In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business, Religion, Economics,
Sports, Government, and Politics, in Ukraine and Around the World
1. EURO2012 CO-HOSTS, POLAND AND UKRAINE, MAKE PROGRESS; WORK STILL AHEAD
The Associated Press, Warsaw, Poland, Friday, January 23, 2009
Interfax Ukraine, Kyiv, Ukraine, Monday, January 26, 2009
Digital Information Through University Knowledge Centers, USAID Support, Project Started in Chicago
Electronic Library of Ukraine (ELibUkr), Kyiv, Ukraine, Mon, Jan 26, 2009
SigmaBleyzer Emerging Markets Private Equity Investment Group, The Bleyzer Foundation
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tuesday, January 27, 2009
Victor Mishnyakov, Bne Media Ltd., Berlin, Germany, January 26, 2009
New Rep Office Strengthens Client Relationships and Fuels Business Growth
Magisters law firm, Kyiv, Ukraine, Friday, January 16, 2009
14. THE GAS WAR MAY REHABILITATE UKRAINE'S YUSHCHENKO
Here's a chance for the beleaguered president to restore some luster to
Commentary & Analysis: By Adrian Karatnycky, Wall Street Journal Europe
Anna Nemtsova spoke to Ukraine's deputy Prime Minister Hryhoriy Nemyria
17. LESSONS FROM THE RUSSIAN-UKRAINE GAS DISPUTE
18. BAD FAITH CREEPING INTO EU-UKRAINE RELATIONS
20. IMPORTANT 2008 YEAR-END TAX CHANGES IN UKRAINE
1. EURO2012 CO-HOSTS, POLAND AND UKRAINE,
The Associated Press, Warsaw, Poland, Friday, January 23, 2009
WARSAW, Poland: Poland and Ukraine have earned UEFA's endorsement — again — for the 2012 European Championship after months of speculation that they'd lose the tournament. Recent visits to host cities, however, reveal the giant task that lies ahead.
The jubilation that erupted in Poland and Ukraine after UEFA's April 2007 decision to award them European football's showcase event turned to fear last year as false starts on the construction of stadiums, roads, airports and hotels in both countries fueled speculation UEFA could dump the eastern Europeans and hand the tournament to a backup host — possibly Italy, Germany or Scotland.
Those concerns have subsided following a successful meeting with UEFA chief Michel Platini in December. The former French star came out of the session saying he has "full confidence in Euro 2012 in Poland and Ukraine." Proving Platini right won't be easy.
While some progress has been made, recent visits by Associated Press reporters to five of the eight planned host cities indicate both nations have a long slog ahead of them. With 3 1/2 years to go, Ukraine decidedly has the tougher task, a job made all the more difficult by rampant corruption, poor management and endless political turmoil.
Preparations in the western Ukrainian city of Lviv, nestled in rolling hills about 45 miles (70 kilometers) from the Polish border, lag the furthest behind.
A crumbling, one-lane road riddled with potholes runs from the border to Lviv, winding though towns and villages along the way. Chickens peck at the muddy shoulder in some spots, while in others dogs wander across the pavement. The city's airport dates from the late 1950s. The main waiting lounge is no larger than a tennis court and doesn't have a bathroom.
Work has begun, however, on a new 33,000-seat stadium near the city's southern bypass that provides easy access to the main road east to Kiev.
Preparations are more advanced in Ukraine's three other host cities — Kiev, Donetsk and Dnipropetrovsk — although the trio are all grappling with problems, too.
In the capital Kiev, after a nearly yearlong delay, work has finally begun on a $260 million (€200 million) overhaul of the Olympic Stadium, which is slated to be finished in 2010 and opened in 2011. The arena is to host the tournament final, and UEFA has warned that without a renovated stadium Ukraine will not co-host Euro 2012.
Donetsk already boasts a brand new stadium built by the owner of a local club, while Dnipropetrovsk should finish its stadium in the coming months.
Yet everywhere Ukraine's infrastructure — including airports, roads and hotels — is badly in need of an upgrade.
The country has to add or modernize runways and build new terminals in all of the host cities. Construction work is already under way at Kiev's two airports and in Donetsk, but the Lviv landing strip and terminal are still on the drawing board.
The country also has vowed to upgrade thousands of miles (kilometers) of dilapidated roads. Outside the main cities, they are often little more than cracked and crumbling single lanes. Ukraine's underdeveloped hotel system is still dominated by shabby and expensive Soviet-era hotels, few of which currently accept credit cards.
Deputy Prime Minister Ivan Vasyunyk, who was in charge of the Euro 2012 preparations, said the country has to build and renovate a total of 300 hotels, about 100 of which are still being designed. But the former head of Ukraine's organizing committee, Yevhen Chervonenko, said that construction of 80 percent of the hotels that need to be built have been frozen due to the economic crisis.
Ukrainian officials estimate the entire project will cost around $30 billion — a third coming from state coffers and the rest from private investors.
But the world's financial turmoil has devastated Ukraine's economy, raising concerns the country may not be able to raise the necessary funds. Ukraine's currency, the hryvna, has lost about 40 percent of its value since September, the banking sector lies in tatters, and the economy is plunging into a deep recession.
The situation is further complicated by a bitter power struggle between Prime Minister Julia Tymoshenko and her former political ally, President Viktor Yushchenko. The two leaders are likely opponents in presidential elections expected in late 2009 or early 2010, and both are eager to take credit for Euro 2012 and control the vast funds set aside for the project.
Poland, meanwhile, has settled back down to business following a nasty spat in the autumn with FIFA and UEFA after the Polish government ousted the football association board. UEFA threatened to strip the Poles of their hosting rights before the government and the FA struck a last-minute deal.
Along the banks of the Vistula River in central Warsaw, workers in hard hats and orange vests swarm across an open muddy pit as giant machines rhythmically pound concrete beams into the earth to reinforce the ground at the site of the new 55,000-seat national stadium.
In Poznan, a new double-deck of blue seats stands behind one goal while a new triple-deck of seats sits finished behind the other. Wrecking crews have torn down the old concrete stands along the sidelines, and the fully renovated 46,000-seat stadium is to be ready by the summer of 2010.
In the two other host cities — Wroclaw and Gdansk — heavy machinery has already started laying the ground work, and general construction is slated to start this spring. Both are slated to be finished by 2010.
"It looks as though the stadiums will be finished in time, but it's doubtful they'll manage to get all the roads built," says Dariusz Wolowski, a veteran football journalist for the country's leading Gazeta Wyborcza daily. "Will they manage to expand the airports in time? Tough to say."
Poland's roadways are generally in better shape than Ukraine's, but still fall far short of the autobahns in Austria and Switzerland that allowed fans to speed from one host city to another last year.
As of this month, there were 475 miles (765 kilometers) of existing autobahns in Poland. According to the Infrastructure Ministry, the country plans to build 560 miles (900 kilometers) of new highways by 2012. The only problem is that — if its current pace of construction continues — only a third of those roads will be built by kickoff.
"We are all fully aware that the risks in this project are huge, and that we have a lot of work ahead," says Marcin Herra, head of the Polish organizing committee. But, he adds confidently, the tournament "is going to be in Poland and Ukraine." NOTE: Associated Press writers Maria Danilova and Yuras Karmanau contributed to this report from Kiev, Ukraine.
2. IMF MISSION IN UKRAINE TO REVIEW $16.5 BILLION STANDBY PROGRAM
KYIV - An International Monetary Fund (IMF) mission headed by Ceyla Pazarbasioglu arrived in Kyiv on January 21, the IMF Resident Representative Office in Ukraine has told Interfax-Ukraine. The main goal of the visit is to review the standby program earlier agreed with Ukraine, the office said. The mission will work in the country until February 4-5, 2009.
President Viktor Yuschenko stressed that the opinion of the IMF mission on Ukraine's implementation of its memorandum of economic and financial policies is important for the country. The issue concerns the assessment of the country's achievements in attaining macroeconomic stability, according to a presidential press service statement on January 23.
"There are many difficulties, both in particular economic branches and in the budget process in general. It is regrettable that processes that are traditionally independent of the political influence are currently hit by political speculation. Therefore, if politicians attack the key, fundamental things ensuring stability, including macroeconomic stability, and if they destroy this stability, it will be difficult for us to maintain them," Yuschenko said. He said that in this connection, the mission's opinion on the forecasts made for 2009 is very important, because they have a different political viewpoint on Ukraine.
Ukrainian Prime Minister Yulia Tymoshenko in turn forecast that the program of loans from the International Monetary Fund (IMF) would be extended.
"The program, which was preliminarily approved to get IMF loans, is being implemented, and I hope this program will be further extended," she said at a press conference on January 22.
Ukrainian Presidential Secretariat First Deputy Head Oleksandr Shlapak projects that the IMF could continue credit cooperation with Ukraine if there is a tightening of budgetary policy. "I consider the possibility of the continuance [of cooperation with the IMF] quite high, if Ukraine… shows not by words, but by its decisions, the readiness to take hard decisions both for the budget and our companies, and for the people, he said on January 23
According to Shlapak, the representatives of the IMF mission, who have already started their work in Kyiv, are now holding a meeting with the Ukrainian president. "The mission has a lot of questions. They consider, first of all, the budget deficit, and also the gas problems that have now appeared. They also demand that we tell them how we are balancing our financial and energy flows," he said.
While arguing that the reason is Ukraine's 2009 budget, whose revenue part he dismissed as non-executable, he said that the IMF has the right to demand early repayment of the first tranche of the standby loan it has released for Ukraine. This year's budget is not based on tax law and there are no potential ways to raise via taxes the planned revenue of more than UAH 20 billion, Shlapak told reporters on January 26.
