AUR#784 Nov 2 Economic Growth For Ukrainian Nation

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Mr. E. Morgan Williams, Publisher and Editor  
               –——-  INDEX OF ARTICLES  ——–
              Clicking on the title of any article takes you directly to the article.               
    Return to the Index by clicking on Return to Index at the end of each article
   Even with a moderate amount of reform, Ukraine can produce strong growth.
By Stefan Wagstyl, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

                Retail business in Ukraine has skyrocketed in recent years
By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

            Difficult to deal with Ukraine’s huge governmental bureaucracy
                        Wastes time and money and breeds frustration
By Stefan Wagstyl, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

By Roman Olearchyk in Kiev and Stefan Wagstyl, Financial Times Report

London, United Kingdom, Tuesday, October 31 2006

Financial Times Report, London, UK, Tuesday, October 31 2006

Interfax-Ukraine, Kyiv, Ukraine, Monday, October 30, 2006

11.          UKRAINE: WHO’S PUTTING ON THE WTO BRAKES?                    

ANALYSIS & COMMENTARY: By Vitaliy Knyazhanskyy
Den, Kiev, in Ukrainian 31 Oct 06; p 1
BBC Monitoring Service, United Kingdom, Wed, Nov 01, 2006

12.                                     WORDS FOR WTO
EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, Nov 02 2006,

Interfax-Ukraine, Kyiv, Ukraine, Tuesday, October 31, 2006


Interfax-Ukraine, Kyiv, Ukraine, Tuesday, October 31, 2006

ANALYSIS & COMMENTARY: By Oleg Varfolomeyev
Eurasia Daily Monitor, Volume 3, Issue 203

Jamestown Foundation, Wash DC, Thu, Nov 2, 2006


Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006

Ukrainian News Agency, Kyiv, Ukraine, Tuesday, October 31, 2006

Interfax-Ukraine, Kyiv, Ukraine, Wednesday, November 1, 2006
UNIAN, Kyiv, Ukraine, Wednesday, November 1, 2006
                   RUSSIAN NAVAL BASE IN CRIMEA AFTER 2017
Itar-Tass, Moscow, Russia, Sunday, October 29, 2006
Eurasia Daily Monitor, Vol 3, Issue 200
Jamestown Foundation, Wash DC, Monday, October 30, 2006
By Steven G. Vegh, The Virginian-Pilot
Norfolk, Virginia, Saturday, October 28, 2006
        Audrey Johnson helps implant pacemakers in 18 patients in Ternopil
By Doreen Tyler, Sleepy Eye Herald-Dispatch
Sleepy Eye, Minnesota, Thursday, October 26, 2006
24.                             DAVID DUKE SPEAKS IN KYIV
EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, Nov 02 2006
                                         UNIVERSITY MAUP
By Nathaniel Popper, Jewish Daily Forward
New York, New York, Friday, November 3, 2006
The Weekly, Peachtree Corners, Georgia, Saturday, October 28, 2006
 Even with a moderate amount of reform, Ukraine can produce strong growth.

By Stefan Wagstyl, Financial Times
London, United Kingdom, Tuesday, October 31 2006 02:00

Three years ago, cranes were a rare sight on the Kiev skyline.

Today, views across the city centre are criss-crossed with steel towers,
cables and lifting gear. From early morning until dusk, builders are
hammering away, erecting a new generation of housing blocks, offices and
retail centres.

The streets below are jammed with new cars – SUVs and luxury models, as
well as imported second-hand Volkswagens and Volvos.

Along Kreshchatyk, the city’s premier street, shoppers stare into store
windows filled with the latest fashions. Taxi drivers fighting through the
traffic complain that a journey that used to take 15 minutes now takes half
an hour.

Kiev is booming, as are Donetsk and other big industrial centres. In smaller
towns and villages, especially in western Ukraine, the picture is less
positive. But overall, the economy is experiencing an unprecedented growth
surge that began in 2000 and shows little sign of stopping.

The International Monetary Fund, which originally forecast a gross domestic
product increase of 2.5 per cent for 2006, has recently raised its target to
6 per cent.

Consumer spending is powering the economy, fuelled by big increases in
consumer credit – up 75 per cent so far this year. Sales of kitchen
equipment, home electronics and furnishings are soaring, as Ukrainians
modernise their homes – often for the first time since the end of communism.

Investment is also strong, as companies renew factories and add
energy-saving installations. Exports are growing thanks to continuing solid
global demand for steel, chemicals and other products of Ukraine’s heavy

The outlook for next year looks sound, with the IMF forecasting GDP growth
of 4.5 per cent. The growth rate has surprised economists who generally
predicted a sluggish year, with expansion hit by the 47 per cent rise in
prices for gas imported from Russia from January 1.

Ukraine did better than expected partly because domestically-produced gas
(30 per cent of total supply) provided a cushion for residential consumers
and partly because big industrial users (steel and chemicals) saw a healthy
rebound in exports.

But more gas price increases are on their way next year. Import prices are
expected to rise from the current $95 per thousand cubic metres to a
possible $120-$135, with further rises likely, as Russia seeks to achieve
world market prices.

The key question facing Ukraine’s economy is how it will cope with these
increases, given some serious bottlenecks, including poor infrastructure, an
over-reliance on heavy industry, an inflexible bureaucracy, and weak courts.

Fortunately, the current expansion is soundly based. It dates back to an
overhaul of state finances and a modest economic liberalisation carried out
in 2000-2001, after years of turmoil had brought the country to the brink of
economic crisis.

The changes triggered strong growth, albeit from a very low base, which was
subsequently boosted from 2003 by sharp export increases, fuelled by global
demand for industrial commodities.

Investment soared as the business oligarchs sought to capitalise on the
export boom. Pay levels rose, feeding growth in consumption. The expansion
stalled last year because of the uncertainties caused by the Orange
Revolution but recovered rapidly in 2006.

The strong growth has allowed the government to increase public spending
whilst maintaining fiscal stability. The budget deficit was just 1.8 per
cent of GDP last year and the government is expected to achieve this year’s
target of 2.5 per cent.

Inflation has fallen from a mid-2005 peak of 15 per cent but remains high,
running at an annual rate of about 9 per cent.

International investors see big potential. Foreign direct investment has
soared since 2004, to a forecast $10bn in 2005-6 – more than the cumulative
total for all preceding years. But there is still a long way to go before
foreign investment levels match central Europe’s.

The bulk of the recent inflow is accounted for by the $4.8bn privatisation
of Kryvorizhstal, the steel mill, sold last year to Mittal Steel, and a
handful of bank deals. Other sectors have been barely touched by foreign

However, with demand for many consumer products and services growing
exponentially, foreign companies are looking at Ukraine with unprecedented
interest. Kamen Zahariev, Kiev director of the European Bank for
Reconstruction and Development, says Ukraine is “boiling hot”.

But companies have doubts about the government’s commitment to improving
investment conditions, especially reducing bureaucratic interference and
limiting the influence of domestic oligarchs.

Among their top concerns are the courts, which have been weak, for example
in protecting shareholders’ rights. Minority investors have long been
vulnerable to dilution by unscrupulous partners.

The past year has also seen assaults on majority shareholders by corporate
raiders, sometimes holding a handful of stock. Bunge, the US grain trader,
has recently been involved in such a legal battle.

President Viktor Yushchenko and Viktor Yanukovich, the prime minister, may
argue over many issues, but they agree on the necessity for stability and
investment-led growth.

Mr Yanukovich told the FT that “the establishment of a transparent economy
which would attract investments” is among his top priorities. Mr Yushchenko
has many times committed himself to market-oriented reforms.

In the past, the oligarchs who dominate heavy industry – Ukraine’s biggest
profit-earner – exploited shadowy links with the authorities to build their
businesses, especially untransparent privatisations.

However, they are steadily becoming supporters of greater transparency,
particularly for property rights, and more effective laws.

But it is unclear whether such intentions will be translated into practice,
amid signs that some officials see the return of Mr Yanukovich, previously
Mr Kuchma’s prime minister, as a signal for reasserting their influence.

Mr Zahariev says: “Whatever the central government does, many people in the
regions have simply assumed that things are going back to the old ways.”

Lev Partskhaladze, chairman of XXI Century Investments, a London-quoted
property group, is more optimistic. He says that with business becoming more
transparent and the media demanding more information, “working in the old
[untransparent] ways is impossible.”

Given that the debate is focused on the potential for back-sliding and not
on possible reforms, it seems clear the prospects for substantial
market-oriented changes are not great.

However, the past few years have shown that even with a moderate amount
of reform, Ukraine can produce strong growth.                 -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
              Retail business in Ukraine has skyrocketed in recent years

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Tuesday, October 31 2006

KIEV – With a population of nearly 47m abutting the European Union and with
purchasing power rising fast, Ukraine is a major retail market that
wholesalers cannot afford to ignore.

Indeed, consulting company AT Kearny has in recent years ranked Ukraine
as one of the top five promising retail markets globally, along with Russia,
China, India and Vietnam.

Germany’s Metro Group, a world leader in retail and wholesale, has responded
accordingly. The group’s Metro Cash & Carry self-service wholesale arm has
built a 12-store presence in the larger cities in three years and an
investment of Euro200m.

Metro’s lightning expansion has shaken up the country’s retail and wholesale
markets, establishing the German group as the wholesale leader.

Axel Hluchy, managing director of Metro Cash & Carry’s Ukraine arm, says a
13th store is expected to open by the end of the year.

“We are ahead of schedule. We have opened two more stores than we [had]
planned to by this time,” Mr Hluchy says, adding that the group’s turnover
in Ukraine surged from Euro30m in 2003 with one store, to more than
Euro338m with eight stores in 2005. Turnover is expected to exceed
Euro600m this year.

Mr Hluchy said expansion into Ukraine and Russia has been a priority.
Metro is not the first western retail group to set its eyes on Ukraine.
Austrian supermarket chain Billa has launched nine supermarkets across the
country since 2000.

But newly established Ukrainian retail companies have capitalised on the
absence of stiff foreign competitors and built up nationwide networks of
western-style food markets and shopping centres.

Now, however, Metro’s rapid advance is being felt, spurring the efficiency
and growth of small-to medium-sized businesses.

The arrival of Metro Cash & Carry wholesale stores, the first to offer a
wide range of merchandise under one roof at competitive prices to retailers
and small businesses, amounts to serious competition for the fast growing
Ukrainian and Russian retail-wholesale operators.

With little room for private enterprise, communist planners who managed
Ukraine’s economy before independence in 1991 did not see the need for
wholesale businesses.

Buying goods in bulk was a challenge before Metro’s arrival. Professional
retailers often bought directly from producers, while restaurants, hotels
and offices shopped for supplies at decrepit Soviet-style outdoor flea
markets, where quality was a concern and smuggled counterfeits common.

Metro’s wholesale stores are revolutionising retail in Ukraine, bringing it
more in line with traditional wholesale-retail operations seen in the
European Union and North America.

A growing number of small-scale retailers operating at flea markets have
dumped their traditional suppliers in favour of Metro stores, whose stock
consists of both Ukrainian goods and imports.

Membership storecards are issued to businesses only, but many employees
and small entrepreneurs do their household shopping at Metro too, bringing
the wholesaler into direct competition with Ukrainian-owned outlets.

Nevertheless, the retail business in Ukraine has skyrocketed in recent
years, leaving room for competition.

Nationwide retail turnover in the first nine months of this year increased
by 25 per cent to nearly Euro15bn. Faster growth rates are recorded in those
cities with populations in excess of 1m – among them, Kiev, the capital, the
port city of Odessa, Kharkiv and the industrial steel town of Donetsk.

