AUR#859 Aug 20 Macroeconomic Update Report By SigmaBleyzer; Govn’t Energy Policy; Cisco Systems; Real Estate Investors; Euro 2012; Abolish Immunity

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Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer
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“Ukraine – Macroeconomic Situation – August 2007”
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Monday, August 20, 2007

By Elisabeth Sewall, Assistant Editor
Kyiv Post, Kyiv, Ukraine, Wednesday, Aug 15 2007

OP-ED: By Taras Kuzio, Kyiv Post, Kyiv, Ukraine, Wed, Aug 15, 2007

IN VIENNA” Dmytro Firtash uxexpectedly moved company headquarters
Heti Vilaggazdasag website, Budapest, in Hungarian 9 Aug 07
BBC Monitoring Service, United Kingdom, Friday, Aug 17, 2007

Joint venture of RosUkrEnergo and Naftohaz Ukrayiny
Kommersant-Ukraina, Kiev, in Russian 16 Aug 07
BBC Monitoring Service, United Kingdom, Sat, Aug 18, 2007
Associated Press (AP), Astana, Kazakhstan, Sat, August 18, 2007

Morgan Williams, SigmaBleyzer
President, U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, August 20, 2007

By Morgan Williams, SigmaBleyzer
President, U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, August 20, 2007

Major upgrades of Metro, Bus and Trolleybus Passenger Transport
Kyiv Post Staff Journalist, Kyiv, Ukraine
Eurasian Home, Moscow, Russia, Monday, August 13, 2007
Polish News Bulletin, Warsaw, Poland, Friday, Aug 17, 2007

By Helen Fawkes, BBC correspondent in Kiev
BBC NEWS, UK, Sunday, August 12, 2007

Ukrainian News Agency, Kyiv, Ukraine, Wed, August 15, 2007

Kyiv Post Journalist, based in Ukraine
Eurasian Home, Moscow, Russia, Monday, August 6, 2007

5 Kanal TV, Kiev, in Ukrainian 0905 gmt 18 Aug 07
BBC Monitoring Service. United Kingdom, Saturday, Aug 18, 2007

Yushchenko lays groundwork for re-election
Eurasia Daily Monitor, Volume 4, Issue 160
The Jamestown Foundation, Wash D.C., Thu, August 16, 2007
People’s Daily Online, Beijing, China, Sat, August 18, 2007
Russia Today, Moscow, Russia, Sunday, August 19, 2007
By Natasha Lisova, Maria Danilova, and Randy Herschaft
Associated Press Writers, Kyiv, Ukraine, Sunday, August 19, 2007
COMMENTARY: By Dick Lugar and Sam Nunn
The Wall Street Journal, New York, NY, Sat, Aug 18, 2007; Page A6

“Ukraine – Macroeconomic Situation – August 2007”
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Monday, August 20, 2007

[1] In January-June, real GDP grew by 7.9% year-overyear (yoy) underpinned
by strong external and domestic demand. On the supply side, the industrial
sector regained its position as the leading driver of economic growth.

[2] Thanks to faster growth of budget revenues and under-execution of
expenditures, the consolidated budget was in surplus of 1.75% of period
GDP over the first half of the year.

[3] Due to a sluggish privatization process, the government resumed issuance
of external and domestic debt. As a result, the stock of public and publicly
guaranteed debt grew by 5% month-over-month (mom) to $15.7 billion at the
end of June. . In June, traditionally a low-inflation month, the consumer
price index (CPI) unexpectedly grew by 2.2% mom, which translated into
13% growth in annual terms.

[4] The growth of forex-denominated loans has been losing speed in the last
two months. However, commercial banks credit portfolios remain biased
towards forex-denominated loans.

[5] Though Ukraine’s export performance has been strong during the first
five months of the year, the FOB/CIF merchandise trade deficit widened
to $3.7 billion at the end of May.

[6] According to Ministry of Economy estimates, the size of the shadow
economy in Ukraine declined to 27% of GDP in 2006.
According to operative data of the State Statistics Committee, the Ukrainian
economy posted robust growth in the first half of 2007 as real GDP grew by
7.9% year-over-year (yoy). In fact, real GDP growth in June accelerated to
7.8% yoy, up from 7.7% yoy in the previous month.

However, due to an increased statistical base, cumulative growth was
slightly lower than in the first quarter of the year (8% yoy). Following an
impressive evolution of Ukraine’s main macroeconomic indicators, most
experts revised their GDP forecast upwards for 2007.

According to the recent Consensus Forecast, GDP is expected to grow
by a real 6.9% yoy in 2007, while the previous forecast was 6.4% yoy.

A more favorable external environment, faster than expected growth of
consumption and investment, and the strong resilience of the Ukrainian
economy to energy price shocks and political instability were among the
main reasons for improved expectations.

GDP growth was supported by robust value added growth in industrial
and service sectors, particularly wholesale and retail trade, as well as by
strong expansion of construction.

Unlike last year, industry was the most important source of economic
expansion in the first half of 2007. Value added generated by this sector
explained almost one third of GDP growth over the period.

However, performance among industries was uneven. Manufacturing, which
accounts for 18% of total value added, reported impressive 15% yoy growth
in 1Q 2007 and a slightly lower but solid 13.7% yoy in the first half of the

High international prices for ores and strong domestic demand stimulated a
4% yoy increase in the mining sector over the first half of the year.

At the same time, production and distribution of electricity, gas and water
reported a 6% yoy decline in value added in 1Q 2007 on the back of weaker
electricity demand due to an unusually warm winter this year.

Though industrial performance improved in the second quarter, it was
insufficient to compensate for the previous quarter decline. As a result,
industry reported a 0.7% decrease in value added over the first half of the

Over January-June, construction demonstrated an 11.8% yoy increase in
value added on the back of a number of infrastructure and repair projects
and strong demand for commercial property and industrial buildings.

At the same time, demand for residential housing weakened due to high real
estate prices and tighter bank requirements on borrower’s financial stance.
This may explain the deceleration in value added growth in
construction in the second quarter from 13.3% yoy in 1Q 2007.

Value added in wholesale and retail trade grew at an accelerating speed.
Expanding by 15.5% yoy in January-June, this sector explained about ¼ of
GDP growth over the period. Sector performance is closely linked to robust
growth in industry, construction, as well as imports on the one hand and the
population’s growing propensity to consume on the other.

Rather unexpectedly, agriculture reported an acceleration of value added
growth in 1H 2007 compared to January-May. Due to May-June’s draught,
the government downgraded its grain harvest forecast. As a result, further
deterioration of agricultural performance was expected.

However, hot weather during these months resulted in the early start of the
harvest campaign, causing a surge in value added growth. At the same time,
this statistical effect is expected to rapidly diminish in the coming

On the expenditure side, real GDP growth was driven by vigorous private
consumption growth, which advanced by 14.7% yoy in 1Q 2007. Though
it is a deceleration from 20.2% yoy growth in 1Q 2006, private consumption
grew at a faster-than-expected rate.

Though real household income growth decelerated to 11.1% in 1Q 2007,
down from 16.1% yoy in 2006, private consumption was fueled by booming
consumer credit.

The continuing credit boom, robust corporate borrowing from abroad, the
need to renovate production capacities and to introduce energy-saving
technologies were among the major reasons of the impressive 24.4% yoy
increase in gross fixed capital formation, up from 19.9% yoy in 1Q 2006.

At the same time, its contribution to total GDP growth was smaller than in
the respective period last year due to a contraction in inventories.

Meager growth in government consumption (up by 0.8% yoy) in 1Q 2007 may
reflect significant under-spending of state budget programs over the period.
Robust growth of consumption triggered rapid growth of imports, which
accelerated to 12.9% yoy from 10.7% yoy in 1Q 2006.

Despite a lower contribution from domestic demand and faster growth of
imports, a higher economic growth rate in 1Q 2007 compared to the
respective quarter last year (8% yoy vs 4.1% yoy respectively) was
achieved thanks to stronger export performance.

Favorable external conditions helped compensate for the harmful effect
of a 36% increase in prices for imported natural gas on energy-intensive
export-oriented metallurgy and chemicals.

At the same time, this impact was less painful than in the previous year as
the price increase in 2007 was lower and, more importantly, was anticipated.

Together with strong investment demand in the main destinations for
Ukraine’s machine-building exports (mainly Russia), this triggered almost
5% yoy real growth of exports of goods and services.

In June, the growth of industrial production accelerated slightly to 10.4%
yoy from 9.9% yoy in May. However, due to statistical base effects, in
cumulative terms it continued to decelerate, expanding by 11.8% yoy in
1H 2007 down from 12.1% yoy in January-May.

Benefiting from strong consumption and favorable external conditions,
machine-building and food processing reported acceleration in output
growth to 23.3% yoy and 13.8% yoy, respectively.

However, output growth in the metallurgy slowed to 13.9% yoy over the
first half of the year compared to 15.8% yoy over January-May. Slower
growth in metallurgy may be attributed to the downward tendency of
international steel prices that resumed in June this year, though the effect
of a growing statistical base was also present.

Together with slower growth in chemicals, mining and other non-metal
minerals, this caused total industrial production to decelerate.

The likely worsening of the external environment in the second half of the
year and political uncertainty in the fall (due to parliamentary elections
and formation of the new government) will result in further moderation of
industrial production and economic growth.

The government forecasts industrial production and GDP growth to
decelerate to 8.5% yoy and 6.5% yoy respectively in 2007.
According to the Ministry of Finance, consolidated budget revenues grew by
a nominal 31.6% yoy over the first half of the year to UAH 95 billion ($18.8
billion), while expenditures grew at a slower rate of 22.6% to UAH 90
billion ($17.8 billion).

Since the execution rate of budget expenditures notably improved in June,
the consolidated budget registered a smaller surplus of 1.72 % of period
GDP, down from 3.5% of GDP in January-May.

At the same time, for the corresponding period last year, there was a
deficit 0.5% of GDP. This year’s favorable fiscal performance was achieved
due to improved tax collections and tight control over expenditures.

In particular, robust domestic consumption (of both domestically produced
and imported goods and services) spurred tax revenues to the state budget
as collections from VAT and excises advanced by about 33% yoy and 23%
yoy in nominal terms.

At the same time, the financial stance of Ukrainian enterprises continued to
improve on the back of rapid economic growth and strong export performance.
This caused corporate profit tax receipts to move up by a nominal 27% yoy.
In sum, tax revenues to the general fund of the state budget were 4.6% above
target for January-June.

In June, expenditures from the general fund of the state budget were
over-fulfilled by 2.1%. However, due to significant under-spending in the
pervious periods, they were still 7.5% below the planned amount. Tight
control over expenditures may be attributed to a sluggish privatization

For the first half of the year, the State Property Fund of Ukraine allocated
UAH 1.3 billion ($250 million) to the state coffers, which represents just
12.5% of the targeted amount for 2007.

Considering the government’s decision to privatize state enterprises by
putting up only minority stakes for auctions and keeping a 50%+1 share of
potentially the most interesting enterprises (such as telecommunication
monopoly Ukrtelecom and Odessa port plant), the forthcoming parliamentary
elections and subsequent formation of the new government, it is unlikely
that the targeted privatization proceeds will be raised.

To secure enough funds to finance all government obligations (the state
budget deficit is targeted to reach 2.5% of GDP in 2007), the government
resumed both external and domestic issuance of public debt.

In June, the government placed $0.5 billion eurobonds. As a result, external
public debt increased to $12.4 billion at the end of June; however, due to
large debt redemption in the previous months, external public and publicly
guaranteed debt was still 1.5% lower than at the beginning of the year.

The placement of UAH 0.8 billion ($160 million) of government domestic
bonds and issuance of state mortgage institution bonds under state
guarantee in the amount of UAH 275 million ($54.5 million) resulted in
accumulation of both domestic public and publicly guaranteed debt (an
accumulation of the latter was not observed for about 10 years).

As a result, the stock of total public and publicly guaranteed debt grew by
5% mom to $15.7 billion. The funds received from the new debt issuances
and still significant consolidated budget surplus funds are accumulated on
the government accounts with the State Treasury.

As of the end of June, cash balances on the government account with the
Treasury amounted to about UAH 22 billion ($4.4 billion), which is
equivalent to more than 7% of the total money supply. If rapidly disbursed,
these funds may create significant inflationary pressures.

