"THE ACTION UKRAINE REPORT"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary
"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"
"THE ACTION UKRAINE REPORT" - Number 406
morganw@patriot.net, ArtUkraine.com@starpower.net
FROM: KYIV, UKRAINE, MONDAY, JANUARY 10, 2005
WAITING, WAITING, WAITING!
For Ukraine's Presidential Election Process To End
Everyone is waiting for the presidential election process finally to grind
to a halt. There were credible stories the inauguration would take place
on January 14th or 15th. Then over the weekend meetings were held
to plan the inauguration that discussed Tuesday, January 18th as the most
likely inauguration date. Then today we have heard Viktor Yushchenko
might actually not be sworn in as President until Saturday, January 22.
So the waiting goes on and on. The anticipation and excitement though
stays at a very high level.
There was a huge crowd on the Maidan on the evening of Christmas
day, January 7, to hear a concert that featured Ruslana. Emotions
were high, and Ruslana had a long orange scarf tied to her microphone.
The Maidan will soon be filled with possibly one-million people or more
to witness the public inauguration of Viktor Yushchenko as the third
president of Ukraine since Ukraine separated from the Soviet Union
in 1991. (EDITOR)
-----INDEX OF ARTICLES-----
"Major International News Headlines and Articles"
1. "BREAKING THE MOULD"
By Chrystia Freeland, Arts & Weekend Section
Financial Times, London, UK, Sat-Sun, January 8-9, 2005
2. WITHDRAWING UKRAINE TROOPS FROM IRAQ A PRIORITY
AFX Europe, Kiev, Ukraine, Sun, Jan 09, 2005
3. CEC POSTPONES OFFICIAL ANNOUNCEMENT OF
UKRAINE'S PRESIDENTIAL RERUN RESULTS
ISI - Intellinews, Kyiv, Ukraine, Mon, January 10, 2005
4. UKRAINIAN STOCKS APPEAL AFTER ORANGE PROTESTS
By Tom Warner in Kiev, Financial Times, London, UK, Thu, Jan 6, 2005
5. UKRAINE: INFLATION AT 12.3% IN JAN-DEC, 2004
ISI - Intellinews, Kyiv, Ukraine, Wed, January 5, 2005
6. UKRAINE: HEIDELBERGCEMENT INTENDS TO INVEST 20MN EUR
IntelliNews - Ukraine Today, Kyiv, Ukraine, Mon, January 10, 2005
7. UKRAINE SUSPENDS PRIVATIZATION OF STATE PROPERTY
Era, Kiev, in Ukrainian, 0 Jan 05
BBC Monitoring Service, UK, in English, Mon, January 10, 2005
8. "NEW NEW YEAR IN UKRAINE"
OP-ED: The Washington Times, Washington, D.C., Fri, Jan 07, 2005
9. FAMILY'S HUNT LEADS TO BODY OF MURDERED BRITON
James Burleigh, The Independent
London, United Kingdom, Monday, Jan 10, 2005
10. UKRAINE MEDIA NOT SEEN AS INDEPENDENT YET
By Bagila Bukharbayeva, Associated Press Writer
Kiev, Ukraine, Friday, January 7, 2005
11. UKRAINIAN SPEAKER LYTVYN, IN MOSCOW, PREDICTS
APPROVAL OF YUSHCHENKO'S NOMINEE FOR PM
ITAR-TASS news agency, Moscow, in Russian, 7 Jan 05
BBC Monitoring Service, UK, in English, Fri, Jan 7, 2005
12. PUTIN URGES PRAGMATISM IN UKRAINE
Reuters, Moscow, Russia, Friday, January 7, 2005
13. PRYVAT ON THE PETROLEUM MARKET
Top Ukrainian business group seeks to dominate oil market
Ukrayinska Pravda web site, Kiev, in Ukrainian 20 Dec 04
BBC Monitoring Service, UK, in English, Friday, Dec 31, 2004
========================================================
1. "BREAKING THE MOULD"
By Chrystia Freeland, Arts & Weekend Section
Financial Times, London, UK, Sat-Sun, January 8-9, 2005
Ukraine is one of Europe's great submerged nations. A thread of Ukrainian
statehood can be traced back to mighty 10th century Kievan Rus, sovereign
over all of the eastern Slavic lands, through to the 17th-century Cossacks,
who briefly asserted their independence from Poland only to lose it to
Russia, and on to flickers of national independence at the time of the
Bolshevik Revolution and the second world war. But to outside eyes, this
iconic national narrative was overshadowed by the more obvious reality of
Ukraine's imperial overlords - Poland, Austria-Hungary, Imperial Russia, the
Soviet Union.
Yet beneath this cloak of invisibility, the idea of Ukraine as a separate
state continued to germinate, emerging with particular strength in the 19th
century among its proselytising, educated intelligentsia. Then, as now,
Ukrainian identity was as much about making a personal and political choice
as it was an ethnic or historical fact: this multi-ethnic and historically
divided land did not lend itself to a single interpretation.
With the Soviet takeover of central and eastern Ukraine, and then, with the
second world war, of the formerly Polish territories that are now western
Ukraine, choosing to be Ukrainian became ever more marginal and dangerous.
The notion of Ukraine went underground, while abroad those Ukrainians who
managed to escape Soviet rule nurtured their nation's emblems - language,
history, culture - with a zeal that often seemed absurd to outsiders.
In 1991 as the Soviet Union began to crumble, this secret history of
opposition suddenly burst above ground. Ukraine's national intelligentsia,
inspired by the dissidents released from Soviet prison camps and armed with
the histories and encyclopedias written by Ukrainian emigres, spearheaded a
national protest movement that was one of the catalysts of the final
collapse of the USSR. Those who had doubted Ukraine's existence weren't
altogether wrong, though. Ukraine's national identity, never certain and
further blurred by decades of Soviet repression, was extremely fragile.
To secure its emergence as a separate state, the leaders of Ukraine's
national democratic movement - people who shared the background and politics
of the leaders of eastern Europe's 1989 revolution - made a pact with the
country's Soviet-era communist elite. If the nomenklatura backed
independence, it could stay in power. As one Ukrainian dissident, freshly
released from prison, explained to me in the early 1990s when I asked him
how he could make an alliance with his former jailers: "Let them be
Communists, let them be dictators, let them build their own Ukrainian prison
camps. At least they will be our Communists, our dictators, our prisons."
Over the past few years, as outgoing president Leonid Kuchma's
administration became ever more mired in corruption and inclined to
authoritarianism, that seemed to be precisely what was happening. Had
Ukraine's neo-authoritarian post-Soviet regime succeeded in entrenching its
rule with the coronation of prime minister Viktor Yanukovich, its candidate
in the November presidential elections, this is the Ukraine they would have
created: nominally independent, explicitly unfree. That effort failed when
opposition leader Viktor Yushchenko was elected on Boxing Day - Kuchma's
state was too weak to sustain itself and civil society was too strong to be
denied.
Why was the Kuchma regime, for all its crudity and casual ugliness, hollow?
First, the Ukrainian authorities inherited only the branch plants of the
repressive machinery of the USSR, not the headquarters that are making their
fury at the collapse of Soviet communism so powerfully felt in Moscow today.
