AUR#803 Jan 11 Poland Banks On Ukraine; American Airlines & Aerosvit; Private Jet Flight To USA For Yanukovych Junior;

                 An International Newsletter, The Latest, Up-To-Date
                     In-Depth Ukrainian News, Analysis and Commentary

                      Ukrainian History, Culture, Arts, Business, Religion,
         Sports, Government, and Politics, in Ukraine and Around the World       

Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer

              –——-  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
             Only about 7 percent of adults in Ukraine have a bank account
By Marta Waldoch and Katarzyna Klimasinska
Bloomberg, New York, New York, Thu, Jan 11, 2007
Lloyds List, London, United Kingdom, Tuesday, Jan 09, 2007

Polish News Bulletin, Warsaw, Poland, Wed, Jan 10, 2007

By Jan Cienski in Warsaw and Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 4 2007

    Owned by Italy’s UniCredit, plans largest Polish investment in Ukraine 
By Jan Cienski in Warsaw, Financial Times, London, UK, Thu, Jan 4 2007

6.                         UKRAINE: BANKING AND FINANCE
IntelliNews – Ukraine This Week, Kyiv, Ukraine, Tuesday, January 9, 2007
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Tuesday, January 9, 2007

AFX News Limited, Vienna, Austria, Tue, January 9, 2007

Andrew Osborn in Moscow, The Independent
London, United Kingdom, Saturday, Jan 06, 2007


            New Travel Routes between the Ukraine and the United States
Business Wire, New York, NY, Tuesday, Jan 09, 2007

                             ON LAND SALE MORATORIUM
TV 5 Kanal, Kiev, in Ukrainian 1500 gmt 9 Jan 07
BBC Monitoring Service, United Kingdom, Tue, Jan 09, 2007

UNIAN news agency, Kiev, in Ukrainian, 10 Jan 07
BBC Monitoring Service, United Kingdom, Wed, Jan 10, 2007

                           Will land be sold at real prices in Ukraine?
Vitalii Kniazhansky, The Day Weekly Digest, #42
Kyiv, Ukraine, Tuesday, 26 December 2006

14.                           FACING THE FARMLAND ISSUE
EDITORIAL: Kyiv Post, Kyiv, Ukraine, Wed, Jan 10 2007

                       VETOED BY PRESIDENT YUSHCHENKO 
Interfax-Ukraine news agency, Kiev, in Russian 0857 gmt 10 Jan 07
BBC Monitoring Service – United Kingdom, Wed, Jan 10, 2007

INTERVIEW: With U.S.Ambassador William Taylor
The Day Weekly Digest #42, Kyiv, Ukraine, Tue, 26 Dec 2006

                        TYPICAL AMERICAN HOSPITALITY?
       Did U.S. company M.I.C. Industries Inc. pay for the charter flight?
By Serhiy Leshchenko, UP, Mustafa Nayem, Kommersant, for UP
Ukrayinska Pravda (UP), Kyiv, Ukraine, Wednesday, January 3, 2007

18.               VIETNAM BECOMES WTO’S 150TH  MEMBER
        Foreign direct investment in Vietnam reached a record $10 billion last
              year. Ukraine has been trying to get into WTO for many years
Associated Press, Geneva, Switzerland, Wed, January 10, 2007

19.                        GERMANY, EUROPE, AND RUSSIA
COMMENTARY: By Yulia Tymoshenko, Ukraine’s former
Prime Minister, currently leader of the Opposition
Daily Times, Lahore, Pakistan, Wed, Jan 10, 2007

Inform Newsletter Issue 25, for the International Community providing
News, Views, and Analysis from the Yulia Tymoshenko Bloc (BYuT)
Kyiv, Ukraine, Thursday, 4 January, 2007

OP-ED: By Taras Kuzio, Kyiv Post, Kyiv, Ukraine, Wed, Jan 10, 2007
             Only about 7 percent of adults in Ukraine have a bank account

By Marta Waldoch and Katarzyna Klimasinska
Bloomberg, New York, New York, Thu, Jan 11, 2007

WARSAW – As thousands of Poles head west in search of jobs, Polish
companies are looking east for profits.

Bank Pekao SA, the country’s second-largest lender, plans to spend $100
million in 2007 to open branches in Ukraine, where fewer than one in 10
people have a bank account.

Aluminum pipemaker Grupa Kety SA will open a factory in the former
Soviet republic, to take advantage of 30 percent lower wage costs.

Executives expect Ukraine to prosper as the government aligns itself more
closely with Western Europe and builds a market economy. They point to
Poland as an example of what can happen when capitalism takes hold.

Poland’s gross domestic product has quadrupled to exceed $300 billion, the
most in eastern Europe, during the 17 years since communism collapsed.

Ukraine “offers incredible opportunity for development, similar to what we
have seen in Poland,” said Piotr Stepniak, chief executive officer of Getin
Holding SA, a financial services company owned by Leszek Czarnecki, one
of Poland’s new multimillionaires.

Polish companies’ investment in Ukraine rose almost fivefold to $106.5
million in the first 10 months of 2006, according to the Ukrainian
statistics office in Kiev. Getin agreed in December to buy Prikarpattya Bank
SA, which has 30 branches in western Ukraine, for an undisclosed price.

“Polish companies have grown up,” said Cezary Iwanski, vice president of
Pioneer Pekao Investment Management SA, Poland’s biggest fund manager,
with assets of 23.3 billion zloty ($7.8 billion). “The Polish market will
continue to grow, but in order to grow faster than the competition,
companies need to build operations abroad.”
                                 WESTERN EMIGRATION
Poland’s development hasn’t been problem-free. Unemployment remains the
highest in the European Union, at 14.8 percent in November, and is declining
mainly because of an exodus of young workers to places such as the U.K. and
Ireland. More than 800,000 of Poland’s 39 million people emigrated in the
past year, according to official statistics.

Even as joblessness remains high, wages are rising at an annual rate of
about 5 percent. Companies such as Grupa Kety and Polski Koncern Miesny
Duda SA, the third-biggest Polish meat packer, blame rising labor costs for
their decision to go abroad.

“Polish companies haven’t been that aggressive in the expansion into the
east before,” said Mark Mobius, who oversees $30 billion invested in
emerging markets at Templeton Asset Management Ltd. in Singapore. “The
companies are diversifying their earnings and they have a very good human
resources base that they can use.”
                                       POLISH EMPIRE
Western Ukraine and Lithuania were part of Poland before World War II,

and large communities of ethnic Poles still live in the two countries.

PKN Orlen SA, Poland’s biggest oil company, completed its purchase of
Lithuanian refiner Mazeikiu Nafta AB for $2.34 billion last month, the
largest international investment by a Polish company.

Ukraine’s population of 47 million is about a fifth larger than Poland’s,
while the $89 billion economy is less than a third of the size. The Polish
economy is expanding more than 5 percent a year, while Ukraine’s government
forecast growth of 7 percent for 2006 and 2007.

Some investors are concerned the battle between President Viktor Yushchenko
and Prime Minister Viktor Yanukovych for control of foreign and domestic
policies may undermine political stability.

Ukraine’s 7.65 percent dollar-denominated bond due June 2013 yields 6.08
percent, 84 basis points more than Poland’s 6.25 percent dollar-denominated
bond of similar maturity. A basis point is 0.01 percentage point.

“Ukraine has enormous growth potential, but it’s also a very risky market,”
said Sebastian Buczek, a fund manager at ING Investment Management Polska
SA, which has 13.4 billion zloty under management.
                                 ‘HUGE PROFITABILITY’
Duda, the meatpacker based in Jutrosin, wants to become as big in Ukraine

as it is in Poland and is earmarking 100 million zloty for acquisitions. The
company, which started operating in Ukraine this year, plans to buy a meat
producer and pork farms in coming months.

“Huge profitability and growth prospects make our investments there
justified,” said CEO Maciej Duda.

Pekao is owned by Milan-based UniCredit SpA, Italy’s biggest bank, and is
responsible for the bank’s expansion in Ukraine. It’s challenging lenders
such as Hungary’s OTP Bank Nyrt., which started making acquisitions abroad
more than five years ago.

“The market is certainly very well located, and geography matters,” said
Chief Executive Jan Krzysztof Bielecki. “The level of penetration is low.”
                                     BUILDING DEMAND
About 7 percent of adults in Ukraine have a bank account, less than the
proportion in Poland about a decade ago, according to Pekao. Now about 60
percent of Poles have accounts.

Grupa Kety has spent 50 million zloty on opening an aluminum products plant
in Borodianka. It may spend an additional 30 million zloty if the company
keeps attracting new Ukrainian clients, CEO Dariusz Manko said.

“It’s trendy to go eastward,” said Buczek, the fund manager at ING in
Warsaw. “It took these companies several years to build their position in
the Polish market, and now it will require some time to repeat the success
abroad.”                                     -30-
To contact the reporters on this story: Marta Waldoch in Warsaw on ; Katarzyna Klimasinska in Warsaw at

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

Lloyds List, London, United Kingdom, Tuesday, Jan 09, 2007

LONDON – UKRAINIAN Steel producer Donbas, through its subsidiary ISD
Polska, has acquired a 4% stake in shipbuilder Stocznia Gdansk for Zloty5m
($1.7m), the yard confirmed, by Katrin Berkenkopf and Magdalena Marek in
Cologne. Contracts were signed late last week, following a pre-agreement
closed some months ago.

A spokeswoman for Stocznia Gdansk would not comment on whether it was
planned to eventually give Donbas a larger stake.

The acquisition of a 20% stake by Italian FVH is still under discussion,
while domestic energy supplier Energa has shelved earlier plans to become
the sole owner.

Reportedly, Donbas is also interested in Stocznia Gdynia, the former parent
of Stocznia Gdansk. Polish news reports suggest that it is prepared to pay
about Zloty500m for a majority.

The Polish government is expected to take a decision on the schedule for the
privatisation of the three state-owned shipyards in the country next week.

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

Polish News Bulletin, Warsaw, Poland, Wed, Jan 10, 2007

WARSAW – In the last few days, Ukraine’s Donbas purchased a 4-percent

stake in Stocznia Gdanska for ZL5m. However, its appetite is far from sated.
The enterprise has already declared that it is interested in acquiring a
controlling stake in the shipyard.

In order for this scenario to unfold, which would be welcomed by the
facility, the state should either decide to raise Stocznia Gdanska’s capital
or sell Donbas a sufficient amount of shares in the shipyard.

In the near future, the Ukrainian company intends to establish groups
responsible for devising a strategy on supplying steel components to
Stocznia Gdanska and developing the production of steel constructions at

the facility.

At the same time, Donbas CEO Konstanty Litwinow announced that due

to the state’s lack of interest in the privatisation of Stocznia Gdynia, the
company intends to fully concentrate on its involvement in Stocznia Gdanska.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Jan Cienski in Warsaw and Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 4 2007

Many European companies trying to cut costs are looking east to Poland,
where wages are only a fifth of western levels, but Polish companies hoping
to slash costs are also looking east to Ukraine.

In recent weeks InterGroclin Auto, a car seat upholstery manufacturer,
announced that it would wind down most of its Polish production and shift to
factories in Ukraine.

Zbigniew Dzrymala, the company’s owner, says Poland is becoming too
expensive for labour intensive manufacturing. Wages in Ukraine are only
about a quarter of those in Poland.

“We’ll retain logistics and research and development in Poland,” Mr Dzrymala
told reporters in Kiev. The company currently has one factory in Uzhgorod in
western Ukraine and plans to open another within the next three years.

Other Polish companies, from banks to furniture makers and food producers,
are also taking a closer look at their neighbour.

PKM Duda, one of Poland’s leading meat producers, this year spent $1.5m
buying a Ukrainian hog farm and slaughterhouse. It is now looking to buy
five or six large farms capable of processing 250,000 hogs a year and aims
to quickly become a leading pork producer in Ukraine.

“We want to re-create another Duda in Ukraine,” says Maciej Duda, chief
executive, who watched the family company grow from a backyard operation

16 years ago into a company with expected revenues this year of 1bn zlotys
($349m) and a profit of about 50m zlotys. “It’s like Poland in the
mid-1990s: we want to grow very fast.”