Other retailers are eyeing opportunities in Ukraine, which is seen as the
logical next frontier after central Europe. These include France’s Auchan,
Italy’s King Cross, German DIY retailer Praktiker, Britain’s Kingfisher,
Finland’s Kesko and Israel’s Fishman.

Sweden’s Ikea has in recent years expressed interest in pumping $1.5bn- $2bn
into the development of shopping malls that would include its traditional
furniture store. But the company has suffered from setbacks in acquiring
sizable plots of land in good locations.

Mr Hluchy says that bureaucratic red-tape and other barriers to acquiring
land for developing large retail projects are the main hurdles keeping
western retail giants at bay.                                -30-

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

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Tuesday, October 31 2006

Ukraine’s promising banking sector has experienced a flurry of merger and
acquisition activity in the past two years. European banking groups seeking
growth opportunities in emerging markets have moved fast to snap up the
country’s largest banks. More acquisitions of smaller Ukrainian banks are
expected to follow.

A handful of western banks tiptoed into the market during the 1990s to
service corporate clients doing business in the former Soviet republic and
realised the large potential for retail banking in Ukraine, which has a
population of nearly 47m.

However, it was not until the Orange Revolution put Kiev on the radar
screens of investors two years ago that the gold rush for bank acquisitions
in Ukraine took off.

The big deals started in late 2005 and into 2006, as businessmen who held
influence under the previous regime opted to sell several of the largest
banks in the country at high prices. The deals boosted the presence of
European banking groups and increased their net assets from less than 10
percent to a quarter.

Austria’s Raiffeisen International moved in with the first big acquisition,
paying $1bn in 2005 for Bank Aval, Ukraine’s second-largest bank in terms of
net assets. Later that year, France’s BNP Paribas paid hundreds of millions
for a 51 per cent stake in Ukrsibbank, Ukraine’s fifth largest bank.

Italy’s Banca Intesa followed in February this year, reaching an agreement
to acquire a controlling stake in Ukrsotsbank, Ukraine’s fourth largest
bank, for more than $1.2bn.

A number of smaller transactions followed. Austria’s Erste, France’s Crédit
Agricole, Greece’s Eurobank and Hungary’s OTP snapped up medium-sized
Ukrainian banks this year. Western portfolio investors bought interests in a
handful of Ukrainian banks through public offerings. Two Russian banks
completed acquisitions.

Attention is coming from buyers in other continents too. US banking giant
Citibank expressed an interest in acquiring a presence in the eastern
European market, pointing to Ukraine as a possible entry point.

“Ukraine recorded the strongest growth of banking assets in 2005, 58.7 per
cent year-on-year despite the continuation of political and economic
turbulences,” reads a September report from Raiffeisen analysing the central
and eastern European banking markets.

Banking figures in Ukraine remain small because Ukrainians are only just
starting to tap into the services provided by financial institutions.
Relatively high risks have kept interest rates on short-term loans in the 10
per cent range.

Double-figures have been recorded in recent years on corporate credit-lines,
household loans and deposits. The arrival of larger banking groups eager and
more capable to fight for market share could spark competition, bringing
rates down. But risks remain high, as the lack of credit control systems in
Ukraine are not at par with those seen in developed countries.

Still, foreign banks searching for growth opportunities are expected to
continue their eastward advance.

“Unfortunately, the political situation has not stabilised after the
parliamentary elections in March 2006 and an agreement on a new government
was only reached in early August.

However, this has not stopped foreign banks from trying to get a hold on the
country’s booming banking market,” says the Raiffeisen report.

It is not too late to find buying opportunities. The country still has more
than 150 registered banks, most of which are small to medium-sized “pocket
banks” that traditionally service local companies.

A few larger banks that are seeking investments and strategic partnerships
through the sale of equity stakes are still up for grabs. Consolidation of
the market could provide further buying opportunities.

Andreas Klingen, head of strategic development at Erste Bank, sees Ukraine
as an important source of growth for European banks.

“If you look at the sheer size of the Ukrainian market, it is the biggest
market which we have moved into thus far,” Mr Klingen says, adding that
his bank is also expecting to service a lot of corporate clients which have
expanded operations further east in search of business opportunities in
various sectors, including manufacturing and services.

“We are actually seeing quite a bit of activity from the Czech and Slovak
republics moving east. We can go along with our clients further east,
offering them services. Moreover, the market is very big and under
penetrated but very promising considering it size.

“Overall, it’s a big market [that is] reasonably untouched. Banking assets
as a percentage of GDP were around 39 per cent at the end of 2004. At the
end of 2005 they rose to approximately 60 per cent. In central Europe they
are in the higher 80 per cent range. The market offers huge potential.”

Many bankers expect half of Ukraine’s banking industry to fall into
pan-European hands by 2008. The other half is expected to remain under
ownership of domestic and Russian groups.                 -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Tuesday, October 31 2006

Demand has consistently exceeded supply for commercial and residential real
estate in Ukraine, and in recent years property prices have rocketed.

The sharp surge in purchase prices and rental rates are tapering off, but
Kiev real estate experts do not expect a downward correction any time soon.
These conditions leave ample opportunities for large foreign investors
seeking strong returns.

In terms of development, Ukraine’s real estate market is some 7-8 years
behind its peers in Central and Eastern Europe, but the hope is that its
growth will imitate its neighbours’.

Ukraine has experienced a construction boom in recent years. Twenty-one
shopping centres have sprouted up in Kiev; nearly the same amount are
currently under development. New office space hits the market each month.

In excess of 1m square metres of new residential space have been erected in
Kiev each year since 2000. Yet prices have continued to increase 20-30 per
cent annually since 1999 as demand for high-end apartments has remained

Even less attractive Soviet-built apartments have been snapped up too, often
by citizens from other cities flocking to the capital in search of better
pay. Today, residential prices in Kiev typically exceed $1,500 per square

Despite the arrival of new shopping malls, retail lease rates remain
relatively high due to escalating business activity and the rising appetite
of consumers. Estate agents expect strong economic growth to continue
driving demand at rates on a par, or exceeding, supply.

The recent arrival of mortgage crediting and improved accessibility to bank
loans are expected to keep prices rising where development is picking up.

“Until a significant amount of investment hits the market [to fund more
development], demand will continue to significantly exceed supply in every
sector,” says Yuri Nartov, general director of Colliers International in

Developers and estate agents are so positive that they are not seriously
considering the possibility of a downturn caused, for example, by a
prolonged clash with Russia over energy supplies.

Foreign investment has played a large role in commercial property
development. Estate agents say interest from foreign investors peaked after
the Orange Revolution of 2004, with western fund managers and private
investors expressing interest in pumping billions of dollars into the

But the lack of investment vehicles capable of channeling large funds,
bureaucratic barriers and a shortage of large projects has kept much
investment out.

“Before the Orange Revolution, many of the people managing the investment
funds didn’t even know where Ukraine was on the map. Now they are seeking
out opportunities,” says Terry Pickard, a British native who has operated a
real estate agency in Kiev since the early 1990s.

Mr Pickard and his business partner, Paul Niland, are among a handful of
real estate players in Kiev offering foreign investors the opportunity to
invest in Ukrainian property. Their Primeros Funds Group closed a $250m fund
focused on warehouse and big box retail projects this autumn.

When investors heard about surging property prices in Kiev a few years ago,
they sought returns of 15-20 per cent. Now, with competition piling up, many
are settling for 10 per cent returns, says Mr Pickard.
Ukraine’s property market remains risky, says Mr Niland. Rampant
bureaucracy, red tape and the potential for encountering corruption are
hurdles that can halt a poorly thought-out project.

Demand for office space could fall if western companies put off expansion
plans, adds Mr Niland. This could happen if Ukraine ventures off its current
western integration foreign policy. Failure to join the WTO within the near
term could be the first warning sign.

For now, however, investment continues to trickle in. XXI Century
Investments, one of Kiev’s largest commercial property developers, raised
$139m late last year by floating 35.7 per cent of company stock on the
London Stock Exchange’s Alternative Investment Market.

It was the largest initial public offering by a Ukrainian company on a
western market to date and an important precedent for Ukraine’s real estate
sector, says Lev Partskhaladze, the company’s majority owner.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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            Difficult to deal with Ukraine’s huge governmental bureaucracy
                        Wastes time and money and breeds frustration

By Stefan Wagstyl, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

While many companies have had battles with the Ukrainian tax authorities, few
have fought so hard or so long as Calyon, the investment banking subsidiary
of France’s Credit Agricole.

The dispute dates back to 1998, when Calyon (then a unit of Credit Lyonnais,
which was later acquired by Credit Agricole), bought $40,000 of imported
computers from a trading company.

In 2000, the state tax administration, reviewing duty and tax payments for
1998-2000, discovered there was no record of duty payments on the computers.

The French bank’s managers turned to the trading company for the necessary
paperwork. But the company had disappeared, along with all its

The tax authority insisted that, no matter who imported the computers, it
was the bank’s responsibility to produce the records – and it started
collecting fines at the rate of 0.3 per cent of the purchase price a day.

Calyon refuses to give up. It challenged the tax authority’s 2000 decision
in the courts and took the case all the way to Ukraine’s Supreme Court. When
it lost, it appealed to the European Court of Human Rights in Strasbourg,
but Strasbourg ruled it was not a human rights case.

Now the bank is fighting a similar decision for the years 2001-03 and is
braced for another tax review later this year and another fight – over

Calyon accepts the tax authority may be acting within the letter of the
law – but argues the law is wrong and should be changed.

The case is extreme but it highlights how difficult it can be to deal with
Ukraine’s bureaucracy. Red tape does not prevent Calyon and many other
companies from doing business in Ukraine. But it wastes time and money – and
breeds frustration.

Under former president Leonid Kuchma, officials took an aggressive approach
to business, sometimes to assert their authority and sometimes to encourage
bribes. Meanwhile, business oligarchs were able to exploit political links
to secure favours.

After the Orange Revolution, president Viktor Yushchenko promised
liberalisation and reform. Business people reported that officials started
taking a less arrogant approach – although bribe-taking often continued. The
oligarchs began to behave more cautiously – for fear of provoking a

But there were also complaints about chaos, as many experienced officials
were replaced. The business world was also shocked by the efforts of Yulia
Tymoshenko, Mr Yushchenko’s first prime minister, to launch widespread
reprivatisation. Many business people, including foreign investors, saw this
as an assault on property rights.

A measure of stability returned with Ms Tymoshenko’s replacement in mid-2005
by Yuri Yekhanurov and promises to limit the privatisation review to a
handful of cases headed by the Kryvorizhstal steel mill.

After the March parliamentary elections, business people feared the possible
return of Ms Tymoshenko and were initially relieved at the appointment of
Viktor Yanukovich as prime minister. Now they are not so sure.

The coalition has yet to bring the stability it promised or to set out clear
reform plans – such as an overhaul of the inefficient and sometimes corrupt
legal system.

Meanwhile, there are concerns that the return of Mr Yanukovich, Mykola
Azarov, the finance minister, and other Kuchma-era veterans signals the
resurgence of a heavy-handed bureaucracy.

Mr Azarov argues that restoring bureaucratic order has been vital. He says:
“If we look for a second at me returning to my old job, to my old office.
Yes, it’s the same office, but a lot has changed. We have inherited an
absolutely uncontrollable system. It was wrong to fire 20,000 bureaucrats
who had 15-20 years of experience … There is an absolute vacuum [that must
be filled].”

President Yushchenko says: “The most important thing is that regulations and
decisions are in line with market economics. The rules should be equal for
all and free trade should prosper as it does in market economies.”

But many business people think Mr Azarov may be going too far – for example,
with VAT refunds. Mr Yekhanurov established a system for prompt VAT
repayment to exporters, ending a long-running dispute.

