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UPDATE January 2002

Ukraine is in the good books of its important interlocutors. The IMF has confirmed that its fiscal policy is positive and is on the right track. Ukraine's economic performance of late has been so positive overall that it may well join the World Trade Organisation (WTO) ahead of Russia although neither is likely to be soon. The next tranche of an IMF US$370m loan is due in January, after receiving its last one in September.
The new climate of anti-terrorism suits President Leonid Kuchma down to the ground. It could not have come at a better time to distract attention from his misdemeanours, which were threatening to topple him.
Ukraine is not itself a likely terrorist target at all. But it is a conduit for contraband of all sorts from Russia to Western Europe and beyond, including dangerous materials craved by terrorists. Hence a tight police clampdown is being put underway. A groundswell of public indignation has been sidetracked.
That does not mean that he is certain to survive. It is much less likely that next time he will be re-elected easily, as happened last time due to vote-rigging, which he can be heard calling for on a tape released by an ex-bodyguard of his, (now in exile in the US). The tape also carried conversations in which he is calling for a certain investigative journalist to be "wiped out." His body was subsequently found. Kuchma of course, denies the authenticity of the tapes, but then he would.
One thing working in Kuchma's favour for now is a resurgent economy. The man he has to thank for that is his ex-premier, Viktor Yushchenko, former head of the central bank and a noted economist. He put in place in his brief tenure, which ended in summer this year, a reform programme that finally halted the post-Soviet slide and saw growth of GDP at 5.8% in 2000 and a prospective 7.3% in 2001.
That expectations are likely to be met, even if fourth quarter figures, as is likely, will show a slowdown, is shown by spectacular figures for the first eight months of the year. According to the republic's Statistics Committee, GDP was growing at 10.9% up to the end of August year-on-year; indeed in August it was doing so at 12.4%. The main engines of growth were a phenomenal 26% rise in agriculture and forestry output and a 20.6% rise in industrial production.
The international context in 2000 and the first months of 2001 were propitious to such growth, but Ukraine from its low base was easily outperforming its neighbours. It should continue to do so if the new government persists with Yushchenko's reform efforts and his restrained monetary policy, as befitted a central banker.
The political crisis is far from over. To have a murderer for president who obviously cheated in his re-election in October 1999 is a bit much for even the long-suffering Ukrainians.
Moves are afoot to introduce constitutional amendments that would require a referendum, which could then lead to impeachment. Amendments to the constitution that would redirect power from president to parliament, making Ukraine a parliamentary republic, have already received a majority of votes in parliament. However, it would need 300 out of the 450 deputies to vote for it to succeed.
Kuchma is banking on Kinakh to survive. But this puts him in his premier's power in a way that has never been the case before in Ukraine since independence. No-one knows better than Kuchma how the premiership, which he held before becoming president, can be the launching pad for ascent to the top job.
The IMF is helping out now that Ukraine is visibly turning the corner, resuming a US$2.5bn loan suspended in September 1999. The EBRD are making further commitments after already extending one billion Euros since independence in 1991. Kuchma may be on the skids, but Ukraine no longer is.

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AUTOMOBILES

Iveco-Motor-Sich begins making Iveco automobiles

The Italian-Ukrainian joint venture Iveco-Motor-Sich has launched production of Iveco automobiles. Until now the venture has been producing only components, transmission boxes and assembling diesel engines, Director General Giovanni Blundetto, told a meeting with reporters to present the automobile assembled by the venture, New Europe reported.
He confirmed Iveco's plans to merge Iveco-Ukraine (formerly the Iveco-KrAZ joint venture) and Iveco-Motor-Sich into a single company that would produce automobiles and engines. The engines may be exported. The head of the Zaporizhzhia regional administration, Yevgeny Kartashov, said the regional government is also considering working with the Italian company on a number of farm machinery projects.
Last year Iveco proposed to merge Iveco-KrAZ and Iveco-Motor-Sich. Holding company AvtoKrAZ, which owned 12 per cent of Iveco-KrAZ, refused to take part in the project and pulled out of the venture. In the spring of 2001, Iveco and the European Bank for Reconstruction and Development, which owned respectively 58 per cent and 30 per cent of Iveco-KrAZ, decided to found Iveco-Ukraine.

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AVIATION

Ukraine sets great store by plane deal with Iran 

Ukrainian Foreign Minister, Anatoliy Zlenko, has said Kiev will exert every effort to make sure that the joint project with Iran to make the Antonov-140 aircraft becomes not only a symbol of successful cooperation between the two countries but also the beginning of long-term economic cooperation, ITAR-TASS News Agency has reported.
Speaking at a meeting between Ukrainian and Iranian business people at the Iranian Chamber of Commerce on 12th December as part of his visit to Iran, Zlenko said that "the Ukrainian side proposes to begin a new stage of Ukrainian-Iranian relations."
Ukraine is ready to offer Iran, which it considers to be its promising trade and economic partner in the Middle and Near East, assistance in modernising its economic infrastructure. Zlenko also called for studying all questions connected with the transportation of Iranian energy carriers to Europe through Ukraine... 
The Antonov-140 is a 52-seat plane for short-haul passenger and passenger/cargo carriage which will replace the Antonov-24. Its flying speed is 520-575 kilometres per hour. Maximum commercial load: 4.9 tonnes. Range: 2,000-2,550 kilometres. The plane costs about US$7m. The mass production of the Antonov-140 has been launched at the Kharkiv aircraft plant and in Esfahan, Iran, under a Ukrainian-Iranian contract.

