AUR#662 RosUkrEnergo, Suspicious Organization, Why Needed?, Says U.S. Ambassador; Jackson-Vanik, Need For Action Now; UN Condemns Ukraine

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Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, FRIDAY, FEBRUARY 17, 2006
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
Interfax-Ukraine, Kyiv, Ukraine, Thursday, February 16, 2006

  The true reason for the appearance of RosUkrEnergo as a monopolistic
     supplier of gas to the country was the complete failure of Ukraine’s
              delegation in gas negotiations with Russia’s Gazprom.
: By Konstantin Borodin,  Director
Kyiv’s Energy Research Center and an advisor to
Yuriy Boyko, head of Naftogaz Ukrainy in 2002-2005.
Kyiv Post, Kyiv, Ukraine, Wednesday, Feb 15 2006

           Gazprom makes further inroads in Ukrainian energy market
Eurasia Daily Monitor, Volume 3, Issue 33
The Jamestown Foundation, Wash, DC, Thu, February 16, 2006

ANALYSIS AND COMMENTARY: Kiyevskiy Telegraf weekly paper
Kiev, Ukraine, in Russian Saturday, 11 February 06 PP 1, 2, 3
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006

Interfax-Russia, Moscow, Russia, Thursday, February 16, 2006

UT1 State TV, Kiev, in Ukrainian 1900 gmt 16 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006


                            PROJECT WORK TO ACCELERATE
Polish News Bulletin, Warsaw, Poland, Thursday, Feb 16, 2006

By Roman Kupchinsky, Organized Crime and Terrorism Analyst for
RFE/RL Online, Editor, “RFE/RL Organized Crime &Terrorism Watch.”
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, February 15, 2006

           Foreign assets of electricity monopoly Unified Energy Systems
By Conor Humphries, Staff Writer, The Moscow Times
Moscow, Russia, Wednesday, February 15, 2006. Page 5.

12.                  GAS CRISIS A WARNING FOR EUROPE
                   Urged to integrate energy policy with foreign policy
By Judy Dempsey, International Herald Tribune (IHT)
Paris, France, Wednesday, February 15, 2006

AFX Europe (Focus), Milan, Italy, Thursday, February 16, 2006

            Graduate Ukraine from Jackson-Vanik, Need for Action Now
Amb Steven Pifer and Amb William Miller, Co-Chairmen
Jackson-Vanik Graduation Coalition
Washington, D.C., Wednesday, February 15, 2006


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

UNIAN news agency, Kiev, in Ukrainian 1421 gmt 16 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006


OSTROV, Research Center of Donbass Social Perspectives
Donetsk, Ukraine, Thursday, February 16, 2006

Embassy of Ukraine, Washington, D.C., Thursday, February 16, 2006

                 Receives congratulations from President Yushchenko
Ukrainian News Agency, Kyiv, Ukraine, Thursday, February 16, 2006
            “We deplore this action, which the authorities carried out in
                     contravention of their international obligations.”

Nick Paton Walsh in Moscow, The Guardian
London, United Kingdom, Friday, February 17, 2006
Ukrainian News Agency, Kyiv, Ukraine, Thursday, February 16, 2006
: By Tammy Lynch
The ISCIP Analyst (Formerly The NIS Observed)
An Analytical Review Volume XII, Number 2,
Institute for the Study of Conflict, Ideology & Policy at
                        Capitalism for All or Capitalism for the Few?
                              New Book By Dr. Oleh Havrylyshyn
By E. Morgan Williams, Publisher and Editor
The Action Ukraine Report (AUR), #662, Article 23
Washington, D.C., Friday, February 17, 2006


Ukrinform, Kyiv, Ukraine, Thursday, Feb 16, 2006

KYIV – The United States views the RosUkrEnergo company’s
operations with suspicion, United States Ambassador to Ukraine
John Herbst said on Thursday.

“RosUkrEnergo is a suspicious organization, and it is difficult to
understand why it plays such a significant role in such an important
agreement,” he said.

According to him, the United States does not understand why an
intermediary is needed in a gas agreement between Ukraine and

He said that RosUkrEnergo earned $3 billion last year and employs
12 people. According to him, it would be better if this $3 billion went
into the coffers of Ukraine or Russia.   -30-

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


Channel 5 TV, Kyiv, Ukraine, February 16, 2006

KYIV – Meanwhile, Premier Yuri Yekhanurov continued to say that Ukraine

is ready to signs natural gas contracts directly with Gazprom, thus bypassing

He said that Kyiv can agree to the change only if Moscow supports the move.
Yekhanurov told journalists that he has sent a letter with that message to
the premier of the Russian Federation.

Yekhanurov was in Poland on Thursday, where he met with the Polish 
president Lech Kaczynski. The sides reportedly discussed the extension

of the Odesa-Brody oil pipeline to the Polish city of Plotsk. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Interfax-Ukraine, Kyiv, Ukraine, Thursday, February 16, 2006

MOSCOW – Russian Industry and Energy Minister Viktor Khristenko

considers a proposal to replace RosUkrEnergo in the system for
supplying Russian gas to Ukraine to be groundless.

“RosUkrEnergo can be replaced by another market participant only when

there will be another construction, that is clear to the sides,” Khristenko
said at a meeting with journalists on Thursday. “Leave well enough alone,”
he said.

The minister said that if it is attempted to change the current
construction, this will only create new difficulties in supplying gas to

“The situation has been regulated, agreement that have been reached are
based on using RosUkrEnergo as a trader working with the main volumes

of Central Asian gas, and as a structure positioning itself both on the
Ukrainian and on Western markets,” Khristenko said. “The structure is
sufficiently transparent,” Khristenko said.  -30-
FOOTNOTE:  From we what we hear and read Russian Minister
Khristenko is one of the very few who believe that the structure of the
gas agreement between Russia and Ukraine is sufficiently transparent. 
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
  The true reason for the appearance of RosUkrEnergo as a monopolistic
     supplier of gas to the country was the complete failure of Ukraine’s
              delegation in gas negotiations with Russia’s Gazprom.

OPINION: By Konstantin Borodin,  Director
Kyiv’s Energy Research Center and an advisor to
Yuriy Boyko, head of Naftogaz Ukrainy in 2002-2005.
Kyiv Post, Kyiv, Ukraine, Wednesday, Feb 15 2006

The information campaign spinning the Ukraine-Russian gas agreements
through media reports looks convincing at times. One of the common spin
messages can be traced to oppositionist politicians such as former Prime
Minister Yulia Tymoshenko and her ally Oleksandr Turchynov, who have
suggested that the scheme which yielded Swiss-registered gas trader
RosUkrEnergo the right to operate gas shipments from Russia and Central
Asia to Ukraine, is corrupt.

However, neither they nor others have provided a clear answer to key
questions: Why did RosUkrEnergo emerge as a supplier of gas to Ukraine

and why has a greater part of Ukraine’s domestic gas market been given
away to this company?

The truth is so unpleasant for President Viktor Yushchenko and Prime
Minister Yuriy Yekhanurov that they find it hard to deny corruption
accusations and explain what is really going on.

The true reason for the appearance of RosUkrEnergo as a monopolistic
supplier of gas to the country was the complete failure of Ukraine’s
delegation in gas negotiations with Russia’s Gazprom. The cost of Russian
gas for Kyiv in 2006, according to the new agreement, has been fixed at the
top price corridor offered by the Russian monopoly – initially $140-160 per
1,000 cubic meters, and later, as high as $220-230 per 1,000 cubic meters –
four-and-a-half times higher than in 2005.

Negotiations with Turkmenistan also have been far from brilliant. The price
of gas in January was not last year’s $44 per 1,000 cubic meters, and not
even the $50 per 1,000 cubic meters as declared by Oleksiy Ivchenko, head of
Ukraine’s state oil and gas company Naftogaz Ukrainy. Rather, it was $65 per
1,000 cubic meters.

The numerous boastful declarations of Ukrainian government officials in the
course of negotiations with Gazprom prevent them from revealing the pathetic
truth to Ukrainian voters ahead of the upcoming parliamentary elections in

Having realized that Gazprom’s threat to cut off gas supplies to Ukraine on
January 1, 2006, was no bluff, the Ukrainian government struggled to look
for a way out of the conflict that would allow them to save face. The answer
they found was RosUkrEnergo, which was previously engaged in the transit
and export of Central Asian natural gas to Ukraine, and, through its
territory, into Eastern Europe.

According to the gas agreements inked on Jan. 4, RosUkrEnergo received the
honorable right to buy Russian gas for $230 per 1,000 cubic meters, mix it
with Central Asian gas worth $81 per 1,000 cubic meters at Ukraine’s border,
and sell the mix on the Ukrainian market for $95 per 1,000 cubic meters.
Considering that the market price for this gas stands at no less than $130
per 1,000 cubic meters, the economics of this operation is highly
disputable, as it would incur $1.8 billion in losses for RosUkrEnergo, which
is currently searching for ways to cover these losses.

One option is to cover them by exporting some 15 billion cubic meters of gas
inherited through the agreement to Eastern Europe, where prices are higher.

Last year, RosUkrEnergo bought 53 billion cubic meters of Central Asian and
Russian gas, supplying 37 billion cubic meters to Ukraine and about 6.5
billion cubic meters to Eastern Europe. The company is expected to have
generated about $700 million of income before taxes last year.

The only catch to this operation lies in the fact that RosUkrEnergo requires
the approval of Naftogaz to use its pipelines to export gas to Europe. The
participants of the January negotiations say that RosUkrEnergo was cornered
into acting as a smokescreen, as it would risk loosing permission to use the
pipelines as an export route if it disagreed.

This is not the first time that RosUkrEnergo has relieved Ukrainian
authorities. In the summer of 2005, when Naftogaz was accused by Gazprom
of stealing 7.6 billion cubic meters of gas, RosUkrEnergo came to the
rescue. The firm agreed to buy most of the fuel stored in Naftogaz’s
underground reserves, settling the dispute.

Apart from the uncomfortable position of acting as a screen disguising the
real price Ukraine is paying for gas, RosUkrEnergo has another big problem
to worry about. Having agreed to act as a buffer between Naftogaz and
Gazprom, RosUkrEnergo runs the risk of turning into a storage device for
Ukraine’s gas debts to suppliers. Ukraine, of course, has a history of debts
for gas consumed in the billion-dollar range.

Today, the situation is more serious, as gas prices have practically doubled
and far from all consumers can pay the new price on time and in full. This
year’s cold winter has triggered cash-strapped municipal consumers to burn
more gas than planned. And there is uncertainty hovering over the issue of
what price this gas is being consumed at – gas consumed in January has yet
to be billed by Naftogaz.

By preventing Naftogaz from raising gas prices, Parliament has only brought
more uncertainty into this picture. The only way out for RosUkrEnergo is to
insist upon the establishment of a distributor which it controls to ensure
that payment is made on time and in full. RosUkrEnergo simply cannot leave
this responsibility in the hands of Ukraine, which has a 14-year history of
debt problems.

RosUkrEnergo is, after all, accountable to its suppliers Gazprom and
Turkmenistan from which it buys gas supplied to Ukraine and Europe.

The main issue for RosUkrEnergo today is not whether consumer debt will
pile up, but rather how big and manageable it will be.

The biggest danger area for RosUkrEnergo is Ukrainian officials themselves,
since they appear incapable of understanding the details and ramifications
of the gas agreement.

Recently, Economy Minister Arseny Yatsenyuk revealed that the government is
preparing a special resolution to curb consumer gas prices at $110 per 1,000
cubic meters. What nonsense. Regulation of gas prices is the job of the
National Energy Regulatory Commission, an independent body, not the
Economy Ministry.