But Mr Azarov has re-opened the question and withheld payments, except in
the oligarch-dominated steel sector, which is exempt.
Another case concerns the grain trade. Officials, concerned about wheat
shortages, ordered trading companies to sell to the state at low prices to
boost the national reserve.

When the traders refused, officials imposed an export ban. After a week-long
stand-off, the government began granting permission for exports, albeit in
limited volumes.

Traders do not dispute the government’s right to increase reserves. But they
plan to sue the authorities over the way it was handled.

Jorge Zukovski, president of the American Chamber of Commerce, says that

it is still too early to make a definite judgment about the government, but
“this is the old guard coming back and doing the same things they did under
Kuchma and it’s scaring the private sector.”

However, other business people warn against exaggerating the dangers. Petro
Poroshenko, an entrepreneur with interests in media and chocolate, as well
as a leader of Mr Yushchenko’s Our Ukraine party, says a return to
Kuchma-era practices is impossible because of the new-found strength of the

Natalie Jaresko, managing partner of Horizon Capital, a fund manager, says
that for many smaller companies the outlook is better than ever – and free
of political considerations. “[For such companies], the economy is decoupled
from politics.”                                        -30-

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

By Roman Olearchyk in Kiev, Financial Times Report
London, United Kingdom, Tuesday, October 31 2006

A utility breakdown that cut off heat during a cold snap to some 60,000
residents for nearly a month last winter demonstrated the dire need for
modernisation and upgrades in Ukraine’s ageing Soviet-built energy

The accident struck last January in Alchevsk, an industrial steel town in
eastern Ukraine. Plummeting temperatures burst heating mains leaving much
of the city’s 130,000 population without heat. Many residents spent weeks
warming-up alongside wood-burning stoves in military tents provided by the

The likelihood that an accident of this magnitude will occur again in
Ukraine’s cash-strapped communal heating system is high, according to
Yuriy Kubrushko, Director of IMEPower Consulting, a Kiev-based energy
consultancy. “The situation is critical.

More accidents of this kind will likely occur until the government takes
effective measures to modernise communal heating services,” he says.

As things stand, the infrastructure is old and needs to be replaced, but
funding is scarce. Moreover, current tariffs do not cover expenses. Much of
the system providing Ukraine’s 47m population with heat and hot water has
not been upgraded in decades and wastage is high.

According to the World Bank, most of the apartment buildings in Ukraine
lose 30 per cent of the heat that is pumped in. Low quality construction
materials, poor insulation, and an absence of regulation equipment are the

Last week, Ukraine’s government gave Alchevsk $700,000 to prevent a repeat
crisis this coming winter. The handout might help the people in Alchevsk,
but not those in the other big cities.

To solve the problem, Ukraine needs to adopt unpopular reforms – and
quickly. Tariffs for municipal heating and water services, which currently
cost citizens about $20 per month, need to be at least doubled, according to
Mr Kubrushko. “Everyone knows what has to be done. Raising the tariffs
seven-fold is the only way out,” he says.

Tariff rises are all the more necessary after the price for natural gas
imports from Russia and central Asian republics nearly doubled last January.
The current price of $95 per 1,000 cubic metres will increase to $130 next

The World Bank has urged Ukraine to push forward with energy conservation
efforts, arguing that a 12 per cent decrease in energy consumption would
offset the impact of rising prices on fuel imports, on which Ukraine’s
economy is largely dependent.

Kamen Zahariev, director of the Kiev office of the European Bank for
Reconstruction and Development (EBRD), says reform of the communal
heating service, where most of the waste lies, is one of Ukraine’s biggest

“30 per cent of the gas in Ukraine is burned for district heating while only
15 per cent is burned by big industry such as steel. The efficiency of this
district heating system is 25 per cent. 75 per cent gets blown into the air
either by an inefficient Soviet boiler or gets lost in the gas pipes along
the way,” he says.

This year, the Ukrainian government did raise tariffs on communal services,
natural gas and electricity. It was the first increase in almost seven

A communal service bill in a two-room apartment in Kievrose from $17 per
month to $22. Gas tariffs for citizens were also raised by 85 per cent, and
electricity prices shot up by more than 25 per cent.

But further increases are needed to bring the communal services sector out
of the red and many people question whether Ukraine’s new governing
coalition has the will-power to push forward these unpopular reforms.

This autumn, fearing a backlash from voters, parliament voted to ban further
tariff rises. However, President Yushchenko pressured legislators and they
reversed the vote.

There is concern that tariff rises could cause inflation to spiral into
double figures. The fear is that Ukrainians, whose average monthly income is
less than $500, may not be able to afford higher tariffs. The current
nationwide debt for communal services exceeds $1bn, according to state

The government plans on providing subsidies for the needy, while enforcing
payment from others through initiatives that in the past have succeeded in
boosting electricity payments from below 30 per cent to above 90 per cent.

Efforts to improve energyconservation at Ukraine’s industrial steel mills
and chemical companies are moving ahead. Their owners are actively utilising
foreign loans to modernise and weed out inefficiencies.

Likewise, Ukraine’s government has considered the possibility of borrowing
from foreign banks to reform the managed services sector. The EBRD has
expressed an interest in granting hundreds of millions of dollars for energy
efficiency upgrades.

Mr Zahariev says the EBRD can “lend a lot, but the question is how much
Ukraine’s municipalities can borrow … Their budgets are not, today, on a
solid footing. A lot more needs to be done to provide stable tax revenues,”
he says.

Another option is to privatise in the hope that enterprises become better
managed. Payments could then be enforced and the investment needed for
upgrades could also be raised. But with the price of gas set to rise,
Ukraine’s main enemy is time itself.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
       Industrial Union of Donbass, already control sizable assets abroad, with
        steel mills in Poland and Hungary. Ukraine’s Privat business group has
         interests in ferro-alloy plants in the US, Poland, Romania and Russia.

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Tuesday, October 31 2006

KIEV – Ukraine’s billionaire businessmen have changed since the Orange
Revolution signalled an end to the cronyism that made them rich.

Opportunities for buying prized state-assets dirt-cheap are fading and
larger foreign competitors are moving in. Ukraine’s business elite is, as a
result, concentrating efforts on increasing shareholder value of assets
grabbed in the good old days.

Some moguls have sold large assets to foreign competitors at high prices.
Others are eager to remain big players in business. They are seeking
investment, strategic partners from abroad and expansion opportunities.

Take for example 32-year-old Kostyantin Zhevago, who controls a diversified
business empire with interests in banking, hydrocarbons, manufacturing and
ore mining.

Like many of Ukraine’s billionaires, Mr Zhevago recently brought in a
European management team to streamline his companies. Ferrexpo, his ore
business, has been entrusted to a former top executive of ore mining giant
BHP Billiton.

Mr Zhevago is following in the footsteps of System Capital Management,

which manages $12bn of assets for Ukrainian oligarch Rinat Akhmetov.
SCM started hiring foreign managers several years ago.

This year, it hired Garry Levesley, a top executive of US-based power
company AES Corporation, as a manager for DTEK, the holding company

for Mr Akhmetov’s energy assets.

“Of the six to seven leading financial industrial groups in Ukraine, three
or so are seriously looking at capital markets for raising investments to
improve efficiency at vast facilities inherited from the Soviet Union,” says
Mr Zhevago, in an interview for this special report. “Our goal is to look
like any other company listed in the US or UK. We understand that we need to
move fast and efficiently to remain competitive.”

More transparent ownership and management structures are replacing complex
offshore vehicles. Efficiency improvements are needed across the board, in
management and energy consumption. Soviet-built steel factories are, for
example, reliant on decades-old technologies.

Upgrades will increase competitiveness in global markets. International
accounting standards are being introduced, opening doors into global
financial markets.

European financial institutions have stepped up financing for Ukraine’s
largest business since 2004. Billions of dollars have been raised through
syndicated loans and Eurobond placements.

A handful of medium-sized companies capitalised on a surge of investors
following the Orange Revolution by listing shares on the London Stock
Exchange’s Alternative Investment Market. Ukraine’s largest business groups
are not far behind, having “changed significantly” in recent years, says
Volodymyr Kotenko, Partner at Ernst & Young’s Kiev offices.

“They are today focusing most of their efforts on improving operations to
increase their market capitalisation. These are relatively well-managed
businesses with great potential in a restructuring phase.

In two to three years, [they will be ready] to list shares on foreign
markets, raising investment needed to further increase shareholder value,”
says Mr Kotenko. Implementation of western standards has been

“challenging,” but “ambitions are high,” he adds.

Billionaire Viktor Pinchuk, son-in-law of former President Leonid Kuchma,
says he plans to list shares in his media and industrial assets through an
IPO on a western exchange within two years.

Mr Zhevago says strategic partnerships through M&A dealings with foreign
companies are also being explored. A minority stake in his Finance & Credit
bank might be sold to a foreign bank.

The plan for Ferrexpo is to cut inefficiencies and open new deposits –
thereby doubling output. A longer-term project under development involves
construction of new metallurgical factories in Ukraine and Hungary.

Financing from abroad will be needed.

Some groups, such as Industrial Union of Donbass, already control sizable
assets abroad, with steel mills in Poland and Hungary. Ukraine’s Privat
business group has interests in ferro-alloy plants in the US, Poland,
Romania and Russia.

Mr Akhmetov’s SCM is considered to have an edge in size and to be ahead

in its restructuring. Mr Akhmetov says that his companies might move to a
listing within a year or so.

“We have restructured our business to improve transparency, corporate
governance and create the most effective management structure for our
business,” says Oleg Popov, SCM’s Director General.

“A clear and transparent ownership and management structure is important to
ensure that SCM business is properly understood by financial institutions
and capital markets.

Our businesses have already been active in capital markets successfully
securing both syndicated loans and bond issues. While SCM itself will not be
the subject of an IPO, it is possible that the sub-holdings may choose this
route,” Mr Popov says.

Efforts to improve corporate responsibility by improving working conditions
and philanthropy have also shifted into higher gear.

Mr Pinchuk recently launched a modern art gallery in Kiev and funded a
holocaust film co-produced with Stephen Spielberg, for example. Mr

Akhmetov has started introducing benefits for employees at one of his
steel mill.

But the picture is not all rosy.

Protection of minority shareholder rights remains a thorny issue. Owners

of Zaporizhstal steel mill diluted stakes of minority western portfolio
investors while consolidating ahead of a possible IPO.

Asset-less trading companies used for tax optimisation were merged into

the mill through a share emission, sinking stock prices and diluting minority

Similar things have happened at other companies, reminding investors that
corporate governance is not a priority in Ukraine.

Another concern is that rising costs on Russian fuel imports could squeeze
industry margins. But Mr Zhevago is not worried.

“The [natural] gas price is rising, but we have strategic advantages in
logistics, infrastructure and raw material access all in a compact country
close to key markets.”                                  -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
      NOTE: Send in a letter-to-the-editor today. Let us hear from you.

By Roman Olearchyk and Stefan Wagstyl
Financial Times, London, United Kingdom, Tuesday, October 31 2006

After the heady days of the Orange Revolution, Ukraine is confronting
reality. When Viktor Yushchenko won the disputed 2004 presidential election,
he seemed to have an indisputable mandate for change: in particular,
dismantling the corrupt regime of his predecessor, Leonid Kuchma, and a
rapid integration with the west.

Loudly applauded by the US and the European Union, Ukraine appeared to
be on the verge of leaving Russia’s orbit for good.

Today, it is clear that Mr Yushchenko’s victory was never as complete as it
seemed. Viktor Yanukovich, Mr Yushchenko’s bitter rival in 2004, has
returned to power as prime minister, while Yulia Tymoshenko, Mr Yushchenko’s
firebrand Orange Revolution ally, has been driven into opposition.
Kuchma-era business oligarchs, who laid low when Mr Yushchenko took office,
are back on the commercial and political scene.

