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UKRAINE


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 49,537 41,380 37,600 55
         
GNI per capita
 US $ 970 770 720 137
Ranking is given out of 208 nations - (data from the World Bank)

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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




Update No: 302 - (27/02/06)

Contradiction incarnate; a referendum on a new constitution
Ukrainian President, Viktor Yushchenko, announced in parliament on February 9th his plans to prepare a new constitution that would be adopted on a referendum. Trying to find a way out of the legal deadlock, created last year when he was elected president, Yushchenko risks provoking a new wave of political instability in the country. 
Ukraine can be seen as lagging behind Russia in its post-Soviet development. Alternatively, it may benefit from the 'advantages of backwardness' and yet leap ahead of its giant neighbour, which is now mired in Putinism, or Stalinism with a human face. 
Ukraine belatedly experienced its Orange Revolution in late 2004, which can be compared to the reaction to the August 1991 attempted coup in Russia. It was then that the last remnants of the Soviet regime became a thing of the past. Afterwards, Ukraine, like Russia in the past, entered the period of power distribution. It is enough to recall the standoff between President Yushchenko and former Prime Minister Yulia Tymoshenko (cf. Boris Yeltsin and Alexander Rutskoi), who used to fight against the regime of former President Leonid Kuchma together.
Then, just like in Russia, came the period of a confrontation between the president and the parliament, when they were literally tearing apart the country's constitution. Speaking of today's Ukraine, no expert in constitutional law can prove the legitimacy of the country's parliament, government, president and prosecutor general's office. Theoretically, the Ukrainian Supreme Court could unravel the knot of contradictions, as such cases are within its jurisdiction, but it cannot do anything because it does not have the required quorum due to the political confrontation between the parliament and the president.
President Yushchenko, who under the political reform lost most of his powers on January 1st, decided to cut the Gordian knot in a pure Yeltsin style, swiftly and decisively. He raised the question in the parliament of a comprehensive constitutional reform that should bring real power back to the president. Even the decision-making mechanism follows Russia's example: there will be a national referendum.
Given that the explosive proposal came ahead of March parliamentary elections and that Yushchenko's chances for a legitimate victory are slim, judging by opinion polls, the president decided to play all or nothing, aggravating the political situation in the country and perhaps even trying to disrupt the election, replacing them with a referendum. 
Russia saw all of this in 1993. It led to a long confrontation between the parliament and the executive power, which ended in the onslaught on the parliament, arrests of the opposition and, finally, the victory of the new Yeltsin constitution on the referendum, which has remained in force ever since. 
If Yushchenko intends to follow suit, it will be a bold move. He will not necessarily be able to repeat Yeltsin's feat. No one in Kiev, neither the president, nor his rival Viktor Yanukovich or Timoshenko, knows which way the crowds that made the Orange Revolution will sway. What's more, the crowds don't have the answer either. So it will not be too easy to repeat Russia's 1993 in Ukraine in 2006

The Turkmenbashi engineers a new gas crisis for Ukraine and Europe?
On February 2, Turkmen President Saparmurat Niyazov -- who goes by the title "Turkmenbashi," or "Father of the Turkmen" - announced plans to cut pensions to the Turkmen elderly and disabled, thus, he claims encouraging the tradition of offspring caring for their aging parents. On February 13th, eleven days later, Niyazov declared that by autumn he would raise natural gas prices in his country to more closely reflect those of the world market. Niyazov has apparently unquestioned authority in his country, and his move is likely to affect not only Ukraine and Russia, but gas customers in Europe as well.
It is clear from these two statements that Turkmenistan's economy is in some trouble. Raising natural gas prices to market levels is one obvious remedy. 
In a sense he is right, the current price being ludicrously low. But one should always give a major customer time to adapt.
Turkmenistan is the largest gas exporter to Ukraine. In 2004, Ukraine bought 36 milliard c. m. of Turkmen gas which made up 45% of its needs. It is of vital importance to Kiev to come to an understanding with the eccentric dictator of Ashkabad, even to extending him the red carpet treatment any time soon.
The prices Niyazov is proposing are certain to anger Ukraine, which was forced to accept new terms for its energy purchases following the Jan. 1st-3rd gas crisis caused by Russia. After Gazprom cut off supplies to Ukraine, RosUkrEnergo (which is controlled in equal parts by Gazprom and the Austrian holding firm Raiffeisen) struck a deal with Ukraine's Naftogaz -- forming a new company called UkrgazEnergo, which will sell a mixture of Russian and Central Asian gas to Ukraine. 
Turkmenistan currently contributes supplies to this venture at US$65 per thousand cubic meters. Under terms of a certain clause, RosUkrEnergo can initiate pricing changes if the cost of its own supplies shifts, and Kiev would not be able to reject the increase. 
Niyazov has proposed hiking Turkmenistan's prices to US$100 per thousand cubic meters. Ultimately, that could cause Ukraine to siphon off more natural gas supplies that are intended for customers in Europe -- and bring down the continent's already considerable dissatisfaction upon Kiev. In mid-February, it's still quite cold, and the Europeans at this point are feeling rather defensive about their energy supplies.
Of course, any business deal that relies on supplies from Turkmenistan as though Niyazov was a reliable and consistent partner entails trouble from the beginning. The Turkmenashi previously has cut off gas supplies to his country's largest customer, Russia, with no signs of hesitation or guilt, and could be expected to do so again if it serves his purposes.
Gazprom chief Alexei Miller visited Ashgabat on Feb 18th, at President Vladimir Putin's request, to "negotiate" the possibility of a price increase in Turkmenistan. But even though Russia is the country's chief trade partner and protector, Niyazov may not necessarily acquiesce to Moscow's wishes.
Ukraine, of course, has been through this before. A third gas cutoff would further damage its reputation in the Europe it so longs to join. But in this case as the others, there's little Kiev can do to balance out the situation. 
Europe, on the other hand, has sought to diversify its energy supplies, and Niyazov's latest pronouncement should push it further toward that goal. At least for Germany, the North European Gas Pipeline (NEGP) although many years from completion becomes a more viable alternative to the supplies currently being sent via third parties. For others, reliance on nuclear power and other sources will continue to be important. 
In either case, it is likely that so long as their energy supplies remain at least partially subject to the mystery that is the Turkmenbashi, the Europeans will be ever more anxious to move away from natural gas shipments originating in the East.

