AUR#699 May 24 Politics Strains Economic Performance; WTO Protocol With Australia; Messy Side Of Democracy, What To Do With Yulia?; Tatar Rally In Crimea

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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       

                        
ACTION UKRAINE REPORT – AUR – Number 699
Mr. E. Morgan Williams, Publisher and Editor  
WASHINGTON, D.C., WEDNESDAY, MAY 24, 2006 
             –——-  INDEX OF ARTICLES  ——–
           Clicking on the title of any article takes you directly to the article.               
  Return to the Index by clicking on Return to Index at the end of each article
1.       UKRAINE POLITICS STRAIN ECONOMIC PERFORMANCE
Emily Barrett, Dow Jones Newswires, London, UK, Sunday, May 21, 2006
 

2UKRAINE: HIGH POLITICAL DRAMA HITS ECONOMIC ACTIVITY
    Story of political upheaval, geopolitical rivalry & uncertainty for investors
By Tom Warner in Kiev, Financial Times, London, UK, Fri, May 19, 2006

3EBRD: GROWTH TO SLOW IN EASTERN EUROPE AS FDI FALLS
      “In Ukraine…a sizable hryvnia correction looks likely later this year…”
Paul Hannon, Dow Jones Newswires, London, UK, Sun, May 21, 2006

4DEVELOPMENT BANK TO CITE CENTRAL EUROPE TRIUMPH
   New EBRD Strategy to focus investment in Russia, Ukraine and 17 other
     countries in Southeastern Europe, Caucasus & Central Asia after 2010
By Paul Hannon, Dow Jones Newswires 
New York, New York, Friday, May 19, 2006

5.   EU TRADE DEFICIT WIDENS WITH RUSSIA DUE TO ENERGY
Anne Jolis, Dow Jones Newswires, Brussels, Belgium May 24, 2006 

6.         BUSINESSMAN JOURNALIST SHOT DEAD IN UKRAINE
UNIAN news agency, Kiev, in Ukrainian 0939 gmt 24 May 06
BBC Monitoring Service, United Kingdom, Wed, May 24, 2006

7.       UKRAINE DOES NOT ALLOW IMPORT OF POLISH MEAT 
Polish News Bulletin, Warsaw, Poland, Monday, May 22, 2006

8. IBERIA MOTOR CO INVESTS IN ASSEMBLY PLANT IN UKRAINE 

Polish News Bulletin, Warsaw, Poland, Thu, May 18, 2006

9POLAND: RUSSIA USES ENERGY RESERVES FOR BLACKMAIL 
Dow Jones Newswires, London, UK, Friday, May 19, 2006

10.                       SO LONG, WASHINGTON (FOR NOW)
By Anne Applebaum, OP-ED Columnist, The Washington Post
Washington, D.C., Wednesday, May 24, 2006; Page A23

11.        UKRAINE SIGNS WTO PROTOCOL WITH AUSTRALIA
     Document marked the end of one of the longest bilateral talks processes
UNIAN news agency, Kiev, in Ukrainian 0823 gmt 20 May 06
BBC Monitoring Service, United Kingdom, Saturday, May 20, 2006

12UKRAINE’S CHANCES TO FIND ALTERNATIVES TO GAZPROM 

Vedomosti , Moscow, Russia, in Russian 10 May 06
BBC Monitoring Service, United Kingdom; Thu, May 18, 2006

13RUSSIA REPORTED TO PAY MORE FOR KAZAKH GAS, PLANS
                   TO RAISE COST OF GAS SOLD TO UKRAINE

Alex Nicholson, Moscow, Russia, AP Worldstream, Mon, May 22, 2006

14UKRAINE PM SURE RUSSIA WON’T UP GAS PRICE THIS YEAR
                 Ukraine is one of the biggest gas consumers in Europe.
Associated Press (AP), Kiev, Ukraine, Tue, May 23, 2006

15 UKRAINE SEEKS G8 TALKS ON GAS SUPPLY FROM RUSSIA
By Stefan Wagstyl in London and Tom Warner in Kiev
Financial Times, London, UK, Tue, May 23 2006

16.   YUSHCHENKO TELLS SUMMIT OF UKRAINE’S INTEREST
                      IN NEW OIL TRANSPORT PROSPECTS 
Interfax-Ukraine news agency, Kiev, in Russian 0830 gmt 23 May 06
BBC Monitoring Service, United Kingdom; Tuesday, 23, 2006

17PARSING CHENEY’S ‘HOLD ON THERE, VLADIMIR’ SPEECH’
           Real news of U.S.-Russian relations is the reversal of fortunes
COMMENTARY: By Jim Hoagland, The Washington Post
The Wall Street Journal, NY, NY, Monday, May 22, 2006

18.   RUSSIA REBUFFS EUROPEAN UNION ON NATURAL GAS
          Kremlin Resists Calls To Liberalize Sector, Sign Energy Charter
By Guy Chazan, The Wall Street Journal
New York, NY, Wednesday, May 24, 2006; Page A6

19.                              KREMLIN CAPITALISM:
         Russian Car Maker Comes Under Sway Of Old Pal of Putin
Tight Circle in Government Is Drawing Key Industries Into State’s Orbit
                                     Frictions With Partner GM
By Guy Chazan, The Wall Street Journal
New York, NY, Friday, May 19, 2006; Page A1

20.            RUSSIA: THE FOLLY OF RENATIONALIZATION
ANALYSIS & COMMENTARY: By Anders Aslund, Moscow Times
Moscow, Russia, Tuesday, May 23, 2006. Issue 3416. Page 10.

 
21.     UKRAINE DEALS WITH MESSY SIDE OF DEMOCRACY
                                        What to do with Yulia?
ANALYSIS:
By Mara D. Bellaby, Associated Press Online
Kyiv, Ukraine, Sunday, May 21, 2006
 
22.   PARTY OF REGIONS NAMES IT’S PARLIAMENT LEADERS
Interfax-Ukraine news agency, Kiev, in Russian 1153 gmt 17 May 06
BBC Monitoring Service, United Kingdom, Wed, May 17, 2006
 
          ANNIVERSARY OF THEIR DEPORTATION BY STALIN
Black Sea TV, Simferopol, in Russian 1600 gmt 18 May 06
BBC Monitoring Service, United Kingdom, Thu, May 18, 2006
 
24.                EUROVISION SONG CONTEST: OH, LORDI
          Ukrainian voters vote for Russia, Russians vote for a Ukrainian
REVIEW & OUTLOOK: The Wall Street Journal
New York, New York, Tuesday, May 23, 2006
 
                                       ENERGY PRICE HIKES
Associated Press (AP), Kiev, Ukraine, May 24, 2006
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1
. UKRAINE POLITICS STRAIN ECONOMIC PERFORMANCE

Emily Barrett, Dow Jones Newswires, London, UK, Sunday, May 21, 2006

LONDON — The Ukrainian economy minister’s speech began with a rough
inflation projection and notice of his departure from the country’s messy
political scene.

In his address to a packed hall at the European Bank for Reconstruction and
Development’s annual meeting, Arseniy Yatsenyuk typified the bewildering
state of Ukraine’s political climate.

Yatsenyuk told his audience of foreign investors that he had just discovered
that he would probably not be joining the new government, and was therefore
not in a good position to outline its likely plans. “I’ve just found out,”
he said. “I’m not sure I can tell you the truth about the future of this
government.”

He then went on to list the “internal challenges” faced by Ukraine’s new
government which, two months after national elections, still hasn’t been
decided.

A revival of the tattered Orange Revolution team looks barely more likely
than a coalition between the parties of President Viktor Yushchenko and the
opposition led by Viktor Yanukovich.

The political strain has taken its toll the local currency. The deputy
governor of the National Bank of Ukraine Sunday said that defending the
hryvnia’s peg against the dollar at UAH5.02 had cost $1.7 billion in the
last quarter.

Analysts at the Institute of International Finance predict a “sizable
hryvnia correction” later this year, “due to a growing current account
shortfall and heavy outflows of residential capital.”

They say a drop in demand for steel and sharp increase in the cost of
natural gas from Russia whittled Ukraine’s current account surplus from
10.5% of gross domestic product in 2004 to 3% last year, and estimate this
was transformed into a deficit of 5% in the three months to March.

But NBU deputy Governor Oleksandr Savchenko said foreign direct

investment inflows, around $824 million in the first quarter, are helping
support the local currency.

“There are some factors that push the hyrvnia to depreciate, but there are
more fundamental factors that bring it to appreciate,” Savchenko said.

Big-ticket privatisations – including the $5 billion resale last year of the
country’s biggest steel mill, Krivorizhstal, to steel giant Mittal – have
also boosted the country’s coffers.

Savchenko also reiterated the bank’s intention to cut the dollar’s share in
its currency reserves from 40% now and raise the euro’s share from 30%

while also increasing the shares of other currencies.

He also said the bank planned to reduce intervention in the foreign exchange
market over the next year, moving closer to inflation targeting as its
central remit. The NBU expects the inflation rate to stand at 10% this year.

“We’re going to make the exchange rate more flexible, we’re going to leave
the forex market and intervene only in exceptional cases,” the deputy said.

The deputy governor pointed out that international investment banks widely
regarded the hryvnia as one of the most undervalued currencies in the world.
He said the central bank was looking to adjust its hyrvnia peg to UAH5
against the dollar, within a flexible 3%-4% trading band.

In the meantime, Savchenko said the country needed a deeper government

bond market. “We need to develop our markets – we have a shortage of state
securities,” he said.

But that will be difficult to achieve for the time being, as political
uncertainties continue to exert unwelcome pressure on yields. The cost of
borrowing on international markets is still rising.

In his address, Finance Ministry official Vitaly Lisovenko praised the
record-low 4.95% interest rate Ukraine secured on last year’s 10-year
euro-denominated bond. “It looks like this record won’t be repeated for
another few years, unfortunately,” he said.             -30-
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-Emily Barrett, Dow Jones Newswires, 
emily.barrett@dowjones.com

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2. UKRAINE: HIGH POLITICAL DRAMA HITS ECONOMIC ACTIVITY
    Story of political upheaval, geopolitical rivalry & uncertainty for investors

By Tom Warner in Kiev, Financial Times, London, UK, Fri, May 19 2006

For almost two years, Ukraine has lived an intensely dramatic story of
political upheaval, geopolitical rivalry and uncertainty for investors. And
more of the same lies ahead.

Having been through the Orange Revolution in late 2004, the acrimonious
collapse of the first post-revolution government in 2005, a natural gas
supply war with Russia at the beginning of this year, and an inconclusive
parliamentary vote in March, Ukraine faces a potentially chaotic showdown in
parliament over who will lead the new government and which direction the
country will take in the years ahead.

