AUR#801 Dec 27 Political Media & Their Spheres Of Influence; Retail Trade Booming; Gas Battle; Belarus Fights; Putin & His Energy Arrogance

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               UKRAINE CONTINUES IN 2007
Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer

              –——-  INDEX OF ARTICLES  ——–
            Clicking on the title of any article takes you directly to the article.               
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               Political affiliations, ownership of Ukrainian media examined
REPORT AND ANALYSIS: By Serhiy Leshchenkio
Ukrayinska Pravda web site, Kiev, in Ukrainian 6 Dec 06
BBC Monitoring Service, United Kingdom, Sat, Dec 23, 2006
               Retail trade one of fastest growing sectors of local economy
ANALYSIS: Kateryna Illyashenko, Ukraine analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, December 25, 2006


By Roman Kupchinsky, Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Thursday, December 21, 2006

Inter TV, Kiev, in Russian 1900 gmt 26 Dec 06
BBC Monitoring Service, United Kingdom, Tue, Dec 26, 2006

5.                                            GAS BATTLE
ANALYSIS & COMMENTARY: By Serhiy Danylov, NOMOS Centre
Zerkalo Nedeli On The Web, Mirror Weekly, No 49 (628)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 23-29 December 2006

By Rebecca Bream, Financial Times, London, UK, Tue, Dec 12 2006

7.                                   A WILDCATTER IN KIEV
By Andrew Hill, Financial Times, Kyiv, Ukraine, Wed, Dec 13 2006


                              RUSSIAN NATURAL-GAS DEALS
By Glenn R. Simpson, The Wall Street Journal
New York, NY, Friday, December 22, 2006; Page A1

      The subpoena in the corruption probe went out before Rep. Curt Weldon
                                 lost his seat. It’s unclear if he reported it.
By Richard B. Schmitt, Times Staff Writer
Los Angeles Times, Los Angeles, CA, Fri, December 22, 2006

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, December 22 2006

Associated Press (AP), Kiev, Ukraine, Friday, December 22, 2006
12.                           PUTIN: WARM WELCOME IN KYIV
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 49 (628)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 23 – 29 December 2006 year

By Andrew E. Kramer in Moscow, The New York Times
New York, New York, Tuesday, December 26, 2006

By Steven Lee Myers in Moscow, The New York Times
New York, New York, Wednesday, December 27, 2006

                                       AND YUSHCHENKO’S”
                Political affiliations, ownership of Ukrainian media examined

REPORT AND ANALYSIS: By Serhiy Leshchenkio
Ukrayinska Pravda web site, Kiev, in Ukrainian 6 Dec 06
BBC Monitoring Service, United Kingdom, Sat, Dec 23, 2006

Most of Ukraine’s mass media, especially the television channels, are
controlled by top local businessmen with strong political affiliations, a
propresidential website has said. It offered a list of major media owners in

The following is the text of a report by Serhiy Leshchenko posted on the
Ukrayinska Pravda web site on 6 December under the headline “Political media
and their spheres of influence: Pinchuk’s, Akhmetov’s, Poroshenko’s and
Yushchenko’s”; subheadings have been inserted editorially:

Just months or even weeks before the Orange Revolution [in Ukraine in 2004],
[then President] Leonid Kuchma confessed that he did not watch 5 Kanal [TV]
as… [newspaper ellipsis] it was not available at his home.

It looks like the then president mocked the journalist who asked him that
question – Kuchma did have a TV set at his office, and the channel not
controllable by Bankova [Street, i.e. the presidential administration],
could be watched there.

He did not watch 5 Kanal because he did not like what he saw and heard. Such
light-mindedness played a mean trick on him, and later became the first
lesson of the Orange Revolution – the media began to influence the political
life of Ukraine.

Honesty, however, should be mutual and society should know those who are
behind the information resource, who determines the newspaper’s strategy and
who really controls the third button of the TV set [as received].
Ukrayinska Pravda has included only political resource in this survey –
those media that directly influence sociopolitical developments: all the
central and biggest regional TV channels, two broadcasting radio companies,
the most influential newspapers and politically affiliated websites.

In this survey one will not find information on sports websites, music FM
stations, news agencies or the newspapers that say “in Ukraine”, which are
made in Moscow from the beginning to the end. We have not included party
press either, which is only oriented for internal use.

After his dismissal from the first [current Prime Minister Viktor]
Yanukovych’s cabinet [in 2004], the former economics minister, Valeriy
Khoroshkovskyy, moved to work to the Russian Evrazholding.

He fell out of touch with his country for a year to emerge as the buyer of
the Inter TV channel in the summer of 2005. The story about the
circumstances behind the matter should require a separate publication.

Apart from Inter, Khoroshkovskyy also controls the channel’s offspring –
Enter music channel, Enter-Film TV Channel and Podrobnosti website.

According to the latest October survey, Inter is considered the most popular
Ukrainian channel. It is the first with the rating of 2.72 per cent and the
TV viewers share of 20.20 per cent. Enter-Film rates 17th and Enter 29th
(here and further the data of the GFK Ukraine survey).

Every day Podrobnosti has 30,000-34,000 visitors, which keeps it among
either the first or the second top five most popular websites (here and
further, the ratings are by Bigmir).

Now Khoroshkovskyy is ready to sell his TV media, but there is nobody

ready to pay 1bn dollars for them. Negotiations about selling Inter to Rinat
Akhmetov fell through because of the unrealistically high value declared.

After a victory at the Kiev court of appeal, Oleksandr Rodnyanskyy has
preserved his control over One Plus One TV. The troubles connected with the
selling of the TV company to Ihor Kolomoyskyy have resulted in preserving
the status quo for One Plus One.

As before, Rodnyanskyy formally controls 70 per cent of the company, with
the rest 30 per cent belonging to a company of Ronald Lauder, who is an heir
to the cosmetic empire Estee Lauder and who was the US Ambassador to
Austria during Reagan’s presidency.

The real state of things, however, is different. Rodnyanskyy’s share is
divided in such a way that the television producer [Rodnyanskyy] owns
directly only 20 per cent of One Plus One.

Boris Fuchsmann controls another 20 per cent. Lauder’s firm, Central
[European] Media Enterprises Ltd, owns 30 per cent and controls them
indirectly through Rodnyanskyy. Thus as a result Lauder has 60 per cent of
One Plus One shares.

According to Kolomoyskyy, Rodnyanskyy, while on a visit to Geneva in
June of 2005, visited the building 29, Rue de la Rotisserie. There they held
successful negotiations, after which Rodnyanskyy allegedly agreed to sell
his and Fuchsmann’s shares to Kolomoyskyy.

To get 40 per cent of One Plus One, Kolomoyskyy was ready to pay 70m
dollars. They did not sign any written commitments for the deal, only…
[ellipsis as published] shook hands.

Based on that hand shaking, the most expensive court in this country, the
Pecherskyy court in Kiev, ruled in that One Plus One shares should go to

Rodnyanskyy, permanently residing in Russia, stepped up security at his
house in Shovkovychna Street in Kiev. Within several months, he won at

the Kiev court of appeal and returned the channel to the previous owners.

One Plus One ranks second among the most popular channels, having the
TV viewers share of 17.67 per cent. Its rating totals 2.38 per cent.

Viktor Pinchuk’s media holding has been unchanged for many years
already, -consisting of Novyy, ICTV and STB TV channels and the M1

music channel. Pinchuk controls the second league of television – Novyy
ranks third in the rating, ICTV fourth and the STB fifth.

Leaving behind the Russian RTR-planet and NTV Mir channels, M1 ranks

12th in the rating. It is co-owned by Pinchuk and YTB [Yuliya Tymoshenko
Bloc] MP Mykola Bahrayev in equal shares.

Pinchuk is also the owner of the largest-circulation Ukrainian newspaper –
Fakty [i Kommentarii] – whose every issue is published in 761,000 copies.

The Dnipropetrovsk-based 11th Channel also belongs to Pinchuk’s sphere

of influence. Although it is a regional channel, it rates 24th in the national

The controlling stake in the channel formally belongs to the Lohoimpeks
firm, whose co-founders are Pinchuk’s managers Liliya Mlynarych and former
MP Yuliya Chebotaryova.

It was rumoured some time ago that Pinchuk sold one of his TV channels to
Rodnyanskyy, who was interested in getting additional TV space to fill it
with films and shows already shown on One Plus One. If such negotiations

did take place, they resulted in nothing.

Ukraine’s richest person owns the Donetsk-based Ukrayina TV channel that
broadcasts to the majority of the regions in the country. Despite its name,
Akhmetov’s channel is considered to be one of the most pro-Russian channels
in Ukraine.

Ukrayina ranks sixth in the rating, its popularity being in direct
proportion to support for the Party of Regions in a given population centre.
Akhmetov does not give up the idea to buy a big TV channel for
differentiating his multi-billion assets.

Akhmetov also owns the Segodnya newspaper, whose format has changed

this year. It switched to colour printing and started an aggressive campaign
to attract more readers.

Segodnya has even bought the direction signs in the Kiev underground,
placing its adverts there. The newspaper’s print run has grown, totalling
170,000 copies, with the Saturday issue amounting to 250,000 copies.

The owner of Segodnya has decided to turn the paper into a powerful tabloid.
Doing this, Akhmetov has confirmed his habit of inviting Western
consultants. Guillermo Schmitt from Argentina has been picked to chair the
Segodnya Publishing Group.

Akhmetov also controls Donetsk’s “fat” newspaper Salon Dona i Basa.

Akhmetov has got no Internet resources. The only Internet site which may be
considered an assets of his is CVD (Committee of Voters of Donbass). This
website is close to Borys Kolesnikov, who is Akhmetov’s best friend.

The office of CVD used to be located in the building of the Party of Regions
regional branch, which is chaired by Kolesnykov. CVD’s everyday audience
totals 8,000-16,000 visitors, ranking it between the second and third dozens
among Internet publications.

According to sources in the Party of Regions, before Kolesnykov’s arrest in
the spring of 2005, one of the Orange leaders proposed to him to trade his
freedom for shares in Ukrayina and NTN TV.

One can understand the first offer, as Ukrayina belongs to Akhmetov, but it
is rather difficult to comprehend the reason for the second proposition, as
NTN is actually owned by Eduard Prutnyk, who belongs to an entirely
different camp in Donetsk.

Prutnyk continues controlling NTN, in spite of the recent announcements
about the formal change of ownership. Several weeks ago the chief editor
left the channel, which was accompanied by statements about attempts to
introduce censorship.

Prutnyk has not commented on the situation. Managers who have experience of
work at Inter have come to NTN. The blue [colours of the Party of Regions]
NTN ranks 10th among the TV companies, surpassing the Orange 5 Kanal in a
competition of principle.

Being the head of the State Television and Radio Broadcasting Committee,
Prutnyk influences the media sphere through financing the state order for
the National TV Company and the National Radio Company.

The budget for next year has only one line – state TV and radio – and it is
up to Prutnyk to determine who, when, and for what will receive money at the
main state TV channels.

Besides that, he supervises the 25 state regional TV and radio companies.
Apart from the air through which voters get information, it is also the
state (meaning no one’s) property: transmitters, premises, equipment and the
most important – the frequencies.

Prutnyk also supervises controls Kultura and the World Service of the
Ukrainian Television and Radio [UTR], whose mission is to inform the world
about Ukraine and be a news source for the diaspora. The very low quality of
these projects hampers their development.

Kultura broadcasts at night on the First National Channel and also through
the satellite. UTR is received through the satellite and some cable
operators. For now this is just another project on which budget funds are
spent ineffectively.

In the Internet Prutnyk’s influence is extended to the ForUm site, which has
34,000-38,000 visitors every day, a considerable part of whom watch
entertainment materials.

Several state publishing houses have also become subordinated to Prutnyk’s
committee. Many of them had been removed from the list of facilities that
are not subject to privatization.

Deputy Prime Minister Dmytro Tabachnyk was known to be very interested

in getting control over publishing at the time. The state publishing sector is
a lever of influence on the local press, which is not only printed there,
but also has its offices on the premises.

The mysterious shareholder of RosUkrEnergo has three TV channels in
Ukraine – K1, K2 and Megasport. Television is not Firtash’s main sphere of
activity, so reports on the channels’ sale appear on the market from time to

The channels have not been included into the social packages of the cable
broadcasters and have not reached the planned efficiency level.

Sources at the National Television and Radio Broadcasting Council maintain
that several months ago it was rumoured that Firtash and Prutnyk could
exchange the shares of NTN and K1/K2/Megasport.

Firtash also reportedly negotiated the sale of his channels to the Turkish
firm Turkcell, which is a co-owner of the Ukrainian life:) mobile
communication company.

As of now Firtash keeps the media assets that he bought from SigmaBleyzer
several years ago but failed to transform them into powerful resources.
According to last October’s rating, K1, for example, ranks 23rd, and K2 even
31st. Megasport has the best rating of the three, ranked 16th.

Andriy Derkach’s media assets have also been unchanged for many years,
including Era TV Company that broadcasts on UT1, Era Radio (the only strong
news radio in Ukraine), Kiyevskiy Telegraf newspaper and Versii website.

Derkach supported the Orange Revolution and that helped preserve Era’s
broadcasting on the National Television Company’s frequencies, which means
the maximum coverage in Ukraine, paying an extremely low price for renting
the premises.

Era Radio continues broadcasting in the morning and evening prime time on
the National Radio. This radio is popular in the countryside, where the
electorate of Derkach’s party (the Socialist Party) is concentrated.

Nobody has disturbed Derkach, although no one has ever cancelled the
national council’s rule saying that one frequency may be occupied by only
one broadcaster.

Today Era TV ranks 19th, and Kiyevskiy Telegraf weekly claims that it is
printed in 37,000 copies. In several big cities, local Telegrafs come out.

