AUR#693 Boost Economic Growth With Three Reforms; Zenia Chernyk; Rich Russia Minus Ideology Equals Trouble, Dirty Business

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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
       

 
      THREE REFORMS NEEDED TO SUBSTANTIALLY BOOST
                 UKRAINE’S ECONOMIC GROWTH (Article One)
                        
ACTION UKRAINE REPORT – AUR – Number 693
Mr. E. Morgan Williams, Publisher and Editor  
WASHINGTON, D.C., THURSDAY, MAY 4, 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.        THREE REFORMS NEEDED TO SUBSTANTIALLY BOOST
                             UKRAINE’S ECONOMIC GROWTH
ANALYSIS & COMMENTARY: By Valentin Zelenyuk
Kyiv Post, Kyiv, Ukraine, Wednesday, May 03 2006
 
    DEVELOPMENTS IN UKRAINE HAVE PROVED TO BE WINNERS
         Real Estate Development, Mothercare stores, Central warehouse
By Mark Preskett, Business Editor, News & Star
Cumbria, United Kingdom, Thursday, May 4, 2006

4DR. ZENIA CHERNYK, UKRAINIAN FEDERATION OF AMERICA,

By T. A. Husar for The Ukrainian Weekly
Parsippany, New Jersey, Sunday, April 16, 2006, Pg 4
 
5KYIV STATE ACADEMIC OPERA & BALLET HOUSE & JACOBS
   CO PRESENT COFFEE CANTATA BY JOHANN SEBASTIAN BACH
   Project supported by Kraft Foods Ukraina with pleasure says Yuri Lohush
Hanna Medvedieva, Ukrinform, Kyiv, Ukraine, Wed, May 3, 2006

6.          RICH RUSSIA MINUS IDEOLOGY EQUALS TROUBLE
ANALYSIS & COMMENTARY: By Edward Lucas, Journalist

EdwardLucas@yahoogroups.com
London, United Kingdom, Thursday, May 4, 2006

7.                                       DIRTY BUSINESS
EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, May 04 2006

8ROSUKRENERGO – TROJAN HORSE OR UKRAINIAN PEGASUS? 
ANALYSIS: Roman Bryl, Ukraine Analyst, IntelliNews – Ukraine This Week
Kyiv, Ukraine, Wednesday, May 3, 2006

9.                 GAS TRADER EMERGES FROM THE SHADOWS
By Catherine Belton, Staff Writer, Moscow Times

Moscow, Russia, Wednesday, May 3, 2006

10.    RUSSIA’S GAZPROM HINTS AT UKRAINIAN-STYLE PRICE
                                   FACE-OFF WITH BELARUS 

Associated Press (AP), Moscow, Russia, Tue, May 2, 2006

11.     RUSSIAN GAS GIANT USES ‘KGB’ TRADING METHODS IN
                       MURKY JOINT COMPANY WITH UKRAINE                              

Nataliya Gevorkan, Kommersant Special Correspondent
“Murky Story As A Whole” Gazeta.ru, Moscow, Russia, Tue, May 2, 2006

12.    MOSCOW SHOULD REPUDIATE GAS SUPPLY BLACKMAIL
COMMENT AND ANALYSIS: By Vladimir Milov
Financial Times, London, UK, Monday, April 24 2006

13.  EMERGING MARKETS POSE A QUESTION OF PROTECTION
       Political risk insurers in emerging markets [like Ukraine] are grappling
         with the challenge of covering financial obligations of state- linked
        corporations in energy and other major fields, writes Daniel Riordan
ANALYSIS:
By Daniel Riordan, Lloyds List,

London, United Kingdom, Thursday, April 27, 2006

14.    RUSSIA, RICH IN WELLS, AIMS TO BUY INTO THE RETAIL

                                     SIDE OF OIL AND GAS
By Andrew E. Kramer, The New York Times
New York, New York, Monday April 26, 2006

15.                  RUSSIA’S POWER PLAY HAS HIGH STAKES
THINKING GLOBAL: By Frederick Kempe
The Wall Street Journal, New York, NY, Tue, May 2, 2006; Page A8

16.           EUROPEAN UNION SERVES NOTICE TO GAZPROM:

                       DEALS MUST PASS ANTITRUST MUSTER
By William Echikson, Dow Jones Newswires
The Wall Street Journal, NY, NY, Wed, May 3, 2006; Page A10

17.             ONCE UPON A TIME THE FUTURE WAS BRIGHT

                              AND THE FUTURE WAS ORANGE 
BOOK REVIEW: By Marcus Tanner
RE:  “An Orange Revolution, A Personal Journey
Through Ukrainian History.” By Askold Krushelnycky
The Independent, London, United Kingdom, Thu, May 04, 2006

18GERMANS FROM RUSSIA: JOURNEY TO THE HOMELAND TOUR 

By Michael Miller, Germans from Russia Bibliographer
Germans from Russia Heritage Collection (including Ukraine)
North Dakota State University Libraries,
Fargo, North Dakota, Thursday, May 4, 2006

19.         UKRAINIAN PRESIDENT TO OPEN MEMORIAL IN POLAND 
UNIAN news agency, Kiev, in Ukrainian 0928 gmt 4 May 06
BBC Monitoring Service, UK, In English, Thursday, May 04, 2006

20CHERNOBYL: HUMAN CATASTROPHE WE SHOULD NEVER FORGET
COMMENTARY: By Borys Tarasyuk, Minister of Foreign Affairs, Ukraine
The Guardian, London, United Kingdom, Sat, Apr 29, 2006

 
Ukrainian Radio First Programme, Kiev, in Ukrainian 29 Apr 06
BBC Monitoring Service, UK, in English, Saturday, Apr 29, 2006
 
22“SOUND BANDURA” INTERNATIONAL FESTIVAL OF BANDURISTS
                   TO GET UNDERWAY IN YALTA IN MIDDLE OF MAY
Gulnara Kurtaliyeva, Ukrinform, Kyiv, Ukraine, Thursday, May 4, 2006
 
23.   FILM ABOUT LIFE OF FORMER LEADER OF PEOPLE’S RUKH OF
       UKRAINE VYACHESLAV CHORNOVIL BEING SHOT IN UKRAINE
                             New film is entitled “Awaker of Stony State”
Ukrinform, Kyiv, Ukraine, Wednesday, May 3, 2006
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1
THREE REFORMS NEEDED TO SUBSTANTIALLY BOOST
                            UKRAINE’S ECONOMIC GROWTH

ANALYSIS & COMMENTARY: By Valentin Zelenyuk
Kyiv Post, Kyiv, Ukraine, Wednesday, May 03 2006

It would take a book to describe the economic reforms needed in Ukraine,

so I will mention just three.

[1] The first and perhaps easiest way to boost the economy would be to
further decrease the tax burden and remove existing loopholes.
Although the
tax burden was recently lowered substantially, it is still too high for an
economy that desperately needs fast recovery.

The corporate profit tax should be reduced to about 15 percent and VAT to
about 10 percent. The single tax for entrepreneurs, which is about $50 per
month, as well as various tax breaks that create loopholes for tax evasion,
must be eliminated.

[2] Changing the social security/pension tax (SPT) to a more reasonable rate
is a second way, but this should be part of a reform of the entire pension
system.

Currently, the pension system is pay-as-you-go, in which current pensioners
are paid from the SPT payments of current employees. This system is less
efficient than a privately-funded pension system, in which current
pensioners are paid from funds created from their own past SPT payments
that were invested in stocks, securities, real estate, etc.

The latter system usually provides higher pensions but it entails some risk.
To minimize the risk related to the stock market, a hybrid of the two
systems can be created: A minimal part of the pension is put into the
pay-as-you-go system, with the rest going into a privately funded system,
where individuals can choose where they want to invest. The transition
would be hard, but change is critical because the current system can lead
to a default in the near future.

Also, an important advantage of a privately-funded system is that it
generates private investment. Ukraine’s stock market, for example, has been
quite calm in comparison to developed countries or even Russia. Of course,
investments have to be made carefully by experienced professionals to
minimize the risk and maximize expected returns.

[3] The third critical element of economic reform is the continued
privatization of state enterprises, but one thing must be made very clear:

A call for massive re-privatization would lead to what I’d call a
‘property-rights shakedown’. Ukraine’s sudden decrease in economic growth
from 12.1 percent in 2004 to only 2.6 percent in 2005 was mainly due to the
threat of re-privatization rather than the repossession of former state
enterprises per se.

The situation was very peculiar. Virtually no one actually wanted to invest
in new business projects. Ukrainian businessmen who had taken part in
tenders under the ‘old regime’ tried to hold on to what they had, and so new
investments were not an option.

Other business groups saw an opportunity to grab up lucrative property from
competitors now out of favor, which appeared more profitable than investing
in new projects. Most foreign investors played the waiting game, making
their move only after the shakedown had subsided.

I am talking here about massive re-privatization, with the operative word
being massive. The open re-privatization of Kryvorizhstal steel mill (which
brought the state six times more the second time around) clearly showed that
re-privatization can be beneficial. However, the rules have to be the same
for everyone, regardless of their political affiliation.

The funds raised from such re-privatization and their careful investment
would make the switch to a more privately-funded pension system easier. The
hardest thing in changing from one system to another is accommodating people
who are already, or soon to be, retired as they don’t have SPT invested
somewhere.

However, these are also the people who at least indirectly contributed the
most to the construction of the country’s large enterprises in question, and
so they deserve to have their pensions supported by the investments made
from privatization revenues.

There is also a large amount of state property that has never been sold but
which can still be auctioned off to improve the economy. The revenue earned
from privatization is only a short-term benefit. The long-term benefit is
that virtually all industries would be more effectively operated by private
businesses, provided there is healthy competition among them.

The telecommunications giant Ukrtelecom, oil and gas company Naftogaz
Ukrainy and Ukrainian railways (Ukrzaliznytsya) could be privatized in open
auctions. These companies should not only be privatized, but also split up
into several smaller companies to ensure high competition.

Nonetheless, the telephone lines, pipelines and railroads should remain
under state property and be rented out through open auctions to competing
companies on a regular basis.

A good example to follow in this respect is the break-up of the ‘natural’
monopoly ATT in the USA, which led to a dramatic decrease in prices on
the one hand and an improvement in services and technological innovations
on the other.

Ukraine is capable of substantially improving its economic performance, but
many things have to be done to make this happen.              -30-
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Valentin Zelenyuk is a Senior Economist at Kyiv’s Economics Institute

and a visiting professor at the Economics Education and Research
Consortium at Kyiv Mohyla Academy.
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LINK: http://www.kyivpost.com/opinion/oped/24392/
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2.           ENTERPRISE IRELAND’S UKRAINE MISSION 

Tom Lyons, Irish Independent, Dublin, Ireland, Thu, May 03, 2006

ENTERPRISE Ireland is planning its first trade mission to the Ukraine since
it gained independence. The State agency has scheduled the trip, which may
be attended by Enterprise Minister Micheal Martin, for June.

The Ukraine, with a population of 48m, is a potentially huge market on the
edge of the EU. It had until 2004 been one of Europe’s fastest-growing
economies, with GDP rising by 12.1pc. However, this fell back to just 2.6pc
last year, due in part to a sharp fall in global metal prices – metals are
among its chief exports. Ireland exported 15.9m worth of products to the
Ukraine in 2004.

But this figure could be significantly higher, as some Irish exports to the
country are passed through other countries first.
Enterprise Ireland (EI) has identified a number of sectors of interest to
Irish companies, including wireless communications, banking technology,
healthcare, business consulting and aviation.

“The trade mission will act as a focus for existing Irish interest in
Ukraine and will attract other Irish companies wishing to enter the
Ukrainian market,” an EI spokesperson said.

