Monthly Archives: January 2007

AUR#810 Jan 29 Tons of Grain Rotting & Being Thrown Into Black Sea Due To Government Grain Export Quotas, Hundreds Of Millions Lost; Kyiv Mohyla Academy

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              Hundreds of millions of dollars lost through government policies.
               It is a paradox situation that this country has never seen before.
                                            [Articles 1 through 11]
Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer
                                                   [Article 20]

               –——-  INDEX OF ARTICLES  ——–
            Clicking on the title of any article takes you directly to the article.               
   Return to the Index by clicking on Return to Index at the end of each article
           Hundreds of millions USD lost through bad government policies
             It is a paradox situation that this country has never seen before
UT1 TV, Kiev, Ukraine, in Ukrainian 1300 gmt 26 Jan 07
BBC Monitoring Service, UK, Friday, January 26, 2007

        Over 200 million USD lost just in grain damaged and handling charges
Ukrainian News Agency, Kyiv, Ukraine, Tuesday, January 23, 2007

Interfax Ukraine Economic, Kyiv, Ukraine, Wed, Jan 24, 2007


                     ACCORDING TO EXPORT QUOTAS FOR 2007
AgriMarket.Info, APK-Inform Information Agency
Dnipropetrovsk, Ukraine, Monday, January 15, 2007


Outline of Speech delivered by Volodymyr Klymenko, President
Ukrainian Grain Association (UGA) during the meeting of the
President of Ukraine, Viktor Yushchenko, with the business community
Kyiv, Ukraine, November 30, 2006
Action Ukraine Report (AUR) # 810, Article 5
Kyiv, Ukraine, Monday, January 29, 2007

Government actions jeopardises Ukraine’s WTO entry & investment prospects.
Country Briefing: EIU Economy – News Analysis
The Economist Intelligence Unit Limited
New York, New York, Thursday, November 16, 2006


 Recommendation is therefore to abolish quota system as soon as possible.
By Stephan v. Cramon, German Advisory Group and
Professor of Agricultural Economics, University of Goettingen
Martin Raiser, Economic Advisor, World Bank Country Office, Ukraine
Institute for Economic Research and Policy Consulting In Ukraine
German Advisory Group on Economic Reform
The World Bank, Kyiv, Ukraine, Monday, November 27, 2006

Ukrainian News Agency, Kyiv, Ukraine, Wednesday, October 25, 2006

Associated Press (AP), Kiev, Ukraine, Thursday, November 9, 2006


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

Ukrainian International Agricultural Newsletter
Kyiv, Ukraine, Monday, January 29, 2007

Liudmyla Martynova, Ukrainian News Agency, Thu, January 25, 2007

                          U.S. President Bush invited to visit Ukraine
Interfax Ukraine Business Express, Kyiv, Ukraine, Tue, Jan 23, 2007

Ukrainian News Agency, Kyiv, Ukraine, Tuesday, January 23, 2007


Associated Press (AP), Kiev, Ukraine, Thu, January 25, 2007 8:40 a.m.

                            UKRAINE CONTROL INFLATION
Dow Jones Newswires, Washington, DC, January 22, 2007.


By John Helmer,
Cape Town, South Africa, Tuesday, January 23, 2007


Ukrainian News Agency, Kyiv, Ukraine, Friday, January 19, 2007

    National University of Kyiv Mohyla Academy School of Public Health
The Ukrainian Observer magazine, Issue 227
The Willard Group, Kyiv, Ukraine, January 2007

                                     IN THE UNITED STATES
   One-million dollar 2007 fundraising program to be launched in five cities
Marta Farion, Executive Director
Kyiv Mohyla Foundation of America, Chicago
Action Ukraine Report (AUR) #810, Article 20
Washington, D.C., Monday, January 29, 2007

          Hundreds of millions USD lost through bad government policies
        It is a paradox situation that this country has never seen before.

UT1 TV, Kiev, Ukraine, in Ukrainian 1300 gmt 26 Jan 07
BBC Monitoring Service, UK, Friday, January 26, 2007

KYIV – [Presenter] Up to 10,000 tonnes of grain of Ukrainian origin is
thrown out into the Black Sea every night. It was loaded into portal
elevators last summer.

It should have been exported, but the cabinet [PM Yanukovych’s Cabinet
of Ministers] introduced quotas on grain exports from Ukraine. The
cabinet’s reason was that there could be not enough wheat for domestic

Having been stored for six months, the grain spoiled, germinated and was
attacked by insects. The volume of unusable grain amounts to some
270,000 tonnes and more grain of the same volume may spoil soon.

Farmers say the grain market in Ukraine is satiated with 6m [tonnes] of
excess grain, which could be sold for 4bn hryvnyas [792m dollars].

However, rural residents will not receive this money due to the cabinet’s
policy. They asked the cabinet to revise it [to no avail].

[Leonid Kozachenko, chairman of the Ukrainian Agrarian Confederation]
It is a paradox situation that this country has never seen before.

Every night 5,000-10,000 tonnes of grain is thrown out into the

Black Sea, feeding fish. At the same time, we are looking for funds
for the agricultural sector.                            -30-
FOOTNOTE:  Some Ukrainian grain storage operators are selling
the spoiled, rotting grain to alcohol producers at massive discounts
according to reports out of Ukraine over the weekend. The Ukraine
government is still holding up the export of barley and has not yet
made the case for barley or explained how barley can be used as a
substitute for bread wheat. AUR Editor
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
        Over 200 million USD lost just in grain damaged and handling charges

Ukrainian News Agency, Kyiv, Ukraine, Tuesday, January 23, 2007

KYIV – The Ukrainian Grain Association (UGA) is calling for an increase in
quotas for bread wheat exports that would unblock port terminals, saying
quotas for exports of fodder wheat, barley and corn should be banned in
2006/2007 year. UGA President Volodymyr Klymenko told this at a press

As he said, at present there are round 300,000 tons of wheat (bread and
fodder grain) in Ukrainian ports, and it is necessary to remove this cargo
from ports by assigning additional quotas.

According to Klymenko, under the current situation seen on the grain market,
it is important to unblock port terminals by issuing additional quotas for
exports of bread wheat, to prevent damaging of grain and to ban quotas for
exports of fodder wheat, barley and corn.

He also noted it would be necessary to raise the question on lifting quotas
for exports of bread wheat this March, when the situation with winter crops
was clearer.

Klymenko said that in 2006/2007 marketing year, Ukraine would export 5
million tons of barley (3 million tons exported since the marketing year’s
beginning), 3.5 million tons of wheat (2.4 million tons) and 1.5 million
tons of corn (0.2 million tons).

Thus, the country may still export 2 million tons of barley, 1.1 million
tons of wheat and 1.3 million tons of corn.
The UGA President noted that exporters lost USD 100 million from
demurrage in Ukrainian ports due to [Ukraine government] introduced
export quotas.

The losses from grain damaged [while stored] in transfer facilities that had
no technical capabilities for the long-term storing of grain, as well as for
its shipment to land transport, would total around USD 100 million.

As Ukrainian News earlier reported, on December 8, 2006, the Cabinet of
Ministers endorsed a quota of 1.106 million tons for grain exports in
2006/2007 marketing year (July 2006 – June 2007).          -30-

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

Interfax Ukraine Economic, Kyiv, Ukraine, Wed, Jan 24, 2007

KYIV – The Ukrainian Grain Association, which unites grain traders in
Ukraine, has said that bread wheat export quota should be increased

and the barley and maize export quota should be canceled.

“The Ukrainian Grain Association believes that an additional bread wheat
export quota should be given out. and that the barley and maize export
quotas should be canceled,” Ukrainian Grain Association President
Volodymyr Klymenko said at a press conference in Kyiv on Wednesday.

He said that the measures should be taken to unload the ports. In
particular, Klymenko said that at present, over 400,000 tonnes of barley
and around 300,000 tonnes of wheat are stored at Ukrainian ports.

He said that some of the grain is spoiling due to the long period of storage
at the ports. The association said that the losses of Ukrainian grain
traders due to grain spoilage will be around $100 million, on top of the
$100 million that have been already lost due to the imposition of grain

He said that Ukraine in the 2006/2007 marketing year could export 5 million
tonnes of barley, 3.5 million tonnes of wheat and 1.5 million tonnes of
maize, according to exports. Klymenko said that the association recommends
that the government consider canceling bread wheat export quotas in the
middle of March 2007.                            -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                          ACCORDING TO QUOTAS FOR 2007

AgriMarket.Info, APK-Inform Information Agency
Dnipropetrovsk, Ukraine, Monday, January 15, 2007

According to market operators from the beginning of 2007 export-oriented
companies have not shipped any tonne of grain according to quotas
distributed for 2007. All market participants are waiting for confirmation
of received quotas.

At that many companies intensively take out accumulated shipload lots from
port elevators and grain storage facilities in order to sell it on domestic
market. Once steady and stable cargoflow of wheat bran notably decreased
because of low trading activity.

For two weeks of new year one shipped only two lots of wheat bran with
volume 5.700 tonnes. This volume was single bread cargo export from

Ukraine. (Link:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Outline of Speech delivered by Volodymyr Klymenko, President
Ukrainian Grain Association (UGA) during the meeting of the
President of Ukraine, Viktor Yushchenko, with the business community
Kyiv, Ukraine, November 30, 2006
Action Ukraine Report (AUR) # 810, Article 5
Kyiv, Ukraine, Monday, January 29, 2007

[The presentation below by the president of the Ukrainian Grain
Association (UGA) is more relevant and timely for today then it was
two months ago when it was delivered in Kyiv.  AUR Editor]

This is the first time in a 15-year-old history of Ukrainian Independence
that such an unprecedented situation on grain market happens to occur.
For two months port terminals have been blocked, there’s no grain
movement, companies’ losses multiply day by day.

Because grain is kept in facilities unsuitable for long-term storing, its
quality spoils. Self-warming of grain in transshipment facilities is another
big problem that can cause not only losses of grain but also heighten risks
of flammability in Ukrainian ports, which can have not only economic

Losses caused by administrative limitation of grain exports from Ukraine
introduced by Cabinet of Ministers of Ukraine are incurred by all
participants of the grain market, including:

     [1] 11,000 grain producing companies,
     [2] 43,000 farmers,
     [3] Ports,
     [4] Transshipment terminals,
     [5] Transporters of grain,
     [6] Shipping agencies,
     [7] Insurance companies, to say nothing of more than
     [8] 600 exporters of grain, which used to sell grain to 80
          countries of the world.

At present, companies that work on the grain market have nothing left
to do but cancel investment projects and dismiss staff.

Ironically enough, the situation is going on amid news of record grain
outputs, announced just before the start of this marketing year.

According to the Ministry of Agrarian Policy in June, 2006, grain production
was estimated at 40 m t, including 17 m t of wheat, 2/3 of which expected to
be food wheat. Export was forecasted to reach last year’s number, which is
more than 13 m t.

Considering it, exporters of grain in the beginning of MY concluded
contracts with their overseas partners, opened credit lines in domestic and
foreign banks, started purchasing grain to fulfill the contracts and
transporting it to port elevators.

After that, with no significant weather factor influence noted, Ministry of
Agrarina Policy lowered grain production estimate to 34.7 m t, wheat – to
14.3 m t. Other estimates were also reviewed downwards. Export forecast
was reduced to 9 m t (-45%).

So, it’s possible to make a conclusion that in Ukraine there’s no
trustworthy information about planting area, neither there’s a technique for
harvest forecasting or trustworthy information on directions and amounts

of grain use, it’s virtually impossible to detect real carryover stocks

This leads to disinformation of all market participants, making planning of
business activities impossible, and, as a consequence, causing significant
losses for them.

