AUR#735 Jul 19 Ceding Control Of Gas Transit Pipelines To Russia; Ukraine’s Neighbor Romania; West Folds Before Putin’s Bluff;

ACTION UKRAINE REPORT – AUR

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YUSHCHENKO’S ENERGY TEAM CONSIDERS CEDING CONTROL
OF UKRAINE’S GAS TRANSIT PIPELINES TO RUSSIA’S GAZPROM
Fifteen months of Plachkov-Ivchenko management left Naftohaz insolvent
and indebted. Naftohaz Ukrainy opens talks with Gazprom regarding
Ukraine’s gas transit system
ACTION UKRAINE REPORT – AUR – NUMBER 735
Mr. E. Morgan Williams, Publisher and Editor
PUBLISHED IN WASHINGTON, D.C., WEDNESDAY, JULY 19, 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. YUSHCHENKO’S ENERGY TEAM CONSIDERS CEDING CONTROL
OF UKRAINE’S GAS TRANSIT PIPELINES TO RUSSIA’S GAZPROM
Fifteen months of Plachkov-Ivchenko management left Naftohaz insolvent
and indebted. Naftohaz Ukrainy opens talks with Gazprom regarding
Ukraine’s gas transit system
COMMENTARY & ANALYSIS:
By Vladimir Socor
Eurasia Daily Monitor, Volume 3, Issue 136
Jamestown Foundation, Wash DC, Friday, July 14, 2006

2. RUSSIAN ENERGY MINISTER EXPECTS PROGRESS IN SETTING

REVIEWED IF YANUKOVYCH BECOMES PM SAYS DUMA MEMBER
ITAR-TASS news agency, Moscow, in Russian 1142 gmt 18 Jul 06
BBC Monitoring Service, United Kingdom, Tuesday, Jul 18, 2006

4. NAFTOHAZ UKRAINY CALLS FOR BARRING ROSUKRENERGO
FROM SUPPLYING GAS TO UKRAINE IN CASE GAS

Ukrainian News Agency, Kyiv, Ukraine, Friday, July 14, 2006
RIA Novosti, Moscow, Russia, Sunday, July 16, 2006
Ukrayinska Pravda On-line, Kyiv, Ukraine, Tuesday, July 18, 2006

8. THOUGHTS ON ENERGY PRICING IN UKRAINE
ANALYSIS AND COMMENTARY: By Dr. William Zuzak, Canada
Published by the Action Ukraine Report (AUR) #735, Article 8
Washington, D.C., Wednesday, July 19, 2006

9. UKRAINE REJECTS ENERGY FOR PRESSURE AT G8 SUMMIT

Interfax-Ukraine news agency, Kiev, in Russian 1305 gmt 14 Jul 06
BBC Monitoring Service, United Kingdom, Friday, Jul 14, 2006

10. ITALY’S PRIME MINISTER PRODI CLAIMS GAS RESERVES IN
UKRAINE ARE EMPTY, PUTIN SAYS GO TALK TO UKRAINE

Original article by Luigi Grassia, Abstracted from La Stampa
Italy, Tuesday, July 18, 2006
Business In The Beltway: By Jessica Holzer,
FORBES magazine, New York, NY, Thursday, July 13, 2006

12. NATURAL GAS PROJECT NABUCCO OPENS GATES OF VIENNA
Turkey’s negotiations for full EU membership will still be taking place
by the time the Nabucco natural gas project is operational in 2011. Experts
indicate that the pipeline to Europe, which traverses Turkey, will be
even more meaningful during Ankara’s membership talks
IREM KÖKER, ISTANBUL – TDN/Referans
Turkish Daily News, Ankara, Turkey, Wednesday, Jul 12, 2006

13. MASSIVE NEW FINNISH NUCLEAR PLANT A FLAGSHIP
Giant nuclear plant being built on an area the size of 27 football pitches
Jamie Smyth, Irish Times, Dublin, Ireland, Wed, Jul 12, 2006

14 . RUSSIAN COMPANY BUYS CONTROLLING STAKES IN
FOUR UKRAINIAN GAS SUPPLIERS

IES Holding Buys Kahrkivhaz, Donetskhaz, Kryvorizhhaz, Dniprohaz
Ukrainian News Agency, Kyiv, Ukraine, Monday, July 3, 2006
15. ROMANIAN OFFICIAL “GREAT EXPECTATIONS FROM UKRAINE”
Ukraine is turning into a strategic partner
INTERVIEW: Romanian Foreign Affairs Minister Mihai Razvan Ungureanu
Oana Dan, Bucharest Daily News, Bucharest, Romania, Wed, July 19, 2006

16. ROMANIA – MACROECONOMIC SITUATION – JUNE 2006
REPORT & ANALYSIS: By Sergiy Kasyanenko,
Radu Mihai Balan, and Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity
Investment Group, The Bleyzer Foundation;
Bucharest, Romania and Kyiv, Ukraine, July 14, 2006

17. ROMANIAN PRESIDENT REAFFIRMED SUPPORT FOR GUAM

Georgia, Ukraine, Azerbaijan and Republic of Moldova
Rompres news agency, Bucharest, in English 1531 gmt 18 Jul 06
BBC Monitoring Service, United Kingdom, Tues, Jul 18, 2006
18. THE WEST FOLDS BEFORE PUTIN’S BLUFF
Mr Putin knows how to bluff – easy enough when your opponents have so
obviously lost their nerve. Leaders in the Group of Eight leading nations
had folded their cards even before they reached the summit table.
COMMENT & ANALYSIS:
By Philip Stephens, Columnist
Financial Times, London, United Kingdom, Tuesday, July 18 2006

19. LEADER OUSTED BY ORANGE REVOLUTION SET TO LEAD AGAIN
By Judy Dempsey, International Herald Tribune (IHT)
The New York Times, New York, NY, Tuesday, July 18, 2006

20 . “CROSSROADS: MODERNISM IN UKRAINE, 1910-1930”
First Major Exhibition of Early 20th Century Ukrainian Art in the U.S.
Comes to the Chicago Cultural Center This Saturday July 22
Chicago Department of Cultural Affairs
Kyiv Committee of the Chicago Sister Cities International Program.
Chicago, Illinois, Tuesday, July 18, 2006

SITES IN SASKATCHEWAN PROVINCE, CANADA
History, heritage, & culture by the Saskatchewan Ukrainian Historical Society
Joan Eyolfson Cadham, The Wynyard Advance Gazette
Wynyard, Saskatchewan, Canada, Monday July 17, 2006
22. LEADING TV CHANNELS AGREE TO INCREASE SHARE OF
UKRAINIAN-LANGUAGE BROADCASTING
Excerpt: One Plus One TV, Kiev, in Ukrainian 1630 gmt 14 Jul 06
BBC Monitoring Service, United Kingdom, Friday, Jul 14, 2006
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1
.YUSHCHENKO’S ENERGY TEAM CONSIDERS CEDING CONTROL
OF UKRAINE’S GAS TRANSIT PIPELINES TO RUSSIA’S GAZPROM
Fifteen months of Plachkov-Ivchenko management left Naftohaz insolvent
and indebted. Naftohaz Ukrainy opens talks with Gazprom regarding
Ukraine’s gas transit system

COMMENTARY & ANALYSIS: By Vladimir Socor
Eurasia Daily Monitor, Volume 3, Issue 136
Jamestown Foundation, Wash DC, Friday, July 14, 2006

President Viktor Yushchenko’s associates in charge of Ukraine’s energy
system are negotiating to cede control over the country’s gas transit
pipelines to Gazprom.

Although national control over the transit pipelines is generally deemed a
major safeguard to Ukraine’s security and independence, and most political
forces have long resisted Russian proposals for shared control, it seems
that some of the president’s closest confidants are moving toward such a
deal.

They even seem in a hurry to consummate it during their short remaining time
in what passes for a government, thus saddling the next government —
irrespective of its complexion — with the consequences of such a deal.

On July 13, state oil and gas company Naftohaz Ukrainy chief executive
Oleksandr Bolkisev announced that the government has begun negotiations with
Gazprom toward establishing “joint management” of Ukraine’s gas transit
system. Trying to sound somewhat reassuring, Bolkisev told the media that
the pipelines would not be sold, surrendered, or dug out of the ground, but
merely transferred into joint management.

Should Ukraine refuse, Gazprom would reduce the gas transit through Ukraine
by diversifying the transit routes to Europe, warned the Naftohaz chief,
alluding to Gazprom’s pipeline projects in Belarus and on the Baltic seabed
(Interfax-Ukraine, Channel Five TV [Kyiv], July 13).

That same day, Russian President Vladimir Putin praised Gazprom’s version

of “diversification” — that is, diversifying the routes to Europe from a
single source, Russia — on German television (ZDF, July 13).

While playing off the transit countries against each other will add to
Gazprom’s trump cards in the years ahead, the main factor behind Kyiv’s July
13 announcement is the indebtedness of Naftohaz to Gazprom via the latter’s
offshoot RosUkrEnergo.

This situation is in turn the fast and predictable result of the January 4
and February 2 agreements, made by Bolkisev’s protectors — Fuel and Energy
Minister Ivan Plachkov and Naftohaz chairman Oleksiy Ivchenko — and backed
by Prime Minister Yuriy Yekhanurov who pushed them through the government,
and defended by Yushchenko for as long as his attention to this issue held.

Personnel movements at the top of Naftohaz in late June-early July — when
Yulia Tymoshenko seemed set to become prime minister again — indicated an
intent by that group of officials to cement the deals with Gazprom and
RosUkrEnergo, before Tymoshenko could reverse them. On June 30, the cabinet
of ministers at Yekhanurov’s instigation confirmed Bolkisev’s appointment as
Naftohaz chief executive.

On July 4, Ivchenko, who had resigned in late May as Naftohaz chief opting
for his parliamentary seat, returned to Naftohaz (despite the
incompatibility with the deputy’s mandate) appointed by Plachkov, this time
as head of Naftohaz’ supervisory board. Yekhanurov hesitated to confirm this
appointment, but Yushchenko prevailed on him to appoint Ivchenko, according
to Ukrainian media accounts.

On July 6 in Moscow, Plachkov and Bolkisev made a potentially ruinous deal
with Gazprom and RosUkrEnergo. The two suppliers pledged to maintain the
existing, deceptively discounted gas price for Ukraine, $95 per 1,000 cubic
meters, as a “transition price” through the end of 2006, renegotiable
afterward.

Moreover, Gazprom would pump 16 to 18 billion cubic meters of gas into
Ukraine’s underground storage sites, most of this for sale in the upcoming
heating season by Gazprom’s other offshoot, UkrGazEnergo.

In return, UkrGazEnergo would expand into Ukraine’s most lucrative gas
market sectors — the steel and chemical industries — deeply cutting into
the income of an already insolvent Naftohaz.

And, for Gazprom’s trophy, “Gazprom and Naftohaz Ukrainy discussed the
resumption of work of the Consortium for Managing and Developing Ukraine’s
Gas Transit System and decided to hold a consortium meeting in the nearest
future,” according to the official press release.

The consortium is a proposal and nonbinding agreement from 2002-2003,
promoted by Russian President Vladimir Putin with Ukraine’s then-president
Leonid Kuchma and blessed by Germany’s then-Chancellor Gerhard Schroeder

who is working closely with Gazprom.

The “consortium” would have turned Ukraine’s transit pipeline system into a
Russian-Ukrainian joint company, possibly with German minority
participation. Not only Orange forces, but many others including Ukraine’s
Socialist Party vehemently opposed the idea, and Kuchma himself quietly
evaded it during his remaining time in office.

Russian-Ukrainian “joint management” of Ukraine’s transit system as just
adumbrated by Bolkisev is a milder version of the “consortium” idea. Russian
interests and personnel would clearly dominate in either format, as they do
in the ostensibly “joint” RosUkrEnergo and UkrGazEnergo.

Fifteen months of Plachkov-Ivchenko management left Naftohaz insolvent and
indebted. At the Moscow meeting, the Ukrainian side could not reply when it
would repay $500 million in arrears to Gazprom’s front, RosUkrEnergo. At the
moment, Naftohaz seeks another $150 million loan from the Gazprom-friendly
AMRO Bank, on top of the $500 million in loans arranged by that same bank in
June for repayment of Naftohaz debts.