Poroshenko bought his main media asset ahead of the 2002 [parliamentary]
election. 5 Kanal reached the peak of its popularity during the Orange
Revolution. It now ranks 11th, with 0.25-per-cent rating and the audience
share of 1.84 per cent.

It is less known that Poroshenko also owns Pravda Ukrayiny newspaper,
which looks like a curiosity from the Soviet times on the background of the
leading editions’ headlines at newspaper kiosks.

The controlling stake in Pravda Ukrayiny belongs to the limited liability
company Yantra, which is, in its turn, controlled by Dniprovski Lasoshchi

The legal address of Dniprovski Lasoshchi is the same as the 5th Element
sports club’s in Rybalskyy Island [in Kiev, where most of Poroshenko’
companies are located].

Another indirect shareholder of Pravda Ukrayiny is the Rybtorhservis firm of
the Poroshenko’s holding, which applied to buy a package of shares in
Leninska Kuznya [shipyard] from the state.

Poroshenko is also connected with Radio 5. It has a strong news service, but
in essence it remains an entertaining radio, so it is not part of this
survey. We also do not analyse the regional TV studios which are close to
Poroshenko – Polissya TV and Vinnytsya – as their influence is purely local.

This individual, largely unnoticeably for the public, was elected leader of
the Green Party in the summer of 2006, although at the latest parliamentary
election he ran on [President Viktor Yushchenko’s] Our Ukraine’s list.

Kosterin is a shareholder of Transbank, which used to be owned by
[Yushchenko’s former aide] Oleksandr Tretyakov. Kosterin also owns Tonis
TV channel where the current president of the National TV Company, Vitaliy
Dokalenko, worked before 2005.

It is believed that Tonis channel number one for Viktor Yushchenko due its
nature programmes. In general, Tonis ranks 14th in Ukraine. Kosterin also
owns Rupor website, whose everyday audience of 11,000-12,000 visitors
guarantees this website a place at the end of the top 20.

Kosterin plans to create a whole media holding which would include Tonis

and have its own Internet portal and daily newspaper, the first issue of which
is due to come out next spring.

The well-known media man, Mykola Knyazhytskyy, and journalist Vitaliy
Portnikov are working to launch the newspaper. One problem is that
[progovernment MP] Volodymyr Sivkovych may get some influence on
the newspaper.

Viktor Yushchenko also has a friendly media holding. First, this is the
National TV Company, and the National Radio Company comes second in

The heads of these mass media were appointed by the president’s decree, now
this right having been transferred to the Supreme Council [parliament]. The
Yanukovych government’s attempts to remove the president of the National TV
Company, who is loyal to Yushchenko, have been blocked by legal arguments.

According to a new law, the candidacies for the posts of heads of national
radio and television should be proposed to the Supreme Council by a public
council, which has still not been formed. The rating of UT1 [state TV] is
stably low – the most expensive and full-staffed TV ranks ninth.

The newspaper Ukrayina Moloda, permanently edited by Yushchenko’s old
brother-in-arms and fellow-villager Mykhaylo Doroshenko, can be also
considered a Yushchenko-influenced paper.

Reportedly, when Doroshenko was trying to get funds for Ukrayina Moloda

from the “dear friends” [a group of businessmen who were close to Yushchenko
in 2004-06] several years ago, he said something like this: “You understand
that the paper is not mine, but Mr Yushchenko’s. It is only officially
registered on my name…” [newspaper ellipsis]

The Syrian businessman and former aide to Yushchenko, Hares Yussef, has
been supporting Ukrayina Moloda recently. This daily’s print run totals
144,000 copies.

One more newspaper that sympathizes with Yushchenko is Bez Tsenzury weekly.
The paper’s official circulation is 40,000 copies. It was founded ahead of
the presidential election [in 2004] to break the information blockade
against the then opposition leader [Yushchenko].

The single shareholder of Bez Tsenzury is Ukrainian Media Resources Ltd,
whose 100 per cent of shares belong to the All-Ukrainian public organization
Our Ukraine.

According to the taxation database, Our Ukraine was founded by three
people – Viktor Yushchenko, Roman Bezsmertnyy, and Anatoliy Medvid (this

one worked at Our Ukraine headquarters before the presidential election and
now he is a deputy emergencies minister).

The current head of the All-Ukrainian public organization Our Ukraine,
Maksym Sydorenko, admitted in a conversation to Ukrayinska Pravda that

the organization he heads had set up Ukrainian Media Resources.

He, however, said that the founders of the organization are different
people, three individuals from each Ukrainian region, and that they do not
tamper with Bez Tsenzury’s activity in any way.

The main opponent of Viktor Yushchenko should be contented with only one
media resource for now, which he inherited together with the keys to the
prime minister’s office. This is the newspaper Uryadovyy Kuryer, the
official newspaper of the Cabinet of Ministers of Ukraine.

Its circulation totals 87,000 copies, but its propaganda effect is close to
zero. The newspaper, however, has its own advantages. Legal acts, for
example, come into effect after being published in this newspaper.

Everybody felt the weight of Uryadovyy Kuryer during the Orange Revolution.
The decision of the Central Electoral Commission on Yanukovych’s victory in
the election was supposed to come into effect after its publication in this

To speed up Yanukovych’s inauguration, the ministers of his government,
[Anatoliy] Tolstoukhov and [Dmytro] Tabachnyk, published in Uryadovyy

Kuryer a resolution proclaiming Yanukovych election winner in spite of the
Supreme Court’s prohibition. Part of the issue’s print run was published,
but its distribution was immediately stopped.

Next year Yanukovych will get more TV exposure: the Cabinet of Ministers
will have its own television centre like the one at the presidential
secretariat. TV channels will be receiving Yanukovych’s prerecorded videos.

The co-owner of Pryvat Group, Ihor Kolomoyskyy, has become a TV owner
only recently. TET has become his channel, ranked 8th in the all-Ukrainian
rating. According to Ukrayinska Pravda sources, the Surkis brothers let
their partner Kolomoyskyy have TET for 110m dollars.

The Surkises got the channel at the height of their might. Their partner at
the time, Konstantin Grigorishin, bought the channel for them for 3m
dollars. It was promised that half of the shares would be registered on him.

However, instead of Grigorishin, 25 per cent of TET shares went to…
[newspaper ellipsis] a friend of the Kuchma family, Anatoliy Zasukha. It is
still not known if his name will be kept on the TET list of shareholders.

Besides TET, Kolomoyskyy controls the Gazeta Po-Kiyevski newspaper. The
controlling stake is owned by a Dnipropetrovsk-based firm Manitoba. Minority
packages belong to the chief editor, Serhiy Tykhyy, to the editor-in chief,
Vadym Balytskyy, and a Pryvat group adviser, Mykhaylo Batoh.

When asked about the daily run, Gazeta Po-Kiyevski said that the information
was a “commercial secret”. The indicated only their weekly run, which totals
356,000 copies. Thus, if mathematically calculated, it amounts to nearly
60,000 copies a day.

The Pryvat also partners with Borys Lozhkin in publishing Komsomolskaya
Pravda v Ukraine. According to the State Tax Administration’s database,
Pryvatbank has 51 per cent of shares in the aforementioned newspaper, with
Borys Lozhkin’s structures controlling 49 per cent of the paper’s shares.

In his interview with Ukrayinska Pravda, Lozhkin nevertheless said that he
and Pryvat control equal shares in Komsomolskaya Pravda – 50 per cent each.

“It is impossible that the Pryvat may have a controlling stake as from the
very beginning, the Moscow editors’ shares totalled 50 per cent, and we have
bought it out from them,” Lozhkin said.

The weekly claims a daily print run of 144,000 copies, with the Friday issue
amounting to more than 300,000.

The former first aide to President Yushchenko decided to get engaged in the
media business, buying a number of second or even third-tier projects. His
opponents, at the same time, claim that Tretyakov develops this business
direction together with Kolomoyskyy.

Tretyakov is allegedly connected to the two new broadcasters that have
replaced Hravis – the capital’s news channel City and the Kino film channel.
It is now impossible to find out what Tretyakov’s role was in Hravis
changing hands.

According to sources close to Tretyakov, last December Tretyakov was given
the right to buy out the shares in the two new channels, with the City and
Kino channels being, in the meantime, developed by Ronald Lauder’s Central
Media Enterprises Ltd, which controls 60 per cent there.

The name of Tretyakov has not been mentioned anywhere, though structures
close to him publish the Izvestiya v Ukraine newspaper, whose run is
estimated at 8,000 copies.

Tretyakov has filled his holding’s Internet component with sites from the
second top 20. Sources claim that Tretyakov has purchased Glavred and its
daughter project, the VIP-UA site (15,000-19,000 visitors every day).

And, it would be interesting to know that the entertainment website VIP-UA
is visited more often (15,000-19,000) than the serious Glavred

Tretyakov has allegedly been given control of the UNIAN news agency, the
site of which has got 15,000-19,000 visitors, being among the top 20
Internet sites.

According to the latest news given by Ukrayinska Pravda sources, the
Glavred-media holding, close to Tretyakov, will become the publisher of the
printed Telekrytyka magazine.

The magazine is a continuation of the Telekrytyka website whose number of
visitors has not changed for the last year, amounting to 1,600-2,000 a day.

The owner of the huge Ukrainian Media Holding, Borys Lozhkin, focuses on
specialized and entertainment media. He controls over 80 projects and,
besides Komsomolskaya Pravda v Ukraine, has two more social and political

The Argumenty i Fakty v Ukraine newspaper was founded by the private
joint-stock company Ukrainian Media Corporation in which 70 per cent of
shares belong to Larysa Lozhkina, obviously, Borys Lozhkin’s wife.

Another 30 per cent belongs to Ihor Chaban, one of Viktor Yanukovych’s
political strategists. Now Chaban is an aide to Eduard Prutnyk, the NTN
channel owner. The Argumenty i Fakty v Ukraine weekly’s print run amounts
to almost 185,000 copies.

Another sociopolitical project of Lozhkin is the Fokus magazine, each issue
of which is printed in 25,000 copies.

Lozhkin has told Ukrayinska Pravda that he controls half the shares in
Fokus. “We are the managing partner in the project,” he said, refusing to
say who owns the other 50 per cent.

According to purely subjective suspicions, another shareholder in Focus
could be a co-owner of the Pryvat group, Henadiy Boholyubov. However, it
may be a pure coincidence that this low-profile billionaire’s name is
regularly found in the magazine.

Lozhkin also has a joint business with Hryhoriy Surkis, both being partners
in publishing the football newspaper Komanda. “We have bought out Mykhaylo
Brodskyy’s take, the other 50 per cent of Komanda being controlled by
Surkis’s group,” he said.

“We have only two projects with the Surkis brothers – Komanda and Vzrosloye
Radio [FM station], which was created on the basis of Kiyevskiye Vedomosti
Radio. We really have a good relationship, but we see each other only a
couple of times a year, talking about the radio.

As regards the Komanda newspaper, it is the editor of the paper who
communicates with Ihor Surkis as with the president of one of the two most
powerful football clubs of the country,” Lozhkin said.

The press has recently reported that Lozhkin intends to attract investments
by positioning the Ukrainian Media Holding at the external loans market.

Hryhoriy Surkis controls two political media projects. Kiyevskiye Vedomosti
used to have three co-owners before: Surkis, Brodskyy and Hryhoryshyn.

Today this project is under the total control of Surkis.

The newspaper’s print run ranges from 130,000 to 160,000 copies, the editors
said. The founder of the project is the Kiyevskiye Vedomosti Publishing
House private joint-stock company.

A network of the following off-shore companies located on the British Virgin
Islands is known to be behind this joint stock company: Dastime Group Ltd
(the biggest package), Hambay Trading Corporation (a shareholder of the
Dynamo Kiev football club in the past), Fistouki Investments Ltd, Banok
Invest&Trade Inc., Berwyn Enterprise Corp., Suniflon Holding Ltd and
Lardonet Inc.

It would be interesting to know that the Surkis brothers have recently
transferred ownership of Kiyevskiye Vedomosti from some off-shore
companies to others. There was also another firm from the British Virgin
Islands, Nowanda Commercial Corp., that used to be on the newspaper’s
shareholders list.

Five years ago Ukrayinska Pravda held a journalist inquiry during which it
became known that the aforementioned firm had ordered publicity support
for Surkis and Medvedchuk in America.

Another media asset of the Surkises is the Den newspaper, though the
family’s role is not evidently traced there.

Den is published by the Ukrainian Press-Group private joint-stock company.
The shares in the firm are divided in the following way: the editor-in-chief
and Yevhen Marchuk’s wife, Larysa Ivshyna, has 30 per cent. Anatoliy
Krasnopolskyy has 70 per cent.

Who is this person? Krasnopolskyy is Surkis’s architect who built what was
Surkis’s lifelong dream: the Dynamo football club base in Koncha-Zaspa and
the Dynamo children’s school in Nyvky [in Kiev].

Den’s declared print run totals 62,500 copies, which, to some experts, seems
overstated several times to some experts.


The speaker controls the official mouthpieces of parliament: Holos Ukrayiny
and Rada TV.

Moroz utilized Rada TV’s advantages, such as the channel’s being included in
the social package of cable TV networks. He started giving regular
interviews to this TV company right after he became the speaker.

Moroz also plans to switch Holos Ukrayiny to colour printing, for which he
will not spare taxpayers’ money as the paper is financed from the budget. In
the civilized world, however, parliamentary newspapers look like bulletins.

Holos Ukrayiny ‘s print run amounts to 160,000 copies, the majority of
subscribers being all the country’s authorities.

One more mass media outlet controlled by Moroz is the Silski Visti
newspaper, which is the second largest newspaper of Ukraine in terms of its
print run (after the Fakty [i Kommentarii] newspaper). New times, new

Earlier Silski Visti was considered to be an outpost of the fight against
[the then president] Leonid Kuchma. Now it runs a full text of the speech
Yanukovych made at the grand meeting devoted to 100 days of the
government on its front page.

