AUR#683 Macroeconomic Situation Update By SigmaBleyzer; New Era For Ukraine; East Fails To Pay Taxes; Herding Cats; Banduras On The Big Screen

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

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

THE ACTION UKRAINE REPORT – AUR – Number 683
Mr. E. Morgan Williams, Publisher and Editor
PUBLISHED FROM KYIV, UKRAINE, MONDAY, APRIL 3, 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-MACROECONOMIC SITUATION-FEBRUARY 2006
REPORT & ANALYSIS: Olga Pogarska, Olena Bilan, Edilberto Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
Kyiv, Ukraine, Wednesday, March 29, 2006

2. A NEW ERA FOR UKRAINE
OP-ED: STATE OF THE UNION, By Viktor Yushchenko
The Wall Street Journal, Europe, Monday, April 3, 2006

3. “DOUBLE DEFEAT”: ELECTION AND FAILURE TO PAY TAXES
Accusations by government against industrial east about tax payments
Ukrainian government heading for non-fulfilment of 2006 budget
ANALYSIS & COMMENTARY:
By Vitaliy Knyazhanskyy
Den, Kiev, in Ukrainian 30 Mar 06; p 1
BBC Monitoring Service, UK, in English, Friday, March 31, 2006

4. UKRAINE: PRESIDENT YUSHCHENKO SIGNS LONG AWAITED
SECURITIES AND STOCK MARKET LAW
Troika Dialog, Moscow, Russia, Sunday, April 2, 2006

5. POLISH ELECTROMAGNETIC RELAYS MANUFACTURER RELPOL
SAYS MAJORITY OF ITS PRODUCTION TO BE IN UKRAINE
Polish News Bulletin, Warsaw, Poland, Wednesday, Mar 29, 2006

6. UKRAINIAN MINORITY SHAREHOLDERS SUE TWO RUSSIAN
BUSINESSMEN OVER NIKOPOL FERROALLOY PLANT
Dow Jones Newswires, Moscow, Russia, Friday, March 31, 2006

7. UKRAINE AGREES TO WTO ENTRY TERMS WITH PANAMA
Viktor Riasnyi, Ukrainian News Agency, Kyiv, Ukraine, Sat, April 1, 2006

8. AUSTRIA’S BANK BURGENLAND IS UNFRIENDLY TOWARDS
BID BY UKRAINIAN CONSORTIUM TO BUY THE BANK
COMMENTARY: By Volodymyr Obolonsky
The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

9. ODESSA-BRODY-PLOCK PIPELINE IS RENTABLE
New Europe, Athens, Greece, Monday, April 3, 2006

10. ROMANIA PROPOSES BUILDING BLACK SEA EUROPEAN ZONE
Ukraine signs an initiative, Russia does not sign
New Europe, Athens, Greece, Monday, April 3, 2006

11. SEVEN COMPANIES TO TAKE PART IN KERCH OIL AND GAS
FIELD TENDER REGARDING PRODUCTION-SHARING AGREEMENTS
New Europe, Athens, Greece, Monday, April 3, 2006

12. BUSINESS NEWS: THE UKRAINIAN TIMES
Rape seed JV, Vogt Electronic, B&K Management, Energy Saving Program
The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

13. IRISH COMPANY ELEMENT SIX ABRASIVES ACQUIRES
POLTAVA DIAMOND PLANT IN UKRAINE
Largest producer of synthetic industrial diamond in Ukraine and CIS.
Element Six, Ltd., Shannon, Co Clare, Ireland, Friday March 31, 2006

14. EUROPEAN BUSINESS ASSOCIATION (EBA) ELECTS GENERAL
MANAGER OF TETRA PAK UKRAINE AS NEW PRESIDENT
The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

15. UKRAINE’S RICHEST MAN EMERGES FROM SHADOWS AFTER
PARLIMENTARY ELECTION WIN BY PARTY OF REGIONS
Akhmetov was number seven on the Regions party list.
Agence France Presse (AFP), Kiev, Ukraine, Sunday, April 2, 2006

16. VOTE-COUNT OF UKRAINE’S PARLIAMENTARY ELECTION
UNIAN news agency, Kiev, in Ukrainian 1709 gmt 30 Mar 06
Central Electoral Commission website, Kiev, in Ukrainian 30 Mar 06
BBC Monitoring Service, UK, in English, Thursday, Mar 30, 2006

17. NEW KYIV MAYOR PLANS TO ROCK THE BOAT
Concorde Capital, Kyiv, Ukraine, Sunday, April 2, 2006

18. YUSHCHENKO’S CHOICE: GAS PRINCESS OR EX-CONVICT
Aton Capital, Moscow, Russia, Friday, March 31, 2006

19. HERDING CATS: WHITHER THE ORANGE COALITION –
AND REVOLUTION?
ANALYSIS AND COMMENTARY: By Markian Bilynskyj
Vice President and Director of Field Operations in Ukraine
U.S.-Ukraine Foundation, Kyiv, Ukraine, Friday, March 31, 2006

20. “WHEN TYMOSHENKO COMES TO SEE YUSHCHENKO, YOU
SHOULD LOOK IN THE CLOSET – TO SEE WHETHER
YANUKOVYCH IS HIDING THERE”
ANALYSIS & COMMENTARY: By Serhiy Morda
Ukrayinska Pravda website, Kiev, in Ukrainian 28 Mar 06
BBC Monitoring Service, UK, in English, Sunday, Apr 02, 2006

21. GEORGIAN PRIMITIVISM ARTIST TO BE EXHIBITED IN KYIV
Artist Niko Pirosmanishvili, outstanding primitivism painter (1862-1918)
Prime-News Online, Tbilisi, Georgia, Friday, March 31, 2006

22. POST-ELECTION BRIEFING ON UKRAINE IN WASHINGTON, DC
Tuesday, April 4, 2006, Room HC-8 U.S. Capitol, 11:00am to 12:00 noon
American Foreign Policy Council, Washington, D.C., Fri, Mar 31, 2006

23. AN AUDIENCE WITH ASKOLD KRUSHELNYCKY READING FROM
HIS NEW BOOK “AN ORANGE REVOLUTION”
Book party, Friday evening, April 7th in Kyiv
E. Morgan Williams, Publisher and Editor
The Action Ukraine Report (AUR), Kyiv, Ukraine, Mon, Apr 3, 2006

24. PHILIPPINE PHILHARMONIC ORCHESTRA SPOTLIGHTS
UKRAINE’S NATIONAL INSTRUMENT, THE BANDURA, IN CONCERT
Guest soloist will be bandurist Oksana Herasymenko from Lviv, Ukraine
The Manila Times, ABS-CBN Interactive
Manila, Philippines, Sunday, April 2, 2006

25. BANDURAS ON THE BIG SCREEN
New project Kobzari could be most expensive one in history of Ukrainian film
By Pavlo Berest, Kyiv Weekly, Kyiv, Ukraine, Wednesday, March 29, 2006
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1
.UKRAINE-MACROECONOMIC SITUATION-FEBRUARY 2006

REPORT AND ANALYSIS: Olga Pogarska, Olena Bilan, Edilberto Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
Kyiv, Ukraine, Wednesday, March 29, 2006

SUMMARY
[1] According to revised data, Ukraine showed 2.6% yoy economic growth
in 2005.
[2] Political uncertainties and restrictions on gas consumption imposed on
industrial producers resulted in modest GDP growth and industrial output
decline at the beginning of 2006.
[3] In January, the consolidated fiscal surplus reached UAH 2.5 billion
($0.5 billion) or 8.4% of period GDP.
[4] Despite considerable fiscal loosening at the end of 2005 and
inflationary expectations, annual consumer inflation continued to decelerate
and was below 10% in January.
[5] In 2005, the merchandise trade deficit stood at $1.8 billion, but was
securely covered by the services trade surplus, which reached $3.2 billion.
[6] The United States granted Ukraine market economy status and reinstated
Ukraine’s eligibility for the Generalized System of Preferences.

ECONOMIC GROWTH
According to revised data by the State Statistics Committee of Ukraine
(SSC), GDP grew by 2.6% yoy in 2005, fuelled by an impressive 16% yoy
increase in private consumption. At the same time, the slowdown from 12.1%
yoy growth in 2004 was a reflection of the 4% yoy decline in investments,
dampened by political and economic policy uncertainties, and deterioration
of the external environment.

Unlike in 2004, when growth was supported by a substantial foreign trade
surplus, falling international steel prices and growing domestic costs
resulted in a large negative contribution of net exports (at around 8
percentage points) in 2005.

As in 2005, economic growth this year will be primarily driven by private
consumption. Moreover, investor confidence is expected to perk up in the
second half of the year, thus positively contributing to GDP growth.

At the same time, economic growth will be negatively affected by
considerably higher energy import prices (particularly natural gas) and
forecasted further easing of foreign demand for Ukraine’s goods (though not
as drastic as in 2005). Considering the structural weakness of Ukraine’s
economy, GDP growth is expected to be at a rate similar to 2005’s 2.5% yoy.

So far, economic growth in Ukraine has been primarily based on utilization
of existing capacities. Moreover, industrial production is very energy
intensive and vulnerable to the external environment. Preliminary data
suggests that Ukraine’s GDP reached only 68.2% of its pre-independence
level.

To materialize its medium-term growth opportunities and bring the growth
rates back to the region-average 5% yoy, Ukraine needs substantial
investments to renovate existing and to build new capacities, introduce
energy saving technologies, and accelerate market-enhancing institutional
reforms.

Real sector development at the beginning of 2006 was in line with
expectations. Modest 0.9% yoy GDP growth in January was primarily driven
by weak industry performance. On the supply side, January’s GDP growth
was driven by good performance in the transportation sector, utilities and
agriculture (value added grew by 6.7% yoy, 13.2% yoy and 4.3% yoy
respectively).

Following a sharp recession during the second half of 2005, domestic trade
recovered at an encouraging 0.7% yoy. However, GDP growth continued to
decelerate in January on account of the value-added contraction in
manufacturing and construction (down by 4.6% yoy and 8.1% yoy
respectively), which together account for about 25% of total GDP.

Developments in the manufacturing sector, particularly chemicals and metal
processing, whose output declined by 4.7% and 4.2% yoy respectively, were
the result of fewer working days, the anticipated sharp increase in gas
prices and restrictions on gas consumption.

The latter were imposed by the Cabinet of Ministers in January, since
Ukraine significantly exceeded its usual gas consumption volumes due to
unfavorable weather conditions. As a result, total industrial output
declined by almost 3% yoy in January.

FISCAL POLICY
In January, consolidated budget revenues increased by a nominal 36% yoy
to UAH 9.4 billion ($1.8 billion), while expenditures grew more modestly
by 28% yoy to UAH 6.9 billion ($1.4 billion). The resulting fiscal surplus
constituted UAH 2.5 billion ($0.5 billion) or 8.4% of period GDP.

The consolidated budget usually runs a surplus at the beginning of the year
due to under-execution of expenditures, but reverses to a deficit by the end
of the year. In January, the major part of the monthly surplus was
accumulated by local budgets, which collected UAH 1.7 billion ($0.3
billion).

State debt remained virtually unchanged in January. By the end of the month,
the stock of total state debt (guaranteed and non-guaranteed) constituted
$15.4 billion, which translates into 16.2% of forecasted full-year GDP.

Domestic debt accounts for one-fourth of this amount, while the rest is
attributable to external debt. The marginal reduction in domestic debt by 1%
month-over-month (mom) is mostly due to repayment of domestic government
bonds.

The Ministry of Finance has not resumed auctions of domestic securities,
which were suspended in July 2005, but plans to return to this practice in
the coming months. According to the Minister of Finance, Viktor Pinzenyk,
placement of domestic bonds should be renewed in order to give signals to
the market.

However, Ukraine is not going to increase external borrowings at least in
the first quarter of 2006, since the budget is likely to run a substantial
surplus over this period. The possibility of new external borrowing in later
periods will become clear after revision of the State Budget Law, which is
likely to take place right after parliamentary elections in late March.

