AUR#656 Impact Of Gas Price Increase, Produce Nuclear Fuel; Anger Of UT-1TV Heroine Who Signed Up; Shrivelled Orange

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

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

                           
THE ACTION UKRAINE REPORT – AUR – Number 656
Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, THURSDAY, FEBRUARY 9, 2006
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
1.               UKRAINE — IMPACT OF GAS PRICE INCREASE
ANALYSIS:
By Edilberto L. Segura, Olga Pogarska, Oleg Ustenko
The Bleyzer Foundation, Kyiv, Ukraine, Wednesday, February 8, 2006
2.    UKRAINE WORKING GROUP TO DIVERSIFY GAS SUPPLIES
Interfax-Ukraine news agency, Kiev, in Russian 0916 gmt 8 Feb
BBC Monitoring Service, UK, in English, Wednesday, Feb 08, 2006

3UKRAINE SHOULD BE ABLE TO PRODUCE ITS OWN NUCLEAR
                FUEL PRIME MINISTER YEKHANUROV SAYS
Interfax-Ukraine news agency, Kiev, in Russian 1323 gmt 8 Feb 06
BBC Monitoring Service, UK, in English, Wed, Feb 08, 2006

4. UKRAINE GUNG-HO ON NUCLEAR POWER, DESPITE CHERNOBYL
New Europe, Athens, Greece, Monday, February 6, 2006

5 UKRAINE PM DEMANDS GAS COMPANY IDENTIFY INVESTORS 
              Group of secret investors who own half of RosUkrEnergo

Associated Press (AP), Kiev, Ukraine, Wednesday, February 8, 2006
                      IN ENERGY VENTURE ROSUKRENERGO 
RIA Novosti, Moscow, Russia, Tuesday, February 7, 2006

7.        MYSTERIES BEHIND THE NEW GAS JOINT VENTURE
              Will they undermine this country’s development program?
ANALYSIS & COMMENTARY: By Vitaliy Kniazhansky
The Day Weekly Digest in English, #3, Kyiv, Ukraine, Tue, 7 Feb 2006

8.                  AN OPPOSITE VIEW OF THE GAS CRISIS
ANALYSIS AND COMMENTARY: By Martin Nunn
The Action Ukraine Report (AUR) #656, Article 8
Kyiv, Ukraine, Thursday, February 9, 2006

9.      WHAT TO DO ABOUT GAZPROM’S MONOPOLY POWER?

ANALYSIS AND COMMENTARY: By Michael Emerson
Senior Research Fellow, Centre for European Policy Studies (CEPS)
Brussels, Belgium, Friday, 03 February 2006

10.        UKRAINIAN TABLOID SEGODNYA PUBLISHES TWO

                          PROPHET MOHAMMAD CARTOONS
Segodnya, Kiev, in Russian Monday, 6 Feb 06, p 6
BBC Monitoring Service, UK, in English, Monday, Feb 06, 2006

11UKRAINIAN MUSLIMS CONDEMN PUBLICATION OF DERISIVE
        CARTOONS IN WEST EUROPEAN PRESS AND IN UKRAINE
Ukrinform, Kyiv, Ukraine, Wednesday, February 8, 2006

12UKRAINIAN PRESIDENT SLAMS PUBLICATION OF PROPHET
MUHAMMAD CARTOONS BY SEGODNYA NEWSPAPER IN UKRAINE
Interfax-Ukraine news agency, Kiev, in Russian 1311 gmt 8 Feb 06
BBC Monitoring Service, UK, in English, Wednesday, Feb 08, 2006

13UKRAINE PRES ANGRY GONGADZE MURDER TRIAL CLOSED

Associated Press (AP), Kiev, Ukraine, Wed, February 8, 2006
 
            Focus on division of Waffen SS recruited by Nazis in Ukraine            
IAN COBAIN, The Guardian, London, UK, Saturday, Feb 04, 2006

15. ANGER OF HEROINE WHO SIGNED UP FOR A NEW FUTURE
            Sign language interpreter at the state television channel UT-1

      Hot-headed young reformer Andriy Shevchenko fired her, said the
       government channel no longer needed sign language interpretation.
By Jeremy Page, The Times Online, London, UK, Fri, Feb 3, 2006

16A REALISTIC UKRAINE, OR UNITY AND NEW PATRIOTISM
ANALYSIS & COMMENTARY: Volodymyr Horbach, Political Scientist
Ukrayinska Pravda, Kyiv, Ukraine, Tuesday, January 24, 2006

17.                                  SHRIVELLED ORANGE
                       Ukraine turned west, and the West turned away
LEADING EDITORIAL
: The Times Online, London, UK, Fri, Feb 3, 2006

18.     THE PLACE WHERE THE NATIONAL IDEA HAS WORKED
              The village of Ploske, Rivne oblast, first mentioned in 1568
By Petro Kraliuk, The Day Weekly Digest in English, #1
Kyiv, Ukraine, Tuesday, January 26, 2006

19.        VOLODYMYR VYNNYTSKY – PIANIST TO PERFORM

                A program of Mozart, Tchaikovsky, Skoryk and Chopin.
     Sunday, February 12, 3:00 p.m., The Lyceum Theater, Alexandria, VA
The Washington Group Cultural Fund (TWGCF)
Washington, D.C., Wednesday, February 8, 2005
========================================================
1.            UKRAINE — IMPACT OF GAS PRICE INCREASE

ANALYSIS: By Edilberto L. Segura, Olga Pogarska, Oleg Ustenko
The Bleyzer Foundation, Kyiv, Ukraine, Wednesday, February 8, 2006
 
                                          SUMMARY
Our analysis of the impact of the recent gas price increases on the
Ukrainian economy indicates that, though significant, it will not be as
damaging as initially projected by different experts.   In particular:

   [1] In 2006, GDP growth is expected to remain at a rate similar to
        the 2005 rate of 2.5%; this rate is about 2-3 percentage points
        less than what was initially forecasted.

   [2] Year-end inflation in 2006 will be at about 13-14%, 3-4 percentage
         points higher than initially forecasted.

   [3] The foreign trade balance will deteriorate but the current account
         will show only a slight deficit of about 1% of GDP, which will
         be partly covered by capital inflows.

   [4] Although pressures on the exchange rate will emerge, it will only
        slightly depreciate to about 5.2 UAH/$.

   [5] Although the fiscal budget deficit may increase, the government
        will have enough tools to keep it under 3% of GDP, a threshold
        considered sustainable by most international experts.

   [6] Although the gas price shock will result in a decrease of
        companies’ profit, most of them (with the exception of the
        most marginal enterprises) can absorb this increase.

   [7] The planned introduction of new energy-saving technologies
         should significantly decrease companies’ costs and increase
         their efficiency.

   [8] In the medium term, the overall economy will be boosted by
        increased investments in energy-saving technologies and faster
        adjustment of tariffs to cost-recovery levels.

                          NEW TERMS OF GAS IMPORTS

Ukraine inherited a very energy-intensive industrial sector from the Soviet
period. Being one of the largest consumers of natural gas in the world,
Ukraine did very little to reduce its gas consumption since independence.

Although Ukraine has its own gas resources, domestic gas production
accounts for about 25% of demand. The remainder is imported from
Russia and Turkmenistan (about 30% and 45%, respectively).

According to a barter arrangement with Russia, Ukraine received about 25
billion cubic meters (m3) of gas in 2005 at a price of $50 per 1000 as
payment for the transit through Ukraine of about 130 billion m3 of Russian
gas to Europe. [1] The transit fee was set at $1.09 per 1000 m3 per 100 km.

According to the new 5-year agreement signed between Ukraine and Russia
on January 4th 2006, Ukraine will obtain 34 billion m3 of gas of different
origin (primarily Turkmenistan) in 2006 at $95 per 1000 m3 for the first
half of the year at the Russian-Ukrainian border [2] from the company
“RosUkrEnergo”.  At the same time, the transit fee for Russian gas through
the territory of Ukraine was increased to $1.6 per 1000 m3 per 100 km.

To balance the demand, which is estimated at 76 billion m3, Ukraine plans to
get about 22 billion m3 of Turkmen gas under a separate contract. According
to state officials, the price of this Turkmen gas will be $50 per 1,000 m3
in the first half of 2006 and $60 per 1,000 m3 in the second half of the
year at the Turkmen-Russian border.

In 2005, Ukraine consumed about 36 billion m3 of gas from Turkmenistan at
an average price of about $47 per 1,000 m3. [3] At the same time, Ukraine
paid in kind 37.5% of the total amount of transported Turkmen gas as a
payment for transit through the territory of Russia.

Hence, the real cost of the Turkmen gas in 2005 was close to $65 per 1,000
m3 and the increase in 2006 in the average price of total imported gas will
only be 42% (for the calculations see Annex 1) at the Russian-Ukrainian
border.  This increase is significantly lower than the reported increase of
90% (from about $50 to $95 per 1,000 m3.)

MACROECONOMIC IMPLICATIONS OF THE GAS PRICE INCREASE

                                         EFFECT ON GDP

The gas price increase will have both a direct impact and an indirect impact
(through the “multiplier” effect) on GDP.

The direct impact of the gas bill increase on GDP can be estimated using the
simple calculations based on the change of gas prices, the ratio of net gas
imports to GDP and the price elasticity of demand for gas, according to the
following relation:

           % change in GDP = (% change in gas price)*(the share of
                                   imports of gas in GDP)*
                  ( 1 – gas price elasticity of demand*price ratio [4] )

If the demand for gas were to be independent of gas prices (zero elasticity
of demand for gas), the value of net imports of gas will change by as much
as the change in price of gas.  However, although the short run gas price
elasticities of demand tend to be very low in many countries, they rarely
equal zero. Taking into account international experience, the change in gas
prices will reduce gas demand and lower the value of net imports, thus
resulting in a smaller decline in GDP.

We limit the analysis of the gas price increase to its impact on GDP during
2006 and 2007.  Based on international results, [5] the gas price elasticity
of demand is estimated at 0.06 for year 1 and 0.25 for year 2. These
elasticities mean that as gas prices increase, the changes in the amount of
gas consumed will be quite small in the first year (only about 6% of gas
consumption) due to technological and time constraints but will increase in
the second year to 25%.

We also show the gross and net effects of the gas price increase. The change
in imported gas prices is estimated to be 42.5% and 41% if corrected for the
changes in transportation fees and gas export revenues (see Annex 1 for more
details).

The ratio of gas imports to GDP [6] was 4.85% in 2005.  But this ratio would
be 2.7% of GDP if one considers the change in the transit fees and the value
of exports from Ukraine. [7]

Our estimates show that the direct impact of the higher gas prices will be a
1.0-1.9 percentage point reduction from the initially forecasted GDP growth
in 2006 and 0.7-1.3 percentage points in 2007. Considering the fact that
before the gas dispute, international and domestic organizations forecasted
GDP growth at 5% yoy in 2006 and 5-5.5% yoy in 2007, the adjusted growth
will be in the range of 3-4% yoy in 2006 and 3.5-4.5% yoy in 2007.

In addition to the direct effect of the gas price increase on GDP, there
will be indirect impacts on GDP through a number of other channels. In
particular, the above analysis does not incorporate the “multiplier” effect
of gas price increases on consumption.

In fact, it is well-known that an initial change in an autonomous GDP
expenditures item can have a much greater impact on equilibrium national
income (GDP) since any changes in aggregate demand represent injections
(exemptions) into the circular flow of income, which affect further rounds
of consumption spending.

Other channels through which higher gas prices may affect the economy
include a possible reduction in exports of high energy-intensive industrial
enterprises. For instance, a 1% decline in real exports would “cost” about a
0.5 percentage point reduction in GDP since exports account for more than
half of it [8] (for more details see microeconomic implications of the gas
price increase below).