Many Polish companies have noticed the similarities between the early years
of economic transformation in Poland and the current situation in Ukraine.

At the time Poland, like Ukraine today, was outside the Europe Union, was
trying to set up democratic and regulatory institutions and was experiencing
very fast growth. Polish entrepreneurs feel that they have an edge in
Ukraine because of that experience, and also a similar language and culture.

Getin, a small Polish bank run by serial entrepreneur Leszek Czarnecki, in
December bought Prykarpattia Bank for about 10m zlotys and plans to spend

as much as 600m zlotys to expand banking operations in Ukraine and Russia.

“We want to bring in the Polish model,” says Mr Czarnecki, who is optimistic
that, in spite of the bureaucratic hurdles, there is vast money to be made
in fast-growing economies where much of the population remains unbanked.

The focus on Ukraine is not confined to companies. Polish managers are also
finding that their experience in transition economies is a valuable
commodity in the country.

Michal Furmanek, recruited a year ago by TAS-Kommerzbank to head

marketing for a new retail banking project, says he was hired because of his
experience in a more developed competitive financial country. “It was
natural to look for a Polish manager.”

However, in spite of the current buzz, Polish businesses have been slow off
the mark in Ukraine. Poland is only the seventh-largest investor in Ukraine,
with about $240m in total investment as of the end of 2005. Overall foreign
investment in Ukraine is about $13.5bn.

And the investment flow is not all one way. Ukraine’s AvtoZAZ car company
last year bought Poland’s ailing FSO car plant, while the Industrial Union
of Donbass took control of the Czestochowa steel mill.

But Polish investment should grow rapidly in the next couple of years.
Companies such as Bank Pekao SA, the Polish affiliate of Italy’s UniCredit,
is planning an expansion in Ukraine. Barlinek, a wood floor maker, is
opening a large factory next year.

Coffeeheaven, a Polish coffee chain with shops across central Europe, is
looking for a partner to begin operations in Ukraine. “Ukraine is a highly
exciting market,” says Richard Worthington, chief executive.    -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
    Send in names and e-mail addresses for the AUR distribution list.
Owned by Italy’s UniCredit, plans largest Polish investment in Ukraine so far

By Jan Cienski in Warsaw, Financial Times
London, United Kingdom, Thursday, January 4 2007

Kiev’s Viennese Ball is the high- society highlight of the year in the
Ukrainian capital, writes Jan Cienski.

This year the evening was sponsored by Poland’s Bank Pekao SA, which
hopes to expand quickly in Ukraine, in part by targeting those who showed
up in tuxedos and ballgowns.

The bank, owned by Italy’s UniCredit, plans the largest Polish investment in
Ukraine so far. After a $50m recapitalisation and an outlay of about $100m
to buy out the local subsidiary of HVB, also owned by UniCredit, Pekao plans
to build a 60-branch network in Ukraine by 2007.

“This is a market with enormous perspectives but at the moment it is still
in its infancy,” says Jan Krzysztof Bielecki, a former Polish prime minister
and Pekao’s chairman.

Pekao first invested in Ukraine in 1997, but then had only a single branch,
serving mainly Polish companies, while HVB had a six-branch network
working with business clients.

The goal now is to get into Ukraine’s consumer market with credit cards,
mortgages, car loans and savings accounts. Only a quarter of Ukrainians
have credit cards, and 70 per cent of savings are not held in banks.

But there is competition: Austria’s Raiffeisen International, which paid
$1bn in 2005 for Bank Aval, Ukraine’s second largest bank, and France’s
BNP Paribas, which paid hundreds of millions for a 51 per cent stake in
UkrsibBank, Ukraine’s fifth largest bank.

“To be successful in two or three years, Polish companies have to be
present in Ukraine today,” says Mr Bielecki.              -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
6.                    UKRAINE: BANKING AND FINANCE

IntelliNews-Ukraine This Week, Kyiv, Ukraine, Tuesday, January 9, 2007

[1] Fitch puts Ukrsotsbank on Rating Watch Positive —
Fitch put Ukrsotsbank’s IDR at B- and support ratings on Rating Watch
Positive. This indicates a possibility of upgrade. Fitch also affirmed the
bank’s short-term B rating and individual D rating.

The ratings reflect present continuously high pressure on capitalization due
to small equity and weak liquidity of the bank. On the other hand, Fitch
notes the bank’s strong diversification on the market as well as solid
operating results bank showed in 2005 and H1/06.

The bank’s risk management is also considered very good according to
national standards. In addition, Italian Banca Intesa agreed to purchase a
controlling stake in the Ukrsotsbank and at the moment is in negotiations
with the minority shareholders of this financial institution.

Fitch believes that the compromise will be reached and the deal will be
closed. This means that in case of the need Banka Intesa will provide
additional support to Ukrsotsbank.

The net assets of Ukrsotsbank were valued at UAH 14,215.6mn

(USD 2,843.12mn) as of Oct 1, its loan portfolio amounted to UAH
10.739.3mn and its capital was at UAH 1,549.2mn.

The bank reported a net profit of UAH 223.878mn for the Jan-Sep period. The
Ferrotrade International owned 86.15% stake in Ukrsotsbank as of Oct 1,
2006. Ukrsotsbank’s owners reached agreement with Italy’s Banca Intesa on
Feb 15, 2006, on sale of 85.42% of the shares in Ukrsotsbank to Banca

[2] Fitch upgrades UkrSibbank’s individual rating to D —
Fitch Ratings upgraded UkrSibbank’s individual rating to D from D/E. The
rating agency also affirmed the bank’s foreign currency Issuer Default
Ratings at BB-, local currency Issuer Default -at BB, short-term -at B and
support at – 3 with positive outlook.

The ratings are based on increased diversification of the bank’s funding
base and improved liquidity, as well as adequate asset quality. The
involvement of BNP Paribas SA as UkrSibbank’s major shareholder was also
taken into account.

On the other hand, the rating also reflects higher level of loan
concentration, frail profitability due to aggressive market penetration,
humble capitalization. Fitch also believes that BNP Paribas will be willing
to support its Ukrainian subsidiary in case of need.

To remind you UkrSibbank increased statutory capital by UAH 500mn in early
December this year. BNP Paribas owns 51% stake in UkrSibbank. It bought the
stake in mid April 2006.

The net assets of UkrSibbank amounted to UAH 17,836.3mn (USD 3,531.94mn)

as of Oct 1, 2006; its loan portfolio was UAH 13,319.3mn and its own capital –
UAH 1,467.4mn. In Jan-Sep the bank reported net profit of UAH 42.42mn.

[3] AUB opposes plans to restrict foreign currency loans —
Association of Ukrainian Banks (AUB) opposes the plans of NBK to impose
restrictions on foreign currency loans. According to the statement bankers
noted that steps taken in the draft document are too fundamental and strict.
Bankers also said that any measures used to reduce the volume of
foreign-currency loans should take into consideration the condition of the
economy as a whole.

AUB will continue negotiations with NBU to ease the proposed restrictions.
We need to point out that NBU has repeatedly stated plans to impose
restrictions on foreign-currency loans, which account for 64% of the total
volume of retail loans and 34% of corporate loans.

[4] Forum Bank to raise statutory capital by USD 100mn in Q1/07 —
Forum Bank’s shareholders decided to raise its statutory capital by UAH
500mn (USD 100mn) to UAH 1.121mn by issuing additional shares. The bank

will place additional 50mn simple registered shares of UAH 10 per share. The
subscription will be carried out from Feb 8, 2007 to Mar 4 2007.

To remind you, Forum Bank increased its statutory capital by UAH 251mn to
UAH 621mn in mid-2006. The net assets of Forum Bank were valued at UAH
5,745.9mn as of Oct 1, 2006, its credit portfolio – at UAH 4,131.6mn and own
capital – at UAH 579.0mn.

The bank ended the Jan-Sep 2006 with net profit of UAH 21.743mn. Insurance
company Provita holds 66.63% stake in the bank, while Elmak ltd. has 10.8%

[5] Moody’s downgrades Khreschatyk Bank national scale rating to A3ua —
Moody’s downgraded Khreschatyk bank rating from to on the
national scale. The decision reflects the decrease of the stake in the bank
held by Kyiv city municipality from 51.16% to 23.7%.

The long-term foreign currency deposit B2 rating outlook of the Khreschatyk
bank was also lowered from stable to negative. To remind you, in Dec 2006,
the bank raised its statutory capital by UAH 290mn (USD 57.4mn) to UAH
540mn, which diluted the stake held by Kyiv municipality.

At the same time the stake of Ukrfinkom went up from 34.22% to 44.2%. Invest
Fond Servis has 9.9% stake, Stolytsia Invest Servis – 9.8% stake, MDM Invest
System – 9.9% stake, Tekhnomed Ukraine 1% stake, and individuals (including
the bank’s management) – combined 0.32% stake in the bank.

The net assets of the Khreschatyk bank amounted to UAH 3,225.6mn, its credit
and investment portfolio was at UAH 1,811.4mn, and its equity – at UAH
329.8mn as of Oct 1, 2006. The bank made net profit of UAH 22.058mn in

[6] FUIB to raise statutory capital by USD 85.85mn via new share issue —
First Ukrainian International Bank (FUIB) decided to raise its statutory
capital by UAH 429.272mn (USD 85.85mn) to UAH 755.274mn by issuing
additional shares. The bank plans to issue 1,866,400mn simple shares with
face value of UAH 230 per share.

As of Dec 1, 2006, the FUIB net assets amounted to UAH 5,631.563mn and its
own capital was at UAH 849.695mn. The bank finished Jan-Nov with net profit
of UAH 62.9mn.

As of Oct 1, 2006, SCM owned 99% stake in the bank. FUIB plans to obtain USD
450-500mn in domestic and foreign loans in 2007. The bank intends to issue
Eurobonds as well as obtain regular and syndicated loans.

[7] Rodovid Bank places USD 20mn 3-year bonds —
The Rodovid Bank has placed UAH 100mn (USD 20mn) three-year bonds.

Concorde investment company was the organizer of the deal. The nominal value
of one bond is UAH 1,000. The securities have annualized yield of 13.5%. As
of Oct 1, net assets of the bank amounted to UAH 2,578.12mn, its credit
portfolio – to UAH 2,148.73mn and equity – to UAH 242.7mn.

As of Jan 1, 2006 Mashinvest had 5.983% stake in the bank,
Promenerhotsentr -8.518% stake, Modern Metallurgical Systems – 9% stake,
Rodovid Bank’s CEO Denys Horbunenko -9% stake, deputy CEO Dmytro

Yehorenko – 9% stake, NPF – 9.5% stake, Southeastern Insurance Company –
9.95% stake, Financial Industrial Alliance – 9.95% stake, MetAzov -9.95%
stake and Evrosybinvest insurance company – 9.98% stake.

[8] TAS Kommerzbank obtains USD 36mn syndicated loan —
TAS Kommerzbank obtained USD 36mn syndicated loan. The deal was organized

by Vneshtorgbank, Standard Bank, HSBC and Anglo-Romanian Bank. The loan
will mature in 12 month and was given under LIBOR+2.9% interest rate.

Alongside with the organizers, the following banks were included it the
syndicate Alpha Bank A.E., Zurcher Kantonalbank, Banif – Banco Internacional
do Funchal S.A., Bank Austria Creditanstalt, Atlantic Forfaitierungs, Banque
BIA, the International Moscow Bank, Finansbank (Holland) N.V., Icebank,
Trasta Komercbanka and The Export-Import Bank of the Republic of China.

To remind you, the Ukrainian bank already attracted syndicated loans of USD
14mn in March and of USD 21mn in August this year.

The net assets of TAS Kommerzbank amounted to UAH 3,348mn (USD 663mn), as

of Oct 1, 2006, credit portfolio made up UAH 2,606mn and capital – UAH 546.4mn.
The bank ended the Jan-Sep with net profit of UAH 13.164mn. As of Oct 1 TAS
Capital insurance company owned 56.59% stake and TAS Insurance Group –
43.41% stake in the bank.

[9] Raiffeisen Bank Aval raises statutory capital by USD 119.981mn —
Raiffeisen Bank Aval increased its statutory capital by UAH 599.906mn (USD
119.981mn) to UAH 2,099.906mn via additional share issue. The bank issued
5.999bn simple shares with nominal value of UAH 0.1 per share.

