AUR#713 Jun 18 Anti-Corruption Initiative Approved; Russia’s Operation Hostile Takeover; Ukraine, Russia’s Ultimate Blackmail Victim; Ship Of State Has No Rudder

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Millennium Challenge Corporation (MCC)
Washington, D.C., Friday, June 16, 2006

By Yevhen Pivnev, Komentari; Kyiv Weekly, # 23(209)
Kyiv, Ukraine, Wednesday, Jun 14, 2006

RenCap, Kyiv, Ukraine, Kyiv, Ukraine, Tuesday, June 13, 2006

Interfax-Ukraine, Kyiv, Ukraine, Friday, June 16, 2006

Interfax-Ukraine, Kyiv, Ukraine, Friday, May 16, 2006

By Tatyana Belchenko, Kyiv Weekly, # 23 (209)
Kyiv, Ukraine, Wednesday, Jun 14, 2006

By Yuriy Vyshnevskiy, Komentari
Kyiv Weekly, Kyiv, Ukraine, Wed, June 14, 2006

By Guy Dinmore in Washington and Isabel Gorst in Moscow
Financial Times, London, UK, Saturday, June 17 2006

Adam Landes, RenCap., Kyiv, Ukraine, Tuesday, June 13, 2006

Matthew Cowley, Dow Jones Newswires, NY, NY, Thu, June 15, 2006

By Tobias Buck and Neil Buckley, Financial Times
London, United Kingdom, Saturday, June 17 2006

Deutsche Presse-Agentur, Kiev, Ukraine, Sat, June 17, 2006

Associated Press, Kiev, Ukraine, Thursday, June 15, 2006

Interfax-Ukraine, Kyiv, Ukraine, Friday, June 16, 2006

Associated Press, Kiev, Ukraine, Wed, June 14, 2006

Macroeconomic Report and Analysis
By Oleg Ustenko, Edilberto Segura and Elena Kramarskaya
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Friday, June 16, 2006

Chris Stephen, Moscow Correspondent
Irish Times, Dublin, Ireland, Sat, Jun 17, 2006

ANALYSIS & COMMENTARY: By Mohammed A.R. Galadari
Weekend Feature, Khaleej Times Online
No. 1 English Language Daily Newspaper
Dubai, United Arab Emirates, Friday, June 16, 2006

OP-ED: By Walter Parchomenko, Ph.D
Kyiv Post, Kyiv, Ukraine, Thu, Jun 15 2006

EDITORIAL: The Independent, United Kingdom, Wed, Jun 14, 2006


Kyiv Post, Kyiv, Ukraine, Thursday, Jun 15 2006

Russian worries about Western encirclement are premature
The Economist print edition, London, UK, Thu, June 15, 2006

Sunday, June 18 and Monday, June 19, 2006
Action Ukraine Report #713, Article 23, Kyiv, Ukraine, Sat, June 17, 2006

By Iain Rogers, Reuters, Berlin, Germany, Thursday, June 15, 2006

UNA Convention’s Press Committee, Kerhonkson, NY, Tue, May 30, 2006
To be administered by United States Agency for International Development

Millennium Challenge Corporation (MCC)
Washington, D.C., Friday, June 16, 2006

Washington, D.C. -The Board of Directors of the Millennium Challenge
Corporation (MCC) today approved financing for an anti-corruption initiative
in Ukraine. Ukraine is presently ineligible for broader MCC Compact
assistance because of persistent problems with public corruption, one of 16
factors used to select countries to participate in the Compact program.

Compact eligibility is reserved for countries that score above the median on
independently measured indices such as political and economic freedom,
investment in education, control of corruption, respect for civil liberties,
health care spending, fiscal and trade policies and judicial fairness.

“Ukraine is undertaking bold reform programs to tackle corruption and
attract more international investment, including possible future MCC Compact
assistance that is designed to reduce poverty through economic growth,” said
Ambassador John Danilovich, Chief Executive Officer, MCC.

Ukraine’s poor performance on the corruption index is primarily attributable
to weak conflict of interest laws, a lack of independence, efficiency, and
integrity in the judiciary, inadequate whistleblower and witness protection
programs, and endemic corruption in the police force, educational and
medical institutions, as well as customs and tax administration. The
Ukraine initiative targets many of these obstacles as the country seeks to
qualify for Compact eligibility.

The two-year $45 million initiative in Ukraine will be administered by the
United States Agency for International Development and aims to reduce
corruption in the public sector through strengthening civil society’s
monitoring and exposure of public corruption, reforming the judiciary,
increasing government monitoring and enforcement of ethical and
administrative standards, streamlining and enforcing regulations and
combating corruption in higher education.

The initiative is part of MCC’s Threshold Program which assists countries
that are on the “threshold” of eligibility for Millennium Challenge Account
Compacts. Threshold Program assistance is used to help countries address the
specific policy weaknesses indicated by the country’s scores on the 16
policy indicators.
Combating Corruption in the Public Sector

Ukraine Fact Sheet: Threshold Program Overview

Ukraine’s Threshold Program aims to reduce corruption in the public sector
through strengthening civil society’s monitoring and exposure of corruption,
judicial reform, increased government monitoring and enforcement of ethical
and administrative standards, streamlining and enforcing regulations and
combating corruption in higher education.

President Yushchenko was elected on an anti-corruption platform and has
made some reforms since his election in such areas as the police force,
customs service, and tax administration. However, much remains to be done.

International organizations and experts have repeatedly highlighted the
targeted areas as significantly contributing to corruption in Ukraine,
constraining economic investment and growth and limiting access to fair
and equal opportunity and justice for the Ukrainian people.

Initial steps for introducing reform in these four areas have already been
taken – including passage of the Concept of Judicial Reform, deregulation
at the national and oblast levels, and passage and initial implementation of
the Permit System Law. The Ukraine Threshold Program is an aggressive,
multifaceted program that will build upon lessons learned and initiate
necessary steps to invigorate ongoing efforts to attack public sector

[1] Strengthen Civil Society’s Monitoring and Exposure of Corruption:

Thousands of Ukrainian nongovernmental organizations (NGOs) actively
represent the interests of their constituencies, promote public policies,
monitor government performance, and successfully advocate for reforms.
Furthermore, the mass media enjoy fundamental press freedoms and offer
the public a range of sources of professional news and information.

Despite the substantial progress of recent years, Ukrainian civil society
and media are not meeting their full potential as effective monitors of
government and advocates for reform. This component aims to reduce
opportunities for corruption by enabling civil society to be more effective
monitors of government and advocates for reform.

[2] Judicial Reform: Critical to efforts to fight corruption is increasing
the level of transparency in the delivery of justice by introducing
permanent improvements in key legislative, procedural and institutional

The proposed activities will also contribute to fostering a more
professional cadre of administrative judges, court personnel, and notaries.
The goal of this component is to increase transparency in the judicial

[3] Government Monitoring and Enforcement of Ethical and Administrative
Currently Ukraine has no general conflict of interest
legislation for government officials except for certain provisions that
limit business opportunities for family members of officials.

Additionally, although there are requirements that candidates for public
office and civil servants declare their assets, the methodology has flaws
and omissions, and submitted declarations are rarely checked and even
more rarely are sanctions imposed for falsification.

This component will create systems to strengthen accountability among
government officials and enable the Government of Ukraine to better monitor
and enforce ethical and administrative standards.

[4] Streamlining and Enforcing Regulations: Complicated, confusing and
overlapping systems providing construction permits, delivery of municipal
services, land and property ownership and usage are sources of significant
corruption. Both private individuals and legal entities must complete an
enormous number of steps to start any construction activity.

The processes are neither transparent, nor defined in time, and there is
clear evidence of corruption at all steps. This component will change the
legislative and regulatory framework for property transactions, reform the
permit system, and streamline lines of responsibilities and procedures in
order to reduce corruption in these areas.

[5] Combating Corruption in Higher Education: Recognizing the importance
of reducing corruption within the educational system, a national testing
center, the Ukrainian Center of Evaluation of Education (UCEE), has been
established. Assistance is required, however, to fully implement the
external testing system as well as to ensure its integrity.

The goal of this component is to reduce corruption in higher education by
establishing a legal framework requiring a minimum test score for admission
to universities; developing a functioning security system for test results;
and ensuring that 100 percent of students are tested and the test centers
are fully operational.

[1] Reduce the perceived level of corruption in all areas by 10 percent.
[2] Reduce experiential corruption in all areas by 20 percent.
[3] 30 percent of NGO advocacy campaigns result in government reforms.
[4] Reduce the number of cases brought to the European Court of Justice
by 30 percent.
[5] Increase the number of notary violation findings that result in
sanctions or prosecutions by 30 percent.
[6] Increase compliance with procedures in ministries with an Internal
Investigative Unit (target to be determined upon establishment of the
Internal Investigative Unit).
[7] Reduce the number of users who indicate that they made unofficial
payments in areas of customs, transportation, construction, land ownership,
land usage, and municipal services by 20 percent.
[8]Increase to 100 percent the percentage of students tested for university

The Government of Ukraine will also use additional indicators on corruption
drawn from MCC’s “Control of Corruption” indicator to measure program
The United States Agency for International Development, the Department of
Justice, the Department of State and the United States Embassy in Kiev will
play key roles in implementation of the program.
Millennium Challenge Corporation (MCC), a U.S. government corporation
designed to work with some of the poorest countries in the world, is based
on the principle that aid is most effective when it reinforces good
governance, economic freedom, and investments in people that promote
economic growth and elimination of extreme poverty.
CONTACT: 202-521-3850; eMail:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Yevhen Pivnev, Komentari; Kyiv Weekly, # 23 (209)
Kyiv, Ukraine, Wednesday, Jun 14, 2006

Europeans have discovered a new thriving economy for investing their capital
into – it’s called Ukraine. Though this discovery came not immediately
following the Orange Revolution, this event certainly opened the floodgates
for European capital.

