THE ACTION UKRAINE REPORT – AUR – Number 641Jan 13 Who Won? Who Lost? On Jan 10; No Constitutional Judges Appointed, Raffeisen & RosUkrEnergo

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

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

THE ACTION UKRAINE REPORT – AUR – Number 641
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, FRIDAY, JANUARY 13, 2006

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

1. DISMISSAL OF THE GOVERNMENT: WHO WON AND WHO LOST?
It is probably Ukraine itself which lost on 10 January.
ANALYSIS & COMMENTARY
: By Maksym Strikha
Ukrayinska Pravda Online, Kyiv, Ukraine, in Ukrainian, Jan 10, 2006
BBC Monitoring Service, UK in English, Thu, Jan 12, 2006

2. UKRAINE LEADER DEMANDS PARLIAMENT REVERSE VOTE
TO SACK CABINET OF MINISTERS
Agence France Presse (AFP), Kyiv, Ukraine, Thu, January 12, 2006

3. UKRAINE PRESIDENT CONDEMNS PARLIAMENT’S FAILURE TO
APPOINTS ITS QUOTA OF CONSTITUTIONAL COURT JUDGES
First victim of victory of corporate interests over the country’s needs
TV 5 Kanal, Kiev, in Ukrainian 1300 gmt 12 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 12, 2006

4. PARLIAMENT REFUSES TO ELECT SEVEN CONSTITUTIONAL
COURT JUDGES, NO QUORUM
Ukrainian News Agency, Kyiv, Ukraine, Thursday, January 12, 2006

5. CHAIN OF EVENTS LEAVES YUSHCHENKO LOOKING SHAKY
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Thursday, January 12 2006

6. SOCIETE GENERALE CONFIRMS LAUNCH OF UKRAINE
CONSUMER CREDIT UNIT, PROSTOFINANCE
AFX Europe (Focus), Paris, France, Thu, Jan 12, 2006

7. KYIV’S BORYSPIL AIRPORT TO EXPAND AREA OF TERMINALS
A AND B FROM 50,000 TO 63,800 SQUARE METERS IN 2006-2007
Ukrainian News Agency, Kyiv, Ukraine, Thu, January 12, 2006

8. UKRAINE’S POPULATION DROPS BELOW 47 MILLION
Ukrainian News Agency, Kyiv, Ukraine, Thu, January 12, 2006

9. COMMERZBANK SEEKS GERMAN BANK NOT UKRAINIAN BANK
Trying to buy Berliner Bank, no longer actively bidding for Ukrsotsbank
Scott Solano, Dow Jones Newswires, Wed, January 11, 2006

10. SOCIETE GENERALE IN RUNNING FOR UKRAINIAN BANK
La Tribune, Paris, France, Wednesday, Jan 11, 2006

11. UKRAINE: SWEDISH FURNITURE GIANT IKEA TO INVEST $700M
Ukrainian Times, Kyiv, Ukraine, Thursday, January 12, 2006

12. UKRAINE: US LOAN TO GENERATE 875 RESTAURANT JOBS
OPIC loan of $6.8 million will fund 17 new fast-food outlets in Kiev
USINFO.STATE.GOV, Washington, D.C., Tue, Dec 20, 2005

13. UKRAINE STEELMAKERS FACE PRICE SQUEEZE
By Yuriy Humber, Staff Writer, Moscow Times
Moscow, Russia, Wednesday, Jan 11, 2006. Issue 3328. Page 7.

14. KREMLIN SLAMS HEAD OF PRESIDENTIAL SECRETARIAT
OLEG RYBACHUK’S REPORTED REMARKS ON GAS DISPUTE
ITAR-TASS news agency, Moscow, in Russian 2342 gmt 12 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 13, 2006

15. PRIME MINISTER SAYS UKRAINE HAS NO CHOICE BUT TO
ACCEPT ROSUKRENERGO AS SOLE SUPPLIER OF GAS TO UKRAINE
TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 12 Jan 06
BBC Monitoring Service, UK in English, Thu, Jan 12, 2006

16. EU: QUESTIONS LINGER ABOUT RUSSIA-UKRAINIAN GAS DEAL
What was most troubling was “opaque” nature of RosUkrEnergo.
50 percent owned by an entity Raffeisen International, anonymous owners.

By Ahto Lobjakas, Radio Free Europe/Radio Liberty
Prague, Czech Republic, Thursday, January 12, 2006

17. ROSUKRENERGO & UKRAINE TO ESTABLISH JOINT VENTURE
FOR GAS TRANSIT BY JANUARY 20
RIA Novosti, Kiev,Ukraine, Thursday, January 12, 2006

18. THE WAR GOES ON
UKRAINE-RUSSIA GAS DEAL FULL OF “TIME-BOMBS”
Legitimacy of RusUkrEnergo Intermediary questioned
It looks like the pressure from Russia is an attempt to promote the
interests of international criminal structures, which include current
and former top officials in Russia, Ukraine and Europe.
ANALYSIS & COMMENTARY
: By Ihor Lutsenko
Ukrayinska Pravda web site, Kiev, in Ukrainian 8 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 12, 2006

19. UKRAINE’S PM SAYS GOVERNMENT WILL FORMALIZE AN
INTERSTATE GAS AGREEMENT WITH RUSSIA
Will not use pipelines as assets in new joint Russian-Ukrainian company
Between RosUkrEnergo and government of Ukraine
Associated Press, Kiev, Ukraine, Thursday, January 12, 2006

20. RUSSIAN EXPANSION IN THE ENERGY SPHERE:
THE EUROPEAN MOSAICS
Intermediary firms who participate in energy related deals provide
shadowy redistribution of the received income, and clandestine
financing for various political parties, funds and politicians.
COMMENTARY & ANALYSIS: Mykhailo Gonchar for UP
Translated by Olga Semikhova for UP
Ukrayinska Pravda Online (UP), Kyiv, Ukraine, Wed, Jan 10, 2006

21. RUSSIAN FDPM HOPES UKRAINE WILL BECOME PARTNER IN THE COMPANY SUPPLYING GAS FROM RUSSIA ROSUKRENERGO
RIA Novosti, Moscow, Russia, Thursday, January 12, 2006

22. YUSHCHENKO IS ONE OF US NOW
The first time Putin pointedly supports leader of the Orange Revolution
President Putin and President Yushchenko meet in Kazakhstan
COMMENTARY
: By Natalia Melikova
Nezavisimaya Gazeta, Moscow, Russia, Thu, January 12, 2006


23. PUTIN REVIVES SOVIET TYPE NUCLEAR ALLIANCE BETWEEN RUSSIA, UKRAINE AND KAZAKHSTAN BUT ALONG MARKET LINES
By Yuriy Humber, Staff Writer, Moscow Times
Moscow, Russia, Friday, January 13, 2006


24. RUSSIA’S NUCLEAR CHIEF PLEDGED TO REVIVE NUCLEAR
INDUSTRY BY RESTORING SOVIET-ERA LINKS TO SOVIET-
BUILT PLANTS IN UKRAINE AND KAZAKHSTAN
Associated Press (AP), Moscow, Russia, Thu, January 12, 2006

25. THE REIGN IN UKRAINE
Nationalists must not sabotage the gas compromise with Russia
EDITORIAL
: The Times, London, UK, Thu, January 12, 2006

26. MOLDOVA AND RUSSIA FAIL TO END GAS DISPUTE
By Neil Buckley in Moscow and Sarah Laitner in Brussels
Financial Times, London, United Kingdom, Thu, January 12 2006
========================================================
1. DISMISSAL OF THE GOVERNMENT: WHO WON AND WHO LOST?
It is probably Ukraine itself which lost on 10 January.

ANALYSIS & COMMENTARY: By Maksym Strikha
Ukrayinska Pravda Online, Kyiv, Ukraine, in Ukrainian, Jan 10, 2006
BBC Monitoring Service, UK in English, Thu, Jan 12, 2006

The dismissal of the Ukrainian cabinet by parliament this week leaves murky
legal ground in its wake, but will not change most voters’ sympathies ahead
of the election, an independent Ukrainian website has said. In analyzing the
situation, it said the Party of Regions backed by former Prime Minister
Viktor Yanukovych was forced to vote for the dismissal despite apparent
reservations in speeches by its MPs.

President Viktor Yushchenko has few real options in light of the move and
will likely simply let the “acting” government continue to work till the
election, it added. Meanwhile, most voters will not be swayed in their
sympathies, though the Yuliya Tymoshenko Bloc could suffer in terms of
votes, as many become disillusioned after the bloc acted in unison with the
communists and others.

The site concluded that Ukraine was the real loser and the resulting
instability is probably what Russian politicians wanted to achieve all
along.

The following is the text of the article by Maksym Strikha, entitled “The
dismissal of the government: who won and who lost?”, posted on the
Ukrayinska Pravda website on 10 January; subheadings have been inserted
editorially:

Achieving an agreement [on gas supplies from Russia] like the one signed by
the Ukrainians in Moscow on 4 January, would be most likely to strengthen
the position of any East European government. But campaign time in Ukraine
has its own laws. And the Yekhanurov government – far from the worst in our
history – turned out to be the victim of its own move, which appeared to
some of its political opponents as too strong.

Despite stormy statements by the Yuliya Tymoshenko Bloc [YTB], a
government dismissal did not seem unavoidable on the eve of 10 January.
Foremost, the cool heads in the Party of Regions were not interested in it –
their voter indicator, the “bugbear” of the “Orange government in Kiev
did not get any worse at all.

And many people in other factions also understood that leaving the country
without a stable executive branch in the middle of winter (and on top of
that when chicken flu is knocking at our door!) would be irresponsible in
the least.

But the Party of Regions was hostage to its own anti-government rhetoric
which did not allow them to manoeuvre at the last minute – although the tone
of speeches by representatives of this faction was surprisingly reserved –
it seemed they were speaking more about the need to dismiss [Naftohaz
Ukrayiny chief Oleksiy] Ivchenko and [Fuel and Energy Minister Ivan]
Plachkov.

But all the votes in the faction of [parliamentary speaker Volodymyr] Lytvyn
were decided and its leaders were pondering whether the owners of the “We”
brand [Lytvyn’s slogan is “We”] should cross over and a section of the
electorate which Our Ukraine could have allegedly accumulated due to
administrative resource. And then the auspicious number 250 lit up on the
board and it was time to make a preliminary account of the gains and losses.
UNSURE LEGAL GROUND
The legal ramifications of the government’s dismissal in the current
transition period are not defined. For the parliament now has, as it did
before, the right to dismiss the entire slate of the cabinet of ministers –
but it does not yet have the right to form a new government until after the
[parliamentary] election [to be held in March 2006]. And the new edition of
the constitution says nothing about the status “acting [minister or
cabinet]”.

And so though the law forbids carrying out duties beyond 60 days, the
dismissed government has a fair chance of working right up to the election.
And in a state completely independent of parliament – because a greater
punishment for ministers cannot be thought up, and having made use of this
punishment, parliament has deprived itself of any levers of influence on the
cabinet.

Naturally, the president has several choices in these circumstances.