As of Oct 1, 2006, the net assets of Raiffeisen Bank Aval were amounted to
UAH 25,175.9mn, its credit portfolio was at UAH 20,796.9mn and capital
totalled UAH 2,153.8mn.

The bank ended the Jan-Sep with net profit of UAH 316.183mn. Austria’s
Raiffeisen International Bank Holding AG owns 95.32% stake in Raiffeisen
Bank Aval.

Ukrprombank’s statutory capital up by USD 50.4mnUkrprombank decided to raise
its statutory capital by UAH 252mn (USD 50.4mn) to UAH 842mn. This was done
by additional share issue to existing shareholders. The funds raised will be
used for expansion.

Until the additional issue, ABC had 34% stake, UkrPromServis – 34% stake and
KB Naftovyi 32% stake in Ukrpormbank. As of Oct 1, 2006 net assets of
Ukrprombank were amounted to UAH 5,272.5mn, credit portfolio – to UAH
4,578.1mn and capital – to UAH 667.8mn. The bank finished Jan-Sep with net
profit of UAH 35.346mn.

[10] Kredytprombank draws USD 70mn syndicated loan —
Kredytprombank received USD 70mn syndicated loan. The deal was organized by
Vneshtorhbank, Fortis Bank S.A., WestLB AG London Branch and Alpha Bank.

The loan has to be repaid in one year with annual LIBOR+2.35% interest rate.

Beside the organizers, the syndicate included the following banks: VTB
Europe Plc, HSBC Bank Plc, Anglo-Romanian Bank Limited, GarantiBank
International NV, Bank of India, Banque BIA, International Moscow Bank,
Finansbank (Holland) NV and Hypo Alpe Adria Bank.

As of Oct 1, 2006 net assets of Kredytprombank amounted to UAH 5,747.6mn
(USD 1138.1mn), loan portfolio – to UAH 3,832.7mn and equity capital -to UAH

The bank finished Jan-Sep with net profit of UAH 38.196mn. Homertron Trading
limited held 49.98% stake in the bank, Chervonoarmiiska Zakhidna Coalmine
No. 1 coal company – 9.16% stake, Greek citizen Konstantinos Papunidis –
8.44% stake, the Savi ltd – 6.63% stake, Energon Capital Finance – 5.67%
stake, Yasynivskyi coke and chemical plant – 5.42% stake and Donetskstal
metallurgical plant – 4.22% stake as of Oct 1, 2006. Other shareholders had
10.48% stake in the bank.

[11] Transbank to offer to foreign investors its 30% stake in 2007 —
Transbank decided to offer to foreign investors its 30% stake in 2007.
Further details of the deal were not disclosed yet. As of Oct 1, 2006
Transbank assets amounted to UAH 629.5mn (USD 124.7mn), credit portfolio –
to UAH 469.5mn and its capital to UAH 70.68mn.

The bank ended the Jan-Sep with net profit of UAH 4.352mn. Volodymyr
Kosterin had 23.66% stake of the bank, Eurowest ltd- 9.99% stake,
supervisory board chairman Natalia Zhylina – 9.4% stake, Vartons Management
Limited – 8.75% stake and Hrindel Ukraina – 8.59% stake, as of Oct 1.

[12] Credit Rating assigns uaBBB- rating to Capital Bank —
Credit Rating announced the assignment of the uaBBB- long-term credit rating
to Donetsk-based Capital Bank. The rating agency also confirmed the uaBBB-
rating to the bank’s issue of UAH 10mn (USD 5mn) bonds that will mature in 5

The rating is based on adequate capacity of the bank to repay timely and in
full its debt obligations and its comparatively high vulnerability towards
adverse changes in business, financial and economic conditions.

In the course of analysis the Credit-Rating agency used the bank’s financial
reports for 2001-2005 and 9 months of 2006, as well as other inside
information furnished by the bank.

The agency also took into the account the significant increase of the bank’s
client base and that a part of the bank’s own capital is used to finance its
active operations. As of Oct 1, 2006 net assets of the bank amounted to UAH
423.46mn (USD 84.69mn), credit portfolio – to UAH 371.99mn and own capital –
to UAH 56.036mn. The bank finished Jan-Sep with net profit of UAH 4.656mn.

As of Oct 1, Yasynuvata engineering plant has 15.5% stake directly and
9.48% stake indirectly in the bank.

In addition All Beteiligungs-Anstalt’s subsidiary Mist has 10.01% stake,
Viktor Trubchanin – 4.66% stake directly, 20.33% stake indirectly, Volodymyr
Trubchanin – 2.41% stake directly, 22.57% stake indirectly, Oleksandr
Trubchanin – 2.41% stake directly, 22.57% stake indirectly, Yevhen
Scherban – 11.85% stake and Ruslan Scherban 11.78% stake in the bank.

[13] Transbank to raise statutory capital by USD 32mn —
Transbank decided to raise the statutory capital by UAH 160mn (USD 32mn) to
UAH 200mn. The intended increase will be achieved via additional share issue
for existing shareholders and foreign investors. Transbank presently
negotiates with French, Israeli and South Korean banks to sell its shares to

As of Oct 1, 2006, the net assets of the bank amounted to UAH 629.5mn, its
credit portfolio – to UAH 469.5mn and equity – to UAH 70.68mn. The bank
ended the Jan-Sep 2006 with net profit of UAH 4.352mn.

As of Oct 7, 2005 Volodymyr Kosterin had 23.66% stake in the bank, Eurowest
ltd – 9.99% stake, Natalia Zhylina – 9.4% stake, Vartons Management Ltd  –
8.75% stake and Hrindel Ukraina – 8.59% stake in the bank.

[14] Ahrobank to raise statutory capital by USD 47.47mn —
Ahrobank will increase its statutory capital by UAH 237.35mn (USD 47.47mn).
The bank will achieve this through additional issue of 2,373,500 simple

To remind you, PPF Group (Czech Republic) acquired 100 % stake in the bank
on Dec 15, 2006. As of Oct 1, 2006 Ahrobank’s net assets amounted to UAH
720.3mn, its credit and investment portfolio was at UAH 575.7mn and own
capital – at UAH 79.99mn. Net profit amounted to UAH 3.93mn for Jan-Sep

[15] ALICO AIG Life to raise statutory capital by USD 7.07mn —
ALICO AIG Life insurance company decided to raise its statutory capital by
UAH 35.35mn (USD 7.07mn) to UAH 121.53mn by issuing additional shares.

The company plans to issue 3.535bn simple shares with face value of UAH
1,000 per share. ALICO AIG Life, specializes in life insurance and is a
subsidiary of American Life Insurance Company.

ALICO AIG Life already increased its statutory capital by UAH 30.3mn to UAH
86.2mn in Feb 2006. As of Jul 1 2006, the company’s assets amounted to UAH
98.849mn, reserves – to UAH 78.141mn and statutory fund – UAH 86.179mn.
ALICO AIG Life was registered on Jul 16, 2002.                  -30-

NOTE:  ALICO AIG Life Insurance is a member of the Ukraine-U.S.
Business Council in Washington, D.C.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

IntelliNews-Ukraine This Week, Kyiv, Ukraine, Tuesday, January 9, 2007

[1] Cyprus-based Metalukr to buy 50% in Avlita, Marine Industrial Complex —
The Antimonopoly Committee of Ukraine (AMCU) allowed the Cyprus-based
Metalukr Holding Limited company to acquire more than 50% stake in the
Stevedore Company Avlita and in Marine Industrial Complex. Avlita deals with
the provision of cargo handling services to government-owned seaports.

Marine Industrial Complex repairs civil sea vessels and produces spare
parts. Avlita finished 2005 with net revenues worth UAH 16.007mn (USD
3.2mn), which was up by 106.83% y/y and net profit of UAH 90.601mn.

Marine Industrial Complex ended 2005 with net profit of UAH 8.442mn and with
net revenues of UAH 502.8mn. Cyprus based L.I.T.A.T. Holding at present has
100% stake in the Marine Industrial Complex

[2] Agromars poultry producer gets USD 30.9mn loan from FUIB —
The First Ukrainian International Bank (FUIB) provided a loan worth USD
30.9mn to Complex Agromars, one of local biggest poultry companies. The
company will use the funds for expansion of its production facilities.

Agromars ended 2005 with net profit of UAH 228.06mn (USD 45.2mn). The
company increased net revenues by 49% y/y to UAH 531.75mn in 2005. CJSC
Complex Agromars incubates hatching eggs, grows chickens and processes
poultry meat.

As of Dec 1, 2006, the FUIB net assets amounted to UAH 5,631.563mn and its
own capital was at UAH 849.695mn. The bank finished Jan-Nov with  net profit
of UAH 62.9mn. As of Oct 1, 2006, SCM owns 99% of the shares in the bank.

FUIB plans to obtain USD 450-500mn in domestic and foreign loans in 2007.
The bank intends to issue Eurobonds as well as obtain direct and syndicated
loans. The statutory capital will also be increased by issuing additional

[3] Cyprus-based Vespone Trading acquires 44% stake in Dniprovskyi Poultry
Mill —
Vespone Trading Ltd bought 44% stake in Dniprovskyi poultry mill. The mill
bought back its 36.84% stake from Gonfilia Trading Ltd (Cyprus) on Dec 7.

The Antimonopoly Committee authorized this acquisition in November. As of
Sep 6, 2006 Vespone Trading Ltd had 37.39% stake in the Dniprovskyi poultry
mill and Gonfilia Trading Ltd – 36.84% stake.

This means that after the deal Vespone Trading obtained 81.39% stake in the
target company. The Dniprovskyi poultry mill finished 2005 with net profits
of UAH 44.494mn (USD 8.8mn). Its net revenues went up by 62% y/y to UAH
164.23mn in the reporting period.

[4] Grain exports down by 79.4% y/y to 303,000 tons in November —
In November, grain exports went down by 79.4% y/y to 302,820 tons worth USD
43.99mn. Traders exported 168,960 tons of wheat, which accounted for 55.8%
of total grain exports.

Grain export went down by 68.5% m/m. In Jan-Nov 2006, grain export fell by
3.3% y/y to 10,650,870 tons worth USD 1,299.00mn. In 2005 grain export rose
by 63.7% y/y to 12,501,610 tons worth USD 1,384.08mn.

[5] Ukrtelecom to receive USD 200mn credit in Q1/07 to set up mobile network —
Telecommunication company Ukrtelecom, hopes to attract USD 200mn to set up
its new mobile communication network. The company did not yet decide on how
the money would be borrowed.

However, it already signed the contract with Nokia to supply the equipment
Ukrtelecom and it plans to start providing mobile services in Mar 2007. The
company plans to invest USD 700mn into expansion of 3D mobile communication
network until 2010.

Ukrtelecom has 78.5% share of fixed-line telephone market. It has around
9.8mn customers. The government, which owns 92.86% of Ukrtelecom, has

passed the law on the privatization of the company in 2007. It expects that if the
company provides both fixed-line and mobile services its value will

[6] State to attract USD 500-600mn loans in 2007 for aircraft industry —
The country plans to draw UAH 2.5-3bn (USD 500-600mn) loans in 2007 for
development and modernization its aircraft production industry.

According to deputy PM Andrij Kliuev, the 2007 budget includes UAH 250mn to
pay the interest on these loans. The government plans to use local banks to
attract the loans. They are expected to have maturity of 1 to 5 years and
10-11% interest rate.

[7] Credit rating assigns uaBB+ rating to Konstanta construction company —
Credit-Rating announced the assignment of the uaBB+ long-term credit rating
to the upcoming issue of the housing bonds B series. The amount of the issue
is UAH 136.2mn due on Nov 1, 2009. At the moment Konstanta implements 5
investment and construction projects in the city of Zaporozhye.

In the course of analysis the Credit-Rating agency used issuer’s financial
reports for 2003-2005 and 9 months of 2006, as well as other inside
information furnished by the company.

[8] Iron ore mine managing company Ferrexpo gets USD 275mn syndicated loan —
Ferrexpo AG the controlling shareholder of the Poltava ore mining obtained
USD 275mn syndicated loan. The loan was organized by ABN Amro (the
Netherlands), BNP (France) and Societe Generale (France). The credit has to
be paid off in four years.