The Ukrainian company had incurred $680 million in debts, mainly to
RosUkrEnergo (and a small portion to UkrGazEnergo) in January-April 2006
alone, and it is losing its income base for debt repayment, let alone
investment. It also owes $300 million to Deutsche Bank, apparently
collectible by Gazprom.

Thus, pressure is building on Kyiv to repay the debt in the form of equity
cessions or “joint management” with Gazprom of Ukraine’s pipelines.

Data just released by RosUkrEnergo show that it made $740 million in net
profit in its first year of operations in Ukraine, 2005. Of that amount, it
paid $712 million in dividends to its shareholders, including 50% to
Gazprombank and 50% to the two individuals who Gazprom unverifiably

says are the “Ukr” side in this shadowy company.

Thus, RosUkrEnergo chose to make no investment in Ukraine, and Naftohaz is
no longer in a position do so after the January and February agreements with
Moscow. -30-
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(Interfax-Ukraine, Ukrainian News Agency, July 7, 10; Den, July 11;

Zerkalo nedeli, July 8-14)
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The Jamestown Foundation, http://www.jamestown.org
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2. RUSSIAN ENERGY MINISTER EXPECTS PROGRESS IN SETTING
UP A CONSORTIUM TO MANAGE AND DEVELOP THE
UKRAINIAN GAS TRANSPORT NETWORK

Interfax-Ukraine, Kyiv, Ukraine, Monday, July 17, 2006

MOSCOW – Russian Industry and Energy Minister Viktor Khristenko hopes
for rapid progress in talks on the setting up of a consortium to manage and
develop the Ukrainian gas transport network.

According to the minister, this consortium’s work will be concentrated in
two areas:

[1] the first of which involves the launch of the additional Bohorodchany-
Uzhgorod pipeline section, which will make it possible to increase supplies.

[2] “The second part – is the preparation of a legal basis for the
possibility of managing the Ukrainian gas transport network. It is necessary
to develop legislative regulations to support this consortium,” Khristenko
told journalists.

He said that agreements reached four years ago between Russia and
Ukraine to increase gas cooperation were not formalized due to changes
in the political situation in Ukraine.

“Now, when our negotiation partners are known, their position will be
clearer,” Khristenko said. “For us, as a supplier, it is important to
understand the condition and possibilities of the Ukrainian gas transport
system to ensure reliable supplies of gas to European consumers. And
we are ready to support this not only with declarations, but with money,
that is – to take part in managing and developing the Ukrainian gas
transport system,” he said. -30–
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3. GAS DEAL BETWEEN RUSSIA AND UKRAINE WILL NOT BE
REVIEWED IF YANUKOVYCH BECOMES PM SAYS DUMA MEMBER

ITAR-TASS news agency, Moscow, in Russian 1142 gmt 18 Jul 06
BBC Monitoring Service, United Kingdom, Tuesday, Jul 18, 2006

Moscow, 18 July: The gas deal between Russia and Ukraine “will not be
reviewed if Viktor Yanukovych becomes prime minister”, Russian Duma
international affairs committee head Konstantin Kosachev told journalists
today. Yuliya Tymoshenko, who had hoped to head the Ukrainian

government, insisted on the revision of the gas deal.

“Russia’s decision will not depend on the composition of the Ukrainian
parliament. We will be happy with any Ukrainian prime minister as long as he
or she is elected by the majority,” the MP said.

According to him, “we have agreed on market relations and are offering the
same price for gas to Ukraine, Armenia and Georgia”.

As a member of One Russia, Kosachev recalled that the Ukrainian Party of
Regions (led by Viktor Yanukovych) is “our strategic partner”. He also
stressed that “it is that stable and prosperous Ukraine that meets Russia’s
interests, and not the Ukraine which is being torn apart”.

[RIA-Novosti at 1134 gmt quoted Kosachev as saying that “Russia is
interested in a Ukraine which will build its policy on long-term interests
and not in a Ukraine which is weak and unpredictable”. The agency said that
he did not rule out that “Russia will seek compromises and offer Ukraine
soft loans if the Ukrainian government is short of funds. We will show
flexibility in other issues because such flexibility does not contradict the
principles of the modern economy”. He expressed his regret that the
“Ukrainian leadership does not see an alternative to joining NATO whereas
over 80 per cent of the population are against the country’s membership of
this organization”.]

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4. NAFTOHAZ UKRAINY CALLS FOR BARRING ROSUKRENERGO
FROM SUPPLYING GAS TO UKRAINE IN CASE GAS
TRANSPORTATION CONSORTIUM WITH RUSSIA IS CREATED
Ukrainian News Agency, Kyiv, Ukraine, Friday, July 14, 2006

KYIV – Board chairman of NJSC Naftohaz Ukrainy Oleksandr Bolkisev is

calling for expelling the RosUkrEnergo company from the scheme of gas
deliveries to Ukraine in case a gas transportation consortium is set up.
Bolkisev told this at a press conference.

As he said, it was necessary to attract the mediator for performing gas
supplies during Ukraine’s transitional adaptation to new gas prices. He
noted that in case the gas transportation consortium is set up, Ukraine will
have to give up mediators’ gas supplying services.

‘I don’t see any grounds for attracting a mediator, in case the question
regarding the gas transportation consortium is solved,’ he said. Apart from
this, Bolkisev said that the meeting between Naftohaz Ukrainy and the
council of founders of the gas transportation consortium is slated for the
next week (July 17-23).

Bolkisev said the Russian party was expecting the Cabinet of Ministers or
President Viktor Yuschenko to make proposals regarding the creation of the
consortium. In particular, the initial option of 2003 with the participation
of Ukraine, Russia, and Germany or other options are being viewed.

Prior to this, acting Fuel and Energy Minister Ivan Plachkov said the
consortium might be created between Ukraine and Russia only. Bolkisev said
Ukraine’s returning to the idea of the gas transport consortium on the
ground of its gas transit system might entail favorable conditions to
control the pricing in gas imports.

As Ukrainian News earlier reported, in late June Bolkisev said that Naftohaz
Ukrainy and Russia’s Gazprom gas monopoly intend to agree their positions on
creation of a Ukrainian-Russian gas transport consortium in the near future.

Subsidiaries of the Gazprombank company (Russia) and Raiffeisen (Austria)
founded the Swiss-registered RosUkrEnergo company in July 2004 for
delivering Turkmen natural gas to Ukraine until the year of 2028.

Naftohaz Ukrainy and RosUkrEnergo jointly created Ukrhaz-Energo as a closed
joint-stock company on February 2 for delivering natural gas to Ukraine.
Ukrhaz-Energo and RosUkrEnergo then signed a contract for delivery of
natural gas to Ukraine at the price of USD 95 per 1,000 cubic meters until
the year 2011.

Russia’s Gazprom owns 50% in RosUkrEnergo through the Gazprombank,

another 45% belongs to Ukrainian businessman Dmytro Firtash, and 5%
belongs to Ivan Fursin. Presently, RosUkrEnergo is an exclusive supplier of
natural gas to Ukraine. -30-
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5. YURIY BOIKO SAYS HE MAY RETURN AS NAFTOGAZ HEAD

Interfax-Ukraine, Kyiv, Ukraine, Thursday, July 13, 2006

KYIV – Naftogaz Ukrainy ex-CEO and leader of the Republican Party of

Ukraine doesn’t rule out his returning to Naftogaz as the national company’s
head.

“If there is a predictable policy, pragmatism and goal-oriented activities
in the country, I can foresee popping up in power in any role,” the party’s

press service quoted Yuriy Boiko as saying on Thursday.
“It is necessary to abandon dangerous patriotism,” he said. Boiko headed
Naftogaz Ukrainy from 2003 to 2005. -30-
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6. RUSSIA READY TO CONTINUE TALKS ON GAS CONSORTIUM
WITH UKRAINE’S GAS TRANSIT SYSTEM
RIA Novosti, Moscow, Russia, Sunday, July 16, 2006
STRELNA (near St. Petersburg) – Russia is ready to continue talks with
Ukraine on creating a consortium to manage Ukraine’s gas transit system,
Russia’s energy minister said Sunday.

Viktor Khristenko said Russia and Ukraine had already agreed to set up the
consortium but a legislative document on the deal had been delayed by the
political turmoil in Ukraine’s parliament in the wake of the March 26
elections.

“Unfortunately, no decision followed on an acceptable and law-based
management mechanism for Ukraine’s gas transportation system for domestic
reasons,” Khristenko said, adding that it would be easier for Russia to find
understanding when the situation in Ukraine becomes stable.

Russia and Ukraine signed an agreement to set up an international consortium
to operate and develop Ukraine’s gas pipeline system on October 7, 2002.
Russia is represented by state-owned natural gas giant Gazprom and Ukraine
by the national oil and gas company Naftogaz.

Khristenko said the agreements had been signed to provide reliable gas
supplies to European consumers. “As suppliers, we are interested to know
about the condition and potential of Ukraine’s gas transportation system in
order to ensure reliable gas supplies to our European customers,” he said,
adding that Russia was prepared to develop Ukraine’s gas transit system
that, he said, had been originally designed for gas supplies to Europe.

The consortium is currently working on a $560-mln Bogorodchany-Uzhgorod
pipeline project in western Ukraine that will enable Russia to increase its
natural gas shipments to Europe by 19 bln cubic meters a year. -30-

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LINK: http://en.rian.ru/russia/20060716/51430158.html
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7. ACTING PRIME MINISTER YEKHANUROV OBJECTS TO IDEA OF
JOINT FUNDING OF UKRAINIAN GAS TRANSPORTATION SYSTEM
Ukrayinska Pravda On-line, Kyiv, Ukraine, Tuesday, July 18, 2006

KYIV – Acting Prime Minister Yuri Yekhanurov strongly objects to the idea

of [joint] funding of Ukrainian gas transportation system.
He made the following statement on Tuesday, making comments on Naftohaz
Head Olexandr Bolkisev’s declaration that Ukraine was going to study the
possibility of co-management of Ukraine and Russia over Ukrainian gas
transportation system.

Yekhanurov thinks that for now Russia may count only on investing its shares
in construction of new gas pipelines toward Turkmenistan. The premier said
Ukraine might raise the question on the co-management of its gas transportation

system in 20 years.
As was reported earlier, Russian Gazprom and Ukrainian government tried to
agree on gas price reduction in exchange for the co-management over the
Ukrainian gas transportation system but failed to make a compromise.
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8. THOUGHTS ON ENERGY PRICING IN UKRAINE

ANALYSIS AND COMMENTARY: By Dr. William Zuzak, Canada
Published by the Action Ukraine Report (AUR) #735, Article 8
Washington, D.C., Wednesday, July 19, 2006

The thoughtful articles of Yulia Tymoshenko and Olexandr Chalyi published

as items 1 and 2 in the Action Ukraine Report (AUR) #731 (July 13, 2006),
coupled with discussions on European energy security at the G8 conference in
St. Petersburg, July 15/16, 2006, has prompted me to examine the issue from
a broader perspective.

DESIRABILITY OF HIGH PRICES OF CRUDE OIL,

NATURAL GAS AND GASOLINE:
At the present time, the price of crude oil in North America is hovering
around US $75.00/barrel [$479.49/m3 = $12.26/GigaJoule]. This abnormally
high price is obviously due to fear of disruption of supplies by wars,
rather than actual shortages of crude oil or its cost of recovery.

Similarly, due to an unusually mild winter in North America and high
inventories in storage, the price of natural gas since December 2005 has
dropped from $15.00 to US $5.86/1000ft3 [$206.94/1000m3 = $5.41/GJ]. In
Edmonton, Canada, the price of gasoline has recently climbed to about Cdn
$1.08/litre, while in April 2006 in Ukraine, it was about 3.50 hryvni/litre
[Cdn $0.83/litre].

Historically, the price of crude oil and natural gas in energy terms (i.e.
GigaJoules) are about the same. Thus, we can expect the price of crude oil
to drop and/or the price of natural gas to rise. The price of gasoline will
adjust accordingly.

In Ukraine, the highly subsidized price of natural gas for consumers was
increased by 25% on May 01 and by another 85% on July 01, 2006.

Presumably, the price is still substantially below the world price. Although this
will cause an extremely painful adjustment for consumers, everyone agrees that
gas (or gasoline or electricity) should not be sold to consumers below cost.

