AUR#722 Jul 3 Orange Reunion; Ukraine Steps Back From The Brink?; Regions Party Blocks Parliament; Russia’s New World Order, Georgia Feels Russia’s Pull Again

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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 722

Mr. E. Morgan Williams, Publisher and Editor
PUBLISHED IN WASHINGTON, D.C., MONDAY, JULY 3, 2006

——- INDEX OF ARTICLES ——–
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

1. ORANGE REUNION – TYMOSHENKO TAKES OVER
ANALYSIS & COMMENTARY: By Tom Warner
Chief Strategist, Concorde Capital in Kiev, Ukraine
Executive Summary and Ukrainian Comments by
Ben Aris, Editor-in-chief, Businessneweurope (bne) magazine
Berlin, Germany, Friday, June 30, 2006

2. UKRAINE STEPS BACK FROM THE BRINK
OP-ED: By Oksana Bashuk Hepburn, Citizen Special
Ottawa Citizen, Ottawa, Canada, Wednesday, June 28, 2006

3. UKRAINE, WITH NO ASSEMBLY OR CABINET, FACES TALKS
By Ron Popeski, Reuters, Kiev, Ukraine, Sun Jul 2, 2006

4. ORANGE COALITION MAY BE DESTABILIZED
COMMENTARY: By Tatyana Stanovaya
RIA Novosti, Moscow, Russia, Wed, June 28, 2006

5 . MAJORITY COALITION GIVING UP ON VOTING FOR RADA
SPEAKER AND PRIME MINISTER IN ONE PACKAGE
Ukrainian News Agency, Kyiv, Ukraine, Saturday, July 1, 2006

6. TYMOSHENKO WILL BE APPOINTED PRIME MINISTER JUST AFTER
POROSHENKO IS APPOINTED SPEAKER OF THE PARLIAMENT?
Ukrayinska Pravda online, Kyiv, Ukraine, Sun, July 2, 2006

7. REGIONS PARTY DOESN’T INTEND TO YIELD PARLIAMENT

TILL ORANGE MAJORITY SHARES POWER WITH IT
Kommersant, Moscow, Russia, Friday, June 30, 2006

8.UKRAINIAN OPPOSITION LEADER YANUKOVYCH URGES PROTESTS
Natasha Lisova, Associated Press Writer, Kiev, Ukraine, Sat, July 1, 2006

9. WORLD CUP ADVENTURE OVER FOR SPIRITED UKRAINE
Kevin O’Flynn, Moscow Times, Moscow, Russia, Monday, July 3, 2006

10. ACCREDITATION FOR EASTERN EUROPEAN BUSINESS SCHOOLS
Kiev-Mohyla Business School (KMBS) in Ukraine
ISM University of Management and Economics in Lithuania
By Linda Anderson, Financial Times, London, UK, Mon, July 3, 2006

11. ITALY’S BANK INTESA’S UKRAINE BANK DEAL HITS HURDLE
By Roman Olearchyk in Kiev and Adrian Michaels in Milan
Financial Times, London, UK, Monday, July 3 2006

12 . INTERNATIONAL BANK OF AZERBAIJAN TO OPEN BRANCHES
IN UKRAINE, DUBAI, TURKEY AND LUXEMBURG
Azertag, Baku, Azerbaijan, Sunday, July 02, 2006

13. EU LIMITS IMPORT OF STEEL PIPING FROM RUSSIA & UKRAINE
Decided Russia and Ukraine supply pipes at ‘dumping prices’
Itar-Tass, Moscow, Russia, Sunday, July 2, 2006

14. ACHILLES’ HEEL OF EUROPEAN ENERGY SECURITY
Bulk of natural gas Ukraine imports through Russia comes from Turkmenistan
FEATURE ARTICLE: By Daniel Kimmage
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Sunday, July 2, 2006

15. RUSSIA’S NEW WORLD ORDER
Buoyed by expensive energy and a booming economy, the Kremlin
is once again flexing its muscles abroad – but very carefully.
By J.F.O. MCALLISTER, TIME magazine, Sun, Jul. 10, 2006 issue

16. AFTER BREAK FROM MOSCOW, GEORGIA FEELS ITS PULL AGAIN
President Saakashvili urges NATO and the EU to hasten embrace of Georgia.
Time may not be on the side of Georgia, Ukraine, Moldova or Azerbaijan
By Fred Weir and Daria Vaisman, Correspondents
The Christian Science Monitor, Boston, MA, Monday, July 3, 2006

17. YUSHCHENKO PRAISES SUCCESSFUL YOUNG MINISTERS

Praises Kyrylenko, Pavlenko, Bondar, And Yatseniuk
Ukrainian News Agency, Kyiv, Ukraine, Sunday, June 25, 2006

18. U.S. NOT PLANNING TO DEPLOY MILITARY BASES IN UKRAINE
IF COUNTRY JOINS NATO SAYS US AMBASSADOR
Ukrainian News Agency, Kyiv, Ukraine, Saturday, July 1, 2006

19. FILM REVIEW: AMY GRAPPELL’S “LIGHT FROM THE EAST”
Documentary Film Review by David Bogoslaw,
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, May 21, 2006

20. WORLD BANK SAYS NOTHING PREVENTS IT FROM RESUMING
DISBURSEMENT LOAN TO UKRAINE FOR FIGHTING HIV/AIDS

Ukrainian News Agency, Kyiv, Ukraine, Thursday, June 29, 2006
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1
. ORANGE REUNION – TYMOSHENKO TAKES OVER

ANALYSIS & COMMENTARY: By Tom Warner,
Chief Strategist, Concorde Capital in Kiev
Executive Summary and Ukrainian Comments by
Ben Aris, Editor-in-chief, Businessneweurope (bne) magazine
Berlin, Germany, Friday, June 30, 2006

EXECUTIVE SUMMARY
[1] bne Introduction: By Ben Aris, Editor-in-chief, bne magazine

Discusses the chances of a collapse of the new coalition, the tasks
Tymoshenko faces and her chances of success.

a. The new coalition is a positive result
b. New government is committed to reform, a historic change
c. Investors wary after last year’s political chaos
d. Economy recovers following steel sector slump last year
e. Coalition could collapse, but don’t expect it
f. Distribution of power in the new Rada
g. Tymoshenko expected to do better on economic management
h. Ukraine remains on the EU track
i. Gas deal with Russia will be revised, but in a “friendly” way
j. Economy picked up dramatically in recent months

[2] bne Ukrainian Comment: By Ben Aris, Editor-in-chief

Tom spent the last four years as the FT stringer in Kyiv and prior to that
was the editor of the Kyiv Post. He has just taken a job as chief strategist
at Concorde Capital in Kyiv and this is his first offering which I reproduce
in its entirety. We at bne wish him well and happy to see the quality of
debate go up a notch with his appointment.

This is an interesting paper. As Tymoshenko takes over there are several
questions being debated. Top of the list is if the coalition will survive or
if Ukraine will fall into an Italian style period o instability.

Tymoshenko’s inevitable run in with Poroshenko will destabilise the
government and lead to its collapse. This would be followed by a Our
Ukraine-Regions government which would destroy Yushchenko’s creditability
with the voters and/or early elections.

Second is if she can pull economic recovery out of the hat. Investors are
looking at her performance as PM last year and are sceptical. However, most
of her actions during here short term as PM can be put down to campaigning
for the recent parliamentary elections, rather than any serious attempt to
reform the economy.

In her prior government post as energy Minister she was much more effective
and got rid of the debt problem – something that Chubais struggled with for
year. However, she resorted to “administrative resources” to get her way.

The people in her camp we have talked to say she is fully aware of the need
to change her style. The word is that she has made accommodations with the
oligarchs, who are all now interested in integration with the EU and IPOs as
the rules of the game have fundamentally changed.

Amongst the biggest fears is a restarting of the re-nationalisation process
(she has backed off) and renegotiating the Russian gas deal (Ukrainians are
in Ashgabat at the moment and look like they will get an independent supply
deal). The bottom line here is that we can be confident that she will push
liberal market reform and will bring Ukraine’s laws in line with the EU
norms as there is a universal agreement on the need for these reforms –
even from Yanukovych.

The most interesting issue to watch is she commitment to increasing
corporate transparency. A large proportion of the Rada are also oligarchs –
with Akhmetov being the most obvious example – and have no interest in
improving the lot of minority shareholders or being more open about their
finances. However there has already been a flurry of reforms: days before
the vote the stock market laws written in 1991 were updated and laws to
create a central depository went through this week. So initial signs are
encouraging as there seems to be real political will to do something on this
score.

Ironically Tymoshenko will probably take a leaf out of Putin’s book and
knock heads together using her political power rather than simply enforcing
the law (and her options are limited on this score as Our Ukraine retained
control over the law enforcement portfolio). But as the package is much
more attractive (I mean as she is now the only unsullied standard-bearer of
the ideals of the Revolution , rather than the fact that she is a woman) she
is unlikely that she will get the roasting Putin is receiving. (bne)

ORANGE REUNION TYMOSHENKO TAKES OVER

Tom Warner, Chief Strategist, Concorde Capital
Kyiv, Ukraine, Friday, June 30, 2006

The formation of an “Orange” coalition and the pending return of Yulia
Tymoshenko at the head of a new government sets a course of western-
oriented reforms for the year ahead. With the political landscape changed
by her growing popularity, her second term should be more productive
and less populist than her first. With steel prices recovered from last
year’s slump, the economy should be able to absorb higher gas prices
and still post moderate growth.

After months of topsy-turvy negotiations, the three parties that led the
2004 Orange Revolution have finally committed to reuniting in a new ruling
coalition. It was a pivotal decision which sets the course for Ukraine for
the year ahead.

Faced with the intensifying geopolitical rivalry between the West and
Russia, Ukraine is practically forced to choose sides. The decision is to go
West.

This is a very positive outcome, as Ukraine’s long-term interests are
clearly in reforming its economy according to western models and integrating
into the common European market. If opponents of the Orange Revolution had
been brought back to power, it would have given the impression that Ukraine
was having second thoughts about its recent western-oriented course. Much of
the pressure on the EU to open its markets and on Ukraine to carry through with
reforms would have dissipated.

The coalition has agreed on a detailed reform program that goes much farther
than anything the last two governments promised. With a little voting
discipline, World Trade Organization membership could be achieved by the
end of this year.

However, the investment community is understandably skeptical of the new
coalition and of Yulia Tymoshenko, who will return as prime minister.

After last year’s experience, when the market’s high hopes for Tymoshenko’s
first government were largely disappointed, the market’s attitude this time
around will be “we’ll believe it when we see it”.

Meanwhile the economy is proving its resilience. It has always been evident
to those of us living here that the economy was healthier than the low GDP
figures reported since early last year. Now May’s monthly y-o-y GDP figure
has come in at 8.5%, and we have to caution that it could be slightly
overstated.

The crucial economic problem for the past year was the slump in the steel
industry, which was pushed into recession by last year’s drop in global
demand and took further hits from last year’s “re-privatization” affair and
from the winter gas price increase and gas shortages. Now the industry is
recovering on the back of a rebound of world prices.

The main challenge of the new government will be its relationship with
Vladimir Putin’s administration in Russia. Putin will of course be
disappointed that the pro-Russian Regions party was not brought into
government.

Although he has nothing against Tymoshenko personally as he does not see
her as an ardent nationalist, he will resent her and President Viktor
Yushchenko’s continued pro-western direction. There will be further tough
negotiations ahead on gas supplies and we still expect another price
increase before the end of the year.

DON’T ASSUME TYMOSHENKO WON’T LAST
At first glance, the new coalition looks almost exactly the same as the
troubled coalition that was formed with such fanfare in February 2005 and
collapsed so pathetically only seven months later. Tymoshenko will return as
prime minister.

Petro Poroshenko, who last year was national security adviser, will be
speaker of parliament. Last year he and she spent most of their time sniping
at each other until President Yushchenko couldn’t stand it anymore and
sacked both of them. Tymoshenko’s and Poroshenko’s mutual hatred is as
strong as ever.