Taking into account direct and indirect effects of the impact of increased
gas prices on the economy, our analysis suggest that GDP growth in 2006
will be negatively affected by 2-3% percentage points from the originally
expected rate of 5% yoy.  Therefore, GDP growth of about 2-3% yoy in
2006 seems to be a realistic scenario.

          FOREIGN TRADE AND THE CURRENT ACCOUNT

The most significant effect of gas price increases will be felt by
export-oriented industries such as metallurgy and chemicals, which together

account for more than 50% of Ukraine’s total export. At the same time, as
noted earlier, the gas price of $95 per 1,000 m3 under the Russian deal will
represent an average price increase for imported gas of only 41%-42.5%
yoy, instead of the widely-mentioned 90%.

Although the increase in gas prices will significantly reduce the
profitability of metallurgical companies and place the chemical enterprises
on the edge of profitability (see Microeconomic Implications of Gas Price
Shock in this paper for more details), an even more crucial element for
export performance in these industries is development of world metal and
chemical prices.  On a positive note, according to international forecasts,
steel prices in 2006 will remain at a relatively high level.

Although steel prices declined in 2005, they are still significantly higher
than the prices in effect in 2003. International prices for chemical
products are forecasted to increase.  Nevertheless, exports still may
decline as some marginal companies may no longer be viable with the new
gas prices.

On the import side, energy resources hold the largest share in total imports
with natural gas representing about 12% of total imports. Thus, the increase
in gas prices will negatively affect the merchandise foreign trade balance.
As a result, the merchandise trade deficit will worsen.

However, the deterioration in merchandise trade will be partially covered by
a larger surplus in foreign trade of services due to increased
transportation tariffs. As a result, the direct impact of the gas price
change on the current account balance in 2006 will be around 1.2% of GDP,
resulting in a small current account deficit in 2006 of about 1.0% of GDP.

                              CONSOLIDATED BUDGET

The increase in gas prices will affect the fiscal budget situation adding to
the fiscal pressures already in place due to recent increases in pension
payments.

The adopted 2006 budget was developed keeping the imported gas prices
unchanged from the 2005 level. Moreover, the budget parameters were
estimated based on overoptimistic GDP growth (7% yoy). Considering the
lower GDP growth now envisaged, budget revenues may be lower than
estimated in the budget law.

Moreover, if the government decides to continue to subsidize households
via low utility tariffs and support affected industries, the consolidated
fiscal deficit may well exceed the 3% of GDP threshold considered
sustainable by international organizations. At the same time, we believe the
government has enough tools to keep the budget deficit under control.

Due to consolidation of budget funds in a unified treasury account, the
government may efficiently manage the fiscal balance through tight control
over expenditures.  We therefore anticipate that the fiscal deficit will be
maintained at about 3% of GDP in 2006.

                                            INFLATION

For next year, the government forecasted inflation to decline to 8.7% yoy.
However, both international and domestic experts were more cautious
forecasting inflation at about 10% yoy. [9]  The high oil prices in 2005
that affected transportation tariffs may continue to pressure inflation
in 2006 as a spillover effect on other prices. The higher price of imported
gas will also pressure transportation [10] and utility tariffs.

At the beginning of 2006, the government announced the rise in electricity
tariffs and gas tariffs to industrial producers, heating suppliers, the
budget sector and households. Although the decision to raise tariffs for
households was overturned, most likely they will be raised after the
parliament elections scheduled for March 2006.

If the gas price increase were to be passed on entirely to consumers,
inflation would increase by 5-9 percentage points higher than initially
forecasted. However, such a move is very unlikely. We estimate that utility
tariffs will be increased by about 25% in 2006, which will add 1.75
percentage points to the initially forecasted inflation. Higher gas prices
will be reflected in acceleration of producer prices.

Although the magnitude of the producer price increase will depend on the
extent to which producers try to compensate for the decline in their profit
margins, higher producer prices will represent an upward pressure on
consumer inflation. In addition, loose fiscal policy in 2006 will also add
to inflationary pressures. Considering the above, we believe consumer
inflation will be 3-4 percentage points higher than initially forecasted, in
the range of 13-14% yoy at the end of 2006.

                                      EXCHANGE RATE

During 2005, the national currency appreciated by about 4.8% against the
US dollar from 5.3 to 5.05 UAH/$. In 2006, exchange rate dynamics will
be affected by the worsening of foreign trade performance, which will
lead to the relatively small current account deficit, and the large
increases in wages that have taken place over the past year.

We also believe that the current account deficit will be only partially
covered by capital inflows due to political uncertainties related to
parliamentary elections and the introduction of changes to constitution. As
a result, there may be depreciation pressures on the exchange rate during
the year. In fact, due to weaker exports at the end of 2005, the foreign
exchange market has experienced a shortage of foreign currency since the
beginning of 2006, causing the NBU to sell its international reserves.

At the same time, the NBU has enough reserves (about $19.3 billion at the
end of 2005) to keep the exchange rate unchanged at least in the first half
of the year in order to contain pressures on inflation and exchange rate
generated by political and gas issue uncertainties. However, we believe the
exchange rate will be allowed to gradually depreciate to 5.2 UAH/$ to avoid
possible abrupt drop in the central bank’s international reserves.

THE MICROECONOMIC IMPLICATION OF A GAS PRICE SHOCK

Over the last 15 years, Ukraine has experienced significant changes in its
structure of fuel consumption. There was a clear trend towards a diminishing
role for both oil and coal as energy resources, which were substituted by
gas. Currently, Ukraine consumes around 76 billion m3 of natural gas, which
constitutes almost 40% of the country’s total fuel consumption, while in
1990 this share did not exceed 28%. These changes were induced by low
prices for gas, which was imported under the special preferential
arrangements.

Since gas can be substituted relatively easily by other types of fuel and
vice versa, some significant changes occurred in the Ukrainian economy over
that period of time. More precisely, many sectors of the economy started to
increase their exposure to gas and equipped themselves with the respective
technology and machinery.

The geographical breakdown of gas consumption suggests that Ukraine is
highly dependent on its imported gas, since only around 20 billion m3 is
produced domestically. Around 36 billion cubical meters is imported from
Turkmenistan and around 25 billion m3 from Russia.

Given that the gas dependency ratio for the Ukrainian economy from imported
gas is high at around 73% [11], any increase in prices for gas will have a
significant effect on enterprises. These microeconomic effects will be split
between different sectors of the economy due to differences in their
individual exposures to gas dependency.

The current structure of the gas consumption in the country suggests that
the most gas consuming sector is the industrial sector, whose annual total
demand for gas is estimated at 55 billion m3 or 72% of the country’s total
consumption of gas. [12] The second largest sector is transportation, whose
share in gas consumption does not exceed 8%. Therefore, the industrial
sector is the most sensitive to any changes in gas prices.

Within the industrial sector there are three sub-sectors that are the most
dependent on gas consumption: (i) metallurgy, (ii) machinery, and (iii)
chemicals.

                                         METALLURGY


The industrial sector of the Ukrainian economy consumes about half of all
the energy consumed. Metallurgy (iron and steel production) is the most
important component of industry at present. Its link with energy resources
is two-fold.

First, it uses coke coal (which is about one half of total production of
coal) as an input (90% of domestic coke coal goes into this sector).

Second, it consumes around 80% of gas used in the industrial sector [13].
The Ukrainian metallurgical sector had benefited from the low prices of gas
and was able to show average profitability in 2003-2004 of around 20%.
[14]

This level of profitability is significantly lower than the average shown by
international steel producers. For instance, even in 2003, when metal prices
were considerably lower than their current level, the profitability of hot
rolled coil was 14.2%; In 2004, when metal prices started to grow
significantly, it reached 41.4%, and 52.4% in 2005. [15]

Due to the low quality and imperfect technology of the existing production
facilities in the metallurgical sector, the share of the gas cost in the
total structure of production costs is high. By different estimates it
varies from 10% to 15% depending on the type of production compared
with 3% to 7% in EU countries. [16]

The current increase in gas prices by around 45% will lead to an increase in
the share of gas cost in total production costs, and, correspondingly, to an
increase in total production costs. Assuming that the market prices for
metallurgical products remain unchanged, Ukrainian metallurgists will face a
significant decrease in the level of their profitability. The profitability
will drop from the current 20% to 13.3% – 15.5%.

The expected drop in the profitability level is not critical and should not
significantly affect the behavior of the Ukrainian metallurgical companies
in the short run. However, in the long run companies from this sector will
be needed to introduce new technologies with a significantly higher level of
efficiency in terms of gas utilization.

In fact, while about 95% of steel production in the world utilizes the more
efficient continuous casting process, only 27% of steel making is based on
this technology in Ukraine. This percentage is even lower than the 50%
achieved in Russia.

                                           MACHINERY

The cost of gas in the Ukrainian machinery sector does not exceed 5% of the
total costs of production. [17] Therefore, the increase in gas price should
not lead to significant immediate changes in the country’s machinery.
However, this industry will be affected indirectly by the increases in the
prices of inputs, particularly steel, as a result of higher gas prices.

It should be expected that in the long run, companies from this sector will
be implementing investments to improve their efficiency, including energy
conservation technologies.

                                          CHEMICALS

The share of gas in the total structure of production costs in chemicals is
the highest compared to other industrial sectors. By different estimates,
its average level in non- fertilizer production is up to 50%. Moreover, in
fertilizer production this share jumps to 70%.

The chemical sector greatly benefited from cheap gas, which made it highly
competitive on the world market. In 2003-2004, around 90% of Ukrainian
chemicals production was exported. Therefore, within Ukrainian industry, the
chemical sector is the most sensitive to any changes in gas prices due to
the significant share of gas costs in the total costs of production.

The increase in gas prices will be quite damaging for the Ukrainian chemical
sector. However, it will not destroy it, especially if the urgent supportive
measures in this sector are introduced. Due to differences in profitability
within the industry, which varies from 25% in non-fertilizer production to
almost 50% in fertilizer production, and different dependency on the gas, it
could be expected that the price shock will also differ within this sector.

While fertilizer producers will be able to make a 18.5% profit, the
non-fertilizer producing companies will be able to make 7.5%. However,
the increase in world prices for chemicals of around 9.3% projected for
2006 could partially eliminate the negative consequences of the gas price
increase. [18]

The Ukrainian chemical sector is in a clear need of changes in their
technology to those oriented toward more efficient gas conservation. In
order to avoid damaging consequences of the introduced price shock, the
corresponding measures in this sector should be implemented immediately.

                                     INDIRECT EFFECT

The increase in prices for gas should lead to a substitution of gas by other
energy sources. At the same time, increasing demand for alternative energy
resources will be reflected in the increasing prices for them. Therefore,
the increase in gas prices will have a spillover effect on other sectors of
the economy, which are not directly related to gas consumption. -30-
————————————————————————————————–
        ANNEX 1. GAS PRICE INCREASE CALCULATIONS


                                        ASSUMPTIONS

Due to the lack of publicly available information, for the purpose of this
analysis we assume: (i) the price of the imported gas under the arrangement
between Russia and Ukraine will be unchanged during 2006-2007 at $95 per
1,000 m3; ii) Ukraine will receive 22 billion m3 of Turkmen gas under the
separate contract at an average price of $55 per 1,000 m3; [19] iii) the
amount of gas will be delivered in equal quantities per each half-year under
both deals; and iv) Ukraine will be unable to export any amount of gas in
2006 [20].

We differentiate “gross” increase in imported gas prices, i.e. not including
the increase in transit fee for gas transported through the territory of
Ukraine, and “net” increase in imported gas prices, i.e. including the
increase in transportation fee and change in the Ukrainian gas exports.