The current version of the State Budget Law envisages a full-year deficit of
UAH 13.4 billion ($2.6 billion), or 2.5% of officially forecasted GDP, which
will be financed primarily by “Kryvorizhstal” privatization receipts already
accumulated on the Treasury Account.

MONETARY POLICY
In January, consumer inflation continued to decelerate in spite of
considerable fiscal loosening at the end of 2005 and inflationary
expectations generated by gas price uncertainty. Annual inflation reached
9.8% yoy, decreasing to single-digits for the first time since August 2004.
The favorable development was achieved thanks to moderate monetary
tightening.

At the same time, this may be a temporary relief considering expectations of
utility and other service tariff increases (e.g., gas, electricity,
communication tariffs have been unchanged since mid-2000) and acceleration
of producer price inflation. However, due to a high 2005 base, consumer
inflation is expected at about 12-13% for 2006.

Food price inflation was 10.7% yoy in January, unchanged from the previous
month on account of decelerating milk and meat prices (to 13.2% yoy and
16.8% yoy respectively), which compensated for acceleration of sugar and
vegetables prices (to 24.8% yoy and 11.7% yoy respectively). Non-food and
service prices continued to slow.

The non-food price and service tariff indices slid to 3.8% yoy and 14.5% yoy
respectively thanks to decelerating medicine prices and transportation
tariffs growth. Still, the declining trend of transportation tariffs
observed for December 2005-January 2006 should be attributed to a high
base affect and is likely to reverse soon after the parliamentary elections.

The NBU’s firm intention to maintain exchange rate stability and resolution
of the gas price issue calmed the speculative tone of the forex market in
January. During February, the average cash exchange rate appreciated
slightly to UAH/$5.11, while the official rate was kept unchanged at
UAH/$5.05 thanks to central bank interventions.

At the same time, the scale of the NBU forex market operations was
considerably lower in February than in the previous month – about $180
million vs. almost $940 million respectively. As a result, international
reserves declined to $18.3 billion at the end of February, but were still
67% yoy higher.

Following considerable acceleration of monetary aggregates growth at the end
of 2005, money supply (M3) growth dropped to 50% yoy in January (down from
55% yoy in December). Such deceleration is explained by the surge in demand
for cash foreign exchange and the NBU’s sale of international reserves and
sizable sterilization operations.

At the same time, liquidity in the banking system remained rather high
thanks to a 55% yoy growth in deposits, underpinned by growing disposable
income (up by a real 22.8% yoy) and rising confidence in the banking sector.

In turn, this allowed commercial banks to further expand lending to the real
sector, whose growth accelerated to 64.7% yoy in January (up from 62% yoy in
December 2005), and decrease the average cost of loans to 14.4% per annum
(down from 14.6% per annum.)

INTERNATIONAL TRADE AND CAPITAL
According to the SSC, exports of goods grew by 5% yoy in 2005, while imports
rose by 24.6% yoy. The deceleration of exports growth from a remarkable
41.6% yoy in 2004 was primarily due to a reduction in world metal prices and
a slowdown of external demand for some Ukrainian products. At the same time,
imports were stimulated by continuous expansion of domestic demand and
reduction of import tariffs.

In addition, both inward and outward trade flows were affected by real
appreciation of the hryvnia with respect to the US dollar and the euro,
which constituted around 12% and 25% respectively. The resulting merchandise
trade deficit was $1.8 billion in 2005 compared to a surplus of $3.7 billion
reached in 2004.

By product breakdown, merchandise exports continued to be driven by ferrous
metals. Despite the weakening external demand and higher production costs
(mostly energy and transportation) exports of ferrous metals posted an
increase of 6.7%, explaining almost half of total growth in merchandise
exports.

Export of chemicals was also on the rise driven by favorable conditions on
external markets. Mineral products, which traditionally were one of the
major exporting items, posted only a modest increase of 8.9% yoy compared
to 23.5% yoy in 2004.

The slowdown is primarily attributed to the introduction of seasonal export
quotas on oil-products in April 2005. Exports of machinery and transport
machines went down by 6.2% yoy and 18.7% yoy mostly because of lower
demand for these products in the EU and the Americas.

Although high growth rates of imports contributed to a growing external
imbalance, there was a substantial positive change in the commodity
structure of imports with investment goods posting a considerable increase
in 2005.

In particular, imports of machinery grew by 33.8% yoy and were the main
contributor to overall merchandise imports growth. Imports of transport
equipment also posted a notable 29.1% yoy increase.

Another positive tendency is the reduction in mineral products’ share of
total imports, which went down to 32% from 37.4% in 2004. The slowdown
of mineral products imports to 6.7% yoy from 27.9% yoy a year before was
mostly due to a lower supply of coal and crude-oil from abroad.

The latter was, however, substituted by imports of oil-products. The
substitution took place due to the reduction of import tariffs on
oil-products, which were cut in May 2005 to combat a hike in domestic
gasoline prices.

By geographical breakdown, the largest part of domestically produced
commodities in 2005 was supplied to Ukraine’s eastern neighbors; exports to
CIS countries grew by 25.5% yoy bringing the share of the region in the
country’s total merchandise exports to 31.3%, up from 26.2% in 2004.

At the same time, exports to the EU-25 and the Americas decreased by 6% yoy
and 28% yoy respectively due to a lower supply of machinery and transport
equipment. At the same time, intensification of inward trade flows was
relatively even across countries. Imports from the EU-25 grew by 25.8% yoy,
up from 21.8% yoy in 2004.

Taking into account that European countries are the major supplier of
investment goods to Ukraine, this tendency looks encouraging. At the same
time, imports from the CIS region advanced at a lower pace, increasing by
12% yoy compared to 32.1% yoy a year before. The slowdown partially
mirrors deceleration of mineral products imports.

Although developments of merchandise trade flows signal deterioration in
Ukraine’s foreign trade sector, the overall external situation remains
stable. According to the SSC, the surplus of services foreign trade balance
reached $3.2 billion in 2005, fully compensating for the merchandise trade
deficit of $1.8 billion.

Although these figures are preliminary and might be substantially revised,
the services surplus will still substantially outweigh the goods deficit
according to the NBU officials. Along with the constant inflow of
remittances from abroad, this ensures a positive current account balance
in 2005.

OTHER DEVELOPMENTS AND REFORMS AFFECTING
THE INVESTMENT CLIMATE
At the end of January, the US reinstated the Generalized System of
Preferences (GSP) for Ukraine in recognition of the government’s efforts to
improve the enforcement and protection of intellectual property rights. The
GSP program provides preferential duty-free treatment for a wide range of
products supplied to the US from designated beneficiary countries and
territories.

Ukrainian exports that could benefit from reinstatement of GSP the most
include certain iron and steel articles, mineral and metal products,
electrical and railway products.

In mid-February, the US Commerce Department also designated Ukraine as a
market economy starting February 1, 2006. Granting Market Economy Status
(MES) means that the Ukrainian economy develops according to market
principles in five areas: (i) the extent of currency convertibility, (ii)
bargaining for wage rates, (iii) openness for and protection of foreign
investment, (iv) government ownership or control of production, and (v)
government control over the allocation of resources.

MES will provide greater protection for Ukraine in antidumping
investigations, as the US Commerce Department will now use the market
information provided by Ukrainian companies in antidumping, while earlier
the opinion of local companies did not count.

Both the reinstatement of GSP and granting MES will promote Ukraine’s
exports to the US and will significantly contribute to the improvement of
the country’s international image, thereby promoting foreign investment in
the country. -30-
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NOTE: To see the entire SigmaBleyzer Ukraine Macroeconomic Situation
report for February 2006 in a PDF format, including several color charts
and graphics click on the following link:
http://www.sigmableyzer.com/files/Ukr-Monthly_Ec_Report_02_06.pdf
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CONTACT: Olga Pogarska, Economist, The Bleyzer Foundation,
Kyiv, opogarska@sigmableyzer.com.ua, www.sigmableyzer.com
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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2. A NEW ERA FOR UKRAINE

OP-ED: STATE OF THE UNION, By Viktor Yushchenko
The Wall Street Journal, Europe, Monday, April 3, 2006

KIEV — Freedom triumphed in Ukraine a week ago as citizens voted in
elections that international poll monitors judged to be democratic and
fair — not a given for a land that was once part of the Soviet Union.
Regardless of the configuration of the next government, the result
underscores that Ukraine’s course of Euro-Atlantic integration remains on
track.

One cannot help but wonder how our history might have been different had the
Orange Revolution come a little earlier. My country’s return to normalcy is
the result of a number of important policies we have implemented since those
fateful days in the fall of 2004.

First, we ended government censorship, unleashing rigorous and free media,
which for the first time presented all the different political points of
view and gave equal airtime to government and opposition candidates. This
true competition between the parties sparked tremendous interest among the
public, prompting two-thirds of registered voters to participate in the
elections.

Second, the campaign and elections were conducted in an environment free of
intimidation, fear and outright voter manipulation. This has not always been
the case. In the past, candidates were being followed and harassed by police
and secret service officials. Phones were tapped and family members of
politicians threatened.

In the aftermath of the 2004 presidential election, more than 5,000
officials were prosecuted for falsifying election results. This time, there
were strict controls to prevent election officials from abusing their
powers. Parties were free to organize rallies and community gatherings
without government interference.

Law enforcement agents kept the peace and encouraged people to report
troublemakers. The entire election process demonstrated an unwavering
commitment to democratic values and respect for civil rights.

This election completes Ukraine’s post-Soviet transition. We begin a new
chapter in parliamentary democracy and local self-government. Changes to our
constitution took effect three months ago, shifting some executive powers,
such as nominating the prime minister, from the presidency to parliament.

The essence of these changes is political power-sharing, requiring closer
interaction between citizens, parties and government. The new coalition
government must be formed two months after the official results are
confirmed. Within my constitutional powers as president and
commander-in-chief, I will appoint the ministers of foreign affairs and
defense.

During discussions with the election winners last week, I suggested that
lawmakers must now put aside their narrow political interests and campaign
rhetoric and strive to unify the country. Cultural, religious and linguistic
differences have no place on the political agenda.

Similarly, federalism and special economic privileges will narrow and not
strengthen Ukraine’s economic opportunities and competitiveness. To this
end, I’d like to see a “stability pact” signed by all parliamentary forces,
outlining the general principles of national unity. The harmonious regional
and socio-economic development of our country is a common goal upon which
all parties should be able to agree.

Then I believe both the new government and the loyal opposition will jointly
recognize the political boundaries that stabilize the nation and secure our
democratic evolution.

If the post-election period focuses exclusively on a game of musical chairs,
where party leaders are more interested in ministerial portfolios and prized
legislative committee chairmanships than reaching specific policy goals,
then this election’s success and the opportunity to move Ukraine forward
risk being lost.

Therefore, a parliamentary majority must outline its vision, the specific
laws and government programs it wants to pursue, and, most importantly, find
the professional staff to deliver results. Voters are expecting no less.

Since the Orange Revolution, new economic horizons have opened for Ukraine.
Our trading relations with the United States and the European Union have
reached new heights. We hope to join the World Trade Organization this year.
We’ve implemented tough and long-delayed reforms, among them market pricing
for energy resources, bank liberalization, and better intellectual property
protection.

Expanding domestic consumer demand will continue to be a major source of
economic growth and job creation in the short term. Additional steps will be
required to upgrade our education, health care and social services systems.

Court reform and the fight against corruption must move forward. Developing
our transport infrastructure and expanding energy exploration, production
and conservation top our agenda. As do the sale of state assets in public
tenders to strategic investors to modernize outdated and under-funded
production facilities.

In 2004, we began rebuilding public trust in government, starting a new
dialogue that has led to greater openness, new freedoms and a revival of
national pride. Voting patterns point to growing support for European
democratic values.

