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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"

PARLIAMENT'S SEVENTH SESSION CLOSES
Fails to pass all needed WTO legislation
Critical WTO accession bills hang in limbo till September

"Commenting on the work of parliament's seventh session, which
closed today, Yushchenko said that society witnessed a fight in the
Supreme Council for Ukraine's European choice. "Ukraine has no
right to lose even one day on the road of European integration," he
said.

Yushchenko regretted that not all political forces realize how much a
delay may cost Ukraine. "Communism reigned in this country for 70
years, and oligarchy for 14 years. It is impossible to overcome their
consequences during one day," Yushchenko said." [article one]

"THE ACTION UKRAINE REPORT - AUR" - Number 520
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, MONDAY, July 11, 2005

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

1. UKRAINIAN PRES HOPES FOR WTO MEMBERSHIP BY END OF 2005
Communism reigned for 70 years and oligarchy for 14 years
Now we are fighting for Ukraine's European choice
Interfax-Ukraine news agency, Kiev, in Russian 1504 gmt 8 Jul 05
BBC Monitoring Service, UK, in English, Friday, Jul 08, 2005

2. PRES YUSHCHENKO URGES LAWMAKERS SUPPORT UKRAINE'S
BID TO JOIN THE WTO AND ULTIMATELY THE EU
Pay a high price if integration into Europe is delayed
Aleksandar Vasovic, AP Worldstream
Associated Press (AP), Kiev, Ukraine, Sat, Jul 09, 2005

3. UKRAINE PARLIAMENT SPEAKER LYTVYN CHIDES GOVERNMENT
OVER WTO BILLS SAYING THEY HAD OBVIOUS FLAWS
Bills seemed to have been prepared in great haste
Inter TV, Kiev, in Ukrainian 1700 gmt 10 Jul 05
BBC Monitoring Service, UK, in English, Sun, Jul 10, 2005

4. PM TYMOCHENKO DEFENDS HANDLING OF WTO BILLS
BLAMES MOROZ AND LYTVYN FOR OBSTRUCTING THEIR PASSAGE
One Plus One TV, Kiev, in Ukrainian 1630 gmt 10 Jul 05
BBC Monitoring Service, UK, in English, Sunday, Jul 10, 2005

5. UKRAINE STILL ON COURSE FOR WTO
By Tom Warner in Kyiv, Financial Times
London, UK, Saturday, Sat, July 9 2005 03:00

6. FIRST DEFEAT FOR UKRAINE'S NEW LEADER RAISES DOUBT
ON REFORMS AND EXPOSES WEAKNESSES OF HIS TEAM
Agence France Presse (AFP), Kiev, Ukraine, Sun, July 10, 2005

7. US INTELLECTUAL PROPERTY SANCTIONS AGAINST UKRAINE WILL
BE CANCELLED BY END OF 2005 DPM RYBACHUK PREDICTS
Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

8. UKRAINE'S PARLIAMENT CUTS IMPORT DUTIES ON FARM
PRODUCTS AND FOODSTUFFS BY 5-100%
Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

9. RADA APPROVES 2ND BOLD STEP RE JOINING WTO WITH AG BILL
Ukrainian Journal, Kiev, Ukraine, Thursday, July 7, 2005

10. UKRAINE SIGNS WTO PROTOCOL WITH NORWAY
Interfax-Ukraine news agency, Kiev, in Russian 8 Jul 05
BBC Monitoring Service, UK, in English, Fri, Jul 08, 2005

11. UKRAINE SIGNS WTO PROTOCOL WITH INDONESIA
Interfax-Ukraine news agency, Kiev, in Russian 8 Jul 05
BBC Monitoring Service, UK, in English, Fri, Jul 08, 2005

12. NSDC SECRETARY PETRO POROSHENKO MEETS WITH THE US
DELEGATION, LED BY ASSISTANT SECRETARY OF STATE
FOR EUROPEAN AND EURASIAN AFFAIRS DANIEL FRIED
Ukrinform, Kyiv, Ukraine, Friday, July 8k, 2005

13. UKRAINIAN - AMERICAN INTERAGENCY COORDINATING
GROUP HOLDS MAIDEN SESSION IN KYIV
Ukrinform, Kyiv, Ukraine, Friday, July 8, 2005

14. US STATE DEPARTMENT'S REP STEVEN MANN PRAISES
UKRAINE'S INITIATIVE ON RESOLUTION OF
TRANSDNIESTRIAN CONFLICT
Ukrinform, Kyiv, Ukraine, Friday, July 8, 2005

15. OPPORTUNITIES FOR ATTRACTING INVESTMENTS TO UKRAINE'S
MINING-ORE AND METALLURGIC BRANCHES DISCUSSED WITH
REPS OF LEADING FOREIGN COMPANIES
USA's Kissinger Associates and Brazilian company Vale do Rio Doce
Ukrinform, Kyiv, Ukraine, Thursday, July 7, 2005

16. BUNGE UKRAINE PURCHASES PRIME ELEVATOR IN CRIMEA
AgriMarket.Info, Dnipropetrovsk, Ukraine, Friday, July 8, 2005

17. UKRAINE'S ANTIMONOPOLY COMMITTEE AUTHORIZES CARGILL TO
ACQUIRE CHUMAK'S SUNFLOWER SEED PROCESSING PLANT
Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

18. UKRAINE, COUNTRY OUTLOOK, JULY 2005
Country View: Ukraine, EIU Economy - Outlook
The Economist Intelligence Unit Limited
London, United Kingdom, Thursday, July 7, 2005

19. INSPIRED GAULTIER CREATES A FAIRYTALE FROM THE STEPPES
Jean Paul Gaultier's new take on Ukraine's national dress and tribal
costumes expressed a sartorial luxury hitherto denied the former
communist state. Ukraine's first lady and her daughter guests of honour
Hilary Alexander, Telegraph.fashion, London, UK, Sat, July 9, 2005

20. THE DUKE WAS A UKE...FOR OVER A DECADE
Duc de Richelieu governed Odesa for 12 years in mid-18th century
His bronze monument is a prominent historic symbol
CULTURE & HISTORY: FAMOUS NAMES
By Stanislav Tsalyk, Kyiv Weekly #26 (166)
Kyiv, Ukraine, Friday, Jul 8-15, 2005

21. UKRAINE NEARS GAS CRISIS:
RUSSIA, TURKMENISTAN DO NOT BUDGE
ANALYSIS: Roman Bryl, Ukraine Analyst
Andrew Afanasiev, CIS Senior Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Monday, July 4, 2005

22. UKRAINE: A HAMLET-LIKE CHOICE
Switch to market prices in the energy supply field or not?
Yushchenko's choice will show whether he is a statesman or a politician
COMMENTARY AND ANALYSIS: by Yuliya Mostova
Zerkalo Nedeli, Kiev, Ukraine, in Russian 2 Jul 05; p 1, 3
BBC Monitoring Service,UK, in English, Sat, Jul 09, 2005
==============================================================
1. UKRAINIAN PRES HOPES FOR WTO MEMBERSHIP BY END OF 2005
Communism reigned for 70 years and oligarchy for 14 years
Now we are fighting for Ukraine's European choice

Interfax-Ukraine news agency, Kiev, in Russian 1504 gmt 8 Jul 05
BBC Monitoring Service, UK, in English, Friday, Jul 08, 2005

KIEV - Ukrainian President Viktor Yushchenko hopes that by October
parliament will pass the remaining bills needed for joining the World Trade
Organization [WTO], and that it should be possible for Ukraine to join the
WTO by the end of 2005.

After that, talks with the EU on establishing a free trade zone will start,
the presidential press service quoted Yushchenko as saying today.
Commenting on the fact that the Supreme Council [parliament] passed
eight out of the 14 laws essential for WTO accession, Yushchenko said
that consolidation between the executive and the legislature made this
achievement possible.

Yushchenko said that it is very important for him that the legislature
should be independent, and that this is "an axiom for any democracy". He
added, however, that all branches of power should work together to make
the country democratic.

Yushchenko urged the government to cooperate with the Supreme Council
more thoroughly at the stage of preparation and discussion of draft laws.
"This is important for more efficiency and less emotion," he said.

Commenting on the work of parliament's seventh session, which closed
today, Yushchenko said that society witnessed a fight in the Supreme
Council for Ukraine's European choice. "Ukraine has no right to lose even
one day on the road of European integration," he said.

Yushchenko regretted that not all political forces realize how much a delay
may cost Ukraine. "Communism reigned in this country for 70 years, and
oligarchy for 14 years. It is impossible to overcome their consequences
during one day," Yushchenko said.

[Supreme Council chairman Volodymyr Lytvyn said at a news conference
today that parliament should discuss the remaining bills needed for WTO
accession in September, Interfax-Ukraine reported in Russian at 1325
gmt on 9 July 2005.] -30- [Action Ukraine Report Monitoring Service]
==============================================================
2. PRES YUSHCHENKO URGES LAWMAKERS SUPPORT UKRAINE'S
BID TO JOIN THE WTO AND ULTIMATELY THE EU
Pay a high price if integration into Europe is delayed

Aleksandar Vasovic, AP Worldstream
Associated Press (AP), Kiev, Ukraine, Sat, Jul 09, 2005

KIEV - Ukrainian President Viktor Yushchenko urged lawmakers and the
government Saturday to join forces in this former Soviet republic's bid to
join the World Trade Organization and ultimately the European Union.

"We have to work together. Not all political forces realize that Ukraine may
pay a high price if it delays its integration into Europe," he said at his
Our Ukraine party congress.

Yushchenko's words followed parliament's failure to adopt a package of 14
laws crucial for accession this autumn to the WTO, the body that sets global
trade rules. Before breaking up for its summer recess this week, the
Ukrainian parliament adopted only eight bills during two stormy sessions
marred by brawls among lawmakers.

One of the bills was a copyright law _ a crucial test for the government's
pro-Western ambitions.

On Friday, Volodymyr Lytvyn, the parliament speaker, said that parliament
would consider all of the remaining bills in September when the 450-strong
parliament reconvenes.

Yushchenko and his Cabinet tried to push through the entire package of 14
bills, but Communists and Socialist Party deputies opposed that, claiming
that the legislation would make Ukraine subservient to Western demands.

"Communists ruled Ukraine for seven decades ... we cannot overcome that
in a day," the president said. Yushchenko however said he was convinced
that Ukraine will be able to join the WTO this year.

Gaining WTO membership is seen as a major short-term goal for Ukraine's
pro-Western government, which needs significant foreign investment to
improve living standards in this impoverished nation of 48 million.