The founder and publisher of the aforementioned newspaper is the “work
collective of Silski Visti “. In reality, the newspaper belongs to Socialist
MP Ivan Spodarenko. The paper is published three times a week, with its
run being 433,000 copies every time the newspaper is out.

Being a Socialist with a political strategist’s ambitions, Yaroslav Mendus
is only trying on a public politician’s role.

He is allegedly connected to the site, possibly through the fact
the website’s editor, Yuriy Butusov and Yaroslav Mendus are the authors of
the Orange Sky film idea [a film about the Orange Revolution]. A film in
which Moroz himself played a small role. Censor is visited by 8,000-13,000
users a day, ranked among the 20-30 top websites.

The name of Transport and Communications Minister Mykola Rudkovskyy is
connected with the Internet-Reporter website and its founder, Oles Doniy.

The site’s rating position is somewhere in the middle of the popularity
chart. Like the aforementioned site, the Internet-Reporter also
has from 9,000 to 12,000 visitors.

Before the last parliamentary elections, when political advertising was
already forbidden, Kiev saw lots of light-boxes showing the face of the
present fuel and energy minister, Yuriy Boyko.

To avoid complaints from the Central Electoral Commission, the advertising
showed a Robitnycha Hazeta issue on which Boyko’s face was seen. Such a
trick was widely used during the election time, as it is always possible to
call it advertising for mass media, not for a politician.

After the then prime minister, Yuliya Tymoshenko, had cancelled the
budgetary financing of Robitnycha Hazeta, the Upeco Publishing House, – the
firm of Boyko’ press secretary at that time, Kostyantyn Borodin, became one
of the paper’s shareholders.

Today, according to some information, a new person owns the newspaper,

and the Yupeko’s package has been reduced to a minority one.

Talking to Ukrayinska Pravda, the owner of Robitnycha Hazeta has refused to
name the paper’s shareholders, explaining that the law doesn’t require him
to do so. The editors assess the paper’s run at 30,000 copies a day, but the
figure seems overestimated.

The editor-in-chief of the paper doesn’t really like to be associated with
the United Social Democratic Party of Ukraine leaders, and even sued those
who claimed this.

Thus it can be said that the paper is nominally published by the
Internet-Media newspaper complex public company owned by the
editor-in-chief, Serhiy Kychyhyn.

Reading the paper, it becomes, however, evident that before the Orange
Revolution the views of the paper and of [United Social Democrat leader
Viktor] Medvedchuk coincided, and that now 2000 professes anti-Orange


This very paper, by the way, published an article that became an official
reason for [former Interior Minister Yuriy] Lutsenko’s dismissal.

The secret of 2000’s print run figures is this: the paper survives thanks to
its Weekend entertainment supplement. Without the supplement, 2000 boasts
62,0000 copies, having 33,000 more when published with the Weekend.

There is also a so-called “general run” which totals 170,000 copies. Thus
the lion’s share of this index is made by selling the Weekend supplements
without the 2000 newspaper at all.

According to documents, the Russian businessman and raider, Maks Kurochkin,
has no media in Ukraine. However, just like with the 2000 newspaper, one has
to read indirect signs.

Thus, an analysis of the From-UA website’s content shows that they are not
really indifferent to Kurochkin, having made him the main newsmaker of the
country.  Kurochkin’s influence is carried out practically by purchasing
whole information companies.

Directly asked about it by Ukrayinska Pravda in an interview, Kurochkin
skirted the question. He said that his interests in the media sphere of
Ukraine would soon be known.

According to some information sources, the notorious official of Kuchma’s
administration, Serhiy Vasylyev, is allegedly connected with the From-UA

web site.

Taking into consideration the fact that the temnyks (presidential
administration’s secret written recommendations to journalists, editors,
etc. on how exactly this or that event should be covered) were jointly
produced by Vasylyev and Ihor Shuvalov (Kurochkin’s man), one can assume
that, if this is true, then it can be another proof of his connection to the

The From-UA’s visitor indices range from 32,000 to 40,000 a day. The

rating is made thanks to erotic and scandalous pieces.
The former first deputy head of the Security Service of Ukraine [SBU],
Volodymyr Satsyuk, is on the run. The official reason for his being in
hiding is the legal proceedings instituted against him back in Kuchma’s

He is charged with being illegally given a military rank. They say that it
was [former parliamentary speaker] Volodymyr Lytvyn who made sure that

the matter went to court, being sure that Satsyuk had him shadowed in 2004.

The say, however, that the real reason for Satsyuk being on the run is his
involvement in the Yushchenko poisoning case.

Despite the fact that even sewer pipes were cut at his summer cottage in
search of dioxin, no other accusations have been brought against Satsyuk but
military rank manipulation. Before he fell out of favour, Satsyuk had time
to buy the Ukraina Kriminalnaya website, the statistics for are kept secret.

The former prosecutor-general and now businessman, Henadiy Vasylev, is

one of the Russian Orthodox Church sponsors.

His name is also connected with the Donetsk-base Kievan Rus TV channel,
which several years ago, simultaneously with its boss’s carrier rise, made
its way to the cable TV networks of the capital. Kievan Rus, nevertheless,
isn’t even in the top 30 TV channels.

Being a Party of Regions MP, Ihor Shkirya is a shareholder of the URA-inform
site. He has an 80-per cent share in the Ukrainian Rating Agency private
joint-stock company, the abbreviation for which makes the site’s name –

The URA-inform daily audience amounts to 15,000-19,000 visitors, the site
being rated between the first and second top tens of the most popular
Internet sites.

Shkirya also owns the TV1 channel, which now tries to position itself under
the brand “The First Business Channel” (ranking 30th in the television
rating). Kiev residents should know this TV company – earlier, while
switching TV channels one could see the Zahrava logotype in the corner of
one of the channels.

In reality, the First Business Channel is a kind of mini-television that is
literally huddling on the UT1 TV company’s premises at 26 Khreshchatyk
Street. It may aim at taking the economic channel’s niche.

Kharkiv businessman Oleksandr Davtyan is the founder of the Simon TV
Company that ranks twenty-sixth in the All-Ukrainian ratings of TV channels.

One of the owners of the oldest business newspaper in Ukraine was MP Serhiy
Melnychuk, who was a member of the United Social Democratic Party of
Ukraine faction in parliament. Melnychuk has a controlling stake in the
Blits-Inform holding company.

Biznes is called a “newspaper”, but it is published as a weekly magazine
with a run of 59,700 copies.

Being connected with the Gazprom company, the Russian tycoon is the sole
owner of not only Russia’s Kommersant, but also Kommersant-Ukraina. He
recently bought out a minority package in the Ukrainian newspaper from the
ex-political strategist, Kazbek Bektursunov.

Kommersant said that its daily print run ranges from 10,000 to 14,000
copies, with Fridays being the peak days through the coloured supplement
published by the paper this day of the week.

The German publishing group Handelsblatt is getting stronger at the
Ukrainian market. Besides Delo (13,400 copies), the weekly Invest Gazeta
(28,300 copies) in the renewed format has also joined the Ukrainian media

The Swiss media holding Ringier AG has discovered the Ukrainian press
market by publishing the first classical tabloid called Blik. Its run
amounts to 65,500 copies for now.

Two Lviv people, Serhiy Ivanov-Malyavin and Viktor Odynets, founded the
Halytski Kontrakty newspaper.

Several years, in order to increase the number of the paper’s audience, they
gave up the first word in the paper’s name, began publishing a Russian
version of the newspaper, and switched to the magazine format.

It has been recently rumoured that the Industrial Union of Donbass has
purchased Kontrakty. The noise was strengthened by the fact that Halytski
Kontrakty and Ekonomicheskiye Izvestiya have exchanged small packages of
shares, with Ekonomicheskiye Izvestiya getting a new owner in the person of
the Industrial Union of Donbass.

According to available information, the negotiations on the Kontrakty sale,
nevertheless, have had no result.

Odynets and Ivanov-Malyavin continue owning Halytski Kontrakty. Its print
run is a little bit lower than the that of the main competitor, Business
magazine, still amounting to almost 57,000 copies.

The most influential Ukrainian weekly Zerkalo Nedeli is a joint project of
the Mostovyys family and an American with Kiev roots, Yuriy Orlikov. The
Publishing House Ormos is the abbreviated combination of the surnames –
Orlikov and the Mostovyys.

Orlikov has 60 per cent of shares in the newspaper; Volodymyr Mostovyy
controls 20 per cent, with his daughter Yuliya having another 20 per cent.
It is the Mostovyys family that determines the paper’s political position.
They also own the trademark.

Pavlo Lazarenko used to have a package of shares in the newspaper, but he
purchased it to strengthen his own importance. The paper never got any
investments. In the end he lost his shares.

It was rumoured that Zerkalo Nedeli had been conducting the negotiations
with some German publishers on financial injections for the paper, which
would allow it to be out in colour and in a new format. The paper’s print
run totals 52,000 copies.

Ukraine first heard this American’s name in the news on the national TV at
the beginning of 2000: he was detained at Boryspil airport and was even
declared persona non grata.

SBU head Leonid Derkach’s provocation ruined the image of Ukraine in the
eyes of US Secretary of State Madeleine Albright, who was soon to visit Kiev
at that time.

Already the following day, Sunden was nevertheless allowed to enter Ukraine.
At that time he published only one newspaper – the English-speaking Kyiv
Post weekly.

In the following years Sunden showed himself as the best specialist in
taking the vacant niches in Ukraine: he was the first to make a new
information product.

It may be not of the impeccable quality, but while others only start doing
something like that, Sunden’s team has already gained the necessary
experience to become the leader of this segment of the market.

Sunden owns the Bigmir portal and has bought the rights for the Ukrainian
ICQ, owing to which he always attracts additional visitors and has his website ranking first in his own rating.

Someone calls such leadership artificial, but it has allowed Sunden to
successfully float shares: 20 per cent of the KP Media Company’s shares
were sold in the nonstock trade system for 11m dollars.

The four media resources of the American’s big holding are socially and
politically directed. These are the Korrespondent magazine, the
English-speaking Kyiv Post weekly, the 15 Minutes free newspaper and the site.

Kyiv Post declares its print run as 25,000 copies, Korrespondent at 50,000
and 15 Minutes at 20,000. The latter is distributed in the underground.

The Korrespondent Internet site has 46,000-48,000 visitors. Other sites,
nevertheless, are sceptical about these figures as they are given the
Korrespondent by its own counter, Bigmir.

A year ago it became known that Sunden, together with the Swedish Publishing
House Bonnier, intended to publish an economic newspaper, but the project
was never implemented. Besides, the negotiations on Sunden starting
publishing the Newsweek-Ukraine magazine have been under way for a long
time already.

The National Security and Defence Council secretary, Vitaliy Hayduk, has a
media holding called Evolution Media, which unites Komentari, the
English-speaking Kyiv Weekly and the proUA site.

Besides, the owners of the Industrial Union of Donbass have bought the
Ekonomicheskiye Izvestiya newspaper from [former Deputy Prime Minister]
Serhiy Tyhypko, purchasing also [former state secretary] Oleksandr
Zinchenko’s part in the Ekspert-Ukraina magazine, which had been owned by
the ex-state secretary’s firm Technological Renaissance.

According to Ukrayinska Pravda’s sources, Hayduk’s people are also connected
with the Obkom site. In its turn, the editor of the Internet site, Oleksiy
Myronov, claims that the owners are Myronov and his deputy, Serhiy Sukhobok.

One of the media experts interviewed by Ukrayinska Pravda has also said that
Hayduk had bought 80 per cent of the Profil-Ukraina magazine’s shares. Still
no other confirmation to this has been found.

Komentari declares a print run of 30,000; Kyiv Weekly’s run is three times
smaller. Ekspert-Ukraina declares that it prints 25,000 copies of each
magazine’s issue; Ekonomicheskiye Izvestiya is known to print 30,000 copies
of the newspaper’s issue daily.

Our Ukraine MP Oleksiy Fedun is a cousin of Leonid Fedun, vice-president and
shareholder of the Russian oil giant LUKoil.

Oleksiy Fedun publishes the Delovaya Stolitsa and the Vlast Deneg magazine
weeklies in Ukraine, having also a regional project – the Pervaya Krymskaya

Fedun is positioned as a minority shareholder in the private joint-stock
company Eortel, while the controlling package of shares belongs to the
Intershelp Ltd, which is close to LUKoil.

At the Cartel company office they said that Delovaya Stolitsa publishes
30,960 copies in Kiev and 34,040 copies in the regions, with the Vlast Deneg
print run being 42,000 copies.

The first person in Ukraine to be dubbed a “tycoon” and be also first to
lose this title, has the Stolichnyye Novosti and Stolichka newspapers, the
MIGnews website, and the music O-TV channel.

Rabynovych personally is not indicated as the owner of the newspapers. There
is a daughter enterprise called CN- Stolichnyye Novosti, which was founded
by the media holding Media International Group Ltd.

In its turn, it is equally owned and shared by the Akiko International
Limited and Appia Limited companies’ representations. Both firms deal with

Stolichnyye Novosti declares a run of 70,000 copies, with the Stolichka’s
print run totalling 175,000. Experts, nevertheless, are not sure that the
figures declared by the paper are not overestimated.

The O-TV channel has two equitable owners – Yuliya Tymoshenko Bloc member
in the Kiev council Oleksandr Bryhynets and Andriy Alyoshyn, who is also a
founder of the Ukrainian-Israeli Chamber of Commerce and the Step to Unity
Forum of Christian and Jews.

The O-TV Channel ranks 22nd in TV channels ratings, leaving behind the K1
Channel, for instance, with the latter spending unreasonably big money on
its activity.

Rabynovych also owns the Novoye Russkoye Slovo weekly that tries to speak
about all the post-Soviet countries at once, with no country being given
increased attention. Thus it happens that sometimes there may be no article
on Ukraine in this paper’s issue. In connection with the aforementioned, we
have decided not to include Novoye Russkoye Slovo in our survey.