Finding the right formula to complete Ukraine’s first test in parliamentary
democracy and putting together a government will be the major test during
the next few weeks. -30-
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Mr. Yushchenko is president of Ukraine.
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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3. “DOUBLE DEFEAT”: ELECTION AND FAILURE TO PAY TAXES

Accusations by government against industrial east about tax payments
Ukrainian government heading for non-fulfilment of 2006 budget

ANALYSIS & COMMENTARY: By Vitaliy Knyazhanskyy
Den, Kiev, in Ukrainian 30 Mar 06; p 1
BBC Monitoring Service, UK, in English, Friday, March 31, 2006

The government is unlikely to be able to implement the 2006 state budget, a
Ukrainian daily has said. Accusations by the government against the
industrial east of failure to pay taxes and threats to dismiss governors in
the east will be viewed as reprisals for electoral failure.

The real reason that businesses are seeking to minimize tax payments by
using offshore schemes is the government’s failure to make good on promises
to lower the tax burden.

The following is an excerpt from the article by Vitaliy Knyazhanskyy
entitled “Double defeat” published in the Ukrainian daily Den on 30 March:
subheadings have been inserted editorially:

The risk of non-fulfilment of the budget in March alone amounts to 700m
hryvnyas [about 140m dollars]. As a result, the reserve of optimism of the –
for now – still ruling party has noticeably blown away, while administrative
vain attempts urgently to instil order have become visible to the naked eye.

These circumstances and intentions defined the course of yesterday’s sitting
of the Cabinet of Ministers, at which, it seems, nobody was presented as an
example, while there was an intense search for guilty parties, although
guilty of precisely what is not yet really clear: maybe of losing the
election, maybe of threats to the budget and the economy as a whole. Those
guilty of the one and the other coincided in a surprising manner.

According to a report from Finance Minister Viktor Pynzenyk, who also
suffered a double economic and political blow, the operational deficit in
the overall fund of Ukraine’s state budget at present amounts to 3.5bn
hryvnyas (thanks to the arrival of VAT in the last days of March according
to the quarterly results as a whole, it will be less than 3bn hryvnyas).

The minister is confident that formally the first quarter deficit will be
entered into the annual deficit plan, which amounts to 12bn hryvnyas.
However, he is worried that last year the country did not have a deficit
until 1 July (look how well Yuliya Tymoshenko’s government worked, so it
goes).

And the finance minister there and then delivered a verdict: the worsening
of the budget indicators happened because of big enterprises that in the
first quarter were operating according to offshore schemes with the aim of
reducing their tax payments.

Pynzenyk said that 41 per cent of exports were carried out through offshore
companies. [Passage omitted: details of major enterprises operating through
offshore companies]
DONETSK REGION ACCUSED
And references to more expensive gas and its restricted supplies, in his
opinion, are not sufficient justification for such a fall in taxes. The main
culprit here is Donetsk Region, which has seen a threefold drop in tax
payments, and a six-fold drop in profit taxes compared with last year.

The minister said that the state budget was being underpaid 250m hryvnyas in
profit tax in Donetsk Region. Most taxpayers in Dnipropetrovsk and Donetsk
regions “stopped paying profit tax”.

The Mittal Steel Kryvyy Rih [steelworks] company made a twofold drop in
profit tax payments compared with last year, the Northern Ore Enrichment
Plant – twofold, the Central Ore Enrichment Plant – threefold, the Interpipe
corporation – twofold, the Nikopol Ferroalloys Plant – ninefold,
Kryvbasvybukhprom – tenfold and the Mariupol Illich Metallurgical Plant –
tenfold.

Let us note that earlier the head of the Donetsk regional state
administration, Vadym Chuprun, reported that the 26 per cent growth in
budget payments planned by the Finance Ministry for 2006 was “unrealistic”.

In the governor’s opinion, the plan for profit tax payments was fulfilled
only by 46 per cent because of a fall in the volume of industrial output
caused by a restriction on gas supplies at the beginning of the year.

He reported that Donetsk Region enterprises in January and February sent
1.117bn hryvnyas to budgets of all levels, which is 6.7 per cent more than
in the same period of the previous year, and he reproached the Finance
Ministry for indebtedness in returning VAT.

However, the finance minister asserted that Naftohaz Ukrayiny [national oil
and gas company] was also underpaying a significant amount of tax: “It is
paying 42 per cent of what it paid in January-March last year”, and has also
not paid VAT amounting to 600m hryvnyas. “For February and March

Naftohaz has paid none of its declared VAT,” the minister said.

Prime Minister Yuriy Yekhanurov did not especially react to Naftohaz,
although he wanted to have conclusions regarding the Donetsk people directed
at replenishing the budget. “The region has been collapsing for a year and a
half now, and we cannot stand idly by.

At the final sitting of the Cabinet of Ministers there will be a separate
report on this region, since industrial output for the past two years there
has fallen. Either there had previously been a forgery there, or what is
happening there – we need to make a complete work analysis,” Yekhanurov

said yesterday in frustration, and he threatened many heads of state regional
administrations with dismissal over the results of work in the first
quarter.

It is thought that the prime minister in the present circumstances should
have refrained from such statements. However poorly the regions named
performed in the first few months of the year, “repressions” against their
leaders will be viewed primarily as a punishment for an unsatisfactory
result at the elections.
OFFSHORE SCHEMES TO MINIMIZE TAX
On the other hand, it is fairly hard to rebuke the governors for the fact
that private enterprises located on their territory (regardless of the
political sympathies of their owners) engaged in minimizing their taxation
with the help of non-resident (offshore) companies.

Whereas immediately after the orange forces came to power, administrative
pressure on business, masked as revolutionary expediency, evidently produced
some tax fruits, before the election business reacted to the weakening of
the authorities with new offshore schemes used as an element in the system
of security and insurance both against threats of reprivatization and
possible political repressions.

This is how one of numerous seminars for business explains the use of
offshore companies. The simplest and most widespread task that is addressed
with their help is achieving a certain degree of anonymity for the owner of
the business.

Thus, it fairly often makes sense not directly to own shares or parts of
Ukrainian enterprises, but shares in a foreign company that in turn owns
Ukrainian structures.

This achieves a somewhat greater flexibility, and additional benefits are
acquired, including of a taxation nature. Those attending the seminar learn
ways of minimizing their tax in foreign economic activity and methods of
protecting their assets with the use of international offshore and low tax
companies.

Let us note that the premises where such seminars are held are well attended
not only in Donetsk, but also in Kiev and other big cities. It looks as if
the new authorities have not fulfilled their promises made to business, and
it is precisely there that we should seek the root of the double defeat of
the main ruling party, which has done virtually nothing to lower the tax
burden, although they have talked so much about it. -30-

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4. UKRAINE: PRESIDENT YUSHCHENKO SIGNS LONG AWAITED
SECURITIES AND STOCK MARKET LAW

Troika Dialog, Moscow, Russia, Sunday, April 2, 2006

MOSCOW – Ukraine’s President Viktor Yuschenko has signed the new
Law on Securities and the Stock Market, which was passed by the Rada
on February 23 with the minimal required majority of 226 votes.

Among the key issues covered by the law are:
[1] A more detailed classification of securities
[2] Procedures for the transmission of shareholders rights
[3] Requirements and conditions for IPOs in Ukraine
[4] A greater role for organized stock exchanges
[5] Definition of mandatory information to be disclosed by a public
company and the means and terms for information disclosure
[6] Regulation of the usage of material and nonpublic information

The law is viewed as very positive for the market and is expected to
improve market transparency and efficiency. -30-

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5. POLISH ELECTROMAGNETIC RELAYS MANUFACTURER RELPOL
SAYS MAJORITY OF ITS PRODUCTION TO BE IN UKRAINE

Polish News Bulletin, Warsaw, Poland, Wednesday, Mar 29, 2006

WARSAW – According to Relpol electromagnetic relays manufacturer CEO
Mariusz Wrobel, his firm intends to double the production of miniature relays.
At present, the sale of miniature relays constitutes 35 percent of the
company’s revenue and Relpol’s target is 50 percent.

The majority of the production will be carried out in Ukraine, which is a
part of an already two-year-long process of moving abroad to cut costs.
According to Wrobel, the average cost of employing a Pole equals $800,
while the cost of a Ukrainian employee is $150.

Apart from factories in Ukraine, Relpol also has employees in Lithuania,
however the latter country is becoming more expensive as far as labour
costs are concerned. Relpol has also recently discarded the idea to open a
division in India.

In Poland, the company has decided to close the division in Zielona Gora
and move production to Zary. This should yield a net profit of ZL1.5m.
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6. UKRAINIAN MINORITY SHAREHOLDERS SUE TWO RUSSIAN
BUSINESSMEN OVER NIKOPOL FERROALLOY PLANT

Dow Jones Newswires, Moscow, Russia, Friday, March 31, 2006

MOSCOW — Minority shareholders in Ukraine’s Nikopol Ferroalloy Plant
(N4AA.XE) have filed a lawsuit in a U.S. court alleging that Russian
businessmen Viktor Vekselberg and Alexander Abramov paid large bribes to
Ukrainian authorities, Russian newspaper Vedomosti reported Friday.

The complaint, obtained by the newspaper, alleges that the Russian metals
magnates, along with Ukrainian tycoon Viktor Pinchuk, gave Ukrainian
officials $50 million in an attempt to block the de-privatization of the
plant.

Vekselberg and Abramov agreed to buy a controlling stake in the Nikopol
plant for $350 million-$380 million from Pinchuk in mid-2005, according to
the paper. A Ukrainian court later ruled the earlier sale of the plant to
Pinchuk had been illegitimate.

The suit was brought by companies that own 10% of the plant. Ukrainian
businessman Igor Kolomoysky is listed in the suit as beneficiary owner of
the companies, the paper said.

The suit alleges losses of hundreds of millions of dollars by the plaintiffs
due to trading companies belonging to the claimants selling raw materials to
the plant at inflated prices and buying finished products at a discount.

The newspaper quoted a spokesman for Pinchuk’s Interpipe Corp. calling the
claim “absurd,” and a spokesman for Vekselberg’s holding company Renova
calling it “slanderous.”

A spokesman for Abramov told Dow Jones Newswires: “We have received no
notification relating to this claim from the court and are thus not able to
comment any further on it at the present.”

Besides Abramov, Vekselberg and Pinchuk, the suit also names Pinchuk
associates Jerry Margulis and Alexander Novack.

The case claims U.S. jurisdiction because Margulis and Novack hold U.S.
green cards while Vekselberg is a naturalized U.S. citizen, another Russian
newspaper, The Moscow Times, quoted a lawyer for the plaintiffs as saying.

Abramov is a major shareholder and chairman of Russian steel company Evraz
Group S.A. (EVR.LN). Vekselberg owns Russia’s SUAL Group (SUAL.RS)
and is a major shareholder in Anglo-Russian oil producer TNK-BP (TNBP.RS).
(Newspaper Web site: http://www.vedomosti.ru). -30-
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Moscow Bureau, Dow Jones Newswires (+7 095) 974 8055
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7. UKRAINE AGREES TO WTO ENTRY TERMS WITH PANAMA

Viktor Riasnyi, Ukrainian News Agency, Kyiv, Ukraine, Sat, April 1, 2006

KYIV – Ukraine has agreed to the terms of entry in the World Trade
Organization with Panama. The press service of the Economics Ministry
announced this.

“On March 30 we have signed a bilateral protocol on mutual access to markets
of goods and services with Panama as part of its bid to secure admission
into the WTO,” the statement reads. Panama is the 45th state Ukraine aggress
WTO entry with.