However, the IMF is showing unprecedented flexibility, he said. All the fund wants is confirmation by the Ukrainian government that its budget is realistic, Shlapak said. However, Ukraine's economy would not survive if the IMF refused to release the rest of the loan or even if it demanded early repayment of the first tranche, he said.
Valeriy Lytvytsky, the head of the group of advisors to the NBU's governor, said that he hopes that the talks with the IMF will be a success.
"I believe that the current talks with an IMF mission will be a success. The central bank feels confident, as our forex reserves are in a good state. It will be more problematic with the issues related to the budget policy," he said.
He stressed the need for an immediate review of the 2009 budget, as it "cannot stand any criticism of the macroeconomic indicators." The document should be updated with due regard to industrial performance in 2008, the gas price in 2009, the settlement of Prominvestbank's problems, and the completion of the monitoring of banks to determine their need for additional capitalization, he said.
As reported, after the adoption of anti-crisis laws and the signing by the president, the prime minister, NBU head and finance minister of a memorandum on anti-crisis measures, the IMF decided to provide a stabilization standby credit of SDR 11 billion ($16.5 billion), of which SDR 3 billion has already been received by the NBU.
--------------------------------------------------------------------------------
===================================================
3. IMF TO APPOINT MAX ALLIER NEW HEAD OF OFFICE IN UKRAINE
KYIV - Max Alier is to be appointed the new head of the Resident Representative Office of the International Monetary Fund (IMF) in Ukraine, a source at the IMF told Interfax-Ukraine. "Max Alier will be a new head, replacing Balozs Horvoth," the source said, declining to give any other details about the new head.
As was reported earlier, IMF Resident Representative in Ukraine Balozs Horvoth's plans to leave office became known in December 2008. He has been
working in Ukraine since September 2007. A regular IMF mission arrived in Ukraine on January 21, 2009.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
4. U.S. OFFICE IN CRIMEA WILL DEAL WITH CULTURE, SOCIAL PROJECTS,
Taylor was speaking during talks with Ukraine's permanent presidential envoy in Crimea Leonid Zhunko, the envoy's press service reported on Thursday. The U.S. ambassador also said that the office would work to broaden ties between the United States and Crimea. A possibility to open a U.S. representative office in Crimea is envisioned in the Charter of Strategic Partnership between Ukraine and the U.S.
Zhunko supported the United States' plans to open an office in Crimea and said that, "It will help the U.S. and Crimea to understand each other better. It will also have a positive impact on Crimea's economic development." But he said that some radical-minded political forces active in Crimea oppose this initiative.
Before the office opens, the public should be informed about the projects being implemented in Crimea, how much money is being provided and how much has been made available in U.S. aid, he said.
--------------------------------------------------------------------------------
==============================================================
5. ELECTRONIC LIBRARY OF UKRAINE PROGRAM LAUNCHED IN UKRAINE
Access to Digital Information Through University Knowledge Centers, USAID Support, Project Started in Chicago
Electronic Library of Ukraine (ELibUkr), Kyiv, Ukraine, Mon, Jan 26, 2009
KYIV - The United States Agency for International Development (USAID), Kyiv, and the Kyiv Mohyla Foundation of America (KMF), announced Monday in Kyiv the signing of a partnership agreement for the establishment of the Electronic Library of Ukraine (ELibUkr©) project.
The participating partners and collaborators in the new project are the National University of Kyiv Mohyla Academy, Y. Fedkovych National University of Chernivtsi, V. Karazin National University of Kharkiv, the Association “Informatio-Consortium”, and the Center for Technology Innovation Management (CTIM) at Northwestern University, Evanston/Chicago, Illinois.
The inauguration of the Electronic Library of Ukraine Project (ELibUkr©) took place Monday, January 26, 2009, at noon at the Antonovych Library of the National University of Kyiv Mohyla Academy. A one-day conference for representatives of Ukraine’s academic and research libraries is scheduled for Wednesday, January 28, 2009 at 9:30 (registration at 8:30) at the same location.
The event for the project inauguration and press conference was attended by representatives of the government of Ukraine and the United States, USAID, presidents and representatives of the participating universities, and leading representatives of Ukraine’s business community and civil society.
AMBASSADORS TAYLOR, MILLER, TARASYUK
The opening ceremony and press conference included presentations by U.S. Ambassador William Taylor; former U.S. Ambassador to Ukraine, William Miller; Ambassador Boris Tarasyuk, Ukraine’s Chairman of the Parliamentary Committee on European Integration, who is also Co-Chairman of the Kyiv Mohyla Foundation of America and Chairman of the Electronic Library of Ukraine’s Advisory Board; Serhij Kvit, President of National University of Kyiv Mohyla Academy; Vil Bakirov, President of National V. Karazin University of Kharkiv; Stepan Melnychuk, President of National Yuri Fedkowvych University of Chernivtsky.
Presentations were also made by Deputy Minister of Education Maksym Strikha, Member of Ukrainian Parliament and Chairman of the Free Trade Unions of Ukraine; Mykhailo Volynec, Director of the Antonovych Kyiv Mohyla Library Tetiana Yaroshenko and Marta Farion, Chicago, President of the Kyiv Mohyla Foundation of America (KMF).
[NOTE: In addition to being President of the Kyiv Mohyla Foundation of America (KMF) Marta is a Chicago attorney who is on the Executive Committee of Chicago Sister Cities International and initiated this project in 2007. See news release below from the City of Chicago. The Kyiv Mohyla Foundation of America (KMF), Chicago, is a new member of the U.S.-Ukraine Business Council (USUBC).]
There were additional representatives from the U.S. and Ukraine governments and other organizations, including Janina Jaruzelski, Director of USAID for Ukraine, Belorus and Moldova; Oleksandr Domaranskyj, Member of the Parliamentary Committee on Education.
KRAFT FOODS, MICROSOFT, IBM, BAKER & MCKENZIE, CHADBOURNE & PARKE
Representatives of Kraft Foods Ukraine; Microsoft Ukraine; IBM Ukraine; J.T. International Corporation; Baker and McKenzie law firm; Chadbourne & Parke law firm; International Renaissance Foundation, IREX, Ukrainian poet and chairman of the organization “Ukraina and the World” Ivan Drach; President of the Ukrainian Women’s Association “Zhinocha Hromada” Maria Drach and others also attended.
Congratulatory greetings were received and read from the Chairman of the Ukrainian Parliament Volodymyr Lytvyn and from Ukraine’s Minister of Culture V. V. Vovkun. Many members of Ukraine’s media outlets also attended the press conference.
ACCESS TO A GLOBAL NETWORK OF KNOWLEDGE
“By providing Ukrainians with access to a global network of knowledge, the ELibUkr© project will be an invaluable resource for building a stronger civil society, engaging Ukraine to more fully participate in the world’s community and make Ukraine more competitive on a global scale,” said former U.S. Ambassador to Ukraine William Green Miller, who serves as co-chairman of the board of directors of the Kyiv Mohyla Foundation of America (KMF).
“The ElibUkr© will not only allow thousands of academics, students and universities to immediately gain access to a wide-range of information, but also will create new opportunities for generations to come,” according to Miller.
The ELibUkr© is a nation-wide linked Electronic Library/Knowledge Centers network that will provide academics, students and practitioners enhanced access to the world’s digitized network of academic and research information, thus promoting the active use of local, regional, and global information. The project will upgrade the intellectual holdings of Ukrainian libraries and include them into the worldwide digitized information network.
CREATION OF KNOWLEDGE CENTERS
In addition to increased access to databases, the project initiates a new concept to Ukraine - the creation of critically important Knowledge Centers, which will play a key role in utilizing the system effectively. These centers will provide training programs for librarians and users and will promote the evolution of a linked industry-academic community, a key element for economic progress and stability, which until now has been absent in Ukraine.
These Knowledge Centers will become the central element which will link the country’s academic and research communities with the world of practice and utilization, through collaborative programs with business, healthcare, and all other institutions of civil society.
In spite of Ukraine’s highly developed expertise in computer technology, science and research, as well as some of the world’s finest universities and research centers, Ukrainian scholars and academics still do not have the same equal access to the world’s electronic information available in North America and Western Europe.
The ELibUkr project will overcome this serious shortcoming, propel Ukraine through the curtain of information isolation and provide the means to become competitive within the world community.
KYIV MOHYLA FOUNDATION OF AMERICA (KMF), USAID, KRAFT
ELibUkr© is an initiative of the Kyiv Mohyla Foundation of America (KMF) that is made possible by the generous support of the American people through USAID and the collaboration of a consortium of participating Ukrainian universities, as well as CTIM and Association “Informatio-Consortium”.
This project would not be possible without the substantial support of USAID and additional assistance from the Ukrainian Library Association, the International Electronic Library Consortium eIFL.net, KRAFT Foods Ukraina, Dragon Capital, media sponsor Ukrainian National Television Channel 1, and the journals Library Planet (Bibliotechna Planeta) and Library Forum of Ukraine (Bibliotechyj Forum Ukrainy).
ELibUkr© has further been supported by the continued and long-standing connections between the Sister Cities of Kyiv and Chicago, with their numerous educational, cultural, medical and government exchanges which were launched in 1991. The project is a product of the strong partnership of trust and mutual understanding which resulted when Chicago and Kyiv were linked through meaningful activities that have international impact benefiting the people of the United States and Ukraine.
The ELibUkr© project is an investment in Ukraine’s future and will be implemented immediately. The first stage will be launched at the National University of Kyiv Mohyla Academy, the Y. Fedkovych National University of Chernivtsi, and the V. Karazin National University of Kharkiv. The ELibUkr© will be available for the participation by the universities of Ukraine.