[1] He can nominate a new prime minister for parliament to review (as
foreseen in the previous edition of the constitution) – even if it is the
same Yuriy Ivanovych [Yekhanurov]. But with no chance of seeing him
confirmed – so Bankova Street [the address of President Yushchenko’s
secretariat] is not likely to take this avenue.

[2] It is more likely that the president will prolong the life of the
dismissed government under the status of “acting” (although parliament has
already made it so in its resolution!), or he could insist that the act of
parliament has no legal force as it was adopted in violation of regulations.
Bankova Street does have legal ground for this.

The difference in these two variants is only whether cabinet officials will
be noted by the prefix “acting” on the pages of the [government newspaper]
Uryadovyy Kuryer.

And, having blocked the process of forming a new composition for the
Constitutional Court, parliament has denied itself the possibility of
appealing against the president’s actions.
NOT MUCH CHANGE FOR FUTURE PARLIAMENT
Now about how the chances of the main players in the Ukrainian political
arena have changed.

[1] First about those behind the government’s dismissal.
[a] The dismissal of the government is not likely to significantly change
the future electoral indicators of the Party of Regions (rather high) or the
[b] Communist Party of Ukraine (rather low) – their main voters made their
choices long ago.
[c] Perhaps it will help the United Social Democratic Party of Ukraine
[USDPU] and its satellites jump into the last wagon of the train. But if so,
they still need to pinch off a few percentage points from the Party of
Regions – it was not for nothing that [MP Nestor] Shufrych from the [largely
Ukrainian-speaking] Transcarpathian Region made his “fighting” speech on 10
January in Russian!
[d] While the pragmatic “Donetsk bunch”, with their penchant for political
“do-gooding”, were not to be seen… [ellipsis as published]
[e] The Lytvyn bloc’s ratings are also not going to change much – there have
long ceased to be “administratively managed” voters under Our Ukraine. For
anyone who doesn’t believe, let him recall how many votes administrative
resource brought the bloc For a United Ukraine four years ago, and the
authorities at that time knew how to use the levers of administrative
resource much more effectively.
I am not saying that the election will be clean and free of administrative
resource altogether – but its biggest thrust will be on local campaigns,
where clans and mini-clans – beginning in the capital and ending out in
nowheresville – will try at any price to stay in power and continue to steal
communal property and land.
[f] It is clear that it is YTB who has really lost.
After getting a woman’s satisfaction [revenge] for her September dismissal
[from the post of prime minister], Yuliya Tymoshenko has at the same time
frightened a big part of her mainly national-democratic constituency by
positioning herself as a force which acts together with Communists, the
USDPU and the Party of Regions.
So now it is hardly worthwhile for the leader of YTB and people around her
to count on a warm reception in Lviv, while Odessa and Donetsk are more than
cool towards her anyway. Some of YTB’s former voters will be divided (who
knows in what proportion) between Our Ukraine and the Pora-Reforms and
Order bloc.

By the way, this piece of the Maydan [meaning a part of the Orange team
during the Orange Revolution] is in a pretty critical state today. By
carefully thought-out and clear steps it can either essentially improve its
rating and guarantee getting into parliament, or it can lose if the “Maydan”
voters, emotionally charged by the latest events, decide to mobilize around
Our Ukraine as a project which is guaranteed to get in [to parliament].

[2] Finally, Our Ukraine itself has surely not lost at all – its stable
voter base remains set in its views. But whether it can add to them also
depends on its leaders thinking through their next steps.

In any case, the configuration of the new parliament will remain much the
same as has been forecast. Only the YTB will have to fight harder for its
third place, which could now be taken by [Oleksandr] Moroz [of the
Socialist Party of Ukraine], [Petro] Symonenko [Communist Party of
Ukraine] or Lytvyn.

But the chances of a political agreement in the new parliament have
worsened. At least today only a hopeless optimist can imagine Yekhanurov and
Tymoshenko working in the same cabinet team. The possibilities of a union
between Tymoshenko-Yanukovych (I use that name here to mean the collective
leadership of the Party of Regions!), or Yanukovych-Yekhanurov (again, I
mean this latter name in terms of the collective leadership of Our Ukraine)
appear to be quite circumstantial.

But what hasn’t happened in Ukrainian politics?.. [ellipsis as published]

However, it is probably Ukraine itself which lost on 10 January – for the
position of its executive authority has weakened and we probably cannot
expect a breakthrough in the near future.

That is really what Vladimir Putin and his team wanted to achieve.
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2. UKRAINE LEADER DEMANDS PARLIAMENT REVERSE VOTE
TO SACK CABINET OF MINISTERS


Agence France Presse (AFP), Kyiv, Ukraine, Thu, January 12, 2006

President Viktor Yushchenko demanded that Ukraine’s parliament rescind its
vote to sack his pro-Western government, an open declaration of war on a
legislature he says aims to plunge the country into turmoil just months
ahead of a key election.

“Today I signed an appeal to parliament demanding that it rescind the
unconstitutional decision to fire the current government,” Yushchenko said
as he opened an extraordinary cabinet meeting two days after parliament’s
no-confidence vote Thursday.

The Ukrainian president charged that Tuesday’s vote was illegitimate and
was taken “in order to form an unstable situation in Ukraine” by a
parliament that is a holdover from the Russia-backed regime ousted during
the “orange revolution” protests in late 2004.

The current parliament was elected in 2002 and Yushchenko’s administration
has made clear that it regards the legislature as an outdated,
unrepresentative throwback to an era when a regime backed none-too-subtly
by Russia ran the country.

The standoff between Yushchenko and parliament comes ahead of a March
26 parliamentary election, which will decide the fate of the pro-Western
course that the president has set for ex-Soviet Ukraine.

How the conflict will be resolved is uncertain as the body that would
ordinarily mediate it — the constitutional court — is unable to convene
because the legislature has balked at scheduling a swearing-in session for
a raft of new judges.

The dispute is being nervously watched in Brussels and Washington,
which supported Yushchenko during the “orange” protests.

The United States said it was closely following the situation and urged all
sides to respect the law.

“We expect that all the parties 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,” Julie Reside, a State Department spokeswoman, said Wednesday.

The European Union also voiced concern.

“We are worried because the political situation in Ukraine is complex,”
said Cristina Gallach, a spokeswoman for EU foreign policy chief Javier
Solana. “Stability is crucial during the election period,” she said.

Lawmakers who voted to dismiss the government on Tuesday said they did
so because of a deal that the cabinet struck with Russia in early January to
end a bitter standoff over gas supplies, which saw prices for Ukraine
nearly double.

But most pundits and politicians here say that the Russian deal served as a
pretext for the opposition to strike a blow against Yushchenko and his
allies ahead of the election.

The ratings of Yushchenko and his supporters have plummeted during the
past year against the background of a sharp economic downturn, heightened
tensions with Russia and general political turmoil.

His Our Ukraine bloc currently trails the party of his “orange revolution”
nemesis, former premier Viktor Yanukovich, by 10 to 15 percentage points
in opinion polls.

The March poll promises to be a bitter campaign, as it is the first one
after constitutional changes entered into force on January 1 transferring
important powers from the president to parliament, including the right to
name the prime minister and form a government.

Yushchenko needs his allies to score decisively in the vote in order to
continue driving Ukraine toward membership of the European Union and the
North Atlantic Treaty Organization (NATO).

Tuesday’s cabinet dismissal was the second in four months and followed
Yushchenko’s sacking of the government of his “orange revolution” partner
Yulia Tymoshenko in September. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
3. UKRAINE PRESIDENT CONDEMNS PARLIAMENT’S FAILURE TO
APPOINTS ITS QUOTA OF CONSTITUTIONAL COURT JUDGES
First victim of victory of corporate interests over the country’s needs

TV 5 Kanal, Kiev, in Ukrainian 1300 gmt 12 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 12, 2006

KYIV – [Presenter] Here is the president’s reaction to this decision by
parliament [the failure to appoint its quota of Constitutional Court
judges – Interfax-Ukraine news agency, Kiev, in Russian 1117 gmt 12 Jan 06].
Viktor Yushchenko believes that parliament failed to appoint Constitutional
Court judges deliberately.

[Yushchenko] It is a shame that we do not have a fully-formed Constitutional
Court. I would say that this is the first victim of the victory of corporate
interests over the country’s needs.

Today, it can be said that the Ukrainian constitution has been deprived of
its voice, that we do not have a body that could resolve conflict situations
at its level – the level of the constitution. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
4. PARLIAMENT REFUSES TO ELECT SEVEN CONSTITUTIONAL
COURT JUDGES

Ukrainian News Agency, Kyiv, Ukraine, Thursday, January 12, 2006

KYIV – The Verkhovna Rada has declined to elect Maria Markush, Oleh
Lytvak, Ivan Vernydubov, Vasyl Bordeniuk, Petro Vorobei, Ivan
Holosnychenko, and Petro Stetsiuk judges of the Constitutional Court.
Chairman of the parliament’s accounting commission, MP Valerii Mishura
reported this.

According to him, during the secret vote ballot papers were taken by 109
MPs, with two thirds of the parliament needed. Thus, the election of
Constitutional Court judges was declared invalid.

After that, Verkhovna Rada Chairman Volodymyr Lytvyn asked the accounting
commission to publish what factions took ballot papers for voting and then
announced that the Party of Regions’ faction Regions of Ukraine did not vote
at all, 24 members of the Communist Party faction cast their votes, as well
as 2 members of Our Ukraine, 19 members of the People’s Party faction, 12
members of the Yulia Tymoshenko Bloc faction, 15 socialists, 22 members of
the People’s Bloc of Lytvyn deputy group, 1 member of SDPU(u), none from
the Ukrainian People’s Party, none from the Narodnyi Rukh of Ukraine, 3
members of the Vidrodzhennia group, 3 members of the United Ukraine group,
none from the Party of Industrialists and Entrepreneurs, and 7 non-partisan
MPs.

As Ukrainian News reported earlier, on November 3, the Congress of Judges
appointed Vasyl Bryntsev, Viacheslav Dzhun, Anatolii Didkivskyi, Ivan
Dombrovskyi, and Yaroslav Machuzhak as Constitutional Court judges.

On November 14, President Viktor Yuschenko appointed Dmytro Lilak,
Volodymyr Kampo, and Viktor Shyshkin as Constitutional Court judges.
However, until now, the newly appointed judges have not been sworn in
the parliament.

Since December the parliament has failed to appoint its quota of
Constitutional Court judges. As a result, only 14 of the Constitutional
Court’s 18 judges were appointed. According to Ukrainian legislation,
Constitutional Court judges are to be sworn in within one month of their
appointment
. -30-
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5. CHAIN OF EVENTS LEAVES YUSHCHENKO LOOKING SHAKY

By Tom Warner in Kiev, Financial Times
London, United Kingdom, Thursday, January 12 2006

The Ukrainian parliament’s vote on Tuesday to sack the government of Yuri
Yekhanurov was unexpected, and yet absolutely predictable.

Right up until it happened, Mr Yekhanurov and his ministers were confident
their opponents did not have enough votes. Only a last-minute turn by the
parliament’s speaker, Volodymyr Lytvyn, who kept his cards close to his
chest, secured the majority that opposition groups needed to dismiss the
cabinet.

