US-Ukraine Business Council

UKRAINE BUSINESS NEWS - SIX ARTICLES
No More Berlin Walls: Europe Won't Be 'Whole and Free' Until Ukrainians Can Pursure Their Chosen Path; Economy Shows Glimmer of Hope; United Coal Co
May 5, 2009

2. E.U. LOOKS EAST WITH INCREASING ANXIETY
By Stephen Castle, The New York Times, New York, NY, Mon, May 4, 2009

3. EUROPE: DEMOCRACY FAILING UNDER RUSSIAN SHADOW
Analysis & Commentary: by Kester Kenn Klomegah
Inter Press Service (IPS), Rome, Italy, Monday, May 4, 2009

4. UKRAINIAN ECONOMY SHOWS GLIMMER OF HOPE FOR REBOUND AFTER SHARP FALL
By Roman Olearchyk in Kiev, Financial Times, London, UK, Monday, May 4 2009

5. UKRAINE OLIGARCH BUYS UNITED STATES COAL GROUP
By Roman Olearchyk in Kiev, Financial Times, London, UK, Friday, May 1, 2009

6. INVESTOR RADAR - UKRAINE, BELARUS, MOLDOVA
Reuters, Kiev, Ukraine, Tue May 5, 2009
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1. NO MORE BERLIN WALLS
Europe won't be 'whole and free' until Ukrainians can pursue their chosen path.

OPINION: By Aleksander Kwasniewski, President of Poland, 1995-2005
Wall Street Journal Europe, NY, NY, Tuesday, May 5, 2009

It will be 20 years later this month since President George H.W. Bush delivered his historic call for a "Europe whole and free" in Mainz, West Germany. The context in which he spoke was one of optimism and change made possible by Mikhail Gorbachev's reforms.

Four days later, Poland held its first competitive, multiparty elections in more than half a century. By the end of the year the Berlin Wall lay in ruins and a surge of people power had dismantled one-party rule from the Baltics to the Black Sea. The Soviet Union survived for another two years, but its fate had effectively been sealed.

The old Europe of Great Power rivalry, 'machtpolitik' and spheres of influence was to become a thing of the past. There would be no more Yaltas, no more Berlin Walls. The prospect of European Union enlargement helped to sustain former communist countries in the difficult task of political and economic reform. Ten of them are now full members, contributing to the EU's vitality.

More controversially, NATO has also expanded to the east. In countries accustomed to the benefits of security and territorial integrity, this is often dismissed as a second-order issue.

For the countries that have joined NATO more recently, it is anything but. It is an affirmation of their identity as part of the democratic world and the ultimate guarantee of their sovereign independence. As Madeleine Albright, U.S. secretary of state at the time, told the foreign ministers of Poland, Hungary and the Czech Republic when their countries joined: "Never again will your fates be tossed around like poker chips on a bargaining table."

Despite these achievements, the process of making Europe "whole and free" is incomplete -- and will remain so as long as there are Europeans denied the opportunity to pursue their chosen path. That was the tragedy of the Western Balkans for much of the 1990s. Today, the area of greatest concern is Ukraine.

This country of 46 million is too large and too important to be left out of our vision of the Continent's future. Yet the West's approach to Ukraine has been hesitant and confused, while the early momentum of the Orange Revolution seems to have stalled in the face of political and economic crisis.

European leaders lament the political divisions and slow pace of reform often found in Ukraine. Many of these criticisms are justified and need to be addressed by the leaders in Kiev. But that lack of progress is, to a considerable extent, a reflection of our failure to embrace the country in a way that endorses its ambition to play a full role in European affairs.

There is a reason why reform and accession to the EU and NATO usually go hand in hand. It's because the prospect of membership makes painful decisions electorally acceptable where they would otherwise be impossible. It isn't realistic to expect European outcomes without a full European commitment.

Our policy toward Ukraine is thus a question of whether we remain faithful to the idea of a Europe whole and free. This raises problems when dealing with a Russian government that regards neighboring countries as part of what Russian President Dmitry Medvedev has described as its area of "privileged interests."

But while sensitive handling is certainly called for, it would be wholly wrong to treat Ukraine as a disposable asset in negotiations between Russia and the West -- a poker chip, as Madeleine Albright put it. Ukraine is an independent European democracy entitled to the same rights and opportunities we claim for ourselves.

It is right for Barack Obama to give Russia the opportunity to set aside recent tensions and make a fresh start in relations with the West, just as it is understandable that German Chancellor Angela Merkel should want Russia to be a reliable partner and energy supplier.