For further information contact:
Tetiana Yaroshenko, Vice President and Director of the Library
National University of “Kyiv Mohyla Academy”
Managing Director ELibUkr, Kyiv, Ukraine
Tel: +380-44-425-6055; Email: yaroshenko@ukma.kiev.ua
Marta Farion, President of Kyiv Mohyla Foundation of America (UMF)
Chairman of the Board of Directors ELibUkr, Chicago, Illinois
Tel in Ukraine during the conference 099-721-72-33,
Tel in the USA 773-490-9797; Email: marta@farion.org
FOOTNOTE: The Kyiv Mohyla Foundation of America (KMF) is a new member of the U.S.-Ukraine Business Council (USUBC). Kraft Foods Ukraina, Microsoft Ukraine, IBM Ukraine, Baker & McKenzie law firm and the Chadbourne & Parke law firm mentioned in the article are also members of the U.S.-Ukraine Business Council (USUBC), www.usubc.org. USUBC expresses our congratulations to Marta Farion, President of the Kyiv Mohyla Foundation of America (KMF) and to all these organizations and firms for their outstanding work and support regarding the launching of the Electronic Library of Ukraine Program. USUBC also thanks the Ambassador of the U.S. to Ukraine, William Taylor, and the U.S. Agency for International Development (USAID) for their strong support.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
6. CHICAGO HELPS TO LAUNCH FIRST-EVER ELECTRONIC LIBRARY OF UKRAINE
Chicago-Kyiv Sister Cities Since 1991
CHICAGO - The United States Agency for International Development (USAID) and the Chicago-based Kyiv Mohyla Foundation of America signed a partnership agreement to establish the Electronic Library of Ukraine (ELibUkr) today in Kyiv, Ukraine.
Realizing that access to academic and research information was nearly non-existent in Ukraine, Marta Farion—president of the Kyiv Mohyla Foundation of America and Chicago attorney on the Executive Committee of Chicago Sister Cities International—initiated the project in 2007.
“The Chicago and Kyiv Sister Cities relationship is the basis upon which this exciting project was developed,” said Marta Farion, Executive Committee Member of Chicago Sister Cities International. “I am proud to be part of a truly global project that will not only allow thousands of academics, students and universities to immediately gain access to a wide-range of information, but also will create new opportunities for generations to come.”
“Through their 17 years as Sister Cities, Kyiv and Chicago have shared numerous exchanges spanning education, culture, medicine and government,” said Leroy Allala, Acting Executive Director of Chicago Sister Cities International. “Chicago Sister Cities is proud to support the ELibUkr Project, and it is the perfect example of how the Sister Cities relationship builds vital links between partner cities that bring about projects that have global impact, benefiting residents both in Chicago and abroad.”
Since the signing of an official Sister City agreement in 1991, Kyiv, Ukraine, and Chicago have developed a strong partnership based on a shared vision of promoting arts, culture, business and education. The Kyiv Committee of CSCIP has played host to several high-level delegation visits and organized numerous cultural, educational and social service exchanges.
ELibUkr is sponsored by USAID in partnership with the Kyiv Mohyla Foundation of America, the National University of Kyiv Mohyla Academy, the Association “Information-Consortium,” the Center for Technology Innovation Management (CTIM) at Northwestern University, the Y. Fedkovych National University of Chernivtsi, and the V. Karazin National University of Kharkiv and a consortium of Ukrainian universities.
The Chicago Sister Cities International Program, under the auspices of the City of Chicago and in collaboration with the Mayor’s Office of International Relations, provides leadership to develop, manage, and coordinate comprehensive programs and projects with Chicago’s sister cities.
Chicago’s Sister Cities include: Accra, Ghana (1989); Amman, Jordan (2004); Athens Greece (1997); Belgrade, Serbia (2005); Birmingham, England (1993); Busan, Republic of Korea (2007); Casablanca, Morocco (1982); Delhi, India (2001); Durban, South Africa (1997); Galway, Ireland (1997); Gothenburg, Sweden (1987); Hamburg, Germany (1994); Kyiv, Ukraine (1991); Lahore, Pakistan (2007); Lucerne, Switzerland (1998); Mexico City, Mexico (1991); Milan, Italy (1973); Moscow, Russia (1997); Osaka, Japan (1973); Paris, France (1996); Petach Tikva, Israel (1994); Prague, Czech Republic (1990); Shanghai, China (1985); Shenyang, China (1985); Toronto, Canada (1991); Vilnius, Lithuania (1993); and Warsaw, Poland (1960).
-------------------------------------------------------
Natalie Campbell, Director of Communications, Chicago Sister Cities International Program
78 E. Washington St., 4th Floor, Chicago, IL 60602, Phone: 312.744.2172; Fax: 312.744.2178
E-mail: natalie.campbell@cityofchicago.org
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
7. UKRAINE MACROECONOMIC SITUATION, JANUARY 2009
SigmaBleyzer Emerging Markets Private Equity Investment Group, The Bleyzer Foundation
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tuesday, January 27, 2009
[1] According to preliminary data, Ukraine's real GDP grew by 3.6% yoy over January-November 2008. Given the sharp deterioration of real sector
performance during October-November, unfavorable prospects for the global economy and domestic financial turmoil, we now expect GDP to grow by 2.0% yoy in 2008 and to contract by about 3.0% yoy in 2009 with still significant downside risks.
[2] Ukraine's fiscal position remained strong during January-October 2008 as the consolidated budget was in surplus of 0.9% of period GDP. As a result of budget amendments at the beginning of December, the targeted budget deficit was raised to 2.5% of GDP.
[3] In late December, the Ukrainian parliament approved the 2009 budget with a planned deficit of 3% of GDP contrary to the IMF commitment to have a balanced budget in 2009. Additionally, there are a number of other issues suggesting that 2009 will be quite a challenging fiscal year for Ukraine.
[4] Consumer inflation is estimated to be around 22% yoy in 2008 and about 15% in 2009.
[5] The reversal of international capital flows and worsening macroeconomic fundamentals caused the Ukrainian Hryvnia to depreciate. These pressures,
amid the lack of transparency and coordination among monetary and government authorities, transformed into a full-scale currency crisis. As a result, the Ukrainian Hryvnia lost more than 50% of its value with respect to the US Dollar in 2008.
[6] Our estimates of Ukraine's net external financing needs indicate that although 2009 will be a difficult year for the country, the situation still looks
manageable.
[7] Ukraine failed to agree with Russia on a new gas contract for 2009. The new gas dispute may have both positive and negative consequences for
Ukraine. [This macroeconomic report was written before the agreement between the two countries during the weekend of January 17-18th, 2009, USUBC Editor]
ECONOMIC GROWTH
Economic conditions in Ukraine have been deteriorating more sharply and earlier than we expected. Hit by the combined shock of rising risk-aversion on the global financial market amid growing worries over the health of the Ukrainian banking system, falling world commodity prices and domestic policy tightening, Ukraine's gross domestic product shrank by 2.1% yoy in October and 14.4% yoy in November. T
Abated by high input prices and a continuing fall in world steel and chemical prices, metallurgical and chemical production sank by 35.6% yoy and 19.2% yoy in October and almost 50% yoy and 35% yoy in November respectively. Closely linked to metallurgical performance, the mining industry showed 10% yoy and 60% yoy declines in output in October and November on the back of a 21% yoy and 60% yoy drop in ore extraction respectively.
Higher credit costs and tighter lending standards as well as declining import demand from CIS countries (the main destination for Ukraine's export of
machinery and transport equipment) caused an 18% yoy decline in production of vehicles in October and an almost 52% drop in November. The overall production in the machine-building industry declined by about 40% yoy in November, while it grew by 14.6% yoy just two months before.
The outlook for the rest of this year and the next one is quite bleak. A number of claims suggest a severe deterioration in the labor market since September.
Growing unemployment and pro-cyclical fiscal tightening (in accordance with the IMF program), combined with the ongoing credit squeeze and depreciating national currency signal for more retrenching consumer behavior in the future. As private consumption was the main driver of economic growth over the last five years and accounts for almost 60% of GDP, its downturn will exact a significant toll on economic growth.
In addition, a sharp slowdown in both domestic consumption and exports, the rising cost of and more restricted access to capital (both external and internal) will hit the investment plans of corporate enterprises. Indeed, based on State Statistics Committee of Ukraine data, a sharp deceleration in fixed investment growth from 10.4% yoy in 1Q 2008 to just 4.7% yoy over the first nine months suggests that the Ukrainian private sector already cut their investments into fixed capital significantly in 3Q 2008.
FISCAL POLICY
Ukraine's fiscal position remained strong during January-October as the consolidated budget was in surplus of UAH 7.4 billion, which is equivalent to 0.9% of period GDP. During the period, consolidated budget revenues grew by 42.5% yoy in nominal terms, underpinned by a 51% yoy increase in tax revenues. According to the State Treasury, revenues to the general fund of the state budget were 6.5% above the targeted amount for January-October.
To a significant extent, higher than expected revenues reflected pro-cyclically strong growth in wages and profits during the previous periods, as well as higher inflation (the 2008 budget assumed inflation of 15.9% in 2008 while it is likely to be above 20% this year). Receipts from three major taxes (value added, personal income and corporate profit taxes) ensured almost 65% of total consolidated budget revenues. In addition, the consolidated budget surplus was the result of low expenditure realization.
The Ministry of Finance forecasted that the state budget will be short UAH 7 billion during November-December. At the same time, given the depth of the economic decline in November, the revenue shortfall may be more severe. The government took a number of steps to cut budget expenditures through the end of the year.
As a result of amendments to the 2008 budget law approved on December 12th, the budget deficit was raised to UAH 25 billion, or almost 2.6% of GDP, a level that notably exceeds the IMF cap. Moreover, the government has revised the targeted budget deficit financing.