The outcome is still not clear. The five parliamentary blocs and parties had
held three meetings by May 11 but failed to agree even on a date when
parliament will convene, which the constitution says must happen by May 26.

As Viktor Yushchenko, the president (pictured above), said in a local
newspaper interview, “I don’t have any ready decision on a candidate for
premier. Everyone has a chance.”

As the political talks stall, the economy is increasingly stagnant. Gross
domestic product growth this year is forecast to roughly match last year’s
rate of 2.6 per cent, down from 12.1 per cent in 2004 when world prices for
steel, the main export, were at their peak. Increased gas prices have pushed
the trade balance into deficit for the first time since the 1990s.

The best economic news in recent months has been a slowing of inflation,
which is running at an annualised rate of 7 per cent after years of
double-digit rises.

Interest from foreign investors remains high although the flow of deals has
slowed as investors wait for the government to be formed. Jorge Zukoski,
head of the local American Chamber of Commerce, said many investors were
impressed by the fairness of the March elections and hardly seem to be
bothered by the lack of clarity.

“There’s a feeling that Ukraine has turned the corner and is going to
continue moving in the right direction. The only question is how quickly,”
Mr Zukoski said.

Deal-making in the banking sector is continuing at full speed, with several
large European banks hurrying to catch up with their rivals Raiffeisen,
Banca Intesa, BNP Paribas and Credit Agricole, all of which have bought a
Ukrainian bank in the past year.

However, many investors have been surprised and disappointed by the rapid
political decline of Mr Yushchenko, a pro-western liberal who created high
hopes when he emerged victorious, seemingly with the country in his hand,
from the Orange Revolution.

After a stunning defeat in the March election, in which his Our Ukraine bloc
came third, Mr Yushchenko is now struggling to stay in the game. A revised
constitution dramatically reduced his powers in favour of parliament, which
will control the new cabinet.

The leading candidate for prime minister is Yulia Tymoshenko, a charismatic,
sharp-tongued and often populist former prime minister who led the first
post-Orange Revolution government until Mr Yushchenko sacked her last
September, using his powers under the old constitution.

Her bloc and the closely allied Socialists have a combined total of 162 of
parliament’s 450 seats, while Our Ukraine, which has tentatively declared
its intention to join them in a coalition, has 81 seats.

The Regions party, led by Viktor Yanukovich, a former prime minister whose
presidential ambitions were foiled by the Orange Revolution, has 186 seats.
The Regions favours closer cooperation with Russia and more support for
domestic big business. The Communists have 21 seats.

Both Mr Yushchenko and Ms Tymoshenko support a western-oriented foreign
policy and a legislative reform program geared at rapid entry to the World
Trade Organisation and eventual membership in the European Union.

Although Ms Tymoshenko presents herself as centre-left and Our Ukraine
presents itself as centre-right, in practice they have both favoured
generous social spending backed by stricter tax collection and
privatisation.

However, Mr Yushchenko and Ms Tymoshenko have consistently quarrelled

over details, particularly when business interests are at stake. Their most
important disagreement is over a gas supply deal that Mr Yushchenko’s
government signed with Russia in January and the exclusive supply role it
gave to RosUkrEnergo, a Swiss-registered company owned half by Russia’s
Gazprom and half by two Ukrainian businessmen.

Ms Tymoshenko has promised to cancel the deal, which Mr Yushchenko says is
unfeasible. Russia has warned that if the agreement is annulled unilaterally
it could again cut gas supplies to Ukraine, as it did in January, or sharply
increase prices. Russia’s recent ban on imports of Georgian and Moldovan
wine has also increased worries in Ukraine, which sends 22 per cent of its
exports to Russia.

The US is pushing to get Ukraine officially started on the path towards Nato
membership by November, and Russia has warned it would respond negatively.
Mr Yushchenko is keen to move quickly on Nato, while Ms Tymoshenko and the
Socialists are cautious.

Another problem for Ms Tymoshenko is that she has made many enemies within
Our Ukraine, notably the current prime minister, Yuri Yekhanurov, and Petro
Poroshenko, a leading businessman.

Ms Tymoshenko’s bloc has warned that if her bid for the premiership fails it
will not back any other candidate. That could lead Our Ukraine to switch
partners and team up instead with The Regions.

Opinions vary widely about what such a coalition would do, with some
analysts seeing a positive scenario in which domestic investment would pick
up and pressure from Russia would drop. Others, however, see a slide back
towards the corrupt authoritarianism that prevailed before the Orange
Revolution.


If both coalition options fail, Mr Yushchenko might be forced to call early
elections – but he would be very reluctant, as opinion polls show that Our
Ukraine’s support has fallen further since March. Talks could potentially
stretch into autumn.                      -30-          
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LINK: http://news.ft.com/cms/s/3bacd080-e749-11da-9046-0000779e2340.html
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3. EBRD: GROWTH TO SLOW IN EASTERN EUROPE AS FDI FALLS
      “In Ukraine…a sizable hryvnia correction looks likely later this year…”

Paul Hannon, Dow Jones Newswires, London, UK, Sun, May 21, 2006

LONDON — Economic growth in the countries of eastern Europe and the former
Soviet Union will slow over the next five years as inflows of foreign
investment level off, the European Bank for Reconstruction and Development
said Sunday.

In its twice-yearly Transition Report, the development bank said the
economies of the 27 countries in which it invests will grow on average 5.3%
this year, marking a slowdown from the 5.6% rate of growth recorded in 2005
and the 6.7% rate of growth recorded in 2004.

But for the five years from 2007, the EBRD said annual growth will average
4.5% as inflows of foreign investment, which in recent years have been high
by historic standards, tail off. Foreign direct investment totaled $55.6
billion in 2005, more than double the $25.6 billion recorded in 2000. The
EBRD expects FDI to fall to $44.7 billion in 2006.

“In the region as a whole we think foreign direct investment will level off
and the signs we are seeing right now of a cooling of interest in emerging
markets will contribute to that,” said Erik Berglof, the EBRD’s chief
economist.

The EBRD warned that growth may slow even further if there were to be a
crisis of confidence in emerging markets. “Any loss of confidence in
emerging markets would have an impact in the region and could cause a
significant drop in growth and FDI (foreign direct investment),” the EBRD
said.

While emerging markets around the globe have benefitted in recent years from
strong inflows of foreign investment, rising interest rates in the U.S., the
euro zone and the prospect of higher rates in Japan have in recent weeks led
to an outflow of funds from some.

However, in a separate report also published Sunday, the Institute for
International Finance – a Washington, D.C. based group that counts many

of the world’s largest banks among its membership – forecast that foreign
investment in the region’s equity markets would rise over the next two
years, to $14.7 billion this year and $9 billion in 2007 from $4 billion in
2005.

The IIF expects investment in the region’s equity markets to rise despite a
loss of momentum in the process of economic reform.
“Reform momentum has diminished across the region as a result of recent or
forthcoming elections and the rising appeal of populist parties opposed to
market-oriented reforms and foreign investment,” the IIF said.

Inflows of FDI have been particularly important as a driver of growth in the
eight central European countries that joined the European Union in 2004. FDI
surged to $22.7 billion in that year from $8.2 billion in 2003, and rose
again to $28 billion last year.

Berglof said one of the challenges faced by the eight new members is to
generate growth in those sectors of the economy that aren’t controlled by
foreign investors. “A lot of the growth comes from foreign-controlled
enterprises,” he said. “The big challenge is to get the rest of the economy
to catch up.”

The EBRD said the large budget deficits being run by a number of governments
in the E.U.8 could make them vulnerable to a reversal of investment flows.

“Many countries…face continuing difficulties in balancing public spending
with government revenues,” the EBRD said. “This reflects the relatively high
level of social expenditures, substantial enterprise subsidies, and large
infrastructure investments. The larger…countries especially need to
tighten their fiscal policies.”

The Czech Republic, Hungary, Slovakia and Poland have all said they want to
join the euro zone by the end of the decade or shortly thereafter. But some
are running budget deficits that exceed the 3% of gross domestic product
limit set as one of the euro-zone’s entry criteria.

In the short term, the EBRD expects their budget deficits to widen, taking
them further away from adopting the euro. In 2006, it expects Hungary’s
budget deficit to widen to 6.2% of GDP from 6.1%, while it expects the Czech
Republic’s budget deficit to widen to 3.9% of GDP from 3.2%, Poland’s to
widen to 3.2% from 2.9% and Slovakia’s to widen to 3.5% from 3.0%.

“With voters turning away from advocates of genuine fiscal reform,
governments have shied away from many of the measures needed to scale back
social spending and solidify fiscal adjustment,” the IIF said. “Slovakia
alone has enacted reforms bold enough to bring within reach a medium-term
deficit path complying with the Maastricht fiscal criteria.”

Despite the continued high price of oil and gas, the EBRD expects the
Russian economy to slow this year, growing 5.5% as against 6.4% in 2005

and 7.1% in 2004.

“There has been a marked slowdown in the natural resources sector due to
capacity constraints and ineffective government policies,” the EBRD said.

The development bank expects other natural-resource rich parts of the former
Soviet Union to post some of the highest economic growth rates in the world
this year. Azerbaijan topped the world growth league in 2005 with an
expansion in its GDP of 26.4%, and the EBRD expects 2006 to be only a little
weaker, with GDP growing 25.0%.

But it also forecasts that Kazakhstan’s economy will grow 8.5%, marking a
slowdown from 9.4% in 2005, and that Turkmenistan’s economy will grow

10.6%, a pickup from 9.6% in 2005.

As a whole, however, the EBRD expects growth in the former Soviet Union
excluding the Baltic States to slow significantly to 5.7% in 2006 from 6.6%
in 2005 and 8.0% in 2004.

“The rate of growth…is declining sharply and is likely to fall further in
2006, reflecting the limited investment to date in productive capacity,” the
EBRD said.

By contrast, the EBRD expects growth in southeastern Europe to pick up

this year to an average rate of 4.8% from 4.5% in 2005.
 
It said the region is benefiting from improved trade and investment links
with the E.U., led by Romania, where growth is forecast to pick up to 5%
from 4% last year.

However, the EBRD said the region faces a number of risks, largely of a
political nature. “In the western Balkans, significant political risks
persist due to several unresolved issues – the future of Kosovo, the
possible break up of…Serbia and Montenegro,” the development bank said.

Despite the cooling of investor appetite for emerging markets securities in
recent weeks, the IIF said it doesn’t expect to see widespread depreciations
of local currencies in the region, the main exception being Ukraine, where
the central bank has been intervening heavily in support of the hryvnia.

