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Action Ukraine Report

"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 503
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, THURSDAY, June 16, 2005

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

1. POLISH INVESTORS IN UKRAINE PREPARING INDICTMENTS FOR
BREACHES IN CONTRACTS REGARDING SPECIAL ECONOMIC ZONES
Polish News Bulletin, Warsaw, Poland, Tue, Jun 14, 2005

2. AMBIGUOUS SIGNALS FROM THE PRESIDENT
Poland confused by Ukraine's policy on regional economic bloc
Yuliya Terekhina, Glavred website, Kyiv, Ukraine, Thu, June 9, 2005
BBC Monitoring Service, UK, in English, Tue, Jun 14, 2005

3. SBU SUSPECTS NEARLY ONE THOUSAND UKRAINIAN ENTERPRISES
OF ILLEGALLY RECEIVING VALUE-ADDED TAX (VAT) REFUNDS
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

4. UKRAINIAN FOREIGN MINISTER SAYS PETROL CRISIS INDIRECTLY
INFLUENCED EU'S DECISION TO POSTPONE GRANTING
MARKET ECONOMY STATUS TO UKRAINE
TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

5. UKRAINIAN PRESIDENT SAYS LAST YEAR'S GDP FICTITIOUS
UNIAN news agency, Kiev, in Ukrainian 0940 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

6. WASHINGTON CONCERNED UKRAINE MAY NOT JOIN WTO THIS YEAR
Ukrainian parliament fails to pass key WTO legislation
By Taras Kuzio, Eurasia Daily Monitor
Vol 2, Issue 116, The Jamestown Foundation
Washington, D.C., Wednesday, June 15, 2005

7. THE ODD COUPLE OF KIEV
Why Ukraine's free-market President needs his state-oriented Prime Minister
European Business: by Roman Olearchyk in Kiev
Business Week Online, USA, June 20 Edition, 2005

8. PUT YOUR FEARS ASIDE AND YOUR MONEY HERE,
UKRAINE TELLS FOREIGN INVESTORS
Agence France Presse (AFP), Kiev, Ukraine, Thu, 16 June 2005

9. PRESIDENTS, BUSINESS LEADERS GATHER IN UKRAINE
FOR SPECIAL ECONOMIC FORUM
Mara D. Bellaby, AP Worldstream
AP, Kiev, Ukraine, Thursday, Jun 16, 2005

10. PRES YUSHCHENKO URGES BUSINESS TO SEIZE THE MOMENT
Mark Adams, Director of Communications
World Economic Forum Roundtable
Kyiv, Ukraine, Wed, June 15, 2005

11. GEORGIAN PRESIDENT SAAKASHVILI SAYS UKRAINE'S
EU INTEGRATION PROSPECTS ARE 'UNIQUE'
UT1, Kiev, Ukraine, in Ukrainian 1800 gmt 15 Jun 05
BBC Monitoring Service. UK, in English, Wed, Jun 15, 2005

12. EUROPEAN INVESTMENT BANK (EIB) AND UKRAINE SIGN
FRAMEWORK AGREEMENT
European Investment Bank (EIB)
Luxembourg, Wednesday, 15th June 2005

13. NUCLEAR FUEL ASSEMBLIES FROM US FIRM WESTINGHOUSE TO
BE TESTED AT UKRAINE'S YUZHNOUKRAINSK NUCLEAR PLANT
Interfax-Ukraine, Kyiv, Ukraine, Wed, June 15, 2005

14. UKRAINE'S DONBAS LIKELY TO INITIAL AGREEMENT ON
POLAND'S HUTA CZESTOCHOVA STEELWORKS TAKEOVER
Polish News Bulletin, Warsaw, Poland, Thu, Jun 16, 2005

15. POLISH FIRM PORTA TO BUILD FACTORY FOR PRODUCTION OF
DOORS IN UKRAINE'S ZAPORIZHIA REGION IN 2005
Firm will hire 250 workers for the factory
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

16. INTERNATIONAL COMMITTEE FOR CRIMEA NEWS DIGEST ONE
Summaries of Selected News About Crimean Tartars
LETTER TO THE EDITOR: From Inci Bowman
ICC News Digest No. 1, (May 2005)
Washington, D.C., Monday, June 13, 2005
Published by The Action Ukraine Report (AUR)
Washington, D.C. Thursday, June 16, 2005

17. HELP US HELP THE CHILDREN (HUHTC) FUNDRAISING GALA
10th Anniversary of their Carpathian Mt. Summer Camp Project
LETTER TO THE EDITOR: By Dianna Derhak
Kyiv, Ukraine, Wed, June 15, 2005
Published by The Action Ukraine Report
Washington, D.C., Thursday, June 16, 2005

18. YANUKOVYCH DENIES LINKS TO DOCUMENTS REPORTEDLY
STOLEN FROM UKRAINE'S LVIV STATE HISTORICAL MUSEUM
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

19. KIEV PATRIARCH SAYS ORTHODOX CHURCH SHOULD NOT
BE AFRAID OF THE VATICAN
Mara D. Bellaby, AP Worldstream; Wed, Jun 15, 2005

20. UKRAINIANS TO HAVE PRIORITY IN ADOPTING CHILDREN
Regarding adoptions by foreigners, clearly we are not refusing them.
TV 5 Kanal, Kiev, in Ukrainian 0800 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

21. UKRAINE GOVERNMENT ATTEMPTS TO GET GRIP ON CORRUPTION
By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Tue, June 14, 2005

22. ANALYST SAYS INTERNAL PROGRESS THE KEY FOR UKRAINE
DESPITE EU'S POLITICAL WORRIES
Viktor Zarnyatin, "Will the EU forget about Ukraine?"
Den, Kiev, Ukraine, in Ukrainian 9 Jun 05; p 3
BBC Monitoring Service,UK, in English, Wed, Jun 15, 2005
===============================================================
1. POLISH INVESTORS IN UKRAINE PREPARING INDICTMENTS FOR
BREACHES IN CONTRACTS REGARDING SPECIAL ECONOMIC ZONES

Polish News Bulletin, Warsaw, Poland, Tue, Jun 14, 2005

WARSAW - Polish investors in Ukraine are preparing indictments for breaches
in contracts that guarantee them tax relief in special economic zones. "The
business community does not want to go to war with a government that it
supports, but we have no choice," they say. Jerzy Konik began investing in
the Ukraine 17 years ago. First it was greenhouses and flower cultivation,
later shopping centers in Lwow, a travel agency in Kiev.

Two years ago he built a condom factory in the Jaworow special economic
zone, the only one in the Ukraine. "I was encouraged by the distance from
the Polish border and labor that was cheaper than in midland Ukraine," says
Konik, justifying the localization he chose.

He had to fight the old government, especially the administration, because
they wanted to skin him alive. He supported the orange revolution. He gave
food to the Polish sector in the Majdan district of Kiev, he distributed
flyers. He believed that a new era would come for investors. Green street,
like Juszczenko promised.

"Things changed, but for worse," says Konik, who was dumbfounded by the
news of changes in the 2005 budget. He learned from TV programs that in
one day several laws were amended: the customs code, VAT and excise
regulations, income tax regulations for legal persons.

All the tax incentives for the special economic zones and Economic
Development Priority Territories (TPR's) were withdrawn. They were
practically completely cancelled, since issuing new permissions for
initiating operations there was forbidden.

New, but Just Like the Old The new regulations became binding 31 March
- which, in the Ukrainian fiscal year means that they apply to the entire
previous quarter - as a result, all money gained through tax incentives from
1 January needs to be returned: income tax, customs, VAT. "It's a
catastrophy, I did not foresee such a possibility in my business plan,"
says the investor.

He calculates that the new regulations mean his costs will increase by 40
percent. And that's not all. Because of the revoked duty relied he can't
pick up his new foil packing production line from the border.

He had no choice. He stopped production and sent his employees on paid
vacations. All investment plans were halted. Another 100 companies from
the special economic zone reacted similarly.

The Delicja Polska company is waiting for its wafer production line that was
ordered in Germany. The machinery will be ready in June. But there will not
be enough money to pick it up from the border.

There 30 more trucks waiting on the Polish side of the border, packed full
with equipment for which duty has to be paid.Kodsoui Soumoussou, director
of France's Delphine which manufactures womens clothing that is sold in
France, thought that the new regulations are a mistake and that the govern-
ment will back out of them.

But it did not, so Delphine too has halted production. The Frenchmen never
would have come to the Ukraine if not the tax incentives and the cheap
labor.

This may not be completely true: the market turned out to be quite
difficult. The Jaworowski region is very underdeveloped, people are
uneducated and do not know any modern technologies.

The company invested considerable funds in their training. So what, if they
are either partying or getting sober, or working in the fields. If the
investors protest do not bring results, Delphine is considering reducing its
workforce by 220 seamstresses and moving production to Poland.

"I have fulfilled my duties to the zones management: I opened the factory in
time, I even employed more people than was initially planned." The French-
man feels cheated.

"We are strong as far as capital is concerned, we never received any tax
incentives, but everyone around is complaining," says Mariusz Nowak of the
Groclin Karpaty company, located in the zakarpaty special economic zone.

The Japanese do not understand what is happening, while the Americans
have already withdrawn their investments. But the Germans are protesting
the most loudly.

Groclin imported Polish materials for car seat production. Its products had
to leave the Ukraine in 90 days. Its guaranteed exchange bills that were
until recently used in commerce had to be substituted by am exchange bill
guaranteed by bank. This meant that the money for the duties had to be
deposited in a bank.

"No company that treats its commitments seriously is capable of blocking
such an amount of money. You have to add the additional costs depending
on the bills value. "It's funny and scary at the same time," says Nowak,
irritated. "We clients all across Europe, and now our plans are ruined." -
Beautiful Visions

The Ukranian special economic zones and TPR were created shortly after
the ones in Poland. Their designs were based on those from Poland.

They were to function for 20 years and cure all ailments: the high
unemployment rate linked to the collapse of many post soviet industrial
plants, the restructuring of the mining sector. They had to attract foreign
capital and activate the regions that were worst-off.

The zones belonged to regional administration, which signed the agreements
with investors. All sixteen special economic zones and TPR's had their own
bills that specified what they were obligated to do and what incentives they
could offer investors.