So their new coalition could like an effort to put Humpty Dumpty back
together again.

And yet very much has changed since last year. Last year’s rivalry was
driven largely by the competition for position in the current parliament.
Now that is done and the next election on the schedule, the next
presidential vote, isn’t due until late 2009.

Whereas last year’s government served at the president’s pleasure, this
year’s coalition government will be supported by a revised constitution that
greatly bolsters the powers of the cabinet and the parliamentary majority.

The results of the March parliamentary elections and Tymoshenko’s continuing
popularity have greatly strengthened her position. Yushchenko’s powers as
president have shrunk and his popularity has fallen. So has the popularity
of his political movement, Our Ukraine.

Given their weakness, Yushchenko and Our Ukraine are mainly interested in
securing their defenses. They insisted on maximum control over law
enforcement, including the interior and justice ministries. The president
still controls the general prosecutor, the SBU national security police and
the defense ministry. Yushchenko and Our Ukraine also insisted on the
speaker position, which is a good bully pulpit for criticizing the
government, and an important position to hold if they were to decide to quit
the coalition.

They seem to have intentionally given Tymoshenko free reign on economic
policy out of hope that she will foul up and wreck her popularity.

As for Poroshenko, he has been very successful in maneuvering himself into a
strong position within Our Ukraine, which lacks any other dynamic leader. He
and a group of his allies effectively forced Our Ukraine’s party leadership
to nominate him as speaker by threatening not to support the coalition (the
decision was subject to approval by the broader Our Ukraine bloc, which
includes several smaller allied parties). But he is very unpopular with
voters, and many in Our Ukraine resent him. He appears to hope that by
putting himself in the public eye he can gain popularity.

As long as Tymoshenko maintains her popularity, Yushchenko and Our Ukraine
would gain nothing from breaking their alliance with her. If Our Ukraine
forged a coalition with the Regions party, Regions would get almost all the
real power, due to its much greater numbers in parliament (186 seats to at
the very most 55 Our Ukraine MPs who would join such a coalition).

Dissenters from Our Ukraine would create a new centre-right party that would
aim for Our Ukraine’s electorate. Yushchenko would stand little chance of
reelection in 2009 and Our Ukraine would have grim prospects in the next
parliamentary vote, as their voters would feel betrayed. Tymoshenko would
return, stronger than ever. That is why Yushchenko and Our Ukraine did not
form a coalition with Regions now. There’s no reason to assume this
situation will change in six months or a year or even two years.

So, most likely, this coalition will last. Be prepared for the possibility
that it could collapse early, but don’t assume it. The most important thing
to watch is Tymoshenko’s popularity. If its drops, then Yushchenko would be
tempted to seek early parliamentary elections. A split of Our Ukraine, which
is a complex assortment of small groups with differing interests, could also
spark a crisis possibly leading to early elections. A combination of the
Regions party and any Our Ukraine splinter group would not be able to sit a
government against Yushchenko’s will.

Tensions within the Orange camp are sure to flare when the candidates start
positioning themselves for the 2009 elections. That for now is far away.

TYMOSHENKO VS OLIGARCHS, ROUND TWO?
Tymoshenko and her bloc will have the finance, economy, energy, agriculture,
coal and construction ministries, plus the state property fund, the state
oil and gas company Naftogaz, and the tax administration. The main checks on
her policy decisions will be the other two coalition members’ factions in
parliament, which could block any legislation; the regional governors, who
have substantial powers and are all Yushchenko allies (governors are
appointed and dismissed jointly by the president and cabinet); and the
president, who could veto legislation or challenge the constitutionality of
cabinet decisions. Her bloc’s strength within the cabinet will be strong enough

to carry almost any cabinet vote.

Tymoshenko’s performance on economic policy last year was patchy. She pushed
through populist social spending increases when the state budget was already
overburdened by pre-election spending promises. In her zeal to close tax
loopholes, she hurt some legitimate foreign investors and scared some
domestic business groups into moving part of their incomes back into the
shadows.

She sent the oil-refining industry into a tail-spin by canceling duties on
imports of oil products (which balanced Russia’s export duties on crude
oil). Although she insists she was misunderstood, she gave the impression
that she wanted to challenge dozens if not thousands of pre- Orange
Revolution privatizations.

But she also improved tax collection dramatically, which had always been one
of the country’s biggest problems. She scared big industrial groups into
trying to be good corporate citizens, including by improving their
transparency and corporate governance. Most public companies showed
increased profits as they brought income out of the shadows.

Tymoshenko should perform better this time around. She is a year older and a
year wiser. She has assembled a bigger and more professional political team
and she is getting better advice from a wider range of consultants. She is
likely to make the best progress in again prodding big industrial groups to
further improve their transparency and corporate governance. She has made
clear that she will not launch any new efforts to reverse old
privatizations. Her old project to reprivatize Nikopol Ferroalloy, which has
been dangling in a state of near completion since she was sacked last year,
might finally be finished off.

Despite the continuing rivalries within the Orange camp, this parliament
will be far more supportive of reforms than any previous legislature. All
three parties in the coalition have clearly committed themselves to the
project of aligning Ukraine’s legislation with EU norms. Even the opposition
is largely supportive.

That in itself is an historic breakthrough, although of course the
implementation won’t happen quickly or easily. There is also strong support
from both the coalition and opposition in favor of developing Ukraine’s
capital markets.

Tymoshenko has reiterated her commitment to revising the gas supply
agreement made in January 2006 and excluding the intermediary RosUkrEnergo,
whose main shareholders are Gazprom and a shadowy Moscow-based Ukrainian
business group with strong ties to the Kremlin. She said she would do so in
a “friendly manner”. The response from Moscow has been mixed: Gazprom
reacted harshly, warning that Europe’s supplies could be threatened, but
Alexander Zhukov, a deputy prime minister, said the response would depend on

what Tymoshenko suggests. Poroshenko has supported Tymoshenko’s position.

The US government has very strongly supported her position and offered its
help, although it’s not clear what the US could do. Tymoshenko is appealing
to European governments to get involved in an advisory committee that she
wants to set up.

Since the gas price in the January agreement was not fixed, any Ukrainian
government would have faced tough negotiations. Tymoshenko is doing the
right thing by taking on the issue now rather than waiting till winter.
However, the price of renegotiation is likely to be a commitment by Ukraine
to a schedule of price increases leading to full market prices. In our view
the most important thing is security, which the January agreement did not
deliver.

GROWTH ACCELERATING
May GDP and industrial output figures were well above everybody’s forecasts.
GDP rose by 8.5%, industrial output by 10% – the best monthly numbers since
2004 and up sharply from April (GDP +3.5%/industry +0.5%) and the first
quarter (+2.4%/+0.2%). GDP growth for Jan-May came to 4%.

There are several factors contributing to this sudden improvement. One is
simply that Easter fell this year in April and last year in May. That
somewhat depressed April’s numbers and somewhat flattered May’s.

April was also the first month after the anniversary of the March 2005 bud
get revision adopted in the wake of the Orange Revolution. The revision
slashed state construction spending and eliminated “free trade zones,” which
resulted in an artificial decline in wholesale trade numbers. Trade and
construction dropped last year by 6.9% and 8.5%, respectively. Since April,
year-on-year figures compare “oranges to oranges”, and the real strength of
the trade and construction sectors shows through. They grew in May by
11.8% and 12.7%, respectively, up from 6.7% and 4.2% increases in Jan-
April.

Growth was held back early in the year by the gas shortages and by the
prolonged uncertainty as the government delayed deciding how to pass on the
price increase to industry. Ukraine is not the only country paying more for
energy, and higher commodities prices are helping industry cope.

Growth was also inhibited in the first quarter by a negative trade balance
4.2% of GDP) as gas prices rose and industrial exports dropped, and by huge
purchases of dollars by the population ($1.6 bn), who were apparently made
nervous by the gas ordeal and elections. To preserve the dollar peg, the
national bank bought most of the excess hryvnya ($2.1 bn worth in Jan-April)
and in doing so created a shortage of cash. But the tide turned in May when
the national bank was able to sell $244m worth of hryvnya. Inflation
returned to 0.5% in May after two months of deflation, but is much improved

over last year. The central bank has since spurred liquidity further by reducing
its discount rate by one point to 8.5%.

Most importantly, metallurgy output was up 8.2% in May after being down by
1.6% in Jan-April. Steel prices have been climbing since the start of the
year, but Ukrainian metallurgy was slow to react for the reasons cited
above. The steel sector’s recovery should result in a substantially improved
trade balance. But there are also reasons to be conservative, including the
further gas price increase that we are expecting sometime during the second
half of the year. Agriculture analysts are predicting a mediocre harvest.

For now we stand by our forecast of 3% GDP growth this year. END
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Concorde Capital: http://www.con-cap.com
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Ben Aris, Editor-in-chief, bne, Berlin
editor@businessneweurope.eu; http://businessneweurope.eu
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2. UKRAINE STEPS BACK FROM THE BRINK

OP-ED: By Oksana Bashuk Hepburn, Citizen Special
Ottawa Citizen, Ottawa, Canada, Wednesday, June 28, 2006

A few days ago the former national hero of Ukraine, President Viktor
Yushchenko, whom the Orange Revolution brought to power two years ago,
had a political mess on his hands. Now, he can breathe easier. On June 22,
the Orange forces united to sign an agreement to lead Ukraine’s parliament, the
Verkhovna Rada, in a coalition government.

Who are the winners and the losers in the 450-member parliament?

Without doubt, the biggest winner is Yulia Tymoshenko. She finally gets the
premiership. Despite winning the largest number of seats among the Orange
parties, she was denied her due for three months.

Nearly all was lost for her last week when the president’s Our Ukraine party
broke off the Orange forces talks and began to negotiate seriously with the
fraudulent pro-Russia Party of Regions. Under the coalition agreement, she
will become the prime minister. Her party, the Yulia Tymoshenko Bloc, will
head up some 13 key portfolios, including finance, oil and gas, legal and
broadcasting.

Having accessed key cabinet appointments and the premiership, Ms.
Tymoshenko has scored a major political victory and a huge psychological
one for herself and Ukraine.

For the last three months the president seemed determined not to have her as
prime minister. Reasons abounded: she’s a woman; she’s a better leader; he
disdains competition; he’s cut a deal to keep her out.

Whatever the reason, the stalling has been disastrous for the country. The
economy is on a downturn, officialdom at a standstill, corruption rampant,
oligarchs in the drivers seats, the once-magnificent Orange forces in
disarray. Russia was fanning anti-West sentiments.

The president was not the only one set against his former prime minister.
The oligarchs didn’t want Ms. Tymoshenko either. After she precipitated the
re-privatization of the steel powerhouse Kryvorizhstal, which brought more
than $4 billion into Ukraine’s coffers, they demanded her head. And got it.

The president fired her. They didn’t want her back upsetting some of their
fabulously lucrative deals made at the state’s expense, or preventing them
from amassing more.

Nor did Russia want her: She dares to deal with the neighbour as an equal,
refusing to support its strategic moves to resurrect the Russian empire at
Ukraine’s expense. She fights its attempts to bring Ukraine to its knees by
controlling its oil and gas sector. Above all, she is strongly pro-West.

She will inherit all that mess, but the psychological advantage is now with
her and the people. They won and that is a strong incentive to forge ahead.
Her victory is sweeter because she was on the brink of being relegated to
the opposition as late as a week ago. Now, all who did not want her need to
start rebuilding bridges. She will need to do the same.

It is still not clear why the president had a change of heart and instructed
his party to go back to the table at the 11th hour. Regardless of what
precipitated the rapprochement, it was the right political decision. Failure
to do so would have meant a disregard for the people’s choice — a political
suicide.

The stalling had cast the president in a very bad light. He has been called
a traitor to the Orange revolution; an anti-democrat; a passive tool of
other than national interests. Not surprisingly, his popularity had
plummeted steadily and is hovering, according to latest polls, around 20 per
cent. It might have got worse. Now, by accepting the coalition, he can start
to recoup some of the losses.