“In Ukraine…a sizable hryvnia correction looks likely later this year due
to a growing current account shortfall and heavy outflows of resident
capital,” the IIF said.                            -30-
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Paul Hannon, Dow Jones Newswires, paul.hannon@dowjones.com
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4.  DEVELOPMENT BANK TO CITE CENTRAL EUROPE TRIUMPH
   New EBRD Strategy to focus investment in Russia, Ukraine and 17 other
     countries in Southeastern Europe, Caucasus & Central Asia after 2010

By Paul Hannon, Dow Jones Newswires 
New York, New York, Friday, May 19, 2006

LONDON – Development banks rarely have the opportunity to declare victory
and move on, but that is exactly what the European Bank for Reconstruction
and Development will do at its annual meeting Sunday and Monday in London.

The 60 government shareholders of EBRD, established in 1991 to help the
countries of Eastern Europe and the former Soviet Union make the transition
to market economies, are set to approve a new five-year strategy for the
bank under which it will by 2010 “graduate” the eight countries in Central
Europe that joined the European Union in May 2004.

That will leave the bank investing in Russia, Ukraine and 17 other countries
in Southeastern Europe, the Caucasus and Central Asia.

Approval of the new strategy will signal that the 60 governments believe all
of the EU8 — the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Slovakia and Slovenia — will have completed the transition by the
end of this decade.

For EBRD President Jean Lemierre, the 2010 deadline represents a triumph

not just for the eight countries, but also for the bank. “It’s important for a
public institution to have a clear way to measure its raison d’être and its
mission,” Mr. Lemierre said.

The new strategy is a compromise between the U.S., which had been pressing
the EBRD to set a deadline for withdrawal from the EU8 as early as next
year, and the European Union, which had argued that graduation would occur
naturally as private-sector banks and investors become increasingly willing
to lend at cheaper rates than those charged by the EBRD.

The U.S., the EBRD’s single-largest shareholder, will get its deadline. The
EU will get a few more years of EBRD investment in its newest members.

Since the eight soon-to-be graduates joined the EU, it has become
increasingly clear that most of the EBRD’s potential clients in those
countries have or will soon have access to private-sector sources of
finance. Indeed, large Western European banks such as Unicredit SpA of
Italy now run much of the lending in the new EU member states through
subsidiaries. The area’s domestic banks remain coveted assets by
established financial institutions.

That isn’t to say that the changes are complete. There is still a long way
to go before the countries achieve convergence with the older EU members,
particularly when it comes to average incomes.

In 2003, the most recent year for which comparable figures are available,
gross domestic product per capita in Germany was Euro26,217 ($33,427). In
the Czech Republic, it was Euro7,867, in Poland it was Euro5,011 and in
Hungary it was Euro7,260.

But narrowing that gap isn’t the EBRD’s core task, and the geographical
focus of its activities will shift south and east.

In some of the countries where the EBRD will continue to operate, the
transition process will likely follow the same path as in the EU8, aided by
the desire of governments to change their economies and political systems

in order to join the EU.

Without the promise of membership, it is likely that the transition in the
eight new member countries would have taken longer to complete. Bulgaria

and Romania probably will join the bloc next, followed by Croatia. Other
countries in the Balkans also harbor realistic ambitions to join.

“The main lesson is the extraordinary power of the EU process,” Mr. Lemierre
said. “In some of the countries, the story is quite the same as in Central
Europe with a gap of a few years. It is EU-driven.”

However, in Russia, Central Asia and the Caucasus, EU membership isn’t on
offer. Russia will be the main beneficiary of the transfer of resources that
had been devoted to the eight graduates.

Under the new strategy, the EBRD will continue to invest roughly the same
mount of money annually that it does now, about Euro4 billion. This year, it
expects 15% of that to go to the EU8, 31% to Russia and 54% to all other
countries. By 2010 it expects to make 41% of its new investments in Russia,
6% in the EU8 plus Croatia, and 53% in all other countries.

The increased focus on Russia comes at a time when the country is enjoying
a surge in revenue from oil and gas exports as a result of the rise in
prices since 2002. The Central Bank of Russia’s foreign-exchange reserves

rose to a record $236.1 billion on May 12, up 61% from $147.1 billion at the
end of May 2005.

Mr. Lemierre said Russia needs the EBRD’s help to diversify its economy away
from oil and gas by supporting private-sector companies operating in other
sectors, and tackle weaknesses in its infrastructure that could hamper
future growth.                                      -30-
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Leos Rousek in Prague contributed to this article. Write to Paul Hannon

at paul.hannon@dowjones.com.a
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5.   EU TRADE DEFICIT WIDENS WITH RUSSIA DUE TO ENERGY

Anne Jolis, Dow Jones Newswires, Brussels, Belgium May 24, 2006 

BRUSSELS — Fueled by oil and gas imports, the European Union’s trade
deficit has more than tripled since 1999, rising to EUR50.3 billion last
year, statistics published by Eurostat Wednesday show.

The deficit data comes a day before E.U. leaders meet Thursday with Russian
President Vladimir Putin at a summit which looks set to underline
differences over energy.

Energy has made Russia the E.U.’s third most important trading partner after
the U.S. and China. Europe’s dependence on Russian energy was highlighted
this past winter, when Moscow cut gas supplies to Ukraine, which curtailed
deliveries to the E.U.

According to the Eurostat figures, energy accounted for more than two-thirds
of Russia’s exports to the E.U. by value, or EUR70.6 billion last year, up
from EUR17.6 billion in 1999. Russia is the largest single supplier of
natural gas to the E.U., providing one-quarter of Europe’s gas. It is also
the second-biggest source of E.U. oil.

Europe is selling more to an expanding Russia. Its exports grew to EUR56.4
billion from EUR16.6 billion on Russian demand for European machinery and
vehicles. Russia’s largest trading partner is Germany, which exported
EUR17.2 billion to Russia in 2005. Italy came next, exporting EUR6.1
billion.

Germany and Italy were also Russia’s largest importers in 2005, with Russia
exporting EUR20.7 billion to Germany and EUR11.8 billion to Italy. These two
countries traditionally have been the most friendly to Russia. Germany has
angered its neighbor Poland by agreeing to build a new gas pipeline under
the Baltic Sea, which would avoid passing through Poland.

At the Thursday and Friday summit, the E.U. wants Russia to provide
safeguards for foreign investors and allow access to Russian energy
infrastructure, including gas pipelines. As energy prices continue to soar,
Russian President Vladimir Putin has resisted any action that would lessen
state-run OAO Gazprom’s (GASPBEX.RS) monopoly over energy exports.
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By Anne Jolis, Dow Jones Newswires; anne.jolis@dowjones.com

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6.  BUSINESSMAN JOURNALIST SHOT DEAD IN UKRAINE

UNIAN news agency, Kiev, in Ukrainian 0939 gmt 24 May 06
BBC Monitoring Service, United Kingdom, Wed, May 24, 2006

BILA TSERKVA – Businessman Vadym Hudyk was killed in central Bila

Tserkva today. He was killed outside the Kavyarnya cafe, which is located
in the town’s central Freedom Square. The businessman was killed with two
shots from a pistol without a silencer in his own car.

Bila Tserkva archive employees, who went out of their office after hearing
gunshots, said they had seen a young man dressed in a tracksuit near the
car. The police and prosecutors have arrived at the scene.

Hudyk was a prominent businessman in the city. He was also known to have
authored expose articles for the Ukrayina Kriminalnaya website about a
former Bila Tserkva prosecutor, Oleksandr Lupeyko.           -30-
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7.  UKRAINE DOES NOT ALLOW IMPORT OF POLISH MEAT 

Polish News Bulletin, Warsaw, Poland, Monday, May 22, 2006

WARSAW – Deputy PM and Agriculture Minister Andrzej Lepper believes

that there is no chance of Polish meat exports to Ukraine being resumed on
20 May. Lepper said that Ukraine has not agreed to reopen its market.

Talks on the issue run by a Polish delegation in Kiev have not brought any
results. “I met the Ukrainian agriculture minister at our ministry. There is
the will to lift the ban, but veterinary conditions must be met,” said
Lepper.

The situation concerning the Russian market, which is closed to Polish food,
is even more complicated. Referring to the Russian case, Lepper declared he
was ready to go to Moscow personally to discuss the issue.

“There is a political aspect, but Poland must stop regarding Ukraine and
Russia as countries which will accept goods of lower quality. Their demands
are sometimes higher than the European Union’s,” said Lepper. He added that
Poland must stick to these demands “because we are striving for their
markets, not they for ours.”                     -30-

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8. IBERIA MOTOR CO INVESTS IN ASSEMBLY PLANT IN UKRAINE 
Polish News Bulletin, Warsaw, Poland, Thu, May 18, 2006

WARSAW – Ukraine’s Eurocar, in which Iberia Motor Company holds a

10-percent stake, has opened a new $51m division of its assembly plant in
Salomonovo (near Uzgorod), Ukraine, allowing a 45-percent output increase.
The new plant will assemble Skodas, while the old one will specialise in
Volkswagens and Seats (in the summer).

By 2011, Eurocar intends to invest as much as $149m in the construction of a
paint shop (to be completed by 2008) and increasing production output to
120,000 cars per year by 2009, as was disclosed by IMC owner Krystian
Polaczek.

IMC Deputy Supervisory Board Chairman Arkadiusz Wieckiewicz, speaking

of the reasons for the location of the assembly plant in Ukraine, pointed to
the disparity between excise duty levels on ready-made cars and car parts:
excise on the former amounts to 25 percent, and only 0.5 percent on the
latter.                                              -30-
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9.  POLAND: RUSSIA USES ENERGY RESERVES FOR BLACKMAIL 

Dow Jones Newswires, London, UK, Friday, May 19, 2006

LONDON – Poland’s Defence Minister Radek Sikorski has accused Russia

of using its energy reserves as a means of blackmailing its western neighbors,
the BBC Web site reported Friday.

In a BBC interview, Sikorski said Poland wanted a commercial relationship
with Russian energy suppliers, without monopolies, price-fixing or
blackmail.

His comments echo concerns raised by U.S. Vice-President Dick Cheney at a
recent eastern European regional meeting. Next week, Russia and the European

Union will have summit talks at a Black Sea resort.

Poland has previously criticized Russia for cutting gas supplies to Ukraine
in January in a price dispute, and for signing a deal with Germany to build
an undersea gas pipeline bypassing Poland. Sikorski recently compared the
deal to the pre-World War II Nazi-Soviet pact which carved up Poland.

The $5-billion pipeline, agreed in September 2005, will connect Babayevo in
Russia to Greifswald in Germany. The 1,200-kilometer pipeline is now under
construction and will deliver Russian gas to Germany – and eventually to
other Western European nations – by 2010.