However, we believe the government will continue to pursue tight control
over budget expenditures, despite the forthcoming parliamentary elections
in late September, to alleviate financing risks at the end of the year.
In 2006, consumer inflation was primarily driven by a pass-through of energy
prices. The beginning of 2007 saw some downward revision of utility and
housing tariffs. In addition, expectations of a further service tariffs
adjustment this year did not materialize as the authorities decided to
postpone the energy price pass-through to consumers.

Though the annual CPI remained in double digits, these, together with a high
base effect, gave reason to be optimistic that year-end inflation will be
below 10%. Moreover, January-May inflation of just 1.9% year-to-date made
the government forecast of year-end inflation at 7.5% quite realistic.

However, in June (traditionally a low-inflation month), CPI unexpectedly
grew by 2.2% mom, which translated into 13% in annual terms.

June’s acceleration was primarily attributed to faster growth in food prices
(6.7% yoy in June compared to 2.8% yoy in May), the weightiest component
of CPI (about 60%), and the likely spill-over of producer price growth (the
producer price index accelerated to 20.6% yoy in June, up from 20.2% yoy
in May).

The methodological weaknesses of accounting for new-crop-vegetables, a
gradual shift in the consumption structure towards more-expensive products
(due to a steady growth of real household income over the last three
years), and apprehensions concerning lower-than-expected grain harvest due
to droughty weather during May-June were the primary reasons for this

High international prices on crude oil drove up domestic prices for fuel to
12.5% yoy in June compared to 8.2% yoy a month before.

However, due to price growth deceleration for other non-foods (such as
transport vehicles, textiles and apparels, furniture, audio-, video- and
computer equipment), the non-food price index remained unchanged at
1.8% yoy.

On an increasing statistical base, the service price index continued to
decelerate, reporting 48.8% yoy higher service tariffs than last year (down
from 49.5% yoy a month before).

Due to recent acceleration, we expect inflation to be around 10% this year.

Faster growth of monetary aggregates growth in recent months also
contributed to acceleration of consumer inflation. In particular, the growth
of the monetary base sped up to 38.5% yoy in June 2007 from 36.9% yoy in
May and just 17.5% yoy in December 2006.

Considerable expansion of the monetary base is attributable to massive NBU
interventions on the interbank forex market, underpinned by robust export
performance and particularly the inflow of foreign capital in the form of
FDI and external borrowing by private sector.

For the first half of the year, net NBU purchases of foreign currency
reached $3.4 billion. As the NBU kept the unofficial hryvnia peg to US
dollar (and is unlikely to change its foreign exchange policy before the end
of the year), this resulted in accumulation of gross international reserves
to $25.9 billion at the end of June, which is enough to cover 4.8 months
of future imports of goods and services.

The steep upward trend of the monetary base and acceleration of deposit
growth to 45.1% yoy (up from 42.3% yoy in May) were the main reasons
of rising money supply at a high speed (42% yoy in June). At the same time,
the impact of robust growth of monetary aggregates on prices was rather
moderate due to strong money demand.

In June, commercial banks continued to expand credit operations as their
growth accelerated to 75.7% yoy, up from 72.6% yoy a month before.
Strong demand for credit was underpinned by growing real disposable
income, buoyant investment activity and gradually declining credit rates.

Though in June the weighted average credit rate slightly increased to 13%
per annum (up from 12.7% pa in May), it was still lower than the average
rate of 13.7% pa in 2006.

The credit growth was led by corporate loans as they account for about two
thirds of the total credit portfolio of the banking sector and are growing
at an increasing speed (up by 59.4% yoy in June compared to 54.7% yoy a
month before).

At the same time, loans issued to households continued to decelerate, though
their growth rate remains impressive — 119% yoy in June.

By currency, robust growth of forex-denominated loans was underpinned by
aggressive external borrowing of the financial sector and a number of
acquisitions by foreign banks.

However, the growth of forex-denominated loans has been losing speed in the
last two months (the growth rate declined from 100.8% yoy in April to 97.4%
yoy in June) following the NBU tightening of reserve requirements for forex
denominated consumer loans in April and depreciation of hryvnia with respect
to other main world currencies (particularly Euro) (1).

However, this deceleration was insufficient to tangibly effect the
composition of commercial bank credit portfolios. The share of forex
denominated loans remained virtually unchanged at 51.3% at the end of June
(51.2% in April), indicating the high exposure of Ukraine’s banking system
to foreign exchange risk.
According to the State Statistics Committee of Ukraine, exports of goods
grew by 31.6% yoy in May, decelerating from 41.7% yoy a month before.

However, the deceleration is primarily attributed to the increased
statistical base (following a six month decline from November 2005 to
April 2006, the growth of exports rebounded at a strong 11.5% yoy in
May 2006).

Though the growth of imports also slowed to 31.5% yoy in May, down from
47% in April, cumulatively it continued to outpace the growth of exports.
Over January-May, exports grew by 34.4% yoy while imports grew by 35%

The growth of exports was underpinned by a 53.5% yoy increase in exports
of machinery and transport equipment, and a 40.4% yoy and 23.6% yoy
increase in export of metals and chemicals respectively.

Robust consumption and investment demand and a price increase on
imported natural gas stimulated the growth of imports. In particular, the
value of imported mineral products grew by 33% yoy in January-May,
chemicals and machinery and transport equipment grew by 35% yoy
and 41.5% yoy respectively. As a result, the merchandise trade deficit
exceeded $3.7 billion at the end of May.

The widening foreign trade deficit is the primary cause of the increasing
current account gap this year. However, thanks to robust FDI inflow
(estimated by the NBU at $2.1 billion over January-May), the issuance
of external and domestic debt securities (with a high external demand for
the latter ones), and aggressive private sector borrowing allowed for
coverage of the CA deficit and replenishment of the NBU’s gross
international reserves.
According to the Ministry of Finance, on July 20th, Ukraine and the World
Bank agreed on a Power Transmission Project with the overall objective of
improving the security, reliability, efficiency and quality of the energy
supply in Ukraine. The WB will provide a loan of $200 million for 20 years
with a 5 year grace period.

An agreement is expected to be signed by the end of this year. Currently,
Ukraine and the WB are also negotiating a $140 million “Urban Infrastructure

At the end of July, Ukraine and the European Investment Bank (EIB) signed
an agreement, according to which the EIB will provide a ^200 million loan to
Ukravtodor, the Ukrainian road administration. The loan is granted for 20
years at EURIBOR+0.55% with a 5 year grace period for principal payments.

The funds will be directed to finance reconstruction of  “Kyiv-Chop”
motorway, which connects Ukraine with the EU countries. According to the
Ministry of Finance, this loan is the first one under a large “Ukraine’s
European Roads” project between Ukraine and EBRD/EIB, envisaging total
financing of about ^648 million for construction and repair of Ukrainian
Affecting the Investment Climate According to “Governance Matters VI:
Aggregate and Individual Governance Indicators, 1996-2006″, released by
the World Bank at the beginning of July, the quality of governance in
Ukraine has notably improved since 2002. According to the report, Ukraine
achieved the most substantial progress in the area of Voice and

In addition, Ukraine showed further significant improvement in this area in
2006. At the same time, perceptions regarding Political Stability and the
Risk of Violence were mixed, but on average demonstrated an improvement
in 2006 compared to the previous year.

In mid-July, the government promulgated the draft of the government program
of economic and social development of Ukraine for 2008. According to the
draft, the government expects real GDP to grow by 7.2% yoy in 2008.

The government defined the main goals of economic policy in 2008 as
improving living standards of  Ukrainian citizens, increasing
competitiveness of Ukrainian goods as a precondition for sustainable
economic growth, and ensuring energy security of the country.

To realize key policy and institutional reforms, the government plans to
attract $300 million as a second development Policy Loan (DPL2) from
the IBRD.

According to the Ministry of Economy of Ukraine, the size of the shadow
economy in Ukraine was estimated at 27% of official GDP in 2006, which
is 2 percentage points lower than in the previous year. By sector, the size
of the shadow economy diminished in agriculture and manufacturing
(particularly, machine-building), while in real estate, insurance, and car
sales it continued to increase.
FOOTNOTE: (1) US dollar and Euro are the most preferred currencies of
forex borrowing in Ukraine. Though US dollar holds the lion share of all
forex-denominated loans, the share of Euro is also substantial. Since
hryvnia is de facto pegged to US dollar, recent depreciation of the latter
with respect to Euro and other main world currencies on the international
markets caused the respective depreciation of hryvnia.
Chief Economist, Edilberto Segura; Editor, Rina Bleyzer Rudkin.
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation
Ukraine Macroeconomic Situation Report for August 2007 in a PDF
format, including color charts and graphics see the attachment to
this e-mail or go to the following link and click on Ukraine August 2007.
NOTE: SigmaBleyzer/The Bleyzer Foundation also publishes monthly
Macroeconomic Situation Reports for Bulgaria, Romania and
Kazakhstan. The present and past reports, including those for Ukraine
can be found at

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

By Elisabeth Sewall, Assistant Editor
Kyiv Post, Kyiv, Ukraine, Wednesday, Aug 15 2007

KYIV – Cardinal Resources, a privately-owned hydrocarbon production
company active in Ukraine, has publicly slammed Ukraine’s government,
arguing its energy policies run contrary to the interests of both investors
and attempts to diversify energy dependency away from Moscow.

Robert Bensh, chairman and chief executive officer at Cardinal Resources,
an independent, foreign-based gas and oil exploration and production
company that has been working in Ukraine since 1995, issued strong
criticism of a government decree in an interview released on Aug. 13 by
the US-Ukraine Business Council.

He also appealed to the US government to take measures against the
government of Ukraine if it doesn’t revoke the decree, which forces
companies with joint production-sharing agreements to sell their gas
supplies to the government of Ukraine at far below market prices.

The current rules are not only bad for business, but have adverse
consequences on the country’s efforts to gain energy independence,
contradict Ukrainian laws, and hurt the country’s bid to join the WTO,
Bensh argued.

The decree, adopted by the government in January of this year, has eaten
away at Cardinal’s revenues and other privately-owned hydrocarbon
companies operating in Ukraine.

The controversial rules were intended to boost supplies of gas on the
domestic market in order to keep prices low for cash-strapped citizens, but
they contradict the country’s laws governing foreign direct investment, as
well as global norms, according to Bensh.

In the interview, Bensh said the decree “effectively confiscates” the
natural gas produced by its subsidiary, Carpatsky Petroleum, a US
corporation, thereby harming Cardinal and preventing other Western
companies from entering joint production with state-owned gas companies.

UK-registered Cardinal raised about $20 million through an IPO on the London
Stock Exchange in 2005. It was one of the first listings on a major foreign
market by a company whose operations are based in Ukraine, but the
company’s stock has suffered due to production-right difficulties in

The decree, part of the Budget Law drafted by Finance Minister Mykola
Azarov, was approved by Prime Minister Viktor Yanukovych and passed in
January 2007.

According to the decree, companies that hold joint agreements with national
gas companies in Ukraine are obligated to sell gas to the state-owned oil
and gas company Naftogaz Ukrainy at a fixed government rate of around $1.50
mcf (1,000 cubic feet) – far below the current market rate of $4.80 mcf.

According to Bensh, the rate is even below the company’s production costs.
“Ideally, we would like to see the Yanukovych government voluntarily
withdraw this law, which is contrary to the long-term interests of Ukraine
and its people,” Bensh said.

However, Bensh added that given the government’s lack of action thus far,
he doubts any changes will be brought about without intervention.

Cardinal, a major stake in which is owned by Syrian-born Ukrainian tycoon
Youssef Hares, has concluded that “much stronger action” must be taken by
those concerned about the issue, Bensh said.

He also said that this is a problem faced by every company involved in a
joint production agreement with Ukraine’s state gas companies.

Bensh said that his company normally sells its gas to industrial end-users
in Ukraine at market prices. To avoid selling gas at “uneconomic” prices,
Cardinal had been injecting its gas into storage facilities.

However, Cardinal recently learned that Ukrgazvydobuvanya, the state-
owned gas production giant, has been selling its gas without the company’s
knowledge or permission.