The US has given up hope of Ukraine securing early accession to Nato while
the EU, sceptical about further enlargement, has turned down Ukrainian
requests for even a hint of possible future union membership. Only the
Kremlin is content, glad that Kiev’s break for the west has run into trouble
and that high world energy prices have persuaded Ukraine to treat Russia
with renewed respect.

But it would be wrong to conclude that little has changed. Ukraine today is
a different country from the timid nation that existed before the Orange
Revolution. There is a greater sense of freedom and a stronger feeling of
national identity.

The media reports critically on Mr Yushchenko and Mr Yanukovich alike. The
old fears of officialdom have faded, even if they have not disappeared. If
corruption remains rife, it is no longer centralised around the presidency.

In foreign policy, Kiev is more confident, even in its dealings with Moscow.
While Russia retains considerable influence, it no longer interferes as
blatantly as when it unsuccessfully backed Mr Yanukovich in the 2004
election. Petro Poroshenko, an official of Mr Yushchenko’s Our Ukraine
party, says: “People expected more from the Orange Revolution.

But we did what we did. There is no danger of going back to the old ways,
even though there is a big chance of failing to make the most of our

Unlike Mr Kuchma, Mr Yushchenko cannot bulldoze his way out of political
trouble. Under the settlement that ended the Orange Revolution, significant
rights passed this year from the president to parliament. But the precise
boundaries of power have yet to be defined.

Everything is new – and everything is a potential trigger for political
conflict. Whatever the personal battles between Mr Yushchenko, Mr
Yanukovich and Ms Tymoshenko, this is Ukrainian democracy in the making.

At the same time, rapid economic growth is creating new opportunities,
especially for educated young people. Incomes are rising fast, allowing
Ukrainians to modernise their homes, buy new cars and take foreign holidays.
Foreign investment has poured in, notably Mittal Steel’s $4.8bn acquisition
of the Kryvorizhstal mill. Those disillusioned with politics have plenty of
profitable outlets for their energies.

Domestic politics is dominated by Mr Yushchenko’s efforts to secure support
for his reform agenda. This summer, in a bid to end 18 months of conflict,
the president brought Mr Yanukovich back to power. For many Orange
Revolution supporters it was a betrayal.

But Mr Yushchenko believed Mr Yanukovich’s triumph in the March 2006
parliamentary elections, when his party won over 30 per cent of the vote,
could not be ignored without dividing Ukraine between his own supporters in
the west and Mr Yanukovich’s in the east.

Mr Yanukovich pledged to implement the president’s west-oriented programme,
including economic liberalisation and pursuing membership of the World Trade
Organisation (WTO), the EU and Nato.

However, Mr Yanukovich’s ties with Ukraine’s conservative business
oligarchs, who want to avoid offending Russia for fear of losing cheap
energy supplies, have raised questions about his enthusiasm for Mr
Yushchenko’s aims.

For Mr Yushchenko, integration with the west is a mission. In an interview
for this special report, he says: “We see Ukraine’s fundamental interests in
the Euro-Atlantic integration choice.” Mr Yanukovich and his backers are
less philosophical. They see long-term advantage in westward integration –
notably in access to markets, technology and capital.

But with the EU in no rush to accommodate Ukraine, they see no reason for
Kiev to hurry to Brussels. Instead, they want to maximise the short-term
benefits from links with Russia, notably cheap energy.

Mr Yanukovich will try to match moves towards the west with co-operation
with Russia. So far, he has snubbed Mr Yushchenko by declining to apply for
a Nato membership action plan – the first step towards future membership.
With Ukrainian public opinion strongly against joining Nato, the prime
minister has been able to ignore the president on this issue.

The next challenge is the WTO. Mr Yushchenko promised to finish preparations
last year, but key legislation is still in parliament. Mr Yanukovich is not
opposed but wants to avoid irritating Russia. His ideal option is for
Ukraine and Russia to accede together, but with Russian foreign policy
increasingly nationalist, it is unclear whether Moscow will now join at all.

If it does join the WTO, Ukraine will be in a position to deepen relations
with the EU under the union’s neighbourhood policy. Brussels is ready to
negotiate agreements on free trade and visa facilitation, but it will not
give Ukraine even a glimpse of membership.

If Mr Yushchenko is pro-EU, Mr Yanukovich and Myloka Azarov, the finance
minister, are more circumspect. Mr Azarov says that given the EU’s energy
needs, Brussels will soon establish a “common economic zone” with Moscow.
“We are offering both the EU and Russia to establish a common economic

Such equivocation causes some disquiet in Brussels. As one EU diplomat in
Kiev says: “Ukrainians could one day be in equal relationship with EU
members. They should ask themselves whether they could ever be in an equal
relationship with Russia.” The US has similar concerns. However, faced with
divisions in Kiev, political resurgence in Moscow and crises elsewhere in
the world, Ukraine today is not a priority.

Meanwhile, Russia is in a stronger position than it expected after 2004.
President Vladimir Putin’s great fears were that Ukraine would be “lost” and
that the Orange Revolution could spark copycat protests in Russia. Today, it
is clear that, with Kiev still dependent on gas imports from Russia, the
Kremlin retains some influence over Ukraine, while the risk of a Russian
popular revolt is remote.

Energy is Ukraine’s biggest economic challenge. The price of gas imported
from Russia jumped by nearly 50 per cent in January to $95 a thousand cubic
metres and is expected to rise to $120 next year. So far, the economy has
withstood the shock, thanks to strong exports and domestic consumption. But
a global economic downturn could leave Ukraine vulnerable.

Mr Yushchenko’s answer includes economic liberalisation to encourage greater
efficiency in the public sector and more diversification in private

However, it is unclear how far Mr Yanukovich will back such reforms. Liberal
economists fear that progress could be a question of “two steps forward, one
step back.”

The phrase was often used in the Kuchma era. Although a return to the times
of Mr Kuchma is impossible, Ukrainian politics remains a tough world. But it
is a world that has changed irrevocably with the Orange Revolution. The
winter of 2004 may now be a memory but it has left a lasting legacy.  -30-

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

Financial Times Report, London, UK, Tuesday, October 31 2006

Viktor Yushchenko and Viktor Yanukovich are politicians of very different
political backgrounds and views. Here, they discuss the challenges facing

Yushchenko: We see Ukraine’s fundamental interests in the Euro-Atlantic
integration choice. Maybe it’s not the best time to talk about such
aspirations, considering the events underway in the European Union today.

But I want to stress again, that this is our key interest. It conforms with
our economic, human, social and defence interests.

We understand the difficulties in Europe with respect to these processes
that we call integration and questions linked to expansion. We will not
speculate on public support We only ask that we be heard.

We need only one thing: to know and feel, through written agreements, that
there is a European perspective for Ukraine so we can see the horizon. There
needs to be clarity here. The road lies ahead and Ukraine is ready to travel
down it.

Yanukovich: My last visit to Brussels [in September] confirmed that, at the
moment, we are not discussing whether Ukraine should join the EU but what
road Ukraine should take in this regard. Today, Ukraine is working with the
EU on a new agreement [on bilateral trade relations].

Yes, we are interested in going down a path of integration to establish
a free trade zone with the EU and for Ukraine to have European living
Yushchenko: [Relations with Russia are a priority but are] complex,
difficult, and very specific, and at times involve rough rules of play and
can be unpredictable We need to find a proper format, but should always
remember that we are a sovereign country, a sovereign nation.

No economic project [including the possible economic and customs union
proposed by Russia] is worth the loss of our sovereignty [and betrayal,
considering that] dozens of Ukrainian generations laid their lives down for

I am confident that this is understood in the highest echelons in Russia.
But trust me … these relations are not straightforward.

Yanukovich: Russia and the EU are now working towards the establishment
of a single economic zone.

Russia and the EU are deepening their economic partnership.

Ukraine, located between these two large partners, should not interfere with
this process but should facilitate it. Ukraine should be a reliable bridge
between Europe and Russia.

Ukraine is interested in these relations being stable and predictable. This
question [of a choice between the EU and Russia] is not being considered at
the moment.

We must first become members of the WTO, both Ukraine and Russia. Then
there should be established a free economic zone. The depth of integration
will depend on national interests of Ukraine.
Yushchenko: The idea of forming a broad coalition is to put the past behind,
to put into the archive problems that have arisen and which could pose a
threat to the unity of this nation and to establish national priorities.

The idea is once and for all to remove separatist initiatives and federalism
to consolidate all political parties around Ukraine’s national interests.

I understand how important it is to maintain political stability. It is one
of the fundamental factors for national prosperity.

But from the other side, we should understand that political stability
should be based on fundamental priorities of the nation, not on compromises
that weaken the state and laws.

Yanukovich: We view this coalition as being stable through this parliament’s
term. I am optimistic that a broad coalition will be formed with the
participation of the Our Ukraine grouping.

The creation of a broad coalition will help unify the entire country. It
will gradually reduce the divisions created during the presidential elections
of 2004. It is very important that Ukraine moves forward with stable and
predictable policies.
Yushchenko [commenting on the government’s recent intervention in the
wheat market, which was seen by traders as heavy-handed]: Without a
doubt, there are problems with respect to decisions that have been adopted
by officials in recent months with respect to the organisation of the
markets in various sectors.

I don’t see this as a change in direction, rather as an attempt by a young
government seeking solutions to this or that issue. Often they are
inadequate and unprofessional.

As president, I will seek to influence the decision-making to ensure
that stable decisions are adopted.

The most important thing is that regulations and decisions are in line with
market economics. The rules should be equal for all and free trade should
prosper as it does in market economies.

Yanukovich: My priorities are judicial reform, decentralising Ukraine’s
political system by yielding more power to the regions, economic reforms,
the liberalisation of the tax system and the establishment of a transparent
economy that would attract investment.

Our party is the largest in Ukraine in terms of membership and has the
largest public support.

The inclusion of big business does not interfere with its running. These
party members are representatives of the most successful businesses which
work in the national interest of Ukraine.

[They] establish new jobs, provide social guarantees and exist as a
locomotive for the positive processes for the development of market economy
and the lifting of the living standards of citizens as well as the economy
as a whole.                                     -30-

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

Interfax-Ukraine, Kyiv, Ukraine, Monday, October 30, 2006

KYIV – The net inflow of foreign direct investment into Ukraine in the first
nine months of 2006 is estimated at $3.6 billion, which is 240% more than in
the same period last year, the National Bank of Ukraine said.

“Growth in investment in fixed capital in the first half of 2006 amounted to
12.2% and the net inflow of foreign direct investment in the first nine
months of 2006 is estimated at $3.6 billion, which is 240% more than in the
same period last year,” according to a financial report for the third

According to the Ukrainian State Statistics Committee, growth in foreign
direct investment in Ukraine in the first half of 2006 amounted to $1.7
billion, up 250% year-on-year.

The National Bank also said that, starting in June 2006, exports grew at a
faster rate than imports. “As a result, the deficit in the balance of
payment’s current account in January-September fell to $202 million, while
at the end of May it amounted to $938 million. In September, like in the
last four months, the financial account had a surplus – $724 million,” the
report said.

According to the National Bank of Ukraine, in the first half of 2006 there
was a current account deficit of $900 million (2.1% of GDP), while in the
same period of 2005 there was a surplus of $2.2 billion or 6.4% of GDP.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                      Not all Ukrainian officials are keen on the WTO

ANALYSIS & COMMENTARY: By Vitaliy Knyazhanskyy
Den, Kiev, in Ukrainian 31 Oct 06; p 1
BBC Monitoring Service, United Kingdom, Wed, Nov 01, 2006

It is not yet clear whether Ukraine will join the WTO any time soon, as the
supporters of an economic union with Russia are quite strong among the
elite, a newspaper has reported. The author said it was also not clear what
the synchronization of WTO entry talks, which Russia has suggested,

means in practice.

