AUR#749 Aug 11 Democracy & The Rule Of Law In Ukraine; Energy Minister In Moscow, Yanukovych Going To Moscow; No To NATO For Now; No To WTO For Now;

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               –——-  INDEX OF ARTICLES  ——–
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                               New Rada, New Government, Old Style?
: By Judge Bohdan A. Futey
Published by the Action Ukraine Report (AUR) #749, Article 1
Washington, D.C., Friday, August 11, 2006

By Roman Kupchinsky, Radio Free Europe/Radio Liberty (RFE/RL)

Prague, Czech Republic, Wednesday, August 9, 2006


RIA Novosti, Moscow, Russia, Wednesday, August 9, 2006
UNIAN news agency, Kiev, in Ukrainian 1435 gmt 10 Aug 06
BBC Monitoring Service, United Kingdom, Thursday, Aug 10, 2006


TV 5 Kanal, Kiev, in Ukrainian 1630 gmt 10 Aug 06
BBC Monitoring Service, United Kingdom, Thursday, Aug 10, 2006

                      WITH RUSSIA SAYS PM YANUKOVYCH 

Associated Press, Kiev, Ukraine, Thursday, August 10, 2006 

Interfax, New York, New York, Thursday, August 10, 2006


Ukrainian News-on-line, Kiev, Ukraine, Thursday, August 10, 2006

Mara D. Bellaby, Associated Press, Kiev, Ukraine, Thu, August 10, 2006 


                                      EU AND NATO STATUS
Ukrainian News on-line, Kyiv, Ukraine, Monday, August 7, 2006

         Ukrainian analyst warns NATO membership brings additional threats
By Andriy Fialko
Zerkalo Nedeli, Kiev, in Russian 5 Aug 06, p 6
BBC Monitoring Service, United Kingdom, Saturday, August 5, 2006

                   Strong No to NATO in Feodosia, Crimea, Ukraine

By Lisa McAdams, Voice of America (VOA) in Feodosia, Crimea
Washington, D.C., Wednesday, 09 August 2006
ICTV television, Kiev, in Ukrainian 1545 gmt 8 Aug 06
BBC Monitoring Service, Kyiv, Ukraine, Tuesday, August 8, 2006

By Jan Cienski in Warsaw, Financial Times
London, United Kingdom, Wednesday, August 9 2006

                                 RIGHTS OF PRIVATE OWNERS 

      Bunge Corp calls on government to protect legal owners from attacks 
Ukrainian News-on-line, Kyiv, Ukraine, Monday, August 7, 2006

Nicolas Parasie, Dow Jones Newswires, Amsterdam, Netherlands, Aug 9, 2006

Action Ukraine Report (AUR) #749, Article 20
Washington, D.C., Friday, August 11, 2006

                               IMPORTANT IRON ORE PROJECT 
By: John Helmer,, Johannesburg, South Africa, Aug 10, 2006
Business Digest, Sofia, Bulgaria, Wed, August 9, 2006
         Kyiv Region factory produces more than 300 million bottles per year.
Ukrainian News-on-line, Kyiv, Ukraine, Tuesday, August 8, 2006
Business Digest, Sofia, Bulgaria, Tuesday, August 8, 2006
                         New Rada, New Government, Old Style?

ANALYSIS & COMMENTARY: By Judge Bohdan A. Futey
Published by the Action Ukraine Report (AUR) #749, Article 1
Washington, D.C., Friday, August 11, 2006

Ukraine declared independence from the Soviet Union on August 24, 1991.
Since then, it has continuously used elections and compromise to build
itself as a nation instead of resorting to violence.

A series of laws as well as the Ukrainian Constitution have been passed and
revised in order to ensure that elections are free, fair, and democratic.
The Orange Revolution of November 2004 saw Ukrainian citizens peacefully
demanding that their votes count and succeeding.

Most recently, the March 2006 national parliamentary elections were declared
to be transparent and fair. (1)  Although more work needs to be done to
bring the rule of law and true democracy to Ukraine, particularly on the
local level, the country has taken many steps towards creating a democratic

Despite Ukraine’s steady progress towards democracy, the leadership recently
took a significant step backwards, specifically in the legal area.

Following the fraudulent presidential run-off election in 2004, which
sparked the Orange Revolution, the Verkhovna Rada passed several
amendments to the Constitution known as the political reform that became
effective January 1, 2006.

Although the political reform resolved the 2004 presidential election
crisis, it was hastily adopted and not thoroughly thought out as evidenced
by the considerable confusion surrounding the formation of the majority
coalition and new government following the March 2006 parliamentary
election.  The status of the political reform still remains in question.

In a decision handed down by the Constitutional Court on October 5, 2005,
just prior to the expiration of the nine year term for most of the Judges,
the majority of the court stated that any change in the political system of
Ukraine must be submitted to and approved by a national referendum. (2)

Many critics of the reform, including myself, (3) believe that the political
reform is a change in the political system because it converts Ukraine from
a Presidential-Parliamentary system to a Parliamentary-Presidential system
and is, therefore, unconstitutional unless submitted to a national
referendum, regardless of any other irregularities.

The Ukrainian Constitution allows Parliament to amend the Constitution in
some aspects, but the political reform steps beyond the confines of
Parliament’s powers as described in the Constitution.

For nearly ten months, however, there was no quorum in the Constitutional
Court to consider the constitutionality of the political reform because
parliament refused to swear in Constitutional Court appointees and avoided
electing its share of justices.

On August 4, Parliament passed and  President Yushchenko signed a bill
prohibiting the Constitutional Court from deciding on the amendments to

the Constitution passed as part of the political reform.  This is clearly an
attempt to prohibit the Constitutional Court from considering the
constitutionality of the political reform now that a quorum exists.

This law is obviously unconstitutional itself.  Specifically, it violates
Article 8 of the Constitution, which guarantees individuals the right to
appeal issues of constitutional rights and freedoms, and Article 147, which
gives the Constitutional Court jurisdiction over all “issues of conformity
of laws” (4) with the Constitution.

This law is also unconstitutional because it abridges the Rada deputies’
right to bring an appeal challenging the political reform in violation of
Article 150.

Even if the Rada would have attempted to pass the law as a constitutional
amendment, such an amendment would not have passed muster under Article

157, which prohibits the constitution from being amended in such a way that it
takes away rights of the people.  As I said over a year ago “it is
inconceivable that reforms of such magnitude would be “immune” from
constitutional scrutiny.” (5)

I am surprised that in order to solve the political crisis, the leadership
chose to take a step backwards from implementing a rule of law system by
passing this legislation.  Hopefully, there will be at least forty five
deputies to challenge the law as well as the political reform.

The political reform changed the process by which most cabinet ministers are
appointed.  Now, the majority in the Verkhovna Rada has the power to select
a candidate for Prime Minister for nomination by the President and most
other ministers, and also maintains the right to terminate any minister. (6)

The President, in his capacity as commander-in-chief and head of foreign
affairs, will now appoint the ministers of Defense and Foreign Affairs.  The
President also appoints the Prosecutor General and the Head of the SBU
(Security Service), but must obtain the consent of the Verkhovna Rada to
dismiss them.  The cabinet of ministers will be able to create new
ministries and executive agencies instead of the President. (7)

The greatest hurdle in Ukraine’s continued progress towards democracy after
the March 2006 parliamentary election was implementing the political reform.
There was a great deal of confusion and disagreement particularly as to what
the President’s powers were in nominating the Prime Minister.

For example, the President now has fifteen days to decide on the nomination
of the majority coalition’s candidate for Prime Minister.  There is no
indication in the amended constitution, however, as to what would happen if
the President does not make a decision within those fifteen days.
Furthermore, the purpose of the fifteen days is unclear.

Is it meant to give the President time to consider the Prime Minister’s
qualification?  Or is it time to allow the President to negotiate agreements
with factions in Parliament that will be contingent on the nomination of the
Prime Minister?

This would seem to be the spirit of the law even if it is not the letter of
the law.  Therefore, it is essential that the Constitutional Court use its
powers under Article 150 of the Constitution to interpret the provisions of
the political reform.

Although the Parliament finally resolved the Constitutional Court crisis by
swearing in the appointed judges, it still failed to address the issue of
the oath of office.  Pursuant to a questionable provision in the Law on the
Constitutional Court, each candidate, regardless of whether he or she was
appointed by the President, or elected by the Verkhovna Rada or the

Council of Judges, must take an oath of office before the Parliament. (8)

Although the Constitution provides for the oath of office of the President
and Rada deputies, the Constitution does not have such requirements for
judges of the Constitutional Court. 

The swearing-in requirement, in my view, therefore, is likely unconstitutional
itself because it allows the vitality of the Constitutional Court to rest in the
hands of the Verkhovna Rada – a clear violation of the separation of powers
(Article 6).

The Law on the Constitutional Court can not give Parliament any oversight
authority that the Constitution does not already provide (9) and Article 153
(10) of the Constitution can not be interpreted as providing authority to
require an oath.  Naturally, such a law could be applicable only to judges
elected by the Rada, but not by the President or the Council of Judges.

Parliament once again neglected its duties with regard to the Constitutional
Court by not abolishing this oath of office and thereby removing a clear
impediment to the separation of powers.

It is quite apparent that the greatest challenge facing the rule of law in
Ukraine is the question of an independent judiciary.  In a January 23, 2006
speech commemorating that first anniversary of his inauguration, President
Yushchenko announced to the nation that 2006 would be a year of reform

and that the judicial system would be a key element of change. (11)

As a result of this address, President Yushchenko formed the National
Committee to strengthen democracy and the rule of law in Ukraine.  On March
22, 2006, the Committee adopted a new Concept Paper for the judiciary in

Therefore, the aim is clear, to strengthen judicial independence and the
rule of law in accordance with Ukraine’s Constitution, as well as standards
approved by the European community and the rest of the free world.

In my opinion, this Concept is a valiant effort to strengthen some aspects
of court proceedings and guarantee citizens access to the courts, but as a
whole it seems to me that it fails to address the problem of reforming the
judiciary in-depth, and provides for additional ways to exercise control
over the judiciary.

Furthermore, it may be in conflict with the Constitution as enacted on June
28, 1996, it violates the principal of separation of powers (Article 6), and
the rule of law commitment (Article 8).  The idea of having government
inspectors for the judiciary is not an encouraging practice (guarantee) for
judicial independence.

Also, it fails to address many aspects of the present law on the judiciary
and it undertakes to provide solutions that are not very democratic.  It
barely touches on aspects of education at law schools and the role of
legal/professional organizations (like the American Bare Association (ABA)
in the United States).

Judicial independence does not mean the judges do as they choose, but do

as they must in accordance with the Constitution and laws of the country.
Judicial independence in the final analysis will depend largely on the
conscience and courage of the judges themselves.  Judges will not be
respected until they respect themselves.

As there cannot be a market economy without private ownership of property,
there cannot be a system based on the rule of law without judicial

In addition, the judiciary needs to have its own constituency, primarily the
legal profession and strong bar associations.  These will be responsible to
expose unethical practices of the judges, and/or coercive tactics upon
judges and enlist the press on their side.

