AUR#663 Ukraine Achieves Market-Economy Status From U.S.; NaftoGas Loan Debts Out Of Control? Bankruptcy?; Ukraine Returns Uzbek Refugees, Why?

THE ACTION UKRAINE REPORT – AUR
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World
NAFTOGAS LOAN DEBTS OUT OF CONTROL? BANKRUPTCY?
Non-transparency of NAFTOGAS’s financial activities and
cash flows has long been notorious.

“Attachment of accounts, debt restructuring, bankruptcy? What will the
creditors’ claim be like at the negotiations on debt settlement or
restructuring? It will not be the claim to NAFTOGAS but, rather, to the
state of Ukraine, which holds 100% of NAFTOGAS shares and which
transferred its gas infrastructure to the company’s management.

Will they want part of the gas transportation system (the most treasured
asset from GASPROM’s perspective), full control of the UKRGAS-
ENERGO Joint Venture or Ukrainian underground gas holders? [Article 14]

THE ACTION UKRAINE REPORT – AUR – Number 663
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, TUESDAY, FEBRUARY 21, 2006

——–INDEX OF ARTICLES——–
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

1. UKRAINE ACHIEVES MARKET-ECONOMY STATUS,
U.S. OFFICIAL ANNOUNCES IN KIEV
Deputy Commerce Secretary: U.S. committed to helping Ukraine join WTO
USINFO.STATE.GOV, U.S. Department of State
Washington, D.C., Friday, February 17, 2006

2. USA GRANTS MARKET ECONOMY STATUS TO UKRAINE
USA Gives Economic, Political Support on Eve of Elections
ANALYSIS & COMMENTARY
: By Roman Bryl
IntelliNews – Ukraine This Week, Kyiv, Ukraine, Mon, Feb 20, 2006

3. MARKET ECONOMY STATUS FOR UKRAINE IN ANTIDUMPING
CASES IN THE UNITED STATES AND EUROPEAN UNION
By John Maloney, Attorney and Gary Horlick, Attorney [1]
The Action Ukraine Report (AUR), #663, Article 3
Washington, D.C., Tuesday, February 21, 2006

4. GRADUATION OF UKRAINE TO MARKET ECONOMY STATUS
International Trade Administration (ITA)
United States Department of Commerce
Washington, D.C., Friday, February 17, 2006

5. USA PLEDGES TO RESUME FINANCING FOR PROGRAMME THAT
WOULD HELP UKRAINE DIVERSIFY NUCLEAR FUEL SUPPLIES
NTN, Kiev, Ukraine in Ukrainian 1700 gmt 18 Feb 06
BBC Monitoring Service, UK, in English, Saturday, Feb 18, 2006

6. UNITED STATES PROLONGS PROGRAM FOR QUALIFICATION
OF UKRAINE’S NUCLEAR FUEL
Ukrainian News Agency, Kyiv, Ukraine, Sunday, February 19, 2006

7. U.S. INTERESTED IN A TRANSPARENT UKRAINE-RUSSIA
AGREEMENT ON GAS DELIVERIES
Ukrainian News Agency, Kyiv, Ukraine, Sunday, February 19, 2006

8. UKRAINIAN PRIME MINISTER SAYS HE DOES NOT KNOW WHO
THE SECRET INVESTORS ARE IN ROSUKRENERGO,
COMPANY THAT WILL CONTROL UKRAINE’S GAS IMPORTS
Company’s murky background has sparked widespread criticism
Associated Press (AP), Prague, Czech Republic, Friday, February 17, 2006

9 . TURKMENISTAN’S HIGHER PRICE DEMANDS FOR NATURAL
GAS IMPERIL MOSCOW-KYIV GAS DEAL
Grim reminder Ukraine’s gas woes are far from over
ANALYSIS:
By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, February 17, 2006

10 . UKRAINE ECONOMY: GAS TROUBLE
Economist Intelligence Unit (EIU), NY, NY, Friday, Feb 17, 2006

11. UKRAINE PROBLEMS ON THE HORIZON
Adam Landes, Renaissance Capital (RenCap)
Kyiv, Ukraine, Tuesday, February 14, 2006

12. UKRAINIAN GAS DEBT TO TURKMENISTAN $159 MILLION
Itar-Tass, Moscow, Russia, Sunday, February 19, 2006

13. UKRAINE DENIES GAS DEBTS TO TURKMENISTAN
One Plus One TV, Kiev, in Ukrainian 1730 gmt 20 Feb 06
BBC Monitoring Service, UK, in English, Mon, February 20, 2006

14 . WHO WILL REPAY NAFTOGAS LOAN DEBTS?
Non-transparency of NAFTOGAS’s financial activities and
cash flows has long been notorious
ANALYSIS AND COMMENTARY: Yuriy Skolotiany, Alla Yeremenko
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 6 (585)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 18-24 February 2006

15. AMNESTY INTERNATIONAL STRONGLY CONDEMNS UKRAINE
FOR VIOLATING OBLIGATIONS UNDER INTERNATIONAL LAW
Ten asylum-seekers forcibly returned to Uzbekistan by Ukraine
Amnesty International, New York, NY, Monday, February 20, 2006

16. UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES
(UNHCR) DEPLORES ACTION OF UKRAINE AUTHORITIES,
SEEKS INFORMATION ON DEPORTED UZBEKS
Action was a contravention of Ukraine’s international obligations.
Press Briefing by Ron Redmond, UNHCR Spokesman
United National High Commissioner for Refugees (UNHCR)
Palais des Nations, Geneva, Switzerland, Friday, February 17, 2006

17. UKRAINE: UZBEK ASYLUM SEEKERS SENT BACK, FACE ABUSE,
TORTURE, DEPORTATIONS VIOLATE INTERNATIONAL LAW
Human Rights Watch, New York, NY, Friday, February 17, 2006

18. PBS PANEL ON ARMENIAN GENOCIDE STIRS PROTEST
Broadcaster Defends Inclusion of Deniers of Mass Killing by Turks
By Paul Farhi, Washington Post Staff Writer
The Washington Post, Washington, D.C.
Thursday, February 16, 2006; Page C01

19. MR. BUSH AND GENOCIDE
EDITORIAL: The Washington Post
Washington, D.C., Sunday, February 12, 2006; Page B06

20. MIKHAIL GORBACHEV CONCERNED OVER REANIMATION
OF JOSEPH STALIN’S CULT IN TODAY’S RUSSIA
Mosnews.com, Moscow, Russia, Monday, February 13, 2006

21. RUSSIAN HUMAN RIGHTS ACTIVISTS OPPOSE MONOPOLY IN
RELIGIOUS MATTERS, PARTICULARLY RUSSIAN ORTHODOXY
Interfax-Russia, Moscow, Russia, Wednesday, February 15, 2006
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1
. UKRAINE ACHIEVES MARKET-ECONOMY STATUS,
U.S. OFFICIAL ANNOUNCES IN KIEV
Deputy Commerce Secretary: U.S. committed to helping Ukraine join WTO

USINFO.STATE.GOV, U.S. Department of State
Washington, D.C., Friday, February 17, 2006

WASHINGTON – The United States has granted market-economy status to
Ukraine, U.S. Deputy Commerce Secretary David Sampson announced
February 17 while in Kiev, Ukraine, to discuss bilateral trade and
investment relations.

“This determination reflects the impressive economic developments that have
occurred in Ukraine over the past several years,” Sampson said in a Commerce
Department news release February 17. “Today’s announcement underscores
our commitment to expanding our bilateral economic relationship that will
lead our two countries to peace, prosperity and stronger commercial ties.”

Sampson met with senior Ukrainian government officials February 17 and
said he also planned to meet with Prime Minister Yuriy Yekhanurov. These
meetings were a follow-up to an April 2005 meeting in Washington between
President Bush and Ukraine’s President Viktor Yushchenko, when the two
leaders discussed integrating Ukraine into the world economy and promoting
investment and trade between the two countries.

Ukraine is still transitioning to a world economy. A U.S. official said in
September 2005 that the country is making progress in fighting the high
levels of corruption.

In January, the Office of the U.S. Trade Representative announced that the
United States was reinstating Generalized System of Preferences (GSP)
benefits for Ukraine in recognition of its efforts to improve the
enforcement and protection of intellectual property rights. The GSP
provides preferential duty-free entry to certain products from designated
beneficiary countries and territories and Ukraine’s benefits under the GSP
were suspended in August 2001 for failing to protect intellectual property.

According to the Commerce Department press release, Sampson praised the
government of Ukraine for achieving market-based economy status and said
the United States and Ukraine are committed to expanding a “bilateral
economic relationship that will lead our two countries to peace, prosperity
and stronger commercial ties.” The new status means will now use the
standard market economy methodology in anti-dumping cases.

In his meetings with the Ukrainian officials, Sampson raised a number of
trade issues, including Ukraine’s accession to the World Trade Organization
(WTO) and steps to improve the country’s business climate, strengthen its
protection of intellectual property rights, and expand U.S.-Ukraine
commercial opportunities.

“We are committed to working together to achieve Ukraine’s accession to the
World Trade Organization,” Sampson said. “As a member of WTO, Ukraine
would become partners in an ever-expanding group of nations that favor
democratic and free-market economic values. This would open up potentially
vast opportunities for local businesses, and would attract major industrial
players.”

The Commerce Department said it considered a number of criteria in
determining the market or nonmarket status of the Ukraine economy,
including the extent of currency convertibility, free bargaining for wage
rates, foreign investment, government ownership or control of production,
government control over the allocation of resources and “other appropriate
factors.” -30-
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http://usinfo.state.gov/eur/Archive/2006/Feb/17-398158.html?chanlid=eur
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2. USA GRANTS MARKET ECONOMY STATUS TO UKRAINE
USA Gives Economic, Political Support on Eve of Elections

ANALYSIS & COMMENTARY: By Roman Bryl
IntelliNews – Ukraine This Week, Kyiv, Ukraine, Mon, Feb 20, 2006

KYIV – The United States on Feb 17 officially granted Ukraine the coveted
market economy status. Dr. David A. Sampson, deputy secretary of the U.S.
Department of Commerce that arrived in Kyiv on that day, made the
announcement. This status opened the way to WTO and aims to boost FDI in
Ukraine. According to preliminary estimates, the status will result in a USD
300-400mn increase of FDI in 2006.

The decision was expected to be made on Jan 23. But it was postponed due
to nomination of new deputy secretary of the department of commerce. The
process of getting the status was initiated by Ukraine’s government, large
local metallurgy plans and several legal consultancies.

The Ukrainian association of metallurgical companies (UkrAPchermet) played
a key role in stepping up the talks. It accumulated funds and hired law firms
to arrange legal issues with the US administration.

From the Ukrainian side, Magister&Partners was responsible for the talks. It
was assisted by US colleagues from Wilmer Hale. To inform you, in 2001
Magister&Partners was the first who initiated the procedure of granting
market economy status by the US.

The company compiled evidences proving the domestic economy was
developing according to market principles. But the US side delayed
examining the issue obviously for political reasons. That was only the
second year of journalist Georgiy Gongadze’s murder scandal in which
highly ranking officials, including ex-president Leonid Kuchma, were
allegedly involved. Of course, economic factors also played an important
role, for example intellectual property right protection.

In April Bush administration promises to assist
Ukraine in WTO accession process ———-

In April 2005 USA and Ukraine agreed to accelerate negotiations on
Ukraine’s accession to WTO in 2005. The mutual declaration of presidents
George Bush and Victor Yuschenko signed on Apr 4 included a statement
on US support in the procedures.

But only on Dec 7, 2005 during her visit to Ukraine, Secretary of State
Condoleezza Rice confirmed that Kyiv would be granted the status in the
forthcoming future. Nevertheless she did not indicate the exact date. And
finally on Jan 26, US ambassador in Ukraine John Herbst hinted in a
newspaper interview that the status would be granted in Feb 2006.

The final push to obtain the status Ukraine made in Dec 2005 when a
delegation headed by deputy economy minister Valeriy Pyatnitskiy visited
Washington. Representatives of Ukrainian companies were included in the
delegation. The visitors met with Congressmen, representatives of the
presidential administration and Department of Commerce.