The author said Deputy Economics Minister Valeriy Pyatnytskyy believes

WTO entry depends only on Ukraine at this stage, saying there are no external
barriers to accession.

The following is the text of the article by Vitaliy Knyazhanskyy, entitled
“Who’s putting on the brakes?”, published in Den on 31 October, subheadings
appear as in the original:
                                  NO EXTERNAL BARRIERS
Tomorrow parliament will hold hearings on joining the WTO which had been
delayed earlier. And it seems that this time they should result in something
and push Ukrainian lawmakers to a subsequent affirmative decision in voting
on relevant laws.

Lawmakers will be in a good mood due to an informal meeting of the working
group on Ukraine’s accession to the WTO which was held at the end of last
week in Geneva. As people say, it gave hope: it turns out that Kiev has a
chance of becoming a member of this organization at the end of February

There is not much left to do – finish adapting Ukrainian laws to WTO norms.
“All members of the working group fully support Ukraine in her aspirations
to join the WTO and emphasize the need to intensify our lawmaking process
which is a key factor for completing the negotiations…[ellipsis as
published] We can complete the negotiations process by the end of the year”,
said Ukrainian Economy Minister Volodymyr Makukha.

Of course, he did clarify that the WTO will then need some time to analyse
the laws adopted and verify other documents which in some cases can take up
to more than a half a year.

And still the minister believes that in light of agreements reached at the
informal meeting the possibility exists that the General council of the WTO
could pass a decision at the end of February on accepting Ukraine into the

The minister believes that the obstacles linked to Ukraine’s having not yet
signed bilateral agreements on market access for goods and services with
Taiwan and Kyrgyzstan is not significant. In his opinion, relevant protocols
can be signed by the end of the year.

“There are no barriers from the side of the WTO today. The ball is in our
court”, Deputy Economy Minister Valeriy Pyatnytskyy said supporting his
boss – today he is the biggest lobbyist or, put more plainly, the
professional pusher for getting Ukraine into this organization.
                      CONVINCING THE UNBELIEVERS
But in the political sphere, the leading party in the long-playing Ukrainian
opera entitled “WTO”, naturally belongs to President Viktor Yushchenko.

The idea of holding a meeting of [parliamentary] faction leaders this week is
being mulled.

This meeting is to be dedicated to WTO legislation and will take place
before the parliamentary hearing and give MPs additional arguments for an
affirmative decision.

One thinks that it is the president’s principled position which has
determined a shift in the intentions of the coalition and foremost in the
Party of Regions which earlier had no great enthusiasm for the task of
immediately joining the WTO.

And now such an MP as Our Ukraine’s Petro Poroshenko, based only on

his own intuition, is not afraid to predict that the coalition will support most
of the laws on the WTO. And the highly-visible participant in the coalition,
First Deputy Prime Minister and Finance Minister Mykola Azarov is
categorically for the WTO.
By the way, a lot here will depend on the position of the speaker of the
Ukrainian parliament, Oleksandr Moroz. He said parliament would review six
bills this week. Which ones exactly? The speaker noted that Yushchenko first
introduced his bills, but that the cabinet also planned to enter its own.

Moroz believes that in case it is determined that some positions in the
bills submitted by both sides coincide after review in committee, then those
submitted to parliament earliest will be taken to the session hall.

If differences are noted, then each bill will be debated in parliament on
its own merits. Of this tirade, one can only understand that the speaker has
his own game in this.

Of course he is not interested so much in the budget for this and next year
in order to join the WTO in a behind-the-scenes deal. But with regard to
political reform one cannot rule out such a possibility.

But is Moroz omnipotent in a situation when people sympathetic to the Single
Economic Space [SES – an economic union between Belarus, Kazakhstan,

Russia and Ukraine] in the coalition have still not made a final decision on what
Russia’s demand for synchronization with Ukraine in joining the WTO means in

For example, the Deputy Prime Minister in the Ukrainian government, Dmytro
Tabachnyk, believes that Ukraine’s European vector should be corrected after
announcements of the EU not expanding any further after accepting Romania
and Bulgaria. He expresses this thought in an article published in the
weekly Rossiyskiye Vesti.

The authors are certain that it is joining the SES which will solve all of
Ukraine’s strategic problems. At the same time, they note that joining the
SES does not contradict the goal of European integration.

 But still it is not completely clear whether the ideologues of the SES are
satisfied with the current speed with which Ukraine is joining the WTO and
whether they will be tempted to slow it down a bit if they are not promised
some concessions for such a desirable direction.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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12.                                    WORDS FOR WTO

EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, Nov 02 2006,

The parliament’s Committee on Issues of Economic Policy has approved the
entire package of draft laws put forward by President Viktor Yushchenko to
facilitate the country’s joining of the World Trade Organization.

The sixteen bills deal with widely divergent sectors ranging from VAT,
agricultural products, metals and banking, the president’s press service
reported on Oct. 31.

Prime Minister Viktor Yanukovych told journalists a day earlier that the
government would do everything it could to get WTO legislation passed,
setting December as the deadline for the Rada’s consideration of the

Three cheers for the premier, whose Donetsk-based Regions party dominates
the parliament! Yanukovych announced last week that Ukraine hopes to be
accepted into the WTO in February but – he added – the government would

keep Russia informed and not rush things.

During a visit to Kyiv last week, Russian Prime Minister Mikhail Fradkov
expressed his country’s preference that Ukraine “synchronize” its WTO
membership aspirations and free-trade talks with the European Union with

Ukraine’s northern neighbor is obviously uncomfortable with the idea that
Kyiv could gain leverage in trade and energy talks by becoming a WTO member
first and striking a better free-trade agreement with the EU.

It’s important to maintain good ties with Moscow, and a couple of months won’t
make much difference. But let’s hope that the premier makes good on his
words, moving fast on these issues, rather than putting them off as a favor
to Moscow.

WTO will have drawbacks for some sectors of Ukraine’s economy, but the net
effect will be overwhelmingly positive. Joining it will confirm the country’s
stated goal of European integration and dispel any suspicions that
Yanukovych takes orders from Moscow.

Ukraine can wait a few more months, despite two WTO deadlines having already
expired, but the government has to take real action, the kind that speaks
louder than words.                                     -30-

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          Send in a letter-to-the-editor today. Let us hear from you.

Interfax-Ukraine, Kyiv, Ukraine, Tuesday, October 31, 2006

KYIV – The Cabinet of Ministers has plans to submit to the Verkhovna Rada
all of the draft bills required for Ukraine’s accession to the World Trade
Organization no later than December.  “We have taken on the task to propose
to the parliament to consider all of the draft bills no later than in
December,” he said at a press conference in Kyiv on Monday.

He said the government would do its best to secure the endorsement of the
bills on the WTO.  He said the government would work to consider “most, if
not all, of the bills related to WTO accession in November.

Commenting on the presidential package of the WTO bills submitted to the
parliament in October, Yanukovych said Ukraine’s accession to the WTO was a
question for the government.  “However, we don’t mind when the president
puts forth an initiative,” he said.  He said the presidential draft bills
were almost identical to those of the government, and that only one differed
from the government version.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax-Ukraine, Kyiv, Ukraine, Tuesday, October 31, 2006

An unofficial meeting of the working group on Ukraine’s accession to the
World Trade Organization (WTO) that took place last Friday in Geneva
confirmed Kyiv has good prospects to join in late February 2007, provided
Ukrainian legislation is brought in line with WTO standards.

“All members of the working group fully back Ukraine’s aspiration to joint
the WTO and highlight the necessity to intensify the legislative processes
crucial to complete talks. We may complete negotiations by year’s end,”
Ukrainian Economy Minister Volodymyr Makukha said at a press conference

on Monday in Kyiv.

Then some time will be required to analyze the bills and verify other
documents, which in certain cases may take more than six months. However,
assuming the agreements reached, there is a chance a session of the WTO
General Council will decide on Ukraine’s accession in late February, the
minister said.

Ukraine has yet to sign two bilateral agreements on the access to
commodities and services markets with Taiwan and Kyrgyzstan. However, the
obstacle is not very serious, he said.  Talks with the working group on the
amount and types of state support for agriculture are still under way, but
the issue is not as topical as the issue of passing legislation, Makukha
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
ANALYSIS & COMMENTARY: By Oleg Varfolomeyev
Eurasia Daily Monitor, Volume 3, Issue 203
Jamestown Foundation, Wash DC, Thur, Nov 2, 2006

Ukraine is an inch from joining the World Trade Organization (WTO), which
President Viktor Yushchenko has proclaimed to be his strategic goal. This
feat would be the only legacy of his first term, which expires in January
2010, at least regarding efforts to join Western institutions.

Yushchenko’s intention to join NATO in 2008 faced a major uphill challenge,
as he underestimated Moscow’s ability to undermine domestic support for this
plan. Ukraine also is very far from European Union membership.

However, Yushchenko views WTO accession as a very important step towards
eventual EU accession, and European Commission President Jose Manuel Barroso
assured him at their meeting on October 27 that the EU would be prepared to
talk about setting up a free-trade zone with Ukraine after Kyiv joins the

Ukraine should join the WTO by the end of 2006, according to the National
Unity Declaration that Yushchenko signed with all main political players
(except the opposition Yulia Tymoshenko Bloc) this past August.

Ukraine’s WTO entry has been postponed several times since the turn of the
century because of the opposition of various industrial lobbies and a lack
of political will in Kyiv.

By now, however, Ukraine has managed to reach accords on the terms of WTO
entry with all but two WTO members and adopted most of the laws needed to
qualify for membership.

Kyrgyzstan and Taiwan have not yet given their green lights to Ukraine’s
accession. Kyiv, however, does not view these obstacles as serious.

Speaking at a press conference on October 30, Ukrainian Economics Minister
Volodymyr Makukha dismissed Kyrgyzstan’s claim that Ukraine should pay
Bishkek a $27 million Soviet-era debt before joining the WTO — this is the
main condition from Kyrgyzstan — and said that only technical issues remain
to be settled with Taiwan.

“The ball is now on our side,” said Makukha’s deputy Valery Pyatnytsky,
speaking at the same press conference. He explained that WTO membership

now depends only on parliament’s adoption of some 20 WTO-related bills by
parliament, which is not guaranteed.

Meeting in Geneva on October 27, the WTO group on Ukraine’s membership

gave Kyiv three weeks to pass the bills. In this case, an official meeting of the
group on December 21 may approve Kyiv, and Yushchenko hopes that his
plan to join the WTO before 2007 may materialize.

If this does not happen, Ukraine’s accession will be postponed until late
2007, and Ukraine may face tougher conditions, said Volodymyr Baluta, who
represents Ukraine at the WTO headquarters in Geneva.

The process of pushing the remaining WTO bills through parliament will not
be easy. Analysts fear that if Ukraine lifts certain trade restrictions, as
the WTO requires, agriculture, metals and mining, and the banking sector
will suffer.

When Ukraine joins the WTO, warns the popular daily Segodnya, which is close
to Prime Minister Viktor Yanukovych’s camp, “Our farmers will have a hard
time because of competition from German, Polish, and U.S. producers.”

If Ukraine drops its prohibitive export duty on scrap metal, steel tycoons
in Yanukovych’s home Donetsk Region will lose a cheap source of raw
materials. And the Association of Ukrainian Banks — a powerful lobbying
group — has urged parliament to reject a bill that would make it easier for
foreign banks to open branches in Ukraine.