Ukraine is presently in talks with Australia, Kyrgyzstan, and Taiwan on WTO
entry. As Ukrainian News earlier reported, Ukraine aims to complete all the
bilateral negotiations on admission into the WTO before the end of March so
that it can join the WTO by July 2006.
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8. AUSTRIA’S BANK BURGENLAND IS UNFRIENDLY TOWARDS
BID BY UKRAINIAN CONSORTIUM TO BUY THE BANK

COMMENTARY: By Volodymyr Obolonsky
The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

Owners of the Austria’s Hypo-Bank Burgenland Aktiengesellschaft decided
against selling it to the consortium of Ukrainian companies, namely the
Mariupol-based Illich metallurgical plant, UkrPodshipnik, Aktiv-bank and
SLAV Handel, Vertretung und Beteiligung Aktiengesellschaft of Austria which
offered 140 million euros for a controlling stake worth EUR3.3 billion,
compared with the EUR100.3 million bid made by the Austrian insurance
company GraWe – the winner of a privatization competition.

The formal reason behind that was a long term of six months to obtain
permission from Finanzmarktaufsicht, the local body of financial monitoring.
As a matter of fact, the Austrians fear to let Ukrainian capital into their
market. In late February Finanzmarktaufsicht voiced doubt about the ability
of Ukrainian investors to develop transparent management of the bank.

“So, Ukraine has been given to understand that our investments are unwanted
in the European Union. Austria doesn’t allow Ukrainian capital to get access
to its market, and it didn’t even trouble to check the legality of the
funds,” stated the consortium.

According to experts, given that the EU is a clubby economic system,
Ukrainian businessmen should skirt artificial barriers on the way of capital
and export by investing in its member countries. The Austrian bank’s
unfriendly act towards the Ukrainian consortium suggests that Kiev should
protect its national interests as well.

Allegations about fetishist free-market values, which are made by EU
bureaucrats, sometimes reek of double standards and hypocrisy. Many
observers, including The Ukrainian Times, think the government made a bad
mistake in reselling the steel mill KryvorizhStal when the deal was based on
the highest bid only. They say the Orange team was far too quick to sell out
to foreigners during the downturn.

At present, business is faced with fierce competition and Ukraine must
strive to hold the balance of domestic and foreign capital so as to fully
meet its national interests. Experts believe that to prevent this from
happening again, Kiev should learn from Austria’s experience.

In that case, the Austrian bank Die Erste which has homed its radar on the
Ukrainian market may well be the first to be taught a good lesson on a
reciprocal basis.

What is at stake is how aggressively the EU and particularly Austria deal
with such spats, and whether or not they are ready to tear down the many
barriers that still remain. -30-
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9. ODESSA-BRODY-PLOCK PIPELINE IS RENTABLE

New Europe, Athens, Greece, Monday, April 3, 2006

Transportation of the Caspian oil by pipeline from Odessa through Brody to
the Polish town of Plock and then further to the Western Europe is rentable.
And already the first year of operation will make a profit, the
international consultative consortium said last week as it presented a
business plan to representatives of the Polish and Ukrainian governments,
the European Union, and interested firms at the presentation of the study.

RBK-Ukraine quoted Polish Minister of Economy Piotr Wozniakas as saying the
pipeline lengthened from Odessa to Plock could begin to operate in 2009. For
that it is required to invest to its completion about USD 450-500 million,
Radio Liberty reported.

The International Consultative Consortium, which conducted the study,
advised to lay the Polish section of the Odessa-Brody-Plock pipeline by the
shortest way making a detour from Warsaw from its northern side, not as it
has been proposed earlier through the southern densely-populated regions.
This variant will diminish the costs of the projects by USD 100 million and
will accelerate the process.

The European Union backs up the project of the pipeline signed by Poland and
Ukraine in 2003. Secretary for issues of energy engineering and transport of
the EU Commission, Fauzi Bensarsa, expressed hope that a new pipeline would
be connected to the existing network of the Druzhba oil pipeline, by which
Russian oil comes to Germany.

Polish-Ukrainian Consortium Sarmatia was established to construct and
operate the Odessa-Brody-Plock pipeline. Its co-chairman from the Polish
party, member of the administration board in the Enterprise for Operation of
Oil-Pipelines (PERN), Cezary Levandowski, in the talk from Radio Liberty
confirmed the forecasts of the Polish minister.

“In fact, if the conditions were favourable, this project would be
recompensed already during the first year of operation. That is that further
on it would make a profit,” he said.

Lewandowski said he hopes that the European Union will take part in the
financing of the project. The European Investment Bank is interested in
providing credit.

Europe has approved the final project of completing the Odessa-Brody
pipeline. A consortium of companies – SWECO PIC, ILF GmbH and
KANTOR – has presented a frame project of completing the Odessa-Brody-
Plock works which are financed by the European Union.

Bensarsa stated in Warsaw on March 15 that the European Commission reckons
on the first deliveries of the Caspian oil by the Odessa-Brody-Plock route
in 2009. “We reckon on the beginning of operation of the pipeline in 2009,”
said Bensarsa said. By the estimations of the European experts the
construction of the pipeline will take about 18 months.

Bensarsa has emphasised that conducted researches are evidence of the
growing market of consumers of the Caspian oil in Europe and the increase of
its production at the Caspian Sea, which guarantees that the project has
prospects.

He emphasised as well that the issue of diversification of energy carriers
is one of the most actual for the European Union, noting, that the pipeline
will make it possible to increase the energy independence of the EU. He
added that the European market of oil consumers differs by high paying
capacity.

According to Bensarsa, the international consortium advises to complete the
Ukrainian oil pipeline Odessa-Brody to Polish Ozhechowo. He has noted that
from Ozhechowo to Plock a pipeline was laid, which may be used to deliver
the Caspian oil by the Odessa- Brody-Plock route.

By Bensarsa’s data, this route has been chosen from five alternatives as it
is the shortest and make it possible to save USD 100 million in the
construction of the pipeline and pump stations. Bensarsa said the
Brody-Ozhechowo is shorter than the other routes by 70 kilometres.

Bensarsa has refused to give the price for the construction of this section,
noting that promulgation of these data are the prerogative of the state
oil-transportation companies of Ukraine and Poland – Ukrainian joint stock
company Ukrtransnafta and Poland’s Pern Przyjazn.

Ukrtransnafta Press Secretary Oksana Balyun said the Brody-Ozhechowo
route is the most simple as it does not come through rivers and nature
conservation areas in Poland. Ukrtransnafta has earlier stated that USD
350-450 million in investments will be required for completing the
Odessa-Brody pipeline to Plock. -30-
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10. ROMANIA PROPOSES BUILDING BLACK SEA EUROPEAN ZONE
Ukraine signs an initiative, Russia does not sign

New Europe, Athens, Greece, Monday, April 3, 2006

Deputies from countries around the Black Sea last Thursday issued a
statement, expressing their support for a proposal Romania put forward on
building a Black Sea European zone, the Romanian Press Agency reported.

At a two-day conference held in Constanta, Romania, on regional cooperation
in the Black Sea region, officials from Armenia, Azerbaijan, Bulgaria,
Ukraine, Georgia, Greece, Turkey, Moldova and Romania signed an initiative
to set up a body to promote regional economic cooperation.

Russian deputies expressed reservations on the proposal and did not sign
the statement. A senior Russian foreign ministry official said that such an
organisation seems to be a duplication of the Black Sea Economic
Cooperation Organisation founded in 1992.

Romanian Foreign Minister Mihai Razvan Ungureanu said it was necessary to
establish such a body because the economic cooperation in the region is
fairly weak. General-Secretary of the Council of Europe Terry Davis shared
the Romanian opinion, saying such an organisation would boost cooperation
in the Black Sea region. -30-
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11. SEVEN COMPANIES TO TAKE PART IN KERCH OIL AND GAS
FIELD TENDER REGARDING PRODUCTION-SHARING AGREEMENTS

New Europe, Athens, Greece, Monday, April 3, 2006

Seven companies have been accepted to participate in a tender for concluding
production-sharing agreements (PSA) on the Prikerchenske oil and gas field,
Interfax reported last Monday.

An interagency commission for PSA agreements ruled that the Hunt Oil Co
of Ukraine, Shell, ExxonMobil, Vanco International Limited (the three last
based in the United States), as well as Turkiye Petrolleri AO (TPAO,
Turkey), Alphex One Limited (Britain) and Ukrnafta – will be able to take
part in a tender for the right to sign a production sharing agreement (PSA)
for prospecting oil and gas deposits in the Black Sea shelf located on the
territory of Ukraine in the Kerch zone.

Stanislav Stashevsky, the commission chairman, earlier said that 12
companies had obtained tender documents, seven of which had paid for the
right to participate in the tender. Shell and ExxonMobil filed a joint bid,
as did TPAO and Alfex One. -30-
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12. BUSINESS NEWS: THE UKRAINIAN TIMES
Rape seed JV, Vogt Electronic, B&K Management, Energy Saving Program

The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

[1] Cascade-Production Ltd., German EOP Biodiesel AG joint venture —
A contract for a joint venture to process rape has been signed by the
Ukrainian firm Cascade- Production Ltd. and the German company EOP
Biodiesel AG in the Volyn oblast. All western regions of Ukraine will take
part in the project. As expected, a new plant is to be built no later than in
September 2007. It will process annually 300,000 tons of rape to produce
biodiesel fuel.

[2] German Vogt Electronic chooses Chernivtsi region —
The German company Vogt Electronic is investing 30 million euros in the
economy of the Chernivtsi region. Recently, its director has examined shops
of the former defense industry plant Kvarts.

Plans are in hand to manufacture components for appliances of such
companies as Siemens, Bosch and Philips and expand production. Regional
authorities promised the Germans to allocate a plot of land for building the
modern plant.

[3] Swiss B&K Management AG in Gostinitsa stake —
The Antimonopoly Committee has permitted the Swiss joint-stock company
B&K Management AG to buy a stake in ownership capital of the Crimean
limited liability company Gostinitsa.

Owing to this purchase, B&K Management AG will control more than 50%
of votes in the higher management body Gostinitsa Ltd.

B&K Management AG deals in business Management, and the main type of
Gostinitsa’s activity lies in rendering of services related to real-estate
management.

[4] Program for energy saving adopted in Zaporizhia —
In Zaporizhia several groups of experts are working on the introduction of
energy-saving technologies. Outdated lamps are replaced with new ones that
enables saving of up to 30% of electricity. The concept of a program for
energy saving in the city economy for the period ending in 2010 has been
approved.

It includes such directions as “The economical doorway lamp,” “A roof” and
“A warm main entrance”. One hryvnia invested in these measures yields four
hryvnias. According to Vasily Bazdyrev, head of the housing department, the
first step forward in energy saving has been made: metal doors were hung in
the majority of main entrances to apartment houses.

In addition, the houses are being equipped with instruments that measure and
record the amount of consumed water and heat. -30-
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13. IRISH COMPANY ELEMENT SIX ABRASIVES ACQUIRES
POLTAVA DIAMOND PLANT IN UKRAINE
Largest producer of synthetic industrial diamond in Ukraine and CIS.

Element Six, Ltd., Shannon, Co Clare, Ireland, Friday March 31, 2006

SHANNON – Element Six Abrasives announced today the acquisition of
a majority of the shareholding of OJSC “Poltava Diamond Plant”, a Ukrainian
diamond synthesis plant which produces resin bond synthetic diamond.

This plant complements the other major diamond synthesis locations of
Element Six Abrasives in Sweden and South Africa, each of which has
specialised in specific synthesis technology and product manufacture. A
further specialised synthesis plant will be opened in China later this year.

The output from the Ukrainian plant will be supplied to the global
processing and added value centre of Element Six Abrasives in Shannon,
Ireland where the product will be adapted mainly for internal use in the
processing of polycrystalline products.

Output from all of the other Element Six synthesis plants follow a similar
routing before they are supplied to global markets through the Element Six
distribution network of companies.

Mr Christian Hultner, CEO of Element Six says: “This acquisition provides a
strategic addition to the Element Six Abrasives’ capability in synthetic
diamond grit in a low cost environment and further illustrates our
commitment to the industrial diamond industry.