Despite the recent talks about deterioration of the investment climate in
Ukraine, western businesses saw more good than bad in the new climate in
the country. The threat of re-privatization affected mainly the companies
acquired by Ukraine’s major financial industrial groups.

Meanwhile, the tender for the re-privatization of KryvorizhStal showed that
the promises of ensuring transparent privatization were more than just

At the moment, western investors are looking into companies like Ukrtelecom,
Oshchadny Bank and other large and medium-sized state-owned assets,
which are slated to be put up for sale over the next couple of years.

The offensives that certain politicians launched against the operation of
free economic zones and priority development territories in Ukraine
disappointed those investors that worked in them, but was positively
perceived by those who are used to paying taxes on across-the-board

Finally, while some Russian investors can’t seem to stop talking about
pressure on the part of the Ukrainian government, it seems as though western
companies have hopes that the conditions for fair competition in Ukraine
will actually be created.

It is still too early to speak of certain trends, because the flow of
investments into Ukraine from western countries, particularly from the G-7,
is not uniform. Moreover, not all investments registered as coming from
western countries or companies are actually from there.

Often, these are Ukrainian re-investments or Russian capital investments
made through companies registered in the west. This makes it more
interesting to follow which western countries and companies show the
greatest interest in Ukraine and what industries are the most attractive.

The State Statistics Committee reports that the volume of foreign direct
investments (FDI) into Ukraine grew 12.5% or by US $2.039 bn in
January-March 2006, totaling US $18.4 bn as of April 1. The net increase
in foreign capital reached US $875.604 mn.

In particular, US $989.628 mn has been invested in the country, while US
$114.024 mn has been repatriated. Kyiv is the leader among regions in terms
of the volume of foreign capital at US $4.224 bn (as of April 1, 2006 and
rising) followed by the Dnipropetrovsk (US $1.819 bn) and Donetsk
(US $647 mn) oblasts.

According to the Forecast of Economic and Social Development of Ukraine for
2007 drawn up by the Economy Ministry, the volumes of FDI into the economy
of Ukraine will amount to US $24.175 bn in 2007, which is 16% more than the
forecast for this year (US $20.875 bn).

The ministry points out that based on the results of 2005, the increase of
FDI exceeded the level of 2004 by 3.3 times (mainly thanks to the privatization
of Kryvorizhstal). In 2006, the ministry predicts a 27.5% increase in the level
of investments. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

RenCap, Kyiv, Ukraine, Tuesday, June 13, 2006

KYIV – Fozzy Group, Ukraine’s largest food retailer, plans to open 25 new
supermarkets by 2007, expanding its Silpo supermarkets network to 125.
The company operates 35 Silpo supermarkets in Kyiv, with three more
scheduled to open this year.

However, the majority of new stores will be opened in the regions across
Ukraine, where the company is pursuing more aggressive growth. Fozzy
Group plans to invest about USD50 million in new store openings in 2006,
using both operating cashflows and bank debt.

The company’s average store size is 1,200 sq.m., while the total size of its
stores exceeds 90,000 sq.m. Its FY05 turnover was USD700 million, while
the FY06 turnover target is USD1,200 million.

The company operates four formats: supermarket Silpo (100 stores),
discounter Fora (50), wholesale hypermarkets Fozzy (3), gastronom
Dnepryanka (13). It also owns a chain of pharmacies Bud Zdorov (16)
and household appliances stores Otto Shtekker (3). -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax-Ukraine, Kyiv, Ukraine, Friday, June 16, 2006

KYIV, Ukraine- Baltic Beverages Holding (BBH) has begun production of
Carlsberg beer in Ukraine. “Today we started Carlsberg beer production,”
vice-president for marketing of BBH-Ukraine company group Anton Schetkin
reported to Interfax-Ukraine.

According to him, Carlsberg beer will be produced at Kyiv-based Slavutych
brewery, which belongs to BBH.

As Schetkin reported, earlier Carlsberg beer was imported to Ukraine from
Russia. Now it is expected the imports will stop. In 2005, about 65,000
hectoliters of Carlsberg beer were sold in Ukraine.

In Ukraine, BBH owns OJSC Slavutych Brewery (Zaporizhia-based Slavutych
Brewery and its Kyiv-based Slavutych brewery subsidiary) and Lviv-based
OJSC Lviv Brewery. -30-
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Interfax-Ukraine, Kyiv, Ukraine, Friday, May 16, 2006

KYIV – Ukrainian steel companies will now be able to export reinforcing bars
to Canada without restrictions as this country has lifted the antidumping
duty on rebar from Ukraine effective May 31, the Economics Ministry said in
a press release.

Canada imposed the 15.7% duty for a period of five years in June 2001,
following an antidumping investigation against imports of rebar (codes 7213,

Mittal Steel Kryvy Rih, Ukraine’s biggest steelmaker, asked for a review of
the duty after the five-year term in line with Canadian legislation. Following
an investigation, the Canadian authorities ruled that the countervailing measures
were not needed, and starting in June 2006 Ukrainian producers of steel rebar
can freely export their products to Canada, the ministry said. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Tatyana Belchenko, Kyiv Weekly, # 23(209)
Kyiv, Ukraine, Wednesday, Jun 14, 2006

Despite the trade wars and general tension in relations between Ukraine and
Russia, the goods turnover between these two countries continues to rise.
Last year it increased 12% and reached US $23 bn.

Yevgeni Guzeyev, Consul General of Russia to Ukraine, believes that this
year this figure could increase to US $50 bn. At the same time, Russia
stresses the need for strengthening regional cooperation.

Guzeyev said: “Russia currently has a lot of money that the Russian Duma
doesn’t know where to invest. It is ready to invest into other countries.
But we need to be given direction as to which sectors this capital should be
invested in other countries.”

Noteworthy here is the fact that investments of Russian capital in the
western regions of Ukraine, which border with EU countries, has intensified.
Official statistics indicate that last year goods turnover between the Volyn
oblast of Ukraine and Russia increased by 40%. More than 50% of the goods
made in Volyn are exported to Russian markets.

Russia is also trying to strengthen cooperation with the Ivano-Frankivsk
oblast. Russian diplomats stated that their country is interested in buy
buses manufactured at the Lviv Bus Plant (LAZ), but their output was

Russia is seriously looking into the tourism and recreation industry in
Ukraine as one area of strategic investment. For example, several Russian
entrepreneurs have already purchased some small health and recreation
centers in Zakarpattya. -30-
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Yuriy Vyshnevskiy, Komentari
Kyiv Weekly, Kyiv, Ukraine, Wed, June 14, 2006

A situation could arise where Western investors may have to negotiate with
the Russian government and businessmen when they decide to take their
business to Ukraine.

One can only guess as to the true scale of the foreign economic expansion
of Russia into the countries of the former Soviet Union.

According to official Russian data, the volume of its investments abroad
reaches US $7.9 bn, of which US $1.1 bn are made in CIS countries.

But, in reality, the true presence of Russian capital in the CIS is ten
times stronger. The following facts are testimony to this.

[1] First of all, Russia controls a number of facilities, from military
bases to health and recreation centers, which it received as inheritance
from the former Soviet Union. In the best case scenario for the former
republics, Russia pays the rent. In the worst case scenario, it considers
those facilities its property and therefore gets off scot-free.

[2] Secondly, many enterprises and even whole entire of the economy in the
CIS depend on Russian, since the latter is a monopolist in the supply of
equipment, spare parts and raw materials. The state of affairs is
exacerbated by the energy dependency factor.

[3] Thirdly, even when the issue is about acquisitions, it is no secret that
Russia often pays for such facilities a price much lower than market price.
In order to get the needed result, the Kremlin has used political pressure
and different forms of economic blackmail.

[4] Fourthly, there is a notable difference in statistical data. Russian
statistics indicate that the country’s investments into Ukraine amount to US
$476 mn with direct investments of US $382 mn, while Ukrainian statistics
show that Russia’s direct investments into Ukraine are two and a half times
higher at US $873.8. These are statistics at the end of March 2006.

[5] Finally, we must take into account that more that one third of Russia’s
foreign investments that are officially registered in Russia goes to Cyprus,
Bahamas, Virginia Islands, Gibraltar and other offshore zones. Noteworthy is
the fact that a significant part of investments into the CIS comes precisely
from these offshore zones.

Russian capital long ago managed to gain a large share of major assets in
the fuel and energy complexes of former Soviet republics. Russia has more or
less succeeded in gaining control of the energy sectors in Belarus and
Moldova, but Ukraine continues to put up a fight and is not succumbing to
pressure from its northern neighbor.

Although Russia has so far not succeeded in acquiring the oil and natural
gas pipelines that pass through Ukraine’s territory, the majority of the oil
refineries in Ukraine (three out of the four largest) are owned by Russian
financial industrial groups (FIGs).

The constant blackmail through raising prices to gain direct access to
Ukraine’s energy supply market on the part of the Russian-controlled
RosUkrEnergo can be viewed as a continuation of the active expansion of
Russian capital onto the Ukrainian market of oil and natural gas transit.

Recently, large Russian telecommunications companies have been highly active
in taking over local operators in Ukraine and consolidating minor shares of
the latter’s daughter companies.

In particular, OSC Mobile TeleSystems, one of the largest mobile operators
in Russia, owns 100% of the shares in one of the two largest Ukrainian
operators UMC. The second largest telecom operator in Ukraine, KyivStar, is
owned by Russian Alfa Group together with the Norwegian company Telenor.
Meanwhile, Golden Telecom is actively working on developing its mobile

But the most vivid event was the acquisition of Ukrainian Radio Systems by
Russia’s VimpelKom, whose management is conducting a very aggressive
campaign on promoting their services and is expecting to have approximately
4 mn customers by the year 2010.

