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: 271 - (24/07/03)
Plague of locusts
A sector which has been faring rather better of late in Ukraine is agriculture, at least that part of the sector now out of the control of the collective and state farms. Land reform is not by any means as far advanced as it needs to be, but those successful in the energy and primary commodity booms from Russia, as well as Ukraine are now investing in Ukraine's rich black soil and exporting grain again, as before 1914.
But this year a serious plague of locusts is wreaking havoc on grain fields, the latest in a series of setbacks for the farming sector. Late frosts and a spring drought lead analysts to expect the thinnest harvest since the 1940s. A mild harvest has allowed locusts to thrive.
The grain harvest should be 26m tonnes in 2003, only just above the 24m tonnes in 2000, a poor year. In 2001 and again in 2002 it was 38m tonnes.
The economy is still growing
The economy has been growing at a rate of 7% this year, after rapid growth in 2000, 2001 and 2002. Despite the problems in the farming sector, growth of GDP should be 4% this year.
But many in parliament are gunning for Premier Uktov Yanukovich, who has been asked to explain how he is going to stabilise the situation, as domestic supplies of grain run out. The policy of exports of grain to the EU is likely to be reversed, especially as Brussels, true to protectionist form, has imposed quotas on grain from Ukraine, Russia and Kazakstan.
Succession struggle affected
The problems that Yanukovich is having in dealing with the crisis is tilting the odds against him in the succession stakes to the presidency, for which elections are looming in October 2004. It now looks as if the establishment would run with his predecessor, Anatoly Kinakh, who is a big figure in the country's politics as founder of the Union of Entrepreneurs and Businessmen, dominant in parliament.
The crisis clearly helps the chances of the leading opposition figure, Viktor Yushchenka, a brilliant banker and economist, who as Central Bank Chairman in the late 1990s and then as premier in the early 2000s turned the economy around. He is the most popular figure in the opinion polls.
He would also be welcome in the West, which is totally disillusioned with the incumbent, Leonid Kuchma, a synonym now for corruption, vote-rigging and underhand dealings of every kind - a scoundrel in other words.
The Ukrainian Government is irate with the United States for suspending promised funds for the disposal of nuclear fuel from hundreds of missiles that were voluntarily disarmed by the republic in the mid 1990s.President Leonid Kuchma in particular is incensed by their behaviour in public, but no doubt secretly delighted that he now has an issue on which he can seize the moral high ground for once against the US. He has been castigated by Washington for his many breaches of human rights and his blatant election-rigging.
His comments came after Parliament issued a statement on July 11th accusing Washington of being in breach of a 1993 agreement by suspending funding for the programme in May. Ukraine had upheld its commitments by dismantling all its missile silos and 176 SS-24 intercontinental ballistic missiles and its 1,300 warheads.
The US claims the discontinuation of finance was due to technical considerations, not a lack of commitment. About $30 million in earlier allocated funds is to go to other projects.
Kuchma claims the proposal to burn the solid rocket fuel is ecologically unsafe. As former head of the largest rocket factory in Ukraine, his opinion here is an expert one.
By playing to his strengths in this way the US is making it easier for him to retire gracefully as the champion of Ukraine' interests abroad come the end of his second term next year. On July 15th he smoothed the way for stalled political reforms by withdrawing several proposed constitutional amendments that opposition leaders said were aimed at extending his term of office.
WestLB plans to do more business in Ukraine
WestLB, a German bank, plans to do more business in Ukraine due to the country's positive economic development indicators, Chairman of the bank's office in Kiev, Bernd Gliemann, said, New Europe has reported.
WestLB will expand its financing portfolio, especially in oil, gas, metallurgy and chemicals and start to extend loans to the food and agrarian markets, he said. In the past two to three years Ukraine has been developing in the necessary direction and the bank sees considerable growth potential, Gliemann said. WestLB representatives will discuss the opportunities for foreign loans to Ukrainian companies and municipalities on July 7th-8th in Kiev.
Ukraine's credit rating upgraded by international agency
The international company, Fitch Ratings, has upgraded Ukraine's credit rating for long term liabilities in foreign and domestic currency from B to B+, according to a report by Interfax-Ukraine News Agency, which quotes a Fitch press release.
Five per cent economic growth, zero inflation and a stable hryvnya/dollar exchange rate were named by the agency as factors which influenced the upgrading. Fitch also said it expected that Ukraine's gold reserves would increase from US$1.5bn in late 2000 to US$6bn by the end of 2003.
According to Fitch analyst, Edward Parker, the unstable political situation in Ukraine, which is expected to continue until the presidential elections planned for 2004, is the main factor negatively influencing Ukraine's rating, the agency said.