The country's leadership that came to power after last year's Orange
Revolution has also said that the country's ultimate goal would be
membership in the EU and NATO. At the congress Yushchenko said he
hopes that after it joins WTO, Ukraine will enter negotiations with the EU
about creation of a free trade zone. -30-
==============================================================
3. UKRAINE PARLIAMENT SPEAKER LYTVYN CHIDES GOVERNMENT
OVER WTO BILLS SAYING THEY HAD OBVIOUS FLAWS
Bills seemed to have been prepared in great haste

Inter TV, Kiev, in Ukrainian 1700 gmt 10 Jul 05
BBC Monitoring Service, UK, in English, Sun, Jul 10, 2005

KIEV - Ukrainian parliament speaker Volodymyr Lytvyn has repeated his
previous criticisms of the government's bills aimed at facilitating the
country's accession to the WTO. Speaking in a live 50-minute appearance
on the most-watched Inter TV channel's flagship weekly political programme,
he said the bills seemed to have been prepared in great haste.

He accused the cabinet of putting undue pressure on parliament to approve
the bills despite their obvious flaws, and called for a more in-depth debate
about the merits of joining the WTO. He said his own faction voted for the
bills despite its reservations, arguing that the government should be given
carte blanche to implement its policies. But he repeated his previous
allegations that the government lacks the will to cooperate with parliament
and often resorts to bullying to have its way.

Asked about the prospect of forming a single bloc with other pro-government
parties in the 2006 parliamentary elections, Lytvyn said he was ready for
talks with all potential allies. He was also questioned at length about the
achievements and failures of the parliament session that ended last week.
==============================================================
4. PM TYMOCHENKO DEFENDS HANDLING OF WTO BILLS
BLAMES MOROZ AND LYTVYN FOR OBSTRUCTING THEIR PASSAGE

One Plus One TV, Kiev, in Ukrainian 1630 gmt 10 Jul 05
BBC Monitoring Service, UK, in English, Sunday, Jul 10, 2005

KIEV - Prime Minister Yuliya Tymoshenko has robustly defended the
government's efforts last week to push through parliament a package of 14
bills essential to Ukraine's WTO entry, and blamed two allies - Socialist
Party leader Oleksandr Moroz and parliament speaker and People's Party
leader Volodymyr Lytvyn - for obstructing their passage.

Speaking during a 20-minute studio interview on One Plus One TV's weekly
news review programme on 10 July, Tymoshenko dismissed suggestions
that the government had put undue pressure on parliament to adopt flawed
documents.

"Don't listen to these stupidities, when they say that the government
submitted something in haste, that it submitted half-baked documents, that
something was not agreed with MPs," she said. "When you hear such
criticisms of the government, you should know that the government is being
obstructed from working."

Tymoshenko attributed parliament's failure to adopt the full package to the
fact that the country is already in the run-up to the parliamentary
elections in March 2006.

"Moroz's faction, which I respect a lot; Volodymyr Lytvyn in [analytical
weekly] Zerkalo Nedeli hinted that he has a self-sufficient force that will
take part in the elections independently; Regions of Ukraine and the United
Social Democratic Party - these are all opponents in one way or another,"
she said.

Tymoshenko repeated her challenge to the most vociferous critic of Ukraine's
WTO entry, Communist leader Petro Symonenko, to debate the issue on TV.

Tymoshenko also said that she had spoken to Interior Minister Yuriy Lutsenko
about rumours in the press that the ministry had received instructions to
look for material compromising her and that he assured her this was
completely out of the question. "The minister's words are enough for me,"
she said. -30- (The Action Ukraine Report Monitoring Service}
==============================================================
5. UKRAINE STILL ON COURSE FOR WTO

By Tom Warner in Kyiv, Financial Times
London, UK, Saturday, Sat, July 9 2005 03:00

Ukraine's parliament broke for summer recess yesterday after adopting
only half of a reform package needed to join the World Trade Organisation,
but the government's goal of joining the group in December remains in sight.

The WTO committee reviewing Ukraine's application could yet approve a
December entry date if Ukraine makes progress before its next meeting
in mid-September, said Sergio Marchi, the former Canadian diplomat who
chairs the committee.

He said Kiev needed to convince his group that it would adopt all the laws
and also finish bilateral entry talks with the US, Australia and others.
==============================================================
6. FIRST DEFEAT FOR UKRAINE'S NEW LEADER RAISES DOUBT
ON REFORMS AND EXPOSES WEAKNESSES OF HIS TEAM

Agence France Presse (AFP), Kiev, Ukraine, Sun, July 10, 2005

KIEV - The mayhem in Ukraine's parliament last week not only dealt a
humiliating first defeat to the nation's new pro-Western leader, but raised
doubts about his ability to enact promised reforms by exposing weak-
nesses of his team, analysts say.

President Viktor Yushchenko's administration began last week hoping to
deliver the international community concrete results of its pro-Western
ambitions -- passage of 14 bills required for Ukraine's bid to join the
World Trade Organization.

It ended it with a bleak picture -- in chaotic sessions marked by
fistfights and bedlam, lawmakers approving only half of the bills before
adjourning for their summer recess.

"The authorities faced a most serious test," wrote the respected Dzerkalo
Tyzhnya weekly. "They failed." "This was the first real defeat for the new
team," said Vadim Karasyov, an analyst.

Passing the WTO bills was key because Ukraine is hoping to enter the
148-member club by the end of this year, ahead of Russia with whom
tensions have risen since Yushchenko mounted an "orange revolution" to
defeat the Moscow-backed candidate in last year's presidential election.

It would have translated Yushchenko's oft-repeated aspirations to drive
Ukraine toward eventual membership in the European Union into concrete
results.

"Everyone has tired of declarations not backed by real reforms, both here
and abroad," Dzerkalo wrote.

But now Kiev's bid to join the WTO at its ministerial meeting in Hong Kong
in December is in real jeopardy, analysts say.

Parliament must still approve the remaining bills, but when it reconvenes
in September, its focus will be on a legislative election next March, which
promises to be as bitterly-fought as last year's presidential race.

And though Yushchenko put a brave face on his defeat -- "the president is
certain that the rest of the legislation will be passed before October,"
his press service said in a statement -- others did not share in the
optimism, both for the WTO bills or any other painful reforms.

"This parliament will not approve 'euroeconomic' rules of the game when it
returns," Dzerkalo wrote. The week wasn't supposed to end like this.

After Prime Minister Yulia Tymoshenko announced that consultations with
lawmakers showed that nearly two-thirds of the chamber would back the
WTO measures, Yushchenko and the entire cabinet came to the legislature
on Tuesday evening.

It was the day before a WTO committee examining Ukraine's bid was to
meet in Geneva and the administration was hoping all 14 bills would be
approved as a packet.

But lawmakers balked, refusing to even consider the measures. Yushchenko
left the chamber empty-handed.

During the next two days, bedlam erupted every time a WTO bill came up for
a vote, with opposition deputies swarming the speaker's tribune, sounding
sirens through megaphones, and throwing occasional punches at their
ideological opponents.

Most in Kiev blamed the government for the debacle, saying it had had tried
to ram through the legislation without carrying out necessary consultation
with lawmakers.

"You can't substitute dialogue and arguments with blatant pressure," said
parliament speaker Volodymyr Lytvyn. "The only information I had on some
of the bills that I was putting up for a vote was their number."

Moreover, the government failed to secure support from its allies -- many
Socialist deputies voted against the measures.

Yushchenko added fuel to the fire by turning a blind eye on members of his
administration who had not officially given up their deputy seats, as
dictated by law and demanded by the opposition.

"By allowing his subordinates to break the law so obviously, the president
gave the opposition a major trump card," wrote the Den daily.

Meanwhile trade officials in WTO's seat in Geneva took a cautiously
optimistic tone, applauding the fact that the government did manage to
push through some important bills, but warning that much remained to be
done.

"It looks quite good, but... everything still very much depends on what
happens from now to autumn," said a trade official in Geneva who
requested anonymity. -30-
==============================================================
7. US INTELLECTUAL PROPERTY SANCTIONS AGAINST UKRAINE WILL
BE CANCELLED BY END OF 2005 DPM RYBACHUK PREDICTS

Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

KYIV - Deputy Prime Minister for European Integration Oleh Rybachuk
predicts that the United States will cancel its intellectual property
sanctions against Ukraine by the end of this year, following adoption by the
Verkhovna Rada of the law introducing criminal responsibility for violations
in export and import of laser discs. Rybachuk made this statement to
Ukrainian News.

"Yes, it is possible this year. I think, it will be in autumn because now it
is a summer holiday time," he said. Rybachuk noted that the adopted law
may help to remove a great deal of problems in the talks with the US on
Ukraine's accession to the World Trade Organization and rendering
Ukraine a full market economy status (in antidumping investigations).

"Most of the problems [in the talks with the US] were related to a
demonstrative unwillingness of the old Ukrainian government to pass
the law that attributes intellectual piracy to a crime," the deputy prime
minister said.

Rybachuk added that the US revises its black list of countries
uncooperative in the efforts against intellectual piracy every year (in
April), but still it made Ukraine believe that it is ready to remove Ukraine
from the list if it will show progress in this issue.

Today Ukraine has no need to submit an official application for revision
of the US black list decision in relation to Ukraine, and the talks will be
conducted at the expert and diplomatic level, Rybachuk opined.

"It has been envisaged. Now it is up to diplomacy. There will be no loud
declarations, it is an expected reaction [of the US]," he said.

As Ukrainian News earlier reported, Rybachuk believes that changes in
the legislation on laser disks in accordance with WTO requirements are a
compulsory precondition for WTO entry.

The Verkhovna Rada amended the law on laser discs on July 6. The law
makes amendments to the Criminal Code, the Law "On Peculiarities of State
Regulation of Business Activity, Connected with Production, Export, Import
of Discs for Laser Reading Systems," and the Law "On Licensing of Certain
Types of Business Activity."

In April 2001, the US government imposed prohibitive tariffs on
USD-75-million worth of imports from Ukraine because of its failure to enact
legislation to crack down on sound recording and optical media piracy.

On April 29 of this year, the US kept Ukraine on its Special 301 Report of
countries having problems with fulfillment of intellectual property rights
(IPR) and preserved trade sanctions with respect to Ukraine. Special 301
Report for 2005 lists a total of 52 countries or economies for IPR-related
problems.

Moreover, Ukraine is the only country designated a "priority foreign
country" (showing highest level of infringements) and remains subject to
trade sanctions. The US Trade Representative announced in May 2005 that
a Special 301 out-of-cycle review would be commenced in 2005 to monitor
Ukraine's progress in passing amendments to its optical media law. -30-
==============================================================
8. UKRAINE'S PARLIAMENT CUTS IMPORT DUTIES ON FARM
PRODUCTS AND FOODSTUFFS BY 5-100%

Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

KYIV - The Ukrainian Verkhovna Rada [Parliament] has reduced import
duties on farm products and foodstuffs (foreign trade commodity groups
1-24) by 5-100%, and unified duty rates. Relevant bill on amendments to
several laws was passed with 263 MP votes, with 226 votes required.

Under an explanatory note to the bill, it was prepared upon the directive of
Prime Minister Yulia Tymoshenko of February 17 to combat smuggling
commodities by considerably reducing and eliminating the inordinate
contrast in the import duty rates for agricultural products.

