"THE ACTION UKRAINE REPORT - AUR"
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 - AUR" - Number 501
E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, MONDAY, June 13, 2005

------INDEX OF ARTICLES------
"Major International News Headlines and Articles"

1. UKRAINE PARLIAMENT'S NO VOTE A MAJOR SET BACK REGARDING
POSSIBLE NEW MAJOR INTERNATIONAL TRADE AGREEMENTS
ANALYSIS: By E. Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR)
Washington, D.C., Monday, June 13, 2005

2. VERKHOVNA RADA SHOOTS DOWN LAW AGAINST CD PIRACY
New Europe, Athens, Greece, Monday, June 6, 2005

3. RUSSIA, UKRAINE WTO MEMBERSHIP IN DOUBT FOR 2005
By Daniel Bases, Reuters, Evian, France, Wed, June 8, 2005

4. ORANGE REVOLUTION LOSES ITS LUSTRE
By John Dizard, Financial Times
London, United Kingdom, Fri, June 10 2005

5. UKRAINE: KINAKH CALLS FOR RESTORING LURES FOR
INVESTMENT TO MAINTAIN INDUSTRIAL GROWTH
Interfax-Ukraine, Kyiv, Ukraine, Friday, June 10, 2005

6. FITCH RATINGS: UKRAINE NEEDS A COHERENT ENERGY POLICY
Could be facing an energy crisis if no policy developed soon
FITCH Ratings, London/Moscow, Friday, June 10, 2005

7. UKRAINE ADMITTED IT WAS FACING A NATURAL GAS SUPPLY
SHORTAGE OF MORE THAN 10 PERCENT
By Tom Warner in Kiev and Arkady Ostrovsky in Moscow
Financial Times, London, UK, Thu, June 9 2005

8. UKRAINE TAKES FIRST STEPS TO FIX VAT- MOST MISMANAGED TAX
Illegal VAT refunds allow stealing huge funds from the state budget
ANALYSIS: By Roman Bryl, Ukraine Analyst
Intellinews-Ukraine This Week, Kyiv, Ukraine, Mon, June 6, 2005

9. UKRAINE MACROECONOMIC SITUATION - MAY 2005
REPORT: by Iryna Piontkivska, Edilberto L. Segura
SigmaBleyzer Private Equity Investment Group
Kyiv, Ukraine, June, 2005

10. CRIME AND RANSOM
Discussing feasible procedures for re-privatization
ANALYSIS: By Nataliya Yatsehnko
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 21 (549)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 4 - 10 June 2005

11. REVISION OF PRIVATIZATION DEALS WILL RUIN
THE INVESTMENT CLIMATE
Interview with Oleksandr Paskhaver by Nataliya Yatsenko
Zerkalo Nedeli On The WEB, Mirror-Weekly, # 21 (549)
International Political Social Weekly
Kyiv, Ukraine, Saturday, 4 - 10 June 2005

12. FITCH REVISES UKRAINE'S RATING OUTLOOK TO POSITIVE
FITCH Ratings, London, UK, Wed, June 8, 2005

13. LVIV OBLAST: MONKEY BUSINESS IN THE MONASTERY
In every speech one could sense the underlying theme
that the new government is no better than the old one
Kyiv Weekly, Kyiv, Ukraine, Friday, June 10, 2005

14. PRIME MINISTER SAYS UKRAINE HAS TAKEN FULL CONTROL
OF KRYVORIZHSTAL STEEL MILL
AP Worldstream, Kyiv, Ukraine, Wed, June 8, 2005

15. UKRAINIAN STEELWORKS OWNERS RESTATE READINESS
FOR PEACEFUL SETTLEMENT
Interfax-Ukraine news agency, Kiev, in Russian, 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005

16. DISPUTED UKRAINIAN STEEL PLANT'S OWNERS TAKING
CASE TO EUROPE, UN HUMAN RIGHTS COMMITTEE
Interfax-Ukraine news agency, Kiev, in Russian 0955 gmt 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005

17. UKRAINE'S YUSHCHENKO ORDERS CUTBACK IN PRIVATISATIONS
AFX Europe (Focus), Kiev, Ukraine, Thu, Jun 09, 2005

18. UKRAINE TO MAKE SIX SPACECRAFT LAUNCHES IN 2006
UNDER SEA LAUNCH PROGRAMME
Interfax-Ukraine news agency, Kiev, in Russian, 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005
===============================================================
1. UKRAINE PARLIAMENT'S NO VOTE A MAJOR SET BACK REGARDING
POSSIBLE NEW MAJOR INTERNATIONAL TRADE AGREEMENTS

ANALYSIS: E. Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR)
Washington, D.C., Monday, June 13, 2005

WASHINGTON - Ukraine's Verkhovna Rada (parliament) on Tuesday,
May 31, 2005, once again voted down, by a narrow margin, a package
of amendments to Ukraine's intellectual property rights laws that would
have brought Ukraine into compliance with widely accepted international
standards.

The amendments, if adopted, would have allowed the government of
Ukraine to move forward to finalize the completion of several major inter-
national business and economic agreements including several with the
United States and those needed for possible accession to the World
Trade Organization (WTO) in late 2005.

Ukraine again failed to legally protect intellectual property rights, which
many experts believe will jeopardize Ukraine's efforts to join WTO, its
efforts to get rid of economic sanctions imposed by the United States,
undermine its efforts to substantially increase its trade and investment
levels and its program to improve the image of its overall business
environment.

Several top U.S. government officials involved in economic and trade
agreements indicated last week in Washington they were very
disappointed in the parliament's failure to pass the needed amendments.
They felt this action was a huge blow to Ukraine and do not see much
chance now for Ukraine to meet the requirements needed for WTO
membership by late 2005.

Reports from Kyiv indicate the Yushchenko/Tymoshenko government
did not do an adequate job of informing parliament members about
the international and domestic importance to Ukraine of passing the
intellectual property rights amendments. Also a considerable number of
Our Ukraine members in the parliament did not vote for the intellectual
property rights amendments and several key Our Ukraine bloc members
were not even in Kyiv the day the vote was taken. Passage of the
amendments would have provided substantial benefits to Ukraine.

The failure of the Our Ukraine bloc in the Parliament to strongly support
Ukraine's rapid movement towards major international economic and
trade agreements has been alarming to many private business and
government leaders around the world.

The major negative consequences for Ukraine most likely include:

1. U.S. Economic Sanctions Against Ukraine Will Not Be Removed ---

The US imposed USD 75 million worth of sanctions on Ukrainian imports
on January 23, 2002, thus blocking some access for Ukrainian goods to
the American market.

The United States Office of the Special Trade Representative (STR)
declared in late April 2004 that it would keep in place economic sanctions
against Ukraine because of its poor efforts to fight optical media piracy
and trademark counterfeiting.

The United States has indicated it is ready to cancel the economic sanctions
against Ukrainian goods if the amendments to the bill of optical information
carriers had passed the Verkhovna Rada.

2. Bi-lateral Trade Agreement with the United States cannot be Signed---

Ukraine needs to sign a bi-lateral trade agreement with the US as part of
the agreements needed for accession to the WTO. The U.S. will not agree
to sign such a bi-lateral trade agreement until the intellectual property
rights amendments are passed and a few other trade conflicts are settled.

3. U.S. Support to Assist in Jump-Starting and Supporting Further Work
on Ukraine's WTO Accession will now be further Delayed ---

The Parliament's failure to pass the needed amendments will keep
the U.S. from working with Ukraine to assist in jump-starting and
supporting further work which is needed immediately for Ukraine's WTO
accession if is it to happen in the late fall of 2005.

Ukraine's parliament has also failed to pass approximately twenty or
so other laws that are needed to comply with WTO regulations.

4. Jackson-Vanik Restrictions on Ukraine will not be Removed in 2005---

The U.S. Senate Finance Committee is one of two committees in the
U.S. Congress that would have to bring up the Jackson-Vanik issue and
pass out of committee a bill that would lift the restrictions on Ukraine
and send it to the floor of the Senate. Officials in Washington last week
indicated the Jackson-Vanik issue for Ukraine was not on the Committee's
agenda for the rest of 2005.

There were also indications it was highly unlikely the issue would be
brought before the Committee until Ukraine passes the intellectual property
rights amendments and also works to resolve trade issues related to the
import of U.S. poultry, pork and beef and to GMO seeds to Ukraine.

One of the key issues of importance to the U.S. Senate Finance
Committee right now is the enforcement and compliance of trade
agreements.

5. International Business and Economic Community Continues to
Receive Negative Signals From Ukraine ---

Ukraine has sent to the international business and economic
community a series of negative signals the past three months. These
include the imposition of some price controls, the confusion over
re-privatization and new privatizations, the fuel crisis, raising some
taxes on business, the sudden removal of all the rights under free-trade
zones, the dramatic increase in public expenditures for wages and
pensions and now the failure of the Parliament to past amendments
to Ukraine's intellectual property rights legislation and the laws needed
to comply with WTO requirements.

Some of the comments regarding the issues reported above that were
expressed by various private business, government and other leaders
in Washington last week included:

1. The government of Ukraine needs to immediately focus on, give
top priority to and organize top government officials and staff to
effectively deal with the many bi-lateral and international agreements
they need to complete in 2005-2006. The new government has not
done this yet and valuable time is being lost. There seems to be
little focus on setting priorities, assigning responsibility, and holding
people accountable for accomplishing the work in a professional
manner and on time.

2. Ukraine is grossly underutilizing the many opportunities it now
has to benefit from new agreements with major Western governments
and the many programs of the international financial institutions.

