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UKRAINE


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 41,380 37,600 31,300 54
         
GNI per capita
 US $ 770 720 690 144
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km) 
603,700 

Population 
48,055,439

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

Capital 
Kiev

Currency 
Hryvnya

President 
Leonid Kuchma 

  

Update No: 286 - (02/11/04)

Election heads for run-off 
Ukraine is facing weeks of turmoil and street violence after officials announced on November 1st that no candidate had gained the 50 per cent necessary to win the presidency in the first round of elections.
The presidential election is to be decided by a run-off this month after the first round on October 31st ended in a near draw between the prime minister, Viktor Yanukovich, who advocates closer ties with Russia, and his West-leaning challenger, Viktor Yushchenko.
With 94 per cent of the votes tallied on November 1st, the premier and candidate of the establishment, Mr Yanukovich, led his liberal rival, Mr Yushchenko, by less than a single percentage point - 40.11 percent to 39.16. Serhiy Kivalov, Ukraine's top election official, presented like results to parliament on November 2nd.The run-off is set for November 21st.
The election, the fourth since independence from Soviet rule, will determine whether Ukraine deepens ties with its former master in Moscow or pursues liberal reforms that many of its neighbours are developing in the European Union. It is in effect a choice between East and West.
European monitors sharply criticised the Ukrainian authorities for a range of electoral abuses that included drawing up improper voting lists and denying the opposition access to state-run television. After a bitter campaign of political mud-slinging and recrimination, the monitors said the first round had failed to meet international standards. Bruce George, head of a 600-strong Organisation for Security and Cooperation in Europe (OSCE) observer mission said: "It was a step backwards from 2002 (parliamentary) elections." The OSCE and the European Union said the poll had fallen short of accepted standards. They blasted media bias and incomplete lists that led to voters being turned away en masse from polling stations. 
Socialist Oleksander Moroz, third-place finisher whose five per cent support will be vital in the run-off, also alleged the vote was tainted by bribes and pressure on election officials. 
"It is not clear that Yanukovich won or Yushchenko lost. What is clear is that society lost," he said. "We do not recognize the count as announced by the Central Election Commission." 
Election Commission head Serhiy Kivalov failed to appear and instead sent his deputy, who promised to remedy shortcomings.
The European Union also made its criticism, citing unbalanced media coverage and incomplete voter lists. U.S. State Department spokesman, Adam Ereli, said that Washington would see how fair the runoff is before deciding whether to follow through on its threat to withdraw its support for Ukraine's ambitions -- such as of eventually joining the EU.

Opposition in parliament erupts over poll
Ukraine's opposition on November 2nd accused Prime Minister Viktor Yanukovich and his allies of wholesale cheating in the first round of the elections, foreshadowing a bitter run-off battle later this month. 
In a rowdy session of parliament, Yanukovich's allies raucously dismissed the criticism declaring they were confident their candidate would defeat liberal challenger Viktor Yushchenko in the Nov 21 face-off.
Yushchenko's team unleashed a brutal assault on Yanukovich's camp and election officials, saying attempts to rig the first round ballot had fooled no one. They claimed parallel counts showed their candidate the winner.
"Cheating didn't work. The Ukrainian people proved too wise," Yulia Tymoshenko, former deputy prime minister and a stalwart lieutenant of Yushchenko, told the chamber. 
Gesturing to the prime minister's allies in parliament, all sporting blue and white campaign scarves, Tymoshenko pledged "a civil mobilization, a composed battle against the bandits." 
"Yanukovich will never be president of Ukraine because Yushchenko became president in the first round!" 