The Ukrainian mobile operator Astelit (trade mark Life:)), more than 54% of
which indirectly belongs to the Turkish operator Turkcell, at the end of
April had more than 3.25 mn customers and its market share in Ukraine is
currently 9.7%. This operator is comfortably sitting in third place on the
country’s mobile communications market. Accordingly, the Russian company
Altimo (which consolidates the telecom assets of the Alfa Group) own 13.2%
of Turkcell Iletisim.

If we add to this scenario the court cases that have been dragged out for
about a year between the main owners of KyivStar, Alfa Group and Telenor and
the desire of Norwegians to sell their part to the Russians, we can presume
the in the foreseeable future all the main players on Ukraine’s mobile
communications market will be Russian.

Analyzing Russia’s transport policy in recent years, several centers of
resistance are notable. Besides Ukraine, among them are the Baltic countries
and Kazakhstan. Russia’s main goal for the next several years is to
monopolize the post-Soviet railway manufacturing industry, which will allow
it to seriously influence CIS countries.

One of the latest examples of Russia’s insatiable hunger for power was the
attempt of Russian Railways to assign all cargo railcars in Russia to
operate at specific stations around the country. This latest move does not
relate to railcars in the fleets of CIS railways and Baltic countries,
rather to private railcars or those rented from other railways.

On the one hand, the Russians are very cautious when investing in
transportation and companies in other countries. Having the most beneficial
geographic location, they first try to limit the flow of cargo through
Baltic countries and Ukraine.

On the other hand, the efforts of Russian companies in general are focused
on buying up assets in spheres related to transport, such as railcar
manufacturing, shipbuilding, etc. But in order to completely take the CIS
market under its control, Russia has to hold strong positions in Ukraine and

The main enterprise it is interested in is LuhanskTeplovoz. The fact is that
when the Russian company Transmasholding gains control over this enterprise
it will own almost 100% of the locomotive manufacturing market in countries
of the former Soviet Union. At this point, the Luhansk enterprise is not up
for sale.

The deal is constrained by the joint production of the Luhansk plant with
the Novocherkasy electric locomotive manufacturing factory, which
incidentally is a part of Transmashholding. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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By Guy Dinmore in Washington and Isabel Gorst in Moscow
Financial Times, London, UK, Saturday, June 17 2006

Kazakhstan moved to reduce its dependency on Russia yesterday, signing a
US-backed agreement to supply oil for a key Caspian-Mediterranean pipeline
that will provide an alternative energy source for Europe.

The agreement signed by Nursultan Nazarbayev, president of Kazakhstan, and
Ilham Aliyev, president of Azerbaijan, resolves one of the outstanding
issues to be settled before a long sought-after visit to the White House by
Mr Nazarbayev, analysts said. A spokesman for the Kazakh embassy in
Washington said the two sides were working on a date for the visit, expected
in the coming months.

US Vice-President Dick Cheney went to Astana last month to reaffirm support
for Mr Nazarbayev, whom he described as a “strategic partner”, despite
concerns over Kazakhstan’s human rights record, including the high-profile
assassination of an opposition politician and the conduct of presidential
elections last December.

Mr Aliyev was welcomed to the White House in April for a visit that had also
been put off over concerns about elections in Azerbaijan and treatment of
the opposition.

The US is the biggest foreign investor in Kazakhstan, rich in oil and gas
but historically dependent on Russia, its former overlord, for export routes.
China has also become a recent customer as it seeks to diversify its sources
of energy.

Analysts said the US would have been particularly satisfied to note that the
signing yesterday took part even while Russia’s President Vladimir Putin was
in Kazakhstan to attend a 17-nation regional conference.

On the eve of his visit to Kazakhstan, Mr Cheney attacked Mr Putin’s use of
energy as a tool of blackmail and intimidation, as demonstrated in the brief
halt to gas exports to Ukraine over a pricing dispute in January.

The agreement allows for up to 500,000 barrels a day of Kazakh oil to be
shipped from Aktau on the north Caspian to Baku by tanker. Construction of
a trans-Caspian pipeline to Baku will not be economic until Kazakhstan has a
large surplus of exports to commit to the route. Even then, other Caspian
states, especially Russia and Iran, are likely to oppose offshore pipeline

Julia Nanay, senior director at PFC Energy, said: “This is a breakthrough
for US policy in the Caspian creating an export route that bypasses Russia
and Iran to bring central Asian resources west.” -30-
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]

Adam Landes, RenCap., Kyiv, Ukraine, Tuesday, June 13, 2006

Media reports in Ukraine this past weekend indicated that Naftogaz
Ukrayiny might be unable to repay debts owed to RosUkrEnergo
without putting its financial stability at risk. The reports indicated this
threatened the reliability of the country’s gas transportation system.

These reports follow promises from Naftogaz Ukrayiny that the matter
would be resolved by 20 June, although considerable scepticism about
this was expressed in the media, and understandably so.

The reports curiously coincide with news that RosUkrEnergo has
borrowed USD672 million from Gazprombank, according to data
contained in Gazprom’s 2005 annual report.

With Naftogaz Ukrayiny reportedly needing to borrow further in order to
meet the debt that it owes, and the gas price that Ukraine is paying due to
rise soon enough, this situation clearly looks destined for more trouble.

We believe that Russia/Gazprom wants some degree of control over
Ukraine’s gas transportation system, something that it failed to achieve
during the last flareup. With Ukraine loath to relinquish these assets,
though, a repeat of last winter’s “gas problems” strike us as a certainty.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Matthew Cowley, Dow Jones Newswires, NY, NY, Thu, June 15, 2006

NEW YORK – JPMorgan on Thursday started coverage of Ukrainian state-
owned natural gas company Naftogaz bonds due 2009 with a marketweight
recommendation, saying many of the company’s risks have already been
accounted for in the price.

“Naftogaz’s state ownership, its strategic importance to Ukraine as the
leading energy provider, together with recent measures that indicate
government support for domestic tariff increases, underpin our
recommendation,” it said in a research note.

The company’s bonds have “significantly underperformed” during the recent
selloff and are offered at 97.5, and were trading at a spread of 358 basis
points over the London Inter Bank Overnight Rate, or Libor, as of June 13.

That’s equivalent to a widening of 130 basis points since Jan. 4, and 105
basis points above their average trading levels in 2005, the bank said.

Nevertheless, the bank said it holds back from an overweight recommendation
because of concerns about continuing market volatility, as well as the
likelihood of new issuance.

Furthermore, Naftogaz is preparing for price negotiations with Russia’s
Gazprom (GSPBEX.RS), which may also trigger market volatility, and there
are concerns about the firm’s ability to pass through price hikes to

Naftogaz’s financial accounts are likely to remain weak, and financing needs
are expected to remain high, JPMorgan said. Former Energy Vice Minister
Andriy Kluyev on Feb. 7 went as far as to suggest that “Naftogaz may go
bankrupt before the end of the year,” it said.

“We may nonetheless look to add risk as the market stabilizes, or as more
clarity emerges on Gazprom’s future pricing policy,” the bank stated.
Matthew Cowley, Dow Jones Newswires,
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Tobias Buck and Neil Buckley, Financial Times
London, United Kingdom, Saturday, June 17 2006

A law that will reinforce Gazprom’s monopoly on Russian gas exports gained
preliminary approval in Russia’s lower house of parliament yesterday, in a
snub to European demands for Russia to open up its pipeline network, write
Neil Buckley in Moscow and Tobias Buck in Brussels.

The bill says that Gazexport, the export arm of the state-controlled natural
gas giant, should have “exclusive right to export of gas”. It was approved
on first reading by 386-6, out of the 450-seat state Duma. The bill must
pass through two more readings and gain presidential approval before
becoming law.

The European Union has been pushing for Russia to open its gas pipeline
monopoly to competing suppliers since Gazprom in January briefly cut off
gas to neighbouring Ukraine in a pricing dispute.

The EU has been trying to persuade Russia to ratify the Energy Charter
Treaty, an international agreement designed to enforce market rules in the
energy trade, which would require Russia to liberalise its market. But
Russia, which has signed the treaty, is insisting that changes should be
made before it will ratify it.

The European Commission yesterday said: “We respect the Russian parliament’s
right to take decisions and make laws but we hope the new law will be
discussed in the framework of the EU-Russia energy dialogue.”

A spokesman for Andris Piebalgs, the EU energy commissioner, declined to
comment on the substance of the Gazprom proposal, but pointed out that the
Commission had already made its views plain in a letter to the Russian
government earlier this year.

Brussels had said at the time that Gaz-prom’s monopoly would have to be
taken into account in any regulatory review of a future bid by the group for
energy assets in the EU.

Members of the pro-Kremlin United Russia party in the Duma are pushing for
the law to be approved before next month’s summit of the Group of Eight
industrialised nations in St Petersburg, where other countries are expected
to renew the pressure on Russia. -30-
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Deutsche Presse-Agentur, Kiev, Ukraine, Sat, June 17, 2006

KIEV – Bad news for stable European energy prices: the Ukrainians and
Russians appear dead set on renewing their natural gas dispute, in the very
near future.

Only six months ago Moscow and Kiev cut a ‘historic deal’ to end Russia’s
brief cut-off of natural gas to Ukraine – a move which is still causing
jitters among European governments and energy consumers.