As expected, the government recalled its 2009 budget draft. The revised 2009 budget was presented approved by the parliament on December 25th. Though the government was obliged to prepare a balanced fiscal budget for 2009, the approved budget law envisaged a deficit of UAH 31 billion (about $4 billion), or 3% of forecasted GDP. The targeted deficit, as well as other provisions in the budget law, may delay the recovery of the economy from the current financial crisis as insufficiently tight fiscal policy may slow down the process of leveling out the existing macroeconomic imbalances.
Moreover, the government's plan to finance the budget deficit with heavy borrowings on the domestic market will lead to a substantial increase in public debt. Coupled with the high indebtedness of Ukraine's private sector, this means that considerable funds will be diverted from the economy to serve the debt.
[1] First, the budget was developed on a quite optimistic macroeconomic forecast (0.4% real GDP growth, 9.5% inflation, UAH/$7-7.5 exchange rate, etc.). [2] Second, the government did not specify the forecasted price of imported natural gas next year.
in the budget.
of the IMF program. At the same time, realizing the detrimental impact of such a scenario to the economy, the Ukrainian government has already sent
MONETARY POLICY
tariffs adjustment.
[1] First, the IMF stand-by agreement envisages a quarterly adjustment of utility tariffs for them to reach cost-covering levels by mid-2010.
More expensive imports should discourage consumer spending on imports, thus helping to moderate inflation as well as to bring the trade deficit to more sustainable levels. However, while it would be rational behavior to switch to cheaper domestic substitutes, these expectations may not materialize due to a slow domestic supply response.
piece-meal structural reforms.
The foreign exchange market was extremely volatile during October-December. Similar to other emerging market economies, in the last couple of years Ukraine received large capital inflows, which together with loose domestic fiscal and monetary policies allowed the economy to demonstrate
above-region-average economic growth rates. The global financial market turmoil and global economic slowdown has uncovered three major pressure
points in Ukraine's economy.
[3] Third, encouraged by a prolonged period of relative exchange rate stability and loose monetary policy, commercial banks have expanded their credit
portfolios at a fast pace, including in hard currency (the share of forex-denominated loans in total credits exceeded 50% since the beginning of 2007 despite
the NBU measures to discourage commercial banks from issuing credits in foreign currency).
on NPLs was quite favorable so far, it is reported with substantial delays. Now, amid an economic slowdown, growing unemployment and sharp depreciation of the national currency, the Ukrainian banking system is likely to face an increasing number of corporate and private defaults. Already in December, a number of commercial banks started to advertise foreclosure sales on their official websites.
Due to the above vulnerabilities, the drying out of international capital flows to Ukraine and worsening macroeconomic fundamentals tilted the balance
towards Hryvnia depreciation. At the same time, sizable gross international reserves in the amount of $37.5 billion at the end of September as well as securing $16.4 billion under the IMF stand-by agreement at the beginning of November should have eased the pressures or at least allowed to smooth the process.
Realizing existing macroeconomic imbalances, the NBU did not resist the exchange rate adjustment towards its new equilibrium level. Limited NBU interventions during September/the first half of October were in line with May's decision to switch to a more flexible exchange rate regime.
These intensified the erosion of public confidence towards the NBU policy as well as the banking system as a whole, already injured by liquidity stresses
in several commercial banks, which led to the NBU taking control over one of the banks and deposit withdrawals from the banking system. During
October-November, Hryvnia-denominated deposits declined by UAH 32.4 billion ($4.8 billion), or 14%.
To calm the forex markets and experiencing strong political pressure to stabilize the markets, the NBU resorted to massive interventions, selling $4.1 billion
in October and $3.4 billion in November. Observing rapid depletion of reserves, the NBU tried to stabilize the market by setting technical restrictions on interbank forex markets.
The sale of gross international reserves, which usually has a sterilization effect, as well as deposit withdrawals affected the liquidity stance in the banking system and growth path of monetary aggregates.
At the same time, the NBU supported commercial banks' liquidity by injecting UAH 75 billion ($11 billion) through its refinancing channel during October-November. As a result, monetary aggregates grew by about 1.1% during these two months, which enhanced the deceleration of monetary aggregates growth in annual terms.
INTERNATIONAL TRADE AND CAPITAL
Seemingly unaffected by international financial turmoil in the first nine months of 2008, Ukraine has started to fully feel its impact since October.
cumulative growth to over 50%.
of agricultural products, while export of metallurgical products and transport equipment notably decelerated. Disappointing data on economic growth in developed countries as well as the deterioration of their growth prospects in the near future caused a sharp decline in world commodity prices.
The downturn in world prices for steel and chemical prices coupled with weakening European and emerging countries (particularly Russia, Turkey, etc.) demand have produced a sharp slowdown in Ukraine's exports in October. In particular, exports growth was cut in half in value terms to 30.2% yoy in October.
depreciation of the national currency observed during October-December as well as easing energy prices will help to restore the competitiveness of
Ukraine's products on foreign markets.
So far, however, import bills have continued to grow at a fast pace. In September, commodity imports grew at a record-high 73.6% yoy on account of a 95% yoy increase in imports of mineral products, 65% yoy growth in imports of machinery and transport equipment and 77% yoy rise in imports of metallurgical products.
The widening foreign trade deficit and higher dividend payments formed a record-high monthly current account deficit of $1.9 billion in October. The
ten-month current account gap widened to $10.5 billion, which corresponds to 6.5% of period GDP.
Preliminary balance of payments (BoP) data for September-October point to the growing deficit on financial and capital accounts. In particular,
monthly FDI inflow decelerated sharply from $1.4 billion on average during May-August to $0.7 billion in September and $0.3 billion in October.
Though Ukraine's private sector continued to borrow from abroad, much higher private debt amortization payments as well as other capital outflow led to a decline in NBU foreign exchange reserves. Our estimates of Ukraine's external financing requirements show that though 2009 will be a difficult year for the country, the situation still looks manageable.
OTHER DEVELOPMENTS AFFECTING INVESTMENT CLIMATE
The rather narrow difference between the offers suggests some vested interests might be blamed for the failure to reach an agreement. Being the most
non-transparent sector in Ukraine, the energy sector gives ample opportunities for rent-seekers. With the absence of a new contract on gas supply to Ukraine, Russia stopped gas supply to Ukraine on January 1st 2009.
This transition may also stimulate Ukrainian government authorities to proceed with reforms in energy and related sectors (e.g., utility sector). On the other hand, Ukraine, as well as Russia, failed to confirm to the European countries that it is a reliable gas transit country, which damaged its international image. In addition, the current situation may facilitate construction of alternative pipelines that bypass Ukraine.
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 http://www.sigmableyzer.com/en/page/532. SigmaBleyzer is a member of the U.S.-Ukraine Business Council, Washington, D.C.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
============================================================
NOTE: Send in a letter-to-the-editor today. Let us hear from you.
============================================================
8. 5TH ANNUAL UKRAINIAN INVESTMENT SUMMIT, LONDON, MARCH 9-11
The Summit is the foremost international investment gathering for Ukraine, bringing together key government officials and the elite of Ukrainian finance and business to meet with their international counterparts. In 2008 the event attracted 750 attendees from 24 countries.
Yevhen Korniychuk, First Deputy Minister of Justice of Ukraine; Mykola Azarov, Chairman, Committee for Banking & Finance, and Verkhovna Rada; Dr Ljubomir Mudrić, Chairman of the Board, Allseeds Group.
More than ever the event will be a unique opportunity for you to come together with your peers, receive the latest and most accurate and exclusive market information first hand from the experts and meet and share experiences with the elite of the Ukrainian and international business community.
As always, the Summit takes place over 3 days and will be a mixture of plenary and streamed sessions, panel discussions and debates, VIP and guest ‘out-of-the-box’ speakers and live onstage interviews.
Leading Ukrainian corporations, such as Allseeds Group, DTEK, Galnaftogaz, life:), Smart Holding, System Capital Management and UPEC Industrial Group.
Prominent international investors, including AES, Cadogan Petroleum, Dyckerhoff, Kraft Foods, Kulczyk Holding, Landkom, MTS, SABMiller, Sopharma, TNK-BP and Vanco Prikerchenska.
Major financial institutions, featuring Abris Capital, Advent International, Argo Capital, Calyon Bank, Dragon Capital, EBRD, European Investment Bank, Halcyon Advisors, Horizon Capital, International Finance Corporation, Morgan Stanley, Polar Capital, Providence Equity, Rodovid Bank, Royal Bank of Scotland, Sphere Capital and the World Bank.
Due to popular demand, we will be repeating a number of the features from the last Summit, which delegates found particularly rewarding. They include:
The innovative SpotMe wireless networking and live polling system, enabling you to locate your key potential partners and also to gather data and gauge opinion in real time mode.
Global book launch and signing by Anders Åslund. Dr Anders Åslund, Senior Fellow at the Peterson Institute for International Economics, will be publishing his latest book “How Ukraine became a market economy and democracy” in time for the Summit. Anders will be signing copies of the book for all attendees, which we will provide free of charge.
The annual Adam Smith Ukrainian Investment Summit is renowned for its incomparable networking opportunities – the one date in the year when Ukraine’s political and business elite gather in London to meet with their international counterparts.