The funds will be used to refinance the existing loans and for the
development of the company. Ferrexpo AG acquired over 60% of the shares

in the Poltava OMEP in late 2005.

Ferrexpo AG was registered in Switzerland, in Nov 2001 with a statutory
capital of CHF 200,000. The company delivers ore pellets from the Poltava
ore plant to Czech and Slovak metallurgical plants.

[9] Alumina exports down by 11.6% y/y in November to 99,350 tons —
Alumina exports fell by 11.6% y/y to 99,350 tons in November. In m/m terms
the exports were down by 22%. This led to a decline in revenues by 23.1% m/m
to USD 23.10mn. The main importer was Russia with 98,520 tons or 99.2% of
total exports.

To compare, alumina exports rose by 17.8% m/m to 127,380 tons in October. In
Jan-Nov 2006, the exports rose by 5.4% y/y to 1,271,100 tons for USD
296.65mn. In 2005, alumina exports went up by 3.2% y/y to 1,331,120 tons for
USD 256.98mn.

[10] Ferrous scrap metals exports fall by 7.4% y/y in November to 51,780 tons —
In November, exports of ferrous scrap metals fell by 7.4% y/y to 51,780
tons. In m/m terms the exports went up by 2% m/m. In turn this led to a rise
in earnings by 1.2% m/m to USD 12.69mn. In Jan-Nov 2006, exports fell by
42.9% y/y to 681,310 tons for USD 155.62mn.

To remind in October, exports of ferrous scrap metals declined by 26.3% m/m
to 50,770 tons. In 2005, such exports dropped by 48.6% y/y to 1,260,770 tons
for USD 258.05mn.

[11] Ukrenerho to invest USD 138.129mn in energy system development in 2007 —
State-owned Ukrenerho power company plans to invest more UAH 690.647mn

(USD 138.129mn) in development of domestic energy system in 2007.

The company plans to pour more then UAH 119.5mn in development of a 750-
330kW power transmission line from the Rivne nuclear power plant to the
Kyivska substation.

Another UAH 52.5mn will be used for construction of a 330kW power
transmission line from the Dniester hydroelectric pumped-storage power
station to the Ladyzhyn thermoelectric power station.

As well as about UAH 33.3mn in upgrading a 220kW Simferopol-Sevastopol

power transmission line to a 330kW power transmission line and expanding the
Simferopol-Sevastopol substation in 2007.

In addition UAH 2.5mn will be used to design of a 330kW power transmission
line from Dniester hydroelectric pumped-storage power station to the Bar

Enerhobud consortium was declared the winner of a tender for the
construction of a 330kW main power transmission line that will connect the
Dniester hydroelectric pumped-storage power station (Novodnistrovsk,

Sokyrne district, Chernivtsi region) with Ukraine’s energy system.

The EBRD provided a loan of EUR 25.755mn to Ukrenerho for construction of
the second 330kW power transmission line from the Ajalytska substation to
the Usatove substation in the Odessa region.

[12] Government to borrow USD 2bn in 2007 for energy sector development —
The government will borrow USD 2bn in 2007 for development of the energy
sector. The loans will be mainly attracted from Oschadnyi Bank, Ukreximbank,
Pryvatbank, Prominvestbank, Raiffeisen Bank Aval, and Ukrsotsbank. The
interest on the loans worth of UAH 2.08mn (USD 420,000) is included in the
state budget for 2007.

The government also plans to receive EUR 200-300mn from EBRD as well as

EUR 50mn from the European Investment Bank. UAH 624mn (USD 113.5mn)
will be used for modernization of the second reactor of Trypillia hydro power
plant, which is a part of Tsentrenerho power generating company.

The government also plans to use about UAH 200mn for modernization of
thermoelectric power plants of Zakhidenerho power company.

[13] Kriukivskyi railcar plant reduces output by 27.9% y/y to UAH 1bn in 2006 —
Kriukivskyi railcar plant cut down output by 27.9% y/y or UAH 386mn (USD
77.2mn) to UAH 1bn in 2006. The reason the decline was higher competition,
as well as introduction of new types of products, which led to lower demand
for the basic models. Kriukivskyi plant produced 4,358 freight railcars in

The plant also produced four auto graders in 2006. Skinest Finants had
24.95% stake in the plant as of Dec 2004 and Transbuilding Service Ltd had
24.97% stake. As of Apr 2004 another 20% stake belonged to TEKO Dniprometyz
holding company. The plant reduced output by 8% y/y or by UAH 114mn in 2005.

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

AFX News Limited, Vienna, Austria, Tue, January 9, 2007

VIENNA – Austria’s Oesterreichische Volksbanken AG (OeVAG)has bought
Ukraine’s Elektron Bank via its holding company Volksbank International for
57 mln eur, according to national news agency APA. The deal is expected to
close at the end of March.

Elektron Bank has assets of around 103.3 mln eur and around 26,000

OeVAG told the news agency it also plans to look to Russia and Poland in the
near future, having already invested 300 mln eur in the CEE and SEE regions
in 2006. ( ff/har                -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


Andrew Osborn in Moscow, The Independent
London, United Kingdom, Saturday, Jan 06, 2007

KIEV – One of Europe’s poorest countries, Ukraine, is enjoying an unlikely
property boom that has delighted developers but left many ordinary
Ukrainians out in the cold.

Some properties have rocketed in value by 600 per cent in the past three
years, and prices in Kiev, the capital, reportedly rose by up to 25 per cent
in the last two months of 2006 alone.

Property investors and people who already owned their homes have been the
big winners. But young Ukrainians and renters now find themselves shut out
of the market, with no prospect of buying.

“I’m young and I rent an apartment and make pretty good money, but I can’t
even afford to get a mortgage,” said Anna, a secretary who did not want her
surname to be published. Mortgage rates are, she says, as high as 12 per
cent. “Even foreigners are surprised by how expensive it has become here.”

Kiev now bristles with cranes and building sites that work 24 hours a day,
rushing to meet what appears to be an insatiable demand for new housing.

Analysts say that if you bought a decent flat for the going rate in Kiev
three years ago (just pounds 15,000), it would now be worth pounds 100,000,
an increase of more than six-fold. Small city-centre flats in Kiev are now
changing hands for pounds 200,000 and more.

The huge price hikes have made Ukraine one of the most expensive places to
buy property in eastern Europe and the former Soviet Union. Yet average
monthly salaries range from just pounds 80-pounds 180, depending on the
region, and few people have savings.

And, to add insult to injury, many of the buyers are foreigners out to make
fast money by renting or reselling. Irina Radko, of estate agents UA
Property, says that many of the buyers are British.

“Our clients are mostly from the UK, but we also have customers from the
USA, the UAE, Cyprus, New Zealand and Canada.”

The most popular area to buy is Kiev, she added, followed by Crimea (a

Black Sea holiday destination) and the Carpathian Mountains. The trigger for
Ukraine’s property boom appears to have been the country’s pro-Western
“orange revolution” in 2004.

The new President, Viktor Yushchenko, abolished visa requirements for EU

and American citizens, and let it be known that his country was open for

Although he has since lost much of his influence and been forced to share
power with a pro-Russian Prime Minister, Viktor Yanukovych, friendly
investment conditions he created remain in place.

But foreign investors’ good fortune has been local people’s misery.
Government buildings in Kiev are frequently picketed by people angry about
poor living conditions. “The politicians promise that something will change,
but nothing ever does,” said Anna.                       -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

           New Travel Routes between the Ukraine and the United States

Business Wire, New York, NY, Tuesday, Jan 09, 2007

NEW YORK – The world’s largest airline American Airlines and Ukraine’s
largest carrier AeroSvit Airlines have entered into a special pro-rate
agreement that promises to significantly increase travel between the two

This AeroSvit-American Airline agreement recognizes the Interline accord
whereby, airline partners accept each other’s travel tickets. Therefore,
passengers have the opportunity to travel with one airline’s ticket on the
flights of the other carrier. This commercial agreement goes into effect on
Jan. 1, 2007.

This relationship will allow AeroSvit and American Airlines to transport
passengers between the two countries using American Airlines domestic routes
and AeroSvit’s transatlantic routes with connecting flights in New York.

Travelers can expect this agreement to offer expanded service and an
increase in traffic between the Ukraine and the United States.

“Our agreement with the world’s largest airline, American Airlines will
offer our passenger’s additional choices and convenient service to the
United States and the Ukraine,” said Mr. Kochanov – First Deputy Director
General Sales and Marketing of AeroSvit Ukrainian Airlines.

American Airlines is a founding member of the oneworld(R) Alliance. This
alliance, with seven of the world’s leading airlines, offers passengers a
global and connected network of airlines with a range of services to
simplify your traveling experience.

Serving 172 cities with more than 4,000 daily flights to North America, the
Caribbean, Latin America, Europe and the Pacific, American Airlines ensures
passengers, around the world, remain connected.

AeroSvit – Ukrainian Airlines began operating its New York-Kyiv route in
March 2003. The airline offered travelers two direct flights a week which in
turn, became five flights a week at near or full capacity. The airline also
services popular destinations within the Ukraine.
AeroSvit Ukrainian Airlines celebrates its 12th anniversary in October 2006.
Today, the airline services the largest route network in Ukraine, with 60
international routes connecting the country with capitals, business centers,
and world renowned resorts in 29 countries.

Those countries are: Azerbaijan, Bulgaria, Canada, China, Croatia, Cyprus,
the Czech Republic, Egypt, Estonia, Germany, Greece, Hungary, India, Israel,
Italy, Latvia, Lithuania, Malta, Montenegro, Poland, Pakistan, Russia,
Serbia, Sweden, Thailand, Turkey, the UK, the USA, and the United Arab

AeroSvit also co-operates with many global carriers, including some of the
top ten airlines in the world: DELTA, North West Airline France, KLM,
British Airways, Lufthansa, and Japan Airlines. For more information, please
                           ABOUT AMERICAN AIRLINES
American Airlines is the world’s largest airline. American, American Eagle
and the AmericanConnection(R) airlines serve 250 cities in over 40 countries
with more than 4,000 daily flights.

The combined network fleet numbers more than 1,000 aircraft. American’s
award-winning Web site,, provides users with easy access to check

and book fares, plus personalized news, information and travel offers.

American Airlines is a founding member of the oneworld(R) Alliance, which
brings together some of the best and biggest names in the airline business,
enabling them to offer their customers more services and benefits than any
airline can provide on its own. Together, its members serve more than 600
destinations in over 135 countries and territories.

American Airlines Inc. and American Eagle Airlines, Inc. are subsidiaries of
AMR Corporation. AmericanAirlines, American Eagle, AmericanConnection, and We know why you fly are registered trademarks of American
Airlines, Inc. (NYSE: AMR).                            -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

                            ON LAND SALE MORATORIUM

TV 5 Kanal, Kiev, in Ukrainian 1500 gmt 9 Jan 07
BBC Monitoring Service, United Kingdom, Tue, Jan 09, 2007

KIEV – The Ukrainian parliament has overridden the president’s veto on the
law extending the moratorium on the purchase and sale of agricultural land
until 1 January 2008. The opposition Yuliya Tymoshenko Bloc joined the
ruling coalition in the voting.

President Viktor Yushchenko vetoed the law prolonging the moratorium earlier
this month saying that the moratorium will only boost the illegal land
market. The majority in parliament argued that the necessary legislation to
underpin the free land market needs further improvement.

The following is the excerpt from report by Ukrainian television TV 5 Kanal
on 9 January:

[Presenter] The Supreme Council [parliament] has finally overridden the
president’s veto on the law establishing moratorium on land sale.

The corresponding law was put forward by the anti-crisis coalition [the
Party of Regions, the Socialist Party and the Communist Party]. The 5 Kanal
correspondent Olha Snisarchuk will clarify the details of the voting. She is
on the video link with the studio.

Good afternoon, Olha. So, can we say absolutely certainly that the document
has appeared due to the common efforts of the anti-crisis coalition and the
Yuliya Tymoshenko Bloc and how did it go in general?

[Correspondent] Good evening, Tetyana. So, 360 votes in support of
overriding the president’s veto were given by, as you have correctly said,
the anti-crisis coalition and the Yuliya Tymoshenko Bloc. The latter gave
over 100 votes to override the president’s veto.

