Daily Archives: February 10, 2006

AUR#657 State Of Nation Address; U.S. Hits Corruption In Russian Gas Deals; JV With RosUkrEnergo A Setback & Big Mistake; New Gas Deal Revelations

An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World
Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, FRIDAY, FEBRUARY 10, 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
           Ukraine president to put constitutional changes to referendum
 UT1 State TV, Kiev, Ukraine, in Ukrainian 0840 gmt 9 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 09, 2006


Associated Press (AP), Kyiv, Ukraine, Thursday, Feb 9, 2006

AP Worldstream, Kiev, Ukraine, Thursday, Feb 09, 2006


RIA Novosti, Moscow, Russia, Thursday, February 9, 2006

          Poland wants NATO to expand to include its neighbor Ukraine
Associated Press (AP), Washington, D.C., Thursday, February 9, 2006

                          TO BUY UKRAINE’S UKROTSBANK
Associated Press, Rome, Italy, Thursday, February 9, 2006

Agricultural Marketing Project, Kyiv, Ukraine, Wed, February 8, 2006

                        TO STEP UP ECONOMY’S DEVELOPMENT
Yana Lemeshenko, Ukrinform, Kyiv, Ukraine, Wed, Feb 8, 2006


Natalia Bukvych, Ukrinform, Kyiv, Ukraine, Thursday, February 9 2006

Ukrinform, Kyiv, Ukraine, Tuesday, February 7, 2006

                      Launch of new book “Ukraine and Ukrainians”

By Inna Koziy, The Day Weekly Digest In English, #3
Kyiv, Ukraine, Tuesday, February 7, 2006


                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., Thursday, February 9, 2006

Korrespondent.net web site, Kiev, in Russian 6 Feb 06
BBC Monitoring Service, UK, in English, Mon Feb 06, 2006

 Mysterious shady trading firms have no purpose, RosUkrEnergo singled out
By Nicholas Kralev, The Washington Times
Washington, D.C., Thursday, February 9, 2006

             New joint venture with RosUkeEnergo a setback for Ukraine.
      I say this without any hesitation or reservations. It is one big mistake.
: By Roman Kupchinsky, Kyiv Post

Project on Transitional Democracies
Washington, D.C., Thursday, February 09, 2006

Ren TV, Moscow, in Russian 2030 gmt 2 Feb 06
BBC Monitoring Service, UK, in English, Sunday, Feb 05, 2006

18.                                NEW GAS REVELATIONS
                       Is Ukraine in for a total property redistribution?

Ukraine companies will be forced to pay Russia for gas with corporate shares.
ANALYSIS & COMMENTARY: By Yulia Mostovaya, Alla Yeremenko
ZERKALO NEDELI On The Web, Mirror-Weekly, No. 4 (583)
International Social Political Weekly
Kyiv, Ukraine, Saturday 4 – 10 February 2006
            Ukraine president to put constitutional changes to referendum

UT1 State TV, Kiev, Ukraine, in Ukrainian 0840 gmt 9 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 09, 2006

President Viktor Yushchenko has said he will set up a commission to draft

a new version of the constitution which will then be put to a national

Speaking in his televised state of the nation address in the Ukrainian
parliament on 9 February, Yushchenko reiterated his reservations about the
changes to the constitution that came into force on 1 January 2006, shifting
some of the president’s powers to parliament, and said that they were only
the start of a larger process of reforming the system of governance.

He pledged, however, not to dispute the amendments in the Constitutional
Court until after the 26 March parliamentary election.

Yushchenko also praised economic reforms and progress towards democracy
achieved over the year since he took office, and said Ukraine had become a
model of democratic transformations for other post-Soviet states.

The following is an excerpt from Yushchenko’s address broadcast live on
state-owned television UT1 on 9 February:

Esteemed people’s deputies, esteemed Ukrainian public!

It is a great honour for me to be present in this chamber today and to be
able to address Ukrainian MPs.

A year ago, Ukraine opened a new page in its history. A former Soviet
Republic, a country with an unclear political face and uncertain future was
replaced by a politically mature nation capable of accomplishing its own
historical mission without anyone’s guidance.

A year ago, Ukraine found itself at the focus of international attention.
Foreign countries and their leaders watched with interest the events in
Ukraine. Our citizens, both in the east and in the west, with different
flags in their hands, proved to the world that they are a nation capable of
determining not only its own history but also the history of the world.

I understand that the assessment of generations to come will be of greater
importance, but today my sincere thanks go to all of you who, acting on
behalf of various political forces in Ukraine and abroad, helped Ukraine
return to the international democratic process by telling the truth
[applause]. [Passage omitted: continues to praise Ukraine]

As the president of Ukraine, I want to give my assessment of the situation
and set standards for the further development of society. I propose an
agenda on which the Ukrainian public and all of us should focus our

efforts. So stop quarrelling, there will be enough work for everyone.

Today it is more important than ever to demonstrate the ability to cooperate
and implement strategic tasks for the country’s development and to
consolidate ourselves.

I am certain that it is through this work alone that we will create a
perfect model for a new system of Ukrainian government, which the

Ukrainian people needs. I believe that we will finally launch a new form of
social dialogue and stop the shameful practice of political populism.

We should upgrade our thinking to the state level and bring into existence a
new type of Ukrainian politician capable of instilling new values in society
and defending them in the world. [Passage omitted: calls for a fresh look at
modern civilization and Ukraine’s place in it]
The transition period of the 1990s is over. The Rubicon has been crossed. A
modern Ukrainian nation has emerged and it has a realistic chance to find a
place among the world’s leading nations. What gives me grounds to declare
this? What assets do we have? Why is it that attention of this kind from
other countries is focused on Ukraine?

[1] FIRST. We have proved in this country that people’s freedom is not a
mere word but the highest value, which unites the nation and determines the
philosophy of government. This is a value that our people are willing to
defend firmly and with unshaken will.

I recall the words of the great Bohdan [Khmelnytskyy, Ukraine’s 17th century
military leader] that there has never been such a splendid opportunity for
everyone in Ukraine to enjoy freedom.

[2] SECOND. We have set an example for other countries in the post-Soviet
space of choosing our path independently, according to our own national
priorities, rather than under pressure from any force.

[3] THIRD. The fact that there exists no ready-made universal recipe for
democracy after a totalitarian regime lasting many years has turned out to
be a challenge for us, as well as for all civilization at the turn of the
century. For the first time in our modern history, it is necessary to look
for answers to many questions on our own.

The front-line in the global development of public administration and
contemporary democratic institutions runs through Ukraine. In forming a

new democracy, we can be an example for the entire civilized world.

[4] FOURTH. We should follow the road towards economic prosperity, which
took Europe hundreds of years, in five or seven years or 10 years, at the
very most. Ukraine may only succeed as a fully-fledged state if it achieves
an economic breakthrough. It should accept this challenge and become a stage
for the formation of new economic development models. But this is now a
problem of political will.

[5] FIFTH. Ukraine has historically been at the crossroads of various
cultures and civilizations, and also of important migrational, financial,
political, integrational and other transit processes. For a long time, this
was viewed as a burden, and as an extra complication and barrier to national

I am certain that this is now our colossal advantage and a huge untapped
reserve. The foundations that we lay down to manage these processes will set
prospects for stable development not only in our country, but also in the
A year ago, society set us the task of creating a new political system. This
is a process of change that will last for many years to come. But even now,
it can be said with certainty that in 2005 we made a good start on this
difficult road.

With the help of the people, we have ruined the foundations of a corrupt
totalitarian system, won freedom, especially the freedom of speech and the
freedom of political choice. The authorities are open to control and
sensitive to criticism. Political competition is a natural state of affairs
for us.

The system of oligarchic control over the economy has been weakened and
deprived of support from the state. The corrupt government hierarchy has
been seriously disrupted, the economic impact of the most dangerous shadow
schemes such as shadow privatization, VAT refunds and so on is diminishing.

Poverty has been reduced substantially. Absolute poverty has been virtually
eliminated. Ukrainian culture and Ukrainian cultural policy have stopped
being a Cinderella.

I will only analyse individual trends in 2005. We received a country with
signs of economic decline. Ukraine was divided between oligarchs. Its
economy was extremely energy intensive, energy dependent, unbalanced, and
murky. It was noncompetitive and its resources were depleted. The budget
deficit had grown to 12bn hryvnyas [about 2.4bn dollars].

The macroeconomic situation was worsening. The rate of GDP growth dropped
from 12 to 6.5 [per cent] in January 2005. The currency reserves of the
National Bank of Ukraine shrank by a quarter in the fourth quarter of 2004.
Negative trends in all sectors of the national economy began to show
themselves from April 2004. The country could have slid down into an abyss
of poverty and ruin.

A qualitative transformation of the economy was launched in 2005. We have
managed to achieve the most important thing – making it work for the benefit
of every Ukrainian. The economy has started to grow mostly as a result of
expanded domestic consumption. Its reliance on the export of mineral
resources, which is prone to unfavourable and highly volatile business
conditions, has been reduced significantly.

For the first time in the history of independent Ukraine, we have created a
model for a socially oriented economy and provided for its functioning. This
model alone managed to ensure a record increase in living standards. Real
private incomes – just think of it, esteemed colleagues – rose by 20 per
cent. [Passage omitted: budget revenues are growing]

The sale of Kryvorizhstal [reprivatized steelworks], which yielded 4.8bn
dollars for Ukraine, was one of the brightest examples of the new policy. It
was 20 per cent higher than the total amount of revenues from privatization
in all previous years.

We have almost cleared VAT refund arrears, which for many years were a
source of corruption by state officials.

The new government’s effective steps have helped to shrink the shadow
economy. According to international rating agencies, Ukraine has moved up
from 122nd position for the level of corruption to 107th. The February
session of the Financial Action Task Force (FATF) removed Ukraine from its
black list of countries that fail to tackle money-laundering. I will
continue to pursue this course in the future. [Passage omitted: figures
reflecting the economy’s development in 2005]

                          INTEGRATION PROCESSES
I am confident that it is the Ukraine’s historical destiny to serve as the
basis for integration processes in the central and eastern Europe region.
Stability of this region is important not only for the continent but for the
entire world.

I am confident that Ukrainians will become the nation that would offer the
world new standards of high spiritual values, new examples of democratic
culture, international accord and interstate dialogue. This is the core of
our global project and of our mission.

Dear colleagues, I believe that the misfortunes of the recent years were
related to our failure to understand our own resources and capabilities, our
choice of the wrong objectives and superficial self-determination in the
world. It happened that the south and east of Ukraine could not live without
Russia and the west was sleeping and dreaming of Europe. Kiev became the
centre of a struggle for power.

This situation lasted until the people united and took a decision on the
destiny of their own country. We have changed the logic of the processes in
the country and in the entire region. Now we cannot let the ghosts of the
past determine our motivation and our political objectives. We have to stop
fighting each other for control over the old power machine. We still keep
exhausting public confidence, pulling at the remains of the old torn blanket
instead of weaving a new one.

We have had enough of running after yesterday’s objectives, catching all the
time [the level of] development of the others, trying to please someone,
copying someone else. This is not our way and this is a way to nowhere. The
issues of implementation of our mission, consolidation of the multiethnic
Ukrainian nation and formation of a realistic self-development strategy are
more critical for us now than ever before.

As the president of Ukraine I see my primary objective as the implementation
of a series of fundamental infrastructure reforms needed for forming Ukraine
as an independent state whose life is determined by civilized European
coordinates and whose development is aimed from the social and economic
periphery to the centre of international society.

What do we need to do for that? We, each and every of us, have to give up
step by step the chains of the past that hold back the progress of the
country. Namely, we have to refuse this purely Ukrainian practice of making
agreements in the morning and breaking them at night.
One of the nation’s basic problems in terms of politics is the political
fragmentation that gets in the way of the structuring of both parliament and
society. We have to refrain from provocative grandstanding in the interests
of political parties, especially before elections, on those subjects which
can, even just a little, split society, regardless whether it is the issue
of religion, of language or so-called federalization, or NATO and so on.