Most often these were: exemption from income tax for three or five years
starting when profits were made, and for the next three years exemption from
half the tax (a lot depended on the amount of capital that was invested and
the number of Ukrainians that were employed); duty relief for imported
machinery, equipment and construction materials unavailable on the Ukrainian
market; no VAT tax for equipment and machinery and tax incentives on
re-exported products.

Receiving permission to conduct operations in the special zone requires a
commitment - investing a declared amount of capital and employing a certain
number of people, as well as starting production at a set date. I case of
delays or not fulfilling the obligations, the investor loses his concession
for producing or selling his services.

Poles have invested nearly ZL193 million in the Ukraine, ZL65 million of
which went to the special economic zones. Around 70 production companies
started operating there.

"The Jaworow special economic zone experiment was very successful: in
1999 we had an unemployment rate of 15 percent and everyone was
despairing after the sulfur plant and military facility were closed.

Today the unemployment rate is 5 percent. Only those that don't want to work
don't have jobs," syas Roscislaw Nowozeniec, chief of the local
administration.

Nearly 3,700 new jobs were created, 2300 further are to be formed in up-
coming years. A total of $67 million has been invested. Quite a lot for such
a poor region.

"Each new workplace cost $15, 000. I'm sorry things have come to what they
have under the new government. Kiev's decisions are murder for these
companies," adds Nowozeniec. "I can't imagine the regions future with its
problems and without the benefits of the Jaworowski zone."

Thanks to special economic zone the Zakarpacie region also began getting
back on its feet. The unemployment rate was 25 percent there and people
were completely without hope.

The Charkow, Lugansk and Donieck special economic zones had the
advantage of being close to the Russian border - a gigantic market.
Adam Krzanowski, owner of Nowy Styl, constructed office chair factory in
Charkow. It has a workforce of 2000.

"Our profits are falling, income tax is rising and we can't raise prices,
especially on the Russian market," says Krzanowski. He adds that the
surprising changes in the budget will also influence the Ukraines trade
relations with Russia, because production has ceased being profitable.

Already today, the Ukraine has become one of the most expensive countries
for foreign investors, with its 25 percent income tax for companies, 40
percent duty tax and 20 percent VAT.

Forte Ukraina has already paid 3.3 million hrywiens to the Ukrainian budget.
Last year the company generated 1.3 million hrywiens in profits. In invested
over $1.7 million in the Donieck special economic zone, where it employs
180 people who make an average of 700 hrywiens ($140).

There are plans to invest a further EUR5 million and create 150 new
workplaces. "We wanted to increase furniture production for domestic and
export sales," enumerates Forte director Piotr Niczyperowicz. Forte plans
to go to court to make up for the losses caused by the difficulties the new
regulations have created.

"We will now find it difficult to trust Ukraine and our government as
well, since it failed to protect the interests of investors. The French and
Germans have national guarantees, but we are on our own. Just like
Wokulski, we have to take the risk ourselves," says Niczyperowicz. He
understands that the incentives would end at some point.

"We don't plan shutting down our operations, we will adjust to the new
situation. But the new regulations surprised us and they work back in time.
The government was probably counting on this. But we will fight for what's
ours," he explains. -

PATCHING HOLES -------
Meanwhile, the Ukrainian government, more specifically prime minister Julia
Tymoszenko, is justifying the changes in the budget by the necessity of
fighting oligarchs that are using the special economic zones for money
laundering and increasing their fortunes.

Kiev has also called on the need to adjust regulations to EU laws that
forbid public financial aid in the form of incentives and unequal treating
of companies. Finance minister Wiktor Pynzenyk is very fond of this
argument - he is a liberal that already sees the Ukraine in the European
Union.

The minister has calculated how much the budget will lose because of the
special economic zones. In reality, the Ukraine has a much a longer way to
go to the EU than it would seem to those judging the distance from their
Kiev living rooms.

Only foreign investments can bring a country closer to Europe, so the
incentives should be reinstated. This is the opinion of deputy prime
minister Anatolij Kinach, leader of the industrial party. As it seems, even
the Ukraine's government can't agree on the future of the special economic
zones.

Businessmen agree that there were black holes in certain zones: instead
of raw materials, finished products were brought in duty free and sold tax
free.

Companies employed only a few people, breaking their obligations and the
law. The largest number of these black holes were to be found in the zones
located in the east of the Ukraine, close to the Russian border and near
ports on the Krym peninsula - this where smuggling operations took place.
There can be no doubt as to the fact that the previous government knew
about them.

Many companies in the Donieck special economic zone are controlled by
Reniata Achmetoa, an oligarch that gave financial support to the previous
prime minister Wiktor Janukowycz.

Today, he is associated with the anti-Juszczenko opposition. Prime minister
Tymoszenko could not dissolve the Donieck or Lugansk special economic
zones without falling prey to accusations that it would be political
repressions. Instead, she decided to dissolve all the zone in one swift
stroke of her pen - no discussion.

"Moving the lever, forging a decent country is not that easy. But is it
worth punishing innocents?" ponders Adam Krzanowski of Nowy Styl. It is
easy to send inspections, check paper by paper and catch the criminals
and punish them.

Especially in the Ukraine, where there are one hundred and five inspection
agencies that used to excel at making life difficult for investors.

"We are ready to show all our documents." assures Jerzy Konik. Investors
wrote a letter to prime minister Tymoszenko and president Juszczenko. "We
hope that the Ukrainian government, once so eager to support investors, will
create opportunities similar to the ones previously present."

They want each company to be judged individually. When new terms for public
financial aid were negotiated in Poland because Brussels demanded it before
the accession, the businessmens rights were respected and terms were
agreed on that did not scare off foreign or domestic capital.

The Ukrainian government dissolved the special economic zones of its own
will without even attempting to talk to the investors, or offer them a
transition period to adjust to the conditions.

Table. Polish investments (in million zlotys) in Ukrainian special economic
zones: Charkow 25.5 SSE, Jaworow 18.8 TPR, Zakarpacie 16.3 TPR,
Lugansk 2.0 TPR, Donieck 1.7 TPR, Zytomierz 0.2 SSE, Slawutycz 0.7

The changes that were introduced seem to hint at the real motive behind the
decision. It is the feverish search for money, the need to patch up holes in
the budget and fulfill the promises made by Juszczenko during his orange
revolution: increasing minimal wages and pensions.

Parliamentary elections are approaching and the government needs a
spectacular gesture to show that is fighting the oligarchs just as it
promised. In order to win the election, they decided to give to the people.
It seems that this year will not be good for business. It already isn't,
because the national product is falling.

The time for real reforms and healing the economy will come after the
elections.

IN THE FRIDGE --------
Unfortunately, companies cannot be frozen and kept in the fridge. They are
wondering - should they make the back payments, or ignore the new
regulations. If they pay, it will surely be considered giving up without a
fight. This may lead to further blows, possibly even the nationalization of
some companies, if the government deems it necessary.

One investor has already received threats from the prosecution, which
illegally demanded documents from it. He was also informed that supervising
duty officers have been instructed not to respect court orders, because the
government expects that the companies will win the trials.

Another company was told that if it does not refrain from protesting, duty
procedures will take half a year. Similar threats were made when Kuczma
was president.

Meanwhile, Ukrainians are preparing to invest in Poland. Their projects are
supposedly worth a total of ZL3 billion. The Donbas industrial corporation
may well buy the Huta Czestochowa steelworks, and it is also thinking of
taking over the Walcownia Rur Jednosc rolling mill.

If it survives, AwtoZAZ will most likely buy the FSO car factory. Kiev-based
Antonov may start cooperating with the Mielec based aviation company.

Also, the largest Polish - Ukrainian project is at hand - the construction
of the Brody-Plock oil pipeline by Ukrtransnafta and Sarmatia. The problems
that polish investors are recently encountering may lead to soem delays.

Taras Pankiewicz of the Lwow-based legal office De Jure, which agreed to
represent investors in their conflict with the government points out that
foreign capital is protected by a law from 1996, according to which
investors are entitled to functioning on the same rights as when they
started their operations for the following ten years.

The law was not changed along with the other regulations, maybe the
government forgot about it, or maybe it left a way out for its own
oligarchs. Polish businessmen can also make use of it, accusing regional
governance of breaching contracts.

Investors are prepared to settle for reduced income tax incentives and five
year duty incentives for companies that fulfilled 85 percent of their
obligations to the special economic zones. They remind that Poland and
the Ukraine, (the orange one) singed an agreement about mutual help for
investors. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
2. AMBIGUOUS SIGNALS FROM THE PRESIDENT
Poland confused by Ukraine's policy on regional economic bloc

Yuliya Terekhina, Glavred website, Kyiv, Ukraine, Thu, June 9, 2005
BBC Monitoring Service, UK, in English, Tue, Jun 14, 2005

Confusing statements by Ukrainian President Viktor Yushchenko on foreign
policy are of concern to Poland, a Ukrainian web site has said. Polish
experts regard Yushchenko's recent statements in apparent support of an
economic union with Russia, Kazakhstan and Belarus as not being well
accepted in Warsaw or the West.

However, it said that Ukraine's planned membership of the EU is a long-term
prospect at any rate and that nobody can say what the EU will be like when
Ukraine does join it.

The following is the text of the article by Yuliya Terekhina, entitled
"Ambiguous signals from the president", published on the Ukrainian web
site Glavred on 9 June; subheadings are as published:

Contradictory statements by [Ukrainian President] Viktor Yushchenko on
Ukraine's integration aspirations are provoking analysts in neighbouring
Poland to compare him to [former Ukrainian President] Leonid Kuchma. As
is known, the foreign policy of the latter was exceptional for meandering
and being multi-directional. Judging by everything, [President] Viktor
Andriyovych [Yushchenko] has decided to adopt some of the leadership traits
of his predecessor.

RISING FROM THE DEAD -----
Last week the Ukrainian authorities tried to resuscitate the Russian vector
of foreign policy. The Single Economic Space [SES] project, which was given
up for dead after the victory of the Orange Revolution, came alive again in
Kazakhstan, where Viktor Yushchenko headed to seek oil. There is more.