Poland has asked the E.U. to forge a more coherent common policy on energy
in the face of new challenges. But its proposal for a new Energy Security
Treaty, to provide mutual energy security in the same way as the North
Atlantic Treaty Organization offers protection against military attack, has
so far won little public support.          -30-
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BBC News Web site: http://news.bbc.co.uk

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10.                   SO LONG, WASHINGTON (FOR NOW)
 

By Anne Applebaum, OP-ED Columnist, The Washington Post
Washington, D.C., Wednesday, May 24, 2006; Page A23

To be perfectly honest, I never really got used to it. However many times I
had to say it, the words never sounded natural. “What does your husband

do?” the nice woman in the carpool line or the pleasant man at the cocktail
party would ask, and I’d try to toss it off lightly: “Well, actually, he’s the
defense minister of Poland.”

Then the nice woman or the pleasant man would look at me slightly
cross-eyed, trying to guess whether I was serious. After they had worked
out that I was indeed completely serious, they would demand explanations.

“How on earth did that happen?” was a frequent question, as if the answer
might involve some mysterious deus ex machina or a coup d’etat, nothing

so dull as a democratic election. “Oh, that must be terribly difficult,” was a
common commiseration — as if we were discussing a great tragedy.

But my favorite reaction by far — and it was by no means unusual — came
from the people who wrinkled their foreheads and asked: “Is that a job you

can do in Washington?”

Well, no, being Polish defense minister isn’t a job you can do in
Washington. Nor is it a job that can be done while commuting from
Washington. On the contrary, the Polish defense minister pretty much has
to be in Poland all the time, what with cabinet meetings to attend, NATO
summits to plan, interviews to give and troops to manage in Iraq,
Afghanistan, Kosovo and elsewhere.

Nevertheless I find it heartwarming that so many Washingtonians think that
maybe someone could be the Polish defense minister while living in
Washington. It is often alleged that we now live in a thoroughly globalized
world, a world where everyone knows everything in real time, where everyone
has instant access to all information, where the man who answers Microsoft’s
help line is in Bangalore and the grapes at the Chevy Chase supermarket come
from Chile.

Yet even so, Washington — the metaphoric capital of this globalized
world — still retains a streak of the small-town provincialism it had when
I was a child.

Those who live in the orbit of the White House and Capitol Hill still find
it hard to imagine how anyone could bear to exist beyond the Potomac
watershed. Those who live in the orbit of the Chevy Chase supermarket still
think of foreign countries as places to go on vacation.

Poland, Brazil, Congo, Kazakhstan, Wherever: They may be Allies, they may
be Strategic Partners, they may be Important Front Page Stories, but — 
let’s face it — they’re still less absorbing than the latest K Street scandal or
Little League game. It’s a relief, somehow, to know that the global village
hasn’t yet replaced real villages altogether.

I concede that there really was something odd about living for the past year
in Washington while my husband ran for election to the Polish senate, joined
the government there and became defense minister.

There was a long prehistory to the situation (we lived in Poland before, my
husband was in government before) and a good explanation for it (I wanted
my children to finish the school year here), but it’s still been surreal to
read about his life in the Polish press — while waiting in that carpool
line on my way to the supermarket.

All of which is an overlong way of explaining why this column is about to
disappear, temporarily. When it reappears, a few months from now, I will
be in Poland or somewhere close by.

But I doubt I’ll write again about my husband’s job: After all, my views
about most things were formed long before he had it. In fact, I’m only
writing about it now because if I don’t explain why I’m leaving, lots of
people — relatives, friends, childhood acquaintances — will wonder what
happened.

I realize, of course, that out there in cyberspace no one could care less if
another local writer leaves town for Europe or blasts off into outer space.
But Washington — not the metaphoric Washington, but the real Washington —
still cares about its offspring. And I hope it always will.     -30-
—————————————————————————————————
E-mail: applebaumanne@yahoo.com
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/23/AR2006052301530.html

NOTE:  Anne Applebaum is married to Poland’s Defense Minister
Radek Sikorski.
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11.   UKRAINE SIGNS WTO PROTOCOL WITH AUSTRALIA
    Document marked the end of one of the longest bilateral talks processes.

UNIAN news agency, Kiev, in Ukrainian 0823 gmt 20 May 06
BBC Monitoring Service, United Kingdom, Saturday, May 20, 2006

KIEV – Ukraine and Australia have completed bilateral talks and signed a
protocol on mutual access to markets of goods and services required for
Ukraine’s accession to the World Trade Organization (WTO), UNIAN learnt

from the Economics Ministry’s press service.

The ministry said that the signing of the protocol, which took place on 19
May, was an important step towards the completion of Ukraine’s accession to
the WTO. This document marked the end of one of the longest bilateral talks
processes.

Among other things, the protocol specifies the conditions for access to
sugar markets proposed by Ukraine which sought to protect its players’
interests in these markets.

Deputy Economics Minister Valeriy Pyatnytskyy signed the protocol on behalf
of Ukraine. At the end of April, Paytnytskyy said that Ukraine is planning
to complete the WTO accession talks by the first half of June. [Passage
omitted: background]                            -30-
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12. UKRAINE’S CHANCES TO FIND ALTERNATIVES TO GAZPROM 
                    
Vedomosti , Moscow, Russia, in Russian 10 May 06
BBC Monitoring Service, United Kingdom; Thu, May 18, 2006

Ukrainian government officials are looking for alternatives to Gazprom to
supply gas to their country. National Security and Defence Council Secretary
Anatoliy Kinakh stated that Russian oil companies could possibly become
suppliers. But analysts consider this maneuver unlikely and the oil
companies themselves will not break into Ukraine with their own gas.

Ukraine intends to begin negotiations to attract companies to supply gas
from Russia as alternatives to Gazprom. Anatoliy Kinakh stated this in an
interview with the Ukrainian daily newspaper Ekonomicheskaya Gazeta. “We

are talking about forming a more liberal gas market,” the government official
explained.

“In particular, one of the components of our negotiation strategy is
creation of a gas exchange market.” In his words, there are many companies
wishing to supply gas to Ukraine “at sufficiently acceptable prices.” He
named, in particular, Lukoil and TNK-BP. “We are talking about tens of
billion of cubic meters,” Kinakh elaborated.

Gazprom is not worried about the prospect of a competitor appearing in the
Ukrainian gas market. “These are only words,” an employee of the gas
monopoly’s press service said to Vedomosti. “There is nothing for us to
comment on. We will do this only in the case if oil companies and the
Ukrainian side reach some kind of real agreements.”

Russian oil companies are not concerned with expansion into the Ukrainian
gas market. A representative of TNK-BP, which extracted 4 billion cubic
meters of gas last year, told Vedomosti that the company had no plans to
supply fuel to Ukraine.

“We have a contract with Gazprom,” says a source in Lukoil. “All the natural
gas that we extract from the Nakhodkinsk deposit in the Yamalo-Nenetsk

Okrug [2.63 billion cubic meters in 2005] we sell to them according to this
contract. We do not have other volumes.”

Market analysts regard the possibility of oil companies’ direct deliveries
of gas to Ukrainian frankly. “Even if the Ukrainian side sets up some kind
of bridges with alternative suppliers, they will all the same have to agree
with Gazprom,” Konstantin Baturin from Alfa-Bank is certain.

The monopoly on gas exports practically belongs to the concern. “Gazprom
will not give up its place,” Baturin is sure. He adds that Russian oil
companies in any case do not have the volumes of available gas to meet
Ukraine’s requirements.

IFK Solid analyst Denis Borisov has the same opinion. “Gazprom will not
yield its status as the exclusive exporter of gas for at least five years,”
he is sure. “The monopoly has a significant argument – the state is holding
down domestic prices for this fuel.” In addition, the expert notes, recently
Russia has clearly started to use gas deliveries overseas as an instrument
of political influence.

Therefore the authorities are interested in Gazprom having this instrument.
Borisov also adds that Kinakh’s statement serves purely political motives –
to tone down the hullabaloo in Ukraine over RosUkrEnergo, which started
after the beneficiaries of this company became known.

In 2006, with 20 billion cubic meters of its own gas extracted, Ukraine will
require 76 billion cubic meters. In the beginning of January, Gazprom and
Naftogaz Ukraina signed an agreement, according to which in the first half
of 2006 Ukraine will buy gas from the Swiss Rosukrenergo at the border with
Russia for 95 dollars per 1000 cu.m.                        -30-
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13.  RUSSIA REPORTED TO PAY MORE FOR KAZAKH GAS, PLANS
            TO RAISE COST OF GAS SOLD TO UKRAINE

Alex Nicholson, Moscow, Russia, AP Worldstream, Mon, May 22, 2006

MOSCOW – Russia has agreed to pay nearly triple the amount it currently does
for Kazakh natural gas and plans to partly offset the hike by raising the
cost of gas it sells to Ukraine, a Russian business newspaper reported
Monday.

Kommersant cited unnamed sources close to the negotiations as saying that
Moscow agreed to pay US$140 (A110) per 1,000 cubic meters of Kazakh gas
compared to the US$50 (A39) price it paid previously. A spokesman for
Russian state-controlled natural gas monopoly OAO Gazprom declined to
comment immediately on the Kazakh deal.

The deal comes as competition for the energy resources of oil- and gas-rich
Central Asia is intensifying. U.S. Vice President Dick Cheney paid a
high-profile visit to Kazakhstan earlier this month to lobby for American
energy interests. EU Energy Commissioner Andris Piebalgs also traveled to
the Kazakh capital Astana to discuss the possibility of a European-bound gas
pipeline that could skirt Russia.

Russia imports about 8 billion cubic meters of natural gas per year from
Kazakhstan and Kommersant calculated that the increase would cost

Gazprom an additional US$700 million (A548 million) annually. In exchange
for shouldering a more market-oriented price, Russia would expand its
presence in the Kazakh gas industry, the paper reported.

Kazakhstan previously announced plans to raise capacity by 40 billion cubic
meters per year and plans on forming two joint ventures with Russia to tap
the Imashevsk field and the Tsentralny field under the Caspian Sea, which
hold an estimated 129 billion and 2 trillion cubic meters of gas
respectively.

Apparently referring to steps that would partly offset the price hike,
Kommersant quoted Gazprom’s deputy management board chairman Alexander
Ryazanov as saying that Ukrainian consumers would pay a higher price as July
1 – US$130 (A102) per 1,000 cubic meters.

Russia and Ukraine faced off in a bitter spat over natural gas prices over
the New Year holiday – a dispute that resulted in gas supplies temporarily
being shut off to Ukraine. The two sides ultimately reached deal under which
Ukraine would buy wholesale gas from Russia and Central Asia at a blended
price of US$95 (A74) per 1,000 cubic meters from a gas trading company 50
percent owned by Gazprom.

The disruption, which also affected several European countries, led to calls
for the EU to diversify its energy sources.

