the no
confidence motion, as did five satellite factions (Rukh, the People’s Party,
Reforms and Order, Party of Industrialists and Entrepreneurs, and Revival),
and the Socialist Party (SPU). The Communist, Regions of Ukraine, and the
Social Democratic Party threw their combined 135 votes behind the no
confidence motion, which passed thanks to an additional 133 votes from the
Tymoshenko bloc and its satellite United Ukraine faction, as well as
parliamentary speaker Volodymyr Lytvyn’s People’s Party and its satellite
People’s Lytvyn Bloc.

The adoption of the no confidence motion marks the third time that the
Tymoshenko bloc has voted against the government in the past four months.
The faction voted against Yekhanurov’s appointment as prime minister in late
September and against the 2006 budget on December 20. Lytvyn’s two
factions have become a swing vote, siding with the government in favor of
the budget and against the government in the no confidence motion.

These key parliamentary votes point to two likely problems after the
elections. First, the rift between Yushchenko and Tymoshenko is growing.
Without a re-united Orange coalition, the NSNU may turn to Regions of
Ukraine to establish a coalition. Second, as Lytvyn’s “third force” is
dropping in the polls, its political profile is becoming fuzzier. When asked
if his People’s Party is in opposition or with the authorities, Lytvyn
responded, “We are a lot further from the authorities than the SPU and a lot
closer to the opposition than the Yulia Tymoshenko bloc” (Ukrayinska
pravda, December 10) (

Tymoshenko called for the government’s resignation early in the gas row, a
move the NSNU described as a “knife in the back” of the government while it
was the midst of difficult negotiations with Russia. The dismissal of the
government, Zerkalo Tyzhnia/Nedeli declared, “means throwing the country
into total chaos” (December 17). Observers also found it suspicious that the
Russian criminal case against Tymoshenko closed on December 26, in the
middle of the gas war. The case related to a bribe that Tymoshenko allegedly
paid to an officer in the Russian Defense Ministry while head of United
Energy Systems in the mid-1990s.

After the new gas contract was signed on January 4, the Tymoshenko bloc
and Regions of Ukraine called for parliament to return from its holiday
break early, but parliament did not reconvene until its scheduled session

on January 10.

The hard-line opposition’s criticism of the deal is difficult to take
seriously. During the Kuchma era the energy sector was highly corrupt, and
the two intermediary companies (EuralTransGaz in 2003-2004 and
RosUkrEnergo from summer 2004) were created when Region of Ukraine
leader Viktor Yanukovych was prime minister.

One accusation rests on the dubious claim that Yushchenko’s foreign policy
is xenophobically anti-Russian; therefore he has forfeited the right to
conduct negotiations with Russia. Yanukovych went one step further,
claiming that Ukraine’s tough negotiating position was due to instructions
from the “CIA” as part of a plan to undermine constitutional reforms and
cancel the elections (Ukrayinska pravda, December 27, January 2).

Tymoshenko’s three accusations are more credible.
[1] First, she argues that Ukraine should have followed through on its
threat to take the dispute to the Stockholm Arbitration Court, because
Russia broke the 2003 contract that set the price at $50 per 1,000 cubic
meters of gas.
[2] Second, the new agreement only guaranteed $95 per 1,000 cubic
meters of gas in the first half of 2006, while locking Ukraine into a fixed
transit fee for five years.
[3[ Third, the corrupt, non-transparent RosUkrEnergo now controls
gas supplies to Ukraine.

The Industrial Union of the Donbas (ISD) and directors of Ukraine’s largest
plants also criticized the new contract. They, like Tymoshenko, could not
understand why Ukraine abandoned the 2003 contract. ISD head Serhiy
Taruta called the new deal the “worst document signed during independence”
(Ukrayinska pravda, January 9).

The counter argument, made by Naftohaz Ukrainy chairman Oleksiy Ivchenko
on Channel 5 TV (January 9), maintains that the highly corrupt barter scheme
has been replaced by cash payments and that no future price changes can be
unilaterally made by either side.

NSNU also argued that the no-confidence vote was irrelevant, as the
Yekhanurov government will stay on as a caretaker government until the
March parliamentary elections.

Three conclusions can be drawn from the latest developments in Ukraine.
[1] First, the possibilities for re-uniting the Orange coalition after the
elections are now more remote than ever.
[2]Second, Yushchenko has been weakened by both constitutional
reforms and the no confidence vote. Naftohaz Ukrainy’s Ivchenko is
also head of the Congress of Ukrainian Nationalists, which, although
a member of NSNU, is perhaps not the most appropriate political force
to negotiate with Russia.
[3] Third, even the Russophile Yanukovych had to admit that Moscow’s
tactics have damaged Russia’s image in Ukraine.  -30-

Dr. Taras Kuzio, Visiting Professor, Institute for European, Russian
and Eurasian Studies, George Washington University, Washington,
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
           Be A Vice-President In The Continuing Orange Revolution 

COMMENTARY: By Sergei Pletnev and Angelina Timofeeva website, Moscow, Russia, in Russian, Tue, 10 Jan 2006
Translated by Olga Bogatyrenko for UKL

Published in English by The Ukraine List (UKL) #380, Article #11
Ottawa, Ontario, Canada, Wednesday, January 11, 2005

On Tuesday, Ukrainian Parliament used its right to dismiss the government
lead by Yurii Yekhanurov. In such a way, the opposition led by Viktor
Yanukovych and Leonid Kravchuk for the first time acted together with the
“Orangists” from the “Yulia Tymoshenko Bloc”

However, as Kravchuk stated, the major complaint against Yekhanurov’s
government was a “lack of professionalism in gas negotiations with Russia.” tried to count how many errors the Ukrainian government made
during its negotiations with Gazprom.

reactions, which created an impression that the Ukrainian government did
not fully believe that Gazprom would in fact increase prices, resulted in
the fact that the initial price of $160 per 1000 cubic meters was achieved
mutual concessions and that Gazprom had insisted on subsequently increased
to $250-270. Moreover, at a later stage of Ukrainian negotiations Gazprom’s
representatives stated that they would index gas prices in accordance with
world market prices.

2. UKRAINE’S IMAGE IN EUROPE SUFFERED. [1] First, the fact of theft
of Russian gas that had been explained away by the technical process of gas
transfer was proved. Moreover, this fact was passed on to the European level
and became public knowledge for European partners. [2] Second, Europe was
showed that Kyiv would not hesitate to endanger the energy security of the
Old World for the sake of its own self-interest.

3. GAS PRICE. In the beginning of the negotiations Ukraine insisted that the
maximum price it would pay for 1000 cubic meters of gas was $70-80.
Eventually, the sides agreed that Gazprom would sell gas to RosUkrEnergo for
$230 per 1000 cubic meters and the Ukrainian economy would receive “blue
fuel” [i.e., gas] for $95 without any guarantees that this price would not
be increased in half a year.