TV —–
[Kiev mayor] Leonid Chernovetskyy, having secured himself the majority of
Kiev councillors, has simultaneously received control of the media which
were founded by the capital’s representative body. These are Khreshchatyk,
Vechirniy Kyyiv and the Kiev municipal TV (ranking 20th)

Nevertheless, the recent attempts of Chernovetskyy’s team to introduce
censorship in Vechirniy Kyyiv ended in scandal.

Khreshchatyk evaluated the paper’s run at 10,000-15,000 copies per issue,
and Vechirniy Kyyiv mentioned 45,000 copies. The last figure seems to be
absolutely unreal, taking into consideration the miserable state of the once
legendary newspaper.

Besides, Chernovetskyy owns the Zakon i Biznes newspaper. It would be
interesting to know that earlier this paper was in the sphere of Viktor
Medvedchuk’s and Hryhoriy Surkis’ influence, with whom the Kiev mayor did
not get on well – two millionaires even fought in parliament once. The Zakon
i Biznes run amounts to 21,200 copies.

The first deputy head of the presidential secretariat, Ivan Vasyunyk,
controls the Hazeta Po-Ukrayinsky newspaper, though his name is not
indicated among the shareholders.

To identify who is the person behind this project was a very difficult task.
Even the journalists working at the newspaper do not know this, and the
editor-in-chief, Volodymyr Ruban, refused to answer our questions.

The following is what Ukrayinska Pravda was able to find out: Hazeta
Po-Ukrayinsky newspaper is owned by the publishing group New Information,
with Ruslan Nyzhnyk and Lyudmyla Senikina controlling 50 per cent of shares
each in this firm.

Nyzhnyk is Vasyunyk’s right-hand man. During the last parliamentary
elections Nyzhnyk was at the head of Our Ukraine People’s Union programme
and ideological department (Vasyunyk was at the head of this department
during the presidential elections).

Apart from participating in founding the Hazeta Po-Ukrayinsky newspaper,
Semikina is also a shareholder in the Tokmak ferroalloys company that
belongs to the youngest Ukrainian billionaire, Kostyantyn Zhevaho.

Besides, the Hazeta Po-Ukrayinsky newspaper has its accounts in the Finansy
ta Kredyt bank, which is also controlled by Zhevaho.

To complete the picture, it is necessary to add that Vasyunyk and Zhevaho,
being friends, have been lobbying each other’s interests for a long time.

Talking to an Ukrayinska Pravda correspondent, Vasyunyk has neither
confirmed nor denied his connection to Hazeta Po-Ukrayinsky. According to
him, he will tell everything in the interview which he will soon give. In
the newspaper’s editor’s office they said that their daily print run totals
50,000 copies.

Yuliya Tymoshenko Bloc [YTB] MP Andriy Senchenko is connected with the
popular Crimean Black Sea TV (25th place in the all-Ukrainian TV channels
rating). Senchenko’s company Modern Information Technologies controls 99

per cent of the Black Sea TV.

Despite her great talent in creating media scoops, Yuliya Tymoshenko has a
direct influence only on two newspapers.

Vecherniye Vesti has always been Tymoshenko’s mouthpiece, though, unlike
other politicians, her name is not on the founders list. Vecherniye Vesti is
published by the Informtorhservis, a controlling package in which belongs to
Oleksandr Tolchyn.

A further search in the State Tax Administration’s database showed that
Tolchyn is also a founder in the Megapress Ltd, which was jointly founded
together with [Tymoshenko’s deputy] Oleksandr Turchynov’s close
brothers-in-arms, Ruslan Lukyanchuk and Valeriy Babenko.

It has recently become known, however, that Vecherniye Vesti has been sold
to the TMT Publishing House whose controlling stake belongs to the
Donetsk-based Sperta-Armanti firm. The new owners, at the same time, have
promised to keep the old journalist team.

Vecherniye Vesti gave the following information on the paper’s print runs:
daily issues 90,000 copies, issues with a TV guide 120,000 copies.

Another media resource for Tymoshenko is Svoboda, which was founded

by journalist Oleh Lyashko, who got to parliament on the YTB party list.

During the elections Svoboda ceased to be as an independent project – it
openly published materials in favour of Tymoshenko and was distributed free
through the YTB agitation tents. Today Svoboda’s print run totals 9,700
copies. During elections, the YTB boosted the paper’s runs 10-fold.

(LVIV) —–
Lviv mayor Andriy Sadovyy is connected with Channel 24 and the Postup
newspaper; after his victory he gave the latter to the publisher of the
Ekspres newspaper, Ihor Pochynok. Today Channel 24 ranks 28th in the TV
channels rating.

While being an MP in the previous parliament, Yuriy Lutsenko still edited
Hrani Plyus for a long time. That was the reason for his opponents to say
that “a journalist cannot be the interior minister”, though Lutsenko has a
technical education.

Since Lutsenko’s name is not indicated on the Hrani founders’ list, it would
be more correct to say that he is supported by this paper.

The Hrani Plyus was founded by the Third Floor Publishing House whose
majority shareholders were represented by a literary man and script writer,
Volodymyr Zhovnoruk, and a woman named Valentyna Protasova.

One of the people connected with the paper is a former member of the
National Television and Broadcasting Council, Mykola Fartushnyy. The paper
indicates its run modestly, but honestly – 8,000 copies.

The founder of Kiyevskiye Vedomosti at the beginning of the 1990s, Mykhaylo
Brodskyy, again developed a taste for media projects. He gambled on the
Obozrevatel website, which he bought from Oleksandr Zinchenko.

The daily audience of Obozrevatel totals 43,000-46,000 visitors. It competes
with Korrespondent for ranking first in the Bigmir’s rating.

Despite Obozrevatel positioning itself as an influential political site, it
improves its visit indices by placing erotic information of the type Britney
Spears showed sex on the Internet”. This was the reason for Obozrevatel to
be excluded from the Bigmir rating for some time.

Having launched a number of entertainment projects, Brodskyy also has a
political capital life website – the Kiyany site. The site is known for its
anti-mayor Chernovetskyy position. Incidentally, a long time ago, in the
1998 elections, Brodskyy set up an association of voters with the same
name – Kiyany.

As an independent project, Kiyany has not justified itself yet, having an
audience of 3,000-4,000 visits a day.

And finally, about the newspaper on whose electronic page you have been
reading this information for half an hour already. Olena Prytula owns two
social and political websites – Ukrayinska Pravda and Tabloid.

Ukrayinska Pravda is visited by 43,000-43,000 daily, Tabloid’s relevant
figure amounting to 11,000-13,000 visitors.

Ukrayinska Pravda boasts the Ukrainian Internet popularity record –
122,000 visitors a day (registered on 27 March 2006, the next day after
the last parliamentary elections).

P.S. The article gives the figures on print runs which are indicated by the
mass media. The number of visits given according to the Bigmir is

somewhat different from the data indicated by other ratings.              -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
              Retail trade one of fastest growing sectors of local economy

ANALYSIS: Kateryna Illyashenko, Ukraine analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, December 25, 2006

The rapid economic growth recorded by the country in recent years has
boosted personal income and encouraged retail trade. Nominal GDP stood

at USD 81.7mn in 2005. It grew by 21.2% since 2000.

Retail trade is one of Ukraine’s fastest growing sectors of the economy.
Local retail market is the most rapidly growing in Central and Eastern

Retail trade turnover was at USD 31.1bn in 2005. In 2000-2005 its compound
annual growth rate was 25%. Such solid advance is related to steady growth
of real disposable income of the population.

Notably, Ukrainians expenditure on food decreased to 60.2% of income in

2005 compared to 68% in 2000. At the same time the non-food spending
increased from 18.5% to 24.3% over the same period.

According to A.T. Kearney’s Global Retail development index (that measures
the attractiveness of various markets for investors) in 2005 Ukraine was
ranked third after India and Russia.
        Share of supermarkets rises from 3% in 2000 to 12% in 2005 —–
Supermarkets such as Cash & Carry stores and hypermarkets, are steadily
gaining popularity in the country. Yet, their share in total retail trade
remains relatively small. According to GFK-USM, supermarkets only have
12% share in retail trade in 2005, up from 3% in 2000.

The share of convenience stores rose from 18% to 25% over the period, partly
thanks to the development of modern discounters such as ATB-Market.

Specialized stores preserved their share at 5%during 2000-2005.
Non-organized retail is gradually declining, with the highest drop
registered by open markets, from 52% in 2000 to 43% in 1H/05.

Recently trade shopping in trade centres is becoming more popular. Also,
many local people became accustomed to naming department stores trade
centres. Some of the trade centres are reconstructed and renovated
Soviet-style department stores, but beginning in 2000, newly constructed
trade centres started to appear.

In 2005, the number of such retail outlets was still growing. However, the
most rapid development of this trade format was seen in Kyiv.

The Kvadrat chain bought large plots of land close to popular open
non-grocery markets and built trade centres there. In order to improve the
accessibility of these trade centres Kvadrat also constructed new exits from
the underground stations.

Because the new trade centres were built near these open markets the company
hopes that most of the open market retailers will move to these trade
centres, especially when rents there decrease. This will lead to a reduction
of the number of non-grocery markets in Kyiv.
    High level of retail competition in Kiev leads to regional expansion —–
In Kyiv, the level of competition among retailers increased to the point
that the leading companies decided top expand to other regions of the
country. However, still Kyiv has the fastest growth rate of retail trade.

Cities that have over one million inhabitants were the first to see retail
development, as consumer disposable incomes were highest there. By the

end of 2006 the most attractive city for retailers was Dnepropetrovsk.

Although it already has several established trade centres and supermarket
chains and a number of convenience stores, there is still a lot of room for
further growth.
          Hotels, retails and catering are targets for chain operators —–
Hotels, retail and catering outlets (called ‘horeca’ by locals) that were
renovated after the end of the Soviet era became acquisition targets for
large chain operators.

Because there are still relatively few Ukrainians who own cars, the leading
chain operators try to place their stores near to consumers’ homes. The
other alternative is to get the well established grocery stores in the
central areas, which can be easily reached by public transport.
          Fozzy Group largest wholesale, retail operator owns supermarket

                                           chain Silpo —–
The Fozzy Group Corporation is the leading wholesale and retail operator in
Ukraine, owning the largest retail chain Silpo. The trade structure of group
(hypermarkets, supermarkets and discounters) is more efficient for getting
goods to the broader customer base, compared to most of competitors.

The Silpo chain is the largest supermarket chain in the country, with 100
stores in Kiev and regions. Silpo supermarkets are self-service stores, with
the assortment of 6000-12000 articles of food and non-foods, depending on
the sales area of the store. The prices in these shops are average and below

The average monthly turnover of the chain is more than UAH 180mn (USD
36mn).The average sales area of a supermarket is 1200m2. The total sales
area in 2001 was 6000m2, in 2002 – 27,000m2.

The first store was opened in Mar 2001 in Kyiv and by the end of the year
there were 5 stores, in 2002 – 20 stores in Kyiv, Odessa, Dnepropetrovsk and
Zaporozh’e. In 2003 the company had 40 stores (18 – in Kiev, 7 – in
Dnepropetrovsk, 8 – in Odessa, 2 – in Zaporozh’e and one – in Khmelnitskiy,
Rovno, Nikolaev, Chernovtsy and Cherkassy each). The group plans further
expansion in 2007.

The discounter chain Fora has average sales area of 400m2. This chain is
also a part of Fozzy group. The assortment can be described as basic most
demanded goods, with no more than 4 brands in each category. Normally
around 6000 products are present in each store.

Discounter is a compact self-service store for everyday purchases (the sales
area is no more than 1000m2), offering the top demand goods (mostly food
products) at the lowest prices. The closest analogue to discounter in the
former USSR was gastronome. The trade turnover of Fora in 2002 was USD
                Fozzy group purchased grocery chain Dnepryanka —–
The Fozzy group purchased in 2003 purchased the grocery chain Dnepryanka
to further develop its discounter chain For a. It refurnished the sales
outlets to and made them more up-to-date and economically effective. The

market capacity for discounters in Kiev is about 150-200 stores. In other cities
with population of about 1mn the capacity is around 50 stores.
           Furshet second largest retail chain operates 58 supermarkets —–
Furshet is the second largest nation-wide retail chain operating 58
supermarkets under the Furshet brand. The group comprises an operating
holding company and a real estate holding company, both registered in

The group’s sales in 2005 totalled USD 348mn, which was 62 %y/y increase.

In 2007, Furshet plans to boost turnover by 42-50%, from USD 600mn to
USD 850-900mn.

By the end of the year, the company expects to get a USD 90mn loan from the
EBRD. In 2007 the company also plans to carry out IPO and expects to raise
up to USD 400mn from the share placements.

By mid-July this year, Anthousa Limited owned 63.2421% stake in Furshet
stocks. In addition 17.2632% stake in the company was held by an undisclosed
resident individual, according to the State Commission on Securities and
Stock Market.
                       Metro Cash & Carry enters Ukraine in 2002 —–
Metro Cash & Carry Ukraine is a part of a large international retail and
trading holding Metro Group. Metro Cash & Carry invested more than EUR
 220mn in the development of its chain in the country.

Velyka Kyshenya operates 23 supermarkets, ranks fifth among local top
supermarket chains

The Velyka Kyshenya Group was established in 1998, and currently operates 23
Velyka Kyshenya (VK) supermarkets, 15 of which are located in Kyiv and 8 in
other large cities.

