Daily Archives: February 14, 2006

AUR#659 Russian Black Sea Fleet; Minister Lutsenko In Washington; Freedom Of Speech Denied?; Turkmen Gas Price Rise; Massive Real Estate Fraud

An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World
Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, TUESDAY, FEBRUARY 14, 2006
                           ——–INDEX OF ARTICLES——–
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Associated Press (AP), Kiev, Ukraine, Tuesday, February 14, 2006

Black Sea Fleet in Ukrainian port could soon become much more expensive.

Associated Press (AP), Kiev, Ukraine, Monday, February 13, 2006

     Yuri Lutsenko, Ukraine’s Minister of Internal Affairs, in Washington
By David R. Sands, The Washington Times
Washington, D.C., Saturday, February 11, 2006

TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 10 Feb 06
BBC Monitoring Service, UK, in English, Friday, Feb 10, 2006

Volodymyr Shcherban & Pavlo Lazarenko held in U.S. on criminal charges

Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006


Ukrainian News Agency, Kyiv, Ukraine, Friday, February 10, 2006

TV 5 Kanal, Kiev, in Ukrainian 1500 gmt 13 Feb 06
BBC Monitoring Service, UK, in English, Mon, February 13, 2006


AFX Europe (Focus), Ashbagat, Turkmenistan, Monday, Feb 13, 2006

                               RAISE PRICES FOR UKRAINE 
UNIAN, Kyiv, Ukraine, Monday, February 13, 2006

TV 5 Kanal, Kiev, in Ukrainian 0810 gmt 14 Feb 06
BBC Monitoring Service, UK, in English, Tuesday, Feb 14, 2006

Tension Between Holders Of Russian Company May Delay $5 Billion Deal
By Anna Ivanova-Galitsina, Wall Street Journal
New York, New York, Tuesday, February 14, 2006

Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006

            Disclosed fraud on real estate market unveils big inherent risks
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Mon, Feb 13, 2006

   First stage aims to establish links between Polish and Ukrainian companies
Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006

               Comarch expanded into Ukraine and Germany in 2005
Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006

Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006
17.                         MTV UKRAINE SET TO LAUNCH
ContactMusic.com., Leeds, UK, Monday, February 13, 2006

Ukrinform, Kyiv, Ukraine, Tuesday, February 14, 2006

OP-ED: By Anders Aslund, Senior Fellow
Institute for International Economics in Washington
Kyiv Post, Kyiv, Ukraine, Thursday, February 2, 2006

           On holding exhibition of  Trypilian Culture artifacts in Canada

Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006
22.                            WHERE IS UKRAINE GOING?
Ahead of landmark parliamentary elections in March, former Prime Minister,
        Yulia Tymoshenko, outlines her vision for the future of Ukraine.
by Yulia Tymoshenko, Former Prime Minister of Ukraine
Royal Institute of International Affairs, Chatham House
London, United Kingdom, Thursday 2 February 2006
Janes Foreign Report, UK, Thursday, February 9, 2006
             Mr. Putin’s efforts to prevent Georgia’s 2003 Rose Revolution
                    and Ukraine’s Orange Revolution proved to be fiascos
: by George Melloan, The Wall Street Journal,
New York, NY, Tuesday, February 14, 2006; Page A23
COMMENTARY: Yuri V. Ushakov, Russia’s Ambassador to the U.S.
The Wall Street Journal, New York, NY, Monday, February 13, 2006
By Douglass K. Daniel, Associated Press Writer
Washington, D.C., Sunday, February 12, 2005

Associated Press (AP), Kiev, Ukraine, Tuesday, February 14, 2006

KIEV – Ukraine and Russia began consultations Tuesday over the presence

of Russia’s Black Sea Fleet in a Ukrainian port, amid complaints from Kiev
that the Russian navy is paying too little and taking over lighthouses that
belong to Ukraine.

The talks are being held under the auspices of a new joint presidential
commission set up to deal with the thorny disputes that frequently arise
between the two ex-Soviet neighbors.

After years of bitter argument, Russia and Ukraine signed a 1997 agreement
on the division of the Soviet Black Sea Fleet that allowed the Russian navy
to remain in the Crimean port of Sevastopol until 2017. Under the agreement,
Russia paid an annual rent of $93 million.

Ukrainians have suggested recently that the price should mirror real market
conditions, warning it could increase by up to 20 times to $1.8 billion.
Kiev has also demanded that Russia surrender lighthouses and other property
along the Crimean coast that Ukraine claims weren’t part of the Black Sea
Fleet agreement; Moscow has accused Ukraine of trying to seize the
lighthouses and warned that it would defend Black Sea Fleet property.

A group of about 20 Ukrainian student activists maintained a tent camp vigil
Tuesday outside the Black Sea Fleet base in Sevastopol while police stood
by, Ukrainian media reported. In Kiev, Ukrainian Deputy Foreign Minister
Volodymyr Ogryzko and Russian Deputy Foreign Minister Grigoriy Karasin

were leading the meeting.

The latest sparring came after a furious dispute between the neighbors over
gas prices earlier this year that resulted in a nearly twofold increase in
prices for Ukraine. One of Russia’s main arguments was that there was no
reason for it to continue to subsidize the Ukrainian economy and that the
time was right to start charging market prices. The Ukrainians are now
attempting to use the same argument over the Black Sea Fleet, while Russia
demands that the earlier agreement over prices remain in force.

“Ukraine has a unique chance to move our bilateral relations with Russia
into a wholly new level of development, beginning with mutual respect, the
strict observance of existing agreements and taking into account the
interest of both nations,” President Viktor Yushchenko said on the eve of
the talks.

Ties between Moscow and Kiev have been increasingly tense under the
pro-Western Yushchenko, who has tried to shake off Russian influence

since coming to power early last year.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Black Sea Fleet in Ukrainian port could soon become much more expensive.
Associated Press (AP), Kiev, Ukraine, Monday, February 13, 2006

KIEV- Ukraine will demand market principles govern all its relations with
Moscow, the country’s security chief said Monday, in Kiev’s latest warning
to the Kremlin that basing its Black Sea Fleet in a Ukrainian port could
soon become much more expensive.

“The time for behind-the-scenes agreements, like issuing ultimatums, is
over,” Security Council Chief Anatoliy Kinakh said on the eve of
consultations in Kiev over the status of the Russian naval fleet.

“We are basing our cooperation on market, equal and mutually

advantageous conditions,” he said. “This is an irreversible process.”

Under a 1997 agreement, the Russian navy was allowed to remain in the
Ukrainian port of Sevastopol until 2017, at an annual rent of $93 million.
Ukrainians have suggested recently the price should mirror real market
conditions, warning it could increase by up to 20 times to $1.8 billion.
Russia has insisted Ukraine abide by the 1997 agreement, warning Kiev not

to politicize the issue.

Relations between Moscow and Kiev have been increasingly tense under
Ukraine’s President Viktor Yushchenko, who has tried to shake off Russian
influence in the former Soviet nation since he came to power early last

Last month, Ukraine agreed to pay double the price for gas after a bitter
pricing dispute with Russia. One of Russia’s main arguments was it could no
longer subsidize the Ukrainian economy, insisting Kiev was ready to pay
market prices.

Kinakh said Ukraine supported applying that principle to “all sectors of our
trade and economic relations, including the temporary presence of the Black
Sea Fleet on the territory of Ukraine,” his office said in a statement.

Tuesday’s consultations – the first to be held on the issue in three years –
promise to be tense, and officials said they aren’t predicting any
breakthrough.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
     Yuri Lutsenko, Ukraine’s Minister of Internal Affairs, in Washington

By David R. Sands, The Washington Times
Washington, D.C., Saturday, February 11, 2006

WASHINGTON – Just over a year ago, Yuri Lutsenko was manning the
barricades and firing up the crowds in Kiev as a key tactician of Ukraine’s
“Orange Revolution.”

This week, he was in Washington, meeting top U.S. officials and think
tank scholars as the new government’s minister of internal affairs, the
most powerful law-enforcement post in the country.

“I was always sure that our democratic revolution would someday succeed,
but I have to say never in my dreams did I consider that I would be one day
sitting in this chair,” Mr. Lutsenko said, speaking through an interpreter
in an interview at the Ukrainian Embassy in Georgetown.

“I also think that a lot of the police officers who dealt with me when I was
in the opposition never expected this either,” the 42-year-old former
electrical engineer added with a smile.

Mr. Lutsenko, a longtime activist against former President Leonid Kuchma,
emerged as one of the most charismatic figures of the 2004-2005 Orange
Revolution, which overturned a fraudulent presidential vote and vaulted
pro-Western reformer Viktor Yushchenko to power.

With a street-rebel reputation and little administrative experience, Mr.
Lutsenko was not the obvious choice to head one of the country’s most
powerful ministries, charged with everything from fighting corruption,
terrorism and illegal immigration to overseeing Ukraine’s widely resented
traffic police.

“Frankly, it was absolutely unexpected for me when the president asked
to take this post,” he said.

He said the ministry has made good progress since he took over last
February. Among his first acts were to dismiss the ministry’s second in
command, who heads the internal security forces, and the administrator
of the traffic police.

About 2,500 police officers have been dismissed for failing to meet ministry
standards and more than 600 criminal cases against officers have been
referred to prosecutors, Mr. Lutsenko said. The ministry is also
aggressively targeting official corruption.

Last month, three former Ukrainian police officers went on trial in the 2000
slaying of investigative journalist Georgy Gongadze. The long-stalled case
proved critical in tarnishing Mr. Kuchma’s rule both at home and abroad.

Mr. Lutsenko’s Washington trip, which included meetings with top State
Department, FBI and Department of Homeland Security officials, focused
on joint cooperation on issues such as terrorism, immigration and narcotics
trafficking. Kiev is also pressing for a bilateral extradition treaty, which
the U.S. side has been reluctant to sign.

His trip came at a difficult moment for Mr. Yushchenko. In a nasty public
break, his Orange Revolution ally, Prime Minister Yulia Tymoshenko,
resigned as prime minister in August and is leading an independent bloc in
hotly contested parliamentary elections next month.