What about the oligarchs? Have they won or lost? By any standard, the
oligarchs have already won a great deal in Ukraine. Their ranks comprise the
richest men in Ukraine — in the world, for that matter.

However, under the new government they may lose some capacity to continue
shamelessly plundering state assets. Ms. Tymoshenko has already served
notice. The coalition agreement states that the government will undertake
land reforms, and control key sectors such as oil and gas, both of
considerable interest to oligarchs.

Striking at the heart of the matter, the coalition has pledged to abolish
Verkhovna Rada deputies’ immunity to prosecution. This means deputies will
be treated by the law like other citizens — held criminally liable,
detained and arrested without the Rada’s consent. It is expected that some
serving deputies will lose interest and resign. Good for the state, but the
oligarchs’ power remains prodigious.

What about Russia? It cannot be pleased with losing a chance to control
Ukraine directly through the Party of Regions, which now becomes the
opposition. Ms. Tymoshenko promises to review the oil and gas agreement with
Russia. In turn, Russia threatens further price hikes. Also, the coalition
promises to strengthen the Ukrainian language, a symbolic measure that
Russia disdains.

Recently it spread dissent in the southern regions by declarations that
Russian is the official language there and by fuelling anti-NATO and
anti-West protests in Crimea. Ukraine can count on Russia’s antics
continuing, but now it will have a government in place to deal with them.

Unquestionably, the biggest winner in these developments is Ukraine’s
democracy. The last-minute creation of the coalition reminds us of the two
rounds of Ukraine’s fraudulent presidential elections of 2004. Then, it
looked like democracy had lost; that Russia’s special forces might roll in
with tanks; that the people would give up. They did not. They persevered and
won the Orange Revolution.

The people’s choice, Yulia Tymoshenko will become their prime minister and
their views — pro-West, anti-corruption — will be honoured. This should
not pass unnoticed by Western powers, including Canada. Ukraine will need
and deserves to get support in World Trade Organization accession, European
integration, a new agreement with NATO — all of which the coalition
government plans to address quickly.

There is no question that the Orange coalition in government faces
considerable problems ahead from all the usual suspects. Nor will the deep
wounds within the Orange forces themselves heal quickly. But credit must be
given where it’s due: For the second time in 16 months the Orange forces
have brought Ukraine back from the brink of a political disaster.

What a learning experience in democracy! It should serve them well.
—————————————————————————————————–
Oksana Bashuk Hepburn is president of U*CAN, a Canadian consulting
firm brokering interests with Ukraine, and a three-time elections observer
there. She is writing a book about these experiences.
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http://www.canada.com/ottawacitizen/news/opinion/story.html?id=832d32c1-2232-42f1-9d8d-c7541455c7bf&k=93247
—————————————————————————————————————————————————-
NOTE: This article was also published as an OP-ED piece in the Kyiv
Post, Kyiv, Ukraine, for Thu, June 29, 2006 under the title: “Ukraine’s
Unexpected Miracles.” http://www.kyivpost.com/opinion/oped/24714/
—————————————————————————————————
return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3. UKRAINE, WITH NO ASSEMBLY OR CABINET, FACES TALKS

By Ron Popeski, Reuters, Kiev, Ukraine, Sun Jul 2, 2006

KIEV – Ukraine, still lacking a government and working parliament three
months after an election, faces tough bargaining as parties launch talks to
overturn a battered international image before the harvest and onset of
winter.

President Viktor Yushchenko, having clearly decided to stick with three
parties backing the 2004 pro-Western “Orange Revolution,” told politicians
his patience is wearing thin.

Facing economic imperatives, including the prospect of negotiations over
another crippling rise in Russian gas prices, he wants action to get the
blocked parliament working and a government put in place, led by estranged
ally Yulia Tymoshenko.

Three parties behind the revolution formed a coalition after tough talks.
But the opposition Regions Party, closer to Russia, blockaded the chamber,
prevented a vote to endorse Tymoshenko’s return to the job from which she
was sacked last year.

Coalition parties propose talks from Monday on opposition demands and the
Regions Party has agreed, given a fair format.

The opposition, unhappy at the prospect of being shut out of government,
rejects a proposed single vote to elect Tymoshenko as premier and another
backer of the revolution as speaker.

It also wants a share of senior parliamentary jobs.

“Each day we put off forming parliamentary bodies and a cabinet means lost
opportunities for our country, its economy and its image,” Yushchenko said
in his weekend radio address.

“The country stands on the threshold of its harvest, preparations for
winter, debate on the 2007 budget and talks with energy suppliers.”

The Regions Party finished first in the March parliamentary election with
186 seats. But coalition groups – Our Ukraine, the Tymoshenko bloc and the
Socialists – have a combined 242 seats.

LOOMING GAS ISSUE
Establishing a full-fledged government is the first step to modernizing an
economy showing slight recent improvements and to tackling the gas issue,
given high dependence on energy-inefficient steel and chemicals industries.

No longer empowered to choose the premier under the constitutional, the
president also says he will not dissolve the chamber, his right if no
cabinet is formed within set deadlines.

Tymoshenko takes over after persuading Yushchenko to abandon his reluctance
to see her back in the job she held for eight months marked by infighting.
Investors are wary of her attempts to control markets and calls to review
“dubious” privatization.

She shows no fear of confronting Russian interests, seeking revision of a
New Year accord nearly doubling the price of gas. That deal ended a row
which briefly cut supplies passing through Ukraine to gas giant Gazprom’s
customers in Europe.

Ukraine’s caretaker government last week said it had agreed to keep the
price at $95 per 1,000 cubic meters through the third quarter, but new talks
are needed by the end of the year.

Officials exude calm over economic trends despite alarming current account
and trade figures last month. And experts say a new government must tackle
big structural challenges.

Commentators say stability depends on whether the fractious “orange”
partners can do away with their differences.

“This is their chance to show independence and ability to conclude
agreements,” wrote the weekly Zerkalo Nedeli. “In the meantime, Ukraine has
become an experimental testing ground.” -30-
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4. ORANGE COALITION MAY BE DESTABILIZED

COMMENTARY: By Tatyana Stanovaya
RIA Novosti, Moscow, Russia, Wed, June 28, 2006

MOSCOW – An “orange coalition” has been formed in Ukraine after all.
Now everyone is wondering how long it will last, and whether it will be
effective or will suffer from endless conflicts.

Yulia Tymoshenko, an uncontrollable populist with conflict-fuelling and
scandalous behavior, seems to be the main instability factor. She will
become the head of a government where she will not fully control the
personnel or its policy.

However, the stability of the new coalition will depend on the efficiency
and unity of pro-presidential bloc Our Ukraine, or rather its ability to
keep Tymoshenko within certain boundaries.

Our Ukraine is the cornerstone of the coalition. The stronger it is and
the more coordinated personnel and domestic policy decisions it makes,
the stronger the coalition will be.

This status of the block is based on the informal leadership of President
Viktor Yushchenko, which has given the block a monopoly right to
choose partners for the government coalition and try to maintain the
coalition’s efficiency. Should he have the slightest doubts regarding the
“orange coalition’s” expediency, Yushchenko will find a way to deprive
Tymoshenko of a majority in parliament.

To keep the reins in conditions of a political reform and Our Ukraine’s
defeat in the parliamentary elections, Yushchenko created a system of
checks and balances for Yulia Tymoshenko, who will become prime
minister soon.

In addition to being an instability factor herself, Tymoshenko will head a
much more influential cabinet. Therefore, the stability of the coalition and
the efficiency of the executive branch will depend on the ability of Our
Ukraine and Viktor Yushchenko to control Tymoshenko. In other words,
the stronger the boundaries created by the pro-presidential block for the
premier, the less harmful she would be for Ukraine’s system of power.

The strength of the boundaries in this case depends on institutional and
political factors. Institutionally, Tymoshenko will be limited by a policy
document signed by all members of the coalition. There will be a system
of interdependence and hedges at the personnel level.

After lengthy debates, Petro Poroshenko, Tymoshenko’s main political
opponent, has been nominated for parliamentary speaker.

The post of deputy prime minister for the regional policies may go to
Roman Bezsmertny, who had prevented Tymoshenko from tackling
personnel issues in the regions.

In fact, Ukraine may see a repetition of an old conflict.

Cabinet portfolios and leadership in parliamentary committees will be
distributed according to a quota principle, although asymmetrically. The
spheres that will be controlled by Tymoshenko’s eponymous block in the
cabinet will be given over to Our Ukraine or the Socialist Party in
parliament.

In other words, Tymoshenko’s decisions cannot be implemented without
a consensus approval by the coalition.

This might curtail Tymoshenko’s autonomy and make her almost fully
dependent on the coalition.However, this goal will not be attained if Our
Ukraine fails to maintain its political unity, which is a big question.

Firstly, the pro-presidential block split when the coalition was being
created. Petro Poroshenko and Yury Yekhanurov – the key figures in
the block – called for joining forces with Viktor Yanukovich’s Party of
Regions. Moreover, many members of Our Ukraine have a negative
attitude to Tymoshenko.

Although the final decision was made in favor of Tymoshenko’s block
and the Socialist Party, Our Ukraine is trying to remain friendly with all
major players, securing a loophole for a potential future coalition with
Yanukovich’s opposition party.

Secondly, Our Ukraine could not choose the candidate for the parliament
speaker for a long time. Apart from Poroshenko, it also considered
Anatoly Kinakh of the Party of Industrialists and Entrepreneurs, and
Vladimir Stretovich of the Christian-Democratic Union. The issue
concerned not only the candidates’ rivalry, but also the strategic choice
of Viktor Yushchenko.

The president eventually chose Poroshenko, because this would
complicate the formalization of the “orange coalition.” Tymoshenko’s
block will accept Poroshenko only in a package vote (together with
Tymoshenko’s appointment as prime minister), which contradicts the
Ukrainian Constitution. The coalition will be put to the test very soon.

Tymoshenko could become increasingly uncontrollable because of
differences with Our Ukraine, whose politicians tend to be more
pragmatic. She could provoke conflicts and appeal to the president, who
usually prefers to keep clear of scandals.

But Tymoshenko is not the main problem of the coalition. Its main problem
is that Our Ukraine could not choose the coalition partner (Yushchenko
made the choice for it), and the block’s ambitious and heterogeneous
members wanted to get levers of power although they had lost the
parliamentary elections. -30-
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Tatyana Stanovaya is chief analyst at the Center for Political Technologies.
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5. MAJORITY COALITION GIVING UP ON VOTING FOR RADA
SPEAKER AND PRIME MINISTER IN ONE PACKAGE


Ukrainian News Agency, Kyiv, Ukraine, Saturday, July 1, 2006

KYIV – Our Ukraine bloc MP and leader of the Industrialists and
Entrepreneurs Party Anatolii Kinakh declares that the parliamentary majority
coalition has decided to quit voting on the candidacies for the positions of
the parliament speaker and premier in one package. Kinakh was speaking
during the 7 Minutes program on the Studio 1+1 TV company.

“I am absolutely sure and glad that, and President Viktor Yuschenko has
confirmed this and in fact this is the decision of the coalition, the
elections of the chairman of the Verkhovna Rada and the appointment of the
prime minister must comply with the requirements of the legislation and
regulations and [there must be] no packages,” he said.

In response to a question whether there was anxiety that the Verkhovna Rada
might not support Yulia Tymoshenko for the premiership and the Our Ukraine
bloc’s candidate Petro Poroshenko for the speaker, Kinakh said the vote on
the two candidates would be a test for the coalition of the democratic
forces regarding the sincerity and ability to meet their commitments.

Kinakh said his party had not endorsed its final decision to support or not
Poroshenko for the Rada speaker. “We have not endorsed a final decision, we
have big doubts,” he said.

Kinakh said his party favored the existence of the balance of responsibility
and the control between the legislation and the executive branches of power.
Kinakh said, however, it was inadmissible to allow the control on the ground
of personal competition.

Kinakh also criticized the quota principle in the appointment to the state
positions, as the quota principle of distribution of portfolios among the
political forces making the coalition is, in his opinion, primitive.

Personal moral and professional merits rather than the membership in a
political force should be of decisive importance in the appointment to a
state post, he said.

