AUR#790 Nov 16 Macroeconomic Situation Report By SigmaBleyzer; Telecommunications; Poland; Food, Fiber And Fuel To Soar; Evil Of Communism Today

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MONTHLY ANALYTICAL REPORT: Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Thursday, November 16, 2006


                  AT $3.072 BN – STATE STATISTICS COMMITTEE
Interfax-Ukraine, Kyiv, Ukraine, Wednesday, November 15, 2006

                          AMBIGUOUS GOVERNMENT POLICY

ANALYSIS & COMMENTARY: By Kateryna Illyashenko, Ukraine Analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Monday, November 13, 2006


Ukrainian News Agency, Kyiv, Ukraine, November 15, 2006


Ukrainian News Agency, Kyiv, Ukraine, Wed, November 15, 2006


Business Digest, Sofia, Bulgaria, Wed, November 15, 2006


PAP news agency, Warsaw, Poland, Wednesday, 15 Nov 06

Volodymyr Obolonsky, The Ukrainian Times
Kyiv, Ukraine, Tuesday, November 14, 2006

                   More than one million persons in Ukraine have diabetes
Ukrainian Times, Kyiv, Ukraine, Tuesday, November 14, 2006


                                INFORMATION DISCLOSURE
Interfax-Ukraine, Kyiv, Ukraine, Wednesday, November  15, 2006


Ukrainian News Agency, Kyiv, Ukraine, Tue, November 14, 2006
Tetiana Pleshyvtseva, Ukrainian News Agency
Kyiv, Ukraine, Friday, November 10, 2006

Business Digest, Sofia, Bulgaria, Wed, November 15, 2006

                        Ukraine’s Changing Place in the Global Economy
          December 14th to 16th, 2006, Chicago
Action Ukraine Report (AUR) #790, Article 16
Washington, D.C., Thursday, November 16, 2006

By Stefan Wagstyl, Financial Times
London, United Kingdom, Tue, November 14 2006


Ukrainian News Agency, Kyiv, Ukraine, Wed, November 15, 2006

                      SET TO SOAR FOR FOOD, FIBER AND FUEL
         Real opportunities to export investment, skill & expertise to Ukraine
Fordyce Maxwell, Rural Affairs Editor
The Scotsman, Edinburgh, Scotland, Wed, 15th Nov 2006


UNIAN, Kyiv, Ukraine, Wednesday, November 15, 2006
Associated Press (AP), Tue, Kyiv, Ukraine, November 14, 2006
22.                       PRESIDENT VIKTOR YUSHCHENKO:
      Embarrassing questions on the eve of the Orange Revolution anniversary
The Day Weekly Digest #36, Kyiv, Ukraine, Tuesday, 14 November 2006
                                    KIEV POWER-SHARING DEAL
By Roman Olearchyk in Kiev, Financial Times
London, UK, Tuesday, November 14 2006
The Ukrainian Observer magazine website
The Willard Group, Kyiv, Ukraine, November, 2006
                                IN CONTEMPORARY UKRAINE
                             The necessity to decommunize Ukraine.
By Oleksandr MUZYCHKO, Ph.D. (History), Senior Research Fellow,
Regional Branch of the National Institute of Strategic Studies in Odesa
The Day Weekly Digest #36, Kyiv, Ukraine, Tuesday, November 14, 2006

MONTHLY ANALYTICAL REPORT: Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Thursday, November 16, 2006

[1] Real GDP growth accelerated to 8.9% yoy in September, bringing
cumulative growth to 6.2% yoy.

[2] Above-target budget revenue collections combined with under-execution
of expenditures allowed the consolidated budget to achieve a surplus of
0.7% of period GDP. However, successful execution of the 2006 budget
may be a challenging task due to under-fulfillment of privatization

[3] Consumer price index (CPI) growth accelerated to 9.1% yoy in
September, driven by the further adjustment of service tariffs and an upturn
in food prices.

[4] Favored by strong external demand, Ukraine’s export performance
continued to improve. However, booming consumption and recovered
investment demand stimulated further expansion of imports. As a result,
Ukraine’s merchandise trade deficit continued to widen in August.

[5] In late-October, Fitch confirmed Ukraine’s long-term sovereign ratings
at BB- and improved its outlook from stable to positive.

[6] During the Ukraine-EU summit, Ukraine and the EU signed visa
facilitation and readmission agreements.

                                   ECONOMIC GROWTH
According to preliminary estimates by the State Statistics Committee of
Ukraine (SSC), GDP rose by 8.9% yoy in September, with an increase of
6.2% yoy in the nine month total to UAH 350.6 billion ($69.4 billion). This
represents a solid increase as compared to the 3% yoy GDP growth reported
for January-September last year.

In the first nine months of 2006, GDP growth was supported by further
expansion of value added in wholesale and retail trade, industry, and
transport, which more than compensated for a decline in agriculture. In
particular, value added in agriculture shrank by 2.3% yoy due to a lower
crop yield this year and smaller cultivated area.

At the same time, thanks to the good harvest of vegetables, potatoes,
sugar-beets and continuing growth in animal production, agricultural
performance may improve in the coming months. Nevertheless, the sector’s
contribution to GDP growth for the year is expected to remain slightly

Strong consumption, robust investment activity and improving export
performance stimulated value added growth in other sectors of the economy.
According to the GDP data released for the second quarter (2Q 2006), final
consumption growth accelerated to 16.2% yoy, up from 14.8% yoy in 1Q 2006.

In addition to vigorous private consumption, which rose by 19.9% yoy in 2Q
on the back of continuing growth in real household income, government
consumption rebounded strongly at 7.3% yoy, up from a 2% yoy increase
in the previous quarter.

The recovery of government consumption (particularly individual – up by 9.1%
yoy in 2Q 2006 compared with a 0.3% yoy decline in 1Q 2006) was reflected
in value added growth acceleration in education, health care and housing.

Investment demand has been gaining strength, as gross fixed capital
formation surged by 10.2% yoy in 2Q 2006 compared with a 8.2% yoy
increase in the first quarter of 2006.

Favorable external conditions in combination with decelerating imports
helped reduce the negative contribution of net exports to GDP growth twice
as much as in 1Q 2006.

Wholesale and retail trade and transport reported 13.7% yoy and 9.2% yoy
increases in value added over the first nine months of the year,
respectively, which explain about 45% of the GDP growth over the period.
Another 25% and 5% is explained by strong expansion in the industrial sector
and construction.

Value added growth in construction accelerated to 7.6% yoy over
January-September, while the growth rates in manufacturing and utilities
increased to 5.4% yoy and 7.6% yoy respectively.

Output growth in manufacturing was supported by strong growth in
machine-building, metallurgy, food processing and the chemical industry,
which expanded by 11.9% yoy, 8.6% yoy, 7.1% yoy and 3.6% yoy,

In addition, the coke and oil refining industry continued to improve as
output decline in the industry markedly decelerated by almost 25% yoy in
January to about 12% over January-September. As a result, total industrial
output reported a 5.5% yoy increase in January-September, slightly up from
5.4% yoy over January-August.

At the same time, September revealed output growth deceleration in several
key industries. In particular, output in food processing decelerated to
about 3% yoy, down from 5.3% yoy in the previous month, which may be
attributed to the overproduction of several products (such as meat, milk and
dairy products), a more modest harvest this year and growing food imports.

At the same time, taking into account recent progress in trade relations
with Russia, performance in this industry may improve in the coming months.

Export-oriented metallurgy reported a 10.8% yoy increase, a notable
deceleration from the 19.7% yoy growth in the previous month, which is
closely linked to the moderation of external demand (reflected in
stabilization of world steel price growth over June-September) and a
weakening low base effect.

However, the industry may benefit from the increase recently agreed with the
EU in Ukraine’s steel export quota for 2006 by 6% due to the transfer of
unutilized quota in 2005.

This became possible thanks to a Ukraine-EU agreement on steel trade for
2005-2006 signed in July of last year, which contained a provision allowing
for the transfer of unutilized quota in the previous year up to 15% of the

The deceleration, however, was compensated for by higher growth rates in
machine-building (9.1% yoy in September versus 6.8% yoy a month before)
and chemicals (12.2% yoy and 9.3% yoy, respectively).

Throughout the rest of the year, industrial production as well as GDP is
expected to continue to grow, though at a slower rate due to weakening
external demand, a waning low base effect and decelerating consumption
(affected by slower growth of real household income and redistribution of
expenditures in favor of utilities).

Over the next year, the economy will continue to perform reasonably well,
even taking into account a further increase in imported gas prices by about
37% to $130 per 1,000 m3. Robust investment activity this year may be
evidence of the realized need to introduce energy saving technologies.

This will partly compensate for the effect of the gas price increase next
year; however, the actual growth rate will crucially depend on steel price
developments on the international markets and the ability of Ukraine to
improve the business environment and implement economic reforms.

In the meantime, the forecasts for next year’s GDP growth by both domestic
and international experts widely diverge – from 4.2% yoy to 8% yoy.

                                       FISCAL POLICY
Acceleration of economic growth in September allowed the government to
collect revenues to the general fund of the state budget in an amount
exceeding the target by 10.9%. VAT collections remained the largest
contributor to budget revenue growth. In particular, VAT proceeds were
over-fulfilled by 25%.

At the same time, VAT refunds that month were under-executed by almost
26%. Improving performance by enterprises (the share of profitable
enterprises increased from 61.2% over the first half of the year to 64% over
January-August) contributed to the growth of enterprise profit tax (EPT)

In September, EPT collections were 7.3% above target. However, due to poor
receipts in the first half of the year, the cumulative EPT collections
remained under-executed by 12%.

Proceeds from taxes on international trade continued to be under-executed by
24.7% over January-September. In addition, collections from excises were 11%
below the target over the period, which is closely linked to poor
oil-refining industry performance.

Overall, tax collections were over-executed by 2.4% over the first nine
months of the year. This, in addition to under-execution of expenditures
from the general fund of the state budget by 2.4% in September and 3.7% to
date, allowed the state budget to be in surplus in September.

As a result, the cumulative state budget deficit declined from UAH 1.7
billion over January-August to UAH 1.4 billion over January-September.
Thanks to surpluses in local budgets, the consolidated budget registered a
surplus of UAH 2.6 billion or 0.7% of period GDP.

At the same time, despite reasonable fiscal sector performance so far,
successful execution of the 2006 budget may be a challenging task. According
to the 2006 Budget Law, the budget deficit is envisaged at 2.6% of GDP and
is to be financed through privatization revenues (85%) and government

Proceeds from new privatization deals were planned in the amount of UAH 2.1
billion. However, as of October 1st, the collected amount represented only
16% of the target.

Scheduled for September 6th and October 3rd privatization contests of 38.14%
of limestone extractive and production enterprise “Komsomolsk ore
directorate” and 76% of “Luganskteplovoz” (the only main-line locomotive
producer in Ukraine and one of the largest producers of railway and mining
machines and equipment) could have improved the situation.

However, the deals were either eliminated or postponed in October. Hence, in
mid-October it became clear that the government plans regarding
privatization proceeds will not be realized this year.

In September, the government resumed issuance of domestic T-bills and
Eurobonds. During the month it attracted UAH 110 million ($21.8 million) and
about $300 million on domestic and external markets respectively.

However, these amounts are considerably lower than public debt interest and
principal payments. Due to the lack of funds for expected budget deficit
financing, the government plans to revise the 2006 Budget Law in

                                     MONETARY POLICY
In September, the consumer price index (CPI) surged by 2% month-over-month
(mom). In annual terms, consumer inflation accelerated to 9.1% yoy, up from
7.4% yoy a month before. As in the previous months, the acceleration was
primarily driven by growing service tariffs. In particular, starting
September 1st electricity tariffs were raised by 25%.

Since the beginning of the year, the cost of electricity for households grew
by 56.3%. In addition, more expensive energy resources prompted price
increases on housing services, water supply, urban and city transportation.

Rent services, the cost of which increased by 8.7% mom in September,
contributed to an almost 6% mom increase in service prices that month as
well. In annual terms, the growth of service prices accelerated to 33% yoy,
up from about 30% yoy a month ago.