We must reject a policy of double standards, when, to take an example, on
the one hand the changes to the Constitution are treated as a sacred cow,
and at the same time the people’s right, provided by the constitution, to
have a functioning Constitutional Court is consciously neglected.

We have to refrain from what is, forgive me for saying so, a traditional
thing, that is pre-election social populism, the cost of which due to the
adoption of social laws in recent months is one third of the state budget,
and there is not a single kopeck of financing behind these resources.

And also we have to study in one great school and to learn to unite
ourselves and to formulate a consolidated position either in external
relations or under the threat of political or economic crises. Recent events
have moved forward on the agenda the need to formulate and develop the
strategic ability of public management.

The authorities continue to believe that they are the only decision-makers.
Important laws are now approved only to go out of effect immediately
afterwards. As a result, behind loud titles there is organizational
impotence or the old administrative system. Therefore, our decisions are

the good intentions that a classic said pave the way to hell.

I would like to draw political forces’ attention to the fact that the
sources of authority are changing now. They are becoming fewer within
government buildings. The focus is now moving onto humanitarian, legal and
political instruments and procedures for bringing various interests into
agreement and reaching understanding.

The authorities are increasingly moving to where communities organize
themselves and to where new instruments of government are being sought.
Under these circumstances, political parties which are able to create the
conditions for solving social problems can quickly become influential in
this country, as opposed to just being the train that takes you to

Special attention needs to be paid to situations where decisions are taken
that are strategically important to this country. Political decisions have
to be considered in public, rather than being imposed on politicians by
creating crises. We need a new quality in the process of consultations in
our country.

Reforming Ukraine’s armed forces and its defence industry is a problem that
is no less urgent and needs public discussion. Basic documents – a strategy
for Ukraine’s national security and a strategy for Ukraine’s military
security – will be presented for consideration by the public and politicians
in 2006.

Only a professional army where servicemen enjoy social security can be
reliable. We plan to complete the transition to a professional army by 2010,
while ensuring the innovation development of Ukraine’s defence industry and
military-technical cooperation at the same time.
Esteemed colleagues, I am critical of the model of democracy that has
established itself in Ukraine. In essence, a civilized political space has
not been constructed. I am convinced that the political process has to
reflect the position of all political forces.

The opposition – a political force behind which there are certain groups of
social interests – should not be excluded from political dialogue and only
derive pleasure from criticizing others.

Solving this task demands that we go back to the issue of constitutional
reform. I deem it necessary to reiterate my attitude to it. I will say again
that, being a guarantor of the constitution, I have not made and will not
make any steps that violate the version of the constitution that went into
effect on 1 January 2006 [applause].

At the same time, I have stressed on more than one occasion that
amendments – [shouting] However, I stress that amendments that went into
effect or are to go into effect are only part of the reform of the
government system. In addition, this reform only affects the central level.

Therefore, I do not believe that these amendments can be called a
fully-fledged political or constitutional reform, which our society really
needs. The amendments to the constitution have already begun to reveal a
number of problems. I would like to list a few of them.

There is no clarity on the issue of the dismissal of the government if the
coalition it was created by falls apart. What are citizens to do if a branch
of government fails to exercise its constitutional authority? The reform of
the government system at the central and local levels has not been
coordinated properly. At the local level, it has been put off for at least
six months.

The transition to the proportional principle for forming representative
bodies of local councils does not take account of the need to defend the
interests of local communities and contains a direct threat that centrifugal
tendencies will escalate. This is obvious.

None of the laws that regulate the activity of government agencies have been
brought into line with the constitutional amendments. Unless these laws are
amended, the authorities will not be able to function properly under the new
conditions. I am convinced that the aims of political reform have to be much
more far-reaching.

They should not merely amount to a redistribution of authority in the
president-parliament-cabinet triangle. Reducing the scale of political
reform only to this sort of redistribution contains the threat of permanent
parliamentary and government crises, a few of which we have witnessed

The last, but probably the most important, in the list of steps to form a
modern system of government is staff policy and staff quality. State service
is no longer the place to receive an administrative annuity. However, it has
not yet become a prestigious profession. We have to make state service
accessible to those people of the new generation who have will power and

This is our main resource, and it has to be multiplied. [Passage omitted:
economy should make more use of high tech, be protected from unfair
Despite domestic problems both in the EU and in Ukraine, more was done in
2005 than in all of our post-independence history to develop relations with
the global and European community and raise recognition of Ukraine. Ukraine
was granted market-economy status.

Talks started on a simplified visa regime and on readmission. Much progress
was achieved on the Ukraine-EU action plan. Six important industry accords
were signed in the fields of security, transport, energy, space exploration,

Ukraine’s next steps towards European integration will above all be based on
its national interests. This is creating a free-trade zone with the EU in
2007 and signing an association accord with the EU in 2008. Then, after the
Copenhagen criteria for EU accession have been met, full EU membership

will be achieved.

On bilateral and multilateral levels, Ukraine will continue to make use of
the potential of strategic partnership with Russia and maintain good and
mutually beneficial relations with other neighbouring countries. We have to
be present wherever our political, economic or humanitarian interests lie.

The year 2005 can definitely be considered successful in terms of relations
with such partners as the USA, Poland and Romania. I hope that 2006 will

see us take strategically important decisions in relations with these countries.
On the agenda is the recognition of Ukraine as a market economy within the
framework of US anti-dumping laws and signing of a relevant protocol within
the framework of Ukraine’s WTO accession.

Another of our important foreign policy objectives is asserting our country
as a regional leader. Ukraine not only shares European values but also helps
them take root in the region. The fact that the Community of Democratic
Choice – a regional forum ensuring democracy, security, stability and
prosperity in the Baltic, the Black Sea and Caspian regions – was set up at
the 2 December summit in Kiev shows that this activity is not devoid of

Ukraine’s new regional policy is becoming one of the key elements of our
country’s European and NATO integration. Ukraine’s actions only attest to
its leading role in GUAM [regional alliance of Georgia, Ukraine, Azerbaijan
and Moldova]. We have been using the opportunities for cooperation in the
Black Sea region, especially under the BSEC [Black Sea Economic
Cooperation], more often now.

We are stressing and will continue to stress the importance of deepening
economic cooperation, improving Ukraine’s international image and using to
the maximum its potential as a reliable energy transit country and a partner
in ensuring stability and security in the region. We have attained
significant success in settling the conflict in [Moldova’s breakaway]
Dniester region.

Guided by the multi-vector principle, varying rates of integration, and
taking into consideration provisions of the constitution and national
interest, Ukraine is taking an active part in preparing international legal
documents that serve as a legal basis, for instance, for the Single Economic
Space [economic union of Ukraine, Russia, Belarus and Kazakhstan].

[Passage omitted: wellbeing of citizens remains a priority]
Ukraine has always been the home for representatives of many nationalities.
Followers of various religious traditions have always coexisted in peace in
our country. Nowadays, Ukraine is one of the few post-Soviet states that
manages to maintain interethnic peace. This is one of our biggest
achievements and we have to cherish this.

But retaining interethnic accord, preventing interethnic or religious
conflicts remains our duty. Representatives of any ethnic group have to

feel more comfortable in Ukraine than in their native countries. [Passage
omitted: ties with Ukrainian diaspora are also very important]

I cannot avoid mentioning the most sensitive issue for our society – the
problem of the religious sphere, the unnatural division of Ukraine’s
Orthodox churches. There is an urgent necessity to overcome the existing
conflict between the biggest Orthodox jurisdictions [Orthodox churches

of Kiev and Moscow patriarchates] and to set up a single local apostolic
Orthodox church [applause].

Taking into account the strategic nature of this issue, the state has every
right to actively raise it and to contribute to its successful resolution
without interfering in internal church matters. [Passage: the state should
develop a distinct cultural policy]
In the final part of my speech, let me list some individual programmes that
we have already launched or the drafting of which will be completed shortly.
The organization, funding and deadlines for their implementation should be
set by law and should have direct budget funding.

[1] FIRST, a programme for judicial reform and the reform of the
law-enforcement bodies. In developed democracies, courts are placed on

the same level with the other branches of power, if not higher. Civilized
societies are guided by the rule of law. The same should apply in Ukraine.
The changes should raise people’s trust in judges and law-enforcement

To this end, we must create appropriate conditions for the work of judges.
We will stop the shameful practice of earmarking budget funds to cover about
half of the needs of the judicial branch, as has been the case in the past
years. At the same time, the focus will be made on improving selection of
judges and raising requirements for their professional training and work

The public will have means of monitoring the selection process for judges.
At the same time, reform will be conducted in the sectors adjacent to the
judicial system – prosecution, lawyers, the bailiff system and notaries. It
is time to bring the law-enforcement agencies in line with European
standards and strengthen the functions of public monitoring.

[2] SECOND, a programme for fighting corruption and reform in public
administration. Combating corruption in public administration is a criteria
for assessing the efficiency of the authorities. The programme is aimed at
making governments at all levels more transparent.

It envisages improving the system of declaring and monitoring property and
incomes, checking whether top officials’ consumption is line with their
incomes and introducing independent monitoring of the state and expansion

of corruption.

It is important to separate in legal terms the political and administrative
functions in the executive and improve the procedures for work of

government bodies.

The separation of political posts from public service and the establishment
of legal mechanisms for the protection of public servants from unlawful
political influences will become a firm rule. [Passage omitted: programmes
to reform the health-care system, science and education, agriculture; need
for high-tech breakthrough]

The key point of our programme for increasing the Ukrainian economy’s

energy efficiency is raising the efficiency of energy consumption and the
diversification of fuel supplies. It is to be implemented through the
housing and utilities programme based on competition in providing energy
supplies to households and to industry.

We will propose a clearly defined and economical mechanism for encouraging
energy saving. A criterion of the programme’s success will be a 10-per-cent
reduction in energy consumption as early as this year. We will strive
towards diversification of the sources and ways of transporting fuel to
Ukraine. To achieve this, the implementation of international energy
projects will be stepped up.

Esteemed people’s deputies, I am convinced that these and other strategic
programmes will be the locomotives of national development, which will unite
financial and human resources, the efforts of the authorities, society and

Our joint victories along this way – big and small – will bring us closer
with every day to achieving the three strategic goals: raising the quality
of citizens’ lives; asserting an effective knowledge economy; and developing
a fair and transparent system of government. I stress that a joint future
unites us.
And lastly, I am convinced that after the stage of partial amendment of the
constitution is over, we will embark upon a real and comprehensive political
reform, which will be based on the following priorities.

[1] First, ensuring citizens’ involvement in running the country.

[2] Second, implementing mechanisms for the real accountability of all
branches of power and government agencies to society and their
responsibility to citizens.

[3] Third, raising the efficiency of the government system through a
balanced distribution of authority and functions between the branches of
power and government agencies.

[4] Fourth, delegating authority to local government agencies and preventing
centrifugal tendencies, transferring executive functions to local
communities and providing them with enough resources to carry them out.

[5] Fifth, combating government corruption, simplifying mechanisms of
providing administrative services to the public; ensuring that professional
state service is politically neutral and seen as prestigious.

[6] Sixth, adapting the political system and civil society institutions to
new social needs, new demands for political parties, new conditions and
stimuli for NGOs.

I would like to stress that implementing these principles will depend on
cooperation between all branches of power, full-fledged involvement of
society, and reaching a consensus within the elite. The process of
implementing the new model of government and improving political
institutions has to be transparent and immaculately correct so that there
are no grounds to question its legitimacy.
Therefore, I propose the following plan of action to implement a political
reform that is truly for the people. A constitutional commission should be
set up, involving representatives of political forces, the public, NGOs,
local government agencies, scientists and experts, to draw up a new

version of the Ukrainian constitution [shouting, applause].

The draft should be discussed by the public. The new version of the
constitution drafted by the constitutional commission should be put to a
referendum. A number of legislative acts should be drawn up and approved

to develop constitutional norms and ensure the effective functioning of the
new political model. First of all, these are the laws on the Cabinet of
Ministers of Ukraine, on the president, on the parliament agenda, and

As the guarantor of constitutional rights and freedoms, I believe this route
to be the most appropriate in terms of combining the tasks of involving
society and the legitimacy of the whole of the constitutional process.