                                      CALCULATIONS

THE AVERAGE PRICE OF IMPORTED GAS IN 2006 WILL BE
AROUND $92.5 PER 1,000 m3:

——————————————————————————————-
Payments in accordance with the Russian deal:
$95 per 1,000 m3 * 34 billion m3 = $3,230 million
——————————————————————————————-
Payments for Central Asian gas (separate contract):
$55 per 1,000 m3 * 22 billion + $55 per 1,000 m3 * 13.2 billion
m3 [21] = $1,940 million
——————————————————————————————-
Total payment for imported gas:  $5,170 million
——————————————————————————————-
Total amount of imported gas to Ukraine:  56 billion m3
——————————————————————————————-
THE AVERAGE PRICE OF IMPORTED GAS IN 2005 WAS
$64.8 PER 1,000 m3:

——————————————————————————————-
Payment for Turkmen gas:
36 billion m3 * $47 per 1,000 m3 + 21.6 billion m3 (payment for
transit) * $47 per 1,000 m3 [22] = $2,707 million
——————————————————————————————-
Payment for Russian gas:
25 billion m3 * $50 per 1,000 m3 =  $1,250 million
——————————————————————————————-
Total payment for imported gas:  $3,960 million
——————————————————————————————-
Total amount of imported gas to Ukraine:  61 billion m3
——————————————————————————————-
HENCE, THE “GROSS” INCREASE IN THE PRICE OF
IMPORTED GAS SINCE 2006 CONSTITUTES AROUND 42.5%.

——————————————————————————————-
Transit fee payments in 2006:
($1.6 per 1,000 m3 per 100 km) x 121 billion m3 x 1060 km [23] =
$2,050 million
——————————————————————————————
“Net” cost of imported gas to Ukraine in 2006:
$5,170 – $2,050 = $3,120 billion.
——————————————————————————————
In 2005, the cost of the gas imports from Russia was totally offset by
transit fees. No additional cost to Ukraine was incurred for the Russian
gas. Therefore in 2005, Ukraine had to pay only for the 36 billion of gas
imported from CA. At the same time, Ukraine exported about 5 billion m3
of gas in 2005. [24] It looks reasonable to assume that the price was
comparable to the average European gas price in 2005 ($150-200 per
1,000 m3).

However, according to preliminary data released by the State Statistics
Committee of Ukraine, natural gas exports amounted to about $350 million
for January-November 2005. The released data is very preliminary and the
actual amount of gas exports in 2005 may reach $500 million.

——————————————————————————————–
“Net” cost of imported gas to Ukraine in 2005:
$2,707 million (payment for Turkmen gas, see above calculations)
– $500 million = $2,207 million.
——————————————————————————————–
Total amount of gas consumed in 2005 and 2006: 56 billion m3.
——————————————————————————————–
HENCE, THE ‘NET” INCREASE IN THE PRICE OF IMPORTED
GAS SINCE 2006 CONSTITUTES AROUND 41%.
-30-
——————————————————————————————–
                                        FOOTNOTES

[1] Since the terms of the contracts and other data regarding gas imports
are not officially disclosed, the analysis in this paper is based on the
information of news agencies and state officials’ statements.
[2] Although according to the agreement the price of $95 per 1,000 m3
was guaranteed just for the first half of 2006, for the purposes of this
analysis we assume that the price will be unchanged during 2006-2007.
[3] Ukraine had an arrangement with Turkmenistan, securing the price of
$50 per 1,000 m3 with half of the purchased amount to be paid in kind.
However, in the middle of 2005, Ukraine negotiated the price of $44 per
1,000 m3 to be paid in cash.
[4] The ratio of new gas price to the previous price.
[5] See for instance, Tarr D. and P. Thomson, “The Merits of Dual
Pricing of Russian Natural Gas”, 2003. – The World Bank.
[6] The GDP in 2005 is estimated at $81.7 billion.
[7] It also has to be noted that the share of gas imports to GDP is very
sensitive to fluctuations of the exchange rate. While the prices for
imported and exported gas are defined by bilateral (trilateral) agreements,
GDP is calculated in national currency. Although adjustment by exchange
rate fluctuation we leave beyond this note, for more extended analysis we
use both the “gross” and “net” share of gas imports to GDP, thus
presenting the range of GDP impact.
[8] A decline in exports by 1% yoy in real terms would actually mean an
increase in nominal exports by about 14% yoy.
[9] According to the Consensus forecast as of October 2005, Economic
Intelligence Unit Country Forecast for Ukraine as of November 2005,
and IMF Country Report #05/415 as of November 2005.
[10] Even if the gas prices did not change, the cost of public
transportation was expected to be raised after March’s parliamentary
elections since it has been unchanged for several years.
[11] Calculated as a share of imported gas to the total country’s gas
consumption and does not reflect any export of gas, although it can exist.
[12] Statistical Yearbook of Ukraine, 2004 – State Statistic Committee of
Ukraine.
[13] The Major Problems of Development of the Coal Sector and the
Donbass Region. Report of a Group of Ukrainian experts for the World
Bank, 2003
[14] Own estimates
[15] See for more details Global Iron & Steel Plant Information & Sector
Forecasts at www.steelonthenet.com
[16] See for more details www.metall.com
[17] Own estimates based on industry expert views.
[18] Own calculations based on projections of Farm & Ranch Guide
2006
[19] We assume that the quantity and price for Turkmen gas declared by the
state officials will be unchanged during 2006 and the gas will be imported
in equal quantities per each half-year. Hence, the average price of $55 per
1,000 m3 is obtained as the simple average of prices in the first half of
the year ($50 per 1,000 m3) and the second half ($60 per 1,000 m3).
[20] Total amount of imported gas in 2005 was 61 billion m3 while the
required amount was about 56 billion m3, hence was able to export about
5 billion m3 of its own gas. In 2006 Ukraine’s import of gas will amount
to 56 billion m3 and according to the contracts will not have the right to
re-export.
[21] To get 22 billion m3 of gas, Ukraine has to “pay” additional 13.2
billion m3, which is exactly 37.5% of total imported gas from Turkmenistan
under the separate contract (37.5%*35.2 billion m3= 13.2 billion m3).
[22] In other words, the price of Turkmen gas at Ukrainian border was
about $75 per 1,000 m3.
[23] An approximate distance, which is estimated based on previous
agreement with Russia. According to that agreement Ukraine transited about
130 billion m3 and “paid” for the transit 25 billion m3. Under this barter
agreement, the price of Russian gas was $50 per 1,000 m3 while the transit
fee was $1.09 per 1,000 m3 per 100 km. At the same time, according to the
attachment #4 to the contract between Naftogaz and Gazprom signed in
August 2004, Ukraine received an advanced payment of $1.25 billion for
future transit. This amount would have been equally distributed ($250
million) per each five years of contract enforcement (2005-2009). As a
result, the approximate distance of approximately 1060 km is obtained
from ($50 * 25 + $250) / ($1.09 * 130).
[24] According to the Cabinet of Ministries Decree “On approval of the
forecasted gas balance for Ukraine in 2005″ as of December 16, 2004.
———————————————————————————————–
NOTE:  Dr. Edilberto Segura is Director & Chief Economist,
SigmaBleyzer and President, Advisory Board, The Bleyzer Foundation.
Olga Pogarska is an economist with The Bleyzer Foundation. Oleg
Ustenko is a senior economist with The Bleyzer Foundation. Rina
Bleyzer Rudkin with SigmaBleyzer is the editor.
———————————————————————————————–
FOR ADDITIONAL INFORMATION CONTACT: Oleg Ustenko,
oustenko@SigmaBleyzer.com.ua; www.BleyzerFoundation.org
———————————————————————————————–
PDF FORMAT:  To read The Bleyzer Foundation report in PDF
Format with charts please click on the following link:
http://www.sigmableyzer.com/files/Gas_Crisis-ENG.pdf
———————————————————————————————–
                      SigmaBleyzer/The Bleyzer Foundation
 
In 1999, SigmaBleyzer initiated the International Private Capital Task
Force (IPCTF) in Ukraine. Its objective was to benchmark transition
economies to identify best practices in government policies that improve
the investment climate and attract private capital. 
 
An Action Plan was developed and presented to the Ukrainian
government which identified the economic policy actions necessary to
improve the investment and business climate in Ukraine, attract
additional flows of private capital to the country; support economic
growth; and improve the quality of life for their citizens.
 
In 2001, this effort was expanded to all of the countries of the Former
Soviet Union (FSU), and IPCTF ratings for all 15 countries of the FSU
were developed.  They are available from SigmaBleyzer and The
Bleyzer Foundation (http://www.SigmaBlezyer.com and
 
The Bleyzer Foundation was established in 2001 in order to promote
the IPCTF framework and help countries implement the policies
necessary to successfully complete transitions to market economy.
 
The Foundation’s Managing Director is Mr. Victor Gekker, who is
supported by a team of economists and business analysts.  The
Advisory Board of The Bleyzer Foundation is chaired by Dr.
Edilberto Segura and provides advice and guidance to the activities
of the Foundation.  -30-
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2.   UKRAINE WORKING GROUP TO DIVERSIFY GAS SUPPLIES

Interfax-Ukraine news agency, Kiev, in Russian 0916 gmt 8 Feb
BBC Monitoring Service, UK, in English, Wednesday, Feb 08, 2006

KIEV – Ukrainian President Viktor Yushchenko has set up a working

group to diversify the sources and routes of natural gas supplies.

Yushchenko signed an instruction to this effect on 7 February to make
preparations for improving the functioning of the natural gas market and
increasing Ukraine’s energy independence, the presidential press service
said on 8 February. The working group includes:

[1] National Security and Defence Council Secretary Anatoliy Kinakh,
appointed head of the group,
[2] presidential adviser Ivan Diyak;
[3] academician and Gas Institute honorary director Ihor Karp,
[4] Naftohaz Ukrayiny [Ukraine’s state-run oil and gas company]

deputy boardchairman Bohdan Klyuk,
[5] Ukrainian Oil and Gas Academy president Mykhaylo Kovalenko,
[6] Deputy Foreign Minister Volodymyr Makukha,
[7] Ukrainian Industrialists and Entrepreneurs Union Vice-President
Yevhen Sukhyn and
[8] Ukrtransnafta [Ukrainian oil transport] board chairman Oleksandr
Todiychuk.  -30-
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3. UKRAINE SHOULD BE ABLE TO PRODUCE ITS OWN NUCLEAR
                  FUEL PRIME MINISTER YEKHANUROV SAYS

Interfax-Ukraine news agency, Kiev, in Russian 1323 gmt 8 Feb 06
BBC Monitoring Service, UK, in English, Wed, Feb 08, 2006

KIEV – It should be possible for Ukraine to produce its own nuclear fuel

in the future, as there is no other alternative to nuclear energy in the
country’s power network, Prime Minister Yuriy Yekhanurov has said.

“We have a powerful scientific sector therefore we have all the
possibilities to make Ukraine as prepared as possible for producing its own
nuclear fuel in the future,” Yekhanurov said, addressing the public hearings
on power supply which were held in Kiev today.

“Will the public hear about nuclear power plants and does the ordinary
Ukrainian understand that there is simply no other future for us?” he asked.
He added that today Ukraine is “dependent on one supplier” in terms of gas
and fresh nuclear fuel.

He said that every effort is being made to give Ukraine “a break” from its
energy supply problems. He added that until this issue is settled, Ukraine
will be “constantly pressed as to the price and volume of gas”. “We have
five years at the most, and we must hold out,” he said. Yekhanurov also
urged increasing the share of electricity in Ukraine’s energy consumption.
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

========================================================
4. UKRAINE GUNG-HO ON NUCLEAR POWER, DESPITE CHERNOBYL

New Europe, Athens, Greece, Monday, February 6, 2006

Not even the world’s worst nuclear power accident, Chernobyl, has fazed
Ukrainian enthusiasm for nuclear power. Despite hundreds dead and

thousands chronically ill from the April 1986 accident, Kiev fervently
believes in the future of atomic energy.