On Feb 16 Condoleezza Rice, speaking in Congress, declared that the US
will continue to support further democratic transformations in Ukraine. The
next day’s visit of David A. Sampson became a kind of evidence of such
support.

Status eases exports to US ———-

The new status gives Ukraine several benefits in bilateral trade relations
with the US and other countries.

FIRST, domestic companies will be treated equally with other foreign
entities on the American market in terms of protecting their rights in
antidumping investigations. The status also decreases the number of
possible investigations in future.

This is because US regulators, starting with Feb 1, 2006, when the status
was officially enacted, in their decision to introduce sanctions will use
market information provided by Ukrainian companies. Earlier the opinion
of local companies did not count.

SECOND, by granting the status the US recognized 5 following things:

[1] UAH is a freely convertible currency;
[2] The structure of ownership is complete in the country and
ownership rights are guaranteed;
[3] The country is open for foreign investments and investors’
rights are protected;
[4] The business environment develops independently and the
state does not interfere in mechanism of price formation;
[5] Relationships between employers and employees are based
on common agreements, and trade unions operate independently.

Chemical, metallurgical plants can benefit most from status ———-

Now that both the EU and the US have granted this status to Ukraine,
countries that still do not recognize Ukraine as having a market economy
would be pressured to do so quicker. To remind you, EU on Dec 21, 2005
officially granted Ukraine the market economy status. The decision stepped
in effect on Dec 30.

According to Foyil Securities, the new status should help Ukrainian
exporters to combat new antidumping suits and demand revision of old ones.
This should benefit local steel and chemical sectors the most, since they
are the biggest Ukrainian exporters to the US.

The conclusion of a bilateral trade treaty with the US, as promised by the
US government, should expedite the cancellation of the Jackson-Vanik
amendment and assist WTO negotiations with countries which have yet to
sign a bilateral trade agreement with Ukraine, most importantly Australia.
Entering the WTO will broadly benefit the Ukrainian economy.

In next two weeks we expect signing agreement on
common access to markets with US ———-

Moreover, Sampson informed that in the next two weeks US would sign a
bilateral agreement on common access to markets with Ukraine that opens the
door to WTO accession. According to EconMin, the agreement guarantees
Ukraine can join WTO until the end of 2006. However, we expect the
long-awaited event to take place in the beginning of 2007, slightly prior to
Russia.

According to information we obtained from sources close to the talks, the
accession is supposed to go parallel with Russia’s. But there are more
complications in the Russian talks, thus Russia is expected to join in early
2007. Ukraine will have to wait a bit, but would still be allowed to become
a WTO member a little earlier than Russia.

The US is one of the five key trade partners of Ukraine. It also ranks 2nd
in terms of FDI in the country. According to state statistics committee,
bilateral trade turnover made up USD 2.23bn, and US direct investments
totaled USD 1.22bn as of Jan 1, 2006. There were 1,323 companies with
American capital that operated in Ukraine in 2005.

Granting status, US backs Yuschenko’s political positions ———-

In the granting of the status, we can find not only economic benefits, but
also some political reasons. First of all, Bush’s administration shows its
support to president Victor Yuschenko, who is the most loyal partner of
the US among the present political elite in the country.

In the run-up to the parliamentary elections, Yuschenko strongly needs
such support from foreign allies. According to latest polls, his party Our
Ukraine stays behind ex-PM Victor Yanukovich’s Regions of Ukraine.

These two parties, IntelliNews supposes, will be the main winners of the
elections. But neither will take enough seats to create independently a
majority in government. The most obvious outcome will be the need for
them to form coalition.

Such coalition will hamper Ukraine’s Euro-integration efforts, because
Regions of Ukraine stands for closer ties with Russia. At least it did
before and during the 2004 presidential elections, which Yanukovich lost in
the end. Recently the party has been a lot more anti-Russian, although this
can also be explained by the approaching elections.

Possibly Ukrainian businesses are becoming more pro-Western ———-

Also importantly, we think the status was received under pressure of
industrial enterprises that for mostly are located in the Eastern part of
the country, where the main supporters of Regions of Ukraine live. It shows
these influential companies are becoming more pro-Western. That can
undermine public support for Yanukovich’s pro-Russian policy. Although
so far the impact is still small, it might signal a pivotal change in Ukraine’s
politics. -30-
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3. MARKET ECONOMY STATUS FOR UKRAINE IN ANTIDUMPING
CASES IN THE UNITED STATES AND EUROPEAN UNION

By John Maloney, Attorney and Gary Horlick, Attorney [1]
The Action Ukraine Report (AUR), #663, Article 3
Washington, D.C., Tuesday, February 21, 2006

The U.S. Department of Commerce on February 16, 2006 decided that
Ukraine will be treated as a “market economy” as of February 1, 2006 for
antidumping cases in the United States. The EU had reached a similar
decision on 21 December 2005.

“Market Economy Status” (MES) means that, in an antidumping case, a
country’s exporters are judged on the basis of their own data for normal
value (typically, either home market prices or production costs), while in
“non-market economy” (NME) cases, the importing country authorities
construct a “hypothetical constructed value” as normal value, using the
factors of production of the exporter but costing those factors in a
“surrogate” market economy.

Interestingly, a recent study by the U.S. Government Accountability Office
of the U.S. Congress concludes that, while NME status leads to much higher
dumping margins for non-investigated exporters than does market economy
status, NME does not necessarily lead to higher margins for those NME
exporters that are individually investigated. That has been the case in our
experience.

In practice, MES has several benefits for the exporting country:

[1] The exporters which are investigated probably do not have to do quite
as much work in order to get dumping margins reflecting their situation
(although it still requires a lot of work);

[2] Non-investigated exporters are much better off, as a rule; and,

[3] Companies are judged by their own data, rather than data from a
different company in a different country — in our experience, company
executives want to be judged by their own data.

[4] In addition, in the U.S. system of retrospective review, market-economy
status makes it much easier for the exporting company to comply with the
U.S. antidumping order because the company does not have to guess what
surrogate Commerce will use, and then also guess what the prices of the
inputs in the surrogate country will be (possibly as much as a year after
the sale under consideration).

The Commerce department decision was based on six factors:

[1] Extent to which the country’s currency is convertible;
[2] Extent to which wage rates in the country are the product
of free bargaining;
[3] Extent to which joint ventures and foreign direct investment
are permitted;
[4] Extent of government ownership or control of the means
of production;
[5] Extent of government control over the allocation of
resources and price and output decisions of enterprises; and,
[6] Other appropriate factors.

Notably, the U.S. statute does not require perfection — very few market
economies have completely reached all of those goals (for example, even
the United States discourages foreign direct investment when it feels like it,
often in contested takeover fights involving a U.S. and a foreign bidder).

In both practical and legal terms, the “bar” is “set” by prior Commerce
decisions. Thus, Commerce could not have said very easily that Ukraine
had not met the necessary standard when Russia and Kazakhstan already
had.

Interestingly, the European Union (EU) uses slightly different factors:

[1] Low degree of government influence over the allocation of resources
and decisions of enterprises, whether directly or indirectly (e.g. public
bodies), for example through the use of State-fixed prices, or
discrimination in the tax, trade or currency regimes;

[2] Absence of State-induced distortions in the operation of enterprises
linked to privatisation (i.e. “carry over” from the old system). Absence
of use of non-market trading or compensation systems (such as barter
trade);

[3] Existence and implementation of a transparent and non-discriminatory
company law which ensures adequate corporate governance (application
of international accounting standards, protection of shareholders, public
availability of accurate company information;

[4] Existence and implementation of a coherent, effective and transparent
set of laws which ensure the respect of property rights and the operation
of a functioning bankruptcy regime; and,

[5] Existence of a genuine financial sector which operates independently
from the State and which in law and practice is subject to sufficient
guarantee provisions and adequate supervision.

Inevitably, there will be speculation about the role of politics in these
decisions. For example, the EU announced that it intended to grant MES to
Ukraine on December 1, 2005, on the occasion of an EU-Ukraine summit in
Kiev.

To some extent, though, the political changes welcomed by the U.S. and
EU (such as the “Orange Revolution” in Ukraine) also bring about policy
changes relevant to the stated MES criteria, such as Ukraine’s abolition of
a 50% currency retention rule in April 2005, which makes it easier for
Commerce (and outside observers such as the EBRD) to recognize that
Ukraine’s currency is convertible.

The market economy “issue” is a non-issue with respect to WTO language.
The AD Note to Article VI of GATT 1994 states that “in the case of imports
from a country which has a complete or substantially complete monopoly of
its trade and where all domestic prices are fixed by the State . comparison
with domestic prices in such a country may not always be appropriate.”

There are very few, if any, countries left where the government controls
“all” prices, thus any WTO Member is entitled to normal MES treatment
under the WTO Antidumping Agreement, unless it has agreed otherwise.
————————————————————————————————
[1] WilmerHale, Washington, DC. The authors were counsel to the Ukraine
Association of Ferrous Metallurgy Enterprises in the U.S. proceeding leading
to the Department of Commerce decision. The opinions expressed here are
not necessarily those of the firm or its clients. (http://www.WilmerHale.com )
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4. GRADUATION OF UKRAINE TO MARKET ECONOMY STATUS

International Trade Administration (ITA)
United States Department of Commerce
Washington, D.C., Friday, February 17, 2006

FACT SHEET
On February 17, the Department of Commerce’s Import Administration
announced its determination in the inquiry into the status of Ukraine as a
non-market economy (NME) country under the U.S. antidumping and
countervailing duty law.

The Department found that Ukraine is operating as a market-economy
country and that this finding will apply to all future administrative
proceedings covering periods of investigation or review that fall after the
effective date of this decision, February 1, 2006.

Background: U.S. law affords foreign parties the opportunity to petition for
a change in a non-market economy country’s status to a market economy
country for purposes of the trade remedy laws. In response to such a
request, Import Administration is obligated to conduct a legal proceeding to
evaluate the request.

In April 2005, the government of Ukraine requested a review of Ukraine’s
status under the trade remedy laws.

On April 20, 2005, the U.S. Department of Commerce initiated a review as
provided for under U.S. law.

During the course of the last nine months, the Department has, pursuant to
the statutory criteria noted below, conducted a review Ukraine’s non-market
economy status. That review offered interested parties the opportunity to
participate and provide their views with respect to the application of the
statutory criteria to the Ukrainian economy. The review involved the
following procedural steps:

On April 26, 2005, the Department published a Federal Register notice
inviting public comments on the Ukrainian request for a change in Ukraine’s
status under the trade remedy laws.

The Department established a deadline for the first round of comments of
July 11, 2005. The Department made those comments a part of the public
record of the proceeding and offered interested parties an opportunity to
provide rebuttal comments, which were due August 31, 2005.

To allow interested parties a final opportunity to comment on the status of
economic and institutional reforms in Ukraine, the Department extended the
deadline for completion of the proceeding until February 16, 2006. Final
comments were due on February 1, 2006.

In the course of its review, the Department obtained information from a
number of other sources including the European Bank for Reconstruction and
Development, the International Monetary Fund, and the World Bank. The
Department also received extensive comments from all interested parties,
including U.S. industries supporting and opposing any change in Ukraine’s
status under the trade remedy laws, as well as from representatives of
Ukrainian industry and the Ukrainian government.

Statutory Criteria: The U.S. trade remedy laws provide a process by which
the government of a non-market economy country, or a foreign exporter in
that non-market economy with the support of its government, can petition the
Commerce Department for a change in its status.

By law, the Commerce Department must consider six criteria in determining
whether to change Ukraine’s status to that of a market economy. Those
criteria are –

currency convertibility
free bargaining for wages
foreign investment
government ownership or control of production
government control over the allocation of resources
other appropriate factors

In arriving at its decision regarding Ukraine, the Department based its
determination on extensive information and data developed from publicly
available sources such as the European Bank for Reconstruction and
Development, the International Monetary Fund, and the World Bank.