According to the Cabinet of Ministers, the adoption of the bill will make it
possible to convert illegal imports into legitimate flows and to ensure
stability on the consumer market.

The bill envisages reduction of beneficial rates of import duties,
establishes full rates at the level of beneficial rates, and also envisages
in many cases replacement of specific and combined rates with ad
valorem rates.

As regards the commodity positions on which the current level of import duty
was lower or equal to Ukraine's interconnected consolidated tariff standard
within the framework of its accession to the World Trade Organization, a
change of the old import duty was not envisaged in the bill.

The bill does not envisage either a change in the import duty rates for
excisable goods such as wine, alcohol and tobaccos.

At the same time, the bill provides for exempting from the payment of import
duties the imports of banking metals to Ukraine, something that the bill's
authors opine would satisfy the demands of the banking sector for banking
metals, as well as ensure equal competition on the market and will prevent
the smuggling of banking metals into Ukraine.

As Ukrainian News reported, earlier the bill was supported in second
reading by 179 deputies, falling short of the required minimum of 226 votes,
following which 245 people's deputies voted for sending it for a repeat
second reading given the minimum of 226 votes for taking such decision.

The Rada adopted the bill on introduction of changes to some laws in
first reading on April 22.

The Cabinet of Ministers earlier proposed that the Rada reduce import
duties for agricultural products and foodstuffs (foreign trade nomenclature
of commodity groups 1-24) by 5-100%, and standardize import duty rates.

According to the Cabinet of Ministers, Ukraine exported products of the
agro-industrial complex and food industry in 2004 worth USD 3.5 billion,
and imported goods worth UAH 1.9 billion.

After passing the draft law that was proposed by the Cabinet of Ministers,
the Rada on March 15 reduced import duties for the importation of clothes,
shoes and foodstuffs (fruits not cultivated in Ukraine) by 10-100%. -30-
==============================================================
9. RADA APPROVES 2ND BOLD STEP RE JOINING WTO WITH AG BILL

Ukrainian Journal, Kiev, Ukraine, Thursday, July 7, 2005

KIEV - Ukraine on Thursday made a second bold step towards joining the
World Trade Organization by the end of the year after lawmakers approved
a bill easing agriculture and farming imports. The approval is a victory for
the government as the bill is thought to be the second most important piece
of legislation after the approval of stronger penalties for CD/DVD piracy
Wednesday.

“Oh, God! What a breakthrough,” Economy Minister Serhiy Teriokhin said
after the vote. “I am responsible for the WTO accession and my level of
optimism has increased five-fold since the morning.”

The development basically clears the way for lawmakers to approve a bunch
of less important bills on Friday to make sure that Ukraine is able to
launch its bid for joining the WTO by the end of the year. Most of the
to-be-approved bills have already been approved in the first reading on
Wednesday, which suggests they should not face any major hurdles during
the debate and vote Friday.

A special WTO team has been meeting in Geneva Thursday to review the
pace at which Ukraine is adopting domestic legislation to WTO requirements,
and the team has sent “positive signals,” Teriokhin said.

Friday is the deadline for Ukraine to approve the bills for the country’s
accession to the WTO by the end of the year, as lawmakers go on a summer
recess until early September.

The bill approved Thursday eases access to foreign agriculture and farming
products to the Ukrainian markets by reducing import duties to levels that
had been negotiated in bilateral and multilateral talks with other WTO
members.

The bill was heavily opposed by the Communist Party and the Socialist Party,
but the breakthrough came after the People’s Party, led by Parliament
Speaker Volodymyr Lytvyn, decided to back the legislation.

Lytvyn’s party was opposing the bill on Wednesday as it competes with
Socialist Party for support from voters in rural areas ahead of the general
election in March 2006.

“We thought if the government has the vision let them have cart blanch,”
Lytvyn said. (tl/ez) -30- [The Action Ukraine Report Monitoring Service]
------------------------------------------------------------------------------------------------------
LINK: http://www.ukrainianjournal.com/index.php?w=new&id=2
==============================================================
10. UKRAINE SIGNS WTO PROTOCOL WITH NORWAY

Interfax-Ukraine news agency, Kiev, in Russian 8 Jul 05
BBC Monitoring Service, UK, in English, Fri, Jul 08, 2005

KYIV - Ukraine and Norway signed a WTO protocol on access to the market
of goods and services in Geneva on 7 July. The Ukrainian Foreign Ministry's
press service has said that on 5 July Norway confirmed that an accord had
been reached on the document.

The Ukrainian Foreign Ministry believes that signing the WTO protocol
became possible after the parties signed a memorandum of understanding
on the criteria of quality of fish exported from Norway to Ukraine, a
document the parties could not reach agreement over the last several years.

The protocol on the access to the market of goods and services was signed
by the deputy economics minister, Andriy Bereznyy, and Norway's permanent
representative to the UN office in Geneva. -30-
==============================================================
11. UKRAINE SIGNS WTO PROTOCOL WITH INDONESIA

Interfax-Ukraine news agency, Kiev, in Russian 8 Jul 05
BBC Monitoring Service, UK, in English, Fri, Jul 08, 2005

KIEV - Ukraine and Indonesia signed a protocol on mutual access to
markets in Geneva on Thursday [7 July] with a view of Ukraine's joining
the World Trade Organization.

The talks were long and tough, but the two delegations managed to
reached consensus, the press service of the Ukrainian Foreign Ministry
said. Ukraine signed the same protocol with Norway earlier.

Ukraine is continuing active talks with 14 countries - USA, Australia,
Japan, China, Armenia, Kyrgyzstan, Colombia, Croatia, Peru, Panama,
Ecuador, Egypt, Iceland and Taiwan.

Talks with Japan, Peru, Colombia, Egypt, Croatia, Panama, Ecuador
and Iceland are in their final stages and are expected to be finished
soon, the press service said. -30-
==============================================================
12. NSDC SECRETARY PETRO POROSHENKO MEETS WITH THE US
DELEGATION, LED BY ASSISTANT SECRETARY OF STATE
FOR EUROPEAN AND EURASIAN AFFAIRS DANIEL FRIED

Ukrinform, Kyiv, Ukraine, Friday, July 8k, 2005

KYIV - According to the NSDC press service, NSDC Secretary Petro
Poroshenko met with a US delegation, who were led by Assistant
Secretary of State for European and Eurasian Affairs Daniel Fried.

The parties stated their satisfaction with the current status of
Ukrainian-American bilateral relations, exchanged opinions about topical
matters of international security and prospects of bipartite-economic
cooperation in the context of Ukraine's drive for joining the WTO.

The host party drew the US delegation's attention to new opportunities
for running businesses in Ukraine. Much attention was given to bipartite
military-technical cooperation, particularly, within the framework of the
Coalition Forces' peacekeeping activities in Iraq.

Specifically, the parties discussed Ukraine's plan to regulate the
Transdniestrian conflict. The US delegation stated their favorable appraisal
of Ukraine's work along the Ukrainian - Moldovan frontier toward curbing
contraband.

The host side raised the issue of expanding the GUAM's format through
recruiting new members. Daniel Fried invited Petro Poroshenko to make
a working visit to the USA. -30-
==============================================================
13. UKRAINIAN - AMERICAN INTERAGENCY COORDINATING
GROUP HOLDS MAIDEN SESSION IN KYIV

Ukrinform, Kyiv, Ukraine, Friday, July 8, 2005

KYIV - According to the Foreign Ministry press service, a US delegation
have come to Ukraine, led by Assistant Secretary of State for European
and Eurasian Affairs Daniel Fried, with a view of discussing matters of
Ukraine - USA strategic partnership.

Within the visit's framework the newly formed Ukrainian-American Interagency
Coordinating Group held their maiden session. The Ukrainian delegation to
the session were led by Deputy Minister Oleh Shamshur, the US delegation
were led by Daniel Fried.

The session focused on the USA's support of Ukraine's Eurointegration
aspirations, granting Ukraine the market economy status, completion of talks
toward signing a bipartite protocol, necessary for Ukraine's accedence to
the WTO.

The US party hailed the Verkhovna Rada's step to endorse bills on trade and
protection of intellectual property rights. The session also considered the
Shelter project and Ukraine's effort to combat HIV/AIDS and TB. The US
delegation head offered to render medical aid to Ukrainian Chornobyl-
affected children. -30- [The Action Ukraine Report Monitoring Service]
==============================================================
14. US STATE DEPARTMENT'S REP STEVEN MANN PRAISES
UKRAINE'S INITIATIVE ON RESOLUTION OF
TRANSDNIESTRIAN CONFLICT

Ukrinform, Kyiv, Ukraine, Friday, July 8, 2005

KYIV - The United States State Department's special representative on
resolution of conflicts in post-Soviet countries, Steven Mann, has praised
President Viktor Yushchenko's initiative on resolution of the
Transdniestrian conflict.

Mr. Mann, who arrived in Ukraine on for a visit on Friday, told a press
conference that the aim of his visit was to discuss the project for
demilitarizing the Transdniestrian zone with Ukrainian officials.

According to him, the three main aspects of this project are effective
border control, removal of Russian weapons from the territory of
Transdniestria, and acceleration of the democratization process in the
region.

Mr. Mann has already met with Foreign Affairs Minister Borys Tarasyuk.
He is also scheduled to meet with the National Security and Defense
Council's Secretary Petro Poroshenko. -30-
==============================================================
15. OPPORTUNITIES FOR ATTRACTING INVESTMENTS TO UKRAINE'S
MINING-ORE AND METALLURGIC BRANCHES DISCUSSED WITH
REPS OF LEADING FOREIGN COMPANIES
USA's Kissinger Associates and Brazilian company Vale do Rio Doce

Ukrinform, Kyiv, Ukraine, Thursday, July 7, 2005

KYIV - Opportunities for cooperation in attraction of investments to the
Ukrainian industry, particularly, to the mining-ore and metallurgical
branches were discussed at a meeting among directors of the
metallurgical industry department of the Ukrainian Ministry of industrial
policies Volodymyr Hranovsky and some representatives of some
international companies.

The international companies were represented by Alan Batkin,Vice
President of the American company "Kissinger Associates," and a
delegation of the Brazilian mining company Vale do Rio Doce, led by
Eduardo Beauclair, the Industrial Policies Ministry press service told
Ukrinform. -30- [The Action Ukraine Report Monitoring Service]
=============================================================
16. BUNGE UKRAINE PURCHASES PRIME ELEVATOR IN CRIMEA

AgriMarket.Info, Dnipropetrovsk, Ukraine, Friday, July 8, 2005

DNIPROPETROVSK - Bunge Ukraine has purchased the grain elevator
"Elita" located in AR Crimea. The company now has 5 elevators including
the newly purchased one.

The total storage capacity of Bunge has increased by 50,000 tonnes, said
the press-service of the company.

