Daily Archives: January 19, 2006

AUR#644Russian Energy Policies Dangerous; Boxing Champion For Mayor Of Kyiv; Bandits To Prison Turning Into Bandits To Parliament; New Gas War 2

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Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, THURSDAY, JANUARY 19, 2006
                           ——–INDEX OF ARTICLES——–
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Former spies making energy policy, Ukraine needs to strengthen its own hand
ANALYSIS AND COMMENTARY: By Keith C. Smith, Senior Associate
Europe Program, Center for Strategic International Studies (CSIS)
Washington, D.C., Thursday, January 12, 2006

                               TO RUN FOR MAYOR OF KIEV
Reuters, Kiev, Ukraine, Thursday, January 19, 2006

Emmet Oliver, Irish Times, Dublin, Ireland, Wednesday, Jan 18, 2006

         German company VW acquired Skoda in 1991, has invested heavily
By Katka Krosnar in Prague, Financial Times
London, United Kingdom, Monday, January 16 2006

Associated Press, Kiev, Ukraine, Wed, January 18, 2006

Ukrainian Federation of America (UFA)
Philadelphia, Pennsylvania, Wednesday, January 18, 2006

7.                         DEATH AND THE DONETSK MINER
By Francesca Mereu, Staff Writer, Moscow Times, Wed, Jan 11, 2006

8.                      THE IMPORTANCE OF BEING HONEST
           International Management Institute (IMI), MIM Kiev, in Ukraine
By Kester Eddy, Financial Times, London, UK, Sun, Jan 15 2006

                      TO CONDEMN ANTI-SEMITIC RHETORIC          

AP Worldstream, Kiev, Ukraine, Wednesday, Jan 18, 2006


                             RUSSIA OVER BLACK SEA FLEET
Mara D. Bellaby, Associated Press, Kyiv, Ukraine, Tue, Jan 17, 2006
The Kennan Institute, Washington, D.C., Wednesday, January 18, 2006


Selina Williams, Dow Jones Newswires, Kiev, Ukraine, Thu Jan 19, 2006 

To lose several billions of dollars to mysterious co-owners of RosUkrEnergo
Ren TV, Moscow, in Russian 2030 gmt 17 Jan 06
BBC Monitoring Service, UK, in English, Thursday, Jan 19, 2006

Alex Nicholson, AP Worldstream, Moscow, Russia, Tue, Jan 17, 2006

Tatiana Serafin, Forbes, NY, NY, Friday, Jan 13, 2006


                               TO SELL GAS TO UKRAINE
Argumenty i Fakty, Moscow, in Russian 17 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 19, 2006


Eurasia Daily Monitor, Volume 3, Issue 13
Jamestown Foundation, Washington, DC, Thu, Jan 19, 2006

18.                    THE UKRAINIAN-RUSSIAN GAS DEAL:
                          GUIDELINES FOR COUNTERACTION
The Pearl Harbor of Ukraine’s energy diplomacy was on night of January 4
   Guidelines as to who can put up legal resistance to the gas agreement      
: By Oleksandr Chalyi
Extraordinary and Plenipotentiary Ambassador of Ukraine,
former First Deputy of the Minister of Foreign Affairs of Ukraine
Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, #1 (580)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 14-20 January 2006

19.                                  THE NEW GAS WAR – 2
     Started by Yushchenko’s opponents Yanukovych & Tymochenko
 But the Kremlin blatantly “conned” the pillars of the Ukrainian opposition.
: By Stanislav Belkovskiy
Maverick Russian political consultant
Glavred, Kiev, Ukraine, in Russian 0000 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Tuesday, Jan 17, 2006

           Ukraine is one of the most energy wasteful countries in the world.
: By Roman Kupchinsky

Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, January 18, 2006
                         GAZPROM CEO ALEXEI MILLER SAID
LETTER TO THE EDITOR: From Roman Kupchinsky
Investigative Journalist, Prague, Czech Republic
RE ARTICLE: Gazprom to take direct part in RosUkrEnergo
Better Gazprom and Naftogaz Ukrainy be co-founders of the joint venture
ITAR-TASS, Moscow, Russia, January 15, 2006
Letter published by The Action Ukraine Report (AUR), #644, Article 21
Washington, D.C. Monday, Thursday, January 19, 2006
           Ukraine has not been the only target of Russia’s energy weapon
                              Former spies making energy policy
                      Ukraine need to act to strengthen its own hand

ANALYSIS AND COMMENTARY: By Keith C. Smith, Senior Associate
Europe Program, Center for Strategic International Studies (CSIS)
Washington, D.C., Thursday, January 12, 2006

[1] The recent “gas war” between Ukraine and Russia does not reflect a
policy change in Moscow.  Russia has used its energy power in an attempt to
influence the foreign and security policies of its neighbors since 1990.

[2] The EU and the US have been slow to recognize that the energy policies
of the Kremlin are a danger to Europe and particularly the independence of
the Central Europeans.  These policies are not in the long-term interest of
Russia itself.

[3] The West should pressure Russia to adhere to the Energy Charter and to
WTO principles by making its energy policies and actions more transparent
and based on competitive business practices.

[4] Ukraine should respond to Russian pressure by developing a crash program
of energy efficiency and by increasing domestic production of gas and oil by
creating a welcoming and transparent environment for foreign investors.

Russia’s tough stance toward Ukraine on natural gas prices was viewed by too
many in Europe and in America as raising new issues concerning Russia’s
foreign economic policies and Europe and America’s growing dependency on
energy imports.  For many new EU member states and for countries such as
Ukraine, Georgia and Moldova, this is an old problem.

Central European attempts to flag the issue in Western capitals have until
now been brushed aside.  The rapid approval by the EU Commission of the
Russian-German undersea gas pipeline project was a mistake.  The concerns

of the Central Europeans should have been examined in more detail.  Western
governments would also be wise to closely analyze more closely the political
and security implications of Russia’s energy policies.
                           OF RUSSIA’S ENERGY WEAPON
There is much more at stake for Europe than its own energy supplies.
Moscow’s increasing control of the energy infrastructure and markets in
Central Europe has long-term implications for the security, and not only
energy security, of all of Europe.

The comments of former Kremlin economic advisor, Andrei Illarionov,
citing Russia’s increasing tendency to use energy as a weapon in its
relations with other countries should act as a wake up call to Western

Government, and particularly the EU.

They can no longer afford to be complacent regarding Russia’s willingness
to use its considerable energy resources for political blackmail; a
situation that dates back to 1990, when Moscow cut energy supplies to the

Baltic States in a futile attempt to stifle the independence movement.

The “energy weapon” was again used against the Baltic States in 1992, in
retaliation for Baltic demands that Russia remove its remaining military
forces from the region.  In 1993 and 1994, Russia reduced gas supplies to
Ukraine, in part, to force Kiev to pay for previous gas supplies, but also
to pressure Ukraine into ceding more control to Russia over the Black Sea
Fleet and over Ukraine’s energy infrastructure.

Even Belarus, and indirectly Poland and Lithuania, suffered supply
disruptions in 2004 from the Kremlin’s politically-motivated attempt to take
over Belarus’ gas pipeline system. As recently as 1998-2000, in an attempt
to stop the sale of Lithuania’s refinery, port facility and pipeline to an
American company, Transneft, stopped the flow of oil to Lithuania nine
times.  None of these examples of Moscow’s using oil and gas shipments to
strong arm its neighbors resulted in complaints from Brussels or Washington.

Why has the EU, and particularly the large gas importers like Germany,
Holland and France, ignored the lack of transparency and competition in
Russia’s energy sector?  The Russian pipeline monopolies of Gazprom
(natural gas) and Transneft (oil) have been given free rides in terms of the
open-market requirements of WTO and the EU’s own Energy Charter.

The EU’s agreement with Russia on WTO in effect gave Moscow’s increasingly
monopolistic pipeline and production companies’ carte blanche.  Russia will
be able to increase its market power and its political leverage in Europe
through the construction of the expensive undersea Baltic Pipeline System.
The construction of the Yamal II pipeline would have been a much cheaper
alternative and would have given both Central and Western European consumers
greater energy security.

The West ignored Gazprom’s takeover, with Ruhrgas’ help, of domestic gas
facilities and markets in all three Baltic States.  It disregarded
Transneft’s recent announcement to Kazakhstan that it would not be allowed
to supply oil to Lithuania’s Mazeikai Refinery through the Russian pipeline
system, even though Astana has the legal right to do so.  Russia has stopped
all piped shipments of oil to Latvia for the past two years in an effort to
gain control over the oil port at Ventspils.

Now, Moscow is again attempting to keep non-Russian companies from
buying Lithuania’s Mazeikai Nafta Refinery and the port at Butinge.  Should
this use of raw energy power not be a subject for discussion within the
Commission and between the Commission and other importing countries such
as the United States and Japan?
It is a mistake for governments in the West to believe that they need
Russian energy supplies more than Russia needs the oil and gas revenue that
comes from Western markets.  Russia does not have the capital to develop
their vast energy fields without Western capital or technology.  There has
been no inclination by either the EU or the US to use their considerable
leverage to force Russia to play by transparent, competitive rules that
guide business in the West.

The pipeline monopolies of Transneft and Gazprom are contrary to the Energy
Charter signed between the EU and Russia.  Where is the pressure on Russia
to ratify and implement the Charter? Following the destruction of Yukos,
Russian officials declared that private companies would not be allowed to
build pipelines in the country.  Yukos had planned to build with other
private Russian energy companies pipelines to China and to supply Europe
through an oil line to Murmansk.
Russian energy policy is increasing formed by former intelligence officers
(siloviki) in the Putin Administration and in Russia’s energy companies.
Igor Sechin, the head of Rosneft, and former KGB associate of President
Putin, helped engineer the breakup of Yukos and his company’s seizure of the
most valuable assets of Yukos.  Former KGB and GRU officers sit on the
boards of almost all the country’s major energy companies.

In 1999, Moscow even sent out a former KGB/FSB officer as ambassador to
Lithuania, in an attempt to provide behind-the-scenes support to Lukoil’s
negotiating position.  Before assuming the job, the ambassador had been the
FSB’s official liaison officer with Lukoil.  The siloviki generally oppose
any weakening of the state through the growth of a transparent private

Putin’s use of a former East German Stasi officer to direct the financing of
the undersea Baltic Pipeline System only added -perhaps unfairly – to
suspicion that the project is more politically than commercially motivated.
The actions of the intelligence sector have only set back Russia’s own
development as a democracy, and as a market economy providing long-term
benefits to Russia’s own population.

For too long, Europe’s energy relationship with Russia has been directed by
only a few member states.  The role of former Chancellor Schroeder in giving
President Putin a pass in the areas of democracy and competition are well
documented.  But the U.S. has also been more eager to secure energy supplies
from Russia than to pressure the Kremlin into reforming its economy.

The EU and the US have for too long ignored the non-competitive and
political aspects of Russia’s energy export policies. 
This is due in part
to competition by Western companies for exploration and production rights in
Russia. How much thought has been given to the potential power of Gazprom
to control the gas markets in Central Europe following the completion of the
Baltic Pipeline System?

Under the German-Russian agreement, Gazprom will be able to buy significant
shares in Germany’s gas companies.  Will this allow Gazprom to veto
shipments of gas from Germany to Poland if the Poles have a dispute with
Gazprom over price or availability? Could the increased power of Gazprom be
used to stop LNG receiving plants from being constructed in Poland, Latvia
or even in Germany?

If the EU decides to implement its long-awaited requirement for member
states to have more gas storage, will this be possible now that the EU has
blessed the Baltic Pipeline System designed to bypass Poland and the Baltic

What about Russian purchases of gas from Turkmenistan, Uzbekistan and
Kazakhstan that are clearly designed to deny the West the ability to buy
directly or at prices negotiated between producer and consumer, rather than
working through Gazprom?  Are these moves by the Kremlin compatible with
WTO membership?  It is hard to imagine that they are.