When news reached Viktor Yushchenko, the president, on a visit to
Kazakhstan, he threatened to dissolve the parliament, which has only two
months left of its term before elections in March. Then he thought better
of it and had his media service retract the comment.

Yesterday Mr Yushchenko and Mr Yekhanurov struck defiant poses, saying
they would challenge the validity of the vote – although the only body that
could hear such a challenge, the Constitutional Court, is without a quorum.

Their opponents call it a constitutional crisis, but since they themselves
are far too disunited to try to appoint a new government, Mr Yushchenko and
Mr Yekhanurov appear to have de facto permission to carry on as if Tuesday’s
vote never happened.

However, the turmoil leaves Mr Yushchenko looking shaky. Just as the gas
dispute with Russia showed Ukraine’s international vulnerability, the row
with parliament has exposed weaknesses at home.

It remains to be seen whether western sympathy for Mr Yushchenko can help
him to shore up his position. He can expect no help from Moscow, which
opposes his pro-west policies.

The real issue is not whether the government limps on for another two
months, but who will rule after the March elections. Mr Yushchenko’s
prospects are not good. His party, Our Ukraine, had only 15 per cent support
in the polls before the recent crisis. Until Tuesday he had expected to win
a majority by forming a coalition either with Yulia Tymoshenko, his former
prime minister, or with Mr Lytvyn. They both betrayed him on Tuesday.

Igor Ostash, a Yushchenko supporter, lamented in parliament yesterday:
“The possibility of a return of a corrupt, criminal government in the form
of a coalition with one or the other of the former Orange forces – whether
Our Ukraine or Tymoshenko doesn’t matter – is very real.”

Mr Yushchenko’s situation was pre-ordained by a compromise he made
just over a year ago, as the Orange Revolution was winding to a close.

His opponents, who still formally held power, refused to accept new
safeguards against vote-rigging unless he supported changes to the
constitution that would give them the possibility of returning to power if
they won this year’s parliamentary elections. Under the previous system,
the president formed the government.

The changes, some of which took effect on January 1 and some of which
do not take effect until after March, turn the country into a parliamentary
republic. The president loses most of his powers, as the parliament takes
over the role of forming the government.

Mr Yushchenko’s opponent at the last election, Viktor Yanukovich, and
Russia, which strongly backed him, are looking forward to potential revenge
in March.

Mr Yushchenko’s presidency has been haunted by that prospect from its first
day. He soon began to argue that he agreed to the constitutional changes
under duress and that the hasty voting procedure used to adopt them was
illegal.

But he decided that trying to repeal the changes would cause too much anger
in parliament and would threaten his ability to push through other reforms.
He was weakened further in September, when he sacked Ms Tymoshenko
and was forced to make concessions to Mr Yanukovich in order to get her
replacement, Mr Yekhanurov, confirmed.

Then Russia turned up the heat by demanding to change the terms of its
natural gas supplies. Mr Yushchenko called the deal a good compromise, but
parliament called it weak and corrupt and used it to sack Mr Yekhanurov. The
result is that Mr Yushchenko is left looking as if he is losing control, not
just of the government but of his country’s political future.

The danger is not only that his opponents will try to capitalise on the
turmoil but also that Ukrainians who supported the Orange revolution will
turn away from the president and not vote in the elections. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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6. SOCIETE GENERALE CONFIRMS LAUNCH OF UKRAINE
CONSUMER CREDIT UNIT, PROSTOFINANCE


AFX Europe (Focus), Paris, France, Thu, Jan 12, 2006

PARIS – Societe Generale confirmed the launch of a consumer credit
unit in Ukraine, ProstoFinance, and said it began operating at the
end of last year and will progressively expand its offerings.

Earlier today, La Tribune newspaper revealed the creation of the unit
and said it would start operating next week. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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7. KYIV’S BORYSPIL AIRPORT TO EXPAND AREA OF TERMINALS
A AND B FROM 50,000 TO 63,800 SQUARE METERS IN 2006-2007


Ukrainian News Agency, Kyiv, Ukraine, Thu, January 12, 2006

KYIV – The state-run international airport Boryspil (Kyiv region) is going
to reconstruct its Terminals A and B and expand their total area by 13,800
square meters this and next year. Ukrainian News learned this from Boryspil.

According to the report of the airport, the check-in zone will be enlarged
to let an intense flow of passengers pass for the time until a new Terminal
D with an area of 60,000 is put in operation.The first stage of
reconstruction of Terminal B, namely opening of a new gallery, will be
complete this month. The total area of Terminals A and B is 50,000 square
meters.

As Ukrainian News earlier reported, Boryspil announced a plan in December
to begin building a new Terminal B before the end of 2005 and complete it in
2007. The existing Terminal B will be used to service only domestic flights
and will be connected to the new terminal by a special passage.

The Cabinet of Ministers authorized Boryspil Airport last February to obtain
a 30-year Japanese loan of USD 175 million (JPY 19.92 billion) at the
interest rate of 1.5% for reconstruction. The airport aspires to become an
international transit hub of regional significance by 2010. It posted a
profit of UAH 55.6 million for 2004. Its passenger traffic was 3.68 million
in January-November, or 24% up on the same period the year before.
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8. UKRAINE’S POPULATION DROPS BELOW 47 MILLION
Was 48.4 million in December of 2001

Ukrainian News Agency, Kyiv, Ukraine, Thu, January 12, 2006

KYIV – Ukraine’s population fell by 29,472 or 0.06% in November,
compared with October, to 46,958,740 as of December 1. The State
Statistics Committee announced this.

As of December 1, Ukraine’s urban population was 31,886,688 (a
decrease of 0.01% or 3,534) while its rural population was 15,072,052
(a fall of 0.2% or 25,238).

In the January-November period, the country’s population fell by 0.7%
or 322,060 compared with the beginning of the year.

As Ukrainian News earlier reported, Ukraine’s population fell by 27,039
or 0.06% in October, compared with September, and stood at
46,988,212 as of November 1.

According to the nationwide census that was conducted in December
2001, Ukraine’s population was 48,415,500, including 32,538,000 in
urban areas 15 877,500 in rural areas. -30-
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9. COMMERZBANK SEEKS GERMAN BANK NOT UKRAINIAN BANK
Trying to buy Berliner Bank, no longer actively bidding for Ukrsotsbank

Scott Solano, Dow Jones Newswires, Wed, January 11, 2006

FRANKFURT — Commerzbank AG (CBK.XE) will concentrate on winning
the bid for Berliner Bank and is no longer actively bidding for Ukrsotsbank,
Ukraine’s fourth-largest bank, a person close to the situation said Wednesday.

“Commerzbank was actively looking at Ukrsotsbank a couple of months ago,
but the situation has changed and now the price looks too high,” the person
told Dow Jones Newswires. “For the moment, Commerzbank wants to
concentrate on a bid for Berliner Bank.”

The person said that French bank Societe Generale SA (13080.FR) seems
willing to pay a premium for the Ukrainian bank and has made Commerzbank
lose interest. The person didn’t specify a takeover price, but the Ukrainian
bank is the country’s fourth-largest by assets with $1.3 billion as of March
2005. Societe Generale was unavailable for a comment. -30-
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Bank web site: http://www.commerzbank.com, By Scott Solano, Dow
Jones Newswires; +49 69 29 725 500; scott.solano@dowjones.com
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10. SOCIETE GENERALE IN RUNNING FOR UKRAINIAN BANK

La Tribune, Paris, France, Wednesday, Jan 11, 2006

PARIS – The French financial press reported yesterday that French

banking group Societe Generale is interested in acquiring Ukrsotsbank,
Ukraine’s fourth-biggest bank.

Other potential buyers are said to include Germany’s Commerzbank,

Hungarian bank OTP and Italian banking group Banca Intesa. The sale
reportedly concerns just over 95 per cent of Ukrsotsbank’s capital.
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11. UKRAINE: SWEDISH FURNITURE GIANT IKEA TO INVEST $700M

Ukrainian Times, Kyiv, Ukraine, Thursday, January 12, 2006

KYIV – IKEA, the Swedish furniture giant, plans to invest $700-800 million
in the Ukraine’s economy. In Kiev it has started construction of the
regional trading center Mega, which is expected to be opened on December

1, 2006.

Mega will occupy a total area of 160,000 square meters, and its lettable
area amounts to 130,000 sq.m. Reportedly, the center is to comprise 200
stores, cafes, restaurants, children’s playrooms and a movie theater, among
others.

In the future the Swedish company will open trading center in other major
cities of Ukraine such as Donetsk, Dnipropetrovsk, Odessa and Kharkiv.

IKEA also contemplates building sawmills in Zhytomyr, Lutsk and Rivne
as well as the subsequent construction of furniture factories nearby.

The Radyvyliv furniture factory, which makes marketable furniture out of
natural wood, is ready to sell 49% of its shares to investors. Drawn up by
American experts, a business plan provides for two investment projects
valued at $850,000 and $3 million.

The furniture factory is situated at a railroad junction, at a distance of
100km from four regional centers, namely Lviv, Ternopil, Lutsk and

Rivne, and it is not far from Ukraine’s Polish and Hungarian frontiers.
Importantly, the Radyvyliv factory has the idle industrial premises
occupying the area of 7,000 sq.m. and the chain of outlets throughout the
country. -30-
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12. UKRAINE: US LOAN TO GENERATE 875 RESTAURANT JOBS
OPIC loan of $6.8 million will fund 17 new fast-food outlets in Kiev

USINFO.STATE.GOV, Washington, D.C., Tue, Dec 20, 2005

WASHINGTON – A $6.8 million loan from the Overseas Private Investment
Corporation (OPIC) will help Ukraine’s second-largest fast food restaurant
chain open 17 new restaurants in Kiev, OPIC announced December 20.

The loan to the Closed Joint Stock Company Shvydko-Ukraine (Shvydko)
is expected to generate 875 permanent local jobs, the majority for young
Ukrainians, according to the announcement.

OPIC was established as a development agency of the U.S. government in
1971. It helps U.S. businesses invest overseas, fosters economic development
in new and emerging markets, complements the private sector in managing the
risks associated with foreign direct investment, and supports U.S. foreign
policy. Following is the text of the OPIC announcement, which provides
further details:

Overseas Private Investment Corporation
Washington, D.C., December 20, 2005

SMALL BUSINESS WITH U.S. INVESTOR USES OPIC LOAN
TO EXPAND RESTAURANT CHAIN IN UKRAINE
WASHINGTON, D.C. – A small business with a U.S. investor will use a
loan from the Overseas Private Investment Corporation (OPIC) to help
Ukraine’s second-largest fast food restaurant chain increase the number
of its restaurants in the capital city from 11 to 28, OPIC President and
CEO Robert Mosbacher, Jr. announced today.

OPIC will provide a $6.8 million loan to the Closed Joint Stock Company
Shvydko-Ukraine (Shvydko) for the opening of 17 new Shvydko quick-
service restaurants in Kiev, as well as the construction of a new commissary
and the implementation of a new computer management system for the chain.
Shvydko, which offers traditional Ukrainian food freshly prepared from
local sources, is the second-largest fast food restaurant chain in Ukraine,
after McDonald’s.