In the United States the major defenders or critics of the judiciary are
members of the legal profession themselves (ABA), law school professors,

as well as the media.

It would be refreshing and welcome news if professors of law schools in
Ukraine would start to speak out, as well as the association of lawyers,
jurists, the Ukrainian Bar Association, and hopefully the World Congress of
Ukrainian Jurists.

There is no questions that the judiciary in Ukraine needs to be reformed.
What is needed is to strengthen the checks and balances – not control over
the judiciary by the executive.

Provide adequate salaries for judges, insuring appropriate funding and
assistance for the courts, prompt publication and availability for judicial
decisions, transparency in decision making, enforcement of judicial
decisions are ways to eliminate corruption among the judiciary.

Nevertheless, greater access of citizens to judges should not mean or
indicate ex parte communications behind closed doors.  This practice

should be eliminated completely.

It is hoped that a debate on judicial reforms will continue and that the
parliament of Ukraine, after it begins functioning, will seriously take all
views, including the judges of Ukraine, before it adopts a reform that will
affect judicial independence for many years to come.

Hopefully, President Yushchenko will be able to add judicial reform to his
list of accomplishments.  Although he has not yet been successful in many of
his goals, the increased freedom of the press during Yushchenko’s term is a
significant accomplishment.

Since Yushchenko has taken office, the press has not suffered repercussions
from the government for criticism of the administration.  In fact, the press
has freely commented on members of the President’s family’s and cabinet
ministers’ lavish living.

Many reports have been made on events that would not have come to light in
the previous administration.  For example, a Rada deputy recently assaulted
a cameraman, an incident that was well reported and 948 journalists signed a
petition calling for an investigation and possible prosecution.  At least in
this aspect, Yushchenko has stewarded the Ukrainian people’s progress
towards democracy.

The most recent examples of the growth of democracy and the rule of law in
Ukraine are the March 2006 parliamentary elections and the formation of the
new government.  The winners and losers of the March 2006 parliamentary
elections are clear.

The Party of Regions obviously won the popular vote, Yulia Tymoshenko’s

bloc performed better than expected, Our Ukraine bloc underperformed,
and Lytvyn’s People’s Bloc was undeniably a loser.

The biggest winner of all, however, were the Ukrainian people because by
general consensus the parliamentary elections of March 2006 were truly
democratic. (12)  Although the success of the Party of Regions, and its
leader Viktor Yanukovych, has been denounced as a step backwards, or

even a failure of democracy, this is not so.

The March elections were free and fair, there was virtually no evidence of
vote tampering, and the government’s assets were not used to support any
candidate over another.

Despite Mr. Yanukovych’s unsavory past, particularly with regard to the
allegations of vote rigging in the 2004 presidential election that sparked
the Orange Revolution, the Ukrainian people have spoken. (13)  Thankfully,
their voices were not silenced by illegal voting practices or official

Ukraine’s post-Soviet history has, at the very least, provided hope and
confidence in the ability of new democracies to succeed without the use of
force and bloodshed.  During perestroika, Ukraine held an election
pre-independence in March 1990.

Since then Ukraine has held numerous elections after independence, including
four presidential elections (in 1991, 1994, 1999, and 2004), four
parliamentary elections (in 1994, 1998, 2002, and 2006), and numerous local
elections, each of which occurred without major violence.

The trend in Ukraine has been to resolve conflicts by the ballot box or
negotiations and compromise.  Thus, the concepts of “one man, one vote”

and equal protection have taken root in Ukraine and continue to grow.

In 1995, despite an acrimonious dispute between then-President Kuchma and
the Verkhovna Rada, an agreement delineating the executive and legislative
branches’ powers and principles for self-government was reached.  Unlike
many other former Soviet countries, a dispute was resolved diplomatically
instead of by violence.

As a result of this compromise, Ukraine was able to adopt a constitution a
year later, taking yet another step toward joining the community of
democratic nations that place the rule of law and a free market economic
system among its highest values.

The process that culminated in the adoption of a Constitution was, by no
means, solely one of agreement and harmony; rather, as one might expect,
this Constitution was born of compromise.  The Venice Commission on
Constitutional Development praised the constitution “as a document capable
of bringing true democracy to Ukraine.”14

Ukraine faced an enormous challenge to democracy in the 2004 Presidential
elections.  In the months leading up to the 2004 Ukrainian Presidential
election, grave concerns were expressed regarding whether Ukraine would

move forward as a democratic nation supporting a civil society which protects
individuals rights under the Rule of Law, or would take a “step backwards”
as the Venice Commission had noted. (15)

On October 31, 2004 held  its fourth Presidential election since
independence, followed by a November 21 run-off.  Both rounds, however,

were marred with allegations of massive fraud.  In particular, international
monitoring organizations noted serious deficiencies in the election process
and many countries, including the United States, likewise questioned the
election results.16

Following the November 21, 2004 run-off in the presidential election and the
ensuing litigation, with the Orange Revolution gaining momentum, tensions
between the Parliament, the Prime Minister, the outgoing President, and the
opposition were running high.  The use of force appeared almost inevitable.

As was the case so many times before, however, the Ukrainian politicians,
with the help of a number of foreign leaders, sat together at the
negotiating table instead of taking up arms.

The parties agreed to a simultaneous vote in the Verkhovna Rada on a
constitutional amendment (17) that transferred some of the powers of the
President to the Parliament (18) and a bill amending the law on presidential
elections. (19)  The Verkhovna Rada passed both on December 8, 2004.

The opposition, led by Yushchenko, demanded amendments to the law on
Presidential elections to prevent vote rigging and the resignation of
Yanukovych, the Prime Minister at the time. 

In particular, the opposition sought guarantees that elections would be fair
and not fraudulent.  Under the new law, the opposition was able to replace
members of the Central Election Commission and put in measures to
minimize election fraud. (20)

In addition, the use of administrative resources for elections was banned.
Finally, the law allowed for a rerun of the November 21 run-off election.
(21)  These changes ultimately enabled Yushchenko to win the election.

For his part, Yushchenko has once again solved the most recent political
crisis of four months by using compromise and discussion.

In negotiations that went down to the wire, the President attempted to
guarantee a commitment to the ideals upon which he was elected by holding
roundtable talks with all of the parties regarding his “Universal for
National Unity” which includes his pro-West provisions, including seeking
NATO and EU membership, as well as the unitary system of government and
Ukrainian as the only state language (this is in the Constitution). (22)

If the party leaders did not sign the declaration, and no government was in
place, the President considered dissolving Parliament under Article 90 of
the Constitution (the last day for forming the coalition government was July
25, 2006) as a last resort, and held roundtable discussions with Moroz,
Tymoshenko, Yanukovych, and other party leaders to that effect. (23)

On August 3rd, at 2:00 a.m., President Yushchenko announced that

Yanukovych, as well as other party leaders, including Moroz, had signed the
“Universal for National Unity” and that additional parties would ratify it in the
coming days. (24) 
In addition, Yushchenko announced that he was nominating Yanukovych as
Prime Minister.  To date, Yulia Tymoshenko has not signed the agreement,
and the Communist Party signed with reservations.

Although Ukraine has made significant strides towards democracy,  the
rhetoric of pre- and post- independence rule of law movements have not fully
blossomed into reality. 

The progress in areas such as elections has been steady, but in the legal realm,
progress has been slower than one would hope.  The resolution of the political
crisis following the March 2006 elections is another step towards creating a
stable democratic government.

Although the pairing of  Yushchenko as President and Yanukovych as Prime
Minister seems to be a marriage of opposites, in many ways it could also be
viewed as a positive.  Working in collaboration, these two men may be able
to bring Ukrainians from east and west together and help resolve the issues
of national identity.

On the other hand, new legislation that prohibits the Constitutional Court
from reviewing the political reform is a blow to the principles of
separation of powers and the rule of law. 

As the success of the Orange Revolution and the March 2006 elections have
shown, however, the people of Ukraine have passed the critical test of
\democracy, time will only tell if the leaders can continue on this path.   -30
NOTE: Bohdan A. Futey is a Judge on the U.S. Court of Federal Claims in
Washington, DC, appointed by President Ronald Reagan in May 1987. Judge
Futey has been active in various Rule of Law and Democratization Programs
in Ukraine since 1991.  He served as an advisor to the Working Group on
Ukraine’s Constitution, adopted June 28, 1996.
1           Press Release, The International Republican Institute, Ukrainian
Elections Meet International Standards (March 27, 2006); Press Release,
Committee of Voters of Ukraine, Voting Was Conducted Under Free and
Transparent Conditions (March 27, 2006); Press Release, OSCE, Ukrainian
Elections Free and Fair, Consolidating Democratic Breakthrough (March 27,
2006); Former Prime Minister Lauds Ukraine’s ‘First Honest Elections in 15
Years,’ Voice of America, March 29, 2006.
2  People’s Authority to Amend Constitution, decision by the Constitutional
Court, October 5, 2005.
3  Bohdan A. Futey, “Crisis in the Constitutional Court of Ukraine:  A Court
Without Judges?” August 18, 2005.
4  Ukr. Const. Art. 147
5  Futey, “Crisis in the Constitutional Court”
6  Id.
7  Oleg Varfolomeyev, Yushchenko Challenges Constitutional Reform, Eurasia
Daily Monitor, Volume 3, Issue 1, Jan. 3, 2006.
8  Law on the Constitutional Court, art. 17.
9  Ukr. Const., art. 6
10 “The procedure for the organization and operation of the Constitutional
Court of Ukraine, and the procedure for its review of cases, are determined
by law.”  Ukr. Const., art. 153.
11 Ukrainian President Proposes Political Stabilization Plan in Speech
Marking First Anniversary of His Inauguration, BBC Monitoring Service
(United Kingdom), Jan. 23, 2006 at 3.
12 Press Release, The International Republican Institute, Ukrainian
Elections Meet International Standards (March 27, 2006); Press Release,
Committee of Voters of Ukraine, Voting Was Conducted Under Free and
Transparent Conditions (March 27, 2006); Press Release, OSCE, Ukrainian
Elections Free and Fair, Consolidating Democratic Breakthrough (March 27,
2006); Former Prime Minister Lauds Ukraine’s ‘First Honest Elections in 15
Years,’ Voice of America, March 29, 2006.    In addition, the President
signed a decree before the elections guaranteeing elections free from
pressure by the authorities, a credo that was carried out through the
13 Editorial, The People’s Choice, Washington Post, July 17, 2006, at A14.
14 Bohdan A. Futey, Judicial Independence or Constitutional Crisis?: A New
Challenge for Ukraine, Ukr. Weekly, June 10, 2001, at 6.
15 Venice Commission Report (Dec. 2003).
16 International Republican Institute Preliminary Statement (Nov. 22, 2004).
17 Id.  A number of legal experts and President Yushchenko have questioned
the constitutionality of the amendments.  See, e.g., Serhiy Holovaty: I
Believe the Political Reform Can be Abolished After the New Year,; Ukrainian President
Proposes Political Stabilization Plan in Speech Marking First Anniversary of
his Inauguration, BBC Monitoring Service (UK), January 23, 2006.  However,
until recently there was no quorum in the Constitutional Court and,
therefore, the issue has yet to be considered.  See also, Bohdan A. Futey,
Rule of Law in Ukraine: A Step Forward or Backward? 60 The Ukrainian
Quarterly 57 (2004).
18 Presidential-Parliamentary Ukraine Becomes Parliamentary-Presidential
Republic, Radio Free Europe/Radio Liberty, Jan. 1, 2006.
19 Id.
20 Q & A – Ukrainian Constitutional Reform, BBC Monitoring Research
Service (United Kingdom), December 29, 2005 at 1.  The Ukrainian Minister
of Internal Affairs, Yuriy Lutsenko, acknowledged that over 5,000 individuals
were charged with election fraud stemming from the 2004 Presidential
election.  Speech by Yuriy Lutsenko on February 9, 2006.
21 Id.
22 BBC News, Ukraine Leader’s Dilemma Over PM, August 2, 2006
23 Reuters, Ukraine Leader Mulling Parliament Dissolution, August 1, 2006
24 Associated Press, President Yushchenko Agrees to Nominate Arch-Rival
Viktor Yanukovych to be Prime Minister, August 3, 2006.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Roman Kupchinsky, Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, August 9, 2006

PRAGUE – One of the first items on the agenda of Ukraine’s newly formed

cabinet will be to address the unresolved question of future gas supplies
from Russia.