It’s notable, that whatever balance indicators are, State has all necessary
tools to influence grain market, including those specified by Laws of
Ukraine “On Grain and Grain Market of Ukraine” and “On State Support
of Agriculture in Ukraine”.

Conditions for “state regulation of prices on organized commodity markets”
were created, there is a system of crediting of commodity producers with
mortgage prices, state enterprises operate on a grain market as well.

In the very beginning of this MY [Marketing Year], all grain market experts
were aware of tight world wheat balance. It was necessary to form state
reserves of food grain in a timely manner to make sure unwanted speculations
caused by a lack a grain in the future will be avoided.

Moreover, in the beginning of MY grain prices reached their historical lows,
which created favorable conditions for its purchasing. In fact, such
purchases would support revenues of Ukrainian commodity producers.

But, instead of this, money allocated was not enough; moreover, it didn’t go
where it had to go. Instead of forming state reserves, State took grain as
collateral, which seemed illogical amid rising prices.
The reason why such a wrong decision was made is ignorance and
unwillingness to take part in learning what world grain market is and
inability to make domestic grain balances.

To have an effect on grain market, State had to purchase grain at market
prices. Decisions on purchases of grain and financing of such purchases
had to be made well in advance.

Money needed for interventional purchases should be allocated in June/July,
amounts of such purchases should be determined by experts.

Instead of this, Government, for insurance reasons introduced non-market
licensing followed by imposing quotas for grain exports amid balances
showing that Ukraine this year may and must export significant amounts of

Limitation of exports was immediately conversed into a “hand-held” regime.
As a result, grain terminals in Ukrainian ports have been blocked by grain
for two months now, because of congestion of railcars of “Ukrzaliznytsya”,
bans on shipment of any grain to certain ports were introduced, and even
rail cars loaded with Kazakh transit grain stand idle.

The whole infrastructure of grain market remains blocked.

There may be the following consequences of such decisions:

     [1] Mass defaults for Ukrainian exporters caused by non-
          fulfillment of export contracts.
     [2] Loss of trust in world markets for Ukrainian exports;
     [3] Discounting of export prices for grain in the next MY;
     [4] Loss of investment attractiveness for agrarian sector of Ukraine;
     [5] Failure of grain producers to return credits in time;
     [6] Mass losses incurred by carriers (Ukrzaliznytsya), ports,
          state institutions;
     [7] Negative impact on the amount of currency revenue, foreign
          trade balance, national currency exchange rate.

Authors of licensing and quotation resolutions in official analytical
materials pointed out that introduction of licensing and quotation of grain
exports will have no negative impact on social and economic indicators and

How was the question of possible influence of introduction of licensing and
quotation of grain exports analyzed?

Was it possible to anticipate reaction of IMF, EBRD, other international
institutions, appeal by the Ambassadors of the USA, Germany, Netherlands,
and how it would impact country’s image? Was it even possible to predict how
considerably lower incomes budget would have?

We don’t object to Verkhovna Rada’s decision to impose quotation for wheat
exports till the end of MY [Marketing Year] in amounts that are in fact
necessary to secure food safety of the country, but it’s important to point
out that limitation of feed grain exports is simply economically illogical
and clearly contradicts WTO requirements.

Balances of grain market prepared both in Ukraine and by overseas experts
prove that Ukraine has considerable export potential.

Ukraine cannot and doesn’t have to decline grain export activities. Today
producers of grain have a choice whether to sell grain on domestic market or
send it abroad, which creates competition.

In 2006/2007 MY [Marketing Year], Ukraine exported 13.2 m t of grain,
including 6.5 m t of wheat, 4.0 m t of barley, 2.6 m t of corn.

The value of exported grain, according to State Statistics Committee
amounted to $705 m for wheat, $520 m for barley, $253 m for maize, $1,5
billion all grains total.

This money makes up revenues for 11,000 agrarian companies, 43,000

farmers, 600 Ukrainian exporters, transporters, shipping agencies, ports,
state inspections etc. State acquires tax, agrarian sector receives investments.
Ukrainian market is gradually becomes saturated with latest technologies.

If our country didn’t export grain:
     [1] Thousands of grain producers and workers of numerous
          agrarian companies would go bankrupt,
     [2] Country would be deprived of multimillion foreign currency
     [3] Social situation in rural areas would go worsen.

The grain industry of Ukraine is export-oriented and to develop it both
production and export figures should go upward.

Domestic grain consumers (milling, cereal, meat and alcohol industries) are
interested in lower prices for grain and they can’t consume all grain. They
don’t compete with each other because they need different grain.

Lowering competition due to lower export would take domestic grain prices
to minimal level (as supply exceeds demand). Purchases of grain for export
prevent domestic prices from falling.
At present, boosting of grain production is viewed not only as means to
produce more food. New priority is the boosting of energy production on the
basis of agricultural products. Ukraine may use tens of millions tones of
grain on biofuel production in the future.

Biofuel production is nowadays fastest developing industry in the world,
which outpaces development and introduction of biotechnologies.

Development of biofuel market facilitates energetic independence of
countries, development of agriculture, and the reduction of green house
gasses emission.

Ukraine, considering its climatic peculiarities and international experience
in functioning of agricultural production can boost grain output numbers up
to 100 m t per year. This should be taken as a goal. It will secure domestic
needs and facilitate increasing of export availabilities.

Reaching such goals requires balanced state policies, viable economic
incentives, legal support, fulfillment of laws, predictability of the
market, absence of non-market influence, incentive tariff policies,
development of land market etc.

State should elaborate program for gradual buildup of grain output to
100 m t.
Ukraine has to increase grain production rather than endanger grain
producers with overprotecting and creating too favorable conditions
for some certain processing industries.

The question arises whether it’s necessary to restrict exports of steel,
cast iron etc, according to the logic of the Government?

Is it vitally important to limit exports of meat and meat products, domestic
prices for which are also rather high? Or maybe it’s more reasonable to let
market determine amounts of products to export, especially for feed grain?

If agrarian policy of the country is aimed at increasing of grain
production, government decisions have to be analyzed whether they meet
interest of producers. Resolutions passed by the Government so far
evidence that they clearly contradict interests of producers.
Thousands of businessmen over 15 years of Independence of Ukraine have
been tediously working on creation of efficient grain market in Ukraine.

Our grain is nowadays sold all around the world, which shows that Ukraine
is acknowledged as a prominent grain-exporting country. Latest events,
unfortunately, may liquidate all these accomplishments.

Decisions to restrict grain exports will have long-term consequences for
grain industry, which is strategic for Ukraine, while high risks of
explosions in ports due to self warming of grain may cause casualties,
that’s why we think it’s vitally important to address this issue to the

meeting of National Security and Defense Council of Ukraine.    -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Government actions jeopardises Ukraine’s WTO entry & investment prospects.

Country Briefing: EIU Economy – News Analysis
The Economist Intelligence Unit Limited
New York, New York, Thursday, November 16, 2006

Ukraine, the world’s sixth-largest grain exporter, has halted all exports in
order to keep down bread prices, following forecasts for a reduced harvest
this year.

The government’s actions in the grain market since mid-year underline
several problems: [1] a lack of strategic planning; [2] administrative
opacity; and a [3] tendency to overreaction.

Yet the most serious problem is the government’s instinctive tendency to
intervene in the economy, rather than allow markets to work. This
jeopardises Ukraine’s WTO entry and investment prospects.

Ukrainian grain exports in the first half of November have been a fraction
of their usual level, owing to administrative obstacles in the wake of a
government-introduced export quota.

Speaking on November 17th, President Viktor Yushchenko said that vessels
with 200,000 tonnes of grain were stuck in ports, with a further 1.4m tonnes
waiting to be loaded.

He called on the government to take action to resume the grain trade, noting
that the current situation threatened to deprive Ukraine of its traditional
markets and to create tension with trading partners. Underlying his comments
is a fear that the government’s interventionism could impeded accession to
the WTO.
                                BREAD IN EVERY MOUTH
The government of Prime Minister Viktor Yanukovych-the oligarchic rival of
Mr Yushchenko-has intervened in the grain market following forecasts of a
weaker harvest this year.

In 2004 Ukraine’s grain harvest was 41.8m tonnes; in 2005 it was 38m tonnes
and is forecast to be 35.1m tonnes this year. Wheat production is forecast
to fall to 14.4m tonnes, from 18.7m tonnes in 2005, according to the
agriculture ministry.

Data from the state statistics committee show that grain stocks as of
October 1st were down 23% year on year.

In response, prices have risen to HRN534/tonne in the first nine months of
this year, compared with HRN474/t in the corresponding period of 2005;

wheat prices have risen to HRN551/t from HRN485/t over the same period.

Indeed, global prices have risen in response to poor harvests in many
countries in the last two years.

Consequently, Ukrainian grain producers have increased exports: according

to data from the agriculture ministry, grain exports in the first four months
of the marketing year (which began in July) amounted to 5.7m tonnes, which
is up 30% year on year.

The rise in prices frustrated the government’s belated efforts to build a
strategic grain reserve, comprising 400,000 tonnes of bread-quality wheat.
The responsible state agency was unable to make the purchases at the target

According to a Financial Times report, state officials then sought to force
grain traders to sell their stocks at a US$20/tonne discount, but were

Instead of agreeing to pay more, the government on September 28th introduced
without warning a new licensing regime for exports; its complexity and the
lack of preparation time sharply curbed grain exports.

Following industry protests, this was replaced on October 11th by export
quotas to the end of the year. The overall grain export quota was set at
1.6m tonnes, comprising: 600,000 tonnes of maize; 600,000 tonnes of barley;
400,000 tonnes of wheat; and 3,000 tonnes of rye.

The quotas have been successfully challenged in court but remain in place.

Indeed, confusion over the legality of shipments under the new arrangements,
and the required licensing, have all but halted grain purchases for export.

Seaport grain shipments during November 1st-15th fell by 79% to 77,600
tonnes, from 373,850 tonnes during October 1st-19th. There is also
considerable confusion over the method by which quotas are to be allocated.

Mr Yanukovych is unapologetic for the losses inflicted on Ukrainian and
foreign investors in the agricultural sector-which are likely to be around
several hundred million dollars.

He insists that the government had to act, in order to prevent bread prices
from doubling. Nor is the end necessarily in sight: Deputy Agriculture
Minister Petro Verbytskiy said on November 15th that the government might
impose an export quota of 1.8m tonnes for the first half of 2008.
                                   CLUMSY AND OPAQUE
Several aspects of the grain-quota affair are noteworthy.

[1] First, the government has acted in an opaque manner. The licensing
requirements were introduced without warning, let alone any consultation,
leading to huge confusion.

Business plans have been wrecked by the cabinet’s decisions, and the
paralysis of exports since the start of November is squarely a consequence
of confusion within the state customs service over how the new export

regime is to work in practice.

Perhaps most importantly, there is little or no clarity over how mechanism
for distributing quotas. Nor is it certain that the cabinet is moving
determinedly to resolve this problem-the longer it goes on, the lower
domestic grain prices will go.

On November 15th the authorities formally authorised the customs service to
resume exports, but simultaneously it suspended licenses that cover
approximately half the wheat and barley quotas.

[2] Second, it can be argued that the government has engaged in overkill. In
a joint public statement, the US, Dutch and German ambassadors to Ukraine
described the intervention as unnecessary because there are credible
estimates that the 2006/07 harvest will be in line with historical averages.
They added that there was insufficient clarity over the level of reserves
held by the government.