Under the accord, Russia’s state-owned Gazprom hiked the price of natural
gas sold to Ukraine from one-quarter to approximately one-half of
international market prices, in return for which Ukraine agreed to ship
Gazprom’s gas to Europe via Ukrainian pipelines at cut-rate transport

A key feature of the contract was a Ukrainian vow to stop its 15- year long
practice of pilfering large amounts of Russian gas transiting through the

Another change was a shift from barter to money accounting: for the first
time a dollar price, rather than a volume of gas compensation, was formally
set as the cost of shipping natural gas through a Ukrainian pipeline to

As Ukrainian President Viktor told Deutsche Presse-Agentur dpa at the time:
‘This is absolutely the best agreement we could have hoped for, and very
favourable for Ukraine. Tell me please, where else in Europe can one buy gas
(at half international market rates)?’

By the standards of developed European countries with lots of experience in
international agreements, not much time has passed since January, and
Yushchenko’s brave words. In the former Soviet Union, however, time moves
at a different rate – especially when it comes to contractual terms.

The former Soviet republics are currently once again firing energy-related
broadsides at one another, just as Europe was hoping to settle down to
stable gas prices following the apparent resolution between the Ukrainians
and the Russians.

The terms of the five-year deal, energy experts on both sides are now
pointing out, are subject to review every six months, with changes allowable
if both sides agree to it.

The Ukrainian position on that is clear and simple. ‘We have a contract, and
we are completely satisfied with its terms,’ said Ukraine Prime Minister
Yury Ekhanurov in an April speech. ‘And the gas agreement cannot be
changed unilaterally.’

However, in the former Soviet Union, especially in big business, there is no
such thing as an ironclad contract. A case in point was the January crisis,
throughout which Ukraine argued, unsuccessfully, the Russians had no right
to renegotiate the deal.

Although Gazprom’s management says it will not seek to review the terms of
the agreement unless the Ukrainians ask for it first, Russian President
Vladimir Putin has repeatedly declared that Ukraine, like other Gazprom
customers, should pay the international market price for gas, currently
around 230 dollars per thousand cubic metres.

‘Independent’ Russian political experts with close ties to the Kremlin, such
as Gleb Pavlovskiy of the Moscow-based Effective Politics Foundation, have
in recent weeks appeared on Russian news programmes (which are viewable in

They were pushing the same ominous message: The Ukrainians aren’t paying
enough for their Russian gas, they are breaking the present contract’s terms
by both pilfering gas destined for Europe, and they also pilfer by failing
to pay for the gas.

Ukrainians analysts, of course, beg to differ and argue the gas Russia is
selling Ukraine is not purely Russian, but blended with gas from Central
Asian nations, for which Ukraine also has existing contracts with fixed

Their position is: The Russians are paid up in full for gas used by Ukraine,
pilfering is a thing of the past, and the real problem is Moscow is not
crediting Ukraine in full for gas Kiev ships to Europe.

And then there are Ukraine’s stormy domestic politics to consider. New
constitutional changes in the country drastically reduce the ability of the
Ukrainian President to make international contracts, transferring the
authority to parliament and a parliament-elected Prime Minister.

Ukraine held parliamentary elections in March, and thorny coalition talks
have prevented the naming of a new cabinet. But already, there is a strong
front-runner for the Prime Minister job: Julia Timoshenko, Ukraine’s top
female politician, who made her fortune during the 1990s in importing
Russian natural gas into Ukraine.

Timoshenko, a populist politician who trounced Yushchenko’s own party during
the recent elections by promising to end graft and corruption, has made the
‘review’ of the gas agreement with Russia the top item of on her list of
things to do, if she becomes Premier.

‘It is an illegal agreement violating every business principle and
absolutely not in the interests of the Ukrainian people,’ Timoshenko told
Deutsche Presse-Agentur dpa in a March interview. ‘It is in the interests of
corrupt politicians and I absolutely will do everything I can to oppose it.’
‘I think we will see some changes,’ she added. -30-
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Associated Press, Kiev, Ukraine, Thursday, June 15, 2006

KIEV – Ukraine’s prime minister complained Thursday that his
energy-inefficient nation had failed to make progress in reducing natural
gas use despite sharply higher prices.

Ukraine is one of the world’s biggest gas consumers, with many of its
Soviet-era industries using old, energy-intensive technology, and residents
long accustomed to heavily subsidized prices.

“The question of the economic and effective use of energy resources – in the
first place, gas – remains entirely open,” Yuriy Yekhanurov said at the
start of a Cabinet session. “No one realizes that this is a serious need
that requires action.”

Ukraine in January faced off with one of its main gas suppliers, Russia, in
a bitter spat over prices, a dispute that resulted in gas supplies
temporarily being shut off and ultimately led to a deal to increase prices
nearly twofold.

As a result, the government vowed to reduce its energy dependence on Moscow
and increase energy efficiency. However, Yekhanurov noted that gas use was
12.4% higher in April than the previous year.

Gas usage was also sharply higher in the first four months of this year, but
Yekhanurov said that was due to exceptionally cold temperatures. The
government raised prices for all consumers by 25%, and plans call for
another 80% increase as of July 1.

National gas company Naftogaz (NGAZ.YY) is also trying to promote greater
energy efficiency by having residents pay by how much they use instead of
simply under a set price, a company spokeswoman said. However, few
consumers were taking Naftogaz up on the offer.

Meanwhile, Naftogaz’s daughter company, Gas Ukraine, announced that it was
switching off the gas supply to 67 enterprises that provide hot water in
some parts of the Crimean port of Sevastopol, the eastern city of
Dnipropetrovsk and in other regions.

Company spokesman Oleksiy Tkach said the enterprises owed more than
426 million hryvna ($84.7 million). -30-
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Interfax-Ukraine, Kyiv, Ukraine, Friday, June 16, 2006

KYIV – RosUkrEnergo is not holding talks on restructuring part of Naftogaz
Ukrainy’s debt, a source at RosUkrEnergo told Interfax.”RosUkrEnergo is not
holding talks right now on restructuring part of the debt of the Naftogaz
Ukrainy,” the source said.

Ukrainian Fuel & Energy Minister Ivan Plachkov said last Wednesday that
Naftogaz was holding talks with RosUkrEnergo on restructuring $100 million
of Naftogaz’s debt.

The source at RosUkrEnergo also said that Naftogaz paid off $200 million of
its total debt to RosUkrEnergo of up to $600 million.
Plachkov said earlier that the $200 million was raised from ABN Amro Bank,
which is expected to syndicate a $300 million loan for Naftogaz to pay off
the debt. -30-
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Associated Press, Kiev, Ukraine, Wed, June 14, 2006

KIEV (AP)–Ukraine’s state-controlled gas company is seeking $500 million in
loans to pay for gas supplied under a new, higher-priced deal with Russia, a
news agency reported Wednesday.

Fuel and Energy Minister Ivan Platchkov said that Naftogaz (NGAZ.YY) was
trying to receive a $300-million credit from an unidentified bank,
Ukraine-Interfax reported. He also said Naftogaz had received a separate
$200-million loan from the Dutch bank ABN Amro Holding NV (ABN), the
agency said. No one could immediately be reached at Naftogaz for comment.

In January, Russia and Ukraine faced off in a bitter spat over natural gas
prices – a dispute that resulted in gas supplies temporarily being shut off
to Ukraine. The countries reached a deal under which Ukraine would receive
all of its imported natural gas at a nearly twofold price increase from a
little-known intermediary company that is owned jointly by OAO Gazprom
(GSPBEX.RS) and two Ukrainian businessmen.

Interfax reported that Ukraine’s total debt before the intermediary – called
RosUkrEnergo – was about US$600 million for gas delivered in the first four
months of this year.

Naftogaz, however, had earlier insisted that the debt was little more than
an accounting difference, noting that Gazprom also owes it money for the
transit of gas to European customers.

Ukraine, one of the world’s biggest consumers of gas, plans to raise gas
prices for residential consumers some 80% as of July 1 in an effort to meet
the higher prices.

The deal with Russia also comes up for review next month, which could lead
to even higher costs for the ex-Soviet nation. -30-
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Macroeconomic Report and Analysis
By Oleg Ustenko, Edilberto Segura and Elena Kramarskaya
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Friday, June 16, 2006

[1] In March, growth of Bulgaria’s industrial sector decelerated to 4.1%
year-over-year (yoy) after impressive growth of 15.1% yoy in the
previous month.

[2] An increase in public wages and other social expenditures caused
some decrease in the size of the consolidated fiscal surplus compared
with initial forecasts, which in annualized terms went down to 0.9% of
projected annual GDP in March from the 3% level in the previous month.

[3] Annual consumer inflation showed a positive tendency of slight
deceleration from 8.7% yoy in March to 8.1% yoy in April.

[4] The trade deficit is still the main driving force of the widening
current account (CA) deficit, which reached EUR 1.05 billion in March
or 4.4% of estimated full-year GDP. However, the existing gap is fully
covered by surpluses in other components of the balance of payments and,
in particular, by significant growth in foreign direct investments (FDI),
which almost doubled in January-March compared with the same period
of the previous year.

[5] The newly released EU-report on Bulgaria says that although the country
has achieved good results in judicial reform and fighting corruption, both
issues should still be on the government’s agenda.

NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Bulgaria
Macroeconomic Situation report for May 2006 in a PDF format, including
several color charts and graphics click on the following link:
CONTACT: Oleg Ustenko, Economist, The Bleyzer Foundation,
Kyiv, Ukraine. .,
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Chris Stephen, Moscow Correspondent
Irish Times, Dublin, Ireland, Sat, Jun 17, 2006

UKRAINE: Ukraine’s “orange” political parties yesterday edged towards
forming a coalition government, ending more than two months of deadlock.

A dispute between President Victor Yushchenko and his former prime minister,
Julia Tymoshenko, has left Ukraine’s parliament unable to agree on a new
government since elections on March 26th.