Second, for all its corruption, Ukraine's privatisation process dispersed
economic power much more broadly than Russia's.
The difference is summed up by a single economic indicator: over the past
two years, the engineering sector in Ukraine has been growing by about 30
per cent a year. In Russia, the rate is about 12 per cent. As Anders Aslund,
an economist who follows both Ukraine and Russia closely, explained to me
over breakfast in Kiev: "In Ukraine, the engineering business is owned by
independent people who develop those businesses. In Russia, it is owned by
the oligarchs."
Third, the Ukrainian political elite was privately lukewarm in its support
for Yanukovich - its official candidate - and not particularly hostile to
Yushchenko, a popular former prime minister and central bank chief. Indeed,
at a personal level, much of Kiev officialdom felt more comfortable with the
cultivated and technically skilled opposition leader than with the rough,
proletarian Yanukovich. This sympathy became apparent in the early days of
the protests as swathes of the establishment, from the Kiev city government
to the diplomatic service, defected to the opposition.
Fourth, unlike Russia, Ukraine has no lost empire to mourn. In the end,
despite the urgings of his prime minister, some of his security chiefs and
some of his regional henchmen, Kuchma did not turn his tanks on his people.
With no glorious imperial restoration to tempt him, he chose to go down in
history as the midwife of Ukrainian democracy, however reluctant, rather
than the butcher of Kiev's Independence Square.
He bowed to the will of the Ukrainian people whose collective strength - so
obvious now, barely suspected before the vote on November 21 - was the main
reason the "Orange Revolution" succeeded. Neither a national struggle, nor
an economic one, Ukraine's revolt this autumn was the uprising of a people
at last secure enough in their identity and confident enough about their
material welfare to demand to be treated like citizens, not serfs. For the
first time in Ukrainian history, the big and traditionally divisive question
of statehood was resolved. Ukrainian civil society was also bolstered by
what has been dubbed the "distance to Dusseldorf" factor - shorthand for
geographic proximity to the west.
With EU enlargement last May, the west arrived at Ukraine's border, and it
has acted as a powerful model and lure. Hundreds of thousands, if not
millions, of young Ukrainians are now travelling west to work and study.
With each of the letters home accompanying their cash remittances, and with
their eventual return, they bring back knowledge of a different way of life.
This way of life - described by Ukrainians as "European" but really the
relationship between state and individual that underpins all western
democracies - inspired the Orange Revolution. Aslund calls it "Ukraine's
1848 - a true bourgeois revolution." A member of that petit bourgeoisie is
Oleksandr Tkachenko, who over the past decade and a half of our friendship
has risen from being a lowly fixer for Reuters to a prosperous television
executive. He saw the protesters as the modern incarnation of a Ukrainian
national archetype, the kulak peasant small-holders who historically formed
the backbone of Ukrainian provincial society and whom Stalin had tried to
wipe out. "This is the revolution of good burghers, of the well-dressed,
well-spoken Kievites. They already have money. What they need is freedom
for themselves, their businesses and their children," says Tkachenko.
Ukrainians are now busily creating a new set of myths to define and sustain
the transformed nation they believe their protests have forged. In his
speeches to the crowds during their 17-day vigil in Independence Square,
Yushchenko often spoke of democratic episodes from Ukrainian history,
including Pylyp Orlyk's constitution of 1710 limiting his powers as Cossack
ruler. An odd choice of topic, it might seem, for a 21st century political
campaign whose unofficial anthem was a hip-hop song and which was
co-ordinated by internet and mobile phone. But Yushchenko's discourses were
part of the larger democratic reimagining of Ukraine as a free, liberal and
"European" nation.
The 44 per cent of voters who backed Yanukovich in the December 26 run-
off shows that not all Ukrainians buy into this vision. Some, especially in
the
east, still cleave to a more Soviet, Russophilic identity. But Russia's
aggressive role in backing the outgoing regime has produced an explicitly
pro-Ukrainian backlash that is strikingly audible on the Russified streets
of Kiev. Since November 21, the capital has suddenly started to speak
Ukrainian - a language everyone in Ukraine understands, but may not be
accustomed to using. Like the ubiquitous orange scarves and arm-bands, the
language, at least for the moment, has become a symbol of democracy.
For countries to Ukraine's west, the Orange Revolution represents both an
opportunity and a challenge. The Poles, in particular, have been swift to
grasp the significance of developments in Ukraine and to offer moral and
practical support. Solidarity veteran Lech Walesa joined protesters in
Independence Square; Polish president Aleksandr Kwasniewski was one
of the leaders of the international mediation effort that helped avert a
violent crackdown; Gazeta Wyborcza, one of Poland's first independent
newspapers, produced a special edition, in Ukrainian, devoted to the
Orange Revolution. Their enthusiasm was recognition of the fact that
Europe's dividing line between democracy and authoritarianism is moving
from Ukraine's western border to its eastern one.
The best way to secure that border, from Poland's perspective, is to put
Ukraine on the path to EU membership and eventually to bring it fully into
the union. That is a project sure to send a chill down the spines of some
Eurocrats and politicians further west, for whom the prospect of a
democratic Ukraine eager to join the European club is less delightful. It is
not so long since Romano Prodi, speaking as president of the European
Commission, declared that Ukraine had as much reason to be in the EU
as New Zealand.
Europe is still struggling to absorb the 10 eastern European accession
states, is riven by the emotional debate over Turkey and is scrambling to
establish a secure post-war order in the Balkans. For many European leaders,
the sudden emergence of Ukraine as a credible, democratic European state
seems more like a problem than a solution. This view is particularly strong
among countries such as France, Italy, Spain and possibly Germany, for which
the project of deepening ties between core members of the community is more
important than broadening European values ever further east and south - and
which fear antagonising Russia.
The difficulty for the deepeners is that Ukraine, undeniably geographically,
culturally, religiously and historically a part of Europe, is now claiming
political and moral membership as well. Kuchma's Ukraine had been easy
enough to dismiss. As Yushchenko admitted to me in a conversation before
the final ballot: "Europe had some real and understandable reservations
about Ukraine. Can Europe co-operate with a criminal regime and call it
a partner? Can Europe work with a country dominated by a black-market
economy? Can Europe work with a country without the rule of law?"
But now, Yushchenko continued, "we are walking the not-very-easy path to
democracy... we have shown we are a different country, we are a different
people. It is a unique demonstration that here we have a civil society. The
nation has paid a high price to be able to say that this is a European
country." Soon, he said, it would be up to Europe to take "real, concrete
steps in response to our democracy".
Europe's broadeners can see Yushchenko's point. For them, by exerting the
seductive force of its own example, Europe has inspired the shift of a
country larger than France and with 48 million inhabitants from
authoritarianism to democracy. This is the vision of those who see the EU as
a democratic, voluntary empire, expanding through the lure of membership.
Ukraine, never offered that lure but determined to become worthy of it, is
the latest example of its power.
"It is very exciting, it is very uplifting, to see Europe's unquenchable
desire for freedom," says Denis MacShane, Britain's Minister for Europe. "I
don't see how anyone under any circumstances can deny that Ukraine is a
European country. If Ukraine announces that it has European ambitions, we
ought to welcome it."