Although the Department identified some areas of the Ukrainian economy
where specific problems remain, particularly the difficulty of its business
environment, it concluded that Ukraine clearly has met the statutory
requirements overall.

With respect to the last factor, commentors raised a variety of issues for
the Department to consider, particularly corruption. The Department found
that these issues did not alter the fact that the Ukrainian economy is
generally operating under market principles.

The Department has addressed the six criteria at length in its Decision
Memorandum, which may be found on Import Administration’s website:
http://www.ia.ita.doc.gov. -30-
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LINK: http://www.ita.doc.gov/media/FactSheet/0206/ukraine_021706.html
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5. USA PLEDGES TO RESUME FINANCING FOR PROGRAMME THAT
WOULD HELP UKRAINE DIVERSIFY NUCLEAR FUEL SUPPLIES

NTN, Kiev, Ukraine in Ukrainian 1700 gmt 18 Feb 06
BBC Monitoring Service, UK, in English, Saturday, Feb 18, 2006

KYIV – [Presenter] The USA is singing Ukraine’s praises. We are sure that
you deserved this, US Commerce Deputy Secretary David Sampson told
Ukrainian Prime Minister Yuriy Yekhanurov today. Sampson is visiting Kiev.
He was talking about market economy status, which the USA granted us
yesterday.

If Ukraine behaves, it has been promised assistance in joining NATO and the
WTO and resuming a nuclear fuel qualification programme. One thing that the
USA is categorically opposed to is Ukraine’s intention to create a full
nuclear production cycle.

[Correspondent] At the beginning of the meeting with the US government
delegation, Yuriy Yekhanurov said that the granting of market economy status
to Ukraine is no longer news, and it is necessary to move on to other things
in relations.

US Commerce Deputy Secretary David Sampson said that the USA supports
Ukraine in reforming its economy, carrying out democratic reforms and
getting closer to the North Atlantic alliance.

As good news, the US official announced that the USA would resume
financing for a programme of qualification of nuclear fuel in Ukraine. The
programme would contribute to Ukraine’s greater energy diversification.
However, the USA will not back the creation of a complete cycle of nuclear
fuel in this country.

[John Herbst, US ambassador to Ukraine, in English, followed by Ukrainian
translation, transcribed from English] The short answer is we don’t think
that’s the way to go. We think that this project is a good standalone
project to help with development of nuclear energy in Ukraine. But there
are already enough countries in the world that have the capability that you
referred to.

[Correspondent] The USA would also like to see more transparency in
Ukrainian-Russian gas accords. The overseas official said that US
companies would be able to help Ukraine satisfy its energy needs.

[Sampson, in English, overlaid with Ukrainian translation] We believe that
American companies probably have the best qualifications in the energy
sector, and there are a lot of American companies that would be interested
in working in Ukraine to expand and diversify Ukraine’s energy sources.

[Correspondent] However, the US deputy secretary failed to specify how
exactly those companies were going to do this. Instead, he noted that the
Bush administration is working closely with Congress to abolish the
Jackson-Vanik amendment regarding Ukraine. [Cold War-time legislation
imposing trade curbs on the USSR].

As regards the signing of a Ukrainian-US protocol on WTO entry, a few
issues are still outstanding. I quote – we hope that we will make swift
progress on them in a matter of weeks rather than months. Ukraine did not
name any clear time frames either.

[Ukrainian Economics Minister Arseniy Yatsenyuk] Today we should talk
not about any time frames for entry, but about conditions for entry. The time
frame is the sooner the better. -30-
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6. UNITED STATES PROLONGS PROGRAM FOR QUALIFICATION
OF UKRAINE’S NUCLEAR FUEL

Ukrainian News Agency, Kyiv, Ukraine, Sunday, February 19, 2006

KYIV – The US government has passed the decision on prolonging a
program for qualification of Ukraine’s nuclear fuel. David Sampson, US
assistant secretary of commerce for economic development, said this in
the course of his meeting with Ukraine’s Acting Prime Minister Yurii
Yekhanurov.

Our government passed the decision on prolongation of the program for
qualification of Ukraine’s nuclear fuel, Sampson said.

He added that this decision had been passed in response to Yekhanurov’s
statement he had passed over to US Energy Secretary Samuel Bodman on
November 2, 2005. Yekhanurov described this report as a great [rest of
sentence missing].

Sampson also noted that the US resolutely supports all actions by Ukraine
aimed at reforming its economy, raising its free market status as well as
bringing Ukraine closer to the Euro-Atlantic Alliance.

He also added that the US is very much pleased with the development of
bilateral relations with Ukraine in 2005, and welcomes Ukraine’s effort to
strengthen the protection of intellectual property rights. We wish to
further develop close cooperation with you in order to boost bilateral trade
and US investments in Ukraine, he said.

The program of qualification of nuclear fuel was working in Ukraine at the
cost of the US government’s grants from 1996 to 2003, following which it
was suspended by the US party that decided this program must be carried
out as a business project.

As Ukrainian News reported, Yekhanurov visited the US in November 2005
to meet with Secretary of State Condoleezza Rice, Vice President Richard
Cheney, Secretary of Energy Samuel Bodman, and Trade Representative
Rob Portman.

The project for qualification of nuclear fuel makes it possible to bring the
Sumy fuel to Ukraine’s standards after which it will be possible to use it
at Ukraine’s nuclear power plants.

The Fuel and Energy Ministry announced in early October 2005 that
Westinghouse Electric Company might become an alternative supplier of
nuclear fuel to Ukrainian NPPs along with Russia in two or three years.
Russia’s TVEL corporation monopolizes the delivery of nuclear fuel to the
four nuclear power stations in Ukraine. -30-

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[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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7. U.S. INTERESTED IN A TRANSPARENT UKRAINE-RUSSIA
AGREEMENT ON GAS DELIVERIES

Ukrainian News Agency, Kyiv, Ukraine, Sunday, February 19, 2006

KYIV – The United States is interested in a transparent agreement between
Ukraine and Russia on gas deliveries. David Sampson, US Assistant
Secretary for Commerce, said this to journalists, commenting on his
meeting with Ukraine’s Acting Prime Minister Yurii Yekhanurov.

We are very much interested to see a very clear and transparent agreement,
and we once again confirmed this during the meeting with the prime
minister, Sampson said.

He also noted that US companies have the best qualification and expert
examination level in the energy sector. Sampson also pointed out the
interest of US companies in the work in Ukraine, which will make it
possible to extend and diversify Ukrainian energy sources.

As Ukrainian News reported earlier, the Naftohaz Ukrainy national
joint-stock company and the RosUkrEnergo company jointly created the
UkrhazEnergo closed joint-stock company on February 2 for delivering
natural gas to Ukraine.

The Cabinet of Ministers expressed consent for replacing the Russian
mediator, the RosUkrEnergo company, in carrying out agreements on the
delivery of natural gas to Ukraine if it does not meet the interests of the
Russian side. -30-
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8 . UKRAINIAN PRIME MINISTER SAYS HE DOES NOT KNOW WHO
THE SECRET INVESTORS ARE IN ROSUKRENERGO,
COMPANY THAT WILL CONTROL UKRAINE’S GAS IMPORTS
Company’s murky background has sparked widespread criticism

Associated Press (AP), Prague, Czech Republic, Friday, February 17, 2006

PRAGUE – Ukrainian Prime Minister Yuriy Yekhanurov said Friday he had
no information about a group of secret investors who own a 50% stake in a
company that will control Ukraine’s gas imports under a new deal with
Russia.

The company, RosUkrEnergo, is registered in Switzerland. It is owned 50-50
by Russia’s OAO Gazprom (GSPBEX.RS) and a group of unidentified investors.

It won exclusive rights to import a mix of Russian and Central Asian gas to
Ukraine as part of a hard-fought gas deal between Kiev and Moscow last month
aimed at settling a bitter pricing dispute.

“I don’t know who’s the owner of the other 50% in RosUkrEnergo,” Yekhanurov
told reporters after meeting his Czech counterpart Jiri Paroubek. He said he
had already asked the company several times to disclose information about
its owners.

The company’s murky background has sparked widespread criticism in Ukraine
and abroad. The criticism led to last month’s parliamentary vote sacking
President Viktor Yushchenko’s government, which the president has ignored.

The Moscow-Kiev gas deal was made after Russia demanded that Ukraine pay
higher prices and temporarily cut off the taps when Kiev refused. Ukraine
eventually signed a deal that stipulated a nearly twofold increase in gas
prices, and gave a key role to RosUkrEnergo, making it Ukraine’s sole
supplier of gas imports.

Yekhanurov defended the deal Friday, citing his government’s responsibility.
“Today, the situation is that we could give in and refuse to take the gas
from RosUkrEnergo, but we’d have to have another option,” he said.

Both premiers discussed economic cooperation between the two countries.
Paroubek said the Czech Republic was interested in developing Ukraine’s
energy production and nuclear power stations.

Yekhanurov said Ukraine would like to increase electricity exports from the
western part of the country and invited Czech companies to invest there. The
two countries also signed treaties about cooperation in weapons and tourists
industries.

Paroubek also said the Czech Republic supports Ukraine’s aspirations to join
the European Union and North Atlantic Treaty Organization.

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9. TURKMENISTAN’S HIGHER PRICE DEMANDS FOR NATURAL
GAS IMPERIL MOSCOW-KYIV GAS DEAL
Grim reminder Ukraine’s gas woes are far from over

ANALYSIS: By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, February 17, 2006

PRAGUE – Russian Industry and Energy Minister Viktor Khristenko was in
the Vietnamese capital Hanoi this week when he commented on a decision
by the Turkmen leadership to raise the price of natural gas. But his words
may have had the greatest impact all the way back in Kyiv, where they came
as a grim reminder Ukraine’s gas woes are far from over.

To backtrack — Turkmenistan President Saparmurat Niyazov, otherwise
known as Turkmenbashi, declared on 11 February that he intended to raise
the price of natural gas from $65 to $100 per 1,000 cubic meters this
autumn.

On 16 February, Khristenko said that decision meant a necessary adjustment
in the prices Kyiv will pay for its gas supplies under the terms of the deal
struck in January by Russia and Ukraine, ending a pricing dispute that saw
temporary shutoffs in supplies of Russian gas not only to Ukraine but to a
livid Western Europe as well.

‘EVERYTHING IS CHANGING’
Under the deal, Ukraine this year is to receive 34 billion cubic meters for
$95 per 1,000 cubic meters from an intermediary, RosUkrEnergo, which in
turn will purchase gas from Russia’s Gazprom as well as from Turkmenistan,
which accounts for nearly one-half of Ukraine’s deliveries from Russia.

But “everything is changing,” Interfax cited Khristenko as saying. “And even
the fixed-price formula for RosUkrEnergo may fluctuate depending on the
situation on the market.”

“Niyazov’s position is predictable,” Khristenko said. If Turkmenistan raises
the gas price, he continued, the gas price formula for Ukraine will
necessarily change as well.

The developments prompted a Ukrainian delegation comprising Fuel and
Energy Minister Ivan Plachkov and Naftohaz Ukrayiny head Oleksandr
Ivchenko — who negotiated the January accord with Russia’s Gazprom and
RusUkrEnergo — to travel on 17 February to Turkmenistan in hopes of
clarifying the situation.

A QUESTIONABLE DELIVERY CHAIN
From Kyiv’s point of view, the gas deal left a lot to be desired. The terms
are set for only the first six months of 2006, and questions about
RosUkrEnergo and its shadowy role as middleman in the gas delivery
chain have lent even greater uncertainty to the fate of the highly
criticized accord.

Speaking in Madrid on 7 February, Russian President Vladimir Putin
insisted that Ukraine, not Russia, insisted on keeping RosUkrEnergo in the
deal. But subsequent statements by officials in Ukraine appear to indicate
the opposite.

John Herbst, the U.S. ambassador to Ukraine, on 16 February criticized
the inclusion of the middleman company.