It is worth noting that the commission has issued a license to
Ukrgaz-Energo, the joint venture set up by Naftogaz and RosUkrEnergo to
supply gas on the Ukrainian market. More importantly, the commission did
not slap a price limitation on Ukrgaz-Energo.

How can you cap the price at $110 per 1,000 cubic meters considering the
following factors? First, a 20 percent value -added tax is charged upon
import; roughly $10 needs to be added to the price to pay for Ukrainian gas
pipeline services and a minimum of $5 needs to be added to the final fee to
cover the Ukrgaz-Energo’s salaries and expenses.

These additional, but required charges bring the price up to at least $129
per 1,000 cubic meters, which is not even close to $110 per 1,000 cubic

The lack of understanding by Ukrainian officials of the obvious fact that
RosUkrEnergo subsidizes the price of gas for Ukrainian consumers, hiding
their own complete failure in gas negotiations with Gazprom, leads to one
clear conclusion: RosUkrEnergo’s fate looks bleak.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    Send in names and e-mail addresses for the AUR distribution list.
          Gazprom makes further inroads in Ukrainian energy market

Eurasia Daily Monitor, Volume 3, Issue 33
The Jamestown Foundation, Wash, DC, Thu, February 16, 2006

A not-so-silent majority in Ukraine’s Cabinet of Ministers, forces ranging
from core Orange constituencies to the Party of Regions and groups as
diverse as the liberal press and industrial interests, are waging rear-guard
actions against the agreement signed on February 2 by Prime Minister
Yuriy Yekhanurov with Gazprom’s offshoot RosUkrEnergo.

The agreement would create the company UkrGazEnergo — a 50-50 joint
venture between Naftohaz Ukrainy and RosUkrEnergo — to market gas
within Ukraine.

RosUkrEnergo would deliver the mix of Russian and Turkmen gas to
Ukraine’s border, then would grab a large share of Ukraine’s internal
distribution market from Naftohaz Ukrainy through this joint venture.

Though classified as secret, the package of six documents has become
public knowledge thanks to critics within the government and the press.

UkrGazEnergo would be jointly headed by Gazprom vice-chairman
Alexander Ryazanov, who is also a member of RosUkrEnergo’s board;
and Naftohaz Ukrainy vice-chairman Ihor Voronin, who is widely believed
to have close links with RosUkrEnergo, and was listed as a member of the
latter’s board in 2004.

UkrGazEnergo is slated to become the exclusive supplier to Ukraine’s
industry, with the lion’s share of the gas earmarked for the steel and
chemical sectors. Through this joint venture, RosUkrEnergo takes away half
of Naftohaz Ukrainy’s business in these most lucrative sectors of Ukraine’s
gas market.

Naftohaz remains the supplier of “communal gas” to households and municipal
utilities — a market where Naftohaz can at best break even financially, due
to the low solvency of many customers. That problem will only worsen as the
cost of gas reaching Ukraine from Russia rises to $95 per 1,000 cubic meters
in the first half of 2006, compared to $50 through 2005.

Thus, revenue losses in both the industrial and the communal sector can
threaten Naftohaz Ukrainy’s financial basis and prevent it from maintaining
Ukraine’s gas transport network in good technical condition. To perform such
maintenance (not to mention modernization) or even to survive, Naftohaz may
have to go into debt.

Meanwhile, the joint venture UkrGazEnergo will be well placed to establish
control over those sections of the distribution pipelines that supply the
industrial consumers, hitherto Naftohaz Ukrainy’s domain. All this leads to
apprehensions that the joint Russian-Ukrainian company has been conceived
not only for its stated purpose, but also as a half-way house for gradually
transferring control over transport pipelines from Ukrainian to Russian

The $95 price for mix of Russian and Turkmen gas delivered by
RosUkrEnergo is not guaranteed beyond July 1 of this year, and is anyone’s
guess in the contract period through 2010. It is highly likely to rise in 
those years, due to international market trends and, particularly,

Turkmenistan’s stated intention to increase the sale price of its now under-
priced gas.

Ryazanov and the RosUkrEnergo directors Konstantin Chuychenko and
Oleg Palchikov have explicitly stated in the Kyiv media that the price of
gas to Ukraine beyond July 1 will change depending on the price of Russian

and Central Asian gas sold to RosUkrEnergo; that is, upward (Interfax-
Ukraine, February 2, 3). Procedures for changing the price are vaguely
defined in the documents and, thus, are ultimately at the supplier’s

The agreement is said to fix Ukraine’s transit charge on Gazprom’s and
RosUkrEnergo’s gas en route to Europe at only $1.60 (compared to an
European average of ca. $2.50) per 1,000 cubic meters per 100 kilometers
for the period 2006-2030.  Meanwhile, in 2006-2010,

Gazprom would withhold $250 million annually from its payments for
Ukraine’s transit services, so as to recoup Ukraine’s $1.25 billion debt for
past deliveries of Russian gas. Thus, de facto, the transit rate remains at
the old level of $1.09 per 1,000 cubic meters per 100 kilometers during
2006-2010. The new transit rate of $1.60 will, in practice, take effect
after the debt repayment.

In 2006-2030, Ukraine is to store annually 15 billion cubic meters of gas
belonging to RosUkrEnergo. The charge for this service is said to be fixed
at only $2.26 per 1,000 cubic meters of gas per year, an extremely low rate
compared to those charged in most European countries.

According to RosUkrEnergo board member and Raiffeisen Invest Bank
representative Wolfgang Putschek, RosUkrEnergo’s “business leadership is
with Gazprom. Formally it is 50-50, but in practice Gazprom is the leading

Putschek, who represents the mysterious “Ukr” side in RosUkrEnergo,
admits, “We have an image problem,” quite apart from the fact that the
nominally Ukrainian shareholders “exercise no control over operational
questions” (New York Times, February 1).

In sum, through the two-tiered RosUkrEnergo-UkrGazEnergo system,
Gazprom seems poised to make massive inroads into Ukraine’s gas
distribution and transport system — the main gas route to Europe — as well
as into the country’s key industries if it can force them into debt and then
debt-for-assets swaps. -30-
(Interfax-Ukraine, Channel Five TV [Kyiv], February 8-14; Zerkalo
nedeli, February 10)
The Jamestown Foundation:

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

ANALYSIS AND COMMENTARY: Kiyevskiy Telegraf weekly paper
Kiev, Ukraine, in Russian Saturday, 11 February 06 PP 1, 2, 3
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006

Russia may agree to supply cheaper gas to Ukraine depending on who wins the
coming parliamentary elections in that country, a Ukrainian weekly has said.
The paper added that documents stipulating Russian gas supplies to Ukraine
at 50 dollars per 1,000 cu.m. have yet to be annulled.

The paper says that the Ukrgazenergo joint venture (JV), that has been set
up to supply gas to Ukrainian consumers, does not take account of Ukraine’s
national interests. The paper adds that Ukraine will be getting gas at 95
dollars per 1,000 cu.m. as long as Uzbekistan and Turkmenistan keep the
price of their gas at the present level.

Neither the Ukrainian cabinet nor the Ukrainian national oil and gas company
Naftohaz Ukrayiny will be able to influence the price of gas charged by
Ukrgazenergo, the paper says.

The following is the text of the article, published in the weekly Kiyevskiy
Telegraf on 11 February, under the title “Coercive fixation: Russia may
agree to revise the gas agreements with Ukraine after the election”;
subheads as published:

Ten days have passed since the final gas agreements. Everything seems to
have been written about the underwater hazards posed by the Ukrgazenergo
closed joint-stock company. Even the accompanying documents that were
carefully concealed by the Energy Ministry people have floated to the
surface, but there is still no definite answer to the question of who won
and who lost.

The discussion has split the cabinet into two warring camps: the opponents
of the arrangements are headed by [Finance Minister] Viktor Pynzenyk, who
made sure that the Finance Ministry did not take part in the negotiations,
while the supporters are led by [Fuel and Energy Minister Ivan] Plachkov and
[Oleksiy] Ivchenko [the director of Naftohaz].

The prime minister is trying to hold the balance between the “clever and the
handsome”, so as to keep face in the run-up to the elections. The president,
worn out by the plethora of insider information, seems to have distanced
himself from the details and is pointing out philosophically that “for as
long as Ukraine is receiving Turkmen gas, it will have to address the
question of the agent”.

                                 OUR CHIEF CONCLUSION
We have tried to restrict ourselves to the facts, but our chief conclusion
is the following: the JV was lobbied for by the people who set up the
limited liability company known as the international [gas] consortium to run
and develop Ukraine’s gas transport system. These same people have filled
the senior posts in Ukrgazenergo, which has come to be the same consortium,
but without the Germans and without our interests.


                                       CARRY THEM OUT
On 14 November last year, the council of those participating in the
Ukrainian-Russian international consortium to run and develop Ukraine’s gas
transport system elected Ukraine’s fuel and energy minister, Ivan Plachkov,
as the limited liability company’s chairman. He became the last formal head
of the nonexistent body.

In 2002, Oleh Dubyna, then Ukraine’s first deputy prime minister, was
appointed as the first head of the council of founders. Ihor Voronin, deputy
chairman of the board of Naftohaz Ukrayiny, who was one of Mr Dubyna’s aides
before he [Voronin] joined the national company, was a member of the council
throughout the years of its existence.

On the Russian side, the founder was a deputy chairman of the board of [the
national gas monopoly] Gazprom, Aleksandr Ryazanov, who bulldozed through
the creation of the Ukrgazenergo JV, promising us, first of all, 230 dollars
per 1,000 cu.m. and then a total gas famine. Now they will sit side by side
on the JV’s council of directors: Voronin is the interim head of the board,
while Ryazanov is the permanent head of the supervisory council.

Ihor Voronin was Ukraine’s chief negotiator. He was also the “custodian” of
the joint venture’s draft charter and the modifier of its text in line with
the consultations. He is a person who deserves special attention. While
Yuliya Tymoshenko was prime minister, it was against Voronin that
investigations were launched by the SBU [Security Service of Ukraine] under
Oleksandr Turchynov.

And, according to confidential information, the purpose of the August search
at Naftohaz was to seize documents connected with Mr Voronin. On 25 June,
Mr Voronin was dismissed from his post as deputy chairman of the Naftohaz
board by resolution No 509 of the Cabinet of Ministers. On 26 September, the
dismissal was confirmed by an order from Ivchenko.

Three weeks later, however, on 14 October, a new Cabinet of Ministers
resolution, No 1019, reinstated him. Oleksiy Ivchenko said later that his
deputy could not be dismissed, since he was on sick leave. He prefers not to
remember his order.

According to one of the experts, Mr Ivchenko’s mission in the historical
process boiled down – excuse me – to the role of a lap-dog that circles
around the festive table, barking fiercely from time to time, but nothing

Deputy Prime Minister Stanislav Stashevskyy was officially in charge of the
many hours of consultations and chaired the meetings, but he was not allowed
to seize the initiative in orchestrating the process. The same can be said
of Ivan Plachkov.

After all, supplying power to Kiev and negotiating the gas supply to the
whole country are somewhat different fields and call for different skills.
Ivchenko and Plachkov “sang out” their parts at the preliminary stage of the

Their final aria was performed in Moscow on 4 January, when all the secret
documents that sparked off such a furore among the Ukrainian political elite
were signed. But the “opening” aria was sung back in the spring, when they
happily joined the campaign to switch from a barter accounting system to a
monetary one – of which we will talk later.