This result did not come as a surprise. Let me recall that the outcome was
predicted this morning in the corridors. Deputies were saying that the
necessary legislative base to enable free sale of land starting from 2007,
as required by the president, has not yet been developed.

The deputy head of the presidential secretariat, Arseniy Yatsenyuk,
explained the president’s position to the deputies. Yatsenyuk said that a
black land market is now thriving.

Speaking about the argument that the legislative base has not yet been
developed, Yatsenyuk said that there are 40 laws and several hundreds of
normative documents in Ukraine regulating land relations.

That is why there is no problem with the availability of laws, but there is
a problem with compliance with the laws. He added that the intention to
adjust some laws every year will not help to solve the issue, it is rather
necessary to deal with the issue immediately.

[Yatsenyuk] From the legal viewpoint, the moratorium on land sale is equal
to the prohibition to sell land plots. What does this mean for a peasant

It means the same as to prohibit a peasant to sell and to buy milk, his own
house, and so on. Extension of the moratorium on land sale leads to one
thing only: speculation on the land market and reducing the price of this

[Correspondent] The deputies rejected Yatsenyuk’s arguments and interrupted
his speech with whistling and sounds of dissatisfaction. The result is
known: Yatsenyuk’s viewpoint was not accepted.

The deputies supported the position of the special parliamentary committee
represented by its chairman, the YTB faction member Mykhaylo Hladiy, who
proposed to override the veto.

They are now actively discussing the recent events in corridors. Yuliya
Tymoshenko spoke to journalists. She referred to the same old argument
regarding the need to improve the legislative base to avoid chaos. [Passage
omitted: more in the same vein]

[At 1550 gmt on 9 January, the Interfax-Ukraine news agency quoted Yatsenyuk
as saying that the presidential secretariat may appeal to the Constitutional
Court against parliament’s decision and that officials do not have the right
to determine how land owners should dispose of their land plots.]
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

If you are receiving more than one copy of the AUR please contact us.
UNIAN news agency, Kiev, in Ukrainian, 10 Jan 07
BBC Monitoring Service, United Kingdom, Wed, Jan 10, 2007

KIEV – Ukrainian President Viktor Yushchenko, the Supreme Council
[parliament] and the cabinet have agreed to develop a joint action plan in
order to ensure legislation for the functioning of the land market.

Ukrainian President Viktor Yushchenko said this after a trilateral meeting
with parliament speaker Oleksandr Moroz and Prime Minister Viktor
Yanukovych. The president said the agreement was reached at today’s


He said this concerned the land cadaster, the laws and legal norms
regulating transactions involving any forms of land ownership.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
         Send in a letter-to-the-editor today. Let us hear from you.
                          Will land be sold at real prices in Ukraine?

Vitalii Kniazhansky, The Day Weekly Digest, #42
Kyiv, Ukraine, Tuesday, 26 December 2006

Ukraine has 33 million hectares of farmland, and experts value them at more
than 300 billion hryvnias, or some 60 billion dollars.

These figures can be called into question, however, because no one has ever
sold Ukraine’s chornozem soils, the best in Europe and even the world, in
market economy conditions. Ukraine’s market economy status has a major
drawback: its land has never been considered a commodity.

On Dec. 19 the Verkhovna Rada again prolonged the moratorium on farmland
sales until Jan. 1, 2008. Voting in favor of the draft resolution was a
confident constitutional majority of the Party of the Regions (180), BYuT
(109), the Socialist Party (30), and even Our Ukraine (8).

The land law prohibits inclusion of land shares in the statutory funds of
“economic associations” and the sale and purchase of farmland and
municipally owned plots of land (except when such plots are acquired for
public needs), the sale and purchase or other methods of alienation of land
or any changes to the existing status of such land in individual and
corporate possession, in terms of agricultural production, or land provided
as payments in kind (land shares) and intended for private farming purposes,
except when such plots of land are obtained by legal heirs or in exchange
for other plots.

However, the moratorium may continue past 2008 unless laws on the national
cadastre and land market are enacted. Any agreements (including
power-of-attorney deeds) made during the period banning the sale, purchase,
and other alienation of plots (land shares) will be null and void as of the
date of their endorsement.

The government has been instructed to submit to the Verkhovna Rada bills
amending the laws “On Mortgage” and “Leasing Land” within six months from
the date of enactment of the law, concerning the possibility of using land
ownership as collateral for bank loans, including long-term ones; also to
develop and adopt normative- legal acts aimed at upgrading methods of
valuation for farmland and plots intended for agricultural production.

What is behind the unanimous stand of Ukraine’s parliamentarians in this
complicated matter? Perhaps the best answer can be provided by the
Association of Farmers and Private Landowners of Ukraine (AFPZU).

Before the vote on the bill, the association asked the Verkhovna Rada not to
abolish but to prolong the moratorium on the sale of land for another year.
AFPZU president Ivan Tomich told a press conference in Kyiv on Dec. 18 that
if the bill extending the moratorium is not enacted before the New Year, the
AFPZU will picket the Verkhovna Rada.

“We will be there in front of the parliament building for as long as it
takes to resolve the issue.” Tomich said that canceling this moratorium next
year would result in many rural residents losing their land.

He believes that some 70 percent of Ukrainian chornozem soils already have
potential and eager buyers, and that a significant part of such farmland can
be acquired at prices considerably lower than market rates. Tomich is also
afraid that if the process of prolonging the moratorium bill is delayed, the
president of Ukraine may have no time left to sign the bill before the New

This begs the question: what will happen to all these potential landowners
who today are anticipating advantageous deals?

The Day received an answer to this question from Leonid Kozachenko,
president of the Ukrainian Agrarian Federation (UAF): “On the one hand, this
is a step backward because it delays the introduction of a land market in
Ukraine; on the other, we can assume that this was a step the Verkhovna Rada
had to take.”

Kozachenko notes that the UAF is “above all concerned about whether our
parliament will be able to do without another moratorium, primarily in terms
of passing bills without which there is no way for a land market to function
in Ukraine. If this law were to be regarded as a step taken in the direction
of more active measures aimed at passing bills, the UAF would support it.

If this deferral is aimed at telling us again at the end of 2007 that they
had no time to pass the required bills, which are all ready and have been at
the Verkhovna Rada for more than a year, then this decision is the wrong one
and it will never benefit our country.”

Indeed, agricultural reform has stumbled over the ban on land sales.
Ukraine’s agriculture, despite the world’s best soils, is in decline.

Eleven months of statistics indicate that, good harvest yields
notwithstanding, the total agrarian output has decreased by 0.9 percent,
compared to January-November 2005. Data from the State Statistics

Committee of Ukraine show that agribusiness output has increased by
0.8 percent, while individual and family farms are down by 2.2 percent.

These businesses are slowing down livestock and plant production (by 1.3

and 2.7 percent, respectively). This is proof that small-scale commodity
production, previously sustained by the unregulated slave labor of older
generations of Ukrainian peasants and also – it’s no secret – by free
 “loans” from the large commodity sector, is no longer capable of competing
with large modern businesses in the field.

The land is waiting for effective owners who have access to modern
technology, farming expertise, fertilizers, and pesticides. It is reasonable
to assume that our peasants, tired of backbreaking and unproductive labor,
will not insist on being dog-in-the-manger owners of such plots.

Price is what really matters. The government is supposed to monitor this,
making sure that prices will be not only fair but will also allow farmers to
get a fresh start in life, be it in urban or rural areas where they will
have lots of job offers.                                     -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
14.                    FACING THE FARMLAND ISSUE

EDITORIAL: Kyiv Post, Kyiv, Ukraine, Wed, Jan 10 2007

Once again, Ukrainian lawmakers have passed a one-year moratorium on
the sale of farmland, in what has turned into a never-ending delay in a
major area of the county’s market-economy reforms.

President Viktor Yushchenko had vetoed the latest moratorium bill, arguing
that it violated the property rights of rural residents. But the
pro-government parliament majority, with the help of the opposition Byut
faction, overrode the veto on Jan. 9.

In typical populist fashion, Byut leader Yulia Tymoshenko said that she
supported rural reform, including the passing of badly needed legislation
that would make farm land sales fair and transparent, but wasn’t about to
let small plot owners get bilked by greedy investors in the mean time.

“Shady speculation is keeping the peasants from receiving a fair price for
their plots,” she said after the recent vote.

According to the fiery female politician, who had stood side by side with
the president during the 2004 Orange Revolution, which promised reforms
and a European life style, plots would be bought up for a fraction of their
price and resold for much higher.

Ukraine experienced similar hard-nosed capitalism during the early days
of privatization, when industrial assets were gobbled up.

However, as the situation currently stands, many Ukrainian “peasants” –
which rural agricultural workers were officially referred to as late as
Soviet times – are renting out their small plots to large agricultural
companies at a pittance any way.

Interestingly, it is the plight of the “peasant” which comprises the brunt
of Yushchenko’s anti-moratorium efforts.

Impoverished and often elderly rural residents, long tied to their land by
the prohibitive Soviet internal passport system, lack the savvy,
organization or will to figure out what they should be getting paid for
their land.

With young people fleeing to the city, they are incapable of working it
themselves. Moreover, the value of their land and market price for leasing
it out remains unclear due to the controversial moratorium.

Viktor Baloha, the head of the president’s secretariat, announced that if
reforms in the agricultural sector continue to be blocked, “such actions
cannot be assessed as anything other than an attempt to conceal from
peasants the real value of their land.”

Finding out how much the land is worth is indeed one of the problems that
impedes reform, while well heeled businessmen with agricultural interests
take advantage of the situation.

Yushchenko’s team has threatened to challenge the moratorium in the
country’s Constitutional Court, but there is already a long list of even
more important issues that the president wants justices to sort out.

One can understand a distrustful Ukrainian public that is used to being
bilked out of its rights to “commonly-owned” state property bequeathed
from the Soviet period.

No one seems to deny that more legislation has to be worked out to
facilitate any transfer of land property rights. A public information
campaign would be a must. More than likely, many Western-funded NGOs
would be ready to play a significant role.

But nothing good can come out of the continual delays. As it stands now,
the peasants are still not getting a straight deal.

One wonders about the motives of the lawmakers who speak on their behalf.
The only solution is to bring things out in the open, pass the appropriate
regulations and let the auction process be monitored.

Non-agricultural land can be sold, so let the reforms continue.

Ukraine has about 81 million acres of agricultural land, which experts say
could be valued at around $60 billion.

If Prime Minister Viktor Yanukovych is serious about implementing market
reforms, now is the time to do it. His parliamentary coalition is not so
dependent on its leftist allies in the Rada – i.e. the Communists and

Holding up farmland sales by repeatedly passing a blanket moratorium is a
bit like an ostrich sticking its head in the sand: the problem won’t go away
on its own.

But in Ukraine, the ostrich is the so-called peasant. And his face has been
in the dirt for centuries.

For his sake and the country’s overall progress toward creating a market
economy, lawmakers and government officials should start finding proper
owners for the country’s rich farm land.                  -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax-Ukraine news agency, Kiev, in Russian 0857 gmt 10 Jan 07
BBC Monitoring Service – United Kingdom, Wed, Jan 10, 2007

KIEV – The Supreme Council today adopted a law lowering the quorum from

60 per cent plus one share to 50 per cent plus one share at a repeat meeting of
shareholders in case the initial meeting failed due to a missing quorum.

The law on amendments to the law “On economic entities” (on the reduction of
the quorum threshold at economic entities’ meetings) was backed by 237 MPs
from the parliamentary majority.

“If a properly announced meeting of participants failed because there were
not enough participants, the first meeting that follows is considered lawful
if it is attended by participants (or their representatives) holding in
total over 50 per cent of votes,” the parliamentary information department
quotes the law in concern to other than shareholding companies.

As reported earlier, parliament adopted the law on amendments to the law “On
economic entities”, lowering the quorum at economic entities’ meetings, on
19 October. It was backed by 241 MPs. A proposal to gradually lower the
quorum at least at a repeat meeting was not approved. The president vetoed
this law in November.