Premier pleased with result
Yanukovich's backers, many from industrial Russian-speaking eastern Ukraine, responded raucously. "White and blue colours are the colours of hope and stability," said Valery Konovalyuk. "Victory will be ours." 
Yanukovich, who campaigned on Ukraine's strong economic growth, told local journalists the outcome proved "citizens are once again beginning to trust in government. Voters support the new strategy and social programme which we are implementing."
The outcome could be a defining moment in the post-Soviet development of the country of 47 million that lies at the hub of Europe and has borders with seven countries, including Russia and three new European Union members.
"Yushchenko is not only the favourite, he is now a leader for the entire nation," said Oleksander Zinchenko, his campaign manager. "He won
the first round, but every possible instrument was used to deny him. It's just stupid. He'll win the run-off."
The premier dismissed any suggestion of cheating as "an instrument of political battles" which Ukrainians would ignore.
The protagonists have different visions for Ukraine.
Each candidate has a distinct power base. Yushchenko is popular in nationalist western Ukraine and in Kiev, while Yanukovich is backed in the Russian-speaking industrial east and has won the endorsement of Kremlin leader Vladimir Putin.
Yanukovich, darling of elderly and low-income voters after raising pensions and public sector wages, has put pressure on selected businessmen and set prices for staples and fuel.
He wants closer integration with Moscow and favours recognition of the Russian language alongside Ukrainian and a law to allow dual citizenship for 8 million ethnic Russians -- notions seen by liberals as a threat to statehood.

Dirty tricks
Ukraine's presidential election campaign has been conducted in a rather different way from the US one, culminating in a vote two days after the first round in Ukraine, even if dirty tricks are not exactly absent in American presidential politics. There were no debates, Viktor Yushchenko, the main opposition candidate for president (who is leading in the polls), being given scarcely a mention on state-controlled TV. In August a lorry rammed into the car he was travelling in. In early October, he disappeared from the campaign trail. He re-surfaced in a Vienna hospital recovering from what at first was thought to be food poisoning.
But it is now widely alleged in Ukraine that Yushchenko's food may have been laced with the deadly drug ricin, once a favourite of KGB assassins, who used it in the murder of Georgi Markov, a Bulgarian dissident in London in 1978. In most countries, such charges would seem like paranoia. Not in Ukraine, where the current prime minister, and Mr Yushchenko's leading rival for president, Viktor Yanukovich, has been twice convicted for violent crimes, while incumbent president, Leonid Kuchma, is widely believed to be guilty of having had investigative journalists probing into the dirty secrets of the regime murdered.
Yushchenko resumed campaigning, but his face was partially paralysed when he spoke to a huge rally of supporters in Kiev. Photographs taken before and after show a man aged ten years overnight. His opponents cavalierly dismissed the affair, with the deputy head of President Leonid Kuchma's administration suggesting that Yushchenko should hire a food taster and other critics implying an alcoholic binge took place. The matter is now the subject of a criminal investigation, but of course by the regime itself, so expect no arrests.

Russia aiding Yanukovich's bid
Kremlin endorsement of favoured Ukrainian candidates and "parties of power" has been a routine feature of Ukraine's elections since 1994. In this presidential elections, however, the situation differs from those precedents in at least two key respects. First, the Kremlin and the incumbent Ukrainian president have prepared a scenario envisaging the handover of power to a designated successor, so as to thwart the free and fair election of a Ukrainian president - in this case Yushchenko. Second, Moscow and its supporters in Ukraine are capitalizing on frustration with the continuing failure by the EU, WTO, and NATO to signal clearly that their doors are open to Ukraine. The lack of such signals has weakened the Western-oriented elements in the governing establishment and now reduces the chances of Ukraine's pro-Western opposition in the electoral campaign.
Russian authorities at various levels are aiding Yanukovich's presidential bid. Indeed, Russia's president is rallying behind Yanukovich, who has open backing from Russia's ambassador in Kiev, former prime minister Viktor Chernomyrdin, who is one of the world's richest men. On 8 October in Moscow, the authorities helped sponsor a congress of ethnic Ukrainian associations in Russia, which called on Ukrainian citizens residing in Russia to vote for Yanukovich. However, some influential ethnic Ukrainian societies in Russia boycotted the congress and afterward issued a statement distancing themselves from it. On 9 October, Yulia Tymoshenko, one of the main Ukrainian opposition leaders and supporter of Yushchenko, rebutted corruption accusations levelled against her publicly by Russia's Main Military Prosecutor's Office. That Office had recently announced that a Moscow court has issued an arrest warrant against Tymoshenko and asked Interpol to place her on the international wanted list for declining to answer a subpoena from Moscow. Bribery charges against her, dating from the 1990s, were never proven and were part of a corruption scandal in Russia's Defence Ministry at that time. Tymoshenko told an October 9 electoral rally that the sudden resurrection of those charges was a purely political move, arranged in Moscow by Kuchma's presidential administration chief Viktor Medvedchuk to damage the Ukrainian opposition's campaign.
Indeed, the officer she is accused of bribing was acquitted in a trial in Moscow last year of the very charges that prosecutors now want to question her about. Coming on the heels of Yushchenko's alleged poisoning, the timing of the move against Tymoshenko appears to be anything but coincidental. Indeed, the case was reopened while Yushchenko was hospitalised - thus threatening to decapitate the opposition with barely a month to go before the presidential election on October 31st.