People must realize that these high prices are necessary to encourage
conservation, as well as to stimulate the development and utilization of
alternate energy products. For example, synthetic oil, ethanol and gas can
now be produced economically from vegetation and farm products. Nuclear
energy can be used to produce electricity, as well as for district or
industrial heating.

Indeed, should world energy prices drop below an optimum level, I would
suggest that governments impose an energy tax to ensure efficient
utilization. Revenues from this tax could be used to improve the
transportation/distribution infrastructure, as well as to fund appropriate
research and development projects.

TRANSIT FEES FOR OIL AND GAS PIPELINES:
The European Energy Charter, initiated in 1991 to facilitate the transport
of natural gas from Eurasia to Europe, now has over 50 member countries and
many observers. A study on Gas Transit Tariffs at http://www.encharter.org/
provides an overview of the types and magnitude of the transit fees charged
by various countries.

Although comparisons are not straightforward, it seems that transit fees are
substantially higher within the European Union than in Ukraine, Belarus,
Russia and countries further east.

The authors suggest that appropriate fees for a “model high pressure transit
line” of 56″ [1442 mm] diameter would be 1.6 $/1000m3/100km, but
substantially higher at 3.3 $/1000m3/100km for a smaller 36″ [914 mm]
diameter line. (I believe the diameter of the gas pipeline through Ukraine
is 1000 mm.)

Thus, for a 950 km pipeline transporting 120E09 m3 of gas through Ukraine,
revenues should range from US $1.82E09 to US $3.76E09. [Note: E09 = 10^9 =
billion; m3 = m^3 = cubic metres.] At the current gas price quoted above,
this represents from 7.3 to 15.1% of the value of the 120E09 m3 of gas
typically transported through Ukraine.

It is instructive to crunch the numbers for the years 2004, 2006 and the
higher proposed transit fee. We assume that Ukraine transmits 120E09 m3 of
gas, consumes 24E09 m3 and the pipeline length is 950 km, then calculate the
difference between the transit fees received and the consumption costs
expended.

2004: $1.09/1000m3/100km – $50/1000m3 = $1.24E09 – $1.20E09 = +$0.04E09
2006: $1.60/1000m3/100km – $95/1000m3 = $1.82E09 – $2.28E09 = -$0.46E09
Prop: $3.30/1000m3/100km – $206.94/1000m3 = $3.76E09 – $4.97E09 = -$1.21E09

We note that from a slight surplus from the 2004 formula, there is a deficit
of almost $0.5 billion according to the 2006 formula, rising to a deficit of
$1.2 billion for the proposed formula using the present world price.

Although not proposed in the above study, I like the idea that a portion of
the transit fee be calculated on the difference between the selling price
and the extraction costs at the source. This would make the transit tariff
somewhat dependant on the value of the commodity being transported.

Thus, during times of high world prices, the profits of the selling entity
would be somewhat curtailed, while the net cost of gas or oil to the
transit-consuming country would be somewhat lowered. Should the price of

oil and gas plummet below production costs the situation would be reversed.

OPTIMUM EURASIAN ECONOMY:
For better or for worse, Ukraine is sandwiched between the European Union

to the west and the Russian Federation to the east. Consequently, it has little
choice but to try to develop good working relationships in both directions.
Vast quantities of oil, natural gas and other raw materials are found on the
territory of the Russian Federation and other countries of Eurasia, which
were part of the FSU.

As noted above, the Russian Federation exports 80% of its natural gas
(120E09 m3) through Ukrainian pipelines to various countries within the
European Union. Recent high oil and gas prices have been a boon to its
monetary reserves allowing it to repay foreign loans ahead of time. The
economy of the Russian Federation is very much based on the export of
depletable natural resources.

Many years ago (1974), I wrote a treatise titled “An Industrial Strategy
towards an optimum Canadian Economy”, in which I insisted that money

earned from the export of depletable raw materials be treated differently than
money earned from the export of renewable resources or from the export of
manufactured products. In my opinion, my argumentation therein is directly
applicable to Ukraine, the Russian Federation and other Eurasian countries.

The strength and stability of a country is not measured in terms of monetary
reserves, military hardware, opulent buildings, the wealth of its oligarchs
or even the wages earned by its inhabitants with which to buy
foreign-produced products, but by the establishment of industries capable of
producing manufactured products for home use and export. This requires
investment in and development of appropriate infrastructures and an
educational system continuously upgrading the capabilities of its citizens.

We cannot predict the results of the G8 conference on “energy security”, but
it is to be hoped that any EU – Ukraine – Eurasia agreement will go beyond
simply establishing pricing formulas and transit fees. It is to be hoped
that the agreement will outline a rational plan for the economic development
of the whole region.

For the past 15 years, “oligarchs” have siphoned off trillions of dollars
into foreign bank accounts (often with the collusion of Western
institutions), rather than investing this money in the economies of Ukraine,
the Russian Federation and other Eurasian countries. That is not acceptable.

It is not acceptable that Gazprom signs long-term contracts for Turkmenistan
gas by investing in the foreign bank accounts of that country’s dictator. No
country or corporate entity should be allowed to buy gas or oil from a
foreign country for re-export to a third country. In this case, the contract
must be between Turkmenistan and the receiving European country with the
Russian Federation acting as a transit country.

It is not acceptable that the profits of oil and gas extracted in remote
regions of the Russian Federation do not accrue to the inhabitants of these
regions, but end up in Moscow, St. Petersburg or foreign bank accounts
instead. -30-
———————————————————————————————
NOTE: The energy-volume conversions are 38.4484E09 J/m3 for crude oil

and 38.2650E06 J/m3 for natural gas.
———————————————————————————————-
NOTE: Dr. William Zuzak is a retired plasma physicist, who worked in
the fields of nuclear fission and controlled thermonuclear fusion for many
years. He was recently a Canadian election observer for the March 26,
2006 parliamentary elections in Ukraine. His 1974 treatise mentioned above
is archived at
Contact Dr. Zuzak: mozuz@telusplanet.net. The Action Ukraine Report
(AUR) appreciates the opportunity to publish Dr. Zuzak’s latest article.
AUR EDITOR Morgan Williams, mwilliams@patriot.net.
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9. UKRAINE REJECTS ENERGY FOR PRESSURE AT G8 SUMMIT

Interfax-Ukraine news agency, Kiev, in Russian 1305 gmt 14 Jul 06
BBC Monitoring Service, United Kingdom, Friday, Jul 14, 2006
KIEV – Ukraine is resolutely rejecting the use of energy levers as a means of
political pressure, and emphasizes its reliability as a fuel transit country, the
Ukrainian Cabinet of Ministers has said in a statement. The government’s press
service circulated the statement on Friday [14 July].

“The G8 summit will be held in St Petersburg on 15-17 July. Energy security
in the context of the transforming global fuel markets and the provision of
Europe with energy were defined among the key issues on its agenda.

Ukraine as one of the world’s biggest fuel transit countries is an integrated
component of the European energy space,” the statement says.

The Cabinet of Ministers says that Ukraine is complying with the market
principles of building fair, transparent and mutually beneficial relations
in the energy sector with all parties to the process involved in producing,
transitting and consuming fuel.

This is confirmed by Ukraine’s participation in the Energy Charter Treaty;
the process of joining the Energy Community Treaty; the signing of the
memorandum of understanding on cooperation in the energy sector between
Ukraine and the European Union in December 2005; and also by the efforts
aimed to maintain constructive dialogue with the European Commission, the
Russian Federation, Turkmenistan and other Caspian nations exporting oil and
gas.

“Ukraine believes that the unconditional fulfilment of contractual
commitments by the countries supplying, transitting and consuming fuel is
the recipe for the stable functioning of the European energy market. Ukraine
is resolutely rejecting the use of energy levers as a means of political
pressure, and emphasizes Ukraine’s reliability as a fuel transit country,”
the statement says.

Ukraine is calling on all countries producing and consuming fuel to hold
constructive talks, formulate a coordinated joint energy policy, which will
be based on energy-saving technologies and the diversification of energy
sources, and to foster scientific and technical cooperation between Ukraine,
Russia and EU member states.

Ukraine expects the G8 nations to support its position and to provide
political and expert assistance in creating a pan-European energy space, the
statement says.

“Ukraine is confident that its involvement in the formation of the European
market of gas and transit capacities will promote strategic cooperation with
the European Union, which is based on economically grounded and transparent
relations in the gas sector, apart from the formation of pricing policy in
payments for gas transit services,” the Cabinet of Ministers says.
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10. ITALY’S PRIME MINISTER PRODI CLAIMS GAS RESERVES IN
UKRAINE ARE EMPTY, PUTIN SAYS GO TALK TO UKRAINE

Original article by Luigi Grassia, Abstracted from La Stampa
Italy, Tuesday, July 18, 2006
Italy’s prime minister yesterday revealed his concern that there could be
another gas shortage this winter. Speaking at the G8 conference in St
Petersburg, Romano Prodi claimed that gas reserves in Ukraine were empty,
and his fears were shared by the CEO of Italian energy group ENI, Paolo
Scaroni.

Mr Scaroni said that he did not want a repeat of last year’s situation, when
Ukraine took gas for itself that was destined for other European countries.

The CEO also defended his company’s quasi-monopoly in the Italian gas
distribution market, insisting that ENI could make an extra 100 euros per
cubic metre in the UK.

Mr Prodi directed his comments to Russian president Vladimir Putin, but

was told to confront the Kiev authorities instead. Russia is determined to
sell gas to Ukraine at market prices, but Ukraine believes it should be
entitled to a better deal. -30-
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11. A GRAND NEW ENERGY SCHEME?


Business In The Beltway: By Jessica Holzer,
FORBES magazine, New York, NY, Thursday, July 13, 2006

WASHINGTON, D.C. – Don’t hold your breath for any grand vision on

energy security to come out of the G-8 meeting in St. Petersburg, Russia,
this weekend–even though it is the top item on the agenda.

With oil prices topping a record $76 per barrel Thursday, it is safe to say
that it won’t be far from the minds of the G-8 leaders as they preen for the
cameras and make stern proclamations on the need to tackle world poverty

and HIV/AIDS. But there is little hope that Russia, an energy giant, will see
eye to eye with its energy-guzzling guests on the vexing and ill-defined
issue.

For Russia, energy security means long-dated contracts to sell its oil and
gas abroad and firm control of its pipelines. It also means that all foreign
investment in its energy sector flows through Gazprom or Rosneft, two
powerful state-run companies, but that Russia freely invests in downstream
assets overseas and even controls retail outlets abroad. (See: ” Energy
Tsar”)

“In other words, they want it all,” says Michael Lelyveld, a senior analyst
for Russia at PFC Energy, a consultancy.

But the West sees things quite differently. Buffeted by high energy prices,
it wants to reduce its heavy reliance on oil and gas. It also wants access
to pipelines and a better regulatory framework before it pours money into
developing new fields in places such as Russia.

The European Union in particular is fretting over the Kremlin’s tight grip
on the energy sector. The EU gets roughly 25% of its gas from Russia, and

it is still smarting from having its gas supplies cut off briefly by Russia
last winter due to a spat over prices with the Ukraine.

But it is going to have trouble diversifying away from Russia any time soon.
One hope is the Nabucco pipeline, which would transport gas from Central
Asia through Turkey to the EU countries, giving European consumers a choice.
But it is still ten years away from being completed. And it won’t come close
to delivering the volume of gas that currently flows from Russia.

With the Russians unwilling to budge and the Europeans at their mercy, there
won’t be much more than bromides and empty pronouncements coming from

St. Petersburg. “In terms of energy security, I can’t see that much
will come out of the meeting,” said Robert Ebel, the chairman of the energy
program at the Center for Strategic and International Studies in Washington.

Eventually, Russia will have to give some ground or risk driving away
investment in their energy sector. “The Russians have to understand that
they’re not the only game in town,” warned Edward Chow, an energy
consultant, at a recent panel discussion at the Carnegie Endowment for Peace
in Washington.

Russia is eager to start drilling gas from Shtokman, an enormous field with
more than 3 trillion cubic meters of reserves located under the Barents Sea.
Bedeviled by problems with their pipelines and anxious to tap new markets,
the Russians would like to liquefy much of this gas and sell it to the U.S.