The “personnel” details are of some interest. Preliminary reports say that
Russia will be represented on the supervisory council (in addition to
Ryazanov) by a deputy chairman of the Gazprom board, Aleksandr Medvedev,
and the executive directors of [the intermediary company] Rosukrenergo, Oleg
Palchikov and Konstantin Chuychenko.

Ukraine will be represented by somewhat more modest officials: the head of
the Naftohaz department of oil and gas resources, Mykola Honcharuk; the
director-general of the Naukanaftohaz [oil and gas research] subsidiary,
Dmytro Yeher (rumoured to be close to Oleksiy Ivchenko and Ilya Rybchych
[director-general of the state-run gas-extracting company
Ukrhazvydobuvannya]); the deputy head of the Naftohaz legal department,
Andriy Halushchak; and the director-general of the [gas] company Haz
Ukrayiny, Oleksandr Bolkisev, who is regarded as a protege of Voronin’s.

The Ukrgazenergo JV will supply gas to Ukraine’s consumers through Haz
Ukrayiny, bypassing Naftohaz [of which it is a subsidiary]. Ukraine is
represented on the JV’s managing bodies by Naftohaz commercial director
Anatoliy Popadyuk; the head of the Naftohaz department for purchasing
Turkmen natural gas and paying for it, Serhiy Karyakin; a deputy chairman
of the Naftohaz board, Yevstakhiya Lekhytska (a former director of the
Ivano-Frankivsk branch of Kredyt Bank) and other, less prominent figures.

It is noteworthy that one of the JV’s managers, Mykola Honcharuk, once made
a convincing case for why it was impossible for Gazprom to raise the price
of the Russian gas supplied to Ukraine before 2009, thereby undermining the
agreement on the terms for the transit of Russian gas across Ukraine up to

The agreement states that, up to 2009, the rate of payment for transit has
been set at 1.09 dollars to transport 1,000 cu.m. of gas over a distance of
100 km, while the price of the gas to be delivered as payment for the
transit is 50 dollars per 1,000 cu.m. This is the right moment to move on to
the documents.
                                   TRUTH AND FICTION
When the opponents of the gas JV failed to bring the prime minister on to
their side, they decided to place him in an awkward situation by leaking,
via the press, the supplements to the agreements that the Energy Ministry
people first tried to conceal, but then, under pressure from Pynzenyk once
he had returned from sick leave, agreed to circulate to ministers.

At first glance, they appear sensational. In fact, though, they amount to
just clear confirmation of the Ukrainian lawyers’ fiasco during the
negotiations. The first document is a supplement to the above-mentioned
10-year contract on the terms for the transit of Russian gas across Ukraine
whereby, up to 2009, Gazprom will pay Ukraine for transit at the former rate
of 1.09 dollars per 1,000 cu.m. of gas rather than 1.6 dollars.

This is just an amendment to the document to which Honcharuk referred.
Before 2009, we certainly cannot, according to the existing arrangements,
get more than 1.09 dollars for transportation. But the Russians are not
obliged to supply us with gas at 50 dollars: that is just a formal figure
for calculating the price of the barter gas with which we paid for supplies.
As soon as we (or rather Plachkov and Ivchenko) gave up our own natural gas,
the Russians immediately set the price of the commodity in line with market

Plachkov explained, by way of justification, that, when the transit rate was
altered from 1.09 dollars per 1,000 cu.m. to 1.6 dollars for Gazprom, the
rate also changed automatically for Rosukrenergo, since it could not be
increased for Gazprom without being increased for Rosukrenergo. He never
actually explained why that could not be done.

But the main open secret, according to the authors, is the fact that Ukraine
will use the transit payment, lower than previously announced, to repay part
of its gas debt, which stands at 1.2bn dollars. For some reason, no one has
recalled that, back in October 2004, the Naftohaz subsidiary, Haz Ukrayiny,
through which all gas transfer will now pass, borrowed 1.2bn dollars to
repay this same debt for Russian gas.

The question of where the money went and why the debt was not repaid
should be put to Mr Bolkisev, who represents Haz Ukrayiny on
Ukrgazenergo’s council of directors.

It is hard, in fact, not to remember that we have always played tricks with
the gas debts. After the scheme involving Naftohaz bonds foundered, it was
assumed that the national company would repay the debt by concluding a
mutual accounting agreement with Gazprom. In other words, Naftohaz would
receive a partial prepayment from Gazprom for the transit servicing of
Russian gas across Ukraine in 2005-09 amounting to 1.25bn dollars.

It then makes the money available for repaying the debt. But Gazprom
reassigns its claims against Naftohaz, amounting to 1.6bn dollars, to
Vneshekonombank [the Bank for Foreign Economic Activity] (VEB). The
discount on the amount of the debt under the agreement would be 22 per cent.

On the same day, VEB would remit the 1.25bn dollars to Gazprom’s account at
the bank. Gazprom would transfer all the money received to Naftohaz’s Kiev
accounts under the agreement on the advance payment for gas transit services
in Ukraine in 2004-09. Naftohaz Ukrayiny would, in turn, immediately return
the 1.25bn dollars it had received to VEB. But the idea was not put into
effect. This had a dramatic effect on the transit rate.

As for the agreements between Gazprom and Naftohaz to the effect that, from
2006 to 2030 inclusive, 15bn cubic metres of Russian gas a year would be
stored in Ukrainian gas reservoirs at a cost of 2.25 dollars per 1,000 cu.m.
for a year’s storage (the value of the contract is 866.2m dollars), similar
agreements for the transporting of gas and its storage in underground
reservoirs were signed between Naftohaz and Rosukrenergo back in 2004.
There is nothing sensational there.

Mr Honcharuk is more familiar with the issue than anyone else. As far as the
authors remember, there have been several such documents. The main one is
the contract concluded by Naftohaz and Gazprom on 1 July 2002 “On the
volume and terms for the injection of natural gas into underground
reservoirs, its storage, removal and transportation for the period up to 2013″.

It featured a price – 3 dollars per 1,000 cu.m. of gas on injection and the same
amount for storage and removal.

Then there were the supplementary agreements for 2004-05, which regulated
the volume for the removal of gas from the reservoirs.

Do you remember the row over Gazprom’s demand for the purchase of the
7.8bn cubic metres of gas in Ukrainian underground storage reservoirs at the
market price? That was when the price of 160 dollars, instead of 50 dollars,
was first articulated.

Last autumn, Gazprom asked to be allowed to rent (or purchase) three of the
13 existing underground storage reservoirs, but the Ukrainian Ministry of
Fuel and Energy opposed the move. As a result, the same reservoirs will be
used by agreement to store Rosukrenergo’s gas, but at 2.25 dollars instead
of 3 dollars per 1,000 cu.m. No one knows the reason for the discount.

Finally, there is the most outrageous agreement: Naftohaz transfers to
Rosukrenergo 40bn cubic metres of gas bought in Turkmenistan for 50
dollars per 1,000 cu.m., and Rosukrenergo then sells the gas to Ukraine at
95 dollars per 1,000 cu.m. That, in fact, is the explanation of why Russian
gas at an advertised price of 230 dollars reaches us at 95 dollars.

There is actually no price of 230 dollars, but there are real contracted
volumes of Turkmen gas that Russia simply did not pump through its own
territory, demanding concessions that ultimately led to the creation of the
Ukrgazenergo JV.
A question naturally arises: if we had a quantity of Turkmen gas that had
already been purchased, why did we have to start all this negotiating
nonsense? The answer is simple.

[1] First, as was said above, we could not get hold of the gas because
Russia simply would not allow it to pass through its territory. The operator
of the deliveries – Rosukrenergo (Gazprom’s proxy in Central Asian transit
matters) – would say: we can’t help – the sods won’t let it through.

[2] Second, when Russia stopped allowing through sufficient volumes during
the first few days after the New Year, Ukraine was accused of stealing
European gas because of the “famine”. The gas supply was stopped completely
at the Valuyki transfer station and partially at the Sokhranovka and Sudzha
stations. According to Naftohaz, the reduction in the gas volume totalled
187m cubic metres a day.

The Russian gas giant circulated a statement through its press service to
the effect that the measure stemmed from the refusal of Naftohaz Ukrayiny to
sign a contract providing for a transfer to market prices from the second
quarter of 2006, with the existing price (a gas price of 50 dollars per
1,000 cu.m. and a transit rate of 1.09 dollars per 1,000 cu.m. per 100 km)
being retained during the first quarter.

However, according to the Ukrainian oil and gas company, the Russian demands
were accepted by Ukraine, but, despite that, Gazprom declined the proposal
to conclude an agreement.

Even before the reduction in the volume of gas reaching Ukraine, official
Gazprom representatives accused the Ukrainian authorities of intending to
illegally siphon off gas earmarked for European customers from the gas
transport system and described such action as “theft”.

Later on, when the reduction in gas supplies for Ukrainian consumers became
a fact, Gazprom’s representatives declared that it was the Ukrainians who
should be held responsible for the disruption to the supplies to Europe.

Fuel and Energy Minister Ivan Plachkov replied that Ukraine would consume
Russian gas to cover the transit costs in keeping with the existing
arrangements. He would have done better to consult his lawyers. The right
answer was rather different: according to the contracts with European
consumers, Gazprom is responsible for delivering gas to Europe, i.e. to the
end user. In the case in question, Ukraine does not feature in the
contracts, so there is no point, de jure, in pinning the blame on Kiev.
This is, perhaps, the right time to move towards a few conclusions. What
has our country gained from the creation of the JV?

The fixed volume of Central Asian gas at the unfixed price of 95 dollars is
important until Uzbekistan and Turkmenistan raise the price of their gas –
and they will do that in the near future.

It follows from the agreement setting up the JV that the price may be raised
as a result of negotiations between Rosukrenergo and Ukrgazenergo. Who will
be negotiating with whom? Oleh Palchikov, a member of the Ukrgazenergo
supervisory council, [will negotiate] with Oleh Palchikov, executive
director of Rosukrenergo, about what price should be posted for Ukrainian

Moreover, the documents say nothing about the price having to be a
standardized one. So far, there are only experts’ guesses on the subject,
and they boil down to the view that, if it so wishes, the JV can subsidize
certain factories in exchange for their owners’ agreement to hand over some
of their shares to Russian companies.

Neither the government nor Naftohaz will be able to influence Ukrgazenergo’s
pricing policy. It is interesting to wonder what Naftohaz will contribute to
the [JV’s] charter capital. It has quite a lot of minority shareholdings in
banks and various companies, as well as vast assets in the gas extraction

The specialists we have consulted agree that the JV with Rosukrenergo is the
worst alternative to a consortium to run the gas transport system in which
Russia, Germany, France and perhaps a few other European countries that are
gas consumers today could participate. It would, at the very least, be more
transparent and more specific about who is responsible for what, who is
paying whom and at what price.

One of the experts said that a one-third share in the consortium is better
than a half share in the JV. In any case, bearing in mind the casual
attitude towards Russian-Ukrainian agreements that is displayed by the two
parties (a considerable part of these agreements, that have not been
cancelled officially, are simply ignored), all is not yet lost.

Moreover, there is a theory that Moscow, in principle, does not mind
modifying the documents that are unfavourable to us. But it is waiting for
the parliamentary election [on 26 March], in order to encourage one of the
political forces, which will be allowed to “wrest a revision” of the
agreements and tear up the ill-starred papers before a vast concourse of
the nation. But that is a different subject.    -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

Interfax-Russia, Moscow, Russia, Thursday, February 16, 2006

HANOI –  Turkmenistan’s intention to raise gas prices to $100 per 1,000f
cubic meters this fall will alter the gas price formula for Ukraine, Russian
Industry and Energy Minister Viktor Khristenko said. It is premature to say
how much gas prices for Ukraine may change, he said.