Gazprom is now attempting to pressure Bulgaria into breaking a binding
agreement on gas price and availability that is in force until 2010.  A test
for the EU will be whether it backs up this soon-to-be member state with
political support. So far, there is no sign that Brussels will intervene.

Perhaps Bulgaria, as a member of NATO, should put the issue of energy
security on the agenda of the NATO Council, which concerns itself with
issues that go far beyond the narrow one of military inviolability.  Of
course, other member states will have to step forward in the Council and
support a policy discussion of the issues surrounding Russia’s aggressive
energy policies.  Poland, the Baltic States and Romania might be so
                     NO BIG WINNERS IN THE “GAS WAR”
That brings us to the Russia-Ukraine “gas war” that was allegedly resolved
to the satisfaction of both sides on January 4.  Russia’s political agenda
in using gas prices to punish the pro-Western Yushchenko Government is
clear from statements made by Russian supporters of Gazprom hard line
and from remarks by Russia’s few remaining reformers.

Few people familiar with political and economic relations between Russia
and Ukraine believe that this agreement will last very long.

Moscow’s requirement that all gas to Ukraine be contracted through the
non-transparent company RosUkrEnergo, the direct successor to the even
less transparent EuralTransGas, raises questions about the reliability of
future European gas supplies that originate in Central Asia.   In light of past
actions, no one should have been surprised by Moscow’s tough approach

to Kiev.

One can make a good case that Russia should move toward charging market
prices to importing countries.  And, an equally good case can be made that
it is in the long-term interest of Ukraine and other importers to move in
the direction of paying world prices.

Once market prices are reached, Moscow’s political leverage will decrease.
A four-fold overnight increase in price, however, is not justified,
particularly in light of the 2004 agreement between the Kuchma Government
and Gazprom.

More important, however, is that no one knows what the real market price of
Russian gas and oil would be if a transparent situation existed within
Russia’s exporting companies
.  If Russian consumers were forced to pay
prices that were significantly more than one-tenth of what Moscow claims to
be the world market price, domestic demand would droop and additional
Russian oil and gas would be placed on the international market.

Does the $47 per 1,000 cm charged to Belarus have any relationship to the
market or does the Kremlin consider it an “internal price?”  These are all
questions that need greater discussion in both Brussels and Washington.
Ukraine’s politicians, however, deserve some of the blame for the present
situation.  Kiev has allowed corrupt oligarchs to continue their control
over gas deliveries from Russia.  More damaging in the long run is the
Yushchenko Government’s lack of movement in developing a level playing
field for domestic and foreign energy investors.

Here again, a few powerful individuals, most with close ties to Russia, have
successfully kept out Western competitors. Ukraine could substantially
reduce its dependency on Russia through rapid reforms that permit open
tenders for exploration rights and by adopting a welcoming atmosphere for
legitimate foreign energy investors.

Seismic studies demonstrate that the country possesses considerable gas both
on-shore and in the Black Sea. The present government in Kiev, however,
inherited a difficult situation from the Kuchma Administration.  Fully
three-fourths of the country’s oil refining capacity is in the hands of
Russian companies.  Almost 100% of the refined product that is exported is
produced in Russian-owned companies.

All of Ukraine’s nuclear plants depend on Russian nuclear fuel rods.  Victor
Chernomyrdin, the former CEO of Gazprom, as Moscow’s ambassador to
Kiev, has been very effective at promoting Russian energy interests and at
keeping out potential Western competitors.

Instead, the cozy relationship between Russian and Ukrainian energy
interests persists, even after the New Year’s Day reduction of gas supplies.

Talk by the Yushchenko Government over the past year about diversifying
imports and stopping corruption in the energy sector has resulted in little
follow-through.  Few economists see the Odessa-Brody oil pipeline project
or the NABUCCO gas pipeline project as realistic alternatives in the short
or medium term.

A more serious, and immediate solution would be for the Yekhanurov
Government to embark on a crash program to improve energy efficiency

and to open the country’s oil and gas fields to Western investors.
Unfortunately, Ukraine’s parliamentary elections in March have resulted
in a degree of paralysis to the country’s decision makers.
                        THE WEST NEEDS TO ACT AS WELL
The West, including the EU and the US, needs to quickly re-think its energy
and non-energy policies with Russia.  The two cannot be separated.  The
world does Russia no favor by ignoring the monopoly and uncompetitive
nature of this energy relationship.

The West does have the economic and political leverage to force Russia to
become more transparent and commercial in its foreign energy policies. It
cannot allow Moscow to threaten the security of Europe, particularly the new
democracies of Central Europe, through neglect or unwillingness to face
down the new imperial mindset in the Kremlin.  -30-
Keith Smith is currently a senior associate in the Europe Program at the

Center for Strategic International Studies (CSIS), Washington, D.C.
From 2000 to 2002, he was a consultant on international energy affairs to
the Williams Company, one of America’s largest integrated energy
companies. Mr. Smith retired from the U.S. Department of State in 2000,
where his career focused primarily on European affairs.

From 1997 to 2000, he was U.S. ambassador to Lithuania. His additional
posts in Europe include Hungary (twice), Norway, and Estonia. In all three
countries, he served as acting ambassador (chargé d’affaires) for extended
periods. In addition to several other State Department assignments, he most
recently served as director of policy for Europe, senior adviser to the
deputy secretary of state for support of East European democracy (the
SEED Program), and director of area studies at the Foreign Service
Institute.  (E-mail: kssmith@csis.org)

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                            TO RUN FOR MAYOR OF KIEV

Reuters, Kiev, Ukraine, Thursday, January 19, 2006

KIEV – Former world heavyweight boxing champion Vitali Klitschko, who

backed President Viktor Yushchenko during mass “Orange Revolution”
protests, said on Thursday he would run for mayor of Ukraine’s capital

Klitschko announced his retirement last November after a leg injury
prevented him from defending his World Boxing Council (WBC) title. He

is highly popular among ordinary Ukrainians and is seen as a post-Soviet
role model for young people.

“I have prepared for this step very seriously and I am fully aware of the
responsibility,” Ukrainska Pravda, Ukraine’s leading Internet publication,
quoted him as telling reporters. “I want to become Kiev mayor because

I love my city very much and want to make life better here.”

Elections to parliament and local councils take place on March 26. The

vote is seen as the first test of enduring popularity for Yushchenko’s
administration. His first year in power was plagued by a split among
liberals who had joined forces during three weeks of street protests to help
propel him to office.

An economic slowdown has fuelled disillusion among backers of the
revolution, now split into rival camps accusing each other of corruption.

Klitschko, 34, is already running in the parliamentary election on the
ticket of a coalition grouping economic liberals and activists who backed
the revolution. The ex-champion said the mayor’s job was more important.

He pledged to fight corruption and use his international contacts to boost
Kiev’s prosperity.

Klitschko will be challenging incumbent Oleksander Omelchenko, 68, who

has run Kiev for nearly 10 years. Omelchenko backed Vitaly and his younger
bother Vladimir in the early stages of their boxing careers.

Klitschko, who holds a PhD in sports science, made his professional boxing
debut in 1996 and won the WBC title in April 2004 by defeating South

African Corrie Sanders. He had 35 wins in 37 fights before his retirement.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    Denis O’Brien completes acquisition of Radio Apelsin and Nashe Radio

Emmet Oliver, Irish Times, Dublin, Ireland, Wednesday, Jan 18, 2006

Denis O’Brien’s Communicorp Group has bought two radio stations in the
Ukraine for an undisclosed sum. The group already owns 31 commercial

radio stations in six European countries, including 98FM and Spin 102.6 in
Dublin. Communicorp is 100 per cent owned by Denis O’Brien.

A statement yesterday said the group had completed the acquisition of

Radio Apelsin, a local radio station in Kiev. It also acquired Nashe Radio,
a national station based in the Ukraine. The second station is believed to
have been the more expensive.

To purchase Radio Apelsin, Communicorp bought out the Ukrainian

company operating the channel, TRK Divosvit. It also purchased all
shares in ZAT Nashe Radio, which operates the other station.

Nashe Radio is the leading commercial radio network in Ukraine with a
listenership of 30 per cent in a population of more than 47 million. The
station broadcasts a mix of Ukrainian pop and rock music, news and
entertainment, targeting a 25- to 45-year-old audience through a network

of 29 transmitters nationwide. It has a licence until 2012. Radio Apelsin
broadcasts a youth-oriented contemporary pop music format, targeting
18- to 32-year-old listeners.

The Ukrainian advertising market is expected to grow at rates above the
European average over the next few years, said Communicorp. Closer ties

to the EU would also help, it said.

Lucy Gaffney, chairwoman of Communicorp, said: “This acquisition is the
latest in our long-term strategy to become one of the leading radio
operators in Europe. The radio stations we are acquiring have an excellent
technical infrastructure, strong market positions and very good local
management. We will assist these stations to grow further by providing local
management support from our international programming and advertising sales

Communicorp bought Apelsin from two corporate shareholders, one of which

is a leading Ukrainian publishing group. It has acquired Nashe Radio from a
number of corporate and individual shareholders, one of which is Alfabank

The last major deal by Communicorp outside Ireland was its 2004 purchase

of Metromedia International, a company with radio interests in Bulgaria, the
Czech Republic, Estonia, Finland and Hungary. It was reported at the time
the purchase price was $14.25 million.

Recently Mr O’Brien spent nearly 56.5 million buying a 3 per cent stake in
Independent News & Media, the company run and partly-owned by his
long-standing business rival, Sir Anthony O’Reilly.  Mr O’Brien acquired
22.6 million shares in the publishing group.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

         German company VW acquired Skoda in 1991, has invested heavily

By Katka Krosnar in Prague, Financial Times
London, United Kingdom, Monday, January 16 2006

PRAGUE – Skoda, Czech carmaker, is launching an ambitious production

drive in foreign markets, ultimately aimed at selling 1m vehicles a year,
according to Detlef Wittig, chairman.

By 2008, Skoda plans a 20 per cent rise in output from the 494,000 units

in 2005. “Our immediate target is to reach 600,000 cars annually within the
next two years. If all goes well we could reach 1m units in future,” Mr
Wittig told the FT.

Much of that growth will come from expanding production abroad. Skoda,

owned by Volkswagen, is increasing production at its plants in Ukraine,
Bosnia and India and most recently, Kazakhstan.

A Skoda production line at VW Shanghai is due to launch in 2007 and the
carmaker will launch a joint venture with its parent company at a new plant
near Moscow.

“Russia, India and China are the main potential growth markets for us. To

go to these markets, we have to assemble or produce in these locations; it’s
certainly not a case of shifting production eastwards. If you are going
global you have to have a multinational setup,” Mr Wittig said, highlighting
significant savings in import taxes by manufacturing in Russia.

Initially the new Moscow plant will assemble Skoda Octavias, gradually
expanding to other Skoda and VW models. According to Mr Wittig, Skoda

has a key role to play within the VW group in helping to enter new markets.

“Skoda is paving the way and opening markets in the former Soviet bloc that
are closer to Skoda, not only geographically but also in terms of mentality.
Skoda is our ice breaker and VW can then follow,” he said.

At the same time the bulk of production remains in the Czech Republic, said
Mr Wittig, emphasising that local production levels were also rising.

It’s all a long way from the day VW acquired Skoda in 1991. Since then the
German company has invested heavily into equipment, improving quality and
productivity and daily output has risen three-fold.

Last year Skoda reached two significant milestones; the 100th anniversary of
car production and the fifth millionth car output since the entrance of VW.