As Ukrainian News earlier reported, President Viktor Yuschenko called on the
Verkhovna Rada on June 28 to stick to the norms of the constitution in the
vote on the candidates for the parliament speaker and the prime minister.

On June 27, the parliamentary majority coalition decided to vote on the
speaker and the prime minister in one package. The Party of Regions faction
is blocking the work of the Verkhovna Rada to prevent from the voting on the
election of the parliament speaker and the appointment of the premier in one
package or from changing the regulations of the parliament and the
distribution of the parliament positions in favor of the coalition. -30-
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6. TYMOSHENKO WILL BE APPOINTED PRIME MINISTER JUST AFTER
POROSHENKO IS APPOINTED SPEAKER OF THE PARLIAMENT?

Ukrayinska Pravda online, Kyiv, Ukraine, Sun, July 2, 2006

KYIV – President Viktor Yushchenko is going to nominate Yuliya Tymoshenko
for premier after the parliamentarians appoint speaker, Head of the
Presidential Secretariat Oleh Rybachuk said in his interview with
journalists.

Rybachuk says such order is conditioned by speaker’s obligation to sign the
nomination for premier before it falls into the president’s hands.

He also reveals that the Presidential Secretariat has already registered the
nomination paper for premier signed by the coalition leaders. Rybachuk also
thinks theoretically the two top dignitaries may be appointed the same day.

He hopes the Verkhovna Rada will start working on Monday after the factions’
leaders tackle the current political clash at the roundtable discussion.

Yushchenko was reported earlier this week to call for an honest voting for
premier and speaker in accordance with the acting procedural rules and the
Ukrainian Constitution.

Formally the three-party coalition proposed Yuliya Tymoshenko’s candidature
for prime-minister the very day it was proclaimed – on June 22. (Source:
Obkom)(Translated by Irena Yakovina) -30-

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LINK: http://www.pravda.com.ua/en/news/2006/7/2/5621.htm
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7. REGIONS PARTY DOESN’T INTEND TO YIELD PARLIAMENT
TILL ORANGE MAJORITY SHARES POWER WITH IT

Kommersant, Moscow, Russia, Friday, June 30, 2006

KIEV – Regions Party of Viktor Yanukovich delivered an ultimatum June 20,
pledging to block Supreme Rada till the Orange majority shares power with
it.But the Orange coalition itself is going through clashes despite the
seemingly agreed distribution of offices.

Another attempt of Ukrainian deputies to put Supreme Rada into operation
proved abortive. Regions Party prevented the Orange even from opening a
parliament’s sitting June 29, where Yulia Timoshenko was to be confirmed as
Prime Minister. The opposition deputies stood near the speaker rostrum with
protesting slogans, including “We will defend Ukraine’s laws and
constitution.”

At the same time, the Regions Party leader Viktor Yanukovich called on the
Ukrainians to stand for the spring victory.

“We have a difficult time, when the authorities attempt to steal our and
your victory and exclude half of Ukraine from ruling the country,”
Yanukovich said in the address. “We have declared an ultimatum to Orange
forces. Its essence is that we will be blocking the work of the parliament
until they agree to live under the law and the constitution.”

Meanwhile, the Orange coalition is apparently in no mood to surrender. The
only one who spoke of some compromising was Roman Bessmertnykh, leader

of Our Ukraine faction. “It’s clear that the question is in committees,”
Bessmertnykh said, acknowledging that negotiations would call for changes in
the coalition agreement, which had been attained with great difficulty.

And Bessmertnykh had reason for sure. The unity of the Orange is far from
strong. Leader of Socialist Party, Alexander Moroz, made clear yesterday
that Our Ukraine would have to abandon Pyotr Poroshenko as the future
speaker of Supreme Rada.

According to Moroz, Poroshenko is not only associated with big business but
may also trigger a new political crisis, similar to last year’s one, which
ended by resignation of Yulia Timoshenko’s cabinet.

Our Ukraine rebuffed in no time. “We would like to ask Moroz whether his
statement about the speaker’s candidature could be viewed as withdrawal from
the coalition,” said Tatiyana Mokridi, who is in charge of the information
department at Our Ukraine. “The agreement spells out that none of the
coalition members may veto any candidates put forward by other party.”

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8. UKRAINIAN OPPOSITION LEADER YANUKOVYCH URGES PROTESTS

Natasha Lisova, Associated Press Writer, Kiev, Ukraine, Sat, July 1, 2006

KIEV, Ukraine — Opposition leader Viktor Yanukovych called Saturday for
mass protests nationwide if Ukraine’s recently formed governing coalition
doesn’t give his party a greater role in parliament.

Lawmakers from Yanukovych’s Party of Regions prevented members of the
coalition from taking their seats in parliament last week, stopping a vote
on giving ousted Prime Minister Yulia Tymoshenko her former job.

The country’s pro-Western, reformist parties agreed June 21 to form a
coalition government that would return Tymoshenko to the post and reunite
the three parties that led the 2004 Orange Revolution.

But the deal shut out lawmakers from the pro-Russian Party of Regions,
which got the most votes in March parliamentary elections.

Yanukovych’s party has demanded chairmanships of key parliamentary
committees and more influence in eastern and southern regions, where it
dominates. The coalition is considering giving the Party of Regions mostly
deputy chairmanships.

“We call on them (our voters) to be ready for civil protests if the Orange
coalition continues to violate human rights, laws and the constitution,”
Yanukovych told a party convention in eastern city of Dnipropetrovsk.

The Orange coalition has accused Yanukovych’s party of blackmail. “The Party
of Regions has already done a lot of stupid things. Now they are in agony
since they failed to get power in civilized way,” said Borys Bespaliy, an
ally of President Viktor Yushchenko.

The Orange Revolution saw hundreds of thousands of protesters filling the
streets of Kiev for weeks in late 2004 to protest fraud during the
presidential election. The official results said Yanukovych had defeated
Yushchenko. In the rerun election, Yanukovych was defeated.

Yushchenko fired his former ally, Tymoshenko, as prime minister last year
after an acrimonious split among the one-time allies in the Orange
Revolution.

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9. WORLD CUP ADVENTURE OVER FOR SPIRITED UKRAINE

By Kevin O’Flynn, Staff Writer, Moscow Times
Moscow, Russia, Monday, July 3, 2006

HAMBURG — When Ukraine was knocked out of the World Cup,
Stepan Pasicznyk, a second-generation Ukrainian living in London,
initially bemoaned the zhovto-blakitniye’s fate.

But then he wrote a song about it. “Sheva, Sheva, Sheva, Ukraina” has
as many words in it as in its title, but it captures a certain celebratory
spirit about Ukraine’s World Cup adventure.

The Ukrainians were not good enough to beat Italy in the Hamburg
quarterfinal and did little to impress those who criticized their defensive
style of play.But though Italy was a game too far, they returned as heroes.

Gianluca Zambrotta’s strike in the sixth minute immediately put Ukraine on
the ropes on Friday night against an Italian side that had yet to concede a
goal from an opposition player all tournament.

Ukraine, which toiled and fought throughout the game, never managed to
convert its greater share of possession into an attacking threat, a brief
spell in the second half aside. “Italy were a class above us,” admitted
coach Oleg Blokhin.

Ukraine had hit the post and had a shot cleared off the line before the
Italians snuffed out any chance of a comeback in the 59th minute with a Luca
Toni strike. And the Ukraine defense cracked and allowed Toni an easy
tap-in 10 minutes later to secure Italy’s berth in the semifinals.

At the end, a miserable-looking Andriy Shevchenko hugged his former
AC Milan teammates and wandered off alone to applaud the Italian fans.

Blokhin, meanwhile, looked like a man who had shed a heavy burden after the
game. “It’s not terrible that we lost 3-0,” Blokhin said. “They do not
forgive childish mistakes, although if we had scored …” he pondered.

Ukrainian President Viktor Yushchenko, the boxing brothers Klitschko and
Ukraine’s most famous drag artist, Verka Serduchka, were all in Hamburg to
see the game.

“Now the world has seen a different Ukraine,” said an e-mail from Pasicznyk,
a former member of the cult band The Ukrainians, which recorded the only
Ukrainian version of The Smiths’ “Big Mouth Strikes Again.”

“A united Ukraine. A Ukraine with cool-looking football stars and football
fans. East and West Ukraine have melted into one Ukraine that was glued to a
television or radio following Ukraine’s World Cup journey.”

The head of the Ukrainian Football Association, Hryihoriy Surkis, compared
Ukraine’s World Cup performances to West Germany’s in 1954, which helped
lift a nation after World War II and herald its rise from the ashes.

While that may be a slight exaggeration, Ukraine’s charge through to the
quarters this year should boost its joint bid with Poland to host the 2012
European Championships. “I think that we have a good chance to hold the
championship,” Blokhin said.

Perhaps more importantly, the football fever may boost the number of
top-class Ukrainian players in the future. Blokhin, who implied that he was
staying on as coach, complained that he had only 25 players to choose from
for the World Cup.

The Ukrainian FA might also understand that it should make a bigger effort
to make friends next time round.

Its restrictions on media access to training sessions and the decision not
to translate a number of news conferences into English did little to impress
the international media.

One German correspondent muttered dreamily of following Togo as he
waited for hours outside the Ukraine team’s hotel. -30-
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LINK: http://www.themoscowtimes.com/stories/2006/07/03/091.html

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10. ACCREDITATION FOR EASTERN EUROPEAN BUSINESS SCHOOLS
Kiev-Mohyla Business School (KMBS) in Ukraine
ISM University of Management and Economics in Lithuania

By Linda Anderson, Financial Times, London, UK, Mon, July 3, 2006

ISM University of Management and Economics in Lithuania and Kiev-Mohyla
Business School (KMBS) in Ukraine have gained accreditation from the Central
and East European Management Development Association (Ceeman), writes
Kester Eddy.

Twelve business schools in the region now hold Ceeman’s IQA international
Quality Award certificates.

ISM, which has campuses in Vilnius, the Lithuanian capital, and Kaunas, the
country’s second city, is the first business school in Lithuania to receive
international accreditation, says Virginijus Kundrotas, ISM president.

“Ceeman accreditation means that our efforts to be an international,
research-based business school with strong relations with the business
community has been recognised internationally,” he adds.

At Kiev-Mohyla, Pavlo Sheremeta, dean, says the award reflects the hard work
at the school during the past seven years and is recognition that KMBS is
now a world-class business education institution.

Preparation for the award involved a valuable process of self-assessment and
peer evaluation that gave the school a chance to reassess achievements,
priorities and future plans.

“In the developing world of business education in Ukraine, accreditation is
important [since] a business school – in the eyes of its students – must
comply with certain ‘industry standards’, of which accreditation is one,”
says Prof Sheremeta. (www.ism.lt; www.kmbs.com.u)
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LINK: http://www.ft.com/cms/s/df5b4ea6-0a2f-11db-ac3b-0000779e2340.html
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11. ITALY’S BANK INTESA’S UKRAINE BANK DEAL HITS HURDLE

By Roman Olearchyk in Kiev and Adrian Michaels in Milan
Financial Times, London, UK, Monday, July 3 2006

Banca Intesa’s Euro1bn ($1.3bn) acquisition of a leading Ukrainian bank is
likely to be delayed beyond the original completion date in September due to
a bitter legal dispute between some of the country’s most powerful business
figures.

Italy’s second-largest bank announced in February that it had struck a deal
with Viktor Pinchuk to purchase almost 90 per cent of the share capital of
Ukrsotsbank in two tranches ending “not later than September”. Mr Pinchuk is
the controlling shareholder of the bank and son-in-law of Leonid Kuchma, the
former Ukraine president.

However, Mr Pinchuk’s business rivals and regulatory delays have put the
acquisition behind schedule. In March, a lawsuit was filed in the US by
lawyers for a Ukrainian business group led by Igor Kolomoisky, another
businessman.