Mr. Lutsenko acknowledged the uncertain political climate, but said he had
no fears that the democratic, pro-Western ideals of the Orange Revolution
were in danger.

“Politicians of every stripe in Ukraine now say they support those ideals,”
he said. “We have crossed the Rubicon and there is no going back.”
LINK: http://www.washtimes.com/world/20060210-110722-9429r.htm
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]


TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 10 Feb 06
BBC Monitoring Service, UK, in English, Friday, Feb 10, 2006

KYIV – [Presenter] The main topic of Ukrainian Interior Minister Yuriy
Lutsenko’s visit to the USA is the resumption of talks on extradition.
Lutsenko said one of the problems lies in the Ukrainian constitution which
bans the extradition of Ukrainian nationals to other countries.

But the USA signed accords to this effect with other countries, for example,
with Poland and Hungary, under similar conditions. Lutsenko also said that
the USA should reconsider its complaints about Ukraine’s human rights

[Lutsenko] Another reason was the situation with human rights in Ukraine. It
seems to me that this problem now needs, as they say, a fresh view
[preceding two words in English]. It seems to me that this reason requires a
fresh view following the recent revolutionary events involving change of
administration and the state of democracy in Ukraine.

[US Under Secretary, Democracy and Global Affairs, Paula] Dobriansky also
agreed with this during talks today. And I hope that tomorrow not only the
Department of State, where I’ve had talks, will support this, but also the
US Attorney-General, on whom this decision primarily depends.

FOOTNOTE:  Ukrainian Interior Minister Yuriy Lutsenko was very
well received in Washington last week.  Washington was impressed
with the Minister Lutsenko’s knowledge of the issues, his commitment
to the principles of the Orange Revolution, his sincerity, his personal
set of values, his dedication to a substantial reduction in corruption
and his support for the rule of law.  EDITOR
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 Volodymyr Shcherban & Pavlo Lazarenko held in U.S. on criminal charges
Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006

KYIV – According to Minister of Internal Affairs Yuriy Lutsenko, who visited
the USA last week, Ukraine and the USA will shortly form a mixed working
group to polish an extradition agreement between the two nations.

Commenting on his visit, Yuriy Lutsenko said this issue had been discussed
during his meetings at the US Department of State and the Justice

The parties agreed to continue working on the draft agreement, which the
experts will polish to meet the US government’s remarks, after which a
decision will be made on signing that document. Obviously, this may be
expected to happen this year, the Minister noted.

During Minister Lutsenko’s meetings with high-ranking American law
enforcement officers the issue was raised of deporting ex-Sumy governor
Volodymyr Shcherban, against whom legal proceedings were instituted in
Ukraine on several points and who has been released on a 2 M. USD bail.

This case will depend on the Court’s decision, Yuriy Lutsenko noted. As
he said, the ex-governor’s case will be heard once again on February 17.

The Minister also recalled Pavlo Lazarenko, who is under arrest and is
wearing a special electronic gadget to register his movements. As Yuriy
Lutsenko said, the ex-premier hires his bodyguards at the expense of his

own means.

During the Minister’s visit to the USA the parties discussed matters of
cooperation in combating illegal migration and interactions between the
Ukrainian Ministry of Internal Affairs and the FBI. Yuriy Lutsenko briefed
FBI officials about the state of affairs in combating corruption within the
Ministry and preparations for the March 26 parliamentary elections in
Ukraine.  -30-

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

Ukrainian News Agency, Kyiv, Ukraine, Friday, February 10, 2006

KYIV – Kyiv Pecherskyi District Court has prohibited acting Internal Affairs
Minister Yurii Lutsenko from making remarks about political and personal
qualities of candidates from the Natalia Vitrenko People’s Opposition Bloc.
Ukrainian News learned this from the press service of the bloc that made a
reference to the court decision of February 10.

According to the report, the court found that the Minister of Internal
Affairs has no competence or powers to discuss any qualities of Vitrenko
Bloc candidates with the public community or political parties.

It was stated at the level of court decision that during several months
Lutsenko had been engaged in political killing in relation to the Vitrenko
Bloc, thus violating the electoral law, the bloc reported. In this
connection, the bloc demands that President Viktor Yuschenko
immediately dismiss Lutsenko.

As Ukrainian News earlier reported, the bloc of Vitrenko consists of the
Progressive Socialist Party and the Russian-Ukrainian Union party (RUS).

If it gets elected into the Verkhovna Rada, the bloc will introduce a
federal form of government, autonomy for Zakarpattia and Halychyna, dual
citizenship, state status to the Russian language, election of judges and
will strip deputies, presidents and judges of their immunity, according to
its election platform.

Lutsenko belonged to the Socialist Party until his appointment as minister.
The parliamentary and local elections are scheduled for March 26. -30-

NOTE: What has happened to the concept of freedom of speech
in Ukraine?  One cannot any longer comment on political candidates?
This action is called pre-election propaganda and is not legal?  EDITOR
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

TV 5 Kanal, Kiev, in Ukrainian 1500 gmt 13 Feb 06
BBC Monitoring Service, UK, in English, Mon, February 13, 2006

KYIV – [Presenter] The People’s Opposition Bloc of Nataliya Vitrenko has

won a case against Interior Minister Yuriy Lutsenko. Bloc leaders said that
the Pecherskyy district court in Kiev recognized that the interior minister
acted unlawfully by conducting pre-election propaganda. The court obliged
him to stop doing it.

Let us recall that Lutsenko repeatedly mentioned that some members of the
People’s Opposition’s election list are on wanted lists. Lutsenko said today
that he had already filed an appeal against the verdict of the Pecherskyy
district court.

He insists that his statements concerning the convictions of some individuals
running for parliament had nothing to do with the election campaign, instead
they were a part of his professional duties.

[Lutsenko] I also believe the judge’s behaviour was at least unethical when,
in my absence and in the absence of any of my ministry’s representatives,
she issued a verdict that nearly banned my profession. From now on I

have no right to give out any information on anyone who is wanted
internationally and at the same time is included on the election list of this
political force, in this case.

In my opinion, this is a challenge not to me only, but also to you,
respected journalists, because if this resolution is final, you will be
deprived of an information source about what is going on in the course

of the election.   -30-
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AFX Europe (Focus), Ashbagat, Turkmenistan, Monday, Feb 13, 2006

ASHGABAT (AFX) – Turkmenistan is preparing to increase the price of

its gas exports, sources in Turkmenistan told AFP on Monday, signalling
a change which could affect an agreement between Russia and Ukraine to
end an energy dispute at the beginning of the year.

“We expect to raise the price of all our gas exports to 100.00 usd per
thousand cubic metres from autumn,” a source in the Turkmen government


Separately, Russian business paper Vedomosti quoted the president of
Turkmenistan, Saparmurat Niyazov, as saying that gas prices would

increase to 100.00 usd per thousand cubic metres from September or

“There are problems in Europe at the moment. Prices of energy are
increasing. And we are going to increase them a bit… from the ninth or
tenth month, we will increase them to 100 usd. The negotiations are
underway,” Niyazov said on national television, Vedomosti reported on

Russia and Ukraine were at loggerheads at the beginning of the year over the
price that Ukraine should pay for its gas imports from Russia. Under a deal
reached to end the bitter dispute, Ukraine agreed to import gas from Russia
that would be mixture of Russian gas and cheaper gas from ex-Soviet Central
Asian countries.

The central Asian gas would mainly be supplied by Turkmenistan and

Moscow had warned at the time that any price increases by the country could
harm the agreement. Presently, Russia pays 65.00 usd per thousand cubic
metres of Turkmen gas. Ukraine benefits from a slightly lower price. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                              RAISE PRICES FOR UKRAINE 

UNIAN, Kyiv, Ukraine, Monday, February 13, 2006

KYIV -If Turkmenistan raises the price for natural gas deliveries to Russia

to $100 per 1,000 cubic meters, then the price for Ukraine will also increase,
a Ukrainian expert said Monday, according to RIA Novosti.

“If the price of Turkmen natural gas increases for Russia, then it will
consequently increase for Ukraine since the country imports more Turkmen

gas than Russian natural gas,” said Volodymyr Saprykyn, the director of
energy programs for the Razumkov Center for Economic and Political
Studies in

Yuriy Yekhanurov, the Ukrainian prime minister, said Sunday that according
to information he had received, Turkmenistan intended to offer Russia
natural gas at the price of $100 per 1,000 cu m. “This does not mean
anything for our imports of natural gas,” Yekhanurov said.

Saprykyn said, “It is hard to say to what extent the prices will change
since the talks will be long and difficult. That is why I do not understand
the premier’s optimism.”

The expert said natural gas prices would rise in the second half of 2006
because “the RosUkrEnergo company stated clearly that the price would

The Ukrainian government is not represented in RosUkrEnergo, the sole
supplier of Russian and Turkmen gas to Ukraine. The company, which is
equally owned by Russian energy giant Gazprom and Austria’s Raiffeisen

Bank, was chosen to form a joint venture with Ukrainian national energy
company Naftogaz under the January 4 deal between Russia and Ukraine.
The deal ended the gas price dispute that culminated in Russia briefly
cutting off gas supplies to the former Soviet republic. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

TV 5 Kanal, Kiev, in Ukrainian 0810 gmt 14 Feb 06
BBC Monitoring Service, UK, in English, Tuesday, Feb 14, 2006

KIEV – Ukrainian Prime Minister Yuriy Yekhanurov has appeared in

parliament to outline the cabinet’s energy policy. In an address broadcast
live by TV 5 Kanal on 14 February,

Yekhanurov said that Kiev was ready to agree to replacing Rosukrenergo,

the controversial partner in a joint venture in charge of gas supplies to
Ukraine, with a different firm.

“Given that Russia has started having certain reservations about
Rosukrenergo, the intermediary it proposed, the Ukrainian government

will send a letter to the Russian prime minister today. In particular, the
letter expresses (Ukraine’s) agreement to replacing this intermediary if
Russia is no longer happy with it,” Yekhanurov said.

Rosukrenergo was investigated after questions were raised in the media

about its ownership, which remains unclear.