Arkas Holding; Apollo Insurance; Amadeus Investment; Arta Investment; Aval-Brok; Alba Distribution; Allseeds Group; Brokbusiness Bank; Bright Group; Bank of New York Mellon; Cube Capital; Citadel Capital; CMS Cameron McKenna; Credit Suisse; DVI Holding; Dogus Insaat; DS Smith plc; Delin Development; Decent Group; Energomashspetsstal; Deloitte; Energiya Ukrainy; European Future Group; Enterprise Estonia; EastWest Group; Ferrexpo Group; Garant-Invest; Gazeks; Ista Centre; ING Bank; IMTC-MEI; Kade Group; Mott MacDonald; Melon Capital; Morgan Stanley; Magisters; Noerr Stiefhofer Lutz; National Credit Bank; Odessa City Council; State Savings Bank of Ukraine; OTP Bank; OTP Capital; Partner Bank; PricewaterhouseCoopers; First Grain Trading Company; Regional Development Bank; Rada Bank; Schwab Versand; Standard Bank; Scythian; Silver Centre; Sumykhimprom; Schoenherr; Siemens, SABMiller; Strategy Foresight; Terra Bank; UBS AG; Ukrsotsbank; Ukrainian Business Group; Veles Capital; VTB Bank.
You can be reassured that we will certainly not be cutting any corners on the social programme and additional features that you so greatly appreciate. Highlights include: The Welcome Drinks Reception on the evening of Sunday, 8th March. As this coincides with International Womens Day, the event will be appropriately themed and delegates will be encouraged to bring their partners.
A Gala Evening and Awards Ceremony at the historic Lancaster House on Monday, 9th March. The main social function will take place at Lancaster House, close to Buckingham Palace and commissioned by the Duke of York in 1825. Steeped in political history, it is an important centre for government hospitality. The evening will feature an awards ceremony to recognise the accomplishments of the leaders in the Ukrainian business community.
Do download the Summit brochure to read about all the programme, features and speaker faculty in greater detail. You can register in confidence, knowing that the Summit will equip you to deal with all your current challenges. Moreover, to help you, we have frozen prices from last year.
CUSTOMER SERVICES; London: +44 20 7017 7444; info@adamsmithconferences.com
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
9. TNK-BP: BUYS RETAIL GASOLINE STATION ASSETS IN UKRAINE
Victor Mishnyakov, Bne Media Ltd., Berlin, Germany, January 26, 2009
KIEV - Acquires chain of 36 filling stations. TNK-BP International, the parent company of TNK-BP Holding (TNBP - Speculative Buy), has purchased 36
filling stations in Kiev and the surrounding region and two tank farms from the Gepard Group, newswires reported yesterday. No price tag was mentioned.
Thirteen of the stations were previously operated under the TNK brand, while the remainder were run under the Golden Gepard brand.
Retail network growth to cut market share of jobbers. TNK-BP International is a major player on the Ukrainian light oil products retail market, with a
market share of around 32%. Over the past year the company has expanded its retail network in Ukraine by 25% to 50 stations, while the number of filling
stations in Ukraine franchised by TNK-BP has increased by 16% to approximately 350.
The company plans to strengthen its position in the downstream segment by gradually reducing the volume of oil products sold through franchisers and
by expanding its own network. The growing number of filling stations under the company's direct control gives it the ability to control the quality of
the oil products sold under the TNK and BP brands.
Upstream projects remain the priority. The purchase of retail assets in Ukraine's most lucrative and profitable regions will solidify the company's market position. We estimate that the value of a filling station in Kiev and the Kiev region at as much as $2.5-3 mln, hence the total cost of the deal may reach $120 mln.
However, we doubt that TNK-BP International will substantially increase investment in downstream this year. Historically the company has directed
the majority of investment funds to upstream projects in Russia, with the remainder invested in downstream. We believe the company will concentrate on
the development of greenfield sites such as the Verkhnechonskoe field or the Uvat project to maintain production levels at 2008 levels.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
10. RUSSIAN STATE OWNED BANK BUYS 75% OF UKRAINIAN PROMINVESTBANK
Economist Intelligence Unit, NY, NY, Wed, January 21, 2009
In November businessmen Andriy and Serhiy Klyuev, brothers and both members of Ukraine’s parliament, reached an agreement to purchase a 68% strake in Prominvestbank but twice failed to meet deadlines to raise the bank’s capital by UAH900m.
Prominvestbank operates a network of over 800 branches across the country. Ukraine’s central bank took control of the lender in October after a run on its deposits and has already injected UAH7bn into the bank. The government had previously considered plans to nationalise the bank, according to reports.
In November, the IMF agreed to provide Ukraine with an emergency loan of up to US$16.5bn. Stabilising Prominvestbank is seen as one of the key criteria for the loan package.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
=============================================================
New Representative Office Strengthens Client Relationships and Fuels Business Growth
Magisters law firm, Kyiv, Ukraine, Friday, January 16, 2009
LONDON/KYIV - CIS-based law firm Magisters today announces the opening of a new representative office in London. The office will serve as Magisters'
conduit to service multinational clients investing in CIS markets and for CIS blue chips with interests in the EU market.
Magisters' presence in London will raise the firm's commitment to existing relationships and enhance the quality of client service to its significant European client base. More than two-thirds of Magisters' clients are multinationals of European and US origins.
The London office increases Magisters' international growth momentum along with its merger with the Belarus law firm, BelJurBureau, in December 2008,
and the opening of another new office in Astana, Kazakhstan later this month. Magisters remains focused on providing a full range of legal services supporting clients working in CIS jurisdictions.
The London office is located at 88 Wood Street at the heart of the Square Mile and led by Andy Hunder, who serves as the firm's International Business
Development Director. Partner Andrew Mac will direct activities of the new office and will as such make regular visits to London.
Commenting on the London office opening, Mr. Mac said: "Magisters London launch, coupled with strategic openings in Belarus and Kazakhstan, is a
direct response to our clients' needs and requests. The London office will allow us to discuss more regularly with our clients the rapidly changing
Mr. Hunder, a British citizen, has more than a decade of experience in business development and managing external affairs and corporate communications issues in the CIS and the UK. He previously held senior management positions with both GlaxoSmithKline and Ukrainian Mobile Communications (now the MTS brand).
Mr. Hunder added: "Magisters' London presence brings the firm physically closer to our European clients and provides a gateway for them to access the
CIS and Magisters' expert legal services. Also, our CIS-based clients will find it now more convenient to access overseas business opportunities by
utilizing the Magisters London hub.
LINK: http://www.magisters.com:80/news.php?en/789/
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
=========================================================
12. SOFTSERVE'S 2008: ANOTHER GREAT YEAR
The industry recognition was proved by SoftServe’s position in the top 10 of Global Services 100-2008 and company’s award as Microsoft Partner of the Year in Central and Eastern Europe (Mobility Solutions). Also, the company became an exclusive delivery partner for the Microsoft NXT program, first in Eastern Europe, in new top-notch technologies such as Microsoft Silverlight™ and Office Business Applications (OBA).
SoftServe’s EVP Business Development also made prognosis for industry trends of 2009 which could affect any outsourcing company. Among those he mentioned slower growth of business, hardships for small settings in the industry and more attention to outsourcing destinations as alternative to Asia.
SoftServe does not plan to slow down in 2009, Vervega claims. Recession or not, it is planned that company’s business development initiatives for next year will put special focus to lead generation, existing client development and value added service offering. Among the strategic goals are development and implementation of end-user service methodology and expansion of the range of services.
SoftServe, Inc. is an independent multinational software development and consulting company that helps global organizations enhance their customer's competitive capabilities by providing the technology and processes that achieve strategic results.
With Europe headquarters in Lviv, Ukraine and U.S. headquarters in Fort Myers, Florida, SoftServe Inc. has its development facilities located throughout Ukraine. Since 1993, SoftServe Inc. has been partnering with over hundred companies worldwide offering superior level of capability in technical skills and project leadership. SoftServe's state of the art infrastructure, ISO- and CMMI-certified processes and unrivaled talent ensure our promise of excellence in even the most complex of projects.
For more information please visit our site at http://www.softservecom.com/. SoftServe PR contact, Yuliya Kovalyova in Lviv, Ukraine, ykoval@softservecom.com/.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
13. CHADBOURNE & PARKE APPOINTS COUNSEL IN KYIV AND
KYIV - The international law firm of Chadbourne & Parke LLP announced the appointments of Olena V. Repkina in Kyiv, Ukraine, and Lloyd MacNeil in Los Angeles, USA, as counsel and the appointments of Victor Mokrousov and Sergei Vataev as international partners in Almaty, Kazakhstan.
"These four lawyers have demonstrated skill and creativity in serving the needs of our clients," said Chadbourne’s Managing Partner Charles K. O’Neill.
Mr. MacNeil's practice in Los Angeles focuses on project development, project financing, and mergers and acquisitions matters in the energy and infrastructure sector, with particular emphasis on renewable energy. Joining the Firm in 2007, he has worked for developers, sponsors, lenders and investors on a variety of renewable and non- renewable energy project developments, financings and acquisitions. Mr. MacNeil, 41, graduated with a B.S. in 1990 from Dalhousie University, Faculty of Science, and earned an LL.B. in 1994 from Dalhousie University, Faculty of Law in Halifax, Nova Scotia.
Mr. Mokrousov, 36, is active in the corporate, finance, mergers and acquisitions, energy, oil and gas practices in Kazakhstan. He joined the Firm in 2005 and since then has been featured among the recommended lawyers for Kazakhstan in the Chambers Global - Guide to the World’s Leading Lawyers. Mr. Mokrousov received a law degree (with honors) in 1995 from Kazakh State National University, and earned an LL.M. in 1999 from the University of Minnesota Law School.
Mr. Vataev's practice concentrates on litigation and arbitration, corporate law and project finance matters in Kazakhstan. Joining the Firm in 2005, he has substantial experience in dispute resolution. During the past 10 years, he has advised and represented a large number of major oil and gas companies and other businesses in contractual and regulatory litigations and arbitrations. Mr. Vataev, 41, received a law degree in 1992 from Kazakh State National University, and earned an LL.M. in 2001 from the University of Virginia School of Law.