However, the two politicians who led the 2004 pro-democracy Orange
Revolution appear to have patched up their differences, principally over Ms
Tymoshenko’s insistence that she be the new prime minister.

Tetyana Mokridi, a spokeswoman for Mr Yushchenko’s Our Ukraine party,
said yesterday that talks were being finalised with Ms Tymoshenko’s party,
the Party of Julia Tymoshenko, and the smaller Socialist Party.

Ms Tymoshenko said in a televised interview that if Our Ukraine agreed to
the coalition, she would support Mr Yushchenko’s bid for re-election in
2009. Otherwise she would run against him.

In return, she is expected to be named the new prime minister early next
week, although there has been no official announcement.

Barring a last-minute change of heart – something not to be ruled out in a
country with a feisty political climate – Ukraine is expected to emerge with
a pro-Nato, pro-EU administration.

This coalition will leave the largest single party, the ethnic-Russian Party
of Regions, out in the cold. The Party of Regions is led by Victor
Yanukovich, a former prime minister blamed by “orange” voters for rigging
the election of December 2004 that triggered three weeks of street protests.

In this year’s parliamentary elections, the split in the “orange” ranks
allowed Mr Yanukovich’s party to grab pole position. However, he has been
unable to capitalise on this by bringing either of the “orange” parties into
a coalition of his own.

The announcement of an impending coalition comes after several turbulent
weeks of protests in Crimea over the presence of US military personnel
invited for a Nato exercise. -30-
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ANALYSIS & COMMENTARY: By Mohammed A.R. Galadari
Weekend Feature, Khaleej Times Online
No. 1 English Language Daily Newspaper
Dubai, United Arab Emirates, Friday, June 16, 2006

The success of the Orange Revolution in Ukraine two years ago was a
historic shift in the power equations in the central Asian region – a region
dominated for long by the Communists. But, that success appears to be
short-lived. The nation is in disarray now, thanks to the lack of unity
among the principal actors in the revolution drama.

Almost three months have passed since the parliamentary elections were held
there, and yet there is no government. President Viktor Yushchenko, who led
the Orange Revolution, has not been able to cobble an administration, post
the March polls, for the reason that the elections have thrown up a mixed

His coalition failed to gain a majority, necessitating a wider alliance, or
allowing the rival side – the pro-Moscow opposition – to team up and form
the new dispensation. In the latter eventuality, Ukraine’s politics would be
back to square one. In other words, Moscow would again call the shots
directly, which is tantamount to the unmaking of the Orange Revolution –
which is what Moscow is looking for.

Clearly, Yushchenko has not been able to rise to the expectations of the
people, as is reflected from the lukewarm response his alliance has received
in the March elections. The euphoria that followed the Orange Revolution had
given him the right atmosphere to shake the system and ably lead the country
to better times. Instead, what the nation witnessed was a wrangling between
himself and the co-leader of the revolution, (then) Yulia Tymoshenko. Then
the estrangement and her exit from the post of prime minister.

If the March elections saw her emerging on her own as a leader with a
powerful mass base, it was a lesson to President Yushchenko. If anything,
his failure to handle the situation with tact, in the months after his
assumption of power, has led to the current impasse. Chances are that
Yushchenko might now cobble a new alliance with Viktor Yanukovych, his
rival in the 2004 presidential polls, if only to outwit his present bete
noire, Tymoshenko.

People’s expectations were high in the two years past the Orange Revolution.
But, has the president been able to do a job? Feelings are that his hands
are tied by his own bureaucracy, that maintains its old, yet surreptitious
links with Moscow through covert operations. Add to this the problem of
corruption, that goes uncontrolled. If Yushchenko fails, who wins? Who,
other than the regional overlord, Moscow? If so, what was the 2004
revolution all about?

The massive public support for the revolution, as was witnessed on the
streets of capital Kiev two years ago, leading to the installation of what
many saw as a West-leaning government there, showed how the people
wanted a change.

The people thought the revolution leaders will live up to their image and
effect a turnaround their lives, and change the destiny of the nation for the
better. That the nation is left without a government for thee months now
is clearly the anti-climax to their expectations.

All what has happened there, for the common eye, is a constitutional change
that, if anything, trimmed presidential powers and made the parliament more
powerful – so much so, the president no longer has the authority to name the
prime minister and much of the cabinet. The president’s authority is now
restricted to set the nation’s foreign policy and appoint foreign and
defence ministers. In other words, in domestic matters, he will no more have
any say.

The lack of a parliament and government is leading to other problems as
well, as is evident from the way the US Marine reservists had to leave the
country the other day without carrying out their scheduled multi-national
military exercise. A parliamentary approval was what was required for the
exercise, but in the confused political scenario, how could the parliament

Pro-Moscow parties could not hide their glee at the way the exercise stands
suspended, as they remained critical of the West having a foothold in the
central Asian territory.

Without doubt, the public sentiment continues to remain more in favour of
Ukraine’s alliance with the West. The March polls showed the pro-West
parties combined polling more votes than the pro-Moscow groups. The writing
on the wall is clear. Yushchenko would do well to keep up the spirit of the
Orange Revolution.

It means that he should be working in a way as to form the next government
on the lines of the revolution spirit. It also means he must make every
effort to have a patch up with his estranged revolution partners. Yulia
Tymoshenko must share the same sentiments as well.

Time is running out for Yushchenko and the revolution allies. He has time
until June 27 to form a government; or dismiss parliament and call for fresh
elections. People expect not only a government but also a government that
performs. In the least, Yushchenko and his team should not let down the
people. They have a historic task to perform and this is the time for right
action. -30-
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OP-ED: By Walter Parchomenko, Ph.D
Kyiv Post, Kyiv, Ukraine, Thu, Jun 15 2006

More than two months after Ukraine’s parliamentary elections, it is no
surprise that the government is in a state of deep paralysis, which will not
necessarily end with the appointment of a new prime minister.

The brief “timeout” called for by President Viktor Yushchenko in the wake of
last March’s parliamentary elections, purportedly to develop a much needed
coalition program that would spell out goals and responsibilities for Orange
coalition members for the next five years, has now dragged on interminably,
sorely testing even the patience of a saint, but more importantly, of a
nation that lives mostly on the brink of poverty.

The real reason for the president’s timeout seems to be the widely
acknowledged fact that the impressive victory of Yulia Tymoshenko’s BYuT
bloc in last March’s parliamentary elections caught the president and his
close advisors totally by surprise.

With no game plan for the day after at hand, they resorted to a timeout, a
policy option that is quickly becoming a hallmark of this presidential

Critics of the timeout charge that the urgently needed Orange Coalition
program already exists but simply isn’t being implemented, and that the
president and his close advisors are devoting all of their energies during
this period primarily to devise ways to keep Tymoshenko from becoming prime
minister, or at least to develop mechanisms within a new coalition agreement
that will restrict her considerable powers. Apparently, the president fears
that he will be left with no significant powers if Tymoshenko becomes prime

It is not at all surprising that President Yushchenko would like more
powers, not fewer. However, it is ironic that he chooses not to use his
existing powers to intervene authoritatively to end the protracted stalemate
over the formation of an Orange coalition, as repeatedly requested by former
Maidan allies.

Instead, he chooses to play a tepid and largely ceremonial role in these
excruciatingly protracted negotiations. Meanwhile, the country’s hopper of
problems is overflowing, making the job of any new prime minister more
difficult with each passing day. Economic and political protests are
increasing on the streets of Ukraine, while the central government remains
essentially paralyzed.

Yulia Tymoshenko, on the other hand, ambitiously seeks power, but only as a
means to promote the end of building a rule-of-law state that protects the
rights of ordinary citizens and foreign investors alike. To think otherwise
is a grave misconception. She is not driven by an insatiable appetite for
power, as some critics charge.

Not surprisingly, much of the media coverage of Tymoshenko is extremely
biased and either very pro- or anti-Tymoshenko. However, beyond the popular
images of her as a warrior princess, a Slavic Joan of Arc, the last Samurai,
a gas princess, the locomotive of the Orange Revolution, and a fiery femme
fatale, there is a more complex reality which is only dimly perceived here
and abroad.

The crucial question for Ukraine today is: How can we better understand
Yulia Tymoshenko’s potential to help lead the country out of troubled
economic and political waters?

The relevant, theoretical literature of Western political science provides
some useful criteria for tackling this question. It suggests that a more
informed basis for speculation may be attained by assessing a leader’s
capability for learning, rejuvenation and change.

What do we see when we place Tymoshenko’s relevant record under the
magnifying glass of critical analysis?

It is often said that it is important to learn from one’s mistakes, but
better still to learn from those made by others. Tymoshenko is quick to
acknowledge mistakes she has made and to accept blame, and quicker still to
ensure that they will not be repeated again.

As prime minister under Yushchenko during 2005, her economic program,
especially its re-privatization and social spending policies, caused
considerable anxiety among potential Western investors. Tymoshenko claims
she was greatly misunderstood.

During the past six months, she has made numerous appearances before foreign
audiences, including the British-Ukrainian and American-Ukrainian chambers
of commerce, to set the record straight and to stress that she seeks to
create a business-friendly environment in which any re-privatizations that
may occur will be very limited and strictly a matter for Ukraine’s criminal

In general, Tymoshenko emphasizes that she will strive to create a
predictable, rule of law environment for foreign investors and Ukrainian
citizens alike.

Furthermore, Tymoshenko has made it clear that as premier in a new
government she will demand that all the ministers in her Cabinet actively
support the Orange coalition’s reform program, so as not to repeat her
difficult experience as premier during 2005.