I am convinced that reaching a consensus on this issue is quite possible.

To this end, I stress that until parliamentary elections are held [on 26
March], I will not initiate the consideration of law No 2222 [on
constitutional reform] by the Constitutional Court.

At the same time, I would like to reiterate my concern over the fact that
there is no functioning constitutional court. I am convinced that in the
next few days the Supreme Council will swear in the judges that were elected
by the congress of judges and appointed by the president, and will elect its
own quota of judges.[Passage omitted: historical references]
I am certain that there is nothing to divide us at present. The country
needs a new unifying ideology. Neither the struggle for independence or
freedom, nor the struggle against the regime, nor any other struggle can
serve as this idea any longer. In general, nothing linked to the word
struggle can provide this idea.

We should now get out of trenches, give up weapons and extend our hands

to one another.

I am certain that we should lead our country to achievements, development
and prosperity this year. We should collect millions of people’s wills and
talents into a single fist and take yet another step towards people.

Thank you for your attention. Long live Ukraine [applause].

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


Associated Press (AP), Kyiv, Ukraine, Thursday, Feb 9, 2006

KYIV, Ukraine – Ukraine’s president pleaded with the country’s legislature
Thursday to drop internal battles and unite – a familiar appeal from the
embattled leader, who risks losing influence in next month’s election.

Opposition Communist party legislators, however, exchanged blows with
members of President Viktor Yushchenko’s faction before his annual

address when they attempted to put up banners criticizing the president for
unfulfilled campaign promises.

“Enough arguing: There is enough work for everybody,” Viktor Yushchenko

said in his annual address before the 450-member legislature, which just
weeks ago voted to fire his cabinet.

The bitter accusations that followed last month’s vote, which Yushchenko
ignored, prompted Speaker Volodymyr Lytvyn to advise Yushchenko to put

off his address, which initially had been planned for the anniversary of his
Jan. 23 inauguration.

The ill will persisted Thursday, with many legislators in a partisan mood
before the March 26 election, which could herald a power shift and will
determine whether it pursues the path of integration with the West set by
Yushchenko. Opinion polls suggest Yushchenko’s party is poised to finish a
distant second to the party led by his pro-Russian rival, Viktor Yanukovych.

The president said his top priority will be improving the quality of life
for Ukraine’s 47 million people. He pledged to reform the decaying housing
projects that dot Ukrainian cities. The apartments have suffered
particularly during this winter’s cold spell, as heating and electricity
systems repeatedly broke down.

“Today it is fashionable to be Ukrainian but that’s not enough,” Yushchenko
said, referring to the worldwide attention Ukraine received after last
year’s so-called Orange Revolution. “Today, we must do everything so that

it will also be interesting and profitable to be Ukrainian.”

He pledged to continue government measures, including plans to hold a
referendum to alter constitutional changes that came into force this year,
setting off heckling. Those changes greatly increase parliamentary powers at
the expense of the presidency, allowing the parliamentary majority to name
the prime minister and some cabinet members.

Yushchenko said, however, he would not attempt to force any changes in

the constitution before the elections. “I haven’t done and won’t do anything
that would breach it,” he said, as legislators muttered in opposition.

A nervous-looking Yushchenko read most of his speech without looking

up. There was little applause.

Opposition legislator Nestor Shufrych criticized the speech as “a sad fairy
tale.” “He forgot to tell us when everything he said will be accomplished,”
Shufrych said. “It seemed to me that he didn’t even believe what he said.”

Yushchenko reaffirmed his government’s commitment to its pro-western

path but added it is also important to have good relations with neighbouring
states, based on Ukraine’s national interests.

In a move likely to anger Russia, however, he reaffirmed his support for a
united Ukrainian Orthodox church that would operate independently of the
Moscow Patriarchate.  Yushchenko also said he believes Ukraine,

sandwiched between Russia and the EU, has a key role to play “in the
integration process of Central and Eastern Europe.”  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

AP Worldstream, Kiev, Ukraine, Thursday, Feb 09, 2006

KIEV – Ukraine’s parliament on Thursday barred the privatization of the
Nikopol steel factory, quashing the government’s hopes of repeating last
year’s highly profitable sale of another giant steel mill. Some 287
lawmakers voted to include the Nikopol factory on a list of enterprises that
cannot be privatized.

Last month, the Supreme Court ruled that the 2003 sale of Nikopol to Viktor
Pinchuk, the son-in-law of former President Leonid Kuchma, was illegal and
returned it to the state. President Viktor Yushchenko called for the mill to
be put up for sale in an open auction in the hope of receiving a top price.

The Economics Ministry accused lawmakers of violating the law with their
vote, saying it was up to the government to bar the privatization of
specific enterprises.

The ministry also called the move premature because the process of

returning Nikopol shares to the state was still underway.
Pinchuk’s Interpipe Corp. bought an initial, 25-percent stake in the Nikopol
factory in 2003 and won the right of first offer to buy another
25-percent-plus-one-share stake in a later auction that no other bidders
were allowed to participate in. The stakes were sold for a total of 410.5
million hryvna (US$81 million; A68 million).

Yushchenko in September abandoned his government’s policy of reversing

past privatizations that allegedly handed state assets at a cut-rate price to
cronies of Kuchma, citing the damage it caused the former Soviet nation’s
reputation with the business community.

But he insisted that some of the more egregious examples should not be

left to stand, citing Nikopol and the country’s flagship steel mill,

Kryvorizhstal was snapped up by Mittal Steel last year for 24.2 billion
hryvnas (US$4.8 billion, A4.1 billion) in Ukraine’s biggest and most
profitable privatization auction. The price was nearly six times what it
initially was sold for under Kuchma in a deal later canceled as illegal.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]


RIA Novosti, Moscow, Russia, Thursday, February 9, 2006

KIEV – Ukraine intends to raise the rent for the Black Sea ports and
facilities used by the Russian fleet from the current $93 million annually
to the market-based figure that could run into $1.8 billion, a senior
official said Thursday.

Against the backdrop of a dispute over a lighthouse and other facilities on
the Ukrainian Crimean peninsula, Anatoliy Kinakh, the secretary of the
National Security and Defense Council, said he had instructed relevant
agencies Wednesday to calculate the rent for the Russian Black Sea Fleet
according to modern market conditions.

The Russian fleet is using a range of naval facilities in the Crimea under a
1997 agreement that divided the Soviet Black Sea Fleet, but allowed Russia
to continue its presence in the Ukrainian autonomy in exchange for $93
million per year in rent.

Kinakh cited the national committee for land resources, which said that in
accordance with modern standards and considering the size of the rented
area, the Russian fleet should be paying at least $1.8 billion a year.

Kinakh also said many rented facilities were not included in the 1997 basic
agreements and their supplements, as initial inventory had shown.

Kinakh, however, said Ukraine did not intend to revise the term of the
lease, laid down in the documents.

A series of incidents involving the Russian fleet and its facilities have
marred bilateral relations in recent months. On January 14, Ukrainian
officials seized a lighthouse belonging to the Black Sea Fleet in a move
that many Russian politicians saw as a response to a heated tug of war
between the neighboring countries over natural gas prices.

Russian energy giant Gazprom turned off supplies to Ukraine January 1 after
the latter refused to pay market prices for Russian natural gas. The dispute
was officially ended on January 4 with the signing of an agreement, but
tensions have continued.  -30-
LINK: http://en.rian.ru/russia/20060209/43455719.html

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    Send in names and e-mail addresses for the AUR distribution list.
          Poland wants NATO to expand to include its neighbor Ukraine

Associated Press (AP), Washington, D.C., Thursday, February 9, 2006

WASHINGTON – U.S. President George W. Bush said he sought advice

from Polish President Lech Kaczynski Thursday about Ukraine, which
Kaczynski is hoping to help bring into the North Atlantic Treaty Organization
alliance in the next two years.

In their first meeting since Kaczynski took office in December, the two
leaders discussed trade and other international issues during a meeting that
started in the Oval Office and led to lunch in the executive residence.

Poland is one of the strongest U.S. allies in Europe, and Bush said he
thanked Kaczynski for their support of the war in Iraq. They also discussed
Kaczynski’s desire for NATO to expand to include its neighbor Ukraine,

which used to be part of the Soviet Union and is now a democracy, by 2008.

“I asked the president his advice on Ukraine,” Bush said. “That’s what
friends do – they share information and share strategic thoughts.”

Kaczynski said they also discussed Poland’s strained relations with Russia.
Poland, where memories of domination by Moscow during the Cold War are

still fresh, angered Moscow with its support for Ukraine’s so-called “Orange
Revolution,” in which pro-Western President Viktor Yushchenko won election
over a candidate backed by Moscow.

“There have been certain signals that might lead to an improvement of
relations between the Republic of Poland and the Russian Federation,”
Kaczynski said. “We have no certainty yet, but these signals we have
received, and we’re hoping for an improvement in relations between Poland
and Russia.”

He also said U.S. support for greater freedom in Belarus was “very

important for Poland.”

Kaczynski, a conservative former Solidarity activist jailed by the
Communists in the 1980s, took over in December from former Communist
Aleksander Kwasniewski.

Later Thursday, Kaczynski was meeting with Secretary of State Condoleezza
Rice and congressional leaders, then playing host to Polish-Americans at a

He is leaving Friday for Chicago after witnessing signings of bilateral
agreements on science and technological cooperation and training for Polish
pilots on F-16 jet fighters. He is also meeting with representatives of the
American Jewish Committee, who worked with him when he was mayor of

Warsaw on plans to establish a museum commemorating the history of
Polish Jews.

In Bush’s fiscal budget request Monday, Poland would receive $30 million

“to continue defense reform.” That is the same amount it got in 2006.

Poland is reducing its training mission in central Iraq from 1,500 troops to
900. Kaczynski has indicated that Poland might consider extending its
mission past the end of 2006, although he stressed that would require a
formal decision. He has said he “could not imagine” staying beyond 2007.

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                         TO BUY UKRAINE’S UKROTSBANK

Associated Press, Rome, Italy, Thursday, February 9, 2006

ROME – Italian bank Banca Intesa SpA said Thursday it is in exclusive talks
to buy Ukraine’s Ukrsotsbank, a move it hopes will help it play a major role
in central and eastern Europe banking.

The bank, Italy’s second-largest by market capitalization, said Ukrsotsbank
is Ukraine’s fourth largest bank, with US$1.3 billion (euro1.09 billion) of
assets and a network of 527 branches with more than 660,000 customers.

Other banks that had expressed an interest in Ukrsotsbank include German
bank Commerzbank AG, French bank Societe Generale SA and Hungary’s

OTP Bank.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Agricultural Marketing Project, Kyiv, Ukraine, Wed, February 8, 2006

According to the information provided by Anatoly Kluchko, the Director
of “Agro Frutika Byshkiv” enterprise with foreign investments, to the
“Agrooglyad: Vegetables and Fruits” weekly journal, his company will be
the largest strawberry producer in Western Ukraine this year.

In 2006 “Agro Frutika Byshkiv” plans to have the first strawberry harvest
on 32 hectare in Zhovkva rayon in Lviv oblast. It also means that the
enterprise will become one of the largest industrial strawberry producers
in Ukraine: the demand on this berry is growing by greater rates than the
production now in Ukraine.

As the Company Director said, the sales questions have been settled
already. “Agro Frutika Byshkiv” does not disclose the sales channels now –
the foreign (Italian) investors have probably invested not only into
production but into sales too.

Evaluating the strawberry acreage, we can say that practically all berry
harvest will be processed. If the modern production technologies are used,
the company will harvest more than 500 000 tons of strawberry this year –
it is hard to sell such a volume on the freshmarket. This fact is indirectly
proved by the fact that “Agro Frutika Byshkiv” plans to produce only
Ukrainian strawberry varieties.