We look forward with enthusiasm to working closely with our new Ukrainian
colleagues who have demonstrated such commitment and competence to the
development of their business in the past.”
ABOUT ELEMENT SIX ABRASIVES
Element Six is the world’s leading supplier of high quality industrial
diamond and the complementary cubic boron nitride (cBN) abrasive materials.
These materials are available both in their single crystal and
polycrystalline forms, for abrasive and non-abrasive industrial uses. The
Element Six Abrasives group of companies operates internationally with
processing and manufacturing facilities in Ireland, Sweden, South Africa and
Wales.
ABOUT OJSC “POLTAVA DIAMOND PLANT”
Poltava Diamond Plant was established in 1966 as the largest and most
important enterprise for industrial diamond in the USSR. In 1996 the company
was privatised by the Ukrainian State Property Fund and reorganised as an
open joint stock company. Today it is the largest producer of synthetic
industrial diamond in Ukraine and the whole of the CIS.
———————————————————————————————–
Contact: Adreas Anker, Senior Manager Group, Communications,
Element Six Ltd, Shannon, Co Clare, IRELAND, +353-61-471655
http://www.e6.com/e6/page.jsp?pageid=1394; info@E6.com
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14. EUROPEAN BUSINESS ASSOCIATION (EBA) ELECTS GENERAL
MANAGER OF TETRA PAK UKRAINE AS NEW PRESIDENT

The Ukrainian Times, Kyiv, Ukraine, Monday, April 3, 2006

Fredrik Svinhufvud, General Manager of Tetra Pak Ukraine, has been elected
the President of the European Business Association (EBA), one of the leading
organizations of international business in Ukraine.

According to results of an election held at the EBA Board meeting on March
20, Mr. Svinhufvud has replaced in this position Bjorn Markstedt, General
Manager of Avis Rent a Car & Fleet Services Ukraine, who served as the EBA
President in 2003-2005.

Jorge Intriago of PricewaterhouseCoopers Ukraine and Alexander Pisaruk of
ING Bank Ukraine will continue their vice-presidency at the EBA.

The EBA Board is a collective executive body of the Association responsible
for its strategy and activity. Members of the Board are: the President, two
Vice-Presidents and those members of the Board, who are elected from among
representatives of full EBA members. All members of the Board shall be
elected by the General Meeting for a period of two years. The EBA Board is
accountable to the Association’s General Assembly.

The EBA Board members represent leading European companies operating in
Ukraine. It is worth emphasizing that all Board members work on voluntary
basis, contributing their time and experience to continuous EBA development
primarily aimed at protecting interests of the Association’s members
operating in Ukraine.

The EBA is a non-governmental organization that brings together over 550
European, international and domestic companies in Ukraine. Establishment of
the EBA was initiated in 1999 by the European Commission interested in
supporting European business in Ukraine and developing EU-Ukraine relations.

Taking into account Ukraine’s priority of European integration the
Association sees its core mission in developing cooperation between European
business and state authorities of Ukraine in order to create a favorable
business environment and attracting foreign direct investment into the
Ukrainian economy. -30-
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15. UKRAINE’S RICHEST MAN EMERGES FROM SHADOWS AFTER
PARLIMENTARY ELECTION WIN BY PARTY OF REGIONS
Akhmetov was number seven on the Regions party list.

Agence France Presse (AFP), Kiev, Ukraine, Sunday, April 2, 2006

KIEV – After years of being Ukraine’s grey cardinal, the nation’s
39-year-old richest man Rinat Akhmetov has come out of the shadows
in the wake of his pro-Russian party’s win in a key parliamentary poll.

The baby-faced tycoon had studiously avoided the media spotlight in the
years when he was a key insider of the former regime and in the year
following the “orange revolution,” after that regime was ousted and his
influence and fortune was in doubt.

But after the Regions Party, in which Akhmetov’s influence is thought to
rival that of its leader Viktor Yanukovych, won last weekend’s ballot with a
convincing 32 percent of the vote, the billionaire from the eastern city of
Donetsk held a coming-out party in the capital.

“I am thankful that you haven’t lost interest,” a grinning Akhmetov said to
chuckles from dozens of reporters at a packed press conference in Kiev. “I
think that you could have some questions for me that I’d like to answer
myself.”

For the next hour, a constantly-smiling Akhmetov deftly parried questions
about his personal life, the origins of his fortune, his alleged links to
organized crime, and his new political future.

He said his party was ready to unite with “orange revolution” forces to
form the next government, providing the cabinet’s focus was on economic
policies.

“There are marriages of love and marriages of convenience… in our case,
there is no love but a marriage of convenience is possible,” he said. “An
agreement is when goals are clearly identified… our main goal is to ensure
economic growth.”

When asked what post he hoped to get in parliament, Akhmetov showed he had
a sense of humor. “I will head the committee against organized crime,” the man
who has been rumored for years — allegations never proven — to have links
with the criminal world said to roars of laughter from the gathered
reporters. “But seriously, I will work as a deputy and am not aiming to head
anything.”

He also denied the criminal rumors and said he has legally earned his
fortune, which the US-based Forbes magazine estimated this year at 1.7
billion dollars. “Insofar as my criminal past, I think in 2005, law
enforcement authorities audited my past and didn’t have a single question
for me,” he said. “I have an absolutely legal business with an absolutely
transparent ownership structure.”

Akhmetov is the head of System Capital Management, a holding company that
includes banks, media, metallurgy, coal, steel, telecommunications, energy
and insurance concerns, among others. He said he owned a 90-percent stake in
the firm, and his wife owned the other 10 percent.

Akhmetov has said he would delegate management of the firm to others during
his time in parliament. He is also the head of the Donetsk-based Shakhtar
football club, which became Ukrainian champions in 2005.

Akhmetov was one of the key insiders of Ukraine’s former regime under
president Leonid Kuchma. In 2004, he along with Kuchma’s son-in-law
bought the nation’s largest steelmaker Krivorizhstal for 800 million dollars in
what many said was a fixed deal. After the “orange revolution,” the state
took the plant back and re-sold it last year to the world’s top steelmaker
Mittal Steel for 4.8 billion dollars.

Following the “orange revolution” and vows by its leaders to clean up
corruption, Akhmetov left the country. He returned when the “orange” team
fell apart amid bitter infighting and mutual accusations of corruption.

He is widely believed to have financed Yanukovych’s Regions Party, which
capitalized on an economic downturn and disenchantment with the “orange”
team to grab a convincing first place in last weekend’s ballot. Akhmetov was
number seven on the party list. -30-
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16. FULL VOTE-COUNT OF UKRAINE’S PARLIAMENTARY ELECTION

UNIAN news agency, Kiev, in Ukrainian 1709 gmt 30 Mar 06
Central Electoral Commission website, Kiev, in Ukrainian 30 Mar 06
BBC Monitoring Service, UK, in English, Thursday, Mar 30, 2006

KIEV – Ukraine’s Central Electoral Commission has announced the results of
counting all the ballots cast in the 26 March parliamentary election. A
total of 25,360,606 ballots were processed, out of which 489,797 (1.93 per
cent) were found invalid, the Ukrainian news agency UNIAN quoted the
commission’s head, Yaroslav Davydovych, as saying at a news conference
on 30 March.

A total of 25,352,243 voters took part in the election, Davydovych said,
according to the agency. Out of them, 449,924 people (or 1.77 per cent)
voted against all, Davydovych said.

The following results of the full vote-count were posted on the Central
Electoral Commission’s web site. They are preliminary and based on
electronic data received by the commission, rather than on paper copies
of reports submitted by local electoral commissions.

1. Party of Regions 32.12 per cent; 8,144,485 votes;
2. Yuliya Tymoshenko Bloc 22.27 per cent, 5,648,345 votes;
3. Our Ukraine bloc 13.94 per cent; 3,536,459 votes;
4. Socialist Party 5.67 per cent; 1,439,624 votes;
5. Communist Party 3.66 per cent; 928,501 votes;

[NOTE: Five parties received over 3 per cent of ballots cast
which is what is needed for a party to be elected to parliament.]
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6. People’s Opposition bloc of Nataliya Vitrenko 2.93 per cent;
743,125 votes;
7. People’s Bloc of Lytvyn 2.43 per cent; 618,060 votes;
8. Ukrainian People’s Bloc of Kostenko and Plyushch 1.87 per cent;
475,636 votes;
9. Viche party 1.74 per cent; 443,559 votes;
10. Pora – Reforms and Order Party bloc 1.47 per cent; 372,931 votes;

11. Ne Tak (Not Right) opposition bloc 1.01 per cent; 256,836 votes;
12. Revival party 0.96 per cent; 244,862 votes;
13. Bloc of Yuriy Karmazin 0.65 per cent; 165,820 votes;
14. Green Party 0.54 per cent; 137,845 votes;
15. People’s Democratic Party bloc 0.49 per cent; 126,741 votes;

16. Party of Ecological Rescue ECO Plus 25 0.47 per cent; 120,107 votes;
17. Green Planet party 0.38 per cent; 96,746 votes;
18. Freedom all-Ukrainian association 0.37 per cent; 94,747 votes;
19. Peasant Party of Ukraine 0.32 per cent; 81,397 votes;
20. Lazarenko Bloc 0.31 per cent; 80,521 votes;

21. Party of National Economic Development of Ukraine 0.23 per cent;
60,162 votes;
22. For Union bloc 0.20 per cent; 53,213 votes;
23. Party of Pensioners of Ukraine 0.20 per cent; 51,099 votes;
24. Derzhava-Labour Union bloc 0.14 per cent; 36,562 votes;
25. Third Force party 0.13 per cent; 35,196 votes;

26. People’s Movement of Ukraine for Unity 0.13 per cent; 34,728 votes;
27. Party of Putin’s Policy 0.12 per cent; 32,079 votes;
28. All-Ukrainian Party of People’s Trust 0.12 per cent; 30,445 votes;
29. Ukrainian Party of Honour and Fighting Organized Crime and
Corruption 0.11 per cent; 28,898 votes;
30. Party of Patriotic Forces of Ukraine 0.1 per cent; 26,627 votes;

31. Ukrainian Conservative Party 0.1 per cent; 25,574 votes;
32. Working Ukraine party 0.09 per cent; 25,094 votes;
33. Power to the People election bloc 0.09 per cent; 25,032 votes;
34. Union. Chernobyl. Ukraine ecological party 0.09 per cent; 24,033 votes;
35. Social-Christian Party 0.09 per cent; 23,557 votes;

36. Election Bloc of Borys Oliynyk and Mykola Syrota 0.08 per cent;
22,126 votes;
37. Yevhen Marchuk Unity election bloc 0.06 per cent; 17,037 votes;
38. Ukrainian National Assembly 0.06 per cent; 16,632 votes;
39. Social Protection Party 0.05 per cent; 15,024 votes;
40. Sun bloc of non-party members 0.05 per cent; 13,009 votes;

41. New Force all-Ukrainian party 0.05 per cent; 12,820 votes;
42. Patriots of Ukraine bloc 0.05 per cent; 12,725 votes;
43. Liberal Party of Ukraine 0.04 per cent; 12,104 votes;
44. European Capital party 0.04 per cent; 12,042 votes;
45. Forward Ukraine party 0.02 per cent; 6,970 votes;

No less than 3 per cent of ballots cast are needed for a party to be elected
to parliament. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
17. NEW KYIV MAYOR PLANS TO ROCK THE BOAT

Concorde Capital, Kyiv, Ukraine, Sunday, April 2, 2006

KYIV – Kyiv’s new mayor-elect, Leonid Chernovetsky, has announced
ambitious plans from the Kyiv city council. Chernovetsky, the leader of
Pravex-Bank, has said that his key goals are rooting out corruption and
bringing the city economy out of the shadows.

The mayor to-be added that as part of this plan he would be requiring all
city employees to take lie detector tests. Together with the Yulia
Tymoshenko Block, with which the new mayor intends to work closely,
Chernovetsky’s party will have the majority of seats in the city council.

