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Books on Ukraine
REPUBLICAN REFERENCE
Area (sq.km)
603,700
Population
47,732,079
Principal
ethnic groups
Ukrainians 72.7%
Russians 22.1%
Jews 0.9%.
Capital
Kiev
Currency
Hryvnya
President
Viktor Yushchenko
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Update No: 290 - (25/02/05)
New premier and government
In his first presidential act, after inauguration on January 23rd, the new
president of Ukraine, Viktor Yushchenko, nominated opposition ally, Yulia
Tymoshenko, as Prime Minister. She made the running in making speeches in the
presidential electoral campaign, stepping into the breach when Yushchenko was
struck down by an obvious attempt on his life on September 9th.
A new government of Ukraine has showed that it has broken with the past and
begun to fight with corruption and the oligarchs that had relations with the
former administration.
Massive endorsement of the same
Of the 450 deputies of the Ukrainian parliament, 373 backed up the candidature
of Tymoshenko proposed by the President. Not one deputy opposed it. It shows
strengthening of his power.
The factions that were supporting Victor Yanukovich, Yushchenko's opponent,
during elections have also voted for Tymoshenko. "The opposition is
disappearing before our very eyes. All these parties were always pro-power. They
do not know how to be in opposition" - the The Wall Street Journal cites
Igor Gdanov as saying, a political analyst from Razumkov's Centre.
Russia has also congratulated Tymoshenko though she is being prosecuted in
Russia. "Tymoshenko that had been in jail because of corruption (the case
was closed later) was Vice-Premier in 1999-2001 in Yushchenko's government. She
was one of the central figures in people's protest against elections'
falsification known as Orange revolution. Many members of the Cabinet she will
lead took part in street protests' organization and are pro-democratic" -
the journal cites,
The most radical sign of breaking with Soviet times was the fact that civilians
and not military officers will lead "force" ministries that are
responsible for security and keeping order,
The Wall Street Journal reminds us that "Anatoliy Grytsenko, a head of one
of the analytical organizations and a deputy chief of Yuschenko's headquarters
during his election campaign, became the minister of defence. A deputy,
Oleksandr Turchynov, who is close to Tymoshenko became head of SBU, the KGB
successor"
The Wall Street Journal also reported that the Cabinet of Ministry has cancelled
"one of the most controversial decisions of former government," the
privatisation of an extremely profitable enterprise "Krivorizhstal"
This "enterprise that the government plans to sell again," was sold
for US$800m to a consortium headed by Victor Pinchuk, Kuchma's son-in-law and
Rinat Akhmetov from Donetsk who was close to Yanukovich."
Timoshenko; is she or is she not a new deal?
Timoshenko is a controversial appointment. Showing her mettle as a fierce
campaigner at his right hand, she was invaluable to Yushchenko and he probably
had little choice in appointing her. If indeed he had succumbed to the
assassination attempts, she would probably have picked up the baton and stood in
his place for the presidency, and might in the wake of the popular outrage in
such an event, even have made it.
The downside is that the new government faces perhaps its biggest challenge in
taking on the old apparatchik billionaires, called oligarchs as in Russia, who
now control the commanding heights of the Ukrainian economy. They are
universally despised for the corrupt way that they took over state assets and
services, a seamless transfer of power from the communist days. The vote for
Yushchenko was in many ways a vote against them and what they represent.
The huge irony is that she, Yulia Tymoshenko, unfortunately has been one of
them!
The Russian state Security who keep blackmailing files on all oligarchs for
possible later use, already during the election whilst their candidate was being
beaten, moved against her in Russia. If as Prime Minister she visits there, as
she must, they will now have to climb down with their arrest warrant.
How all of this will play and whether she will last the course remains to be
seen, but there can be no doubt of her powerful character, perhaps now to be
harnessed for the good of the nation.
The end of the Kuchma administration
The one man who must be bitterly regretting he ever appointed Yushchenko
prime minister is former president Kuchma.
In another decree, President Yushchenko liquidated the presidential
administration, notoriously corrupt under his predecessor, Leonid Kuchma,
replacing it with a secretariat that will be headed by his former campaign
manager Oleksandr Zinchenko. Rada Budget Committee Chairman Petro Poroshenko, a
Yushchenko ally and deputy campaign manager, was appointed Secretary of the
National Security and Defence Council.
The core team ushers in a new era that will dramatically change Ukraine's
economic, social and foreign policies. In short, a new post-Soviet political
generation is now at Ukraine's helm.