The rise of Party of Regions head Viktor Yanukovych to the post of prime
minister has led to speculation that the new Ukrainian political climate
could result in Russian concessions when gas negotiations resume.

The Party of Regions is widely considered to be pro-Russia, which in turn
was seen as a Yanukovych supporter during his 2004 presidential run.

In late May, Aleksandr Medvedev, a member of Gazprom’s management
committee, was asked about possible increases in the price of gas Russia
would charge Ukraine in the second half of 2006.

Medvedev replied that, “according to our signed contract, the price was
agreed upon for the first half year. This deadline is not far off and both
sides will soon discuss the future price,” RIA Novosti reported on May 26.

Yet the July 1 deadline came and went without any negotiations and without a
change in the price.

Ukraine’s months-long political crisis may be one reason Russia opted to put
the negotiations on hold.

As the Party of the Regions gradually improved its position as the crisis
dragged on, Moscow may have felt that it would not be prudent to demand
higher gas prices, lest it stymie its reputed ally’s chances of taking over
the government.
                                 NEW NEGOTIATING TEAM
The composition of the new government in Kyiv will be a major factor in the
upcoming gas negotiations with Moscow.

Of Yanukovych’s four deputies in his new cabinet, Andriy Kluyev will be the
one overseeing Ukraine’s fuel and energy sector. Kluyev is widely regarded
as a competent specialist with vast experience in industry and government.

He will be assisted in his work by Fuel and Energy Minister Yuriy Boyko, who
headed Naftohaz Ukrayina during Leonid Kuchma’s presidency, and by Coal
Industry Minister Serhiy Tulub.

Boyko was questioned in 2005 over his alleged role in creating RosUkrEnergo,
the murky middleman company involved in delivering Turkmen gas to Ukraine.
He is known as a professional in the gas industry and an experienced
negotiator with Ukraine’s Russian and Turkmen suppliers.

Tulub previously held the post of coal-industry minister in the government
headed by then-Prime Minister Yushchenko during the second Kuchma
administration. Tulub is not expected to play a role in the upcoming gas
                                          NEW REALITIES
The question of how much Ukraine will pay for future deliveries of Russian
and Turkmen gas will hinge on a number of different factors:

     [1] Russia’s ability to export gas without harming domestic consumers.
Russia is faced with rapidly rising domestic gas consumption and Gazprom
has been considering the possibility of decreasing gas exports to European
markets in the future;

     [2] Gazprom is reportedly strapped for cash needed to increase
production and for geological exploration, a situation that does not bode

well for Ukrainian consumers;

     [3] The amount of gas Turkmenistan can export to Ukraine. Any decrease
in volume That cannot be replaced by other sources could have a disastrous
impact on the new government and on Yanukovych’s pledge to raise the
country’s GDP;

     [4] Ukraine’s ability to implement energy-conservation projects,
especially in the gas sector. The former head of Naftohaz Ukrayina during the

Yuliya Tymoshenko government, Oleksandr Ivchenko, promised to diversify
suppliers and called for the construction of a Liquid Natural Gas terminal on
the Black Sea. It remains to be seen if the new energy team is willing to spend
billions of dollars on such projects.

                                COMMON MISCONCEPTION
Yanukovych’s record in managing energy policies during his term as prime
minister during the Kuchma administration is neither terrible nor brilliant.

The reason being that energy policy was decided by Naftohaz head Boyko and
Kuchma, with Yanukovych apparently playing a peripheral role.

Coming from Donetsk, Yanukovych was more involved in domestic coking coal
policy than in gas. The Donbas region of Ukraine has been far more dependent
on its native coal for its wealth than on imported gas.

Moreover, during his former stint as prime minister Yanukovych was seen to
be obedient to Kuchma, and never agreed to the gas-pipeline consortium the
Russians so desperately sought.

For years Gazprom strove to get the Ukrainian government to agree to an
“international” consortium (in which Russia would play a very significant
role) to manage the main gas trunk line traveling to Europe via Ukraine. And
for years the Ukrainians, even those thought to have “pro-Russian” leanings,
managed to delay and obfuscate the issue.

Will the Yanukovych government continue the energy policies of the Kuchma
government? This is not as absurd as it might seem, considering that neither
the governments of Tymoshenko nor her successor Yuriy  Yekhanurov remained
in office long enough to formulate a gas policy. Thus, the only precedent is
the old Kuchma-Boyko one.

The question thus remains: Will Moscow continue to tolerate the Kuchma
strategy of Kyiv paying lip service to Moscow while doing what it deems in
its own interests, or will Moscow demand a higher degree of subservience
from Yanukovych in return for its past support and a possible discount on
gas prices?                                      -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
RIA Novosti, Moscow, Russia, Wed, August 9, 2006

MOSCOW, – Ukraine’s fuel and energy minister and the chief executive of
Russia’s natural gas giant Gazprom met in Moscow Wednesday to discuss
gas cooperation, a company spokesman said.

Natural gas, an important factor for Ukraine’s economy, has been a
contentious issue between the ex-Soviet neighbors during Western-leaning
president Viktor Yushchenko’s time in office.

Gazprom spokesman Sergei Kupriyanov said that at the talks in Moscow, Yuriy
Boiko and Alexei Miller “considered the current issues of cooperation in the
gas sector.”

Boiko, a former head of Ukraine’s state oil and gas firm Naftogaz, is a
member of the country’s new Cabinet led by pro-Russian politician Viktor
Yanukovych, who has close links with Ukraine’s industrial leaders and is
widely expected to pursue closer economic ties with Moscow.

At the moment, Ukraine is receiving a mixture of Russian and cheaper Turkmen
gas for a price of $95 per 1,000 cu m under an agreement that ended a gas
price spat with Russia in late 2005-early 2006. The price formula was based
on a rate of $230 for Russian gas and $60 for the Central Asian republic’s
gas. But the agreement was only valid for the first half of 2006.

Russia’s Gazprom is seeking to raise prices for Ukraine and other former
Soviet republics to European levels, which was the reason behind the New
Year dispute, when the gas monopoly suspended its supplies. Ukraine called
the move blackmail, and Russia accused Ukraine of tapping gas intended for
European markets.

In late June, Turkmenistan said it would cut off supplies of natural gas to
Russia if a new gas deal with a new price of $100 per 1,000 cu m was not
signed by September.

During talks with Ukraine in early July, Turkmenistan proposed that a
contract be signed on its gas exports at $100 per 1,000 cu m from October,
but Ukraine insisted on direct contracts for the second half of 2006 at $60
per 1,000 cu m.

Gazprom said early last month that its gas price for Ukraine would remain
unchanged unless Turkmenistan increased its price.
Earlier on Wednesday, Ukrainian Ambassador to Russia Oleg Diomin denied
knowledge of the Ukrainian minister’s visit to Moscow.

“Unfortunately, I have no information about Boiko visiting Russia,” Diomin
said. “Perhaps, he is making a private trip.” Ukraine’s new premier, Yanukovych,

is expected in Moscow next week.                      -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

AGI Online, Rome, Italy, Thursday, August 10, 2006

ROME – The Italian energy watchdog has been selected by the EU
Commission, among a number of supervisory bodies operating in the field
of energy, to take part in a twining project with the Ukrainian regulator.

Indeed, as part of the liberalization process of the Ukrainian energy
industry, a supervisory body was recently set up in that country in order to
promote a gradual integration of its market with that of the European Union.

The Italian watchdog will lead the project and will rely on the support of
two more partners: the Austrian energy regulator (E-Control) and that from
the Czech republic (ERO).

According to an official statement, the main objective of the project is
implementing the energy regulation model defined by the Ukrainian
(NERC) in line with the European best practices.

The assistance that the Italian watchdog is supposed to provide to its
Ukrainian counterpart includes: creation of joint working groups;
organization of initiatives aimed at involving Ukrainian institutions;
adjusting Ukraine’s legislation in the field of energy to that of the
European Union (acquis communautaire); organization of study visits to other
EU countries for Ukrainian officials with a view to studying the European
regulating system; adjustment of the Ukrainian rate system to the European
one and development of service quality.                 -30-

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UNIAN news agency, Kiev, in Ukrainian 1435 gmt 10 Aug 06
BBC Monitoring Service, United Kingdom, Thu, Aug 10, 2006
KIEV – The Ukrainian cabinet is getting ready for bilateral consultations with
Russia and Turkmenistan regarding gas supplies, Deputy Prime Minister
Andriy Klyuyev said today at the meeting with US ambassador to Ukraine
William Taylor.
“The Ukrainian government is watching the situation in the gas sector
closely. We have a vision of a way to go and we know that we can get
enough gas for Ukraine and ensure gas transit to Europe. We are getting
ready for bilateral consultations with the Russian and Turkmen sides,”
Klyuyev said.

At the meeting, Klyuyev said that the Ukrainian cabinet believes that the
situation in the gas sector should be based on transparent relations.
“This is one of the main conditions because it is a component of Ukraine’s
image,” the deputy prime minister said.

The issues of the economic policy, which Klyuyev oversees, were also raised
at the meeting. The parties, in particular, discussed the situation
involving the construction of the Confinement facility at the Chernobyl
nuclear power plant. Klyuyev said that a decision on a company which will
build it is going be taken in the near future. He added that Ukraine is
seeking to complete the construction as soon as possible and in the most
effective way.                                      -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
TV 5 Kanal, Kiev, in Ukrainian 1630 gmt 10 Aug 06
BBC Monitoring Service, United Kingdom, Thu, Aug 10, 2006

Ukrainian Prime Minister Viktor Yanukovych has said that Ukraine will pay an
“optimal” price for Russian gas. He promised to give the details after his
visit to Russia scheduled for 15-16 August.