“Trade mission participants will have the opportunity to thoroughly
investigate the market and interact with their Ukrainian counterparts.”
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3. KING OF KIEV: WA DEVELOPMENTS MOTHERCARE & OFFICE

    DEVELOPMENTS IN UKRAINE HAVE PROVED TO BE WINNERS
         Real Estate Development, Mothercare stores, Central warehouse

By Mark Preskett, Business Editor, News & Star
Cumbria, United Kingdom, Thursday, May 4, 2006

CUMBRIAN business tycoon Andrew Tinkler has never been shy of
taking risks in his 20-year career.

Starting work as a humble joiner in 1987, he moved into house-
building, road maintenance and finally rail maintenance a decade later.

More recently he took over Britain’s biggest haulage company Eddie
Stobart and bought Carlisle airport. But perhaps his biggest risk of
all is his attempt to conquer Kiev, the capital of Ukraine.

Mr Tinkler’s first foray into Eastern Europe was a one-off trip six
years ago to the former Soviet State to sell second-hand machinery
not needed by his Appleby-based engineering firm WA Developments.

But it did not take long for the father-of-two to realise the potential of
the country and in particular its capital Kiev.

“You could see that things were moving fast there and there was a lot
of untapped potential,” he said. “We didn’t just dive straight in. We
spent a couple of years researching the market before deciding what
to do.”

Two years ago, his subsidiary company firm WA Developments
International took the plunge and bought 3,000sq m of office space in
the centre of Kiev.

“We could see that there was a real shortage of office space in Kiev
– a city where western firms were setting up bases all the time,” said
Mr Tinkler.

“When we bought the units, people were paying in the region of $800
per sq m for office space, now the average price is $2,500 per sq m.
We’ve sold half of what we bought and are letting the rest.”

“The letting market is also really strong,” he added. “The banks have
just started offering mortgages and credit cards for the first time
over there, which has really pushed the market on again.”

But not content with property development, Mr Tinkler’s company
looked at moving into the retail sector.

And eighteen months ago, he opened his first Mothercare store in
Kiev. One store quickly became four and there are plans to double
that number in the coming months.

Mr Tinkler said: “There’s another five definitely on the way and we
had a total of 20 in our three-year business plan. We had a well-known
French franchise as well but the Ukrainians didn’t take to it as well
as Mothercare.”

Prices for imported western goods are high in the Ukraine. Because
of customs and import costs, Mothercare’s childrens clothes
generally sell for 30 per cent more in Kiev than in England.

But this has not stopped Kiev’s middle-class mums from flocking to
his stores and annual sales from the Mothercare businesses are
estimated at £400,000 and rising.

“Western brands are something they’ve never had before in a place
like Ukraine and they’re really taking to it,” he said. We’re looking at
other brands, particularly in the children’s section.”

“Sales have increased 80 per cent since the opening of the first shop
and one of the two stores in Kiev is recognised as one of Mothercare’s
most successful worldwide.”

His business empire in Ukraine is growing so fast that WA Developments
International now employs 110 staff in the country and operates a central
warehouse in Kiev.

And typical of his approach to business, Mr Tinkler flies out to Kiev
in his private jet from Carlisle airport at least once a month to monitor
his companies.

“People think that Ukraine is a poor, former Soviet backwater,” he
said. “But in reality it’s a booming, cosmopolitan city with a rich
history. They have some magnificent buildings in the centre on wide,
tree-lined boulevards

“We’ve dined in French, Italian and Japanese restaurants and been to
some really classy nightclubs and bars. At the same time it’s clean
and you never see the people from Kiev drunk on the streets, despite
vodka being their drink of choice. It’s a great place to visit and stay.”

And is this the end of his company’s Soviet expansion? “We’re
already talking to other western companies who might want to expand
into Ukraine,” he said. “And looking to see what we can import from
Ukraine to the UK.

“If Mothercare can work, we think other brands can too. We’ve got
offices there, a good staff and all the right infrastructure in place, so
why not?”                                 -30-

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NOTE:  Our thanks to Cliff Downen for sending this article to the AUR.
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4. DR. ZENIA CHERNYK, UKRAINIAN FEDERATION OF AMERICA,

       PARTICIPATES IN INTERNATIONAL SUMMIT OF MEDICAL
 PROFESSIONALS IN KYIV REGARDING “HOSPITAL TO HOSPITAL”
 
By T. A. Husar for The Ukrainian Weekly
Parsippany, New Jersey, Sunday, April 16, 2006, Pg 4
KYIV, Ukraine, March 17, 2006 – First Lady Kateryna Yushchenko hosted an
unprecedented international summit of medical professionals in this city as
part of the “Hospital to Hospital” program of the Ukraine 3000 Foundation.
Ukraine 3000 is an organization headed by the First Lady whose goal it is to
establish a tradition of charitable giving and care.

Program Director Vera Pavlyuk explained the goal of “Hospital to Hospital”
is to establish long term partnerships between health care providers in
Western Europe and the USA with those in Ukraine to improve the healthcare
system for children.

Among the presenters was Dr. Zenia Chernyk, Chairwoman of the Ukrainian
Federation of America.  Dr. Chernyk touched on several subjects ranging from
the need to change Ukraine’s tax system to benefit non-profit organizations
and encourage charitable giving, to Project Life Line, a multi-tiered
medical care commitment that has already garnered the support of the First
Lady and the Ministry of Health.

Dr. Chernyk introduced Stephen Robinson who heads the World Hemophilia
Foundation in Zurich, Switzerland.  Mr. Robinson explained that his
organization is prepared to help with finances and resources to create a
bridge to blood disease awareness.

Other participants in the conference included representatives from the
University of Miami who spoke about medical administration in addition to
health care delivery.  Dr. Roxolana Horbowyj, representing the World
Federation of Ukrainian Medical Associations, explained the various
resources and programs that organization has to offer.

Dr. Volodymyr Werteleckyj, the head of the genetics department at the
University of Southern Alabama made a gripping presentation on the rampant
occurrence of Spina Bifida and it’s preventability with proper prenatal care
and education.

Other presenters included medical professionals from Austria, Italy and
Canada, and ambulance operators and paramedics from England.

One of the most compelling presentations was from Dr Irakly Sasania of
Tbilisi Georgia.   Dr. Sasania is the director of a western style pediatric
hospital that was established with the help of USAID and the American
International Health Alliance.  Dr. Sasania spoke of the success of his
hospital as it moved from the soviet medical tradition to a more effective
western style.

He credited much of the hospital’s success with its twinning and partnership
with Emory University.  The same relationship “Hospital to Hospital” is
trying to establish in Ukrainian hospitals.

Many of the conference participants followed up their experience the next
day with independent meetings where interests and resources crossed.

After the conference and between impromptu meetings Dr, Chernyk met with
members of the print and electronic media to further promote and explain the
idea of east-west medical cooperation.
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The Ukrainian Weekly, Roma Hadzewzcz, Editor-in-chief, Parsippany

NJ, staff@ukrweekly.com; http://wkrweekly.com
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5.  KYIV STATE ACADEMIC OPERA & BALLET HOUSE & JACOBS
   CO PRESENT COFFEE CANTATA BY JOHANN SEBASTIAN BACH
   Project supported by Kraft Foods Ukraina with pleasure says Yuri Lohush

Hanna Medvedieva, Ukrinform, Kyiv, Ukraine, Wed, May 3, 2006

KYIV – The Kyiv State Academic Opera and Ballet House together with the
Jacobs Co presented the Coffee Cantata by Johann Sebastian Bach in the
Ukrainian language. As it was noted by Director of the Kyiv State Academic
Opera And Ballet House Bohdan Strutynskyi, the performance is supposed

to be staged twice a month by 2006’s close.

Thus the audience will have an opportunity to be treated into unique,
medical theme, serving reflection of Johann Sebastian Bach’s attitude toward
emerging of culture of coffee consumption in the early 18th century, enjoy
Jacobs coffee and experience a lovely chat in the cozy “Aromatic Jacobs
Hall”.

We present not really popular humorous work by Johann Sebastian Bach,

Bohdan Strutynskyi noted. According to Chief of Board of the “Kraft Foods
Ukraina” Yuriy Lohush, the company supported the project with pleasure.
This is not the first time, we cooperate with artists, Yuriy Lohush said
[George Logush].

The Coffee (dark water of East or wine of Islam) reached Europe through

port cities. In 1615 the fist coffee shop unveiled in Venice, Italy. The first
coffeehouse in Germany opened in Hamburg in 1679. In this view, librettist
Christian Friedrich Henrici wrote a novel about Germans’ passion for coffee,
which was later on composed by performance by Johann Sebastian Bach.
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6.   RICH RUSSIA MINUS IDEOLOGY EQUALS TROUBLE

ANALYSIS & COMMENTARY: By Edward Lucas, Journalist
EdwardLucas@yahoogroups.com
London, United Kingdom, Thursday, May 4, 2006

It is one thing to feel uneasy about Russia. It is another to see
clearly how things can go wrong in practice. During the 1990s, the
nasty scenarios were based on Russia breaking up (meaning loose nukes)
or the bad guys toppling Boris Yeltsin (and the KGB takes over).

Neither seemed likely enough to be scary. Pre-9/11, loose nukes in the
hands of terrorists were hard to imagine. And if the bad guys did
re-emerge (say by slotting a cold-eyed junior KGB officer with
platform heels into the Kremlin) what could they do? Russia was still
bankrupt, decrepit, unable to feed its soldiers properly or heat its
people in winter.

Now nobody worries whose finger is on the nuclear button. That’s not
much comfort: like a frog in a heating saucepan, we barely notice how
bad things are. Xenophobia at home and abroad is pretty much official
policy; Russia tears up international rules that it doesn’t like and
befriends tyrants all over the world.

Two new things are really scary. [1] One is Russia’s petro-fuelled wealth.
[2] The other is that we are greedy.

Rich Russia takes some getting used to. A decade of bailouts and soft
loans left many people thinking that Russia couldn’t survive without
western goodwill. Not any more. The question now (at least as posed by
the Russians) is the other way round: whether Europe can stay warm and
well-lit without Russian goodwill.

Having shackled most of its former satellites, Russia’s cash-rich
energy empire is now expanding west. Led by Germany, the big countries
of continental Europe have rolled over without a fight. And why not?

Surely it’s hypocrisy to tell Russia to adopt capitalism and integrate
in the world economy and then start objecting when it happens?

That’s the greed talking. Faced with the choice between cheapish
energy and a quiet life on the one hand, and an uncomfortable and
costly spat on the other, western countries are overwhelmingly
plumping for the former. Rows with Russia are bad for business.

During the Cold War, that greed was tempered by fear. Even if
appeasement seemed profitable, the prospect of Communism, or
Communist-inspired subversion, made tycoons, mostly, opt to defend
capitalism. Not any more. Now we are not just greedy, but flabby and
complacent too: that is the wrong state of mind when a stand on
principle is urgently needed.

In short: by shedding the unattractive and impractical ideology of
Communism, Russian imperialism has become a lot more sinister.
Why mess about with the workers when you can buy the bosses?

Anyone who thinks that Russian investment in downstream energy
businesses is a purely commercial transaction should look at what has
already happened in post-Communist Europe. Dodgy intermediary
companies mushroom; politicians of all stripes start getting kickbacks
to look favourably on the new order.

The combination of gas pipelines, long-term contracts and Russian
investment in the downstream business means that it becomes almost
impossible for a country to diversify. It’s the equivalent of having a
couple of Red Army divisions parked outside your capital city – but a
lot more lucrative for the Kremlin and a lot less objectionable for
the public.

It’s still possible that the Kremlin’s crass, bullying manner rouses
even the chancelleries of Europe from their cowardly lethargy.
Eventually, Russia’s troika of dreadful problems (collapsing public
health, fraying infrastructure, declining education) may so weaken the
state that it implodes.

But I’m sceptical. We are living in a common European house all right
– and if Russia heats it today, it looks all set to run it tomorrow.  -30-
—————————————————————————————–
Edward Lucas is central and eastern Europe correspondent for The
Economist. The usual reminder: all comments, feedback, criticism
etc are very welcome at esl@economist.com.