Ukraine to boost Kazak gas transit
Ukraine plans to increase transportation of gas from Kazakstan to 25 billion cubic metres per day by 2008, Ukrainian Energy Minister, Sergei Yermilov, said during the conference on Kazak Oil and Gas in London. Yermilov also said that this year an agreement should be signed on annual transportation from Kazakstan f 1.5bn cubic metres of gas, the BBC's Ukrainian service reported.
The minister noted that Ukraine proposes to transport up to nine million tonnes of Caspian oil, not blended with any other, through the Odessa-Brody pipeline. Yermilov participated in the conference in London at the invitation of Kazak Energy and Mineral Resource Minister, Vladimir Shkolnik. The Press service at the Ukrainian Fuel and Energy Ministry said that during the conference Yermilov and Shkolnik held talks, in which the Ukrainian Ambassador to Britain, Igor Mityukov participated, at which the sides agreed to cooperate further in the fuel and energy complex.
Ukraine to supply oil to the Czechs
Ukraine has announced the possibility of supplying two million tonnes of oil per year through Slovakia to the Czech Republic using the Eurasian transport corridor, New Europe reported.
Ukrainian Foreign Ministry state secretary for European integration, Alexander Chaly, said that Ukrainian prime minister, Victor Yanukovych, submitted this proposal at a meeting in Tale (Slovakia) with Slovakian Prime Minister, Mikulas Dzurinda, Polish Prime Minister, Leszek Miller, Czech Prime minister, Vladimir Spilda and Hungarian foreign Minister, Laslo Kovacs.
"Yanukovych drew attention to the possibility of using the Eurasian transport corridor to supply oil to the Czech Republic through Slovakia. The prime minister noted the possibility of real supplies of up to two million tonnes of oil per annum by the end of this year, in which the Slovakian and Czech sides were very interested," Chaly said.
Ukraine to increase gas exports by over 400 per cent
In 2003, Naftohaz Ukrayiny national joint-stock [oil and gas] company intends to increase gas exports by 438 per cent over 2002, to 7bn cu.m.. Naftohaz Ukrayiny's chairman of the board, Yuriy Boyko, told journalists on 26th June in London, Interfax-Ukraine News Agency has reported.
According to him, the company exported 3.3bn cu.m. of gas in the first five months of 2003. Of this, about 2bn cu.m were exported to Germany, 0.6bn cu.m. to Hungary, 0.4bn cu.m. to Romania and 0.3bn cu.m. to Poland.
The company has signed a contract with the Russian [gas supplier] Gazexport on the export of 5bn cu.m. of gas. In addition, Naftohaz Ukrayiny is independently exporting about 1.5bn cu.m. of gas according to three contracts signed with Polish, Hungarian and Romanian companies.
Naftohaz Ukrayiny is the largest company in Ukraine in terms of net profit: in 2002 it earned 1,244.472m hryvnyas, its gross income was 30,678.075m hryvnyas
Ukraine keen on Black Sea-Europe oil transit
The Odessa-Brody oil pipeline will be used only in the European direction [from Odessa to Brody], Ukrainian Fuel and Energy Minister, Serhiy Yermilov, has announced, explaining the position of the Ukrainian government in Gdansk in Poland, One Plus One TV has reported.
The Ukrainians and Poles held a round-table meeting there called "Odessa-Gdansk: Northern dimension for Caspian oil." It is known that Russian oil companies are proposing that oil be pumped from Brody to Odessa. They are ready to load the pipeline with their technical oil. The EU and the USA support the direct use of the pipeline.
After the European Commission gave its political consent to the Odessa-Brody-Gdansk project, Kiev has persistently looked for necessary business options. Ukrtransnafta [Ukrainian oil transit company] signed protocols of intent on 14th with two companies, the Oliva chemical company and Tuckings Polska consultancy, on their participation in the construction of a pipeline from Brody [Ukraine] to Plock in Poland.
Yermilov said: "A Polish company, Fern, and our Ukrtransnafta signed a protocol of intent on creating a joint venture in the immediate future to complete this branch [of oil pipeline]. The European direction is the most profitable one from the economic point of view because it means 40m tonnes of oil per year in the long run, while the reverse use could transit only up to 9m tonnes of oil per year."
Meanwhile, the initiators of the reverse use of the pipeline, Russian oil companies, seek support from world experts. According to Matthew Saggers from the Cambridge Energy Research Association, the northern transit of Caspian oil is economically inexpedient. Among the main reasons are its high cost and a limited market in Eastern European countries.