Even if action on wheat was necessary, to keep bread prices down, the
restrictions on barley and other grains are questionable. Volodymyr
Klimenko, the president of the Ukrainian Grain Association (UGA), has said
that his organisation is prepared to accept a 1.3m tonne quota for wheat
exports to mid-2007, but argues that barley and maize production this year
is sufficient to satisfy both domestic and foreign demand.

The UGA estimates that Ukraine can export 5m tonnes of barley and 1.5m
tonnes of maize in the 2006/07 marketing year without risking shortages on
the domestic market.
                                 SAME OLD MEDDLERS
Most significantly, the affair reveals the economic philosophy of Ukraine’s
current government-which is little different to that of most previous
Ukrainian governments. Nearly every Ukrainian administration has struggled
to establish and run the strategic grain reserve in an efficient manner.

Equally, they have failed to develop strategies and institutions to bring
stability to the grain market; instead, when faced with a crisis, they have
intervened directly. This mode of operating is not limited to Mr Yanukovych’s
government, nor to the agricultural sector.

In 2005 the “Orange” government led by Yulia Tymoshenko responded to

rising oil prices in the country by blocking fuel exports and forcing the
country’s oil companies to accept price caps.

If there was a hope that Mr Yanukovych’s administration-with much more
experience of running the country-would be better at managing such crises,
it has been disappointed. The Ukrainian state’s instinct to interfere, and
its inability to plan strategically or build effective institutions, remains
the same.

The implications of this are manifold, but two stand out: the highly
negative signal sent to [1] domestic and foreign business, and to [2] the
countries whose support Ukraine needs to join the WTO.

For businesses, the fact that a Ukrainian government has once again
intervened directly in the market, at the first sign of political trouble,
highlights the risks of investing the country.

No investor, foreign or Ukrainian, is likely to be reassured by the content
and tone of Finance Minister Mykola Azarov’s justification for government

Having claimed that traders wanted to buy grain “for nothing”, he continued:
“The price that was set now is a normal market price, which covers all of
the expenses of the producers and creates a certain profitability. The state
cannot allow itself to buy grain at unrestricted prices.”

Nor has the grain market intervention done Ukraine any favours in its WTO
bid. As the three Western ambassadors noted, foreigners have invested nearly
US$1bn in the Ukrainian agricultural sector but will probably lose several
hundred million dollars as a result of export restrictions.

Mr Yanukovych has expressed a hope that Ukraine’s trade partners be
understanding and says that “in the future we will build normal relations.”

However, Ukraine’s governments have such an established track record of
interventionism, that it is not clear why anyone should give the current
prime minister the benefit of the doubt.

If Mr Yanukovych is forced to choose between keeping bread prices low and
bringing Ukraine into the WTO, it seems he will opt for the former without
hesitation.                                        -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
     Recommendation is therefore to abolish quota system as soon as possible.

By Stephan v. Cramon, German Advisory Group and
Professor of Agricultural Economics, University of Goettingen
Martin Raiser, Economic Advisor, World Bank Country Office, Ukraine
Institute for Economic Research and Policy Consulting In Ukraine
German Advisory Group on Economic Reform
The World Bank, Kyiv, Ukraine, Monday, November 27, 2006

            The Quotas on Grain Exports in Ukraine: ineffective,
                              inefficient, and non-transparent*

                              EXECUTIVE SUMMARY:
On September 28, 2006, the Government of Ukraine introduced a system of
licenses for grain exporters. This system was subsequently replaced with a
quota system.

In both cases, the argument made to support these market interventions is
that they are needed to guarantee food security and protect domestic
consumers from rising international wheat prices. This short policy note
argues that:

[1] The introduction of the quota is not justified, because domestic grain
supply is amply adequate to cover all domestic needs and allow considerably
higher grain exports than estimated by the government.

This year’s grain production is well above the average of the last ten years
and high beginning stocks contribute to the good the supply of grain in the
2006/07 marketing year.

Furthermore, if the quota was implemented to keep bread prices stable, there
is no justification at all for the introduction of a corn and barley quota.
Finally, if stabilising consumer prices is such a concern, why does Ukraine
maintain import tariffs on grains?

[2] Ukrainian food consumers gain very little from the quota. Although wheat
prices have been constant, prices for flour and bread have actually
increased since the quota’s introduction.

In fact, wheat prices contribute only to a certain percentage to the final
bread price. The impact of lower feed prices on the prices of meat and dairy
is expected to be very limited.

[3] At the same time, the quota system imposes large losses on grain
producers and significantly affects export revenues.

Total lost export revenue until the end of 2006 are estimated at US$300
million, while the estimated reduction in farmgate prices by around
US$25/ton could lead to cumulative revenue losses in wheat production
alone of US$350 million during the 2006/2007 marketing year.

The proportion of the poor engaged in agriculture in Ukraine is larger than
the average for the country, hence this reduction in revenues for grain
producers may actually increase rather than decrease poverty.

[4] The quota system also hurts grain traders, who have invested significant
amounts of money in grain storage and other logistics to facilitate exports.

Traders incur additional storage costs, financing costs, costs of hiring
shipping tonnage that remains unused, and potential loss of market share
because delivery times cannot be kept.

As a result, an industry that has generated close to US$300 million in
Foreign Direct Investment in recent years may scale back. Even if the quota
was to remain only temporary, the loss of Ukraine’s reputation as a reliable
host for foreign investment could cause lasting damage.

[5] The administration of the quota system so far has been highly
non-transparent, and thus creates opportunities for corruption. Companies
able to secure an export quota can presently cash in a profit of US$ 25/ton
(the equivalent to the lost revenue for producers).

Based on the existing wheat quota alone, this amounts to a pure profit of
US$ 10 million until end 2006. Additional losses due to incentives to
smuggle grain out of the country are likely.

[6] Domestically, the main beneficiaries of the quota are flour millers and
animal feed producers, whose profit margins increase as a result of falling
grain prices on the domestic market.

[7] Thus, the quota is an ill-advised and poorly targeted measure to protect
the poor in Ukraine. Alternative measures exist that would protect the poor
from rising food prices, including the use of means tested cash transfers

The quota system is both ineffective (does not reach the poor), inefficient
(imposes large cost for very limited gain), and prone to corruption.
The paper’s main recommendation is therefore to abolish the

quota system as soon as possible.                     -30-
* The note has benefited from comments and contributions by: Riccardo
Gucci, Oleg Nivyevskiy, and Heinz Strubbenhoff (all IER, German Advisory
Group) and Asad Alam, Matthias Grueninger, Ruslan Piontkivskiy, Lee
Travers and Peter Thomson (all World Bank).
The imposition of a quota only affects prices if the quota is in fact
binding. The quota for grain exports introduced in October amounts to a
total of 1.603 million metric tons (MMT), with 0.6 MMT respectively for
barley and corn, 0.4 MMT for wheat and 0.003 MMT for rye. The quota is
currently valid for the remainder of 2006.

A new draft Cabinet of Ministers resolution published 22 November would
bring the quota for the year to 2.873 MMT for the 2006/2007 marketing year,
with 0.73 MMT for wheat, 1.3 MMT barley, 0.84 MMT for corn, and 0.003
MMT for rye. Government sources expect Ukrainian grain exports in the
2006/07 marketing year to amount to 9.5 MMT. What this implies for further
relaxation of the quota during the course of 2007 remains unclear.

How do these numbers compare with production and net export data in recent
years? Official data on wheat production, net exports and in particular
storage are incomplete, often published with considerable lags and
considered unreliable by many market participants.

This lack of quality statistics is in itself a significant hurdle for the
operation of grain markets. A series of private data sources are available,
as well as data from the United States Department of Agriculture. In this
paper, we use data from the private market information agency

Table 1 tracks the supply and demand (S&D) estimate for Ukraine for the last
three marketing years plus the current 2006/07 marketing year. The S&D
estimate for wheat is attached in Table 2. The total 2006/07 grain crop of
Ukraine is estimated to amount to approximately 35 MMT. This is below last
year’s crop of 36.6 MMT, but nevertheless well above the ten year average
and much higher than the low 2003/04 crop. (NOTE:  To see the tables
referred to in the article click on:]

Moreover, grain stocks at the end of the 2005/06 marketing year were large.
Thus, the total supply of grain in Ukraine – ending stocks of the last
marketing year plus the year’s crop and grain imports – is very large: 37.8
MMT. The total domestic use of grain is expected to increase to 24.4 (last
year: 23.3) MMT, especially due to growing demand from the livestock sector.

This would, however, still allow for total exports considerably above the
Government’s forecast of 9.5 MMT. Indeed, assuming exports stayed at the
levels of 2006/2006, which was a record year, there would still not be any
shortage on the domestic market, while taking a more conservative export
forecast of 10.2 MMT provided by UkrAgroConsult endyear stocks of grain
would actually increase.

The situation is quite similar for the wheat S&D statistics, which are part
of the total grain S&D statistic. The 2006/07 wheat harvest was well below
previous years due to the dry autumn last year and some winter kill, which
reduced both harvested acreage and yield.

However, a wheat crop of close to 14 MMT is still an average crop and
clearly much higher than the crop of 2003/04. Taking total supply and
forecast domestic demand (with a slight increase in the share of fodder
wheat due to insect damage), exports of close to 5 MMT would still be
possible. In fact, UkrAgroConsult forecasts wheat exports to total only
2.8 MMT, which is still well above the currently allocated quota. (1)

The lack of justification of the quota is most obvious for the case of
barley. The 2006/07 barley harvest reached a ten year high. And despite a
very large increase in domestic use to 6.4 MMT(last year: 5.3), exports
could increase by over 50% without exhausting stocks. Note in addition that
barley is mainly used for feedstock and thus a quota on barley exports has
no direct impact on food security.

However, the distinction between feed wheat and milling wheat is ultimately
a question of degree and price rather than kind. In bad years, millers will
accept lower quality wheat and can if necessary make up the difference
through purchasing supplements.  Moreover, the quota makes no distinction
between flour and fodder wheat.

Until the end of September, when Ukrainian grain exports were stopped, the
country had exported 1.62 MMT of wheat and almost 2.2 MMT of barley.

Exports in October, which were already within the quota, amounted to 0.388
MMT of wheat and 0.496 MMT of barley. Thus, total exports for the 2006/07
marketing year to date are 2 MMT for wheat and 2.7 MMT for barley.

Adding the unallocated amount of the proposed revised quota (0.35 MMT for
wheat and 0.8 MMT for barley), the resulting figures are still well below
the numbers which would lead to a decline in wheat and barley stocks. The
quota is therefore clearly unjustified from a domestic food security point
of view and very clearly highly binding.

The imposition of quantity controls is under any circumstances a very
inefficient and blunt policy tool to achieve a stated objective. The losses
to an economy and society are always greater than the gains.

This basic principle is a widely accepted result in trade economics, and has
influenced the strong position taken for instance in the GATT Article IX,
paragraph 1, against the imposition of quantitative restrictions. Annex 1
explains the economic argument with the help of a simple diagram, which
shows that the losses suffered by domestic producers are always larger than
the gains to consumers.

How much are grain producers in Ukraine losing as a result of the quota? The
size of these losses depends on the impact of the export quota on farm gate
prices. Chart 1 provides information on wheat price developments since the
beginning of 2006 in Ukraine and on world markets.

Since mid-2006, FOB prices (Free On Board, in the US and the EU), which
represent the world market price level, have increased from roughly 140 to
200 US$/t.

These price movements have been driven by indications that world grain
production will fall short of consumption in the 2006/07 marketing year.
Rising demand for food production and biofuel together with lower than
expected grain production in the US and the EU and the devastating drought
in Australia have fuelled the sharp price rises. The Ukrainian export quota
has also contributed to higher world market prices in other countries.