The Economist has asked me to add the following disclaimer.
“The opinions appearing on this website and list are the personal
opinions of Edward Lucas.  His employer does not endorse such
opinions or this website.” To subscribe to this weekly mailing, send

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NOTE:  Our thanks to Richard Murphy for sending this article
to the AUR.  
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7
.                             DIRTY BUSINESS

EDITORIAL:
Kyiv Post, Kyiv, Ukraine, Thursday, May 04 2006

RosUkrEnergo, the mysterious middleman company that handles the
multi-billion-dollar gas trade between Russia and Ukraine has become a
little less mysterious if not more shady following an admission of nearly
half-ownership by obscure Ukrainian businessman Dmytro Firtash.

The other half of RosUkrEnergo has long been known to be in the

possession of Russia’s Gazprom, the state monopoly being used by the
Kremlin to manipulate independent-minded former republics and, most
recently, gas-hungry Europe.

RosUkrEnergo was set up in 2004, when Leonid Kuchma was president of

Ukraine and former KGB agent Vladimir Putin was in the Kremlin. But up
until now, both Moscow and Kyiv have denied knowledge of the mystery
owner, whose interests were represented by Austria’s respectable Raiffeisen
Banking Group.

The very fact that two geographically adjacent states need a private
middleman to profit from their gas trade is suspect enough, but how could
both pretend not to know the middleman’s identity, with both sides
farcically accusing each other in public of hiding the truth.

Ukrainian President Viktor Yushchenko also played innocent, although Firtash
has said he supported RosUkrEnergo. This doesn’t look good for the
president, considering the money being made on the deal, which nearly blew
up when Gazprom raised the stakes last January, nearly doubling the price of
gas to Ukraine.

It was Gazprom-controlled media that leaked the Firtash connection most
recently – this from a company that wants an even greater share in Europe’s
energy sector.

Adding more dirt to the laundry is a recent U.S. Justice Department inquiry,
which led to talks with Raiffeisen representatives in Washington. Firtash is
reportedly linked to reputed gangster Simon Mogilevich through earlier
business deals.

Of course, all sides deny any wrongdoing. Firtash says the company is
planning to do an IPO. Does this mean RosUkrEnergo is clean?

In big business, dirtiness is a relative term, but one expects more from
heads of state, especially Yushchenko, who was dubbed a national messiah.

As for the Kremlin, when is it going to get over its post-empire power
withdrawals?

And lastly, reputable financial institutions should be more careful in
selecting clients – countries go to war over things like energy security.

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8. ROSUKRENERGO – TROJAN HORSE OR UKRAINIAN PEGASUS? 

Roman Bryl, Ukraine Analyst, IntelliNews – Ukraine This Week
Kyiv, Ukraine, Wednesday, May 3, 2006

Society learns names of people behind Raiffeisen Investment A.G. –
50% nominal shareholder of RosUkrEnergo gas supplier —–

The results of a major investigation that was ordered by president Victor
Yuschenko and was carried out by Council of National Security surfaced last
week, but were totally unexpected. All domestic legal experts tried to find
out who exactly stands behind Raiffeisen Investment A.G., the owner of 50%
in RosUkrEnergo, a company registered in Switzerland that supplies natural
gas to Ukraine. Gazprombank owns 50% of RosUkrEnergo. The other 50% is
nominally owned by Raiffeisen Investment A.G.

According to Gazprom data, RosUkrEnergo’s earnings made up USD 3.7bn,

while net income amounted to USD 659mn in 2005. Half of net profit for this
period was transferred to Gazprom.RosUkrEnergo was created in 2004.

In 2005 it served as the main operator of supplies of Central Asian gas to
Ukraine through the territory of Kazakhstan, Uzbekistan and Russia. Besides,
under coordination of Russian gas monopoly Gazprom, the entity exported the
commodity to Europe.

Dmytro Firtash, Ivan Fursin – two beneficiaries of Raiffeisen

Investment A.G., PwC audit report says —–

On April 26 PricewaterhouseCoopers disclosed in its audit report the two
previously unknown beneficiaries of Raiffeisen Investment A.G.’s 50% stake.
Two Ukrainian citizens Dmytro Firtash (90%) and Ivan Fursin (10%) turned out
to be these beneficiaries.

The same day Russian daily Izvestia that is part of Gazprom-media holding
cited PwC’s report. Late evening Raiffeisen Zentralbank confirmed the
information published in the newspaper. Dmytro Firtash is the owner of
basketball club Kyiv.

He also is a representative of Eural Trans Gas company in Turkmenistan,
Kazakhstan and Uzbekistan. According to unofficial information, he is also
the president of Highrock Holdings Ltd. that is owned by businessman Semen
Mogilevich. Besides, Firtash is said to be the owner of 2 Ukrainian TV
channels K-1 and K-2. The other beneficiary of RosUkrEnergo Ivan Fursin is
the owner of Odessa-based Misto-Bank and main shareholder of Odessa

cinema studio.

This information appeared before two important events: creation of Rada
coalition and signing of bilateral gas supply protocol. The information
appeared on the eve of two important events: creation of a parliamentary
coalition and signing of a bilateral protocol on gas supply scheduled for
Jun 1.

It was quite interesting what the beneficiaries themselves think about the
timing of information disclosure. In his interview to Austrian Kurier,
Dmytro Firtash gave rather dim explanations why he did not unveil his ties
with RosUkrEnergo. He just said that creating such a company was his old
dream and Raiffeisen appeared as a principal that had experience of
operating in Russia.

Firtash also did not indicate in which way the company would operate in
Ukraine in the future. Also, he did not exclude the possibility of raising
the gas price for Ukraine. At the same time, Firtash was more open regarding
his vision for the company.

Thus, RosUkrEnergo announced about the possibility to carry out an IPO on
London Stock Exchange. The company needs funds to invest in natural gas
transit infrastructure, Firtash said in an interview to Financial Times. He
underlined that even together with Russian Gazprom it is difficult to invest
in long-term gas transportation projects.

In another interview to Wall Street Journal, Firtash confirmed plans to make
RosUkrEnergo a more transparent company. An IPO would contribute to such
transparency and the company can get a possibility to attract funds from
international financial institutions.

Finally, Firtash denied his ties with Mogilevich, whose name is often
associated with organized crime. He confirmed that he personally is
acquainted with Mogilevich, but said he did not have any common business
projects with this man.

Meanwhile, ex-head of Naftogaz Ukrainy and acting head of Republican Party
of Ukraine Yury Boyko said there is no political reason in disclosing the
beneficiaries of RosUkrEnergo. He says he knew that PwC made an audit of the
company and it was natural that it published the results.

Ukraine still does not arrange its gas supply deal with Russia —–

Other local politicians also commented on Firtash’s appearance. We suppose
there is one comment worth paying attention to. Secretary of National
Security and Defense Council Anatoly Kinakh underlined that it is time to
complete the package of so-called gas agreements with Russia. From the
Ukrainian side, Kinakh said there is sufficient legal framework for such
bilateral documents.

According to president Yuschenko’s order dated Dec 27, 2005, system ic and
long-term measures for the country’s energy security have been coordinated
and fixed. The measures include stepping up the energy saving policy,
increasing efficiency of usage of local energy resources, diversification of
energy supply sources, and etc. Taking into consideration the rise of world
energy resource prices, state authorities are interested in making strategic
moves.

The program states that government (i.e. new government when it is formed)
needs to approve the energy balance for 2006-2007 and initiate closer ties
with such energy resource suppliers as Turkmenistan, Kazakhstan and
Azerbaijan. And, first of all, with Russia.

That is why it is necessary to complete the package of gas agreements with
Russia that were concluded on Jan 4, 2006. According to Kinakh, the two
countries should sign a bilateral protocol on gas supply which sets mutual
obligations, terms and conditions.

That is the position of the Ukrainian government that aims to prolong the
period of transition to market prices, because the domestic industry is
still not ready to buy gas at market prices. Also, government prefers to
deal with Gazprom directly, without services of such a mediator as
RosUkrEnergo.

New government expected to be formed in mid-May to conclude

gas negotiations with Russia —–

To inform you, Ukraine and Russia still did not sign an annual gas supply
protocol for 2006. The deadline for signing this document is Jun 1. On Apr
17 Yuschenko said the protocol will be signed after a new government is
formed.

It is expected that the parliamentary coalition and the new government can
be formed on May 10-19 when traditional spring holidays (May 1-10 folding in
several workdays) are over. Political parties are using this idle period to
coordinate final positions regarding the coalition.

So far Russia supplies gas on the basis of a temporary agreement reached on
Jan 4, 2006. According to this deal, Ukraine buys gas for USD 95 per 1,000
m3. Ukrainian state oil and gas monopoly Naftogaz Ukrainy and Gazprom
reached a compromise that RosUkrEnergo will be the exclusive supplier of
Russian and Central Asian gas o Ukraine.

In February Naftogaz and RosUkrEnergo created a joint venture Ukrgaz-Energo
for supply of imported gas to Ukrainian industrial users. RosUkrEnergo
supplies gas to Russia-Ukraine border where formally Naftogaz and
Ukrgaz-Energo take the commodity.

Then Naftogaz via its subsidiary Gaz Ukrainy sells gas to power heating
stations, budget-funded organizations and some industrial users. In its
turn, as it was said, Ukrgaz-Energo supplies gas only to industrial users.

Private mediators in gas supply scheme expose Ukraine’s weak position —–

Now Ukraine knows who supplies gas to the country. This allows making
several conclusions.

First, it shows Ukraine conceded a lot in gas talks with Russia in January,
allowing a semi-private mediator to appear in such an important issue as gas
supplies. The mediator, as we see, does not exclude possibility to further
hike the gas price.

Second, it weakened Kyiv’s position before the next gas negotiations with
Russia, because Gazprom may appeal to the fact that it is not the company
but Ukrainian businessmen that raise the price. Then again, in the beginning
of April, Russian foreign affairs minister Sergey Lavrov said the country
does not intend to revise the gas agreement with Ukraine.

The deal links the gas price to world prices used in Gazprom’s contracts
with most clients. If world prices rise, the price for Ukraine will also
increase, and vice versa. Third, it appears that Ukrainian state officials
knew who were the beneficiaries, but just hid the information. The Russians
were aware of the facts, as well, but did not want to reveal them until they
surfaced.                                                 -30-
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]

========================================================
9.         GAS TRADER EMERGES FROM THE SHADOWS

By Catherine Belton, Staff Writer, Moscow Times
Moscow, Russia, Wednesday, May 3, 2006

Dmytro Firtash, the Ukrainian businessman named as a major shareholder
in RosUkrEnergo, emerged from the shadows last week as he pledged
transparency for the multibillion-dollar gas trader in a string of
first-time interviews with Western newspapers.

In interviews with The Wall Street Journal, the Financial Times and
Austria’s Kurier newspaper published Friday, Firtash told of his rise to
the top of the Turkmen-Ukrainian gas trade. From small beginnings in 1990s
barter deals, he graduated to owning 90 percent of Centragas, the
Vienna-registered vehicle that owns half of RosUkrEnergo, the monopoly
gas trader for Ukraine, Firtash said.

It was unclear Tuesday whether his overtures to the press would lay to rest
growing controversy over a gas trading company that former Ukrainian Prime
Minister Yulia Tymoshenko has called a Russian political weapon to retake
control of Ukraine and “a criminal canker” on the country’s gas deal with
Gazprom.

One leading Ukrainian politician, former Deputy Foreign Minister Olexander
Chaliy, warned Tuesday that the disclosures were just the start of “a big
scandal for the top leadership of Ukraine.”

Until last week, the man named as being behind Centragas had shunned media
attention, even though former Ukrainian security service chief Olexander
Turchinov had named him as a major player in the country’s gas trade.

