Weekly newspaper, UNA, Parsippany, New Jersey
Ukraine-EU Relations, Roundtable VIII; Ukraine's Quest for Mature
Nation Statehood; Ronald Reagan Building and International Trade Center
Washington, DC, Tuesday-Wednesday, October 16-17, 2007

Published by the Action Ukraine Report (AUR) #885, Article 2

Washington, D.C., Monday, October 29, 2007

Mr. Chairman,
To begin with, may I thank the Center for US- Ukrainian Relations for the
kind invitation to address this Forum. You have put together an impressive
programme with dozens of outstanding speakers and offered a variety of
angles to look at Ukraine.

No wonder. Ukraine deserves it. It is a fascinating country going right now
through a difficult transition. It needs encouragement and support. It needs
attention and focus.

My advice to fellow Ukrainians at this stage is this: enjoy this attention
while it lasts. When you become - mind, not if, but when - members of the
European Union, you will become a stable, prosperous and boring country.
No longer in the spotlight.

That I can tell from our own experience: when Lithuania was singing its way
through the revolution in 1990s, we were much talked about. Nowadays, the
best you can do to get into the picture at all is to get into the European
Union Family Photo twice a year.

Anyway, most of what I am going to say is based on my country's fresh
experience as a new member of the EU. In many ways it should be relevant
also for Ukraine.
EU MEMBERSHIP MYTHS
As a kick-off, let me mention a few most widely held preconceptions which
were used by the anti-EU lobby to scare the people off from joining the EU.
All of them proved to be false:

[1] National economy will succumb before the EU competition pressures.
It did not. Actually, it is undergoing a sustainable growth and a steady
rise in exports inside the EU.
[2] People will flee the country in the pursuit of better employment and
living conditions. It did happen to a certain extent, but fears were far
greater.
[3] The reverse process - Europeans coming en masse and buying-out all
of our beautiful land and immovable property - turned out to be absolute
nonsense.
[4] Smaller nations will lose their national identity inside this melting
pot of the European Union - quite the opposite. There is a growing need

now to show and celebrate our cultural diversity. If anything, Europeans are
becoming more like Americans through the advancement of American pop
culture.
[5] National sovereignty will be lost for ever in exchange for the hostile
and clumsy Brussels bureaucracy. Not that anybody noticed a difference.

What is actually happening now is that the people in Lithuania are making
the best of the rewards and benefits which came with the EU membership:
robust economic growth, unrestricted access to the single European market,
enhanced voice in foreign policy matters, political stability and last, but
not least, financial assistance in the form of structural funds and direct
payments to the farmers.

Having said that I think it is appropriate to say, that public expectations
of EU membership rewards in the case of Ukraine, when it comes to this, will
probably look less tangible then they are today. Structural funds will have
dried out, Common agricultural policy will be up for revision, and the new
financial perspective will set forth new priorities, unknown as yet.

In any case, EU membership for Ukraine is far more important than this.

Let me mention at least a few points,why'.

STRATEGIC SHIFT TOWARDS THE WEST. Ukraine for far too long

has been, sitting on the fence', trying to balance between Russia and EU.

Accession to the EU would remove this ambiguity.

The newly acquired sense of purpose and direction will ease and ,grease'
transition to an open society and free market. It will be so much easier to
get over with the post-soviet legacy than it is now.

CONDITIONALITY. The EU uses carrots instead of sticks in achieving its
objectives. Applicant countries have to implement reforms and introduce
them into their national legal systems and do that in a timely and orderly
manner.

Conditionality or benchmarking proved to be a good vehicle to push
applicants up the ladder. There is nothing humiliating in it. This is a good
way to ensure steady progress. We know very well how powerful the forces
of resistance and inertia could be.

I can tell you, that those areas in Lithuanian economy, which were not
regulated by the acquis communitaire, like Health Care and Education where
left un-reformed or poorly reformed and they continue to struggle now,
because the urge to change has lost a momentum.

For Ukraine, as any other aspirant country, guided pre-accession reforms

are needed on their own merits. It is a win-win situation.
ENERGY
EU membership will call for transparency in the energy business. Adjustment
to World energy prices will be the result of it. Negotiated lower energy
prices are only a matter of time and transition.

Higher prices will stimulate more efficient consumption and will speed up
introduction of modern technologies and renewable sources of energy.
Diversification of energy supplies, alternative pipelines will introduce
competition and hopefully they will reduce tensions and anxiety.

One such alternative route, Nabuco gas pipeline has been talked about
extensively. It has also been supported by the European Union. Yet another
one, the Odesa-Brody-Plock-Gdansk pipeline to transport crude oil across

the Ukraine, gained prominence just recently.

The political agreement among the contracting parties, including Azerbaijan,
Georgia, Lithuania, Poland and Ukraine to build one was reached and signed
last week in Vilnius. If completed Ukraine would get one more outlet to
Europe, one more instrument in her tool-box.

My expectations are that by the time Ukraine qualifies for membership,
European Union would have worked out a common and coherent Energy
Policy and sticks to it.