The group enjoyed sales of more than USD 230mn in 2005, ranking among the
top five supermarket chains in the country. VK currently consists of two
companies, including: – OJSC Retail Group, which is 88% controlled by Roman
Lunin and 12% by eight institutional investors (mostly European private
equity funds and asset management companies), and – OJSC Aeroholding, which
is 100% controlled by Lunin.
              ATB-Market opens first store in Dnepropetrovsk in 1993 —–
ATB-Market company is a part of ATB corporation; the corporation was set up
in 1993 in Dnepropetrovsk and its first store was opened there at the same

The corporation also owns Berezka meat processor, Kviten confectionary
plant, and other enterprises. ATB-Market supermarket chain now contains more
than 120 stores in the central and eastern regions of Ukraine.
        Trade centres open everywhere in Ukraine, but still mostly in Kyiv —–
Alta Centre, Globus, Mandarin Plaza, Karavan, Kvadrat and Ukraina  biggest
trade centres in Kyiv Over the past couple of years the number of trade
centres the capital demonstrated solid growth. Such centres as Alta centre,
Globus, Mandarin Plaza, Karavan, Kvadrat and Gorodok were opened.

Alta Centre contains a big supermarket, two department stores and several
family restaurants of various cuisines along with the numerous shops for
clothes, sports wear, footwear, cosmetics and perfumery and souvenirs.

The Globus shopping centre is one of the largest retail outlets in the
country. There are 192 shops the on 3 floors, two of which are underground.

The 7-story Mandarin-Plaza shopping centre features stores offering goods of
every sort and kind. It has several fashionable upper market boutiques with
the latest collections of the world-renowned designers.

Karavan Mega Store opened on October 31, 2003. The hypermarket occupies an
area of 8,000m2 and sells over 55,000 products, out of which about 35% are

Ukraina Shopping Mall was converted in 2003 to a new-generation trade
centre, offering the highest standard services and entertainment facilities
alongside traditional retail trade. In Dec 2006 Irish Quinn Group purchased
93% stake in Kyiv-based Ukraina Shopping Mall from American NCH Advisors
for USD 59mn.

The first trade centre under the Kvadrat brand name has been put into
operation in 1999, which marked the beginning of non-residential real estate
market development. Three more shopping centres were put into operation in
2000 under the same brand name Kvadrat.
              Asnova Holding, Cosmo Ltd are main competitors in cosmetics,

                                               toiletries market —–
Competition in the sector for household goods, cosmetics and toiletries is
frail, and the market is segmented. Top 3 retailers account for only 12% of
the market.

Asnova Holding and Cosmo Ltd, which operate DC and Cosmo chains,
account for 7% and 3% of the market respectively.

Both concentrate in perfume, personal care and household chemicals and offer
comparable assortment of goods and attractive loyalty schemes. Cosmo also
expands via franchising, and it already has three outlets working under such

Brocard closely follows the top two, with a market share of just under 2%,
although it specializes in perfumes only. Its outlets also have larger
trading area compared with DC and Kosmo.
                         Ikea plans to enter Ukrainian market in 2007 —–
Following the boom in retail sector foreign companies tried hart to get in
the country. Swedish furniture producer and retailer IKEA tried to enter the
market for past couple of years, but it encountered problems with finding a
suitable piece of land very close to Kyiv. In addition it had to deal with
the bureaucratic obstacles.

The deal was finally signed in November and the company expects to finish
building IKEA trade centre by end of 2007.  The company plans to invest USD
1.7bn in total in outlet construction and setting up production in Ukraine.
     Marks and Spencer leases 1,000m2 to open its first department store —–
British clothing retailer Marks & Spencer (M&S) will open its first
department store in capital city Kyiv no sooner than 2007. The British store
operator has leased 1,000m2 of retail space on the third floor of Kyiv’s
shopping and entertainment centre Comod from mall owner and real estate
developer Ukrainian Trade Guild (UTG).
    Despite boom in retail market, players still face number of problems —–
Even though the country’s retail market is booming, still a number of
problems are faced by the companies. They are related to low living
standards, high investment risk and expensive rents s for foreign investors.

In addition, Ukraine’s business practices and market rules vary from the
normally accepted in Europe, which hampers expansion ambitions. Another
factor is the lack trade space available in major cities.              -30-

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

By Roman Kupchinsky, Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Thursday, December 21, 2006

Officials have recently touted plans to diversify Ukraine’s energy balance
by turning to a familiar and readily available resource — coal. RFE/RL
regional analyst Roman Kupchinsky looks at whether the country’s ailing
coal-mining industry is up to the challenge.

WASHINGTON, December 21, 2006 (RFE/RL) — The specifics of
Ukraine’s coal initiative have been made more clear since Prime Minister
Viktor Yanukovych first floated the idea during his visit to the United

During his speech at the Center for Strategic and International Studies in
Washington on December 4, Yanukovych reasoned that Ukraine’s coal
reserves would be an obvious solution to the country’s efforts to reduce its
dependence on natural gas.
                                                BIG DIG
Upon his return, Yanukovych and Coal Industry Minister Serhiy Tulub
announced that Ukraine plans to build seven new coal mines.

“We will begin developing the technical-economic projections next year,”
Tulub told Interfax, adding that construction would begin in 2008.

Coal Industry Ministry officials estimate that Ukraine would have to invest
20 billion hryvnas ($3.9 billion) into the project at a time when it is
being prodded by the West to close down inefficient mines and retrain

Ukraine’s coal production is already significant. In 2004, Ukraine imported
6.5 million tons despite mining 59.7 million tons of washed coal of its own.
The new mines would increase annual output by 17.7 million tons

Estimates of the country’s coal reserves vary. The World Energy Council
estimates Ukraine’s reserves at 52 billion tons — 8th largest in the world.
The Ukrainian government in 2006 put its estimate at 117.5 billion tons.

Ukraine’s appetite for coal is voracious. It currently accounts for 40
percent of the fuel used in power plants, 10 percent in district heating
plants, and 45 percent in industry.

But the country’s dependence on foreign gas is equally great — and the
immediacy of its need to address the issue became crystal clear early in the
year when Russian gas cut-offs and price negotiations made life miserable
for citizens and the politicians who represent them.
                                   NEWFOUND URGENCY
The suggestion of increasing coal production as a solution to Ukraine’s
overdependence on Central Asian and Russia gas is not a new one. It has been
mentioned numerous times by the various administrations in Kyiv, yet none
went so far as to construct new mines.

A lack of urgency — one that no longer exists — was one factor. When
Turkmen and Russian gas destined for Ukraine was priced artificially low,
former President Leonid Kuchma’s government did not see the need to rush
into expanding coal production.

Rampant corruption within the coal industry was another reason. Long
regarded as one of the most corruption-prone industries in Ukraine, coal
mining is the mainstay of regional coal barons and clans in the Donbas

These powerful figures have been able to exercise their political influence
by calling strikes that can threaten to cripple the national economy. Few in
Kyiv have been willing to challenge the barons — or hand them more power
by building new mines.
                                        BAD ECONOMICS
 In addition, the overall inefficiency of coal mining in Ukraine has scared
away foreign investors, while geological factors have made coal mining in
Ukraine an expensive, inefficient, and dangerous business.

In the Donbas region, for instance, 35 percent of the coal beds are “steep
enough to make extraction of coal possible only by hand,” according to the
International Energy Agency (IEA). This leads to highly dangerous working
conditions and accounts for the high mortality rate among coal miners in

These realities have led the World Bank and other lending institutions to
suggest for years that Ukraine would be better off giving up on trying to
rehabilitate its aging and injury-plagued mines. The construction of seven
new large mines would mark a complete reversal of this thinking.

More miners would be needed, requiring the construction of housing, medical
facilities, sports and recreational clubs, schools, and transportation
networks. A determination would also have to be made on whether the new
mines would be state-owned or private.

In 2001, the government launched a program whereby it would first
denationalize mines, then corporatize them, and finally auction them off to
strategic investors. By 2003 privatizations were delayed and the mines were
reorganized into state enterprises.

An underlying, and potentially more serious long-term issue, however, is
Yanukovych’s readiness to resort to a quick fix to Ukraine’s energy crisis
when the opportunity to implement conservation programs and find efficient
fuel alternatives has presented itself.

Ultimately, the increased use of its coal reserves will reduce Ukraine’s
dependency on Gazprom and Turkmen gas. But that success will come at the
expense of efforts to lower carbon emissions and to correct environmental
damage incurred from past abuses. In addition, the country will be missing
the chance to adopt a forward-thinking solution to the problem of ensuring
future energy supplies.                              -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


Inter TV, Kiev, in Russian 1900 gmt 26 Dec 06
BBC Monitoring Service, United Kingdom, Tue, Dec 26, 2006

KYIV – [Presenter] The ineffective work of [state oil and gas company]
Naftohaz Ukrayiny in 2005 and the first half of 2006 cost the state more
than 2bn hryvnyas [about 400m dollars].

That is the result of a check by the Main Auditing Directorate. The
company’s former management categorically deny all the accusations. Yuliya
Berezovska has looked into the situation.

[Correspondent] The Main Auditing Directorate has reported on fulfilling the
Cabinet of Ministers’ instructions. They checked how Naftohaz was doing when
it was headed by Oleksiy Ivchenko, who is now an [pro-presidential] Our
Ukraine MP.

They took the task seriously. The Security Service of Ukraine, State Tax
Administration and Anti-Monopoly Committee also took part in the check. The
General-Prosecutor’s Office has received materials for nine criminal cases.

[Oleksandr Ivolin, captioned as department director at Main Auditing
Directorate, in Ukrainian] Operations that bore signs of being suspicious,
or were altogether inexpedient and did not bring benefits, came to more than
500m [hryvnyas]. What were direct violations also came to around 500m. The
total is over 2bn hryvnyas [as heard].

[Correspondent] The data on the results of the check are not available to
journalists. For this, there should be special permission from the
government. But in early 2005, [Fuel and Energy Minister] Yuriy Boyko’s
departure from the post of Naftohaz head was also accompanied by serious
checks and there were claims too.

The main conclusion of the audit commission is that virtually nothing has
changed in the activity of Naftohaz over the last three years – the same
violations and dubious operations. In addition, Naftohaz entered the first
half of 2006 with huge debts of almost 10bn hryvnyas.

Oleksiy Ivchenko says that he has not seen the results of the check. But he
is convinced that they were fabricated.

[Ivchenko, in Ukrainian] Nothing other than a political order and the wish
to create a show around Naftohaz and to distract attention from the real
problems that now exist in the fuel and energy sector. That’s why the
prosecution service and the Main Auditing Directorate hold such press

[Correspondent] Ivchenko describes himself without excessive modesty as

the most effective head of Naftohaz. But the conclusions of international
auditors suggest otherwise. The company is on the verge of bankruptcy.
The current management have big plans for next year.

[Oleksandr Kovalko, captioned as deputy head of Naftohaz Ukrayiny, in
Ukrainian] All the company’s spending and its financial policy are being

[Correspondent] Government support gives the company confidence. So it
shouldn’t go into bankruptcy.                              -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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5.                                         GAS BATTLE

ANALYSIS & COMMENTARY: By Serhiy Danylov, NOMOS Centre
Zerkalo Nedeli On The Web, Mirror Weekly, No 49 (628)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 23-29 December 2006

On the energy map of the world, Eurasia is one region where the global hunt
for energy sources carries on unabated. All the regional players can be
categorized either as “hunters”, “predators” or “prey”.

Traditionally, global “hunters” have been the USA, EU, China and India,
whose continued economic operation and development would be impossible
without imported energy resources. The role of “prey” has been played by the
Middle Eastern, Central Asian and Caspian states that possess energy

Among them, Turkmenistan stands out as the world’s third biggest gas field.
The country is currently producing 68 billion cubic meters of gas per year
(2006 projection); it is expected to raise production to 120 billion cubic
meters by 2010 and to double the latter volume by 2020.

At present, Turkmenistan also produces 9 million tons of oil annually, while
the late President had planned to boost this indicator to 48 million tons by
2010 and to 100 million tons by 2020.

Hovering over this Central Asian state is the “predator” who has managed to
take almost total control of Turkmen gas resources over the last three

With the death of the Great Serdar (leader) of all Turkmen on Thursday, 21
December, a lack of clarity increases risks for the Russian Federation. On
Friday, 22 December, Vladimir Putin was in Kyiv, but his thoughts were in

In November, Russian governmental analysts prepared a report for their
President on the reduction in Russian gas reserves starting next year. They
estimate the 2007 shortage of gas to amount to 4.2 billion cubic meters. The
long-term forecast is gloomier still: by 2010 the shortage will approximate
27.7 billion cubic meters, and by 2015, 46.6 billion cubic meters.

At a meeting of the Russian government held on 23 November, Prime Minister
Mikhail Fradkov indicated that the challenge of decreasing power supplies is
“complex and long-term”.

Neither the current production level, nor the development of new deposits in
Russia guarantees that GASPROM will be able to fulfill all of its

Back in April, A.Riazanov, ex-Vice CEO of GASPROM, claimed the company
had no new major gas deposits left. Some Russian experts predict that in the
next three to four years GASPROM will have problems maintaining its gas

Hence the Russian Federation’s hectic activity vis-a-vis Turkmenistan, its
gas and pipes over the last three to four years. Moscow has anticipated the
impending problems and has been looking to Central Asian gas, first and
foremost from Turkmenistan, as a salutary solution.

According to the Russian-Turkmen agreement on natural gas supplies (valid
for 25 years), Turkmenistan is to supply 70-80 billion cubic meters of gas
per year, at least until 2009.

Thus, Russia will be doing its best to preserve its status quo in
Turkmenistan at any cost; otherwise, in case of another long and bitter
winter with 40 degrees of frost, the country could fold and default on its
obligations to supply gas not only to the EU countries, but also to the
domestic market.

Yet Russia is not the only country that will be trying to shape the
situation in post-Niyazov Turkmenistan. Washington, Brussels, Beijing,
Teheran and Ankara are also writing their scenarios and designing models
of catching the “prey”.

In principles, the above states are interested in Turkmenistan’s stability
and civil peace, which is clearly testified by the official statements made
in the world’s leading capitals on Thursday.