The president not only confirmed that Ukraine was not rejecting the
agreement on the SES which was signed and ratified earlier, he even
commanded the most contradictory article to live. This article is the one
which even Leonid Kuchma said would run counter to the constitution of our
country if realized - establishing a supra-national body. But there is no
conclusion from the Constitutional Court yet.

There has not even been a relevant inquiry. Viktor Yushchenko's
inconsistency became grounds to search for the reason for such a statement.
Just a year ago, he was a vehement opponent of the SES, described support
for this group as treason against the national interests of Ukraine and said
on Independence Square that the multi-vector foreign policy had come to an
end and the country's priorities lay in Europe.

And the president himself has not yet given light to the real reasons for
his statements with regard to the SES. Tadeusz Olszanski of the Warsaw
Institute of Eastern Studies, whose experts prepare analytical reports for
the Polish government, notes that our neighbours have a difficult time
understanding such lunges by the Ukrainian authorities. "But it is necessary
to understand that they are received quite negatively in the West and in the
European Union", he notes, explaining that the West is very tired of the old
Ukrainian authorities.

He says that the EU is expecting Viktor Yushchenko and his circle to be
consistent and steadfast on issues of integration. "The Polish political
elite supported the new Ukrainian authorities and hoped for a policy more
distanced from Russia. Not anti-Russian! Now we are observing a change in
declared priorities. But the Polish authorities have even more potential
sympathy for Ukraine. Because Kiev expressed a desire to be closer to
Warsaw and the European Union. But it is not known what will come of
this", Mr Olszanski says.

His colleague Arkadiusz Sarna notes that Poland got caught up in the Orange
Revolution, taking in emotionally the events unfolding in Ukraine. Today one
can say that the Poles are pondering the change in leadership in Ukraine.
And so, he says, it is very hard to judge what is going on in Ukraine right
now or the actions of the country's leadership. Much as if saying, "The new
team has just not been in place long enough." Although as Mr Sarna points
out, "there are already ambiguous signals. And most important, there is not
a unified team in power".

HELPFUL EXPECTATIONS ------------
But no matter how contradictory Viktor Yushchenko's foreign policy
statements are, fully fledged Ukrainian integration into Europe is a
long-term prospect. And it is not clear what the EU will be by that time. In
the near future, the EU will remain in the form of an economic and currency
union of its member states, as the situation with adopting the European
constitution has shown (France and the Netherlands have blocked this
process).

If Europe had actively continued to form its political traits, then in the
near future we would have witnessed the creation of a quasi-state with an
agreed foreign policy, common European citizenship, free migration and a
single president of Europe. But since the development of such a scenario is
being put off, the EU has time to ponder what it should be like in the
future.

Either an intergovernmental organization, or a union of states or a federal
structure. "Analysing the Ukrainian discussion on European integration and
the latest events on the territory of the EU, I think that it is not only
Ukraine which needs to prepare itself for membership in the EU, but the EU
must prepare itself to accept Ukraine into its ranks", Olszanski says.

He thinks that negotiations on Ukraine's membership in the EU will not be
held until the "fundamental problems of this organization are resolved,
among which the main one is adoption of the constitution". But the expert
notes that expectations will bring benefits to Ukraine.

Since "the Ukrainian leadership will have more time to calmly and surely
draw closer to the EU". After all, "nobody can now say for certain what the
EU which Ukraine will actually join will be like". -30-
===============================================================
3. SBU SUSPECTS NEARLY ONE THOUSAND UKRAINIAN ENTERPRISES
OF ILLEGALLY RECEIVING VALUE-ADDED TAX (VAT) REFUNDS

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

KYIV - The Security Service of Ukraine (SBU) suspects nearly 1,000
enterprises of illegally receiving refund for value-added tax. Iryna
Heraschenko, the president's press secretary, disclosed this to journalists
citing the president during his meeting with governors.

"What concerns the list of enterprises, based on which the Security Service
believes that criminal cases might be launched regarding significant
violations in VAT compensation, in the words of Oleksandr Turchynov,
nearly one thousand enterprises might be on this list," Heraschenko said.

At the same time, she said that it is improper to make public this list now.
"It will be incorrect today to make public this list, for the criminal cases
are continuing," Heraschenko said.

This topic was discussed at the closed door part of the meeting with
governors, which was also attended by representatives of the Cabinet of
Ministers and security agencies. "The closed part of the meeting concerned
documents for official use that were divulged by the security bloc,"
Heraschenko said.

As Ukrainian News earlier reported, Yuschenko started a meeting with
governors in the morning. He informed during the time of the meeting about
a letter from the SBU, in which it is asking for a correction of the
calculations of GDP for 2004 because it contained fictitious UAH 30 billion.
===============================================================
4. UKRAINIAN FOREIGN MINISTER SAYS PETROL CRISIS INDIRECTLY
INFLUENCED EU'S DECISION TO POSTPONE GRANTING
MARKET ECONOMY STATUS TO UKRAINE

TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

KIEV - [Presenter] Foreign Minister Borys Tarasyuk has suggested that
the petrol crisis indirectly influenced the EU's decision to postpone
granting Ukraine the status of a market economy for an indefinite period.

[Tarasyuk] There were problems on the Ukrainian side. The issue is
politicized to such an extent that everyone forgets that they need to do
their homework. Unfortunately, it was not possible to eliminate all the
problems before this meeting of the Ukraine-EU cooperation council.

I think these problems are technical in character and they will be cleared
up soon. But the economic bloc in the government will have to work harder
to finish this procedure.

[Presenter] As for the simplification of the visa regime for Ukrainian
students, journalists, academics and business people, Tarasyuk is
convinced that this will happen by the Ukraine-EU summit in October.
===============================================================
5. UKRAINIAN PRESIDENT SAYS LAST YEAR'S GDP FICTITIOUS

UNIAN news agency, Kiev, in Ukrainian 0940 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

KIEV - The Security Service of Ukraine [SBU] has officially proposed that
the GDP base in 2004 should be reviewed, because dubious VAT refunds
amounted to 5bn hryvnyas last year.

Addressing a conference of regional state administration heads, President
Viktor Yushchenko said that "the job done by law-enforcement agencies,
especially in terms of VAT refunds, currently shows that about 5bn hryvnyas
of VAT refunds are dubious. Materials for criminal cases involving some
3.3bn hryvnyas have been gathered."

Yushchenko said: "The Security Service of Ukraine a few days ago officially
asked for the [GDP] base in 2004 to be reviewed. According to their
calculations, around 30bn hryvnyas were fictitiously included to GDP in
2004." Yushchenko added that the Security Service of Ukraine compiled a list
of companies involved in unlawful VAT refunds. Yushchenko said that these
companies are "well-known" and that they have subsidiaries in every region.

Having said that, Yushchenko asked his assistants to bring a copy of the
letter from the Security Service of Ukraine. "We would switch off TV cameras
and in our circle read out the list of these characters who have operated
the schemes and every day and every month received VAT refunds from the
state budget," Yushchenko said. "I mean about 200 companies," Yushchenko
said. After that live relay from the conference stopped. UNIAN's note:
Ukraine reported a 344.8bn-hryvnya GDP in 2004. -30--
===============================================================
6. WASHINGTON CONCERNED UKRAINE MAY NOT JOIN WTO THIS YEAR
Ukrainian parliament fails to pass key WTO legislation

By Taras Kuzio, Eurasia Daily Monitor
Vol 2, Issue 116, The Jamestown Foundation
Washington, D.C., Wednesday, June 15, 2005

During President Viktor Yushchenko's April visit to Washington, he
enumerated three goals to be achieved this year: joining the WTO, lifting
the Jackson-Vanik trade restrictions, and obtaining free-market economy
status. The prospects for attaining the first two goals are doubtful, at
least by the end of 2005.

On May 31 the Ukrainian parliament narrowly failed to pass important changes
to legislation to combat CD piracy and protect copyright, changes that would
make Ukraine eligible for membership in the World Trade Organization. The
Ukrainian parliament must pass this law before its summer recess, which
lasts until early September. There are another 21 bills that still need
passage before the WTO meets in the fall.

The Yushchenko team has attempted to differentiate itself from former
president Leonid Kuchma's regime by promoting Ukraine's WTO member-
ship separate from Russia's. Psychologically, it is important for Ukraine to
enter the WTO ahead of Russia. The Kuchma camp supported a plan
whereby all four members of the CIS Single Economic Space (Ukraine,
Russia, Kazakhstan, Belarus) would synchronize their drive to achieve
WTO membership.

It is not surprising that former pro-Kuchma centrists in parliament and the
Communist Party did not vote in favor of the changes to legislation. As
Yushchenko pointed out publicly, the son of former prime minister Vitaly
Masol (a former high-ranking Communist) allegedly owns the largest
counterfeit CD operation in Ukraine.

What is more surprising is that 26 of the votes against the bill came from
Yushchenko's own Our Ukraine faction. The bill failed by only 17 votes.
Similarly, only six out of 17 members in the other pro-free market group
within the Yushchenko camp (Deputy Prime Minister Anatoliy Kinakh's
Party Industrialists and Entrepreneurs) supported the bill.

Other pro-Yushchenko factions (the Socialists, People's Party, Yulia
Tymoshenko bloc, Ukrainian People's Party) largely voted in favor.
Ironically, the majority of the left and right populists (all 26 Socialists
and 18 of 25 Tymoshenko deputies), whom Western critics have accused
of being against free market policies, voted in favor.

On this occasion, at least, the mishandled vote does not reflect divisions
between populists and free-market reformers in Yushchenko's camp, but
rather weak executive control over important policy issues to be raised and
voted on in parliament, where pro-Yushchenko forces have a majority. But,
since Yushchenko's inauguration on January 23 he has been unable -- or
unwilling -- to exercise his authority as president.

Consequently, a new poll by the Razumkov Center found Tymoshenko more
popular (61%) than Yushchenko (60%) (Ukrayinska pravda, June 9).
Yushchenko's reticence to use his extensive array of executive power is all
the more surprising because the constitutional reforms agreed in December
2004 -- but likely to go into effect only after the March 2006 election --
will reduce the power of the president.