The former Soviet republic operates 15 reactors in four plants to generate
53 percent of its electricity needs. Six of the reactors are in the east
Ukrainian city Zaporizhie, the largest nuclear power station in Europe.

The country placed two new reactors on the grid in 2004, and construction

of another three is in progress. The country’s national atomic energy agency
Energoatom plans to build up to eleven more reactors by 2030, and by that
time to generate at least 75 percent of the country’s electricity with
nuclear power.

Ukraine possesses its own uranium ore mines, and is technically capable of
producing yellow cake, and of enriching uranium to fuel grade. At present,
Kiev exports raw ore for processing in Russia, and receives finished fuel
rods in return.

Nuclear science remains a top choice at the country’s technical
universities. A Ukrainian nuclear engineer earns between USD 300-500 a
month; roughly four times the national average. Ukrainian nuclear scientists
are, for practical purposes, the best-paid technicians in government.

Almost without exception, and despite hundreds of square kilometres of
irradiated terrain in the heavily-guarded “Dead Zone” surrounding the
remains of the Chernobyl reactor, Ukrainian scientists say nuclear power is
safe.

“The process of generating power with nuclear energy is the same as any
other system: abuse it and you can have disaster,” said Dr. Arkady Shilko, a
physicist. “The Chernobyl accident was caused by people not machines, and
the conditions for people to repeat that catastrophe no longer exist.”

According to Shilko and most modern Ukrainian history books, Chernobyl
exploded because Soviet engineers turned off safety equipment in an attempt
to push power production past maximum capacity.

The prevailing opinion is that Soviet-style pressure to increase economic
output at any cost and even at the risk of the population is a government
policy now as obsolete in modern Ukraine as the sickle-and-hammer flag.

“A modern plant has no reason to turn off the safety devices and push past
100 percent,” Shilko argued. “I think Ukrainian nuclear power is perfectly
safe, and what’s more, from a technical standpoint it always was.”

Ukrainian nuclear reactors in 2004 operated at around 80 percent capacity,
according to a World Nuclear Association report.

Ukraine’s gung-ho attitude towards nuclear power, and the legacy of
Chernobyl, unsurprisingly has international monitors of the industry
nervous. The International Energy Agency in recent years has tried to
improve Ukrainian reactor safety, and to rein in uncontrolled building, by
offering Kiev loans to finance the construction of new reactors, but at the
same time making European technologies a loan condition.

The Brussels-led effort fell fairly flat in 2004, after the Ukrainians
raised almost all the needed money with domestic bonds, telling the
international community its help wasn’t needed, and completing a pair of
reactors using for practical purposes only Ukrainian technology.

Ukraine has more than a dozen more reactors planned, and at present, all the
international community can do about them is watch, senior Ukrainian
officials have said. “It is Ukraine’s policy to achieve energy independence,
and we will not let anyone stand between us and this goal,” said Ukrainian
President Viktor Yushchenko in a speech last week.

How set are the Ukrainians on nuclear power? International pressure forced
Ukraine to shut off the last functioning reactor at Chernobyl, a twin of the
ancient RBMK unit that exploded, in 2000. Off-line to this day, it is
regularly maintained and remains functional, and could be hooked back onto
the grid if Ukraine really needed the electricity, Energoatom officials
said.  -30-
——————————————————————————————–

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5. UKRAINE PM DEMANDS GAS COMPANY IDENTIFY INVESTORS 
              Group of secret investors who own half of RosUkrEnergo

Associated Press (AP), Kiev, Ukraine, Wednesday, February 8, 2006
KIEV – Ukraine’s prime minister Wednesday demanded more information
about a group of secret investors who will control Ukraine’s gas imports
under a new deal with Russia.

Yuriy Yekhanurov ordered Fuel and Energy Minister Ivan Plachkov to ask

the unidentified investors’ Swiss-registered company for more information
about its activities and its owners.

RosUkrEnergo won exclusive rights to import a mix of Russian and Central
Asian gas to Ukraine as part of a hard-fought gas deal between Kiev and
Moscow last month aimed at settling a bitter pricing dispute. The company is
owned 50-50 by Russia’s state-owned OAO Gazprom (GSPBEX.RS) and

a group of secret investors.

Russian President Vladimir Putin was quoted by the ITAR-Tass news agency

as saying the secret investors are linked to Ukraine, not Russia. “This is the
share of Ukraine, so you should ask them the question,” the agency quoted
him as saying.

The Ukrainian government has denied any Ukrainian officials are involved in
RosUkrEnergo, which stands to make huge profits by exporting gas through
Ukraine into European markets at prices higher than the $95 per 1,000 cubic
meters Kiev will pay.

“I will order the State Property Fund to immediately announce a tender if
somebody finds that part of RosUkrEnergo belongs to Ukraine,”

Yekhanurov told journalists. “It will be sold for one hryvna (4 U.S. cents,
3 Euro cents).” He also called on Ukrainian citizens to come forward if
they had any such information.

Critics of the deal have complained that too little is known about
RosUkrEnergo for it to have such a critical role in securing Ukraine’s gas
supplies. The criticism led to last month’s parliamentary vote sacking
President Viktor Yushchenko’s government, which the president has

ignored.

Oleksandr Turchinov, the former head of Ukraine’s state security service,
has said he opened a criminal investigation into the company on suspicion

it was linked to international organized crime figures and was generating
millions of dollars for corrupt officials. Turchinov, who resigned after his
ally former Prime Minister Yulia Tymoshenko was dismissed last year,
claimed Yushchenko personally ordered him to halt the investigation.

Yushchenko has repeatedly denied that he or any of his allies are linked to
the company. Ukrainian officials have said that Moscow insisted

RosUkrEnergo be involved.   -30-
——————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================      
6.  RUSSIA’S PUTIN IN DARK OVER UKRAINIAN STAKEHOLDER

                       IN ENERGY VENTURE ROSUKRENERGO 
 
RIA Novosti, Moscow, Russia, Tuesday, February 7, 2006

MOSCOW – Vladimir Putin said Tuesday that he was unaware of who

owned the Ukrainian stake of a joint venture with Russia that came to
prominence in a deal to end a dispute over natural gas prices at the start
of the year.

Russian energy giant Gazprom is known to own 50% of the shares in
Rosukrenergo and Austria’s Raiffeisenbank holds the other 50%, but

Putin added to the mystery of who owned the stake in an in interview
with Spanish
media.

The Russian leader said: “Rosukrenergo is a Russian-Ukrainian joint
venture. The Russian partner holds 50%. This partner is Gazprom.

Neither you nor I know who owns the other 50%.”

Putin told Spanish journalists ahead of a trip to the country, which starts
Wednesday, that they should ask Ukraine about who owned this stake.

He also said Russia and Ukraine had been discussing the transition to
market prices of natural gas for 15 years.

“Last March [President Viktor] Yushchenko himself virtually offered me

a transition to market relations in the energy sphere,” Putin said, adding
that he had agreed to this proposal.

He said after that the Ukrainian side had been avoiding any talks on this
issue with Russia.

“After this, they did not enter into any negotiations with us on the
corporate level, they simply avoided meetings, hid,” Putin said. “Even when
Gazprom representatives arrived in Kiev for talks, they simply ran away.
They went off to Brussels, and others went somewhere else. There was no

one to talk with. They dragged out [the process] specially, I’m certain, until
November and them raised a fuss”.

The two countries were involved in a bitter spat at the end of 2005, when
Gazprom sought to raise the prices Ukraine paid for natural gas from about
$50 per 1,000 cubic meters under a barter agreement to $230 per 1,000 cu m.

The dispute was formally ended on January 4 when an agreement was signed,
but tensions have continued to mar bilateral relations as Ukraine,
according to Gazprom’s figures, siphoned 550 million cu m of Europe-bound
gas in January.  -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
7.        MYSTERIES BEHIND THE NEW GAS JOINT VENTURE
             Will they undermine this country’s development program?

ANALYSIS & COMMENTARY: By Vitaliy Kniazhansky
The Day Weekly Digest in English, #3, Kyiv, Ukraine, Tue, 7 Feb 2006

The end of last week may turn out to be truly momentous for our country, as
its final days were marked by two interconnected and equally contradictory
events. On Thursday Ukraine learned about its long-term development
strategy, mapped out by Yuriy Yekhanurov’s cabinet, and the creation of the
Ukrgazenergo joint venture and the contracts signed by the cabinet.

Coming from the prime minister, the government’s strategy sounds attractive
because it contains such lofty goals as turning Ukraine into a democratic
European country with a competitive economy and high living standards,
which are supposed to be achieved by boosting the economy, increasing
Ukraine’s role in the world, developing and tapping the nation’s
intellectual potential, boosting quality of life, and ensuring national
unity.

In doing so, the cabinet must have foreseen the criticism that ministers who
have been dismissed, especially during an election campaign, are not
supposed to offer any long-term program. Addressing students at the
Kyiv-Mohyla Academy, Yekhanurov therefore emphasized that with due
account of the coming elections and the resulting appointment of a new
cabinet, this document is maximally workable and apolitical.

To what extent is this program feasible? Is it aimed at softening the
negative impressions of the Orange government’s performance by beating
the drum for another “radiant future?” Is this supposedly “apolitical”
document in fact the election program of the political force led by the
prime minister?

Let us try to assess the prospects of implementing the long-term strategy
whose crucial point is undoubtedly a doubled gross domestic product by
the year 2012 (forecasts say this year will see only zero GDP growth).
Yekhanurov failed to explain to the students how this will be done (a
similar promise in Russia relies on oil and gas price hikes) and promised to
return to this subject later.

Analysts interviewed by The Day believe that all the problems have resulted
from the gas price rise and increased industrial and public expenditures on
energy conservation. In their opinion, this situation will last for at least
some three to five years, and it is difficult to expect any growth at all
during this period.

Here I must mention the other noteworthy event, the creation of a notorious
gas joint venture, which is chiefly aimed at supplying natural gas and other
kinds of energy resources to Ukrainian consumers. The revised gas prices and
the latest murky gas deals between Russia and Ukraine and their business
entities are the factors that are creating many risks and thus casting doubt
on the implementation of the Ukrainian government’s strategic plans.

According to Eduard Zaniuk, PR chief of Naftohaz Ukrainy, the Swiss
company Rosukrenergo, and the newly-established joint venture have signed
a five-year contract on gas deliveries. “The price, $95 per 1,000 cubic
meters, has been fixed for five years,” Zaniuk stressed.

Deliveries will reach 34 billion cu. m. in 2006 and up to 60 billion in the
next four years. In particular, it is stipulated that Ukrgazenergo’s
authorized fund will amount to five million hryvnias “exclusively in ready
money,” while the joint venture’s statute forbids the company to take over,
dispose of, or manage the gas transportation system and its constituent
parts, including underground gas reservoirs.

This is where the mysteries come in. To start with, the latest gas deals in
Kyiv were “blessed” by Prime Minister Yekhanurov (who explained this
during a TV appearance as, “So that some people’s legs don’t tremble
during the signing”).

Does this mean that the ministers in charge of energy and/or the Naftohaz
management took a dim view of the contracts, and the prime minister decided
to shoulder all the responsibility? The public could, of course, welcome
this courageous act if it knew the real meaning of the differences inside
the government team.

For the time being, the following “nonessential” fact can attest to the
existing discord. Naftohaz was represented at the briefing on the joint
venture and its contracts (signed by the Ukrainian prime minister) only by
the deputy chief of its legal department, Andriy Halushchak.

It is anyone’s guess why, according to Interfax-Ukraine, a little known
individual named Vladyslav Shperun was suddenly appointed acting
chairman of Naftohaz when its current boss Oleksiy Ivchenko is hale and
hearty.