The Bunge management hopes that the purchase of the well-known and
strategically located elevator will help the consolidation of the company
on the Ukrainian grain market. -30-
---------------------------------------------------------------------------------------------------
LINK: http://www.agrimarket.info/showart.php?id=26482
==============================================================
17. UKRAINE'S ANTIMONOPOLY COMMITTEE AUTHORIZES CARGILL TO
ACQUIRE CHUMAK'S SUNFLOWER SEED PROCESSING PLANT

Ukrainian News Agency, Kyiv, Ukraine, Friday, July 8, 2005

KYIV - The Antimonopoly Committee of Ukraine has authorized the Cargill
company to acquire a plant for processing sunflower seed in Kakhovka
(Kherson region) from the Chumak company.The press service of the
Antimonopoly Committee disclosed this to Ukrainian News.

"Permission has been granted for purchase of the integral property
complex intended for production of [unrefined] sunflower oil in the town of
Kakhovka, Kherson region," the press service said. As Ukrainian News
earlier reported, Cargill said in June that it intended to buy a sunflower
seed processing plant in Kakhovka, Kherson region, from the Chumak
company.

The factory is capable of processing 1,200 tons of sunflower seeds daily.
Cargill already possesses one such factory in Donetsk.

Cargill entered onto the Ukrainian market in 1991. It has a representative
office in Kyiv.

The company works with agricultural producers in the area if raw-material
deliveries or provision of financial resources. Cargill is an international
supplier of food and agricultural products, and also deals with risk
management

Chumak was created by the Swedish company South Food jointly with a
number of Kherson-based plants in 1996. In 2000, the company's plants
were consolidated into a closed joint-stock company named Chumak.

According to the Agency for the Development of Stock Market Infrastructure,
62.1% of the shares in Chumak belong to Manhasset Investments Ltd.
(Cyprus) while 23.59% belong to Chumak Holdings GmbH (Austria).

The company produces ketchups, sauces, tomato juice, mayonnaise,
vegetable oil, and canned vegetables under the Chumak trademark. -30-
==============================================================
18. UKRAINE, COUNTRY OUTLOOK, JULY 2005

Country View: Ukraine, EIU Economy - Outlook
The Economist Intelligence Unit Limited
London, United Kingdom, Thursday, July 7, 2005

OVERVIEW -----
Viktor Yushchenko's victory in the presidential election in late 2004 has
begun to translate into greater political openness and faster economic
reform. However, policy missteps and government in-fighting will
continue--as seen in recent months--to limit the extent of improvements
possible. Moreover, the 2006 parliamentary election and the planned switch
to a more parliamentary political system will be significant distractions.

The Economist Intelligence Unit expects real GDP growth to decelerate to
6% in 2005 and to below 6% in 2006. Year-end inflation is forecast to slow
to 8% by 2006. The currency will remain broadly stable in nominal terms
against the US dollar in 2005-06, with only a slight appreciation expected.
The current-account surplus reached a record high in 2004, but will decline
in 2005-06 as export growth diminishes.

DOMESTIC POLITICS:
Both the president, Mr Yushchenko, and the prime minister, Yuliya
Tymoshenko, continue to enjoy solid support and are expected to continue to
co-operate with one another during the rest of the 2005-06 forecast period.
The risk of political instability and inefficacy will nevertheless continue
to be high.

Ukraine's new leadership has already provided several reminders that it
remains an uneasy coalition of heterogeneous political forces, and that
strong disagreements persist over policy and the division of
responsibilities. These differences will become harder to contain as the
March 2006 parliamentary election approaches, and as the debate heats up
over the implementation of constitutional changes that are scheduled to come
into effect by early 2006.

INTERNATIONAL RELATIONS:
The tone of relations with Western governments and institutions has improved
considerably with the departure from power of the previous president, Leonid
Kuchma, particularly as the new administration is much more committed to
closer Western integration. In 2005-06 Ukraine's relationship with the West
will remain better than it was during the Kuchma era.

Despite the recent rejection of the EU constitutional treaty by Dutch and
French voters--which has produced a backlash against enlargement--Ukraine
will continue to prioritise its relationship with the EU and push ahead with
implementing the commitments contained in the EU-Ukraine Action Plan
signed earlier in 2005.

However, the Ukrainian leadership will undoubtedly continue to be frustrated
with the EU's hesitant stance, and there is a risk that the Action Plan will
be an even less effective policy anchor than before.

Policy trends: The election of Mr Yushchenko as president in late 2004 has
given new impetus to the process of economic liberalisation, and his
appointment of Ms Tymoshenko as prime minister has confirmed his willing-
ness to accelerate reforms. Ms Tymoshenko is one of Ukraine's most out-
spoken critics of shadow economic structures and of the economic role
played by vested oligarchic interests, and her government is by far the most
reform-minded in Ukraine to date.

We therefore expect greater progress on key issues than in the past:
privatisation sales are likely to become more transparent, fiscal policy
will be rationalised, energy sector reform will resume, and a more concerted
effort will be made to bring businesses out of the shadow economy.

INTERNATIONAL ASSUMPTIONS:
With economic policy being tightened in a number of countries and high
levels of debt weighing on consumers, companies and governments, a
global slowdown is in prospect for 2005-06. We forecast a deceleration
in world GDP growth on a purchasing power parity (PPP) basis, from an
estimated 5.1% in 2004 to 4.2% in 2005 and 4% in 2006.

A fall in oil prices later in 2005 and in 2006 will lead to slower real GDP
growth in Russia, Ukraine's largest export market, although Russian import
demand will remain relatively strong. The prospects for Ukraine's terms of
trade more generally are mixed. Ukraine will benefit from a reduction in the
cost of oil imports.

However, this will be more than offset by a decline in prices for steel,
which is Ukraine's most important export commodity. Average steel prices
are expected to fall by almost 30% in 2006. The slump in steel prices will
reflect slower growth in demand and the coming on stream of new production
capacity.

ECONOMIC GROWTH:
Ukraine's economy has cooled rapidly so far in 2005. Real GDP growth fell
to 5.4% year on year in the first quarter of the year, and then slowed
further to 4.7% in January-May, down from a post-independence record of
over 12% for 2004 as a whole. The slowdown reflected less buoyant external
conditions, as well as sluggish investment trends--prompted by political
instability and concerns over the government's plans to review previous
privatisations.

However, investment is expected to pick up somewhat in the second half of
2005, assuming that the government still manages to clarify its
re-privatisation plans. Moreover, household consumption is expected to be
buoyant, as a consequence of rising consumer confidence and the generous
wage and benefit increases included in the 2005 budget.

INFLATION:
Consumer price inflation rose above 12% at end-2004 and stood at 14.6% year
on year in May 2005. Inflation is expected to remain high, owing to sharply
rising incomes and an ongoing increase in producer prices, which is at least
in part being passed on to consumers. A rise in administered prices, which
were generally kept down in 2004 because of the approach of the election,
will also add to inflation.

The currency's recent strengthening against the US dollar will nevertheless
contain the pressure on prices, as it is expected to permit a slightly
tighter monetary policy. Moreover, the government's fiscal policy in the
second half of 2005, although remaining lax, will at least be more prudent
than during the year-earlier period. Inflation is expected to fall to around
12% by the end of 2005 as a result, and then to drop more steeply, to
around 8%, by end-2006.

EXCHANGE RATES:
During the past three years the National Bank of Ukraine (NBU, the central
bank) had often intervened on the interbank market to keep the hryvnya's
exchange rate against the US dollar essentially unchanged. The central bank
signalled a shift in policy in April 2005, when it allowed the hryvnya to
appreciate by 3%. Since then the exchange rate of the hryvnya to the US
dollar has remained stable.

The April appreciation is so far proving to be a one-off attempt by the NBU
to mitigate risks inherent in the continued large-scale inflows of export
earnings and increased interest from foreign investors in the Treasury-bill
market. The volumes of US dollars that these inflows were forcing the NBU
to purchase, in order to keep the exchange rate stable, were having an
increasingly inflationary effect.

However, a further sharp shift in the exchange rate of the hryvnya to the US
dollar is not expected. The hryvnya is now forecast to remain broadly
stable, appreciating only moderately in 2005-06. This will translate into a
real effective appreciation, in view of inflation differentials and the
expected greater stability of the US dollar against the euro.

EXTERNAL SECTOR:
Ukraine's current-account surplus is expected to fall from the high of 10.5%
of GDP recorded in 2004. Steel prices in 2005 will not enjoy the same growth
recorded in 2004. The increase in export revenue will slow accordingly--a
trend that will be reinforced by some easing in Russian import demand.

The rise in import expenditure will therefore outpace export growth and lead
to a narrower current-account surplus, which we forecast at the equivalent
of 6% of GDP. The current-account surplus is set to narrow further, to
around 2.4% of GDP, in 2006, when prices for steel are forecast to drop by
almost 30%. -30- [The Action Ukraine Report Monitoring Service]
==============================================================
19. INSPIRED GAULTIER CREATES A FAIRYTALE FROM THE STEPPES

Jean Paul Gaultier's new take on Ukraine's national dress and tribal
costumes expressed a sartorial luxury hitherto denied the former
communist state. Ukraine's first lady and her daughter guests of honour

Hilary Alexander, Telegraph.fashion, London, UK, Sat, July 9, 2005

Ukraine provided a rich seam of inspiration for the French couturier Jean
Paul Gaultier on the closing day of the Paris haute couture autumn/winter
2005-06 season yesterday.

Under Gaultier's inspired direction, the country's national dress and tribal
costumes were translated into a caravanserai of folklore fantasia, dripping
with fox and mink and expressing a sartorial luxury hitherto denied the
former communist state.

Ukraine's First Lady, Kateryna Yushchenko, the wife of the new president,
and the couple's six-year-old daughter, Sophia, were the guests of honour -
an indication of their determination to forge closer ties with Europe. "We
want to bring to Europe what is best from Ukraine and to take back the best
of Europe," Mrs Yushchenko said.

Gaultier's passion for this historic region stems from his visit, in May, as
a guest of honour at the 2005 Eurovision Song Contest in Kiev.
"He was enthralled," said Mrs Yushchenko, who was attending her first haute
couture show. "We are thrilled he has decided to take inspiration from our
culture and demonstrate it to the rest of the world."

Gaultier's collection unfolded like a fairytale by Hans Christian Andersen
or The Brothers Grimm, and as evocative as a Tchaikovsky ballet.

The models, including England's Lily Cole, Erin O'Connor and Jade Parfitt,
were dressed as Rapunzel, with 5ft hair extensions cascading down the
backs of their gowns and braids twisted into exotic plaited head-dresses
which recalled those worn by Ukraine maidens.

Velvet jackets in the hutsal style of the Carpathians, were embroidered in
gold and featured collars and gauntlet cuffs of fox and mink. Folksy dirndl
skirts were fashioned from yards of embroidered and floral-appliqued silk,
swishing around the legs to reveal fur petticoats and fur-trimmed boots.
Other skirts were created from slivers of fox and sheepskin.