“RosUkrEnergo is a suspicious organization, and it is difficult to
understand why it plays such a significant role in such an important
agreement,” Herbst said, according to UkrInform. Herbst’s statement was
the latest in a series of critical remarks made by U.S. officials about the
company in recent weeks.

NO INFORMATION
His remarks echoed those of Ukrainian President Viktor Yushchenko, who
said in a 14 February statement that he shared the concern of the European
Union and other international organizations regarding the “scarcity of
information” about RosUkrEnergo and its partial owner, Raffeisen
Investments.

Interfax the same day cited the president as indicating that all attempts by
Ukraine to receive necessary information about RosUkrEnergo had been
“fruitless.”

Appearing 16 February on Ukraine’s Channel 5 television, Ukrainian Prime
Minister Yuriy Yekhanurov said Kyiv is ready to bypass RosUkrEnergo
and sign gas contracts directly with Gazprom, but added it cannot do so
without Moscow’s consent.

RUSSIA THINKS THE MIDDLEMAN ROSUKRENERGO
IS ‘SUFFICIENTLY TRANSPARENT’ ‘
Yekhanurov added that he has sent a letter to Russian Prime Minister Mikhail
Fradkov informing him of this. But Khristenko, in his remarks in Vietnam,
described RosUkrEnergo as a “sufficiently transparent” company and said
there was no need to drop it from the existing deal,” Interfax reported.

“The situation has been regulated,” Khristenko said. “The agreements that
have been reached were based on the stipulation that RosUkrEnergo would
be the trader working with the primary supplies of Central Asian gas, and a
structure that could position itself on both the Ukrainian and Western
markets.”

“The structure,” he added, “is sufficiently transparent.” -30-
————————————————————————————————-
NOTE: 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. ( KupchinskyR@rferl.org)
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http://www.rferl.org/featuresarticle/2006/2/22994490-2320-41CC-9704-45D99447FE86.html
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[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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10. UKRAINE ECONOMY: GAS TROUBLE

Economist Intelligence Unit (EIU), NY, NY, Friday, Feb 17, 2006

Ukraine’s finance minister, reportedly unhappy over the terms of the gas
deal with Russia signed at the start of the year, has left the government. In
the weeks since the deal was signed, Ukrainian dissatisfaction with the
terms has grown considerably.

As a result, there is a growing likelihood that after the March
parliamentary election there will be an effort to revise it with potentially
serious implications for Russian gas monopoly Gazprom, Ukraine, and
Gazproms European customers.

According to a report by news agency Ukraiynski Novyny, Ukrainian
Finance Minister Viktor Pinzenyk resigned on February 16th in protest at
the January 4th gas agreement signed with Russia. This was refuted by the
presidential administration, which said that Mr Pinzenyk had temporarily
left the government in order to campaign ahead of the March 26th
parliamentary election.

Mr Pinzenyks press service was unavailable for comment, although a
statement from the finance ministry said he was taking a short leave of
absence (for the election). There is speculation that Mr Pinzenyk had
offered his resignation but that the president, Viktor Yushchenko, refused
to accept it.

By stepping down, Mr Pinzenyk has more scope to criticise the
government for failing to live up to the ideals of the Orange Revolution.

THE DEAL RECONSIDERED
At the time, the January 4th agreement appeared to be a reasonable
compromise. Russia had cut supplies at the start of the year in order to
force a change in the existing barter regime, whereby Ukraine took
approximately 15% of the 145bn cubic metres of gas sent to central and
Western Europe via its pipeline network. The notional prices within this
trade US$50 per 1,000 cu metres for gas and US$1.09 per 1,000 cu metres
per 100 km for transit.

The January deal provided for the monetisation of the gas trade. The transit
fee was set at US$1.60 per 1,000 cu metres per 100 km for five years, while
the price of Russian (Gazprom) gas was set at US$230 per 1,000 cu metres.

Yet the average import price promised to Ukraine was a much more
reasonable US$95 per 1,000 cu metres, on the basis that all its gas would be
supplied by intermediary RosUkrEnergo, which would source most of
Ukraine’s gas from central Asia at a price of around US$60 per 1,000 cu
metres.

As more details of the deal have come to light, it has become clear that the
deal is far more favourable to Gazprom and Russia than it is to Ukraine.

Although the deal brought Gazprom no closer to its strategic goal of gaining
control or part-ownership of Ukraine’s export pipelines which are vital for
the export trade which finances the rest of the gas monopolies business it
nevertheless broke the formal link between gas supplies to Ukraine and
transit fees.

The US$1.60 transit fee set for five years is very reasonable compared with
the rates that apply in eastern Europe and the CIS, not to mention to the
EU.

Furthermore, Gazprom has largely extricated itself from the Ukrainian
market, which is much less lucrative than the markets further west and it
no longer has any obligation to supply Ukraine that responsibility now
rests with RosUkrEnergo. Moreover, any gas that Gazprom sells to
RosUkrEnergo for Ukraine will be highly profitable.

UNCERTAINTY AND OPACITY
For Ukraine, the deal now appears a poor one. The country has agreed to
a relatively modest hike in the gas transit fee that does little to offset
the sharply higher import bill. Moreover, the US$95 per 1,000 cu metres
price for gas is only guaranteed for the first half of 2006.

Thereafter it could rise substantially and is likely to do so, since the
Turkmen government has understandably responded to the sharp rise in
Russian gas prices to Ukraine by demanding that it too receive more for its
gas; US$100 per 1,000 cu metres is the price most often mentioned, and
this does not include any transit fee that Gazprom may apply.

It is conceivable, moreover, that Gazprom could restrict volumes of Turkmen
gas going to Ukraine via its pipelines citing capacity constraints and thereby
force RosUkrEnergo to buy more Russian gas priced at US$230 per 1,000 cu
metres.

In this case, it seems implausible that RosUkrEnergo which is 50% owned by
Gazprom subsidiary Gazprombank, and 50% owned by unnamed individuals
represented by Raifeissen Bankwould consent to subsidise gas prices for
Ukraine. As a result, it is highly probable that the price of gas imports to
Ukraine (are needed to meet 75% of domestic consumption) will rise even
higher.

For this reason, Mr Pinzenyk warned on February 14th that Ukraine was in
danger of failing to meet its budgetary targets; he estimated that an
increase in gas import prices after June would cost the budget at least
US$600m.

Ukrainian dissatisfaction with the deal is not solely focused on price. The
role of RosUkrEnergo has also attracted considerable criticism. Until the
price of Turkmen gas rises, RosUkrEnergo will be making a profit of at
least several hundred million dollars on the gas trade.

If the intermediary was a joint venture between Gazprom and Ukraine’s gas
utility, Naftohaz Ukrainy, half of that profit would flow into the Ukrainian
company.

Instead, it will flow into the bank accounts of RosUkrEnergos unnamed
beneficiaries, some of whom according to speculation are close to senior
Naftohaz managers. After insisting for weeks that the January 4th deal was
good and transparent, Mr Yushchenko has recently been forced to admit
its failings.

Government efforts to reveal the identities of the non-Gazprombank
beneficiaries of RosUkrEnergo have failed. So too, thus far, have the
authorities call for RosUkrEnergo to be sidelined in favour of a new
Gazprom-Naftohaz Ukrainy venture that would fulfil the same role.

With the benefit of hindsight, it thus appears that the January 4th
agreement offered some significant gains for Gazprom without equivalent
advantages for Ukraine. Indeed, it seems odd that Ukrainian negotiators, if
they focused beyond a six-month horizon, could have agreed to the deal.

The most generous conclusion to be drawn from their performance is that
they did not expect the January agreement to last beyond the March
parliamentary election.

NOT NEARLY SETTLED
Further Russian-Ukrainian gas agreements have reportedly been signed since
January 4th; the details of these have not been released. However, it seems
improbable that they could change the fundamental problems namely the role
of RosUkrEnergo and the prospect that Ukrainian prices will rise
significantly after June.

If RosUkrEnergo had been sidelined, there would be no reason to keep that a
secret; and if its anonymous owners had been replaced by Naftohaz Ukrainy,
the Ukrainian government would be desperate to publicise the fact and so
dispel notions that it has tolerated, or is in some way complicit in,
corruption.

Likewise, it is not clear how subsequent deals could give Ukraine a
multi-year price guarantee there is little reason for Turkmenistan to
guarantee five years of low-priced gas, nor for Gazprom. And without a
price guarantee from suppliers, RosUkrEnergo cannot profitably supply
gas to Ukraine at an average price of US$95 per 1,000 cu metres and why
should its owners be prepared to make a loss on the deal?

For these reasons, there is a growing likelihood that Ukraine will seek to
renegotiate the terms of the gas deal after the parliamentary election. Such
a negotiation is unlikely to be easy although it could, conceivably, be
smoothed by the emergence of a more pro-Russian government in Ukraine.

The initial indications from Russias government are that Moscow is not
prepared to sideline RosUkrEnergo; rather, it prefers to see Gazprom replace
Gazprombank as the Russian representative and has suggested that Naftohaz
should buy out the Ukrainian shareholders to become Gazproms partner.

Yet it is not clear that the investors represented by Raifeissen are
prepared to sell; even if they were, the political and financial price may
be too high for the Ukrainian government to accept.

Moreover, to improve Ukraines prospects with regard to gas prices would
involve Gazprom giving up some of its gains from the January 4th agreement
and would require Turkmenistan to forgo future price rises. Here too the
prospects seem grim. It is quite conceivable that, in the search for greater
leverage, Ukraine would try to reopen the question of transit fees.

This would be badly received by Gazprom, as the transit fee element is
arguably Gazproms greatest achievement in the January 4th agreement, and
thus it would set the stage for a renewed stand-off that could threaten
supplies to Western Europe. The one consolation is that this would not
happen during the coldest winter seen across Europe in decades.

The longer-term difficulty for Ukraine arising from this situation is that
the economy remains hooked on under-priced gas and the country is
dependent on Russia to provide it. Although Ukraine is unlikely ever to be
able to do without Russian gas supplies, the relationship would be
fundamentally different if the gas trade was fully transparent and conducted
on a cash basis at a market price.

The fact that Ukraine remains dependent on cheap gas that Russia supplies
or controls gives Russia leverage over Ukraine, and the terms of the current
trade are an invitation to corruption. While this remains the case, the
stability in the Ukrainian-Russian relationship that Gazproms EU customers
yearn to see is likely to remain beyond reach. -30-
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11. UKRAINE PROBLEMS ON THE HORIZON

Adam Landes, Renaissance Capital (RenCap)
Kyiv, Ukraine, Tuesday, February 14, 2006

While Ukraine yesterday offered European Union and Russian investors the
opportunity to build new transit capacity through the country, basically a
revamped version of the moribund international consortium that had been
discussed some three years ago, we think that Ukraine’s fraught relationship
with Russia over gas issues looks headed for more trouble later this year.

We see three reasons for this.

[1] First, in recent weeks, Ukraine has already helped itself to gas that was
bound further westward.

[2] Second, Turkmenistan, which is Ukraine’s genuine principal supplier,
albeit via Gazprom, warned yesterday that it would seek to hike prices from
the USD65/mcm it receives currently (from RosUkrEnergo) towards
USD100/mcm later this year, an input cost that is sure to drive Ukraine’s
average import cost well above the USD95/mcm agreed to for the first
six months of this year.

[2] Third, Ukraine continues to have its head buried in the sand over this
issue, with its Cabinet recently proposing to cap gas prices for industrial
consumers and municipal heating plants at USD110/mcm through the end
of 2010.

Although Ukraine’s position is likely explained by the forthcoming
parliamentary elections, Ukraine’s energy policy continues to miss the
point, we believe.

Ukraine should be raising prices in order to curtail demand. It should also
reduce taxation and boost producer netbacks so as to increase domestic
supply, with the latter a significant opportunity, in our opinion. Both
measures would be much more effective, albeit, both have front-end
political costs and are therefore unpalatable in the short term.
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12. UKRAINIAN GAS DEBT TO TURKMENISTAN $159 MILLION

Itar-Tass, Moscow, Russia, Sunday, February 19, 2006

ASHGABAT, Turkmenistan – The Ukrainian gas debt to Turkmenistan totals
$158.9 million, including $143.3 million for 2005, Turkmen President
Saparmurat Niyazov told Ukrainian President Viktor Yushchenko by phone
on Sunday. He said that Ukraine should pay the debt as soon as possible.