But the main collision lies elsewhere. The contract between the
Ukrainian-Russian joint venture and the essentially Russian company
Rosukrenergo (President Yushchenko said recently that no Ukrainian
government entities are represented in the latter but did not reveal if any
of our private companies are part of it) is being officially interpreted as
one that guarantees the price of $95 per 1,000 cu. m. for all five years.

Meanwhile, an informed source told the above-mentioned agency that the
contract points out that if any circumstances beyond the contracting
parties’ control should arise on the fuel and energy market or should the
price not reflect the market price level, either of the parties can
effectively demand the launching of a negotiating process.

In this case the contract should be revised within 10 days, and any refusal
to revise it should be well-grounded. In other words, the contract does not
rule out a gas dispute or, to be more exact, a shock for Ukraine.

It will also be recalled that three days before signing these documents in
Kyiv, Rosukrenergo representatives announced that the price of $95 per
1,000 cu. m. was only guaranteed for the first six months of 2006 and will
thereafter depend on the purchasing price of Central Asian gas.

After the signing, one of the executive directors of Rosukrenergo,
Kostiantyn Chuychenko, claimed that, if necessary, the company might revise
the price of the natural gas being supplied to Ukrgazenergo. According to
Chuychenko, the documents “set out a procedure typical of this kind of
international contract.”

Meanwhile, another executive director from the same company, Oleg
Palchikov, believes that the contract does not contain this kind of a
formula; he says that the price of gas for Ukrgazenergo will be formed
by variations of Central Asian gas prices.

If the signed contacts are not transparent even for these people, then what
about Ukrainian businesses, which will now have to draw up their financial
and production plans literally in the dark? What will they say to the
promised twofold GDP growth – that this may be achieved by increasing
the tax burden many times over?  -30-
———————————————————————————————
LINK: http://www.day.kiev.ua/156952/
——————————————————————————————–

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8.                   AN OPPOSITE VIEW OF THE GAS CRISIS

COMMENTARY: By Martin Nunn
The Action Ukraine Report (AUR) #656, Article 8
Kyiv, Ukraine, Thursday, February 9, 2006

To read the current spate of articles on the gas situation in Ukraine you
would think that the world was about to come to an end as politician after
politician makes ever more fantastic claims in the run up to the election.

Yes the deal to put all gas sales to Ukraine through Rosukrenergo does
seem a little questionable until you step back look at the wider picture.

What do we know?

  [1] Russians are great chess players and always think many moves ahead.

  [2] Gazprom is doing an IPO on the London stock exchange that if
       successful will be one of the largest ever bringing billions to the
       Russian exchequer, not that they really need it.

  [3] As part of the IPO Gazprom promotion has had to demonstrate that it
       can play hard ball and win which is exactly what they have achieved
       with millions of dollars of free publicity on the world’s news
       networks.

   [4] Gazprom has set it’s bench mark for the next round of negotiations
         with all it’s customers at $230 per 1000 cubic meters.  A great
         starting point and one in which Ukraine has set a precedent by

         being prepared to swallow this ridiculously high price as part of a
         greater package. Gazprom must be rolling in the aisles as Ukraine is
         hardly the richest country in the world so why should the EU or any
         other industrialised nations complain.  The next round of negotiations
         will tell whether my hunch is right.

Is it a bad deal for Ukraine?  Actually no, a fixed price for 5 years at 41%
below current market price is a great deal: but why were the Russian so
generous? After spending 20 years in the region here’s an opinion

First they wanted to set the bench mark for the next round of negotiations
and in advance of the Gazprom floatation in London.  Who better to
challenge than a nation with nowhere else to go, yes it went to the wire and
the Russians had to flex their muscles but even this was probably part of
their new posturing.

They have achieved a great positioning for Gazprom as an international
heavyweight with the worlds largest gas reserves at a future price that is
44% higher than the current European average.  That is clever thinking and
precisely what they have achieved, but why involve Rosukrenergo?

Again it all comes down to the floatation of Gazprom.  As a public company
quoted on the London stock exchange they will have new rules of corporate
governance that will prevent the directors from playing past games of
siphoning the system.  However I believe old habits die hard so instead of
the directors of Gazprom playing games directly they place a whole nation’s
gas supply through a very shadowy company half owned by Gazprom and
half owned by God knows who.

According to President Yushchenko Rosukrenergo has no Ukrainian
directors and I tend to believe him as it would not be logical or in
character for Russians to give anything away even to their ‘Slavic Brothers’

unless they have to.

Rosukrenergo will make approximately $6 billion profit per year from the
Ukrainian gas deal, that’s $1.5 billion for the new ‘squeaky clean’ Gazprom
which will please the new share holders as it is a windfall profit. $3
billion for the Ukrainian exchequer to be used to buy 130 billion cubic
meters of Russian gas at the new price and the balance of $1.5 billion a
year will go for the undeclared owners of Rosukrenergo to do with virtually
as they please

No wonder the new gas contract was signed without fuss as the Russians
achieved all they wanted and in fact it’s now a win / win for both sides
with the only losers being those on the Ukrainian side who had got used to
siphoning the system for themselves and cutting them out is not a bad thing.

Did it really have anything to do with the Ukrainian elections, as a primary
objective probably not.  Although given the opportunity created by the
timing of the end of the original gas deal, the Gazprom IPO in London and
the Ukrainian elections it was probably too tempting a morsel for the
Kremlin to resist, after all a pro Russian government in Kyiv would simply
be the cherry on an already well iced cake.

Should Ukrainians be pleased with the deal, most certainly yes, as it
guarantees energy costs for the next 5 years giving a welcome boost to the
economy, it works against those political forces that want to reverse the
Orange Revolution and it clearly demonstrates that Russia and Ukraine can
actually work together no matter how difficult the issue.  Was it a set up
by both sides?  Frankly it wouldn’t surprise me.

The gas market may seem at first glance to have got a lot cloudier but in
reality it is probably clearer now than it has ever been.  The one question
that has yet to be asked by Gazprom’s new shareholders however is …just
why is Gazprom Plc trading with such a shadowy company like
Rosukrenergo…when the deal with Ukraine could have been very straight
forward. The answer probably lays in the personal bank accounts of one
or two very wealthy Russians who just got a whole lot richer. -30-
——————————————————————————————–
Martin Nunn is a freelance journalist and CEO of Whites International
Public Relations who has lived in the region since 1986.
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9. WHAT TO DO ABOUT GAZPROM’S MONOPOLY POWER?

ANALYSIS AND COMMENTARY: By Michael Emerson
Senior Research Fellow, Centre for European Policy Studies (CEPS)
Brussels, Belgium, Friday, 03 February 2006

Russia’s confrontation with Ukraine over the gas price struck the first [1]
in a recent string of serious blows to Gazprom’s reputation as a reliable
supplier: [2] deliberate use of monopoly power in stopping supplies to
Ukraine and Moldova; [3] collateral losses of delivery to much of the EU;
[4] further losses of delivery to the EU due to extremely cold weather in
Russia; [5] stoppage of gas supplies to Georgia and Armenia and of
electricity to Georgia because someone in Russian Northern Ossetia blew
up the infrastructure connections. This raises so many issues, some
unconnected, yet all too simultaneous.

For gas-guzzling Ukraine, this is in any case a huge wake-up call for it to
adjust to the discipline incumbent upon an energy-importing economy.

But for Europe as a whole, the primary issue is about the regulation of
monopoly power, and illustrates an implicit confrontation between the ways
of the EU and Russia over how to conduct our continent’s most important
affairs.

The EU is all about supranational rules of economic and political conduct
and dispute settlement by ordered legal procedures, whereas Russia is
showing itself to be all about raw power, with little or no regard for any
overarching international legal framework. How is this confrontation of
norms and methods playing out?

[1] FIRST, Gazprom’s demand for price increases, and the stop to supplies
on January 1st in support of its demand, was in breach of Protocol No. 4 of
9 August 2004 between Gazprom and (Ukrainian) Naftohaz, which stipulated
the price of $50 per 1,000 cubic meters for the period 2005-09, coupled with
the remark: “The rate shall not be revised by the parties”.

Ukraine did not however seek recourse to international arbitration (why it
did not is not clear to us). At the systemic level, the Energy Charter
offers multilateral dispute settlement procedures, but Russia has so far
refused to ratify the Charter.

[2] SECOND, Gazprom blocked Ukraine’s attempt to negotiate directly with
Turkmenistan, by refusing to grant Turkmenistan the right of way for its gas
through the Gazprom pipeline network, unless it was sold first to Gazprom
(or the RosUkrEnergo consortium).

Russia/Gazprom is not only playing the monopoly seller to Ukraine, but also
the monopsonist buyer to Turkmenistan. Russia’s gas is being sold to Ukraine
at $230 per 1,000 cubic meters, whereas Turkmen gas is being bought by
Russia at an unspecified price, but which must be $95 or less at the
Ukrainian border ($95 is the average price for Ukraine’s purchases from
RosUkrEnergo).

At $230, Russia may in practice have priced itself out of the market, since
Ukraine may, for the time being, rely wholly on Central Asian gas. In this
case, what sense can be made of Gazprom’s claim that it is applying market
prices?

[3] THIRD, this refusal of access to the pipelines is contrary to the EU’s
competition and internal market policy principles for such networks, and it
is a matter for the European Commission’s competition authority to consider
whether this is illegal. In principle, the EU’s jurisdiction extends beyond
its frontier where trade with the EU is affected.

[4] FOURTH, the refusal of pipeline access to Turkmen gas is also contrary
to the provisions of the Energy Charter’s draft Transit Protocol, which
Russia has refused to agree under pressure from Gazprom. The draft includes
the “obligation to negotiate in good faith access to available pipeline
capacity”.

Russia is therefore not here in breach, since the draft has not been agreed.
But the affair illustrates the consequences of Russia’s refusal at the
official policy level to subscribe to basic rules for regulating
monopolistic markets, thus leaving room for unconstrained monopolistic
behaviour by Gazprom.

[5] FIFTH, the RosUkrEnergo intermediary between Ukraine and the suppliers
is a monumental piece of murky non-transparency for a matter of such
strategic economic importance. Who are the other 50% shareholders beyond
Gazprom? Why are they hiding?

Transparency and accountability are prime principles of economic governance
in the EU. So they are also for all G7 countries. This makes Russia’s
chairmanship of the G8 seem ridiculous, placing energy security at the top
of the agenda when it is also inventing such grotesquely non-transparent
schemes at the same time.

Overall, since Russia seeks to exercise unconstrained monopolistic power
where it can, the EU as a monopsonistic buyer has to find the best blend of
two policies: on the one hand to try to bring Russia to agree and respect
rules for competitive market behaviour, and on the other hand to maximise
its economic diversification of supplies.

The menu for action under at the policy level could be:

[1] At G8 level, the EU should lead a request to be presented to Russia by
the old G7 that Russia that it complete ratification of the Energy Charter
treaty before the mid-summer summit to be chaired by Russia. The seven
should also request urgent re-activation of negotiations over the Transit
Protocol of the Energy Charter, with a view also to signing before or
alongside the St Petersberg summit.

[2] As conditions for Russia’s WTO membership the requirements regarding
Russia’s domestic energy price policy should be updated. (The EU’s
agreement with Russia on this point ante-date the new price situation, which
led Russia to impose a price increase on Ukraine in breach of its contract).
The Energy Charter measures would also be made pre-conditions for WTO
accession.

[3] At the EU level the Commission should prepare proposals for a Gas
Security Mechanism (EUGSM), which would treat a non-commercial, non-
contractual interruption of gas supplies from a third party to an EU member
state as affecting the EU as a whole, and would trigger measures for
internal solidarity between EU member states, and diplomatic representations
to the third party by the EU in support of its member state.