Chart 1 shows that prior to the implementation of the quota, Ukrainian EXW
prices tended to mirror world market prices minus a margin of roughly 25
US$/t. Since the imposition of the quota, however, this margin has increased
to roughly 50 US$/t as Ukrainian grain price developments have been divorced
from corresponding world market price developments, and Ukrainian EXW
prices have remained essentially constant. (2)

The result is that 25 US$/t less is being paid for grain at the EXW level
than would be the case without the export quota system. It is safe to assume
that the resulting reduction in farm gate prices is at least as large.

Assuming that this reduction in farm gate prices is maintained over the
entire marketing year, wheat producers stand to lose a total of US$ 350
million in revenues (25 US$/t over 14 million t). If farm gate prices for
all grains fall by a similar amount, revenue losses of US$ 875 million could
result. (3)

At the same time, Ukraine as a whole is losing export revenues and the
corresponding foreign currency earnings as a result of the quota.

If the price relations prevailing in the first 8 months of 2006 are taken as
a guideline, FOB prices for Ukrainian wheat would have followed the
international trend and would be in the neighbourhood of 190-200 US$/t at
the moment, if not for government interference in the form of the export

Using this price, and a (conservative) average monthly export volume for
wheat before the quota in the order of 0.5 MMT (which corresponds to
slightly less than the average monthly wheat exports during the previous
four seasons), Ukraine is currently foregoing export revenues for wheat in
the range of USD 100 million per month.

For barley, similar calculations based on average exports of 0.4 MMT and a
FOB price in the neighbourhood of 140 US$/t suggest additional forgone
monthly export revenues of another USD 60 million. For corn, losses would
range around US$ 30-40 million.

Until mid November, these losses accrued fully because effectively no
official exports were taking place. Since then, limited exports have resumed
under the quota system. Nonetheless, based on the estimates in section 1,
we can safely assume that the current quota for grain exports until end 2006
effectively cuts grain exports to 1/3 or so of their level without quota.

The estimated total reduction in export earnings until year end would
thus amount as a minimum to approximately to US$ 300 million and

increase the current account deficit by 0.3% of GDP all else equal. (4)

Proponents of the export quota might object to these calculations by
pointing out that these export revenues are only temporary and can be
recouped later on, if the quota was to be lifted or relaxed and exports
re-allowed. This reasoning misses two important points, however.

First delayed exports result in a number of costs. The grain in question
must be stored in the interim, which leads to financial losses in the form
of bound capital, and quality losses in storage. Moreover, real economic
losses accrue to grain traders, who have hired transport ships, at the cost
of several tens of thousands of US$ per day.

Second, there are obvious limits to Ukraine’s storage capacity, and given
the S&D statistics presented above, not all producers will be able to wait
things out. The opportunity costs of not being able to export today could
thus be significant, particularly for smaller producers without access to
their own storage.

In fact, if the purpose of the export quota – to lower consumer prices for
grain and grain-based products – is taken seriously, then over the marketing
year there must be some significant net reduction in exports (so that
domestic supply is significantly increased and prices are effectively
reduced). Hence, a reduction in net export revenues is the inevitable price
that Ukraine pays for implementing a binding quota.

These are only the immediate financial damages caused by the export quotas.
The indirect damages due to corruption, loss of investment and damage to
Ukraine’s reputation could be significantly higher in the long term:

   CORRUPTION: As a result of the difference between the domestic and
world market price, there is a great incentive to obtain export quotas.

For instance, if the difference between the domestic and international price
for wheat is around US$ 25/ton and if the allowable quota is 0.4 MMT for
wheat, then the value of this quota is US$ 10 million until the end of 2006.

This is a pure profit transferred directly to the enterprise that was able
to obtain the quota and represents a significant incentive for corruption.

If the government allocates the quota on a competitive basis, some of these
profits could be recouped through an auction. However, so far, the quota
system has been administered in a largely non-transparent way. (5)

   LOSS OF INVESTMENT: The export quotas for grain make mockery
of government claims that it welcomes and wants to attract foreign
investment in agriculture. The total stock of FDI in agriculture amounted
to US$294 million as of April 2006, with significantly higher numbers in the
downstream food industry.

The de facto export ban hits firms that have been at the forefront of
efforts to modernize and transform Ukrainian grain production and marketing,
and have invested in upgrading grain storage, transportation and port

This investment, the corresponding jobs and transfer of know-how are at
risk, if Ukraine’s Government is perceived to be an unreliable partner.

   LOSS OF REPUTATION: Ukraine is an important European grain
exporter. For international grain traders, reliability of supply is

The introduction of the quota and the subsequent complete stop to grain
exports for a couple of weeks have not only imposed direct financing,
storage and shipping tonnage costs on producers and grain traders, but also
meant that some traders were unable to fulfill delivery orders at the other
end on time.

This has a price, too, and means that Ukrainian grain may henceforth be
traded at a discount to compensate for export and delivery risk.

The loss of reputation is naturally highest in the grain market, but it
could extend to other sectors where foreign investors may ask for a risk
premium to compensate them for the uncertainty surrounding government

This creates the risk that the grain is purchased by a trader and stored but
the quota is not obtained. This is clearly not in line with international

   WTO MEMBERSHIP AT RISK: A final economy-wide cost of the
quota is that it may cause complications to Ukraine’s WTO accession bid.
As noted above, under paragraph 1 of Article XI of the GATT, quantitative
restrictions are in principle ruled out.

Since this concerns an agricultural commodity, the rule can be waived if
the quantitative restriction is needed to support domestic agricultural

In fact, however, Ukraine would have a hard time justifying its stance on
acceptable principles. First, with the grain harvest at 35 MMT in 2006,
there is no real issue over food security that would justify an export

In fact, Ukraine still applies an import tariff of 20 Euro per ton on corn
(6), rye and barley and of 40 Euro per ton on wheat. WTO members could
reasonably ask for this to be removed first, if the issue was one of
immediate food security (as provided for in the so called “safeguard

Second, from the point of view of supporting agriculture, the present quota
makes no sense at all, since the bulk of the costs are in the end borne by
grain producers.

However, we use the cautious formulation “may cause complications” above
because WTO members tend to be far more sensitive about import than
export restrictions.

Indeed, if anything, Ukraine is as a result of its export restriction
subsidizing grain exporters from Russia and Europe, who are gaining
market share and benefiting from marginally higher prices given the lack of
supply from Ukraine.

Despite its large costs, proponents of the quota may still argue that these
costs are only borne by international grain traders and hence don’t really
hurt average Ukrainians, whereas the benefits of lower domestic food prices
are widely shared and particularly welcome for the poor. This argument is
not borne out by evidence.

As Chart 2 suggests food prices have on the whole tended to dampen rather
than push consumer price inflation over the most recent 12 months. Flour and
bread represent 0.54% and 3.87%, respectively, of the consumer price basket.

Thus while the price of bread has an important symbolical value in a country
that experienced one of the worst famines ever recorded in the 1930s, it is
not a major contributor to the cost of living.

Even if the recent rise in international grain prices had been fully passed
through to domestic consumers this would have led only to an increase of
1.75 percentage points in the CPI.

In fact, since the imposition of the grain quota, flour and bread prices
have increased, by 2.3% and 2% respectively in the month of October. This
has happened although the domestic price of wheat has been constant since
the summer. Hence, whatever benefit has been derived from keeping grain
prices low has not been passed on to consumers so far.

One reason why this is the case is that the price of flour and bread
reflects a host of factors, including the price of energy, wages,
transportation to market and a retail margin.

Energy prices, for instance, have increased significantly in the domestic
market since the summer and this may account for higher flour and bread

In some instances, even abstracting from other cost factors, the impact of
lower grain prices on consumer food prices will be effectively nil in the
short run. Take the livestock feeding sector as an example. Since the stock
of animals to be fed is more or less fixed in the short run, the demand for
feed grain is also more or less fixed.

Thus should feed grain prices fall, this will have no immediate impact on
the supply of meat and cattle and hence no immediate impact on meat and
dairy prices (a somewhat price elastic supply curve may exist in the poultry

Furthermore, in particular in the pig and poultry industry meat and
feedstock production are vertically integrated and relatively highly

In the absence of competition there is no reason why meat or feed
producers should pass lower costs on to their customers.

There is every reason to fear, therefore, that the net impact of export
quotas will largely be to tax farmers at one end, and inflate the profits of
meat producers and feed and flour mills at the other, with little or no
noticeable impact on consumer prices, at least in the short run. (7)

At the conceptual level, export quotas are an exceedingly ill-targeted tool
to help consumers who are truly threatened by food price inflation.

To the extent that export quotas for grain really do result in a measurable
reduction in food price inflation, all consumers benefit; rich and poor.
There is no denying that increasing food prices could represent a
significant burden to poor Ukrainians.

But certainly not to all Ukrainians, many of whom have benefited from
increasing real incomes over the last five years of economic growth. A
significant share of whatever benefits the export quotas generate will not
go to help poor consumers but rather be ‘wasted’ on consumers who can
actually afford to pay more for food.

In summary, the argument that export quotas are designed to support
consumers is weak. Experience with similar interventions in Ukraine and
elsewhere shows that it is often instructive to consider whether perhaps
there are other ‘hidden’ beneficiaries, who are using populist arguments as
a cover for other motives.

In particular, anyone who manages to export despite the export quota system
(i.e. smugglers or those who succeed in bribing officials) will profit
handsomely. Based on the price data presented in Chart 1 above, the margin
between the world market price for wheat and the corresponding EXW price in
Ukraine is currently roughly 25 US$/t higher than is usually the case.

We noted above that for wheat alone this provides a pure profit to anyone
able to export totaling US$10 million until end 2006. This profit provides
both a powerful incentive to get around the export quota system, and the
financial means of ‘persuasion’ to do so.

Indeed, many observers suggest that the underlying purpose of the export
quota system is not to reduce exports but rather to make them more lucrative
(at the expense of Ukrainian farmers) and to redirect the proceeds into
certain pockets.
The grain quota is a costly tax on producers and investors in the
agricultural sector. It is an ill-advised policy instrument, giving rise to
fears of corruption and damaging Ukraine’s reputation.

Moreover, taxing farmers to help consumers (even if it were more effective
than we show to be the case presently) is clearly inconsistent with the
stated policy goal of supporting agriculture in Ukraine.

Indeed, according to the draft 2007 budget, 7.3% of total public expenditure
will be channeled towards agriculture, the equivalent of 1.8% of Ukrainian

It is contradictory to give this money to agriculture with one hand, and
take it away via export quotas with the other. Clearly, it would make more
sense to reduce farm subsidies and use the resulting fiscal space to reduce
taxes (thus helping consumers) and/or provide consumers with direct income
transfers to help them cope with increased food prices.

The main policy recommendation that follows from the analysis in this short
note is to abolish the export quota as soon as possible. Time counts,
because of the costs that even a temporary quota imposes both financially to
grain producers and traders and by damaging Ukraine’s reputation.

The gains, as this note argues, are skewed to the benefit of flour and feed
mills as well as meat producers rather than consumers at large, and in any
case an export quota is a particularly blunt and distortive instrument to
shield consumers from the effects of rising world grain prices.

Nonetheless, it is important to realize that grain prices may play an
important political role. Indeed, interventions into the grain market are
not new in Ukraine and have been justified in the name of food security in
the past.

Should the government be genuinely concerned about the impact of rising
grain prices on the poor, the first best policy would be to a cash transfer
system targeted to the poorest segments of the population.

As the government deals with the social impact of administrative price
increases for energy and municipal utilities, adding a small cash transfer
program calibrated on developments in domestic food prices would not
represent a significant additional difficulty.

Such transfers should ideally be funded from general government revenue
(and, indeed, fiscal space for them could be easily created by limiting and
reorienting wasteful agricultural subsidies).