In Ukraine, the price for gas is established by the National Energy Price
Regulation Authority.

Bensh said that Cardinal has taken several measures to initiate a resolution
to the gas sales problem, including meeting with Energy Minister Yuriy Boyko
twice and writing letters to Yanukovych and other top officials. But none of
their efforts have produced any results.

US Ambassador William Taylor also got involved, sending a letter to Energy
Minister Boyko in March 2007 asking for a resolution, to which Boyko never

As a result, Cardinal has applied to the US government to issue a formal
demarche to the government of Ukraine.

In April of this year, Europa Oil and Gas Holdings, another private
hydrocarbon company operating in Ukraine, won a court case confirming the
company’s right to sell gas at market prices. However, the government
continues to ignore the ruling.

Ukraine currently relies on imports from Russia and Central Asia to fill the
majority of its gas needs. Most domestic production is controlled by
state-owned companies.

While privately-owned companies produce only a small amount of Ukraine’s
gas needs, their operations are potentially very lucrative and are viewed as
a way of raising investment to boost domestic production and, in turn,

reduce dependence on imports.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

OP-ED: By Taras Kuzio, Kyiv Post, Kyiv, Ukraine, Wed, Aug 15, 2007

In May 2005, when the Yulia Tymoshenko government introduced limited
and temporary price caps on oil, President Viktor Yushchenko threatened to
remove her from office. Western observers also quickly jumped on the
bandwagon and used price capping and re-privatization as two sticks with
which to beat the Tymoshenko government.

The result has been that in some business circles and among foreign
investors the enduring memory of the 2005 Tymoshenko government is price
capping and support for mass re-privatization. Both memories are taken out
of context and are merely used by the same group of critics of Tymoshenko
who refer to her negatively as ‘populist’ (see “Whose ‘populist’ in
Ukrainian politics,” Kyiv Post, July 5).

Why then the deafening silence over the price capping on a far greater scale
of gas prices by the Viktor Yanukovych government?

Prime Minister Yanukovych told his government on July 18 that ‘his
government would never undertake populism.’ In reality, the bans on export
of grain and gas price controls are two big examples of populist price
controls introduced by the Yanukovych government to win votes.

On Dec. 19 of last year, the Anti-Crisis parliamentary coalition adopted the
2007 state budget. Article 3 of the budget law states that all enterprises
with state ownership of more than 50 percent, as well as joint ventures and
Joint Activity Agreements (JAAs) concluded with these enterprises must sell
their monthly production to a company specified by the government.

In a Jan. 16 government resolution (No. 31), Naftogaz Ukrainy was named as
the company authorized by the government.

Naftogaz became de facto the only company authorized to buy gas from JAAs
and then sell it on to the Ukrainian population. The aim of these policies
introduced by the Yanukovych government is to control the price of gas for
the population on a scale far greater than temporary oil caps in 2005.

The difference between the historic selling price of gas in Ukraine to
industrial end-users at market prices of $4.88 mcf (1,000 cubic feet) and
the fixed government price of $1.63 is more than 300 percent.

Many Western companies have opted to therefore halt all sales of gas rather
than sell at a capped unprofitable price. The new capped price does not
cover the costs of exploration, development and production, leading to lower
production and investment.

Cardinal Resources, a public limited company traded in London with a US
subsidiary, Carpatsky Petroleum, is one of a number of Western companies
which have halted all gas sales and instead placed their gas into storage.

The Yanukovych government policies have two negative outcomes.

[1] Firstly, foreign investors, such as Cardinal, have an adverse cash flow
because they cannot sell gas at market prices. To agree to sell their gas at
the capped price to Naftogaz Ukrainy would be to sell it at a loss.

[2] Secondly, Cardinal, as with other foreign investors, sees the
government’s price capping policy as particularly having a negative effect
on foreign investors. Price capping reduces the incentive for foreign
investors to come to Ukraine at a time when only 28 percent of Ukraine’s
gas demand is met by domestic production.

Government price capping of gas directly contradicts Ukrainian legislation,
such as the Civil Code and the Law on Foreign Investment. In April, Europa
Oil and Gas (Holdings) plc won their case in court of the right to sell gas
at market prices but the government continues to ignore the court ruling.
This is not the only evidence of a non-listening government.

Cardinal Resources sent letters on the gas price capping policy to Prime
Minister Yanukovych last December, to Minister for Fuel and Energy Yuriy
Boyko in March and to the CEO of Naftogaz Ukrainy in May.

Cardinal Resources failed to receive responses to two of the letters and
only a curt and non-committal reply from the Deputy Minister for Fuel and

A March letter from US Ambassador William Taylor to Minister Boyko also
failed to receive any response. Two meetings between Boyko and Cardinal
Resources produced no results.

A July paper published by the prestigious Washington think tank, the Center
for Strategic and International Studies (CSIS), described how it was
‘extremely difficult’ for Western energy companies to obtain a foothold in
the Ukrainian market.

Western investors have the potential to make Ukraine independent in its
energy needs, thereby making Ukraine free of Russia’s monopolist and
corrupt energy relationship.

It has long been evident though that a large proportion of the Ukrainian
elites wish to maintain the status quo because they receive large rents from
the existing corrupt energy relationship with Russia. Energy corruption
therefore overrides Ukraine’s national interest and the country’s national

According to Ambassador Keith Smith, author of the CSIS report, a major
factor blocking Western investment in the energy sector is ‘control of
natural resources by groups hostile to Western investors.’ The Yanukovych
government is effectively squeezing Western investors out of Ukraine,
Ambassador Smith concludes.

The two groups which benefit from these price capping policies are the
corrupt intermediary RosUkrEnergo, which, according to a Radio Free
Europe/Radio Liberty report, is the biggest money laundering operation in
Europe, and local oligarchs. Only one political force – the Tymoshenko
bloc – has consistently opposed the use of RosUkrEnergo as a middle man.

The Ukrainian population meanwhile suffers while Western investors pause,
or withdraw. Desperately needed foreign direct investment (FDI) and
technologies are directed toward governments that show themselves
amenable to international standards of economic behavior.

The Yanukovych government’s policy puts into question its stated desire to
join the WTO, establish a free trade zone with the EU and eventually join
the EU.

Price capping also puts into doubt the government’s declared interest in
attracting foreign investors and its stated desire for energy security and
independence. These policies are far more populist than anything
introduced in 2005.

The unwillingness of the Yanukovych government to respond to the concerns
of foreign investor, or to have any common courtesy in responding to the US
Ambassador, necessitates a stronger response from the US government, EU
and WTO.

A demarche should point out that the Ukrainian government’s price capping
policy is inconsistent with international norms on attracting foreign
investment, attaining WTO standards consistent with membership and the
Ukrainian government’s statements on seeking energy self-sufficiency.

A failure to change the price capping policies should warn against returning
the Yanukovych government to office after the Sept. 30 pre-term
parliamentary elections.

Ukraine’s post-election new government should be committed to three
policies: attracting foreign investment, battling corruption and energy
independence.  The Yanukovych government has proven that it has no
commitment to any of these three policies.
NOTE: Dr. Taras Kuzio is a Research Associate of the Institute for
European, Russian and Eurasian Studies, Elliott School for International
Affairs, George Washington University and President of the consulting
firm Kuzio Associates.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
IN VIENNA” Dmytro Firtash unexpectedly moved company headquarters

Heti Vilaggazdasag website, Budapest, in Hungarian 9 Aug 07
BBC Monitoring Service, United Kingdom, Friday, Aug 17, 2007

Dmytro Firtash, the Ukrainian owner of the natural gas sales organization
EMFESZ, Ltd doing business in Hungary -but presumably also representing
Russian interests -has moved his firms hiding in Cyprus to Vienna, Austria.

Dmytro Firtash wants to register within a short period of time his group of
firms with an annual sales volume of 4.6 billion euros at the London Stock

At least, this is what the 42 year-old Ukrainian businessman said to explain
why he unexpectedly moved the headquarters of his “Group FD” companies
hidden so far behind offshore corporations mainly located on the island of
Cyprus to downtown Vienna, next door to the headquarters of the Social
Democratic Party, the ruling party in Austria.

The name of Firtash was first noticed throughout the world when it was
revealed that jointly with Ivan Fursin -also a Ukrainian -and 180 other
firms registered at the same address, they own 50 per cent of RosUkrEnergo
AG in the Swiss tax shelter Zug.

This half-Russian, half-Ukrainian firm established in 2004 enjoys exclusive
intermediary rights in selling Turkmen natural gas in Ukraine; nevertheless
its activities and the identity of its owners have been a mystery ever since
the existence of the firm.

Initially, leaders of the velvet revolution led by Viktor Yushchenko found
the firm to be unnecessary; it acquired a special position during President
Leonid Kuchma’s reign and “takes 1 billion euros out of Ukraine’s pocket.”

Later on, however, they acquiesced to its existence, also accepting the fact
that the firm would help resolve the January 2006 Russian-Ukrainian natural
gas dispute. Namely, it was this firm that brought to Ukraine natural gas at
a mixed price, by mixing cheap Turkmen with expensive Russian natural gas.

For a long time it was understood throughout the world that 50 per cent of
RosUkrEnergo belonged to Gazprom, and the other half to Raiffeisen
Investment AG (RIAG).

Last April however, the Russian daily Izvestiya owned by Gazprom revealed
that RIAG, registered in Vienna, represents the Centragas firm backed by
Firtash and Fursin.

Who is Firtash, the owner of 90 per cent of Centragas AG? The FBI in the US
as well as the Ukrainian secret service has already tried to find the answer
to this question.

The primary interests of the Americans pertained to the kinds of common
interests Firtash and Semion Mogilevich have, the latter believed to be a
Russian Mafioso sought by the FBI, and whether Firtash is laundering money.

Kiev was interested mainly in the way Firtash is linked to the Russians and
to the rest of the members of the new Ukrainian elite in the post-Kuchma
era, as well as in the identity of additional owners of the firm.

It was revealed that the names of Mogilevich and Firtash appear together
among the owners of several companies, and that Firtash, the Ukrainian
businessman -who participated in the highest-level Russian-Ukrainian
negotiations during last year’s natural gas crisis and has also negotiated
with Yushchenko -maintains three offices in Moscow, in the real centre of
his economic interests.

Firtash has already played a key role in Eural Trans Gas believed to be the
predecessor of RosUkrEnergo; in 2003 and 2004 Eural pumped natural gas

from Turkmenistan, Uzbekistan and Kazakhstan to Ukraine and to Hungary.

Although on paper Eural was also owned by private persons, the actual owners
were Gazprom and the Ukrainian Naftohaz Ukrayiny, and for tax purposes the
company was registered in Hungary.

RosUkrEnergo receives a 1 billion euro transportation fee each year from
Ukraine for pumping natural gas from Turkmenistan through Gazprom pipelines
not in the form of cash but as 13 billion cubic meters of natural gas.

RosUkrEnergo then sells the natural gas in the framework of an exclusive
agreement expiring in 2015 to EMFESZ First Hungarian Natural Gas and Energy
Trading and Service Ltd., the largest company in the Hungarian natural gas
free market.

RosUkrEnergo is headed exclusively by Russian managers, including from the
beginning by Konstantin Chuychenko who works there. He was employed by the
KGB until 1992. Chuychenko has attended the university in Leningrad with
Aleksandr Medvedev, the present deputy chairman and president of Gazprom.

The Foreign Affairs Committee of the US Congress recently analysed the East
European region’s dependence on Russian natural gas, and in conjunction with
that, threats to democracy.

The Committee concluded that only a few private persons enrich themselves of
the huge profits made by RosUkrEnergo and similar intermediary firms; these
persons maintain constant, close relations with leading Ukrainian and
Russian politicians.

The analyses concludes that the large amount of money is more than enough to
influence Ukrainian politicians and to support Russian interests, as a
result of which countries in the region could abandon the path of democracy.

Well-informed analysts in Vienna suspect that anyone who does business with
Firtash is actually doing business with Gazprom. At this time Firtash gave
an Austrian character to his most important firms, thus to Centragas and to
Mabofi Holding, the company that directed EMFESZ from Cyprus so far, and
further, its chemical industry, gas pipeline construction and real estate

One cannot tell however, between exactly who EMFESZ is acting as an
intermediary; one cannot tell whether the telephone numbers shown on the
websites of its businesses actually ring in the offices of Raiffeisen
Investment AG?