In fact, such a low price of $95 per 1000 cubic meters is a result of cheap
Asian gas, which RosUkrEnergo mixes up with Russian gas and supplies to
Ukraine. However, the formula of how the final price is calculated lacks
transparency. It is quite possible that the price of $95 was agreed upon
during negotiations between Gasprom and Naftohaz to “save” Kyiv’s face
and has to do with politics and not economy.

Negotiations with Turkmenistan about gas supply that “saved” Kyiv’s face
were quite difficult.

Ashkhabad refused to supply gas in exchange for Ukrainian barter.
According to sources of, the Turkmenbashi [Turkmen President –
UKL] agreed to supply “blue fuel” priced at $60 per 1000 cubic meters only
as a result of pressure from Washington.

The contract is signed for one year, however the Turkmen government have
already raised the price (from $50 to $60) as a result of Gazprom’s actions,
and it is quite possible that the 2007 contract will reflect entirely new

5. POPULISM OF THE CAMPAIGN. Ukraine is the seventh largest gas
consumer in the world. Proposing to transfer Ukrainian industry to “energy-
efficient technologies” suggests that the Cabinet is either ignorant or
unprofessional. The same is suggested by high-standing officials who made
a number of statements about the fact that Russia “won’t have a choice” and
will have to agree for a compromise favorable for Ukraine.

All this indicates that this campaign [i.e., the Cabinet’s campaign] is
characterized by much populism rather than a lack of professionalism. The
statement made by Premier Yekhanurov on New Year’s Eve about the fact
that the contract with Gazprom had been signed and is on the Premier’s desk
became an apogee of insolent pressure.

Undoubtedly, the government was facing a difficult task of not only agreeing
on new gas prices but also of conducting a PR electoral campaign to unite
the flaky “Orange” electorate under the umbrella of “We Won the Gas War
Against Russia.” However, the image of “Russia as an external enemy” was
not enough.

With all emotional outbursts, the Ministers barely managed to inform the
citizens about why it is exactly that the “enemy regime” must sponsor the
Ukrainian economy. The dismissal of the government invalidated this PR
campaign once and for all.

So, the government’s failures in the sphere of both economy and foreign
policy, which came out of negotiations with Gazprom, are obvious.

[1] On the one hand, from the foreign policy standpoint, ignorant actions
of the Cabinet improved the chances of electoral victory for the opposition
in March 2006.

[2] On the other hand, they can provoke Yushchenko’s team to unwise
actions, an early dismissal of the Parliament and claims that the
opposition’s actions are outside of the legal framework among them.  -30-

UKL 380, 11 January 2006, Compiled by Dominique Arel, Chair of
Ukrainian Studies, University of Ottawa, 559 King Edward Ave., Ottawa
ON K1N 6N5, CANADA; 613 562 5800 ext. 3692, fax 613 562 5351
For a free subscription to UKL, write to
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Radio Mayak, Moscow, in Russian 0915 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 11, 2006

MOSCOW – The main cause of the current government crisis in Ukraine is

not the gas price dispute with Russia. The fundamental cause is the bad
work of Ukrainian President Viktor Yushchenko’s administration, Sergey
Markov, director of the Institute for Political Research, has told Mayak

On 11 January Mayak radio’s “Panorama” programme looked at the political
situation in Ukraine and at Russian-Ukrainian relations.

“Generally speaking, I think that Viktor Yushchenko has never been
supported by the majority of Ukrainian citizens. A decrease in his ratings
led to this situation. Parliament members would not have challenged a
popular president,” Markov said.

“A slow-down in the economic growth rate, political repression against the
opposition, corruption scandals involving tycoon friends of the president –
all this has led to a substantial loss of his authority and a decrease in
the level of the government’s competence. Also, initially announced course
aimed at the European integration has failed,” Markov added. “In fact, an
anti-Yushchenko majority has formed in the parliament,” Markov said.

“The parliament will have a right to form the government after the [26
March] parliamentary election. For the time being, the government stays,

but it will be deprived of authority and influence a fully-fledged government
should have,” Mykhaylo Pohrebynskyy, director of the Kiev centre of
political research, said.

I agree that this decision has been provoked by many mistakes made by

the Yushchenko administration,” Pohrebynskyy added.
Markov said the majority of Ukrainians are Russia’s allies and Russia must
cooperate and help them the way the Americans do. This work must result in
the formation of a government which would be oriented at a strategic union
with Russia, Markov said.

Pohrebynskyy disagreed with Markov and said that the majority of Ukrainians
wanted to build their future on their own, taking into account, of course,
the presence of Russia, their close neighbour and ally. He said Russia has
shown its strong influence which affected the position of the current
Ukrainian authorities and taken advantage of Ukraine’s mistakes in the gas
policy. Recent public opinion polls showed that the attitude of 15 per cent
of Ukrainians towards Russia has worsened, Pohrebynskyy added.

There will be no split in Ukraine and the guarantors of this are those who
treat Russia with suspicion and fear that in this case Russia might become a
great anti-Western state, Markov said.

We Russians are fully responsible for our future, while Ukrainians are not.
Americans, the EU and Russia will always help them,” he added.

Markov said there is very little chance of Yushchenko being impeached as
former prime minister Yuliya Tymoshenko would never agree to that.

However, he said, the decision of the Ukrainian parliament to sack the
government is a severe blow to Yushchenko. It is his political defeat and
it indicates that he is likely to lose the parliamentary election, Markov said.

“Our main ally is the majority of the Ukrainian people. The Russian
leadership’s attempts to create an alliance with Ukrainian billionaires will
not result in anything good because they will always let us down. We must
focus on the alliance with Ukrainian society and set up joint projects with
business,” Markov concluded.  -30-
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Untimely-Thoughts, Moscow, Russia, Wed, January 10, 2005

On the back of mounting discount with the way the authorities solved the
gas dispute with Russia’s Gazprom led by President Viktor Yushchenko’s
former ally Yulia Tymoshenko, the Verkhovna Rada voted to fire the
Cabinet of Prime Minister Yurii Yekhanurov on Tuesday. This is not a
political crisis – it is about who got the short end of the stick in the
gas deal.

The motion passed with 250 votes, 24 more than the 226 required. The

Yulia Tymoshenko Block, Party of Regions, Communists, Socialists
and Lytvyn Block all voted overwhelmingly in favor of the motion.
                                WHAT HAPPENS NOW? 
[1] While Ukraine changed into a parliamentary-presidential republic on
January 1, only President Yushchenko has the legal right to form the new
government until after the March 26th elections.

[2] The president’s current government will stay in power until then unless
Yushchenko decides to put forward a new candidate as Prime Minister.

The possibility of this happening is very small, as the Rada, knowing it is
soon to assume power, would most assuredly block any of Yushchenko’s

[3] The government will began its winter recess on Monday and will not
reconvene until February 7, and even in the best of circumstances the
appointment of a new prime minister can take about a month.