The new restaurants will comprise both full-sized stores and food courts;
one will be a showcase restaurant situated in a prime location in Kiev. The
upgrade of Shvydko’s MIS system will include advanced data transfer and
integration capabilities for management reporting and operations analysis,
as well as a higher level accounting system.

Shvyko is owned by Western NIS Enterprise Fund (WNISEF) and Twenty
First Century Holdings (Overseas) Ltd. WNISEF is the region’s leading
private equity fund, formed pursuant to the Support for East European
Democracy Act of 1989, and funded primarily through grants committed
by the U.S. Agency for International Development. The fund was
incorporated in 1994 and makes investments in private firms in Ukraine
and Moldova.

Mosbacher noted that Shvydko’s expansion would help meet a growing
demand for restaurant food in Ukraine, where the sector has been growing
approximately 10-15 percent annually for past five years, with fast-food
growth rates exceeding 20 percent. The project would also generate 875
permanent local jobs, the majority for young Ukrainians.

“Increased demand for restaurants in Kiev indicate the growing purchasing
power of the Ukrainian population, itself a sign of economic growth. OPIC
is pleased to work with WNISEF to help Ukraine meet this demand, in a
project with several developmental benefits,” Mosbacher said.

OPIC was established as an agency of the U.S. government in 1971. It helps
U.S. businesses invest overseas, fosters economic development in new and
emerging markets, complements the private sector in managing risks
associated with foreign direct investment, and supports U.S. foreign policy.
Because OPIC charges market-based fees for its products, it operates on a
self-sustaining basis at no net cost to taxpayers.

OPIC’s political risk insurance and financing help U.S. businesses of all
sizes invest in more than 150 emerging markets and developing nations
worldwide. Over the agency’s 33-year history, OPIC has supported $164
billion worth of investments that have helped developing countries to
generate more than 732,000 host-country jobs and $13 billion in
host-government revenues. OPIC projects have also generated $69 billion
in U.S. exports and supported more than 264,000 American jobs.
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13. UKRAINE STEELMAKERS FACE PRICE SQUEEZE

By Yuriy Humber, Staff Writer, Moscow Times
Moscow, Russia, Wednesday, Jan 11, 2006. Issue 3328. Page 7.

Faced with higher gas prices that could hit their profitability, Ukrainian
steelmakers may resort to challenging their Russian rivals on the more
lucrative European market.

As Ukraine’s recent gas dispute with Gazprom escalated, the country’s
leading steelmakers indicated they would cut back on their gas
consumption — a step that will likely eat into their profits and play into
the hands of Russian steelmakers.

Ukraine’s biggest steel mill, Kryvorizhstal, which produces 20 percent of
Ukraine’s metal output, said Tuesday that it would switch to using more
coke and higher-grade iron ore and less gas. The plant was bought at an
auction in October for $4.8 billion by the world’s largest steelmaker, Mittal
Steel.

“Kryvorizhstal is currently fine-tuning technologies that will partly
replace the use of natural gas with solid fuel in the production process,”
Kryvorizhstal energy director Vladimir Romanenko said Tuesday in an
e-mailed response to questions about the impact of higher gas prices.
At present, 7 percent of Kryvorizhstal’s production costs are gas-based,
he said.

In Moscow, however, some industry analysts cast doubt on the company’s
figure. “Considering how uneconomic most Ukrainian metallurgy plants are,
a 10 percent to 12 percent figure is much closer to the truth,” said Denis
Nushtayev, an analyst with brokerage Metropol. The higher price of gas
would likely increase steel production costs by up to 15 percent to over
$185 per ton, he said.

Given the price Mittal Steel Germany, a subsidiary of Lakshmi Mittal’s steel
empire, paid for Kryvorizhstal, the company’s profitability could almost
disappear, said Eric Kraus, chief strategist at Sovlink Securities. The
plant’s profitability “would disappear with gas prices above $100” per 1,000
cubic meters, Kraus said in an e-mailed comment.

A loss in profitability for Kryvorizhstal would work to the advantage of
Russian steelmakers making foreign acquisitions, said Timothy McCutcheon,
a metals and mining analyst at brokerage Aton.

“Ukrainian steel companies are pretty similar to their Russian
counterparts — they are cash-rich, low-debt and with aggressive management.
They posed major competition to Russian acquisitions in EU countries, but
that will change once they take less profit at home,” he said.

Ukraine has been the largest steel importer into Russia, selling at
knockdown prices thanks partly to Ukrainian government subsidies, cheap
labor and cheap energy. “In effect, the Russian government through Gazprom
was subsidizing Ukrainian steel companies with cheap gas. To add insult to
injury, Ukrainians were then dumping their steel in Russia at knockdown
prices,” McCutcheon said.

Although Ukrainian producers have tended to fill gaps left by domestic
steelmakers, their Russian competitors lobbied against cheap Ukrainian
imports as damaging to the Russian steel industry.

In April 2005, four of Russia’s top five steelmakers called on the
government to maintain a customs duty of 21 percent on Ukrainian steel rods
that was due to expire in mid-2005, citing unfair competition, said Alexei
Sotskov, a spokesman for the No. 5 steelmaker, Mechel.

“The Ukrainian government obviously used to subsidize its producers, in
part with tax breaks, the effects of which are still being felt,” Sotskov said.

Facing a future without government subsidies and higher gas costs,
Ukrainian steel mills will need to modernize, cut staff and divert exports
from Russia to Europe, where steel prices are higher, Nushtayev said.
“Yet even then, Europe’s wallet is not elastic,” he said.

Ukraine could lobby the EU to reduce Russia’s steel imports quota in an
effort to give Ukrainian steelmakers a bigger slice of that market,
Nushtayev said. “Either way, if you believe that gas prices will remain
high, Ukrainian steel mills are less interesting than before. And this is
forever,” McCutcheon said. -30-
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14. KREMLIN SLAMS HEAD OF PRESIDENTIAL SECRETARIAT
OLEG RYBACHUK’S REPORTED REMARKS ON GAS DISPUTE

ITAR-TASS news agency, Moscow, in Russian 2342 gmt 12 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 13, 2006

MOSCOW – The Kremlin has expressed surprise at head of the Ukrainian
president’s secretariat Oleh Rybachuk’s remarks, carried by Ukraine’s media
on Thursday [12 January], in which he describes the Russian-Ukrainian
disagreements in the gas sector as artificially created for political purposes.

An ITAR-TASS correspondent was told this at the Russian president’s
administration. Rybachuk’s view is that what took place was almost a “plot”
against the authorities of Ukraine.

“Such statements are sharply at odds with yesterday’s businesslike and
constructive discussion between the leaders of the two countries in Astana
on issues to do with the development of Russian-Ukrainian relations,
including those in the gas and energy sector,” it was underlined in the
presidential administration, which also noted that the “presidents
emphasized the significance of the accords reached as mutually beneficial
and conducive to the strengthening of relations between our countries”.

“In this connection, this statement by the highly placed Ukrainian official
causes bewilderment and cannot be assessed in any other way than as an
inappropriate attempt in retrospect to register some kind of political
grievances,” TASS was told in the presidential administration. “Such
tactics are hardly conducive to the creation of a favourable climate for the
successful implementation of the comprehensive accords reached at the
highest level.” -30-
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15. PRIME MINISTER SAYS UKRAINE HAS NO CHOICE BUT TO
ACCEPT ROSUKRENERGO AS SOLE SUPPLIER OF GAS TO UKRAINE

TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 12 Jan 06
BBC Monitoring Service, UK in English, Thu, Jan 12, 2006

KYIV – Ukrainian Prime Minister Yuriy Yekhanurov has said in a live TV
phone-in that Ukraine had no choice but to accept the Rosukrenergo
company as the sole supplier of gas to Ukraine in recent negotiations with
the Russian gas monopoly Gazprom.

Fielding questions from viewers and presenter Roman Skrypin on Ukraine’s
5 Kanal television, Yekhanurov said that Ukraine had no way of importing
Turkmen gas without the Gazprom-proposed intermediary, which controls
the pipeline running from Turkmenistan to the Ukrainian-Russian border.

[Pipeline is actually owned by Gazprom, AUR Editor]

“The thing is that whole of the pipeline extending from the Turkmen-Uzbek
border to the Russian-Ukrainian border at Novopskov is filled [with gas] by
Gazprom’s contractor Rosukrenergo, and we were offered a choice: either
this [work with Rosukrenergo] or ship gas by train,” Yekhanurov said. “So,
we had no choice.”

He added: “We had only one supplier to choose from, which, by the way,
offered a price of 95 dollars [per 1,000 cu.m. – a relatively low price].”

Yekhanurov said that he had no proof of any dubious activities by
Rosukrenergo: “It is not that we were not aware of what Rosukrenergo is
and so on. We have no alternative. The Russian side offered a company.

We have no proof [of Rosukrenergo’s alleged shady deals]. Neither our
security agencies nor our commercial partners have any official proof of
lack of transparency in the operation of that company.”

He said that no Ukrainian business interests were represented in
Rosukrenergo.

“It is known for sure that there are two main founders there: Gazprom and
Raiffeisen Investment. There may be someone else on that side. There is
no-one there from the Ukrainian side.

Ukrainian interests are not represented there, but when this whole affair
was being started, they thought there would be players from Ukraine, that
is why they had the Ukr part in the company name,” Yekhanurov said.

Yekhanurov said that Ukraine did the right thing by not selling its gas
transport system to Russia. “Those who give up their gas transport
systems will have to dance to the tune of the balalaika,” he said.

Yekhanurov also expressed his cabinet’s resolve to stay on despite
parliament’s vote to sack the government. He accused the political forces
behind the vote of public relations stunts in the run-up to the 26 March
election. The phone-in lasted for 40 minutes and will be processed as an
excerpt by 2400 gmt. -30-
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16. EU: QUESTIONS LINGER ABOUT RUSSIA-UKRAINIAN GAS DEAL
What was most troubling was “opaque” nature of RosUkrEnergo.
This company is 50 percent owned by an entity Raffeisen International,
which has anonymous owners.


By Ahto Lobjakas, Radio Free Europe/Radio Liberty
Prague, Czech Republic, Thursday, January 12, 2006

Brussels last week welcomed the deal between Russia and Ukraine resolving
a gas-price dispute that had briefly threatened supplies to the rest of
Europe. But concerns remain. During a meeting on 11 January of the European
Parliament’s Ukrainian delegation — scheduled before Ukrainian lawmakers
voted the day before to dismiss the government over the gas deal —
officials questioned whether the agreement has resolved for good differences
between Moscow and Kyiv.

Questions were also raised about RosUkrEnergo, the little-known company
now acting as intermediary in the gas deal. Russia’s apparent use of energy
policy as a political tool entered the debate as well.

BRUSSELS, 12 January 2006 (RFE/RL) — The European Commission,
mindful of the sensitivity of the issue, remained relatively tight-lipped during
the Russian-Ukrainian standoff at the end of 2005.