In the extreme case of an acute revenue shortage, an export tax on grain
would still be preferable to the quota system since it does not create the
same risks of corruption, whilst generating the same effect of lower
domestic prices.

However, because Ukraine has no market power in the international grain
market, it will still lose significant export revenues from an export tax,
which will translate into lower producer incomes. As we have argued in this
note, the current supply and demand situation in Ukraine’s grain market
hardly justifies any government intervention.

The abolition of the grain export quota is one way for the Ukrainian
government to reconfirm its market orientation and reformist credentials.
The sooner this happens the better for average Ukrainians.
A quota is essentially an intervention into the market through quantity
controls with the aim to affect the domestic price. In the case of an export
quota, the government aims to lower domestic prices below the world market
price, which is taken as given in most instances – this is certainly the
case for grain. If the quota is binding, domestic prices should fall to the
benefit of domestic consumers of grain.

At the same time, however, producers of grain (and those companies involved
in the export of grain since Ukraine is a net grain exporter) lose out. How
do these gains and losses compare? This section shows using a simple diagram
that the imposition of a quota generates overall welfare losses – in other
words, the losses of producers are larger than the gains of consumers.

Chart 3 explains why. The diagram shows the supply and demand for wheat in

a price quantity space. The supply curve is vertical, since grain is an annual
crop the supply of which in the short run cannot be altered by policy.

Before the imposition of a quota, the demand curve is downward sloping (the
lower the price, the more is demanded), but kinked at the world market price
P(world). This is because at the world price, producers are indifferent
between selling domestically or abroad and the demand curve becomes the
world demand curve. The domestic economy consumes at a, and total exports
are ae.

If the government introduces an export quota, ab, then domestic producers
will supply domestic demand a, then export the amount allowed by the quota
ab, and after this will be forced to sell the remainder of the harvest on
the domestic market. Hence, after b, the demand curve slopes downward again,
until it cuts the supply curve at point d. This corresponds to a domestic
equilibrium price P(dom) below the world market price.

The welfare effects are simply calculated. As a result of the quota, the
consumer surplus (the area below the demand curve and above the domestic
price level) increases by abcd. However, the producer surplus (the area to
the left of the supply curve and below the domestic price level) falls by
acde. A net welfare loss is created by the imposition of the quota, equal to

We provide approximate estimates of the size of this welfare loss in the
next section. Suffice to note here, that the size of the area bde is a
function of the gap between the domestic and the international price for
grain, which in turn depends on the size of the quota relative to exports
under free trade and the elasticity of demand (which is represented
graphically by the slope of the demand curve).

However, here it is important to note that there are additional welfare
losses associated with the quota system. This is because, as a result of the
difference between the domestic and world market price, there is a great
incentive to obtain export quotas. Every exporter has an incentive to
allocate additional resources to obtain the quota (the literature calls this
“rent seeking behavior”) and these additional resources are a net loss to
social welfare.

The size of this welfare loss depends on the mechanism for allocating the
quota. If this is through competitive and transparent auction, then rent
seeking is minimized. However, usually other means of allocation (nepotism,
patronage, discretion etc.) dominate, and the size of rent seeking expenses
may in fact far exceed the total value of the quota and thus welfare losses
multiply.                                      -30-
(1) The argument is sometimes made that due to the lower quality of the
wheat harvest, available milling wheat may not exceed domestic demand by

much and hence the quota on wheat exports (particularly if increased to 0.73
MMT) is adequate.
(2) The Ukrainian FOB price in Chart 1 is, since the implementation of the
quota, essentially a fictional price, as no (official) trade is taking place
at the moment.
(3) The impact on poverty would depend on the distribution of agricultural
revenues across the rural population, on which we know little. The household
budget survey does show that the poor are more likely to live in rural
areas, and average agricultural salaries are well below the national
How revenues are distributed within farms is something that would require
deeper analysis, but it is plausible that the reduction in revenues could on
balance hurt the poor in rural areas and thus may actually increase overall
(4) Estimated exports from Oct-Dec without quota 1.5 MMT wheat, 1 MMT
barley. Losses if quota is fully utilized are 1.1 MMT of wheat * USD200, 0.4
MMT barley * USD140, totals USD 304 million.
(5) Initially, the Ministry of Economy favored an allocation on a
first-come, first-served basis. Later, the idea of an auction was floated.
In the event, general regulations were issued in mid-November, which would
appear to leave significant room for discretion and also require any
applicant to have grain in storage by the time of the application.
(6) The tariff on corn is 20 Euro/ton or 25% ad valorem, whichever is the
(7) Note that one of the stabilizing factors for meat and poultry prices in
2006 has been the export ban on Ukrainian meat imposed by Russia. However,
no one has argued so far for keeping this ban in place to stabilize domestic
meat prices.
NOTE:  To see the several charts referred to in the article click on:
Institute for Economic Research and Policy Consulting in Ukraine
German Advisory Group on Economic Reform
Reytarska 8/5-A, 01034 Kyiv, Tel 38044 278-6342, 278-6360, Fax 278-6336
World Bank Country Office Ukraine
1, Dniprovskiy Uzviz St., 01010 Kyiv, Ukraine
Tel: (+38044) 490 6671/72/72, Fax 490 6670,
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Ukrainian News Agency, Kyiv, Ukraine, Wednesday, October 25, 2006

KYIV – The International Monetary Fund has recommended that the Cabinet

of Ministers cancel the quotas for export of grain. The IMF announced this
in a statement.

“The temporary introduction of a quota for export of grain and the
reappearance of the problem involving timely refund of VAT are negative
signals that need to be reversed in order to persuade investors that the
business climate is being corrected,” the statement said.

The IMF stresses that despite the Cabinet of Ministers’ declared intention
to create a market economy that is open and really works, several of the
steps that have been taken in the past few months do not correspond to the
declared intentions.

The IMF believes that improvement of the investment climate in Ukraine is
one of the main tasks of the government. In this context, the IMF believes
that adoption of non-market decisions in various sectors is inappropriate.

As Ukrainian News earlier reported, the Cabinet of Ministers recently
introduced a mechanism for setting quotas for export of grain. The

mechanism came into effect on October 17.

The total export quotas for 2006 are 400,000 tons for wheat and
wheat-and-rye mixture, 600,000 tons for barley, and 600,000 tons for

corn, and 3,000 tons for rye.

Prime Minister Viktor Yanukovych has said that the Cabinet of Ministers
intends to cancel the restrictions on export of grain after completing grain
purchases into government and regional government reserves.

The Cabinet of Ministers introduced licenses for export of wheat and
wheat-and-rye mixtures in September until the end of 2006.

Grain-market experts have said that grain prices are falling on the domestic
market due to the introduction restrictions on grain exports.     -30-
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Associated Press (AP), Kiev, Ukraine, Thursday, November 9, 2006

KIEV – Three Western ambassadors to Ukraine, including the U.S. envoy,
criticized this ex-Soviet republic Thursday for putting limits on grain
exports, saying they could harm its bid to join the World Trade Organization
and discourage foreign investment.

“Our view (is) that it is not necessary to intervene in the market,” U.S.
Ambassador William Taylor said during a news conference with the German

and Dutch ambassadors. Taylor said the “damage is being done to WTO
prospects, to (the) investment climate, not just in the food sector.”

Ukraine, once known as the breadbasket of the Soviet Union, is the world’s
sixth largest grain exporter. In September, Ukraine’s government put limits
on how much wheat could be exported.

A court has frozen the export limits, but authorities continue to defend the
restrictions, saying they must ensure the country has enough wheat to supply
Ukrainians with bread. Rising bread prices in the past have sparked strong
public protests in Ukraine.

The Agriculture Ministry forecasts wheat yield this year at 14.4 million
tons, compared with 18.7 million tons in 2005. Bad harvests have been
reported worldwide, increasing demand for wheat.

The ambassadors argued, however, that credible estimates indicated Ukraine’s
wheat harvest this year was in line with normal historical averages and was
nothing to be concerned about. They also said it was unclear how much grain
the State Grain reserve currently has in storage.

Additionally, the diplomats complained that the restrictions were not
enacted in a transparent manner. “In fact, we are talking about the
cessation of grain exports from this country,” German Ambassador Reinhard
Schafers said.

The ambassadors said that grain traders from their countries had invested
nearly US$1 billion (EUR790 million) in the Ukrainian economy and were

now facing losses in excess of hundreds of millions of dollars (euros).

“Investors…will think twice if they see the government intervene in the
market,” Taylor said.  President Viktor Yushchenko has made joining the
WTO a priority, and Prime Minister Viktor Yanukovych said he hoped
Ukraine could join by February.                       -30-
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Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006

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

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

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

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

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Ukrainian International Agricultural Newsletter
Kyiv, Ukraine, Monday, January 29, 2007

KYIV- Some of the very serious negative consequences for Ukraine
of the Yanukovych governments decision to restrict grain exports are:

[1] Diminishing of the profits of agricultural producers, impossibility
     to pay back loans;
[2] Expected decline of purchase prices in spring 2007,
[3] Lowering influence of transitional stocks on prices in July, 2007;
[4] Discounting of export and internal purchase grain prices in a next
     marketing year;
[5] High probability of insufficient sowing in spring in 2007 of barley
     and corn, which is basis for the development of biofuels;

[6] Loss of investment attractiveness of agrarian sector of Ukraine, in
     which exactly grain exporters are bigger investors;
[7] Loss of trust on world markets to the supplies of commodities
     from Ukraine;
[8] Negative influence on the volumes of currency yield, foreign trade
     balance and course of currency, that already confirmed the National
     Bank of Ukraine;
[9] Defaults on export contracts and payments of considerable fines
     by Ukrainian exporters;
[10] Grain losses from heating and damage by pests in connection
      with its stay in port silos;
[11] An increase of grain explosiveness possibilities in port terminals;
[12] Blocking of infrastructure of grain market which does impossible
       work with other commodities, e.g. transit;
[13] Losses from the reduction of services of ferrymen, dispatch, ports,
       syurveyeriv, state inspections;
[14] Sharp reduction of amount of grain exporters due to small
       companies with the Ukrainian capital;
[15] Producing a negative image of Government of Ukraine by critical
       statements from the side of the World bank, IMF, EBRD,
      Ambassadors of the USA, Netherlands, Germany, plenty of national
      and overseas organizations of agrarian direction;
[16] Court claims against Cabinet of Ministers of Ukraine in part of
       violation them of Laws of Ukraine, to which in a prospect after
       lining of losses numerous foreign companies can be attached
      (importers, insurers, frakhtuval’niki et al);
[17] Influence on the negotiation process in relation to accession of
       Ukraine to WTO.
[18] Introduction of quota and licensing of export of grain did not
       help to attain the announced aims:
       [a] Bread prices grew and are growing, reduction of meat prices
        is not observed;
       [b] Agrarian Fund, State Reserve, and millers have not formed
       food grain stocks in the amounts to work till the end of MY
       [Marketing Year].                               -30-
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Liudmyla Martynova, Ukrainian News Agency, Thu, January 25, 2007

KYIV – Premier Viktor Yanukovych has become the head of the Investors
Council under the Cabinet of Ministers. Economy Minister Volodymyr
Makukha made this statement to the press on January 24, citing the Cabinet
resolution on creation of the Investors Council, adopted at a Wednesday

He said the Council is needed to ensure constant dialogue between business
and power. Thanks to the work of the Council, investors will be able to take
part in formulation of government decisions and improve investment climate.

According to Cabinet of Ministers resolution No.37 of January 24 “On
Creation of the Investors Council under the Cabinet of Ministers,” text of
which Ukrainian News has, being council chairman, the Premier endorses its
members.  The resolution does not endorse members of the council.