The Orange Revolution has also subtly influenced relations between Europe
and the US. In their surprisingly robust and concerted defence of Ukrainians
' right to a fair election, the Bush administration and the EU, in political
scientist Robert Kagan's lovely phrase, "committed a flagrant act of
transatlantic co-operation". As MacShane put it: "The crisis in Ukraine has
helped to reconnect Europe with the US. It has made us understand that our
values are a lot more similar and more profound than the Iraq crisis may
have made us think."
If the west is (generally) welcoming, the east is sour. Russia's leadership
bet heavily on the loser in Ukraine's political contest. For the Kremlin, a
Yanukovich victory was important for philosophical, political and
geopolitical reasons. Philosophically, a triumph for "managed democracy"
and state capitalism in Ukraine would have been a validation of Russia's own
renunciation of open democracy and free markets in favour of president
Vladimir Putin's increasingly overt neo-authoritarianism. Politically,
installing the Kremlin's man in Kiev would have been a victory for the
neo-imperialist vision that Putin and his supporters increasingly have been
propagating to shore up domestic support. Geopolitically, the Kremlin made
its traditional calculation that vassals make better neighbours than
independent states.
Guided by this logic, Russia backed Yanukovich with tremendous zeal. Putin
visited Kiev twice in what essentially were campaign trail appearances for
Yanukovich. Kremlin political consultants, relying on the same arsenal of
techniques that had twice secured Putin's election, were so central to
Yanukovich's election drive that even officials within the Kuchma
establishment were enraged. Vasyl Baziv, the president's deputy chief of
staff, told me: "It hugely angered me when I walked through the presidential
administration and saw how citizens of another state were lying on the
divans and brutally forcing themselves into the state life of Ukraine."
Anders Aslund, the economist, estimates that Moscow spent $300m on the
Ukrainian elections, a figure confirmed by a leading Russian oligarch. At a
summertime meeting, Putin explicitly forbade Russia's oligarchs, some of
whom have democratic sympathies and strong connections with Ukraine, from
contributing to Yushchenko's campaign. Ultimately, Russia's candidate failed
because Russia's example has lost its appeal for most Ukrainians.
On a visit to London a year ago, my friend Oleksandr Tkachenko, the Kiev
television executive, described to me the worldview of his teenage daughter.
Like him, she spoke mostly Russian with her friends, though she listened to
Ukrainian rock groups and studied at Ukrainian schools. But Russia, the
country, held absolutely no interest for her. She had spent summer holidays
travelling through Europe with her parents. Next on her wish-list was New
York. Moscow, the dream destination of Oleksandr's Soviet childhood, did
not figure in her aspirations.
Ukraine's public rejection of the Kremlin model is playing in Russia in two
very different ways. For Putin and his neo-imperialist confreres, it is an
enraging humiliation. They are insulted and angry: Gleb Pavlovsky, one of
the architects of Putin's rise to power in 2000 and a leader of the Russian
political consultants sent to Ukraine, described the opposition's orange as
"the colour of children's diarrhoea". This fury has real cause.
The triumph of western values in Ukraine is a significant check on Russia's
neo-imperialist ambitions: historically, the Russian empire has never
existed without Ukraine. If Ukraine secures its position in the European
political space, Russia's post-Soviet sphere of influence shrinks to
Belarus, the Caucasus and Central Asia - not much of an empire, even for
a Russia that has accepted it will never regain its cold war super-power
status.
Nor is it only the Russian elite that mourns the loss of imperial might. As
Yegor Gaidar, the father of Russian market reforms and one of the country's
staunchest liberal democrats, admitted to me over breakfast in London: "It
is a complex of the lost empire. This is a huge difference between us and
all the other post-communist countries, apart from Serbia. Everyone else
lost socialism and gained independence. We lost socialism and lost an
empire."
But Gaidar and other Russian democrats are also hopeful Ukraine will
inspire another reaction. As he put it: "This is the first stone thrown at
the edifice of Russia's managed democracy." He argues that the example
of Ukraine will give Russians, particularly the younger ones, faith that
their society, too, might prove capable of mustering the collective will
to stand up for democracy.
The danger is that Putin - piqued by his personal humiliation in Ukraine,
stung by the loss of empire and legitimately worried by Kiev's democratic
example - will pursue personal vengeance rather than national interest.
Gaidar warned that the Kremlin's reaction could be, "everyone has betrayed
us, now we are a besieged fortress." He hoped that the west could play a
valuable role in averting this sort of "hysterical" reaction.
Insulating eastern Europe from Russian expansionism, securing democracy
and free markets along Europe's eastern arc, encouraging the erosion of the
neo-authoritarian regimes that had seemed the inevitable successors of the
Soviet Union, and all without unduly provoking a wounded Russia still
bristling with nuclear weapons - that is the vast geopolitical agenda that
the Orange Revolution has opened up for the world. Gaidar worries that the
west may "sleep through it". In contrast with made-in-America political
projects such as Afghanistan or Iraq, he fears the western response might be
to say, "we didn't make your revolution, you did it yourselves, so now you
figure it out."
There is an alternative view. A recent essay in The New Yorker positively
compared the success of America's own soft power in Ukraine - the lustre
of its example, a dribble of support for local NGOs - with the shambles its
exercise of hard power has made of Iraq. You don't have to buy into the
contrast between the two to accept that homemade velvet revolutions can
make as legitimate a claim on the world's attention as violent regime change
imposed from abroad.
The accidental hip-hop anthem of the Orange Revolution is an apt embodiment
of what has been a spontaneous and united assertion in Ukraine:
We are not swine,
We are not goats,
We are Ukraine's daughters and sons.
No, to falsification!
No, to manipulation!
No, no, no to lies!
Together we are many,
We cannot be overcome.
Its putative composers are Roman Kalyn and Roman Kostyuk, two
thirtysomething would-be musicians - Kalyn has a day-job as a TV anchorman,
Kostyuk as a sound engineer - from the western Ukrainian city of
Ivano-Frankivsk. After the falsified November 21 vote, they recorded the
slogans they had heard at their town square to a hip-hop beat and were soon
singing it with their friends and fellow protesters. Someone - they don't
know who - sent it out on the internet and it was soon picked up by those
singing and chanting in Kiev's Independence Square.
"The Yushchenko people said they had been thinking that they needed such
a song and then it just appeared," Kalyn recalled. The pair haven't earned a
kopek from writing their country's wildly popular new hymn, but they don't
seem to mind. "We wrote this song for the people," Kostyuk explained. "Let
them use it." -30- [Action Ukraine Report Monitoring Service]
----------------------------------------------------------------------------
Chrystia Freeland is deputy editor of the FT.
----------------------------------------------------------------------------
http://news.ft.com/cms/s/71719630-5f99-11d9-8cca-00000e2511c8.html
==========================================================
2. WITHDRAWING UKRAINE TROOPS FROM IRAQ A PRIORITY
AFX Europe, Kiev, Ukraine, Sun, Jan 09, 2005
KIEV - The winner of Ukraine's presidential vote Viktor Yushchenko said
withdrawing the nation's troops from Iraq will be a priority for him once he
takes office, after an accidental blast killed seven Ukrainian soldiers
there. "Viktor Yushchenko sends deep condolences to the families of
Ukrainian peacekeepers who died in Iraq Sunday," said a statement released
by his press office late Sunday.