Common policy should be based on the principles, mentioned earlier, i.e.,
transparency, efficiency, diversification but most importantly - solidarity.
Solidarity among EU members is precious. I think it will also be close to
Ukraine once it is in the Club.

THE COMMON FOREIGN AND SECURITY POLICY (CFSP) is one

area where Ukraine can perform especially well and can benefit from it.

Already now Ukraine is active.

In the framework of CFSP she can participate with troops and offer a
significant input to the EU peacekeeping operations, the much needed airlift
and contribute in other ways, thus raising her profile and prestige.

Closer to Ukraine's borders, there is the Transnistria conflict to be
resolved. Not long ago President Yushchenko came with a settlement plan and
later called for the EU Border Assistance Mission (BAM) to be deployed in
the area. I believe Ukraine together with the EU, USA and the parties in
dispute has an excellent chance to offer a timely resolution to the
conflict.

EUROPEAN NEIGHBORHOOD POLICY (ENP). We in Lithuania know

that Ukraine might feel disappointed, perhaps frustrated with the ENP status.

It may not reflect the measure of ambition of our Ukrainian friends, it might,

however, be a valuable instrument in the pursuit of the ultimate EU

membership.

Have faith in this policy. It will inevitably bring you closer to the EU
through the advancement of such important and very practical tools as free
trade or visa facilitation.

The new Enhanced Cooperation agreement between EU and Ukraine once
negotiated and signed, will be yet another significant step, some say, a
leap, towards greater economic integration and compatibility.

You may also look at it, as some sort of pre-accession strategy. We've been
through that, we know it's painful, it takes time, but in the end it
delivers. We Lithuanians will continue to stand by and support in every way
we can.
EU- UKRAINE ACTION PLAN
Lithuania has a standing agreement with Ukraine to cooperate in implementing
EU-Ukraine Action Plan. Common projects on Public Tender, Social Security
and Labor, Customs, Sanitary have been drawn to assist our Ukrainian
colleagues to upgrade their public services. Respective Ministries of
Justice and Agriculture, Tax Inspectorates and Insurance Supervision Boards
are working out similar cooperation patterns.

Ukraine has a lot of homework to do. For its own sake. After it is done
future challenges will not be insurmountable. Thank you.
------------------------------------------------------------------------------------------------

Ukrainian News Agency, Kyiv, Ukraine, Friday, October 26, 2007

KYIV - The Our Ukraine-People▓s Self-Defense bloc is ready to vote
in favor of appointment of Petro Poroshenko as the chairman of the
National Bank of Ukraine.

Oleksandr Tretiakov, a parliamentary candidate for the Our Ukraine-
People▓s Self-Defense bloc, announced this in an interview with
the Focus journal.

Tretiakov noted that candidates for the post of chairman of
the National Bank of Ukraine are submitted to the parliament by
the President of Ukraine.

"If [President Viktor Yuschenko] makes the decision to recommend
Poroshenko, we will not insult the President▓s representation by not
voting for it," he said.

According to him, all recommendations made by Yuschenko (who is the
honorary chairman of the Our Ukraine People▓s Union party, which is
a member-party of the Our Ukraine-People▓s Self-Defense bloc) should
be supported by the bloc▓s parliamentary faction a priori.

"All his representations should be supported by the faction. That is
an axiom," Tretiakov said. He added that Poroshenko▓s age falls within

the age range that the law set for civil servants.

Tretiakov also said that the Our Ukraine-People▓s Self-Defense bloc was
ready to vote for any candidate from the Yulia Tymoshenko Bloc that
the parliamentary coalition▓s council nominates for the post of Prime
Minister, even if that candidate is not the bloc▓s leader Yulia Tymoshenko.

"If the Yulia Tymoshenko Bloc proposes another candidate and the coalition
supports it, then I think that Yulia Volodymyrivna [Tymoshenko] will abide
by the decisions of the entire coalition,"he said.

As Ukrainian News earlier reported, the chairman of the Council of the
National Bank of Ukraine, Petro Poroshenko, recently forecast that
a parliamentary coalition between the Yulia Tymoshenko Bloc and the
Our Ukraine-People▓s Self-Defense bloc would be unstable.

The political council of the Our Ukraine People▓s Union party, which
is a member-party of the Our Ukraine-People▓s Self-Defense bloc, decided
not to include Poroshenko on its list of candidates for election to
the fifth parliament.
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LINK: http://www.ukranews.com/eng/article/75948.html

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========================================================
13. YULIYA TYMOSHENKO BLOC AND OUR UKRAINE-PEOPLE'S
SELF-DEFENCE ANNOUNCE POLICY FOR THE ENERGY SECTOR

Kommersant-Ukraina, Kiev, in Russian 19 Oct 07
BBC Monitoring Service, UK, Friday, October 19, 2007

The Yuliya Tymoshenko Bloc and Our Ukraine-People's Self-Defence have

made public their agreement on a new cabinet's policy in the energy sector, a
Ukrainian daily newspaper has reported.

