Daily Archives: January 24, 2006

AUR#647U.S. Reinstates Trade Benefits; RosUkrEnergo Makes $50 Million Profit Per Employee, No Physical Assets, Avoids Hundreds Of Millions In Taxes

               An International Newsletter, The Latest, Up-To-Date
                    In-Depth Ukrainian News, Analysis and Commentary

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

Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, TUESDAY, JANUARY 24, 2006
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
U.S. Trade Representative cites progress on intellectual property protection
By Jeffrey Thomas, Washington File Staff Writer, USINFO
U.S. Department of State, Washington, D.C. Mon, Jan 23, 2006

                                  BENEFITS FOR UKRAINE                             
Office of the U.S. Trade Representative (USTR)
Executive Office of the President, Wash, D.C., Mon, Jan 23, 2006         

         Comments are needed for the record, only two day left to submit
The Action Ukraine Report (AUR), Washington, D.C., Tue, Jan 24, 2006


E. Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR), Wash, D.C., Tue, Jan 24, 2006
      US Ambassador to NATO says for Ukraine Nato’s members had an
            obligation “to say ‘Yes, we want you as part of our family as 
             soon as you can do it’ [but] . . It has to be up to Ukraine.”
By Daniel Dombey, Financial Times, London, UK, Tue, Jan 24 2006


                                  TO RUSSIA’S REGRESSION?
           If promoting democracy is President Bush’s largest ambition,
                                  then Russia is his largest failure.
: By Fred Hiatt, The Washington Post
Washington, D.C., Monday, January 23, 2006
Polish News Bulletin, Warsaw, Poland, Sunday, Jan 22, 2006

By Sophy Buckley, Financial Times, London, UK, Tue, Jan 24 2006


By Tom Warner in Kiev, Financial Times
London, United Kingdom, Saturday, January 21 2006 
          FROM 3.5-5.5% TO 1.5-3.5% DUE TO HIGHER GAS PRICE 
Ukrainian News Agency, Kyiv, Ukraine, Thursday, January 19, 2006

 RosUkrEnergo makes $50 million per employee in profits, no physical assets
   Front for unknown owners has become an embarrassment for Gazprom
By Andrew E. Kramer, The New York Times
International Herald Tribune, Paris France, Mon, Jan, 23, 2006

13                             MORE TO THE GAS ISSUE
       Complicated schemes: how the RosUkrEnergo Co was established,
   how it operates, allocates profits and avoids hundreds of millions in taxes
: By Yulia Mostovaya
Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, #2 (581)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 21-27 January 2006

Ukrinform, Kyiv, Ukraine, Monday, January 23, 2006

15.                         RUSSIA: PIPELINES AND SPIES
EDITORIAL: The Guardian, London, UK, Tuesday, Jan 24, 2006


                           ABOUT GAS DEAL WITH RUSSIA                          
INTERVIEW: Ukrainian Defence Minister Anatoliy Hrytsenko
By Iryna Kostsyna, Fakty i Kommentarii, Kiev, in Russian 19 Jan 06; p 7
BBC Monitoring Service, UK, in English, Sunday, Jan 22, 2006

NATIONWIDE SPEECH: President Viktor Yushchenko
UT1 State TV, Kiev, in Ukrainian 1900 gmt 23 Jan 06
BBC Monitoring Service, UK, in English, Monday, Jan 23, 2006

Committee to Protect Journalists (CPJ), NY, NY, Mon, Jan 23, 2006

Alex Nicholson, AP Worldstream, Moscow, Russia, Friday, Jan 20, 2006

20                      THE LIGHTHOUSES OF CONFLICT
                          Money behind lighthouse row with Russia
ANALYSIS: Journalist Mykyta Kasyanenko
Den newspaper, Kiev, Ukraine, in Ukrainian 17 Jan 06; p 1, 2
BBC Monitoring Service,UK, in English, Saturday, Jan 21, 2006
U.S. Trade Representative cites progress on intellectual property protection

By Jeffrey Thomas, Washington File Staff Writer, USINFO

U.S. Department of State, Washington, D.C. Mon, Jan 23, 2006

WASHINGTON –  The United States is reinstating trade benefits Ukraine

lost in 2001 for failing to protect intellectual property, particularly computer
software and films and music recorded on compact discs and digital versatile

Citing Ukraine’s efforts to improve the enforcement and protection of
intellectual property rights (IPR), U.S. Trade Representative Rob Portman
announced January 23 that the United States is reinstating Generalized
System of Preferences (GSP) benefits for Ukraine and lowering Ukraine’s
designation under Special 301 from “priority foreign country” to “priority
watch list.”

The GSP provides preferential duty-free entry to approximately 3,000
products from designated beneficiary countries and territories. Ukraine’s
benefits under the GSP were suspended in August 2001, and, in 2002, 100
percent tariff sanctions were imposed on $75 million worth of Ukrainian
exports to the United States.

The United States placed these prohibitive tariffs “because of the continued
failure of the Ukrainian Parliament to enact legislation cracking down on
sound recording and optical media piracy,” according to a press release
issued by the Office of the United States Trade Representative (USTR) at
that time (January 23, 2001). Ukraine was reckoned the largest producer and
exporter of pirated optical media products (CDs and DVDs) in Europe,
according to the USTR.

The so-called Special 301 provision of U.S. trade law — the principal U.S.
statute for addressing foreign unfair practices — authorizes measures
against U.S. trade partners for failing to protect U.S. patents, copyrights
and other intellectual property.  Sanctions were applied against Ukraine
after it was identified as a “priority foreign country,” the ranking
reserved for the worst situations.

In 2004 and 2005, Ukraine was the only country designated a “priority
foreign country” in USTR’s annual Special 301 Report.

“I commend the Government of Ukraine for its sustained efforts to crack
down on copyright piracy and urge the government to continue their efforts,”
said Portman in announcing the upgrading of Ukraine’s status.

The USTR statement noted approvingly that Ukraine passed legislation in July
2005 that strengthens its licensing regime and enforcement efforts to stem
the illegal production and trade of CDs and DVDs.

“Since the legislation passed, Ukraine has been actively inspecting plants
licensed to manufacture optical discs, conducting raids against businesses
involved in commercial distribution of IPR-infringing products, and imposing
fines against infringers,” Portman said. “We strongly urge Ukraine to keep
up these efforts, which reflect positively on the investment environment in

The sanctions imposed in 2001 were removed on August 31, 2005, “after
extensive efforts by the Ukrainian Government to pass important amendments
to Ukraine’s Laser-Readable Disk Law,” according to the statement by the

A Special 301 Out-of-Cycle Review (OCR) of Ukraine focusing on IPR
enforcement recently has been concluded, the statement said. “Ukraine has
further agreed to work with the U.S. Government and with the U.S. copyright
industry to monitor the progress of future enforcement efforts through an
Enforcement Cooperation Group,” the statement said.  “USTR will continue
to monitor developments in the protection of intellectual property rights in

USTR also said Ukrainian exports to the United States that could benefit the
most from the country’s restored GSP eligibility “include manufactured items
such as iron or steel articles, electrical and railway products, snow skis,
protein products such as casein, and certain mineral and metal products.”

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

Office of the U.S. Trade Representative (USTR)
Executive Office of the President, Wash, D.C., Mon, Jan 23, 2006         

WASHINGTON – In recognition of the Government of Ukraine’s efforts

to improve the enforcement and protection of intellectual property rights,
U.S. Trade Representative Rob Portman today announced that the United
States will reinstate Generalized System of Preferences (GSP) benefits
for Ukraine and lower Ukraine’s designation under Special 301 from
Priority Foreign Country to Priority Watch List.

“I commend the Government of Ukraine for its sustained efforts to crack
down on copyright piracy and urge the government to continue their
efforts,” said Ambassador Portman. 

In 2001, significant illegal manufacturing of optical media products,
such as CDs and DVDs, was occurring in Ukraine.  The Office of the U.S.
Trade Representative designated Ukraine as a Priority Foreign Country
and repeatedly urged Ukraine to take steps to address this problem.  In
July 2005, Ukraine passed legislation that strengthens its licensing
regime and enforcement efforts to stem the illegal production and trade
of CDs and DVDs. 

“Since the legislation passed, Ukraine has been actively inspecting
plants licensed to manufacture optical discs, conducting raids against
businesses involved in commercial distribution of IPR-infringing
products, and imposing fines against infringers,” Portman continued.

“We strongly urge Ukraine to keep up these efforts, which reflect
positively on the investment environment in Ukraine.” 
In March 2001, the U.S. Trade Representative designated Ukraine as a
Priority Foreign Country under Special 301 (Section 182 of the Trade Act
of 1974), and initiated an investigation under Section 301 of the Trade
Act of 1974.  At that time, Ukraine was the largest producer and
exporter of pirated optical media products (CDs and DVDs) in Europe. 
As a result of the Section 301 investigation, USTR suspended Ukraine’s
benefits under the Generalized System of Preferences in August 2001, and
in 2002 imposed 100% tariff sanctions on $75 million worth of Ukrainian
exports.  The latter sanctions were removed on August 31, 2005, after
extensive efforts by the Ukrainian Government to pass important
amendments to Ukraine’s Laser-Readable Disk Law.

The Administration concluded a Special 301 Out-of-Cycle Review (OCR)

of Ukraine in January 2006, which focused on Ukraine’s IPR enforcement,
and considered Ukraine’s status as a Priority Foreign Country and its
eligibility for Generalized System of Preferences benefits.  Ukraine has
further agreed to work with the U.S. Government and with the U.S.
copyright industry to monitor the progress of future enforcement efforts
through an Enforcement Cooperation Group.  USTR will continue to
monitor developments in the protection of intellectual property rights in
Ukraine pursuant to Section 306 of the Trade Act of 1974.

The purpose of the GSP program is to promote economic growth in the
developing world by providing preferential duty-free treatment for 3,400
products from nearly 140 designated beneficiary countries and
territories.   Ukrainian exports to the United States that could benefit
the most from Ukraine’s restored GSP eligibility include manufactured
items such as iron or steel articles, electrical and railway products,
snow skis, protein products such as casein, and certain mineral and
metal products.  -30-
Scott R. Elmore, Public Affairs Assistant, Office of the United States

Trade Representative, Executive Office of the President
600 17th Street, NW, Washington, DC  20508
P: (202) 395-3230; F: (202) 395-6121, www.ustr.gov
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
         Comments are needed for the record, only two day left to submit

The Action Ukraine Report (AUR), Washington, D.C., Tue, Jan 24, 2006

WASHINGTON – The U.S. Commerce Department’s Import Administration,
on January 12, issued a “Changed Circumstances Review of the Antidumping
Duty Order on Carbon and Certain Alloy Steel Wire Rod From Ukraine:
Opportunity To Comment on the Status of Ukraine as a Non-Market Economy
Country and Extension of Final Results”

There is now a very narrow window of opportunity to submit further

comments by Wednesday, January 25 further comments addressing the
six relevant criteria: (1) currency convertibility; (2) whether wages determined
by free bargaining between labor and management; (3) extent to which
foreign investment permitted; (4) government ownership or control of means
of production; (5) extent of government control over allocation of resources
and over price and output decisions of enterprises; (6) other factors.

Companies, organizations and individuals are encouraged to submit comments.
The notice was published in the Federal Register, Vol 71, No. 11, Wednesday,
January 18, 2006, pages 2904-2905.

71 FR 2904, January 18, 2006
International Trade Administration [A-823-812]

Changed Circumstances Review of the Antidumping Duty Order on Carbon
and Certain Alloy Steel Wire Rod From Ukraine: Opportunity To Comment
on the Status of Ukraine as a Non-Market Economy Country and Extension
of Final Results

AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
DATES: January 12, 2006.
ACTION: Request for Comments and Extension of Final Results.