Following six months of deflation, the food price index grew by 1.1% mom
in September, which translated into a 4.2% increase in annual terms.

The upsurge in food prices may be related to a moderate grain harvest this
year (prices on bread, flour, and macaroni), expectations of export
resumption (prices on meat, milk and dairy products), the change in
methodology of recording prices (potatoes), and common to all commodities
higher production costs related to more expansive energy resources,
utilities and transportation services.

Prices for non-foods grew by 0.4% mom in September on account of a 1.2%
mom increase in gasoline prices. However, due to a high base effect, annual
growth of non-food prices continued to decelerate, posting less than 3% yoy
in September.

As we expected, the moratorium on increases of service tariffs adopted by
the Ukrainian parliament in mid-September was abolished at the beginning of
October. In exchange, the government proposed to decrease gas prices for
households using gas-stoves by 18%. The other tariff increases were

With the abolishment of the moratorium, service tariffs are expected to
continue to grow this year, as the process of utility tariff adjustment to
cost-covering levels differs in speed and magnitude throughout Ukraine.
As a result, the government forecast of 10% yoy year-end inflation this year
looks quite realistic.

Monetary factors have also contributed to acceleration of inflation in
September, though they were not dominant. In particular, the monetary base
grew by 3.5% mom compared with a 0.4% mom decline in the previous month.
The annual growth posted 20.3% yoy, up from 19.5% yoy in August.

The acceleration was primarily attributed to NBU net foreign exchange
purchases on the inter-bank market, which amounted to $552 million in
September, and a further decline of funds on government accounts with the

NBU interventions were aimed at maintaining the hryvnia exchange rate at
5.05 UAH/$, an unchanged level since summer 2005. This, in turn, allowed the
NBU to further accumulate its international reserves.

By the end of September, they amounted to $19.14 billion. The growth of the
money supply (M3) remained virtually unchanged at 37.3% yoy thanks to an
increased multiplication effect (the money multiplier reached a record high

A more significant reduction of reserve requirements on deposits in national
currency prompted commercial banks to further increase the hryvnia deposit
rate to 7.4% per annum in September (the deposit rate on
foreign-currency-denominated deposits remained at 5.3% p.a.).

This, coupled with the end of the vacation season and strong growth of
household incomes, were the major drivers for deposit growth acceleration in
September. During the month, deposits in national currency grew by 6.6%
mom, while deposits in foreign currency rose by only 1% mom.

In annual terms, however, the growth of forex-denominated deposits still
considerably outpaced that of hryvnia-denominated deposits (64.4% yoy
versus 31.7% yoy, respectively).

Further growth of deposits (up by 43% yoy in September) as well as active
borrowing from abroad allowed commercial banks to continue to expand their
loan portfolios in September.

During the month, the volume of private sector lending by commercial banks
increased by 66.1% yoy, while the average cost of loans increased by 10
basis points to 13.3% per annum.

The differentiation of reserve requirements by currency, however, has had a
rather limited effect on the structure of banks’ lending portfolios so far.

Though the growth of national currency denominated loans accelerated to
49% yoy in September (up from 48.3% yoy a month before), the growth of
forex-denominated loans accelerated as well to 90.4% yoy.

With the aim to speed up the process of balancing banks’ credit portfolios
by currency, and thus diminish commercial banks’ exposure to foreign
exchange risk, the NBU decided to further manipulate with reserve

At the same time, to offset the likely monetary expansion caused by this
move, the NBU increased the daily minimum reserve requirement from 70%
to 100% [1].

Favored by strong external demand for Ukraine’s metals, chemicals,
machinery, and transport vehicles, merchandise export performance continued
to improve. In August alone, goods exports surged by 30% yoy, bringing the
cumulative growth to about 8% yoy over January-August.

At the same time, the ongoing increase in consumption demand as well as
revived investment demand stimulated the growth of imports. During the
month, merchandise imports growth accelerated to 20.4% yoy, up from
17% yoy a month ago.

The year-to-date growth remained virtually unchanged at 21.2% yoy. As a
result, the merchandise trade deficit continued to widen, reaching $3.6
billion at the end of August, which is equivalent to about 6% of
January-August GDP.

Ukraine’s main export commodities remained metals, chemicals, machinery,
and transport vehicles. The resumed growth of world prices for metals in
April-August was the primary engine of improved performance of Ukraine’s
merchandise exports.

Metal exports, still the weightiest component of total merchandise trade
(42.6%), grew by 9.1% yoy between January and August, a notable acceleration
from 4.6% yoy growth in January-July. Strong external demand has contributed
to further expansion of Ukraine’s chemicals, the cross-border trade of which
increased by 15.5% yoy.

This year’s metal (and to a lesser extent chemical) export performance has
proved once more the high vulnerability of Ukraine’s economy to sudden
shifts in the external environment.

A possible solution is enhancing high-value-added exports like machines,
equipment, and transport vehicles. Currently, these commodities account for
about 13% of total goods export, increasing by 10.5% yoy over the eight
months of the year.

On the import side, energy resources and investment goods remained the two
largest groups in its structure, together accounting for about 60%. In
January-August, imports of fossil fuels grew by 11.9% yoy.

The growth acceleration from 10.9% yoy over January-July may be attributed
to higher world crude oil prices and an increase in Russia’s duty on crude
oil exports in August rather than an increase in import volumes.

Robust growth of machines and equipment and transport vehicle imports (38.1%
yoy over January-August) is another evidence of recovered investment demand
in the country.

The geographical breakdown of Ukraine’s foreign trade remains biased towards
CIS countries, which accounted for 47% of merchandise imports and 31% of
exports; however, the EU-25’s share of imports and exports constituted 33.4%
and 28% respectively and is steadily growing in the course of this year.

                             INTERNATIONAL PROGRAMS
On October 24th, a Japanese Policy and Human Resource Development
(PHRD) Grant Agreement was signed by the Ministry of Economy of Ukraine
and the World Bank.

The US$700,000 grant will assist the government in preparing the second
Development Policy Loan (DPL-2) from the World Bank by implementing
policy commitments and planning future reform steps in three major areas:
improvements in the investment climate, better public administration and
public financial management and greater social inclusion.

                            THE INVESTMENT CLIMATE
On October 25th, Fitch revised its outlook for Ukraine’s long-term rating in
foreign and national currency from BB- stable to BB- positive.

According to agency experts, the impressive economic growth that Ukraine
has demonstrated this year in spite of a notable increase in the price of
imported gas and political instability were the primary reasons for the

Though it was too early to judge about new government policies, the
government commitment to secure WTO entry in early 2007 was seen as a
positive sign by the agency.

During the EU-Ukraine summit that took place in Helsinki on October 27th
2006, the EU’s highest-ranking officials welcomed the progress that Ukraine
has made in political and economic reforms and called for continuation of
the overall reform process.

The reform of the judiciary, the fight against corruption and improving the
business climate, together with the finalization of Ukraine’s WTO accession,
were named as the highest priorities.

During the summit, Ukraine and the EU signed visa facilitation and
readmission agreements. The agreement on visa facilitation eases the
procedures for issuing short-term visas for Ukrainian citizens, sets out
simplified criteria for issuing multiple-entry visas for many groups of
people, such as close relatives, truck drivers, businessmen, students,
journalists and members of official delegations.

The agreement on readmission sets out clear obligations and procedures for
the authorities of both Ukraine and the respective EU Member State as to
when and how to take back people who are illegally residing in their

The signing of these agreements is seen by the Ukrainian authorities as an
important step towards deeper integration with the EU.
[1] The daily requirement for the amount of bank reserves to be kept on the
correspondent account with the NBU, % of the previous month’s obligatory
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Ukraine
Macroeconomic Situation Report for October, 2006 and previous monthly
reports in a PDF format, including several color charts and graphics click
on the following link:
NOTE:  SigmaBleyzer/The Bleyzer Foundation also publishes monthly
Macroeconomic Situation Reports for Bulgaria and Romania. They are
 published at

Director, Government Affairs, Washington Office, SigmaBleyzer,
Washington, D.C.,,
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                AT $3.072 BN – STATE STATISTICS COMMITTEE

Interfax-Ukraine, Kyiv, Ukraine, Wednesday, November 15, 2006

KYIV – The growth of foreign direct investments (FDIs) in the Ukrainian
economy in the nine months of 2006 was estimated at $3.072 billion, a
3.3-fold rise as compared with the same period last year, the State
Statistics Committee said in a report on Wednesday.

Overall FDIs reached $19.912 billion by October 1, a 2.1-fold increase

from October 2005, the report reads.

From January to September 2006, FDIs in the Ukrainian economy stood at
$3.239 billion, the Committee said. Investors from the CIS countries
invested $137.5 million (4.2% of the overall amount) and from the rest of
the world $3.101 billion. Investors sent $347.8 million abroad.

Nonresidents from France made the largest investment – $676 million, from
Cyprus $554.3 million, the Netherlands $433.9 million, the United Kingdom
$350.3 million, Austria $221.4 million, Germany $198.6 million, Russia
$120.5 million, and Poland $105 million.

The largest sums of money were invested in the financial sector ($993.9
million), real estate ($385.3 million) and industry ($703.2 million). The
Economy Ministry forecasts FDI growth in Ukraine in 2006 at $4.5 billion

and in 2007 – $3.3 billion.                       -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                        AMBIGUOUS GOVERNMENT POLICY
ANALYSIS & COMMENTARY: By Kateryna Illyashenko, Ukraine Analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Monday, November 13, 2006

The strong economic expansion in the country has led to impressive growth

in the telecommunication sector. The delayed and controversial issue of
Ukrtelecom’s privatization has had an overall negative impact on the
modernization of fixed line networks and services in the country.

Still, increased demand for modern telecommunication services resulted in
steady substantial growth of mobile and wireless local loop segments of the

Their expansion in turn gave new impulse for development of the national
telecom market and created new opportunities for US exporters of GSM and
CDMA technologies and products.

Operators of Internet services and IP telephony reported healthy growth of
sales and customer base in Jan-Sep 2006

Solid growth in mobile communications and wireless local loop network
development resulted in a substantial increase in demand for computer
software for industrial and office needs.

Additionally, LANs and Internet resources are becoming more and more
popular, thus again stimulating the demand for new software for networking,
data storage and browsing.
       Government attempts to sell Ukrtelecom for past 7 years
The main issue in the telecommunications sector remains the privatization of
Ukrtelecom.Ukrtelecom was created in 1993, when the Ukrainian Ministry of
Communications (MOC) reorganized the national telecommunications structure
by merging several MOC departments and regional telephone operators.

Ukrtelecom owns all transmission facilities and administers national fixed
line infrastructure. The company is monopoly in this market segment and it
is scheduled for privatization in 2007.

However, analysts forecast that the company’s profits are likely to decline
due to increased competition from mobile operators, inefficiency and
ambiguous policy of the government. This may again delay the privatization
of this company.

Georgiy Dzekon, Ukrtelecom’s chairman, said the company installed 700,000
new lines in 2005 while Ukraine’s four mobile operators added about 15mn new

The company’s profits fell to USD 103mn in 2005 from USD 190mn in 2004.
Officials expect about USD 80mn in profits in full-2006.

Ukrtelecom is the biggest provider of fixed-line telephone services in the
country. In Sep 2006 it had 9.8mn subscribers and controlled 78.5% of the
fixed-line telecommunications market.

Other major market participants are Optima Telecom and Farlep. According to
the National Communication Regulation Commission in Sep 2006 they provided
fixed line services for more than 450,000 subscribers and jointly controlled
6% of the market.

The government, which owns 92.86% of Ukrtelecom, wants to increase the
company’s value before the company is privatized. Recently, the company
obtained permission to offer mobile services, including the country’s only
3G license.

We believe that a lack of certainty regarding the government policy towards
Ukrtelecom damages the company. It has been attempting to sell Ukrtelecom
during the past seven years.

However, the sale was several times delayed due to political struggles and
fears that the company will be undervalued during the sale. Government also
needs to pass a special law on Ukrtelecom’s privatization, specifying the
amount it should be sold for and the terms of the tender.