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    Send in names and e-mail addresses for the AUR distribution list.
       Unlikely to take up measures before March parliamentary election

Associated Press, Kiev, Ukraine, Wed, January 18, 2006 .

KIEV – The Ukraine parliament Wednesday refused to consider another
series of bills needed for the country to join the World Trade Organization,
making it unlikely the measures will be taken up before the March
parliamentary election.

President Viktor Yushchenko had initially pledged to take this ex-Soviet
republic into the WTO by the end of last year, but the government
repeatedly failed to win support among lawmakers for changes needed to
legislation covering the banking, metals and cattle export sectors.

The latest setback means that WTO membership is likely to be pushed
further off the agenda as parliament begins a break Friday. After the
March 26 election, the new lawmakers are likely to be occupied initially
with coalition talks, which will lead to the formation of the new

Parliament’s opposition to WTO entry has largely come from opposition
parties, whose support base covers large business interests in eastern
Ukraine, and the Communists. Some lawmakers fear admission will put
Ukrainian industry and farmers at a disadvantage, and say the government’s
impatience to join before its main trading partner, Russia, does has
prompted it to make too many concessions.

Yushchenko, meanwhile, has argued that this nation of 48 million cannot
afford to be outside the world’s biggest trading body, and has promised
that it will bring the country significant economic gains. -30-

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

Ukrainian Federation of America (UFA)
Philadelphia, Pennsylvania, Wednesday, January 18, 2006

PHILADELPHIA – In December 2005, the Ukrainian Federation of America
(UFA) led a delegation to Kyiv, to meet with Ukraine’s First Lady Kateryna
Yushchenko, the Ukrainian Ministry of Health and representatives of Fund

This was the second in a series of meetings to develop Project Lifeline
which focuses on aiding Ukrainian national development and alleviating the
health crisis facing Ukraine today.

The initial organizational meeting with the First Lady took place in
Philadelphia in September 2005, establishing the framework for the project.
Designed in seven facets, Project Lifeline is a multi-phase, multi-

discipline approach to some of the daunting issues facing Ukraine today.

Project Lifeline will be focused in the following fields:
   [1] The Teleconference Educational and Informational Network (TEIN)
   [2] The Family Medicine and Preventive Medicine
   [3] The safe collection, storage and transfusion of blood products
   [4] The Hospital to Hospital Professional Training and Health
         Institutional Cooperation Program
   [5] Developing the fields of Social Services and Human Resources
   [6] The Data Base Information System (DBIS)
   [7]The Professional Support Program

Participants of the Ukrainian Federation’s Project Lifeline include:
   [1] Safe Blood International
   [2] The World Hemophilia Foundation
   [3] The World Aids Foundation
   [4] Global AID Access
            This organization coordinates the efforts and donations of
             Pharmaceutical companies producing anti HIV/AIDS medications.
   [5] Adolescent HIV/AIDS Unit (Children’s Hospital of Philadelphia)

   [6] Hematology/Oncology Department (Children’s Hospital of Philadelphia)
   [7] Novo Nordisk
   [8] Novartis
   [9] Baxter Healthcare
   [10] Professional Care Options
          This organization develops educational internet and tele-
          conferencing programs for physician and other health 
   [11] American International Health Alliance
   [12] The World Federation of Ukrainian Medical Associations
   [13] Federal Public Health Laboratories
   [14] The Bill and Melinda Gates Foundation

Also many other institutions, foundations and individuals. Having

completed the planning phase of this project, the first working meeting
will take place in spring 2006 in Kyiv, Ukraine.  -30-
CONTACT: Dr. Zenia Chernyk, Ukrainian Federation of America,
930 Henrietta Avenue, Huntingdon Valley, PA 19006, 215 275 7902.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
7.                         DEATH AND THE DONETSK MINER

By Francesca Mereu, Staff Writer, Moscow Times, Wed, Jan 11, 2006

DONETSK, Ukraine — When the drill reached the methane pocket more than
500 meters underground, a large flame lit up the pitch-dark coal mine,
raising a cloud of steam and dust and coming within a whisker of the miners.

“The heat singed our faces, but fortunately it disappeared as quickly as
it came,” said Dmitry, 47, who works in one of Donetsk’s state-owned coal
mines. “I felt death caressing me, but for the first time in my life I
welcomed the uncertainty. We looked at each other. We cried for joy, we

were alive.”

In the mines, methane is an ever-present danger, and Dmitry said that when
the drill was switched off, miners heard the gas hissing. “The gas
concentrates in air pockets, or between the fissures of the coal. As it’s
lighter than air, it’s extremely explosive,” Dmitry said, looking at the
bruises left by the explosion on his calloused hands.

Dmitry and the other miners with him escaped with just a few burns and a
lot of stress, but said they were determined to keep working. They earn $200
per month.

“I thought that I was going to die — or worse, that I would be injured
and not be able to go to work again. I need the money to feed my family,”
Dmitry said.

Dmitry asked that his last name and the name of the mine where he works in
Donetsk not be published, saying he was afraid he could lose his job.

The 450,000 miners who work in Ukraine’s official coal industry have some
safety protection, unlike their counterparts who work in the country’s
illegal mines, but it is still poor. Their lives depend on good ventilation
systems that pump out the deadly methane, but numerous safety violations,
negligence and worn-out equipment make the Ukrainian mining industry one

of the world’s most dangerous after China.

According to Mykhailo Volynets, the head of the country’s Confederation of
Trade Unions and a member of the parliament’s energy committee, more than

75 percent of the country’s 200 coal mines are classified as dangerous. Since
1991, about 4,300 miners have been killed in mining accidents in the

Ukraine’s coal industry, which has been in a critical state since the
Soviet collapse, survives mainly due to subsidies from Kiev, despite having
reserves of 37 billion tons. Subsidies in 2003 and 2004 totaled $2 billion
but were insufficient to maintain safety standards.

In November, President Viktor Yushchenko said some state-owned mines

would be privatized this year as part of an $800 million rescue plan. The
Donetsk miners, however, said the money would not be enough.

Dmitry, with dozens of others from his mine, went to a rally in Kiev in
October to demand more investment in the industry. “We tried to make our
voices heard, but Kiev doesn’t care about what happens in our region,” he

The industry suffers from extremely low productivity, according to the
World Bank. Under a 1996 World Bank-funded program to reform the coal
industry, many of the country’s profitable mines were privatized, but the
result was dozens of mine closures and mass unemployment in many areas.

“The program should have restored order in the industry and helped the
country to privatize the mines, but more than 50 mines were closed and the
money just disappeared in the pockets of our bureaucrats in charge of the
restructuring,” said Svetlana Samoilyuk, an expert with the Association of
Donbass Mining Cities, a nonprofit lobby group.

According to the World Bank, the $14 million allocated for the creation of
new jobs for former miners was misused.

“According to the program, Ukraine should have created stock companies

and the miners should have been given shares in the industry, but this never
happened,” Samoilyuk said. “People were left with nothing.” As a result,
Volynets said, most mines are now outdated, and prospective private buyers
are scarce.

“Reforming the mines is one of the main problems faced by Yushchenko. The
government cannot close them, since unemployment would soar, but it cannot
keep them all open, either,” one government official said, on condition of
anonymity. “The mines just keep swallowing money.”

Dmitry said that he did not like his job, but that after 27 years of
digging coal, he had few prospects in Donetsk.

“I know I put my life in danger every day I go down the mine, but I have
no choice,” he said. “I’d be very unlikely to find anything else.” -30-

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

By Kester Eddy, Financial Times, London, UK, Sun, Jan 15 2006

Ask old hands at the International Management Institute, MIM Kiev, in
Ukraine, about the changes at the school since it first opened in 1989 and
they tell a story of a US professor, who began one of his first classes by
asking questions. The students, steeped in the Soviet “professor speaks,
class listens” tradition, were unimpressed.

“We came to listen to him, and he asks us questions. Why do we have to
pay for this?” was the indignant response. Such a reaction was probably the
least of the many challenges that faced what was then the Soviet Union’s
first western-style management school.

Yuri Poluneev, who helped create that first MBA programme, admits that it
was very much a pioneering experience. “Back then nobody, myself included,
knew what an MBA was about,” Prof Poluneev says, although he is quick to
point out that the school has come a long way since then.

Indeed, with a full-time faculty of 26 professors and 1,500 MBA alumni –
many of whom are now captains of commerce and industry in Ukraine –

MIM has a strong claim as leader of the pack in the country’s management
education sector.

Prof Poluneev has also come a long way since leaving MIM in 1992. After a
variety of consultancy roles, followed by a decade with the European Bank
for Reconstruction and Development, he returned to the school at the
beginning of the year, this time as its head.

“The leadership [of MIM] has turned it into a major business education
establishment. My main challenges are first to maintain what has been
achieved and to take MIM to a higher standing,” he says. Clearly the school
owes much to his predecessor, Bohdan Budzan, who was at the helm for the
past eight years, during which time MIM has seen an expansion in educational
and research programmes, faculty development and international co-operation.

“During my tenure 30 per cent of the staff changed,” says Prof Budzan.
“Younger faculty were hired and new visiting professors invited to teach.
New policies, including higher salaries and better possibilities of
professional and personal development, with study periods and joint
research projects at foreign business schools [underpinned this],” he adds.

Meanwhile MIM became a member of the Brussels-based European
Foundation for Management Development and of the Central and East
European Management Development Association, gaining Ceeman’s IQA
accreditation in 2004.

One of the school’s most significant achievements has been the project to
finance and construct MIM’s own building, a mission completed last May.
The result is a $3m, five-storey complex, conveniently located for public
transport in the western suburbs of Kiev.

Although a private investment fund provided the bulk of the financing, about
one-third of the total was from donations, with a significant sum raised
locally – another innovation, since during the Soviet era the concept of
individual charity was effectively eliminated.

“We had to create a culture of fund-raising. Now we have a lot of
organisations and students who gave us money, but this was not normal.
People ask me how to do it,” says Prof Budzan.

But rather than the spanking new school building, it is MIM Kiev’s emphasis
on ethics and corporate governance that may ultimately have a more
far-reaching influence on Ukraine society, however intangible it may seem

The school emphasises an ethical approach to business as one of its key
goals, which is one of the attractions of MIM to many students. It is an
emphasis that begins on the first day students attend the school.

“In the Soviet system, it was not difficult to pass exams, if you gave money
[but] this has never happened in our institute and people know it,” Prof
Budzan insists.

Rather than run separate programmes on ethics, MIM designs its courses so
that the topic is repeatedly covered across the spectrum of subjects, often
supported with local case studies.

“You can’t tell your kids ‘You must be honest!’ You have to show them why –
do it in courses, in your discussion,” says Lina Khassan-Bek, programme
director at MIM.

“From the very beginning in all our courses, in all our programmes, we begin
with [the concept of] openness, transparency and responsibility to all
stakeholders because [ultimately] it is in their own interest, either just
to understand their own financial situation, or if they want to raise cash
through the capital markets,” says Prof Khassan-Bek.

“Our goal is to change people’s understanding in the right way, which is in
our view [through] corporate social responsibility, to all employees and
shareholders, not only to make profit. Yes, they want to make a profit, but
they have to understand their wider role in society,” she adds.

This is particularly true of the majority of MIM’s students, many of whom
are in their mid-30s, running their own companies, but who have reached a
plateau. “These people do not need a degree. They came to MIM because
they want to grow but don’t know how,” says Prof Khassan-Bek.