But it can’t do it without the massive capital investment and technological
know-how of foreign banks and oil companies. At the G-8 this weekend, Russia
may announce which oil companies it has chosen to partner with Gazprom to
develop Shtokman–a deal worth $10 billion. Chevron (nyse: CVX – news –
people ) and ConocoPhillips (nyse: COP – news – people ) are among the
contenders.

Not shy about throwing around its weight as an energy giant, Russia has
stated that a U.S. deal on Russia’s accession to the World Trade
Organization is a condition of American participation in Shtockman. U.S.
approval is one of the last remaining hurdles before Russia can join the
WTO, and a deal may come before the start of the G-8.

Still, it would take at least ten or 15 years before gas from Shtokman is
brought to market. With a deal of such magnitude, the negotiations are
destined to drag on for years. “It’s a long, long road for these big
projects,” says Chow.

There’s also the fact that the field has never been drilled and is situated
under bitterly cold arctic waters. Moreover, Russia has no experience with
liquefied natural gas and the necessary investment in the supply chain will
be massive: It will need liquefaction facilities, special tankers to
transport the gas and re-gasification terminals in the U.S. At present, the
U.S. has only a handful of LNG terminals–and armies of coastal denizens
standing ready to make sure such terminals don’t pop up to obstruct their
ocean view.

But ultimately, developing Russia’s capacity to ship natural gas overseas
will benefit everyone by removing a potential choke point in the supply
chain, argues Lelyveld of PFC Energy. “It’s very helpful for the world
market for Russia to not be totally pipeline-bound,” he says.

In the end, it will be a more concrete boon to energy security than any
lofty pronouncements coming from St. Petersburg this weekend.

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http://www.forbes.com/business/2006/07/13/g-8-energy-security-russia-cx_jh_0713russia.html?partner=rss
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========================================================
12. NATURAL GAS PROJECT NABUCCO OPENS GATES OF VIENNA
Turkey’s negotiations for full EU membership will still be taking place
by the time the Nabucco natural gas project is operational in 2011. Experts
indicate that the pipeline to Europe, which traverses Turkey, will be
even more meaningful during Ankara’s membership talks

IREM KÖKER, ISTANBUL – TDN/Referans
Turkish Daily News, Ankara, Turkey, Wednesday, Jul 12, 2006

One of the most challenging projects Europe has ever undertaken is a natural
gas project known as Nabucco, although the pipeline has not even been built
yet.

The negotiations Turkey is conducting with the European Union to become a
full member of the bloc will still be taking place by the time the pipeline
is operational in 2011, as planned. Experts indicate that the Nabucco
project, so highly valued by the EU, will at that time be even more loaded
with meaning and will become a key factor in the membership negotiations
with Turkey.

There was a disagreement in 2006 between Russia and Ukraine, a country on
the route of the natural gas pipeline Moscow built into Europe. This forced
the old continent to utilize the natural gas stocks it had kept in reserve.
It was also the time when the EU countries realized that they should not put
all their eggs in one basket.

Therefore, the significance of the pipeline project aimed to carry natural
gas from the Caspian basin, the Caucasus and the Middle East was increased
many fold. In other words, Nabucco became the buzzword for a renewed
relationship between Ankara and Vienna.

TURKEY AT ENERGY CROSSROADS
Turkey is getting ready to hold a ceremony to open the Baku-Tbilisi-Ceyhan
(BTC) pipeline on July 13. Experts indicate that the BTC will play a major
role in the transportation of Caspian oil to the West. The country may not
be fully aware of it yet, but Turkey is sitting in the middle of another
major energy route: the natural gas pipeline to Europe.

Nabucco, the name of the Assyrian king that Guiseppe Verdi adopted for one
of his operas, carries great significance as it increases the alternatives
of natural gas supply to Europe and has the full support of the EU
countries.

Austria, not so fond of the idea of Turkey becoming a full member of the EU,
will decrease its dependence on Russian natural gas once Nabucco becomes a
reality. Furthermore, Vienna is seeking to become the center of natural gas
supply lines passing through Europe in the future.

OMV ASKS TURKISH GOVERNMENT FOR
GUARANTEES & SAFEGUARDS
OMV Gas International CEO Werner Auli realizes the significance of Turkey in
terms of the Nabucco project: “A discussion is under way with [state-owned
Turkish Pipeline Company] Botas to lease the pipeline from Ankara all the
way to the eastern border of Turkey for Nabucco. We are asking the Turkish
government to give guarantees and safeguards.”

The approximate cost of the pipeline is about $4.6 billion, Auli estimates.
The first phase of Nabucco is projected to begin in 2007, and it will take
four years to complete.

One of the questions concerning the project is the actual origin of natural
gas supplies. “We want gas from Azerbaijan, Iran, Iraq, Egypt and
Turkmenistan with the undersea pipeline. Also, Gazprom is thinking about
what to do in order to contribute to the Nabucco project.

Of course, the Russians can pump gas into Nabucco via Blue Stream,” Auli
said. In any case, he explains that Nabucco has two main aims: To increase
alternative supply routes and to close the gap between supply and demand in
Europe.

NEW PARTNER WANTED
These days the consortium for the construction of the pipeline is looking
for a new partner. Auli indicated that negotiations are already under way
and that “the partner will definitely be a European. However, I cannot tell
you right now which companies we are negotiating with.”

According to projections, the EU’s natural gas needs will increase by
200-300 cubic meters per year. OMV Holding entered the Turkish market by
purchasing 34 percent of Petrol Ofisi for $1.1 billion in March. “Turkey is
a very interesting and open market. We are new in this market, but why not?
And we hope that Turkey’s EU negotiations will not affect the Nabucco
project.”

NABUCCO NEEDS MONEY
“We need 4.6 billion euros for this project. The European Investment Bank is
ready to finance 1 billion euros of it. The World Bank and European Bank for
Reconstruction and Development will also give 400-500 million euros. And the
rest will come from expert agencies and private banks. The latter are really
interested in this project. They always ask about the projects development.
Negotiations are still under way.”
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LINK: http://www.turkishdailynews.com.tr/article.php?en

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13. MASSIVE NEW FINNISH NUCLEAR PLANT A FLAGSHIP
Giant nuclear plant being built on an area the size of 27 football pitches

Jamie Smyth, Irish Times, Dublin, Ireland, Wed, Jul 12, 2006

Next to a heavily forested nature reserve on the west coast of Finland,
several hundred construction workers are building the world’s biggest
nuclear power plant.

The scale of the Olkiluoto 3 project is breathtaking. The reactor and
turbine buildings cover an area the size of 27 football pitches.

More than 250,000 cubic metres of concrete is being pumped onto the site
and a gigantic steel case, 50 metres in diameter and 63 metres high, is
being prepared to house a reactor that could generate enough energy to

meet a third of Ireland’s entire annual demand for electricity.

“This is the future,” says Pertti Simola, chief executive of the Finnish
utility TVO, which owns two of Finland’s four nuclear plants and is building
Olkiluoto 3. “Finland needs more nuclear power to meet increasing energy
demand, cope with the future retirement of other plants and to help the
state meet Kyoto commitments . . . I don’t see many other viable options for
energy.”

Olkiluoto 3 is the first new nuclear plant in Europe for 10 years and has
become a flagship site for a nuclear industry desperate to persuade the
world it is a safe, reliable and cheap form of energy. Next week British
energy minister Malcolm Wicks will visit the plant, no doubt eager to see if
it can be replicated on sites such as Sellafield. The proposed 1,600
megawatts pressurised water reactor will be the most powerful ever built.

A consortium that includes the French company Areva and German firm Siemens
are responsible for delivering the plant, which will create proportionately
less waste while delivering energy more efficiently than all existing
nuclear plants. To allay safety concerns, the plant design will encase the
reactor core in five metres of concrete, which is enough to shield the
radioactive core from an airline crash.

Even the worst-case scenario – a core meltdown – could be handled without
any radiation escaping into the atmosphere thanks to its emergency cooling
tanks, say its designers.

Crucially, the new plant will not be a drain on the public purse, says Mr
Simola, who insists that the energy produced will be cheaper than from any
other possible source.

“We didn’t get any public subsidy for the 3 billion investment. There were
no soft loans, no government guarantees and no shareholder guarantees,” he
says. “Our investors, which are six big Finnish firms, want cheap energy and
trust us to deliver.” However, not everyone is convinced.

Greenpeace opposes the fifth reactor and has identified problems in its
construction.These include a miscalculation in the composition of the
concrete used in the foundations below the reactor and a problem with the
design of the turbine in Japan, which caused delays of 13 months.

“The design of the nuclear plant is new,” says Harri Lammi, a Greenpeace
energy expert. “We don’t know what impact the problems with the concrete
will have on the plant over its lifetime . . . sea air could cause problems
if the concrete mix is not right and fuel may escape.”

TVO management dismiss Greenpeace’s concerns as far- fetched and point to
public opinion in Finland, which shows two-thirds favour nuclear power.

This marks a big turnaround from the 1980s and 1990s when, following the
Chernobyl disaster, the public and politicians turned their backs on the
nuclear option.

Key to changing public attitudes has been TVO’s decision to deal with the
nuclear industry’s biggest public relations problem, radioactive waste.
During its lifetime, Olkiluoto 3 and the two existing smaller nuclear plants
on the site will produce 5,500 tonnes of highly dangerous spent radioactive
fuel and waste.

Until now, waste has been stored temporarily under water in huge fuel ponds
at nuclear sites. Given that the waste will stay hazardous to humans for
tens of thousands of years, temporary storage is widely viewed as
unsustainable and potentially dangerous.

To solve the problem, TVO set up a subsidiary firm, Posiva Oy, to build one
of the world’s first underground nuclear waste repositories.

“Nuclear waste has always been an issue which raises strong emotions,” says
Timo Seppala, senior manager at Posiva Oy, “but in Finland we are quite
pragmatic and we have a strong belief in technology. We plan to bury 2,900
copper canisters containing nuclear waste deep at a depth of about 400-500
metres in tunnels.”

Exploratory work has already started at a site about a kilometre from the
nuclear plant, where bore holes have been drilled into the granite bedrock.
“It is difficult to find any risks,” says Mr Seppala, pointing to the
entrance of a tunnel that is already under construction.

“The geology in this area means there are no big earthquakes and there is a
layer of clay that would act as a buffer for the radiation even if one of
the canisters was pierced. Local people are also already accustomed to
nuclear plants.”

Surprisingly, public opposition to the repository or the new reactor has
been muted in the area. TVO and Posiva say this is due to the creation of
1,500 jobs, taxes paid to the local authorities and the strong safety record
of the existing nuclear plants.

On a national level, public acceptance of nuclear power has been boosted by
a spike in oil prices and the Russian/Ukraine gas crisis earlier this year,
when Russia temporarily halted supplies to western Europe, raising concerns
about future energy security.

However, Finland’s decision to “go nuclear” and build a fifth reactor, which
was taken by parliament in a free vote of MPs in 2004, has had political
consequences. On foot of the vote, the Greens left the five-party coalition
government, forcing the staunchly anti-nuclear Green MP Satu Hassi to resign
as minister for the environment.

She is highly critical of the lobbying campaign undertaken by nuclear
activists in the run-up to the parliamentary vote and the compliant attitude
of politicians and media.

“I don’t think any payments were made to people to support nuclear, but
there is a very strong friendship network at the upper layers of Finnish
society. “People attend the same hunting clubs, sauna clubs and so on. I
feel this is one of the reasons the press here is so passive on the nuclear
issue and there is no real criticism.”

Ms Hassi claims to have been labelled a Russian sympathiser by some
journalists for opposing construction of Olkiluoto 3 back in 2004. The
decision to build has also caused a drop-off in interest and investment in
renewable energy in Finland, according to Ms Hassi, who is now an MEP.

But many other politicians who previously opposed nuclear energy, including
Finnish prime minister Matti Vanhanen, are shifting position. He voted in
parliament against building the fifth reactor, but asked recently about
nuclear power, he said he was now 50-50. This change of heart could be
important following the next election in March 2007, when many Finns expect
a debate to start about building a sixth reactor. -30-
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14. RUSSIAN COMPANY BUYS CONTROLLING STAKES IN
FOUR UKRAINIAN GAS SUPPLIERS

IES Holding Buys Kahrkivhaz, Donetskhaz, Kryvorizhhaz, Dniprohaz
Ukrainian News Agency, Kyiv, Ukraine, Monday, July 3, 2006
KYIV – IES Holding (Integrated Energy Systems), a Russian closed joint-
stock company, has bought controlling stakes in Ukrainian gas suppliers
Kahrkivhaz, Donetskhaz, Kryvorizhhaz and Dniprohaz.