But last week’s leak of a PricewaterhouseCoopers audit report that named
Firtash as Centragas’ majority owner apparently set the PR wheels in motion
for Centragas, a company that has been the target of investigations in
Ukraine for alleged ties to organized crime. Its ownership had been
zealously guarded by Austria’s Raiffeisen Bank, which held the shares in
trust. Gazprom owns the other half of RosUkrEnergo.

Flanked by bankers from Raiffeisen, lawyers and aides, including British
businessman Robert Shetler-Jones, Firtash told the FT in a plush
Knightsbridge, London, office that giving his first media interview felt
like “I am losing my virginity.” Firtash vowed to boost transparency and
list the company on the London Stock Exchange this year in an effort to
raise additional financing for investment projects.

Ukraine’s security service, the SBU, had been investigating the trader over
possible ties to a reputed major figure in international organized crime,
Semyon Mogilevich, who is wanted by the FBI on racketeering and fraud
charges.

The probe was dropped, however, following a change of leadership at the
SBU. The organized crime division of the U.S. Justice Department questioned
RosUkrEnergo executives two months ago in a meeting in Washington, where
the executives disclosed Firtash as an owner.

In his FT interview, Firtash denied any links with Mogilevich. “I have met
Mogilevich a few times. But I have never been in any partnership with him
and have never done any business with him,” he said.

To The Wall Street Journal, however, Firtash conceded that Mogilevich’s
wife had once held a stake in a company he controlled, the Cyprus-based
Highrock Holdings Ltd. He told the WSJ he took over the stake once he
learnt of the connection to Mogilevich and stressed Highrock had no
connection to RosUkrEnergo or to its predecessor, Eural Trans Gas.

Chaliy, who as deputy foreign minister was in charge of gas negotiations
with Russia, said Tuesday that he did not believe the ownership chain
stopped with Firtash.

“Firtash is not the end of the chain. He is just the beginning and the
beginning of a big scandal for the top leadership of Ukraine,” he said.

“Ukraine’s leadership couldn’t not know who was behind RosUkrEnergo,”
he said. “Why was it these people exactly who were awarded a
multibillion-dollar contract? This could only have been because of corrupt
ties.”

“It is clear to everyone that independently he could not get such a deal.
Much stronger forces are behind this,” he said.

In the first sign Ukrainian President Viktor Yushchenko might withdraw his
backing for RosUkrEnergo, a presidential aide said Friday that Ukraine
might replace the trader with another.

“It is now vital to think of Ukraine’s energy security,” the deputy head of
Yushchenko’s secretariat, which runs his office, Anatoly Matviyenko, told a
briefing in Kiev on Friday, Reuters reported. “If we are talking about
2007, it is clear that, given this discussion, we need to talk about
possibly finding another intermediary or firm to supply gas to Ukraine.”

Neither Tymoshenko nor her aide Grigory Nemyria could be reached for
comment on Tuesday, a national holiday in Ukraine.

Tymoshenko has lashed out at the Jan. 4 deal that gave RosUkrEnergo a
monopoly on supplies of Russian and Central Asian gas to Ukraine and
nearly doubled the price Ukraine pays. The deal became a major issue in
parliamentary elections in March and the heart of a battle between
Tymoshenko and her former Orange Revolution ally Yushchenko.

Critics say the agreement opened the way for Gazprom to win leverage over
strategic chunks of Ukraine’s economy.

The disclosure Firtash was an owner of Centragas apparently even surprised
senior executives at Gazprom. In an interview on the sidelines of an
investment forum in Tomsk on Thursday, Gazprom deputy CEO Alexander
Medvedev said that until the PwC disclosure last week Gazprom had been
unaware who was behind the Centragas stake.

In the interview with the WSJ, Raiffeisen executive and Centragas director
Wolfgang Putschek said the bank had introduced Firtash as “our technical
expert” during negotiations with Gazprom, but had not disclosed that he was
a shareholder.

Gazprom spokesman Sergei Kupriyanov told the Journal on Thursday that the
company would continue working with RosUkrEnergo.

On Tuesday, however, he would only say that the choice of Centragas owners
lay with Ukraine and repeated that Gazprom executives had only found out
who was the owner when the PwC audit was made available to them some days
earlier.

Putshchek told the FT that Raiffeisen had been satisfied by all the
findings of its due diligence work before taking on the Centragas shares.

“There were three questions our compliance department had to answer. First,
did the client have any links to criminal activities? Second, did the
client have links to known criminals? The answer to both was a clear ‘No,'”
Putschek said.

“The third question was, did the client have any links to known criminals
in the past? In the course of answering that question, some issues came up.
But they were explained. That is they were cleared off.”

Zeev Gordon, a lawyer for Mogilevich, said Tuesday that Firtash had asked
him to help establish both Eural Trans Gas, a predecessor to RosUkrEnergo,
and an office for Highrock in Israel. According to company documents
obtained by The Moscow Times, the office was founded at the same address as
Gordon’s law firm.

Gordon said Firtash had given him power of attorney to find a lawyer to
help set up the firm and that his involvement with Highrock had ended with
that.

He repeated he had questioned Mogilevich on several occasions about whether
he had had any involvement with Eural Trans Gas or with RosUkrEnergo. He
said that Mogilevich’s answer had always been no.

Gordon said geopolitics were behind the constant attempts to tie
Mogilevich’s name to the gas traders. Stressing that he was expressing his
own opinion and not that of Mogilevich, he said Tymoshenko’s aides had
leaked that they were investigating ETG and RosUkrEnergo for ties to
Mogilevich because they were attempting to replace it with their own crony
company, Itera.

Yushchenko has also alleged in interviews with Ukrainian media that
Tymoshenko was trying to reinstate Itera, which in 2000 received the
backing of U.S. Congressman Curt Weldon as a gas supplier independent of
Gazprom.

Tymoshenko made a fortune in the Ukrainian gas industry in the 1990s, when
Itera was handling the trade.

Firtash told the FT last week that he had teamed up with Itera president
Igor Makarov in 2000 to take over the entire goods-for-gas barter trade
with Turkmenistan. They handled the trade jointly through Highrock
Holdings, he told the paper.

Itera spokesman Yevgeny Ostapov said Tuesday that Highrock was one of the
companies Itera sold gas to.

Firtash told the FT he had parted ways with Makarov shortly after President
Vladimir Putin in 2001 replaced senior management at Gazprom. Gazprom’s new
management soon moved to squeeze Itera out of the Turkmen-Ukrainian gas
trade.                                                       -30-
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
10. RUSSIA’S GAZPROM HINTS AT UKRAINIAN-STYLE PRICE
                                  FACE-OFF WITH BELARUS 

 
Associated Press (AP), Moscow, Russia, Tue, May 2, 2006

MOSCOW – An official at Russia’s state-controlled gas monopoly hinted

that a New Year face-off over gas prices with Ukraine, which led to a
temporary supply drop to Europe, could be repeated if neighboring Belarus
does not agree this year to a threefold price hike.

Pro-Moscow Belarus is the only ex-Soviet republic relying on Russian gas
that did not get a gas price hike from Moscow last year. It now pays the
rock-bottom price of roughly US$47 (A38) per 1,000 cubic meters.

Gazprom is asking for a minimum hike to US$145 (A116) per thousand cubic
meters of natural gas for 2007, said Sergei Kuprianov, OAO Gazprom’s top
spokesman.

“I wouldn’t want to celebrate the New Year in a car or in the office,”
Kuprianov said on the Ekho Moskvy radio station, referring to the spat with
Ukraine that escalated through December and ended with supplies being cut
to Ukraine on Jan. 1.

“The reason we are starting the talks now (with Belarus) is so that we can
complete them in good time,” Kuprianov said.

Many analysts have interpreted the move as a bid by Moscow to acquire
control over Belarus’ pipeline operator, which transports Russian gas to
lucrative European markets.

When Gazprom cut off gas deliveries to Ukraine, exports to Europe that
passed through a pipeline transiting Ukrainian territory were also
disrupted, sparking concerns about Russia’s reliability as an energy
supplier.                                          -30-
————————————————————————————————
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================

11. RUSSIAN GAS GIANT USES ‘KGB’ TRADING METHODS IN
                   MURKY JOINT COMPANY WITH UKRAINE

                             
ANALYSIS: Nataliya Gevorkan, Kommersant Special Correspondent
“Murky Story As A Whole” Gazeta.ru, Moscow, Russia, Tue, May 2, 2006

I would like to congratulate my colleagues from with a simple investigation,
as they put it, into the owners of the Ukrainian half of Rosukrenergo, but
this “investigation” has as much to do with journalism as Mr. Mamontov’s
“investigation” of the “philosopher’s stone”.

This sad story (where journalism is concerned, of course) will be rich in
quotations, so please forgive me in advance. First take one straight from :
“Before recalling shortly, whom journalists have taken to be owners of
Rosukrenergo, let us rejoice for US lawyers: they clearly have long since
resolved their own country’s domestic problems (it was enough to punish the
terrorist called Mussawi) and now they have the time and the desire to poke
their noses into other people’s business.

 
However, what do they think is their own business… “Clearly the investigation
is unpleasant for Moscow”, the writes. “It is aiming to make use of the current
chairmanship of the G8 for propaganda about energy security, and will strengthen
Europe’s fears over the attempts by Gazprom to purchase energy assets there.
The prospects for unpleasantness even against the background of the G8, of
course, are enough to get on Moscow’s nerves. The US will not miss such
an opportunity”.

We will stay with the intonation and turns of phrase with which the
self-respecting journalists attempted not to sin even during the time of
the Cold War. Why, exactly, should a Russian newspaper be so offended by an
American newspaper’s investigation of Ukrainian property? It would appear
that if there is something to get twitchy about, it is Ukraine and not the
owner of the newspaper, who is as transparent as crystal. And why did US
professionals draw the attention of the author’s “personal investigation”
rather than his own professionalism?

 
If it were not for those bloody Yanks, who poke their nose everywhere,
the author of the ‘investigation” would not have taken an interest in the
answer to a question, which is arousing the interest of half the world,
namely who is hiding behind 50 percent of a company with billions in
turnover, which is the partner of Gazprom, the owners of the newspaper?
 
 It was when the Americans got involved “in somebody else’s business”
that the author suddenly found the matter interesting. And what do you think,
it has turned out to be as simple as spitting for the newspaper owned by
Gazprom, which at the same time owns the other 50 percent of Rosukrenergo,
to find a couple of documents on the Internet or elsewhere, to show the
names of the owners of this mysterious Ukrainian half of the company.

The Americans did not manage to name anything, take note, not a single
name. But the real authors of the newspaper’s “investigation” understood
what could be found out and named, especially given that the “cover” for
the second half of the company (Reiffeisen Investment) had promised to
reveal the names of the owners in the very near future. This was the
catalyst, and through its newspaper Gazprom took the high ground and

named a couple of names. It has two aims for doing this.
 
One was named with the directness worthy of one of the world’s largest
companies, and I quote: “Alas, Moscow had nothing to do with it, and the
investigators’ work was not so difficult after all. has carried out its own
investigation to show that 50 percent of Rosukrenergo belongs to Gazprom
(which everyone knew about anyway). The person behind the Ukrainian half
of the company is not the “citizen of many countries, Semen Mogilevich,
who is being sought by Interpol, and certainly not Leonid Kuchma, as the
Orange revolutionaries have hinted”.

All clear? Gazprom does not do business with criminals and the overturned
leaders of foreign countries. There is no need to tie us in with those.
There is no need to tie Gazprom in. We are clean and fluffy exactly by
half, but the Ukrainian half, oh dear, oh dear, now that is the second aim
of the investigation’s authors: “Two surnames are mentioned in the audit
report on the company’s financial activities between July 22 2004 and
December 31 2005: D. Firtash (who owns 90 percent of the shares) and I.
Fursin (who owns the other 10 percent).