SUMMARY: The Department of Commerce is requesting further comment
on whether Ukraine should continue to be treated as a non-market economy
country for purposes of the antidumping duty law. The final results for
this changed circumstance review are therefore extended by thirty days,
making the new deadline February 16, 2006. Written comments (original
and six copies) should be sent to David Spooner, Assistant Secretary
for Import Administration, U.S. Department of Commerce, Central Records
Unit, Room 1870, 14th Street and Constitution Avenue NW., Washington,
DC 20230.

Shauna Lee-Alaia, Office of Policy, Import Administration, U.S. Department
of Commerce, 14th Street and Constitution Avenue, NW., Washington DC,
20230; telephone: 202-482-1579 or 202-482-2793, respectively.
                             BACKGROUND [FR Page 2905]
On April 2, 2005, the Government of Ukraine’s Ministry of Economy
and European Integration requested that the Department of Commerce
conduct a review of Ukraine’s status as a non-market economy (“NME”)
country within the context of a changed circumstances review of the
antidumping duty order on carbon and certain alloy steel wire rod from

In response to this request, the Department initiated a changed
circumstances review in order to determine whether Ukraine should
continue to be treated as an NME country for purposes of the
antidumping law, pursuant to sections 751(b) and 771(18)(C)(ii) of the
Tariff Act of 1930, as amended (“the Act”). See Initiation of a
Changed Circumstances Review of the Antidumping Duty Order on
Carbon and Certain Alloy Steel Wire Rod from Ukraine, 70 FR 21396
(April 26, 2005).

In its notice of initiation, the Department invited public comment on
Ukraine’s ongoing economic reforms and received extensive initial and
rebuttal comments on July 11, 2005, and August 31, 2005,
respectively. These comments have been made available to the public
at the Import Administration Web site at the following address:
http://ia.ita.doc.gov/. In addition, the Department has compiled and
analyzed information regarding Ukrainian economic reforms from
independent third-party sources that it commonly cites for market
economy status decisions.
                                  OF FINAL RESULTS
In order to consider any economic and institutional developments
that occurred in Ukraine since the closure of the record in this review
that may be of importance to the Department’s decision, the Department
is inviting further public comment on reforms in Ukraine. Specifically,
the Department invites comment on such developments in relation to the
factors listed in section 771(18)(B) of the Act, which the Department
must take into account in making a market/non-market economy decision:

    (i) The extent to which the currency of the foreign country is
convertible into the currency of other countries;
    (ii) The extent to which wage rates in the foreign country are
determined by free bargaining between labor and management;
    (iii) The extent to which joint ventures or other investments by
firms of other foreign countries are permitted in the foreign country;
    (iv) The extent of government ownership or control of the means of
    (v) The extent of government control over allocation of resources
and over price and output decisions of enterprises; and
    (vi) Such other factors as the administering authority considers

In order to provide opportunity to consider the comments, the
Department is extending the deadline for the final results of this
changed circumstance review by thirty days, making the new deadline
February 16, 2006.
The deadline for submission of comments is January 25, 2006. The
deadline for rebuttal comments is February 1, 2006.
Each person
submitting comments should include his or her name and address. To
facilitate their consideration by the Department, comments should be
submitted in the following format: (1) Begin each comment on a separate
page; (2) concisely state the issue identified and discussed in the
comment and include any supporting documentation in exhibits or
appendices; (3) provide a brief summary of the comment (a maximum
of three sentences) and label this section “summary of comment”; (4)
provide an index or table of contents; and (5) include the case number,
A-823-812, in the top right hand corner of the submission.

 Persons wishing to comment should file a signed original and six
copies of each set of comments by the dates specified above. All
comments responding to this notice will be a matter of public record
and will be available for public inspection and copying at Import
Administration’s Central Records Unit, Room B-099, between the hours
of 8:30 a.m. and 5 p.m. on business days. The Department requires that
comments be submitted in written form. The Department recommends
submission of comments in electronic media, preferably in Portable
Document Format (PDF), to accompany the required paper copies.
Comments filed in electronic form should be submitted on CD-ROM
as comments submitted on diskettes are likely to be damaged by postal
radiation treatment.

Comments received in electronic form will be made available to the
public on the Internet at the Import Administration Web site at the
following address: http://ia.ita.doc.gov/.

Any questions concerning file formatting, document conversion,
access on the Internet, or other electronic filing issues should be
addressed to Andrew Lee Beller, Import Administration Webmaster,
at (202) 482-0866, e-mail: webmaster-support@ita.doc.gov.

Dated: January 12, 2006.
David Spooner, Assistant Secretary for Import Administration.
[FR Doc. 06-461 Filed 1-17-06; 8:45 am]BILLING CODE 3510-DS-P

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
E. Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR),
Washington, D.C., Tuesday, January 24, 2006
WASHINGTON – The U.S. government has fielded a high-level team to
Ukraine this week to discuss a variety of important economic, business,
financial, energy, defense, security, democratic elections, government to
government issues and other relevant matters with top officials in the 
Ukrainian government. 
Heading the U.S. delegation are Daniel Fried, Assistant Secretary,
Europe and Eurasia, U.S. State Department; Anthony Wayne,
Assistant Secretary, Economic and Business Affairs, U.S. State
Department; Peter Flory, Assistant Secretary, International
Security Policy, U.S. Department of Defense; and Damon Wilson,
Director Central, Eastern, & Northern European Affairs, National
Security Council. 
Additional members of the U.S. Ukraine team are: 
, Marta Youth, Financial Economist,
Office of Monetary Affairs, Bureau of Economic & Business Affairs;
Rob Garverick, Energy Officer, Bureau of Economic & Business Affairs;
George Frowick, Country Assistance Officer for Ukraine, Moldova and
Belarus, Office of the Coordinator of Assistance for Europe & Eurasia;
and Darren Hultman, Ukraine Desk, Political Officer,
[2] U.S. DEPARTMENT OF DEFENSE, Jessica Kehl, Country Director
for Ukraine, Office of the Secretary of Defence ISP/Eurasia and Colonel
Michael Vogl,
[3] U.S. DEPARTMENT OF ENERGY, Lana Ekimoff, Director of Office
of Russia & Eurasian Affairs, Office of Policy & International Affairs,
[4] U.S. DEPARTMENT OF COMMERCE, Christine Lucyk, Senior
Policy Advisor, International Trade Administration,
[5] U.S. DEPARTMENT OF THE TREASURY, Matthew Gaertner, 
International Economist, Office of Europe & Eurasia.

According to Ukrainian state news service Ukrinform President

Yushchenko met in Kyiv with visiting US Assistant Secretary of State,
Bureau of European and Eurasian Affairs, Daniel Fried on Monday.
The parties discussed Ukrainian – American cooperation in the energy
sector and energy-saving.
According to President Yushchenko, the USA’s technical assistance is
very important in drawing out Ukraine’s energy-saving strategies. The
meeting also dealt with bipartite trade-economic cooperation.
The US delegation members reassured the President with regard to the
USA’s active work toward signing the bipartite protocol Ukraine needs
for joining the World Trade Organization (WTO).
Ukrinform also reported on Monday, January 23 that Verkhovna Rada
Chairman Volodymyr Lytvyn met in Kyiv with US Assistant Secretary
of State, Bureau of  European and Eurasian Affairs, Daniel Fried. 
As Mr Lytvyn noted, the meeting coincided with the first anniversary
of  President Viktor Yushchenko’s inauguration. In this connection Mr
Lytvyn stated his opinion that it would be proper to focus on assets of
this year as a very complicated one according to Ukrinform.
In turn, Mr Fried said that he was leading a representative delegation, the
very composition of which demonstrates the USA’s respect for Ukraine 
as a sovereign democratic nation, which is why we support the democratic
principles and are ready to cooperate with the new Ukrainian government.
Changes, which are typical of nations undergoing the process of democratic
transformations do not worry us, Daniel Fried said, as reported by
Ukrinform in Kyiv. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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      US Ambassador to NATO says for Ukraine Nato’s members had an
            obligation “to say ‘Yes, we want you as part of our family as 
             soon as you can do it’ [but] . . It has to be up to Ukraine.”

By Daniel Dombey, Financial Times, London, UK, Tue, Jan 24 2006

The US is setting out an ambitious agenda to bolster transatlantic ties and
reform the 26-nation Nato alliance, despite doubts about the organisation’s
ability to expand its role.

The alliance is seeking to carve out a place for itself in the post-cold war
world, but it is going through testing times. Its most high-profile task –
its peacekeeping mission in Afghanistan – could be thrown into confusion by
a parliamentary vote in the Netherlands, one of the countries that has
promised to send troops to expand the mission.

But, despite such pitfalls, US policymakers want to push ahead with a reform
plan ahead of a summit in Riga in November. “It’s time to get back to using
this house for an effort to build strategic consensus,” said Victoria
Nuland, Washington’s ambassador to Nato and one of the most influential
figures in the alliance.

Ms Nuland told the FT that the US and Europe had “re-understood” the need

to work together and that issues such as Iran’s nuclear programme would
increasingly be discussed at Nato’s Brussels headquarters.

The ambassador, a former aide to Vice-President Dick Cheney, argued that
Nato should focus on deepening its co-operation with countries such as
Australia and Japan and becoming a genuine globally deployable military
force in the run-up to the November gathering. It should also consider
setting up training academies in the Middle East and Africa, she said.

She hoped Nato would be able to admit new members in 2008, when Nato

plans a second summit. As for Ukraine, the highest-profile aspirant, she said
that Nato’s members had an obligation “to say ‘Yes, we want you as part of
our family as soon as you can do it’ [but] . . . It has to be up to Ukraine.”

At present, however, the dilemma over the Afghanistan mission – which Ms
Nuland identifies as “first and foremost” among her priorities – is
overshadowing such far-reaching goals.

In repeatedly delaying a parliamentary vote on the dispatch of 1,200-1,400
troops, the Dutch government has displayed the country’s unease over sending
its nation’s forces to the turbulent south of Afghanistan, an issue on which
Ms Nuland seeks to strike a reassuring note.

“We hope they go,” she said of the Dutch. “They’re great soldiers and we
want the strongest possible force in Afghanistan.” She added that the
mission would go ahead with or without the Dutch contingent.

But operations in Afghanistan and elsewhere are still hampered by Nato’s
lack of funds and resources.

“Nato is at the midway point of its transformation, not at the end point,”
said Dan Fried, US assistant secretary of state for European affairs. “Nato
needs more common assets, it needs the funding mechanisms to meet its
responsibilities, it needs institutional outreach in the world . . . It is
not the solution to every problem but it is part of the solution to many

Ms Nuland, who is married to Robert Kagan, the polemicist and author of
Americans are from Mars, Europeans are from Venus, acknowledged Nato

had a poor image in Europe and to a lesser extent in the US.

“We do a lousy marketing job,” she said, comparing Nato to the EU. “Every
time a European opens his wallet these days, the euro is staring him in the
face . . . We need to name our missions Nato. . . Our soldiers need to wear
the Nato patch . . . We’ve got to become a 21st-century organisation that
the population sees as keeping it safer every day.”

To do so, she argued, Nato needed to increase its common funding for
operations rather than relying on the countries sending soldiers and
materiel to pick up the bill. She said that improved funding and
long-distance airlift were also essential for the future of the Nato
Response Force, the rapid reaction force, which is supposed to become

fully operational this year. At present she acknowledged there were “a lot
of issues and problems” with the NRF.

“This is all part of a continuum of moving from a house where basically
everyone had to hold their own territory . . to common collective deployment
at strategic distances,” she said. “It’s a totally different animal.”

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                                 TO RUSSIA’S REGRESSION?
OP-ED: By Fred Hiatt, The Washington Post
Washington, D.C., Monday, January 23, 2006

If promoting democracy is President Bush’s largest ambition, then Russia

is his largest failure.