Extravagant military-style coats in bright orange, pewter, onyx or chocolate
cashmere, finished with astrakhan wide collars and triple cuffs, featured
the ancient paisley-esque patterns of Ukraine, known as trypilian.

Gaultier also extended his creative boundaries to include Cossack-look
ensembles, in jewel-toned, devore velvet, with big-sleeved peasant smocks
worn over full trousers, tucked into flat satin boots.

As the show progressed, the colours became more intense, culminating with
flame orange and purple velvet trouser and blouse ensembles, gold brocade
smocks trimmed with fox and gowns created from patchwork tiers of rainbow
print and lace, with long fringing and marabou feathers.

Erin O'Connor and Jade Parfitt closed the show as handmaiden and bride.
O'Connor, a former ballerina, pirouetting the length of the catwalk in a
multi-coloured, ruffled chiffon peasant blouse and long skirt, encrusted
with handmade silk flowers, and Parfitt in a wedding gown of cream tulle
and velvet, with sheepskin cuffs and train.

Earlier, Christian Lacroix presented his collection, inspired by the
paintings of Sir Joshua Reynolds and the concept of the eclectic gipsy on
the streets of New York.

Lacroix wove these into designs that combined opulent extravagance and
artisanal touches, with embroidered Spanish military jackets over pencil
skirts, brocade frock-coats fastened with bow and brooch and fur spencers
over long skirts in tie-dyed chiffon. -30-
--------------------------------------------------------------------------------------------------
halexander@telegraph.co.uk; www.telegraph.co.uk/fashion
============================================================
20. THE DUKE WAS A UKE...FOR OVER A DECADE
Duc de Richelieu governed Odesa for 12 years in mid-18th century
His bronze monument is a prominent historic symbol

CULTURE & HISTORY: FAMOUS NAMES
By Stanislav Tsalyk, Kyiv Weekly #26 (166)
Kyiv, Ukraine, Friday, Jul 8-15, 2005

Duc de Richelieu was a descendant of the famous Cardinal Richelieu of
16-17th century France, who was also one of the main characters in the
classic novel The Three Musketeers by Alexandre Dumas. He governed
Odesa for 12 years in the mid-18th century and made a significant
contribution to the development of the city.

Some local residents consider the bronze monument immortalizing the
duke to be one of the more prominent historic symbols in their native city
of Odesa

Duc de Richelieu was born in Paris in 1766 under the name Armand
Emmanuel du Plessis de Richelieu and was also Comte de Chinon and
Duc de Fronsac.

After the French Revolution, the duke was forced to leave the country and
fled to the Russian Empire, which was considered the main stronghold of
monarchy in Europe. There the duke found his niche and made a career.

When Tsar Alexander I was selecting a candidate for the post of mayor of
Odesa, a port city founded not too long before on the coast of the Black
Sea, he decided that Richelieu was the best. In 1803, the emperor signed
a decree appointing Richelieu to the post of Odesa mayor.

According to a resident of the city in those years, prior to Richelieu's
arrival the city of Odesa was "a miserable and ugly town". Huge sums of
money assigned by the state treasury for developing the city were simply
stolen, the buildings were literally drowning in mud, the construction of
the cathedral was not completed and the equipment at the port did not
meet the standard requirements.

Only two cisterns of potable water were available for 8,000 people. The
corruption among the city officials was taken for granted. Moreover, the
city revenues amounted to 40,000 rubles, while expenditures were 45,000
rubles.

A decade later, in 1813, Richelieu reported to the emperor: "Odesa had made
such advancements as none of the world countries ever did." Indeed, the duke
rooted out the corruption by severe measures. The city revenues grew to 25
mn rubles (a 25-fold increase) and revenues from customs duties amounted to
2 mn rubles (this figure grew 90 times).

With the help of the Zaporizhzhyan kozaks, whom Richelieu had allotted the
outskirts of the city as a settlement, the duke quickly brought order to the
streets of Odesa and its suburbs. Under his governance Odesa became one
of the most peaceful towns in the Russian Empire. In those years, beautiful
buildings were built, banks and commercial courts were established, temples
of various religious faiths were built, boulevards and cafes were opened and
educational institutions were founded, for which Richelieu personally
invited foreign teachers.

The duke did not place much trust in the reports of corrupt Odesa officials,
so he tried to personally deal with all matters on his own. The city's main
manager personally conducted surprise inspections and uncovered various
abuses of power. One time he dropped by the city prison, visited every cell
and spoke with convicts. After checking into the cases, he had 300 innocent
convicts released.

Richelieu enjoyed taking strolls through the city, scrutinizing the daily
activity and catching the spirit and mood of the Odesites. The city's
residents would approach him, ask questions and sometimes complain
about the unfairness of city officials and entrepreneurs. Richelieu
carefully examined all complaints and, if the facts proved true, severely
punished the guilty.

For example, on the people's initiative a salesman named Ivanchenko, who
cheated buyers, was sentenced to prison. The nobleman Turchaninov was
arrested, who forced certain merchants and even entire companies to pay
him a levy (i.e. racketeering of the early 18th century). One Riployev, who
murdered three members of the merchant's family, was arrested. Citizens
Milyukov and Hrekov were punished for night robberies. And the list went on.

Meanwhile, Richelieu gave foreigners the opportunity to do business in the
city on privileged terms. As a result, many Italians, Greeks, Persians,
Germans, Englishmen, Spaniards, Egyptians and representatives of other
nationalities wanted to become Odesa residents. It was these people that
gave the city its unique multinational atmosphere. In 12 years, the
population of Odesa grew fourfold and had reached 35,000.

Attempting to attract investments, Richelieu had a municipal theater built
in Odesa. He was quite a visionary the theater would attract landlords
living outside the city. The fact is that guests coming to see a performance
often stayed there to do business and invest money in the city's
development, which would bring additional revenues to the city budget.

Richelieu bought with his own money acacia saplings in Vienna and gave
them out for free to anybody who promised to plant the trees and take care
of them. Odesa is known to this very day for its white acacias.

By the way, red light districts also appeared in Odesa during Richelieu's
tenure as mayor. At first, having assumed office, he closed all underground
brothels (in those years prostitution was illegal). Shortly thereafter
prostitutes literally flooded the streets and their uncontrolled activity
caused an outburst of venereal diseases. The city found itself on the verge
of an epidemic.

The only doctor in the city named Prykhodko provided alarming statistics in
his report to the city mayor, reading that one third of his wealthy patients
was infected with venereal disease. Then Richelieu ordered to renew the
operation of these so-called "pleasure domes" and legalized them based
on certain regulatory policies.

In 1814, when troops of an anti-French coalition stormed Paris and Napoleon
abdicated from the throne, Richelieu, whom Odesa residents respectfully
called "duc", decided to return to his homeland. He threw a farewell party
for the entire city in the garden of his residence.

A tourist guide on Odesa published in 1868 wrote: "Having great
opportunities to become wealthy, the duke departed from Odesa with a small
suitcase, which contained his formal attire and two suits. His kindness and
mercy ensured him the affection of all strata of the local population, while
his departure was a huge loss for the city."

The city mayor left Odesa on September 26, 1814. Grateful city residents
carried their idol to his carriage. Around 200 people accompanied the duke's
carriage to the Razdolne suburbs. Some people cried, while others hoped that
the duke would return one day.

Back in France, Richelieu became the prime minister of the country. He
occupied this post twice, from 1815-1818 and 1820-1821. He also became
one of the leading figures of the famous Viennese Congress, where the main
tenets of a new European order were established. But the duke never forgot
Odesa, to which he had devoted twelve years of his life. Indeed, the city
archives preserve his letters to Odesa residents.

Richelieu died in 1822. Odesa residents remembered him for many years to
this day and justifiably named the years under his management "the golden
age" of the city. In 1828, Odesa residents had a bronze statue created in
honor of their favorite mayor.

One of the most famous sculptors of those years, Ivan Martos was the
sculptor of the Duc de Richelieu monument that stands atop the famous
Potyomkin Stairs. Over the course of time, the monument became one of the
most famous symbols of Odesa. -30-
--------------------------------------------------------------------------------------------------------
LINK: http://www.kyivweekly.com/english/article/?922
==============================================================
21. UKRAINE NEARS GAS CRISIS:
RUSSIA, TURKMENISTAN DO NOT BUDGE

ANALYSIS: Roman Bryl, Ukraine Analyst
Andrew Afanasiev, CIS Senior Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Monday, July 4, 2005

Russian Gazprom reduces its gas supplies to Ukraine ---

Reduction of gas supplies to Ukraine from Russia and Turkmenistan's USD
600mn claim to compensate losses from previous deliveries threaten to
destabilize the economic and political situation in Ukraine. At the end of
last week, state oil and gas major Naftogaz Ukrainy failed to settle the
debt problem with Russian supplier Gazprom. On Jul 1, Gazprom made a
statement that the company reckoned 7.8bn m3 of gas as payment for gas
transit through the territory of Ukraine. The decision was made
unilaterally.

Naftogaz fails to convince Gazprom to change debt repayment scheme ---

Recently Gazprom declared about disappearance of 7.8bn m3 of so-called
"buffer" gas that was stored in Ukrainian gas-storing capacities (GSC).
Naftogaz was blamed for gas disappearance and the Ukrainian company's
CEO Alexey Ivchenko had to pay a visit to Moscow to solve the problem.

Ivchenko presented evidences of the existence of the mentioned volume of
gas that were accepted by Gazprom side. Nevertheless, the Russian
company decided to supply less gas.

Naftogaz made an attempt to present its option for transit payments.
According to Ivchenko, Naftogaz proposed 1.7bn m3 of gas to be reckoned
as the transit payment in the new heating season (in October 2005). The same
volume Ukraine proposed to return to Russia in Q1/2006, and to leave 3-4bn
m3 in local GSCs for pressure support during Russian gas delivery to EU.

That would have effectively meant appropriating the gas just the same. In
our view, such a temptation would be detrimental for Naftogaz, and perhaps
it is good the proposal was rejected. Government can force Naftogaz to use
what would now become reserve gas for other purposes.
\
However, Gazprom rejected Ukraine's proposals and unveiled its plan
regarding gas transit in the H2/2005. According to this document,
discounting the 7.8bn m3, Ukraine receives only 15.3bn m3 of gas in 2005.
Furthermore, Gazprom stated the company will deliver to Ukraine only 1.1bn
m3 in H2 (against at least 3bn m3 planned). Naftogaz in its turn declared
that getting such small amount of gas "can lead to shortages in gas supplies
to Europe".

Basically, this is a threat to continue taking away gas slated by Gazprom
for exports. Overall, Ukraine would under-receive about 10bn m3 of gas from
Russia alone. The debacle concerning the gas price is still not resolved.
Currently Ukraine buys gas at USD 50 per 1thsd m3, while Russia's price for
EU is USD 160 per 1thsd m3. The sides are discussing a generally higher
price now.