Ukrainian News learned this from a representative of the Renova group of
companies (Russia), which along with IES Holding is controlled by Russian
businessman Viktor Vekselberg.

The representative said that the holding bought Ukrainian companies through
the structures it controls. He refused to provide any details. The press
service of IES Holding denied the deal and promised to give official
comments soon.

Russian media reported that Ukrainian gas supplying companies were acquired
by Gazex, a subsidiary of IES Holding, and Rukom, a company controlled by
Russian businessman Mikhail Abyzov.

The controlling stakes in Kahrkivhaz, Donetskhaz, Kryvorizhhaz and Dniprohaz
previously belonged to Ukrainian Innovation and Financial Company (Kyiv)
managed by the structures associated with the name of Russian State Duma
member Aleksandr Babakov.

As Ukrainian News earlier reported, the Renova group of companies stated its
interests in buying Kharkivhaz, a company supplying natural gas.

IES Holding is one of the biggest private Russian companies that manage
assets in the energy industry. The company has business in all segments of
the energy industry: generation, distribution and sale of electricity and
heat, power engineering construction, and services.

Kahrkivhaz, Donetskhaz, Kryvorizhhaz and Dniprohaz transport natural gas

via distributive pipelines and sell it to the public, budget-financed
organizations and boiler houses. -30-
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15. ROMANIAN OFFICIAL “GREAT EXPECTATIONS FROM UKRAINE”
Ukraine is turning into a strategic partner

INTERVIEW: Romanian Foreign Affairs Minister Mihai Razvan Ungureanu
Oana Dan, Bucharest Daily News, Bucharest, Romania, Wed, July 19, 2006

BUCHAREST – Foreign Affairs Minister Mihai Razvan Ungureanu recently
returned from a two-day visit to Odessa, Ukraine, where he met with his
Ukrainian counterpart Boris Tarasiuk to tackle bilateral relationships and
try to settle controversies that strain cooperation between the two states.

Ungureanu seemed optimistic, saying that the general tone of the
conversation changed and that Ukraine is turning into a strategic partner.

The relationship between the two states has been controversial for years
now. The most sensitive issues on the bilateral agenda have made it very
difficult to reach a consensus, widening the gap between Romania and
Ukraine’s interests.

The controversy shrouding the Bastroe project began in 2004, when Ukraine
decided to construct a canal between the Danube Delta and the Black Sea, in
spite of international warnings that the project would damage the border
environment.

Kiev had begun construction of the canal in the part of the delta it has
under its administration. The project was suspended after it came under
criticism, as Ukraine did not run an impact study and did not inform the
Romanian authorities about its plans.

Several foreign officials and environmentalists also expressed concern about
the project’s consequences on the delta’s biosphere, which is part of the
UNESCO world heritage.

Another source of tension on the relationship between the two countries
was the issue of minorities. The first bilateral accord on national
minorities was signed in 1998. However, this agreement did not put an end

to human rights abuses in the areas of Ukraine inhabited by large numbers of
Romanians.

Recently, an orthodox priest from the Romanian community was aggressed
and beaten up. The minister had stressed that local authorities are to
investigate the issue thoroughly and take all measures necessary to punish
the aggressors.

Another controversial issue that has set bilateral dialogue at an impasse is
the delimitation of the continental platform, which includes Black Sea
economic areas, whose ownership has been disputed by both countries for
years.

Romania has sued Ukraine at The Hague, Ungureanu explaining that this is
the only way the dispute can be settled.

Although without any concrete results, the meeting between the two foreign
ministers seems to have started a dialogue that could eventually lead to an
improvement in bilateral communication and even to settling these
long-lasting controversies.

[QUESTION] What changed in the way you approached bilateral relations
with Ukraine and what were the results of this round of negotiations?

First of all, we divided the bilateral agenda into two parts, issues that
can be solved and issues that cannot be solved. We wanted to be very honest
and open and present the situation as it is, without sweetening the reality.
The issues on which we disagree will be presented as they are.

Let me give you such an example: the controversy on the delimitation of
the continental platform. As far as this issue is concerned I think we left
aside a diplomatic language and we were as concise as possible when
saying that we disagree with the way the continental platform is divided.

We have a different perspective and different procedures. We think we abide
by both the procedures in this respect and also by the international laws
and treaties.

Moreover, we acknowledge all these aspects and we voluntarily delayed
presenting the issue of the continental platform to the International Court
at The Hague until 2004. We could have done this in 1999, two years after
the base treaty was signed, but we kept hoping we would be able to find a
solution independently.

I cannot foresee what The Hague will decide, but I am absolutely sure it
will be a fair decision for Romania and also for its neighbor.

[QUESTION] What is the latest development of the other two controversial
matters, the Bastroe canal project and the situation of minorities?

As far as the other two controversial issues on our bilateral agenda are
concerned, I can say that one of them is deeply connected with a mechanism
that should have been activated in order to get a better insight on the
issue and in order to put it into proper context. And I am referring to the
issue of the national minorities in Ukraine, especially Romanians.

How can we reach a consensus when we do not come up with the proper
mechanism to solve this issue? How can we put it into context, when
we lack the context itself?

I am very pleased to say that we have convinced our neighbors to accept that
the mechanism has to be turned on and activated. And I think this is a good
thing. We are going to start a monitoring process and make a list with all
the human rights issues that trouble Romanians living in Ukraine, but also
the Ukrainians living in Romania.

Based on this list we are going to come up with an appropriate strategy and
feasible solutions for each of the problems.

As far as the Bastroe canal is concerned, we decided not to discuss it
further until the International Commission based on the ESPO agreement on
border environment makes public the conclusions of its investigation,
regarding the effect the construction of the Bastroe canal will have on the
environment.

[QUESTION] The violation of rights of the Romanian minority in Ukraine has
been an issue for several years now. You are now satisfied that you have
convinced your counterpart to start monitoring the areas where there are
problems. When can we expect to see the first effects of the monitoring of
the minorities issue?

Very soon. And this is because the monitoring process means, in a reduced
meaning, listing administrative actions that violate the rights of people
associated with different minority groups. And we need these lists in order
to adapt existing legislation to the real situation in the different
regions. Moreover, we need them in order to propose much more flexible
regulations and to assist the local communities of minorities.

[QUESTION] Last week you said you are going to involve the Orthodox
Church in bilateral relations in an effort to help Romanians living in
Ukraine. Is the Orthodox Church going to be a partner in carrying out your

plans?

I have very high expectations of the partnership. Not just rhetorical ones.
The Orthodox Church has fantastic potential and can be a great partner in
the areas where the number of Romanians is significant. It is the most
important non-governmental institution in the country and it has a great
impact outside the country.

I saw there is an urgent need for churches and masses in Romanian and I will
discuss these issues with the leading members of the church and come up with
a plan to involve the church in several Ukrainian regions inhabited by
Romanians.

[QUESTION] At the beginning of June, at the Black Sea Forum, the presidents
of the two states asked you and your counterpart to organize a series of
bilateral meetings, discuss and list all the sensitive issue on the agenda.
What kind of resources did this diplomatic effort require?

[1] First of all I think the dialogue paradigm changed. It is natural to
have a certain type of communication with a state that is a NATO member and
also a soon-to-be member of the European Union. Ukraine is sharing the
border with such a state and is aware that it has to develop a pragmatic
relationship, based on common interests, especially since there are plenty
of them on our list.

This being the context, I think it is only natural to be intelligent and
become not just a tactical partner that focuses on the immediate impact of
its action, but a strategic one, that plans the future.

[2] Secondly, I think that by creating a list with two separate columns,
solved issues and unsolved ones, we are taking a step forward, helping
unblock the frozen bilateral relationship. We have to look beyond the
temptation to keep the bilateral relationship the hostage of our unsolved
issues.

[3] Thirdly, we truly believe that our points of view are based on abiding
by international legislation. I strongly think that international
legislation has to be applied all over Europe, be it a matter of border
delimitation or national minorities. I have great hopes that things will get
better, according to our expectations and according to the European ones.

[QUESTION] Why did Ukraine show so much reticence to the European
warnings to halt the Bastroe canal construction?

I find it very hard to explain it myself. I think this is a question which
needs to be addressed to the Ukrainian authorities.

[QUESTION] Is Ukraine going to stop the Bastroe project if asked to by
an international body?

I will not make any assumptions in this respect. I think that once the
logical arguments become more and more obvious it will be too hard to
oppose them.

[QUESTION] What role is Romania is trying to play in the context of the
negotiations with Ukraine?

Romania is building its role as a credible partner, capable of imposing a
European behavior in the region. It is also trying to base its bilateral
relations on pragmatism and honesty.

[QUESTION] What are your thoughts for the next meeting with the
Ukrainian foreign affairs minister?

I am waiting for the results of the investigation carried out by the
International Commission in relation to the canal Ukraine is constructing in
the Danube Delta. We are to meet soon at the Romanian seaside, in Mamaia,
and discuss again the Bastroe issue. -30-
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LINK: http://www.daily-news.ro/article_detail.php?idarticle=28857
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[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
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16. ROMANIA – MACROECONOMIC SITUATION – JUNE 2006

REPORT & ANALYSIS: By Sergiy Kasyanenko,
Radu Mihai Balan, and Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity
Investment Group, The Bleyzer Foundation;
Bucharest, Romania and Kyiv, Ukraine, July 14, 2006

SUMMARY
[1] Real GDP growth accelerated to 6.9% yoy in the first quarter of 2006,
outpacing the 4.3% growth rate in Q4 of 2005. Industrial output growth for
January-April decelerated to 3.5% yoy from 4.5% yoy in the first quarter of
2006.

[2] In January-May, fiscal revenues posted strong growth, expanding by
23.3% year-over-year or 14.9% yoy CPI adjusted. The consolidated budget
surplus increased to RON 3.4 billion in January-April and amounted to 1.06%
of projected full year GDP.

[3] The consumer price index increased by 0.34 percentage points and reached
7.26% yoy in May. Rising prices of tobacco and fuel were the principle cause
of the slowing disinflation, responsible for at least ¾ of the monthly
inflation.

[4] In January-April, the trade deficit (FOB/CIF) slightly decelerated to
46.18% yoy from 51.7% yoy in the first quarter of 2006 and amounted to
EUR 3.41 billion. Foreign direct investments totaled EUR 2.3 billion and
covered 91% of the EUR 2.49 billion current account deficit.

[5] According to the Romania-World Bank Country Partnership Strategy,
the World Bank intends to extend to Romania loans of USD 450-550
million a year from 2006 until 2009.

[6] Moody’s placed Romania’s sovereign rating on review for an upgrade,
which may bring the country into the investment-grade group.

ECONOMIC GROWTH
Real GDP growth accelerated to 6.9% yoy in the first quarter of 2006,
outpacing 4.3% growth in Q4 of 2005. The service sector continues to be
the most important source of the improving economic outlook.

In Q1 2006, the value added generated in this sector expanded by 6.8%
yoy in real terms; taking into account that the weight of services in value
added exceeds 50%, this translated into 3.65 percentage points of quarterly
GDP growth.

In addition, strong economic performance was supported by the dynamically
growing construction sector where value added is up by 20.4% yoy in Q1
2006 as well as positive developments in the industry.

On the expenditure side, GDP growth is traditionally supported by the
expansion of final consumption due to growing private consumption, which
surged by 10.90% yoy in Q1 2006 fueled by booming consumer credit and
increasing household incomes.

Investment demand remained strong as gross fixed capital formation increased
by 11.4% yoy in the first quarter of 2006. Although the growth rate was
below the average for 2005, gross capital formation nevertheless grew twice
as fast as in the first quarter of 2005.

The growth of cumulative industrial output in January-April decelerated to
3.5% yoy from 4.5% yoy in Q1 2006, while monthly industrial output inched
up by only 0.5% yoy following an unexpected industry rebound in March
when industrial production grew by 4.3% yoy.

