AUR#711 June 13 Macroeconomic Situation Update By SigmaBleyzer; Gas Prices Up 85%; Ukraine To Be Gazpromed?; World Cup Debut; Last US Servicemen Leave

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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 711
Mr. E. Morgan Williams, Publisher and Editor  
WASHINGTON, D.C., TUESDAY, JUNE 13, 2006
           –——-  INDEX OF ARTICLES  ——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
1.          UKRAINE – MACROECONOMIC SITUATION – MAY 2006
REPORT & ANALYSIS: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Tuesday, June 13, 2006

2.   UKRAINIAN PRESIDENT’S PARTY ‘OUR UKRAINE’ TO SEEK

                                NEW COALITION PARTNER
Mara D. Bellaby, Associated Press (AP)
Kiev, Ukraine, Tuesday, June 13, 2006

3.  UKRAINE’S DOMESTIC GAS PRICES TO GROW 80-85% JULY 1
Concorde Capital, Kyiv, Ukraine, Friday, June 9, 2006

4.                               UKRAINE TO BE GAZPROMED?
  In 2H06 we expect the price of imported gas for Ukraine to jump by 34%,
ANALYSIS AND COMMENTARY: Concorde Capital
Kyiv, Ukraine, Tuesday, June 6, 2006

5POLAND’S INDYKPOL TO INVEST IN UKRAINIAN TURKEY MARKET
Polish News Bulletin, Warsaw, Poland, Mon Jun 12, 2006

6UKRAINE PLANS RAW SUGAR IMPORT QUOTA OF 260,000 TONS
Grigori Gerenstein, Dow Jones Newswires

Moscow, Russia, Mon June 12, 2006

7TRAVELPLANET.PL PLANS TO UNITE POLISH TOURISM MARKET
        Also looking at Czech, Hungarian, Ukrainian and Russian companies
Polish News Bulletin, Warsaw, Poland, Monday, June 12, 2006

8VNESHTORGBANK (UKRAINE) OBTAINS EUR 10 MILLION LOAN
          FROM CARGILL FINANCIAL SERVICES (UNITED STATES)
Viktor Riasnyi, Ukrainian News Agency, Kyiv, Ukraine, May 29, 2006

9.    UKRAINE: YUSHCHENKO APPOINTS VIRA NANIVSKA HEAD

         OF NATIONAL ACADEMY OF PUBLIC ADMINISTRATION
Daria Hluschenko, Ukrainian News Agency, Kyiv, Ukraine, Sun, June 4, 2006

10VIKTOR CHUMAK APPOINTED AS THE NEW DIRECTOR OF THE
            INTERNATIONAL CENTRE FOR POLICY STUDIES (ICPS)
   Vira Nanivska appointed by Pres to head National Academy of Public Admn
Irma Pedtepa, Executive Assistant to the Director
International Centre for Policy Studies (ICPS)
Kyiv, Ukraine, Friday, June 9, 2006

11.         BUSINESSNEWEUROPE (BNE) MAGAZINE LAUNCHED
Ben Aris, Editor-in-chief, BusinessNewEurope (BNE) magazine
Berlin, Germany, Moscow, Russia, Friday, 9 June 2006

12UKRAINIAN INTERNET ASSOCIATION WARNS OF “CENSORSHIP”
UNIAN news agency, Kiev, in Ukrainian 1425 gmt 6 Jun 06
BBC Monitoring Service, United Kingdom, Wed, Jun 07, 2006

13.     GENERATING ELECTRICITY FROM CARPATHIAN RAPIDS
By Svitlana Kaletnyk, Kyiv Weekly, Kyiv, Ukraine, Wed, June 7, 2006

14.    ITALY’S GENERALI BUYS 51% OF UKRAINIAN INSURANCE
                    COMPANIES GARANT AUTO, GARANT LIFE
By Sabrina Cohen, Dow Jones Newswires
Milan, Italy, Friday, June 9, 2006

15.   ‘CHRONICLE OF RECENT DEVELOPMENTS IN UKRAINIAN

Dr. Irina Paliashvili, President
Russian-Ukrainian Legal Group, P.A. (RULG)
Action Ukraine Report (AUR) #711, Article 15
Washington, D.C., Tuesday, June 13, 2006

16 ENERGY POLICY RECOMMENDATIONS TOO LONG-RANGE
                RE: OP-ED “Chernobyl’s Lesson” By Carlos Pascual
Letters-to-the-Editor
, Sent to The Washington Post

Ken Bossong, Co-Director, Ukrainian-American Environmental Association
Action Ukraine Report (AUR) #711, Article 16
Washington, D.C., Monday, June 12, 2006

17KATERYNA YUSHCHENKO JOINS WORLD LEADERS IN JORDAN
     WITH HER MAJESTY QUEEN RANIA AL-ABDULLAH TO LAUNCH
           ‘GLOBAL WOMEN’S ACTION NETWORK FOR CHILDREN’
Press office of President Viktor Yushchenko
Kyiv, Ukraine, Sunday, June 11, 2006

18NCSJ CELEBRATES 25 YEARS OF LEADERSHIP BY MARK LEVIN
  Honors a quarter century of far-reaching accomplishment and leadership.
Action Ukraine Report (AUR) #711, Article 18
Washington, D.C., Tuesday, June 13, 2006

19.    PICTURESQUE TRANSCARPATHIA: THE WESTERNMOST
  REGION OF UKRAINE, JOINS CORE OF EAST-CENTRAL EUROPE

Newsletter: Internet Encyclopedia of Ukraine (IEU)
Dr. Marko R. Stech, Project Manager, Internet Encyclopedia of Ukraine
Canadian Institute of Ukrainian Studies, University of Toronto
Toronto, Ontario, Canada, May 2006

20.               HISTORIC WORLD CUP DEBUT FOR UKRAINE
Erica Bulman, AP Worldstream, Germany, Tue, Jun 13, 2006

 
                                     AT 2006 WORLD CUP
RIA Novosti, Moscow, Russia, Friday, June 9, 2006
 
Kiev, Ukraine, Tuesday, June 13, 2006 
 
23LAST GROUP OF US SERVICEMEN LEAVES CRIMEAN SEAPORT
ITAR-TASS, Moscow, Russia, Monday, June 12, 2006
 
24.      CRIMEA DIGS IN AGAINST UKRAINE’S WESTERN DRIFT
        Usually a balmy holiday destination, the mostly pro-Russia region is
      seeing protests against a U.S. troop presence and efforts to join NATO.
By Kim Murphy, Los Angeles Times Staff Writer
Los Angeles, California, Thursday, June 8, 2006
 
25PARTY OF REGIONS LEADER VIKTOR YANUKOVYCH BELIEVES
       CRIMEANS ROSE UP TO DEFEND UKRAINE’S CONSTITUTION
UNIAN news agency, Kiev, in Ukrainian 1306 gmt 8 Jun 06
BBC Monitoring Service, United Kingdom, Thursday, Jun 08, 2006
 
26.                UKRAINIANS REBUFF NATO’S EMBRACE
Alliance’s Eastward Advance Stalled by Loyalty to Russia, Resentment of West
By Alan Cullison, The Wall Street Journal
New York, NY, Thursday, June 8, 2006; Page A4
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1
UKRAINE – MACROECONOMIC SITUATION – MAY 2006

REPORT & ANALYSIS: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Tuesday, June 13, 2006

                                              SUMMARY

[1] Over January-April, real GDP grew by an encouraging 2.7% yoy,
underpinned by robust value added growth in the service sector and
recovered growth in construction.

[2] The government approved the draft of the Budget resolution, setting the
goal to keep the budget deficit below 2% of GDP in 2007. With the end of
elections, next year’s budget is expected to be more balanced compared to
2006.

[3] In April, consumer inflation continued to decelerate to 7.4% yoy;
however, inflation is unlikely to stay in single digits in 2006.

[4] Sizable sale interventions by the National Bank of Ukraine (NBU) on the
foreign exchange market and slowing growth of hryvnia-denominated
deposits resulted in liquidity difficulties in the banking sector. To
increase the liquidity in the banking system, the NBU reduced reserve
requirements on deposits.

[5] The merchandise trade balance continued to worsen, posting a $1.8
billion deficit over January-March 2006, but was partially compensated for
by a larger surplus of services trade.

[6] Despite political uncertainties, net FDI inflows were at a record high
for the first quarter.

                                   ECONOMIC  GROWTH

Preliminary State Statistics Committee (SSC) data for January-April suggests
that the recent price increase on imported gas has had a rather limited
effect on economic performance so far. GDP grew by 3.5% yoy in April,
bringing the cumulative growth to 2.7% yoy. Economic growth was
underpinned by value added increases in transport and domestic trade, of
which the composite share in GDP constitutes about 24%.

In particular, value added in these sectors grew by 6% yoy and 4.2% yoy
over the first four months of the year, respectively. At the same time, the
investment-oriented sectors are also being revived. Over the period, value
added growth in construction accelerated to 6.7% yoy compared to 5% yoy in
the previous period. Although the acceleration occurred on the back of a low
statistical base, it may also be attributed to recovering investment demand
and improved budget financing.

In line with expectations, manufacturing (holding the largest share in total
GDP) suffered the most from the energy price hike. Although value added
in the sector grew by about 0.6% yoy on average each month during
February-April, it contracted by 0.4% yoy in the four months to date.
Metallurgy and chemicals, the most energy-intensive industries, posted
1.6% yoy and 1.2% yoy reductions in output, respectively.

The decline in metallurgy continued despite recovered growth of world steel
prices, which may be explained by the orientation of Ukraine’s metal exports
to Asian countries, where prices on steel and steel products grew slower
than in the EU and North America. On a positive note, the continued increase
in output of steel pipes (by 5.4% yoy over January-April) may signify a
re-orientation of the Ukrainian metallurgical sector towards manufacturing
of higher value added products.

More expensive imported fossil fuels stimulated demand for domestic energy
sources. As a result, the extractive industry and production and
distribution of energy showed 3.3% yoy and 5.5% yoy increases in value
added over the period. The growing need to renovate existing production
technologies (which are largely outdated and energy-consuming) and introduce
energy-saving equipment stimulates the development of machine-building.

Over the period, machine-building went up by 10.1% yoy, driven by production
of equipment for metallurgy, transport, and communication, electrical
equipment, and food-processing machines. Positive developments in retail
trade, production of vehicles, construction and food processing were favored
by robust domestic demand, stimulated by a 24.2% yoy increase in real
population income.

                                         FISCAL POLICY

According to preliminary data, the consolidated budget posted a surplus of
UAH 855 million ($170 million) in January-April, which is equivalent to
about 0.7% of period GDP. Over the period, consolidated budget revenues
increased by a nominal 24% yoy to UAH 44.8 billion ($8.9 billion).

The growth of expenditures outpaced that of revenues, posting a 36.5%
yoy increase to UAH 45.8 billion ($9.1 billion). The data revealed further
deceleration of consolidated budget revenues, which is attributed to an
increasing statistical base effect and weak industrial sector performance.

Although the effect of the high statistical base was also attributable to
consolidated budget expenditures, their growth remained high due to the
scheduled 3% increase in the minimum subsistence level to UAH 359 ($71)
in April. This, in turn, led to an upward revision of pension liabilities.
Social security continues to hold the largest share in total budget
expenditures.