The suit accuses Mr Pinchuk and associates of siphoning “hundreds of
millions in dollars” from a prized ferroalloy company in Ukraine through
“self-dealing”. The suit says: “Upon information and belief, Mr Pinchuk used
tens of millions of dollars of proceeds diverted from Nikopol [the
ferroalloy plant] to purchase his controlling interest in [Ukrsotsbank] in
2004.”

Minority shareholders in Ukrsotsbank have also started a legal challenge to
Mr Pinchuk’s attempts to sell the bank.

People close to the deal acknowledged over the weekend that completion in
September now seemed unlikely as the legal battles had not been resolved.
Intesa said: “Considering the events which occurred after the signing of the
purchase agreement, Banca Intesa is conducting the necessary in-depth
analyses together with the seller.”

People close to the deal said Intesa was unlikely to take on unnecessary
risks by pushing for completion before the legal situation was clarified. An
official at Mr Pinchuk’s Interpipe Corporation instead blamed regulatory
delays.

He said: “The agreement to sell the banks is in force. The National Bank of
Ukraine and the central bank of Italy are holding it up in connection with
their inquiries. These inquiries pertain to the financial results of the
bank [and] are formalities.”

Companies controlled by Mr Pinchuk and Mr Kolomoisky have been waging
a legal battle for control of the ferroalloy plant while Ukraine’s
government
has tried to return a majority stake in the plant to state hands, arguing
that its earlier privatisation and sale of control to Mr Pinchuk was carried
out improperly. -30-
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http://www.ft.com/cms/s/8aba6436-0a2f-11db-ac3b-0000779e2340.html
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12. INTERNATIONAL BANK OF AZERBAIJAN TO OPEN BRANCHES
IN UKRAINE, DUBAI, TURKEY AND LUXEMBURG

Azertag, Baku, Azerbaijan, Sunday, July 02, 2006

BAKU – The International Bank of Azerbaijan (IBA) will open its
branch in Dubai. It is the first branch out of four that IBA is going
to open abroad.

The other three branches are scheduled to be launched in Turkey,
Ukraine and Luxemburg.

The branches in Germany and Great Britain are already operational.
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LINK: http://www.azertag.com/en/
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13. EU LIMITS IMPORT OF STEEL PIPING FROM RUSSIA & UKRAINE
Decided Russia and Ukraine supply pipes at ‘dumping prices’

Itar-Tass, Moscow, Russia, Sunday, July 2, 2006

LONDON – The European Commission imposes additional restrictions on
import of steel seamless pipes from Russia and Ukraine. These pipes are
used also for construction of oil and gas pipelines as well as for
infrastructure of the chemical industry and municipal economy.

The decision on limiting the import of Russian and Ukrainian pipes was
adopted after an investigation by the European Commission into complaints
by several producers inside the European Union, Itar-Tass learnt from a
representative of the European Commission on Sunday.

A special meeting, held on June 27, drew the conclusion that Russia and
Ukraine supply the EU these pipes “at dumping prices”. As a result, they
will have to pay an additional tax of 35 percent.

The European Union noted that restrictive measures on the Russian steel
industry are imposed largely at the initiative of the British-Dutch company
Mittal Steel which was the competitor of Severstal for control over the
Luxembourg-based Arcelor Corporation.

A branch of Mittal Steel in the Czech Republic, which joined the committee
for the protection of the EU pipe-building industry, very active in the
European Union, was among initiators of anti-dumping tariff measures.
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http://www.itar-tass.com/eng/level2.html?NewsID=10586039&PageNum=0

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14. ACHILLES’ HEEL OF EUROPEAN ENERGY SECURITY
Bulk of natural gas Ukraine imports through Russia comes from Turkmenistan

FEATURE ARTICLE: By Daniel Kimmage
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Sunday, July 2, 2006

In the wake of the “gas war” between Russia and Ukraine in early 2006, and
the brief interruption it caused in supplies to Europe, the world awoke to
the increasing importance of Central Asian natural gas for European energy
security. After all, the bulk of the natural gas that Ukraine imports
through Russia comes from Turkmenistan.

Now, with international ratings agency Fitch warning that the elements are
in place for a “perfect storm” of an energy crisis, news comes on July 30
that talks between Turkmenistan and Ukraine over an independent agreement
for gas supplies in the fourth quarter of 2006 have bumped up against the
issue of transit through Russia.

The previous day, Turkmenistan and Russia’s state-controlled Gazprom broke
off talks on late-2006 shipments to Russia amid Turkmen threats to cut off
supplies in September. Is the storm fast approaching?

Ukrainian Fuel and Energy Minister Ivan Plachkov arrived in Ashgabat on June
29, as Turkmenistan and Gazprom both reported that negotiations between
Gazprom Chairman Aleksei Miller and Turkmen President Saparmurat Niyazov
were “broken off.”

Gazprom’s press release stated that the breakdown occurred after the sides
“failed to reach an agreement” over Turkmenistan’s insistence that Gazprom
pay $100 per 1,000 cubic meters for 2007 shipments and additional 2006
shipments.

Until now, Gazprom has paid $65 per 1,000 cubic meters of Turkmen gas.
Turkmenistan’s official TDH news agency reported that Turkmenistan will
finish deliveries of a previously contracted 30 billion cubic meters (bcm)
at $65 per 1,000 cubic meters by September. After that, Turkmenistan
threatened, it will halt shipments to Russia.

FEELING THEIR EFFECTS IN KYIV
The Gazprom-Turkmenistan price tiff had direct implications for Ukraine,
which consumes 76 bcm of gas a year but produces only 20 bcm. It imports the
remainder, with 41 bcm in Turkmen imports planned for 2006.

The January compromise that ended the Russian-Ukrainian gas showdown set up
a complex scheme for Ukrainian imports. Ukraine buys gas at $95 per 1,000
cubic meters from Rosukrenergo, a Swiss-registered trading company owned
half by Gazprom and half by two Ukrainian businessmen.

Rosukrenergo buys gas from Gazprom, which sells the trader a mixture of
Russian gas at over $200 per 1,000 cubic meters and much cheaper Central
Asian gas (primarily Turkmen, with lesser quantities from Kazakhstan and
Uzbekistan).

For Ukraine, the upside of the January compromise was the final price of $95
per 1,000 cubic meters, lower than prices elsewhere in the former Soviet
Union (outside Russia and Belarus) and far lower than the EU average price
of $240 per 1,000 cubic meters.

And price matters — analysts forecast a grim fate for Ukraine’s
energy-intensive chemical industry if the price of gas edges above $100, and
tough times for the metal industry if it goes higher. Which brings us to two
significant downsides of the January compromise: 1) its reliance on cheap
Central Asian gas, and 2) its susceptibility to renegotiation after six
months.

Both downsides were soon evident. In May, Kazakhstan, which is slated to
ship 8 bcm to Russia in 2006, garnered a price hike from $50 to $140 per
1,000 cubic meters, “Vedomosti” reported on June 22. On May 22, Gazprom
Deputy Chairman Aleksandr Ryazanov announced that the rising price of
Central Asian gas could increase Ukraine’s purchase price to $130, according
to the Economist Intelligence Unit.

On June 20, Turkmenistan’s Foreign Ministry announced that it planned to
raise the price of gas for Gazprom in the second half of 2006 from $65 to
$100 per 1,000 cubic meters. Ryazanov told a press conference the same day
that he envisaged Ukraine paying $150-$160 per 1,000 cubic meters by the end
of the year.

TRICKY SPOT
In the Ukrainian-Turkmen talks on June 30, the Turkmen side noted that it
will complete deliveries of the 30 bcm it has contracted to Russia by
September. Then it offered Ukraine an independent deal for the fourth
quarter of 2006 at $100 per 1,000 cubic meters, turkmenistan.ru reported.

But the offer came with a catch beyond the expected price hike: Ukraine must
arrange transit for the gas — presumably in the quantity of approximately
10 bcm — through Russia on its own. The Ukrainian side will now return to
Kyiv for consultations, and negotiations with Ashgabat will be continued
later, turkmenistan.ru reported.

The failed talks between Gazprom and Turkmenistan on June 29, inconclusive
negotiations between Ashgabat and Kyiv on June 30, current lack of an
agreement to ensure Ukraine’s supplies through the end of the year, and the
Turkmen threat to cut off shipments in September if its rising price demands
are not met are, in the best light, tough bargaining in the extreme; in the
worst, they represent a step toward a new gas crisis. For now, the episode
lays bare the shifting sands on which Ukraine’s gas supply rests.

Those shifting sands led Jeffrey Woodruff, director of the energy group at
ratings agency Fitch, to warn on June 27 that the problems besetting the
Turkmenistan-Ukraine gas nexus had “the makings of a perfect storm,” Reuters
reported.

The specific elements Woodruff had in mind were Turkmenistan’s threat to
raise prices and the knock-on effect for Ukraine, Russian allegations that
Ukraine was failing to refill underground storage tanks at sufficient rates,
and rumblings in Ukraine of the need to renegotiate the knotted deal with
Rosukrenergo.

Woodruff stressed that “any of the events in isolation could be enough to
spark new supply interruptions in Europe, but all of them colluding near the
beginning of the G8 summit on energy security seems unbelievable.”

The root of Europe’s vulnerability is that Ukraine remains the conduit for
80 percent of the gas shipments the continent receives from Russia. And as
the events of January demonstrated, if Ukraine experiences a shortfall,
Europe does, too.
SYSTEMIC PROBLEM
The underlying problem is the fragility of the entire framework for keeping
Ukraine supplied with Turkmen gas, the essential component shielding
Ukraine’s economy from a potentially lethal price hike. What’s worse, the
fragility has multiple causes.

For starters, Ukraine’s economy is ill suited to withstand higher gas prices
even as those prices are rising.

And Ukrainian oil and gas company Naftohaz Ukrayiny is financially strapped,
with a $60 million debt to Turkmenistan for 2003-05 shipments and, according
to Gazprom, arrears of $370 million for 2006 shipments as of June 15
(although Gazprom Deputy Chairman Ryazanov said that he expected Ukraine to
pay that debt down to $100 million by July 1, and Ukraine has apparently
promised to make good on its $64 million debt to Turkmenistan in September).

Moreover, with prices in Western Europe well over $200 per 1,000 cubic
meters, Turkmenistan’s desire to receive more than $65 per 1,000 cubic
meters is natural. And Russia, which controls the only pipelines capable of
delivering Turkmen gas to Ukraine, has made it clear that it plans to seek
price increases across the board in the former Soviet Union, even from ally
Belarus.

Against this challenging backdrop, political conflict in Ukraine — where
the formation of a coalition government has stalled amid parliamentary
infighting — has hampered the government’s ability to fashion a unified
negotiating position. Rocky relations between Russia and Ukraine are another
impediment. Both elements have been on full display of late.

Yuliya Tymoshenko, the expected prime minister in Ukraine’s nascent ruling
coalition, announced on June 22 that Ukraine must review existing gas deals
and “build new agreements on a friendly basis with the Russian Federation,
Turkmenistan, Uzbekistan, and Kazakhstan.”

Gazprom spokesman Sergei Kupriyanov warned the next day of a “new gas
crisis” and charged that Tymoshenko’s statements “once again confirm that
Ukraine is the weak link in the system of gas suppliers to Europe,” AP
reported.

Days later, amid continued wrangling in Ukraine’s parliament, Ukrainian Fuel
and Energy Minister Ivan Plachkov told Kyiv’s Channel 5 that there was, in
fact, no need to renegotiate the January 4 deal with Russia over Turkmen
gas.
THE NIYAZOV FACTOR
Yet another factor is Turkmen President Saparmurat Niyazov, who enjoys
nearly unlimited power and has used it to indulge in such megalomaniacal
whimsy as the construction of a huge golden statue of himself that rotates
to face the sun at all times. In late December, Niyazov signed a deal with
Ukraine to supply 40 bcm in 2006 at $50 per 1,000 cubic meters in the first
half of the year and $60 in the second.

Days later, he signed another contract with Gazprom at a higher price, and
that deal eventually served as the basis for the arrangement with
Rosukrenergo that has seen Ukraine pay $95 per 1,000 cubic meters thus far
in 2006. The contract with Ukraine was never implemented.