 
It is these two citizens who are not the most well known people among
the broad Ukrainian reading public, who are the beneficiaries of the company.
There are no grounds to disbelieve this evidence. The audit was carried out by
PriceWaterhouseCoopers, and its report is what we have cited. It remains
only to guess, why the truth has been kept under wraps for so long.
 
We will recall that back on Maydan demands were raised to make public the
whole list of the owners of Rosukrenergo. But when Yushchenko and
Tymoshenko came to power these demands were silenced immediately, from
which we might suppose that Messrs. Firtash and Fursin suited the Orange
revolutionaries completely”.

It is also clear that [1] first of all, two sort of dubious personages own the
Ukrainian half of the company, and [2] secondly, they are Ukrainian citizens,
as the publication asserts, although Yushchenko has said that there are no
Ukrainians in the company. [3] Thirdly, for some reason they suit the Orange
revolutionaries. Is the hint clear?

 
If you do not get it, they will explain briefly how these gentlemen, who suit
the Orange revolutionaries are connected with that same Mogilevich, and
how (I hope that you have already guessed) they are linked with the intimate
entourage of the Orange president, Yushchenko. In addition the figures
illustrating this proximity, are given with reference to the Ukrainian press.
An independent conclusion from all this is that Yushchenko had personal
motives for hiding the real co-owners of the company on the Ukrainian side.

Now you will recall the meeting back in February between President Putin
and Spanish journalists. They asked him about the real owners of
Rosukrenergo. The answer (and I quote from the newspaper) was this: “This
is a joint Russian-Ukrainian enterprise, in which the Russian partner owns
50 percent. This partner is Gazprom. Like you, I do not know who owns the
other 50 percent”.

— Viktor Yushchenko says that there is not a single Ukrainian in the
company.

— (Putin) So go ask Viktor Yushchenko. Gazprom owns fifty percent of the
company and the Ukrainian side owns the other fifty percent. What I said to
Viktor Yushchenko is this: ‘Please, we would welcome it if your 50 percent
were to be sent directly to Naftogaz Ukrainy’, but we did not do this. The
Ukrainian side did. Like you, I do not know to whom they transferred this
fifty percent via Raiffeisenbank. Gazprom does not know either. Believe me,
I am telling you the 100-percent truth! This is the Ukrainian part! Ask
them about it… They proposed to us that Rosukrenergo supply natural gas
to Ukraine instead of Gazprom. We have agreed with this”.

What do you think, why did Vladimir Putin send the journalists off to
Yushchenko so insistently? He simply sent the hapless Spaniards packing:
“Take yourselves off to Hohol-land (Ukraine)”. This he did because in one
of his files he had what journalists had to find out sooner or later,
namely compromising material. Part of this material has appeared now in the
Gazprom publication. I think that ‘s irritation at the American
investigation could be explained by two things.

 
[1] Firstly, all compromising material has its day, especially if it is a serious
political-financial instrument. I suppose that Gazprom has been forced to
leak information ahead of time because of the Americans and thus the
effectiveness of the use of this instrument turned out to be not so great.
However, we will wait and see.
 
[2] There is another possible reason: Gazprom has no interest in the
West’s digging seriously into this story because it could turn out by
accident that not everything is so wonderful, clean and transparent on the
Russian side as is imagined. I recall that everything to do with the
Russian half of Rosukrenergo was limited to the phrase: “Everything about
us is understood. Our country has Gazprom”. Of course, the journalists did
not touch upon this half and the documents referring to Russia’s fifty
percent on the Internet did not drop into their hands.
 
The shots were fired at the other half, which looks, on the basis of the
“investigation”, somehow unpleasant and even unsightly. It remains only
to explain why white and fluffy Gazprom is having a partnership relationship
with these unwholesome guys. If, of course, they are really the ones. In general
it looks somehow rotten. Gazprom is Gazprom, whatever you say, but these
Firtash and Fursin are something else.

The same official report from PriceWaterhouseCoopers, to which refers, was
posted by someone on the Internet with premeditation. The report is dated
to March of this year. However, the company’s audit, as has been mentioned
above, was made for the period between July 2004 and December 2005. It
referred to the whole company, not just the Ukrainian half.

 
The report states: “the company is owned jointly by two Austrian companies,
namely Arosgaz Holding AG, and Centrosgaz Holding AG. The one real de
facto owner of Arosgaz Holding AG is the stock company Gazprom and the
real de facto owners of Centrosgaz Holding AG are Messrs. D. Firtash
(90 percent) and I. Fursin (10 percent)”.

This is an account of a joint company, if I understand correctly. All the
figures and data in this report are about a joint company, that is a
100-percent entity, not the 50 percent Ukrainian part. Sorry, I mean,
Austrian. That is, in 2004 and 2005 Gazprom already knew perfectly well,
who its partners were. Even before Yushchenko cam to power, if we take the
2004 months.

I suppose that the professionals have been investing for a long time in the
game called Rosukrenergo. Remember what Putin said: Ukraine proposed that
we make use of Rosukrenergo. Now add to these words “investigation”, “by “
with a hint at Yushchenko’s link with the owners of Ukraine’s 50 percent.
Understood? Wily Yushchenko himself suggested the proposal that was not the
most advantageous for Ukraine with a specific intermediary because these
were his guys (see above).

Who said that Ukraine put forward Rosukrenergo? Putin, of course. Try
finding a single piece of evidence, apart from his words, that this was
really so. Aha, there is no other evidence. And according to the rules of
the said game, it could not be otherwise. Otherwise would mean if Moscow
had selected namely this intermediary and insisted upon it, then all the
balance of the compromising material would collapse, don’t you think?
asked the deputy head of the Gazprom management, Aleksandr Medvedyev

who it was that put Rosukrenergo forward.
 
Then he was seized unexpectedly by signs of amnesia: “The proposal to
make use of Rosukrenergo in order to avoid conflict was made during
negotiations. The negotiating process is a complex matter and I cannot
even recall who specifically made this proposal”.
 
Then the Ukrainian premier, Yuriy Yekhanurov, remembered. Immediately
after the hundred-percent truthful answers from Vladimir Putin to the Spanish
journalists he announced that the government of Ukraine was prepared to
substitute the company, “taking into account the statement from the Russian
side concerning definite remarks referring to the, the Rosukrenergo
company”.

Now let us rewind the film further back to the beginning of this January.
The French publication,, famous in Russia for having been the first to
report that Russian individuals were buying up Nogi debts, also issues a
bulletin called. quote: “But what is even more troubling is that on January
3, Rosukrenergo sent two bank transfers through the Raiffeisen Zentralbank
in Vienna.

 
[1] The first of these – uncovered by Ukraine Intelligence, (a facsimile of
the transactions can be seen on our web site) – is for $53 million paid to
the order of the Petrogaz company in Dubai, in the United Arab Emirates. 
 
[2] The second, for $12.3 million was to the order of the Refin Commercial
Company, registered in Portland, Oregon, which has an account in Hansabank
in Estonia. Who owns these two companies? The legal representative for
Petrogas is Ramses Kok, and Nestor Shalai is the representative for Refin.
 
But according to informed banking sources close to the Ukrainian security
services, Petrogaz is linked to Petr Yushchenko, the president’s brother, and
Refin is a part of the galaxy of Gazprom’s off-shore interests. Why did
Rosukrenergo make those transfers, hours before being handed the monopoly
on gas supplies to Ukraine? We may well ask the question”.

So, as the publication asserts, the day before the contract between
Russia and Ukraine was signed, that is, on January 3, Rosukrenergo made tow
bank transfers via Raiffeisenbank: $53 million to Dubai (recipient – the
Petrogaz Company), and $12.3 million to Estonia (recipient – the Refin
Company).

 
According to data from the publication’s news sources, Petrogaz is linked
with the brother of the Ukrainian president, Petr Yushchenko, while Refin
figures among the off-shore interests of Gazprom. We can only guess
why Rosukrenergo made these transfers only a few hours in total
before it became a gas monopoly company in Ukraine.

This remark was made in January before Putin’s meeting with the Spanish
journalists. When during the meeting the Russian president began
insistently to send the journalists off to Yushchenko and swear blind that
neither he nor Gazprom knew who the Ukrainian beneficiaries were, I
remembered this French remark. Well, of course, I thought, the compromising
material has most likely already be drafted and is waiting for its time to
come.

 
I do not know, how the French journalist got hold of the information
and the documents. There are several ways it could have happened, including
via a leak. The editor-in-chief of is a very professional journalist, whom
I know very well, so he, as you have noticed, was interested in the other
side too, namely Gazprom.
 
In addition to what was mentioned above in the note, there is something
pro-Russian in the negotiation: “It is reckoned that certain Gazprom top
managers are shareholders in Arosgaz, including Aleksandr Medvedyev
and Aleksandr Ryazanov in addition to Semen Mogilevich, who was
offered 15 percent, which he decisively refused, however”.

Is this not why Aleksandr Medvedyev could not in any way remember, that it
was he who proposed Rosukrenergo? In general, such forgetfulness when the
tracks of a very large agreement that has only just been signed are fresh,
as a rule is not typical of top managers of top companies.

 
Indeed, there is a quotation in this note from the French publication, which
allows us once more to doubt that the Russian president was telling the
journalists the truth and nothing but the truth. Prime Minister Yekhanurov,
as the publication writes, said during a television interview on January 12
this year that Russia had not left Ukraine any choice and had in the final run
foisted Rosukrenergo upon it.

When all is said and done, this is a murky story. But it is murky as a
whole, not just in its Ukrainian half, as the “investigative journalism”
has tried to portray it.

I have a feeling that the current authorities are involved in business in
the way they learned in the KGB’s higher school. They make contracts in the
same way as they force people to collaborate. First you have to frighten
the client witless, then you get him a girl or boy, depending on his
passions, next you take this down on film, then you scare him again and
force him to since the agreement to collaborate.

 
Then you remind him about this piece of paper so that he will not chicken out.
If need be, you can use this piece of paper to help you “bump him off”.
 
The Kremlin has just not forgiven Yushchenko for the personal shame it he
caused during the elections two years ago. Nor will it forgive him. All that
has been mentioned above does not mean that President Yushchenko is an
angel. There are two real sides to this story, and in the best scenario neither
side is an angel, while in the worst, one side has made a giant frame up for the
other.                                             -30-
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12. MOSCOW SHOULD REPUDIATE GAS SUPPLY BLACKMAIL

COMMENT AND ANALYSIS: By Vladimir Milov
Financial Times, London, UK, Monday, April 24 2006

The remarks made by Alexei Miller, Gazprom’s chief executive, last Tuesday
during a meeting with a group of ambassadors from the European Union
countries in Russia have shocked not only Europeans.

He reminded them that Gazprom, the Russian state-controlled gas monopoly,
was “actively developing new markets such as North America and China”, which
was “not by accident”. “Competition for energy resources is increasing,” he
said, adding a stunning comment that “attempts to limit Gazprom’s activity
in the European market” would lead to “no good results”.

Although Mr Miller confirmed Gazprom’s full commitment to fulfil its gas
supply obligations under current contracts, it was made clear that future
supply policy would be somehow dependent on the actions that European
governments take towards Gazprom.

This was the first time responsible Russian officials had threatened
European governments with “bad results” if they do not act in Gazprom’s
interests.

Such a statement could be a reaction to the Financial Times’ disclosure that
the British authorities had considered proposals to restrict the ability of
foreign companies to acquire equity control of British gas market operators,
which would affect the possible acquisition by Gazprom of a stake in
Centrica, Britain’s biggest gas supplier.

Although it would be very advantageous for Russian companies to acquire
downstream energy assets in Europe – and it is sad that they may be
prohibited from doing so – it is also important to remember that, about two
years ago, the Russian authorities first started this game by indicating
that foreign investment in Russian oil and gas fields should be restricted.