She has also vowed never to repeat the strategic mistake made by Yushchenko
when he compromised Maidan principles by joining forces last November with
his rival and opponent in the last presidential elections, Viktor
Yanukovych, in return for his party’s support for Yushchenko’s candidate for
prime minister, Yuriy Yekhanurov.

Regarding Tymoshenko’s capability for rejuvenation, many Ukraine watchers
believed that her political star had been eclipsed when Yushchenko sacked
her as premier last September. In an interview with Ukraine’s Tonis TV
channel last March, she candidly admitted that dark, difficult days followed
her dismissal, but stated that she never lost hope, was soon “politically
reanimated,” and remained an “incurable optimist” simply because there is no
better alternative.

In the months that followed, Tymoshenko also amazingly rejuvenated her
political bloc, giving it a major facelift, which included thoughtful,
positive imagery. She subsequently organized and executed a brilliant
election campaign that did not resort to the dirty tricks and black PR of
other parties, but instead projected the positive, heartfelt message,
“justice is worth fighting for.”

Over the course of the next few months, she made more than 400 appearances
in town squares and meeting halls across the country before an estimated
total of 4 million people, according to her website. President Yushchenko,
meanwhile, watched his Our Ukraine bloc splinter into several other parties
and saw public support for his bloc steadily erode.

Significantly, Tymoshenko also did not lose hope and was not defeated in
February 2001 when President Leonid Kuchma, using alleged business crimes
as a pretext, had her arrested and jailed because of her fierce opposition
to his corrupt regime.

She did not allow her spirit to be broken during her
several weeks of confinement and subsequently returned to politics more
determined than ever to rid the country of its entrenched, corrupt
government and Kuchma, in particular.

As for Tymoshenko’s capability for change, she is flexible but principled.
Unlike President Yushchenko, she categorically refuses to ever enter into
any coalition with Yanukovych and his Regions Party, but continues to extend
an olive branch to the president, despite some sharp political differences.

A firm supporter of European integration, she also takes a pragmatic
position on the issue of NATO, calling for a national referendum as an
essential requirement for membership in the alliance.

With respect to the president’s capability to change, most conspicuous is
his deep-seated inability to develop a genuine partnership with his once
close Orange ally, Yuliya Tymoshenko. Moreover, there is the president’s
unfortunate inability to break relations with discredited key members of his
inner circle, notably Roman Zwarych and Petro Poroshenko.

Viewed in this light, several conclusions are inescapable.

[1] First of all,
the seemingly endless dispute over the formation of an
Orange Coalition is more about the struggle for power and the division of
key posts in the new government and parliament than about the need to craft
yet another massive Orange-team document. Here in Ukraine one hears this
view expressed daily in casual conversations with ordinary citizens, often
punctuated with the exclamation: “Ukrainians aren’t stupid! We know what
they’re up to.”

[2] Secondly, most political observers underestimate Tymoshenko’s capability
to learn, rejuvenate and change, while overstating Yushchenko’s potential in
these areas. Close scrutiny of Tymoshenko’s record reveals that she is a
strategic thinker and planner who approaches problem-solving very
systematically, and actively solicits competing interpretations from
associates and independent experts when making important decisions.

Conversely, the president’s style of leadership on domestic issues,
including energy security, conspicuously lacks strategic orientation. With
few notable exceptions, during the past year-and-a-half it has been reactive
and marked by a firefighting, muddling through, timeout-invoking or even
crisis-management style of leadership.

[3] Finally, President Yushchenko should understand that more and more
Ukrainians, including former fervent supporters, believe that he is putting
his political ambitions and personal interests, in general, above the public
interest. More and more Ukrainians with each passing day see him drifting
further and further away from the real world of his own citizens.

They see him nestled in the closed circle of his half-dozen or so most loyal
team members, exposed to and embracing their groupthink, and connected
tenuously to his citizenry mainly by his televised appearances at ceremonial
functions and by his weekly radio message to the nation.

There is also a growing public perception here in Ukraine that the president
is too busy wooing the West to act authoritatively and decisively at home;
too busy to facilitate the formation of a new government that could begin to
tackle the country’s mounting domestic problems.

Make no mistake, appointing Yuliya Tymoshenko prime minister in the new
government will be no panacea for Ukraine’s many economic and political
problems, notably its rampant corruption, energy insecurity, and
long-delayed administrative and judicial reform.

Countless political opponents can be expected to work actively to sabotage
her reform efforts.Other individuals, including members of the Our Ukraine
bloc, no doubt, will silently watch and hope that she stumbles.

But Tymoshenko, by her own admission, is keenly aware of the political
minefield ahead and prepared more than ever for the fierce struggle ahead.

Her exceptional capability to learn from past mistakes, rejuvenate and
advance after serious setbacks, her ability to be flexible but principled in
the face of changing times, and her brilliantly executed election campaign
all strongly suggest that she is Ukraine’s best hope. -30-
Walter Parchomenko, Ph.D., is a Senior Fellow with the Atlantic Council of
the United States currently based in Ukraine. The views expressed are
purely his own. LINK:
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]

EDITORIAL: The Independent, United Kingdom, Wed, Jun 14, 2006

The Germans managed it, eventually last autumn. The Italians managed it this
spring, and now even the Iraqis have just about managed it in the most
unpropitious of circumstances. This leaves only the Ukrainians, a full 11
weeks after their parliamentary elections, still trying to form a governing
coalition. It is possible that the parties will meet their self-imposed
deadline of today for agreement. It is also possible that they will not.

This protracted stalemate has not been entirely negative. Ukraine has held
together’ it has functioned, more or less, as an economy and as a country.
What conflict there has been has been restricted to the political arena.
Even without a government, Ukraine can remain stable. Through the first
troubled post-Soviet years, Ukrainians had become used to fending for

That said, however, the ship of state’s current rudderlessness is not a
condition in which Ukraine can thrive. The lack of political direction is a
far cry from the euphoric reform-fever that gripped Ukraine following the
orange revolution. For many Ukrainians, buoyed by hope of change, recent
months have meant lost opportunity and crushing disappointment.

Nor does the inability to form a government send the most positive of
messages to the outside world. The orange revolution in the winter of 2004
placed Ukraine in the international spotlight. Waves of goodwill flowed
towards the thousands of democracy supporters who stood in the snow to
protest against an unfair election.

Scarred by a poison attack, President Viktor Yushchenko became an
international hero. There was talk of a fast-track into the European Union,
membership of Nato and the World Trade Organisation. A modern, market
economy seemed just around the corner.

Alas, Ukraine proved unable to digest the vast tasks it had bitten off all
in one piece. Within the year, Mr Yushchenko had sacked his populist prime
minister, Julia Tymoshenko, whose party then came out on top in this year’s
parliamentary elections. The economy has languished.

In the quarrel with Russia over gas, the West was all sympathy for Ukraine,
but could not offer alternative supplies. Popular opposition to closer ties
with the US now threatens to scupper joint military exercises seen as a
prelude to Nato membership.

The sad reality is that the orange revolution failed to erase Ukraine’s
political faultlines. And no politician, President Yushchenko included, has
possessed the statesmanship to span the divide. The Ukrainian protesters
of Independence Square deserved better leadership than this.

It is high time for Mr Yushchenko, Ms Tymoshenko and the members of the
new parliament to sit down in a constructive atmosphere and plan together for
Ukraine’s future. Too much time has been lost, and a mountain of work
awaits. -30-
[return to index ] [Action Ukraine Report (AUR) Monitoring Service]
Please contact us if you do not wish to receive the AUR.

Kyiv Post, Kyiv, Ukraine, Thursday, Jun 15 2006

Four out of five political forces in the Ukrainian parliament have described
the political situation in Ukraine as a deep crisis. Only the
pro-presidential Our Ukraine bloc seems to believe there is no crisis in

At the root of this crisis is not the dragging out of coalition talks or
even constitutional reform, but President Viktor Yushchenko’s leadership
style and political culture. Many Ukrainians feel there is no ‘hospodar,’ or
master, in the house.

To understand Yushchenko’s inability to become master of his house, one has
to unpack the myths that were created around him when he was prime minister
in 2000-2001 and presidential candidate in 2004. Yushchenko has never felt
comfortable as an opposition politician.

Between 1994 and 2001, Yushchenko was a loyal government servant under
President Leonid Kuchma, first as chairman of the National Bank and then as
premier. This is not unusual in the post-Soviet world, as many national
democrats also served in government before becoming oppositionists.

Georgian President Mikheil Saakashvili served under former President
Eduard Saakashvili, whom he removed from power in the November 2003
Rose Revolution.

What is surprising in Yushchenko’s case is his unwillingness to become a
true oppositionist to the very last. The Yushchenko government was removed
in April 2001 at Kuchma’s instigation after a Communist-centrist vote of no
confidence. Nevertheless, Yushchenko and the Our Ukraine bloc he established
for the March 2002 elections continued to believe that Kuchma would anoint
him as his successor.

Yushchenko’s and Our Ukraine’s faith in Kuchma anointing him only fell by
the wayside in November 2002, nearly two years after he was removed as
premier. The reason for the disappointment was the appointment of the
Donetsk governor Viktor Yanukovych as prime minister.

The appointment of Yanukovych was a tactical move by the then head of the
presidential administration, Viktor Medvedchuk, to thwart an Our
Ukraine-Donetsk alliance in the 2004 presidential elections. The
Kuchma-Medvedchuk strategy was to ensure that Yushchenko and Yanukovych
became foes, and if the elections were annulled, that either Kuchma could
run again (as the Constitutional Court had permitted) or then National Bank
head Serhiy Tyhipko would run in new elections in 2005.