"Insofar as withdrawing Ukraine's peacekeeping contingent from Iraq, it
remains one of Yushchenko's priorities once he assumes office," the
statement said.
The seven Ukrainian troops, along with one Kazakh soldier, died after a bomb
they were about to defuse went off accidentally in Iraq's central Wasit
region, where Ukrainian and Kazakh troops serve under Polish control, Kiev's
defense ministry said.
Another seven Ukrainian and four Kazakh troops were injured as a result of
the accident, which occurred after a team of Kazakh sappers and their
Ukrainian backup had brought back for defusion some 35 aerial bombs that
Iraqi police had found stashed near the central military base of As
Suwayrah. After the bombs were unloaded from their transport vehicles one
of them exploded for reasons that are still being investigated, the ministry
said.
Some 1,600 Ukrainian troops have been deployed since August 2003 in Iraq's
Wasit region where US-led coalition forces are under Polish command.
Prior to Sunday's deaths, Ukraine has lost nine of its troops, with another
20 injured. (yad/wdb/tr) -30- [Action Ukraine Report Monitoring Service]
==========================================================
3. CEC POSTPONES OFFICIAL ANNOUNCEMENT OF
UKRAINE'S PRESIDENTIAL RERUN RESULTS
ISI - Intellinews, Kyiv, Ukraine, Mon, January 10, 2005
KYIV - Central Electoral Committee decided to postpone public announce-
ment of official results of the repetition of the 2nd round presidential
vote, which took place on Dec 26.
The fact is that on Monday, Jan 10, Supreme Court of Ukraine intends to
examine the last complains of presidential candidate Viktor Yanukovych.
Only after that the results will be publicized, CEC underlined. -30-
==========================================================
4. UKRAINIAN STOCKS APPEAL AFTER ORANGE PROTESTS
By Tom Warner in Kiev, Financial Times, London, UK, Thu, Jan 6, 2005
KIEV - Ukraine's Orange Revolution has resulted in a new president and has
also made the country's tiny stock exchange the world's best-performing
market of 2004. As hundreds of thousands of people poured into central Kiev
in November and December to protest about a rigged presidential election,
and holders of government bonds began looking nervously for an exit
strategy, investors in Ukrainian stocks decided it was a good time to buy.
The main PFTS index ended the year up a stunning 204 per cent.
"This market rally shows the high hopes that international investors have
for Viktor Yushchenko," - the Orange Revolution leader who won last month's
re-run presidential election - said Michael Sito, a Moscow-based asset
manager who has been trading in Ukrainian stocks since 1996. Ukraine's
stock market had been having a good year anyway, with the PFTS index
climbing from 85.4 to 149.8 in January-April on the back of strong gross
domestic product growth, which is expected to have exceeded 12 per cent for
the year.
The PFTS then followed the Russian market's downward slide, bottoming out at
109.1 in September, but rocketed upward after the first protests in October,
and kept climbing throughout the political crisis to close the year at
260.1.
Ukrainian stocks still remain off the map for most international investors,
with good reason. The biggest problem facing the market is liquidity: the
PFTS's annual trade volume last year was just $1.3bn, less than 1 per cent
of Russia's Micex, the region's biggest exchange. Most listed Ukrainian
companies behave like closely held private firms, with shares that rarely
change hands. Only a couple of dozen stocks are really traded and only a
handful are truly liquid in the sense that investors can buy them without
making a long-term commitment.
Of the more liquid companies, almost half are majority state-owned, while
the rest are owned either by politically connected local oligarchs or by
managers entrenched since communist times. These factors and conventional
wisdom that Leonid Kuchma, the outgoing president, would succeed in
installing a hand-picked successor had kept stock prices depressed for
years.
"There was so much bad news priced into Ukrainian stocks that it didn't take
much to turn the market around," Mr Sito said. John Suggitt, managing
director of Concorde Capital, a Kiev-based stock house, said the rally had
improved liquidity as many investors who had been holding on for years to
blocks of shares finally got their desired price and sold.
While most bids before the elections were from high-risk hedge funds,
big-name international asset managers are now leading the buying, he said.
An important milestone for the market will be the expected privatisation
this year of Ukrtelecom, the national fixed-line telephone monopoly. -30-
==========================================================
5. UKRAINE: INFLATION AT 12.3% IN JAN-DEC, 2004
ISI - Intellinews, Kyiv, Ukraine, Wed, January 5, 2005
KYIV - Consumer prices rose by 2.4% in December, the State Statistics
Committee announced, as reported by Ukrainian News - on-line. In particular,
prices of foodstuffs rose 3.3%, of non-food - by 0.8%, prices of services -
by 0.8%. As Ukrainian News earlier reported, consumer prices rose by 1.6% in
November (food prices rose 1.8%, non-food prices 0.4%, prices for services
went up 1.7%).
Ukrainian News also reported that according to the State Statistics
Committee, the consumer prices rose 12.3% in January-December. In
particular, prices for foodstuffs rose by 15.3%, nonfoods prices - by 5.4%,
prices for services - by 7.9%. In 2003, the country’s inflation totaled
8.2%. Earlier, the Cabinet had forecast the 2004 inflation within the limits
of 5.8-6.3% (December to December), and the average annual inflation rate
at 6.7%.
In September, the Ministry of Economy revised the inflation forecasts for
2004 from 6.3% to 7-7.6%, and in October, the Cabinet revised the forecasts
from 7-7.6% to 8.5%, in November - from 8.5% to 9.5%, while in December
- to 10.5%. Also in December, the Cabinet downgraded its forecast inflation
rate for 2005 from 7.1% to 8.7% (December on December). -30-
==========================================================
6. UKRAINE: HEIDELBERGCEMENT INTENDS TO INVEST 20MN EUR
IntelliNews - Ukraine Today, Kyiv, Ukraine, Mon, January 10, 2005
KYIV - HeidelbergCement, the 3rd world largest cement and construction
material producer, plans to invest EUR 20mn to its Ukrainian business in
2005. In particular, the modernization of their Kryvyi Rih Cement and
Dneprocement plants is planned.
Worth noting, in 2004 their output volumes and financial indicators were
increased. In particular, aggregate production and sales made up 1.75mn tons
of cement in 2004. Ukrainian business of HeidelbergCement consists of Kryvyi
Rih Cement (with planned annual production capacity of 1.15mn tons of
cement), Dneprocement (0.615mn tons), and Kryvbass Cement, an exclusive
trade dealer and representative of both plants. -30-
===========================================================
7. UKRAINE SUSPENDS PRIVATIZATION OF STATE PROPERTY
Era, Kiev, in Ukrainian, 0 Jan 05
BBC Monitoring Service, UK, in English, Mon, January 10, 2005
KIEV - The head of the State Property Fund of Ukraine, Mykhaylo
Chechetov, issued an instruction on 6 January 2005 to suspend the sale of
all large-scale facilities and the creation of new economic entities until
the new cabinet is formed, the fund's press service has said. It did not
specify which large-scale facilities were meant.