Yanukovych said that his cabinet does not intend to review the existing gas
agreements with Russia. Yanukovych also ruled out the federalization of
Ukraine and said that local government should be developed instead.

The following are Yanukovych’s remarks made at a news conference as shown

by Ukrainian private TV channel 5 Kanal on 10 August; subheadings have been
inserted editorially:

[Yanukovych] We invite professionals and specialists, and, as you know,
professionalism has no colour. When working in the cabinet in 2004-03 I
could see us setting up a coalition de facto and de jure and nine factions
were involved in this process. When I started working it was very difficult
for me to understand how it would be possible to unite nine factions and
reach understanding with them.

Indeed, it was a very difficult path, but we completed it. We reached
understanding because we had the single goal and we have always sought
understanding and rejected even discussions on what separates us. The
president has put it very well in his night speech. I remember it. To some
degree he read my mind. I believe that we are the single team.

Today I had interviews with managers of different levels who have already
taken over their posts. I addressed them and said that I would like to see
them in the core of the team rather than on the bench of substitutes. If you
show the result and each of you cope with your duties effectively, you will
be the players. If it is not the case, then excuse me, there are substitutes
and the queue will be moving all the time. So the selecting of personnel
should be adequate.

We should train our personnel so that they step by step pass tests and this
process should be not just coordinated, but there should be competition. If
there is competition, and I experienced this many times, when you are pushed
from all sides, you always show some result. We believe that the government
team should always show the best possible Olympic result.

So I wish my colleagues to be like Olympic champions and learn to run and to
beat if need be. But you know this competition should be healthy. Everyone
should know that we work for the public, for the state, for the result and
for our country posts economic growth, so that we learn to respect each
other in our state, and because we want to be respected. And we should work
on this. But this happen only if we have some achievements which unite our
[Question from journalists] Will your cabinet cancel gas agreements with
[Yanukovych] I have never said that we will cancel or review anything. I
want to repeat that we will seek to reach understanding with the suppliers
of fuel to make sure that the supplies of fuel are transparent and that we
sign interstate agreements involving the governments of our neighbour

As for gas, it is a separate important issue and I think that after my trip
to Russia, which is scheduled for 15-16 August this year, I will be able to
give you a specific answer to this question. We are working now to make sure
that our state has enough gas, to ensure an optimal price of gas and I am
not prepared to say right now what it will be.

However, I would like to assure you that it will be optimal and we will
insist on this price and report to the public how we achieve this. We will
work on this.
[Yanukovych] The issue of federalization of our state emerged, I would say,
on the emotional wave during the [presidential] election in 2004. This was a
response of the part of population which, to some extent, considered
themselves to be either cheated or put in the conditions that made them feel
discriminated. This was a natural reaction.

Under these circumstances, we, the politicians, reacted to our voters’
wishes and proposals. Our approach to this issue was not tough. Instead,

we offered society a discussion on the territorial organization of our state.
The proposed a federative organization was discussed during the election
campaign and the entire year of 2005.

What conclusion have we arrived at? We have arrived at the following
conclusion – that today it is more urgent to reform the system of local
government. This is in line with constitutional reform. And our task is to
continue with constitutional reform because without the reform of local
government it will remain one-sided and incomplete.

Step by step, we have to take measures on the decentralization of power and
reach the level when all of us are confident that the government is strong
enough to perform state functions and local government bodies are strong
enough to perform their functions.                         -30-
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Associated Press, Kiev, Ukraine, Thursday, August 10, 2006 

KIEV,Ukraine – Ukraine’s new premier said Thursday that his country
needs a transparent agreement with Russia over natural gas supplies, but
emphasized that it didn’t necessarily mean cutting a controversial middleman
company out of the deal.

Ukraine, which receives much of its gas supplies from Russia, agreed to a
twofold price increase after a bitter dispute with Russian state-run gas
company Gazprom (GSPBEX.RS). Gazprom briefly turned off the taps to

Ukraine at the height of winter, which also triggered a brief shutdown of
supplies to Western Europe through Ukrainian pipelines.

As part of the deal that resolved the dispute, Ukraine agreed to receive its
imported natural gas at a price of $95 per 1,000 cubic meters from an
intermediary company, RosUkrEnergo – a joint venture between Gazprom

and a company owned by two little-known Ukrainians.

Asked by reporters Thursday if Ukraine plans on reconsidering the deal,
Viktor Yanukovych responded: “I never said we would change or reconsider

“We will try to find a common language with suppliers … so that the supply
of energy sources is transparent, so that the agreement that our country
will have, will be between governments,” he said.

Yanukovych heads to Moscow Tuesday in his first foreign visit since
parliament confirmed him last week, and talks on the gas deal are expected
to top the agenda.

During Thursday’s news conference, Yanukovych also pledged that no one in
government would be fired because of their political views, and pledged to
help those who choose to resign to find new jobs.

“I signed a special order that everybody who resigns …. will get new
jobs,” said Yanukovych, who showed no sign of the stiffness that used to
characterize his media appearances. Yanukovych served as premier before the
2004 Orange Revolution, mass protests against election fraud aimed at
helping Yanukovych’s failed presidential bid. This time, Yanukovych smiled,
joked and asked journalists to forgive him “for small mistakes.”   -30-

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Interfax, New York, New York, Thursday, August 10, 2006

NEW  YORK – Moody’s Investors Service today placed the  Ba3  foreign 

currency  corporate  family rating and the Ba2 senior unsecured  foreign
currency rating of NJSC Naftogaz of Ukraine on review for  possible 
downgrade  following recent statements made by the Ukrainian Government
about the financial future of the company, Moody’s said in a press release.

In  accordance  with  Moody’s  GRI  rating  methodology the current
ratings  reflect  a combination of the following inputs: baseline credit
assessment  of 14-16 (on scale of 1-21, where 1 represents lowest credit
risk); B1  local  currency  rating  of  the  Ukrainian  government;  low
dependence; and high support.

Several  factors  could  influence the possible outcome. The review
will center  upon factors affecting the baseline credit assessment, such
as a possible  material  deterioration  of  its  financial  profile  and
weakening credit metrics; and a review of assumptions regarding possible
government support.                             -30- 

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Kommersant, Moscow, Russia, Tuesday, Aug. 08, 2006

Ukrainian PM Viktor Yanukovich will pay the first foreign visits to Moscow
and Washington, focusing on the energy security in time of the tours. Former
top managers of Naftogaz Ukrainy, who are loyal to Russia and know
personally Gazprom CEO Alexey Miller will become key negotiators in talks
with Gazprom.

The tricky point is that before launching gas negotiations with Russia,
Yanukovich talked to the U.S. Ambassador to Ukraine William Taylor.

The gas foreign strategy of Ukraine will be in line with “the spirit of
strategic partnership and pragmatic agreements with Gazprom,” Fuel and
Energy Minister Yury Boiko announced August 7, 2006, promising the
negotiations will be held professionally instead of being just politically

Of interest is that Boiko personally knows Gazprom CEO Alexey Miller.
When heading Naftogaz Ukrainy, he visited Moscow from time to time and
agreed on the gas prices and transit amount with Gazprom.

Also on yesterday, Viktor Yanukovich announced the forthcoming upheaval in
Naftogaz Ukrainy. From 2005 to 2006, Naftogaz was taken over by Orange
leaders, Alexey Ivchenko and Alexander Bolkisev, with no great experience in
the gas business.

According to a source with Ukrainian cabinet, three candidates are being
considered now to replace Naftogaz CEO Alexander Bolkisev. Their political
past isn’t bright, but they have amassed great experience in the gas field.
They are Vladimir Kopylov, former chief of Naftogaz, Anatoly Rudnik, former
chief of Ukrtransgaz, and Vladimir Sheludchenko, deputy board chairman at

The first two officials took part in negotiations with Gazprom.
Sheludchenko, who never participated in such talks but is Boiko’s favorite,
will follow the consolidated policy of Ukraine.

The change in Ukrainian gas policy couldn’t escape the United States.
Yanukovich met U.S. Ambassador to Ukraine William Taylor Monday to
canvass deliveries of gas of Russia and Turkmenistan and the guaranteed
transit of energy to Europe, press service of the PM reported. Yanukovich

promised Taylor to focus on energy security in time of his visits to Moscow
and Washington.                                  -30-
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Ukrainian News-on-line, Kiev, Ukraine, Thursday, August 10, 2006

KYIV – Ukraine has postponed endorsing the NATO Membership Action Plan

to the time when public is well aware of the organization and is ready to sign
annual Ukraine-NATO target plans. Ukrainian News learned this from the press
service of the Cabinet of Ministers.

“The government of Ukraine doesn’t reject the NATO Membership Action Plan,
but it temporarily postpones endorsing the final decision on the issue to
the time when a higher level of awareness of the population about NATO is
achieved,” the press service quoted Premier Viktor Yanukovych as saying.

He said a relevant agreement was reached at the talks with the political
parties participating in the parliamentary coalition.
As he said, the submission of an application for joining the NATO Membership
Action Plan in several days after the end of the political crisis in the
country might cause new public and political confrontation.

It would be more fruitful, he said, to focus efforts on the realization of
the National Unity Agreement, including on the paragraph concerning the
cooperation with NATO.

While abstaining from the immediate submission of the application, Ukraine
will use the time for actual work with NATO, realization of required
reforms, and execution of the recommendations provided by NATO.

“We are sure that the final answer to the dialogue on Ukraine’s joining
NATO, which will last for the coming several years in the Ukrainian society,
will be given by the nation-wide referendum on the issue,” Yanukovych said.

As Ukrainian News earlier reported, Foreign Minister Borys Tarasiuk
forecasts that a nationwide referendum on Ukraine’s joining NATO will be
held not earlier than in 2008.

Signatories to the Declaration of National Unity assumed a commitment to
conduct procedures toward NATO entry, but adopt a final decision on
membership in the Alliance at a nationwide referendum. Members of the Yurii
Yekhanurov’s Cabinet of Ministers had stated the intent to secure membership
of NATO in 2008.                                   -30-
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Mara D. Bellaby, Associated Press, Kiev, Ukraine, August 10, 2006 

KIEV- Ukraine will not make a bid for NATO membership at the alliance’s
November summit, but will continue to develop relations with the alliance,
Prime Minister Viktor Yanukovych said Thursday.

The decision, which Yanukovych said was made jointly with his new
parliamentary coalition, was not a surprise since both NATO and Washington
had hinted strongly that the ex-Soviet republic was not yet ready to receive
a membership “action plan” during the upcoming summit in Latvia.

NATO membership action plans are meant to assist countries wishing to join
the alliance in their preparations by providing support and other help.

Yanukovych, who was confirmed as premier last week after months of political
paralysis, said pushing for membership was unwise since “several days after
solving the political crisis in the country (it) could cause new social and
political divisions.”

“We aim to use this extra time to work toward closer relations with NATO, to
conduct necessary reforms and to fulfill the recommendations that have
already been made by the alliance,” he said in a statement.

President Viktor Yushchenko has been a strong advocate of NATO membership,
and initially had expressed hope that Ukraine might receive an invitation
this fall.