But it is vital that European and American leaders pursue the aim of a better relationship with Moscow in ways that honor the basic values on which the new Europe has been built. Undermining the principle of self-determination for any European country should not be considered a price worth paying for closer ties to Russia.

EU or NATO membership for Ukraine is not on the immediate agenda, so there is no point in turning it into an issue of division today. The real test is whether Ukraine will be given the same opportunities extended to other European countries. It needs a structured partnership with both organizations and a firm signal that membership is attainable if it meets the conditions.

This is not a question of altruism. The recent energy agreement between the EU and Ukraine, for which President Viktor Yushchenko deserves real credit, is a good example of what Europe stands to gain from encouraging closer integration.

Europe has been transformed since the days of the Cold War, but it is not yet whole and it is not completely free. It cannot be either of those things if 46 million Europeans are denied the right to take part. It is time for Europe and America to embrace Ukraine and renew the promise of 1989.

LINK: http://online.wsj.com/article/SB124146747599584407.html
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2. E.U. LOOKS EAST WITH INCREASING ANXIETY

By Stephen Castle, The New York Times, New York, NY, Mon, May 4, 2009

BRUSSELS - Once seen as a means of drawing countries away from Russia’s sphere of influence, a European Union plan to strengthen its bond with six former Soviet republics now has a more urgent purpose: to stabilize a volatile region.

On Thursday, Prague will play host to a summit meeting designed to embrace the six states - Armenia, Azerbaijan, Belarus, Georgia, Ukraine and Moldova — under a plan called the Eastern Partnership. The original goal was to present the 27-nation European Union bloc as an alternative to Moscow as a regional power center by offering greater engagement on economic and political issues.

But political instability and deteriorating economies in some of these states has alarmed powers in the West, especially Germany, and intensified concern that the East-West divide will only deepen if troubled countries fall back into alignment with Russia.

“There are new priorities on the agenda which were not so obvious last year,” said Nicu Popescu, a research fellow for the European Council on Foreign Relations, “including the need to stabilize these countries, which are moving from one crisis to another. The focus is less on structural adjustments or institution-building and more on crisis management.”

In a sign of how seriously Germany views the situation, its chancellor, Angela Merkel, has decided to attend the summit meeting. Her presence gives vital political heft to hopes that the E.U. can shape events in the region.

Neither Nicolas Sarkozy, the French president, nor Britain’s prime minister, Gordon Brown, have yet confirmed their attendance and both are likely to send ministers rather than traveling to Prague.

Last week the German foreign minister, Frank-Walter Steinmeier, highlighted the deteriorating conditions in Ukraine, noting that “the economic situation is worsening on a daily basis.” There is, he added, a “blockade at the top of level of the government” and the deadlock is “heightened by tensions between Ukraine and Russia.”

Moldova is another country in turmoil. After riots last month, President Vladimir Voronin ordered mass arrests and accused Romania — an E.U. member — of trying to overthrow his government.

The organizers of the summit meeting have scheduled a discussion of the impact of the financial meltdown on Eastern Europe, said Jan Sliva, a spokesman for the Czech government.

But even the Czechs’ role as host has complicated the E.U.’s efforts to embrace its eastern neighbors. It was the Czech Republic, which holds the rotating E.U. presidency, that pushed the initiative, but the country’s credibility is undermined by the fact that its government has fallen, and its prime minister, Mirek Topolonek, will be chairing his last E.U. event before he loses his job.

The Eastern Partnership was conceived as a response to critics of the E.U.’s foreign policy who argue that the bloc devotes too much of its diplomacy and economic resources to areas of the globe where it has little clout, notably the Middle East. They say the E.U. has better prospects of exerting influence in a region on its borders that includes several nations, including Ukraine, that have ambitions to join the bloc.

Watching from the sidelines is a wary Russian government that has grown steadily more skeptical about the E.U.’s intentions. Last week its foreign minister, Sergey V. Lavrov, said he was concerned that the E.U. may be about to meddle in a region that Moscow considers its backyard.

As Russia’s opposition to the scheme has become more vocal, its close ally Belarus has become more cautious about the Eastern Partnership. Over the last nine months the E.U. made several efforts to engage with Aleksandr G. Lukashenko, Belarus’s president, despite his poor human rights record, and even lifted a ban against his obtaining a visa. But, in March, Mr. Lukashenko postponed a meeting with a senior E.U. official and he is unlikely to attend the summit meeting Thursday.

President Voronin of Moldova is not expected in Prague either.