Ukraine is one of the slowest countries in the world in the implementation
of development programs that have been agreed to. Ukraine draws
down only 7% on its programs with the World Bank which is also one
of the lowest percentages in the world. The normal drawdown would be
in the 25%-33% per year range.

3. We have serious concerns about the new Ukraine governments ability
to implement the reforms needed to quickly improve the business
environment. Reforms that will deliver real, tangible results. Reforms are
the key to Ukraine taking advantage of the huge goodwill and opportunity
they now have with the international investor and business community
because of the Orange Revolution.

4. We have not seen a professional, well coordinated plan yet from the
Ukraine government regarding the assistance they would like to have
from Western governments and international financial institutions.

5. Every week we see a new plan for a new vertically integrated
business company to be owned and run by the Ukraine government.
Thankfully nothing has happened yet regarding the implementation
of these ill-conceived and proposed plans.

6. The recent negative vote by the Parliament regarding intellectual
property rights was not encouraging at all, it was very disappointing.
We do not understand given the importance of the amendments why
they did not pass. This could have been a major positive signal from
Ukraine, one that was badly needed.

7. Ukraine's movement to compete their requirements for WTO
membership in 2005 is very slow. They are way behind schedule.
We do not see how they can complete what needs to be done in
time to join the WTO in 2005. If they do not make the 2005 deadline
it could be the fall of 2006 before they are ready to join. The sheer
amount of conforming legislation needed is a formidable task and it
is becoming increasingly difficult to see how this can now be done.

8. The United States and other governments are solidly behind
Ukraine. It is very important that the new Ukraine government organize
key staff persons in its various ministries to utilize this positive
environment and accomplish just as much as possible before
time runs out....before the window closes.

9. The government of Ukraine does not seem to have a clear
governmental regulatory or legislative strategy for the development,
approval, passage and implementation of major business reforms.
This is creating problems for potential investors and considerable
unpredictability as to what will happen in the Ukrainian marketplace.

10. Important documents submitted by the Ukraine government in
the past (and also in 2005) to the U.S., other governments, to
international financial institutions and trade organizations many times
have not met the necessary criteria, are not world-class, not professional,
and thus do not produce the desired positive results. Documents also
usually take far too long to develop and thus are not submitted in a timely
fashion.

With the opportunities now available to Ukraine, if this pattern continues,
various agreements favorable to Ukraine will be delayed and Ukraine
will lose its participation in other programs needed in Ukraine to move
the reform agenda forward. The Ukraine government at the highest
level needs to quickly address and solve this issue by setting up
better organizational systems for planning, execution and oversight.

Many of the ten comments reported above were heard more than once
and represent a general consensus now in Washington. The same
general message was heard over and over in a variety of meetings held
on the Hill, with various government officials, private business leaders
and other officials from think-tank organizations in Washington who are
quite knowledgeable about Ukraine. -30-
===============================================================
2. VERKHOVNA RADA SHOOTS DOWN LAW AGAINST CD PIRACY

New Europe, Athens, Greece, Monday, June 6, 2005

Ukraine's parliament last Tuesday by a narrow margin rejected new laws that
would have cracked down on the CD piracy rampant in the country Deutsche
Presse-Agentur (dpa) reported.

The house voted twice on a bill submitted by reform legislators which, if
put into effect, would have brought Ukrainian intellectual property law into
line with a World Trade Organisation (WTO) standard.

Ukraine's Europe-leaning government had supported the legislation. Two
attempts in the Verkhovna Rada to obtain a majority in favour of the law
failed, respectively, by 23 and 17 votes in the 450-seat house. MPs allied
with Ukrainian President Viktor Yushchenko supported the measure. Factions
opposing Yushchenko and independents combined to block the bill's passage.

The decision leaves Ukrainian intellectual property law riddled with
well-worn loopholes. One of the most widely-exploited gaps in the criminal
codes forbids the sale of a bootlegged CD or video tape, but allows the mass
production of bootlegged intellectual property for "personal purposes."

The shipment of CDs into and out of Ukraine is controlled, but the transfer
of CD copying and production equipment and materials is not. Ukraine is one
of the world's largest producers of fake CDs and Europe's main source of
stolen intellectual property, according to statements from Interpol earlier
this year. Software retailing for hundreds of dollars in Europe cost on
average from a Ukrainian street hawker between USD 2-3. -30-
===============================================================
3. RUSSIA, UKRAINE WTO MEMBERSHIP IN DOUBT FOR 2005

By Daniel Bases, Reuters, Evian, France, Wed, June 8, 2005

EVIAN, France - Russia's bid to win entry into the World Trade Organization
by the end of the year is not in good shape, and Ukraine's is not much
better, a WTO official said on Wednesday.

Cato Adrian, number two in the WTO's accessions division, told Reuters on
the sidelines of the 6th annual Eurasian Business Summit that Russia and
Ukraine were a long way from completing all the necessary stages. But if a
big push were made by September, there was still hope, he added.

"It doesn't look all that good (for Russia), but you don't want to say it is
hopeless. You want to push the negotiations as hard as you can. If you
cannot make it by Hong Kong, you would certainly try to do it in 2006,"
Adrian said.

The WTO holds its bi-annual ministerial conference in Hong Kong in
mid-December, and Russia, the largest economy outside the Geneva-based
WTO, has said it hopes to get the green light for entry there.

Asked who was ahead in the process, Adrian said: "At the moment I would say
Ukraine is ahead of Russia." Ukraine had reached more bilateral agreements
on goods and services, approximately 30 signed, and has another dozen or
more to go. Bilateral deals must be struck with any of the WTO's 148 members
who demand one.

WTO working groups on the accessions are due to report on the status of the
applications in September. If the majority of issues had been resolved, then
final documents could be prepared in time for the December meeting, said
Adrian.

ISN'T BUZZING -----
But both Russia and Ukraine face uphill battles to finalize negotiations,
Adrian said. "The impression I get from my colleagues is that there is very
little yet in the report on Russia which can be considered finalized," he
said.

"If Russia were in the end-game for Hong Kong, then I would see a real buzz
of activity, both in Geneva as well as in certain capitals ... and I don't
see that," he added.

Of three other applicants to join -- Vietnam, Saudi Arabia and Tonga --
Vietnam was in a similar position to Russia and Ukraine, but Saudi Arabia
and Tonga had a better chance of making it in this year, he said.

"That meeting in September, which we have not fixed a date for yet, will be
decisive in terms of making it clear whether Hong Kong is doable or not (for
these countries)," Adrian said.

Among outstanding issues in Ukraine's application were the time period to be
used for measuring agricultural activity and fixing its future commitments,
and a two-tier value added tax system which could be seen as favoring
domestic producers.

On Russia, dual pricing of energy remained a sticking point with many WTO
members. "The Russians supply energy at low prices to domestic industries.
That allows them to have low tariff protection, but they say they are just
exploiting a domestic natural resource to create jobs," explained Adrian.
"Members see this as perhaps an unfair advantage given to industries. It is
a hard nut to crack," he added. -30-
==============================================================
4. ORANGE REVOLUTION LOSES ITS LUSTRE

By John Dizard, Financial Times
London, United Kingdom, Fri, June 10 2005

A few months ago the western investing community had some doubts about
how much real progress was being made by the Ukrainian "Orange Revolution".
One of the most highly touted of the US-backed colour-coded pro-democracy,
pro-market political movements, the new Ukrainian government was, we were
told, going to rescue the country from the reactionary past.

Ukraine had earned such a reputation for corruption and inefficiency that
very few investors were willing to take a chance on developing the country's
resources and employing its people.

Now, though, those doubts are almost entirely cleared up, and the situation
in Ukraine is pretty clear. It's as bad as it was before the Orange
Revolution. Far from establishing Ukraine's effective independence from
Russia, the oligarch-dominated government has, in effect, allowed it to
remain an economic colony.

Mind you, there's still quite a lot of effective spin control over the
developing mess. That's the one American technology import that's worked so
far. This week, for example, the "Extraordinary Ukraine Roundtable" of the
World Economic Forum is being hosted in Kiev. According to the organisers'
announcement, "The Forum will provide a platform for leading multinational
businesses to support President Yushchenko and his government in their
efforts to push through the necessary economic reforms and the opening
of markets in the country."

Fortunately for the organisers, the meeting is taking place just after most
of the country's gas stations managed to reopen after a disastrous attempt
at price controls had Ukrainians queuing fruitlessly for fuel. The only
stations that had supplies while the controls were in effect were
Russian-owned, which may tell you something.

The progress, or complete lack thereof, in the Ukrainian oil industry is a
good illustration of how the country is continuing a slide into stagnation
that could accelerate into absolute decline.

Ukraine imports most of its oil from Russia, which gives the eastern
neighbour a level of influence the US government agencies can only dream of.
Ukraine doesn't have the enormous hydrocarbon potential of Russia, but its
known resources could, with modest increases in efficiency, produce at least
three quarters of its requirements. Under Soviet management, the Ukrainian
industry was given short shrift on development, partly to move more capital
and skilled labour to the bigger Siberian fields.

Whatever you can say about Russian oligarchs, such as "scary", or
"ruthless", at least they're ambitious. Over the past decade, Russian oil
production has gone from 4m barrels per day to 10m, while Ukraine's
output is in decline.

The country's largest oil producer, Ukrnafta, is controlled by the
Privatbank group, which, on the face of it, seems to have been intent on
running down Ukrnafta's value.

A number of western oil companies have done what is usually considered the
smart move, and have partnered with Ukrnafta to develop new or existing
fields. None of them have anything good to say about the experience.

As one North American oil man says, "You can't even get a meeting with the
management of Ukrnafta since it's come under Privatbank's control. When you
do talk to them, you're told that they intend to run any western companies
out of the country."