Yekhanurov also defended the gas deals reached with Russia in January,
saying they ensure gas prices at 95 dollars per 1,000 cu.m. until the end of
2010 and gas transit prices at 1.6 dollars per 1,000 cu.m. for 100 km until
the end of 2010.

Yekhanurov said that gas consumption reached record levels of 427m cu.m.

per 24 hours during the January cold snap in Ukraine. A total of 8.5bn cu.m.
of gas was consumed in January, or 20 per cent more than in January 2005,
Yekhanurov said. He added that only a third of the amount was paid for by
consumers in Ukraine.

Yekhanurov also urged greater energy efficiency, and praised Mittal Steel,
the new owner of the Kryvorizhstal steelworks, for cutting gas consumption
by 30 per cent in January.

Yekhanurov’s 20-minute address to MPs was followed by a 15-minute
question-and-answer session. Answering one question, he denied that Fuel

and Energy Minister Ivan Plachkov was in any way linked to Rosukrenergo.
FOOTNOTE:  This development has Ukrainian analysts shaking their
heads about what is really going on.  After nearly two months of talks
between Russia and Ukraine and all the controversy over RosUkrEnergo
Ukraine suddenly comes up with another firm?  EDITOR
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
Tension Between Holders Of Russian Company May Delay $5 Billion Deal

By Anna Ivanova-Galitsina, Wall Street Journal
New York, New York, Tuesday, February 14, 2006

MOSCOW — Russia’s OAO Vimpel Communications offered to buy

Ukrainian wireless carrier Kyivstar for $5 billion, but the deal is likely to be
held up over a long-running conflict between VimpelCom’s main

Analysts see the offer, which would make VimpelCom the largest mobile-

phone company in the former Soviet Union, as generous and benefiting
both VimpelCom and Kyivstar in the long run. But that is assuming the
parties can get around the bad blood that exists between VimpelCom’s
main shareholders — Russia’s Alfa Group and Norway’s Telenor ASA.

Telenor has a 56% stake in Kyivstar and isn’t keen to give up control, while
Alfa has chafed at holding a minority position in the Ukrainian company.

For Telenor, the proposed merger would mean losing control over Kyivstar,
which contributes 16% of Telenor’s earnings before interest, taxes,
depreciation and amortization and is its fastest-growing foreign venture.

Telenor and Alfa, which are partners in VimpelCom and Kyivstar as well as

in Russian fixed-line operator Golden Telecom Inc., had a falling out early
last year over VimpelCom’s desire to enter the burgeoning Ukrainian
mobile-phone market.

Spokesman Dag Melgaard said Telenor isn’t prepared to discuss the deal

until its conflict with Alfa is resolved. “Frankly speaking…the climate for
talks isn’t a very favorable one,” Mr. Melgaard said.

Alexei Reznikovich, head of Alfa’s telecom unit, welcomed the deal as “in
the interest of all shareholders of VimpelCom.”

News of the offer initially sent VimpelCom’s New York Stock Exchange-
listed American depositary shares up 3.5%, but the stock fell back amid
doubts about the deal. At 4 p.m. in composite trading, the shares were
down 34 cents at $44.40.

VimpelCom Chief Executive Alexander Izosimov said that now that the

merger plan has turned into an open discussion, he hopes to get support
from minority shareholders. Such a large interested-party transaction will
need approval of a majority of all shareholders, he said.

Mr. Izosimov said he is prepared to wait no more than six months for
shareholders to decide because the Ukrainian market is fast reaching

The partnership tension arose over mobile-phone strategy for Ukraine. Alfa
and VimpelCom’s managements were eager to stop VimpelCom’s shares from
underperforming those of larger rival OAO Mobile TeleSystems because of
their lack of Ukrainian exposure. Telenor, however, wasn’t as concerned,
being able to reap benefits from Ukraine’s growth and consolidate its stake
in Kyivstar on its balance sheet.

Over Telenor’s objections, VimpelCom late last year bought URS, Ukraine’s
fourth-largest operator, for $231 million. Telenor challenged the deal in
court and has tried to delay further investment by blocking approval of
VimpelCom’s budget by the board.

Under VimpelCom’s plan, Telenor would raise its stake in VimpelCom to

36.1% from 26.6%, and Alfa, to 36.1% from 32.9%, meaning Telenor would
have neither control of the merged company nor the ability to consolidate its
earnings on its balance sheet. That prospect sent Telenor’s share price down
2.5% to 67.25 Norwegian kroner ($9.89) yesterday in Oslo trading.

“Everyone knows that Telenor can’t take anything less than a majority in the
merged company; we’ve known that from the start,” said Barry Shumaker,

an analyst at FIM Securities, adding that the offer is “some tactic in a bigger
chess game.”  -30-
Write to Anna Ivanova-Galitsina at anna.galitsina@dowjones.com
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Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006

KYIV – The Union of Kyiv City public organisations has appealled to all
political forces to create a mixed jousts group, who will help the cheated
citizens return their sums, which were paid to the fraudulent group
Elita-Tsentr, which promised to construct dwellings for them.

The Union insists on a thorough investigation to establish those guilty and
punish them, Besides, the Union insists on developing mechanisms to
safeguard the investors’ interests.

According to the Union, most active citizens, who work and earn much,

who are Kyiv City’s economic development propellant power, suffered
from the Elita-Tsentr’s fraud. As has been established, the fraudulent
scheme’s masterminds sold future apartments several times to different

According to the Interior Ministry’s preliminary estimates, over 3,000
persons were thus cheated of their money. As Minister of Internal Affairs
Yuriy Lutsenko disclosed at a Monday news conference in Kyiv, the
Elita-Tsentr’s accountant has been detained, the company’s two senior

execs have been declared internationally wanted.

Those wanted are a Russian national and a citizen of Ukraine. In Yuriy
Lutsenko’s opinion, the cheated citizens will hardly get their money back
because the bulk of the Elita-Tsentr’s money was brought abroad via cashing
schemes. As Ukrinform earlier reported, over 1,500 citizens invested their
money in the pyramid. They are believed to have lost about 80 M. Euro.
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          Disclosed fraud on real estate market unveils big inherent risks

ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Mon, Feb 13, 2006

KYIV – A major fraud on the most buoyant market – real estate – can turn

the market upside down. About 1,000 private investors were cheated by
construction company Elite-Center for a total sum exceeding USD 100mn.

The company sold purpose bonds for constructions that allowed the owner

of a bond to receive an apartment after the house is built. Elite-Center
allegedly built 4 multi-story houses. It re-sold purpose bonds for every
apartment several times not investing anything in construction. The
co-investors received all necessary guarantees; the banks gave credits for
such bonds.

But the company was a fake. It stole brands of an existing company by the
same name – Elite-Center. When regulators intended to check its activity,
the top management escaped abroad (supposedly to Russia). Nevertheless,
several senior managers were arrested, the chief accountant among them.

The fraud and crowds of indignant private investors (each of them invested
about USD 40,000-65,000) provoked a criminal investigation monitoring the
situation on the real estate market. The preliminary results of the
monitoring showed the most booming market is rotten inside.

Most building companies do not intend to build anything —–

Domestic rating agency Credit-Rating released its survey regarding current
risks on the real estate market. The main risk the agency sees is that a
major part of investment and construction companies’ financing obtained by
placing mortgage and discount bonds have no experience in realization of
such projects.

Credit-Rating ranked 82 issues of such bonds in 2005. But only three issuers
have uaBBB rating of so called investment category. Another 30% of

companies that issued mortgage bonds with uaBB and uaB ratings have some
experience in construction projects. But most of the projects have just been
started and some are still treading water.

About 35% of entities only have permissions to start construction works but
they do not have any experience in completing such kinds of works. There is
no work done on the projects of such companies at all. The last group of
companies (about 30%) does not have either permissions or building projects,
but are attracting funds for them.

That is why risks are running very high. The agency admits that many
companies have very low levels of financial strength and stay on the edge of
default. Credit-Rating disclosed information about entities that operate
mainly in Kyiv (55 out of 82), Odessa and Kharkiv markets.

Mortgage credits make up 2% of GDP —–

According to National Mortgage Association, the total volume of mortgage
credits extended by local banks exceeded UAH 10bn (USD 2bn) in 2005. Now

the mortgage portfolio makes up 2% of GDP and 7% of the aggregate credit
portfolio of domestic banks. Now 90 banks provide mortgage loans but only
11 of them take up 85% of the market.

For instance, the volume of mortgage loans extended of one of the largest
banks PrivatBank (Dnipropetrivsk) increased 2.3-fold from UAH 3.2bn to

UAH 7.5bn in 2005. At the same time, the share of such credits rose from
3.7% to 7.5% of the loan portfolio.

Purpose construction bonds are the riskiest financial instrument —–

Changes to the law on investment activity allow attracting funds for housing
construction only through Funds to Finance Construction (FFC), institutions
of joint financing (IJF), private pension funds (PPF) and issuance of
mortgage bonds.

There is one other legal way of attracting such funds: by signing an
agreement of common participation in the project with a construction
company. In other words, an investor buys a purpose bond that guarantees

him a certain area in the new building. This scheme has many negative
aspects and several positive ones.

Thus, an investor has no guarantee he/she will get the exact accommodation
he planned to because of buying not an apartment but only a certain amount
of space in the building. Also the investor cannot divest the bonds because
an issuer is not obliged to buy out bonds. Finally, it is the riskiest
investment instrument because an investor has no opportunity to the check
financial strength of the company and track usage of the money.

However, an investor buying a purpose building bond receives cheaper
accommodations. The discount is about 10% on the primary realty market.

At the same time, FFC offers minimal risk for investors in real estate. Funds
are managed by a licensed financial mediator and operations of these
mediators are under the control of a respective state regulator.

Real estate market is on the verge of bankruptcies and price hikes —–

Sector experts say the scandal on the Kyiv real estate market will lead to
an increase of realty prices by 5-7% on primary and secondary markets.

State authorities have initiated monitoring of all companies involved in

This will definitely result in a decrease of the amount of building sites,
as well as introduction of stricter regulation of mortgage credits.
Moreover, many investors will prefer the secondary real estate market in
spite of higher prices. That also will drive up real estate prices.