Datagroup company posts strongest net revenue growth in 2005
A number of smaller regional companies are also present on local fixed line
telecommunication market. The strongest net revenue growth in 2005 was
posted by Datagroup Company. The indicator went up by 109.91% y/y to
UAH 88.28mn (USD 17.48mn).

Recently, telecommunication sector regulator allocated 33,000 telephone
numbers in Kyiv and the Kyiv region as well as 5,000 numbers in Mykolaiv to
the Datagroup telecommunication company.

Datagroup consists of several regional telephone companies and service
providers as well as the Datasat satellite data transmission network
operator, the Datacom land-based data transmission operator, the Krokus
Telecom telephone operator (Kyiv), and the Kol fiber-optic communications
operator (Kyiv).
           UMC to pay USD 19.5mn to acquire CDMA license
The mobile division of telecommunications sector keeps growing as well with
a number of key players strengthening their positions on the market.

The second largest mobile operator Ukrainian Mobile Communications (UMC)
plans to pay USD 19.5mn for its CDMA-450 mobile license. UMC must make

the payment within a month; otherwise, the license will be cancelled.

It should be mentioned that the license was given to the company on Jul 13.
However, the company did not have the available resources to pay for it and
continued tried to focus on provision of internet mobile services rather
than voice services.

However, it seems now that the funds are available and the company will
upgrade its outdated network to CDMA-450 standard. This means it will again
return to voice service provision.

The number of subscribers of the UMC mobile communications operator rose by
0.426mn or 2.7% m/m to 16.359mn in September. UMC finished 2005 with net
profits of USD 323.6mn. The company’s net revenues rose by 44.4% y/y and
made up to USD 1.2bn

     Kyivstar leading mobile provider in Ukraine increases customer base
The largest mobile operator in Ukraine is Kyivstar. The company was founded
in 1994. Norway’s telenor controls 56.51% of the company and Altimo, the
telecommunications arm of Russia’s Alfa group, indirectly has 43.49% stake
(through Storm company).

From the very beginning, the company was seen to have ties with relatives of
the former Ukrainian president Leonid Kuchma. So it managed to get in the
past preferential attitude from various government agencies in the past.

The subscriber base of Ukrainian mobile operator Kyivstar totaled 18.256mn
on Nov 1, 2006, the company said. Its subscriber base surged by 123% y/y to
13.925mn users. The company finished 2005 with a net profit of USD

              Astelit’s life:) brand keeps attracting new customers,
                                   increasing its market share
Astelit is the third largest mobile telephone network operator, behind UMC
and Kyivstar.

In Jan 2005 Astelit launched GSM-1800 service under life:) brand. Through
aggressive marketing by Sep 2006 the company attracted over 5mn contract

and prepaid subscribers, not all of them stayed though.

The company, despite introducing a 0 kopek calling plan (between several
favourite numbers), still has small network and unstable subscriber base.
The company is owned by Turkcell (54.2%) and Ukrainian SCM Holdings

In Jul-Sep, the number of subscribers using services of the Astelit mobile
cellular communications operator, which owns the mobile brand life:), grew
by 19% against April-June to 4.65mn.
          Golden Telecom receives license to provide wireless
               communication services in number of regions
Golden Telecom LLC is the smallest GSM operator in Ukraine, although it
started early by launching its GSM-1800 operation back in 1996.

In the early 2000s new owners (controlled by the Russian Alfa Group) changed
the company’s strategy, which since then focuses on provision of integrated
telecommunications services for businesses and other high-usage customers
and telecommunications operators.

The number of Golden Telecom’s GSM post paid and prepaid subscribers
recently dropped to some 50,000 (As of Nov 1, 2006). The outlook for its GSM
business is grim because of strong competition coming from Kyivstar, UMC and

In May 2006, the National Commission for Communications Regulation in
Ukraine issued a 15-year license authorizing Golden Telecom (Ukraine) to
provide wireless communication services using GSM-1800 standard in various
regions of Ukraine in addition to its current GSM networks in Kyiv and

The new license covers approximately 86% of Ukraine territory with an
overall population of 38mn people. The license will enable Golden Telecom
(Ukraine) to provide wireless communication and services to approximately
81% of Ukraine’s population.
            Russia’s VimpelCom acquires Ukranian RadioSystems
Ukrainian RadioSystems (URS) was small mobile operator in Ukraine with some
940,000 GSM subscribers (in Sep 2006). The Ukrainian company operates under
Wellcom, Mobi (prepaid) and Beeline brands. The company’s network of some
700 base stations, which is now expanding, covers over 137 cities and more
than 500 villages in Ukraine.

The company was founded in 1995, and Motorola acquired 49% of the company

in 1996. URS has got a GSM-900 license in 1997, but Motorola backed off the
venture the same year due to the alleged support of the local government
provided to another mobile operator.

Korean Daewoo got Motorola’s stake, didn’t do much to grow the business and
sold it to a Ukrainian financial group in 2003. In November 2005, 100% of
the company’s ownership was acquired by the Russian VimpelCom for USD


The deal was surrounded by a controversy involving two major shareholders of
VimpelCom: the Russian Alfa Group and Telenor, a telephone-company in

Following the acquisition by Vimpelcom, all company’s services have been
re-branded to the common ‘Beeline’, similar to a VimpelCom’s major mobile
asset in Russia. Now VimpelCom plans to aggressively expand on Ukrainian
market using URS as the base.                      -30-

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

Interfax-Ukraine, Kyiv, Ukraine, Tuesday, November 14, 2006

KYIV – Vanco International Limited (the United States) is ready to reduce its

share in the production sharing agreement with the Ukrainian government for
the highly prospective Prykerchenska Tender Area located in the Black Sea,
offshore Ukraine.

“Now the Ukrainian government proposes: 60% before taxation for Vanco and
40% for the state. After taxation we will have 45% and the state will have
55%. Theoretically, we might agree with this,” John Imle, the representative
of Vanco International Limited in Ukraine said in an interview with the Delo

As was reported, on April 19, 2006, Vanco won a competitive tender for the
right to conclude a Production Sharing Agreement with the government of
Ukraine for the highly prospective Prykerchenska tender area.

Covering 12,960 square kilometers, the Prykerchenska PSA Tender Area is
located offshore the Crimea near the city of Kerch. In its northern
shallower part, the Tender Area contains a prominent Tertiary folded belt
with numerous prospective structures similar to the recently announced
Subbotina oil and gas discovery.

The field has tentative D+?2+?3 reserves of 30,000 tonnes of fuel units per
square kilometer. No drilling has been carried out at the section.    -30-

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Interfax-Ukraine, Kyiv, Ukraine, Wednesday, Nov  15, 2006

KYIV – Total, France’s large oil and gas producer, is ready to provide
Ukraine with the technologies needed to develop its deep oil and gas fields,
and will invest funds in similar projects.

A spokesman for Total announced his company’s investment plans during

talks with the heads of national JSC Nadra Ukrainy over cooperation in gas
production in Ukraine, Nadra Ukrainy reported in a press release on

The French side is ready to share its experience and technology with Nadra
Ukrainy, as well as invest funds in the production of hydrocarbons from
deposits at depths greater than 5 km, reads the press release.

Oleksandr Demianiuk, the head of Nadra Ukrainy’s foreign economic relations
department, said the Ukrainian company is interested in cooperating with

The sides agreed to hold enlarged talks soon to sign a framework agreement
on cooperation and coordinate further joint efforts.            -30-

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Ukrainian News Agency, Kyiv, Ukraine, November 15, 2006

KYIV – Ukraine intends to invite Polish investors to participate in completion

of construction and reconstruction of the Dobrotvir thermoelectric power
station (Lviv region).

Prime Minister Viktor Yanukovych announced this at the first meeting of the
Ukrainian-Polish intergovernmental commission for economic cooperation.

‘We want to propose participation of Polish investors in completion of
construction and reconstruction of units at the Dobrotvir thermoelectric
power station,’ Yanukovych said.

According to hi, it is necessary to invite investors in order to prevent
reduction of electricity supplies to Poland.

As Ukrainian News earlier reported, the Dobrotvir thermoelectric power
station is part of the Zahidenerho power generating company.

The National Electricity Regulation Commission intends to obtain UAH 3.8
billion for financing reconstruction and modernization of power generating

Energy Company of Ukraine, a national joint-stock company, considers the
projects involving reconstruction and modernization of the Dobrotvir
thermoelectric power station’s power generating unit No. 9, among others, to
be prospective from the viewpoint of attracting investments.    -30-
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Ukrainian News Agency, Kyiv, Ukraine, Wed, November 15, 2006

KYIV – Ukraine intends to increase exports of electricity to Poland. Premier
Viktor Yanukovych told this at a joint press conference with his Polish
counterpart Jaroslaw Kaczynski in Kyiv.

Particularly, Yanukovych noted that Ukraine wanted to equalize its trading
balance with Poland by increasing exports of Ukrainian commodities and

“We’ve agreed that in the near future our trading balance would be made
equal with Poland owing to an increase in supplies of Ukrainian goods and
electricity,” Yanukovych said.

He noted that in January-August 2006, the commodity turnover between

Ukraine and Poland totaled USD 2.098 million, which is 45% up on the
same period in 2005.

At the same time, exports of Ukrainian commodities to Poland reached USD

846 million, while Ukraine’s negative balance totaled USD 406 million.

Economy Minister Volodymyr Makukha, who took part in the talks with the
Polish delegation, told journalists that Ukraine wanted to boost electricity
exports to Poland, and the Polish side welcomes the plan.

Makukha also noted that Ukraine planed to equalize its trade and economic
balance with Poland by deepening cooperation in production.

As Ukrainian News earlier reported, Ukraine intends to increase exports of
its products to Poland for overcoming negative balance in the bilateral

Ukraine intends to invite Polish investors to complete the Dobrotvir
thermoelectric power station (Lviv region). Electricity exports are performed

by Ukrinterenerho, a state enterprise.

Ukrinterenerho exports electricity from the Burshtyn thermoelectric power
station to Moldova, Slovakia, Poland, Hungary, and Romania. It also started
exporting electricity to Belarus in January.

Ukrinterenerho buys electricity on the wholesale electricity market at a
tariff established by the National Electricity Regulation Commission.

The Cabinet of Ministers transferred 100% of the shares in Ukrinterenerho
into the statutory capital of the Energy Company of Ukraine.   -30-

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Business Digest, Sofia, Bulgaria, Wed, November 15, 2006

KYIV – Ukraine and Lithuania have reached an agreement on Ukrainian
electricity supplies to Lithuania from 2010, said Lithuanian President Valdas

Adamkus after his meeting with Ukrainian President Viktor Yushchenko.
Lithuania will shut down its Ignalina nuclear power plant in 2009 and
Ukraine could export to Lithuania some 16 billion kWh annually.

The two countries have a considerable potential for enhancing trade and
investments, Yushchenko noted. The trade turnover between Ukraine and
Lithuania rose by 40 pct year-on-year in the first three quarters of 2006,
Ukrainian Economy Minister Volodymyr Makukha said. Ukraine has attracted

the biggest amount of Lithuanian foreign investments with some 161 Lithuanian
companies working in the country.

The Ukrainian President said that one of the priorities of the countries’
bilateral cooperation is their participation in the elaboration and
implementation of a new energy strategy for the European Union (EU), in
favour of developing alternative and renewable energy sources,
diversification of routes and increasing energy utilization efficiency.

According to Yushchenko, Ukraine and Lithuania should develop the
transportation routes between the Black Sea region and the Baltic countries.
(Note: The abstract is based on information published by local websites

RBC and Liga Biznesinform on November 14, 2006)
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PAP news agency, Warsaw, Poland, Wednesday, 15 Nov 06

KIEV – The Polish and Ukrainian prime ministers, Jaroslaw Kaczynski and
Viktor Yanukovych have said that Ukraine’s Odessa- Brody pipeline should

be extended to Poland.

During a joint press conference on Wednesday both prime ministers agreed
that plans of extension of the oil pipeline to the Polish city of Plock has
a chance for quick implementation.