In mid-May, the government approved the draft of the Budget resolution for
2007, which describes the main goals of its fiscal policy next year. In
particular, the budget deficit is planned to not exceed 2% of GDP or UAH
10 billion (about $2 billion), and is to be primarily financed from
privatization receipts.

Such an ambitious target of privatization revenues may be realistic in case
of privatization of a number of strategic enterprises next year (like
telecommunication monopoly Ukrtelecom). Otherwise, the government
will have to resort to new borrowings.

So far, with the absence of new borrowings, the state debt remained
virtually unchanged in April, declining by 3.5% since the beginning of the
year. By the end of the month, the stock of public debt (guaranteed and
non-guaranteed) constituted $14.9 billion, which translates into 15.8% of
forecasted full-year GDP.

According to the draft resolution (which will serve as the basis for
drafting next year’s budget if approved by the parliament), social payments
are expected to increase further in 2007, albeit moderately just to
compensate for inflation forecasted at 10% yoy.

At the same time, the execution of the budget may be rather challenging, as
budget expenditures will remain considerable due to the recurring nature of
previous liabilities and the need to finance new government programs (such
as government support of the introduction of energy-saving technologies,
reforms in the healthcare and education sectors, etc).

Moreover, the government plans to introduce a unified social tax, reducing
the total rate of insurance payments, and cut the duty on foreign currency
sales in order to stimulate de-shadowing of population income and reduce the
tax burden for businesses. Although passing through the parliament may
change the document beyond recognition, there is a chance to obtain a more
balanced and realistic budget for 2007 with the elections out of the way.

                                   MONETARY POLICY

In April, the consumer price index (CPI) posted a surprising 0.4%
month-over-month (mom) decline. As a result of the unexpected deflation two
months in a row (0.3% mom in March), annual inflation decelerated to 7.4%
yoy, down from 10.7% yoy in February. Despite considerable disinflation in
annual terms during March-April, inflation is unlikely to stay in single
digits in 2006.

In addition to the already approved 25% increase in energy tariffs for
households since May 1st, the price dynamics will be affected by rather
loose fiscal policy this year, plans to adjust service tariffs to
cost-covering levels, and likely acceleration of monetary aggregates growth
in the second half of the year.

The latter may occur on the back of faster growth of currency inflow, as
investment activity is expected to rise with the end of political
uncertainty caused by parliamentary elections and the formation of a

governing coalition.

So far, the deflation was primarily driven by developments of food prices
and service tariffs helped by moderate growth of monetary aggregates. Food
prices, which account for about 65% of the consumer basket, fell by 0.4%
mom in April, bringing the annual growth to below 7% yoy.

Prices for meat and milk products continued to decline (down by 0.8% mom and
1.5% mom respectively in April), as there was excess supply of these goods
on the domestic market following the introduction of export bans by the
Russian Federation at the beginning of 2006.

As the domestic market stabilized after temporary imbalances caused by a
jump in international prices for sugar, internal prices for sugar reported a
1.3% mom decline in April. Service tariffs, accounting for about 20% of the
consumer basket, fell by 0.8% mom, which may be attributed to the end of the
heating season.

In annual terms, however, the growth of service tariffs slightly accelerated
to 14.6% yoy. The pace of growth is expected to increase in the coming
months due to increases in energy tariffs for households and transportation
fares. On a high statistical base, non-food prices continued to decelerate
in annual terms, posting a 2.5% yoy increase compared to 3.5% yoy a month
before.

Moderate growth of monetary aggregates has also supported disinflation over
the period. The growth rates of money supply (M3) and the monetary base have
declined from 50.1% yoy and 40.1% in January to 43.5% yoy and 24% yoy in
April respectively. This pattern is a reflection of NBU actions to support
the hryvnia exchange rate.

On the back of a worsening foreign trade balance and increased domestic
demand for foreign currency (due to more expensive energy imports and
political uncertainties), the NBU had to sell about $2.2 billion of its
reserves since the beginning of the year to keep the hryvnia exchange rate
stable at 5.05 UAH/$.

With the end of political turmoil related to parliamentary elections and the
formation of a governing coalition, the anticipated reduction of foreign
currency supply due to further worsening of Ukraine’s foreign trade balance
may be compensated for by investment-related currency inflow.

Accordingly, the hryvnia to US dollar exchange rate is likely to either
remain stable this year or depreciate very slightly to 5.2 UAH/$. In any
case, the NBU’s gross international reserves will remain significant enough
to redress potential temporary imbalances on the foreign exchange market.

Decelerating money aggregates growth and vigorous demand for bank credits
resulted in liquidity difficulties in the banking sector during April.
Although deposits grew by 41.5% yoy over the month (slightly up from 40.8%
yoy a month before), the growth of bank loans considerably outpaced the
growth of deposits, expanding by almost 69% yoy. The shortage of liquid
resources translated into rising interest rates on interbank credits.

To encourage hryvnia-denominated deposits, commercial banks raised the
respective interest rate to 7.8% pa, which exceeded the annual inflation
rate for the first time since mid-2004. The NBU supported commercial banks
through its refinancing operations, which amounted to UAH 3.5 billion ($680
million) in April, compared to about UAH 540 million ($106 million) over the
first three months of the year.

As the situation did not improve, which was reflected in the soaring
interbank credit interest rate to 12.5% pa at the end of the month, the NBU
decided to reduce the norms of required reserves from 6% to 4% for term
deposits and from 8% to 6% for demand deposits and current accounts.
The new norms are effective May 10th.

                     INTERNATIONAL TRADE AND CAPITAL

In March, Ukraine’s merchandise export performance improved slightly, which
is consistent with the recovering industrial sector. Although exports
continued to decline, its pace decelerated to 4.4% yoy over January-March
2006 compared to 5.3% yoy registered for the first two months of the year.

At the same time, merchandise imports growth kept decelerating on a high
statistical base. Import volumes grew by 30.2% yoy over the first quarter
compared to almost 40% yoy during January-February. However, Ukraine’s
merchandise foreign trade balance continued to deteriorate, reporting a
deficit of about $1.8 billion.

By product breakdown, merchandise exports continued to be driven by ferrous
metals, which account for 34% of total exports. Increased production costs
and a high statistical base explain the almost 13% yoy decline in ferrous
metal exports. On a positive note, exports of machinery and transportation
vehicles continued to benefit from recovered external demand for these
commodities, expanding by 7% yoy and 29.5% yoy respectively over the period.

Robust growth of commodity imports is linked to rising population income and
a high price on imported energy resources (particularly oil and gas).
Mineral products hold the largest share in merchandise imports, accounting
for almost 36%. The data also signifies the growing investment goods
imports. For January-March, imports of machinery and transportation
equipment grew by 26% yoy and 80% yoy respectively.

As expected, the merchandise trade deficit was partially compensated for by
the services trade surplus. According to the SSC, exports of services
increased by 21% yoy over January-March, primarily on account of the 30%
yoy increase in pipeline transportation services.

At the same time, imports grew by 14.6% yoy over the period. As a result,
Ukraine’s foreign trade of services reported a surplus of $1 billion.
Although the transfer surplus is expected to be substantial, the first
quarter current account may post a small deficit as total foreign trade of
goods and services made up a deficit of about $770 million (or about 4%

of period GDP).

At the same time, it is expected to be securely covered by the financial
account surplus due to further increases in medium- and long-term private
debt and robust FDI inflows. According to the SSC, net inflow of FDI
amounted to $922 million in the first quarter of 2005, which is almost 4
times higher than in the corresponding period last year. The bulk of this
sum was received thanks to several acquisitions in the banking sector.

At the same time, such a robust inflow of FDI is unlikely to persist in the
coming periods, considering the sluggish privatization process and the slow
pace of economic reforms (due to parliamentary elections and the prolonged
formation of a new government coalition).

                            OTHER DEVELOPMENTS AND
        REFORMS AFFECTING THE INVESTMENT CLIMATE

Ukraine continued to make progress towards integration with Western
institutions. In mid-May, Ukraine and Australia signed the bilateral
agreement on joint access to the market of goods and services. Endorsement
of the protocol put an end to one of the longest bilateral negotiation
processes, the most critical issue of which were conditions for mutual
access to sugar markets.

Ukraine has almost completed its WTO negotiations with just two remaining
countries – Kyrgyzstan and Taiwan. Thus, Ukraine has a good chance to

become a WTO member by the end of this year, although it still needs to
complete the adjustment of its legislation to WTO standards. This includes
a number of politically sensitive laws, envisaging reduction of export duties
on live cattle, hide and metal scrap.

Currently, the legislative process is stalled due to the prolonged formation
of the government coalition. Regardless of the composition of the future
coalition, Ukraine’s foreign policy is likely to remain pro-Western.

On the back of a much cooler bilateral relationship with Russia, Ukraine
continues to succeed in developing relationships with NATO and is increasing
its participation in organizations favoring closer ties with the West.

Ukraine hopes to join NATO’s road map in the fall of this year. In mid-May,
the president of Ukraine signed a decree creating an inter-departmental
commission for preparing Ukraine for NATO membership. NATO has also
expressed willingness to support Ukraine on its way to join the alliance.

During May 22-23, Ukraine was the host country for the GUAM summit.
GUAM is a regional organization of Georgia, Ukraine, Azerbaijan, and
Moldova, established in 1997 with the aim to enhance energy and economic
cooperation between the countries. During the summit, GUAM was
transformed into an international organization “Organization for Democracy
and Economic Development — GUAM.”

The functions of the organization include “the creation of a regional space
of democracy, security, and stable economic and social development,”
strengthening the relations with the European Union and NATO, coordination
of policies to solve common challenges for the region (like organized crime,
drug trafficking, terrorism, energy security, etc.)

During the summit, the countries decided to activate an agreement on
creation of a free trade zone. The decision came at a time when Russia
imposed import restrictions for Ukrainian, Georgian and Moldavian goods.

On May 22nd, Moody’s introduced a new scale of national rating with the
.ua marker, ranging from C.ua (the most risky level) to Aaa.ua (the least
risky). According to Moody’s, the national rating scale will provide more
transparency regarding the local credit market since the international
country rating, reflecting political and economic risks in the country, may
obscure company-specific risks.

Moody’s also developed a new methodology for setting its foreign-currency
country ceilings for bonds, which will reflect the risk that a
foreign-currency government bond default would be accompanied by a
moratorium on external foreign-currency payments. According to the new
methodology, Ukraine obtained a Ba3 rating with stable outlook.
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NOTE: To see the entire SigmaBleyzer/The Bleyzer Foundation Ukraine
Macroeconomic Situation report for May 2006 in a PDF format, including
several color charts and graphics click on the following link:
http://www.sigmableyzer.com/File/countries/ukraine/Ukr-Monthly_Ec_Report_05_06.pdf
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CONTACT: Olga Pogarska, Economist, The Bleyzer Foundation,
Kyiv, Ukraine. OPogarskia@SigmaBleyzer.com.ua,
http://www.SigmaBleyzer.com, http://www.BleyzerFoundation.com.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2. UKRAINIAN PRESIDENT’S PARTY ‘OUR UKRAINE’ TO SEEK
                                NEW COALITION PARTNER

Associated Press (AP), Kiev, Ukraine, Tuesday, June 13, 2006

KIEV – President Viktor Yushchenko’s political party declared itself free to
look for other coalition partners Tuesday, after 11 weeks of talks to
reunite Ukraine’s Orange Revolution partners ended in deadlock, a senior Our
Ukraine official said.