Yushchenko’s and Our Ukraine’s stance also was revealed during the
Kuchmagate crisis. As premier, Yushchenko never backed the protests and did
not stand up for his first deputy premier, Yulia Tymoshenko, when she was
arrested in January 2001. Yushchenko also signed a letter, alongside Kuchma
and Rada speaker Ivan Plyushch, condemning the protestors as ‘fascists’.

Even after the failure to obtain Kuchma’s anointment to be successor, Our
Ukraine didn’t play a role in the anti-Kuchma protests. The Arise Ukraine!
Protests of 2002-2003 were again dominated by the Socialists and
Tymoshenko’s BYuT.

The national democrats, who later united in Our Ukraine, were similar to
Yushchenko in their inability to move into the opposition. They never
supported calls for Kuchma’s impeachment, as they stuck to the view that the
president is the head of state and his fall could lead to Ukraine losing its

Yushchenko and Our Ukraine therefore only demanded the removal of the heads
of law enforcement agencies, which Kuchma agreed to. They preserved the view
of the president as the ‘good Tsar’.

All the blame for Ukraine’s ills was directed by Yushchenko and Our Ukraine
at Medvedchuk, whom they sought to remove as deputy speaker in December
2001 in revenge for firing Yushchenko as premier (Medvedchuk’s bloc not being
elected into the 2006 parliament was a bonus). Charges of organizing the
April 2004 fraudulent Mukachevo elections and then the poisoning of
Yushchenko have also bypassed Kuchma and been blamed on Medvedchuk.

Yushchenko’s and the national democrats’ statist position was at odds with
the Socialists and BYuT. It was these forces that constituted Ukraine’s only
real opposition.

If Prime Minister Yushchenko and the national democrats had backed the
BYuT-SPU opposition during Kuchmagate it is unlikely that Kuchma would have
remained in office. De facto, the national democrats kept Kuchma in power
for three more years.

Yushchenko and the business wing of Our Ukraine were always closer in
politics to the ‘softliners’ in the Kuchma administration, the so-called
moderate centrists, than to the SPU and BYuT. Leading Our Ukraine
businessmen and Yushchenko always had more in common with former speaker
Volodymyr Lytvyn, the Agrarians and People’s Democratic Party (NDP) than
with the opposition.

The only national democratic exception during the Kuchmagate protests and
since the Orange Revolution was the Reforms and Order Party (R&O), which was
divided. Some R&P members backed the protests while others refused. This was
repeated during the 2006 elections, when the R&P again adopted a middle
ground between the Orange opposition (BYuT) and Our Ukraine.

Comparing the configuration of Our Ukraine in 2002 and 2006 reveals these
divisions. In 2002, Our Ukraine was a far broader national democratic
coalition that included R&P and Yuriy Kostenko’s Ukrainian People’s Party
(UNP). In other words, it included both successor wings of Rukh, one which
was the UNP.

In 2006, most national democratic parties had fled Our Ukraine. The UNP and
R&P created their own blocs, as both were unhappy with Yushchenko’s policies
and the dominant influence of centrist businessmen.

In 2002, Our Ukraine had a more evenly balanced mix of national democrats
and businessmen united on a statist and reformist platform. By 2006, the
only national democratic party left in Our Ukraine was Rukh.

Our Ukraine was never anti-Kuchma, unlike the SPU and BYuT. Yushchenko
could not go against Kuchma, whom he once described as a father figure.

It should therefore come as no surprise that after coming to power,
Yushchenko was never able to initiate proceedings against Kuchma. The Orange
Revolution’s slogan ‘bandits to prison’, which Yushchenko repeatedly used
himself during the 2004 presidential campaign, undoubtedly included Kuchma
as one of the aforementioned ‘bandits’.

After coming to power, Yushchenko never once morally condemned the
Kuchma era and Kuchma’s role in it. This, coupled with the lack of criminal
charges, would suggest that Kuchma was granted immunity during roundtable
negotiations during the Orange Revolution.

Prosecutor Svyatoslav Piskun became the guarantor of this pact, and no
charges were leveled against Kuchma or his senior elites. There is no other
explainable reason why Piskun was kept in his position until October 2005
when the president had a right to dismiss him 10 months earlier. Piskun even
escaped Yushchenko’s removal of the Tymoshenko government a month earlier.

This leads us to two conclusions.

FIRST, Yushchenko and the business wing of Our Ukraine have always been
closer to pro-Kuchma centrists than to the anti-Kuchma opposition (BYuT,
SPU). Our Ukraine business leaders are pulled towards what they sought in
2001-2002, an alliance with the Party of Regions. Our Ukraine leader Yuriy
Yekhanurov is more at home with the ‘national bourgeoisie’ in the Party of
Regions than with the remainder of the Orange coalition (BYuT and SPU).

SECOND, it should come as no surprise that ‘bandits to prison’ was not
acted upon. The lack of action in this arena has instead enabled the Party of
Regions to come first by a wide margin, pushed Our Ukraine to third place,
disillusioned many Orange supporters and damaged the concept of equality
for all before the law. -30-
Taras Kuzio is a visiting professor at George Washington University,
Washington D.C.
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
Russian worries about Western encirclement are premature

The Economist print edition, London, UK, Thu, June 15, 2006

MOSCOW – IT IS a decidedly odd race. Mikhail Saakashvili and Viktor
Yushchenko, leaders respectively of Georgia’s “rose” and Ukraine’s “orange”
revolution, are both eager to join NATO, despite grim warnings from Moscow
about the dire consequences. The Georgians are desperate to get in, but are
nowhere near ready. The Ukrainians look more eligible-except that most of Mr
Yushchenko’s countrymen do not much want to join.

Recent events in Crimea have encapsulated Mr Yushchenko’s predicament.
Multinational military exercises supposed to take place around the peninsula
this summer do not in fact fall under NATO’s auspices; similar ones have
occurred for most of the past decade.

Yet, after hysterical rumours were spread about the unloading of poison
gases and about NATO coup plots, a ragtag mob of Communists and Cossacks
blocked preparations for the exercises by a group of American reservists.
The Americans left-and the latrines they came to dig remain undug.

Even in a country as wacky as Ukraine, Crimea is unusual: many of its
Russian-speaking inhabitants would prefer it to be, as it was until 1954,
part of Russia. Sebastopol is home to Russia’s Black Sea fleet. The protests
were also a by-product of the wrangle over forming a new government in Kiev,
which has been going on ever since Ukraine’s parliamentary election in
March. NATO membership is a sticking-point in the political negotiations.

For all that, it seems clear that most Ukrainians do not want to join the
NATO alliance. “Soviet brainwashing,” retorts Anton Buteiko, a deputy
foreign minister; yet Mr Yushchenko would struggle to carry a mooted
referendum on accession. Apart from that hitch, its faster progress in
military reform, better hardware and more troops ought to put Ukraine
comfortably ahead of Georgia in the membership stakes.

The Georgians have made progress, though often more on paper than in
reality. They have also tried to ingratiate themselves by helping out in
Iraq. But Mr Saakashvili faces a deal-breaking problem of his own: that bits
of his country are, in effect, under occupation.

As Alexander Rondeli of the Georgian Foundation for Strategic and
International Studies puts it, Georgia is handily located on the Black Sea,
“between oil-rich Russia and the oil-rich Islamic world.” It was once a
conduit for narcotics and a refuge for terrorists.

But geography also points to Georgia’s main flaw. Two separatist enclaves,
Abkhazia and South Ossetia, fought their way to quasi-independence in the
1990s, and have been sustained ever since by Russian support. Mr Saakashvili
and Vladimir Putin, Russia’s president, who have been trading insults for
months, met in St Petersburg this week; but agreement on the enclaves is

Mamuka Kudava, who leads Georgia’s NATO campaign, says optimistically that
joining NATO and sorting out the enclaves will go together. But Vyacheslav
Nikonov, a Kremlin-friendly analyst in Moscow, declares that, if Georgia
ever joins, it “can forget about South Ossetia and Abkhazia.”

The Georgians complain that to make the enclaves a decisive factor in their
bid would be to give the Russians a veto. Mr Kudava likens the situation to
the border disagreements with Russia that Baltic members of NATO brought
with them. But taking Georgia into NATO in its current shape might look more
like offering insurance for a broken-down car.

In fact, bellicose Russian noises about Georgia and Ukraine joining are
partly tactical. Statements last week by the Russian government and in the
Russian parliament about the grave danger of Ukrainian accession may have
been aimed, in part, at the coalition negotiations in Kiev. Mr Yushchenko
detected a “third force” at work in the Crimean brouhaha. Some Russian
parliamentarians, behaving more like comedians, were indeed at the scene.

Still, Russia’s worries are partly genuine, and not altogether unreasonable.
America would be concerned, argues Mr Nikonov, if Mexico and Canada were to
join a military organisation led by Russia. Seen from Moscow, NATO expansion
is beginning to look endless: the drive to “surround Russia with NATO,” says
Dmitri Peskov, a Kremlin spokesman, will demand “counter-measures”.

The Kremlin worries about the future of its Black Sea fleet, should Ukraine
get in. But even more important than bases, says Dmitri Trenin, of the
Moscow Carnegie Centre, would be the sense that NATO membership had
permanently reoriented Ukraine out of Russia’s sphere of influence.

The Kremlin need not panic yet. The Americans want to bring in both Georgia
and Ukraine, but other NATO governments are less gung-ho. One reason is that
some of the democratic sheen has come off both revolutions. Another is that
many Europeans feel that the alliance is already big enough, and that some
newer members joined too soon.

Some members also do not want NATO to move further and faster than the
European Union. And a few are against because they fear antagonising the
Russians. (“Who cares about Georgia?” asks Mr Rondeli, gloomily.)