It described the issue as a bilateral one, although it was clearly relieved
when gas deliveries to the EU were restored after a brief interruption
starting on 1 January.

The commission’s reticence is easy to understand. Russia’s importance as
a supplier of energy can only increase.

Foreign policy — and energy policy — remains a matter for individual
member states in the EU. And given the EU’s complicated internal structure,
the European Commission, the bloc’s executive, has been reluctant to tread
on anyone’s toes.

However, the commission clearly has concerns. This was made plain by
Hilde Hardeman, a senior commission official, in an address to the European
Parliament’s delegation for Ukraine on 11 January.

Hardeman said she trusts further gas debates between Russia and Ukraine
will not affect the EU, which receives the bulk of its Russian gas supplies
via Ukrainian pipelines. Still, she said it is not fully clear what last week’s
gas deal will mean in the long term.

“While we note that the agreement contains a fixed agreement on the pricing
for transit of gas through Ukraine for a period of five years, we note that
the agreement as regards the price that needs to be paid for gas entering
Ukraine and consumed by Ukraine is set for a period of six months,”
Hardeman said. “This is something that we will continue to watch closely.”

Under the deal, Ukraine this year is to receive 34 billion cubic meters for
$95 per 1,000 cubic meters from an intermediary, RosUkrEnergo, which in
turn will purchase gas from Russia’s Gazprom as well as Turkmenistan,
Uzbekistan, and Kazakhstan.

The deal guarantees the price of $95 per 1,000 cubic meters for Ukraine
only for the first six months of 2006, while simultaneously setting a stable
tariff for Russian gas transit for five years.

Charles Tannock, a British Conservative member of the European Parliament,
was outspoken in his observations. He claimed the contents of the
Russian-Ukrainian deal had been purposefully kept secret, and credited
ousted Ukrainian Prime Minister Yuliya Tymoshenko with making its details
public.

Tannock also noted a decision has yet to be made on transit fees for the gas
that Ukraine will receive from Turkmenistan, which comprise nearly half of
its deliveries from Russia.

But, Tannock said, what was most troubling was what he described as the
“opaque” nature of the future intermediary, RosUkrEnergo. “Regrettably,
Gazprom’s export is giving up all of its interests to a very opaque company
called RosUkrEnergo, which will be the sole seller of gas to Ukraine,” he
said.

“This company is 50 percent owned by an entity Raffeisen International,
which has anonymous owners, [and is] open therefore to allegations by
minority shareholders in Gazprom and the Western political classes that
there is the possibility of political corruption here as a result of this
secret deal.”

Tannock welcomed, however, the fact that Ukraine had managed to fight
off Russian attempts to seize control of its pipelines. He also said Ukraine
had managed to fill its considerable storage facilities with gas at 2005 prices
of $50 per 1,000 cubic meters.

Russia had initially pushed for Ukraine to pay $230 per 1,000 cubic meters,
arguing Kyiv should pay market rates. Hardeman said, in principle, a switch
to market prices was a good step — but should be made gradually.

“The fact that for the first time, in the issue of the transit of gas going
from Russia to Ukraine and further, we see a transition from a barter system
to a market-based pricing system — we believe that this is a positive
development, and a development that we should welcome,” Hardeman said.

Some European Parliament deputies described the events as a “blessing in
disguise” for the EU that forced it to seek to decrease its energy
dependence on Russia.

The commission is now preparing a draft paper for the EU’s March summit
looking at the possibility of a joint pan-European energy policy that would
strengthen its position in dealing with energy partners like Russia.

Hardeman said Ukraine, too, should now think of “serious reforms” in its
energy sector. She noted that to produce one ton of steel, Ukraine expends
five times more energy than the EU average. She promised EU help with the
reforms.

However, most deputies sought to keep the spotlight on Russia. Toomas
Ilves, a deputy chairman of the parliament’s Foreign Affairs Committee,
said the relatively positive resolution should not disguise the fact that the
crisis was caused by Russia breaking an existing contract with Ukraine.

“Nonetheless, [the positive lessons do] not excuse Russian behavior and I
hope that we do not look at the pedagogical and reform-instigating aspects
of this breaking of a contract to justify Russian behavior, and I would hope
that that part of the [EU’s] rhetoric is toned down,” Ilves said.

Many parliamentarians present for the 11 January debate said Russia is
wielding an “energy weapon” against its neighbors, and urged a tough EU
stance in response. The European Parliament, however, has no direct
decision-making powers in EU foreign policy. -30-
———————————————————————————————-
Ahto Lobjakas, an Estonian, is based in Brussels and has covered the
European Union and NATO for RFE/RL since 2000. He graduated from
the University of Lund, Sweden, in 1994. He spent two postgraduate years
at Oxford University, and also worked at the Estonian Embassy in London.
Lobjakas began working for RFE/RL in 1995 freelancing for the Estonian
Service from London.
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17. ROSUKRENERGO & UKRAINE TO ESTABLISH JOINT VENTURE
FOR GAS TRANSIT BY JANUARY 20

RIA Novosti, Kiev,Ukraine, Thursday, January 12, 2006

KIEV – RosUkrEnergo, a company transporting Central Asian natural gas
to Ukraine, and state-owned Ukrainian energy company Naftogaz will
establish a joint venture for gas transit by January 20, the Ukrainian Minister
of Fuel and Energy said Thursday.

“By January 20 we plan to create the joint venture, and by January 25 to
sign a contract and close the issue,” Ivan Plachkov said.

Plachkov said Ukraine was concluding the preparation of a draft protocol
for 2006 that would extend the 2001 gas agreement with Russia, the
expiration of which led to a gas dispute that came to a head at the start
of this month with Russia turning off supplies to its neighbor.

The minister said a delegation from Gazprom arrived in Kiev Thursday to
discuss the issue. Talks are underway with Moldova on supplying the
country with 2.5 billion cubic meters of gas in 2006, which may be
delivered by the joint venture, he said.

Gazprom spokesman Sergei Kupriyanov had previously said the
Russian-Ukrainian joint enterprise would be set up by February 1, in
order to sell natural gas on Ukraine’s domestic market.

RosUkrEnergo is owned half by Russian energy giant Gazprom and half
by Austrian bank Raiffeisen [Raiffeisen Investment holds ownership
on behalf of private, unidentified investors, AUR EDITOR]
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18. THE WAR GOES ON
UKRAINE-RUSSIA GAS DEAL FULL OF “TIME-BOMBS”
Legitimacy of RusUkrEnergo Intermediary questioned

It looks like the pressure from Russia is an attempt to promote the
interests of international criminal structures, which include current
and former top officials in Russia, Ukraine and Europe.

ANALYSIS & COMMENTARY: By Ihor Lutsenko
Ukrayinska Pravda web site, Kiev, in Ukrainian 8 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 12, 2006

The gas supply deal struck last week between Ukraine and Russia can
ensure only a temporary truce in the gas war between the two sides and
leaves Ukraine short-changed, journalist Ihor Lutsenko has said.

The price of 95 dollars per 1,000 cu.m. is guaranteed for only six months,
and after that Gazprom will be free to raise the price, while Ukraine is
bound by a five-year term for transit tariffs, he said.

Lutsenko also questioned the legitimacy of the RosUkrEnergo intermediary,
which will be supplying gas to Ukraine, saying that this situation is
dangerous for Ukraine’s economic security.

The following is the text of Lutsenko’s article entitled “The war goes on”,
posted on the Ukrayinska Pravda website on 7 January; subheadings have
been inserted editorially:

The deal which was signed on the night of 4 January should be viewed as
nothing more than a fragile truce in the gas war. The next few weeks will
probably bring a new escalation of the standoff.

The document looks nothing like a clear set of rules for the following
years. It is nothing more than a propaganda tool, which gives both sides

a chance to report on their own successes to the people.

This document contains several fairly obvious “timebombs”, which will
ruin the Ukrainian-Russian peace.

[1] The furthest and most powerful landmine, which will guarantee the
beginning of a new war, is the six-month period for the price of 95 dollars
per 1,000 c.m. of gas to be bought from the Swiss company called
RosUkrEnergo (RUE).

As soon as the calendar rolls to 1 July, Gazprom will again be able to
“tighten” the gas valve for Ukraine – if RUE refuses to sell blue fuel to
Naftohaz [Ukrainian state energy company] at the same price as in the first
six months. Formally, Gazprom will not even have to make excuses – it will
be “the Swiss” who refuse to supply gas to Ukraine at the price of 95
dollars, and that is all.

This way, the conflict will be taken beyond Ukrainian-Russian relations.
Moreover, today the European factor benefits Ukraine, meaning that
Gazprom is responsible for supplying gas to European consumers and
negotiating transit terms with Ukraine, even if it has to give up its
ability to dictate high gas prices as a monopoly.

In summer, however, Ukraine will de facto have to answer to Gazprom and
European consumers: it promised to ensure the transit of Russian gas at a
rather low rate of 1.6 dollars per 1,000 cu. m. per 100 km – over a period
of five years.

[2] The transit tariff is fixed, but the price of gas is not. RUE can demand
an increase in price, explaining it with its own commercial practicality,
and Naftohaz will find it very hard to find ways of compensating for the
higher fuel price.

[3] Another shortcoming of this contract – it in fact monopolizes gas
supplies to Ukraine. Before, nobody had significant control over the
supplies of blue fuel to Ukrainian consumers, but now about two thirds
of imported gas will be supplied by a single entity.

From the point of view of economic security, this situation is absolutely
unacceptable for an energy dependent country like which is not so strong
economically.

In particular, this agreement contradicts the principles of the European
Energy Charter, which Ukraine has signed. The Charter demands much
deeper diversification of gas supplies. But RUE’s monopoly on the
Ukrainian gas market is only half of Ukraine’s troubles.
SUSPICIOUS INTERMEDIARY
[4] Another question is – what is this company, RUE? Can it guarantee the
fulfilment of its obligations? These questions are very topical, because the
history hardly has another example of a situation when the wellbeing and
safety of a country of 46m people depended on an offshore company
which has practically no assets to guarantee the fulfilment of its
obligations.

Not to mention many people having doubts that the origin of RUE’s
capital is 100-per-cent “clean”.

[5] The 4 January accord is unlikely to satisfy the Ukrainian cabinet
officials. In order for it to work, an international agreement must be
signed, which will mitigate the commercial risk for Ukraine. This is what
[Ukrainian Prime Minister] Yuriy Yekhanurov meant when he said that
before 16 January he will submit a draft intergovernment agreement on gas
to Russia.

It is not difficult to predict how the Russian side will react to Ukraine’s
proposals. The “Petersburg people” who currently have “protectorate” over
Gazprom, are trying their utmost to promote RUE during talks – as if they
simply manage Gazprom, while this Swiss offshore company is their own.
From this, we can conclude that it is so.
NEW JOINT VENTURE POSES RISKS
[6] Another serious legal issue is the creation of a joint venture for
selling gas. It is very difficult to form a joint venture in such a short
time as stated in the agreement – before 1 February – even under regular
circumstances, not to mention the level of intergovernment talks.