That hope began to fade, however, after March’s inconclusive parliamentary
elections and the ensuing political turmoil. Anti-NATO protests later
erupted in Ukraine’s Crimean Peninsula, where Russia’s Black Sea Fleet is
based, forcing the cancellation of multinational training exercises.

Yanukovych’s Party of Regions strongly opposed NATO membership in the March
campaign, and some members participated in the Crimean NATO protests. But
Yanukovych last week signed a pledge to promote cooperation with the
alliance; he added the caveat that a public referendum must be held before
Ukraine sought membership.

Yushchenko’s office had no comment on Yanukovych’s announcement, which was
made in a press release issued after Yanukovych briefed journalists ahead of
a trip next week to Moscow. During the news conference, Yanukovych made no
mention of NATO.

Opinion polls show that most Ukrainians oppose alliance membership; many are
distrustful of their former Cold War foe, while others fear membership would
irretrievably harm relations with Russia without bringing any significant
benefit.                                                -30-
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                                      EU AND NATO STATUS
Ukrainian News on-line, Kyiv, Ukraine, Monday, August 7, 2006
KYIV – President Viktor Yuschenko has cancelled the Resolution on the
Foreign Affairs Ministry, which authorized it to provide coordination of
all foreign policy and joining EU and NATO.

This is disclosed in presidential decree No.678/2006 of August 3, text of
which Ukrainian News has. Viktor Yuschenko cancelled the resolution

and all decrees amending it.

According to the last wording of the resolution on the Foreign Affairs
Ministry of November 2005, Viktor Yuschenko set the ministry as leading
executive agency for provision foreign policy.

The resolution also foresaw that the ministry was the main agency to
coordinate all foreign policy including joining EU and NATO.

‘The Foreign Affairs Ministry, as the central executive agency, is the
leading agency in the system of central executive agencies on implementation
of the state foreign policy and coordination of measures on particularly
directed to strategic issues of joining the European Union and NATO,’ the
resolution reads.

As Ukrainian News earlier reported, Viktor Yuschenko strengthened Foreign
Affairs Ministry status in November 2005 canceling its coordination by the
Main Foreign Policy Department to the Presidential Administration,
introduced by the former President Leonid Kuchma in 2003.
Viktor Yuschenko has again become a coordinator of all foreign policy.
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         Ukrainian analyst warns NATO membership brings additional threats

Zerkalo Nedeli, Kiev, in Russian 5 Aug 06, p 6
BBC Monitoring Service, United Kingdom, Saturday, August 5, 2006

The question of whether or not Ukraine should join NATO is tainted by
opinions formed under the pressure of Soviet propaganda and without regard
for the bloc’s role, a weekly has reported. The author said opinions both
for and against membership are not based on rational, sober thought.

He said NATO has changed substantially in the past 15 years and the NATO
which the countries of Central and Eastern Europe joined and the NATO

which Ukraine is planning to join are “two very different things”.

Membership could even pose new threats to Ukraine stemming from
international terrorism directed against NATO, he said noting such threats
were “hypothetical” for Ukraine in its present, unaligned state. He said
Ukraine could still join the EU, even if it did not join NATO.

The following is an excerpt of the article by Andriy Fialko, entitled
“Ukraine-NATO: You remember how it all began…on something important
without emotion”, published in Zerkalo Nedeli on 5 August, subheadings

have been inserted editorially:

And so the entire world argues about 1,000 things, when all the pros and
cons are equally false. He who backs up his talk with provocative behaviour
and a high tone merely proves the weakness of his arguments.
                         STANCE ON NATO STILL NOT CLEAR 
For those citizens of our country who are exhausted by the sun and tired of
the interminable and ever more depressing political serial, many questions
which just yesterday seemed topical and provoked harsh discussion have been
pushed into second place. And the establishment of the anti-crisis coalition
could push them back even farther.

Ukraine’s prospects for joining NATO undoubtedly belongs to the number of
such questions.

Quite unexpectedly for everyone, this issue took one of the central places
during negotiations on signing the declaration of national unity and setting
up the new coalition. However, nothing became more clear.

In place of the clear and unambiguous signal which we intended to send to
the world, we again got sounds characteristic of the Ukrainian political
establishment “which sometimes sound like ‘a’ and sometimes like ‘e'”.

And in light of the extreme positions on the NATO issues which are held by
[pro-presidential bloc] Our Ukraine and the Communist Party of Ukraine, it
seems the joint efforts of a swan, lobster and pike would be the pinnacle of
results-oriented work compared to the work of the new coalition in this

“We have again lost such a big chance”, some say with worry. “We won”,
others will shout no less sincerely. And the majority will remain perfectly

We shall point out right away: there is no reason for either despair or any
special joy, since the issue of Ukraine’s membership in the North Atlantic
alliance has still not been presented. Although it could possibly be seen on
the horizon, among all things unsaid (the expediency of joining is another
topic). And so the maximum which we could count on is getting a meaningful
wink at the next summit. And they’ll wink anyway, though maybe not so

Now there is time to think, in a more calm situation, exactly how justified
are the mutually-exclusive feelings our citizens have? On what base do
politicians stand when reciting such pathos-imbued speeches on the topic of
Ukrainian-NATO relations? Finally where does Ukraine’s national interest
lie, when cleaned of party intrigues and dirt and of external influences and
their own [psychological] complexes?

We shall try to find variants of answers to some of the issues, but do not
pretend to have the final word on truth. In order to understand the essence
of many complicated moments, one must not judge them based on positions
today, but rather recall the conditions under which they formed.

[Passage omitted: Commentary on the history and legacy of Soviet propaganda
regarding NATO.]
                    PRO-NATO CAMP IS FAR FROM TRUTH 
As paradoxical as it may seem, the arguments of those favouring Ukraine’s
membership in NATO are often essentially no closer to the truth than those
of their opponents, though they are presented in a more civilized and less
aggressive form. But this does not stop a pretty tale from being a tale, or
a fantasy from being a fantasy.

Though at the beginning of the 1990s the majority of our fellow countrymen
continued by inertia to look at NATO from foxholes dug during the cold war,
the idea of drawing closer (and for the more brave – Ukraine’s membership in
NATO) appeared in the domestic political elite at practically the same time
as independence was gained. It then seemed: just a little bit more and
Ukraine would take its rightful place in the family of civilized peoples.

The North Atlantic Treaty Organization agreement, which successfully
withstood the totalitarian system of the Soviet Union, was one of the faces
of the democratic system. NATO-member countries were the edge of dreams –
high standards of living, social protection, real responsibility of
authorities before society and not just a show of such, as well as freedom
of speech, congregation and mass media.

Besides, nearly all new democracies which had broken free of the suffocating
communist system and the pettiness of Soviet stewardship, were striving to
join NATO. In these conditions, a direct rejection over membership in the
alliance was taken as an expression of poor tone or at least insufficient
progress (progressiveness, democracy, and so on).

Besides, a feeling of slight offence appeared in the subconscious of the
Ukrainian establishment: if they are negotiating with everyone except you,
it means you don’t deserve it, you have not matured yet, or you are still on
the other side of the curtain.

As we see, understandings began to chance even in this early stage:
democracy and a level of civilization were seen as the same as the
important, but far from key, element in the system of western values, one
which was foremost responsible for the defence aspect.
                               NATO’S ROLE CHANGING 

In these 15 years which have sped by so quickly, threats to security have
changed at the core, and with them, the essence of NATO. The terrorist
attacks on 11 September 2001 which changes the world drew a thick, fat line
under an entire historical era. Of course the alliance which had shown
itself to be effective as a defence union was impotent in the face of a more
treacherous and sudden danger. As a result of adapting to new realities, its
nature and principles of action and its strategy changed fundamentally.

While NATO defended the Western world for its first 50 years of existence,
mainly due to the strength of its leading state, the United States, on the
threshold of the 21st century one can see the opposite picture as the
members countries in the alliance are themselves helping America in the
fight against the threat of terrorism.

NATO which had not gone beyond the bounds of the Euro-Atlantic region and
which acted in strict accordance with the statute of the United Nations,
turned into an organization whose strategic goal is preventative actions in
case of need – and without the agreement of other members of world society
and in practically any place on the globe.

In particular, the alliance’s Military Defence Concept against terrorism
adopted at the summit in Paris on 21-22 November 2002 unambiguously reads:
“NATO must be ready to carry out military operations against terrorist
groups and there resources when and where necessary in accordance with the
decision of the NATO council”.

Today the vulnerability of NATO member countries has significantly increased
in regard to new threats, such as a sudden missile attack by terrorists or
states which support terrorism or international terrorist organizations
(like Al-Qa’idah), and also the use of bacterial, chemical and – not to be
ruled out – nuclear weapons on the territory of countries in the alliance.

In this context, it is interesting to note a comparison by American
international relations expert Zbigniew Brzezinski on the problem of the
security of the United States in the 21st century with the challenges which
the criminal world is presenting to modern megalopolises.

Meaning the difficult and nearly impossible search in a city with a
population of millions for small, but well-organized groups of criminals
(terrorists) who are hard to identify before they commit large crimes
(terrorist attacks).

Brzezinski draws the logical conclusions: NATO’s main efforts should be
directed not towards integrating 26 national armies, since defence in terms
of the principle of territory has lost its original meaning, but towards
creating rapid-response forces which would carry out missions beyond the
borders of the alliance’s member countries.

Correspondingly, NATO’s priority tasks (both for the organization as a whole
and for its individual members) are operations in Afghanistan, Iraq and, in
the case of regulating the Arab-Israeli conflict, in the Middle East.

A number of influential American politicians have insistently put the issue
of activating the NATO agreement on the table in the case of an exacerbation
of the situation with Iran’s nuclear programme. It is a big question whether
the alliance can act as successfully under conditions of growing
geographical scope and such radically changing tasks.

But one thing is perfectly clear: the NATO which the countries of Central
and Eastern Europe joined and the NATO which Ukraine is planning to join are
“two very different things”.
                                    RISKS COULD INCREASE 
It is also perfectly clear that should Ukraine successfully complete the
process of Euro-Atlantic integration, the number of risks to its national
security could significantly grow. This is no reason to panic, but the issue
needs additional, serious analysis and thought.

Statements that the mechanism of decisions made in NATO are so democratic
that Ukraine can choose for itself which crisis situations it will
participate in and which not, are at best too naive.

Especially if one takes into account that the famous Article number five of
the Washington agreement of 1949 was used for the first time in the history
of NATO in response to the terrorist acts in the United States on 11
September 2001. This article qualifies an armed attack on one or more
members of the alliance as an attack on them all.

It is also hard to imagine that in case of a serious crisis in Washington,
London or Paris, they will follow a “fate-defining” meeting of our National
Security and Defence Council with trepidation, especially if the main
decisions have already been made by that time by the Grande dames of the

Also unclear is the logic according to which we can discuss whether or not
we will take part in defending our potential allies should a threat against
them arise or whether they would unanimously and unwaveringly come to our
aid should such a threat arise against Ukraine itself. And so it is worth
asking oneself whether one needs such an unpredictable ally, on which one
cannot rely.
                       IN THE EU WITHOUT JOINING NATO 
I also think attempts to present the process of joining the European Union
and NATO as nearly one and the same thing are incorrect. Some saying that
without joining the alliance, we will get nothing in terms of the EU, so
what is there to talk about.