ABOUT CHADBOURNE & PARK LLP
Chadbourne & Parke LLP, an international law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, private funds, corporate finance, energy, communications and technology, commercial and products liability litigation, securities litigation and regulatory enforcement, special investigations and litigation, intellectual property, antitrust, domestic and international tax, insurance and reinsurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
14. THE GAS WAR MAY REHABILITATE UKRAINE'S YUSHCHENKO
Here's a chance for the beleaguered president to restore some luster to
Commentary & Analysis: By Adrian Karatnycky, Wall Street Journal Europe
KIEV, Ukraine - The bitter energy dispute between Ukraine and Russia has been resolved in a comprehensive agreement that Kiev and Moscow signed yesterday -- though there have been several false starts over the past three weeks. But if this latest pact holds, then by all accounts it is Russia that blinked first.
The conflict, which has interrupted gas flows to Europe for nearly two weeks, has been waged only in part over economic interests. In far greater measure it has been the expression of a political struggle. Moscow sensed that Ukraine's pro-Western politicians were bitterly divided, and that it could exploit their personal rivalries.
Almost four years ago, Viktor Yushchenko was elected Ukraine's president and widely hailed as the hero of the nonviolent mass civic protests known as the Orange Revolution. Today he is a leader who has lost the support of most Ukrainians; his approval ratings have fallen from well over 60% during the Orange Revolution to less than 5% now.
As Mr. Yushchenko's political star has waned, that of Ms. Tymoshenko, his erstwhile Orange Revolution partner, is ascendant. Still, with Ukraine's economy already in free fall, Ms. Tymoshenko's recent success in withstanding the president's attempt to remove her as prime minister may prove to be a Pyrrhic victory and she, too, may see a steep drop in public support.
In recent months, neither leader appeared willing to compromise, and both engaged in an escalating campaign of political mudslinging. President Yushchenko and his staff accused Ms. Tymoshenko of "treason" as a result of her efforts to reach accommodation with Russia by taking a softer stance on the Georgia-Russia conflict and her tepid support for joining NATO.
In turn, Ms. Tymoshenko, also on scant evidence, accused the president and the head of the Central Bank of conspiring to bring down the value of the national currency, the hryvnia, and of providing liquidity to a bank allegedly associated with a pro-Yushchenko businessman. These actions, she claimed, enabled the businessman to profit from the currency's decline.
It's no wonder, then, that Ukraine's toxic political atmosphere represented a tantalizing opportunity for Russia to exploit internal divisions. Vladimir Putin has never accepted Ukraine's pro-Western tilt since the Orange Revolution. By provoking internal and international anxieties, the Kremlin sought to promote a change at the top in Ukraine and to reassert its influence in a fellow Slavic country in its geopolitical backyard.
But Russia appears to have miscalculated. First, its efforts to blame Ukraine alone for the gas cutoff were rejected by Europe, which understood that Russia played an important part in provoking and prolonging the crisis. As important, Ukraine had wisely stockpiled several months of gas reserves and proved able to withstand Moscow's pressure to settle on unfavorable terms during the harsh winter months.
Now Russian Prime Minister Vladimir Putin has agreed with Ms. Tymoshenko that Russia will sell gas to Ukraine at a 20% discount to European market rates, in return for below-market transit fees. European market prices for gas in 2009 are expected to be no more than $250 per thousand cubic meters amid the global downturn -- a significant increase over what Ukraine paid in 2008, but far less than Russia had been demanding.
Perhaps most surprisingly, the gas dispute with Russia has unified Ukraine's pro-Western leaders. President Yushchenko and Prime Minister Tymoshenko adopted common positions and made joint statements in the face of the Russian energy cutoff to Ukraine and Europe. Above all, they appear to have quietly called a temporary political truce and stopped their bickering during the gas crisis and Ms. Tymoshenko's skilled negotiating sessions.
As a result, the gas crisis has created a new chance for the beleaguered President Yushchenko to restore some luster to his faded image by reassuming the role of a unifier and statesman. Even with his support slipping and his chances for re-election slight, Mr. Yushchenko has an opportunity to vindicate his term in office.
He is well-equipped for such a role. As a banker and economist by profession, Mr. Yushchenko has a strong sense of rational economic policy. He can also act as an important, constructive counterweight to the occasional populism of Prime Minister Tymoshenko.
By building on their cooperation and success during the gas crisis, the two leaders can at long last stumble into creating a tandem that can help restore some confidence domestically and abroad in Ukraine's ability to cope with major crises and to get things done.
In the past, both Mr. Yushchenko and Ms. Tymoshenko showed the courage to make tough choices that helped move Ukraine forward. Now, in the face of unrelenting Russian pressure, they have shown that they can restore some measure of cooperation. If they continue on this path, they will meet the severe economic challenges that Ukraine still faces and once again set back Mr. Putin's efforts to establish hegemony in the region -- the same task they accomplished four years ago during the Orange Revolution.
NOTE: Mr. Karatnycky is a senior fellow with the Atlantic Council of the U.S., Washington, D.C.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
For nearly three weeks earlier this month, Russia and Ukraine were locked in a dispute over the price Kiev was to pay for Russian gas. As the two sides bickered, Russia shut off all gas supplies to Ukraine, while paying customers in Eastern Europe who depend on Gazprom's supplies had to endure freezing temperatures.
NEWSWEEK: Why does Russia insist on raising the price Ukraine pays for gas when world energy prices are falling?
NEMYRIA: Let us look at what a 'fair price' means, both for gas we consume and gas we transit to Europe. The calculation for Russian gas should be very simple: you take the price paid by end users like Germany, then deduct the transit fees Russia has to pay to [pipe the gas through] the Czech Republic and Ukraine.
NEWSWEEK: Why has Ukraine allowed a middleman company, RosUkrEnergo , to make huge profits trading gas between Gazprom and Ukraine over the last three years? Putin called it "corruption on a grand scale."
Like any monopoly, RosUkrEnergo is dangerous. It has been a gas-transit monopoly since January of 2006. There was an attempt to create a monopoly for domestic distribution as well. In one of his interviews, one of RosUkrEnergo's Ukrainian owners, Mr. Dmitry Firtash, mentioned that his company controlled 75 percent of the domestic market.
NEWSWEEK: The Russians say they have nobody to negotiate prices with in Ukraine because Ukrainians are so divided between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
Ukraine is not the only country with such political complications. The prime ministers and presidents in the Czech Republic and Poland have their issues too. In spite of all our political tensions, Prime Minister Tymoshenko has been trying her best to depoliticize the gas issue in Ukraine.
NEWSWEEK: What does Russia want from this? Is Russia taking hard stands in these negotiations to influence or even control the pipeline?
One of Russia's goals is to shift European opinion in favor of building the Nord Stream and South Stream pipelines [which bypass Ukraine]. But in reality Gazprom is killing the goose that brings Russia golden eggs. The Russian economy depends on gas sales to Eastern and Central Europe. The longer each gas war lasts, the more ruined both Gazprom's and Ukraine's reputations are going to be, as the customers are not willing to go into details of our disputes when their homes are cold.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
16. THE SPOILS OF GAS WAR
Analysis & Commentary: by John Marone, Columnist, Kyiv, Ukraine
It is often the case that wars result in a redrawing of international maps or a reshuffling of a country's political deck. Ukraine's recent gas war with Russia appears to be no exception in as much as it is likely to change the face of Europe's energy map while reshuffling the political elite in Kyiv. Wars, however, not only offer up spoils to the victor; they also spoil a lot of other things for those who are involved or not.
Analysts said European gas companies have been foregoing income to the tune of 150m euros per day. And the gas has yet to be turned on. Eastern Europeans have been hit the hardest, though, particularly the Balkans, Hungary and Slovakia. There were nasty reports of freezing schools and hospitals, even 'civilian' deaths, as a result of gas shut-offs.
The Bulgarians threatened to restart their rickety Soviet-era nuclear reactor. The Slovaks did the same, while crying for a state of emergency. Some, such as the Czech, were more insulated due to the layout of the international pipeline system and some economic foresight at home.
Prague, nevertheless, had its share of headaches. Having just taken over the rotating EU presidency, the country has been sending its diplomats back and forth between Moscow and Kyiv like ping pong balls.
The casualties among the warring combatants have also been significant. With characteristically crocodile tears, the Kremlin said Russia had lost $1.2 billion. The opposition in Ukraine claimed $100m in foregone transit revenues as a result of the war, not to mention the losses incurred by the country's gas-dependent chemical industry.
But the real damage that Russia and Ukraine inflicted on each other and, indeed, on themselves, has yet to be revealed. It can no longer be denied by EU policy makers that gas transits from the east are unreliable, at best.
No doubt under pressure from powerful gas lobbyists in all the major capitals of 'old Europe," Brussels was reluctant to forge a coherent and, more importantly, a united energy policy in relation to an increasingly more assertive Moscow.
Everyone saw it coming, though. Everyone knew that the bilateral gas agreement between the two countries was to end on January 1, that Russia had turned the taps off before, in 2006. In fact, things developed pretty much as they had three years earlier, with Russia first cutting off Ukraine, then everyone else, whose gas it accused Ukraine of stealing en-route. Only this time the war lasted longer.
The question is whether Russia or Ukraine will suffer any further economic consequences. So far, there has only been talk of the two countries' spoiled reputation. In addition, the European Commission has issued vague threats about a possible lawsuit against Russia's powerful Gazprom or Ukraine's financially crippled Naftohaz Ukrayiny.
The fact that Russia under Vladimir Putin has increasingly taken a high-handed approach to its former satellite countries, and that its shutting-off the gas it delivers to Ukraine in the dead of winter might also be considered high handed has taken backstage to the immediate effects of the gas war on the EU.
That hasn't prevented Mr. Putin, however, from accusing the EU of "practically" taking Ukraine's side in the conflict.