According to the document, a new cabinet would support the IPO bid of the
state oil transport monopoly Ukrtransanfta, try to get long-term contracts
on supplies of Central Asian gas and tighten the state's control over the
extraction of oil and gas in Ukraine.

The following is the text of the report by Oleh Havrysh entitled "An energy
base" published in the Kommersant Ukraina newspaper on 19 October;
subheadings have been inserted editorially:
NEW ENERGY STRATEGY DEFINED
Yesterday [18 October] the Yuliya Tymoshenko Bloc and the Our
Ukraine-People's Self-Defence bloc published an agreement defining a new
government's strategy in the energy sphere.

According to this document, the future cabinet plans to support the IPO bid
of the [state oil transport monopoly] Ukrtransnafta, sign long-term
contracts on the purchase of gas from Central Asia and to tighten state
control over the extraction of oil and gas in Ukraine.

Those playing the market believe that to achieve this the "democratic
coalition" [which the Yuliya Tymoshenko Bloc and Our Ukraine-People's
Self-Defence agreed to form in the new parliament] will need to radically
alter the laws and embark on a new gas war with Russia.

Yesterday the "democratic coalition" published a plan of action of the
future cabinet in the oil-and-gas sphere. A new cabinet plans to carry out
an audit of the oil transportation monopoly Ukrtransnafta to introduce
modern mechanisms for attracting investments, in particular an IPO. The
funds are needed for the wholesale repair and reconstruction of equipment of
trunk oil pipelines.

"The capital stock of the oil pipeline system has depreciated over 40 per
cent. Investments to the sum of 450m-500m dollars are needed to develop the
infrastructure," a member of the committee for the fuel and energy complex
of the Supreme Council [parliament] of the fifth convocation, MP Viktor
Topolov (Our Ukraine) said.

If a coalition cabinet is formed, the YTB and Our Ukraine-People's
Self-Defence plan to sign long-term contracts with Central Asian countries
on supplies of natural gas to Ukraine and also to reach agreements with the
governments of Iran, Turkey, Austria, Romania and Bulgaria on Ukraine's
participation in the construction of the Nabucco gas pipeline which is due
to supply gas from Central Asia to Europe.

"We need to get away from energy dependence on Russia and to re-establish
direct contracts with Turkmenistan. We shall be reminding Russia that we are
the transit country of 80 per cent of all the natural gas to Europe," a
member of the fuel and energy complex committee of the Supreme Council of
the fifth convocation, MP Mykhaylo Volynets, (YTB) said.
PRODUCTION DISTRIBUTION
Furthermore, the democratic coalition plans to define the procedure for the
development of the oil and gas fields explored on state funds, having drawn
up a plan of indemnities to the state. "It is not clear at the moment what
proportion the state should receive in contracts on production sharing,"
Mykhaylo Volynets says.

It will be recalled that in September the cabinet approved a draft agreement
with the Vanco International oil company on the distribution of production
during the development of the Prykerchenskyy oil and gas field. The project
provides for a 50-50 per cent distribution of production between the oil
extractor and the state.

Once the project starts the state will obtain the right to 60 per cent. It
is important to note that Vanco International has proposed that during the
development of the field it should receive 80 per cent of the output, and at
the extraction stage 70 per cent.

In the opinion of the president of Poti Oil Security and Shipping (which
exports 1-1.5m tonnes of oil annually), Alik Vardanyan, in order to attract
450m dollars worth of investments, Ukraine needs to extract only 10 per cent
of the shares of Ukrtransnafta from an IPO.

"A company that runs such a network of oil pipelines is capable of
attracting the interest of the major world players Shell, Chevron/Texaco,
Exxon/Mobil and Transneft. Of course, this will increase the loading of the
oil pipeline system with Caspian oil from their side," he assured.

The press service of the Russian Transneft company said that in the event of
Ukrtransnafta turning to an IPO they plan to look into the possibility of
purchasing its shares.

However, according to the managing partner of the legal firm Astapov
Lawyers, Andrey Astapov, the floating of Ukrtransnafta's shares on the stock
exchange will be impossible without an annulment of the law drawn up by the
YTB "On pipeline transport", which forbids companies using trunk pipelines
to transfer them to a directorate, a concession or to a lease by third
parties.

The general director of the Ukrainian gas trading company Olhaz-Invest,
Yuriy Korovin, believes that attempts to buy Central Asian gas back from
Russia will lead to another gas war.

"Having rid themselves of RosUkrEnergo [a Swiss registered gas-trading
intermediary company], Russia plans to send Turkmen gas to Europe, having
earned considerable sums of money by doing so, and to sell their own gas to
Ukraine at 230-250 dollars per 1,000 cu m. Ukraine sees in this refusal the
opportunity to buy Central Asian gas direct," Mr Korovin explained.