The Cabinet of Ministers also ordered ministries and government agencies to
temporarily suspend the privatization of state property. The acting prime
minister, Mykola Azarov, said the moratorium would remain in place until the
new government is formed. The sale of the state-owned stake in the
Krasnodonvuhillya [coal mining company] at the Ukrainian Interbank Exchange,
which was planned for 2 February 2005, has also been cancelled. -30-
==========================================================
8. "NEW NEW YEAR IN UKRAINE"
OP-ED: The Washington Times, Washington, D.C., Fri, Jan 07, 2005
Ukrainian Viktor Yushchenko's presidency became all but certain yesterday,
when the Supreme Court threw out a court challenge to last month's election
by former Prime Minister Viktor Yanukovich. The ruling adds to the
remarkable democratic momentum in Ukraine that has held much of the
world in awe.
The Supreme Court decision validates the will of the people of Ukraine,
hundreds of thousands of whom camped out in the streets of the capital
Kiev in freezing temperatures to contest a November presidential run-off
election, which was widely deemed to be fraudulent. The Supreme Court of
Ukraine shared that view, and ordered a new runoff election which was held
the day after Christmas and which Mr. Yushchenko won. The Central Election
Commission must publish the election results before they become official.
Mr. Yushchenko's presidency is expected to bring Ukraine closer to the West
and deliver a marked change from the repressive and corrupt rule of outgoing
President Leonid Kuchma, who is believed, among other things, to have
ordered the execution of a respected journalist. Mr. Yushchenko will be
facing some difficult challenges, such as bringing the eastern, industrial
part of the country, which remains staunchly pro-Russian, into Kiev's fold.
For the United States and Russia, the apparent resolution of the Ukraine
crisis should usher in a period of reconciliation. Russian President
Vladimir Putin made glaring attempts to bring about the victory of Mr.
Yanukovich and assert Russian predominance over Ukraine.
The Bush and Putin administrations should now discuss the many areas
where their country's interests converge. Russia's energy sector is growing
in line with President Bush's goal of diversifying global energy sources. In
addition, Russia has backed economic development in former Soviet states,
such as Central Asian countries — and Ukraine for that matter. Those
efforts could help keep the threat of Islamic radicalism at bay in a still
vulnerable area that is strategically important to U.S. counterterror
efforts.
Russia, the United States and Europe must be careful also to allow Ukraine
to handle its domestic affairs. Its example will certainly provide a model
and inspiration for other fledgling democratic movements. Ukrainians are
celebrating a new New Year. -30- [Action Ukraine Report Monitoring]
==========================================================
9. FAMILY'S HUNT LEADS TO BODY OF MURDERED BRITON
James Burleigh, The Independent
London, United Kingdom, Monday, Jan 10, 2005
LONDON- A BRITISH engineer has been found murdered in a flat in the
Ukrainian capital after being traced by a detective hired by his family and
friends. The body of Kieran Downes, 42, who ran his own plumbing business,
was found with his hands tied behind his back in an apartment in Kiev. Mr
Downes travelled to the former Soviet republic to buy and develop a property
more than a year ago and friends and family became concerned for his safety
after he stopped telephoning.
After local police allegedly refused to look for him, a private detective
was hired and initially travelled to Russia in November. After nearly six
weeks of painstaking work, the detective located a flat where Mr Downes
sometimes stayed in Kiev. Police were summoned and the body of Mr Downes,
a black belt in judo, who had travelled extensively in America, Russia and
Spain, was found on 18 December. The circumstances of his death remain
unclear.
Mr Downes, who came from Ealing in west London, was divorced a few years
ago from his wife, with whom he had three children. The children live with
their mother in Bournemouth. Mr Downes's body has been returned to
Salisbury, Wiltshire, where he was identified by dental records. Detectives
from Wiltshire Police are liaising with Russian and Ukrainian authorities on
the murder investigation.
In a statement, his parents, George and Mary Downes from Salisbury, said:
"His death has come as a great shock to us, his two brothers and other
members of our family. We will always remember his love of life and sport,
and he was well thought of by so many people. The circumstances surrounding
his death are still unclear and we are waiting to see if the Ukrainian
authorities can shed any light on it. Meanwhile we are trying to come to
terms with our loss." An inquest has been opened and adjourned.
Organised criminals have become very active in the Ukraine in recent years
and Kiev has become a centre for smuggling of all types, from drugs and
illegal guns to the trafficking of women for Europe's sex trade. Thousands
of women leave the country each year to look for a better life, enticed by
promises of security and a fresh start in the European Union or the Middle
East. Traffickers smuggle them into the EU, where they are sold, their
papers are taken away and they become vulnerable to coercion. The
sale of illegal arms is also big business in the former Soviet republic.
In 2001, a Russian man was arrested in Italy after he had flown an Antonov
124 into Kiev and loaded it with 113 tons of rifles, rocket-propelled
grenades and ammunition. The consignment was bound for Ivory Coast in
west Africa. -30- [Action Ukraine Report Monitoring Service]
==========================================================
10. UKRAINE MEDIA NOT SEEN AS INDEPENDENT YET
By Bagila Bukharbayeva, Associated Press Writer
Kiev, Ukraine, Friday, January 7, 2005
KIEV, Ukraine - When protesters thronged the streets of Kiev to protest
presidential election fraud, most Ukrainians barely saw the drama on TV.
Most stations toed the line that the establishment candidate had won. The
picture has changed markedly since then, but critics warn that TV channels
might have merely switched sides, not mindsets.
Before the Nov. 21 election, which eventually was annulled by the Supreme
Court, opposition candidate Viktor Yushchenko got little attention on most
channels. His rival, then-Prime Minister Viktor Yanukovych, received
extensive and uncritical coverage.
The first days of postelection protests by tens of thousands of people
sporting Yushchenko's campaign color orange also got negligible notice on
state-run or state-friendly channels, but as the protests gathered momentum
TV journalists broke their restraints. Since the Dec. 26 rerun of the vote,
which Yushchenko won, he's been nearly ubiquitous on television, while
Yanukovych supporters are shown only rarely and in unflattering ways.
"It's all been great and easy so far: reporting and showing the orange camp
celebrating and (Yanukovych supporters) drinking," said Mikhalina Skorik, a
media expert from the Ukrainian Independent Center for Political Research.
"The question is, what's next?"
Such concern is well-placed. After the fall of Communist regimes in Eastern
Europe, many of the new ruling elites made only cosmetic changes in their
treatment of media. In other cases, notably Russia, the initially lively
post-Communist media have come under increasing pressure.
Since Vladimir Putin became president in 2000, the independent-minded NTV
channel was sold to an arm of the state natural gas giant Gazprom, and
another channel owned by tycoon Boris Berezovsky, who had criticized Putin,
was forced out of business. The Kremlin hand was suspected behind both
efforts.
At the peak of the "Orange Revolution" protests, several pro-government
Ukrainian channels apologized for their previous coverage and pledged
objectivity. Journalists of the state-run First Channel issued a statement
declaring they "are not lying anymore."