“A coalition must be formed in any case,” Our Ukraine’s Roman Zvarych said.
“We always demonstrated a constructive position. However, in connection with
the hopeless situation, we have informed our partners that ‘We are free in
our activities.'”

The three parties that supported the 2004 Orange Revolution halted talks on
Saturday amid a disagreement between Our Ukraine and the Socialists over the
parliamentary speaker’s job. The so-called Orange team’s failure to overcome
their differences has left this ex-Soviet republic effectively rudderless,
with neither the Cabinet nor parliament fully functioning. The disarray
prompted U.S. President George W. Bush to put off a visit to Ukraine this
month.

The most likely option now is for Our Ukraine to enter talks with
Yushchenko’s 2004 Orange Revolution rival, failed presidential candidate
Viktor Yanukovych. Yanukovych’s pro-Russian Party of Regions won the most
votes in the March parliamentary elections, which gave no party a majority.

Former Prime Minister Yulia Tymoshenko, who would get her old job back if
the Orange coalition formed, and Socialist Party leader Oleksandr Moroz have
said they wouldn’t talk to the Party of Regions. Tymoshenko, who had a
bitter falling out with Yushchenko last year, has accused Our Ukraine of
setting out to sabotage the talks.

Many analysts believe Yushchenko views Yanukovych as less of a threat to his
authority and a more palatable partner than Tymoshenko, whose party won

more votes than either of the other Orange forces combined in the March
elections. The Party of Regions has said it is ready to negotiate.

“I think the Ukrainian people understand that they’ll receive nothing from a
coalition of one color,” said Yanukovych’s spokeswoman Anna Herman.
“Ultimately, this is natural because Ukraine is not one-colored.”

The Party of Regions, whose campaign color is blue, dominates in Ukraine’s
Russian-speaking east and south, while the Orange parties hold sway in the
west. Under Ukraine’s constitution, the parties have until June 27 to form a
coalition. After that, Yushchenko can dissolve parliament and call new
elections. He has said, however, that he will not call a new vote.   -30-
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3. UKRAINE’S DOMESTIC GAS PRICES TO GROW 80-85% JULY 1

Concorde Capital, Kyiv, Ukraine, Friday, June 9, 2006

KYIV – On June 8, the National Electricity Regulation Commission
(NERC) approved a 80-85% increase in gas tariffs for the population,
municipal heating enterprises and budget enterprises.

Effective from July 1, the tariff for the population will surge by 85% to
USD 80.6/ths cm (USD 87.9 for those without gas meters) for municipal
heating enterprises ­ by 78.9% to USD 135.8/ths cm, for budget enterprises ­
by 80% to USD 128.3/ths cm. The tariff increases were approved by the
Cabinet, which plans to adjust gas tariffs to meet costs by December
2006.

Concorde Capital: Compared to 2005 gas tariffs, this hike implies
132.6% higher tariffs for the population, 184.1% higher for municipal
heating enterprises and 180.5% greater for budget enterprises. The increase
was unexpectedly high ­ a month ago the Cabinet announced plans to raise
tariffs by only 50%.

Moreover, Naftogaz authorities say that the tariff for the population is
likely to go up by another 20-25% this year, along with 4% and 14%
tariff increases for heating and budget enterprises on January 1, 2007.

As higher gas tariffs for budget enterprises will basically result in
the reallocation of money within the state budget, the tariff increases will
fall squarely on the shoulders of the population through more expensive gas
and higher tariffs for heat.

Despite the some negative effects from this ‘gas shock’ in the short term
(e.g. inflation), we believe the country will benefit in the long term.
Appropriate gas pricing would improve the cost efficiency of local gas
consumers and optimize the allocation of gas resources in the economy.
———————————————————————————————-
Concorde Capital, http://www.con-cap.com

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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4.                      UKRAINE TO BE GAZPROMED?
  In 2H06 we expect the price of imported gas for Ukraine to jump by 34%,

ANALYSIS AND COMMENTARY: Concorde Capital
Kyiv, Ukraine, Tuesday, June 6, 2006

[1] Ukraine To Face Another Gas Price Hike.
In 2H06 we expect the price of imported gas for Ukraine to jump by 34%,
to about USD 128/ths cm. The increase implies a yearly average import
price of USD 111/ths cm, which is 17% higher than the current price and
10% above our previous forecast.

Uncertainty regarding Turkmen gas supplies makes Ukraine more dependent
on Gazprom and RosUkrEnergo (RUE) and will push the negotiators to
accept a higher price.

[2] Domestic Prices To Grow Accordingly.
The price for domestic industrial consumers will increase proportionally to
the import price, from USD 108 to around USD 146/ths cm (excluding
transportation and delivery costs). Given the doubling of transportation
tariffs in 1H06, end-user prices for industrial consumers would increase to
about SD 166/ths cm, an jump of about 40% since the beginning of this year.
The implied yearly average price for endusers is about USD 143/ths cm
(~85% yoy growth).

[3] Domestic Nitrogen Fertilizer Producers Nearing The Break Even Point.
With our estimated break-even gas price of USD 160-170/ths cm (at ammonia
export price of USD 220 mt), in 2H06 Ukrainian producers of nitrogen
fertilizers will just barely be able to remain profitable. Steel makers will
be able to weather a gas price increase of up to USD 200/ths cm, without
significantly changing to technology. The five Ukrainian electricity
generating companies and Kievenergo would react to higher gas prices by
increasing electricity tariffs by about 8-10%.

[4] Gazprom: Yearning For The Ukrainian Gas Market.
We maintain our view that Gazprom will succeed in using gas prices as a
lever over the Ukrainian authorities to gain access to the Ukrainian market.
Technically, this will result in licensing Ukrgaz-Energo, the JV created by
RUE and Naftogaz Ukrayiny, to sell 32 bcm of gas to Ukrainian consumers
(about 50% of the local market).

[5] RosUkrEnergo: IPO On The Way?
At the first glance, the recent disclosure by RUE’s owners and the
acquisition of Astrakhan Oil & Gas Company seem to suggest that the
company’s IPO plans are not just talk. However, we believe that the IPO
has little to do with increasing the company’s capitalization. It looks like
Gazprom is going to use it as an instrument to get support from future
European shareholders and improve its leverage over transit countries.

[6] Gas Balance 2006: A 22.5 bcm Hole.
Despite the existence of an allegedly signed contract between Ukraine and
Turkmenistan in December of last year, Turkmenistan did not supply a single
cm of the gas agreed upon. Instead, Turkmen gas was purchased by Gazprom
and resold to Ukraine through RosUkrEnergo (RUE), the company controlled
by Gazprom. If the deal remains idle, Ukraine will face a 22.5 bln hole in
its gas balance. The gap can be closed, but at a painful price to Ukrainian
gas consumers.

[7] Gas Balance Changes, 4m06 Data Confirms Our Expectations
The data for 4m06 confirms our general expectation that this year Ukrainian
gas consumers will depend mostly on Turkmen gas prices and its
availability – either to RUE or Naftogaz (see our research from January
2006).

In 4m06 Ukraine imported only 4.7 bcm of Russian gas, 37.2% less than over
the same period last year. The balance was closed by Central Asian gas
supplies (mostly Turkmen), which increased by 14.4% yoy, from 13.6 to

15.6 bcm in the first four months of this year.

[8] Domestic Gas Consumption Still High.
The government’s plan to decrease the country’s gas consumption this year
by 10% has had little success so far. Over the first four months of this
year consumption of gas by industry, the population and municipal heating
enterprises increased by 1.3% yoy and amounted to 30.8 bcm, compared
to 30.4 bcm consumed in 4m05. This was mainly due to the exceptionally
cold winter which led to higher gas consumption by the population (+14%
yoy), which was only partly offset by lower gas use by large industries
(-5% yoy).

[8] A Hole In Need Of A Billion Dollar Patch?
January’s agreement assumes that RUE will supply 34 bcm of gas in 2006. If
RUE sells more than this amount, it is unclear what the price will be.

According to Gazprom officials, extra volumes are to be sold at USD 230 – if
so, the average price of imported gas may be well above USD 95, even if
Gazprom does not revise the January price (USD 95) upward in the course of
the upcoming negotiations. We will discuss different price scenarios below
in the section “Gas Price Projections.”

[9] RUE: A Monopoly Seller
It appears that Turkmenistan effectively used Russia-Ukraine conflict to its
advantage and thus managed to work out a favorable deal with Gazprom. This
collusion resulted in the involvement of RUE as the only intermediary for
Turkmen gas exports to Ukraine (before RUE only provided delivery), which
means that RUE will become the sole supplier of all gas to Ukraine.

[10] No Direct Supplies Of Turkmen Gas In 4m06
Our fears have been confirmed by the fact that, in contrast to our
expectations, in 4m06 Turkmenistan did not supply gas through the direct
agreement supposedly reached between Ukraine and Turkmenistan in
December 2005.

Moreover, the Turkmen authorities have stated that Turkmenistan can not
supply gas to Ukraine in 2006, as the latter did not agree with Gazprom on
transportation issues.

The recently announced intentions of the Ukrainian government to agree with
Turkmenistan on direct supplies of at least 10.7 bcm look unrealistic. We
believe that, instead of direct supplies, this year Turkmen gas will be
supplied solely by RUE.

[11] Lack Of Direct Supplies Weakens Ukraine’s Bargaining Power
We do not believe the recently announced owners of a 50% stake in RUE,
Dmitry Firtash and Ivan Fursin, actually pursue the interests of the
Ukrainian authorities. As RUE is de-facto controlled by Gazprom, the new
agreement between Gazprom and Turkmenistan will result in significant
deterioration of Ukraine’s bargaining power in gas talks.

[12] RUE’s Sales To Double In 2006
The ability to sell gas, instead of just delivering it to Ukraine would
enable RUE to boost its sales by more than 2x from last year’s USD 4 bln,
and to make about USD 2 bln in operating income.

[13] RUE/Naftogaz JV To Get Control Of The Ukrainian Gas Market
We believe that Ukrgaz-Energo (UGE), a JV created by RosUkrEnergo and
Naftogaz Ukrayiny, is likely to get a license to supply the 32 bcm of gas it
applied for in March.

The government intentionally limited UGE’s gas sales at 5 bcm to enable
Naftogaz to resell imported gas instead of UGE. By doing so, the state
authorities were able to restrict Gazprom’s access to the local market and
to support Naftogaz. However, we believe that during the upcoming gas
negotiations Gazprom is likely succeed in getting the limit raised.

UGE would benefit a great deal from selling gas to local consumers: we
expect it to recieve at least USD 3.5 bln in 2006 revenue and to top the
list of the largest Ukrainian companies in 2006.                  -30-
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LINK:  http://www.con-cap.cop
————————————————————————————————

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5. POLAND’S INDYKPOL TO INVEST IN UKRAINIAN TURKEY MARKET

Polish News Bulletin, Warsaw, Poland, Mon Jun 12, 2006

WARSAW – Listed domestic company Indykpol intends to take over a leading
Ukrainian turkey meat producer. Indykpol is to acquire turkey farms and
slaughterhouses in the central part of the country. Polish Poultry Council
head Rajmund Paczkowski points out that Ukraine is a 50 million-people
market with underdeveloped poultry processing infrastructure.