"What is happening will lead to another gas war, and here everything will
depend on the position of the Ukrainian cabinet if it keeps its cool, as it
did under [former Fuel and Energy Minister] Ivan Plachkov and [former
chairman of the state-owned oil and gas company Naftohaz Ukrayiny] Oleksiy
Ivchenko, Ukraine will get its way."
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14. GAS, MILITARY CONSCRIPTION, MORE CONTROL OVER SECURITY
AGENCIES, RESHUFFLE IN SECURITY AGENCIES, OIL REFINERY ROW,
EFFORTS TO FIGHT XZENOPHOBIA, HOVERLA MOUNT VANDALISM

Ukrainian security roundup for October 2007
BBC Monitoring Service, UK, Friday, October 26, 2007

In October, gas continued to feature prominently on Ukraine's security
agenda. President Viktor Yushchenko pushed for more control over the
interior and defence ministries, and reshuffled the security agencies. Also,
future Orange coalition partners fell out over whether compulsory military
service could be abolished as early as next year.
GAS DELIVERIES FROM RUSSIA
Gazprom's statements that Ukraine owes it 1.3bn dollars for gas caused a
stir in Kiev. A business daily said the debt is owed by a private company
part-owned by Gazprom.

It said Ukrainian Fuel and Energy Minister Yuriy Boyko admitted to the debt,
while First Deputy Prime Minister Mykola Azarov said "We do not owe
anyone a single cent."

The paper said it appears that RosUkrEnergo, in which Gazprom owns 50 per
cent, accumulated 10bn cubic metres of natural gas in Ukrainian storage
facilities for which it has failed to pay Gazprom. (Delo, Kiev, in Russian 4
Oct 07; pp 1, 3)

Commenting on the 9 October gas talks between Russia and Ukraine, Ukrainian
TV said the agreed procedure of settling Ukraine's gas debt was as obscure
as the way in which it was accumulated. The TV said that it remained unclear
why Kiev did nothing about the debt until Moscow threatened to cut off gas
supplies.

The TV also wondered why the debt - according to Russia - nearly doubled
within one week. It quoted President Putin as "correcting" Russian Prime
Minister Viktor Zubkov and saying that Ukraine owed 1.3bn dollars in gas
debt to Russia, not 2bn dollars. (One Plus One TV, Kiev, in Ukrainian 1630
gmt 9 Oct 07)

Ukraine wants to restore direct relations between the state gas company
Naftohaz Ukrayiny and Gazprom in order to make its gas sector more
transparent, a senior presidential official said. First deputy head of the
Presidential Secretariat, Oleksandr Shlapak, told journalists local utility
companies owe Naftohaz 700m dollars in overdue bills. (Delo, Kiev, in
Russian 9 Oct 07; p 3)

Under a coalition accord concluded by the opposition Yuliya Tymoshenko
Bloc and propresidential Our Ukraine-People's Self-Defence bloc, the
alliance will seek to do away with intermediaries supplying gas to Ukraine.

"We shall continue cooperation with Russia, Central Asian countries and
other partners on the basis of long-term, transparent and
mutually-beneficial contracts without shadowy intermediaries," the document
says.

The coalition will seek a higher level of energy security "by reducing
critical dependence on the sole source of energy imports and diversifying
the delivery options". (ITAR-TASS news agency, Moscow, in Russian
1635 gmt 17 Oct 07)

The first deputy leader of the Yuliya Tymoshenko Bloc, Oleksandr Turchynov,
accused the cabinet of incompetence and said Ukraine could be left with no
fuel at the start of the winter. He said that the National Security and
Defence Council should convene to discuss the situation. (Interfax-Ukraine
news agency, Kiev, in Russian 1445 gmt 9 Oct 07)
MILITARY CONSCRIPTION
National Security and Defence Council secretary Ivan Plyushch has criticized
Yuliya Tymoshenko's demands that military conscription be abolished starting
from 2008.

He said it is dangerous for political parties to issue ultimatums concerning
security. "It is up to the appropriate state agencies to approve such
decisions," he said.

"They should be adopted on the basis of consensus, which takes into account
the positions of the president, the ruling coalition and civil society
institutions after they have been discussed by the National Security and
Defence Council."

A coalition agreement between the Yuliya Tymoshenko Bloc and the
pro-presidential Our Ukraine-People's Self-Defence presented on 17 October
includes a commitment to abolish conscription from 1 January 2008, in line
with an election promise by the Tymoshenko bloc (UNIAN news agency, Kiev,
in Ukrainian 0822 gmt 18 Oct 07, Interfax-Ukraine news agency, Kiev, in
Russian 1540 gmt 17 Oct 07)

Defence Minister Anatoliy Hrytsenko said it was unrealistic to abolish
contract service in 2008 and that the Ukrainian army would make a full
switch to contract service in 2010.