Prof Poluneev plans to understand MIM’s current strengths and weaknesses
before making any changes, which will have to be in line with a longer-term

He is, however, keen to counter growing competition from “younger, more
aggressive and more dynamic” business schools, and prepare managers for
the challenges facing Ukraine’s economy, which has so far remained largely

His vision is to turn MIM into a leading business school in eastern Europe,
with its own distinctive “face”, which he believes may lie in developing a
strong analytical, research and teaching base in competitiveness strategies
for the country, municipal and corporate sectors.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

           Says there is a stepped up anti-Semitic propaganda campaign

AP Worldstream, Kiev, Ukraine, Wednesday, Jan 18, 2006

KIEV – A Jewish leader on Wednesday called on the Ukrainian government
to condemn the use of anti-Semitic rhetoric in campaigning ahead of March
parliamentary elections, saying it was being used to whip up support by at
least one minor political party.

“If before it was modest, now it is open and very obvious,” said Vadim
Rabynovich, head of the All-Ukrainian Jewish Congress.

He said the Conservative Party and its leader, Heorhiy Shchokin, had stepped
up the anti-Semitic propaganda in recent weeks in their newsletter, which is
distributed across this former Soviet nation of 48 million.

In the fall, many in Ukraine’s Jewish community, which numbers about
100,000 people, expressed alarm about growing signs of anti-Semitism and
some high-profile attacks on Jews, including the beating a rabbi and his
14-year-old son. Police routinely classify such attacks as hooliganism,
denying any religious undertones.

Hundreds of thousands of Jews were killed in Ukraine over the centuries in
pogroms staged by nationalists, and millions died during the Holocaust.

Shchokin, who is also head of Ukraine’s Interregional Academy of Personnel
Management [MAUP], has long been a controversial figure in Ukraine for his
comments against Jews and Israel. His university also came under fire for
hosting former Ku Klux Klan leader David Duke as a visiting lecturer.

In December, President Viktor Yushchenko condemned the university for
the anti-Semitic tone of its publications. No one answered the phone at
Shchokin’s party headquarters Wednesday.

Rabynovich appealed to the Ministry of Justice to strip the party’s
registration, but was rebuffed. The Jewish Congress filed a lawsuit against
the ministry, accusing it of failing to act, and is appealing to other
government bodies to take action, Rabynovich said.

The Conservative Party “is leading an unprecedented propaganda campaign
to whip up … hatred not only against Jews but against other ethnic groups
living in Ukraine,” Rabynovich said. “We have a basis to be concerned.”
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

                            RUSSIA OVER BLACK SEA FLEET
Mara D. Bellaby, Associated Press, Kyiv, Ukraine, Tue, Jan 17, 2006
KYIV – Ukraine’s defence minister signalled Tuesday that Kyiv might
charge fourfold the price for Russia to base its Black Sea Fleet in a
Ukrainian port, a move that would further sour relations between
Moscow and the Western-leaning former Soviet republic.

“If in the very important energy sector . . . relations have moved from the
category of ‘brotherly’ to the category of ‘fair market,’ it’s fully logical
to consider that such a step will be carried out in other sectors of
Ukrainian-Russian relations,” Defence Minister Anatoliy Gritsenko said in

an interview in Ukraine’s Kommersant newspaper published Tuesday.

Energy-dependant Ukraine earlier this month agreed to pay nearly double the
price for gas imported from Russia and Central Asia after a bitter price
dispute over Russian demands for an immediate end to gas subsidies left

over from Soviet days enjoyed by Kyiv.

The spat prompted Ukraine, whose reformist President Viktor Yushchenko

has set the goal of joining NATO and the European Union, to review the status
of the Russian Black Sea Fleet based in the Crimean port of Sevastopol.

Gritsenko said it is “fully possible” that the price Russia pays for its
Crimean peninsula base, which provides the Russian navy with access to the
Mediterranean, could jump to $400 million US.

“Crimea is a vacation zone, demand for land is huge and supply is limited,”
Gritsenko was quoted as saying.

Adding further pressure, Ukraine is making an inventory of all Ukrainian
property being used by the Black Sea Fleet, some of which Kyiv believes is
occupied by Russia in violation of bilateral accords.

Ukrainian and Russian officials are to meet on Feb. 16 to discuss the
problem, said Security Council chief Anatoliy Kinakh.

Under a 1997 agreement, Russia and Ukraine divided the Soviet Black Sea
Fleet. The Russian navy was allowed to remain in the Sevastopol port until
2017, charged an annual rent of $93 million.

Ties between Moscow and Kyiv have been increasingly tense under Yushchenko,
who has tried to shake off Russian influence since he came to power early
last year. The latest dispute has centred on a Ukrainian lighthouse that the
Black Sea Fleet uses for navigation.

Russia accused Ukraine of attempting to seize the lighthouse last week.
Ukraine’s Foreign Ministry has countered that Russia had no right to control
access, and on Tuesday, it accused them of boosting security around some

of the sites on the Crimean coast.
Russian Defence Minister Sergei Ivanov said Tuesday that Russian security
personnel have complete authority to defend all fleet facilities, the
Interfax news agency reported.

Foreign Minister Sergey Lavrov also accused Ukraine of sending mixed signals
about the seizure of the lighthouse, comparing Ukrainian Foreign Ministry
position with what he said was an explanation from Yushchenko’s office
calling the move a provocation possibly carried out by activist youths. “It
is hard for us to understand who is behind this and who is speaking for
Ukraine,” Lavrov said.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

                       Applications must be in by January 30, 2006

The Kennan Institute, Washington, D.C., Wednesday, January 18, 2006

WASHINGTON – The Kennan Institute, Washington, D.C. has announced a

new series of research workshops on “Democracy and Civil Society in Ukraine.”
Among the most surprising aspects of Ukraine’s 2004 “Orange Revolution” was
the role played by citizen groups and individuals. The deadline for
submission of application materials for this workshop has been extended to
January 30, 2006.

The protests in Kyiv and the reaction to them in pro-government strongholds
revealed the foundations of a powerful civil society, where new
configurations of social groups, associations, and networks of affiliations
based on shared values were in evidence on a broad scale.

For Ukraine, the central question is whether this civil society can be
sustained and strengthened, so that it might become an ongoing means of
channeling societal interests and checking government power. The matter is
complicated by the fact that Ukraine is undergoing substantial institutional
reform, both in the distribution of power between executive and legislature,
and in the laws for electing the parliament.

The case of Ukraine also raises questions about the other countries in the
region, and this project will attempt to link the study of the Ukrainian
case to broader questions relevant to the entire region. The Kennan
Institute proposes to convene a workshop series that will bring together
approximately twelve practitioners, policymakers, and scholars from various
disciplines who study the emergence of civil society in Ukraine, and the
implications of that development for Ukraine and the entire region.

The Workshop Series is designed to serve as a forum in which scholars from

a variety of disciplines can discuss the different aspects of democracy and
civil society, share research findings, and suggest policy recommendations.
Participants in the series will explore the ways in which policymakers and
practitioners can utilize the specialized knowledge of academics, while
scholars, in turn, can recognize how policy affects their field. The
workshop series will be directed by Paul D’Anieri (University of Kansas).

The series will consist of two meetings and target specialists with recent
field experience. The first meeting will be held May 5-6, 2006, and will
serve as a forum for participants to present their current research. The
second will be held October 12-14, 2006.

It is planned to be held in Ottawa in conjunction with the Chair of
Ukrainian Studies at the University of Ottawa. Participants will be expected
to contribute an original submission to a collection of papers on common

Selection for the workshop series will be based on an open national
competition. Participation in the series is open to U.S. junior scholars at
the post-doctoral level (pre-tenure) and to Ph.D. candidates who have
completed field research for their dissertations.

For non-academics, an equivalent degree of professional achievement is
expected. Eligibility is limited to U.S. citizens and permanent residents.
The workshop series is interdisciplinary. Any area of social science or
humanities research that focuses on issues of democracy and civil society in
Ukraine is welcome. Per diem costs and travel support for participants will
be provided by the Kennan Institute.

Interested applicants should submit an abstract (fewer than 1000 words) of
their current research, a current CV, and two letters of recommendation.
Abstracts and resumes may be sent by email to: kennan@wilsoncenter.org,

or by mail to: Democracy and Civil Society in Ukraine Workshop, Kennan
Institute/Woodrow Wilson Center, One Woodrow Wilson Plaza, 1300
Pennsylvania Ave., NW, Washington, DC 20004-3027.

Recommendation letters must be sent by mail. All application materials must
be in English. The deadline for submission of application materials for this
workshop has been extended to January 30, 2006.

The “Democracy and Civil Society in Ukraine” Workshop Series is

supported by the Program of Research and Training on Eastern Europe
and the Independent States of the Former Soviet Union (Title VIII) and
the George F. Kennan Fund.

For further information, please contact Erin Hofmann at 202-691-4132 or
Erin.Hofmann@wilsoncenter.org.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

    If you are receiving more than one copy of the AUR please contact us.
Selina Williams, Dow Jones Newswires, Kiev, Ukraine, Thu Jan 19, 2006 

KIEV – Ukrainian state oil and gas company Naftogaz (NGAZ.YY) is to

sign documents Saturday setting up a joint venture with RosUkrEnergo to
handle domestic gas deliveries, a Naftogaz spokesman said Thursday.

The joint venture, which will be called Gaztransit, solidifies the
controversial Russian-Ukrainian gas deal signed at the beginning of the year
that doubles Ukraine’s domestic gas prices. “The signing is due to take
place Saturday,” the spokesman said.

RosUkrEnergo is 50% owned by Russia’s gas monopoly Gazprom

(GSPBEX.RS) and 50% owned by a Swiss subsidiary of Austria’s
Raiffeisen Bank (RIBH.VI) [on behalf of unidentified investors].

Earlier this week, a senior Naftogaz official said the company was still
interested in buying Raiffeisen’s stake in RosUkrEnergo. Last summer
Naftogaz had approached Raiffeisen about acquiring the holding but no

answer was received. No further negotiations had taken place.

Under the Russian-Ukrainian gas deal, Gazprom will sell gas to

RosUkrEnergo for the same price it had demanded Ukraine pay beginning
Jan. 1 – $230 a 1,000 cubic meters. Ukraine will then buy gas from the
company for $95, nearly twice what it had previously been paying Gazprom.
Selina Williams, Dow Jones Newswires; selina.williams@dowjones.com
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
             Send in a letter-to-the-editor today. Let us hear from you.
To lose several billions of dollars to mysterious co-owners of RosUkrEnergo

Ren TV, Moscow, in Russian 2030 gmt 17 Jan 06
BBC Monitoring Service, UK, in English, Thursday, Jan 19, 2006

MOSCOW – [Presenter] One of the main financial news that came today was

the decision by Gazprom to buy a 50-per cent stake in the Swiss-based
intermediary RosUkrEnergo [a gas trader that emerged as the sole supplier to
Ukraine as a result of the 4 January Russian-Ukrainian compromise agreement]
from Gazprombank [Gazprom’s banking subsidiary]. If the plan comes into
effect, the gas monopoly will lose several billions of dollars to mysterious
co-owners of RosUkrEnergo.

Dresdner Bank, which is Gazprom’s long-standing business partner [and is in
the process of acquiring 33 per cent of Gazprombank] will also receive good
money, about 1bn dollars. It was this German bank which advised Gazprom to
participate in the scandalous auction for [Yukos’s main production asset]
Yuganskneftegaz in 2004. Irina Stolyarova has more.

[Correspondent] The Gazprom decision to buy Gazprombank’s share in
RosUkrEnergo came at least two weeks late. Before 4 January, when Moscow

and Kiev signed the gas agreement, the Swiss company was twice as cheap as
now. But Gazprom officials emphasize that the deal will be based on market

Meanwhile, experts say that there would be less fuss around the deal if the
stake in RosUkrEnergo were transferred from the banking subsidiary directly
onto the books of Gazprom itself.

[Dmitriy Lukashov, captioned as analyst of the Aton investment company] In
fact, Gazprom is buying at a high price an asset the whole value of which
was created by Gazprom itself [by means of signing an agreement making
RosUkrEnergo an intermediary in gas trade with Ukraine]. All this was
withdrawn from Gazprom.