[4]The Rada’s move is a slap in the face for the Yushchenko politically;

in fact it will probably not affect the day to day work of the current
                              WHAT IS OF INTEREST? 
[1] Tymoshenko’s alliance with Viktor Yanukovych and the Party of
Regions. Recall that the BYT was initially against the appointment of
Yekhanurov, but was careful not to connect itself with Regions when
they blocked his nomination in the first vote – though at the time it
appeared that Yushchenko’s power base had reached out to Yanukovych.

[2] BYT appears to have changed course approaching the elections: from
parallel with Our Ukraine to head-on collision.
                                BACKGROUND NOISE: 
[1] Dissatisfaction with the gas deal with Russia is a front (if not excuse)
to attack Yushchenko. What certainly is behind the dissatisfaction with the
deal is probably how some powerful members of Ukraine’s
“energy-criminal-oligarchy” have been shut out of the new agreement with

[2 All of Ukraine’s parties have oligarch masters in the background (even
foreground!) and Yushchenko’s “unilateral” recasting of the country’s
favorite (illegal) cash cow has raffled a lot of feathers.
                               WHAT ABOUT RUSSIA? 
[1] It is my hope that the Kremlin sits this whole thing out and simply
demands a market mechanism to deal with gas supplies to and through the
Ukraine. Sticking to this position speaks sense to its ultimate end-user:
Western Europe.

[2] If the Kremlin can be a passive onlooker, just maybe the West will see
the real Ukraine: unable to break the back of the oligarchs, satisfied with
being the most energy wasteful country in the world (getting energy for
free from Russia + making illegal profits), and a country that always asks
for help from others, while others are blamed for all its problems.

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14.                   WILL THE GAS DEAL COME UNSTUCK?

By David Crouch in London, Financial Times
London, United Kingdom, Wednesday, January 11 2006

Riding a tide of indignation, Ukraine’s parliament voted on Tuesday to
punish the government for doing a deal with Russia over the import and
transit of natural gas. Parliamentarians had little difficulty poking holes
in the two-page document signed by Russia and Ukraine on January 3.

[1] First, the deal promised a relatively moderate rise in gas import prices

for Ukraine, but only for a six month period. What happens to gas prices
after July 1 2006 is up to the Russians, and the threat of price hikes will hang
over the new Ukrainian executive after parliamentary elections in March.

[2] At the same time, the deal commits Ukraine to charging a fixed price for

the transit of Russian gas through Ukrainian territory for five years,
regardless of any increase in the market price that Russia can charge
European customers during that time.

[3] Finally, there is the opaque nature of the company RosUkrEnergo that
will have a monopoly on buying gas from Russia – including Central Asian
gas that passes through Russian territory — and selling it to Ukraine.
Ukrainian prime minister Yuri Yukhanurov was singularly unable to explain to
parliament who owns the company and why it had been chosen to play this

The Russian business newspaper Kommersant points out that the ownership
structure of RosUkrEnergo is reminiscent of the unknown shell company that
snapped up the main oil production assets belonging to Yukos – whose
chairman Mikhail Khodorkovsky is languishing in a Siberian jail – at auction
in 2004. The company was swiftly transfered to state-controlled oil giant

Ukraine’s belligerent parliamentarians found support in the shape of the
country’s big business. A statement by industrialists representing major
steel makers and energy providers said the deal “placed the economy under
threat of collapse and loss of its market competitiveness” and demanded that
responsible officials resign for creating this “extremely dangerous

Ukraine’s president Viktor Yushchenko has vowed that the gas deal will
remain in force and that his government will not resign. Changes to the
Ukrainian constitution that came into force on January 1 permit parliament
to dismiss the government, but don’t allow it to appoint a new one until
after the March elections. Ministers are therefore likely to remain at their
posts until then, but with the preposition “acting” added to their job

At the same time, Mr Yushchenko’s angry threat on Tuesday to disband
parliament is also unlikely to carry much weight. The president’s authority
to do so is doubtful under the new constitution, which forbids him to do so
in the last six months of the parliament.

Parliament is demanding that Ukraine drag Russia through the European courts
to establish the legal precedence of the former agreement, signed in 2004,
under which Ukraine imported gas from Russia at a knock-down price.

But such a step is fraught with problems for Ukraine, as Mr Yekhanurov
pointed out: “We could have dug our heels in and not signed any agreement.
But cases in Stockholm [the Arbitration Institute of the Stockholm Chamber
of Commerce ] last for months, if not years,” he said in parliament. “Who
needs a victory if it means several years without gas, with a collapse of
industry and social spending?”

When Mr Yushchenko met Russian president Vladimir Putin on Wednesday

he told reporters: “Ukraine and Russia have entered an excellent phase in
bilateral relations, a phase of personal friendship, which allows us to discuss
wonderful prospects.”

Financial markets were less sanguine and the normally tightly controlled
Ukrainian currency, the hryvnia, dropped to its lowest level since April

Since Viktor Yushchenko’s face was disfigured over a year ago, there have
been no shortage of allegations that the Kremlin arranged for him to be
poisoned. Russian natural gas, however, looks like being equally venomous

to Mr Yushchenko’s presidency. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
15.                                PUTIN’S GAS BLUNDER

 Moscow won the gas war, but lost in international court of public opinion

Eurasia Daily Monitor, Volume 3, Issue 7
Jamestown Foundation, Wash, D.C., Wed, Jan 11, 2006

The abortive interruption of Russian natural gas supplies to Ukraine on
January 1 was a humiliating diplomatic blunder. It was an unnecessary
crisis, and one that Russia clumsily lost in the court of world public

While Ukraine was threatened with a gas blockade, Russia was voluntarily
submitting itself to a two-week information blockade. The entire country was
given a holiday from January 1 to 10, with even the newspapers shuttered.
The political class fled to their holidays in the sun, and none of the usual
Kremlin spin-doctors were deployed to staunch the flood of Western

The Russian case simply did not get an airing in the international media.
Moscow never stood a chance. There is a case to be made for Russia: not a
strong one, but a case, nevertheless. It consists of the following elements.

First and foremost, why should Russia continue to supply Ukraine with gas at
a price one-quarter of that paid by Europeans? The anomaly is not the
insistence on market pricing; the anomaly is the August 2004 deal promising
Ukraine cheap gas, offered in a reckless (and fruitless) bid to boost Viktor
Yanukovych’s chances in the December 2004 presidential race. Charging
market prices should have been welcomed by the West as a step away from
such political maneuvering ­ but instead it was seen as just the opposite.

The subsidy implicit in gas priced at $50 per 1,000 cubic meters amounts to
some $3-5 billion per year. Ukraine had been taking some of its discount gas
and selling 5-6 billion cubic meters to Western customers (worth $1 billion
in clear profit). In October, Ukraine pocketed $4.8 billion from the sale of
its major steel mill, Kryvorizhstal, to India’s Mittal Steel, so Russia
could be forgiven for thinking that it was ready to pay market prices for
fuel (that makes up 70% of the cost of steel). This impression was confirmed
by the EU’s decision to grant Ukraine “market economy” status in December.