But considering Gazprom's clout in Berlin and Rome, it wouldn't be surprising if Ukraine came out as the aggressor in the gas war. Georgia suffered a similar fate following its brief and unsuccessful real war against Russia last August. First Tbilisi was the victim, now it is seen as equally if not more responsible for the hostilities.
Ukraine is all the more vulnerable due to its unstable domestic political situation. As Moscow and Kyiv traded blows via the international media, Ukrainian President Viktor Yushchenko and Ukrainian Premier Yulia Tymoshenko took swipes at each other at home.
While Moscow accused Ukraine of stealing gas meant for Europe, Tymoshenko launched accusations of corruption at Yushchenko, who sent similar accusations back at her. In the din of the battle, Ukraine's very legitimate argument that Russia is punishing it for Kyiv's Western integration efforts has been drowned out. Its smudged reputation for corruption is being used against Ukraine by its own short-sighted leaders.
As a result, like the murder victim who exchanged hostile words with his attacker or the rape victim who flirted with hers, the fledgling democracy may be judged unfairly by its peers. And when the map of European energy supplies is redrawn, it may be Ukraine that loses out on the spoils – not just because the idea of building (expensive) alternative pipelines will win the day, but because taking control of Ukraine's pipeline is already on the table in the form of a proposed ‘international’ consortium that includes Moscow.
And it doesn't matter that keeping control of the pipeline is one of the few things that Ukrainian leaders such as Yushchenko and Tymoshenko have agreed upon. A second term for the pro-Western Yushchenko is as unlikely as the banning of brawls among the nation's lawmakers.
Ukraine would surely have to pay closer to the market price footed by Europe, Yushchenko's people said, or: what did Ms. Tymoshenko have to give Moscow in return for the new low gas price she supposedly brokered up north? Indeed, although both Putin and Tymoshenko were their respective countries' chief combatants during the peak of the gas war, the two seemed to have chummed up during their meeting in Moscow on Monday.
Not one to toss words around lightly (unless in anger), the Russian premier said he was obliged to Ukrainian Prime Minister Yulia Tymoshenko, "who during this most difficult situation was able to take responsibility for such important decisions that have led to a resolution of the deadlock."
For her part, the lady in braids said: "I am much obliged to Vladimir Putin and all his team for their making it possible for Ukraine to make a special condition in 2009 - 20 percent off the international price of gas," she said the same day, following her meeting in Moscow.
Whether this means Tymoshenko has come out the heroine of the gas war is doubtful, as she can now be easily portrayed by her political enemies to pro-Western voters as a sellout to Moscow, which for its turn could always find a way to challenge any deal at its convenience.
Thus, at the very least, the gas war means the final nail in the coffin of President Yushchenko and possibly a booby trap down the road for Tymoshenko - reshuffling two major cards in the Ukrainian deck. The geopolitical map is also likely to change, as Ukraine's only staunch supporters appear to be EU troublemaker Poland and a NATO leadership in retreat behind the US economy.
LINK: http://www.eurasianhome.org/xml/t/opinion.xml?lang=en&nic=opinion&pid=1325
--------------------------------------------------------------------------------
===================================================
17. LESSONS FROM THE RUSSIAN-UKRAINE GAS DISPUTE
Under a face-saving compromise finally hammered out on Jan. 20, Russia's Gazprom (GAZP.RTS) has achieved its central objective of making Ukraine pay "market prices" for its gas, which will be linked to the European average.
Both parties are attempting to frame the outcome as a victory and are already disagreeing over the implications for gas prices. Ukrainian Prime Minister Yulia Tymoshenko has said the rate per 1,000 cubic meters will average $228 for the full year—well below the $280 predicted by Gazprom (though higher than the $179.50 that Ukraine paid last year).
In any case, the long-term impact of the dispute will go far beyond the immediate implications for energy relations between Russia and Ukraine. Despite similarities with the previous bust-up in 2006, Western energy experts emphasize the latest dispute has been far more serious, with lasting implications for the European energy market.
Exactly what the long-term implications will be are still rather hard to fathom. It doesn't help that many fundamental facts about the dispute remain clouded in controversy—including the key question of who was ultimately responsible for cutting off Europe's gas. While Russia accuses Ukraine of blocking Russian gas supplies to Europe during the dispute, the Ukrainians say that it was actually the Russians who turned off the taps.
UKRAINE SHARES THE BLAME
Getting to the bottom of such matters has more than purely academic significance. For one thing, the threat of legal action by Gazprom's European customers remains real—potentially exposing the company to huge claims for damages.
What's already clear is that, in notable contrast to the 2006 spat that was widely blamed on Russia, this time Western observers have also pointed fingers at Ukraine.
The problems in Ukraine mean the dispute is likely to add impetus to energy projects that bypass the country. In particular, Russia backs the Nord Stream pipeline under the Baltic, a project 51%-owned by Gazprom, in partnership with Germany's BASF (BASF.DE) and E.ON (EONGn.DE) and Dutch energy firm Gasunie. Yet despite this positive news for Russia's pet project, many Western experts predict that ultimately Russia and Gazprom will turn out to be the biggest losers.
They are mystified why, in response to Ukraine's alleged pilfering of Russia's gas, Gazprom apparently responded by cutting off all gas supplies through Ukraine to Europe. "That's the big question," says Pierre Noël, an energy policy expert at Cambridge University. "Large importers of Russian gas in Western and Eastern Europe have been really scared by what has happened. There will be lasting damage to Gazprom's reputation." He predicts that European governments will now discourage major importers from increasing their exposure to Russian gas.
ALTERNATIVES TO RUSSIA?
True, the last major gas spat in 2006 also led to much talk about Europe diversifying its sources of energy and weaning itself away from dependence on Russia. But in practice, Europe's alternative options are extremely limited. Countries such as Iran, Algeria, Azerbaijan, and Turkmenistan are frequently promoted as potential alternative suppliers.
Nevertheless, the recent gas dispute is sure to energize the search for alternative routes, adding political impetus to projects such as Nabucco, a pipeline through Turkey that would link up with gas fields in the Caspian.
He predicts the trend will now accelerate significantly, driven in particular by imports of liquefied natural gas from the Middle East, which is now experiencing significant overproduction. "The combination of the LNG glut and the economic crisis will create a very difficult situation for Russian gas in Europe and tremendous pressure on the market share of Russian gas," he says.
UNIFYING THE EU'S ENERGY MARKETS
More speculatively, the dispute may also galvanize the EU into taking bolder steps toward reforming its internal energy market. "The single most effective step the EU could take would be to integrate its energy markets," says Datamonitor's Burkett.
In principle the EU has long been committed to integrating its energy markets, meaning that companies from anywhere in Europe would be able to supply gas to consumers in any other country. As well as increasing competition, such a policy would help to mitigate negative consequences from energy shocks originating in Russia or Ukraine.
Despite these benefits, the future pace of reform remains highly uncertain. To date, such reform has in practice been blocked by opposition from dominant national energy companies, protective of their national markets. But experts warn that without radical new steps to enhance Europe's energy security, the latest crisis to hit Europe's energy supplies is unlikely to be the last. URL: www.businessweek.com
[return to index] Action Ukraine Report (AUR) Monitoring Service]
===================================================
Welcome to send us names for the AUR distribution list.
===================================================
18. BAD FAITH CREEPING INTO EU-UKRAINE RELATIONS
By Philippa Runner, Euobserver, Brussels, Belgium, Friday, January 23, 2009
EU foreign ministers in Brussels on Monday (26 January) will at lunch discuss how to promote stability in Russia and Ukraine, one week after the pair ended a gas price dispute which caused the worst energy crisis in EU history.
The task may not be easy in the current atmosphere. Last week, the European Commission threatened Moscow and Kiev with sanctions. Commission President Jose Manuel Barroso said it was easier to do business with African states than Russia or Ukraine.
But if Brussels feels let down by Kiev, the feeling is mutual, after EU states declined to support either side in what Ukraine sees as a Russian "gas attack" designed to destabilise its economy and pro-Western leadership.
"We are afraid the EU could become a weapon of political pressure on Ukraine in the hands of Russia," Ukraine deputy foreign minister Konstantin Yesileyev told EUobserver. "As a result of this conflict the EU may yet take measures to make Ukraine seem guilty."
"There is a feeling the EU could have done more," analyst Volodymyr Yermolenko of Kiev-based NGO Internews-Ukraine said. "Russia's two huge lies - first, that Ukraine had stolen gas and second that it cut transit to Europe - were not clearly refuted by the EU."
VISA PROBLEM LINGERS
At the popular level, any fresh disappointment with Brussels is compounded by long-running problems with basic consular services. Since 2005 EU citizens can travel to Ukraine with no visa. But ordinary Ukrainians pay steep fees for travel permits, have to deal with intermediary agencies, fill out complex paperwork and face frequent refusal with no explanation.
"The prestige of the EU is still high in Ukraine but it is being undermined by lack of progress on visa issues," Mr Yesileyev said. At the diplomatic level, Kiev late last year discovered the EU is offering softer legal conditions for Russia than for Ukraine in visa facilitation talks, reinforcing suspicion of a Brussels-Moscow special relationship.
Bad faith has also crept into Ukraine's most important post-Orange Revolution foreign policy project - to get on the road to EU membership.
The then French EU presidency at an EU-Ukraine summit in Paris last September launched negotiations on an Association Agreement to be signed with Ukraine in late 2009.
The summit's non-binding declaration spoke of Ukraine as a "European country" with "European aspirations," recalling the enlargement language of article 49 of the EU treaty, which states that "any European state ...may apply to become a member of the union."
ENLARGEMENT GAG
But behind the show of friendship, France made Ukraine agree to zero pro-enlargement language in the legally-binding preamble to the upcoming Association Agreement, freezing any talk of accession until the treaty expires 10 or more years down the line.