Ed Southern, the manager of Kroes Energy Inc. of Calgary's Ukrainian
operations, says "Ukrnafta only drilled 60 wells in the entire country last
year, which is less than the bare minimum needed to maintain production. In
fact, their production declined by 3 per cent. Privatbank's plan has been to
run down the value of Ukrnafta so they could buy it out cheap."

For the moment, Privatbank is exerting effective control over the oil
company with only 42 per cent of the shares. A Ukrainian state owned
company, Naftogaz Ukraine, owns 50 per cent plus one share. That doesn't
mean the state can exercise any real control, since Privatbank can keep a
shareholders' meeting from having a quorum. Any change in management
would require action by such a meeting. So, no change in management.

In the meantime, no non-insider knows what related-party transactions are
taking place between Privatbank and Ukrnafta. A suspicious mind might
wonder if Privatbank has found some means to influence people at the top
of the government structure.

One enigma here is the true attitude of Yulia Timoshenko, the Ukraine's
prime Minister of Ukraine, who became known as "The Gas Princess" thanks
to her role in the hydrocarbon industry in the first years of the country's
independence. As one of the oil people says, "She is supposed to be a
poacher turned gamekeeper. Personally, I think once a poacher, always a
poacher."

Others are more optimistic. Ed Southern says: "The government will win,
no question, in the end. Then they'll have Naftogaz take over control from
Privatbank. At least some of them are energy people, and then we can be
off to the races. The bankers don't understand anything."

One reason for Timoshenko to take effective control of Ukrnafta would be
the potential for a special dividend, the state's share of which could fund
a vote-winning pension payment.

We can be pretty sure that greater transparency and better management will
not happen thanks to the advice and encouragement offered by the US
government. "Their official aid is chump change compared to what the
politicians can steal," observes an oilman.

I wonder if any of these interesting questions will be debated at that World
Economic Forum. Somehow I doubt it. -30-
===============================================================
5. KINAKH CALLS FOR RESTORING LURES FOR INVESTMENT TO
MAINTAIN INDUSTRIAL GROWTH

Interfax-Ukraine, Kyiv, Ukraine, Friday, June 10, 2005

KYIV - Ukrainian First Vice-Premier Anatoliy Kinakh says that enhanced
fiscal pressure and the worsening of conditions for industrial and
entrepreneurial activities are among the factors slowing the growth of
industrial output.

"The balance between the social and economy policy was upset in the 2005
national budget. A feature of a strong government is its ability to correct
its mistakes," Kinakh said in Kyiv on Thursday.

The State Statistics Committee reported on Thursday that the growth of
industrial output fell from 6.7% in January-April to 6.2% in January-May.
Industrial growth has been falling for 14 months in a row.

Kinakh said Ukraine should cancel VAT on investment funds (introduced as
of April 1, 2005). He also called for reaching a compromise with investors
operating in special economic zones and priority development territories
that were deprived of former benefits under the 2005 national budget.

Kinakh pointed out that restoration of the balance between the social and
economy policies would cause swifter growth of the standard of living in the
country. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
6. FITCH RATINGS: UKRAINE NEEDS A COHERENT ENERGY POLICY
Could be facing an energy crisis if no policy developed soon

FITCH Ratings, London/Moscow, Friday, June 10, 2005

LONDON/MOSCOW - Fitch Ratings, the international rating agency, says
today that Ukraine could be facing an energy crisis if the country does not
develop a coherent energy policy soon.

Ukraine is facing its second energy-related crisis in three months, this
time over the price of natural gas. Its latest dispute with Russia's Gazprom
(rated 'BB'/Rating Watch Positive) seems to have been sparked by the
misplacement of 7.8 billion cubic meters of Gazprom's gas, worth
approximately USD400 million, in the underground storage facilities of
Ukraine's national gas transportation company Naftogaz of Ukraine (rated
'BB-'/Outlook Stable).

This has led to the Russian gas giant Gazprom threatening to raise the price
of natural gas supplied to Ukraine from USD50 per 1000 cubic meters to
USD160 per 1000 cubic meters. In return, Ukraine has threatened to raise
the price for transporting gas across the country from USD1.09 per 1000
cm per 100 km to USD3.35.

"The array of retaliatory threats that has followed could have severe credit
consequences not only for the two sides involved, but also for the Western
European offtakers who rely on Ukraine to transport and supply about 110
billion cubic meters of Russian gas to Western Europe every year," says
Jeffrey Woodruff, Director in Fitch's Energy team.

"At the same time, Ukrainian officials are right to be worried about the
effects of a significant increase in the price of Russian gas imports
despite assurances by First Deputy Fuel and Energy Minister Alexei Ivchenko
that the consequences will be deplorable not for Ukraine, but for Russia."

Ukraine has an annual natural gas deficit of about 56 billion cubic meters
and relies on supplies from both Russian and Turkmenistan to meet demand.
Ukraine receives about 26 billion cubic meters from Gazprom as payment in
kind for the transportation of gas across the territory of Ukraine every
year.

Gazprom has wanted to end this arrangement, currently contracted until 2013,
and pay for the transportation with cash instead of gas. A few months ago,
the Ukrainian government seemed open to this idea, but has taken a decidedly
more negative view to this proposal in the wake of this latest dispute with
Gazprom.

In Fitch's view, while it is a wise decision to secure gas supplies to
Ukraine's utilities, industries and households, it still does not fall
within the framework of a formal energy policy that the country seems to
badly need. Given the country's heavy energy dependence, a more proactive
energy policy would help to promote stability in the sector.

The first energy crisis started in April this year and specifically related
to gasoline prices when the Ukrainian government imposed price caps on
Russian producers in response to rising prices at the pump and accusations
of price collusion.

This move resulted in some Russian oil companies closing down a portion
of their refineries for "maintenance." The Ukrainian government eventually
backed down and removed the price caps, but not before threatening to
nationalise the Ukrainian refinery of one Russian oil company.

The resolution of this crisis has important credit implications for the
energy sectors in both countries. Fitch will therefore continue to carefully
monitor developments in the Ukrainian oil and gas sector. -30-
----------------------------------------------------------------------------------------------------------
Contact: Jeffrey Woodruff, Moscow, Tel: +7 095 956 9986; Josef Pospisil,
London, +44 20 7417 4266. Fitch's rating definitions are available on the
agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies and relevant policies and procedures are also available from
this site, at all times.
===============================================================
7. UKRAINE ADMITTED IT WAS FACING A NATURAL GAS SUPPLY
SHORTAGE OF MORE THAN 10 PERCENT

By Tom Warner in Kiev and Arkady Ostrovsky in Moscow
Financial Times, London, UK, Thu, June 9 2005

Ukraine yesterday admitted it was facing a natural gas supply shortage of
more than 10 per cent of this year's expected consumption, forcing it to
turn to an increasingly hostile Russia to negotiate additional purchases.

Olexy Ivchenko, chairman of Naftogaz, Ukraine's national oil and gas
company, said he had discovered the massive shortfall after Ukraine's new
president, Viktor Yushchenko, appointed him to take over the company in
March.

He said Naftogaz's previous management had retained some 7.6bn cu m
(bcm) of gas belonging to Russia's Gazprom in its underground storage
facilities, which was being used as "buffer gas" to maintain the Ukrainian
pipeline network's pressure but needed to be either purchased from or
returned to Gazprom.

Mr Ivchenko said he was close to solving the shortfall after reaching a
preliminary agreement this week to buy 5 bcm from Gazprom. He played down
critical reports on Russian state television that accused Naftogaz of having
"stolen" the 7.6 bcm.

"The gas is in our underground storage, and we have agreed [with Gazprom]
to hold talks on what will be done with it. Probably we will buy it," Mr
Ivchenko said in Kiev. He said his meeting with Gazprom's chairman Alexei
Miller this week had been "friendly" and insisted there were "no politics"
and "only commercial questions" between them.

But Russian media have portrayed the relationship in a very different light.
A Gazprom official said the company would take advantage of the shortfall to
demand that Ukraine pay higher prices.

The Gazprom official admitted that a price of $160 per thousand cubic metres
mentioned by the company to Russian news agencies was unrealistic but said
prices would "no doubt" be higher than the $50 notional price Ukraine
currently pays for gas under a barter deal. Gazprom is also asking to
renegotiate a 10-year contract signed with Naftogaz in 2002 that sets the
terms of the gas-for-transit barter deal.

The importance of Ukraine's pipelines, which carry more than 80 per cent of
Russia's exports to the EU, give it strong leverage in negotiations with
Russia. But the shortfall could weaken Ukraine's position. -30-
===============================================================
8. UKRAINE TAKES FIRST STEPS TO FIX VAT- MOST MISMANAGED TAX
Illegal VAT refunds allow stealing huge funds from the state budget

ANALYSIS: By Roman Bryl, Ukraine Analyst
Intellinews-Ukraine This Week, Kyiv, Ukraine, Mon, June 6, 2005

Government calls VAT refund mechanism as
“tremendous threat” to national security -----

Today we have another report on a largely outspoken issue – VAT
administration in Ukraine, and, specifically, VAT refunds. We have devoted
quite a few reports to this issue (e.g. Mar 29, Apr 30 and Jul 12, 2004).
But for almost a year, no extensive articles have been devoted to this
thorny issue.

First, government did not dare change any economic rules before the
presidential vote. Then the violent takeover of power took place, requiring
a few more months for administrative reshuffling. But now authorities are
again addressing the plaguing VAT problem.