“Everything is changing, and even the fixed price formula for RosUkrEnergo
may fluctuate depending on the situation on the market,” he said.

“The position of [Turkmen President Saparmurat] Niyazov is predictable,”
Khristenko said. If Turkmenistan raises the gas price, the gas price formula
for Ukraine will change as well, he said.

There is still much work to be done on the long-term gas contract between
Russia and Turkmenistan, Khristenko said.

The contract may be ready by the end of this year. “We will work out a
price formula for the Turkmen gas to be delivered up to 2025,” he said.

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UT1 State TV, Kiev, in Ukrainian 1900 gmt 16 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006

KYIV – [Presenter] Prime Minister Yuriy Yekhanurov visited Poland today.

The governments of the two countries agreed to support the completion of
the Odessa-Body oil pipeline to the Polish city of Plock. The Ukrainian
delegation believes that the joint statement is a signal that active work
has begun.

Polish Deputy Economy Minister Piotr Naimski said his country’s
participation in the project would depend on the political situation in
Ukraine, in particular progress in overcoming disorder. Maksym Drabok
reports from Warsaw.

[Correspondent] This is the first official visit of the Ukrainian prime
minister to Poland after the Orange Revolution. But Yekhanurov came to
Poland not only to get acquainted with the new Polish president and the
prime minister. Elections took place here at the end of last year.

Energy issues were discussed during the visit too. A declaration on the
Odessa-Brody-Plock oil pipeline has been signed. This is a so-called joint
statement by the Ukrainian and Polish prime ministers on supporting the
Odessa-Brody-Plock pipeline. There are few specific details there. The

prime ministers only said that this is an official signal to begin implementing
the project. They are expecting main decisions later this year.

[Prime Minister Kazimierz Marcinkiewicz, overlaid with Ukrainian
translation] My government’s priority is energy security – in other words –
as many alternative energy sources as possible. The Odessa-Brody-Plock
pipeline is one of them.

[Correspondent] The Polish prime minister referred to a national saying – if
one wants one can. Both Kiev and Warsaw want, but they don’t know when

they will be able to do this. The reverse pumping of oil should be stopped first
to allow pumping oil in the forward direction from Odessa to Brody and then
to Plock.

[Yekhanurov] I want to confirm once more that there is a legal possibility
of cancelling the pumping of oil in the reverse mode. There is a mechanism.
It takes ninety days.

[Correspondent] The Ukrainian prime minister also discussed the Odessa-

Brody Plock pipeline with Polish President Lech Kaczynski. Details have
not been reported. Talks will continue in Kiev. The Polish president is
visiting Ukraine in two weeks.   -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                         PROJECT WORK TO ACCELERATE

Polish News Bulletin, Warsaw, Poland, Thursday, Feb 16, 2006

WARSAW – The Polish Prime Minister Kazimierz Marcinkiewicz announced

an acceleration of the work on the project to extend the Ukrainian Odessa-
Brody oil pipeline to Plock.

“We must make some changes in companies which are interested in realising
the project. After the changes, we will be able to accelerate work on the
enterprise,” said the PM at a press conference after a meeting with NATO’s
secretary general Jaap de Hoop Scheffer.

The new Polish treasury minister Wojciech Jasinski said that the idea
leading to diversification of oil supplies to Poland is worth persuing.

The project is being prepared by Polish-Ukrainian company MPR Sarmatia,
established in July 2004 and equally controlled by PERN and its Ukrainian
counterpart Ukrtransnafta. The cost of the investment is estimated at around

The launch of the Brody-Plock pipeline, which would use oil from sources in
the Caspian Sea, would make Poland, and also Ukraine, less dependent on oil
supplies from Russia.  -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

By Roman Kupchinsky, Organized Crime and Terrorism Analyst for
RFE/RL Online, Editor, “RFE/RL Organized Crime &Terrorism Watch.”
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, February 15, 2006

For a glimpse into Russian President Vladimir Putin’s views on energy and
foreign policy, one need look no further than his years in St. Petersburg
in the 1990s. The key players in Russia’s energy industry today, in fact,
are Putin’s former colleagues and mentor from that time.

Putin, who had already spent more than 15 years as a Federal Security
Service (FSB) agent, returned to school, studying at the St. Petersburg
Mining Institute. One of the most prestigious academic institutions in
Russia, it traces its history back to 1773. Since 1994 its rector has been
Vladimir Litvinenko, who also serves as a member of the government’s
newly created Energy Commission.

Litvinenko was rector when a 44-year-old Putin in 1997 defended his
doctoral dissertation examining how natural resources can contribute to
regional economies and strategic planning.

Two years later, Putin — then the director of the FSB — wrote an article
for the mining institute’s journal. The title of the article was: “Mineral
Natural Resources In The Development Strategy For The Russian

In it, Putin posited that hydrocarbons were key to Russia’s development
and the restoration of its former power. He argued that the most effective
way to exploit this resource was through state regulation of the fuel
sector, and by creating large and vertically integrated companies that

would work in partnership with the state.
                                FRIENDS FOR A LIFETIME
Putin formulated most of his energy views while working in the St.
Petersburg mayor’s office, where he headed the Foreign Economic
Relations Department.

His colleagues in that office included: Aleksei Miller, now chief executive
of the state-controlled Gazprom monopoly; Dmitry Medvedev, the head of
the presidential administration, a deputy prime minister, and chairmen of
the board of directors at Gazprom; and Igor Sechin, a man with ties to the
former KGB, who is currently the deputy head of Putin’s administration as
well as the chairman of the board of directors at the state-owned oil
company Rosneft.

As the St. Petersburg team rose in prominence, so too did the influence
of the Mining Institute and its director, Litvinenko. The institute is now a
compulsory stop for Russian and Germany energy leaders visiting St.
Petersburg. The institute’s official website notes that it has received
delegations from the Germany’s Wintershall gas company — a close
Gazprom ally — as well as the board of directors of Gazprom subsidiary
Surgutgazprom, and Vagit Alekperov, the head of LUKoil.

Litvinenko is also believed to have played a role in the drafting of
Russia’s energy strategy, which defined the role of energy as a tool of
Russian state policy. Some observers have even suggested Litvinenko
would be an appropriate candidate to replace Miller at the helm of
                               THE ‘SILOVIKI’ MUSCLE IN
But it is not only Putin’s former classmates and mayoral co-workers who
have found a role in the current government. Former agents of the KGB,
the predecessor to Putin’s FSB, also enjoy crucial influence in the Kremlin,
and are known as the “siloviki,” or “power men.” These men have an impact
on both government energy policy and the way in which it is implemented.

One of these men is Aleksandr Ryazanov, the deputy chairman of Gazprom,
and reportedly the head of the “siloviki” faction within the gas giant.

Ryazanov became chief executive of the Sibneft oil company after it was
purchased by Gazprom in 2005. He has also been appointed head of
UkrGazEnergo, the newly created Ukrainian-Russian joint venture to act as
an intermediary between Ukraine’s state-run Naftohaz Ukrayiny and the
Swiss-based RosUkrEnergo.

Another is Viktor Ivanov, another deputy head of the presidential
administration. Ivanov has a colorful history. A graduate of the Leningrad
Bonch-Bruyevich Electrical Technical University, Ivanov worked as an
engineer before reportedly joining the KGB in 1977 and fighting with
Soviet forces in Afghanistan.

Upon his return, he rose to the head of the anticontraband department of
the Leningrad Oblast KGB. He retired from service in 1994 with the rank of
colonel and was appointed by Putin to head the administrative departments
of St. Petersburg city hall.

The two groups of men surrounding Putin — the “siloviki” and the St.
Petersburg’s mayor’s office group — have become what one could call an
informal “board of directors” of the new Russia. As such, they set the
agenda for Russian energy policy and in fact control the country’s vast
energy resources. Their influence should not be underestimated. -30-
Roman Kupchinsky is the organized crime and terrorism analyst for
RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He graduated from Long Island University in Brooklyn
with a degree in political science. He was the president of Prolog Research
and Publishing Corporation in New York prior to joining RFE/RL where
he was director of the Ukrainian Service for 10 years.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

           Foreign assets of electricity monopoly Unified Energy Systems

By Conor Humphries, Staff Writer, The Moscow Times
Moscow, Russia, Wednesday, February 15, 2006. Page 5.

MOSCOW – Gazprom is interested in acquiring the strategically important
foreign assets of electricity monopoly Unified Energy Systems as part of its
strategy to become a global energy concern, a spokesman for the gas giant
said Tuesday.

“We are working to become a global energy company so, of course, we
would be interested in the assets,” Gazprom spokesman Denis Ignatyev
said.   -30-
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12.                  GAS CRISIS A WARNING FOR EUROPE
                    Urged to integrate energy policy with foreign policy

By Judy Dempsey, International Herald Tribune (IHT)
Paris, France, Wednesday, February 15, 2006

BERLIN – Top international energy experts Wednesday urged European
countries to unify their energy and foreign policies in order to increase
energy security and reduce their dependence on Russia and the Middle
East for oil and gas.

The calls were made against the backdrop of growing concern within the
European Union that Russia may use its reserves of oil and gas to exert
political pressure, and that instability in the Middle East could lead to
sharp fluctuations in energy prices, increasing Europe’s economic

“We need to integrate our energy policy with our foreign policy,” said Luc
Werring, principal adviser to the EU’s Commission for Energy and
Transport. “The danger of security of supplies for the first time is
becoming an issue.”

“There has been lots of rhetoric,” he said. “We now need to implement
and invest in energy security.” Werring was addressing an annual Berlin
conference on renewable energy that is normally devoted to issues like solar
and wind power but that focused this year nearly entirely on fears of a
coming crisis in nonrenewable energy sources, notably fossil fuels.

These fears have taken on new urgency since Russia’s energy giant, Gazprom,
cut off energy supplies to Ukraine and Moldova in January in a dispute over
gas prices.

“Russia has signed off on using energy as a political tool,” said Kevin
Rosner, an American energy consultant. Rosner has been appointed to head
a task force on energy security at the next G-8 summit of industrialized
nations, which will take place in St. Petersburg in June, headed by
President Vladimir Putin of Russia.

Rosner, who is also director of NATO’s energy security forum, said that
energy security had moved beyond the sphere of national security to become
an international concern that required an international response.

He said, for example, that Iran was using oil revenues to purchase advanced
weapons systems from Russia and China, at a time when Tehran is defying
the West in developing its nuclear program.

Werring said that, despite previous commitments to coordinate energy
policies, EU member states were not doing enough. He called on Europeans
reduce energy consumption; diversify energy sources by shifting to renewable
energy, including wind and solar power; and to integrate existing energy
networks and storage facilities.

For example, he cited the need for improvement of trans-European energy
networks, some of which have yet to be connected. The pipelines transporting
energy from North Africa, Norway, the North Sea, and Russia are not fully
integrated, he noted.

The EU currently imports 50 percent of its energy. If no measures are taken,
Werring said, that amount will increase to 70 percent within the next 30
years, with 45 percent of oil imports coming from the Middle East and 40
percent of natural gas from Russia.

“The member states have to really start working together, because 2006 will
be a crucial year for energy policy,” said Werring, adding that energy
security would be a major issue at next month’s Brussels summit meeting of
EU leaders.