Additionally, the country is abundant in grain, which constitutes over 50
percent of poultry production costs. If everything goers according to plan,
Indykpol will follow in the footsteps of PKM Duda, which built meat
processing facilities in Ukraine in February.

According to its head Maciej Duda, the company is considering new
acquisitions in the country. Experts stress that for the meat industry,
relocating production facilities across the Eastern border is crucial to
getting round the ban on Polish food exports.             -30-
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6. UKRAINE PLANS RAW SUGAR IMPORT QUOTA OF 260,000 TONS

Grigori Gerenstein, Dow Jones Newswires

Moscow, Russia, Mon June 12, 2006

MOSCOW – Ukraine’s economy ministry has drafted a decree providing an

annual raw sugar import quota of 260,000 metric tons, with an import duty
of 2% for imports within the quota limit, the ministry’s press service said. The
import duty will come into effect in the 2006-2007 marketing year.

For raws imported above the quota limit, the import duty will stay at the
current level of 50%, and no less than EUR300 a ton.
The figure of 260,000 tons was achieved in the course of Ukraine’s World
Trade Organization accession negotiations with Australia.

Australia originally insisted on an import quota of 460,000 tons, but
Ukrainian negotiators succeeded in reducing the figure to 260,000 tons.

In 2004 Ukraine’s raw sugar import quota was 125,000 tons. In 2005 the
parliament refused to approve any low-duty import of raws, but the
government devised a scheme to bypass the parliament’s decision and

110,600 tons of raws were imported duty-free.                     -30-
———————————————————————————————–
By Grigori Gerenstein; Dow Jones Newswires; gerenstein@hotmail.com
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7. TRAVELPLANET.PL PLANS TO UNITE POLISH TOURISM MARKET
        Also looking at Czech, Hungarian, Ukrainian and Russian companies

Polish News Bulletin, Warsaw, Poland, Monday, June 12, 2006

WARSAW – Travelplanet.pl, one of Poland’s largest companies selling trips
online and in brick-and-mortar shops, plans to take over several smaller
companies in the coming months. “We are working hard on creating an
efficient organisation, improving effectiveness and profitability,” said
Travelplanet.pl Chairman Tomasz Moroz.

The Wroclaw-based company not only wants to sell foreign trips, airline
tickets and help make hotel reservations, as it has done so far. New plans
include selling trips in Poland, tickets to events and even taking on the
role of an intermediary in car leasing. “We want our offer to be complex. We
have decided that we need to take over specialised companies,” explains
Moroz.

“Tavelplanet.pl is also conducting research on Czech, Hungarian, Ukrainian
and Russian markets in search of companies with a similar profile. We are
seriously thinking of taking over local players,” he added.     -30-
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========================================================
8. VNESHTORGBANK (UKRAINE) OBTAINS EUR 10 MILLION LOAN
         FROM CARGILL FINANCIAL SERVICES (UNITED STATES)

Viktor Riasnyi, Ukrainian News Agency, Kyiv, Ukraine, May 29, 2006

KYIV – Vneshtorgbank (Ukraine), a subsidiary of Russia’s Vneshtorgbank,
has obtained a loan of EUR 10 million from Cargill Financial Services Inc.
(United States). The bank announced this in a statement.

The loan was obtained for a period of 345 days. The interest rate is not
subject to disclosure, the statement said. The money will be used to finance
the credit operations of the bank.

Index Bank, Donhorbank, Ukrprombank, and Mria bank have earlier obtained
various amounts of loans from Cargill Financial Services Inc. Cargill
Financial Services International Inc. is registered in the United States as
a joint-stock company. Its areas of operation are provision of loans and
other trade and financial operations.

The assets of Vneshtorgbank (Ukraine) were valued at UAH 541.3 million as
of April 1, 2006, when its credit portfolio amounted to UAH 386.5 million
and its capital amounted to UAH 276.3 million. Vneshtorgbank (Ukraine) is
registered as a closed joint-stock bank. Russia’s Vneshtorgbank owns 100%
of the shares in it.                                     -30-
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9.   UKRAINE: YUSHCHENKO APPOINTS VIRA NANIVSKA HEAD
        OF NATIONAL ACADEMY OF PUBLIC ADMINISTRATION

Daria Hluschenko, Ukrainian News Agency, Kyiv, Ukraine, Sun, June 4, 2006

KIEV – President Viktor Yuschenko has relieved Volodymyr Luhovyi of duties
as rector of the National Academy of Public Administration to the President
of Ukraine. Ukrainian News learned this from decree #475/2006 of June 2.

Luhovyi, 56, has been the Academy’s rector since May 1995. By his decree
#474/2006 of June 2, Yuschenko cancelled the posts of the Academy’s rector,
first pro-rector and pro-rectors.

Instead, he established that the Academy will be headed by the president
having one first deputy and three deputies. Meanwhile, they are not civil
servants, as was the case earlier. Yuschenko called Vira Nanivska the
Academy’s president. Nanivska heads the International Center for Policy
Studies specializing in analysis of the national policy.           -30-

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FOOTNOTE:  We send our personal congratulations to Vira Nanivska
on her appointment as head of the National Academy of Public
Administration.  Vira is an outstanding person who understands how
to move Ukrainian governmental structures from the Soviet way of
organization and decision making to an international way of doing
business and producing results.  She also understands how critical this
is to the long-run success of an independent Ukraine. AUR EDITOR
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10. VIKTOR CHUMAK APPOINTED AS THE NEW DIRECTOR OF THE
           INTERNATIONAL CENTRE FOR POLICY STUDIES (ICPS)
   Vira Nanivska appointed by Pres to head National Academy of Public Admn

Irma Pedtepa, Executive Assistant to the Director
International Centre for Policy Studies (ICPS)
Kyiv, Ukraine, Friday, June 9, 2006

KYIV – According to the Decree of President of Ukraine, Viktor Yushchenko,
Vira Nanivska who was ICPS Director since 1997 has been appointed
President of the National Academy for Public Administration under the
President of Ukraine.

The Academy is the main higher educational institution in the government for
training, re-training and advanced professional training of civil servants
and local government officials.

The new ICPS Director is the Centre’s security and defense policy specialist
Viktor Chumak. Viktor Chumak’s higher education is in military science and
law. He is a Ph.D. in law, an associate professor and a Major General in
Justice.

Viktor Chumak is the author of 12 research papers and also headed and
participated in working groups to develop 11 laws. From 2001 to 2004, he was
a permanent member of the Ukrainian delegation involved in the negotiations
with the European Commission on the Ukraine-EU Action Plan regarding
justice, home affairs and readmission.

From 2002 to 2004, he headed an informal group under the Administration
of the State Border Service to study the experience in reforming border
services and transforming law enforcement bodies in Germany, Hungary,
Poland, Slovakia, and the USA.                  -30-
——————————————————————————————
Irma Pidtepa, Executive Assistant to the Director
International Centre for Policy Studies (ICPS), 13 A Pymonenka St.
Kyiv 04050 Ukraine; tel. + 380 44 484 4406; fax + 380 44 484 4402
ipidtepa@icps.kiev.ua; www.icps.kiev.ua
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11. BUSINESSNEWEUROPE (BNE) MAGAZINE LAUNCHED

Ben Aris, Editor-in-chief, BusinessNewEurope (BNE) magazine
Berlin, Germany, Moscow, Russia, Friday, 9 June 2006

BERLIN – Most of the growth in the last five years has come from the
countries of “new Europe” – the 17 countries of Central, Eastern and
South-eastern Europe – and despite the recent turmoil on equity markets the
fundamental story has not changed: strong economic growth, burgeoning
investment, stead (albeit slow) progress in reform and appreciating asset
values.

Despite the fact that virtually every country in Central, Eastern and
South-eastern Europe has produced double- or triple-digit returns for the
last few years the countries of new Europe are poorly understood, thinly
reported and the victim of tired Cold War stereotypes.

Our new monthly magazine Business New Europe (bne) will fill the gap.

                                TOP CLASS REPORTING
Out team of a dozen journalists has live and worked in each of the 17
countries for at least five years. Collectively they have over 50 years of
experience reporting on politics, economics and business for mainstream
names like The Economist, The Financial Times, The Wall Street Journal, The
Banker, Institutional Investor, BusinessWeek and other top titles.

Rather than the standard three-year tour of duty, the bne correspondents are
all veterans of their respective markets have made their home in these
countries. With their feet on the ground they are well-connected and privy
to the gossip that are a key element to understanding the evolution of
emerging markets. But most importantly they can put stories into the all
important context that is essential to making sense of events in these fast
moving countries.

                           GETTING BEHIND THE HYPE
Do this simple exercise: count the number of funds that specialise in the
emerging markets of new Europe in the listing pages of either The Wall Street
Journal or The Financial Times. Then count the number of funds that have
returned more than 20% over the last year. They are mostly the same funds.
Then search the archive for the number of stories about the countries of the
bne area.

The result is startling. While most of the funds concentrating on new Europe
have returned at least double digit returns (even if the recent sell off is
taken into account) the countries that are producing these results command
only a handful of stories in these august publications over the last six
months. And even these stories are exclusively concerned with a few
celebrity companies and personalities. Entire dynamic sectors and
enterprises are passed by without a word.

Bne will go beyond the oligarchs and massive privatisations to report on the
less well-known success stories and take you to the front line in business.

                                THE WHY OF THE WHAT
The coverage of new Europe by the traditional business press is thin, but
worse, few attempts are made to explain the rationale of these markets.
While blow by blow accounts of the destruction of Russia’s oil company Yukos
ran in the papers and on the news wires last year, little attempt was made
to make forward looking analysis of what might happen next.

Likewise, the Kremlin’s decision to turn off the gas taps to Ukraine in
January was widely reported as “political revenge” following Viktor
Yushchenko’s victory over Russia’s ally Leonid Kuchma in the Orange
Revolution.

However, the Kremlin’s decision to increase the price of gas for its most
loyal ally Belarus a few months later makes a mockery of this theory and was
barely reported in the international media. bne will be the first stop for
incisive analysis and commentary to explain the “why” behind the “what” of
the daily news.
                          SIGN UP FOR A FREE TRIAL
Sign up to receive the pilot issue that was launched at the EBRD spring
meeting in May. Early subscribers will be entitled to a four-month trial
after the official launch of bne in September as well as get access to the
premium services on the web site such as bne flash – rapid reaction analysis
to breaking news and insightful forward looking commentary on events that
are shaping the markets.

Check out the preliminary web site at the following address:
http://www.businessneweurope.eu or sign up at
http://www.businessneweurope.eu/s/mail_form.php

Readers who spend 5 mins to fill in the questionnaire at the following
address that will help us make a better magazine are entitled to a
substantial discount on the Euro180 annual subscription fee,
http://survey.redworld.ru/survey.php?sid=28.

Best regards, Ben Aris, Editor-in-chief, Berlin and Moscow
benaris@t-online.de
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========================================================
12. UKRAINIAN INTERNET ASSOCIATION WARNS OF “CENSORSHIP”

UNIAN news agency, Kiev, in Ukrainian 1425 gmt 6 Jun 06
BBC Monitoring Service, United Kingdom, Wed, Jun 07, 2006

KIEV – The Internet Association of Ukraine is worried about the statements
by government bodies on tightening the supervision and regulation of the
Internet, it has said in a press release.