However, it is the “concern” for Turkmenistan’s stability that could
eventually destabilize it, not only because the Turkmen society is living
through the so-called “1953 effect” (as for the majority of the country’s
population Niyazov’s death is as crushing a blow as Stalin’s death was to
most Soviet people), but also because different world powers understand
Turkmenistan’s stability differently.

Moscow wants to tighten its embrace of Ashgabat in the hope that it will be
easier to bring pressure to bear on the new rulers than it was on the
wayward Father of all Turkmen.

For example, they could be more responsive to the idea of founding Gas-
OPEC, particularly if their Russian counterparts resort to the popular
“Putin cocktail” of political pressure, corruption and blackmail shaken by

skillful secret services.

Beijing looks forward to the implementation of the general agreement on
developing gas deposits, building a Turkmenistan-China gas pipeline and
supplying 30 billion cubic meters of Turkmen gas to China per year starting
2009. The agreement was signed on 3 April 2006.

China will also strive to secure a contract for developing shelf oil-and-gas
deposits in the Turkmen sector of the Caspian Sea coastline. Teheran will
associate stability in Turkmenistan with Islamic rule and enhanced
cooperation in the gas industry.

Ankara will be concerned not only about retaining Ashgabat within the sphere
of Great Turan but also about strengthening pan-Turkic orientation while
weakening pro-Iranian ones, as well as about channeling gas to Turkey via
the Caspian Sea region and the Southern Caucasus.

Washington and Brussels will hurry to reanimate the Trans-Caspian project,
enabling Turkmenistan to sell gas on European markets without GASPROM’s

The late Turkmen leader and his entourage were always in favour of this
project as they dreamt of gas prices that would be much more attractive than
the GASPROM ones. For those dreams to come true, a direct access to
European market was necessary.

Some would argue that Turkmenistan’s democratic development is also an
option: there is an opposition, albeit fairly heterogeneous, disunited and
operating beyond the land of gas, cotton and sand. Or course, it could risk
returning to the country and being repressed by the totalitarian regime,
which may well outlive its founder.

Democratic scenarios for Turkmenistan are unlikely to materialize since gas,
notwithstanding its volatile nature, will prevail over democracy, not only
from Russia’s perspective (which is not surprising at all) but also from
that of Europe and the USA.

That is understandable, given the high prices of energy resources, and the
fresh memory of last winter’s gas wars in Europe. Everyone seems happy

with the status-quo in Turkmenistan.

So everyone will work toward preventing other parties from taking over the
local gas resources, which could undermine the fragile internal peace that
used to be rooted in Niyazov’s domination over numerous clans.

In the context of the dialogue between Moscow and Brussels, which took on
a somewhat dramatic shade after the Russian-Ukrainian gas conflict last
January, the European Commission made a correct but belated step. Pierre
Morel, EU Special Envoy for Central Asia, and Astrid Wolf, German Charge
d’Affaires in Turkmenistan, met with Saparmurat Niyazov in Ashgabat on 18

Brussels voiced its concern over the EU inability to purchase gas directly
from the former Soviet Republics, since all the gas had been sold to the
Russian Federation.

They also discussed the Trans-Caspian pipeline project, which, once
realized, would allow Turkmenistan more freedom in export policy and an
access to the EU market.

Moscow fears the latter prospect and is closely watching the regional
developments, in particular Germany’s intensified activity in Central Asia.

On 2 November, German Foreign Minister Frank Walter Steinmeyer paid
an official visit to Ashgabat and met with the Turkmen President.

Brussels planned to draft a special memorandum on strategic cooperation in
the energy sector with Turkmenistan, analogous to those with Azerbaijan,
Kazakhstan and Ukraine – countries with considerable energy resources or
transit-potential capable of affecting the security of the EU’s energy
resources. Now the signing of this memorandum is a toss-up.

What about Ukraine? The country used to hold a very strong trade and
economic position in Turkmenistan in the early 1990s but has since
surrendered it.

Since 2003 it has been following the GASPROM lead in the region. Today
its chances could improve but it is unlikely to regain is former standing:
Turkmenistan views Ukraine as an outsider acting in the shadow of

Kyiv should cooperate with Brussels in building a platform for influence in
this small country, critical for the uneasy energy peace in the world, so as
to preclude the turbulence following the Turkmen leader’s demise from
growing into a Eurasian gas tornado with a “domino” effect.           -30-

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

By Rebecca Bream, Financial Times, London, UK, Tue, Dec 12 2006

Regal Petroleum, the Aim-listed oil and gas group, on Tuesday won a
long-running court battle for control of important Ukrainian gasfields,
sending its shares up 15 per cent.

But the victory will result in a large number of Regal shares being awarded
to a little-known Ukrainian businessman who helped it win the case.

The Supreme Court of Ukraine on Tuesday dismissed all claims brought by
Chernihivnaftogasgeologia (CNGG), a Ukrainian government agency and
Regal’s former joint venture partner on its gasfields.

CNGG had successfully challenged the legality of Regal’s gas production
licences in court. But the court ruled the licences were valid, and that its
ruling could not be challenged.

Regal’s shares have suffered from the uncertainty in regard to its main
asset, and in February fell as low as 35p. The stock rose 23p to 182p on

In August, Regal signed a deal with Alberry Limited – a company registered
in the British Virgin Islands and controlled by Dmytro Galfendbeyn, a
Ukrainian – to help it win the case. Regal sold 15 per cent of its Ukraine
subsidiary to Alberry Limited for only £100,000.

Alberry agreed to liaise with Ukrainian authorities on behalf of Regal, and
to “use its best endeavours” to secure its gas licences.

Regal agreed if Mr Galfendbeyn was successful, the company would buy
back Alberry’s 15 per cent stake in the Ukrainian business for $50.9m.

Frank Timis, founder and largest shareholder of Regal Petroleum, said on
Tuesday Mr Galfendbeyn had “helped the company substantially by monitoring
the situation” with the Ukrainian courts, and he had “strong relationships”
in the country.

There would be no cash payment to Mr Galfendbeyn. He would receive
$50.9m Regal shares and not be allowed to sell for two years. At today’s
market value, Mr Galfendbeyn would control slightly more than 10 per cent.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
7.                               A WILDCATTER IN KIEV

By Andrew Hill, Financial Times, Kyiv, Ukraine, Wed, Dec 13 2006

Oil’s pioneers have explored some inhospitable territory in their time, but
on a strict measure of reward earned for risk undergone, Dmytro Galfendbeyn
stands comparison with the bravest of them.

For just over four months’ work in the hostile environs of the Supreme Court
of Ukraine, Mr G is due to receive $50.9m from Regal Petroleum for an
investment of just $100,000.

Regal shareholders have benefited from Mr Galfendbeyn’s efforts to secure
disputed gas production licences. When the consultant’s vehicle, Alberry,
bought its stake in Regal’s Ukrainian subsidiary in August, the group’s
stock stood at 84p and it has more than doubled since.

Still, the deal with Mr Galfendbeyn was both opaque and extravagant and
details of how it will be honoured have yet to be made public.

To convince investors that they really got their money’s worth will require
some extraordinary sleight of hand by Frank Timis, the group’s founder and
lead shareholder, or an amazing contribution from Regal’s Ukrainian assets
in future, or both.                                          -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
    NOTE: Send in a letter-to-the-editor today. Let us hear from you.
                          RUSSIAN NATURAL-GAS DEALS

By Glenn R. Simpson, The Wall Street Journal
New York, NY, Friday, December 22, 2006; Page A1

Amid growing concern about Europe’s energy dependence on Russia, U.S.
authorities are investigating possible links between one of that country’s
top organized crime figures and multibillion-dollar natural-gas deals
between Russia and Ukraine.

The wide-ranging inquiry focuses on 60-year-old Semion Mogilevich, one of
the FBI’s most-wanted men, who is viewed by law-enforcement agencies as
one of the world’s most-sophisticated international criminals.

U.S. officials have long expressed concern that his operations foster
high-level official corruption throughout the former Soviet Union,
underwriting criminal activities ranging from prostitution and drug dealing
to stock fraud.

Their concern has only grown as Russia has tightened its grip on the vast
oil and gas resources of Central Asia and shown a growing willingness to
brandish energy as a political weapon. The European Union gets a quarter of
its natural gas from Russia, most of which is shipped by pipeline across

That puts Mr. Mogilevich close to one of Europe’s most vital economic
crossroads at a time when the West is focusing on the failure of Russian
President Vladimir Putin to check rampant organized crime and corporate
corruption in Russia.

The U.S. is worried that the Russian mafia will spread its influence in the
energy industry and use its natural-gas profits to increase its economic and
political clout.

Mr. Mogilevich couldn’t be reached for comment. A Moscow lawyer who has
worked with him declined to comment yesterday. In a 1999 interview with the
British Broadcasting Corp., Mr. Mogilevich described himself as a
businessman involved in commodities trading.

In 2002, Mr. Mogilevich and an associate, Igor Fisherman, were indicted in
Philadelphia on charges of money-laundering and securities fraud in
connection with the collapse of YBM Magnex Inc., a Pennsylvania-based
company registered in Canada.

Prosecutors allege that the two men used fraudulent accounting records and a
network of shell companies to manipulate YBM Magnex’s stock, then laundered
the profits of their stock sales through numerous banks.

Messrs. Mogilevich and Fisherman haven’t responded to the U.S. charges, and,
according to the FBI, they now live in Moscow. The U.S. and Russia have no
extradition treaty.

In their natural-gas investigation, senior U.S. prosecutors and agents of
the Federal Bureau of Investigation are focusing on connections between Mr.
Mogilevich and a Cyprus-registered company called Highrock Holding Ltd.

that has played a role in several multibillion-dollar gas deals, according to
current and former law-enforcement officials.

Highrock, which has operations in Moscow, Tel Aviv and the Ukrainian capital
of Kiev, supplies consumer goods and other products to Turkmenistan and
other Central Asian gas producers in exchange for billions of cubic meters
of natural gas.

The gas is then shipped to customers in Ukraine and other East European
countries over pipelines owned by Russian gas giant OAO Gazprom.

Until June of 2003, the wives of Messrs. Mogilevich and Fisherman were

among Highrock’s major shareholders, say people familiar with the
company’s operations.

While the wives are no longer listed as shareholders, authorities are
investigating whether their husbands retain an interest in the venture. The
officials say they have yet to reach any definitive conclusions.

A Ukrainian businessman named Dimytro Firtash, now Highrock’s principal
owner, says he removed the two men’s wives from Highrock in 2003, soon after
he learned they were involved with the company. Mr. Firtash says a former
partner had brought in Mr. Mogilevich as an investor without his knowledge.

The U.S. investigation, which is being led by the Justice Department’s
Organized Crime and Racketeering Section, began early this year, shortly
after Moscow’s brief cutoff of natural-gas shipments to Ukraine in a price
dispute sparked an international crisis. The January cutoff came during a
cold snap, throwing Europe’s energy dependence on Russia into sharp relief.

The crisis was resolved when a previously little-known firm called
RosUkrenErgo came forward to act as a middleman and broker a compromise.
The company, known as RUE, said it was half-owned by Gazprom, but for
months it refused to identify its other owners.

After The Wall Street Journal reported in April that RUE was under
investigation by the Justice Department’s organized-crime unit, Highrock’s
owner, Mr. Firtash, came forward saying he was RUE’s other owner. Today,
RUE supplies gas to several other European countries, including Poland and

The U.S. investigation’s focus on Messrs. Mogilevich and Fisherman is only
now emerging. In recent months, agents have questioned several witnesses in
Central and Eastern Europe about their knowledge of Mr. Mogilevich’s role in
Highrock, people with knowledge of the inquiry said.

The investigation is concentrating on Mr. Mogilevich’s former base of
operations in Budapest. For the past six years, the FBI has maintained a
special unit in the Hungarian capital largely devoted to the investigation
of the Mogilevich organization.

According to law-enforcement officials, the FBI team is being aided by
authorities in Israel, another of Mr. Mogilevich’s suspected bases of
operations, and Cyprus, an offshore banking center used by many Russians.
Spokesmen for the Justice Department and the FBI declined to comment on
that matter because it is under investigation.

Global Witness, a London-based watchdog group that monitors the exploitation
of natural resources, published a report earlier this year questioning the
ownership of RUE, Highrock, and several other firms at the center of the
Asian-European natural-gas trade.

“There are still too many unanswered questions about these men and the
interests they may or may not serve,” says Global Witness researcher Tom
Mayne. “Gazprom is a major supplier of energy to Europe, so there is a
pressing need for more transparency about what is going on in the gas

According to his FBI “Wanted” notice, Mr. Mogilevich, a heavy smoker who
weighs nearly 300 pounds, was born in Kiev. He earned a degree in economics
from the University of Lvov, according to people familiar with his

He lived in Israel in the early 1990s, then moved to Hungary in 1995, the
FBI says. He was also a prominent figure in a 1998-2006 probe of money
laundering at the Bank of New York but wasn’t charged in the case.

A substantial part of the natural-gas probe revolves around a network of
companies, known as the Itera Group, that dominate the Russia-Ukraine
natural-gas trade through their close relationship with Gazprom.

Itera, which is based in Moscow and Jacksonville, Fla., says it is the
third-largest gas company in Russia. It has been Gazprom’s partner in many
gas deals that critics say didn’t make business sense for Gazprom.

Itera Chairman Igor Makarov was a business partner of Mr. Firtash. According
to Mr. Firtash, Highrock worked closely with Itera for years, providing
goods to the Central Asian nations that supplied Itera with natural gas.

In 2000, Olga Shnayder, a private lawyer who worked with Itera, set up
Highrock and several offshore affiliates of the company, according to
corporate records and statements by Mr. Firtash.

The Highrock entity in Cyprus had three shareholders, one of which was
Agatheas Trading Ltd., also of Cyprus. One director of Agatheas was Galina
Telesh — Mr. Mogilevich’s wife. People involved in the U.S. inquiry say she
represented her husband and Mr. Fisherman’s combined one-third interest in

Ms. Shnayder is listed in Russian corporate records as part-owner of a
well-known Moscow funeral-home business previously owned by a company
called Arigon Ltd.