Profile of the clans
According to the most recent opinion polls, however, Ukraine's opposition has a real chance of winning. The strong-arm tactics would seem to suggest that the authorities are running scared. Against all odds, Ukraine's opposition groups have helped forge a civil society and healthy political parties far beyond anything seen in President Vladimir Putin's Russia. Yanukovich represents the Donetsk clan, one of several geographically defined oligarchic groups that compete to dominate Ukrainian business and politics. He has little sway over either the Kiev clan, led by Viktor Medvedchuk, Kuchma's chief of staff and a political heavyweight with ambition of his own, or the Dnipropetrovsk clan of Viktor Pinchuk, Kuchma's son-in-law. But both oligarchs prefer Yanukovich to Yushchenko, who has vowed to "end corruption" and send "bandits" to jail.
Yushchenko's promises resonate across Ukraine. Even though the oligarchs control all but one of the main television stations, he remains popular. Under President Kuchma, the economy has recently started to boom - thanks partly to Yushchenko's brief, reformist premiership four years ago - but the oligarchs' grip has grown tighter. In June, a consortium led by Pinchuk and Rinat Akhmetov, a Donetsk magnate, bought a state-owned steelworks in an auction allegedly rigged to specifically exclude foreign bidders offering two or three times as much. The move was probably more than just another property grab; it also suggests an effort to forge an inter-clan alliance for the post-Kuchma period. Such an alliance would make Yushchenko's rule, if he wins, more difficult - and he knows it. So he is cagey about plans to confront the oligarchs. "I don't exclude investigations of the clans behind Medvedchuk or Yanukovich, but the rest of business wants clear rules," he says. By leaving Pinchuk off this list, Yushchenko may be hinting that he wants a truce with Ukraine's most powerful magnate should he become president.

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AUTOMOBILES

ZAZ may invest in Daewoo-FSO

Zaporizhia Car Works (ZAZ) and Kiev-based Ukravto are considering investing in Poland's Daewoo-FSO auto assembly plant to prevent its bankruptcy, the chairman of ZAZ's supervisory board and Ukrainian parliamentary deputy, Tariel Vasadze, said, Interfax News Agency reported.
He said the two countries are actively working to deepen mutual relations. "We have serious connections with these plants and are receiving components from Poland to produce Daewoo Lanos cars. ZAZ is assembling the polish plant's cars and we are not indifferent to the plant's condition. We don't want to see it go bankrupt," Vasadze said. He said that total Ukrainian funds in Daewoo-FSO's turnover make up some 80%, or US$20m, Vasadze did not confirm media reports that ZAZ is prepared to buy assets in Daewoo-FSO, however this will primarily depend on the subsequent development of production and commercial relations between the two enterprises.

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AVIATION & SPACE

EC, Ukraine to cooperate in project on GNSS creation

The European Commission intends to start negotiations on a cooperation agreement with Ukraine on the development of a Civil Global Navigation Satellite system (GNSS), read a press release of the Commission, New Europe reported recently.
According to the press release, on September 2nd the Commission sought Council approval for its recommendation to start the talks.
"This proposal for a new international cooperation agreement clearly underlines the success of GALILEO and demonstrates again the wide-spread interest in the project," stated Loyola de Palacio, Vice President of the European Commission.
"Ukraine is one of eight countries within the world space community demonstrating significant technological background on space programmes and important achievements on GNSS applications, equipment, user segment and regional technology. The Ukrainian space industry is among the world's leader in the design and production of launchers and GNSS components," the press release read.
Ukraine confirmed its interest in obtaining associated membership in JV Galileo Joint Undertaking on supporting GNSS. GALILEO is Europe's satellite radio navigation programme. It was launched on the initiative of the European Commission and developed jointly with the European Space Agency (ESA). It will prepare for the development of a new generation of universal services in areas such as transport, telecommunications, agriculture and fishery.
To date the technology is only available through the US GPS system and Russia's GLONASS system, both of which are financed and controlled by military authorities. 