"As for the abolition of conscription on 1 January 2008, I would like to
note that you could also sign an agreement on scrapping Newton's three laws
for good measure," he said. (Interfax-Ukraine news agency, Kiev, in Russian
0521 gmt 18 Oct 07)

Propresidential Our Ukraine-People's Self-Defence bloc leader Yuriy Lutsenko
said it was up to the National Security and Defence Council to decide when
to abolish compulsory army service. However, he said, he trusted
Tymoshenko's calculations and economic judgment. (5 Kanal TV, Kiev, in
Ukrainian 0600 gmt 18 Oct 07)

President Viktor Yushchenko on 24 October decreed army conscription in 2008,
contrary to Tymoshenko's demands. The head of the presidential secretariat,
Viktor Baloha, said that next year's conscription does not contradict the
president's initiative to transfer the army to the contractual basis.
(ITAR-TASS news agency, Moscow, in Russian 1556 gmt 24 Oct 07)
MORE CONTROL OVER SECURITY AGENCIES
Viktor Yushchenko demanded direct control of the interior and defence
ministries. On 8 October, he told the leaders of the parties which scored
most votes in the 30 September parliamentary election that "the whole of the
power-wielding bloc should be subordinated to the head of state".

The Ukrainian president is formally the commander-in-chief of the armed
forces, but defence minister formally reports to the prime minister.
(Interfax-Ukraine news agency, Kiev, in Russian 1235 gmt 8 Oct 07)

President Viktor Yushchenko issued a decree giving himself the right to
appoint the heads of regional offices of the Security Service, its
Antiterrorist Centre, the centre for special antiterrorist operations, the
protection of participants in criminal proceedings and law-enforcement
officers. (Interfax-Ukraine news agency, Kiev, in Russian 1139 gmt 9 Oct 07)
RESHUFFLE IN SECURITY AGENCIES
President Viktor Yushchenko dismissed a deputy head of the Security Service
of Ukraine, Oleksandr Skypalskyy. He also cut the number of SBU deputy heads
from eight to seven. (UNIAN news agency, Kiev, in Ukrainian 24 Oct 07)

President Viktor Yushchenko replaced deputy SBU head Valeriy Pidbolyachnyy
with Tiberiy Durdynets, who was chief of the Security Service directorate in
the Transcarpathian Region.

Durdynets was also appointed as head of the SBU's main directorate for
counteracting corruption and organized crime. (UNIAN news agency, Kiev, in
Ukrainian 1353 gmt 19 Oct 07, Interfax-Ukraine news agency, Kiev, in Russian
0916 gmt 19 Oct 07)

President Viktor Yushchenko also dismissed deputy secretary of the National
Security and Defence Council Oleksandr Sadykov. No reason for the dismissal
was given. Sadykov was appointed to the post on 10 July 2007.
(Interfax-Ukraine news agency, Kiev, in Russian 0734 gmt 24 Oct 07)

Viktor Yushchenko appointed Serhiy Chalyy as chief of the centre for special
operations in combating terrorism and for protection of participants in
criminal court proceedings and law enforcers of the Security Service of
Ukraine. Chalyy is a general and commander of the SBU's Alfa special
antiterrorist unit. (Interfax-Ukraine news agency, Kiev, in Russian 3 Oct 07)
OIL REFINERY ROW
The board chairman of Ukraine's biggest oil refinery, Ukrtatnafta's refinery
in Kremenchuk, accused shareholders from Russia's Tatarstan of trying to
seize control of the company.

Pavlo Ovcharenko, who was recently restored to the post by a court, said his
predecessor deliberately ran up debts to Tatar shareholders so that they
would be able to increase their stake.

In a letter to the Ukrainian president and top security officials Ovcharenko
said this posed a threat to national security and accused Deputy Prime
Minister Andriy Klyuyev of involvement.

Ukraine owns a 43-per-cent stake in Ukrtatnafta, Russia's Tatarstan Ministry
of Property and Land Resources 28.77 per cent and Russian oil company
Tatneft 8.61 per cent. (UNIAN news agency, Kiev, in Ukrainian 1422 gmt 22
Oct 07)

The police in Ukraine later said they have prevented Pavlo Ovcharenko from
"seizing control" of Ukrtatnafta. The proUA website on 25 October quoted a
police statement as saying that 22 people have been charged with
administrative offences.

Tatarstan President Mentimer Shaymiyev said he was outraged by events at
Ukrtatnafta. "Ukraine is seizing our property like a bunch of gangsters," he
said. (proUA.com website, Kiev, in Russian 25 Oct 07; Interfax-Ukraine news
agency, Kiev, in Russian 0619 gmt 25 Oct 07)

The Kremenchuk oil refinery is seeking new suppliers of oil, a business
daily reported. This comes after one of the company's shareholders, Russian
Tatneft in Tatarstan, turned off the tap. It did this in protest against a
change of the company's top management.

The reinstated chairman of Ukrtatnafta, Pavlo Ovcharenko, may have
difficulties signing new agreements owing to the company's considerable
debts, the newspaper said. (Delo, Kiev, in Russian 24 Oct 07; p 6)
EFFORTS TO FIGHT XENOPHOBIA
The Security Service of Ukraine is setting up units to fight xenophobia and
ethnic hate, following President Yushchenko's orders, SBU spokeswoman
Maryna Ostapenko told a news conference on 24 October.