“We have financial possibilities to realize it,” said Kaczynski but declined
to give any details. The two premiers, however, noted that there are many
details still to be worked out.

The pipeline is to carry Caspian Sea oil to Poland and Europe, a move that
could help lessen the continent’s reliance on Russian oil. Prime Minister
Kaczynski, on a one-day visit to Kiev, spoke of a “new opening in
Polish-Ukrainian relations” and declared the will to develop bilateral
economic and cultural relations.

Meanwhile, Prime Minister Yanukovych declared that his country wants to
cooperate in Poland in the field of energy safety.

He added that the Polish-Ukrainian government commission for economic
affairs should focus its work on energy security, economic cooperation,
construction, aviation and arms industry projects.

“Relations between Poland and Ukraine were and will remain to have a
strategic dimension,” said Yanukovych.

Jaroslaw Kaczynski said the Polish side is very keen on developing direct
contacts between Poles and Ukrainians and opening borders despite limits
stemming form EU regulations.

Later in the day, Prime Minister Kaczynski met with President Viktor
Yushchenko to discuss bilateral relations and “directions of Ukraine’s
policies.” The meeting was attended by Ukrainian Foreign Minister Borys

The prime minister also held a separate meeting with former Ukrainian prime
minister Yuliya Tymoshenko.                       -30-

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Volodymyr Obolonsky, The Ukrainian Times
Kyiv, Ukraine, Tuesday, November 14, 2006

KYIV – The Kharkiv-based tile plant has concluded a contract to import

four production lines from Italy, which are designed to make facing tiles for

According to Anatoly Chumak, chief engineer of the enterprise, the lines
have a capacity to produce 10 million square meters of tiles per year, and
their commissioning is scheduled for March-August 2007.

Production of tiles is energy-intensive because they are fired in gas
furnaces. However, the new production lines operate by energy-saving
technologies which enable a reduction of 30% in consumption of natural

gas, compared with similar equipment designed in Soviet times.  -30-
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                    More than one million persons in Ukraine have diabetes

Ukrainian Times, Kyiv, Ukraine, Tuesday, November 14, 2006

KYIV – The 42nd annual international conference on the study of diabetes
took place in Copenhagen from September 14 through September 17.

Representatives of world leading scientific-medical institutions who tackle
the problem of fighting against this disease, and enterprises manufacturing
medicines and equipment designed to help diabetics, as well as
endocrinologists participated in it.

Kyiv-based insulin plant Indar, together with the delegation of physicians,
represented Ukraine at this endocrinological forum. The  international
medical representatives had an opportunity to acquaint themselves with
achievements of the Ukrainian pharmaceutical industry.

The exhibition stand of Indar was an object of intense interest owing to the
wide range of insulin’s made by Indar, namely semi-synthetic and genetically
engineered insulins in vials and cartridges as well as a variety of
compounded forms of insulin preparations.

Both the drugs and information support of doctors and patients were well
received by scientists and physicians from Germany, Britain, France, Latin
America, Kazakhstan, Croatia, Latvia, Uzbekistan and Poland, among others,
who visited the Indar’s exposition. They called this approach to the problem
true care for people afflicted with diabetes in Ukraine.

At present, diabetes is one of the leading causes of death in most countries
as the great number of its complications inflicts the damage on various
organs and systems.

Among them are above all cardiovascular, kidney, eye and lower limb
diseases. Up to 80% of people afflicted with diabetes die from cardiac

In Europe alone, diabetes mellitus afflicts about 25 million people and care
for them costs between 28 billion and 53 billion euros per year. The number
of diabetics increases annually by 5-7% and doubles every 15 years.

Also, this concerns Ukraine where more than one million persons who have
diabetes are registered today and their number is expected to quadruple in
20 years.

Natalia Zarudna, ambassador of Ukraine to Denmark, Yuri Gaidaev, deputy
health minister of Ukraine, Nikolai Tronko, director of the Komisarenko
Institute of Endocrinology and Metabolism, Yuri Karachentsev, director of
the Danilevsky Institute of Endocrine Pathology, and Volodymyr Pankiv, chief
endocrinologist of the Ukrainian Health Ministry, as well as experts and
endocrinologists took part in a discussion about prospects for the
manufacture of endocrinological preparations in Ukraine.

For more information, please contact Indar office: 5 Orositelnaya St., Kiev,
02099, Ukraine Tel.: +38 (044) 566-5301, fax: +38 (044) 566-3512, e-mail:,

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                                INFORMATION DISCLOSURE

Interfax-Ukraine, Kyiv, Ukraine, Wednesday, November  15, 2006

KYIV – Ukraine’s State Commission on Securities and Stock Market on

Tuesday signed a protocol on cooperation with the Agency for International
Development USAID (US) on the Capital Market Development project to
improve the system for disclosing information about the stock market.

“This year, for supporting the existing system of information disclosure,
the state budget allocated UAH 1.5 million to the commission, but less then
30-40% of this has been provided so far.

This project will allow the information disclosure system to progress to a
new stage, bringing it to international standards,” head of the commission
Mykhailo Nepran said during a press conference on Tuesday.

As USAID representative Ann D. Wallace reported, the project is to create a
commission database to store data from securities issuers. The data will be
available in real time at the SCSSm’s Web site.

According to her, USAID will provide the hardware and software needed by

the new information system. The equipment will be transferred to the
commission’s ownership, she said.

According to Wallace, the system will be free of charge both for issuers and
for investors, and will be available at all times.

Wallace did not name the exact cost of the project, but commission chairman
Anatoliy Baliuk estimated it to be worth up to $10 million.
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Ukrainian News Agency, Kyiv, Ukraine, Tue, November 14, 2006
KYIV – The United States have handed Ukraine over equipment for providing
biosafety. US Ambassador in Ukraine, William Taylor, announced this to
reporters at a press conference.

The equipment in question was forwarded to the State Central Laboratory of
Veterinary Medicine in Kyiv. As to him, the supplied equipment costs USD

In the Ambassador’s words, US rendered this equipment in reply to

Ukraine’s request to help fighting bird flu.

He also reported, that handing over of the equipment is made in the
framework of the US Department of Defense large-scale project for fighting
bioterrorism and preventing spread of pathogens.

The Ambassador also reported that the US Defense Department plans to

supply similar equipment to the central sanitary and epidemiological station of
the Health Ministry in Kyiv and the Institute of Experimental and Clinical
Veterinary Medicine of the Academy of Agricultural Sciences in Kharkiv.

As Ukrainian News earlier reported, in December 2005 the USA handed

Ukraine over with medical equipment and protective clothing worth USD
43,000 for fighting bird flu.                       -30-
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Tetiana Pleshyvtseva, Ukrainian News Agency
Kyiv, Ukraine, Friday, November 10, 2006
KYIV – Jabil, an American company that is building a large factory for
production of components for telecommunications equipment in a district
of Uzhhorod, is asking the Ukrainian authorities to introduce preferences
for foreign investors from January 1, 2007. The leadership of Jabil
announced this to journalists in Uzhhorod.

According to Philip Kostemal, the director-general of Jabil Circuit Ukraine,
the cancellation of preferences for all investors operating in free economic
zones in April 2005 has significantly complicated operations involving
production of imported components.

He stressed that even the partial reintroduction of the preferences in
November 2005 did not improve the situation because the processing of
documents for components that are imported and products that are 100%
intended for export involves complicated bureaucratic procedures.

The company is asking for simplification of the procedures for issuing
promissory notes for customs payments on components that are being

imported for production purposes from January 1.

Specifically, the company is asking the authorities to make it possible to
issue promissory notes for at least 180 days (instead of the current 90
days) and make the customs agency located at enterprises the sole holder

of such promissory notes (the documents are presently signed by several

Moreover, Jabil is calling for a reduction of the rate of the enterprise
profit tax from 23-25% to 16% and abolition of the 0.2% customs duty that
companies that export all their products are charged during export and
import of goods.

Jabil started operation in Ukraine in 2004. It presently leases premises
from the Yadzaki factory in a district of Uzhhorod. It started building the

first stage of its own factory (with an area of 26,000 square meters) in

Founded in Detroit (United States) in 1996, Jabil owns 45 factories in 20
countries, where it produces electronic components for companies such as
Hewlett Packard, Philips, Alcatel, Nokia, LG, Ericsson, Whirlpool, Cisco,
Airbus, and others.

In Ukraine, Jabil produces components for information recording devices for
Hewlett Packard and assembles mobile telephones for one of the major

As Ukrainian News earlier reported, Prime Minister Viktor Yanukovych
directed the Zakarpattia region’s Governor Oleh Havash in October to submit
proposals to the government on restoring the operations of the special
economic zone and priority development territory in the Zakarpattia region.

On September, the Cabinet of Ministers proposed that the parliament
reintroduce preferences in special economic zones and priority development
territories in 2007.                                       -30-
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Business Digest, Sofia, Bulgaria, Wed, November 15, 2006

KYIV – Ukraine’s major automotive company Ukravto, the local partner of

U.S.-German carmaker DaimlerChrysler AG, has opened an 80 mln Ukrainian
hryvnia ($15.9 mln/12.4 mln euro) Mercedez-Benz autocentre in Ukraine
for sale and service of commercial vehicles, local media reported on
November 15, 2006.

The centre, the largest in eastern Europe, will offer all the models of
Mercedes-Benz commercial vehicles, vans, trucks, buses, Unimog trucks,

as well as original spare parts and after-sale service, the head of the new
complex, Anatoliy Vonogradov, explained.

The centre, named Atlant, has an area of 4,800 sq m and 35 vehicle spaces.
The facility is expected to recoup the investment in five to seven years.

A truck dealership and service centre is to be built in the western city of
Lviv by the end of 2006, and another two in eastern Zaporizhzhya and

Kharkiv in 2007, said Valeriy Anohin, the head of DaimlerChrysler’s official
representative Avto Capital.

(Editor’s note: Ukravto manages the automobile plant UkrZAZ, in eastern
Zaporizhzhya, which assembles kits for DaimlerChrysler’s Mercedes-Benz.)
(Alternative name: Ukrauto, Zaporizhia automobile factory, Zaporozhye,
Zaporizhzhya, Zaporizhia, Auto Capital, Kharkov)
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                       Ukraine’s Changing Place in the Global Economy
                         December 14th to 16th, 2006, Chicago Illinois

Action Ukraine Report (AUR) #790, Article 16
Washington, D.C., Thursday, November 16, 2006

WASHINGTON – The government of Ukraine will hold their first National
Exhibition and Conference in the USA in Chicago, Illinois, at the Sheraton
Chicago Hotel from Thursday, the 14th to Saturday the 16th of December

The exhibition will host over 50 leading Ukrainian companies from the
aerospace, mining, metallurgy, machine building, chemicals, food processing,
light industries and consumer goods as well as the science and information
technology sectors.

It will feature everything from the world’s most efficient satellite
launcher to the world’s smallest nano-metric engine and will provide a
unique opportunity for US companies to capitalize on the rapidly
expanding economy and low cost production centre right on the eastern
edge of Europe.

With foreign direct investment already outstripping last year by 350%,
and with an economy growing at 6 to 8% a year Ukraine has become an
investment and production focus where skilled and highly educated labor
coupled with a close proximity to major European markets, a massive
pool of high technology and a domestic market of over 48 million are
making US companies reconsider previously held perceptions.
A highlight of the event will be a conference “Ukraine’s Changing Place in
the Global Economy”. The conference will discuss current issues in
Ukraine’s economic development and will ask searching questions including:

     [1] Can Ukraine link East and West?
     [2] Do foreign investors underestimate Ukraine?
     [3] What are the opportunities for US companies?
     [4] Perception verses reality of the Ukrainian economy?

The conference plenary session will spotlight the strengths and weaknesses
of modern Ukrainian economy and the prospects for bilateral trade and
successful foreign investment.

Top economists from Ukraine and world renowned institutions will present
their visions and forecast of the country’s economic development.

The interests of particular industries will be discussed at break out
sessions devoted to Ukraine’s vast agricultural potential, harnessing unique
information technologies, the strengthening financial sector and of most
interest Ukraine’s massive and as yet untapped resources in scientific and
technical innovation.