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ENERGY

Naftohaz eyes Gazprom deal

Ukrainian national joint stock company Naftohaz Ukrainy and Russian gas giant Gazprom are to sign a long-term agreement in the near future to transport additional volumes of Russian gas through Ukraine in 2005-2010, Naftohaz Ukrainy CEO, Yury Boiko, said recently, Interfax News Agency reported.
He said that this will make it possible for the International Consortium for the Management and Development of the Ukrainian Gas Transport System to ensure, during its initial stage of operations, the utilisation of the existing Ivantsevychy-Dolina and Torzhok-Dolina pipelines, which have been practically idle since the Yamal-Europe pipeline through Belarus started operating. Boiko said that as part of the investment phase if its activity, which has already started, the consortium will build the Bogoradchany-Uzhgorod pipeline section, which will be the first section of the Novopskov-Uzhgorod trunk pipeline. "This will make it possible to increase the capacity of the Ukrainian gas pipeline system to the West by 8bn cubic metres per year in the near future," he said. Boiko said that Naftohaz Ukrainy is already able to increase supplies to Russian gas to Central Europe by 30-35bn cubic metres.

Naftohaz initials PSA with NOC

Naftohaz Ukrainy and Libya's National Oil Company (NOC) initialled a production sharing agreement (PSA) recently, the Ukrainian company said in a press release, New Europe reported.
Naftohaz Ukrainy CEO, Yury Boiko, and NOC Director, Abdullah Salem Ali-Badri, are to sign the PSA agreement. The oil produced by Naftohaz Ukrainy in Libya will be used to set up a national oil reserve in Ukraine. Naftohaz Ukrainy investment in developing the field may amount to about US$50m in 2005. The sides agreed and confirmed a Naftohaz investment programme for the development of four oil and gas blocks in Libya, selected based on geological information received from the Libyan side. Earlier head of the Naftohaz Ukrainy office in Libya, Vladimir Zadorozhny, was quoted as saying that Naftohaz Ukrainy plans to start production at four fields in Libya in 2004. The sides signed a memorandum for cooperation in the oil and gas sphere on October 14th, 2003. At the end of October, after an analysis of the geological information, Naftohaz Ukrainy decided on its priorities and started preparing an investment programme. NOC controls over half of the oil industry in the country.

Ukrtransnafta pumps Russian oil through Odessa-Brody

Ukrainian pipeline operator Ukrtransnafta has finished filling the Odessa-Brody pipeline with technical oil and has begun pumping the first consignment of Russian oil to Odessa. It was expected that the first tanker would be loaded with 90,000 tonnes of oil at the Yuzhny terminal, Deputy Director General of Ukrtransnafta, Vladimir Vasilyuk, said at the pipeline launching ceremony on September 11th. It is expected that 2.25m tonnes of oil will be pumped to Odessa in the fourth quarter of 2004, Interfax News Agency reported.
Ukrtransnafta and TNK-BP signed a contract in July 2004 to deliver 9m tonnes of oil through the Odessa-Brody pipeline to the Yuzhny sea terminal within 3 years. They also signed 4 supplements to the contract, which enable Ukrtransnafta to receive up to US$108m in loans to buy 425,000 tonnes of oil to fill the pipeline and as a guarantee against financial risk. The contract was signed on condition of 100% advance payment for oil transportation and fines for the refusal to transport the specified amount of oil.
Ukrtransnafta started filling the Odessa-Brody pipeline from its 52nd km on August 1st. The first 52km of the pipeline were filled with Urals oil at the end of 2002, which enabled the Yuzhny oil terminal to start transshipment of Russian oil supplied by Dnipr trunk pipelines. The first section of the Odessa-Brody oil transport system, which was planned from the start to be used to pump Caspian oil from Odessa, was launched in May 2002. The pipeline is 674km long.