Concorde Capital:
All public officials are known to make sweeping promises when they are
elected to office, however, Chernovetsky is considered by most as a bit
of a loose cannon, and may do just what he says. At his bank it is
common practice for all employees to take random polygraph tests.
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
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========================================================
18. YUSHCHENKO’S CHOICE: GAS PRINCESS OR EX-CONVICT

Aton Capital, Moscow, Russia, Friday, March 31, 2006

Ukraine’s parliamentary election result failed to resolve central question:
whether to turn to Russia or the West. The counting of 99% of votes has
Viktor Yanukovich, leader of the Regions Party, representing the
Russian-speaking east, leading with 32%, former Prime Minister Yulia
Tymoshenko’s bloc second with 22.3% and President Viktor Yushchenko’s
Our Ukraine with 14%. The Socialist Party of Oleg Morozov [Olexander
Moroz, AUR Editor] has 5.7% Yushchenko now in familiar territory of
straddling national divide.

The lack of a decisive vote by the electorate leaves Yushchenko as kingmaker
similar to his presidential predecessors ­ with the option of either cutting
a deal with former rival Yanukovich and likely reconciliation with Russia,
or returning his former firebrand ally, Tymoshenko, to the prime minister’s
post six months after having sacked her. (Tymoshenko ruled out a coalition
with Yanukovich before the poll as she sought to maximize the vote in the
West of the country.)

Meanwhile, Ukraine’s PFTS rallied 20% ahead of the election ­ in line with
the RTS’s 26% gain ­ as investors speculated on the poll’s outcome (see
chart above). The rally was a new turn in the PFTS’s rollercoaster ride since
the Orange Revolution. The Ukrainian market had outpaced the RTS in 1H05
only to sputter in the second half of the year as the political crisis in
Kyiv deepened, ending 43% higher vs. the RTS’s 83% gain. Ukraine’s near-
term outlook uncertain amid property rights, gas price concerns.

Yushchenko’s options are to form a “Janus” coalition with Yanukovich, which
would result in no privatization revisions and Ukraine’s industrial giants
resuming investment as their property rights were guaranteed. A Yanukovich
government would also likely be well placed to negotiate better terms for
gas prices with Russia, after Kyiv’s January battle with Moscow resulted in
prices nearly doubling to $95 per 1,000m3.

A reformation of the Orange coalition of Yushchenko, the Socialists Morozov
and Tymoshenko, with the latter as prime minister would likely result in the
opposite. Tymoshenko has promised to overturn the privatizations of
thousands of businesses and has taken an overtly confrontational approach
to Russia, promising to tear up the most recent gas deal.

As a result, a Tymoshenko government would likely mean instability in the
near term amid property rights concerns and the potential for even higher
gas prices. The only qualifier is that the radical previous Tymoshenko prime
ministership ­ involving heavy doses of populism ­ came against the backdrop
of an approaching parliamentary election; this time, with the potential for
four years in government, she might adopt a more cautious approach
(though we remain skeptical).

In terms of the stock market, a Yanukovich government would likely trigger
a rally due to greater political stability and a Tymoshenko government
stagnation or decline.

We note that the PFTS’s daily turnover averaged just $5.3mn this year and
the local market’ss capitalization is $34bn (6% of the Russian market’s),
with four companies accounting for 70% of that. This low liquidity combined
with the potential for political instability in the event of a Tymoshenko
government suggests the potential for volatility.

Conclusion: In the event Yushchenko plays statesman and reaches out to
Yanukovich and the Russian-speaking east, we believe it would be worth
investors taking another look at Ukraine, as the recent rally in the PFTS
may prove sustainable.

In the event of a Tymoshenko government we would view Russia¹s political
stability and growing economy as more attractive and the more liquid RTS
is likely to easily outperform Ukraine’s PFTS. -30-
————————————————————————————————
LINK: http://www.anton.ru/en
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
19. HERDING CATS: WHITHER THE ORANGE COALITION –
AND REVOLUTION?

ANALYSIS AND COMMENTARY: By Markian Bilynskyj
Vice President and Director of Field Operations in Ukraine
U.S.-Ukraine Foundation, Kyiv, Ukraine, Friday, March 31, 2006

More than probably any other participant in the Ukrainian parliamentary
elections, Viktor Yanukovych’s Party of the Regions is facing up to the
truth of the saying that there are lies, damned lies, and statistics.

Having gained a plurality in the new Verkhovna Rada and initially declaring
that they will therefore be the “epicenter” of any negotiations on the
creation of a parliamentary majority, the Regions are now confronting the
very real possibility of being in opposition.

Some of the pronouncements by leading representatives of the Regions betray
a confusion regarding their predicament. Claiming to be prepared to
compromise on key issues in order to be a part of a governing coalition they
have offered often contradictory statements on exactly which questions are
core issues and which would be negotiable.

At present, the Regions are a frustrated force; a large fly trapped in a
relatively small bottle of their electorate’s making. Any realistic chance
of the Regions playing a leading role in the formation of a majority will
depend not merely on some crumbs but a substantial dish falling into their
lap from the table of negotiations being prepared by the Orange camp.

Thematically, it is possible to view the Rada elections as a fourth and
final round of the 2004 presidential elections. The initial returns reveal
that compared with his haul during the first round of those elections, Mr.
Yanukovych has lost around one third of his support and his party has been
confirmed as very much a regional power. The Regions have been unable to
build upon the inroads made by presidential candidate Yanukovych beyond his
native Donbas.

The Orange camp, including the Socialists, have largely retained their share
of the 2004 vote. However, within this broad picture there has occurred a
kaleidoscopic realignment of forces between Yuliya Tymoshenko’s BYuT and
President Yushchenko’s Nasha Ukraina.

Confident of receiving the blessing of the Orange electorate to dictate the
terms for creating a Rada majority and new government, Nasha Ukraina has
been humiliated by the strength of a protest vote that instead appears to
have given BYuT a mandate for continuing to implement the more radical,
socially oriented vision of the Orange Revolution Prime Minister Tymoshenko
was pursuing before her dismissal last autumn.

The arithmetic of the situation points to a straight Orange majority
consisting of BYuT, Nasha Ukraina and the Socialist Party. Indeed, all three
forces have publicly declared the inadmissibility of any other option.

However, reaching agreement will depend on the erstwhile
allies-in-opposition being able to overcome continuing deep personal
animosities and suspicions as well as substantial political and policy
differences. The presence of these pit-falls and obstacles within the Orange
camp multiplies the permutations and might yet produce an unexpected
outcome.

The immediate political future can be divided into two interrelated,
critical phases. The first involves the formation of a majority in the new
Rada. The second involves this majority then agreeing on a coalition
government. Failure to achieve these landmarks within a legislatively
defined timeframe could see the president choose to exercise his newly
acquired right to dismiss the Rada.

Agreeing in principle to the formation of an Orange majority is the
relatively straightforward part. The Socialists and BYuT have already signed
a draft agreement on cooperation. Nasha Ukraina, however, has declared it
can only approve the document after a party leadership gathering scheduled
for April 7.

While arguing the need strenuously to adhere to procedure when adopting
significant decisions, Nasha Ukraina’s position might just as reasonably be
interpreted as buying time in order to develop an effective strategy for the
more important phase of negotiating government portfolios, including,
obviously, the key post of prime minister.

Reduced to its essence, this tactic seems to reflect an increasing
desperation – a stalling for time in the hope that a credible alternative
might present itself to the looming specter of a Tymoshenko premiership –
something quite unpalatable to many of Nasha Ukraina’s key figures –
including, by some accounts, President Yushchenko himself.

Before the ballot, BYuT and Nasha Ukraina (at the latter’s initiative) had
agreed that the preeminent Orange force would propose their candidate for
prime minister. The Socialists have since accepted such a formulation.
Following Sunday’s shock results, BYuT has made it clear that this means Ms.
Tymoshenko.

This position is being presented as non-negotiable and is bolstered by the
incontrovertible fact that the combined vote for the Socialists and Nasha
Ukraina falls short of BYuT’s total. Nasha Ukraina’s maneuverings therefore
appear to be a backtracking bordering on a lack of good faith.

The disorientation is understandable. Lacking contingency plans, Nasha
Ukraina has almost been reduced to hoping a solution to their Tymoshenko
problem will arise deus ex machina.

BYuT is continually placing Nasha Ukraina on the defensive, accusing it of
prevaricating in order to strike a deal with the Regions. Nasha Ukraina has
begun hinting at the possibility, albeit still very remote, of accommodation
with the Regions under very specific conditions.

Betraying impatience, Ms. Tymoshenko has gone on record that if she does not
become prime minister then Nasha Ukraina will have to come to terms with a
Yanukovych premiership, thus implying that she is prepared to reach an
accommodation with the Regions. Adding to the confusion, she has also said
that if Mr. Yanukovych becomes prime minister, then BYuT will go into
opposition.

Since March 26 the political landscape has been shrouded in a fog of
threats, bluffs and posturing laid down by BYuT and Nasha Ukraina as they
maneuver for advantage. (In contrast, and as if to underscore what’s at
stake at the national level, negotiations between BYuT, Nasha Ukraina and
the Socialists following the March 26 local elections have already produced
several coalition agreements at the oblast and city levels.) But personal
animosities and political differences aside, there are also substantial
policy differences on the path to creating a stable, cohesive coalition
government.

The March 26 vote revealed that the populist message of the Socialists and
BYuT is closer to the expectations of the Orange electorate than Nasha
Ukraina’s more centrist post-September (ie, post- Tymoshenko government)
one. The Orange electorate wants the campaign against the vestiges of the
old regime to continue.

Some commentators have argued that with the next elections four years away,
Ms. Tymoshenko, as prime minister, will pursue more moderate policies than
in her previous incarnation. Maybe.

There are certainly lessons to be drawn from her previous time as head of
government. Equally, however, she could seek to consolidate her own and her
party’s popularly sanctioned preeminence within the Orange camp by
continuing from where she left off last September.

Such a turn of events would be acceptable to the Socialists. As part of the
coalition negotiations they are demanding free medicine and education within
five years and an almost stifling regulation of land sales.

(In addition – and, at the risk of speculating too deeply around
interpersonal dynamics – pursuing a more populist line might also appeal to
Ms. Tymoshenko for the very reason that it would be unpalatable for some
leading figures in Nasha Ukraina. The rubbing of salt into political wounds
is not an unknown practice.)

President Yushchenko is correct in observing that the debate on cabinet
portfolios and policies must be subordinated to the search for a common
ideology. History showed that relations within the Orange camp began to turn
sour almost immediately over differing interpretations of how President
Yushchenko’s “Ten Steps Toward the People” program should look in practice.

Thus, while consensus should be established over the desirability of an
Orange majority, strains could again test the viability of the reconstituted
Orange camp once the discussion turns to appointments and policy
implementation.

Any Rada majority has essentially thirty days to form a government. Although
the mechanism is still unclear it seems likely that each individual deputy
(rather than just the heads of the participating parties and blocs) will
sign a document committing them to working as part of the majority.

Moreover, a measure known as the “imperative mandate,” which prevents
deputies from migrating between factions, was introduced as a constitutional
amendment in order to enforce party and faction discipline. However, there
is no legal or political mechanism for preventing the emergence of
individual dissenters or ‘opposition’ groups within blocs or parties or for
expelling them once they arise.

Given the size of the Orange factions, given their simmering differences and
internal tensions it is not difficult to imagine individual deputies or
groups of deputies being tempted to break ranks and vote against the general
line either through conviction – or because of that bane of civilized
parliamentary behavior, bribery.

Nasha Ukraina is clearly struggling to regain the initiative and is
understandably trying to keep its options open. But there is an increasingly
clear thread running through the process that was set in motion after March
26.