The enterprise plans to increase strawberry acreage up to 100 hectare during
two-three years. Besides, about 50 ha of raspberry may be produced, and
significant acreage will be allocated for blackberry. The demand on
blackberry is growing by fast rates on the world market.

The specialists of “Agrooglyad: Vegetables and Fruits” weekly journal
estimate, if the company is able to fulfill the plans, it will invest about
$1 mln. into berry production in Ukraine in the years coming.

We’ll remind that the joint Ukrainian-Austrian enterprise “Luka” also
produce the industrial volumes of berries (mainly strawberry and raspberry)
on large acreages. The enterprise fields are located in Vinnitsa oblast. In
the same region one of the largest processor of fruits and berries works –
the joint Ukrainian-Austrian enterprise “Podillya Obst”.

The Ukrainian investors are not lagging behind: past year the enterprise
“Druzhba narodov” (the division of “Mironovskiy Khleboproduct”
company) planted large acreages with strawberry in AR Crimea, in view
to satisfy mainly the freshmarket needs.

There is an information that this year the company is going to extend
acreages and introduce the own trademark for fruit and berry sales on
market. There are several relatively large berry producers in Kherson

oblast too; they sell the produce mainly on a freshmarket. It is interesting to
mention that Poland, one of the largest strawberry producers in Europe,
will decrease strawberry production significantly in 2006.

Foreign companies often inquire the Agricultural Marketing Project and
“Agrooglyad: Vegetables and Fruits” weekly journal about the numerous
possibilities provided by Ukrainian produce business. Some of them are
interested in the investments into production; still they are still
discouraged by the absence of agricultural lands market in Ukraine.

That’s why the investment project of “Agro Frutika Byshkiv” company
will probably be one of the numerous large foreign investments into fruit
and vegetable production in Ukraine in 2006.  -30-
NOTE:  http://www.lol.org.ua/eng/showart.php?id=33274

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

Yana Lemeshenko, Ukrinform, Kyiv, Ukraine, Wed, Feb 8, 2006

DUBLIN, IRELAND – With a view of gaining economic successes, Ukraine

must lower taxes and encourage investments. This was what Irish Foreign
Minister Dermot Ahern told a press conference in Dublin, which he jointly
held on Wednesday with his visiting Ukrainian counterpart Borys Tarasyuk.

As Dermot Ahern stressed, regrettably, Ireland’s trade turnover with Ukraine
is rather small just 47 M. USD. With a view of improving the situation, the
Irish Trade Minister will shortly visit Ukraine, he said.

Replying to the journalists’ question about prospects for opening the Irish
Embassy in Ukraine, Mr Ahern said Ireland will keep expanding its

diplomatic presence in the world.

This year five to six new embassies will open. The issue of what nations
these are to be set up in is being discussed, the Irish Foreign Minister
told the journalists.

In turn, Minister Tarasyuk informed the journalists about his meeting with
the Irish Foreign Minister. According to Mr Tarasyuk, the meeting dealt with
matters of bipartite and international cooperation, as well as matters of
energy security.

As Borys Tarasyuk said, he informed his Irish opposite number about the
Ukrainian – Russian gas dispute. In this connection he stated Ukraine’s
interestedness in boosting domestic extraction of natural gas and invited
Irish energy companies to invest in developing and exploiting gas fields in
Ukraine’s shelf zones.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]


Natalia Bukvych, Ukrinform, Kyiv, Ukraine, Thursday, February 9 2006

WASHINGTON, USA – Within the framework of his working visit to the

USA, Ukrainian Interior Minister Yuriy Lutsenko met with Congressman
Curt Weldon, who chairs the House of Representatives group for national
security and co-chairs the group for promotion of relations with Ukraine,
the Ukrinform’s Washington-based correspondent reported.

The meeting focused on topical matters of Ukrainian – American relations and
on ways to step up cooperation between the two countries’ law-enforcement
bodies. The parties agreed on holding a tripartite meeting to this effect in
Kyiv, with participation of Russian representatives.

As Yuriy Lutsenko said, by way of assessing the situation in Ukraine on the
eve of the election, any statements on likely “anti-democratic revenge” in
Ukraine are groundless and stated the authorities’ readiness to ensure the
elections’ meeting high European standards.

Curt Weldon aired his belief that political forces confessing democratic
values must overcome discrepancies and unite after the elections. The
Ukrainian Internal Affairs Minister held negotiations with FBI chiefs, too.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Ukrinform, Kyiv, Ukraine, Tuesday, February 7, 2006

KYIV – President Viktor Yushchenko relieved Mykola Maimeskul of the

position of Ukraine’s Ambassador to Canada in connection with a new job
on Tuesday.
Mykola Maimeskul had been working as Ukraine’s Ambassador to Canada
since March 20, 2004.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                        Launch of new book “Ukraine and Ukrainians”
By Inna Koziy, The Day Weekly Digest In English, #3
Kyiv, Ukraine, Tuesday, February 7, 2006

An exhibit called “Ivan Honchar the Collector,” commemorating the 95th
anniversary of the birth of this renowned civic and cultural figure,
sculptor, painter, and Ukrainian folk art specialist, has opened at the
Ukrainian Center of Folk Culture. On display are paintings, photos, and
documents that were collected by Ivan Makarovych when he was creating

his home-based museum of the Ukrainian ethnographic heritage.

In fact, this house museum became the Ivan Honchar State Museum in 1993,

on the basis of which the “Ivan Honchar Museum” Ukrainian Center of Folk
Culture was created in December 1993. Today, the center is devoted to
preserving, studying, and popularizing Ukraine’s largest private
ethnographic collection. It holds scientific conferences and workshop
seminars, and organizes ethnographic expeditions, exhibits, and meetings of
ethnographic and art clubs.

As a young man, Honchar fought in WWII and witnessed the destruction of
cultural values. The history of the museum dates from this period. That was
when he promised himself, “If I survive, I will create works of art and
collect gems of folk art.” He kept his promise.

In 1957, setting off on his first expedition to collect items for the house
museum, Honchar embarked on a project that would last almost 40 years,
studying and collecting works of folk art. He travels far and wide
throughout the countryside, and he has visited almost every corner of
Ukraine. He communicates with people who can tell him many interesting
things about our unique art.

Some of the items on display at the museum were purchased, while others

were given to Honchar as presents. Among them are folk costumes, musical
instruments, paintings, earthenware, and unique historical and documentary
photos of the late 19th and mid-20th centuries.

In addition to founding a museum, Honchar took up sculpting and painting.

He is the author of sculptural portraits of numerous historical and cultural
figures. He was the first to depart from traditional portrayals of
Shevchenko by painting a young Taras. His canvas Young Taras Shevchenko
is in the Tretyakov Gallery.

In 1954 he created a monument to Maxim Gorky in Yalta and was nominated

for the State Prize. Among his works are sculptural portraits of Ivan
Kotliarevsky, Hryhoriy Skovoroda, Ivan Franko, Mykhailo Drahomanov, Ivan
Nechui-Levytsky, Andriy Malyshko, Volodymyr Sosiura, and many other
Ukrainian men of arts and letters. Some of his sculptures are included in
the current exhibit.

Ivan Honchar died in 1993. His friends and relatives have commemorated him
by gathering every year on his birthday, Jan. 27. His 95th anniversary was
no exception. “Very many people came,” recalls chief archivist Lidia
Dubykivska-Kalchenko, adding, “The celebrations of previous years took

place in a narrower circle. Today the exposition ‘Ivan Honchar the
Collector’ is open. It is based on his memories of his travels across

The commemorative soiree was marked by the launch of the book Ukraine

and Ukrainians, Ivan Honchar’s historical and ethnographic art album. It
includes rare documentary photos taken in various parts of Ukraine, local
characters and landscapes, architecture, and household utensils. The album
contains a collection of 160 sheets from an 18-volume album created by
Honchar. Some photos from the album are included in the exhibit, which
ends on Feb. 15.  -30-
LINK: http://www.day.kiev.ua/156975/
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    If you are receiving more than one copy of the AUR please contact us.

                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., Thursday, February 9, 2006

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]
             Send in a letter-to-the-editor today. Let us hear from you.

Korrespondent.net web site, Kiev, in Russian 6 Feb 06
BBC Monitoring Service, UK, in English, Mon Feb 06, 2006

KIEV – Ukraine is building a unique antisubmarine warship. The corvette
Luhansk designed by the More [Sea] state shipbuilding company of

Feodosiya under the Sokol project is one of the most advanced warships
of its kind in the world, the director of the company, Hryhoriy Klebanov,
has said.

The corvette is almost complete, although its construction has been
suspended due to the lack of appropriate funding, the company says.

The corvette Luhansk is the biggest hydrofoil vessel in the world and there
are no analogues. The warship is 50 metres long and 10 metres wide. Due to
its three gas turbines, one 10,000-horsepower and two 20,000-horsepower,

it can attain a speed of more than 60 knots.

The Luhansk has the widest hydrofoil span made of a titanium alloy, which
enables it to surf 4-metre-high waves. Due to its high speed, the warship
can in a short time reach a position from which a submarine can be hit with
a high degree of probability.

The Luhansk is armed with a 76.2mm AK-176 artillery system, an AK-630M
six-barrel automatic gun, two quadruple 400mm torpedo tubes, an automatic
target acquisition and fire control system, an automatic target acquisition
and antisubmarine missile control system, and two portable anti-aircraft
rocket units. -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
 Mysterious shady trading firms have no purpose, RosUkrEnergo singled out

By Nicholas Kralev, The Washington Times
Washington, D.C., Thursday, February 9, 2006

WASHINGTON – U.S. officials say Russia has been using its control of
Soviet-era pipelines to squeeze Central Asian sellers of natural gas while
setting up corrupt trading intermediaries whose only apparent purpose is to
milk huge profits.

Alarmed by a recent price dispute between Russia and Ukraine that disrupted
vital gas supplies to Europe, the Bush administration raised doubts about
Russia’s fitness to chair the Group of Eight leading industrialized
countries, beginning with a finance ministers’ meeting in Moscow this week.

The State Department has been talking to Russia and its European customers
seeking to change Moscow’s practices, but European officials said they are
reluctant to interfere in Moscow’s trading policies.

U.S. officials noted a huge gap between what Russia pays to import gas from
Central Asia and what it charges for the gas in Europe, while middlemen rake
off vast profits.

“It’s a fascinating story, because it combines corruption with economic
reform and Russia’s ambition to dominate its neighbors,” said a senior State
Department official who asked not to be named because of the sensitivity of
the matter. “It’s a great story, but it’s an ugly one, too.”

Gazprom, the Russian natural gas monopoly, buys gas from Central Asia for
less than $50 per 1,000 cubic meters and then sells it to European countries
at prices as high as $260.

Even though Gazprom could handle transactions at both ends, much of the
trading is carried out by middlemen, said U.S. officials who briefed The
Washington Times in an attempt to call attention to the problem.

These mysterious shady trading firms have no purpose,” the senior official
said. “They have been a source of corruption for years. They are instruments
for arrangements by which some people buy cheap and sell expensive.”

The official singled out RosUkrEnergo, established in 2004 as an
intermediary between Gazprom and the Ukrainian state gas company Naftohaz.
RosUkrEnergo was at the center of an agreement between Russia and Ukraine
last month that ended their bitter price dispute.

“It’s said to be run by people with organized criminal ties, as well as good
Kremlin connections,” the official said of RosUkrEnergo, which is co-owned
by Gazprom and an Austrian-registered company, Centragas.

Ukrainian intelligence thinks that Semyon Mogilevich, an official in the
administration of former President Leonid Kuchma who is wanted by the
FBI and Interpol for money laundering, has a stake in RosUkrEnergo.

Mr. Mogilevich, who is said to be living in Moscow, has denied any links to
RosUkrEnergo, as has Centragas CEO Wolfgang Putschek.

Under the January deal, RosUkrEnergo sells gas to Ukraine for $95, up from
the previous $50. It is a mixture of Russian gas priced at $230 and Turkmen
gas priced at less than $60.