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FOREIGN ECONOMIC COOPERATION

Derkach urges stronger Ukraine-Canada economic ties

Ukraine's Economics and European Integration Minister, Mykola Derkach, recently expressed the need for intensifying the efforts of Ukraine and Canada within the framework of the intergovernmental commission for economic cooperation. He made this statement during a meeting with Senior Vice President of the Canadian International Development Agency, Ric Cameron, Interfax News Agency reported.
Canada put off the fifth joint meeting of the intergovernmental commission until the first half of 2005 because of the formation of Canada's new government.
Derkach gave over to Cameron the strategy for drawing international technical aid in 2004-2007 drafted by the economics ministry with the assistance of over 30 executive power bodies and donors. This document must be taken into account when the Canadian government prepares a new strategy of assistance for 2006-2010, the press service said.
Derkach expressed gratitude for the assistance Canada gives Ukraine on a bilateral and multilateral basis, as well as for timely expert support in Ukraine's joining the World Trade Organisation. In their turn, the representatives of Canada assured that bilateral cooperation would continue, and it will be more effective on condition of fair and transparent presidential election in Ukraine. In the first half of 2004, Ukraine-Canada trade turnover grew 25 per cent to reach US$62m, the economics ministry said.

Kiev, Tel Aviv to cooperate in high-tech sector

Ukrainian and Israeli businessmen have expressed interest in cooperation in the field of high technologies, New Europe reported recently.
They said this during a meeting of Ukrainian Premier, Viktor Yanukovich, with Israeli businessmen led by Nathan Scharansky, minister for Jerusalem and the diaspora, which took place in Jerusalem.
It was pointed out at the meeting that the current trade turnover between the two countries is too low. In this connection, Yanukovich said tha the foreign ministry and Ukraine's business missions would be instructed to boost their efforts.
The parties reached agreement on creating a Ukraine-Israel business council to boost business ties. This initiative came from Ukraine. A relevant memorandum is being drafted, and will be signed in the near future.

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FOREIGN ECONOMIC RELATIONS

Ukraine, Lithuania discuss bilateral trade

Ukrainian Foreign Minister, Kostiantyn Hryschenko, and Lithuanian Foreign Minister, Antanas Valenis, have discussed economic cooperation between the two countries and Lithuania's experience of join the European Union, Hryschenko said at a press conference following his meeting with the Lithuanian minister on September 17th. He noted that Lithuania and Ukraine are continuing a now urgent dialogue on economic cooperation. The Ukrainian minister said that in the first half of this year, trade turnover between Ukraine and Lithuania totalled US$460m, Interfax News agency reported.
"Thus, we could hit a billion by the year's end. For the countries like Ukraine and Lithuania this is a rather high result, which shows that accession to the EU does not create insurmountable obstacles to the development of real trade between a country interested in Ukraine's economic potential, and Ukraine, which is not an EU member," Hryschenko said. He also said it is particularly important to Ukraine that a group of countries had appeared within the EU, including Lithuania, which believe that relations with Ukraine are very important. In turn, Valenis said they had discussed trilateral cooperation between Poland, Ukraine and Lithuania.

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FOREIGN LOANS

EBRD plans loan for steel mill

The European Bank for Reconstruction and Development (EBRD) will decide in the near future whether to lend the ISTIL steel mill in Ukraine US$35m to bolster working capital and capital expenditures, New Europe reported. 
The EBRD said it would finance part of ISTIL's capital expenditures and working capital increase. The US$35m credit would represent 24% of the total project financing costs, which are US$114m, the EBRD said. The EBRD loan would consist of two components: a revolving loan of US$25m to support ISTIL's growing working capital needs; and a term loan of US$10m for capital investments. The revolving loan is the renewal of a US$25m financing to ISTIL approved by the EBRD in September 2001. The EBRD issued the US$25m in October 2001 under guarantee from Britain's ISTIL Group, ISTIL Group Inc of the United States and MetalsRussia Corp Ltd.

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