“Recently government officials have started to talk more often about the
need to tighten the regulation of the Ukrainian Internet sector, to keep it
under full control for the sake of national security, to license any
activity in the Internet, to register web resources and to develop criteria
according to which government bodies will define what may or may not be
published in the Internet,” the press release said.

In this connection, the Internet Association of Ukraine stated that once
again, under the guise of protection of state interests, attempts are being
made to impose on Ukraine total monitoring, censorship and supervision of
all types of information in the Internet.

The Internet Association of Ukraine believes the statements on the need for
supervision of the Internet are far-fetched since some monitoring equipment
was installed earlier at the Internet providers that deliver services to
government bodies in line with State Communications Committee decree No 122.

As for non-government organizations, they are legally entitled to decide on
their own on the means of information protection without any interference
from government bodies.

The Internet Association of Ukraine stressed that it has opposed and would
continue to oppose any attempts to introduce government supervision of the
Internet, any form of censorship or restriction of legal entrepreneurial
activity.

The Internet Association of Ukraine urged web users, businessmen, all
political forces and public activists to prevent the encroachment on the
citizens’ constitutional rights and freedoms, to adhere to the principles of
democracy and unite in an effort to build information society in Ukraine.
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13. GENERATING ELECTRICITY FROM CARPATHIAN RAPIDS

By Svitlana Kaletnyk, Kyiv Weekly, Kyiv, Ukraine, Wed, June 7, 2006

Ukraine launched its first high-pressure mini hydroelectric station
(mini-HES) in the Trans-Carpathian village of Bilyn. The station is
powered by white-water rapids from the Carpathian Mountains.

According to experts’ estimates, the station will generate 630 kilowatts of
energy per hour, which will provide electricity to more than 200 homes in
the village. One more function of the hydroelectric station is regulating
the flow of water in order to ensure protection from flooding.

Andriy Kazakov, the head of this project, asserts that a hundred of such
stations will fully supply Zakarpattia with its own electricity. Besides
that, this source of energy does not pollute the environment.

Despite the project’s bright future, at this point it cannot be implemented
over the entire territory of Zakarpattia due to a lack of financing. The
mini-HES will be launched in phases. Another six stations of this kind will
be built over the next three years. The construction of each one of them
will cost approximately 3.9 mn euro.

Lowering of the price of electricity for the oblast residents is not planned
at the moment. “Electricity prices may be lowered when the oblast will be
able to produce electricity for this region at full capacity,” said Vasyl
Kovach, General Director of ZakarpattiaOblEnergo.

Ukraine launched its first high-pressure mini hydroelectric station
(mini-HES) in the Trans-Carpathian village of Bilyn. The station is powered
by white-water rapids from the Carpathian Mountains.

According to experts’ estimates, the station will generate 630 kilowatts of
energy per hour, which will provide electricity to more than 200 homes in
the village. One more function of the hydroelectric station is regulating
the flow of water in order to ensure protection from flooding.

Andriy Kazakov, the head of this project, asserts that a hundred of such
stations will fully supply Zakarpattia with its own electricity. Besides
that, this source of energy does not pollute the environment.

Despite the project’s bright future, at this point it cannot be implemented
over the entire territory of Zakarpattia due to a lack of financing. The
mini-HES will be launched in phases. Another six stations of this kind will
be built over the next three years. The construction of each one of them
will cost approximately 3.9 mn euro.

Lowering of the price of electricity for the oblast residents is not planned
at the moment. “Electricity prices may be lowered when the oblast will be
able to produce electricity for this region at full capacity,” said Vasyl
Kovach, General Director of ZakarpattiaOblEnergo.
Background

The Zakarpattia region of Ukraine has the greatest hydroelectric power
resources in the country. At this point there are only three local
hydroelectric stations supplying 7% of the electricity the region requires.

Approximately 1,000 mini hydroelectric stations were operating in Ukraine in
the 1960’s. DniproHidroEnergo says around 50 mini HES are currently
operating in Ukraine with a total capacity of 90 MWt.

Approximately 100 mini HES with a total capacity of 30 MWt can be built.
Currently, there are 420 stations not in operation.

In the state program supporting the development of alternative and renewable
energy sources, mini HES and heat and power engineering, it is noted that
the hydroelectric potential of small rivers in Ukraine is 2.4 mn kWt, while
the technically attainable level is 1.7 mn kWt.                      -30-
———————————————————————————————–

LINK: http://www.weekly.com.ua/?art=1149714967
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14.  ITALY’S GENERALI BUYS 51% OF UKRAINIAN INSURANCE
                COMPANIES GARANT AUTO, GARANT LIFE

By Sabrina Cohen, Dow Jones Newswires
Milan, Italy, Friday, June 9, 2006

MILAN – Assicurazioni Generali SpA (G.MI) Friday said it has acquired
a 51% stake in Ukrainian insurance companies Garant Auto and Garant
Life. The Italian insurer didn’t disclose financial terms of the deal. The
deal is pending approval from Ukrainian regulators, the company said in
the statement.

Generali Chief Executive Sergio Balbinot said in the statement that the deal
complies with the guidelines of its 2006-2008 business plan . He said that
with the acquisition “Generali becomes one of the leading operators in the
Ukrainian market, one of the top foreign insurers of the country”.

Generali is already present in Central and Eastern Europe with approximately
3.5 million clients. In 2005, it was ranked fourth amongst foreign players
by premium income.     -30-
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By Sabrina Cohen, Dow Jones Newswires, sabrina.cohen@dowjones.com

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15. ‘CHRONICLE OF RECENT DEVELOPMENTS IN UKRAINIAN
            LEGISLATION’ IN BUSINESS AND CORPORATE LAW

Dr. Irina Paliashvili, President
Russian-Ukrainian Legal Group, P.A. (RULG)
Action Ukraine Report (AUR) #711, Article 15
Washington, D.C., Tuesday, June 13, 2006

Dear Morgan:

Our firm is pleased to announce that in 2006, we have continued publishing
our popular “Chronicle of Recent Developments in Ukrainian Legislation”, a
monthly summary of the most important legislative developments in Ukraine
in the area of business and corporate law, available in English and Russian.

In addition to the regular monthly Chronicle, we also issue Legislative
Alerts from time to time on the most urgent legal topics in Ukraine.

The Chronicle is a token of our appreciation to our esteemed clients and,
therefore, it is distributed as a free subscription. The Chronicle is
prepared in an effort to capture news of greatest interest to the widest
cross-section of our firm’s clientele, without restating all legislation
published and drowning our readers in too much information.

The principal contributors to the Chronicle are Rich Smith, Senior Counsel
at our Washington, D.C. office, and Yelena Korshikova, Counsel at our
Kyiv office.

The latest edition of Chronicle was issued for March-April, 2006. Archived
editions of the Chronicle are available for viewing and download on our
website, http://www.rulg.com/chronicle.asp. Future editions are distributed
via e-mail by the middle of each month, and will summarize the legislative
developments of each preceding month.

In order to begin receiving the Chronicle direct to your e-mail box, please
fill out the subscription form at http://www.rulg.com/subscription_form.asp.

The Chronicle will only be distributed to subscribers who fill out this
form. The “unsubscribe” option will be available at any time.

Due to the winnowing process necessary when preparing the Chronicle, we
cannot guarantee that it contains a comprehensive list of all Ukrainian
legislation relevant to your business.

Finally, please bear in mind that this summary does not constitute legal
advice; it is an informational service only. Should you wish to receive
further information or actual legal advice, please do not hesitate email us
at chronicle@rulg.com.

Thank you and we look forward to welcoming readers of the Action
Ukraine Report (AUR) as subscribers to the Chronicle!             -30-
———————————————————————————————————-
LINKS: http://www.rulg.com/chronicle.asp;
http://www.rulg.com/documents/Chronicle_March-April_2006_eng.htm
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16.  ENERGY POLICY RECOMMENDATIONS TOO LONG-RANGE
                RE: OP-ED “Chernobyl’s Lesson” By Carlos Pascual

Letters-to-the-Editor, Sent to The Washington Post

Ken Bossong, Co-Director, Ukrainian-American Environmental Association
Action Ukraine Report (AUR) #711, Article 16
Washington, D.C., Monday, June 12, 2006

RE: OP-ED “Chernobyl’s Lesson” By Carlos Pascual
Washington Post, Friday, June 2, 2006

Dear Sir/Madam:

Former U.S. Ambassador to Ukraine Carlos Pascual’s analysis of Ukraine’s
energy situation is largely on-point; however, his policy recommendations
may be too long-range to avert a natural gas crisis there that may erupt
within the next few weeks and certainly by year’s end. 

Ukraine needs to implement a crash program to slash energy waste and end
its dependence on Russian gas imports.  And it would greatly benefit from
technical assistance from the United States to do so.

Ukraine is presently one of the world’s most energy-inefficient economies,
using over 2.6 times more energy for every unit of Gross Domestic Product
produced than the world average.  The ratio is even worse when Ukraine is
compared to the United States, the European Union, or Japan.

If Ukraine brought its energy intensity down to just the world average, it
could completely eliminate its need for natural gas and oil imports as
well as sharply reduce its reliance on nuclear power for which it also
imports nuclear fuel from Russia. 

Towards this end, the United States could provide technical assistance
and share its thirty years of experience with a range of inexpensive, very
cost-effective, technically simple, and fast-to-implement energy
efficiency strategies. 

These would include the federal energy management, weatherization,
procurement, and  Energy Star programs — all of which have no current
counterparts in Ukraine but which could be readily replicated.

This would be one of the easiest ways for the United States to help
Ukraine protect its national security.  It would ultimately help safeguard
America’s national security interests as well.

Sincerely, Ken Bossong, Co-Director
Ukrainian-American Environmental Association
8606 Greenwood Avenue, #2, Takoma Park, MD 20912
E-mail: kbossong614@yahoo.com
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17. KATERYNA YUSHCHENKO JOINS WORLD LEADERS IN JORDAN
    WITH HER MAJESTY QUEEN RANIA AL-ABDULLAH TO LAUNCH
          ‘GLOBAL WOMEN’S ACTION NETWORK FOR CHILDREN’

Press office of President Viktor Yushchenko
Kyiv, Ukraine, Sunday, June 11, 2006

KYIV – Ukraine’s First Lady Kateryna Yushchenko will join women leaders
from around the globe – including heads of state, leading advocates for
children, philanthropic leaders and Nobel Laureates – at the Dead Sea in
Jordan on June 11-13, 2006 for a three day conference designed to address
the critical issues of maternal and newborn mortality and access for
education for girls.

The conference, entitled ‘Mobilizing for Action,’ is being held under the
patronage of Her Majesty Queen Rania Al-Abdullah and is organized by the
National Council for Family affairs (NCFA) in Jordan, and the Children’s
Defense Fund (CDF) in the United States.

The goal of the conference is to determine the most effective way to turn
the tide on maternal and newborn mortality and to ensure that girls
everywhere have access to education.

Her Majesty Queen Rania Al-Abdullah will speak at Sunday opening
ceremony on June 11. Additional conference participants will include the:

   [1] First Ladies of Ukraine, Egypt, Bahrain, Iraq, Rwanda, Zambia,
   Mauritania,
   [2] Former President of Ireland and UN Human Rights Commissioner
   Mary Robinson,
   [3] Carol Bellamy, President, World Learning, former Director of
   UNISEF,
   [4] Several Nobel Prize Laureates, including Betty Williams,
   Jody Williams and Dr. Shirin Ebady.