According to provision On the Investors Council endorsed by the resolution,
the Council is a permanent advisory agency under the Cabinet of Ministers.
The Council has to hold meetings at least once a quarter.

The Council’s crucial tasks are:

     [1] drafting proposals concerning formation of state investment policy;
     [2] participation in working out and holding of expertise in bills on
     investment policy;
     [3] submission of grounded proposals on implementation of investment
     projects directed to development of priority economy sectors.

The Council’s decisions bear recommendation character and are obligatory
for consideration by local governments, enterprises, institutions and

The Council Secretariat, headed by Economy Minister, provides organizational
and information activity. Secretariat of the Cabinet of Ministers provides
financing of the council activity.

As Ukrainian News earlier reported, the Premier had said that the Council
would include leading representatives of Ukrainian and foreign business, and
state representatives of different levels.

According to Yanukovych, the council will take part in drafting bills
protecting investments in Ukraine, improve relations between investors and
the government, and fight corruption in the investment area.

The Premier said the council would allow the government to bring in life its
idea of innovation and investment model of state development.     -30-
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                          U.S. President invited to visit Ukraine

Interfax Ukraine Business Express, Kyiv, Ukraine, Tue, Jan 23, 2007

KYIV – Ukrainian National Security and Defense Council Secretary Vitaliy
Haiduk has discussed with representatives of the U.S. administration the
coordination of actions to ensure Ukraine’s energy security and its
accession to the World Trade Organization, the NSDC press service said on

A meeting between Haiduk and U.S. national security advisor Stephen J.
Hadley and national security advisor to the U.S. Vice-president John Hannah
took place on Monday.

During the meeting with Hadley, Haiduk handed over a personal message from
Ukrainian President Viktor Yuschenko to his U.S. counterpart George Bush

and confirmed the invitation to the U.S. president to visit Ukraine.

European energy supplies were a central subject of the conversation between
Haiduk and Senator Richard G. Lugar. The senator confirmed the readiness of
the U.S. Congress to help Ukraine bolster its energy security.

In talks with U.S. Deputy Energy Secretary Clay Sell, the sides discussed
issues related to the energy security of the Eurasian region, joint projects
in nuclear energy, U.S. experience in introducing energy saving
technologies, as well as prospects for attracting U.S. investment into
Ukraine’s oil sector.                              -30-

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Ukrainian News Agency, Kyiv, Ukraine, Tuesday, January 23, 2007

KYIV – United States Ambassador to Ukraine William Taylor has attributed
the possible construction of American missile defense bases in Poland and
the Czech Republic to the need to defend European countries. Taylor was
addressing journalists at a press conference.

According to him, negotiations on possible location of such bases on the
territories of Poland and the Czech Republic are only just starting.

“The operations of these systems are not aimed against any European country.
The designation of these systems is to ensure protection of European
countries, including Ukraine, against possible attacks by countries located
in the Middle East, as well as by other countries that could have access to
military nuclear technologies,” Taylor said.

As Ukrainian News earlier reported, Ukraine and the United States intend to
step up their cooperation in the area of nonproliferation of weapons of mass
destruction.                                        -30-
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Associated Press (AP), Kiev, Ukraine, Thu, January 25, 2007 8:40 a.m.

KIEV – Ukraine’s Foreign Ministry demanded Thursday that Russia obey a

court order and return to Ukraine control the Crimean lighthouses and
navigation systems being used by Russia’s Black Sea Fleet.

Russia and Ukraine have been arguing over 100 lighthouses along the Black
Sea coast for nearly a decade. After years of court battles, an appeals
court in the Black Sea port of Sevastopol last year upheld an earlier
decision ordering Moscow to return 77 lighthouses to Ukraine’s Transport

Moscow vowed to ignore the order, saying the 1997 agreement that divided the
Soviet Union’s Black Sea Fleet between Russia and Ukraine took precedence.

Under that agreement, the Russian navy was allowed to remain in the Crimean
port of Sevastopol until 2017, paying an annual rent of $93 million.

Ukraine insists the lighthouses weren’t part of the deal, and the Foreign
Ministry warned that it would take unspecified action “based on
international legal norms” if Russia continued to disregard the court order.

On Tuesday, a Ukrainian bailiff tried to gain access to a radio navigation
system on the Crimean Peninsula but was barred by officials of Russia’s
Black Sea Fleet, the Interfax news agency reported. Last year, Ukraine also
tried to take over control of some of the lighthouses, prompting Moscow to
accuse Kiev of trying to seize Russian property.

The presence of the Russian troops on Ukrainian territory has sparked anger
among Ukrainian nationalists, and given rise to a number of disputes between
Ukraine and Russia since the collapse of the Soviet Union. Ukraine’s Foreign
Ministry said it would again raise the issue of the lighthouses at an
upcoming intergovernmental meeting in Moscow next month.     -30-
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Dow Jones Newswires, Washington, DC, January 22, 2007.

WASHINGTON – A more flexible currency would help Ukraine control

consumer prices, the International Monetary Fund said Monday.

Ukraine’s economy should grow about 4.5% this year, or just slightly faster
than in 2006. Inflation is picking up, projected to average 13.6% in 2007
after 12.9% last year, the IMF said in a press summary of its annual review
of the economy.

Intervention to maintain a currency peg is now building foreign currency
reserves and expanding the money supply, the IMF said.

The IMF “considered that a gradual move toward greater exchange rate
flexibility would facilitate external adjustment and help improve control of
inflation,” it said.

More currency flexibility would also curb dollarization of the financial
system and encourage development of markets to hedge foreign exchange

risk, the IMF said. The government could support exchange rate flexibility
by eliminating the foreign-exchange transaction tax, the Fund said.

The IMF praised the government for meeting a series of tight budget deficit
targets which has reduced public debt as a share of the economy to an
estimated 17% of GDP at the end of 2006. This compares with more than

60% in 1999.

The IMF also urged the government to step up regulation and oversight of the
banking system. A long-lived credit boom, with real credit growth averaging
more than 40% for the past five years, has made banks and households more
vulnerable to financial market shifts.

Meanwhile, Ukraine’s economic outlook has become more uncertain,
dependent on the direction of steel export prices, imported energy costs,
and capital flows, the IMF said.

Raising growth and living standards over the long term will require Ukraine
to improve its investment climate, the IMF said.

The IMF “particularly noted the need to adopt legislation to strengthen
investor rights, clarify inconsistencies between the economic and civil
codes, reactivate a transparent and fair privatization process, and reform
the energy sector.”                               -30-

Elizabeth Price, Dow Jones Newswires;
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By John Helmer,
Cape Town, South Africa, Tuesday, January 23, 2007

MOSCOW – Ukrainian government officials acknowledged this week that

they had not realized that the proposed merger of Russia’s two bauxite,
alumina and aluminium producers, Russian Aluminium (Rusal) and SUAL,
will also create an aluminium monopoly in the Ukraine, combining the
Nikolaev Alumina Refinery (NGZ) and the Zaporozhiye Aluminium
Combine (ZALK).

Nikolaev was taken over in the year 2000 by Rusal’s local subsidiary,
Ukrainian Aluminium (Ukral). ZALK was bought in stages by SUAL.

The Ukrainians may not have time to do anything to register their concerns,
either with Moscow or with the European Union. Nor, it appears, will anyone
else, if the uncharacteristically swift anti-trust bureaucrats in Brussels
can arrange matters.

A review of the mega-merger, creating the world’s largest vertically
integrated bauxite, alumina and aluminium conglomerate, is being undertaken
at the moment by the competition policy division of the European Commission

The haste is unprecedented. When the much smaller merger between Canada’s
Alcan and Alusuisse of Switzerland was proposed in August 1999, the EC
delayed until March 2000 — eight months — before giving the deal qualified

The qualifications included the requirement for several asset divestments by
Alusuisse, and the withdrawal by Alcan of its attempt to merge
simultaneously with Pechiney, the French producer.

According to an EC press release at the time on March 14, 2000: “a second
transaction involving Alcan’s acquisition of Pechiney, was cancelled today
by the parties. The Commission was about to block this merger as it would
have created dominant positions in a number of markets.”

Alcan returned for EC authority to take over Pechiney in mid-2003; at the
time, the combination would be the second largest aluminium producer in the
world, after Alcoa of the US. The Alcan bid was resisted by Pechiney. But
after three months it was cleared by the EC, the French and US
governments — with substantial asset divestment conditions.

The EC announcement noted: “The Commission’s review highlighted serious
concerns in a number of markets, but Alcan was able to address such concerns
by offering to divest a number of businesses. The divestments and other
conditions will ensure a comparative level of competition in the supply of
aluminium sheets for the beverages and cosmetics industries after the

This is not the first time that the Commission makes a competitive analysis
of a merger between Alcan and Pechiney. A similar deal was notified 1999,
but at the time the companies could not agree on clearance conditions.”

Rusal and SUAL, joined by Swiss-based Glencore’s alumina assets, announced
their merger proposal on October 9. They then delayed notification to the
anti-trust regulators in Moscow until the end of November. The Russian
Federal Anti-Monopoly Service (FAS) told Mineweb before the holidays that

it expected to take months.

Then, on January 16, less than a week after the New Year break, Rusal
induced the FAS chief, Igor Artemyev, to announce that he would approve
the merger within two weeks.

The notification to the EC in Brussels was delayed a month longer than in
Moscow. According to Linda Cain, a spokesman for the EC’s anti-trust
division, it was not received until December 19, just before Christmas.

The EC gazetted the notice on December 29, allowing just ten days for public
comments to be lodged. The timing suggests an intention to minimize public
notice during the New Year holiday period.

Cain claims that EC rules provide that “the Commission has 25 days from
notification to reach a conclusion. The deadline for a decision is therefore
1 February.” Subtracting 10 days of weekends, but ignoring the New Year
vacation period, the EC is rushing to decide on the creation of the world’s
largest bauxite, alumina and aluminium combine.

The last anti-trust review to be completed by the EC of a Russian company’s
links with a European company was the review of the diamond trading
agreement between Alrosa and De Beers.

That took more than two years, and ended with the EC regulators accepting a
unilateral offer from De Beers to cancel trading, which was not disclosed to
Alrosa at the time. Alrosa has challenged the ruling in the European Court,
and expects to quash it.

Asked why the Rusal decision has been accelerated faster than the EC’s
review of the mergers involving Alcan, Alusuisse and Pechiney, Cain was
evasive. She told Mineweb “the time periods are identical for every case we
look at.” She said that a 10-day extension (to 35 days) had been used in the
Alcan-Pechiney case, but not this time for Rusal.

Cain’s response implies also that the EC anti-trust division will decide to
extend its study of the Rusal mega-merger for what is called, in the
Brussels argot, a Phase-2 review. This requires 95 days. The earliest that
could be completed would be by May 7. Rusal claims it will have its
regulatory clearances to close the deal by April 1.

At this stage, no-one engaged in the EC’s review is willing to say if a
ruling from Brussels will require divestment of assets.

Officials in the Ukrainian government were polled to see if they are
pressing to have their aluminium and alumina plants kept out of the merger,
with the possibility of their being returned to Ukrainian control. However,
no-one in Kiev is able, or willing, to say.

In 2003 and 2004, Rusal’s control over the Nikolaev alumina refinery was
challenged in a court case by the Ukrainian state property agency. It
charged that the privatization of the plant carried three investment and
tax-related conditions which Rusal and its Ukrainian affiliate, Ukral, had
failed to honour.