Gazprom is actually buying its own property and giving away big money to its
daughter company [Gazprombank]. Moreover, they say that five or six billion
dollars [for a 50-per-cent stake in RosUkrEnergo] is a market price, but, to
my mind, it’s unreasonable.

[Correspondent] This is not the first time that Gazprom has paid too much.
According to experts’ estimates, the sum of 13bn dollars which the [gas]
monopoly paid for [a 72.6-per-cent stake in Roman Abramovich’s] Sibneft [oil
company] exceeded the real price two-fold or 2.5-fold.

There is a risk that after the purchase of RosUkrEnergo Gazprom will lose
even more billions of dollars since Turkmenistan leader [Saparmyrat] Nyyazow
has announced his intention to raise the price for Turkmen gas by one-third
starting from the third quarter of 2006.

[Vladimir Milov, captioned as president of the Institute of Energy Policy]
If the agreement establishing a fixed price [of 95 dollars per 1,000 cu.m.]
for gas supplied to Ukraine [by RosUkrEnergo] is not revised, this company
will lose value. It will make losses, because it made an agreement with
Ukraine assuming that the price for Turkmen gas [to be re-sold to Ukraine by
RosUkrEnergo] would be lower than that emerging as a result of Nyyazow’s

new demands.

[Correspondent] Gazprom would have to increase the price for Turkmen gas
supplied to Ukraine in order to avoid financial losses. It was very hard for
Moscow and Kiev to negotiate the price of 95 dollars. Now experts admit that
the five-year agreement may stay in force for no longer than a year.

But the beneficiaries of RosUkrEnergo will not be troubled by that. In two
years, they will make about 3bn dollars just from nothing.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Alex Nicholson, AP Worldstream, Moscow, Russia, Tue, Jan 17, 2006

MOSCOW – Russia’s natural gas monopoly Gazprom will take direct control

of a 50 percent stake in a gas trader that emerged as the sole supplier to
Ukraine after a bitter price fight, company officials said.

Deputy CEO Alexander Medvedev said late Monday that the 50 percent stake

in RosUkrEnergo would be transferred from Gazprom’s banking subsidiary
directly onto the books of the gas giant itself, in a move aimed at clarifying
Russia’s role in the trader.

Both Medvedev and Gazprom board member Boris Fyodorov said that the

decision had been made to avoid confusion over who owns the stake, given
that Germany’s Dresdner Bank AG is in the process of acquiring 33 percent
of the Gazprombank subsidiary.

“It would be a little bit strange if such important questions as relations
between Russia and Ukraine sat on the balance sheet of a somewhat foreign
bank,” Fyodorov told Ekho Moskvy radio Tuesday. The change would

eliminate suspicions of “games behind the curtains,” he said.

Over the weekend, Gazprom CEO Alexei Miller urged Ukraine’s Naftogaz

Ukrainy to improve transparency at RosUkrEnergo by taking ownership of
the remaining 50 percent, which is held nominally by Austria’s Raiffeisen
Investment AG on behalf of unidentified beneficiaries.

Naftogaz head Oleksiy Ivchenko told reporters in Kiev that his company had
approached Raiffeisen with an offer for the stake, but had yet receive an

“We … had talks with Raiffeisen officials, and they said they would
consider the issue, but we still have no official reply,” he said.
RosUkrEnergo emerged as the exclusive importer of natural gas to Ukraine
earlier this month under an agreement ending a pricing standoff between
Russia and Ukraine.

Under the deal, RosUkrEnergo will initially sell gas to Ukraine at US$95
(A78) for 1,000 cubic meters of what is billed as a blend between Russian
gas and cheaper Central Asian gas. The price will be re-examined

Despite the lack of clarity about who owns the RosUkrEnergo stake held by
Raiffeisen, Russian Foreign Minister Sergey Lavrov said Tuesday that the
deal makes Russian gas trade with Ukraine more transparent and the delivery
of Russian gas to Europe more reliable.

Gazprom halted gas deliveries to Ukraine during the dispute, briefly
affecting supplies to Europe and raising concern in the West that Russia’s
political battles were undermining its reliability as an energy source.

Lavrov shrugged off Western criticism of Moscow’s conduct during the
dispute, saying a sharp increase in the price of Gazprom stock showed that
the world was pleased with the agreement. “Simply put, the market reacted,”
he said.

He said the deal with Ukraine makes supplies to Europe more secure because
it is to remain in force for five years and separates deliveries to Ukraine
and transit of Russian gas to Europe via Ukraine into two distinct

Along with Russia’s growing capacity to deliver natural gas though pipelines
that don’t cross Ukraine, “all this significantly increases the certainty
among Europeans that there will be no interruptions in supplies of gas from
Russia,” he said.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Tatiana Serafin, Forbes, NY, NY, Friday, Jan 13, 2006

The recent gas debacle that exposed Ukrainian and European vulnerabilities
to Russian gas supplies has left many questioning who is behind the
mysterious Rosukrenergo.

One half belongs to Russian state-owned gas company Gazprom, but it’s
the other half that has the public guessing. Raiffeisen Investment AG, a
subsidiary of Austria’s Raiffeisen Zentralbank, on paper holds the remaining
shares, and acts as custodian for a group of international investors.

Experts are now alleging that Ukraine’s controversial billionaires, Victor
Pinchuk and Rinat Akhmetov, may be part of the consortium.

Back in June 2005, as part of a criminal case launched against Rosukrenergo,
the former head of Ukraine’s Security Service, Alexander Turchinov, stated
the a part of the non-Russian shares of RUE were controlled personally by
former President Leonid Kuchma and former Prime Minister Victor
Yanukovich, and that the managers of the shares were respectively,
Pinchuk and Akhmetov.

The billionaires supported Yanukovich in his losing bid against now
President Victor Yushchenko. Turchinov later said that Kuchma and
Yanukovich had resold their shares to Gazprom, but also indicted he had
information that the shares were resold to their managers via Cyprus,
Hungarian and Swiss offshore entities. The investigation abruptly ended
in mid-August 2005 and Turchinov was removed from his post.

Pinchuk and Akhmetov may want to keep a low profile after a tough year:
Their joint asset, Kryvorizhstal, was renationalized and sold to Mittal
Steel (nyse: MT – news – people ) and other assets were threatened by the
crusading Prime Minister Yulia Timoshenko before she was sacked.

This week, in a televised interview, Ukrainian Prime Minister Yuriy
Yekhanurov, who suffered a stinging parliamentary backlash, stated, “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 added that no Ukrainian
business interests were represented in Rosukrenergo.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

                              TO SELL GAS TO UKRAINE

Argumenty i Fakty, Moscow, in Russian 17 Jan 06
BBC Monitoring Service, UK, in English, Thu, Jan 19, 2006

MOSCOW – [Reader’s question] Why does one need the RosUkrEnergo

mediator in order to sell gas to Ukraine? In order to steal money?

Analyst Mikhail Leontyev replies: “The new mediatory company performs
several functions. Since we have an abnormal partner, something may go

wrong any moment. When the partner is normal, no mediator is needed –
after all, Russia has not got mediators when selling gas to Hungary or

RosUkrEnergo has been instructed to set up another joint venture [JV] with
Ukraine’s Naftohaz [Ukrayiny] [Ukrainian national oil and gas company].

This JV will be the last stage in selling gas to the consumer. Why?

The company will have its own volumes of gas left that it will be able to
sell for its own prices. Finally, it is a way of ensuring participation in
the neighbour’s pipeline system.”

And this is how director of the US research group East European Gas

Analysis Mikhail Korchemkin replies to the reader’s question: “In principle,
Gazprom can do without intermediaries. But in this case the imports and
exports of gas would have been subject to customs duties – in the range of
35 per cent in total. RosUkrEnergo, being a foreign company, is exempt
from payment for the transit of gas.

One thing is unclear though: Why didn’t Gazprom choose one of its
100-per-cent foreign subsidiaries (let us remind you that only 50 per cent
of RosUkrEnergo belong to Gazprom)?

In that case the mediator would have made no profit since all the profit
would have gone to Russia. In the case of RosUkrEnergo a lion’s share of
profit goes to Switzerland. It is worth recalling that last year the company
made money by buying Russian gas and reselling it to Europe.”

[Fact file] The RosUkrEnergo company of the Gazprom open joint-stock

company is registered in Switzerland. Gazprom owns half of its shares,
the other 50 per cent formerly belong to the Austrian banking group
Raiffeisen Investment. It is not clear whose interests it represents.

According to some information, this package belongs to Ukrainian
businessmen, but prominent economist [Sergey] Aleksashenko believes that
these are people linked to Gazprom. Representatives of Raiffeisen promised
to make public the owners’ names in 12- or 18-months’ time. Meanwhile,
Naftohaz Ukrayiny offered the Austrians to buy 50 per cent of RosUkrEnergo.
So far there has been no reply.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                  Old guard uses gas to take revenge in Ukraine elections

Eurasia Daily Monitor, Volume 3, Issue 13
Jamestown Foundation, Washington, DC, Thu, Jan 19, 2006

Following the Parliament of Ukraine’s no confidence vote against the
government of Prime Minister Viktor Yushchenko, (see EDM, January 11),

it is still unclear who will be emerge as frontrunners in coming
elections-Yushchenko, or the Orange (Yulia Tymoshenko) and blue (Viktor
Yanukovych) opposition. The ratings of Regions of Ukraine had already been
steadily rising since the Orange camp imploded in early September (see EDM,
September 9, 2005).

Central to this issue is whether the new January 4 gas contract with Russia
was a “victory” or a “defeat” for Ukraine. Ukrainian leaders had been
expecting a gas price rise from the 2003 agreed price of $50 per 1,000 cubic
meters to $110-120, the price charged to other post-Soviet states, excluding
Belarus. The final agreed price was $95 for 6 months. The price after that
cannot be changed unilaterally by either side.

Most of the critical focus has been on the intermediary Rosukrenergo that
Russia insisted should be involved. Rosukrenergo, replacing Eural-Trans Gas,
was created in July 2004 by Presidents Vladimir Putin and Leonid Kuchma.

A parliamentary vote on January 13 was supported by 280 deputies to
investigate Rosukrenergo, its investors and if the organized crime leader
Semyon Mogilevich was involved (rada.org.ua). The vote was supported by

the former Kuchma camp, Tymoshenko bloc and the Communists.

It is supremely ironic that the investigation was supported by former Kuchma
factions who backed the creation of the non-transparent Rosukrenergo in
2004. The anonymous Ukrainian businessmen who control half of

Rosukrenergo were appointed at that time and therefore are also from the
former Kuchma camp.

It is also ironic that the Tymoshenko bloc has criticized the use of an
intermediary. As Prime Minister she lobbied for Rosukrenergo to be replaced
by her favorite intermediary Itera, which had been edged out by Eural Trans
Gas in 2003.

The Ukrainian businessmen have adopted a  practice of investors remaining
anonymous by using banks or legal firms as a cover. Evidence proving this is
a criminal or corrupt relationship is unavailable.

Both Regions of Ukraine and the Tymoshenko bloc, according to the Russian
political consultant Stanislav Belkovskiy, hoped that the gas conflict would
drag on without a new contract until the March 26 elections (glavred.info,
January 6). Tymoshenko and Yanukovych therefore sought to gain favors in
Moscow by prolonging the gas conflict to harm Yushchenko’s election chances.

In the end, both Putin and Yushchenko needed a quick solution to the crisis.
Putin had turned Western governments and media wholeheartedly against Russia
on January 2- 3, and the continuing conflict for Yushchenko was causing
serious political harm.