The head of State Security Service of Ukraine (SSU) Alexander Turchinov on
May 11 openly identified the existing VAT reimbursement mechanism as a
“tremendous threat” to national security of Ukraine. He appealed to the
government to take urgent measures to prevent illegal VAT refunds that allow
stealing huge funds from the state budget. Turchinov informed that SSU
disclosed a great amount of facts of ungrounded requests for VAT
reimbursement.

According to these requests about USD 1bn state budget funds should be
returned to Ukrainian companies, which pretend to be exporters. Moreover,
USD 554mn have already been returned, or, in his words, stolen from the
state.

Most widely used scheme of illegal VAT reimbursement
is fictitious exports of hi-tech products -----

The most commonly used scheme of illegal VAT reimbursement is fictitious
exports of products that are not typical for enterprises. In many cases such
enterprise declares that its exports are nothing but high-technology
products.

The custom value of “fictitious hi-tech” items means real costs have been
inflated approximately 100-fold. As per supportive measures for
high-technology industry development in Ukraine, it is permitted to export
hi-tech products at 0% VAT rate. Thus, a company pays no VAT to the budget
but requests VAT refunds.

SSU head Turchinov gave an example of how it really worked. Chernigiv-based
company Uvenal exported used PC disc drives at higher prices (USD 356mn
for the whole period of illegal activity) declaring that it sold abroad new
PC hard drives. The company managed to receive from the state budget USD
69mn.

USD 2.3bn was illegally reimbursed in 2004 -----

There are hundreds of such companies as Uvenal that are pandered by official
personnel from state tax and custom authorities. The situation started to
look paradoxical. For instance in Dec 2004 the state budget received USD
3.3bn VAT funds but requests for VAT reimbursement amounted to USD 5.6bn.
USD 2.3bn was really returned. Thus, VAT lost its function as a main source
for filling the state budget as it is used in most countries.

Donetsk and Zaporizhzhya regions received
largest dividends from VAT reimbursement -----

Illegal VAT reimbursement schemes were widely used during the presidential
election campaign in 2004 to finance ex-PM Victor Yanukovych’s election
expenses. Unsurprisingly, Donetsk and Zaporizhzhya regions, the main
supporters of Yanukovych received the largest dividends from VAT
reimbursement. Thus during 2004 Donetsk region’s companies paid USD
415mn of VAT to the state budget and received USD 625mn of reimbursed
funds in the same period. A similar situation was in Zaporizhzhya region:
USD 144mn VAT paid and USD 146mn refunded.

This became one of the reasons for the huge state budget deficit in 2004
totaling USD 7.1bn. The new government realized it should take some measures
ant started by blocking the VAT reimbursement channels. From the beginning
of May 2005, SSU started a two-month operation called “Budget phantom”.
More than 500 enterprises are checked by SSU at present. Over 70 criminal
cases covering USD 554mn illegally reimbursed funds have been instigated.

Prevented illegal requests total USD 50.7mn
during first 4 months in Donetsk region -----

Since the end of May almost every day in Ukrainian media, information
concerning disclosure of illegal VAT reimbursement appears. The most
thoroughly checked is the Eastern region of Ukraine. According to Igor
Karimov, Donetsk region’s tax authority representative, in Jan-Apr 75% of
requests for VAT refunds has been checked.

Prevented illegal requests total USD 50.7mn, that is 4-fold higher y/y. This
has lead to a 25.7% increase of legal VAT payments to the state budget or
USD 33.6mn per month average. The only fact of a request for VAT refunds
exceeding UAH 100mn (USD 19.8mn) is the reason to examine it, Karimov
argued.

The same situation is in Lugansk region. The last disclosed fact of illegal
VAT reimbursement concerned one of Lugansk’s private companies that
received from state budget USD 297thsd on a fictitious contract. However,
we must strongly caution against politicized hunt-downs of the former
administrations. VAT payment/refund rates appear roughly the same in
pro-Yuschenko regions, and selective justice cannot be applied.

We should expect disclosure of more similar facts in nearest future, as far
as SSU continuous its investigations. Now extra attention is paid to
determine a circle of companies that had been involved in illegal VAT
reimbursement schemes. But it is clear that the existence of such schemes
should be known by the previous government and tax authorities. Though it
is not yet made public that previously high-ranking government officials
will be charged (or even arrested) for pandering illegal VAT refunds,
nobody should be surprised when it happens.

Ex-PM Yanukovich can become first top state official to be
ruled guilty for pandering illegal VAT reimbursement schemes -----

We should not exclude the possibility that the first such official will be
ex-PM Viktor Yanukovich. Currently ministry of internal affairs tries to
interrogate him, but Yanukovich still avoids testifying. One of the
questions he will face is where he took money for his election campaign.
Still, we should wait when the SSU investigation ends in July.

New VAT reimbursement scheme presented on May 25 -----

Nevertheless, investigations are only one side of the VAT reimbursement
problem. The other side is: what steps government should undertake to
prevent illegal VAT use. The head of state tax authority Alexander Kireev
presented the first measure on May 25. Kireev signed an order that
simplifies the system of VAT reimbursement. The new system covers only
exporting entities that do not work with offshore zones and do not evade
taxes.

VAT reimbursement, first of all, would be received by large enterprises that
are both producers and exporters. The tax administration also simplifies the
VAT reimbursement procedure if the request does not exceed UAH 100mn
(USD 19.8mn). If a single enterprise requests USD 120mn to be returned to
it from the budget, it must prove the fact it really has paid VAT to the
budget.

There are a lot of reasons to cancel VAT altogether -----

But this is only the beginning. The state customs service declared its
initiatives regarding VAT legislation. The government intends to bring in
order the VAT reimbursement system. It is supposed that within a month a
new legislative framework on VAT will be presented in Verkhovna Rada.

Nevertheless, state authorities’ current initiatives are aimed predominantly
at fixing the existing VAT reimbursement system. There is no answer whether
VAT reimbursement for exporters is still necessary. No one can guarantee
that new authorities are able to prevent completely budget plundering in VAT
refunds. This tax is too seductive to refuse to use it in illegal purposes.

As an example, companies can break up fictitious exports to go through
several entities, each not exceeding UAH 100mn.

Obviously, the VAT system should be changed completely. It might be
reasonable to abolish VAT for exporters. Government can do this for specific
industries it plans to stimulate (beyond traditional metals and chemicals).

VAT for non-exporters also can be changed or even renamed. For example,
sales tax with a 4.5-5% rate can be regarded as a decent substitution. This
would roughly cover the VAT payments at a 20% rate. No refunds would be
given, eliminating the need to engage in grueling legal disputes and
check-ups. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
9. UKRAINE MACROECONOMIC SITUATION - MAY 2005

REPORT: by Iryna Piontkivska, Edilberto L. Segura
SigmaBleyzer Private Equity Investment Group
Kyiv, Ukraine, June, 2005

Summary:

1. In the first quarter of 2005, the rate of economic growth slowed to
5.4% yoy.

2. Fiscal performance has been successful so far. The consolidated
budget reported a 3.8% of GDP surplus in January-March.

3. The Ministry of Finance sold UAH 2.2 billion worth of T-bills in
January-March, reducing its borrowing costs from over 10% to an
average of 5%.

4. The National Bank of Ukraine allowed for a 4% nominal appreciation
of the hryvnia, making its forex purchases less inflationary. The official
hryvnia rate with down to 5.05 UAH/USD.

5. Consumer inflation is on the rise, reaching 14.7% in April due to
increasing food and gasoline prices.

6. The NBU cancelled regulation #482, which called for a complicated
procedure of investing in and divesting from Ukraine by non-residents.

To read the entire May 2005 Ukraine Macroeconomic Situation report
including five charts in color click on the following link:
http://sigmableyzer.com/files/Ukraine_Ec_Situation_05_05_2.pdf
===============================================================
10. CRIME AND RANSOM
Discussing feasible procedures for re-privatization

ANALYSIS: By Nataliya Yatsehnko
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 21 (549)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 4 - 10 June 2005

Protracted discussions, a stalled privatization, terrified owners, and
worried investors - the result could not be worse. There are different
opinions about what is being termed in Ukraine as “re-privatization”. Most
our foreign partners do not understand what this term means and are
seriously anxious lest this re-privatization turn into a sweeping
nationalization campaign. But they are still hoping that the new Ukrainian
government will make correct and timely decisions and that the list of
enterprises doomed to re-privatization will be short and final.

Opinions in Ukraine are different as well. The government scared many
liberal-minded citizens by its non-market approaches and its resolve to
follow through on its dubious idea of re-privatization. Isn’t it time to
“erase and rewind” while the people are still full of hope for social
justice and are still demanding punishment of “those insatiable oligarchs”?

Over the last week, government officials and experts have been actively
discussing feasible procedures for re-privatization. According to our
sources, they failed to arrive at a shared conclusion and a final decision
has not been adopted yet. The Prime Minister believes that the President
would be the best arbiter in this complicated case.

On the one hand, it seems rather unwise to load this sensitive problem on
Yushchenko. Being far from proficient in the legal and economic aspects of
ownership, the best he could do is adopt a political decision. But the
country needs a decision that would be correct in all respects: financial,
economic, and legal.

On the other hand, the problem does need to be resolved through presidential
arbitration, because it is not just a matter of economy. It is about
punishing insolence and corruption. It is about uncovering deals that were
pushed under the table of the Kuchma regime. But it is important not to
reduce this noble cause to squaring accounts, not to turn it into banal
expropriation. It is important that the earlier privatized enterprises be
revaluated, and sold again for their real price.

There are at least FOUR concepts of re-privatization. The government’s
concept is regarded as a baseline.