However, objectivity is still rare on the air. Some reporters have appeared
prominently wearing orange and news programs have come to be dominated by
pro-Yushchenko analysts. "Colossal efforts have to be made to bring about
real changes," said media rights activist Natalya Ligacheva. She called for
creating public television free of government interference and greater
transparency for media organizations and their editorial policies.
Zerkalo Nedeli, an independent Kiev weekly, warned last week that the main
broadcasters were still under the control of business tycoons loyal to
departing President Leonid Kuchma. The paper also raised doubts about
whether a Yushchenko administration would treat the media any better,
warning that without a truly independent media, "Kuchma's regime" might turn
into "Yushchenko's."
Broadcasters were kept on a short leash by Kuchma during his 10-year rule.
He regularly sent them directives on what should be covered and how. He was
accused of complicity in the murder of a crusading Internet journalist in
2000 - an incident that prompted mass outcry. Kuchma denies any involvement.
Other journalists died under suspicious circumstances in the past decade and
some were subjected to beatings, censorship and intimidation.
Katerina Myasnikova, head of the Independent Association of Broadcasters,
said the media could revert to one-sided news coverage under a Yushchenko
presidency, but she said the "Orange Revolution" had also taught
broadcasters an important lesson - particularly for those who saw their
ratings drop. "Viewers aren't an amorphous mass that you can feed anything,"
she said. "They learned that people don't want to be manipulated." -30-
==========================================================
11. UKRAINIAN SPEAKER LYTVYN, IN MOSCOW, PREDICTS
APPROVAL OF YUSHCHENKO'S NOMINEE FOR PM
ITAR-TASS news agency, Moscow, in Russian, 7 Jan 05
BBC Monitoring Service, UK, in English, Fri, Jan 7, 2005
MOSCOW - Ukraine's Supreme Council will support the candidate whom
the president-elect, Viktor Yushchenko, nominates for the post of prime
minister. The speaker of the Ukrainian parliament, Volodymyr Lytvyn, told
journalists this today after meeting State Duma speaker Boris Gryzlov.
Lytvyn stressed that it is the president's prerogative to choose the
chairman of the Ukrainian government and "nobody intends to take it away
from him".
Amongst the candidates for the post of head of the Ukrainian government
Lytvyn named Viktor Yushchenko's allies, Yuliya Tymoshenko and Petro
Poroshenko, the leader of the Socialist Party, Oleksandr Moroz, and the
chairman of the Ukrainian Union of Industrialists and Entrepreneurs,
Anatoliy Kinakh, as well as the leader of the People's Ukraine party, Viktor
Pynzenyk [untraced - Pynzenyk is an Our Ukraine MP and leader of the
Reforms and Order Party].
The head of the Supreme Council did not rule out the possibility that, after
the Central Electoral Commission has officially announced the results of the
presidential election, Viktor Yanukovych will try once again to mount a
court challenge against them. However, Lytvyn believes, once the results
have been published in the newspapers Uryadovyy Kuryer and Holos Ukrayiny,
"there is no going back". -30- [Action Ukraine Report Monitoring Service]
==========================================================
12. PUTIN URGES PRAGMATISM IN UKRAINE
Reuters, Moscow, Russia, Friday, January 7, 2005
MOSCOW - Russian President Vladimir Putin says Ukraine should focus on
developing its economy and raising living standards now it has completed its
presidential election. He made no comment on Friday on the re-run of the
election on December 26, and nor did he send congratulations to the winner,
president-elect Viktor Yushchenko.
But in terse comments broadcast on Russian television, he told visiting
Ukrainian parliament speaker Volodymyr Lytvyn: "I very much hope that,
after completing the election process, pragmatic views on developing the
economy and raising living standards will prevail over election rhetoric."
Putin had earlier endorsed former prime minister Viktor Yanukovich,
initially declared the victor in the presidential election before its
results were overturned by the Supreme Court after complaints these had
been fraudulent. Ukraine, with a population of nearly 50 million, is a
buffer state between Russia and the European Union, and the main transit
route for Russia's natural gas exports to Europe.
Ukraine's east, the country's industrial heartland and Yanukovich's power
base, is primarily Russian-speaking. Kiev and the more rural west of the
country, where the Ukrainian language predominates, voted overwhelmingly
for Yushchenko. -30- [Action Ukraine Report Monitoring Service]
==========================================================
13. PRYVAT ON THE PETROLEUM MARKET
Top Ukrainian business group seeks to dominate oil market
Ukrayinska Pravda web site, Kiev, in Ukrainian 20 Dec 04
BBC Monitoring Service, UK, in English, Friday, Dec 31, 2004
The leading Ukrainian business group Pryvat, based in Dnipropetrovsk, has
reacted cautiously to the decision to set up a vertically integrated oil
company based on the state-owned oil and gas company Naftohaz Ukrayiny, an
opposition paper has said. Although some experts believe it has lost nothing
by this decision, it says that the group, which runs 700 filling stations
across the country, is still faced with high transportation costs. If it
pays more attention to consolidating its positions instead of just chasing
profits it could still play an important role in the eventual shape of the
new oil company and make its contribution to Ukraine's energy security, the
paper concludes.
The following is the text of the article by Oleksiy Moldovan entitled
"Pryvat on the petroleum market", published on the Ukrayinska Pravda web
site on 20 December; subheadings have been inserted editorially:
A distinct lull and an absence of sharp movements by the Pryvat group
following the president's decision to create a VIOC [vertically integrated
oil company] based on [state-owned] Naftohaz Ukrayiny, and not the Ukrnafta
group, can scarcely be seen as an admission of defeat, and it has not been
ruled out that this pause is nothing more than a preparatory step in a new
fight for the country's oil assets.
The Pryvat group is a regional business structure with its centre in
Dnipropetrovsk, but at the same time it is one of the biggest and most
influential forces nationwide in the economic sphere. Of late the focus of
Pryvat's activity has been shifting more and more towards the oil segment of
the country's economy, and although at this stage trading in petroleum
products is merely the group's third biggest source of revenue after
metallurgy and banking, recently this structure has been particularly active
in the oil business.
Analysts link the start of Pryvat's activity with 1992. It was precisely in
March of that year that the announcement was made to create Pryvatbank.
Among its shareholders were the companies Pryvat-International and
[Dnipropetrovsk-based] Sentoza Ltd. All three companies still form the
nucleus of the group and their activities are clearly coordinated. According
to one of the founders of the structure [Hennadiy] Boholyubov, it was the
former head of the National Bank of Ukraine, Serhiy Tyhypko, chairman of the
board of Pryvatbank in the subsequent years 1992-1997, who initiated the
setting up of the bank. At the first stage the group had close ties with
Dnipropetrovsk Region governor Pavlo Lazarenko, who later became Ukrainian
prime minister and helped Pryvat to develop its business. In 1995-1996
companies of the group, not without Lazarenko's help, were actively buying
up Dniproazot [ammonia making] and other strategic facilities in the region
in competitions run by the State Property Fund.