Though nations like Belarus stand to gain from more favorable trade or visa policies, the Eastern Partnership offers little new to Ukraine, which is already negotiating closer economic and political ties with the E.U. The total budget for the partnership program is modest, euro600 million, or about $800 million, and only euro350 million of that is new cash.

Aside from being an anchor for the meeting, Ms. Merkel’s presence underlines Germany’s growing alarm at the deteriorating political situation on Europe’s eastern borders.

The rivalry in Ukraine between President Viktor A. Yushchenko and Prime Minister Yulia V. Tymoshenko had a direct impact on the E.U. in January when it complicated a dispute between Moscow and Kiev that disrupted gas supplies to European countries.

Mr. Popescu, of the European Council on Foreign Relations, said that even if the E.U. scales down ambitions to dilute Moscow’s influence, it certainly wants to avoid a situation where Russia ends up exerting greater power in the region.

Despite Ukraine’s stated desire to join the E.U., it remains a divided country politically, with many voters in the East looking more toward Moscow than to the West.

“If Ukraine joins with Russia’s sphere of influence,” added Mr. Popescu, “we are also more likely to see a bipolar Europe rather than one trying to integrate with the EU.”

LINK: http://www.nytimes.com/2009/05/05/world/europe/05iht-union.html?_r=1&ref=global-home
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3. EUROPE: DEMOCRACY FAILING UNDER RUSSIAN SHADOW

Analysis & Commentary: by Kester Kenn Klomegah
Inter Press Service (IPS), Rome, Italy, Monday, May 4, 2009

MOSCOW - Eighteen years after the collapse of the Soviet Union, many of the newly created republics are still struggling to find a working democracy amidst failing economies.

"I believe that the main causes of political instability in post-Soviet states are the weaknesses of democratic political tradition, civil society and rule of law in these countries," Yevgeny Volk, head of Moscow's office of the Heritage Foundation, a policy think tank, told IPS. "The legacy of a totalitarian past and its institutions, such as Communist parties, is still strong."

And Russia has an interest in "destabilising these nations in order to discredit them in western public opinion and to alienate it against integrating these states into the European Union and the North Atlantic Treaty Organisation as reliable and secure partners," Volk said.

Governments in these countries, he said, had done very little to improve economic performance, diversify economies, and reduce dependence on Russian energy resources, labour and its consumer goods market.

Ukraine, Moldova and Georgia are going through tough times. Ukraine, which shares borders with Russia, Belarus, Moldova and Hungary, successfully organised the "orange revolution" in 2005, but its now third president, Viktor Yushchenko, whose term of office is to end late this year or early next year, is deeply unpopular.

In Georgia, opposition groups are holding nationwide protests against President Mikheil Saakashvili. His policy of integrating the ex-Soviet state with Europe and NATO, and his increasingly totalitarian tendencies have sparked criticism from opposition groups. His severe handling of the opposition - he himself came to power through street protests in 2003 - has triggered sharp criticism in the west.

The Georgian leader's popularity has plummeted since last August's disastrous war with Russia, and his failure to carry out the democratic reforms promised after the revolution that brought him to power. After the 'rose revolution' in Georgia and the 'orange revolution' in Ukraine, democratic growth has stagnated in Ukraine and even reversed in Georgia.

However, while political instability in Ukraine and Georgia have led to limited media and political freedom, the reverse is the case in Moldova. There has been political stability in Moldova ever since the communists came to power in 2001 and again in 2005.

"The communists used this strength to control the executive and the judiciary," George Dura, political researcher at the Centre for European Policy Studies (CEPS) in Brussels told IPS. "Moldovan authorities also increasingly put obstacles to media freedom. I think that the main reason for protests in Moldova is failing democracy linked to growing political stability and control under an increasingly authoritarian regime."

Moldova emerged as one of the poorest countries in Europe after the 1991 Soviet collapse. Up to a fourth of the population of four million works in the EU or Russia, and their remittances amount to almost 40 percent of Moldova's Gross Domestic Product (GDP), according to the World Bank.

While older Moldovans tend to regard Russia as their country's chief ally, many youth look west to Europe and neighbouring Romania, which shares close linguistic, ethnic and historical ties with Moldova. Many have joined protests to demand unification with Romania, a member of the European Union and NATO. President Vladimir Voronin has accused Romanian authorities of supporting the violent protests and of helping the opposition organise the political revolt.

And many in all these countries blame Russia.