Not that President Vladimir Putin is the world’s most repressive ruler —
far from it. Dictatorships in Burma, North Korea and Zimbabwe are more
stifling. So, for that matter, are tyrannies in Russia’s neighborhood, such
as Belarus, Uzbekistan and Turkmenistan.

But no other nation has regressed from openness to authoritarianism during
Bush’s time in office as dramatically and decisively as Russia — and with
less apparent objection from Bush.

Of course, no U.S. president is responsible for Russia’s fate; Russians
are. Yet Syrians and Egyptians will determine their own fates, too, and
that doesn’t stop Bush from wielding U.S. diplomacy and rhetoric to aid
pro-democracy forces in their countries. His foreign policy is grounded in
the belief that over time the United States can be a force for liberty
throughout the world.

So his insouciance with respect to Russia is a mystery. Does it mask a
calculation that what happens inside Russia just isn’t as important as
democratic development in the Middle East, given the U.S. war against
radical Islamic terrorists? That it makes sense to keep Putin as a partner
while fighting those more pertinent battles?

That would be a miscalculation, for at least three reasons.

First, Russia is one front in the war. Its brutal tactics in the southern
province of Chechnya are radicalizing Muslim residents there; growing
Slavic nationalism risks alienating Muslim minorities in other parts of
Russia; and Putin’s succor of dictators in neighboring Islamic countries
such as Uzbekistan helps create the kind of terror-incubators that Bush
said after Sept. 11 could no longer be tolerated.

Second, while an authoritarian Russia may offer tactical cooperation from
time to time according to its interests, it cannot be a strategic partner
of the America that Bush described in his second inaugural address,

because the two countries’ values and goals will differ so sharply.

Third, and perhaps most damaging to Bush’s strategy, is the negative
example Russia provides. In the 1990s, democratization seemed inexorable.
Countries were moving toward freedom at different speeds, and some hadn’t
moved at all — but with the fall of communism, all eventually would. The
ease and speed with which Putin has reversed course saps the sense of
momentum and inevitability that could be Bush’s biggest ally.

Irina Yasina, director of a pro-democracy foundation in Moscow, said the
mood in Russia today resembles what Russians recall as the “stagnation era”
under General Secretary Leonid Brezhnev. Yasina, 42, remembers as a
10-year-old being told by her father — the now well-known liberal
economist Yevgeny Yasin — that he felt buried alive by the communist

“But at least then we knew that we were at the end of something,” Yasina,

a former journalist, said during a visit to Washington last week. “What is
most frightening now is that we don’t know whether something is ending
or is only just beginning.”

This month Putin signed legislation that could shutter Yasina’s foundation
and many other civic organizations. The law creates a Soviet-style
bureaucracy to register nongovernmental organizations, leaving the
qualifications so vague that the bureaucrats, or the Kremlin, will be free
to license or reject as they choose.

Yasina’s foundation is a likely target because it was founded, and is still
largely endowed, by billionaire oilman Mikhail Khodorkovsky, whom Putin

has had confined to a labor camp near the Chinese border because the
tycoon dared hint of a political challenge. The camp is a nine-hour plane
ride followed by a 15-hour train ride from Moscow, but sometimes when
his lawyers arrive they are told they cannot see their client because lawyer
visiting hours coincide with forced-labor hours, Yasina said.
Khodorkovsky’s visit with his wife, promised for month’s end, was
canceled — because, he was told, the visiting room is undergoing

This may seem petty, but pettiness and paranoia are hallmarks of a
president who increasingly has isolated himself from anyone but former

KGB agents like himself. The broadcast media are Kremlin-controlled, as
are parliament, provincial governors, unjailed business tycoons and the
judiciary. All of these sectors were free and independent when Putin —
and Bush — took office.

Now, although they are weak and he is strong, Putin is going after civic
organizations, because they are the final outposts of independent activity
— and because he is convinced that the CIA will use such groups to
threaten his regime.

This is the man whom Bush will visit in July when Putin hosts a Group of
Eight meeting in St. Petersburg. There will be fine photo opportunities in
repainted czarist palaces, and the message Putin wants to send his subjects
will be clear: I am a czar, and the leaders of the world’s democracies do
not care; they accept me. The question for Bush is whether he is happy to
help Putin send that message
.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Polish News Bulletin, Warsaw, Poland, Monday, January 23, 2006

WARSAW – In 2006 the LPP clothes designer and distributor is planning to
spend around ZL70m on investment in the development of its sales network,
especially abroad. “Our company wants to open up about 45 new shops,”
announced Dariusz Pachla, financial director and deputy CEO at LPP.

“Most of the new shops will be established in Russia and Ukraine. There

are a lot of opportunities for profit as you can realise the largest profit
margins there. They are also potentially very large markets,” continued
Pachla. Apart from Poland, LPP sells its products in Lithuania, Estonia,
the Czech Republic, Russia, Latvia, Hungary and Ukraine.

According to Pachla the clothes producer is not considering entering new
markets at the moment. 15 percent of LPP’s consolidated income comes

from foreign sales. The company’s long-term strategy is based on increasing
the number of shops and incomes abroad.  -30-
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Polish News Bulletin, Warsaw, Poland, Sunday, Jan 22, 2006

WARSAW – Forte, one of the largest Polish furniture producers, has
registered two subsidiary companies in France and Spain. Forte Iberia

from Valencia is Forte’s ninth foreign subsidiary.

It wants to gain a turnover of around EUR10-15m in 3-4 years of presence
on the Spanish market. In December last year Forte established its
subsidiary in Paris.

The turnover of the France-based company is to be larger than the Spanish
one’s by as much as EUR10m. Both Western European companies will not
be engaged in production.

“Costs in Western Europe are much higher than in the East. We produce in
Ukraine and Russia and are planning to expand our Ukrainian factory this
year,” said Andrzej Kotrzeb, Forte’s board member.

The furniture producer’s management forecasts that 2006’s incomes are to
exceed ZL500m. Other Polish furniture companies are also trying to conquer
the European market. Among them are Grupa Nowy Styl from Krosno and
Mikomax from Lodz. -30-
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By Sophy Buckley, Financial Times, London, UK, Tue, Jan 24 2006

LONDON -Marks and Spencer, the high street retailer, will shortly have

more than 200 international franchise stores, five years after it said it was
withdrawing from its lossmaking European operations.

This year it expects to open its first store in Ukraine and at least one
more in Moscow, where it already has two with FYBA Group, its

franchise partner.

M&S is also looking to open up shops in Switzerland and expects to

announce its franchise partner there before the spring. -30-
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By Tom Warner in Kiev, Financial Times
London, United Kingdom, Saturday, January 21 2006 
Ukraine’s government yesterday won an important victory in its effort to
renationalise a majority stake in one of the country’s biggest metallurgy
plants, Nikopol Ferroalloy, when the Supreme Court upheld a lower
court’s ruling ordering the stake returned to state ownership.

Ukraine’s president, Viktor Yushchenko, wants to re-sell the stake in a live
auction similar to the one in October in which Mittal Steel paid $4.8bn
(Euro4bn) for the steel mill Kryvorizhstal.

However, he is facing resistance from Viktor Pinchuk, son-in-law of the
former president, Leonid Kuchma, and from employees of the plant.

Mr Pinchuk said he acted “in good conscience” when he paid $80m in 2003

for a stake of just over 50 per cent, which today is worth an estimated
$300m-$500m. He accuses the government of helping other businessmen
who own a minority stake seize control.  -30-
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         FROM 3.5-5.5% TO 1.5-3.5% DUE TO HIGHER GAS PRICE 

Ukrainian News Agency, Kyiv, Ukraine, Thursday, January 19, 2006

KYIV – The World Bank has cut its Ukraine’s GDP growth forecast for

2006 from 3.5-5.5% to 1.5-3.5% due to a higher gas price. World Bank
Country Director for Ukraine, Belarus and Moldova Paul Bermingham
made this statement to the press.

The World Bank expects Ukraine’s budget deficit to grow to 4-4.5% of

GDP this year, again because of the new gas price.

An adverse effect of the price increase on Ukraine’s current accounts is
estimated by the World Bank experts at 3% of GDP, including 1.7% as

a direct influence and 1.3% as an indirect influence through export

The World Bank did not provide an assessment of the influence of the

price rise on inflation, saying that it is lacking latest reports on retail price
fluctuations. -30-
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    If you are receiving more than one copy of the AUR please contact us.
 RosUkrEnergo makes $50 million per employee in profits, no physical assets
   Front for unknown owners has become an embarrassment for Gazprom

By Andrew E. Kramer, The New York Times
International Herald Tribune, Paris France, Mon, Jan, 23, 2006

MOSCOW – Three weeks after Ukraine signed over exclusive rights to import
natural gas to an offshore company based in Switzerland, promised change has
been slow in coming to a little-known corporation that overnight became one
of the largest energy traders in Europe.

But a member of the board said the company was struggling with its new,
higher-profile role after functioning as a behind-the-scenes financial
intermediary in natural gas deals in the former Soviet Union on behalf of an
unknown group of international investors.

“We have an image problem,” said Wolfgang Putschek, a member of the board
of the company, RosUkrEnergo. “Something that was set up as an economic
intermediary has become a very political enterprise,” he said by telephone
from Vienna, where he is based. “Therefore we are open to attack by all the
political forces.”

Indeed, the company’s role as a front for unknown owners has become an
embarrassment for Gazprom, the Russian natural gas monopoly that is also a
half-owner of RosUkrEnergo, according to analysts who follow Gazprom.
The world’s largest natural gas trader, which opened its stock to foreign
investors this month, is pushing to clear up the ownership structure.

The company’s opacity has also moved the Parliaments in both Ukraine and
Russia to open investigations; muckraking Russian journalists have tried to
untangle the skein of shell companies and subsidiaries in the ownership
structure, and a prominent Ukrainian politician has tried to expose two
alleged beneficiaries.

The investigations are opening a window on the widespread use of shell
companies and offshore dealing, a dimension of Russian business practices
that proliferated in the 1990s yet remains mostly unseen.

In December 2004, a production unit of Russia’s then-largest oil company,
Yukos, was sold to Baikal Finans Group. The company, with a registered
address at a cellphone store 170 miles, or 270 kilometers, outside Moscow,
paid $9.37 billion for the Siberian oil field amid political tensions over
what was interpreted as the beginning of a partial nationalization of
Russian oil assets.

RosUkrEnergo, which owns no physical assets, has a dozen or so employees
at an office in Zug, Switzerland. They brought in $500 million in profit
before taxes last year, or about $50 million per employee, according to

The company evolved from a previous company that was registered in a
Hungarian village, which in turn grew from a trading firm called Itera that
reportedly fueled the high-rolling lifestyle of a generation of politically
connected business tycoons in both Moscow and Kiev, Russia’s Novaya
Gazeta newspaper reported this week.

Yulia Tymoshenko, the former prime minister of Ukraine, has said that the
current deputy director and former chief executive at Naftogaz are among

the beneficiaries. Neither man responded to requests for comment.

Under the contract that settled the gas dispute between Russia and Ukraine,
the company will buy Russian natural gas for $230 per thousand cubic

meters and sell it to Ukraine for $95. It will make up the difference by either
reselling gas in Western Europe – where prices range around $250 – or
blending the Russian gas with cheaper fuel from Central Asia.

Analysts say its potential for profit depends on the fuel mix and volumes
re-exported to Western Europe.

RosUkrEnergo is owned evenly by Gazprom and Raiffeisen Investment, a
branch of Banque Raiffeisen of Austria. The banking arm operates the share
in trust for unknown beneficiaries, Putschek said.

He said he knew the investors, yet by law their names never needed to appear
on any stock register. The shares are owned as bearer instruments, meaning
whoever holds the physical stock certificates owns the company.