The pipeline from Turkmenistan to Russia runs through Uzbekistan and
Kazakhstan, whose exports to Russia are much smaller than Turkmenistan’s,
said Jerome Guillet, a French investment banker who worked on a $3 billion
loan for Gazprom several years ago.

He agreed with the senior State Department official that the middlemen firms
“are there to create non-transparency,” but said that Washington’s demands
are not realistic.

“The Central Asians are stuck and totally dependent on the Russians”
because of the pipeline infrastructure built by the Soviet Union, said Mr.
Guillet, who also edits the European Tribune, an Internet magazine.

The Central Asian countries cannot sell their gas directly to the Europeans,
so they will take any price the Russians offer them, he said.

The Europeans criticized Russia for cutting off their supplies over the
dispute with Ukraine, but they have not been as tough on Moscow as
Washington has in recent weeks.

“Russia is going through a very difficult transformation process, and that
takes time, so our policies must be cautious,” a senior European diplomat

The diplomat, as well as several other Europeans officials, agreed that
corruption exists and should be fought, but they questioned the criminal
accusations against some intermediaries and declined to join the U.S. call
to eliminate the intermediary companies.

Some European diplomats even suggested that the Bush administration was
divided over what tactics to pursue in dealing with the issue.

The senior State Department official played down the differences with the
Europeans — as well as those within the administration — saying the United
States would work with its allies and Russia to guarantee Europe’s energy

“We are not anti-Russia,” the official said. “We simply want fair and
transparent trade.”  -30-
LINK: http://www.washtimes.com/world/20060209-124026-4937r.htm
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
          New joint venture with RosUkrEnergo a setback for Ukraine.
     I say this without any hesitation or reservations. It is one big mistake.

OP-ED: By Roman Kupchinsky. Kyiv Post

Kyiv, Ukraine, Thursday, Feb 09 2006

After following and writing about gas deals between Ukraine and Russia
for the past four years, I feel confident in stating that the agreement to
create a joint venture between state oil and gas company Naftogaz

Ukraine and Swiss-registered RosUkrEnergo is a setback for Ukraine.
I say this without any hesitation or reservations.

This deal could come back to haunt Ukraine and President Viktor
Yushchenko one day. It could also destroy his reputation and the
reputations of those who were party to this unnecessary and murky
transaction. In my opinion, it is one big mistake.

Beginning in December 2002, Eural Trans Gas (ETG) was registered in
Hungary and awarded a contract to supply Ukraine with gas from

RosUkrEnergo has since replaced ETG as the firm handling transits from
Turkmenistan, and most recently importing gas from Russia and Central

It is a lucrative business through which such firms generate hundreds of
millions of dollars annually for unclear services. Nobody in the top
echelons of government or the companies involved has been able to
adequately explain why state-owned gas companies like Ukraine’s

Naftogaz and Russia’s Gazprom, which controls gas pipelines stretching
to Ukraine’s borders, can’t handle the transit themselves. There are many
other unanswered questions.

Nobody in the Russian or Ukrainian governments has explained the role of
ETG’s Romanian shareholders.

What value did ETG add to the transport of Turkmen gas to Ukraine? Yuriy
Boyko, the then-head of Naftogaz, claimed that everything was “transparent”
and that Eural was saving Ukraine a great deal of money. This doesn’t appear
to be the case.

Former Ukrainian President Leonid Kuchma didn’t attempt to stop the deal,
maintaining silence throughout while he was in office. The bottom line was
that Eural was awash in cash.

Nobody could answer why such little-known companies should be given such
lucrative contracts and what role they played. Equally important, nobody
could explain where the profits earned ended up. As far as I have been able
to ascertain, it didn’t go into the pockets of the Romanian shareholders.

Then, for reasons still unknown, mysterious beneficiaries, or those who
really controlled the lucrative business, got rid of the Magyars, Romanians
and an Israeli lawyer. In July 2004, RosUkrEnergo was set up, replacing
ETG as the operator of Turkmen gas supplies to Ukraine.

“A model of transparency” Boyko proclaimed at the founding ceremony in
Yalta. Still, RosUkrEnergo, owned half by Gazprom subsidiary Gazprombank
and half by unknown parties, appeared to be a continuation of the old Eural
scheme, as well as the proclivity of top brokers in the region’s gas
business to conduct opaque transactions.

To show how “transparent” everything was, they brought on board Raiffeisen
Investments – a company that added a respectable name to the murky deal.

Raiffeisen appears to do nothing except act as a nominee shareholder on
behalf of the unknown owners of Centragas Holdings, which owns half of
RosUkrEnergo. Its beneficiaries have not been disclosed. Thus, Raiffeisen
Investment appears to have fulfilled the role of attractive packaging.

Nobody in Ukraine made any serious objections at the time. In the case of
Eural, millions of tax-free dollars piled up on company accounts and it
remains unclear where they ended up.

When the new administration took over in Ukraine, its members vowed to
fight corruption and the remnants of the Kuchma era. An investigation was
launched by the Ukrainian State Security Service (SBU) into the operations
of Eural and RosUkrEnergo.

Russian President Vladimir Putin was in a potentially uncomfortable
position. It appeared that Yushchenko was doing his bidding. Oleksandr
Turchynov, then head of the SBU, said he’d been told to wrap up the
investigation, and to stop pestering “our boys.” Then Yushchenko fired
Turchynov’s political ally, Yulia Tymoshenko and brought in a new team.

The gas deal appeared to be too profitable to fold up. When the time came
this year to negotiate a new gas sales deal with Ukraine, RosUkrEnergo
ended up gaining a bigger role, gaining control of gas shipments not only
from Turkmenistan, but also from other Central Asian states and Russia.

The joint venture established last week also gives RosUkrEnergo a piece
of the business of supplying gas on the Ukrainian market.

The Ukrainian government conducted the negotiations as best they could,
but could have done better. They misled the Ukrainian people over and
over, insisting it was a transparent deal.

President Yushchenko scolded the press for writing “fairy tales” (‘Bajky’)
about RosUkrEnergo, while disassociating the state from the firm. He
insisted that no government company had a share in it.

The head of the Anti-Monopoly Committee of Ukraine last week concluded
that the creation of a joint venture between Naftogaz and RosUkrEnergo
didn’t violate Ukraine’s antimonopoly laws. But regulations and commercial
secrets forbade him from revealing the names behind RosUkrEnergo.
Committee head Oleksy Kostusev did say, however, that these names should
be made public.

Why should the names of shareholders in a commercial venture remain
secret, when it is the government that owns part of the venture?

What prevents President Yushchenko from telling the Ukrainians  clearly
who owns 50 percent of RosUkrEnergo? Is he covering for someone?

If Ukraine expects to join Europe and the World Trade Organization,
then this is not the way to go about it.

If blame is to be apportioned for the Ukrainian side of this fiasco, then
most of it can be placed on the doorstep of the current authorities.

President Yushchenko’s approach to governing, his choice of personnel
and his difficulty in keeping electoral promises to fight corruption are
largely responsible for this mess.

Yulia Tymoshenko must also be held accountable for her actions after
the gas affair began. By arguing that the old price of $50 per 1,000 cubic
meters could be maintained was pure nonsense. By making wild and
unsubstantiated claims, Yulia has only created more confusion and
uncertainty than what already exists.

Influential power brokers in the region, possibly including Russian
President Vladimir Putin, appeared influential in this deal. This, however,
does not excuse the president of Ukraine and the government from
concealing the truth from their own people.

It would have been far better to rely on honesty and tell it like it is.
Most reasonable people would have believed President Yushchenko.
Instead, he chose the path of least resistance.  -30-
Roman Kupchinsky is the former head Former head of Ukrainian service
of Radio Free Europe/Radio Liberty (RFE/RL)
NOTE: http://www.kyivpost.com/opinion/oped/23850/
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Project on Transitional Democracies
Washington, D.C., Thursday, February 09, 2006

WASHINGTON, DC – At 9:30 am this morning, The Project on

Transitional Democracies announced a bid for the shares of
RosUkrEnergo held by Ukrainian investors. 
RosUkrEnergo is a Swiss-based joint venture between Ukraine and Russia
which on January 4, 2006 signed an agreement with GAZPROM and the
Government of Ukraine to supply Ukraine with gas on a temporary basis
and to lease Ukrainian gas storage and pipelines through 2030.

Bruce P. Jackson, President of the Project on Transitional Democracies,
announced, “We are responding to Prime Minister Yuriy Yekhanurov’s
announcement yesterday that he will order the State Property Fund to
announce a tender for any part of RosUkrEnergo which belongs to

Ukraine. We are bidding.”

On February 8, Prime Minister Yuriy Yekhanurov told journalists, “I will
order the State Property Fund to immediately announce a tender if some-

body finds that any part of RosUkrEnergo belongs to Ukraine.  It will be
sold for one hryvna (4 U.S. cents,
3 Euro cents).”

The Project on Transitional Democracies is a non-profit US Corporation

based in Washington, DC.  Its Board of Directors and International Advisors
are evenly divided between Europe and United States.  Mr. Jackson was
unwilling to divulge the details of the Project’s bid until after the publication
of the Ukrainian tender.

Mr. Jackson did disclose that the US-European bid would be “all cash” and
that “Due to the Corporation’s non-profit status, we will commit to return
all profits to the people of Ukraine who are the legal owners of the assets
from which the Project would otherwise be improperly and illegally

In response to questions about the source of PTD financial backing, Ms.
Irina Krasovskaya, PTD Board Member and President of WE REMEMBER,

a world-renowned human rights group in Belarus, stated, “Those of us in
Belarus could not let the Ukrainian people be sold into the same slavery to
which our people have been condemned.  We have gathered our hryvnas and
are prepared to meet the Prime Minister’s price for the economic sovereignty
of our friends in Ukraine. It is the least we could do.”

Mr. Jackson added, “The opportunity to get in on the ground floor of the
greatest asset-stripping operation in European history for a less than a
dollar was something our Board could not pass up.  At a minimum, our
representatives will be able to attend the secret Board meetings in
Switzerland and St. Petersburg where they will get to drink champagne with
the FSB and the mafia bosses who have stolen the future of Ukraine.”

The Board, its financial condition and beneficiaries are a matter of public
record and its activities are both transparent and fully compliant with US
and European Union law.  The Project will file appropriate notifications of
intent to bid with the US Securities and Exchange Commission and the
European Union upon the publication of the Ukrainian tender.
For additional information, please contact The Project on Transitional
Democracies at 202-986-1949 or bruce@ptdemocracy.org.

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

Ren TV, Moscow, in Russian 2030 gmt 2 Feb 06
BBC Monitoring Service, UK, in English, Sunday, Feb 05, 2006

[Presenter] It turns out that Vladimir Putin foretold the gas row with
Ukraine many years ago. Back in 1997 he wrote about it in his PhD thesis,
the St Petersburg Mining Academy, where the future president of Russia

had his PhD viva, has revealed.

Now Putin’s thesis dealing with problems of the mining sector is causing
much interest not only among researches but also among politicians and civil
servants. Moreover, many observers believe that many of the principles set
out in it nine years ago are now consistently being implemented at the
federal level. Aleksandr Zhestkov has more details.

[Correspondent] In the event of a fire, this room will be filled with a gas
which is lethal for human being but is life-saving for books. This is the
sanctum sanctorum of the Russian State Library – a room where PhD theses

are kept. It is here that Vladimir Putin’s paper is also kept. Visitors to the
library are free to borrow the president’s thesis. In the catalogue it is
listed in-between the PhDs by Tatyana Putilovskaya and Gennadiy Putin.

Vladimir Putin’s PhD can be read by anybody. All it takes is to register
with the country’s main library, find the thesis in the catalogue, order it
and 30 minutes later you will have the folio in your hands. Last year the
thesis was lent for reading eight times. Librarians say it is a lot: some
theses remain without anybody’s attention for years, whereas here there is

a clear interest.

[Aleksandr Soshnin, head of the Russian State Library’s theses department]
You are holding in your hands something that was typed by the person who
wrote it. It is like an old manuscript. You are touching something that
Vladimir Vladimirovich [Putin] also touched.