New investments expected
"Ukraine is on a cusp of a foreign and domestic investment boom,"
says PBN's Senior Vice-President Myron Wasylyk, who served as an international
advisor to the Yushchenko campaign.
Wasylyk points to Yushchenko's promises to remove administrative barriers, break
up monopolies and deregulate business activity as initiatives long awaited by
the country's entrepreneurs and middle class as well as investors. "Small
and medium businesses in the 48-million strong consumer market are seeking
equity and capital for expansion. Large industrial enterprises and exporters are
retooling and modernizing," Wasylyk explains.
Mending fences with the Kremlin
Newly sworn-in Ukrainian President Viktor Yushchenko decided to spend his
first full day in office on January 24th in Moscow in a bid to smooth ruffled
relations with the Kremlin. Putin had unabashedly backed Yushchenko's opponent
Viktor Yanukovych; and the Kremlin is naturally now concerned about losing sway
in Ukraine under the Western-oriented new Ukrainian leader.
Ukraine is the home to the Russian navy's Black Sea fleet at Sevastopol and
pipelines for Russia's economically vital gas and oil exports. It has
historically been seen by its much bigger neighbour as part of its sphere of
influence; indeed, Kiev was the original Rus.
Katinka Barysch, of the Centre for European reform, told CNN it was no surprise
that Yushchenko headed for Moscow on his first day in office. "Any
Ukrainian president no matter who he is needs to have a good relationship with
Russia," she said. She added that Putin had "blatantly" backed
Yushchenko's opponent. "It's a sign of courage and understanding of the
situation that he goes to Moscow and tries to have at least a workable
relationship," she said.
But Yushchenko on inauguration day on January 23rd made no hesitation in showing
he wants to shift the balance. "Our place is in the European Union,"
he told a crowd of more than 100,000 in Kiev's Independence Square, the site of
huge protests after Yushchenko was first deemed the loser in the November 21
presidential election runoff. Looking on were members of parliament and hundreds
of guests, including former U.S. Secretary of State Colin Powell and presidents
of seven countries.
Yushchenko addressed parliament after being sworn in, praising his hard-fought
election win as a "national victory" and urging deputies to work with
him to build prosperity. He later addressed thousands of Ukrainians at Kiev's
main Independence Square, the focal point for last year's protests. "The
heart of Ukraine was on Independence Square," Yushchenko told them.
"Good people from all over the world, from faraway countries, were looking
at Independence Square, at us." "This is a victory of freedom over
tyranny," he said.
Opening to the West
After his trip to Moscow, Yushchenko planned several days of visits to
Western European countries, including an appearance at the European Parliament,
to push his drive for closer ties. To become a viable EU candidate, Ukraine
would have to show substantial progress in economic reform and human rights.
Yushchenko has promised to turn the country around after years of corruption,
widespread at almost every level of government, and he pledged to safeguard
freedom of speech. "We will create new jobs. Whoever wants to work will
have the opportunity to work and get an appropriate salary," he declared to
a nation where many still live in poverty and much of the economy continues to
exist in the shadows, adding nothing to government coffers. "
Annunciating a fine credo, he said: "We will fight corruption in Ukraine.
Taxes will be enforced, business will be transparent, ... we will become an
honest nation."
In a promise clearly aimed at appeasing the large population of native Russian
speakers, many of whom distrust him, Yushchenko said, "Everyone can teach
his children the language of his forefathers."
The government must also deal with rekindled calls to bring back from Iraq
Ukraine's remaining 1,600 troops. Ukraine has the fourth-largest contingent in
the U.S.-led military operation, and it lost eight troops in an explosion of an
ammunition dump on January 9.
However, the new president may not have heard the end of his rival. Yanukovych
had raised a series of legal challenges to the December vote rerun, the last of
which was rejected by Ukraine's highest court on January 20th. Now he says he
will take his complaints to the European Court of Human Rights.
More than 40 countries were represented at the inauguration. NATO
Secretary-General Jaap de Hoop Scheffer was one of many foreign dignitaries who
attended.
Powell met with Yushchenko on January 23rd before his inauguration. "I want
to assure you that you will continue to enjoy the full support of the American
government and the American people as you move forward to undertake the efforts
that the Ukrainian people are expecting," Powell told Yushchenko after
their talks. He said the meeting dealt with "activation of Ukrainian
efforts toward international integration. This includes the prospects for
Ukraine acquiring a market-based economy." That, he said, was critical for
Ukraine joining the World Trade Organization.
Yushchenko told Powell he was happy "that I have lived to the time when the
Ukrainian president is elected not in Moscow, not in Washington, but in
Ukraine."