Putschek said his shareholders’ representatives gathered for board meetings
in Zug, but generally exercised no control over operational questions of gas
supply or shipment.

“The industrial leadership is with Gazprom,” he said. “Formally, it’s 50-50,
but in practice Gazprom is the leading partner. As Raiffeisen, we won’t have
any say” over operations.

His company, he said, “enables Gazprom to accept compromises that are
face-saving for all parties involved. It could not be accepted by Gazprom
itself, because it’s removed from Gazprom. On the other hand, it’s very
clear that Gazprom controls the pipelines.”

Regarding Raiffeisen’s share, Putschek said the investors he represented
might consider selling to Naftogaz, the Ukrainian national company.

But for now, he said, RosUkrEnergo was planning what would be a first for
such offshore operators with an obscure past from the former Soviet Union:
an initial public offering. Analysts have been skeptical about its chances
of success amid the uncertainties over its role.  -30-
LINK: http://www.iht.com/articles/2006/01/23/business/energy.php?rss

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13.                              MORE TO THE GAS ISSUE
       Complicated schemes: how the RosUkrEnergo Co was established,
   how it operates, allocates profits and avoids hundreds of millions in taxes

Zerkalo Nedeli On The Web (ZN), Mirror-Weekly, #2 (581)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 21-27 January 2006

A reader who wants to understand how the RosUkrEnergo Company was
established, and how it operates and allocates profits will need patience,
stamina and analytical skills. We will do our best to explain those
complicated schemes in the simplest way possible, and based on the
documents we have at our disposal.

[Fact One] The Rosukrenergo Aktiengesellschaft Company is registered in the
Swiss canton of Zug. This is an important fact for us to bear in mind since,
according to the canton’s legislation, locally registered companies pay a
negotiated fixed tax, its rate being negotiated between the company owners
and local authorities at the moment of registration.

The tax rate may be fixed at 30 or at 3 million Swiss francs, depending on
the negotiation outcomes. The profit made by the company and its
stakeholders does not affect it at all.

The founders of RosUkrEnergo (RUE) are:
(1) Raiffeisen Investment Company, registered in Austria to
the address Tegetthoff-Strasse, 1, 1015 Wien;
(2) Austrian national Wolfgang Putcheck and
(3) another Austrian national, Yorg Windbichler.

These two men and the Raiffeisen Investment Company decided to convert
RUE into a joint stock company and issued 1,000 shares. Messrs Putcheck
and Windbichler got one share each, with the rest being held by Raiffeisen

Later, the RUE founders assigned those shares to two holdings – Centragas
and Arosgas – both, by a strange concourse of circumstances, registered to
the same address as one of the RUE founders Raiffeisen Investment, namely:
Tegetthoff-Strasse, 1, 1015 Wien.

Of course, there is nothing criminal in either this coincidence or the
organization of every separate link of the RUE chain. Yet we can see that
the scheme was conceived in one center.

[Fact Two] Another significant fact to remember is that, according to
Austrian law, holdings registered in Austria but doing no business in the
country’s territory are exempt from tax.

Thus, the RUE founders decided to transfer 500 shares of this Swiss company
to the Arosgas Holding and the other 500 shares, including the two held by
Putcheck and Windbichler, – to the Centragas Holding, which expands the
circle of the RUE shareholders to embrace the companies forming the above

These companies receive dividends from the profits made by RUE. Both
holdings are formed from a multitude of off-shore companies and, probably,

We have no access to the identities of those off-shore companies but,
frankly speaking, names like “System Ltd” based in the Virgin Islands,
Antigua, Cyprus, Panama or Delaware will not tell us much, although it is
under those names that the true RUE owners are disguised.

Their real names are known only to a registrar who keeps the registry of
RosUkrEnergo shareholders. He is the only outsider who knows whether the
Austrian holdings incorporate companies owned by Semion Mogilevich, Dmitry
Firtash, Vladimir Putin, Yuriy Tumanov, Yuriy Boiko, representatives of the
new Ukrainian administration or their family members.

[Fact Three] The third notable fact is that off-shore companies and their
profits are not liable to tax. So we have traced the main links of this
“tax-free” chain. Numerous off-shore companies belonging to the RUE real
owners do not pay taxes; two holdings made up of those companies do not
operate as commercial entities in Austrian territory, for Turkmenistan,
Uzbekistan, Kazakhstan, Russia, Ukraine and several European countries,
where RUE supplies gas, are not parts of the RUE-ETG “Austro-Hungarian
And local authorities of the Swiss canton Zug are quite content with the
negotiated fixed tax they receive irrespective of the profits that companies

The RUE profits amount to billions of US dollars, but the resource
countries, i.e. countries providing the company with their raw material
resources or transit facilities, lose hundreds of millions in uncollected
taxes. Ukraine and Russia top this list.

The RUE profits are allocated fifty-fifty between the Centragas and Arosgas
Holdings. You will remember that these holdings received 500 RUE shares
each. How those are divided within the Centragas and Arosgas Holdings
amongst their founding companies is unknown. In other words, only the top
management of both holdings is informed of individual off-shore companies’

However, ZN has learned from its sources who represents those holdings and
apportions profits. We are in possession of the minutes of a shareholders’
meeting chaired by one of the Gasprombank Vice Presidents. At the meeting, a
decision was made to form a coordination board to manage the RUE Company.
Yuriy Boiko, Ihor Voronin, Wolfgang Putcheck and a Mr Shelter-Jones were
elected to represent the Centragas holding on that board.

Interestingly, at the time the decision was made to delegate Yuriy Boiko as
a Centragas representative, he was Chairman of the Board of the National JSC
Naftogas Ukrainy. Moreover, as the First Deputy Minister for Fuel and
Energy, he was also a civil servant and, consequently, had no right to
represent any commercial entity.

This episode should have long ago been investigated as a gross violation of
the Law “On Corruption”, especially given that, according to our sources,
there is not a single document in the Naftogas Ukrainy archive authorizing
Mr Boiko to sit on the coordination board of the RosUkrEnergo Company.

Centragas is, conventionally, considered a “Ukrainian” holding, whereasa
Arosgas – a “Russian” one. As recorded in the abovementioned minutes of the
shareholders’ meeting, the Arosgas Holding is represented by deputies to
Chairman of the Board of the Russian JSC Gasprom Alexey Miller: Komarov,
Akimov and Riazanov, together with the CEO of a Gasprom subsidiary,
Alexander Medvedev (do you still remember we are speaking about an Austrian

The authorized representatives of both holdings form a “legislative” body of
sorts. People belonging to the “executive branch” are entitled, inter alia,
to sign agreements and contracts in the deals involving RUE. The
RosUkrEnergo CEOs are Messrs Chuychenko and Palchikov. They put their
signatures under the gas agreement concluded between Ukraine and Russia
on 4 January 2006.

As reported by the Russian “Nezavisimaya Gazeta”, Mr Chuychenko has close
links with the Federal Security Service (FSB). Mr Palchikov is also an
extraordinary character. Not only do we mean his eventful biography (with
its history of a long and rewarding friendship with Mr Mogilevych), but also
his work record as the EuralTransGas Company CEO. This fact, along with
other evidence, albeit circumstantial, gives grounds to regard RUE as the
successor to ETG.

In 2005, the Security Service of Ukraine (SBU) investigated an alleged gas
smuggling case and conducted a search in the unofficial Kyiv office of the
ETG Company. The investigators seized several foreign passports issued in
the names of non-existing people and of some former Naftogas managers
who worked there in the Kuchma era.

These and other documents found in the course of the search allowed the
investigating team to conclude that RUE is a successor to ETG, pursuing a
similar policy and using similar schemes but on a larger scale.

Formally speaking, RUE was incorporated in compliance with both Russian
and Ukrainian law (of course, if one turns a blind eye to “minor” breaches
of anti-corruption legislation by some individuals combining official
positions in public administration and business careers).
However, the company undoubtedly operates in the shadow, transferring to
off-shore zones big capital, which otherwise would be channeled into the two
countries’ state budgets.

For example, could Gasprom have undertaken to transit Turkmen gas for
Ukraine via the territory of Russia on its own? It could, but somebody
decided to engage RUE as an intermediary. Of course the transit dues are
commercial secret known only to Gasprom and RUE as contractual parties,
but gas experts maintain that RUE supplied Turkmen gas to Ukraine at the
internal Russian transit tariff.

Ukraine paid higher transit dues, but to RUE instead of Gasprom. It was the
first stage where the Russian state budget lost several billions. Ukraine
paid for the RUE transit services with gas. Last year, Kyiv paid about 13
billion cubic meters of gas for transit services to the Swiss (not Russian)
RUE Company.

This gas was then sold in Europe at a market price, so dear to Gasprom’s
heart. The proceeds, you will guess, went to the Rue shareholders’ accounts,
by-passing the Russian state budget.

The RUE Company was, purportedly, created to increase Russian natural gas
exports to Europe. Thus, Gasprom sells gas to RUE at an undisclosed price
(by some expert estimates, the producers’ release price is around USD $33
per 1000 cubic meters), and the Swiss company re-sells it in Europe.
Who reaps the non-taxed profits? Off-shore companies and individual
shareholders that own them. Gasprom and the Russian budget forgo millions.

Who benefits? Those who were allowed to design schemes for moving abroad
capital that should have been used to develop the national economy.

The Gasprom management has recently stated its intent to examine the RUE
schemes and take a closer look at its founders. The reason could be that
FATF, the international anti-money-laundering watchdog, paid attention to
the unremarkable RUE Company after it emerged from the whirlpool of the gas
conflict that had scared Europe so much and became a monopolistic supplier
of Asian gas to Europe.

The other day, local law enforcement authorities, reportedly, visited the
Swiss lawyer who keeps the RUE shareholder registry and served a court
writ on handing the full shareholder registry over to the authorities and
disclosing the beneficiaries, i.e. names of the off-shore companies’ owners.
The lawyer cannot flout the local court decision.

The FATF steps could have urged Gasprom to make the public statement
mentioned above. The State Duma raised several uncomfortable questions, too.
Besides, Russians understand that the situation in Ukraine in general and
with the Ukrainian shareholders of RUE, in particular, is unpredictable.

Therefore Russia, having so awkwardly placed RUE in the spotlight, could
want to replace the real and dummy founders and shareholders of the company
with official ones. However, questions to the Russian leaders about the
allocation of profits made earlier by the Swiss company remain unanswered.

And who will dare ask them of Putin? Perhaps interest groups in FSB and
Gasprom that resent the growing role RUE has come to play in the country’s
gas sector? Perhaps those who refuse to regard RUE as a staging post for
Putin between presidential terms?

Perhaps those who smuggled to Ukrainian politicians the text of the
agreement signed in Moscow on the night of 4 January 2006, which was later
publicized through the Internet? Various financial and political clans can
use the RUE story in their internecine struggle. Therefore, the pro-Putin
part of Gasprom is so keen to settle the hassle with the Russian share of
the company.
The Ukrainian share is a different matter. For one thing, some of the
shareholders have lost their positions in state power. For another, the
opposition in Ukraine is active and competent enough to analyze the
available information. It is wealthy enough to buy the missing information.
SBU has accumulated sufficient materials to bring criminal action against
specific persons.

According to the ZN sources, last week, for the first time since his
appointment in September, SBU Chief Ihor Dryzhchany took an active interest
in the progress in the ETG and RUE investigation. It transpired that the
team investigating shadow schemes used in Ukraine’s territory had been
dissolved. Mr Dryzhchany, supposedly, ordered to gather them again, but
we have no way of knowing what their mandate could be.