[Correspondent] The thesis is about strategic planning and replenishment of
the raw material base of St Petersburg and Leningrad Region in a developing
market economy. However, those experts who have read the thesis have learnt
a lot of interesting things not only about St Petersburg. Principles of
state policy in the mining sector that were set out nine years ago are now
being consistently implemented at the federal level.

Researchers at the St Petersburg Mining Academy, where Putin held his PhD
viva, have already found in his thesis a prophecy of the gas war with
Ukraine, obviously expressed in a coded fashion.

[Vladimir Litvinenko, vice chancellor of the St Petersburg Mining Academy]
One can indeed find if not a direct answer to those processes that are today
taking place with Russian gas which passes through Ukraine, then general
views on the state’s presence in the system of regulating the activities of
large companies.

[Correspondent, quoting from the thesis] Irrespectively of who owns

natural, namely mineral, resources, the state has the right to regulate their
development and use [end of quote].

Putin’s thesis has become essential reading for officials at the Natural
Resources Ministry. From this thesis we learn what are the president’s

views in our subject area are, the minister says.

[Yuriy Trutnev, Russian natural resources minister] I think that the Natural
Resources Ministry is very lucky in that Vladimir Vladimorovich’s thesis
deals with our subject area.

[Correspondent] The minister says so far he has no plans to make his staff
spend their nights studying Putin’s thesis. Yuriy Trutnev is sure that his
staff will read the thesis themselves and with pleasure.

[Trutnev] I don’t think we shall have any centralized campaign to promote
this thesis. My understanding is simply that any expert working in the
sector should study specialized literature, should seek to raise their
professional level. I think that studying the thesis we are talking about is
part of this obligatory self-development work for any expert.

[Correspondent] At the time Vladimir Putin was defending his PhD paper,
Mikhail Delyagin was working on his doctoral thesis. He is used to acting

as the president’s opponent in politics but now he is doing it as a fellow

[Mikhail Delyagin, director of the Globalization Institute] I began reading
with an urge in my fingers to pull it to pieces, but you know what, it is a
thesis like any other, rather ordinary in fact. There are no obviously silly
things in it. Equally, he did not discover Newton’s fourth law either – it
probably does not exist anyway.

[Correspondent] Delyagin says that the process by which people in this
country, especially famous people, are awarded PhDs is a sham and a show.
Having said that, Doctor Delyagin still has the thesis by Putin, PhD, saved
in his computer.   -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
     You are welcome to send us names for the AUR distribution list.
18.                              NEW GAS REVELATIONS
                       Is Ukraine in for a total property redistribution?
Ukraine companies will be forced to pay Russia for gas with corporate shares

ANALYSIS & COMMENTARY: Yulia Mostovaya, Alla Yeremenko
ZERKALO NEDELI On The Web, Mirror-Weekly, No. 4 (583)
International Social Political Weekly
Kyiv, Ukraine, Saturday 4 – 10 February 2006

Rumours about the Ukrainian delegation’s having signed a number of
documents other than the January 4th gas agreement leaked in the Internet,
and circulated in the NJSC NAFTOGAS UKRAINY, Cabinet and
Parliament lobbies.

However, the widely-discussed agreement was never presented officially,
so there was no way of having these rumours confirmed or disproved.

The truth transpired at the extraordinary Cabinet session on January 31st,
when the government realized, perhaps for the first time, the level of
Ukraine’s losses and the implications of its surrender.

The Cabinet of Ministers met on Tuesday, January 31st, to give the go-
ahead to the signing of statutory documents of a joint venture to be set up
by RosUkrEnergo (RUE) and NJSC NAFTOGAS UKRAINY pursuant
to the January 4th agreement.

Despite Minister of Fuel and Energy Ivan Plachkov’s optimistic report, it
was evident that most ministers had doubts about the feasibility of creating
a joint venture with the non-transparent RUE Company and placing it in
charge of the Ukrainian gas distribution and supply market.

They also had questions about the January 4th agreement that neither
Minister Plachkov nor NAFTOGAS CEO Ivchenko could answer.

Finance Minister Viktor Pynzenyk raised the issue of other documents
purportedly signed in Moscow on January 4th but not reported to the
government. Judging by the minutes of the previous “gas” session of the
Cabinet held in mid-January, the issue had been on the agenda before, but
Minister Plachkov had assured his colleagues then that no such documents

This time he admitted they did, at which point Cabinet members received
copies of the papers signed in Moscow on January 4th 2006 and unknown
to the Ukrainian government, Parliament and society.

The ministers were shocked and outraged by three (according to other
sources, five) additional documents. In fact, Minister Plachkov was the only
Cabinet member who felt good about the gas agreements with Russia. Some
ministers kept silent, but the majority was most censorious.

Amongst the latter were [Minister of Economy] Arseniy Yatseniuk, Viktor
Pynzenyk, [Deputy Ministers of Foreign Affairs] Volodymyr Ohryzko and
Anton Buteyko, [Minister of Defence] Anatolioy Gritsenko, [Minister for
Emergency Situations] Viktor Baloha, [Minister of Construction] Pavlo
Kachur, [Minister of Transport] Viktor Bondar, Pavlo Ihnatenko and Yuriy

Presumably, the documents that appeared out of the blue, in conjunction
with the conceived joint venture, constituted an almost-implemented plan for
Ukraine’s bloodless annexation by Russia for twenty-five years – until 2030.
Presumably, the Prime Minister learned about it a bit earlier than the other
Cabinet members, but long after the capitulation had been signed.

The ministers understood that the approval of the joint venture’s statute
was a minor matter compared to the signing of the documents that emerged.
Nevertheless, they also understood it was a matter of principle, not only in
terms of contents, but procedurally as well.

It was a Rubicon, of sorts: Moscow wanted the joint venture, and by
desisting from its official approval, Ukraine allowed itself room to amend
the whole package of gas agreements – both announced and undisclosed

That is why the governments resolved that:
(a) the draft joint venture statute should be sent to the Antimonopoly
Committee that, in turn, should make an official enquiry about the RUE
founders and shareholders;
(b) Plachkov, Ivchenko and Voronin should be barred from incorporating
any amendments into the draft statute without the government’s consent;
(c) Ukraine’s legal options should be studied, in case it decides to
withdraw from the reached agreements;
(d) the Ministries of Economy, Finance, Foreign Affairs, Justice, Fuel and
Energy should scrutinize every successive step in the joint venture’s
registration process.

Premier Yekhanurov pledged to insist on amending the statute as required
and, should the government so decide, to disaffirm the January 4th
agreements as prejudicial for Ukraine. This happened on Tuesday.

What was next? On the same day, the Antimonopoly Committee gave
the green light to the new joint venture.

Mr Kostusiev, Chair of the Antimonopoly Committee, returned from his
leave of absence that he had taken to run for Parliament on the “Regions
of Ukraine” party list and declared (fully in line with his billboard slogan
“God and Russia are with us!”) that his agency had neither grievances nor
concerns about RUE, while the joint venture would not be a monopolist
on the gas supply market.

On Wednesday, the fighting around the joint venture statute went on.
Immense pressure was brought to bear, but a few signatures were still
missing under the draft statute to enable Yekhanurov finally to endorse
the document.

Minister Yatseniuk was even sent to Astana but his deputy would not give
in. And yet on Thursday, Prime Minister Yekhanurov assumed personal
responsibility and signed the joint venture statute, without taking on board
even half of the ministers’ reservations, as it turned out later.

The reservations and objections were well justified. The Russian
counterparts did not manage to deal with them during the discussions.

The Ministry of Finance compiled a long list of requirements to the joint
venture and of amendments to its statute. So did the Ministry of Economy.

The Ministry of Foreign Affairs drafted a memorandum for the Kremlin
and legally substantiated guidelines for annulling the agreements that were
already signed, on the basis of Ukrainian and international law.

Nonetheless, the Prime Minister took an individual decision without any
additional consultations with the Cabinet members.

What did Ukraine gain and lose in the gas spat with Russia? Why did the
Premier go to the length of breaching the procedure and exceeding his
powers to sign the joint venture statute? What are Ukraine’s obligations
under the agreements signed on January 4th 2006?

How many of them were signed? Are they annullable? What awaits Ukraine
if agreements reached by Yushchenko, Ivchenko, Voronin and Plachkov
are fulfilled? We will try to answer some of these questions.

                         WHAT WAS SIGNED IN MOSCOW?
We had difficulty finding any information whatsoever about the additional
documents signed covertly on January 4th, but on Thursday night it surfaced
that even the Cabinet of Ministers did not have a comprehensive picture.
Eventually, we succeeded in discovering six secret papers, although this
could be an incomplete set.

Today we know that the two delegations signed seven documents at the talks
in Moscow on January 4th 2006. One of them – a trilateral Agreement on
Regulating Relations in Gas Sector, concluded by NJSC NAFTOGAS
UKRAINY, GASPROM and RUE, – was described in detail in the two
previous ZN issues.

The other documents form a package regulating several aspects of
relations amongst the three abovementioned parties.

                                    FOR EXAMPLE,
[1] Annex #1 ??-06 to the Contract dated June 21st 2002 on Volumes and
terms of Russian Natural Gas Transit via the Territory of Ukraine for
2003-2013, between NJSC NAFTOGAS UKRAINY and OJSC

According to it, in 2006, GASPROM undertakes to supply, and
NAFTOGAS – to transport via Ukraine’s territory 127.777 billion cubic
meters of natural gas. Transit dues are USD $1.6 per 1,000 cubic meters
of gas per 100 kilometers. The total cost of gas transit services will
amount to USD2.05 billion.

Yet there is a subtle detail included: pursuant to Annex #4, dated August
9th 2004, in 2006-2009 NAFTOGAS is to render annual transit services in
repayment of a USD $250 million advance (the total advance amount or,
rather, debt recognized by Ukraine being USD $1.25 billion).

In this case, the transit dues are USD $1.09375 per 1000 cubic meters per
100 kilometers as before. The document comprises a monthly schedule for
advance repayment, according to which the new transit dues of USD $1.6
will not be enforced prior to the debt repayment.

[2] The next document is Additional Agreement #4 to Contract #14/935-3/04,
dated July 29th 2004, on Volumes and Terms of Pumping Natural Gas into
Underground Gasholders, its Storage, Extraction and Transportation in
2005-2030. It was signed by NAFTOGAS and RUE and provides that in
2006-2030, Ukrainian underground gasholders will store up 15 billion cubic
meters of gas every year.

The contract duration is 25 years and contract amount is USD $866.250
million. All services related to gas pumping into gasholders, storing and
extracting from them will cost USD $2.25 per 1000 cubic meters per year
of storing.

May we remind you that when gas traders operated on the market and up
until last year, gas pumping, storing and extraction form Ukrainian
gasholders cost gas owners at least USD $8.0 per 1000 cubic meters per

Interestingly, in Hungary, for instance, gas owners have to pay at least USD
$17 per 1000 cubic meters per season for a similar set of services. By the
most conservative estimates, Ukraine will lose about USD $150 million per
year on this deal.

The RUE Company is known to store its gas in Ukrainian underground
gasholders. Last year it raised its price considerably. In the future, the
company is likely to store more than the current 15 billion cubic meters in
Ukraine, i.e. to pump in our gasholders the gas that GASPROM sells at USD
$230 (as stated by the Russian negotiators) and keep it there for USD $2.25
per 1000 cubic meters per year.

Under the circumstances, Ukraine, or, more accurately, NAFTOGAS will lack
funds for purchasing its own gas reserves. Put differently, NAFTOGAS will
store the RUE and GASPROM gas in Ukrainian gasholders for a token fee
of USD $2.25 and maintain seasonal balance of gas export flows.

Should NAFTOGAS need more gas in the cold time of the year, it will have to
buy it from RUE at USD $230 per 1000 cubic meters, although even this price
is not final and God knows how much RUE will charge NAFTOGAS when it
becomes a monopolist owner of the natural gas stored in Ukrainian

[3] The third document is Additional Agreement #6 to Contract #4-???, dated
July 29th 2004 for purchase-sale of natural gas between NJSC NAFTOGAS
UKRAINY and RosUkrEnergo.