Yaroslav Dykovytsky, a finance director with Ukraine’s state-owned Naftogaz
gas and oil company, said he knew nothing of plans for increased prices.

“I don’t know what kind of statements from the Russian side there are. We
have a five year deal under which Ukraine pays US$95 per 1,000 cubic
meters,” he said. “I see no ground for the price to be reviewed.”  -30-
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14. UKRAINE PM SURE RUSSIA WON’T UP GAS PRICE THIS YEAR
                 Ukraine is one of the biggest gas consumers in Europe.

Associated Press (AP), Kiev, Ukraine, Tue, May 23, 2006

KIEV – Prime Minister Yuriy Yekhanurov Tuesday expressed confidence the
price Ukraine pays for natural gas imports from Russia wouldn’t be increased
this year. Yekhanurov said it will “without doubt” stay the same, according
to his spokesman Velentin Mandriyivsky.

Monday, the Russian daily Kommersant quoted Alexander Ryazanov, deputy
management board chairman of Russian state-controlled natural gas monopoly
OAO Gazprom (GSPBEX.RS), as saying Ukrainian consumers would pay a

higher price from July 1 – $130 per thousand cubic meters.

Ryazanov was apparently referring to plans to offset a major increase for
Kazakh gas imports that Russia has agreed to, according to the Kommersant
report.

A Gazprom spokesman said the price RosUkrEnergo pays for the Central

Asian gas could change if Kazakhstan were to raise its prices. The comment
appeared to indicate that such an increase could result in a price hike for
Ukrainian consumers.

In January Russia and Ukraine faced off in a bitter spat over natural gas
prices – a dispute that resulted in gas supplies temporarily being shut off
to Ukraine.

The countries reached a deal under which Ukraine would receive all of its
imported natural gas at $95 a thousand cubic meters from a little-known
intermediary company, RosUkrEnergo, that is owned jointly by Gazprom and
another company whose owners weren’t identified until last month.

Yekhanurov also called for a 50% increase for gas prices for private
consumers, saying such a move would prevent the excessive use of gas by

some Ukrainians. This month, private consumers, such as apartment residents,
have already experienced a 25% price increase. Ukraine is one of the biggest
gas consumers in Europe.                          -30-
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15.  UKRAINE SEEKS G8 TALKS ON GAS SUPPLY FROM RUSSIA

By Stefan Wagstyl in London and Tom Warner in Kiev
Financial Times, London, UK, Tue, May 23 2006

Ukraine has appealed to the US and European Union to help safeguard Russian
gas supplies to itself and other east European states when they assemble for
the Group of Eight summit in St Petersburg in July.

Arseniy Yatsenyuk, economy minister, told the Financial Times that the
security of Ukraine’s energy supplies was a matter not only for Ukraine but
for the whole of Europe. “I hope the G8 will raise this issue. It’s very,
very important to co-ordinate our concerns,” he said.

Mr Yatsenyuk said Ukraine was feeling the economic effects of the recent gas
supply deal with Russia in which prices were nearly doubled from $50 to $95
per thousand cubic metres. The full impact would be felt in the second half
the year in slower economic growth and increased inflation, he said.

But Mr Yatsenyuk warned that a further sharp increase in prices could cause
“the collapse” of the Ukrainian economy. Referring to report that Russia
might seek an increase to $230 per thousand cubic metres, he said such as
increase could lead to a 6-7 per cent drop in gross domestic product and a
leap in inflation to 25-30 per cent.

Ukraine has forecast a 2.8 per cent growth in GDP this year and an 11.4 per
cent increase in inflation.

Mr Yatsenyuk urged western countries to press Russia to ratify the
much-delayed Energy Charter, which includes commitments to liberalise access
to energy sources and pipelines. Agreed by almost all European states in the
early 1990s, the charter has never been implemented because of Russian
objections, which have grown more vocal in recent years.

Mr Yatsenuk’s appeal is unlikely to persuade Russia to adopt the charter.
But his call for Ukraine’s energy supply concerns to be raised at St
Petersburg will meet a positive response in Washington and Brussels.
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16.    YUSHCHENKO TELLS SUMMIT OF UKRAINE’S INTEREST
                      IN NEW OIL TRANSPORT PROSPECTS 

Interfax-Ukraine news agency, Kiev, in Russian 0830 gmt 23 May 06
BBC Monitoring Service, United Kingdom; Tuesday, 23, 2006

KIEV – Ukrainian President Viktor Yushchenko has said that Ukraine is
interested in new oil transport prospects. He said this today during the
GUAM summit [bloc of Georgia, Ukraine, Azerbaijan and Moldova] in Kiev.

Yushchenko said that “first and foremost, I would like to say on behalf of
Ukraine: we are interested in new oil transport prospects”.

According to him, Ukraine is interested in transporting oil from Azerbaijan
and Kazakhstan to large consumers in the European Union. Yushchenko

said that “we are prepared to allocate Ukrainian resources for all kinds of
development of this project, including the Odessa-Brody oil pipeline”.

Yushchenko also said that Ukraine sees the need to build a large oil
terminal to ensure the supply of large volumes of oil. He also stressed that
Ukraine is ready to consider a project to build new terminals and new
transport lines. Yushchenko proposed the creation of a working group today,
which would work on the project data at the level of experts.

Yushchenko also expressed his satisfaction with the fact that today in Kiev
a protocol on putting into action an agreement on free trade between GUAM
member states will be signed. “This agreement has taken a long road and the
path to this protocol was a long one”.

Yushchenko also said that the issue of unification of tariff policies and
unification of the work of customs and border services of GUAM member

states is an acute one. He said that “without unifying tariff policy or customs
policy we will not be able to make use of the potential of the free trade
zone”.

Yushchenko also expressed the view that “first and foremost, there is a need
to draw attention to coordinating the work of the secretariat [of GUAM]”.

The president also added that there is a need to correctly form the
priorities of activity formed on the basis of the GUAM organization. He said
that “perhaps there is a need to look at the frequency of our meetings”.
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17.  PARSING CHENEY’S ‘HOLD ON THERE, VLADIMIR’ SPEECH’
            Real news of U.S.-Russian relations is the reversal of fortunes

COMMENTARY: By Jim Hoagland, The Washington Post
The Wall Street Journal, NY, NY, Monday, May 22, 2006

The fallout from U.S. President George W. Bush’s crash-and-burn approval
ratings does not stop at the water’s edge. Foreign leaders — in particular,
Russia’s Vladimir Putin — oppose U.S. goals and policies abroad more
directly and forcefully as Mr. Bush’s support and his time left in office
fade away together.

A May 4 speech in Vilnius by Vice President Dick Cheney criticizing Mr.
Putin’s record on democracy caught the headlines recently. But the real news
of U.S.-Russian relations is the reversal of fortunes that has made Mr.
Putin the confident, overbearing leader and Mr. Bush the transitional figure
who heads a divided nation.

The comfort that Mr. Putin feels in reviving the Sinatra Doctrine at the
Kremlin — doing it his way — came home on three fronts recently. The first
was hearing Dmitri Trenin, a clear-eyed Russian scholar based in Moscow,
describe the Kremlin’s satisfaction at how well the war in Chechnya is
going, at least from the Russian point of view. The conflict has essentially
been Chechenized, according to Mr. Trenin and to diplomats in Moscow,

with Russian forces standing down as local forces stand up.

But the diplomats also report that removing Chechnya from the East-West
chessboard of big power politics seems to be intensifying, rather than
moderating, Mr. Putin’s aggressive determination to make sure Russia is no
longer treated “like part of the furniture” in foreign policy terms.

The second and most significant example of the new assertiveness came when
U.S., European and Russian negotiators met in New York two weeks ago to
discuss stopping Iran’s drive to enrich uranium. In a previously undisclosed
move, Russian Foreign Minister Sergei Lavrov proposed that Iran be allowed
to conduct an experimental research and development program of enrichment if
Tehran gives up its plan for full-scale development of nuclear reactors.

This was one big step backward. Russia had previously agreed with U.S. and
EU insistence that Iran be allowed no access to any type of enrichment, a
key step to possessing a nuclear weapon. “It is a red line we do not accept
being crossed,” said one U.S. official.

Russia’s control over natural gas supplies to Europe has also emboldened Mr.
Putin in his determination to keep Ukraine and Georgia from moving rapidly
along the path to NATO membership. Political turmoil in Ukraine has given
the Kremlin new relief on that third political front.

Mr. Cheney’s speech marked a growing concern about Mr. Putin’s unhelpfulness
in foreign affairs rather than an attempt to roll back Mr. Putin’s power at
home. After all, the Russian president’s 72% approval rating is more than
double Mr. Bush’s favorable standing in U.S. polls.

The Group of Eight summit that Putin will host in St. Petersburg in July is
now only weeks away. Time grows short to reach an understanding on political
disputes that could spoil Mr. Putin’s moment on the world stage. That, I
think, was Mr. Cheney’s essential message — a last effort to caution the
Russian against overplaying his hand.                   -30-
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18.     RUSSIA REBUFFS EUROPEAN UNION ON NATURAL GAS
          Kremlin Resists Calls To Liberalize Sector, Sign Energy Charter

By Guy Chazan, The Wall Street Journal
New York, NY, Wednesday, May 24, 2006; Page A6

MOSCOW — Hopes that this week’s Russia-European Union summit at the

Black Sea resort of Sochi would resolve smoldering tensions over energy
receded when Russia said it would resist calls to liberalize its natural-gas sector.

With Russia enjoying surging export revenue from its oil and gas resources,
President Vladimir Putin has sought to recast his country as an energy
superpower and has made energy security the centerpiece of his presidency of
the Group of Eight leading nations.

The Kremlin’s decision to briefly cut gas supplies to Ukraine over a pricing
dispute in January sparked doubts in Europe about Moscow’s reliability as an
energy supplier and calls for the EU to wean itself from relying on Russian
gas, which now accounts for a quarter of Europe’s supplies.

Russia has since threatened to divert gas supplies to Asia if the ambitions
of state-run OAO Gazprom to acquire retail assets in Europe are thwarted.

At tomorrow’s summit, the EU will press Russia to ratify the Energy Charter,
an international treaty that provides safeguards for foreign investors and
imposes market-based rules on the energy trade, especially with regard to
pricing and distribution. By ratifying the treaty’s Transit Protocol, Moscow
would have to allow third-party suppliers access to its pipeline network.

“We will continue our discussions with Russia on this [energy] partnership,
on the benefit of having a clear, understandable, predictable environment in
which to proceed with energy relations,” EU spokeswoman Emma Udwin said

in Brussels yesterday. She also said Russia should consult more with its
customers on energy pricing.