IntelliNews poll: scandal impacts banking system, as well —–

Representatives of construction companies IntelliNews surveyed say most

of their clients asked to provide extra guarantees for their invested funds. In
most cases companies do not give such guarantees due to a rather simple
obstacle: there are no legal regulations foreseeing such extra guarantees.
Companies are afraid that clients can withdraw their funds. Defaults may be
in sight for some entities.

But most of these enterprises are also credited by banks. And the banking
system would probably get a hard blow. Moreover, according to preliminary
results of the investigation of Elita-Center’s activities, several domestic
banks (ranking among the 10 largest) willingly gave mortgage credits for
purpose bonds. They obviously were aware that such bonds are the riskiest
collateral and investment option. Officials do not name the banks.

According to unconfirmed information IntelliNews received, Aval Bank
(purchased recently by Raiffeisen Bank) and Mriya Bank (brought by Russian
Vneshtorgbank) are involved in these operations. Perhaps loans extended
specifically by these banks were safe. But because this instrument class is
extremely risky, we do not exclude that regulators can initiate monitoring
of mortgage credits given by these or other banks. This can freeze expansion
of mortgage lending, and interest rates on such credits will go up. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
   First stage aims to establish links between Polish and Ukrainian companies

Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006

WARSAW – A joint project of a regional network of PR companies overseen

by the Warsaw-based firm Partner of Promotion is to be launched in the near
future. The working name of the group, which incorporates five companies
from Poland, the Czech Republic, Slovakia, Bulgaria and the Ukraine, is the
Central Eastern European PR Network.

According to plans, the project will encompass ten countries. “Poland is
perceived as a marketing centre providing services in the entire Central and
Eastern Europe region for many companies originating from there,” explains
Partner of Promotion Managing Director Piotr Talarek.

The first stage of the project, which aims at establishing co-operation
between Polish and Ukrainian companies, will take off in late February or
early March. International business contacts could propel the development

of Polish companies, given the small size of the domestic PR market.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
               Comarch expanded into Ukraine and Germany in 2005

Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006

WARSAW – IT company Comarch is planning to raise the sales of its

Enterprise Resources Planning (ERP) systems by at least 20 percent. In
2005, related revenue was ZL54.8m, which constituted a 32-percent increase
in comparison with 2004.

Comarch is the leading domestic provider of ERP solutions, which are sold
through a network of over 650 partner companies. According to IDC market
research company, in 2004 it controlled 6.3 percent of the Polish market.
Comarch specialises in developing solutions for small and medium-sized
enterprises and its market share in this sub-sector exceeded 8 percent.

Experts estimate that in 205 the ERP market grew by 10-15 percent.
Meanwhile, the company’s revenue from the sale of the solutions in

question rose by 32 percent: from over ZL40m to nearly ZL55m, leaving
the competition far behind. 2005 saw the expansion of Comarch into
Germany and Ukraine. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Polish News Bulletin, Warsaw, Poland, Monday, Feb 13, 2006

WARSAW – Bumar has established a subsidiary, Bumars, in Kiev. The

arms manufacturer intends to find new technology in the Ukraine.

Its new subsidiary will be used to buy arms production rights and hire
Ukrainian companies for arms development research.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
17.                        MTV UKRAINE SET TO LAUNCH

ContactMusic.com., Leeds, UK, Monday, February 13, 2006

KIEV – MTV is launching a new version of its hit international music
channel in the Ukraine. MTV vice-president Dean Possenninskie,
responsible for European developing markets, confirmed the upcoming
launch at a press conference in Kiev, declaring, “MTV Ukraine will be
joining the family.”

Both local and international musical acts will feature in the new 24-hour
channel, which will be broadcast primarily in the national language.

New head of MTV Ukraine Gennady Borisov says “We will try to
maximise the percentage of videos and shows that will be made by
Ukrainian talents while at the same time showing Ukrainian youth what
has been done throughout the world.”  -30-

NOTE: The new 24-hour channel will broadcast in Ukrainian and feature
a mix of local and international acts. Broadcasts of MTV Russia, MTV
Germany and MTV Europe are expected to continue in the country
post-launch.  (News services)
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Ukrinform, Kyiv, Ukraine, Tuesday, February 14, 2006

WASHINGTON – Investments to Ukraine and related matters were

discussed at a meeting between Ukrainian Ambassador to the United States
[Dr. Oleh Shamshur] and Senior Vice President for International Affairs of
the US Chamber of Commerce Daniel Christman, Ukrinform Washington-
based correspondent reported.

Daniel Christman briefed the Ukrainian Ambassador about growing
interestedness by members of the Chamber of Commerce toward

development of trade – economic contacts with Ukraine. A particular
interest was stated in investments to Ukraine, with a view of establishing
modern manufacture of high-technological products with its further
realization in Ukraine and on external markets.

The parties to the meeting discussed the current political situation in
Ukraine, its Euro-Atlantic integration and joining the WTO.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

OP-ED: By Anders Aslund, Senior Fellow
Institute for International Economics in Washington
Kyiv Post, Kyiv, Ukraine, Thursday, February 2, 2006

Summing up the economic results of 2005, one indicator strikes you:
economic growth in Ukraine plummeted from 12.1 percent in 2004 to
2.4 percent in 2005. Was this huge decline real?

President Viktor Yushchenko has argued that the growth in 2004 was
greatly exaggerated by virtue of previous doctoring of foreign trade
statistics. Exports were exaggerated in order to extract fraudulent VAT
refunds, while large imports entered through the free economic zones,
little havens of tax evasion.

As the argument goes, some 3 percentage points of the growth in 2004
should be deducted to 9 percent, which means that the growth in 2005
might have been 5.4 percent. Some adjustment is probably justified. Even
if the decline in growth rate was “only” 4 percentage points, it is

But from January till August 2005, official GDP growth for each month
year-on-year fell by approximately 1 percent a month, from a growth of
6.5 percent in January to a slump of 2.7 percent in August.

The slump was concentrated to a few sectors: investment, construction,
metallurgy and machine building. It would be easy to assume that external
factors were decisive, but this is not plausible. Average world steel prices
were significantly higher in 2005 than in 2004.

Whereas world energy prices rose, Ukraine benefitted from low gas prices
from Russia, which provided the lion’s share of Ukraine’s energy. Indeed,
the inventory was run down contrary to what is typical of the end of a boom.
The predominant causes of the decline were domestic economic policies.

Ukraine was hit by three negative policies – the re-privatization debate, a
sharp increase in the overall tax burden (probably from 36 percent of GDP in
2004 to 42 percent of GDP in 2005) and erratic state manipulation of prices
and trade for gas, meat and grain until August.

For many reasons, the re-privatization debate seems the all-dominant blow to
the Ukrainian economy. The decline was highly concentrated to those sectors
most vulnerable to re-privatization – metallurgy and heavy machine building.
These companies swiftly minimized their investment. Food processing,
agriculture, consumer goods production, retail trade, banking and even real
estate kept expanding fast because of substantial increases in salaries and
social transfers.

Naturally, Ukrainian businessmen who were most exposed to re-privatization
adopted a defensive posture, focusing on legal defense of their property and
holding back on both investment and production. Other big businessmen
eyeballed specific disputed properties.

Therefore, they hoarded cash and invested less than previously planned in
their companies. Overall, Ukraine ended up in a wait-and-see situation. From
2000 to 2004, Ukraine underwent a wonderful economic revitalization, and as
everywhere else in the post-communist world, the only thing that really
worked was private enterprise.

Mass privatization did the trick in Ukraine. To demand nationalization
today, as some politicians actually do, is to call for renewed economic
decline. It does not help if the state buys good private companies at
market prices as is currently happening in Russia.

Their productivity inevitability falls in the corrupt hand of the state,
explaining why Russia’s industrial output grew by merely 4 percent in 2005
in spite of the energy price boom. But, purported advocates of justice have
been crying foul, calling for a review of Ukraine’s corrupt privatizations.
Is justice worth fighting for? Well, the courts are the main channel through
which such wrongs would be challenged, and they are pervasively corrupt.

Presumably, they are far more corrupt today than when the original
privatizations were undertaken, and it takes a long time to cleanse
corruption. As a result, it would be reasonable to expect re-privatizations
to be more corrupt than initial privatizations.Look upon the party lists for
the parliamentary elections. All of them, also the parties favoring
re-privatization, contain numerous prominent businessmen.

What are the objectives of those businessmen? Clearly, they want to cheaply
seize the properties of less well-connected competitors.Many rave about
just privatization, forgetting that literally every person has his or her
own conception of the term. Some emphasize original property rights or
inheritance; others labor, tenants’ rights, economic efficiency, state
revenues, equality, or need.

But the concept of a perfect privatization remains a utopian
impossibility.The proponents of re-privatizations argue that almost no
re-privatization was actually carried out. The mere debate causes sufficient
damage. A sharp decline in economic growth means that the welfare of the
country does not develop as was possible, and that is a serious matter if we
think that Ukraine’s main economic problem is poverty.

To say that economic welfare does not matter is nothing but irresponsible
populism.Many suggest that the auction of Kryvorizhstal was a successful
re-privatization, because the state received $4.8 billion rather than $800
million. To compare, just look at Russian oil company Yukos. In 1995, its
main parts were sold to Menatep for $310 million.

By 2003 the company was worth $45 billion thanks to restructuring. In 1995,
nobody could contemplate anybody paying more than $5 billion for this
loss-making, criminalized company. But by 2000, Yukos paid more than $5
billion a year in taxes.Is not foreign ownership good? Not necessarily.

Foreign direct investment is often beneficial, but least of all in big
Soviet industry, because foreign investors rarely know how to work with the
authorities; they are reluctant to downsize these overstaffed enterprises;
they do not know how to combat the frequent criminalization at old state
enterprises; they do not understand the old technology or organization; but
tend to gut the factories and install expensive new equipment.

Locals are usually better at dealing with these issues.After the purportedly
successful re-privatization of Kryvorizhstal, Nikopol Ferroalloy Plant was
nationalized for no legal reason whatsoever, only because the former prime
minister capriciously so desired.