In 2005, President Vladimir Putin in his address to parliament openly called
for limiting foreign investment in “strategic sectors” of the economy. It is
clear that, unless we renounce the desire to limit foreign investments in
Russia’s energy sector, we can expect a symmetrical attitude from other
countries. Besides, we need strategic foreign investors in Russia to ensure
successful development of our new oil and gas fields.

Not even the Soviet Union during the cold war dared to threaten western
Europe with regard to gas supplies. The Soviet Union and Russia were
considered reliable suppliers of energy. But January’s gas embargo against
Ukraine raised serious concerns about the reliability of Russian supply and
last week’s Gazprom comments clearly exceeded certain limits.

Gazprom has the right to protect its interests in Europe – but through
proving reliable, playing by rules and convincing the Russian government to
adopt a favourable regime for European investors, similar to the one it
wants to find in Europe.

Using the advantage of extremely uneven global distribution of oil and gas
resources – nearly three-quarters of which are controlled by a dozen nations
producing little more than 5 per cent of global domestic product – as a
means of applying political pressure is totally unacceptable.

These statements come just a couple of months before the summit of the

Group of Eight leading industrial nations in St Petersburg, where Russia, the
current president, is expected to lead the global discussion on energy
security.

There has been a lot of criticism of the Russian authorities for “insecure”
behaviour over energy in the recent past and a worse time to start this gas
blackmail could not possibly be found.

It is in the strategic and most critical national interests of the Russian
Federation immediately to denounce the totally irresponsible comments made
by Mr Miller and officially confirm that Russia will never make an attempt
to use the gas supply issue as a tool of pressure on European and other
nations.

It is also important for Europeans to know that there are people in Russia
who firmly believe that Russian actions in the international arena must be
responsible and driven not by the idea of dominance, but by the principles
of solidarity, fair play, international prosperity and security.

Unfortunately, this does not seem to apply to the people who are currently
in power in my country.
—————————————————————————————————
The writer is president of the Institute of Energy Policy in Moscow and
Russia’s former deputy energy minister

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             Send in a letter-to-the-editor today. Let us hear from you.
========================================================
13. EMERGING MARKETS POSE A QUESTION OF PROTECTION
        Political risk insurers in emerging markets [like Ukraine] are grappling
           with the challenge of covering financial obligations of state- linked
         corporations in energy and other major fields, writes Daniel Riordan

ANALYSIS: By Daniel Riordan, Lloyds List,

London, United Kingdom, Thursday, April 27, 2006

DIRECT sovereign payment obligations and’or guarantees of payment that
protect exporters and lenders are becoming increasingly difficult to obtain
in emerging markets.

In order to appear more fiscally responsible, governments that typically
assumed payment obligations or guaranteed such obligations through their
central ministries of finance are now looking to keep these risks off their
national balance sheets.

As a result, many such obligations and’or guarantees are now undertaken by
sub-sovereign entities, state-owned enterprises and parastatal entities.

Parastatal entities are a mix of state and private ownership but are either
explicitly or implicitly controlled by the government (greater than 50%
voting stock, more than 50% of the board of directors).

When they step into the role of financial obligor or guarantor, the line
between political and commercial risks becomes blurred.
In this scenario, an economic inability to honour a guarantee of payment may
not be readily distinguishable from a political unwillingness to make
payment.

Responding to this convergence, some political risk insurers are offering a
non-honouring product that serves the evolving needs of their customers
doing business in developing economies.

Compounding the risks posed by financial obligations undertaken by
sub-sovereigns, SOEs and parastatals is a trend toward re-nationalisation of
formerly privatised sectors. Governments that had rushed to privatise over
the past 20 years are now considering nationalising some companies or
increasing their control in sectors deemed strategically important, such as
energy and natural resources.

As a result, companies that lend money to, invest in or trade with emerging
markets are more frequently interacting with a government-controlled partner
often on the regional or local level.

These companies not only face the risks of non-payment and’or non-honouring
of guarantees, but also confiscation, expropriation and nationalisation.

This is particularly apparent in sectors where governments are offering
guarantees to spur funding and investment, such as infrastructure projects
involved with water, power or transportation, as well as in health care and
technology and their related commercial transactions.

Non-honouring policies are being purchased by businesses involved with
sub-sovereign entities controlled by regional and local municipalities in
Russia, Ukraine, Kazakhstan, Brazil, Turkey and Mexico. Considerable demand
may develop in China and India in the near future.

While most purchasers today are exporters and lenders, the product can be
adapted to the coverage needs of investors.

Insurance buyers find non-payment’non-honouring insurance particularly
appealing because it is relatively straightforward. While some traditional
political risk exposures such as expropriation can have complex coverage
triggers because of the twists and turns of such incidents, the trigger for
non-payment’non-honouring coverage is more akin to trade credit insurance.

While the insured party is still required to comply with certain policy
provisions, coverage is usually triggered for meritorious claims after a
180-day waiting period.

Covering the payment obligations and’or guarantees of sub-sovereigns, SOEs
and parastatals poses significant underwriting challenges. Lack of adequate
information is frequently a major hurdle. For instance, many parastatal
enterprises are not rated companies. With the exception of some that are
publicly traded, like Petrobras in Brazil, financial information is rarely
readily available.

Because these enterprises tend to be less transparent than their fully
commercial counterparts are, underwriters need to do considerably more
research to uncover the requisite information. Among other factors that have
a bearing on the risk, underwriters look at the enterprise’s financial
condition, debt structure, access to foreign exchange and the level of
sovereign support.

This process typically entails in-depth discussions with the enterprises’
management as well as secondary research. It takes a carrier well versed in
analysing the risks in emerging markets to underwrite this coverage
properly.

Governments in many emerging markets are attempting to finance trade and
encourage investment while at the same dealing with their own economic and
political realities. As a result, the nature of emerging markets risks is
changing, calling for new and innovative insurance solutions.

By helping to shield companies from non-payment when dealing with wholly or
majority government-controlled entities in emerging markets, non-honouring
coverage should encourage the pursuit of good business opportunities.
———————————————————————————————-
Daniel Riordan is executive vice president and managing director,

Zurich Emerging Markets.
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14.   RUSSIA, RICH IN WELLS, AIMS TO BUY INTO THE RETAIL
                                     SIDE OF OIL AND GAS
 
By Andrew E. Kramer, The New York Times
New York, New York, Monday April 26, 2006

MOSCOW, April 25 ­ Just a couple of years ago, Russia’s big energy
companies hardly ventured outside the former Soviet Union. These days, they
are trying to horse-trade on a global scale, swapping stakes in their giant
oil and gas fields for ports, pipelines and networks of gas stations around
the world.

Executives streaming in from China, Israel and India are lining up outside
Gazprom’s headquarters, hoping for a piece of Russia’s natural gas reserves.

But the company’s accounts ­ and indeed those of the government, too ­ are
already flooded with petrodollars. So, the Russian government and its oil
and natural gas operators want to swap for something else: they want to
build large retail networks to reach consumers in the United States, Europe
and China.

Already, a blueprint is emerging under which state and private companies
trade a stake in Russian oil and natural gas projects for a role in
overseas expansion.

Two major energy deals are under negotiation in Moscow. Gazprom is seeking
to trade access to its Russian reserves for a chance to help build or gain
a stake in terminals for liquefied natural gas, or L.N.G., in the United
States. And Rosneft, the state oil company, wants to build a network of gas
stations in China.

In the deals, analysts see the larger ambitions of Russia as a power broker
in the worldwide energy markets, with the power to dictate terms to
companies like Chevron or BP, and the range to sell energy products
directly to consumers in the United States. Russia’s crude oil reserves are
the largest outside OPEC, if Canadian tar sands are not counted as oil
reserves, and Russia’s natural gas reserves are the largest in the world.

“There’s the spirit that it is morning again in Russia,” Thane Gustafson, a
senior analyst at Cambridge Energy Research Associates, said of Russia’s
oil and gas companies in a telephone interview. “Stand tall in the saddle.
And what is the one thing the Russians have in hand as a trump card? They
have energy resources and location.”

Situated 550 kilometers, or 330 miles, north of Murmansk in the Barents
Sea, the Shtokman gas field is well positioned for exports to the Eastern
Seaboard of the United States and is expected to be the object of the
largest energy deal to close in Russia this year. Gazprom is in the final
stages of choosing partners; it had said it would disclose them this week
but has delayed the announcement. In any case, entry will not be cheap: the
initial investment is likely to exceed $10 billion.

The prize is a minority stake in a reserve of 3.6 trillion cubic meters, or
about 127 trillion cubic feet, of natural gas, equivalent to seven times
the annual consumption of European Union member states.

In September, Gazprom announced a short list of possible partners,
including Chevron and ConocoPhillips of the United States, Norsk Hydro and
Statoil of Norway, and Total of France. But the negotiations are not all
about money, say bankers and energy executives involved. A chief aim for
Gazprom is to use domestic reserves to build its international profile.

For example, Total, a long-shot contender according to analysts, offered to
trade Gazprom its stakes in a Norwegian offshore field and prepaid rights
to capacity at the Sabine Pass L.N.G. terminal in Cameron Parish, La., for
a role in Shtokman, Reuters reported.

Gazprom’s ambitions to expand overseas have a political as well as
commercial dimension, so it is not surprising that Russian officials
endorse Gazprom’s strategy of reciprocity as it expands into Europe and
even the United States and Asia. After all, Western companies have tried to
enter the Russian market for a decade.

Commercially, Gazprom could increase its margins by selling at retail
rather than wholesale. In Europe, retail prices range from 1.9 times
wholesale prices in France to 6.7 times in Denmark, according to a study by
Goldman Sachs. Retail sales prices are higher, of course, to cover the
additional costs of building and maintaining distribution networks.
Gazprom’s wholesale revenues in Europe last year were more than $25 billion.

Similarly, Gazprom is pushing American companies to help Russia ensure
access to American pipelines for the eventual exports from Shtokman,
according to an American banker who has sat in on talks between the Russian
company and Chevron.

That could be a delicate task after Congress gave a chilly reception to
Middle Eastern and Chinese foreign investors recently. Two high-profile
bids by foreign companies to buy United States assets failed. The China
National Offshore Oil Corporation withdrew its bid for Unocal, the oil
company based in California, and DP World of Dubai aborted efforts to own
port terminals. Gazprom could be hoping an American partner could ease its
entry into the United States.

Indeed, analysts say the reluctance ­ or inability ­ of the American
partners to help Gazprom enter the American market may be holding up the
talks. Chevron, ConocoPhillips and Gazprom have declined to comment.

In a sign of high-level government interest in the big energy deal, William
J. Burns, the American ambassador to Russia, met last week with Gazprom’s
chief executive, Aleksei B. Miller.

In a related dispute, Mr. Miller met with European Union ambassadors in
Moscow the same week and warned that attempts to thwart Gazprom’s expansion
into Europe would only impel the company to turn to eager buyers in Asia
instead.

“Attempts to limit Gazprom’s activities in the European market and
politicize questions of gas supply, which are in fact entirely economic,
will not lead to good results,” Gazprom said in a statement issued after
the meeting.

“This may be controversial, but recent examples in the United States make
Russia look not all bad” in terms of economic protectionism, said Peter
Westin, chief economist at MDM Bank in Moscow.

Another keenly awaited energy deal this year is the expected initial public
offering of stock in Rosneft. Rosneft is also in talks with Chinese
companies over opening a network of filling stations in China in exchange
for a 5 to 10 percent stake in Rosneft, according to Aleksei N.
Kormschikov, an oil and gas analyst at the UralSib brokerage firm in Moscow.

This move would smooth Rosneft’s entry into China, ensuring a customer for
Russian energy outside Europe and the United States. Rosneft’s
capitalization is estimated at about $60 billion, making the expected
Chinese share worth about $3 billion to $6 billion.