According to it, in 2006, NAFTOGAS undertakes to sell to RUE 40 billion
of cubic meters of gas at USD $50 per 1000 cubic meters at the Turkmen-
Uzbek border. The total estimated cost of gas is USD $2 billion.

So this document testifies, albeit circumstantially, that Ukraine did,
indeed, have Turkmen gas. Yet it is unclear why the Ukrainian negotiators
did not make proper use of the contract signed between NAFTOGAS and
RUE for Turkmen gas supplies to Ukraine in 2005-2006.

[4] Document number four mirrors the third one and is called Additional
Agreement #5 to the same contract of purchase-sale of gas. Yet this time,
RUE undertakes to sell to NAFTOGAS 25 billion cubic meters of gas at
USD $80 per 1000 cubic meters at the Russian-Ukrainian border.

The total estimated cost of gas is again USD $2 billion but, according to
this agreement, RUE will get 15 billion cubic meters as payment for its
services (for gas that will, in all probability, end up in Ukrainian
underground gasholders or on the Ukrainian gas market, with no price
caps, of course).

[5] In order to form Ukraine’s gas balance, a fifth document was signed –
Additional Agreement #7 Contract #4-???, dated July 29th 2004 for
purchase-sale of natural gas between NJSC NAFTOGAS UKRAINY and

It stipulates that in January, RUE should supply to the Russian-Ukrainian
border up to 2 billion cubic meters of gas for NAFTOGAS at USD $95 per
1000 cubic meters. As per this document, volumes of additional gas supplies
were to be agreed upon by February 1st, 2006.

[6] Document number six is Additional Agreement #4 to Contract #14/935-3/04,
dated July 29th 2004 on Volumes and Terms of Pumping Natural Gas into
Underground Gasholders, its Storage, Extraction and Transportation in
2005-2030. Its signatories are NAFTOGAS and RUE. This agreement obliges
NAFTOGAS to transport annually up to 15 billion cubic meters of gas
belonging to RUE, in 2006-2030.

Transit dues are USD $1.6 per 1000 cubic meters per 100 kilometers. The
document disclosed – a trilateral Agreement on Regulating Relations in Gas
Sector – stipulates that RUE should annually receive 7 billion cubic meters
of Uzbek and 8 billion cubic meters of Kazakh gas, which adds up to 15
billion cubic meters of Central Asian gas (not to be confused with 15
billion cubic meters due to RUE from NAFTOGAS as payment for its
operator services of supplying Turkmen gas to Ukraine).

This gas could be either offered to Ukrainian industry at USD $230 per 1000
cubic meters (the price quoted in Additional Agreement #4) or exported
farther westwards. Alternatively, RUE could pump it into underground
gasholders as gas reserve and sell it to Ukraine in peak-demand periods.

Thus, on January 4th 2006, seven (sic!) documents were signed in Moscow.

As well, there is an Agreement on Cooperation in Accepting Turkmen Gas at
the Turkmen-Uzbek Border (Kazakhstan) and its Transit. According to our
sources, this agreement was signed on February 1st 2006 by NJSC

It concerns exporting 6 billion cubic meters of gas from Turkmenistan by
GASEXPORT Ltd. TURKMENGAS has to supply this gas quota to
GASEXPORT as they have entered a “supply-or-pay” contract, which
means that NAFTOGAS cannot get more than 35 billion cubic meters out
of the total Turkmen export quota.

In other words, the company’s plans to buy 40 billion cubic meters of
Turkmen gas in 2006 can remain unrealized.

In actuality, Turkmenistan is able to supply only 35 billion cubic meters of
gas. Hence the need in Additional Agreement#7 on the RUE Company’s
supplying NAFTOGAS with additional 2 billion cubic meters in January

By the end of the year, additional gas supplies (from the GASEXPORT
reserves) could amount to 6 billion cubic meters at USD $95 per 1000 cubic
meters at the Russian-Ukrainian border.

Having analyzed all the NAFTOGAS contracts, we have come to the
paradoxical conclusion that by January 4th 2006, crunch time for decision-
making, Ukraine had its complete gas balance formed and all annual transit
agreements signed.

There was no need whatsoever for the trilateral agreement of January 4th
2006. The Ukrainian gas team was bullied into this agreement. Or was it

                         NAFTOGAS BALANCE FOR 2006
Let us look at the NAFTOGAS gas balance for 2006. How much gas will the
company have in its disposal? We know that the Turkmen export quota is
about 41 billion cubic meters, of which 6 billion cubic meters has already
been handed over to RUE (under the contract with GASEXPORT Ltd.).

Thus NAFTOGAS will have to make do with 35 billion cubic meters. However,
upon paying RUE for Turkmen gas transit to the Russian-Ukrainian border,
NAFTOGAS will get as little as 22 cubic meters of Turkmen gas from RUE.

Another 20 billion cubic meters are produced in Ukraine by the NAFTOGAS
So in 2006 NAFTOGAS will have the total of around 44 billion cubic meters
in gas reserves.

Now, what does the situation with demand for gas and gas distribution in
Ukraine look like? Retail consumption by the population is about 20 billion
cubic meters (given the excess consumption in January, which was not duly
accounted for, though).

Municipal heat-and-power enterprises will need another 9 billion cubic
meters (for boilers); 8 billion cubic meters is the technological
consumption by the gas transporting company UKRTRANSGAS.

The regional distribution network and low-pressure pipelines to the end-user
will consume around 1.7 billion cubic meters of gas, and budget-funded
institutions – 2.1 billion cubic meters. It all adds up to 40.8 billion
cubic meters or so. In addition, Ukrainian industry will need at least 32
billion cubic meters of gas!

However, the volume of gas available to NAFTOGAS does not exceed
42 billion cubic meters. Practically all of it will be sold at a fixed price
to the population, municipalities and budget-funded institutions.

More than that, NAFTOGAS will have to subsidize gas supplies to these
consumers, since it will buy Turkmen gas at the Russian-Ukrainian border
at USD $80, rather than USD $50, per 1000 cubic meters.

In any case, there is no gas left in the NAFTOGAS reserves for industrial
enterprises. That is why gas supplies to industry will be turned over to RUE
and the new joint venture called UKRGAS-ENERGO.

Today, only these two companies can say what price they are going to set
for Ukrainian industry. And you will remember that industry needs at least
32 billion cubic meters of gas per year.

It will get 13 billion cubic meters from NAFTOGAS as payment for supplying
Turkmen gas to Ukraine. Export quotas for Uzbek and Kazakh gas – 7 and 8
billion cubic meters per annum, respectively – have been assigned to it.
GASEXPORT Ltd has also assigned 6 billion cubic meters from its Turkmen
export quota to RUE.

The total is about 34 billion cubic meters of Central Asian gas per year, at
a price of USD $80 per 1000 cubic meters. The declared selling price at the
Russian-Ukrainian border is USD $95.

As you can see, it is about as much as Ukrainian industry needs for its
operation. As matters stand, Russian gas (whose declared price is USD $230
per 1000 cubic meters) may not appear on the Ukrainian market, at least not
this year – so there will be no mixing expensive Russian and cheap Central
Asian gas!

Even if RUE sells 34 billion cubic meters of Central Asian gas that it
bought at USD $80 per 1000 cubic meters to Ukraine at USD $95 per 1000
cubic meters, the company will make at least USD$500 million on this little
price difference.

Meanwhile, Ukrainian industry is practically deprived of an opportunity to
buy gas from the alternative source, i.e. NAFTOGAS, which has no gas
reserves for commercial sales.

Why should RUE and the new joint venture want Ukraine’s gas transportation
system or underground gasholders if they get direct and unrestricted access
to them anyway?

The regional gas distribution companies will lose their dispatcher
functions, being urged to sign contracts for gas supplies to end users via
their networks (at USD$3-4 per 1000 cubic meters). In this way, Ukraine’s
gas transportation system will be turned into a subsidiary of MOSTRANSGAS
(GASPROM). And people at the central dispatching office in Moscow will
control gas flows both in Ukraine and beyond it.

It will be a gas replica of URKTRANSNAFTA, which has operated as a unit of
Moscow-based TRASNEFT for three years now, without controlling anything.

Its only task is to follow orders by the true transport infrastructure
managers and gradually decrease the pumping volumes, thus reducing Ukraine’s
budget revenues.

As for the 2007 projections, the NAFTOGAS balance of gas is even more
uncertain. The company can only count on 20 billion cubic meters of gas
produced locally, since starting next year, RUE will purchase and transport
all Central Asian gas (including the GASEXPORT quota).

Of course, the RUE Company could offer Ukraine to buy 58 billion cubic
meters of gas through the mediation of UKRGAS-ENERGO, incorporated
on February 2nd 2006; it is hard to say at what price.

As stated by a RUE representative upon the announcement of the joint venture
establishment, gas prices could be revised in the second half of 2006, for
example, due to a rise in the Turkmen gas price from the current USD $50 to
USD $60 per 1000 cubic meters.

As a result, NAFTOGAS will hardly have enough gas to meet the demand of
the population and budget-funded institutions. Municipal heat-and-power
enterprises will be fully dependent on the joint venture or, rather, gas
owner – RUE – for gas supplies, to say nothing of industrial gas consumers.
They will find themselves in the RUE Company’s gas bondage starting
February 2006.

Let us also look at the likely financial situation of the NJSC NAFTOGAS
UKRAINY in 2006.

The company will get USD $2.25 billion for transporting 127 billion cubic
meters of gas owned by GASPROM. Yet one should remember that the
Ukrainian party received from GASPROM the advance payment of USD
$250 million for gas transportation services to be rendered in 2006-2009;
this amount should be subtracted from the annual payment. As a result, the
NAFTOGAS gross income in 2006 will be USD $2.05 billion.

One should also bear in mind that NAFTOGAS has to buy about 8 billion
cubic meters of gas for technical needs, say, at USD $80 per 1000 cubic
meters (it is the price of Central Asian gas at the Russian-Ukrainian

Thus we deduct USD$640 million (8 billion cubic meters multiplied by
USD80 per 1000 cubic meters) from the company’s estimated gross income.

The resulting amount (a bit more than USD $1.4 billion) should be further
adjusted to the NAFTOGAS operational expenditures: salaries, amortization
costs, etc, totaling USD $700 million per year.

This leaves NAFTOGAS with USD $700 million, less UAH 2.8 billion of
annual rent (equivalent of USD $560 million) already provided for in the
2006 budget. In the final analysis, the company will have as little as USD
$140 million.

You will remember that the price of Central Asian gas is USD $80 per 1000
cubic meters (it was so even in 2005), but NAFTOGAS sells it to the
population, budget-funded institutions and municipal heating systems for
USD 37 per 1000 cubic meters. So its net losses per 1000 cubic meters of
gas amount to USD $43, in other words to USD $430 million per year.

Given that the NAFTOGAS net income is USD $140 million and the net losses
are USD $430 million, the company’s budget deficit at the end of 2006 will
make up USD $290 million, let alone its credit obligations.

So by December the NJSC NAFTOGAS UKRAINY is likely to go bankrupt.

Had “God and Ukraine” been with Mr Kostusiev, instead of “God and Russia”,
the Antimonopoly Committee Chair would have declared the new joint venture a
monopolist gas supplier to industrial enterprises in Ukraine. Alas, Mr
Kostusiev is not with Ukraine (or so it appears from his electoral slogans);
therefore he stated that the joint venture was not monopolist.

In fact, however, NAFTOGAS will not be able to supply gas to Ukrainian
enterprises independently, by-passing the joint venture, where de jure the
parties hold 50% of shares each and the Board is chaired by Ihor Voronin.

The non-monopolist joint venture is to obtain from NERC a license for
supplying gas to industrial enterprises at an unregulated price. It means
that the joint venture is free to set prices on a case-by-case basis. Some
companies will have to pay USD95, others USD60, USD 130 or USD 230.