According to the Justice Department indictment of Mr. Mogilevich and his
associates, “defendant Mogilevich was a 40% shareholder of Arigon, and
controlled its operations.”

Ms. Shnayder, reached through the funeral-home offices, denied that she

was an owner of the funeral home. She said it would be “a violation of
client-attorney privilege” to comment on whether Mr. Mogilevich or Itera’s
Mr. Makarov are her clients.

She also declined to say whether she created Highrock. Itera didn’t respond
to requests for comment at its U.S. and Moscow offices; in the past, Mr.
Makarov has denied having a relationship with Mr. Mogilevich.

The FBI is also conducting a separate corruption inquiry into Itera’s ties
to Rep. Curt Weldon of Pennsylvania, a senior Republican in Congress.

His daughter, Karen Weldon, a lobbyist, received at least $500,000 in
lobbying fees in 2002 from U.S.-based Itera Energy LLC. Rep. Weldon
subsequently praised Itera in public statements. He denies any wrongdoing.
Guy Chazan contributed to this article. Write to Glenn R. Simpson at
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

    The subpoena in the corruption probe went out before Rep. Curt Weldon
                              lost his seat. It’s unclear if he reported it.

By Richard B. Schmitt, Times Staff Writer
Los Angeles Times, Los Angeles, CA, Fri, December 22, 2006

WASHINGTON – A federal grand jury has subpoenaed congressional records

from Rep. Curt Weldon (R-Pa.) as part of an escalating Justice Department
corruption probe aimed at determining whether Weldon used his influence to
win favors for family members, people familiar with the investigation said.

The previously unreported subpoena was issued by a grand jury in Washington
before the November election, although it is unclear when Weldon received

The 10-term lawmaker was at the time in a tight race to retain his seat
representing the Philadelphia suburbs, which he subsequently lost to
Democrat Joe Sestak, a retired Navy vice admiral.

Weldon has said public disclosure of the Justice Department investigation,
which came three weeks before election day, was politically motivated. He
said at the time that he was not aware of any investigation and that he had
done nothing wrong. An attorney for Weldon, William J. Winning, did not
return messages Thursday seeking comment.

House rules require members of Congress to promptly report the receipt of
subpoenas to the leadership when Congress is in session. Notice of the
subpoena is then customarily published in the Congressional Record. A

search of the record Thursday did not turn up evidence that Weldon had
disclosed the subpoena.

It is possible that the lawmaker did not receive the subpoena until after
Congress adjourned following the election, when different reporting rules
would have applied. He still would have been required to notify the
leadership, but in that case the subpoena would not become public in the
Congressional Record until Congress reconvenes in January.

Weldon formerly held the powerful vice chairmanship of the House Armed
Services Committee and was a leading voice in Washington on the affairs of
former Eastern bloc nations. The FBI is investigating whether he traded his
influence to get lobbying business for his daughter Karen and others.

Karen Weldon and Charles Sexton, a close friend and political advisor to the
lawmaker, operated Solutions North America. Investigators are examining
about $1 million in contracts from foreign clients that Weldon may have
helped steer to the firm.

The corruption probe became known on Oct. 16, when the FBI searched six
sites in Philadelphia and Jacksonville, Fla. They included the lobbying firm
run by Weldon’s daughter and one of its clients, a Russian company, Itera
International Energy Corp.

The Times reported in 2004 that Solutions North America won contracts from
companies or individuals that Weldon tried to help. The beneficiaries
included two struggling Russian firms and a Serbian family linked to accused
war criminal Slobodan Milosevic.

The Times reported that Itera was paying Solutions $500,000 a year for
public relations help around the same time that Weldon was extolling the
energy company and helping round up 30 congressional colleagues for a

dinner honoring the firm’s chairman.

Weldon said at the time of the October searches that he had “no
communication or contact with anyone, nobody from the Justice Department”
about an investigation and had not been told that he was a target of any

Another lawyer for Weldon, William B. Canfield, said at the time that the
House Ethics Committee had reviewed the matter and that it had been
resolved, although the report has never been made public. Canfield could

not be reached Thursday.

The FBI subsequently opened an investigation into whether law enforcement
officials illegally leaked information about the Weldon probe to the press.
It is illegal for government officials to reveal grand jury material

Legal experts said the fact that Weldon lost his seat did not relieve him of
the obligation to report the subpoena.

“If they were served with a subpoena before the House adjourned, then they
were supposed to give notice immediately,” said Charles Tiefer, a University
of Baltimore law professor and a former counsel to the House.

“For a member not reelected, the rules are no different,” Tiefer said. But
he observed that the House has virtually no power to sanction former members
for violations of its rules.  (
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, December 22 2006

Vladimir Putin, Russia’s president, promised on Friday to keep natural gas
flowing to Ukraine even if supplies from gas-rich Turkmenistan faltered
following the death of Saparmurat Niyazov, the Turkmen leader.

Mr Putin played down fears of a repeat of gas cuts experienced last winter
in Ukraine and Europe should Turkmenistan supplies be affected by a
power struggle in the former Soviet republic.

“Russia always guaranteed and guarantees it will fulfil all of its
obligations on gas supplies, including the free transit of Turkmen gas,” the
president said, sitting alongside Viktor Yushchenko, his Ukrainian
counterpart. “We are ready to consider the possibility of providing
additional volumes of gas.”

Mr Putin was in Kiev to repair relations strained ever since the Orange
Revolution of 2004 propelled the pro-western Mr Yushchenko to the

Mr Yushchenko has shifted the former Soviet state’s foreign policy away from
Moscow’s grip, instituting plans for integration with the European Union and
Nato military alliance.

Last year Russia cut gas exports to Ukraine, causing shortages across Europe
in a bitter dispute over price rises. The dispute ended after Kiev conceded
to a near doubling of the price.

This autumn, Ukraine, which consumes nearly 80bn cubic metres of gas
annually, agreed to an additional 40 per cent price increase for next year,
paying $130 per 1,000 cu metres of gas.

Ukraine is a big consumer of Turkmen gas and it pumps a majority of Russian
supplies to Europe through its vast pipeline system.

Moscow’s stiff gas price increases have been viewed as a retaliatory measure
by many. Mr Putin said the increase this year was a consequence of
Turkmenistan nearly doubling its export price to $100 per 1,000 cu metres.

Gas is supplied to Ukraine from central Asia and Russia by Swiss-registered
RosUkrEnergo, half owned by Russia’s Gazprom with a 50 per cent stake in

the hands of two Ukrainian businessmen.

Yulia Tymoshenko, Ukraine opposition leader, says the gas supply scheme is
corrupt and has called for intermediaries to be replaced with direct
contracts between state companies from both countries.          -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


Associated Press (AP), Kiev, Ukraine, Friday, December 22, 2006

KIEV – Russia’s President Vladimir Putin Friday assured Ukraine’s President
Viktor Yushchenko that Moscow wants good relations, in a meeting that both
leaders presented as a break from the strained relationship of the past.

Putin’s visit to Kiev is his first since pro-Russian Prime Minister Viktor
Yanukovych returned to power in March, and comes amid a power struggle
between him and Yushchenko.

“We inherited a range of not easy, sometimes very problematic issues in
bilateral relations, but I am sure that between our countries there are no
issues, and there can’t be any issues, that can’t be solved,” Yushchenko
said at the start of the inaugural meeting of an intergovernmental

“I am sure that with good will, we can find mutually acceptable solutions,”
he said. Putin told Yushchenko: “We value having Ukraine as a good

Last month, Russian Premier Mikhail Fradkov said the Kremlin would like

Kiev to “synchronize” its entry to the World Trade Organization with Moscow,
and the Kremlin has been pushing Ukraine to join a new economic arrangement
with Russia, Belarus and Kazakhstan.

“It would help us,” Putin told Yushchenko, referring to the idea. “Jointly,
we could gain a lot in international markets.” Yushchenko, who is reluctant

about the plan, made no mention of the issue.

Russia is Ukraine’s biggest trading partner, and Ukraine is heavily
dependent on natural gas supplies from Russia. loggerheads over issues
including the presence of Russia’s Black Sea fleet on Ukrainian territory
and the use of lighthouses on its Crimean peninsula.

Putin and Yushchenko agreed to put a whole range of issues – from the Black
Sea Fleet to military cooperation – on the agenda for the next two years.
“To solve all of these tasks, we must act like reliable partners and
friends,” Yushchenko said.

Participating in Friday’s meeting was Ukrainian Foreign Minister Borys
Tarasyuk, considered one of Ukraine’s most pro-Western politicians.
Yanukovych asked parliament to fire Tarasyuk, which it did, but a court
froze the ruling and Yushchenko reappointed him.

Yanukovych said before the meetings that he wouldn’t try to prevent
Tarasyuk’s participation. Yanukovych was expected to meet separately with
Putin later.                                           -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

If you are receiving more than one copy of the AUR please contact us.
12.                        PUTIN: WARM WELCOME IN KYIV

Zerkalo Nedeli On The Web, Mirror-Weekly, No. 49 (628)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 23 – 29 December 2006 year

The Russian President’s Friday visit to Ukraine was anything but “the
beginning of a new stage” or a “breakthrough” in Russo-Ukrainian relations,
as official reports characterized it.

Yet, Vladimir Putin can hardly call 2006 “a year of missed opportunities in
relations with Ukraine”, which is what they said about 2005. The victory of
the Russian “gas weapon” alone is worth a dozen!

The establishment of the Yushchenko-Putin Interstate Commission was a rare
case in Russo-Ukrainian relations where one side’s achievement was not the
other side’s loss. It took more than eighteen months to build this
“mechanism of bilateral cooperation” that is supposed to benefit both

Hopefully, it will, although skeptics remind us that many such “mechanisms”
and “instruments” of cooperation with other countries, which Ukraine has
built over 15 years of independence, have worked effectively or at all.

One of the examples is the mixed Ukrainian-Russian commission for
cooperation: it was established in 1996 as pompously as the Yushchenko-
Putin commission, and was liquidated very quietly a few weeks ago.

Optimists are sure that the new interstate commission will facilitate and
systematize bilateral contacts and discipline the negotiators at all levels.
The commission has a secretariat, committees, and subcommittees.

During the three months prior to Putin’s visit, they held numerous meetings,
preparing the ground for the Yushchenko-Putin Commission’s maiden session.

Although the new mechanism might be short-lived (because the term of Putin’s
presidency is running out and so is Yushchenko’s power), there is a hope
that it can “clean up the heaps of problems”, as the Ukrainian President has
put it.

Yushchenko and his chancellery definitely wanted to leave out Prime Minister
Viktor Yanukovych, who had seen Putin more often in five months of his
premiership than Yushchenko had in twenty-three months of his presidency.

The Foreign Ministry exerted a maximum effort to keep Yanukovych as far
from the meeting as possible.

First Vice Premier Nikolai Azarov complained on Thursday that the Cabinet

of Ministers didn’t even know the program of Putin’s visit to Kyiv.

It may look strange that the Prime Minister, who co-chairs the subcommittee
on economic cooperation, was not invited to the session of the interstate

The reason is quite simple: the presidential camp seized this opportunity to
win back at least one plot in the field of foreign policy in its continual
rivalry with Yanukovych.

It was a kind of reciprocal step: departing for Moscow in late November, the
Premier didn’t bother to inform the President about the program of his

Besides, Yushchenko needed to “balance off” Yanukovych’s successful visits
to Moscow, Brussels, and the USA. His own visits to Estonia and South Korea
were rather bleak, and he obviously lost in the competition for the honor to
play the first fiddle at Davos.

Yushchenko wanted to demonstrate the fact of Putin’s visit as his exclusive
victory. Thirty-six hours before Putin’s arrival, there was no mention of
Yanukovych in the program of the visit, but his team broke their backs to
arrange for his meeting with the Russian President.

Yanukovych has given Moscow quite a few pretexts for discontent: it was
under his premiership that

[1] Ukraine’s accession to the WTO became feasible;
[2] he stated definitely and publicly that Ukraine’s participation in the
     [Russia-Belarus-Kazakhstan] Common Economic Area would not
     go further than a     free trade area;
[3] he paid a visit to Uncle Sam; he didn’t say a point-blank “no” to

[4] he didn’t grant Russian the status of the second state language in
[5] he let the parliament recognize the 1932-1933 Famine as an act of
     genocide against the Ukrainian nation.

Yet, Moscow met Yanukovych halfway. His protocol meeting with the
Russian President was to last just thirty minutes, but it ended up lasting
as long as Putin wished.

It is unknown exactly what the two presidents agreed upon during their
tete-a-tete meeting and how much their agreements differed from those
reached during Putin’s meeting with Yanukovych.

According to informed sources, Yushchenko was going to persuade Putin to
exclude the intermediary company RosUkrEnergo from the gas supply scheme
and to found a joint venture of Naftogaz and Gazprom, registering it in some
neutral country like Switzerland. Putin’s decision on that score depends on
which of two lobbyist groupings in his entourage takes the upper hand.

One week before Putin arrived in Kyiv, Yushchenko announced that they would
sign “key documents” – a declaration on strategic partnership and a joint
action plan for 2007-2008. A couple of days later, informed sources reported
that the Russian side refused to sign them.

The formal pretext was the adoption of the National Security Strategy by the
National Security and Defense Council, which mentioned full membership in
NATO among Ukraine’s priorities. Moscow’s position looks rather strange, at
least because it was Moscow’s initiative to sign this declaration during
Putin’s visit.

The declaration, which was drafted back in the late 1990s, got preliminary
approval by Anatoliy Zlenko and Igor Ivanov – the then foreign ministers of
Ukraine and Russia.

All it needed was some updating. Yet, the Kremlin didn’t include it in the
Kyiv agenda, explaining that it had too little time for such an exercise.
Nevertheless, Ukraine and Russia may just as well do without this document.