Far from being arbitrary and thuggish, Russia had tried in repeated meetings
since June to persuade the Ukrainians to sign a new agreement. The problem
was that the Ukrainian government was in chaos. First there was Prime
Minister Yulia Tymoshenko’s populist posturing, including her effort to
freeze gasoline prices.

Months of faction fighting followed by her dismissal in September threw
the government into complete disarray, with President Viktor Yushchenko
striking a deal for parliamentary support with his former adversary
Yanukovych. There was nobody with the political authority to make
a deal with Russia, one that would invariably involve increased prices. So
the Ukrainian leadership let the clock run out with no deal signed. The
problems Russia faced in negotiating with Kyiv were underlined by the
dismissal (or maybe not) of the government on January 10 by a parliament
unhappy with the January 4 deal.

Critics protest that Russia was contractually obliged to deliver $50 gas to
Ukraine for the next five years. However, none of the Western commentators
have seen the full text of the August 2004 contract: only selected parts
were published. And even from those it seems clear that the $50 discount
price applied only to gas to be supplied in exchange for transit fees, about
15 billion cubic meters. Ukraine did not have carte blanche to take as much
gas as it wanted.

Few Western commentators mentioned that the August 2004 deal was connected
to a Ukrainian government pledge to develop a joint consortium, with Russia
and Germany, for the management and development of the pipeline
infrastructure. Yushchenko dropped that commitment once he took office.

Fewer still reported that the deal was also connected to the rescheduling of
the $1.6 billion that Ukraine owes Russia for unpaid deliveries from
1997-2000. Also in August 2004, as a political gesture Putin waived the VAT
on energy exports to Ukraine — worth another $1 billion to Kyiv. With all
those factors in its favor, Moscow should have been able to make a much
better case to the international community.

Economic theory is of no help. There is no agreed principle for dividing the
rents from energy between a producer and a downstream pipeline carrying it
to market. The market solution would be to look for alternative routes, and
fix a price that makes it just profitable for Russia to build across
Ukraine. But this would take 5-10 years to execute. No such calculations
were made, and no binding contracts were signed, when the pipeline was built
in the 1980s.

In the meantime there is no fair price, nor a market price. There is only a
political price. It came down to a game of chicken: who would lose more from
a shutdown of the pipeline, Moscow or Kyiv? After 10 hours Moscow blinked,
and turned the gas back on. But Russia has so many economic levers at its
disposal, from the tax treaty to visa-free travel, that they were able to
wring a favorable deal out of Kyiv by January 4. By then, however, the
damage to Moscow’s international prestige had been done.

In recent years Putin has generally won recognition as a skilled and
cautious diplomat, somebody who learned English in two years in order to
schmooze with the masters of globalization. And he is supposedly served by
the wily and experienced ex-Soviet diplomatic corps, trained to manipulate
the nuances of international public opinion. Where were they — before and
after January 1? Whatever happened to the Russia that was playing chess
while Uncle Sam was playing checkers?  -30-
(; Ukrayinska pravda, December 29; Kommersant,
December 16, 29;, January 4) (
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
          Power Corrupts and Absolute Power Corrupts Absolutely.

AP Worldstream, Moscow, Russia, Wed, Jan 11, 2006

MOSCOW – Russia on Wednesday again accused the United States of

politicizing Moscow’s gas talks with Ukraine. The Foreign Ministry circulated
an account of a phone conversation between Russian Foreign Minister Sergey
Lavrov and his U.S. counterpart Condoleezza Rice in which he protested
Washington’s behavior.

“(Sergey) Lavrov once again drew attention to the inappropriateness of such
openly politicized, biased commentaries in the United States that
accompanied the dialogue between Gazprom and Naftogaz Ukraine on the
conditions of their economic relations,” the ministry statement said. The
two diplomats also discussed the Iranian nuclear crisis and other regional
issues, it said.

Last week, Rice said Moscow’s demand that Ukraine pay more than four times
the previous price for its natural gas had an “obviously political motive,”
and indicated Russia’s behavior showed it was unprepared to be a responsible
energy supplier and participant in the world economy.

Many analysts saw Russia’s price increase demand as punishment for Ukraine’s
election of Westward-leaning President Viktor Yushchenko last year over a
Kremlin-backed candidate, after a bitter battle during which Moscow and
Washington accused each other of interference.

Amid U.S. concerns that Russia is backtracking on democracy under President
Vladimir Putin, relations have also been hurt by the lack of progress in
U.S. efforts to secure more involvement in Russian energy projects and
increased deliveries of Russian energy to the West.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Agence France Presse (AFP), Washington, D.C., Wed, Jan 11, 2006

WASHINGTON (AFP) – US officials urged all sides to respect the law in
Ukraine after the former Soviet republic’s parliament sacked the government.
“We are closely following events in Ukraine,” said a State Department
spokeswoman, Julie Reside.

“We expect that all the parties would adhere to the constitution and the
rule of law and we will continue to work closely with Ukraine on our
bilateral priorities and in support of Ukraine’s continued progress on
democracy and reform,” Reside said.

The Ukrainian parliament voted Tuesday to sack the pro-Western

government over a controversial gas deal with Russia. President Viktor
Yushchenko, a close US ally, denounced the move as “illegitimate” and
warned it would destabilize the country.

“People have asked if it is legal. We don’t know,” Reside said. “We

expect that people will follow their laws.” -30-
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  Saakashvili and Yushchenko attend inauguration of Kazakhstan president

By Andrew Osborn in Moscow, The Independent Online
London, United Kingdom, Thursday, 12 January 2006

Realpolitik triumphed over democratic idealism when two of the most
prominent velvet revolutionaries in the former Soviet Union joined the
Russian President Vladimir Putin at the inauguration of Kazakhstan’s
freshly re-elected autocratic president.

In the Kazakh capital Astana, Viktor Yushchenko, the leader of Ukraine’s
orange revolution, and Mikhail Saakashvili, the victor of Georgia’s rose
revolution, attended an ostentatious swearing-in ceremony for 65-year-old
Nursultan Nazarbayev.

It was an incongruous event for the two men to attend since they have

became the standard bearers of regime change and anti-Moscow rhetoric
in the former USSR and Mr Nazarbayev represents everything they profess
to abhor.

The moment seemed all the more demeaning for the two leaders because Mr
Putin, a symbol of the Russian brand of imperialism they have struggled to
throw off, was in attendance and it was painfully clear that they needed him
more than he needed them.

Indeed, their presence appeared to underscore the end of the velvet
revolution juggernaut in the region and a realisation that Ukraine and
Georgia now have no choice but to do business with authoritarian
governments that are more powerful and more energy-rich than they are.

Kyrgyzstan in central Asia has been the only other former Soviet state to
experience a velvet revolution, though that now looks to have been more
of a coup d’état and it is hard to see where the next exercise in people’s
power might unfold.