The deal that was implemented — involving Turkmenistan, Russia, the
Swiss-registered Rosukrenergo, and Ukraine — drew fire for its murk and
middlemen. In an April 2006 report on the Turkmen-Ukraine gas trade, NGO
Global Witness documented a history of business practices that can
charitably be described as highly unorthodox culminating in the creating of
Rosukrenergo.

Global Witness also reported that 75 percent of Turkmenistan’s hard-currency
revenues from gas sales go into shadowy extra-budgetary funds controlled by
Niyazov. The report concluded that the January 4 contract that resolved the
Russia-Ukraine gas dispute, and ended the interruption of supplies to
Europe, “does not guarantee any security for any substantial period of
time.”

Global Witness stressed that “the tangled maze of companies described in
this report is hardly a solid foundation for a trade of such commercial and
geostrategic importance.”

GAZPROM ON ITS GUARD
And then there is Kremlin-controlled Gazprom, which jealously guards the
only pipelines that can ship Turkmen gas to Ukraine. Before he arrived in
Turkmenistan, Ukrainian Fuel and Energy Minister Plachkov had said that he
hoped to negotiate with Turkmenistan under the original, late-December
contract that set a price of $50 per 1,000 cubic meters in the first half of
2006 and $60 in the second.

But Turkmenistan’s Foreign Ministry announced on June 30 that Gazprom,
citing limited pipeline capacity, refused in December to provide a license
for the transport of gas through Russia under the Turkmen-Ukraine contract.

It is precisely such a license that Turkmenistan has now proposed that
Ukraine try to negotiate with Russia, turkmenistan.ru reported. What’s more,
Turkmenistan “is ready to review the issue of gas shipments to Ukraine in
2007 if the Ukrainian side receives a license for its transit.”

The negotiating ploy here seems clear — to put the ball in Gazprom’s court,
letting Russia decide whether or not it wants to imperil a possible
Turkmen-Ukrainian gas deal. And the timing is dramatic, with Russia set to
host a G8 summit on energy security in only two weeks’ time.

Yet the waters of the Turkmen-Ukraine gas trade have never been muddier. For
one, the 2007 shipments Turkmenistan is now “ready to review” were thought
to have been promised to Russia under a 2003 “contract of the century.” But
as previous experience with Turkmenistan has shown, contracts are not the
final word.

That belongs to Niyazov — who is only one factor among the many enumerated
here, all of which are coming into play as Europe, which receives one-fifth
of its gas through Ukraine, watches and wonders about the winter ahead.
—————————————————————————————————–
NOTE: Daniel Kimmage is the Central Asia regional analyst with RFE/RL Online
and editor of the “RFE/RL Central Asia Report.” He also writes about the
Arab world and Russia with a particular focus on the ideology of Islamist
movements. He holds an M.A. in Russian and Islamic history from Cornell
University. He previously worked as a journal editor at the Institute of
Oriental Studies in St. Petersburg, Russia.
—————————————————————————————————————-
http://www.rferl.org/featuresarticle/2006/06/d07bcab3-c72d-4eaa-a1eb-456b146c0859.html
—————————————————————————————————————–
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
15. RUSSIA’S NEW WORLD ORDER
Buoyed by expensive energy and a booming economy, the Kremlin
is once again flexing its muscles abroad – but very carefully.

By J.F.O. MCALLISTER, TIME magazine, Sun, Jul. 10, 2006 issue

There aren’t many clubs harder to join than the G-8. You have to be at the
top of the global heap: one of the very richest industrialized countries,
potent enough to help steer the world’s economy. And you’re supposed to
be a functioning democracy too.

So when Vladimir Putin opens this year’s G-8 summit next weekend at the
sumptuous Palace of Congresses overlooking the sea 15 km from St.
Petersburg, the famously stone-faced Russian President can be forgiven a
brief flicker of a smile. The former kgb officer in East Germany will be in
charge of a gathering to which, by any objective measure, he should not have
been invited.

Even now a small army of diplomats is buttoning up the communiqués that will
record a bland consensus on three topics Putin has chosen for the first G-8
Russia has ever hosted: energy security – which Moscow itself made
controversial in January by cutting off gas supplies to Ukraine after
raising the price of the commodity by 400% – and the less contentious areas
of education and infectious disease.

But the main focus of attention will be Russia itself: a Russia awash in oil
money and emboldened by it, becoming less free at home and more assertive
abroad, in ways that have increasingly disappointed and worried leaders who
used to talk of a “strategic partnership” but now fear, as one scholar
recently put it, that “Russia is leaving the West.”

The George W. Bush who in 2001 said of Putin that “I looked the man in the
eye . I was able to get a sense of his soul” and “found him to be very
straightforward and trustworthy,” sent Vice President Dick Cheney to
Lithuania in May to declare that Russia should stop using its oil and gas
supplies to keep customer countries in line, and to complain that Putin’s
government “has unfairly and improperly restricted the rights of her
people.”

Privately, the other G-8 leaders regret giving Russia the nod four years ago
to host this year’s gathering. Instead of a carrot to induce improved
behavior, the venue has become a spectacular stage for Putin to proclaim
his rather different message: Russia is back, and I’m in charge.

That’s why the St. Petersburg summit may be more significant than most such
gabfests. It will focus the world’s attention on two crucial questions: What
does Putin’s Russia really want? And will that lead to more conflict with
other countries, even another cold war?

REPAYMENTS
Churchill’s old saw about Russia being a riddle, wrapped in a mystery,
inside an enigma continues to have force now that the Iron Curtain has long
since been pulled back. Moscow’s more muscular approach to the world has
roots in its domestic politics. And there, a contradictory welter of good
and bad developments contend for dominance, giving the Kremlin cause for
both expansive confidence and prickly insecurity. The economy is booming.

Since 1999, growth averaging more than 6% a year has produced a cumulative
expansion of 65%. High oil prices are the main reason. Still, says Roderic
Lyne, a former British ambassador to Moscow, “the boom doesn’t stem from oil
alone. Genuine entrepreneurs have built good businesses in telecom,
information technology, retail, brewing, food processing and consumer
credit.”

A government that was broke under President Boris Yeltsin has had six budget
surpluses in a row, just agreed to speed repayment of its foreign debt, and
has socked away over $70 billion in a rainy-day fund. More than 6 million
Russians a year now take foreign holidays.

There are more than 100,000 U.S.-dollar millionaires. It’s also true, as
Lyne argues, that Russians have rarely been so free. “They are vastly freer
than the Chinese. They can live well and have fun. They can read, watch, say
what they like and access the Internet.” Perhaps unsurprisingly, in polls
Putin’s approval ratings are high, nearly 70%.

But these positive trends coexist with many signs that Russia is stumbling
on the path toward free-market democracy – so much so that some U.S. and
European legislators and human-rights groups want to kick it out of the G-8.
Russia’s postcommunist transition was always going to be slow and erratic,
but what worries many experts now is that the direction of travel in many
areas is reverse.

U.S. pro-democracy organization Freedom House’s annual country ratings
show a steady decline in Russia’s adherence to fair elections,
representative government and press freedom. State-controlled companies
already run 40% of the economy, and the share is rising – part of a wider
pattern of centralizing power in the hands of the President and his closest
associates.

One result is that the World Economic Forum ranks Russia poorly on
corruption: 106th out of 117 countries, for example, in “favoritism in
decisions of government officials,” and 108th in protection of property
rights.

If Putin has noticed such criticisms, he gives little sign of it. He has
turned the Duma, political parties and regional governments into elaborate
rubber stamps. “The separation of powers has been dismantled,” says Vladimir
Ryzhkov, one of the very few independent liberal deputies left in the Duma.
“All power belongs to the President and his administration, and 1.3 million
federal bureaucrats.”

People don’t go to jail for expressing deviant views anymore (though a bill
about to pass through the Duma will soon make that possible), but organized
politics have been switched off in favor of direct rule. People can watch
and read what they want, but the state apparatus controls all TV news and
steers most newspapers.

Many nongovernmental organizations (ngos) that might shine a light on
official abuses have been curbed; George Soros’ Open Society Institute was
shut down. These restrictions, which Putin argues were necessary to halt a
slide into anarchy, are a big reason why others in the G-8 are critical.

It’s a problem that goes deeper than Putin: his approach has won substantial
popular support, which means that any successor will likely continue along
his path. Buoyed by stability and economic growth at home, Russia under
Putin has been able to develop a foreign policy that seeks to re-establish
its place as a key actor on the world stage, and which preserves what Russia
thinks of as its traditional prerogatives in its immediate neighborhood.

A senior Bush Administration official says the main message from the Kremlin
is that “Russia’s back, back like it hasn’t been since the breakup of the
Soviet Union.” What does that mean for the rest of the world?

BALANCING WASHINGTON
For Putin’s policymakers, the U.S. remains the instinctive adversary, the
country whose preponderance the Kremlin yearns to balance. Russia, of
course, is not alone in seeking that goal; French President Jacques Chirac
regularly advocates a “multipolar” world (and compared to many other G-8
leaders, has been markedly uncritical of Putin’s record). But the intriguing
thing about Putin’s policy has been the way in which he has aligned Russian
interests with those of another natural rival to the U.S., China.

Putin and China’s President Hu Jintao meet frequently – five times in the
last year alone. They’ve reached agreement on how to draw their countries’
long-contested border and conducted large-scale joint military exercises.
Two-way trade, which reached $29.1 billion last year, was up more than 50%
in the first quarter of 2006 compared to 2005.

Hu and Putin have a lot in common besides their approach to the U.S.:
hostility toward “separatism” (in Chechnya, Tibet and Xinjiang) and wariness
of politically unpredictable actors such as environmental groups,
journalists and U.S.-funded ngos. They combined to pressure the U.S. to
withdraw from a base in Uzbekistan established to help fight the Taliban,
and have tried to engineer an eviction from another base in Kyrgyzstan.

BEIJING
Editorials in China reflecting Beijing’s official line blame Washington for
a lingering cold-war mentality and stay tight-lipped on Putin’s
authoritarian excesses. “It’s the best relationship between China and Russia
in years,” says Jiang Zhenjun, a professor at the Institute of Russian
Studies at Heilongjiang University in Harbin. “Some say the relationship has
peaked, but I think it’s more like a couple in love: they’ve decided to
marry and now what’s left is to learn to live together on a day-to-day
basis.”

Even so, love may not conquer all. China is Russia’s biggest customer for
military equipment, but Moscow still has enough concern about China’s
intentions that it won’t sell Beijing its best stuff. China wanted a new
4,100-km oil pipeline to go from Siberia directly into its territory, to
ensure control over supplies; instead, Russia is building the main line to
Nakhodka on the Pacific, from where it can sell to Japan, the U.S . and
Korea, with just a branch to China.

Perhaps the greatest potential deal the two could strike is on manpower.
Russia’s male life expectancy has slumped to 58. It faces a declining
population and will need millions of new workers to keep its economy
chugging. China could easily supply them.

But Russia, says Guan Guihai, associate dean of the School of International
Studies at Peking University, “remains concerned that the Chinese population
could overtake the Russian population in the border regions if labor
policies were changed, and that would threaten national security.” He says
Russia gets nervous if China “sends as much as an economic research mission
to one of the Central Asian countries.” A marriage this may be, but it is
one between porcupines.

The Middle East is another area where Moscow is feeling revitalized – yet
there again, within limits. Arab unhappiness with the U.S. invasion of Iraq
and stagnation in the Israeli-Palestinian peace process have given the
Kremlin an opening to revive the strong ties the U.S.S.R. had with many Arab
governments – which are glad for a counterweight to Bush. Last year Putin
made the first journey to Cairo by a Russian head of state since Nikita
Khrushchev’s visit in 1964, just as President Hosni Mubarak was scrapping
his annual trip to the White House.

Russia is even starting an Arabic-language TV channel in the Middle East to
spread its influence. With a little luck, the potential exists for Moscow to
play a pivotal role in certain Middle Eastern issues, according to Gamal
Abdul-Gawad Soltan of Cairo’s Al-Ahram Center for Political and Strategic
Studies. Russia, says Soltan, can pursue “a policy of blocking a consensus
among major powers, which Middle East leaders can manipulate to avoid
isolation” by Washington.