Despite the repeated assurances, Ukraine has not taken measures to settle
the debt, judging by the recent negotiations with Fuel and Energy Minister
Ivan Plachkov and Naftogaz Ukrainy CEO Alexei Ivchenko, Niyazov said.

Yushchenko promised that he would analyze the problem and immediately inform
Niyazov about results. He invited the Turkmen president to pay an official
visit to Ukraine, and the invitation was accepted with gratitude. Diplomats
will coordinate the visit date, the Turkmen president’s press service said.

Earlier in the day the Turkmen Foreign Ministry said that they are perplexed
and surprised by the repeated statements by Naftogaz Ukrainy that they had
allegedly settled all debts with Turkmenistan.

“Instead of discussing specific questions raised by the Turkmen side at the
Ashgabat negotiations on February 17-18, the Naftogaz Ukrainy delegation
tried to confuse gas settlements. The unconstructive position of Naftogaz
Ukrainy complicates negotiations on the gas cooperation between Turkmenistan
and Ukraine in 2007 and later on,” runs the ministerial press release. -30-
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13. UKRAINE DENIES GAS DEBTS TO TURKMENISTAN

One Plus One TV, Kiev, in Ukrainian 1730 gmt 20 Feb 06
BBC Monitoring Service, UK, in English, Mon, February 20, 2006

Ukraine’s state-run oil and gas company Naftohaz has denied Turkmenistan’s
accusations that it owes 159m dollars in debts for Turkmen gas. Naftohaz
head Oleksiy Ivchenko said that Ukraine could refuse Turkmen gas supplies
altogether if no compromise is reached. The following is an excerpt from a
report by Ukrainian One Plus One TV on 20 February:

[Presenter] Future gas supplies to Ukraine have been called into question
again. This time, it was Turkmenbasy [Turkmen President Saparmyrat Nyyazow]
who accused Naftohaz Ukrayiny [Ukraine’s oil and gas company] of refusing to
pay its gas bills.

Speaking at the latest talks in Asgabat on 18 February, he said Ukraine owed
almost 159m dollars for gas supplied last year. The Ukrainian Fuel and
Energy Ministry says the debt does not actually exist, and that the one that
did exist was much less than the figure mentioned by Nyyazow and has been
cleared.

President Viktor Yushchenko is probably unaware of this, because he promised
Turkmenbasy to clear up everything about the debt. The Turkmen leader has
been dropping broad hints that Naftohaz’s unconstructive position posed a
threat to future cooperation, i.e. gas supplies to Ukraine. [Passage
omitted: Ukrainian officials refused to comment initially]

[Correspondent, reporting live] Literally a few minutes ago, we received
comments from Naftohaz head Oleksiy Ivchenko. He said Ukraine’s debt to
Turkmenistan did not actually exist. Indeed, the debt was mentioned during
our delegation’s visit to Asgabat.

The Turkmen oil and gas minister [Gurbanmyrat Atayew] suggested that the
Ukrainian delegation familiarize itself with documents which supposedly
proved that the debt existed.

But, Ivchenko said, the Ukrainians produced documents showing that there was
no debt and that, on the contrary, 15m dollars too much had been paid for
gas deliveries with both money and goods. In January, Ukraine made an
advance payment of 88m dollars for Turkmen gas supplies under a direct
contract, Ivchenko said. But in reality, not a single cubic metre has been
supplied since 1 January.

Turkmenistan has failed to honour its responsibilities under the direct
contract, Oleksiy Ivchenko said. He also accused Turkmenbasy and
Turkmenistan of displaying the so-called Eastern perfidy. He said he had
felt a certain pressure throughout the talks, when comments about some debts
were leaked to the media, which humiliated Ukraine and damaged its image.

In view of this, Oleksiy Ivchenko believes that if the sides fail to reach a
compromise, Ukraine should refuse Turkmen gas supplies altogether. Here
is what Oleksiy Ivchenko said.

[Ivchenko] In all likelihood, we will refuse to play this game because of a
future price hike. It will not make any difference to us where the gas is
coming from. At the Ukrainian-Russian border, its price is the same 95
dollars [per 1,000 cu.m.].

If we agree to the higher Turkmen gas prices of over 50 dollars – which is
what the contract currently says – it will no longer make any sense to hold
talks with Turkmenistan as a direct gas supplier to Ukraine.

[Correspondent] Ivchenko also said that Naftohaz lawyers were drafting an
accounts statement which would be sent to Turkmenistan so that it sees that
there aren’t any debts. If no compromise is reached, Ivchenko threatens
Turkmenbasy with a lawsuit, which, under Ukraine-Turkmenistan accords,
should be filed with the Stockholm court of arbitration.
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14. WHO WILL REPAY NAFTOGAS LOAN DEBTS?
The non-transparency of NAFTOGAS’s financial activities and
cash flows has long been notorious.

ANALYSIS AND COMMENTARY: By Yuriy Skolotiany, Alla Yeremenko
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 6 (585)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 18-24 February 2006

Of late, loan debts of NJSC NAFTOGAS UKRAINY have been growing
rapidly. Last week the company announced that they had received a USD
220 million loan.

Since Olexiy Ivchenko was appointed NAFTOGAS CEO, the company
borrowed over a billion dollars from foreign lenders. Moreover, as Mr
Ivchenko stated last Monday, the company intends to get a series of new
billion-dollar loans to modernize the Ukrainian gas transportation system.

The Ukrainian public and UKRNAFTOGAS creditors have been told the same
story for over a year now, but no large-scale investment projects have been
launched so far. Each and every loan received last year went “to optimize
debt”, “to cover general corporate costs” and “to increase the company’s
working capital”.

The meaning of those vague definitions evades everyone except the
NAFTOGAS management and, presumably, state trustees who do not
seem in a hurry to scrutinize the company’s financial and operational
performance.

Meanwhile, a speculative version, whereby NAFOGAS debts are being
accumulated deliberately in order to bankrupt it, does not appear totally
absurd, once you give it a second thought.

The key state-owned oil-and-gas monopolist, having surrendered a large
share of the domestic power supplies market to the UKRGAS-ENERGO
Joint Venture, is running a risk of falling prey to being “the receiver in
bankruptcy of Ukraine’s national economy”.
MANY A LITTLE MAKES A MICKLE
On Monday, 13 January, Ukrainian news agencies reported that a Cyprus
bank, DEPFA Investment Bank Limited, a 100% subsidiary of the Irish
DEPFA Bank, gave a USD220 million loan to NJSC NAFTOGAS
UKRAINY for five years.

Whereas UNIAN Information Agency stated that the parties signed a
preliminary loan agreement in December 2005, Interfax-Ukraine Agency
argued the loan was, actually, made in December 2005.

On the surface of it, the new loan received by NAFTOGAS looks fairly
respectable. As reported by the media, it is an unsecured bank loan, which
means that no specific state-owned property was pledged as collateral. The
interest rate does not exceed monthly LIBOR + 1.75% per annum; the principal
debt is to be repaid in one payment, while the interest is to be repaid in
monthly payments; the stated purpose of the loan is to cover general
corporate costs.

Coincidentally, the bank-lender has been cooperating, closely and
fruitfully, with GASPROMBANK and GASPROM of Russia for a few years
now, being a co-initiator of a series of big contracts and a major creditor
to the Russian gas monopolist.

It raises concerns, particularly in light of the recent report by
Interfax-Ukraine that in 2005 Deutsche Bank assigned to DEPFA Investment
Bank ? GASPROMBANK (Russian Federation) the right to service the EUR2
billion-worth multicurrency credit line opened to NJSC NAFTOGAS
UKRAINY.

LUXURIOUS WEDDING
Last year, NAFTOGAS received USD600 million through a credit line opened
by Deutsche Bank. The credit line was opened during President Yushchenko’s
visit to Germany.

On 9 March 2005, Chair of the Board of NJSC NAFTOGAS UKRAINY Olexiy
Ivchenko (who at that time was also Deputy Minister for Fuel and Energy) and
Deutsche Bank Member of the Board Tessen von Heidebreck signed a framework
financial agreement in the presence of the Ukrainian head of state. It was
announced that the credit would be repaid within the next five to seven
years at an interest rate of around 8% per annum.

The imprecise description of the purposes of the credit (“to modernize the
oil-and-gas transportation system, to intensify geological prospecting and
implement other projects”) suggested the Ukrainian leadership had no clear
understanding of how to spend the money.

The President confirmed it, albeit indirectly, by saying: “This joint
project by NAFTOGAS UKRAINY and Deutsche Bank is open for any kind
of innovation. The range of relations with the creditor is unusually wide”.

In an interview with the BBC World Service, Viktor Yushchenko tried to be
more specific: “the fist task that I set to our company is to form a list of
priorities, in various branches of the gas industry, for allocating the loan
money. I think it should take two to three weeks. Then they will get a more
precise task: to get the first installment in June and launch a specific
project amounting, I assume, to 10-15% of the credit line funds. The money
will be spent either to reconstruct wells and gas pipelines or to establish
a recording system for oil and gas. Alternatively, it could be used to
enhance security of gas transit to Europe or to construct a new transit
pipeline in Ukraine”.

Likewise, O. Ivchenko, who had been appointed NAFTOGAS CEO a week
before these events (on 3 March 2005) could hardly have a clear idea of how
to spend the credit money. Commenting on the signed agreement, he suggested
the money could fund the extension of the Odessa-Brody oil pipeline to
Plotsk in Poland, and Ukraine’s participation in gas transportation
consortium with Germany and Russia.

The loan could be instrumental in modernizing oil and gas production in
Ukraine and raising its annual output by two billion cubic meters, on
average.

Mr. Ivchenko seized the opportunity to commend his company for its role in
securing the agreement. He bragged that the company received the loan
directly, rather than against governmental guarantees, and got priority
rights to decide how to use it.

Without false modesty, the NAFTOGAS CEO accounted for the creditors’
exceptional generosity and confidence: “It testifies that such a respected
institution as Deutsche Bank trusts the management of NJSC NAFTOGAS
UKRAINY, regarding it as a company integrated in Europe”.

He placed special emphasis on his personal trustworthiness and contacts: “In
fact, they were waiting for my appointment”. According to Mr. Ivchenko, he
was directly involved in the agreement’s preparation and negotiation, with
which the former NAFTOGAS managers had nothing to do.

With all respect to Mr. Ivchenko, we will disagree with him here. It was the
former management that started preparatory work: the Deutsche Bank plans to
open the EUR2-billion credit line to NAFTOGAS UKRAINY were officially
announced a month before his appointment.

On 10 February 2005, Olexander Kyseliov, member of the Board on NJSC
NAFTOGAS UKRAINY and Director of the Foreign Markets Department,
disclosed those plans at a press conference: “Two days ago we signed a
memorandum”.

Anyway, NAFTOGAS received the first actual installment worth USD300 million
earlier than expected, in late April 2005. On 21 April, the parties entered
into a contract on extending, within the frameworks of the credit line, the
first USD300-million loan for seven years, with interest rate computed as
monthly LIBOR denominated in USD + 5% per annum (that is why the interest
rate is often cited as being around 85 per annum).

We should explain some things about the loan terms to those readers who are
not financial experts: in the simplest terms, LIBOR (the London Interbank
Offered Rate) is an average credit rate as registered on the London
interbank market, at which loans are granted on the European currency
market. The loan agreement in question mentions monthly LIBOR
denominated in USD, i.e. the cost of dollar resources lent for a month.

This rate is revised on a daily basis and depends on the cost of dollar
resources on the world market. Since the loan was extended to NAFTOGAS,
monthly LIBOR has grown by more than 1.5% (from 3.02% per annum as of
21.04.05 to 4.57% per annum as of 15.02.06). In other words, the nominal
interest rate today is not “around 8% per annum” but around 10%. The real
interest rate is even higher, but we will come to that later.