Mr Saakashvili and Mr Yushchenko are looking for a concrete foreign-policy
achievement. For both, NATO membership looks more attainable than early
entry into the EU. Mr Buteiko asserts that Ukraine might still join in 2008.
But both countries may well find themselves lapping each other on a
jargon-littered circuit of “dialogue” and “action plans” for a lot longer
than that. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Sunday, June 18 and Monday, June 19, 2006

Action Ukraine Report #713, Article 23, Kyiv, Ukraine, Sat, June 17, 2006

KYIV – The Odessa Philharmonic Orchestra, conducted by Music Director
and Principal Conductor Hobart Earle, will perform two concerts in the Hall of
Columns of Philharmonic Hall, Kyiv on the evenings of Sunday, June 18 and
Monday, June 19. Both concerts will begin at 19:00.

On Sunday evening, June 18, the orchestra will be joined by the National
Choir of Ukraine (“Kapella Dumka”), Yebhen Savchuk, choirmaster for a
performance of Mozart’s “Requiem”. The four vocal soloists are: Nataliya
Yutesh, soprano, Olena Vishnevskaya, mezzo, both from Odessa — and Ihor
Borko, tenor and Dmitro Ageev, bass — both from the National Opera of

On Monday evening, June 19, Hobart Earle will conduct an orchestral
program featuring two large tone poems by Richard Strauss:

MOZART — Overture to “Don Giovanni” KV. 527
Richard STRAUSS — Symphonic Poem “Don Juan” Op. 20
MOZART — Maurerische Trauermusik (Masonic Funeral Music) KV. 477
Richard STRAUSS — Symphonic Poem “Tod und Verklaerung” (Death
and Transfiguration) Op. 24

Tickets are on sale at the Philharmonic Hall box office – tel. number

The orchestra and Hobart Earle are well known to audiences in the capital
thank to their annual visits to perform in Kyiv, dating back to the very
first days of independence of Ukraine in the early 1990s.

Under the leadership of American conductor Hobart Earle, the first and only
foreigner to be awarded the title “Zasluzhyny Artist Ukrainy” (Distinguished
Artist of Ukraine), the Odessa Philharmonic Orchestra was the first symphony
orchestra from Ukraine to cross the Atlantic Ocean, performing in such
concert halls as Carnegie Hall in New York and the Kennedy Center in
Washington, D.C., Orchestra Hall in Chicago, Davies Hall in San Francisco,
Massey Hall in Toronto and the General Assembly of the United Nations.

In 1995 they also became the first symphony orchestra from Ukraine to cross
the Equator, performing in the Festival of Perth in Australia, and their
regular concerts in numerous Western European countries have been well
received by critic and audience alike, over the years.

The Odessa Philharmonic Orchestra is the first performing arts organization
in the entire country to have had its funding status raised by the
government of Ukraine from regional to federal to national, since the
independence of Ukraine in 1991.

Hobart Earle first conducted the orchestra in April 1991 — before the
independence of Ukraine — and recently celebrated 15 years at the helm of
the Odessa Philharmonic Orchestra. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Iain Rogers, Reuters, Berlin, Germany, Thursday, June 15, 2006

BERLIN – After the embarrassment of Wednesday’s 4-0 drubbing at the hands
of Spain, Ukraine’s players and their coach Oleg Blokhin are concentrating
on picking themselves up for their remaining two Group H matches.

Tunisia and Saudi Arabia should prove less of a challenge than the excellent
Spanish and Blokhin’s squad are still expected to make it through to the
knockout stages in their debut World Cup finals.

Most of the players were given the day off on Thursday at their base in
Potsdam near Berlin, though some who did not feature on Wednesday will do
some light training. “I think every one of us understands we have to start
again from scratch,” captain Andriy Shevchenko said.

“Even given the score, this is not necessarily a negative thing. I said
before that a good result for us is to make it out of the group. And that is
what we are continuing to aim at.”

The 2004 European footballer of the year was a massive disappointment on his
full return from injury on Wednesday, an imperious Carles Puyol ensuring the
normally lethal striker failed to muster a single shot all game.

Chelsea’s new signing looked well short of the form and fitness that has
made him the leading scorer in the history of the European Champions League
but Blokhin refused to single out his captain for criticism.

“If the journalists think Shevchenko played badly they should write that but
you won’t hear it from me,” Blokhin said. “We’ll have to analyse our
mistakes very closely and lift the players for next game.”

The statistics from Wednesday’s match underscore Spain’s dominance, boosted
at the start of the second half when experienced Ukrainian defender
Vladislav Vashchyuk was harshly sent off for a challenge on Fernando Torres.

Spain had 10 shots on goal to Ukraine’s two and enjoyed 54 percent of the
possession to their opponent’s 46 percent. After taking the lead in the 13th
minute the Spanish players stroked the ball around with aplomb, in contrast
to the sluggish Ukrainians, and constantly looked threatening in attack.

“We are all very down but we should be able to pick ourselves up and turn
things around in the next match,” said Ukraine striker Serhiy Rebrov, who
came on in the second half but also failed to produce a shot on goal.

Ukraine play Saudi Arabia in Hamburg on June 19 and Tunisia in Berlin on
June 23. (Additional reporting by Ron Popeski in Kiev) -30-
[return to index ] [Action Ukraine Report (AUR) Monitoring Service]

UNA Convention’s Press Committee, Kerhonkson, NY, Tue, May 30, 2006

KERHONKSON, N.Y. – The Ukrainian National Association held its
36th Regular Convention here at its mountaintop estate, Soyuzivka, on
May 26-29, with 96 delegates and 17 members and honorary members
of the General Assembly participating.

The convention re-elected the three full-time executive officers of the
Ukrainian National Association: President Stefan Kaczaraj (Budd Lake,
N.J.), National Secretary Christine E. Kozak (Rutherford, N.J.) and
Treasurer Roma Lisovich (Union, N.J.).

Elected to fill the other three posts of the UNA Executive Committee, which
are volunteer positions, were: First Vice-President Zenon Holubec (Parma,
Ohio), Second Vice-President Michael Koziupa (Cedar Knolls, N.J.) and
Director for Canada Myron Groch (Founthill, Ontario, Canada).

Delegates also elected three new members of the UNA Auditing Committee:
Slavko Tysiak (West Sand Lake, N.Y.), Wasyl Szeremeta (Huntingdon
Valley, Pa.) and Vasyl Luchkiw (New City, N.Y.).

Elected to serve as advisors on the General Assembly were (in order of votes
received): Maya Lew (New York), Gloria Horbaty (Wallingford, Conn.),
Nicholas Fil (Latham, N.Y.), Eugene Oscislawski (Flemington, N.J.), Myron
Pylypiak (Kent, Wash.), Olya Czerkas (St. Petersburg, Fla.), Al Kachkowski
(Saskatoon), Paul Prinko (Philadelphia), Bohdan Kukurudza (Chicago),
Eugene Serba (Mount Laurel, N.J.) and Serguei Djoula (Montreal, Canada).

The new General Assembly officially begins its term of office on July 1.

The convention was opened on Friday morning, May 26, with a brief
ceremony at the foot of Soyuzivka’s monument to Taras Shevchenko,
bard of Ukraine and patron of the UNA. President Kaczaraj opened the
proceedings by underscoring that “unity and collegiality were always
cornerstones in the leadership of our fraternal insurance association.”

He exhorted the delegates, who represented branches throughout the United
States and Canada, to “openly and responsibly” discuss issues, while working
“as a closely knit family devoted to common goals.”

The convention was conducted by its elected chairman, Taras Szmagala Sr.
(Brecksville, Ohio), and two vice-chairmen, Vasyl Kolodchin (Warren, Mich.)
and Michael Sawkiw Jr. (Washington).

On the first day of deliberations, delegates heard addenda to the written
reports of General Assembly members, as well as those of the
editors-in-chief of Svoboda and The Ukrainian Weekly, the UNA’s official
publications. The morning session that day was addressed by Frederick
Grubbe, president of the National Fraternal Congress of America, who
spoke on the state of the fraternal benefit system.

The next day’s agenda included discussions of proposed changes to the UNA
By-Laws and Manuals, as well as a presentation by Treasurer Lisovich on
“Development Plans for Soyuzivka” and the recently created Soyuzivka
Heritage Foundation, which envisions the estate as a prime venue for
Ukrainian cultural and educational programs.

“The Status of the UNA in Canada” also was a topic of discussion, with
speakers pointing to the potential for the UNA’s growth in that country,
home to more than 1 million Ukrainians.

Greetings to the Ukrainian National Association and its members were offered
on Sunday, May 28, at the convention concert by Ukraine’s consul general in
New York, Mykola Kyrychenko, and at the convention banquet by Dr. Viktor
O. Nikitiuk, minister-counselor of the Embassy of Ukraine.

Many representatives of major Ukrainian organizations attended the gala
banquet in recognition of the significant role played by the UNA – the
oldest and largest Ukrainian fraternal organization – in the life of the
Ukrainian community.

The convention also received greetings from U.S. President George W. Bush,
members of the U.S. Congress, Ukraine’s diplomats in the U.S., Ukrainian
Church leaders, and leaders of Ukrainian organizations and institutions in
the United States, Canada and Ukraine.

The final day of the convention, Monday, May 29, was devoted to reports by
convention committees, adoption of resolutions and recommendations, a
discussion on “UNA: Shaping the Future” and the swearing-in of the new
General Assembly.

The 36th Regular Convention of the UNA – whose theme was “UNA:
Ukrainians United” – was adjourned after final remarks by President Kaczaraj
who urged: “Let us be together for the next four years – I with you, and you
with me.” -30-
Roma Hadzewycz, Editor-in-Chief, The Ukrainian Weekly
2200 Route 10, Parsippany, NJ 07054;
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