Yushchenko’s task is complicated by the fact that the lobbying groups of the
industries least interested in fast WTO accession are especially influential
with the government coalition parties.

Steel makers are prominent in both Yanukovych’s Party of Regions and the
Socialist Party, and the Socialists are essentially a party of central
Ukrainian agricultural workers.

The third member of the coalition — the Communist Party — traditionally
views the WTO and the interests that it represents as an ideological foe.

Yushchenko submitted 16 WTO-related bills to parliament on October 19,
urging their adoption by mid-November. Several days later, Yanukovych’s
cabinet submitted to parliament its own versions of the bills.

This unnecessary competition will further complicate Kyiv’s road to the WTO,
as parliament will need more time to consider the rival sets of bills.

Another possible complication is the position of Moscow, which regards Kyiv’s
WTO accession process with suspicion, as Kyiv’s earlier accession may
complicate Moscow’s own WTO entry.

Visiting Russian Prime Minister Mikhail Fradkov suggested on October 24 that
Kyiv should synchronize its WTO accession with Moscow.

It has remained unclear what he meant exactly, but Yushchenko’s Our Ukraine
reacted angrily in its statement on the same day, describing his remark as
“inappropriate” and accusing him of pressuring Ukraine.

Parliament is scheduled to discuss the first seven bills today, November 2.
There is little optimism that the process will be smooth, and Yushchenko’s
goal of joining the WTO this year is widely viewed as too optimistic.

Yanukovych has pledged to do his best to ensure WTO entry by February 2007.
Economics Minister Makukha, however, believes that WTO membership before

the end of February is unrealistic. (
(UNIAN, October 19; Ukrayinska pravda, October 24; Channel 5, October 27,
30; Ekonomicheskiye izvestiya, Segodnya, Delovaya stolitsa, October 30;
Kommersant-Ukraine, October 31; 1 + 1 TV, November 1)
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006
KYIV – Ukraine has set the purchasing price of grain at a reasonable level,
according to First Vice-Premier and Finance Minister Mykola Azarov.

“We set a very good purchasing price of grain. Grain traders that wanted to
buy grain for nothing are criticizing us very seriously. The price that was
set now is a normal market price, which covers all of the expenses of the
producers and creates a certain profitability,” he said at a press
conference on Thursday.

The first vice-premier said state support for agriculture had to be taken
into account when setting the purchasing prices of grain.

“The state cannot allow itself to buy grain at unrestricted prices. We spend
a significant amount of money on supporting the agriculture sector, so let’s
consider everything as a whole,” Azarov said.

FOOTNOTE: The comments above by First Vice-Premier and Finance
Minister Mykola Azarov sent extreme shock and concern through the
private grain trade and the business community. Azarov seems to be
indicating any time the government does not like the price of grain they
have the right to interfere and lower the price and also control exports.
He also indicates because the government provides some support for
agriculture this gives the government the right to intervene and disrupt
private markets.  All of this thinking is right out of the old Soviet/
Communist/Socialist economic handbook 101.  AUR EDITOR
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News Agency, Kyiv, Ukraine, Tuesday, October 31, 2006
KYIV – The Economy Ministry has completely distributed quotas on
exports of grain crops.
First Deputy Economy Minister Serhii Romaniuk told this following the
extended meeting of the Verkhovna Rada’s committee for agrarian policy
and land relations. ‘All of the quotas have been distributed,’ he said.
At the same time, Deputy Agricultural Policy Minister Ivan Demchak told
journalists that the Economy Ministry, as agreed with the Agricultural
Policy Ministry, distributed quotas on exports of wheat fixed at 400,000
tons and those on exports of barley at 600,000 tons, saying the Economy
Ministry distributed no quotas on exports of corn so far.
Demchak also said that the Economy Ministry is considering the possible sale
of quotas on grain exports via an auction. However, this mechanism may
concern only the volume of quotas above the presently fixed level.
He also noted that the Union of Agrarian Exchanges signed contracts for 3.8
million tons of grain before the licensing was introduced. At the same time,
he said that in October the volume of grain in contracts grew to 7.8 million tons.
As Demchak said, taking into account all applications for grain exports
submitted to the Economy Ministry and the fact that as of October 30 Ukraine
already exported 5.7 million tons of grain, which is 1.3 million up on the
last year, Ukraine’s total export potential would reach 14.4 million tons,
and this would arouse alarm that Ukraine won’t have enough grain.
Demchak said that 5.7 million tons of grain exported by October 30 includes
2.2 million tons of wheat (wheat exports are 150,000 tons down on 2005), 3.3
million tons of barley (1.7 million tons up on 2005) and 160,000 tons of
corn (130,000 tons down on 2005), saying exports of corn have been just
According to First Deputy Economy Minister Serhii Romaniuk, the ministry
received applications for quotas on exports of 3.7 million tons of wheat,
2.8 million tons of barley, and applications for quotas on exports of corn
that exceed the fixed level by 3.3 times.
He noted that the mechanism of quotas was introduced by the government to
ensure food security and particularly to allow the Agrarian Fund and State
Committee for Material Reserve to form food reserves.
Romaniuk assumed that quotas for exports of grain harvested in 2006 may
be prolonged next year, but as soon as the government procurement plan is
carried out, the government will stop using the mechanism of quotas.
During the committee’s meeting, chairman of the State Customs Service
Oleksandr Yehorov said that according to the customs, in August-September
Ukraine exported 1.426 million tons of wheat to the tune of USD 171 million,
which is 6% down on the last year.
As he noted, of that wheat amount, wheat harvested in 2005 made 146,000
tons, while the average exports price totaled USD 130 per ton, which is 27%
up on last year.
Yehorov said that third-grade wheat accounted for 34% or 449,000 tons of the
total wheat exports (the average price of USD 137 per ton), fifth-grade
wheat made 20% or 268,000 tons (the average price of USD 122 per ton,
sixth-grade wheat accounted for 17% or 224,000 tons (the average price of
USD 118 per ton).
Yehorov also said that since the introduction of the licensing, but before
the introduction of the mechanism of quotas, the ministry issued 21 one-time
licenses for exports of 344,000 tons of grain, of which only 232,000 tons
have been exported on 16 licenses. He noted that at the moment Ukraine
is exporting no grain.

As Ukrainian News earlier reported, on October 11, the Cabinet of Ministers
introduced quotas for grain exports until the end of 2006 refusing from its
licensing.                                               -30-
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Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006

KYIV – The European Bank for Reconstruction and Development (EBRD) is
alarmed by the introduction of quotas on the export of grain in Ukraine.

“We are alarmed with [the introduction of quotas on the export of grain] and
believe that the state should live under market conditions,” Kamen Zahariev,
EBRD Country Director for Ukraine has told Interfax-Ukraine.

He said that Ukraine needs, in particular, to develop sales of grain via
auctions and the systems for controlling rapid changes of prices of grain
when the state reserve is being formed.

Recently, the head of the IMF’s mission in Ukraine, Albert Jaeger, said that
the introduction of quotas on the export of grain in Ukraine is a bad signal
for investors.                                  -30-

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

UNIAN, Kyiv, Ukraine, Wednesday, November 1, 2006
KYIV – According to the information of APK-Inform agency, on October
31, Economic Court, Kiev, sustained a claim registered by one of Ukrainian
juridical companies in the part of suspension of force of regulations of Cabinet
of Ministers of Ukraine providing for introduction of licenses and quotas for
export of grain from Ukraine, according to APK-Inform.
APK-Inform agency intends to get more detailed information during today.
As it was informed before on October, 17, Ukraine had imposed quotas for
export of wheat, maize, barley and rye till the end of the current year in
total volume of 1.603 mln tonnes by regulations No 1418 d. d. October, 11,
Government cancelled its regulations No 1364 d. d. September, 28, providing
for introduction of licenses and quotas for export of milling wheat and
wheat and rye mixture (meslin).
It should be mentioned that on October, 18, 2006, group of companies – grain
traders registered a claim to Economic Court of Kiev on adjudication of
regulations providing for introduction of licenses and quotas of grain
export from Turkey as illegal and their cancellation.                -30-    
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Itar-Tass, Moscow, Russia, Sunday, October 29, 2006

PETROPAVLOVSK-KAMCHATSKY – Ukraine will settle with Russia
questions on the Black Sea Fleet “on mutually advantageous conditions”.
Ukrainian premier Viktor Yanukovich expressed this idea on the programme
“News of the Week” on Sunday, which was broadcast over the Russian Far

“We have in store another ten years – till 2017. We should seek to live this
decade in a stable way,” Yanukovich said (Eds: under the bilateral treaty,
the Russian Black Sea Fleet will stay in Sevastopol till 2017).

“Of course Russia should clearly understand what is advantageous for it: to
build bases in its territory, say, in the area of Novorossiisk or possibly
to operate any facilities in the Crimea. We should look at this question and
to examine it jointly,” the Ukrainian premier noted.

According to Yanukovich, “there should not be such a situation when the year
2017 comes, we have not decided anything before this time, and in 2017, we
say – pardon, we go away”. “This should not be the case,” he emphasized.
“Such partners as Ukraine and Russia should be and must be predictable for
each other.”
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Eurasia Daily Monitor, Vol 3, Issue 200
Jamestown Foundation, Wash DC, Monday, October 30, 2006

In his annual phone-in dialogue with Russian citizens, televised live on
October 25, Russian President Vladimir Putin proposed extending the
stationing of Russia’s Black Sea Fleet in Ukraine’s Crimea beyond
the 2017 legal deadline.

Moreover, Putin obliquely cast doubt on Ukrainian sovereignty and security
in the Crimea and farther afield by purporting to offer Russian military
guarantees to that sovereignty and security.

Putin was answering pre-arranged questions from nine locations in Russia
plus Sevastopol in Ukraine. Dwelling at length on two questions from
Sevastopol regarding Russia’s Black Sea Fleet based there, Putin replied
(Interfax, October 25): “Russia…is ready to negotiate an extension of the
timeframe of our Fleet’s presence there…

I expect that we can resolve all these issues in a constructive dialogue on
the governmental level, the ministerial level. Such negotiations are
ongoing.” He also hinted at “difficult internal political processes” in the
Crimea and alleged “Slavic”-Tatar tensions there.

Putin carefully couched his proposals in terms seemingly respectful of
Ukraine’s sovereignty, though reminiscent of Soviet military assistance
offers to then-“fraternal sovereign countries” at their “request.”

He declared: “The decision on such issues undoubtedly lies within the
competence of the Ukrainian sovereign state. Should the need arise, and
should the Ukrainian people and leadership make a request, Russia would
guarantee noninterference in Ukraine’s internal affairs, if anyone would
fancy such temptations [to interfere].

In that case, I assure you, the presence of Russia’s Fleet would not be
irrelevant…. If the Ukrainian leadership deems it possible and addresses us
with a request for assistance, we are prepared — without involving Russia
into decisions on that type of issues — to provide assistance to our
closest neighbor the fraternal Ukrainian republic, to protect her.”

The Russian president employed his recently developed, dialectical approach
to the sovereignty and territorial integrity of formerly Soviet-ruled
countries: “The Crimea forms part of the Ukrainian state, and we cannot
interfere in another country’s internal affairs. At the same time, however,
Russia cannot be indifferent to what happens in Ukraine and the Crimea.”

Putin also claimed that the Russian Fleet’s presence is economically
advantageous to Ukraine in terms of annual payments for rent and services
and job creation. Successive Ukrainian governments irrespective of political
color have felt otherwise, however, at least until now.