Kateryna Yushchenko will address the conference on the health effects of
Chernobyl and Ukraine’s progress toward the achievement of its Millennium
Development Goals.

The three day conference will also mark the launch of the ‘Global Women’s
Action Network for Children,’ a new international advocacy group led by
prominent women around the world dedicated to identifying, funding and
supporting programs to help women, girls and infants.

Every minute somewhere in the world a mother dies during pregnancy or
childbirth; every hour 450 newborn babies die; every three seconds a child
under five dies.

Added together, that is more than 11 million women and children dying
each year from mostly preventative causes. More than 100 million children
across the globe do not attend school. The majority of them are girls.
———————————————————————————————–

Contact: Maryna Antonova, Head of Press Office, International
Fund Ukraine 3000, presa@kateryna.org.ua.
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18. NCSJ CELEBRATES 25 YEARS OF LEADERSHIP BY MARK LEVIN
        Honors a quarter century of far-reaching accomplishment and leadership.

Action Ukraine Report (AUR) #711, Article 18
Washington, D.C., Tuesday, June 13, 2006

WASHINGTON – For 25 years, NCSJ’s Mark Levin has been a driving

force  in the American Jewish community’s campaigns to free those of 
Jewish heritage in the Soviet and now the post-Soviet world.

A reception is being held on Tuesday evening, June 13th on Capital Hill to
honor Mark of a quarter century of far-reaching accomplishment and
leadership.

Mark B. Levin is one of the American Jewish community’s leading experts
on national and international political and legislative issues.  As NCSJ’s
able and admired executive director, he has led the organized Jewish
community effort in supporting financial and technical assistance to the
successor states of the former Soviet Union.

Following the historic breakup of the USSR in 1991, Mark set NCSJ’s
course in redefining its mission and goals to meet the swiftly changing
needs of FSU Jews.

His 25 years of building relationships with Jewish individuals and groups in
these 15 countries, their government agencies and ours in the U.S., enable
NCSJ to quickly and effectively respond to the new challenges facing those
who made the decision to remain and revitalize communal life.

In fact, security and renewal have been Mark’s guiding principles in
steering NCSJ into the 21st century. He has created enduring friendships

with Jewish communities in the 15 successor states. He has fostered FSU
Jewry’s relationships with the organized American Jewish community, the
State of Israel, the Jewish people worldwide and with many non-Jewish
organizations who work in the area of human rights, personal freedom,
democracy building and economic development. 
 
Mark was one of the leaders in the recent activities of the Jackson-Vanik
Graduation Coalition which lead the successful effort to get the U.S.
Congress to graduate Ukraine from the restrictions of the Soviet-era
Jackson-Vanik Amendment. 
 
The Action Ukraine Report congratuates Mark Levin on his 25 years of
outstanding. leadership. Mark was one of the leaders in the recent activities

——————————————————————————————————–
NCSJ, Advocates on behalf of Jews in Russia, Ukraine, the Baltic

States & Russia. http://www.ncsj.org/25.html
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19.    PICTURESQUE TRANSCARPATHIA: THE WESTERNMOST
 REGION OF UKRAINE, JOINS CORE OF EAST-CENTRAL EUROPE

NEWSLETTER: INTERNET ENCYCLOPEDIA OF UKRAINE (IEU)
Dr. Marko R. Stech, Project Manager, Internet Encyclopedia of Ukraine
Canadian Institute of Ukrainian Studies, University of Toronto
Toronto, Ontario, Canada, May 2006

Transcarpathia is the only part of Ukraine situated beyond the Carpathian
Mountains. Accessible to the main territory of Ukraine through numerous
mountain passes, it joins Ukraine with the core of East-Central Europe.
Transcarpathia encompasses two different natural regions, the Tysa
Lowland and the picturesque southern watershed of the Ukrainian
Carpathian Mountains.

In the 10th century, Transcarpathia came under the sphere of influence
of Kyivan Rus’. Following its incorporation by Prince Volodymyr
the Great into his realm, the name Rus’ or Ruthenia became entrenched in
Transcarpathia. In the 11th century most of Transcarpathia came under
Hungarian rule. Ukrainians constituted the majority of the region’s
population, but they were a minority element among its aristocracy.

Deprived of a political structure and social elite the Transcarpathian
Ukrainians preserved their ethnic identity principally through their
religious distinction. It was not until the early 1920s that Transcarpathia
was established as a separate administrative region. The Ukrainians’
struggle for self-rule resulted in the creation of the autonomous
Carpatho-Ukraine on 11 October 1938.

On 12 February 1939, elections to the first parliament of Carpatho-
Ukraine took place in which the Ukrainian National Alliance won a
resounding victory. However, on 14 March 1939, Adolf Hitler entrusted
Hungary with the occupation of Transcarpathia which marked the actual
beginning of the Second World War.

                LEARN MORE ABOUT TRANSCARPATHIA
Learn more about Transcarpathia, its history, cities, inhabitants, and
natural resources by visiting:
http://www.encyclopediaofukraine.com/featuredentry.asp; or by visiting:
http://www.encyclopediaofukraine.com and searching for such entries as:

[1] TRANSCARPATHIA. A historical-geographic region in southwestern
Ukraine. Until 1919 Transcarpathia denoted that part of Hungary where
Ukrainians lived, and the synonymous terms Hungarian Ruthenia (Uhorska
Rus’) and Hungarian Ukraine (Uhorska Ukraina) were widely used.

Bounded by the ethnographic boundary with Rumanians and Hungarians
in the south and Slovaks in the west, the region encompassed 15,600 sq km.

After the First World War Transcarpathia was separated from Hungary,
and the bulk of its territory was formed into an autonomous region within
Czechoslovakia called Subcarpathian Ruthenia (Pidkarpatska Rus’).

A small part, located south of the Tysa River, became part of Rumania,
while in its western reaches, the Presov region was allocated to Slovakia.
Joined with the Ukrainian SSR in June 1945, Transcarpathia constitutes a
separate administrative unit, Transcarpathia oblast, within the borders of
Ukraine, with a territory of 12,800 sq km and a population of 1,258,300
(2001).

[2] UZHHOROD. A city (2001 pop 117,600) on the Uzh River and the
capital of Transcarpathia oblast. According to the archeological evidence
the site was inhabited as early as the Stone Age. A Slavic tribe of White
Croatians founded a fortified settlement there in the 8th or 9th century.
Early in the 10th century it was controlled by the Hungarians and then by
Kyivan Rus’.

Hungary regained control of the town in the 11th century and remained
the dominant influence there until the 20th century. Its economy was
initially based on wine-making, agriculture, and animal husbandry. Trade
and manufacturing, stimulated by the town’s military and administrative
needs, developed through the 15th to 18th centuries.

The religious struggle of the 17th century culminated in the Uzhhorod
Union of 1646. In the late 1770s Bishop Andrii Bachynsky transferred the
seat of Mukachiv eparchy to Uzhhorod.

[3] MUKACHIV or MUKACHEVO. A city (2001 pop 82,200) on the
Liatorytsia River and a raion center in Transcarpathia oblast. The site has
been settled since prehistoric times. In the 10th century Mukachiv belonged
to Kyivan Rus’, and in the 11th century, to Hungary.

The fortress, rising high above the town, was destroyed by the Cumans in
1086 and by the Tatars in 1241. It was rebuilt by Fedir Koriiatovych, who
also built Mukachiv Saint Nicholas’s Monastery.

By the end of the 14th century Mukachiv was an important manufacturing
and trading center on a trade route between Hungary and Galicia. In 1445
it was granted the rights of Magdeburg law. Because of the monastery the
town became a cultural and religious center in the 15th century, and until
the end of the 18th century it was the seat of the Mukachiv eparchy.

[4] KHUST. City (2001 pop 29,100) and raion center in Transcarpathia oblast.
It arose in the 10th century at the foot of a mountain of volcanic origin,
on which a Hungarian castle was built ca. 1090 to control access to salt mines
located nearby.

Khust belonged to the Principality of Galicia-Volhynia from 1281. In 1321
Hungarian rule was restored. In the 16th and 17th centuries the Habsburg
dynasty and the Transylvanian princes fought each other for control of the
town and its castle.

On 21 January 1919 the Central Ruthenian People’s Council in Khust voted
to unite Transcarpathia with Ukraine. From 1919 to 1938 the city belonged
to Czechoslovakia.

After Hungary occupied southwestern Transcarpathia, in November 1938,
the autonomous Carpatho-Ukrainian government headed by Avhustyn
Voloshyn was evacuated from Uzhhorod to Khust, which became the
capital of Carpatho-Ukraine.

[5] BEREHOVE or BEREHOVO. A city (2001 pop 26,700, with a
substantial Hungarian population), located in the Tysa Lowland; raion center
in Transcarpathia oblast. Founded as a Saxon colony in the 11th century AD,
Berehove is situated in Hungarian ethnic territory (before the Second World
War Ukrainians constituted 10 percent of the population in Bereg komitat
[Berehove county]).

Under Czechoslovakian rule it was a center of Ukrainian cultural life in
southern Transcarpathia. A Ukrainian gymnasium was situated here.
Berehove has furniture, clothing, brick-and-tile, and ceramics plants and
a wine and food industry. A 15th-century Gothic Roman Catholic church
is located in the city.
—————————————————————————————————–
The preparation, editing, and display of the IEU entries dealing with the
history, cities, and natural resources of Transcarpathia was made possible
by the financial support of the FOUNDATION OF THE ENCYCLOPEDIA
OF UKRAINE (Toronto, ON, Canada).
—————————————————————————————————-
ABOUT IEU: Once completed, the Internet Encyclopedia of Ukraine will be
the most comprehensive source of information in English on Ukraine, its
history, people, geography, society, economy, and cultural heritage.

With over 20,000 detailed encyclopedic entries supplemented with thousands
of maps, photographs, illustrations, tables, and other graphic and/or audio
materials, this immense repository of knowledge is designed to present
Ukraine and Ukrainians to the world.

At present, only 9% of the entire planned IEU database is available on the
IEU site. New entries are being edited, updated, and added daily. However,
the successful completion of this ambitious and costly project will be
possible only with the financial aid of the IEU supporters. Become the IEU
supporter and help the CIUS in creating the world’s most authoritative
electronic information resource about Ukraine and Ukrainians!
———————————————————————————————-
Dr. Marko R. Stech, Managing Director, CIUS Press
Project Manager, Internet Encyclopedia of Ukraine
Project Manager, Hrushevsky Translation Project
Canadian Institute of Ukrainian Studies, University of Toronto
20 Orde Street, Rm. 124, Toronto, Ontario M5T 1N7,
E-mail: m.stech@utoronto.ca
www.utoronto.ca/cius; www.encyclopediaofukraine.com
———————————————————————————————–
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20.       HISTORIC WORLD CUP DEBUT FOR UKRAINE

Erica Bulman, AP Worldstream, Germany, Tue, Jun 13, 2006

For Andriy Shevchenko and his Ukrainian countrymen, it marks a historical
moment: their nation’s long-awaited debut World Cup match after years of
struggle that followed the dissolution of the Soviet Union.

For veterans Raul Gonzalez and David Villa, it’s the start of yet another
Spanish bid for the title after 11 failed attempts.