Due to the lower number of working days because of holidays and continuing
adjustment of the industry to higher energy and input prices, all major
sectors posted a considerable slowdown of growth rates; output in mining and
manufacturing decelerated to 0.3% yoy and 0.6% yoy respectively from 0.9%
yoy and 4.6% yoy in March, while utilities declined by 1.2% yoy.

In metallurgy, output continued to shrink at an accelerating pace
contracting by 6% yoy in April compared to 4.6% yoy in May. In April, the
stagnation in light industry intensified as the output contraction rate in
textiles jumped to 21% yoy.

FISCAL POLICY
During the first five months of 2006, the consolidated budget tax revenues
grew by 23.3% yoy in nominal terms or by 14.9% yoy weighted by monthly
CPI.

According to the Ministry of Public Finance, the value added tax and income
tax registered the highest growth rates, together contributing to more than
75% of fiscal revenue expansion, increasing in January-May by 29% yoy and
33% yoy respectively or by 23.6% yoy and 19.9% yoy CPI adjusted.

These positive developments may be attributed to expanding retail sales and
the robust growth of earnings. In addition, the excise tax collection sped
up to 18% yoy in nominal terms from 13% yoy in January-April of 2005. The
growth rate of excise tax revenues may experience further acceleration due
to the introduction of higher indirect taxes on tobacco and spirits.

The nominal growth rate of consolidated budget spending continued to slow
and amounted to 12% yoy in January-April while total revenues grew by 20.2%
yoy in the same period, which expanded the consolidated budget surplus to
RON 3.4 billion (EUR 988 million).

The Ministry of Public Finance announced a plan to widen the 2006 fiscal
deficit to 2.5% of GDP (EUR 2.25 billion), which is an upward revision from
the previous projection of 0.9%. A larger deficit is anticipated due to the
increasing spending on infrastructure projects, health and education.

T-Bills sold on the local market in the second half of 2006 will be the
primary source to fund the budget deficit. In addition, the ministry of
finance might issue the euro-denominated bonds, which were not sold by
the Treasury during the last three years.

While the issue of government debt on the local market was suspended in
the first half of the year due to the treasury surplus, the Ministry of
Finance intends to sell an estimated RON 4.15 billion of T-Bills and bonds
in the fall.

Even though increasing public spending is driven by higher infrastructure
investments, the widening fiscal deficit poses a threat for the disinflation
policy and it may exacerbate imbalances in the current account.

Furthermore, in an environment of tight monetary policy and rising world
interest rates, increasing debt imposes high debt service costs on the
government.

In January-April the budget surplus amounted to 1.06% of projected full year
GDP which implies that 2.5% budget deficit will result from higher spending
during the second half of this year. The Ministry of Finance expects a
limited effect of this higher deficit on inflation outlook since increased
expenditure is primarily absorbed by the public investment projects.

However, disinflation dynamics may suffer since this fiscal expansion, if
approved, will be the second largest pro-cyclical measure implemented by
the government in the last two years, after the introduction of lower flat
income tax in 2005.

According to the National Bank of Romania, the stock of medium and long-
term external debt (excluding foreign entities’ deposits) fell by 0.89%
month-over-month (mom) from EUR 23.87 billion in March to EUR 23.67
billion in April. Total public and publicly guaranteed external debt
decreased by 1.9% mom to EUR 10.98 billion or 8.2% of projected full
year GDP.

External debt issued by the private sector increased slightly and accounts
for 52% of the total external debt (43.8% in April 2005). In January-April,
the medium and long-term external debt service ratio settled at 16.7%
compared to 18.2% in December 2005.

MONETARY POLICY
The consumer price index (CPI) increased by 0.6% mom in May with 0.52
percentage points of the monthly inflation coming from the rising prices of
non-food commodities. Higher excise duties due to the introduction of a 9%
and 0.5% vice tax on cigarettes and sprits respectively are responsible for
a hike in the growth rate of the non-foods price index.

This increasing contribution of mom non-food price inflation to CPI makes
the inflation outlook particularly sensitive to price developments in the
non-food sector. As a result, potential inflationary threats are rooted in
the rising inflationary expectations caused by further increases in indirect
taxes and upward adjustments of administered prices.

Year-over-year CPI accelerated by 0.34 percentage points in May compared to
the previous month and reached 7.26%. The largest increase was registered
for the non-food price index, which increased by 1.09% mom, while price
indexes of foods and services continued to decelerate.

Rising prices of tobacco and fuels were the principle source of the slowing
disinflation; in May, the prices of tobacco and fuels grew by 8.94% mom and
1.03% mom respectively.

A persistent downward trend in pharmaceuticals prices (which continued to
decline for the third month in a row) and flat prices of utilities partially
offset inflationary pressures generated by the higher indirect taxes.

At the same time, more than half of the year-over-year increase in the non-
foods price index in 2006 was generated by the growing prices of utilities,
which hit 15.3% yoy growth in May.

The National Natural Gas Regulating Authority (ANRGN) has announced
a 1.65% price increase for natural gas starting July 1st as well as a 5%
increase in the price of heating paid by residential end-users. This upward
revision of utilities prices will continue to decelerate disinflation in the
non-food sector.

An increase in electricity tariffs is likely to follow, but on the positive
side, strong domestic currency mitigates upward price adjustments in
imported energy resources.

Finally, a deceleration of the services price index was supported by the
declining tariffs for postal and telecommunication services, which fell by
0.67% mom in May following a 0.8% decrease in April.

The National Bank of Romania kept the reference rate at 8.5% for June and
continued to peruse restrictive monetary policy by absorbing excess
resources on the inter-bank market including the money obtained by banks
from the central bank’s matured operations.

The total volume of the open market operations undertaken by the NBR
amounted to RON 18.1 billion (EUR 5.2 billion) and RON 15.34 billion
(EUR 4.4 billion) in April and May, respectively.

On June 27th the Board of the National Bank of Romania (NBR) made a
decision to proceed with further tightening of the monetary policy.
According to NBR booming non-government RON-denominated credit
fuels unsustainable consumption growth and poses potential inflationary
threat.

To restrict the expansion of non-government credit NBR raised its monetary
policy rate by 25 base points to 8.75%. In addition, the minimum reserve
requirement ratio on RON-denominated liabilities was increased to 20% from
16%.

In April, monetary aggregate M2 increased slightly in nominal terms, though
the deceleration trend of the money supply continued as its nominal growth
rate slipped to 27.41% yoy in April from 28.8% yoy in March.

Restrictive monetary policy continues to exert downward pressure on the
expansion of net domestic assets (NDA) as the nominal growth rate of NDA
has been decelerating since the beginning of the year and declined to 34%
yoy in April.

Domestic non-government credit amounted to RON 68.1 billion in nominal
terms registering a 51.56% yoy growth rate in April. Noteworthy, about 75%
of this expansion comes from the considerable growth of RON-denominated
credit, which almost doubled in nominal terms compared to April 2005
accelerating to 96% yoy in April 2006.

The growth rate of forex-denominated credit fell to a moderate 22.3% yoy
in April (expressed in euros, the increase of credit in foreign currency was
27.4% yoy) hitting its lowest level since January 2003.

Significant growth of RON-denominated credit may be explained by the
low-base effect, as well as by the regulatory restrictions on the issue
of forex-denominated loans.

Furthermore, the bias toward forex-denominated credit in the structure of
domestic credit has faded away as the share of RON-denominated credit in
non-government credit increased to 51.5% in April 2006, as compared to 40%
a year ago.

Consumer loans grew by 7.2% mom in April while real estate mortgages inched
by less than 1% mom. Rising indebtedness of households due to surging
consumer credit transformed them from a net bank creditor into a net bank
debtor.

Though the position of the net bank creditor was still maintained for the
RON-denominated loans and deposits, it was more than offset by net bank
claims (loans less deposits) for the loans and deposits denominated in
foreign currencies.

INTERNATIONAL TRADE AND CAPITAL
During April the growth rates of imports and exports slowed down. The
imports (CIF) amounted to EUR 2.91 billion increasing by 14.1% yoy,
decelerating from 26.3% yoy in March. The exports (FOB) totaled to EUR
1.86 billion slowing to 3.7% yoy down from 20.7% yoy in the previous
month.

The monthly trade balance deficit (FOB/CIF) continued to grow, though at a
slower year-over-year rate, and amounted to EUR 1051 million in April
decelerating to 38.7% yoy growth rate from 42.3% yoy in March.

In January-April, the trade deficit (FOB/CIF) decelerated slightly to 46.18%
yoy from 51.7% yoy in the first quarter of 2006 and amounted to EUR 3.41
billion. Exports (FOB) reached EUR 8.1 billion increasing by 17.2% yoy and
imports (CIF) amounted to EUR 11.5 million, up 24.6% yoy.

Machinery, mineral products and vehicles are the principle commodities
generating 15.26 percentage points of 17.2% yoy growth of exports in the
first four months of 2006. About 67.8% of total exports were shipped to the
EU with Italy (18.7% of total exports) Germany (14.7%), France ( 7.5%),
Turkey (7.3%) and Hungary (4.9%) absorbing more than 50% of total exports.

At least half of the 24.6% yoy increase in imports (CIF) was supported by
the growing imports of machinery (30.8% yoy) and mineral products (42%
yoy) caused by the strong investment demand and higher prices of energy
resources. Italy (14.5% of total imports), Germany (14.0%), Russia (10.2%),
France (6.8%), and Turkey (4.7%) generated 50% of imports while 60.5% of
total imports came from the EU.

The current account deficit in January-April amounted to EUR 2.49 billion,
which is 57.2% yoy growth over the same period of 2005. The widening of
the current account deficit is driven by the increasing merchandise trade
deficit (FOB/FOB), which grew by 57% yoy.

On the positive side, the expanding current account deficit is primarily
financed with a stable inflow of foreign direct investments. FDI increased
by 130% yoy in the first four months and totaled EUR 2.3 billion, thus
allowing 91% of the current account deficit to be covered. The inflow of FDI
in April exceeded EUR 600 million compared to EUR 246 million in the same
month of the previous year.

In May, foreign exchange reserves of the National Bank of Romania declined
by EUR 80.1 million to EUR 18.2 billion. By the end of May, the total value
of the central bank’s reserves, including monetary gold, was EUR 19.92
billion or 0.42% lower than in the previous month. In April, the import
cover ratio stood at the same level of 6.6 months, as compared to the
previous month.

OTHER DEVELOPMENTS AFFECTING THE INVESTMENT CLIMATE
The World Bank intends to extend to Romania loans of USD 450-550 million
a year from 2006 until 2009 in line with the Romania-World Bank Country
Partnership Strategy (CPS). The primary purpose of the CPS is to enhance
economic developments achieved by the country during the last few years.

The strategy includes projects that will be focused on institutional and
structural reforms, public sector, tax administration and judicial reforms,
social inclusion, poverty reduction and minimization of the impact of the EU
accession on the most vulnerable categories of the population. Since 1991,
the World Bank has extended loans of around USD 5 billion to Romania.

In June, the Netherlands, Finland, and Ireland ratified the Treaty of
Accession of Romania increasing the number of EU members that support
the treaty to 20. The European Commission will issue its next monitoring
report on Romania in September, one month ahead of schedule.

At the beginning of September, a meeting will be held with EU
representatives to inform them about the final stage of the measures taken
by the Romanian authorities to meet the EU accession criteria.

Moody’s placed Romania’s sovereign Ba1/positive rating on review for an
upgrade, citing current improvements in the country’s credit profile and the
government’s reduced debt burden. The purpose of this review is to assess
whether recent positive developments are sustainable. This upgrade, if
positive, would bring Romania into the investment-grade group. -30-
———————————————————————————————-
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Romania
Macroeconomic Situation report for June 2006 in a PDF format, including
several color charts and graphics click on the following link:
http://www.sigmableyzer.com/File/countries/romania/ROM-MonthlyEcReport-06-06.pdf
—————————————————————————————————————
CONTACT: The SigmaBleyzer office in Bucharest, Romania at
bucharest.office@SigmaBleyzer.com or Morgan Williams in the
Washington, D.C. office at MWilliams@SigmaBleyzer.com .
http://www.SigmaBleyzer.com, http://www.BleyzerFoundation.com.
———————————————————————————————–

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
17. ROMANIAN PRESIDENT REAFFIRMED SUPPORT FOR GUAM
Georgia, Ukraine, Azerbaijan and Republic of Moldova
Rompres news agency, Bucharest, in English 1531 gmt 18 Jul 06
BBC Monitoring Service, United Kingdom, Tues, Jul 18, 2006

BUCHAREST – President Traian Basescu reaffirmed in a press interview
granted to Trend Azerbaijani press agency, Romania’s support for GUAM
Democracy and Economic Development Organization (Georgia, Ukraine,
Azerbaijan and Republic of Moldova), stressing its importance in the
development and stability of the Black Sea region, an area of priority for
Romania’s foreign policy.