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Joint venture of RosUkrEnergo and Naftohaz Ukrayiny

Kommersant-Ukraina, Kiev, in Russian 16 Aug 07
BBC Monitoring Service, United Kingdom, Sat, Aug 18, 2007

KIEV – The main supplier of natural gas to Ukraine’s industrial consumers,
Ukrgazenergo [a joint venture of the Swiss-registered gas trader
RosUkrEnergo and the national oil and gas company Naftohaz Ukrayiny],

is entering the oil and gas mining market.

Kommersant Ukraina has learnt that Naftohaz, the co-owner of the company,
has appointed Ukrgazenergo main investor in the Odessa gas deposit
exploration project.

By doing so, Naftohaz will resolve the problem of distributing
Ukrgazenergo’s income and gain control over the investment in the project.
Experts do not rule out that Ukrgazenergo will try to get involved in
Naftohaz’s other exploration projects, too.

Kommersant Ukraina learnt that on 14 August the board of directors of the
national oil and gas company Naftohaz Ukrayiny decided to appoint
Ukrgazenergo partner of the Chornomornaftohaz company [which is

Naftohaz’s subsidiary] in the Odessa gas deposit exploration project.

“A join venture will be formed on parity basis which will allow Naftohaz to
control a 75-per-cent stake in the venture,” the head of the Naftohaz’s
press centre, Oleksiy Fedorov, told Kommersant Ukraina.

Let us recall that Naftohaz Ukrayiny owns 100 per cent in Chornomornaftohaz
and a 50-per-cent stake in Ukrgazenergo.

According to Chornomornaftohaz, the amount of gas in the Odessa deposit is
forecast at around 20-30bn cu.m. The total amount of gas in the Black Sea
shelf amounts to 1,700bn cu.m. The company started drilling the deposit for
gas in August 2006.

There were plans to begin gas mining by the end of 2007 and to complete the
exploration of the deposit, having increased gas mining to 1bn cu.m. a year,
by the end of 2008. The investment in the project is estimated at 5.8bn
hryvnyas [around 1.15bn dollars].

Mr Fedorov said that Naftohaz’s daughter company, Ukrhazdobycha [Ukrainian
gas mining], was Chornomornaftohaz’s partner in the project.

“The Naftohaz’s management decided, however, to have Ukrhazdobycha

involved in the exploration and mining of inland deposits of hydrocarbons,
and Chornomornaftohaz – in the continental shelf,” he said.

Ukrgazenergo’s management offered a cautious comment regarding cooperation
with Chornomornaftohaz. “This matter is yet to be approved at a meeting of
the company’s supervisory board,” the press secretary of Ukrgazenergo,
Vitaliy Kysil, said. The company’s management, however, have repeatedly
expressed interest in mining hydrocarbons on the territory of Ukraine and

Experts say that, by appointing Ukrgazenergo main investor in the Odessa gas
deposit exploration project, Naftohaz is seeking to gain control over the
company’s income.

“Last year, Ukrgazenergo earned a significant income. The Ukrainian Fuel and
Energy Ministry proposed that it is transferred to Naftohaz’s account as a
dividend, while RosUkrEnergo wanted to invest it in development. The sides
failed to agree on the distribution of income,” the paper’s high-ranking
source in the cabinet said. “The current variant offers a compromise: income
will be invested in gas exploration but Naftohaz will, in fact, control it.”

Ukrgazenergo was formed by Naftohaz Ukrayiny and RosUkrEnergo on parity
basis. It is the main supplier of natural gas to Ukraine’s industrial
consumers. In 2006, its proceeds from gas sale amounted to 16.75bn hryvnyas
(3.3bn dollars) and gross income – to 1.014bn hryvnyas (200.79m dollars).

Players in the market do not rule out that the formation of a joint venture
might have been caused by Chornomornaftohaz’s growing tax burden in the

end of 2006. [Passage omitted: repetition]

Experts expect Ukrgazenergo to be involved in other projects. “If the
company was invited to take part in one project, it is likely that
Ukrgazenergo will replace Ukrhazdobycha in other joint projects with
Chornomornaftohaz,” the member of the parliamentary committee for fuel

and energy matters, MP Mykhaylo Volynets, said.

“The exploration of the Hordiyevych gas deposit [in the western part of

the Black Sea shelf] could be one of such projects, as it also requires
significant investment, too”.                              -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Associated Press (AP), Astana, Kazakhstan, Sat, August 18, 2007

ASTANA, Kazakhstan – The leaders of China and Kazakhstan on Saturday
signed an agreement on building a pipeline that is to ship natural gas from
Turkmenistan to China.

The agreement signed by Chinese leader Hu Jintao and Kazakh President
Nursultan Nazarbayev followed last month’s agreement between China and
Turkmenistan on a 30-year gas contract. China and Turkmenistan had already
agreed to build the pipeline, but gas prices hadn’t been determined.

The agreement on the section of the pipeline crossing Kazakhstan underlines
that country’s strategic importance for energy-hungry China. A pipeline
pumping Kazakh oil to China went into operation last year. Details of the
agreement on the gas pipeline weren’t immediately available.

Turkmenistan’s natural gas reserves of 2.8 trillion cubic meters, the
second-biggest among all ex-Soviet republics after Russia, are a major prize
in the region.

But Turkmenistan has been forced to export its gas through Russia and
Ukraine, which have their own gas companies that have squeezed out their
smaller rival. Turkmenistan is eager to break free from Russia’s influence
and sees exports to China as one solution.

Beijing has been trying to shift reliance to cleaner gas in order to reduce
reliance on its abundant but dirty coal reserves.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Morgan Williams, SigmaBleyzer
President, U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, August 20, 2007
WASHINGTON – The Executive Committee of the Board of Directors
of the U.S.- Ukraine Business Council (USUBC) has just approved
Cisco Systems as the 41st member of the Council.

Scott Blacklin, Vice President, Emerging Markets – Public Sector,
who works out of the Washington office informed the Council
that Cisco Systems was ready to join the U.S.-Ukraine Business
Council. Scott will represent Cisco on the board.

Another contact in Washington would be Ned Cabot, Business
Development Manager, Strategic Initiatives. Richard Mach,
Manager, Business Development, located in the California office
will also work with the Council. In Kyiv the Council will be working
with Oleg Bodnar, head of the Cisco office, and Valeriy Fischuk,
government relations representative.

Cisco (CSCO) is the leading supplier of networking equipment
& network management for the Internet (

Cisco Systems is the 19th new member for the U.S.-Ukraine
Business Council in the last eight months. The Council’s goal is
to double its membership in 2007. 

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Buyers Look Past Risk And Snap Up Offices; Retail on the Horizon

By Sara Seddon Kilbinger, The Wall Street Journal
New York, New York, Wednesday, August 15, 2007

Ukraine has caught the eye of real-estate investors chasing higher returns.
Roughly $293.75 million in commercial real-estate deals were transacted in
the country in the first half of 2007.

Almost all — $231.25 million — were office sales, with retail accounting
for the rest. This compares with $497.2 million in deals for all of last
year and $22 million in 2005, according to real-estate advisory firm Jones
Lang LaSalle. More than 90% of this year’s deals were in the capital, Kiev.

One of the most active buyers is London & Regional Properties. The
London-based real-estate investor and developer has acquired three
properties in Kiev — an office, a shopping center and a warehouse — since
entering the market in March. It also intends to develop real estate there.

“Central Europe has got very expensive, which is why we started looking at
Russia last year. Our presence in Ukraine is an extension of that strategy,”
says Max Fowles-Pazdro, head of Central and Eastern European acquisitions at
London & Regional, based in London. “We’ve invested $2 billion in Russia in
the past 18 months and would like to do the same in Ukraine.”

London-based real-estate asset manager Invesco Real Estate is also looking
to invest in Kiev, says Paul Kennedy, head of European real-estate research
at Invesco.

The firm would like to buy two or three Kiev properties in the next 18
months for its Central European Fund II. Invesco will also consider buying
developments before they are completed as well as joint ventures with local
partners, says Dr. Kennedy.

The yields are tempting. Good-quality office and retail properties can
generate as much as 10%, says Jones Lang LaSalle, compared with less than

5% in many Western European markets. (The yield is the annual percentage
return, expressed as the ratio of annual net income to the capital value of
a property.)

But the high yields in Ukraine reflect the higher risk, due to political
instability and continuing problems with corruption. Last year, former Prime
Minister Pavlo Lazarenko was sentenced to nine years in prison by a U.S.
court for extortion, fraud and money laundering through U.S. banks.

According to Mykola Orlov, a partner in Kiev-based law firm Sayenko
Kharenko, foreign investors are often better off working with a local
consultant than joining forces with a local partner. A local partner can
take advantage of a foreign investor in a number of ways, he says, including
by siphoning off funds.

Another obstacle for investors is the market’s opacity, with many deals
completed off market for undisclosed sums, says Nick Cotton, managing
director of real-estate advisory firm DTZ Holdings PLC in Kiev.

Such challenges aren’t deterring many would-be investors. Asset-management
firm Catalyst Capital LLP intends to enter the Ukraine market this year in
conjunction with a local partner whose interests range from brick making to
insurance, says Kean Hird, managing partner of Catalyst Capital’s
emerging-markets arm in London.

The firm’s push into Ukraine is “a natural extension” of its activities in
Central Europe, he says. Catalyst Capital will focus initially on Lviv —
because it is near the Polish border — before moving onto Kiev, he says.
“It’s a very good time to go into the market as it is still very
undersupplied,” says Mr. Herd.

“While we don’t have a target in terms of how much we plan to invest there,
we will initially develop industrial stock, such as sheds near the airport
or major roads. We are also interested in developing supermarkets, ideally
with international anchors. While consumer spending is still quite low, it
is increasing all the time.”

Private consumption — the main driver of economic growth — rose 18% last
year, up from 12% in 2005, according to DTZ. As a result, international
retailers are starting to consider Ukraine. German retail giant Metro AG
opened five cash & carry stores last year, according to spokesman Martin

“What we see is a growing middle class with more disposable income, which is
the driving force behind our expansion into Central and Eastern Europe,” he

Metro has opened 13 stores in Ukraine since it entered the market in 2003
and intends to open more this year, he says. Turnover in its Ukraine stores
reached Euro615 million ($837 million) last year, almost twice the Euro338
million of 2005. The company is also considering launching its Real
supermarket chain in Ukraine next year, he adds.

Retail space is still thin on the ground, making the market ripe for
development: Kiev has just 290,000 square meters, similar to Warsaw in 1999.
There are a number of plans in the pipeline, according to DTZ, including a
130,000-square-meter store that will mark Ikea AB’s foray into Ukraine.

The hotel sector, while fledgling, is also growing. Hilton Hotels Corp. will
arrive in Kiev in 2009 and is exploring opportunities in several other
cities according to Nicola McShane, Hilton’s European communications
Write to Sara Seddon Kilbinger at

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

By Morgan Williams, SigmaBleyzer
President, U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, August 20, 2007
WASHINGTON – William (Bill) Klein, is the new Deputy Counselor
for Economics at the U.S. Embassy in Kyiv. He is assuming his new
position at the U.S. Embassy in Kyiv today. Bill is taking the position
previously held by J. P. Schutte.             
The U.S.-Ukraine Business Council (USUBC) held a briefing with
Deputy Counselor Klein at their offices in Washington on Thursday
evening of this week.  A wide range of business and economic topics
of interest to U.S. businesses active in Ukraine were discussed.
William (Bill) Klein is a career member of the U.S. Foreign Service. 
Bill’s first tour in the Foreign Service took him to Embassy Kyiv in
2000, where he worked on trade and intellectual property issues in the
Economic Section and subsequently in the Consular Section.

Most recently, Bill served as Chief of the Political/Economic Section

at the U.S. Embassy in Mumbai, India, where he worked on U.S./Indian
civil nuclear cooperation, market access for U.S. financial services
companies and other issues.

