Catherine Belton, Roman Olearchyk, Financial Times (FT)

London, United Kingdom, Tuesday, Feb 12, 2008

Andrew E. Kramer, The New York Times,

New York, New York, Wed, February 13, 2008

10th-12th March 2008, London, United Kingdom
========================================================
1. UKRAINE'S OUTSTANDING OPIC DEBT: A

U.S. Overseas Private Investment Corporation (OPIC)

By Jim Davis, Business Ukraine magazine
Kyiv, Ukraine, Monday, February 11, 2008

Amid all the fanfare that has accompanied the signing of a protocol which
will bring Ukraine WTO membership, it is worth noting that a disagreement
over a relatively small amount of money has made it impossible for Ukraine
to enjoy the benefits of an obscure but extremely important agency of the
United States government, the Overseas Private Investment Corporation
(OPIC).

Estimates made by well-informed persons involved in the process relating to
OPIC would suggest that had the problem could have been resolved when it
first arose in 1999, Ukraine could have gained an absolute minimum of an
additional USD 5 - 10 billion in foreign direct investment - and probably a
lot more than that.

The issue could have been solved years ago, but it was as is so often the
case it is a problem for which no one had primary responsibility on the
Ukrainian side.

All those, i.e. the various ministers, who had parts of the responsibility
within their jurisdictions failed to understand the overall importance of
the issue and therefore guarded their own turf rather than that of the state
as a whole.

The end result has been to deny the Ukrainian economy one of the tools that
could have been attracting investment into the country ever since, with a
potential opportunity cost running into the billions of dollars.
A SIMPLE PROBLEM MADE COMPLEX
The matter involves the non-payment of a state debt incurred by the Ministry
of Defence about ten years ago at a time when the needs of various
ministries were seriously under-funded and ministers were prone to making
deals first and worrying about payment later.

The debt in question was covered by OPIC political risk insurance. OPIC paid
the claim to the insured U.S. supplier and looked to Ukraine to ultimately
make good on the original agreement, as was called for in the Ukraine-OPIC
agreement.

The amount of the claim, approximately USD 17 million, is quite small when
viewed in the light of the overall budget of Ukraine.

Andrew E. Kramer, The New York Times,

New York, New York, Wed, February 13, 2008

MOSCOW-The presidents of Russia and Ukraine averted a threatened

cutoff of natural gas supplies to Ukraine on Tuesday, at the same time that
Russia's president said his country might aim nuclear missiles at Ukraine
if it followed through on its intention to join NATO.

"It's horrible to say and even horrible to think," President Vladimir
V. Putin of Russia said about the prospect of possibly aiming missiles
at Ukraine.

Mr. Putin made the remarks in response to a question at a Kremlin news
conference. After speaking for a time about Ukraine's long cultural ties
to Russia, he said that NATO might deploy antimissile systems in Ukraine,
and that Russia would have to respond.

"Russia could target its missile systems at Ukraine," he said. "Imagine
that for a second."

Ukraine's president, Viktor A. Yushchenko, who was sitting beside Mr. Putin
at the news conference, responded, saying that Ukraine had the right to
choose its own alliances and that his country's Constitution prohibited
foreign military bases on its territory.

Mr. Putin and Mr. Yushchenko called the news conference to announce that
they had resolved a dispute just minutes before the deadline for
a threatened midwinter shutoff of a quarter of Ukraine's heating fuel.

Last Thursday, Gazprom, the world's largest natural gas producer and
a monopoly half-owned by the Russian government, demanded a settlement
for what it said was $1.5 billion in debt and threatened to halt
25 percent of Ukraine's natural gas supply at 6 p.m. on Tuesday.
The two leaders announced the deal a few minutes before 6 p.m.

The disagreement had worried European governments because 80 percent of
Gazprom's supplies to Western Europe cross Ukrainian territory, snaking
through a network of old Soviet-designed pipelines from gas wells in
the Arctic to homes and factories in the West.

Mr. Yushchenko said Ukraine would start repaying the Gazprom debt on
Thursday.

Two years ago, Gazprom halted shipments of natural gas to Ukraine in
the middle of winter in another dispute. That was a year after the so-
called Orange Revolution installed Mr. Yushchenko's pro-Western government
in Kiev, leading critics to call the shutoff politically motivated, which
Gazprom denied.

The latest dispute, too, follows a change in government in Kiev.
Yulia V. Tymoshenko, a leader of the Orange Revolution, resumed her
duties as prime minister after elections last fall. Ms. Tymoshenko has
said Ukraine should revise what it charges Gazprom to ship gas across
its territory.

Gazprom's threat to cut off the gas came 22 days after Ukraine's pro-
Western leaders formally applied to be put on a path to NATO membership.

The letter, signed by the president, the prime minister and the speaker of
Parliament, asked Secretary General Jaap de Hoop Scheffer of NATO to review
Ukraine's status in time for an alliance summit meeting in April in Romania.