What matters at this stage of our discussion is that even upon receiving the
first loan installment, the NAFTOGAS management did not have in mind any
specific investment projects to be funded from it. “The first installment
will be used to optimize technological processes and modernize oil and gas
industries. Thus we will work towards increasing domestic production of
carbohydrates. This is one project. Another is modernization of the gas
transportation system,” – the company managers declared in March, shortly
before signing the agreement.

However, once the agreement was signed, Mr. Ivchenko claimed the loan will
be channeled to lower the cost of other credit resources available to
NAFTOGAS UKRAINY. According to him, the company planned to use this
money to reduce interest rates on outstanding credits from 13-16% to 8% per
annum.

The company CEO promised to use other installments of the Deutsche Bank loan
to finance projects increasing gas and oil production in Ukraine and abroad,
and for modernizing the country’s gas transportation system. At the same
time, he did not rule out the possibility of using the loan money for other
projects as well. On hearing those mutually contradictory statements, a
thoughtful observer would have doubts about the proper use of the Deutsche
Bank’s loan money.

In August, the parties announced the granting of the second installment of
the Deutsche Bank loan for the same amount of USD300 million. In September,
O.Ivchenko admitted that NAFTOGAS negotiated receiving another credit line
for EUR2.5billion from the French Societe Generale Bank.

Later still, information was leaked about Credit Suisse’s intention to grant
the company a loan totaling EUR3 billion. However, neither of the above
agreements was implemented. What NAFTOGAS did get was a loan of USD200
million from London-based Standard Bank, made known to the public only month
ago, on 10 January 2006.

It is still unclear how the Deutsche Bank loan has been spent, as NAFTOGAS
UKRAINY has not presented any large-scale investment projects. In
mid-January, Serhiy Lukyanchuk, the Head of the NAFTOGAS press service,
declined to comment on the allocation of USD600 million received from
Deutsche Bank, claiming it was a commercial secret. He said part of the loan
money went to increase the company’s working capital and to cover production
costs.
DIVORCE AND CHANGE OF NAME
In late January, some Ukrainian media, acting on a tip from an authoritative
Russian business magazine, reported that Deutsche Bank had closed its
EUR2-billion credit line to NJSC NAFTOGAS UKRAINY, having extended two
installments worth USD600 million. The company CEO, O.Ivchenko, dismissed
this information as false; no official confirmation of the credit line
closure came from the German party.

However, according to our sources in contact with Deutsche Bank, the credit
line has been closed, albeit unofficially. Two reasons have been quoted.

[1] First, NAFTOGAS failed to use the loan money for the designated
purpose of modernizing Ukraine’s gas transportation system.

Purportedly, the funds were used to pay the company’s taxes. Last year, the
company increased its tax allocations to the state budget twofold, as
compared with 2004, which amounted to USD2.2 billion (equivalent to
UAH11.25 billion).

According to our sources close to Deutsche Bank, the German partners were
not happy with the use of loan money to replenish Ukraine’s state budget.

The creditors had expected that these funds would be better used for
purchasing new gas compressors that would allow to burn less technological
gas (the estimated savings being 3 billion cubic meters, half the amount
burned today).

Yet the agreement did not spell out this requirement explicitly, and the
money went elsewhere. Mr.Ivchenko does not sound discouraged, though. He
said, the other day, that the USD3 billion needed for the modernization of
our gas transportation system could be raised through new credits – “banks
are queuing up to offer us loans”.

Modernization will allow gas losses in the transportation system to be
halved, currently reaching 7.8 billion cubic meters per year. Therefore, the
company CEO believes that these new loans could require no collateral, since
prospective creditors should be interested in “projects with such high
liquidity”. He also believes the project could earn up to USD1 billion per
year.

[2] The second reason for the clogging-up of the Deutsche Bank credit line
is that the fuss around the new Russian-Ukrainian gas agreement and newly
created joint venture raised creditors’ doubts about the NAFTOGAS future
solvency, especially given the loss of a large market share by its former
monopolist.

To make matters worse, in mid-January the international credit agency Fitch
downgraded the company’s credit rating form “stable” to “negative”. Fitch
put its decision down to the gas price increase from USD50 to USD95 per
1,000 cubic meters, which will increase the company’s net expenses by
USD1.8-2 billion.

In their opinion, additional risk is connected with the fixed transit dues
set, according to the Russian-Ukrainian gas agreement, for five years (in
fact, under the contact with GASPROM, transit dues are fixed for seven
years, and under contact with RosUkrEnergo, for 25 years), whereas gas
prices are subject to change in the second half of 2006.

The non-transparency of NAFTOGAS’s financial activities and cash flows
has long been notorious. The need to restructure the company and ensure its
transparent financial accounting has been repeatedly discussed at various
national and international forums.

The World Bank experts insist, time after time, on improving NAFTOGAS’s
corporate governance and commercialization, referring to the success stories
of STATOIL and PETROBRAZ. According to the World Bank reports, today
these corporations are “characterized by clear structures in their
subsidiaries and joint ventures, independent boards of directors, transparent
performance indicators, good audit reports, and compliance with accounting
and disclosure requirements to private businesses with publicly traded stock”.

The last time NAFTOGAS made public its consolidated report was in 2003.
When asked if the company published any subsequent reports, its press
service answered in the negative, although last November Mr. Ivchenko
promised to inform the public of the company’s financial and economic
performance indicators for the previous nine months of 2005, in response to
an inquiry from several MPs. “This is a political move”, said Ivchenko then.
“We could have disregarded it but it was the last straw.”

As of late, a lot of rumours have been circulating about NJSC NAFTOGAS
UKRAINY, ungrounded claims have been made. All of it has a purely political
motivation. Those people do not care about the country. No matter what, we
will do what is best for Ukraine and ensure its energy security. Therefore I
will give a detailed account of the company’s financial, business and
production indicators to the Ukrainian people”.

“The report will be broadly covered in the media. We will present it to the
public, the press, and all the MPs that initiated the inquiry,” – added Mr.
Ivchenko saying he was confident the report would “put an end to all
speculations about NJSC NAFTOGAS UKRAINY”. This was five months
ago, but the company’s CEO has not, yet again, kept his promise.

Thus, for want of more official and reliable data, we have to cite the
statement made in an interview to the “Delo” newspaper by Anatoliy Rudnik,
former General Manager of UKRTRANSGAS (subsidiary of NJSC
NAFTOGAS UKRAINY) that the company’s accounts payable exceed
accounts receivable by UAH15-16 billion (most probable, he did not include
recently received loans in this amount). One should also bear in mind that
the accounts payable are looming, whereas the accounts receivable are 50%
“dead” and will never be recovered.

Previously, problems of this kind were addressed thanks to the company’s
monopolist position on the market. Tariffs calculated under the tried and
tested “cost-recovery method” and low gas prices enabled it to offset all
costs at the expense of industrial consumers. Yet now the situation has
changed dramatically.

As the result of the gas joint venture incorporation, NAFTOGAS has lost its
role of a monopolist gas supplier to Ukrainian market, and its capacity to
re-export gas. The company will not get substantial profits from its joint
venture with RosUkrEnergo.

For one thing, I.Voronin, acting joint venture CEO, represents the interests
of both RosUkrEnergo and NAFTOGAS, which means, in effect, that the
shares will be divided between NAFTOGAS and RosUkrEnergo at a
proportion of 2:4, at the best.

Appointing I.Voronin to manage the Russian-Ukrainian joint
venture is like commissioning Bin Laden to represent US interests.

For another thing, the joint venture will try to minimize its future profits
(via intermediaries or through informal agreements). For example, they could
agree with holders of some industrial assets in Ukraine to supply them with
gas at USD60-80 per 1000 cubic meters, thus decreasing their profit to the
lowest possible level.

In the meantime, NAFTOGAS UKRAINY and its subsidiaries will have to
provide gas for the population, budget-funded institutions and
municipalities without much profit, either. Thus the company’s future
solvency is questionable.

ZN hesitated whether it should share with its readers an explanation of the
latest developments offered by a fairly high-ranking and competent official.
It seems most incredible: the closure (or suspension) of the Deutsche Bank
loan is, supposedly, just a stage in an engineered plan for GASPROM and its
captive companies to take over a share in the Ukrainian gas transportation
system and to assume full control of our domestic gas market.

We had doubts about this version. Yet recently ZN has come into possession
of photocopied documents, according to which on 22 April 2005, i.e. a day
after Deutsche Bank and NJSC NAFTOGAS UKRAINY signed the agreement,
the creditor, Deutsche Bank, assigned all its rights and obligations under
the credit agreement to a company named Linton Capital Limited and
registered to the address: 5th floor, 100 Wood Street, London EC2V 7 EX.

The option of the creditor’s rights assignment to Linton Capital Limited was
envisioned in the agreement, of which the company notified NAFTOGAS on 28
April 2006, having claimed, concurrently, a tidy sum of USD 4.05 million as
payment “for service o arranging the credit line”.

Thus, NAFTOGAS received USD 295.95 million instead of USD300 million
as the first installment. Nevertheless, since late May it has been paying
interest at the rate established for the original amount of USD300 million.

Experts who have studied the agreement maintain that it provides for no
specific property guarantees. If no state-owned property was pledged as
collateral, then why did NJSC NAFTOGAS UKRAINY apply to the State
Property Fund for permission to enter into the credit agreement? The
sought-after permission was given, as certified by SPF letter #10-17-5117
dated 21 April 2005 and signed by SPF Head Valentyna Semeniuk.

The amount of monthly interest payments also deserves special attention.
Registration certificate #4144, issued by NBU Chief Division for the City of
Kyiv and Kyiv Oblast, indicates the effective interest rate (inclusive of
the margin, commission, penalty and other fees) as LIBOR+6.193% per
annum.

In principle, the assignment by Deutsche Bank of such a substantial loan to
a third party should not raise any concerns. Experts argue this is a
standard practice in effecting such transactions. In their opinion, Deutsche
Bank did so in order to avoid overloading its balance with an “extra” debt,
having engaged a company that functions as a nominal creditor.

One thing, however, is worrisome: the name of the company (Linton Capital
Limited) fully coincides with that of an off-shore firm, which the Russian
media has linked to the ex-Head of SYBUR, Dmitry Mazepin (OJSC SYBUR
Holding, a GASPROM subsidiary, is one of Russia’s major petrochemical
enterprises).

Not only is Mr. Mazepin implicated in a series of high-profile corporate
scandals in the Russian chemical industry, but he is also reported to have
high-ranking patrons in the office of the Russian President. Moreover, the
address of the Linton Company coincides with that of several GASPROM-
related business structures – 100 Wood Street, London.

In November 2005, the Russian “Kommersant” magazine reported that two
off-shore companies controlled by Mr. Mazepin (Bonesco Commerce LTD
and Oakledge Investing LTD) bought large amounts of stock in Perm-based
chemical plants (OJSC AZOT and OJSC Mineral Fertilizers, earlier – OJSC
Halogen), supposedly, to resell it to GASPROM. The owner of Russian
chemical enterprises has repeatedly displayed an interest in gaining access
to the pipeline in Ukraine.

We want to believe that the Linton Company, acting as the Deutsche Bank
assignee, has no relation to Mr. Mazepin’s company of the same name. Then
what about Deutsche Bank’s assigning its right to servicing its credit line
to DEPFA Investment Bank and GASPROMBANK? It could have resorted
to the mediation of Linton Capital Limited again.

The creditor entitled to claim in the event of NAFTOGAS default, God forbid,
is located at an address different from the Deutsche Bank’s. It will be no
use trying to negotiate with DEPFA Investment Bank and GASPROMBANK
via diplomatic channels, as could be the case with Deutsche Bank.

According to ZN sources, so far the creditors have been very lenient, giving
and promising new loans to Mr. Ivchenko. Yet what will happen if, one of
these days, all of them reject the over-enthusiastic borrower and, taking
advantage of late payments or any other non-fulfillment of obligations by
NAFTOGAS UKRAINY, come up with their claims?