Fending off this challenge in the short term, Yushchenko has to deal with a
more difficult issue of the upcoming elections. His threats to hold a
constitutional referendum are a product of failing to carry through his
rallying cry in the 2004 elections and Orange Revolution of “Bandits to
Prison!” The only “bandits” to have suffered this fate have been lower and
middle level officials. As in the Kuchma era, senior officials have again
escaped justice.

In this regard, Yushchenko’s choice of Roman Zvarych as Justice Minister and
the maintenance of Kuchma era left-over Sviatoslav Piskun as Prosecutor
until September-October 2005 caused considerable political blowback. Not a
single high ranking “bandit” that Yushchenko pointed to in the Orange
Revolution has been criminally charged.

Instead of “prison,” these “bandits” will be running on the Regions of
Ukraine list and thereby obtain immunity for the duration of the five-year
2006-2011 parliament. Piskun is on the Regions of Ukraine list, as are a
multitude of ancient regime high-ranking officials who escaped charges.

Whereas Tymoshenko is likely to lose votes because of her activity in the
energy crisis, this will not harm Regions of Ukraine. Recent polls suggest
Regions of Ukraine is set to have the largest faction in the 2006

Yanukovych is promoting Ukraine’s wealthiest oligarch, Renat Akhmetov,

who is standing on the Regions of Ukraine list, for Prime Minister and
President. In Kyiv, 30% of the population regard Akhmetov as a “criminal
authority of the Donetsk mafia.” Similar numbers see him as an “oligarch”
and the “political boss of Viktor Yanukovych and the Party of Regions”
(Ukrayinska Pravda, December 19, 2005).

Regions of Ukraine’s favorability ratings have steadily risen, especially
since the September 2005 government crisis and split in the Orange camp. A
new poll gave Regions of Ukraine 31%, an increase of over 10% in the last
four months (UNIAN, January 13). Other polls give Regions of Ukraine closer
to 23% (Ukrayinska Pravda, December 21, 2005) or even higher ratings of 34%
(Kyiv International Institute Sociology [KIIS], December 2005).

In the most recent poll the two halves of the Orange camp (Peoples Union-Our
Ukraine [NS-NU] and Tymoshenko bloc) have a total of 29.2%. Together with
the Socialists, the combined Orange camp could rise to 34%, only three
percent higher than Regions of Ukraine.

Yushchenko remains optimistic that these polls will not translate into an
election defeat. Speaking to the Financial Times (January 13), Yushchenko
said NS-NU will obtain the largest seats in the 2006 parliament.

Based on current polls, this seems unlikely. The poll cited by UNIAN
(January 13) gave Regions of Ukraine 31% and NS-NU only 13%. KIIS gave
Regions of Ukraine 34%, Tymoshenko 21% and NS-NU 18% (or 39%).

The Tymoshenko bloc has called for the signing of a three-way joint election
alliance between NS-NU and the Socialists (Ukrayinska Pravda, January 17).
Such an alliance could lay the foundation for a parliamentary coalition that
would re-unite the Orange camp after the elections.

The stumbling block will be who would become Prime Minister. NS-NU and the
Tymoshenko bloc have informally agreed that the winning faction will have
the right to nominate the prime minister. In many polls, the Tymoshenko bloc
comes ahead of NS-NU.

President Yushchenko has stated on a number of occasions that there will be
no “revenge” from supporters of the former Kuchma regime. “Talk of any kind
of revenge is not on. Yesterday’s forces will remain yesterday’s”
(Ukrayinska Pravda, December 26, 2005).

Yushchenko, very surprisingly, also refuses to acknowledge that there is
public disappointment in his policies (Financial Times, January 13). A new
survey by the International Foundation for Electoral Systems says otherwise
(ifes.org/publications-detail.html?id=270). One of the public’s major
sources of discontent is his weak efforts to confront high-level corruption.

Although Yushchenko has emerged the main winner from the gas crisis, he has
to take the blame for his election slogan of “Bandits to Prison!” turning
into “Bandits to parliament,” in which Regions of Ukraine may reside as the
largest seat-holders.
  (http://www.jamestown.org)   -30-
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18.                   THE UKRAINIAN-RUSSIAN GAS DEAL:
                        GUIDELINES FOR COUNTERACTION
The Pearl Harbor of Ukraine’s energy diplomacy was on night of January 4
   Guidelines as to who can put up legal resistance to the gas agreement

ANALYSIS & COMMENTARY: By Oleksandr Chalyi
Extraordinary and Plenipotentiary Ambassador of Ukraine,
former First Deputy of the Minister of Foreign Affairs of Ukraine
Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, #1 (580)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 14-20 January 2006

In my article “Ukraine’s Energy Diplomacy: An Extraordinary Action Plan”
(ZN #51, 31 December 2005 – 13 January 2006) I tried to predict subsequent
developments in Ukrainian-Russian gas relations. At first, everything went
as anticipated: on 1 January 2006, Europe woke up in shock; Washington
was quick to react.

The Ukrainian administration was standing its ground. At some point between
2 and 3 January, Moscow was about to back off. The parties seemed to have
started to exercise common sense and the European approach to the gas
dispute resolution.

However, it was impossible to predict the Pearl Harbor of Ukraine’s energy
diplomacy on the night of 4 January. Who would expect the Ukrainian
negotiating team to go beyond sound reason, Ukrainian law and, I am sure,
their formal mandate?

Who could expect the Ukrainian side to have been able to produce nothing
of its own after six months of gas negotiations, and to end up signing the
eleventh hour “Agreement on Regulating Relations in the Gas Sector”
(hereinafter referred to as “the gas agreement”) proposed by their Russian

Finally, who could expect GASPROM to teach, in such a short time, the
NAFTOGAS managers to write in Russian, albeit with mistakes?

Unfortunately, aggressive non-professionalism and insensitive self-assurance
are unpredictable. Fortunately, however, they are obvious enough to allow
for an effective political and legal counteraction and neutralization of
their most adverse effects.

The Ukrainian Parliament offered political resistance to the gas agreement.
Today, the Ukrainian people and the international community realize quite
well that the current governmental crisis in Ukraine was precipitated by the
gas agreement signed in Moscow. It is a historical fact.

Now, the Supreme Rada should complete its mission and adopt the final
version of its resolution “On Threats to Ukraine’s National Security Posed
by the Executive Power Bodies’ Actions in the Course of Providing
Ukrainian Consumers with Natural Gas”.

Following are the guidelines as to who can put up legal resistance to the
gas agreement, why and how it can be done.
It can be appealed because it is illegitimate, inequitable and detrimental
to Ukraine’s economy. It makes Ukraine totally dependent on
RosUkrEnergo AG, and was concluded in breach of this country’s
current legislation and international obligations.

A lot has been said in support of the above characteristics of the gas deal.
Anyone who has read the text of the agreement on the Internet will agree
that it runs counter to Ukrainian law and was signed in defiance of
Ukrainian national interests.

One of the key elements in the legal rationale for this conclusion is that
O.Ivchenko, NAFTOGAS Chairman of the Board, signed the gas agreement
in the absence of the annual intergovernmental gas protocol for 2006.

The latter, according to Article Two of the Agreement between the Cabinet
of Ministers of Ukraine and the Government of the Russian Federation on
Additional Measures to Ensure Transporting Russian Natural Gas via the
Territory of Ukraine, dated 4 October 2001 (hereinafter referred to as the
“2001 Intergovernmental Agreement”), was to adjust the volumes of transited
gas and transit dues (set either in monetary terms or in terms of gas volume
to be supplied as payment for transporting services) to the 2006 levels.

The signed gas agreement is at odds with the terms of cooperation laid down
in the 2005 Protocol between the Cabinet of Ministers of Ukraine and the
Government of the Russian Federation, supplementing the 2001
Intergovernmental Agreement and signed on 2 July 2004, as well as in
Addendum #4 to the effective contract between the National Joint Stock
Company NAFTOGAS UKRAINY and Public Joint Stock Company
GASPROM on Volumes and Terms of Russian Natural Gas Transit via
the Territory of Ukraine for 2003-2013, dated 21 June 2002.

Meanwhile, the Ukrainian-Russian gas agreements now in effect stipulate that
these terms should apply if there is no annual intergovernmental protocol in
place. NAFTOGAS and GASPROM are not entitled to amend those
agreements independently, with no previous authorization from their
respective governments.
To understand the legal procedure for appealing the gas agreement, one
should bear in mind that:

[1] (a) the gas agreement is not, in and of itself, an international
agreement but, rather, a civil contract whose application and force is
regulated by civil law and private international law;

[2] (b) implementation of the gas agreement is tied to the territory of
Ukraine since it is in the Ukrainian sovereign territory that most of the
obligations arising from the gas agreement would be fulfilled. Thus, transit
services are rendered in the territory of Ukraine; a ban is imposed on gas
exports from the territory of Ukraine; one of the contractual parties –
NAFTOGAS – is registered and operates in the territory of Ukraine; and
a new joint venture is to be set up to function in the territory of Ukraine.

HENCE THE CONCLUSION: the gas agreement can be appealed in
Ukrainian court under Ukrainian law, even though it does not provide
for a dispute resolution procedure.

This conclusion leans on the following common rule: if the parties to a
civil contract have not explicitly indicated their choice of applicable laws
and a competent court (arbitration tribunal), such law and court are
designated, based on international agreements on legal assistance and/or
law of conflict of the respondent-state.

In this case, Ukraine, the Russian Federation and Switzerland (states whose
legal entities signed the gas agreements) have no international agreement
regulating conflict rules and jurisdiction issues. Under the circumstances,
if the gas agreement is appealed in a Ukrainian court, it will be guided by
the Law of Ukraine “On International Private Law” and the Commercial
Procedural Code of Ukraine in considering the claim.

Without going into too much legal detail, I would like to note that the
above mentioned law and Code stipulate that:

[1] commercial courts in Ukraine are empowered to consider cases involving
foreign enterprises and organizations that have subsidiaries, representative
offices, or related enterprises and organizations in the territory of
Ukraine (GASPROM has a rep office in Ukraine).

Besides, disputes that arise from concluding, amending or rescinding
contracts (like this gas agreement) are heard by commercial courts in the
country of the party with contractual obligations to perform works, render
services, etc to the other party (as per the gas agreement in question, the
party providing transportation services is NAFTOGAS, located in Ukrainian

[2] an appealed contract is subject to the law of the country having the
closest relation to this contract. As stated above, the gas agreement is
closely tied to the territory of Ukraine. Therefore, Ukrainian law should be
deemed as having the closest relation to the gas agreement applied to it.

On the other hand, the gas agreement can be appealed in a Swiss court, since
the potential respondent in the dispute could be Switzerland-based
RosUkrEnergo AG. In this case, the Swiss court – according to the Federal
Law of Switzerland on Private International Law dated 18 December 1987 –
will have to entertain the action and apply Ukrainian law while hearing it.
By whom can the gas agreement be appealed?

In my opinion, appellants of the gas agreement on the grounds of its
non-compliance with the Ukrainian law and nonconformity to Ukraine’s
national interests (Article 207 of the Commercial Code of Ukraine) could be:

[1] a) one of the parties to the gas agreement (in particular, NAFTOGAS) or
[2] b) a competent state power body, in particular:

[a] -the Cabinet of Ministers of Ukraine – as a founder of the national
Joint Stock Company NAFTOGAS UKRAINY (the Cabinet of Ministers
should be represented in court by the Ministry of Justice);

[b] – Ministry of Fuel and Energy of Ukraine – as a body authorized to
manage the state’s corporate rights with respect to NAFTOGAS, and as
an authority supervising the fulfillment of obligations under the 2001
Intergovernmental Agreement (in accordance with Paragraph 1, Article 16
of the Law of Ukraine “On International Agreements of Ukraine”);

[c] – Ministry of Foreign Affairs of Ukraine – as an authority supervising
the implementation of Ukraine’s international agreements (in accordance with
Paragraph 1, Article 17 of the Law of Ukraine “On International Agreements
of Ukraine”).