However, Ukraine still needs the support of its biggest neighbour. "Like it
or not, but geographically, geo-strategically, or geo-economically, Russian and
Ukrainian economic systems are interdependent," Russian Senator Mikhail
Margelov says. "We inherited that interdependence from the time of the
Soviet Union when Ukrainian and Russian economy were integral parts of one
Soviet economy."
Fundamentals aside, two political factors have finally put Ukraine squarely on
the map since the middle of last year. It suddenly acquired a long frontier with
the European Union when the bloc expanded in May. And now, as we have seen, it
has a new pro-Western president in Yushchenko, the hero of the hour after
surviving several assassination attempts.
President Yushchenko campaigned on a platform of transparency, fighting
corruption and opening investment opportunities to outsiders. He had a strong
record of reform when he served as Central Bank chief and prime minister several
years ago.
Bond traders on emerging markets desks abroad have known about Ukraine for some
time. Its debt, traded in London and New York, has performed well for several
years. "It had a very strong financing position, current account surplus,
rising reserves, good growth, and it had been a regular issuer in the market,
which raised the country's profile," said Timothy Ash, head of emerging
markets at Bear Stearns in London.
But more investors are now flying in to Kiev and looking at local investments
like stocks and domestic bonds. Tomas Fiala, a Czech who runs Dragon Capital,
one of Ukraine's few brokers, said calls from fund managers started flooding in
just before Yushchenko's 'Orange Revolution.' "Since September we have had
at least one European or U.S. investor around here every week. Some weeks it was
at least three investors coming for investment trips," he said.
Not only are more fund managers coming, they are coming from a different
direction -- east from over the borders of new EU members like Poland or
Hungary, rather than west from Moscow. "We're getting a lot of calls from
Central Europe and a lot of Austrian, German, French and U.K. investors,"
Fiala said.
"The election ... changes Ukraine's future development from tracking Russia
to trying to move into Europe and follow Poland, the Czech Republic, Hungary and
Slovakia," Fiala said.
The short-term economic picture is not all rosy. Inflation picked up sharply
because of a pre-election spending binge by the outgoing authorities, who sold
off reserves and handed out higher pensions and wages. Price growth hit 12.3 per
cent last year, the government said, a four-year high up from 8.2 per cent in
2003.
Ukraine's economy is still dominated by former-Soviet heavy industries,
especially steel and chemicals. Those industries have boomed over the past few
years driven by strong demand for industrial raw materials in developing Asia.
But those markets are cyclical and possibly in for a rough patch.
For most investors the only chance of exposure to Ukraine has been debt issued
abroad. The government and private companies both had successful eurobond
placements over the past year. Firm demand has brought yields on
dollar-denominated sovereign debt as low as around 7.3 per cent.
"It's been on the radar screens for a long time from a fixed-income
perspective. Equities less so," said Ash. "Obviously there are a lot
of issues about corporate governance. That certainly restricted interest. Going
forward, the interest will be more focused on the equity."
Those flocking to Kiev will not yet find much to buy. Ukraine's stock market was
the world's fastest-rising last year, with an index compiled by Dragon Capital
surging by 180 percent. But volume is tiny and there are only about 30 traded
companies, and only 10 liquid enough to make the index.
Yushchenko has promised to increase privatisations open to foreigners, which
should make for a more robust market.
Domestic government debt may also still be a good buy, with double-digit yields
denominated in a hryvnia currency that has been stable for years and -- given
the large trade surplus -- could appreciate against a falling dollar.
Foreign investors have doubled their holdings in Ukraine's domestic debt in the
last six months, the Finance Ministry said. Foreigners bought 80 per cent of the
paper at an auction, the first since the rerun election. But the best long-term
opportunities may be for strategic investors in sectors like brewing, food
processing, retail or construction, aimed at the still-stunted domestic market.
Ukraine's economy is now 60 per cent exports, with local consumption held back
by monthly average incomes of barely US$100. If Ukrainians' living standards
ever start approaching those of their new EU-member neighbours, there is a lot
of room to grow.
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CREDIT RATINGS
Fitch upgrades Ukraine to BB-
Fitch Ratings has upgraded Ukraine's long-term foreign and local currency
ratings to BB- (BB minus) from B+, the agency said in a recent statement, New
Europe reported.
At the same time the agency upgraded the country ceiling to BB- (BB minus) from
B+ and affirmed the short-term rating at B. The outlook on the long-term ratings
is Stable.