The failed copyright vote is also linked to the confusion that continues to
exist over the division of powers between different institutions that deal
with Euro-Atlantic integration. These include Petro Poroshenko's National
Security and Defense Council, Borys Tarasyuk's Foreign Ministry, Oleh
Rybachuk's position as deputy prime minister for European integration, and
the presidential secretariat. Yushchenko apparently has not designated
which institution should take the lead on WTO matters.

Another blockage lies with the failure to replace Kuchma-era personnel at
key Western embassies in Brussels, London, and Washington. Their continued
presence sends the wrong signal about whether Ukraine has really increased
its commitment to Euro-Atlantic integration compared to the empty rhetoric
of the Kuchma era.

Senior Washington-based U.S. officials are dismayed at the failure of
Ukraine's parliament to vote for the necessary changes. They point to four
additional complicating factors:

FIRST, the U.S. Office of the Special Trade Representative declared two
months ago that U.S. economic sanctions against Ukraine would remain in
place until Ukraine improves its policies on copyright infringement and CD
piracy.

SECOND, as a WTO member, the United States will insist on a separate
bilateral agreement. Ukraine has signed bilateral agreements with 31 of the
WTO's 148 members, while another 17 WTO members seek such agreements.
But Washington refuses to sign such an agreement until Ukraine addresses
CD piracy and other copyright issues.

THIRD, the Soviet-era Jackson-Vanik restrictions, which Yushchenko
mentioned during his Washington visit, are unlikely to be removed this year.
The Senate Finance Committee, one of two committees that would have to
discuss this issue before a vote to lift the restrictions, does not have
this issue included on its agenda this year.

FOURTH, Kyiv has sent several negative signals to foreign investors,
international organizations, and governments with its contradictory or
anti-free market government policies. These include price controls, the fuel
crisis, the sudden removal of 24 free-economic zones, an inflationary social
budget, and the well-known disputes over re-privatization.

Yushchenko's third goal looks more realistic. Deputy Prime Minister Rybachuk
remains confident that the EU will grant Ukraine free-market economy status
in the fall (Ukrayinska pravda, June 14). Russia was granted this status in
2002. Market-economy status requires parliament to adopt legislation on VAT
and bankruptcy and to alter its pricing policies.

Although two months have passed since Yushchenko's highly successful visit
to the United States, there has been little progress in three important
areas that both sides then outlined as strategically important. -30-
-----------------------------------------------------------------------------------------------------------
NOTE: Taras Kuzio is Visiting Professor, Institute for European Russian
and Eurasian Studies, George Washington University, Washington, D.C.
tkuzio@gwu.edu; www.ieres.org; www.taraskuzio.net
===============================================================
7. THE ODD COUPLE OF KIEV
Why Ukraine's free-market President needs his state-oriented Prime Minister

European Business: by Roman Olearchyk in Kiev
Business Week Online, USA, June 20 Edition, 2005

When Viktor A. Yushchenko was waging his Orange Revolution bid for Ukraine's
presidency late last year, he had no more loyal or effective ally than Yulia
V. Tymoshenko. The charismatic 44-year-old businesswoman and politician
tirelessly rallied supporters for weeks, giving Yushchenko the time he
needed to persuade Ukrainians -- and the world -- that the first round of
elections in November was a sham.

With Tymoshenko -- her trademark braids circling her head in the traditional
Ukrainian style -- at his side, Yushchenko swept the second round in
December and became President. In February, he appointed her Prime
Minister.

Four months on, the honeymoon is over. While both politicians are determined
to root out corruption and make the government more transparent, they seem
to have differing economic visions. Yushchenko, a market liberal, has spent
much of his time in office trying to convince the European Union that
Ukraine will do whatever it takes to integrate with the West.

Tymoshenko, in contrast, is pushing Ukraine along a more socialist path.
"She favors a strong government backed by strong control over the economy.
They are inherently different in this respect," says Vadym Karasiov,
director of Kiev's Global Strategic Institute, an independent think tank.

Things came to a head in late May, when Yushchenko came close to firing
Tymoshenko over her decision to cap fuel prices. Yushchenko ordered the
caps lifted and urged Tymoshenko and other government ministers to avoid
Soviet-style command economics.

The President won that round. But the strong-willed Prime Minister has
plenty of cards to play. Tymoshenko's iron-fisted management style has been
effective in cleaning up the corruption-ridden economy. And her declarations
that the state could and should retain its majority shareholdings in steel
plants and oil companies appeal to cash-strapped Ukrainians who despise
the tycoons who grabbed state assets in the past decade.

Uncompromising protectionist management has, in fact, helped boost
Tymoshenko's approval rating in recent months to 55.3%, according to an
April poll by the Kiev International Institute of Sociology. Her nationalist
Fatherland party is now a part of Yushchenko's coalition. But Ukraine faces
parliamentary elections in just nine months, so if Yushchenko fired
Tymoshenko, he would risk turning Fatherland into a dangerous challenger
to his Our Ukraine bloc.

Says Mykhailo Dobkin, owner of a poultry-processing business and a
parliamentary member from the Social Democratic Party of Ukraine:
"Tymoshenko's rating is rising sharply, and she smells power."

DIRTY WORK -----
There's one other reason Yushchenko didn't fire Tymoshenko over the fuel-cap
fracas: He needs her to run the government. While the President has spent
much of his time abroad appeasing investors with liberal free-market talk,
the dirty work has been left to Tymoshenko. Painful challenges, such as
reform of a complex tax system, still lie ahead. It's especially important
that the government wipe out the special tax breaks secured by the tycoons
who struck it rich under the country's previous leadership.

Yet passage of such politically charged reforms requires parliamentary
support. Ukraine's legislative house is splintered among Yushchenko's
allies, Communists, and tycoons eager to protect their privileges. If
Yushchenko can keep his coalition together in next March's elections, he
and Tymoshenko could take full control over the new Parliament.

If Tymoshenko challenges him, major political battles will emerge. "The
government will attempt to keep her in place as Prime Minister rather than
face her as a political foe," Karasiov says. Yushchenko put her in her place
once, but the fiery Tymoshenko is still a force to be reckoned with. -30-
===============================================================
8. PUT YOUR FEARS ASIDE AND YOUR MONEY HERE,
UKRAINE TELLS FOREIGN INVESTORS

Agence France Presse (AFP), Kiev, Ukraine, Thu, 16 June 2005

KIEV - Ukraine's new leadership Thursday will kick off an intensive two-day
marketing campaign as it tries to convince foreign investors to put aside
their fears and invest in the ex-Soviet nation now set on a pro-Western
course.

Some 250 business and political heavyweights - including presidents of
seven countries - converge on Kiev Thursday for a conference organized
by the World Economic Forum that has been dubbed a "mini-Davos."

Ukrainian President Viktor Yushchenko - a former central banker who last
year won a protracted vote on promises to Westernize the strategic former
Soviet republic of 48 million - hopes the gathering will jumpstart
investment that the ailing economy badly needs.

"Ukraine has unique potential, profitable enterprises and entire
industries - aviation and shipbuilding, high-tech and transportation - that
can become the real trailblazers of the Ukrainian economy and a real
"Klondike' for foreign investors," he was quoted as saying in an interview
with the WEF posted on its website.

Yushchenko is due to address the gathering late Thursday. Helping him carry
the message will be leaders of other former Soviet-bloc nations that firmly
back Yushchenko's vow to bring Ukraine out from its centuries-old domination
by Moscow and turn it toward the West - the presidents of Estonia, Georgia,
Lithuania, Moldova and Poland are all due to attend the two-day forum in
central Kiev. Azeri President Ilham Aliyev is also expected to attend.

But Yushchenko and his team face an uphill battle. "The investment climate
is really bad. It stinks," said Olivier Descamps, a director at the European
Bank for Reconstruction and Development (EBRD), in another interview
posted on the WEF's website.

The list of ills ailing the Ukrainian economy is long - corruption, bloated
bureaucracy, confusing legislation, an antiquated banking system.
Indeed Ukraine came 86th on a recent list that ranked 104 countries for
their competitiveness, with tax regulations, corruption and tax rates the
largest obstacles to doing business, according to a WEF study.

And although investors welcomed Yushchenko's victory late last year and his
promises to make the economy and the running of business more transparent,
many are waiting for concrete results before putting their money on the
table.

Nevertheless, some are already taking the plunge - one Russian investment
bank has just set up shop in Kiev and another one plans to do so in a few
months, a French firm has agreed in principle to build roads in Ukraine and
Kazakhstan is interested in helping build a section of a strategic oil
pipeline.

Ukrainian officials hope that the two-day roundtable in Kiev will spark more
of the same. "The forum is not an investment fair," Volodymyr Ignashchenko,
a deputy minister of economics, said this week. "But we hope that informal
contacts made during it... will boost contacts between the leaders of
Ukraine's business community and the leaders of the world's financial and
industrial communities." -30-
===============================================================
9. PRESIDENTS, BUSINESS LEADERS GATHER IN UKRAINE
FOR SPECIAL ECONOMIC FORUM

Mara D. Bellaby, AP Worldstream
AP, Kiev, Ukraine, Thursday, Jun 16, 2005

KIEV -Looking for advice as well as investment, Ukraine's new government is
welcoming at least five presidents and dozens of business leaders to a forum
aimed at capitalizing on post-Orange Revolution interest in this ex-Soviet
republic.

The World Economic Forum agreed to hold a special round-table in Ukraine,
after being approached by new President Viktor Yushchenko, who spoke this
year at the group's annual meeting in the Swiss ski resort of Davos.

The two day conference, which begins Thursday, gives Yushchenko's team
a chance to try and sell the country to the international community, and to
hear firsthand what changes investors are looking for.

The peaceful mass protests last year that helped usher the pro-Western
opposition into power captivated the world. Yushchenko has been feted
around the globe, but so far, little new foreign investment has poured in.

"Let's be frank, the image of Ukraine is much worse than the real state of
things here," said Volodymyr Ignashchenko, deputy economic minister.
"This is a chance to promote ourselves."

Participants include the presidents of Poland and of former Soviet republics
Moldova, Estonia, Georgia and Azerbaijan. Some 145 business leaders,
including officials from Microsoft, Shell International, Mittal Steel and
Severstal, are also expected.