On the surface, much distinguishes the neophyte Ukrainians and the
experienced Spaniards, who boast international renown players such as Villa,
Fernando Torres and Luis Garcia and whose clubs won both this season’s
European Champions League and UEFA Cup titles.

But Wednesday’s opening group H showdown in Leipzig could be a lot tighter
than expected. “Of course Spain is a favorite, but Spain has to be afraid of
us, not the other way around,” declared Ukraine’s coach Oleg Blokhin, a
legendary figure in his country who helped Dynamo Kiev win the European Cup
Winners’ Cup and Super Cup crowns in 1975.

Though Spain is a perennial soccer power making its eighth consecutive World
Cup appearance, it has never come close to the title. Its best World Cup
result was fourth in 1950.

“We’re the favorites because of the team and the players we have, but if we
want to be first in the group we have to keep working hard,” Spanish
midfielder Cesc Fabregas said. “We know they’re a great team. They have
players like Shevchenko who can kill the game in one second.”

A win Wednesday could be crucial, with African Cup of Nations champion
Tunisia on the horizon. Saudi Arabia is the fourth group H team.

“Tunisia is just as dangerous for us,” Blokhin said. “African teams are
famous for surprising their opponents. And any team coached by Roger

Lemerre is capable of surprises. “So a win over Spain would be good.”

Both team captains are uncertain.

Raul, in his third World Cup, has struggled since partially tearing the
anterior cruciate ligament in his left knee in November while playing with
Real Madrid. He is Spain’s all-time leading scorer with 43 goals, but went
seven months without a goal until a friendly against Egypt 10 days ago.

Spain coach Luis Aragones seems ready to bench Raul. The striker practiced
with the presumed substitutes Monday while Aragones drilled 11 players
likely to start. Raul will probably make way for Villa, who scored 25 goals
for Valencia this season, second only to FC Barcelona’s Samuel Eto’o in the
Spanish league.

Blokhin has been evasive about whether Shevchenko is sufficiently recovered
from a knee injury he picked up in May. The newly signed Chelsea striker’s
participation will probably be announced just an hour before the match,
presumably to keep Aragones guessing.

But Spain says it’ll stick to its 4-3-3 formation regardless. “So far we
have never changed our system depending on another team,” Real Madrid
defender Michel Salgado said. Ukraine will rely on discipline, quick
counterattacks and forward line led by Shevchenko’s finishing ability.

A question mark remains on whether Blokhin will field veteran Serhiy Rebrov,
back at Dynamo after disappointing stints in England and Turkey, but a
dangerous force when paired with Shevchenko. Bayer Leverkusen’s Andrej
Voronin and Shevchenko are another ferocious duo.

Spain and Ukraine have met twice, in qualifying for Euro 2004. Spain won at
home 2-1 while the match in Kiev ended 2-2.

“They were a very difficult rival and it’s more or less the same team,”
Salgado said. “We all know that it’s a team with a strong midfield, and that
right now has a defense that is working very well. “And then on top they
have people who can liquidate the game – we all know Shevchenko.”
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21.   RUSSIAN POLITICIANS SET TO CHEER ON UKRAINE
                                 AT 2006 WORLD CUP

RIA Novosti, Moscow, Russia, Friday, June 9, 2006

MOSCOW – Some of Russia’s leading politicians will be cheering on
Ukraine during the 2006 World Soccer Cup, which kicks off in Germany
on Friday.

With the Russian team failing to qualify for the tournament, the country’s
political elite suggested that difficult relations with Kiev this year would
not stop them supporting their former stable mate in the U.S.S.R.

“I would like to see Ukraine advancing as close to the final stages of the
tournament as possible,” said Boris Gryzlov, the leader of the pro-Kremlin
United Russia party and speaker of the lower chamber of parliament.

He added that he had many friends on coach Oleg Blokhin’s team, which
will face Spain, Tunisia and Saudi Arabia in the group stage.

Vladimir Zhirinovsky, the ultranationalist leader of the Liberal Democratic
Party of Russia (LDPR), also said he would be cheering for Ukraine, even
though he was denied entry to the country earlier this week.

The secretary of the political council of the Union of Right Forces (SPS)
Boris Nadezhdin said he wanted to see Brazil and Germany in the final,
but still said he would be rooting for the Ukrainians in the early stages.

“Once in four years every man finally gets to enjoy some happy days,” he
said. “I will cheer for Ukraine because they are our people after all.”

Yabloko leader Grigory Yavlinsky agreed with common opinion that
Brazil was the tournament favorite, but said he would be supporting his
birthplace.

“I will cheer for Ukraine, not only because I was born there, but also
because they do have a great team and a great coach,” Yavlinsky said.
“I hope they play well.”

He added, though, that he hoped to be in a different position in four
years’ time. “I would still like to support Russian in 2010,” he said.

Ivan Melnikov, a senior member of the Communist Party, seemed to
be the only parliamentarian to bring politics into the soccer festival, but
even he sided with his colleagues.

“I believe we should cheer for Ukrainians despite the outrageous behavior
of this country’s leaders,” he said.                     -30-
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22. PROTESTS WON’T HURT UKRAINE’S NATO ASPIRATIONS 

Natasha Lisova, Associated Press (AP)

Kiev, Ukraine, Tuesday, June 13, 2006 

KIEV – The anti-NATO protests in Crimea that forced U.S. Marine
reservists to leave without carrying out their mission hurt Ukraine’s
international image but won’t damage the country’s North Atlantic Treaty
Organization aspirations, a Foreign Ministry official said Tuesday.

The daily demonstrations by pro-Russian parties and the Communists

started after the May 27 arrival of a ship that brought U.S. reservists and
equipment to Ukraine’s Black Sea peninsula for an upcoming multinational
exercise.

The U.S. had planned to repair a training base to be used next month in the
exercises but were unable to get to their equipment, which remains in a port
behind a line of protesters. The last of the Marines – all civilians with
jobs they had to return to – left for home Monday.

“Of course, our country will not gain authority…but it will not affect
Ukraine’s Euro-Atlantic integration,” said Vasyl Filipchuk, spokesman for
the Foreign Ministry.

The demonstrators had accused NATO and the U.S. of seeking a foothold in

the ex-Soviet republic, and charged the Ukrainian government had violated the
Constitution by allowing the U.S. reservists on Ukrainian soil without
parliamentary approval.

The protests also forced the postponement of a U.K.-Ukrainian exercise

due to take place this week. The status of the multinational Sea Breeze
exercise, due to begin in mid-July, remains unclear.

President Viktor Yushchenko has asked parliament for approval, but
lawmakers’ failure so far to form a governing coalition has put all
parliamentary work on hold.

“The protests do not reflect the position of Ukrainian officials, or the
position of the country as a whole,” said Filipchuk. He also insisted the
arrival of the reservists didn’t violate Ukraine’s law.

Many in Ukraine, particularly in the Crimea, remain hostile to the U.S. and
NATO, their former Cold War foes. Crimea is home to many ethnic

Russians, and is the home base for Russia’s Black Sea Fleet. President
Viktor Yushchenko has made NATO membership a top priority.    -30-
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23. LAST GROUP OF US SERVICEMEN LEAVES CRIMEAN SEAPORT

ITAR-TASS, Moscow, Russia, Monday, June 12, 2006

FEODOSIYA, Ukraine – Last group of the U.S. military contingent that came

to Ukraine’s Crimean seaport of Feodosiya to take part in the abortive Sea
Breeze 2006 exercise left the port Monday morning and was taken by cars to
the Crimean capital Simferopol. From there, it was to be airlifted to
Germany.

A small patrol team of six servicemen has stayed back in the port to guard
about 70 containers with construction equipment and machines, brought here
earlier for the exercise.

In the meantime, the organizers of protests around the seaport have decided
to keep up their pickets for the time being until the Supreme Rada,
Ukraine’s national parliament, takes a decision on the sojourn of foreign
troops in the country, sources on the staff of protest actions told
Itar-Tass.

The first group of eight U.S. servicemen left the city Sunday. Before the
departure, they had a meeting with the Crimean parliament speaker, Anatoly
Gritsenko, and the regional Prime Minister, Viktor Plakida.

The two men thanked the Americans for their understanding of the situation
that sprang up in the Crimea as Ukraine was preparing for the naval war
games.

Plakida said the population took to the streets in actions of protest
following irrational steps on the part of Ukraine’s Foreign Ministry and
Defense Ministry, which ignored the importance of explaining the goals of
the exercise to Crimean agencies of power and public quarters.

“All the war games must be held in strict compliance with Ukraine’s laws and
only after the central agencies pass the necessary legal documents on them,”
he said.

As Itar-Tass reported earlier, the cargo of more than 70 containers,
construction equipment and machinery will remain in the port of Feodosiya
for another two weeks until a ship arrives to pick them up. The
Ukrainian-U.S. naval exercise Sea Breeze 2006 was to begin July 16 under the
initial schedule.                                         -30-

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24.  CRIMEA DIGS IN AGAINST UKRAINE’S WESTERN DRIFT
        Usually a balmy holiday destination, the mostly pro-Russia region is
      seeing protests against a U.S. troop presence and efforts to join NATO.

By Kim Murphy, Los Angeles Times Staff Writer
Los Angeles, Calfornia, Thursday, June 8, 2006

FEODOSIYA, Ukraine – Ordinarily, June is the month when the tourists flock
here from chillier points north, when families move into their storage rooms
and stand at the train station holding “for rent” signs to let their
apartments. The rocky sand beach becomes dotted with jumbo bottles of
Russian beer and plump, sunburned babushkas in swimsuits.

This spring, though, Ukraine’s balmy Crimean Peninsula has seen more protest
flags than beach umbrellas. Arguments over preservation of the Russian
language, protests by Tatars over land rights and reparations that blocked a
highway, anti-NATO demonstrations at the port, and a tense showdown between
Muslims and Christians over a statue of St. Andrew have cast a shadow over
the debut of the tourist season, which has barely begun.

This week, the Crimean legislature voted against the continuing presence of
President Viktor Yushchenko’s representative in the autonomous region,
terming it “inadmissible.” The move was a further sign, if any more were
needed, of the monumental job Ukraine’s leader faces in uniting a nation
that in many ways remains as divided as it was when the Orange Revolution
propelled him to power in early 2005.

As lawmakers in the Ukrainian capital, Kiev, announced Wednesday that they
would need another week to try to build a coalition capable of naming a
prime minister, speaker and Cabinet, more than 200 protesters marched
through this historic old town on the Black Sea, vowing to oppose
Yushchenko’s plans to steer Ukraine toward NATO and the West and away from
Russia.

“The truth is that an overwhelming majority of people residing in Crimea
sympathize more with Russia than with Ukraine,” said Sergei Tsekov, deputy
speaker of the Crimean parliament. “I can tell you that the situation here
is heated. The protests are not subsiding.”

Few doubt that the anti-NATO demonstrations touched off by the arrival last
month of 227 U.S. Marine reservists in preparation for a joint military
exercise are motivated only in part by this region’s deep-seated affinity
with Russia. More important, many analysts say, is the desire of several
pro-Russia parties in Ukraine to influence the outcome of the coalition
talks in Kiev. Yushchenko hopes to muster a majority among his Orange
Revolution allies and others to form a government.

“I think our friends in Russia are using every tool they have to take a
stand against the Euro-Atlantic priorities and strategy for Ukraine, but the
arm of Russia is not the main thing in this situation,” said Valery Chaly,
an analyst with the Alexander Razumkov Center in Kiev. “More important is
that the political elite in Ukraine itself is trying to agree on the main
direction of our foreign and internal policies.”