The level of authorized capital and the contributions from the parties
involved have not been regulated yet. The division of profits, the seats on
the company’s board and the procedure for making decisions – unknown.

[7] Moreover, there are serious doubts about the general legitimacy of
this entity. The formation of a joint venture may potentially result in a
situation where this company controls the highly profitable market of
industrial consumers, leaving Naftohaz to deal with so-called social gas –
the fuel supplied to the people’s homes and heating plants.

The prices of gas for industrial consumers will rise to a certain
quasi-market level. As a result, the joint venture will have guaranteed
profits. It is not clear why this attractive segment should be given into
partial control of the semi-anonymous “Swiss”.

[8] In addition, the creation of this entity may pose some long-term risks
for Ukraine’s economy, which suffers from institutional corruption.

It is well-known, for example, that significant amounts of money were
siphoned out of state enterprises in the 1990s through gas supply
schemes.

The gas war for Ukraine is only starting.

Now it is clear that the real battle is being fought not against Russia’s
interests – in reality the people of the neighbouring country are losing
more in this war than Ukrainians are.

It looks like the pressure from Russia is an attempt to promote the
interests of international criminal structures, which include current and
former top officials in Russia, Ukraine and Europe.

Today’s configuration of gas relations has insufficient legal and economic
grounds. The next attempt by Ukraine to make these relations more
transparent and improve their legitimacy may provoke a new conflict.
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19. UKRAINE’S PM SAYS GOVERNMENT WILL FORMALIZE AN
INTERSTATE GAS AGREEMENT WITH RUSSIA
Will not use pipelines as assets in new joint Russian-Ukrainian company

Between RosUkrEnergo and government of Ukraine

Associated Press, Kiev, Ukraine, Thursday, January 12, 2006

KIEV – Ukrainian Prime Minister Yuriy Yekhanurov said Thursday that his
government would formalize an interstate gas agreement with Russia in spite
of the country’s roiling political crisis, but vowed the state would never
give up control of its pipeline network.

In an interview with The Associated Press, Yekhanurov laid to rest two
widespread fears for Ukrainians: that the country’s energy supplies could
be thrown into limbo by the crisis, and that it would be forced to use its
pipelines as assets in a new joint Russian-Ukrainian company that will be
bringing in the nation’s gas imports.

“The gas transport system cannot be privatized or transferred for
management, and this is the principled position of the Ukrainian
government,” Yekhanurov told the AP.

Earlier this week, parliament voted to sack Yekhanurov and his Cabinet
over the deal with Russia’s state-controlled gas monopoly, which resulted
in nearly doubling the price of imported natural gas for Ukraine, but the
government has called the legislature’s move illegal. Both government
officials and some opposition politicians acknowledged that the true intent
of the parliament’s vote was to paralyze the government.

Experts had also expressed concern that if the Cabinet becomes
immobilized by the crisis, the gas deal could be postponed until a new
government is appointed following March parliamentary elections.

Yekhanurov vowed, however, that an interstate agreement with Russia,
formalizing the deal struck between the two countries’ gas companies,
would be signed by the end of this month or early in February.
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20. RUSSIAN EXPANSION IN THE ENERGY SPHERE:
THE EUROPEAN MOSAICS
That is why the intermediary firms who participate in energy related deals
are far more than just intermediaries. They act as a mechanism designed to
guarantee that no one’s interests remain unattended, they provide shadowy
redistribution of the received income, and clandestine financing for various
political parties, funds and politicians.

COMMENTARY & ANALYSIS: Mykhailo Gonchar for UP
Translated by Olga Semikhova for UP
Ukrayinska Pravda Online (UP), Kyiv, Ukraine, Wed, January 10, 2006

The Ukrainian Russian gas conflict, despite the wide resonance it caused,
is one of the fragments of the Russian energy expansion which is an
ongoing process on various segments of the market in different countries.

It is important to have a clear picture of what is going on, to have the
panoramic view of the events, to understand the causal links and the
technologies Russian authorities apply and the principles of energy
monopolies in order not to lose the game.

What happened in December and January between Russia and Ukraine
represents a part of “Russian Strategy in the Energy Sphere untill 2020”
which was designed 3 years ago.

It is easy to explain why did the former authorities choose to ignore this
document. Tailgating Russian politics and cheap energy made it unnecessary
for the people in charge to make any mental efforts.

But the fact that the new Ukrainian authorities who declared that strategic
thinking forms the basis of their doctrine failed to use analytical approach
indicates the lack of professionalism, it is totally unacceptable and even
criminal to act in this manner.

Possibly the Ukrainian stereotype has worked here, namely that to have a
strategy is no more than following the bureaucratic trend, the strategies
exist on paper only and the main purpose of their development is to report
to one’s boss, and they go into oblivion the next day.

When the formation of the Energy Strategy project was in progress, Russian
Federation was already working actively on its realisation. Few had noticed
that on January 1 2003 Russian oil transit monopoly “Transneft'” “dried out”
Latvian oil pipeline and the terminal in Ventspills. The motive – Russians
wanted to get the non-freezing terminal into their ownership.

When Riga expressed its disagreement with such actions, “Transneft'” ignored
the European Energy Charter and stopped the transportation of oil. Since
then for three years the Latvians have been blockaded. But that happened to
the country Russians regards as an adversary.

However, in a years’ time, in January 2004, the gas supplies had been
discontinued for the country which definitely could not be classed as a
Russian enemy.

Byelorussia was affected by “the brotherly love” of its neighbour. The
motive is very similar to the Latvian case – Russian Gazprom is in need of
Byelorussian pipes.

Not only Byelorussia but Poland as well experienced problems with gas
supplies at the time. Brussels took notice. But Poland was not an EU member
then, the country was run by the president and the left parties both being
loyal to Russia, and they did not express any discontent.

Things went smoothly for Moscow. Moreover, Moscow has achieved its
objective although it did not happen overnight.. Gasprom signed a long term
lease agreement for the territories in Byelorussia where Yamal-Europe pipes
run.

Putin’s statements made in September regarding “unjustly low prices” for
Russian oil on the European market were the next indicator of Russian
aggressive behaviour in the energy sphere. Taking Putin’s remarks further,
oil oligarchs made statements like “Europe is being overfed with Russian
oil” (Veinstock), or “we will be vigilant that Europe does not get the
excessive oil supply from Russia” (Alekperov).

The Eastern projects for exporting oil to Asia Pacific region do pursue an
objective of creating artificial deficit on European markets to increase
prices for the Russian export mix.

Russia manifests its politics in the energy sphere is many ways, namely
blocking the access for Kazakh national Oil & gas company “KazMunaiGaz”
to oil refineries and transit facilities to “Majeiqu Nafta” in Lithuania,
creating obstacles for the development of Caspian pipeline consortium and
oil pipeline Odessa – Brody for supplying Caspian oil to European markets,
attempts to review gas prices for Bulgaria, Moldova, Georgia, Romania and
Turkey.

At present Russia is trying to purchase 49% of oil transport system in
Slovak republic by using unofficial channels and corruption links bypassing
the procedure of transparent public competition.

Thus, these actions, which at the first glance come across as uncoordinated,
in reality are the building blocks for a well structured and consistent
strategy.

It is described quite clearly in the Energy Strategy of Russian Federation:

“In the coming years the export of energy resources will remain a key factor
for the development of national economy, as well as for the economical and
political positioning of Russia in the world community.

Based on the foreign policies’ objectives in the energy sphere, Russian
international activities will include the following:
the fortification of our presence on the internal energy markets of foreign
states, co-ownership of the energy distribution network and the objects of
energy infrastructure in these countries.

Our firm position on the world energy markets is going to allow not only to
get stable income from exports in the fuel and energy sector, but to
strengthen the economical and political position on the world arena.”<.>
(put in bold by the author)

Gas blackmail forces the Ukraine and EU to look into the matter of Russian
energy supplies from a different angle. Brussels must take into account that
Russian energy export is always linked to “political add-ons from Kremlin”.
They aimed at restoring Russian’s status quo ante as an “energy empire”.

Not everyone understands that in case Russia succeeds in creating this
empire, the energy transit region with no legal boundaries will be formed on
the East of the EU with the decision making centre in Moscow.

Such a situation is a definite threat for the energy security of the EU and
especially for the countries in Central Europe and Baltic states. Even today
it is a serious issue for the countries in Central Asia, because Russia
controls a vital part of the infrastructure for the energy supplies in the
area.

This is exactly what happened with gas. Russia attempts to act along the
same lines with Kazakh oil. Kremlin is strengthening the positions of the
energy and transport monopolies viewing them as an economical mechanism
for restoring and fortification of its political influence on eastern
peripheries of the extended EU, CIS and the Central Asia.

The excerpt from Putin’s speech in Federal Assembly is very convincing:
“Please pay attention that the overall state interests must be the
foundation for all decision making, not the interests of the particular
companies”. Thus, Kremlin sets the rules for all businesses in the country,
does not matter whether they are state-owned or not.

Apart from the “political add-ons”, the culture of corruption,
non-transparent methods in business dealing and shadowy financial
transfers is being exported together with the energy resources.

Examples are in abundance. The realisation of inefficient and capital
intensive “Blue Flow” project, a gas pipeline connecting Russia and Turkey
laid on the bottom of the Black Sea, lead to the corruption scandal in the
Turkish government in 2001.

15 people including Mr Ersumere, minister for energy and natural resources,
government officials in various ministries, state-owned gas and oil company
Botash and businessmen were subjects in criminal proceedings.

In 2004-2005 Poland was affected by “Orlen’s affair” related to Russia’s
illegitimate attempts to buy Polish oil processing assets using secret
services and elaborate corruption schemes.

The former chief of Polish Intelligence Service Mr Semyatkovsky commented
on the activities of the Russian companies in the Polish oil sector: “We are
dealing with the attempt of restoring the Russian empire by economical means
based on the principle “tanks yesterday, oil today”.

Yet one more corruption scandal unfolds in Germany related to
Northern-European gas pipelines – an analogue of the Black Sea “The Blue
Flow”.

“A politician, who was ruling the largest country in Europe not so long ago,
now is going to work for a company which is a property of the state which is
far not an ally, but which is recognised as a dangerous adversary by many of
his country allies.”, – this is how ex-Chancellor Schroder is being
characterized by “Vprost”, a Polish magazine.

Mr Kasparov, the famous chess player, who represents Russian opposition,
believes that Schroder does not understand that he is getting involved with
the mafia. That was Putin’s initial aim, now he can point a finger towards
the West and say “They are as corrupted as we are”.

The USA is the only country which adequately assesses Russian actions.
Mr Tennet, a head of CIA, in his report for the Senate Committee in 2004
emphasised that the actions of the Russian oil companies always have a
political component “. Moscow is more persistent in its relationships with
its neighbours from ex-USSR such as Georgia, Ukraine and Moldova.
Russian companies, based on commercial motives, but taking into account
Kremlin’s guidelines, increase their presence in the neighbouring countries,
especially in the energy sector.”

Russian companies promote their projects on the foreign energy markets in
the following manner.