The conference was held at a time when some European countries are
rethinking their energy policies.

Germany’s new conservative-led coalition government is considering whether
to prolong the life of nuclear plants instead of closing them, as the
previous Social Democratic and Green government had decided. Other
countries, led by Britain, want to expand nuclear power as North Sea oil
fields become depleted.

Jürgen Trittin, who was environment minister in the government of Gerhard
Schröder, the former German chancellor, said a shift to nuclear power would
not enhance energy security.

The Sept. 11, 2001, attacks on New York and Washington, he said,
“showed it can no longer be doubted that nuclear power plants could be
targets of terrorist attacks.”

But a senior German military officer, Roland Kästner, who lectures on
strategic issues at Germany’s Armed Forces Academy, said that “makeshift
solutions” did not usually ensure energy security. “Energy policy and
security policy are closely linked to each other.”

Kästner said that Germany and other European countries were facing a
potentially major economic crisis because of their dependence on oil

“Economic stability depends on oil,” he said, “but this oil is located in
unstable regions that cannot be stabilized from outside. “We will be
dependent on oil price shocks started from those regions.”

In an indirect reference to the cultural clashes taking place between Europe
and the Islamic world over the publication in European newspapers of the
Prophet Muhammad, Kastner said the EU had to reach beyond its current
borders to promote stability and security.

He said that integrating an Islamic country like Turkey, for example, would
be a key test of European security policy. “This is going to be a serious
challenge,” Kastner said. “By 2040, 20 percent of the population in Europe
will be Islamic.” -30-

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AFX Europe (Focus), Milan, Italy, Thursday, February 16, 2006

MILAN – Italy’s Prime Minister Silvio Berlusconi said the Ukraine has
siphoned off 70 mln cubic metres of gas per day of Gazprom supplies sent to
the west. Berlusconi said that cold weather in Russia has also hit Russian
exports, but this factor is not sufficient to explain the shortfalls in gas
received in Italy by Eni SpA in the last weeks.

“In addition to the cold that hit Russia, the energy crisis in Italy has
been due to the fact that the Ukraine has taken way in an independent and
arbitrary manner 70 mln cubic metres of gas per day without having a
contract with Gazprom,” he said in a Canale Italia TV interview to be aired

“The Ukraine….took away first 35 mln cubic metres, and then when the
Russian federation increased distribution by 35 mln, the other 35 mln,” he
said. The cold weather, which saw Russian temperatures fall to minus 60
degrees, has been responsible for 8 pct of the shortfall, he said.

Today, Eni said its shortfalls in Russian gas is expected to fall to 9.5
pct, from the normal 74 mln cubic metres, against yesterday’s 10.8
shortfall, after last week being up to 16 pct. Berlusconi said he has spoken
many times with Russian President Vladimir Putin on the issue, adding there
has been “maximum cooperation”.  ( nt/joy
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
            Graduate Ukraine from Jackson-Vanik, Need for Action Now

Ambassador Steven Pifer and
Ambassador William Miller, Co-Chairmen
Jackson-Vanik Graduation Coalition
Washington, D.C., Wednesday, February 15, 2006

Written Submission for the Record
For the House Ways and Means Committee’s
Hearing on President Bush’s Trade Agenda
Submission by the Jackson-Vanik Graduation Coalition

                                  NEED FOR ACTION NOW
The Jackson-Vanik Graduation Coalition, which currently includes more
than 250 businesses and Ukrainian-American, Jewish-American and non-
governmental organizations, calls on the House of Representatives to pass
legislation in February to graduate Ukraine from the provisions of the
Jackson-Vanik Amendment.

The Senate passed by unanimous consent in November 2005 legislation to
graduate Ukraine from Jackson-Vanik. Failure by the House now to pass
similar legislation will be seen in Ukraine as a failure of the government’s
foreign policy and an indication of Western disinterest, at a time when the
country is struggling to realize the full promise of the Orange Revolution.

Ukraine holds critical Rada (parliament) elections on March 26.
Congressional inaction in the run-up to those elections will be exploited by
opponents of the government’s pro-reform, pro-West course; indeed, Rada
deputies have expressed concern to Coalition leaders about precisely such
tactics by the opposition.

The Coalition thus seeks House passage of legislation in February to signal
support for U.S.-Ukraine relations, and for Ukraine’s efforts to consolidate
democratic institutions and build a robust market economy, fully integrated
into the Euro-Atlantic community.

Passage of graduation legislation is also necessary to support a key element
of President Bush’s policy toward Ukraine. In his April 2005 joint statement
with Ukrainian President Viktor Yushchenko, President Bush called for
“immediately ending application of Jackson-Vanik to Ukraine.”
The Jackson-Vanik Amendment, as contained in Title IV of the 1974 U.S.
Trade Act, was a response to the discriminatory emigration policies of the
former Soviet Union. The communist restrictions had the most serious
impact on religious minorities, particularly on the ability of Soviet Jews
to emigrate.

The Jackson-Vanik Amendment stated that non-market economies that
continued to impose emigration restrictions on their citizens would not be
granted permanent normal trade relations or “most favored nation” status
by the United States until they had met the Amendment’s freedom-of
emigration requirements.

Since regaining its independence in 1991, Ukraine has built a strong and
impressive record of allowing open emigration. Indeed, a large number of
Ukrainian Jews have emigrated over the past fourteen years. Ukraine has also
created conditions for religious minorities to pursue their beliefs freely.
Ukraine thus is a success story for Jackson-Vanik and now merits graduation
from the Amendment’s provisions.

Ukraine’s excellent emigration record was recognized in 1997, when President
Clinton found Ukraine to be in full compliance with the Amendment’s
freedom-of-emigration requirements. President Bush has regularly endorsed
this finding and has called on Congress to take the next step: to graduate
Ukraine from Jackson-Vanik.

Before the House International Relations Committee in July 2005, Assistant
Secretary of State for European and Eurasian Affairs Fried said

     “Ukraine has complied with the provisions of the Jackson-Vanik
     Amendment to the Trade Act of 1974 for over a decade. This
     Administration strongly supports Ukraine’s immediate ‘graduation’
     from Jackson-Vanik. As the Ukrainian people look for tangible signs
     of our new relationship, they are perplexed that Ukraine remains
     tainted by the legacy of Jackson-Vanik. We urge Congressional
     action on this matter.”

In a November 8, 2005 letter to key Congressional leaders, Secretary of
State Rice wrote:

     “The Administration strongly supports appropriate legislation that
     would authorize the President to terminate application of Title IV of
     the Trade Act of 1974 (the Jackson-Vanik Amendment), with respect
     to Ukraine, and to extend permanent normal trade relations treatment
     to the products of that country.”

     “Congressional action to lift Jackson-Vanik and extend permanent
     normal trade relations would sent a strong signal of support to
     Ukraine at a critical juncture.”

Various non-governmental groups, including the National Conference on
Soviet Jewry and the Euro-Asian Jewish Conference, agree that Ukraine
has demonstrated its full compliance with the Amendment’s requirements
and therefore should be graduated from the restrictions it imposes.

When President Yushchenko spoke before a joint session of Congress on
April 6, 2005, he focused on the importance to Ukraine of being graduated
from Jackson-Vanik. He received a standing ovation when he declared, “I’m
calling upon you to waive the Jackson-Vanik Amendment. Make this step.
Please make this step toward Ukraine. Please tear down this wall.” There is
nothing more important that Congress could do now for Ukraine than pass
graduation legislation.
                                                IN SUM
The House must act now to pass legislation to graduate Ukraine from

     [1] It is the right thing to do. Ukraine has long fully met the
     freedom-of-emigration requirements of the Amendment.

     [2] It is imperative to send Ukraine a positive political signal now,
     on the eve of the March 26 parliamentary elections. Failure to do
     so will be exploited by political forces in Ukraine that oppose the
     government’s pro-reform, pro-West course.

     [3] It is essential that Congress help President Bush carry out his
     April 2005 commitment to President Yushchenko.

     [4] It is important for the sake of the Jackson-Vanik process that
     Congress show that, when a country meets the freedom-of-
     emigration requirements, it will be graduated. What incentive will
     countries have to meet such requirements if Congress moves the
     goal posts?   -30-
NOTE  To read more about the Jackson-Vanik Graduation Coalition
and the action plan click on:
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]


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

KYIV – The press service of the US Embassy in Ukraine disseminated a

statement, in which Press Attache Brent Byers protested against the
February 10 article in the 2000 weekly that claims that the United States
was secretly behind and benefited from the terrorist attacks of September
11, 2001.

As Brent Byers believes, the publication by the weekly, which is closely
aligned with the SDPU(U), is evidence that the people who introduced the
word “temnyky” to the world are still hard at work to mislead the Ukrainian

As the American diplomat believes, such outrageous claims are in the league
of statements that there was no Holocaust or Famine in Ukraine. Fortunately,

as the political polls show, most Ukrainians do not take these political lies
or the people who try to spread them seriously.  -20-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

UNIAN news agency, Kiev, in Ukrainian 1421 gmt 16 Feb 06
BBC Monitoring Service, UK, in English, Thursday, Feb 16, 2006

KIEV – The Our Ukraine bloc is demanding that the Interregional Academy
of Personnel Management [MAUP] renounces its policy of anti-Semitism.

A statement issued by the bloc and received by UNIAN, says the incitement
of inter-ethnic enmity, anti-Semitism and xenophobia by individual leaders
of MAUP on the pages of press controlled by it is a serious violation of
human rights and freedoms and casts a shadow on Ukraine, which after the
events of the Maydan [site of Orange Revolution in Kiev] set out on the path
of democratic change.

In particular, in the latest edition of the Ukrainian paper Personal Plyus
[owned by MAUP] the latest anti-Semitic article was published under the
title “Minister of an American synagogue”, which is an aggressive attack on
members of other nationalities.

Our Ukraine believes that such activity is inadmissible in our country,
especially in a period when the creation of an open civil society is taking

After the Orange Revolution, which in the eyes of the international
community confirmed Ukraine as the heart of a new democracy, anti-Semitic
attacks by MAUP have a destructive influence on the image of our country
and are a hindrance for equal relations on the basis of trust with the
biggest partner countries in the world.

Such political atavism, which is present in the leadership of this
institution consolidates the mythological image of our country as a crude
nationalist country.

Our Ukraine believes that it is inadmissible to shame our country in the
eyes of the world community and demands that the leaders of MAUP
renounce this policy, which is damaging and shameful for the Ukrainian

At the beginning of the third millennium there is no place for paranoid
views in the public and political sphere. Members of all nationalities in
Ukraine has the right to realize its own selfhood and develop its national
and social and cultural identity.  -30-

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
OSTROV, Research Center of Donbass Social Perspectives
Donetsk, Ukraine, Thursday, February 16, 2006
Ambassador extraordinary and plenipotentiary of USA in Ukraine, John
Herbst does not see grounds for extradition of the chairman of Sumskaya
oblast administration Vladimir Scherban to Ukraine. He said that at today’s
news conference devoted to the issues of the frontier service of Ukraine,
according to ‘LIGABusinessinform’.

Mr. Herbst also said that he was aware that Scherban was staying some time
in American prison and that he is searching by Ukrainians law-enforcement
bodies. The ambassador noted at that time there was a law in force that
provided the members of the oblast councils immunity against the criminal

‘I don’t know what Mr. Scherban did here, in Ukraine. But after this law
entered into action there is no grounds for Ukraine to demand him back.