Under the identical common system of values and the public-political and
economic systems of participating countries, there are serious differences
between these integrating associations, not to mention contradictions.

NATO is foremost a military (and then political) union with the leading
participation of a super-power – the United States – which determines its
nearly unlimited sphere of responsibility in the face of global threats.

And one need not expect the only super-power in the world to behave itself
more loyally than a spouse – thinking only about how to make you happy
without thinking of its own interests. It is more likely to be like a
mother-in-law, who knows exactly what you should do for your own happiness
(and her peace of mind).

At the same time, in contrast to NATO, the EU is foremost an economic union
with an ever more noticeably strengthening political component which spends
a lot of time mulling the topic of “what is good and what is bad” while
acting quite slowly. These two organizations have as much in common as a
tank and a combine.

Here is one eloquent example. The most successful, unproblematic and fast
round of widening the EU took place in 1995 when non-NATO member

countries Austria, Finland and Sweden joined.

And the citizens of one country participating in the negotiations, NATO
member Norway, blocked the process of their country joining the EU in a
referendum, believing that [EU] membership would overly regulate their
habitual way of life and would not aid in preserving and developing their
own culture.

By the way, I personally asked Javier Solana at a conference in Kiev whether
it was possible for Ukraine to join the EU without joining NATO. His answer
was clear: “Of course it can, why not?” Clearly our Euro-integrators know
their way around the system much deeper than their colleagues in Brussels.

But Mr Solana’s opinion is still of interest since at that time he was
appointed “EU minister of foreign affairs” after having worked as NATO
secretary-general and knew the system from the inside.
                              IS THEIR LIFE WITHOUT NATO? 
The question of membership in NATO, taking into account the consequences
both for Ukraine and its relations with third countries, certainly occupies
an important, and today perhaps key, place. It is good that serious
discussion has begun on this issue. It is bad that it is being held mostly
on the basis of ideas, convictions and feelings, in a word, emotions, and
not on concrete facts and sober analysis.

In the heat of passions and mutual accusations, the answer to the main
question is somewhat lost: “What will Ukraine get from joining NATO and what
will it lose?” And will it not turn out that once becoming a member of the
alliance, Ukraine, besides moral satisfaction from being in a prestigious
club, will get first class protection from threats which are already not as
topical, while opening itself up to new, more dangerous risks which are now
more hypothetical in nature.

This article intentionally not does touch the Russian factor. One can
discuss that without end. Having not said the main thing – one of the
driving motives for Ukraine’s Euro-Atlantic aspirations is the desire for
insurance against the case of unforeseeable turns in Russia’s foreign
policy. Too much was said by [Moscow Mayor Yuriy] Luzhkov, [Duma

MP Konstantin] Zatulin and others in the mid 1990s.

One must stress: we are not at all talking about anti-Russian motivations
for Ukraine’s foreign policy and surely not about taking part in any kind of
acts against Russia. One can suppose that on the Russian side, unacceptance
of the idea of our membership in NATO includes recognizing the fact that it
will once and for all cut Ukraine off from the Russian “umbilical cord”.

In deciding the issue of membership, time is important. It is hard to
imagine a more unfavourable time for finally realizing the Euro-Atlantic
choice. The country is in serious need of taking a breath which would allow
it to overcome the noticeable divide in society and renew healthy processes
in the economy.

I personally do not understand how one can talk seriously about Ukraine’s
membership in NATO, having held up the country on 230 dollars per 1,000
cubic meters of gas. And that as a base price.

As far as the political aspect, a painless solution to the problem of our
joining the alliance today is impossible without the Party of Regions. And
unrealistic with it.

And one should not forget that society’s predominant unacceptance of the
idea of Ukraine’s joining NATO does not reveal itself in grotesque
theatrical processes, but will come in a referendum on the issue and in the
presidential election in 2009, a year when the issue could take on practical
meaning should a corresponding invitation be made then. And no-one needs
that mess.

For now events should not be forced. We have a strong position today like
never before. As far as the alliance, Ukraine’s input in its missions in the
former Yugoslavia and Iraq are qualitatively and quantifiably equal to the
efforts of a good half of the members of NATO. That is, not only are we
interested now, but the leading world players are interested in us.

This is something that should not only give us joy, but reason for a bit of
caution, too. Especially when voices of warning are ever more clearly
sounding in warning of a possible renewal of the cold war. You don’t have to
be a genius to understand exactly where its main battles will be fought.

At the same time, one must clearly imagine that the most commonly proposed
alternative to NATO membership, Ukraine’s neutrality, has no real guarantees
of being realized despite the idea appearing attractive on the outside.

Does anyone in fact seriously think that, not being tied by any alliance
obligations, states which look very much like the United States and Russia
will destroy each other and the entire world in our nuclear age and over
Ukraine, too? And what we have in the 1994 Budapest memorandum are not
guarantees, but statements (in a true translation of the original).

And of all statements, the most reliable is that of the beloved pop-singer
Vera Serdyuchka: “Everything will be OK, everything will be OK, I just know
it”. But that is a topic for another conversation. Or another song.  -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                    Strong No to NATO in Feodosia, Crimea, Ukraine

By Lisa McAdams, Voice of America (VOA) in Feodosia, Crimea
Washington, D.C., Wednesday, 09 August 2006

FEODOSIA, Crimea – Many in Ukraine, particularly in the Russian-speaking
south and east, remain hostile to the United States – their former Cold War
foe. Russia has warned that relations between the neighbors would suffer if
Ukraine joined NATO. In one such territory, Feodosia, protests broke out in

June on the arrival of a U.S. cargo vessel ahead of scheduled NATO training

The anti-NATO demonstrations across Ukraine’s southern autonomous region of
Crimea in May and June were the first such protests of any kind in this
sleepy port city on the Black Sea. Still, they lasted nearly one month and
brought well over 2,000 people into the streets. There, they burned American
flags and chanted “USA go home.”

Opponents of President Viktor Yushchenko have been energized by his party’s
humiliating, third-place finish in March parliamentary elections, and the
difficulty of the country’s various parties to put together a governing
coalition. Mr. Yushchenko has made NATO membership a top priority and has
been pushing for potential partners to commit to that goal.

One opponent, Anatoly Sitkov, first secretary of Feodosia’s Communist party,
says Ukraine’s recent pro-Western moves under President Yushchenko are not
to be taken lightly, especially when it comes to the question of Ukraine
joining NATO.

Sitkov says Crimea has no ill will toward the West, America in particular,
but he says, all the same, Crimea does not want to host all these foreign

He says there are only two real powers in the world today, the United States
and Russia and, in his view, these exercises risk breaking that delicate
balance as Russia remains firmly opposed to NATO. He says he also opposed
the NATO bombing campaign in former Yugoslavia years back and would
not like to see Crimea drawn into similar situations in the future.

At the same time, Sitkov says, he takes some comfort in the fact that the
recent unity agreement, signed by President Yushchenko and returning Prime
Minister Viktor Yanukovych, establishes that a national referendum must be
held before any decision is made on Ukraine’s bid for membership in NATO.

Sitkov says his party will participate in a referendum, if and when it is
held. But he says the West should still expect more protests in Crimea.

Viktor Buleyko, a war veteran, tells VOA that there is no practical reason
for NATO troops to come to Crimea.

“The only reason they would need to do so,” he says, “is as a first step to
‘occupy’ the Black Sea. After that it will then be possible for NATO to
attack Russia.”

“What help can we expect to get from these troops,” Buleyko cries, visibly
disturbed. “Crimea is not Iraq, not Iran, not Israel. It is Ukraine,” he
says, “and standing with us is Russia.”

Alexander Evanovsky, a soldier with Crimea’s border guard service, too,
expresses support for the recent protests. “Wherever NATO goes, there is

war,” the soldier says. “But our people are for peace. We do not need
foreign troops here.”

Evanovsky also rejects the notion that NATO might be a good thing for Crimea
if, for example, it shared updated training and equipment. “I have all that
I need,” he replies tersely.

Pensioner Valentina Leontyevna remembers the night the U.S. ship came into
Feodosia’s port. She says people protested in the streets for nearly 30
days, sleeping in tents they pitched in a park adjacent to the port. The
protests forced the cancellation of at least six scheduled exercises.

Valentina says the people of her town cautiously welcome the confirmation
of pro-Russia Prime Minister Viktor Yanukovych.

“We need to wait and see what he does,” she says, and then wishes aloud that
he had not signed the national unity pact with Ukraine’s president. It calls
for allowing foreign troops to hold training exercises in Ukraine, such as
those the people of Feodosia managed to halt through protests.

After twice rejecting such legislation, Ukraine’s parliament, or Rada, this
week approved the exercises, the first of which started on Monday in
Ukraine’s region of Nikolayev. At least three other international
anti-terrorism training sessions will be staged in September.

Asked how they will react if foreign troops again come to their shores, the
people of Feodosia are clear. They say if Ukraine ultimately opens its
windows to the West (i.e. NATO) as appears, it must be sure not to close
the door to Russia.                                 -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News-on-line, Kyiv, Ukraine, Tuesday, August 8, 2006

KYIV – The Cabinet of Ministers intends to review the draft laws required

for Ukraine’s admission into the World Trade Organization that the previous
Cabinet of Ministers prepared and submitted to the parliament for approval.

Prime Minister Viktor Yanukovych announced this while presenting newly
re-appointed Foreign Affairs Minister Borys Tarasiuk to employees of the
Foreign Affairs Ministry.

In particular, Yanukovych said that he had already ordered a study of the
draft laws to determine the extent to which they serve the interests of
Ukraine and determine whether it is necessary to hold public hearings on

Moreover, according to Yanukovych, these draft laws should be agreed with
Ukrainian manufacturers in order to ensure that Ukraine’s accession to the
WTO does not have a negative effect on them.

According to Yanukovych, there are several sensitive issues for Ukrainian
manufacturers regarding Ukraine’s accession to the WTO.

At the same time, Yanukovych expressed the belief that the government will
be able to reach agreement with Ukraine’s partners in the WTO on deferment
of reduction of import duties for several years to enable Ukraine to create
better conditions if Ukrainian manufacturers.

Yanukovych also said that he needed to hold consultations with experts at
the Economy Ministry to enable him to forecast the period of Ukraine’s
accession to the WTO. He said this would enable him to assess the
probability of Ukraine’s accession to the WTO this year or postponement

of its accession until next year.

As Ukrainian News earlier reported, Ukraine previously set itself the goal
of joining the WTO in 2006. This goal is stipulated in the Universal
Agreement on National Unity that the political forces represented in the
parliament signed on August 3.                     -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

ICTV television, Kiev, in Ukrainian 1545 gmt 8 Aug 06
BBC Monitoring Service, Kyiv, Ukraine, Tuesday, August 8, 2006

KYIV – Ukraine’s Prime Minister Viktor Yanukovych and Foreign Minister

Borys Tarasyuk, who was re-appointed to the post under the quota of
President Viktor Yushchenko, have disagreed over the deadlines for Ukraine’s
WTO entry, a Ukrainian TV channel has said. Yanukovych came to the
Foreign Ministry on 8 August to present Tarasyuk to the ministry staff.