It starts with detailed reconnaissance, suitable personalities are being
selected, lobby groups and lobbying channels are put in place, and then the
project proposal is put forward with the support on diplomatic levels. Then
a business scheme is organised taking into account individual interests of
the persons involved in decision making. A network of intermediaries is
created.

The next step is taking action on the political arena, followed by the
massive information support, political “roof” and an illusion is created
that the project fully complies with the “national interests” of the country
in question. Standard “Russian Cocktail” is used to accomplish the scheme:
political pressure, corruption, blackmail, appropriante amount of
involvement of criminals “under the patronage” of Secret Services.

The distinguishing feature of Russian approach is reaching up to top rank
government officials who are responsible for the most important political
and economical decisions offering them participation in schemes which are
designed to take their interests into account, so to say, “to make offers
which are impossible to reject”.

Formal and informal business meetings and phone conversations with
politicians and statesmen are being organised using official and not
official channels, aimed at exerting influence in their decision making for
the project to succeed.

What we can observe now is only a top of iceberg, the external visible
effects of the energy expansion technologies.

Putin’s establishment has modernised an old Soviet technology. It ran
smoothly even when the famous Soviet-German “gas in exchange for
pipes” deal went through in 1980.

This technology proved to be more then successful on post soviet
territories. The reason for this is total corruption, regardless of the
political colouring of the ruling elites who come to power. Corruption is
the best way to get results.

If a long term project is under way one has to minimise the possible damage
in case the political power changes hands. So diversification method is
applied to guarantee that the interests of major contenders are taken into
account.

That is why the intermediary firms who participate in energy related deals
are far more than just intermediaries. They act as a mechanism designed to
guarantee that no one’s interests remain unattended, they provide shadowy
redistribution of the received income, and clandestine financing for various
political parties, funds and politicians.

One can say with certainty that the “Gas Industry Regulation Agreement”
signed in Moscow on 4 January represents such technologies in action.

[1] The presence of an intermediary firm makes it clear.
[2] Secondly, active scheming against the Ukrainian negotiators in general
took place. On the 4 of January Russian “Lenta.ru” publicised the suggestion
why Ukrainian side has given away its advantageous position. “Gazprom
representatives possessed some information regarding the negotiators from
Naftogas which enabled them to keep the situation under control”
[3] Thirdly, some details of the agreement.

It is well know that the devil is hidden where there is a place to hide. For
instance, Clause 3 of the contract implies the creation of the joint stock
venture, “statutory capital of which is going to be formed by money deposits
and other assets”.

It is quite possible that “other assets” could mean the Ukrainian gas
transporting system; not directly of course, but integrated into this joint
stock venture in using some legally flawless method.

This is not overcomplicated if to buy gas at $230 and then sell at $95. One
day the bank would want its credits paid back. It would take “other assets”
to do so. This is just one of the possible scenarios.

It is quite clear, that the consideration of this agreement in Parliament is
necessary but not sufficient to find out why the Ukrainian side had signed
it.

Yes, the government and some ministers could be forced to resign. But where
is the guarantee that those who are going to replace this government are not
going to be successfully tackled using the same technology?

It is the other business that matters. A system must be created in order to
block and neutralise the interests of the Russian energy monopolies in
Ukraine which afflict the country’s economical interests and are a threat to
the national security.

The change of regime, as it is obvious from what has happened, did not
destroy the system of lobbying set by Russian monopolies and Gasprom is
the main one. Moreover, it is evident that the system has undergone some
transformation in order to merge with the new authorities, simultaneously
make the Ukrainian authorities change their ways (corrupting them, to be
more precise) so that they comply with Russian strategic interests.

And one of the priorities is a monopoly to put hands on the major gas
transit infrastructure in Europe and leaving Ukraine in its position of
vassal.

So, it is possible that losing gas transportation system is going to have
more serious impact then handing in nuclear weapons in 1994.
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NOTE: Mykhailo Gonchar was from 1996-2000 Secretary
Counsellor for the National Security and Defence Council.
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LINK
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21. RUSSIAN FDPM HOPES UKRAINE WILL BECOME PARTNER IN
THE COMPANY SUPPLYING GAS FROM RUSSIA ROSUKRENERGO

RIA Novosti, Moscow, Russia, Thursday, January 12, 2006

MOSCOW – Dmitry Medvedev, Russian First Deputy Prime Minister and
chairman of energy giant Gazprom said Thursday that he hoped Ukraine
would become a partner in the company that will supply it with gas from
Russia. “The best situation would be if [Ukrainian state energy company]
Naftogaz Ukrainy became a partner of Gazprom,” Medvedev said.

RosUkrEnergo will supply Ukraine with gas from central Asia, via Russia,
under the terms of the agreement reached by the two countries earlier this
month following a long-running dispute over gas prices.

Gazprom owns 50% of RosUkrEnergo. The other 50% is held by Austrian
bank Raiffeisen. The company is registered in Switzerland. -30-
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22. YUSHCHENKO IS ONE OF US NOW
The first time Putin pointedly supports leader of the Orange Revolution
President Putin and President Yushchenko meet in Kazakhstan

COMMENTARY: By Natalia Melikova
Nezavisimaya Gazeta, Moscow, Russia, Thu, January 12, 2006

We like the fact that after many years of relations with Ukraine,
we are now dealing with some people in Kiev who do what they say
they will do,” Putin said. Indeed, Putin never referred to Leonid
Kuchma or Viktor Yanukovich in this manner.

Vladimir Putin and Viktor Yushchenko pledged to be friends
forever when they met this week in Astana, Kazakhstan, two months
before the parliamentary election in Ukraine. Giving no thought to
the serious political crisis in Ukraine, Moscow expects Yuri
Yekhanurov, prime minister of Ukraine dismissed by the Rada, to
visit Russia within a month. In fact, Putin used a phrase that might
make it into the history books. “We like the fact that after many
years of relations with Ukraine, we are now dealing with some people
in Kiev who do what they say they will do,” Putin said. Indeed,
Putin never referred to Leonid Kuchma or Viktor Yanukovich in this
manner.

Some experts suspect that the price the Kremlin will ask for
its support will be high indeed. Yushchenko in his turn, for the
first time in months, made it plain yesterday that he is prepared to
meet Moscow halfway on a number of disputed points.

As of now, said Yushchenko, Russia and Ukraine are “in the
phase of establishing a completely new relationship” that “will
enable our countries to come to mutually acceptable solutions to
even the most complicated problems.” Yushchenko said, for example,
that Russia and Ukraine are on the threshold of signing an agreement
on readmission. The two countries also agreed to set up a joint
panel for demarcation of the Russian-Ukrainian border.

Yushchenko said that he and Putin had instructed the joint panel to
energize the process of division of the Kerch Strait and make
preparations for the signing of the treaty on the Ukrainian-Russian
border in the Sea of Azov and the Black Sea. Russia and Ukraine are
prepared as well to sign a government agreement on the crossing of
the state border by residents of border areas. The trade and economic
committee will begin its work in the first quarter of the year, the
cooperation committee chaired by prime ministers of the two
countries in the second quarter.

Putin called his talks with Yushchenko a “thorough and
constructive conversation.” “With the newly acquired experience in
dealing with problematic issues, our relations obtained a
considerable potential of development,” he said. Putin said that the
new terms for bilateral relations “are in the interests of Europe’s
energy security; in general, they will facilitate establishment of a
common economic space on the continent.” Moreover, there is more
to the relations between Russia and Ukraine that energy problems and
gas debates. “We’ve invited the head of the government and hope that
the invitation will be accepted,” Putin said.

Ukrainian journalists wanted to know if there was a chance of
denunciation of the gas accords with Russia. As far as Yushchenko is
concerned, the treaty with Russia was composed quite professionally
and Ukraine would honor all its obligations to Russia and the West.

“The processes taking place in the parliament of Ukraine doesn’t
have anything to do with the accord,” Yushchenko said. Ukrainian
journalists turned to Putin and asked if Ukraine had indeed been
stealing gas. “The Ukrainians are our sister nation and Ukraine is
our closest partner. Let’s choose our words more carefully, shall
we?” Putin replied.

Putin added apparently in order to dispel all doubts concerning
Moscow’s kindheartedness, “Relations between the economic
subjects may be submitted to examination by appropriate
international organizations.” Putin also pointed out how important
the so-called European formula of gas price calculation was for
Russia. He made it plain that the price will change along with the
market. As for the deal as such, “the agreement complies with
principles of free-market economy,” Putin said.

Yushchenko said that an all-time record amount of Russia gas
would pass through Ukraine in 2006 (almost 121 billion cubic
meters). “Ukraine would honor all accords,” Yushchenko avowed and
proceeded to tell a story that would have brought tears to the eyes
of everyone but Gazprom executives suspecting Ukraine of thefts of
gas.

Yushchenko elaborated how on the frosty morning of January 1,
his country dipped into its own gas reserves in order to ensure
uninterrupted gas exports to Europe. “We are making a transition to
new principles in relations,” Yushchenko said. “Perhaps even
personal friendship.” Mere minutes later, a source who introduced
himself as an expert on the gas sector told journalists that
“President Yushchenko had been briefed by thoroughly incompetent
sources.” -30- (Translated by A. Ignatkin)
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23. PUTIN REVIVES SOVIET TYPE NUCLEAR ALLIANCE BETWEEN
RUSSIA, UKRAINE AND KAZAKHSTAN BUT ALONG MARKET LINES

By Yuriy Humber, Staff Writer, Moscow Times
Moscow, Russia, Friday, January 13, 2006

MOSCOW – Russia, Ukraine and Kazakhstan will work to rebuild the type
of nuclear energy ties that existed among them in Soviet times, President
Vladimir Putin and his Ukrainian and Kazakh counterparts said in Astana on
Thursday. But unlike the Soviet nuclear power ministry, the cooperation will
be along market lines.

In sharp contrast to Russia’s tough stance toward Ukraine over gas, Putin
called advances in nuclear cooperation between Moscow and Kiev “nothing
but promising.” “Aside from energy and gas issues, which our colleagues
have been so involved in recently, … there is another, complicated issue,”
Putin said. “I am convinced that we can make a serious step forward in this
direction.”

Ukrainian President Viktor Yushchenko, who a day earlier had talked with
Putin about his country’s controversial gas deal with Gazprom, on Thursday
described the nuclear power project as “fairly complex.” “In the next three
to four months, documents detailing cooperation between [Russia and
Ukraine] will be presented at the presidential level,” Yushchenko said, the
Federal Atomic Energy Agency reported on its web site.

Speaking during a visit to the Kazakh capital, where he attended the
inauguration of President Nursultan Nazarbayev on Wednesday, Putin said
that Russia would tap into a new source of uranium ore later this year
through a joint venture with Kazakhstan and Kyrgyzstan.

The Zarechnoye mine in southwest Kazakhstan will start producing ore in the
second half of the year, a spokesman for the Federal Atomic Energy Agency
said on Thursday.

Russian state companies have a 45 percent stake in the Zarechnoye venture,
the same as Kazakhstan, with the remaining 10 percent held by neighboring
Kyrgyzstan. The mine is estimated to hold 19,000 tons of uranium and is
expected to produce 500 tons per year.