That Mr Yushchenko and Mr Saakashvili felt it necessary to pay their
respects to Mr Nazarbayev is an irony that will not be lost on the former
Soviet bureaucrat or indeed the Kremlin. Mr Nazarbayev makes no secret
of his distaste for velvet revolutions and is precisely the kind of leader
that the uprisings in Ukraine, Georgia and Kyrgyzstan toppled.

In power since 1989, he won a third successive term as president in December
purportedly capturing 91 per cent of votes, an achievement that looks set to
see him rule Kazakhstan, an oil-rich country the size of western Europe, for
a further seven years, bringing his overall tenure to a quarter of a

Though Mr Nazarbayev claimed that the elections were held in
“unprecedented democratic conditions” the West had a very different

But Kazakhstan and indeed Russia’s huge oil and gas reserves were obviously
enough to persuade Mr Yushchenko and Mr Saakashvili that they could not
afford to be too choosy about the company they keep. “Although we’re
people of different experience and different generations, we have found a
great common language,”

Mr Saakashvili said after talks with Mr Nazarbayev, adding that Georgia was
learning about economic reform from Kazakhstan.

Mr Yushchenko also held a meeting with the Kazakh leader at which he
discussed energy co-operation after Russia cut gas supplies to Ukraine for
three days earlier this year as part of a bitter price dispute.

Kazakhstan is expected to become one of the world’s top 10 oil producers
in the next decade. The country boasts the largest oil field to be
discovered in the past 30 years, and has large reserves of natural gas around

the Caspian Sea.

Mr Yushchenko was also forced to play second fiddle to a confident-looking
Mr Putin, who told him that Russia’s gas deal with Ukraine was good for both
countries and would be fully honoured.

The nature of the deal – it in effect doubled the price Ukraine pays for
gas – prompted the Ukrainian parliament to sack Mr Yushchenko’s cabinet
on Tuesday. A no-confidence motion was passed by 250 votes to 50. But
yesterday Mr Yushchenko made it clear that his team would try to continue
in office until parliamentary elections could be held in March. -30-
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          Ukraine’s leader Viktor Yushchenko was once an indispensable
           symbol of democracy for millions of his countrymen, but his
                performance since his election has disappointed many.

COMMENTARY: By Fred Weir, South China Morning Post
Hong Kong, Saturday, January 7, 2006

When Russia had turned off the gas and threatened its defiant southern
neighbour with a deep winter freeze last week, many Ukrainians may have
wished for a leader who would stand up to Moscow with heated passion
and fiery rhetoric.

But President Viktor Yushchenko, a former central banker and avid
beekeeper, was never good at warming up a crowd. During Ukraine’s
Orange Revolution, he left that task to his now-estranged ally, the
charismatic Yulia Tymoshenko.

If Mr Yushchenko is not much of a rabble-rouser, though, he is a
post-Soviet problem solver par excellence. He went straight to work, mostly
behind the scenes, and cobbled together a complex, some say shady, deal
that appeared to meet Russian demands while sharply limiting the potential
economic damage to Ukraine.

Under the scheme, a shadowy Russian-Ukrainian joint venture called
RosUkrEnergo will mix cut-rate gas somehow obtained from former Soviet
Central Asia with a more expensive Russian product to provide Ukraine with
energy that is still among the cheapest in the world.

“This proves that Ukraine is ready to work in market conditions, and it is
a worthy partner both for Russia and Europe,” was all Mr Yushchenko’s
office had to say about the unusual settlement of what might have developed
into a serious geopolitical crisis.

“It’s hard to say who won in the end, but somehow Ukraine survived,” says
Alexander Chernenko, head analyst with the Committee of Ukrainian Voters,
a citizens’ group based in Kiev. “Yushchenko handled it the way he does

everything: low key.”

An unlikely, even reluctant revolutionary, Mr Yushchenko survived
near-fatal poisoning, withstood a savage state-backed slander campaign
against him, stubbornly rejected a fraudulent electoral defeat and became
the indispensable symbol of democracy for millions of Ukrainians. But since
being elected president with a healthy mandate for reform just over a year
ago, his performance has deeply disappointed many.

Ukraine’s economic growth plunged from 14 per cent in 2004 to 3 per cent
last year, while Mr Yushchenko dallied with critical market reforms.
Instead of making a clean break with the seamy, conniving cronyism of his
hated predecessor, Leonid Kuchma, he surrounded himself with apparatchiks
and oligarchs who are accused of corruption even by some Yushchenko allies.

He not only failed to unite the “orange team” behind his leadership, it has
been torn apart by vicious squabbles and mutual allegations of graft. In
September, Mr Yushchenko fired his prime minister, the redoubtable Ms
Tymoshenko, and now faces her vengeful wrath in parliamentary polls
slated for March.

“Disillusionment is the biggest factor in Ukraine these days,” says Vadim
Karasov, director of the independent Institute for Global Strategy in Kiev.

“People still support the goals of the Orange Revolution, but they feel the
leaders have let them down. Yushchenko has not delivered on the promises
he made, and this is hurting his stature.”

A December survey by Kiev’s International Institute of Sociology suggests
the biggest winner in the March election might be Viktor Yanukovych, Mr
Kuchma’s disciple, whose supporters are accused of poisoning Mr
Yushchenko and trying to rig the 2004 presidential election. According to
the survey, Mr Yanukovych’s Party of Regions has the support of almost
27 per cent of Ukrainian voters. Ms Tymoshenko’s bloc trails with 16 per
cent while Mr Yushchenko’s Our Ukraine movement comes last with 14
per cent.

The March polls are crucial because, thanks to constitutional reforms that
kicked in on Sunday, many former presidential powers, including the right
to name the prime minister, have passed to the legislature. If Mr
Yushchenko’s forces perform badly, he could be left as little more than a
figurehead president and at the mercy of his parliamentary foes.

But the 51-year-old Mr Yushchenko, who served in the border guards and
worked most of his career in a Soviet agricultural bank, has always been a
man who somehow defies expectations.

His parents were typical school teachers in Khoruzhivka, a town in
northeast Ukraine.

However, his father, Andriy, a former prisoner-of-war who survived the hell
of Nazi concentration camps, knew a thing or two about stubborn endurance.
“I bow humbly in gratitude before my father for the lessons he taught me,”
Mr Yushchenko said recently.

“My father’s truth has guided me throughout my life and has brought me to
the high honour of becoming the head of my country.”

Following the collapse of the Soviet Union, Mr Yushchenko went to work
in Ukraine’s Central Bank, which he soon came to head. In that job he is
credited with defeating inflation, stabilising Ukraine’s currency, the
Hryvna, and establishing the foundations of a modern banking system.