Attachment of accounts, debt restructuring, bankruptcy? What will the
creditors’ claim be like at the negotiations on debt settlement or
restructuring? It will not be the claim to NAFTOGAS but, rather, to the
state of Ukraine, which holds 100% of NAFTOGAS shares and which
transferred its gas infrastructure to the company’s management.

Will they want part of the gas transportation system (the most treasured
asset from GASPROM’s perspective), full control of the UKRGAS-
ENERGO Joint Venture or Ukrainian underground gas holders?

Who will shoulder personal responsibility for this, as well as for the
bankruptcy of the main state monopolist, should it occur?

The public has growing doubts about the competence of the officials placed
in charge of Ukraine’s gas sector. Every day brings new questions to be
asked of them. Unfortunately, they fail to give credible answers. -30-
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LINK: http://www.mirror-weekly.com/ie/index/585/
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[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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15. AMNESTY INTERNATIONAL STRONGLY CONDEMNS UKRAINE
FOR VIOLATING OBLIGATIONS UNDER INTERNATIONAL LAW
Ukraine: Ten asylum-seekers forcibly returned to Uzbekistan

Amnesty International, New York, NY, Monday, February 20, 2006

NEW YORK – Amnesty International is extremely concerned about the
fate of 10 asylum-seekers from Uzbekistan, who had been seeking
international protection in Ukraine, but were forcibly returned to Uzbekistan
by Ukrainian authorities during the night of 14-15 February 2006.

They are at risk of serious human rights violations, including incommunicado
detention, torture or other ill-treatment, a flagrantly unfair trial
followed by either long prison sentences or even the death penalty.

The Uzbekistani authorities reportedly issued extradition warrants for 11
asylum-seekers on the grounds that they allegedly participated in the
Andizhan events in Uzbekistan on 13 May 2005. The remaining man was
reportedly allowed to stay as he has relatives in Ukraine.

On 7 February the Security Service of Ukraine (SBU) allegedly detained
the 11 men in two different locations in Crimea based on the extradition
warrants issued by the Prosecutor General of Uzbekistan. They were
reportedly transferred to a Ministry of Interior detention facility in
Simferopol, Ukraine, and 10 of them were forcibly returned to Uzbekistan on
the night of 14-15 February. The men are believed to be held in detention by
the Uzbekistani authorities, but their exact whereabouts remains unknown.

Nine of the 11 men were registered asylum-seekers while the remaining two
had not applied for asylum in Ukraine but had expressed their intention to
do so.

Between 7-14 February, the United Nations High Commissioner for Refugees
(UNHCR) contacted the Ukrainian authorities “requesting official guarantees
that no asylum-seeker would be forcibly returned unless they had been
determined not to be a refugee, after going through full and fair asylum
procedures, including the right to appeal”.

However, the Migration Service of Crimea rejected their asylum applications
on the basis that they were considered to be “manifestly unfounded”. They
faced immediate forcible return and were not given the right to appeal. The
remaining two men were returned without being given the opportunity to
apply for asylum.

Amnesty International strongly condemns the Ukrainian authorities for
violating their obligations under international human rights and refugee law
to uphold the principle of non-refoulement, as enshrined in the 1951 Refugee
Convention, the International Covenant on Civil and Political Rights and the
Convention against Torture, which prohibit the return of a person to a
country or territory where they would be at risk of persecution, torture or
other forms of ill-treatment

The systematic use of torture and ill-treatment and the systemic and
fundamental flaws of the criminal justice system result in widespread
violations of international standards for fair trial in Uzbekistan and there
are significant risks faced by these 10 men given the context and nature of
the crimes of which they are accused.
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http://www.amnestyusa.org/news/document.do?id=ENGEUR500012006
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[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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16. UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES
(UNHCR) DEPLORES ACTION OF UKRAINE AUTHORITIES,
SEEKS INFORMATION ON DEPORTED UZBEKS
Action was a contravention of Ukraine’s international obligations.

Press Briefing by Ron Redmond, UNHCR Spokesman
United National High Commissioner for Refugees (UNHCR)
Palais des Nations, Geneva, Switzerland, Friday, February 17, 2006

GENEVA – UNHCR is urgently seeking information on 11 Uzbek asylum
seekers who were forcibly deported to their homeland this week by
Ukrainian authorities. We assume they are now in the hands of Uzbek
authorities and our office in Tashkent is seeking access to them. We are
extremely concerned over their fate and insist that they be treated
humanely and in full accordance with international standards.

UNHCR deplores the actions of Ukrainian authorities in forcing the 11
asylum seekers back to their home country on Tuesday night, in
contravention of Ukraine’s international obligations.

Nine of the asylum seekers had earlier registered their asylum claims with
the Ukrainian authorities, and the other two had expressed their intention
to also claim asylum. We are also seeking urgent clarification from the
Ukrainian authorities.

Details of the situation are still emerging. On 7 February, UNHCR learned
that 11 Uzbek asylum seekers had been arrested in two different locations
in Crimea by unidentified Ukrainian law-enforcement authorities.

The Ukrainian authorities confirmed the asylum seekers had been taken to
a detention facility in Simferopol after the authorities received requests
for their extradition from the Prosecutor’s Office of Uzbekistan, alleging
involvement in the civilian protests in Andijan on 13 May 2005, which
ended violently.

As early as Tuesday, 7 February, and again on 14 February, UNHCR wrote
to the Ukrainian authorities requesting official guarantees that no asylum
seeker would be forcibly returned unless they had been determined not to
be a refugee, after going through full and fair asylum procedures, including
the right to appeal. UNHCR also requested access to the detained Uzbeks.

Being the subject of an extradition request does not remove an asylum seeker
or refugee from international refugee protection. UNHCR reiterates the
importance of the principle of non-refoulement, under which no refugee or
asylum seeker whose case has not yet been properly assessed, can be forcibly
returned to their country of origin. Refoulement is a violation of the 1951
UN Refugee Convention, to which Ukraine is a signatory, and is also contrary
to international customary law.

It is also a breach of the UN Convention against Torture to send persons
back to countries where they may face torture.

Refoulement is also specifically prohibited under Ukrainian national law.

UNHCR is seeking assurances from Ukraine that in the future, asylum seekers
from any country will be treated in full respect of Ukraine’s international
and national legal obligations concerning refugees and asylum seekers.

In a related development, UNHCR is also concerned about the fate of four
detained Uzbek refugees in Kyrgyzstan, two of whom were denied asylum
following a Supreme Court decision yesterday. The four were arrested
following an extradition request from the Uzbek government. UNHCR calls
on the Kyrgyz government to refrain from any action aimed at forcibly
returning these four refugees to Uzbekistan. -30-
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http://www.unhcr.ch/cgi-bin/texis/vtx/news/opendoc.htm?tbl=NEWS&id=43f5b0c62
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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17. UKRAINE: UZBEK ASYLUM SEEKERS SENT BACK, FACE ABUSE,
TORTURE, DEPORTATIONS VIOLATE INTERNATIONAL LAW

Human Rights Watch, New York, NY, Friday, February 17, 2006

NEW YORK – Ukraine has deported 10 asylum seekers to Uzbekistan,
where they face torture and abuse, Human Rights Watch said today. These
deportations violate international law. On the night of February 14-15, a group
of 10 Uzbek men was deported to Uzbekistan, apparently pursuant to an Uzbek
extradition request. An eleventh detained man was not deported, apparently
because he had relatives in Ukraine.

Nine of the 11 Uzbeks had registered as asylum seekers with the office of
the United Nations High Commissioner for Refugees (UNHCR) in Kiev. Human
Rights Watch learned prior to their deportation that the other two wanted to
lodge asylum requests, but had not been able to do so. UNHCR issued a
statement today deploring the forced return of the entire group.

Ukraine had a duty to protect these people and instead it sent them back to
almost certain torture and abuse,” said Holly Cartner, Europe and Central
Asia director at Human Rights Watch. “Now the government needs to find out
how it could have happened that asylum seekers registered with UNHCR were
deported. And it must take steps to ensure that it never happens again.”

Six of the men were originally detained in the Crimean town of Nizhnegorsk
on February 7. Two days later the remaining five were detained in Belogorsk,
also in Crimea. The men were all held in state custody in the Crimean city
of Simferopol before being deported.

According to UNHCR, the Uzbek extradition request alleged that the men were
involved in the May 13 events in Andijan, which ended in a massacre in which
hundreds of civilians were killed by Uzbek security forces. Uzbekistan has
sought the extraditions of other people whom it says were involved in the
Andijan events and who are seeking asylum in other countries, including
Kyrgyzstan and Russia.

As a party to the international Refugee Convention of 1951 and its 1967
Protocol, Ukraine has an obligation not to return people who would face
threats to their lives or freedom upon return.

In addition, the European Convention on Human Rights, by which Ukraine
is legally bound, strictly prohibits the deportation of any person – no
matter what their crime or suspected activity – to a country where they face
a real risk of torture or cruel, inhuman or degrading treatment or
punishment. The U.N. Convention Against Torture, to which Ukraine is also
a party, imposes a similar prohibition on Ukraine. In 2003, the U.N. Special
Rapporteur on Torture, Theo van Boven, found torture in Uzbekistan to be
“systematic.”

Given the grounds on which Uzbekistan has reportedly sought the extradition
of the 10 men, and Uzbekistan’s human rights record, the deportation almost
certainly violates these human rights treaties, regardless of whether the
men were refugees within the terms of the Refugee Convention.

Human Rights Watch is also concerned that the men appear to have been
denied basic due process rights guaranteed to them under international law
and Ukraine’s international human rights obligations. On February 14, the
Kiev District Court of Simferopol ordered the men’s deportation following
a refusal by the local migration service to grant them refugee status.

The men were given no effective opportunity to appeal the deportation,
according to the Russian human rights groups Memorial and Civic Assistance.
The two Russian groups said that Ukrainian migration officials alleged that
the men had waived their right to appeal the denial of refugee status.

The right of the men to appeal their decision is protected by Ukraine’s
obligations under both the European Convention on Human Rights and
the U.N. Convention Against Torture.

UNHCR stated in its press statement that it had requested access to the
men while they were in Ukrainian custody.

“Ukraine has a duty to ensure that no deportations occur without due
process. The Ukrainian authorities must also ensure that asylum seekers are
never returned without a thorough examination of their refugee claims,” said
Cartner. “The accelerated decision to deport asylum seekers of concern to
UNHCR without giving it access to the applicants convinces us that Ukraine
trampled upon basic procedural rights as well as the fundamental right
against refoulement.”

Ukraine is host to many Uzbek citizens who have fled persecution in their
home country. But the actions of the Ukrainian government are preventing
vulnerable people from exercising their legal right to seek protection.
Human Rights Watch has learned that at least nine other Uzbeks who worked
at the same bakery as the deportees want to file asylum claims, but are now
afraid to come forward.

In November, Human Rights Watch released a report documenting the
treatment of asylum seekers and migrants in Ukraine. The report found a
barely functioning system for dealing with asylum seekers, with inadequate
protection against return to torture and persecution, resulting in the
forced return of asylum seekers at risk.

Human Rights Watch is also concerned about the imminent forced return of two
UNHCR-recognized Uzbek refugees in Kyrgyzstan following a ruling by the
Kyrgyz Supreme Court on Wednesday, February 16 that denied them asylum.
They are part of a group of four refugees facing an extradition request by
Uzbekistan based on their alleged involvement in the May 13 Andijan events.

“These Uzbek refugees in Kyrgyzstan are well-known to Human Rights
Watch and the international community,” said Cartner, “We firmly believe that
they will face certain torture and ill treatment if they are returned to
Uzbekistan.” -30-
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18. PBS PANEL ON ARMENIAN GENOCIDE STIRS PROTEST
Broadcaster Defends Inclusion of Deniers of Mass Killing by Turks

By Paul Farhi, Washington Post Staff Writer
The Washington Post, Washington, D.C.
Thursday, February 16, 2006; Page C01

Thousands of Armenian Americans are protesting the Public Broadcasting
Service’s planned panel-discussion program about Turkey’s role in the
deaths of Armenians during and after World War I.