One was the abandonment of a tax minimization scheme of tolling contracts,
swapping bauxite imports for alumina exports, without paying internal tax. A
second was to double the production of the refinery. And a third was to
establish a new aluminium smelter in the Ukraine.

The pressure of the government’s claims, and the risk of losing Nikolaev —
the single most important supplier of alumina, at below market prices, to
Rusal’s Russian smelters — caused Oleg Deripaska, Rusal owner, to negotiate
with high-ranking Ukrainian officials through 2004.

He conceded on the first two conditions, but insisted that high electricity
costs in eastern Ukraine made a new smelter economically unviable — unless
the government in Kiev promised cut-rate power tariffs. When these were
refused, Deripaska offered instead to substitute other investments instead
of the smelter.

This was accepted by Victor Yanukovich, the pro-Russian official who was
then, and is again now,Prime Minister of Ukraine. According to official
sources in Kiev, the terms “were changed to what suited Deripaska and
Yanukovich both, and signed by Yanukovich when he was the prime minister
for the first time.”

The signing was on August 20, 2004, and the detailed terms are not
available. No attempt has been made since then by the anti-Russian
governments of President Victor Yushchenko or former Prime Minister Yulia
Timoshenko to see if Deripaska has honoured his commitments. The State
Property Agency told Mineweb it plans such a check sometime in the next
three months.

Property agency officials say they have not realized that Deripaska’s merger
of Rusal assets with Victor Vekselberg’s SUAL assets will merge under a
single management Nikolaev and Zaporozhiye.

Nikolaev is confirmed as a Rusal asset in company releases. First built by
Pechiney during the Soviet period, it was designed to take bauxite from
Soviet-developed bauxite mines in Guinea. It continues to rely on Guinean
bauxite, but also imports the material from Australia, Brazil, Guyana, and

Expansion of its output capacity beyond 1 million tonnes has been slow, and
is currently just 30% above the initial design level. Rusal now claims to
have invested $37 million to meet the six-year old obligation.

Zaporozhiye is also confirmed by SUAL as its asset. Apart from identifying
its start-up date in 1933, and the range of production, no details of
current output or financial performance are available.

If the EC were to order the new Rusal to sell these assets in order to
preserve limited competition in the Ukrainian aluminium sector, the loss of
Nikolaev would be the more serious in its impact.

Rusal’s Russian smelters could easily source alumina from elsewhere,
including alumina produced at the moment by SUAL. But transfer pricing
between Nikolaev and Rusal’s Russian operations would eliminate the
profitability of the present raw material supply chain.

It remains to be seen whether Ukrainian metal proprietors would see enough
profitability in bidding for Nikolaev and Zaporozhiye to justify their
prodding the government in Kiev to see the divestment order from Brussels.

For the time being, those in charge of aluminium under Prime Minister
Yanukovich claim they know nothing. Bogdan Yakimyuk, spokesman for the
Antimonopoly Committee of Ukraine, said he hadn’t heard of a monopoly review
related to the Rusal merger, but confirms that his agency should conduct the
review. He added that this has not been done.

An official at the Metallurgy Department in Kiev’s Ministry of Industry, who
declined to give his full name, said he had come across nothing about the
merger, and requested a request by fax.

The Ukrainian delegation to the European Union in Brussels has been unable
to respond to calls, because its telephone is out of order. The Ukrainian
Foreign Ministry says the disruption is temporary.

Leonid Vasiyuta, a non-ferrous metals specialist in the Ukrainian Embassy in
Moscow, told Mineweb: “These plants are not competing against each other.
These plants supplement each other, so as I understand no investigation is

The Ukrainian aluminium industry is not self-sufficient and full cycle, as
we have no rolling capacities and have no own bauxites.”         -30-
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Ukrainian News Agency, Kyiv, Ukraine, Friday, January 19, 2007

KYIV – The Chornohora Company (the village of Bystrets of Verkhovynsky
district) has plans to invest UAH 300 million [$60 million] in the
construction of the Alpine skiing tourist complex in the Carpathians near
the village of Bystrets of Verkhovynsky district in Ivano-Frankivsk region.

Ukrainian News learned this from Yurii Romaniuk, the deputy chairman of
Ivano-Frankivsk regional council. “Investor intend to invest between UAH 200
million and UAH 300 million in the construction of the tourist complex
alone,” he said.

He said the company had plans to build six kilometers of access road from
Verkhovyna to the village of Bystrets. The cost of the project is assessed
at UAH 60 million.

He said the investors were also planning to erect a high-voltage power line
from Chernivtsi region, which is not far from the village of Bystrets.

“The cost of the project is UAH 170 million, plus another several millions
for the construction of a waste disposal plant,” he said. According to

Romaniuk, Chernohora has purchased 65 hectares of land from locals.

The company has also applied to the regional council with a request to allot
another 200 hectares on the flank of a hill. Romaniuk said the tourist
complex, according to the plans of the investors, was to host first tourists
in two years.

“They plan to complete the whole complex in four years,” he said. Romaniuk
specified that the investors would start construction works this year.

According to Romaniuk, Chornohora Ltd. was registered in the village of
Bystrets in July 2005. A married couple from Kyiv is a co-founder, who
totally own 50% of the company. Another 50% of the company is owned by

an offshore company, which was registered in the city of Nicosia on Cyprus.
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    National University of Kyiv Mohyla Academy School of Public Health

The Ukrainian Observer magazine, Issue 227
The Willard Group, Kyiv, Ukraine, January 2007

When I learned that the second largest nation of Europe had graduated the
first class from its only school of public health, I wanted to see this
school myself.

Trained and experienced in medicine and public health, I wanted to observe
the development of this new actor first-hand.  Coincidentally the school had
an opening for a visiting Fulbright Scholar from August through December

In a bold new step, the National University of Kyiv Mohyla Academy

School of Public Health enrolled its first students in 2004.

The two-year master degree program is a “work in progress” that prepares
students for professional positions in teaching, research, and consulting.
The program is an official partner of the School of Public Health at
University of Maastricht, Netherlands.

It is significant that this new school is located at a general university
rather than at one of Ukraine’s 15 medical universities. This decision has
certain advantages.

The course content is not focused on disease diagnosis and treatment but
also emphasizes the study of disease causation and prevention. Both health
professionals and others are included in the student body.

This new graduate study program functions despite uncertainty regarding the
career prospects for graduates.  Master degrees in general are new in the
country.  As a “post-communist” or “transition” nation, Ukraine has few
positions for citizens with such training.

Neither the current Ministry of Public Health staff nor Sanitary and
Epidemiologic Service staff has such education. The managers of hospitals,
clinics, and research institutes in Ukraine are usually physicians without
training in either public health or management.

The new school’s location is important for another reason.  As noted at the
recent annual conference of Ukrainian Association of Fulbright Alumni, Kyiv
Mohyla Academy is one of the very few institutions in Ukraine where student
admission and promotion decisions are based on the applicant’s ability
rather than on bribery, plagiarism, or cheating.
                             WHAT IS PUBLIC HEALTH?
“Public health” has different meanings in Ukraine and in the United States.
In Ukraine, the phrase seems to mean the government hospitals and clinics
where doctors diagnose and treat illnesses in individual patients.

In the U.S., public health means collective action to abate hazards and
prevent disease in whole groups of people.

Indeed, Soviet era health spending favored hospital and clinic construction,
operation, and services. The budget for surveillance and control of disease
and hazards to health was limited.

The newly selected head of the WHO Country Office in Ukraine recently told
an audience at Kyiv Mohyla that the Ministry of Public Health priorities for
its current work with WHO are HIV/AIDS, Tuberculosis, and Mental Health.

These choices were apparently based on the size and severity of the burden
in Ukraine, the risk of diseases spreading to more people, and the
availability of international assistance.

In western countries, much of the improvement in life expectancy occurred in
the 19th century as a result of rising standards of living, including better
housing and sanitation, etc.  For many people in Ukraine, this increase in
living standards has not yet arrived.

According to a 2000 nationwide survey by Kyiv International Institute of
Sociology, only 8 percent of rural dwellings had central heating, 10 percent
had an indoor toilet, and 30 percent had a bath or shower.  One-quarter of
the total population of this country lives below the official poverty line.

What are some examples of public health achievements in contemporary
     [1] Distribution of free clean needles to drug users to limit
          spread of HIV infection,
     [2] ban on alcohol in workplaces,
     [3] ban on alcohol in blood of motor vehicle drivers,
     [4] minimum age of 18 to buy cigarettes,
     [5] underground walkways for pedestrians,
     [6] ratification of the international treaty for tobacco control, and
     [7] mass transit.
                     IS THE SOVIET LEGACY RELEVANT?

“Whereof what’s past is prologue, what to come
In yours and my discharge.”
The Tempest, act II, scene i

Public health work is to some degree culture-bound in all societies.  Kyiv
Mohyla faculty held a panel discussion on the USSR legacy and how it may
still influence medicine and public health in this old-new country.

When a student asked what to read to prepare for this panel discussion, she
was told to talk with her parents about the past.  Her response was that the
past was too painful to discuss.

A young nation-state, Ukraine still shows signs of its Soviet legacy.

Marxist-Leninists viewed many health threats as transient in the transition
to communism and as problems that would be resolved spontaneously without
public health action.

The government that came to power in the October 1917 revolution was wary
of the professional autonomy of physicians.  It disbanded private medical
associations and kept the salaries and status of most doctors low.

Fifteen years after attaining statehood, Ukraine still lacks a national,
professional organization of physicians.

Perhaps as important to the advancement of medicine and public health,
Ukraine lacks trusted journals, such as The Lancet in England or JAMA in
the United States, which can serve as channels of communication among
physicians, scientists, public health specialists, policymakers, and

In the Soviet era, epidemiology was concerned almost exclusively with
detection and control of infectious diseases – even after noninfectious
diseases such as heart disease became the leading causes of death.

Medical universities lacked full-fledged departments of epidemiology or
biostatistics.  Government outlawed the teaching or research of genetics, a
decision with bad consequences for both science and health.

Another legacy of the Soviet period is a tendency for individuals to rely on
the state to care for them rather than to take responsibility for their own

Deeply embedded cultural practices from the Russian Empire such as drinking,
smoking, poor diet, and lack of physical activity worsened under communism.

Among the first 14 countries from four continents to complete a World Health
Organization (WHO)-coordinated national mental health survey, Ukraine has
the highest rates of alcohol abuse (20 percent) among men and of major
depression (20 percent) among women.

Rates of alcohol and drug disorders are six times higher in Ukraine than in
Germany, and rates of mood disorders are two and one-half times higher.

While statistical and epidemiologic data were state secrets in the USSR, a
series of health interview and examination surveys in Ukraine have provided
important information on people’s health status and their health knowledge,
attitudes, and practices.

Students and faculty of Kyiv Mohyla Academy have compiled an inventory
and collection of 20 such surveys conducted during the past decade.

Public health students also must choose their priorities for study and work.

A thesis is required for the master degree, and students are exploring a
wide variety of subjects in medicine and public health.

Examples are the:
     [1] reasons for the declining rate of breastfeeding;
     [2] quality of nutrition in meals in kindergarten;
     [3] smoking cessation by pregnant women;
     [4] risky behaviors among university students;
     [5] quality of screening, diagnosis and treatment for tuberculosis
          in prisons;
     [6] the supply and efficiency of blood transfusion services; and
     [7] the effectiveness of continuing education for hospital and
          clinic administrators.

Kyiv Mohyla students are learning to perform two essential tasks of public
health specialists: to estimate risk and to communicate risk. Risk
estimation is taught in epidemiology, which is the scientific study of the
frequency and determinants of disease in human populations.