The current wording of the law on economic entities has a provision that
requires over 60 per cent of shareholders to be present at shareholders’
meetings regardless of the type of a company to be able to make a decision.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

INTERVIEW: With U.S.Ambassador William Taylor
The Day Weekly Digest #42, Kyiv, Ukraine, Tue, 26 Dec 2006

[The Day] Yanukovych’s trip to the US has been called a familiarization
visit. What impression did his visit make on official Washington?

[Ambassador Taylor] The prime minister had a good visit in Washington.
He met the vice-president and addressed the public. His speech was
consistent in both his private and public meetings. He laid out Ukraine’s
foreign policy and domestic policy directions.

We were very interested to hear the message from the president and the
prime minister, which contained rather ambitious positions on domestic
policies as well as those concerning membership in Euro-Atlantic
institutions, e.g., the World Trade Organization and energy policies.

Prime Minister Yanukovych also issued a few good declarations
concerning openness and transparency. In the general sense, his comments,
assumptions, and statements were very welcome, and now we would like
to see how all these statements and declarations will be implemented.
We’ll be working with him and the president.

[The Day] How did the prime minister explain his conflict with the
president? Was he trying to look for consensus or compromise?

[Ambassador Taylor] We think that this visit will help forge some
consensus between the president and the prime minister. Such consensus
is very important for Ukraine.

Ukraine will be much stronger in the world if the executive branch of
Ukraine’s government, which consists of the president and the prime
minister, is sending a unified, strong message to the rest of the world.

The opposite is also true: if there are two different messages coming from
the executive branch, the rest of the world is confused. What is Ukraine’s
foreign policy if it is not a unified message? A unified message is
important and this is what we want.

[The Day] What was Washington’s reaction to the statements that Ukraine
is in no hurry to enter NATO?

[Ambassador Taylor] The NATO question came up in several meetings
as well as public discussions with the prime minister. The president of
the United States made it very clear in Riga that the American view is
that when Ukraine is ready, the doors will be open.

Prime Minister Yanukovych said: “We need some time to explain what
NATO is to the Ukrainian people, what its commitments are, and what
benefits derive from it.” Our response is that this is reasonable, that’s
very reasonable.

The Ukrainian people deserve to understand the essence, advantages,
and responsibility that are attendant upon joining NATO. Naturally, the
Ukrainian people still have a lot of questions. So, this is going in the
right direction.

[The Day] Is it possible to name the key stages or steps of the program
aimed at fighting corruption in Ukraine?

[Ambassador Taylor] The first and most important step in the struggle
against corruption is political will, political will to fight corruption, to
take difficult steps.

The president has a package of legislation. The prime minister indicated in
Washington that the struggle against corruption is a very high priority for
his government.

According to him, he has made a breakthrough in the fight against
corruption. So, political will, concrete steps, and broad public support for
fighting corruption – those, I think, are the keys.

[The Day] How does official Washington view the fact that Yanukovych
first visited Moscow and then came to Washington?

[Ambassador Taylor] We asked questions about this, and he explained to
several of his interlocutors in Washington that when he was in Minsk he
had asked some questions, and his Russian colleagues were unable to
answer these questions and invited him in order to give an answer to his
questions at the higher level.

So, we did ask and he did explain. We think it is important for Ukrainians
to have good relations with Russia; this is important for neighbors.

To have good relations with all of your neighbors is important for joining
NATO; this is one of the requirements for joining. So, that’s just fine.

[The Day] Do you predict that within five years, more or less, Ukraine
will have a plan for entering NATO?

[Ambassador Taylor] I don’t know how long this is going to take. It could
be a year or two, it could be longer; it could be shorter. It depends on how
intensive the information campaign will be, providing answers to Ukraine’s

People want information, they deserve information; they are ready. There may
be a referendum, and that would be fine, we think, but we want it to be a
well-prepared one.                                  -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
         Did U.S. company M.I.C. Industries Inc. pay for the charter flight?

By Serhiy Leshchenko, UP, Mustafa Nayem, Kommersant, for UP
Ukrayinska Pravda (UP), Kyiv, Ukraine, Wednesday, January 3, 2007

What do you think, is it reasonable to pay $200 thousand for a charter
airplane to take guests from Ukraine to the US?

Why pay that much money if there are business-class tickets which are at
least 5 times cheaper?

Is this unheard-of generosity accounted for the fact that the son of the
Prime Minister of Ukraine Viktor Yanukovych was on board? It happened in
Two days after governmental delegation chaired by Yanukovych Senior left for
the US, a charter airplane with Yanukovych’s son, his colleagues from Party
of Regions (PRU) and representatives of some major enterprises took off from
Boryspil airport to land in Washington.

This story of Yanukovych’s travel to the US got in a scandalous context. An
unknown web-site published information that Yanukovych Junior came to
Boryspil accompanied by a guy and two girls. Allegedly, they kicked up a row
as a result of which the chief security officer of the airport was fired.

Our Ukraine Block kept the ball rolling and Lilia Hryhorovych called
Yanukovych Junior for an explanation.

However, talking to UP correspondent Hryhorovych confessed she never
checked up the information. “God forbid, it’s not my job! I just found this
information on the internet,” said Hryhorovych.

Representatives of Our Ukraine Central Office claim the information on the
incident came from the President’s Secretariat and Hryhorovych and head of
Our Ukraine Youth Organization were mere retransmitters.

The scandal was taken up by Ukrayina Moloda periodical owned by
Yushchenko’s advisor. Last weekend an influential Focus periodical also
published this information, referring, however, to Ukrayina Moloda. All
re-publications were almost identical and did not specify the source of such

Yanukovych Junior, in his turn, claims there was no scandal. “I think I’ll
sue Hryhorovych. They try to hush down that shooting story (shooting of the
budget committee by Yushchenko’s ex-father-in-law) with all these trips to
the US,” said Yanukovych in an interview with Ukrayinska Pravda.

Ukrayinska Pravda got in touch with Boryspil front office. Director of the
airport Andriy Mazur denied the information on the incident and stated there
was not even such a position as the chief security officer of the airport.

However, Ukrayinska Pravda still kept on investigating the incident and
found out different but not less interesting details.

QUESTION 1: Mystic delegation from Party of Regions?

Ukrayinska Pravda has ascertained that the delegation consisted of PRU MPs
only: Yanukovych Junior, Vasyl Khara, Mykola Kruhlov and Olena Netetska.
There was also a woman named Angela who appeared to be the aid of MP
Anton Pryhodskyi. Most probably Our Ukraine representatives meant them,
saying that Yanukovych came to the airport accompanied by two girls.

Pryhodskyi himself used two airplanes in his US trip: he left for Washington
on a plane with the prime minister and came back on a charter plane with
Yanukovych Junior.
Pryhodskyi is a key figure of the story. He is the head of the Verkhovna
Rada Transport Committee. Owning Bentley Continental Company, he is
one of Yanukovych Senior’s closest allies.

Pryhodskyi is a kind of a ‘dear friend’ for Premier Yanukovych. In
particular, there has been much written about summer house in the Crimea,
allegedly owned by Yanukovych.

However, there is no Yanukovych name in the documents. The villa is
registered to Dolphin-2001 Company founded by Pryhodskyi’s companies.

In general, Pryhodskyi controls Crimean sector in Yanukovych’s team.
Speaker of the Crimean Parliament Hrytsenko is said to be rather close to
According to sources from PRU, Pryhodskyi also took part in the coalition
talks with Our Ukraine.

However, Pryhodskyi is not a stranger for Rynat Akhmetov. They have
common business in the sphere of freight traffic.
Besides MPs, representatives of at least three commercial organizations came
to the US: UkrZaliznytsya (Ukrainian Railways), Kharkiv Aircraft Plant (both
enterprises are state-owned) and UkrTransLeasing, related to Pryhodskyi.

His company Interregional Industrial Union has 9% share in UkrTransLeasing
and 43% in Akhmetov’s Lemitrans Company, while the state owns about 48%.

According to Yanukovych Junior, their delegation to the US consisted of 11

QUESTION 2: Did MPs started to manage business in the US?

Yanukovych himself was very vague speaking about the goal of his trip to the
US: “I’ve been said: “You have to go!” Well, if I have to – I will! I asked:
“What for?” They say: “There will be something interesting to listen to.” I
said: “No problem, let’s go! Why not!?”

Olena Netetska claims she was surprised, having learnt she had been included
to the delegation: “They said I had to go. Well, I will go if I have to,”
Netetska dubbed Yanukovych’s reply.

Chairman of the Deputy Group Vasyl Khara is sure that it was by accident
that the US visits of Yanukovych Senior and Junior were actually

According to him, the trip of 5 MPs from PRU to Washington had been
scheduled on November 27th, but the date of the trip was shifted on the
initiative of an American side.

At the same time sources in PRU present another version: at first Kushnaryov
and Bohatyryova were to go to the US but when it became clear the Congress
was on vacation they refused to go, motivating it with the low
representative level of the meetings.

It is also not clear how a deputy’s aid got into the delegation, consisting
of MPs and heads of major enterprises.

She refused to share details of her US trip. “I am a state official,
deputy’s aid. I do not have to tell you anything. I was not an official
delegation member,” said Angela.

However, the entire PRU delegation was unofficial.

Their status in the US was not clear. According to MPs they processed visas
in the Embassy on the invitation of a commercial company M.I.C. Industries
Inc but not the US Parliament or some other non-governmental organization
which deals with experience exchange.
                          MET WITH U.S. CONGRESSMEN
However, at that MPs met not only with the representatives of the above
mentioned company but also with congressmen.

After numerous attempts Ukrayinska Pravda managed to persuade Anton
Pryhodskyi get in touch. However, he did not shed light on the situation.
Pryhodskyi claimed the visit took place within the framework of
inter-parliamentary relations.

– Why did then only PRU MPs came to the US?
– Because it was easier to establish unofficial contacts that way.

– But there were businessmen in the delegation.
– All business contacts were of a different nature and had nothing to do
with people’s deputies. These contacts included a series of investment

Yanukovych Junior learnt the issues, Ukrainian delegation dealt with, right
at the meetings.

“For instance, it is American building technologies,” said Yanukovych
Junior. “I am just a builder! Officially I worked three years as a builder,
and even more unofficially.”

Also, according to Yanukovych Junior, he left Washington to have a walk in
New York apart from other delegates.

Premier’s son also noted he had a list of people they met in the US.
However, he refused to present it. In fact, it was the reason why we took a
deep interest in his trip to the US.

Mykola Kruhlov marked that there were lots of militants working in M.I.C.
Industries Inc. “We were accompanied by former Supreme Allied Commander
Europe General Joseph W. Ralston. Even former Secretary of Defense William
Cohen attended some of the meetings.”

“We visited an enterprise not far from Washington to learn experience of
this company – how to build houses and facilities for animals within a short
time. Representatives of aircraft business developed their own contacts,”
recalled Kryhlov.

“We were 4 MPs who were talking to congressmen’s aids. Business group
carried out negotiations apart from us and I did not take part in those
negotiations,” said Olena Netetska.

As known, representatives of three enterprises accompanied Ukrainian MPs.
One of the companies, Ukrainian Railways, reported that its Acting Director
General Anatoliy Chubynskyi headed for the US to carry out negotiations with
potential investors in Ukrainian railway system.

Vasyl Khara stated they met senators and high-ranked officials from the
former Republican majority.

At the same time, none of the delegates was able to recall any signed
contracts or agreements. Well, they agreed to meet again, but next time
Americans will come to Ukraine.

QUESTION 3: Did charter plane cost as much as an apartment in Kyiv?

Ukrainian delegates did not pay for the hotel in the US. Moreover, Kryhlov
claims he did not processed travel request in the Verkhovna Rada which is
violation of the parliamentary regulations, as last week MPs were to work in
the committees.

But still, a charter airplane which took Yanukovych Junior and other
delegates to the US remains the main intrigue of the story.

According to the delegates, this charter airplane belonged to some Western
company as they were served by English-speaking stewardesses. Nobody
was able to specify the type of an airplane but taking into account that it
took on board over 10 persons we can assume it was a middle-sized

business jet.

It is indicative that a private jet that took Yanukovych’s son to the US was
better than the state one which took on board governmental delegation
chaired by the Prime Minister.