Russia says it has no plans to back the charter. Sergei Yastrzhembsky,
Russia’s envoy to the EU, called for a separate protocol addressing Russia’s
specific concerns about the treaty. “We’d like [it] to take into
consideration not only the EU’s interests but those of Russia, too,” he
said.

In an interview with a Russian newspaper yesterday, Igor Shuvalov, an aide
to Mr. Putin, said independent producers might one day be allowed access to
Gazprom’s pipeline, but the company would keep its export monopoly. “We

will always sell gas on external markets through a single export channel,” he
said. “That’s in the interests of everyone, including the EU.”

Mr. Yastrzhembsky played down tensions over energy. “There’s no drama in
discussions on this subject,” he said, adding that the two sides would sign
an agreement easing visa procedures and another making it easier to re-admit
illegal migrants who cross their borders. Officials also will discuss how to
replace the framework treaty that is the basis for their relationship, the
Partnership and Cooperation Agreement, which expires in 2007.    -30-
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Write to Guy Chazan at guy.chazan@wsj.com

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19.                                 KREMLIN CAPITALISM:
            Russian Car Maker Comes Under Sway Of Old Pal of Putin
 A Tight Circle in Government Is Drawing Key Industries Into State’s Orbit
                                       Frictions With Partner GM

By Guy Chazan, The Wall Street Journal
New York, NY, Friday, May 19, 2006; Page A1

MOSCOW — Last December, the head of Russia’s state arms-trading agency
emerged from the shadows as one of the country’s most powerful businessmen.
Aided by 300 heavily armed police, he took control of Russia’s largest auto
maker.

His agency had no experience running a car company, nor did it own any
shares of this one, OAO Avtovaz, producer of the ubiquitous Lada. But the
chief arms trader, Sergei Chemezov, had one invaluable asset: He is an old
friend of Russia’s president, Vladimir Putin.

Mr. Chemezov says he has known Mr. Putin since the two were KGB agents in
the 1980s. He acknowledges that his ties give him a leg up in business. “It
means we can get a lot of issues resolved fast,” he says.

Since being tapped in 2004 to run the arms-export business, Mr. Chemezov

has been using his unique access to turn the state agency, called
Rosoboronexport, into a conglomerate with interests ranging from helicopters
to oil-drilling gear to cars. Its newest target is one of the world’s
largest titanium producers, a critical supplier for Airbus and Boeing Co.

Rosoboronexport is one of several fast-growing companies headed by friends
of Mr. Putin that embody his particular brand of state capitalism. Across
Russian industry, private capital is in retreat as state-controlled entities
ride a wave of consolidation and confiscation to dominate oil, gas,
aviation, engineering and other sectors Mr. Putin deems strategic.

It’s a process with strange echoes of the past. In the 1990s, a generation
of aggressive young businessmen used connections to snap up assets at rigged
privatization auctions. Now, some of Mr. Putin’s closest associates are
taking advantage of their proximity to the Kremlin to build up similarly
huge, although nominally state-owned, business empires.

Their growth worries the few outspoken advocates of market-oriented policies
left in the top ranks of the Putin government. “We do not have enough ways
and means to keep track of state-controlled firms, many of them monopolies,
as they grab market assets,” said Economics Minister German Gref at a
conference in April.

Long noted for graft and inefficiency, Russian state-owned behemoths
increasingly have become tools of government policy. In January, gas
monopoly OAO Gazprom briefly shut off the fuel to neighboring Ukraine in a
price dispute that was widely denounced as a move to punish the pro-West
government in Kiev.

The Kremlin rejects those accusations and says big state-owned companies
will be subject to the discipline of the market, often with some shares
available to foreign investors. (The government is planning an initial
public offering of state oil company OAO Rosneft this summer.)

But at Avtovaz, Rosoboronexport’s takeover wasn’t good news for General
Motors Corp.’s $340 million joint venture with the Russian auto giant. The
change in management brought to a head simmering tensions at the operation.
Now there are signs the entire deal, the largest foreign investment in
Russia’s auto sector, could unravel.

Until recently, Rosoboronexport was barely known, an operation with a few
hundred employees headquartered on a quiet Moscow boulevard. It was, and
remains, one of Russia’s most opaque companies: Its business activities are
largely a state secret. With Mr. Chemezov at the helm, however its profile
began to grow.

According to Mr. Chemezov, he and Mr. Putin met when both were KGB
intelligence officers in Dresden, East Germany — a claim the Kremlin won’t
comment on but one published in a government-controlled magazine. Mr.
Chemezov says the two lived in the same apartment block and their families
socialized. They kept in touch after their return to Russia. In 1996, when
Mr. Putin got a job as a mid-level Kremlin bureaucrat, he made Mr. Chemezov
his deputy.

In 1999 Mr. Chemezov moved to the arms industry. It was a time of corruption
and chaos. The advent of capitalism had left defense factories starved for
cash. Desperate to survive, the mostly state-owned firms competed with one
another for foreign contracts, often with the help of dubious middlemen.

After Mr. Putin became Russian president the following year, he took control
of the trade. He formed Rosoboronexport as a state monopoly to squeeze out
freelance arms salesmen and root out graft, staffing it with old comrades.
Mr. Chemezov became its deputy head and then, in 2004, its chief.

Russian weapons exports boomed. They totaled $6 billion last year, up 70%
since 1999. Rosoboronexport, which takes a 3.8% commission on all sales,
prospered.

The agency expanded its horizons. Last year, it merged all of Russia’s
helicopter makers, some of them privately owned, into one of its
subsidiaries. Now it is involved in a similar effort to consolidate Russia’s
struggling airplane manufacturers under state control.

Mr. Chemezov’s influence grew as the Kremlin picked him to represent the
state on the boards of a string of large defense firms. But his most
ambitious gambit yet involved Avtovaz. The auto story developed fast last
fall, ignited by a meeting in the Kremlin between President Putin and the
long-serving CEO of the publicly held car company.                                    

                                   DOWN ON ITS LUCK
Avtovaz was built in the late 1960s in Togliatti, a drab Volga River city
named after an Italian Communist. In the 1990s the city was torn apart by
mafia wars, as rival gangs vying for control of the auto works staged
shootouts at the factory gates. The company was broke. Big profits, however,
were being racked up by trading firms — some linked to Avtovaz
management — that supplied auto parts and sold the company’s finished cars.

More recently, Avtovaz has struggled to hold market share as some in
Russia’s growing middle class switch from clunky Ladas to foreign-brand
cars. By mid-2005, corporate raiders, some alleged to have criminal
connections, were tightening their grip on the big auto maker. They bought
up parts suppliers and dealerships, installing loyal managers and acquiring
shares.

Mr. Chemezov says that when President Putin met last fall with Avtovaz’s
chief, 64-year-old Vladimir Kadannikov, the veteran auto executive said he
wanted to retire. Mr. Kadannikov declined to be interviewed. People close to
him say he didn’t have much choice in his decision to leave. A Kremlin
spokesman said Mr. Putin doesn’t fire the managers of private companies.

After consulting with aides, Mr. Putin gave Rosoboronexport the task of
cleaning up Avtovaz, Mr. Chemezov says.

Moving in was a simple operation. Avtovaz’s managers control the auto maker
through an arcane system of cross-shareholdings. By replacing the bosses,
Rosoboronexport could take charge of the company without having to buy any
shares.

First, though, the old management team had to be persuaded to leave
peacefully. After Mr. Kadannikov resigned in October, a team of police
investigators and prosecutors was airlifted in to begin the process. “To
impose order…the state had to bring in 300 policemen from outside,” says
Mr. Chemezov.

“Over the next few months, we had to replace virtually the entire police
force, both in Togliatti and in the factory itself.” Soon, three of
Avtovaz’s senior accountants found themselves facing charges of theft and
tax evasion. The charges were dropped a few weeks later.

On Dec. 22, a tight police cordon encircled Avtovaz’s high-rise headquarters
in Togliatti as shareholders gathered to elect a new board. Within half an
hour, they had voted for the new, state-approved slate. Most had never even
seen the candidates before. No alternatives were on the ballot.
                                              AUTO GIANT
President Putin defended the takeover. “Let’s face it, the enterprise is in
a bad way,” he told reporters in January. “And if a state structure goes in
as crisis manager to try to improve the situation, then that’s no bad
thing.”

The new bosses are pushing for $4.5 billion in state money to roll out new
models and build a new factory to make 450,000 cars a year. Some in the
government want Avtovaz to go further, absorbing other, smaller Russian car
makers to form a national auto giant. Mr. Chemezov has a personal notion of
how to restore the car company’s onetime glory. He has just announced it
will build a Jeep-type vehicle for the army, to be called the Kalashnikov.

On the whole, workers appear to have welcomed the change at the top. “With
the new lot, at least there’s hope they’ll get rid of the mafia. They’re the
only ones who can,” says Pyotr Zolotaryov, head of Edintsvo, Avtovaz’s
independent trade union.

Rosoboronexport moved quickly to get control over Avtovaz’s lucrative sales
operations. One of the first steps was to put the company’s Moscow office in
the hands of the brother of Avtovaz’s new chairman.

Then the new regime shifted a big chunk of Avtovaz’s financial flows,
including some of its hard-currency accounts, to a preferred bank. Called
Novikombank, it is tiny but has close links to Russia’s defense industry.
For years, one of its main shareholders was Russia’s Association of Foreign
Intelligence Veterans, and in the late 1990s it was run by Mr. Chemezov’s
Rosoboronexport predecessor, another old KGB hand.
                                         A SPAT WITH GM
Rosoboronexport soon was in a spat with Avtovaz’s American joint-venture
partner, General Motors. GM had seen relations cool with the previous
management team. But it was stunned in February when the new bosses at
Avtovaz suddenly stopped supplying parts to the companies’ five-year-old
joint venture, closing down its production line for 10 days. “There was no
discussion at all about a shutdown,” says Warren Browne, head of GM in
Russia. “They took that decision unilaterally.”

Avtovaz had long grumbled that the joint venture wasn’t paying enough for
the parts Avtovaz supplied. After tough negotiations, the sides worked out a
compromise that raised the price, though not by the 60% that Avtovaz had
demanded. But that deal expires at the end of this year, and beyond that,
the venture’s prospects look murky. “There’s still a lot of distrust on both
sides,” says a banker familiar with the project. “I think one will buy the
other out.”

That would be a big blow for a pioneering project that in its time put GM
way ahead of competitors in one of the world’s fastest-growing car markets.
GM took the risky step of putting its Chevrolet logo on a Russian-designed
car, a strategy that initially paid off as Chevrolet became Russia’s
top-selling foreign brand in 2004. After this year’s tiff, GM says it
remains committed to the joint venture. “It’s debt-free, it’s got cash flow
and it achieved a profit a year before we expected it to,” says Mr. Browne.