In other words, this law can provide the criminal elements with immunity
against persecutions for those who became members of oblast councils.
Perhaps, it wouldn’t be a mistake to say legislation of such kind worsen the
quality of a human factor in such bodies of power,’ the Ambassador stated.

Please be reminded that in the mid-October 2005, per solicitation of the
Prosecutor General’s Office of Ukraine, the USA detained and arrested the
former chairman of Sumy oblast state administration Mr. Scherban who is
accused in grave crimes like authorities abuse, extortions, finance
resources swindling.

As a result of Mr. Scherban’s illegal actions, the country suffered dozens
of million hryvnas damage. The former prosecutor general of Ukraine
Sviatoslav Piskun started negotiations with the US Attorney General on
deportation of Mr. Scherban to Ukraine. -30-
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Embassy of Ukraine, Washington, D.C., Thursday, February 16, 2006

WASHINGTON – Newly appointed Ukrainian Ambassador to the United

States Oleh Shamshur continues meeting key figures on the Hill. On
February 15th he met with Congressman Elton Gallegly, a Californian
Republican, who chairs the Subcommittee on Europe and Emerging
Threats of the U. S. House International Relations Committee.

They discussed the coming 20th anniversary of the Chornobyl nuclear

disaster including the preparation of a special U.S. Congressional resolution
dedicated to this tragic date. Mr. Gallegly assured Ambassador of his full
support and awareness of political importance of this issue.

Having thanked Congressman Gallegly for his initiative, O. Shamshur
underscored the relevance of holding congressional hearings on Chornobyl.

During the meeting they also discussed political situation in Ukraine in the
context of the coming parliamentary elections. On Mr.Gallegly’s request
Mr.Shamshur informed him about the prospects of political situation there
after stressing the firm commitment of the Ukrainian leadership to secure a
fair and transparent parliamentary election in accordance with the democratic

standards. -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
              Receives congratulations from President Yushchenko

Ukrainian News Agency, Kyiv, Ukraine, Thursday, February 16, 2006

KYIV – President Viktor Yuschenko has congratulated sportswoman Lilia
Yefremova for the bronze medal she won in the 7.5-kilometer biathlon sprint
at the Winter Olympics Games in Turin (Italy). This information came from a
presidential press release service, a copy of which Ukrainian News obtained.

In his telegram, Yuschenko expressed hope that this will become a good start
for the Ukrainian national team during this Winter Olympics.  He says that
Yefremova’s victory is of great importance to millions of Ukrainian sport
fans. “This victory shows that Ukrainians are able to fight and win,” the
statement reads.

This is the first medal won by the Ukrainian national team in Turin.

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
           “We deplore this action, which the authorities carried out in
                    contravention of their international obligations.”

Nick Paton Walsh in Moscow, The Guardian
London, United Kingdom, Friday, February 17, 2006

The United Nations said yesterday that it was appalled by Ukraine’s decision
to send 11 Uzbek asylum seekers, who fled the troubled central Asian country
after the Andijan massacre, back to Uzbekistan, in an apparent breach of
international law.

The 11 men fled Uzbekistan after troops fired on a peaceful demonstration

on May 13 last year, killing up to 500 people. The protest was sparked by a
violent jail break, which the Uzbek government said was orchestrated by
Islamic extremists.

The Ukrainian security services arrested the 11 men this month in two cities
in the southern region of Crimea during an operation against illegal
immigration, the Unian news agency reported on Wednesday.

Pirkko Kourula, director of the UN High Commissioner for Refugees’

European bureau, said in a statement: “We deplore this action, which
the authorities carried out in contravention of their international obligations.”

The UNHCR said that nine of the men had applied for asylum and two had

said they intended to do so. They had been held at a detention facility in
Simferopol, the capital of Crimea, when the authorities received a request
from Uzbekistan for their extradition.

The UNHCR said the decision to extradite came after it had appealed twice

to the Ukrainian authorities not to send the men back until their asylum
applications had been heard, and added that they had had a right to appeal.

It said the Ukrainian decision appeared to violate the 1951 UN refugee
convention and Ukrainian law. Because the men almost certainly face torture
in Uzbekistan, the UNHCR said that the extradition also contravened the UN
convention against torture. The US state department says that the Uzbek

police routinely use torture.

The Ukrainian president, Viktor Yushchenko, was elected on a platform in
which he pledged to put human rights at the centre of the country’s
political and economic development.

Analysts attribute his victory in the lengthy electoral crisis of November
2004, known as the orange revolution, to his party representing a break from
the corrupt post-Soviet norms, under which such extraditions would be
considered commonplace. His office could not be reached for comment.
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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Ukrainian News Agency, Kyiv, Ukraine, Thursday, February 16, 2006

KYIV – The Appeal Court of Kyiv has postponed the consideration of the

case against the accused murderers of journalist Georgy Gongadze until a
later date. The court’s board of judges took the decision on Thursday.

During today’s hearing, the court has considered two petitions from
representatives of Georgy Gongadze’s mother Lesia and another application
from representatives of widow Myroslava Gongadze.

Particularly, in his petition, the lawyer of Lesia Gongadze Andrii Fedur
asked the court to conduct all the hearings in the open regime, saying that
case materials contain no [?].

Having examined the petition, the court ordered an expert in state secrets
from the Interior Ministry to make a decision in this case, which would
determine whether case materials contain any secret information. The court
postponed the hearing until it receives the decision. The date and time of
the next hearing will be announced later.

After today’s hearing, Fedur said the court is inconsistent in its actions,
since first it decided to hold several meetings behind the closed door, and
only now it decided to determine whether the case contains any secret

The lawyer also mentioned that the court has considered only one of his
petitions, leaving the second one – on providing him the letter from the
state secret expert, which was sent to the court earlier – without
consideration.  “The deeper into the woods you go, the more timber

seems to grow,” he said.

Representative of Myroslava Gongadze Valentyna Telychenko believes this
decision by the court will delay the process. She forecast that the next
hearing might be held already in March.

Telychenko noted that today’s court ruling does not cancel its previous
decision, which says that some court hearings should be held behind the
closed door.

At the same time, lawyer Fedur told journalists that in his opinion,
following today’s decision, journalists will have a chance to attend all the

As Ukrainian News earlier reported, Fedur asked the Kyiv Appeal Court to
provide him with the expert conclusion that materials involving the trial of
the suspects in Gongadze’s murder contain state secrets. The trial of the
men suspected of murdering Gongadze opened on January 9.

The suspects are three former employees of the Interior Affairs Ministry’s
department of external surveillance from detention: Valerii Kostenko, Mykola
Protasov, and Oleksandr Popovych.

An international arrest warrant has been issued for another suspect, Oleksii
Pukach, who is the former head of the Interior Affairs Ministry’s department
of external surveillance.

The Prosecutor-General’s Office recently said that only the first part of
the Gongadze murder case – the one involving the people who murdered
Gongadze – was sent to court. According to the Prosecutor-General’s Office,
the second part involves the people who ordered the murder and those who
organized it.   -30-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

: By Tammy Lynch
The ISCIP Analyst (Formerly The NIS Observed)
An Analytical Review Volume XII, Number 2,
Institute for the Study of Conflict, Ideology & Policy at
Boston University, Boston, MA, Thursday, 16 February 2006

On 16 September 2000, Ukrainian journalist Heorhiy Gongadze disappeared.
Two months later, his decapitated body was discovered in a forest not far
from Kyiv. Just one month after that, Socialist Party leader Oleksandr Moroz
released recordings on which then President Leonid Kuchma reportedly was
heard ordering the journalist’s abduction.

The ensuing attempt by Ukraine’s authorities to deny their involvement in
his death and the lack of any credible investigation of the case provided
Ukraine’s political opposition with an anthem. It sparked the country’s
largest demonstrations since 1991 and pointed Ukraine on a path toward

On 1 March 2005, after years of protests in Gongadze’s name and an orange
revolution that embraced his cause, new President Viktor Yushchenko proudly
announced that “the murder of Gongadze has been solved. . The former regime
protected the assassins.” Now, he said, the country must “find out who
ordered and organized” the killing. (1)

But today, over 5 years after Gongadze’s death, and almost one year after
Yushchenko’s triumphant announcement, the organizers of the crime remain
free, the trial of “the assassins” drags on with numerous postponements, and
his family still waits for justice.

There has been some progress. In August 2005, three former police colonels
were arrested and charged with abducting and killing Gongadze. Another
suspect and the reported leader of the men, General Oleksiy Pukach, fled the

Trail proceedings began against the three colonels on 19 December. At that
time, during a preliminary hearing, a Kyiv court decreed that substantive
arguments would begin on 9 January “in public.” (2)

On 9 January, however, the tenor of events changed. “The journalists of the
Ukrainian mass media who were going to cover the hearing on the murder of
Heorhiy Gongadze . are demanding that a criminal case should be opened
over the situation in which they were prevented from carrying out their
professional duties,” reported Ukrainian television 5 Kanal. “The guards who
accompanied the suspects rudely pushed the journalists out of the courtroom,
and several policemen resorted to rubber batons.” (3)

The trial then was quickly adjourned for two weeks after one of the
defendants complained of “elevated blood pressure.”

Not long after, in response to complaints from the defendants, the court
altered its earlier ruling and said that all trial testimony would be closed
to the public and media. “Providing media with access to court sessions may
produce negative consequences, [and] impede a comprehensive, full and
unbiased investigation of the case,” presiding Judge Iryna Hryhoryeva
announced. (4)

The State Prosecutor’s Office supported the ruling, suddenly suggesting that
certain evidence dealt with state secrets. “There are certain secret
documents and individuals who cannot be questioned in public,” Prosecutor
General Oleksandr Medvedko said. (5)

However, representatives of the family disputed this statement, saying that
they had clearly been informed by the prosecutor when examining the case
file that it did not contain anything categorized as a state secret.

                         WHAT ABOUT THE ORGANIZERS?
The court’s newfound hesitance to allow media access to the trial developed
on what would have been the first day of testimony; before the trial opened,
Gongadze’s widow Myroslava and a representative of his mother Lesya gave
strong statements demanding that not only the direct murderers, but also the
organizers of the crime be put on trial.

They also declared publicly their intention to make full use of a provision
in Ukrainian law that allows family members of victims to request that the
presiding judge call witnesses – witnesses who may or may not be called by
the prosecutor.

“I don’t think this [trial] is enough,” Myroslava Gongadze said, “because
these people had no personal motives for killing Heorhiy. They were carrying
out a criminal order.” While the defendants, she said, must answer for their
crimes, since they did not refuse to carry out their order, “the next step
will be when the organizers of this crime are brought to justice. Their
identities are known and they must be punished,” she said, referring to the
“Gongadze tapes” released by Moroz in 2000. (6)

On these tapes, which have been authenticated by several laboratories around
the world (including the FBI), a voice said to be Kuchma’s repeatedly asks
for an update on “what to do” about Gongadze, and several times urges that
he be kidnapped and “thrown to the Chechens.”