Obviously, people directly involved in the RUE activities from the Ukrainian
side, have started negotiating with their Russian counterparts the
possibility and terms of their acquiring citizenship in the Russian
Federation. Moscow has gained the reputation of a new Casablanca, having
offered haven to a number of persons wanted by the Ukrainian law

Given the country leaders’ political will and the SBU’s capacity, the RUE
Company’s shadowy schemes and activities in Ukraine could be revealed very
quickly. They have already missed this chance once. About six months ago, ZN
published a series of articles on RUE, highlighting its key role in shaping
relations between the Kremlin and Bankova Street. Yet we were not the first
to appreciate this role. It was a person who brought Dmitry Firtash to meet
Viktor Yushchenko during the election campaign. Some sources suggest it was
Olexander Tretyakov.

Dmitry Firtash, whom numerous world media tag as the mastermind of the gas
mediation scheme, met with Yuliya Tymoshenko soon after she was appointed
Prime Minister. No information was released on the subject or manner of
their talk. She might try to coax Firtash or, on the contrary, to threaten
him. In any case, they never found a common language.

Ms Tymoshenko went to war with RUE, presenting it to the public as

combating shadowy schemes in the country. Some think, though, that her
hidden motive was to have this company replaced with another intermediary
– ITERA. We do not know if it is true. Yet anyway, the RUE activities in
Ukraine had to be scrutinized for their detrimental implications for the state
budget revenues. The money that never reached the state budget could have
gone to the former public officials.

Presumably, Yuliya Tymoshenko strongly recommended that the Security
Service start investigating RUE’s arrangements and activities. She had no
formal authority to give instructions to the SBU, but [her closest political
ally] Turchynov’s position in the SBU and the importance of the issue for
the state treasury had a combined effect of adding momentum to the

Involvement of the Security Service was justified because the top leaders of
the country were associated with the case: in June 2004, Kuchma and Putin
discussed the incorporation of RUE at their meeting, less than a month
before its official registration.

So, an investigation team was set up under the leadership of the newly
appointed SBU Deputy Chief Andriy Kozhemiakin. The team did not have to
start from scratch: SBU had some materials gathered by [previous SBU Chief]
Ihor Smishko’s men who had probed into RUE’s predecessor – the Hungarian
ETG Company.

Yuliya Tymoshenko commissioned a thorough inspection of state monopolies,
including the National Joint Stock Company Naftogas Ukrainy. At first, the
inspection was planned to last a month, but the scale of revealed
malpractice was such that the inspection period was prolonged. The
investigators dug out a lot, ranging from trivial theft to systemic abuse.
They were about to press charges against Yuriy Boiko and Ihor Voronin.

However, the investigation was suspended for a number of reasons.

[1] First, Olexander Turchynov was, of course, SBU Chief but deep down
he was also (and still is) a public politician. Where the interests of the
investigation required low-profile, quiet and routine work coupled with
professional coordination of effort and meticulous recording of evidence,
his political self craved prompt and loud revelations, which did harm,
rather than good, to the investigation process.

[2] Second, Olexiy Ivchenko, new Chairman of the Board of the NJSC

Naftogas Ukrainy, was increasingly and ostentatiously vexed with the
inspectors’ presence in the Naftogas office. He seemed to become more
aware by day of the company’s grand capacity.

Concurrently, the investigators gained deeper insight into the dubious
schemes of using (or, rather, abusing) this capacity, and not only by the
previous Naftogas crew. The President received frequent complaints about the
damaging effect the long inspection had on the company’s performance and,
finally, issued a special edict forbidding Tymoshenko to interfere with

[3] Third, the Financial Audit Department and the Security Service of
Ukraine did not get any support from the prosecution and police authorities
whose help in some situations was critical.

[4] Fourth, some of the investigators, including the team leader, lacked
experience and skills in unraveling gas schemes. For instance, they should
have carried out searches simultaneously on all administrative premises of
the NJSC Naftogas Ukrainy. Instead, they did so with a two-week interval,
letting the key actors destroy essential evidence that could have shed light
on the Naftogas former management’s involvement with ETG and RUE as its

[5] Fifth, Olexander Turchynov made a lot of attempts to report the progress
of the RUE case inquiry to the President. When he was finally summoned to
the head of state in August, the latter met him in the doorway giving him
two orders, in the presence of several witnesses: “Stop spying on my guys”
and “Stop pitting me against Putin”.
Today Viktor Yushchenko claims nobody explained to him what RUE is,
what groups have a vested interest in it and in what way its activity is
injurious to Ukraine. It is hardly so. According to the ZN sources, over the
ten months of the inquiry, the Security Service of Ukraine sent about 20
analytical reports with a detailed description of RUE’s activities, and
forecasts of the imminent gas crisis.

Of course, we do not know if these reports were sifted by the people in the
President’s entourage eager to influence his perception of the gas
situation. Did the President get those reports? Did he read them? If he did,
why did he not demand from the Naftogas management whole information
about the company supposed to take a lead in supplying gas to Ukraine?

In theory, receiving regular SBU reports, Viktor Yushchenko should have
sought advice from his friend Olexiy Ivchenko. In theory again, Olexiy
Ivchenko should have prepared for the President a comprehensive, albeit
brief, fact-sheet with the data that any foreign counteragent must make
available to the Ukrainian party in order to draw a contract: statutory
documents, bank guarantees, a bank certificate confirming the company’s
solvency, the list of the company’s shareholders and a certificate of the
above data verification by the Security Department of the NJSC Naftogas
Ukrainy, if only to justify their existence.

Yet the Naftogas Board Chairman could not do it because the company has no
such data. More than that, neither the previous, nor the incumbent Naftogas
management ever asked RUE to provide them for contract drafting and signing.
Did Viktor Yushchenko instruct SBU to collect this information? If he did,
those instructions never reached the investigation team.

Investigation in the ETG and RUE case stalled while Turchynov was still the
SBU Chief, not because of him but, rather, due to containment by Yuliya
Tymoshenko, who did not want to further exacerbate her strained relations
with the President. After their dismissal, the investigation was frozen.

And again, it is up to the President who, under the amended Constitution,
has retained control of the Security Service which way the inquiry will go
from now on.

The Russian party is busy cleaning up the holding it controls, and it will,
probably, do so soon enough. Meanwhile, the Ukrainian party’s behaviour
is hard to predict, for there is no single decision-making authority in the
Some gas analysts argue that Russia’s ultimate aim is not the RUE individual
stakeholders’ enrichment. Nor is it Gasprom’s making more money on higher
prices for Ukrainian consumers. Those are important objectives, of course,
but the final aim is more ambitious. Many, although not all, of our
decision-makers realize that Russia aspires to get control of Ukraine’s
gas-transportation system.

This could be achieved in a number of ways, including the following:
pursuant to the decision of the National Electricity Regulation Commission
of Ukraine, the NJSC Naftogas Ukrainy sells natural gas to state-owned
enterprises and municipalities at prices disadvantageous for the company
headed by Olexiy Ivchenko. In fact, Naftogas Ukrainy subsidizes even private

Naftogas Ukrainy regulated its financial balance making profit on gas
re-export. The agreement of 4 January 2006 prohibits Ukraine from exporting
both Russian and Turkmen gas. Moreover, it envisions the establishment, by
Naftogas and RUE, of a joint venture to sell gas inside Ukraine. Thus,
Naftogas Ukrainy will have to share its gas proceeds. Unless the company
raises its prices (which would be damaging for the industries whose export
forms Ukraine’s state budget revenues), it will suffer substantial losses.

Further, recently the Fitch agency has announced the worsening of Naftogas’s
rating from “stable” to “negative”. According to experts, in theory this may
become a signal for the creditors of Naftogas, who in their turn may demand
the repayment of the credit lines which were opened for the company last

You certainly remember that during one of his first visits, Viktor
Yushchenko signed a credit line from Deutschebank to Naftogas. Its amount is
two billion dollars (eight percent interest). According to our source at the
National Bank of Ukraine, this credit line was transmitted to a Gasprombank

According to a source, Gasprom and its bank were also interested in other
international financial obligations of Naftogas of Ukraine. If all its
creditors concurrently and coordinately apply for the repayment of their
loans on the basis of the deteriorating economic situation in Naftogas, it
may possibly be forced to announce its bankruptcy. In such a situation, a
creditors’ committee is set up to determine the form of payment of damages.

What do you think it may ask for? Right you are – the gas pipeline. The
transit pipeline is certainly not a property of Naftogas. It is state
property. Yet the problem may lie in the fact that Ukrainian government
served as a guarantor of the opening of credit lines for Naftogas. However,
Ivchenko denies this fact, and nobody has seen the credit agreement.
By implementing this or any other scheme, Russia will put forth their
maximum effort to obtain control over the Ukrainian pipeline.

Russia’s “throat” is located in the same place as that of Europe and that
place is Ukraine. The question is who will be the first to take a grip on
it: Russia or Europe.

If Europe were not guided by a collective mind, constrained by bureaucracy,
but by an active one, such as that in the USA or Moscow, it would have
realized its benefit from its friendship with Ukraine or the danger of
Ukraine’s friendship with some one else long ago. In the next five to seven
years 80 percent of the Russian (and Asian) export gas will go through the
territory of Ukraine to Europe.

After the launch of Northern pipeline this percentage will be somewhat
redistributed, however Europe’s need in gas may well increase by that time?
If Europe turns unprepared to support Ukraine and having pulled it over to
its side to dictate the European rules of the game to Russia, Russia will
pull over Ukraine.

Moscow has cut Ukraine off the Turkmen gas, imposed a monopolist
supplier to it and fixed the transit rate for five years. Now it needs only
the pipeline. Then it will dictate its conditions to both Asian and European

Some experts believe that if Europe fails to realize the need to fight for
the “energy throat”, Ukraine may well enter into an alliance with Russia:
“We buy a large tested gas field from you, while you give us a quota for the
supply of Turkmen gas and ensure the transit of the gas from Asia and from
our deposit. And we yield 50 percent of the pipeline to you.” What will we
lose in this situation? experts ask.

However, the difference between the European and Russian rules of the game
is that in Europe these rules are stable, while in Russia they are
subjectively changeable. If you sign an agreement with Poland, you are not
interested if Kwasnewski will remain in power or not. If you have agreements
with Germany, it is all the same for you who will win in the elections –
Schroeder or Merkel.

But if you enter into an agreement with a Russian business, moreover a
monopoly, you have no guarantees that Druzhkov will not come instead of
Putin and rewrite the whole thing. There are dozens of tools for that
starting from the government’s decision on a radical increase of the taxes
imposed on foreign developers of Russian natural deposits to the law of the
State Duma outlawing those developers and owners.

We can’t disregard one more aspect: the USA is much concerned with

strategic consequences of the Russian-Ukrainian agreements. They are
aware of Ukraine’s role in “European security” much more than the
Ukrainian government.

They realize that gas and oil are another nuclear weapon, and consequently
Russia is a double nuclear state. That is why the USA would rather take a
grip on the Euro-Asian “throat” itself.

In short, it is not difficult to assume who has started the gears of the
International organization fighting money laundering. The information
obtained as a result of the exposure of the real shareholders of
RosUkrEnergo is capable of destabilizing the situation in those states

where Russia is at the first place.

We can only hope that we will not have to say the same about Ukraine.
It still has to fight off the hands stretching to its throat.  -30-
LINK: http://www.mirror-weekly.com/ie/show/581/52384/
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Ukrinform, Kyiv, Ukraine, Monday, January 23, 2006

KYIV – If the company RosUkrEnergo refuses to divulge the list of its
stockholders this will be a serious obstacle to establishing a joint
venture, meant for supplying gas to Ukraine, Economics Minister Arseniy
Yatseniuk told 1+1 tv channel viewers.

As Mr Yatseniuk noted, in accordance with Ukraine’s legislation, companies,
which have such sizeable capital concentrations as the NaftoGaz Ukrainy and
the RosUkrEnergo, are obliged to unveil complete lists of their
shareholders. Such are demands, in particular, of Ukraine’s anti-monopoly
legislation, Mr Yatseniuk added.