PRYVAT MOVES INTO THE OIL BUSINESS
Business in the metallurgical and chemical industries, as well as banking,
enabled Pryvat to consolidate its sound financial resources in order to
enter the arena of Ukraine's oil business as an active partner. In December
1999 several companies close to Pryvatbank, via the stock exchange,
purchased from the Ukrainian State Property Fund 10.95 per cent of Ukrnafta'
s shares for 60.645m hryvnyas. In May 2000 another 8 per cent of the shares
of a leading oil-extracting company came under the group's control.
Eventually Pryvat succeeded in collecting about 42 per cent of shares and
de-facto to run Ukrnafta. The group also set up a network of filling
stations to market their petroleum products, the number of which, Mr
Boholyubov confirms, reached 700 in 2004. At the same time, in 2002-2004,
Pryvat was actively trying to form an oil structure which would work
according to the pattern "from well to the pump". In order to achieve this
goal the group acquired about 75 per cent of the shares of Naftokhimik
Prykarpattya (Nadvirna, Ivano-Frankivsk Region), 32.9 per cent of the
Halychyna oil-refining complex (Drohobych, Lviv Region), and 0.035 per cent
of the closed joint-stock company Ukrtatnafta (Kremenchuk oil refinery in
Poltava region). Pryvat also controls a number of small networks -
Khmelnytsknaftoprodukt (60.05 per cent), Sumynaftoprodukt (85.23 per cent).
Zhytomyrnaftoprodukt (70.15 per cent), Chernihivnaftoprodukt (96.5 per
cent), Chernivtsinaftoprodukt (76 per cent), Mykolayivnaftoprodukt (60.9 per
cent). Kirovohradnaftoprodukt (60.01 per cent), and Sevnaftoprodukt-Servis
(75 per cent), and, of course, Sentoza and Avias, who together own the
biggest network of modern filling stations in Ukraine (about 600).
In the process of raising oil assets the group uses all its levers of
influence. The situation with Halychyna is further evidence of this. The
biggest oil refinery in western Ukraine is, of course, under the control of
the Lutsk Kontinium group, thanks mainly to its loyalty-minded management.
In 2003 the state tax administration in Lviv Region instituted criminal
proceedings against managers of the oil refinery on charges of tax evasion
to the total of 421.650m hryvnyas. A report of the Lviv tax authorities
press service pointed out that this was the result of a routine check of the
company's books in September 2003, which revealed an overall under-charging
of accounts to the tune of 421.650m. hryvnyas. Among other things, the check
established that from 1 April to 30 June 2003, by means of an irrational
imposition of VAT, as part of the tax credit the company had deliberately
reduced the tax liability on VAT, as a result of which 158.092m hryvnyas
failed to reach the state budget. There are no parallels here, and so how
realistic such charges are has to be decided by the court. But this was a
big blow to the Lutsk group, which allows for all manner of speculation.
The same year the Ukrainian State Property Fund temporarily halted the
preparation of tenders for the sale of state-owned packages of shares in the
open joint-stock company Naftohimik Prykarpattya, the open joint-stock
company Halychyna and the closed joint-stock company Ukrtatnafta. The head
of the State Property Fund [Mykhayko] Chechetov claimed that this step had
been taken in order to study the possibility of creating a national VIOC
based on them, with the participation of Ukrtatnafta. There are at least two
things which lead one to think that the USPF, in reaching this decision, was
taking into account Pryvat's interests. The first was the negligible chances
of the group acquiring the state packages of shares of the above-named
companies for a number of various reasons. One of these reasons was the
identical interests of the Tatars at the Kremenchuk oil refinery and the
Kontinium group at Halychyna, which unlike the Dnipropetrovsk businessmen,
had a considerable lobby in the higher echelons of power. Added to that was
the lack of interest in the emerging of a powerful oil company on the part
of already established Russian companies and the Ukrainian authorities. The
simultaneous effect of all these factors would not enable the Dnipropetrovsk
group to privatise three of the six state-owned oil refineries.
BASIS OF NEW OIL COMPANY
The second point was on the basis of what company the VIOC should be
created. Ukrnafta, despite a control block of shares which belong to the
state, is under the control of the Pryvat group, then the facilities handed
over to the company's control were most probably also controlled by Pryvat.
But the Dnipropetrovsk group did not give up their idea. And there is a
rational explanation for this. Pryvat had in fact already created its own
kind of VIOC. Although it has not been formed officially, it nevertheless
functions along the same principles. The group's main problem lies in the
optimization of this structure. Because the oil wells and the main network
of the group's filling stations are in the east, and the only fully
controlled Nadvirna oil refinery is situated in the west of the country,
Pryvat loses a huge amount of money. This, in turn, has a negative effect on
the competitiveness of its petroleum products and the commercial viability
of the business itself. Therefore it is absolutely logical that the
dominating interest of the group would be to gain control over the
Kremenchuk oil refinery, which would enable it to reduce the cost of
transporting the oil and would strengthen its positions on the petroleum
products market in the east of the country.
Most likely, these aspirations of Pryvat were the main reason the president
signed on 16 July a decree "On measures to improve the effectiveness of
running the oil industry". According to this decree, the Ukrainian Cabinet
of Ministers was due to increase Ukrnafta's authorized capital, at the same
time preserving for the state 50 per cent plus one share, for which 25 per
cent of the shares of the Halychyna oil refinery and 43.054 per cent of the
shares of Ukrtatnafta (the Kremenchuk refinery in Poltava region) had to be
transferred to Ukrnafta's authorized capital. Furthermore, the government
also had to work out a programme of creating a network of the wholesale and
retail trade of petroleum products produced by Ukrtatnafta and Halychyna,
and mechanisms for attracting investment for the development of Ukrnafta, as
well as a programme for the modernization of oil refineries. Bearing in mind
that Pryvat is the actual owner of Ukrnafta, it is not difficult to suppose
that control over the two refineries would immediately be transferred to it.
However, Ukraine's oil industry is a dynamically developing industry which
may yield big dividends and so the list of competitors wishing to have
control over Ukraine's oil business is fairly long.
OPPOSITION FROM LUTSK
From the start the above-mentioned, the Lutsk Kontinium group, which faced
the danger of losing managerial positions at Halychyna and of their network
of WOG filling stations, was against the creation of a VIOC under the
control of the Dnipropetrovsk group. Shares in the refinery complex have now
been distributed almost equally - 32.9 per cent are controlled by companies
close to Pryvat, and about 40 per cent by the MP Ihor Yeremeyev, his wife
and structures close to Kontinium. In the event of gaining access to a 25
per cent block of shares, the balance of power is sharply altering in favour
of the Dnipropetrovsk group.
For the Russian Tatneft [Tatarstan Oil Company] the situation does not look
so critical, but there would also be problems with the Pryvat group
virtually arriving in Kremenchuk, especially bearing in mind that the
controlling block of Ukrtatnafta, which is owned by Tatarstan, may be
reduced by nearly 18 per cent. The matter is about "disputed" shares
belonging to the American SeaGroup International and the Swiss AM Ruz
Trading, which was at one time sold to Tatarstan shareholders by the heads
of the Kremechuk refinery Matitsyn and Demyokhin. There is every possibility
that the Pryvat group may raise this issue all over again. Clearly, the role
of companion for Tatarstan suits Naftohaz Ukrayiny and its head Yuriy Boyko
much better. And the Ukrainian leadership still remembers the Pryvat
technologies of the privatisation of state property through the laundering
the shares of the state with the help of extra emissions.