Prior to arriving in Mumbai in 2004, Bill was assigned to the U.S.
Embassy in Tel Aviv, Israel, as an Economic Officer.   While there,
he also served temporary tours of duty at the U.S. Embassy in Doha,
Qatar, during Operation Iraqi Freedom and later as Acting Economic
Chief at the U.S. Consulate in Jerusalem.  

Prior to joining the Foreign Service, Bill worked as an investment banker
in Germany for 13 years.  From 1987 to 2002 he was head of derivative
products at Schroeder Muenchmeyer Hengst & Co, a Frankfurt-based
private bank that is now part of the UBS Group. 

From 1993 to the year 2000 he was managing director and head of capital
markets at the Landesbank of Saxony in Leipzig, a new bank that was
founded in former East Germany after German reunification.  In Leipzig,
Bill was responsible for the bank’s bond and equity underwriting, funding
and trading activities.

A native of North Ogden, Utah, Bill holds a Bachelor’s Degree in History
and Mass Communication from the University of Utah and the equivalent
of Bachelor’s and Master’s Degrees from the Freie Universitaet in Berlin,

He speaks German, Russian and Hebrew.  He is married to Celine d’Cruz, 
a native of Mumbai, India, who works as co-coordinator for Slum and
Shack Dwellers International, an NGO that works with the urban poor in
many countries in Asia, Africa and Latin America.

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

Associated Press (AP), Kiev, Ukraine, Thursday, August 16, 2007 

KIEV – Ukraine has won a US$118 million contract to supply 96 armored
personnel carriers to Thailand, Prime Minister Viktor Yanukovych said

Yanukovych told reporters that eight other countries, including Canada,
China and Russia, had put in bids to supply the Thai armored forces,
according to his press service.  He did not say when the vehicles -called
BTR-3E1s- would be shipped.

Thai Defense Minister Boonrawd Somtas said last week that the army favored
the Ukrainian vehicles because the bid was the cheapest of the nine bidders.

“The Canadian vehicles are excellent, but we would get only half of the 96
vehicles we will get from Ukraine. It’s like buying Japanese cars over
European cars,” Somtas was quoted as saying by the Bangkok Post


After the 1991 Soviet breakup, Ukraine inherited a sizable weapons industry
and it remains a major producer of arms including missiles, aircraft and

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

Federal Reserve Board, Washington, D.C., Friday, August 17, 2007

WASHINGTON – The Federal Reserve Board on Friday announced the
approval of an application by The State Export-Import Bank of Ukraine,
Kiev, Ukraine, to establish a representative office in New York, New York.

Attached is the Order relating to this action. Attachment (27 KB PDF):
AUR FOOTNOTE:  The State Export-Import Bank of Ukraine, with total
consolidated assets of approximately $3.7 billion, is the sixth largest
commercial bank in Ukraine and provides wholesale and retail banking
services through a network of domestic branches. The bank is wholly
owned by the government of Ukraine and operates as a commercial bank
in addition to promoting trade by and with Ukrainian companies.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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Nick Thorpe, BBC NEWS, UK, Saturday, August 18, 2007

The railways of Eastern Europe are going through a period of great
upheaval including sudden privatisation and modernisation, following
years of neglect. Nick Thorpe took a rail trip through the region to see for

The lady in the brown dress held up the Tihany express. “Please wait!” she
called, as she scuttled down the platform, plastic bottle in hand. “The
children are thirsty.”

The pot-bellied signalman breathed the sigh of a man used to taking orders
from women all his life, and sat down heavily on a bench, his red cap
catching the late afternoon sun like a Balkan woodpecker.

The lady filled the bottle from a tap on the platform, hurried back to the
train, handed the water in through the window and waved to the signalman.
He blew his whistle and the train continued, hooting round Lake Balaton,
like an ancient iron goose.

I have witnessed many such scenes this summer on the railways of
Eastern Europe: the solidarity of passengers with one another, the
leniency of ticket collectors and railwaymen.

Despite the general poverty of the railways, the decay and delay, there
is what I can only describe as an old-fashioned socialism on the
railways of Eastern Europe, which the roads have never had.

People feel the train is genuinely theirs. You notice it most in summer,
beside the Baltic Sea in Poland, Lake Balaton in Hungary or anywhere
where the train is part of the people’s holiday.

Children still wave at strangers and strangers cannot resist waving back.
Perhaps that is also why urban youth spend so much effort spraying their
strange designs on the carriages.
But this is a time of great change on the tracks of Eastern Europe.

The rolling stock is 25 years old on average – the locomotives and carriages
and freight wagons – and companies are competing to replace them.

The cargo arms of the big state rail companies are being sold off and, in
some countries at least, are already flexing new, private muscles.

This year the rail freight market was liberalised throughout the European
Union and in 2010 passenger traffic will follow. Each country is trying to
avoid the mistakes made by others.

EU money is providing an important boost and so is the increasing
congestion on the roads. The number of lorries on Polish roads alone
has tripled in the past three years.

“Europe has shifted its centre of gravity eastwards,” says Janusz
Piechocinski, director of the Transport Consultants Group in Warsaw,
“and we can all gain from the pool of experience here”.

To open the vast markets of the former Soviet Union and Asia, he offers a
model: British finance, German logistics and Polish experience in crossing
the eastern borders.

For now, those borders present a major headache to freight companies.
There are two different kinds of documentation, even two different widths
of track (the Russian is wider).

Now President Putin has signalled his intention to privatise the vast
Russian railways.
“Will EU players be allowed to participate or only the Germans?”
Piechocinski asks. He is full of questions.

“In a globalised world is there any sense in keeping Hungarian, Czech and
Polish railway companies or would it make sense to put together an alliance
of them to cut costs and restructure?

“Why concentrate so much EU money on high-speed trains and trans-
European railway corridors, when it might be better spent on modernising
trains and tracks used by most of the population?

“Why is privatisation stagnating in western Europe, but moving ahead so
fast in the east?”

The Poles began privatising their freight transport three years ago and the
first private passenger train will run this autumn. They have also been the
most successful of the East Europeans in tapping EU funds so far.

Above all, Piechocinski believes in the future. “We’ve entered a period of
20 years of prosperity and growth,” he says.
And in Prague, Ales Ondruj, the marketing director of Czech Railways, is
also optimistic. “Last year we had three million more passengers than in
2005,” he says.

The new super-city Pendolino express has shaved hours off the route from
Prague to Ostrava in the east. But he laments the years of neglect.

“The age of the trains is not the main problem, but the absence in eastern
Europe of the kind of constant upgrading and modernisation you see in the

“We may be slow, but we’re safe,” says Zbigniew Szafranski of the Polish
rail company, PKP, when I ask about the ponderous progress of my
intercity train from Warsaw to Gdansk.

He explains that the wooden sleepers under the first 40 miles (64km) of
that line are almost destroyed.

In places, the train is only allowed to travel at 30 miles an hour (50kmph).
While the modernisation of north-south routes would be more important
for Poles, EU money is focused more on east-west routes.

He dreams of 180-mile-per-hour trains between Warsaw and Gdansk,
cutting the journey time from five to three hours.

On the train two teenage lads make room for me in an already crowded
carriage. They are on their way to a wind-surfing camp in Hel – don’t
laugh – it is a rather pretty spit of sand, stretching out into the Baltic

Will East European railway hospitality survive privatisation?

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

RIA Novosti, Moscow, Russia, Thu, August 16, 2007 

MOSCOW – Georgia will transfer the management of its railway network
to U.K.-based Parkfield Investment Funds for 89 years, the country’s
Economic Development Minister Giorgi Arveladze said Thursday.

The Georgian Cabinet approved draft government instructions earlier in the
day on transferring the government’s 100% share in the Georgian Railway
company to attract investment.

Arveladze said at least $1 billon would be invested in the project in the
first decade, the bulk in the next three to four years. The minister said
the project could help enhance the capacity of the railway network.

“The government would be unable to invest such large sums in the sector

in such a short period,” the official said. Arveladze said an agreement with
the investor was nearing completion and would be signed within the next
two weeks.

Georgia’s railway network stretches over 1,575 kilometers (1,000 miles)

and includes 45 tunnels and 1,714 bridges.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Major upgrades of Metro, Bus and Trolleybus Passenger Transport

European Bank for Reconstruction and Development (EBRD)
London, United Kingdom, Friday, August 17, 2007

LONDON – In its first long-term financing for municipal transport in
Ukraine, the European Bank for Reconstruction and Development is
providing Euro100 million to municipal transport companies Kyiv
Metropolitan (metro) and Kyiv Pastrans (buses and trolleybuses).

A Euro40 million loan to Kyiv Metropolitan will finance up to 15 new metro
trains, which will operate on the Syretsko-Pecherska Line, while a Euro60
million loan to Kyiv Pastrans will finance up to 225 new trolley-buses and
up to 125 diesel buses and associated infrastructure.

40 per cent of each loan will be syndicated to commercial banks DEPFA
Investment Bank Ltd, Dexia Crédit Local Dublin Branch and HYPO
Investmentbank AG.

In the rapidly growing Ukrainian capital with 2.7 million residents, the
financing should significantly improve efficiency and overall quality of
local transport, stressed Kamen Zahariev, EBRD Director for Ukraine.

According to him, with this transaction EBRD continues to support
environmentally clean and sustainable public transport alternatives to
increased private car usage.

“The project builds on the EBRD’s expertise in structuring new
infrastructure projects in partnership with municipalities, providing an
example that other financially sound transport companies and municipalities
in Ukraine and the region can follow”, said Oxana Selska, EBRD Senior

Technical co-operation funds, provided by the governments of France and
Italy, have been used to help the companies to prepare technical-feasibility
studies, develop long-term business plans, conduct financial audits and
develop pilot public service contracts between the city and the companies.

Such contracts will be instrumental in helping to establish a transparent
structure and in fostering the development of new standards for the
provision of public transport. Additional technical co-operation advice will
be provided to the City on electronic ticketing system.

Leonid Chernovetsky, Mayor of Kyiv, said the city’s strong economy is a
result of good local businesses and growing foreign investment, and to boost
this further, the City needs to improve local transport infrastructure.

“The EBRD has a good reputation for working with local municipalities in
Central and Eastern Europe, and we want to build on that to achieve our
objectives”, he added.

The European Bank for Reconstruction and Development is the biggest
financial investor in Ukraine. As of the end June 2007 it had committed over
EURO2.9 billion through more than 140 projects.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Kyiv Post Staff Journalist, Kyiv, Ukraine
Eurasian Home, Moscow, Russia, Monday, August 13, 2007

The city of Kyiv is planning to expand its Metropolitan, or system of
underground and surface trains, before the year 2012, when Ukraine will
host the European football championship together with Poland.

What a relief for pedestrians and motorists alike!

The estimated cost has been set at 3 billion dollars. This is a lot of money
for a country that can barely afford to pay its soldiers and teachers, but
the capital wants to be ready for all the football fans expected to arrive
with their pockets full of money.

As it stands now, traffic jams and road rage are the number one turn-off for
foreign visitors.

Along with the significantly expanded public transportation, there are also
plans to launch lots of brand new hotels across the country. Private
investors should get a nice return, as a lack of hotel space is one of the
main obstacles to the country’s great tourist potential.

But first and foremost, the hosting of the European championship is
Ukraine’s chance to show the world that it’s not a post-Soviet backwater.

The Orange Revolution put the country on the map a few years back.
The positive PR continued when Ukraine hosted the Eurovision song
contest in 2005.

Canceling visa requirements for wealthy countries has also helped. All this
is good news for a country that increasingly wants to be known as a
full-fledged part of Europe, rather than the site of the world’s nuclear

Accidents, however, are still a very grim part of the Ukrainian reality, and
the most serious are related to transportation. For example, the country has
been plagued most recently by a series of high-profile train wrecks, but
thankfully the casualties have been small.

A much higher death toll is attributable to car accidents, which is why
expanded public transportation in the capital is highly welcome. Car crashes
claims thousands of lives every year in Kyiv Region alone.

Most Westerners are used to frightening figures on auto-related deaths, but
the situation in Ukraine merits closer study.

There aren’t many places in Europe or North America where you can be hit by
a speeding sedan while strolling down a central street. These aren’t bank
robbers or rambunctious teenagers but everyday citizens who believe that
pedestrians should move or be hit.