However, Arseniy Yatseniuk went on, we must pay attention not only to the
stockholders’ names  more importantly, we must scrutinize the RosUkrEnergo’s
relations with the gas suppliers. We must vet the RosUkrEnergo’s guarantees
to the Ukrainian party to ensure Ukraine’s natural gas balance.We are living
in the 21st century, and this means that any assets and any financial flows
must be transparent.

So, the company, which undertakes to supply natural gas to both Ukraine and
Europe, must be public, transparent and comprehensible, Arseniy Yatseniuk
said. He aired his assumption that, as could be gathered from statements by
both Gazprom and RosUkrEnergo senior execs, both companies will start
publicly placing their stocks, they will unveil their structures, with a
view of attracting new investors.

As Ukrinform reported on earlier occasions, on January 4, 2006 the

agreement was signed in Moscow among the Ukrainian national company
NaftoGaz Ukrainy, Russia’s Gazprom and the Russian – Swiss company
RosUkrEnergo, under which Ukraine will buy gas at its frontier, priced at
95 USD per thousand cu. m.

Tariffs for transit transportation of gas have been raised from 1.09 USD to
1.6 USD per thousand cu .m. per 100 km.

The NaftoGaz Ukrainy and the RosUkrEnergo are supposed to establish a joint
venture by February 1, 2006, which will supply Russian and Central Asiatic
gas to Ukraine.

 The Gazprom delegation’s visit to Kyiv, which had been slated for Saturday,
January 21, has been postponed to tentatively Wednesday, January 25. The
visit is meant for signing contracts on supplies of Russian gas to Ukraine
and establishment of a joint venture by the national company NaftoGaz
Ukrainy and the RosUkrEnergo.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
15.                          RUSSIA: PIPELINES AND SPIES

EDITORIAL: The Guardian, London, UK, Tuesday, Jan 24, 2006

It is surely just a coincidence that two big stories involving Russia have
hit the headlines in the past 24 hours, but both are puzzling – and
worrying. First came the accusation from Georgia’s President Mikhail
Saakashvili that Russia was responsible for the sabotage of gas pipelines
and electricity-transmission stations serving his country.

He gave no evidence to support his claim, which was duly ridiculed by the
Kremlin. But there has been tension between Moscow and Tbilisi since the
“rose revolution”, two years ago, and repeated charges of Russian meddling
in the former Soviet republic.

Russian energy exports have in any case been in the news a lot since before
Christmas when the state-owned giant Gazprom quadrupled the price of the gas
it supplies to Ukraine, ruled by Victor Yushchenko since its western-backed
“orange revolution”. The crisis ended quickly but left anxiety about the
dependence of the old Soviet “near abroad”, as well as most of western
Europe, on Russian gas and oil.

So, true or false, the Georgia pipeline affair belongs to a new era in which
Russia is suspected of using energy to intimidate its neighbours. The charge
that British spies have been at work in Moscow has a more old-fashioned
flavour, despite the hi-tech kit they allegedly used.

But there is a twist. The FSB, successor to the KGB, did not paint this as a
Smiley-type operation to recruit highly placed agents but to fund Russian
non-governmental organisations, which of course weren’t around in the old
days but are subject to Soviet-era smearing now.

Not surprisingly, there has been no confirmation from the British
government. It is no secret, though, that the UK, like the rest of the EU
and the US, supports the development of civil society, free media and an
independent judiciary in Russia – and rightly so. But this is done openly by
bodies such as the Westminster Foundation, the European commission and

the Ford Foundation, not MI6 or the CIA.

It is hard to know exactly what is going on. Still, this is all probably
linked to the Kremlin’s crackdown on NGOs, more evidence of the
“authoritarian drift” and “managed democracy” which have become bones of
contention between Vladimir Putin and his normally over-indulgent western
friends, especially since he took over the presidency of the G8 earlier this

Mr Putin’s reply is that stricter regulation is needed to stop Russian
groups being used and subverted by foreign elements. How very convenient
then, to discover that the cack-handed Smileys of the post-cold war era are
doing just that. That is surely no coincidence.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                          ABOUT GAS DEAL WITH RUSSIA

INTERVIEW: Ukrainian Defence Minister Anatoliy Hrytsenko
By Iryna Kostsyna, Fakty i Kommentarii, Kiev, in Russian 19 Jan 06; p 7
BBC Monitoring Service, UK, in English, Sunday, Jan 22, 2006

Defence Minister Anatoliy Hrytsenko has said that most cabinet members are
unaware of what was actually signed in Moscow on the Ukrainian-Russian gas
conflict, and that the involvement of a restricted number of people in the
talks is a cause for concern. In an interview with a Ukrainian tabloid, he
said that he was worried by the uncertainty inherent in the deal.

He is sure that President Viktor Yushchenko will not introduce direct
presidential rule following the cabinet’s dismissal by parliament. He is
scathing about recent court rulings regarding the military. The following is
an excerpt from the interview Hrytsenko gave to Iryna Kotsyna published in
the Ukrainian daily Fakty i Kommentarii on 18 January; subheadings have been
inserted editorially:

[Defence Minister] Anatoliy Hrytsenko arrived back from leave on 10 January.
And the first news that he was given after switching on his mobile phone was
that the Supreme Council [parliament] had dismissed the Cabinet of
Ministers. [Passage omitted: Hrytsenko says he is only an acting minister if
the president so decides.]

[Kotsyna] Mr Hrytsenko, in connection with the coming into force of
constitutional reform, do you realize that the role and functions of
parliament have somewhat changed? In other words, were you prepared for

the surprises that the Supreme Council dealt out on 10 January?

[Hrytsenko] The question of dismissing the [Yuriy] Yekhanurov government

had been discussed in the corridors of parliament long before the gas crisis.
And yet the 10 January dismissal was a surprise. Probably not only for me,
but also for many deputies who voted for it. It would seem that it also came
as a surprise to the speaker [Volodymyr Lytvyn], who a few hours previously
had given an assurance that parliament would not take any personnel
decisions. Either Lytvyn is no longer monitoring the mood in parliament, or
he is in good control of his emotions.

Talking about the role of parliament, it must be understood that without the
support of deputies, no government can function successfully. That was the
case even before the constitutional reform, and will be all the more so
after 1 January when the powers of the Supreme Council were expanded. But
they were also expanded for the Cabinet of Ministers, and substantially. Did
we realize how far the system of power in the country had changed? I think
not yet, not entirely.

But a lot has changed. For example the scrapping and creation of ministries
and central bodies of the executive and the appointment and dismissal of
deputy ministers are now the prerogative of the government. Before the New
Year those questions were decided exclusively by the president. Parliament
has received the right to pass resolutions of direct action and the
president cannot veto them… [ellipsis as published]

The constitutional changes have come into effect and it is unlikely that
they can be rescinded, but they need to be underpinned by a package of
second level laws – about the president and the cabinet, about a regulation
for the Supreme Council, about the opposition and other things.

From the viewpoint of the effectiveness of the authorities, the situation
today is critical. Why?

[1] First, the executive has not yet reached a high level of effectiveness –
from the cabinet to the district administration. Over the year thousands of
people in the entire vertical power structure have been replaced by new
ones, and not in every case by better ones. This is recognized by the
president and the prime minister, and it is visible to people.

[2] Second, parliament is operating inefficiently. It has been focusing on
the [March 2006] election for a long time, which reflects on its work. There
has not been and still is not a stable majority. The passing support for
individual laws does not make it possible to form integral and consistent
policy. Today the situation has worsened – an anti-government majority has
taken shape in parliament.
                      CAPRICIOUSNESS OF JUDICIARY 
[3] Third, there are even more questions to the judiciary. We are already
used to the fact that courts not infrequently take contradictory decisions
on one and the same issue. And neither a rank and file citizen nor an
oligarch can reliably defend his rights in a Ukrainian court. Neither can
the Defence Ministry defend the interests of the state: our lawyers go to
court with documents, but our opponents go with packages [money].

Court decisions regarding the Defence Ministry do not stand up to any
criticism, especially when it is a question of attempts to return plots of
land stolen from the state. But we also have examples when the court forbids
a senior military commander from summoning a subordinate: a commander of
operational troops summons a regional military commissar for a conference;
the latter appeals to a court and it cancels the commander’s decision.

The commander issues an order to deal with cases of bribery in a military
commissariat and a court forbids a check to be carried out. If we carry on
like this, a commander will be forbidden to conduct exercises with his
subordinates, and a regimental duty officer will be unable to check sentries
on duty… [ellipsis as published] Let us add to this the participation in
the election of the chairmen of the Supreme Court and Supreme Economic

Let us also add the absence in the country of the Constitutional Court as
the main arbiter in constitutional disputes. A sorry picture takes shape. In
effect today there are only two branches of power operating more or less
effectively on a daily basis: the executive and the “Fourth [estate]” –
journalists. But that, unfortunately, is not enough to move forward
[Kotsyna] Some politicians are proposing the introduction of direct
presidential rule in order to solve the crisis.

[Hrytsenko] I don’t support such statements, and I consider them in the
present conditions to be ill-considered and even provocative. Yes, direct
presidential rule might be effective given an appropriate vision of the
future and good organizational provision.

But then we would have to forget about the constitution, democracy and
European values, and return to the authoritarian totalitarian past of
several decades ago. Is society ready to resolve the current crisis of
governance at such a price? I don’t think so. It is not yet ready for that.
The ruling elite is also not ready for such a development of events.

[Kotsyna] Might it be that the floating of this idea was a trial balloon?
Not now, but after the parliamentary election to give the entire power to
the president?

[Hrytsenko] You know, I would assess that statement as concern for what
happened in parliament on 10 January (cabinet dismissal – Auth.). And maybe
as an emotional aspiration to shake up society and the polity and preempt
how the conflict between the branches of power without observance of the
norms of the law will end up.

After all, ineffective power sooner or later engenders in society the need
for a firm hand, authoritarian power that will install order. Ukraine needs
neither direct presidential rule nor direct parliamentary rule. President
[Viktor] Yushchenko has stated that he would act exclusively within the law,
thereby rejecting the appeal of his party members for direct presidential
rule. The Supreme Council should also head for legal shores.

[Kotsyna] Mr Hrytsenko, in view of the aggravated confrontation between

the president and parliament and in view of the fact that many experts are
comparing the present situation in Ukraine with the events in Russia in
October 1993 [when Russian President Boris Yeltsin shelled parliament into
submission], what options in your opinion are there for the worst
development of the situation? Perhaps, let’s say, the introduction at a
certain stage of a state of emergency?

[Hrytsenko] I think that in the year of Yushchenko’s presidency we have
become convinced that Viktor Andriyovych is not inclined to abrupt actions
in domestic policy. Yushchenko’s path is the path of seeking compromise.
Sometimes, in the opinion of even his closest supporters, it is an
excessively long path and sometimes not the most productive. Political
treaties and memorandums take too long to be agreed, and they live for a
very short time.

And yet, that is Yushchenko’s path, whether people like it or not. The
president can take authoritarian decisions, but he is certainly not a
dictator. Therefore, under any circumstances I virtually rule out the
adoption by the president of a decision to introduce a state of emergency

in the country, and I rule out 100 per cent that he will use force against
parliament as happened in 1993 in Russia.

I think that the president and government will make another attempt to
arrange cooperation with the current parliament and, what is more, the new
composition of the corps of deputies. [Passage omitted: Hrytsenko’s
prognostications about the new parliament after the elections]
[Kotsyna] Mr Hrytsenko, how will the contract on gas supplies affect the
[Hrytsenko] If the Defence Ministry and the General Staff work effectively,
the army may not even feel the effect of the gas price rise to 95 dollars.
Let me explain. The whole country knows that in 2005 prices for petrol and
diesel virtually doubled. But not everyone knows that in these complex
conditions the armed forces improved their combat training indicators, and
substantially – by 40-50 per cent.