(1) The Government’s Concept: Invalidation of Previous Deals and Forced
Revaluation through Expert Auctions

In the first place, the revaluation project should include a clear legal
substantiation. This proves to be rather difficult. Discussions of the legal
and moral aspects of the matter still continue. According to Economy
Minister Sergey Teryokhin, the government is considering two ways.

One is to declare a deal invalid insofar as it is non-compliant with the
law. Article 203 of the Civil Code of Ukraine says that a deal may not
contradict “this Code, other acts of civil legislation, and the moral
principles of society”. Acquisition of state property without sufficient
compensation contradicts such moral principles, so such deals are unlawful.

The other approach proceeds from Article 41 of the Constitution, according
to which forcible seizure of property is possible as “a necessitated
exception”. (One well-known lawyer said, commenting on this reference to
Article 41 of the Constitution, “This is awful! It is not a flood where you’ve
got to steal someone’s boat to rescue people.”)

How to determine the real price of an object? The government sees the best
way out in an expert auction. The principle is simple: anyone is free to
submit an application and deposit 20 percent of the price for which the
object was previously sold (such a big deposit is meant to keep away
unimportant buyers). The auction sets the best price. That price may not
necessarily be offered by the present owner. But the owner enjoys the “right
of the first night”, i.e. the right to cover the difference within 30 days.
Advocates of this approach believe that it would close the books on the
issue for good.

If the present owner does not pay the sum within 30 days, the object will
turned over to the buyer who offers the highest price.

How are experts going to select the enterprises that have to be revaluated?
According to Sergey Teryokhin, there are four criteria. Number ONE is
non-compliance with the principles of competition (an enterprise was sold
without an auction, or through an auction that involved two colluding
companies, or through an auction in which all undesirable contenders were
“cut off” on dubious grounds).

The SECOND criterion is the acquisition of an enterprise at a price lower
than the value of its gross assets. The THIRD criterion is the fact of the
buyer undergoing a bankruptcy procedure at the time of the deal. And the
FOURTH criterion is the fact of bypassing the then-active moratorium on
alienation of corporate rights with state-owned enterprises in the process
of bankruptcy.

The government also means to set a certain financial criterion. The Cabinet
of Ministers Secretariat insists on revaluating enterprises whose total
annual turnover volume exceeds UAH 500 million [$100M]. The Economy
Ministry insists on a twice higher “threshold”. If the latter gets the upper
hand, the number of enterprises subject to forced revaluation will be
limited to forty.

Teryokhin does not rule out that the list of such enterprises may be
incorporated in the text of the re-privatization bill.

This concept has obvious demerits. FIRSTLY, it is impossible to annul
privatization deals. Referring to Article 203 of the Civil Code, the authors
of this concept must have overlooked Article 204, which states that a deal
is legal if its illegality is not directly established by the law or not
invalidated by court. Moreover, Article 41 of the Constitution (that
guarantees ownership, use, and disposal of private property) says that
property may only be seized “through a legal procedure on condition of
compulsory and full reimbursement” and “exclusively during martial law or
a state of emergency”.

The SECOND demerit is the coercion of actual owners to participate in
auctions. The THIRD demerit is the vague and hardly exhaustive “selection”
criteria. Number FOUR, the biggest businesses are going to be punished
while a great number of smaller owners, who bought their shops, restaurants,
etc. through their personal connections or bribes, will get off easy.

Number FIVE, it is unclear what the government means to do about enterprises
that have already been sold (perhaps more than once) to “honest” buyers.
Number SIX, no one can be sure that after this re-privatization is over,
private property in Ukraine will become inviolable once and for all. Those
who pay now may well be billed again after the next election campaign.

(2) Petro Poroshenko’s Concept: Primacy of Court Rulings

The Secretary of the National Security and Defense Council offers an
entirely different approach. He maintains that “in its present economic
condition, the government can not and must not take on re-privatization.
This issue must not concern the government. In theory, it could be raised in
two cases. FIRSTLY, when the government has lost control over strategic
industries and wants to restore it by redeeming them from investors. But the
government has never been an effective owner. We can’t follow this way, and
I see no supporters of this idea in the government.

SECONDLY, the issue of re-privatization could be raised if the government
wanted to increase budget revenues by seizing and reselling. Of course, the
government would achieve momentary results. But in the short-term and
long-term strategic perspective this logic may lead to serious problems.
This approach is detrimental to Ukraine’s investment image and is sure to
scare off potential investors.

So we have only one way. There is a short list of enterprises that were
privatized with violations of the law (I don’t know how many, because it’s
not in my competence to supervise the observance of laws during
privatization). Who can say if the law was violated or not? The NSDC, the
Cabinet, the Parliament, the State Property Fund, and even the Prosecutor
General Office can not. The only body that is authorized to establish the
legality or illegality of a privatization deal is the court.”

Poroshenko believes that if the government wants to make the mechanism
comprehensible to investors, it should do two things: limit the term of
presenting claims to owners of privatized enterprises and to limit the list
of “questionable” enterprises. “The notorious list of enterprises should
undergo an evaluation by the Auditing Department, the Prosecutor General’s
Office, the State Property Fund, and authorized legal experts within one
month.

A final expert conclusion should state that on the government’s suspicions
about 20 out of 50 or 60 deals were groundless and so those 20 enterprises
must be excluded from the list. Then the State Property Fund and other
interested governmental organizations should immediately turn to the court
and seek justice in accordance with the law.

This would mean that the government has no claims to any other owners,
and that’s it.”

The NSDC Secretary is convinced that “a delay is lethal”. As to the criteria
for drawing up the list, he is not so categorical.

According to him, there can be no unified criterion. He agrees that only big
deals should be revised. At the same time, he is against a reference to the
turnover volume. “In that case the government would act like a gang of
racketeers.

The government should follow such key criteria as non-compliance with
competition rules and procedures; deliberate limitation of competition
during privatization auctions; an understated value of an enterprise;
non-compliance with investment obligations; non-compliance with the
principles of anti-monopoly legislation.” According to Poroshenko, the
revision of big privatization deals should be completed in two or three
years.

The demerits of Poroshenko’s approach are evident. FIRSTLY. everybody
knows how Ukrainian courts pass their verdicts, and even if the authorities
mustered all their “administrative resources” in defense of its budgetary
interests, it could hardly override the commercial pluralism of judges.
Poroshenko insists that this country needs a radical reform of the
judiciary. But can the re-privatization process wait?

SECONDLY, however obvious a violation may appear, it is practically
impossible to prove the fact of violation. And what is to be done about the
enterprises that have been resold five times? Which of the owners is liable?
Is the government ready to lift its claim after three courts have turned it
down? Poroshenko believes that it is. But will the general public put up
with that?

THIRDLY, the “court option” does not guarantee quick solutions. Even if the
list is approved within weeks, it may take years to restore justice.

(3) Alexander Paskhaver’s Concept: Amicable Agreement, No Coercion

An interview with Alexander Paskhaver, an authoritative economist, is
published in this edition of The ZN. He offers a solution through an
amicable agreement and a questionable but quick solution through an equal
percentage of additional payments for strategic enterprises.

The demerits of this approach are hidden in its advantages. Firstly, it
would produce no exemplary “instructive” effect, which is one of the goals
pursued by the government. Secondly, such voluntary procedures are meant for
“conscientious” owners, who admit to their “guilt”. And how about those who
don’t? Thirdly, authoritative international estimators charge so much for
their services that their fees may exceed the sum total of the additional
payments…

(4) Alexander Morozov’s Concept: Mechanism of Property Guarantee

The government has not considered this option yet. But MP Alexander Morozov,
who is also the governor of Oshchadbank [Savings Bank], has submitted to
Parliament a draft bill “On Guarantees to Owners of Privatized Property”.

Morozov proposes that “an ad hoc commission of 30 members” approve a
list of privatized entities warranted against revaluation. The owner of an
enterprise that is included in the list is free to choose whether to claim a
guarantee or surrender his rights. If he chooses to receive a guarantee, he
is required to pay a certain sum that depends on the time when the
enterprise was privatized (beginning from 1992) and the aggregate inflation
rate from the date of purchase.

“It should take less than two years to get the status of a claimant for the
guarantee,” Morozov says in the explanatory note to his draft bill.
The guarantee may also be sought by those whose deals are presently
challenged in court. Once an owner receives the status of a claimant, the
court must suspend the case and close it when the owner pays the fee and
gets his guarantee.

The draft bill describes in detail the procedure of a voluntary return of
property. A former owner may demand a repeated privatization auction. Within
two months after the auction he is supposed to be reimbursed for the
property he ha surrendered. The procedure of reimbursement is specified as
well.

This draft bill has numerous demerits. FIRSTLY, it sets no criteria for
selecting the enterprises, the owners of which may claim guarantees (i.e.
must pay a fee to the budget). Without such criteria, the commission would
be just another body of 30 people, whose only job would be to collect bribes
from owners of enterprises.

SECONDLY, serious experts warn against any revision of “voucher
privatization” [with personal property entitlements] as it is fraught with
an avalanche of problems.

THIRDLY, the draft bill fails to adequately “sort out” privatized
enterprises by periods. The line could be drawn at July 1, 1999 (when
voucher privatization ended and monetary privatization started), but not
August 1, 1996 or July 1, 2001 as the author proposes. The latter date has
a distinct political implication as it is tied to the replacement of the
Yushchenko government by the Kinakh government.

FOURTHLY, it is absolutely irrational to calculate the guarantee fee on the
basis of the aggregate inflation index.

FIFTHLY, the proposed mechanism is likely to protract the re-privatization
process for at least thirty months - enough for this country to completely
lose its investment image.