It should be noted that Ukraine used to produce over 40% of the technology
of the former Soviet Union including the majority of the space and defense

The goal of the event is to introduce the U.S. business community to the
present-day economic potential of Ukraine in order to establish mutually
beneficial platforms for trade, commerce and investment.

As part of this conference, participants will be presented with a schedule
of the best investment projects in Ukraine today, as well as an investment
climate overview from leading international consulting companies and those
US companies that have already invested successfully including senior
representatives of Cargill and Kraft and senior representatives of the US
and EU funded Science and Technology Centre in Ukraine.

Who should attend?
     [1] Business executives interested in above average profit margins.
     [2] Scientific and research institutes, production and experimental
          development companies, machinery and equipment engineers
          and technology developers.
     [3] Financial and investment companies, banks and financial
     [4] Chambers of Commerce, leading consulting and information

For further information and to register for the Exhibition and Conference
please refer to

For additional information please contact: Elena Ivanova,
Project coordinator,
Media enquiries to: Chicago: Sharon Omizek, Partners Ltd
Telephone: (773) 919 3875 / Fax: (630) 834 5068.
Kyiv: Martin Nunn MCIPR, Whites International Public Relations
Telephone / Fax: (+38044) 494 4200;

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By Stefan Wagstyl, Financial Times
London, United Kingdom, Tue, November 14 2006

Five years ago, Furshet, a Ukrainian supermarket company, was a
start-up with five stores worth $10m. Now the group runs a nationwide
network of 60 outlets for which the shareholders recently turned down
a bid of $500m (E390.5m, £263m).

Such spectacular gains are uncommon even in the fast-expanding markets
of the former communist countries of eastern Europe. But what is
particularly unusual in Furshet’s development is the central role
played by private equity – a form of finance normally associated with
advanced economies.

While many central and east European entrepreneurs are loath to sell
equity, Ihor Balenko, Furshet’s founder and president, decided his
newly established Kiev-based chain needed outside capital and western

He turned to EVU Management, a Kiev-based investment company that
runs a private equity fund called Euroventures Ukraine, backed largely
by the European Bank for Reconstruction and Development.

The fund bought 25 per cent of Furshet for $2.5m – and has not
regretted its investment. It has earned $18.5m in cash and still
retains 10 per cent of Furshet, valued – on the basis of the rejected
bid – at $50m.

“We got involved with the right entrepreneur, at the right time, in
the right sector,” says Valeriy Schekaturov, EVU’s co-managing
partner. “We took a risk and got in early. But we have been rewarded.”

The EBRD, the multilateral bank for the former communist nations,
cites Furshet as an example of successful private equity in the
region. In a report published yesterday, it says private equity is
playing a growing role supplying capital and management skills. The
bank studied 44 funds in which it has itself invested and established
that these investors have raised a total of $4.6bn in capital for the
region, including $1.6bn last year.

In the 1990s, the EBRD was almost the only private equity investor –
for example, supplying 90 per cent of the $30m in the Euroventures
Ukraine Fund. Private investors are now becoming increasingly active
but the EBRD remains a dominant force, putting its capital mostly into
private-managed funds, as it has done from the outset.

Profitability is rising, says the EBRD. In 2005, a vintage year when
some big deals were completed, its private equity portfolio made an
82.6 per cent return, far ahead of the 33.8 per cent recorded by the
European Venture Capital Association (ECVA), whose members invest
mainly in western Europe (see chart).

The EBRD’s three-year average return is still high at 31.4 per cent.
The return since it started investing 14 years ago is considerably
lower, at 10.8 per cent. The bank says that progress in the 1990s was
held up by problems selling investments and by the impact of the 1998
Russia crisis. Now, profits are rising as is the time between
investment and selling out.

Henry Potter, an EBRD banker responsibly for private equity, says he
expects 2006 to be another good year for profits. “It’s a great
environment to sell companies in central and eastern Europe. There’s a
lot of interest from strategic investors.”

Mr Potter says central and east European companies are still cheaper
than west European businesses, when compared by measures such as

the ratio of asset values to profits. But the gap has narrowed as the
perceived risks of investing in the region have dropped, he says.

In its report, an annual economic survey of the region, the EBRD
forecasts the recent strong growth of the former communist states will
continue, with expected average increases in gross domestic product of
6.2 per cent this year and 5.8 per cent in 2007.

If the predictions are right, the region will by the end of this year
have recovered all the economic ground lost, in output terms, since
the fall of communism and see GDP reach 103 per cent of the levels of

But there are sharp differences among sub-regions, with central Europe
already enjoying GDP levels more than one-third higher than in 1989,
while the countries of south-east Europe have just returned to 1989
levels and the nations of the former Soviet Union still have a little
way to go. However, south-east Europe and the former Soviet republics
are closing the gap, growing faster than central Europe.

Foreign investment is forecast at $50.3bn for 2006, little short of
2005’s $53.8bn record. Central Europe continues to take the lion’s
share, with $22.1bn forecast for 2006, but south-east Europe has
increased its take sharply from $13bn in 2005 to a predicted $19.3bn.
Russia and other former Soviet republics (except for the Baltic
states) are attracting considerably less. In this sub-region, the
inflow is forecast to drop from $13.3bn to $8.9bn.

Transition Report 2006 – available from the EBRD via
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Ukrainian News Agency, Kyiv, Ukraine, Wed, November 15, 2006

KYIV – President Viktor Yuschenko considers the Cabinet of Ministers’
decision to restrict grain exports incomprehensible.
Yuschenko announced this at a ceremony commemorating Farmer’s Day.
“In my view, [the decision to restrict grain imports] is incomprehensible,”
Yuschenko said.

According to him, agricultural producers have become again the victims

of steps that are connected not with the agricultural market but with failed
motivation. “And agricultural producers remain the victims,” he said.
Yuschenko stressed that agricultural producers needed to be granted
access to sales markets.

“The financial policies of the government should be aimed at creating
motivation and not covering some shortage,” he said.

He also said that the first deputy prime minister and the agricultural
policy minister explained to him on Wednesday that this issue should be
further studied until mid-November and taken off the agenda.

As Ukrainian News earlier reported, the Cabinet of Ministers believes that
the introduction of grain export quotas complies with the market principles
of the World Trade Organization.

Commenting on a statement by the ambassadors of the United States,

Germany, and the Netherlands about the possible negative impact of the
grain quotas on the negotiations on admission of Ukraine into the WTO,
Agricultural Policy Minister Yurii Melnyk said this was a subjective opinion.

According to the ambassadors’ statement, the Ukrainian government’s actions
directed at limiting export of wheat, barley, and corn are groundlessly
preventing normal operation of the market while the restriction of grain
exports is seriously damaging Ukraine’s economy, its investment climate,

and reputation as a reliable trading partner.

On October 11, the Cabinet of Ministers introduced quotas for grain exports
until the end of 2006 and discontinued its licensing.        -30-
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         Real opportunities to export investment, skill & expertise to Ukraine

Fordyce Maxwell, Rural Affairs Editor
The Scotsman, Edinburgh, Scotland, Wed, 15th Nov 2006

DEMAND for food, fuel and fiber crops will see farmers “hailed as heroes”
within the next few years said an arable specialist yesterday.

Keith Dawson, the principal crop consultant with SAC, told the college’s
annual conference: “We can make things happen. The agricultural industry
will be hailed as heroes once again because there is a huge and growing
demand for food, fiber and fuel – and it can be delivered.”

A lean decade since the golden arable years of the mid-1990s had forced
growers to scrutinise costs and production methods, simply to survive, he

But the mission for the 21st century was clear, he said, defining it as:
“Farmers must produce high yields at the lowest cost per tonne of a

product that the market wants in an environmentally responsible manner.”

He was also encouraging about prices that might be paid for these crops.
Referring to grain and oilseed prices in the high £90s and low £100s for the
first time in almost ten years, he told delegates to the conference at
Murrayfield: “We have seen a big rise in prices this year and I believe that
these will be sustained.”

With the familiar, but encouraging, message that challenges are
opportunities in disguise, Dawson used developments in eastern Europe –
where the SAC now has a wide range of advisory contracts – as an example.
He said: “I have been in Ukraine many times over the past two years where
land that had fallen out of production because of lack of capital is now
back in the hands of real farmers from the UK.

We have the opportunity to export investment, skill and expertise. There are
real opportunities for those who have both drive and vision.”

He went on: “There is no conflict between making farming pay and good
environmental performance. We no longer need to crop just to collect

support payments. Arable farming can still be profitable if high yields are

New technology will be crucial, he added, and monitoring of costs and
outputs essential. “Take the best independent advice,” he said, leaving no
doubt as to where that might best be found, “and I do believe that the
future is bright.”

Sandy Ramsay, head of the SAC consultancy team, told the conference that

big was not necessarily best for a livestock business. He said: “We have seen
a trend over the last five years to larger dairy, beef and sheep enterprises.

“But some of those businesses, as they become bigger, have seen little
change in profitability… and will find that the net worth of their
business is no higher than when the process of getting larger started.”

He emphasised, as many have done before, that recording and monitoring of
financial performance is essential, as is benchmarking against other similar
businesses, constantly trying to improve production and pick up new ideas.
Fordyce Maxwell, Rural Affairs Editor

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
UNIAN, Kyiv, Ukraine, Wednesday, November 15, 2006
KYIV – President Victor Yushchenko has attended a ceremony in Kyiv’s
International Center of Culture and Arts to present state awards to farmers,
who celebrate their professional holiday on November 19, according to the
President’s press-office.

In his speech, the President said agriculture had traditionally been one of
the leading branches of the national economy. Thus the revival of farming in
Ukraine, he said, was our top priority in the area of national security.

Mr. Yushchenko said the government was going to invest UAH 11 bln in the
development of the sector in 2007 and introduce special subsidies. It has so
far improved the investment climate, raised salaries to farmers and reduced
salary debts by 22%.

“It is our foremost obligation to pay people what they earn,” he said,
addressing government officials and heads of farming companies.

The President promised to control the implementation of next year’s
agricultural budget. “I assure you that the agricultural sector will be
efficiently supported,” he said.

Mr. Yushchenko said it was incumbent on the government to financially renew
the sector and promote its competitiveness. He criticized the government for
limiting the exportation of some agricultural products.

“The industry should have a maximum market of demand,” he said.  He also
said he could not understand why the government had decided to export less

“Financial policy of the country should be aimed at creating motivations not
covering some deficit,” he said, adding that First Deputy Premier Mykola

Azarov had recently assured him the problem would be resolved by the
middle of November.

As far as Ukraine’s WTO prospects, the President said the experience of

the neighboring countries proved that integration into this international
organization posed no threat to our agriculture but would stimulate its
development. He called on members of parliament to approve 21 WTO
bills, adding that it was “the issue of national significance.”

“If Ukraine does not use its chance to join the WTO – and there is such a
chance until December 21 – it will lag in this direction many more years,”
he said. Mr. Yushchenko also said it was important to legalize the
agricultural business and institute liberal reforms in the sector.

First Deputy Premier Mykola Azarov, Agriculture Minister Yuriy Melnyk
and Secretariat Chief of Staff Viktor Baloha attended the event.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Associated Press (AP), Tue, Kyiv, Ukraine, November 14, 2006

KIEV — Lithuania’s president Tuesday pledged his country’s continuing
support for Ukraine and its pro-Western policies, as Ukraine’s government
faces a growing internal feud over the speed and direction of those

“Lithuania will further support the path of democracy and reform which
Ukraine is following and the goals which Ukraine has, that is, the European
path, the European-Atlantic path,” President Valdas Adamkus said during a
joint news conference with his Ukrainian counterpart, Viktor Yushchenko

During his three-day visit to Ukraine, Adamkus, who helped mediate during
the 2004 Orange Revolution that helped bring Yushchenko to power, was also
scheduled to meet Premier Viktor Yanukovych and other top lawmakers.

Yushchenko has made membership in the European Union and the North

Atlantic Treaty Organization priorities for Ukraine.