Although Russia inherited roughly 80 percent of the Soviet nuclear industry,
it currently mines only half the 6,000 tons of uranium it needs for its
power stations, according to researchers at the Natural Resources Ministry.

In Soviet times, the Russian nuclear industry was largely dependent on
Kazakhstan, Tajikistan and Kyrgyzstan for its uranium, and the Russian
nuclear industry suffered as fuel supply routes between uranium mines and
nuclear power plants were severed in the early 1990s.

Nearly all of Russia’s uranium ore is now mined at the Priargunsky Combine
in the Chita region town of Krasnokamensk, near the Chinese border.

Industry analysts in Moscow said Thursday that the Kazakhs were most likely
seeking cash from Russia to finance the construction of new nuclear power
stations in Kazakhstan, in return for help in accessing the country’s rich
uranium resources that are processed as fuel for nuclear plants.

No financial details of the nuclear power cooperation between Russia,
Ukraine and Kazakhstan were disclosed Thursday.

Sergei Kiriyenko, the new head of the Federal Atomic Energy Agency, or
RosAtom, who traveled with Putin to Astana, said Russia was prepared to
consider “any proposal that is profitable to our partners as well as
ourselves,” in order to “rebuild the Minsredmash complex.” Minsredmash
was the abbreviated name of the Soviet nuclear power ministry.

Kiriyenko will present a plan for RosAtom’s cooperation with Kazakhstan
at the CIS summit in St. Petersburg on Jan. 25 and visit Kiev for talks on
cooperation with Ukraine by early February, a spokesman for the agency
said Thursday by telephone.

“Kiriyenko’s goal is to discuss concrete ways to work with Ukraine in the
nuclear sector and to bring various industry members from both countries
together,” the spokesman, Sergei Novikov, said.

One venture thought to be under discussion concerns Ukraine’s Kharkiv-
based TurboAtom, a maker of turbines for nuclear facilities. In the
meantime, Ukraine is eager to consider uranium mining joint ventures and
more business links to plant fuel suppliers, Yushchenko said at the meeting
in Astana.

Russia’s 10 nuclear power plants currently provide 12 percent of the
country’s electricity, said Gennady Pshakin, an expert on the nuclear
industry who heads a nonproliferation analytical center in Obninsk, near
Moscow.

“For the size of our country, that is very small. Something like 30 percent
to 40 percent would be more appropriate,” Pshakin said. To achieve that, the
industry would require investments of $15 billion to $20 billion over the
next five years, he said.

The large costs and dangers associated with the nuclear industry mean that
nuclear power plant construction is nearly always decided at a senior
governmental level, said Gianguido Piani, an Italian-based expert on the
Russian power industry.

“Nuclear plants are so expensive as to be practically impossible to finance
with common market tools, and require active policy support,” he said in
an e-mailed response.

While Western countries have been stuck in ethical quagmires, trying to
decide whether nuclear energy was worth the investment, rapidly growing
economies like China have seized on it as having great medium- to long-
term prospects, Piani said.

“The new decision by Russia and its allies is a plus for the countries
involved, where the only practicable alternative is the burning of fossil
fuels for electricity generation,” he said.

Cooperation among Russia, Ukraine and Kazakhstan could be a shot in the
arm for the countries’ nuclear industries, which have in recent years made
headlines over safety and ecological concerns, as well as money
embezzlement and corruption charges.

The shock after the Chernobyl accident “is starting to disappear,” Pshakin
said. “This project is a very positive step. It won’t quite be like
EuroAtom, but it will be very big. The scale will not be that of the Soviet
Union, … but things will be put on a market basis. There is no other way
now.”

The tie-up makes commercial sense, Pshakin said, as Kazakhstan currently
cannot sell uranium on the world market due to competition from Australia
and Namibia, while Russia and Ukraine require more fuel as both countries
look to build new nuclear power stations in the coming decade. -30-
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24. RUSSIA’S NUCLEAR CHIEF PLEDGED TO REVIVE NUCLEAR
INDUSTRY BY RESTORING SOVIET-ERA LINKS TO SOVIET-
BUILT PLANTS IN UKRAINE AND KAZAKHSTAN
Would like to acquire a share in Ukraine’s plant that
manufactures turbines for nuclear power plants

Associated Press (AP), Moscow, Russia, Thu, January 12, 2006

MOSCOW – Russia’s nuclear chief Thursday pledged to revive the nation’s
nuclear industries, by restoring Soviet-era links with plants located in
other former Soviet republics.

Sergei Kiriyenko, head of the Federal Atomic Energy Agency, said
Soviet-built plants in Russia, Ukraine and Kazakhstan had been designed
as integral parts of a nuclear complex run by the obliquely-named Soviet
Medium Machine Building Ministry.

“It’s easier to use elements that exist instead of building this complex
from scratch,” Kiriyenko said, according to the ITAR-Tass and RIA
Novosti news agencies. “It’s more efficient to try to put this complex
together.”

He said while major nuclear-related industrial facilities are located in
Russia, Kazakhstan is home to key uranium mining facilities and Ukraine
manufactures turbines for nuclear power plants.

Kiriyenko said Russia would be interested in acquiring a share in Ukraine’s
turbine plant or setting up a joint venture to run it.

In recent years, Russia has overcome a public backlash against nuclear
power that followed the 1986 Chernobyl nuclear disaster and has supported
an ambitious program to develop its nuclear industry. It plans to launch
three new commercial nuclear reactors over the next five years and upgrade
existing ones to higher standards. -30-
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25. THE REIGN IN UKRAINE
Nationalists must not sabotage the gas compromise with Russia

EDITORIAL: The Times, London, UK, Thu, January 12, 2006

President Yushchenko has made little effort to conceal his exasperation
with the opportunism of his political enemies in Ukraine. Yesterday he
accused parliament of destabilising the country by voting to sack his
Cabinet for supporting the costly compromise on gas supplies from
Russia.

Its action, he said, was “incomprehensible, illogical and wrong”. He is
right. And although he gamely suggested that the resulting turmoil would
“increase the quality” of Ukrainian politics, the markets were less
sanguine. The currency has fallen sharply and there seems little hope of
overcoming the instability before the March elections.

The vote was triggered by the bitter opposition to Mr Yushchenko by Yulia
Tymoshenko, the nationalist former Prime Minister sacked last year. As one
of the organisers of the Orange Revolution, she has now turned on the
pro-Western President to accuse him of selling out to Russia. But her
faction’s decision to support its pro-Moscow enemies in parliament in order
to bring down the Yushchenko Government suggests that it is motivated
more by vendetta politics than policy. It is far from clear whether
parliament does indeed have the right to dismiss the entire Cabinet.

Her successor as Prime Minister insists that he will stay in office until the
election. But Mr Yushchenko cannot challenge the vote in the constitutional
court, which is itself paralysed by not having enough judges because
parliament has blocked his nominees.

The stalemate effectively ends hopes that the Orange Revolution could
overcome the bickering and opportunism that marked the previous pro-
Moscow Government. Mr Yushchenko has already been weakened by
accusations of corruption within his administration. Meanwhile, the
faltering economy and constitutional deadlock give his enemies the
opportunity to make trouble before the election.

What matters to Ukraine’s neighbours is the effect on gas supplies. The
President insists that he will honour the recent agreement with Gazprom,
the Russian energy group, and that there will be no disruption to European
consumers. But disruption is exactly what more nationalist Ukrainians would
like, hoping that the West will side with them in their bitter quarrel with
Moscow. Mrs Tymoshenko, whose own gas interests have made her very
rich, is counting on the opposition of many in Ukraine to the recent
compromise with Russia, which has led to a doubling of gas prices.

Parliament’s move to undermine the President came as he was holding talks
with President Putin in Kazakhstan, in the first face-to-face meeting since
Gazprom cut supplies to Ukraine (a move that appears not to have affected
the company’s global standing ­ its shares have risen sharply since the
subsequent deal). Both Russia and Ukraine were quick to see how their
quarrel was mutually damaging; sensibly, Mr Yushchenko was yesterday
talking the language of compromise. Good neighbourliness is not what
nationalists on either side are seeking. Both leaders must prove them wrong.
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]=======================================================
26. MOLDOVA AND RUSSIA FAIL TO END GAS DISPUTE

By Neil Buckley in Moscow and Sarah Laitner in Brussels
Financial Times, London, United Kingdom, Thu, January 12 2006

Russia has resumed gas supplies to Ukraine, but neighbouring Moldova is
still without Russian gas amid its own dispute over pricing, leading to
falling temperatures in homes in the capital, Chisinau.

Gazprom, Russia’s state-controlled gas giant, cut off supplies on January 1
after Moldova refused to accept a 100 per cent price increase. The move was
overshadowed by Russia’s decision to turn off the taps on the same day to
Ukraine, leading to a drop in supplies reaching Europe through the massive
transit pipeline across the former Soviet republic.

Gazprom’s readiness to turn off supplies to Moldova for nearly two weeks
shows its robust tactics with Ukraine were not a one-off. Moscow also
briefly turned off supplies in 2004 to Belarus, normally the most loyal
former Soviet state, after it baulked at demands for a twofold price rise.

The European Union expressed concern about the dispute, calling on both
sides to renew negotiations, though stopped short of criticising Russia for
turning off Moldova’s gas.

Moldovan officials said they were hopeful of agreeing on a date for new
talks with Gazprom by the end of Thursday, though several attempts to
restart talks had been rejected.

The republic has been receiving gas from Ukraine sufficient to cover about
half its normal needs. But Termokom, the local utility in Chisinau, said
lower pressure has forced it to cut temperatures in district hot water and
heating systems by 10-15 per cent.

Gazprom wants Moldova to pay $160 (euro133, £91) per thousand cubic
metres (tcm) of gas, up from $80 last year. It insists the price is
“economically justified”, part of its move towards charging “market” prices
to all former Soviet republics.

The price is considerably higher than the $47 tcm paid by Belarus, the $110
agreed with the Caucasus republics of Georgia and Armenia, and the
$120-$125 paid by the Baltic republics of Estonia, Latvia and Lithuania –
though below the $230 demanded from Ukraine.

Moldova insists the increase is politically motivated. Vladimir Voronin, the
Moldovan president, has followed Georgia and Ukraine in reorientating the
republic towards the west.

The EU last year stepped up its involvement in Moldova, signing a deal to
help oversee a border between Ukraine and Moldova’s breakaway Trans
Dnestr region. But Moldova also cited commercial arguments against the
price increase. It said it was the first former Soviet republic to create a joint
venture 51 per cent owned by Gazprom to run its domestic gas distribution
network, Moldova-gaz. Forcing the venture to pay higher prices, it said,
would unfairly shift profits over to Gazprom.

Analysts expect the two sides to compromise on a price lower than $160,
in return for Moldovan energy assets. Gennady Abashkin, director of
Moldova-gaz, told a state radio station Moldova was not against an
additional 13.4 per cent stake held by Trans Dnestr in the venture being
turned over to Gazprom.

Trans Dnestr had earlier proposed handing over the stake to settle the
region’s debts to Gazprom. -30-
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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