"The development of democracy in ex-Soviet space is not failing, it is deliberately an attack from Russian authorities," minister for reintegration of Georgia Temuri Yakobashvili told IPS by email. "Democratic achievements are still fragile and need some kind of greenhouse conditions, or at least not storms or a hurricane. The west should play its part as well," said Yakobashvili, a former executive vice-president of the Tbilisi-based Georgian Foundation for Strategic and International Studies (GFSIS).

A spokesman for the opposition Georgian Conservative Party, Kakha Kukava, says the opposition is struggling to secure a democratic change of leadership.

"It is a wide question, the list of mistakes by Saakashvili is long such as planned restriction of media freedom, incomprehensible militarisation, inexplicable military rhetoric that led us to the August conflict, a discredited judicial system, state pressure on business, election fraud and as a result non-existence of real opposition in the parliament, and worse, negligence the of rule of law," Kukava told IPS from Tbilisi.

Chris Walker from the London-based Freedom House, an NGO that tracks democracy in many countries, told IPS that "efforts to advance democratic reform in poor countries such as Ukraine, Georgia and Moldova will invariably be put to even greater tests given the depth and sharpness of the global economic downturn. Therefore, political leadership in these nascent and partially consolidated democracies must find ways to engage the public and seek buy-in for policies that are capable of meeting these enormous challenges."

Walker said that the reform challenge throughout the former Soviet Union remains formidable, and virtually every state in the region is confronting serious democratic governance problems. "All of the countries of the Soviet region will undoubtedly face enormous challenges in the coming term but those that work towards more accountable and transparent governance will be better positioned to succeed in a modern, globalised environment."

LINK: http://www.ipsnews.net:80/news.asp?idnews=46705
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4. UKRAINIAN ECONOMY SHOWS GLIMMER OF HOPE
FOR REBOUND AFTER SHARP FALL

By Roman Olearchyk in Kiev, Financial Times, London, UK, Mon, May 4 2009

KIEV - One of the world's most depressed economies is showing tentative signs of a recovery. After a 25 per cent annual fall in Ukraine's gross domestic product,there are indications of a rebound in steel production and good prospects for a bumper harvest this year, says a senior presidential economic policy aide.

"We certainly have a tendency towards stabilisation under way, with steel exports picking up in recent months," Oleksandr Shlapak told the Financial Times. "And, thank God, we are expecting another big harvest after a record last year."

As one of the world's leading steel, grain and chemical exporters, Ukraine's fortunes are heavily dependent on global commodity demand. Mr Shlapak said industrial production and steel exports - Ukraine's main sources of hard currency - had risen since February, helped by sharp devaluation of the hryvnia.

However, it remained unclear whether this amounted to a sustainable improvement, or a temporary rebound from an artificially low base, he said.
Kiev halted gas deliveries to industry to keep domestic heating running after Russia cut off natural gas supplies in January.

Industrial output contracted 16 per cent month-on-month in January as the energy crisis exacerbated the effect of waning demand for steel. "We are expecting improvements in the coming months, but it's hard to say if it is sustainable. Much depends on global demand and other world factors," said Mr Shlapak.

Confidence in Ukraine is also being undermined by the bitter power rivalry between Viktor Yushchenko, the pro-western president, and Yulia Tymoshenko, the prime minister, who has looked to Moscow for support and has sought a $5bn (euro3.8bn, £3.4bn) Russian loan.

Mr Yushchenko's camp says GDP contracted by 25 per cent in the first quarter, compared with a year earlier, but Ms Tymoshenko's government has delayed publication of the figures. Mr Shlapak accused her of "purposefully concealing" bleak figures for fear that they would further undermine confidence.

Some positive data has, however, been published. Steel exports rose 15.3 per cent in the first quarter of 2009 compared with the last three months of 2008.
A survey by the market research firm GfK Ukraine suggests that consumer confidence has been inching upwards since February. "We think that consumer sentiment reached its bottom in February and that the population's worst fears are probably behind them," said Maryan Zablotskyy, an analyst at Erste Bank in Ukraine.

Confidence in Ukraine could be further boosted on May 13, when the International Monetary Fund's board reviews a $16.4bn loan granted to Kiev last autumn. The first tranche of $4.5bn granted last autumn helped to stabilise Ukraine's wobbly banking sector, but the disbursement of further installments had been frozen amid political bickering and concerns over fiscal prudence.

Citing improvements by Ukraine's "resilient" economy and government, an IMF mission visiting Kiev last month recommended unlocking the loan.
Last month, the IMF forecast Ukraine's economy would contract by 8 per cent this year. Mr Shlapak says the fall in GDP could range from 4 to 15 per cent under such volatile conditions.