Along with neighboring Poland, Lithuania has been one of ex-Soviet
republic’s loudest cheerleaders, encouraging its efforts to move out
Russia’s shadow. Both Lithuania and Poland are members of the E.U. and


But Yanukovych, who returned to the country’s No. 2 job in August, has
indicated he supports putting Ukraine’s bid to join NATO on hold and making
improving frayed ties with Moscow a priority – moves that have caused
friction with Yushchenko.

Most Ukrainians, particularly in the largely Russian-speaking east and
south, remain deeply skeptical of NATO – due partly to lingering Soviet-era
skepticism as well fears that NATO membership would harm relations with

Yushchenko Tuesday insisted that all political parties have the same
strategic goals for Ukraine.  “No changes will take place in Ukraine’s
foreign political course, including integration into the European Union as
well as integration into the European-Atlantic defense union,” he said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
22.                       PRESIDENT VIKTOR YUSHCHENKO:
   Embarrassing questions on the eve of the Orange Revolution anniversary

The Day Weekly Digest #36, Kyiv, Ukraine, Tuesday, 14 November 2006

Take me across the maidan,
Where I used to sing all the songs I know.
I will sink into silence and pass away.
Take me across the maidan.

One year ago they could still get together. It was “the same” weather and
“the same” people, and even Viktor Yushchenko, the “key to the door of
freedom” (Yurii Lutsenko’s metaphor), was in league with them. And
although they enjoyed less trust, they still stood a chance of improving the

Today, having lost almost everything, they continue to write various
“scenarios” of a certain festive period. Roman Bezsmertny was the first to
publicize his notes.

He said “a scenario of Freedom Day is being completed,” which has
Yushchenko “coming onto the stage and addressing the Maidan.” To tell
the truth, the Presidential Secretariat was very surprised by Bezsmertny’s

As it turns out, they are drafting a scenario of their own. So far only
Yulia Tymoshenko is not drafting anything, although she has already
announced that she will never appear on the same Maidan together with

One month ago Tymoshenko’s fellow party man Mykola Tomenko suggested
that the Ukrainian people should celebrate the Orange Revolution’s second
anniversary without politicians.

“The Orange Revolution is a social event, not a political one. But since the
politicians failed to meet the people’s expectations, the people should mark
this event without the former,” he said. There is a lot of common sense in
these words.

We asked The Day’s experts if it is a good idea to observe the Orange
Revolution’s anniversary now. We also posed two eternal questions:
who is to blame for what happened and what is to be done?

[1] Prof. Yuri SHAPOVAL, Ph.D. (History):
“Of course, in the conditions of the current diarchy, it is improper and, I
would say, a bit shameful to noisily celebrate the Orange Revolution

The Donetsk team hates the Orange Maidan, while those who sang with their
hands on their hearts on Independence Square in November 2004 have now
betrayed that Maidan. They have devalued the Maidan, its slogans, and

“Yet, in spite of this devaluation, some will be marking the anniversary –
those who stood on the Maidan in November 2004 not FOR the personal
victory of the current president of Ukraine but AGAINST the former
leadership, against deceit, rigging, and falsification.

I strongly believe that the Maidan taught our society, especially
intellectuals, a lot of things – first of all, to rely on our own strength.
It taught us not to fear the government and to speak the truth.

This is the most important lesson to be remembered as often as possible,
irrespective of the anniversary of those dramatic and fateful events.

“From the perspective of the fall and early winter of 2004, we are now
living through a counterrevolution. The Orange-camp windbags (the do-gooders
who seemed to be forming an Orange coalition for three months but never
succeeded) are certain to lose to the ‘tough guys’ from Donetsk. Why?

Because the latter know what they want, whereas the Orange ones are unlikely
to understand what they should have done and what they should never do from
now on.

Naturally, President Yushchenko is the one who bears the greatest blame,

for he has forgotten, among other things, the axiom, ‘The retinue plays the

It is Yushchenko to whom the question ‘What is to be done?’ should be
addressed above all. Well, I am prepared to prompt him with the answer:
‘Having come to power, you should have wielded it.'”

[2] Myroslav POPOVYCH, philosopher, corresponding member of the National
Academy of Sciences of Ukraine, and director of the Institute of Philosophy:
“I think celebrations are out of place right now. Of course, all the gains
of the revolution have not been lost – freedom still exists. But, still,
there is nothing to exult over.

“Who is to blame? – naturally, specific people. But I would not like to pass
judgment now. As for ‘What is to be done,’ this is really an important and
interesting question.

We have in fact only one way out: to go to the polls and elect those who are
worthy of being supported. No public rallies or mass protests will ever
produce a good result. One should just do one’s everyday work.

“Undoubtedly, the Orange Revolution was one of the brightest episodes in the
lives of many people. This applies even to me, although I am not a young man
at all and have been around. The same applies to my granddaughter and my
whole family: this was a fairy tale.

“It is also very important to understand that it was not some specific
people or political forces but democracy in the finest sense of the word
from which the Maidan drew its true inspiration.

It was democracy that gave a springtime flavor to that fall event. And it is
unforgettable that absolutely different people stood up for freedom.”

“But, unfortunately, this also caused the ensuing rift. The former allies
stopped understanding each other. But it is not their lack of understanding
that will determine our future but the call to freedom that we all heard at
the time.”

[3] Dmytro OSTROVERKH, World War II veteran, retired lieutenant-
colonel (Kharkiv):
“I think we should celebrate the second anniversary of the Orange
Revolution. Otherwise, people will gradually forget what they fought for.

Ordinary people need this celebration for mental equilibrium: some of them
still hope that the Orange Revolution will continue and have a logical end.

As a matter of fact, the revolution took place but produced no positive
results. The coalition and almost the entire cabinet are devoid of ‘Orange
people.’ Only the president remains, but he has no real impact on the
situation, especially in the economy.

“If there is no celebration, this will adversely affect most of the people
who still believe in the ideals for which they fought. Sooner or later, this
will find its expression in the next elections.

Then this revolution will have different consequences. In my view, the
people long for what they have not yet achieved, so a true revolution is
still ahead.

One should not necessarily organize a gaudy extravaganza – the main thing is
that people should become aware that the current society and circumstances
are the consequences not of the Orange Revolution but of its failure. People
should not become disillusioned.

“Who is to blame for what happened? – the Orange people and the opposition.
The revolutionary leaders failed to turn their power to advantage, put
things in order, and put the revolution’s ideals into practice. Time was
lost and no concrete actions were taken.

The opposition also bears the blame, but to a lesser extent: they took
advantage of the Orange government’s mistakes, and they did not even have
to make a major effort to form a majority in both parliament and the
cabinet, as well as in the regions.

They had not even dreamed of receiving such a gift. “In Kyivan Rus’ times,
princes could not come to a common conclusion even when they were being
attacked by the enemy.

Now, too, the Orange leadership has missed its chance. To implement the
Orange Revolution’s gains, there must be a strong leader who would sometimes
even have to go against the Constitution in order to achieve the goal that
the people set on the Maidan. Yushchenko proved to be too soft a president.

“If our legislation is to be strictly obeyed, there will be no Orange
revolutions or changes. Everything is so tangled and eroded by corruption
that nothing can be achieved in a lawful way.

We must wait for the time when strong-willed and strong-spirited people come
to lead the Orange movement. There are such people in PORA, the BYuT, and
some other political forces.

Our people are now so inactive politically that they will do nothing for
themselves in the provinces until the highest echelons of government launch
tough actions to implement the Orange ideas.”

[4] Prof. Olena STIAZHKINA , Ph.D. (History), Department of the History
of the Slavs, Donetsk National University:
“A holiday is always a good thing. People adopt a reverent attitude to the
past in which they played the main role.

Some people, who are more sentimental, observe ‘the day of the first date,’
while others, who are less sentimental, wait for Father Frost on New Year’s

“For many people the Maidan is the first date with themselves, when they
saw themselves in a new capacity; in a way, it is also expectation of Father
Frost (not to be confused with Oleksandr Moroz (‘frost’ in Ukrainian –

“Is it necessary to celebrate? I think so. Of course, the Maidan is not a
holiday for everyone. Such things do happen. For example, eastern Ukraine
loved International Women’s Day, while western Ukraine preferred Mother’s
Day. But did this make somebody worse? The point is that a celebration
should not be an excuse for a quarrel, for a new rift.”

[5] Volodymyr HAZIN, Associate Professor, Kamianets-Podilsky State

“Of course, in the current conditions it is impossible to organize
celebrations of the Orange Revolution’s anniversary. And is this really

[a.]  “First of all, two years ago the Maidan brought together only part of
Ukrainian society (although, in my opinion, the most progressive and
patriotic one).

And no matter what we think about the then and current ‘white-and-blue’
electorate (supporters of Yanukovych – Ed.) it has the right to have its own
outlooks and vision of those events, which, naturally, it considers anything
but festive.

[b.] Second, the power is now, unfortunately, in the hands of those who are
striving not to celebrate the fact of the Ukrainian nation’s awakening but
to take revenge and erase the memories of the triumph of the spirit as soon
as possible.

[c.] And third, our leaders’ attempts to mark a certain date officially very
often turn into a farce: officialese only kills the best ideas and

“In all probability, the Orange Revolution anniversary is a holiday for
those who thronged the streets of Kyiv and other cities – from Lviv to
Kamianets-Podilsky and Chernihiv – for those who managed to overcome
their inherent fear of the authorities and dared to rise up against lies,
corruption, and contempt for our people.

In those days people took to the streets not just for Yushchenko,
Tymoshenko, Poroshenko, Moroz, and Co.

What brought the people together was a sincere desire finally to see
Ukraine a free, democratic, and affluent state. All the people felt pride in
themselves and the person standing next to them.

“Today, the Maidan electorate is deeply disappointed – of course, not with
the ideals for which they stood, defying the bitter cold and snow.

They are obviously disgruntled with the fact that the actors on the Maidan
stage have not met the expectations and hopes of this electorate. The
enormous vote of confidence and major opportunities for implementing the
proclaimed slogans were forgotten and stupidly lost.

“Maybe there should be a holiday – but only a holiday for those who were the
revolution’s chief motive force. This should be a stern warning to those in
power today. They should understand that Ukrainians are a proud and
freedom-loving nation.

“I think the ‘Orange events’ of 2004 were just the first stage of the
revolutionary changes that are bound to engulf Ukraine. Only then will we
understand the historic significance of the Maidan, and this holiday will
assume the exalted place that it truly deserves, like Bastille Day in the
history of France.

“Current events should be a lesson for everybody. There’s nothing you
can do about it: it is our destiny to learn from our own mistakes.” -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                              KIEV POWER-SHARING DEAL

By Roman Olearchyk in Kiev, Financial Times
London, UK, Tuesday, November 14 2006

Ukraine is heading towards a constitutional crisis following the agreement
by parties loyal to President Viktor Yushchenko to push for a return to
stronger presidential rule.

A resolution adopted at the weekend by Our Ukraine, the president’s party,
calling for the reversal of reforms adopted during the 2004 Orange
Revolution threatens to undermine – perhaps fatally – the governing
coalition of Viktor Yanukovich, prime minister.

Under the original reforms, which took effect this year, powers were shifted
from the presidency to parliament in a bid to limit the authority of Mr
Yushchenko. Our Ukraine and MPs loyal to Yulia Tymoshenko, the main
opposition leader, are expected to lodge an appeal with the constitutional
court within weeks.

As well as undermining Mr Yanukovich’s authority, a repeal of the reforms
would boost Mr Yushchenko, who has struggled recently to prevail with his
pro-western agenda.

After an inconclusive parliamentary election earlier this year followed by
months of fraught coalition negotiations, Mr Yushchenko eventually accepted
the nomination of Mr Yanukovich as premier.

The cohabitation of the two rivals, who opposed each other in the 2004
presidential campaign, has not been an easy one.

Deep rifts between them on foreign and domestic policy resurfaced as Mr
Yanukovich focused on reviving relations with Russia, the main supplier of
energy to the big business interests that make up a significant part of his
power base.