To nobody’s surprise, the Ukrainian legal system failed to defend the lawful
owner’s property rights, and the government sees nothing that it can do. If
re-privatization had not been broached, the Ukrainian government would not
have defaulted so badly on property rights.

The fundamental truth, that the Peruvian economist Hernando de Soto has
spelt out in his book “The Mystery of Capital”, is that “capitalism triumphs
in the West and fails everywhere else.”

The reason is that the West long ago learned to respect property rights
regardless of their origins, while most of the developing world has so far
failed to do so.

The question today is whether Ukraine will join the West or the Third World.
The critical issue is whether the nation accepts property rights or not.
Countries that did not, have never become wealthy. -30-
LINK: http://www.kyivpost.com/opinion/oped/23807/
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
           On holding exhibition of  Trypilian Culture artifacts in Canada

Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006

KYIV – Organising and holding an exhibition of Tripolye [Trypilian]

Culture artifacts in Toronto, Ontario [Canada] was discussed during
President Viktor Yushchenko’s meeting in Kyiv with James Temerty, the
Royal Ontario Museum Board’s Chairperson.

The parties agreed that shortly Canadian experts will come to Ukraine to
discuss the exhibition’s concept, design and contents. The Canadian party
has undertaken to finance this project, which will be implemented in 2008 –

In fall 2004 Kyiv City played host to the First World Congress into the
Tripolye Civilization, in which leading scientists from many European
countries participated.

Within the framework of the congress a unique exhibition was staged, at
which artifacts from collections were demonstrated, belonging to

Ukrainian patrons of the arts Serhiy Taratuta and Sergei Platonov.

These included ceramic articles, such as jars, plates, bowls, stone
agricultural implements, such as axes, knives, hammers, sickles, as well

as stone articles, depicting female figures.

The Tripolye Civilization is a unique phenomenon of human history. It
existed for almost 3,000 years, from 5400 to 2750 BC, that is, long before
the ancient Egyptian civilization appeared.

The Tripolye Civilization’s populated places numbered about 10,000 people,
who constructed rather impressive buildings and had a sign system  as an
early prototype of script.

In Ukraine the Tripolye Civilization occupied an area between Transcarpathia
in the west and the Dnieper in the east and between the present Volyn region
in the north and the Black Sea coast in the south. Being in possession of a
lots of Tripolye Culture artifacts, Ukraine is becoming growingly
interesting to both archeologists and tourists.

The early excavations of the Tripolye Civilization’s features started back
in 1897, when archeologist Vikentiy Khvoika unearthed Tripolye Culture
features near the township of Tripolye, Kyiv region.
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Ukrinform, Kyiv, Ukraine, Monday, February 13, 2006

KYIV – Ukrainian archeologists have found 248 burials of the 17th – 18th
centuries on the territory where the future Artistic Arsenal complex will be

Before the Works Arsenal appeared there was a cloister, which existed until
the early 18th century. The cloister’s Ascension Church existed until 1764,
after which the Arsenal Works’ construction began. As the archeologists say,
the remains are hard to identify, with the exception of the sepulchre, in
which Semen Sukin was buried, who was  Kyiv governor in 1738 – 1740.

The Kyiv City-Hall’s Council for urban construction endorsed a plan in
January to restore the Kyiv citadel and construct the Artistic Arsenal
Complex nearby.

According to Kyiv archeologist Volodymyr Shevchenko, the Artistic

Arsenal will be a landmark facility, which eventually may become as
important as the Kremlin is for Moscow. The plan, which has been
endorsed by President Viktor Yushchenko, provides for constructing a
museum, exhibition galleries, cinema theaters, concert halls. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
22.                         WHERE IS UKRAINE GOING?
Ahead of landmark parliamentary elections in March, former Prime Minister,
        Yulia Tymoshenko, outlines her vision for the future of Ukraine.

SPEECH: By Yulia Tymoshenko, Former Prime Minister of Ukraine
Royal Institute of International Affairs, Chatham House
London, United Kingdom, Thursday 2 February 2006

Honorary Ladies and Gentlemen, First of all, I want to sincerely thank

Chatham House for inviting me to speak to you.

The theme of my speech is going to be the direction of Ukraine’s
development. However, the problems that I will talk about concern not

only this country but also the geopolitics of a whole region.

So, where is Ukraine heading?

To answer this question I have to examine some of the recent events and also
correct the widespread misunderstanding that has arisen in the West
concerning the Orange Revolution – the perception that the people who went
out onto the streets did so to define the political and economic orientation
of Ukraine and decisively point it to the West, and further away from
pro-Russian influences.

I think this was an important by-product of the revolution, but not
necessarily its goal.

The key strength and driver of the 2004 revolutionary protests, was the
concept of “justice” and “fairness”. The people were demanding an end to
corruption, an end to falsified elections, and an end to lies regardless of
the political colour. They wanted their voices to be heard.  They wanted
something better.

Have we, the leaders of the Orange Revolution, been able to deliver this?
One political analyst recently compared the new government with a group

of people who converge to put out a fire. While the fire rages they forget
about their differences and work together, united by a common goal to
extinguish the flames. However when the fire is doused, they realise they
have little in common.

Truthfully, the post-revolutionary civil servants have had disagreements,
which have obstructed the government apparatus and sometimes made the
passing of laws almost impossible. This was compounded by individuals who
used their posts for personal and political gain rather than honouring
electoral pledges.

Notwithstanding these obstacles that frequently blocked our path, as the
prime minister of my government for only seven months, I made progress for
which credit must be shared with President Yushchenko.

[1] A large number of laws were passed, which will allow Ukraine to accede
to the World Trade Organization this year. Membership of this body, which
accounts for nearly 97% of world trade, is crucial.

[2] Measures were passed that enabled Ukraine to receive from the EU ‘Market
Economy’ status. This development further strengthens trade and economic
ties with the EU, now our largest trading block.

[3] At the beginning, progress was made in fighting the shadow economy. For
example, a record amount of taxes was collected, and government income
increased by 70%.

[4] We introduced various social reforms, which increased pensions and wages
to public sector employees by 30-50%. We did this while maintaining control
on inflation. However, some brand these reforms as “populist policies.”  I
say to them, go and ask pensioners, who live on £20 a month, barely making
ends meet.

For them these are not populist policies but a matter of “honour” and
“social justice”. Here we are talking about fulfilling pledges, made to the
nation by the President.

[5] Ukraine, for the first time, can be proud of its freedom of speech and
truly free mass media.

[6] We created more beneficial conditions for private enterprises. In order
to simplify the process of registering a business, close to 5,000 regulatory
acts were annulled, simultaneously curbing one of the sources of corruption.

[7] We addressed the issue of organised crime. With the help of the
“Contraband Stop!” programme, introduced by myself, a significant decrease
in border contraband trafficking was achieved. This resulted in a 3.5 times
increase in income from goods crossing the border legally.

[8] My government also tried to regain stolen national property and resell
it through auctions in a transparent way. With the example of the
Kryvorizhstal steel mill, the country received £2.7 billion – 5 times the
sum it had previously been sold for.  This honest and transparent auction
was broadcast live on television.  Through this, Ukrainians saw that
arbitrary action could be redressed and that the rule of law applied to the
powerful as well as the weak.

While on this issue of reprivatizations I want to set the record straight.
In the past I was misquoted as recommending 3,000 reprivatisations – this
reference was to potential court disputes that could damage the reputation
of Ukraine unless we had clarity on the reprivatisation issue.

Indeed, I have long maintained the need to establish clear selection
criteria for reprivatisations and publish a list of probably no more than 20
companies, and declare amnesty for the rest. Our pursuit of justice should
not bear the price of deterring investment.

So, do I regret anything? In hindsight: yes. Maybe my biggest mistake was
that I wanted to do everything too quickly, to justify the people’s
expectations. I have learned valuable lessons and am now stronger for it.

What was the reason behind my government’s dismissal?  It is enough to say
that I am one of the few prime ministers who has ever been sacked for trying
to fulfil the promises that were made to the people. For example, I took on
those powerful forces, the clans and oligarchs, who sought to undermine the
values of the Orange Revolution.  This was too much for some and I paid the
political price.

A year ago, after the Orange Revolution, the new administration had
extraordinary high levels of trust from the people – up to 70%.  Today this
level of trust has fallen to 15%.

Such a catastrophic trend is a consequence of systemic problems, arising
from the formulation of decisions of the new government and its attempts to
make them a reality.   It is a result of a whole chain of strategic

Mistakes of the government:
   1) Voting for the constitutional reform, which has significantly reduced
the powers of President Yushchenko and created a foundation for some in the
old regime to take revenge.

   2) Unfounded and widespread replacement of 18,000 officials. The
consequence of the lack of a strategy in public appointments has led to the
election of many unqualified and corrupt people. It has created chaos in the
system of government.

   3) Unfortunately, the new government has maintained the existence and
practice of clans in political and economic life, and struck compromises
with the clans at the expense of the principles of the Orange Revolution.
This, in turn, has led to widespread disillusionment, with people losing
faith in the government’s ability to implement measures needed for justice
and fairness.

   4) It is difficult to understand the illogical moves to sack the Cabinet
of Ministers which I headed and the destruction of the Orange unity.

   5) The retention of groups of businessmen in key positions within the
Yushchenko team, who have compromised themselves with loud corruption

   6) The signing of the “Yanukovych – Yushchenko” Memorandum, which

created a way for the powers of the old regime to take their revenge; the
amnesty for electoral falsifications; the assurance of legal immunity for
members of parliament – a result of which Ukraine today has more than
300,000 civil servants which are beyond the reaches of the law. Apart from
everything else, this memorandum gave back life to Yanukovych and the
powers of the past.

   7) The public making of peace with the oligarchs and clan leaders, which
the citizens of Ukraine have witnessed on television.  This serves as a slap
in the face of society and rubbishes people’s expectations.

   8) The greatest mistake, which carries with it the threat to the national
sovereignty of Ukraine, has been the signing of the Gas deal – on 4 January,
2006 – between Ukraine and Russia, which I see as not a deal about gas but
rather a refined system of control of Ukraine from the territory of the
Russian Federation, through the potential debt dependence, which could lead
to a loss of Ukraine’s strategic oil and gas transport routes and its
control over them.