Russians will hardly start showing their teeth before the summer: they have
to get a grip on the market, draw up the joint venture’s budget so as to
preclude it from paying excessive taxes in Ukraine, finalize plans for
obtaining concession of distribution networks and getting control of oblast
gas distributing companies.

Yet in the second half of 2006, once all the formalities are dealt with and
prices are raised “due to the changing market situation”, the joint venture
representatives could start showing compassion for and interest in Ukrainian

They could want to talk to Mr Yaroslavksy, owner of CHERKASSYAZOT
Chemical Plant, or to Mr Yankovsky of STIROL, or else to Mr Horbatko,
CEO of Odessa Port Plant, and say sympathetically: “You say your plant
won’t survive the gas price of USD $120 per 1000 cubic meters?

But we cannot possibly sell it any cheaper. Of course, if you could sell a
controlling stock in your enterprise at, say, USD $15, or help Company X to
privatize it, we would do our best to find gas for you at a special price of
USD $60 per 1000 cubic meters”.

What options will the chemical plant owners have with a monopolist gas
supplier on the market? They will sell their stock for a song. So will the
owners of cement and metallurgical companies, which are most vulnerable
when it comes to energy efficiency.

They could turn to RUE (which, you will remember, has 15 billion cubic
meters of gas received from Ukraine as payment for Asian gas transit). In
the RUE Company they will see the same people with invariably smiling faces:
“We have been waiting for you”. They could go to war with a known enemy
for a known purpose, but with unknown outcome.

As a result, Ukrainian oligarchs could be replaced with Cypriot, Antiguan or
Swiss companies with Russian or, rarely, Ukrainian beneficiaries. If the
signed package of agreements remains in force, Ukraine could be in for a
total redistribution of property and roles on the domestic market,
incomparable with the re-privatization a la Tymoshenko

In this case, however, there will be no budget revenues, and the
KRYVORIZHSTAL auction will turn into a memorial to naive politicians
striving to enhance state budget revenues.

You will appreciate the importance of the joint venture’s top management.
As ZN predicted, Mr Voronin was appointed UKRGAS-ENERGO CEO.

Can you imagine what windows of opportunity this appointment will open to
the company’s decision-makers? Can you imagine how grateful Ukrainian
enterprise owners will be to them for setting favourable gas prices?

Apart from being a powerful economic lever capable of affecting the budget
execution, inflation, bankruptcies, etc, the joint venture could be used as
a political tool. It is no secret that almost every large enterprise owner
has a seat or an influential lobby in Parliament.

Nor is it a secret that after the elections, real executive power will be
vested in “the Board of Faction Leaders”, rather than in the Cabinet of
Ministers. Gas price is critical for many of these Board members.

If they are faced with a challenge of securing “correct” voting from their
factions in exchange for low gas prices, do you think they will miss the

Gas prices will have an impact on public sentiment. Gas suppliers will be
able to rock the boat, especially where enterprise owners will put up
resistance to the imposed property redistribution. The former will spare no
means to this end: disrupting production, snowballing salary arrears,
failing strategic plans, halting enterprises.

All these concerns – political, economic, social – could be foreseen and
mitigated if the joint venture’s management followed civilized business
rules and if there were 50% of Ukrainian representatives in it, ready to
expedite the country’s interests. However, there seems to be little ground
for optimism.

If nothing changes, Ukraine could get back to the 1990 situation, when it
had shoe factories and retail trade under its control whereas “enterprises
of all-Union significance” (regardless of ownership) would be managed from

                          PRELIMINARY CONCLUSIONS
The ministerial working group has prepared a proposal for a legally correct
abrogation of the concluded agreements. If the Russian side refuses to
accept the changes to the contracts proposed by the Ukrainian side, the
Ukrainian government may disavow the documents signed by Voronin in

Besides, since Prime Minister Yekhanurov ignored the remarks made by the
Economy and Finance Ministries, thus violating the procedure of establishing
the joint venture Ukrgaz-Energo, the Cabinet of Ministers may revise its
decision to establish this joint venture.

But apart from scrupulous abidance of the letter of law, Ukraine’s
independence hinges on the government’s readiness to demonstrate a
strong political will and ability to keep the strategic course regardless of
tactical difficulties.

The opponents of this gas deal can rely on public awareness of the need to
defend their national interests as well as on support from the USA and the
EU: Washington and Brussels understand that Russia only uses Ukraine as
a testing range for its “gas weapon”.

But the conscious civil position is confronted with adverse factors:
servility, traditions of cover-up, huge bags of “greenback arguments”
offered by those who want the government to let it ride, and President
Yushchenko himself, who has repeatedly called the capitulatory gas deal
“extremely beneficial for Ukraine”. Maybe, there is something he does not
know? – This question is rhetorical.

We draw our conclusions from the documents which are still being withheld
from the Ukrainian government and parliament, and Yushchenko’s official
inquiry to the Security Service (which he sent when the agreement with
RosUkrEnergo had already been signed).

Interestingly, he did not ask who stood behind that company, or why some
Ukrainian government officials, in violation of the law, were involved in
it. He asked, “Are any Ukrainian governmental structures among the owners
of RosUkrEnergo?”

Then he proudly quoted the predictable negative answer. He might as well
have asked whether Ukrainian museums or circuses held shares in RUE.

[1] ONE:
Ukraine has leased its underground storage facilities to RUE at a
trifling $2.25 per 1,000 cubic meters for a term of 25 years. It should be
noted that until now Ukraine has charged between $14 and $17 for storing
natural gas that belongs to European owners. Hungary normally charges
between $17 and $23.

So it looks strange that Ukraine agreed to buy Russian natural gas at $230
but never demanded even $23 for storage. Besides, according to our
information, this year Gazprom is selling natural gas to Germany at $191 per
1,000 cu m. So Ukraine, being geographically nearer than Germany, ought to
pay $160 at most instead of $230.

[2] TWO: Whereas the minimal European transit tariff is $2.5 per 1,000 cu m,
Ukraine will charge RUE and Gazprom a mere $1.6 for pumping natural gas
through its pipeline (and this tariff has been set for 25 years!).

After a decade of inflation this $1.6 is sure to shrink down to 16 cents.
And even within this decade, due to a stable rise in prices, Ukraine will
actually have to subsidize exports of Russian gas to Europe, instead of
making profit on the transit services.

Yekhanurov demands that the Russian side include a separate provision in
the agreement: should the costs of the transit grow under extraneous
circumstances, either side may initiate a revision of the clause, which sets
the transit tariff. Moscow might agree, but we know many examples of
successful unilateral revisions by Moscow and very few by Ukraine.

[3] THREE: The national company Naftogaz is partly or completely
deprived of its functions. It loses the right to supply natural gas to
industrial consumers, and from next year on – to the communal sector.

It loses the right to independently manage the underground storage and
distribution of natural gas. It is not authorized to control the accounts of
regional gas distribution companies.

From next year on, the functions of Naftogaz will practically narrow to
those of its daughter company Ukrtransgaz. It will have to purchase natural
gas from Chornomornaftogaz [Black Sea Oil and Gas] and Ukrgazvydobutok
[Ukraine Gas Extraction] at minimal prices, which will hardly facilitate the
development of the national gas industry.

[4] FOUR: All these agreements, which are beneficial to Russia, are not
sealed with a relevant intergovernmental protocol, which should guarantee
the fulfillment of the obligations assumed by RUE and Gazprom. If one day
RUE decides to break the contract on supplies of natural gas to Ukraine,
there will be no one left holding the bag.

[5] FIVE: Naftogaz finds itself in a bind. Being cash-strapped, it will be
simply unable to properly maintain the national gas transportation system,
repay credits, and even pay regular deductions to the central budget. The
company’s solvency and financial stability will be reduced considerably.
Subsequently, the absence of new credits will stall modernization projects.

[6] SIX: When supplies of Turkmen natural gas are terminated in 2007,
Ukrainian communal consumers will have to pay at least $95 to the joint
venture (and not $39 as currently). The price has not changed for years.

Now Naftogaz will have to raise it sharply, just because it has no money to
cover the difference between the purchasing and selling prices. President
Yushchenko has admitted to these grim prospects.

[7] SEVEN: The joint venture becomes a strong factor of property repartition
in Ukraine. In the first place, this concerns the chemical, cement, and
metallurgical industries. This instrument may also be used in “regulating”
the political situation in this country.

                         IS THIS A CONSOLATION PRIZE?
There are other problems and questions that arise from the changed rules in
the national gas market. Further, details of the joint venture’s
establishment as well as the texts of its founding documents and the gas
supply contract are still unknown to many members of government, let alone
the general public.

Gazprom promised not to demand reimbursement for the natural gas that
Ukraine used in January in excess of the contract amounts. This circumstance
must have been decisive for Yekhanurov when he agreed to the establishment
of the joint venture.

It should be noted, however, that the contract contains a clause which says
that either side may raise the issue of revising the price under extraneous
circumstances (for example, a sharp price rise on the market). Russia
immediately availed itself of this opportunity.

RUE Executive Director Konstantin Chuichenko stated that his company
might revise the price of the gas supplied by the joint venture
Ukrgaz-Energo in case the price of gas it bought from Central Asia changed.

There are more questions: how is the Ukrainian government going to interact
with the newly founded joint venture? Will it be able to regulate prices and
tariffs, thus protecting the national economy from commercial arbitrariness?

How will it distribute the gas flow through the national transportation
system? Will the joint venture take over this function in violation of
Ukrainian laws?

If it does, then the role of Ukrainian pipelines and underground storage
facilities, which formally retain the status of state property, will be de
facto reduced to naught.  -30-
LINK: http://www.mirror-weekly.com/ie/show/583/52513/
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

     If you are receiving more than one copy of the AUR please contact us.
            Please contact us if you no longer wish to receive the AUR.    
         You are welcome to send us names for the AUR distribution list.
         A Free, Not-For-Profit, Independent, Public Service Newsletter
                With major support from The Bleyzer Foundation
      Articles are Distributed For Information, Research, Education
                Academic, Discussion and Personal Purposes Only
                                  Additional readers are welcome.
      SigmaBleyzer/The Bleyzer Foundation Economic Reports
                “SigmaBleyzer – Where Opportunities Emerge”
The SigmaBleyzer Emerging Markets Private Equity Investment Group
and The Bleyzer Foundation offers a comprehensive collection of documents,
reports and presentations published by its business units and organizations.
All publications are grouped by categories: Marketing; Economic Country
Reports; Presentations; Ukrainian Equity Guide; Monthly Macroeconomic
Situation Reports (Romania, Bulgaria, Ukraine).
You can be on an e-mail distribution list to receive automatically, on a
monthly basis, any or all of the Macroeconomic Situation Reports (Romania,
Bulgaria, Ukraine) by sending an e-mail to mwilliams@SigmaBleyzer.com.
   UKRAINE INFORMATION WEBSITE: http://www.ArtUkraine.com

            (Folk Art) and ContempoARTukraine MAGAZINES
For information on how to subscribe to the “Welcome to Ukraine” magazine
in English, Ukrainian Folk Art magazine “Narodne Mystetstvo” in Ukrainian, 
or ContempoARTukraine in English please send an e-mail to
ArtUkraine.com@starpower.net. Complete information can be found at
       “Working to Secure & Enhance Ukraine’s Democratic Future”
1.   THE BLEYZER FOUNDATION, major sponsor

Additional supporting sponsors for the Action Ukraine Report (AUR) are:
If you would like to read THE ACTION UKRAINE REPORT- AUR,
around five times a week, please send your name, country of residence,
and e-mail contact information to morganw@patriot.net. Information about
your occupation and your interest in Ukraine is also appreciated. If you do
not wish to read THE ACTION UKRAINE REPORT please contact us
immediately by e-mail to morganw@patriot.net.  If you are receiving more
than one copy please let us know so this can be corrected. 
                        PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer
Emerging Markets Private Equity Investment Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
Mobile in Kyiv: 8 050 689 2874
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com
      Power Corrupts and Absolute Power Corrupts Absolutely. 
return to index [The Action Ukraine Report (AUR) Monitoring Service]

Leave a comment

Filed under Uncategorized