The Commission should analyse what supporting measures would be required
to make the EUGSM effective, for example by way of regional gas network
connections and legal implications for existing contracts and EU competition
policy.

The menu for possible diversification actions is already evident:

[1] The planned Nabucco natural gas pipeline project to supply Caspian and
Middle East gas from Turkey to South-East Europe should be pushed ahead.

Since Nabucco reaches into Romania and Hungary, it could easily connect
with their existing pipelines that come south from Ukraine and Moldova. The
feasibility of adding two-way pumping facilities to these pipelines (i.e.
north-south as well as south-north) should be elaborated.

The European Investment Bank and EBRD should bring serious funding
to such projects, with equity as well as loans if need be in the name of
strategic security, if the commercial risk factor in the short run hinders
investment decisions. There are further projects with a view to a Greece-
Italy connection, and a pipeline from Algeria to Sardinia and on into Italy.

[2] Turkmenistan and Azerbaijan should return to the negotiating table with
EU oil/gas majors to unfreeze the Trans-Caspian pipeline project.

[3] LNG investments are becoming increasingly economically viable, and can
ease the pipeline stranglehold. It is already announced that Poland is to
invest in LNG facilities to receive Norwegian gas, and Hungary and Croatia
will invest in a LNG plant on the Croatian Adriatic and a pipeline to link
this to Hungary. The LNG option could be considered alongside the
alternative of investing in Baltic regional pipeline connections.

[4] Ukraine should continue to refuse sale or partial control of its gas
pipeline network to Gazprom, unlike the unwise sale in recent weeks by
Moldova of a controlling interest of its gas network to Gazprom.

[5] Coal and nuclear power are up for reconsideration for a longer-term
time horizon.

But beyond these possible actions, the EU and Russia have an energy
dialogue that is supposed to manage the relationship at a higher, strategic
and cooperative level.

Does Russia want to have a Common Economic Space with the EU, and
within that a real energy dialogue? Does it want to accede to the WTO?
Does it want to be a respected member of the G8 club?

If the answer is yes, then Russia has play by the rules of civilised market
regulation. Russia has been grossly abusing its monopolistic power.

It is clear that the EU has a considerable menu of policy and project
options with which to respond, maybe just step by step and without great
announcements. Many of these measures would be very costly, but once
undertaken become sunken costs. Russia’s recent actions mark a turning
point in European perceptions, maybe belatedly, but nonetheless that is
where we now are.

Russia has two basic options: [1] either to signal credibly that it is
willing to enter into and help complete a multilaterally ordered market
system for gas that constrains monopolistic behaviour by legally binding
rules; or, in not doing so, [2] to provoke gas consuming powers into
diversification investments that will in any case in due course create
conditions of competition.

The constraining of Gazprom monopoly power play is in therefore in
prospect in both cases. The Russian policy maker has to judge which
option is preferable in the short- to long-term, and both politically as
well as economically.  -30-
————————————————————————————–
NOTE:  Our thanks to AUR subscriber Michael Emerson, CEPS,

for his excellent article, michael.emerson@ceps.be.
LINK: http://www.ceps.be/Article.php?article_id=509
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
10.       UKRAINIAN TABLOID SEGODNYA PUBLISHES TWO
                         PROPHET MOHAMMAD CARTOONS

Segodnya, Kiev, in Russian Monday, 6 Feb 06, p 6
BBC Monitoring Service, UK, in English, Monday, Feb 06, 2006

KIEV – The popular Ukrainian tabloid Segodnya has published two of

the controversial cartoons of Prophet Mohammad which have sparked
a wave of protests in Islamic countries.

The cartoons, including the one depicting Prophet Mohammad wearing

a bomb-shaped turban, were published on page 6 of the paper on 6
February, headlined “Cartoons will cause World War III?”

The page also carries a factual report about violent protests in Islamic
countries and comments by the head of a Ukrainian women’s Muslim

NGO, as well as a Christian, Judaic and Buddhist priests.

The page also carries a cartoon of Jesus Christ. There is no explicit
suggestion on the page that the newspaper has decided to publish the
cartoons to make a point or show solidarity with other European papers.

But Segodnya suggests that the controversy is part of a deeper conflict
between the Muslim world and the Western civilization.

“It seems that neither the Muslim world nor the Europeans are going to give
up their principles,” the paper said. “The same happened a long time ago,
during the Crusades, which the current escalation between the West and the
Muslim world is increasingly being compared to. Afghanistan, Iraq, and now
the cartoons, which have fallen on the soil prepared by American missiles
and bombs.”   -30-
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11. UKRAINIAN MUSLIMS CONDEMN PUBLICATION OF DERISIVE
        CARTOONS IN WEST EUROPEAN PRESS AND IN UKRAINE

Ukrinform, Kyiv, Ukraine, Wednesday, February 8, 2006

KYIV – In the Donetsk region, which is home to Ukraine’s most numerous
Islamite community (about 500,000 Muslim believers) Islamite believers
condemned as derisive cartoons in the West European press, depicting

Prophet Mohammed.

Donetsk Mosque Imam Ahat Jami called upon the believers to refrain from
expressing their wrath and indignation through unlawful means.

On Friday, Ahat Jami, together with Imam Mustafa and Ruslan Abdukeyev,

Mufti of the Spiritual Center of Ukrainian Muslims, are expected to deliver a
sermon to urge the Islamite believers to display restraint and observe the
Law.

According to Imam Ahat Jami, the Ukrainian Muslim community exceeds

1.5 million people and has no radicals, though the insulting cartoons,
which caused a world-wide wave of protests, could not but make
Ukrainian Islamite believers indignant.
We have responded to the insult angrily, yet with restraint and within the
boundaries of Law, the Imam said.

Regrettably, Ruslan Abdikeyev noted, one of Ukrainian newspapers (the
Kyiv-based Segodnya) succumbed to the provocation and on February 6
reprinted the notorious cartoons.

There are over 250,000 Muslims in Crimea, basically the Crimean Tatar
returnees. Crimean Tatar Mejlis leader Mustafa Dzhemilev, commenting on

this matter, said Ukrainian Islamite believers, while resolutely condemning the
cartoons’ publication, do not intend to resort to any radical actions. -30-
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========================================================
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========================================================
12. UKRAINIAN PRESIDENT SLAMS PUBLICATION OF PROPHET
MUHAMMAD CARTOONS BY SEGODNYA NEWSPAPER IN UKRAINE

Interfax-Ukraine news agency, Kiev, in Russian 1311 gmt 8 Feb 06
BBC Monitoring Service, UK, in English, Wednesday, Feb 08, 2006

KIEV – Ukrainian President Viktor Yushchenko believes to be inappropriate
any publications in the media which can offend religious or national
feelings, and condemns any manifestations of intolerance and xenophobia,
presidential press secretary Iryna Herashchenko has said.

She was commenting at a news conference today on the publication of

Prophet Muhammad cartoons in the [Ukrainian opposition-linked]
Segodnya newspaper.

“We believe that any publication or material or actions that can offend
citizens’ national or religious feelings is inappropriate, and therefore the
Ukrainian president condemns any manifestations of intolerance or
xenophobia,” Herashchenko said. The president and the authorities do all
they can so that there is religious and ethnic accord in Ukraine, she said.

“This is the president’s position of principle. He reacts very sharply and
fiercely to any case which can be seen as showing an inappropriate attitude
to such sensitive topic as ethnic or religious relations,” Herashchenko
said.

Ukraine cannot stand aside from “the difficult discussion about the thin
line dividing issues of freedom of speech and political correctness” in
which the global community is currently engaged, she said.

“In a democratic state, freedom of speech and political correctness, high
morals, must go hand in hand. Where there is freedom of speech, there

is high responsibility of the media,” Herashchenko stressed.

She added that if these principles are breached, this can lead to tension

in relations between religious and ethnic groups, which “President
Yushchenko and his team strongly condemn.” She also urged the media
to display as much tactfulness as possible while treating the topic of
relations between ethnic and religious groups. -30-
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========================================================
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========================================================
13. UKRAINE PRES ANGRY GONGADZE MURDER TRIAL CLOSED
         TO MEDIA ACCORDING TO TOP AIDE OLEG RYBACHUK
 
Associated Press (AP), Kiev, Ukraine, Wed, February 8, 2006

KIEV,Ukraine – Ukraine’s President Viktor Yushchenko called for the
high-profile trial into a journalist’s killing to be opened to the public,
criticizing the court’s decision last month to bar journalists from much

of the proceedings, his top aide said Wednesday.

Three former policemen are standing trial in connection with the 2000
killing of Heorhiy Gongadze, a muckraking Internet journalist who wrote
about high-level corruption under former President Leonid Kuchma.

In January, the court ruled that much of the trial would be closed to the
public, citing a defense request and prosecution concerns that secret
information would be revealed.

“I want to express Yushchenko’s indignation at that,” Yushchenko’s
chief-of-staff Oleh Rybachuk said outside the courthouse Wednesday.

Yushchenko has long vowed to solve the politically charged case and
repeatedly promised the trial will be open to the public.

Gongadze was abducted off a Kiev street, and his decapitated body was
found weeks later in a forest outside the capital.

Months of protests erupted against Kuchma after a key witness later

released tape recordings in which voices sounding like those of Kuchma,
his then-chief of staff Volodymyr Lytvyn and other top officials were
heard conspiring against Gongadze.

Kuchma and Lytvyn – now parliament speaker – have repeatedly denied

any involvement. Wednesday, the judges postponed proceedings after a
defendant complained of a health problem. In January, the judges twice
postponed the trial due to health problems of defendants, and again
postponed it Wednesday.  -30-
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14.   WAR CRIMES INVESTIGATION: YARD REOPENS INQUIRY
         INTO FORMER NAZI SOLDIERS STILL ALIVE IN BRITAIN
           Focus on division of Waffen SS recruited by Nazis in Ukraine
               
IAN COBAIN, The Guardian, London, UK, Saturday, Feb 04, 2006

Scotland Yard has relaunched its search for war criminals almost seven

years after its specialist Nazi-hunting unit was disbanded, the Guardian has
learned. An eight-strong team from the anti-terrorist branch has been
examining the backgrounds of British residents suspected of committing
atrocities during the second world war.

The team is focusing on former members of a division of the Waffen SS

which was recruited by the Nazis in the Ukraine and brought to Britain en
masse to provide farm labour after the war. Home Office officials believe
several hundred former members of the unit may still be living in the UK.

The Guardian has identified and located more than a dozen survivors of the
Galizien division. Most still live in small clusters in the East Midlands,
Yorkshire and East Anglia, a short distance from the PoW camps where

they arrived almost six decades ago.

The new inquiry has been shrouded in secrecy since it was quietly resumed
last year, and the Yard has even attempted to deny that it is under way
again. Two senior officers have been assigned to lead the team of two
detective sergeants, two detective constables and two civilian researchers.

A Yard spokesman confirmed that they are scouring old war crimes files and
“liaising with other government departments, including the Immigration and
Nationality Directorate, to establish the best way forward”.

It is unclear whether statements have been taken from the former members

of the unit, the 14th Waffen SS Galizien division. Scotland Yard is also
declining to say whether any witnesses have been located in Poland, Slovakia
or the Ukraine, the countries where the Galizien division operated, and
where some members stand accused of participating in the massacre of
Jewish and non-Jewish civilians.

Police are understood to be attempting to identify members of the Galizien
division who attended a training centre for concentration camp guards as
well as examining the war records of other surviving members. With the
youngest former members of the unit now in their 80s, however, and with the
memories of surviving witnesses fading fast, the chances of any successful
prosecutions appear slim.

The decision to relaunch the hunt is thought to reflect a renewed appetite
for war crimes investigations at the Home Office, and comes after continuing
calls for action from a number of backbench MPs.
                                         INVESTIGATIONS
However, it is unclear how much enthusiasm there is at Scotland Yard for

an investigation that could divert detectives from anti-terrorist duties at a
time of mounting security concerns.