For better or worse, whether through choice or through resignation, it will
be Nasha Ukraina – and by extension President Yushchenko – that will find
itself in the position of having the final word on whether the Orange
coalition survives, what the Orange Revolution will mean in terms of policy
content – and, indeed, whether the new Rada will be able to survive much
beyond what promises to be a very painful birth. -30-
———————————————————————————————-
Markian Bilynskyj is the U.S.-Ukraine Foundation’s Vice President and
Director of Field Operations in Ukraine. The views expressed by Mr.
Bilynskyj are his own, and do not necessarily reflect the views of the
U.S.-Ukraine Foundation. Mr. Bilynskyj may be reached at
mib@usukraine.kiev.ua.
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
20. “WHEN TYMOSHENKO COMES TO SEE YUSHCHENKO, YOU
SHOULD LOOK IN THE CLOSET – TO SEE WHETHER
YANUKOVYCH IS HIDING THERE”

ANALYSIS & COMMENTARY: By Serhiy Morda
Ukrayinska Pravda website, Kiev, in Ukrainian 28 Mar 06
BBC Monitoring Service, UK, in English, Sunday, Apr 02, 2006

President Viktor Yushchenko, whose Our Ukraine bloc came third in the recent
parliamentary elections, is extremely reluctant to see Yuliya
Tymoshenko -whose bloc came second – retake the post of prime minister, an
independent website has said. However, an alliance with the election winner,
the opposition Party of Regions, will do much damage to Yushchenko’s
reputation, the website added.

It named Economics Minister Arseniy Yatsenyuk and Donetsk-based businessman
Serhiy Taruta as possible other candidates for premiership. The website also
quoted extensively from politicians’ comments made after initial coalition
talks immediately after the elections.

The following is an excerpt from the article attributed to Serhiy Morda and
entitled “When Tymoshenko comes to see Yushchenko, you should look in the
closet – to see whether Yanukovych is hiding there”, published on the
Ukrayinska Pravda website on 28 March, subheadings are as published, except
where indicated:

During the night when the entire country was counting votes, a small
journalist’s dream came true for the author of these lines – to finally see
the person whom he had long sought. The American political expert working
for Viktor Yanukovych and Rinat Akhmetov [leader and key figure in the
opposition Party of Regions, which came first in the 26 March parliamentary
elections] who is named Paul Manafort.

He is about one meter 85 centimetres in height, speaks with a soft voice and
wears a blue suit. It had never been possible to meet him personally, but I
was lucky enough to see the specifics of his work. [Passage omitted:
Yanukovych comments on the night of 26 to 27 March.]
THE MORNING AFTER THE ELECTION
The leaders of the parties which participated in [President Viktor]
Yushchenko’s bloc [Our Ukraine] gathered in a building on Spaska Street in
order to understand what to do with the third place they got after the
election.

Although it was said officially that the historical political council of the
Our Ukraine bloc began at 1030, [bloc coordinator] Roman Bezsmertnyy was
not there. Just as he was not at the briefing for foreign diplomats which was
scheduled for the same time in the same office of Our Ukraine. Embassy
secretaries who were not informed that the meeting was cancelled left the
Our Ukraine headquarters a bit disheartened.

Bezsmertnyy arrived at work at 1200, three minutes after Prime Minister [and
No 1 on the Our Ukraine election list] Yuriy Yekhanurov’s cortege appeared.
Silence was the main circumstance surrounding the leaders of Our Ukraine on
this day.

Bezsmertnyy entered the building not saying a word in response to questions
on the results of a meeting with the president. His face was lit only by a
faint smile which got lost somewhere in his beard.

Meanwhile, life in the Our Ukraine headquarters was swirling. For some
reason Deputy Interior Minister Lidiya Porechkina and a deputy head of the
State Property Fund, Oleksandr Bondar, arrived as well as Yushchenko’s aide
on art issues Anatoliy Haydamaka and [businessman and former National
Security and Defence Council Secretary] Petro Poroshenko, who has been
distanced from the president.

And only after noon did the owner of the building, [Yushchenko’s former
first aide] Oleksandr Tretyakov, appear, whose disappointed face brought to
mind the bad times after the second round of the presidential election [in
2004].

Tretyakov related why Our Ukraine fared so badly. “We lost from 3 to 5 per
cent [of votes] because people had to queue for so long to vote,” he said.
“People came to polling stations, stood in line for an hour and berated the
authorities for not being able to organize the vote\[ellipsis as published],
and that is how they crossed over to the Tymoshenko bloc [led by
Yushchenko’s erstwhile ally during the Orange Revolution, former Prime
Minister Yuliya Tymoshenko, which came second in the polls].”

Other people working in the headquarters were also wondering how come the
Yuliya Tymoshenko Bloc so precipitously overtake Our Ukraine at the finish.

One person said the reason was that the [Our Ukraine bloc] member parties
participated separately in local elections. In particular, [National
Security and Defence Council Secretary] Anatoliy Kinakh’s Party of
Industrialists of Entrepreneurs ran independently for 21 regional
legislatures. And so, the bloc lost its unity and votes dissipated.

Another official cited Yekhanurov’s weak charisma and the absence of his
campaign tour. A third said western regions went to Tymoshenko after
Yushchenko said he could name partners in next government “only after 31
days”, and people in Galicia were frightened that Our Ukraine could unite
with Yanukovych.

Meanwhile, the political council of Our Ukraine ended, and the leaders of
the member parties quickly ran to their cars in the rain.

The first one out of the office was the leader of the Congress of Ukrainian
Nationalists, Oleksiy Ivchenko [also head of state-run oil and gas company
Naftohaz Ukrayiny], who sat in a Mercedes S550 – the very latest model, one
that has been coming off assembly lines for only a few months, which means
this car was purchased by the new authorities. Obviously, Ivchenko’s desires
could not be satisfied by the old automobile fleet of Naftohaz.

Asked if an Orange coalition would be set up, this man said assuredly:
“Absolutely!” And so Ivchenko and Tymoshenko, who slung mud at each other
during the campaign and took turns cutting the other’s throat will again
become a team thinking alike.

The next one out of the headquarters was the leader of the
Christian-Democratic Party, Volodymyr Stretovych, who looked even more
optimistic: “The course has been charted for an Orange coalition!”

A representative of Kinakh’s bloc, Mykola Onishchuk, stated even more
emphatically: “There is a decision to say it is expedient to form an Orange
coalition, as this meets the position of the people.”

It appeared Tymoshenko’s moment of triumph was approaching. But in fact
this time was slipping away from her.
THE DAY AFTER THE ELECTION
Perhaps someone had forgotten to inform these politicians, but Roman
Bezsmertnyy had not been summoned to Bankova Street [the address of the
Presidential Secretariat] to be congratulated on election victory. He got a
serious dressing down by Yushchenko for entering into negotiations with
Tymoshenko and practically agreeing to her conditions, by which she would
become prime minister and he parliament speaker. His actions were evaluated
as pessimistic and a case of panicked nerves.

At Yushchenko’s decision, Bezsmertnyy was distanced from negotiations with
Tymoshenko. This issue was entrusted to Yekhanurov. Another negotiator,
[former Justice Minister] Roman Zvarych, was replaced by another “cursed
friend” of Tymoshenko, Anatoliy Kinakh.

Moreover, some Our Ukraine members said local headquarters had been told to
prepare for repeat elections, at which Bezsmertnyy would no longer be HQ
leader.

In the afternoon, [Socialist Party leader] Oleksandr Moroz and [Moroz’s
first deputy head and No 2 on the party’s election list] Yosyp Vinskyy
arrived. They were inside for about an hour, and upon exiting said they
drank tea with their partners in the coalition. Besides this, the Socialist
leader arrived with a book of his own poetry and so the conversation was
carried out on lyrical notes.

Moroz said that they had common views with Our Ukraine on the principles
of a new coalition, but what these remained a secret. Moroz added that he
intended to meet Tymoshenko.

Asked about the future coalition, the Socialist leader said: “We’ll see.
Probably, yes… [ellipsis as published]”. But then Vinskyy took the
initiative and added: “We believe there should be a blue-and-yellow
coalition [the colours of the Ukrainian flag].”

Further Moroz let out a small secret: “The president’s position is that the
coalition should be a state coalition, and that colours should be put
aside.”

In his comments after the council, Anatoliy Kinakh did not mention
Tymoshenko in any way. “We will not negotiate in terms of a banal division
of posts. We must build a coalition which is based on encompassing national
interests. The name of the prime minister and speaker should be
consolidating,” Kinakh said, assuming the form of Yushchenko’s thoughts.

It became clear that Tymoshenko’s idea of quickly returning to the post of
prime minister was turning to ashes before her eyes. The process began to
slow down shamelessly.

One Our Ukraine leader, Mykola Katerynchuk, proposed a quite Jesuit
scenario: that creating the coalition should follow the congresses of the
bloc’s individual member parties and then the general congress of Our
Ukraine. And there the programme of the future government should be
approved.

He said that would take two or three weeks. It is clear that unless all the
parties in the Our Ukraine bloc support the prime minister, this procedure
will be used as an instrument for stopping Tymoshenko’s ambitions.

And a gesture by Yekhanurov was even more eloquent. When leaving the Our
Ukraine headquarters, he just ignored journalists, who were asking him to
explain what was going on in this political body – he did not even turn his
head.
THE EVENING AFTER THE ELECTION
Meanwhile, on Monday [27 March] Tymoshenko managed to speak with the US
ambassador [John Herbst]. And also hold an introductory meeting with the new
negotiators from Our Ukraine – Kinakh and Yekhanurov. At the meeting, a new
idea was voiced for the first time: that the future prime minister and
speaker should not provoke opposition from any member of the coalition.

As you know, earlier there was a different idea – the Yuliya Tymoshenko
Bloc, Our Ukraine and the Socialist Party would take turns choosing posts
and place whom they felt was needed in that place.

After that meeting, Yuliya Tymoshenko held a news conference where she
smiled and said “the Orange coalition has a chance of being formed” – the
results of the preliminary vote count showed that the three pro-Yushchenko
factions would have 255 seats. And that there was only one reason that they
might not unite.

“Right now a project is being put together to create a grand coalition (Our
Ukraine and the Party of Regions). The people who came with this project up
their sleeve will get absolutely nothing in the end,” Tymoshenko promised.
On Tuesday she was invited to meet Yushchenko.
YUSHCHENKO FAVOURS PREMIER OTHER THAN TYMOSHENKO
But when she leaves for Bankova Street, she should not be surprised if she
sees Yanukovych there. According to Ukrayinska Pravda’s sources, the
president is inclined to make a decision which will not make Tymoshenko very
happy.

So, Yushchenko is unshakable in his desire to not see Tymoshenko as prime
minister. And at the meeting he allegedly suggested the Yuliya Tymoshenko
Bloc, Our Ukraine and the Socialist Party\[ellipsis as published] and the
Party of Regions form one grand coalition.

And the head of government would not be Yanukovych or Tymoshenko or
Yekhanurov, but a neutral figure. “Someone like [Economics Minister Arseniy]
Yatsenyuk”, sources name his name again and again. He has become one of
Yushchenko’s favourites in the past six months.

Another compromise offered to Tymoshenko could be [ellipsis as published]…
Serhiy Taruta. Yuliya Tymoshenko allegedly suggested the co-owner of the
Industrial Union of Donbass herself a few months ago, when her popularity
ratings did not allow her to hope for coming second in the election.

Sources say that Yatsenyuk and Taruta’s names are conditional, and that
someone completely different could take their place.
Besides Yekhanurov and Kinakh, the idea of a neutral prime minister and a
super-grand coalition is being proposed by Petro Poroshenko, [head of Our
Ukraine parliamentary faction] Mykola Martynenko and Oleksandr Tretyakov.

The guarantee that this scenario is implemented could be a lack of support
for Tymoshenko’s premiership on the part of Our Ukraine. And the balance
could be tipped in favour of the fall of Yuliya Tymoshenko by the position
of the president, who is the honorary head of the [Our Ukraine] party. Back
to square one.