The Ukrainian capital is not only plagued by traffic jams on the roads but
double parking on the sidewalk. Sure, more parking structures need to be
built, but it’s far from certain that people won’t continue to park where
they feel like anyway.

And the police, who are otherwise infamous for finding a reason to fine
law-abiding motorists, do nothing to maintain order. It’s as if they prey on

the innocent and fear anyone in an expensive car.

It used to be that people would complain about the obnoxious drivers of
luxury vehicles with special license plates or blue sirens on their roofs.
But as the number of cars on Ukrainian roads increases exponentially along
with disposable wealth, so does the number of negligent drivers.

It’s nice to see Ukrainians enjoying a little freedom. Freedom, however,
comes with responsibility. One of the biggest surprises for analysts of the
eastern bloc was how quickly people here seemed to go from being
communist robots to cutthroat capitalists.

Clearly, the cold war created some pretty inaccurate stereotypes. Society

in Ukraine and other East-bloc countries is indeed changing, but cultural
values are more persistent than one might think.

Judging from the last 15 odd years of independence, it appears that many
people in former Communist societies don’t want to make the rules of the
game more fair, but rather to enjoy the unbridled privileges of the elite.

The shifting scene of Ukraine’s roads nicely reflects transformations in the
nation as a whole. Ukrainians appear to see car ownership as a release from
all the rules of public transportation without considering the new
obligations involved.

Public transportation is for pensioners, alcoholics and those who are still
trying to find a way to finance a Western lifestyle.

Private cars are for those intent on expressing their identities long
suppressed by Soviet society. Not all drivers in Kyiv are obnoxious, but
road bullies are the single negative impression that almost every visitor
complains about.

The same analogy of unleashed individualism could be made about housing

in Kyiv as well – the rich snatch up pristine reserves to build their mansions,
the poor remain in slumping blocs of flats, and the slowly emerging middle
class takes out bank loans to afford new apartments.

It’s precisely this rising middle class that offers the most hope. They work
hard and raise families, whom they don’t want to see run down at an
intersection. Once someone owns property he is more likely to respect the
property of others. Insurance companies will also become more common,
offering compensation for loss and lobbying better legislation.

But this transformation in ownership and attitude is going to take time.
More importantly, it’s going to have to be anchored in law.

As it stands now, Ukraine’s lawmakers are often the biggest offenders. The
absence of respect for the law, or rules in general, is in fact the heart of
the problem.

The way people drive is just a reflection of their overall attitudes toward
rules. Sure, there are plenty of obnoxious drivers in America, and the
country’s love affair with the car is symptomatic of questionable
individualism and consumerism in itself, but violators are caught and

As Ukrainians buy and use more cars, the laws in the country are going to
have to change and be enforced. In the mean time, what a great idea to
develop more public transportation.

Besides the environmental concerns, Kyiv’s infrastructure was just not
designed for so many autos. Many European countries have already started
investing in more trains and trolleys.

As Ukrainians continue to embrace greater integration with Europe, they
might reflect on how important civil society and legislators were in
creating modern European society. My feeling is that many younger
Ukrainians are already beginning to change their attitudes.

On the other hand, some features of Soviet society, such as reliance on
public transportation, are proving to be more progressive than many still

If Kyiv really wants to show off in 2012, a good start would be more decent
public transportation and a little more courtesy on the part of drivers of
private cars.

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

Polish News Bulletin, Warsaw, Poland, Friday, Aug 17, 2007

WARSAW – The meat producer PKM Duda’s Ukrainian operations are

gathering momentum, the Puls Biznesu daily reports. Having just taken over
yet another slaughter house, the company will now build distribution centres.

Duda’s latest purchase is the Ekspres slaughter house, for which the Polish
company paid ZL6.6m, while the potential value is estimated at ZL20-25m.
“This was a good deal. The factory will become our main slaughter facility
in Ukraine, with processing capacity of 250,000 carcasses,” said the
company’s president Maciej Duda, who has ambitious plans for Ukraine.

He wants to create an enterprise resembling PKM. Already owning [most

likely leasing – AUR] 15,000 hectares of land, a fodder mixing plant, a
slaughter house and a meat processing plant, Duda is now thinking about
distribution. The Polish company plans to lease distribution centres from
its Ukrainian partners. The first one will be set up in L’viv, and the second
in Kiev. 
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Helen Fawkes, BBC correspondent in Kiev
BBC NEWS, UK, Sunday, August 12, 2007

The industrial heart of eastern Ukraine was glowing in a beautiful
sunset as local heroes Shakhtar Donetsk took on their arch-rivals
Dinamo Kiev.

Yet the Soviet-era stadium looked small and a bit too old-fashioned
for Shakhtar Donetsk, one of the country’s top teams.

There are concerns that Ukraine may not be ready in time for the
Uefa European Football Championships in 2012, which it will co-
host with Poland.

It will be the most prestigious project that Ukraine has ever
co-hosted, and it is expected to attract thousands of fans. But there

are fears that the politicians here do not have their eye on the ball.

Donetsk is one of four host cities in Ukraine. All of the venues were
built by the communists, and they are well past their best, needing to
be replaced or renovated.

Ukraine has faced one political crisis after another and now the
country is preparing for a general election.

“The most difficult thing will be to change the attitude, to make the
authorities look in the direction of football and start paying
attention to the country’s infrastructure,” says Dmitriy Chigrinsky,
a player for Shakhtar Donetsk and Ukraine. “It’s no secret that our

country needs serious modernisation,” Dmitriy adds.
Ukraine is one of the poorest places in Europe. Now it has to spend
billions of dollars preparing for the championships.

With vast distances between the Euro 2012 venues, transport is a
top priority. Ukraine’s trains are cheap but not exactly fast, as the
network has not changed much since Soviet times.

A journey from Gdansk, one of the Polish venues, to Donetsk can
take more than 40 hours.

And the alternatives are not much better. Ukraine only has one
motorway and many roads are in desperate need of repair. The
country’s airports are all due to be modernised, and there is also a
real shortage of hotels.

As if all that was not bad enough, there is a row over the venue for
the final. It is supposed to be held in the centre of Kiev, but a half-

built shopping centre looms right next to the stadium gates – and the
developers are refusing to knock it down. If it stays, the final will
have to be played elsewhere.
Despite all these problems there is a confident mood at the
headquarters of Ukraine’s Football Federation in the capital. “If I
wasn’t an optimist I would never have dared to start such a project.

“Some people called it naive, they were sure it would be impossible
for us to win the right to co-host the event. But we did win,” says
Hryhoriy Surkis, the president of Ukraine’s Football Federation.
“We are now working hard to turn the fairy tale into reality,” he says.

There are some positive signs. Two brand-new stadiums are starting to
take shape in eastern Ukraine. One of the venues is being funded by
Ukraine’s richest man, the football-mad billionaire Rinat Akhmetov,
for his team Shakhtar Donetsk.

Designed by a British architect, it will have a glass roof and
promises to be one of the best stadiums in Europe.

The Ukrainian President, Viktor Yushchenko, has said that a
co-ordination council will be set up with Poland.

It is due to meet in September to discuss a range of issues including
joint infrastructure projects, and it will apply for support from the
European Union.

Even so this former Soviet republic still faces a massive task to
prepare for Euro 2012. It will be a race against time to complete all
the work needed.

“Ukrainians are very proud to be co-hosting the championships. I
am certain we can do it and we can do it well.

“This is about more than just football. If the tournament goes well
then it could well boost our chances of becoming part of the EU,”
says a Ukrainian football fan, Maxim Simoroz.

With so much at stake the country cannot afford to fail.
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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Ukrainian News Agency, Kyiv, Ukraine, Wed, August 15, 2007

KYIV – The Central Election Commission has registered the Bloc of Yulia

Tymoshenko  for the Verkhovna Rada elections. All 14 members of the
commission voted for the decision.

Before the vote, the CEC had put the issue of bloc registration on the
agenda to meet the proposal of CEC member Mykhailo Okhnedovskyi. All

450 candidates nominated by the bloc are now registered for the parliament

As Ukrainian News earlier reported, the District Administrative Court of
Kyiv ordered the CEC on August 14 to register the BYT for the early
elections. CEC representatives had two days to appeal the court decision.

The commission said on the August 10 night that the bloc had had to submit
correct registration documents by 23:59 on that day.

The commission postponed its registration on August 9 because the
documents did not state addresses of candidates correctly (house number,
street name, apartment).

The election campaign started on August 2, and the vote is scheduled for
September 30.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Kyiv Post Journalist, based in Ukraine
Eurasian Home, Moscow, Russia, Monday, August 6, 2007

Ukraine’s parliament has long been characterized by frozen deadlocks.
Lawmakers who opposed former President Leonid Kuchma were always
in a cold war with his supporters, while under President Viktor Yushchenko,
the legislature became divided between the Orange and the Blue.

These stalemates have occasionally burst into fiery rhetoric and even heated
tussles in the session hall, but the usual atmosphere in the nation’s
legislature has been one of icy relations between opposing sides, and thus
few laws being passed.

When bills did get approved, you could be sure that a backroom deal had
been cut, with the two agreeing parties dividing up some spoil only to
immediately resume their hostility thereafter.

More recently a somewhat different climate has taken hold in the Verkhovna
Rada, a defrosting of traditional blocs and possibly another chance at the
formation of a grand coalition on the horizon. The politician most
immediately to be affected by the thaw is parliamentary speaker Oleksandr
Moroz, whose surname translates as ‘frost’.

Together with his Socialist Party, Mr. Frost, or Moroz, looks destined to be
the country’s next spent political force. This isn’t the first time that a
powerful Ukrainian politician has melted from the scene.

For example, Viktor Medvedchuk, who rose to head the influential
administration of President Kuchma, was reduced to obscurity after failing
to get into parliament last year.

Like Medvedchuk, Moroz developed a party with a limited voter base into a
pivotal power broker. Through shrewd maneuvering, Moroz ended up with
the deciding share between the eastern or Blue bloc of Prime Minister Viktor
Yanukovych and the Communists, and the more Western-oriented Orange
parties represented by President Yushchenko’s Our Ukraine and Yulia
Tymoshenko’s ByuT faction.

Moroz had sided with Yushchenko and Tymoshenko during the country’s
pro-Western Orange Revolution, which unseated Kuchma and demonized

But following the March 2006 parliamentary elections, Moroz joined a
parliamentary coalition with Yanukovych’s Regions Party and the Communists,
which then went about assuming much of Yushchenko’s executive authority.

Now, however, the Socialists could end up out in the cold. The snap
elections called by Yushchenko earlier this year are almost certain to take
place, and polls consistently show that the Socialists won’t make it over
the three-percent hurdle.

Oleksandr Moroz has done everything in his power to derail the elections,
but the fact is that he doesn’t have much power left. For one thing,
Yushchenko, with the help of Tymoshenko, managed to dismiss the current
parliament, leaving Moroz without a job.

During a Socialist Party Congress held in Kyiv on Saturday, Moroz called the
snap elections a ‘criminal sham’, for which the opposition – i.e. Yushchenko
and Tymoshenko – will have to answer.

But Moroz’s position is weakened by the fact that his coalition partner the
Regions Party, which controls the most seats in the legislature, has already
agreed to take part in the elections.

And when Moroz tried to show that he still wielded some power by calling for
an emergency session of the parliament late last month, the Regions didn’t
support him.

In short, the Socialists’ dismal showing in opinion polls make them useless
as political partners.

And the president’s team has been busy putting the last nails in the
Socialists’ coffin by hitting top party member where it hurts. Socialist
Interior Minister Vasyl Tsushko fled to Germany, supposedly for health
reasons, after his misguided raid on the Prosecutor-General’s Office in May.

Tsushko’s attempt to keep Yushchenko from firing the prosecutor-general
did nothing but making him liable to criminal charges. He’s since returned
to Ukraine, but his political future looks grim.

Then there is Socialist Transport Minister Stanislav Nikolaenko, who is
under a barrage of fire from the Orange camp following a string of rail
accidents this year.

Socialist privatisation chief Valentina Semenyuk looks likely to take the
blame for the country’s poor privatisation record, which may cause Ukraine
to be downgraded by international rating agencies.

All of these politicians, together with Moroz, will feature prominently on
the Socialists’ election list – for better or worse. Moroz tried to bolster
party morale on Saturday by denying that the Socialists had betrayed their
values when they joined a coalition with Regions.