The Yard’s specialist war crimes unit was disbanded in May 1999 after
investigations costing an estimated pounds 6.5m resulted in just one
conviction. Anthony Sawoniuk, a retired railway ticket inspector from south
London, was jailed for life earlier that year after being convicted of two
specimen charges concerning the murder of 18 Jews. He died in Norwich

prison last November, aged 84.

Andrew Dismore, Labour MP for Hendon, who has been pressing for action
against surviving war criminals, said the Yard deserves extra funding for
the inquiry. “Making sure old war criminals can never sleep easy in their
beds sends an important message to the would-be war criminals of tomorrow,”
he said.
                                                  TRIAL
But Professor David Cesarani, who was the principal researcher for the group
of MPs which campaigned successfully for the introduction of the War Crimes
Act 15 years ago, believes that men who could have been prosecuted at that
time are now highly unlikely to face trial. “This has come 10 years too
late,” he said.

“The Home Office should be asking whether this is going to do more harm than
good, and whether embarking on a judicial process, which will take years to
come to fruition, is the best way to proceed. Regretfully, it may be that an
inquiry by government historians will now be the best way to investigate
what these people did, how they came to be here and why they have not been
prosecuted before.”

Hitler’s Ukrainian SS division was created from the merger of many different
units, including the Nightingale battalion, said to have participated in the
massacre of thousands of Jews in Lvov, Ukraine, and the Ukrainian Self
Defence Legion, accused of murdering villagers in eastern Poland.

Some Galizien troops are said to have played a part in the bloody
suppression of the 1944 Warsaw uprising, while others are alleged to have
murdered a number of British and American airmen who were being sheltered

by partisans in Slovakia.

Its soldiers were Ukrainian nationalists, who later insisted that they had
no love for Germany or the Nazis, but joined the German army to take up arms
against the Russians, and against communism. Those who survive in Britain
today deny any involvement in war crimes.

Few people noticed when they arrived in Britain in May 1947: one Labour MP,
Barnett Janner, complained bitterly in the Commons that members of the
Galizien division “murdered hundreds of people in cold blood”, while a
solitary letter in the London Evening News, signed with the correspondent’s
concentration camp number, 3399, complained that he or she had witnessed
first-hand the “brutal, uncouth and bloodthirsty” behaviour of Ukrainian
guards.

Most newspapers devoted just one paragraph to reporting the division’s
arrival, however. The men were dispersed among PoW camps. Over the next
three years just eight “undesirables” were deported to Germany, while some
emigrated to Canada, the US or Argentina.
                                          PARACHUTED
A handful are now known to have been recruited by MI6 and parachuted back
into the Ukraine, where they were betrayed by the double agent Kim Philby.
Most remained in the UK, however, and were granted civilian status. Many
married, started families and, by the 1990s, those who survived were British
subjects.

Among the survivors of the Galizien division identified by the Guardian is
Mykola Lehkyj, 84, who says he volunteered to fight for the Germans after
they overran his home town of Rohatyn, in western Ukraine, in 1941.

Although both his brothers served in the Red Army, Mr Lehkyj, then aged
19, volunteered to join the Ukrainian unit that the invaders were raising.

“We hated the Germans, but we wanted to fight the Russians more than
anything,” he said. “The Germans allowed us to make a Ukrainian army in
German uniforms. Our aim was to join this Ukrainian army and create a
Ukrainian nation.”

After training in Germany, he fought with the rest of the Galizien division
at Brody, where it suffered heavy losses. “We couldn’t hold them. But
fighting against the Russians was a pleasure, to be honest with you, because
I was fighting on my own land.”

Mr Lehkyj was then sent to Slovakia, where he fought partisans, and ended
the war as a corporal. He remains proud of his service – “I have nothing to
hide” – but denies that he took part in, or witnessed, any war crimes. “The
Russians tried to blame us for everything. They say we killed children and
women – it isn’t true.”

After being shipped to Scotland he was sent to a prison camp near Braintree,
Essex, to work on farms, and has remained in the region ever since. Today he
lives in Ipswich with Helen, the Englishwoman he married in 1953. They have
four children, one of whom served in the RAF, and six grandchildren.

“I love this country,” he said. “It gave me life. I call it Merry England:
this is a country that will help any bugger.”  -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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15. ANGER OF HEROINE WHO SIGNED UP FOR A NEW FUTURE
              A sign language interpreter at state television channel UT-1

        Hot-headed young reformer Andriy Shevchenko fired her, said the
         government channel no longer needed sign language interpretation.

By Jeremy Page, The Times Online, London, UK, Fri, Feb 3, 2006

AT THE height of the Orange Revolution Natalya Dmytruk risked every-

thing for her political beliefs.

A sign language interpreter at the state television channel UT-1, she
abandoned the script during a live news bulletin in November 2004 to
denounce a rigged presidential election and declare her support for the
defeated candidate, Viktor Yushchenko.

Mrs Dmytruk was hailed as a heroine after Mr Yushchenko swept to power

in a re-run of the poll a month later. But when a hot-headed young reformer
was appointed to shake up UT-1, Mrs Dmytruk was told that the channel
no longer needed sign language interpretation.

“It clutters up the screen,” she remembers Andriy Shevchenko, her new

boss, saying. She was sent on extended leave and eventually resigned and
joined a rival channel, 1+1. “Shevchenko was always asking: ‘Does the
BBC have sign language?’,” Mrs Dmytruk told The Times. “He was going
for Western-style television. His intentions were good, but he did not pay
attention to the human factor.”

Her disillusionment is being mirrored around this country of 49 million
people as it prepares for parliamentary elections on March 26. Mrs

Dmytruk, 48, still believes in Mr Yushchenko but, like many of his
supporters, she has lost faith in his Our Ukraine party.

She is even more sceptical about the bloc controlled by his revolutionary
partner, Yuliya Tymoshenko. The hardest blow came last year when Mr
Yushchenko sacked Mrs Tymoshenko as Prime Minister.

“I was very sorry, just as a human being,” Mrs Dmytruk said. “They stood
hand in hand on the square in Kiev and declared their commitment to certain
ideals.” Her disappointment deepened when Parliament sacked Mr

Yushchenko’s second Government last month.

Now she says she will vote for anyone as long as it helps to prevent Viktor
Yanukovych, whose election victory she refused to report in 2004, from
returning to power.

“It’s scary,” she said. “For centuries Russia’s ambition has been to control
everything. A small country called Ukraine tried to raise its head. Now the
Russian Government is pulling the strings again.”  -30-
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LINK: http://www.timesonline.co.uk/article/0,,13509-2022521,00.html

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16. A REALISTIC UKRAINE, OR UNITY AND NEW PATRIOTISM

ANALYSIS & COMMENTARY: Volodymyr Horbach, Political Scientist
Ukrayinska Pravda, Kyiv, Ukraine, Tuesday, January 24, 2006

The last presidential election campaign renewed the old slogan of
unification. At the turn of 20th century, by unification was meant a unity
of Ukrainian ethnic territories into one specially created for this purpose
state.

Today, the issue has to do with maintaining regional unity in a
realistically existing country Ukraine.

In an environment produced by the new democracy, many political

strategists and tacticians are all too ready to play the “regional differences”
card. This is their job, and this can be understood especially if they are
foreigners (e.g. Russians).

Such behavior is much harder to accept if it is coming from a homegrown
political strategist. And it is outright disappointing if this behavior is
consciously condoned by Ukrainian politicians. The idea of a Unified

Ukraine is betrayed with such actions.

In other words, at the time of elections, both the voters and the

democracy are betrayed.

The anti-Yushchenko posters and TV commercials which advocated

Ukraine divided into three parts are only a few manifestations of
emphasize-the-differences strategy.

The apogee of the anti-unification idea became a meeting of Victor
Yanukovych’s supporters in Siverodonetsk after the second round of

voting.
                             POLITICANS’ REAL INTERESTS
Currently, the key challenge for a true Unified Ukraine lies in the fact
that real interests of the main political forces during election time
consist in a desire to control respective geographical domains of the modern
Ukraine.

Numerous sociological surveys show that “Our Ukraine” dominates in the

West, Block of Yulia Tymoshenko (BYT) in the Center, and the Party of
Regions in the East and South.

The logic of election competition shows that none of the political parties
desire to attempt an “outreach” beyond the borders of their respective
spheres of influence without risking their claim for leadership back home.

Even when Akhmetov owned TV channels speak in Ukrainian – his opponents

say that this is a method of election mobilization by annoying with excessive
Ukrainianization .

Some get scared with references to “Banderivtsi” in the Carpathian woods,
others with “Russian special ops” creating a picture of an inside enemy of a
fifth column kind.

Serving interests of their respective politicians, political strategists
force citizens of the country against one another by vilifying them.

An average inhabitant of Ukraine never leaving the place of his or her
residence seeing a television screen (newsletter, poster, billboards) thinks
that in Donetsk or in Galychyna live his enemies.

Who benefits from this? A parasite politician. By attacking the “inside
enemy,” these politicians mobilize their core base of supporters.
                         CITIZENS’ NATIONAL INTEREST
A realistic unification of Ukraine today no longer means control by Kyiv

of all Ukrainian ethnic territories.

For the most part, the issue is about civic understanding amongst the
various regions in Ukraine. These roughly defined regional parts are
interdependent and cannot be without one another.

Presently, the sum of civic interests equals those of the nation. And a
Unified Ukraine means a common market, common domestic politics,

common energy strategy, common defense shield, common cultural identity,
et cetera.

Also today’s national interest foresees a balanced regional development of
territories when Territory A helps Territory B which in turn comes to
benefit Territory A.

The only thing that the national interest does not foresee is cultivation
within the mass media of an antithesis to the numerous concepts of
“different Ukraines.” These dividing concepts become more salient with

every election.

For every issue that unites us into one national interest, there seems to be
a counter issue which goes against unity: the idea of a federal system, the
second official language, the referendum against NATO, or simply a speech

by Vitrenko on television.
         THE REAL STRUCTURE OF UKRAINIAN SOCIETY 
Both the opposition and the government contribute to rifts in Ukraine’s
societal fabric. This, more than anything else, serves as evidence for a
clear need to – not necessarily conserve – but to maintain continuous active
efforts towards building of a Unified Ukraine.

Apparently, the politicians in Kyiv misunderstand the true nature of Ukraine
and of modern Ukrainians.

Citizens of Ukraine consist of Ukrainians, Russians, Tatars, Bulgarians,
Hungarians, and others if one were to consult general census statistics. A
more accurate picture of Ukraine’s ethnicities is much more complex. In
order to see it, one must look deeper.

Ukrainian sociologists at Kyiv International Institute of Sociology record
the following make-up of a Ukrainian state:

Ukrainian-speaking Ukrainians 36.5%
Russian-speaking Ukrainians 28.0%
Russian-speaking Russians 16.9%
Ukrainian-speaking Russians (a mix of Ukrainian and Russian) 10.7%
Other linguistic groups 6.0%.

There are also those who consider themselves both Ukrainians and Russians

as a result of a “mixed” marriage. And there are those who do not see a
difference between the two peoples and consider themselves to be, at the
same time, part of both groups irrespective of the language they speak.

This diversity as reflected by statistics of every geographic region, and
amplified by the religious – albeit subtle – differences which on top of all
things are mixed in metropolises absolutely proves how unviable and
impossible is application to modern Ukraine of ethnic-patriotic criteria
carried over from the XIX-XX centuries.

The application of such criteria is not just unrealistic, but unnecessary.
               THE RIGHT PATH – THE WAY TO SUCCESS
Ukraine has entered a new period – the time of civic patriotism. This
anticipates a calm acceptance of the fact that all Ukrainians are different.