Saggers said: "I asked Poles how much they were interested in exporting Caspian crude oil. They said no because it would be much more expensive than oil from any other sources. That is why the construction of the Odessa-Gdansk oil pipeline is senseless because you cannot sell oil inside Poland. Expectations regarding oil transit in this direction are decreasing more and more."
Yermilov gave assurances that the priority is European transit. However, the longer the pipeline remains idle the more tempting the offers of Russian oil companies become.
Ukrainian premier urges Croatia to speed up oil pipeline project
Ukrainian Prime Minister, Viktor Yanukovych, has called on Croatia to speed up the implementation of the Druzhba-Adria pipeline project to transport oil through Ukraine to the Croatian port of Omisalj on the Adriatic Sea, UNIAN News Agency has reported.
Yanukovych discussed the project at a meeting with Croatian Foreign Minister Tonino Picula in Kiev on 1st July, Yanukovych's press secretary, Taras Avraukhov, told journalists after the meeting. Yanukovych "emphasized that it was necessary to implement the Druzhba-Adria project as soon as possible," Avraukhov said. According to him, Picula said at the meeting that the Croatian government "fully supports" the project but the environmental component still remains unclear.
Croatia is close to the completion of the project technically but there is an ongoing discussion in its society about the environmental safety of the project. It could threaten the development of tourism in Croatia, which constitutes a significant part of GDP, Picula said.
According to Picula, a large part of the work has already been done and oil terminals in Omisalj are ready to receive oil. "We do not have any doubt that the project is profitable and economically sound," Picula said. He emphasized that "a serious discussion is being held in Croatia on whether the project is environmentally appropriate."
FOOD & DRINK
French company to acquire Ukraine's major malt producer
France's Soufflet Group and the Scandinavian Baltic Beverages Holding (BBH) signed a memorandum of understanding on buying an 86 per cent stake in the Slavuta malt factory in Ukraine's Khmelnytskyy Region, Interfax News Agency has reported.
A press release posted on Soufflet's web site says the deal will enable the French company to increase its annual malt production capacity to 1.355m tonnes and expand its business into Eastern Europe, where it has operated since 1998.
The Slavuta malt factory is a leading Ukrainian malt producer. BBH also owns Lviv Brewery (99.18 per cent of the shares) and the Slavutych brewery in Zaporizhzhya (81 per cent).
IFC to offer HVB Bank Ukraine US$15m credit guarantee
The International Finance Corp (IFC), the private sector arm of the World Bank Group, will offer HVB Bank Ukraine a US$15m credit guarantee. The pertinent agreement was signed recently, the IFC said in a press release, which New Europe reported.
The deal will enable the bank to double loans from US$ three to six million per client. The IFC guarantee will mainly be used for mid-term loans to Ukrainian private companies, enabling the bank to increase its client base and diversify its loan portfolio. Bank Austria Creditanstalt Ukraine was renamed HVB Ukraine on February 21st 2002, because of the reorganisation of its main shareholder, which became part of HypoVereinsbank AG. HypoVerennsbank AG owns 91.2% of the bank and the IFC owns 8.8%.
IMF to approve stand-by loan for Ukraine in August
The IMF board of directors will examine the possibility of approving a 15-months "pre-emptive" stand-by programme for Ukraine in late August. Under the programme, Ukraine could use, if need be, funds worth 514.5m SDR, Interfax-Ukraine News Agency has reported.
The IMF office has reported in its press release that during an IMF mission's visit to Kiev on 18 June-1 July the fund's experts reached understanding with the Ukrainian government regarding economic policy in the second half of 2003 and in 2004.
As part of the economic programme which may receive IMF support, the two sides discussed issues of tax and budget, monetary-credit, currency and exchange rate and banking policies, as well as increasing financial transparency in the energy sector.
The press release said Ukraine has to significantly speed up paying overdue VAT compensation and cut the number of VAT privileges prior to the meeting of the IMF board of directors.
The IMF and the government also discussed ways to consolidate favourable trends in the Ukrainian macroeconomic situation, namely high economic growth, low inflation, stable budget and balance of payments. The two sides noted the need to take measures to protect macroeconomic stability and to further implement structural reforms, in particular to take steps to consolidate the progress achieved in the process of withdrawing various tax breaks and privileged tax regimes.
FREE ECONOMIC ZONES
Ukrainian president sets up body to look after free economic zones
Ukrainian President Leonid Kuchma has established a commission to analyse the functioning of free economic zones and priority development areas, Ukrainian Television first programme has reported. It will make efforts to enhance their effectiveness. Valeriy Khoroshkovskyy, the minister of economics and European integration, was appointed commission head.
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