LINK: http://www.ft.com/cms/s/0/296a91a2-3843-11de-9211-00144feabdc0.html
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5. UKRAINE OLIGARCH BUYS UNITED STATES COAL GROUP

By Roman Olearchyk in Kiev, Financial Times, London, UK, Friday, May 1, 2009

KIEV - Metinvest, the steel conglomerate controlled by Ukrainian billionaire Rinat Akhmetov, said yesterday it had acquired West Virginia-headquartered United Coal Company, in a purchase estimated to be worth up to $1bn.

Analysts said the deal showed some of Ukraine's leading businessmen were sufficiently cash-rich to make big purchases abroad in spite of a deep recession that has battered their country and halved production at their steel mills.

Mr Akhmetov is Ukraine's richest man. The value of Metinvest's UCC purchase, closed between the two privately owned companies, was not disclosed.
But local investment bank Dragon Capital estimated that the deal was worth $800m-$1bn, or about half the pre-crisis estimates made on the company's value during negotiations last year.

Metinvest is one of the largest steel groups in Ukraine, itself ranked as one of the top 10 steel-exporting countries. In addition to owning three steel mills, ore pits and coal mines in Ukraine, Metinvest acquired Italy's Trametal and the UK-based Spartan rolling mills from the Malacalza family in 2007 for about $700m.

Metinvest later acquired a rolling mill in Bulgaria when it merged with Smart-Holding, itself controlled by Russian businessman Vadim Novinsky and unnamed partners. Smart's owners today hold a minority stake in the Akhmetov-controlled Metinvest.

Igor Syry, general director of Metinvest, said the UCC acquisition would boost his group's access to quality coking coal. It would "improve" steel quality and efficiency for the group, which has sharply cut use of increasingly expensive Russian natural gas as a fuel in its production cycle.

UCC, which accounts for 4 per cent of coking coal output in the US, reported sales of more than $500m in 2008. The company was founded in the 1970s by Jim McGlothlin, along with partners.

Dragon Capital steel analyst Sergiy Gayda said that in spite of the global steel industry downturn, a sharp drop in raw material prices and steep domestic currency depreciation in late 2008 had enabled Ukrainian steel mills to decrease production costs and offer "the lowest prices on foreign spot markets".

Many of Ukraine's oligarchs have borrowed heavily in past years, piling up foreign debt obligations. However, Metinvest was in a particularly strong financial position, said Mr Gayda.

LINK: http://www.ft.com/cms/s/0/eb5c5a1a-35e7-11de-a997-00144feabdc0.html
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6. INVESTOR RADAR - UKRAINE, BELARUS, MOLDOVA

Reuters, Kiev, Ukraine, Tuesday, May 5, 2009
KIEV - The following are key events and issues to watch out for in Ukraine, Belarus and Moldova over the coming weeks.

UKRAINE:
* The International Monetary Fund is set to restart the stalled $16.4 billion loan programme by approving the release of $2.8 billion on May 13. This will give breathing space to the central bank which is trying to support the hryvnia currency.

* The IMF cash will also help the government acquire majority stakes in seven ailing banks. The government announced the decision in April, but gave no
schedule for the purchases. Much more foreign debt repayment is expected to fall in the second and third quarters of this year, than the first. Investors will be looking out for any major default. A $500 million sovereign Eurobond is due in August.

* The Constitutional Court is expected to rule on a case brought by President Viktor Yushchenko against parliament's decision to call a presidential election on Oct. 25, several months before the poll had been expected. A decision may be given by the end of this month, but few expect the court to be clear in its judgment, giving rise to the possibility of any election being contested after the fact.

BELARUS:
* The first EU summit with its eastern non-EU neighbours will take place on May 7. Belarussian President Alexander Lukashenko has been invited, as part of a thaw in relations, but will stay away. Lukashenko, maintaining a careful balancing act between closer ties with the West and good relations with traditional ally Russia, is also under pressure from Moscow to recognise Georgian breakaway republics South Ossetia and Abkhazia.

MOLDOVA
* The newly elected parliament is expected to vote for a new president on May 12 replacing Communist veteran Vladimir Voronin, who cannot stand for a third consecutive term. An April parliamentary poll won by the Communist party was marred by opposition accusations of vote rigging and violent street protests. Voronin said the protests amounted to a coup attempt backed by neighbouring Romania.

LINK: http://www.reuters.com/article/bondsNews/idUSL472474320090505?sp=true