But that all Ukrainians are equal and equally important to the Fatherland.
They are equal before the state, before the law, before their employers,
before cultural preferences, et cetera.

An awareness of this process takes place gradually and civilly. That the

idea of unification is advancing in the ranks of everyday Ukrainians was
evident among one of the slogans from the 2004 democratic and peaceful
revolution – “EAST AND WEST – TOGETHER.”

This slogan became one of the fundamental elements comprising the
unification idea leading to a peaceful democratic revolution. Ukraine – a

united and sovereign country whose citizens have cultural, linguistic,
religious and ethnic regional varieties.

The inhabitants of Ukraine regardless of their political preferences,
religious belief, and regional identities are Ukrainians nevertheless,
citizens of one country.

All who foster division in the country deserve to face national courts

and the justice system.

If we recognize this self-evident truth, we will have hope that dirty
political tricks subscribing to the principle “divide and conquer” will not
work during this election campaign. (Translated by Vitaliy Voznyak)
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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17.                              SHRIVELLED ORANGE
                     Ukraine turned west, and the West turned away

LEADING EDITORIAL: The Times Online, London, UK, Fri, Feb 3, 2006

Thirteen months ago, the world was transfixed by the spectacle of a
freezing but peaceful revolution unfolding on the streets of Kiev.

Televisually, it presented a shimmering canvas of orange banners and
driving snow. It also offered the compelling narrative of Viktor
Yushchenko’s struggle against corruption, stagnation and would-be
assassins.

The villain was the dour, Russian-backed Viktor Yanukovych, whose
eventual defeat appeared to leave Ukraine’s forces of reaction in
full retreat. Not quite. After parliamentary elections next month, Mr
Yanukovych is likely to become his country’s new Prime Minister.

Given the heightened expectations of Mr Yushchenko’s supporters ­formed
more by the brief misrule of his predecessors than any experience of
democracy ­ a political hangover was inevitable. But few foresaw a crisis
as profound, avoidable or salutary as the one that now threatens to return
Kiev to its pre-revolutionary torpor.

 From his first day in office, Mr Yushchenko has been pulled off the course
of democratic, market-led reform by a vengeful Kremlin and by his own
venal subordinates. President Putin has seized every chance to undermine
him, including the demand, in the middle of one of the coldest winters on
record, for a fourfold rise in Ukraine’s price for Russian gas.

Mr Yushchenko was already too weakened domestically to mount more
than token resistance, having been forced to sack his two most powerful
ministers before their squabbling, scheming and alleged corruption derailed
his reform agenda entirely. He has now been weakened still further by
parliament’s dismissal of the rest of his Government over its handling of
the gas dispute.

Every element of this triple blow to the Orange Revolution’s legacy was
widely foreseen. Mr Putin has been consistently ruthless in his use of
Russian energy as an instrument of foreign policy. Mr Yushchenko’s divisive
former Prime Minister, Yuliya Tymoshenko, was, likewise, a known quantity ­
angelic but no angel. And the groundwork for the parliamentary coup that
has now left Ukraine without a functioning Cabinet was laid at the height
of the revolution, when Mr Yushchenko accepted curbs on presidential
powers in return for fresh elections he was bound to win.

He has proved less charismatic than his revolutionary persona, and less
adroit than the tumult of the past year has demanded. He had no strategy
for pre-empting Russian pipeline blackmail, and he waited too long to act
against Mrs Tymoshenko.

What he could not have foreseen, however, was the speed with which
Western enthusiasm for the Orange Revolution turned to indifference in
its aftermath. The European Union and Nato have hastened only to
emphasise that Ukraine’s membership is a long way off. US aid, as Mr
Putin recently noted, is trivial compared with continuing Russian energy
subsidies.

The paradox of aspiring to EU membership is that it involves reforms that
can make life worse before they make it better. On current evidence,
Ukrainians’ lives look destined to get worse, and stay worse. -30-
——————————————————————————————–
LINK: http://www.timesonline.co.uk/article/0,,542-2022532,00.html
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
18. THE PLACE WHERE THE NATIONAL IDEA HAS WORKED
               The village of Ploske, Rivne oblast, first mentioned in 1568

By Petro Kraliuk, The Day Weekly Digest in English, #1
Kyiv, Ukraine, Tuesday, January 26, 2006

Ploske is one of the many villages in Rivne oblast. At first glance, it is
an ordinary village without any special attributes. It is located far from
transportation routes: about ten kilometers from the railroad and the same
distance from the Rivne-Ostroh highway. Still, Ploske is booming. It is well
known not only in Ostroh raion but beyond.

Ploske (or Ploska) is a very old village that was first mentioned in 1568.
It is anyone’s guess how long it existed before that. In other words, Ploske
residents have centuries of history behind them.

The village was owned by such well-known aristocratic families as the
Koreckis, Ostrozkis, Malachowskis, Czetwertynskis, and others. There was a
large manorial palace that was burned to the ground in 1943. The village was
repeatedly mentioned in various acts and in connection with various events.

Although the village was predominantly owned by landlords who were not
Ukrainian or did not consider themselves part of this nationality, the level
of the peasants’ national identity was quite high.

The period between the two world wars saw unprecedented activity of the
Prosvita Society, which was closed by the Soviet “liberators” in 1939.
During the nightmarish war an OUN cell was established in Ploske. Eyewitness
accounts say the cell existed from 1941, its members disguised as the local
fire brigade.

Young people were taught Ukrainian history and received military training
here. Then someone betrayed the underground fighters, and many of them

were shot by the Germans. The repressions failed to stop the inhabitants of
Ploske. Many of them took an active part in the UPA-led national-liberation
movement and fought against both the German and Bolshevik occupiers.

Many peasants died in a fierce battle between UPA soldiers and NKVD troops
near the village of Hurby in 1944. During the Soviet era the residents of
Ploske saw better times and succeeded in taking advantage of their good
luck. A branch of the Druzhba oil pipeline ran through the village. An oil
pumping station, Novyny, was built and commissioned on April 24, 1971.

For a long time – 1981 through 1995 – the station was managed by Y. M.
Chumak, who also chaired the local village council in the first years of
independence. During this period he accomplished much. In 1992, when the
former USSR’s single energy system was disintegrating, this official managed
to channel a share of the funds that belonged to this power monster back
into his own village.

The funds helped build a modern meat-packing factory furnished with
state-of-the-art foreign equipment. The factory began operating in December
1993.

Now the Ploske Meat-Packing Plant of Ukrtransnafta (sounds fanciful, doesn’t
it?) may be justly considered one of Ukraine’s top businesses. The office of
current manager Y. F. Rudenko, is filled with 50 diplomas, 30 cup trophies,
and medals that the enterprise has won at numerous exhibitions and tasting
competitions, including the 2003 and 2004 Best Trademark of Ukraine awards.

Although Ploske’s meat- packing plant does not produce many products

(about) a ton of meat and sausage products per day), it is renowned for its
high quality products that are supplied to the neighboring cities of Ostroh,
Netishyn and Rivne as well as to Lviv and Kyiv.

Today the oil-pumping station and meat-packing plant, which stand side by
side and seem to form one conglomerate, employ more than 80 people.
Ukrtransnafta funded the construction of a number of modern houses that
outwardly resemble the cottages of “crooked businessmen.” There are plans

to build more houses of this kind.

In general, there is a sort of building boom going in the village: a fruit
cannery and a shopping center are in the final stages of construction. The
village has well-developed public utilities, such as gas and water supply.
The village boasts a community center and an infirmary.

Compared to other cities and villages in Rivne oblast, Ploske allots much
more funding per capita for urgent medical care. The village also has a
kindergarten and a large school.

Naturally, there are some inevitable problems. But the residents of Ploske
are full of hope and optimism. Ample proof of this is the fact that the
birth rate exceeds the mortality rate in the village, while the situation
everywhere else in Ukraine is completely different.

There is more than one explanation for this mini-wonder. In my opinion, a
key role is the fact that the villagers were brought up in the spirit of
Ukrainian traditions and genuine (not sham) love for their native land, and
they are bringing up their children the same way. The local people do not
confine their aspirations to one day alone. This may be the key to genuine
national identity.

Since the Prosvita Society and the OUN were once active in the village, it
is little wonder that most of the villagers backed Ukraine’s independence
effort during perestroika. In 1990 the Popular Movement of Ukraine (Rukh)
established a cell in the village, and a yellow-blue flag was raised in July
1991.

When the Ukrainian Orthodox Church (Kyiv Patriarchate) came into being in
1992, the local Orthodox parish of the Nativity of the Holy Virgin opted for
this denomination without much hesitation. During the Orange Revolution, the
Ploske village council headed by Chumak officially supported Viktor
Yushchenko as early as Nov. 23.

The councilors declared that they considered him the lawfully elected
president. The Ploske council was in fact one of the first village councils,
if not the first, to pass this kind of decision. About 50 villagers,
including their council chairman, went to Kyiv’s Independence Square.

By far the greatest wonder in Ploske is the monument that was built at the
local council’s expense and unveiled on Independence Day in 2004.

This black basalt obelisk crowned with a modest cross bears a sincere and
humane inscription free of any ideological mumbo jumbo: “Eternal memory

to the heroes, our fellow countrymen, who fell in the fight for Ukraine’s
freedom and to the victims of World War II. Remember those who will
never come back. Guard our memory for the sake of your children, for the
sake of immortal Ukraine.”

Inscribed on the monument is an alphabetical list of the names of Ploske
villagers who died in WWII, either as UPA or Red Army combatants. Is

this not an example of true reconciliation between the “blue-and-yellow”
and  “red” soldiers? Some people say that this is impossible.

The same applies to the claim that the national idea has not worked in
Ukraine. The small village of Ploske testifies to the contrary. Instead of
being embezzled, funds are being wisely invested in production.

Despite all kinds of difficulties, the villagers are achieving good results.
More people are being born here than are departing this life. This fact
alone inspires hope.  -30-
——————————————————————————————-
LINK: http://www.day.kiev.ua/156083/
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
19.    VOLODYMYR VYNNYTSKY – PIANIST TO PERFORM

                A program of Mozart, Tchaikovsky, Skoryk and Chopin.
     Sunday, February 12, 3:00 p.m., The Lyceum Theater, Alexandria, VA
 
The Washington Group Cultural Fund (TWGCF)
Washington, D.C., Wednesday, February 8, 2005

WHAT: The Washington Group Cultural Fund under the patronage of

the Embassy of Ukraine presents Volodymyr Vynnytsky, pianist, in a
solo performance to mark his 50th birthday.  He will perform a program
of Mozart, Tchaikovsky, Skoryk and Chopin.

The “Washington Post” has observed:  “Not many performers in this

country know the Ukrainian repertoire well enough to give such a
performance, and the result was fascinating – a glimpse of musical riches
hardly suspected by American audiences.”

Soviet Music, Moscow has written:  “Harmonious talent, excellent

mastery, and mature creativity…contributed to Vynnytsky’s great success.
His inspired romanticism was always supported by a perfect feeling of
balance and fine taste.”

WHEN: Sunday, February 12, at 3:00 p.m.

WHERE: The Lyceum Theater, 201 South Washington Street
Alexandria, Virginal 22314(a free Dash shuttle bus runs every 15 minutes

from the King Street Metro to Washington and King Sts – one block
from the Lyceum)

COST: There is a suggested donation of $20 per person.

FOR MORE INFORMATION: Please call:  Marta Zielyk at 202-244-8836

or Laryssa Courtney at 202-363-3964. The Lyceum Theater can be reached
at (703) 838-4994

To become a sponsor of the 2005-2006 cultural series, please send a check

made out to TWGCF for $100 (individual) or $160 (couple) to Rosalie
Norair, 7514 Honesty Way, Bethesda, MD  20817.  Sponsors will be listed
in the concert programs.  -30-
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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