Former Interior Minister Yuriy Kravchenko responds that his “team” will
“do everything you want.” (Not incidentally, Kravchenko was reported by
authorities to have committed suicide by shooting himself twice in the head
the day after Yushchenko’s announcement that the case was solved.) (7)

However, in spite of this evidence, there has been little attempt to
question Kuchma about this crime. Myroslava Gongadze suggests that
perhaps the resolve to bring the organizers to justice does not exist. “It
looks like there is still no political will to hold responsible those who
ordered the killing,” she said. (8)

The European Court of Human Rights, in an 8 November 2005 decision on the
case of Myroslava Gongadze vs. Ukraine, seemed to support this statement.
The decision found that, until December 2004, the authorities had violated
the European Convention of Human Rights by failing to investigate the case
adequately, causing undue suffering and denying effective remedy for the

However, the European Court also took note of the lack of response in 2005
to a detailed Ukrainian parliamentary investigation on the case “which
concluded that the kidnap and murder of Mr Gongadze had been organized by
former President Kuchma and Mr Kravchenko and that the current speaker of
Parliament, Mr V. Lytvyn, and a member of parliament, Mr L. Derkach, were
involved in the crimes.” The report notes that the parliamentary report was
transferred to the Prosecutor General’s Office in September 2005, but no
action was taken by that office.

The conduct of the trial would seem to support these concerns, as
prosecutors appear to use every tool to limit the scope of the inquiry only
to the three men. Since 9 January, no substantive testimony has been given.
At least three times the hearing has been adjourned because of an expressed
“illness” of a defendant, and adjournments have generally lasted at least
one week.

This has led Myroslava Gongadze to suggest that an attempt is perhaps being
made to postpone testimony until after the 26 March parliamentary election
in order to protect those whom she and Lesya Gongadze will call as

“We intend to invite many witnesses who will be able to shed a lot of light
on this case,” she said on 9 January. (9) Later, she emphasized that “a
number of the witnesses are members of election lists.” Therefore, after 26
March, most of these individuals will have either extended or received new
parliamentary immunity. (10)

Clearly, the murder itself and the ensuing five year “cover-up” has touched
a number of major Ukrainian politicians in some way.

Lesya Gongadze has already officially requested that Kuchma, Parliamentary
Speaker Volodymyr Lytvyn (heard on the tape encouraging Kuchma to have
Kravchenko “handle” Gongadze), former Security Service Head Leonid
Derkach, Supreme Court Chief Justice Vasyl Malyarenko and President
Viktor Yushchenko testify. (11)

Although her attorney makes it clear that he in no way believes Yushchenko
is involved in the Gongadze case itself, it is likely that Andriy Fedur
would like to ask Yushchenko about a reported agreement on immunity with
Kuchma regarding this crime.

Judge Iryna Hryhoryeva has so far refused Lesya Gongadze’s requests for
witnesses, but promised to reconsider them later. Myroslava Gongadze,
meanwhile, believes that the judge will have to allow at least some of the
                                       FULL CIRCLE?
On 25 January, two of the three defendants pled guilty to all charges
against them. There is little concern, based on the evidence seen by the
family, that these confessions were forced. Under Ukrainian law, the trial
will continue in order to determine appropriate sentences and to determine
the guilt or innocence of the third defendant (who pled guilty to several
lesser charges).

But although three out of four of the direct killers of Heorhiy Gongadze

now will likely spend the rest of their lives in prison, is this the justice
that Ukrainians have fought for since 2000?

The EU”s Parliamentary Assembly of the Council of Europe (PACE), which
has been one of the most vocal international organizations on the issue
throughout the years, doesn’t think so. PACE’s questioning of the
investigation in October – after its initial welcoming of President
Yushchenko’s rhetoric – must have been a painful point for a government
courting Europe.

“Five years after the disappearance and murder of the journalist Gongadze,”
PACE wrote in its 5 October resolution, “the Assembly is dissatisfied that
after the indictment in March 2005 of the alleged direct perpetrators of the
murder, the investigation of the case has been stalled, in particular as
regards the prosecution of those who ordered and organised this crime.”

The resolution notes prosecutorial action which “is seen as a step towards
excluding from the prosecution the masterminds and organizers.” (12)

If PACE’s representatives hoped that their resolution would alter the course
of the investigation, they are no doubt disappointed, as are many Ukrainians
who stood on Independence Square in November of 2004.

Throughout the Orange Revolution, Ukrainians loudly demanded – “Bandits
to jail” and “Murderers to jail” – and it’s clear they weren’t talking about
three police colonels. But in February of 2006, despite increased press
freedom, and despite greater government transparency, the Gongadze case
is, in many ways, where it was in 2004.

The organizers of the murder are technically unknown, yet the names are
discussed by everyone involved in the case. Those who directly committed
the crime will go to prison, but likely without being made to shed any light
on their actions. The organizers of the crime continue enjoying their lives,
seemingly secure in their freedom.

The president of the country repeatedly speaks of justice, but does little
to ensure that it will occur in this particular case. And the family of
Gongadze is left isolated, wondering why, after five years and a revolution,
they still cannot find justice for Heorhiy. -30-
                                     SOURCE NOTES: :
(1) Agence France Presse, 1713 GMT, 1 Mar 05; via Lexis-Nexis.
(2) Interfax-Ukraine, 1534 GMT, 19 Dec 05; BBC Monitoring, via
(3) TV 5 Kanal, 1300 CET, 9 Jan 06; via ProQuest.
(4) ICTV, 1645 CET, 23 Jan 06; via ProQuest.
(5) UNIAN News Agency, 1201 CET, 31 Jan 06; via ProQuest.
(6) Radio Free Europe / Radio Liberty Ukrainian Service and
Newsroom, 9 Jan 06.
(7) See and search for “Gongadze tapes” to read
transcripts of Kuchma’s conversations.
(8) Agence France Presse, 1348 GMT, 9 Sept 05; via Lexis-Nexis.
(9) Radio Free Europe / Radio Liberty, Op. Cit.
(10) 13 Feb 06
(11) ICTV, 1645 CET, 23 Jan 06; BBC Monitoring, via ProQuest.
(12) PACE Resolution 1466, 28th Sitting, 5 Oct 05.

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
                        Capitalism for All or Capitalism for the Few?
                             New Book By Dr. Oleh Havrylyshyn

By E. Morgan Williams, Publisher and Editor
The Action Ukraine Report (AUR), #662, Article 23
Washington, D.C., Friday, February 17, 2006

BOOK: “Divergent Paths In Post-Communist Transformation
Capitalism for All or Capitalism for the Few?”
By Oleh Havrylyshyn
Palgrave Macmillan, Studies in Economic Transition
United Kingdom, February 2006, 335 pages, 65 lbs.

WASHINGTON – Dr. Oleh Havrylyshyn, a very well-known, active
Ukrainian-American, who has been a researcher, professor, scholar,
lecturer, author, and economic advisor on the Washington, Kyiv, and
international economic development scene for many years, has written
an important new and timely book which will be published before the
end of this month.

Oleh Havrylyshyn’s book, “Divergent Paths In Post-Communist
Transformation, Capitalism for All or Capitalism for the Few?, is being
published by the Palgrave Macmillan company as part of their Studies
in Economic Transition series.

Oleh Havrylyshyn serves as Deputy Director and Special Advisor, Office
of Internal Audit, International Monetary Fund (IMF), in Washington,
D.C. He was previously Deputy Director for the European II Department
responsible for countries of the former Soviet Union, and in 1992 served
as Deputy Minister of Finance in the first government of Ukraine.

According to information provided by the publisher the book contains
the most comprehensive and up-to-date analysis of the successes and
failures of the post-communist transformation of nearly thirty countries.

“Looking at life after the fall of the Berlin Wall in 1989, the book
examines and contrasts why some countries have virtually completed their
transformation as a liberal polity and economy, while other lag behind.

Those that followed a strategy of early and steady reform on economic,
political, institutional and social dimensions have exhibited impressive
results in economic performance, attracting foreign direct investment,
dealing with the social costs of the transformation and establishing a
liberal democracy.

In contrast, some countries have frozen their transition after control was
seized by powerful oligarchic groups who have drained considerable
state assets,” as stated on the cover of the new book.

                                 SUMMARY OF BOOK
“This book reviews the experience of post communist transformation
since 1989 in 27 non-Asian countries. While the focus is on  economic
dimensions, political and social  phenomena are found to be too tightly
intertwined to ignore altogether.

The analysis has three objectives: first to describe what happened, how
much progress there has been towards a market economy, how the transition
may have differed across countries; second to explain why the differences
in evolution and outcome so far; and third to ask what next .

It is argued that one need not tell 27 different stories, though of course
each country has some interesting particularity.  There are five groups of
countries with considerable internal homogeneity, and they can be
rank-ordered by the degree of progress in transition approximately as
follows: Central Europe, Baltics, South-East-Europe, CIS countries with
significant  but still incomplete progress towards a market economy, and
CIS countries with very limited reform of the inherited regime.

This rank-ordering is shown to be  strongly maintained  using various
criteria of performance: recovery of output, financial stabilization,
minimization of social costs of adjustment, institutional development, and
achievement of democratic liberalism.

The differences in outcome are analyzed using a simplified framework of
three key factors: the rapidity or delay in the initial start; the
proclivity to fall prey to rent-seeking  and eventual state-capture by
vested interests, and the impact of  having access to institutional safe
havens such as EU membership.

The logic of the framework is best understood in a simplified vicious
circle case where the greater the delay in reforms the more opportunities
for rent-seeking, build-up of new  capitalist wealth and its concentration
via insider privileges. Some countries may have a greater proclivity to
this because of  prior conditions, limited change in political elites, and
greater opportunities afforded by a large resource sector.

A counter to these tendencies is the discipline of reforms and institutional
change  required by international organization membership such as IMF,
World Bank, WTO, and in practice most importantly the EU. Finally, the
prospects for further successful transformation are best for the countries
which have moved fast enough and far enough to minimize the rent-seeking
effects ; they are not coincidentally much the same  countries which have
become or  are on the way to  becoming  EU members.

For those where vested interests  have become entrenched, there is a
likelihood of transition being frozen   half-way to an open and competitive
market economy,and again not coincidentally democratic liberalization
being slowed or even reversed.”

                     Capitalism for All or Capitalism for the Few?”

“On November 9, 1989 the Berlin Wall fell, marking the end of the communist
experiment and the beginning of the end of the Soviet Empire. This was
widely considered as a momentous historical event, not only because it was
so unexpected, but because it symbolized an end to the Cold War, the freeing
of several hundred million individuals from an authoritarian state which had
kept them closed off from the rest of the world, and a liberation of private
economic initiatives from the constraints of the socialist central-planning

People around the world joined in welcoming citizens of the Socialist bloc,
and euphoria would not be an exaggerated characterization of the latter’s
emotional state. However, the immediate impact was not yet clear, as
liberation from socialism would be implemented at varying speed for
different countries over the next few years. In particular, for the
individual Republics of the Soviet Union, the political independence they
sought was by no means assured in November 1989.

But the direction of change was assumed by all to be greater openness and
freedom, personal, political and economic. The subject of this book is to
review how far such changes have gone in fifteen years, and to explain why
some countries have progressed more, others less.

Citizens elsewhere in the world echoed a sympathetic euphoria. For eighty
million Germans now reunified, it was most immediate and arguably strongest;
other Europeans felt a kinship for their German neighbors, and a human
sympathy sharing the joy of their eastern neighbors who could now rejoin
European society.

Americans whose country was the major protagonist in the Cold War
rejoiced in the victory and in their contribution to freeing the captured
states. Many attributed this to the open and tough stance of President
Reagan symbolized in his remark ‘”Mr. Gorbachev, tear down this wall!'”.