Due to this extraordinary turn of events, only four months after the sacking
of my government, I found myself leading the vote of no confidence against
Prime Minister Yekhanurov and members of his government. Speaking for
myself, I can say that this was not a pre-calculated move to seek political

This was a rescue move, aimed at correcting the gas deal, which is not only
harmful for Ukraine and Europe but also strikes at the very heart of the
values of the Orange Revolution.

The gas dispute between Russia and Ukraine has been a wake-up call for

many in Western Europe and Washington, and attracted great attention to
the use of energy as a post-Soviet neo-imperialist weapon.

The proposed agreement for the settlement of the argument poses more
questions than it answers.

[1] Firstly, it ignored the fact that both parties had a valid binding
contract until the 1st of January, 2010. The matter could and should have
been referred for review to the Stockholm court of arbitration.

[2] Secondly, the proposed deal guarantees a price of $95 per 1000 cubic
meters of gas only for the first six months of 2006, while at the same time
locking Ukraine into an unchangeable gas transit deal for the next five

[3] Thirdly, the deal places Ukraine’s energy interests in the hands of
RosUkrEnergo, a shadowy company, with suspected links to international

During my premiership, my government sought to investigate RosUkrEnergo

– to discover who precisely its owners are, how it gained a virtual monopoly
on the import of Central Asian gas, and where its profits go.  It is perhaps
not a surprise that when I left government, that investigation was shelved.

I think that in order to find out who exactly benefits from this deal, it is
necessary to carry out an investigation where both Ukrainian and
international structures participate and that the case is thoroughly
examined in a court of law.

For a deeper understanding of the extent of the damage from this gas deal
from the 4th January 2006, I want to once more explore in detail the main
points of the deal.

[1] The provision of a monopoly supply of natural gas to Ukraine and the
loss of direct international contracts with Russia, Kazakhstan, Turkmenistan
and Uzbekistan.
[2] The entanglement of an opaque structure -RosUkrEnergo – in the supply

of gas.
[3] The occupation of the internal market of Ukraine by RosUkrEnergo – in
effect we have got a double monopoly.
[4] The transition fee of Russian gas through Ukrainian territory has been
secured for the next five years, at two times below market price.
[5] Ukraine has surrendered the whole of the gas that it was contracted to
receive from Turkmenistan at $75, at a time when it is receiving the exact
same gas from RosUkrEnergo at $95. Ukraine has, as a matter of fact,
accepted a clear system of shadow kickbacks.
[6] An agreement to buy Russian gas at $230 per 1000 cubic meter, which at
the Ukrainian border is actually a higher price than that paid by Germany or
France by some $60. Clearly such prices are fatal, considering the energy
consumption in homes and in industry, and the need of 2-3 years to prepare
an effective system of energy saving technologies.

Ukraine’s conciliatory position in talks with Russia has weakened the
position of other countries such as Moldova in their negotiations with

I am certain that this deal is not dictated by the market. This is nothing
more than energy terrorism.

The gas deal of 4th January 2006 was the straw that broke the camel’s back
and it is precisely why we decided to vote for the sacking of Yekhanurov’s
government. It was not a politically motivated act timed to coincide with
the elections but rather a reminder that the Orange Revolution embodied
accountability and responsibility to the people.

The vote of no confidence was not a betrayal of the national interests –
quite the opposite; it was a restated confirmation of national interests.
Ukrainian energy supplies, as well as European energy supplies will never be
truly safe, whilst control of the transit of gas remains in the hands of a
shadowy company – with unknown owners. What we need is an objective, just
and transparent solution to the problem, and I will do my best to achieve

The gas crisis also highlighted another pressing problem – the necessity for
Ukraine to have professional experts and independent advisers that are not
aligned to energy politics or spurious business interests. This will help
prevent corruption and damaging monopolies from occurring.

 Maybe we need to consider the creation, in conjunction with our European
partners, of a common working group which would address the question of
energy security and reform of Ukraine’s energy sector. This could be an
important step towards a common European energy policy.

The problems that have arisen from the gas crisis go beyond energy security,
once again triggering the question over Ukraine’s role in Europe and the
world. Ukraine must decide where it fits into Europe and consider the
balance that must be struck between its own expectations of EU accession

and its relations with Russia and other post-Soviet block neighbours.

Alongside our own declaration that our future course is to become a full
member of the EU, we must also accept that few of even the most fervent
supporters of European integration want to help Ukraine quickly become a

Yet the gas dispute has proven that our fates are more closely entwined than
many previously thought.   So the message I would like the Ukrainian people
to hear is that you – the west – will play your part as Ukraine redefines
its historic ties to Russia, and that when the necessary EU conditions are
met, we will be welcomed by the UK and the other member states.

Now I want to go on to the question of NATO. I am a supporter of
Euro-Atlantic integration of Ukraine. However the reality for my country is
that NATO membership is not the most pressing issue for the majority of
people. The truth is there is still a certain level of residual antipathy
towards NATO, especially in the East and South of Ukraine.

It is necessary to draw attention to the old stereotypes of the Cold War,
which many people still have concerning NATO, and the new role which the
alliance is trying to create and clarify for itself.

Currently NATO is defining a new role in the light of new threats. An
accountable government must therefore do a lot more to put before the people
all the necessary information and arguments that address the question of
NATO’s role in regional and global security.

The perspective which I and others see for Ukraine is not a return to the
10th and 11th Century when we were the most powerful country in Europe,

but rather a Ukraine which is emerging from the shadows, a Ukraine where
the price of corruption does not equate to millions upon millions of people’s
average monthly wages.

For Ukraine to prosper we must continue on the path to reform our
government, our administrative power and roll back the “oligarch state”.

This means abolishing the legal immunity that currently places thousands of
central, regional and city officials above the law.  It means ensuring
greater accountability of elected officials with registers for disclosure of
salaries and business interests, and clear rules on how people may access
this information.

This also means ensuring “affordable” social reforms and equal access to
high-quality education and healthcare for all citizens regardless of their
financial, social status or place of residence.  It means a renewed focus on
preventing the spread of HIV/AIDS and eliminating Tuberculosis.

All this can only be achieved with a modern, vibrant economy.  For this we
must first restore confidence and promote “economic stability” – put an end
to the ambiguity that has deterred domestic and foreign investment.

We must have:
   [1] A clear and streamlined legal framework, which respects property
rights and the rights of shareholders.
   [2] A stronger political approach to preventing tax evasion and combating
   [3] The simplification of tax procedures
   [4] An ending to the reprivatization saga

Hand in hand with economic stability comes the necessity to “stimulate
investments”. We must:

   [1] Simplify the process of doing business in Ukraine. This means a
review of customs tariffs with the aim of stimulating domestic and foreign
trade; cutting bureaucratic red tape; simplifying the process to purchase
non-agricultural land for foreign investors; a review of credit policy to
attract foreign banks and ease restrictions to business borrowing.

   [2] Stimulate transparent areas of development which would appeal to
foreign investors in key industrial sectors and regions. This includes the
modernization of our coal, metallurgical and chemical industries – and also
the creation of technology parks to tap our low cost but highly qualified
labour resources.

A crucial aspect to modernising our economy will be to implement a new
Energy Security Strategy that takes advantage of our geographic position as
the energy conduit to Europe, and exploit more fully our existing natural
assets and warm water ports for import, export and oil refining.

Of particular importance is the need to have a broader energy basket.  Huge
potential exists to attract foreign investment to modernise the nation’s
coal mining infrastructure and revitalize the economy in the east.

At the same time a Ukraine connected to the European grid, could be a major
exporter of electricity.  We currently have a capacity to generate more than
twice our needs.  These and other energy measures, including conservation,
will contribute to greater energy independence, which, I must stress, would
be realised whilst respecting and safeguarding Russian interests.

Indeed, historical and cultural ties with our neighbour mean we could never
turn our back on Russia.  These ties, together with healthy, transparent
trade agreements should form the cornerstone of our relationship – one that
embodies mutual trust and respect.

So what must be done today, when there exists in the country an extremely
difficult political situation? The Orange team is in crisis. Yanukovych – is
leading pre-election polls. If we combine the latest ratings of all the
political forces then we can see that the Orange team is losing power.

Is there a way out of this situation?  There is!

We must take a few steps to return to last year’s expectations and try again
to build a democratic, just and open society.

1. It is an imperative to realize that our team and the President’s team
must combine our efforts. We must put an end to the suicidal competition,
not just in declaration but reality. We must agree to a return of the
principles, goals and ideas of the Orange Revolution. We must outline the
framework of the future governing team.

2. In order to ensure such unity we must make use of all the political
powers that supported Viktor Yushchenko during the presidential elections.

3. Urgently, with common intellectual purpose, we must eliminate all newly
created triggers of influence on Ukraine from abroad, including those in the
energy sector, which have come about due to the unprofessional actions of
the Cabinet of Ministers.

4. We must implement the reforms the people expect us to take, particularly
in relation to the rule of law and social-economic reforms.

5. Provide maximum effort to undertake the most important of the promises
made by the authorities, in particular – those concerning the investigation
of the murder of Gongadze, electoral falsifications, and curb the appetites
and actions of the clans.

6. Ensure government is free from the spectre of corruption.

Apart from this, I wanted to warn against another possible mistake, which is
already brewing today at an adviser level. I am talking about the so-called
grand coalition “Yushchenko-Yanukovych”. This would really be the last
mistake of the authorities, after which we will end up with a complete
disequilibrium in the positions of the President and Prime Minister
Yanukovych. This will be the end of reform in Ukraine.

We will be left with an Orange President and one Orange street, where the
President is based, with a Blue government and Blue internal and external

I call for President Yushchenko, whom I highly regard, to reach out for a
strategic compromise and unite. I will not sign any agreements with the
communists, nor with Yanukovych’s Party of Regions. It would be
irresponsible to do this and would equate to a return to the dark ages.  I
will be either with the President or in opposition.