"There is a real sense that Ukraine is on the move, and these are the
people who want to be in at the beginning," said Felix Howald, director
of the World Economic Forum's Europe division.

Special sessions will be held to discuss Ukraine's metals and mining
industry, which is the sixth largest in the world in production capacity,
and Ukrainian agriculture. Ukraine previously was known as the bread
basket of the Soviet Union because of its rich soil.

Participants will also discuss Ukraine's relations with the European Union,
which Ukraine wants to join, and with Russia, its giant neighbor and major
trading partner. Russian President Vladimir Putin declined an invitation to
attend, Howald said.

Ignashchenko said Ukraine was hoping to win some new investment, but that
it was impossible to say how much. Another main goal, he said, was for the
government to get advice. At the end of the conference, Ukraine is to
receive a list of "concrete steps where the government should focus."

Some criticism was also expected, officials said, particularly amid foreign
concern about the new government's efforts to undo some of the murkier
privatization deals of the past decade. Yushchenko has ordered his
government to limit the scope of their challenges, but the lack of clarity
about how many and which deals will face scrutiny has added to uncertainty.

Ukraine's Cabinet is due to meet Thursday to continue its discussions about
the Kryvorizhstal steel mill, which the government took control of last week
and plans to offer up for sale again in a new tender before the end of the
year. The company had been bought last year by the son-in-law of former
President Leonid Kuchma and another tycoon for US$800 million (Euro 665
million) - a price that critics said was a giveaway.

Organizers of the conference said that re-privatization was on the agenda.
===============================================================
10. PRESIDENT YUSHCHENKO URGES BUSINESS TO SEIZE THE MOMENT

Mark Adams, Director of Communications
World Economic Forum Roundtable
Kyiv, Ukraine, Wed, June 15, 2005

KYIV - President Yushchenko urges business to seize the moment as key
leaders converge on Kyiv for World Economic Forum Roundtable
Kyiv , Ukraine , 15 June 2005 - President Yushchenko of Ukraine will deliver
an upbeat and optimistic message to leaders from business and politics at
the World Economic Forum Roundtable which begins in Kyiv tomorrow.

The president will tell participants that " Ukraine has a unique potential
for foreign investors." He will also bring them up to date on the actions
taken so far to build a "law-abiding state and market economy." Among the
250 participants from 32 countries taking part in the Roundtable, under the
theme The Opening of Ukraine , there will be seven heads of state and
government and nearly 150 senior business leaders.

Speaking before the start of the Roundtable, the president said: "The time
has come to tell investors that Ukraine , with its companies, provides the
best opportunities for investment."

But the president also emphasized that investment must go hand in hand
with good governance. "It is not a smart thing to build a house on a bog,"
he said. "If we do not drain the bog of corruption, if we do not free every
Ukrainian (not just government officials) of this rottenness, which has been
stored for years in our subconscious - take, for example, some folks saying
[[no bribe, no go]" - we will not be able to build a law-abiding state and
market economy.

"This is why we started fighting corruption on day one. One of our first
initiatives aimed at eradicating corruption was the programme 'STOP
smuggling'. Along with introducing special anti-corruption groups that
checked the work of customs officers and staff, Ukraine reduced duties on
many imported goods. As a result, within the first few months, revenues
from customs duties increased by 40%."

Also taking part in the Roundtable along with the President and Prime
Minister of Ukraine are President Aleksander Kwasniewski of Poland,
President Ilham Aliyev of Azerbaijan, President Arnold Rüütel of Estonia,
President Mikheil Saakashvili of Georgia and President Vladimir Voronin of
Moldova. Joaquín Almunia, Commissioner, Economic and Monetary Affairs,
will represent the European Commission.

Among the companies represented by senior executives are Microsoft, Shell,
Nestle, Oracle, Coca-Cola, Nike and Deutsche Bank. A number of Ukrainian
companies are also among the participants: NJSC Naftogaz of Ukraine, The
State Export-Import Bank of Ukraine (Ukreximbank), Kyivstar GSM JSC,
Interpipe Group and Kvazar-Micro Corporation

FACTS AND FIGURES -----
Over the course of the two-day Roundtable, more than 245 participants from
32 countries will gather in Kyiv. About 108 participants are from Ukraine .
145 are business leaders, drawn principally from the Forum's members -
1,000 of the foremost companies from around the world and across economic
sectors.

Other major categories of participants from around the globe include
approximately: 145 business leaders; 26 public figures and regional leaders;
7 heads of state and government and 10 ministers; 8 media and opinion
leaders; 2 heads of non-governmental organizations and labour leaders; and
4 academics. Of the 32 countries represented, 10 are from central and
eastern Europe

Speaking prior to the start of the Roundtable, Felix Howald, Associate
Director of Europe , explained, "The meeting has attracted a high calibre of
participants both from business and politics, and from both Ukraine and the
wider international community. There is a real sense that Ukraine is on the
move, and these are the people who want to be in at the beginning of a very
special journey.

This Roundtable is an excellent opportunity for the World Economic Forum
and its members to interact with Ukrainian leaders from business and
politics as well as from other sectors of society. Ukraine is a country of
huge potential, and its people have recently shown what an extraordinary
and dynamic resource they are both for the forces of democracy and for the
development of business in the region."

GENERAL THEME -----
Held under the theme The Opening of Ukraine, this small gathering will
provide participants with a first-hand view of economic perspectives and
market developments in Ukraine. It will offer a unique opportunity to
interact with the new Ukrainian government.

Furthermore, the Roundtable will provide a platform for leading
multinational businesses to support President Yushchenko and his
government in their efforts during this first difficult year to push through
the necessary economic reforms and to open up the markets in the country.

The programme will focus, on the one hand, on Ukraine's burning current
challenges of its economic reform programme and business environment;
relations with Europe, Russia and the rest of the world; and corruption and
transparency.

BACKGROUND -----
Less than five months ago, President Yushchenko addressed participants at
the Annual Meeting 2005 of the World Economic Forum in Davos pledging:
"I am here in Davos to ask for your help. Ukraine needs you to visit, to
invest, to help us to become a strong country." You have followed his call
and are now ready to be part of two days of intense dialogue and output
oriented discussions, which, we are convinced, will contribute to make
Ukraine a strong country.

Leaders from international and local business, politics, civil society,
academia and the media will be part of this "Mini-Davos", as this gathering
has been called in the local press during the last weeks. Ukraine , indeed,
is opening, as the theme of the Extraordinary Ukraine Roundtable of the
World Economic Forum suggests.

The objectives of this truly unique gathering are twofold. First, it will
provide a timely platform for the international community - business and
non-business - to support President Yushchenko and his cabinet to overcome
the immense challenges he is facing in his first year of government. Second,
and not less important, this Roundtable seeks to assess the tremendous
business opportunities which are hidden in this "raw jewel Ukraine ".
---------------------------------------------------------------------------------------------------------
The World Economic Forum is an independent international organization
committed to improving the state of the world by engaging leaders in
partnerships to shape global, regional and industry agendas.

Incorporated as a foundation in 1971, and based in Geneva, Switzerland,
the World Economic Forum is impartial and not-for-profit; it is tied to no
political, partisan or national interests. (http://www.weforum.org)
----------------------------------------------------------------------------------------------------------
Conntact: Mark Adams, Director of Communications
Kyiv Tel.: + 380 44 496 8560, Kyiv Mobile: +380 50 462 8304
Kyiv Fax: + 380 44 496 8595,
Tel.: +41 (0)79 615 1671, Fax: +41 (0)22 869 1394
E-mail: mark.adams@weforum.org; http://www.weforum.org
===============================================================
11. GEORGIAN PRESIDENT SAAKASHVILI SAYS UKRAINE'S
EU INTEGRATION PROSPECTS ARE 'UNIQUE'

UT1, Kiev, Ukraine, in Ukrainian 1800 gmt 15 Jun 05
BBC Monitoring Service. UK, in English, Wed, Jun 15, 2005

KIEV - [Presenter] High-ranking guests have started arriving for the
mini-Davos [economic forum] in Ukraine. Georgian President Mikheil
Saakashvili arrived today. He said that the high number of participants
in the forum is a sign that the GUAM regional alliance is attractive. It
includes Georgia, Ukraine, Azerbaijan and Moldova.

Saakashvili said that a new structure is being formed on the basis of this
organization. Active cooperation has started with Romania and the Baltic
states. He is also sure that the EU is interested in Ukraine despite the
failure of the European constitution referendums in France and the
Netherlands.

[Saakashvili] Of course, on the one hand the European Union is in crisis
after the referenda. But on the other hand new countries have emerged -
above all Ukraine, Georgia and others - which want to integrate into the
common European space. On the one hand, we need the EU, but on the
other hand Europe also needs this region. It particularly needs Ukraine.
In this respect, Ukraine's prospects are absolutely unique. -30-
===============================================================
12. EUROPEAN INVESTMENT BANK (EIB) AND UKRAINE SIGN
FRAMEWORK AGREEMENT

European Investment Bank (EIB)
Luxembourg, Wednesday, 15th June 2005

LUXEMBOURG - Mr. Philippe Maystadt, President of the Luxembourg-based
European Investment Bank (EIB), and Mr. Oleg Rybachuk, Vice-Prime Minister
of Ukraine, have signed a framework agreement governing EIB lending to
projects in Ukraine.

The signature will allow the Bank to proceed with the financing of projects
in the areas of environment, transport, telecommunications and energy
infrastructure in Ukraine. This includes priority Trans-European Network
(TEN) projects connecting Ukraine and the European Union.

The EIB's activities will be developed in close cooperation with the
European Commission, the EBRD and other IFIs operating in the country.
This extension of the EIB's activity follows the December 2004 Decision of
the Council of the European Union to develop a EUR 500 million mandate
allowing for Bank lending in the Eastern Neighbours, notably in Russia and
Ukraine.

EIB-President Maystadt stated: ''The Framework Agreement signed today
forms the basis for the Bank's activity in Ukraine. We are keen to launch
the appraisal of suitable projects with a focus on both the development of
Trans-European Networks and environmental protection. We aim to foster
cooperation with Ukraine, an important neighbour of the enlarged EU.'
-------------------------------------------------------------------------------------------------------------
BACKGROUND -----
The European Investment Bank (EIB), founded in 1958 under the Treaty of
Rome establishing the European Community, is the European Union's bank for
financing investments that further European integration. The main objective
of the EIB is to contribute towards the integration, balanced development
and economic and social cohesion of the Member States.