Naftogaz to receive 60 m3 of gas from Turkmenistan in nearest future --

Still, Ivchenko tries to sound as if gas supplies are under control and
Ukraine will not suffer a gas deficit this year. The reduction in gas supply
from Russia can be compensated by Turkmen gas, Ivchenko assures.

According to the Naftogaz CEO, Ukraine will increase its gas import from
Turkmenistan to 60bn m3 in several years. But we doubt this due to several
reasons. "In several years" is not the same as "this year" or "this winter".

Also, the throughput capacity of Central Asia-Center pipeline does not
exceed 40bn m3 per year. Turkmenistan does plan reconstruction and
modernization, but not on this route, while prospects for other routes
remain uncertain. The second problem is that last week Turkmenistan
changed the traditional scheme of payment for its gas exports to Ukraine.
That proves Naftogaz's weak position in talks with Ashgabat.

New agreement regarding Turkmen gas import to Ukraine steps in effect
Jul 1, 2005 ---

Since the start of 2005, Turkmenistan insisted on cancellation of the
payment mechanism that concerns goods delivery from Ukraine as part of
payment for exported gas to Ukraine. At the end of June, Turkmen authorities
declared that they want Ukraine to pay for gas only in cash. Furthermore,
Turkmen president Saparmurat Niyazov accused Ukraine of overpricing the in
kind payments. Niyazov demanded to return to Turkmenistan USD 600mn.
This year Ukraine did not make a single payment for gas, which also angers
Ashgabat.

Naftogaz head Alexey Ivchenko had to visit Turkmenistan where he signed a
new agreement on gas imports from the country. According to it, starting Jul
1, 2005 Ukraine buys Turkmen gas priced at USD 44 per 1thsd m3 of gas. The
previous price was USD 58 per 1thsd m3 of gas, but the favorable conditions
for pricing goods supplies to Turkmenistan helped Ukraine to create
compensative measures for this high price.

The goods were valued at 1.9-2.1 index that allowed Naftogaz to sell goods
to Turkmenistan with at least 100% overcharge. This scheme resulted in such
absurd situations when, for instance, Ukraine sold a large lot of rubber
boots worth UAH 100 per pair. The real price of such boots does not exceed
UAH 10 per pair and all shoes sold to Turkmenistan were left leg boots. We
should not be surprised that Turkmen authorities want to get back USD 600mn
to compensate losses from this kind of cheating.

Previous scheme of payment for Turkmen gas was very beneficial for Naftogaz-

The in kind payments for gas made up USD 1bn a year. This was advantageous
not only in terms of goods pricing. It allowed postponing payments for
Turkmen gas. Naftogaz has 3 months to sell the gas and use the proceeds for
buying goods for Turkmenistan. Now the Ukrainian gas major should make
payments in time. And that seems problematic given the heavy burden of
payments to the state budget. Last week alone Naftogaz had to pay USD 20mn
to the budget according to General Prosecutor's Office demands.

Machinery, pipe producers keep up their goods export volumes to
Turkmenistan -

Government tries to purport that cancellation of the previous scheme does
not harm Ukrainian-Turkmen trade relations. But we should inform you that
about 70% of goods transferred to Turkmenistan as payments for gas included
consumer goods (including foods), and weapons. Today Turkmenistan does not
need to buy these goods in distant Ukraine. The supply is stable in Central
Asia, while Turkmenistan can make direct purchases in Ukraine on its own,
without government's help.

The only segment where barter stays valid is pipes and machinery. According
to a brief poll carried out by Investgazeta newspaper, entities supplying
machinery and pipes to Turkmenistan do not expect reduction in volumes of
exports to the country. According to a representative of Research and
Production Association named after Frunze (Frunze SPA), the company plans
to receive 3bn m3 of Turkmen gas in 2005.

Last year the enterprise got the same amount of gas for performing Naftogaz
orders on goods supplies and for carrying out its own projects in
Turkmenistan. Khartsizsk pipe plant (KPP) representative also confirms the
situation stays stable for the company. KPP sold 60thsd tons of pipes to
Turkmenistan in 2002-2003 on total, and does not expect a reduction of the
annual amount.

Naftogaz tries to arrange 25-year agreement with Turkmenistan
on gas supplies ---

Nevertheless it is obvious that foreign products will soon substitute the
rest of Ukrainian goods and Ukrainian companies will lose their competitive
advantage in Turkmenistan. Russia is more than willing to occupy this niche
if it becomes free. Naftogaz plans to save its positions in Turkmenistan by
signing 25 agreements on gas delivery to Ukraine. But to succeed, Naftogaz
should win a tough battle with Gazprom that already has a 25-year contract
with Turkmenistan.

As we reported earlier, Ukraine wants to sign import agreements that
threaten execution of earlier signed agreements between Turkmenistan and
Russia. But Turkmenistan and Russia still did not agree the gas price, which
Turkmenistan unilaterally decided to increase. Niyazov threatens to cancel
the contract with Russia, which gives Naftogaz a chance to conclude its own
25-year agreement with Turkmenistan.

Gazprom's recent decisions to lower gas transit to Ukraine may be caused by
political factorsWe cannot exclude that Gazprom's reduction of gas supply is
provoked by Naftogaz's attempts to sign a contract with Turkmenistan that
would push Russia out of already concluded deals. It seems recent claims of
Gazprom have a largely political nature. The Russian company's gas pressure
on Ukraine makes Ukrainian authorities negotiate with Moscow and follow its
various political and economic demands. Also, we suppose the gas crisis in
Ukraine acts in Gazprom's favor as an evidence of necessity to build
North-European gas pipeline.

However, Naftogaz is also responsible for causing the conflict. Taking away
gas slated for exports is not good corporate conduct. Naftogaz is
responsible for the gas not getting in time to EU consumers last winter, as
agreed with Gazprom. And delaying the consideration of export requests is
still, after all, Naftogaz's responsibility. So Russia, like Turkmenistan,
does have its right to feel offended and demand compensation.

Still, as we wrote last time, our overall conclusion is that both Russia and
Ukraine are being too tough on each other.

Ukraine will suffer rise in gas prices soon, which may lead to major
economic crisis No matter what the reasons are, the conflicts around gas
supplies to Ukraine will probably result in gas price hikes on the domestic
market. Any sharp increase in gas prices is very painful for Ukrainian
industrial producers.

Ukraine ranks 3rd worst in the world in terms of energy-intensive
production. For a long period of time, there were talks concerning lowering
the level of energy consumption by industrial companies. But when gas prices
were low, companies did not pay much attention to the need of modernization
to lower energy consumption. Today they are forced to change their attitude
to keep up competitiveness.

Still, reducing energy consumption of a large enterprise is not a quick
process. It can take several years to decrease consumption by only several
percentage points. To remind you, the largest consumers of energy in Ukraine
are metallurgical plants that provide up to 60% of GDP growth.

According to gas market experts, the price of gas on the Ukrainian market
cannot exceed USD 80 per 1thsd m3. Otherwise, Ukraine will suffer major
economic disruptions. After the recent events, the cost of gas purchased
from Russia reached USD 80 (USD 44 - base price, USD 32 - transit cost to
Ukrainian boarder, USD 4-5 transit cost through territory of Ukraine). In
other words, Ukraine has come close to a gas crisis.

In 2000, when Ukraine saw a jump in gas prices, consumer inflation hit 25%
y/y and wiped out the socio-economic achievements of the government.
Victor Yuschenko was the PM at that time. Now he is the president. -30-
==============================================================
22. UKRAINE: A HAMLET-LIKE CHOICE
Switch to market prices in the energy supply field or not?
Yushchenko's choice will show whether he is a statesman or a politician

COMMENTARY AND ANALYSIS: by Yuliya Mostova
Zerkalo Nedeli, Kiev, Ukraine, in Russian 2 Jul 05; p 1, 3
BBC Monitoring Service,UK, in English, Sat, Jul 09, 2005

The prospect of Russia forcing Ukraine to pay world prices for gas is both
a threat and an opportunity for Ukraine, according to journalist Yuliya
Mostova. It is a threat because both consumers and energy-reliant
industries like chemicals and steel will be severely hit, but it is an
opportunity because, once it is no longer tied to Russia by artificially low
prices, Ukraine will be free to seek other supply options.

Ukrainian politicians will no longer need to look to Moscow so much, she
said, as the country will become truly independent. She saw the starting
point for this process as being President Viktor Yushchenko's decision on
whether to go on using a company called Rosukrenerho, an intermediary
company dealing in energy set up by the previous Ukrainian administration,
allegedly for the private benefit of members of the Russian and Ukrainian
administrations but with the benefit of ensuring low gas prices for Ukraine.

If Yushchenko shelves action against the company and reverts to the old
Kuchma ways of private deals with the Russian elite, he will defer the gas
price threat and buy time. However, if he allows the investigation to go
ahead, he will precipitate retaliatory action by a Russia that is still
smarting from the Orange Revolution defeat in 2004.

She concluded by saying that Yushchenko's choice could damage him
politically, but it will show whether he is a statesman who thinks about his
nation, or a politician, who thinks about his own political interests.

The following is an excerpt from the article published in the Ukrainian
weekly Zerkalo Nedeli on 2 July, under the title "Ukraine: A Hamlet-like
choice"; subheadings are as published:

As well as freedom of speech, Ukraine now has freedom of discussion.
[Passage omitted: examples of controversial issues that can now be
discussed in public]

All these subjects are certainly "important and topical", as the temnyks
[secret media coverage instructions allegedly issued by the administration
of the previous president, Leonid Kuchma] used to say. But there is one that
is missing - what development strategy should Ukraine choose?

The establishment party is trying to form a Viktor Yushchenko Bloc, the
prime minister's supporters insist on the formation of a Yuliya Tymoshenko
Bloc and the unrated party of the chairman of the Supreme Council
[parliament] is seriously discussing the creation of a Volodymyr Lytvyn
Bloc.

By the time of the parliamentary elections [in 2006], we risk having a rich
choice of personalities instead of a choice of programmes. This means that
we will yet again be offered correct slogans and image exploitation against
the background of a tremendous actual similarity of thought and action
amongst all the contenders.

PARTING OF THE WAYS -----
The lack of a clear-cut strategic view of the country's development and of
an unbending and conscious readiness to stick to an established plan
creates a strategic problem for Ukraine.

[Passage omitted: the country and its authorities are just drifting; nobody
talking about any development plan, apart from Inna Bohoslovska, and she
has been ignored by the political establishment in a rudderless Ukraine]

We can wait another year and peg the choice of a course to the next
parliamentary elections [set for March 2006], we can flounder about for five
years - until the next presidential election - or we can, without being
fixated by dates, try to at least think about where we are heading right
now. And why should that starting point not be provided by... [ellipsis as
published] the Rosukrenerho [Russian Ukrainian energy] affair?