I still passionately believe in the principles laid down in the Orange
Revolution. Even though the revolutionary enthusiasm has been replaced by

a steely pragmatism, these principles endure. Ukraine may well be a normal
country with an abnormal past but this neither preordains our future nor
precludes a sense of optimism.

I want to see Ukraine as an energetic, prosperous and socially responsible
country. A nation that plays a constructive role at the heart of Europe,
with good relationships with its neighbours – east and west.   This is
where, I pray Ukraine is going.  To get there we will need effective and
responsible government and also – crucially – support from you all.

I strongly believe in the European future of Ukraine! Thank you.
LINK: http://www.riia.org/pdf/meeting_transcripts/020206tymoshenko.pdf

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

Janes Foreign Report, UK, Thursday, February 9, 2006

[1] Yulia Tymoshenko, a charismatic populist politician, supported Viktor
Yushchenko in the 2004 elections and was rewarded with the position of
prime minister.

[2] The Tymoshenko government (February to September 2005) was
plagued by rivalries with pro-Yushchenko businessmen, rancor over
re-privatisation and a plummeting economic performance.

[3] Since the ejection of the Tymoshenko government, her bloc in
parliament has voted against Yushchenko in his choice of prime minister, the
2006 budget and the recent gas deal with Russia. She shows no signs of
easing off in challenging Yushchenko for the mantle of the Orange spirit.

Yulia Tymoshenko, the charismatic populist politician, opted to support
Viktor Yushchenko’s candidacy in Ukraine’s 2004 presidential elections,
rather than stand as a candidate herself. The broad Orange coalition
therefore was already divided between Tymoshenko’s socialist populist camp
and both Yushchenko’s liberal, business-oriented Our Ukraine and the Party
of Industrialists and Entrepreneurs.

Keeping this radical populist and moderate liberal coalition intact until
the March 2006 parliamentary elections was crucial for President Yushchenko,
but ultimately it proved too much. He was unable to dampen the disquiet
between Tymoshenko and Petro Poroshenko, a business supporter of
Yushchenkowho had been made secretary of the National Security Council.
In September 2005, the Orange coalition imploded after Yushchenko
dismissed the Tymoshenko government, leaving a strategic vacuum in
Ukrainian politics.

The vacuum has been filled by Regions of Ukraine, led by defeated
presidential candidate Viktor Yanukovych. His party’s ratings have risen
from 23 to 32 per cent, giving Regions of Ukraine a clear lead in the polls.
Accordingly, Yanukovych’s party is set to secure the largest faction in
parliament in March.

Since the September crisis, Tymoshenko, with the loyalty of 50 out of 450
parliamentary deputies, has positioned herself as a radical opponent of
President Yushchenko’s and Prime Minister Yuriy Yekhanurov’s more
accommodating and moderate policies. The Tymoshenko bloc voted against
Yekhanrov’s nomination to the post of prime minister, against the adoption
of the 2006 budget and in favour of the vote of no-confidence in the

The Tymoshenko bloc adamantly opposed the renunciation of the 2003-2004
Russian-Ukrainian gas agreement, demanding that Yushchenko defend the
agreement in the Stockholm Arbitration Court. The agreement gave Ukraine
gas at USD50 per 1,000 cubic metres until 2009. The new gas agreement
signed by Yushchenko on 4 January was denounced by Tymoshenko, the
Communists and Regions of Ukraine, who together voted for the government’s
dismissal. Tymoshenko has described the agreement as a “betrayal of national
                                 WHAT THE FUTURE HOLDS
The gulf between the Tymoshenko bloc and Yushchenko has only widened
since the September and January crises, threatening to undermine the chances
of a revived Orange parliamentary coalition after the March elections. Under
new constitution that went into force in January 2006, the new parliamentary
majority after the March elections selects the government. Yushchenko is no
doubt apprehensive, and so he should be.

The stumbling block to the revival of an Orange coalition is Tymoshenko
herself – her appetite to return to the post of prime minister remains
strong. An unwritten agreement between Yushchenko and Tymoshenko
stipulates that whichever of their two respective parties receives the
highest number of votes in the elections has a right to nominate the prime

minister. Yushchenko’s choice is current Prime Minister Yekhanurov, while
Tymoshenko has herself in mind for the premiership.

Tymoshenko would only be able to return to the post if her bloc comes ahead
of Our Ukraine, which is unlikely, as she is likely to come in third, behind
Regions of Ukraine and Our Ukraine. Her support for a January vote of
no-confidence in the government over the new gas contract has eroded her
support in western Ukraine. Local opinion polls give the Tymoshenko bloc
15 per cent and Our Ukraine 21 per cent of the vote.
                                          RISQUÉ APPEAL
Tymoshenko appeals to uneducated, populist voters who are disenchanted
with poor results in the economic sphere and disappointed in Yushchenko for
failing to press any criminal charges against senior leaders from the Leonid
Kuchma era. Such populism feeds on the unwillingness of Yushchenko to
follow through on the 2004 Orange alliance election slogan “Bandits to
Prison!”, which sought to press criminal charges against those implicated

under Kuchma in election fraud, abuse of office and high-level corruption.

Tymoshenko’s anti-oligarch, populist rhetoric masks her own oligarchic past
in the 1990s when she was dubbed the ‘Gas Princess’ while working with then
Prime Minister Pavlo Lazarenko, who is on trial in the US for money
laundering. This rhetoric also masks the large number of former pro-Kuchma
oligarchs who have successfully sought a political haven, and immunity from
prosecution, in the Tymoshenko bloc. The Tymoshenko bloc has a greater
number of former Kuchma oligarchs and supporters than Yushchenko’s Our

Another factor working against Tymoshenko returning to the post of prime
minister is widespread opposition to such a step within Kiev’s elites and
among Western governments and foreign investors. Her eight-month-old
government’s populist and inflationary policies have made her an unpopular
choice for prime minister for many abroad. This could change minds at home

Failure to cobble together an Orange parliamentary coalition would pave the
way for either a Yushchenko alliance with Yanukovych or a minority
Yushchenko government. Yanukovych’s price for such a deal would be to
promote Renat Akhmetov, Ukraine’s wealthiest oligarch, to the position of
prime minister. Akhmetov is widely seen as the unofficial head of Regions of
Ukraine and the most influential businessman in the Regions of Ukraine
stronghold of Donetsk.

Any attempt to hold down a minority government would be difficult as it
would only lead to frequent government turnovers and general instability. In
the new constitution the president has the new right to suspend parliament
if it fails to create a parliamentary majority and government within one
month. Tymoshenko will continue to be the firebrand that will lead to such
government and parliamentary instability. -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
             Mr. Putin’s efforts to prevent Georgia’s 2003 Rose Revolution
                    and Ukraine’s Orange Revolution proved to be fiascos

COMMENTARY: by George Melloan, The Wall Street Journal,
New York, NY, Tuesday, February 14, 2006; Page A23

How Vladimir Putin persuaded Boris Yeltsin to yield him power six years ago
remains something of a mystery. No doubt he drew on the knowledge he
acquired in his rise to the top of the secret police and was helped by his
offer to grant the Yeltsin family freedom from prosecution for corruption.
Skills in political intrigue can be very useful in obtaining and holding
power. But they haven’t been well suited for delivering to the Russian
people a modern, democratic state.

President Putin’s baser instincts have been on display in recent weeks,
perhaps because he is buoyed by the high prices for Russia’s main exports,
oil and gas. On a visit to Spain’s socialist Prime Minister Jose Luis
Rodriguez Zapatero Thursday he said the Hamas terrorists who won the recent
Palestinian election will be welcome in Moscow. So much for the efforts of
his U.S. and European “road map” partners to keep Hamas at arm’s length
until it promises peaceful coexistence with Israel.

Iran’s murderous mullahs also have been invited to Moscow to discuss having
the spent fuel from their Russian-built nuclear-power plant reprocessed in
Russia. Mr. Putin sold this idea to the West as a means of preventing the
mullahs from developing a nuclear weapon. But it does no such thing. The
Iranians can upgrade uranium to weapons grade independently of such a deal
with the centrifuges they are installing.

Mr. Putin recently boasted that Russia now has a nuclear missile that can
penetrate a missile defense. The only missile defense extant is the one
being developed by the U.S., so this was a belated jibe at the U.S. for its
2001 scuttling of the 1972 Anti-Ballistic Missile Treaty with Russia.
Missile rattling used to be common practice in the old Soviet Union, but now
we hear it again at a time when the U.S. and Russia are presumed to be at

Maybe energy riches have gone to Mr. Putin’s head. But he also seems to have
been badly shaken by the Orange Revolution in Ukraine of just over a year
ago. His response has been to further crack down on free expression in
Russia and use strong-arm tactics against former members of the Russian

In Soviet times when the empire was threatened the Russians sent tanks, as
to Hungary in 1956, Czechoslovakia in 1968 and the borders of Poland in
1981. Today they use other methods, such as cutting off gas supplies to
Ukraine in the dead of winter and — so Georgian President Mikhail
Saakashvili believes — arranging the sabotage of energy infrastructure
serving his tiny state. Russia, of course, denies any political pressure,
saying that it is only trying to obtain “market” prices for the natural gas
its Gazprom monopoly supplies.

Yet it’s hard to live down a KGB past. Reports are circulating in the Baltic
states of secret Russian support for non-governmental organizations (NGOs)
and newspapers that back pro-Russian political candidates there. Mr. Putin
has grown increasingly sarcastic in his references to the independent states
that were once Soviet republics, reflecting a reluctance by Russian
hard-liners to admit that the former empire is no more.

Mr. Putin’s efforts to prevent Georgia’s 2003 Rose Revolution and Ukraine’s
Orange Revolution proved to be fiascos, but Russia continues to stonewall
Georgia’s demands that it stop subverting the Tbilisi government through its
military and secret-police operations in Georgia’s Abkhazia and South
Ossetia regions.

In Russia’s defense, it could be argued that the U.S. has been encroaching
on its former empire. The three formerly Soviet Baltic states are now
members of NATO. Ukraine and Georgia want to join as well to gain the
protection of the alliance. The U.S. has a military-training mission in
Georgia and an airbase in Kyrgyzstan for supplying aid to Afghanistan.