In perhaps a favorable sign for Ukraine's request, President Bush will
attend the meeting and is to visit Ukraine afterward, Bloomberg News
reported.
-----------------------------------------------------------------------------------------------------
www.nytimes.com/2008/02/13/world/europe/13ukraine.html?_r=1&oref=slogin
-----------------------------------------------------------------------------------------------------

By Alla Yeremenko, Yulia Mostovaya
Zerkalo Nedeli (Mirror Weekly), # 6 (685)

Kyiv, Ukraine, Monday, February 18, 2008

On February 12, after three hours of negotiations, Presidents Viktor
Yushchenko and Vladimir Putin found a new formula of gas cooperation
between Ukraine and Russia. They announced that Ukraine's Naftogaz
and Russia's Gazprom would found two joint ventures on parity terms.

The news inspired hopes that Ukraine would get rid of the much hated
intermediary companies RosUkrEnergo and UkrGazEnergo.

Viktor Yushchenko sounded satisfied with the agreements reached in
Moscow and Prime Minister Yulia Tymoshenko called them "a victory of
the democratic team."
SAME OLD STORY
On second thought, the agreement does not look that encouraging.

The day after the talks between Yushchenko and Putin, the latter's
future successor and currently first vice-premier Dmitriy Medvedev
stated quite unambiguously, "Most probably, we will need an
intermediary, because Ukraine can not afford any prices higher than
the price of Central Asian natural gas, i.e. 179 dollars per thousand
cu m."

He stressed that it would be impossible to deliver Central Asian natural
gas to Ukraine without intermediaries. "The contracts already concluded
will have to be fulfilled by intermediaries, no matter what you may name
them," Medvedev said.

At the same time, he stated Russia's readiness to supply its gas without
go-betweens.

"We may as well supply our gas without go-betweens. All we need is money.
But the moment Ukraine begins to buy Russian gas instead of Turkmen gas
the price will grow by a third. That is too much for Ukraine's economy,"
Medvedev warned, reiterating Russia's readiness "for any forms of
cooperation with Ukraine in natural gas supply."

One of the possible "forms of cooperation" was disclosed on February
14 by MP Yuriy Miroshnichenko of the Regions Party. On the live talk
show "I Think So" on 1+1 TV channel he quoted some excerpts from
a draft agreement on founding two new Russo-Ukrainian joint ventures.

The document (which may not be the only one up Gazprom's sleeve)
contains anything but parity terms. On February 15 Naftogaz came up
with a feeble statement, saying that "the contents of the quoted
document contradicted the agreements reached by the Presidents of
Ukraine and Russia and the positions of the negotiating sides."

However, Naftogaz did not refute the existence of that draft
agreement or the fact that Gazprom had offered it to Naftogaz.
Neither did Gazprom.

What would suit Naftogaz in the new joint venture? On the external
market it hopes to have a vote in price talks with Turkmenistan,
Uzbekistan, and Kazakhstan, thus having a hand in the delivery of
natural gas to the Russia-Ukraine borderline. Naftogaz would like to
have partial access to Central Asian gas (which is now under the full
control of Gazprom's daughter company Gazpromexport).

Naftogaz also hopes to get a quota for export of natural gas to Europe
(albeit within the joint venture) and thus be able to export surplus
amounts.

In 2006 RosUkrEnergo exported some 9 billion cu m of gas via Ukraine,
declaring $95 per 1,000 cu m at customs and selling it at $300. It is
easy to calculate how much Ukraine could have earned but for that
go-between. In 2007 RosUkrEnergo exported some 7 billion cu m.

The scheme was the same: declaring $130 at customs, RosUkrEnergo
sold the same gas at $300 - $400.

Naftogaz would like to buy up and dispose of all gas delivered to
the Ukrainian border. However, the Russian version of the gas
agreement states the following: "The natural gas supplied to
Ukraine and extracted on Ukraine's territory is meant exclusively
for Ukrainian consumers and may not be sold beyond Ukraine's
border."

This definitely means a ban on exporting gas, which Ukraine hoped
for when trying to get rid of RosUkrEnergo.

In the meantime, RUE stays on the market, and not only as an
intermediary supplier but also as the monopoly exporter of gas to
Europe (under active long-term contracts).

The future joint venture is supposed to receive natural gas from
Gazpromexport (or another company affiliated with Gazprom). Annual
contracted supplies (currently owned by RUE) are to consist of:

- 40,500M cu m of Turkmen natural gas at $130.75 per 1,000 cu m in
the first semester of 2008 and $150.75 from July 1;

- 10,500M cu m of Uzbek natural gas at $130.75 per 1,000 cu m in
the first semester of 2008 and $160.75 from July 1;

- 4,000M cu m of Kazakh natural gas (the price is not set).