She said Ukraine has so far managed to prevent the emergence of stable
extremist groups propagating racism or religious hate. (UNIAN news agency,
Kiev, in Ukrainian 1021 gmt 24 Oct 07)

President Victor Yushchenko on 22 October met members of the Jewish
community and Ukraine's intellectual elite to discuss ways of protecting
Jews in Ukraine, their rights and the fight against xenophobia.

Yushchenko assured them Ukraine could resolve their problems and added
that cooperation and mutual support were important for achieving this.

He also urged the Jewish community not to fall for "provocations" aimed at
making its members an instrument of pressure and speculation. Yushchenko
thinks such actions might be masterminded by "external directors" who plan
to cause instability and chaos in Ukraine. (Ukrainian president's website,
Kiev, in English 22 Oct 07)
HOVERLA MOUNT VANDALISM
A Russia-based youth organization, the Eurasian Youth Union, reported that
its activists have demolished national symbols of Ukraine on the country's
highest peak Hoverla in the Carpathian mountains. The action was meant to
show that the days of independent Ukraine "are numbered".

"The act of vandalism on the Hoverla is a cynical attempt on the Ukrainian
values and a blatant challenge to the authorities and the public," the head
of the Ukrainian presidential secretariat, Viktor Baloha, said.
(Korrespondent.net web site, Kiev, in Russian, 1529 gmt 18 Oct 07, UNIAN
news agency, Kiev, in Ukrainian 1303 gmt 19 Oct 07)

The Security Service of Ukraine (SBU) restored an entry ban on Eurasia Youth
Union leaders, Russian citizens Pavel Zarifullin and Oleksandr Dugin. The
SBU press service said that the two had been banned from visiting Ukraine in
2006, but the ban was lifted following agreements with Moscow.

The SBU also demanded the extradition from Russia of suspected Hoverla
vandals. (UNIAN news agency, Kiev, in Ukrainian 0847 gmt 24 Oct 07, One
Plus One TV, Kiev, in Ukrainian 1630 gmt 24 Oct 07)
OTHER AGENDA ITEMS
Ukrainian President Viktor Yushchenko issued a decree cutting the number of
official posts that can be occupied by members of the military and security
services.

The decree would stop "the practice of sending military servicemen to
civilian agencies and organizations, including the presidential secretariat,
the government secretariat and parliament's apparatus" presidential
chief-of-staff Viktor Baloha said.

However members of the military continue working at Ukraine's missions in
the EU and NATO, at the Enerhoatom nuclear power company, the national space
agency and Chernobyl power station. (ITAR-TASS news agency, Moscow, in
Russian 1706 gmt 25 Oct 07)

President Viktor Yushchenko said he would not allow the interior troops to
be used in politics. "There should be no place for politics or disciplinary
breach in your ranks. I will not allow the interior forces to be used in
political games," he said. (NTN, Kiev, in Ukrainian 1600 gmt 19 Oct 07)

Under a coalition accord concluded by the opposition Yuliya Tymoshenko Bloc
and propresidential Our Ukraine-People's Self-Defence bloc, Yushchenko's
supporters will nominate the defence and interior ministers.
(Korrespondent.net website, Kiev, in Russian 17 Oct 07, 5 Kanal TV, Kiev, in
Ukrainian 1200 gmt 12 Oct 07)

Special Security Service units held anti-terror exercises in mountainous
areas outside Bakhchysaray, Crimea, on 9-13 October. Practical skills were
tested in conditions which fully resembled real combat situations, local TV
said. (Crimea TV, Simferopol, in Russian 1630 gmt 15 Oct 07)

Yuliya Tymoshenko, who is poised to become Ukraine's next prime minister
after the 30 October parliamentary election, said priorities in relations
with the EU should be energy, security and economic cooperation.

Speaking during a summit of the European People's Party in Lisbon on 18
October, Tymoshenko said the Ukrainian gas supply system should be
enhanced by the construction of additional transit gas pipelines involving
EU countries.

Nuclear fuel supplies to Ukrainian power stations should be diversified, and
Ukraine should cooperate with EU to achieve this, she added.

Speaking about Ukraine's possible participation in the system of collective
European security, she said that Ukraine can start talks on participation in
the security system, even though it is not a member of the EU. (UNIAN news
agency, Kiev, in Ukrainian 0747 gmt 19 Oct 07, UNIAN news agency, Kiev,

in Ukrainian 0805 gmt 19 Oct 07)
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15. UKRAINE - INFLATION: NEW PRICES -- OLD SONGS

COMMENTARY AND ANALYSIS: By Yuriy Skolotiany
Zerkalo Nedeli, Mirror Weekly # 38 (667)
Kyiv, Ukraine, Saturday, 13 - 19 October 2007

September's inflation report published by the State Statistics Committee
on Saturday, 6 October, surpassed the most pessimistic expectations.

In the first autumn month, the consumer price index (CPI) grew by 2.2%,
breaking the September record of the last seven years. Inflation rate over
the first nine months of 2007 reached 8.6%, having exceeded the 2007 budget
estimates (7.5%) three months before the end of year.