We achieved this by means of better organization of tender procedures,
reducing terms of fuel supply to the troops five-fold and not funding
non-priority programmes. This year obviously we have an even more

complex task.

In order to answer your question properly, I should like first see the
documents signed and second I would like to hear the opinion about them of
as many qualified experts as possible. Today both the first and the second
are lacking. Unfortunately, most members of the government do not know what
was actually signed in Moscow on 4 January. The prime minister promised that
at a coming cabinet sitting we will discuss these questions in detail.

[Kotsyna] How can such secrecy be explained, in your view?
[Hrytsenko] I won’t give you a simple answer to this question. On the one
hand, thanks to round the clock work of the negotiators over the New Year
holidays, hundreds of millions of people in Europe today feel easy; it
proved possible to localize the gas conflict. Heat was coming into people’s
homes, industry was working and the information war was reduced to eulogies
regarding Ukraine.

On the other hand, information published in the press leaves a lot of
unanswered questions. To what level will the private middleman
[RosUkrEnergo] raise the price in the second half of the year – to 130, 230,
330, 530 dollars?

Were we too hasty to fix the cost of transit once and for all for five years
at a price of 1.6 dollars [per 1,000 cu.m. of gas per 100 km]? Who now will
guarantee Ukraine a balance of gas for the whole year, and will there be one
at all? Today I don’t know the answers to these and many other questions. I
hope that we will receive them.

I am worried not only as a minister, but also simply as a citizen, about the
procedure for preparing and holding negotiations. Why did a restricted
number of people take part in them? I respect the Naftohaz Ukrayiny
[Ukrainian gas monopoly] company, but in my opinion the ministries of
economics, finance, foreign affairs, justice and industrial policy should
definitely have taken part in it.

And diplomats should have been present at negotiations on an issue vitally
important for the country. It may be that the time factor influenced the
format of the negotiations or the threat that there might be interruptions
to the gas supply. But the problems over the signing of the gas agreements
were identified back in the June sitting of the government… [ellipsis as
published] It is all the more important to analyse the documents signed and
work out a draft intergovernmental agreement that reliably protects
Ukraine’s national interests.

I think that at the current level of gas prices the budget will suffer, but
not significantly. If the situation changes in the second half of the year,
and prices creep up, then we will not be able to implement our plans for the
country’s development as drawn up by the president, the government and

the Supreme Council. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
NATIONWIDE SPEECH: President Viktor Yushchenko
UT1 State TV, Kiev, in Ukrainian 1900 gmt 23 Jan 06
BBC Monitoring Service, UK, in English, Monday, Jan 23, 2006

KIEV – President Viktor Yushchenko has proposed a number of steps

intended to restore stability after the country was thrown into political
turmoil when parliament dismissed the government on 10 January.

Speaking in an address to the nation marking the first anniversary of his
inauguration, which was carried on all the major national TV channels on 23
January, Yushchenko called for a moratorium on all actions by parliament and
the executive that would further destabilize the situation, urged parliament
to ensure the operation of the Constitutional Court, and called for a public
debate on the political reforms shifting power from the presidency to
parliament that came into force on 1 January.

Yushchenko also praised the achievements of his administration over the last
year, outlined reform programmes for 2006, and urged all branches of power
to work together to ensure that the parliamentary election in March is free
and fair.

The following is the text of Yushchenko’s address, as broadcast by

Ukrainian state-owned television UT1 on 23 January:

Dear citizens, dear Ukrainian community!

A year ago I pledged on the Constitution of Ukraine and the Peresopnytske
New Testament to be loyal to Ukraine. For the country and for me personally,
this was an extremely important and difficult, sometimes dramatic, but
decisive year.

I am grateful to each of you for living through this year together, for your
faith and support. Together we have proved that the Ukrainian nation is
capable of building a modern, independent and democratic state.

We have understood that we can respond to internal and external challenges
only if we are united. We were united by the most important thing, which is
the sense of national dignity. Today we say: Yes, I am a citizen of Ukraine
and I am proud of it. This is the main achievement of the first year of my
The year of 2005 was, first of all, the year when our community revised its
values. And this is its historical significance. We have taken a new look at
ourselves and our country, its history and its future. For the first time,
the Ukrainian community has authorities who report on the execution of their
programme “Ten Steps Towards People” and who resolve all problematic issues
in a broad dialogue.

During this year some important steps were made to reduce the size of the
shadow economy. National budget revenues grew by 50 per cent. We returned to
the country billions of hryvnyas that were stolen during non-transparent and
non-public privatizations.

Care about children and their mothers, orphans and pensioners is the main
priority of the authorities. People’s real incomes grew by 20 per cent. This
is the highest indicator in all the years of Ukraine’s independence.

Another important task is to create additional jobs. I guarantee that during
the five years of my presidency we will create conditions in which every
able-bodied Ukrainian will have a decent job and a decent salary. We will
form a favourable climate for business and investment.

An important achievement of the new team is freedom of speech. The word
“temnyk” [media coverage instructions] has gone for good. Ukraine is
respected in the world. We have proved that from now on, Kiev is a
predictable and responsible partner that respects its neighbours.

We are building our foreign policy, guided only by the nation’s strategic
interests. We are now closer to Europe, we are better understood in Russia.
The world has recognized that Ukraine can protect its national interests.

A convincing example of this is the resolution of the gas problem. The
cabinet did not increase gas prices for ordinary people, as it promised.
Ukraine is receiving Europe’s cheapest fuel, while its gas transportation
system remains in state ownership. There can be no discussion of its
transfer to some other country or group of countries.
Responsible authorities should analyse their failures. All those who stood
close to me on the Maydan [Kiev’s Independence Square, the main site of

the Orange Revolution protests] a year ago received a chance to work in
Yushchenko’s team. Unfortunately, sometimes personal ambitions took
precedence. As a result, the country has lost time.

My favourite philosopher, Hryhoriy Skovoroda, said, “The greatest loss is
the loss of time.” As the president of Ukraine, I will not allow destructive
steps that could slow down the country’s development. The main lesson that
the authorities learnt last year is: Ukraine above all.

We need to be a strong and united team, and drop our personal ambitions

for the sake of future.
                    2006 YEAR OF NATIONAL REFORMS
Today I want to talk to you about what our country will be like tomorrow.
The year of 2006 will be the year of national reforms in areas that are
important to everyone, in particular, medicine, education, rural areas and
judicial reform.

[1] FIRST, the Health of the Nation programme, which will guarantee a list
of free medical services for every individual. We will restore a basic
health care system in rural areas. I view responsibility for the nation’s
health and investment in the health-care system as a contribution to the
development of the economy and the fight against poverty.

I will take under my personal patronage the introduction of national
programmes for combating cancer, TB, HIV/AIDS, and also heart and

blood diseases.

[2] SECOND, upgrading the system of education. Secondary and higher
education is a start for new generations. The time has come for an economy
of knowledge, with intellectual resources bringing the country much higher
dividends than natural ones. Good education is a chance for the children in
each Ukrainian family.

The task of the authorities is to ensure the accessibility and quality of
education. We will restore respect for teachers and will give them decent
wages and modern work places. We will root out corruption in the system of
education by introducing independent testing at higher educational
establishments in Ukraine.

[3] THIRD, Ukrainian rural areas. A programme for the development of rural
areas will create favourable conditions for the agricultural sector. Support
for farmers, loans for agriculture, the construction of homes, the
introduction of social programmes to provide incentives for young people to
come back to their villages. Modern technology should find its way to the
agricultural sector.

[4] The FOURTH, and one of the most important, tasks for the authorities is
the diversification of the Ukrainian energy market and an energy-saving
programme. We are planning to cut energy consumption by at least 10 per cent
throughout the year to ensure the country’s energy independence.

[5] FIFTH. A large-scale reform of the judicial system will be launched. The
country will receive a fair and independent judicial branch of power, and
every individual will be able to protect their rights. Fair justice is an
important step in fighting corruption. We should restore people’s trust in
courts and renew the body of judges in terms of quality.

The judge must be at the centre of judicial reform. For that reason, I as
president will do my best to ensure that an independent judicial branch is
formed in the country and the rights and freedoms guaranteed by the
constitution are ensured.

Our foreign policy priorities remain unchanged. Joining the European Union
is the main strategic aim of Ukraine. A qualitative rebuilding of
Ukrainian-Russian relations is also on the agenda. I will demand that every
Ukrainian official and diplomat firmly defends Ukraine’s national interests.

I hope that the new parliament will step up its work to bring national
legislation in line with European standards. This, in turn, will speed up
Ukraine’s pace towards the European Union and NATO.
2006 is the year of a parliamentary election, which will be an important
test of democracy. As the president of Ukraine, I assure you that this is
the first election in which administrative resources will not be used and
the authorities will not pressure voters.

As the guarantor of the constitution, I will react firmly to any signs of
violations of the election law. Campaigns should be conducted exclusively
with parties’ money. There should be no exceptions to this standard for

I signed today a decree to ensure a democratic, fair and transparent
election in 2006. I obliged the central and regional governments to create
all conditions to conduct a free and fair election. The authorities
guarantee equal opportunities for campaigning to all political forces.

I call on all parties and blocs to sign a fair election memorandum. At the
same time, I will not allow a single political force to divide the country,
speculate on language, religion, federalism or separatism.

Esteemed fellow countrymen! Assume an active civic position. We must

elect a new and responsible parliament together.

Remember that Ukraine’s development for the next five years depends on the
outcome of the election. Ukraine will become a strong and affluent country.
This requires that the authorities should be responsible, professional and
                               STABILIZATION PROPOSALS 

The latest events in the Supreme Council [parliament] have once again shown
that the country’s development can only be ensured in conditions of
political stability. We must achieve concerted action by all the branches of
[1] FIRST. I consider it necessary to introduce a moratorium on any decision
or action by the executive or the legislature which may destabilize the
situation in the country. The president, the government and the Supreme
Council should join forces to create conditions for conducting a fair
election, electing a new parliament, and creating a parliamentary majority
which will create a new government.

[2] SECOND, we need to ensure that the Constitutional Court can function
properly. The Supreme Council, acting in accordance with the law, should
swear in the judges of the constitutional court. This is the top priority of
the [next] 9th session of parliament. Parliament members should reach
agreement on judges elected under parliament’s quota. I believe that society
will appreciate such a step by parliament.

As president of Ukraine, for whom the law is above everything, I recognize
that from 1 January 2006, in accordance with parliament’s decision, a new
constitution has come into force in Ukraine. But I do not believe that this
constitution is ideal.

Reform of the basic law took place without the public’s participation,
without even a discussion in the Ukrainian parliament. I believe the public
should have its say about the changes to the constitution. After the
parliamentary election we will have an honest debate about political reform.

[3] For my part, and this is part THREE of my plan, I will initiate the
creation of a joint working group, with equal representation of the
president, parliament and the cabinet of ministers. The group’s priority
task will be to develop proposals on harmonizing the work of the branches

of power in Ukraine.

I am confident that an important step in this direction will be the adoption
of the bills that are marked as priorities on the agenda in connection with
the introduction of political reform in Ukraine. These bills include the law
on the Cabinet of Ministers, the law on the president on Ukraine, on the
opposition, on all-Ukrainian referenda, and others.

A year ago I promised that we would change the government. The first steps
in this direction have already been taken. The parliamentary election should
cement this change and completely dismantle the old system of government. I
am confident that democratic parties and blocs will win in March 2006. But
to win and to implement reform, a team is needed.