Prime Minister Viktor Yanukovych, on a working visit to Russia’s Far East,
is being quoted as allowing for the possibility of prolonging the Russian
Fleet’s presence in the Crimea beyond 2017, when the 1997 agreements expire.
Russia should choose whether to build naval bases on its own coast or use
the existing ones in the Crimea; and both Russia and Ukraine should take
decisions before 2017 (Channel Five TV [Kyiv], October 29).

Putin’s unprecedented proposals, as well as his insinuation that
negotiations on the issue are ongoing, have surprised Kyiv.

According to Defense Minister Anatoliy Hrytsenko, no negotiations to prolong
the Russian Fleet’s presence are being conducted by, or known to, the
Defense or Foreign Affairs Ministries; nor has President Viktor Yushchenko
authorized any such discussions about relying on that Fleet for protection,
according to Hrytsenko.

“If anyone is holding such negotiations, they are behind-the-scenes and
illegal.” Ukraine, he went on, rules out any permanent foreign bases on its
territory, whether of NATO member countries or of the CIS Collective
Security Treaty Organization.

Ukraine is capable of defending its sovereignty and territorial integrity on
its own, would not seek military assistance from other countries to that
end, and will not prolong the Russian Fleet’s stationing, Hrytsenko
unambiguously declared (Interfax-Ukraine, Ukrainian News Agency,
October 26).

While in Finland for the European Union-Ukraine summit, Yushchenko
addressed this issue twice in response to queries from the media. In his
first statement, he firmly declared that the legal basis for the stationing
of Russia’s Fleet in the Crimea will expire with the relevant bilateral
agreements, signed in 1997 and valid through 2017.

He also cited — as did Hrytsenko — Ukraine’s constitutional prohibition of
foreign military bases on Ukraine’s territory (Interfax-Ukraine, October

Yushchenko’s second response seemed more nuanced, however. While the
Ukrainian state and armed forces, he said, are in charge of protecting the
country’s territorial integrity, “We on the other hand are grateful to
Vladimir Vladimirovich Putin if he is referring to those guarantees that
Russia gave alongside the United States and other countries [to Ukraine in
1994] in the context of [Ukraine’s] nuclear disarmament.”

Yushchenko suggested that the issue of prolonging the Russian Fleet’s
presence in the Crimea and related issues be referred to the relevant
subcommission under the Putin-Yushchenko Commission and ultimately to
that Commission itself for discussion (Interfax-Ukraine, October 26).

Referral to the presidential forum could be Yushchenko’s answer to Putin’s
insinuation that negotiations are ongoing through government channels, which
on the Ukrainian side are partly outside the president’s control. Yushchenko
hopes to host Putin in Kyiv for a session of the presidential Commission
before the end of this year.

In a follow-up statement, the presidential press service reiterated Ukraine’s
familiar position that it would observe the terms of the 1997 agreements
with Russia as well as Ukraine’s constitutional ban on foreign bases, then
quoted Yushchenko as saying: “I am convinced that we are finding compromises
with Russia in these circumstances” (Ukrainian News Agency, October 26).

The Russia-Ukraine subcommission on Russian Black Sea Fleet issues held a
regular meeting in Sevastopol on October 27-28. The Ukrainian chief
delegate, First Deputy Minister of Foreign Affairs Volodymyr Ohryzko, stated
in concluding the session that the issue of prolonging the validity of the
1997 agreements “was not discussed because it is out of the question”
(Ukrainian News Agency, October 29).

Putin’s statement is the boldest challenge to the status quo in the Crimea
since he came to power in Russia. Moreover, Moscow has the political and
covert-action means to create in the Crimea the very type of situations
against which Putin is offering to “protect” Ukraine if the Russian Fleet’s
presence is extended.

Thus far, such means have been shown to include inflammatory visits and
speeches by Russian Duma deputies in the Crimea, challenges to Ukraine’s
control of Tuzla Island in the Kerch Strait, the fanning of anti-“NATO” —
in fact, mainly anti-American — protests by local Russian groups in
connection with planned military exercises, and stirring up artificial
Russian-Tatar tensions on the peninsula. (
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Steven G. Vegh, The Virginian-Pilot
Norfolk, Virginia, Saturday, October 28, 2006

CHESAPEAKE – When they put Tanya, 12, and Krystyna, 10, back on a
plane in 2005, Mike and Beth Perrenoud were sure it would be just months
until the two Ukrainian girls became their own adoptive daughters.

“I started scrapbooking the pictures of them,” Beth said. She and Mike
painted a bedroom in girl-pleasing pink, green and purple and ran a blog to
keep friends abreast of their adoption process. “We thought we were going
to get them in January,” she said.

Instead, a month after the Bratchenko sisters’ visit to South Hampton Roads
ended last summer, the Ukrainian government abruptly suspended all
international adoptions. Eventually, Tanya and Krystyna went to another
home, in Ukraine.

Which ended Mike and Beth’s dream of having children. Or so it seemed.
More about that later. First the heart-breaking part:

The Bratchenko sisters were among 20 orphaned Ukrainian children who’d
romped through a two-week stay in South Hampton Roads in August of
last year.

Officially, the children had come for a vacation, but at heart, the visit –
chronicled by The Virginian-Pilot – was about matching children and
prospective adoptive parents.

And that’s what happened for 11 of the children, including brown-haired
Krystyna and Tanya, who called the Perrenouds “mama” and “papa.”

By the trip’s end, the childless couple all but promised the girls through
an interpreter to fetch them from the Ooglegorsk orphanage to live together
in America.

The suspension of adoptions a month later shocked the local families who
had bonded with the children.

“They had met them, fell in love with them, wanted to get them right away,”
said Cindy Caravas, a member of Grace Bible Church in Virginia Beach who
helped organize the orphans’ visit.

According to the U.S. Embassy in Kiev, the suspension was based on past
failures by some families, including Americans, to update Ukraine on the
status of adopted children.

In 2004, Americans accounted for 772 children adopted from Ukraine,
according to the U.S. Citizenship and Immigration Services.

In Great Bridge, the Perrenouds waited hopefully for the impasse to end.
Mike, 46, who is a manager at a moisture control company, practiced
cooking borscht and bought a family-friendly minivan. Beth, 42, a hair
stylist, began dieting to get fit for active motherhood.
                 Ukraine reorganized is adoption bureaucracy
But months dragged on without any end to their wait. In Ukraine, the
government reorganized its adoption bureaucracy, postponed some
scheduled adoptions and narrowed the pool of children eligible for
international adoptions.

Finally in May, the Perrenouds learned Krystyna and Tanya were given to
someone else. A foster family who had previously taken in Krystyna and
Tanya’s youngest sister came forward to claim the older Bratchenko girls.

Did the girls want to go? Had they yearned to live with their baby sister?
The Perrenouds don’t know.

A Ukrainian social worker with the couple’s adoption agency reported that
she tried to reach the sisters but was warned off by the foster father, Beth

The stark end of their dream left the Perrenouds alternately bewildered,
angry and tearful. The only conclusion Beth and Mike could draw was that

their plan for becoming parents wasn’t God’s plan.

The Perrenouds’ heartbreak was not the only setback for the host program.
Caravas said several of the orphans who’d traveled to South Hampton Roads
turned out not to be legally registered in Ukraine as adoptable. Ukraine
also amended its regulations to give priority to domestic adoptions.

So far, just four of the Ukrainian children have been adopted by their local
hosts, including three who arrived in Virginia this month.

Caravas, who adopted a Russian girl in 2000, now says she was naive about
the adoption process for Ukraine. “I was thinking when I was doing it that
it’s all about the children and getting them out of orphanages.”

She acknowledged that the outcome might vindicate critics who said host
programs set up orphans for crushing disappointment when they aren’t

“Would I do it again? I don’t know,” she said. There were still some “happy
ending stories,” she added. Which leads back to the Perrenouds.

This summer, a friend of Beth’s called. “She said, ‘I know this is none of
my business. I know you’re devastated over Tanya and Krystyna – but there’s
this little girl locally who’d like to have a mom and dad,’ ” Beth recalled.

Days later, the Perrenouds took into their home an 11-year-old, whose family
could no longer care for her.

Weeks later, Beth answered her cell phone. “Would you like another child? “
the caller asked. Again, Beth and Mike said yes, this time taking in a
9-year-old girl also needing a family.

Both girls are staying with the couple under legal arrangements that could
lead to formal adoption in about a year. “Part of my promise to God was, ‘I
will do what you ask me to do,’ and this is what he wanted,” Mike said.

The couple declined to name their prospective daughters, talk about their
background or allow them to be photographed. They don’t want to do
anything that might jeopardize their chance of adoption.

Meanwhile, Tanya and Krystyna are not forgotten. The Perrenouds still pray
for the orphans from Ooglegorsk.

In the end, they’ve gained more than they lost, Beth said. “When I see these
girls we’re helping now, I remember that our intentions from the very
beginning were just to help some children.”                   -30-
Reach Steven G. Vegh at (757) 446-2417 or

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
        Audrey Johnson helps implant pacemakers in 18 patients in Ternopil

By Doreen Tyler, Sleepy Eye Herald-Dispatch
Sleepy Eye, Minnesota, Thursday, October 26, 2006

SLEEPY EYE, MN – Sleepy Eye Native Audrey Johnson, left, traveled to
Ukraine in September to implant pacemakers in 18 patients. Johnson works
here with cardiologist Dr. Pesola of Marquette General Hospital, center, and
Dave Moody of St. Jude’s Medical.

One trip was not enough. Six years after her first experience in Ukraine,
Audrey Johnson knew she just had to go back.

Johnson, the daughter of George and Mary Lux of Sleepy Eye and a 1969
graduate of St. Mary’s High School, is a cardiac imaging technologist with
the Upper Michigan Heart Institute at Marquette (Michigan) General Health

She recently spent 11 days with a health care team providing vital cardiac
care to patients in Ternopil, Ukraine.

As they did in 2000, the team implanted pacemakers, donated by St. Jude
Medical, into patients needing the device to improve their state of health.

Each of the cardiac team members paid his or her own way to Ukraine and
volunteered time to surgically implant pacemakers, assess past patients and
educate Ukrainian physicians on American pacemaker technology and

“It was wonderful to have been able to return to help out the patients and
see former patients from six years ago, and to work with many doctors that
we met the last time we were here,” Johnson said. “It was neat to see our
patients doing really well, and to see the same doctors were still there

Eighteen Ukrainians received pacemakers during the eleven-day mission.
“In Ukraine, hospital equipment is quite old, like that (American) hospitals
used in the 1960s,” Johnson explained.

“There have been improvements (of other aspects) in the country, but not in
healthcare. They’ve been trying but there just isn’t the money available.”

Johnson related the story of one patient who suffered from a slow heart rate
and a declining state of health. With the pacemaker implanted and operating
in the patient, she was able to improve enough to attend a family wedding.

“The family said it was a miracle that we were there to give her that
pacemaker,” Johnson said. “Helping those people and hearing stories like
that warms my heart.”

On a personal note, Johnson was pleased to visit with Andriy Lepyavko, a
young student she met in 2000 and had kept in contact with for six years. He
is now an internal medicine doctor in Ukraine. “Meeting his family was very
special,” Johnson said.

“The days went by too fast and it was very hard to leave,” Johnson added.
“Those people have touched my heart forever.”

In the future, Johnson said she certainly plans to return yet again to
Ukraine. “And next time I’ll bring my husband (Larry) with me to show him
this beautiful country.”

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
24.                          DAVID DUKE SPEAKS IN KYIV

EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, Nov 02 2006

Reputed white supremacist David Duke spoke in Kyiv at a meeting organized
by the administration of an openly “Anti-Zionist” university that has been
accused of spreading hate against Jews.