The big globe-spanning swaps have a precedent in recent deals. The Russian
company Lukoil’s strategic partnership in 2004 with ConocoPhillips, the
third-largest United States oil operator after Exxon Mobil and Chevron,
allowed Conoco access to reserves in the far north and access to a private
terminal on the Arctic Ocean at Varandey Bay.

In turn, Conoco agreed to help Lukoil retain its production-sharing
agreement in the huge West Qurna-2 field in Iraq. Lukoil said this week
that it was pleased with the partnership and believed that a final
agreement with Iraqi authorities guaranteeing Lukoil control over the field
near Basra was near.                                -30-

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15.              RUSSIA’S POWER PLAY HAS HIGH STAKES

THINKING GLOBAL: By Frederick Kempe
The Wall Street Journal, New York, NY, Tue, May 2, 2006; Page A8

BRUSSELS — Georgian President Mikhail Saakashvili, who rose to power
through the former Soviet state’s democratic “Rose Revolution,” has a word
of advice for Europe and the U.S. as they grapple with a resurgent Russia’s
increasingly aggressive energy politics.

“Hurry.”

The stakes are too high for a wait-and-see approach. They include the
political and economic independence of the European Union’s 25 countries

and the long-term health of the bloc’s economy, roughly equal in size to the
U.S. as the world’s largest.

Russia, which President Vladimir Putin has reinvented as an “energy
superpower” fueled by skyrocketing oil prices, is moving quickly to
consolidate and expand its virtual gas monopoly in many parts of Europe
through state-controlled giant OAO Gazprom.

Mr. Putin last week backed Gazprom Chief Executive Alexei Miller’s threat to
divert European gas supplies to Asia, apparently in answer to European
countries’ nascent efforts to impede Russian energy acquisitions, diversify
suppliers and pressure Moscow to open its pipelines to competitors.

“It’s the first time in the last 20 years that Russia has been on the
offensive,” says Alexander Vondra, a former Czech dissident and now a
business consultant. The West was “setting the agenda until now, and they
were reacting. That’s over.”

Mr. Saakashvili — in Brussels to speak to the Brussels Forum, a meeting of
influential U.S. and European government and private-sector leaders — says
that ultimately at risk “is whether we can defend our core values” in a
world where Russia, China and others are using state-controlled corporate
giants like Gazprom to lock up critical assets and prevent free markets from
functioning.

The good news is that Moscow’s gas cutoff to Ukraine over New Year’s

sounded a wake-up call throughout Europe. The bad news is there has been
considerable nodding off since then. Countries that once paid little
attention to their increasing energy dependence on Moscow called emergency
meetings and drew up plans for alternative pipelines and expanded nuclear
energy.

Yet four months later, Europe and the U.S. lack a common response to Mr.
Putin as he prepares to host the July summit of the Group of Eight leading
nations in St. Petersburg — with energy security as his central theme.

Meanwhile, Gazprom — the leading vehicle of Kremlin energy influence —

has accelerated a three-pronged strategy.
 
1] First, it is campaigning to bottle up its control of Central Asian gas
resources.

[2] Second, it is consolidating and expanding its hold on energy
infrastructure among countries that were once part of the Soviet Union.

 
[3] Finally, it is trying to use a deepening war chest to acquire private and
privatizing energy assets elsewhere in Europe.

Rising tensions with Moscow reached a crescendo last week when Mr. Putin,
before meeting with German Chancellor Angela Merkel in Tomsk, Siberia,
accused the West of “unfair practices” and agreed with Mr. Miller that it
would redirect supplies elsewhere if its European expansion plans were
blocked.

A senior EU official says Mr. Putin’s “pipeline rattling” is in direct
response to EU pressure that Russia ratify an International Energy Charter
requiring it to open pipeline access to competitors — much as
telecommunications companies share their bandwidth.

Secretary of State Condoleezza Rice, who said at a Senate hearing recently
that energy politics is “warping” international diplomacy, joined the battle
in Ankara, Turkey, urging Turkey and Greece to reduce their dependence on
Russia by favoring new pipeline plans that rely on Azerbaijan.

Vice President Dick Cheney flies to Kazakhstan this week as part of a
continued effort to get it and Turkmenistan to join pipeline plans that
would reduce Russia’s near-complete dominance of Central Asian resources.

“People are thinking much harder now about what to do, but they had better
make up their minds pretty fast,” says Mr. Saakashvili. Georgia, as a key
alternative gas-pipeline corridor, will host an International Energy
Agency-sponsored meeting in Tbilisi in June to promote energy
diversification.

“If Europe doesn’t create alternative suppliers…it doesn’t have a
[competitive] market. If you don’t have a market, you have only politics.
And energy politics [with Russia] is as ugly as it can get.” Russia has
refused to join the meeting and a person familiar with the situation says
one Kremlin official told an IEA official that Moscow will lobby against
others’ participation.

The EU official says politicians are beginning to see the need for a
consensus that the only possible way to counter a Russian monopoly is to
negotiate more as what John Roberts of the Platt Energy Group calls a
“monopsony,” which the dictionary defines as “a single consumer.” The EU is
Gazprom’s biggest customer.

This gives it greater leverage because gas, in contrast to oil, relies more
on fixed pipelines. Gazprom, despite its bluster, must depend for many years
to come on European sales.

James Sherr, an expert on Russia at the Defence Academy of the United
Kingdom, says Mr. Putin declared his determination to use oil and gas as
political weapons in a little-known 2003 Kremlin document on energy strategy
through 2020. Calling Russian energy reserves “a base for the development of
the economy and an instrument for the conduct of internal and external
policy,” it adds: “The role of the country in the world energy market to a
significant extent determines its geopolitical influence.”

Mr. Sherr says the West at the very least should send a clear and common
political message to Mr. Putin at the G-8 summit. He suggests the first step
should be to demand market access and prevent Gazprom from acquiring
European energy assets until Russia offers reciprocity. Second, he suggests
European countries and the U.S. make clear that they will reassess their
entire relationship with Russia if it cuts off energy supplies for any
political reason.

What is important, Mr. Sherr says, is to remember that Mr. Putin’s
strategists see the world more through a 19th-century, than a Cold War,
lens. They don’t want conflict with the West, but view “politics as a
struggle for power to maximize national interests.”

Thus, if the West responds with a common front, Russia may conclude it has
overplayed its hand and back off, rather than imperil the broader
relationship. Yet failure to act will reinforce Mr. Putin’s approach, which
is gathering speed and capital as the West dithers.
———————————————————————————————
Write to Frederick Kempe at Thinkingglobal@wsj.com with your thoughts.
————————————————————————————————
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16.      EUROPEAN UNION SERVES NOTICE TO GAZPROM:

                     DEALS MUST PASS ANTITRUST MUSTER

By William Echikson, Dow Jones Newswires
The Wall Street Journal, NY, NY, Wed, May 3, 2006; Page A10

The European Union warned OAO Gazprom that the purchase of a Western
energy company would be subject to EU antitrust laws and that its monopoly
position as the exclusive exporter of natural gas to the EU from Russia is
“a significant fact” that would be considered in any antitrust reviews.

The warning came in a letter to Russian Energy Minister Victor Khristenko
from European Energy Commissioner Andris Piebalgs and Austrian Federal
Minister for Economics and Labor Martin Bartenstein. Gazprom has indicated
that it is interested in acquiring European distribution and marketing
assets, and that it might consider bidding for Centrica PLC, Britain’s
biggest natural-gas supplier.

The EU officials said antitrust rules applied to Gazprom “will be no
different to those applied to…other companies, notably under the
competition rules of the EU Treaty.”

“The fact that Gazprom is the exclusive exporter of gas from Russia to the
EU, when other Russian companies and foreign joint ventures with gas
reserves would otherwise be in a position to supply the EU market, will be a
significant fact that will necessarily be taken into account in any such
objective analysis,” the letter said.

How to deal with Russia and its crucial energy resources has become a key
issue, with oil prices at more than $70 a barrel.

This past winter, Russia cut off its supplies of natural gas through
Ukraine, causing shortages throughout Western Europe. Since then, EU leaders
have been preoccupied with energy security and have attempted to negotiate,
so far unsuccessfully, a new energy partnership with Moscow.

The EU wants increased access for European companies to invest in Russian
energy supplies, along with assurances that Moscow will meet Europe’s rising
demand for natural gas.

In their letter, the EU officials said “Russia, and Gazprom in particular,
have been, and remain, a reliable supplier of natural gas to the European
Union.” They added that it is “important that this relationship is
maintained, given that the EU looks to Russia for increased deliveries of
gas in the future.”

For its part, Russia wants freedom for Gazprom to invest in EU energy
companies.                                    -30-
————————————————————————————————
Write to William Echikson at william.echikson@dowjones.com
————————————————————————————————

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17.         ONCE UPON A TIME THE FUTURE WAS BRIGHT

                            AND THE FUTURE WAS ORANGE 

BOOK REVIEW: By Marcus Tanner
RE:  “An Orange Revolution, A Personal Journey
Through Ukrainian History.” By Askold Krushelnycky
The Independent, London, United Kingdom, Thu, May 04, 2006

Pity Ukraine. For this giant on the edge of Europe (the very word
translating roughly as “border”), size has never implied muscle. Its lot has
been partition between masters, some sort-of good, like Habsburg Austria,
and some ghastly, like Tsarist Russia.

After an abortive attempt at independence, Stalin rolled up his sleeves to
deliver Ukrainian nationalism a knock-out blow. In the government-managed
famine that followed, several million Ukrainians died.

Askold Krushelnycky is well-placed to explore and explain the terrible
divisions in his tormented homeland. He has a father who fought for the
Ukrainian SS and an aunt who became a heroine of the Red Army. With a
background like that, his account of the years leading up to the 2004 Orange
Revolution – which displaced the pro-Russian elite – is a highly personal,
partisan account.

The way Krushelnycky tells it, Ukraine before the Kiev protests was run by a
gang who make Milosevic and his entourage in Serbia look like a gentlemen’s
club. One victim was Georgiy Gongadze, a reporter who asked his foul-

mouthed thug of a president, Leonid Kuchma, tricky questions on air.

He was beheaded – one of many unexplained crimes that would have remained
so, had not Kuchma’s bodyguard fled Ukraine with devastating recordings of
the boss’s table-talk with the interior minister. Kuchma could be heard
yelling for someone to deal with “that fucker”.

That scandal, and the botched attempt to poison the reformist Viktor
Yushchenko, persuaded Kuchma he might be better off not seeking a third
term. A coalition of pro-Russian and “biznis” circles found a suitable clone
in Viktor Yanukovych, whom they assumed would be a shoo-in.

When he wasn’t and they calmly falsified the result, the normally sat-upon
Ukrainians bestirred themselves, donned the colour orange for no reason
other than that it was that year’s fashion, and – to the consternation of
the Kremlin, the old guard in Ukraine and their foreign sympathisers – said
“we’ll choose our own president. We’ll have Yushchenko”.

The revolution did not maintain its momentum – especially after the Kremlin
took its revenge by turning off gas supplies. Recent elections left
Yanukovych’s Party of Regions as the largest faction, though without a
majority. But for those who want to savour that brief moment in time when
Ukraine got up off its knees and stopped apologising for itself, this book
is a great guide.                                  -30-

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18. GERMANS FROM RUSSIA: JOURNEY TO THE HOMELAND TOUR
 
By Michael Miller, Germans from Russia Bibliographer
May column of In Touch with Prairie Living
Germans from Russia Heritage Collection (including Ukraine)
North Dakota State University Libraries,
Fargo, North Dakota, Thursday, May 4, 2006

From May 23 to June 2, 2006, the 12th Journey to the Homeland Tour

group will leave for Prague, Czech Republic; Odessa, Ukraine; and
Stuttgart,Germany. Tour members are from California, Idaho, Minnesota,
North Dakota, South Dakota, Oregon and Washington.