The tentative agreement proceeds from the current annual quota for
supplies of Central Asian gas to Ukraine - 55 billion cu m. Besides,
the new joint venture is to start operating in April at the earliest.

Interestingly, the Russians want the joint venture to be registered in
Switzerland (just like RUE). Someone must be very reluctant to leave
the friendly canton of Zug where taxes are so low.

Here is another excerpt from the Russian draft of the Agreement on
Development of Relations in the Gas Sector:

"2. Establishment of the JV

2.1. . The parties have agreed to found on parity terms (each holding
50% in the statutory fund) Joint Venture 1 and Joint Venture 2."

JV 1, tentatively named Rosukrgaz AG, will be registered in the Swiss
canton of Zug for . "supplying natural gas to Ukraine."
PIKE SENTENCED TO DROWNING
The Russian authors of the draft agreement see Joint Venture 2 as
a limited liability company or a closed holding selling natural
gas to industrial and other consumers.

Prima facie, the new company is meant to solve two big problems
created by UkrGazEnergo since it was founded in 2006:

a) the supplier is unreliable; b) the supplier tends to overcharge
Ukrainian consumers, especially the most solvent category -
industrial companies.

By hook or by crook, in late 2007 UGE became the monopoly supplier
of natural gas to all big industrial consumers in Ukraine.

Moreover, consumers had to pay UGE for storage of gas in underground
gasholders. As the monopoly, UGE was now able to dictate its terms to all
industrial enterprises in this country.

Russian companies already own four of six Ukrainian oil refineries.
We all remember too well how they stopped as one "for scheduled
maintenance," creating gasoline shortage crises in the country.
Now it looks like Ukraine is going to be vulnerable to crises in
other sectors that depend on natural gas.

UGE controls the industrial segment of the national market. Now,
through JV 2, Gazprom will get its hands on practically all
segments, including the socially important ones. And once it gets
its foot in the door, it will never leave.

The authors of the draft agreement set another trap: they mean to
authorize JV 2 "to sell the whole amount of natural gas - both
imported and extracted on Ukraine's territory."

This means that Naftogaz, which extracts natural gas in Ukraine and
sells it to households, governmental structures, and public utility
enterprises, will have no right to dispose of it! In other words,
this means direct sociopolitical climate control in Ukraine from
the Kremlin (through Gazprom's office).

What if that JV 2 decides to raise the price for households on
the eve (or instead) of a presidential or parliamentary election?

Furthermore, the draft agreement says that in case JV 2 is not
starting to operate in April 2008, UkrGazEnergo may possibly be used
instead of it.

According to our sources, the Russians even accept Voronin as
the president of JV 2. Everything is simple. Thus, we don't really
need to change the name "UkrGazEnergo".

Creation of JV 2 will double the Russian part in the Ukrainian gas
distribution sector. This is a very expensive way to get cheap gas.

We should also remember that two days ago a quadripartite commission
on revision of gas supplies and payments started its work in Moscow.

This commission is made up of the representatives of Gazprom,
Naftogaz, RosUkrEnergo and UkrGazEnergo. We believe that someone
will be surprised with the results of the revision when he finds
out how much money was stolen.
WHAT SHOULD BE SACRIFICED: RATINGS OR INDEPENDENCE?
It looks like neither the President nor the Prime-Minister or new
Naftogaz's management is satisfied with the proposition from the Russian
side. However, every one of them could be satisfied with completely
different results of negotiation talks.

The President could be satisfied with no results at all as long as
Ukraine receives gas for USD 179.5. He could also accept Voronin and
Firtash in charge of UkrGazEnergo.

The President indicates that the price of gas is much more important
than the scheme employed for its supply and distribution in the country.

In fact, most Ukrainian citizens support the President in this matter.
What can we add here?

Yulia Tymoshenko will be very disappointed if the Russian and Ukrainian
sides don't reach an agreement before April 1, 2008 - the deadline defined
by the Russians. If the agreements reached during negotiations include at
least half of the terms stated in the abovementioned draft, this will
hardly bring any positive changes for Ukraine.

However, Yulia Volodymyrivna is ready to sacrifice the country's interests
for the low price of gas and liquidation of RUE. Naftogas is receiving

directives from both the Presidential Secretariat and the Cabinet of Ministers.

Besides, it should follow the price policy defined by Yushchenko and
Tymoshenko: Ukraine should receive "cheap" gas since neither the Prime
Minister nor the President want to make decisions that would negatively
influence their ratings before the upcoming elections of 2009.

At the same time, Naftogaz is not provided with information about
Gazprom's internal tendencies that could be helpful during
the negotiations.

Naftogaz is not provided with necessary information about the Central
Asian region; Naftogaz often receives contradictory orders from
the Presidential Secretariat and The Cabinet of Ministers...