Even in his own circle, he is unusual in remaining untarnished by
allegations of corruption. Ms Tymoshenko, by contrast, is derisorily known
as the “gas princess”, because she made a fortune manipulating Ukraine’s
opaque energy markets in the 1990s. “Yushchenko is the cleanest politician
in Ukraine,” says Alexander Chekmishov, deputy director of the Institute of
Journalism in Kiev. “In fact, he may be the only clean politician we have.”

In 1999, Mr Kuchma tapped Mr Yushchenko to be prime minister, a job he
fulfilled loyally. Relations between the two were so good that Mr
Yushchenko once referred to Mr Kuchma as his “mentor”. But his attempts to
introduce modest liberal reforms brought Mr Yushchenko into conflict with
some of Ukraine’s powerful oligarchs, and his government was brought down
in a 2001 parliamentary no-confidence vote. He drifted into the role of
moderate opponent to the regime.

Ukraine muddled through the 1990s with a quasi-democratic political system,
deeply corrupt governance and foreign policy that tread a cautious line
between Russia and the west.

In recent years, however, that paradigm became untenable as the European
Union moved right up to Ukraine’s borders and Vladimir Putin’s resurgent
Russia sought to draw Ukraine into its planned Common Economic Space.

As the presidential election of 2004 approached, Ukrainian politics
polarised into a “pro-western” camp that saw the country’s future with the
European Union and Nato, and a “pro-Moscow” side that wanted to restore
former Soviet economic synergies and do business in the familiar Russian

That division was geographic as well as ideological. Industrialised eastern
Ukraine is heavily Russified; the Ukrainian tongue is seldom heard and
people openly lament the appearance of a post-Soviet border through lands
that had been united for 300 years. Western Ukraine, which spent most of
its history outside Russian influence, is Ukrainian-speaking,
western-leaning and more nationalistic.

Though they were not entirely dissimilar in personal background or basic
beliefs, Mr Yushchenko and Mr Yanukovych were fated to become the
champions of these opposite camps in an epic struggle that nearly tore
Ukraine apart, and might yet do so.

It is believed that Ukraine’s secret police, in a bid to fix things for the
heir apparent, Mr Yanukovych, attempted to kill Mr Yushchenko with a huge
dose of dioxin. He survived, but his once-handsome face was left scarred
and bloated by chloracne.

The Kremlin intervened in the election contest, allegedly channelling as
much as US$300 million to the Yanukovych war chest through the Russian
gas monopoly, Gazprom. Russian President Putin visited Ukraine three
times during the campaign, leaving no doubt about his preference for Mr

When second-round election results showed a decisive win for Mr
Yanukovych, people poured into the streets to protest at what many said
was massive election fraud. After 13 days of round-the-clock rallies on
Kiev’s Maidan square, Ukraine’s Supreme Court annulled the polls and
ordered a fresh contest to be held on December 26. The “Orange
Revolution” was crowned when Mr Yushchenko defeated Mr
Yanukovych in free elections, by 52 to 44 per cent.

That moment of triumph has long since evaporated. Barely a year into his
presidency, Mr Yushchenko appears more embattled than ever.

A successful end to Russia’s gas blockade – however murky – may have
helped him, but experts doubt it will be enough to vault him back into the
lead as a fresh election looms. Whatever happens next, many say, Ukraine
is a different country thanks to Mr Yushchenko’s stubborn refusal to give

“We have real, functioning democracy now, and that can never be taken
away,” says Kiev political analyst Oleksandr Shushko. “Yushchenko
already has won his place in history, and because of that we Ukrainians
can face the future calmly.”  -30-
NOTE: Fred Weir is a Moscow correspondent for In These Times and
regular contributor to the Christian Science Monitor, the London
Independent, Canadian Press and the South China Morning Post. He is
the co-author of “Revolution from Above: The Demise of the Soviet
System.”  EDITOR
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
20.                                 PUTIN’S COLD WAR
                      Using Russian Energy as a Political Weapon

COMMENTARY: By Walter Mayr, Der Spiegel (The Mirror)

Hamburg, Germany, Monday, January 9, 2006

The Kremlin has botched its debut as leader of the G8 group of industrial
nations with a bout of sledgehammer diplomacy in its dispute with Ukraine
over natural gas. The compromise reached by Moscow and Kiev is classic
Putin in its deliberate lack of transparency.

Moscow finally settles into a pre-Christmas peace on the eve of the Eastern
Orthodox celebration of Christmas. The city lies under a blanket of snow,
frozen deep at -18°C (0°F), as Muscovites turn to festive contemplation or
engage in serious drinking. The editorial offices of Moscow’s newspapers
have been closed for more than a week.

The mood is even festive in the presidential residence, Novo-Ogaryovo, on
the western outskirts of the Russian capital. Russian President Vladimir
Putin welcomes two important guests to the residence: the head of the
Gazprom Group and the Minister of Energy. The two have just declared
an end to the natural gas dispute with neighboring Ukraine, and Putin is
already envisioning warm cooperation with Russia’s Ukrainian brothers on
the horizon.

It’s almost as if nothing had happened, as if the continent’s two largest
countries in terms of area had not spent weeks negotiating the price of
future natural gas shipments, as if CNN hadn’t aired “breaking news” over
what it aptly called the “Cold War,” complete with live images from chilly
Ukrainian living rooms, and as if the leadership of Western countries
hadn’t expressed concerns about the future, conjuring visions of the
distantly removed days of the oil crisis.

And it’s as if, only a few days earlier, a saber-rattling Russian defense
minister hadn’t threatened Ukraine with “fatal” consequences if it refused
to play along, and as if the powerful mayor of Moscow hadn’t openly
asserted Russia’s alleged claim to the formerly Russian Crimea. Just before
he resigned on New Year’s Eve, Putin advisor Andrei Illarionov, as wordy
as he is devoid of influence, said that the manner in which Russia was
applying pressure to Ukraine was reminiscent of Hitler’s threats during the
Sudetenland incident.

But then, shortly before the Eastern Orthodox Christmas, on January 7,
everything returns to normal. Russia’s and Ukraine’s top-ranking natural
gas officials announce that Russia’s Gazprom will follow through on its
threat and immediately begin selling its natural gas to Ukraine for $230
per 1,000 cubic meters. Ukraine, for its part, will not be paying more than
$95, just as the Ukrainians wanted. The magic formula for this bit of
creative arithmetic is complicated, say officials.

The adversaries have hardly stepped off the stage, their heads held high as
if they had just left a morning duel without a corpse, as the first
congratulatory messages arrive. The deputy chairman of the Russian
parliament calls it a “victory of common sense.” The leader of the
“Fatherland” opposition party says that there are winners on both sides.
Finally Benita Ferrero-Waldner, the Austrian-born EU Commissioner for
External Relations, lets it be known that she is “deeply satisfied.”

Only 200 meters from Ferrero-Waldner’s office at Vienna’s federal
chancellery, a man is bombarded with telephone calls. He is Wolfgang
Putschek, a dapper member of the board of directors of Raiffeisen
Investment AG, and his job, as his employer’s representative on the
management board of RosUkrEnergo (RUE), is to turn the puzzling
Russian-Ukrainian deal into real money and natural gas.