As we can see, there is no solution that could satisfy everyone. Some
headache for the President, isn’t it? -30-
------------------------------------------------------------------------------------------------------------
LINK: http://www.mirror-weekly.com/ie/show/549/50236/
===============================================================
11. REVISION OF PRIVATIZATION DEALS WILL RUIN
THE INVESTMENT CLIMATE

Interview with Oleksandr Paskhaver by Nataliya Yatsenko
Zerkalo Nedeli On The WEB, Mirror-Weekly, # 21 (549)
International Political Social Weekly
Kyiv, Ukraine, Saturday, 4 - 10 June 2005

ZN: Oleksandr Iosifovych [Paskhaver], what are your impressions on
re-privatization?
OP: The predictions have come true. Dozens of experts were saying that the
revision of privatization deals would ruin the investment climate, and that
every regional head would have a Kryvorizhstal of their own. Now all of
these come true.
This process is under way. It can’t be stopped. The need for
re-privatization is being stated at every level. The central and local
governments each have claims of their own. Each of them has their own
vision of what must be subject to review. Surprisingly, nothing has been
done as yet. It [re-privatization] has turned out to be not as simple as it
was envisaged during the presidential race. Yet four months of talking
was not enough to dampen the investors’ enthusiasm.
Now, it makes no sense to argue whether we need to challenge the
privatization deals or not. We need to find a civilized way to break this
deadlock.

ZN: And what is meant by re-privatization?
OP: I would put all property disputes into three types. FIRST are the
disputes between businesses. They may have a political slant, but it is not
prevailing. There have always been disputes between businesses and there
is no reason to try to stop them. This is a regular basic legal process.
The SECOND type is the state prosecution of violators of privatization law.
It has long been the practice; the problem is that it was not applied to
specific persons. Prosecution of violators in itself is not a campaign, but
a regular process. One cannot say that such prosecution ruins the investment
climate. Quite the contrary: there is no reason to excuse violators of the
law.
And finally the THIRD type is proper re-privatization. It is a political
campaign, aimed at re-establishment of justice towards undefined number of
businesses, whose owners are suspected of stealing them (the word “to steal”
is used most frequently in this context) or having connived to buy them at a
deliberately low price. Unspecified charges, unclear addresses, a statement
of their guilt before the trial in court - all of this makes the atmosphere
in the business community very tense.

ZN: Tense? Don’t you have the impression that business community is simply
fearful, that it is trying to become invisible and inactive?
OP: I would not say that. Businessmen are rather pragmatic and egotistic.
The question is who will be struck with the lightning of Zeus. So they are
waiting. This is where all the rumors of alleged lists come from. And when
such lists are published, those businesses that are on the list turn out in
worse conditions; they arose suspicions of their creditors, suppliers and
customers. This is very dangerous.
But not only those who are on the lists suffer from this… Governmental
officials might have told you many times that practically all major
investors raise this issue regardless of the level of executive government
they are talking to. As a rule they say, “We would like to come to you, but
let’s wait till this confusion clears up and decide then.” This is a clear
sign that the worst predictions are coming true.

ZN: So, we will not be able to disregard it?
OP: This is what I’m talking about. The other thing is that it is possible
to heat up the population with populist measures. It is not a problem to
stir negative sentiment. This was actually done in the sphere of property,
now we have to find the way out of this situation. Four months ago I was
saying, “Good save us from re-privatization”, now I cannot say that. The
process is under way.

ZN: What do you mean by that? You’ve just said that actually nothing has
happened yet.
OP: Public expectations have been shaped, political promises have been
made. It is now impossible to say, “You know, we just stated our viewpoint
poorly, we were wrong, the reaction of the world community has proven to
be too negative. So let’s correct our mistake.”
Only a politician for whom his role in the history is more important than
his political career could say that. Churchill pursued a very rigid policy
during World War II and the people took pride in him. When the war ended, he
was dismissed from his post and substituted with less authoritarian person.
Lets’ ask a question: What would have happened if during the war Churchill
had been thinking of how he could stay in power after the war?

ZN: There is no subjunctive mood in history.
OP: So if re-privatization in Ukraine is politically inevitable, let’s think
of a civilized way out of this deadlock.

ZN: Have you seen any official re-privatization lists?
OP: No. I didn’t see any unofficial ones either. I’ve seem some lists in the
newspapers, but there is no sense in discussing them. You too can make
up such a list. I can only say that such lists only prove that the situation
is alarming and that it is so easy to play on this alarm.

ZN: Will there be any sound list? Who can publish it?
OP: It depends on how the government will break this deadlock. It has
already realized that re-privatization is an extremely negative economic
factor.

ZN: Are there any negative signals?
OP: There are many negative signals. Surprisingly all experts, internal,
external and investors, share the same opinion of re-privatization. An
extremely rare case! Although I do not rule out that rather many competitors
would gladly seize the opportunity to outbid “an incorrectly bought”
property. It will be sold at a very low price, for if the re-privatization
is carried out quickly and on a large scale, and if dozens of large
enterprises are subject to it at one time, prices will sharply decrease. The
country’s risk will increase, which will also bring down the prices.

ZN: So, what is the way out of this deadlock?
OP: In my opinion, the main difference is between a lawful and an unlawful
solution of the problems. To make up a law on privatization does not mean to
act within the legal boundaries. There is a sharp dispute over such issues
as whether the new criteria for prosecution and recognition of privatization
deals as invalid will be legally set, whether such a law will have a
retroactive force, and whether it will provide for a procedure of peaceful
settlement.
If the property is forcibly taken away and set at a higher price according
to the law with retroactive force, it will adversely affect the country.
This damage will not become apparent immediately. This will create a
long-term negative image of the country, I would say.
I will cite an example from the past. The Bolsheviks refused to pay off the
Tsar’s debts. As a result this issue was on the agenda as long as the
Soviets were in power. Even when it was no longer a part of the Soviet
Union, Russia still could not properly establish economic relations with the
developed countries until it solved the problem. Eighty years have passed,
but it was not forgiven a violation of the fundamental principles of law.
If the international community interprets the revision of privatization
deals as a violation of property rights, it will lay its claims to the
government for an indefinitely long period of time and in an extremely
painful form (remember the arrest of the Ruslan aircraft carrier in Canada).
What is the purpose of re-privatization? If it is a matter of reestablishing
social justice, then it is possible to settle it peacefully with the current
owners out of court. If more far-reaching goals entailing redistribution of
property, a change of ownership structure, and substitution of “bad owners”
with “good” ones are set, then it is a different story and the dispute
should be over different things.

ZN: And what about the public wish “to nail the oligarchs”?
OP: On such issues one should relay on public opinion least of all. People
keenly sense injustice, but they assume that by satisfying this sense, in no
way will the government make their lives worse. However, when “bad owners”
are attacked, the country’s economy is also attacked. Yet nobody asks the
people if there are ready to satisfy their sense of justice at the cost of
their well-being. What percentage of the population would give their voices
for re-privatization if asked like this: “Will you support re-privatization
if your salary stops growing as a result of it?”

ZN: Why do you think this will happen?
OP: A change of proprietor gives an enterprise a shock, especially when it
is a forced change with lengthy lawsuits. Nobody gives it loans, but asks
for prepayment instead; nobody wants to invest into it; nobody signs
long-term agreements with it.
It is difficult to calculate to what extent society’s well-being will
worsen. But if the owners are forcedly changed at a dozen of major
enterprises, accounting for 10-15% of GDP, a worsening of economic
parameters is inevitable.

ZN: But let’s go back to the re-privatization formulas.
OP: To tell the truth, I did not really want to think about re-privatization
formulas. I was sure that this issue should not be put on the agenda. But
now it is necessary to propose alternatives to its forced option. I strongly
object to a forced solution if the law is not violated…
Let’s take the forced additional payment. It is a matter of privatization
tender, as a rule, where the current market price of an enterprise is
defined. Taking part in such a tender, the current owner runs an extremely
high risk. His enterprise may go to the one who bids more than he is able to
pay.
I have already spoken of the economic nonsense resulting from such a method
of price setting. The purchase was made some time ago. At that time the
country risks were different, the market was different and market prices
were different. Now they will have to pay additionally an incommensurable
price.
The arguments for the legality and morality of this are as follows: “He has
already made a good fortune of that illegal profit which he gained. It’s all
right if he pays more.” This is not the reestablishment of justice but a way
of getting back. There is a strong dislike of the owners of big capital
behind all of this. If it were only a matter of reestablishing the law, such
an argument would not be cited.

ZN: I don’t quite understand you. Do you mean that it is possible to carry
out a voluntary re-privatization?
OP: It is, if we stop creating an image of an enemy in the person of the
buyers of large enterprises. I can neither rehabilitate nor blame them. It
is quite probable that there had been collusion, cutting off competitors and
skilful use of imperfect legislation. There are many legal ways for
non-competitive privatization, such as joint ventures, buying out after
managing the stock…

ZN: Good gracious! How deep you are “digging”! How ancient will the deals
be that we have to revise?
OP: If we want to settle the re-privatization issue quickly and least
painfully for the economy and to the state budget’s advantage, we should
regard the owners of privatized enterprises as conscientious opponents who
are aware of the social significance of the problem and who are seeking
compromise. In this case it will be possible to make an out-of-court
settlement.
It is possible to agree that the privatization deal is evaluated by an
independent team of experts representing particularly well-reputed
international companies. This will ensure lesser suspicions of corruption.