But clearly the party has seen better days.

Socialist heavyweights like former Interior Minister Yury Lutsenko and Yosef
Vinsky, who left the party last summer, have already realigned themselves
with Yushchenko and Tymoshenko respectively. Others may follow, joining
either the Regions or the Communists to stay in power.

Once considered a rare example of political integrity for his unswerving
opposition to President Kuchma, Moroz has been labelled a traitor and
political opportunist by his former Orange allies. As a leftist, he also
enjoys little support among business interests.

Only last summer, analysts were predicting that Moroz, having ditched
Yushchenko, would go about empowering the parliament to eventually
sideline Yanukovych. It was Moroz, after all, who had most vehemently
supported the constitutional reforms that made Yushchenko vulnerable
to grabs for his authority.

As parliamentary speaker, he was well positioned to play the president off
against the premier, while beefing up his legal authorities along the way.

However, now Moroz’s political power has begun to melt, possibly signaling
a warming of relations between Ukraine’s main two political blocs.

Regions has traditionally enjoyed support in Ukraine’s Russian-speaking
east, where attitudes toward Moscow, the Russian language, the Russian
Orthodox Church, etc, are markedly different than in western Ukraine. But
the east also represents heavy industry and the tycoons who have built their
fortunes on it.

Regions Party moneybags Rinat Akhmetov, Ukraine’s richest man, has led
his peers in seeking better relations with western financiers to obtain
badly needed investment.

Metalinvest, a steel and mining holding owned by Akhmetov recently landed
a $1.5 billion loan, the biggest credit ever received by a private Ukrainian
company, from a group of European banks.

More recently, the tycoon has taken steps to clean up the image of the party
he belongs to. During its party congress on Saturday, the Regions
unanimously refused to include lawmaker Oleg Kalashnikov, who last year
roughed up a television journalist at a Regions rally, on its ballot list.

Analysts say Akhmetov and more moderate members of the Regions have taken
charge in the party and are improving relations with the Yushchenko camp.

Ever since the Orange Revolution, the country’s politics have been shaped by
the standoff between west and east, between Viktor Yushchenko and Viktor
Yanukovych. Now the ice blocks may be melting.

It’s too early to tell, as Yushchenko is still smarting from the last time
he tried to cut a deal with the Regions. After agreeing to endorse
Yanukovych as premier last summer, the president saw his ratings plummet
and watched helplessly as Yanukovych challenged his every authority.

Much will depend on the September 30 election results. But for Oleksandr
Moroz and his Socialists, the writing is already on the refrigerator door,
right near the dial that reads ‘defrost.’

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

5 Kanal TV, Kiev, in Ukrainian 0905 gmt 18 Aug 07
BBC Monitoring Service. United Kingdom, Saturday, Aug 18, 2007

Ukrainian President Viktor Yushchenko has said that he welcomes the Party

of Regions’ initiative to abolish immunity from criminal prosecution and
significant benefits not only for MPs, but also for the president and the
prime minister.

He added, however, that Prime Minister Viktor Yanukovych’s proposal to call
an emergency sitting of the dissolved parliament to pass a relevant law is
nothing but a campaign “show”.  Yushchenko stressed that the matter should
be the first thing to be addressed by a new parliament.

Yushchenko was speaking at a briefing in Velyki Sorochyntsi in Poltava
Region on 18 August where he is attending the traditional Sorochyntsi fair.
The briefing was broadcast live by the private 5 Kanal TV channel.

Asked whether the president is prepared to get stripped of his own immunity
and to limit his benefits, Yushchenko said that he views this process as “a
form of cleansing the powers that be” and that no state official should be
exempt from this.

“I do believe that we should give a clear explanation as to who should enjoy
what benefits. There should not be a single state official in the country
who is exempt from public scrutiny or public control as to expediency of
such benefits, including the president of course, including a representative
of any profession,” he said.

Yushchenko warned his political opponents against reducing his initiatives
to a farce. He criticized the Party of Regions and Prime Minister Viktor
Yanukovych for calls to hold an emergency sitting of the dissolved
parliament to abolish benefits and immunity for state officials ahead of the
30 September election.

“At the height of public discussion regarding the benefits, they are
proposing that an illegitimate sitting of the Supreme Council [parliament]
be held, making a show of this. So I would like to make it very clear to the
prime minister and other people behind this: I am serious about abolishing
the benefits, for me, this is not a show. I am not campaigning today,” he

Yushchenko believes that this issue should be addressed by a new parliament
and called on representatives of all political forces to join efforts and
implement his proposals.

“I need partners, I need allies for pushing this issue through the Ukrainian
parliament. This is why I am calling on everyone, regardless of colour,
regardless of election hype with which the political arena is obsessed
today, colleagues, let’s show respect for our society, let’s behave as
respected politicians and let’s say that, if the issue of MP immunity has
completely preoccupied our minds.

We should express our joint stance that after the month of September the
Ukrainian parliament will hold a meeting exclusively dedicated to the issue
of benefits for whoever is involved and MP immunity, as the second issue.
This is the first thing we should do,” he said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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President Yushchenko lays groundwork for re-election

Eurasia Daily Monitor, Volume 4, Issue 160
The Jamestown Foundation, Wash D.C., Thu, August 16, 2007

Ukraine’s September 30 parliamentary elections will decide the country’s
next government and most likely determine the outcome of the presidential
elections two years later.

As seasoned Zerkalo nedeli commentator Serhiy Rakhmanin pointed out, the
“pre-term parliamentary campaign gives [President Viktor] Yushchenko a great
opportunity to launch the presidential campaign ahead of time.”

The conflated election campaigns have led to electoral populism. Yushchenko
and his Our Ukraine-Self Defense (NUNS) coalition have launched a campaign
to remove parliamentary immunity, a campaign issue last raised by President
Leonid Kuchma in an April 2000 referendum.

The Party of Regions, which now dominates parliament, replied by calling for
the end of immunity for all officials – president, prime minister, judges,
and deputies.

These moves should discourage corrupt oligarchs and businessmen from

running for parliament and help separate business and politics. But the
anti-oligarch election rhetoric does not square with the continued presence
of oligarchs in both the Party of Regions and NUNS.

Yuriy Lutsenko’s People’s Self Defense, Our Ukraine’s ally in the 2007
elections, was established by an oligarch, Davyd Zvannia. The Privat
oligarchic group, allied to former senior Yushchenko adviser Oleksandr
Tretyakov, has eight representatives in the NUNS list.

The leaders of Self-Defense claim to have reformed. Lutsenko admitted, “Yes.
We are the only political force that publicly accepted its mistakes,
including the choice of personnel, and cleaned out and renewed ourselves.”
The party removed businessman Petro Poroshenko, whose name is associated
with the corruption charges that led to the September 2005 political crisis.

According to Zerkalo nedeli, the NUNS election list was heavily influenced
by Lutsenko and Ihor Kolomoysky, the controversial head of Privat. Thus the
changes look more like musical chairs than cleaning house.

NUNS needs to regroup after Our Ukraine’s poor performance in the 2006
elections, when it obtained fewer seats than in 2002. The coalition also
needs reinforcement to compete with the Yulia Tymoshenko bloc (BYuT),
another veteran of the Orange Revolution.

Finally, NUNS needs nation-wide support. Anti-oligarch and anti-corruption
sentiment mobilized many western-central Ukrainians to participate in the
Orange Revolution.

These sentiments are not popular among voters in eastern Ukraine, who have
had no qualms about voting for a convicted felon supported by oligarchs — 
Prime Minister Viktor Yanukovych.

Yanukovych’s Party of Regions has always included corrupt and discredited
former Kuchma officials and oligarchs, such as Renat Akhmetov, who has
ignored calls by the president to not run for parliament. Akhmetov ranks
seventh on the Party of Regions election list.

NUNS has unequivocally stated that its election and future coalition partner
is the BYuT. Senior NUNS leaders have publicly refuted suggestions that they
may enter a coalition with the Party of Regions. Lutsenko has stated that
NUNS would only enter a grand coalition if BYuT also agreed.

Yushchenko has been less clear in his intentions. Following the 2006
elections Yushchenko sent two close allies to separately negotiate with BYuT
and the Party of Regions, a strategy that he may repeat this year.

The parliamentary coalition established after the 2007 elections will
heavily influence the outcome of the 2009 elections. With the prime minister’s
position strengthened following constitutional reforms in 2006, the office
is an even better launching pad for the presidency.

However, Yushchenko has proven unable to work with two of his three prime
ministers, Yulia Tymoshenko and Yanukovych, because he sees both as
potential competitors for the presidency. Ideally, Yushchenko would prefer
that neither of them become Ukraine’s next prime minister.

The Party of Regions is leading the polls, so the Orange camp is battling
for second place. If NUNS places second, Yushchenko would likely chose a
non-threatening technocrat, such as former prime minister Yuriy Yekhanurov,
for the job.

If BYuT finishes second, as seems likely, Yushchenko could again be tempted
to negotiate a grand coalition with the Party of Regions. His only condition
would be that Yanukovych not be prime minister.

Yushchenko has reportedly reached such an agreement through Yekhanurov,

who has always been close to the Party of Regions, and presidential secretariat
head Viktor Baloga.

This scenario poses three risks for Yushchenko.

[1] First, forcing NUNS into a grand coalition with the Party of Regions
might be more palatable than in 2006, as it would not include the Communists
and Yanukovych would not be prime minister.

However, it would split NUNS and prevent the planned post-election
unification of its constituent members into a pro-presidential party and
vehicle for Yushchenko’s re-election in 2009.

[2] Second, it would push BYuT into opposition, where it has always felt
rather comfortable. Tymoshenko was the only one of four opposition leaders
who did not stand in the 2004 elections.

If Tymoshenko was in opposition in 2007-2009, during which time Yushchenko
supported a grand coalition, the president could lose orange voters.

[3] Third, the Party of Regions could renege on any agreement to stand aside
in 2009, and members could submit their own presidential candidate.
Alternatively, they might find it difficult to persuade their voters to back
Yushchenko, after seven years of hostile propaganda against him.

Yushchenko is convinced that the 2007 elections are the key to his
re-election in 2009. But not repeating the same strategic mistakes made
against Tymoshenko and Yanukovych in 2005-2006 will also play an

important part in deciding Ukraine’s future.
(Zerkalo nedeli, August 11-17; Inter TV, August 6; Ukrayinska pravda,
August 2, 13) (LINK:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

People’s Daily Online, Beijing, China, Sat, August 18, 2007

BANGKOK – Ukranian beauty Anna Bessonova shone in the rhythmic

gymnastics finals in Bangkok on Friday by sweeping rope, hoop, ribbon,
clubs and group competition (ropes 5) titles at Bangkok Universiade.

Russia took the other gold in the group competition (hoops 3 plus clubs 2).

Chinese divers also showed their superpower by winning all the three events
they competed on Friday.

Olympic champion Peng Bo started the day with the victory in the men’s 3m
springboard, with teammate and world champion Luo Yutong pocketing the

Hours later, Peng paired Zhang Xinhua, the overnight winner of the men’s 1m
springboard, to nail down the men’s 3m springboard synchronized gold.

Olympic silver-medalist on women’s 10m platform Lao Lishi had a steady
performance to take the gold medal of the event in Bangkok…………

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Russia Today, Moscow, Russia, Sunday, August 19, 2007

Sorochinskaya yarmarka, or fair, has been the subject of an opera by famous
Russian composer Modest Mussorgsky and immortalised in literature by
Nikolay Gogol.

Vendors from all over Eastern Europe go there for five days to mingle
and sell goods – Georgian wines, Ukrainian shirts, Russian dolls, and even
African ostriches.

The fair is rich on haggling, arguing and definitely politics, especially on
the eve of another election campaign.

President Yushchenko, the country’s most famous beekeeper, looks down at
the bustling crowds from numerous billboards, while supporters of the Prime
Minister are promoting their party right next to a dummy bear, a popular
photo opportunity.

It seems that it hasn’t changed much since the 19th century.

Sheep, pots, wedding pies, kitchenware, and no map of where exactly these
things are – vendors may have done it on purpose to restore the original
atmosphere. They were a mess but apparently so vibrant and colourful that
famous writer Nikolay Gogol glorified them in his novel.