Yanukovych said his cabinet may postpone Ukraine’s WTO entry date to see
whether the interests of Ukrainian producers are observed in the WTO bills

submitted to parliament by the previous government.

Tarasyuk told journalists later that Ukraine’s WTO entry by the end of 2006
is stated in the national unity declaration signed by Yanukovych on 3
August. The following is an excerpt from a report by the Ukrainian ICTV
television on 8 August:

[Presenter] Ukraine may see the comeback of multidirectional foreign policy.
Slightly different priority slants could be heard today when re-appointed
Foreign Minister Borys Tarasyuk was being presented [to ministry staff] by
Prime Minister Viktor Yanukovych.

Yanukovych said that WTO entry may be postponed until next year, while
Tarasyuk refuted the statement at a news conference later today, recalling
the signing of the national unity declaration, which backs President Viktor
Yushchenko’s current course. [Passage omitted: repetition]

[Correspondent] After sweet promises to finance the ministry in a worthy way
and to deal with diplomats’ housing problems, Yanukovych said that the WTO
entry may be delayed.

The prime minister had already issued an instruction to revise the [WTO
related] bills submitted by the previous government, and proposed holding
public hearings. But Tarasyuk is certain that Ukraine will join the WTO by
the end of 2006.

[Yanukovych, addressing ministry staff] It is necessary to organize public
hearings of these [WTO] bills to see whether they have been agreed with
producer associations, as this is needed for us to take this step
consciously and not to receive any negative response from our public, or
from our industrialists and entrepreneurs.

[Tarasyuk, addressing journalists] I want to remind you that participants in
the national unity forum noted in their declaration that the completion of
the WTO entry process is a priority, and that it should be completed by the
end of 2006.

[Correspondent] Ukraine’s membership of the WTO and EU will not get in

the way of Ukraine’s creating a free trade zone within the framework of the
Single Economic Space [accord between Russia, Ukraine, Belarus and
Kazakhstan], Tarasyuk said.

But a U-turn in foreign policy and the abandoning of EU and NATO

integration are the only reason that will force the minister to resign.

[Tarasyuk, addressing journalists] If one is to speak about a hypothetical
question, this will obviously be a U-turn in foreign policy. Unequivocally,
I have no other interests than the interests of our state. If this happens
this will of course be the reason for me to tender my resignation.

[Passage omitted: Correspondent says Tarasyuk forecasts a national
referendum on NATO entry in 2008.]                      -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Jan Cienski in Warsaw, Financial Times
London, United Kingdom, Wednesday, August 9 2006

WARSAW – The appointment of Viktor Yanukovich as Ukraine’s prime minister
last week has created a diplomatic challenge for Poland as Warsaw seeks to
maintain the influence in Kiev it built during the 2004 Orange Revolution.

Polish politicians were prominent in forging the compromise that gave
victory to Viktor Yushchenko in the battle against Mr Yanukovich for the
Ukrainian presidency. Since the success of the popular pro-democracy
movement in Kiev, Poland has sought to be an ambassador for its eastern
neighbour in the European Union and Nato.

But now the Polish government is scrambling to retain that influence with a
man who saw Warsaw as closely allied with his political enemies. In a bid to
ensure continued good relations, Jaroslaw Kaczynski, the prime minister,
yesterday called Mr Yanukovich to congratulate him and invited him to visit
Poland as soon as possible.

Lech Kaczynski, Poland’s president and the prime minister’s identical twin
brother, has also made improved relations with Ukraine a priority. He
recently met Alexander Kwasniewski, his ex-communist predecessor, to

discuss Ukraine, and formed a Polish-Ukrainian presidential committee.

“What Poland can do now is convince the Ukrainian elites, and particularly
the ‘blue’ camp [of Mr Yanukovich and his Regions party], to take the
pro-European path – to show them the advantages of eventual EU and Nato
membership,” said Pawel Zalewski, head of the parliamentary foreign
relations committee and a member of the ruling Law and Justice party .

“We can also promote the future membership of Ukraine in the EU,” he said.
This would mean Warsaw having to improve its tarnished image in Brussels in
order to lobby effectively on behalf of Ukraine.

The moves represent a recognition by Warsaw that it is in Poland’s interest
to retain influence in Kiev to continue explaining the advantages of a
western option for Ukraine. Poland also wants stability on its eastern

“We want a belt of democratic countries around the external frontiers of the
EU, and a democratic Ukraine is an element of that,” said Anna Fotyga,
Poland’s foreign minister.

The Polish government had been strongly criticised by the opposition at home
for inaction during the political gridlock in Ukraine that followed the
indecisive March general elections.

But some observers say Warsaw was left with little option. “There was a deep
crisis and chaos in Ukrainian politics and we lost any possible partner for
serious talks,” said Bartlomiej Sienkiewicz, an analyst.

However, critics see the apparent drift over Ukraine as part of a larger
problem with the government’s foreign policy. Since Mr Kaczynski became
president last October, relations with Russia, Germany and the European
Union have been troubled and the leader has been dogged by foreign policy

Improving relations with Ukraine would allow Warsaw to regain the role of
Kiev’s voice in the EU and Nato, which Mr Sienkiewicz said was “slowly but
inevitably being taken over by Germany”.

Mr Yanukovich has said his first foreign visits will be to Moscow, Brussels
and Washington. It is not clear when he will visit Warsaw.       -30-
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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                                RIGHTS OF PRIVATE OWNERS 

         Bunge Corp calls on government to protect legal owners from attacks 
Ukrainian News-on-line, Kyiv, Ukraine, Monday, August 7, 2006

KYIV – The European Bank for Reconstruction and Development calls on

the new Cabinet of Ministers to protect the rights of private owners. EBRD
Country Director for Ukraine Kamen Zahariev made this statement at a press

He said the EBRD is concerned about the raid attacks on enterprises in
Ukraine, which have become more and more frequent over the past two years.

They take place because of imperfect cooperative law, extremely broad
jurisdiction of courts (in geographic aspect as well), the possibility of
applying inadequate security for claim (when the holder of one share can
bloc accounts and operations of enterprise), and the possibility of
emergence of ‘dual registrars.’ 

As another example of raid attacks, Zahariev named the Dnipropetrovsk oil
extracting plant; some of its minority shareholders lodged a claim to
declare the capital increase in 1994 invalid. If the court satisfies their
claim, Bunge Ltd, an international corporation that owns 94% in the plant,
will lose control of its asset, acquired in 2002.

Dexter Frye, the general manger of Bunge Ukraine, called on the government
to protect legal owners from raid attacks. ‘Once again I am addressing the
government with the request to stop illegal actions of the raiders so that
such a law obeying company as Bunge could continue to invest in Ukraine,’

he said.

Frye added that his company has invested USD 150 million in the Ukrainian
enterprise and is going to invest USD 300-500 million in development of old
and creation of new production capacities in Ukraine in the next three to
five years. However, it may reconsider its plans if the rights of owners
remain poorly protected.

Zahariev said that introduction of a system of single registrar of shares
and adoption of the law on joint-stock companies could be a proper response
of the government in this area.

As Ukrainian News earlier reported, the Dnipropetrovsk oil extracting
plant’s minority shareholders filed lawsuits in May asking the Kirovskyi
district court of Dnipropetrovsk and the Holosiivskyi district court of Kyiv
to return the controlling stake in the plant to the plant’s employees.

In late 2002, the Bunge corporation acquired the Cereol group, which
includes the Dnipropetrovsk oil extracting plant (one of the three largest
producers of vegetable oil in Ukraine).

Bunge is a major company on the world market of production of fertilizers
and food products. It has 450 enterprises in 28 countries and employs 25,000

The Verkhovna Rada appointed Party of Regions leader Viktor Yanukovych

as prime minister and other Cabinet members on August 4.

Former prime minister Yurii Yekhanurov said that protection of private
property should be the priority of the new Cabinet of Ministers.    -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Nicolas Parasie, Dow Jones Newswires, Amsterdam, Netherlands, Aug 9, 2006

AMSTERDAM – Belgian-Dutch bank and insurer Fortis NV (30086.AE)

Wednesday said it will buy Ukrainian insurer Etalon Life for EUR7.6 million,
in an effort to expand its insurance activities in developing markets.

The Kiev-based life insurer has a network of 26 branches and 100 agents. The
company ranks seventh in terms of gross written premiums and has a market
share of 5.2%, Fortis said.

“With over 47 million inhabitants, Ukraine has a fast-growing economy
supported by a well-developed industrial base, a highly trained workforce
and a good educational system,” said Peer van Harten, chief executive of
Fortis’ international insurance division.

“Over the last few years, the Ukrainian government has actively promoted
market reforms and we believe Ukraine has the potential of becoming a growth
engine in Europe,” van Harten said.

Fortis expects the cash deal to be completed in the fourth quarter of this
year and that it won’t have any impact on the company’s net profit per

Fortis is aiming to lessen its dependence on the Benelux market by striking
insurance joint ventures in developing markets such as India or China. The
Belgian-Dutch company will report second-quarter results on Thursday.
Company Web site:
By Nicolas Parasie, Dow Jones,  
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Action Ukraine Report (AUR) #749, Article 20
Washington, D.C., Friday, August 11, 2006

WASHINGTON, D.C., Dr. Susanne S. Lotarski, President of the Ukraine-

United States Business Council welcomed seventeen Ukrainian agribusiness
executives to the United States and briefed them about the work of the
Council in promoting commerce between the United States and Ukraine.

Dr. Lotarski’s presentation was part of the opening day’s orientation for
their one-month executive training program in “Agribusiness Association
Development for Ukraine,” organized by the U.S. Commerce Department’s
Special American Business Internship Training Program, known as SABIT.
Funding for the program is provided under the Freedom Support Act of 1992.

Dr. Lotarski cited the Ukraine-United States Business Council’s efforts on
behalf of Ukraine in winning market economy designation by the Commerce
Department and Congressional passage of legislation graduating Ukraine from
the Jackson-Vanik Amendment and extending permanent normal trading relations
as examples of what business associations can do to influence government
policy and create a better business environment.

President Lotarski also pointed out that meetings organized by the Council,
such as those with Ambassadors Shamshur and Taylor, U.S. Assistant Secretary
of State Daniel Fried, Ukrainian Economy Minister Yatsenyuk and Presidential
Secretariat Deputy Chief Vasiunyk facilitate exchange of information and
views between business and government.

The Ukrainian association executives and entrepreneurs were interested in
learning about the Business Council’s organization and operation, especially
that it is entirely funded and governed by American companies interested in
promoting better conditions for expansion of trade and investment with

In welcoming the delegation, Dr. Lotarski noted her great pleasure that the
SABIT training program, which she was instrumental in creating in 1990 while
serving as Director of the Commerce Department’s Office of Eastern Europe,
Russia and Independent States, has trained over 1,000 Ukrainian business
people since her initial interviews in 1991 of over a hundred candidates,
including Ukrainians, from across what was still the Soviet Union.