As part of the Russian-Ukrainian peace treaty, RUE was awarded a
contract to mix a natural gas cocktail for the Ukrainians of which one
third consisted of expensive Russian natural gas and two thirds was
cheap natural gas from Central Asia.

RUE’s challenge is to arrive at a product that dilutes the high Russian
price, almost five times greater than that of Asian gas, thus enabling
both parties to save face: the Russians who, in violation of valid
agreements, are suddenly charging Kiev’s orange revolutionaries “global
market prices” for their natural gas; and the Ukrainians, who say they are
in favor of a free market economy, but can’t understand why they should
pay a price that’s five times as high as the price the Russians are charging
Putin’s loyal ally, Belarus.

The affair is difficult, but not impossible to explain for someone like
Putschek, a banker who is always consulted when something isn’t quite
clear — rumors about natural gas trading company RUE’s supposed Mafia
connections, illegal earnings or tax evasion. RUE’s management board
includes Putschek and four high-ranking executives of Gazprom, a monopoly
controlled by the Russian government, as well as three of Putschek’s
colleagues from Raiffeisen. The board meets once a month in Zürich or at
the company’s headquarters in Zug, a Swiss tax haven.

Everyone knows who the men from co-owner Gazprom represent. Gazprom
is the Kremlin’s cash cow and Russia’s biggest taxpayer. No one knows
who Putschek and his colleagues represent — their sponsors have asked
that their identities be kept confidential.

“Respectable businesspeople,” says Putschek, adding that everything has
been checked. It’s “absolutely inconceivable” that Semyon Mogilyevich or
someone close to him is behind the company, as Ukrainian intelligence chief
Alexander Turtchinov conjectured after an investigation last summer. It’s a
suspicion that created headlines, because Mogilyevich faces a 390-year
prison sentence in the United States for fraud and money-laundering.

Mogilyevich allegedly holds Israeli, Russian and Hungarian citizenship, and
he has been widely viewed as a Mafia boss for more than 10 years. He is
also on the FBI’s global most-wanted list. Through his attorney, Zeev
Gordon, the fugitive has denied any connection with RUE. The attorney is
the same Zeev Gordon who co-founded Eural Trans Gas, RUE’s

predecessor, to transport natural gas from Turkmenistan to Ukraine. In
2003, the company’s profits were estimated at three-quarters of a billion

Two supervisory board members form the golden Eural Trans Gas days
now work as advisors to the Raiffeisen affiliate RUE in its downtown
Vienna office — general agents David Brown and Howard Wilson.
The former head of the Eural Trans Gas office in Moscow was promoted
to RUE director.

The last time Semyon Mogilyevich came to the public’s attention was more
than a year ago when, in the presence of Russia’s top rabbi, Berl Lazar, and
Jossif Kobson, a member of the Russian parliament who is faithful to Putin,
he donated a tora valued at $50,000 to Moscow’s Marina Rosha Synagogue.

It’s unclear who in fact is participating in RUE’s profits. In Vienna
banking circles, it’s said that the second half of the company is also
controlled by Gazprom’s middlemen. If true, that would make Raiffeisen
Investment little more than a veil covering an arrangement of the sort that
became familiar in the 1990s — with gas executives lining their pockets in
the transfer business. In the future, RUE will be managing revenues of at
least $7 billion.

Trustee Putschek refuses to comment on the rumors about Gazprom.
“Naturally,” he says, one would be justified in asking why the masters of
the world’s biggest natural gas reserves and the necessary pipelines aren’t
handling the task of supplying Ukraine and other countries with the fuel —
and why they choose instead to bring in a company that stands to earn
hundreds of millions of dollars each year as a result.

But none of this is his business, says the Austrian executive. According to
Putschek, RUE is planning an IPO in less than 18 months, at which point
the ownership structure will be disclosed. Surprises, such as when two
accountants bought the core of the crushed Khodorkovsky empire at auction
for more than $9 billion in December 2004 — only to turn around and sell
it to the state-owned oil conglomerate, Rosneft — also cannot be ruled out
in the case of RUE.

However, too much slapstick would be a mistake for the Russians. The
country’s damaged relationship with the West has suffered even further, and
officials at the Kremlin are currently picking up the pieces in the wake of
the clash with Ukraine. “Those who wish to be part of the global economy
and responsible players must abide by the rules,” said an unambiguous US
Secretary of State Condoleezza Rice last Thursday, adding that as far as
Moscow’s role as a reliable energy supplier was concerned, it was “not a
good week.”

At the end of last year, America’s chief diplomat sent her Russian
counterpart, Sergey Lavrov, a letter in which she expressed concern over
an escalation of the conflict with Ukraine. In Rice’s view, the fact that
the employees of the partly state-owned enterprise Gazprom nevertheless
promptly shut off the flow of natural gas to their southern neighbor on New
Year’s Day was a mistaken signal, especially on the heels of Russia’s
assumption of the chairmanship of the G8 group for the first time in its
                                        LEADING THE G8
Putin wants to crown his G8 chairmanship with a glittering summit meeting
in his native St. Petersburg in July. The host has already announced that
the key issue on the agenda will be the safety of the world’s energy

Meanwhile, the Wall Street Journal, at the climax of Russia’s natural gas
conflict with Ukraine, posed a divergent working theory in an article titled
“Putin’s Mafia Policy.” According to the article, Russia’s assumption of
the G8 chairmanship is “almost as absurd as it would be for Sudan to
assume the chairmanship of the UN Commission for Human Rights.”

Nevertheless, the chorus of natural gas heavy hitters continues to dominate
public opinion in and around Moscow, underscored by nationalistic overtones
in the broadcast media. A Gazprom spokesman said Russia has once again
proven itself a “reliable partner” for western Europe, and that, after all,
the brief decline in gas pressure in Austria, Germany and elsewhere was
promptly corrected.

In typically vague management-speak, Gazprom CEO Alexey Miller reported
that the “development of cooperation between Russia and Ukraine in the
natural gas sector on the basis of free market principles” is finally
secure. And in a televised address to millions President Putin himself
announced, without so much as blushing, that Russia will now embark on a
common future with Ukraine, a future characterized by “partnership, free
market principles and transparency.”

The West, of course, has fully accepted Moscow’s position. In truth, one
can draw two conclusions from the intentionally vague treaty, which
guarantees a deceptive peace with Kiev.

[1] First, the Kremlin has placed its most valuable asset on the line for
minor additional Gazprom revenues — its reputation as an impeccable
energy supplier that continues to serve as both a pillar and barometer of
the Russian economy a full 14 years after the collapse of the Soviet Union.

[2] Second, Putin and his advisors have ultimately revealed that they are
willing to use raw materials as a political weapon. And recent history even
provides a precedent for Putin’s move. Former Presidents Gorbachev and
Yeltsin also threatened to use the gas tap for political ends, by cutting
off an uncooperative Lithuania. And in 2004, also under Putin, Russia
briefly stopped deliveries to Belarus in an effort to force the country to
transfer its rights to the pipelines leading westward as Moscow saw fit.