Those who have read it say that it is “general enough to be signed with a
dozen other countries”. Besides, the term “strategic partnership” is already
present in the Big Treaty [of 1997], so the declaration wouldn’t bring
anything new in Russo-Ukrainian relations. The question of why the Russians
first wanted and then refused to sign it is just a another question of the
secret, enigmatic “Russian soul”.

The action plan for 2007-2008, which Yushchenko likes to call a “road map”,
is a practical document embracing all areas of bilateral cooperation.

The Ukrainian side tried to fill it with concrete contents and complement it
with implementation schedules. The Russian side wanted to make the
document more general.

Two days before Putin arrived, Ukrainian representatives said it was 95
percent ready and a couple of hours would be enough to polish it. Two hours
before Putin departed for Kyiv, his aide Sergey Prikhodko said that there
were still some controversies and that Moscow and Kyiv were still
“approximating their positions on some problems”.

Even though the two presidents didn’t sign this road map, Kyiv and Moscow
are sure to continue exchanging delegations, and talks at all levels are
sure to go on.

The agreement on re-admission looks far more important in terms of benefits
for Ukraine. It took Kyiv and Moscow years to prepare this document for
signing and a lot of effort to overcome strong resistance within the Russian

Having signed a re-admission agreement with the EU recently, Ukraine was
confronted with the threat of becoming a kind of sewage pond for illegal
immigrants deported from the EU.

Now, having signed a re-admission agreement with Russia, Ukraine can send
illegal migrants from Russia or third countries back to Russia. It is no
secret that almost all illegal migrants enter Ukraine’s territory through
the Russian border.

Ukraine and Russia signed other important documents:

[1] a protocol on amendments to the intergovernmental agreement on
     border-crossing points,
[2] an intergovernmental agreement on reciprocal copyright protection
     in bilateral military-technical cooperation,
[3] amendments to the agreement on visa-free travels, and a
[4] cooperation agreement between Ukraine’s Ministry of Culture and
     Tourism and Russia’s Ministry of Culture and Mass Media.

The interstate commission heard extensive reports from the co-secretaries
Vitaliy Haiduk and Igor Ivanov and discussed a wide spectrum of issues –
from natural gas supplies to humanitarian problems.

On the eve of Putin’s visit, Yushchenko accentuated the issues that the
commission had to consider in the first place: natural gas supplies; the
question of “what Ukraine must do not to harm Russia’s interests” while
moving toward NATO and the EU; delimitation and demarcation of the
Ukraine-Russia state border; the stationing terms for the Russian naval base
in Crimea.

None of these problems is new. According to experts, most of them are

quite solvable technically, provided there is the political will to solve them.

For example, the two countries could have started demarcating the terrain
section of the border back in January, when the two presidents agreed in
Astana, Kazakhstan to set up a special mixed commission. However, the
Russian side has not appointed its co-chairperson to this day.

Yushchenko stated optimistically in Astana that Ukraine and Russia “could
make substantial progress in delimitating the borderline in the Sea of Azov
and the Kerch Strait within six moths”. Now his expectations are more
reserved: it would be good to have the borderline delimitated at least by
late 2007.

The Russian naval base in Crimea remains the main “irritator” in
Russo-Ukrainian relations. Kyiv keeps demanding that the Russian side
abide by the terms of leasing contracts.

Kyiv keeps pressing for an inclusive inventory of the land plots and
facilities used by the BSF. Kyiv keeps insisting that the BSF hand over the
beacons and other navigation facilities that belong to Ukraine.

Kyiv wants to sign a supplementary agreement that would regulate the two
sides’ behavior in critical situations. These issues were also on the agenda
of the Kyiv talks.

While discussing them, President Yushchenko reconfirmed Ukraine’s
obligations and made it clear that 2017 would be the last year of the
Russian Navy’s presence in Ukraine.

The results of Putin’s talks with Yushchenko and Yanukovych will show up
later, but it is already clear that he has had talks with two leaders of one

It is clear that these two leaders should stand the same ground instead of
competing for “signs of attention”. And Putin must have scored a point or
two in Kyiv.                                            -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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By Andrew E. Kramer in Moscow, The New York Times
New York, New York, Tuesday, December 26, 2006

MOSCOW – Gazprom, the Russian energy monopoly, threatened today to

halt natural gas supplies to Belarus if that country did not agree to a large
price increase by New Year’s Day.

The strong Russian position suggests that Moscow is becoming aggressive

in energy pricing even with countries that have been close allies.

Belarus now has the cheapest gas in the former Soviet Union, other than
Russia itself. Gazprom, the world’s largest energy company by volume of
reserves, is insisting that Belarus pay more than double its current price,
though it would remain below what richer countries in Europe pay.

Gazprom warned that Belarus was behaving “irresponsibly” in the talks over
pricing and a Russian demand to surrender equity in a key export pipeline,
saying such resistance was putting Belarus’s energy supply at risk.

The threat came almost exactly a year after Gazprom cut off fuel supplies to
Ukraine, another key transit country for Russian energy exports, causing
intense supply jitters in Western Europe. After widespread criticism,
Gazprom turned the gas back on after three days.

In the energy markets now, the Kremlin is dictating terms with greater
assertiveness than it has at any time since the collapse of the Soviet

Gazprom already owns one of the two major export pipelines that run through
Belarus and is negotiating for a share in the second, a move that would
tighten the company’s bear hug on European supplies.

Gazprom said exports to Poland and Germany through the pipelines are not

at risk, even if Belarus were to be switched off. The company spokesman,
Sergei V. Kupriyanov, said Gazprom has been stockpiling gas in underground
reservoirs in Western Europe to ensure uninterrupted supplies.

“Responsibility for what has taken shape today lies with the Belarusian
side,” Gazprom’s chief executive, Aleksei B. Miller, today told a Belarusian
delegation led by a first deputy prime minister, Vladimir I. Semashko.
“Gazprom and the Russian Federation met you halfway on all issues.”

Gazprom’s tough negotiating suggested an unraveling of the special relations
between Russia and Belarus, which are joined in a loose coalition called a
union state. Russia is one of the last allies in Europe of the Belarusian
dictator, Aleksandr G. Lukashenko.

“The demand shows Putin is abandoning any myth of the union state,” Lilia
Shevtsova, a senior associate at the Carnegie Moscow Center, said.
“Lukashenko is desperate and backed into a corner.”

Gazprom’s final asking price for gas in Belarus, between $105 and $110 per
1,000 cubic meters, is still among the lowest offered to Russia’s neighbors.
Gazprom says it is intent on raising prices throughout the former Soviet
Union, putting an end to a decade of subsidies.

Gazprom said Belarus wanted to pay rates in line with those paid in the
neighboring Russian province of Smolensk, or about $40 for residential
consumers and $54 for industrial customers, citing a treaty related to the
union state. Mr. Semashko, the Belarusian delegation leader, left talks in
Moscow today without a deal. “We still have time until the 31st of
 December,” he said.

Gazprom has slowly increased prices in neighboring countries while trading
special deals for footholds in the local distribution business or access to
export pipelines essential to its hugely profitable business.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Steven Lee Myers in Moscow, The New York Times
New York, New York, Wednesday, December 27, 2006

MOSCOW, Dec. 26 – Inside the Kremlin last week, the executives of three
major international companies – Royal Dutch Shell, Mitsubishi and Mitsui –
heaped praise on the man whose government had effectively forced them to
cede control of the world’s largest combined oil and natural gas project.

“Thank you very much for your support,” Shell’s chief executive, Jeroen van
der Veer, told President Vladimir V. Putin during a meeting that ended a
six-month regulatory assault on the project, Sakhalin II, but only after the
companies surrendered control of it to the state energy giant, Gazprom.
“This was a historic occasion.”

It was also a telling one, with lessons that extend beyond energy policy to
such disparate matters as the killings of Alexander V. Litvinenko, a former
K.G.B. agent in London, and Anna Politkovskaya, a prominent journalist.

Mr. Putin’s Russia, buoyed by its oil and gas riches, has become so
confident – so arrogant, its critics say – that it has become impervious to
the criticism that once might have modified its behavior. And those who
might have once criticized, from investors to foreign governments, have
largely acquiesced to the new reality.

The Kremlin is now dictating its terms with greater assertiveness than it
has at any time since the collapse of the Soviet Union – which was 15 years
ago Monday, to be precise. Many hoped that Russia’s presidency of the

Group of 8 industrial nations this year would temper Mr. Putin’s diplomacy,
but it has not.

Russia began 2006 by making good on a threat to cut off natural gas to
Ukraine to get a higher price for Gazprom. The shutoff, though brief,
provoked concern in Europe about dependency on Russian energy, and

now Russia is ending 2006 by warning Belarus of the same fate.

Vice President Dick Cheney famously leveled the harshest criticism of the
Kremlin to date when he accused it of using oil and gas as “tools of
intimidation or blackmail.”

That was in May, but since then American policy toward Russia has changed
imperceptibly, with one significant exception: the Bush administration gave
its approval for Russia’s long-coveted membership in the World Trade

“Russia since last year has been enjoying some feeling of euphoria, that
feeling that we have so much money, so many resources that we can do what

we want,” said Fyodor A. Lukyanov, the editor of Russia in Global Affairs.

The United States and Europe have little leverage beyond persuasion. And
persuasion no longer works, as the Kremlin’s campaign against Sakhalin II,
the largest foreign investment project in Russia, showed.

The campaign was so transparent that it seemed comical, beginning with
surprise inspections by a little-known environmental inspector who
threatened to fine the project’s developers for every tree they cut down.

As the campaign unfolded, analysts issued warnings. Western diplomats and
their governments protested. But in the end the Kremlin got what was clearly
its goal: state control of a lucrative project that opens the gas market to

The three companies with the most to lose said nothing critical as they sold
50 percent plus one share of Sakhalin II for what some analysts called a
discounted price, $7.45 billion. Mr. Putin immediately declared that the
project’s environmental problems could “be considered resolved.”

“Experience has disappointed many foreign investors in Russia,” said Valery
Nesterov, an energy analyst at Troika Dialog, an investment firm in Moscow.
And yet when it comes to energy or other investments, it does little to
deter them. “The attraction is so large,” Mr. Nesterov said, adding that
companies like Shell still held out hope of winning access to Russia’s other
oil and gas fields in the future.

The Sakhalin affair has revived memories of the government’s assault on
Yukos Oil and its founder, Mikhail B. Khodorkovsky, in 2003 and 2004.

When it all started, even Russia’s supporters worried about the potential
damage to the country’s reputation, especially among investors.

If damage was done, it is hard to quantify now. The company is a rump of

its former self, under bankruptcy receivership with its major assets now
belonging to the state oil company, Rosneft. Mr. Khodorkovsky, once the
richest man in Russia, remains in a Siberian prison on charges of fraud and
tax evasion, and he is reportedly facing a new round of criminal charges.

Although Russia’s stock market plunged 21 percent in the month after Mr.
Khodorkovsky’s arrest, with the Russian Trading System Index dipping
below 500, it is now above 1,800.

The international response to the killings of two prominent Kremlin
critics – Mr. Litvinenko in exile in London and Ms. Politkovskaya here in
Moscow – also underscores the new reality.

There is as yet no evidence directly linking anyone in Russia to the
killings, even if critics have been quick to say so, reviving some of the
worst fears about the country Russia has become.

In the wake of Mr. Litvinenko’s death, The Daily Telegraph of London
declared flatly, “Russia is rotten to its heart.” A recent cover of The
Economist showed Mr. Putin dressed like a gangster, holding a gasoline
nozzle as a machine gun.

The British government, by contrast, has said nothing so critical, even
after British detectives who came to Moscow were confronted with strict
limits on their ability to question witnesses.

Wealth has emboldened Mr. Putin and those around him. At a roundtable
interview this month, the first deputy prime minister and chairman of
Gazprom’s board, Dmitry A. Medvedev, brushed aside questions about the
company’s management, its corporate philosophy and its investments in
newspapers and other ventures seen as political. He suggested that the
Kremlin, perhaps, had been right, and all of its critics wrong.

“The value of Gazprom in 2000 was $9 billion,” Mr. Medvedev, often cited as
a potential successor to Mr. Putin, said. “Today it is between $250 and $300

Others warn that Russia is ignoring the consequences of its behavior, that
the monopolistic policies of Gazprom, the erosion of political competition
and the easy dismissal of critics blinds the Kremlin to the dangers of the
overly centralized system Mr. Putin has created.

Mikhail A. Kasyanov, Mr. Putin’s prime minister from 2000 until 2004 and now
one of his biggest critics, said the foreigners who rushed to join Russia’s
boon were equally complicit. “Investors are very shortsighted,” he said in
an interview.                                         -30-

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around four times a week, please send your name, country of residence,
and e-mail contact information to Information about
your occupation and your interest in Ukraine is also appreciated.
If you do not wish to read the ACTION UKRAINE REPORT please
contact us immediately by e-mail to  If you are
receiving more than one copy please let us know so this can be corrected

If you do not receive a copy of the AUR it is probably because of a
SPAM OR BULK MAIL BLOCKER maintained by your server or by
yourself on your computer. Spam and bulk mail blockers are set in very
arbitrary and impersonal ways and block out e-mails because of words
found in many news stories or the way the subject line is organized or
the header or who know what.
Spam blockers also sometimes reject the AUR for other arbitrary reasons
we have not been able to identify. If you do not receive some of the AUR
numbers please let us know and we will send you the missing issues. Please
make sure the spam blocker used by your server and also the one on your
personal computer, if you use a spam blocker, is set properly to receive
the Action Ukraine Report (AUR).

                          PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation

Emerging Markets Private Equity Investment Group
President (Acting) and Chairman, Executive Committee of the
Board of Directors, Ukraine-U.S. Business Council
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707;
       Power Corrupts and Absolute Power Corrupts Absolutely.
return to index [Action Ukraine Report (AUR) Monitoring Service]

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