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ENERGY

Naftogaz seeks Reiffeisenbank stake in Rosukrenergo 


Naftogaz Ukrainy has offered to buy all or part of the 50 per cent interest held in RosUkrEnergo by Raiffeisen Investment, a Raiffeisenbank subsidiary, but has not received a "positive answer," Naftogaz Ukrainy's chief executive said on January 14th. Naftogaz Ukrainy made the offer in July 2005, the chief executive, Oleksiy Ivchenko, said, Interfax News Agency reproted.
"I think that we will continue negotiations on this subject, but the joint venture that is being established between the national joint stock company, Naftogaz Ukrainy, and RosUkrEnergo in principle will 50 per cent serve Ukrainian interests, and it will operate under Ukrainian law," he said. Gazprom CEO, Alexei Miller, confirmed in the Vesti Nedeli programme on Rossiya television January 15th that the Russian gas giant would like Naftogaz Ukrainy to buy a stake in RosUkrEnergo AG, the company that imports gas to Ukraine.
"The asset structure of the Russian-Ukrainian joint venture, RosUkrEnergo, must be absolutely transparent. In line with the agreement, signed by Gazprom and Naftogaz Ukrainy late on January 3rd, this joint venture has the status of sole importer of Russian and Central Asian gas to Ukraine," Miller said. 
Miller also said, "Russia is represented in this joint venture by Gazprom's 100 per cent subsidiary, Gazprombank. The picture is absolutely clear and transparent in terms of the structure of the Russian assets."
"Ukraine is represented by a foreign bank in the joint venture. Russia has said on many occasions that it would be appropriate for Gazprom and Naftogaz to be the founders in this joint venture. This issue was last raised by the Russian president during a meeting with the Ukrainian president in Astana just a few days ago," Miller said, adding that he hopes Ukraine will respond soon.
Miller also said that Gazprom is switching to market principles in dealing with all former Soviet republics that import Russian gas. "Only the market, the European market, sets gas prices. All are equal before the market. A switch to market principles is a complete switch to cash settlements and absolute renunciation of unclear barter schemes," he said.
"The current price for Russian gas exported to Ukraine is US$230 for 1,000 cubic metres. Of course, since we and Ukraine have switched to market principles, the price may rise or fall: it's the market in action. Prices on the gas market are tied to prices for oil products and oil. If the price of oil, and, logically, oil products rises, the price for gas goes up, as well. If the price drops, [gas] prices go down accordingly. Therefore, the price for Russian gas sold to Ukraine may rise or fall. The market will dot all the i's," Miller said.
Meanwhile, International Rating Agency Fitch downgraded Naftogaz Ukrainy's long-term rating forecast in domestic and foreign currency from BB- with stable outlook to BB- negative. Fitch's decision reflects negative factors that may hamper the company's credit solvency in the mid-term and long-term prospective and jeopardize a US$500 million Eurobond issue in the wake of the considerable increase in prices for gas supplied from Central Asia, including Turkmenistan, Fitch said in a statement released on January 16th. 
Higher tariffs for Russian gas transit to Europe via Ukraine, set by Naftogaz, will partially compensate for the latest rise in prices for gas Ukraine buys from Russia. However, Fitch did not forecast higher prices for gas imports from Turkmenistan.

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FINANCIAL NEWS

World Bank lowers 2006 GDP growth forecast to 1.5-3.5%

The World Bank has lowered its GDP growth forecast for Ukraine to 1.5-3.5% from 3.5-5.5% because of the growth in natural gas prices, Paul Birmingham, World Bank director for Ukraine, Belarus and Moldova, said at a press conference recently in Kiev, Interfax News Agency reported.
He said an increase in natural gas prices for Ukraine means more pressure on production, state finances and the payment balance. Depending on the reaction of the level of economic policy, the growth in gas prices could also create inflationary pressure, he said. Based on a price of US$95 for 1,000 cubic metres, the World Bank thinks that GDP growth will loose two per cent in 2006 because of the gas agreement, he said. World Bank experts estimate that the growth in gas prices could have a negative effect on the current accounts balance, which could drop by three per cent of GDP. The experts recommend that Ukraine gradually start changing over to market prices for gas and review gas prices for the population, while at the same time introduce a programme to support the poor. The experts also recommend starting a reform of the country's energy sector and introduce modern standards of corporate management at power enterprises.

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TELECOMMUNICATIONS

Ukrtelecom sales price could be around US$4 billion 

The sales price for Ukrtelecom, Ukraine's No. 1 cellular operator, could be around US$ four billion, Transport and Communications Minister, Viktor Bondar, said in an interview, New Europe reported.
The process to sell Ukrtelecom will start in February or March, he said. "We can't drag out this privatisation history any longer. The government has had its word and now we need to prepare the company for a tender," Bondar said. "Ukrtelecom is a serious rival for any mobile operator today," he said.

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