Officially, the pro-enlargement language question can still be revived, with Mr Yesileyev saying that "nothing is agreed until everything is agreed" on the pact. But behind the scenes, Kiev feels the EU is happy to let it fend for itself in a post-Soviet arena that just last year saw full blown military conflict between Russia and a non-compliant state.
"That [the Paris EU-Russia summit] was a real turning point. Even the last euro-romantics had to give up hope," a Ukrainian contact said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
19. NATO HAS 'NO WILL' TO ADMIT GEORGIA OR UKRAINE
LONDON - Nato is suffering from 'enlargement fatigue' and has no will to admit Georgia or Ukraine, according to Poland's foreign minister Radek Sikorski.
Mr Sikorski, who is a leading contender to become Nato's secretary-general when the Alliance selects a new chief in April, told The Daily Telegraph that membership for both countries was a "fairly distant prospect". But he denied that Russia, which attaches great importance to thwarting Nato's enlargement, had achieved a victory.
Ukraine and Georgia were both promised Nato membership at a summit in Bucharest last April. But no timetable was offered and, four months later,
Russia raised the stakes by invading Georgia. Mr Sikorski said that Nato should "maintain the Bucharest consensus" and the "credible promise of membership".
Asked whether the will to admit Ukraine and Georgia existed, however, he replied: "Not at the moment. At the moment, there's a will to encourage them
to reform themselves. But I believe all of our institutions, both the EU and Nato, suffer from enlargement fatigue." He added: "It's always harder to enlarge in a recession."
Yet the onset of "enlargement fatigue" did not amount to a victory for Russia. "I don't have the feeling that Russia has increased its credibility in the last six months," he said. "The Soviet Union never cut off gas supplies to Western Europe. Soviet strategists had a wonderful expression called 'correlation of forces' which meant all the factors - material and immaterial - affecting any situation. I don't believe that either through the Georgia crisis or the gas dispute Russia has improved the correlation of forces to its advantage."
Mr Sikorski, 45, escaped from Communist Poland and was given asylum in Britain in 1982. While studying at Pembroke College, Oxford, he was a member
of the Bullingdon drinking club along with David Cameron and Boris Johnson. Mr Sikorski took British citizenship - and diplomats say that he kept his
British passport until he was made Poland's foreign minister in 2007.
During the 1980s, he was a foreign correspondent, covering the Soviet occupation of Afghanistan for The Sunday Telegraph. His firsthand experience
of war in Afghanistan gives him a unique qualification for taking the helm of Nato, which now deploys 55,000 troops in the country.
The Alliance's 26 members will probably choose a new secretary-general at their 60th anniversary summit in April. When Nato Ambassadors meet on
Monday, they will begin considering possible candidates, who include Anders Fogh Rasmussen, the Danish prime minister.
As for whether he might be Nato's next secretary-general, Mr Sikorski replied: "I believe that Nato needs continued leadership from the front. We
have a war in Afghanistan that we mustn't lose. Nato is the most successful alliance in history and that needs nurturing. I believe that the appointment should be made on merit.
"I'm flattered by such suggestions because they imply that Poland is now a regular member and that indeed we've made worthwhile contributions to Nato
and that therefore we deserve to be seriously considered for the top job."
LINK: http://www.telegraph.co.uk:80/news/worldnews/europe/poland/4338143/Nato-has-no-will-to-admit-Georgia-or-Ukraine.html
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
20. IMPORTANT 2008 YEAR-END TAX CHANGES IN UKRAINE
TAX CHANGES IN THE 2009 BUDGET LAW
[1] Foreign currency conversion tax (Pension Fund levy) is decreased to 0.2 percent.
[2] Taxpayers are not allowed to defer their tax payments. This means that, most likely, VAT promissory notes will not be used within the customs
[3] A 3.1 coefficient will apply to land tax rates in 2009 (similar to the year 2008) for land plots which were not appraised by the respective authorities.
[4] The living wage for adults for 2009 is set at the December 2008 level, ie UAH669 per month (1). This affects some other tax indices:
[4A] Payroll tax base remains capped at UAH10k. At the 41 percent average payroll tax rate, maximum charge per employee will be about UAH4k.
[4B] Personal income tax allowance will apply to income not exceeding UAH940 per month. The same amount is used as a cap for other personal
[5] The minimum salary will gradually increase from UAH605 on 1 January to UAH625 on 1 April, UAH630 on 1 July, UAH650 on 1 October and
[6] Surprisingly, the Budget Law does not introduce any amendments to the corporate tax rules (eg regarding tax loss carry forward). The government is
Having signed the Budget Law, later the President challenged it in the Constitutional Court. The Court may cancel some of the Budget Law provisions.
EXCISE TAXES INCREASE
Law No 797-VI of 25 December 2008
The Parliament passed the law that substantially increases excise tax rates for some products. This affects, in particular, alcohol and tobacco products, beer, passenger cars, car bodies and oil products. For the current and new excise tax rates please refer to Appendix 2.
VEHICLE TAX INCREASE
Law No 797-VI of 25 December 2008
Vehicle tax rates for passenger cars with engine capacity over 2200 cc are increased three times.
NATURAL RESOURCE TAXES INCREASE
Law No 798-VI of 25 December 2008
Production royalty on natural gas will be adjusted in accordance with import gas price fluctuations, with the base price fixed at $179.5 per 1000 cubic metres. Previously, such adjustment applied only to oil and gas condensate.
THE RATES OF SOCIAL FUNDS CHARGES ARE CHANGED
Law No 799-VI of 25 December 2008
[1] Remuneration paid to individuals under civil contracts becomes subject to unemployment insurance at a 2.2 percent rate.
[2] The unemployment insurance rates are increased from 1.3 to 1.6 percent for employers and from 0.5 to 0.6 percent for employees.
[3] The disability insurance charge payable by employers is decreased from 1.5 to 1.4 percent.
VAT REFUND TREASURY BONDS ARE REINTRODUCED
Law No 659-VI dated 12 December 2008
The government is allowed to issue treasury bonds in order to restructure its VAT refund arrears. Companies with overdue VAT receivable may voluntarily opt for such settlement. The five-year treasury bonds will be repaid in equal annual installments and bear interest at 120 percent of the National Bank refinancing rate. The Cabinet of Ministers is obliged to establish procedures of their issuing and circulation.
The contribution to the development of local fire-fighting crews, previously applicable to new construction projects at a rate of up to 3% of the project value, is abolished.
[1] The maximum rate of the contribution is decreased from 5% to 4%, including charges established by the local authorities.
[2] The tax base will no longer include the cost of the utilities which the developers are obliged to construct.
[3] The payment deadline is postponed until the commissioning of the building (earlier, the contribution had to be paid before the estimated date of
NOTARIZATION OF COMPANY'S INCORPORATION DOCUMENTS
Law No 809-VI dated 25 December 2008
The Parliament clarified the applicability of state duty or notary fees for the notarization of company incorporation documents. Only the shareholders agreement has to be notarized, subject to a charge of 1 percent of the registered capital. For other incorporation documents it is sufficient to certify the shareholders' signatures, and the applicable notary cost is negligible. The relevant amendments were introduced to the Law of State Registration of Legal Entities and Private Entrepreneurs. Some time ago this issue was actively discussed in the legal community and was regulated by official rulings of the state authorities.
DRAFT TAX LAWS AWAITING THE SIGNATURE BY THE PRESIDENT
The Parliament adopted a number of important draft laws at the end of December 2008, however they were vetoed by the President. The Parliament may override the veto through a qualifying majority. The draft laws contained the following proposals:
[1] Tax incentives for inward processing may be abolished from 1 January 2009. As an exception, for leather and textile industries the incentives should
[2] An additional 13% import duties may be introduced for most types of commodity. This additional charge should apply temporarily, until the external
[3] Increased depreciation rates to be introduced for various equipment classified under group 3 in tax accounting. The proposed annual rate is 25%,
[4] Import duty and VAT relief to be granted for the materials, equipment and spare parts imported for the implementation of energy-saving technologies.
DLA PIPER UKRAINE – TAX TEAM:
Svitlana Musienko, Legal Director, Head of Tax, svitlana.musienko@dlapiper.com
Yulia Logunova, Senior Associate, yulia.logunova@dlapiper.com
Illya Sverdlov, Senior Associate, illya.sverdlov@dlapiper.com
Dmytro Donets, Associate, dmytro.donets@dlapiper.com
Lilia Sylvestrova, Associate, lilia.sylvestrova@dlapiper.com
(i) Personal income tax allowance for 2009
a) basic (50% of minimum salary) UAH302.5
b) increased (150% of basic allowance ) UAH453.75
Criminal liability for tax evasion:
а) significant understatement of tax liabilities (1,000 x basic tax allowance) UAH302,500
b) large understatement of tax liabilities (3,000 x basic tax allowance) UAH907,500
c) extra large understatement of tax liabilities (5,000 x basic tax allowance) UAH1,512,500
2. New Labour legislation effective from 1 January 2009 demands that the minimum salary be not less than the living wage. The Budget Law does not
4 Draft law No 3379 of 23 December 2008.
5 Draft law No 3430 of 17 December 2008
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
A Free, Private, Not-For-Profit, Independent, Public Service Newsletter
Articles are Distributed For Information, Research, Education, Academic,
SigmaBleyzer/The Bleyzer Foundation Economic Reports
"SigmaBleyzer - Where Opportunities Emerge"
If you would like to read the ACTION UKRAINE REPORT- AUR, several times a month, please send your name, country of residence, and e-mail contact information to morganw@patriot.net. Information about your occupation and your interest in Ukraine is also appreciated.
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation
return to index [Action Ukraine Report (AUR) Monitoring Service]