The Romanian head of state said that Romania cannot join GUAM as the
geographic boundaries do not allow it, but Bucharest will actively support
its member states.

Basescu praised the organization for its role in ensuring European security
and a climate of confidence and cooperation in the region. Cooperation
between Georgia, Ukraine, Azerbaijan and Republic of Moldova is beneficial
to security consolidation, transport of hydrocarbons and EU approach, said
Basescu, naming TRACECA and INOGATE projects.

Basescu also voiced interest in cooperation in the energy sector with
Azerbaijan, and wants an agreement in industry and energy to be signed. Such
issues will be discussed during Basescu’s visit to Baku scheduled for this
autumn.

“I hail GUAM’s concern with solving the frozen conflicts in the region, a
permanent source of danger at our borders,” said Basescu, urging to firm
decisions and coherent plans against these threats.

Basescu believes that there is no universal pattern able to solve frozen
conflicts, each requiring specific approach. Whether involving EU or NATO,
the actions meant to solve the conflicts must be adjusted to each situation,
taking into account the causes, the political and economic situation, the
specific region and the position of the players.

The Romanian president said that Romania backs the territorial integrity and
sovereignty of the Azerbaijani state, who has faced for over a decade
difficulties in the majoritarily Armenian-inhabited region Nagorno-Karabakh,
and added that the year 2006 offers an exceptional chance of solving the
conflict. -30-
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18 . THE WEST FOLDS BEFORE PUTIN’S BLUFF
Mr Putin knows how to bluff – easy enough when your opponents have so
obviously lost their nerve. Leaders in the Group of Eight leading nations
had folded their cards even before they reached the summit table.

COMMENT & ANALYSIS: By Philip Stephens, Columnist
Financial Times, London, United Kingdom, Tuesday, July 18 2006

Anyone who has sat around a poker table knows the feeling. You have been
dealt a strong hand but the steely eyed fellow opposite keeps raising the
stakes. Eventually, your nerve breaks. Even as your adversary scoops the pot
you know in your heart it was a bluff. Pride demands you pretend otherwise.

Vladimir Putin is a leader who has been enjoying his winnings. For Mr Putin,
the purpose of the St Petersburg summit was to reassert Russia’s role as a
global superpower. The task was made easy by the fact that his fellow
leaders in the Group of Eight leading nations had folded their cards even
before they reached the summit table.

On one level, St Petersburg testifies to the inconsequential nature of the
G8. On another, to the Russian president’s skill in exploiting what might
best be called the new international disorder.

In the absence of anything resembling a consensus on the Middle East, the
leaders struggled to paper over the cracks. The Russian refusal to criticise
Iran and Syria for their undoubted role in the conflagration in Lebanon sat
alongside George W. Bush’s simplistic mantra that all this is about the
global war on terrorism.

When France’s Jacques Chirac said a statement released by the G8 leaders had
called for a ceasefire, Mr Bush’s aides insisted otherwise. Tony Blair by
and large sided with Mr Bush and Israel. The message from all this to the
combatants? Keep fighting.

Just as they are divided on the Middle East, so western leaders have misread
Mr Putin. There was a brief moment earlier this year when it seemed that the
west’s democracies might at least extract a small price for their attendance
in St Petersburg. There were whispers that Mr Bush might even boycott the
summit. Instead, they asked for nothing and were mocked in return by their
host.

Sitting alongside Mr Bush, Mr Putin quipped that he was not interested in
importing Iraqi-style democracy to Russia. Asked about corruption, the
Russian leader offered a barb at Mr Blair’s expense. Was the prime minister
not under investigation for his role in party funding?

Energy security was supposed to be at the heart of the deliberations.
Instead, the final communique was another badly stitched compromise. For
Russia, oil and gas are the essential instruments of its return to the
global stage. For others around the summit table, energy is a scarce
commodity. So why argue with one of the world’s biggest suppliers?
Better to settle on a few rhetorical bromides.

In this, St Petersburg could be said to have been a triumph for those who
count themselves members of the realist school of foreign policy. Their
argument runs roughly as follows. Mr Putin has restored internal order to
Russia while soaring energy prices have filled the Kremlin’s coffers. Europe
is ever more dependent on Russian gas. The US needs Moscow to help curb
Iran’s nuclear ambitions. So why get overexcited at Russia’s steady drift
from nascent democracy to authoritarian kleptocracy?

To my mind, this is to confuse realism with capitulation. Earlier this year
Russia disrupted gas supplies to Europe when it turned off supplies to
Ukraine. Amid much indignation, European governments demanded Russia
guarantee security of supply by liberalising its energy market. Mr Putin
refused. The Europeans shrugged their shoulders.

A truly realist policy towards Russia would have two components.

[1] The first would recognise that the present regime in the Kremlin is not
interested in grand bargains with the west, about energy or anything else.
Nor does it want to “integrate” Russia into Europe.

Mr Putin’s Russia has bigger ambitions. It intends to use its new-found
wealth to maximise its global influence. On the way it is also determined to
re-establish its authority over its so-called near abroad – most obviously
Ukraine, the Caucasus and central Asia.

[2] The second component would understand that, most of the time, Mr Putin
is bluffing. For all its present good fortune, Russia is a state in decline.
Its almost complete economic reliance on oil and gas is reminiscent of the
late Soviet era. The country’s population is shrinking by more than 500,000
a year and its workforce is ravaged by ill health and alcoholism.

Those with close knowledge of the industry say that businesses such as
Gazprom, the state gas monopoly, are rotting from the inside. Gazprom is
hopelessly inefficient, technologically backward and can meet its orders
only by coercing central Asian suppliers.

As for threats to cut off supplies to Europe, Gazprom has no other
customers. Nor does Moscow possess the financial capacity or the technology
to develop its vast hydrocarbon resources in Siberia.

In short, Russia has none of the attributes of a 21st-century superpower. In
poker terms, the country’s oil and gas reserves give the Russian leader a
hand equivalent to, say, a pair of sevens.

But Mr Putin knows how to bluff – easy enough when your opponents have
so obviously lost their nerve. -30-
—————————————————————————————————-
Philip Stephens is associate editor of the Financial Times and a senior
commentator. His column appears on Tuesdays and Fridays. He joined the
newspaper in 1983 and has been the FT’s economics editor, political editor
and editor of the UK edition. He is a well-known author, commentator and
broadcaster.

Before joining the FT he was a correspondent for Reuters in London and
Brussels. He is the author of Politics and the Pound (MacMillan), a study of
the British government’s exchange rate management and its relations with
Europe since 1979, and of Tony Blair (Viking/Politico’s), a biography of the
British prime minister.

He was educated at Wimbledon College and at Oxford University, where he took
an honours degree in modern history. He is a Fulbright Fellow and winner of
the 2002 David Watt Prize for outstanding political journalism. Contact:
philip.stephens@ft.com.
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http://www.ft.com/cms/s/ee1d6bf6-15f9-11db-9950-0000779e2340.html

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========================================================
19. LEADER OUSTED BY ORANGE REVOLUTION SET TO LEAD AGAIN

By Judy Dempsey, International Herald Tribune (IHT)
The New York Times, New York, NY, Tuesday, July 18, 2006

BERLIN – Viktor F. Yanukovich, the Ukrainian politician backed by Russia
who was vanquished by the Orange Revolution of 2004, was poised today
to make a spectacular comeback as prime minister after the pro-West
president, Viktor A. Yushchenko, said his party would not join a broad

coalition.
.
With Mr. Yushchenko taking his Our Ukraine party into the parliamentary
opposition, Ukraine appears on course to be led by Mr. Yanukovich. At the
same time, a political rival, Yulia V. Tymoshenko, accused Mr. Yanukovich of
staging a coup.

Mr. Yanukovich, 56, had the strong support of Russia’s president, Vladimir
V. . Putin, during the first round of presidential elections in Nov. 2004 in
which he declared himself the winner. But after hundreds of thousands of
demonstrators took to the streets, claiming election fraud, a new election
was held in Jan. 2005 and was won by Mr. Yushchenko.

Amid a power struggle in Ukraine in which none of the main players have
emerged untainted, Mr. Yanukovich made a comeback in parliamentary elections
in March. His Party of the Regions won the most votes, but not enough to
form a stable government. Since then, Ukraine has been in political limbo.

Two previous attempts to form a governing coalition failed, but now the
Communists and Socialists have thrown their support behind Mr. Yanukovich.
Today, his supporters said they were in a position to govern Ukraine.

“We have removed all barriers for the president so he can submit without
delay Yanukovich’s candidature as prime minister,” said Evhen Kushnaryov,

a Party of the Regions senior official.

Ms. Tymoshenko, a leader of the Orange Revolution and a former prime
minister, retorted that opposition members should give up their
parliamentary mandates, declare the government illegitimate and dissolve
Parliament.

“I want people of good will, intelligent people who don’t consider Ukraine’s
independence to be empty words, to understand that a political coup is
taking place today in Parliament,” she said.

Mr. Yushchenko tried after the March elections to create a stable coalition
with Ms. Timoshenko. Despite bitter rivalry between the two, they agreed to
create a government that depended on support from the Socialist party. That
coalition collapsed two weeks after the Socialists defected to the
Yanukovich camp.

Given the tensions, analysts were skeptical that Mr. Yanukovich could usher
in the stability needed to introduce economic and political reforms and
complete the country’s negotiations to join the World Trade Organization.

His alliance with the Communist and Socialist parties, which like the Party
of the Regions oppose membership in NATO, decreases the chances of the Bush
administration succeeding in its efforts to offer Ukraine NATO’s Membership
Action Plan during the alliance’s summit meeting in November in Riga.

Olexiy Haran, regional vice president of the Kiev office of the Eurasia
Foundation, an American organization funding democratic institutions, said
the stability of the government depended on its working relationship between
Mr. Yanukovich and Mr. Yushchenko.

Sworn in as president in late Jan. 2005, Mr. Yushchenko had promised radical
reforms demanded by the peaceful supporters of the prodemocratic Orange
Revolution of Dec. 2004.

Since then, because of new constitutional rules introduced in January, he
has been stripped of some of his most important presidential powers,
including the right to appoint the prime minister. Mr. Yushchenko has,
however, the right to nominate the powerful ministers of defense and foreign
affairs.

“The president remains an important player,” said Mr. Haran. “The effective
working of any cabinet will depend on cohabitation with the president.”

Mr. Yanukovich has until July 25 to create a cabinet. If he fails, Mr.
Yushchenko has the right to dissolve Parliament and call new elections. -30-

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http://www.nytimes.com/2006/07/18/world/europe/18cnd-ukraine.html?_r=1&oref=slogin
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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20. “CROSSROADS: MODERNISM IN UKRAINE, 1910-1930”
First Major Exhibition of Early 20th Century Ukrainian Art in the U.S.
Comes to the Chicago Cultural Center This Saturday July 22

Chicago Department of Cultural Affairs
Kyiv Committee of the Chicago Sister Cities International Program.
Chicago, Illinois, Tuesday, July 18, 2006

CHICAGO – The Chicago Department of Cultural Affairs is presenting the

first major exhibition of early 20th century Ukrainian art in the United States.

“Crossroads: Modernism in Ukraine, 1910-1930” will be on display at the
Chicago Cultural Center in the fourth floor Exhibit Hall, 78 E. Washington
Street, from July 22 through October 15, 2006. Admission to the exhibition
is free.

This outstanding exhibit of 21 Ukrainian avant-garde artists includes
approximately over 70 works gathered by Professor Dmitirii Dmytro Horbachov,
an international expert on this period and Nikita Lobanov-Rostovsky, from
private collections, the National Art Museum of Ukraine, the Theatre Museum,
the Museum of Folk Art of the Ukraine, and the Art Museum of Dnipropetrovsk.