To illustrate risk estimation, the example of suicide can be used. Suicide
is the most frequent type of injury death in Ukraine, and the nation’s
suicide rate is one of the world’s highest. The Ukrainian risk of suicide is
six times higher in men than women.

In men, the annual risk of suicide is 45 per 100,000 population, while the
annual risk of motor vehicle injury death is 25 per 100,000.  For
comparison, the annual risk for Ukrainian men of HIV/AIDS death is 5 per

Many of the students at Kyiv Mohyla hope to become managers in health
care facilities or in government planning or administrative agencies. In
this role, they will need to communicate risk to their superiors, staff, and

For example, how will they communicate the risk of hospital-acquired
infections?  They also will function in a complicated environment of finance
and services during periods of changing roles of national, regional, and
local levels.

At the school of public health, students are learning modern principles and
practices of health promotion from dedicated and experienced instructors.
Posting messages on clinic walls is no longer regarded as an effective
method of changing patient behaviors.

This approach does not even work with highly educated and motivated western
doctors.  Observers at a major American hospital recently reported that
doctors there rarely wash their hands even though soap and water are readily

Kyiv Mohyla students learn that medical care, which can be useful after
illness appears, is no guarantee of population health.  Although individuals
choose their behaviors – both safe and risky – they choose them within a
specific social and environmental context.

The two in five Ukrainian adults who smoke do so in a country whose tax and
other policies allow the widespread availability of cheap cigarettes but do
not cover drug treatment for smoking cessation.

Opinions differ about the appropriate role of the state in influencing
health behavior and status. Ukrainian history is filled with examples of
malign behavior by state actors: World Wars I and II, mass famine and
starvation, the Nazi occupation, and the Chernobyl nuclear power plant

Consequently the level of trust between citizen and state is highly
strained. Given this background, it is not surprising that Kyiv Mohyla
students express doubt the prospects for passage of effective public
health legislation and implementation of existing laws.
                                LOOKING FORWARD
Countries with the best health indicators are the ones that modify the
conditions that lead to health hazards and resources in their populations.

After seeing the faculty, staff, and students of Ukraine’s school of public
health in action, I believe that this proud and independent nation is poised
to make substantial progress in the years ahead.
David L. Nordstrom, PhD, MPH, was a Fulbright Scholar at Kyiv Mohyla
Academy School of Public Health from August through December 2006.
The views and opinions expressed above are exclusively his own and do
not necessarily reflect those of the Fulbright Scholar Program, the U.S.
Department of State, or the National University of Kyiv Mohyla Academy.
NOTE:  Edits in style of the text and subheadings have been inserted

editorially by the Action Ukraine Report (AUR).
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                                    IN THE UNITED STATES
     One-million dollar 2007 fundraising program to be launched in five cities

Marta Farion, Executive Director
Kyiv Mohyla Foundation of America, Chicago
Action Ukraine Report (AUR) #810, Article 20
Washington, D.C., Monday, January 29, 2007

CHICAGO – The Kyiv Mohyla Foundation of America announced today
a series of fundraisers for the benefit of the National University of Kyiv
Mohyla Academy (NUKMA) to be held in five American cities during the
month of February.

Kyiv Mohyla Foundation president, Chicago businessman and longtime
supporter of higher education, Ihor Wyslotsky, stated in his announcement
of the fundraising programs, “A distinguished institution of higher learning
in Ukraine, the National University of Kyiv Mohyla Academy essentially

remains a private institution and therefore depends on the continuing moral
and financial support of the North American Ukrainian diaspora and other
private personal and corporate donors.

“The Kyiv Mohyla community has turned to us for help, and we are
committed to further encouraging and sustaining the dramatic rebirth of
this unique institution, a remarkable effort undertaken by Dr. Viacheslav
Briukovetsky in 1991, and to help facilitate the university’s important role
in educating Ukraine’s next generation of leaders.”
Mr. Wyslotsky noted the NUKMA’s growth in recent years. “Since its first
class graduated in 1995, Kyiv Mohyla has graduated 4,147 students with
undergraduate or graduate degrees.

“Most of these English-speaking Ukrainian students are now employed at
various Western companies that are doing business in Ukraine, in Ukrainian
media outlets, and at a number of Ukrainian government agencies in and
outside of Kyiv.”

“It is especially rewarding to see that graduating from Kyiv Mohyla means
something important in Ukraine, and elsewhere, and that the university’s
graduates are regarded highly in the private and government sectors,” Mr.
Wyslotsky added.

Since 1991, Kyiv Mohyla Academy has become Ukraine’s premier institution
of higher education with stringent admission criteria, anonymous admission
testing, and quality Ukrainian and English instruction in 16 disciplines.
Courses are taught by more than 100 professors and over 500 instructors.

In addition, the university operates 25 research centers and laboratories
and recently completed construction of a library that houses more than
400,000 volumes and a thousand periodicals.

Mr. Wyslotsky further noted, “The quality of Kyiv Mohyla Academy
graduates is shown also in the number of its graduates who pursue
doctoral and other advanced degrees in western universities, especially
those in the U.S. and Canada.

“Over 100 students have received grants and are now studying at American
universities such as Boston College, Columbia University, Iowa State
University, Johns Hopkins University, Georgetown University, Indiana
University, Rutgers University, SUNY, University of Houston, University
of Kentucky, University of Wisconsin, University of Virginia and the Rand

A significant number of students are currently pursuing graduate degrees
at several Canadian universities.”

Since 2001 the Kyiv Mohyla Foundation of America has collected
approximately 1.3 million dollars for the benefit of the university.
The goal for the 2007 year is to raise one million dollars. “We are grateful
to the Ukrainian community and others in the United States for their
generous support the last five years and in the past, when fundraising
efforts were initiated and led by Professor Ivan Fizer in New Jersey.

“We also recognize the significance of the numerous universities in the
United States who embraced joint programs with the Kyiv Mohyla
Academy and contributed their own resources to such cooperative

“As for 2007, I believe that this goal of one million dollars is
attainable,” stated Mr. Wyslotsky.

The funds collected in 2007 will be earmarked toward an endowment

fund in order to provide NUKMA with a secure future, as well as for
uses specifically designated by donors, such as library collections,
scholarships, and academic departments.

Furthermore, the Foundation will also provide seed money for the Electronic
Library of Ukraine, a project which the foundation is developing and one
which will require significant financial support from various foundations,
corporations and other sources.
When Dr. Briukovetsky reopened the Kyiv Mohyla Academy in 1991, he
sought to rebuild not only a quality educational institution, but an
institution that was politically independent of governmental involvement
and committed to the fostering of democratic ideals, including respect
for human rights and ethical norms.

“As a result,” Mr. Wyslotsky noted, “Kyiv Mohyla, at the time, found itself
a few steps ahead of the prevailing conduct and views of the Ukrainian
government. To this day, the university continues to confront a complicated
relationship with government entities in this current, politically unstable,

This complicated relationship is due, in part, to the university’s visibly
active role during the Orange Revolution.  Unlike several other
universities, Kyiv Mohyla disregarded government pressure to ignore the
massive street protests of 2004, now known as the Orange Revolution, and
allowed demonstrations in pursuit of political independence and democratic

The strong stand taken by the university’s leadership in promoting
democratic processes, was most dramatically shown by its students and
faculty on the Maidan two years ago.

This is only one of the reasons that Kyiv Mohyla continues to be of personal
interest to former U.S. Ambassador to Ukraine William G. Miller, as well as
former U. S. National Security Advisor Zbigniew Brzezinski and former U.S.
Secretary of State Madeleine Albright.
Former U.S. Ambassador to Ukraine, William Miller and Ukraine’s Ambassador
Borys Tarasiuk are co-chairmen of the Kyiv Mohyla Foundation of America.

The National University of Kyiv Mohyla Academy is strengthened by its
institutional relationships with more than 80 universities worldwide and by
the Union of European Universities, to which it was admitted as a member in

The NUKMA has established several joint programs with foreign universities,
including a business program with Northwestern University’s Kellogg School
of Management; a program in public health with the University of Illinois;
and one in Oriental studies with the University of Chicago.

“Academic freedom, as freedom in general, often carries a price tag. This is
one important reason why our foundation now seeks moral and financial
support from the Ukrainian diaspora in North America,” Mr. Wyslotsky
said today in announcing the upcoming series of fundraisers.

The Kyiv Mohyla Foundation’s fundraisers for the university will be held
during the month of February in the following five Ukrainian-American
communities: Washington DC; Whippany, New Jersey; Chicago, Illinois,
Warren, Michigan; and Philadelphia, Pennsylvania.
Each city’s program will feature remarks by Kyiv Mohyla Academy president
Dr. Briukhovetsky, as well as by academicians and leaders from each
community. A new film about the university and its progress will be shown
and Dr. Briukhovetsky looks forward to answering questions about the work
of the university.

In particular, the foundation encourages parents with high-school and
college-age students to attend with their children and consider the
possibility of a summer or semester abroad in Kyiv at the Kyiv Mohyla
The dates and locations of the fundraising events are as follows:

[1] Sunday, February 11, 1:00 pm
St. Andrew Ukrainian Orthodox Cathedral, Silver Spring, Maryland,
Reservations/information: 301-593-5316, 301-873-2035.

[2] Saturday, February 17, 5:30 pm
Ukrainian American Cultural Center of New Jersey, Whippany,
New Jersey; Reservations/information: 973-585-7175.

[3] Sunday, February 18, 1:00 pm
Ukrainian Cultural Center in Chicago, Illinois
Reservations/information: 773-384-6400.

[4] Saturday, February 24, 5:30 pm
Ukrainian Cultural Center in Warren, Michigan
Reservations/information: 586-757-8130.

[5] Sunday, February  25, 2:00 pm
Ukrainian Educational and Cultural Center in Jenkintown, Pennsylvania,
Reservations/information: 215-663-1166.

Ticket prices are $40 per person; $20 for students 18 and under.
Reservations also may be made by contacting the Kyiv Mohyla Foundation
of America at 773-685-1828, or by email at or by
electronic reservation and payment by credit card through PayPal on the
Foundation’s website at        -30-

The Kyiv Mohyla Foundation of America is a 501 (c)(3) nonprofit
organization established to support and assist the National University of
Kyiv Mohyla Academy and institutions of higher learning in Ukraine.

Support and assistance will be given to reach excellence in education,
innovative research, personal and intellectual growth of its students and
faculty, in an academic environment that will facilitate and further
Ukraine’s democratic reforms, with a focus on the rule of law, free market,

business development and sustained economic growth within the global
community of nations.

The National University of Kyiv Mohyla Academy was founded in 1615 by
its first donor, Halushka Hulevychivna, and organized as a Collegium by
Petro Mohyla in 1630.

Graduates, donors and teachers include Hetman Petro Konashevych
Sahajdachnyj, Bohdan Khmelnyckyj, Ivan Samojolovych, Ivan Mazepa,
Hryhorij Skovoroda, and many of Ukraine’s leading historical figures and

After the Kyiv Mohyla Academy was forcibly closed by Russian Czar
Alexander in 1817, the buildings remained unoccupied until 1920, when
the institution was converted into a military naval academy by the

In 1991, the Academy was reopened as an institute of higher learning, as the
Kyiv Mohyla Academy under the initiative and leadership of Viacheslav

Today, during a time of unprecedented changes in Ukraine, the Kyiv Mohyla
Academy continues its historic role as Ukraine’s premier center of academic
education and research, as well as a bastion of Ukrainian culture and
CONTACT: Marta Farion, Attorney, Executive Director-Kyiv
Mohyla Foundation of America, (773-685-1828),

or Oksana Khanas (773-297-4401)
NOTE:  Edits in the style of the text and some subheadings have
been inserted editorially by the Action Ukraine Report (AUR).
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