“Some think that Tymoshenko won this election. In fact, no-one won this
election. If she had won, then she would be able to form a majority without
us. But that is not the case. And so the results of the election can be
considered positive for the president, because he has the golden share in
appointing the prime minister.

And the Our Ukraine People’s Union is the mechanism for realizing this
golden share,” someone involved in decision-making at the HQ said,
explaining the logic future events to Ukrayinska Pravda.

There is both logic and a lack of logic here. If Our Ukraine is ready to act
in such a way right now, then the question of Yushchenko’s morals arises.
Back after winning the 2002 parliamentary election, he demanded that [then
President Leonid] Kuchma appoint him as prime minister.

Another thing. The Party of Regions will not want to take responsibility
under conditions in which it does not get the main government portfolios.

The ideologues behind the grand coalition are convinced that Tymoshenko will
be forced to give in. Otherwise, if she goes into opposition, there will be
an explosion within the ranks of her faction – the businessmen she has
brought along will not agree to live with marginal status for
three-and-a-half years.

And even the Yuliya Tymoshenko Bloc itself does not believe an imperative
mandate [i.e. a ban on swapping factions] will guarantee discipline in
parliamentary votes.

In order to defend herself, Tymoshenko secured written pledges from all her
MP candidates back in December, the last paragraph of which reads as
follows: “Should I violate the discipline of the faction, or should my
actions damage the reputation and authority of the Yuliya Tymoshenko Bloc, I
will be excluded from the faction or I will freely and without compulsion
give up my mandate as a Ukrainian MP.”

But the force of such a document is merely psychological pressure on the
“traitor”. No-one can force him to give up his mandate.
There are also people within Our Ukraine who insist Tymoshenko’s promises
that when she is made prime minister, she will not run for president in 2009
should not be believed. Without that, she simply cannot mobilize her voters
for the 2011 parliamentary election.
PROS AND CONS OF ALLIANCE WITH PARTY OF REGIONS
Supporters of a union between Our Ukraine and the Party of Regions argue
that Yanukovych’s people have taken regional and district councils in the
south and east of Ukraine, and that the situation in the regions remains
largely uncontrolled. And no-one doubts that a union between Our Ukraine and
the Party of Regions will do the most to make peace in the country.

On the other hand, a union between Our Ukraine and those from Donetsk will
deal the biggest blow to Yushchenko’s standing, and one of his own making.

And there is one other sensitive spot, which Our Ukraine has made for
itself. Since they went into the election as a bloc, then the bloc must make
the decision on a coalition. And here the ideological conflict begins –
because it is hard to imagine that a union with Yanukovych, even within the
framework of a wide-reaching coalition, will be supported by the People’s
Movement of Ukraine, the Christian-Democratic party of the Congress of
Ukrainian Nationalists.

There leaders are building their own political careers and believe they have
their own voters who will not forgive them such a “betrayal”.

But the main reason which is obstructing a wide-reaching coalition is that
Yushchenko’s team has again lost in information terms. In the one-and-a-half
days which have passed since the vote ended, Tymoshenko has sown the hope
of an Orange coalition among Orange voters, a coalition that was allegedly
supposed to be formed at 2200 on 26 March.

And all the further steps by Our Ukraine away from this idea will look like
a knife in the back – especially in light of the absolute inability of
Yushchenko’s people to convincingly articulate their thoughts and take them
to voters.

Meanwhile, Ukrayinska Pravda has already managed to find a person quite
close to Tymoshenko who thinks that she should give up the ambition to
become prime minister and become parliament speaker. -30-
——————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
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21. GEORGIAN PRIMITIVISM ARTIST TO BE EXHIBITED IN KYIV
Artist Niko Pirosmanishvili, outstanding primitivism painter (1862-1918)

Prime-News Online, Tbilisi, Georgia, Friday, March 31, 2006

TBILISI – Mikheil Saakashvili, President of Georgia will open an exhibition
of Niko Pirosmanishvili (1862-1918), one of the outstanding primitivism
painters in the world, in Kiev on Wednesday, April 05. [President Saakashvili

has cancelled his trip to Ukraine this week, AUR]

As Prime-News was told by the representatives of the Ministry of Culture,
Monument Protection and Sports of Georgia, 35 paintings by Niko
Pirosmani will be featured at the exhibition which lasts through May 14th

[at the National Art Museum, 6 Grushevskoho, AUR Editor].

A trilingual (Georgian, Ukrainian and English) catalogue, printed at the
highest polygraphic level will also be presented at the exhibition. The
visitors will also be able to watch a documentary film by Irakli Makharadze
on the Old Tbilisi and Niko Pirosmanishvili.

The trilateral agreement was signed between the Georgian National Museum,
National Art Museum of Ukraine and Alliance Shatro promotion company
for staging of the exhibition. The [35] paintings were ensured by Credo

Classics insurance company.

The exhibition is sponsored by the Ministry of Culture, Monument Protection
and Sports of Georgia, Ministry of Foreign Affairs, Georgian National
Museum, Georgian Embassy to Ukraine, Ministry of Culture and Tourism
of Ukraine and the National Art Museum of Ukraine. 2005 was a year of
Georgian culture in Ukraine. -30-
———————————————————————————————
LINK: http://eng.primenewsonline.com/?c=123&a=7229
——————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
22. POST-ELECTION BRIEFING ON UKRAINE IN WASHINGTON, DC

Tuesday, April 4, 2006, Room HC-8 U.S. Capitol, 11:00am to 12:00 noon
American Foreign Policy Council, Washington, D.C., Fri, Mar 31, 2006

WASHINGTON – The American Foreign Policy Council invites you to

a “Post-Election Briefing on Ukraine” to be held Tuesday, April 4, 2006,
in Room HC-8 of the U.S. Capitol from 11:00am to 12:00 noon.

Featured speakers include:

[1] Honorable Oleh Shamshur, Ambassador of Ukraine to the U.S.
[2] Adrian Karatnycky, Founder and President, The Orange Circle
[3]Ronald McNamara, International Policy Director, Helsinki Commission

Attendance at this event is free, but seating is limited. Reservations will
be taken on a first-come, first-serve basis. To RSVP, please contact Annie
Earley at earley@afpc.org or 202-543-1006. -30-
——————————————————————————————–

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
23. AN AUDIENCE WITH ASKOLD KRUSHELNYCKY READING
FROM HIS NEW BOOK “AN ORANGE REVOLUTION”

Book party, Friday evening, April 7th in Kyiv

E. Morgan Williams, Publisher and Editor
The Action Ukraine Report (AUR), Kyiv, Ukraine, Mon, Apr 3, 2006

KYIV – Askold Krushelnycky, well-known freelance journalist, is in
Kyiv and has informed me he will be promoting his new book, “An
Orange Revolution” at a book party on Friday, April 7th from 6:00
to 8:00 p.m. at the Baboon Club in Kyiv.

The party is sponsored by the Kyiv Post and the Baboon Club and
will feature author Krushelnycky reading excerpts from his new book
followed by a question and answer session. Signed copies of the book
will be for sale. Entrance is free. The Baboon Club is located at 39 B.
Khmelnitskogo St. (234 15 03). Askold said “come one, come all.”
———————————————————————————————
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
24. PHILIPPINE PHILHARMONIC ORCHESTRA SPOTLIGHTS

UKRAINE’S NATIONAL INSTRUMENT, THE BANDURA, IN CONCERT
Guest soloist will be bandurist Oksana Herasymenko from Lviv, Ukraine

The Manila Times, ABS-CBN Interactive
Manila, Philippines, Sunday, April 2, 2006

MANILA – Ukraine’s national instrument, the bandura, will be the special
feature of the Philippine Philharmonic Orchestra’s (PPO) offering for its
last concert series, the Transfigured World on April 7, 8 p.m., at the Cultural
Center of the Philippines Main Theater.

Guest soloist will be bandurist Oksana Herasymenko. Repertoire for the
concert includes Schoenberg’s “Verklärte Nacht” (Transfigured Night), Yuriy
Oliynyk’s “Concerto No. 3 for Bandura and Orchestra” and Shostakovich’s
“Symphony No. 5 in D minor, op. 47.”

Born in Lviv, Ukraine, Herasymenko is a well-known Ukrainian bandurist.
From 1974 to 1982, she was a member of the bandura trio, which included her
sisters Ole and Olha Voitovych, and concertized in Ukraine, Poland, Vietnam,
and Japan. In 1978, the trio won First Prize at the World Youth and Student
Festival held in Cuba. Oksana graduated from the N. Lysenko State
Conservatory in Lviv in 1982.

Since her return to Ukraine in 1991, Herasymenko has taught at Lysenko State
Music Institute, Lviv (now Music Academy). In 1994, she concertized in
Argentina and in 1999 at the International “World Guitars ’99 Festival; she
was heard at the International Bandura Festival in Poland (1994, 1996,
1998), in Canada (2000), Croatia (2000). She also took part in the
International festival “Lviv Virtuosos” in 1995.

As a composer-performer, she celebrated her 25th anniversary in 1999 with
extensive concerts in Kyiv and Lviv’s Liudkevych Philharmonic Hall. For
tickets, call 891-9999 or visit www.culturalcenter.gov.ph. -30-
——————————————————————————————–
LINK: http://www.abs-cbnnews.com/storypage.aspx?StoryId=34580
——————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
25. BANDURAS ON THE BIG SCREEN
New project Kobzari could be most expensive one in history of Ukrainian film

By Pavlo Berest, Kyiv Weekly, Kyiv, Ukraine, Wednesday, March 29, 2006
KYIV – Ukrainian director, producer and actor Oles Sanin presented his
international film project with the working title Kobzari. Sanin said he
managed to raise funds from the state, get private investments and attract
international film production studios and distributors.
The project’s budget amounts to US $14 mn. The founder and joint owner
of the Donbas Industrial Union Serhiy Taruta is one of the investors who
agreed to finance the project. As his representative Oleksandr Pylypenko
informed, the investor is interested in the commercial side of the deal.
Taruta invested US $10 mn in the production of the film, while the state
added another US $4 mn. Sanin said that there is an American company
also interested in financing his project, though the company’s director
declined to comment as the talks are still in process.
The shooting of the movie will begin this March in New York and will
also be done in Mongolia, Switzerland, France and Ukraine.
The film is based on a documentary story. A lot of facts were collected
during the work on its script. Sanin said that after the work on this
project is completed he will shoot another film using the same materials.
The setting of the film is in the 1920s and 1930s when an American boy
named Peter came to Ukraine with his father at the end of the 20s. After
his father is murdered, the boy meets a blind bandura player named Ivan
Kocherha with whom he travels around Ukraine.
In the winter of 1934, Kocherha and other kobza players are executed at
a gathering of famous kobza players somewhere near Kharkiv. The
young boy was the only living eyewitness of these events. Sanin chose
the subject of the film from a list suggested by the Ministry of Culture.
Sanin will be the director, co-author of the screenplay and producer of
the film. Serhiy Mykhalchuk, who has experience working with Sanin
during the shooting of the film Mamai, was invited to be the cameraman.
The lead role went to the famous American actor Jack Palance, who is
of Ukrainian organ. His real name is Volodymyr Palahnyuk. He was
nominated for the Oscar Award twice and won it in 1992 for his role in
City Slickers.
Palance has his own star on the Walk of Fame in Hollywood and became
better known to the world after starring as Commissioner of Gotham
City in Batman.
The other roles will be performed by Ukrainian, British and American
actors, whose names have not yet been announced. Sanin said that the
soundtrack to the film is currently in the works. There will also be
recordings of the kobza players.
The film will be released in both Ukrainian and English. The running
time of the film’s Ukrainian language version will be approximately 3
hours, but has not yet been given a title. The running time of the English
speaking version of the film called ‘Guide’ is 2 hours.
The shooting of the film will last until the end of 2007 and is scheduled
for release at the beginning of 2008. -30-
——————————————————————————————

——————————————————————————————–
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