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  UKRAINE

REPUBLICAN REFERENCE

Area (sq.km) 
603,700 

Population 
48,760,474

Principal 
ethnic groups 
Ukrainians 72.7%
Russians 22.1%
Jews 0.9%. 

Capital 
Kiev

Currency 
Hryvnya

President 
Leonid Kuchma 

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Background:
Richly endowed in natural resources, Ukraine has been fought over and subjugated for centuries; its 20th-century struggle for liberty is not yet complete. A short-lived independence from Russia (1917-1920) was followed by brutal Soviet rule that engineered two artificial famines (1921-22 and 1932-33) in which over 8 million died, and World War II, in which German and Soviet armies were responsible for some 7 million more deaths. Although independence was attained in 1991 with the dissolution of the USSR, true freedom remains elusive as many of the former Soviet elite remain entrenched, stalling efforts at economic reform, privatisation, and civic liberties. 

Update No: 262 - (22/10/02)

The Ukrainian regime of President Leonid Kuchma is walking a tightrope. The opposition has taken to the streets. Everybody knows the president is a highly corrupt figure, probably a murderer to boot. But his tenure is limited, with two years to run until the expiration of his term of office. Is it worthwhile to evict him beforehand, when the effort to do so could paralyse the functioning of government in the interim?

Ukraine alienates the US
There is evidence that the Ukrainians have been supplying weaponry to Iraq, as has Belarus. The ties between Ukraine (and Russia) and Iraq are of long standing. An upgrade of military equipment would be a relatively routine affair, tanks, planes and rockets.
The US is not keen to confer respectability on the Kiev regime, especially given the scandals of late, and may quietly be advising the IMF and the World Bank to become less exposed. 

Closer to Russia
Whenever Kuchma is in bad odour with the West he tilts towards Russia, whose foreign policy is not censorious or over-concerned with human rights and dangerous arms sales. Putin and Kuchma meet regularly and have a high-up intermediary in Victor Chernomyrdin, ex-premier and ex-head of Gazprom, now ambassador to Ukraine.

Gas consortium agreement
On a visit to Kiev in early October, Putin signed a gas consortium agreement with Kuchma, long prepared by Chernomyrdin.
Chernomyrdin has long nurtured the idea of a gas consortium for Europe, a sort of consumers plus producers club, which would oversee the development of the industry, the new energy industry to replace the unstable oil industry. Germany, France and Italy, the main consumers, would all be brought in.
Ukraine's role is both as a consumer and as the key transit country. Indeed, the grouping is being defined as a transport consortium.
Ukrainian opposition figures have requested Putin not to sign the agreement. One leading opposition figure, Ms Timoshenko, was formerly in charge of Ukraine's gas distribution network and opposes the idea of over-close involvement with Russia.
Putin has already agreed the idea of the consortium with Kuchma and Schroeder of Germany in June in St Petersburg. Schroeder's re-election has given it a new impetus. But the details still need to be worked out.
The role of Gaz de France and of the German and Italian sides is not yet clear. Everything is likely to remain provisional until the Iraqi crisis is over. Oil and gas naturally interlock. A new epoch of cheap oil, if it materialises after Saddam is removed, would douse the prospects for gas to replace it as rapidly as Chernomyrdin and its other champions want it to happen.

New parliamentary groupings to form new coalition
The emergence of parliamentary groupings forming a new majority in September could see a new government coalition installed imminently. Kuchma is hoping to deflect turmoil and opposition from the streets to parliament. A new government could be formed within a month of these groups being realigned in early October.
In September the socialists and communists joined forces with various nationalists in sustaining demonstrations right outside the presidential office. The police disbanded the immediate demonstrators. But they pledged to continue the struggle until Kuchma goes.
But they are not moving ahead on original plans to impeach Kuchma for electoral irregularities in October 1999, when he was re-elected, and for possible complicity in the 'disappearance' of a journalist one year later.
Kuchma may see out his term after all. The question that is exercising everyone's minds is who would then succeed him. The answer is likely to be either Anatoly Kidakh, the premier and founder of the Entrepreneurs and Businessmen Party, an influential grouping of bosses in parliament, or his predecessor as premier, Viktor Yushchenko, the former central bank chairman and architect of economic recovery in 2000 and 2001, when GDP growth was 7.3% and 5% respectively. Yushchenko is the most popular politician in the country and Kidakh the most powerful. If they agreed to join forces, the combination would be irresistible. But personal ambitions may preclude any such thing. 

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AVIATION

Only one company to sell Ukrainian airliner in Russia

The Kharkiv aircraft plant and the Samara-based Aviakor plant have decided to set up a joint venture to sell jointly-manufactured An-140 aircraft, UNIAN News Agency has reported. 
The company is going to sell the aircraft "only in the Russian Federation," the director-general of the Kharkiv plant, Pavlo Naumenko, told a news conference, summing up the results of his visit to Samara.
Naumenko said that the only company selling the planes would be organized in Moscow by the Kharkiv aviation plant, which is the main player in this project.
"We will sell An-140 in Russia only under this project together with Aviakor," Naumenko said.