The charter jet needed no topping on the way from Kyiv to Washington while
governmental airplane had to make a refueling stop in Ireland.

And now bare figures. Taking into account that the rent for such an airplane
is EUR 6-8 thousand/hour, the cost of flight from Kyiv to the US may reach
EUR 200 thousand.

For instance, one of native oligarchs confessed to Ukrayinska Pravda that he
had recently hired a private jet to Shanghai and it cost him EUR 140

The distance from Kyiv to Washington is almost the same but taking into
account that the jet first came to Kyiv and then left for Washington where
it was parked for some days, the cost of the trip may approach EUR 200

Ukrayinska Pravda got in touch with major national charter operators.

So, Challenge Aero Company stated that the approximate cost of
Kyiv-Washington flight was EUR 250 thousand.

“The flight cost cannot be lower as the customer has to pay not only for

the flight itself but also for transportation of an airplane to Boryspil
airport,” Challenge Aero officials claim.

Aerostar Company said they had never had such orders because of fancy
price for charter flights to the US.

“There are no charter airplanes in Ukraine that can fly to the US. We can
order them in Europe and transport here. To perform a non-stop flight to
Washington you will need a ‘Golf stream’ type airplane,” said Aerostar

“With the price of EUR 8 thousand/hour the minimal flight cost from Kyiv to
the US will be EUR 180 thousand. That is only one way flight.

If you stay in the US more than 2 days the jet will not wait for you, so you
will have to order an airplane for the return journey,” added representative
of a charter company.
QUESTION 4: Who paid for this life of luxury?

Charter aviation is a service for millionaires but certainly not for MPs or
heads of a state company Ukrainian Railways, which is, according to
Yanukovych, was on the verge of bankruptcy.

But a charter flight is a top notch! Indeed, why torture yourself in the
same cabin with other passengers and eat the same standard dinners if there
are people who are ready to finance the entire private flight so that state
officials could comfortably travel!

The key point in this story is who paid for the charter airplane with
Yanukovych Junior and other Ukrainian delegates on board?

It appeared to be a mystery. Premier’s son claims he does not know a thing
about that and offers to ask Pryhodskyi.

MP Kruhlov also said: “This question is out of my competence. Ask Khara.”

Khara, however, did not clarify the matter as well. According to this MP,
Pryhodskyi said the flight was financed by the companies ‘related to

Officials in UkrZaliznytsya also failed to explain who had paid for the
charter airplane. “That’s not our business,” said company’s press service.

The first thing that comes into mind is that it was Pryhodskyi who paid for
the airplane since he is the only big businessman in this Donetsk
parliamentary group.

The fact that his aid was also on board confirms suspicions that it was
Pryhodskyi’s money. Being aware of possible commentaries, he decided to
blame it on Americans.

Pryhodskyi’s motives are quite clear and understood – he decided to pay
honors to Yanukovych Senior, having organized such trip of comfort for his

However, in such a case the situation does not look better: a businessman
organizes charter flight to the US for Ukrainian state officials, MPs and
even premier’s next of kin, thus gaining control over politicians.
However, in the commentary to Ukrayinska Pravda Pryhodskyi denied his
implication, parrying the direct question.

– My personal friends from Senate and Congress invited us and paid for the
flight and accommodation on the US territory.

– Did M.I.C. Industries pay for the charter airplane?

– I.don’t know. Besides, I think it is impolite to ask who paid for that.
am telling you once again it was an unofficial delegation invited by my
personal friends.

We have got quite an odd situation.
Ukrainian MPs and representatives of Ukrainian companies fly to the US on
the invitation of Pryhodskyi’s personal friends. According to the delegates,
they were invited by a private company M.I.C. Industries.

At that M.I.C. Industries Company employed lots of ex-military and has
well-established relations with Pentagon. Moreover, the US former Secretary
of Defense William Cohen is the head of M.I.C. Industries Advisory Council.
Besides, former Deputy Secretary of State of the United States Richard L.
Armitage has also joined the Board of Advisors.

The fact that Pryhodskyi has contacts on such a high level is very doubtful
as well as the version that M.I.C. Industries may make any investments in

This company has nothing to do with investments since it is
military-oriented. It is indicative that there is even no phone-number on
the company’s web-site!
                      NEGOTIATIONS IN U.S. CONGRESS
On arrival to the US, MPs carried out negotiations in Congress and with
M.I.C. Industries top officials.

At that, a 25 y.o. son of Ukrainian prime minister is a member of
delegation. At that, the delegation arrived to the US simultaneously with
Yanukovych Senior.

Of course, it might be a coincidence but we can assume that Yanukovych
Junior was included to the delegation to raise delegation’s status in the
eyes of American officials and military: while the PM is carrying out
negotiations in Washington on the highest level his son is meeting with you.

Maybe that’s why they ordered a charter airplane – so that an unofficial
delegation with Yanukovych Junior was in the US in the right time.

If an American private company paid for a charter flight for MPs from Party
of Regions, then Americans desperately needed it.

No American businessman will waste many hundred thousand Euros if he can
get the delegation business class tickets. There might be an exception if an
American understands that these expenses will bring him surplus profit
within a short period of time.

During a week Ukrayinska Pravda tried to get any commentaries from M.I.C.
Industries Inc. Finally, Eileen Penland got in touch with editors office.

She stressed that M.I.C. Industries Inc was a private company that was
willing to sell Ultimate Building Machines to Ukraine. It was ‘to sell’ but
not ‘to invest’!

Asked a direct question if the company paid for the charter airplane, she
replied: “We do not discuss any information and actions of the company that
may concern our potential clients.”

We tried to persuade that the answer ‘who paid’ was important for the US
company as well.

Having heard our assumption that an American company financed charter flight
for the son of Ukrainian PM to get state contracts in Ukraine, Mrs. Pentland
refused to talk further. At that she noted such assumptions were unfounded.

Taking into account the abovementioned information, it’s up to PRU voters to
decide whether PRU MPs are lobbying a foreign company in such a way.

Do PRU MPs cover Pryhodskyi’s business?

Suspicions around this mystery trip to the US will remain until both
Ukrainian and American sides tell the truth.                        -30-
Translated by Eugene Ivantsov, subheadings added by AUR.
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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18.                VIETNAM BECOMES WTO’S 150TH  MEMBER
        Foreign direct investment in Vietnam reached a record $10 billion last
              year. Ukraine has been trying to get into WTO for many years

Associated Press, Geneva, Switzerland, Wed, January 10, 2007

GENEVA, Switzerland – Nearly 32 years after Vietnam’s communists chased

U.S. forces from their soil, the southeast Asian nation joined the capitalist
club as the World Trade Organization’s 150th member on Thursday, signaling
its emergence as one of the world’s fastest-growing economies.

“Welcome, Bienvenue, Bienvenido, Vietnam” read a giant blue banner across
the across the WTO’s Geneva headquarters.

Entry for Vietnam — whose economy has grown by an average of more than 7
percent for the last decade — comes as good news for the commerce body,
which is embarking on an uncertain year as global free trade talks remain
suspended and countries appear unlikely to agree on a deal.

Vietnam’s entry, the terms of which were agreed in November after 11 years
of negotiations, opens the door to increased trade and investment in the

For its industries, it will mean increased access to foreign markets and a
neutral arbiter to hear disputes that arise with its bigger, more powerful
trading partners.

While Vietnam will also benefit from the increased demand for goods and
services that more foreign investment brings, it will have to forfeit a
number of subsidies and tax breaks previously granted to Vietnamese

With a population of 84 million people, Vietnam was the second most populous
country behind Russia still outside the WTO. Russia has been seeking
membership for over a decade and is probably still at least a year away.

Other countries trying to join include Algeria, Belarus, Ukraine,
Azerbaijan, Lebanon, Bosnia-Herzegovina, Libya, Iraq, Serbia and Syria,
[Russia]. A working group was established in 2005 to begin the long process
for Iran to accede, but political tension has prevented work from beginning.

Before Vietnam, Saudi Arabia was the last country to join the WTO, entering
in December 2005.

Vanuatu concluded negotiations in 2001, but it later expressed reservations
about its membership terms and the government has yet to take further action
to join. Tonga, another Pacific island nation, also has completed talks, but
its parliament has yet to ratify the deal approved by the WTO in 2005.

Over the last two decades, Vietnam has gradually implemented free-market
reforms, winning praise from foreign investors whose interest in the country
has been growing. But the government continues to exercise direction over
many large, state-owned companies.

Foreign direct investment in Vietnam reached a record $10 billion last year.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
19.                     GERMANY, EUROPE, AND RUSSIA

COMMENTARY: By Yulia Tymoshenko, Ukraine’s former
Prime Minister, currently leader of the Opposition
Daily Times, Lahore, Pakistan, Wed, Jan 10, 2007

Russia’s leaders are entitled to the world’s understanding as they struggle
to overcome generations of Soviet misrule. But they are not entitled to the
sphere of influence that Russian tsars and commissars coveted for 300 years

European unity is indivisible. When one nation is intimidated or ostracised,
all are not free. Every aspect of our shared culture, if not the last
century of shared suffering, confirms that for us.

So a prime objective of the European Union is to promote stability and
security through a dynamic structure of economic and political
inter-dependence in which all nations have a vested interest.

But such a structure is lacking today between the EU and Russia, to the
detriment of all the countries that lie between them. Thus it is vitally
important that Germany has made this a central issue for its EU presidency,
which is just beginning.

With high prices for crude oil and natural gas bloating its coffers, Russia
is once again aggressively confronting the small and still relatively weak
states that fled the eroding Soviet empire 15 years ago.

Given the residual economic and institutional ties born of the Soviet era,
Russia’s external influence in this region remains enormous. But Russia is
also now extending its grasp of energy markets beyond those of its
immediate neighbours.

Europe’s relationship with Russia is too important for it to be developed in
an ad hoc fashion through bilateral arrangements. Today is Europe’s moment
of maximum flexibility; as dependence on Russian energy supplies grows, the
EU’s leverage weakens. So Europe’s strategy cannot be to take the
historically well-trodden path of least resistance.

Unfortunately, in the aftermath of the cold war, it has often been assumed
that Russia’s hostile intentions have disappeared, and foreign policy toward
Russia has been conducted as if traditional diplomatic considerations no
longer apply. But, of course, they do apply.

Encouraging economic and political reform are important objectives, but they
can never serve as a substitute for a serious effort to contain Russia’s
deep-seated expansionism.

To be sure, Russia has legitimate security interests in what has been called
its ‘near abroad’. But Europe’s stability and commitment to economic growth
across the continent require that these interests be satisfied without
economic pressure or unilateral intervention.

A viable Russia policy for Europe must recognise Europe’s growing dependence
on Russian energy resources. To proceed otherwise would discount the most
important question: the reliability of Russia as an energy supplier.

Despite controlling the world’s largest gas reserves, Russia’s state-owned
monopoly Gazprom is not producing enough for an economy growing at 6
percent a year. Gazprom’s three largest fields, which account for three-
quarters of its output, are in decline.

This domestic shortage means that Gazprom is unable to increase supply to
Europe, at least in the short term, unless it can buy gas at below-market
rates from its Eastern European and Central Asian neighbours and in turn
sell it to its European customers at market prices. At the same time, Russia
wants to cater to other markets, notably along its eastern frontier.

The problem is not a lack of reserves, but Gazprom’s investment strategy. In
recent years, the company has spent vigorously on everything but developing
its reserves. It has built or is building pipelines to Turkey and Germany,
taken over an oil company, and sought footholds in European distribution

Instead of investing in discovering oil, Gazprom has become the biggest
media group in Russia. All this is done in the name of creating and
supporting a national energy champion which also serves as a foreign policy
arm of the Kremlin.

Meanwhile, with investment in Gazprom’s core activity – production –
steadily declining, a crisis is looming, one that requires the stewardship
and steady hand of the EU. Gazprom’s ambitions for gaining control of
pipeline and energy transport infrastructure must be slowed, which requires
allowing independent producers to prosper.

Indeed, independent producers already account for 20 percent of domestic
gas sales in Russia. To boost their output and allow them direct access to
European markets will require market-based incentives.