The mass media have been overwhelmed with negative emotions stirred up
by the news as every Ukrainian got concerned over the sharp decrease in
purchasing power of the national currency.

The National Bank of Ukraine, which had been standing on the sidelines so
far, responded with additional sterilization measures. The Cabinet of
Ministers, as usual, pretended to be buzzing with activity.

Its head, who had argued a month ago that there was no need to readjust the
inflation forecast, was ranting and raving at the Cabinet session last week,
in annoyance over the unruly foodstuff prices.

Mutual accusations and finger-pointing, common for all political forces,
public agencies and officials in situations like this, traditionally
distracts the public attention from the root causes of the galloping
inflation.

The September statistics on inflation rate are four times as high as the
Ministry of Economy's last projection (0.6%). Only a month ago the Ministry
assured the people that "thanks to effective anti-inflation measures, the
government managed to put an end to the unreasonable price rise and slow
down the inflation". Well, we have got used to incorrect inflation forecasts
and the Ministry's untrustworthy statements.

The consumer price rise in September made experts revise their annual
inflation forecasts. Earlier most of them concurred on the indicator of
10-12%, but they now raise it to 12-14%.

Very few incurable optimists still hope that the CPI escalation in 2007 can
be contained within 10%. Thus, for four successive years inflation in
Ukraine will be registered at a two-digit level (12.3% in 2004; 10.3% in
2005; and 11.6% in 2006).

Whereas the exact value of the inflation rate registered by the State
Statistics Committee came as a surprise to many, the news of its
acceleration did not.

Nervous reaction by the media can hardly be put down to Ukraine's
contriving to surpass, within a month, the annual inflation limit for the
Euro zone, which we aspire to join one day. Membership of the European
Currency Union is a remote prospect.

Yet domestic shops and supermarkets are here and now, and every time you
go there, your family budget registers a dramatic reduction on the revenue
side.

Those who seldom go shopping because of their preoccupation with the
national economic performance must have heard about it from their wives,
mothers, housekeepers or nannies.

Alarming TV reports accompanied with gloomy comments by experts,
salespersons and people in the street have turned into the last nail in the
coffin of the outgoing government.

So assiduously was it hammered into Ukrainians' minds, especially by the
media sympathetic to the incumbent Cabinet's opponents, that one starts
wondering if the price rise was, indeed, engineered by some ill-wishes.

What if it really was a skillfully coordinated PR ruse? What if the
expensive foreign political consultants arranged it during the election
campaign to make their employers happy?

The "plot" version could be true or not, but at the last Cabinet session
Prime Minister Yanukovych ordered the controlling and law enforcement
authorities to look into the price situation at the consumer market.

"The elections are over, and if anybody profiteered from playing politics
with the society. I warn you - it is all over," - the Premier roared,
promising to "find the instigators of this situation who create the price
rush in the country".

Whether the Prosecutor General's Office copes with the task depends on
future political developments. Yet if the recent price shoot-up was really
provoked artificially, there is no hope the Antimonopoly Committee will ever
identify the culprits and bring them to justice.

In most cases, the Committee's evident feebleness suits large businesses
associated with authorities that tend to monopolize their respective
sectors. The Antimonopoly Committee imitates hard work, organizing press
conferences and other public events but never intervening to clamp down on
monopolists.

Even if the rise in prices for foodstuffs was orchestrated by somebody, the
Cabinet of Ministers failed to both anticipate and prevent it. The first
signs of inflation speed-up appeared back in May, intensified in the summer
and gained threatening scales last week.

The government tried to respond: it made statements, signed memoranda,
established maximum retail markups, chastised governors and prepared the
State Reserve interventions on the foodstuff market. Why is it only now that
Viktor Yanukovych commissioned the Ministry of Economy to use intervention
levers? Today, experts call their efficiency into question.

Officials from the Ministry of Economy - Deputy Minister Valeriy Muntiyan,
to be precise, - were unusually frank with the Interfax-Ukraine News Agency,
having finally admitted that the consumer prices would rise "more than by
10%".

Mr Muntiyan added, in passing, that "it is not only the government's fault,
the monetary factor is also at play", accounting for about half of the
current inflation drivers.

Ministerial officials' attempts to pass the buck onto the National Bank of
Ukraine are not totally groundless. Until recently NBU, the key monetary
authority in the country, kept issuing Ukrainian hryvnia in exchange for the
foreign currency purchased in the marketplace but used no anti-inflation
mechanisms, other than partial sterilization of hryvnia through the sale of
deposit certificates to commercial banks.

The NBU behaviour under the circumstances is a separate story; it exposes
the lack of monetary competence in the NBU Board members. Of course, most
Board members appointed by Parliament last autumn and by the President two
years ago are consummate professionals in politics and business.

Some of them are (or used to be) bank owners or major shareholders, and have
good knowledge of banking. Yet there are no monetary policy experts among
them.

Did any of the NBU Board members disagree publicly with its management
practices in the summer when the first disturbing symptoms of growing
inflation started to emerge?

Did all of them believe that in the autumn, on the eve of elections, the
government would refrain from increasing social benefits? Didn't they expect
huge flows of shadow money to penetrate the country in the course of the
election campaign?