But Moscow is calibrating its steps carefully – and Washington recognizes
the restraint. The most neuralgic Middle East problem is Iran, where Bush’s
determination to keep Tehran from getting nuclear weapons has been
repeatedly mediated by the desire of Russia, China and European powers to
coax Iran toward compromise rather than see an escalation toward another
military confrontation.

Russia has proposed a deal under which Tehran’s nuclear-power program can
proceed, but with fuel enriched at a joint center in Russia. Iran is glad
for Moscow’s help and hopes that its power and influence will grow over
time, says Saeed Laylaz, a former Iranian official and political analyst.
But Iran doesn’t figure Putin has enough juice to deliver the running room
it wants.

“Officials here know that Russia is not truly capable of supporting Iran,”
says Laylaz. In any event, on an issue that has become central to the Bush
Administration’s calculations, Washington is pleased enough with Russia’s
behavior. “Our view at this point is that the Russians are in the right
place on Iran,” says a senior U.S. official.

The U.S. sees restraint in the way Putin has handled other potential
disputes in the region. Russia sold missiles to longtime ally Syria, but the
weapons haven’t actually been shipped, as far as Washington knows. The Bush
administration was less than thrilled when Moscow invited Hamas leaders to
visit after they won the Palestinian elections – the organization is still
on U.S. and European terror lists.

Nevertheless, says the senior U.S. official, “as near as we can gather, they
passed on the right message about recognizing Israel, renouncing terrorism
and adhering to all the obligations the Palestinian authorities had
undertaken” about negotiating with Israel.

RECLAIMING THE HOOD: NATO & UKRAINE RAISE PRIMAL FEARS
An important priority for a re-energized Russia has been the “near abroad”:
the former territories of the Soviet empire. To watch what were once coerced
satellites like Estonia and Poland rush to join nato and the E.U. has been
hard enough. But the nato membership likely to be sought by Ukraine, which
shares a 2,063-km border with Russia, raises primal fears of encirclement.

Kremlin propaganda already blames the sudden collapse of empire and economic
dislocation on perfidy by ingrate “junior brothers” such as Ukraine, as well
as hostile plots by the U.S. and nato. Moreover, a group of military
officers and international-relations experts in Moscow is advancing new
reasons for a buffer zone.

They argue that the 21st century will be dominated by a “war over
resources,” says Yury Fedorov, an expert on Russia at Chatham House in
London. Its prevailing ethos will be: “If you have a lot of resources, and I
need them, I may use my gun to take them.”

Moscow’s heavy-handed interference in Ukraine’s 2004 orange revolution hints
at how easily discrepant views about the near abroad could flame up. The
West viewed Viktor Yushchenko’s victory as the triumph of people power over
a malign Soviet-style government; Moscow saw an anti-Russian plot by the cia
acting through democracy-promoting ngos. Should Ukraine go further by
applying to join nato, Russia could apply crippling economic sanctions,
including cutting off energy supplies or blocking trade.

The ice age that would descend is suggested by the withering view a
bipartisan task force for the U.S.-based Council on Foreign Relations
recently took of what Russia has already done in Ukraine: “A country that
has in the space of a single year supported massive fraud in the elections
of its largest European neighbor and then punished it for voting wrong by
turning off its gas supply has to be at least on informal probation at a
meeting of the world’s industrial democracies.”

REUNIFICATION
Other neighbors are uncomfortable, too. Russia and Germany agreed in the
final days of Gerhard Schröder’s Chancellorship to build a pipeline
bypassing Poland – thus making it possible to turn off energy supplies to
Poland without affecting Germany.

Polish Defense Minister Radek Sikorski likened the deal to the
Ribbentrop-Molotov pact carving up his country on the eve of World War II.
He was more diplomatic in an interview with Time last week, saying: “I’m
glad Russia has put energy security on the agenda of the G-8. It’s a crucial
issue for all of us.”

Not every nation that looks at the new Russia does so drenched with
suspicion. Germans still feel grateful to Russia for not trying to derail
unification. The country depends on Moscow for one-third of its gas, and the
proportion is rising. German banks and companies are a major source of
foreign investment in Russia, Ukraine and Eastern Europe, where turmoil
could be costly and disruptive.

Not surprisingly, “we have a realistic partnership with Russia, with good
cooperation on economic matters,” says Ruprecht Polenz, head of the
Bundestag’s foreign-affairs committee. “When you have good cooperation on
the economy, there are opportunities for both sides.”

Alexander Rahr, a Russia specialist at the German Council on Foreign
Relations in Berlin, says economic issues have come to predominate. “Merkel
can’t conduct a pro-human rights, pro-ngo policy toward Russia because then
how can she defend German business?”

Yet even Merkel, raised in East Germany, publicly criticized repression in
Chechnya while meeting with Putin in Moscow. She is “cooler and more
pragmatic” toward Russia than Schröder, says Rahr. Polenz argues that her
government “is more clear-eyed about Russia’s record on democracy and
freedom of expression, not to mention Chechnya.”

Despite Germany’s interest in placating Russia and doing business there,
Merkel would never think of giving Russia a free hand in its own backyard –
a second Yalta, as some Russian commentators have called it. Nor could any
other G-8 leader. Secret deals to divide up the world “just aren’t how
Western governments or public opinion work nowadays,” says Lyne.

There’s no simple way to solve the complex challenges a buoyant but flawed
Russia poses. And it’s worth remembering that today’s Russia is a very
different beast from the old Soviet Union, with its aggressive military
posture and proselytizing ideology.

That’s why every G-8 leader, from the time Mikhail Gorbachev first inched
down the path of perestroika, has concluded that the wisest course is to
help Russia help itself: persuading its leaders that their interest lies in
following international norms, while helping them build the domestic
institutions and the network of international economic and political ties
that such an alignment requires.

George W. Bush is no exception. He ran for office proclaiming contempt for
Bill Clinton’s closeness to Yeltsin, but in office has tried the same dance
with Putin – and his aides argue that over Iran, Hamas and North Korea, such
an approach is getting results.

Next week George and Vladimir will meet once again. Hard facts will be
attractively packaged. Bush is prepared to say that Putin should stop
centralizing power, for example, but not because Russia’s government is an
embarrassment to democracy. Rather, says a senior U.S. official, more
centralization will “create a situation where the Kremlin doesn’t get the
information it needs, won’t have the creativity and flexibility it needs to
deal with the challenges of the 21st century.”

If emollience is the approach of George W. Bush, not always known for that
attribute, no cold war is in store. But if Russia continues along the path
of domestic and foreign policy that Putin has set out, relations between the
bear and its G-8 partners are unlikely soon to be warm. -30-
————————————————————————————————-
With reporting by Susan Jakes/Beijing, Scott MacLeod/ Cairo, Azadeh
Moaveni/Tehran, Andrew Purvis/Berlin, Elaine Shannon/Washington and
Yuri Zarakhovich/Moscow
—————————————————————————————————————
http://www.time.com/time/europe/magazine/article/0,13005,901060710-1209926-1,00.html

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[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
16. AFTER BREAK FROM MOSCOW, GEORGIA FEELS ITS PULL AGAIN
President Saakashvili urges NATO and the EU to hasten embrace of Georgia.
Time may not be on the side of Georgia, Ukraine, Moldova or Azerbaijan

By Fred Weir and Daria Vaisman, Correspondents
The Christian Science Monitor, Boston, MA, Monday, July 3, 2006

MOSCOW AND TBILISI, GEORGIA – Mikhail Saakashvili is a man in a hurry.
Since being lofted into Georgia’s presidency by the “Rose Revolution” almost
three years ago, he has turned his nation toward the West in hopes of
gaining a secure berth in NATO and the European Union before the momentum
of Georgia’s pro-democracy revolt fades.

“I am really fed up with every European delegation coming [to Georgia] and
saying, ‘Oh, this place looks just like Europe,’ ” says Mr. Saakashvili, a
youthful, US-trained lawyer, in an interview. “Well, it doesn’t look like
Europe, it is Europe. We don’t have to prove it every time again.”

But time may not be on the side of Saakashvili, nor his peers in Ukraine,
Moldova, and Azerbaijan, all of whom have bumped their post-Soviet states
out of their traditional orbits around Moscow and are pleading for greater
economic and political backing from the West.

Most of those states have recently found themselves under heavy pressure
from Russia to reverse their choices, including Moscow-backed internal
political agitation, commercial embargoes, and threats of energy cut-off.

Saakashvili will meet President Bush at the White House Tuesday, where he is
expected to ask the US to champion Georgia’s case for more Western support
at the Group of Eight summit meeting in Russia, slated for July 15-17.

“I believe G-8 should be about values, the values about which [the
organization] was created,” says Saakashvili, citing Georgia’s turn to
democracy, economic freedom, and human rights. “Let’s hope the G-8
produces something.”

In May, the four states revived their regional grouping, GUAM
(Georgia-Ukraine-Azerbaijan-Moldova), as a vehicle to promote democracy and
economic cooperation as they move toward greater integration with Europe –
and away from Russia. This makes explicit a rift that has been creeping upon
the former Soviet Union since Georgia’s revolution threw down the gauntlet
to Moscow.

Some countries, including Belarus and Uzbekistan, are clustering more
tightly around Russia, which tends to accept their authoritarian political
systems and statist economic drift.

“This is a conflict of different visions of the future,” says Oleksandr
Shushko, research director of the independent Institute for Euro-Atlantic
Cooperation in Kiev. “Russia wants to be a separate center of power and
influence, different from the Western community, and to keep the post-Soviet
area as an integrated region under Moscow. The GUAM countries’ view is that
there is no more post-Soviet area. That’s finished.”

Russia has reacted angrily to the challenge – particularly the expressed
desire of Georgia and Ukraine to join the Western military alliance.

“NATO is the instrument of American foreign and military policy in Europe,”
says Oleg Bogomolov, honorary director of the Institute of World Economy and
Political Studies in Moscow. “Russia cannot understand why NATO is expanding
into the east, or why the US is promoting the disintegration of the
post-Soviet space.”

Earlier this year Moscow slapped an embargo on Georgian wine and mineral
water – the country’s two biggest exports – citing vague “health reasons.”
The estimated 1.5-million Georgians who live in Russia as “guest workers”
have lately found it much harder to get visas.

Moscow also backs two separatist enclaves in Georgian territory, Abkhazia
and South Ossetia, which many experts see as another ploy to intimidate
Tbilisi.

“Georgia is the most pro-Western [state in the GUAM group] but also one of
the weakest, which makes it vulnerable to Russian coercion,” says Svante
Cornell, research director for the Central Asia-Caucasus Institute in
Baltimore.

The tide of public opinion could be running against Saakashvili. An April
survey by the independent Institute of Polling and Marketing in Tbilisi
found that 51 percent of Georgians believe the country is “going in the
wrong direction,” compared with 25 percent in June 2005. While the poll
shows large majorities still favor joining NATO and the EU, public faith in
the economy and the health of Georgian democracy has fallen steadily over
the past two years.

Experts say Russia is working to exploit that disaffection by backing
opposition groups such as the Justice Party in hopes of fomenting a “Nettle
Revolution” that might sweep Georgia back into Russia’s embrace. “The
Georgian authorities have been intriguing against Russia,” says Sergei
Markov, a Kremlin-connected analyst. “We have to be very active, to get
inside Georgia’s internal politics and help our allies there, just as the
Americans have been doing.”

Ukraine has similarly endured Russian boycotts of its meat and dairy
products, as well as a brief shutdown of gas supplies in January. Though the
feuding pro-Western “Orange” groups have managed to cobble together a
governing coalition, the largest single force in parliament remains the
pro-Moscow Regions Party, led by Viktor Yanukovich, the man accused of
rigging the 2004 presidential elections.

The country’s pro-Western president, Viktor Yushchenko, has pledged to apply
for NATO membership, perhaps as early as 2008. But lawmakers in the mainly
Russian-populated province of Crimea gave him a taste of the political
storms that may lie ahead by voting last month to declare Crimea a
“NATO-free zone.”