[d] In addition, Article 2 of the Commercial Procedural Code of Ukraine
empowers the Prosecutor General’s Office to act as an appellant in such
cases to protect Ukraine’s national interests in Ukrainian commercial

The legitimacy of the joint venture that NAFTOGAS and RosUkrEnergo AG
are to incorporate under the gas agreement needs to be scrutinized and
assessed by such constitutional watchdogs as the State Property Fund and
Antimonopoly Committee. It could be fairly problematic for the joint
venture’s founders to meet the relevant legislative requirements and obtain

permits from these two bodies.

Furthermore, the gas agreement can be appealed by Ukrainian legal entities
(enterprises) that consume natural gas supplied from the Russian Federation.
Article 1 of the Commercial Procedural Code of Ukraine provides that
enterprises, organizations and other legal entities (including non-resident)
have the right to seek protection of their violated or challenged rights and
legally safeguarded interests in the commercial courts.

The term “legally safeguarded interest” was officially interpreted by the
Constitutional Court of Ukraine in its Ruling #8-?/2004 dated 1 December
2004 as the wish to use a tangible and/or intangible asset subject to
judicial protection or any other legal safeguard in order to meet one’s
individual or collective needs conforming with the Constitution and laws
of Ukraine, public interests, equity, honesty, prudence and other general
principles of law. Paragraph 2, Article 16 of the Civil Code of Ukraine
cites the deeming of contracts or agreements null and void, with the
payment of damages as a way to protect legally safeguarded interests.

In this context, the wish to use natural gas bought at a price set in
compliance with Ukraine’s effective law and international agreements is a
legally safeguarded interest of Ukrainian legal entities (enterprises).

Since the gas agreement sets the gas price regardless of the arrangements
specified in the 2001 Intergovernmental Agreement (which is an integral
part of Ukrainian legislation), this gas agreement infringes on the legally
safeguarded interests of Ukrainian legal entities consuming Russian natural

It entitles such entities to bring an action for invalidating a gas
agreement and/or for damages to be paid by NAFTOGAS.

Ukrainian judicial practice has precedents for bringing an action of
invalidation of contracts, to which the appellant was not a party but
claimed the need to have its legally safeguarded interests protected in
court (this was the case when the decision to KRYVORIZHSTAL
privatization was appealed).

Thus, there are ample opportunities and legal grounds to appeal the validity
of the gas agreement in Ukrainian courts. It is true that neither the
incumbent NAFTOGAS management, nor concerned executive power
bodies are likely to do so, especially now that the leaders of the state
have announced Ukraine’s commitment to honour every item of the gas

agreement and fulfill its obligations to Russia and the West. What this
agreement has to do with the West is a question, but who knows.

On the other hand, Ukrainian state bureaucracy has a successful history of
counteracting or sabotaging unfair treaties and agreements foisted on
Ukraine by force or by ruse. Who remembers today the Massandra
agreements signed by Leonid Kravchuk, which envisaged the handover of
the whole Black Sea Fleet to Russia?

The zero-option agreement concerning the former USSR’s assets abroad
never took effect; it was drawn up in the Russian language only (like the
present gas agreement) and signed in one of the Kremlin offices by the
then Prime Minister of Ukraine V.Masol, unaccompanied by any other
Ukrainian delegation members.

The St. Petersburg agreement reached by Leonid Kuchma, Vladimir Putin
and Gerhardt Schroeder to create a gas transportation consortium sank into
oblivion, too. There were scores of other “historic” Ukrainian-Russian
agreements, about which foreign ministers learned from the media.

We, career diplomats, cherished hopes that the new democratic
authorities would discontinue this practice.

I place great hopes on the Prosecutor General’s Office as an autonomous
constitutional body, responsible for guarding the national interests,
particularly given that the Constitutional Court ruling specifies that “the
national interests can either coincide in full or in part or not at all with
the interests of state power bodies, public institutions or state-owned

I also hope that Ukrainian enterprises will not stay on the sidelines and
start acting once they feel the effects of the Ukrainian gas negotiators’
Pyrrhic victory.

History teaches us that unfair, inequitable and non-transparent
international agreements are appealed, annulled or ignored, sooner or later.

My guess is the gas agreement will suffer the same fate. Not only did it
fail to staunch the existing Ukrainian-Russian argument but it also created
new challenges for bilateral relations and for an effective European system
of secure energy supplies.
LINK: http://www.mirror-weekly.com/ie/show/580/52316/
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19.                                THE NEW GAS WAR – 2
     Started by Yushchenko’s opponents Yanukovych & Tymochenko
 But the Kremlin blatantly “conned” the pillars of the Ukrainian opposition.

Prof Yanukovych would have been content with a political victory, but Yuliya
    Tymoshenko, hardened at her post as princess – first as the gas princess
    and later as the orange princess – counted on becoming the energy queen.

ANALYSIS & COMMENTARY: By Stanislav Belkovskiy
Maverick Russian political consultant
Glavred, Kiev, Ukraine, in Russian 0000 gmt 11 Jan 06
BBC Monitoring Service, UK, in English, Tuesday, Jan 17, 2006

Viktor Yanukovych and Yuliya Tymoshenko were well aware that Ukraine’s
gas deal with Russia was a victory for Ukraine, maverick Russian political
consultant Stanislav Belkovskiy has written. Nevertheless, their forces in
parliament voted to dismiss the government of Yuriy Yekhanurov, describing
the deal as “treason”.

He suggested that these two opponents of President Yushchenko had earlier
reached an understanding with the Kremlin that the dispute would drag on
through the winter and would eventually be resolved through their mediation,
guaranteeing them victory in the parliamentary election in March.

But President Vladimir Putin lost his nerve, and a last-minute deal was
cobbled together ahead of an EU energy meeting on 4 January.

Belkovskiy concluded that the crisis, which he described as a “gas civil
war”, should produce a government and opposition in Ukraine that are

more accountable to the people.

The following is the text of the article, posted on the Glavred website on
11 January under the title “The new gas war-2”; subheadings have been
inserted editorially:

The Ukrainian-Russian gas war has reached its climax. Parliament has
dismissed the “cabinet of traitors” – the government of Yuriy Yekhanurov.
Of course, both [ex-prime ministers] Yuliya Tymoshenko and Viktor
Yanukovych (and even [parliamentary speaker] Volodymyr Lytvyn and
[Communist Party leader] Petro Symonenko) fully realize that there is no
hint of “treason”.

After all, in late December 2005, the most optimistic Ukrainian gas experts
reckoned that, if a price of between 100 and 110 dollars per 1,000 cu.m.
were to be negotiated with Russia, that would be a great success. Pessimists
with sad yellow-blue eyes inclined towards the view that any heart that had
been troubled by the conflict would calm down if the price settled at
120-125 dollars.

Gazprom’s secret forces kept raising hopes by leaks about 145 dollars. Seen
against this backdrop, 95 dollars is the best of the impossible.
But war has its own logic. In this case, it is the logic of mortal
resentment. No, not against the dreamy [President Viktor] Yushchenko, nor
against the drowsy [Prime Minister Yuriy] Yekhanurov. And not even against
the ordinary officials who were fortunate enough to carry the splendid price
of 95 dollars out of the blazing Gazprom office in Nametkin Street (Moscow,

But against the best friend of all Ukrainian losers, the overall sponsor of
great political defeats, the northern energy dictator – Vladimir
Vladimirovich Putin. Both Tymoshenko and Yanukovych were absolutely
sure of their understandings with the Kremlin.

They had no doubt that, by February, Ukraine would be worn out by the gas
feuding and go into a downward spiral. Ordinary, good-natured Ukrainians
would keep flitting between cold flats and frozen factories. The rating of
useless Yushchenko would fall to zero on the Kelvin scale.

In that situation, they, the collective hope of the nation, would emerge in
white [i.e. like angels] and sort everything out with a gentle wave of a
mediating arm. The gas would be flowing freely just a minute later. And the
flow of gas would usher the Party of the Regions and the Yuliya Tymoshenko
Bloc towards an unparalleled victory in the elections.

Professor Yanukovych would have been content with a political victory, but
Yuliya Tymoshenko, hardened at her post as princess – first as the gas
princess and later as the orange princess – counted on becoming the energy

Her plan boiled down to appointing a new gas middleman, the transparent,
democratic Itera, that would supply a gullible Ukraine with Turkmen, Kazakh
and Uzbek gas at between 115 and 120 dollars.

This price would, of course, have been hailed as an unprecedented victory
for human reason over the uncouth inertia of darkness.

Hence, in fact, the whole nuclear war against the S.I. Mogilevich
red-and-white banner research and production association RosUkrEnergo [a
mockingly Soviet-style designation of the company]. Nothing personal, just

The YTB leader is well aware that control of the Great Gas Road from Asia to
Ukraine means an annual income of 2bn dollars at the very least. But transit
across Russia is provided by one man – Putin.

For the sake of this transit and this man it is worth sacrificing the values
of the Maydan [Independence Square in Kiev, the focal point of the Orange
Revolution] and perhaps something more tangible.

Tymoshenko tried. Mouldy criminal cases were closed to the beating of
angels’ wings, from which compromising material about [former Russian
Prime Minister] Mikhail Kasyanov and several other Putin opponents
showered down upon the Russian Prosecutor-General’s Office.

At the peak of the gas war, the newspaper Komsomolskaya Pravda, particularly
respected by the Russian president, published a huge (two pages!) item
saying that Russia must rely on the YTB in the raging conflict, since there
is no one else in Ukraine to negotiate with about anything.

Both Mr Yanukovych and Mrs Tymoshenko were 100 per cent certain that
the Russians without would help them. How could it be otherwise?

After all, Mr Putin has such a sincere and touching dislike of Mr
Yushchenko! He could not fail to make use of his only chance to consign
his nightmare, the main figure of the Maydan, to historical oblivion!

But the Kremlin blatantly “conned” the pillars of the Ukrainian opposition.
Yanukovych has similar experience of being “dumped” – his own [political]
father, [former President] Leonid Kuchma, abandoned him in November-
December last year [i.e. 2004].

But this is the first time in her life that the hypercunning and
supercharming Madame Tymoshenko has been so shamefully “cast off”.
Hence the sky-scraping hysterics.
Tymoshenko and Yanukovych were unable to gaze into the grubby soul of
Vladimir Putin. They lacked the necessary persistence, shrewdness, wisdom
and insight. Had they not lacked these qualities, they would have understood
two fundamental things long ago:

1. In terms of his psychology and philosophy of life, Putin is a
100-per-cent businessman. There are no more politics in him than there is
femininity in Arnold Schwarzenegger. He prefers effective financial schemes
with a guaranteed yield of billions, accessible in Liechtenstein, to any
political, and especially geopolitical, projects and pipe dreams.

2. However much the current lord of the Russian Lands might flex his
muscles and make himself out to be an imperialist patriot, he is really
very much afraid of North America and Western Europe.

The reason is that the main thing for him is the security of the accounts
containing many billions that were certainly not opened in the savings bank
of the town of Uryupinsk [Volgograd Region, Russia].

The man who will have accumulated the best part of 15bn dollars by the
spring of 2008 is inevitably concerned about his relations with his North
Atlantic Big Brother.

So, whatever the rhetoric that Putin sometimes ventures to use, he always
acts as Washington and Brussels recommend in all key issues. On the frosty
morning of 3 January 2006, the gloomy Kremlin genius received a worrying

On the following day, the European Union’s energy commission would hold
Russia responsible for the gas crisis and demand that Gazprom resume full
supplies to Ukraine.