Edward Parker, senior director in the Fitch Sovereigns Group, said the
presidential inauguration of Viktor Yushchenko on January 23rd marked "the
passing of the period of most acute and immediate political risk. At the same
time, latest data indicates that foreign exchange reserves and household bank
deposits have started to stabilise." Ukraine's sovereign ratings had
previously been constrained at the B+ level by Fitch's long-standing view that
there was a material risk of significant political instability associated with
the presidential elections, the statement said.
"Although political risk remains significant, it is now diminishing as
Ukraine emerges from its political crisis. In these circumstances, Ukraine's
macroeconomic fundamentals such as moderate public and external debt ratios and
strong growth prospects now merit an upgrade," Parker said.
The non-violent "orange revolution," Yushchenko's presidency,
prospective constitutional reforms and the turnover in power should strengthen
democratic institutions, checks and balances, governance and prospects for
long-term political stability, Fitch said.
Yushchenko has yet to set out detailed economic policy goals or make key
appointments, but his track record suggests he will implement prudent
macroeconomic policies and structural reforms, which should improve the business
climate, the agency said.
International goodwill should facilitate accession to the World Trade
Organisation (WTO), better relations with the IMF and World Bank, and possibly a
roadmap towards EU accession, although entry itself would remain a distant and
uncertain prospect, Fitch said. Overall Yushchenko's policies should be positive
for economic prosperity and Ukraine's creditworthiness, the agency said.
Naftogaz Ukrainy gains credit rating of uaAA
Independent rating agency Kredyt Rating has assigned its long-term credit rating
of uaAA, which is based on the Ukrainian national rating scale, to the Naftohaz
Ukrainy national joint-stock company, Ukrinform reported recently.
The outlook on the rating is stable. According to the agency, the uaAA credit
rating reflects the very high capacity of Naftogaz Ukrainy to meet its debt
obligations under Ukrainian financial market conditions. In determining the
credit rating, the agency took into account Naftogaz Ukrainy's full financial
accountability in the 2001-2003 period and its financial and production
indicators for the first half and the first 9 months of 2004, among other
things. The Fitch international rating agency assigned Naftohaz Ukrainy the
senior unsecured local currency and foreign currency rating of B+ with a stable
outlook to Naftogaz Ukrainy's US$700m Eurobonds while the Moody's rating agency
assigned it a B2 rating with a positive outlook.
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ENERGY
Naftogaz Ukrainy may start developing Libyan fields
Ukrainian national oil and gas company, Naftogaz Ukrainy, hopes to start work to
develop oil and gas fields in Libya this year, after the Libyan government's
approval of a production sharing agreement between Libya's National Oil Company
(NOC) and Naftogaz Ukrainy, signed in October 2004, New Europe reported
recently.
Igor Voronin, Naftogaz Ukrainy Deputy CEO, said that the company plans to keep
to its strategy, adopted in 2004, of transforming from being a national to an
international company by buying production and transportation assets. He said
that the company is preparing to take part in the privatisation of Poland's POGC,
which is expected this year.
Voronin also said that the company plans to compete for assets belonging to
Hungary's MOL, again, after Germany's Ruhrgas refused to acquire them under
pressure form Hungarian state regulators. Speaking about Naftogaz Ukrainy plans
to expand its raw material base, Voronin said that assets in Russia are the most
promising. "There is a lot of doubt about the discovery of large fields in
Ukraine or in the Black Sea. This is practically impossible."
"Assets in the oil and gas business in Russia are undervalued, plus the
opportunities for supplying hydrocarbons from Russia to Ukraine are good,"
he said. Forecast reserves at the PSA blocks in Libya amount to about 110m
tonnes of oil and 30bn cubic metres of natural gas. The PSA is valid for 25
years for oil, and 30 years for gas. Maximum daily production amounts to 5m
tonnes. The oil produced in Libya will be sold inside the country. Naftogaz
Ukrainy investment in Libyan fields in 2005 may amount to about US$50m.
Gas transit grows 6% in 2004
According to preliminary data, natural gas transit across the territory of
Ukraine in 2004 grew by 6% in comparison with 2003 to 137.1bn cubic metres, the
fuel and energy ministry said recently, Interfax News Agency reported.