Duke spoke Oct. 19 at the International Academy for Personnel Management,
better known as MAUP, the acronym for the Ukrainian-language spelling of the

His speech was dedicated to alleged “Zionist influence” over U.S. foreign
policy and mass media. He also signed copies of the Russian edition of his
book, “The Jewish Question Through the Eyes of an American,” the school’s
Web site reported last week.

Duke has appeared at several conferences in recent years at the Academy,
which awarded him with a doctorate.

According to the Anti-Defamation League, Duke subscribes to the ideologies
of White supremacism, anti-Semitism and anti-Zionism. He was instrumental
in the resurgence of the Ku Klux Klan in the 1970s, according to the ADL.

Wanted on tax and mail fraud charges related to contributions to his
political campaigns, the ADL claims Duke spent much of 2001-2002 in
Russia and Ukraine “promoting anti-Semitism.”

He plea-bargained a thirteen-month prison sentence upon returning to the
U.S. late in 2002. Upon his release from prison, Duke took part in a white
supremacist conference attended by numerous far-right leaders.

He seemed poised to re-establish himself as a force on the US political
scene, but by January 2005 he was again touring Europe. Is this the kind
of individual Ukrainian academia and students should associate with?

Universities should be a venue for the exchange of thought, but the repeated
visits by Duke, and the Academy’s constant publishing of “Anti-Zionist”
views in its magazine, are suspicious at best.

Jewish leaders in Ukraine have long criticized Ukrainian authorities for not
doing enough to curtail what they describe as anti-Semitic propaganda at
the university. And if MAUP really wants people to believe that it is
anti-Zionist and not anti-Semitic, as it claims, then it should avoid the
likes of people like Duke.

The spent American politician indeed has a right to espouse any views he
likes. This is the price of free speech. But doesn’t Ukraine, still
struggling to solidify its independence, deserve better.

The country has a solid track record for inter-ethnic and inter-religious
harmony, something that the students at MAUP as well as its administration
should cherish as much as everyone else.                    -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                                     UNIVERSITY MAUP

By Nathaniel Popper, Jewish Daily Forward
New York, New York, Friday, November 3, 2006

Ex-Ku Klux Klan leader David Duke visited Ukraine’s largest university last
week to give a stump speech on what he calls “radical Jewish extremists” –
his phrase for the Israeli and American government.

Duke has become a regular at the university, the Inter-Regional Academy of
Personnel Management, which is known by its Ukrainian acronym, MAUP.

Last year, Duke was a featured speaker at the university’s conference,
“Zionism: Threat to World Peace,” and he has received both a doctorate and
an honorary doctorate from the Ukrainian school.

This time around, Duke’s talk in front of university administrators drew
particular attention to MAUP’s legal battles with its Jewish critics.

“The Jewish extremists – the Zionists – they don’t want there to be academic
freedom in this country, or political freedom in this country,” Duke said in
a speech that was also broadcast on his personal Web site. “This university
and your students and faculty are resisting this attack.”

Duke was referring to what has become an intense legal tug of war between
MAUP on one side and Jewish activists and western governments on the other.
The United States State Department has labeled MAUP the leading purveyor of
antisemitic material in Ukraine.

The American and Israeli embassies in Kiev, along with Jewish organizations,
have lobbied the Ukrainian government to take a number of steps to force out
the school’s current leadership.

MAUP’s leaders have struck back in force. In the past year alone, the
university has launched dozens of lawsuits against Ukrainian journalists,
rabbis, politicians and academics – anyone who suggests that the university
is antisemitic.

A number of possible reasons have been given for MAUP’s anti-Jewish efforts.
The State Department alleged in an official report that Middle Eastern
governments funded the school.

Whatever the explanation, the resulting confrontation has international
consequences and is drawing in many of the most significant players in the
Ukrainian political community.

Ukrainian President Victor Yushchenko resigned from his place on MAUP’s
board last December. Members of the United States Congress debated the
situation during negotiations over a American-Ukrainian trade bill. And
Vadim Rabinovich, a media magnate and a leader of the Jewish community in
Ukraine, has been the target of repeated lawsuits.

One of the newest suits arose out of an effort to show just how excessive
the legal battles have become. In September, a leading rabbi in Kiev, Yaakov
Bleich, went on television. When asked during a television interview what
problems Ukraine was facing, Bleich brought up MAUP.

“For instance,'” Bleich said he told the interviewer, “right now, I’ll say
on television that MAUP is antisemitic and the guy who runs it is
antisemitic. I can expect to be sued by them very shortly.”

“Sure enough” Bleich added, “two weeks later, they announced the suit.
Now they are just attacking anything that moves. They feel the pressure.” A
spokeswoman for the university declined to comment on the court cases.

Little of the enmity and courtroom machinations is evident on a visit to
MAUP’s campus in suburban Kiev.

The school was founded in 1989 as a private alternative to Ukraine’s public
university. It now has about 57,000 students. Courses on business and
agriculture are taught on a leafy campus that is decked with only a slight
overdose of blue and yellow Ukrainian flags.

In general Ukrainian society, criticism of the school tends to focus on its
low academic standards – the State Department described MAUP as a “diploma
mill,” and the Ukrainian ministry of education revoked thousands of diplomas
that were improperly distributed.

But students coming down the main walkway – through a gate that reads “Vivat
Academia” – said they had heard little about MAUP’s problems with the Jews.
Nastia Gukin, a 17-year-old banking student, said that “the students have
their own lives. Whatever goes on in the publishing house is separate from

It is at the upper echelons where the university is becoming consumed by the
ever-widening campaign to expose the perceived misdeeds of the Jews. Last
year, the president of the university, Geogy Schokin, founded a political
party, the Ukrainian Conservative Party, which had an election list stacked
with MAUP professors.

While the Ukrainian officials rejected a request from the Israeli government
to ban Schokin from the elections, the party garnered only .09% of the vote,
far from the minimum needed for a seat.

Schokin laid out his philosophy in a lecture titled “Dialogue of
Civilizations,” which he presented at a 2002 conference.

In bombastic academic language, Schokin explained that Jews around the
world are aiming for the “creation, above all, of an extensive and
multi-branch network of secret societies coordinated from a single center

and based on man-hating principles, ‘consecrated’ by appropriate religious
and historical legends and traditions, the core and pivot of which reside in
the doctrine of racial ‘selectness,’ and a maniacal dedication to and
enthusiasm for the ‘super-idea’ of world supremacy.”

For critics, Schokin’s influence is felt most widely in MAUP’s publishing
houses, which publish 400 books, including the works of Schokin and David

Another title is “Sioniski Protocols: Sources and Documents,” which had a
print run of 5,000. In the book, “The Protocols of the Elders of Zion,” an
antisemitic hoax created by the tsarist secret police, is treated as a
genuine document from Jewish hands.

The English summary at the back explains that “Talmud ideology creates some
tragic actions in human history, compares Hebrews to the world, and
proclaims them as a ‘selected nation.’ This book is intended for researchers
of said issue and for global audience.”

The MAUP presses also put out a magazine and a newspaper. One copy of the
newspaper, “Personal Plus,” in late September included a piece about a
Holocaust memorial service (“Tragedy is good for making money”), a book
review (“Greedy American and Jewish corpocrats think that they can steal
from other people”) and an article about an award for an Israeli poet at a
recent book fair, where MAUP’s display booth was put next to the toilet
(“The organizers showed where the place is for the opponents of the

It is these publications that have sparked a number of the lawsuits. A
Ukrainian Jewish journalist, Eduard Doks, was sued after making comments
at a press conference about the kiosks where MAUP sells its publications.

That suit was dropped earlier this week, Doks said, after a judge found that
MAUP did not follow “proper legal procedure.”

MAUP has had more success in its lawsuits against Jewish tycoon and media
owner Vadim Rabinovich, who is president of the United Jewish Community of
Ukraine. MAUP has launched numerous lawsuits against Rabinovich’s Capitol
News, and two months ago it celebrated a victory with a special posting on
its Web site. The judge had ordered Rabinovich to pay the university $9,000.

The legal framework of these cases has not always been clear. Doks says that
the Jewish critics have lost the court cases “because national legislation
does not have a definition of anti-Semitism.”

But Bleich, the chief rabbi, says the reason for the court victories is
easier to understand: MAUP has been willing to bribe judges. “They are
paying off judges; there is no question about it,” Bleich said.

MAUP’s spokespeople did not return phone calls for comment. When a
Forward reporter visited the administrative offices, a spokeswoman shut
the door after saying, “You can see everything on the Web site.”

The pressure on MAUP has been increasing during the past year. The school
was drawn into negotiations earlier this year in the United States over the
Jackson-Vanik Amendment, a piece of legislation that restricted America’s
trade relations with Ukraine.

According to Jewish activists, when Congress was deciding whether to end
these restrictions on Ukraine, the decision became linked to the Ukrainian
government’s promise to rein in MAUP.

“We’ve been pressing the government on this for a long time,” said Mark
Levin, executive director of the National Conference on Soviet Jewry.

The Ukrainian government has not ignored these requests. The government’s
ministry of education has shut down a number of MAUP’s regional branches
over the past few months.

In the Ukrainian parliament, a Jewish member, Alexander Feldman, has pushed
the president and prosecutors to do more; however, even if he succeeds with
this, Feldman told the Forward he is not sure what silencing effect it will

“They enjoy lawsuits,” said Feldman, who is initiating his own suit against
the university. “The more they get sued, the more P.R. they have. It
supports their image of victims.”                        -30-
Nathaniel Popper traveled to Ukraine on a World Affairs Journalism
Fellowship administered by the International Center for Journalists. The
fellowship is funded by the Ethics and Excellence in Journalism Foundation
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

The Weekly, Peachtree Corners, Georgia, Saturday, October 28, 2006

ATLANTA, GA – Not many 14-year-olds get to travel across the globe to
perform in concert, but on Nov. 5 at 4 p.m. in the Schwartz Center,
Ukrainian concert pianist Viktoriya Koshuba will join her father, Volodymyr,
on stage.

In this recital, Volodymr performs an organ passacaglia of Dimitri
Shostakovich, transcriptions of Tchaikovsky, a work by Borodin, and an
organ arrangement of Mussorgsky’s “Great Gate of Kiev!” The program
will conclude with an organ and piano duet by Alexandre Guilmant, in which
the artist is joined by Viktoriya.

Now on his eleventh tour of the United States, Volodymyr has a growing
international reputation for his musical and artistic performances as a
concert organist. He began his career playing the piano, and once served as
pianist for the Kiev State Philharmonic Orchestra.

He has many credits to his name, including being elected a member of the
Italian Music Academy. In 1988 he was awarded the title “Honored Artist”
of the Ukraine, and has been named an honorary citizen to Kyoto, Japan.

He has served as chief organist at the Kiev Concert Hall since 1981 and
performed extensively in Europe, North and South America, and Japan. He
currently teaches at the M.M. Lysenko School of Music, where he once
studied piano.

 Daughter Viktoriya has been studying music since she was five years old,
and is touted as one of the top pianists under the age of 20.

In 2002 she was awarded the Grand Prix in two international competitions
in Turino, Italy, and Paris, France. She takes an active part in her
father’s concerts in Kiev and other Ukrainian cities.

In 2004 she played under the French conductor Jean-Mari LeRoy in
Chernovtsy, Ukraine. In 2004 and 2005, Viktoriya performed with her father
in Chicago, Rochester, Pittsburgh, and Miami.                 -30-
The Weekly, E-mail:
Mailing address: P.O. Box 921141, Peachtree Corners, GA 30010-1141
FOOTNOTE:  Please e-mail or write to The Weekly in Peacetree Corners,
Georgia, and explain to them why the headline “From Russia With Love,”
is not an appropriate headline for this article.  Thanks.  AUR EDITOR
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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