Outside the Union, in some 130-partner countries, the EIB helps to implement
the European Union's cooperation and development policies, among them the
EU's new neighbours policy. Operations in the EU partner countries take
place in the framework of lending mandates provided to the Bank by the
European Council and the EIB's Governors. Of EUR 43.2 billion lent in 2004,
EUR 3.5 billion went to projects outside the EU.

Press contacts: EIB Communication & Information Department: Mr Dusan
Ondrejicka, tel.: +352-4379-2142, e-mail: d.ondrejicka@eib.org ,
web site: http://www.eib.org
===============================================================
13. NUCLEAR FUEL ASSEMBLIES FROM US FIRM WESTINGHOUSE TO
BE TESTED AT UKRAINE'S YUZHNOUKRAINSK NUCLEAR PLANT

Interfax-Ukraine, Kyiv, Ukraine, Wed, June 15, 2005

KYIV - The first of six experimental nuclear fuel assemblies from U.S. firm
Westinghouse have been taken to the Yuzhnoukrainsk nuclear power plant,
a regional government official has said. The NPP will become Ukraine's first
nuclear power plant to test the nuclear fuel, which is viewed as an
alternative to Russian-made fuel rods.

As an Interfax-Ukraine correspondent learned from Serhiy Isakov, deputy
head of the Mykolaiv Regional State Administration, in 2002 the govern-
ments of Ukraine and the United States set up a joint project called
'Qualification of the Alternative Supplier of Ukraine's Nuclear Fuel.'

The project implementation was halted for a certain time, but in 2005 the
"gasoline crisis" spurred the search for other fuel sources, including
nuclear fuel, he said.

As planned, fuel loading will proceed at the 3rd reactor of the
Yuzhnoukrainsk NPP. A trial batch of the fuel was made for Ukraine using
U.S. Energy Department funds, and Ukrainian experts underwent special
training. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
14. UKRAINE'S DONBAS LIKELY TO INITIAL AGREEMENT ON
POLAND'S HUTA CZESTOCHOVA STEELWORKS TAKEOVER

Polish News Bulletin, Warsaw, Poland, Thu, Jun 16, 2005

WARSAW - Ukraine's Donbas expects to initial agreements with state-
owned TF Silesia over the acquisition of Huta Czestochowa (HCZ)
steelworks and to sign a benefit package negotiated with employees on
Thursday.

However, HCz President Waclaw Korczak is trying to curb enthusiasm.
"We have several small issues to settle yet. We won't initial the agreement
on Thursday, but it's possible we'll sign a protocol on the conclusion of
talks," he says. According to Korczak, the agreements will probably be
initialed on 23 June.

A representative of TF Silesia nonetheless shares Donbas's belief that the
agreements will be initialed Thursday. "Even if we sign only the protocol on
the conclusion of talks, initialing agreements is only a formality, since
signing the protocol means that we reached agreement on all issues," he
says. The benefit package for employees is very likely to be endorsed on
Thursday. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
15. POLISH FIRM PORTA TO BUILD FACTORY FOR PRODUCTION OF
DOORS IN UKRAINE'S ZAPORIZHIA REGION IN 2005
Firm will hire 250 workers for the factory

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

KYIV - The Polish firm Porta plans to build a factory for production of
doors and their components with EUR 6 million in the village of Stepnohirsk,
Vasylivka district of Zaporizhia region. Advisor to the Zaporizhia governor
on press and PR issues Valentyna Manzhura disclosed this to Ukrainian
News.

She said that representatives of the Polish firm have already received
permission for construction and selected a land plot with an area of around
10 hectares. In addition, Porta is going to reconstruct a decrepit building
that stands near the chosen site and give it to builders and office
managers. The firm will hire 250 workers for the factory.

It is now drafting a map of the land plot and completing the papers to
register the factory as a company with 100% foreign investment.
As the firm put it, it has decided to build production in Ukraine because
its sales in the country increased by 60% last year. The factory is going
to be a joint Polish-Ukrainian venture.

Its production target will be around 5 million doors per week. All raw
materials will be Ukrainian. Porta plans to sell the doors in Ukraine,
Russia, Belarus, and other CIS countries. As of March 2005, Stepnohirsk
had a population of 4,946 people. -30-
===============================================================
16. INTERNATIONAL COMMITTEE FOR CRIMEA (ICC) NEWS DIGEST NO. 1
Summaries of Selected News About Crimean Tartars

LETTER TO THE EDITOR: From Inci Bowman
ICC News Digest No. 1, (May 2005)
Washington, D.C., Monday, June 13, 2005
Published by The Action Ukraine Report (AUR)
Washington, D.C. Thursday, June 16, 2005

Dear Morgan,

The first issue of the ICC News Digest, which includes summaries of selected
news about Crimean Tatars, has just been published. I thought you may want
to know about the existence of this Digest. I am not necessarily asking you
to distribute it, as it is five pages long. Perhaps a reference to it may
be helpful, as the News Digest is now available on our Web site,
http://www.iccrimea.org/news/newsdigest1.html.

As you may know, May is a special month for Crimean Tatars; the anniversary
of the 1944 brutal deportation of Crimean Tatars is observed both in Crimea
and diaspora communities in different countries. May 2005 was even more
special because of the recent political changes in Ukraine.

President Victor Yushchenko visited Bakhchisaray early in May and issued a
statement on May 18, and Anatoliy Matviyenko, the new Crimean Prime
Minister, offered an apology for the past crimes committed on the Crimean
land. Also, the "Azatliq" campaign launched to secure the release of the
six unjustly convicted Crimean Tatars continued in April and May.

The News Digest is an experimental project. We hope to issue these news
summaries bimonthly or quarterly, depending on the volume of news and our
own resources.

Finally, let me express once again my appreciation of your efforts in
publishing the AUR. Very valuable service, indeed.

Cordially, Inci Bowman (incia@attglobal.net)
International Committee for Crimea (ICC)
P.O. Box 15078, Washington, DC 20003
News Digest: http://www.iccrimea.org/news/newsdigest1.html.
===============================================================
17. HELP US HELP THE CHILDREN (HUHTC) FUNDRAISING GALA
10th Anniversary of their Carpathian Mt. Summer Camp Project

LETTER TO THE EDITOR: By Dianna Derhak
Kyiv, Ukraine, Wed, June 15, 2005
Published by The Action Ukraine Report
Washington, D.C., Thursday, June 16, 2005

Dear Morgan,

Help Us Help the Children/Priyateli Ditey will hold a fundraiser on
Saturday, June 18th in Kyiv, Ukraine, in honor of the10th Anniversary of
their Summer Camp Project, at the Kyiv Operetta Theatre (vol. Velyka
Vasyikivska, 53/3) beginning at 4 p.m.

The Gala should be FABULOUS. First Lady Kateryna Yushchenko is the
Patron of the Charity. Its a great cause. I can personally vouch for it as I
have been active in the camps for over 5 years. The donation is 500 hr.
You will find all the information below.

It should be a fun evening. PLEASE PASS THE INFORMATION AROUND.

Dianna Derhak, JD
D&A International Consultancy
Kyiv, Ukraine (diannaderhak@aol.com)
--------------------------------------------------------------------------------------------------------------
---------- INVITATION ----------
On June 18, 2005, Blahodijnyj Fond Tovarystvo "Pryjateli Ditej" will host a
Fundraising Gala in honour of the 10th Anniversary of their Summer Camp
Project. Beginning at 16:00, the event will take place at the Kyiv Operetta
Theatre, (vul. Velyka Vasylkivska, 53/3).

Please join us at our Fundraising Gala and help benefit orphaned children
of Ukraine that are eagerly awaiting your assistance. Your support will
provide children with the opportunityto make the dream of attending summer
camp in the Carpathian Mountains a reality, build memorable long lasting
friendships and experiences, cultivate a sense of belonging and raise their
awareness of the power they hold in shaping their lives for the future.

To order tickets, for the Fundraising Gala, in honour of the 10th
Anniversary Summer Camp, or questions, please contact:

Blahodijnyj Fond Tovarystvo "Pryjateli Ditej"
Telephone/fax: 380 44 280-29-26, 280-81-62, or 8-050-254-05-00
E-mail: ukrhuhtc@iptelecom.net.ua
A charitable donation of 500UAH per ticket

Best regards, Help Us Help The Children (HUHTC)
===============================================================
18. YANUKOVYCH DENIES LINKS TO DOCUMENTS REPORTEDLY
STOLEN FROM UKRAINE'S LVIV STATE HISTORICAL MUSEUM

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 15, 2005

KYIV - Party of Regions leader Viktor Yanukovych has denied any links
whatsoever to documents, which might have been stolen from the Lviv State
Historical Museum. He made the denial at an Internet conference in the
Tsenzor.net publication.

In particular, Yanukovych said that he did not present any documents of the
Lviv archives to the museum and he does not have any links to it.

Yanukovych said that then Deputy Premier Dmytro Tabachnyk proposed to
him to present to the museum documents have relations to the history of
Ukraine, and which, as Tabachnyk said, was transferred by someone from
abroad.

"I declined the proposal to personally present the documents in as much as
I did not have any relations to it," Yanukovych said.

As Ukrainian News reported previously, Police officers seized 1,500
documents that were stolen from the Lviv state historical archives from a
resident of Lviv on June 10. Among the stolen documents that were
uncovered is the correspondence of Metropolitan Andrii Sheptytskyi.

The police established that the materials were stolen from the archives
during the last 5-7 years. The police carried out more than 100 searches and
interrogations regarding this case. Among those interrogated by the police
was Anatolii Tolstoukhov, the first deputy chairman of People's Democratic
Party and ex-Deputy Premier Dmytro Tabachnyk.

The police also plan to interrogate Yanukovych regarding this case. The
archives employees had previously stated that the cost of the stolen
documents is several million euros. The archives employees had also
previously said that part of the documents were gifted out during the
election campaign of Viktor Yanukovych to one of the museums, which
triggered the start of stock-taking inventory in the archives.