A deadly threat hung over Putin’s reputation as the best and most talented
supplier of gas to Europe. Moreover, the Russian leader was threatened by
having to make a forced move. After all, retreating after [previous word in
bold] an EU shot across the bows meant looking like a totally weak and
characterless player.

So Mr Putin was forced of his own free will to prise open the tight Gazprom
valve just a little and to order his precious Gazprom to reach an agreement
on everything with Naftohaz Ukrayiny – before 1100 Moscow time on 4
January, when the axe might fall.

The aim was to have the time in which to report to Brussels: please don’t
get angry. The mission has been accomplished. We shall live in peace!..
[ellipsis as published]

Given this situation, no one, of course, had any time for Tymoshenko, for
the Regions [of Ukraine], for 26 March [when parliamentary elections are to
be held in Ukraine] or, even more so, for any replacement of the middleman,
RosUkrEnergo, which is, from Putin’s point of view, a perfectly reliable
company that discharges all of its commitments to him.

Itera is backed, at the moment, only by Mrs Tymoshenko’s boundless charm
and, alas, nothing more. The diabolical RosUkrEnergo is not marginal, if we
take a close look at it. Fifty per cent of the shares in the offshore
company (registered in the canton of Zug, Switzerland) belong to

This, in turn, will, before 2007, be fully and respectably owned by Dresdner
Bank, Germany’s second largest bank and a key partner of Vladimir Putin’s.

The remaining 50 per cent is under the control of a group of Russian,
German, Israeli and Finnish comrades who have first-hand knowledge of
how Putin lives and what he wants.

By making RosUkrEnergo the exclusive supplier of gas to Ukraine and, in
effect, a competitor of Gazprom, Putin’s multinational team of like-minded
persons has made it clear that, in the Eurasian raw materials trade, there
are interests that are somewhat more important than those of the Russian

So, as long as Putin and his Germanic partners are alive, in good health and
active, no one need have any doubts about the reliability of the newly-built
trading pattern.

                            ACCOUNTABLE TO PEOPLE
Are the initiators of the dismissal of the “cabinet of traitors” aware of
this? Of course, they are perfectly aware of it.

They also know that there will never be any price better than 95 dollars
and, moreover, that even a crushing defeat for the OUPU [Yushchenko’s Our
Ukraine People’s Union party] at the 2006 election will not force Putin to
set aside the five-year contract and usher into the game a new far-fetched

After all, we are talking here about business and money, not about some
low-grade ideological trick. For some reason, it was only on 4 January that
opposition members recalled the need to lock their expensive teeth into the
old 50-dollar contract and hang on to it.

They had just realized that their separate agreement with Moscow, which
was to have delivered them a majority in the future Supreme Council
[parliament], was no longer in effect.

They had to invent a new strategy for success on the hoof. And they made
up their minds and decided to stake everything [on one move]. The other
day, Yuliya Tymoshenko declared that the Ukrainian authorities’
accountability to the people came into being on 10 January, at that sweet

moment when 250 MPs deprived Yuriy Yekhanurov of his proper prime-
ministerial dignity. She is right.

Now, at last, the authorities must explain to the people what the gas
contract is all about and why opposition statements are all lies and
bluffing. If they do not explain, they fully merit the hellish punishment
that the spiteful and angry YT [Yuliya Tymoshenko] and VF [Viktor
Fedorovych, i.e. Yanukovych] have in store for them.

The opposition’s accountability to the people has also come into being. By
organizing an unwarranted political crisis, Yuliya Tymoshenko & Co have
certainly assumed a huge responsibility. After all, they were not afraid of
risking the country’s political system for the sake of their commercial

Incidentally, they presented the ungrateful Vladimir Putin with a splendid
gift for the Old New Year [14 January is New Year’s Day according to the
old Julian calendar still used by the Russian Orthodox Church].

The Kremlin’s apologists, who know perfectly well that Russia actually lost
the gas war, have now been given the chance to point their finger somewhere
in the direction of Kiev and intone sweetly: there, you see, they’ve sacked
the government for treason, so we actually tricked the cunning khokhol [i.e.
Ukrainian]. We won! We won!.. [ellipsis as published]

The time has also come to pose the question about the accountability of the
elites as a whole. What is more important – electoral victory or the
country’s independence? Are all means fair when you are making a bid for

Is it worth scuppering your own state just because you have been deprived of
the opportunity to earn a billion or two from gas trading? Any war purifies.

The gas civil war started by Viktor Yushchenko’s opponents will purify the
political elite, which has gone sour in its own juice. It will also provide
answers to these damned and so untimely questions.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
         Ukraine is one of the most energy wasteful countries in the world.

ANALYSIS: By Roman Kupchinsky

Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, January 18, 2006

During a January 2001 meeting in Viktor Yushchenko’s office about energy
conservation, Ukraine’s then prime minister reportedly turned to his
assistant and asked him to turn out the lights. Such concessions — if,
indeed, Yushchenko’s request was meant seriously — are rare in Ukraine.

One of the most important and overlooked factors of the recent
Ukrainian-Russian gas war is that Ukraine is one of the most
energy-intensive countries in the world. Unless it kicks its wasteful habit,
this type of crisis could repeat itself year after year as energy prices
continue to rise.

It is perhaps easy and convenient to blame Russia and President Vladimir
Putin for attempting to take revenge on Ukrainian President Yushchenko

for his pro-Western stance or by placing the blame on Russia’s “energy

Gazprom’s inept and heavy-handed handling of the situation certainly went a
long way to discredit Russian leaders and have raised serious questions
about their intentions. However, the fires have been stoked by Ukraine’s
stubborn refusal to conserve fuels and to expect that Russia and Central
Asia would continue to subsidize its addiction to gas.
The figures for energy consumption in Ukraine are astonishing. Ukraine is
one of the most energy wasteful countries in the world. It consumes more
natural gas — 74 billion cubic meters in 2003 — than Poland, Hungary, the
Czech Republic, and Slovakia combined.

Despite the huge amount of energy Ukraine consumes — 1.5 percent of the
world’s total energy consumption according to the U.S. Energy Information
Administration (EIA) — Ukraine’s GDP of $300 billion in 2004 was far below
Poland’s figure of $463 billion.

A 2004 study prepared by Margarita Balmaceda for the U..S.-based Woodrow
Wilson Center, “Ukraine’s Energy Policy and US Strategic Interests in
Eurasia,” found that “not only does Ukraine have one of the highest levels
of energy intensity in Europe and the world, but its energy intensity
(measured as its energy consumption per unit of GDP) actually increased by
about 50 percent from 1991 to 1999.”

But despite these dire figures, few in Ukraine seem to be paying much
attention. Successive governments have largely ignored energy waste: from
pipelines in desperate need of repair to poor energy conservation in the
home. When confronted over this state of affairs, politicians have prepared
numerous energy-conservation plans — which have never been implemented or
even made public.

The Ukrainian American Environmental Association is one group concerned

with energy conservation in Ukraine. In a letter to senior Ukrainian officials
sent on 20 July 2005 it wrote: “There are many energy-savings measures that
can be acted on and implemented very quickly. These programs have included
simple tasks such as urging people to turn off lights and appliances like
TVs when not in use, suggesting ways to make doors and windows less drafty,
or offering suggestions to motorists on how to drive while using less fuel.
Similarly, common-sense energy conservation advice offered to schools,
hospitals, stores, and industries has helped reduce energy demand anywhere
from 10-30 percent.”

Corruption also figures prominently in Ukraine’s dismal energy efficiency.
The more gas sold to Ukraine, the greater the kickbacks to the chain of
suppliers and their protectors in government.
                                  TOO CHEAP TO SAVE
But subsidies are doing much to hamstring Ukraine’s energy efficiency. On 23
December 2005, Interfax reported that Gas Ukrayiny, a subsidiary of Naftohaz
Ukrayiny, announced that the company planned to supply natural gas to the
population and public sector at the current price of about $35-$38 per 1,000
cubic meters for the population and about $46 for public-sector entities.

With Ukraine buying gas for $95 per 1,000 cubic meters, household prices
will continue to be heavily subsidized. And with gas so cheap, there has
never been a pressing need to save it.

This is insignificant compared to Ukraine’s highly subsidized metallurgy and
chemical industry, which consumes gargantuan amounts of gas. Companies

such as Interpipe, the Kryvorizhstal steel works, and the Industrial Union of
the Donbasthrive on cheap and plentiful gas supplies, which allow the owners
to produce steel at rock-bottom prices.

The metallurgy industry was the main factor behind the rapid growth of
Ukrainian gross domestic product (GDP) in 2001-04. The government of

former President Leonid Kuchma and former Prime Minister Viktor
Yanukovych was loath to see it drop — something that was sure to happen
if gas prices increased. Russia, in turn, was interested in supporting the
Kuchma-Yanukovych government for political reasons and continued to
supply cheap gas in the hope that this would keep the bond strong.

That bond could be partly broken by Ukraine’s (and Russia’s) application to
join the World Trade Organization (WTO). The WTO has impressed upon
post-Soviet states that they must pay market prices for energy in order to
improve the efficiency of their economies.

Ukraine has another six months before it renegotiates with Russia the price
it pays for gas. One highly placed Naftohaz Ukrayiny official in Kyiv told
RFE/RL that it would be the height of irony if Putin, by raising the price
of gas to Ukraine, forced Ukrainians to conserve energy and adopt European
norms — thereby hastening Ukraine’s entry into the European Union.

NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He was director of the RFE/RL Ukrainian Service

for 10 years. Contact: KupchinskyR@rferl.org
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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                       GAZPROM CEO ALEXEI MILLER SAID

LETTER TO THE EDITOR: From Roman Kupchinsky
Investigative Journalist, Prague, Czech Republic
RE ARTICLE: Gazprom to take direct part in RosUkrEnergo
Better Gazprom and Naftogaz Ukrainy be co-founders of the joint venture
ITAR-TASS, Moscow, Russia, January 15, 2006
Letter published by The Action Ukraine Report (AUR), #644, Article 21
Washington, D.C. Monday, Thursday, January 19, 2006

In a way what Miller says is true, except you must keep in mind that it was
Kuchma and Putin who cooked up this deal in the first place during a
meeting of the Russian-Ukrainian business forum in Yalta in July 2004.
That was where the two presidents announced the formation of

Miller was there as was Boyko from Naftohaz and Miller praised the deal

at that time saying it was as transparent as the driven snow. It was the
Russians who wanted Raiffeisen Investments brought into the deal –
Kuchma was happy with it as well as was Boyko who has defended it
from the start.

However, there is no Ukrainian state component to RosUkrEnergo – only
the hidden investors who were always there.

When Naftohaz Ukraine explored the possibility to buy them out last year,
Wolfgang Putschek said – fine, but it will cost you $ 1.5 billion. A few
days ago, after Russia Deputy Prime Minister Medvedyev stated that Ukraine
should buy its share in RosUkrEnergo, the paper Vedomosti wrote that the
new price might be $ 3-4 billion.

Miller is a cynical promoter of opaque schemes which directly benefit his
bosses and the Ukrainian side needs to keep this in mind.

Yushchenko, judging by his take on RosUkrEnergo which he revealed last
Friday, does not seem to comprehend what it is all about.

His illogical statement that exposing RosUkrEnergo is only meant to hurt him
is pure nonsense. This scam was exposed way before he became president,
but by ending the SBU investigation of RosUkrEnergo he placed himself in a
corner and is now forced to defend this sham company

If he agrees to spend $1 or 2 or 4 billion to buy Ukraine into the scam and
make Putin and company (along with former Ukrainian officials) that much
richer then it would be a criminal mistake.  -30-

NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He was director of the RFE/RL Ukrainian Service

for 10 years. Contact: KupchinskyR@rferl.org
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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