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ENERGY

Eurasian Oil Transport Corridor gateway to Europe says Kopylov

Naftogaz of Ukraine Chairman of the Board, Vadym Kopylov, said the Eurasian Oil Transport Corridor is one of the most promising projects for the transport of Caspian oil to Ukraine and further on to other European countries. The first stage of this project is in the completion phase. The oil pipeline from Brody to Odessa was completed in August 2001, and the construction of the oil terminal station at the Pivdenny port near Odessa is in full swing, Kopylov said during a presentation in Brussels, New Europe reported recently.
The annual capacity of the first stage of the oil transport corridor is nine million tonnes and is dictated by the need to provide four million tonnes to the two refineries in West Ukraine (Nadvirna and Drogobych) and five million tonnes reserved for deliveries to Slovakia, Hungary, the Czech Republic, Croatia and other countries via the Druzhba Oil Pipeline.
Eurasian Oil Transport Corridor technological capacity will reach 40 million tonnes after completion of the whole complex, of which 30 million tonnes can be transited using the oil pipeline from Odessa to Brody and further via the prospected oil pipeline from Brody to Plotsk. If implemented, this project would significantly enhance the energy security of Central and Northern Europe, the Naftogaz chairman said.
Kopylov invited owners of crude oil to participate in an international consortium to be formed for operation of the Eurasian Oil Transport Corridor Ukrainian port. Such a group could join the project even at this stage, purchasing technological oil to fill the Odessa-Brody pipeline, he said. A further extension of the Odessa-Brody system and construction of the Polish section of the Brody-Plotsk-Gdansk corridor would also accelerate if a consortium is formed.
Taking into consideration certain restrictions on oil transport by tankers via the Bosporus, as well as the existing and newly built Caspian Pipeline Consortium's and Sukhodolnaya-Rodionovskaya pipelines, one branch of the Lisichansk-Tikhoretsk pipeline could be operated in the reverse mode to transport Caspian oil via Kremenchuk directly to the Odessa-Brody pipeline and further to Europe, without being trans-shipped at the Novorossisk and Odessa ports, Kopylov said. A connecting oil pipeline from Kremenchuk to Vinnytsia could be constructed, shortening the route by more than 500 kilometres, he added.
Overall, Ukraine hopes its oil and gas pipeline system will play an increasing role in the transportation of Caspian hydrocarbons to Europe and the United States. Ukraine's gas transmission system is the second largest on the continent after Russia's.
The real prospects for the export of Turkmen natural gas, which has a potential of 50 bn cubic metres, are outlined as an important element in the diversification of the sources of gas supply to European countries, Kopylov said. He claimed it would be most efficient to transit this gas using the operating infrastructure in Central Asia and Ukraine. He said the construction of a gas pipeline via Russia from Aleksandrov Gai to Novopskov, from the Russian-Kazak to Russian-Ukraine borders in the same corridor which is used for the Soyuz gas pipeline could serve as a link in the system transporting gas from Central Asia to Europe.

Ukraine to co-ordinate gas market moves with Russia

Ukrainian Prime Minister, Anatoly Kinakh, said his country plans to co-ordinate its moves on the natural gas market with Russia.
"The natural gas that is being extracted in Ukraine with money provided by investors, and which is their property, can be sold to Europe without limitations," Russia's 'Nezavisimaya Gazeta' quoted Kinakh as saying in an interview.
"Regarding the gas which may be saved by implementing an energy-saving programme, or as a result of additional supplies to Ukraine, it may be exported only after an appropriate Ukrainian-Russian intergovernmental agreement is signed," he added.

Ukraine switches from Kazak to Azeri oil

Ukraine has announced that it does not need Kazak oil anymore. After talks with Kazak oil companies broke off, Kiev has turned is attention to Azerbaijan, Kazak Commercial Television has reported.
It is noticeable that Azerbaijan has already submitted proposals to Ukrneftegaz [Ukrainian oil and gas] company, but they were refused because Ukraine was interested in partnership with Kazakhstan then.
Azeri oilmen promise that they will transport up to 50m t of oil a year next year. However, some experts think that this step by Ukraine is just a manoeuvre in order to provoke Kazak oilmen to compete.

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FOREIGN INVESTMENT

Foreign investment down

Foreign investment in Ukraine in the first nine months of 2001 came to US$529.4m, which was 10 per cent less than in the same period the year before. Investments from the Commonwealth of Independent States countries and the Baltic States reached US$14m (2.6 per cent of total investments) and investments from other countries US$515.4m, data from the state statistics committee showed. Non-residents took US$158.7m out of the country in this period. As at October 1st, 2001, the stock of foreign direct investments in Ukraine was US$4.19bn, or US$85 in per capita terms. FDI came from 112 countries, mainly the United States (US$702.9m), the Netherlands (US$367.3m) and Cyprus (US$400.3m).

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NUCLEAR ENERGY

Ukraine, European Bank to set up group to study reactor project

Ukraine and the European Bank for Reconstruction and Development [EBRD] are planning to set up a working group to discuss the EBRD's possible participation in the completion of construction of two nuclear reactors at Rivne and Khmelnytskyy nuclear power plants. This was agreed by EBRD representatives and members of the Ukrainian delegation led by the first deputy prime minister, Oleh Dubyna, during their talks in London on 10th December, Inter TV in Kiev reported.
The sources of this information say that the parties discussed the project cost as well as electricity tariffs [which have been stumbling blocks in Ukrainian-EBRD loan talks]. Kiev believes the EBRD's previous requirements were unacceptable, as [the price of] electricity would increase almost by one-third.
Earlier Ukrainian President Leonid Kuchma had said that his country would rely on Russian help to complete the reactors, describing EBRD loan conditions as "slavery," but adding later on that Ukraine was still ready for further talks with the bank.

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