During the inventory the police established new cases of theft from the
archives. The Department of Internal Affairs in the Lviv region is
conducting the investigation. -30-
===============================================================
19. KIEV PATRIARCH SAYS ORTHODOX CHURCH SHOULD NOT
BE AFRAID OF THE VATICAN

MARA D. BELLABY, AP Worldstream; Wed, Jun 15, 2005

KIEV - One of Ukraine's top religious leaders said Wednesday that the
Orthodox Church should not fear the Vatican and that he sees no obstacles
to greater cooperation between the two Christian churches. The initiative,
which goes against the Russian Orthodox Church's stance, marked yet
another rift between Russia and Ukraine, where pro-Western leaders came
to power earlier this year.

The Moscow Patriarchate accuses Catholics of encroaching on its territory
and it blocked the late Pope John Paul II's long-held wish to visit Russia,
the world's most populous Orthodox nation.

In an interview with The Associated Press, Patriarch Filaret, who heads the
Ukrainian Orthodox Church's Kiev Patriarchate, said the churches have much
in common and should cooperate in emphasizing the importance of the family
and moral values.

"Today the task and mission of Christian churches - Orthodox, Catholic,
Protestant - is to support moral values and support spirituality and
morality in European civilization," Filaret said.

The new head of the Roman Catholic Church, Pope Benedict XVI, has already
declared a "fundamental commitment" to heal the divide between the Roman
Catholic and Orthodox churches.

Unifying the two churches is "desirable but today it is not realistic,"
Filaret said, but added that greater cooperation is possible.
"We don't need to be afraid of Rome," Filaret said. The Orthodox Church
should focus its efforts on "working more with our people, with our youth."

Cardinal Walter Kasper, a German prelate who is president of the Vatican's
Pontifical Council for the Promotion of Christian Unity, declined to comment
on Filaret's remarks, noting that he had not yet read them. But the
cardinal, in a brief telephone conversation with The Associated Press in
Rome, noted that Filaret "doesn't speak for the other patriarchs."

The Kiev patriarchate is outside the fold of the Moscow patriarchate, which
has been among the Vatican's harshest critics on contentious issues such
as the Vatican's alleged evangelism in the former Soviet Union and property
disputes.

The Russian church has accused Catholics of poaching for faithful on its
traditional territory, sparking tension between the churches after the
Soviet Union's collapse in 1991. There are an estimated 600,000 Catholics
in Russia, and the Vatican insists it is only looking out for its flock.
Russian Orthodox Patriarch Alexy II said in a newspaper interview published
on Wednesday that the Vatican would have to make the main effort to heal
troubled relations between the two churches.

"We warmly welcome recent statement by Pope Benedict XVI in which he
spoke of Christian unity and the need for concrete steps to improve ties
between the churches. We hope that such steps will be made by the
Catholics in order to change for the better Orthodox-Catholic relations,"
he told the Russian government daily Rossikaya Gazeta.

The Ukrainian church split into three parts after this ex-Soviet republic
gained independence, in part due to the refusal of the Russian Orthodox
patriarchate to cede control over this mainly Orthodox nation of 48 million.

The Kiev patriarchate, which claims independence from Moscow and boasts
more than 2,700 congregations throughout Ukraine, warmly welcomed a visit
by Pope Benedict's predecessor, John Paul II, in 2001.

The Russian Orthodox Church strongly objected to the papal visit,
complaining in part that the presence of Eastern Rite Catholics in western
Ukraine was an infringement on their traditional territory. The Moscow
Patriarchate of the Ukrainian Orthodox Church, which is under the Russian
Orthodox Church, also opposed the papal visit.

Eastern Rite Catholics follow Orthodox rituals but pledge allegiance to the
pope, causing some Orthodox to accuse them of attracting believers who
would otherwise be Orthodox. Filaret said, however, that he has good
relations with the Eastern Rite Catholics, and that questions of property -
one of the most decisive issues - have almost been resolved. -30-
================================================================
20. UKRAINIANS TO HAVE PRIORITY IN ADOPTING CHILDREN
Regarding adoptions by foreigners, clearly we are not refusing them.

TV 5 Kanal, Kiev, in Ukrainian 0800 gmt 15 Jun 05
BBC Monitoring Service, UK, in English, Wed, Jun 15, 2005

KIEV - Youth and Family Minister Yuriy Pavlenko has said Ukraine has not
banned adoptions by foreigners, but will give preferential treatment to
Ukrainian families applying to adopt a child. He said adoption procedures
will be eased to reduce the waiting period for Ukrainian families from
five-six years to several months. The following is the text of a report by
Ukrainian television TV 5 Kanal on 15 June:

[Presenter] Ukraine will join the Hague convention regulating procedures
for international adoptions of children in September, the minister for
family, youth and sport affairs, Yuriy Pavlenko, is convinced.

Domestic adoption processes will also be simplified to shorten them from
five or six years to several months. Yuriy Pavlenko was speaking in the 5
Kanal studio.

[Pavlenko] The priority for the state today are national adoptions. First of
all, we will create all the necessary conditions to enable every Ukrainian
family to adopt a child as quickly and as easily as possible - a Ukrainian
family to adopt a Ukrainian child.

At the present time, the law actually sets out the whole procedure, and this
procedure can be completed in five or six months, all the necessary checks
can be carried out and a child can be adopted. But experience shows that
this normally takes some five or six years.

This mainly has to do with inefficient work by the lowest link - at the
level of the district or village, where final decisions are actually taken
by one worker, who is not interested in this work, but is perhaps interested
in something else.

As regards adoptions by foreigners, clearly we are not refusing them. -30-
===============================================================
21. UKRAINE GOVERNMENT ATTEMPTS TO GET GRIP ON CORRUPTION

By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Tue, June 14, 2005

During the last two months of 2004, as the Orange Revolution was changing
the face of the Ukrainian body politic, approximately $1 billion left
Ukraine. Some of this money was reportedly private and some belonged to
the Ukrainian treasury. The people responsible for transferring this money
out of the country have been identified, according to a spokesman for the
Ukrainian Interior Ministry (MVD), and investigations into the matter are
under way, Interfax reported on 1 June.

This announcement was the latest in a series of statements made by Ukrainian
law enforcement agencies on the promised postelection cleanup of corruption
and crime in Ukraine. According to Interior Minister Yuriy Lutsenko, some
18,000 criminal cases have been initiated by the MVD since the new
government took power at the end of January.

GOVERNORS ARRESTED
The most widely publicized cases so far have been the arrests of two
regional governors, Borys Kolesnykov from Donetsk Oblast and Ivan Rizak
from Transcarpathian Oblast. Both men are in prison while investigations of
their cases continue. Kolesnykov was arrested on charges of extortion while
Rizak was charged with "inducing suicide."

The Prosecutor-General's Office claims that he did so by harassing an
individual to the point that the person committed suicide. Both men were
known as supporters of former President Leonid Kuchma and their arrest
has led the opposition to declare that they are being "politically
persecuted." In mid-June, Rizak's two assistants were also charged with
crimes and put on a wanted list.

Another Kuchma-appointed regional governor, Volodymyr Shcherban from
Sumy, has been indicted on a number of charges, including extortion, and is
being sought by the police. He is alleged to have fled to Russia. Shcherban,
originally from Donetsk, was the leader of the Liberal Party of Ukraine
prior to being indicted.

FORMER SBU DEPUTY SOUGHT -----
On 7 June, Interfax-Ukraine reported that the former deputy head of the
Ukrainian Security Service (SBU), Volodymyr Satsyuk, was being sought in
connection with "grave crimes." According to Prosecutor-General Svyatoslav
Piskun, Satsyuk reportedly left Ukraine and an Interpol red alert will be
posted for him.

Satsyuk has often been mentioned in connection with the poisoning of
President Viktor Yushchenko in 2004. The dinner party during which many
suspect that dioxin was administered to Yushchenko took place in Satsyuk's
summer home.

However, after the 7 June announcement, Interfax quoted a "source close to
the investigation of the poisoning" as saying that Satsyuk was being sought
for misuse of SBU funds and not in connection with the Yushchenko poisoning.

FORMER OFFICIAL SOUGHT IN GAS CASE -----
One highly visible case is that of Ihor Bakay, the former head of the
presidential property-management department in Kuchma's administration.
Prior to holding that position, Bakay was the head of Naftohaz Ukrayiny, the
state oil and gas monopoly, from which he was forced to resign in 2001 after
being exposed for having conducted a series of suspicious transactions.

After leaving Naftohaz, Bakay was elected to parliament, though according to
numerous parliamentarians, he only appeared once in the session hall -- to
be sworn in. Bakay was indicted in March on charges of defrauding the state
of tens of millions of dollars in a series of illegal real-estate
transactions and an Interpol warrant for his arrest was issued.

At that time, Russia's ambassador to Ukraine, Viktor Chernomyrdin, announced
that Bakay had obtained Russian citizenship. Apparently Bakay had fled to
Moscow during the 2004 election campaign and obtained citizenship, but it
remains unclear if he received it in Kyiv from Chernomyrdin or in Moscow.
Chernomyrdin has denied issuing Bakay a Russian passport.

The Ukrainian authorities have asked the Russian Foreign Ministry for
Bakay's extradition to stand trial in Ukraine, but there has been no
response to the request so far. In May, Ukrainian Transport Minister Yevhen
Chervonenko met with Bakay in Moscow. Chervonenko told the "Ukrayinska
pravda" website that Bakay travels around Moscow freely, accompanied by
armed bodyguards.

A number of other wanted Ukrainian suspects are believed to be hiding in
Moscow, including former Odesa Mayor Ruslan Bodelan, former Interior
Minister Mykola Bilokin, and former MVD General Oleksiy Pukach.

Pukach is wanted on suspicion of involvement in the murder of Heorhiy
Gongadze, an Internet journalist killed in September 2000. Two other MVD
officers have already confessed to taking part in the killing and are
presently in jail in Kyiv.

SUSPICION FALLS ON FORMER ADMINISTRATION -----
Former Prime Minister and presidential candidate Viktor Yanukovych was
asked on 1 June to appear for questioning by the Prosecutor-General's Office
in conjunction with a case involving the improper use of state funds when he
was prime minister. Yanukovych did not appear on the date he was requested
to and was said by his office to be in Moscow. He did, however appear the
following day.