Anatolii Melnyk, General Director of the National Art Museum of Ukraine,
provided organizational assistance in Ukraine and John Bowlt, Professor at
the University of Southern California, served as editor of the exhibition
catalog.

The exhibition has been organized by the Foundation for International Arts
and Education with the National Art Museum of Ukraine. It is presented by
the Chicago Department of Cultural Affairs and the Kyiv Committee of the
Chicago Sister Cities International Program.

The national tour is sponsored by The Boeing Company, The Trust for Mutual
Understanding, Nour USA Ltd., Konstantin Grigorishin and Aerosvit Airlines.
Additional financial support has been provided by Oleksandr Tabalov, Mykola
M. Shymone, Dean Buntrock and Chadbourne and Park, LLP.

DEVELOPMENT OF THE AVANT-GARDE MOVEMENT
“Crossroads explores the role of Ukraine in the development of the
avant-garde movement,” said Gregory Knight, Deputy Commissioner/Visual
Arts of the Chicago Department of Cultural Affairs.

“It includes works by well-known artists like Kazimir Malevich, Alexandra
Exter and David Burliuk and introduces American audiences to previously
unknown Ukrainian artists including Yasyl Yermylov and Oleksandr
Bohomazov.”

The international avant-garde movement that reached its peak during the
first three decades of the twentieth century included many influential and
innovative artists from Ukraine. As elsewhere in the former Soviet Union,
these artists were often persecuted and executed in the 1930s and their
works were banned or destroyed.

1,700 ARTWORKS DESTROYED BY SOVIET GOVERNMENT
According to local experts, nearly 2,000 of these works were confiscated
by the government during the late 1930s, and only 300 remain today. This
exhibition presents the best of these works, many of which have only
recently been viewed outside of Ukraine.

Writing in the exhibition catalog, Mr, Lobanov-Rostovsky noted: “This
exhibit is designed to show an American audience the talent and unique
nature of Ukrainian avant-garde art and to help understand that the artists
are, indeed, Ukrainian, not Russian, a difference not always appreciated in
the West. Moreover, the exhibition is equally important because it will
also help Ukrainians acquaint themselves with their own cultural heritage.”

FULL SCHEDULE OF EXHIBITION EVENTS
The public is invited to learn more about the exhibition with a full
schedule of events listed below that have been organized to accompany the
exhibition. All are free, unless otherwise noted.

[1] Lunchbreak: Classical Mondays; Monday, July 31, 12:15pm;
Preston Bradley Hall, Chicago Cultural Center
The MAVerick Ensemble present a classical program inspired by the
exhibition, featuring the music of Boris Lyatoshynsky and Virko Baley.

[2] Gallery Talk: Thursday, August 17, 12:15pm
Exhibit Hall, Chicago Cultural Center
With Jane Friedman, Chicago-based independent scholar.

CONTEMPORARY UKRAINIAN CINEMA FESTIVAL
[3] Contemporary Ukrainian Cinema Festival: Wednesday, August 23 –
Friday, August 25, 7:30pm; Gallery 37 Rooftop, 66 E. Randolph Street.

This festival features a selection of some of the best works by Ukrainian
filmmakers produced over the last five years with film introductions by Dr.
Yuri Shevchuk, lecturer of Ukrainian language and culture at Columbia
University and founder and director of the Ukrainian Film Club of Columbia
University.

The festival is organized by the Department of Cultural Affairs, the Kyiv
Committee of the Chicago Sister Cities International Program, with
participation of the Ukrainian Film Club and the Ukrainian Studies Program
of Columbia University.

Tickets to the opening night of the film festival, catered by Fox and Obel,
are $15. The remaining nights of the film festival are free, but tickets are
required. To order tickets, please call 312-742-TIXS (8497) or visit
www.ticketweb.com .
Wednesday, August 23 – Mamay (Dir. Oles Sanin, 2003, 80min.)
Thursday, August 24 – Ukrainian Short Narrative Films
Friday, August 25 – Ukrainian Documentary Films

[4] Ukrainian Modernism, Identity, and Nationhood: Then and Now
Wednesday, September 27, 6pm; Exhibit Hall, Chicago Cultural Center.
This discussion explores the parallels in Ukrainian art and culture during
two pivotal eras, and the affects of the nation’s recently-achieved
sovereignty and dueling influences from Western Europe and Russia.

[5] Gallery Talk: Thursday, October 5, 12:15pm; Exhibit Hall, Chicago
Cultural Center With Gregory Knight, Deputy Commissioner/Visual
Arts, Chicago Department of Cultural Affairs.

[6] Special Lunchbreak Performance: Thursday, October 5, 12:15pm
Claudia Cassidy Theater, Chicago Cultural Center
Ukrainian pianist Alex Slobodyanik performs Chopin’s Scherzo op. 10
b Flat Minor, Lev Revutsky’s 5 Preludes and Prokofiev’s Sonata # 7.

FOUR-COLOR CATALOG
Crossroads: Modernism in Ukraine, 1910-1930 is accompanied by a
four-color catalog, which will be available for sale at the Shop at the
Cultural Center. A complimentary brochure will be on hand at the
exhibition. Teacher materials are offered for local educators, and school
groups are encouraged to visit by calling 312.744.8032.

SECOND SHOWING AT UKRAINIAN MUSEUM IN NEW YORK
Following its premiere in Chicago, the exhibition will travel to The
Ukrainian Museum in New York. After concluding its American tour, the
exhibition will be displayed at the National Art Museum of Ukraine in Kyiv.

Expanded hours for summer at the Chicago Cultural Center began on April 1
and run through October 31. Viewing hours for Crossroads: Modernism in
Ukraine, 1910-1930 at the Chicago Cultural Center are Mondays through
Thursdays, 8 a.m. to 7 p.m.; Fridays, 8 a.m. to 6 p.m.; Saturdays 9 a.m. to
6 p.m. and Sundays, 10 a.m. to 6 p.m. The Chicago Cultural Center is

closed on holidays.

In Chicago, the exhibition is sponsored in part by generous support from
UA-TV, LLC, Selfreliance Ukrainian American Federal Credit Union, The
Heritage Foundation at First Security Federal Savings Bank, Hyatt
International Corporation and an anonymous donor.

This exhibition is supported by an indemnity from the Federal Council on the
Arts and Humanities. Additional support has been provided by the Mission of
Ukraine to the United Nations, the Embassy of Ukraine in Washington DC and
the Consulate General of Ukraine in Chicago.

Exhibitions and related educational programming presented by the Chicago
Department of Cultural Affairs at the Chicago Cultural Center are partially
supported by a grant from the Illinois Arts Council, a state agency.
Transportation support is generously provided by United, Official Airline
for the Chicago Cultural Center.

For more information about Crossroads: Modernism in Ukraine, 1910-1930, call
312.744.6630. (TTY: 312.744.2947) or visit www.chicagoculturalcenter.org .
For information about the Chicago Sister Cities International Program, visit
chicagosistercities.com. Note to Press: Electronic Images Available Upon
Request. -30-
————————————————————————————————-
Contact: Jill Hurwitz, 312.742.1148 jhurwitz@cityofchicago.org
————————————————————————————————-
FOOTNOTE: Our special thanks to Marta Farion, Attorney, Chairman –
Chicago Kyiv Sister Cities Committee, for sending the AUR the news
release about the Ukrainian art exhibition in Chicago. AUR EDITOR
————————————————————————————————-
FOOTNOTE: Subheadings inserted editorially by the Action Ukraine
Report (AUR).

———————————————————————————————–
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
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21. TRAVEL GUIDE TO UKRAINIAN CULTURAL AND HISTORICAL
SITES IN SASKATCHEWAN PROVINCE, CANADA
History, heritage, & culture by the Saskatchewan Ukrainian Historical Society

Joan Eyolfson Cadham, The Wynyard Advance Gazette
Wynyard, Saskatchewan, Canada, Monday July 17, 2006

WYNYARD – It’s at the Foam Lake Visitor Information Centre. It’s free.
It is 52 pages of history, heritage, culture, provided by the Saskatchewan
Ukrainian Historical Society. It’s an invitation to explore the province in
a very special way.

“Saskatchewan’s Ukrainian Legacy, A Travel Guide to the Cultural and
Historical Sites in the Ukrainian Bloc Settlement Communities”, highlights
the six Ukrainian ethnic bloc settlement areas in Saskatchewan.

The guide outlines historic Ukrainian sites in each RM, their location, a
reference date, and as much history as could be gathered. It is crammed
with photos.

But the book doesn’t stop at Ukrainian history. Each section offers other
historic sites and the book includes a look at Saskatchewan’s one-roomed
country schools. The authors also provided some wholesome advice for the
adventurer.

“The travel guide takes you off the highway into the Saskatchewan
countryside onto the gravel roads. There may even be an occasion where you
may need to travel on a seasonal road. It is recommended to travel on these
roads only during dry conditions.”

The history of Ukrainian settlement in Saskatchewan has some unique
elements, said Darlene Stakiw, the Yorkton representative for East Central
Saskatchewan Tourism. In some areas of Saskatchewan, she said, Ukrainians
came over in blocs, entire villages, with their own priests, their own
teachers, their own craftsmen, their own businessmen.

They didn’t need anything from the provincial or federal government–except
for land–and the provincial government didn’t know what to do with them.

One of the earliest ethnic bloc settlements began in the Regina-Moose
Jaw-Grenfell area in 1896. The Yorkton-Canora-Melville bloc began in 1897
and became the largest Ukrainian bloc in Saskatchewan. The booklet covers
churches in Ituna, Kelliher, Punnichy, Wishart, Foam Lake, Edmore, Model
Farm, Beckenham, Sheho, Insinger, and Theodore.

Along with the photos of the churches, the booklet recommends the Ituna &
District Museum, the Hopak Dancers, Veselka, the piche in Foam Lake and in
Theodore, and other local events and historic sites.

There are sections on the Byzantine faith, on the family farm, on one-roomed
country schools, and the Dominion Land Survey. There are choice tidbits
tucked into corners: the street signs in Hafford are bilingual–English and
Ukrainian. All the maps are gathered up in the centre of the publication.

The booklet is not only a travel guide that could provide ample
opportunities for day-tripping around Saskatchewan. It is a solid historical
and cultural reference source, gathered neatly into one tidy package. -30-
=———————————————————————————————–
LINK: http://www.wynyardadvance.com/story.php?id=197833
————————————————————————————————
[ return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
22. LEADING TV CHANNELS AGREE TO INCREASE SHARE OF
UKRAINIAN-LANGUAGE BROADCASTING

Excerpt: One Plus One TV, Kiev, in Ukrainian 1630 gmt 14 Jul 06
BBC Monitoring Service, United Kingdom, Friday, Jul 14, 2006

KYIV – [Presenter] Ukraine should have its television in the Ukrainian
language – this is the main requirement of the memorandum signed today
between the National Council for Television and Radio Broadcasting and 10
leading Ukrainian television channels.

Last year the parties already signed a similar document that provided for
Ukrainian subtitles in all programmes. The updated version of the document
obliged the parties to dub the programmes. Our correspondent Kseniya
Herasymova has more.

[Correspondent] According to the new memorandum, the One Plus One

television channel, as well as the rest of the popular television channels, will
have 50 per cent of their foreign programming dubbed into Ukrainian before
October and increase this amount to 65 per cent in December. Before February
2007, 75 per cent of foreign programmes will be Ukrainian-dubbed, this is
the very figure required by the law.

[The head of the National Council for Television and Radio Broadcasting,
Vitaliy Shevchenko] As for the new films that appear now, including Russian
soap operas, the same requirements will be applied to them as [to programmes
from] the rest of the world. They will need to have not only subtitles, but
will be dubbed, as well as [films] from France, America and other countries.

[Correspondent] The law also stipulates that cable television networks shall
transmit, first of all, television channels in Ukrainian, and only then
other programmes. If television companies can provide high-quality dubbing,
viewers will not feel the difference between domestically produced and
foreign television programmes already in a few years.

[Passage omitted: National Council for Television and Broadcasting officials
say this approach is a solution to the problem rather then an attempt to
avoid it.]

[Correspondent] Sanctions may be applied to those who breach the

memorandum, up to the revocation of their license. But the head of the
National Council for Television and Radio Broadcasting, Vitaliy Shevchenko,
says the extreme measure is unlikely to be used. -30-
————————————————————————————————
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