Most probably they did not pay attention to those symptoms, feeling
comfortable with the analytics produced by the secretariat.

Of course, Mr Stelmakh is an esteemed NBU Governor and a banking authority
but what if he was wrong? There was no one to challenge his position
expertly and soundly, and the NBU Board should now take responsibility for
the price situation in the country: if you pledge, don't hedge.

The chairman of National Bank Volodymyr Stelmakh has hidden up from the
public opinion. If there were no disputes and assumptions about who and when
would take his post then journalists would forget about him entirely.

According to our sources of information, the possibility of discount rate
rise and the exchange rate corridor broadening (in the direction of Hryvna
strengthening) has been only discussed at NBU board. However, the main bank
of the country is not going to use these measures as they are considered to
be very serious signals to financiers.

National Bank is afraid to undertake any decisive steps which would spread
panic and damage the economy. According to NBU board, the discount rate
rise would make the bankers raise their rates, and this would be a threat to
economical growth.

That's why NBU is going to carry out only additional sterilization measures:
raise the rates on certificates of deposit and refinancing rates to bind
part of the market's surplus liquidity.

Aren't they too slow? Many observers can make an objection to this as NBU
discount rate is just a symbolic instrument and its rising, on the contrary,
could be a very weak anti-inflation step to keep the prices from galloping.

Sterilization is a complicated instrument too. Basically, the instruments
from NBU arsenal to bind the surplus liquidity in the inter-bank market are
more or less effective.

Only serious measures in this direction can suppress economical growth. And
partial measures are not able to help in the fight with consumer prices due
to underdevelopment of financial markets in our country.

So, this way the new government will have to deal with inflation problems if
they don't start to tilt at windmills again of course.

Yesterday's opposition is ready to come back to power. BYT's main economical
ideologists - Viktor Pynzenyk and Sergiy Teriohin - have already stated that
the budget project would be "completely rewritten."

Mr. Teriohin said that "it would a budget of eating away" since "in such a
poor country as Ukraine every budget is condemned to be socially oriented".
And according to Pynzenyk, "the new government would refuse some doubtful
investment programs to save funds for social programs".

This means that the above gentlemen are going to continue to experiment with
the Ukrainian economy. And it looks like our poor economy will have to try
"to digest" those large portions of "manna from heaven", with which they
promised to feed all our citizens.

And to cope with inflation potentially coming not only from a serious rise
in producer's prices (19.6% at the end of this year), but from the rise in
price of gas and other energy supplies, utility costs rise and so on.

Our already not very healthy economy might get "indigestion" caused by
these amounts of food. But it seems that there is no point in asking our
politicians to use common sense.

In the fight for the voters support oriented toward the 2009 Presidential
elections, they would probably choose the simplest way to please the most
numerous group of the citizens.

We should remember that four out of five Ukrainians (80%) think that the
state should guarantee jobs and low prices (World Bank/European Bank for
Reconstruction and Development research Life during the Transitional
Period).

We can of course say that the present processes are natural as we are just
passing through the stage of recovery, restoring the capitalization lost in
the mid-90s, and liquidating disproportions that appeared during that time.

But there are doubts about that because the total volume of industrial
production in Ukraine is 10% as high as in 1990. This figure is given in
comparable prices with correction for inflation rate.

Consumption (using the same correction for inflation rate) is higher than in
1990 also, but investments have just reached one third of their 1990 level.

And during the last not full seven years the average wage (with correction
for inflation rate) has risen more than three times, at the same time when
labor productivity has risen only about 1.5 times.

And the speed of our economic growth almost 100% correlates to the
dynamics of prices of metal in the world, i.e. depends on global economic
trends.

Where are the sober-minded men, who should understand that after the housing
crisis in the USA and the world financial fever caused by it, there is a
possibility of recession in the world economy? Setting hopes on the Chinese
and other Asians to certainly save the world economy is at least carefree.

And the statements of many respected Ukrainian bankers, which say that
nothing bad will happen to the Ukrainian economy, are also carefree. They
say that business has almost separated from power and entrepreneurs will
take loans anyway in order to develop their businesses. Will they?
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LINK: http://www.mw.ua/2000/2020/60764/
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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16. UKRAINE'S POST-ELECTION SCENARIOS

bne (Business New Europe), Berlin, German, Monday, Oct 22, 2007

While a degree of uncertainty lingers over the final outcome of
post-election negotiations in Ukraine, the ex-Prime Minister Yulia
Tymoshenko remains the only candidate to replace the current head of
the government.

This has prompted a largely bullish capital market reaction underpinned by
mostly positive expectations for the economy.

The exact composition of the next government is going to remain subject to
speculation until the parliament actually votes on the new government in
early November.

The bets are on the Orange coalition parties dividing up most of ministerial
portfolios amongst themselves with some possible concessions to the Party
of Regions. President Viktor Yuschenko, too, seems to have come to terms

With major support from The Bleyzer Foundation, Kyiv
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