Earlier, two weeks of street demonstrations by anti-NATO activists forced
the hasty departure of about 250 US Marines who’d been in Crimea to prepare
for joint military exercises with Ukraine.

“This is part of a Russian attempt to reestablish control over Ukraine,
using various levers,” says Mr. Shushko.

Saakashvili says that Russia’s partners, such as the G-8, should help the
Kremlin learn to embrace democratic changes in the former Soviet Union.

“We can offer Russia a model of peaceful transformation and partnership
that would be good for Russia [in the long run], because it needs a stable
neighborhood,” Saakashvili says. -30-
———————————————————————————————–
LINK: http://www.csmonitor.com/2006/0703/p06s02-woeu.html
———————————————————————————————–
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
17. YUSHCHENKO PRAISES SUCCESSFUL YOUNG MINISTERS
Praises Kyrylenko, Pavlenko, Bondar, And Yatseniuk

Ukrainian News Agency, Kyiv, Ukraine, Sunday, June 25, 2006

KYIV – President Viktor Yuschenko says Vice Premier for humanitarian
issues Viacheslav Kyrylenko, Family, Youth, and Sport Minister Yurii
Pavlenko, Transport and Communications Minister Viktor Bondar, and
Economy Minister Arsenii Yatseniuk were the most successful ministers
in the Cabinet of Ministers. He presented his estimation of the ministers in
his radio address.

“The youngest ministers became almost the most successful members of the
government. They are Vice Premier Viacheslav Kyrylenko, Transport and
Communications Minister Viktor Bondar, and Economy Minister Arsenii
Yatseniuk who did a colossal work in eight months related to the admission
of Ukraine to the World Trade Organization,” Yuschenko said.

He said he did not feel sorry for appointing 30-year men to the Cabinet of
Ministers. “While forming the team, I staked on young professionals and I
think I was not wrong when offered 30-year old men to join the government,”
Yuschenko said.

As Ukrainian News earlier reported, President Viktor Yuschenko said in May
he wanted the young professionals that served as ministers in the Cabinet of
Ministers led by Yurii Yekhanurov to be reappointed as ministers in the new
Cabinet of Ministers.

The youngest members of Yekhanurov’s Cabinet of Ministers were 30-year-old
Transport and Communications Minister Viktor Bondar, 31-year-old Family,
Youth, and Sports Minister Yurii Pavlenko, 32-year-old Economics Minister
Arsenii Yatseniuk, and 32-year-old Environmental Protection Minister Pavlo
Ihnatenko.

The Our Ukraine bloc will have in the next Cabinet of Ministers the
portfolios of the Vice Premier for administrative and territorial reform and
seven ministers including the ministry for family, youth, and sport.

The portfolio of the economy minister is in the possession of the Yulia
Tymoshenko bloc, the portfolio of the transport and communications minister
belongs to the SPU. -30-
———————————————————————————————–
[return to index] Action Ukraine Report (AUR) Monitoring Service]
========================================================
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18. U.S. NOT PLANNING TO DEPLOY MILITARY BASES IN UKRAINE
IF COUNTRY JOINS NATO SAYS US AMBASSADOR

Ukrainian News Agency, Kyiv, Ukraine, Saturday, July 1, 2006

KYIV – The United States has no plans to deploy military bases in Ukraine if
the country joins NATO. U.S. Ambassador to Ukraine William Taylor declared
this in an interview with the Dzerkalo Tyzhnia newspaper. “I think there are
no grounds to think so [that the U.S. will deploy military bases in
Ukraine],” he said.

The Ukrainian nation, he said, should make a decision on whether the country
will or won’t join NATO on the ground of full and objective information on
the alliance and comprehensive discussions in the society and within the
political elite.

“I’ve had to hear the question in your interpretation more than once and
that indicates that the adequate apprehension of NATO is not dominating in
Ukraine,” he said.

As Ukrainian News earlier reported, the parliamentary coalition, which was
created on June 22, has pledged to make a decision on Ukraine’s accession to
NATO on the ground of a national referendum.

In mid-April, Ukraine drew up the NATO Membership Action Plan. Kyiv wants to
start the plan implementation in September. Kyiv wants to join NATO in 2008.
———————————————————————————————–
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
19. FILM REVIEW: AMY GRAPPELL’S “LIGHT FROM THE EAST”

Documentary Film Review: by David Bogoslaw,
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, May 21, 2006

RE: “Light From The East” documentary
Amy Grappell, Writer and Director

It’s well-known that artists enjoy an importance in oppressed societies that
is the envy of their counterparts in democratic states, who are mostly
ignored. Where freedom of speech is lacking, audiences are all the more
receptive to what writers, actors and other artists have to say, as it’s
usually a proxy for their own unrealized dreams.

“Light From the East,” the new documentary that was shown at the Pioneer
Theater in Manhattan’s East Village, is a meditation on the meaning of
freedom and the role of the artist in inspiring people to translate that
often-abstract concept into a daily reality in their lives.

In the summer of 1991 the Soviet Union opened its doors for the first time
since the Cold War to a troupe of actors from the Yara Arts Group from La
MaMa Theater in New York. They had come to Kyiv to collaborate with a
Ukrainian theater company in staging a play celebrating the life and work of
Les Kurbas, the father of Ukraine’s avant-garde theater. For daring to
resist Stalin’s crackdown on any artistic expression that didn’t conform to
Soviet ideology, Kurbas had been arrested and eventually murdered in one
of Stalin’s purges in 1937.

Amy Grappell, who wrote and directed the film, was a member of La MaMa
Theater and the film, on the surface, is largely a document of her journey
to a deeper appreciation of Kurbas’ legacy in light of political events that
play out during the troupe’s visit. The deeper meaning of the artistic
freedom for which Kurbas struggled becomes more relevant as she and her
colleagues witness and try to make sense of those events.

Two weeks into rehearsals, Soviet President Mikhail Gorbachev is kidnapped
in a military coup that tries to restore power to Communist hardliners,
threatening to unravel the political openness that was emerging as a result
of his reforms. By juxtaposing scenes showing news coverage of the coup
and the actors’ responses to it with archival footage and stills of Kurbas’
productions, Grappell gives a heightened sense of urgency to the American
actors’ decision to stay in Ukraine and go ahead with their production
against the advice of the U.S. Consulate.

For young Ukrainians getting their first taste of political breathing room
under glasnost in the early 1990s, freedom may have meant merely the ability
to hold a job and earn money without cozying up to the Communist Party that
controlled the economy in the darkest days of the Soviet regime. But for
artists such as a well-known set designer and a painter forced into hiding,
both of whom Ms. Grappell interviews, its meaning is much more profound.

“Light From the East” may frustrate viewers seeking a comprehensive
understanding of the failed coup and its aftermath or of Ukrainian history
or those hoping for a fleshed-out portrait of Kurbas and his theatrical
vision, as the film barely skims the surface of these themes. But, as a
meditation that keeps circling back to the same points in an attempt to
grasp how different Ukrainians experience freedom, it is a moving record of
a particular moment in time, when the possibilities of a post-Soviet world
were only beginning to be imagined.

Underscoring the film’s grand themes are snapshots of the quiet strength and
determination of ordinary Ukrainians in the face of hardships. Asked what
their humanistic hopes are, a group of middle-aged women explain that
singing helps them maintain hope before breaking into a mournful song about
a mistreated cuckoo bird.

Many of the most affecting moments center on Natalia, the historian of the
Ukrainian theater company who is hosting Ms. Grappell in the small apartment
she shares with her mother. She agrees to serve as an interpreter as Ms.
Grappell ventures into the streets of Kyiv during breaks between rehearsals
to find out what ordinary Ukrainian citizens think of all the political
changes sweeping their republic.

Natalia’s face, often deep in thought, reveals a tempest of conflicting
emotions about the unfolding events. She makes little effort to conceal her
disdain when Ms. Grappell, trying to understand how Mr. Gorbachev could
have been toppled, asks, “Does this happen often? This is a pretty big deal,
right?”

She is melancholy and a bit frightened when she says that instead of a time
for singing, it may be time for Ukrainians to shed some blood. And she can’t
resist adding her editorial judgments when translating ordinary citizens’
comments for Ms. Grappell, critical of what she sees as the older
generation’s overly accepting attitude toward Ukraine’s past sufferings
under the Soviets.

Natalia is a compelling character and Christian Moore’s camera is wise to
return to her again and again to capture her response to the evolving
situation. The affectionately disobedient daughter of a mother dedicated
to Communist ideology, she embodies the rich complexity and internal
contradictions of the Ukrainian people.

However dismissive she is of the old guard, which she calls stupid enough
to mythologize Lenin, she declares her pride in the “very clever, powerful
[Ukrainian] nation,” whose continual submission to an “absurd” Soviet
regime she admits is bewildering.

The film works best when it highlights the intersections between the
personal and the political. On a train to Lviv, one young Ukrainian actor
explains that freedom for him will come only after “a long, long time of
working on myself to break down my complexes,” drilled into him since
childhood by state institutions. His insight offers a sobering counterpoint
to the following scene of people marching through the streets of Lviv, after
Ukraine has declared its independence from the Soviet Union.

Although the events depicted in “Light From the East” occurred 15 years
ago, Ukrainians are still trying to come to terms with their deeper meaning,
as the Orange Revolution of two years ago reminds us. -30-
————————————————————————————————–
NOTE: David Bogoslaw is a freelance writer and filmmaker based in
Brooklyn. He has written theater and dance reviews for www.OffOffOff.com,
a web site covering alternative arts and entertainment in New York. His
short film, “Seeing,” was awarded a bronze medal at the Brno 16 Film Festival
in the Czech Republic in 1993. He has a master’s degree in international
affairs from Columbia University.
————————————————————————————————–
The Ukrainian Weekly, Roma Hadzewycz, Editor-in-chief, Parsippany,
N.J., Staff@ukrweekly.com ; Archive, www.ukrweekly.com.
————————————————————————————————–
Amy Grappell website: www.lightfromtheeast.com
————————————————————————————————–
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
20. WORLD BANK SAYS NOTHING PREVENTS IT FROM RESUMING
DISBURSEMENT LOAN TO UKRAINE FOR FIGHTING HIV/AIDS


Ukrainian News Agency, Kyiv, Ukraine, Thursday, June 29, 2006

KYIV – The World Bank says nothing prevents it from resuming allocation of
the credit to Ukraine for fighting against tuberculosis and HIV/AIDS. Paul
Bermingham, the World Bank’s country director for Ukraine, Belarus, and
Moldova, told this to journalists.

“I don’t think there are any specific obstacles,” he said. Birmingham says
delays in the talks are due to transitional processes in Ukraine. “Now we’re
working on details and on who will be implementing this project. I can’t say
we have any obstacles at this stage,” Bermingham said.

As Ukrainian News earlier reported, acting Health Minister Yurii Poliachenko
explained the suspension of the World Bank loan for HIV/AIDS treatment by
bureaucratic delays.

The Ministry of Health and the World Bank decided at the beginning of June
to create a working group that would develop a project for resuming the
allocation of a USD-60-million loan to Ukraine under the project against
tuberculosis and HIV/AIDS.

Paul Bermingham, the World Bank’s country director for Ukraine, Belarus, and
Moldova, said on May 18 that the bank might resume disbursement of its
USD-60-million loan to Ukraine under the tuberculosis and HIV/AIDS project
when the talks with the Health Ministry and restructuring of the project are
completed.

Bermingham said that he was expecting an effective national strategy for
fighting HIV/AIDS and tuberculosis from the government of Ukraine.

The Health Ministry’s press service said on May 6 that the ministry had
approved the World Bank’s proposals concerning prolongation of the crediting
program within the framework of the tuberculosis and HIV/AIDS project.

On April 12, the World Bank decided to suspend disbursement of its
USD-60-million credit to the Ukrainian government under the Tuberculosis
and HIV/AIDS Control Project because of a lack of progress in its
implementation. -30-
———————————————————————————————–
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