With time, it was understood that other forces were also at play undermining
the Soviet Bloc, and the possibility that had the addressee not been
Gorbachev, the choice might have been to call Reagan’s bluff and not tear
down the wall. At the least, Gorbachev too has earned historical recognition
for his decision. It is also virtually axiomatic that Pope John Paul II
takes place of honor as the first, if not the major, figure leading the
effort to end the communist captivity.
                                    THE OUTCOME
It has now been a decade and a half since the bloodless breaching of the
Berlin Wall, and of course the euphoria has passed. But has it passed
because that is the nature of euphoria, or because the euphoric expectations
of that moment have evolved into disillusionment? No doubt some of both,
though this book takes a positive view that, despite important shortfalls,
overall there has been a lot of economic progress and social improvement.

It is significant and starkly evident in most of Central Europe and the
Baltics, but for others, especially the former republics of the USSR, so far
it is has been limited and even minimal, and has come at considerable cost
to parts of the population. This relatively positive view is not shared by
all observers.

Numerous critics including politicians, citizens of the region, and outside
analysts argue that the outcome of the transition is at best mixed and in
some cases disastrous; that the economic decline following transition has
barely been recovered in a few countries and is far from this elsewhere;
that huge increases in poverty and inequality are not an acceptable cost for
any of the gains of the new capitalist endeavor; that the availability of
goods at unaffordable prices is perhaps worse than the queuing for scarce
but cheap goods; that the virtual theft of state assets by a new class of
‘oligarchs’ and their capture of the polity cannot be considered an
improvement over the socialist period of domination by a communist

I do not propose to give a response to all of the above criticisms, but will
present updated facts and analysis which, while confirming there were
significant economic costs especially in the first half-decade, the outcome
falls well short of the very negative picture depicted by some critics.

After nearly fifteen years, the initial costs have been more than overcome
for the most successful countries in Central Europe, and at a minimum are
on the way to being overcome in most of the others.

Putting the above in the jargon of economists, fifteen years of transition
have yielded many benefits, and produced significant costs, but with a great
divergence of the Benefit-Cost ratio across the region. The judgment of this
book is that for about a dozen countries in Central Europe and the Baltics,
the benefits have been large, the costs relatively small, though not all
citizens were winners, and the losers even in these societies have not
always been properly compensated.

For countries in South-East Europe the balance seems to be moving in the
same direction but it is still early to judge, perhaps because the costly
conflicts in this region are so recent. In the rest, that is the non-Baltic
part of the former USSR, the story is indeed more mixed. A handful of
winners within the society have won hugely – the so-called ‘oligarchs’ –
a large number of losers remain poorly compensated if at all, while the
majority of the population in the middle is by now somewhat better off,
and certainly no worse off, but even they suffered in the early years of the

Another important divergence in the outcomes is the nature of the political
economic system that has emerged. Eight countries in Central Europe and the
Baltics have become EU members as of May 1, 2004, at least three more in
South-East Europe are formally on track for membership in the near future,
and the rest in this group have some hope for future EU membership. All of
these countries have become, or are likely soon to become, reasonably well
functioning middle-income market economies and increasingly liberal

In contrast, the countries of the CIS are highly unlikely to move in that
direction in the foreseeable future, with the possible exceptions of
Georgia, Ukraine, and even Kyrgyz Republic though their revolutions of
color are too recent to assess. For this groups, state capture by economic
oligarchs is the order of the day, bringing in parallel increasingly
autocratic political regimes. EU membership prospects are virtually nil,
again with the possible exception of Ukraine and less so Georgia.

The history of this oligarch phenomenon varied greatly. It was most
important in the CIS group, more moderate and now waning in the middle-
group of South-East Europe, and very short-lived and never fully evolved in
the Central Europe-Baltic group. Many now say that for all practical
purposes transition is over and there’s not much more of interest to analyze
in post-communist transformation. For the new and prospective EU members
anchored to the EU and its economic-democratic liberal standards, there is
indeed very little more transformation to do.

Most of the CIS are locked out of the EU path and are approaching a stable
equilibrium of distorted capitalist economies dominated by a small oligarch
clique, without competitive liberal markets, and polities that are at best
only superficially democratic. Hence their transition may be  ‘temporarily
over’ in the sense of being frozen for now.

But the real story is neither so simple, nor so uninteresting. Certainly,
the future direction for the captured states remains unclear, and this poses
an important, intellectually challenging question. Even if one believes the
transition issues of the nineties are all in the past, either resolved or
rendered irrelevant, a new transition debate has arisen which merits very
close attention: in the oligarch regimes is further transformation indeed
frozen, or is it just temporarily stalled and bound to move forward as the
new capitalists (yesterday’s thieves as many label them fairly or unfairly)
seek legitimation, demand secure property rights under transparent
rule-of-law, and push inevitably forward the final stages of economic and
political liberalization?

Another way forward for them is the possibility of radical regime change
and a renewed democratic opportunity as may be happening with the Rose,
Orange and Tulip revolutions. This debate is surely of enough practical
and academic interest to justify continued analysis of the transition, at
least for the oligarch regimes.

To inform this debate, it is surely important to understand exactly why some
countries went “‘to the West”‘ – to borrow a phrase from Egor Gaidar – with
its dual liberal vision of democracy and free markets, and some went ‘to
the East’ with oligarchic regimes in autocratic states with formal but
largely meaningless elections.[i]

There are many fascinating questions related to this divergence in the
transition explored in detail by this volume; I flag here only three. Was
the coincidence of movement towards the EU and away from state capture
only a coincidence, or were there systemic behavioral forces behind the
different outcomes? If this was systemic and not coincidental, was it
simply historically predetermined by geographic location or were there
other factors at work as well?

And finally, what was the direction of causation: was it that a prior
‘invitation’ to Central European countries for EU membership prevented
the excesses of oligarch dominance and state capture, or the reverse, that
oligarch development and the accompanying non-liberal institutional
development which precluded oligarch-regimes from wanting to be serious
candidates for EU membership?

It seems reasonable to conclude the transition is not fully over for all
countries, and from those where it is we can learn much of how it came to
succeed so quickly in those countries. This understanding not only will
satisfy historical curiosity, but will be critical to analyzing the future
of countries where the transition has not been completed.
                              OBJECTIVES OF THE BOOK
The book has three broad objectives: to describe for different groups of
countries the differences in what happened, to explain why the differences
in outcome, and to assess the probable future directions, that is what next?

The twenty-seven non-Asian transition countries analyzed here cover a wide
range of geographical, historical, and cultural phenomena, hence it is
tempting to look to the numerous country-specific characteristics like years
under communism, distance from Western European influences, or the degree
of internal social harmony as the explanations for each country’s path.

While these and other initial conditions cannot be ignored, such a case
study approach leads to an overwhelmingly complex picture with a different
explanation and story-line for each country. The book proposes instead a
cross-country comparative framework simplified enough to avoid losing sight
of the forest for the trees, but still powerful enough to explain the main
forces which have driven the different outcomes of post-communist
transformation in the region.
There are two common ways for social scientists to analyze and explain
different development across countries: case study or comparative analysis.
Each has its well-known advantages and disadvantages, and I choose
comparative analysis because I believe in this case its advantage – not
losing sight of the forest by coming too close to the trees – is

I show later in the book that the existing literature of post-communist
transformation contains such a vast number of plausible explanations, that
its sum gives too many explanations (in jargon: a hugely over-determined
system) hence one is quickly lost in the thicket of alternative and often
contradictory explanations. Admittedly, the risk of simplification is
oversimplification and reduced applicability; my approach to minimize this
risk is two-fold.

First, I will make country specific references throughout. Second, I propose
three explanatory factors common to all countries, but do so not in a formal
mathematical model (though I do suggest how this might be done), rather as a
framework or paradigm, in which each of these three key determinants may
themselves be explained by other factors taken from the long list of
country-specific factors. As a precursor of this framework, let me limn it
out in a few sentences.

Consider as a mnemonic for the countries in this region after the
termination of the socialist central-plan regime, the figurative paradigm of
a ship setting out on a voyage, the SS Transition sailing towards a new
destination, a democratic market economy.

Though the nature of the final destination is well-known and there are many
illustrations of it, there is no precise navigation chart based on previous
sailings from socialism to capitalism, no consensus of how to get there
avoiding the perils any sailing voyage or large social change encounters.

Numerous country-specific and comparative analyses have been written by
observers of how well this voyage has proceeded, how far along the ship has
come, how much damage it has suffered in the storms of change. While
accepting that for individual countries a large number of country-specific
factors have played a role, I propose a parsimonious framework which, like
any useful paradigm, is not a full explanation but goes a long way to
explain the experience for most of this fleet of twenty-seven.

The three factors are expressed in the form of hypotheses as follows: the
greater the intensity and time spent on debating about the right navigation
chart the worse the final outcome; high proclivity of a country to fall prey
to economic vested-interests results in a pirate raid by rent-seeker, and
capture of the state, again a worse outcome; the accessibility of a
safe-haven to escape the pirate raids or any other threats on the voyage,
such as EU membership, led to better outcomes.”

We sincerely congratulate Dr. Oleh Havrylyshyn on the completion and
publication of his book.  We urge all of our AUR readers, who are
interested in this very important and timely subject, to read the book
and see that it is added to the major academic and other libraries. -30-
                                 BIOGRAPHICAL DATA
Dr. Oleh Havrylyshyn was born in Ukraine, grew up in Brazil and Canada,
and has worked professionally principally in Canada and in the US, but has
traveled extensively to many countries, studying, researching, lecturing and
working as economic advisor with country governments and international
institutions. He speaks fluent Ukrainian, English, and French, and has a
working knowledge of several other languages.

Upon completing a Ph.D. in Economics at MIT, he became a Professor of
Economics at Queen’s University in Kingston, Canada, and later at George
Washington University, Washington, D.C. He has been a visiting professor at
Université Libre de Bruxelles, University of Geneva, the Institute of World
Economy, Kyiv.

He has written widely on international economics and finance, including
several books: “Planning in Tunisia” (1976), “The Direction of Developing
Country Exports” (1985), “Evolution of Trade Policies in Poland” (1990),
“From Soviet dis Union to Eastern Economic Community” (1991), and the
first Ukrainian language textbook on principles of economics, “Fundamentals
of the Theory of Markets” (1992).

Since 1988, he has worked intensively on transition issues both in policy
positions and doing analytical research. He has been a senior staff member
of the International Monetary Fund (IMF) since 1996, most recently Deputy
Director and Special Advisor, Office of Internal Audit.  Previously he was
Deputy Director for the European II Department, responsible for operations
in countries of the former Soviet Union. During the year 2004 he was on
sabbatical leave from the IMF at the University of Toronto.

From 1993 to 1996, he was Alternate Executive Director at the Board of
Directors of the IMF, and in 1991-1992, he served as Deputy Minister of
Finance in the first government of Ukraine. He has also written many studies
in this area, including newspaper articles, conference papers, journal
articles, and books .

They include “Economic Transformation in Eastern and Central Europe-The
Tasks Still Ahead” (The Annual Per Jacobsson Lecture at the October 1995
Meetings of the IMF/World Bank); “Privatization in Transition Countries,”
Post Soviet Affairs, August 2000; “Growth Experience in Transition
Countries,1990-98″, IMF Occasional Paper 184,1999; “Institutions Matter in
Transition but so do Policies”, Comparative Economic Studies, 2003; and
“Dollarization in the Former Soviet Union,” Comparative Economic Studies,

He has also edited with Saleh Nsouli A Decade of Transition, IMF 2001, and
with Ratna Sahay & Rick Haas, Transition Economies: How Much Progress:
IMF Staff Papers Special Issue, 2001. He is a regular participant of the
Dubrovnik Economic Conference, and member of the Editorial Board,
Comparative Economic Studies.
NOTE: Link to the book publisher Palgrave Macmillan:

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