Avtovaz’s new bosses are less effusive. “When it started, the venture was a
breakthrough, but times change,” says Vladimir Artyakov, Avtovaz’s new
chairman. “It got stuck in its original format…and began to limp. It no
longer really fits into Avtovaz’s strategy.” Asked if Avtovaz might seek to
buy out GM, he says, “Why not?”

GM appears to be looking at other alternatives. It has taken out an option
on land in St. Petersburg for a possible assembly plant there, which it
would own with no local partners.
                                           METALS RACE
Mr. Chemezov is also on the lookout for other business. He’s in talks to
have his Rosoboronexport buy a stake in publicly held OAO VSMPO-Avisma,

one of the world’s main producers of titanium. It would become part of a big new
state company producing metals and alloys for the Russian defense industry.

VSMPO has just signed a $1.4 billion contract to sell the lightweight metal
to Airbus through 2015. It’s also a key supplier to Boeing. Rosoboronexport
says it wants to make sure not all of the country’s store of the metal ends
up abroad. VSMPO “is a strategic enterprise,” Mr. Chemezov says. “It
supplies all our defense plants with titanium. And naturally we want it to
be…under state control.”

He denies that his plan would amount to nationalization, although he
acknowledges that the price Rosoboronexport is offering is only about

half the titanium maker’s current share price.

As Mr. Chemezov’s influence expands, the line separating his different
roles — civil servant and entrepreneur — is increasingly blurred. “You
know, we’re not really the state, we’re businessmen,” he says of
Rosoboronexport. “Call it state commerce.”              -30-

————————————————————————————————
Write to Guy Chazan at guy.chazan@wsj.com
————————————————————————————————
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20.         RUSSIA: THE FOLLY OF RENATIONALIZATION

ANALYSIS & COMMENTARY: By Anders Aslund, Moscow Times
Moscow, Russia, Tuesday, May 23, 2006. Issue 3416. Page 10.

Something strange is happening in the Russian economy. Since 1999, it has
delivered stellar growth numbers of almost 7 percent per year, with
virtually all of the growth coming from the private sector, which has been
led not only by the recovery in the oil and metals sectors, but also by
retail and construction.

It only took off a few years after privatization, because other market
reforms were lagging and new owners needed to consolidate their ownership.

The state, by contrast, has learned little, and continues to fail. Most
branches of the state, including law enforcement, the armed forces, public
health care and education, the bureaucracy and public infrastructure, are
patently flawed. The common denominator in all of these problematic sectors
is public ownership.

Under these circumstances, a rational and accountable government should
pursue two related courses: accelerated privatization and comprehensive
reforms in the public sector. Sensibly, the government was doing so until
2003. But the last three years have brought a halt to all reforms, and this
situation is expected to continue until President Vladimir Putin has left
office.

Incredibly, underperforming state corporations are swiftly gobbling up
successful private firms on a major scale. According to the European Bank
for Reconstruction and Development, the share of gross domestic product
created by private companies fell from 70 to 65 percent last year.

The most spectacular renationalizations have been in the oil industry. From
1987 to 1996, the old state-owned corporations managed to halve output in
Russia’s oil industry through mismanagement and pervasive criminalization.
Fortunately, insiders successfully privatized the LUKoil and Surgut oil
majors, allowing for some economic recovery.

In the other companies, however, the situation remained dire. The Russian
government realized that drastic measures were necessary, and succeeded in
privatizing several of the most criminalized companies in sales to young
outside businessmen.

By 1999, 90 percent of the oil industry was in private hands and, over the
next five years, oil production rose exponentially, at an average annual
rate of 8.5 percent, as foreign technology and expertise were brought in to
revive Russia’s old brownfields. Meanwhile, international oil prices rose,
allowing the government to fill its coffers by means of ever-higher taxation
of the oil companies.

By 2000, Yukos was paying $6 billion in taxes, far more than anybody would
have considered it worth when it was privatized in 1995, proving that
legalization and a sensible taxation policy generate much larger state
revenues than nationalization. Corporate governance improved in parallel.
The stock market favored the newly privatized companies and was waiting

for the promised privatization of Rosneft and Zarubezhneftegaz.

Although the privatized economy was booming as never before,
renationalization began in 2003. It wasn’t failure or illegality that
exposed the private oil industry to this danger, but its success and
transparency. The first notable renationalization was Rosneft’s purchase of
a small oil company, Severnaya Neft, in early 2003. Remarkably, Rosneft paid
$600 million for assets that had been bought for $7 million only a couple of
years earlier.

The biggest renationalization has been Rosneft’s seizure of Yukos, which is
still being completed. It started in the summer of 2003, when the government
began systematically destroying the company through lawless persecution and
confiscatory taxation. Rosneft will soon pick up the remaining morsels of
Yukos.

In a very different renationalization in September, state-owned Gazprom
purchased Sibneft from Kremlin-friendly businessman Roman Abramovich,

who wisely lives in Britain. Gazprom paid a high market price of $13 billion for
Abramovich’s controlling stake.

Since government persecution made it impossible for the Yukos management

to run the company effectively, its investment and output levels began to
plummet. Likewise, the long delay in Sibneft’s sale reduced its output.
Rosneft, in turn, invested little in its operations, because it was spending
all of its cash on acquisitions.

The remaining major private producers — TNK-BP, LUKoil and Surgut — 
realized the danger of investing too much or boosting production
excessively, so they moderated their production increases.

In 2005, the increase in oil output growth dropped to 2.7 percent, with all
of the growth coming from the three big private companies. This year, the
government forecast growth of just 2 percent, but after four months output
had risen by an annual rate of only 1.7 percent, and stagnation appears to
be approaching.

The government could easily and swiftly bring a halt to this ongoing damage
through renewed privatization. In particular, Russia needs private companies
to develop the difficult new fields where state companies have long failed.
Instead there is talk that Rosneft plans to purchase another private
company, Surgut.

Poorly performing Rosneft is preparing an international IPO to raise
billions to to repay loans, while the company’s management will be
handsomely remunerated in stock options.

Another key sector damaged by renationalization has been banking, in which
five big state-owned banks are buying up smaller competitors. Their raids
are sometimes accompanied by smear campaigns, bank runs and accusations

of money laundering.

As a consequence, the banking sector remains state-dominated, and the ratio
of the broad money supply to GDP is about 10 percentage points lower than in
less-developed Ukraine, where private banks dominate and flourish.

At Russia’s current stage of development, its automotive sector should be
taking off, but this will require major investment from international
companies. Despite announcements by major manufacturers that they are
opening production plants in the country, their projects are being impeded.

Meanwhile, Rosoboronexport has taken control of yet to be restructured giant
AvtoVAZ, which will receive huge state subsidies that will continue to block
the modernization of Russia’s automotive industry.

Some heavy machinery companies, notably Uralmash, have recovered, but last
year its mother company, OMZ, was sold to Gazprom for inexplicable reasons.
Another decent private corporation, Siloviye Mashiny, was similarly sold to
Unified Energy Systems, thus diverting the latter from its core activities.

In the oversized Russian aircraft industry, a few small private companies
have recorded success, but they are now to be merged with the big dying
state enterprises into a huge AiRUnion corporation, with three-quarters of
its shares in state hands. There is no doubt that the big bad state
companies will crowd out the promising upstarts with the help of state
subsidies.

Transactions like these are proliferating throughout Russia’s big business
sector at an ever-increasing speed. Some owners are friendly with the
Kremlin, and are well-paid. Others, having neglected their relations with
the Kremlin, are paid little, but sell in any case because they fear ending
up like poor Mikhail Khodorkovsky.

As all of these examples demonstrate, structural effects are of no interest
to the government. Renationalization is being driven by the interests of
state officials looking to extend their power and wealth. The government
does not even promote these moves until they have already happened, and
there is no apparent socialist ideology behind nationalization.

In January, at his annual press conference, Putin said: “We have about 10
relatively large private oil companies. … Nobody is going to nationalize
them; nobody is going to interfere with their activities. They are going to
develop according to market conditions, like private companies.

I think that this kind of balance is better for the Russian economy today,
and this includes active participation from our foreign partners and
shareholders.” Meanwhile, a new draft law has named 39 strategic industries
that the Kremlin wants to dominate, and renationalization proceeds on
course.

Indeed, if no good argument can be found for renationalization, no positive
effect is likely to materialize.                           -30-
————————————————————————————————
Anders Aslund is a senior fellow at the Institute for International
Economics in Washington.
————————————————————————————————
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21.      UKRAINE DEALS WITH MESSY SIDE OF DEMOCRACY
                                        What to do with Yulia?

ANALYSIS: By Mara D. Bellaby, Associated Press Online
Kyiv, Ukraine, Sunday, May 21, 2006

KIEV – What to do with Yulia? The fate of the ousted prime minister is much
the talk among Ukrainians _ those, at least, whose eyes haven’t glazed over
from a surfeit of politics.

The heady days of revolution and unity of purpose have given way to
squabbling and complex coalition dealings, and the nation of 47 million is
discovering how messy democracy can be.

With her feisty manner and intricately braided blond hair, Yulia Tymoshenko
was one of the highest-profile figures in the 2004 Orange Revolution that
swept Viktor Yushchenko to the presidency of the former Soviet republic.

She became prime minister but fell out with Yushchenko and was fired, only
to bounce back in parliamentary elections two months ago with more votes
than her potential coalition partners combined.

That election was hailed as Ukraine’s most democratic ever. But no party won
enough seats to form a government, and with the parliament session due to
start Thursday, the wheels of coalition-building are grinding slowly.
Tymoshenko wants her old job back. Yushchenko is cool to the idea.

The fate of Tymoshenko is not the only unresolved issue. There are plenty of
other potential deal-breakers that need to be sorted out, or risk scuttling
any alliance that does form. And many of them are rooted in Ukraine’s Soviet
past:

[1]  NATO: Yushchenko wants Ukraine to join, but the Socialists, a potential
coalition partner for the president’s Our Ukraine party, opposes entering
the Western military alliance.

[2] Russian gas: A deal this year nearly doubled the price Ukraine pays, and
has underlined how much clout the Kremlin retains even if it ceased to rule
this nation nearly 15 years ago. Tymoshenko wants the deal reversed;
Yushchenko says Ukraine got the best deal it could, but allies of his party
have sent mixed signals about how far they will go to defend it.

[3] Privatization: Some industries, such as the energy sector, communized in
Soviet times, remain state-owned and inefficient. Yushchenko has made their
privatization a priority. The Socialists, however, oppose privatization on
principle. Tymoshenko’s views are harder to read.

While prime minister, she called for a large-scale review of murky
privatizations carried out under former President Leonid Kuchma. Investors
saw her stance as an assault on ownership, which Tymoshenko strongly denied.