Living in Russia, he was writing about Ukraine, the village where he was
born and the fair held there.

Actor Bogdan Chernavsky plays the part of the great Russian writer at the
fair. “I think we should drop the discussions if he was a Russian or a

Ukrainian writer. Of course he was Russian, he was writing in Russian
language and is known to the world as a Russian writer. But of course he
has Ukrainian roots, this is his village,” explained Bogdan Chernavsky.

And it remains a melting pot of Slavic cultures.

Natalya came from Russia to visit the fair when she was 13 years old.
Impressed by the fair back then, her family moved to Poltava for good.
Now she’s singing in Ukrainian to an audience from all over the world.

“When we came here for the first time, we tried to get as close to the stage
as possible. The culture fair was amazing, the costumes so bright and
beautiful that I thought I want to be a part of it too. And my dreams came
true,” said Natalya Dyachenko, singer at the Sorochinskaya fair.

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

By Natasha Lisova, Maria Danilova, and Randy Herschaft
Associated Press Writers, Kyiv, Ukraine, Sunday, August 19, 2007

ISPAS, Ukraine  – It is a story of courage and kindness during the first
tragic days of the Holocaust in Ukraine – the tale of how a village rose up
against an anti-Semitic gang of killers to save its Jewish neighbors.

A researcher stumbled on the inspiring story this year. Now some of
Ukraine’s Jewish leaders plan to raise a monument, host a delegation of
students from Israel and stage a ceremony Wednesday honoring this small
farming community in western Ukraine.

But 66 years later there are conflicting accounts of what happened in Ispas
during that terrible summer of 1941, when the Nazi invasion of the Soviet
Union triggered an outbreak of anti-Semitic violence.

Residents and one survivor say the 2,000 villagers risked their lives for
the sake of about 100 Jews, an account supported by some leaders of
Ukraine’s Jewish community and the scholar who uncovered the tale.

But another survivor says there were no heroes in Ispas. And a leading
Holocaust expert says that most of the Jews of Ispas were killed by fellow

At the start of World War II, Ukraine had a history of anti-Semitism, from
the pogroms of the czarist era to the silent discrimination of Soviet times.

As Nazi troops and their Romanian allies began occupying western territories
under Soviet rule, the ancient bigotry boiled over into cases of local
residents robbing and killing their Jewish neighbors.

It was an early outburst of the savagery that became the Holocaust.

More than 2,100 Ukrainians have been cited by Israel’s Yad Vashem Holocaust
Memorial for rescuing Jews during the Holocaust, but these were mostly
individual acts of heroism. The Ispas story – if it could be confirmed –
would be a unique case of an entire community in Ukraine defending its Jews.

A leader of Ukraine’s Jewish community has led a drive to honor the village,
including celebrations in which Israeli students are expected to

“We are very proud that our village didn’t allow bloodshed, didn’t allow
Jews to be killed,” Vasylyna Kulyuk, a frail 80-year-old from Ispas, said in
an interview. She described two of her former Jewish classmates – Geyntsya
Rozenberg and Rifka Gerstel – with tears in her eyes.

“We were at the same class and we shared bread, “she said. “I would like so
much at least to exchange letters with those girls. Only let them be alive.”

Rozenberg apparently perished during the war. But Rifka Gerstel survived.
And she does not recall Ispas fondly.

Gerstel, now 79 and living outside Tel Aviv, told the AP that her neighbors
did stop a gang of anti-Semites from killing the village’s Jews – but then
some villagers turned around and robbed the Jews and drove them out of
their homes.

“They came into the house and took everything,” Gerstel said in a telephone
interview. “We had such a beautiful house. We had a cow. We didn’t say
anything, because we were afraid for our lives. We knew that the Ukrainians
slaughtered all the Jews in one of the villages nearby.”

The next day, she said, the villagers marched the Jews away. Gerstel said
she spent the rest of the war in a ghetto in central Ukraine. Her father,
brother, grandfather and a baby nephew all died. “I suffered, I suffered
very much,” she said, her voice choking.

Told that Ispas was being honored for the treatment of its Jews, she said:
“They don’t deserve any monuments or any prizes.”

There is no dispute over what happened in most of that area – now western
Ukraine – that summer. Thousands of Jews were murdered and their houses

Those still alive were rounded up by Romanian troops and deported eastward
to camps and ghettos. Some of them survived the war, but many were executed
or died of starvation and disease, according to Radu Ioanid, director for
International Archival Programs at the U.S. Holocaust Memorial Museum.

Israel Minster, another member of Ispas’ long lost Jewish community, has a
different recollection.

Minster, now 86 and living near Haifa, was staying in a neighboring village
at the time of the attack, but other survivors later told him that the
ethnic Ukrainians had rallied to the defense of the village Jews.

“In the neighboring village … they cut everybody into pieces, they killed
everyone,” Minster said by telephone. “I was told that when they (the thugs)
came to Ispas, our village, the elder – I know him, he is a decent (man) –
he didn’t allow it.”

Minster said he was unaware of looting in Ispas, but heard through friends
and neighbors that some residents of nearby areas had pillaged Jewish homes.
“Not everybody helped: some helped and some looted,” he said.

Mykhailo Andryuk, head of the Ispas village council, said residents of his
small community did not loot their neighbors’ homes. Gerstel’s house, he
speculated, might have been on the outskirts of the village and attacked by
the retreating anti-Semitic gang.

Several Ukrainian villagers who were children in 1941 said they vividly
recollect that day.

Tanas Shtefyuk was 15 when he heard that the killers were approaching and
hurried home to spread the news. Shtefyuk recalled that his crippled father,
Ivan, summoned the village elders.

They made a difficult and dangerous choice, Shtefyuk said, to stand together
against the marauders and protect the Jews who lived among them.

Nadiya Vinnytska’s father, Volodymyr, was the village priest. He ran from
his house to confront the attackers barefoot, Vinnytska said, because he
didn’t have time to put on his shoes.

“Calm down. I will not allow you to kill Jews,” the priest said, according
to Vinnytska, now 83. “They are the same people as us.”

Alexei Shtrai, the independent Israeli scholar who uncovered the story,
regards Ispas as an inspirational tale. “I believe the fact of saving Jews
took place; we just have to prove it,” Shtrai said.

The database of victims’ names at Israel’s Yad Vashem, based mainly on
testimony given by survivors and relatives, often years after the event,
lists four people as having died in Ispas. Between 17 and 46 villagers
perished elsewhere, the records show, suggesting – perhaps – that some
Ispas Jews survived the initial pogroms.

Yad Vashem’s encyclopedia of Jewish communities of that area, says most of
Ispas’ Jews were killed by the local population while the rest were deported

“The fact that the priest tried (to save the Jews) – I can believe it,” says
Jean Ancel, a leading scholar on Holocaust in the area who co-edited the

“But the main question is – were the Jews of Ispas saved or not? The answer
is clear and without any doubt: they were murdered by their neighbors, by
the local population,” he said in an interview.

Scholars say some 1.4 million of Soviet Ukraine’s 2.4 million Jews died in
Holocaust. Today about 400,000 live in Ukraine. No Jews remain in Ispas,
residents say.

Oleksandr Feldman, head of the Kiev-based International Center for
Tolerance, has urged President Viktor Yushchenko to honor Ispas for its
actions during the Holocaust. The center plans to lay a stone in Ispas to
commemorate the event.

Estee Yaari, spokeswoman for Yad Vashem said the story of Ispas needs
to be investigated further.

“These are complex issues and events that took place and in the absence of
conclusive documentary evidence or conclusive testimonies it is difficult to
know exactly what happened,” she said.
Maria Danilova reported from Kiev and Randy Herschaft from New York.
Associated Press Writer Matti Friedman in Jerusalem contributed to report.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

COMMENTARY: By Dick Lugar and Sam Nunn
The Wall Street Journal, New York, NY, Sat, Aug 18, 2007; Page A6

Next week, we will travel to Moscow to mark the 15th anniversary of the
Nunn-Lugar Cooperative Threat Reduction Program, a piece of legislation that
has been the foundation of a decade and a half of U.S.-Russian cooperation
to reduce and secure the Soviet Union’s Cold War-era nuclear arsenal.

As the U.S. continues to adjust to a dangerous new era — in which the
greatest security threat is the possibility of a terrorist nuclear attack —
expanding and replicating this model of international partnership is
essential to our national defense.

Back in 1991, when we first proposed working with the Russians to secure and
reduce their weapons, the skeptics were incredulous. Some detractors called
it “aid to the Soviet military.” Our response was clear and direct. The
nuclear threat was changing, and our defense strategies had to change along
with it.

As the curtain was falling on the Cold War, the possibility of an accident
or a nuclear attack by a rogue state or terrorist group was rising. The new
nations of Ukraine, Kazakhstan and Belarus claimed possession of Soviet
nuclear weapons stationed on their soil:
One nuclear power was becoming four.

In Russia, 30,000 nuclear warheads, tons of nuclear, biological and chemical
materials and thousands of unemployed weapons scientists were scattered
across 11 time zones.

The closed society that had sheltered the Soviet Union’s nuclear secrets had
now been ripped wide open — leaving an arsenal of the deadliest weapons on
earth without adequate protection.

The premise of Nunn-Lugar was simple: The security of nuclear weapons

and materials in the former Soviet Union was directly related to our own
security, and we could not act unilaterally. We had to cooperate with the
former Soviet states.

Russia saw cooperation as in its interest as well — to ensure a secure
nuclear stockpile, to help meet arms control treaty obligations and to
return Soviet warheads to Russian soil. Out of these new mutual interests, a
partnership was born. We believe the partnership’s results speak for

Ukraine, Kazakhstan and Belarus — for a time, the world’s third, fourth,
and eighth largest nuclear powers — have voluntarily given up their nuclear
weapons. In doing so, they have set a powerful and courageous example for
the rest of the world.

Moreover, today thousands of ex-Soviet weapons scientists are working in
civilian jobs. In addition to the weapons that have been secured, 7,000
nuclear warheads have been deactivated — more than the combined arsenals

of Britain, France and China — along with hundreds of nuclear submarines,
missiles and bombers.

Today, Russia is assuming more responsibility for sustaining the work we
have done together, contributing millions of dollars to major projects such
as the elimination of its massive chemical weapons stockpile.

The Nunn Lugar Program has been recognized, especially in the wake of Sept.
11, 2001, as one of the most essential elements in preventing terrorists
from acquiring weapons of mass destruction.

In light of the accumulated experience of 15 years of successful joint work,
Presidents Bush and Putin should expand Nunn-Lugar and extend it outside the
boundaries of the former Soviet Union to help other countries dispose of
dangerous weapons and materials.

We have already begun: In 2002 the American and Russian governments,

working with the Nuclear Threat Initiative, a private U.S. organization, spirited
more than 100 pounds of nuclear weapons-grade material out of Serbia.

Since 2004, our two countries have been working together to remove
stockpiles of highly enriched uranium from other unsecured facilities around
the world.

Many governments are now quietly inquiring about Nunn-Lugar assistance with
dangerous weapons issues. Through Nunn-Lugar, Albania recently got U.S. help
to destroy a secret Cold War-era stockpile of chemical weapons.

Nunn-Lugar expertise could also be used in North Korea, should Pyongyang
agree to give up its nuclear weapons, or in Southeast Asia, if help is
requested there to secure pathogens and viruses. Joint U.S.-Russian efforts
would confer international legitimacy on these often sensitive missions.

By demonstrating that Russians and Americans are willing to work together
and go anywhere in the world at any time to eliminate a threat, the two
sides can help avert new disasters and add a powerful international tool for
keeping weapons of mass destruction out of terrorist hands.

The former Soviet Union was the starting point for this program, but it must
not be the endpoint. Terrorists seeking nuclear weapons or weapons material
will not necessarily go to where there is the most material, but to where
the material is most vulnerable.

We must expand and extend the Nunn-Lugar concept to help secure and
eliminate dangerous weapons and materials wherever they are in the world.
Mr. Lugar is a member of the Senate Foreign Relations Committee and Mr.
Nunn, a former senator, is co-chairman and chief executive officer of the
Nuclear Threat Initiative.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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

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