ZN: It is expensive…
OP: Not as expensive as charges of corruption. The most important thing is
making a choice which both of the parties are ready to accept as the
decision of independent experts. The cost of property is estimated at the
moment of its privatization deal with consideration of the then country
risks, market prices and business conditions. At what price was it possible
to sell the stake then? Such an evaluation will serve as a basis for
calculating an additional payment. A new deal would be made which would
be confirmed in court. This will protect the owner not only from the future
claims by the state but also from the possible claims of private businesses
and persons.

ZN: What should be done to prevent a similar situation after the next
election?
OP: Your question testifies that you do not have a commitment to find a way
out of the deadlock. The answer should be as follows: “One should not have
started this!” There is no guarantee. We all are only humans. That is why we
must try to find a way out of this deadlock with the least losses, and hope
for the better.

ZN: What should we do with Kryvorizhstal, which is a special case?
OP: This is the second of your questions to which I do not have an answer.
In my opinion, this case is treated emotionally, whereas I am discussing the
issue in economic terms - how to solve the problem most effectively. I think
that the overwhelming majority of the participants in major privatization
deals will agree to the proposed option.
There is another and a simpler option. Let’s calculate the total underpaid
in, say, 30 deals and then divide this amount between the total number of
enterprises. We will come up with an equal share of additional payment to
the total amount of the deals. This is a simple solution, which is
potentially less corrupt.

ZN: Who can we oblige anyone to make additional payment?
OP: We cannot oblige, we can agree on that. The owners live in the same
country with us. They are aware that society is against those deals. They
certainly want to change this attitude. Moreover, the state may possibly
start investigating the activities of the State Property Fund regarding
those deals. I do not rule out that if an investigation is competent enough,
it will reveal many interesting things.
Similar investigations have always been carried out, and quite often
privatization deals were recognized as nominal and the employees of the
Fund were held responsible. But I have never heard of them bearing criminal
responsibility - only administrative, and not because of the major
sell-offs.

ZN: Does this mean that a state official in Ukraine who sells a
strategically important enterprise is always right and only buyer can be
wrong?
OP: You can ask a more general question: does this mean that our entire
privatization is unfair? I will answer you: like society, like
privatization. If you ask me: will future privatizations be fair? I will
answer: no. It will not be fair, because the redistribution of property can
never be absolutely fair and transparent. Yet the degree of unfairness and
corruption will be obviously less.

ZN: I will ask you a different question: Will future privatizations actually
take place? Isn’t it a myth?
OP: I think that it will take place. Of course now the privatization process
has been brought to a halt. But it will resume for the following two
reasons. The short-term reason is that the state budget needs privatization
money; this reason alone is enough for the government to resume
privatization.
As for the long-term reason, currently there is a strong belief in the
government that the state can manage property better than private owners.
I am sure that in two or three years once again it will turn out that this
is not true. The projects of creation of large state enterprises (oil,
aircraft construction, etc) will once again prove relatively ineffective.

ZN: Why are you so sure?
OP: The owner is not personified in state enterprises. There is no personal
responsibility with capital. So it is impossible to avoid corruption and
lazy and inefficient management.
You will object saying that there are state-owned companies all over the
world. I will answer: there were many of them after World War II, but since
then privatization has become irreversible, even in the least corrupt
states.

ZN: You have mentioned two possible ways out of the re-privatization
deadlock. Any other ideas on this matter?
OP: There are many questions: what are the criteria for selecting
enterprises for additional payment; what is to be done with enterprises that
are not on the list; what attitude should the state should adopt towards
arguments between businesses. But the most important is that we should
not forcibly annul legal deals and adopt laws with retroactive force.

ZN: Have you stated your vision to the President, as his advisor, or the
Prime Minister? If yes, what was the reaction?
OP: I have discussed my position with members of the government. They
also want to settle this issue quickly. But they have a rather harsh
position, I would say. There is a heated discussion.

ZN: Are you participating in the drafting of the bill?
OP: I am ready to undertake this when all the principles I was talking above
are observed.

ZN: If we meet at the end of this year, what shall we talk about?
OP: Most likely, about the consequences of some radical steps. I mean not
only re-privatization. As for property… Look, “taming” YUKOS was not easy
for the Russian government, although they did not adopt any new laws. There
could be several dozens of Yukoses in Ukraine. I don’t think that the
government can act as it likes. In my view, compromise is inevitable.

The people who work in the government are bright, talented and energetic.
Yet I think they overstate the role of the government. Historians of
economics say that the difference between Asian and European types of
capitalism is that in Europe the state was weak, which is why capitalism
grew strong, whereas in Asia everything was vice versa. One should think
about this fact.

A country with traditionally strong corruption stands a chance of becoming
rich, as for example, Italy. But the state where there is no respect for
property rights will never be rich. -30-
==============================================================
12. FITCH RIVISES UKRAINE'S RATING OUTLOOK TO POSITIVE

FITCH Ratings, London, UK, Wed, June 8, 2005

LONDON - Fitch Ratings, the international rating agency, has today revised
the Outlook on Ukraine's Long-term foreign and local currency ratings to
Positive from Stable and affirmed the ratings at 'BB-' (BB minus). The
agency has also affirmed the Country Ceiling at 'BB-' (BB minus) and the
Short-term rating at 'B'. \

The peaceful transfer of power from the old elite to President Yushchenko
and his team following the 'Orange Revolution' of late 2004 augurs well for
greater medium-term stability, and the last few months have been
characterised by a marked change in the political atmosphere.

The press is now much freer, grass roots democracy has become more
entrenched and, while a clear east-west division still remains, a greater
flow of information between the two sides of the country may lay the
foundations for closer ties in the future.

The new government, led by Mr Yushchenko's long-standing ally, Yulia
Tymoshenko, contains a number of liberal reformers who appear more
ideologically committed to structural reforms than their predecessors, and
its position is currently strong.

Against this background, the government has already taken some major steps
forward. An assault on corruption has been launched, widespread tax
exemptions and privileges have been eliminated and foreign policy has been
transformed with EU membership emerging as a clear strategic goal.

However, the remaining challenges facing the government are daunting. It has
inherited an overheating economy in need of deep structural reform and a
large fiscal deficit. To further complicate matters, the administration
faces a parliamentary election in less than one year.

As a result, its outlook is necessarily short term. The revised 2005 budget
targets a further sharp rise in social spending, and progress in areas such
as large-scale privatisation and energy sector restructuring is unlikely to
move ahead quickly.

However, the impact on creditworthiness of the current fiscal stance is
tempered by the moderate size of Ukraine's general government debt, which
at 23% of GDP and 66% of revenue, is far lower than the 'BB' rating medians
of 55% and 239% respectively.

External debt ratios are also in line, or better, than 'BB' medians and
external liquidity is improving rapidly. Fitch forecasts that Ukraine could
become a net public external creditor in 2005-06. Only three other
sovereigns in the 'BB' range are net external creditors.

Further changes in Ukraine's sovereign ratings are likely to be driven by
political developments, macroeconomic management and progress with
structural reforms. In the near term, policy decisions may be constrained by
the election, but the medium-term outlook appears bright.

It seems likely that the Yushchenko block will be returned to government,
and Fitch expects an acceleration of structural reforms and greater efforts
to reduce the fiscal deficit and contain inflation from 2006. Institutional
weaknesses and opposition from powerful vested interests may hamper
implementation but, even so, Fitch expects headway to be made over a
one- to two-year horizon. -30-
-----------------------------------------------------------------------------------------------------------
Contact: Sharon Raj, London, Tel: +44 (0) 20 7417 6341; Paul Rawkins,
+44 (0) 20 7417 4239. Fitch's rating definitions are available on the
agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies and relevant policies and procedures are also available from
this site, at all times.
===============================================================
13. LVIV OBLAST: MONKEY BUSINESS IN THE MONASTERY
In every speech one could sense the underlying theme
that the new government is no better than the old one

Kyiv Weekly, Kyiv, Ukraine, Friday, June 10, 2005

The attempt of the Lviv Oblast Governor Petro Oliynyk to finally reach an
understanding with regional businesses only after a little more than 6
months is worthy or praise. Be that as it may, a number of circumstances
that accompanied the organization and holding of these talks considerably
tarnished the image of the governor in the eyes of representatives of local
business.

In the meantime, local independent political experts assume that Oliynyk
only decided to "talk shop" with the representatives of business only
following instructions from Kyiv, which were suddenly sent out after Premier
Yulia Tymoshenko held a similar event in the capital. Besides, the
organization of the event had demonstrated that the new authorities are
imitating the style of the old regime, despite all the declarations of
democracy and openness.

As a KW journalist learned, only those representatives of business circles
on the list compiled by the oblast administration were invited to Olesko,
where a meeting was held in the building of the former monastery of the
Capuchin Order. Meanwhile, those businessmen who showed up for the
meeting upon their own initiative could not get into the former monastery
and ended up gathering in front of the entrance.

The most obstinate businessmen managed to make their way into the main
meeting hall and look the governor in his eyes. Furthermore, they managed to
disrupt the previously planned course and tonality of the discussions.

Specifically, the entrepreneurs complained about high taxes, the
arbitrariness and self-will of customs officers, the increase in railway
tariffs, the cancellation of privileges in free economic zones and the
closed nature of government authorities.

In every speech one could sense the underlying theme that the new government
is no better than the old one. The desire of the governor to increase budget
revenues at any cost was interpreted as a stimulus to corruption. For this
very reason, the entrepreneurs believe that it is still premature to discuss
partnership between the government and business. In the opinion of the
latter, the government must serve the interests of business. Otherwise, it
will not succeed.

Moreover, one businessman made a subtle hint to the head of the oblast state
administration that "as a businessman, he had outlived seven governors, but
still managed to preserve his business". Everyone present got the hint.
Meanwhile, Director of the Institute of Urban Development Andriy Sadoviy
jokingly presented the governor an illustrated book on the art of Kama
Sutra, wishing him to "learn how to love business".