[4] Language: Yushchenko has pledged to protect Ukrainian as the nation’s
only state language. The Socialists say they would support making Russian a
second state language, noting that much of Ukraine’s east and south is
Russian-speaking.

The three parties in negotiations to share power run from left through
center to right. United by hatred of Kuchma’s former corruption-tainted
regime, their alliance quickly showed cracks once the old order was gone,
highlighted by the sacking of Tymoshenko and her government last September
amid mutual allegations of incompetence and corruption.

Despite Yushchenko’s reluctance to give Tymoshenko her old job back, the
alternative is even more awkward. The party of Viktor Yanukovych, the
pro-Russia candidate who was humbled in the upheaval that brought Yushchenko
to power, won the most votes in the March election. He has reached out to
his former opponents, but all have rebuffed him – publicly at least.

The Socialist party differs the most ideologically from its potential
coalition partners, but it won the fewest votes and has proven in the past
that it knows how to compromise.

“If the Socialist Party is interested in creating a coalition of democratic
forces, it must modify its position; otherwise there cannot be a coalition,”
Foreign Minister Borys Tarasyuk said last week.

Andriy Dmytrenko, an economics analyst with Dragon Capital, sees a more
pliant Tymoshenko emerging, too. “When Tymoshenko was campaigning, we

heard a lot of pro-populist rhetoric, but there are hints now that she has become
a lot softer, particularly after winning significantly,” he said.

“People still associate her term as prime minister with an economic slowdown
and price controls. She has to recover her image as a good economic
manager.”          -30-
———————————————————————————————–
Mara D. Bellaby has reported from Ukraine for The Associated Press since

the 2004 Orange Revolution.
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22. PARTY OF REGIONS NAMES IT’S PARLIAMENT LEADERS

Interfax-Ukraine news agency, Kiev, in Russian 1153 gmt 17 May 06
BBC Monitoring Service, United Kingdom, Wed, May 17, 2006

KIEV – The leader of the Party of Regions, Viktor Yanukovych, will chair the
parliamentary faction of the party, the party’s political council decided
today, Interfax-Ukraine has learnt from the press service of the Party of
Regions.

Rayisa Bohatyryova [the faction’s leader in the previous parliament] will be
Yanukovych’s first deputy and Yevhen Kushnaryov, Mykola Azarov and

Volodymyr Rybak will be his deputies.

Borys Kolesnykov, Oleksandr Yefremov, Andriy Klyuyev, Vasyl Dzharty,
Oleksandr Peklushenko and Volodymyr Makeyenko will be the coordinators

of the faction’s six deputy groups. According to the results of the [26 March
parliamentary] election, the Party of Regions will delegate 186
representatives to [450-seat] parliament; 180 of them have already been
registered.                                      -30-
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23.  MASS TATAR RALLY IN UKRAINE’S CRIMEA MARKS 62ND
           ANNIVERSARY OF THEIR DEPORTATION BY STALIN

Black Sea TV, Simferopol, in Russian 1600 gmt 18 May 06
BBC Monitoring Service – United Kingdom; May 18, 2006

SIMFEROPOL – [Presenter] A total of 15,000 Crimean Tatars today gathered

in the Crimean capital Simferopol for a mass rally to commemorate the 62nd
anniversary of their forced deportation from the peninsula [on Stalin’s
orders].

In a resolution, rally participants called on the Council of Europe and the
European Union to encourage Ukraine to pass laws restoring the rights of the
Crimean Tatar people.

Addressing the rally, Mustafa Dzhemilyev, the head of the Majlis [Crimean
Tatar ethnic assembly], criticized the recent announcement by Cossacks that
they will form vigilante groups to patrol the peninsula in order to control
the interethnic situation there. Dzhemilyev said that Crimean Tatars could
respond with a similar move.

[Correspondent] With final preparations made and brief instructions issued,
the column of marchers starts moving at 1200 o’clock sharp. There are five
such columns marching along the main Simferopol roads. An ambulance
accompanies every column: this year a particularly large number of old
people are taking part in the march. There are also many children. And the
midday sun is mercilessly hot.

[Video shows a column of Crimean Tatars chanting Allahu Akbar (God is

Great) and La ilaha il Allah (There is no other God, except Allah) in Arabic.]

[Correspondent] Dozens of buses with policemen are deployed near the
entrances to Simferopol’s central square – the march’s gathering point. The
policemen are languid with the heat. Organizers of the mournful rally have
promised that they will keep their speeches short.

One must not keep people standing under the scorching sun for a long time.
Rally participants are holding placards with slogans, mostly demanding land.
The newly elected Crimean authorities say that land will be distributed
among all those who need it, even the borders of Simferopol will be revised
if needed but, first of all, just another inventory of land should be taken.

[Anatoliy Hrytsenko, Crimean parliament speaker] On the whole, I can see no
problem in allocating land plots among Crimean Tatars. The situation has
been created artificially.

I can assure you that you [pauses, changes tack] I can repeat what I have
said already, that on one hand local authorities are dragging their feet,
and on the other hand, deported people [Crimean Tatars] want to receive land
plots on the Crimean south coast [a prime property area]. This problem is
not only a problem of the deported people, it is a problem of all Crimeans.

[Correspondent] And the head of the Crimean Tatar Majlis, Mustafa
Dzhemilyev, was mostly concerned at the recent statements by Cossacks.

On the eve of 18 May they promised to form vigilante units to patrol the
peninsula’s hot spots of ethnic tension [see report by Black Sea TV,
Simferopol, in Russian 1900 gmt 15 May].

[Mustafa Dzhemilyev] Law-enforcement agencies and local authorities

should take measures, first of all, to curb the activity of these paramilitary
units, so-called Cossacks. Otherwise, if some ethnic group is allowed to
create paramilitary units on an ethnic basis, then the other side will be
compelled to create similar units. [Passage omitted: rally participants
interviewed]

[0021-0330; Video shows a column of Crimean Tatar marching along a
Simferopol street, carrying Crimean Tatar banners, placards with slogans
“The state should distribute farming land fairly among Crimean Tatars”,
“Stop land lawlessness in Crimea” and chanting; thousands of Crimean Tatars
flooding Simferopol’s central square; the mournful rally; Dzhemilyev and
Hrytsenko interviewed.]                           -30-
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24.                EUROVISION SONG CONTEST: OH, LORDI
             Ukrainian voters vote for Russia, Russians vote for a Ukrainian

REVIEW & OUTLOOK: The Wall Street Journal
New York, New York, Tuesday, May 23, 2006

Forget bureaucratic Brussels, seat of the European Union. The real face of
European unity was on display Saturday night in Athens, this year’s host of
the Eurovision Song Contest.

It’s the EU through a looking glass. For starters, Eurovision is relaxed
about who gets in. No need to prove democratic or free market bona fides
here, or meet geographic litmus tests.

Armenia and Belarus take part, as does Turkey, which won in 2003. Morocco
once competed, and Israel does so every year. For 2006 it fielded a gospel
Group fronted by Eddie Butler, the Israel-born son of black Jews from
Chicago.

The contest, unlike Brussels, is also a model of democracy and transparency.
Winners are chosen by country-by-country call-in votes, in which listeners
may cast their preference with any nation’s band except their own.

Though Eurovision does produce the occasional catchy tune, it’s taken for
granted that most of the songs are bad, while costume designers subscribe

to the principle that there is no such thing as too many sequins. With a level
playing field of kitsch, the voting patterns are an indicator of feeling for
fellow Euro-man.

Some of this year’s voting patterns were surprising. Ukrainian voters gave
their highest rating to Russia, having apparently forgiven the Kremlin’s
hard-nosed gas-pricing policy that threatened to leave millions of
Ukrainians without heat in January. Or maybe they just loved Russian singer
Dima’s staging, which included ballerinas and a woman in white body paint
emerging from a grand piano.

Russian voters returned the affection, giving their second-highest rating to
Tina Karol, Ukraine’s answer to Britney Spears, who performed the pop

tune “Show Me Your Love” with tambourines and folk dancers.

The Turks, meanwhile, gave their second-highest score to a historical
antagonist, Armenia. The countries have no diplomatic relations. But what
goes around evidently comes around: Turkey won top marks from both

France and the Netherlands, whose “no” votes to the EU constitution last
year were partly motivated by fears of future Turkish membership in the
bloc. While most bands chose to sing in English, Sibel Tuzun belted out
disco in her native tongue. Call her Turkey’s Kylie Minogue.

Europeans really united, though, behind the Finnish band Lordi, which
performed, as it always does, in elaborately gruesome monster costumes.
Finland beat second-place Russia by a wide margin, and in a contest
sometimes plagued by regionalism, won top marks from countries as far

away as Britain and Greece.

Europeans may not be able to agree on much these days, but horns and

scales, a lead singer with a sonic growl, and lyrics announcing the
“arockalypse” have brought a troubled Continent together.       -30-
————————————————————————————————-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
25.       UKRAINE TRADE UNIONISTS RALLY AGAINST
                                 ENERGY PRICE HIKES

Associated Press (AP), Kiev, Ukraine, May 24, 2006

KIEV – Thousands of Ukrainian union members jammed the capital’s main

square Wednesday to protest the increase in gas and electricity prices and
demand that this ex-Soviet republic do more to raise its people out of poverty.

President Viktor Yushchenko’s government has increased wages for state
workers in this nation of 47 million, but the increases have been quickly
gobbled up by rising prices for food and utilities.

This month, private consumers saw gas prices jump 25%, and Prime Minister
Yuriy Yekhanurov warned Tuesday that another 50% increase could be on the
horizon. The cost of other communal services, such as electricity, have also
increased.

The sharp increases became a necessity after this year’s gas dispute with
Russia, which led to a twofold increase in the gas price charged to Ukraine.
Ukrainian lawmakers initially pledged that there would be no immediate
impact on the population, and kept the promise until after the March
parliamentary elections.

The protesters, who numbered some 15,000, carried signs reading, “Increase
in prices means an increase in poverty.” Nurses and medical workers, wearing
long white laboratory coats, brushed shoulders with eastern Ukrainian miners
in red hard hats and Communists waving Soviet flags.

Yekhanurov Wednesday ordered the Ministry of Fuel and Energy to explain

the reasons behind the increase and provide comparisons with neighboring
countries, many of which pay more than Ukraine for energy supplies. Ukraine
is one of the biggest gas consumers in Europe, but critics say that huge
amounts are wasted through inefficiency.

Oleksiy Shvetlichny, a member of the Donetsk Union of Metalworkers and
Miners, said he feared that the rising cost of energy could drive some of
Ukraine’s factories and mines out of business. “How much are we supposed

to endure,” he said.                    -30-
————————————————————————————————
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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