It is thoughtless to say that liquidation of RUE will automatically
make the existing gas supply scheme transparent.

The only possible transparent gas supply scheme is the one in which

a) Ukraine buys gas from Russia for market price, i.e. for USD 314;
b) Russia pays market price for gas transit and gas storage in
Ukrainian underground storage facilities;
c) Naftogaz transparently distributes gas inside the country;
d) the government provides budget and utilities sectors with gas
produced in Ukraine and is not worried about the price of gas for
the enterprises of Akhmetov, Firtash, Pinchuk or Indian investors.

If we begin to buy gas for European prices and use transparent
schemes in the gas sphere, we will be able to increase our national
gas production, re-equip our power-consuming industries and
cultivate development of alternative sources of energy.

It could be a strong impulse for technological progress and a real
step towards strengthening of national security.

However, neither Tymoshenko nor Yushchenko is ready for this step.
Notwithstanding the fact that their teams have people who agree with
this transparent gas supply scheme, there is no hope that it will be
implemented in our country this year. Eventually, we will receive gas
for European prices.

This will happen much earlier than we think. However, by legalizing
Gazprom in our market, we won't have any impulse for re-equipping
the power-consuming industries - we will live under the patronage of
Gazprom.

Thus, Tymoshenko, Yushchenko and Yanukovych should take the risks

of losing their ratings and make the decision about buying gas for
European prices.

They also should do everything to make this process less painful for
the citizens. Otherwise, all talk about transparent schemes, national
security, technical re-equipment and eliminating corruption will be
just talk.
------------------------------------------------------------------------------------------------
LINK: http://www.mw.ua/1000/1550/62086/
-----------------------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================

U.S.-Ukraine Business Council (USUBC)

Washington, D.C., November 2007

WASHINGTON, D.C. - The Executive Committee of the U.S.-Ukraine

Business Council (USUBC) is pleased to announce that UPS has been

approved as the forty-ninth member of the USUBC, according to
Morgan Williams, SigmaBleyzer, President of USUBC.

USUBC met with Arnold F. Wellman, Vice President, Corporate
Public Affairs, Domestic/International, in Washington. Mr. Wellman
confirmed the very strong business interest UPS has in Ukraine and
the desire of UPS to become a member of USUBC. He will represent
UPS on the USUBC board of directors. Svetlana Tidiakina is the

Country Manager for UPS in Kyiv, Ukraine.

The USUBC welcomes UPS into our rapidly growing membership.
UPS has over 300 employees in Ukraine and provides services to
many Ukrainian cities.

UPS was founded in Seattle, Washington on August 28, 1907 and
thus are celebrating 100 years of service.

Mr. Wellman has been to Ukraine many times and just recently
returned from a one week trip there. Arnold many times goes to the
Ukrainian village of Nizankowice, on the far western border near
Poland, where he works on a People-To-People project UPS has
implemented to support the development of the local school and
also to provide computers and satellite Internet connection.

UPS also has a People-To-People project in the neighboring small
villages of Lipa and Sierakosce, Poland. Last year, 80 UPS employees
from 11 countries built a fully functioning 38-foot by 42-foot computer
lab, complete with high-tech computers, printers, software, and training
for students, teachers, and residents in Lipa.

The People-To-People project is a part of UPS' unique strategy to
personally get to know and understand the residents of a rural
community in a country where the company is doing business.

UPS has adopted a distinctly different approach to entering a new
market by encouraging its employees to immerse themselves in the
local culture as they work side-by-side with residents of the community
to improve their way of life.

The UPS Foundation enables nonprofit organizations to serve
communities more effectively around the world. The UPS
Foundation's global giving focus addresses three areas: literacy,
hunger and volunteerism (www.community.ups.com).

the European Union

Conference co-sponsored by:
The Harvard Ukrainian Research Institute and
The Davis Center for Russian and Eurasian Studies

Session 1. Actors, Agendas and Interests
Friday, March 7, 2008
9:15 a.m.-12:00 noon

Session 2. Gas Trade and Energy Security: The Impact on National

and International Politics
Friday, March 7, 2008
2:15-5:00 p.m.

Session 3. From Producer to Consumer: Transit, Prices, and Informal
Institutions
Saturday, March 8, 2008
9:15 a.m.-12:00 noon

All sessions held at Case Study Room, CGIS, 1730 Cambridge St.,

Cambridge, MA.

Speakers will include:
Rawi Abdelal, Margarita M. Balmaceda, Gene Fishel, Roman

Kupchinsky, Taras Kuzio, Martha Brill Olcott, Ferdinand Pavel, Carol

Saivetz, Volodymyr Saprykin, Alla Yeriomenko, and other specialists

from Ukraine, Russia, Europe and North America

----------------------------------------------------------------------------------------
LINK: http://www.huri.harvard.edu/calendar.html#2008_3_7-8