Domestic gas consumption (taking into account transportation costs) last year
went down by 0.8% to 75.8bn cubic metres, by final consumers in Ukraine - by
0.9% to 68.1bn cubic metres. As reported earlier, this year the Ukrainian gas
transportation system operator Ukrtransgaz, an affiliate to the national JSC
Naftogaz Ukrainy, is going to increase transit of natural gas to Europe to 123bn
cubic metres. In 2003 Ukrtransgaz ensured transit of natural gas to Europe to
the tune of 107.2bn cubic metres and natural gas transit across Ukraine grew by
6.5% in comparison with 2002 to 129.3bn cubic metres, domestic consumption
(taking into account transportation costs) - by 9.6% to 76.4bn cubic metres.
The entrance transit capacity of Ukraine makes 287.7bn cubic metres of gas, on
exit - 177.1bn cubic metres, Ukrtransgaz operates 36,400km of gas pipelines,
including 22,200km of main gas pipelines and 14,200km of pipe-bends, 71
compressor stations with the total capacity of 5,380 MW, 12 underground gas
storage facilities with the total active capacity of 32.3bn cubic metres, 1,392
gas distribution stations.
Chernomornaftohaz may sign first Ukrainian PSA
Ukrainian state owned oil and gas company, Chernomornaftohaz, may sign the first
production sharing agreement in Ukraine by the end of 2005, Ukrainian Deputy
Economic Minister, Volodomyr Ihnashenko, told journalists recently, Interfax
News Agency reported.
He said the first PSA might be an agreement between Chernomornaftohaz and the US
company, Hunt Overseas, to develop fields in the Black Sea, involving an
investment worth US$1.5bn.
The minister said a second possible PSA project might be a joint project between
Chernomornaftohaz and the Austrian company OMV, also to produce hydrocarbons
offshore. Ihnashenko said that Ukraine has recently seen an increase in foreign
direct investment, but the absolute total of this investment is still small.
"The dynamic is good, but the absolute indicators are low. We expect a
fantastic surge in 2005," he said.
Naftogaz Ukrainy manages 100 per cent in Chernomornaftohaz, the only company
developing the Ukrainian sector of the Black Sea and the Sea of Azov. The
company operates over 1,200km of distribution stations, 10 offshore rigs, the
Hlebovskoye undergrounds storage facility with a capacity of 1bn cubic metres,
and 17 gas fields with total explored reserves of about 60bn cubic metres, and
one oilfield. The company has a fleet of 22 ships.
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FOOD & DRINK
McDonald's to invest US$4m in Ukraine
McDonald's Ukraine plans to invest about US$4m in developing its chain of
fast-food restaurants in Ukraine in 2005, a source in the company said recently,
Interfax News Agency reported.
In particular, this year the company plans to open 3 new restaurants in Kiev,
increasing the total number of McDonald's restaurants in Ukraine to 55.
McDonald's Ukraine also plans to expand and modernise existing restaurants and
start work at construction sites, to build restaurants in 2006. There are
currently 52 restaurants in 16 cities in Ukraine. Total investment in developing
this chain amounted to US$83m by the start of 2005.
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FOREIGN ECONOMIC COOPERATION
Rada ratifies financial cooperation deal with Germany
The Verkhovna Rada, Ukraine's parliament, has ratified an intergovernmental
agreement between Ukraine and Germany on financial cooperation, it was reported
recently. A total of 269 MPs backed the agreement, New Europe reported.
Under the agreement, the German government, in compliance with commitments
undertaken in 2002 and 2003, will provide the Ukrainian government and other
beneficiaries, jointly chosen by the two governments, with the possibility to
receive from credit establishments €11m as loans to be used for the following
projects: aid to farm enterprises and private enterprises in the rural areas of
Ukraine; development of the crediting system in the rural areas of Ukraine; and
the promotion of efficient consumption of energy by small-scale and medium-scale
enterprises of Ukraine.
In addition, Ukraine will be able to receive €3m in grants to help implement
the projects. Credit establishments giving loans for such projects will not have
to pay tax on such operations in Ukraine.
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TELECOMMUNICATIONS
New mobile operator set up in Ukraine
A new mobile communications operator has been launched in Ukraine under the
trademark Life, ICTV television reported.
It said the operator was set up by the Astelit company, but gave no details of
the firm's ownership.
Earlier media reports linked Astelit to the Turkish mobile operator Turkcell and
Ukraine's Donetsk-based mobile communications provider DCC.
ICTV said Astelit provided services in the Ukrainian cities of Kiev, Donetsk,
Dnipropetrovsk, Lviv, Odessa, Kharkiv and Simferopol. ICTV also said Ukrainian
Pryvatbank and the Ukrainian Radio Systems company have launched a mobile
communications service under the Privat:mobile trademark. Earlier, the Ukrainian
Radio Systems operated under the WellCOM trademark.
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