Rosukrenerho is a company that has acted as a middleman in supplying
Ukraine with Turkmen gas. The firm has also re-exported gas from Ukraine
to Europe. It took over from its sister company, Eural Trans Gas.

The head of the SBU [Security Service of Ukraine], Oleksandr Turchynov,
hinted quite clearly in an interview with Zerkalo Nedeli (and not only in
that interview) that the company's actions had caused the Ukrainian budget
to lose more than 1bn [dollars, presumably] and that Rosukrenerho's
"felicitous" commercial activities would not have been possible "without
support at the highest state level in Ukraine and Russia".

He also said that the companies which founded that particular corporate body
were only the formal participants in the process, whereas the profits were
divided, in the appropriate proportions, between interested persons in the
Ukrainian and Russian authorities, among others. The case against
Rosukrenerho is a real attack on the system of Ukrainian-Russian relations
set up by Leonid Kuchma during the decade of his rule and based on
corporate understandings between the authorities.

So, the results of the work of an SBU investigation group consisting of 70
people have been placed on the president's desk. Now Mr Yushchenko has
evaluated the quality of the information and must take a political decision:
what is he to do with it? It can be said, by and large, that this decision
will determine the national development strategy that the authorities will
select.

SHASS WE GO TWO WAYS AT FIRST? -----
We shall certainly consider the scenario in which the country's president
does not, in accordance with the law, interfere with the SBU investigation
into the activities of Rosukrenerho and allows the inquiry to accomplish its
tasks unimpeded. But can the president take a different decision? He can.
Several indirect signs make us think that.

There is, for example, the appointment of Mr Voronin, who used to be in
charge of work with Rosukrenerho on behalf of the Naftohaz Ukrayiny [Oil and
Gas of Ukraine] national joint-stock company, as deputy chairman of the
supervisory council of Ukrnafta [Ukrainian oil]. Now this pike has been cast
into the oil stream.

Another founder of Rosukrenerho, Mr [Serhiy] Lyovochkin, President Leonid
Kuchma's former aide, is also feeling great. He is currently the deputy head
of the supervisory council of Ukrtelekom and is advising the man who
replaced him [as head of Ukrtelekom's supervisory council], Oleksandr
Tretyakov, an aide to President Yushchenko. I note in passing that Mr
Tretyakov heads both the supervisory council of Ukrnafta and the supervisory
council of Ukrtelekom [state telephone provider].

We are, of course, a long way from thinking that Viktor Yushchenko will
order the Rosukrenerho case to be shelved simply because the scheme for
distributing the shares of the profits that operated under Kuchma will suit
him too - so long as the names of the recipients of these profits on the
Ukrainian side are changed.

Let us suppose, however, that Yushchenko has said "Stop!" to the inquiry.
The president has concluded that the country is not ready for a shift to
free-market gas prices, so that, to the unbounded joy of a narrow circle of
restricted persons, it is essential to preserve the existing practice of
using middlemen who satisfy the interests of both sides.

Rosukrenerho, which operated prior to this moment, has discredited itself,
so it must quietly leave the stage. Its place may be taken by another
company; whether it is Itera or Pantera is beside the point.

The main thing is that this company must perform the function of its
predecessor by symbolizing a consensus of corporate interests between
the Kremlin and Bankova [Street in Kiev, location of Ukraine's State
Secretariat - the former presidential administration].

Creating a new middleman may serve two purposes, though. -----

- PURPOSE 1. To gain time - at least a year - so as to prepare as much
as possible for the inevitable shift to free-market gas prices. To pass the
necessary laws, to attract investors for modernizing the ailing
metallurgical and chemical industries, to start the reform of communal
services and to alter tax legislation - in short, to pile up hay so as to
soften the landing from the heaven of cheap gas. The breathing space will
enable the authorities to conduct the parliamentary elections normally and
so gather in the harvest from an electorate that is subjected only to the
natural shrinkage and spillage resulting from its first year in office.

- PURPOSE 2. To saddle up the old schemes, since those who devised and
implemented them are now friendly with the new authorities, and to earn
money, while continuing, at the same time, to create trouble-free conditions
for the public, a regime of facilitated technological decay for companies
and a system of necessary concessions to the Russians for the state.

This will be attended by a whole range of consequences - full entry to the
SES [Single Economic Space - proposed Russian-sponsored economic bloc
of Russia, Belarus, Ukraine and Kazakhstan], continuing problems on the
border, conceding the transit pipeline to the Russians, rejecting NATO,
liaising with Moscow over WTO entry (and perhaps giving our place in the
queue to Russia) and moving "into Europe - together with Russia".

However, to achieve the first or the second purpose, it is not enough for
the president to shelve the Rosukrenerho affair. What is also needed is
Russia's willingness to build up relations with the present Ukrainian
leadership on the same principles as with Leonid Kuchma's team. Here
there is a problem or, more precisely, two.

In the FIRST place, the Kremlin cannot see among Ukraine's top people any
partners whom it could trust with carrying through such specific projects.
For them, Yushchenko is someone who is "not of this world", weighed down
as he is by strange sentiments and "anti-Russian" understandings.

With Tymoshenko, everything is pure and simple: "Return 100m [presumably
dollars] to our budget, and then we can talk about something." [Oleksiy]
Ivchenko, the head of Naftohaz Ukrayiny, is the leader of the Congress of
Ukrainian Nationalists and is a negotiator with unsuitable reactions.

[National Security and Defence Council Secretary Petro] Poroshenko does,
of course, want to make friends properly, but his powers are unclear, and
his CV contains a mass of defections from one team to another. [State
Secretary Oleksandr] Zinchenko lacks weight and influence on the president.
Tretyakov has both, but who is Tretyakov?

Nearly all of these people can be partners for individual owners, such as
[Oleg] Deripaska [the head of Russian Aluminium], [Dmytro] Firtash,
[Konstantin] Grigorishin and [Aleksandr] Abramov [of the Yevrazkholding
company], but not for the Kremlin. Apart from that, the Ukrainian powers
that be dream so much of catching one another out and putting one another on
the spot that one simply cannot have dealings with any one of them and it is
impossible to deal with all of them together.

The Ukrainian state's top people and also those who may be among them, in
keeping with unwritten laws, by occupying posts merely in the president's
patronage service but having an influence on the processes are not the tried
and tested members of the USSR's KGB or the Soviet party nomenklatura [the
appointed elite].

All those who represent the Ukrainian authorities and may, formally, conduct
specific negotiations with the Kremlin are, from Moscow's viewpoint,
parvenus, upstarts or political strategists' misunderstandings. They are
certainly not on a par with the Russian power elite, which has been
meticulously selected and from which anyone who did not understand the
rules of the game has been rejected.

The very fact of instituting a case against Rosukrenerho is seen as a
flagrant violation of the rules wholly attributable to the actions of people
selected at random who scrambled into power through American political
techniques.

If anyone thinks that the Kremlin takes a different view of what is
happening in Ukraine, let him hang on to such illusions. We are not going to
do that and are, therefore, certain that Moscow sees the Ukrainian
authorities as a temporary misunderstanding that must be corrected by the
Ukrainian people and by "proper" Ukrainian politicians. They simply need a
little help.

The lion's share of the work will be done by the Ukrainian authorities
themselves, which spend most of their working hours engaged in internecine
combat operations. Russia will not dispatch "task forces" into Crimea or
Donetsk or send out spies to poison the water in the wells of small hamlets,
and it may even refrain from giving yet another mission to [Russian spin
doctor and adviser to Putin] Mr [Gleb] Pavlovskiy [who gave advice to the
Kuchma camp in the 2004 presidential election].

Russia will not do anything that may discredit it in the eyes of the world
community (as happened during the presidential election campaign). Moscow
will heed its [past] mistakes and will simply demand a switch to free-market
gas prices - a civilized approach and one that the whole world can
understand. Formally, [the message will be:] such is the market situation,
and it is unclear why Russia should lose budget revenue.

Informally, [the reality is that] in the autumn of 2004, Moscow lost the
battle to keep the rules for the succession of power in the post-Soviet area
unshakable. It recognized only two forms as acceptable - either the endless
extension of the term for which the president can remain in power (the Asian
scenario) or the transfer of power to a successor, in which the people is
accorded only the nominal function of endorsing the will of the ostensibly
outgoing authorities (the Russian scenario).

An unsanctioned coming to power in a post-Soviet state shakes the
foundations of democratic autocracy, and that is very harmful and dangerous
to unstable minds. Accordingly, since Russia has let that ball though into
its net, it must take revenge and prove, FIRST, to its own public, and
SECOND, to all others who are within what it regards as its sphere of
influence, that all "coloured" and "flowery" revolutions lead to a sharp
deterioration in the economy and in the population's standard of living.

It is in the Kremlin's interests to see that everyone realizes (preferably
using the example of Ukraine) the flimsiness of populist authorities and the
lamentable results of their rule. This is, in fact, the SECOND reason
hindering the new Ukrainian authorities from establishing the old pattern of
relations with Moscow.

Raising the price of gas, an alliance with Turkmenistan and the possibility
of responding to a Ukrainian rise in transit charges by a similar rise in
charges on its own, longer transit route form a marvellous, bloodless way of
organizing anaemia in the Ukrainian economy. The looseness and chaotic
nature of the actions of the Ukrainian authorities can be used as an
additional bonus in the absorbing game of revenge.

Unless the Ukrainian authorities are prepared for it, such a situation will
help the Kremlin to accomplish other tasks too. Against the backdrop of the
very serious economic crisis that may be caused by a rise in prices, Russia
will just graciously open the doors of the SES, a customs union, financial
union and the Tashkent military alliance to a Ukraine that is scratching at
them.

Well, that is also a strategy for developing Ukraine - one that is clear and
understandable. It differs from the strategy of accepting the challenge,
which we shall discuss below, and from the strategy of the "deferred battle"
only in that it is a strategy for developing a territory rather than a
state. A strategy of surrender is also a strategy.

[Passage omitted: Ukraine may be saved by willingness of some Russians
to do a deal for their own personal benefit over setting up a new energy
middleman]

SHOCK SURGERY -------
If the president decides not to intervene in the Rosukrenerho affair,
thereby spurring it on; if he turns down the services of some
self-interested middleman that nourishes the narrow circle of people who are
responsible for taking the political and financial decision on the price and
volume of the gas to be supplied to Ukraine; if Yushchenko is not trying to
copy the Kuchma pattern of bilateral relations and is aiming to shift
contact between the capitals from the corporate field into that of
international law, thereby effecting a revolution of real substance in
Ukrainian-Russian relations, then there can only be one way out of the
situation: Ukraine will have to switch to buying gas at European market
prices.

Have you never wondered why Russia has incurred a loss by selling gas to
Ukraine at artificially low prices over all these years?

Conversations with experts have produced three reasons. FIRST, by supplying
Ukraine with cheap gas, Russia kept hold of the market and, by lulling Kiev
through the creation of relatively favourable circumstances, it successfully
distracted it from thinking about taking part in the building of alternative
gas pipelines, such as some across Afghanistan and many other projects.