Increasing presidential authority could rejuvenate the pace of western
integration and liberal economic domestic reforms adopted by Mr Yushchenko.
His supporters claim these efforts have been derailed by Mr Yanukovich’s
governing coalition.

Mr Yushchenko yesterday said Ukraine remained on course to join the World
Trade Organisation next year. “If in December we have a positive report from
the working commission, then we may say that in the first quarter of next
year the issue of Ukraine’s membership of the World Trade Organisation may
be considered [by the WTO],” he said.

The president’s supporters have pushed for Ukraine to join the WTO ahead of
Russia, arguing that membership would give Kiev leverage over Moscow in
energy and trade talks.

However, the stand-off over the issue of presidential authority threatens
months of political instability.

In an interview with the FT, Ms Tymoshenko predicted that there was “more
than a 50 per cent” chance that the constitutional court would return powers
to the president. Mr Yanukovich has said that a repeal would be illegal. Mr
Yushchenko has refrained from asking for more powers, pleading instead for
legislation clarifying his authorities.

Transforming Ukraine into a parliamentary-presidential state was intended to
bring stability to the government and prevent a repeat of the authoritarian
rule experienced under Mr Yushchenko’s predecessor, Leonid Kuchma.

Mr Yushchenko’s supporters, however, believe the political reforms were
passed in violation of constitutional procedures and have failed to bring

Under the current rules, Mr Yushchenko can veto laws. He also claims the
right to cancel certain government resolutions. Mr Yanukovich’s government
has disputed this authority.                           -30-

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

The Ukrainian Observer magazine website
The Willard Group, Kyiv, Ukraine, November, 2006

The struggle for the heart and soul of Ukraine is being waged not only on
the ground, but among political pundits and partisans far from Ukraine as

On August 9, for example, at the Center for Strategic and International
Studies (CSIS) in Washington, D.C., three seasoned experts on Ukraine –
Anders Aslund, Taras Kuzio, and Steven Pifer – debated the meaning and
impact of the rapidly unfolding events in Kyiv during the summer of 2006.

The debate was spirited and intense, as were the numerous questions – and
answers — from the overflow audience, many of whom brought expert
credentials of their own to the exchange.

The twists and turns of Ukrainian politics over the past two years, a
phenomenon likely to continue indefinitely, endow the CSIS and similar
exchanges with singular meaning: they could well be described as the opening
salvo of a prolonged give and take over how the Orange Revolution will be
remembered.  Or, to put it a bit differently, we are engaged in an exchange
over the future of the past.

Most pasts, collective as well as individual, assume multiple meanings over
time because unfolding events compel historians and ordinary people alike to
continually revise their assessment – their memory – of what in fact

And in select instances, such as the Soviet Union, quarrels over the future
of the past entail fundamental if not horrendous consequences for their

One need only recall what the Soviet leader Joseph Stalin did in the 1930s
to his former Bolshevik comrades (i.e., Bukharin, Kamenev, Zinoviev) because
of his savage determination to rewrite the ‘history’ of the 1917 Russian

No one is suggesting a parallel between Stalin’s murderous historical
revisionism and the current verbal fisticuffs concerning the larger meaning
of the Orange Revolution.  Nevertheless, two points stand out, one
historical, the other political in nature.

The historical point is often overlooked, but merits scrutiny because,
unless one believes that the Orange Revolution has completely run its
course, it must be acknowledged that this revolution, like all modern
revolutions, is in its infancy.

Consider the following example – the American Revolution.  In 1783, two
years after the defeat of Lord Cornwallis at Yorktown, the American Republic
was all but stillborn, bedeviled on all sides as the thirteen new states
squabbled nastily over currency controls, borders, and trade protectionism.

Four years would pass before the Constitutional Convention ushered in the
outlines of the new nation.  George Washington, Commander of the Colonial
Army during the revolution, bade farewell to his troops in 1783, returning
in grand fashion to Mount Vernon to pursue his original calling as a
plantation farmer and overseer.

Imagine, then, making final or semi-final judgments about the meaning of the
American Revolution in 1783, judgments soon to be bulldozed by events yet
foreseen or imagined.  Ditto the story for the Russian Revolution in, say,
1919, or the French Revolution in 1791.

Histories claiming a definitive interpretation of those revolutions at an
early stage would have been jettisoned within months of their publication.

Even more noteworthy are the political ramifications of the ongoing debate.
Stated simply: how Western policymakers choose to interpret the Orange
Revolution will guide their diplomacy toward Kyiv for years to come.

If, for instance, the consensus on the Orange Revolution in 2008 is that of
a failed or failing state on Yushchenko’s watch, the conclusion may well be
drawn that Ukraine has missed a grand opportunity to be taken seriously by
the international community.  That conclusion would entail enormous policy
consequences in Europe and North America.

These factors – the infancy and unpredictability of Ukraine’s unfolding
revolution – punctuate the drama of the current guessing game.  In effect,
analysts are saying that the stakes are too high to sit back and wait for
the dust to settle.

And they are right: Ukraine’s geopolitical significance, derived in good
measure from its role as an energy conduit between East and West, between
Russia and Europe in other words, precludes detachment.  Policymakers
need information and insight, however imperfect, on which to act.
                           TWO SCHOOLS OF THOUGHT
What, then, does matter to Western observers about Ukraine in 2006?
At the risk of simplification, two schools of thought have coalesced.

One school, here labeled the cautious optimists (with the accent on
cautious) argues that, notwithstanding the return to power of the
much-reviled (in the West) Viktor Yanukovych, Ukraine is a democracy,
no mean achievement when placed alongside Russia’s headlong slide into

The other school, here labeled the pessimists, views much of the past twenty
months as a near disaster that threatens to undo the tentative gains of
                                     FOR THE OPTIMISTS
For the optimists, what matters is not who came out on top in the
parliamentary elections of 2006, but how that victory was achieved and what
it might portend for Ukraine over the next decade.  Here, they insist, the
list is impressive:

[1] The freest and fairest election in Ukrainian history (the 2006
parliamentary balloting);
[2] A genuine give and take between rival factions within the parliament on
the road to the formation of a new cabinet of ministers in August 2006;
[3] A free media that stand in stark contrast to the Kuchma era, a media
capable of keeping the spotlight on the Yanukovych government;
[4] A lively and vociferous opposition headed by the irrepressible Yulia
Tymoshenko, that will not disappear and may even grow if Yanukovych
                                 FOR THE PESSIMISTS
For the pessimists, the spotlight on institutions is delusional at best.

[1] Corruption remains endemic.
[2] Yushchenko shows scant sign of sustained vision or leadership at a
moment of great potential peril, given Ukraine’s energy vulnerability.
[3] The Communists, unalterably opposed to a free market economy and
championing intimate ties with Russia, are back in the government.
[4] And the likelihood of an external carrot in the form of possible EU
membership for Ukraine is receding at mach speed on the horizon.

What can be said about these two interpretative frameworks?  Again, at the
risk of over generalizing, the optimists stress process and institutions
whereas the pessimists stress personality and the centrality of individual
action in history.

For the optimists, free elections and an independent media are weightier
than Yushchenko’s abysmal leadership.

To which the pessimists counter that Yanukovych’s final success in 2006 in
forging a government coalition represented the prevalence of personality
over process – in this case, the triumph of pure greed and bribery from top
to bottom within the ranks of the new cabinet of ministers.

Ironically, despite their seeming irreconcilability, optimists and
pessimists join hands on several key concerns.  Perhaps mindful of the
timing of the debate – the fact, as noted above, that the Orange Revolution
is less than two years old — both sides phrase their conclusions
tentatively and carefully.

On substantive matters, both sides agree that Tymoshenko’s role as
opposition leader could be crucial, the optimists because it may stiffen the
democratic process, the pessimists because her flamboyant character
exemplifies the role of charisma in Ukrainian life.

Both sides, finally, anticipate a muckraking frenzy for the media, the
optimists because newspapers and TV wish to avoid the lockstep mentality of
the Kuchma decade, the pessimists because media owners (oligarchs for the
most part) will play a brutal round of political cat and mouse.
                                TWO SALIENT FRONTS
In the end, however, these agreements are overshadowed on two salient

[1] The first, mentioned earlier, goes to the heart of the political
game in Ukraine – to wit, can extralegal or illegal behavior at the tactical
level subvert positive changes at the strategic level?

The optimists are convinced that Ukraine’s institutional architecture has
morphed sufficiently to yield a genuine checks-and-balances system
between the president, prime minister, and parliament.

Imagine the difference, one optimist intoned, if 2004 had failed to produce
a constitutional change of the first order: Ukraine would have President
Yanukovych rather than President Yushchenko, with all that implies for
foreign policy and Ukraine’s international profile.

Pessimists demur, insisting that the institutional changes are fragile which
leaves the door open for shenanigans and personal vendettas to trump
everything else.  In addition to bribery, party discipline is weak which
produces frequent defections and crossover alliances within the parliament.

The Yushchenko-Tymoshenko rivalry that detonated the Orange Revolution
in 2005 continued to wreck havoc in 2006 and played a decisive role in
Yanukovych’s triumphant return to power this year.

Whereas the first disagreement is primarily conceptual and intellectual in
nature, the second argument is leavened with emotion.
[2] The argument turns on Russia and its presumed impact on Ukraine.  For
some pessimists – a portion of whom are North American Diaspora originally

from Western Ukraine with strong nationalist sentiments – Yanukovych’s
pro-Russia orientation dooms Ukraine to Kremlin manipulation and

The sense of outrage bordering on betrayal is palpable at times, with
certain Diaspora hurling accusations of “sellout” at Yushchenko along with
dark murmurings that the “real Ukrainian revolution” is just offstage,
waiting for its final cue.

Optimists, while not discounting the Kremlin capacity for mischief, play
down the Russian threat.

[1] First of all, they contend, Ukrainian oligarchs, including the richest
oligarch, Rinat Akhmetov of Donetsk, have stressed that their future lies
with western markets and investments, a view certain to resonate with the
new government.

[2] Furthermore, Yanukovych, regardless of where his political sympathies
might lie, will defend the interests of his big business constituency from
Eastern Ukraine against possible Russian encroachment if for no other reason
than immediate self-interest and survival.

[3] Finally, optimists conclude, the Orange Revolution has opened up a
veritable chasm between the two cultures: in Russia, so the line of argument
goes, the price of moving forward is forgetting the past whereas in Ukraine
it is precisely the opposite – forward movement ultimately will be defined
by which past becomes the accepted one for political elites and the general
All of which brings us back by way of summation to the central thread of
this essay: that the debate about the fate of the Orange Revolution is just
beginning because Ukrainian political culture for the first time is on full
display for everyone to see.

That is the real meaning of the 2004 and 2006 elections – for the first time
since 1991 and independence from the Soviet Union — Ukrainians are in the
midst of deciding who they truly are.

Observers of the process may and obviously do disagree about what they see
and what conclusions should be drawn from the review. But no one who knows
anything about Ukraine should dispute that this nation and this people are
very much works in progress.

Maybe they will not emerge standing in ways that we in the West recognize or
understand very well but, if so, that should not shock us unduly.

History has not been kind to Ukraine.  Centuries of near total immersion in
surrounding empires and states have left their mark, with deep internal
fissures over first principles.

Ukraine’s achievement today is its willingness to examine these fissures
openly in the political arena and in the larger context of the Orange
Revolution.  The fact that the examination has begun (2004, 2006) and might
continue is encouraging, but beyond that little can be meaningfully noted at
this juncture.

Perhaps the only thing that can be said with finality, given Ukraine’s
peculiar and longstanding past of cultural cleavages and regional divides,
is the likelihood of greater political zigs and zags.

It is that probability that may have prompted former Ambassador Steven

Pifer to exclaim at the CSIS session in August “the next five months may
contain as many surprises for Ukraine as the past five months.”

Perceptive words indeed.                                   -30-
William Gleason, Ph.D., is a Washington, D.C.-based historian specializing
in Russia, the former Soviet Union and Eastern Europe. He earlier was a
Fulbright Scholar at Kyiv-Mohyla University in Kyiv.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                          IN CONTEMPORARY UKRAINE
                           The necessity to decommunize Ukraine.