The consequences of a possible indictment of Yanukovych, the leader of the
Party of the Regions, could be disruptive for the government and might
polarize Ukrainian society once again, since Yanukovych did obtain almost
half the votes cast in the final round of the elections.

On 3 June, SBU head Oleksandr Turchinov was quoted by Interfax as saying
that in 2004 alone, over 3 billion hryvnyas ($594 million) was stolen from
the budget in different value-added-tax (VAT) repatriation schemes. The
individuals and companies responsible for the different VAT rackets are
being investigated, Interfax reported on 3 June. One such company allegedly
involved in VAT schemes is the charitable foundation for children run by
former President Kuchma's wife, Lyudmyla.

Another major investigation centers on the activities of the state-owned
railways operated by the Transport Ministry. It's former head, Heorhiy
Kirpa, was often mentioned as a potential presidential candidate in 2004.
Kirpa committed suicide during the election campaign.

The Transport Ministry was apparently involved in large-scale fraud and on
3 June Interfax reported that 13 managers of the railways company were
facing charges.

GONGADZE CASE CASTS LONG SHADOW -----
The most prominent case, however, remains that of Kuchma and his alleged
involvement in the kidnapping and murder of Heorhiy Gongadze. Kuchma has
been called in for questioning twice since leaving office. According to SBU
head Turchinov, Mykola Melnychenko, Kuchma's former bodyguard who
made secret audio recordings in the president's office, has agreed to be
interviewed by the U.S. FBI.

The FBI has also agreed to authenticate Melnychenko's recordings,
specifically those passages where Kuchma is alleged to be telling his
subordinates to "take Gongadze, turn him over to the Chechens," which
could constitute an order to kidnap the journalist.

If the FBI authentications show the recordings to be genuine, Kuchma is
liable to be arrested on kidnapping charges. It would be an event which
many Ukrainians have waited five years for. -30-
===============================================================
22. ANALYST SAYS INTERNAL PROGRESS THE KEY FOR UKRAINE
DESPITE EU'S POLITICAL WORRIES

Viktor Zarnyatin, "Will the EU forget about Ukraine?"
Den, Kiev, Ukraine, in Ukrainian 9 Jun 05; p 3
BBC Monitoring Service,UK, in English, Wed, Jun 15, 2005

The results of recent referenda on the EU constitution in France and the
Netherlands can affect Ukraine's prospects of ever becoming an EU member,
an analyst has said writing for a serious Ukrainian daily. He said the
decision by EU foreign policy chief Javier Solana not to visit Ukraine last
week, as well as statements by many other EU officials, make it easy to
conclude that the window of opportunity for Ukraine's EU membership
has closed.

However, while Brussels is taking a hard look at its own prospects and
sorting out the promises it has made to other European countries, Ukraine
could possibly attain associate status while not having a direct say in EU
matters, the analyst said. He concluded by saying that Ukraine would do well
to progress internally while the EU is sorting out its next move.

The following is the text of the article by Viktor Zamyatin, entitled "Will
the EU forget about Ukraine?", published in the Ukrainian newspaper Den
on 9 June; subheadings have been inserted editorially:

POSTPONED VISIT
Kiev was awaiting a visit by EU foreign policy chief Javier Solana. This
visit will not take place, it has become known [it was planned for last
week]. But a meeting of the council on Ukraine-EU cooperation will take
place as planned in Luxembourg on 13 June. The first evaluation of
fulfilling the Ukraine-EU Action Plan will be given at this meeting. There
was no official information on Solana's visit, and, therefore, there is no
information about it being called off.

One probably need not be a prophet to suppose that under different
circumstances the visit, which would have had the goal of at least working
out some new emphasis in negotiations, would have taken place and the
Ukrainian and EU bureaucracies would have worked out its results.

But now, after a certain amount of time has passed since referenda in France
and the Netherlands on approving the EU constitution failed, one can merely
say that uncertainty reigns in Brussels and in the political circles of EU
member countries.

AFFECTS CLIMATE OF RELATIONS BETWEEN EU AND UKRAINE -------
During his visit to Ankara, President Viktor Yushchenko stated that Ukraine
was not disappointed by processes which are continuing in Europe, including
those connected to Europe's reaction to the "European constitution". The
Interfax-Ukraine news agency reports that he said Ukraine was an inseparable
part of European civilization, and receiving fully-fledged membership in the
European Union "is our strategic task".

Commentary over the past week by many who consider themselves to be
analysts, researchers and those who have knowledge of the situation in EU
countries, shows that the French and Dutch rejections of the EU constitution
could slow the beginning of Turkish and Croatian movement towards the EU
and put off the same question in regard to Ukraine for a very long time.

There are various views on this issue within Ukraine, but nobody can clearly
draw a direct link between the referenda in several EU countries and whether
or not they will ever invite Ukraine to negotiations on obtaining EU
membership.

It was precisely during Yushchenko's visit to Ankara that information was
made public that the German Foreign Minister Joschka Fischer insisted that
negotiations on Turkey joining the EU, which were planned to begin on 3
October, start on time. As far as Ukraine, no information has come in which
could be understood as important in terms of "the course for European
integration".

President Yushchenko retains his optimism and is making statements about his
conviction that the successful implementation of tasks before the country
creates the conditions for signing an agreement between the EU and Ukraine
on associated membership as early as 2008. But far from all EU member
countries are directly supporting these intentions.

EU PROMISES -------
European commissioner Guenter Verheugen told the Polish newspaper
Gazeta Wyborcza, that the political climate for further enlarging the EU did
not exist: in his opinion, "the window of possibility is closed", and the EU
is only obliged to fulfil promises given to Romania, Bulgaria, Croatia and
Turkey. Ukraine, like other countries, is not on "Verheugen's list".

Six years ago he said that to talk of Ukraine joining the EU would be as
irresponsible as speaking of Mexico joining the United States. Then the
commissioner's opinion changed a bit. Nothing shows that today's
apocalyptic moods cannot change as the situation develops.

The failure of the referenda on the constitution and discussion about what
happened and what to do and the first reaction of currency markets (the
exchange rate of the euro falling against the dollar and the yen) do not
contain any hint at all that a catastrophe took place. The EU continues to
exist and not one country has made any statement about possibly pulling out
of the union, although talk on the possible acceptance of new members is, at
the same time, becoming very unpopular.

People are talking more about the union - and all Europe together with it -
going through another phase in development. The first phase lasted during
the Cold War when talk was of establishing a firm centre of Western-style
democracy in Europe. That centre turned out to be attractive as shown by
expansion first with neutral countries (Sweden, Finland and Austria) and
then countries from the camp of the former opponent.

It became clear that the popular moods which formed over centuries and which
have developed in recent times, contradict both the need to expand and often
reality. It became clear that the French and the Dutch were the first to
speak of it being unacceptable for the EU to become a super state with its
own president, government and parliament (such clauses are contained in the
constitution draft), and for all issues important to a nation to be decided
beyond its borders, in Brussels, by the heads and hands of a group of
international bureaucrats.

It is clear that a certain part of those who voted "against", were also
speaking against any further enlargement of the EU. That is true just like
it is true that wile Czechs, Poles and Hungarians are accepted in the West
as "Europeans", opinions of Ukrainians, Belarusians and Moldovans are
completely the opposite. At one prestigious forum this year in Austria, one
could hear that Ukraine was not in Europe, but in the "former Soviet Union".

There is no tragedy in this: that is the same opinion had of Poles 15 years
ago. Poland overcame it, thanks foremost to its own efforts - internal
changes and activity in various directions (political, diplomatic, in
non-government sectors, in opening its borders for business and so on). Of
course, no one can deny the role Pope John Paul II played in this process.

DIRECT ANSWERS -------
Ukraine will have both a harder time and easier time. Harder because the
uncertainty surrounding the future constitution increases the role of "we
can't think about Ukraine right now". Easier because persistence should
sooner or later provoke a direct answer to a direct question.

The direct answer could be negative - but in this case it is not a fact that
the press in many countries will be on the side of the politicians who voice
it, since we are talking about the EU violating its own basic documents; or
it could be positive, if we do not mean cloudy proclamations such as "we
will se", but a clear bilateral action plan in which tasks, the
responsibility for implementing them and future stages are clearly written.
It is too early to talk of this, first one must really force the other side
to make a statement on being ready to start dialogue.

Such a variant does not at all exclude a period of relations during which
"the four freedoms" (the movement of people, goods, capital and services
across borders) will be activated, Ukraine can take part in many EU
programmes, but cannot attract EU funding (structural funding or the
"equalizing fund") and cannot directly influence political decisions. That
is, the model about which former First Deputy Foreign Minister Oleksandr
Chaliy has spoken about on many occasions in recent years.

Today, it is simply clear that a 25-state EU cannot live by those provisions
which made it possible for six and then 12 and 15 countries to exist
comfortably. Neither can the EU hope to make all of "Europe" into its image.
Discussion on geographical location not being enough to mean a belonging
to "political Europe" only has a place in the past. Today, it can lead to
new realignments and an inability to meet ever more new challenges and
threats. An awakening to this cannot help but come.

In the very same way in which Ukraine cannot but help come to the
realization that the "Europe" to which we hope to return must first be built
within each and every head. "Europe" should be associated with
responsibility, clear rules, standards defined in everything and in
addition, a lot of learning.

Perhaps because of this it really does make sense to increase capacity and
create new jobs, not at flea markets, but in industry and science and to
offer conditions better than any others. In this way Ukraine certainly has a
chance of winning while "Common Europe" is trying to come to its senses
after its first cold shower. -30-
===============================================================
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contact us immediately if you do not wish to receive this Report.
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PUBLISHER AND EDITOR - AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer Private Equity Investment Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com
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Director, Ukrainian Federation of America (UFA)
Coordinator, Action Ukraine Coalition (AUC)
Senior Advisor, U.S.-Ukraine Foundation (USUF)
Interim Secretary-Treasurer, Ukraine-U.S. Business Council
Publisher, Ukraine Information Website, www.ArtUkraine.com
& www.ArtUkraine Information Service (ARTUIS)
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