SECOND, by augmenting the Russian gas-fed lobby among Ukraine's leaders,
[the Russian national gas producer and distributor] Gazprom reckoned to get
its hands cheaply on the Ukrainian transit pipeline, which is of strategic
importance both to our country and to Gazprom's long-term operations.

We have already mentioned the THIRD factor in the interests of the
controllers of Russian gas. Mr [Aleksey] Miller, the very angry chairman of
the Gazprom board, declared at a news conference in reply to a question
about Rosukrenerho that everything was totally transparent on the Russian
side. As for what schemes were used in Ukraine, let them sort that out in
Kiev.

It is quite likely that everything matched up and observed all the
formalities on Russian territory. The last stop for the incoming gas was
Ukraine. And it was here that the offset arrangements and payments were
made, the accounting was carried out and the project was managed. It was
here that the information about the proceeds from re-export was received.

But that did not change the essence of the matter and the interests. Many
businesses keep their cash offices in offshore territories, and that does
not mean that the money from those offices is received only by people from
Antigua, Panama or the British Virgin Islands. Anyway, the inquiry will sort
all that out, if it is allowed to do so... [ellipsis as published].

[Passage omitted: the Russians will force Ukraine to pay world gas prices;
from the beginning of 2006, the price of Russian gas in Ukraine may double
from the present 50 dollars per 1,000 cu.m. to 100 dollars or more]

This means, for example, that the metals industry, which forms the basis of
Ukraine's export potential, will be dealt an extremely heavy blow. This will
happen against the background of the serious crisis that already exists
today in that sector of the economy.

The situation in the world market has worsened for us, and, apart from that,
China has entered the market with its newly constructed capacity, covering
almost the whole of the Asian and southeastern market like a bull towering
over a sheep.

The order books of Ukraine's gigantic iron and steel mills for the second
half of the year are already empty. The output of many of our mills is still
just about competitive, but, if the price of gas goes up, it will simply be
unable to compete, with the exception of some specific kinds of output.
There is a similar situation in the chemical industry - another Ukrainian
export leader - where the price of gas accounts for between 50 and 70 per
cent of production costs.

The middlemen operating in the gas market and those who had anything to
do with the distribution of the immense profits they earned certainly
allowed themselves to grow fat, but they also enabled the public to save
money. After all, gas at preferential prices permitted the state to
economize in part on budget resources and the public to pay a pittance
for it.

The advent of market prices will, undoubtedly, be beyond the budget's means,
since it is already splitting at the seams because of social programmes. So,
if anything happens, the Ukrainian public will have to shoulder at least
some of the additional costs.

Nor should one have any illusions about Turkmenistan. Turkmenbasy [i.e.
President Saparmyrat Nyyazow] is certainly interested in retaining the
markets in which he sells his gas and, in some circumstances, it is possible
to forge specific relations with him, but they will still be based on
partnership.

However, it should not be forgotten that in a year's time a 25-year contract
enters its decisive phase, and Russia will have the whole volume of exported
Turkmen gas at its disposal, since it is buying it up in its entirety on the
border.

Bearing in mind the strong link between Turkmenbasy and Gazprom and the
clumsiness of the current leadership of Naftohaz Ukrayiny, which has proved
incapable of finding the right keys either to Turkmenbasy himself or to his
free-spending sidekicks, it can be expected that, as far as pricing is
concerned, Turkmenistan will harmonize its actions with Moscow even before
the 25-year Russian contract comes fully into force.

These are just a few brushstrokes from the picture of the catastrophe that
may overtake a country that does not recognize the reality of the inevitable
switch to world fuel prices. But in fact, without this change, which
destroys the basis of Ukraine's dependence on the presence or absence of
Russian grace, Ukraine will never become a truly independent state and will
never be able to diversify its energy sources.

This decision will finally demolish Leonid Kuchma's system of corporate
interests, which formed the basis of Ukrainian-Russian relations.

If this system is to be destroyed - a system which has been, for many years,
a vaccination against European, civilized values; a system that has enabled
certain people to have a very tangible interest of their own, but has also
enabled the energy-intensive Ukrainian metallurgical and chemical sectors to
survive and remain competitive; a system that has enabled the population of
Ukraine to pay next to nothing for gas - then the Ukrainian authorities must
have an absolutely clear perception of why they are opting to do this, what
painful processes society and the country's economy have to pass through,
and how to carry out these procedures - in other words, the necessary
reforms in the most compressed timescale.

The authorities' plan to restructure the state economy, the corrupting
sponsor of which [i.e. the economy] is still Russia, must have a clear-cut
timeframe. Society and business and also the state sector of the economy
must clearly understand what each of them has to do during the state's
Europeanization and when that process will be completed - when we shall see
the end of the tunnel from which Ukraine will emerge as a truly independent,
strengthened state, able to switch to sophisticated markets and to compete
in them.

In fact, though, with a deliberate and systematic approach to the issue,
Ukraine is capable of preserving and even enhancing its competitiveness
if it comes under pressure from the price of gas. It is well known that the
price of gas in Ukraine is higher than in Russia, but this difference has,
to some extent, made our industry more hardy, as is shown by the quotas
with which the Russian state is trying to protect its producers against
Ukrainian goods on the Russian market.

The figures for overall gas consumption in Ukraine are also impressive.
Similar factories in Western Europe use 3-5 times less energy than our
companies. Everyone has grown used to cheap gas: it heats asphalt, flats
and workplaces, and people too.

The price rise will force us to use gas more economically. A contribution
towards economy can be made not only by factories, which will have to
install more modern, energy-saving processes, but also by those who glaze
the windows in heated premises or fit regulators to radiators. These
regulators will mean, on the one hand, that we are not overheated during the
April heating season and, on the other, will enable families and the country
to economize.

Deliberate destruction of the old scheme of relations between the
authorities [of the two countries] will, undoubtedly, be a stern test for
the Ukrainian state and society. It will be a real break, since cheap gas is
a hard drug. The existence of a coherent plan will demonstrate the state's
degree of responsibility, its efficiency and ability to strategically
visualize the country's development, as well as the authorities' capacity to
predict and surmount crises. Its absence will, correspondingly, point to
immaturity, irresponsibility and short-sightedness.

Society's readiness to pass through a period of extremely difficult economic
conditions will provide an answer to the question of how civically mature
and patriotic society actually is. In this respect, there is no particular
point in deluding oneself, since more expensive gas will inevitably entail
higher prices in the market for goods and services plus higher charges for
community services, which is unlikely to delight anybody.

Months of belt-tightening are not the same as three weeks in a frosty Maydan
[Independence Square in Kiev, the focal point of the Orange Revolution]. It
may, of course, be thought that the true patriot is someone who is glad that
the state budget will be increased if receives a parking fine... [ellipsis
as published]. The people will certainly react painfully to being hit in the
wallet.

The question is rather the extent to which it will be possible to soften the
blow through skilful propaganda (I do not shy away from the word) about a
healthy free-market way of life and also, perhaps, through targeted benefits
for the most vulnerable sections of the population. That is why the plan for
resolving the crisis of energy "drug addiction" and economic "decay" must
be clear not only to officials, but also to every citizen.

But, even so, it is the present authorities that will probably have to make
the biggest sacrifice on the altar of real state independence. The price of
gas may rise by 100-150 per cent at the beginning of next year. Regardless
of whether the state is ready for it or whether it comes as a surprise (like
winter for the power workers), the public will feel the effects of the rise
before the elections.

As a result, support for the present authorities may fall drastically, and
they will lose the elections. That is what happened to the Right in Poland
after the reforms dubbed "shock therapy". They lost, but the Socialist
[Aleksander] Kwasniewski was no longer able to change the emphatically
free-market foundations laid by his predecessors.

In the present situation, seen objectively, President Yushchenko's choice
will be clear. The country must become independent, but an economically
independent state cannot be built without a switch to market prices in the
energy supply field, without a root-and-branch modernization of industry,
without intelligible measures to form a Ukrainian domestic market and
without a deliberate, planned abandonment of framing the budget on the
basis of export earnings.

But, since the illness of the Ukrainian economy, unlike that of Poland, has
been cultivated not for one year but for more than a decade, we shall not
manage on shock therapy alone. Switching to world gas prices is shock
surgery, and so it will be a far more serious trauma for the body. Hence the
emergence of the subjective risk factor - the perfectly real loss of power
at the elections.

Yushchenko's choice will show whether he is a statesman or a politician.
The difference between them is, of course, that the former thinks about the
wellbeing of the country, while the latter thinks about the wellbeing of his
own political force. -30- [The Action Ukraine Report Monitoring Service]
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3. ESTRON CORPORATION, Grain Export Terminal Facility &
Oilseed Crushing Plant, Ilvichevsk, Ukraine
4. Law firm UKRAINIAN LEGAL GROUP, Irina Paliashvili,
President; Kiev and Washington, general@rulg.com, www.rulg.com.
5. BAHRIANY FOUNDATION, INC., Dr. Anatol Lysyj, Chairman,
Minneapolis, Minnesota
6. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine, yuriy.sivitsky@softline.kiev.ua; Volia Software website:
http://www.volia-software.com/ or Bill Hunter, CEO Volia Software,
Houston, TX 77024; bill.hunter@volia-software.com.
7. ODUM- Association of American Youth of Ukrainian Descent,
Minnesota Chapter, Natalia Yarr, Chairperson
8. UKRAINIAN FEDERATION OF AMERICA (UFA),
Zenia Chernyk, Chairperson; Vera M. Andryczyk, President;
Huntingdon Valley, Pennsylvania
9. UKRAINE-U.S. BUSINESS COUNCIL, Washington, D.C.,
Chairman, Executive Committee of the Board of Directors, E. Morgan
Williams, SigmaBleyzer; Secretary/Treasurer, John Stephens, Cape
Point Capital
10. UKRAINIAN AMERICAN COORDINATING COUNCIL,
(UACC), Ihor Gawdiak, President, Washington, D.C., New York, NY
11. U.S.-UKRAINE FOUNDATION (USUF), Nadia Komarnyckyj
McConnell, President; John Kun, Vice President/COO, Washington,
D.C.; Markian Bilynskyj, VP/Director of Field Operations; Kyiv,
Ukraine. Web: http://www.USUkraine.org
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"THE ACTION UKRAINE REPORT - AUR" is an in-depth, private, non-
profit news and analysis international newsletter, produced as a free
public service by the non-profit www.ArtUkraine.com Information Service
(ARTUIS) and The Action Ukraine Report Monitoring Service The
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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)
Chairman, Executive Committee, Ukraine-U.S. Business Council
Publisher, Ukraine Information Website, www.ArtUkraine.com
& www.ArtUkraine Information Service (ARTUIS)
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Power Corrupts and Absolute Power Corrupts Absolutely.
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