But not all empires are alike. The states that want to sign up with the
Americans are democracies that chose the West mainly to get out from under
Moscow’s thumb. The Soviet Union was never a true “union” but an empire

held together by the Red Army and the KGB (which now goes by the initials
FSB) using men like Vladimir Putin to snoop on and threaten anyone inclined
toward dissent.

Russia wasn’t a happy place under the Soviet yoke and is not a very happy
place today, either, even though its people are much freer than under the
Soviets. Fifteen years after the collapse of the USSR and the efforts by Mr.
Yeltsin to set up a constitutional democracy, the Kremlin has reverted back
to some of its old ways. It controls TV broadcasting, even putting
disinformation out on the airwaves, according to some sources. Russian
demographics are atrocious, with a high mortality rate and low birth rate.

The World Bank has estimated that if current trends continue, its population
could shrink to 119 million from 144 million by 2050. It is trying, not very
successfully, to lure ethnic Russians living abroad to return to the

The economic growth that Mr. Putin boasts of is mostly the result of higher
oil and gas prices. Irina E. Yasina, daughter of a former economics minister
and now head of an NGO endowed by the former oil tycoon Mikhail
Khodorkovsky, told Journal editors not long ago that the conditions
necessary for private enterprises to sprout and grow still don’t exist in
Russia. One key necessity is a rule of law to ensure that contracts can be
enforced and that property won’t be confiscated, as was that of Mr.

Empires endure when they reward people with trade and commerce and a

degree of freedom. Russia has just passed a law curtailing the activities of
NGOs and further suppressing development of a genuine civil society.
Its empire has little attraction except to dictators in Belarus and Uzbekistan
trying to ward off democratic forces. Russia’s president came up through
a cruel system and it may be that nothing he learned as a secret policeman
taught him how to shape a modern state, let alone restore the Russian empire.
George Melloan is the Journal’s Deputy Editor, International. He began
writing “Global View” in 1990, when he took over responsibilities for the
overseas pages after 17 years as deputy editor in New York. During the first
five years of his present assignment he was based in Brussels, traveling
extensively from there to write about such events as the fall of the Berlin
Wall, the break-up of the Soviet empire and the collapse of the Japan’s
stock market and real estate bubble. He returned to New York in 1994.
Mr. Melloan invites comments to george.melloan@wsj.com.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
25.                              DON’T BLAME RUSSIA
COMMENTARY: Yuri V. Ushakov, Russia’s Ambassador to the U.S.
The Wall Street Journal, New York, NY, Monday, February 13, 2006

Recent attempts to politicize the energy debate have become a matter of
serious concern. There is a widespread assumption that Russia is trying to
gain unseemly political dividends out of its relationship with other
countries in the energy sphere. Some even suggest that Moscow is resorting
to its vast energy resources as “a new weapon” to intimidate unruly
neighbors and make them compliant.

At the core of such allegations is Russia’s move away from Soviet-style
arrangements, when natural gas was sold to neighbors at heavily subsidized
prices, to a new pricing mechanism based on the market. While this move
was branded by the U.S. media and some policymakers as politically
motivated, to any unbiased observer the opposite would make more sense.
To stick to the old ways, selling gas at discounted prices — losing billions
of dollars a year — could hardly be justified by anything but political

Over the last 15 years, the newly independent states of the former Soviet
Union were treated differently from other European consumers of our energy:
Our pricing policy toward some of them was shaped by our history of
interdependence and our hopes for expanded integration with Russia. That
policy was inherently transitional — a temporary step to help former
“roommates.” Selling them energy at bargain prices indefinitely does not
merely defy common sense, it means subsidizing the entire industries of
sovereign countries. It also hurts the interests of our energy companies’

Now that the Russian government has switched to a universal pricing formula
dictated by the market, as evidenced in a recent, widely debated natural
gas deal, Russia is being accused of politicizing the energy issue. The
irony is that such accusations are coming from those who had previously
lectured us on the need for a speedy transition to market principles. I
hope that no sensible observer questions why we are renouncing the policy
of subsidizing our neighbors. But we continue to see attempts to look for
political undertones in this totally pragmatic approach.

Regrettably, alongside old-time rhetoric, which tends to represent today’s
Russia in the same way as the Soviet Union, a Blame Russia First syndrome
is taking hold. It has even come down to accusations that unknown culprits
in Russia had blown up power lines and gas pipelines in its own territory,
allegedly in an attempt to punish Tbilisi by cutting off Russian energy

The truth is that these installations had been sabotaged, and Russian
emergency crews risked their lives in minus-30-degree temperatures
to restore supplies. And yet Russia is portrayed as the guilty party. In
the same way, Russia’s efforts to diversify gas supply routes to Europe,
particularly plans to build a Northern European Pipeline under the Baltic
Sea, have been perceived as a political game against some neighbors. The
true reason is to guarantee consistent supplies to all our consumers, in
Western Europe and neighboring countries.

This approach applies to nuclear energy as well. Russia has proposed to set
up a network of centers for producing enriched uranium, equally accessible
to all who wish to develop atomic energy. The proposal may involve having
Russia and the U.S. provide nuclear reactor fuel to other countries to be
used in nuclear power plants. The spent fuel would be taken back to prevent
its use in weapons.

I was present at the State of the Union address when President Bush talked
of America’s addiction to oil, often imported from unstable parts of the
world. He emphasized that to keep the U.S. competitive, affordable energy
was needed. That is why the ongoing energy dialogue between our countries
is important. The benefits are mutual: The U.S. needs to reduce its
dependence on oil from traditional sources and Russia needs new markets for
its enormous energy reserves. It is imperative that politicization of the
energy debate does not get in the way of this dialogue and practical

Russia and the U.S. should vigorously work together to create a new mode of
interaction on energy. Russia, as current chairman of G-8, has proposed to
focus on international energy security at the forthcoming G-8 summit in St.
Petersburg. The issue has also been at the top of Russian-U.S. agenda at
government and industry levels.

Oil and other hydrocarbons make up a major share of Russia-U.S. bilateral
trade. Last year, Russian oil supplies to the U.S. reached an unprecedented
160 million barrels. In real terms, our energy cooperation is way below
potential. But we see encouraging signs of a breakthrough in our energy
relationship. The Sakhalin-1 project is a joint venture with Exxon Mobil
and other foreign companies, which will reach its target production levels
this year. Russia’s Lukoil and ConocoPhillips are strengthening their
strategic alliance, including joint development of the Timan Pechora oil
field in Siberia, expected to produce 200,000 barrels a day by 2008.

Liquefied natural gas is another opportunity: Last September, the first
tanker with Russian LNG docked at Cove Point terminal in Maryland. Five
more are expected this year, which would propel Russia to the top five LNG
suppliers to the U.S. A totally new dimension to our energy interaction
will be added when Gazprom names an international consortium in the next
months, which will take control of the Shtockman natural gas field in
Russia’s Arctic north.

This joint venture is expected to provide a quarter of U.S. natural gas
imports by 2020. Shtockman will also play a role as a model to develop
prospective hydrocarbon reserves in Eastern Siberia and the Arctic
offshore. We welcome further involvement of U.S. energy companies in

these new projects in the hope that it will ensure a robust transfer of
technological know-how and managerial skills and thus higher productivity
and greater competitiveness of these fields.

In the long run, such interaction can attract enormous investment into the
energy industry, contributing to the development of environment-friendly
infrastructure. Above all, it will be a key element in the overall
stability of the world energy markets. The bottom line is that the
stability of international energy markets will be better served by sound
energy policy, not politicized energy discussions. That is why President
Putin is urging our partners to redouble efforts to ensure global energy
security, which has a direct impact on the social and economic development
of all countries.  -30-

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

By Douglass K. Daniel, Associated Press Writer
Washington, D.C., Sunday, February 12, 2005

WASHINGTON – Citing troubling behavior by the Kremlin, Secretary of
State Condoleezza Rice expressed skepticism on Sunday about the future
of democracy in Russia.

“We are very concerned, particularly about some of the elements of
democratization that seem to be going in the wrong direction,” Rice said.
Russian President Vladimir Putin, while on good terms personally with
President Bush, has been criticized for centralizing political power and
rolling back democratic gains.
Rice, appearing on CBS’ “Face the Nation,” pointed to severe limits on
nongovernmental organizations begun this year and Russia’s use of energy
as a weapon in a dispute with Ukraine this winter. “I think the question is
open as to where Russia’s future development is going,” Rice said.

Nothing can be gained by isolating Russia from institutions that demand
democratic values from its members, she said.

Rice said the U.S. and Russia cooperate in fighting terrorism, opposing
Iran’s efforts to restart its nuclear programs and on other areas.

“In general, I think that we have very good relations with Russia, probably
the best relations that have been there for quite some time,” she said. Rice
added that, in spite of concerns about democracy in Russia, “This is not the
Soviet Union. Let’s not overstate the case.” Rice said she believes that
Putin supports a more open Russia than existed at the center of the former
Soviet Union.

Putin, as the leader of the Group of Eight nations, hosts a summit for heads
of state in St. Petersburg in July. Some critics have questioned whether he
should lead the organization because of the rollback of freedoms in Russia.

Other nations and human-rights groups have expressed concern as the
Putin-guided Kremlin has established control of parliament, ended popular
elections for regional governors, placed new rules on political parties, and
cut back on the independence of national media.

Russia and Ukraine feuded over natural gas prices, a battle that grew more
bitter when Russia briefly turned off its gas supply to Ukraine and other
parts of Europe. That heightened concerns that energy supplies were not
secure for the continent. An agreement reached earlier this month resolved
the differences.

Putin upset Israel by inviting members of the militant group Hamas to talks
in Moscow. Hamas, considered a terrorist organization by the U.S. but not
Russia, has refused to moderate its anti-Israel stance since winning
Palestinian elections.

Rice said she has been assured that the Russians would continue to abide by
the positions of the Mideast peace negotiators – Russia, the U.S., the
European Union, the United Nations. They support a road map to peace as
well as Israel’s right to exist and the end to violence by Hamas. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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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]

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