But what didn’t exist before New Year’s Day 2006 — not even, as critics
note, in the days when Soviet communist party leaders controlled the
natural gas ministry — is Russia’s complete openness about its plans to
influence global policy through energy.
                            UKRAINIAN CHALLENGE
Putin must have regarded the 2004 Ukrainian presidential election, when
popular favorite Viktor Yushchenko prevailed over the pro-Moscow
candidate, Victor Yanukovich, as a Waterloo within Russia’s age-old
sphere of  influence.

For this reason, Belarussian President Alexander Lukashenko, during his
meeting with Putin in December, is likely to have asked for assurances that
he would be guaranteed his reward for remaining loyal to Russia — a price
of $47 per 1,000 cubic meters of natural gas, or just under one-fifth of
the new price that was set for Ukraine.

Under a 25-year contract Gazprom concluded with Turkmenistan dictator
Saparmurat Niyazov, the company has become a major buyer of natural gas
from the desert state. Gazprom also signed a ten-year agreement over joint
development projects with Uzbek dictator Islam Karimov. Finally, plans for
a natural gas joint venture were sealed in November with the autocratic
regime of Kazakh President Nursultan Nazarbayev.

In the future, the Ukrainians will have to heat and power their homes and
factories with Turkmen, Uzbek and Kazakh gas allocated to them by
Moscow. In truth, this is the bitterest lesson coming from the Kremlin —
for Victor Yushchenko and the heirs of the Orange Revolution.
Translated from German by Christopher Sultan,1518,394345,00.html
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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              Alexander II, The Last Great Tsar, By Edvard Radzinsky

BOOK REVIEW: By Peter Baker, who was The Post’s
co-bureau chief in Moscow and is co-author of “Kremlin
Rising: Vladimir Putin’s Russia and the End of Revolution”
RE: ALEXANDER II, The Last Great Tsar, By Edvard Radzinsky
Translated from Russian by Antonina Bouis, Free Press. 462 pp. $35
The Washington Post, Wash, D.C., Wed, January 11, 2006; Page C04

Busts of four Russian czars anchor the corners of the anteroom of President
Vladimir Putin’s chambers in the Kremlin. One of them, naturally, is Peter
the Great, and much has been made over the years about Putin’s interest in
the most famous of Russian monarchs. But the first predecessor Putin sees
as he comes out the door, according to a recent visitor, is Alexander II.

Perhaps that helps explain why President Bush took advance galleys of
Edvard Radzinsky’s new biography of Alexander II to his Texas ranch
last summer. Bush was told that Putin sees himself as a modern-day version
of the reformist 19th-century czar, and so the president reportedly decided
to read the book to try to understand the current master of the Kremlin.

Whether Putin bears any resemblance to Alexander II seems highly
debatable, but Radzinsky’s volume offers presidents and everyday readers
alike a compelling account of one of Russia’s most important figures, as
well as a portrait of a critical, formative period in Russian history.

Beyond the engaging narrative — complete with all the spectacle, romance
and intrigue that once dominated the court of St. Petersburg — Radzinsky, a
famous Russian playwright and television personality turned pop historian,
presents a timely look at the roots of revolution and the nature of Russian

While largely unknown to many Americans, Alexander II played a profound
role in the country he ruled from 1855 to 1881. He freed the serfs in 1861,
two years before Abraham Lincoln signed the Emancipation Proclamation,
and he instituted the so-called Great Reforms that for a time led to trial
by jury and greater freedom of expression. His was the era of Dostoyevsky,
Tolstoy and other literary giants, many of whom make cameo appearances
in Radzinsky’s story line.

Yet the reforms got away from the “Czar Liberator,” as Alexander came
to be known, and his efforts to play the reformers off against the
retrogrades (as Radzinsky calls the reactionaries of the time) only fueled

discontent among Russians eager for more meaningful change.

Ultimately, Alexander turned away from reform, cracking down on
perceived threats to the regime, embracing nationalism and waging a brutal
foreign policy that crushed the Poles, conquered Central Asia and the
Caucasus (including Chechnya) and launched a war of aggression against
the Ottomans.

The great promise of his reign ended in tragedy in 1881 as nihilists finally
succeeded in assassinating him on their seventh attempt, employing their
generation’s equivalent of the roadside bomb to blow up his carriage along
the picturesque canals of St. Petersburg.

Today the Church of the Savior on Spilled Blood sits on the site of his
murder. And Russia, the great tortured nation so cursed by a thousand
years of history, sank back into tyranny and despair.

For Radzinsky, that is the lesson of Alexander II: “Starting reforms in
Russia is dangerous, but it is much more dangerous to stop them.” The
experience convinced successors that it was not worth the risk. The slain
czar’s son, Alexander III, became one of the most oppressive of Russia’s
rulers, and the country’s penchant for autocracy was confirmed. “In Russia,”
Radzinsky writes, citing an unnamed historian, “it was easier to imagine a
country without people than without a tsar.”

Radzinsky offers only oblique comparisons to the modern era. Without
ever mentioning Putin, he describes Alexander II’s early reforms as
“glasnost” and “perestroika,” the forerunners of Mikhail Gorbachev’s
efforts to open up the dying Soviet system.

Unlike Alexander, Putin never was a genuine reformer. He came to
office determined to end the revolution that Gorbachev and Boris
Yeltsin touched off.

Even the halting efforts Putin initially made to further restructure the
Russian economy after taking over the presidency in 2000 were quickly
abandoned in favor of consolidating his own power in the Kremlin,
eliminating potential sources of opposition and crushing a rebellion in
Chechnya. In this way, he may resemble the later Alexander II or, perhaps
more closely, his reactionary son and successor. Maybe Putin sees in
Alexander II the folly of reform.

Radzinsky sees the opposite. His real comparison involves terrorism. The
leftist radicals of Alexander II’s day resorted to bombs and assassinations
to advance a political cause, much as Chechen radicals today take
theatergoers and schoolchildren hostage and blow up airplanes and
subway cars.

Radzinsky’s implicit message is that the state itself helps generate
terrorism by not delivering on promises of reform. “That was the tragic
result of the last decade of Alexander II’s reign,” he writes. “It was the
revenge of the society seduced by his reforms. This suggests the

frightening paradox that the tsar of all Russia was in some way the father
of Russian terrorism.”

A provocative point, and one that will spur debate among Russians and
those who study them. Either way, Radzinsky’s book fills a void on the
shelf of czar biographies. Robert K. Massie and Henri Troyat have done
well by other consequential Russian rulers, including Ivan the Terrible,
Peter the Great, Catherine the Great, Alexander I and Nicholas II.

Now, finally, we have a highly readable biography of one of the most
arresting figures ever to sit on the Russian throne.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

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