By Oleksandr MUZYCHKO, Ph.D. (History), Senior Research Fellow,
Regional Branch of the National Institute of Strategic Studies in Odesa
The Day Weekly Digest #36, Kyiv, Ukraine, Tuesday, November 14, 2006

ODESA – On Nov. 7 representatives of right-wing forces held a rally on
Mykhailivska Ploshcha, demanding a ban on the Communist Party of Ukraine,
the removal of all symbols of the communist regime and monuments to its
leaders from the territory of Ukraine, and the recognition of the Holodomor
as an act of genocide against the Ukrainian nation, with compensation paid
to its victims by the Russian Federation.

“On the strength of the Resolution of the Parliamentary Assembly of the
Council of Europe of Jan. 25, 2006, we demand that the Supreme Court of
Ukraine ban the Communist Party of Ukraine as a direct successor of the

With this goal and acting on behalf of the Ukrainian people, we are bringing
legal action against the CPU to the Supreme Court of Ukraine,” read the
message carried by the rally participants.

Below The Day offers the views of historian Oleksandr MUZYCHKO on the
necessity to decommunize Ukraine.

At first glance there is nothing in common between the dates of Nov. 7 and
Nov. 21. On Nov. 25, 1917 (New Style: Nov. 7) troops supporting the Russian
Social Democratic Workers Party (Bolsheviks) overthrew the Provisional
Government in Petrograd and seized power.

In 1917-1922, the Bolsheviks blazed a bloody trail through nearly the entire
former Russian empire, including Ukraine, to assert their rule. In doing so,
the Bolshevist communists skillfully exploited the basest mob instincts,
relied on criminal elements, and applied the tactic of terror. During the
existence of the USSR the victors’ truth reigned supreme.

The “Great October Socialist Revolution” played the leading role, having
allegedly made many peoples happy, but failing to make the rest of mankind
happy only because of the resistance of evil forces. Therefore, the history
of the Soviet communist state began on Nov. 7.

The main crimes perpetrated by the communist regime against Ukraine are
there for all to see:

(1) Suppression of the Ukrainian national democratic revolution in 1918;
(2) Terror against the Ukrainian peasantry in 1919-1921 (“military
(3) Annihilation of the Ukrainian intelligentsia in the late 1920s and
     throughout the 1930s;
(4) Mass terror against ordinary citizens in the 1930s;
(5) Three Holodomors targeting the Ukrainian peasantry: 1921-1923,
     1932-1933, and 1946-1947;
(6) Assassinations of Ukrainian emigre leaders (Petliura, Konovalets,
     Bandera, Rebet, etc.) which was a manifestation of international
(7) Terror against the population of Eastern Ukraine in 1944-1945;
(8) Terror against the population of Western Ukraine in 1939-1941 and

     1944 through the 1950s;
(9) Liquidation of the Ukrainian Insurgent Army;
(10) Persecution of the Ukrainian intelligentsia in the 1950s-1980s;
(11) Condemning many Ukrainians to death in Afghanistan in the 1970s-1980s;
(12) Persecution of the Ukrainian Church almost throughout the entire
       existence of the USSR;
(13) Instigation of a rift between Ukrainians in the Ukrainian SSR and the
(14) Isolation of Ukrainian studies in the humanities from the best works
       the world had to offer.

This far from complete list of communist crimes in Ukraine does not end in
1991. The communists, together with other related parties, are splitting
Ukrainian society along the fictitious East-West line, and are still seeking
to establish control over Ukrainian historical memory and culture.

Many people associate the true destruction of the communist system with the
events on the Maidan, which began on Nov. 21, 2004. One of the leading
Maidan ideas was “lustration,” which in the broader sense means cleansing
the political system of old functionaries whose mentality was formed in the
Soviet period, and rejuvenating personnel on all levels.

However, after the Maidan the president and his associates embarked on the
road of all-forgiveness. Today it is clear that they moved in the wrong
direction. The old cadres have not understood or learned anything new.

Gaining their revenge, once again they are dragging Ukraine into the Soviet
stables as a “fraternal” country while hating all things truly Ukrainian,
national, and new. Thus, the ultimate end of the Soviet epoch is being
postponed indefinitely.

The paradox is that the greatest manifestation of civic activity and
democracy in Ukraine’s latter-day history ended with the communists
returning to power. The revenge gained by the anti-Ukrainian forces, among
them the heirs of Lenin’s idea, is complicating the task of cleansing this
country of communist relicts.

Even in noncommunist quarters they are still trying to measure the balance
between positive and negative things about communism, while similar
discussions about Nazism are considered seditious.

However, this was a victory that one twin scored over the other, and it
reaffirmed the oppressed status of the peoples within the USSR. Our
citizens, even patriotic-minded ones, have still not recognized communism as
evil incarnate, the consequences of which surpass those of Hitler’s Nazism.

On Nov. 6, 2006, at 7:00 p.m. two hosts on the New Odesa Channel (which
claims to be this city’s number-one intellectual channel) did their best to
demonstrate a tolerant attitude to people who still consider Nov. 7 a
holiday, the anniversary of that Great October Socialist Revolution.

In fact, they failed to demonstrate intelligence, good manners, tolerance,
or even basic knowledge of history, civic consciousness, or patriotism. This
is in fact what modern exponents of Soviet ideology lack.

The female host commiserated with those individuals who have been deprived
by the state of the opportunity to celebrate Nov. 7 on the national level.
The other host called for understanding these people the way people who
profess different religions can understand each other.

Both arrived at the conclusion that it is a holiday for seniors, as though
no old people were ever opposed to the Bolshevik heritage; as though there
were no significant anticommunist tradition in the history of Ukraine.

The other Odesa TV channels and other media in southern and eastern Ukraine
most likely interpreted the historical significance of Nov. 7 along the same
lines. Few people will recall that for true Ukrainians Nov. 7 is the day of
remembrance of the victims of communist repressions.

The Odesa TV program reflects the mentality of many Ukrainian citizens whose
concepts of Soviet realities are derived from films and stories recounted by
war veterans (mostly those who served the regime). Worst of all, these
concepts are not rooted in Ukrainian centrism, i.e., reflections on what
communism has brought Ukrainians, but in the general Russian attitude.

The television program also reflects the state of the Odesa media and their
cultivation among viewers of superficial, often Ukrainophobic, perceptions
of important pages from the history of Ukraine.

When we hear commiserations every year about elderly people being deprived
of May 9 and Nov. 7, we cannot help wondering: who are these people? What
roads in life did they take? Were they involved in the mass repressions of
the Stalinist era or in the web of secret collaborators under Brezhnev?

Does one have to love and respect them a priori simply because they are old?
What about the victims of communist repressions and their moods?

What is the cause of the phenomenon of failing “to recognize the communist
evil, and not only in Ukraine but elsewhere in the world? Among other
reasons, the French scholar Alain Besancon names the following factors:

1. Nazism is better known than communism because the Allies opened the
doors of all the closets with skeletons and because many European nations
knew about it from their own experience.

Here it should be noted that many contemporary Ukrainian nationals, mostly
of Russian parentage, were resettled in Ukraine in the second half of the
20th century.

On the one hand, this resulted in their having no historical memory about
events in Ukraine; they did not suffer from communism as much as

Ukrainians did. On the other hand, they benefited from the communist
system to a degree, so they cannot join an anticommunist alliance with

2. By linking democratic countries and the Soviet Union in a military
alliance, the war weakened the West’s immunity to the communist idea, which
was very strong at the time of the Hitler-Stalin pact, and created a certain
intellectual stupor.

3. One of the main achievements of the Soviet regime is that it could spread
and gradually impose its own ideological classification of contemporary
political regimes. The specific features of Nazism were being obliterated.
At the same time, it was assigned its place on the right, casting its
sinister shadow on all right-wing forces.

It was becoming the absolute on the right, whereas the USSR was becoming
the absolute on the left. In Ukrainian conditions we are witnessing
Vitrenko’s manipulations of the term “fascism”; she calls all her enemies fascists,
from Americans to Ukrainian national democratic forces, although in reality
it is the pro-Russia extremist forces that best fit this definition.

4. The insignificance of groups capable of preserving memories about
communism. Nazism lasted 12 years, while European communism existed
between 50 and 70 years in various countries.

Duration has the effect of automatic amnesty. Indeed, over this long period
of time civil society was scattered, and one after another elites were
destroyed, replaced, and re-educated. Everyone, or nearly everyone, from top
to bottom, adjusted, capitulated, and became morally degraded.

Worse, the majority of people who were capable of thinking were deprived of
knowledge about their own history and lost the ability to analyze. This is
especially true of Ukraine, inasmuch as the great majority of those who
could potentially help condemn communism were part of the system.

The Black Book of Communism (Le Livre noir du communisme: Crimes, terreur,
repression) by the French historian Dr. Stephane Courtois (1997), which is
well known in the West but little known in Ukraine, proves that communism
claimed some 100 million lives all over the world and is the most criminal
system that has ever existed.

                         DEATH OF A UKRAINIAN CHILD
Among other things, Ukrainians should pay particular attention to one of the
French author’s statements: “The death of a Ukrainian child from a ‘kulak’
family, purposefully condemned to death by starvation by Stalin’s regime, is
as heinous a crime as the death of a Jewish child in the Warsaw ghetto, who
became a victim of a famine engineered by the Nazi regime.”

The condemnations of communism in the USSR, including Ukraine, heard
both in the West and here, lack a broad treatment of the concept of “crimes
of communism.”

These are mostly associated with the period of Stalinism (e.g., Levko
Lukianenko’s Nuremberg-2, Kyiv, 2001). Of course, communist crimes in
Ukraine look especially self-evident in the 1930s-1950s.

However, the main criminal manifestation of communism was its ideology and
the propaganda machine that generated it. That ideology grew the longest
roots and brought about the most tragic consequence, the Soviet individual,
known as sovok.

The presence of this new type of man in contemporary Ukraine is the main
deterrent to its sociopolitical and cultural progress. The sovok is
incapable of perceiving anything new; he hates those who think differently;
he has a manifest herd instinct and is prone to blindly follow the leader.

The process of breeding this human type lasted as long as the USSR existed,
starting in 1917. The communist regime is guilty of discrediting the idea of
Ukrainian nationalism, and this has created one of the biggest obstacles to
Ukraine’s national development.

Fearing a national awakening in Ukraine, the Soviet regime did its utmost to
push Ukrainian national culture backwards, especially the language. The
Ukrainian language was pushed to the sidelines and reduced to a minor
status, so that it would gradually die within the internationalist embrace.

The communist ideology was the link between Ukraine and Russia; it did not
allow Ukrainian independence as the main prerequisite of progress for the
Ukrainian nation.

Among the social crimes of communism I should mention the herding of
the bulk of the population into all those communal flats and the lack of the
most basic commodities, all the while militarizing the economy.

Communist ideology cherished egalitarianism, mediocrity, and dumb
obedience to the upper caste, the party functionaries.

It is unlikely that most Ukrainian politicians today, even those who are
rigged out in patriotic garb, are capable of perceiving one of the biggest
problems of contemporary Ukraine: our country’s need to be decommunized.

Indeed, almost all these politicians were born in the USSR. The ideas of
Nuremberg-2 and lustration serve rather as propaganda slogans, campaign

Unfortunately, hope for an imminent and genuine decommunization is illusory,
and, as always, is linked to the change of generations. By means of profound
reflections and a thorough study of sources, young people should realize
that there is no statute of limitations on these crimes, and therefore
condemnation of communist ideology and practice will always be topical.

Ukraine must declare in no uncertain words that it is not a legal successor
to the Ukrainian SSR but its antipode.

Painful surgery is required – the realization that your forefathers were
wrong and that you must not blindly follow in their footsteps. This is
difficult, but it is the only way to cleanse oneself.

The Ukrainian intelligentsia is once again at a crossroads: it can either
submit to the latest change of conjuncture and smooth over the rough edges
in its treatment of communism, or despite this conjuncture convey to the
younger generation a clear concept of the communist system as evil. As
always, the choice is essentially an individual matter.              -30-
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