Every one of you is my team. I believe in every one of you. I know that our
strength is in unity. And we can make Ukraine strong and prosperous. Glory
to every one of you. Glory to Ukraine.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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Committee to Protect Journalists (CPJ), NY, NY, Mon, Jan 23, 2006

NEW YORK – The Kyiv Court of Appeals moved today to close to the public
significant portions of the trial of three men charged in the 2000 abduction
and murder of Internet journalist Georgy Gongadze. Journalists and a lawyer
representing Gongadze’s family criticized the decision, saying it would keep
the case out of the public eye, local and international press reports said.

The appellate panel headed by Judge Irina Grigoryeva barred the press and
public from attending the testimony of the defendants and government
security agents. The public is also barred from proceedings at which
materials containing state secrets are to be considered. The court will
decide what hearings will be accessible as the case proceeds, local reports

The trial of former police officers Valery Kostenko, Nikolai Protasov, and
Aleksandr Popovych reconvened today after a two-week pause. The hearings
started on January 9 but were postponed after Protasov suffered a
hypertension attack in court. Protasov’s lawyer argued that media presence
aggravated his client’s health, The Associated Press reported.

Andrei Fedur, a lawyer representing Gongadze’s family, criticized the court
decision, which effectively closes most of the proceedings. “Society will
not know what is happening here,” the AP quoted Fedur as saying. “There are
no legal grounds for this.” Fedur said the court closed certain hearings
because high-ranking officials would be called to testify, the AP said.

“The integrity of the government’s prosecution is undermined by a secretive
process,” CPJ Executive Director Ann Cooper said. “Given the allegations
of high-level involvement in this terrible murder, closing the proceeding is
the last thing the government should do if it wants to ensure a credible
outcome. State secrets can be guarded without the wholesale closing of the

The three defendants are charged with premeditated murder and abuse of
power in the killing of Gongadze, editor of the independent news Web site
Ukrainska Pravda, Interfax said. The prosecutor general’s office said it
continues to search for the crime’s masterminds.

Gongadze’s murder was among the catalysts for the popular uprising in late
2004 that ousted former President Leonid Kuchma’s corrupt government and
propelled reformist President Viktor Yushchenko to power. Allegations of
high-level government involvement in the Gongadze murder dogged Kuchma
throughout his final term.

In September, a parliamentary commission investigating the case accused
Kuchma, the late Interior Minister Yuri Kravchenko, Parliament Speaker
Vladimir Litvin, and former Ukrainian Security Services chief Leonid Derkach
of plotting the journalist’s murder. The commission recommended that
prosecutors open criminal cases against Kuchma, Litvin, and Derkach. The
commission’s findings were not binding on prosecutors.

On audiotapes made secretly by a former presidential bodyguard, Kuchma is
allegedly heard to instruct Kravchenko to “drive out” Gongadze and “give him
to the Chechens,” according to transcripts obtained by news agencies.

Also today, the appellate panel rejected a defense request to summon Kuchma,
Derkach, Litvin, and former presidential bodyguard Mykola Melnychenko to
testify. The court said the request was premature, according to the Kyiv-
based television channel Inter.  -30-

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

Alex Nicholson, AP Worldstream, Moscow, Russia, Friday, Jan 20, 2006

MOSCOW – Russia’s foreign minister on Friday criticized U.S. trade curbs
dating back to the Soviet era, suggesting that the long-standing
Jackson-Vanik amendments were an example of the unfair use of economic
levers to political ends.

The amendments to the 1974 Trade Act established sanctions to force
communist-led countries, particularly the Soviet Union, to allow Jewish

“To give an example of the use of economic questions for achieving unrelated
political goals. I will say just two words: Jackson-Vanik,” Foreign Minister
Sergey Lavrov said after the signing of an agreement pledging greater
diplomatic support for Russia’s railroad monopoly.

Lavrov mentioned the U.S. sanctions after denying that Russia was wielding
its energy-driven economic might unfairly. Observers have suggested that
Russia used a bitter gas price dispute with Ukraine to punish the former
Soviet republic’s new Western-leaning government.

“The use of economic levers to achieve foreign political goals is nothing
extraordinary,” Lavrov said. “All this must be done according to
international law. This is exactly how Russia is using its economic,
transport, transit and other geopolitical advantages.” He said Jackson-Vanik
“doesn’t correspond to the international legal framework.”

Lavrov called the agreement he signed with the head of OAO Russian Railways,
Vladimir Yakunin, a part of the “process for deepening the cooperation of
the Foreign Ministry with leading Russian companies.”

“Policy must be grounded in the possibilities of the Russian economy as well
as on the competitive advantages that favor of the Russian Federation,”
Lavrov said.

The Jackson-Vanik legislation so angered the Soviets that they allowed even
fewer Jews to leave for a few years, but eventually Jackson-Vanik was
credited with forcing the Soviets to give exit visas to more than 1 million
Jews. The restrictions became a lever to improve general human rights and
now cover Russia as successor to the Soviet Union.

President Vladimir Putin has campaigned for years to have them lifted, and
U.S. President George W. Bush has asked Congress in every year since 2001

to “graduate” Russia from the restrictions, but lawmakers have not voted to
remove them.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
20.                          THE LIGHTHOUSES OF CONFLICT
                             Money behind lighthouse row with Russia

ANALYSIS: Journalist Mykyta Kasyanenko
Den newspaper, Kiev, Ukraine, in Ukrainian 17 Jan 06; p 1, 2
BBC Monitoring Service,UK, in English, Saturday, Jan 21, 2006

Russia does not want to hand over Crimean lighthouses to Ukraine because
running the lighthouses is a lucrative business as ships pay duty for using
them, journalist Mykyta Kasyanenko has said. He quoted the leader of a
radical Ukrainian youth organization as saying that Russia owes Ukraine
about 30bn dollars for having the lighthouses in its possession since 1993.

Kasyanenko said that international law specifies that the country which owns
the waterways, which in this case is Ukraine, must ensure the safety of
navigation, and, therefore, the lighthouses in Crimea cannot be operated by

The following is the text of Kasyanenko’s article entitled “The lighthouses
of conflict”, published in the Ukrainian newspaper Den on 17 January;
subheadings have been inserted editorially:

Let us recall that at the end of last year the Ukrainian government decided
to conduct an inventory of property handed over to the Russian Black Sea
fleet. Most experts were saying that Kiev was trying to “tame” Moscow this
way because of its intentions to raise the price of gas.

However, the gas issue has been settled, and the theory connecting the two
negotiations’ processes does not sound very convincing. Maybe it is a way of
taking revenge on Moscow for “gas troubles”? Or is it an election campaign
message from the Ukrainian authorities, as some observers believe?

Both theories may be true, however, because of that same parliamentary
election factor, this move is very risky and somewhat reckless, as it is
difficult to predict its consequences externally and especially its impact
on domestic politics. The opposition forces will “play” the card of
worsening relations with Russia. Progovernment politicians will try to
“play” the card of making peace with Moscow. The second will be more
difficult, of course, and maybe even impossible under certain circumstances.

Ukrainian diplomats in informal discussions are dismissing these versions,
stressing that the difficulties in the issue of Russian fleet’s use of
Ukrainian assets have existed for years, and sooner or later someone had to
address them. The Ukrainian government decided that the time has come.
Russia was unprepared for this turn of events.
                           BACKGROUND TO INCIDENT 
The “lighthouse war” began last week. On the morning of 13 January, the
guards of the Yalta commercial seaport prevented the caretaker Viktor
Polishchuk, and later representatives of the [Russian] Black Sea fleet
hydrographic service, from entering the territory of the lighthouse. At the
same time, representatives of the seaport and the Ukrainian company
Ukrderzhhidrohrafiya [Ukrainian state hydrographic service] entered the
premises. News agencies reported on the “seizure of Russian property by

The Ukrainian Foreign Ministry responded by saying that all the navigation
and hydrographic equipment on the coast of Crimea, including the lighthouse
at the Yalta commercial seaport, is the property of Ukraine, and that the
basic agreements regulating the temporary deployment of the Russian fleet on
the Ukrainian territory does not provide for the lease of navigation and
hydrographic equipment by the Russian fleet and that “moreover, this is
prohibited by law”.

According to official information from the director of the Yalta seaport,
the Yalta lighthouse has been officially overseen by the Northern branch of
the Ukrderzhhidrohrafiya state company since 1998.

The dispute over the ownership of lighthouses and other navigation equipment
between Ukraine and the Russian navy has been going for over seven years.
During the process of dividing up the [Soviet] Black Sea fleet, only the
ships were discussed, while all of the land-based infrastructure, according
to the agreements, was to become the property of the state on whose
territory it was based.
The lighthouses were not leased by Russia because, according to
international law, the safety of navigation must be provided by the country
which owns the harbour waters and the ports. It turned out that servicing
the lighthouses is a lucrative business, because the ships pay the so-called
lighthouse duty, and the Black Sea fleet decided not to let these profits
slip, especially since the assets were in place and did not require

Since then, the demands from the Ukrainian side to transfer the lighthouses
were futile. The Ukrderzhhidrohrafiya company filed a lawsuit with the
Economic Court, which ordered the Black Sea fleet to hand over the
lighthouses and other hydrographic equipment to Ukraine. In response, the
Black Sea fleet posted armed guards at the lighthouses and prevented
Ukrainian representatives and court officers from entering the premises.

According to the leader of the “Student Brotherhood” all-Ukrainian youth
organization, Oleh Yatsenko, who held a news conference in Simferopol after
picketing the lighthouse on Cape Sarych, Russia owes more than 30bn dollars
to Ukraine for possessing the Crimean lighthouses since 1993.

In addition, Yatsenko said that the Black Sea fleet did not stop its
practice of subletting the facilities in January 2006 as promised, even
though the fleet’s command officially said in December 2005 about its
intention to do that. Yatsenko said that the Student Brotherhood visited an
island in the Kozachya bay and found that “this island had been illegally
sublet by the Akar firm, where, by the way, a monument of World War II
marine fighters is located, and it is the weal of all the Ukrainian people,
which cannot be sublet”.

The Russian Foreign Ministry asked Ukraine for official explanation of the
incident at the Yalta lighthouse, the ministry’s spokesman, Mikhail Kamynin,
said. The Russian consul-general in Simferopol and an official from the
Russian embassy in Kiev, together with representatives of the Black Sea
fleet, went to Yalta, the Russian Foreign Ministry said. The ministry added
that the incident may worsen the atmosphere of Russian-Ukrainian relations.

“An event has occurred, that can worsen the atmosphere of Russian-Ukrainian
relations, which is especially regrettable in the light of constructive
results reached at the recent meeting of Ukrainian and Russian presidents in
Astana,” an official comment from the Russian Foreign Ministry said.

“It is difficult not to view this incident as an attempt by certain forces
in Ukraine to once again complicate the situation with the Black Sea fleet
by conducting various acts of provocation, preventing the normal work of

the navigation and hydrographic equipment,” Kamynin said.

Russian hydrographic specialists said that the Ukrainians managed to seize
the Yalta lighthouse only because it does not have permanent personnel.

“The lighthouse is in a restricted access area on the guarded territory of the
Yalta commercial seaport. It works in an automatic mode. But the lighthouses
on Cape Sarych and Cape Khersones are manned around the clock and
cannot be seized easily,” the Russian specialists said.

They added that the next issue of the Russian “Notice to mariners” will
contain a note that due to the illegal seizure of the Yalta lighthouse by
the Ukrainian authorities and Russia’s inability to control its work, the
harbour of the Yalta port and its approaches are classified as a hazardous
area… [ellipsis as published]

Ukrainian Transport Minister Viktor Bondar said it would not matter because
modern vessels use old lighthouses only as secondary navigation means,

while the primary means are radio beacons, which work properly in Ukraine.
In addition, if this notice is published, Russia will have to answer for
providing deliberate disinformation to mariners, because the Yalta
lighthouse continues working normally.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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