Tour members will be visiting the former German villages including:
Friedentstal in the Crimea; Bergdorf, Glueckstal, Hoffnungstal, Kassel and
Neudorf (Glueckstal District); Baden, Elsass, Kandel, Mannheim, Selz and
Strassburg (Kutschurgan District); Berlin, Franzfeld, Gueldendorf and
Neuberg (Liebental District). We will also travel to Alsace, France to
visit the villages where many Germans left around 1804 for South Russia
(today southern Ukraine near Odessa).

We will be at the Harvey Public Library on Friday, June 30 from 12 noon to
5 pm and Saturday, July 1 from 1 to 4 pm with our GRHC displays. Dr.
LaVern Freeh, author of “Child of the Prairie, Man of the World,” will
autograph his book from 2-4 pm on June 30 at the Harvey Library. Harvey,
ND celebrates its Centennial for June 30-July 2, 2006.

The Dakota Memories Oral History Project continues in 2006. Interviews
will be done in May in the Linton/Strasburg/Hague area, and in July in the
Rugby area of North Dakota. A grant was received from the Embassy of
Canada to complete interviews in July of German-Russians in central
Saskatchewan with family roots to North Dakota. Saskatchewan locations
include Allan, Regina and the Tramping Lake/Luseland/Unity area.

We designed this project to document the heritage and culture of the
German-Russians. This project focuses on childhood memories and family
relationships, specifically, what it was like growing up German-Russian on
the northern plains. For further information, go to
www.lib.ndsu.nodak.edu/grhc/history_culture/oral/interviews/project.htm.

The 2005 interviews are available from GRHC on DVD. They include 31
interviews, including more than 60 hours of video. For more information,
go to: www.lib.ndsu.nodak.edu/grhc/order/tapes/dakota_memories/index.html.
Family names for these interviews include: Boschee, Buck, Dewald, Fercho,
Fischer, Gross, Hartmann, Herman, Heyne, Janke, Kasemen, Kleingartner,
Klundt, Long, Meidinger, Mueller, Miller, Pressler, Schaeffer, Schlecht,
Schott and Zimmerman.

GRHC has published this historic new book, “The Centennial of St. Andrew’s
Catholic Church, Zeeland, North Dakota and the Spiritual Heritage of St.
John’s Catholic Church, Rural McIntosh, North Dakota”, authored by Father
Andrew Jasinski. The Zeeland, ND, area was heavily settled by
German-Russian immigrants from the Catholic Kutschurgan District villages,
today near Odessa, Ukraine – Baden, Elsass, Kandel, Mannheim, Selz and
Strassburg. Contact GRHC to secure this book or go to
www.lib.ndsu.nodak.edu/grhc/order/nd_sd/zeelandnd.html.

Prairie Public Broadcasting has produced the DVD, “Germans from Russia
Food Pantry” which combines three award-winning public television
favorites that have been broadcast throughout North America. Enjoy
“Schmeckfest: Food Traditions of the Germans from Russia” and “Recipes
from Grandma’s Kitchen: Food Preparations and Traditions of the Germans
from Russia, Volume I and II”. The DVD documentary and performance CD,
“A Soulful Sound: Music of the Germans from Russia” are available.

Also, Prairie Public Broadcasting has produced a DVD which includes these
two award-winning documentaries: “The Germans from Russia: Children of

the Steppe, Children of the Prairie” and “Prairie Crosses, Prairie Voices:
Iron Crosses of the Great Plains.”

The Germans from Russia Heritage Society Convention (www.grhs.org) will

be July 12-16, Airport Holiday Inn, Portland, OR; the American Historical
Society of Germans from Russia Convention (www.ahsgr.org) will be August
13-19 at Lincoln, NE; and the Festival of Germans from Russia, October
13-15, Leader, SK. I look forward to attending these important events.

For further information about Germans from Russia heritage, Dakota
Memories Oral History Project, donations to GRHC including books, events,
documentaries, CDs, DVDs, cookbooks and the May, 2007 tour, contact
Michael M. Miller, NDSU Libraries, PO Box 5599, Fargo, ND 58105-5599

(Tel: 701-231-8416; E-mail: michael.miller@ndsu.edu; GRHC website:
www.lib.ndsu.nodak.edu/grhc).                             -30-
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19. UKRAINIAN PRESIDENT TO OPEN MEMORIAL IN POLAND 

UNIAN news agency, Kiev, in Ukrainian 0928 gmt 4 May 06
BBC Monitoring Service, UK, In English, Thursday, May 04, 2006

Kiev, 4 May: Ukrainian President Viktor Yushchenko will pay an official
visit to Poland on 12-13 May. The Ukrainian president’s visit to Poland will
consist of two parts, Foreign Ministry spokesman Vasyl Filipchuk told a
briefing today.

In particular, the official status of the visit envisages meetings in Warsaw
with President Lech Kaczynski, Prime Minister Kazimierz Marcinkiewicz,

Sejm Speaker Marek Jurek, Senate Speaker Bogdan Borusewicz and Polish
businesspeople.

In addition, Yushchenko will visit Subcarpathia Province, where he will open
a memorial to Ukrainians who died in the village of Pawlokoma [where members
of the Polish anti-Nazi resistance movement killed hundreds of Ukrainians in
1945].

Talks with the Polish leaders will focus on the state and prospects for
bilateral cooperation, in particular economic cooperation and diversifying
energy sources and joint steps aimed at achieving Ukraine’s European and
Euro-Atlantic integration goals.                       -30-
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20. CHERNOBYL: HUMAN CATASTROPHE WE SHOULD NEVER FORGET

COMMENTARY: Borys Tarasyuk, Minister of Foreign Affairs, Ukraine
The Guardian, London, United Kingdom, Sat, Apr 29, 2006

On April 26 1986, the Chernobyl explosion shocked the world and the date of
this human-made catastrophe has been burnt into our collective memory. Its
consequences, which may only be clearly seen in times to come, are a
challenge for the entire world, not just Ukraine.

Chernobyl made us revise our views on the role of nuclear energy. Some
countries refused to use nuclear power, instead directing their efforts to
alternative energy resources. Now, with global energy consumption rising,
views are being revised again. In this context, the international community
must pay special attention to the nuclear safety issue.

The disaster has deeply hurt Ukraine. Our country has lived with this wound
for 20 years and will have to live with it over coming decades. Millions of
people have suffered, thousands of them are dead. Ukraine became the first
country where 2,000 sq km of territory had to be proclaimed an exclusion
zone, in which life and any activity were dangerous.

Economic losses have badly affected our development and the burden will have
significant negative impact for a long time. In some years the costs have
been about 10% of the state budget.

Much hard work has been done to overcome the consequences of Chernobyl.

Many countries helped Ukraine with assistance in dealing with the health and
environmental consequences of the disaster, and the closure of the plant.
Ukraine highly appreciates this assistance from the international community.

The closure of Chernobyl was, after nuclear disarmament, Ukraine’s
contribution to the security of the European continent and the whole world.

But potential danger still exists. Therefore, the realisation of the Shelter
Implementation Plan, in particular the construction of a new safe
confinement over the ruined fourth nuclear reactor, remains the main issue
for Ukraine and the international community. I do not see any alternative to
further strengthening international efforts in order to overcome these
problems.                                         -30-
———————————————————————————————–
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21. CHERNOBYL MUST BE MADE SAFE SAYS UKRAINIAN PRESIDENT   
 
Ukrainian Radio First Programme, Kiev, in Ukrainian 29 Apr 06
BBC Monitoring Service, UK, in English, Saturday, Apr 29, 2006

Ukrainian President Viktor Yushchenko has said the donor money collected

in the past six years is enough to finally launch the construction of a new
sarcophagus over the damaged reactor at the Chernobyl nuclear plant.

Speaking in his 29 April address to the nation devoted to the 20th
anniversary of the Chernobyl disaster, Yushchenko said: “I am confident that
in the next couple of months we will finally start building a new and safe
sarcophagus over the No 4 reactor. The 1bn dollars that we have collected in
the past six years with the help of international partners is a sufficient
amount to start work.”

Yushchenko insisted that the new sarcophagus should guarantee the safety of
the damaged reactor for at least 100 years to come and should enable the
removal of radioactive waste.

“Ukraine insists on complying with some key conditions for the construction
of the sarcophagus. This is the safety of the construction and the
reliability of the shelter. The shelter facility should guarantee the safety
of the damaged reactor for at least 100 years. Most importantly, conditions
should be created to dismantle building structures and remove radioactive
waste from beneath the shelter.”

Yushchenko called on the international community to join efforts to make the
Chernobyl plant environmentally safe to avoid any disasters in the future.

“We need to do our utmost to turn the plant itself into an environmentally
safe facility. It is necessary to realize that any further delays in taking
joint effective action in this area may cost too much for the whole of the
continent,” Yushchenko said.

Yushchenko called for the development of the Chernobyl exclusion zone.

He emphasized the need to set up an interagency research centre for a
comprehensive study of all Chernobyl-related problems.

The president said that Ukraine has no alternative to nuclear energy, as
nuclear power plants produce over 50 per cent of Ukraine’s total electricity
output.

Yushchenko said Ukraine knows little about the true reasons, scale and
consequences of the Chernobyl disaster 20 years afterwards. He blamed the
Soviet command system and the negligence of its leaders for the catastrophe.
————————————————————————————————-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
22. “SOUND BANDURA” INTERNATIONAL FESTIVAL OF BANDURISTS
                   TO GET UNDERWAY IN YALTA IN MIDDLE OF MAY

Gulnara Kurtaliyeva, Ukrinform, Kyiv, Ukraine, Thursday, May 4, 2006

SIMFEROPOL, Ukraine – The international festival of bandurists, dubbed
“Sound Bandura!” will traditionally get underway in Yalta in middle May.

 
The festival aims at preservation and development of bandura expertise and
its popularization in Crimea, search for talented bandurists and support of
Crimean bandurists, the Crimean Culture Ministry told Ukrinform.

According to Crimean Culture Minister Tamara Aronova. This is the 15th
festival of bandura expertise, held in Crimea, which envisages participation
of bandurists from Ukraine, Russia and Belarus.
 
According to Tamara Aronova, a series of workshops for leaders of bandura
ensembles is supposed to be organized in Ukraine within the framework of
the festival.                                     -30-
————————————————————————————————-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
23. FILM ABOUT LIFE OF FORMER LEADER OF PEOPLE’S RUKH OF
      UKRAINE VYACHESLAV CHORNOVIL BEING SHOT IN UKRAINE
                          New film is entitled “Awaker of Stony State”

Ukrinform, Kyiv, Ukraine, Wednesday, May 3, 2006

KYIV – The Ukrainian Film Studio “Dovzhenko” is presently shooting a feature
documentary film about the life of a Hero of Ukraine, people’s deputy and
former Leader of the People’s Rukh of Ukraine, Vyacheslav Chornovil, who
died in a car crash on March 25, 2006.

The shooting of the documentary “Awaker of Stony State” is presently being
done in Mariupol, Donetsk region, by Ukrainian director Volodymyr
Onyshchenko. Vyacheslav Chornovil used to be engaged in the construction

of the 1700 Ilyich Industrial Plant, which will be mentioned in the film.

The film is supposed to be broadcasted on leading Ukrainian TV Channels in
middle June, 2006. However, audience will be treated to the premiere earlier
in the cities, which served venues for shooting the film.

Vyacheslav Chornovil (1937-1999) was a journalist and a co-founder of the
People’s Rukh of Ukraine. He was the one who contributed to the development
of independent Ukraine in the early 1990’s. Under Mr Brezhniev’s rule, he
was prosecuted and imprisoned due to political convictions, and was set free
during Mikhail Gorbachov’s rule.

In 1994 Vyacheslav Chornovil was running for president of Ukraine. Before
the pre-electoral camping in 1999, Vyacheslav Chornovil died in a car crash,
near Kyiv.  The car crash has been for a long time been considered a political
murder.                                                -30-
————————————————————————————————–

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