Much of the international attention over the last year has been focused on
the feud between Yushchenko and his former prime minister, Yulia Tymoshenko,
who was his partner in inspiring hundreds of thousands of Ukrainians in 2004
to stand in the streets and demand a Europe-oriented, democratic future for
Ukraine.

Now, Tymoshenko and Yushchenko are on the verge of reviving their alliance.
But any so-called Orange coalition would largely leave out major regions of
eastern and southern Ukraine, especially Crimea, which did not vote for
Yushchenko and remain opposed to his plan to break free of Russia’s
lingering influence.

For decades, these regions have been dominated by Russian-speakers with
close family ties to Russia. Citizens here have resisted not only moves
toward integration with the North Atlantic Treaty Organization but also
efforts to widen the use of the Ukrainian language, now required in most
government documents and court rulings.

“Yushchenko is the henchman of the Americans,” said Alla Kiryanova, a
resident of the Crimean town of Dzhankoy who was waving a protest flag
Wednesday on the streets of Feodosiya. “He said the Russian language will
have a special status here [in Crimea], but he’s doing nothing. All the TV
programs are in Ukrainian now. You can’t even read the directions on the
medicine because it’s in Ukrainian.”

Wednesday’s protests were directed at the weedy sanitarium where the Marines
are staying. The national parliament remains unable to vote on authorizing
the military exercises – or anything else – without a workable ruling
coalition.

“American soldiers, we ask you: Do you want a new Vietnam here in Feodosiya?
You will get it, and your mothers will cry!” a protester shouted in English,
as loudspeakers blasted a throaty rendition of “Holy War,” the song that
sent Russian soldiers off to battle during World War II.

Conflicts over language and military policy are only part of what’s been
stirring up Crimea.

Equally turbulent have been faceoffs with the large population of Muslim
Tatars who were deported from Crimea during the Stalin era but began
returning in large numbers in the 1990s. Since then, they have fought for
reparations and the return of lands on which ethnic Russian and Ukrainian
immigrants settled, and they have been among Yushchenko’s strongest
supporters in Crimea. Ethnic Russian residents warn darkly of “another
Kosovo.”

A Tatar convoy of 700 cars was prevented by village leaders from entering
the small resort town of Partenit on May 18, the anniversary of the Tatar
deportation, causing a traffic pileup.

The same week, hundreds of Tatars assembled near a square where Orthodox
Christians were preparing to erect a 12-foot granite statue of St. Andrew
the apostle, who is believed to have visited Feodosiya. A tense standoff
ensued, as pro-Russia Cossacks and Ukrainians vowed to protect the site.

Faced with pleas from authorities for calm, the organizers agreed to remove
a cross and move the statue to a less central location. “The cross was
dismantled to the cries of ‘Allahu akbar’ [God is great]. It was very, very
humiliating,” said Valery Zamekhovsky, the sculptor.

They had no sooner taken the cross down than the Tatar demonstrators began
attacking the cross-shaped stone foundation with hammers, he said.

Remzi Ilyasov, vice chairman of the Tatars’ ruling council, said the group
made up nearly 14% of the population in Crimea but had been shut out of the
ruling presidium of parliament and had little hope of returning to its homes
and that of its parents. Many, he said, have growing doubts about the
ability of Yushchenko’s team to fulfill the revolution’s promises and find a
path to unity for the nation.

“The country remains split, and the parliamentary election demonstrated that
once again,” he said. “The main problem with Mr. Yushchenko is the people
around him. His campaigners, his colleagues, his political partners to whom
he entrusted the state – they have failed,” he said. “The image of so much
promise Ukraine had a year and a half ago, if it goes on like this, in six
months this image will perish.”                           -30-
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http://www.latimes.com/news/nationworld/world/la-fg-crimea8jun08,1,1745720.story?coll=la-headlines-world

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25. PARTY OF REGIONS LEADER VIKTOR YANUKOVYCH BELIEVES
       CRIMEANS ROSE UP TO DEFEND UKRAINE’S CONSTITUTION

UNIAN news agency, Kiev, in Ukrainian 1306 gmt 8 Jun 06
BBC Monitoring Service, United Kingdom, Thursday, Jun 08, 2006

KIEV – Party of Regions leader Viktor Yanukovych believes that “people in
Crimea rose up to defend the constitution and the state’s interests”. He was
speaking at an airspace show, Aviasvit 21, in Hostomel, Kiev Region today,
answering a journalist’s question about the situation in Crimea.

“The people and cargo shipped in to Ukraine for military exercises have been
taken hostage by Ukrainian bureaucrats, who are spoiling our country’s
image. Ukrainian bureaucrats are to blame,” Yanukovych said.

The people in Crimea rose up to defend the constitution and the state’s
interests, they are “outraged and took to the streets to say their no to the
current authorities, which allowed a violation of the procedure for crossing
the border by foreign troops,” he said.

Previously, nobody would have even thought of signing a permission for
foreign troops to enter Ukraine without parliament’s approval, Yanukovych
said. “The authorities are now disregarding the law. This is what makes us,
politicians, take a tough stance on the actions by the current authorities,”
Yanukovych said.

On 27 May, residents of [the Crimean town of] Feodosiya blocked the port,
where a US ship called to unload special equipment for improving the
facilities at the Ukrainian air force’s Staryy Krym training base. About 20
Party of Regions MPs arrived in Crimea to attend the anti-NATO rally in
Feodosiya.

[Yanukovych described Ukraine’s entry ban on Russian State Duma deputy
speaker Vladimir Zhirinovskiy and Duma member Konstantin Zatulin as “yet
another folly of the Ukrainian authorities”, UNIAN reported at 1132 gmt on 8
June 2006.]                                     -30-

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
26.          UKRAINIANS REBUFF NATO’S EMBRACE
Alliance’s Eastward Advance Stalled by Loyalty to Russia, Resentment of West

By Alan Cullison, The Wall Street Journal
New York, NY, Thursday, June 8, 2006; Page A4

FEODOSIYA, Ukraine — Liudmila Gora was eight years old when she saw
neighbors welcome Nazi troops into this city by the Black Sea in 1941. “Then
everything turned hellish,” she said. She was determined not to let it
happen again.

Last week this city gave a more hostile welcome to a new guest — 200 United
States Marine reservists, whose arrival to revamp a disused army base was
seen here as a sign of the North Atlantic Treaty Organization’s expansion
into Ukraine.

Egged on by Moscow, long-dormant hostility toward Europe and the U.S. has so
far made the prospect of NATO’s presence here a flash point rather than the
West’s hoped-for catalyst for democratization in the former Soviet Union.

Led by a contingent of Cossacks in cavalry uniforms, a crowd of over one
hundred irate elderly Communists, Russian nationalists and Russophiles
blocked the port entrance. They ousted one group of Marines from a nearby
hotel by cutting off their food and water, driving them and a group of new
arrivals to take refuge in a sanatorium owned by Ukraine’s Ministry of
Defense.

Outside the sanatorium gates, the crowd shouts “Yankee Go Home” and blares
the Russian national anthem from loudspeakers until late at night. The
Marines have leaned on their balcony railings, watching the fracas from a
distance.

“We have had 60 years of peace, and I don’t want another war,” said Ms.
Gora, who has joined the blockade daily. “I’ve seen it all already.”

If the likes of Ms. Gora have their way, this skirmish will mark the apogee
of Western power in the former Soviet Union. Since the Soviet collapse in
1991, NATO has expanded without much tumult up to Russia’s borders, taking
in states that during Soviet times were under the heel of power-brokers in
Moscow.

But with NATO’s expansion into Ukraine, a sharply divided country of 47
million, the advance is more problematic. The demonstrators here reflect a
deep vein of suspicion about Western intentions in the region, fears fanned
by the West’s recent worsening relations with Moscow and the U.S. invasion
of Iraq. The Orange Revolution, which brought pro-Western President Viktor
Yushchenko to office in 2005, has brought these simmering tensions to a
head.

Nowhere in Ukraine has the opposition to NATO been quite as strong as here
in Crimea, a peninsula that dangles into the Black Sea and is dominated by
ethnic Russians who have long sworn loyalty to Moscow. The protests are
being closely watched in the capital, Kiev, where the main pro-Russian party
is jockeying with Mr. Yushchenko’s allies for advantage in talks on a new
coalition government.

The blockade against the Marines has been led by Crimean Cossacks, a
quasi-military order that over the centuries has defended Russia’s frontiers
and swears its allegiance to the Russian Orthodox Church and Moscow.
Sporting cavalry hats, knee-high boots and horse whips, they have patrolled
in front of the dusty, pitted gate of Feodosiya’s port.

They have been joined by pro-Russian nationalists who argue Crimea should be
part of Russia — they say it fell under the rule of Kiev by historical
accident, when Nikita Khrushchev gave the region as a “gift” to Ukraine in
1954.

The noisy round-the-clock blockade has kept the U.S. military supplies in
containers in the port. The Marine reservists, most of them from Michigan,
were supposed to use the supplies to set up tents and latrines in
preparation for annual military exercises, called Sea Breeze, on the Black
Sea.

“We’re still trying to move forward with the exercise,” said Lt. Corey
Barker, spokesman for the U.S. European Command in Stuttgart, Germany. In
the meantime, he said, the Marines “are keeping a low profile.”

The blockade is an unsettling turn for Ukraine’s latest baby-step toward
NATO membership. The Sea Breeze exercises are seen as loosely linked to
NATO’s Partnership for Peace program, and are a barometer of the Ukrainian
military’s preparedness before NATO convenes in November in Riga, Latvia to
decide whether to invite Kiev into the club.

But approval for the exercises, which have been held here since 1997, has
been held up this year by the flagging popularity of President Yushchenko,
who has made membership a top goal despite widespread public opposition.

Mr. Yushchenko’s allies blame Moscow for the anti-NATO uproar. Russian
state-run television has covered the protests on nightly news broadcasts
seen in Ukraine. This week Moscow objected strongly to Kiev’s decision to
bar a Russian lawmaker from the country for taking part in the protests.

Boris Strepanov, head of the local Cossack group here, said he got word of
the shipment of military supplies well ahead of its arrival. “They plan to
build a military base here, and we have not given them permission,” said Mr.
Strepanov. “That is why we’re here.” The Cossacks called for a blockade of
the port at a local town council meeting, and locals joined them.

Mr. Corey, from the U.S. Command in Germany, said most of the 500 tons of
cargo was heavy equipment, vehicles, tents, and a “minute portion” was small
arms that would be used in the exercises. He said the weaponry would be
removed after the exercises were over.

Outside the high fence of the sanatorium where the American soldiers have
settled, protesters scrolled out a black and white sign: “Invaders! Go to
hell with your democracy.”

Ms. Gora, 72, joined protesters at the port entrance to applaud speakers and
shout slogans. She said she felt no animosity toward the Americans “but when
one army arrives, then another one does, too — and soon we’re in the
middle.”

As she spoke a crowd gathered, and some started mumbling insults at her for
speaking with a foreign reporter. Finally an elderly man, shouting that she
was a traitor, attacked her with his fists. The other protesters wrestled
him away.                                         -30-
———————————————————————————————–
Write to Alan Cullison at alan.cullison@wsj.com
———————————————————————————————–
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