Despite the sarcasm, Oliynyk dodged questions and refused to give concrete
answers by referring to the "Orange Revolution". He also reminded the
participants of the meeting of the theft on the part of the previous
government authorities, alluding to several entrepreneurs present at the
meeting that were involved in corruption. Finally, he called on everybody to
stop paying wages in envelopes and begin working "above the board".

Further, the governor failed to offer any constructive proposals aimed at
reconciliation of business and government. As such, the planned signing of a
partnership agreement was postponed indefinitely. The only concrete proposal
the governor offered was a promise to set up a council of entrepreneurs in
the oblast administration within a month.

Opinions of participants Taras Sosnovskiy, Head of the Monitoring Board of
Komfort Company Group: The government consists of personnel to manage
processes, rather than put out fires. And it is very important that they do
their job professionally with the help of their entire support staff. I
would like that in the future the council of entrepreneurs is staffed with
experienced and competent people. I hope that the new government will use
their help.

Orest Yaremchuk, General Manager of Elektron plant: Any wish to do something
is a positive phenomenon, even though yesterday's meeting was more of a
declarative, than constructive nature. I believe that the government was a
bit late in holding the meeting. The main thing is that the goal of the
meeting aimed at setting up the council, which any entrepreneur would be
able to address with his problems, be achieved.

One of the tasks of the new government must be protecting the interests of
domestic producers. In the past years, this idea was drowned in the waves of
lobbying and the previous government simply failed to implement it. The new
government is also ignoring this task and, on many issues, the present
situation is even worse. -30-
===============================================================
14. PRIME MINISTER SAYS UKRAINE HAS TAKEN FULL CONTROL
OF KRYVORIZHSTAL STEEL MILL

AP Worldstream, Kyiv, Ukraine, Wed, June 8, 2005

KIEV - Prime Minister Yulia Tymoshenko said Wednesday that Ukraine's
government has taken full control of the Kryvorizhstal steel mill, which was
sold last year in this former Soviet republic's most controversial
privatization deal.

Former President Leonid Kuchma's son-in-law, Viktor Pinchuk, and another
tycoon, Rinat Akhmetov, for US$800 million (A?665 million) despite higher
offers from outside bidders.

President Viktor Yushchenko has called the privatization theft and pledged
to return the company to state control so it could be sold again in a
transparent offer. Last Friday, Ukraine's appeals court upheld an earlier
decision that the privatization was illegal.

"The government takes under its total control ... Kryvorizhstal's activity,"
Tymoshenko said. She told journalists that the government will dispatch a
group to the mill within two days to begin overseeing all its functions.

Tymoshenko said the government will also begin considering how to compensate
the mill's current owners, adding that the final decision is in part up to
the court. She expressed hope that the mill, which produces 20 percent of
Ukraine's steel, could be resold by the end of the year.

The current owners have until next week to appeal to a higher court. Their
lawyers could not immediately be reached to comment.
Tymoshenko, however, said she was confident that the final decision would
not change. "Everybody understands that the privatization of Kryvorizhstal
was done with a lot of violations of the law," Tymoshenko said.
===============================================================
15. UKRAINIAN STEELWORKS OWNERS RESTATE READINESS
FOR PEACEFUL SETTLEMENT

Interfax-Ukraine news agency, Kiev, in Russian 1735 t 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005

KIEV - The owners of the embattled steel giant Kryvorizhstal have restated
their readiness for a peaceful settlement of the ownership dispute with the
government. The consortium controlled by tycoons Viktor Pinchuk and Rinat
Akhmetov said that the latest statement by Prime Minister Yuliya Tymoshenko
about the government taking control of the steelworks only confused the
situation and raised doubts about "the civilized nature" of the government's
policy.

A court has recently ruled unlawful the sale of Kryvorizhstal to the
consortium. The following is an excerpt from a report by the
Interfax-Ukraine news agency:

Kiev, 9 June: The statement made by Ukrainian Prime Minister Yuliya
Tymoshenko on 8 June about the state taking control of the Kryvorizhstal
open joint-stock company has confused the situation even more and raised
doubt about the civilized nature of the economic policy declared by the
country's leadership, the government's opponent in the legal dispute about
the legality of Kryvorizhstal's privatization, the Investment-Metallurgy
Union consortium [IMU], has stated.

"We believe that the only civilized way out of the situation is constructive
dialogue and a peaceful agreement," reads the statement by the consortium
disseminated Thursday evening [9 June].

The IMU notes that, despite Tymoshenko's statement, the Ukrainian govern-
ment has not yet directly notified the consortium of its intention to send a
team of its representatives to Kryvorizhstal.

"The IMU is ready for dialogue with the authorities and for a search for
compromise, but if the consortium's rights are infringed in the process, we
will have to defend them both in domestic and international courts," the
consortium said, formulating its policy regarding the conflict. [Passage
omitted: background] -30-
===============================================================
16. DISPUTED UKRAINIAN STEEL PLANT'S OWNERS TAKING
CASE TO EUROPE, UN HUMAN RIGHTS COMMITTEE

Interfax-Ukraine news agency, Kiev, in Russian 0955 gmt 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005

KIEV - The Investment-Metallurgy Union consortium [IMU, controlled by
tycoons Viktor Pinchuk and Rinat Akhmetov] is sending materials on the
privatization of the Kryvorizhstal steelworks to the European Court of Human
Rights and the UN Human Rights Committee, it said in a statement sent to
Interfax-Ukraine.

"The statement by the Ukrainian prime minister has strengthened the position
of Kyrvorizhstal's owners and could serve as the decisive argument for
immediate examination," the statement says.

IMU also intends to dispute in full the ruling by the economic and appeals
courts in Ukraine's courts and prove its ownership rights to Kryvorizhstal's
shares." "If any of Kryvorizhstal's potential buyers decide to buy shares in
the company from the government, the consortium will be forced to take the
buyer to court," it says.

The document says that the Ukrainian prime minister's statement of 6 June
2005 [ordering a new tender for the plant to be prepared within a month] and
her subsequent statements [including saying the government was sending a
commission to take over running the plant until the new tender] further
undermine investors' confidence in the Ukrainian economy. The statements
contradict the civilized steps being taken to reach a sensible compromise.
The statement also ignores the consortium's right to defend its interests in
court.

"The prime minister's statement is based on political will rather than on
the fundamental principles of a true market economy: respect for the primacy
of the law, transparency and the protection of ownership rights. Such
statements should not be made without proof, and Ukraine's citizens, as well
as the global investment community, will definitely want to know what lies
behind these statements," the IMU statement says. [Passage omitted:
known background] -30-
===============================================================
17. UKRAINE'S YUSHCHENKO ORDERS CUTBACK IN PRIVATISATIONS

AFX Europe (Focus), Kiev, Ukraine, Thu, Jun 09, 2005

KIEV - Ukrainian President Viktor Yushchenko said that he has ordered his
government to shorten its list of planned privatisations, and that a new
roster should be ready within days. Yushchenko rejected the original list of
privatisations at a meeting with Prime Minister Yulia Tymoshenko last week.

"I received a list that did not satisfy me... and gave it back to the
government to rework," Yushchenko said. "We have agreed that in a period
of three to four days the government, taking my comments into account, will
come up with... a list of repeat auctions," the Interfax news agency quoted
him as saying.

Investors are watching how the administration of pro-Western Yushchenko
handles the questionable privatisations that took place under his
predecessor Leonid Kuchma closely. "My goal... is to assure business and
society that those businesses that were unlawfully acquired during the
so-called privatisations (of) the recent past... should be reviewed and put
up for sale anew," Yushchenko said. yad/njc/vs/har -30-
===============================================================
18. UKRAINE TO MAKE SIX SPACECRAFT LAUNCHES IN 2006
UNDER SEA LAUNCH PROGRAMME

Interfax-Ukraine news agency, Kiev, in Russian, 9 Jun 05
BBC Monitoring Service, UK, in English, Thu, Jun 09, 2005

Istanbul/Kiev, 9 June: Ukraine has plans for six [spacecraft] launches under
the Sea Launch project [a joint project of the US, Russian,

Ukrainian and Norway space companies, under which spacecraft is launched
from a platform in the Pacific Ocean], the general director of the State
Design Bureau Yuzhnoye, Stanislav Konyukhov, said in an interview to
journalists in Istanbul on 8 June [Konyukhov was a member of President
Yushchenko's official delegation that visited Turkey on 6-8 June].

Konyukhov said that Ukraine has already signed contracts for the six
launches. "We did not complete plans for 2007, but have already formed the
market," Konyukhov said.

He also recalled that the next launch, the 17th so far, is scheduled for
22-23 June. "There are plans for one more launch in October this year, and
if we manage, there will be another one in December. If not, it will be
postponed until January next year," Konyukhov said. He added that after the
latter launch "a command ship and the platform will undergo some cosmetic
renovation".

Konyukhov said that Yuzhnoye and the Yuzhmash plant [former largest
manufacturer of ballistic missiles in the Soviet Union] get "around 100m
dollars" annually for participating the Sea Launch project. He recalled that
the agreement to proceed on the project was signed in 1995, while the
launches began in 1999, with the first launch being "non-commercial and
demonstrative".

Konyukhov said that the country's new leadership supports the space industry
"in the best possible way". The country's budget, however, does not allocate
enough funds for the industry in line with the law, he said, as the law
earmarks 0.2 per cent of Ukraine's GDP for the development of the space
programmes. -30-
===============================================================
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