The 25-minute program has generated an outcry because the panel will
include two scholars who deny that 1.5 million Armenian civilians were
killed in eastern Turkey from 1915 to 1920.

The program is scheduled to air April 17, a week before the annual
Armenian Remembrance Day commemoration, and will follow a one-hour
documentary, “The Armenian Genocide,” which describes the events
surrounding the deaths, as well as denials of complicity by successive
Turkish governments.

Armenian Americans have publicized an online petition that asks PBS to
drop the discussion program. As of last night, more than 6,000 people
had electronically added their names to the petition, making it one of the
largest organized protests of a PBS program.

“We strongly feel that debating the Armenian Genocide is akin to arguing
about the Jewish Holocaust in order to project a sense of balance,” the
petition reads. “Would PBS ever contemplate such a program?” Noting that
the film already includes Turkish denials, the petition concludes that the
panel discussion “would serve to emphasize the Turkish state’s official
position and undermine the non-political nature of [PBS] programming.”

The events surrounding the deaths of Armenians in Turkey by factions of
the ruling Ottoman Empire remain emotionally charged and politically
contentious. Armenians have long contended that the killings were
government policy designed to suppress an Armenian uprising and
Armenian support for invading Russian forces. Armenians also call it the
20th century’s first genocide, a view that has gained acceptance among
Western scholars and governments.

Successors to the Ottoman Turks have acknowledged that there were a
substantial number of Armenian deaths — Turkish estimates range from
300,000 to 600,000 — but Turkey maintains that the deaths resulted from
warfare, starvation and epidemics that affected all segments of Turkish
society.

The controversy continues to resonate in Ankara and Washington. Turkish
prosecutors last year indicted the country’s best-known novelist, Orhan
Pamuk, on charges of denigrating the country’s national identity after he
asserted, in an interview with a Swiss magazine, that Turkey was denying
the extent of Armenian killings.

His indictment became an issue with European countries that are considering
Turkey’s application to join the European Union; the charges were dropped
this month.

For decades, U.S. administrations have dealt tentatively with the issue, not
wishing to offend Turkey, a key political and military ally. In its
Remembrance Day message last year, the Bush White House noted “the
forced exile and mass killings” and “horrible loss of life” of Armenians but
avoided referring to the events as genocide.

As the title implies, “The Armenian Genocide,” a documentary by New York
filmmaker Andrew Goldberg, is unequivocal in its take on history. PBS agreed
to air the film — whose $650,000 budget was partly funded by Armenian
Americans — without major changes, said Goldberg and Jacoba Atlas, a top
PBS programming executive.

In the course of reviewing rough cuts of the film, however, Atlas said PBS
officials agreed to add the panel discussion to explore other views,
particularly the question of why denial exists. “It’s a terrific
documentary, and while we believe [the genocide] is settled history . . .
you still get dissenters,” she said in an interview yesterday.

“We said, ‘Let’s approach this head-on and say why this is still
contentious.’ We thought it was a good thing to have both sides talking to
each other. We felt the more you can shed light on an argument, the more
the truth becomes clear.”

“This remains a contentious piece of history,” Atlas added. “There are just
questions around it. Rather than have those questions dismissed, it seemed
like a good idea to have a panel and let people have their say.”

PBS PANEL ON ARMENIAN GENOCIDE STIRS PROTEST
Drop Panel Discussion, Armenian Americans Say
Atlas acknowledged that such an approach is rare for PBS and said that the
Alexandria-based service has not had other panels to discuss opposing views
of documentaries during her five-year tenure. She declined to say whether a
documentary about the Holocaust or about the genocides in Rwanda or
Cambodia would require a similar post-documentary discussion. “Those are
hypothetical questions,” she said.

The panel discussion, hosted by NPR’s Scott Simon, was taped last week.
Colgate professor Peter Balakian, an adviser on the documentary, and
University of Minnesota professor Taner Akcam supported the film’s view.
University of Louisville professor Justin A. McCarthy and Turkish historian
Omer Turan offered an alternative perspective.

Balakian, an Armenian American who wrote the best-selling “Tigris Burning:
The Armenian Genocide and America’s Response,” said that he did not want
to participate in a panel with “two bona fide deniers” but that he felt
“backed into a corner” by PBS. If he had boycotted the panel, he said, it
would have jeopardized the broadcast of the documentary, which Balakian
called “a major and comprehensive piece of work.”

Goldberg, the filmmaker, said he did not think the panel was necessary,
“but I didn’t fight it. It wasn’t up to me and I had nothing to do with its
production.”

In an interview yesterday, McCarthy said the history of the period is
complex and does not lend itself to simple judgments and labels. He said
that he could not find evidence of 1.5 million Armenian deaths. He also
said 3 million Turks died during the same period.

“If saying that both sides killed each other makes me a genocide denier,
then I’m a denier,” he said. Titling the documentary “The Armenian
Genocide,” he said, “is a false description of a complicated history.”

PBS said it is up to its 348 member stations to decide individually whether
to air either the panel discussion or the documentary. -30-
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http://www.washingtonpost.com/wp-dyn/content/article/2006/02/15/AR2006021502703.html
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[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
19. MR. BUSH AND GENOCIDE

EDITORIAL: The Washington Post
Washington, D.C., Sunday, February 12, 2006; Page B06

FOR THE PAST 18 months, the Bush administration and its allies have
clung to the fiction that they could stop the genocide in the Sudanese
territory of Darfur by sending in African Union forces.

On Thursday United Nations Secretary General Kofi Annan spoke the truth
about these troops: “They didn’t have the large numbers that would have
been required for a region the size of Darfur. They didn’t have logistical
support. They didn’t have the mobility, either on the ground or in the air.”

Mr. Annan went on to say that the U.N. force that may replace the African
Union had better be “a completely different force and have a completely
different concept of operation.” The issue is whether President Bush, who
is due to meet Mr. Annan tomorrow, is willing to hear this message.

This shouldn’t even be a question. In 2004 Mr. Bush’s administration sent
expert investigators to interview 1,136 victims of Darfur’s violence; based
on this careful assessment, the administration accused Sudan’s government
of genocide — the first time a government has leveled such an accusation at
a sitting counterpart since the U.N. Convention on the Prevention and
Punishment of Genocide was adopted in 1948. Last summer Mr. Bush
reaffirmed his belief that a genocide was occurring, and it’s hard to see
why his view would have altered.

At least 2 million people — a third of Darfur’s population — have been
driven from their homes, and they could face starvation if international
relief is interrupted. Assaults on civilians continue: A recent report
describes government-backed ethnic cleansing in a town called Shaeria,
coupled with the harassment and rape of nearby displaced people. To ensure
that the displaced people have maximum prospects of dying, the government
has asked foreign relief workers to get out of Shaeria.

This sickening violence was genocide when it began in 2003, and it remains
so nearly three years later. The excuses for not confronting it with a
serious Western troop deployment never looked good, but they are now
thinner than ever.

A series of alternative strategies has been tried: For much of 2004, the
administration sought to put pressure on Sudan’s government by means of
U.N. resolutions; then in late 2004 it began to emphasize the stability that
might flow from an African Union force; then in 2005 it set its sights on a
negotiated settlement between Sudan’s government and Darfur’s hopelessly
disunited rebels. None of this worked, and none of this is going to work in
the near future.

Indeed, Darfur’s violence has recently grown worse and has spread into
neighboring Chad, a country that plays host to French troops and American
oilmen and seems on the verge of a civil war fomented by rebels apparently
linked to Sudan’s military.

Having passed through three stages of denial, will the administration accept
Mr. Annan’s appeal for an entirely more serious peacekeeping deployment?
The administration is pushing for the creation of some kind of U.N. force
but seems unsure whether it’s willing to support a strong one. Meanwhile
Jendayi Fraser, assistant secretary of state for African affairs, recently
refused to describe Darfur’s current violence as genocide.

The shaky consensus that exists in favor of creating a U.N. force for Darfur
is a precious opportunity to intervene on a decisive scale; it must not be
squandered. The U.N. deployment will probably need to be at least 20,000
strong, or bigger if Sudan’s government offers overt resistance; it will
need helicopters, skilled commanders and good communications equipment.

A lesser force would set the United Nations up for failure, risking a repeat
of the humiliations in Bosnia and Rwanda. A lesser force would also reveal
that the United States and its allies do not want to end the genocide,
preferring the pretense of doing so.

Mr. Annan was clear Thursday that he understands this choice. Tomorrow
it will fall to Mr. Bush to say where he stands on genocide. -30-
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http://www.washingtonpost.com/wp-dyn/content/article/2006/02/11/AR2006021101010.html

——————————————————————————————————————-
[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
20. MIKHAIL GORBACHEV CONCERNED OVER REANIMATION
OF JOSEPH STALIN’S CULT IN TODAY’S RUSSIA

Mosnews.com, Moscow, Russia, Monday, February 13, 2006

MOSCOW – First and last Soviet president, Mikhail Gorbachev, has
expressed concern over the reanimation of Joseph Stalin’s cult in
today’s Russia.

“What had appeared in the 1930s, is preserved now, too. We see Stalin’s
portraits, see sort of a renaissance of (Stalinism) in the media, in the
theaters, there are attempts to preserve Stalinism, it is very serious,”
Gorbachev was quoted by Interfax news agency as saying at a news
conference.

He reminded of the 20th Congress of the Communist Party of the Soviet
Union where Stalin’s cult was deflated. He said that the Congress and
subsequent Perestroika were “organically tied and this is the reason why
some people consider (both events) as treason.”

Speaking on the current Russian president Vladimir Putin’s policies,
Gorbachev said he was able to “overcome the chaos, the lack of stability
and probably also the country’s collapse.” However, he agreed with the
critics who see the “managed democracy.”

Gorbachev expressed his disagreement with the cancellation of direct
elections of regional leaders in Russia but he agreed that some of the
governors “took measures that were by no means democratic, to hold
power.”

Gorbachev refused to call Putin’s regime authoritarian, he said Russian
citizens supported their president “because they see he wishes his
country and his compatriots good.” -30-
——————————————————————————————-
[ return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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21. RUSSIAN HUMAN RIGHTS ACTIVISTS OPPOSE MONOPOLY IN
RELIGIOUS MATTERS, PARTICULARLY RUSSIAN ORTHODOXY

Interfax-Russia, Moscow, Russia, Wednesday, February 15, 2006

MOSCOW – Russian human rights activists have spoken of the need
to respect the feelings of believers but indicated that members of certain
creeds, particularly Russian Orthodoxy, should not be given monopoly
rights to judge on religious matters.

Lev Ponomaryov, leader of the movement For Human Rights, said there
was no legal violation in the statement of a spokesman for an official from
the Russian Federal Media Control and Cultural Heritage Protection
Service, who said press publications that insult the feelings of believers
are unacceptable.

“I got the impression that they simply wanted to show that they are keeping
an eye on things, that they are on the alert. I don’t think it constituted any
violation of our law,” he told Interfax on Wednesday.

Earlier an official from the Russian Federal Media Control told Interfax
that Russian media publishing articles that may offend people’s religious
feelings will be subjected to punitive measures, including the annulment of
their registration.

“They are warning radicals, both Christian Orthodox and Muslim and
evidently atheists as well,” Ponomaryov said. Nevertheless, in his opinion
everything depends on the practice of enforcing the order.

“So far the practices here in Russia have not been very successful,” he
said. In his opinion, law enforcers often “play the role of an advocate of
the radical wing of the Russian Orthodox Church.”

In this context he recalled the recent trial of organizers of the
exhibition “Beware, religion!” that had aroused the indignation of Orthodox
organizations. Head of the Moscow Helsinki group Lyudmila Alexeyeva
criticized the official statement saying that it “contradicts the freedom
of speech and press.”

“So far the entire policy in the religious sphere has boiled down to
support for the Russian Orthodox Church against the religious freedom
of other creeds,” she said.
-30-
——————————————————————————————–
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