It could be that this was precisely why within two months, on 15 September,
the president changed his decision. It transpired that a meeting of
Ukrnafta's shareholders would not take place, and the VIOC itself would
be created on the basis of Naftohaz Ukrayiny.
Despite the fact that many analysts are calling Pryvat a group without
cover, from what we have said earlier, one may come to a radically opposite
conclusion. There are very influential forces that are lobbying the
interests of this group. Power in Ukraine is not monolithic, it is rather a
symbiosis of representatives of the country's financial and industrial
groups, and so when one state structure tries to lobby the interests of one
business group, the second may put the same pressure on this group. Thus,
despite permanent sanctions by the Ukrainian Antimonopoly Committee, other
state bodies were also dealing with Pryvat at the start of 2004. The State
Committee for Supervision over Labour Protection declared unsatisfactory the
work of Ukrnafta in creating safe and harmless working conditions and the
rational use of natural resources at oil and gas extraction plants. A
thorough check established that the joint-stock company was not taking
measures to improve industrial safety. A decision was adopted to take
administrative proceedings against the head of the Ukrnafta board [Ihor]
Palytsya and to send to the Prosecutor General's office materials about the
situation regarding industrial safety, labour protection and industrial
injuries at Ukrnafta. And last month the Cabinet of Ministers instructed the
Interior Ministry, the tax administration, the Antimonopoly Committee and
other executive structures to take control of the market of petroleum
products, and naturally this concerns, first and foremost, the Pryvat group,
which owns one of the most diversified networks of filling stations.
DISPOSITION OF FORCES
In order to understand the logic of events, it is worth looking at the
disposition of forces on the Ukrainian oil market. Here, it is undoubtedly
the companies of Russian origin which play the key role. Behind them come
the local groups Kontinium and Tatarstan, which have a vested interest in
retaining control over their own facilities, and are not showing any
particular aggression. Also there is UkrSibbank, which also shows great
interest in the Ukrainian oil market. For example, recently companies close
to UkrSibbank became shareholders of the Nadra bank. The Ukrainian
Metallurgical Company took part in a tender for shares of the Kiev Nadra
bank to the total of 21.2m hryvnyas. As a result of the emission its share
of the bank's authorized capital amounted to nearly 18 per cent. At the same
time, the little-known Kharkiv company Grand+ joined Nadra's shareholders,
and although no clear link between Grand+ and UkrSibbank has yet been
traced, the relation to the Ukrayinskaya Metallurgical Company to the group
is obvious. About 90 per cent of the company belongs to UkrSibbank.
The Kharkiv group has received another boost in the development of its
business, because oil refining in the shape of the Halychyna refinery has
joined the sphere of interests of the Nadra bank. It is probable that by
becoming a shareholder of the Nadra bank, the group will strengthen its
positions in these spheres. Being an active lobbyist of the interests of
Russian companies, since last year UkrSibbank has begun an active struggle
to increase the number of representatives of minority shareholders in
Ukrnafta's supervisory council. UkrSibbank is said to be representing the
interests of Alfanafta in this deal.
All these participants from time to time are united in a situational
alliance in order to deal a rebuff to Pryvat's aggressive plans. Even
President Leonid Kuchma was unable to withstand their pressure and meet the
demands of certain deputies of Our Ukraine who were representing the
Kontinium group, and Kharkiv deputies from the Democratic
Initiatives-People's Power faction, which having suspended membership of the
parliamentary majority, managed to call off the creation of a VIOC under the
control of Pryvat. According to the official version, put out by MP Dmytro
Svyatash, what upset the MPs was the fact that part of state ownership had
been freely given to a private investor, namely the Pryvat group. According
to unofficial information, this also affected the interests of the head of
UkrSibbank, Oleksandr Yaroslavskyy, and other leading participants in the
oil market. Whatever the state of affairs, the head of the board of Naftohaz
Ukrayiny, Yuriy Boyko, said that, on a president's decree, state packages of
Ukrtatneft and Halychyna would not go to Ukrnafta but would be transferred
to Naftohaz Ukrayiny, a vertically integrated oil company would be formed on
the basis of this national joint-stock company. It will deal in the
extraction, refining and marketing of petroleum products to ensure the
country's economic and energy security.
CONSEQUENCES OF DECISION
The consequences of this decision may be assessed in different ways. Some
analysts say that Pryvat should in principle remain satisfied, because it
has lost nothing. On the other hand, the group has not gained anything, and
the main thing is that it has not solved the problem of the high cost of
transporting its own petroleum products. In addition, instead of being under
the control of a VIOC, which could become a useful addition to Pryvat's oil
assets, the group, in essence, gets another competitor. Therefore, it has
not been ruled out that after a certain lull, Pryvat will occupy a very
active position and will still play an important role in what the VIOC will
look like.
It should be pointed out that the Dnipropetrovsk group lacks an integrated
strategy of consolidation on the oil market. Their main task is by no means
to strengthen itself in the industry and in no way to win from competitors a
place in the sun. Pryvat's interests are trite, just as in essence they are
in any other sphere of business, and consist of obtaining maximum profit.
But it has to be said that the group is doing pretty well and tries to take
advantage of every situation.
So, during the time of peak demand, prices for Pryvat fuel and the filling
stations under its control are going up. In October 2003 the Antimonopoly
Committee fined leading traders in petroleum products in Dnipropetrovsk
Region - the Avias and Sentoza Oil companies - for price collusion and
monopolization of the market in petroleum products in the region. As has
already been said, both of these are owned by the Pryvat group. This
decision was immediately contested in the court, and it turned out in favour
of both the companies who were fined. In this situation Avias sold the
majority of its filling stations to Ukrnafta at a very advantageous price,
thus maintaining control over them and receiving at the same time free
funds. Sentoza Oil (one of the biggest operators in the petroleum products
market in Dnipropetrovsk Region) decided to go further and to adopt a
decision on reorganization. According to some experts, Sentoza no longer
exists. At the end of last year or at the start of this the firm was turned
into two separate independent structures - Olymp and Lider. All these
tactical moves only confirm that the Pryvat group is a team of very
experienced businessmen who have come into the oil market to earn money.
Basically, the emergence of a strong player in the country, which may weaken
Russia's hegemony, is a very positive thing for Ukraine's energy security.
But is this the main interest of the Pryvat group? -30-
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B. UKRAINIAN AMERICAN COORDINATING COUNCIL,
(UACC), Ihor Gawdiak, President, Washington, D.C., New York, NY
C. U.S.-UKRAINE FOUNDATION (USUF), Nadia Komarnyckyj
McConnell, President, Washington, D.C., Kyiv, Ukraine.
6. UKRAINE-U.S. BUSINESS COUNCIL, Kempton Jenkins,
President, Washington, D.C.
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Senior Advisor; Ukrainian Federation of America (UFA)
Coordinator, Action Ukraine Coalition (AUC)
Senior Advisor, U.S.-Ukraine Foundation (USUF)
Advisor, Ukraine-U.S. Business Council, Washington, D.C.
Publisher, Ukraine Information Website, www.ArtUkraine.com
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