During their August 5 to September 2 stay in the United States, the
Ukrainian executives will visit Sioux Falls, South Dakota, Fargo, North
Dakota, Peoria and Chicago, Illinois, as well as Washington, DC.
Ukraine-United States Business Council members Cargill and Case New

Holland will host meetings and site visits for the group.

Participating in the training in “Agribusiness Association Development for
Ukraine” are nine association executives, four private farmers, four
directors of agricultural cooperatives, and a representative of the Ministry
of Agricultural Policy.  They represent the grain, fruit and vegetable,
dairy, poultry, and baking sectors, as well as services, marketing and
training for agriculture.

The associations represented include the Ukrainian Grain Association, the
National Association of Advisory Services for agriculture, the Association
of Rural Development of Poltava Region, the Kharkovsakhar Economic
Association, the Association of Framers and Private Landowners of Poltava
Region, the Federation of Auditors, Accountants and Financiers of
Agroindustrial Complex, the National Association Ukrkonservmoloko

(condensed and dry milk products), and Kharkovptitseprom (Poultry
Association).                                   -30-
Information about SABIT, the Special American Business Internship Training
program for the New Independent States, can be found at or by calling (202) 482-7300.

For information about the Ukraine-United States Business Council contact

Dr. Susanne S. Lotarski, President, at or by calling (301)
654-9359, or by mail to P.O. Box 42067, Washington, DC 20015.
Morgan Williams, of SigmaBleyzer, serves as Chairman of the Executive
Committee of the Board of Directors and John Stephens, Cape Point
Capital serves as Secretary/Treasurer of the Ukraine-U.S. Business Council.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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                               IMPORTANT IRON ORE PROJECT 
By: John Helmer,, Johannesburg, South Africa, Aug 10, 2006
MOSCOW – Victor Yanukovych has been the new Prime Minister of Ukraine
for less than a week, and has promised to make his first foreign visit to
Moscow later this month.

However, under the terms of a power-sharing agreement negotiated with the
pro-American President, Victor Yushchenko, Yanukovych, who is pro-Russian,
has been obliged to appoint Boris Tarasyuk, a pro-American foreign minister,
who will hold his hand in Moscow.

As the great American novelist Raymond Chandler once observed of the
difference between the appearance and power of a character, “except for her
face, she would have looked all right.”  

Flag-waving is usually a foreign minister’s prerogative, but Russia is
counting on commercial Ukrainian interests, especially in energy and mining,
to follow the Russian lead. An early test of which way Yanukovych, and his
protege, Economy Minister Volodymir Makukha, will turn is the decision that
must be made shortly on who should take control of one of the country’s
major iron-ore mines, Krivoi Rog.

For the moment, Metalloinvest, a Russian iron-ore holding controlled by
Alisher Usmanov, appears to be winning support of the government in Kiev for
a plan to partner Ukrainian steelmaker Vadim Novinsky’s Smart Group in a
joint venture to operate and expand the iron-ore supplier that was once part
of the Krivorozshtal (Krivoi Rog) steelmaking complex.

The loser, also for the time being, is Mittal Steel, which last year won the
state privatization award of the Krivorozshtal steel plant, eastern Europe’s
largest producer of long steel products.

Mittal’s bid was $4.8 billion, surpassing rival offers from the Smart Group,
which controls Ukrainian long products maker Makeyevka as well as the
Inguletsky iron-ore processing combine; and from the Industrial Group, a
joint venture bidder representing Luxembourg-headquartered Arcelor and the
Industrial Union of Donbass (IUD) of Ukraine.

Both Smart and IUD are based in the eastern, Russian-speaking region of
Ukraine, where Yanukovych’s political strength is drawn. Gas to fire
Krivorozhstal’s furnaces is supplied by Russia.

Nina Burlyuk, spokesman of the State Property Fund of Ukraine, told Mineweb
the fund had drafted a proposal for a joint venture to operate the Krivoi
Rog iron-ore processing combine (GOK) , with the state to hold 50% plus one
share, and for an open competition to decide which commercial group should
hold the balance of the shareholding, and operate the mine and mill.

On August 2, just before Yanukovych was sworn into office, the government
issued a decree. This orders an inventory of the complex within a month; an
asset valuation; and preservation of the Property Fund’s control over the
mine. But Burlyuk acknowledges there is “a major problem”.

“We do not yet understand,” she told Mineweb, “how to implement this decree,
because our proposal to the Cabinet including competitive bidding for the
selection of [the commercial] investor.

However, the response, according to the decree, says that the JV should be
created, according to the conclusions that have been reached by a
commission, which worked several months ago, and reviewed proposals from
Mittal and the partnership of Metalloinvest/SmartGroup. That commission made
its choice in favor of the Metalloinvest/Smart Group.”

Usmanov has boasted of his Ukrainian interests in the past. But
Metalloinvest spokesman, Igor Tikhomirov, told Mineweb he would not confirm
the partnership with Novinsky, nor did he know, he said, what decision the
Yanukovych government will make on the proposed new bidding contest.

Last October, Usmanov claimed to be Novinsky’s silent partner in the bidding
for Krivorozhstal. That followed a failed attempt by Usmanov to attract
another Ukrainian steelmaker, Igor Kolomoisky, owner of the Privat group and
the Yuzhny iron-ore mine, to create what Usmanov called, at the time, his
“Euroasian iron-ore alliance”.

Kolomoisky publicly rebuffed Usmanov, saying “I see only minuses in
monopolization.” Industry sources told Mineweb that Mittal had vigorously
opposed Usmanov’s iron-ore consolidation plan at the time, also. An attempt
by Usmanov to choke off iron-ore supplies to Magnitogorosk Metallurgical
Combine (MMK), Russia’s largest steelmill, had to abandoned as a result.

Burlyuk concedes that the new Ukrainian government will take time to resolve
the uncertainty over the future of Krivoi Rog GOK. “We can’t say yet if
there will be a contest or not, and how to run it.”

Differences between the Usmanov-Novinsky offer and Mittal’s, which surfaced
during the earlier Ukrainian review, include the size of the planned
investment, the pellet production capacity to be achieved, and the sourcing

of raw materials.                                      -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Business Digest, Sofia, Bulgaria, Wed, August 9, 2006
KYIV – Ukrrudprom German air carrier Lufthansa is using unfair competition
practices in its expansion in Ukraine and threatens the national interests,
the head of the Public National Security Committee of Ukraine (PNSCU),
Oleksiy Tolkachev, told a press conference on August 4, 2006.
Tolkachev gave the press conference to talk about the conflict between
Lufthansa and Ukrainian carrier Dnepravia over flights to and from Germany.

[Editor’s note: Dnepravia, which owns the Dnipropetrovsk airport, filed a
claim against the German carrier in November 2005, stating Lufthansa had
launched regular flights on the Dnipropetrovsk-Frankfurt route without the
necessary permits from the Dnipropetrovsk airport, Novecon news agency
reported on November 9, 2005.

At that time Dnepravia also serviced regular flights on the
Dnipropetrovsk-Frankfurt route. The Ukrainian carrier claimed 18 mln
Ukrainian hryvnias ($3.6 mln/2.8 mln euro) in losses caused by the conflict
with Lufthansa.]

Tolkachev explained that the conflict arouse because Lufthansa had not
coordinated its flight schedule in Ukraine with the airport. In line with
the international standards, the carrier was obligated to negotiate the
terms of departures and arrivals with the Dnipropetrovsk airport, prior to
submitting its flight schedule to the Ukrainian aviation authorities.

Instead, Lufthansa only notified other carriers it would start servicing the
Frankfurt-Dnipropetrovsk route with six flights a week, Tolkachev said.

He added that in response to the complaint of unfair competition filed by
Dnepravia, Germany’s civil aviation authority stepped in and banned
Dnepravia’s flights to Germany, while taking measures to deprive the
Dnipropetrovsk airport of its international status.

The issue concerns not only corporate interests, but also undermines the
nation’s security and strategic interests, Tolkachev said. He called for the
Ukrainian aviation authorities, the ministries of transport and foreign
affairs, as well as the president, to step in and ensure the conflict’s
positive outcome.

[Editor’s note: The German civil aviation authority banned Ukrainian air
carriers Donbasaero and Ukrainian Mediterranean Airlines (UM Air) from
flying to Germany in 2004, but lifted the ban for the summer season, after
the Ukrainian aviation authority approved Lufthansa’s Kyiv-Munich route, the
Ukrainian News agency reported on May 27, 2004.] (Alternative names:
Dnepravia, Dnepropetrovsk, Um-Air, Kiev, Ukraviatrans)  -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
         Kyiv Region factory produces more than 300 million bottles per year.

Ukrainian News-on-line, Kyiv, Ukraine, Tuesday, August 8, 2006

KYIV – The European Bank for Reconstruction and Development has allocated

a loan of USD 59 million to Vetropak Hostomel Glass Factory (Kyiv region).
Ukrainian News learned this from the statement of the EBRD.

According to the report, the loan is needed to reduce energy consumption
costs and increase glassware production by 40% to 750 million items

The loan will help save up to 9.2 million cubic meters of natural gas and
6.9 MW of electricity, or 33% of today’s consumption, the EBRD reported.
The sum will be provided in two stages and some part of it will be used to
refinance the current debt of the factory. It is a syndicated loan.

As Ukrainian News earlier reported, the EBRD Board of Directors decided in
June to grant a credit worth USD 68 million to the Hostomel factory. The
Hostomel glass factory changed its name to Vetropak Hostomel Glass Factory
in March.

In 2005, the factory made a net profit of UAH 42.97 million and increased
its net revenues by 58.3% or UAH 86.746 million compared with 2004, to UAH
235.595 million.

The factory produces more than 300 million bottles per year. Its assortment
comprises more then 200 types of glass containers, from 10 ml to 750 ml.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Business Digest, Sofia, Bulgaria, Tuesday, August 8, 2006

KYIV – AIS Corporation signed a $4.5 mln (3.5 mln euro) contract to import
5,000 motorcycles of Chinese motorcycle maker Jiangsu Xinling Motorcycle
Manufacturing Co. by the end of 2007, AIS said. The first shipment of 360
motorcycles of the TXM brand is due on August 27, 2006 at the Odessa port.

AIS will import some 500 motorcycles by the end of 2006. The TXM motor-

cycles will be available in AIS Corporation’s dealership network from September
2006. Jiangsu Xinling produces stride motorcycles, scooters, off-road
motorcycles, E-scooters, E-bicycles, mini E-scooters, generators and

The company’s annual capacity exceeds 200,000 engines and 500,000
motorcycles. AIS Corporation ( has been official dealer of
French car maker Citroen and South Korean Ssang Yong since 2005.

The company distributes countrywide GAZ, ZIL, UAZ and IZH cars, and PAZ,
LiAZ, GolAZ and KAvZ buses. It is also the official dealer of VAZ, KamAZ,
Audi, Renault and FAW. AIS Corporation comprises 28 companies in Ukraine.                                  -30-                       

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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