Europe can help by insisting that Russia participate in the European Energy
Charter, which calls for Gazprom to grant its production competitors access
to Russian pipelines, and for all disputes to be settled by international

European competition policy, which successfully brought giant companies like
Microsoft into line to promote competition, could help to turn Gazprom into
a normal competitor, too.

Europe’s leaders should engage in frank discussions about where European and
Russian interests converge or differ, and these discussions should include
regional neighbours that are both producer and transit nations, like my own
country, Ukraine.

Moscow will understand a policy based on mutual respect for each other’s
interests better than simple appeals to goodwill and friendship.

Russia should be welcome in institutions and agreements that foster
cooperation, with reciprocal rights and responsibilities. Russian reform
will be impeded, not nurtured, by turning a blind eye to political and
economic aggression.

The hard-fought independence of the former Soviet republics must not be
tacitly traded away in acquiescence to Russia’s desire for regional

Russia’s leaders are entitled to the world’s understanding as they struggle
to overcome generations of Soviet misrule. But they are not entitled to the
sphere of influence that Russian tsars and commissars coveted for 300 years.

If Russia is to be a serious partner for Europe, it must be ready to accept
the obligations of stability along with the benefits. If Europe is to ensure
its prosperity and energy security, it must demand nothing less. -DT-PS
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Inform Newsletter Issue 25, for the International Community providing
News, Views, and Analysis from the Yulia Tymoshenko Bloc (BYuT)
Kyiv, Ukraine, Thursday, 4 January, 2007

At a recent meeting of the National Security and Defence Council, President
Viktor Yushchenko, referring to VAT payments undelivered to the state,
declared, “corruption had returned to Ukraine.”  The sad reality is that
corruption has never left.  It is pervasive and, despite government rhetoric
to the contrary, is flourishing under the Yanukovych-administration.

During Prime Minister Viktor Yanukovych’s visit to the USA last
December, Economy Minister Volodymyr Makukha inked a $45 million grant
from the US to help combat corruption.  This was only a down payment.

Ukraine stands to net a further $500 million in grants from the Millennium
Challenge Corporation if progress is made on this and other conditions
such as improvements in economic and political freedom, healthcare
spending, investment in education, support for civil liberties and judicial

“This is laudable,” said Yulia Tymoshenko, leader of the opposition,
“however corruption is on the rise and non-transparency appears to be an
obsession for this administration.”

Mrs Tymoshenko pointed to a string of opaque government actions.  The
latest to rock the political establishment concern recent issues of
government foreign bonds.  Since Mr Yanukovych assumed power, he has
issued foreign bonds to the tune of $2 billion.  These are aimed at plugging
a shortfall in government revenues – largely attributable to the dismal
privatisation programme which last year netted less than $20 million.

The concern is less about the bond issues themselves and more about the
non-transparent manner in which they have been conducted.  To-date there
have been three bond issues: a four-year issue for 35 billion Japanese Yen
at 3.2%; a 12-year bond for 768 million Swiss Francs at 3.5%; and a 10-year
bond for $1 billion at 6.58%.

Interviewed in the Kyiv Post, Oleksandr Zholud, an economist with the
International Centre for Policy Studies, said that two of the issues, those
in Japanese Yen and Swiss Francs, were conducted non-transparently.
Furthermore, the government announced the issues only three days before
they took place.

“Is it no wonder the financial community raises eyebrows when they see this
hurried approach combined with somewhat generous rates,” said Oleksandr
Turchynov, BYuT deputy leader. “Headaches are being created as this
government puts the country in debt and shifts the responsibility onto the
shoulders of future administrations,” he added.
The probity of the government’s grain export quotas and process for awarding
export licenses has also come under sharp criticism.  The World Bank has
fired a hefty broadside with a highly critical report that suggests there
was no grain shortage.  A poor harvest was the official reason cited for the
government’s move last September to restrict grain shipments and introduce
licenses for exports (see Inform 13 November, 2006).

“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,” read a policy
note from the World Bank.

“Considering our history, the prospect of food shortages and the price of
bread are highly emotive topics in Ukraine,” said Yulia Tymoshenko.  “We
believe the government has used this cynically to benefit a cadre of
businessmen and officials at the expense of ordinary citizens.”

Indeed, since the introduction of the quota, the price of flour and bread
has actually risen in Ukraine.  To-date the export restrictions have cost
Ukraine $300 million in lost revenue.  Ironically, it has hurt the low-wage
workers it was purportedly designed to protect – many in agriculture and
farmers now unable to sell their crops at market prices.

According to the World Bank, “The quota system also hurts grain traders,
who have invested significant amounts of money in grain storage and other
logistics to facilitate exports.”  It goes on to say that the “loss of
Ukraine’s reputation as a reliable host for foreign investment could cause
lasting damage.”

On November 9 last year, US Ambassador William Taylor, German Ambassador
Reinhard Schäfers and Dutch Ambassador Ron Keller, issued a joint statement
calling upon the government to lift the ban. “The restrictions on exports
are causing serious damage to Ukraine’s economy, its investment climate, and
its reputation as a reliable trading partner,” read their joint statement.

So who has benefited from the enforced quota system?  Domestically, the main
beneficiaries are flour millers and animal feed producers, whose profit
margins increase as a result of falling grain prices on the domestic market.
But of deep concern is the non-transparent way export licenses have been

The World Bank noted: “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 $25/ton (the equivalent to the lost revenue for producers).

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

“The way export licenses are granted suggest that either we are witnessing
mind-boggling incompetence in our government officials or something far
more sinister,” said Yulia Tymoshenko, “in any respect it besmirches the
reputation of our country.”

Mrs Tymoshenko called upon the government to be more transparent in its
dealings. “If they have nothing to hide, then they should be willing to
reveal details of the export licenses on the government’s website.  Let the
public see for themselves who the recipients are, the costs involved and the
fairness of the system.  We concur with the World Bank that the quota system
is ineffective, inefficient and prone to corruption,” said Mrs Tymoshenko.

A recent report by the Paris-based Organisation for Economic Cooperation
and Development urged Ukraine to step up its fight against corruption.  It
recommended “an anti-corruption action plan, with strong leadership and an
effective co-ordination mechanism, needs to be put in place urgently.”
For more information please contact
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OP-ED: By Taras Kuzio, Kyiv Post, Kyiv, Ukraine, Wed, Jan 10, 2007

Ukraine in 2007 will not move ahead if it cannot resolve its constitutional
crisis. As we have seen in 2006, the constitutional question influences
domestic politics (relations between parliament and the president),
economics (relations between the government and the president) and foreign
policy (as most glaringly seen in parliament’s dismissal of the foreign
minister ) in Ukraine.

The answer as to what should be done over the constitutional crisis is a
complicated one that has many nuances.

In comparative perspective with other post-communist countries, Ukraine’s
move from a semi-presidential to a parliamentary-presidential system is good
for its democratization.

The 27 post-communist states can be readily divided into parliamentary
systems which have progressed in democratization and presidential systems
that have regressed into autocracy.

The first group is based in central-eastern Europe and the Baltic
states -countries that have joined the EU and NATO. The second group is in
the CIS, most of whom have no intention of joining the EU or NATO.

A good argument could therefore be made that if a CIS state has a strategic
objective of joining the EU and NATO, then it should follow the path of
central-eastern Europe and reform its political system from a presidential
to a parliamentary one.

Only three countries in the CIS desire to join the EU – Ukraine, Moldova

and Georgia – while only two seek to join NATO – Ukraine and Georgia.

Moldova is the only CIS state with a full parliamentary system, where
parliament elects the president. Ukraine has a parliamentary-presidential
system with separate elections for parliament and the president.

Following the Orange Revolution, Ukraine moved from a presidential to a
parliamentary system. Georgia, on the other hand, moved toward a
super-presidential system after its Rose Revolution, the opposite direction
to that undertaken in Ukraine.

Although there have been some criticisms of the autocratic style of
President Mikhail Saakashvili, Georgia is progressing better than Ukraine.

Although a move to parliamentarism in central-eastern Europe has proven to
be beneficial, the same may not be the case for Ukraine. Simply put, the
circumstances of countries in central-eastern Europe and those in the CIS
(‘path dependence’ in political science jargon) are very different.
Georgia’s path of presidential-led reforms may be more suited to CIS states.

Although some central-eastern Europe countries had autocratic leaders, such
as Vladimir Meciar in Slovakia and Franjo Tudjman in Croatia, they pale in
comparison to autocrats in Russia and the CIS.

Meciar accepted the victory of his democratic opponents in 1998, while
Tudjman died in 1999, paving the way for the victory of the opposition a
year later. Although Tudjman was guilty of some war crimes, these pale
compared to the deaths of 100,000 people in Russia’s brutal war in Chechnya.

Ukraine’s Orange leaders therefore faced a far different opponent, the likes
of whom did not exist in central-eastern Europe or the Baltic states. In
Georgia the opposition remains weak and fractured within the New
Rights-Industrialists and Democratic Front factions in parliament.

There is no possibility of a return to power by political forces loyal to
former President Eduard Shevardnadze or his autocratic Ajarian ally Ruslan
Abashidze. The opposition in Ukraine was initially dispirited, but rebounded
to win the 2006 elections.

The Rose Revolution coalition continues to be united. In fact, the two main
parties in the National Movement-Democratic Front (EM-DP) united into the
United National Movement.

Contrast this with the split in the Orange camp only nine months into the
administration of President Viktor Yushchenko. Only the Bloc of Yulia
Tymoshenko remains true to the Orange ideals.

Yushchenko betrayed them in September 2005, and after the 2006 elections,
when he negotiated with the Party of Regions and the Socialists, betrayed
them in July 2006, when the Socialists defected to the Anti-Crisis

A major difference between Georgia and Ukraine has also been in the type of
leader who came to power. In effect, the radical wing of the Georgian Rose
Revolution won the presidency; in other words, the equivalent of Yulia
Tymoshenko winning in Ukraine.

The Tymoshenko Bloc has been consistently against constitutional reforms
and voted against them in December 2004. Our Ukraine’s stance, on the other
hand, has been contradictory and opportunistic: In December 2004, they
voted in favor of them and today they call for the abolition of
constitutional reforms.

If Ukraine’s ‘Saakashvili’ (i.e. Tymoshenko) had been elected president in
2004, there would be fewer demands today for the abolishment of
constitutional reforms.

Unlike Yushchenko, Tymoshenko would find sufficient political will,
self-confidence and ability to exercise power to be a successful
counterweight to Prime Minister Viktor Yanukovych.

Saakashvili’s performance in Georgia shows three factors absent in Ukraine.

[1] First, it brought to power a highly motivated and, in the words of
Georgia’s leading analyst Ghia Nodia, “impatient” group of younger politicians.

Nodia points to Saakashvili’s “massive energy” in pushing forward reforms.
Similar energy has been absent from the Yushchenko administration.

[2] Second, Saakashvili defines himself in opposition to his predecessor
Shevardnadze, whom he constantly criticizes. In Ukraine, former President
Leonid Kuchma is only a negative ‘other’ for Tymoshenko, but not for
Yushchenko, who has never once criticized Kuchma after he was elected.

Orange voters expected at the minimum a moral denunciation of the Kuchma
regime, or at a maximum his trial for abuse of office. They received neither
and have as a consequence defected en masse to Tymoshenko.

[3] Third, Saakashvili has self-confidence in his policies and actions both
domestically and abroad. The same is not true of Yushchenko, particularly in
the energy sector.

Even Belarusian President Alyaksandr Lukashenka seems more determined to
stand up for his country’s national interests in his dealings with Russia
than Yushchenko did in the January 2006 gas crisis.

Constitutional reforms have proven to be flawed for a host of reasons
outlined above. They were rushed through parliament in the Dec. 8, 2004
‘packet’ without widespread public discussion, national referendum or
removal of its weaknesses.

The Constitutional Court has every ground to consider constitutional reforms
“illegal,” according to U.S. Judge Bohdan Futey, a longtime adviser to
Ukraine on legal questions. Without this step, 2007 will be one of
stagnation for Ukraine that could lead to the gains of the Orange Revolution
being slowly removed.                           -30-
Dr. Taras Kuzio is president of the consulting company, Kuzio Associates,
and an adjunct professor at the Institute for European, Russian and Eurasian
Studies, Elliott School of International Affairs, George Washington
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