Ukrainian civil aircraft manufacturer develops ties with Iran

The Kharkiv aircraft plant has set up a joint management board with its Iranian partner. The plant's director-general, Pavlo Naumenko, said that this would improve cooperation in manufacturing the An-140 aircraft, Interfax-Ukraine News Agency has reported. He said that the plant's best experts had been sent to Iran to oversee production at an Esfahan-based aircraft plant that belongs to the HESA company. Naumenko said that the cooperation programme with Iran provides for the manufacturing of a "whole range" of planes and that "we have work for many years ahead." 
He also said that the Kharkiv plant and HESA would have a joint exposition at the first Iranian international airshow, which is to be held on the island of Kish in late October-early November this year.
Naumenko also hailed the forthcoming visit of the Iranian president Mohammad Khatami to Ukraine, which is scheduled for November this year.

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BONDS

US$600m in forex bonds to be issued in 2003

The Ukrainian government plans to issue US$600m in seven-year forex bonds (OGVZ) in 2003 with a yield of 10.5% annually, according to the draft 2003 budget that the government has submitted to parliament, reports New Europe. The bonds will be issued in two tranches, with US$350m placed in March and US$250m in October.
The government also plans to raise a third World Bank programmatic adjustment loan (PAL) of US$250m to finance next year's budget and borrow 1.32bn hryvnias on the domestic market.

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ENERGY

Ukraine to move Druzhba oil pipeline to avoid flooding

Ukraine plans to move a 56 kilometre section of the Druzhba oil pipeline to a safer place later this year amid concerns that floods may damage its operation, UkrTransNafta Chairman, Alexander Todiychuk, said. New Europe reports the Druzhba pipeline is used to export around one million barrels per day of mainly Russian crude to Europe. Part of the pipeline currently goes through a region in TransCarpathia that is frequently hit by floods, Todiychuk said.

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FOREIGN INVESTMENT

Philip Morris to build US$100m factory in Ukrainian city

Philip Morris Ukraine plans to build a US$100m cigarette factory capable of producing 25bn cigarettes a year in the Ukrainian city of Kharkov, a source with the Kharkov regional administration told Prime-TASS News Agency. 
The new factory is to be built on the premises of the Kharkov tractor plant, which approved the Kharkov regional administration's decision to allocate 31.5 ha for this purpose...

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PRIVATISATION

SPF to sell 22 firms, raise 22bn hryvnias in 2003

The Ukrainian State Property Fund said it has targeted 22 firms for privatisation next year, and that it hopes to generate 2.06bn hryvnias from the sales. Ukrainian News quoted the Fund as saying that it would seek cabinet approval to hold competitive tenders for sale of the companies, reported New Europe.
Absent from the list were stakes in Ukrtelecom and nine regional energy companies, all of which were originally scheduled for sale this year.
SPF head, Alexander Bondar, said the SPF had not included the companies in the 2003 list because there was no guarantee that they would be ready for sale next year.
The cabinet earlier postponed the sale of the nine oblenergos until problems related to their debts could be resolved. Ukrtelecom's privatisation had been planned for this year, and proceeds from the sale should have comprised a significant portion of the year's privatisation revenue.
So far this year, the government has earned just under 457m hryvnias in privatisation revenues against planned receipts of 5.9bn hryvnias. Next year's revenue expectation has been pared back to two billion hryvnias.
The State Property Fund said that it would try a second time to sell the state's 25.17% stake in Dniproazot, a Dnipropetrovsk Oblast fertiliser manufacturer. For the second tender, to be conducted on October 21st, the asking price has been reduced by 30% to 12.24m hryvnias.
The Crimean Property fund said it would sell the state's 33.79% stake in the Brom plant on October 14th. The stating price of the stake is 5.617m hryvnias.
The SPF said it would open a tender for sale of the government's 80.27% stake in Velt, a Kharkov-based electrical equipment manufacturer, on November 19th. The starting price of the stake is 22.637m hryvnias.
The SPF said it would sell 25.49% stake in the Kerch Metalurgical Plant on the stock exchange on October 15th. The move comes after the fund tried unsuccessfully to hold a tender for the shares on two separate occasions.
The SPF has sold 35.74% of the shares in the Severny Ore Mining and Enrichment Plant to Ukrainian Metallurgical Company for 89m hryvnias after the Kiev Economic Court lifted an earlier ban on sale of the shares. The State Property Fund announced a tender for the stake on July 24th, with a starting price of 86.8m hryvnias. Nine companies attempted to participate in the competition, but the SPF considered only Ukrsibbank and Ukrainian Metallurgical Company qualified to bid. After Interpipe and Manitoba, two of the excluded bidders, filed suit, the court issued a stay on the tender pending review.
Another potential bidder, Sukha Balka, said it planned to ask a court to overturn the award. A company officer alleged that Ukrsibbank and Ukrainian Metallurgical Company are related, and that as a result there was not true competition for the stake. Ukrsibbank has been managing the state's 50% plus one share in the plant since November 1999.

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